Purchase Agreement Essentials – Boilerplate Provisions Terminology

What exactly are purchase agreement essentials? When dealing with M&A transactions, it’s important to know everything about the purchase agreement and what the terminology means. Otherwise, you may not completely understand the contract. Pay close attention to language and spacing.

Learn the Lingo of M&A Agreement Boilerplate Provisions

The purchase agreement will contain a section titled “General” or “Miscellaneous” or something similar. It may also include a section with definitions of terms used throughout the purchase agreement. These purchase agreement provisions are sometimes called “boilerplate provisions.” and typically help answer the following questions.

What Is Included in the Purchase Agreement Essentials?

These provisions tell each party how terms in the contract are changed or enforced so the terms of the agreement are clear and mutually agreed upon.

• Amendments – Amendment provisions determine how the parties can amend the purchase agreement. Amendments are typically presented in an additional contract signed by all parties.)
• Waivers – This provision prevents a party’s action or inaction, and will not result in a condition being waived in another party’s breach of contract. However, the waiving party may confirm a waiver or breach in writing. This avoids accidental waivers.
• Severability and Reformation – If a judge rules that a provision is not enforceable, the ruling does not affect other enforceable provisions. The unenforceable provisions may be reformed to make them enforceable.
• Counterparts – Each party can sign a separate copy of the contract, and all of the signature pages are compiled as one agreement. Each copy is treated as an original.

Who Has Rights Under the Purchase Agreement?

Purchase agreements use boilerplate provisions to specify who has obligations and who can enforce the terms. The purchase agreement specifies what happens if one party assigns its rights to a new party.

Below are three common provisions:

• Assignment and Delegation – Boilerplate provisions may specify if the entire contract or just individual rights can be assigned to a third party.
• Successors and Assigns – If a party assigns the agreement to a third party through a permitted assignment, that third party becomes the successor and can enforce its rights.
• Third-Party Beneficiaries – Only the parties to the agreement or their permitted assignees can enforce the agreement. However, indemnified officers, directors, employees, etc., might be considered third-party beneficiaries.

How Do Parties Communicate After Signing the Purchase Agreement?

Parties communicate about contract issues through a notice provision. Notice provisions list contact information for the parties and attorneys and specify methods of delivery (e.g., overnight courier, hand-delivery, registered mail, etc.).

How Do Parties Deal with Disputes?

Purchase agreement essentials include the following provisions:

• Governing Law – This provides which state’s law will govern interpretation of the purchase agreement.
• Forum Selection – This clause indicates the jurisdiction and venue where lawsuits may be filed. This might require mediation or arbitration instead of a bench trial. It may include a waiver of a jury trial, which is often preferred in complex commercial transactions.
• Cumulative vs. Exclusive Remedies – When a purchase agreement is breached, remedies may be non-monetary compromises or legal action to obtain compensation for damages. This language clarifies that rights and remedies specified in the contract are added to, but do not replace at-law rights. It further clarifies whether remedies specified in one area of the contract are exclusive to a particular breach or might apply to other sections.
• Payment of Attorneys’ Fees – The purchase agreement may entitle the prevailing party in a lawsuit to recover attorneys’ fees and costs.

How Do Boilerplate Provisions Fit into Purchase Agreement Essentials?

Clauses that guide the interpretation of a purchase agreement can be as simple as clarifying a party’s gender or as complicated as defining acceptable events that may change the business’s condition.

• Section Headings – This specifies that section headings are for convenience and have no substantive meaning.
• Usage – Some provisions intend to guide and interpret the agreement, such as plural vs. singular beneficiaries, gender of the party or parties, and other clarifications.
• Defined Terms – Parties negotiate and agree upon defined terms. They may define “business,” “indebtedness,” “knowledge,” “material adverse effect” or “material adverse event” (i.e., a limit of accepted occurrences that can negatively affect a business) and “permitted liens” among other terms.

Conclusion

While boilerplate provisions may seem like fine print in a “General” or “Miscellaneous” section of a purchase agreement, the implications of their language are more impactful in an M&A transaction.

We think you’ll also like:

• What is a Non-Disclosure Agreement? Non-Disclosure Terms Explained
• Structuring and Planning the M&A Transaction 2021
• Private Company M&A Boot Camp

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure and each includes a comprehensive customer PowerPoint about the topic):

• Structuring and Planning the M&A Transaction
• Key Provisions in M&A Agreements
• Representing Asset Purchasers in Bankruptcy

This is an updated version of an article originally published on September 27, 2019. It has been updated by Maryan Pelland.]

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