asset acquisitions - Jackson Walker LLP

INTRODUCTION TO TRANSITIONAL SERVICES AGREEMENTIn a divisional purchase, the purchaser often does not acquire an entire free-standing businessbecause some of the services which were being provided to the divisional business were being providedby other departments of the seller or its affiliates or pursuant to third party contracts and, in all such cases,those service providers continue to provide their services to the non-purchased businesses and are not partof the acquisition. Depending upon its resources, this may lead the purchaser to request a transitionalservices agreement from the seller. The seller may view such an agreement as an accommodation on itspart because it had hoped to be completely free of the divisional business on closing. For these reasonsand because purchasers, when preparing their initial purchase documentation, may not appreciate thecomplexities of the transition or the timing constraints which may arise, many transitional servicesagreements are initially prepared by the seller’s counsel and many (including the one following) aresomewhat pro-seller. In the transitional services agreement which follows, the general thrust is to allowthe seller to continue its past internal practices and internal pricing allocations and it puts minimalrepresentation and warranty-type responsibility on the seller.The following transitional services agreement deals with certain common types of transitionalservices: HR services, MIS services and sales support services. However, it is intended to be aframework agreement into which any relevant transitional services could be placed with minimaladditional changes to the form of the agreement. For example, the agreement could deal with insurancemanagement and risk management, advertising and marketing services, and legal services. The first twoof these examples might be useful to a purchaser not only for reasons of timing but also because theseller may have favorable contracts on which the purchaser could effectively piggy-back for some interimperiod. By way of example, the following transitional services agreement includes both fixed priceservices and services priced on a fully allocated cost methodology.This transitional services agreement is designed for the types of services outlined above. Inpurchases and sales of divisions which are goods producing businesses, it may be necessary to prepare aseparate interim supply or contract manufacturing agreement. In some divisional purchase contexts, theremay be a need for interim patent, technology or trade mark licenses from the seller to the purchaser. Thefollowing transitional services agreement is not intended to include such agreements or licenses.The Model Asset Purchase Agreement was prepared on the basis of a purchase of substantially allof the assets of the seller and there was no need for a transitional services agreement. The followingtransitional services agreement was prepared as an independent form of agreement. Ordinarily, itsprovisions would dovetail into and be consistent with those of the purchase agreement to which it related.For example, if the Model Asset Purchase Agreement had been a divisional purchase, the provisionsregarding confidentiality in Section 6.1 of this transitional services agreement would have been revised toconform to those of Article 12 of the Model Agreement.With minor modifications, this transitional services agreement could be used in the context of adivisional asset purchase, the purchase of stock of a subsidiary which uses services of affiliates within itsgroup and the purchase of one division of a multi-national business where the divisional business isoperated as a subsidiary in some countries and a division in other countries.2415257v2Appendix D – Page 11