Thursday, April 30, 2009

Legal Misfortune: Accepting the Deal That Is “Too Good to be True” Just May Cost You

We represented a client who agreed to sell his electrical contracting business to a competitor. The price he was to receive for the business actually exceeded the client’s expectations, so he was both anxious to close the transaction and hesitant to raise any issues during the sales process that might cause the buyer to have second thoughts.

Because of the nature and location of the client’s business, the client maintained a very specialized license to perform certain types of sophisticated electrical work. As the negotiations on the transaction progressed, the buyer discovered that it would take several months (if not longer) to apply for and obtain these same licenses and made initial overtures into trying to get out of the deal. In order to salvage the deal, the client wanted to allow the buyer to use his name and license after the closing until such time as the buyer was able to obtain its license. We advised the client that this entailed substantial risks, as he would still be personally liable for the work done on the jobs after the closing by the buyer as if the client were still the owner of the business. However, the still felt that the deal was too good to walk away from and was willing to take the risk.

We were able to convince the client, and subsequently the buyer, that the best way to handle the situation was to have the seller enter into an employment agreement with the buyer for a term to last until the buyer obtained its license or one year, whichever occurred first. This would allow the buyer the flexibility to use the client’s license. However, if the client was terminated for any reason (other than for good cause), the client would have the right to immediately terminate the licenses. We also insisted that the buyer indemnify and hold our client harmless from any and all loss or liability incurred by our client as a result of work done by the buyer under the Seller’s license. In addition, the buyer had to agree to (a) allow the client to have the right to control any corrective proceedings that may be required as a result of any violations that were filed against the license due to the buyer’s conduct, and (b) cover all costs and fees associated with the licenses (renewals, etc.), as well as the costs of maintaining an umbrella liability insurance policy for the benefit of the client.

By having a competent business attorney advise him, our client was able to both salvage his deal with the buyer and minimize his risk going forward after agreeing to an extraordinary concession in the buyer’s favor.

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Anonymous Commercial Electrical Contractor said...

Thanks for this post

7/09/2009 6:03 AM  

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