Anti-sandbagging Provision

A provision that sellers in M&A transactions often try to include in the merger or purchase agreement to ensure the buyer cannot bring an indemnification claim based on an inaccuracy or breach of a representation or warranty that the buyer knew about before the closing if the buyer chooses to proceed and close the transaction despite the inaccuracy or breach of the representation. This provision provides the seller with an affirmative defense against an indemnification claim, limiting the buyer's indemnification rights and requiring the buyer to prove both the breach and its lack of knowledge of the breach to collect on an indemnification claim. Buyers often try to exclude the anti-sandbagging provision or include a sandbagging provision. For an example of an anti-sandbagging provision, see Standard Document, Stock Purchase Agreement (Auction Form): Section 7.04(g).

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