Warranties and Representations of
Seller
Except as set
forth in the correspondingly numbered Section of the Disclosure Schedules,
Seller represents and warrants to Purchaser that the statements contained in
this Article 4 are true and correct as of the date hereof.
Organization and Good Standing of
Seller.
Seller is an individual residing in the state of XXXXX, and has
full power and authority to own, operate or lease the properties and assets now
owned, operated or leased by him and to carry on the Business as currently
conducted. Section 4.01 of the Disclosure Schedules sets forth each
jurisdiction in which Seller is licensed or qualified to do business, and
Seller is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which the ownership of the Purchased Assets or the
operation of the Business as currently conducted makes such licensing or
qualification necessary.
Authorization. Seller has
full power and authority to enter into this Agreement and the Ancillary
Documents to which Seller is a party, to carry out his obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Seller of this Agreement and any
Ancillary Document to which Seller is a party, the performance by Seller of his
obligations hereunder and thereunder and the consummation by Seller of the
transactions contemplated hereby and thereby have been duly authorized by
Seller. This Agreement has been duly executed and delivered by Seller, and
(assuming due authorization, execution and delivery by Purchaser) this
Agreement constitutes a legal, valid and binding obligation of Seller
enforceable against Seller in accordance with its terms. When each Ancillary
Document to which Seller is or will be a party has been duly executed and
delivered by Seller (assuming due authorization, execution and delivery by each
other party thereto), such Ancillary Document will constitute a legal and
binding obligation of Seller enforceable against it in accordance with its
terms.
Ownership and
Sufficiency of Purchased Assets. Seller has good title to the Purchased Assets
being transferred to Purchaser, free and clear of all encumbrances, security
interests, liens, charges, conditional sales agreements or claims by any person
of any kind, whether known or unknown, except the Assumed Liabilities. None of the Purchased Assets are subject to
any commitment or other arrangement for their sale or use by Seller or third
parties. The Purchased Assets constitute
all of the Purchased Assets of the Seller used in the Business and are in good
condition and are sufficient to permit the conduct of the Business as it has
and will be conducted up to the Closing and constitute all of the rights,
property and assets necessary to conduct the Business as currently conducted.
Litigation and
Adverse Claims. There are no actions, suits, arbitrations,
regulatory proceedings or other litigation, pending or, to the knowledge of
Seller, threatened against Seller or any of its employees or agents in their
capacity as such, or any of its properties or businesses. Seller is not subject
to any order, judgment, decree, injunction, or consent order of or with any
court or other governmental agency.
Restrictions on
Transfer. Seller is not subject to any agreement,
judgment or decree, restriction or instrument of any kind which would prevent
the consummation of any of the transactions provided in this Agreement,
terminate or modify any agreement to which Seller is a party, or prevent the
execution of this Agreement.
Financial Statements. Complete
copies of the unaudited financial statements consisting of the income
statements of the Business for the periods ending December 31 in each of the years
2019, 2018 and 2017 (the “Unaudited
Financial Statements”), and
unaudited financial statements consisting of the income statement of the
Business for the period ending December 8, 2020 (the “Interim Financial Statements” and together with the Unaudited Financial
Statements, the “Financial
Statements”), as well as sole
proprietorship tax information for the years 2017, 2018, and 2019, have been
delivered to Purchaser. The Financial Statements have been prepared in
accordance with Seller’s customary accounting practices applied on a consistent
basis throughout the periods involved, subject, in the case of the Interim
Financial Statements, to normal and recurring year-end adjustments (the effect
of which will not be materially adverse). The Financial Statements are based on
and are consistent with the books and records of the Seller’s customary
non-GAAP accounting practices with respect to the Financial Statements detailed
herein shall be detailed in Exhibit J and fairly reflect the financial condition of the Business.
Undisclosed
Liabilities
. Seller has no
Liabilities with respect to the Business, except those which have been incurred
in the ordinary course of business consistent with past practice and which are
not, individually or in the aggregate, material in amount.
Taxes
All Tax Returns
required to be filed by Seller for any Tax period prior to Closing have been,
or will be, timely filed. Such Tax Returns are, or will be, true, complete and
correct in all respects. All Taxes due and owing by Seller (whether or not
shown on any Tax Return) have been, or will be, timely paid.
Seller has withheld and paid each Tax required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, customer, or other party, and complied with
all information reporting and backup withholding provisions of applicable Law.
No extensions or waivers of statutes of
limitations have been given or requested with respect to any Taxes of Seller.
All deficiencies asserted, or assessments made, against
Seller as a result of any examinations by any taxing authority have been fully
paid.
Seller is not a party to any Action by any taxing authority.
There are no pending or threatened Actions by any taxing authority.
There are no Encumbrances for Taxes upon any of the
Purchased Assets nor, to Seller’s Knowledge, is any taxing authority in the
process of imposing any Encumbrances for Taxes on any of the Purchased Assets
(other than for current Taxes not yet due and payable).
Seller is not a “foreign person” as that term is used in
Treasury Regulations Section 1.1445-2.
Environmental Matters
The operations of Seller
with respect to the Business and the Purchased Assets are currently and have
been in compliance with all Environmental Laws. Seller has not received from
any Person, with respect to the Business or the Purchased Assets, any: (i)
Environmental Notice or Environmental Claim; or (ii) written request for
information pursuant to Environmental Law, which, in each case, either remains
pending or unresolved, or is the source of ongoing obligations or requirements
as of the Closing Date.
Intellectual
Property Section 4.10(a) of the Disclosure Schedules
contains a correct, current and complete list of: (i) all Intellectual Property
Registrations used in, arising out of, or relating to the Business as currently
and formerly conducted, specifying as to each, as applicable: the title, mark,
or design; the jurisdiction by or in which it has been issued, registered or
filed; the patent, registration or application serial number; the issue,
registration or filing date; and the current status; (ii) all unregistered
Trademarks included in the Intellectual Property Assets; (iii) all proprietary
Software included in the Intellectual Property Assets; and (iv) all other
Intellectual Property Assets that are used or held for use in the conduct of
the Business as currently conducted. All required filings and fees related to
the Intellectual Property Registrations have been timely filed with and paid to
the relevant Governmental Authorities and authorized registrars, and all
Intellectual Property Registrations are otherwise in good standing. Seller has
provided Purchaser with true and complete copies of file histories, documents,
certificates, office actions, correspondence and other materials related to all
Intellectual Property Registrations.
Section 4.10(b) of the
Disclosure Schedules contains a correct, current and complete list of all
Intellectual Property Agreements, specifying for each the date, title and
parties thereto. Seller has provided Purchaser with true and complete copies
(or in the case of any oral agreements, a complete and correct written
description) of all such Intellectual Property Agreements, including all
modifications, amendments and supplements thereto and waivers thereunder. Each
Intellectual Property Agreement is valid and binding on Seller in accordance
with its terms and is in full force and effect. Neither Seller nor any other
party thereto is, or is alleged to be, in breach of or default under, or has
provided or received any notice of breach of, default under, or intention to
terminate (including by non-renewal), any Intellectual Property Agreement.
Seller is the sole and exclusive legal and beneficial, and
with respect to the Intellectual Property Registrations, record, owner of all
right, title and interest in and to the Intellectual Property Assets, and has
the valid and enforceable right to use all other Intellectual Property used or
held for use in the Business as currently conducted, in each case, free and
clear of Encumbrances. Seller has entered into binding, valid and enforceable
written Contracts with each current and former employee and independent
contractor who is or was involved in or has contributed to the invention,
creation, or development of any Intellectual Property during the course of
employment or engagement with Seller whereby such employee or independent
contractor: (i) acknowledges Seller’s exclusive ownership of all Intellectual
Property Assets invented, created or developed by such employee or independent
contractor within the scope of his or her employment or engagement with Seller;
(ii) grants to Seller a present, irrevocable assignment of any ownership
interest such employee or independent contractor may have in or to such
Intellectual Property; and (iii) irrevocably waives any right or interest,
including any moral rights, regarding such Intellectual Property, to the extent
permitted by applicable Law. Seller has provided Purchaser with true and
complete copies of all such Contracts.
Neither the execution, delivery or performance of this
Agreement, nor the consummation of the transactions contemplated hereunder,
will result in the loss or impairment of or payment of any additional amounts
with respect to, nor require the consent of any other Person in respect of, the
Purchaser’s right to own or use any Intellectual Property Assets or any
Intellectual Property subject to any Intellectual Property Agreement.
All of the Intellectual Property Assets are valid and
enforceable, and all Intellectual Property
Registrations are subsisting and in
full force and effect. Seller has taken all reasonable and necessary steps to
maintain and enforce the Intellectual Property Assets and to preserve the
confidentiality of all Trade Secrets included in the Intellectual Property
Assets, including by requiring all Persons having access thereto to execute
binding, written non-disclosure agreements.
To Seller’s Knowledge, the conduct of the Business as
currently and formerly conducted, including the use of the Intellectual
Property Assets and the Intellectual Property licensed under the Intellectual
Property Agreements in connection therewith, and the products, processes, and
services of the Business have not infringed, misappropriated, or otherwise
violated. To Seller’s Knowledge, no Person has infringed, misappropriated, or
otherwise violated any Intellectual Property Assets or the Intellectual
Property licensed under the Intellectual Property Agreement.
There are no Actions (including any opposition,
cancellation, revocation, review, or other proceeding) settled, pending or
threatened (including in the form of offers to obtain a license): (i) alleging
any infringement, misappropriation, or other violation of the Intellectual
Property of any Person by Seller in the conduct of the Business; (ii)
challenging the validity, enforceability, registrability, patentability, or
ownership of any Intellectual Property Assets; or (iii) by Seller or any other
Person alleging any infringement, misappropriation, or violation by any Person
of any Intellectual Property Assets. Seller is not aware of any facts or circumstances
that could reasonably be expected to give rise to any such Action. Seller is
not subject to any outstanding or prospective Governmental Order (including any
motion or petition therefor) that does or could reasonably be expected to
restrict or impair the use of any Intellectual Property Assets
Material Contracts
Section 4.11 of the
Disclosure Schedules lists each of the following Contracts (x) by which any
of the Purchased Assets are bound or affected or (y) to which Seller is a party
or by which it is bound in connection with the Business or the Purchased Assets
(such Contracts and all Intellectual Property Agreements set forth in Section
4.11 of the Disclosure Schedules, being “Material Contracts”):
all Contracts
involving aggregate consideration in excess of $25,000 and which, in each case,
cannot be cancelled without penalty or without more than 90 days’ notice;
all Contracts that require Seller to purchase or sell a
stated portion of the requirements or outputs of the Business or that contain
“take or pay” provisions;
all Contracts that provide for the indemnification of any
Person or the assumption of any Tax, environmental or other Liability of any
Person;
all Contracts that relate to the acquisition or disposition
of any business, a material amount of stock or assets of any other Person or
any real property (whether by merger, sale of stock, sale of assets or
otherwise);
all broker, distributor, dealer, manufacturer’s
representative, franchise, agency, sales promotion, market research, marketing
consulting and advertising Contracts;
all employment agreements and Contracts with independent
contractors or consultants (or similar arrangements) and which are not
cancellable without material penalty or without more than 90 days’ notice;
except for Contracts relating to trade receivables, all
Contracts relating to indebtedness (including, without limitation, guarantees);
all Contracts with any Governmental
Authority (“Government Contracts”);
all Contracts that limit or purport to limit the ability of
Seller to compete in any line of business or with any Person or in any
geographic area or during any period of time;
all joint venture, partnership or similar Contracts;
all Contracts for the sale of any of the Purchased Assets or
for the grant to any Person of any option, right of first refusal or
preferential or similar right to purchase any of the Purchased Assets;
all powers of attorney with respect to the Business or any
Purchased Asset;
all collective bargaining agreements or Contracts with any
Union; and
all other Contracts that are material to the Purchased
Assets or the operation of the Business and not previously disclosed pursuant
to this Section
4.11.
Each Material Contract is
valid and binding on Seller in accordance with its terms and is in full force
and effect. None of Seller or, to Seller’s knowledge, any other party thereto
is in breach of or default under (or is alleged to be in breach of or default
under) in any material respect, or has provided or received any notice of any
intention to terminate, any Material Contract. Except as set forth in Section
4.11 of the Disclosure Schedules, no event or circumstance has occurred
that, with notice or lapse of time or both, would constitute an event of
default under any Material Contract or result in a termination thereof or would
cause or permit the acceleration or other changes of any right or obligation or
the loss of any benefit thereunder. Complete and correct copies of each
Material Contract (including all modifications, amendments and supplements
thereto and waivers thereunder) have been made available to Purchaser. There
are no material disputes pending or threatened under any Contract included in
the Purchased Assets.
Customers
and Suppliers
Section 4.12(a) of the Disclosure
Schedules sets forth with respect to the Business (i) each customer who has
paid aggregate consideration to Seller for goods or services rendered in an
amount greater than or equal to $50,000 for each of the two most recent fiscal
years (collectively, the “Material
Customers”); and (ii) the amount of consideration paid by each Material
Customer during such periods. Except as set forth in Section 4.12(a) of the
Disclosure Schedules, Seller has not received any notice, and has no
reason to believe, that any of the Material Customers has ceased, or intends to
cease after the Closing, to use the goods or services of the Business or to
otherwise terminate or materially reduce its relationship with the Business.
Section 4.12(b) of the Disclosure
Schedules sets forth with respect to the Business (i) each supplier to whom
Seller has paid consideration for goods or services rendered in an amount
greater than or equal to $50,000 for each of the two most recent fiscal years
(collectively, the “Material Suppliers”);
and (ii) the amount of purchases from each Material Supplier during such
periods. Except as set forth in Section 4.12(b) of the Disclosure Schedules,
Seller has not received any notice, and has no reason to believe, that any of
the Material Suppliers has ceased, or intends to cease, to supply goods or
services to the Business or to otherwise terminate or materially reduce its
relationship with the Business.
Compliance
With Laws
Seller has complied, and
is now complying, with all Laws applicable to the conduct of the Business as
currently conducted or the ownership and use of the Purchased Assets.
Brokers
Except as set forth on Schedule 4.14,
no broker, finder or investment banker is entitled to any brokerage,
finder’s or other fee or commission in connection with the transactions
contemplated by this Agreement or any Ancillary Document based upon
arrangements made by or on behalf of Seller.
Full
Disclosure
No
representation or warranty by Seller in this Agreement and no statement
contained in the Disclosure Schedules to this Agreement and the Seller’s
Closing Certificate contains any untrue statement of a material fact, or omits
to state a material fact necessary to make the statements contained therein, in
light of the circumstances in which they are made, not misleading. End
or Reps and Warranties Section
This is one of the areas of the contract where there is very
little wiggle room for negotiations on the part of the seller. The instructions
of the larger company's transaction team are to protect the mother ship. They
do not want to acquire unknown liabilities that could put the buying company in
financial or legal difficulty. They will ask for the Reps and Warranties to
last for long periods, often including language such as, "will last for
the statute of limitations or six years, whichever is longer". We
generally are able to negotiate the period down to the 3-4 year range. It does
not matter what your agreement's rep and warranty period is on taxes, because
the government is not bound by your agreement and will come after you to the
full extent of the statute of limitations period.
This language was extracted from a Software Company deal. Please
note the extensive attention paid to the full and complete ownership of the
intellectual property. I warn our software clients that the buyers will spend
the most time in due diligence on this very issue, because this is the value
they are buying.
As a Business Seller, you may think this is
overkill, but the buyers will stand fast on this issue. A business acquisition
is, by its very nature, a risky transaction based on integration with the
buying company, synergies, customer churn, employee defections, etc. They will
do whatever possible to limit their risk from inherited hidden liabilities
and/or misinformation. So as a Seller, focus your energies to negotiating the
best price and terms for your sale and to being totally transparent in the due
diligence process.
