M&A
REPORT
A Newsletter from the Mergers & Acquisitions Practice Group
Editor’s Note…
This is the initial issue of the
Flaster/Greenberg M & A
Report, and is the product of
lawyers with extensive experi-
ence in handling sale and acqui-
sition transactions. The Report
will be published on a tri-annual
basis and will contain a spectrum
Richard J. Flaster
of articles that either provide
broad insights for planning such transactions or
focused discussion of new developments in statutory,
regulatory or case law. Further, although the legal
aspects of M&A transactions are usually driven by
corporate and tax considerations, most transactions
also raise issues in other diverse fields. Accordingly,
the Report will also typically include articles in the
fields of real estate, environmental law, employment
and labor law, pensions and employee benefits,
securities law, litigation, banking, e-commerce,
intellectual property law, creditor/debtor rights,
bankruptcy law and, when appropriate, estate and
charitable planning and divorce law.
We hope you will find the Flaster/Greenberg
M & A Report to be interesting, readable and
insightful, and we welcome your comments
in response.
If you provide us with your e-mail address
and the e-mail addresses of colleagues who
would be interested in receiving this
report, we would be pleased to include that
information in the database for this report.
Please send that information to me at
rick.flaster@flastergreenberg.com.
In This Issue. . .
Checklist for Sales and Acquisitions ..................1
Planning for Default in Acquisition
Agreements ......................................................2
Pitfalls in Continuing Pension and
Benefit Plans ....................................................3
Allocating to Personal Goodwill
Avoids Double Taxation ..................................4
Copyright © 2007
WINTER 2007
Checklist for the Sale or Acquisition
of a Closely-Held Company
BY RICHARD J. FLASTER
All sales and acquisitions of closely-held companies share a general sequence of
activity from inception to consummation. Phases of the process will invariably
differ from transaction to transaction, but there is usually a substantial commonality
of approach. Although each aspect warrants comprehensive discussion (as will be
provided in future issues), the following is a checklist and general summary of the
most material aspects warranting attention.
1. Targeting the Prospective Suitor
The best method for targeting a prospect will
depend on the size of the transaction, the nature
of the industry and whether the courtship will
be conducted through one-to-one communica-
tions or a bid/auction approach.
a. Contact Local Competitors: All business
persons know the identities of their closest
competitors and can initiate contact on
their own and without outside assistance
other than perhaps legal counsel. Although
the protection of confidential information is
more difficult in dealing with competitors,
they often represent the most appealing
suitor, in that the transaction will not only
facilitate cost savings and synergies but may
also eliminate some of the more damaging
effects of competition.
b. Contact Strategic Prospects: Sometimes the best suitors are companies
engaged in similar business operations in a different region. Such a company
might either wish to expand territorially (and hence be a suitable buyer) or
pursue an exit strategy for its owners (and hence be a suitable seller).
Similarly, companies engaged in related businesses may open vertical
integration possibilities and also be attractive.
c. Contact Business Brokers or Investment Banking Advisors: Brokers
and/or investment banking advisors can often locate prospective suitors
from their own contacts and undertakings or can locate and/or form
interested investment groups. They can also assist in preparing, evaluating
and disseminating the transaction information (usually in the form of a
confidential placement memoranda) and, if appropriate, in conducting a
bid and auction process to narrow the field.
(continued on page 5)
M & A Report • Flaster/Greenberg P.C.
 2
Planning for Default in Acquisition Agreements
BY ALLEN P. FINEBERG
An important aspect of all acquisition
agreements is to address what happens when
the deal goes awry, either before or after clos-
ing, when one or both parties allege a default.
The key to resolving such key contract issues,
often overlooked, in many cases lies in the pro-
visions known as the “boiler plate” language.
Litigation v. Arbitration
There can be no certainty as to whether the choice for mandatory
arbitration or litigation to resolve disputes will benefit a particular
party. The conventional wisdom holds that arbitration is faster and
less expensive and that if the dispute involves technical or specialized
knowledge relating to a particular business or industry, a well-draft-
ed arbitration clause can permit the parties to select arbitrators who
are versed in the field whereas litigation subjects the parties to judges
who may have no knowledge or facility with that business. However,
in contrast to litigation, arbitration will often limit the scope of
discovery, remedies (such as equitable relief) and appeal rights.
An alternative, which addresses some of these concerns, while
still retaining many of the benefits of arbitration, is to provide a
hybrid approach whereby most matters are addressed by arbitration,
but other issues are reserved for court resolution — e.g., monetary
damages determined by arbitration and injunctive relief or specific
performance addressed by the courts, or a rapid liability determina-
tion through arbitration with damages assessed at a trial by jury.
Choice of Law and Forum
Where the transaction and parties are confined to a single state,
choice of law will not be a significant issue. However, where there
are connections to more than one jurisdiction (such as where the
buyer and seller have offices in different states or where the acquired
business operates in multiple jurisdictions), the choice of law appli-
cable to the resolution of disputes will become relevant. In general,
each party prefers to choose the familiar law of its resident jurisdic-
tion, or perhaps a jurisdiction with the most accommodating
substantive law. For example, if the law of one state favors enforce-
ment of restrictive covenants, the party benefiting from such a
covenant might press for application of that state’s law.
In stipulating the governing law, it is important to specifically
carve out that jurisdiction’s rules on “conflicts of law”. Otherwise,
despite the intention to have the substantive law of the stated juris-
diction control, the application of that state’s conflict of law rules
could require the court to apply the substantive law of another state.
Although the choice of forum will often follow the chosen juris-
diction of the governing law, that need not be the case. Often a
party will try to make it expensive and difficult for the other party
to initiate (or defend) a suit by requiring that the dispute be litigated
in an inconvenient forum - thus creating a hardship that might
impede legal action and further a better settlement.
M & A Report • Flaster/Greenberg P.C.
Attorneys’ Fees
Under normal Court rules, each party bears its own legal costs
and there is no obligation on the losing party to reimburse the win-
ning party for its legal costs. Although that result can be changed
by agreement, this option is clearly a two-edged sword and should
be chosen with care. From a practical standpoint, having the prevail-
ing party entitled to legal fee reimbursement may have less to do
with fairness and more with which party has greater financial
strength. If faced with the added possible burden of paying double
legal fees in the event of a lost verdict, the party with fewer
resources may be intimidated from pressing a legitimate claim. On
the other hand, such a provision should encourage the parties to
think carefully before commencing suit (especially when the claim is
questionable), which may promote negotiation of a settlement in
the event of a dispute.
Allocation of the Purchase Price
In an asset sale, tax rules compel the parties to allocate the pur-
chase price among the different types of assets in order to establish
their basis, the periods of depreciation or amortization, etc. For
example, since the amortization period for purchased goodwill and
restrictive covenants is longer than for other non-real estate assets
(15 years) and its amortization is subject to recapture on resale, the
parties often attempt to allocate a smaller portion of the purchase
price to such items. However, such allocations could have a surprising
impact in the event that there is a later need for contract enforce-
ment. For example, if the buyer sues for damages for violation of the
restrictive covenant, it could leave itself open to a challenge that the
agreed consideration allocated to the covenant may be deemed to
be the maximum limit of the damages. While it may be possible to
specifically address this concern by providing that the allocation for
tax purposes does not restrict the damage assessment and that all
components of the transaction price should be integrated, the use of
such language may invite the risk of an IRS challenge to the validity
of the tax allocation on audit.
(continued on page 4)
 3
Pitfalls in Continuing Pensions and Benefit Plans
BY ELLIOT D. RAFF
Pension and other employee benefit plans
present many pitfalls to the unwary buyer.
Following is my short summary of some of
the greatest dangers on acquiring a company:
1. Underfunded Defined Benefit Plans.
“Defined benefit” plans are traditional quali-
fied retirement plans that provide an annuity
at retirement based on such factors as aver-
age compensation, years of service, and age. The chief financial risk
related to such plans arises because
the employer-sponsor must satisfy
minimum funding requirements
(determined annually by an independ-
ent actuary), which do not necessarily
produce an immediate equivalence
between existing plan assets and
current benefit obligations. Funding is
interest-rate sensitive (low rates inflate
liabilities), demographic sensitive
(current liabilities increase as employ-
ees age) and, obviously, asset-value
sensitive (lower than assumed asset
value). Plan termination is subject to
government review and approval and
must comply with certain financial
thresholds. Thus, an underfunded
defined benefit plan can quickly
become extremely expensive to
maintain and impossible to terminate. …an underfunded defined
2. Multi-employer Pension
Plans. Often, the defined benefit plan is a benefit plan can quickly become
multi-employer pension plan sponsored by
extremely expensive to maintain
a labor union for a group of employers.
These plans are often underfunded.
Although contribution rates may be afford- and impossible to terminate.
able on a cash-flow basis, exiting such a plan
will nearly always give rise to “withdrawal
liability” — colloquially described as “the
employer’s fair share of the underfunding” even if all contributions
have been paid. Withdrawal liability attaches to all entities under
common control with the sponsor and so acquiring a company with
withdrawal liability would expose the buyer and subsidiaries to this
liability. Further, if not carefully structured, the sale of a business
may create withdrawal liability even where the seller’s employees
become employees of the buyer, and the buyer joins in the plan.
3. Leveraged ESOPs. A leveraged employee stock ownership
plan (“ESOP”) is a special type of qualified retirement plan that
borrows funds in order to purchase stock of the sponsoring corpo-
ration. Often, corporate executives serve as Trustees. A stock trans-
action presents numerous complex fiduciary and tax compliance
issues, particularly where executives serve as Trustees and if the
buyer wants to “de-leverage” and terminate the ESOP.
4. Non-Qualified Deferred Compensation. Recently enacted
Internal Revenue Code section 409A created strict statutory
requirements that must be satisfied in order for non-qualified
deferred compensation plans (such as stock appreciation rights
plans, executive deferred compensation plans, or supplemental
executive retirement plans) to effectively defer income taxation and
minimize Social Security taxation. Under IRS guidance, certain
stock options and related equity arrangements will be treated as
non-qualified deferred compensation plans, which must comply
with the new law (and which would effectively
destroy the intended option treatment). All
NQDC plans must be brought into formal
compliance with the new law and IRS regula-
tions by December 31, 2007. Failure to
comply may result in tax costs and penalties
imposed on executives whose security may be
the key to a successful post-transaction
integration and growth.
5. Retiree Health Insurance. Employers
that have promised employees that they would
have lifetime health insurance often cannot
reduce or eliminate this without substantial
risk of litigation. This is typically an expensive
benefit, the cost of which is hard to project
and difficult to eliminate.
6. COBRA. Depending on
the structure of the acquisition
transaction, the sale of a
business may trigger COBRA
obligations. In some cases, the
buyer may have COBRA
obligations to seller’s former
employees, which need to be
properly managed.
7. Disqualification of
Qualified Plans. Qualified retire-
ment plans (such as pension plans
and 401(k) plans), must meet a host of annual non-discrimination
tests. Failing any of these tests disqualifies the plan, which can have
potentially ruinous financial consequences. If the buyer merges the
seller’s disqualified plan into its pre-existing qualified plan, it would
taint the buyer’s plan’s qualification as well. Although, virtually all
qualification failures can be corrected through voluntary correction
procedures, this requires discovering the failure and bringing it to
the IRS’s attention before the IRS discovers the problem on its own.
All of these issues can be discovered through proper due
diligence and then either protective provisions can be negotiated or
corrective action taken in advance of constructed commitment
or closing. N
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 4
Allocation to Personal Goodwill
BY MICHAEL P. SPIRO
When a business is sold, one of the most
valuable assets transferred is its goodwill,
which encompasses many intangibles, includ-
ing reputation, business relationships, brand
recognition and customer loyalty. However,
in the right circumstances, tax savings can be
achieved by attributing a portion of the price
paid to the sale of goodwill attributable to
the shareholder (as the true owner) rather than the entity.
Generally, if a corporation is a C corporation or is an S corporation
with pre-election goodwill value reflected in “built-in-gain,” the
corporation’s sale of its business and assets (including goodwill) will
likely result in a gain realized and taxed first at the corporate level
and then taxed again upon receipt of the net proceeds by the share-
holders. However, this double taxation of goodwill may be avoided
to the extent that the goodwill really belongs to the shareholders
(rather than to the corporation), and that portion of the purchase
price is paid directly to the shareholders. See Martin Ice Cream v.
Comm’r 110 T.C. 189 (1998) and Norwalk v. Comm’r, T.C.
Memo 1998-279 (U.S. Tax Ct. 1998).
In the Martin case, the Court determined that where a certain
component of goodwill (essentially the transfer of an oral distribution
agreement, personal relationships, and ice cream distribution
expertise) was sold, the selling corporation was not subject to tax on
the sale, because the goodwill belonged not to the corporate entity
but rather to its shareholder. In determining that this portion of the
goodwill was attributable to, and owned by the shareholder (rather
than the corporation), the Court relied on the following factors:
• The shareholder was not subject to a covenant not to
compete with the corporation;
Planning for Default in Acquisition Agreements
(CONTINUED FROM PAGE 2)
Indemnification
It is not uncommon to include indemnity provisions for breaches
of warranty or for buyer’s failure to satisfy an assumed liability.
While such provisions are usually reciprocal, which seems fair on its
face, that could prove to be a trap where only one party has the eco-
nomic resources to back up the indemnity. In such situations,
indemnification is meaningful for only that one party, and hence
consideration should be given to dispensing with the indemnity
altogether, so as not to become subject to this practical inequity.
Parity of Remedies
Similar to the concept of reciprocal indemnities discussed above,
differences in the parties’ economic positions may make it inappro-
priate for remedies to be reciprocal. Similar concerns also arise
where the stakes of the parties are unequal.
For example, contracts often provide that in the event of a pre-
closing default, the remedies are limited to the termination of the
M & A Report • Flaster/Greenberg P.C.
• The shareholder did not have an employment agreement
with the corporation; and
• The shareholder never assigned his personally-generated
goodwill to the corporation.
Likewise, in the Norwalk case, the Court determined that where an
accounting company liquidated,
the liquidating corporation did
not have taxable income on the
distribution of certain “customer
based intangibles,” on the
rationale that the shareholders
already personally owned that
aspect of the goodwill. More
specifically, it said that “It is
reasonable to assume that the
personal ability, personality, and
reputation of the individual
accountants are what the clients
sought. These characteristics did
not belong to the corporation as
intangible assets, since the
accountants had no contractual
obligation to continue their
connection with it.”
A careful evaluation should always be made as to the components
making up the goodwill of a business being sold. If the goodwill
(and its underlying components) being sold is properly attributable
to the individual shareholders—and there are no corporate rights
thereto—then such amounts should be allocated and paid to the
shareholders and be subject to only a single capital gains tax to the
individual rather than first being taxed to the corporation at ordi-
nary income rates. N
contract and that seller will retain the deposit as liquidated damages
if the buyer defaults, and that the deposit will be refunded to buyer
along with reimbursement for the buyer’s expenses if the seller
defaults. However, the appropriate remedy might instead be to give
the buyer a right of specific performance, since such limited reme-
dies would not be adequate to address buyer’s true loss on default.
There are no “best” approaches to these issues since they are
usually fact-sensitive. However, realistic consideration and negotia-
tion of these issues should produce a more protective agreement. N
This report is for general use and information, and the
content should not be interpreted as rendering legal
advice on any matter. Specific situations may raise addi-
tional or different issues and such information should be
coordinated with professional legal advice.
 5
Checklist for the Sale or Acquisition of a Closely-Held Company
(CONTINUED FROM PAGE 1)
2. Purchase Price Evaluations
a. Compilation of Financial Information: Financial state-
ments and federal income tax returns for the last three to five
years should be reviewed and the information “adjusted”
and/or “weighted” to more properly reflect future operations:
• Audited vs. unaudited statements to reflect accurate levels
of inventories and receivables.
• Determine latest work-in-process value — particularly where
production costs have been expensed rather than capitalized.
• Delete extraordinary or non-recurring revenues or expenses.
• Adjust for differences in cash vs. accrual methods of
reporting income.
• Add back any “excess” owner/employee cash compensa-
tion and fringe benefits.
• Determine net fair market value for tangible assets (eg.,
book value vs. liquidation value vs. replacement value of
equipment, obsolete or slow-moving inventory, supplier
return privileges, credits, etc.).
• Determine undisclosed and/or disputed liabilities (eg.,
unfunded past service costs or multi-employer obligations
for pension plans, deferred compensation plans; incentive
bonuses; stock options; potential contract or tort claims;
potential unfunded sales income or payroll tax obligations).
b. Valuation: There is usually no “magic” correct value, but
rather an appropriate range of values, dependent upon the
“fit” of buyer and seller and the realism of the assumptions
utilized in the valuation methodology. Also, consideration
should be given to internal expressions of valuation (eg.,
buy-sell agreements, insurance arrangements, and deferred
compensation and noncompetition agreements).
• Obtain Outside Appraisal: A qualified business appraiser
can offer insights as to comparable sales or to appropriate
valuation calculation assumptions (eg., industry risks and
capitalization rates, interest rates, etc.) as well as helpful
analyses of alternative valuation method approaches (eg.,
discounted cash flow analysis vs. liquidation value vs. tangi-
ble/intangible asset valuation as set forth in Revenue Ruling
59-60 as modified/amplified by Revenue Rulings 65-192,
65-193, 68-609, 71-287, 80-213 and 83-120; etc.).
• Strategic and/or Value Added Components: Synergies,
supplementary product lines, operating economies and/or
vertical integration opportunities, new supply or distribution
avenues, elimination of price and customer competition, etc.
• Reductions or Add-Ons for Contingent Events:
Sometimes, it is appropriate to reduce or supplement a
calculated value for future possible contingencies (good
and bad) — eg., labor union problems, plant closure obli-
gations, multi-employer pension plan obligations, unfunded
past service pension costs, product liability exposures, tax
exposures, short-term lease rights, uncertain supply or
sales commitments or credit lines, patent expirations or
other intellectual property uncertainties and/or exposures,
as well as the prospect of greater profitability from new
customers, lines, technology or endeavors, which have not
yet been reflected in historical financial results.
3. Price Adjustments
Despite agreement as to basic value, ancillary price adjustments may
become appropriate in various circumstances.
• Taxable vs. Nontaxable Transaction: Transactions can be
structured (all or in part) to exclude or defer current income
taxation (eg., tax free reorganizations under Code §368); or
as a sale of “small business stock” under §1252; or as like-
kind exchanges under Code §1031; or as installment sales
under Code §453.
• Fixed Price vs. Current: A higher price may be justified if
the purchase price provides for a partial earnout, since the
ultimate uncertainties to the buyer and/or the impact of
post-sale events will then be known rather than merely
forecast. However, a cash payment approach may present
greater practical risk to the buyer with respect to the enforce-
ability of warranties, restrictive covenants, etc.
• Cash vs. Deferred Payment: Often the inherent certainty
represented in a cash payment (with its elimination of complex
credit controls, securities arrangements and remaining credit
risks as well as the impact of market interest rate fluctuations
and/or other post-sale events) and the advantage of liquidity
(for alternative investment) may justify a reduction in the
acceptable price.
• Payment in Stock: Often a
payment in stock may offer such
ready “currency” for the buyer
that it will be prompted to pay a
higher price. In addition, it may
be appealing to the seller, in that
it may allow the sale to be
accomplished without current
taxation. However, unless the
stock received is marketable, the
seller may be locked into an even
less flexible and illiquid situation.
Therefore, careful consideration
should be given to whether the
stock of the buyer is tradable,
subject to a securities law
restriction or a contractual lock-
in obligation, etc.
• Purchase Price Tax Allocations and Tiered Payments: The
true after-tax cost (to the buyer) or benefit (to the seller) of
a purchase price payment is determined by its tax “character”.
From the buyer’s perspective, a payment that is fully and
(continued on page 6)
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 6
Checklist for the Sale or Acquisition of a Closely-Held Company
(CONTINUED FROM PAGE 5)
currently tax deductible is less costly to the buyer, and a
payment that is subject to being taxable as a capital gain
rather than ordinary income or is subject to single taxation
(rather than double taxation at both the entity and owner
tiers) is more beneficial to the seller. Various techniques may
allow the parties to either optimize their respective positions
or negotiate an acceptable middle ground.
• Impact of Payroll Taxes and FICA Benefits: To the extent
that a portion of the consideration is characterized as being
paid in the form of employment compensation, consulting
fees, deferred compensation and/or compensation for
restrictive covenants, attention should be given to the result-
ing cost of FICA and other payroll taxation of such payments
as well as their potential impact on the recipient’s entitlement
to Social Security and/or other retirement benefit payments.
Thoughtful planning may minimize such tax impact.
5. Due Diligence
• Price Adjustments for Tax Attribute Carryovers: Subject to
the limitations of Code §382, 383 and 384, the availability of
a net operating loss carryover may justify an enhancement of
the purchase price.
• Post-Sale Transition Services: Whether post-sale employ-
ment or consultation services are required by the buyer or
desired by the seller, they may impact on the amount and
character of the price paid and should be carefully coordinated
with retirement plan and/or Social Security issues.
4. The Negotiating Process
• Coordination of Team: Lawyer, accountant, broker/advisor
and businessman — each has a part to play but must be
coordinated by a team leader.
• Establish Negotiation Objectives and Parameters: The
objectives (whether concerning price, personnel, method of
payment or other concerns) should be understood from
inception, so that all strategic discussions are focused on the
ultimate and subordinate goals.
• Confidentiality and Noncompetition Agreement:
Negotiations should not proceed much beyond the initial
contact stage unless and until the parties reach agreement not
to misuse confidential information nor raid valued employees
or customers in the event that the transaction is aborted.
M & A Report • Flaster/Greenberg P.C.
• Stayed Information Release: Confidential information that
could impair competitive operations in the event the transac-
tion is aborted should be withheld until a definitive agree-
ment is reached, which is conditioned upon disclosure and
compliance with representations. For example, disclosure as
to the volume of company’s customers may be provided early
on, but without their identities being provided until later on.
• Non-Communication With Employees, Customers,
Suppliers, Etc.: Efforts should be taken to insulate potentially
concerned relationships until the transaction has become
unconditional.
• Exclusivity: Often a potential suitor will require that it be the
exclusive target or suitor during a brief exploratory/negotiation
period before agreeing to invest the required energy and cost to
the negotiation process.
• Books and Records: Review and confirmation of ownership
records and authorization for the proposed transaction.
• Tangible Assets: Inspection of physical plant and equipment
to confirm good operating conditions and/or to evaluate the
state of inventory and work-in-process.
• Overall Operations: Analyze quality and pre-sale perform-
ance of key employees and other personnel as well as supply
and distribution structures and whether bound by long-term
contract or merely at-will arrangements.
• Customers/Suppliers: Evaluate (even without specific
identities) the number, region, nature and permanence of
seller’s customer base and suppliers, and whether bound by
long-term contract or merely at-will arrangements and extent
produced by personal workforce or internet/technological
arrangements.
• Environmental Compliance: Usually at least a “phase one”
inspection and compliance should be obtained as well as
preliminary assessment and site investigation to obtain
“innocent purchaser status” under applicable acts and/or a
“status of non-applicability”.
• Employees: Review should be made of employee relation-
ships (particularly compensation and benefit terms) and
whether they are subject to long-term agreement or at-will
arrangements and whether there is a willingness to remain
after a change of control and a determination made whether
to condition the transaction so as to guarantee the ongoing
stability of the workforce.
• Receivables: The quality and payment history of receivables
should be carefully evaluated to assess quality of the
revenue base.
• Lien Searches: UCC-1 and realty, lien and bankruptcy
searches made and good standing certificates obtained.
(continued on page 7)
 7

Checklist for the Sale or Acquisition of a Closely-Held Company

(CONTINUED FROM PAGE 6)

• Warranty Declarations: Although usually a part of the
documentation process, requests for warranties are more use-
ful to uncover problems in advance of closing than to create
indemnification claims after closing — eg. good, marketable
title free of liens and encumbrances; compliance with all
contracts and laws; confirmation of solvency; transaction will
not violate any other agreement, etc.
6. Financing Arrangements
Consideration should be given to the availability of internal
resources vs. bank loans vs. purchase money financing, since this
will materially impact on the desired form of purchase price pay-
ment (viz., cash vs. stock vs. installment sale vs. merger, etc.)
7. Possible Required Filings and/or Appraisals
• Bulk Sale Filings: Commercial or tax bulk sale state filings
may be required in advance of closing.
• Antitrust Filings: The relative size of a transaction in the
marketplace may require federal filings (eg., Hart Scott
Rodino filings).
• Environmental Filings: ISRA, CERCLA, LUST and/or
Spill Act compliance may be required or “non-applicability
status” confirmed.
• Required Licensing: Businesses subject to governmental
licensing must obtain advance approval for the business
transfer.
• Commercial/Creditor Approvals: Approvals of leases, lia-
bilities and/or other contractual commitments must be
obtained in advance of closing.
8. Formulate Sale/Purchase Proposal
• Letter of Intent/Term Sheet: Often a non-binding pro-
posal is presented to elicit interest and is followed by a signed
Letter of Intent or Term Sheet (which could be nonbinding,
binding or binding only as to exclusivity, confidential infor-
mation, and nonsolicitation covenants) after tentative agree-
ment is reached for the purpose of holding the deal together
until “definitive agreements” are drafted and signed.
9. Definitive Agreement
The issues raised by this aspect are too numerous and complex
to be set forth in this general article and will be addressed in a
later issue of the Flaster/Greenberg M & A Report.
10. The Reporting Requirements
Code §1060 requires reporting to the IRS on Form 8594 as to the
allocation of the transaction purchase price under the “residual
method” — viz., essentially allocating first to the fair market value
of all assets, whether specified or not in the agreement, and the
balance to goodwill and going concern value as well as the amount
of any noncompete payments made to owner/employees. N

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MERGERS & ACQUISITIONS PRACTICE GROUP

The following tax and corporate lawyers will usually lead the M&A transaction, but will integrate their services with others in
the firm who concentrate their practices in the fields of real estate, environmental law, employment and labor law, pensions and
employee benefits, securities law, litigation, banking, e-commerce, intellectual property law, creditor/debtor rights, bankruptcy
law and, when appropriate, estate and charitable planning and divorce law.
Allen P. Fineberg Elliot D. Raff Michael P. Spiro
allen.fineberg@flastergreenberg.com elliot.raff@flastergreenberg.com michael.spiro@flastergreenberg.com
856-661-2264 856-382-2241 856-382-2203

Richard J. Flaster Markley S. Roderick Laura B. Wallenstein

rick.flaster@flastergreenberg.com mark.roderick@flastergreenberg.com laura.wallenstein@flastergreenberg.com
856-661-2260 856-661-2265 856-661-2263

Stephen M. Greenberg William S. Skinner Alan H. Zuckerman

steve.greenberg@flastergreenberg.com william.skinner@flastergreenberg.com alan.zuckerman@flastergreenberg.com
856-661-2261 856-661-2262 856-661-2266

Elaine J. Petruzziello Peter R. Spirgel

elaine.petruzziello@flastergreenberg.com peter.spirgel@flastergreenberg.com
856-661-2287 856-661-2267

PRACTICE AREAS
Alternative Dispute Resolution; Bankruptcy; Business & Corporate Services; Closely-Held Businesses; Construction Law; E-Commerce & Internet;
Emerging Business; Employee Benefits; Environmental Law & Litigation; Estate Planning & Administration; Family Law & Adoption; Financial
Restructuring; Health Care; Intellectual Property; Labor & Employment; Litigation; Mergers & Acquisitions; Real Estate & Land Use; Redevelopment;
Risk Management; Securities Law; Taxation; Technology.