Indemnification Clauses in Private M&A Agreements

by Practical Law Corporate & Securities

A Practice Note discussing the role and structure of indemnification clauses in private merger and acquisition (M&A) agreements. This Practice Note examines how these heavily negotiated provisions allocate post-closing risk between buyers and sellers. It explores the main components of a typical indemnification clause, including survival periods for representations and warranties, the scope of indemnifiable losses, and procedures for handling third-party claims. The guidance also addresses common limitations on liability, such as baskets, caps, and materiality scrapes, and the impact of representation and warranty insurance (R&W insurance) on indemnification provisions. Furthermore, this Practice Note delves into key enforcement issues, such as the effect of sandbagging provisions and non-compliance with notice provisions, and the challenges of binding non-signatory stockholders, with a focus on notable Delaware case law.