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Practitioner's Complete Guide to M&As: An All-Inclusive Reference, with Website by David T. Emott

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Topic 93

Indemnification and Survival Provisions

Topic 93 explores the provisions associated with sellers’ indemnifications as stated in the purchase and sale agreement (PSA) with regard to sellers’ representations, warranties, and covenants. This topic also provides guidance of what to expect in the establishment of indemnification provisions.

INTRODUCTION

  • Sellers represent many things to be true during the due diligence, selling, and negotiation process to compel buyer interest.
  • Buyers look to sellers to present those representations and others in the PSAs and look for protection by sellers in the form of indemnity provisions, should the buyer be impaired because the representations and warranties relied on prove to be untrue or sellers fail to abide by the covenants and undertakings in the PSA.
  • The indemnity provisions provide for specific damages, depending on the seller breach. These damages generally are preferable to settlements under legal suits brought in court.
  • The negotiations concerning the terms of indemnification provisions often seem complex and confusing to the business participants involved in negotiating the terms.

INDEMNITY PROVISIONS, CAPS, BASKETS, DURATIONS

  • Indemnity provisions are concerned with:
    • Indemnified issues. These issues may include product liability, environmental, taxes, receivables, returns and allowances, nonassumed obligations, intellectual property (IP), and so forth.
    • Caps. Caps determine the maximum (aggregate or nonaggregate) amount of ...

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