16.2 The Specifications of the Object 469certain period of time (for employee non-competition agreements, see also Vol-
ume I).
A non-solicitation clause is less restrictive as it typically aims to preclude a
party from actively solicitating customers or employees of the target. Such restric-
tive covenants raise questions of enforceability under the law governing the con-
tract as well as questions of competition law (section 16.3).
Qualification of vendor’s representations, warranties and covenants. Rational
vendors try to obtain information about their own future cash flows and regulate
them in the contract (for payment obligations generally, see Volume II). In order
to reduce risk, vendors try to qualify their obligations.
For this reason, business acquisition contracts normally contain caps and quali-
fiers such as materiality and knowledge clauses.
Business acquisition contracts contain materiality, de minimis, basket, or floor
clauses according to which the acquirer’s remedies will be triggered only after a
certain threshold has been exceeded (section 16.4).^19 The vendor requires material-
ity clauses because of the nature of business acquisitions. The vendor typically
does not have full information about the target, and most of the information that it
does have consists of estimates verified some time before signing or closing rather
than accurate information about exact facts verified at signing and closing. With-
out materiality clauses, sanctions for misrepresentations and other breaches of
contract would be triggered too easily.
The vendor’s representations and warranties are frequently qualified by knowl-
edge clauses (generally, see Volume II). In addition, there can be different defini-
tions of knowledge ranging from seller-friendly to buyer-friendly: “to the actual
knowledge of”; “to the actual knowledge, after reasonable inquiry, of [names]”;
and “to the knowledge of“.^20
The acquirer’s representations and warranties. If the agreement contains sepa-
rate (generic) representations and (transaction-specific) warranties, the acquirer
can normally make the same representations as the vendor. The warranties of the
acquirer typically depend on the means of payment and type of consideration.
Where the acquirer pays a cash consideration against the delivery of the object,
it is sufficient that the contract is binding (just representations). Where the ac-
quirer is granted payment time, the contract is likely to provide for credit en-
hancements for the security of payment (representations, some warranties and
some covenants). Where the consideration consists of shares issued by the ac-
quirer, the transaction really consists of two acquisitions. The acquirer may re-
quire usual representations and warranties from the vendor, but the acquirer may
have to give similar representations and warranties in its capacity as issuer of
shares.
(^19) For materiality clauses and caps, see, for example, Hilgard MC, Bagatell- und Cap-
Klauseln beim Unternehmenskauf, BB 2004 pp 1233–1239.
(^20) Goldberg L, op cit, pp 219–221.