asset acquisitions - Jackson Walker LLP

A. Purchased AssetsAsset transactions are typically more complicated and more time consuming than stockpurchases and statutory combinations. In contrast to a stock purchase, the buyer in an assettransaction will only acquire the assets described in the acquisition agreement. Accordingly, theassets to be purchased are often described with specificity in the agreement and the transferdocuments. The usual practice, however, is for buyer’s counsel to use a broad description thatincludes all of the seller’s assets, while describing the more important categories, and then tospecifically describe the assets to be excluded and retained by the seller. Often excluded are cash,accounts receivable, litigation claims or claims for tax refunds, personal assets and certain recordspertaining only to the seller’s organization. This puts the burden on the seller to specifically identifythe assets that are to be retained.A purchase of assets also is cumbersome because transfer of the seller’s assets to the buyermust be documented and separate filings or recordings may be necessary to effect the transfer. Thisoften will involve separate real property deeds, lease assignments, patent and trademark assignments,motor vehicle registrations and other evidences of transfer that cannot simply be covered by ageneral bill of sale or assignment. Moreover, these transfers may involve assets in a number ofjurisdictions, all with different forms and other requirements for filing and recording.B. Contractual RightsAmong the assets to be transferred will be the seller’s rights under contracts pertaining to itsbusiness. Often these contractual rights cannot be assigned without the consent of other parties. Themost common examples are leases that require consent of the lessor and joint ventures or strategicalliances that require consent of the joint venturer or partner. This can be an opportunity for the thirdparty to request confidential information regarding the financial or operational capability of thebuyer and to extract concessions in return for granting its consent. This might be avoided by apurchase of stock or a statutory combination. However, some courts have held that a merger violatesa nonassignment clause. See, e.g., PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090 (6thCir. 1979). At least one court held that such a violation occurred in a merger where the survivor wasthe contracting party. See SQL Solutions, Inc. v. Oracle Corp., 1991 WL 626458 (N.D. Cal. 1991).Leases and other agreements often require consent of other parties to any change in ownership orcontrol, whatever the structure of the acquisition. Many government contracts cannot be assignedand require a novation with the buyer after the transaction is consummated. This can pose asignificant risk to a buyer.Asset purchases also present difficult questions about ongoing coverage for risks insuredagainst by the seller. Most insurance policies are, by their terms, not assignable and a buyer may notbe able to secure coverage for acts involving the seller or products it manufactures or services itrenders prior to the closing.C. Governmental AuthorizationsTransfer of licenses, permits or other authorizations granted to a seller by governmental orquasi-governmental entities may be required. In some cases, an application for a transfer or, if theauthorization is not transferable, for a new authorization, may involve hearings or other3148166v1- 5 -