Omnibus Agreement Defined
An omnibus agreement is a legally binding contract that includes a collection of various types of issues into one single agreement as opposed to multiple separate agreements. The purpose of the omnibus agreement is to avoid confusion or any discrepancies in how some issues are handled in a particular situation. Sometimes the issues are interrelated, in other words, they all serve one major purpose or they all involve the same parties, and therefore it makes sense for them to be consolidated into one larger agreement. In other situations, the agreement will include issues that are not directly related but that are going to have to be handled together anyway , or that the parties simply decide would be more convenient if the terms were spelled out in one document rather than in several potentially separate legal documents. Omnibus agreements are sometimes also called "blanket" or "all inclusive" agreements. They are somewhat short, straightforward agreements that consolidate many small agreements into one. Omnibus agreements are used in many types of legal situations, including the purchase of real estate, the sale of a business, employment situations, union contracts, and many more.
Typical Uses of Omnibus Agreements
Mergers, acquisitions and corporate restructuring: This is the most common use of omnibus agreements. Where there are a number of companies to be merged into a single business, the omnibus agreement can set out the terms of the arrangement to which all of the companies are to adhere.
Business acquisitions: The omnibus agreement can contain standard terms and conditions or standard representations and warranties of the vendor, as well as the standard representations and obligations to which a purchaser must adhere upon the acquisition of a business. These terms can form the basis of the transaction template so that when making an offer to another person, parties may have a boilerplate document in mind to finalize the agreement quickly. It also allows a vendor to disclose the deal terms upfront so that potential sellers know what terms to expect in a transaction.
Group arrangements: A group arrangement omnibus agreement can consolidate all of the agreements needed amongst the parties into one document, thereby saving the group time and administration costs by eliminating the need for individual agreements.
Shareholders’ agreements: A shareholders agreement omnibus can consolidate all of the agreements needed amongst the parties into one document.
Components of an Omnibus Agreement
In the context of a merger or acquisition, an omnibus agreement will typically contain the following clauses:
- Parties. The parties section will identify the specific entities or individuals that have agreed to the various terms of the agreement. Whether the agreement is with affiliates, shareholders or business partners, a clear delineation of the parties is critical. In any event, there should generally be one clear party that has the rights and obligations associated with a party to the agreement. For example, if the agreement is being executed as part of a merger, the parties should be clearly identified as the merging entities, not their respective affiliates.
- Scope of Agreement. Omnibus agreements are often very broad in scope, with a single agreement encompassing all contemplated forms of transfer, including by sale, gift, conveyance, assignment or act of liquidation. The parties to the agreement should be identified, but the transaction group can include affiliates of the parties that are required to execute the agreement.
- Amendment Terms. Omnibus merger and acquisition agreements can be amended in a variety of ways, including unanimous written consent of the parties, by majority vote of the parties, or by a vote of the board of directors of a company.
Benefits of Using Omnibus Agreements
Omnibus agreements offer several key advantages for parties who are looking to set up terms for multiple transactions or make cross-references to other agreements. One of the primary benefits is flexibility. In most omnibus agreements, even if they are implemented as an MFA, the agreement can be tailored to suit the nature of the subject matter and to address how that subject matter interacts with the other agreements among the parties. The omnibus agreement can also combine several agreements, which can be useful for parties who want to sign multiple agreements at the same time, but who need separate agreements for other purposes. An omnibus agreement that incorporates several other agreements can provide context for those agreements, while also keeping the relationship among the parties contained within the omnibus agreement.
Using an omnibus agreement can also be cost-effective, compared with drafting individual agreements for separate transactions. In some cases, a single omnibus agreement can cover all of the anticipated transactions among the parties even if some of the transactions occur over several years. By eliminating the need to draft several separate agreements, an omnibus agreement can save significant legal fees.
Potential Drawbacks of Omnibus Agreements
As with all agreements, omnibus agreements can create some pitfalls. Three common example pitfalls are difficulty in compliance, enforceability issues and a general lack of clarity. For instance, if an agreement is written so that it includes obligations and rights that directly conflict with obligations and rights as per the parties’ respective individual agreements, then compliance will be difficult and a breach of either agreement may occur. Moreover, if the omnibus agreement states that it is binding on a party to which it was never even sent, then the agreement may become unilaterally unenforceable. Additionally, notwithstanding the above, the omnibus agreement may not even be clear as to what rights, benefits or obligations are intended to be granted, reserved or eliminated.
Beginning with respect to complexity, in general, there should not be any omitted provisions or even overlapping provisions between the respective agreements. In other words, if an obligation or right is already expressly identified in one of these individual agreements, there should be no catchall reference elsewhere in the omnibus agreement, otherwise that catchall provision may be interpreted differently by a judge, if not by the contract drafting parties. Further, if one of the individual agreements grants the employee full ownership to an invention that was developed in the course of employment, then another individual agreement entered into by the same employee may inadvertently and unintentionally revoke, reassign and/or otherwise terminate such ownership. Still another common way in which failure to comply with an omnibus agreement might occur is when one party had high expectations about what the omnibus agreement would achieve by way of rights and benefits (e.g. , regarding intellectual property ownership) and allows the other party to take internal steps that are decisive to later success in realizing those rights and benefits, but then fails to follow-through with those expectations when it comes time to implement the omnibus agreement.
Even if the omnibus agreement is drafted such that there are no potentially conflicting provisions, there may be issues with enforceability. For example, it is possible that it may be found to bind only the person to whom it was addressed. More specifically, if an omnibus agreement is addressed to a single individual employee and includes a waiver of jury trial, but that employee works for multiple employers, such employee’s waiver of rights may be upheld only with respect to the individual employer to which the employee signed the omnibus agreement and not with respect to other employers to which the employee was never a signatory. Lastly, an omnibus agreement may be vulnerable to challenge on the basis that the agreement lacks specificity. For instance, an omnibus agreement may be labeled as securing and reserving an entire bundle of rights, but other than that, it may identify who is a party, the venue for potential litigation (if any), and that it is binding and enforceable upon each party and his/her heirs, successors and assigns. In other words, if an omnibus agreement is vague or overly generalized as to its terms, then it is vulnerable to challenge on the basis that it is vague, ambiguous, and therefore unenforceable.
Negotiating and Drafting Omnibus Agreements
When drafting and negotiating an omnibus agreement, the following best practices can be useful:
1. Seek Legal Assistance
For anyone tasked with preparing an omnibus agreement, consultation with legal counsel should be a key step in the process. Not only can legal counsel provide guidance on specific issues that may need to be addressed in an omnibus agreement, counsel can help ensure that the omnibus agreement is drafted in a way that facilitates future integrations among related or affiliated entities. In some cases, depending on the complexity of the overall corporate structure and the number of related entities involved, it may be advisable to enlist the services of legal counsel experienced in designing governance structures for complex corporate systems.
2. Ensure Particularity
As with any type of professional or business contract, it is critical that a good omnibus agreement be drafted with particularity. Using ambiguous or unclear terms may result in disputes over the scope of the authority intended to be granted through the omnibus agreement. Furthermore, broad terminology that is not specific to the particular relationship among the entities involved may be construed in ways that were not originally intended, possibly resulting in conflicts among the parties down the road. While it may be tempting to use "catch-all" language or to borrow language from other agreements, it is often best to have a qualified corporate lawyer draft an omnibus agreement in order to ensure that the document is clear, concise, and unambiguous. By striving to create an omnibus agreement that is as detailed as possible while still remaining focused on the relevant issues, the developers of an omnibus agreement can avoid the difficulties that may befall those entities that do not give appropriate attention to detail in their own governing documents.
3. Avoid Complexity
In addition to being drafted with particularity, an effective omnibus agreement should also avoid becoming so complicated that its practical application becomes difficult to manage. For example, as tempting as it may be to include all possible scenarios within the language of the omnibus agreement, it is often preferable to keep the agreement as simple as possible. If the parties are worried that a particular scenario may not be addressed, it may be better to leave that situation outside the scope of the omnibus agreement and draft a separate contract that includes only those specific issues. While an omnibus agreement should not shy away from covering issues that may be more complicated than others, it should nevertheless avoid the temptation to cover every conceivable issue that may arise in the relationship between the parties.
4. Take the Time to Review
Finally, once the omnibus agreement has been drafted, it is important that each party spend an appropriate amount of time reviewing the document to ensure that the terms therein reflect the intentions of everyone involved. Because an omnibus agreement often creates a structure for all future actions between the parties, it is particularly important to invest the time in carefully reading the draft agreement to determine whether it reflects the desired intent and creates the necessary structure. Otherwise, an omnibus agreement may result in negative outcomes for some or all of the parties involved.
Legal Issues Associated with Omnibus Agreements
When drafting an omnibus agreement, businesses should pay close attention to compliance with relevant laws and regulations. In most cases, the terms of an omnibus agreement are subject to applicable corporate governance standards and regulatory compliance requirements. For example, public, listed companies will usually be subject to stricter requirements under the corporate governance rules and related listing requirements of their home corporate securities regulators. Some laws such as anti-money laundering (AML) and anti-bribery legislation require that detailed AML or anti-bribery policies and procedures be implemented and then that those policies and procedures be reviewed and approved on a regular basis by the board of directors (or a committee thereof). This is because such policies and procedures are considered integral to a board’s oversight responsibility and effective corporate governance. Omnibus agreements can be a useful mechanism to ensure proper periodic review and approval of these types of policies and procedures. Other laws may specifically require that certain activities and transactions be approved by the board of directors. Under these scenarios, omnibus agreements can be used (in conjunction with consent and waiver resolutions, as required by applicable law) to satisfy those approvals. Further, a corporation’s constating documents (such as its articles of incorporation, bylaws or articles of association, as applicable) may require that certain activities and transactions be approved by a vote of the shareholders or by the board of directors. Similar to the above, omnibus agreements can be used to allow the shareholders or the board of directors, as applicable, to approve all specified activities and transactions of the corporation, in addition to what is specifically required by applicable law (or not prohibited by applicable law). Such omnibus agreements can also be a useful tool to ensure the corporation is acting in accordance with its constating documents. Depending on the specific requirements applicable to the corporation, the corporation may need to include specific items in an omnibus agreement to ensure compliance with applicable laws and requirements.
Examples of Omnibus Agreements
Omnibus agreements have proved to be useful tools in a variety of contexts. Some examples of where omnibus agreements have been applied include the following:
Restructuring and Chapter 11 Reorganizations
The 2017 bankruptcy filing of Toys "R" Us Inc. included an omnibus agreement that resolved various intercompany disputes and selling demands among the debtors and their prepetition lenders. The agreement was approved by the bankruptcy court as the court found it to be in the best interest of the debtors and creditors, and the deal was consummated in the summer of 2017.
Amalgamations and Intercompany Restructurings
In 2016, three subsidiaries of Westfield Corp., the Australian shopping center operator, entered into an omnibus agreement to merge the three subsidiaries by amalgamation under Australian law. This form of agreement requires shareholders from each merging company to execute an amalgamation agreement and then file a single merged plan with its corporate regulators . Such a transaction allows parties to take one transaction and wrap it up into a single combined legal transfer rather than have to treat each individual legal transfer as a separate event. As the companies were Westfield subsidiaries, the Westfield Group did not need a shareholder vote and could enact the transaction through its own board of directors.
Private Securities Transactions
In September 2015, CAM-IX Carolina Fund I, LLC, an affiliate of Concordia Resource Partners, LLC, in conjunction with the founder of Techni-Glass & Aluminum, Inc. purchased 100 percent of the equity interests in Techni-Glass & Aluminum from its founder. The investment was made as part of a multi-year investment strategy and was structured through a nine-page omnibus purchase agreement that governed both the equity and financing portions of the deal. Among other things, the agreement sets forth those things necessary for the consummation of the contemplated transaction, including performance by the buyer and seller, and closing conditions, including the granting of security interests, the providing of indemnities, and the disclosure of information.