Asset Purchase AgreementThe attached draft aircraft purchase agree.docx

Asset Purchase Agreement
The attached draft aircraft purchase agreement has many, many
drafting errors. There is legalese, provisions are way too long,
and there is a total lack of craftsmanship. Please clean it up.
Redraft the agreement to reflect the deal below. There will be a
fair amount of revision. Do not use any supplementary sources,
other than those distributed to you in our course. Do not draft
provisions other than the ones I have specifically asked for or
those that are required because of the cascade effect (text pages
342-343). Finally, please draft an agreement from the point of
view of your client, the seller.
General Instructions
-
Draft an Agreement for Purchase and Sale of Assets (“Purchase
Agreement”) for your client who wants to sell a law practice.
-
Focus on the material covered in class (textbook, class notes,
TWEN, articles referenced, these instructions, Assignment,
including Chapters 1-12, 14, 16-18 and Chapter 32;
plus
the Material Adverse Condition article on TWEN (“The MAC
Clause: An Emperor With No Clothes”), and the following
articles in the course reader: Parol Evidence after
Riverisland
; Liquidated Damages Clauses; and the Indemnity Primer.
-
Use the Aircraft Purchase Agreement, which is posted on
TWEN, as the base document on which you will incorporate the
information and the deal points.
-

Clean up all language used from the form by applying what we
have covered (ie, use of “may”, “shall”, active form, no
legalese…)
-
Do not include language that is clearly not requested.
-
If given information to specify a date or amount, calculate date
or amount to get full credit.
-
13-page maximum for both documents, but the Promissory Note
cannot be longer than 1 page.
-
I reserve the right to modify these instructions and deal points
up to 1 week before the due date and time. I will accept the
latest version you send me before the due date and time.
-
Due no later than 09:00 a.m. Saturday, November 5, 2016 by e-
mail to
[email protected]
Deal Overview (may apply to purchase agreement or the Note
exhibit)
-
Your California client, a limited liability partnership whose
legal name is Bar None, LLP, but who does business as (dba)
The Top Law Firm, wants to sell substantially all of the assets
in connection with a law practice located at the building with an
address of 3333 Sunset Blvd, Los Angeles, CA. As an LLP,
your client is an entity in which the attorney-owners are
partners, but no partner is liable to any creditor of the law firm

nor is any partner liable for any negligence on the part of any
other partner (i.e., each partner has limited liability). The
managing partner is J.D. Advocate. The buyer, on the other
hand, is Prince Law, but – because he also wants limited
liability – he does not want to practice as a sole proprietor so he
will create a California entity called Prince Law, P.C. and
register it with the California State Bar and California Secretary
of State. The LLP is registered with the California State Bar
and California Secretary of State.
-
Purchaser is willing to pay, as the purchase price for
substantially all of the assets of the practice, the amount of
$2,500,000, based on the value determined by the seller-ordered
appraisal of the going concern and the intangible property
(goodwill). However, the intangible property to be purchased
excludes the name of the business, “The Top Law Firm.” That
name carries a lot of value developed and earned through the
years of the firm providing outstanding legal work, and seller
registered (Trademarked) and owns the name, Seller is relying
on this fact. Instead, seller will “rent” or license the name of
the business to buyer for $5,000 per month, with the first
payment due at closing, along with a signed Business Name
Licensing Agreement. Also, the assets transferred do not
include the building. Buyer will rent the building for another
$5,000 per month, with the first payment due at closing, along
with a signed Building Lease Agreement. The transferred assets
include all personal property within the building, including
office equipment, etc., so that the buyer purchases the practice
ready to start practicing. While you do not have to draft a
building lease agreement or a business name licensing
agreement, your purchase agreement does have to account for
this information.
-
Purchaser will assume, at closing, a $500,000 mortgage on the

building on which the practice is located. Also due at closing,
buyer will make first mortgage payment and the parties will
exchange a signed Mortgage Assignment and Assumption
Agreement, along with the other Asset Assignment and
Assumption Agreement. While you do not have to draft an
assignment and assumption agreement for the mortgage or the
purchased/transferred assets, nor do you have to draft any
mortgage loan documents, your purchase agreement does have
to account for this information.
-
Because the purchase price, net of adjustments, is still a bit too
much for buyer, buyer must seek loan financing of $500,000
during the due diligence period. Buyer promises Seller he will
try to get such a loan before closing, but if he is unable to get
the loan, Purchaser will have a walk-away right. Your client
tells you to ensure you provide appropriate qualifications so
that this is not an easy walk away right. Trying to get a loan is
not enough.
-
Buyer does have and agrees to loan seller, upon signing the
Purchase Agreement, the amount of $250,000, which $250,000
loan will be evidenced by a promissory note. The loan funds
are to be used by Seller solely to pay some outstanding tax
debts on the law practice. The $250,000 loan amount will
become a deposit upon signing the Purchase Agreement. If the
parties do not proceed to a sale (i.e. the deal does not close), the
loan will be repaid by Seller within six months.
-
The remainder of the balance is due at closing and will be paid
by wire transfer, and the closing will be in person (face-to-face)
at the location where the asset is to be transferred.
More Deal Points

Purchase and Sale Agreement
-
Closing is on the last day of class, but in no event later than the
last official day of the semester (drop dead closing date is at
semester’s end). Signing date is on the assignment’s due date.
Effective date is when the assignment was distributed.
-
Add recitals noting details of the promissory note, building
lease, name license, and the assignment of the mortgage, in
addition to a generic purchase and sale recital, plus any other
information that should be included in recitals, based on the
textbook.
-
Include a complete definitions section, with at least 10 defined
terms.
-
The purchase price will be paid as noted above.
-
Any confidentiality is indefinite.
-
Your client requested that a MAC clause be included to ensure
that buyer isn’t able to get out of the deal easily if there is a
change in economic conditions that affects the industry or
economy.
-
For items in which knowledge is at issue, draft appropriate
knowledge qualifiers to protect your client from overbroad reps,
warranties and covenants, yet have buyer’s reps, warranties and
covenants be as broad as possible.

-
California law applies.
-
There are no schedules, so make sure there is no reference to
schedules.
-
Make sure that
all
exhibits are consistent with respect to party names [preambles],
knowable dates, and signature blocks.
-
In addition to the general provisions specifically requested
elsewhere, other additional boilerplate language should address
the following: this is the entire agreement and any changes have
to be in writing; exhibits are part of the agreement; all notices
are via email only; time is of the essence; any illegal or
unenforceable provision does not invalidate the agreement;
because parties will sign the agreement simultaneously and in
person, then it canNOT be signed separately with originals later
compiled. The boilerplate for all documents (purchase
agreement and exhibits should be identical).
Please also take into account the following, if not already
addressed
:
1. Seller promised buyer that between now and the
Closing, all liens (if any) on the assets purchased/transferred
would be removed. This point needs to be covered wherever
appropriate in the Agreement. At Closing, the practice (not
including assets not transferred) will be delivered with title free
and clear of all liens and encumbrances of any nature
whatsoever. If all liens are not removed by Closing, buyer

would like the right not to close as well as the right to sue for
damages. As seller’s counsel, use appropriate qualifications to
protect you client.
2. Delete in whole or in part any representation and
warranty, covenant, or condition that is inapplicable to our
situation, or change it to fit the facts as described in our case.
Buyer cannot represent and warrant that it has financing now.
He asks that you draft a financing out. Do so from your client’s
perspective.
A
financing out
provides a buyer with a walk-away right if it is unable to
obtain financing. Sellers generally dislike financing outs,
fearing that they transform an obligation to purchase into an
option to purchase. Specifically, they worry that a buyer may
decide it dislikes a deal and then try to get out of it by claiming
it could not obtain any financing or could not obtain financing
on commercially reasonable terms. If that happens, a seller
could end up losing other sale opportunities, while tied up for
months in a contract with the buyer.
3. Do not delete from your agreement Sections 7.4 and 7.5
and Sections 8.4 and 8.5. (Redraft to clean up and include
appropriate qualifiers to benefit your client, but do not delete.)
4. Please move all substantive provisions that are in the
definitions article or recitals of the Agreement to the
appropriate section in the body of the agreement. Also include
whatever representations and warranties, covenants, and
conditions that the Deal Points and instructions require.
5. Seller told Buyer that The Top Law Firm is a registered
trademark. Please make sure that the contract includes this
information using the appropriate contract concept.
6. The representations and warranties have lots of
language dealing with material adverse changes to Seller’s
business. Please come up with a material adverse change type

standard that is more transaction specific and to your client’s
benefit.
7. Seller has agreed to have the exterior of the building
painted by the Closing. But the paint shop may have trouble
fitting in the job in between now and the Closing. If the exterior
of the building is not painted on time, the parties have agreed
that buyer doesn’t have to close.
8. Only some of the restrictions on Section 5.5 make sense
for our deal. Choose those that you think apply and make them
transaction specific.
9. The Seller and the Buyer each have conditions to their
closing obligations related to litigation. Please decide whether
each condition should cover litigation against the Seller and the
Buyer or against just one party, and if so, which party.
10. Buyer has to pay $3 million if the deal doesn’t close
because of something Buyer did wrong. Please figure out how
this interacts with the financing out. For clarity, the $3 million
payment is intended by the parties to be liquidated damages.
Make sure the provision is enforceable.
11. Eliminate references to any schedules. You could
always omit the schedule and put the information in the
agreement – if appropriate.
12. Seller is the current registered owner of Bar None,
LLP. Buyer wants to make sure that Seller gives it any
documentation that Buyer needs from Seller so that Buyer can
become the owner of this entity. Recall, Buyer is purchasing the
business, and among the assets transferred are is the entity.
[Query: What consents are needed?]
13. Buyer requests you add a representation and warranty
about existing litigation. Use appropriate language to protect
your client.
14. Additional information with respect to Buyer’s
financing plans: He is currently negotiating with three banks
and has submitted full applications to two: First National Bank
of Lex and Lex Banking, N.A. Buyer mentioned this to Seller,
and it gave Seller comfort to know this. He wants it in the

agreement – of course.
15. Please include the necessary provisions so that the
Agreement, once signed, supersedes other agreements prior to
that point on the subject matter hereof.
16. Include the appropriate signature lines.
17. Add only endgame provisions based on the information
provided in these instructions.
Deal Points
Promissory Note
-
Assuming the $250,000 loan amount does not become a deposit
because the deal falls through, then the loan will be repaid by
Seller within six months from the signing date. It is a six-
month loan (not a day more). The $250,000 loan amount will
bear interest at a rate of 10% per annum, simple (not
compound). Monthly payments will be interest-only,
retrospectively paid on the first of the month, with the first
payment including interest from and including the signing date
of the purchase agreement through the end of the previous
month. The last payment will not be for a full month of interest
but it will also include the principal amount (balloon payment).
In accounting for stub periods, assume a 30-day month.
Prepayment is allowed without penalty.
-
Dated same as signing date.
-
Boilerplate should be identical to that of purchase agreement.
-
Signature block(s) should not include any party that has no
obligations under the note.
-

Preamble information should be consistent with purchase
agreement.
Other Points (may apply to purchase agreement or the note
exhibit)
-
Buyer wants seller to represent that the appraisal is accurate.
Recall: you represent the client!
-
Buyer also wants a representation that since the appraisal, there
has not been a "Material Adverse Condition" (MAC) with
respect to the Seller or any partners. This includes any change
or occurrence that is materially adverse to the assets, liabilities,
business, results of operations and financial condition of such
entity and its partners, taken as a whole, but excluding any
effect resulting from or relating to (i) general economic
conditions, or changes affecting the industry in which such
entity primarily operates which do not disproportionately affect
such entity as compared to such entity's competitors or (ii) any
change in financial markets or economic conditions in the
United States or elsewhere.
-
Purchaser’s obligation to acquire the assets of the business
pursuant to a Purchase Agreement shall be subject to the
Purchaser’s satisfaction with the results of its due diligence
investigation of the business, but not as determined by the
Purchaser in its sole and absolute discretion, as the buyer
proposes. The Purchaser shall have reasonable access to all
documents in the possession or control of the Seller, its agents
and affiliates with respect to the business.
-

Other than with the express prior written consent of the other
party hereto, or to the extent required by law, neither the
Purchaser nor the Seller will disclose to the public or to any
third party the existence of the purchase agreement, the terms
thereof, the fact that the Purchaser and the Seller are
considering a proposed purchase and sale of the assets, nor the
facts and circumstances related to such transaction.
Notwithstanding the foregoing, the parties hereto may disclose
the purchase agreement, and the terms thereof, to their
respective agents, representatives, consultants, advisors,
officers, directors, employees, partners, investors or lenders,
and each party’s respective legal counsel, each of whom shall
be directed to uphold similar standards of confidentiality.
-
Seller shall indemnify, defend, hold harmless, and reimburse
Buyer against and in respect of claims,
demands
, losses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies, including interest and penalties,
that Buyer may incur or suffer that arise, result from, or relate
to any failure by Seller to pay or discharge any of Seller’s
liabilities and obligations prior to Closing.
-
Seller does not know, or have reason to know, of any matters,
occurrences, or other information that has
not
been disclosed to Buyer and that would materially and
adversely affect the assets purchased by Buyer or its conduct of
the business involving such assets. Moreover, no representation
or warranty by Seller in this Agreement, or any documents
furnished to Buyer by Seller, contains any untrue statement of a
material fact, or omit to state a material fact necessary to make
the statements contained in these sources accurate.
-

MAC is a representation, warranty, covenant and condition to
closing.
-
Purchaser wants his efforts to obtain financing are only a
representation and condition to closing. In representing your
client, you disagree with buyer’s request and draft accordingly
(i.e. to client’s benefit).
-
If not already included, add language that the purchase
agreement may not be amended or modified except by a writing
signed by all of the parties; it is binding upon and inure to the
benefit of the successors, assigns, personal representatives and
heirs, as applicable, of Seller and Purchaser; all parties
represent and warrant that they possess all necessary capacity
and authority to sign and enter into the agreement. Each
individual signing the agreement for a party which is a
corporation, a partnership, or other legal entity, or signing
under a power of attorney or as a trustee, guardian, conservator,
or in any other legal capacity, represents and warrants that he
has the necessary capacity and authority to act for, sign, and
bind the respective entity or principal on whose behalf he is
signing.
Instructions Addendum
-
In using language from the Aircraft Purchase Agreement form,
do not simply copy and paste. For full credit, you must “clean”
up language using what we have learned throughout the
semester (no legalese, active voice unless we are focusing on
the action instead of the actor, use of “may” instead of “right”
to signal discretionary authority, use of “shall” to signal
covenant, etc…). Also, clean up language in the Promissory

Note, in addition to including the required information.
-
Do not include language that I have specifically requested not
be included. This will lead to deductions. I do not deduct
points when language not requested is included. However, if
the instructions state NOT to include an item and you include it,
then I will deduct points.
-
If provided information to specify a date or amount, calculate
date/amount to get full credit.
-
This is intended to be a “closed” assignment in that I do not
want you to do outside research. All the material needed, and
on which you will be graded, is in the instructions, textbook,
class notes, TWEN, course reader and other class material.
-
Recall that there are contract parts that must be included in
every agreement even if not specifically requested. We have
gone over this numerous times in class.
-
This is an agreement with a “gap” period. You must apply
concepts related to “closings,” including but not limited to the
latter part of Chapter 8 and relevant exemplars in Chapter 32.
-
Note that the “Action” section for this agreement will include
items not covered in Assignment 1. Read Chapter 8 closely,
especially but not limited to issues with closings.
-
Each party needs its own stand-alone contract-concept-based

sections related to the “gap” period – (i) reps & warranties; (ii)
covenants; and (iii) conditions to closing. In addition, contract
concepts will appear in other contract parts throughout the
agreement.
-
Buyer has justifiably relied on the following things said by
Seller, some of which are also – or should also be - promises,
and all of which are conditions to closing: (i) there is no actual
or pending litigation involving Seller its managing partner
knows of as of signing date – add knowledge qualifier; (ii)
Seller is unaware of any information that has not been disclosed
to Buyer and that would materially and adversely affect the
assets to be purchased by buyer or the conduct of the business
to be purchased; (iii) Seller will not let anyone else use the
practice name of the business being transferred; (iv) as far as
managing partner is concerned, the practice is in compliance
with all relevant/applicable laws.
-
Don’t forget to include a non-contravention representation and
warranty for both parties.
-
At closing or before, the following items need to be delivered
by seller (in addition to other items discussed elsewhere in the
instructions): Bill of Sale, financial statements (audited and
unaudited balance sheets, income statements and cash flow
statements for the twelve months ending on the signing date); a
list of all assets owned by the law practice; proof that all taxes
– on personal property, real property and otherwise – are paid
up; certified copies of all resolutions of the appropriate entity
board approving this deal; certificate of good standing from
relevant state of the relevant entity. Delivery of these
documents is a condition to closing only. Delivery of other
items discussed elsewhere in the instructions may be reps and

warranties and/or covenants, as well.
-
At closing or before, the following items need to be delivered
by buyer (in addition to other items discussed elsewhere in the
instructions): certified copies of all resolutions of the
appropriate entity board of directors approving this deal.
Delivery of these is a condition to closing only. Payment
amount in requested form and other items discussed elsewhere
in the instructions may be reps and warranties and/or covenants,
as well.
-
Seller is obligated to close if the following conditions are
satisfied or waived (in addition to others noted elsewhere): (i)
all reps and warranties are true and correct on Closing Date; (ii)
all covenants are true and correct on Closing Date ; (iii) buyer
has provided proof of financing. Buyer is obligated to close if
the following conditions are satisfied or waived (in addition to
others noted elsewhere): (i) all reps and warranties are true and
correct on Closing Date; (ii) all covenants are true and correct
on Closing Date ; (iii) buyer has obtained financing; (iv) no
MAC between signing and closing.
Sale of a Law Practice
Account for the following:
-
Giving notice to clients regarding sale of practice
-
Obtaining clients’ consent to remain represented by the law firm
after the same.
-
Warranty that every client account has a written fee agreement

in the file.
-
Buyer wants all current attorneys to remain.
-
Buyer wants seller to guarantee that practice’s fee income for
the year after the sale will not decrease from prior year’s.
-
How ill cases in process with partially earned or contingency
fees be accounted?
-
Read and comply with California Rules of Professional
Conduct, Rule 2-300 Sale or Purchase of a Law Practice of a
Member, Living or Deceased, found at
o
http://rules.calbar.ca.gov/Rules/RulesofProfessionalConduct/Cu
rrentRules/Rule2300.aspx

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