Reps & Warranties: Material Contracts
Essential Question:
What types of contracts do you have?
In Brief:
List the types of contracts you have and the individual material contracts.
Assert whether those contracts are in good standing.
Make sure you’re thoughtful about what really counts as material, or you’ll drive yourself crazy.
Category: Continued Diligence & Fact-Finding
What is it?
The rep will define all of those contracts listed as the “material contracts” and list them on the schedule. Then it will testify to the condition of these contracts. Are they enforceable, are there any breaches, etc.?
When does it matter?
Ultimately, the question is did you really disclose everything? Purchase orders, NDAs, banking agreements, employment agreements… The list ranges from individual categories of contracts and contracts of each type by which the target company is bound.
What to look out for?
As a seller, this is the one area where you might not need to disclose everything. You want to be truthful, but push back from an efficiency standpoint and be thoughtful about what really counts as “material.” Qualifications (time, materiality, and knowledge) will help bridge the divide.
