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

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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