The Purchase Agreement will contain a section that might be titled “General” or “Miscellaneous” or something similar. It may also include a section containing certain definitions for terms used throughout the Purchase Agreement. These purchase agreement provisions are sometimes called “boilerplate” provisions. However, they can be just as critical to the parties as the sections described above. These provisions typically help answer the following questions:
What is included in the Purchase Agreement?
- Amendments: how can the parties amend the Purchase Agreement in the future? (usually with another contract signed by all parties).
- Waivers: this provision states that a party’s action or inaction will not be deemed to be a waiver of a condition or another party’s breach unless the waiving party confirms in writing that it is waiving the condition or breach. This is to help avoid inadvertent waivers.
- Severability and Reformation: if a judge were to rule that one or more provisions of the Purchase Agreement were not enforceable (for example, the non-compete was too broad), then these provisions will allow the enforceable provisions of the Purchase Agreement to remain and, if possible, to “reform” the unenforceable provisions to make them enforceable (e.g., reducing the scope of the non-compete).
- Counterparts: each party can sign a separate copy and all of the separate signature pages can be attached together to form one agreement.
Who might have rights under the Purchase Agreement?
- Assignment and Delegation: will either of the parties be allowed to assign their rights and delegate their obligations to a third party?
- Successors and Assigns: this relates to the assignment and delegation provision. If a party assigns the agreement to a third party through a permitted assignment, then that third party will be deemed to be a successor and can enforce its rights under the agreement against the other party.
- Third Party Beneficiaries: this will usually provide that no one other than the parties to the agreement (or their permitted assignees) will be entitled to enforce the agreement. However, if a party will be indemnifying the other party’s “officers, directors, employees,” etc., then those might be considered third party beneficiaries.
How the parties communicate after signing the Purchase Agreement?
- Notices: this provision will list the address and contact information for the parties and their attorneys and the methods in which notices may be delivered (overnight courier, hand-delivery, registered mail, etc.).
How to deal with disputes?
- Governing Law: This provides which state’s law will govern the interpretation of the Purchase Agreement.
- Forum Selection: This states the jurisdiction and venue for where lawsuits may be filed. This might require mediation or arbitration in lieu 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: The Buyer may not want to limit its remedies in the event there is an issue with the purchased equity or assets. The Seller, on the other hand, will want to limit its exposure as much as possible. Often, the parties will agree that the indemnification section, along with the right to seek injunctive relief and specific performance, will be the parties’ exclusive remedies. Although, if the Buyer will be financing a portion of the purchase price through a promissory note or contingent consideration, then it will also want the right to set-off future payments against amounts the Seller owes as a result of a breach of the Purchase Agreement.
- Payment of Attorneys’ Fees: the Purchase Agreement might also provide that the party that prevailing party in a lawsuit will be entitled to recover its attorneys’ fees and costs from the non-prevailing party.
How to interpret the Purchase Agreement?
- Section Headings: this provision will make it clear that the section headings are only for convenience and will not be interpreted as having substantive meaning.
- Usage (plural vs. singular, gender, and vs. or, etc.): there may be provisions that provide some usage guidance to help in the interpretation of the agreement.
- Defined Terms: the defined terms can be a critical section of the Purchase Agreement and a number of the defined terms may be subject to much negotiation between the parties. These include definitions for the Target Company’s “Business,” “Indebtedness,” the Seller’s “Knowledge,” what constitutes a “Material Adverse Effect” or “Material Adverse Event,” and the “Permitted Liens” that the Buyer will assume.”
For information on negotiating an M&A deal, we recommend this webinar and this webinar. Read about Business Transition and Exit Planning.