The Middle Ground

A GUIDE TO DEAL TERMS IN PLAIN ENGLISH


+ Introduction

+ Purchase and Sale

+ Closing

+ Representations & Warranties - Seller

+ Representations & Warranties - Buyer

+ Covenants

+ Conditions to Closing

+ Indemnification

+ Termination

+ Miscellaneous

Expenses, Notices, Interpretation, Headings, Severability, Entire Agreement, Successors and Assigns, No Third-Party Beneficiaries, Amendment and Modification, Waiver, Governing Law, Submission to Jurisdiction, Waiver of Jury Trial, Specific Performance, Counterparts


Classification: Under the Radar
Section: Miscellaneous
Negotiation Time: Minimal to Moderate
Transaction Costs: Insignificant
Major Impact: Risk Management


What is This? These are the standard, “boilerplate” terms that appear in almost all contracts. They are focused on addressing legal issues and don’t typically change the value of the deal for the parties.

The Middle Ground: Most of these terms are procedural or technical and use standard language. Thus, there is generally no need for the parties themselves to evaluate the terms; the lawyers on each side will look them over and report back if there are any issues worthy of discussion.

The one clause that is less ubiquitous than the others and thus is worth a second look here is the Specific Performance provision. That provision can be used by one party to force the other party to comply with the terms of the Agreement instead of paying monetary damages following a breach. Due to its practical implications, the parties will want to carefully assess whether they want to provide the other side with the power to require specific performance.

Purpose: These are standard terms that are included in the Agreement due to concerns arising out of contract law rather than the specific needs of the parties. If all goes as planned, most of them will never even come into play.

Buyer and Seller Preference: These provisions are drafted to be equally applicable to both parties, so without knowing the context of the particular transaction it is difficult to point to any specific changes that either party might want to make to the standard terms. The one thematic area where it can safely be said that the parties’ interests will diverge is with regard to locational provisions, such as choosing which state’s law governs the Agreement and where claims can be brought (unless both parties reside in the same state). For the terms that don’t involve a particular location, the content preferences for the miscellaneous terms will likely depend on the personalities of the parties (e.g. which side is more likely to sue) and the dynamics created by the Agreement (e.g. which side is more likely to have to give notice).

Differences in a Stock Sale Transaction Structure: None.


DISCUSSION

We want The Middle Ground to be an ongoing dialogue for and resource to the lower middle market M&A community. The outline above is generally applicable, but there is always specific case law and nuance around certain industries that can be useful in helping buyers and sellers come together. If you are a lawyer or deal professional, we encourage you to add your perspective below.