Drafting the Resolution Agreement — The Single Essential Provision posted last week addressed the single essential term every business divorce agreement must cover: Mutual Releases.
The other material provisions of business divorce agreements, however, may vary, because every business divorce is different. This post discusses some of the terms typically found in most — although not all — agreements. A future post will cover other commonly used provisions.
Recitals or Premises
The premises for the agreement appear on the first page, right after the preamble.
Some attorneys (especially young attorneys) disdain inserting premises, thinking they are unnecessary or old-fashioned. Many contemporary form agreements eliminate recitals. For example, a wide range of standardized transactions (such as a residential real estate purchase and mortgage) are effected efficiently by using uniform agreements without recitals. Document uniformity and (relative) simplicity is necessary for such transactions to occur.
Nonstandard transactions necessarily require the opposite. Every business divorce is different, so every resolution agreement must be fitted to the unique circumstances and terms of that divorce.
That is why recitals or premises remain important for business divorce resolution agreements.
The premises evidence the parties’ acknowledgment of the fundamental reasons they are entering into this agreement. They serve to prove the parties’ intentions. If you can write the recitals, then you comprehend the transaction and can draft the rest of the agreement. Individuals who review the document in the future — perhaps to amend it — need and will have a straightforward introduction to the circumstances that produced it.
Nondisclosure or Confidentiality
Nearly all business divorce agreements include mutual confidentiality provisions. After all, the owners of a private company like to keep the company’s business private; that includes internal disputes and the terms on which they settle. Like any NDA, however, exceptions must be made to permit the parties to share information with their professional advisors or as the law requires. Other carefully crafted carve-outs may obviate anticipated problems, such as inquiries from the company’s or a party’s creditors, vendors or employees.
Like a confidentiality covenant, a nondisparagement agreement is usually mutual, and frequently the subject of more negotiation than the parties expect it to be. No party wants to be the target of derogatory statements from another party, but what one calls “derogatory” the other may consider merely factual. Also like a nondisclosure provision, the parties may need or want to add specific remedies for a breach of this kind of covenant.