1. Christopher M. McNeill Indemnification—Real Life Stories from the Trenches

2. What is indemnification?

3. Black’s Law Dictionary defines “indemnify” as: To restore the victim of a loss, in whole or in part, by payment, repair or replacement.

4. What is indemnification? Black’s Law Dictionary defines “indemnify” as: To restore the victim of a loss, in whole or in part, by payment, repair or replacement. To save harmless; to secure against loss or damage; to give security for the reimbursement of a person in case of an anticipated loss falling upon him.

5. What is indemnification? Black’s Law Dictionary defines “indemnify” as: To restore the victim of a loss, in whole or in part, by payment, repair or replacement. To save harmless; to secure against loss or damage; to give security for the reimbursement of a person in case of an anticipated loss failing upon him. To make good; to compensate; to make reimbursement to one of a loss already incurred by him.

6. Where do we encounter indemnification provisions?

7. M&A transactions

8. Where do we encounter indemnification provisions? M&A transactions A variety of other business contracts

9. Buyer Indemnification Rights – All Types of Transactions Breach by the seller of any representation, warranty or covenant

10. Buyer Indemnification Rights – All Types of Transactions Breach or alleged breach by the seller of any representation, warranty or covenant

11. Buyer Indemnification Rights – All Types of Transactions Breach (or breach alleged by a third party) by the seller of any representation, warranty or covenant

12. Buyer Indemnification Rights – All Types of Transactions Breach (or breach alleged by a third party) by the seller of any representation, warranty or covenant Deal-specific concerns

13. Buyer Indemnification Rights – Asset Purchase Transactions All pre-closing liabilities of the seller other than assumed liabilities

14. Buyer Indemnification Rights – Asset Purchase Transactions All pre-closing liabilities of the seller other than assumed liabilities All liabilities relating to excluded assets and excluded liabilities

15. Buyer Indemnification Rights – Stock Purchase/Merger Transactions All liabilities of the target company other than those disclosed in the financial statements

16. Buyer Indemnification Rights – Stock Purchase/Merger Transactions All liabilities of the target company other than those disclosed in the financial statements Dissenting shareholder claims

17. Seller Indemnification Rights Breach (or breach alleged by a third party) by the buyer of any representation, warranty or covenant

18. Seller Indemnification Rights Breach (or breach alleged by a third party) by the buyer of any representation, warranty or covenant Liabilities from the operation of the business post-closing

19. Seller Indemnification Rights Breach (or breach alleged by a third party) by the buyer of any representation, warranty or covenant Liabilities from the operation of the business post-closing Assumed liabilities

20. Recourse for Indemnification Claims Indemnification escrow

21. Recourse for Indemnification Claims Indemnification escrow Multiple indemnitors

22. Recourse for Indemnification Claims Indemnification escrow Multiple indemnitors o Joint and several liability by all seller parties (e.g., selling shareholders) for breaches relating to the target company’s representations, warranties and covenants

23. Recourse for Indemnification Claims Indemnification escrow Multiple indemnitors o Joint and several liability by all seller parties (e.g., selling shareholders) for breaches relating to the target company’s representations, warranties and covenants o Several, and not joint, liability for each seller party’s individual representations, warranties and covenants

24. Recourse for Indemnification Claims Indemnification escrow Multiple indemnitors o Reimbursement and Cooperation Agreement

25. Recourse for Indemnification Claims Indemnification escrow Multiple indemnitors o Reimbursement and Cooperation Agreement o A covenant that the buyer may not sue one joint and several indemnitor without joining all indemnitors to the suit

26. Recourse for Indemnification Claims Indemnification escrow Multiple indemnitors Express offset rights

27. THE SHARES REPRESENTED BY THIS CERTIFICATE … ARE SUBJECT TO OFFSET RIGHTS PURSUANT TO THE TERMS AND PROVISIONS OF AN ASSET PURCHASE AGREEMENT DATED ____________, 2016 IN FAVOR OF [BUYER] (AS SUCH AGREEMENT HAS BEEN OR MAY BE SUPPLEMENTED, MODIFIED OR AMENDED FROM TIME TO TIME, THE “PURCHASE AGREEMENT”). A COPY OF THE PURCHASE AGREEMENT IS AVAILABLE AT THE OFFICES OF [BUYER].

28. Survival of Representations and Warranties Standard or “Non-Fundamental” Representations

29. Survival of Representations and Warranties Fundamental Representations o Organization/Good Standing o Authorization o Conflicts/Third-Party Consents o Title o Capitalization o Taxes o Environmental o Employee benefits/ERISA/Labor o Intellectual Property

30. Baskets and Caps

31. Common Exclusions from Baskets and Caps Fundamental representations Post-closing covenants Fraud, willful misrepresentation or criminal conduct Defense costs against third-party claims Deal-specific concerns

32. Additional Considerations Materiality scrapes

33. For purposes of the parties’ indemnification obligations under this Agreement, all of the representations and warranties set forth in this Agreement or any certificate or schedule that are qualified as to “material,” “materiality,” “material respects,” “Material Adverse Effect” or words of similar import or effect shall be deemed to have been made without any such qualification for purposes of determining (i) whether a breach of any such representation or warranty has occurred and (ii) the amount of Losses resulting from, arising out of or relating to any such breach of representation or warranty.

34. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation

35. The right to indemnification … shall not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representation or warranty of the Seller, or on the performance of or compliance with any covenant or obligation of the Seller, shall not affect the Buyer’s right to indemnification or any other remedy….

36. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages

37. No Indemnified Party shall be entitled to recover from the Indemnifying Party any incidental, consequential, special or punitive damages; provided that any incidental, consequential, special or punitive damages recovered by a third party from an Indemnified Party entitled to indemnification under this Agreement shall be included in the Losses recoverable by such Indemnified Party.

38. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages Control of defense of third-party claims

39. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages Control of defense of third-party claims o Injunctive or equitable relief o Criminal proceedings implicating the buyer or its personnel o Conflict of interest

40. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages Control of defense of third-party claims Settlement of third-party claims

41. o The settlement contains no admissions of wrongdoing by the indemnified party o The settlement provides for a full release of all indemnified parties o The settlement places no covenants or restrictions on the indemnified party’s future activities o The settlement requires no consideration from the indemnified party other than monetary payments to be funded by the indemnifying party

42. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages Control of defense of third-party claims Settlement of third-party claims Duty to mitigate

43. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages Control of defense of third-party claims Settlement of third-party claims Duty to mitigate Indemnified claims offset by tax savings, insurance proceeds and other recoveries from third parties

44. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages Control of defense of third-party claims Settlement of third-party claims Duty to mitigate Indemnified claims offset by tax savings, insurance proceeds and other recoveries from third parties Tax treatment of indemnification payments

45. Additional Considerations Materiality scrapes Application of indemnification rights regardless of waiver, knowledge or investigation Waiver of certain types of damages Control of defense of third-party claims Settlement of third-party claims Duty to mitigate Indemnified claims offset by tax savings, insurance proceeds and other recoveries from third parties Tax treatment of indemnification payments Exclusive remedy

46. o Excludes fraud, willful misrepresentation or criminal conduct o Excludes specific performance of covenants

47. Section 3.30 of the Seller Disclosure Schedule lists the ten most significant customers of the Company on the basis of revenues for goods sold or services provided for the most recent fiscal year. The Seller has not received any written notice, and has no Knowledge, that any customer listed in Section 3.30 of the Seller Disclosure Schedule … presently intends to materially reduce the use of such products, equipment, goods or services from their respective levels for the most recent fiscal year.

48. Seller shall indemnify and hold harmless the Purchaser Indemnified Parties from and against any and all Losses that may be asserted against, or paid, suffered or incurred by any Purchaser Indemnified Party (whether or not due to third party claims) that, directly or indirectly, arise out of, result from, are based upon or relate to (a) any inaccuracy in or any breach of, as of the Closing Date, any representation and warranty made by Seller in this Agreement….

49. No amounts of indemnity shall be payable as a result of any claim arising under Section 7.2(a) relating to a breach or alleged breach of a representation or warranty unless and until the Purchaser Indemnified Parties have suffered, incurred, sustained or become subject to Losses referred to in that clause in excess of $200,000 in the aggregate, in which case the Purchaser Indemnified Parties may bring a claim for the full extent of such Losses. The maximum liability of Sellers under clause (a) of Section 7.2 shall not exceed $4,000,000 in the aggregate (the "Indemnity Amount").

50. Following the Closing, the provisions of this Article VII shall be the exclusive remedy for damages in connection with the matters covered hereby; provided, however, that this Section shall not affect the parties' rights to seek specific performance of covenants under Section 8.9 or to seek any remedy on account of any party's fraudulent, criminal or intentional misconduct.

51. Charter documents Amendments to indemnification provisions are only prospective and not retroactive Indemnification provisions are non-exclusive to any rights under other charter documents, contracts, as approved by the board or shareholders, or otherwise

52. License agreements Exceptions to licensor’s indemnification obligations if the infringement arises from: Use of the licensor’s technology in combination with some other technology not provided by the licensor where, but for such combination, it would not be infringing Modifications to the licensor’s technology where, but for such modification, it would not be infringing Continued infringing activity after being informed of modifications that would have avoided the infringement Use of the licensor’s technology in a manner incidental to other infringing activity Use of the licensor’s technology outside of the scope of the license

53. License agreements Licensee’s indemnification of the licensor Products liability and warranty claims Violation of law

54. Charter Documents License agreements Sales agreements

55. Charter Documents License agreements Sales agreements 500 pound gorillas

56. Charter Documents License agreements Sales agreements 500 pound gorillas Settlement agreements

57. Additional considerations Insurance requirements/Security

58. Additional considerations Insurance requirements/Security Waiver of certain types of damages

59. Additional considerations Insurance requirements/Security Waiver of certain types of damages Caps

60. Additional considerations Insurance requirements/Security Waiver of certain types of damages Caps Express limitation periods

61. Additional considerations Insurance requirements/Security Waiver of certain types of damages Caps Express limitation periods Alternative dispute resolution

62. Additional considerations Insurance requirements/Security Waiver of certain types of damages Caps Express limitation periods Alternative dispute resolution Survival

63. Questions & Answers