Tag: Contract Terms

Have You Looked At Your Buy-Sell Agreement Lately? Business Succession Planning

John, Alexandria, Mary, Martin, and Yvette, formed the Jammy Sleepwear Company over thirty-five (35) years ago.  They were equal partners and formed a corporation.  On the advice of their attorneys, the entered into a shareholders’ agreement that contained buy-sell provisions.  This type of agreement is sometimes referred to as a “buy-sell agreement”.

Their buy-sell agreement contained various provisions, including under what circumstances a departing shareholder’s shares would be purchased, what the purchase price of those shares would be, and the terms of payment.  Since the business was in its infancy, they agreed it would be valued at its “book value”, meaning that the value of the assets on its financial statements, less all obligations, would be the business’s value.  There was no adjustment for good will or other intangible assets.  Also, the increase in value of any assets would not be taken into consideration.  The purchase price to a departing shareholder was to be paid in twelve (12) months, in equal monthly payments.  The business was required to purchase a departing shareholders shares.

Since they formed the business in 1980, they acquired other businesses and purchased real estate through a separate LLC.  They did not think to have a buy-sell for the LLC.

John has announced he would like to retire, but he has objected to the purchase price as being “unfairly” low.  He has advised the other owners that he will keep his interest in the real estate, since it will provide him with a “good stipend” during his retirement.  Shortly thereafter, Mary announced her retirement.

The remaining owners are concerned that the business will not be able to support payments to John and to Mary.  Also, the remaining owners would prefer that John and Mary also sell their interests in the LLC.

Unfortunately, the shareholders (and LLC members) did not regularly review their buy-sell agreement.  As the value of the business grew, the amount of the payments increased and would put a strain on the cash flow of the business.  If more than one owner were to retire, it would cause a bigger strain.  Either the business would have to borrow money, the owners would have to make capital infusions, new investors would be needed, or the business would need to be sold.

Some buy-sell agreements address these types of situations, by limiting the amounts that must be paid out to departing owners on an annual basis.  For example, the payments cannot exceed a specific dollar amount or a percentage of gross profits.  Also, when the owners buy real estate to be used by the business, they might consider including the real estate as a part of the buy-sell process.

Buy-sell agreements should be reviewed periodically to ensure they continue to meet the needs of the business and its owners.  Levin Ginsburg has been advising business owners regarding legal aspects of their businesses, including buy-sell agreements for almost forty  years.

Please contact us with any questions you have regarding your business (including any buy-sell issues) at 312-368-0100 or Morris Saunders at msaunders@lgattorneys.com.

Employee Bound by Handwritten Note Settling Employment Discrimination Case

People are often encouraged to “put it in writing”.  Generally, that is an excellent idea.  But occasionally it may be a disadvantage, especially if what was thought to be an informed memorandum turns out to be a definitive settlement agreement.

Martina Beverly sued her former employer, Abbott Laboratories, for employment discrimination.  The parties agreed to mediation.

The Mediation session lasted fourteen hours with each party being represented by an attorney.  Toward the end of the mediation, Beverly, as well as an Abbott representative and both parties’ attorneys signed a handwritten memo that read as follows:

I Jon Klinghoffer will commit that my client will communicate to its internal business client the fact that Abbott/AbbVie has offered $200,000 + Abbott/AbbVie pays cost of mediation to resolve this matter and that Martina Beverly has demanded $210,000 + Abbott/AbbVie pays cost of mediation to resolve this matter. Both parties commit [sic] that their offer and demand will remain open until Tuesday, July 22, 2014, 3:00 PM central.

The next day, Abbott’s attorney sent an email to Beverly’s attorney agreeing to accept Abbott’s $210,000 offer and attaching a formal settlement agreement for review.  Almost immediately, Beverly’s attorney emailed an enthusiastic response and, concurrently, sent the settlement agreement to Beverly for her review.

Beverly ultimately refused to sign the formal settlement agreement and Abbott went to court to enforce the hand written agreement.

Abbott asserted the handwritten agreement contained an offer, Abbott’s acceptance and a meeting of the minds.  Beverly claimed the handwritten agreement was simply a preliminary memorandum that a contemplated the drafting and execution of a formal settlement agreement.

The court ruled that Beverly was bound by the handwritten document because it set forth all of the essential terms of the settlement and because both parties and their respective attorneys had signed it.

Although Beverly argued the handwritten agreement omitted a number of material provisions such as identification, future cooperation between the parties, Beverly’s future employment options with Abbott, the allocation of the $210,000 between back pay (which is taxable) and damages, (which was not) and any language regarding waiver and release, that made it unenforceable, the court ruled a contract may be enforced even if some contract terms are missing or are left to be agreed upon at a future date.

This case demonstrates that when parties are engaged in efforts to resolve a disputed matter they should approach with great caution a rush to produce an informal memorandum of understanding.  It may have a legal significance that transcends their expectations when they signed it.

If you have any questions in this area, please contact:

Michael L. Weissman at:

mweissman@lgattorneys.com or 312-368-0100.


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