Acquisitions happen often in the software business world – whether it’s one company acquiring the entirety of another, or acquiring specific products, services, or offerings of another. The core agreement behind these transactions is called an Asset Purchase Agreement. This post will give you a high level overview of what goes into an Asset Purchase Agreement, and some of the key considerations to make when drafting, negotiating, and executing one.
- Recitals – This part of the agreement clearly lays out who the parties are, and their intention. For example, “Seller wishes to sell and assign to Buyer, and Buyer wishes to purchase and assume from seller, substantially all the assets, and certain specified liabilities, of the Business, subject to the terms and conditions set forth herein.” It’s important to be specific in these recitals about what exactly is being acquired.
- Definitions – There will be specific terms throughout the agreement that may not be general knowledge, or may not related to the general definition of the term. This is why the Definitions section is particularly important in these cases. For example, “Current Assets” in the Definition section should refer to what exactly is considered an asset of the company being acquired right now.
- Purchase and Sale of Assets – Where the Recitals is a general acknowledgement of the intent of the acquisition, the Purchase and Sale of Assets provision lays out what assets are included in this transaction – including but not limited to cash, intellectual property rights, and even real and tangible property like real estate, computers, or furniture. This section should also lay out the excluded assets and liabilities, the assumed liabilities, the purchase price, tax information, allocation of purchase price and where the funds are going, and third party consents.
- Closing – This section specifically lays out when, where, and how Closing of the acquisition will take place. You will also lay out Closing Deliverables, such as financing information, bill of sale, any related escrow agreements, any related ancillary agreements and documents, and any purchase price adjustment.
- Representations and Warranties – This is generally broken down into 2 sections – one for the Seller, and one for the Buyer. Here, you lay out that you are indeed capable of entering into this agreement for the party you represent, have the appropriate authority, have the appropriate finances, and have received the necessary permissions – such as from your shareholders and your Board of Directors, to execute this acquisition.
- Covenants – A very important section of the Asset Purchase Agreement – the Covenants section reflect promises each party is making prior to, and during the acquisition. This includes promises to continue paying debts and taxes, a promise not to solicit other bids for acquisition, a promise to notify of certain events that may affect the acquisition, confidentiality, non-competition and non-solicitation, and a promise to obtain all necessary governmental approvals and consents.
- Conditions to Closing – Another very important section, this Section holds that certain conditions must be met in order for the acquisition to follow through. You can negotiate and decide on what these conditions should be.
- Indemnification, Termination, and Miscellaneous Provisions – These often negotiated, but mostly standard provisions lay out what, if any, indemnification procedures are available to each party, along with how to terminate the agreement, and what the effect of termination is. The miscellaneous provisions include governing law, force majeure, severability, notice, expenses, and entire agreement clauses.
- Bill of Sale – The bill of sale is the actual document that transfers ownership of the asset from one party to the other.
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This post is just a high level overview of the what goes into an Asset Purchase Agreement.
There are many more nuances and specifics around this type of agreement, and you should have an experienced attorney help you through drafting the right one to make sure you and your customers are protected.
Kader Law can help you draft, edit, or negotiate these agreements. If you’re interested, feel free to contact us.
This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.