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RESPECTING BOILERPLATE Second Edition, 2013 by Robert A RESPECTING BOILERPLATE Second Edition, 2013 by Robert A. James Boilerplate refers to the legal clauses of general that if a transaction is successful, little application typically found at the very of that hard work has ongoing value— front and very end of complex the final price and asset or scope agreements (or the flip side of printed definitions are what they are; the forms, or the “click-through” screens conditions go away when the deal of online forms). This pejorative term closes; and the reps expire shortly Robert A. James comes from the days when big-city afterwards. Instead, it is the lowly Finance publishers would mold lead plate or boilerplate and the questions it may or +1.415.983.7215 paper mats—similar in appearance to may not answer—can you assign the +1.713.276.7689 the iron or steel plates riveted contract to an affiliate? can you [email protected] together to encase boilers—bearing disclose the contract to a prospective raised type (“stereotype,” another buyer?—that have enduring Rob James is resident in pejorative term) with the fixed text of relevance, whether or not the parties Pillsbury's San Francisco and articles and advertisements. Smaller gave any active thought to them. Houston offices. He handles newspapers would print the commercial and corporate boilerplate without change. Boilerplate writers and readers transactions and counsels clients usually work from a form and their principally in the energy, “Boilerplate” therefore connotes both own recollections of prior contracts. infrastructure, construction, the strength and the unchangeability of They may not have exposure to the manufacturing and marketing the metal that contains a pressure issues and language choices that are fields. He is co-leader of vessel. Neither meaning is truly most relevant to the transaction at Pillsbury's Energy industry team, applicable in the legal setting. First, hand. They almost always look at a and has served as lecturer at the many terms leave significant document that just happens to contain University of California, Berkeley, vulnerabilities, with opportunities for some variants of some boilerplate School of Law. vagueness, ambiguity and uncovered clauses and just happens to omit cases. Second, there is a surprising others. It is much easier to critique the degree of variation in even the most sentence in front of you than it is to standard clauses—between drafters, envision the alternatives, or to across industries, and among contract conceive the sentences that should be types. there—but are not. For all but contracts of adhesion, no The following chart is intended to clause need be accepted as is. facilitate the process of drafting, However, the pace of today’s reviewing, negotiating, and above all negotiations usually means that scant respecting boilerplate provisions. The attention is paid to the boilerplate. common topics are illustrated in the Most time in dealmaking is consumed first column by a “reference” clause— first in establishing the price, the asset which is assuredly not a universally or scope description, and the recommended text, and which is representations and warranties, and neither the most simple nor the most then in defining and satisfying the complex possible provision, but one conditions precedent. The paradox is that illustrates the basic purposes. For each reference clause, the second © 2013 Pillsbury Winthrop Shaw Pittman LLP Page 1 www.pillsburylaw.com Respecting Boilerplate by Robert A. James column identifies questions or other some might consider boilerplate (I Asset Purchase Agreement with comments to consider. believe they often require more Commentary (2001); Tina L. Stark, customization or client or specialist ed., Negotiating and Drafting Contract Not every reference clause is input). But taken together, the chart Boilerplate (2003); Steven O. Weise & necessary or sufficient for any and appendix may help the user select Mikel R. Bistrow, “Boilerplate particular deal, and neither the topics an appropriate subset of general Provisions in Transactional nor the comments are exclusive (this clauses for a specific transaction. Documents,” 20 Cal. Bus. L. sentence sounds like boilerplate Practitioner 33 (Summer 2005); itself). In many cases the background Many outstanding lawyers have Kenneth L. Adams, Adams on Contract law makes inclusion of these offered their thoughts on boilerplate, Drafting (http://adamsdrafting.org); provisions unnecessary. Moreover, the and this chart builds on fine Eric Fishman, The Sanity Clause chart intentionally omits dispute precedents. See, e.g., Marvin D. (http://pillsburylaw.com/publications resolution, indemnity and other Heileson, “Know Your Boilerplate” /the-sanity-clause). clauses identified in the appendix that (Cal. Bus. L. Section 1979); ABA Model REFERENCE CLAUSE COMMENTS I. PREAMBLE Good negotiators distinguish style from substance. Some drafters may choose to follow time-honored conventions, while others might select a contemporary approach. Reviewers should courteously edit within the confines of the drafter’s selected mode, not overturn the choice or try to use elements of different styles in the same document. THIS ___ AGREEMENT (the “Agreement”) is entered into as Contemporary style is for this preamble to be a complete sentence. of [date] (the “Effective Date”) by ______, a [state] Traditional style employs a noun clause, ending in a comma, and a new [legal entity] (“[defined term]”), and ______, a [state] paragraph consisting of the centered and often letter-spaced word [legal entity] (“[defined term]”). “WITNESSETH:”. Pay attention to “as of” dates. Watch especially for backdating, an effective date prior to the events constituting execution and delivery of the agreement. Would third parties be prejudiced by establishing a date earlier (or later) than the date on which the parties actually execute the agreement? Some preambles include the Parties’ addresses or states of residence, or descriptors like “and a wholly-owned subsidiary of X” in a party’s defined name. If the current or ongoing truth of that description is important to a Party, it should consider using a representation or covenant. This Agreement is made with respect to the following Contemporary style is for this full-sentence introduction to precede full- recitals: paragraph recitals (often identified by capital letters A, B, C for each recital paragraph); the entire passage is sometimes entitled “RECITALS” or “BACKGROUND.” Traditional style uses paragraph clauses each ending in a semicolon (or colon for the last clause), with each recital opening with the impressive “WHEREAS.” Recitals often recount prior history needed to understand the current transaction and provide a brief statement of motivation (especially if the Parties desire some particular tax or regulatory treatment of their deal). Watch for substantive information in a recital that, if false, would matter to your client. In many states, recitals in a written contract (other than of consideration) are conclusively presumed to be correct as between the parties (e.g., California Evidence Code § 622). © 2013 Pillsbury Winthrop Shaw Pittman LLP Page 2 www.pillsburylaw.com Respecting Boilerplate by Robert A. James REFERENCE CLAUSE COMMENTS [In consideration of the mutual promises made herein, Contemporary style has the agreement proper open in this manner. and intending to be legally bound,] the Parties Traditional style culminates in the florid “NOW, THEREFORE, in [therefore] agree as follows: consideration of the foregoing recitals and the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:”. II. DEFINITIONS Some contracts place the definitions in an opening section; others place them in a later section or incorporated schedule. Some contracts define all or most terms when they first appear substantively, while others define all or most in the definitions section or schedule. Sometimes a definitions section or schedule just lists the defined terms, and cross- references the sections where the definitions are located. Capitalized terms used in this Agreement have the Watch for use of uncapitalized defined terms. following respective meanings. “Affiliate” means, with respect to any specified Person, Do you have the same meaning of Affiliate in mind for all provisions any other Person that directly or indirectly through one where that term is to be used? Some contracts distinguish Affiliates or more intermediaries, controls, is controlled by or is from Wholly-Owned Affiliates or from Subsidiaries. under common control with the Person specified. [For Is there any reason to define or treat one Party’s Affiliates differently purposes of this definition, control of a Person [means] than those of another? the power, direct or indirect, to direct or cause the direction of the management and policies of such Person Pay particular attention to joint ventures where each person, with even a whether through ownership of voting securities or small percentage of equity, might have veto rights or pose free-rider or ownership interests, by contract or otherwise.] holdout issues in determining who has “control” of the venture. [Specifically with respect to a corporation, partnership An alternative definition is the Securities Exchange Act test. or limited liability company, control [includes] direct or indirect ownership of more than 50% of the voting An alternative
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