[ Pobierz całość w formacie PDF ]
.To use the preceding example, should the seller be prohibited from manufacturing engines of any type going forward, or just engines for a certain type of vehicle? What about servicing of engines, sale of engine spare parts, or warranties on engines? Are these permissible actions of the seller postclose, or should they be included under the umbrella of the noncompete agreement? TheLegal, Regulatory, and Other Issues141discussion of these specific items by teams of attorneys for each side can result in some very late nights at the negotiating table.As you might imagine, buyers usually push for the broadest definition of the target’s business as possible, while sellers want to narrow the definition to mitigate the limitations on them going forward.Other items that are heavily negotiated include the term of the noncompete agreement and the recourse available to the buyer should the seller violate the terms of the noncompete agreement: amount of damages, other recourse, and so on.The other sensitive area is how to prohibit the key employees of the target from leaving and starting up a competing business.This may be even more difficult for the buyer to negotiate, because key employees are not obligated to sign any restrictions.Therefore, the clause is normally included in the employment agreement discussion with key employees, discussed in Chapter 8.The buyer will usually enter into negotiations with key target personnel and “lock them up”through a multiyear employment agreement with a guaranteed salary and bonus metric.A section of this agreement will specify that the key employee, by signing the employment agreement, agrees not to start a business competing with the target for a certain time period.An element of the compensation received is usually attributed to this limitation on the employee’s ability to compete.H.Who Is Your Indemnitor?As described earlier in this chapter, a huge amount of effort is put into negotiating representations, warranties, and indemnities between buyer and seller.However, an area that is often overlooked is the financial strength and viability of the indemnitor itself.This can have severe ramifications for a buyer’s ability to collect for breaches of contract by the seller.The most difficult situation is one in which a family-run or other small business is being sold and nothing really remains of the seller postclosing.In these situations, there is no strong party left to stand behind the seller representations in the contract.As discussed in Chapter 8, a variety of methods can be used to compensate for this, including deferred purchase price, earnouts, royalty agreements, and so on.The main focus of all of these techniques is to make part of the purchase price contingent so that the seller is motivated to stand behind the contract, at least until it has received the remainder of the purchase price.The focus is on having the seller continue to have142CHAPTER 9a vested interest in the corporation and the representations it made at the time of sale, and using any of these techniques to hold back a piece of the purchase price can be particularly effective.An easier situation is one in which a corporate parent is selling one of its divisions and a viable entity remains to stand behind the representations and warranties that were made.However, this is an often-overlooked situation in which business development professionals can get in trouble by losing their perspective in the detail.In too many cases, hours are spent negotiating representations, warranties, and indemnities, while too little time is spent analyzing which corporate entity of the seller will stand behind these assurances.As a buyer, you should want the “top of the chain”—the parent company, with all of the remaining value, including the cash you gave it to buy the target.This helps to ensure that the parent indemnitor has enough net worth to cover potential claims of the buyers.In some cases, the seller will insist that some operating subsidiary other than the parent stand behind the contract rather than the ultimate parent company.If this is the case, extreme care must be taken in analyzing the financial viability of this subsidiary.It does little good for a buyer to get a great, well-protected contract if the indemnitor does not have the financial ability to stand behind potential claims.Buyers will also want some protection against the seller’s transferring value out of the indemnifying entity postclose to lessen its value after the contracts are signed.I.Material Adverse Change ClausesHistorically a very standard part of purchase agreements and bid letters, material adverse change (MAC) clauses generally allow a buyer to walk away from the deal if a material, unusual event occurs that changes the financial condition of the buyer or the seller.The general categories that were historically included in MAC clauses were severe acts of nature, war, terrorism, or other unusual threats to the transaction.However, after September 11, 2001, and with the recent advent of the volatile weather, sellers have begun to dramatically tighten the language in MAC clauses, making it more difficult for buyers to back away from deals.The strong deal market of the early 2000s has also made sellers more aggressive in limiting buyers’ options should an extreme event occur.This leaves buyers with a tough choice.How do you continueLegal, Regulatory, and Other Issues143to act wisely in a market that is willing to take unusual risks to get deals done? Each case is situation-specific, but as the business development leader, your job is to weigh the risks here and not commit yourself or your company to unwise levels of exposure.II.REGULATORY ISSUESA
[ Pobierz całość w formacie PDF ]