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5.2 REQUEST REPRESENTATIONS & WARRANTIES AND INDEMNITIES
PHASE 5: SALE & PURCHASE AGREEMENT
Request REPRESENTATIONS & WARRANTIES and INDEMNITIES
As stated above, the purchaser will conduct DUE DILIGENCE on the target to learn as much as possible before executing the SPA.
However, as the purchaser will not be in a position to obtain exhaustive information before CLOSING, the purchaser will seek protection by negotiating appropriate contractual provisions in the form of REPRESENTATIONS & WARRANTIES and INDEMNITIES. Without them, the purchaser will often have no recourse against the seller in case issues related to the target are found out post- CLOSING.
REPRESENTATIONS & WARRANTIES and INDEMNITIES shall be:
➜ consistent with the DUE DILIGENCE findings;
➜ drafted, negotiated and reviewed by SONEPAR’s legal, compliance, financial and tax advisors.
If REPRESENTATIONS & WARRANTIES are breached, the purchaser will be able to claim damages for breach of contract pursuant to the terms and conditions set forth in the SPA. The purchaser’s right to claim indemnification will usually be limited by contractual provisions such as caps, thresholds time limits and disclosures made by the seller (in particular, refer to “DISCLOSURE LETTER” section in Appendix 14).
In case of INDEMNITIES, the seller agrees to pay directly for the loss or expense incurred (euro for euro) and disclosures made by the seller usually do not limit the purchaser’s right to indemnification.
5.3 CONSIDER OTHER FINANCIAL GUARANTEES
As comfort that the seller will fulfill its contractual obligations (including without limitation under the REPRESENTATIONS & WARRANTIES and INDEMNITIES section), the purchaser may request that the seller provide certain financial guarantees under the SPA. These guarantees are valid for a specific period of time and limited to an agreed sum.
The most common types of guarantee encountered are:
➜ ESCROW accounts or RETENTION FUNDS: The purchaser will place part of the purchase price on an ESCROW account where the funds will be blocked during an agreed period sufficient to cover potential claims based on REPRESENTATIONS & WARRANTIES;
➜ M&A Insurance: Depending on the transaction’s context and the outcome of DUE DILIGENCE, it may be considered to subscribe a M&A insurance that will cover SONEPAR in case of breach of the REPRESENTATIONS & WARRANTIES set forth in the SPA.
Requests for such type of insurance must be referred to the GROUP VP Risks and Insurance before the start of the DUE DILIGENCE.
➜ Bank guarantee: The bank will undertake that any loss from the transaction be compensated. If the seller does not satisfy the claim, it will be borne by the bank, instead of the seller.
5.4 REQUEST JOINT & SEVERAL LIABILITY OF SELLERS
Where there is more than one seller, the purchaser will usually want the sellers’ obligations under the SPA to be joint and several. It means that if the purchaser has a claim under REPRESENTATIONS &
WARRANTIES or INDEMNITIES, it will be able to claim against all or any of the sellers and therefore select the seller who is in the best position to settle the claim.
32 SONEPAR - ACQUISITION MANUAL - 2021 - FOR INTERNAL USE ONLY
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