MAC Clauses and Indemnification Provisions in M&A Deals: Recent Trends in Negotiating and Drafting

Outline

1. MAE clauses
   1. Overview of the concept of a "material adverse effect"
   2. Provisions where the concept appears
      1. Absence of interim changes representation
      2. Qualifying certain representations
      3. Free-standing "No MAE" closing condition
      4. Bringdown of other representations to an MAE
   3. The MAE definition
      1. The base definition
         1. Underlying predicate events
         2. Expectation and aggregation language
         3. Uncapitalized "material adverse effect"
         4. MAE objects
      2. Exceptions
         1. Systematic risks
         2. Indicator risks
         3. Agreement risks
      3. Disproportionality exclusions
   4. Misunderstandings, mistakes, and pitfalls
      1. Events and effects
      2. Breadth of excepted events
      3. The known risk fallacy
      4. The control group in the disproportionality exclusion
   5. MAEs in contractual provisions reconsidered
      1. Absence of interim changes representation
      2. Qualifying certain representations
      3. Free-standing "No MAE" closing condition
      4. Bringdown of other representations to an MAE
2. Negotiating indemnification provisions in private company M&A transactions
   1. "Sandbagging"
   2. Survival periods
      1. General survival periods
      2. Exceptions to general survival periods
   3. Scope of indemnifiable damages
      1. Importance of "loss" definition
   4. Indemnification deductibles ("baskets")
      1. Mini-baskets
      2. Tipping basket vs. true deductible
      3. Basket carve-outs
      4. Baskets as percentage of transaction value
   5. Materiality scrapes
   6. Indemnification caps
      1. Caps as a percentage of transaction value
      2. Exceptions to caps
         1. Importance of fraud definition
   7. Third-party indemnification claims
      1. Control of defense
      2. Exceptions to indemnitor's control of defense
   8. Indemnification as exclusive remedy
   9. Indemnification escrows
      1. Escrows as a percentage of transaction value
   10. Reductions against buyer's indemnification claims
       1. Reduction for tax benefits
       2. Reduction for insurance proceeds
       3. Duty to mitigate
   11. Representations and warranties insurance
       1. When appropriate
       2. Underwriting process
       3. Effect on indemnification

Benefits

The panel will review these and other key issues:

• How has recent deal litigation impacted the negotiation of MAE clauses?
• How can counsel for buyers and sellers best mitigate risk when drafting and negotiating MAC clauses?
• What are the current trends to consider when drafting and negotiating indemnification provisions?
• How has representation and warranty insurance affected indemnification provisions?