asset acquisitions - Jackson Walker LLP

when a court issues its decision. Accordingly, the purchaser (other than for all the other businessconsiderations) must do a thorough job of reviewing the seller’s files and business records. Duediligence does not, however, stop there.A prospective purchaser must also be proactive. Within the confines of confidentiality, thepurchaser should also talk to the seller’s lower level staff and line employees, suppliers andcustomers, in order to determine whether or not any liabilities exists and, if so, the nature, scope,extent and potential exposure related to such liabilities. Visit the local and regional offices of federaland state governmental agencies, review public files, and talk to compliance and enforcementpersonnel. Review the seller’s internal compliance programs. Check out insurance policies (moreon this below).2. Indemnities, purchase price adjustments, or other retention mechanismsIn those instances where the purchaser knows that the seller is either going to dissolve or thatthe seller will distribute the sale proceeds to its shareholders, the purchaser must take extra care. Anescrow arrangement, retainage of a portion of the purchase price by the purchaser, or some otherretention mechanism where a portion of the purchase price can be segregated and used if unforeseenliabilities arise within a specified period of time are effective means of making sure that the plaintiffsin a successor liability case have an adequate remedy against the predecessor, thus obviating theneed for the successor to be liable. Purchase price adjustments may also be appropriate for this;however, the trade-off of using a purchase price reduction is that the purchaser gets to keep theamount of reduction in its treasury, but it leaves the purchaser, as the seller’s successor, vulnerable topaying out that money (and perhaps even greater amounts) in the event that the number of plaintiffsclaiming successor liability is greater than anticipated. Conversely, if the seller is not intending todissolve, or if it is a stable entity, an appropriately worded indemnity given by the seller to thepurchaser may be sufficient.3. Careful drafting of the Purchase and Sale AgreementIn addition to thorough and clearly written indemnities, there are several other clauses in thepurchase and sale agreement which, if properly drafted, can help protect the purchaser againstunwanted successor liability. First, the assets and liabilities being included and those which areexcluded from the transaction should be listed with as much specificity as possible. Second, thepurchaser should ask for a representation that there are no undisclosed liabilities. It may be useful toinclude as part of this representation a statement that the relevant line and staff employees who workwith the assets on a daily basis were consulted as to this statement. Third, the purchaser couldpropose a post-closing covenant from the seller that the seller will not dissolve or merge out ofexistence within a specified period of time after closing. Fourth, avoid any references in theAgreement to the fact that the purchaser is buying the “business” of the seller. This last clause maybe somewhat problematical, since many drafters and/or business people often wish to include astatement that the purchaser is buying the particular business of the seller, both because the buyer’srepresentatives view the transaction as an acquisition of a business and because such language couldarguably pick up related assets which are overlooked or inadvertently left out of the appropriateschedules or exhibits.2525936v1Appendix C – Page 15