Mergers & Acquisitions

Warranties serve two main purposes.

A Buyer of the shares of a company has very little protection in relation to what is being
purchased as it is one of the last areas where the principle of caveat emptor ("let the buyer
beware") remains.

The warranties shift the risk of unknown business or financial problems with the target
company's business from the Buyer to the Seller by the Seller making statements about the affairs
of the target company which, if incorrect, will give rise to a potential contractual remedy.

The warranties also act as a means of elicting information about the target company's business
from the Seller as the Seller will seek to limit its exposure to a contractual remedy by "disclosing"
any problems of which it is aware.

The aim of damages for a breach of contract is to compensate for the loss which has occurred due
to that breach . Therefore if the breach has resulted in a loss of a specified amount (for example net
assets are lower than warranted) then the damages for that breach will reflect that loss (subject to a
duty to mitigate). Contractual damages on a breach of warranty claim would equal the value of the
assets/shares if the statement had been true less the actual value of the assets/shares. However, the
value of the assets/shares if the warranty had been true might not necessarily be the purchase price
of those assets/shares as the Buyer may have struck a bad bargain and overpaid for the
assets/shares.

Statement A refers to the aim of an action in tort for a misrepresentation and statement C is a
penalty.

The Buyer already knows about the problem - that is why it has requested
the indemnity. A well-advised Buyer should never accept disclosure against an indemnity.
The alternative, where the liability is ascertainable, is to negotiate a price reduction.

Not all warranty statements will be representations. Whether or not a warranty statement is also a
representation depends on whether the statement is so important that the Buyer has relied upon that
statement in making its decision whether or not to proceed with the purchase.

That statements that the Shares are not subject to any restrictions and that the accounts reflect a
true and fair view of the assets and liabilities of the Company are both likely to be so important
that the Buyer will rely on these statements in making the decision whether or not to proceed with
the purchase. Accordingly these contractual statements are also likely to be held as representations
that have induced the Buyer to proceed with the purchase.

The statements about the record keeping on both the statutory books and the employees although
giving rise to a claim for breach of contract are unlikely to be statements of such importance to the
Buyer that they induced the Buyer to enter into the purchase.

In the case of Infiniteland the Disclosure Letter included a general disclosure of documentation
passed to the Buyer's accountants. It did not matter that no disclosure was made direct to the
Buyer as it was held that the general disclosure of documentation in the Disclosure Letter had
been effective under the terms of that Sale and Purchase Agreement.

The parties are bound, but there is no obligation on the seller to transfer the shares in Tablin
Limited and Aztec plc is not obliged to pay, until the clearance is received. The Sale and Purchase
Agreement ("SPA") will usually include a "long stop" date specifying that if the condition is not
fulfilled (ie clearance obtained) by that specified date then the SPA will terminate automatically and the parties will no longer be bound.

Although it is good practice to check the Articles of any company entering into an acquisition
for any restrictions, strictly speaking such investigation is not required.

Section 40 Companies Act 2006 provides that in favour of a person dealing with a company in
good faith, the power of the board of directors to bind the company or authorise others to do so,
is deemed free of any limitation under the company's consititution (s40(1)). In addition,
s40(2) provides that a party to a transaction with a company is not bound to enquire as to any
limitation on the powers of the board of directors to bind the company or authorise others to do
so.

Therefore, a certified board minute is sufficient evidence of the authority of the appointed
representative to bind the company.

These are all documents that would normally be included within a Completion Agenda for the
asset acquisition of a business operating in England and Wales.

Answer C is correct

Dyno will want to ensure not only the effective transfer of the legal and benefical ownership of the
shares but also provide for a right to immediately exercise rights as a shareholder pending
registration of the transfer by Tato. Dyno will want to ensure that Tato is obligated to hold a
completion board meeting to register the transfer of the shares but this is not a document to be
delivered and would not enable an immediate use of its rights.

Most buyers would not require the provision of a power of attorney and would await registration.
However, as this acquisition is part of a wider framework of connected transactions then provision
needs to be made for the ability to immediately exercise the powers of a shareholder.

Note the appointment of Dyno as a proxy will enable it only to cast a vote on behalf of the
departing shareholder. It will not enable Dyno to exercise all rights of that shareholder which may
impact on the ongoing transactions envisaged in the wider acquisition project.

An assignment will not be required on a share sale, as the target company will
remain after the sale as a party to the relevant contract.

The general rule is that, in the absence of a formal restriction on assignment, the
benefit of the contract, such as the right to be paid, may be assigned without the consent of the
other party. However, obligations cannot be assigned.

Payment by Debtor C to Company A will discharge the debt as the legal
assignee of a debt may, by s136 LPA 1925, give a good discharge.

Statement B is incorrect, as Company A has paid for the debt and is therefore entitled to retain
the proceeds.

Statement C is incorrect, as the legal assignee of a debt may, by s136 LPA 1925, give a good
discharge.

Statement D is incorrect, as an assignment of rights to Company A is subject to any rights
that Debtor C had already acquired against Company B at the time of assignment.

Provided that Gerald has been employed over two years (he has) he will qualify for an unfair
dismissal claim. Dismissals by reason of the transfer will be automatically unfair unless there is an
ETO reason. If dismissal is not for one of the five fair reasons, it cannot be rendered fair simply
because it is handled fairly. Giving full notice will negate a claim for wrongful dismissal.

Although money invested in private equity funds may be used in all of the
examples given, the main purpose of such funds is to invest for a fixed period of time in unquoted
securities with a view to making a high level of return when those securities are subsequently sold.
As part of that investment process, a listed company may be privatised, some guidance may be
given to assist the development of private companies and sometimes debt finance may be provided
either by banks or by a company linked to the Manager of the private equity fund (the
Manager also being the General Partner of the Limited Partnership structure or a subsidiary
thereof) but these are all ancillary roles to the main aim of achieving a high capital return on the
subsequent sale of the unquoted securities.

The statement is false. The term "buy out" is generally used to describe private
equity investments where the funds have been used to acquire an established business either
through a share purchase or sometimes an asset purchase. Who takes control of the company
running the business may vary and it is now common practice for private equity funds to hold
the controlling interest rather than the management team.

The correct answer is C.
Laventa plc will, if the transaction proceeds, thereby gain at least 30% of the voting shares in AP
Plastics plc, a UK resident company. This will constitute "control" as defined in the Takeover Code
and will oblige Laventa plc to make an offer under Rule 9 of the Takeover Code.
Option A is not correct because the Takeover Code only applies on the acquisition of the target
company's shares.
Option B is is not correct because the target company has no connection to any of the jurisdictions
in which the Takeover Code applies; Option D is not correct because the target is a private
company and the Takeover Code only applies to private companies in the circumstances described
in paragraph 3 (a) (ii) of the Takeover Code which do not appear to apply in this case.

That is correct - see the Introduction to the Takeover Code, at paragraph 3(f).

C is correct as under Rule 2.2 (c) an announcement is required when, following an
approach, the offeree company is subject to rumour.

In A, although an approach has been made, this is not a firm intention requiring an
announcement under Rule 2.2 (a).

In B, although there is speculation it has nothing to do with the potential offer and so is not
caught by Rule 2.2 (d).

In D, the holding of 15% does not give rise to an obligation to make an offer under rule 9
and therefore Rule 2.2 (b) does not apply.

Option C is the incorrect answer.

Rule 10 of the Takeover Code states that a bidder may declare an offer unconditional as to
acceptances once it holds over 50% of the voting rights in the target company. Any stake built up
by the Predator can count towards this threshold, therefore enabling a bidder to reach the Rule 10
threshold more quickly. Once the offer is announced other shareholders, seeing that Predator has
already acquired a substantial stake in Target, may be more inclined to accept Predator's offer,
especially if the offer price represents a significant premium to the shares' market value
immediately before the offer is made. Finally, the announcement of an offer by Predator is likely
to have an immediate impact on the price of Target's shares as the market perceives them as highly
desirable and therefore more valuable. As such, by acquiring a substantial stake at market value
before any announcement of an offer, Predator can minimise the "premium" it must pay to
remaining shareholders.

Option C is incorrect because any stake acquired before the offer is made does not count towards
the 90% threshold required to invoke the squeeze-out provisions under the Companies Act 2006.
See in particular ss974(2) and 979(2) CA06.

That's right - under the DTRs, Predator is required to inform Target (and the FCA) when its
holding reaches or exceeds 3% and each subsequent movement through another percentage point,
or if its interest falls below 3%.

Rules 6 and 11.1 of the Takeover Code do not come into play - the stake was acquired more than 3
months prior to the announcement of the offer (option A) and did not amount to more than 10%
(option C). There is nothing in the Takeover Code preventing the acquisition of a 10% stake prior
to an offer being made.

Rule 10 of the Takeover Code (the "acceptance condition") only requires the bidder to
obtain more than 50% of the shares of the target although it may choose to impose a higher
threshold. Options A, B and D reflect requirements of Rule 25 of the Takeover Code.

The correct answer is B.

The meeting of shareholders to approve the scheme will be convened by the Court, usually on
the application of the target company (s896 CA 2006).

No, the statement is false.

Approval of shareholders representing a majority in number and 75% in value is a pre-requisite to
sanctioning of the scheme by the Court. The takever can only proceed if the Court exercises its
discretion to sanction the scheme.

Yes, they are all correct except C

The requirements are derived from case law - see for example Re Dorman Long & Co Ltd [1934]
1 Ch 635 and Re TDG plc (2008). The Court is not concerned however with the commercial
advantage or otherwise of the takeover to the company

See the Domino scheme document (para 12 on p14) for an example of this. There
are various ways in which the share option schemes can be dealt with under a scheme or takeover
offer but the over-riding principle is that they should be treated on no less favourable terms than
existing shareholders.

The Takeover Code applies to schemes of arrangement in the same way that it applies to
contractual offers but subject to the modifications set out in Appendix 7 of the Code. One of the
principal reasons for using a scheme as opposed to a takeover offer is that, if sanctioned by the
Court, it becomes binding on all shareholders without any need to apply the squeeze-out provisions
or attain any particular level of acceptances. The acceptance condition therefore has no relevance.

The need for consent on assignment of the licence will only be an issue if
there are subsequent plans by LIA to transfer this licence (which is not
suggested on the facts given).

A. The need for consent of change of control will be activated by the sale of
LIA’s holding company CPL, C. If Challenger and other group companies are
also a party to this licence then companies not being sold may also have the
benefit of this software. D. It appears that the parties to this agreement do not
reflect the trading arrangement.

Statements in the SPA have the ability to be both terms with respect to
breach of contract and representations that were a false statement of fact and induced the contract. B. The nature of liability is the subject of negotiation. C.
Fraudulent pre-contractual representations can not be excluded.

As under TUPE all rights and obligations relating to employees
assigned to the division being disposed of will transfer to the buyer of that
division. Therefore, any claim by that employee (such as for age discrimination)
will transfer to the buyer. A. The test for the application of TUPE is the transfer
of an economic entity; it does not need to be the entire business of HTS. B. Just
because some of an employee’s work relates to the division being transferred
does not mean that employee will transfer. D. TUPE applies to all transfers
even if it is to another company within the group.

The legal representatives would expect to see certified copies of
the board decision to proceed with the transaction.
The parties may accept the authority of directors without further documentation but would usually only do so on the basis that evidence had be previously
provided about their position (B). There would not usually be a need for
shareholder approval as the articles will usually provide authority for directors to
make this decision in the absence of any additional constitutional restriction (A).
A power of attorney would usually only be expected if an individual seller was
not able to sign the documentation in person (C).

There are a number of reasons why payment of some of the consideration may be held back as
security in case there is a problem with the target company giving rise to a claim under the sale and
purchase agreement. These include where a Seller is a trust which may distribute the proceeds of
sale to beneficiaries and Sellers who are moving overseas and may be difficult to locate post
Completion.

A retention would not be appropriate if there was concern of an underpayment of consideration by
the Buyer at Completion, or there was an earn out based on future performance. In both these
circumstances, it is more likely that the Buyer will be paying additional consideration, not
attempting to claw it back from the Sellers.

Answer B is CORRECT. Completion Accounts are prepared as at the point of Completion to
verify the net assets position at that point in time.

Answer A is incorrect If the parties want to ascertain the position of the net assets of the
company being acquired before taking ownership then this needs to be undertaken as part of
the financial due diligence prior to the purchase.

Answer C is incorrect. Which party's accountants prepare the report is a matter of negotiation.
Indeed the buyer will usually prefer its own advisers to prepare the Completion Accounts.

Answer D is incorrect. Parties will usually agree on reference to an independent arbitrator to
resolve disputes.

Warranties serve two main purposes.

A Buyer of the shares of a company has very little protection in relation to what is being
purchased as it is one of the last areas where the principle of caveat emptor ("let the buyer
beware") remains.

The warranties shift the risk of unknown business or financial problems with the target
company's business from the Buyer to the Seller by the Seller making statements about the affairs
of the target company which, if incorrect, will give rise to a potential contractual remedy.

The warranties also act as a means of elicting information about the target company's business
from the Seller as the Seller will seek to limit its exposure to a contractual remedy by "disclosing"
any problems of which it is aware.

The measure of contractual damages is not necessarily subject to any such
restriction. The price paid is, however, sometimes agreed as the maximum payable by the Seller in respect of all warranty claims.

The aim of damages for a breach of contract is to compensate for the loss which has occurred due
to that breach . Therefore if the breach has resulted in a loss of a specified amount (for example net
assets are lower than warranted) then the damages for that breach will reflect that loss (subject to a
duty to mitigate). Contractual damages on a breach of warranty claim would equal the value of the
assets/shares if the statement had been true less the actual value of the assets/shares. However, the
value of the assets/shares if the warranty had been true might not necessarily be the purchase price
of those assets/shares as the Buyer may have struck a bad bargain and overpaid for the
assets/shares.

Statement A refers to the aim of an action in tort for a misrepresentation and statement C is a
penalty.

An exclusion clause was considered in the case of Thomas Witter Ltd v TBP Industries [1996] 2
All ER 573, where the judge ruled that it would be unreasonable to exclude liability for fraudulent
misrepresentation.

Although there have been subsequent cases that have upheld exclusion clauses that have not
distinguished between different types of misrepresentation it is nevertheless considered good
practice that the Buyer expressly agrees to waive its right to damages or recission only in relation
to non-fraudulent misrepresentation.

The Buyer already knows about the problem - that is why it has requested
the indemnity. A well-advised Buyer should never accept disclosure against an indemnity.
The alternative, where the liability is ascertainable, is to negotiate a price reduction.

Specific problems identified before signing (as at A) are best dealt with by way of
indemnity or price reduction. Insurance cover may be appropriate to protect the Buyer against
certain risks, but such a policy is not a "warranty" within the sale and purchase agreement.

Not all warranty statements will be representations. Whether or not a warranty statement is also a
representation depends on whether the statement is so important that the Buyer has relied upon that
statement in making its decision whether or not to proceed with the purchase.

That statements that the Shares are not subject to any restrictions and that the accounts reflect a
true and fair view of the assets and liabilities of the Company are both likely to be so important
that the Buyer will rely on these statements in making the decision whether or not to proceed with
the purchase. Accordingly these contractual statements are also likely to be held as representations
that have induced the Buyer to proceed with the purchase.

The statements about the record keeping on both the statutory books and the employees although
giving rise to a claim for breach of contract are unlikely to be statements of such importance to the
Buyer that they induced the Buyer to enter into the purchase.

In relation to answer B, statements made a long time before the contract are less likely to be
construed as terms of the contract. For answer C, where the parties have negotiated the terms of
the contract, the Buyer will have had an opportunity to include the statement within the contract -
a failure to do so may suggest that the statement is merely a pre-contractual statement.

In relation to answer B, the Disclosure Letter will be produced in draft form in the days before
signing, and in final form on the date of the Sale and Purchase Agreement. By the time the draft is
received, the Buyer should nearly have completed its due diligence exercise. As for C, going to
court should be the last resort - it is better to pay less now than to seek to recover any overpayment
later.

In the case of Infiniteland the Disclosure Letter included a general disclosure of documentation
passed to the Buyer's accountants. It did not matter that no disclosure was made direct to the
Buyer as it was held that the general disclosure of documentation in the Disclosure Letter had
been effective under the terms of that Sale and Purchase Agreement.

The parties are bound, but there is no obligation on the seller to transfer the shares in Tablin
Limited and Aztec plc is not obliged to pay, until the clearance is received. The Sale and Purchase
Agreement ("SPA") will usually include a "long stop" date specifying that if the condition is not
fulfilled (ie clearance obtained) by that specified date then the SPA will terminate automatically and the parties will no longer be bound.

The buyer would seek provisions A, B and D to protect itself against any
deterioration in the business of the target company.

A. If the buyer is concerned that the state of the target company may deteriorate it will want to
provide as short a time as possible between the signing of the SPA and completion. The provision
of a "long stop" date means that if the condition is not fulfilled by that specified time, the parties
are no longer bound to proceed with the purchase. If the target company has deteriorated during
that time period the buyer will be able to walk away from the transaction.

B. The buyer will want to restrict the activities of the target company to prevent any action that
might increase the risk of deterioration such as the disposal of key assets or excessive purchases.

C. This condition will not protect the buyer against any deterioration of the target company. In
addition, it would strictly be for the target company and the buyer to satisfy this condition as it's
their bona fide reasons, not the seller's, that are at issue.

D. A repetition of the warranty about the net asset value as at completion will mean that any drop
in net asset value occuring between the time of signing the SPA and completion, will give rise to a
right of action against the seller. Although this would not prevent any deterioration, it would
provide a contractual remedy for any loss in value to the shares arising from such deterioration.

It is unlikely to be the fault of either party that clearance was not forthcoming. Remedy A is the
fairest result.

Remedy B may be an appropriate remedy where the condition to be achieved has been imposed
by the seller and accepted by the buyer under sufferance. Here, of course, payment by share issue was Aztec's idea although it also suited the seller.

Remedy C is unlikely to be appropriate, particularly if Aztec has no cash reserves from which to
make payment and/or if the seller's immediate tax liability would be substantial.

Remedy D would never be appropriate. HMRC would not accept joint reviews under the
clearance procedure set out in s.138 TCGA where application must be made by either the buyer
or the target company.

All three searches should be undertaken.

It will be important to establish that there are no outstanding charges procured by either seller
over any assets held by the target company and that the shares held by the sellers are themselves
not subject to any charge.

As some of the shares are held by an individual seller, it will be important to check that there are
no restrictions on the sale of those shares to a third party such as under personal insolvency
procedures.

Although it is good practice to check the Articles of any company entering into an acquisition
for any restrictions, strictly speaking such investigation is not required.

Section 40 Companies Act 2006 provides that in favour of a person dealing with a company in
good faith, the power of the board of directors to bind the company or authorise others to do so,
is deemed free of any limitation under the company's consititution (s40(1)). In addition,
s40(2) provides that a party to a transaction with a company is not bound to enquire as to any
limitation on the powers of the board of directors to bind the company or authorise others to do
so.

Therefore, a certified board minute is sufficient evidence of the authority of the appointed
representative to bind the company.

These are all documents that would normally be included within a Completion Agenda for the
asset acquisition of a business operating in England and Wales.

The parties may accept the authority of the directors without requiring further documentation, but
this would usually only be on the basis on the provision of previous evidence about the authority
of their position. The legal representative would expect to see certified copies of the board
resolution providing / confirming authority.

Shareholder approval is not required in the absence of additional consititutional restrictions or
statutory obligations. A Power of Attorney relates to the transfer of a power to execute between
persons, which is not necessary viz-a-viz directors and their companies.

The Answer is B.

Answer A is incorrect. Although Hale would want to see a power of attorney authorising
Desmond to sign the SPA on Jenny's behalf, there does not appear to be any need for a
shareholders' resolution to approve the sale or authorise Crispin to execute the SPA.

Answer C - although Crispin might have been given the authority, the sellers would prefer to see
verification of this in some format.

Answer D - Glana is not a party to the SPA, but is the subject matter of the transfer.

A share sale is VAT exempt. The parties need only rely on the "TOGC" rules on a business sale.

Sections 677-683 Companies Act 2006 now regulate the giving of financial assistance and private
companies are no longer prohibited from doing so.

There is no need to raise equity capital - the deal is being financed by cash reserves and bank
borrowing.

An acquisition will usually be a board decision, however, in these circumstances an ordinary
resolution will be required under s.190 Companies Act 2006. The purchase is from a "connected
body corporate" of a director of Brown Limited (Mark Reed holds a 50 per cent shareholding in
the Seller, Sumin Limited - see s.252 and 254 Companies Act 2006) and the purchase is of a non
cash asset (shares) and is of substantial value (over £100,000).

Answer C is correct

Dyno will want to ensure not only the effective transfer of the legal and benefical ownership of the
shares but also provide for a right to immediately exercise rights as a shareholder pending
registration of the transfer by Tato. Dyno will want to ensure that Tato is obligated to hold a
completion board meeting to register the transfer of the shares but this is not a document to be
delivered and would not enable an immediate use of its rights.

Most buyers would not require the provision of a power of attorney and would await registration.
However, as this acquisition is part of a wider framework of connected transactions then provision
needs to be made for the ability to immediately exercise the powers of a shareholder.

Note the appointment of Dyno as a proxy will enable it only to cast a vote on behalf of the
departing shareholder. It will not enable Dyno to exercise all rights of that shareholder which may
impact on the ongoing transactions envisaged in the wider acquisition project.

An assignment will not be required on a share sale, as the target company will
remain after the sale as a party to the relevant contract.

The general rule is that, in the absence of a formal restriction on assignment, the
benefit of the contract, such as the right to be paid, may be assigned without the consent of the
other party. However, obligations cannot be assigned.

The parties to a contract can agree that the contract is personal to the
contracting parties and that it cannot be assigned.

For a legal assignment, notice needs to be given in writing under s136 LPA
1925. If the assignment has been made without notice in writing, the benefit of the contract still
passes to the assignee but in equity only. The advantage of a legal assignment is that it enables
the assignee to sue in its own name for the benefit of the contract.

Payment by Debtor C to Company A will discharge the debt as the legal
assignee of a debt may, by s136 LPA 1925, give a good discharge.

Statement B is incorrect, as Company A has paid for the debt and is therefore entitled to retain
the proceeds.

Statement C is incorrect, as the legal assignee of a debt may, by s136 LPA 1925, give a good
discharge.

Statement D is incorrect, as an assignment of rights to Company A is subject to any rights
that Debtor C had already acquired against Company B at the time of assignment.

Statement A would not be correct - just because the dismissal is before the transfer does not mean
that the dismissal is because of the transfer and therefore potentially automatically unfair. The
dismissal could have been for another reason unconnected with the transfer, such as misconduct.

Statement B is incorrect - Evans can dismiss, but the dismissal may be automatically unfair (as
per statement C).

Statement C is correct - the dismissal would be automatically unfair if Evans could not establish
it was due to an "economic, technical or organisational reason entailing changes in the workforce"
(e.g. the employee is genuinely redundant).

B is the correct answer.

The regulations do not apply on a share sale, where it is only the ownership of the company
that changes. On a share sale there is no change of employer.

Provided that Gerald has been employed over two years (he has) he will qualify for an unfair
dismissal claim. Dismissals by reason of the transfer will be automatically unfair unless there is an
ETO reason. If dismissal is not for one of the five fair reasons, it cannot be rendered fair simply
because it is handled fairly. Giving full notice will negate a claim for wrongful dismissal.

C is correct. That is the effect of Regulation 4(1) of TUPE.

Whether or not they would have a claim for unfair dismissal and/or redundancy against Evans
or Quick'n Tasty would depend on whether they had been dismissed and the reasons for their
dismissal (see Regulation 7 TUPE).

Although money invested in private equity funds may be used in all of the
examples given, the main purpose of such funds is to invest for a fixed period of time in unquoted
securities with a view to making a high level of return when those securities are subsequently sold.
As part of that investment process, a listed company may be privatised, some guidance may be
given to assist the development of private companies and sometimes debt finance may be provided
either by banks or by a company linked to the Manager of the private equity fund (the
Manager also being the General Partner of the Limited Partnership structure or a subsidiary
thereof) but these are all ancillary roles to the main aim of achieving a high capital return on the
subsequent sale of the unquoted securities.

The term "rachet" applies to an agreed additional participation of the management
team (not the private equity fund) in the event of a very successful sale. This is usually achieved by
providing in the Articles of the investment vehicle company that, if the amount of return to be
achieved on a successful sale of the investment is very high, then the management team's share of
the equity can be increased to enable them to participate in that high rate of return.

The statement is false. The term "buy out" is generally used to describe private
equity investments where the funds have been used to acquire an established business either
through a share purchase or sometimes an asset purchase. Who takes control of the company
running the business may vary and it is now common practice for private equity funds to hold
the controlling interest rather than the management team.

All of these matters will be important in the decision whether or not to make the
proposed investment. The potential internal rate of return for the fund is crucially important as it
indicates the expected rate of return of the investment both during the investment, through
dividends, and on the sale of the investment. The expected rate of return will need to be high to
justify the risks inherent in investing in unquoted securities. In addition, the private equity fund
will want to know that: arrangements are in place to enable that sale and consequently realise the
capital return; there is a good management team in place to ensure the capital growth of the
investment; and finally, it can step in and take control of the investment should it prove to be
unsuccessful.

The correct answers are A and B.

The role of the management team's lawyers is usually restricted to advising management on their
equity investment in Topco, their service contracts and any director related issues that arise. In all
but the smallest of management-led buyouts, the private equity provider will generally conduct negotiations on behalf of Bidco (as the wholly owned subsidary of Topco) for the acquisition of
Target and the management's lawyers will simply oversee these negotiations to ensure that the
acquisiton is not unduly onerous for management. The private equity providers will always
produce the equity investment documents.

No, the correct answer is B as this relates solely to the provisions for payment for the shares in
Fastline Limited. Payment details will be included in the Sale and Purchase Agreement for the
acquisition of the shares in Fastline Limited.

Answer A would be required as neither party would want to proceed with the investment unless the
other parties (eg any banks and the owner(s) of Fastline Limited) were also committed.

Answer C is required as the investors (JC Ventures and the management team) will want to ensure
good governance of both the ultimate holding company in which they have invested (will be
shareholders of) and the company actually running the business and holding the assets. The parties
will want to control provisions such as restrictions on share transfers and directorships in Topco
and matters such as borrowing and authority for major purchases by Fastline Limited.

Answer D is required as both parties will wish to agree the basis on which the investment can be
realised. This is likely to require the respective parties actively participating in the process of an
onward sale.

The correct answer is C.
Laventa plc will, if the transaction proceeds, thereby gain at least 30% of the voting shares in AP
Plastics plc, a UK resident company. This will constitute "control" as defined in the Takeover Code
and will oblige Laventa plc to make an offer under Rule 9 of the Takeover Code.
Option A is not correct because the Takeover Code only applies on the acquisition of the target
company's shares.
Option B is is not correct because the target company has no connection to any of the jurisdictions
in which the Takeover Code applies; Option D is not correct because the target is a private
company and the Takeover Code only applies to private companies in the circumstances described
in paragraph 3 (a) (ii) of the Takeover Code which do not appear to apply in this case.

The Takeover Code is not concerned with the possibility that a merger may have anti-competitive
effects, although the Takeover Code does provide guidance as to what should happen if a bid is
referred to the competition authorities.

That is correct - see the Introduction to the Takeover Code, at paragraph 3(f).

C is correct as under Rule 2.2 (c) an announcement is required when, following an
approach, the offeree company is subject to rumour.

In A, although an approach has been made, this is not a firm intention requiring an
announcement under Rule 2.2 (a).

In B, although there is speculation it has nothing to do with the potential offer and so is not
caught by Rule 2.2 (d).

In D, the holding of 15% does not give rise to an obligation to make an offer under rule 9
and therefore Rule 2.2 (b) does not apply.

Option C is the incorrect answer.

Rule 10 of the Takeover Code states that a bidder may declare an offer unconditional as to
acceptances once it holds over 50% of the voting rights in the target company. Any stake built up
by the Predator can count towards this threshold, therefore enabling a bidder to reach the Rule 10
threshold more quickly. Once the offer is announced other shareholders, seeing that Predator has
already acquired a substantial stake in Target, may be more inclined to accept Predator's offer,
especially if the offer price represents a significant premium to the shares' market value
immediately before the offer is made. Finally, the announcement of an offer by Predator is likely
to have an immediate impact on the price of Target's shares as the market perceives them as highly
desirable and therefore more valuable. As such, by acquiring a substantial stake at market value
before any announcement of an offer, Predator can minimise the "premium" it must pay to
remaining shareholders.

Option C is incorrect because any stake acquired before the offer is made does not count towards
the 90% threshold required to invoke the squeeze-out provisions under the Companies Act 2006.
See in particular ss974(2) and 979(2) CA06.

That's right - see Rule 31.7 of the Takeover Code. Except with the consent of the Panel all
conditions must be satisfied or waived within 21 days of the first closing date or the date on
which the offer becomes or is declared unconditional as to acceptances.

That's right - under the DTRs, Predator is required to inform Target (and the FCA) when its
holding reaches or exceeds 3% and each subsequent movement through another percentage point,
or if its interest falls below 3%.

Rules 6 and 11.1 of the Takeover Code do not come into play - the stake was acquired more than 3
months prior to the announcement of the offer (option A) and did not amount to more than 10%
(option C). There is nothing in the Takeover Code preventing the acquisition of a 10% stake prior
to an offer being made.

Rule 10 of the Takeover Code (the "acceptance condition") only requires the bidder to
obtain more than 50% of the shares of the target although it may choose to impose a higher
threshold. Options A, B and D reflect requirements of Rule 25 of the Takeover Code.

The correct answer is Option B as set out in s974 CA 2006. Although these provisions are most
commonly invoked in the context of public company takeovers, they also apply to private
company acquisitions.

Note also the qualifications to these rules set out in s975 (2) and 975 (4) CA 2006.

The correct answer is B.

The meeting of shareholders to approve the scheme will be convened by the Court, usually on
the application of the target company (s896 CA 2006).

No, the statement is false.

Approval of shareholders representing a majority in number and 75% in value is a pre-requisite to
sanctioning of the scheme by the Court. The takever can only proceed if the Court exercises its
discretion to sanction the scheme.

Option A describes a 'cancellation' or 'reduction scheme' on which no stamp duty is payable as it
does not involve an instrument of transfer (and which is now no longer possible in the context of a
commerical takeover, except in very limited circumstances beyond the scope of this course).

A transfer scheme involves a person (normally appointed by the Court) executing a transfer of all
the shares owned by the target company shareholders on which stamp duty will be payable at the
normal rate.

Tough Nut's EU turnover is about 77% attributable to the UK. Bonce's EU turnover is 90%
attributable to the UK. As such, the "two-thirds rule" applies and there will be no "concentration
with a Union [formerly Community] dimension".

Yes, they are all correct except C

The requirements are derived from case law - see for example Re Dorman Long & Co Ltd [1934]
1 Ch 635 and Re TDG plc (2008). The Court is not concerned however with the commercial
advantage or otherwise of the takeover to the company

See the Domino scheme document (para 12 on p14) for an example of this. There
are various ways in which the share option schemes can be dealt with under a scheme or takeover
offer but the over-riding principle is that they should be treated on no less favourable terms than
existing shareholders.

The Takeover Code applies to schemes of arrangement in the same way that it applies to
contractual offers but subject to the modifications set out in Appendix 7 of the Code. One of the
principal reasons for using a scheme as opposed to a takeover offer is that, if sanctioned by the
Court, it becomes binding on all shareholders without any need to apply the squeeze-out provisions
or attain any particular level of acceptances. The acceptance condition therefore has no relevance.

The correct answer is C.

In a scheme the provisions of Rule 31.1 - 31.10 of the Code (Timing of the offer) do not apply,
but Appendix 7 requires the target company to include an expected timetable of principal events
(see Page 7 of the Domino scheme document).

See s899 (4) Companies Act 2006.

The need for consent on assignment of the licence will only be an issue if
there are subsequent plans by LIA to transfer this licence (which is not
suggested on the facts given).

A. The need for consent of change of control will be activated by the sale of
LIA’s holding company CPL, C. If Challenger and other group companies are
also a party to this licence then companies not being sold may also have the
benefit of this software. D. It appears that the parties to this agreement do not
reflect the trading arrangement.

Poppets is the selling company. Stamp duty / stamp duty land tax is payable
by a purchaser, not a seller. B. The opposite is true. D. If the business was sold
as a going concern the transfer is treated as a supply neither of goods nor
services and VAT is therefore not chargeable.

Although an assignment of a contract will only ever pass the benefit and not
the burden of a contract, a Seller cannot always assign the benefit as the terms
of the contract may prohibit assignment or require the consent of the other

party. B. An assignment is not required on a share sale as the target company
will remain as a party to the relevant contract. C. Most types of contract in the
absence of formal restriction can be assigned without consent although notice
of assignment is required.

Both parties would want to control the production of the Completion
Accounts, so this would be a matter for negotiation. B. It is for the parties to
decide the accounting policies to be used. Different policies may be used but
will potentially lead to slightly different outcomes which may favour one party
rather than the other given particular circumstances of a deal. D. Breaches of
warranty lead to claims for damages and would not be relevant to the
valuation of the Completion Accounts.

Statements in the SPA have the ability to be both terms with respect to
breach of contract and representations that were a false statement of fact and induced the contract. B. The nature of liability is the subject of negotiation. C.
Fraudulent pre-contractual representations can not be excluded.

As under TUPE all rights and obligations relating to employees
assigned to the division being disposed of will transfer to the buyer of that
division. Therefore, any claim by that employee (such as for age discrimination)
will transfer to the buyer. A. The test for the application of TUPE is the transfer
of an economic entity; it does not need to be the entire business of HTS. B. Just
because some of an employee’s work relates to the division being transferred
does not mean that employee will transfer. D. TUPE applies to all transfers
even if it is to another company within the group.

The Directors need to file the order for it to become effective – it is not
automatic. B and D. The scheme still needs approval of the Companies Court,
and for the Court Sanction Order to be filed at Companies House.

The overriding document will usually be the Investment Agreement.
If there is a contrary provision in the Articles the parties will still want the right to
bring an action for breach of contract under the terms of the Investment
Agreement.

To be a concentration under Art1(2) of the Reg, the combined worldwide
turnover must exceed € 5000m, each party must have Union-wide turnover
exceeding € 250m, unless each of the parties achieves more than 2/3 of its
Union-wide turnover within the same state. A, B, C all fall down on at least one
of these conditions.

To be a concentration under Art 1(3) of the Reg, the combined worldwide
turnover must exceed € 2500m, in each of 3 EU states the combined turnover
must be at least € 100m (with at least 2 parties exceeding € 25m), and the
Union-wide turnover of each of at least 2 parties must be € 100m. A, B, C all fall
down on at least one of these conditions.

The legal representatives would expect to see certified copies of
the board decision to proceed with the transaction.
The parties may accept the authority of directors without further documentation but would usually only do so on the basis that evidence had be previously
provided about their position (B). There would not usually be a need for
shareholder approval as the articles will usually provide authority for directors to
make this decision in the absence of any additional constitutional restriction (A).
A power of attorney would usually only be expected if an individual seller was
not able to sign the documentation in person (C).