Those drafting or reviewing asset purchase agreements (APAs) may allow their desire to close a deal quickly to overpower their ability to foresee problems that may arise after the deal is done. This article provides a brief explanation of three aspects of APAs that often arise in litigation, as well as some guidance on how in-house counsel can rewrite APAs to avoid these pitfalls.

1. Representations and warranties

In nearly all APAs, the buyer and seller make representations and warranties relating to, for example, ownership of the assets purchased or authority to enter into the transaction. From a litigation perspective, these are the most important provisions for determining whether liability and claims exist. The representations and warranties may also affect the parties’ ability to terminate the agreement. As such, it is important for in-house counsel to review them carefully to make certain they are truthful and accurate and disclose all pertinent information. From a buyer’s perspective, representations and warranties are generally the basis upon which he will structure his due diligence activities, and from a seller’s perspective, they are the primary reason why the agreement might be terminated or why the seller might receive less than he originally expected.

To clarify, a representation is simply a statement as to the facts as they are currently known to exist; while a warranty is essentially a promise that certain facts are now true or will be true at some future point. A warranty can be interpreted to express an obligation on the part of the party making it, while a representation is simply a statement of facts. To avoid assuming obligations one would otherwise not have, counsel should avoid warranties when drafting and strive to have their companies make only representations.

2. Arbitration clause

Most APAs contain an arbitration or another alternative dispute resolution (ADR) clause, which generally consists of nothing more than generic boilerplate language. For most companies, this language is not enough. As such, it is important when you are drafting or reviewing an APA to think about the arbitration clause and how it will impact your company if disputes arise after the APA is signed.

First, consider whether the parties are willing to arbitrate all issues that may arise under the APA, rather than pursuing litigation on particular disputes. For example, does your transaction involve patents and other intellectual property? If so, you may want to have the courts handle such IP-related issues, rather than an arbitrator who may not be able to award necessary injunctive relief.

Second, ensure that you understand the applicable arbitration rules and process as a whole, as they differ from typical state and federal court litigation. For example, many ADR rules do not address what the arbitrator’s qualifications must be for a particular dispute, how the arbitrator will be selected, what discovery can be taken, what evidentiary rules apply or whether dispositive motions can be filed. Generally, the courts are likely to allow such procedures only if an arbitration clause includes such provisions. If you want certain discovery procedures or evidentiary rules to apply or if you want some level of review beyond the typical statutory grounds for vacating an arbitration award, you need to include those terms, including the use of an appellate arbitration panel, as part of the arbitration clause.

Finally, if the transaction involves a guarantor, surety or other third-party you want to be bound by the APA’s arbitration clause, it is important to make certain that the clause expressly includes them. Merely having the third-party guarantee the contractual obligations of the seller or buyer as a whole may not bring them within the reach of the APA’s arbitration clause.

3. Jurisdiction/Venue issues

Absent an arbitration clause, issues may arise relating to the location of litigation. Jurisdiction and venue clauses often appear in the boilerplate of an APA. But, like the representations and warranties provisions, such clauses should be considered carefully, as they may have crucial implications.

For example, some of these clauses provide that litigation will occur in the location where the assets exist. But what if the APA involves a number of assets from different locations? In such a situation, is it advantageous for your company to sue or be sued in each of these different locations? Carefully reviewing and rewriting an APA’s jurisdiction and venue provisions will save your company the cost of having to defend or prosecute claims in locations that may be unfavorable or more costly to your company.


These are just some of the issues that in-house counsel should consider when drafting or reviewing an APA. It is important to note that there exist many other issues of concern within APAs outside the scope of this particular article, including assignment issues, tax liabilities and employment issues.

Much like the agreement’s financial terms, the representations and warranties, the arbitration agreement and the jurisdiction and venue provisions of an APA should be a part of the negotiation process. Avoid using generic boilerplate language and instead tailor these provisions to meet your company’s goals for the particular transaction at hand. Proper drafting before the agreement is signed can avoid costly issues if and when litigation becomes necessary.