What is an Amended and Restated Agreement?
A common agreement in place for a long-term business relationship is one that is amended and restated from time to time. This can be used for a variety of agreements, including Operating Agreements, Partnership Agreements, and Employment Agreements, among many others. But what is an amended and restated agreement? An amended and restated agreement is made by referencing the current form of an agreement and incorporating all terms of that agreement into a new (or amended) agreement document; creating a single comprehensive agreement. An amended and restated agreement can be used to exercise a contractual right that allows for amendments, or when an amendment becomes necessary but the parties do not agree on all of the conditions. An amended and restated agreement is a simple way to avoid remaking an agreement from scratch when changes are necessary , and it avoids the need to draft piecemeal amendments that track several dated documents. An amended and restated agreement will have distinct advantages over piecemeal amendments, when: either the parties do not want to negotiate or compromise additional terms; the parties to the agreement have changed; a change in management is necessitated; or a change in formation or incorporation necessitated the amendment. There is also the option of simply listing the amendments from the original agreement in an attachment so the terms are not duplicated, but the amended and restated agreement is the preferred method of amending an agreement, and serves as a clean document for all parties to read, enter into, or refer to.
Key Components of an Amended and Restated Agreement
An amended and restated agreement should re-state and update all terms, conditions and clauses contained in the original agreement. The amendments should not have the effect, however, of changing or limiting the scope of the original agreement. To avoid this unintended result, the amended and restated agreement should re-state verbatim all those clauses unchanged from the original agreement. In practice, therefore, the same clauses may appear two or more times, once reflecting the original language verbatim and again showing the updated language, even though the terms may be identical.
This may seem cumbersome and redundant for the same reason that the original agreement should be completely re-stated. Because the purpose of the amended and restated agreement is to update all clauses and provisions of the original agreement, the final amended and restated agreement should be a fully integrated document that covers all amendments and updates to the original agreement. Further, the same amended and restated agreement should govern all agreements between the parties in the future. Thus, after executing an amended and restated agreement, the parties should not have to re-execute any prior or future agreements on the same subject matter subsequently drafted that update the terms and provisions of the original agreement.
Why Companies Use Amended and Restated Agreements
Companies utilize amended and restated agreements to address a variety of practical considerations. Amended and restated agreements can provide certainty for shareholders by consolidating previous documents that have either become outdated or were lost. Amended and restated agreements can provide parties with a version of the agreement that is updated to eliminate obsolete provisions and unnecessary cross-references. Amended and restated agreements often have the practical benefit of avoiding the necessity of requiring the signatures of a company’s shareholders on every corporate document if such documents need to be completed, executed and delivered during the course of a transaction. Amended and restated agreements can provide companies with a mechanism to change rights and obligations of shareholders that requires only the approval of the shareholders that actually participate in the amendment process (to the extent that the company’s constituent documents so permit). Amended and restated agreements can also provide companies the ability to change the name or other attributes of an entity without the need for a separate document formalizing the change of name and the approvals necessary to change the name, as those changes are often done by a single sentence in an amended and restated agreement.
Parties should consider and address any necessary mitigating controls so that the use of an amended and restated agreement does not increase the risk of causing or contributing to a mistake that requires the amended and restated agreement to be corrected or amended using a corrective amendatory agreement.
How to Amend and Restate an Agreement
The process for creating an amended and restated agreement often begins with an initial review of the current agreement. The parties will consider their objectives and discuss whether to modify the existing agreement or negotiate an amended and restated agreement. An amended and restated agreement, although more expensive in the short term, saves transaction costs (i.e., drafting fees of $3,000 – 5,000 or more per agreement) over the long term. After amending and restating the agreement, the parties will only have to pay the attorney for an amendment and restatement once, rather than paying for a new agreement and multiple amendments. Moreover, an amended and restated agreement is clearer and easier for a court to interpret because it contains the entire agreement of the parties, thereby preventing any ambiguity or uncertainty as to the meaning or intent of the provisions contained in the document. As part of the process of revising the existing agreement, the parties will address the issues identified during the review process and discuss whether those issues need to be formally negotiated or incorporated into the amended and restated agreement. The parties will then negotiate the language of the amended and restated agreement until they reach an agreement on the terms. Once the parties have reached an agreement on a draft of the amended and restated agreement, the lawyer will transform a rough draft into an actual agreement. For example, suppose that a member of a limited liability company or a shareholder of a corporation submits a written resignation to the other owners of the company or corporation. Depending on the governing documents of the company or corporation, the written resignation may have the legal effect of terminating the owner’s status in the company or corporation on the date of the written notice, even if the owner who submitted the written notice intends for the resignation to take effect later. If the parties negotiated the terms of the amended and restated agreement in response to the resignation, the parties may want to delay the effective date of the resignation by including a provision to that effect in the amended and restated agreement. The parties will then make sure that all of the necessary parties "execute" the amended and restated agreement, which means that the agreement has been signed and is now effective. The parties may also include a records and updating section in the amended and restated agreement stating that the agreement will be updated each time it is amended and restated, so that the most recent amended and restated agreement is easily located in the future.
Legal Considerations and Best Practices
The language used in the amended and restated agreement is important. If a redrafted agreement contains inconsistencies or ambiguities, those inconsistencies will be considered by the court as part of the contractual agreements, giving rise to uncertainty as to whether the prior agreement or the amended agreement takes precedence over the other. The following points should be noted when drafting an amended and restated agreement:
•If the amended and restated agreement contains a detailed recitation of the parties’ intentions about the prior agreement, it may be viewed by a court as an integrated agreement.
•The amended and restated agreement should clearly state that it supersedes all prior agreements .
•Make sure the amended and restated agreement is signed and dated by all parties.
•If possible, have the amendments and restated agreement recorded in any public office where the original agreement was recorded.
After years of litigation involving Brazilian law, the Superior Court of São Paulo stated that the amended and restated agreement can be used to amend and restate any type of legal instrument. In the event that the parties fail to follow the best practices mentioned above, courts could conclude that the amendments do not result in a definitive expression of the parties’ intention and, therefore, the prior original agreement is still effective.
Pitfalls and Common Mistakes
Common Pitfalls and Mistakes to Avoid
Emphasizing clarity and thoroughness, avoiding redundancy, and staying vigilant about rights protection are key to avoiding the common pitfalls that can arise during the drafting stage of an amended and restated agreement.
One pitfall involves the failure to sufficiently define the rights of the various parties to the agreement. Since these agreements are usually part of a financing transaction with multiple documents – including guarantees, separate entity agreements, agreements containing assignments of royalties or other intangibles – anyone reading the document should be able to immediately grasp its intent. This can be accomplished by including provisions within the agreement that specifically address who has rights, how those rights may be exercised, and when they may be exercised.
Another common mistake in these agreements is redundancy. All existing rights, remedies, covenants and limitations should be included in the original agreement and in any amendments. When such an agreement is amended and restated, however, redundancy can often occur, as some rights may be duplicated or modified. This can easily happen if due to the adoption of "update" language that references earlier provisions. Another pitfall to avoid in this context is modifying rights in one section of the agreement without modifying them in other sections.
Finally, it is essential to protect all rights available to the client. A litigation filing might require a party to involuntarily release a particular claim. As such, addressing potential releases in an amended and restated agreement is critical, especially when it is possible that the former provisions of the contract would have preserved these claims by plainly stating that any potential claims were not being waived.
Amended and Restated Agreement Samples
Amended and restated agreements are not uncommon in many areas of law. For instance, a merger or acquisition agreement for a public company will often take the form of an amended and restated agreement. In that case, the initial merger agreement would be amended and restated to include items from related documents into one comprehensive legal document for the transaction. Another example of this usage is in the banking industry. A bank may enter into a loan agreement with an institution like a corporation. If the corporation needs additional funding, the bank and corporation may enter into an amended and restated loan agreement to consolidate all aspects of the loan onto one document, possibly adjusting for new interest rates, new loan amounts, or new fees.
More generally, an amended and restated agreement would likely omit or integrate all documentation of any amendments, waivers or modifications of the original agreement within the amended and restated agreement. After the new document is signed, the new agreement will take precedence over the old agreement. In other words, after the parties enter into the amended and restated agreement, and if the amended and restated agreement is signed by the parties, if any prior amended agreement remains in effect with respect to the parties, it will become ineffective. Hence, the amended and restated agreement would be the only operative agreement for the parties.
Conclusion: The Importance of Properly Administered Agreements
Agreement is vital to the operation of a business. Contracts are how you turn your ideas into revenue – whether creating, protecting or acquiring valuable assets. Properly managing these agreements and maintaining their molecular integrity is critical to sustaining a business . The process of amending and restating agreements is a critical evolution of this integral aspect of a business. The process can be all too often misconstrued and mismanaged, but with a little grok and practice, understanding of the issues and strategies can help ensure that the power of contracts are exercised as the key to a successful business.