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High Technology Update AUGUST 2010 Focus: M&A Transactions Using Representations & Warranties Insurance to help facilitate a deal At the heart of every merger, acquisition or other business transaction is the allocation between the parties of the risks and liabilities, whether known or unknown, that are inherent in the deal. Representations and warranties, together with indemnification provisions and the security supporting such indemnity, provide essential protections for the buyer in a business transaction. However, the inability of the parties to agree upon the appropriate allocation of these risks and liabilities, manifested in disagreements over the precise language of the representations and warranties, the scope of the indemnification provisions and/or the appropriate type of security to support the indemnity is often the reason that otherwise mutually beneficial deals fail to reach completion. Representations and Warranties Insurance can help the parties reach their mutual goal - consummating the deal - by enabling the parties to resolve these disagreements in an efficient and timely manner. What does Reps & Warranties cover? A Representations and Warranties Insurance policy provides coverage for breaches of the representations and warranties in the Acquisition Agreement or Merger Agreement. Essentially, the insurance carrier steps into the shoes of the Seller as the indemnifying party. The policy can be drafted to cover all of the representations and warranties or a select number of them and can be structured as either a Buyer-Side or Seller-Side policy. Why would a Seller purchase this insurance? • Seller wants to make a clean break from the deal and avoid the potential of being subjected to indemnification claims for an extended period after the closing. • Seller wants to utilize the deal proceeds to implement its strategic and financial objectives following the closing: (i) de-leverage its balance sheet; (ii) engage in strategic acquisitions; (iii) invest in research and development for new products; or (iv) pay off investors. • Seller is motivated by strategic considerations (e.g., Seller wants to eliminate obstacles to closing the deal, Seller wants to expand the pool of potential suitors by providing a higher level of indemnification). For more information on facilitating a M&A transaction, contact WGA's High Tech Practice or your WGA Client Executive or email us at info@WGAins.com or call us at 888.261.8884. What's New WGA is proud to be a sponsor of Deloitte Technology Fast 500™: Tri-State a program recognizing the efforts of the 500 fastest-growing technology companies in the U.S. Click here for more information. WGA InsureBlog Recent High Tech Blog Posts UAE disrupting data security exposes tech companies to expanded risks MORE > The cost of Health Net’s privacy and security breach MORE > Ageism is the next Employment Practices Liability frontier MORE > Privacy risks extend beyond your own systems MORE > Technology sector M&A activity looks promising MORE > Over 600 tech companies look to WGA for information and advice on risk management, ranging from the latest venture-backed startups to large publicly-traded, global operations. HighTechInsurance.com