The ”Representations and Warranties” section of the Acquisition Agreement contains an important section relating to Seller`s contracts and, in particular, Seller`s ”material” contracts as defined in the Agreement. In general, these contracts have been made available to the buyer and his lawyer in an online ”data room” before the signing of the purchase contract, but notwithstanding this, the buyer will generally insist that this section of the contract is complete and protective for the buyer. See 20 key due diligence activities in a mergers and acquisitions transaction. This section generally requires a list or description of all of Seller`s material contracts in the Disclosure Directory, which often includes the following: Seller`s representations and warranties with respect to its intellectual property (”IP”) are among the most important representations and warranties in the Takeover Agreement. The Buyer wishes to ensure that the Seller is the sole and exclusive owner of any intellectual property object that is allegedly its property of it, and that such intellectual property is not subject to any charge or restriction that excessively limits the Seller`s ability to use such intellectual property (or reduces the value of such intellectual property in the hands of the Buyer), or grant to third parties rights in such intellectual property (currently or as a result of the merger and acquisition) that are inappropriate or significantly alter its value. Buyer will also want to know that Seller has the appropriate right, through a license (exclusive or otherwise) or other contractual agreement, to use any third party intellectual property that is essential to Seller`s business. Finally, buyer wishes to know whether Seller is subject to ongoing or threatened legal action that challenges its intellectual property or exposes Seller to significant damage or loss of its intellectual property, including, in particular, claims or litigation for patent infringement, as explained in more detail below. To protect a party from false or incomplete disclosures and statements, an indemnification obligation will be included. Buyer will attempt to protect against future liabilities arising from Seller`s actions or dependencies prior to closing by contractually obliging Seller to indemnify Buyer for damages. The seller will negotiate to limit the duration and amount of his indemnification obligation.

The entire indemnification obligation is generally limited to the amount of the purchase price and limited in time (e.B. not more than 36 months from completion). Compensation obligations are also negotiated to be triggered only when a certain monetary value has been reached. These ”baskets” or ”deductibles” are similar to how a health insurance deductible works. The amount varies depending on the size of the transaction (usually $25,000 to $250,000). It should be noted that indemnification obligations related to fundamental representatives are generally not subject to any upper limit or time limit. Another agreement could be a non-compete obligation where the seller promises not to participate in a competing business for a number of years after closing. Lawyer Angelo Noce has negotiated numerous purchase agreements with Blakes, a leading Canadian law firm, during his 20-year career. It explains the different sections of a typical agreement and highlights common pitfalls to watch out for when negotiating these agreements, which can range from 40 to 100 pages. ”Due diligence is not a place to cut corners,” says Noce, a Blakes partner who works in the company`s Montreal-based M&A group. ”Once you`ve done your due diligence, you have the tools to make decisions when it comes to negotiating the purchase agreement.” It is important to note that the seller of a business is not eternally responsible for misrepresentations and his liability is usually limited to a certain percentage of the purchase price.

Market standards for compensation have changed significantly in Canada in recent years, so it is doubly important that buyers and sellers be guided by advisors who are up to date on these standards. The takeover agreement should specify how and where disputes are to be resolved. Although the majority of purchase contracts are not subject to the court system, many buyers and sellers, especially those who have already gone through dispute resolution procedures, often prefer to resort to an exclusive confidential binding arbitration clause, such as.B. under the JAMS Commercial Arbitration Rules in effect at the beginning of the arbitration, before an arbitrator selected by JAMS appears before an arbitrator selected by JAMS. For transactions involving international parties, international arbitration firms (such as the International Chamber of Commerce) should be considered for this purpose. The agreement to acquire a private technology company will also include a number of covenants that apply between signing and closing, except in the rare cases where a transaction can be entered into immediately after signing. Some of them are affirmative in nature (the seller is required to take the identified measures), but most of them are of a negative nature (prohibitions on certain actions, even if they would normally have taken place in the ordinary course of the seller`s business). Seller wishes such negative agreements to be limited and reasonable, with the possibility of departing from the prohibition with buyer`s consent, where flexibility is required, such consent not being unreasonably refused, delayed or conditional. Here are some of the most common pre-closing covenants: The scope of the risk of infringement of representations and warranties related to intellectual property infringement may also be limited by the inclusion of protective language in the indemnification provisions of the acquisition agreement, including thresholds/deductibles, the right to control defense, and the settlement of third-party claims, and limiting the recovery of claims for infringement of intellectual property rights on the part of the purchase price that is in an escrow account or less (see point 14 below).

For the buyer, the seller`s representations in relation to its financial statements are crucial. Buyer assumes that the Purchase Agreement contains at least the following representations and warranties with respect to Seller`s financial statements: The primary purpose of many of the representations, warranties, liabilities and closing conditions of an Acquisition Agreement is to clarify the question of which party the risk should be assigned in the event of a problem. Often, a buyer may attempt to extend the period after closing during which it may make claims related to violations of such intellectual property representations and warranties (beyond the ”survival time” that applies to other representations and warranties) and may attempt to negotiate a remedy for infringement of intellectual property representations and warranties beyond the standard escrow/hold service, that applies to other eligible matters. When acquiring a technology company, the buyer may take the position that ”essentially everything he buys is intellectual property” and is therefore entitled to this broader protection. .