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today in part four of my series on buying and selling businesses we are going to talk about the long-form asset purchase agreement that most letters of intent are contingent upon and what all terms are going to be in the asset purchase agreement that you're gonna have to negotiate before you close on your deal let's do it when it comes to long-form asset purchase agreements remember this is you've nailed in the loi terms you've got your material terms agreed upon now you're going to drop those terms in the long form agreement but there's all these other things you have to have all this legal mumbo jumbo that ends up being super necessary making things a lot easier in the future by solving problems for you just by having clear communication because every single scenario will be addressed in a good contract and that's going to help you avoid litigation okay the six terms the six key parts six key pieces of asset purchase agreements number one is getting those material terms from the loi into the asset purchase agreement itself and then putting granular detail behind it so for example in the loi it might say that the seller agrees to a two-year non-compete agreement but in the long form agreement that could end up being two and a half pages because you're gonna have a paragraph about you know defining what it means to compete yeah you're gonna have to negotiate okay how many years what's the range how many miles uh you know well you know oh it turns out that the seller has this other thing going on that was really important to them the whole time and they didn't know that that was going to be included in the non-compete so these are the kind of things that where you're hammering out the details from the loi and i've mentioned it before but if you have sort of a quirky term that's really important to you you may want to put it in the loi so to the extent that you can spell out spell it out in the loi so that you don't end up not being able to reach an agreement once you get to the long-form asset purchase agreement because by that time you've brought lawyers in okay loi you can do without lawyers it's risky use me i'll help you okay call me but if you do a deal without an asset purchase agreement without a lawyer not not the best look so um definitely you're layered up at that point so the point is you don't want to be waiting until you get to the asset purchase agreement phase to realize the deal is not going to work after you've already paid your lawyer you know however many thousands of dollars number two the second thing that is in asset purchase agreements second big part of them are representations and warranties so each side is going to represent certain things to be true certain things that they've said during the course of the negotiations to be true all the financials that have been provided are true and accurate that you know the parties have the authority to enter into the agreement all those things and they each get a paragraph and some lovely flowery language and a lot of times people look at those as boilerplate but they're not because they cover you for the most basic things oh the other side lied to you about the financials you know during the course of the transaction and now it turns you know it turns out that you know they gave you doctored information or whatever you know in addition to a fraud claim you're going to have a breach of contract claim because they've reached their warranties and representations number three is due diligence which is a huge part of the asset purchase agreement so it's gonna have it's gonna spell out the timeline for the due diligence what all specific document requests or items are going to be provided and by when and what is the standard for whether those items you know trigger the deal not going through and the contingency being met that you know there was a due diligence issue right so due diligence is basically you're looking at the contingencies from the loi and you're going okay here we go let's check to see if all those contingencies are true that's what the due diligence period is that's the easiest way to explain it number four uh the conditions precedent for closing so again this is uh actually spelling out the contingencies the due diligence is gonna you know talk about the mechanics the process for how you're gonna go about how the buyer is going to go about getting their due diligence from the seller getting the documents and the conditions precedent fourth point i'm talking about now that is the uh you know just putting in the contract actually the contingencies from the loi that's what can the conditions press it on number five thing that goes into an asset purchase agreement anything else so anything that's important to you you know those quirky terms all all of that goes in here anything that you know matters to the party so in a restaurant or a business that's got you know customer cash flow a business to consumer business those businesses are going to have uh you know a lag in transaction times it might be you know a couple days before the credit card company deposits the money uh in the accounting and you'll so you'll have to transition the accounts you'll have to transition the inventory purchases all of those things so there's usually a term for that non-competes are another big one and again there are all sorts of terms whether there's a seller training period where they stay on and tell you things about the business uh you know any any detail that you know if you're selling the car the details around you know transferring the certificate of title all those fun things and number six is boilerplate so the real boilerplates the stuff at the very end things like uh you know the anti-waver clause you don't wave anything by failing to do anything so uh or you know the entire agreement that's a very common one basically says that anything that the parties have talked about before doesn't matter only what's written down matters you'll have jurisdiction provisions where you're going to litigate this thing are there attorneys fees paid by anybody all those fun details that you see those will be included in asset purchase agreements also indemnity is usually one of the boiler plates that can be rather long and sometimes i've seen i've seen separate indemnity agreements that could be like 10 to 15 pages just for the indemnity indemnity agreement but at any rate that's the the six key terms that are uh go into the asset purchase agreement really the six key areas that are covered in asset purchase agreements and again there may be you know you could have 80 pages and you know 100 paragraphs but those are really the six main areas they're all going to fall into one of those categories next time we are going to talk about the due diligence itself and then after that we're going to cover uh post-closing issues if anyone has questions or comments please you know feel free to let me know and i will respond and the best that i can may not like my answer but i will give you one and we'll see you next time