Wednesday, April 06, 2005

BASIC AGREEMENT DRAFTING One mistake often made by novice or non-transactional lawyers - and it serves as a billboard announcing their inexperience - is the presence of covenant provisions within a client's representations and warranties. If you want to obligate your client or the other party, move the language out of the reps and warrantes. Reps and warranties deal only with factional statements about the party or its business. In an Asset or Stock Purchase Agreement, for instance, you need to put those covenants in a post-closing covenants section (look for covenants regarding what happens to employees at closing and put it there). If the covenant is pre-closing, it's probably best to make it a closing condition.

When I see a convenant about what happens if the Phase I Environmental Report gives you bad news lurking in the Environmental rep, I immediatly run to Martindale Hubbell to see if you're more comfortable drafting interrogatories or planning an estate. Then if I'm a seller, I go cap indemnification, add an indemnity deductible and add materiality qualifiers to the kitchen sink.


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