R&Ws

Question 1

Where does fraud carveout go?

Answer 1

If you have indemnity, just put it as an exception to exclusive remedies. If not indemnity, can put it in exclusivity of R&Ws.

Question 2

How to limit fraud (buyer and seller should agree on this)?

Answer 2

Limit it to the four corners of contract

Question 3

Components of Organization and Authority of seller and company?

Answer 3

1. duly organized, validly existing and in good standing
2. requisite authority to own, operate and carry on business
3. authorized to enter into Agreement and Trans docs and consummate transactions contemplated thereby and, assuming due authorization of buyer, constitute legal obligation of seller (and, if applicable, company)

Question 4

Exceptions to Org and Authority?

Answer 4

laws affecting creditors’ rights and principles of equity/enforceability

Question 5

Authorization R&Ws consist of?

Answer 5

All actions to authorize and permit execution, delivery and performance of agreement and other Trans Docs have been duly and validly taken. Assuming due execution by other parties, these docs constitute valid, binding obligations of seller/company.

Question 6

Components of capitalization R&Ws?

Answer 6

1. Schedule of authorized and issued and outstanding shares and list of record holders.
2. All issued and oustanding shares duly authorized, validly issued, fully paid and non-assessable
3. Post-closing, Buyer owns them free and clear of Liens other than restrictions under securities law.
4. Except for shares sold to buyer, there are no issued, reserved for issuance or outstanding equity securities or stuff convertible into equity.
5. No obligation to repurchase, redeem or retire for value; no obligation to pay any dividends or distributions of any kind
6. No benefit plans other than what you showed us

Question 7

Components of subsidiaries / investments?

Answer 7

1. Schedule of subs, entity type, authorized equity; there is no authorized equity or rights to equity other than as set forth on schedule
2. Except for Company Subs, Company doesn’t own other equity in anyone
3. Each sub duly org, validly existing and good standing; has requisite org power and auth to operate, lease, license its properties and carry on business and consummate transactions contemplated by Trans Docs
4. All equity of Company Subs is duly authorized, validly issued, fully paid, non-assessable; free and clear of liens other than sec. law
5. No obligation to pay any dividends or distributions of any kind

Question 8

Components of no conflicts rep?

Answer 8

1. Execution and consummation won’t conflict w/ or violate org docs or, subject to receipt of scheduled approvals, Law applicable to or binding Company, Subs and property/assets
2. (a) Require consent / approval, (b) result in breach or loss of benefit under, (c) constitute CoC or default (w/ or w/o notice or lapse of time or both) under or (d) give others right of termination / acceleration or cancellation of any right or obligation under any Mat. K or Permit
3. Result in any Lien or
4. Cause Company or its Subs to become liable for any Tax
5. No govt. approval required to execute or consummate Trans Docs’ transactions

Question 9

Components of F/S R&Ws

Answer 9

1. Schedule of unaudited F/S and last 3 audits
2. Each of the F/S (a) prepared consistent w/ books and records, (b) prepared in accordance w/ GAAP consistently throughout periods covered by F/S and (c) fairly presents in all material respects financial condition, results of ops, SHs’ equity and cash flow, but in the case of unaudited F/S, subject to normal, recurring year-end adjustments and the absence of notes (none of which would be material)
3. Buyer has gotten copies of all letters from auditors to BoD or audit committee during the X months pre-signing and all responses thereto

Question 10

Additional “backstops” of F/S R&Ws?

Answer 10

1. Internal controls
2. Accounts Receivable –> notes and accounts receivable in latest B/S represent bona fide oblations arising from ordinary course sales and, to the knowledge of seller, are fully collectible in ordinary course
3. Inventory –> inventory on latest B/S determined in accordance w/ normal valuation policy of Company consistently applied and in accordance w/ GAAP. Inventories consist of items of quality and quantity commercially usable and salable in ordinary course and fit for purpose for which they were made/procured and none of which are obsolete, damaged or defective (except those written down to realizable market value or which adequate reserves made)

Question 11

Components of no undisclosed liabilities R&Ws

Answer 11

No liabilities (and no basis for any Action w/r/t a liability) other than those 1. reflected in latest B/S, 2. incurred in connection w/ this agreement and 3. of the type reflected in latest B/S and that have since arisen in ordinary course (none of which relate to breach of contract or warranty, tort, infringement, violation of or liability under any Law or any Action, none of which are material and all of which will be included in calculation of closing WC.
Neither Company or Subs maintain "off-balance sheet" arrangement as defined in Reg S-K.

Question 12

What does seller want to use to qualify no undisclosed liabilities R&Ws?

Answer 12

Neither the Company nor any Company Subsidiary has any Liability of the nature required to be disclosed in a balance sheet prepared in accordance with GAAP and there is no basis…

Question 13

Components of absence of developments R&Ws?

Answer 13

Since the B/S date, company has conducted business in OCB and (1) no event has occurred that that would have an MAE and (2) no event has occurred that [LONG LIST / X-REF TO INTERIM OPERATING COVENANTS]

Question 14

List of stuff that hasn’t happened since BS date in absence of changes RWs?

Answer 14

1. No MAE
2. No disposition outside OCB in excess of $X
3. No acquisition above $X
4. No Liens other than Permitted Liens
5. Failing to make CapEx per budget
6. No incurring debt except in OCB and under existing credit agreement
7. Enter, amend, extend, renew or terminate Material K
8. Issue, sell, encumber or transfer eq sec or convertible sec of Comp or Subs
9. Declared or distributed dividend
10. Reclassify, combine, split, redeem, purchase equity
11. Waive, release or settlement material rights or claims
12. Suffer theft, damage or casualty loss over $X
13. Hired/promoted people ($ thresh), increased comp, granted CoC or retention or severance bonuses/payment, adopted or amended benefit plans or CBAs
14. made loans or advances in excess of $X
15. forgive loans to D&Os or affiliates
16. Change accounting except as required by law or GAAP
17. accelerate or delay receivables or payables or change cash mgmt policies or delay repair/maintenance
18. write up or down book value of assets over $X
19. change tax elections and other tax stuff
20. amend org docs of comp. or subs.
21. agree to do any of the foregoing

Question 15

Components of Title to Assets RWs?

Answer 15

Co and Subs have good and marketable title to all properties and assets used by them, located on their premises or shown on latest B/S or after acquired, free and clear of liens other than permitted liens. Good operating condition (normal wear and tear excepted) and fit in all mat respects for use in OCB. Owned and leased assets/properties constitute all the rights, properties and assets necessary to conduct the bus at currently conducted in all mat respects.