asset acquisitions - Jackson Walker LLP

Appendix DACQUISITION OF A DIVISION OR LINE OF BUSINESSThe Model Asset Purchase Agreement contemplates the acquisition of all of the operatingassets of a corporation, comprising its entire business and goodwill and excluding onlyorganizational material and memorabilia in order to allow undistracted focus on thedocumentation of the full mechanics of an asset purchase, including extensive warranties andpurchase price calculations and adjustments. A transaction in which the buyer will acquire lessthan all of the operating assets of the selling corporation, particularly a transaction in which theassets represent an unincorporated division or product line of a seller which will remain inbusiness and which may continue product lines which have affinities to the transferred“Business”, presents a number of additional issues which are implicated in the drafting of theagreement and in the mechanics of consummating a transaction in which the buyer and the sellermay find themselves having various continuing relationships. The following sections discuss themost significant of these issues. Because of the infinite variety of circumstances of a divisionalacquisition, however, it generally is not productive to propose exact language for inclusion in anagreement.I. IDENTIFICATION OF THE ASSETS TO BE ACQUIREDThe most important task of the buyer’s counsel in a divisional acquisition is to design acontractual description of the assets to be acquired by reference to a defined “Business”. Thatdescription is critical not only to the goal of assuring that the buyer obtains what it intends toacquire, but also provides a reference for the buyer to avoid errors in the assumption ofliabilities, to identify the mechanics of taking hold of the acquired assets and the need for postclosingcooperative activities between buyer and seller, and to design appropriate warranties andpurchase price adjustments. The lawyer’s success in this effort depends greatly upon the buyer’swillingness to devote all the attention that may be required to understanding how the seller hasorganized and operated the business to be acquired.The “devil” in this exercise is not in the details of specifically identifiable assets but inthe generalities of the activities in which the assets are used. In some instances the assets to beacquired consist of production assets which are located in a single facility and comprehend thatentire facility. In those cases, the buyer’s concerns may be satisfied by a definition of theacquired Business which refers to the activities of that location. In other cases, the assets maynot be so neatly packaged, but the Business can be described as relating to the manufacture of acertain product which is distinguishable from other products which the seller intends to continue.At the other end of the spectrum, there are situations in which the seller wishes to dispose of avariety of related activities, conducted in several countries, which the seller has operated as aloosely-structured division. In such instances, counsel may find that it will require a long, fullynegotiated paragraph to capsulize those activities as a “business”.1. In regard to the contractual identification of the assets to be acquired, thedefinition of the “Business” serves as a gather-all clause, and it is appropriate for the buyer’scounsel to seek initially to define that Business comprehensively. An example of such adefinition is found in the first paragraph of Example 1 of this Appendix. The objective of the2415257v2Appendix D – Page 1