An asset purchase agreement indemnification clause is a crucial part of any agreement when one party is purchasing assets from another. This clause ensures that the buyer is protected from any potential liabilities or losses that may arise from the acquisition.
Indemnification essentially means that one party agrees to compensate the other party for any damages or losses that may occur as a result of the asset purchase agreement. In other words, if the buyer is sued by a third party or suffers any financial losses due to a pre-existing liability or obligation of the seller, the seller agrees to reimburse the buyer for those losses.
The indemnification clause in an asset purchase agreement is typically one of the most heavily negotiated terms. Both the buyer and seller want to ensure that they are protected in the event of unforeseen circumstances.
Some of the key considerations when drafting an indemnification clause include:
Scope of indemnification: The clause should specify what types of losses or damages the seller will be responsible for indemnifying the buyer against. This may include things like breach of warranty, environmental liabilities, product liabilities, or intellectual property infringement.
Limitations on indemnification: The clause may also set limits on the seller`s liability, such as a cap on the total amount of damages that can be claimed or a requirement that the buyer must exhaust other remedies before seeking indemnification.
Notice and procedure: The clause should specify the procedure for making a claim for indemnification, including deadlines for providing notice and submitting proof of damages.
Survival and duration: The indemnification clause should also specify how long the seller will be responsible for indemnifying the buyer, such as a specific time period or until any applicable statutes of limitations have expired.
In summary, an asset purchase agreement indemnification clause is an important protection for both the buyer and seller in any asset purchase transaction. Careful negotiation and drafting of this clause can help ensure that both parties are protected in the event of unforeseen circumstances or liabilities.