asset acquisitions - Jackson Walker LLP

The last significant change in Revised UCC 6 is the basic remedy available tocreditors. In Original UCC 6, a bulk sale in violation of the statute was entirely void.Revised UCC 6 provides for money damages rather than for voiding the sale. The creditormust prove its losses resulting from noncompliance with the statute. There are cumulativelimits on the damages that may be assessed, and buyers are given a “good faith” defense incomplying with Revised UCC 6.Finally, Revised UCC 6 extends the statute of limitations on creditor’s actions fromsix months under Original UCC 6 to one year. The period runs from the date of the sale.Concealed sales toll the statute of limitations in Revised UCC 6, as they do under OriginalUCC 6.7. CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TOCLOSEBuyer’s obligation to purchase the Assets and to take the other actions required to be takenby Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of thefollowing conditions (any of which may be waived by Buyer, in whole or in part):COMMENTArticle 7 sets forth the conditions precedent to the Buyer’s obligation to consummatethe acquisition of the Assets. If any one of the conditions in Article 7 is not satisfied as ofthe Closing, the Buyer may decline to proceed with the acquisition (without incurringliability to the Seller or the Shareholders) and may terminate the acquisition agreement inaccordance with Article 9. A party’s right to refuse to consummate the acquisition when aclosing condition remains unsatisfied is often referred to as a “walk right” or an “out.”It is critical for the parties and their attorneys to appreciate the fundamentaldifferences between closing conditions, on the one hand, and representations and covenants,on the other. While every representation and covenant of the Seller also operates as a closingcondition (subject in most cases to a materiality qualification) through Sections 7.1 and 7.2,some of the closing conditions in Article 7 do not constitute representations or covenants ofthe Seller and the Shareholders. If the Seller fails to satisfy any of these closing conditions,the Buyer will have the right to terminate the acquisition, but unless there has also been aseparate breach by the Seller and the Shareholders of a representation or covenant, the Sellerand the Shareholders will not be liable to the Buyer for their failure to satisfy the condition.However, because of the Seller’s and the Shareholders’ obligation (in Section 5.7) to usetheir Best Efforts to satisfy all of the conditions in Article 7 and Section 8.3 and theirundertaking in clause (v) of Section 2.7(a) and Section 10.11 to provide at Closing suchinstruments and take such actions as the Buyer shall reasonably request, even if a particularclosing condition does not constitute a representation or covenant of the Seller and theShareholders, they will be liable if they fail to use their Best Efforts to satisfy thoseconditions or fail to satisfy the requirements of Sections 2.7(a)(v) and 10.11.The importance of the distinction between conditions and covenants can beillustrated by examining the remedies that may be exercised by the Buyer if the Seller andthe Shareholders fail to obtain the releases referred to in Section 7.4(e). Because the deliveryof the releases is a condition to the Buyer’s obligation to consummate the acquisition, theBuyer may elect to terminate the acquisition as a result of the failure to procure the releases.3148166v1- 124 -