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Editor's Note: This is a buyer-friendly mergers and acquisitions “Customers and Suppliers” representation and warranty by which the target represents that none of its major suppliers or customers have been severely impacted by the novel coronavirus Covid-19 pandemic or otherwise. This representation and warranty may be inserted in typical M&A agreements such as merger agreements, stock/share purchase agreements, and asset purchase agreements.
Customers and Suppliers. Except as set forth in Part [X] of the Disclosure Schedule, neither the Company nor its Subsidiaries has received written notice, nor does the Company have any Knowledge, that any Major Customer or Major Supplier (i) intends to cancel, or otherwise [materially and] adversely modify its relationship with the Company or any Subsidiary (whether related to payment, price or otherwise) on account of the transactions contemplated by this Agreement or otherwise, (ii) is delaying deliveries, declaring any force majeure, declaring a default, or (iii) is threatened with bankruptcy or insolvency, or is otherwise unable to purchase goods or services from the Company or any Subsidiary consistent with past custom and practice. The Company further represents and warrants that, except as set forth in Part [X] of the Disclosure Schedule, no Major Customer or Major Supplier (i) is subject to any Government Authority mandated restrictions to its operations related to the novel coronavirus Covid-19 pandemic; (ii) has defaulted under any Contract or relationship with Company [in any material respect]; or (iii) has entered into bankruptcy, involuntary bankruptcy, or receivership proceedings.
Comment: In M&A deals, this representation and warranty is most commonly made by the target company to the acquirer, but it may be made by the target, seller, or acquirer and in some instances mutually by all parties to the agreement. The purpose of this type of representation and warranty is that it provides assurance that the relationships between the company making the representation and its key customers and suppliers are not at risk of any significant adverse changes. In this sample, several additional assurances have been added that specifically relate to the novel coronavirus Covid-19 pandemic, including that no key customers or suppliers have delayed deliveries or declared force majeure or default and that none of their operations have been ordered to close by a government specifically in connection with the pandemic.
⇒ Pro-Acquirer: This sample is buyer-friendly because of the detailed list of assurances that the target making the representation is forced to make. A buyer, especially in a deal taking place in the midst of the pandemic, would want the pandemic-specific assurances included. A buyer will not prefer materiality qualifications in this type of representation, because materiality qualifications limit the scope of the representation.
⇒ Pro-Target: Generally speaking, a target would seek to limit the nature and number of the assurances included in this representation. To the extent that the parties agree to include this type of representation and warranty, a target will seek to limit the scope by including the materiality qualifiers in brackets above.
Example Clause Search: Customers and Suppliers Representation and Warranties in M&A Agreements
Value/Risk Analysis: Customers and suppliers representations and warranties are very common in M&A deals. The addition of factors to the representation aimed at specifically capturing pandemic-related issues, as done in this sample, is key for a transaction taking place during the course of the pandemic because it ensures that the representation captures information that is potentially critical to the valuation of the target. The risk of not including such additional pandemic tailored factors is that the representation will fail to capture recent adverse changes to the customer and supplier relationships of the target that have resulted from the pandemic.
Affected Clauses: Certain defined terms, such as Government Authority, Covid-19 Pandemic, Default, and so forth, may need to be added to the Definitions section of the agreement as a result of the inclusion of this representation and warranty. To the extent there is a Disclosure Schedule or disclosures are otherwise being made in conjunction with representations and warranties, the disclosures may need to be updated with information about past or currently pending events covered under the representation and warranty.