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Learn about asset and stock purchases, cash and stock mergers, and key components of acquisition agreements. Understand buyer and seller perspectives, agreement sections, and closing procedures.
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BUSINESS ACQUISITIONS NEGOTIATING AND PREPARING THE ACQUISITION AGREEMENT
BASIC TYPES OF AGREEMENTS • Asset Purchase • Stock Purchase • Cash Merger • Stock Merger
WHAT THE ACQUISITION AGREEMENT COVERS • Describes the transaction structure, purchase price and procedures for closing • Allocates risk between the buyer and seller for both known and unknown liabilities and obligations • Contains promises (i.e., covenants) of the parties • Contains indemnification procedures • Contains the extent of commitment to close the transaction.
WHAT THE BUYER WANTS • Receiving what is expected at closing • Good Title to the Purchased Assets or Stock • All of the Facilities, Individuals, Assets, Rights, Contracts and other Items Needed to Continue and Enhance the Businss • The option to “bail out” if the business is not what has been represented or what is expected • Post-closing protection against contingent or unknown risks
WHAT THE SELLER WANTS • Certainty and speed of Closing • Receiving the Purchase Price without Risk • Not being at risk for the assets, liabilities or operations of the business after the closing
GENERAL SECTIONS OF ACQUISITON AGREEMENTS • Introduction and Description of Transaction • Consideration for Transfer of Business • Representations and Warranties of Seller • Representations and Warranties of Buyer • Covenants of the Parties • Conditions to Closing • Termination Procedures and Remedies • Indemnification
INTRODUCTION AND DESCRIPTION OF TRANSACTION • Description of Parties to the Stock Purchase Agreement • Shareholders as Sellers in a Stock Purchase Transaction • The Corporate Target is Often a Party to the Agreement, even if it’s a stock Purchase • In some states, spouses to the shareholders are necessary • Need to be sure that stock option and stock warrant holders are parties
INTRODUCTION AND DESCRIPTION OF TRANSACTION • Description of the Form of the Transaction • Stock Purchase for All of the Capital Stock of the Corporation • Consider using a Merger transaction in order to not have each of the shareholders sign the Acquisition Agreement and Avoiding a Recalcitrant Shareholder • Be Certain that All of the Capital Stock is Being Acquired • Review the Stock Record Books of the Corporation • Pay particular regard to Stock Options, Stock Warrants and Conversion Rights of Debt and Preferred Stock.
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