SGS 7 - Drafting

Question 1

Define “Premises”a34

Answer 1

‘Premises’ means the [Buyer’s/Seller’s] premises located at [insert address]

Question 2

What are the operative provisions?

Answer 2

• Terms defining the scope of the agreement (such as the duration of the agreement)
• Conditions precedent (setting out any conditions to be satisfied before the agreement comes into force
• Obligations of the parties
• Options or rights in favour of one of the parties
• Warranties and indemnities (if numerous, in a Schedule)

Question 3

What are boilerplate clauses?

Answer 3

The general routine clauses found in most
types of commercial contracts.

Boilerplate clauses deal with the way in which the contract operates, it controls and modify the rights and obligations of the parties.

Usually found towards end of the agreement.

Question 4

What does it mean when a court has exclusive jurisdiction? What about non-exclusive?

Draft an example of jurisdiction clause.

**Drafting book says this is important

Answer 4

Exclusive means that it is the only court competent to hear disputes on that matter.

Non-exclusive would occur in a situation where there were a number of possible courts that had jurisdiction over the dispute. It would give the English courts jurisdiction as well as other courts.

25. Governing Law and Jurisdiction
26. 1 This Agreement and any non-contractual obligation arising out of or in connection with it are governed by the laws of England and Wales.
27. 2 The parties irrevocably submit to the exclusive [or non exclusive] jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Agreement and/or any non-contractual obligation arising in connection with this agreement.

Question 5

What is a Force Majeure Clause? Example.

Answer 5

A force majeure clause is intended to suspend or terminate contractual obligations if an event occurs that is outside the parties’ control and that prevents one of the parties from performing its obligations.

If one or more of the events occurs, then the contractual performance will be suspended for a specified period. If the event is still continuing at the end of that period, then the contract will be considered to be terminated.

Neither party shall be in breach of this agreement nor liable for delay in performing, or failure to perform, any of its obligations under this agreement if such delay or failure result from events, circumstances or causes beyond its reasonable control. In such circumstances [the time for performance shall be extended by a period equivalent to the period during which performance of the obligation has been delayed or failed to be performed OR the affected party shall be entitled to a reasonable extension of the time for performing such obligations]. If the period of delay or non-performance continues for [NUMBER] [weeks OR months], the party not affected may terminate this agreement by giving [NUMBER] [days’] written notice to the affected party.

Question 6

Define “Losses”

Answer 6

“Losses” means all losses, damages, penalties, liabilities, costs (including legal costs and experts’ and consultants’ fees), charges, expenses, actions, proceedings, claims and demands.

Question 7

What is the purpose of an Entire Agreement Clause.

• Draft an example of an Entire Agreement Clause

Answer 7

The purpose of an entire agreement clause is to provide commercial certainty. This is done by preventing the party relying on it from being liable for any statements or representations that are not expressly set out in the agreement.

It also allows the parties to accurately assess the risk they are taking on on the basis of the warranties given by the seller by excluding any other oral or non-contractual promises.

18 Entire Agreement

18. 1 This Agreement constitute the entire agreement and understanding between the Parties, and replace all previous agreements and understandings between them, relating to their subject matter.
19. 2 Neither Party shall have any remedy in respect of any statement not set out in the Transaction ll
20. 3 Each party acknowledges and agrees that the only remedy available to it for breach of this Agreement shall be for breach of contract under the terms of this Agreement.
21. Nothing in this clause shall limit or exclude liability for fraud

Question 8

What is the purpose of a severance clause?

Draft an example of a Severance Clause

Answer 8

It aims to ensure that if any clause is declared unenforceable or invalid , it will br capable of being ‘severed’ from the contract at the discretion of the court. The intention is that the remaining contract will remain valid and enforceable.

22 Severence

If any provision of this Agreement is held to be invalid or unenforceable, then such invalidity or unenforceability shall not affect any of the remaining provisions of this Agreement. The remaining provisions shall remain in full effect.

The Parties may then agree that should a provision be severed, it shall be substituted by an enforceable provision that achieves to the greatest possible extent the same effect as would have been achieved by the severed provision.

Question 9

Draft an example of an Exclusion of Third Party Rights clause?

Answer 9

25 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

Save as expressly provided otherwise in this Agreement, no term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement.

OR (the example provided by the drafting workbook)

RIGHTS OF THIRD PARTIES (EXCLUSION)

For the purposes of the Contracts (Rights of Third Parties) Act 1999, this Agreement does not and is not intended to give any rights, or any right to enforce any of its provisions, to any person who is not a party to it .

Question 10

Execution clause at the end of operative provisions in bold

Answer 10

This Agreement has been executed on the date stated at the beginning of this Agreement.

Check PAGE49 FOR. MORE SPECIFICS

Question 11

“Company” Defintition

Answer 11

“Company means [NAME OF COMPANY[, a company incorporated and registered in England with company number [COMPANY NUMBER] whose registered office is at [COMPANY’S REGISTERED OFFICE ADDRESS]

Question 12

What is a Notices Clause? *Drafting book says this is another important boilerplate clause

Draft an example

Answer 12

Notice clauses should provide for:

• where notice is to be served
• the method of service and
• the time at which the notice is deemed to be served

Most will not allow oral notice, but will require notices to be given in writing.

15 NOTICES

15.1 Any notice required to be given under this Agreement shall be in writing and in English and signed by the person giving it and may be delivered
personally or sent by facsimile transmission or other electronic means or by first class post to the address set out above in respect of each of the parties.

15. 2 A notice or other communication shall be deemed to be received
16. 2.1 if delivered personally, at the time of delivery; or
17. 2.2 if sent by facsimile transmission or other electronic means, on the date it is delivered, provided that it is sent during Business Hours on a Business Day
18. 2.3. if sent by post, 48 hours after the date of posting

[Business Day and Business Hours would be defined terms].

Question 13

What order should the clauses be in?

Answer 13

• In logical order depending on the nature of the document. This could be in chronological order or in order of importance, or a combination of the two.

Question 14

What is the purpose of warranties and indemnities?

Answer 14

They define the parties’ legal duties and supplement or clarify any implied terms.

Question 15

What is a warranty?

Answer 15

A binding statement of fact made by one party to another.

They may be used where one party is entering into the agreement on the basis of certain assumptions about the other. Warranties ensure that those assumptions are given contractual force.

They can also be used to define the nature of a party’s obligations. I.e. if a party is obliged to deliver certain goods, it will often give a warranty as to the quality of those goods.

Question 16

What is an indemnity?

Answer 16

A contractual obligation where one party agrees to keep another protected from a specific loss.

The liability under an indemnity arises not because of any breach but because the parties have stipulated that one shall save another from loss in certain circumstances.

Thus, the principles of liability for breach of contract do not apply with indemnities.

Buyers may require indemnities from the seller against, for instance, damages that may arise as a result of pending litigation, fines that may be imposed by HMRC etc.

**ENSURE THAT INDEMNITIES ARE GIVEN IN FAVOUR OF THE BUYER (NOT THE TARGET

I.E. The seller shall indemnify the Buyer from and against all liabilities, cash expenses, damages and losses (including any direct, indirect or consequential losses, loss of profits and loss of reputation) suffered or incurred by the Buyer arising out of or in connection to [inset issue of scenario here].

Question 17

What is an Assigment or non-assignment clause? *Says this is another important clause.

Draft an example.

Answer 17

These prevent one or both parties from assigning the benefit of the agreement or sub-contracting the work to a third party without the consent of the other party.

Note that subject to any provision/clause that says contrary, the benefit of a contract can otherwise be freely assigned, but the burden can never be assigned. To transfer the burden of a contract, a novation agreement (between the original parties and the new party) would be required.

20. Neither party shall be entitled to assign or sub-contract this Agreement or any part of this agreement to any person.

Question 18

What is a termination clause? What are some of the circumstances under which a party can terminate an agreement? Draft some examples.

Answer 18

Example: This Agreement may be terminated immediately by the X upon notice to the X, in the event of the X breaching their obligations under this Agreement.

INSOLVENCY/ADMINISTRATION

Either party may terminate this Agreement immediately by notice in writing if any corporate action, legal proceedings or other procedure or step is taken in relation to the appointment of a liquidator, receiver, administratot, administrative receiver or other similar officer in respect of either party or any of its assets.

BREACH OF CONTRACT

Either party may terminate this Agreement immediately by notice in writing if the other party commits a breach of this Agreement (and this breach, if capable of remedy, has not been remedied within [x] days of the non-breaching party giving the breaching party notice in writing to remedy the breach)

BREAK CLAUSE (termination on notice/agreement)

Each party may terminate this Agreement by giving to the other party not less than 90 days’ prior notice in writing.

Question 19

Conditions Precedent Clause

Answer 19

i. e. This agreement is subject to the Buyer acquiring all the necessary licens and the parties receiving clearence from the relevant competiton authorites.
5. Conditions
5. 1 Completion is conditional on the following, these being the “Conditions”:

(a) x
(b) x
(c) x

5.2 The Seller undertakes to use all reasonable endeavours to ensure that the Conditions are fulfilled as soon as reasonably practicable and prior to the Longstop Date. The Seller shall notify the Buyer in writing within two Business Days after any Condition has been fulfilled.

Question 20

Termination clauses - what to bear in mind

Answer 20

Some things to bear in mind when drafting termination clauses

• does the breach have to be ‘material’ to justify termination? If so, what is meant by material?

_ is the party who is terminating the agreement required to give advance notice to the other party when terminating the agreement? How is this notice period to be calculated?

• does the party wanting to terminate have to allow the other party an opportunity to remedy the breach first and if so how long a period?
• what are the consequences of termination?
• do any rights and obligations under the agreement continue (or survive) after the date of termination. If so, how long?

Question 21

What is a survival clause? Draft an example

Answer 21

The provisions of clause x (clause heading) and x (heading) shall survive the expiry or prior termination of this agreement.

Contained in boilerplate towards end of agreement. It allows certain clauses to be binding upon the parties even after termination or expiry of the agreement.

Typic clauses in a agreement tht at the client may want to survive termination are:
5

• confidentiality - this must remain operational.
• post termination restrictive covenants (I.e. Non-compete clauses)
• indemnities; and
• governing law and jurisdiction /arbitration

Question 22

What are the 6ws to consider when drafting?

Answer 22

1. Who is to perform the obligation?
2. What is the obligation to be performed?
3. When is the obligation to be performed?
4. Where is the obligation to be performed?
5. To whom is the obligation to be performed?
6. What if - what are the consequences of a failure to perform an obligation?

Question 23

What are the two types of contracts?

Answer 23

1. A contract/agreement under hand - I.e. An agreement which is not intended to take effect as a deed) and
2. A deed - I. e. An agreement requiring an additional execution

Question 24

COMPLETION

Answer 24

At Completion, the Seller shall deliver or procure to be delivered to the Buyer:

(a) a duly completed and executed transfer of the Sale Shares, executed by the Seller, in favour of the Buyer;
(b) the original certificate(s) for the Sale Shares (or a deed of indemnity

Question 25

What are the ways yiu csn use in drafting to compromise

Answer 25

1. Knowledge qualifiers (so far as the seller is aware). If you're on the buyers side or want a compromise you can say so far as the seller is aware (having made reasonable enquiries to specified persons). Not ruiu need to define specific persons 2. materiality thresholds (I.e. Not involved in any material itigstion, no material client etc.) 3. Reasonableness - I.e. Reasonable endeavours instead of best endeavours, x will as far as reasonably practicable etc.

Question 26

Draft de minimis clause

Answer 26

- the seller shall not be liabe for any individual claim unless the value of that claim is equal to or exceeds x

Question 27

Draft a minimum aggregate thresholds on claims clause

Answer 27

The seller shall not be liable for a claim unless the sum of uch claim together with any connected claims exceeds x

Question 28

Non-assignment clause

Answer 28

Neither party shall be entitled to assign or sub contract this agreement or any part of this agreement to nay person

Question 29

What are restrictive covenants?

Answer 29

Contractual clauses that restrict the seller from taking certain action following an acquisition. They are designed to protect the buyer from the seller taking certain action that could negatively impact the operations and profitability of the newly acquired target. They must be reasonable in terms of: - Geographical scope - applying only to territories which the buyer/target operate - Business scope - should only relate to the type of business undertaken by the target/buyer - Duration - Restrictive covenants cannot be indefinite. They must only last for a reasonable period of time.

Question 30

What are some types of restrictive covenants?

Answer 30

Non-compete agreements Non-solicit clauses Confidentiality Agreements/NDAs

Question 31

What is a non-compete agreement? Draft an example.

Answer 31

A promise from the seller that if the deal goes ahead, the seller will not start up a similar business and emerge as a competitor of the business being acquired and/or apply only to regions where the business operates. The Seller covenants with the Buyer that it will not carry on or be employed by any business which would be in competition with the Buyer and/or any of the Buyer's subsidiaries in [geographical location of the target] at any time during [X number] years beginning on the Completion date.

Question 32

What is a confidentiality clause?Draft an example of a confidentiality clause.

Answer 32

parties to a proposed joint venture will want to ensure all other parties enter into a confidentiality/NDA so that any sensitive information discovered by the other parties during the DD process cannot be disclosed to potential competitors/the market. Each party undertakes that it shall not at any time disclose to any person any confidential information concerning the business affairs, clients, suppliers or customers of the other party, unless the disclosure is made (a) to employees, officers or advisors who agree to comply with this clause and need to know such information for the purposes of carrying out that party's obligations under this Agreement; or (b) to comply with the law or a court order

Question 33

Provide examples of some warranties

Answer 33

The seller warrants that it owns full title to [name of property/land] The seller warrants that it will discharge in full the mortgage attached to [name of property] The Seller warrants that there is no litigation against the target, including actual, pending or threatened litigation The Seller warrants that ti will settle any outstanding litigation claims by the Completion Date. The Seller warrants that the target's pension scheme is fully paid up.

Question 34

Provide an example of a consequence of termination clause.

Answer 34

The termination of this Agreement for any reason shall be without prejudice to the rights and duties of the parties accrued prior to termination.

Question 35

Provide an example of a litigation warranty

Answer 35

As far as the seller is aware (having made all reasonable enquiries of Specified Persons) the Target is not engaged in any Material litigation, arbitration, mediation or expert determination, whether actual or pending "Material" means claims that are equal to or greater than £30,000 in value. If there is actual or pending litigation, and discloses against this in the contract, the buyer will want an indemnity from the seller to cover any claims that the target is required to settle post-completion The seller indemnities the buyer against any existing to future claims brought against the Target that relate to the Target's activities whilst under the Seller's control

Question 36

Provide an example of an employee dismissal warranty.

Answer 36

The Seller warrants that it followed the relevant statutory procedures when dismissing employees. The seller indemnities the Buyer against any claim brought by the Dismissed Employee against the Target

Question 37

Provide an example of a warranty relating to stock.

Answer 37

As far as the seller is aware (having made all reasonable enquiries) all of the stock owned by the Target is in satisfactory condition and is suitable for sale.

Question 38

Provide an example of a warranty relating to accounts

Answer 38

** remember auditors only measure to a "true and fair" standard. Also try to limit to 2-3 accounting periods as these are the periods most relevant to buyer The Accounts for each of the last two accounting periods show a true and fair view of the state of affairs of the Target.

Question 39

Provide an example of a warranty relating to the target's employees not leaving following acquisition.

Answer 39

No senior employee of the Target will leave their employment as a result of the acquisition of the Target by the Buyer.

Question 40

Provide an example of a warranty relating to the suppliers and customers of the target company.

Answer 40

Not more than 10 percent of Target's turnover has in the previous two financial years been attributtable to any single client and as far as the seller is aware (having made all reasonable enquiries) no person who was a client or supplier of Target at the Accounts Date has since ceased to contract, or intends to cease contracting with Target.

Question 41

What is a simple contract? How do you execute a simple contract by individuals? *Execution of simple contract by individual

Answer 41

Each party will sign separate, identical copies of the same document. Signed by [name of individual] *signature of individual*

Question 42

Execution of simple contracts by companies

Answer 42

Can be executed by the signature of a person authorised to contract on the company's behalf. USUALLY but not always a director. Simple contracts can be signed by a company OR on BEHALF of a company. 1. SIGNED BY A COMPANY - the company itself will sign the agreement. Three options for this: a) Affix the company seal in the presence of two directors OR one director and a company secretary, both of whom will sign to evidence that they were present. "executed by affixing the common seal of [name of company] in the presence of: signature by director, signature by director/secretary~ b. signature by two authorised signatories "Signed by [name of company] acting by [name of authorised signatory 1], a durectir and [name of authorised signatory 2], a [director/secretary] c.. Signed by a director in the presence of a witness (who will also sign) "Signed by [name of company] acting by [name of director], a director, in the presence of [name of witness]. 2. SIGNED ON BEHALF OF A COMPANY Where a signature is signed on behalf of a company, this means that the company has authorised a person to sign on its behalf. The company will be bound in tthe same way as if the signature has been by the company. "Signed by [name of director] for and on behalf of [name of company].

Question 43

Execution of simple contracts under power of attorney

Answer 43

Power of attorney is a legal document that lets the person or company delegatign the power (the donor) appoint one or more people, the attorneys, to help them make decisions on their behalf. The attorney may sign his own name or the donor's/ "Signed by [name of attorney] acting for [name of donor] under a power of attorney dated [date]. * signature of attorney

Question 44

What is a non-solicit clause? Example

Answer 44

Contractual promise from a mp to a buyer not to approach and attempt to poach, for instance, certain key employees, suppliers, distributors or customers of the newly purchased company for a given time period The seller covenants with the buyer thst it will not deal with or seek the custom of any person who is a client of the Buyer or any of its subsidiaries at the Completion date at any time during the period of x years beginning on the completion period The seller covenants with the buyer thst it will not at any time during the period of x years beginning on the completion

Question 45

DEFINE ACCCOUNTS

Answer 45

“Accounts” means the audited balance sheet of the Target as at the Accounts Date, and the audited profit and loss account of the Target for the financial year ended on the Accounts Date.

Question 46

define business day

Answer 46

: | a day that is not a Saturday or Sunday or public or bank holiday in England.

Question 47

define confidential information

Answer 47

all information not publicly known, used in or otherwise relating to the Target’s business, customers, or financial or other affairs.

Question 48

Warranties defintion

Answer 48

the warranties set out in clause x x

Question 49

TERMINATION: Breach of contract

Answer 49

Eithther party may terminate this Agreement immediately by notice in writing if the other party commits a breach of this Agreement (and that breach, if capable of remedy has not been remedied within [X] days of the e non-breaching party giving the breaching party notice in writing to remedy the breach.

Question 50

TERMINATION: Change of Control /

Answer 50

Such clauses can enable parties that are contracted to work with a company to terminate this contract without incurring any liability for breach of contract if control of the company changes hands. It allows Party A to terminate the contract if Party B was subseqneutnly sold, for example. The company may terminate this Agreement immediately by notice in writing if there is a change of control (as defined in section 450 of the Corporation Tax Act 2010) of the Contractor.

Question 51

Termination - Break clause (termination on notice/agreement)

Answer 51

Parties may want ability to terminate a contract without reason, otherwise the obligations would go on indefinitely, giving little scope for the parties to adjust their strategies. The parties must agree a notice period that must be given before such termination could take effect and the method to be notified. Either party may terminate this Agreement by giving to the other party not less than 90 days' prior notice in writing.

Question 52

What are the types of termination clauses

Answer 52

- insolvency - breach of contract - change of control - break clause

Question 53

Execution of simple contracts under power of attorney

Answer 53

power of attorney is a legal document that lets the person/company delegating the power [the donor] appoint one or more people [the attorneys] to help them make decisions or make decisions on their behalf. The attorney can sign his own name or the donors. SIGNED BY [name of attorney] acting for [name of donor] under a power of attorney dated [date]

Question 54

DEEDS - Execution of deed by individuals

Answer 54

A deed must be expressed to be signed as a deed. They can be executed by: 1. SIGNED BY TWO AUTHORISED SIGNATURE * signed as a deed by [name of company] acting by [name of authorised signatory] a director and [name of authorised signatory 2] a [director/signatory] 2. SIGNED BY A DIRECTOR IN THE PRESENCE OF A WITNESS [who will also sign] * signed as a deed by [name of company] acting by [name of director], a director in the presence of [name of witness]

Question 55

DEEDS - execution of deeds under power of attorney

Answer 55

signed as a deed by [name of attorney] acting for [name of donor] under a power of attorney [dated [date] in the presence of [name of witness]

Question 56

FOREIGN COMPANIES EXECUTION

Answer 56

SIGNED BY A FOREIGN COMPANY Contracts can be executed by a foreign company by a. affixing its common seal b) by any manner permitted by the laws of its teritory of incorporation SIGNED ON BEHALF OF A FOREIGN COMPANY Contracts can be executed on behalf of a foreign company using the following execution clause Signed on behalf of [name of company], a company incorporated in pjurisdicition] by pname of autorised signatory] being a person who, in acordance with the laws of that territory, is acting under the authority of the company.

Question 57

How can yiu edit a termination clause to be fsir

Answer 57

1. Make sure it's not one sided and thst it allows either party to terminate the agreement 2. Allow for the possibility to terminate without case 3. Ensure that the party wishing to cancel is required to give a reasonable amount of notice to the other - limit the breach to a material breach - place an obligation on the terminating party to notify the other party of breach and allow a period for the other party to remedy the brea h

Question 58

Ex lauding rights of. Third parties

Answer 58

25 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 Save as expressly provided otherwise in this Agreement, no term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement. OR (the example provided by the drafting workbook) RIGHTS OF THIRD PARTIES (EXCLUSION) For the purposes of the Contracts (Rights of Third Parties) Act 1999, this Agreement does not and is not intended to give any rights, or any right to enforce any of its provisions, to any person who is not a party to it .

Question 59

Headings

Answer 59

The headings xontiwmed in this agreement are for the purpose of convenience only and do not. Form part of and shall not affect the construction of the agreement.

Question 60

De maximums

Answer 60

The sellers aggregate liability for all claims shall not exceed the purchase price