Pub 11 2021 Issue 2

9 Parties aspiring to put together a buy-sell will often eagerly engage in discussions, reach preliminary understanding of material terms and only after key terms are set, consider engaging lawyers to prepare required contracts and memorialize the parties’ intentions. parties’ intentions. Too often, early stage negotiations impact material and financially consequential terms of the deal and can compromise the parties’ rights. If the parties do not involve counsel until the point when binding agreements are drawn up, they should be wary of potential problems they may create for themselves, and at a minimum, be mindful of a few points dur- ing this initial phase. First, discussions should be documented. Prospective parties to a transaction commonly get together, in person or over the telephone to talk about their desired deal, which might include price terms and other aspects of the proposed transaction. It is prudent to take thorough, contemporaneous notes of these conversations. These notes should include the dates of the con- versations, participants, and as much detail as possible. These notes should be placed in a separate easily accessible file. Be organized. This may be helpful should the need arise down the road for clarification or in the event of a disagreement. These notes will often become the framework for a letter of intent (LOI), and while a LOI is not a substitute for the formal buy- sell agreement nor can a LOI satisfy manufacturer approval requirements, a LOI can serve as a most useful roadmap to completion of the buy-sell agreement. Naturally, it is advisable to consult with an attorney before executing a LOI. Second, the importance of collecting necessary information and documents cannot be overstated. This might include fran- chise agreements and all addenda, lists of inventories, customer records, existing environmental reports, appraisals, records of pending litigation and the like. A seller should compile this in- formation before any negotiations occur. Relegating this impor- tant aspect to the end often causes undue delay, misunderstand- ings between the parties and can even jeopardize a closing. Third, most dealerships have executory contracts, existing agreements, leases and even non-cancelable contracts with vendors and third parties (e.g., computer equipment/software maintenance contracts, agreements for uniforms, advertising, etc.). It is important that these agreements be identified and reviewed early on in the buy-sell process to allow the parties to determine if they are being assumed by the buyer and to deter- mine any assignment requirements. Failure to identify and ad- dress these obligations can prove costly and adversely impact the buy-sell closing. Fourth, the parties should evaluate how to address any due dil- igence inspections of the business, records, assets and any real estate and improvements, including who will bear inspection costs and the consequence of inspection findings that are not satisfactory. Early determination of these issues could facilitate avoidance of delay, keep the deal together, or allow a party to determine whether to proceed to closing. Fifth, the structure of the selling dealership is often a corpo- ration or other legal entity. Though the buyer may have been Julie A. Cardosi is an attorney and president of the private firm, Law Office of Julie A. Cardosi, P.C., of Springfield, Illinois. She has practiced law for 35 years and represents the business interests of franchised new vehicle dealers. Formerly in-house legal counsel for IADA, she concentrates her practice in the areas of mergers and acquisitions and other transfers of dealer ownership, franchise law, commercial law, state and federal regulatory compliance matters, including employment and other areas impacting day-to-day dealership business operations. She has also served as former Illinois Assistant Attorney General and Deputy Chief of the Consumer Fraud Bureau of the Attorney General’s Office. The material discussed in this article is for general information only and is not intended as legal advice and should not be acted upon as such. Dealers should consult their own private legal counsel for application to their specific circumstances. For more information, Julie can be reached at jcardosi@autocounsel.com, or at 217-787-9782, ext. 1. dealing with the seller’s majority owner all along, minority shareholders may have rights under the law and the corpora- tion’s governing documents which can impact the buy-sell process. Determine early in the process the rights, if any, of minority shareholders to avoid unnecessary delay and secure required approvals. Given the prospect of an uptick of buy-sell activity, dealers considering either buying or selling should retain competent legal counsel as early as possible prior to commencing this process. Before principals participate in discussions about a prospective deal with interested parties or take other affirma- tive steps, consideration of the above five points, consultation with counsel and other advisors to address specific circum- stances will serve to avoid pitfalls that could adversely result in the undoing of the coveted deal, prove costly to the parties, or impact the parties’ legal rights and protections. 