When drafting or reviewing an agreement, it is important to check the defined terms carefully.

I have seen a sale and purchase agreement (“SPA”) for a M&A transaction which defined the term “Company” twice.

It was first defined in the definition section in clause 1 to refer to the company which was the subject matter of the sale and purchase. The term “Company” was extended to include subsidiaries of the target company in a schedule to the SPA which set out the vendor’s representations and warranties.

The effect was the representations and warranties given by the vendor were not limited to the target company only but also extended to the subsidiaries.

When the vendor prepared the draft disclosure letter setting out the exceptions to the vendor’s representations and warranties, the exceptions initially were in relation to the target company only.

It was fortunate that this was caught early on. The vendor amended the disclosure letter to include the exceptions relating to the subsidiaries before the letter was signed and delivered to the purchaser. Otherwise, the vendor might inadvertently be in breach of its representations and warranties in the SPA.

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This post was first posted on Linkedin on 15 January 2021.