6 Steps to the Perfect PR Pitch

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News coverage can be a big boost to your company’s success. No matter what you want the public to know about—be it a product, a service, or an agenda—press coverage not only gets your message out, but lends credibility to your business. Sometimes getting coverage is a matter of being in the right place at the right time. Rather than rely on luck, some companies hire a public relations firm to represent them. But that investment is not always necessary. Here are six steps you can take to get your company in the news on a regular basis:

1. Define your goal. Why do you want news coverage? What is it you want people to know, buy, or believe about your company? The more definitive you can be, the more you’ll be able to target the proper audience. The more you know about who you're trying to reach, the better. Then you can determine the right media outlets to contact. Are you targeting well-educated customers with disposable income? The New York Times and business journals are two good matches. Are you looking for a younger audience who lives in New York City? WPIX is a possibility for you. Do you want to impress your fellow engineers? Look for trade publications.

2. Understand what news means. The basic definition is “something out of the ordinary.” That’s why the media will report 30 percent of Americans are unhappy, but won't report that 70 percent of Americans are happy. Now, let's put that in context. Let’s say you’re seeking news coverage for your organization’s twentieth anniversary. While that’s something out of the ordinary for you, it’s not for the public, so there needs to be something more to your pitch. One New Jersey accounting firm did indeed have a major anniversary, but what ended up attracting coverage was an interesting angle to the story. Each year, the firm’s owner refused to shave from January 1 until the day after taxes were filed, as a way of underscoring to his clients that their needs came first. All the male accountants on staff followed suit, and the firm compiled a photographic history, illustrating its accountants the day before and the day after April 15. This unusual angle suddenly had reporters asking for exclusives.

3. Research relevant professionals and news outlets. Dig into local, regional, and national news organizations to become familiar with the types of content they provide and the audiences they reach. Is your story better suited for television or video-based news, or is it a complicated issue that lends itself to newspaper coverage? Take advantage of professional events that give you access to the media. Get to know reporters’ names, and contact them directly to let them know of your availability as a source in your area of expertise.

4. Keep your finger on the pulse. Before you reach out to the media, know what’s happening in the news that day. If the President is in town, it’s not the day to pitch your new product. If a major weather event is about to hit your area, no one wants to hear about your charity fundraiser. On the other hand, if it’s back-to-school season, media outlets will be more receptive to your terrific new lunchbox or carpooling app. Similarly, if you or someone in your organization can serve as a source for a hot story—maybe you have an historian on staff who can offer interesting weather trivia to fill airtime while meteorologists are tracking the storm system—you can become the go-to source for similar stories in the future.

5. Make it easy for the media. If you craft your pitch in a way that the story will work across multiple platforms—newspapers and magazines have websites in need of audio and video; television stations have websites in need of print stories—you make it easy for the media and maximize your exposure. How do you make a great pitch even better? Make it memorable. I once had to promote the work of a dog trainer. Knowing there’s nothing out of the ordinary about training dogs, I wrote the press release from a dog’s point of view and sent it to a quirky columnist at The New York Times. They ran a half-page article on the guy.

6. Pitch for a short attention span. Present a clear and concise pitch that makes the reporter want to know more. On average, a newspaper story is about 400 words, a television news story is less than 2 minutes long, and a radio news story is just 35 to 40 seconds long. Your pitch has to be brief—if you can pitch your story in 85 words or fewer, you have a greater chance of capturing the reporter’s attention. When Fair Media Council held its first women’s empowerment summit, I needed to find a news hook to promote the event. I called a Newsday business columnist and, in one sentence, pitched what became the focus of his column a few days later. All I said was we were raffling off male CEOs at our women’s event, to act as mentors to their winners. When he asked who the male CEOs were, I knew I had a story since they were often featured in his column.

Jaci Clement is executive director of the Fair Media Council. She can be reached at jaci@fairmediacouncil.org.

Republished by permission, FreeEnterprise.com, in agreement with NY Enterprise Report. Copyright© is owned by the author of this article. FreeEnterprise.com is your home for free market news and ideas.

A Word to Small Business Owners: Don't Be Afraid to Negotiate Contracts

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All too often small business owners readily accept the terms of a contract or are concerned about pushing back on both economic and legal terms because either they fear losing the deal or simply don't fully understand the terms.  As a business owner, you need to recognize that in most circumstances there is an opportunity to negotiate terms of an agreement, and therefore you should not be afraid to seek the best deal possible even if the other party initially seems unwilling to consider your position on key aspects of the contract.  So, here is the advice, Don't Be Afraid to Negotiate. 

Negotiation skills are one of the most important tools a business owner should have in its toolbox.  Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments.  One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement.  Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is".  The following are among the material terms that business owners should not only fully understand, but seek to negotiate.

1.  Term.   If you want a longer or shorter contact term, then ask for it.  One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract.  The mechanics of the option and financial terms should be clearly spelled out as well. 

2. Fees.  There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement.  The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures.  If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue."   For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues?  A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net.  Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.

3.  Financial Reports/Audit.  If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party.  In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.     

4.  Termination of the Contract/Suspension.  Of course the contract will expire at the end of its term, but include other events that will result in termination:  (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure.  Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured.  In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.  

5.  Assignment/Sale of the Business.  Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts.  You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.    

6. Warranties/Limitations on Liability.   Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions.  If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement."  For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement.  Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.               

7. Dispute Resolution.   Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.

8. Remedies.  Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.    

9. Non-Compete/Non-Solicitation.  Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few.  Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.

10.  Other Terms/Conclusion.   If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party.  The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective.  A bad contract is NOT better than no contract.  In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.

The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.





Disclaimer:  The discussions in this blog do not constitute legal advise nor create any attorney-client relationship.  You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.


      

Legal Issues When Buying a Business: Don't Overlook These Provisions in the Purchase Agreement.

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As discussed in prior installments of this series on buying a business, there are a number important legal issues you need to consider before signing the purchase agreement.  The first installment discussed the role of the Exclusivity Agreement, the second installment examined the differences between structuring the transaction as stock purchase as opposed to a purchase of assets, the third examined the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing, and the fourth discussed important aspects of due diligence and how to address legal or financial issues in the purchase agreement.  This fifth installment examines several key provisions that should be incorporated in the purchase agreement but are otherwise often overlooked.

The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement.  There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations.  First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully.  Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.

1.  Intellectual Property.
   
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:

              (a)  Covers licensed rights as well as often the seller does not own but licenses key IP.  In  the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.

              (b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing.  It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.

             (c)  IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.

             (d)  Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.

2.  Litigation

Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:

            (a)  There are sufficient disclosures about pending and threatened litigation, including the status of such matters.

            (b)  Decide how litigation is to be handled post-closing.  Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
            
3.  Financial/Tax Matters

In addition to the typical representations and warranties concerning financial and tax issues, include:

          (a)  Financial

                  (i) Require that the seller update the financial statements on or prior to Closing;
                 
                  (ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
                 
                  (iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes.  If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.

         (b)  Taxes

                (i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
               
                (ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
               
                (iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
             
                (iv)  Include appropriate indemnifications for tax liabilities.


4.  Transition

Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out?  Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition.  The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business.  Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.

5.  Material Adverse Change   

Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business.  The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes.  The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.

6.  Employment/Labor Matters  
                       
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:

         (a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.

         (b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).

         (c)  Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.

         (d)  Disclosures with respect to any collective bargaining any other labor matters.

7.  Operations in Foreign Countries

Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people.  The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc.  Violation of the FCPA carries substantial civil and criminal liability.  As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.

8.   Covenants

The Purchase Agreement should contain covenants relating to:

        (a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.

        (b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.

        (c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.

        (d) Confidentiality.

        (e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.

        (f)  Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.

9.  Termination

There will be grounds for either party to terminate the Agreement prior to closing.  The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.

10. Survival

Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing.  The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists.  A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time

The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial.  What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.

Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship.  You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters




    

   

More On Limited Liability Companies' Fiduciary Duty

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Now that we have an Indiana Court of Appeals decision describing the fiduciary duty of an LLC to its members, I almost thought to scratch this post. However, Chicago Business Litigation Lawyer Blog's Respected Law Professor's Insights on Corporate Freeze-Out Litigation may still have some benefit to you.

"In Fairness and Good Faith as a Precept in the Law of Corporations and Other Business Organizations, 36 Loy.U.Chi. L.J. 551 (2005), Murdock addresses the fiduciary duty of good faith and fairness that controlling interests of a business owe to minority interests. Noting that this internal duty is a fairly recent legal phenomenon, he surveys caselaw on the subject from around the country that applies to closely held corporations, public corporations and LLCs. Noting that the Uniform Limited Liability Company Act (ULLCA), a model law adopted by several states, doesn't include language that gives members of an LLC fiduciary duties to one another, he praises Illinois for modifying that language to protect members in the updated Limited Liability Company Act."

7 Marketing Lessons (and an Infographic) for Next Year's Super Bowl Advertisers (and You)

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I can hope against hope that the advertisers that underwrite the 48th Super Bowl will learn some pretty big lessons from this year's. I know I sure did. And the lessons learned aren't just applicable to brands with big advertising budgets; they are applicable to any marketer looking to get more ROI from marketing investments.

But before I get to those lessons, let me share how I discovered them.

Instead of watching the Super Bowl in real-time like a normal human being, I fired up the DVR and logged each and every commercial—national and local to my market—that ran from 6 PM EST through the commercial break after the final whistle. I then went back and logged each and every call to action involving the Web, mobile channels, social media, and telephone.

The findings were a true head-shaker, and most are compiled in the infographic at the end of this article. The rest you can find in my recent blog rant, Punt, Pass & Kick: Email, Mobile & Social Misses at Super Bowl XLVII.

Now that I've had some time to ponder what the brands near total failure to engage viewers beyond the TV screen means, I'm able to distill my thoughts into these seven lessons for Super Bowl XVLIII's advertisers—and everybody else.

Read more HERE.

A Word to Small Business Owners: Don't Be Afraid to Negotiate Contracts

To contact us Click HERE
All too often small business owners readily accept the terms of a contract or are concerned about pushing back on both economic and legal terms because either they fear losing the deal or simply don't fully understand the terms.  As a business owner, you need to recognize that in most circumstances there is an opportunity to negotiate terms of an agreement, and therefore you should not be afraid to seek the best deal possible even if the other party initially seems unwilling to consider your position on key aspects of the contract.  So, here is the advice, Don't Be Afraid to Negotiate. 

Negotiation skills are one of the most important tools a business owner should have in its toolbox.  Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments.  One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement.  Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is".  The following are among the material terms that business owners should not only fully understand, but seek to negotiate.

1.  Term.   If you want a longer or shorter contact term, then ask for it.  One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract.  The mechanics of the option and financial terms should be clearly spelled out as well. 

2. Fees.  There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement.  The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures.  If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue."   For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues?  A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net.  Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.

3.  Financial Reports/Audit.  If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party.  In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.     

4.  Termination of the Contract/Suspension.  Of course the contract will expire at the end of its term, but include other events that will result in termination:  (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure.  Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured.  In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.  

5.  Assignment/Sale of the Business.  Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts.  You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.    

6. Warranties/Limitations on Liability.   Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions.  If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement."  For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement.  Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.               

7. Dispute Resolution.   Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.

8. Remedies.  Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.    

9. Non-Compete/Non-Solicitation.  Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few.  Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.

10.  Other Terms/Conclusion.   If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party.  The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective.  A bad contract is NOT better than no contract.  In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.

The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.





Disclaimer:  The discussions in this blog do not constitute legal advise nor create any attorney-client relationship.  You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.


      

Legal Issues When Buying a Business: Don't Overlook These Provisions in the Purchase Agreement.

To contact us Click HERE
As discussed in prior installments of this series on buying a business, there are a number important legal issues you need to consider before signing the purchase agreement.  The first installment discussed the role of the Exclusivity Agreement, the second installment examined the differences between structuring the transaction as stock purchase as opposed to a purchase of assets, the third examined the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing, and the fourth discussed important aspects of due diligence and how to address legal or financial issues in the purchase agreement.  This fifth installment examines several key provisions that should be incorporated in the purchase agreement but are otherwise often overlooked.

The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement.  There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations.  First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully.  Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.

1.  Intellectual Property.
   
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:

              (a)  Covers licensed rights as well as often the seller does not own but licenses key IP.  In  the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.

              (b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing.  It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.

             (c)  IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.

             (d)  Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.

2.  Litigation

Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:

            (a)  There are sufficient disclosures about pending and threatened litigation, including the status of such matters.

            (b)  Decide how litigation is to be handled post-closing.  Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
            
3.  Financial/Tax Matters

In addition to the typical representations and warranties concerning financial and tax issues, include:

          (a)  Financial

                  (i) Require that the seller update the financial statements on or prior to Closing;
                 
                  (ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
                 
                  (iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes.  If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.

         (b)  Taxes

                (i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
               
                (ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
               
                (iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
             
                (iv)  Include appropriate indemnifications for tax liabilities.


4.  Transition

Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out?  Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition.  The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business.  Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.

5.  Material Adverse Change   

Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business.  The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes.  The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.

6.  Employment/Labor Matters  
                       
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:

         (a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.

         (b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).

         (c)  Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.

         (d)  Disclosures with respect to any collective bargaining any other labor matters.

7.  Operations in Foreign Countries

Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people.  The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc.  Violation of the FCPA carries substantial civil and criminal liability.  As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.

8.   Covenants

The Purchase Agreement should contain covenants relating to:

        (a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.

        (b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.

        (c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.

        (d) Confidentiality.

        (e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.

        (f)  Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.

9.  Termination

There will be grounds for either party to terminate the Agreement prior to closing.  The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.

10. Survival

Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing.  The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists.  A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time

The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial.  What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.

Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship.  You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters