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SUMMER 2019

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Distributor's Link Magazine Summer 2019 / Vol 42 No3

76 THE DISTRIBUTOR’S

76 THE DISTRIBUTOR’S LINK Roman Basi Roman Basi is the President of The Center for Financial, Legal & Tax Planning, Inc. Roman graduated from Milliken University obtaining a Bachelor’s of Science Degree with a minor in Psychology. He earned an MBA from Southern Illinois University with an emphasis in Accounting and recevied his JD degree from Southern Illinois University. Roman is a licensed attorney in Illinois, Missouri and Florida and is in high demand for his expertise in financial, legal and tax matters. His areas of expertise include mergers and acquisitions, contracts, real estate law, tax and estate planning. INTRICACIES WITHIN AN M&A TRANSACTION: OVERLOOKED ISSUES THAT COULD DELAY CLOSING When buying or selling a company, it is important to recognize and understand the intricacies within a merger or acquisition in order to circumvent potential issues prior to closing. Those familiar with mergers and acquisitions (M&A) understand the importance of key transactional aspects within M&A transactions such as the letter of intent, due diligence, purchase price allocations, working capital (as explained in last month’s Tax Advisory) and purchase agreements. However, there are intricacies within those aspects that play a major role in a timely formidable closing. This article aims to highlight some potentially overlooked or unnoticed issues that occur in M&A transactions. We hope to prepare our readers for potential disputes that can arise and ultimately delay closing. The issues include matters of employee vacation and benefits packages, indemnification through baskets and caps, and the Worker Adjustment and Retraining Notification Act (WARN Act). First, we will examine employee vacation and benefit packages, such as paid-time-off (PTO). In a stock sale, the buyer essentially steps in to the Seller’s shoes leaving initial employment to remain unchanged. However, in a typical asset sale, the Seller would terminate all of its employees and the buyer would immediately rehire the employees of its choice. The issue arises when the employees to be terminated have accrued vacation or PTO. Depending on a number of aspects including the state the transaction takes place, the employment agreement between the Seller and employee, or the Employee Handbook, the vacation or PTO is either a liability to be paid at closing by the Seller or liability to be assumed by the buyer. Moreover, depending on the number of employees, types of benefits, and accrual period, the vacation and PTO can be a large liability CONTRIBUTOR ARTICLE that must be addressed prior to closing. It’s vital to understand the type of calculation necessary to adjust for a mid-year transaction in order to best protect your client from overpaying on a liability. Issues, specifically liability regarding employee vacation and PTO can be a point of contention and negotiation between the buyer and Seller, therefore the importance of recognizing and remedying an understanding between both parties is vital for a timely closing. Another important consideration that arises in a merger or acquisition are indemnification provisions most commonly referred to as “baskets” and “caps.” Indemnification from an M&A standpoint means that one party (generally the Seller) will defend, hold harmless, and indemnify the other party (generally the buyer) from specified claims or damages. A basket and cap pertains to the indemnification provisions within a purchase agreement that generally serves as the sole source of recovery from the Seller for any loss or damages suffered by the buyer as a result of the transaction. Baskets and caps are typically included with the representations and warranties made by the Seller in the purchase agreement. When the Seller makes such representation or warranty, indemnification protects the buyer from the Seller’s representations and warranties being inaccurate. A cap is the upper dollar limit of the Seller’s indemnification obligations to the buyer. The cap represents the total amount of losses and damages the buyer is entitled to recover from the Seller. Naturally, the Seller will seek the lowest cap possible while the buyer will attempt to seek no cap at all. This point of potential contention and negotiation must be on the radar of your M&A team. CONTINUED ON PAGE 158

THE DISTRIBUTOR’S LINK 77 TRUST BRYNOLF TO SECURE YOUR FASTENER NEEDS Brynolf Manufacturing, Inc. opened for business in Loves Park, Illinois in March of 2000. The company was started by brothers, Bob and Dan Brynolf, who had over 70 years of combined experience in the fastener industry. The Company is currently managed by Dan and Bob’s two sons, Chris and Zack, who both have close to 20 years of experience in the industry. In June of 2004, they moved from a 17,000 square foot facility to nearly 40,000 square feet of manufacturing space in adjacent Rockford, Illinois, and in July of 2012, they moved again into a 116,000 square foot facility. “We are positioned to meet the growing needs of our customers through our expanding capacities and capabilities,” states Dan Brynolf, President With capabilities ranging from #4’s to 5/8” diameters and their metric equivalents, Brynolf Manufacturing is able to produce high quality cold-headed fasteners with BUSINESS FOCUS ARTICLE BRYNOLF MANUFACTURING INC. 412 18th Ave, Rockford, IL 61104 EMAIL info@brynolfmanufacturing.com TOLL-FREE 877-237-4554 WEB www.brynolfmanufacturing.com lengths up to 6.25” dependent upon diame-ter. Secondary capabilities include SEMS, trimming, slotting, shankslotting, and pointing with a large variety of head styles and drive styles available. They can manufacture to a required standard or specification. However, they are not afraid of a challenge and manufacture numerous specials. February of 2019 marked the 10th Anniversary of manufacturing self-drilling screws, an ever-growing division of the Company. Their 100% USA melted and manufactured stock line of self-drillers now includes 1/4-20 #5 Points from 3” to 6” in length, which usually ship same day. From standards to specials, they are eager to fill your drill-screw requirements. Being an ISO 9001 registered company since June of 2001, Brynolf Manufacturing, Inc. will continue to be a customer focused manufacturer by providing competitive pricing, exceptional products, and timely delivery. BRYNOLF MANUFACTURING

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