You are negotiating the purchase of a business and all of the major terms have been agreed to – purchase price, payment of the purchase price, non-compete, etc. A good portion of an asset purchase agreement contains what is sometimes referred to as “boilerplate” language. It is very important to pay attention to that language because how that language is worded can have a significant impact on you after the transaction closes. This blog will discuss several instances of “boilerplate” language that attention should be paid to.
- Severability. What if one paragraph in the agreement is invalid or unenforceable? Without severability language, the invalidity of just that one paragraph could invalidate the entire agreement. For example, often, non-compete clauses are written broadly in terms of the geographic area covered and/or the time period covered. If the time period covered is too long to be enforceable, it is important that the balance of the non-compete paragraph be upheld. Severability language states something to the effect that “if any provision of this agreement is held to be invalid, the remainder of this agreement shall remain in full force and effect and be valid.”
- Jurisdiction. Although no one likes to think about problems that may arise after a purchase and sale, issues sometimes do arise that lead to disputes. The jurisdiction paragraph states where a dispute will be resolved. It is obviously to your advantage if a dispute is resolved in a jurisdiction (county and state) that is proximate to your location.
- Court v. Arbitration. Another issue that is dealt with in asset purchase agreements is the forum that disputes will be resolved in – will disputes be resolved in court, through an arbitration, or first by mediation? Mediation is a process whereby the parties meet to attempt to resolve their differences before an independent mediator whose sole job is to attempt to facilitate a settlement. Arbitration is a legal proceeding where the dispute is decided by one or more arbitrators. Often an arbitration is a quicker and much less costly way to resolve a dispute than going to court.
- Attorneys’ Fees. In the United States, each side in a dispute is responsible to pay its own legal fees, win or lose. The exception is if the purchase agreement states that the prevailing party is entitled to recover its legal fees from the non-prevailing party. Since the costs of litigation can be staggering, it is important to consider whether to add a clause stating that the loser pays the winner’s legal fees.
- Survival. The seller typically makes many representations and warranties regarding the business in the asset purchase agreement that the buyer is relying on. It is important to state in the agreement that the statements made by the seller will last beyond closing. Otherwise, it is possible that the statements will go away, that is, be extinguished, at the time of closing. It is also important that the survival period sufficiently protect the buyer. For some representations and warranties, a survival period of one year may be sufficient. But for other representations and warranties, a longer survival period is necessary.
The bottom line is that “boilerplate” language, often treated as an after-thought in asset purchase agreements, must be examined and negotiated carefully. As we have all been told in life, “it’s the little things that count” and in asset purchase agreements, “boilerplate” language counts a lot.
If you have any questions regarding a preference demand or preferential avoidance action please contact Glenn D. Solomon Esq. at: email@example.com | 443.738.1522
Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has represented clients in preference actions all across the United States. Mr. Solomon has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, advising companies in financial distress and bankruptcy preference avoidance actions.