1. Rep and Warranty Products
\nUsed very heavily in the Private Equity Market. Approx. 70 % of PE firms use them.
\nSeller R&W policies are generally used for deal terms. Survival of rep and Warranties,
\nescrow, limit of liability provided. These are quite often used by seller\u2019s attorneys and M&A
\nconsulting firms looking to structure the best terms for their clients. Often converted to a buy
\nside for the seller’s fraud.
\nBuyers buy this policy for insurance on the Reps and Warranties made in the purchase
\nand sale agreement. Buy side coverage would cover seller\u2019s fraud where the sell side will not.
\nThings typically Represented are as follows
\n1. Is the seller authorized to sell the company
\n2. We have no environmental known losses or potential
\n3. There have been no products liability losses in the last 5 years
\n4. We are in environmentally in compliance
\n5. Our health care is being offered in compliance by state
\n6. No known strikes pending
\n7. There are no other liabilities than those shown on the financial statement or those in
\nthe ordinary course since the financial statement.
\n8. There are no discontinued products liability issues
\n9. We have not sold anything where we kept the pre closing liability
\n10. We are in compliance with emissions either air, ground or water.
\n11. These are the known toxins and here is how they are managed
\nKnown is a big part of this. There is known and should have known. Initially it was just
\nknown now it usually says should have known. An example would be if Company A wanted to
\nbuy Company B, and after the purchase is complete Company A discovers that the products
\nbeing manufactured by Company B were poisonous. Company B\u2019s CEO had no knowledge of
\ntheir poisonous product when he signed the purchase and sale agreement. But Company B
\nshould have known of its existence. The Reps & Warranty insurance would protect Company A
\nfrom that exposure, if they warranted no known defects in the products.
\n2.Tax Opinion
\nIs used where there may be some difference in opinion on how the IRS will decide on a
\nparticular issue. This is usually resolved with an opinion from a reputable law firm. The example
\nI will use drives the point home but was not placed. We were approached by a PEO that worked
\nwith actors and actresses.
\nWhat makes this unique is the frequent change of jobs. Every time an employee started
\na new job the employer withheld as if this was a new employee. At the end of the year the
\nwithholding was well in excess of the maximum withholding. The PEO was considering that
\nincome and wanted to insure that practice. It was a common industry practice. But because it\u2019s
\nunethical and unlawful the legal professionals would not sign off on it.
\n2. Loss Mitigation
\nIs an insurance product used to take exaggerated suits off the books or reduce them
\ndrastically? Let\u2019s say you wanted to sell Company A. Someone sued you for $100mill. A
\ncompany such as AIG might say we can settle that for $30 Mill and charge you $50Mill. That
\nmakes your liability a reduced liability and AIG can potentially make potentially $20Mill.<\/p>\n","protected":false},"excerpt":{"rendered":"
1. Rep and Warranty Products Used very heavily in the Private Equity Market. Approx. 70 % of PE firms use them. Seller R&W policies are generally used for deal terms. Survival of rep and Warranties, escrow, limit of liability provided. These are quite often used by seller\u2019s attorneys and M&A consulting firms looking to structure […]<\/p>\n","protected":false},"author":7,"featured_media":108,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"acf":[],"yoast_head":"\n