#3267 - Buyer Or Seller Friendly Clauses Crib Sheet - Mergers and Acquisitions (Private Acquisitions)

Buyer or Seller Friendly Clauses

1. Buyer Friendly

   1. Reliance on representations

      1. Buyer able to claim under misrepresentation for any representations or statements made in the agreement

      2. Ability to bring a tortious claim where damages are more favourable to the buyer and there is the ability to rescind the contract

         1. Contract damages put the claimant in the position he would have been in had the contract been properly performed

         2. Tort damages put the claimant in the position he would have been in had the harm not occurred – i.e. if the claimant had not entered into the contract – and there is no need to mitigate loss. Can also rescind the contract

            1. Need to prove inducement and reliance though

         3. Difference

            1. If the correct market value for the company was paid it makes no difference if action is bought in tort or contract

            2. If the claimant gets a good bargain then he would have suffered no loss and so will be unable to claim in tort. In contract can claim for loss of bargain

            3. If purchase was a bad bargain – claimant paid more for the company than it was actually worth – then will be better to claim in tort

   2. No Entire Agreement clause

      1. Omission of this clause allows buyer to claim misrepresentation for statements made outside the agreement; including oral statements

   3. Include rescission as a remedy

      1. Allowing buyer to terminated the agreement after Completion and not just sue for damages

   4. Sellers Jointly & Severally

      1. Buyer wants to be able to sue any seller for the whole amount

      2. Will be the seller’s problem to sort out apportionments of sums owed

   5. Represent & Warrant

      1. Buyer wants the widest possible range of remedies including misrepresentation

   6. Full & Fair disclosure…with sufficient details to identify the nature and scope of the matter disclosed

      1. Including a high standard of disclosure for the seller to achieve

         1. New Hearts wording

            1. Want the seller to provide the buyers will all information

         2. Farin

            1. “save as disclosed” – disclosure must be fair

               1. It is not enough to leave it to the buyer to decipher the problem from a large bundle of documents

      2. Buyer should never accept wording less than New Hearts

   7. Statements will be true at completion

      1. Protection of the buyer in the period between exchange and completion

   8. True and accurate and not misleading

      1. Buyer does not want an onerous burden of investigation

      2. This statement flushes out information

   9. Into the Group Companies

      1. Disclosure is required for the whole undertaking

   10. Actual knowledge clause

       1. Except in relation to matters fully & fairly disclosed in the Disclosure Letter, none of the Warranties shall be treated as qualified by any actual, imputed or constructive knowledge, on the part of any member of the Purchaser’s Group or any agent or adviser of any such member and no such knowledge shall prejudice any Warranty Claim or operate so as to reduce any amount recoverable

       2. Limits qualification on warranties to what has been specifically disclosed in the Disclosure letter

2. Seller Friendly

   1. No inclusion of representations

      1. Buyer accepts that it has not relied on any representations and therefore reduces its ability to bring a tortious claim

      2. Buyer can only bring a contract claim and therefore has no ability to rescind the contract

         1. Buyer also has a duty to mitigate their loss

         2. Damages can only to put them in the position they would have been in had contract been properly performed

      3. Best for seller to delete an phrase ‘in reliance on the’

   2. Entire Agreement Clause

      1. Can only claim for misrepresentation on the warranties in the agreement

      2. Limiting its liability to exclude any outside statements or oral statements

         1. The purchaser acknowledges that the warranties are the only representations, warranties or other assurances of any kind given by the Warrantors and on which the Purchaser may rely in entering into this agreement

   3. The purchaser shall not be entitled in any circumstances to rescind or terminate this agreement after Completion

      1. Removes rescission as a remedy for the buyer

      2. Buyer can only claim for damages

   4. No Joint & Several – instead Warrantors warrant to…

      1. Sellers wish to limit their liability

         1. Minority shareholders and trustees are highly unlikely to be willing to be liable for the full amount, but rather only for their own contribution

            1. Deed of Contribution – Side Agreement limiting the liability to the amount of consideration that the sellers themselves have received

      2. Ability to define warrantors

   5. Deletion of represent & warrant

      1. Exclude claims for misrepresentation

   6. Deletion of full and deletion of with sufficient details. Include disclosure bundle

      1. Limiting disclosure obligations

         1. Pushing the risk and obligation to review the disclosure bundle on to the buyer

            1. Allocation of risk to the buyer

      2. Seller is trying to drag the burden of disclosure down to Infiniteland standards

   7. Deletion of at completion

      1. Shifting the risk back to the buyer

      2. Seller has disclosed against the warranties at exchange and the buyer entered its decision based on what was said

         1. There is a high risk that something can change in the gap between exchange and completion and the seller will...