Boilerplate . . . 

is a lawyer's word referring to "standard" terms and conditions contained in most financing agreements but that are rarely negotiated when the major terms of a deal are discussed.

They are not, however, as standard or innocuous as many people believe (or would lead others to believe). In fact, boilerplate often consumes more than half of a financing agreement and contains important promises and representations made by the company and its principals. These promises and representations should be reviewed carefully, even if the tendency is to skip them because "they are just boilerplate."

One standard provision that appears in many financing agreements is the "accurate business plan" boilerplate. Its purpose is to assure the investor that management has not made any misrepresentations in its business plan. It usually appears in the representations and warranty section of the financing agreement and is a warranty of both the company and its management. It is a legitimate provision that can have very different effects depending on whose boilerplate is used. The provision sometimes appears as a representation that:

The business plan of the company is accurate and complete and does not contain any untrue statement or omit to state any fact which is necessary in order to make the statements contained therein not misleading.

A literal reading of this particular boilerplate can make company management a guarantor of the facts, assumptions, and conclusions contained in the business plan. If any of those facts, assumptions, and conclusions turn out to be untrue, the company and its management could wind up liable to the investor for damages. Since much of a business plan is based on "soft" information instead of hard, verifiable facts, and since much of it is judgmental and prospective, business plans almost always turn out to be untrue in some respect. And when they do, management making this representation may find itself surprised by the liability it has assumed.

A better boilerplate provision about the company's business plan, at least from management's perspective, would read:

To their knowledge, the business plan does not contain any untrue statement of a material fact or omit to state a material fact that is necessary in order to make the statements contained therein not misleading in light of the circumstances under which they are made. To their knowledge, the financial projections contained in the business plan were prepared accurately based on the assumptions described therein.

This boilerplate gives the investor what he needs with less exposure to the company and its key officers. It talks in terms of knowledge instead of absolute facts and acknowledges that the projections are merely estimates based on disclosed assumptions. These differences can be important as a company's progress varies from its projected plans. For management, they can mean the difference between business as usual and defending a lawsuit brought by an investor.

Every lawyer has his own version of "standard" boilerplate. Some are more exacting than others. All boilerplate terms are negotiable, notwithstanding any claims by their authors that they are "standard" or "required as is" in all of their deals. Management should never sign an agreement until it is comfortable with the boilerplate it contains. See: Financing Agreements, Investment Reps, Reps and Warranties, We Always Do It This Way, We Never Exercise Our Rights Under This Section.