Detours and Deviations From a Normal Closing

Overhead image of a table with hands shaking across it

{3 minutes to read}  In my July 2019 blog, I discussed some unusual aspects about my year-end deal. I was happy to report that despite the oddities, I successfully protected my client’s interests by including a solid indemnity provision from the seller.

As discussed, it was necessary for me to significantly rewrite that purchase agreement. In addition to adding an appropriate indemnity covenant of seller, the parties had agreed to treat the accounts receivable (A/R) and cash on hand as if this was an asset sale (it was a stock sale), and these assets were being retained by seller. This highly unusual structure needed to be reflected in the draft purchase agreement.  

The challenge was that my client was unable to provide me with an estimated amount that she would deliver to seller at closing. I was hopeful that as year-end approached and A/R was collected, it would become easier for her to estimate this amount. Given the nature of this business and the close relationship between the parties, they both seemed to understand why an estimate could not be made, and seller trusted buyer to make the payment as and when the A/R was actually collected on a post-closing basis. When my redraft was sent to seller, it contained no clear commitment as to the amount and when (in relation to the closing date) the money owed to seller would be paid. Aside from a few inconsequential tweaks, all of my revisions were acceptable to seller’s counsel. 

But That’s Not the End of the Story

As drafted, the purchase agreement contemplated that the closing would be deemed effective simply by releasing the nominal purchase price payable to seller and the various closing documents being held in escrow by each party’s respective counsel.

When seller’s counsel realized that the fully executed purchase agreement did not include an estimated payment of the A/R and cash on hand to be paid at closing (with the balance to be delivered at a reasonable later date), he unsuccessfully tried on at least three occasions to unilaterally amend the purchase agreement by imposing additional conditions under which the closing documents could be released by me to my client, the buyer. The drama continued into the first week of 2019, but ultimately, at the direction of his client, seller’s counsel authorized me in writing to release the closing documents and deemed the transaction closed. Proving that even deals that deviate from the norm can end amicably when the parties are motivated to close.

My client was very pleased that I remained within her budget, held my ground with seller’s counsel, and maintained the integrity of the unusual transaction structure agreed to by the parties.

Aimee B. Davis Law P.C. is committed to advising its clients and resolving issues relating to the legal and business matters that are important to them. If you have any questions, please feel free to contact us at (917) 617-2243 or email aimee@aimeebdavis.com.

Aimee B. Davis

Aimee B. Davis
Aimee B. Davis Law P.C.
122 Ashland Place
Brooklyn, NY 11201
www.aimeebdavis.com
aimee@aimeebdavis.com

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Not Every Deal Follows the Norm

Not Every Deal Follows the Norm by Aimee B. Davis

{3:30 minutes to read}  In March 2019, I laid out the basic steps to consider when entering into an M&A transaction. 

But Not Every Deal Follows the Norm

As mentioned in my February 2019 article, every successful attorney should be adaptable. I flexed this muscle at the end of last year representing a first-time buyer in an unusual acquisition. My client worked for the target company for 13 years. She spent the better part of last year negotiating the terms of her offer with the owner/seller. 

Because the company held a certification from the Women’s Business Enterprise National Council (WBENC) that could not be transferred/sold to a purchaser of assets, this deal was structured as a stock sale. In stock sales, all of the liabilities of the target are transferred to buyer, as opposed to an asset sale, where certain liabilities can be excluded and remain solely seller’s responsibility.

Typically when representing buyers in stock deals, I recommend doing a thorough due diligence review of the target. Because my client was effectively running this business, had spent months investigating and negotiating to buy it and had a tight transaction budget, she felt comfortable she knew where all the skeletons were buried, and I wasn’t authorized to undertake the due diligence that would customarily be performed.

Battle of the Forms 

As stated in my March 2019 article, it’s common for buyer’s attorney to prepare the initial draft of the purchase agreement. In this unconventional deal, however, seller’s counsel served up an initial draft that was 4-pages, double-spaced, devoid of representations or warranties, and provided no indemnity whatsoever. 

So rather than provide a few comments, I had a lot of rewriting to do. This was challenging because even though my client was directly involved in the business, as the buyer of stock, she was entitled to receive the same protections that any third party purchaser would expect. 

I successfully produced an agreement that elicited from seller sufficient information about the target’s business, without overwhelming the parties with an overly-comprehensive agreement more appropriate for an arm’s-length transaction between unaffiliated parties. Surprisingly, all of my changes were acceptable to seller’s counsel.

Allocating Risk

In determining the nature and scope of the representations and warranties to be included, I sought to have seller provide as much information as possible about the business through the disclosure schedules. In my May 2019 article, I said that schedules to a purchase agreement disclose exceptions to the representations. They also provide information to the buyer, such as listing the target’s material contracts, and its clients/customers and employees.

Notwithstanding my efforts to keep this deal reasonably arm’s-length, I learned my client was preparing the disclosure schedules on behalf — and as an employee — of seller. This was highly unusual, but because she had been running the business, she seemed to know more about the day-to-day operations than the owner herself. It was a win that seller agreed to stand behind her representations and warranties by fully indemnifying buyer. 

Aimee B. Davis Law P.C. is committed to advising its clients and resolving issues relating to the legal and business matters that are important to them. If you have any questions, please feel free to contact us at (917) 617-2243 or email aimee@aimeebdavis.com.

Aimee B. Davis

Aimee B. Davis
Aimee B. Davis Law P.C.
122 Ashland Place
Brooklyn, NY 11201
www.aimeebdavis.com
aimee@aimeebdavis.com

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What are the Essential Elements of a Purchase and Sale Agreement?

{3:30 minutes to read}   So you want to sell your business? Last time, I presented steps to consider when entering into a Merger & Acquisition transaction. I stated it’s common for buyer’s attorney to prepare the initial draft of the definitive purchase agreement (the Definitive Agreement) and for seller’s attorney to provide comments to the draft, but this is a guideline.

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So You Want to Sell Your Business…What Steps Should You Take?

So You Want to Sell Your Business...What Steps Should You Take? by Aimee B. Davis

{3:30 minutes to read}  I’ve represented clients seeking to buy and sell small- and middle-market businesses for over 20 years. Often these clients are first-time sellers and/or buyers.

As one can imagine, first-time sellers can feel a certain way about parting with their baby. Because selling one’s business can be an emotional experience, I thought it would be helpful to lay out the basic steps to consider when entering into any Merger & Acquisition (M&A) transaction:  

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Can an Entrepreneur Regularize Her Income?

Can an Entrepreneur Regularize Her Income? by Aimee B. Davis

{3 minutes to read}  One thing an entrepreneur can rely on is that from time to time she will encounter a rather unpredictable revenue stream. That’s okay, some folks have the stomach for this and others simply don’t. Frankly, I didn’t know the strength of my own gut until I found out in practice.

Can an Entrepreneur Regularize Her Income?

After eight years as a solo practitioner, I have discovered some tactics that can be employed to help regularize one’s revenue:

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Checking In on the Status of Impact Investing

Checking in on the Status of Impact Investing by Aimee Davis

{3:15 minutes to read}  It’s been over three years since I learned and wrote about, Impact Investing.

What is Impact Investing?

Emerging in 2007, impact investments are made into companies, quasi-governmental organizations, and funds, with the intention of generating a measurable, beneficial social or environmental impact along with a financial return to the investor.

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Maintaining Your Top Shelf Position

Maintaining Your Top Shelf Position by Aimee B. Davis

{3 minutes to read}  Richard Kestenbaum’s articles on M&A transactions in the fashion and consumer product industries are regularly published online in Forbes. Richard has been doing mergers, acquisitions, and capital-raising for over 35 years. I always read his articles and find his observations fascinating.

I recently had the privilege of interviewing him as a follow-up to his article about Nestle entering into a licensing deal in May 2018 to market, sell, and distribute Starbucks coffee globally. I wanted to better understand what I perceived to be his skepticism of the deal and his concerns about why this arrangement may diminish or dilute the Starbucks brand.

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The Inhumanity of Virtual Networking

The Inhumanity of Virtual Networking by Aimee B. Davis

{3:30 minutes to read}  As a corporate transactional attorney for the past 24 years, I think it’s fair to describe myself as a senior statesperson in the NYC business world. I’ve been at it so long I don’t remember who taught me the value of returning phone calls on a same-day basis.  Nevertheless, this good business practice persisted into the digital age, and I make an effort to respond to emails similarly.

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Legal Brush Strokes – The Convergence of Art and Technology

(4 minutes to read}  In July’s blog, I discussed the convergence of the fashion industry with new technology. Now, there’s a hot new convergence of the art world and technology.

In fostering her own “second act,” actress Portia de Rossi recently launched an online venture called GENERAL PUBLIC. The CEO/Co-Founder summarizes her art publishing and curation business below:

“I formed my company, GENERAL PUBLIC, with a view to bring good art to more people. As a long-time art lover and collector, I became fascinated with the concept of reproducing paintings using 3-D technology because I believe the artist’s work should be shared by as many people who wish to own it and not just enjoyed by one collector.”

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Real Estate Leasing and Consideration of the “Silent” Issues

{3:48 minutes to read}  At Aimee B. Davis Law P.C., I often represent tenants entering into either billboard leases or commercial space leases.

Real Estate Leasing and Consideration of the “Silent” Issues by Aimee B. Davis

In real estate leasing, it is customary for the landlord’s attorney to serve up the first draft, and for the tenant’s attorney to provide comments.  With billboard leasing, the tenant more likely presents the first draft, as they are the experts in this space. A billboard lease is unlike a general commercial space lease, and there are special provisions that are standard in the industry. Conversely, there are provisions that customarily arise in commercial space leases that are absent in billboard leasing.  

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