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.
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.