This is Part IV of a multi-part blog dealing with seller indemnitees in business sale transactions. Part I dealt with dollar limitations. Part II touched on seller indemnities. And Part III touched on time limitations.
A reasonable question is whether the seller’s indemnitees apply to all seller matters set forth in the sale document pertaining to the transaction or only to select matters. Of course, this will vary from transaction to transaction based on a number of factors, including the relative bargaining positions of the parties.
I will briefly outline what was covered in two recent sale transactions, showing that there are definitely similarities, but still some important differences.
The seller indemnitees in the first agreement covered: (a) breaches of seller representations and warranties; (b) breaches of seller covenants and other agreements in the sale document; and (c) buyer payment of any seller retained liabilities.
The seller indemnities in the second agreement covered: (a) breaches of seller representations and warranties; (b) breaches of seller covenants and other agreements in the sales document; (c) buyer’s damages arising out of seller’s operation of the business and/or ownership of the purchased assets prior to the closing of the sale transaction; (d) buyer payment of any seller retained liabilities; and (e) any court determination that the sale of assets constitutes a fraudulent conveyance by seller.
In addition to the difference in the coverage area noted above, one would also have to examine the differences in representations, warranties and covenants between the two agreements to get an even greater sense of the differences.
At the end of the day, the seller wants to narrow seller’s area of exposure under the indemnity clause while the buyer wants to expand seller’s area of exposure. This is part of the process of buyer/seller interplay in any business purchase transaction.
I will be back after the first of the year with other topics. I would like to take this opportunity to wish everyone Merry Christmas, Season’s Greetings and Happy Holidays.
Michael W. Margrave
Disclaimer: This blog is for information purposes only. Legal advice is provided only through a formal, written attorney/client agreement.