Mergers and Acquisitions

Chapter 5. Contract and Close

Introduction

Once due diligence has been completed and the parties have agreed to proceed, the contracting phase of the transaction begins. The contract takes the form of a purchase agreement and supporting documents (described in the next section). The purchase agreement can take two distinct forms, depending on whether the purchase is for the stock of the company being sold (a stock purchase agreement) or selected assets of the company (an asset purchase agreement). In either case, the agreement's purpose is to:

• Set forth the terms of the transaction.

• Set forth legal rights and obligations of the respective parties.

• Provide the buyer with a detailed description of the business being acquired and afford the buyer remedies, if and when such descriptions are materially inaccurate.

• Allocate risk between the buyer and the seller.

Agreement and Supporting Documents

Typically, the initial agreement is drafted by the buyer's counsel, although the seller's counsel will draft the initial contract in a bid or auction situation (see section 4.7 for a discussion of the auction process). The major components of the purchase agreement are: property transfer and purchase price, representations and warranties, covenants, conditions, indemnification terms, and supporting schedules and exhibits. Additional supporting documents generally include a noncompete agreement and employment and/or consulting agreements. If the transaction involves the divestiture of a non‐standalone ...