Defined terms in agreements

Drafting
Contracts

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.

#malaysiancorporatelawyer
#mergersandacquisitions

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

Linkedin Post
M&A Specialist and Generalist

I didn’t fully appreciate how specialised and broad M&A practice is until I found myself thinking about how various legal issues discussed in the articles I read apply to M&A transactions. While reading an article on whether consideration is required for the variation of contracts, I was reminded of a …

Linkedin Post
Exclusivity when negotiating an M&A deal

If you are a buyer negotiating to acquire business or shares of a company, you would want to ensure that you do not incur costs during the negotiation only for the seller to end the negotiation and sell to another party. A buyer would want to ensure that the seller …

Linkedin Post
Material Adverse Effect (“MAE”) Clause in M&A Transactions

I came across the following definition of “MAE” from the American Bar Association’s Canadian Private Target M&A Deal Point Study: “MAE” means any result, occurrence, fact, change, event, or effect that has, or could reasonably be expected to have, a materially adverse effect on the business, assets, liabilities, capitalization, condition …