Experienced Advice



Since 1972 I have advised companies regarding acquisitions, usually companies but sometimes real estate. Since 1979, 99% of my clients have come from German-speaking countries. During slow periods, I researched “boilerplate” provisions in acquisition agreements and found that many of them MADE NO SENSE and some were NOT ENFORCEABLE. The list includes:

reps and warranties        statutes of limitations  measure of damages   

“material/reasonable/best of knowledge”

reliance/sandbagging      rights of first refusal        supply agreements

choice of law                     non-compete                 due diligence disclosure

Below is a thumbnail summary of these and other points. Many of the topics are covered in detail in published articles, most of which are linked at the end of this website. [The graphics are left over from my initial website and are less appropriate but still funny.] To keep this introduction short, normal “lawyerese” disclaimers are omitted.

INDEMNIFICATION          M&A agreements normally include a long catalogue of seller’s representations and warranties. If one turns out to be incorrect, the buyer can theoretically recover damages. An agreement to indemnify against certain risks is not the same thing and is much more dangerous for the seller. A client bought the stock of a chemical company. I inserted (as agreed) a shareholder indemnification for all claims based on actions by the company prior to the sale. Many years later the employees of a customer brought a suit claiming health damage resulting from use of a chemical sold by the company. The selling shareholders were forced to pay the claim. If my client’s claim had been based on a representation by the shareholders, the statute of limitations would have cut off their liability – by passage of time.

STATUTE OF LIMITATIONS            The parties to a contract can shorten the applicable statute of limitations but not extend it. And the time period begins to run at the closing of the transaction, NOT when the buyer learns of the misrepresentation. Furthermore, the statute of limitations may not be the one which would apply according to the contract’s choice of law. Each state has its own statutes of limitation. The statute CAN be extended once the claim is known.

MEASURE OF DAMAGES                Clients buy companies because of their expected stream of income, not because of the value of any particular machine. If the damages section of the acquisition contract limits damages to “direct” damages, it is unlikely that the purchaser will get anything approximating its true damages. A defective machine may cost only $x to repair or replace but that could take weeks, during which production is shut down and profits lost.

MORE ON DAMAGES                      To overcome seller resistance to broader damages provisions, the buyer can agree to accept the first $x in damages, with that number going up over time. Most damages can be identified in the course of two audit periods. And most purchasers want to avoid litigation anyway.

INTENTIONAL BREACHES              Damages for intentional breaches are no different from those for unintentional ones.

VAGUE WORDS                 Sellers like to insert vague words in contracts, especially in the representation section, such as “reasonable, to best of knowledge and material.” These words make proving a breach and collecting damages practically impossible. One drafting mechanism is to permit these terms in the representations section for purposes of the buyer’s obligation to close the transaction but then remove them for damages calculations, relying instead on some negotiated risk-sharing.

BACK DOOR                       Contract disclosure schedules may try to add the vague terms. So, the main body of the contract should clearly override these “back door” attempts to weaken the disclosures.

SANDBAGGING                 “Sandbagging” is a sensitive topic. Sellers sometimes call it “close and sue.” The buyer knows of a problem with the target, one not disclosed by the seller. Possibly the seller knows of the problem and hopes the buyer will not be affected. Or the seller does not know of the problem. This is more often the case if the seller is a financial owner. The first rule is not to discuss this topic for the first time in front of the seller, but rather only with the seller’s lawyer. The contract should include a provision that the buyer is presumed to have relied on all the seller’s representations, without regard for the seller’s non-contractual disclosures.

INFORMATION DUMP                    Similar to sandbagging is the information dump. The seller delivers boxes full of documents or computer files in response to due diligence requests. If months later a claim arises, the seller says “oh, we disclosed that.” So the representation provision of the contract should be limited to items specified on the exhibit.

LEGAL SYSTEMS                Purchasers new to the USA often assume that our legal system is similar to theirs. They do know about juries. Indeed, waiver of trial by jury should be standard in all buyer’s contracts. Some anti-foreigner prejudice is likely. But they may also assume that our system is quick and efficient. And that the winner’s costs are borne by the loser. Some (perhaps all) European systems discourage claims for damages greatly exceeding the reasonably expected amount. Indeed, if a plaintiff claims $5x and obtains a judgment for $x, the plaintiff may be viewed as having lost 80-20.

FORCED DISCLOSURE      Many foreigners do not understand that US courts can force them to disclose information which hurts their claim.

ARBITRATION                    Because of the uncertainties of the US court system, many buyers argue for arbitration. To avoid the seller’s home court advantage, the parties settle on a neutral location, one equally difficult for both sides to reach. True, the cost of the arbitrator(s) is an addition. Selection of an arbitrator (or 3) should be spelled out. If each side gets to pick one of three arbitrators, the parties can save money by selecting one who is neutral.

COSTS                  Similarly, the contract can provide for the arbitrator(s) to award costs and legal fees to the winning party.

INTANGIBLES     In an asset purchase agreement, the list of assets should include not just operating equipment and inventory but also intangibles and books and records. Failure to include books and records (customer credit history, for example) can be costly.

EMPLOYEES        Such agreements often include provisions prohibiting the seller from employing people employed by the target.  

RIGHTS OF FIRST REFUSAL            Rights of first refusal are much more complex and costly than usually assumed. A right of first refusal makes selling the subject asset more difficult and therefore drives down its value. The seller of the asset may lose a 3rd party buyer by reason of the delay caused by the holder of the right or by uncertainty whether the right has been cut off. If the asset is real estate, a memorandum of the right should be filed at the recorder of deeds office.

EARN OUTS                        Earn-outs (additional purchase price based on post-closing performance of the purchased assets) are extremely complex and dangerous. A well-crafted earn out provision should go on for pages.

ESSENTIAL MATERIALS   If purchasing a division of a company, is the division reliant on any product, facility or service controlled by the seller (or some company to which the seller is selling part of its business)? If the market has many suppliers, this consideration is unimportant. But if a component is unique and essential, then the risk is great.

VACATION OF PREMESIS               If a lease of space is involved, what happens when the lease term is up? Can the equipment all be removed without destroying walls, etc.? Does the owner of the space have rights to demand repairs or removal of changes, such as a stairway or loading dock? Will the move seriously disrupt production? Does the space contain any residual chemicals that have to be cleaned up?

INADEQUATE FINANCIALS            Purchasing a family-owned business may mean that there are no audited financial statements. But purchase of a division of a large, highly reputable company means that the seller’s audited financials may not show the performance of the division. The division may simply not be material to the owner’s financials. Similarly, if disclosure materials are produced by the financial management of a large seller, the people producing the information may not have any “feel” for whether the information makes sense or not.

EXCLUDED ASSETS           Seller may want to exclude certain assets. These might include sports tickets or even a sports team, works of art or a trademark. Not all assets have a positive value. Some cost money to dispose of.

NON-COMPETES              Non-compete agreements may not be enforceable, especially those applying to employees. And choice of law does not solve the problem. The law applicable to the employee likely applies.

SUPER LONG CONTRACTS             Young lawyers are sometimes advised not to delete anything remotely “standard” from a contract. So the contract gets longer and longer, even containing contradictory provisions. Develop a thorough checklist of all needed contract provisions. Read the contract to be sure they are all present, but only once. Then consider the unique aspects of the transaction at hand and check to see if those are covered. Next, consider some events which could adversely affect the transaction or the target post-closing. Are they covered? Finally, ask the client what risks concern it most. Sometimes the client will (rightly) consider some apparent risk not to be a serious one – it has some non-legal method of dealing with the problem.

CONFIDENTIALITY            Confidentiality is very important for the seller of a company. Rumors of a transaction can prompt employees to leave and customers to look for new suppliers. A failed transaction can suggest that the company has a problem. Even a strange car parked near the factory on the weekend can be enough to spark rumors.

EX EMPLOYEES                 When terminating an employee, be sure to change access codes and to inform security. Phone message machines, bank accounts, credit cards and computer codes, too. Leased cars.

LANGUAGE MISUNDERSTANDINGS           When negotiating, the language is always English. And certainly Germans usually speak English very well. But repeatedly I have stopped the face-to-face process – to the irritation of the Germans – and gone over the last points. Frequently we will find a point which was a misunderstanding. Then the problem is to convince the Americans that the misunderstanding was in good faith and not a negotiation technique. Similarly, some words in English look like German but are different. Or when used in a contract under a foreign legal system, they have a different meaning.

FOREIGN LAWYERS WITH LLM’S                Lawyers trained only in part in the USA can be problematic. If they were first trained as lawyers in a “code” country, they are likely to use that thought process to solve the problem, even if familiar with US law. This can lead to odd outcomes.  

FIDUCIARY DUTY                             Corporate laws may impose a fiduciary duty on members of the board. This duty may include an obligation to offer the corporation new opportunities discovered by the director. If the founder/inventor is on the board, this duty can be painful. It can be excluded in some circumstances.

INDIVIDUAL PARTNERS                  Individuals are rarely general partners, but if they are, they remain liable for certain partnership risks after leaving the partnership. Some state statues provide a mechanism to cut off this liability.

PLEDGED SALE                  Under the Uniform Commercial Code, upon default a lender can sell pledged assets to fulfill the borrower’s obligation. If the proceeds are not sufficient, the remaining debt remains due – albeit usually uncollectible. Alternatively, the lender can elect to take the pledged assets in full payment. The lender keeps any excess but cannot claim any shortfall. The borrower can reject this election, but only during a limited period. The perfection of a security interest of some assets requires possession of the assets.  

SIGNING AUTHORITY      The authority of the person signing a contract is seldom and issue. But sometimes it is.

RECYCLED AGREEMENTS               Last but not least, when drafting a contract, run a word search for key words that relates solely to the deal from which the model contract stems. Not to do this could breach the confidentiality of the other client and it certainly offends the current client.  

LETTERS OF INTENT These pieces of paper MAY be enforceable, especially under foreign legal systems but also under the US. And foreign legal systems may impose a duty to negotiate in good faith.

A famous German contract

In addition to these “rules”, 50 years of experience have posed some problems I have not solved. Examples:

A junior lawyer agreed that my client could rely on his firm’s legal opinion, issued to a bank in the transaction. At the closing, the senior partner tried to renege on the commitment. I threated to report the firm to the ethics board. We were permitted to rely after all.

A lawyer represented both sides on a transaction. His old, childless aunt was one of the two parties. (I mention this because he was her obvious heir.) He included a single sentence in a long contract which gave his aunt rights to millions if her partner died. What’s more, the partner spoke little English. The pages of the contract were not numbered and the signatures appeared on a separate page, without witnesses or notarization.

A lawyer was trustee for a family trust. We discovered he had been embezzling for decades. His only asset was a valuable house. Applicable law permitted a creditor to file a lien against assets purchased with stolen funds. We applied filed the lien and – when the house was sold – got full reimbursement plus interest and legal fees.

In a suit in Germany against an accounting firm arising out of a botched due diligence investigation, I was charged with keeping a transcript of the proceedings. Under German law, the judge makes a summary record. My transcript was verbatim. The lead accountant gave his testimony. Months later, that testimony turned out to have been very helpful to our client, but there was no verbatim transcript other than my own. He gave new testimony and this time he lied. But only I knew.

A German client merged with another German company. Both had US subsidiaries. We were charged with merging the US companies. We did so in the most efficient way, but the US in-house lawyer had us redo the reorganization without explanation. We learned later it was because his bonus would be bigger if the profitable divisions were all in his group. Over a decade later I encountered the (in the meantime retired) German CEO at a conference. I recounted the story. He said he had wondered why we redid the reorganization.

A German company bought its US distributor. The owner of the distributor stayed on as an employee and manager. The lawyer he used continued to do the US subsidiary’s legal work. Later the company was sued over a practice which was covered by the purchase agreement. The lawyer failed to inform the new owner but charged the company, not the old owner. He claimed he thought the manager would inform the German owners.

A major US chemical company signed a sales agreement with a purchaser but then delayed the closing by a month. In the meantime, a new state environmental law went into effect, shifting the liability to the seller. The ultimate cost of the cleanup (borne by the seller) turned out to be more than the sales price.

A lawyer claimed that a museum curator’s personal collection included an item that had belonged to a German Jewish family. If he did not turn it over to her client, she would inform the museum. It turned out that her proof was faulty and that the piece had been sold prior to the Nazi period when the family failed to repay a loan. We pointed this out to the lawyer and also noted that what she had done was blackmail.

The assets of a foreign bank with the word “Iran” in its name were frozen by the US government. Largely due to luck and constant attention, when the funds were finally released, we were able to get the funds wired to the bank and not to the Iranian government.

How does one deal with an inexperienced lawyer representing the other side? Does one have to represent both sides? If the lawyer finally reads and understands the document, there’s the danger he will claim an attempt to deceive him and his client.

In the course of doing investigations, we discovered:

The target had promised its employees salary increases, contrary to an explicit contract representation. The seller’s lawyer said, “Oh, we intended to disclose that to you before signing the contract.”

A CEO embezzled, saying he felt he deserved a raise but knew the owner would say no. His visa was based on this employment and when he was fired he had to leave the country. His Linkedin description leaves out this employment.  

A CFO took valuable “gifts” intended for customers and double billed his travel expenses.

A married couple formed and ran a company. They sold a majority of the stock but retained seats on the board. When a dispute arose, we investigated company emails and found that he was having an affair with his secretary.

A wealthy businessman engaged in tax fraud. His children blackmailed him. Rather than pay them, he turned himself in, paying over a million in taxes and fines.

A company that sold sophisticated machinery to a US government office gave major gifts (fur coats, gold watches) to top US government officials. The records were explicit, including the names of the recipients.

PUBLICATIONS / REPORTS – Here are the full articles

Doing a Deal with the Germans – 13 pages cover German society in general, technology, the legal system and contract style, German management structure, labor laws, negotiation styles, German directness and the importance of family-owned companies. Some aspects are dated but most are still relevant. https://drive.google.com/file/d/1r06oqqivNNroyNjDlWR-keAjK4dT3YnO/view?usp=sharing

Selling Your Company – 16 pages in outline form for both Americans and foreigners. https://drive.google.com/file/d/1LD7sbWQMgcxsE38U_Yjb8l0NADMG_hj3/view?usp=sharing

Buying a House in the USA – 4 pages on the basics of buying a house, intended for Europeans but helpful for Americans. https://drive.google.com/file/d/1CanNiPeOb6c7XqIDbOPMRGYf266taEIX/view?usp=sharing

Achtung beim US-Immobilienkauf – A German language version the English article, describing buying a house in an auction by the holder of a defaulted mortgage, including title insurance and other differences from the German system. https://drive.google.com/file/d/19mAInhxNUbhnbIeDJYayxSGXm3UxiKvP/view?usp=sharing

Acquisition Process Speech – 10 pages in outline form, describing the process. https://drive.google.com/file/d/1g1EF0WgHZVgvalWj96GY08tHL8Apgt7U/view?usp=sharing

Legal Framework for Sales in Germany – 5 pages on how a company can distribute goods in Germany, intended for US and other non-Germans setting up a sales operation in Germany. https://drive.google.com/file/d/1vaXoe43JoYLufa4q8CJObLQyrbRd-yTZ/view?usp=sharing

The Wally Decision – a 4-page summary of the New York decision regarding the ownership of the Egon Schele painting, without comment. https://drive.google.com/file/d/196gVBwinU1iXjOvmjxom16csVFllLSkp/view?usp=sharing

How Do German Contracts Do As Much With Fewer Words? – 5 pages summarizing a law review article on this subject. https://drive.google.com/file/d/10KRC4_11HuS7ivPXKUasndPpdC1KXyy_/view?usp=sharing

Formation of a US Subsidiary – 8 pages describing the US incorporation process, pointing out the many differences between US and German corporations. https://drive.google.com/file/d/1ROlPvuuMzrr-QyaA5kc-kzIFNQvoMHWN/view?usp=sharing

Enforcement of US Judgments in Germany – 4 pages on the German process, written by Tim Montag when he was a Referendar / German trainee. https://drive.google.com/file/d/1RAFGpNZbVao827cin2Uvo0PAeg77EwHl/view?usp=sharing

Unerwartete Risiken und deren Minimierung in M&A Transaktionen – 19 pages, essentially a German version of the English article. https://drive.google.com/file/d/1Pj2u8UfEygjinbkih3MpPUBlbFQG7R7z/view?usp=sharing

Minimierung des Halftungskisikos in den Vereinigten Staaten – 17 pages on a favorite German question – how to minimize liability – for which there is no simple answer. https://drive.google.com/file/d/1RAFGpNZbVao827cin2Uvo0PAeg77EwHl/view?usp=sharing

Limitations of Product Liability – 6 pages intended for lawyers advising manufacturing clients which sell to other businesses, not to consumers – how to limit or exclude liability due to “defective” products. https://drive.google.com/file/d/1_f8GQkxcqL52Aijj1HNEGC_r-fZWJED7/view?usp=sharing

Battle of Printed Sales Forms – 13 pages on the risks of accepting the other side’s printed terms and conditions and how to avoid them, including a chart showing various scenarios. https://drive.google.com/file/d/1A9lW-meFzE451ipsleQ5sDkY6BLiz9t8/view?usp=sharing

Closing May be Only Halfway Through the Transaction – 21 pages describing the factors that go into formulating M&A contract representations and post-closing claims and recovery, measure of damages. https://drive.google.com/file/d/1TC0G28LKywAD1goKkwxA_zT-uCxGXC0B/view?usp=sharing

US Law Basics for Visiting German – 3 pages with 26 points about US law, the result of learning one of our many German legal trainees had somehow not learned the basics during his stay. https://drive.google.com/file/d/1yIz_k-mXllZMsgfYvSbnAZqstZrGgzLi/view?usp=sharing

Amerikanische M&A Praxis -Was Deutsche Anwaelte im Hinterkopf Behalten Sollten – 14 pages covering the biggest differences between German and US acquisition agreements, such a letters of intent, due diligence, choice of law, authority of the signer, capital requirements and sandbagging. https://drive.google.com/file/d/17513TR1ZIMPwgAc9WcWVQxQOu15pY0dm/view?usp=sharing

Common Values – But Not When It Comes to Data Collection – 26 pages published in the Festschrift for Dolf Weber, on German vs. American attitudes about privacy. https://drive.google.com/file/d/1po-6gAUJP3eF4W_oVrYZ8vffninChgvd/view?ths=true

Restrictive Covenants in Venture Capital Contracts – 5 page summary of a 50 page article by a finance professor. https://drive.google.com/file/d/1f-kypmGjEeL9eV5-JLiW422YI-YFvR6E/view?usp=sharing

Wirtschaftliche Risiken beim Schuldrechtlichen Vorkaufsrecht – 10 pages on the unappreciated problems and costs represented by a simple right of first refusal, a right often granted as if it were harmless. This article was not finished, but shows some of the difficulties. https://drive.google.com/file/d/1iUgVLYAD2lJ1s8gsDK7tgQeSbFxTWVMB/view?usp=sharing

Rights of First Refusal – 10 pages published in Practical Lawyer, describing the risks of this common clause and how to protect against the unforeseen risks. https://drive.google.com/file/d/1vqD_HpVEC9dOJAnNbJv0cO0Cibv0pyor/view?usp=sharing

Funktion & Durchsetzbarkeit eines Letter of Intent – 6 pages published in M&A Review, with advice on the risks that letters of intent can present, especially if signed without legal advice. https://drive.google.com/file/d/1VCzVZq0kxrML8mB3jX00a7Mp1JobI8pc/view?usp=sharing

How to Make Your M&A Fees Predictable – 6 pages published in Executive Counsel, the article looks at acquisitions from the standpoint of legal complexity and allocation of risk. https://drive.google.com/file/d/1K7UP6jBXyvqd08G96JUGTxJRhB7tnIsS/view?usp=sharing

Cautionary Tales – 8 pages published in German American Trade, listing assumptions many foreign business people bring with them. https://documentcloud.adobe.com/link/review?uri=urn:aaid:scds:US:0100ff1e-0bc2-4d37-9455-f51c7d371031

Shoe is on the Other Foot when Management Buys – 4 pages published in Executive Counsel, what representations should Buyer and Seller give when the Management Buyer knows more about the company than the Investor Seller. https://drive.google.com/file/d/1OmWuQ7IJ7p0YVQ0amP72K9gUjq7sWhfk/view?usp=sharing

Go-West: Die Gründung einer US-Corporation vor dem Spiegel des deutschen Kapitalgesellschaftsrechts. Ein Überblick für Investoren und Berater – 13 pages covering the basics of forming a US corporation and the differences from the German system. https://drive.google.com/file/d/12SeqqGb9pE3vCdS3dEHVdh-x8dwyLW0M/view?usp=sharing

Bewuesstseinstraining gegen Diskriminierung – 6 pages warning German managers not to say things they could say in Germany and why not. https://drive.google.com/file/d/10bISg-kWfaiUXVCVprjjb36h3FKBGX8p/view?usp=sharing

Cat and Mouse at the Deal Table – 5 pages published in Executive Counsel, risks that arise when businessmen sign letters of intent without legal counsel. https://drive.google.com/file/d/1axq2c4IoqpZdknCy2RcxNLcDXBf3Op9J/view?usp=sharing

List of Pro-Buyer Points in International Purchase Agreement – 3 pages with 31 points to consider when buying a product internationally. https://drive.google.com/file/d/1oDbAMcZgC7BgWIzo2zfrqJl9_87n60h2/view?usp=sharing

Common Errors by Foreign Businessmen – 4 pages published in German American Trade, listing mistakes made because “that’s how we do it at headquarters back home in Europe,” mistakes that can lead to unlimited liability. https://docs.google.com/document/d/1KxOfKP_z4NjoYjKmvd4Lm3VBFIa6LS7staeIstRINzY/edit?usp=sharing


Punitive Damages – How Juries Decide – 7 pages published in German American Trade, there is no silver bullet, but the article gives practical advice on how businesses can take defensive actions before the claims arise. https://drive.google.com/file/d/1dCFQ4sUeAI_J8aBAzTCbB4PiJ48WZeFC/view?usp=sharing

Cat and Mouse at the Deal Table – Letters of Intent in Small and Mid-Sized Transactions – 5 pages published in Executive Counsel, deals with the risks of letters of intent, especially if business people have executed one without legal counsel. https://drive.google.com/file/d/1axq2c4IoqpZdknCy2RcxNLcDXBf3Op9J/view?usp=sharing

Interpretation of English Contracts Under German Law– 4 pages translated and summarized from an NJW article dealing with contracts written in the second language of both parties. https://drive.google.com/file/d/1aTIYFT8fcmHB3mGd6bhb6ymXreOZxMAW/view?usp=sharing

Vertragsanlagen – Die Stiefkinder der Vertragsentwuerfe – 7 pages published in M&A [German magazine], on how exhibits can make the text of the contract irrelevant; a translation of an article on the role of exhibits in M&A contracts. https://drive.google.com/file/d/1mUzS0agDJ3xYS6NMK6kJ0V9h5v5iJZoF/view?usp=sharing

Die Risiken des amerikanischen Delektrechts bei M&A Transaktionen – 6 pages published in M&A Review covering how to make claims outside the terms of the written acquisition agreement. https://drive.google.com/file/d/1ltVlvpXc5vL9EcBV3gmr0eittYN3gNS2/view?usp=sharing

Die unterschiedliche Auslegung einzelnen Schadensersatzpositionen im Amerikanischen Vertrags und Delektrecht im Ramen von M&A Transaktionen – 5 pages published in Recht und Steuern, a discussion of different kinds of damages buyer may claim in the M&A context and how contract provisions affect them. https://drive.google.com/file/d/1fAgqcImberhz1B7-gXKDppAosWV-vlBo/view?usp=sharing

Die Fesstellung der organschaftlichen Vertreungsverhaeltnisse in den USA – 4 pages published in M&A Review contrasting German and American procedures for proving that a signatory to a contract has the power to bind that company. https://drive.google.com/file/d/1Yw67fZzg7nJaJLEyc5ELAsGNDsgSjZsc/view?usp=sharing

Effect of Mergers and Acquisitions on Requirements Contracts – 7 pages in law memo form, with case citations. How is the obligation to purchase or supply another’s “requirements” affected by an acquisiton? https://drive.google.com/file/d/1vqZpnf-fNiFbx_clVcs87OF27aAhztJp/view?usp=sharing

A Foreign Manager’s Introduction to Discrimination – 5 pages published in German American Trade outlining things European managers might say in Europe but have consequences in the USA. https://drive.google.com/file/d/1Pj2u8UfEygjinbkih3MpPUBlbFQG7R7z/view?usp=sharing

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