September Edition 2020

53 Increased Enforcement – Given the significant impact of COVID-19 on federal, state and local government budgets, we expect to see increased enforcement in various areas by government agencies (e.g., anti-price gouging enforcement by the Federal Trade Commission, and enforcement in connection with Paycheck Protection Program loans by the Small Business Administration). The parties should carefully analyze the target’s compliance with all material applicable laws and regulations and evaluate potential risks arising out of past or future noncompliance through the lens that regulatory compliance could face increased scrutiny moving forward. Indemnification – In a distressed transaction, it may be more difficult to fully recover under indemnification provisions, given that a distressed seller may not have the ability or resources to cover its indemnification obligations post- closing. The parties should consider using an escrow to set aside sufficient cash to cover potential indemnification claims or requiring a financial sponsor or parent entity to provide a guaranty. Representations and Warranties Insurance – Representations and warranties insurance coverage is likely to be limited in scope, as insurance carriers will seek broad carveouts and exclusions from policies for losses arising out of or incurred in connection with the pandemic, as it has become a heightened risk area. The parties should endeavor to negotiate very specific carveouts or exclusions that would make a representations and warranties insurance policy more attractive. CARES Act Liabilities – If the target received assistance in connection with the Paycheck Protection Program or Main Street Lending Program under the CARES Act, the parties should confirm that the proposed transaction does not interfere with eligibility to receive such loans, evaluate potential tax implications and determine whether such loans are forgivable. Other Loans or Debt-Like Items – It will be important to evaluate whether the target has incurred any other loans or debt-like obligations (e.g., delays in paying accounts payable), and understand how these amounts will be treated in the context of a proposed transaction. Companies that were seeking to preserve cash may not have paid their vendors as bills became due, which could become a future liability. 3. Purchase Price