Covering Your Rear, Part II
Last month we discussed what you need to consider when developing an APA (Asset Purchase Agreement). We scratched the surface so, as promised, here is more, based on a presentation by Robert Bass of Myers & Fuller, P.A. and Robert Davis of Dixon Hughes, PLLC. I know it's not the most exciting reading, but knowing these things may save your hide in a dealership transaction. Miscellaneous items to consider
February 1, 2008
Last month we discussed what you need to consider when developing an APA (Asset Purchase Agreement).
We scratched the surface so, as promised, here is more, based on a presentation by Robert Bass of Myers & Fuller, P.A. and Robert Davis of Dixon Hughes, PLLC.
I know it's not the most exciting reading, but knowing these things may save your hide in a dealership transaction.
Miscellaneous items to consider transferring:
Telephone numbers and yellow pages advertising
Shop manuals
Sales and service records
Customer lists
Marketing supplies
Collection of Seller's Accounts Receivable
There should be time limit and a definition of the limits on buyer's responsibility
State Tax Considerations
Determine what will be subject to sales tax and who is responsible for paying.
Determine how to deal with any bulk sales laws in the applicable jurisdiction.
If a lease is involved, are the payments subject to sales tax?
Assumption of contracts and leases and other liabilities
These should be clearly defined.
UCC searches should be conducted and the arrangement for releases should be coordinated at or prior to closing
How will the build up of any equity in financing type leases be recognized in the closing documents?
Are deposits are going to be assumed on vehicles?
How about vehicles not yet in production?
Who will receive the gross profit on those vehicles?
How is gross profit defined?
Tail Liabilities to be determined on programs
Consider escrows in the agreement for these programs in-lieu of a tail liability determined at closing
Assumed gift certificates
Assumed prepaid maintenance
Assumed in-house warranties
Assumed employment contracts
Assumed vacation
Do you want to transfer the seller's
Seller-Employer FICA payments?
Seller-Employer Unemployment Experience Rating?
Risk of Loss/Material Adverse Change
What constitutes a material adverse change?
Generally, a mass exodus of employees probably should not as this is expected in many cases.
Does union activity constitute such a change?
Confidentiality
What if the word gets out and the target's financial performance deteriorates?
How are damages defined?
Warranties and Representations
Three basic purposes
Information gathering for disclosure schedules
Provides the roadmap/rights for termination of the APA
Provides the roadmap for legal remedies and allocation of risk
Define various survival periods of the reps and warranties with differences for
Good title
Taxes
ERISA liabilities/obligations
If indemnification buckets are used, then make exceptions for sales taxes and other items with successor liability
Define who is responsible for any building repairs and when they have to be completed.
How are property taxes prorated?
Who pays the various closing costs?
Define time periods for all of the items to occur, the time periods for curing, the time periods for opting out of title insurance, EPA, survey, etc.
Specialized situations requiring assistance
Completion of the Form 8594 required by Section 1060 of the IRC.
Don E. Ray is a CPA and a senior vice president at AutoStar. He can be reached at 901-907-0134.
Questions or comments about this column? Send us an e-mail at [email protected].
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