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Financieel Management

Depending on the deal the number and the type of agreements can differ.

Common legal documentation includes:
- Share Purchase Agreement.
- Shareholders’ Agreement.
- Articles of Association of Newco.
- Employment contracts.

The Share Purchase Agreement is the sale & purchase agreement with the vendor and is usually drafted on the basis of the Heads of Agreement.Something for the management to watch in particular are the warranties which the vendor will often try to throw back to them on the basis that they have been managing the business. Management should always seek to obtain a waiver from the vendor of claims against themselves.

The Shareholders’ Agreement and the Articles of Association of Newco will govern the relationship between the management and the investor after the buyout. Key issues to focus on are: the corporate governance structure and minority protection rights, the warranties required from the management by the investor, the transferability of shares and management lock-in provisions, the equity structure and ratchet agree-ments, follow-up funding and the distribution of future exit proceeds. Management, under time pressure, sometimes tends to devote insufficient attention to these very important agreements. When it is just here that the rules governing the partnership between management and investor are laid down and where it is determined how each shareholder will participate in the future profits of the business.

The employment contracts will be adjusted to fit the new situation. Management should be careful about signing off on broad covenants not to compete and may also consider concluding director liability insurance. Essential for all the employees is that any pension issues are properly dealt with. Management can be assured that they are not deprived of their rights as employees because of the buyout or by virtue of also being shareholders.

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