Meaning
Contractual provisions in a purchase agreement specify the financial limits and time durations for compensation claims. These indemnity schedules outline the maximum liability a seller accepts for breaches of representations or warranties. They provide the roadmap for resolving disputes that arise after the closing of a deal.
Quantitative Cap
Negotiators set a ceiling on the total amount of money the buyer can recover through an indemnity claim. Within the indemnity schedules, this cap is often expressed as a percentage of the total transaction value. It ensures that the seller retains a predictable portion of the proceeds from the sale.
Survival Period
Different types of claims expire at different times depending on the nature of the risk. While general warranties might only last for eighteen months, the indemnity schedules frequently extend the period for tax or environmental liabilities to five years or more. This duration allows the buyer to complete several audit cycles before the protection ends.
Deductible Threshold
A basket or deductible prevents the buyer from filing small administrative claims that would disrupt the relationship. Under the indemnity schedules, no payment is made until the aggregate value of all losses exceeds a specified tipping point. This mechanism focuses the legal resources of both parties on substantial issues that affect the economic value of the business.
