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2011 Business Law Institute presentation on buying/selling environmentally "dirty" businesses
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Ten Tips and Takeways for Buying or Selling an Environmentally "Dirty" Business
The 2011 Business Law Institute
May 5, 2011
Joseph J. Humke and Katherine A. Roek
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Outline
I. An Environmental Law Primer
II. An M&A Primer
III. Ten Tips and Takeaways
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Federal Laws
State Laws
Local Laws
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
CERCLA
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Joint and Several Liability Among Current and Former Owners of Property
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
What Can Buyers Do?
1. Conduct "All Appropriate Inquiry" ("AAI")
2. Satisfy remaining Bona Fide Prospective Purchaser ("BFPP") Requirements
3. Keep Good Records
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Basic M&A Transaction Structures
1. Asset Purchase
2. Stock (Equity) Purchase
3. Merger
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Primary Indemnification Questions*
1. WHO
2. WHAT
3. HOW LONG
4. HOW MUCH
5. SECURITY* Indemnification usually not available in acquisitions of public companies
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Successor Liability . . . Next In Line
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 1: Secure Local Knowledge
Hire an environmental consultant with local knowledge
Preferably, first-hand experience in the given industry, and with state/local agency
Benefit of legal counsel engaging consultant?
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 2: Conduct a Phase I
At a Minimum, Take the First StepTowards Qualifying for the BFPP Defense
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 3: To Phase II or Not Phase II
Some Considerations . . .
"Recognized Environmental Conditions" in Phase I
Reliance on pre-existing Phase II test results (if available)
Time
Cost
What parties intend to do with results
Reporting obligations
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 4: Establish a Communication Plan
• Buyer wants to understand lay of the land
• Seller may not want to incur reporting obligations
• BUT! If a "release" is found during Phase II activities, the owner is obligated to report (and potentially the consultant)
• Establish the ground rules for communication of results (from Buyer Seller, and Seller agency) BEFORE testing begins
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 5: Buyers . . . Consider Financing Sources
Financing sources may have internal environmental testing requirements . . .
Remember, he/she who holds the money, usually has the last word on what is or is not to be done
BE SURE EVERYONE IS ON THE SAME PAGE FROM THE OUTSET
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 6: Understand Indemnification Dynamic
Buyers may conduct Phase II testing to better define risk while, at the same time, wanting to seek indemnification for all pre-closing environmental liabilities
Sellers may attempt to limit indemnification obligation to known environmental conditions identified through Phase II
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 7: Diligence Third-Party Recovery Sources
1. Other Responsible Parties
2. Insurance
Pre-dating pollution exclusion
Environmental liabilityinsurance
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 8: Don't Forget About Permits
• Are there permits?
• Are they current?
• Is the Seller in compliance with all conditions of current permits?
• Are there any past violations of permits?
• Are the permits transferable to a new owner?
• Are any additional permits required?
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 9: Uncertainty is a Certainty
• Latent issues may surface AFTER closing
• Phase II investigations may not reveal all site conditions
• WHO is going to bear the risk of liability associated with these uncertainties?
• WHAT protections to Buyers have in light of uncertainty?
• Will indemnifications survive?
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Tip # 10: Don't Let the Tail Wag the Dog
Keep Environmental Issues in Perspective . . . Environmentally "Dirty" Businesses Get Bought and
Sold All the Time
Ten Tips and Takeaways for Buying or Selling an Environmentally "Dirty" BusinessThe 2011 Business Law Institute
Q&A
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