Purchase and Sale - Posting 12

AF: Having concluded the discussion on the "value of a practice", the issues concerning the sale and purchase of a professional practice left to be dealt with involve the following:

6. the terms of the Agreement
7. the execution of the Agreement
8. the completion of a due diligence investigation of a practice
9. the completion of the transaction
10. issues arising after the completion of the transaction

TERMS OF THE AGREEMENT:

We have already reviewed the parties to the Agreement; the price to be paid for the practice; and the assets to be included in the transaction. The following are some of the additional provisions that are customarily dealt with in the sale and purchase of a chiropractic practice.

1. Deposits: Obviously the Vendor will desire a large deposit and the Purchaser will want to pay a minimum deposit. It may be appropriate for multiple deposits to be paid as in the case of a certain amount paid with the execution of the Agreement with a further deposit paid after the expiration of any conditions contained in the Agreement which result in their being a firm and binding Agreement. In any case, it is customary that the deposit be paid to the Vendor's agent or lawyer to be held in trust until the completion of the transaction.

2. Conditions: It is customary for a sale/purchase of a chiropractic practice to be conditional upon the occurrence of one, some or all of the following conditions, namely:

a. The Purchaser verifying, to his or her satisfaction, the financial and patient records of the practice. The matter of "verification" actually constitutes the conducting of a "due diligence" search which will be dealt with in a subsequent article. The verification should be conducted so as not to interfere with the Vendor's practice or staff.

b. The Purchaser receiving and satisfying himself or herself as to the terms and conditions of the lease agreement for the clinic premises, and the written consent and approval from the Landlord of the premises for full assignment of the said lease agreement and may include the entering into of a renewal agreement extending the term of the Lease for a particular time period of, for example, at least 5 additional years from the date of the expiration of the present term. Alternatively, the Purchaser may desire to enter into a new lease for the premises.

c. The Purchaser obtaining satisfactory financing. It is important that the Purchaser receive a firm commitment from the lender prior to waiving any condition for financing. In addition, the parties may negotiate financing to be provided by the Vendor or through a leasing company and what security, if any, is going to be given by the Purchaser to the lender.

d. The Purchaser making satisfactory arrangements with the office staff and associates of the practice for their continued employment and involvement with the practice after closing.

e. The Purchaser obtaining licensor to carry on practice as a chiropractor within the applicable jurisdiction. This condition must relate to obtaining a license to carry on practice and not merely the graduation from an educational institution.

The conditions contained in the Agreement may be for the benefit of the Purchaser or the Vendor or both. Most of the above conditions may be for the sole benefit of the Purchaser and, as such, might be waived by the Purchaser. However, certain conditions might be for the benefit of both Parties, as in the case of licensure. Obviously both Parties have an interest in ensuring that the practice be transferred to a licensed practitioner.

3. The Purchaser will be interested in ensuring that the Vendor is a resident of Canada at the time of Closing. If the Vendor cannot execute a statutory declaration indicating that he or she is a resident of Canada, the Vendor will have to produce a certificate from Canada Customs and Revenue Agency authorizing the completion of the transaction or alternatively the Purchaser will have to withhold certain funds from closing and submit the funds to Canada Customs and Revenue Agency.

4. The Purchaser and Vendor will have to agree on the specifics relating to the Vendor's agreement not to carry on a practice within a specific location for a specific period of time, otherwise known as a non-competition agreement. The Vendor will generally agree not to carry on practice, as a chiropractor and/or acupuncturist, directly or indirectly, whether as a principal, partner, associate, investor or advisor, within a specific distance from the practice location for a specific period of time (ie. 2 to 5 years) from the date of completion of the agreement. In addition, the Vendor will generally be required to agree for a period of from between 2 to 5 years from the date of closing to not solicit, treat or otherwise advise patients of the practice. It would be wise for the Parties to agree on what patients might be seen by the Vendor after closing as in the case of immediate members of the Vendor's family and those other patients of the practice who might otherwise be inclined to be treated by the Vendor after closing. By setting out specific patients the Agreement will be evidence of the fact that the parties have put their mind to the issue of the reasonableness of the non-competition agreement. In addition, the Purchaser may wish to ensure that the Vendor agrees not to recommend any patient or former patient or the referring sources of Vendor's patients to any other chiropractor other than the Purchaser.

At the present time, there remains a genuine issue as to the enforceability of a non-competition provision. The Court of Appeal of Ontario has recently determined that a non-competition provision would not be enforceable if the issue could have been dealt with effectively by the use of a non-solicitation provision. At a minimum, it is important to consider having a determination of what the damages might be if there is a breach of the provision. If the Purchaser is required to prove the damages which he or she might have suffered as a result of the Vendor breaching his or her non-competition agreement, there may be difficulties if the Purchaser's billings have not actually been affected by the Vendor commencing a practice within the specified geographical area. The Purchaser may also wish to have inserted in the Agreement an acknowledgement by the Vendor that the granting of an injunction would be reasonable upon the Vendor breaching the non-competition agreement.

5. The Purchaser will want to ensure that all of the telephone numbers of the practice are included in the purchase price and that the Vendor will execute all of the documentation which might be necessary to transfer the telephone and facsimile numbers.

6. The Purchaser will want to ensure that the Vendor will be the owner of the assets to be acquired by the Purchaser free of all encumbrances, liens, and security interests. In addition the assets should be in good working order at the time of closing.