Indemnification

by a searcher from The University of Chicago - Booth School of Business

1 year ago

I'm in the process of negotiating an LOI on a business, and have run into an ask from the seller that I'm not sure how to take. I'd mentioned in the LOI that the definitive purchase agreement would contain indemnification provisions up to the full purchase price. The sellers want to limit indemnity to the seller note only (10% of the purchase price). To me, this seems to be problematic considering the information asymmetry in any deal, but I'm not sure whether my take is reasonable. Any thoughts would be appreciated.

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7 comments

intermediary from The University of Chicago - Booth School of Business

100% on fundamental reps, is ok. Not for any others.

3 months ago | like reply | 0 likes

professional from University of Miami

You could also limit indemnification to 10% where a nondisclosure or breach of covenant is non-material. Should the breach or nondisclosure be material, or cause (directly or indirectly) a material adverse change or condition, then the coverage would increase to 100%. On the 100%, you could suggest that the provision would be covered if they purchased insurance to cover the indemnification. That however, could have a non-coverage provision if the seller "knowingly" fails to disclose or breaches a covenant. Let me know if you have any questions: --@----.com or###-###-####

4 months ago | like reply | 1 like

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