Critical Issues in Joint Development and Joint Ownership Projects: Avoiding Acquisition Pitfalls...

Critical Issues in Joint Development and Joint Ownership Projects:Avoiding Acquisition Pitfalls

Critical Issues in Joint Development and Joint Ownership Projects:Avoiding Acquisition Pitfalls

Lori B. Green

Nixon Peabody LLP1100 Clinton SquareRochester, NY 14604

lgreen@nixonpeabody.com585-263-1236

Recipe for Effective TransactionRecipe for Effective Transaction

• Clear goals – aligned (check regularly)?• Clear strategy – group dynamics/coordination

– Sub-groups (benefit? detriment?)

– Divide and Conquer?

Recipe for Effective TransactionRecipe for Effective Transaction

• Successful execution– Coordinated negotiation

– Ongoing due diligence

– Financing coordination

– Closing coordination

Due Diligence – What Is It and Why Do ItDue Diligence – What Is It and Why Do It

• Physical investigation of project assets/liabilities/status• Understand and evaluate project/assets• Identify legal and operational issues• Draft/negotiate transaction documents• Allocate risks• Understand approval process/timing

Due Diligence – How to ConductDue Diligence – How to Conduct

• Site visits• Real or virtual data room• Independent experts – engineers, attorneys• Operations personnel

Purpose of Asset Purchase AgreementPurpose of Asset Purchase Agreement

• Roadmap to get to financial closing• Identify assets and liabilities• Economic arrangements• Reps and warranties• Covenants between signing and closing• Conditions precedent to closing• Termination/Withdrawal rights and remedies• Indemnification and survival

Assets and LiabilitiesAssets and Liabilities

• Permits• Real property interests• Coal or other fuel• Contracts• Personal Property• Assumed liabilities – known, unknown, contingent?

Economic ArrangementsEconomic Arrangements

• Purchase price• Development fee/success/completion fee?• Reimbursement/sharing of development costs• Timing of payments

Reps and WarrantiesReps and Warranties

• Disclosure of and about what selling/buying• Disclosure about seller/buyer –

authority/consents/litigation• Knowledge and materiality qualifiers• Risk allocation• Relationship to due diligence

CovenantsCovenants

• Exclusivity• Most favored party• Disclosure of changes• Consents, proceedings, cooperation

Conditions Precedent to ClosingConditions Precedent to Closing

• Financing• Authorization to construct

– Full NTP under EPC Contract

• No MAC – project or project documents• Consents/approvals• No litigation• Equity

Termination/Withdrawal Rights Termination/Withdrawal Rights

• Mutual agreement• Law or order• Breach (notice and cure rights)• MAC• No financing• Drop dead date• Sponsor abandonment• Participant convenience

Remedies Upon TerminationRemedies Upon Termination

• Refund of development fees (or loss)

• Liquidated damages– different depending on breach

• Out of pocket costs

• Actual damages

• Equitable remedies

• ROFR

• Limitation of liability

• Exclusive remedy

Indemnification and SurvivalIndemnification and Survival

• Post-closing remedy for breaches

• Reps, warranties and covenants

• Basket and cap

• Who pays and controls defense?

• Exclusive remedy

• Survival – how long?– General – 1-3 years

(from when?)

– Statute of limitations

– No limit (title, authorization, etc.)

GuarantyGuaranty

• If Sponsor/Participant is SPE• APA and development obligations between signing

and closing– Including termination damages

• Indemnification obligations• Alternative: credit-worthy entity as a party

Lori B. GreenNixon Peabody LLP1100 Clinton SquareRochester NY, 14604

lgreen@nixonpeabody.com585-263-1236