An asset purchase term sheet serves as a blueprint for negotiations between the buyer and seller of a company or its assets. It outlines the key terms of the transaction and provides a framework for the parties to reach an agreement. While there is no one-size-fits-all asset purchase term sheet template, certain key elements are essential to include.
The main purpose of an asset purchase term sheet is to provide both the buyer and seller with a clear understanding of the proposed transaction and its terms. It can also serve as a basis for the development of a definitive purchase agreement. For these reasons, it is important for both parties to carefully review the term sheet and ensure that they are comfortable with the terms before signing it.
As a starting point, here are the key elements that should be included in an asset purchase term sheet:
Terms of the Transaction
The terms of the transaction should clearly state what is being sold, the purchase price, and the form of payment. This section should also specify whether the transaction is an asset sale or a stock sale. In an asset sale, the buyer acquires only the specific assets of the company, while in a stock sale, the buyer acquires all of the company’s assets and liabilities.
The purchase price can be structured in a variety of ways, including cash, stock, or a combination of both. The term sheet should also specify the timing of the payment and any conditions that must be met before the payment is released.
The form of payment can be cash, stock, or a combination of both. If the payment is in stock, the term sheet should specify the number of shares to be issued, the type of stock to be issued, and the price per share.
The term sheet should also specify whether the transaction is subject to any closing conditions. Closing conditions are typically events or actions that must occur before the transaction can be completed. Common closing conditions include obtaining regulatory approval, obtaining financing, and completing due diligence.
Finally, the term sheet should specify the date on which the transaction is expected to close. The closing date is the date on which the buyer and seller exchange the purchase price and the assets.
Representations and Warranties
Representations and warranties are statements made by the seller about the company and its assets. These statements are designed to provide the buyer with comfort that the company is as represented and that the assets are free from any liens or encumbrances. The term sheet should specify the representations and warranties that the seller will make, as well as the remedies available to the buyer if any of the representations and warranties are breached.
Common representations and warranties include statements about the company’s financial condition, its legal compliance, and its ownership of the assets being sold. The seller may also make representations and warranties about the company’s employees, its customers, and its suppliers.
Covenants
Covenants are promises made by the seller and the buyer to do or refrain from doing certain acts. The term sheet should specify the covenants that the seller and the buyer will make, as well as the remedies available to the other party if any of the covenants are breached.
Common covenants include covenants by the seller to provide the buyer with access to the company’s books and records, to cooperate with the buyer’s due diligence, and to not compete with the buyer after the transaction has closed. The buyer may also make covenants, such as a covenant to use the assets for a specific purpose or to maintain the company’s financial condition.
Conclusion
An asset purchase term sheet is an essential document that can help to facilitate a smooth and successful transaction. By including the key elements outlined above, the buyer and seller can ensure that they have a clear understanding of the terms of the transaction and that they are both comfortable with the risks involved.
