M&A Contracts and the Role of Written Representations - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A M&A Contracts and the Role of Written Representations Navigating Lead-Ins, Disclosures in Schedules, Qualifications and Exceptions, the "Bring-Down," and Interaction With Indemnifications THURSDAY, JANUARY 10, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Vincent R. Martorana, Counsel, Reed Smith , New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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M&A Contracts and the Role of Written Representations Vincent R. Martorana Presented for Strafford Webinars January 10, 2013

Notice; Disclaimer This presentation and the supplemental materials related to this presentation (this presentation and such materials, collectively, the “Materials”) are intended to constitute a continuing legal education course and are intended for an audience of attorneys. Neither the Materials, nor any portion thereof, is intended for any other purpose or for anyone other than an attorney. Neither the Materials nor any portion thereof constitutes legal advice. Neither the Materials nor any portion thereof is permitted to be distributed without the express written consent of Vincent R. Martorana. 6

What this Presentation Covers  The Basics  Schedules  Making a Representation  Referencing schedules  The lead-in  Disclosure in schedules  Past, present, and future  circumstances and events Updating Representations and Schedules  Affirmative disclosure in schedules   The “Bring - down” Qualifications and Exceptions  Exceptions within the representation  Indemnification and Other  Remedies Exceptions set forth in a schedule  Materiality qualifiers  Knowledge qualifiers 7

What this Presentation does NOT Cover  The substance of any type of particular representation  Oral representations  Implied representations  Customary standards in non-US contracts 8

The Basics 9

The Basics  What is a representation?  Why are representations used?  What’s the difference between a “representation” and a “warranty”? 10

The Basics  What is a representation?  Why are representations used?  What’s the difference between a “representation” and a “warranty”? 11

The Basics What is a representation? representation. A presentation of fact — either by words or by conduct — made to induce someone to act, esp. to enter into a contract.* * Source: Black’s Law Dictionary (9 th ed. 2009) 12

The Basics What is a representation? Examples: Vincent represents to Christine as follows:  Vincent rode the 7:30 a.m. train from Seaford to Penn Station this morning.  The kids’ respective bedrooms are clean.  The Giants will win the Super Bowl. 13

The Basics What is a representation?  Representations can describe the existence of a circumstance or the occurrence of an event  A representation is either accurate or inaccurate at the time made (i.e., upon the effectiveness of the contract or at such other time when “deemed” to be made) Tip : You can’t “breach” a representation Tip : You can’t “cure” a representation 14

The Basics Why are representations used?  What is a representation?  Why are representations used?  What’s the difference between a “representation” and a “warranty”? 15

The Basics Why are representations used?  Provide non-representing party comfort about certain facts  Allocate risk that arises because of an uncertainty between parties 16

The Basics Why are representations used? Negotiating Tip : Consider which party is in the best position to have the requisite knowledge regarding a fact • Company-specific circumstances or events vs. “external” circumstances or events Negotiating Tip : Consider the relevance of a representation Negotiating Tip : Consider the extent to which it is reasonable to infer that the parties contemplated a particular risk allocation when setting the purchase price 17

The Basics “Representation vs. Warranty”  What is a representation?  Why are representations used?  What’s the difference between a “representation” and a “warranty”? 18

The Basics “Representation vs. Warranty”  Representation - A presentation of fact — either by words or by conduct — made to induce someone to act, esp. to enter into a contract.*  Warranty - 2. Contracts. An express or implied promise that something in furtherance of the contract is guaranteed by one of the contracting parties; esp., a seller’s promise that the thing being sold is as represented or promised.* * Source: Black’s Law Dictionary (9 th ed. 2009) 19

The Basics “Representation vs. Warranty”  The distinction between “representation” and “warranty,” as used in M&A contracts, is probably baloney…  Some feel that “warranty” is a statement or promise by one party, coupled with a promise by that party to indemnify the other party  But in M&A contracts, the parties are trying to specify remedies, not play “diction gotcha”  On the other hand, how much extra cost do you incur by keeping in the customary “warrants”/“warranties” formulation?  And imagine the push- back you’ll receive if you change “represents and warrants” to “represents”… 20

Making a Representation 21

Making a Representation  The lead-in  Past, present, and future circumstances and events  Affirmative disclosure in schedules 22

Making a Representation The Lead-In  The lead-in  Past, present, and future circumstances and events  Affirmative disclosure in schedules 23

Making a Representation The Lead-In Example: The Seller represents to the Buyer as follows:  Not needed if making a discrete representation  But in M&A contracts, all of a party’s representations should be contained in a single article 24

Making a Representation The Lead-In  No need for “ hereby represents”  Do NOT conflate with other categories of language, such as obligations and acknowledgments  The Seller represents, warrants, covenants, agrees, and acknowledges as follows: 25

Making a Representation The Lead-In  Use a “stative” verb, not a “dynamic” verb  The Seller is representing to the Buyer as follows:  The Seller represents to the Buyer as follows:  Use “represents” as a verb; no need for “makes” or “is/are making”  The Seller makes the following representations:  The Seller is making the following representations: 26

Making a Representation The Lead-In Representations by multiple parties  Do NOT use “jointly and severally” (which is a liability concept)  The Sellers jointly and severally represent to the Buyer as follows: 27

Making a Representation The Lead-In Representations by multiple parties  Consider whether to have “each” representing party make representations or to have the representing parties collectively make the representations  The Sellers represent to the Buyer as follows:  Each Seller represents to the Buyer as follows:  Be careful how representations are phrased in light of the phrasing of the lead-in and indemnification provision (e.g., if several liability)  Consider the definition of “Knowledge”: does the term extend to more than one party?  Remember: Liability should be determined by the phrasing of the indemnification provision, not the phrasing of the lead-in to the representations (Potential Exception: Fraud/Intentional misrepresentation) 28