Managing Contract Risk with an Integrations Clause You are a senior executive of Mountaintop Glass, LLC (MG LLC). Its primary asset is a glass bottle
Managing Contract Risk with an Integrations Clause
You are a senior executive of Mountaintop Glass, LLC (MG LLC). Its primary asset is a glass bottle production plant that has achieved an average output of 2.4 million units per day. MG LLC has provided full access to the plant to engineers for global glass manufacturer Drake Glass Corp. (DGC) as part of a four-month due diligence period. You are negotiating an asset purchase agreement to allow DGC to purchase the glass plant.
You work with your legal counsel to manage the transaction and report to the Managing Member of MG LLC, Jeremy Reed. Mr. Reed may have mentioned the long-term prospects of the plant and its output to the CEO of DGC in the early negotiations of the transactions to justify the purchase price. DGC provided a draft asset purchase agreement that
proposed that MG LLC provide an express representation and warranty that the plant will meet a minimum 2.8 million units per day output standard for a period of seven years, and
did not include an integration clause.
You negotiated successfully to remove the proposed representation and warranty of any minimum unit output standard. You noted the extensive due diligence period and noted that plant performance will depend on operational decisions and supply chain factors that can vary and that will be out of MG LLCs control. You privately doubt that the DGC operational team will have the skill to operate above 2.4 million units per day, but you wish them well.
The only remaining issue to finalize the asset purchase agreement is whether to insist on including an integration clause.
Requirements
Write a short memo (200?300 words) to Mr. Reed with your analysis of the importance of including an integration clause (sometimes called an Entire Agreement? clause) in the asset purchase agreement. Do the following in the memo:
Explain the benefit of including an integration clause to MG LLC.
Provide an example of integration clause language that you recommend.
Identify risks that may be mitigated or eliminated by including this clause.
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