Sample Representations And Warranties
Created by FindLaw's team of legal writers and editors | Last reviewed February 16, 2018
Regardless of how the transaction is structured, one of the most important parts of the written agreement are the "representations and warranties." Representations are statements about the current status of the business or its operations. Warranties go further than representations about current status because they guarantee the truth of the statements.
Breached representations and warranties are the most common cause of litigation in acquisitions. You should be very careful in determining the breadth and scope of the representations and warranties you are willing to make. Following is a general list of common representations and warranties that an acquirer (the Acquirer) will normally request a company it intends to acquire (the Company) to make in the agreement (the Agreement).
1. Organization. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of ________, has corporate power to carry on its business as it is now being conducted, and is qualified to do business in every jurisdiction in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification or in which failure to so qualify would have a material adverse impact on it. No proceeding is pending, or to the knowledge of the Company, threatened, involving the Company, in which it is alleged that the nature of its business makes qualification necessary in any additional jurisdiction.
2. Authority. The Company has the full right, power, and authority to enter into this Agreement and each agreement, document, and instrument to be executed and delivered by the Company pursuant to this Agreement and to carry out the transactions contemplated hereby and thereby. No waiver or consent of any person is required in connection with the execution, delivery, and performance by the Company of this Agreement and each agreement, document, and instrument to be executed and delivered by the Company pursuant to this Agreement.
3. Capitalization. The Company's authorized capital stock consists solely of ________ shares of common stock, of which ________ shares are issued and outstanding, and ________ authorized shares of preferred stock, of which ________ shares are issued and outstanding. All shares of Company stock are owned of record and beneficially by the shareholders in the amounts set forth in the [attached schedule]. There are no outstanding dividends, whether current or accumulated, due or payable on any of the capital stock of the Company. The stock to be issued to the Acquirer is, and when delivered pursuant to this Agreement will be, (i) duly authorized, validly issued, and outstanding; (ii) fully paid, non-assessable, and free of preemptive rights; and (iii) free and clear of any and all pledges, claims, restrictions, charges, liens, security interests, encumbrances, or other interests of third parties of any nature whatsoever. As of the date hereof, there are no outstanding options, warrants, rights, commitments, or agreements of any kind for the issuance or sale of, or outstanding securities convertible into, any additional shares of capital stock of any class of the Company, and there are no voting trusts, voting agreements, proxies, or other agreements, instruments, or undertakings with respect to the voting of any Company stock to which the Company or any of its shareholders is a party.
4. Financial Statements. The Company's financial statements fairly present the financial condition of the Company at the dates of said statements and the results of its operations for the periods covered thereby and will be prepared in accordance with generally accepted accounting principles and practices consistently applied and consistent with the books and records of the Company.
5. Title to Properties; Liens; Condition of Properties.
(a) The [attached schedule of leases] contains a copy of and an accurate and complete list of all of the Company's leasehold interests in real and material personal property and, if applicable, all liens, mortgages, or other encumbrances upon each leasehold interest. All leases to which the Company is a party are currently in full force and effect, and no party thereto is in default.
(b) The Company owns the equipment, furniture, fixtures, improvements, and personal property set forth on [attached schedule of assets]. The Company has good title to all of such assets and none of the assets of the Company are subject to any mortgage, pledge, lien, conditional sales agreement, security interest, encumbrance, or other charge except as specifically reflected in the [attached schedule of assets].
(c) All equipment owned or leased by the Company is in good repair and in working order, except for ordinary wear and tear.
(a) Returns and Payments. The Company has filed all tax returns required to have been filed. All such tax returns were correct and complete in all material respects. All taxes owed by the Company (whether or not shown on any tax return) have been paid or provided for in the Company's financial statements. The Company currently is not the beneficiary of any extension of time within which to file any tax return. To the Company's knowledge, no claim has ever been made by an authority in a jurisdiction where the Company does not file tax returns that it is or may be subject to taxation by that jurisdiction. There are no actual, pending or, to the Company's knowledge, threatened liens, encumbrances, or charges against any of the assets of the Company arising in connection with any failure (or alleged failure) to pay any tax.
(b) Withholding Taxes. The Company has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party.
(c) Tax Liabilities. To the Company's knowledge, there is no dispute or claim concerning any tax liability of the Company either claimed or raised by any authority in writing.
(d) Statute of Limitations. The Company has not waived any statute of limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment or deficiency.
7. Absence of Undisclosed Liabilities. To the knowledge of the Company, as of the dates of the Company's financial statements, the Company had no liabilities, either accrued or contingent, of a nature required to be reflected in the financial statements in accordance with generally accepted accounting principles, and whether due or to become due, which individually or in the aggregate are reasonably likely to have a material adverse effect on the Company.
8. Accounts Receivable. A complete and accurate listing of all accounts receivable of the Company as of [date] accurately reflecting the aging thereof is attached hereto as the [schedule of accounts receivable].
9. Accounts Payable. A complete and accurate listing of all accounts payable of the Company as of [date] is attached hereto as the [schedule of accounts payable].
10. Inventories. All of the Company's inventories, materials, and supplies consist of items of quality and quantity, in good condition and usable or salable in the ordinary course of business. The values of the inventories stated in the financial statements reflect the Company's normal inventory valuation policies and were determined in accordance with generally accepted accounting principles, practices, and methods consistently applied.
11. Absence of Certain Changes. Since [date], there has not been:
(a) any operation of the Company out of the ordinary course of business or any change in the financial condition, properties, assets, liabilities, business, prospects or operations of the Company which change, by itself or in conjunction with all other such changes, has been or is likely to be materially adverse with respect to the Company;
(b) any purchase, sale, license, or other disposition, or any agreement or other arrangement for the purchase, sale, license, or other disposition, of any part of the Company's properties or assets (including any patents, trademarks and copyrights) other than purchases for and sales from inventory in the ordinary course of business;
(c) any damage, destruction, or loss, whether or not covered by insurance, to the Company's properties, assets or business in excess of $________ per single occurrence;
(d) any change with respect to the Company's officers, management, or supervisory personnel other than in the ordinary course of business;
(e) any payment or discharge of a lien or liability of the Company which has been paid or incurred other than in the ordinary course of business;
(f) any obligation or liability incurred by the Company to any bank, to any officer, director, or employee of the Company, other than in the ordinary course of business; or any loans or advances made by the Company to any officer, director, employee, or stockholder of the Company, except for normal compensation and expense allowances payable to such persons;
(g) any change in the accounting methods or practices followed by the Company or any change in depreciation or amortization policies or rates heretofore adopted;
(h) any material change in the manner in which inventory of the Company is marketed or any increase in inventory levels in excess of historical levels for comparable period;
(i) any issuance of any evidence of indebtedness or creation, incurring, assumption, or guaranteeing of any indebtedness for borrowed money or capital lease obligations involving in excess of $________ singly or $________ in the aggregate;
(j) any delay or postponement of payment of any accounts payable or other liabilities outside the ordinary course of business, except for managing accounts payable;
(k) any declaration, setting aside or payment of any dividend or distribution with respect to its capital stock, or redemption, purchase, or other acquisition of its capital stock;
(l) any change in the employment terms or employment-related benefits for any independent sales representative or employee outside the ordinary course of business; or
(m) any agreement or understanding, whether in writing or otherwise, for the Company to take any of the actions specified in paragraphs (a) through (l) above.
12. Intellectual Property.
(a) All domestic and foreign patents, patent applications, copyrighted works, copyright applications, and registrations, trade names, trademarks and service marks, registered trademarks, and trademark applications, registered service marks and service mark applications which are used by, owned by or licensed to the Company (collectively, the "Intellectual Property") are listed in the [attached schedule of intellectual property], which schedule indicates, with respect to each, the nature of the Company's interest therein and the expiration date thereof or the date on which the Company's interest therein terminates.
(b) To the knowledge of the Company, (i) use of the Intellectual Property and any other intellectual property used by the Company does not require the consent of any other person and the same is freely transferable (except as otherwise provided by law or pursuant to the applicable license or use agreement); (ii) the Intellectual Property is owned exclusively by the Company, free and clear of any attachments, liens, encumbrances, or adverse claims; and (iii) neither the Company's present or contemplated activities, products, or services infringe, misappropriate, dilute, impair, or constitute unfair competition with respect to any patent, trade name, trademark, copyright, or other proprietary rights of others.
(c) To the knowledge of the Company, no other person has an interest in or right or license to use, or the right to license others under, the Intellectual Property. To the knowledge of the Company, there is no infringement of any of the Intellectual Property by others, nor is any of the Intellectual Property subject to any outstanding order, decree, judgment, stipulation, settlement, lien, charge, encumbrance, or attachment. No claim or demand has been made and no proceeding has been filed or, to the knowledge of the Company, is threatened to be filed charging the Company with infringement of any patent, trade name, trademark, service mark, or copyright. To the knowledge of the Company, there are no royalties, fees, or other payments payable by or on behalf of the Company to any person with respect to any of the Intellectual Property.
13. Trade Secrets and Customer Lists. The Company owns or has the right to use, free and clear of any claims or rights of others, all trade secrets, inventions, developments, customer lists, software, and other information and know-how (if any) used in its business. To the knowledge of the Company, the Company is not making any unlawful use of any confidential information, copyrighted materials, know-how, or trade secrets of any third party, including, without limitation, any former employer of any present or past employee of the Company.
14. Material Contracts. Except for contracts, commitments, plans, agreements and licenses listed in the [attached schedule of contracts and commitments], the Company is not a party to or bound by any written or oral contract which calls for any of the following: (a) delivery of any goods or services at a cumulative value in excess of $________ per year, or which obligates the contracting party for a fixed term; (b) loans, credit, financing agreements, promissory notes, or other evidences of indebtedness (including all agreements for any commitments for future loans, credit or financing), or any other material contract, commitment, or arrangements of any kind; or (c) any guaranty.
15. Litigation. There are no lawsuits, actions or administrative, arbitration or other proceedings or governmental investigations pending or threatened against or relating to the Company or the Company's properties or business. The Company has not entered into or been subject to any consent decree, compliance order, or administrative order with respect to any property owned, operated, leased, or used by the Company. The Company has not received any request for information, notice, demand letter, administrative inquiry, or formal or informal complaint or claim with respect to any property owned, operated, leased, or used by the Company or any facilities or operations thereon. The Company has not been named by the U. S. Environmental Protection Agency or a state environmental agency as a potentially responsible party (or similar designation under applicable state law) in connection with any site at which hazardous substances, hazardous materials, toxic substances, oil, or petroleum products have been released or are threatened to be released. There are no existing or, to the knowledge of the Company, threatened product liability, warranty, or other similar claims, or any facts upon which a claim of such nature could be based, against the Company for services or products which are defective or fail to meet any service or product warranties which could reasonably be expected to have a material adverse effect on the Company.
16. Compliance with Laws. The Company is not in material violation of any laws, rules, or regulations which apply to the conduct of its business or any facilities or property owned, leased, operated, or used by the Company. There has never been any citation, fine, or penalty imposed, asserted, or threatened against the Company under any foreign, federal, state, local, or other law or regulation relating to employment, immigration, occupational safety, zoning, or environmental matters and the Company is aware of no current circumstances likely to result in the imposition or assertion of such a citation, fine, or penalty.
17. Insurance. The physical properties and assets of the Company are insured to the extent disclosed in the [attached schedule of insurance]. All such present policies of insurance are, and will be on the closing, in full force and effect. The Company is not in default in the payment of any premiums with respect thereto, and the Company is in compliance with the terms thereof. The workers' compensation insurance of the Company complies with applicable statutory requirements as to the amount of such coverage.
18. Warranties and Products. The Company has not sold, or received written notice of, any product or group of products, service or type of services which are defective or nonconforming to the warranties, contractual requirements or covenants expressly made with respect to them by the Company to its customers which have not been repaired, replaced, or corrected prior to the date of this Agreement.
19. Product Liability Claims. To the Company's knowledge, the Company is not on the date of this Agreement subject to any known asserted claims for liability on account of products sold or services rendered on or prior to such date, which are not fully covered, including all costs of defense and investigation related to such claims, by its or its vendors' general liability insurance policies.
20. Finders' Fees. The Company has not incurred nor will incur or become liable for any broker's commission or finder's fee relating to or in connection with the transactions contemplated by this Agreement, except as described on the [attached schedule].
21. Employee Benefit Plans.
(a) All employee benefit plans, as that term is defined in Section 3(3) of ERISA, and fringe benefit plans, as that term is defined in Section 6039D(d) of the Internal Revenue Code, which now are or ever have been maintained by the Company or to which the Company now has or has ever had an obligation to contribute (the "Employee Benefit Plans") are listed on the [attached schedule of employee benefit plans]. No event has occurred nor has there been any omission which would result in violation of any laws, rulings, or regulations applicable to any employee benefit plan. There are no claims pending or, to the knowledge of the Company, threatened with respect to any employee benefit plan, other than claims for benefits by employees, beneficiaries, or dependents arising in the normal course of the operation of any such plan.
(b) Each Employee Benefit Plan that is intended to be qualified under Section 401(a) or 401(k) of the Internal Revenue Code is identified as a "Qualified Plan" on the schedule of employee benefit plans and has in fact been so qualified from the effective date of its establishment and continues to be so qualified. No event or omission has occurred which would cause any such plan to lose its qualification under Section 401(a) or 401(k) of the Internal Revenue Code, or which would cause the Company to incur liability for any excise tax under the Internal Revenue Code with respect to the maintenance, operation, or any other aspect of any such Qualified Plan.
(c) With respect to each "group health plan" (as defined in Section 607(1) of ERISA) that has been maintained by the Company, all notices required pursuant to Section 606 of ERISA have been provided on a timely basis and each such plan has otherwise complied in all material respects with the requirements of Sections 606 through 608 of ERISA.
(d) With respect to each Employee Benefit Plan (as that term is defined in Section 3(3) of ERISA) maintained by the Company within the three years preceding the Closing, complete and correct copies of the following documents have been delivered to the Acquirer: (i) all documents embodying or governing such Employee Benefit Plan; (ii) the most recent IRS determination letter with respect to such Employee Benefit Plan; (iii) the three most recently filed IRS Forms 5500, with all applicable schedules attached thereto; (iv) the three most recent actuarial valuation reports completed with respect to such Employee Benefit Plan; (v) the summary plan description for such Employee Benefit Plan; and (vi) any insurance policy related to such Employee Benefit Plan.
22. Labor Relations; Employees. The Company generally enjoys a good employer-employee relationship. Each employee of the Company who is compensated in the aggregate in excess of $________ annually and his or her current rate of compensation is listed, together with a list of any employment agreement, in the [attached schedule of employee compensation]. The Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses, or other direct compensation for any services performed for it to the date hereof or amounts required to be reimbursed to such employees. Upon termination of the employment of any of the Company's employees, the Company will not be liable to any of such employees for "severance pay" or any other payments. To the knowledge of the Company, the Company is in compliance with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment, and wages and hours. To the knowledge of the Company, there are no charges of employment or age discrimination, sexual harassment or unfair labor practices, claims by employees against the Company or strikes, slowdowns, stoppages of work or any other concerted interference with normal operations existing, pending, or threatened against or involving the Company. No question concerning representation exists respecting the employees of the Company. No grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending, and no claim therefor has been asserted. No collective bargaining agreement is in effect or is currently being or is about to be negotiated by the Company.
23. Absence of Questionable Payments. The Company has not used any corporate or other funds for any unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures in any way relating to any political activity, government officials, or others, and neither the Company, or any affiliated entity, nor any director, officer, agent, or employee or other person authorized to act on behalf of the Company, or any affiliated entity, has accepted or received any unlawful contributions, payments, gifts, or expenditures.
24. Minute Book. Copies of the Certificate of Incorporation and Articles of Incorporation of the Company, and all amendments thereto, certified by the Secretary of State of [state of incorporation], and of its Bylaws, certified by the Company's Secretary, will be delivered to the Acquirer at least fifteen (15) business days prior to closing. The minute book of the Company is and shall be complete and correctly reflect in all material respects, all corporate actions of the Company taken at all meetings and through written actions and correctly record all resolutions of the Company.
Questions About Representations and Warranties? Contact an Attorney
There's more to selling a business than just exchanging money for the business. It's advisable to seek out the help of an experienced contracts lawyer to review the terms of any proposed agreements to see whether they are advisable in your situation.
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