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April 12th, 2021

Stock Purchase Agreement Indemnity Clause

Compensation clauses are the inherent instruments to protect the buyer`s interests in the event of a breach of the insurance and guarantees provided by the seller under the SG. In addition to breaches of contract by the seller, a compensation clause also protects a buyer from any third-party deed or the occurrence of an event that may or may not occur before the closing date under the G.S.O. In order to ensure the best possible protection against the existing or previous tax arrears of the business acquired prior to the acquisition, the buyer will generally endeavour to obtain certain guarantees and/or tax compensation from the seller. Although the parties expressly exclude the availability of alternative remedies, there are limits, so the exclusive appeal clause is not “watertight. In particular, under delaware law9 and English law10, for public policy reasons, a party cannot enter into a contract for its own liability for its own intentional fraud. Other states and countries, as far as I know, will not allow the parties to make a wider range of debt contracts, and this should be carefully considered when defining the appropriate applicable legislation for the acquisition agreement.11 Before asking the question, the difference between the de minimis threshold and the basket is that the former deal with individual claims, while the latter deal with the rights in the aggregate. How these two interact can be complex. With respect to the transactions I have seen, only claims exceeding the de minimis threshold are aggregated to determine when they exceed the basket. This is, needless to say, more favorable to sellers, assuming that it is usually the seller who is more likely to compensate the buyer. Most private equity acquisition agreements expressly provide that compensation is the only remedy available to the parties in the form of an “exclusive appeal clause” (see example below). The underlying logic is simple: why would anyone devote the time and energy to negotiating all these complex provisions, when a party could make a “final run” around these provisions by arguing another remedy in contract law or in fact unlawful? Compensation clauses often prevent the purchaser from claiming more than once for the same property, circumstance or circumstance on which the right in question is based. If the seller has paid compensation to the buyer and the purchaser and/or the dependent company has the right to recover from another person or as part of an insurance coverage an amount relating to the debt in question, the buyer is obliged to transfer that right to the seller or, if the payment is already received, to repay it to the seller.

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