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Court Of Chancery Invalidates Indemnification Requirement In A Merger

Posted In M&A
Cigna Health And Life Insurance Company v. Audax Health Solutions Inc., C.A. 9405-VCP (November 26, 2014) Escrow provisions are common in merger deals, particularly those involving private equity. Here, however, the parties went a different route and tried to require the selling stockholders to agree to indemnify the buyer for various possible events. The Court stressed that its opinion was limited to invalidating such arrangements when the indemnification was unlimited in time and scope. The opinion also invalidates the use of a clawback provision in a transmittal letter used to obtain the merger consideration when tendering the stock bought in the merger. Share

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