1. Documents and Deal Team Functions
William A. Price, Attorney at Law

2. Negotiations and Documents
Getting to know you: Nondisclosure/noncircumvent agreement
Hiring help: Retainer terms and reasons for business broker, lawyer, valuation professional, accounting help, etc.
Letter of Intent/Term Sheet
The Closing: Final agreement, schedules, loan documents, leases, etc.

3. Noncompete/Noncircumvent
Identify parties and intermediaries to be bound.
(Optional) Reference referral fees for brokers, etc. due on loan, deal, etc.
Mutual promises not to disclose trade secrets or contacts revealed in discussions
Enforcement terms for noncompete deal

4. Retaining The Deal Team: for Sellers
Pre-Search and Pre-Listing:
Strategy and operations and financial consultants: consistent profit story, accountants to render financials comprehensible Lawyers: “clear the underbrush” of minority owners, claims, etc. Valuation and/or business broker consulting: estimate reasonable asking price, prepare offering summaries and help lawyers with due diligence file Lenders: help buyers with financing

5. Retaining The Deal Team: for Buyers
Pre-Search and Pre-Listing:
Lawyer or other business counsellor: determine size and type of business(es) to target Buyer’s Broker: help contact and qualify non-listed opportunities in targeted industry/size class(es) Lenders and other capital sources/brokers, to pre-qualify for size of opportunity possible to seek

6. The Deal Team: Search and Deal
At Listing Or Wide Search Stage:
Brokers or Lawyers for non-binding initial qualification discussions with strangers, possibly without identifying parties
Multiple information sources, for industry conditions, targets, etc.
3. At deal stage:
Both sides use brokers and lawyers
Both sides use experts as needed for due diligence and deal negotiation/documentation

7. Paying The Deal Team
1. Brokers: sellers’ brokers usually get a deal packaging fee, plus percentage on close; buyers’ brokers get costs for search plus percentage 2. Lawyers: clients pay expenses, negotiate hourly fees (or budget to cap fees) or percentage of deal, possibly with kill fee, hourly fees for post-closing claims/litigation

8. Paying the Deal Team
3. Experts (valuation, accounting): Usually hourly rates plus expenses, may negotiate budget (and cap) or stages; hourly for post-closing litigation, if needed 4. Lenders/Capital Sources: Intermediaries like loan brokers have percentage and/or packaging fees, loans and capital rates set by type of loan or capital, e.g. SBA 7(a) rates, angel or p/e or mezzanine capital

9. Letter of Intent/Term Sheet I
Binding and Non-Binding Terms
Binding:
Seller takes property off market long enough for buyer due diligence and other pre-sale (e.g. loan acquisition) actions (usually days to closing date can be longer if issues come up in due diligence)
Parties repeat nondisclosure/noncircumvent agreements to each other, also bind due diligence and other agents to same
Approvals, fees for brokers, governing law, dispute resolution, ways to terminate transaction

10. Letter of Intent/Term Sheet II
Binding and Non-Binding Terms
b. Non-binding terms (Clearly specify what is and is not binding in even simple LOI)
Price (negotiations and due diligence continue, and will affect same)
Financing (lenders or sources will determine what is available)
Pre-closing ancillary deals needed (leases, government approvals, etc…)
Parties to negotiate final purchase agreement (may lay out what to be discussed)

11. Closing Documents: I Final Purchase Agreement(s) a. Identify parties
b. Determine deal structure (typically asset purchase for smaller deals, or stock purchase, for large private or public companies). (Note tax, liability issues)
c. Restate price and adjustments possible to same if post-closing issues (inventory, tax, profits during earn-out, etc.) arise, as well as when and how paid

12. Closing Documents II Final Purchase Agreement(s) cont.
d. Closing date and place (usually same time and place as agreement, may negotiate agreement and determine final figures for closing date: FY and tax issues may set date)
e. Closing expenses (transfer tax, attorneys fees, warranties insurance, other costs allocated to seller or buyer)
f. Seller cooperation with documentation and transfer, as needed

13. Closing Documents III Final Purchase Agreement(s) cont.
g. Seller’s Representations And Warranties
(1) Ownership of/clear title to property (tangible, intangible, real estate) to be transferred (note evidence of same already assembled in due diligence)
(2) Authority to transfer property from seller(s) to buyer(s): Note evidence of good standing of company, minutes or certificates of corporate board and/or shareholder approvals as needed, minority shareholder rights extinguishment and payment, agreements with multiple owners, all may need to be in closing documents as well as warranty of sufficiency of same

14. Closing Documents IV Final Purchase Agreement(s) cont.
g. Seller’s Representations and Warranties
(3) No breach of any agreement, violation of any judgment, or other private or public obstacle prevents or could produce liability or claims as a result of closing. (Note review of contracts, buy-sell agreements, credit and litigation reports part of due diligence)

15. Closing Documents V Final Purchase Agreement(s) cont.
h. Buyer’s Representations and Warranties
(1) Authorization (corporate actions by directors, shareholders, etc…) to execute the agreement, good standing of company, etc…
(2) No breach of law or private agreements and rights to enter into transaction

16. Closing Documents VI
Note: Sellers will seek to limit indemnification and warranties to percentage of transactions; buyers to make unlimited, especially for taxes, liability, ownership. Representations and Warranties Insurance (4-6% of transaction cost) often used in larger deals.

17. Closing Documents VII Final Purchase Agreement(s) cont.
i. Miscellaneous provisions:
(1) Survival of warranties after closing
(2) Post-closing dispute resolution for parties and third parties (choice of law, arbitration, venue of courts, accounting or other claims definition processes, tax and other liability cover, etc.)
(3) Other miscellany like notices, non-assignability of contract, mutual release of non-agreement claims, severability of terms

18. Closing Documents VIII
Appendices To Closing Agreement
Ancillary documents needed to transfer real estate, third party agreements, personal property, etc., IP assignments, etc. with evidence of title, etc. needed for each
Comprehensive schedules of all real and intangible property transferred: stocks, real estate, inventories, intellectual property, etc.

19. Closing Documents IX
C. Proof Of Compliance with Warranties (bulk sales tax clearances, etc.) D. Financials Current to Closing (with provision for later adjustments) E. Closing Statement listing amounts due from each side and other parties, to be paid at closing

20. Post-Closing Disputes
Possible sources of disputes include: 1. Financials (variation from inventories, taxes, profits expected in last pre-closing financials over short and long term after closing: Buyers demand claw-backs 2. Taxes (Feds disallow tax structure/treatment, or unexpected state and local taxes due, etc.) 3. Liabilities (Earn-out amounts and post-closing role for old CEO, outsider lawsuits)

21. Questions?
William A. Price Attorney at Law Tel/Fax