Deals

2012 SRS M&A Deal Terms Study | 1 2012 Shareholder Representative Services LLC. All rights reserved.
www.shareholderrep.com
2012 Shareholder Representative Services LLC. All rights reserved.
2012 SRS M&A Deal Terms Study
An analysis of deal terms and post-closing experience in private-target M&A transactions
For more information, please contact SRS at dts@shareholderrep.com
A closed deal is not a done deal. Anything can happen after closing. A great variety of issues, often unpredicted, arise
over the months and years following the sale. SRS has accumulated years of experience through hundreds of deals. When the
stakes are high, shareholders require the most experienced post-closing team.
You worked hard to close the deal. Make sure you have the right representative to see it through.
The SRS Difference:
! Better escrow economics through Acquiom
Acquiom provides a completely re-engineered M&A escrow, investment and payments service, which provides a superior
client experience while reducing transaction expenses.
! M&A analytics to drive better deals
SRS has the most extensive database of M&A deal-terms and post-closing claims from private company sales ever
assembled.
! Unmatched dispute resolution and litigation management
SRS is the only firm with post-closing expertise based on the successful resolution of hundreds of claims and the
completion of final escrow releases and earn-out milestone payments.
! Post-closing escrow management, client support, online access, and monthly reporting
SRS offers superior client service by anticipating questions and issues that could arise and delivering information online
24/7.

SRS also offers SRS MAX for customized deal analytics, and SRS EscrowExchange for early escrow liquidity.

For more information visit: www.shareholderrep.com

About SRS | Shareholder Representative Services
About SRS

! The Deal Terms Study Sample
The 2012 SRS Deal Terms Study analyzes 342 private-target acquisitions on which SRS served as the shareholder
representative from the start of 2009 through the end of Q3 2012 (the 2011 Study analyzed deals from the start of 2008
through the end of Q3 2011). As used herein, 2012 deals includes deals closing through the end of Q3 in the 2012
calendar year. Note that data points on past years may differ slightly from previous SRS Deal Terms Studies due to (i)
changes in presentation from study-over-study to year-over-year, (ii) deals added in Q4 2011 that were not reported in the
2011 Study, and (iii) reporting medians rather than averages. Sample sizes are larger for more recent years as a result of
the growth of SRS.

! New Data in the 2012 Study
Time to exit, equity capital investment data
*
, termination fees, conflict waivers and more detailed analyses of carveouts to
indemnification caps and survival periods have been included for the first time in the 2012 Study.

! Why Our Study is Unique
As shareholder representative, SRS has access to seller management, shareholders, and all deal documents, and manages
all post-closing matters. Most information from these sources is not publicly available or reported in other studies. Our
goal is to arm deal professionals who negotiate and advise on private-target transactions with robust, reliable sources of
information that cant be found elsewhere.
* Throughout this study, we rely primarily upon S&P Capital IQ for equity capital investment data.
About this Study
Overview
$55.3 Billion in stated deal value
$42.7 Billion paid at closing
$4.9 Billion held in escrow
$7.7 Billion in defined earn-out consideration, plus
uncapped potential payments
342 Acquisitions analyzed
Aggregate data on 200+ deal terms

301 Mergers, 13 asset purchases and 28 stock
purchases
82 Deals with earn-outs
! Overview...............................................................................5
Key Findings....................................................................5
Seller Industries..............................................................6
Transaction Values..........................................................7
Years to Exit...................................................................8
Transaction Values as Multiples of Return on Equity
Capital Invested...............................................................9
Closing Consideration Trends.........................................10
Sellers Financings and Earnings...................................11
! Financial Provisions............................................................13
Post-Closing Purchase Price Adjustments......................14
Earn-outs (Non-Life Sciences)........................................19
Management Carveouts.................................................23
Treatment of Options (Non-Life Sciences)......................24
! Pervasive Qualifiers............................................................25
Definition of Material Adverse Effect..............................26
Knowledge Standards....................................................31
! Sellers Representations, Warranties, and Covenants..........32
No Undisclosed Liabilities Representation...................33
Compliance with Laws Representation........................34
10b-5 and Full Disclosure Representations...............35
No Other Representations and Non-Reliance Reps....37
Covenants.....................................................................38
! Closing Conditions..............................................................42
Accuracy of Sellers Representations..............................43
Material Adverse Change Condition.............................47
No Legal Proceedings Challenging the Transaction.........48
Legal Opinions (Non-Tax)...............................................49
Appraisal Rights............................................................50
! Indemnification.....................................................52
Stand-Alone Indemnities................................................53
Sandbagging..............................................................54
Survival/Time to Assert Claims......................................55
Types of Losses Covered................................................59
Baskets.........................................................................60
Materiality Scrape.........................................................67
Caps.............................................................................68
Reductions Against Buyers Indemnification Claims........72
Indemnification as Exclusive Remedy..........................73
Escrows/Holdbacks.......................................................74
Special Escrows............................................................77
! Dispute Resolution.............................................................78
Waiver of Jury................................................................79
Alternative Dispute Resolution.......................................80
! Termination Fees................................................................82
! Glossary.............................................................................84
Table of Contents
TOC
! Deal sizes: although the median deal size
*
rose slightly to $75 million in 2012 from $70 million in
2011, deals $50 million or less grew to 42% of deals in 2012, up from 33% in 2011.
! Seller financial performance: acquisitions remain heavily weighted toward Sellers with revenue, and
Sellers in the aggregate continue to show improved earnings since 2009. Coupled with a slight
increase in Seller-favorable terms generally, data suggests that some degree of market leverage is
returning to Sellers that have survived the downturn even as M&A activity remains deliberate.
! Cash vs. stock deals: cash is still king in M&A as long-term interest rates decline.
! Earn-outs: usage of financial metrics (revenue and earnings) and multi-metric achievement tests is
declining, accompanied by a shift toward longer earn-out periods.
! Indemnification trends: median R&W survival periods and escrow sizes have leveled off at 18 months
and 1012% of transaction values, respectively, since 2009. Other terms are increasingly Seller-
favorable, for example, an increase in available offsets against Buyer indemnification claim amounts
and requiring that claims exceed a minimum threshold.
! Alternative dispute resolution (ADR): mandatory ADR such as mediation and arbitration has
steadily declined since 2010, down to 26% of deals in 2012 from 41% in 2010.
! Post-closing expense funds: the median size as a percentage of the indemnification escrow continues
to trend upward, at 2.08% in 2012.
* Including escrowed amounts but not potential earn-out consideration.

Key Findings
Overview

Subset: new deals since the 2011 Study
Seller Industries
Overview
Biopharmaceuticals
10%
Business products
and services
15%
Computers and
peripherals
5%
Consumer products
and services
3%
Electronics and
instrumentation
4%
Health care
services
3%
Industrial
and energy
5%
IT services
13%
Media and
entertainment
6%
Medical devices
and equipment
7%
Networking equipment
1%
Semiconductors
1%
Software
22%
Telecommunications
4%
Other
1%
* Transaction values as used herein includes escrowed amounts but does not include potential earn-out condisderation.
Transaction Values
*
Overview
$25MM or less
19%
>$25MM to
$50MM
23%
>$50MM to $100MM
22%
>$100MM to
$250MM
20%
>$250MM to
$750MM
13%
More than $750MM
3%
0%
25%
50%
75%
100%
0
2
4
6
8
10
12
14
16
18
0 2 4 6 8 10 12 14 16 18 20 22 24
%

o
f

d
e
a
l

s
e
t

N
u
m
b
e
r

o
f

e
x
i
t
s

Years from founding to exit
Cumulative % of deal set Exits

Years to Exit

Overview
Years to exit Equity financing rounds to exit Equity capital invested
Median: 7
Average: 9
Median: 3
Average: 3
Median: $28MM
Average: $36MM
0
3
6
9
12
15
18
21
24
27
30
M
u
l
t
i
p
l
e
s

o
f

r
e
t
u
r
n

o
n

e
q
u
i
t
y

c
a
p
i
t
a
l

i
n
v
e
s
t
e
d

Deal by deal
* Transaction values include escrowed amounts but do not include potential earn-out consideration.
** Assumes equity capital is invested en bloc, disregarding staged investments and liquidation preferences.
Subset: new deals since the 2011 Study with equity capital investment data available

Transaction Values
*
as Multiples of Return on Equity Capital
Invested
Overview
Median return: 3.8x
Average return: 8.0x
! If all equity capital is invested one year after
founding, a 3.8x return seven years after founding
yields a 25% IRR
**
.
75%
84%
86%
85%
6%
4%
3%
2%
19% 12% 11% 13%
2009 2010 2011 2012
All cash All stock Cash/stock combo
* The Long-term Real Rate (Average) is the unweighted average of bid real yields on all outstanding TIPS with remaining maturities of
more than 10 years and is intended as a proxy for long-term real rates.

75%
84%
86%
85%
2.24%
1.72%
1.36%
0.22%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
0%
25%
50%
75%
100%
2009 2010 2011 2012
All-cash deals Long-term Real Rate (average)
Consideration type All-cash deals vs. long-term interest rates
Closing Consideration Trends
Overview
3.0
3.3 3.3
3.1
3.0 3.0 3.0
2.0
2.5
3.0
3.5
4.0
2009 2010 2011 2012
Average Median
* Excluded here because many life sciences Sellers are development-stage companies with long lead times before commercialization and
thus without meaningful chances of having revenue or positive EBITDA at the time of sale.

100%
98% 98%
97%
19%
31%
28%
38%
0%
25%
50%
75%
100%
2009 2010 2011 2012
Sellers with revenue Sellers with positive EBITDA
Equity capital investment rounds at exit Sellers with revenue and positive EBITDA
Sellers Financings and Earnings
Overview
Subset: non-life sciences deals
*
($5,170,210)
($3,312,449)
($2,150,302)
($1,311,359)
($6,000,000)
($4,000,000)
($2,000,000)
$0
2009 2010 2011 2012

Sellers Financings and Earnings
Median Seller EBITDA, last 12 months (non-life sciences deals
*
)
Overview
* Excluded here because many life sciences Sellers are development-stage companies with long lead times before commercialization and
thus without meaningful chances of having revenue or positive EBITDA at the time of sale.
Financial Provisions
! Post-closing purchase price adjustment example
The Adjustment Amount (which may be a positive or negative number) will be equal to the
amount determined by subtracting the Closing Working Capital from the Initial Working Capital.
If the Adjustment Amount is positive, the Adjustment Amount shall be paid by wire transfer by
Seller to an account specified by Buyer. If the Adjustment Amount is negative, the difference
between the Closing Working Capital and the Initial Working Capital shall be paid by wire
transfer by Buyer to an account specified by Seller.
Working Capital as of a given date shall mean the amount calculated by subtracting the
current liabilities of Seller as of that date from the current assets of Seller as of that date. The
Working Capital of Seller as of the date of the Balance Sheet (the Initial Working Capital) shall
be deemed Two Million Dollars ($2,000,000).

Post-Closing Purchase Price Adjustments
54%
80%
69%
76%
0%
25%
50%
75%
100%
2009 2010 2011 2012
* 51% of post-closing purchase price adjustments in 2012 deals were based on more than one metric.
** Does not include post-closing adjustments for unpaid transaction expenses.

71%
37%
49%
9%
5%
1%
74%
36%
32%
14%
8%
0%
Working capital
Cash
Debt
Other**
Assets
Earnings
2012 2011
Adjustment provision included Adjustment metrics
*
(subset: includes adjustment)
Post-Closing Purchase Price Adjustments
! Tax exclusion example
Adjusted Working Capital means current assets
minus current liabilities; provided, however, that
Adjusted Working Capital excludes from current
assets all tax assets and excludes from current
liabilities all tax liabilities.

Subset: 2012 deals with working capital adjustments
Post-Closing Purchase Price Adjustments:
Working Capital Excludes Tax-Related Items
Tax-related
items excluded
from calculation
42%
Tax-related
items not
excluded from
calculation
58%
11%
58%
15% 15%
19%
54%
16%
10%
27%
58%
9%
6%
GAAP GAAP consistent with past
practices
Other* Silent
2010 2011 2012
* Other methodology most commonly used was GAAP as modified by the principles and changes set forth on a schedule.
Subset: deals with post-closing purchase price adjustments
Methodology for Preparation of Closing Balance Sheet
Subset: 2012 deals with post-closing purchase price adjustments
Thresholds and Separate Escrows

Source of payment if buyer-favorable adjustment Adjustment only if threshold exceeded
Separate
escrow
17%
Payment not from
indemnity escrow
5%
True-up from
indemnity
escrow
95%
No separate
escrow
83%
Yes
13%
No
87%
18%
17%
12%
14%
5%
10%
15%
20%
2009 2010 2011 2012
* For a detailed analysis of SRSs life sciences deals, please see the 2012 SRS Life Sciences M&A Study.
** Earn-outs can include more than one metric, such as revenue and earnings.
*** Examples: unit sales, product launches, divestiture of assets.
60%
20%
33%
64%
36%
36%
Revenue
Earnings/EBITDA
Other***
2012 2011
Earn-out included
Earn-outs (Non-Life Sciences
*
)
Earn-out metrics
**

! Earn-outs are much more common in
SRSs life sciences deals than other types
of deals
82% of biopharmaceutical deals
84% of medical device deals
14% of all other SRS deals
36%
23%
38%
29%
0%
10%
20%
30%
40%
50%
2009 2010 2011 2012
** Calculated as the sum of potential earn-out payments over the amount paid at closing (including escrowed amounts).
*** Measured by the date the latest earn-out period ends.
Subset: non-life sciences deals with earn-outs
20%
33%
13%
20%
13%
0%
55%
18%
9%
0%
18%
0%
1 year or less
>1 to 2 years
>2 to 3 years
>3 to 4 years
>4 to 5 years
>5 years
2012 2011
Median earn-out potential as percentage of closing payment
**
Earn-out length
***
(2012 median: 24 months)
*
)
Included
6%
Included
13%
Included
47%
Not
included
94%
Not
included
87%
Not
included
53%
Express Yes
67%
Express No 6%
Silent
27%
Covenant to run business in
accordance with Seller's past
practices
Covenant to run business to
maximize earn-out payments
Earn-out accelerates (fully or
partially) on change in control
of earn-out assets**
Buyer can offset indemnity
claims against future earn-out
payments
** Generally subject to exceptions, such as if the subsequent buyer assumes the earn-out obligations.
Subset: 2012 non-life sciences deals with earn-outs
*
):
Covenants, Acceleration and Offsets
! Example provision intended to ensure
earn-out is not treated as a security
The right of Seller to a portion of the Earn-out
Amount, if any, shall not be represented by a
certificate or other instrument, shall not represent an
ownership interest in Buyer or the Business and shall
not entitle Seller to any rights common to any holder
of any equity security of Buyer.
Subset: non-life sciences deals with earn-outs
! Example disclaimer of fiduciary
relationship
Nothing in this Agreement creates a fiduciary duty
on the part of Buyer to Seller in respect of the Earn-
out.
Earn-out is not a security Disclaimer of fiduciary relationship
*
): Additional Provisions
Included
13%
Not
included
87%
Included
13%
Not
included
87%
27%
20%
19%
0%
10%
20%
30%
40%
50%
2010 2011 2012
* Measures size of carveout only, disregarding consideration received by Seller management in respect of equity ownership. Transaction
value includes escrowed amounts but does not include potential earn-out consideration.

10.0% 10.0%
8.6%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
2010 2011 2012
Deals including a management carveout Median size as a percentage of transaction value
*
Management Carveouts: Frequency and Size
! A management carveout here is a cash payment triggered by an acquisition that guarantees
Sellers management a portion of the deal consideration at closing when such participants would
otherwise receive little or nothing in respect of their equity ownership, usually due to liquidation
preferences. Because transaction bonuses often differ from management carveouts in size,
structure and timing of adoption, they are not included below.
56%
74%
63%
74%
44%
34%
56%
49%
0%
25%
50%
75%
100%
2009 2010 2011 2012
Options contribute to escrow
Full acceleration of vesting***
** Excludes deals where option-holders received no consideration.
*** Excludes deals where options were assumed by the Buyer; measures acceleration of employee options only.
13%
27%
39%
28%
87% 73% 61% 72%
2009 2010 2011 2012
Options assumed Options not assumed
Contribution and acceleration
**
Assumption of options by Buyer
Treatment of Options (Non-Life Sciences
*
):
Contribution, Acceleration and Assumption
Pervasive Qualifiers
! Example term
Material Adverse Effect means any
result, occurrence, fact, change, event or
effect that has a materially adverse effect
on the business, assets, liabilities,
prospects, capitalization, condition
(financial or other), or results of
operations of Seller.
* Material Adverse Effect or Material Adverse Change was defined in 98% of deals.
Subset: deals with MAE defined
*
25%
24%
15%
13%
75% 76% 85% 87%
2009 2010 2011 2012
Prospects included Prospects not included
Declining use of prospects
Definition of Material Adverse Effect:
Prospects Included
! Example term
Material Adverse Effect means any result,
occurrence, fact, change, event or effect that
has, or could reasonably be expected to have,
a materially adverse effect on the business,
assets, liabilities, capitalization, condition
(financial or other), results of operations or
prospects of Seller.

! 96% of deals had forward-looking
language
*
* Includes deals where the MAE definition did not include forward-looking language, but forward-looking language was predominantly used
in conjunction with the use of the defined term in the body of the agreement.
** Agreements in the Other category used a combination of could and would or some other forward-looking standard.
Subset: 2012 deals with an MAE definition with forward-looking language

"Could be"
19%
"Would be"
64%
Other**
17%
Forward-looking MAE details

Forward-Looking Language
! Example term
change . . . except to the extent resulting
from (A) changes in general local, domestic,
foreign, or international economic conditions,
(B) changes affecting generally the industries
or markets in which Company operates, (C)
acts of war, sabotage or terrorism, military
actions or the escalation thereof, (D) any
changes in applicable laws or accounting
rules or principles, including changes in
GAAP, (E) any other action required by this
Agreement, or (F) the announcement of the
Transactions.

Subset: 2012 deals with MAE defined
Definition
includes
carveouts
94%
No carveouts
6%
Deals with carveouts
Definition of Material Adverse Effect: Carveouts
58%
72%
71%
63%
97%
50%
86%
78%
62%
77%
80%
79%
92%
56%
87%
85%
70%
71%
82%
79%
96%
59%
92%
80%
Actions
required by
agreement
Announcement
of deal
Changes in
accounting
standards
Changes in law Economic
conditions
Financial
market
downturn
Industry
conditions
War or
terrorism
2010 2011 2012

Subset: MAE definition has carveouts
Definition of Material Adverse Effect: Carveouts
Carveout frequency
! Example term
change . . . except to the extent resulting
from (A) changes in general local, domestic,
foreign, or international economic conditions,
(B) changes affecting generally the industries
or markets in which Company operates, (C)
acts of war, sabotage or terrorism, military
actions or the escalation thereof, (D) any
changes in applicable laws or accounting
rules or principles, including changes in
GAAP, (E) any other action required by this
Agreement, or (F) the announcement of the
Transactions (provided that such event,
change, or action does not affect Seller in a
substantially disproportionate manner).

Subset: MAE definition has carveouts
At least one
carveout
qualified by
disproportionate
effect
90%
No carveouts
qualified by
disproportionate
effect
10%
Disproportionate effect details (2012 deals)
Carveouts Qualified by Disproportionate Effect
! Actual knowledge
Knowledge means the actual knowledge
of the directors and officers of Seller.
! Constructive knowledge
Knowledge means the actual knowledge
of the directors and officers of Seller and the
knowledge that such directors and officers
would have after due inquiry.
* 49% of 2012 deals include more than one constructive knowledge element, e.g., a due inquiry requirement as well as role-based deemed knowledge.

82%
36%
11%
19%
17%
1%
Reasonable or due inquiry
Reasonable or due inquiry of
knowledgeable persons
Other form of reasonable or
due inquiry
Role-based constructive
knowledge
Other form of constructive
knowledge
"Constructive knowledge" not
defined (silent)
Knowledge definition details (2012 deals)
Knowledge Standards
Actual
13%
Constructive
83%
Not defined
4%
Subset: constructive
knowledge
*
Sellers Representations, Warranties and Covenants
! Example Buyer-favorable formulation
Seller has no liability except for liabilities reflected
or reserved against in the Balance Sheet or the
Interim Balance Sheet and current liabilities incurred
in Sellers ordinary course of business since the date
of the Interim Balance Sheet.
! Example Seller-favorable formulation
Seller has no liability of the nature required to be
disclosed in a balance sheet prepared in accordance
with GAAP [or which could not reasonably be
expected to have, individually or in the aggregate, a
Material Adverse Effect], except for liabilities
reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities
incurred in Sellers ordinary course of business since
the date of the Interim Balance Sheet.
* All 2012 deals included this rep.

88%
61% 61% 60%
22%
39% 39% 40%
2009 2010 2011 2012
Buyer Seller
Representation knowledge-qualified
Party favored by definition
No Undisclosed Liabilities Representation
*
Representations, Warranties and
Covenants
4%
1%
2011 2012
! Example representation
To the Sellers knowledge, the Business has been and is being conducted in compliance with all
applicable laws.
* All 2012 deals included this rep.

5%
81%
12%
80%
Complete rep is knowledge
qualified
Covers past and present
compliance
Includes notice of investigation Includes notice of violation
Compliance with laws details (2012 deals)
Compliance with Laws Representation
*
Covenants
! Example 10b5 representation
No representation or warranty or other statement
made by Seller in this Agreement, the Disclosure
Letter, any supplement to the Disclosure Letter, the
certificates delivered pursuant to Section 2.7(a) or
otherwise in connection with the Contemplated
Transactions contains any untrue statement or omits
to state a material fact necessary to make any of
them, in light of the circumstances in which it was
made, not misleading.
! Example full disclosure representation
Seller does not have Knowledge of any fact that has
specific application to Seller (other than general
economic or industry conditions) and that may
materially adversely affect the assets, business,
prospects, financial condition or results of operations
of Seller that has not been set forth in this
Agreement or the Disclosure Letter.
* Does not include reps that apply only to the shareholder information statement (and not the acquisition agreement).

"10b-5" rep
only*
47%
"Full disclosure"
rep only*
1%
Both "10b-5"
and "full
disclosure"
reps*
6%
Neither rep
46%
Inclusion of reps (2012 deals)
10b5 and Full Disclosure Representations
Covenants
Knowledge
qualified
19%
Not
knowledge
qualified
81%
Note: Two deals included full disclosure-only reps, and both were knowledge qualified.
Subset: all deals since 2010
Only "full
disclosure" rep
knowledge
qualified
61%
Only "10b-5"
rep knowledge
qualified
4%
Both reps
knowledge
qualified
8%
Neither rep
knowledge
qualified
27%
Subset: 10b5 rep only Subset: both 10b5 and full disclosure reps
10b5 and Full Disclosure Representations:
Knowledge Qualifiers
Covenants
! No other representations example
Buyer acknowledges that Seller has not
made and is not making any representations
or warranties whatsoever regarding the
subject matter of this Agreement, express or
implied, except as provided in this Article III.
! Non-reliance example
Buyer is not relying and has not relied on any
representations or warranties whatsoever
regarding the subject matter of this
Agreement, express or implied, except for the
representations and warranties provided in
this Article III.

Inclusion of reps (2012 deals)
No Other Representations and Non-Reliance Reps

Covenants
"No other
reps" only
32%
"Non-
reliance"
only
1%
Both
19%
Neither
48%
* Sample excludes sign-and-close deals.
** Such deals generally eliminate Buyers right to indemnification for the updated matter if Buyer chooses to waive the relevant closing
condition or does not exercise an existing or newly provided right to terminate the transaction because of the update. Includes deals
where Buyer and Seller agree to negotiate effects on indemnification rights in good faith.
Subset: 2012 deals
Deals including a duty to notify Buyers indemnification rights limited for notified matters
Covenants: Sellers Duty to Notify Buyer of Pre-Closing Breaches
of Representations and Warranties
Covenants
Express
duty to
notify
87%
No express
duty
13%
Yes**
5%
No
95%

Covenants: Sellers Duty to Notify Buyer of Breaches of
Covenants
*
Seller expressly required to notify Buyer of breaches of covenants (2012 deals)
Covenants
Yes
80%
No
20%
! Example no-shop/no-talk
Between the date of this Agreement and the Closing Date, Seller shall not . . . (i) solicit,
initiate, consider, encourage or accept any proposal or offer that constitutes an Acquisition
Proposal or (ii) participate in any discussion, conversation, negotiation or other communication
regarding, or furnish to any other Person any information with respect to, or otherwise cooperate
in any way, assist or participate in, facilitate or encourage the submission of, any proposal that
constitutes, or could reasonably be expected to lead to, an Acquisition Proposal.
! Example fiduciary exception
Notwithstanding the foregoing . . . the Seller Board may withhold, withdraw, amend or modify
its recommendation to the Selling Shareholders if it determines in good faith by resolution duly
adopted, after consultation with outside legal counsel, that it is required to do so in order to
comply with its fiduciary duties to the Selling Shareholders under applicable law.

Covenants: No-Shop/No-Talk
Covenants
** Fiduciary exception subset excludes stock-purchase deals.

Covenants: No-Shop/No-Talk
*
Details
**
Covenants
No-shop/no-talk
covenant not included
5%
Covenant includes
fiduciary exception
14%
No
fiduciary
exception
86%
No-shop/no-talk
covenant included
95%
Closing Conditions
*
* This sections analyses exclude sign-and-close deals.
! At signing only
Each of the representations and warranties
made by Seller in this Agreement shall have
been accurate in all respects as of the date
made.

! At closing only
been accurate in all respects as of the
Closing Date as if made on the Closing Date.

! At signing and closing
been accurate in all respects as of the date
made and as of the Closing Date as if made
on the Closing Date.

0%
24%
76%
At signing only At closing only Both
Accuracy: timing (2012 deals)
Accuracy of Sellers Representations (Timing):
When Must They Be Accurate?
Closing Conditions

! Accurate in all respects
Each of the representations and warranties made by
Seller in this Agreement shall have been accurate in
all respects as of the Closing Date as if made on the
Closing Date.
! Accurate in all material respects
Seller in this Agreement shall have been accurate in
all material respects as of the Closing Date as if
made on the Closing Date.
! MAE qualification
Seller in this Agreement shall be accurate in all
respects as of the Closing Date as if made on the
Closing Date, except for inaccuracies of
representations or warranties the circumstances
giving rise to which, individually or in the aggregate,
do not have and could not reasonably be expected to
have a Material Adverse Effect.

Accuracy: materiality (2012 deals)
Accuracy of Sellers Representations (Materiality):
How Accurate Must They Be?
Closing Conditions

20%
26%
72%
68%
8%
6%
At signing At closing
MAE "In all material respects" "In all respects"
! Example capitalization carveout
The representations and warranties set forth
in Section 3.3 (Capitalization) shall be
accurate in all respects as of the Closing Date
as if made on the Closing Date. Each of the
other representations and warranties made by
Seller in this Agreement shall be accurate as
of the Closing Date as if made on the Closing
Date, except for inaccuracies of
representations or warranties the
circumstances giving rise to which,
individually or in the aggregate, do not have
and could not reasonably be expected to have
a Material Adverse Effect.

Subset: 2012 deals with MAE qualifiers in the accuracy of reps condition
60%
64%
At signing At closing
Carveout applies
MAE Qualifier with Capitalization Representation Carveout
Closing Conditions
! Example materiality scrape
made by Seller in this Agreement shall be
accurate in all respects as of the Closing Date
as if made on the Closing Date, except for
inaccuracies of representations or warranties
the circumstances giving rise to which,
individually or in the aggregate, do not have
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 materiality, Material Adverse
Effect and similar qualifications contained in
such representations and warranties shall be
disregarded).

Subset: 2012 deals with materiality or MAE qualifiers in the accuracy of reps
condition
Materiality Scrape
Closing Conditions
87%
85%
Included as of signing Included as of closing
! Stand-alone MAC condition
Since the date of this Agreement, there has
not been any Seller Material Adverse
Change.
! Back-door MAC condition
The Agreement includes an Absence of
Changes representation:
Section 3.6 Absence of Changes. (i) Since the
Balance Sheet Date, there has not been any
Seller Material Adverse Change.
and includes a condition bringing down
the accuracy of Sellers representations
and warranties:
The representations and warranties made by
Seller in this Agreement shall be true and correct
in all respects when made and at the Closing
Date as if made on the Closing Date.

Stand-alone
condition
only
27%
Back-door
condition
only
13%
Both
57%
Neither
3%
MAC condition details (2012 deals)
Material Adverse Change Condition
Closing Conditions
! Example condition
There will not be pending [or
threatened] any action, suit, or
similar legal proceeding brought
by any Governmental Entity [or
any Person] challenging or
seeking to restrain or prohibit the
consummation of the transactions
contemplated herein.

2011 deals
2012 deals
No Legal Proceedings Condition

Closing Conditions
Not
included
18%
Governmental
legal
proceedings
only
36%
Any legal
proceeding
64%
Condition
included
82%
Not
Included
20%
Governmental
legal
proceedings
only
34%
Any legal
proceeding
66%
Condition
Included
80%
63%
55%
68%
50%
37% 45% 32% 50%
2009 2010 2011 2012
Yes* No

Legal Opinions (Non-Tax) of Sellers Counsel
Opinion required as a condition to closing
* Includes opinions delivered pursuant to both stand-alone and closing deliverables conditions.
Closing Conditions
Subset: mergers
Appraisal rights
"not available" to
percentage of
shareholders
27%
Appraisal rights
"not exercised" by
percentage of
shareholders
37%
Appraisal rights
"neither available
to nor exercised
by" percentage of
shareholders
19%
Minimum
shareholder
approval only*
17%
Appraisal rights condition included Drafting details
Appraisal Rights Condition
* Includes deals without an express appraisal rights condition but with a condition specifying a minimum percentage of shareholder votes
(on a fully-diluted basis) approving the merger, effectively waiving appraisal rights.
Closing Conditions
90%
84%
65%
60%
10% 16% 35% 40%
2009 2010 2011 2012
Yes* No
Subset: 2012 deals with condition included
14%
26%
10%
29%
47%
60%
56%
50%
26%
20%
22%
7%
10%
22%
Up to 3% >3% to 8% >8% to 10% More than 10%
* These deals did not include an express appraisal rights condition, but did include a condition specifying a minimum percentage of
shareholder votes (on a fully diluted basis) approving the merger, effectively waiving appraisal rights.
Subset: 2012 mergers with an appraisal rights condition
Appraisal Rights Condition: Thresholds
Condition threshold details
Closing Conditions
Appraisal rights "not available" to
percentage of shareholders
Appraisal rights "not exercised" by
percentage of shareholders
Appraisal rights "neither available to
nor exercised by" percentage of
shareholders
Minimum shareholder approval only*
Indemnification
82%
77%
65%
47%
42%
39%
33%
20%
18%
17%
12%
7%
3%
3%
2%
2%
1%
1%
Payments to dissenting shareholders
Accuracy of closing certificates
Taxes
Transaction expenses
Litigation
Purchase price adjustments
Fraud and willful misrepresentation
Capitalization
Employee compensation
Intellectual property matters
Excess parachute payments under 280G
Fees and costs
Authority
Employee benefits/ERISA
Regulatory matters
Third-party consents
Environmental
Undisclosed contracts
* Line items for which indemnification is expressly provided beyond the standard line-item indemnities for Sellers breaches of (i)
representations and warranties and (ii) covenants.

Stand-Alone Indemnities
*
Frequency (2012 deals)
Indemnification
! Pro-sandbagging example
The right to indemnification,
reimbursement or other remedies based
upon any such representation or warranty
will not be affected by 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 such
representation warranty

! Anti-sandbagging example
No party shall be liable under this Article for
any Losses resulting from or relating to any
inaccuracy in or breach of any representation
or warranty in this Agreement if the party
seeking indemnification for such Losses had
Knowledge of such breach before Closing.
* For purposes of this Study, pro-sandbagging excludes clauses that state, for example, that Sellers representations and warranties
merely survive Buyers investigation unless they include an express statement that Buyers knowledge acquired outside of any
investigation made pursuant to the agreement impacts Buyers post-closing indemnification rights.

38%
32%
35%
30%
8%
2%
3%
1%
54% 65% 62% 68%
2009 2010 2011 2012
Pro-sandbagging provision included
Anti-sandbagging provision included
Silent
Year-over-year trend
Sandbagging
Indemnification
! Example survival provisions
Section 10.1 Survival. All
representations, warranties and
covenants in this Agreement and
the Disclosure Schedules and any
other certificate or document
delivered pursuant to this
Agreement will survive the Closing
for a period of 12 months.
Section 10.5 Time Limitations. If
the Closing occurs, Seller will have
no liability (for indemnification or
otherwise) with respect to any
representation or warranty unless
on or before the 12-month
anniversary of the Closing Buyer
notifies Sellers of a Claim
specifying the factual basis of such
Claim in reasonable detail to the
extent then known by Buyer.
* Carveouts to the general survival period are discussed on the next slide.

2%
24%
19%
40%
3%
12%
0%
3%
21%
9%
46%
2%
18%
1%
Less than 12 months
12 months
>12 to <18 months
18 months
>18 to <24 months
24 months
>24 months
2012 2011
Survival frequency
*
(2012 median: 18 months)
Survival/Time to Assert Claims
Indemnification
* Matters subject to carveouts survive longer than the general survival period. 2% of 2012 deals had no carveouts.

Survival/Time to Assert Claims:
Carveouts to General Survival Period

Frequency (2012 deals)
Indemnification
87%
86%
82%
76%
68%
65%
57%
52%
40%
36%
30%
21%
11%
10%
4%
2%
1%
0%
0%
Capitalization
Due authority
Ownership of shares
Taxes
Due organization
Fraud
Non-willful breach of Seller's covenants
Broker/finder fees
Intentional misrepresentation
Intellectual property
No conflicts
Title to/sufficiency of assets
Environmental
Related-party transactions
Solvency
Product liabilities
Undisclosed liabilities
Accounts receivable
Statute of
limitations***
42%
Reps survive
"indefinitely"
34%
Silent/
unspecified
1%
1 year or less
3%
>1 to 2 years
10%
>2 to 3 years
1%
>3 to 4 years
4%
>4 years
5%
* Organization, due authority, capitalization, etc. (other than taxes, intellectual property and fraud).
** No tax representations survived indefinitely.
*** Usually including some period thereafter, e.g. 60 days.
Subset: 2012 deals that include the specified carveout(s). Years denote additional
survival time after expiration of the general survival period.
Group of Fundamental Representations* Tax representations**
2
nd
-Level Survival Periods for Specified Carveouts

Indemnification
Statute of
limitations***
86%
Silent/
unspecified
1%
1 year or less
3%
>1 to 2 years
4%
>2 to 3 years
2%
>3 to 4 years
2%
>4 years
2%
Statute of
limitations***
16%
Silent/
unspecified
2%
1 year or less
30%
>1 to 2 years
46%
>2 to 3 years
2%
>3 to 4 years
2%
>4 years
2%
* No IP representations survived indefinitely.
** No fraud/intentional misrepresentation carve-outs survived for 1 year or less or for >2 to 3 years.
*** Usually including some period thereafter, e.g. 60 days.
Subset: 2012 deals that include the specified carveout(s). Years denote additional
survival time after expiration of the general survival period.
Intellectual property representations
*
Fraud/intentional misrepresentation
**
2
nd
-Level Survival Periods for Specified Carveouts

Indemnification
Statute of
limitations***
29%
Carveouts
survive
"indefinitely"
48%
Silent/
unspecified
16%
>1 to 2 years
2%
>3 to 4 years
1%
>4 years
4%
3%
2%
4%
27%
73%
12%
42%
11%
24% 86% 54% 62%
Punitive damages Incidental damages Consequential damages Diminution in value
Expressly included Expressly excluded Silent

Subset: 2012 deals
Types of Losses Covered
Indemnification
! Deductible
Securityholders shall not be required to indemnify
Buyer for Losses until the aggregate amount of all
such Losses exceeds $300,000 (the Deductible) in
which event Securityholders shall be responsible
only for Losses exceeding the Deductible.
! First dollar
such Losses exceeds $500,000 (the Threshold) in
which event the Securityholders shall be responsible
for the amount of all Losses, regardless of the
Threshold.
! Combination
such Losses exceeds $500,000 (the Threshold) in
which event the Securityholders shall be responsible
only for Losses in excess of $300,000 (the
Deductible).

Deductible
37%
First dollar
58%
Combination
3%
No basket
2%
Basket frequency (2012 deals)
Baskets: Definitions
Indemnification
52%
40%
8%
0%
53%
40%
7%
0%
56%
33%
10%
1%
0.5% or less
>0.5% to 1%
>1% to 2%
>2%
2012 2011 2010

Subset: deals with deductible and first-dollar baskets
0.75%
0.66%
0.55%
0.56%
0.63%
0.49%
0.50% 0.50%
0.00%
0.25%
0.50%
0.75%
1.00%
2009 2010 2011 2012
Median deductible Median first dollar
Basket sizes Median basket size, year-over-year
Baskets as a Percentage of Transaction Value
Indemnification

Subset: 2012 deals with baskets
Baskets as a Percentage of Transaction Value
Indemnification
Basket type Mean Median Minimum Maximum
Deductible 0.64% 0.56% 0.07% 1.33%
First dollar 0.51% 0.50% 0.04% 1.60%
All baskets
(other than
combination)
0.56% 0.50%
100%
24%
33%
100%
27%
33%
100%
21%
21%
Breaches of Seller's representations and
warranties
Breach of Seller's covenants
Other indemnity claims
2012 2011 2010
* Carveouts to general basket coverage are discussed on the next slide.
Subset: deals with baskets
Baskets: General Coverage
*
Coverage details
Indemnification
* 7% of 2012 deals with baskets had no carveouts.
Baskets: Carveouts

Frequency
*

Indemnification
75%
75%
75%
70%
67%
62%
61%
52%
42%
41%
20%
16%
7%
6%
4%
3%
1%
0%
0%
Fraud
Capitalization
Due authority
Ownership of shares
Due organization
Taxes
Broker/finder fees
No conflicts
Environmental
Solvency
Accounts receivable
Product liabilities
! Example eligible claim threshold
Securityholders shall not be required to
indemnify Buyer for any individual item where
the Loss relating to such claim (or series of
claims arising from the same or substantially
similar facts or circumstances) is less than
$25,000.

Threshold included, year-over-year
Baskets: Eligible Claim Threshold
Indemnification
4%
20%
26%
0%
5%
10%
15%
20%
25%
30%
2010 2011 2012
! Materiality qualifications in representations and warranties disregarded for
all indemnification purposes (determining breaches and calculating losses)
For purposes of this Article X (Indemnification), the representations and warranties of Seller
shall not be deemed qualified by any references to materiality or to Material Adverse Effect.
! Materiality qualifications in representations and warranties disregarded for
calculation of losses only
For the sole purpose of determining Losses (and not for determining whether any breach of any
representation or warranty has occurred), the representations and warranties of Seller shall not
be deemed qualified by any references to materiality or to Material Adverse Effect.

Materiality Scrape Example Definitions
Indemnification

2011 deals
2012 deals
Materiality Scrape Inclusion

Indemnification
Materiality
qualifiers not
disregarded
18%
For determining
breach only
12%
For determining
damages only
56%
For determining
breach and
damages
32%
Materiality
qualifiers
disregarded
82%
Materiality
qualifiers not
disregarded
18%
For determining
breach only
18%
For determining
damages only
57%
For determining
breach and
damages
25%
Materiality
qualifiers
disregarded
82%
19%
30%
27%
10% 10%
1%
0%
1%
19%
18%
31%
16%
12%
3%
0%
2%
23%
26%
21%
15%
13%
1%
0%
1%
Less than 10% 10% >10% to <15% 15% >15% to 25% >25% to 50% >50% but less
than purchase
price
Purchase price
2010 2011 2012
* In 2012 deals with escrows/holdbacks, 95% of caps equaled the escrowed amount.
Subset: 2012 deals with determinable caps
Caps as a Percentage of Transaction Value
*
Indemnification
Mean Median Minimum Maximum
12.97% 11.13% 2.50% 100.00%

Subset: 2012 deals with caps
Cap Carveouts
Frequency
Indemnification
91%
79%
77%
74%
63%
61%
49%
46%
40%
29%
22%
18%
8%
7%
4%
1%
1%
0%
0%
Fraud
Capitalization
Due authority
Ownership of shares
Taxes
Due organization
Broker/finder fees
No conflicts
Environmental
Product liabilities
Solvency
Accounts receivable
Purchase
price
88%
Unlimited
liability
2%
Silent/
unspecified
6%
25% or less
1%
Other***
3%
* Organization, due authority, capitalization, etc. (other than taxes, intellectual property and fraud). No deals set liability for breaches of
Fundamental Representations as a percentage of the deal outside of the 25% or less range.
** No deals set liability for tax representations as a percentage of the deal outside of the >25 to 50% range.
*** Other generally includes offsets against future earn-outs above the general cap.
Subset: 2012 deals that include the specified carveout(s)
Group of Fundamental Representations* Tax representations**
2
nd
-Level Caps for Specified Carveouts

Indemnification
Purchase
price
84%
Unlimited
liability
4%
Silent/
unspecified
7%
>25% to 50%
1%
Other***
4%
Purchase
price
29%
Silent/
unspecified
3%
25% or less
26%
>25% to 50%
26%
>50% to 75%
3%
Other***
13%
* No deals set liability for breaches of IP representations as unlimited or in the >75% to less than purchase price range.
** Measures liability for shareholders that did not participate in the fraud (liability for participating shareholders was typically unlimited).
No deals set liability for fraud/intentional misrepresentation as a percentage of the deal outside of the 25% or less range.
*** Other generally includes offsets against future earn-outs above the general cap.
Subset: 2012 deals that include the specified carveout(s)
Intellectual property representations
*
Fraud/intentional misrepresentation
**
2
nd
-Level Caps for Specified Carveouts

Indemnification
Purchase
price
64%
Unlimited
liability
24%
Silent/
unspecified
8%
25% or less
2%
Other***
2%
75%
17%
21%
81%
31%
20%
84%
34%
26%
Reduction for insurance proceeds Reduction for tax benefits Buyer required to mitigate losses*
2010 2011 2012
* Includes agreements requiring the Buyer to seek payments under applicable insurance policies.

Reductions Against Buyers Indemnification Claims
Provision included
Indemnification
Exclusive
remedy
96%
Non-
exclusive
remedy
1%
Silent
3%
* Equitable remedies other than specific performance or injunctive relief, such as rescission or reformation.
Subset: 2012 deals
87%
54%
39%
28%
21%
4%
Fraud
Equitable remedies*
Breach of covenants
"Willful" breach of covenants
"Intentional" breach of
covenants
Exclusivity Carveouts to exclusive remedy
Indemnification as the Exclusive Remedy for Breaches of the
Agreement
Indemnification
* 97% of deals included an escrow or holdback for general indemnification purposes. Data does not include special escrows.
Subset: 2012 deals with escrows/holdbacks
*
Escrows/Holdbacks as a Percentage of Transaction Value
Indemnification
Mean Median Minimum Maximum
12.27% 11.15% 2.50% 30.00%
4%
3%
16%
32%
19%
13%
10%
3%
7%
4%
8%
17%
29%
19%
13%
4%
3% 3%
15%
27%
19% 19%
13%
1%
5% or less >5% to 7% >7% to <10% 10% >10% to <15% 15% >15% to 25% >25%
2010 2011 2012
12.2%
10.0%
12.1%
11.2%
0%
3%
6%
9%
12%
15%
2009 2010 2011 2012
* Escrows established at closing to fund post-closing expenses.
Subset: deals with escrows/holdbacks
1.57%
1.96%
2.01%
2.08%
0.18%
0.25% 0.25% 0.25%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
2009 2010 2011 2012
As % of indemnification escrow
As % of transaction value
Median indemnification escrow size Median expense escrow size
*
Escrows/Holdbacks as a Percentage of Transaction Value
Indemnification
* Denotes the number of months from closing until the scheduled final escrow release date, disregarding interim releases. The survival
period on slide 55 denotes the time available to the parties to make claims for breaches of the agreement, after which indemnification
under the agreement will not be available. In most deals these periods are the same, but in some deals the escrow period lasts longer for
reasons unique to the deal.
Subset: deals with escrows/holdbacks
Escrow/Holdback Periods
*
Escrow period frequency (2012 median: 18 months)
Indemnification
1%
35%
8%
37%
0%
12%
8%
3%
18%
10%
47%
3%
15%
5%
1%
22%
21%
33%
5%
11%
8%
Less than 12
months
12 months >12 to <18
months
18 months >18 to <24
months
24 months >24 months
2010 2011 2012
25%
23%
25%
22%
0%
10%
20%
30%
40%
2009 2010 2011 2012
* Excluding shareholder representative expense escrows.
** Deals may include more than one special escrow.
Subset: deals with separate escrows/holdbacks for specifically identified matters
*
59%
15%
7%
7%
7%
7%
7%
4%
4%
0%
0%
0%
0%
0%
Purchase price adjustments
Other
Taxes
Intellectual property matters
Employee compensation
Litigation
Payments to dissenting shareholders
Fraud and willful misrepresentation
Accuracy of closing certificates
Due authority
Capitalization
Regulatory matters
Thid-party consents
Deals with special escrows Frequency of special escrow types
Special Escrows
Indemnification
Subset: 2012 deals with special escrow(s) included
**
Dispute Resolution
Included
22%
Not
included
78%
* A provision allowing Sellers pre-closing counsel to represent the selling shareholders after closing in matters relating to the acquisition.
Subset: 2012 deals
Conflict waiver
*
Waiver of jury trial
Waivers
Dispute Resolution
Included
67%
Not
included
33%
* Sample includes ADR provisions that apply to all disputes arising out of the agreement, and does not include ADR provisions limited to
specific topics such as purchase price adjustments or earn-outs.

Binding
arbitration
94%
Mediation
3%
Mediation then
binding
arbitration
3%
ADR Inclusion Type of ADR (subset: general ADR included, 2012)
Alternative Dispute Resolution (ADR)
*
Dispute Resolution
41%
35%
26%
0%
10%
20%
30%
40%
50%
2010 2011 2012
3% 10%
29%
42%
33%
23%
55% 56% 48%
2010 2011 2012
American Arbitration Association
Judicial Arbitration & Mediation Services
Other*
* Other frequently includes the International Chamber of Commerce and the Delaware Court of Chancery.
Subset: deals with general ADR included
Determined
by arbitrator
19%
Evenly split
16%
Expenses
apportioned
32%
Loser pays
23%
Silent
10%
Institution/rules governing arbitration Who pays arbitration expenses? (2012 deals)
Alternative Dispute Resolution (ADR)
Dispute Resolution
Termination Fees
Buyer-
favorable
7%
Seller-
favorable
5%
Two-way
2%
No fee
86%
* Transaction value includes escrowed amounts but does not include potential earn-out consideration.
Type
Termination Fees
Termination Fees
! The median Seller-favorable
termination fee was 12.0% of
the transaction value
*

(average: 13.1%)

! The median Buyer-favorable
termination fee was 3.5% of
the transaction value
*

(average: 3.5%)
Glossary
Glossary
! 10b-5
Rule 10b-5 is an SEC rule that prohibits any act or omission resulting in fraud or intentional deceit (scienter) and relied
upon by the injured party in connection with the purchase or sale of a security. A 10b-5 Representation is a catch-all
representation in the merger agreement modeled from the SEC rule but without the scienter or reliance requirement,
expanding buyers ability to claim breach of the agreement.

! Appraisal rights
The statutory right available in most states to a corporations minority shareholders who object to a merger to have a fair
price of their stock determined in a judicial proceeding and to require the corporation to repurchase their stock at that
price. Appraisal rights are usually not available unless the shareholder meets certain requirements, such as voting
against the merger or abstaining from voting.
! Arbitration
A method of alternative dispute resolution whereby a dispute, with the consent of the parties, is submitted to a neutral
person or group for a decision. Usually includes a full evidentiary hearing and presentations by attorneys for the parties.
The merger agreement may provide that the arbitrators decision be binding or non-binding.
! Basket
The basket is the threshold claim amount that must be reached before the seller becomes liable for the buyers losses; it
functions in one of three ways. Under a deductible basket, the seller is only liable for damages in excess of the
threshold amount. If the agreement includes a first dollar basket, the seller is liable for all damages once the threshold
amount has been reached. A combination basket includes a threshold claim amount that is higher than its deductible
amount.
! Cap
The maximum recovery a buyer may obtain for indemnification claims. Many agreements include separate caps for
different types of breaches.
! Closing date
The date on which the transaction is consummated, i.e., the date on which the purchase price is paid and the merger
occurs.
Glossary
! Consequential damages
Damages that are not a direct result of an act, but a consequence of the initial act. To be awarded consequential
damages, it typically must be shown that the damages were a foreseeable result of the initial act.
! Covenant
Covenants are actions that must be taken or not taken by the parties. In a merger agreement, covenants may require the
parties to take actions both before and after the closing.
! Diminution in value
Damages that result from the loss in value to an asset or enterprise. In the context of a merger, it typically refers to a
loss that results from a decrease in value due to a breach of the merger agreement.
! Earn-out
A provision stating that the selling shareholders will obtain additional consideration if the seller or surviving company
reaches certain milestones. Examples include revenue targets, receipt of regulatory approvals, etc.
! Escrow/holdback
A portion of the merger consideration that is deposited with a neutral third party (in the case of an escrow) or withheld
by the buyer (in the case of a holdback) to be applied towards potential future indemnification claims by the buyer. After
a specified period of time (the survival period) any consideration remaining in the escrow or holdback account is released
to the selling shareholders.
! Incidental damages
Damages that are awarded as compensation for the buyers commercially reasonable expenses resulting from a breach by
the seller. Examples include the costs of handling, shipping, and replacing faulty inventory, costs associated with
restatement of the sellers financials, and the costs associated with bringing the seller into compliance with applicable
regulations.
! Indemnification
Where one party (typically the seller) to an agreement reimburses the other (typically the buyer) for any losses they incur
as a result of the transaction.
Glossary
! Management carveout
A plan put in place to incentivize the sellers management team or employees to stay with the company until it is sold,
often by allocating a portion of the purchase price directly to such employees to be paid before satisfying liquidation-
preference overhangs.

! Mediation
A form of alternative dispute resolution where the parties attempt to negotiate a settlement with the assistance of a
neutral third party. Unlike arbitration or litigation, the resulting agreement, or lack thereof, is wholly controlled by the
parties.
! Punitive damages
Damages awarded to an injured party that go beyond what is necessary to compensate them for their losses and which
are intended to punish the wrongdoing party.
! Representations and warranties
Representations are statements of fact by the seller regarding the condition of its business, covering virtually all aspects
of the company. Warranties are the sellers assurances to the buyer that the representations are true, and that if they are
not, the buyer will be entitled to seek legal remedies.
! Sandbagging
Where a party may seek indemnification for the other partys breach of the merger agreement even if the non-breaching
party had knowledge of the breach prior to closing.
! Signing date
The date on which the merger agreement is signed by the principal parties. Closing typically, but not always, occurs on a
later date.
! Survival
The time period after closing in which the buyer may make a claim against the seller or selling shareholders for breach of
their representations, warranties and covenants. The time period is usually shorter than the applicable statute of
limitations.
The information herein may not be stripped of any copyright or trademark information or copied, published or used, in whole or in part, for
any other purpose than as expressly authorized by SRS. In preparing this study, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of
our clients or which was otherwise reviewed by us. The terms of the agreements surveyed for this Study vary widely and are subject to many
competing interpretations; the conclusions presented in this Study are therefore subject to important qualifications that are not expressly
articulated herein. SRS makes no representations as to, and no party shall be entitled to rely upon, the legal, regulatory, or tax implications of
the matters referred to in this study, and neither SRS nor any of its directors, officers, employees or agents shall incur any responsibility or
liability whatsoever to any party in respect of the contents of this study or any matters referred to in, or discussed as a result of, this
document.
SAN FRANCISCO BOSTON DENVER ISRAEL

p. 415.367.9400

Data Inquiries: dts@shareholderrep.com
Prospective Clients: sales@shareholderrep.com
Existing Clients: support@shareholderrep.com

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2012 SRS M&A Deal Terms Study | 1 2012 Shareholder Representative Services LLC. All rights reserved.

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