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	BUSINESS LAW UPDATE: Making Hard Times Work for Your Business Business  December 2008 By Kent M. Clayton As the famous Founding Father, Thomas Paine, said over two centuries ago: “These are the times that try men’s souls.” The mortgage and commercial bank meltdown and resulting credit crunch is causing business owners across the country to fear for their survival. Times are tough, and now, especially, some small business owners are looking for a way out without having to spend thousands of dollars in legal fees. Before you consider looking for capital or selling your business, you should take these steps to protect your business from scam artists or curious competitors who don’t have your best interests at heart. Confidentiality Agreement The first step is to have anyone you are talking to sign a “Confidentiality Agreement” or “Non—Disclosure Agreement” (often referred to as an “NDA”). While the execution of an NDA does not mean that the person to whom you disclose information about your business will not use it for their own benefit or gain, it does provide a solid basis upon which you could take legal action against that person if they do. You should be careful not to disclose any trade secrets or other proprietary or confidential technical or business information to anyone without first obtaining an executed NDA from everyone who will receive such information. Negotiating a Term Sheet You should also settle on a reasonably detailed written “term sheet” with your prospective capital provider or acquiror that sets forth all of the key deal points of the proposed transaction. Much money and time is often spent on documentation conveying the business owner’s desired terms for a proposed investment or business sale before a prospective investor or buyer is even identified. Such effort and expense is often wasted as the investor or buyer will typically want to see certain changes made in the corporate/capital structure, financial/accounting processes, employee/management situation, status of contracts and/or other business operations before committing to any deal. Such changes, in addition to the key financial terms of the deal, should be (1) mutually agreed on and (2) put in writing in a relatively brief term sheet before any other documentation is prepared. While such term sheets are often expressly made “non-binding,” the actual definitive documentation can be prepared much more quickly and efficiently because of this simple step while the “glow” of mutual trust and commitment is still bright. A serious bona fide investor or buyer will understand the purpose and value of a term sheet and will often expect it (and should be suitably impressed if the business owner proposes it). Having said this, it is important to understand that federal and state securities laws strictly control the manner in which you approach any prospective investor. Accordingly, you should consult with a competent corporate/securities attorney before you start beating the bushes for any investor or a buyer for your business. ********* If you would like to discuss this Alert, please contact Kent M. Clayton at (949) 474-1880, x346 or the attorney with whom you regularly work. This Alert is published as a service to our clients and friends. It is intended for informational purposes only and is not intended to constitute advertising, solicitation or legal advice. ©2008 Berger Kahn, A Law Corporation. All Rights Reserved. Back
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