ABA 2007 Private Target Deal Points Survey

8/2/2019 ABA 2007 Private Target Deal Points Survey

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M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 1

20072007

Private TargetPrivate TargetMergers & Acquisitions Deal Points StudyMergers & Acquisitions Deal Points Study

A Project of the Mergers & Acquisitions Market Trends SubcommittA Project of the Mergers & Acquisitions Market Trends Subcommitteeee

of theof the

Committee on Negotiated AcquisitionsCommittee on Negotiated Acquisitions

of theof theAmerican Bar AssociationAmerican Bar Association’’s Section of Business Laws Section of Business Law




A Project of the M&A Market Trends Subcommittee

of the Committee on Negotiated Acquisitions

of the American Bar Association’s Section of Business Law

Subcommittee Co-Chairs

Wilson Chu, Haynes and Boone, LLP

Larry Glasgow, Gardere Wynne Sewell, LLP

Subcommittee Vice Chairs

Keith A. Flaum, Cooley Godward Kronish LLP

J. Freek K. Jonkhart, Loyens & Loeff

Chair, Committee on Negotiated Acquisitions

Joel I. Greenberg, Kaye Scholer LLP

DISCLAIMERS The findings presented in this Study do not necessarily reflect the personal views of the Working Groupmembers or the views of their respective firms. In addition, the acquisition agreement provisions that form thebasis of this Study are drafted in many different ways and do not always fit precisely into particular “data point”categories. Therefore, Working Group members have had to make various judgment calls regarding, for example, how to categorize the nature or effect of the provisions. As a result, the conclusions presented in thisStudy may be subject to important qualifications that are not expressly articulated in this Study.

2007 Private Target M&A Deal Point s Study2007 Private Target M&A Deal Point s Study




2007 Pr ivate Target Study Work ing Group2007 Private Target Study Work ing Group

CO-CHAIRS

Wilson ChuHaynes and Boone LLP

Dallas, TX

Larry GlasgowGardere Wynne Sewell LLP

Dallas, TX

ISSUE GROUP LEADERS

Dennis BarskyJones Day

New York, NY

John CorriganAdler Pollock & Sheehan, PC

Providence, RI

Mark DanziHill, Ward & Henderson, P.A.

Tampa, FL

David Fisher Bryan Cave LLPNew York, NY

Michael KendallGoodwin Procter LLPBoston, MA

Stuart JohnsonPowell Goldstein LLPAtlanta, GA

Hendrik JordaanHolme Roberts & Owen LLP

Denver, CO

Steven TonsfeldtHeller Ehrman LLP

Menlo Park, CA

Carl SanchezPaul, Hastings, Janofsky & Walker LLP

San Diego, CA

Michael Hollingsworth

Nelson Mullins Riley & Scarborough LLPAtlanta, GA

Jessica Pearlman

Kirkpatrick & Lockhart Preston Gates Ellis LLPSeattle, WA

SPECIAL ADVISOR

Richard ClimanCooley Godward Kronish LLP

Palo Alto, CA




Ronald Albert, Jr.Broad and Cassel

Miami, FL

Phil Bauer The Mosaic Company

Plymouth, MN

Allison BlixtJones Day

New York, NY

Kevin BoardmanPatton Boggs LLP

Dallas, TX

Abigail BombaFried, Frank, Harris, Shriver & Jacobson LLP

New York, NY

Richard BrodyTroutman Sanders LLP

Atlanta, GA

Thomas ChaseDay Pitney LLP

Boston, MA

Terrence ChildersPowell Goldstein LLP

Atlanta, GA

David ChristophersonKing & Spalding LLP

Atlanta, GA

John CliffordMcMillan Binch Mendelsohn

Toronto, Canada

Jay CohenDuane Morris LLP

Baltimore, MD

Mattia Colonnelli de GasperisFreshfields Bruckhaus Deringer

Milan, Italy

Hannah Crockett

Powell Goldstein LLPAtlanta, GA

Edward Deibert

Howard Rice Nemerovski CanadyFalk & Rabkin PCSan Francisco, CA

Nicholas Deitrich

Gowling Lafleur Henderson LLPToronto, Canada

Roger EdwardsAdvantage Sales & Marketing, LLC

Irvine, CA

George FlintParsons Behle & Latimer

Salt Lake City, UT

Brian GalisonNelson Mullins Riley & Scarborough LLP

Atlanta, GA

Joshua GaulKirkpatrick & Lockhart Preston Gates Ellis LLP

Seattle, WA

Greg GiammittorioMorrison & Foerster LLP

McLean, VA

Lori GreenNixon Peabody LLP

Rochester, New York

Steven HaasAbrams & Laster LLP

Wilmington, DE

Lola Miranda HaleEpstein Becker & Green P.C.

Chicago, IL

Kathryn HeetQwest Communications International Inc

Denver, CO

Patrick HendersonShook, Hardy & Bacon, L.L.P.

Kansas City, MO

Ashley HessGreenebaum Doll & McDonald PLLC

Cincinnati, OH

Troy HickmanPerkins Coie LLP

Seattle, WA





Raymond HumMorrison & Foerster LLP

San Francisco, CA

Woody JonesAndrews Kurth LLP

Houston, TX

Barbara KayeDykema Gossett, PLLC

Ann Arbor, MI

Kristen Kercher Heller Ehrman LLP

Menlo Park, CA

Paul KirkpatrickHaynes and Boone LLP

Dallas, TX

Kevin KyteStikeman Elliott LLP

Montreal, Canada

Cindy LinSelman Munson & Lerner P.C.

Austin, TX

Matthew MartinHusch & Eppenberger, LLC

Chattanooga, TN

Albert McGrathBaker & McKenzie LLP

Dallas, TX

Rick McMillan

Jones, Walker, Waechter, Poitevent,Carrère & Denègre, L.L.P.

New Orleans, LA

Craig Menden

Fenwick & West LLPMountain View, CA

Samuel Mullin

Robinson & Cole LLPBoston, MA

Cliff PearlSolomon Pearl Blum Heymann & Stich LLP

Denver, CO

Chris PhilipsWaller Lansden Dortch & Davis

Nashville, TN

Michael PhilipsDavis Wright Tremaine LLP

Portland, OR

Thomas QueenGraves Dougherty Hearon & Moody

Austin, TX

Stephen QuinlivanLeonard Street and Deinard

Minneapolis, MN

Dan ReidGrant Thornton LLPSan Francisco, CA

Jim ScheinkmanSnell & Wilmer L.L.P.Orange County, CA

Chris Scheurer Helms Mulliss Wicker PLLC

Charlotte, NC

Warren SilversmithStikeman Elliott LLP

Montreal, Canada





Claudia SimonPaul, Hastings, Janofsky & Walker LLP

San Diego, CA

Deyan SpiridonovPaul, Hastings, Janofsky & Walker LLP

San Diego, CA

Mark StonemanArmstrong Teasdale LLP

St. Louis, MO

Ben StraughanPerkins Coie LLP

Seattle, WA

James SullivanAlston& Bird LLP

New York, NY

Thomas TalleyThacher Proffitt & Wood LLP

New York, NY

Brett ThorstadWeil, Gotshal & Manges LLP

Dallas, TX

Phillip TorrenceMiller, Canfield, Paddock & Stone, P.L.C.

Kalamazoo, Michigan

Samuel WalesMcDermott Will & Emery

Chicago, IL

Maryann WaryjasKatten Muchin Rosenman LLP

Chicago, IL

Rhys WilsonNelson Mullins Riley & Scarborough LLP

Atlanta, GA

Iain WoodHaynes and Boone LLP

Dallas, TX

Tina WoodsideGowling Lafleur Henderson LLP

Toronto, Canada

Bryan Zair Clark Hill PLC

Detroit, MI

Matt ZmigroskyHaynes and Boone LLP

Dallas, TX





This Study analyzes publicly available acquisition agreements fortransactions completed in 2006 that involved private targets beingacquired by public companies. The prior study published in 2006

analyzed such agreements from transactions completed in 2004.

The Study sample was obtained from www.livedgar.com

The final Study sample of 143 acquisition agreements (out of an initialyield of 269) excludes agreements from transactions in which the Target

was in bankruptcy, reverse mergers, and transactions otherwisedeemed inappropriate for inclusion.

12%88%30%5%65%143$25M - $500M

Simultaneous Sign-and-Close

Deferred Mixed All Stock All Cash

ClosingConsideration# of

Deals

Transaction

Value* Range

* As determined by LIVEDGAR (includes reported debt assumed)* For purposes of this Study, it is assumed that transaction value as determined by LIVEDGAR is equal to “Purchase Price” as that term is used

in the underlying acquisition agreements

2007 Private Target Study Sample Overview2007 Pr ivate Target Study Sample Overview




$51M - $100M

23.1%

$101M - $200M

18.2%

$25M - $50M

39.9%

$201M - $300M

7.7%

$301M - $400M

8.4%

$401M - $500M

2.8%


(by t ransact ion value)(by t ransact ion value)




Other

14.7%

Oil & Gas

4.9%

Technology

25.9%

I ndustr ial Goods

& Servi ces

13.2%

Healt h Care

15.4%

Financial Servi ces

8.4%

Construction& Materials

4.9%

Personal &

Household Goods

6.3%

Aerospace& Defense

6.3%

•Media•Telecom•Auto & Parts•Retail•Travel & Leisure•Chemicals & Basic (Natural) Resources•Food & Beverage


(by indust ry)(by indust ry)




Financial

34.3%

Indeterminate

1.4%

Entrepreneurial

50.3%

Corporate

14.0%


(nature of pr incipal sellers)(nature of pr incipal sellers)

Entrepreneurial : founders appear to dominate management/ownershipCorporate : founders appear to no longer dominate management/ownershipFinancial : backed by financial sponsors who appear to have significant influence/control




I. Financial Provisions ………………………………………………………………………...Slide 11A. Post-Closing Purchase Price AdjustmentsB. Earnouts

II. Target’s Representations and Warranties………………………………………………...Slide 20

A. Financial Statements (“Fair Presentation”; Internal Controls and Accuracy and Completeness)B. “No Undisclosed Liabilities”C. Compliance with LawD. “10b-5/Full Disclosure”

III. Conditions to Closing………….…………………………………………………………….Slide 36

A. Accuracy of Target’s RepresentationsB. Buyer’s MAC ConditionC. No Legal ProceedingsD. Legal Opinions

IV. Indemnification ………….…………………………………………...................................Slide 48

A. Survival/Time to Assert Claims

B. Liability of Multiple IndemnitorsC. Types of Damages/Losses CoveredD. BasketsE. CapsF. Indemnification as Exclusive RemedyG. Escrows/HoldbacksH. Stand-Alone Indemnities

I. Setoffs/MitigationV. Dispute Resolution …………...…........………………………………………..................Slide 77

A. Governing LawB. VenueC. Waiver of Jury TrialD. Alternative Dispute Resolution

Supplements to Come:

Pervasive Qualifiers (MAE, Knowledge, Efforts Standards); Reliance; No Shop Covenant

ContentsContents




Financial Provisions*

* Disregards one transaction with unfiled financial provisions




I ncludes

Adjustment

68%

No

Adjustment

32%

PostPost --Closing Purchase Price Adj ustmentsClosing Purchase Price Adj ustments

Financial Provisions

(Subset: includes adjustment)

27%

13%

15%

20%

69%

4%

Other

Cash

Assets

Debt

Worki ng Capital

Earnings

Adjustment Met rics*

* 29% of the post-closing purchase price adjustments were based on more than one metric




No ExpressRight byBuyer to

ApproveEstimated

Adjustment66%

I ncludesBuyer'sRight t o

ApproveEstimated

Adjustment34%

No Estim atedAdjustment at

Closing

36%

Includes

PaymentBased onSeller's

EstimatedClosing Date

FinancialMetric(s)

64%

PostPost --Closing Purchase Pr ice Adj ustmentsClosing Purchase Pr ice Adj ustments – –

Est im ates at ClosingEst im ates at Closing


(Subset: includes estimated closing payment)

(Subset: deals with post-closing purchase price adjustment)




Purchase Pri ce

Adjustment Paid

Only I f Exceeds

Threshold

10%Purchase Pri ce

Adjustment

Amount Need

Not Exceed a

Threshold

90%




ThresholdThreshold





Preparat ion of Closing Balance SheetPreparat ion of Closing Balance Sheet

Not Deter-

minable

1%

Buyer

79%

Other

7%

Seller

13%

Not Deter-

minable

4%

Silent

2%

Other

3%

GAAP

14%

Consistentwit h Prior

Financial

Statements

5%

GAAP

Consistent

wit h Past or

Scheduled

Practices

72%


MethodologyPreparing Party





I ncludes

Separate

Escrow

22%

No Separat eEscrow

78%

Combination

or Buyer

Option

3%

Not Deter-

minable

1%

Downward

Adjustment

Paid fr om

Indemni ty

Escrow

55%

Downward

Adjustment

Paid by

Sellers

41%


Separate EscrowSeparate Escrow


(Subset: no separate escrow)





No

Earnout

81%Includes

Earnout

19%

EarnoutsEarnouts


11%

26%

37%

30%Revenue/ Turnover

Earnin gs/ EBI TDA

Othe r * *

Not determinable

(Subset: includes earnout)

Earnout Metrics*

* 4% of earnouts were based on more than one metric**Examples: regulatory approval of drug applications; attainment of certain post-closing contracts; launch of certain products




7%

63%

11%

22%To Run Consistent

with Past Practice

To Run to Maximize

Earnout

Neither Covenant

Not Determinable


EarnoutsEarnouts – –

BuyerBuyer ’’s Covenant s as t o Acquired Businesss Covenant s as t o Acquired Business(Subset: deals with earnouts)




NotDeterminable

11%

No Of fsetProvision

37%

Buyer CanOffset

Indemni tyPayments

AgainstEarnout

52%

EarnoutsEarnouts – –

Accelerat ion and OffsetsAccelerat ion and Offsets


(Subset: deals with earnouts)

NotDeterminable

4%

Earn out DoesNot Accelerat eon Chan ge of

Control85%

EarnoutAccelerates on

Chan ge ofControl11%




Target’s Representations and Warranties




“Fairly presents” is GAAP qualified

Such financial statements fairly present (and the financial statements delivered

pursuant to Section 5.8 will fairly present) the financial condition and the resultsof operations, changes in shareholders’ equity and cash flows of [Target] as atthe respective dates of and for the periods referred to in such financialstatements, all in accordance with GAAP .

(ABA Model Asset Purchase Agreement)

“Fairly presents” is not GAAP qualified

[T]he Financial Statements: (i) have been prepared from the books and recordsof the Company in accordance with US GAAP consistently applied during theperiods covered thereby (except as otherwise disclosed therein); (ii) are

complete and correct in all material respects; and (iii) fairly present in allmaterial respects the financial position and the results of operations of theCompany (on a consolidated basis) as of the dates and during the periodsindicated therein…

(Hologic, Inc. acquisition of Suros Surgical Systems, Inc. )


Financial StatementsFinancial Statements – –

““ Fair Presentat ionFair Presentat ion ”” RepresentationRepresentation




84%

75%

14%

24%

2%

1%

"Fairly Present s" is Not GAA PQualified

"Fairly Present s" is GAA P

Qualified

Not Included


Deals in 2004

Deals in 2006


““ Fair Presentat ionFair Presentat ion ”” RepresentationRepresentation




The Company’s internal controls and procedures are sufficient

to ensure that the Latest Financial Statements and the AnnualFinancial Statements are accurate in all material respects.…[A]ll accounts, books and ledgers related to the business of theCompany are properly kept, are accurate and complete in all

material respects, and there are no material inaccuracies ordiscrepancies of any kind contained or reflected therein.

(ATS Medical acquisition of 3F Technologies)

Financial Statement sFinancial Statements – –

I nt ernal Cont rols and Accuracy and CompletenessI nt ernal Cont rols and Accuracy and Completeness





Includes

Internal

ControlsRep

45%

No Int ernal

Controls

Rep55%


Financial Statement sFinancial Statements – –

I nt ernal Cont rols and Accuracy and CompletenessI nt ernal Cont rols and Accuracy and Completeness

(32% in deals in 2004)

No Accurate

and

Complete

Component69%

Includes

Accurate

and

Complete

Component

31%





(Subset: deals with representation)

Rules 13(a)-(f) ,

etc.

14%

Other15%

'34 Act, Section13(b)(2)(B)

62%

Regul ation S-KI tem 601

9%


Basis of I nt ernal Cont rols Represent at ionBasis of I nt ernal Cont rols Represent at ion




No Undisclosed Liabilities . Except as set forth in Part 3.13 [of the

Disclosure Letter], [Target] has no Liability except for Liabilitiesreflected or reserved against in the Balance Sheet or the InterimBalance Sheet and current liabilities incurred in the Ordinary Courseof Business of [Target] since the date of the Interim Balance Sheet.

***

“Liability ”--with respect to any Person, any liability or obligation of such Person of any kind,character or description, whether known or unknown, absolute or contingent, accrued orunaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint orseveral, due or to become due, vested or unvested, executory, determined, determinable or

otherwise, and whether or not the same is required to be accrued on the financial statements ofsuch Person.


““ No Undisclosed Liabi li t iesNo Undisclosed Liabi li t ies”” RepresentationRepresentation – –

BuyerBuyer -- Favorable Formulat ionFavorable Formulat ion





No Undisclosed Liabilities . Except as set forth in Part 3.13 [of the

Disclosure Letter], [Target] has no liability of the nature required to be disclosed in a balance sheet prepared in accordance with GAAP except for …


TargetTarget -- Favorable Formulat ionFavorable Formulat ion





““No Undisclosed Liabi li t iesNo Undisclosed Liabi li t ies

””

RepresentationRepresentation


Rep No t

I ncluded

7%

I ncludes Rep

93%

"All

Liabilities"

(Buyer

Favorable)

68%

"GAAP

Liabilities"

(Target

Favorable)

32%

(Subset: includes rep)



T t’ R t ti d W ti





(Carveouts for items that are (1) reflected on Balance Sheet; (2) immaterial(stand alone); and (3) ordinary course (since the Balance Sheet date))

Except as reflected in the Company Balance Sheet , the Company has noliabilities (absolute, accrued, contingent or otherwise) which are required byGAAP to be set forth on a consolidated balance sheet of the Company andits consolidated Subsidiaries or in the notes thereto, other than… any

liabilities and obligations incurred since the date of the Company Balance Sheet in the ordinary course of business consistent with past practice…and… liabilities that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Company Material Adverse Effect .

(Nanometrics Incorporated acquisition of Accent Optical Technologies)


Qualif iers and ExclusionsQualif iers and Exclusions

T t’ R t ti d W ti




9%

83%

44%

7%Knowledge Qualif ied

I mmater ial Liabi l i t ies

(Stand-alone)

Ord inar y Course Since

Balance Sheet Date

Ordi nary Course Wit houtReference to Balance

Sheet Dat e


Qualif iers and ExclusionsQualif iers and Exclusions







77%

32%

76%

10%Knowledge

Qualified

Covers Present

AND Past

I ncludes Noticeof I nvestigation

I ncludes Notice

of Violation

Compliance w it h Law Represent at ionCompliance w it h Law Representat ion

Target s Representations and Warranties

Rep NotIncluded

1%

Includes

Rep99%






Compliance w it h Law Represent at ionCompliance w it h Law Representat ion


No Materialit y

Qualifier

22%

Qualified by

MAE

23%

Qualified by

Material i ty

(undefined)

55%






“10b-5” Formulation

No representation or warranty or other statement made by [Target or anyTarget Shareholder] in this Agreement, the Disclosure Letter, any

supplement to the Disclosure Letter, the certificates delivered pursuant toSection 2.7(a) or otherwise in connection with the ContemplatedTransactions contains any untrue statement or omits to state a material factnecessary to make any of them, in light of the circumstances in which it wasmade, not misleading.

“Full disclosure” Formulation

Seller does not have Knowledge of any fact that has specific application toSeller (other than general economic or industry conditions) and that may

materially adversely affect the assets, business, prospects, financialcondition or results of operations of Seller that has not been set forth in this

Agreement or the Disclosure Letter.


““10b10b

--5/ Full Disclosure5/ Full Disclosure

””







Rep Not

Included

38%

"10(b)-5"

AND FullDisclosure

Formulation

10%

"10(b)-5"Formulation

Only

52%


Not KnowledgeQualified

74%

KnowledgeQualified

26%

““10b10b

--5/ Full Disclosure5/ Full Disclosure

””







Conditions to Closing*

* Disregards the study sample’s 12% of deals (compare: 16% for deals in 2004) that

are “simultaneous sign-and-close”

Conditions to Closing




g

Single point in time: at closing

Each of the representations and warranties made by the Target inthis Agreement shall have been accurate in all respects as of the Closing Date as if made on the Closing Date.

Two points in time: at signing and at closing

Each of the representations and warranties made by the Target inthis Agreement shall have been accurate in all respects as of the date of this Agreement , and shall be accurate in all respects as of the Closing Date as if made on the Closing Date.

Accuracy of TargetAccuracy of Target ’’s Representat ionss Representat ions – –

WhenWhen Must They Be Accurate?Must They Be Accurate?





Includes "Bring

Down"Requirement

99%

No " Br ing Down"

Requirement

1%

Includes

"When Made"Requirement

60%

No "When

Made"Requirement

40%

“When Made”(i.e., at signing)


WhenWhen Must They Be Accurate?Must They Be Accurate?

g

* Includes deals with both “when made” and “bring down” requirements and deals solely with a “bring down” requirement

“Bring Down”(i.e., at closing)*







Accurate in all respects

Each of the representations and warranties made by the Target in this

Agreement shall have been accurate in all respects as of the Closing Dateas if made on the Closing Date.

Accurate in all material respects


Agreement shall have been accurate in all material respects as of theClosing Date as if made on the Closing Date.

The “Big MAC/MAE” qualification


Agreement shall be accurate in all respects as of the Closing Date as ifmade on the Closing Date, except for inaccuracies of representations or warranties the circumstances giving rise to which, individually or in the aggregate, do not constitute and could not reasonably be expected

to have a Material Adverse Effect .


HowHow Accurate Must They Be?Accurate Must They Be?









HowHow Accurate Must They Be?Accurate Must They Be?(inclusion of materiality qualifiers)(inclusion of materiality qualifiers)

"In al l

mater ial

respects"

62%

The Big

MAC/ MAE29%

"In al l

respects"

9%

"In all

mater ial

respects"

60%

The Big

MAC/ MAE38%

"In al l

respects"

2%








Each of the representations and warranties made by the Target in

this Agreement shall be accurate in all respects as of the ClosingDate as if made on the Closing Date, except for inaccuracies ofrepresentations or warranties the circumstances giving rise to which,individually or in the aggregate, do not constitute and could not

reasonably be expected to have a Material Adverse Effect (it being understood that, for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” qualifications and other materiality qualifications and similar qualifications contained in such representations and warranties shall be disregarded) .


HowHow Accurate Must They Be?Accurate Must They Be?(( “ “double materialitydouble materiality” ” carveout)carveout)





Disregards

"double

materiality"

71%

Silent

29% Silent

25%

Disregards

"double

material i ty"

75%

(Subset: deals with materiality/MAE qualifiers)





HowHow Accurate Must They Be?Accurate Must They Be?(( “ “double materialitydouble materiality” ” carveout)carveout)






Stand-Alone:

Since the date of this Agreement, there has not been any

Target Material Adverse Change.

“Back-Door” :

“absence of changes” representation Since the Balance Sheet Date, there has not been anyTarget Material Adverse Change.

plus

“Bring Down” formulation of “Accuracy ofRepresentations” condition

BuyerBuyer ’’s MAC Condi t ions MAC Condi t ion





St and-A lone MAC

Condit ion78%

No St and-Alone

MAC Condit ion*

22%

BuyerBuyer ’’s MAC Condi t ions MAC Condi t ion

(( “ “standstand--alonealone” ” ))


*May include deals with “back door” MAC





No Legal ProceedingsNo Legal Proceedings


Condit ion Not

Included

38%

I ncludes No Legal

Proceedings

Condition62%

No LegalProceedings

Related t o th eTransaction

76%

No LegalProceeding s of

Any Nature24%

(Subset: includes condition)





No

Material i tyQualif ier

56%

MAE

Qualif ied

22%

Dollar

AmountQualif ied

2%

Of a Material

Nature

2%

Affecting

Material

Port ion of

Business

6%

Seeking

Materi al or

Subst.

Damages

12%

No Legal ProceedingsNo Legal Proceedings


Pending an d

Threatened

Proceedings

65%

Pending

ProceedingsOnly

35%

Materiality Qualifications

(Subset: deals including closing condition of no legal proceedings)

Pending/Threatened Proceedings





Required*

70%

Not Required* *

30%

Legal Opinions (NonLegal Opinions (Non-- Tax) of TargetTax) of Target ’’s Counsels Counsel

(All deals: includes simultaneous sign-and-close deals)

* Typically as a condition to closing, but includes opinions required in a “Closing Deliveries” covenant**Does not account for opinions that may have been required or delivered outside of the express terms of the agreement





Indemnification*

* Disregards three transactions with redacted indemnification provisions

Indemnification




Survival/ Time to Assert ClaimsSurvival/ Time to Assert Claims

10.1 SURVIVAL…

All representations, warranties … in this Agreement, the Disclosure Letter,

the supplements to the Disclosure Letter, the certificate delivered pursuantto Section 2.4(a)(v), and any other certificate or document deliveredpursuant to this Agreement will survive the Closing…

10.5 TIME LIMITATIONSIf the Closing occurs, Sellers will have no liability (for indemnification orotherwise) with respect to any representation or warranty… unless on orbefore _______________ Buyer notifies Sellers of a claim specifying thefactual basis of that claim in reasonable detail to the extent then known by

Buyer…

(ABA Model Stock Purchase Agreement)

Indemnification




5%

16%

3%

34%

9%

26%

1%

1%

4%

1%Silent

Expr ess No Surv iv al

6 months

> 7 to < 12 months

12 months

> 12 to < 18 months

18 months

> 18 to < 24 months

24 months

> 24 months

Survival/ Time to Assert ClaimsSurvival/ Time to Assert Claims

(generally)(generally)

Indemnification




13%

10%10%

16%14%

16%

22%

19%15%

24%11%

36%30%

37%

27%

37%

20%

37%

31%

39%21%

42%31%

54%

38%

59%

55%

67%Taxes (Rep)

Capitalization (Rep)

Due Authority (Rep)

Ownership of S hares (Rep)

Employee Benefits/ERISA (Rep)

Fraud

Due Organization (Rep)

Environmental (Rep)

Breach of Seller's/Target's Covenants

Broker's/Finder's Fees (Rep)

Title to/Sufficiency of Assets

Intentional breach of Seller's/T arget's Reps

No Conflicts (Rep)

Intellectual Property (Rep)

Survival/ Time t o Assert ClaimsSurvival/ Time t o Assert Claims – –

Carveouts t o Survival Lim it at ions*Carveouts t o Survival Lim it at ions*

* Matters subject to carveouts typically survive longer than time periods generally applicable to representations* Only those categories appearing 10% of the time or more for deals in 2006 are shown

Deals in 2004

Deals in 2006

(Subset: deals with survival provisions)

Indemnification




Several But

Not Joint

(" Pro Rat a")

35%

Joint and

Several

41%

Silent24%

Liabil i t y of Multiple I ndemnit orsLiabil i t y of Multiple I ndemnit ors


Indemnification




Limited t o

"Out of

Pocket"3%

Not Limited

to "Out of

Pocket"

97 %

Types of Damages/ Losses CoveredTypes of Damages/ Losses Covered

Excludes

Diminution in

Value

10%Silent

65 %

Includes

Diminution in

Value25 %

Diminution in Value “Out of Pocket” Damages


Indemnification




Types of Damages/ Losses CoveredTypes of Damages/ Losses Covered

Excludes

Incidental

Damages

16 %

Silent

79 %

Includes

I ncidentalDamages

5%

IncludesConsequent-

ial Damages6%

Silent

63 %

Excludes

Consequent-ial Damages

31 %

Consequential DamagesIncidental Damages

Excludes

Punitive

Damages

34 %

Silent

63 %

Includes

Punitive

Damages

3%

Punitive Damages


Indemnification




BasketsBaskets – – DeductibleDeductible

In seeking indemnification for Damages under Section 11.2(a), the

Indemnified Persons will make no claim for Damages unless anduntil such Damages aggregate at least $[X] (the “Deductible”), inwhich event such Indemnified Persons may make claims for all Damages exceeding the Deductible .

(Concur Technologies, Inc. acquisition of Outtask, Inc.)

Indemnification




BasketsBaskets – – Fir st DollarFirst Dollar

No Parent Group Member shall be entitled to receive any

indemnification payment with respect to any claim for indemnificationunder this Article 7 until the aggregate Damages for which theParent Group would otherwise be entitled to receive indemnificationexceeds $[X] (“Threshold”). Once such aggregate Damages exceedthe Threshold, the Parent Group shall be entitled to indemnificationfor the aggregate amount of all Damages, regardless of t he

Threshold .

(Art Technology Group, Inc. acquisition of Estara, Inc.)

Indemnification




BasketsBaskets – – CombinationCombination

The Sellers’ indemnification obligations under this Article VIII shall

be subject to the following limitations: (i) the Sellers shall not berequired to indemnify Buyer Indemnitees for Losses under clause (a)or (b) of Section 8.2 until the aggregate amount of all such Lossesexceeds $[X] (the “Threshold Amount”) in which event the Sellersshall be responsible only for Losses in excess of $[Y] (the“Deductible”)…

(EDO Corporation acquisition of Impact Science & Technology, Inc.)

Indemnification




BasketsBaskets

No Basket

3%Combination

7%

Deductible

54%

First Dollar36%






Indemnification




40%

62%

49%

28%

7%

8%

4%

2%

0.5% or less

> 0 .5 % to 1%

> 1 % t o 2 %

> 2%

Baskets as % of Transact ion ValueBaskets as % of Transact ion Value

(Subset: deals with baskets)

Deals in 2004

Deals in 2006

Indemnification




Baskets as % of Transact ion ValueBaskets as % of Transact ion Value(stat ist ical summary)(statistical summary)

____ ____ 0.40%(0.60% in deals in 2004)

0.52%(0.69% in deals in 2004)

Deductible andFirst Dollar

2.03%(2.00% in deals in 2004)

0.02%(0.08% in deals in 2004)

0.39%(0.47% in deals in 2004)

0.50%(0.60% in deals in 2004)

First Dollar

2.00%(3.13% in deals in 2004)

0.03%(0.01% in deals in 2004)

0.40%(0.62% in deals in 2004)

0.53%(0.77% in deals in 2004)

Deductible

MaximumMinimum(> 0)

MedianMeanBasket Type


Indemnification




39%

55%

100%

Ot her I ndemnit y

Claims

Breaches of Covenant s

Breaches of

Represent at ions and

Warranties

Basket CoverageBasket Coverage




Indemnification

Eli ibl Cl i Th h ldEli ibl Cl i Th h ld




Seller shall not have any liability under this Section 10 for any

breach of any representation or warranty contained in thisAgreement or any Ancillary Agreement executed and delivered bySeller or any covenant of Seller contained in this Agreement to beperformed at or prior to the Closing, and no claims by the BuyerIndemnified Parties shall be so asserted, for any individual item

where the Loss relating to such claim (or series of claims arisingfrom the same or substantially similar facts or circumstances) is lessthan $[X]…

(Church & Dwight Co., Inc.’s acquisition of Orange Glo International, Inc.)

Eligible Claim ThresholdEligible Claim Threshold


Eli ibl Cl i Th h ldEligible Claim Threshold

Indemnification




Eligible Claim ThresholdEligible Claim Threshold

No Eli gible Clai m

Threshold82%

I ncludes Eli gible

Clai m Threshold

18%


““ Do ble MaterialitDouble Materialit y ””

Indemnification




““ Double Materialit yDouble Materialit y ””(mat erialit y qualifi cation disregarded for indemnif ication purpo(materialit y qualif ication disregarded for indemnif ication purposes)ses)

For purposes of determining the breach of any representation or

warranty for purposes of Section 9.1(b), and covenant in Section 5.2or the amount of any Loss suffered by a Parent Indemnitee,“materiality,” “Material Adverse Effect” and similar qualifications… shall be ignored .

(The Reader’s Digest Association, Inc. acquisition of Allrecipes.com)

““ Double Materialit yDouble Materialit y ””

Indemnification




Double Materialit yDouble Materialit y(mat erialit y qualifi cation disregarded for indemnif ication purpo(materialit y qualif ication disregarded for indemnif ication purposes)ses)


Double

Materiality

Not Expressly

Disregarded

78%

Double

Materiality

ExpresslyDisregarded

22%


Caps*Caps*

Indemnification




CapsCaps

Silent 1%

Yes - Less Than

Purchase Price* *

88%

Yes But No t

Determinable

4%

Yes - Equal t o

Purchase Price

7%

* Caps generally applicable to contractual indemnification obligations; does not take into account different caps forspecific items (see “Cap Carveouts”)

** Of deals with determinable caps, 44% equaled the escrow amount



(8% in deals in 2004)(74% in deals in 2004)


Cap Amount s as % of Transact ion Value*Cap Amount s as % of Transact ion Value*

Indemnification




6 % * *

9%

4%

5%

12%

5%

14%

17%

27%

17%

15%

21%

28%

26%

Pur chase Pr ice

> 50% to < Purchase

Price

> 2 5% to 5 0%

> 1 5% to 2 5%

> 1 0% to 1 5%

10%

< 1 0%

* Caps generally applicable to contractual indemnification obligations; does not take into account different caps forspecific items (see “Cap Carveouts”)

** Includes one deal with cap in amount greater than purchase price

Cap Amount s as % of Transact ion ValueCap Amount s as % of Transact ion Value

Deals in 2004

Deals in 2006

(Subset: deals with expressly stated cap)

Indemnification

Cap Amount s as % of Transact ion Value*Cap Amount s as % of Transact ion Value*




(stat ist ical summary)(statistical summary)

* Excludes deals with caps equal to transaction value

137.04%1.70%10.87%17.86%2004

80.00%1.00%10.14%16.39%2006

Maximum(≠ 100%)

Minimum(> 0)

MedianMeanDeals in:


Cap Carveout s*Cap Carveouts*

Indemnification




10%

10%

10%

12%

16%

16%

29%

29%

36%

40%

43 %

46%

64%Fraud

Capitalization (Rep)

Due Authority (Rep)

T axes (Rep)

Intentional Breach of Sell er's/Target's Reps* *

Due Organization (Rep)**

Ownership of Shares (Rep)**

Broker's/Finder's Fees (Rep) **

Breach of Seller' s/T arget's Covenants* *

Employee Benefits/ERISA (Rep)**

Environmental (Rep)**

T itle to/Su fficiency of Assets (Rep)* *

No Conflicts (Rep)* *

Cap Carveout sCap Carveouts


*Only those categories appearing 10% of the time or more for deals in 2006 are shown**Less than 10% for deals in 2004





I ndemnif icat ion as Exclusive RemedyI ndemnif icat ion as Exclusive Remedy

Indemnification




Non-Exclusive

Remedy13%

Silent

10%

Exclusive Remedy

77%

I ndemnif icat ion as Exclusive RemedyI ndemnif icat ion as Exclusive Remedy


I ndemnif icat ion as Exclusive RemedyI ndemnif icat ion as Exclusive Remedy –– CarveoutsCarveouts

Indemnification




(Subset: deals with indemnification as exclusive remedy)

18 %

17 %

85 %

81%

27 %

45 %

29%

40%

Breach ofCovenant

Fraud

Equitable

Remedies

Intentional

Misrepresentation

I ndemnif icat ion as Exclusive RemedyI ndemnif icat ion as Exclusive Remedy CarveoutsCarveouts

Fraud

Undefined

92%

Fraud

Limited to

"Actual" or

Intentional

Fraud or

Intentional

Misrep.8%

(Subset: includes fraud carveout)

Deals in 2004

Deals in 2006

Escrow s/ HoldbacksEscrow s/ Holdbacks

Indemnification




All Cash

75%

Combination o fCash and

Securities

10%

All St ock o rOther Securities

15%

No Escrow / Holdback

13%

Escrow / Holdback and

Earnout isExclusiveRemedy

4%

Escrow/ Holdback is

ExclusiveRemedy

32%

Escrow / Holdback is

Not Exclusive

Remedy51%

sc o s/ o dbac s


Escrow s/ Holdbacks as % of Transact ion ValueEscrow s/ Holdbacks as % of Transact ion Value

Indemnification




(Subset: deals with determinable escrows/holdbacks)

3%

6%

16%

21%

14%

12%

5%

13%

8%3% and less

> 3% t o < 5%

5%

> 5% t o 7%

> 7% t o < 10%

10%

> 10% to 15%

> 15% to 20%

> 20% to 25%

StandStand--Alone I ndemnit iesAlone I ndemnit ies( it ems for w hich indemnification specifi cally provided regardles(i t ems for w hich indemnif ication specifi cally provided regardless ofs of

Indemnification




( it ems for w hich indemnification specifi cally provided regardles(i t ems for w hich indemnif ication specifi cally provided regardless ofs of

indemnif icat ion for breaches of representations and w arrant ies)indemnif icat ion for breaches of representat ions and w arrant ies)

* “Other” frequently appearing stand-alone indemnities were items disclosed on a schedule; excluded liabilities; pre-closing liabilities; dissenters’ rights/dissenting share payment claims; and transaction expenses.

31%

51%

31%

10%

4%

None

Other*

Taxes

Environmental

ERI SA


Setoffs/ Mit igat ionSetoffs/ Mitigat ion

Indemnification




Setoffs/ Mit igat ionSetoffs/ Mitigat ion( reduct ion of Buyer( reduct ion of Buyer’’s indemnif icat ion claims)s indemnif icat ion claims)

I ncludes

Express

Setoff for

Tax

Benefits

31%

No

Express

Setoff for

Tax

Benefits

69%

No

Express

Setoff for

I nsurance

Proceeds37%

IncludesExpress

Setoff for

I nsurance

Proceeds

63%

Buyer

ExpresslyRequired to

Mitigate

Losses

22%

Buyer Not

ExpresslyRequir ed to

Mitigate

Losses

78%





Dispute Resolution

Governing Law *Governing Law *

Dispute Resolution




Ot her

13%

St ate of

Incorporation of

Buyer and Target

30%

Place of Business of

Buyer and Target

2%

Selling St ockholder s'

Residence/ Business

2%

Target 's Place of

Business

3%

Buyer's Place of

Business

15%

Target 's St at e of

Incorporation

19%

Buyer' s St at e ofIncorporation

16%

Delaware

43%

Other

37%

New York

20%

* Assumes parties chose governing law based on state of incorporation in cases where chosen state matches both astate of incorporation and a place of business

Venue*Venue*

Dispute Resolution




Silent

17%

Ot her

17%

Buyer 's St at e of

Incorporation

5%

Target 's St at e of

Incorporation

17%

Buyer's Place of

Business

18%

Target 's Place of

Business

4%

Selling St ockholder 's

Residence/ Business

1%Place of Business of

Buyer and Target

4%

St ate of

Incorporation of

Buyer and Target17%

* Assumes parties chose venue based on state of incorporation in cases where chosen state matches both a state ofincorporation and a place of business

Waiver of Jury Tr ialWaiver of Jury Tr ial

Dispute Resolution




Waiver of Jury

Trial Provision

Included

49.7%

No Waiver of

Jury Trial

Provision50.3%

Alt ernat ive Disput e Resolut ion (Alt ernat ive Disput e Resolut ion ( ““ ADRADR”” ) *) *

Dispute Resolution




Includes

General

ADR

provision31%

No General

ADR

provision

69%

Mediation

5%

Binding

Arbi trat ion77%

Mediation

th en Binding

Arbi trat ion18%

(Subset: includes provision)

* ADR provisions that generally cover disputes under acquisition agreement (rather than those limited to specificdisputes such as purchase price adjustments or earnouts).

Alt ernat ive Disput e Resolut ion (Alt ernat ive Disput e Resolut ion ( ““ ADRADR”” ))

Dispute Resolution




Other

20%

American

Arbitration

Association

66%

Internat ional

Chamber of

Commerce

5%

Judicial

Arbitration &

Mediation

Services

9%

(Subset: deals with general ADR provisions)

Determined

by Arbitrator30 %

Apportioned

9%

Evenly Spli t34%

Loser Pays

27 %

Arbitration ExpensesSpecified Arbitrator(s)

ABA 2007 Private Target Deal Points Survey

Documents

Transcript of ABA 2007 Private Target Deal Points Survey