Common use of Comment Clause in Contracts

Comment. Seller’s counsel may argue that an opinion as to due incorporation or due organi- zation, valid existence and good standing is inappropriate in an asset sale because the selling company itself is not being sold. This opinion is commonly given in a variety of transactions other than the sale of a company, however, and the buyer would be justifiably concerned about the effectiveness of the transfer of the Assets if the seller was not validly existing as a corporation. Buyers often accept a more limited corporate status opinion, such as ‘‘is a corporation validly existing,’’ rather than the broader ‘‘duly incorporated’’ or ‘‘duly organized’’ opinion more appropriate in a stock purchase agreement. In addition to the opinion that Seller has the ‘‘corporate power and authority to execute and deliver the Agreement and consumate the Contemplated Transaction,’’ buyers sometimes ask for an opinion that the selling corporation has the corporate power and authority ‘‘to own its properties and engage in its business as presently conducted . . . ’’ Although this opinion is usually relatively easy to give, it technically is not necessary in asset sales and often is omitted at the request of the seller’s counsel. Buyers sometime request an opinion from the seller’s counsel that the selling com- pany is qualified to do business as a foreign corporation in all jurisdictions where the nature of its business or the location of its assets would require such qualification. Giving this opinion is strongly discouraged because it is time consuming, difficult and largely fact driven. Certain Guidelines for the Negotiation and Preparation of Third- Party Legal Opinions, published in the Third-Party Legal Opinion Report along with the Accord, concluded that a comprehensive foreign qualification opinion will ‘‘gen- erally not be cost-effective’’ and may be an inappropriate request. Sometimes the for- mulation that the selling company is qualified in all jurisdictions ‘‘where the failure to so qualify would have a material adverse effect on Seller and its operations’’ is re- quested as a compromise, but it is inappropriate for lawyers to make materiality judg- ments, and this opinion is also discouraged. The preferred alternative is to address qualification in specifically identified jurisdictions as in the form opinion above.

Comment. Seller’s counsel may argue In opposing the proposed rule, one respondent also asserted that an opinion as to due incorporation or due organi- zation, valid existence the use of lump-sum payments for travel and good standing is inappropriate in an asset sale because the selling company itself is not being sold. This opinion is commonly given in a variety of transactions other than the sale of a company, however, and the buyer would be justifiably concerned about the effectiveness of the transfer of the Assets if the seller was not validly existing as a corporation. Buyers often accept a more limited corporate status opinion, such as temporary lodging related relocation costs ‘‘is not a corporation validly existing,predominant industry practice at this time.’’ rather than The respondent explained that it recently reviewed the broader current relocation policies in place at four large contractor locations and found that three of these four contractors use a single corporate- wide policy for their employee relocation reimbursement programs. Even though one of these three companies claims it is a predominantly commercial company and the other two companies also have a substantial commercial business base, the respondent pointed out that none of the three has established a lump-sum option for its commercial business segments. In addition, the respondent cited an August 2003 news release from a relocation management firm which stated that only 30 percent of the companies it had recently surveyed said they were using lump-sums to cover travel and temporary lodging expenses. Finally, the respondent pointed out that it had recently been advised by a relocation management firm that, shortly before Dr. Xxxx Xxxxx left the Department of Defense, he ‘‘duly incorporatedshut down’’ or an effort by the relocation management firm and the Defense Integrated Travel and Relocation Solutions (DITRS) office to put together a plan for using lump- sums for DoD civilian relocations. After reviewing the responses to the October 24, 2002, Federal Register Notice of Request for Comments (67 FR 65468), a respondent questioned ‘‘duly organizedwhether the FAR Council has obtained sufficient information to support its assertion that it is now common commercial practice to reimburse relocating employees on a lump-sum basis for their house-hunting, final move, and temporary lodging expenses.’’ opinion more appropriate in a stock purchase agreementThe respondent observed that of the eight respondents who responded to that notice, one respondent’s letter gave no specifics on the number of companies using lump- sum reimbursements, and another respondent stated that its 2001 survey showed that 55 companies out of 109 contacted were using lump-sum reimbursements. In addition supporting the proposed rule, one respondent agreed ‘‘with the Councils’ statement that the use of lump-sum payments is a common commercial practice’’ and expressed the belief ‘‘that the proposed rule will help align relocation cost reimbursement policies with commercial best practices.’’ Another respondent also agreed that the proposed changes ‘‘are in keeping with current commercial business practice’’ and explained that ‘‘beginning in 1993 with the Revenue Reconciliation Act, many companies moved to lump-sum allowances for what became taxable reimbursements to the home-finding, temporary living, and final move portions of relocation policy.’’ The respondent concluded with its opinion that Seller has the ‘‘corporate power the recommended revision will enable Government contractors to implement this best practice and authority to execute take advantage of a tested and deliver proven process efficiency that has been an accepted part of the Agreement and consumate commercial sector’s relocation programs for over a decade.’’ lump-sum reimbursements for selected relocation expenses may not be the Contemplated Transaction,’’ buyers sometimes ask for an opinion predominant commercial practice at this time, the Councils believe there is ample evidence that the selling corporation use of such payments is a common and growing commercial practice. The survey data cited by the respondents support this assessment. In addition, a relocation management firm that has been in business for more than 70 years stated at the corporate power February 6, 2003, public meeting and authority ‘‘to own its properties and engage in its business as presently conducted subsequent public comments that lump-sum reimbursement is now a common commercial practice for house- hunting, final move, and temporary lodging costs. The Councils do not find it surprising that contractors who wish to maintain a single, corporate-wide policy for reimbursing relocation costs continue to apply a policy which parallels the current cost principle, even though they may have significant commercial business. The revised relocation cost principle will give such firms an additional option for the first time on Government contracts that could well become their corporate-wide standard in the future. ’’ Although this opinion is usually relatively easy to giveFinally, it technically is not necessary in asset sales the Councils’ understanding that DoD terminated its two-year initiative to reengineer relocation policies and often is omitted procedures and disbanded the DITRS office which oversaw that effort due to a lack of funds and interest from the military departments. And while the relocation management firm stated during its presentation at the request of the seller’s counsel. Buyers sometime request an opinion from the seller’s counsel February 6, 2003, public meeting that the selling com- pany Federal Deposit Insurance Corporation is qualified currently using lump-sum reimbursements for its employees’ relocation costs, this appears to do business as be an exception within the Federal Government. However, even if lump-sum reimbursements for Federal employee relocation expenses are relatively rare, the purpose of this case is to recognize a foreign corporation in all jurisdictions where the nature of its business or the location of its assets would require such qualification. Giving this opinion is strongly discouraged because it is time consuming, difficult common and largely fact driven. Certain Guidelines for the Negotiation and Preparation of Third- Party Legal Opinions, published growing commercial best practice in the Third-Party Legal Opinion Report along with relocation cost principle that should benefit both contractors and the Accord, concluded that a comprehensive foreign qualification opinion will ‘‘gen- erally not be cost-effective’’ and may be an inappropriate request. Sometimes the for- mulation that the selling company is qualified in all jurisdictions ‘‘where the failure to so qualify would have a material adverse effect on Seller and its operations’’ is re- quested as a compromise, but it is inappropriate for lawyers to make materiality judg- ments, and this opinion is also discouraged. The preferred alternative is to address qualification in specifically identified jurisdictions as in the form opinion aboveGovernment.