Expenses, Notices, Interpretation, Headings, Severability, Entire Agreement, Successors and Assigns, No Third-Party Beneficiaries, Amendment and Modification, Waiver, Governing Law, Venue, 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 two clauses that are worth a second look here are the Specific Performance provision and the Venue provision.

The Specific Performance 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.

The Venue provision only plays a role if one party initiates litigation against the other, but when that happens the term dictates where the litigation will occur. If the parties reside in different states, the provision creates a sizable disparity in terms of costs to pursue the litigation in favor the side with the home state advantage.

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. Generally, these terms can be seen as setting the ground rules for the administration and interpretation of the Agreement and for the handling of any disputes that may arise out of the Agreement.

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 those terms and many of the others in this section, the content preferences 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.