Legal issues in Business SalesBy: William A. Price, Attorney at Law, www.growthlaw.com

The Pilgrim’s Purchase

I. Sleep: Are You Called To This?

II. The Palace Beautiful: But There Are Lions. The Armory

III. The Valley of the Shadow/I will fear no evil

IV. Faithful Or Wanton?

V. Vanity Fair: Money-Love, Hold-the-World, Save-All

VI. Hopeful and Valiant

Are You Called To This?

• Change, or Die: Business Lives By Growth

• Buy or Build? Compare costs, assets and market position available after each

• Purchase program risks: Loss of independence, bad employees/partners/results after mergers, ROI expectations of capital partners

The Palace Beautiful

• Well-Organized Sellers Write A Good Prospectus: Growth in sales and profits

• They “clear the underbrush” of bad contracts, minority shareholders, problem products and people before you see the deal

• They offer a well-positioned add-on to your business

Lions In The Palace

• The best sellers are your competitors• Their “underbrush clearing” may have left

liabilities or future lawsuits• The customers may be tied to the seller, not

the business• Sellers and staff may not play well with

others• The numbers, permissions, or paperwork

may be wrong

The Armory

Purchase Process Documents To Protect Buyers And Sellers:

1.Engagement Agreements With Brokers

2.Nondisclosure Agreements With Possible Sellers

3.Term Sheets To Outline The Deal

4.Agreements Signed At Or Before Closing

The Valley of The Shadow

• Most deals break down

• The search and negotiations take much longer than expected

• Time on these tasks produces no new business income until you are done

• Careful process helps avoid the unexpected: distrust and fear kill deals

I Will Fear No Evil

1. The brokerage agreement

• Term: how long to find a deal?

• Payments: Retainers, monthly consulting, and contingent, expenses?

• Noncircumvent: Payment for introductions, even if deals not done by term

• Exclusive vs Nonexclusive engagements

I Will Fear No Evil II

2. Nondisclosure/Noncircumvent With Prospective Buyers/Sellers

• Protects vs competitive use or disclosure of information provided, disclosed pty and agents and employees

• Identify and document information transfers

• Publicly available information not covered

Faithful or Wanton?

Disclosures before and Due Diligence After Letters of Intent (LOI)/Term Sheets

Deal Room pre-Term Sheet items:

•Proof of ownership

•Three years financials or good projections

•Business plan (Products, markets & competition, business team, budgets & profit/activity plans & results/trends)

Vanity Fair

LOI/Term Sheet Negotiation: The Characters

Our Pilgrim: seeks to buy the Truth

Save-All: The broker, lawyer, and bankers, seek to bring the parties together

Money-Love, or Hold-The-World: The possible sellers (Greed, or keep what he has?)

Vanity Fair II

Term Sheet Elements

1.No binding contract

2.Stops negotiation with 3d parties for due diligence period

3.Sets closing date

4.Price and Ownership Terms

5.Closing Date

6.Other Contingencies

Vanity Fair III

Price and Ownership Terms

•All cash, or earn-out?

•Stock deal, or asset sale?

•Incentive Payments For Earn-Out Milestones/Targets

Faithful, or Wanton, Again

Due Diligence Period: 60-90 days before closing:•Verify all dollar, ownership, business representations, regulatory issues•Financials and documents easiest•Employee discussions/negotiations sensitive, follow show of good faith•Customer discussions/negotiations most sensitive, last before closing

Faithful or Wanton Checks: Your Team

• Lawyer to coordinate, check contracts, contingencies completed, results of other professional’s work, negotiate final terms

• Accountant/bookkeepers to check all taxes filed and paid

• Environmental engineers to check site, process engineers and industry experts to check equipment/process, appraisers

Hopeful and Valiant

• The final agreement: terms, post-sale warranties, warranty limits, definition of dispute resolution processes, transfer documents for all assets

• The accounts at closing/inventory checks• Pre and Post-Closing Filings (Bulk Sales, IRS

Reports on Allocations)• Mediation, Arbitration, or Litigation If Necessary

Questions?

William A. Price

Attorney at Law

www.growthlaw.com

P.O. Box 1425

Warrenville, IL 60555

Tel/Fax 1-800-630-4780

Email: wprice@growthlaw.com