Managing Contract Risk with an Integrations Clause

You are a senior executive ofABC Energy Development, LLC (ABC LLC).Its primary asset is a biowaste energy plant that has achieved an output rating of 20,252,134,000 kWhs.

ABC LLC has provided full access to the plant to engineers for global energy operator Super Power Corp. (SPC) as part of a four-month due diligence period. You are negotiating an asset purchase agreement to allowSPC to purchase the power plant.

You work with your legal counsel to manage the transaction and report to the Managing Member ofABC LLC, Carl Hampton. Mr.Hampton may have mentioned the long-term prospects of the plant and its output to the CEO ofSPC in the early negotiations of the transactions to justify the purchase price.SPC provided a draft asset purchase agreement that

• proposed thatABC LLC provide an express representation and warranty that the plant will meet a minimum 20,200,000,000 kWhs output standard for a period of seven years, and
• did not include an integration clause.
• You negotiated successfully to remove the proposed representation and warranty of any minimum kWhs output standard. You noted the extensive due diligence period and noted that plant performance will depend on operational decisions such as fuel quality that can vary and that will be out ofABC LLC's control. You privately doubt that theSPC operational team will have the skill to operate above 18,000,000,000 kWhs, but you wish them well.
• The only remaining issue to finalize the asset purchase agreement is whether to insist on including an integration clause.
• Requirements
• short memo to Mr.Hampton with your analysis of the importance of including an integration clause (sometimes called an "Entire Agreement" clause) in the asset purchase agreement. Do the following in the memo:

1.Explain the benefit of including an integration clause toABC LLC.

2.Provide an example of integration clause language that you recommend.

3.Identify risks that may be mitigated or eliminated by including this clause.