Boilerplates are easily overlooked and neglected in M&A agreements as they typically cover the boring stuff. Most parties assume boilerplates are standard and innocuous, which is not true. In fact, they are as important as the essential parts of the agreement. But if they are poorly drafted or if you glaze over them, they can cause headaches and create the perfect storm of legal actions in the event of a potential dispute. Not including certain boilerplates can also create ambiguity. If done correctly, boilerplates will better define parties’ relationship and provide greater certainty should a dispute arise. They can eventually enable you to prevent or ride out the storm. In this Strelia M&A Series and bearing in mind that boilerplates are not one-size-fits-all propositions, we talk about the importance when drafting or reviewing such provisions, about their implications, and about tailoring their drafting to the aim of the deal and the agreement. We will do this by discussing some of the trickiest boilerplates that you should be aware of in M&A agreements: the clauses on entire agreement, exclusivity of remedies and assignment.
Entire Agreement
The entire agreement clause (in short: EAC) provides that the contract represents the entire agreement between the parties on the subject matter of the M&A agreement and that the agreement supersedes written and oral statements, representations and arrangements made prior to signing. The EAC helps to ensure contractual certainty: the parties know that the agreement is confined to the four corners of the document and aims to avoid disputes relating to representations or any other statement or arrangement made prior to signing. This contractual certainty is particularly relevant in complex transactions with lengthy pre-contractual negotiations. The exact wording of entire agreement clauses varies from agreement to agreement. There is a growing practice to broadly draft an EAC by also including a restriction of remedies (see below) and/or a non-reliance clause. When drafting or reviewing an EAC, you should ensure that (i) prior arrangements like LoIs are properly addressed, (ii) parallel arrangements like NDAs that will remain in place are explicitly excluded, (iii) there is no contradiction with other contractual provisions, and (iii) implied terms are excluded.
Exclusivity of Remedies
M&A agreements generally include indemnification provisions. Sometimes parties agree on them as means of exclusive remedy for asserting claims. An exclusivity of remedies clause (in short: an EOR) exhaustively stipulates the remedies available to parties under the M&A agreement. Depending on the scope of the EOR, the indemnification as the only remedy can focus on the R&W, but it can also cover the covenants. In addition, the EOR can be limited to the M&A agreement, but it can also include related transaction documents. Generally, a seller would favor EOR provisions because they provide greater certainty, whereas a buyer would want to preserve all remedies available to it under ordinary law. Fraud and willful misconduct will be carved out from the EOR, as they cannot be waived under Belgian law. Although the types of remedies that a party will ultimately retain will depend on their respective bargaining power, you should (i) consider the contents of this clause carefully, (ii) use unequivocal wording if you wish to limit or exclude certain remedies available for specific events or for some breaches under the M&A agreement or related documents, and (iii) ensure that the EOR is enforceable as some exclusions are prohibited by law.
No Assignment
Under Belgian law, one can freely transfer debt claims to a third party without having to seek the debtor's consent. The transfer of obligations, however, requires the creditor's consent. In a M&A agreement, parties often deviate from these ordinary law principles and restrict a party's right to transfer rights and obligations by inserting a broad no assignment clause. If a buyer wishes to transfer any debt claims under the M&A agreement to the bank that financed the deal, the said no assignment clause should carve out this exception clearly. Intragroup assignments by the buyer are also often carved out. A bit more complex is the assignment of the buyer’s right to claim under the R&W because it is not a mere assignment of rights. Such right to claim under the R&W indeed also entails a transfer of debt because the buyer has certain obligations (e.g., the duty to inform) towards the seller when it wants to seek indemnification under the R&W. Given its importance, you should explicitly address the assignment of claims under the R&W preferably in a separate clause in the M&A agreement ̶ and ensure its coherence with the general assignment clause.
