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Starting The Transaction – Non-Binding Agreements On Primary Terms

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mergers and acquisitions

Most mergers and acquisitions begin with a non-binding agreement on primary terms. If you’re considering a business transaction, you might wonder how non-binding agreements on primary terms work. Primary agreements are critical to the negotiations process, but it’s important to draft them carefully in order to ensure that they have their intended effect. Here’s what you should know about non-binding agreements on primary terms in mergers and acquisitions:

What is a non-binding agreement on primary terms?

In a merger or acquisition, a non-binding agreement on primary terms is a document that lays out the rough terms of the business transaction. It allows the parties to put some terms on paper and then work to iron out the details. A non-binding agreement lays the framework for additional negotiations in hopes of finalizing the merger or acquisition.

What’s the purpose of a non-binding agreement on primary terms?

Parties enter into non-binding agreements as a way to facilitate business negotiations. A preliminary agreement allows the parties to ensure that they’re generally on the same page when it comes to the terms of the agreement. In that way, the agreement helps them ensure that there’s a good chance that their negotiations are going to be worth their while. A preliminary agreement also helps the parties agree on terms for negotiating.

What’s in a non-binding agreement on primary terms?

A non-binding agreement on primary terms may contain any number of terms. The exact language depends on the preference of the parties. A non-binding agreement on primary terms might include any of the following provisions:

  • Timeline for negotiations
  • Goal timeline to reach a final deal
  • Scope of negotiations – what entities, goods or services are up for discussion
  • A general purchase price
  • Confidentiality
  • Exclusivity
  • Choice of law for interpretation of the agreement
  • Defined damages for a violation of the agreement
  • A statement that the parties are not required to reach an agreement

Is a non-binding agreement ever binding?

Although it might seem ironic, a non-binding agreement can be binding. The entire agreement may be binding, the entire agreement may be non-binding or portions of the agreement may be binding. When you draft a non-binding preliminary agreement, it’s critical to take into account whether you want the agreement to be binding in any way. If you don’t want to require that the parties reach a final agreement, you should also consider whether you want any preliminary terms to be binding while you work on negotiating a final deal.

What parts of a non-binding agreement may be binding?

Some of the parts of a non-binding agreement that may be enforceable include:

Confidentiality

One part of a non-binding agreement on primary terms that’s often binding is a confidentiality requirement. A confidentiality agreement requires the parties to keep the negotiations a secret for a period of time. The reason for a confidentiality agreement is to prevent third parties from trying to compete for business. Even if the agreement doesn’t ultimately require the parties to reach a final deal, a confidentiality clause in a non-binding agreement can be enforceable.

Exclusivity

Most non-binding preliminary agreements require the parties to negotiate exclusively for a period of time. A party in negotiations generally can’t shop the offer around to third parties until the parties involved in negotiations have time to fully explore the possibilities for a final agreement. In addition to confidentiality requirements, exclusivity provisions require the parties to negotiate only with each other for a set period of time.

Good-faith negotiations

If a non-binding preliminary agreement contains a good-faith clause, the parties must negotiate with each other in good faith. A good-faith clause ensures that neither party wastes their time preparing information or conducting due diligence if the other party isn’t really interested in the deal. Good-faith clauses are typically binding during a negotiation period if they’re a part of the preliminary agreement.

How do I know if a non-binding preliminary agreement is enforceable?

A non-binding agreement can specifically state what terms are terms are binding and non-binding. If the agreement explicitly states what provisions are enforceable, that can go a long ways to determine whether the agreement or any of its provisions are binding. In addition, the courts look at the intent of the parties and their behavior. They look at whether the contract is ambiguous. The court interprets a non-binding agreement in the same way that they interpret any other kind of contract.

What’s the penalty if a party violates enforceable terms in a non-binding agreement?

A non-binding preliminary agreement can include liquidated damages. The parties can agree on an amount that a party has to pay if they breach the enforceable provisions of the agreement. Damages for a breach might seek to compensate the non-breaching party for the time and expense that they invest in negotiations. Damages might also try to give the non-breaching party the benefit of the bargain. The damages that apply might depend on the body of law that applies to the agreement.

Choice of law considerations

Because interpretation of a preliminary agreement often depends on the body of law that applies, each party should carefully consider whether to include a choice of law provision in their agreement. An agreement may be governed by the laws where either party is located. An agreement may be interpreted by the laws whether either business is incorporated. The parties can choose the body of law that applies by stating a choice of law provision in their agreement. A choice of law provision can take some uncertainty out of how damages might be calculated in the event of a breach. Each party to a non-binding agreement should consider how each state interprets contracts and what law they want to apply to the agreement.

Be wary of emails and electronic signatures

One thing to be aware of when you’re negotiating a preliminary non-binding agreement is emails and the prevalence of electronic signatures. Most states have laws that are quite permissive in terms of using an electronic signature to execute a binding agreement. Parties negotiating or discussing through email shouldn’t assume that what they state in email is non-binding just because it’s in an email. Remember to be clear in preliminary emails in order to avoid surprises and misunderstandings that can turn into litigation.

Using a preliminary, non-binding agreement to your benefit

A non-binding, preliminary agreement is a common and important part of most mergers and acquisitions. As you draft an agreement, it’s important to carefully consider whether you want each provision of the agreement to be enforceable. Then, it’s important to effectuate your wishes in the agreement. An experienced mergers and acquisitions attorney can help you pursue your goals and avoid pitfalls in the negotiation and drafting process. Call us today or fill out our online contact form to speak with our team about your specific situation.

What Is a Letter of Intent?

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letter of intent m&a

If you’re in business or thinking of selling your business, you might hear the term “letter of intent”, or LOI. You might not know what a letter of intent is or how it can help your business. A letter of intent can be a contract, and it can also just be a statement of the future intent of the parties. It’s a written document executed by two parties that may or may not be binding. Here’s how to know when you need a letter of intent and how a letter of intent can help you in the business world:

What is a letter of intent?

A letter of intent is a written document between two parties. It can help you prepare or finalize a business deal. It outlines the major components of a business deal. A letter of intent is different from a contract because it’s often written in shorthand, and it may not be complete. Generally, it outlines the major points of a business deal between the parties so that the parties can work out the details at a future date.

What is the purpose of a letter of intent?

A letter of intent allows the parties to finalize some terms while they negotiate the remaining details of an agreement. If the parties want to begin conducting business without waiting for a complete contract, a letter of intent can give them some binding terms. In the absence of an agreement, the court might imply a contract between the parties. That can leave the terms of their business open to interpretation and uncertainty. A letter of intent allows the parties to formalize the terms they agree to right away. It allows them to state what they agree to now in hopes of negotiating a more complete agreement in the future.

How are letters of intent used in the business world?

There are multiple ways that letters of intent are typically used in the business world. First, the parties might use a letter of intent to make some of the terms of an agreement binding while they iron out the rest of the details. For example, a business might agree to merge with another company but need time to figure out details like a timeline for sale, transfer of assets and salaries for employees. The parties might use a letter of intent to memorialize their agreement and even state a selling price while leaving time for the parties to work out a timeline and other specifics.

A letter of intent might also be used to give the parties time to negotiate whether they want to enter into a deal. The parties might agree to exclusive and confidential negotiations for a period of time. They might use a letter of intent to state their intent to negotiate and also state their agreements regarding confidentiality and exclusivity. These terms can be binding. One letter of intent might look very different from another depending on the purpose of the letter.

You might use a letter of intent when you need fast performance from another party. You might use it when you have a complicated deal and you want some agreement in place before you iron out the details. A letter of intent can give you time to raise capital or do due diligence in order to decide if you want to complete a business deal.

What are the benefits of a letter of intent?

A letter of intent can be beneficial for business by giving each party the confidence to negotiate in good faith and motivation to invest resources in the negotiations. It can be a psychological boost for each party knowing that the other is serious enough about creating a deal that they want to continue negotiations. When a letter of intent helps the parties begin business quickly, it can help the parties avoid the uncertainty that comes from doing business without certain terms.

What are the drawbacks of a letter of intent?

Because of their ambiguous nature, a letter of intent is often vague. If the parties can’t agree on the final terms of the agreement, the deal might fall apart. They might engage in long negotiations for a deal that ultimately doesn’t end up happening. Alternatively, they might lock in terms that they later determine are unfavorable. The parties may also disagree on the enforceability of some or all of the letter of intent. Finally, leaks or publicity of the letter of intent may attract competing buyers or sellers.

What does a letter of intent typically contain?

A letter of intent may contain any of the following:

  • The basics – Most letters identify the parties and contain a brief statement of the deal that they hope to negotiate.
  • Confidentiality – The parties agree not to talk about the negotiation with third parties. The purpose of confidentiality is to prevent third party buyers or sellers from trying to compete.
  • Exclusive negotiations – If the parties want to negotiate only with each other, they might put an exclusivity requirement in a letter of intent. An exclusivity term can give each party confidence that the other party is present to negotiate in good faith.
  • A fee for backing out – A buyer might want a fee if the seller backs out. That can ensure that the seller negotiates in good faith and that the negotiations and due diligence that the buyer undertakes is worth their time.
  • Good faith negotiations – A requirement that the parties negotiate in good faith can encourage both parties to put their best effort into negotiations.
  • Choice of law – In a letter of intent, a choice of law provision states what state or federal law applies if the parties disagree about any terms of the letter of intent. If there’s a choice of law term, that’s the body of law that the court applies in order to decide the dispute.

Is a letter of intent enforceable?

Whether the letter of intent is enforceable comes down to the intent of the parties. In the event of a dispute, the court looks at the letter and the actions of the parties in order to determine if the parties intended for the letter of intent to be binding. One major factor the court considers is whether any terms in the letter are conditional. That is, if one of the parties only has to perform if an event occurs, the agreement likely isn’t enforceable unless the event happens. For example, if the sale of a business is conditional on the approval of shareholders, and the shareholders don’t approve, the agreement likely isn’t enforceable.

How can I make sure that my letter of intent is good?

To make sure your letter of intent does what you want it to do, it’s important to be clear on what’s enforceable and what’s not. Clearly state whether the entire agreement is enforceable or whether none of it’s enforceable. If you want only some parts of the letter to be enforceable, it’s important to clarify what parts you want to be binding. It’s also important to state what penalties you want to apply to either party if the deal falls through.

Done correctly, a letter of intent can help your business by formalizing agreeable terms and allowing the parties to move forward. If you’re considering selling your business, or if you’re looking at buying one, contact our team of experienced M&A attorneys to schedule a consultation.

How To Avoid A Federal Tax Lien (And What To Do If You Get One!)

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The last thing anyone wants to see after going to their mailbox is a notice from the Internal Revenue Service stating that there is a problem with their tax filing.  Mistakes do happen, regardless of who is preparing the return or business tax form submission. But, there are also times when numbers do not comport to government agency calculations, commonly resulting in an audit that produces circumstances the taxpayer does not expect nor want.

While tax avoidance within the guidelines is legal and acceptable, premeditated tax evasion is illegal when the Internal Revenue Service can provide sufficient evidence to press a case strongly. And when they do, they are serious. Very serious.

This leaves the audited delinquent taxpayer in a very precarious situation, to say the least, and the only recourse is to either pay up in full or retain an experienced tax attorney who understands how a tax lien can impact their estate. Here are a few steps that anyone being audited should consider.

Negotiating a Reduction During the Audit

The first step in stopping a potential tax lien is discussing the issue with the Internal Revenue Service agent during the audit. However, this should only be done with experienced legal counsel who can help mediate the discussion and evaluate the government claims based on existing tax laws. There is no code in the federal law statutes quite as extensive as the tax code, and the IRS has wide latitude when selecting a rule to apply.

Sometimes, those rules are technical and do not account for common mistakes, but sometimes minor differences could be negotiated away when the agent sees an opportunity to actually collect a significant portion of the delinquent amount in short order and settle the account quickly. This happens more often than taxpayers realize when they are honest about their return.

Bargain for an Installment Agreement

Installment agreements are a common method of settling a tax liability. An installment agreement allows the tax bill to be paid over an agreed-upon amount of time, which can work well for tax levies of under $25,000, because tax liens are not typically filed below the $25,000 threshold. However, taxes beyond the threshold can result in certain property being placed in lien and cause other issues with your estate.

Submit an Offer in Compromise

An offer in compromise, also known as an OIC, is a common method that many couples use when their tax debt is of any amount, but the delinquent taxpayer must prove they are qualified for this agreement. It is important to note that nearly two-thirds of all OIC submissions are denied. But, it can be a good faith step in getting a classification from the IRS that a debt is collectible but does not rise to the level of a lien motion.

They could also determine the tax debt is not collectible. The primary difference in these two rulings is that payments can be made toward the debt, which can help when there may be extenuating tax problems in following years, or that nothing is required to be paid. However, outstanding tax obligations are always filed against a couple’s credit report and stay in place until the debt is satisfied.

Paying in Full

The best method of settling an IRS tax debt to avoid a lien is paying the debt in full in any way possible, including applying for a loan that could make the matter one of a personal budget. While this may not work for all people, this is actually what the Internal Revenue Service prefers. This will also stop any damage the tax debt may have regarding personal credit ratings as well as ending a tax lien possibility.

One thing is for certain when dealing with the Internal Revenue Service – not paying taxes can assuredly result in final outcomes that no one wants to face. It is always important to address the problem as a serious life event, including how long it may take to emerge from the debt in good financial condition. Having an experienced estate planning and tax attorney who has dealt with estate planning issues and tax liens before can be the difference in an acceptable outcome or a lingering financial problem.

Proposed Skilled Nursing Facility Changes

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hospital planning
Moving a loved one into a skilled nursing facility (SNF) can be a stressful event for the patient and family. Many feel rushed and make rash decisions about placement because of the lack of information and perceived options. It is not always possible to plan for these life changes – sometimes, the need sneaks up without warning. This crisis can be further complicated with the lack of guidance excused as “patient choice”.

Using an estate planning attorney can help decipher the resident’s rights and hospital’s responsibilities. Traditionally, hospitals have cited legal restrictions as the force behind the lack of information and simply provided a list of nearby facilities for the struggling family.

Our professionals can help you sort through the language and stand firm on the resident rights for long-term treatment services. When moving a loved one from a hospital to a skilled nursing facility, you should expect more than a geographically relevant list.

The Centers for Medicare & Medicaid Services have proposed changes starting with a developed discharge plan within the first 24 hours of admittance. This plan needs to be comprehensive with the medications listed and the completed plan in place. The simple proposed changes keep a transparent communication line open from one facility to another. Patients and family members have the opportunity to review the plan in a less stressful timeframe over the course of the stay rather than making an immediate decision.

Traditionally, the decision to transfer to a patient to a skilled nursing facilities has happened in a short period – many times, even the day before. The patient and family did not have time to process the new plan let alone make a good decision, which creates a feeling of hopelessness through the lack of guidance and time. The structured collaborative plan prepares all involved for the possibility and transition.

With the openness of these revisions, the patient can be referred to a high-quality nursing home. Historically, the industry is known for overworked and stressed out nurses and staff. We can guide you through facility ratings – our team knows that the gamut of paperwork, finding quality measures, staffing history, and health inspections can be daunting.

Long-term nursing facilities usually mark the end of living in one’s home, and your loved one deserves the dignity of a voice. The increased sharing of patient information will help reduce the stress level and improve the difficult transition. Because patients, family, and health care providers work together to develop the plan, the patient and family are able to take more ownership in the decision making process.

These improved decisions improve a previously negative experience. With options, patients and their families can self-advocate and weigh the importance of a quality home that is further away versus one with a location closer to the family home.

How A “Gray Divorce” Can Affect Your Retirement Plans

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gray divorce

More and more married Baby Boomers are opting to face their golden years not as part of a couple but as a single individual.

With their children grown and raising children of their own, many older adults can’t see spending another 20 or 30 years with a spouse they no longer love or even have anything in common with.

What Is A “Gray Divorce”?

Although retirement is often thought of as the season of life when couples get to spend time together doing what they have planned for years, for some this period doesn’t live up to what they expected and a parting of the ways occurs. Dubbed “gray divorce”, the number of couples who are aged 50 and older who are splitting up has nearly doubled since the 1990s, according to a recent report by the Pew Research Center. The divorce rate has nearly tripled for those aged 65 and older over the same time period.

The dissolution of these long-term marriages not only impacts the family, but the retirement savings of the couple involved, who must now make changes to their financial plans.

Couples who opt for a gray divorce may find themselves suddenly having to live off half of the income they are accustomed to. That can leave them feeling hurt and resentful, especially since those going through a gray divorce often have less working years in which to rebuild their financial assets. Money that has been accumulated over a lifetime of saving in 401(k) plans, IRAs, or 457 or 403(b) accounts is often split between the couple during the divorce proceedings. The greatest fear of many retirees is that they will run out of money before they run out of life, and divorcing later in life will certainly impact how you spend your retirement years.

Update Your Beneficiary Designations

A gray divorce also impacts the couple’s estate planning. Often, married couples who have been together for a long time have executed estate planning documents such as wills, trusts, powers of attorney and advanced medical directives naming each other as the executors of the document. During a divorce, the couple can overlook changing the beneficiary and executors of these documents, which can lead to future legal problems.

It is vitally important for a divorcing couple, no matter their age, to update their estate planning documents in order to guarantee that their final wishes are adhered to and carried out. An estate planning attorney can craft these documents with language that allows your plan to stay as it is in the event of a divorce should you neglect to change your beneficiary and executor. The documents can also be drawn up in a way that spells out what happens in the event of a divorce.

As with most situations in estate planning, an ounce of prevention is worth a pound of cure – contact our team today for a consultation about your specific situation and to see how you can protect yourself and your future.

Approved for Medicaid: What if Your Loved One Receives an Inheritance?

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inheritance medicaid

One of the most dreaded possibilities following Medicaid approval is a change in the Medicaid recipient’s situation, and one of the most common changes is the receipt of funds from the estate of a deceased family member.

In a previous post, we discussed the need for any at-home spouse to update their estate plan to ensure that any assets passing to a spouse in care are done so in a manner that will not jeopardize the ongoing Medicaid approval of the in-care spouse.  However, even if the at-home spouse takes care of things, there are always situations that can arise.  One of the more common ones involves the in-care spouse receiving an inheritance from a parent or child.

If an inheritance is received, the first thing to do is contact your Elder Law attorney if you worked with one.  If you didn’t there are some important things to remember:

  • You have thirty days in which to report the receipt of assets to the Department of Social Services where Medicaid was applied for. If you fail to report within thirty days, you may be responsible for reimbursing the State for funds expended on behalf of the Medicaid recipient while they were ineligible.
  • If the amount is small and can be spent on the needs of the Medicaid recipient, be sure to complete the spending prior to the last day of the month in which the inheritance is received.
  • If the amount is large, you still may be able to spend it down before the last day of the month. Consider prepaying for the individual’s funeral in full or paying off any outstanding obligations.
  • If there is an at-home spouse, consult with your Elder Law attorney about transferring the inheritance to the at-home spouse.
  • Do not give the money away to others – it will cause a period of ineligibility.
  • Do not sign a renunciation of your interest in the inheritance (or on behalf of the individual) – a renunciation is considered exercise of control over the asset which Medicaid views as a gift.

If, at the end of the month, the individual still has more than $2,000.00, they will need to pay privately for their care until they are back below $2,000.00.  Again, an Elder Law attorney will be able to guide you through this process in a manner that is beneficial for the Medicaid recipient and, if possible, for his at-home spouse, but do not wait – take affirmative steps to address the situation.