Discretionary authority gives its holder a choice. Discretionary authority is sometimes couched as permission to do something, often appearing as an exception to a prohibition.

• The Seller will conduct its business from the date of this Agreement until the Closing in the ordinary course, except for the following permitted transactions…”

In the same way that there can be a condition to an obligation to perform, there can be a condition to the exercise of discretionary authority. An acquisition agreement will usually provide termination provisions that gives the non-breaching party the option to sue for specific performance or accept an agreed upon amount of liquidated damages.

Regardless of how a party exercises its discretionary authority, its exercise does not create a correlative duty in the other party. Other duties may flow from the exercise of discretionary authority, such as an obligation to pay penalty interest, but there is no duty that is the flip side of the discretionary authority.

A declaration is a statement of fact to which the parties agree. It is an agreed upon contractual fact that will have significance within the contract. All definitions are declarations. These declarations have no substantive effect on their own. For instance, the following definition of purchase price might appear in a purchase agreement:

• "Purchase Price" means $200,000,000.

Although the parties have declared a legal result by including the definition in the contract, standing alone, the definition of Purchase Price has no substantive consequences within the contract. The definition must be kicked into action by its inclusion in another provision; for example, the buyer's covenant to pay the Purchase Price at the closing.

• The Buyer shall pay the Seller the Purchase Price at the Closing.

Only then does the buyer have a duty to pay the Purchase Price, and the seller a remedy upon the buyer's failure to pay.

The interplay between the various provisions of the Acquisition Agreement is of critical importance in determining the relative rights and responsibilities of the parties. Experienced counsel can minimize the risk of inconsistencies and ambiguities among the various elements of the Acquisition Agreement.

This is the tenth in a series of eleven blogs on the selling process. For more information on S&K Transitional Services please contact info@stark-knoll.com.