SALE OF BUSINESS

1. Structure of Sale What is the structure of the sale and what issues impact that determination?Depending upon a multitude of factors, the Seller and Buyer will have to determine the appropriate structure for the purchase. First and foremost is what liabilities the Seller has in the forms of Warehouse Lines, Term Lines of Credit, Revolving Lines of Credit and one-off Finance Agreements. Are these Finance Agreements capable of being assumed or not or will Buyer be paying them off with its own financing. This will dictate whether the Agreement to Purchase and structure is an Asset Purchase Agreement or a Stock Sale. In an Asset Purchase Agreement, provisions for what assets are being acquired and what liabilities are being assumed are negotiated. In a Stock sale, an outright purchase of the stock of the Seller is acquired along with any and all pre-existing liabilities and contingent liabilities. Therefore, an Asset Purchase Agreement is in the best interests of the Buyer and provides for flexibility to make a custom deal.

   How the assets are held and recorded on the books of the Seller dictate the form of Purchase Agreement as well in so far as whether the assets are True Leases with a Residual or Loans. If the assets are Loans, then what is being acquired is an assignment of a security interest in each individual asset. If the assets are Leases, there is an assignment of a Security Interest in a Stream of Payments in addition to a Residual Asset, both of which have to be accounted for in the acquisition.

   A thorough review of the underlying asset documentation to determine the enforceability of the subject contracts must be done. This will disclose the nature of the individual contracts as being loans or leases.

   A study of any Broker Agreements and Vendor Agreements must be made to determine if these agreements are being assumed. This goes for Remarketing Agreements as well. There may be other third-party agreements as well.

   A UCC Search must be done to confirm Seller’s secured pmsi status in the contracts being sold and verified that there are no gaps in priority to any blanket lien holder or conflicting security interests.

   Accordingly, the documents typically used to document an Asset Purchase Agreement are:

   1. Asset Purchase Agreement
   2. Collateral Assignment of Leases and/or Loans
   3. Individual Assignment and Assumption of Debt instruments (i.e. Warehouse Lines, Term Loan, Revolving Credit Facility).
   4. Assignment of Vendor Programs Agreements, Broker Agreements, Remarketing Agreements, Titling Trusts, if any.
2. Unique ProvisionsDepending upon whether the assets are going to be assigned or financed by buyer, the issue of servicing may result in a Servicing Agreement or Servicing may be addressed in the Asset Purchase Agreement.

   There are primarily two (2) types of Assets Purchase/Assignment; (1) is where the equipment lessor provides the financing and takes an assignment of the lease collateral and discounts the payment stream, (2) the other is an assignment with the assignee being the Servicer and getting paid a combination of fees for each lease/loan plus a premium rate over the term of the underlying contract.

3. Other types of “Deals”Some equipment finance companies contemporaneously assign their rights under the execution of a lease (either the funder of the Lender’s document, or their own) and execute a lease/loan and an assignment of all rights, title and interest and obtain funding directly from a funding source or alternatively use their own Warehouse Line to “take down” the deal and shop it for the best return. These two (2) scenarios are more in the nature of “Origination Platforms” than true financiers. The financial benefit is a spread between what a deal is sold for and is paid.

   Tony