1. Contract Drafting Class 26 Thurs. Apr. 19
University of Houston Law Center
D. C. Toedt III

2. Common contract screw-ups

3. Common contract screw-ups
“2. The contract that is signed when the text contains a header saying that it is a ‘draft’ …”
[From “Top 10 howlers when preparing contracts for signature,” by the IP Draughts blog at

4. Chapter 6: Asset Purchase Agreement

5. Consideration for purchase (§ 3, p. 490)
ISSUE: In general, what type(s) of “currency” could Buyer use to pay for the Assets, and why? TEAMS: Prepare your offer and backup offer(s) --- with reasons.

6. Conditions to closing - review
FACTS:

7. Tax contest - Hypothetical (§ 3.4(d), p. 495)
FACTS: (a) Seller is hit with an assessment for a tax -- one that the K requires Buyer to pay. (b) Seller’s attorneys initiate proceedings to contest the tax. (c) Buyer isn’t happy with Seller’s attorneys or their approach. QUESTION: What option(s) does Buyer have? (Exchange ideas with your teammate(s), then with “the other side.” Try to give each person roughly equal “talking time.”)

8. Tax contests
BACKGROUND: Consider § 3.4(d), p. 495 QUESTION FOR DCT TO ADDRESS: What do the “control of defense” provisions resemble?

9. Buyer reps & warranties
QUESTION: What single fact about Buyer are Sellers most likely to be concerned about? QUESTION: How --- if at all --- can that one fact be covered by a rep / warranty?

10. Deal closing – hypothetical (§ 4.2(a))
FACTS: (a) One of the Sellers uses a copy of XYZ Software, which cost USD $49,995.00, for certain back-office functions. (b) The XYZ software license agreement prohibits assignment without XYZ’s consent – which XYZ will give for $49, QUESTION: Under 4.2(a), can Buyer walk away for breach of 5.2(c)? Why or why not? (Do you need more information to answer this question?)

11. Assignment by operation of law
ASSUME that the Asset Purchase Agreement is between Texas parties, the XYZ Software company is in Dallas, and Texas law applies all around.
QUESTION: Does your answer to the XYZ Software question change?
(See Z&B p. 551 & n. 43.)

12. Deal closing – hypothetical (§ 4)
FACTS: (a) A footnote buried deep in the Sellers’ financial statements states that Sellers are using a special-purpose entity (SPE); it appears Sellers are doing some Enron-like “creative” financing. (b) The NY Times publishes a piece saying that Sellers are doing just what got Enron into trouble. (c) Buyer tells Seller it wants to walk away from the deal. [Questions are on next slide]

13. Deal closing – hypothetical (§ 4)
FACTS: (a) A footnote buried deep in the Sellers’ financial statements states that Sellers are using a special-purpose entity (SPE). (b) A business journalist publishes an article saying that Sellers are doing just what got Enron into trouble. (c) Buyer tells Seller it wants to walk away from the deal for breach of 5.3(a).
QUESTION: What are the parties’ contractual options? (Cite specific provisions.)
QUESTION: What are their possible motivations?

14. Permits (§ 5.15(b), p. 509)
QUESTION: Why does 5.15(b) say “true, complete and correct list,” while 5.19 (see p. 513) says “true, accurate and complete [Books and Records]”?
[There may not be a good answer ….]

15. Permits (§ 5.15(b), p. 509)
QUESTION: Who likely keeps track of Permits?

16. Permits (§ 5.15(b), p. 509)
ISSUE: Should any part(s) of 5.15(b) be renegotiated? TEAMS: Prepare your positions and reasons.

17. Transnational deals (p. 561)
FACTS: (a) An asset purchase deal is being negotiated between a foreign buyer and a U.S. seller. [Think Daimler Benz & Chrysler.] (b) The parties agree that U.S. law will apply, but specify a foreign choice of forum. (c) The foreign law is hostile to damages caps. QUESTION: Can the seller add anything to the contract to increase the odds of enforcing the damages cap?

18. Survival of reps and warranties (§ 11.5, p. 541 / see also pp. 573-74)
FACTS: Three days after the Closing, a building contractor files a $25K statutory mechanic’s lien against an important office of the Sellers that was transferred.
QUESTION: What action, if any, can Buyer take against Sellers?
(See also § 5.6 on p. 503 and §11.1(b) on pp )

19. Survival of reps and warranties (§ 11.5, p. 541 / see also pp. 573-74)
FACTS: Two weeks after the Closing, a patent owner files a $20MM infringement suit against Buyers, claiming that the sold business infringes a patent.
QUESTION: What action, if any, can Buyer take against Sellers?
(See also § 5.9 on p. 504 and §27 on p. 547.)

20. Shareholder consents
QUESTION: Which company’s shareholders (if any) must consent to the Asset Purchase Agreement transaction? Why or why not? (See Z&B p. 569.)

21. General question
Which two M&A contract provisions are most likely to be hotly negotiated, and why? (See Z&B p )

22. End of class