APPENDIX 1
EXAMPLE SELLER ‘NO LEAKAGE’ CLAUSE
1.1 Each of the Sellers severally (but not jointly or jointly and severally) undertakes to the Purchaser that since the [insert date from when the locked box runs]:
(a)there has not been any Leakage and there will not be any Leakage in the Pre-Closing Period; and
(b)no arrangement or agreement has been made or will be made that will result in any Leakage.
1.2Other than any Permitted Leakage, so far as each Seller is aware, since [insert date from when the locked box runs] no Target Company has paid nor has become obliged to pay any third party costs relating to the Proposed Transaction.
1.3Subject to clause 1.4, each Seller severally (but not jointly or jointly and severally) undertakes to the Purchaser that if there is a breach of any of the undertakings set out in clause 1.1 or a breach of clause 1.2 by it, it shall, following Closing, pay or procure payment in cash to the Purchaser on demand a sum equal to the amount of such Leakage or, as applicable, such third party costs.
1.4The liability of each of the Sellers pursuant to this clause 1 shall terminate on the date falling [2]1 months after Closing unless prior to that date the Purchaser has notified the relevant Seller of a breach by it of the undertakings set out in clauses 1.1 to 1.3, [in which case, in relation to any relevant breaches notified, the Seller shall remain liable until any relevant Claims have been satisfied, settled or withdrawn].
1This is very seller friendly. Consider what is reasonable depending on when the next accounts are due to be audited – if warranties are being given then you could mirror the time limitation for the general warranties.
Relevant definitions
Affiliate means:
(a)in the case of a person which is a body corporate, any subsidiary or parent company of that person and any subsidiary of any such parent company, in each case from time to time;
(b)in the case of a person which is an individual, any spouse, co-habitee and/or lineal descendants by blood or adoption or any person or persons acting in its or their capacity as trustee or trustees of a trust of which such individual is the settler;
(c)in the case of a person which is a limited partnership, the partners of the person or their nominees or a nominee or trustee for the person, or any investors in a fund which holds interests, directly or indirectly, in the limited partnership; and
(d)any Affiliate of any person in paragraphs (a) to (c) above.
Closing means completion of the sale and purchase of the Shares and the Loan Notes in accordance with the provisions of this Agreement;
Closing Date means [ ];
Leakage means in each case to, or on behalf of, or for the benefit of any Seller or any of its Affiliates:
(e)any dividend or distribution (whether in cash or in kind) or any return of capital (whether by reduction of capital or redemption or purchase of shares) from any Target Company;
(f)any fees (including directors’ fees or monitoring fees) paid by any Target Company (excluding any VAT in respect of the fees which is recoverable by the Target Companies by repayment or credit); and
(g)any payment of interest or principal in respect of any indebtedness owed by any Target Company,
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but does not include Permitted Leakage.
Permitted Leakage means the following payments made, or to be made, by the Company or any other Target Company to the Investors or otherwise: [set out details];
Pre-Closing Period means the period from and including the date of this Agreement to and including the Closing Date;
Target Companies means the Company and its subsidiaries, and Target Company means any of them;
VAT means value added tax and any similar sales or turnover tax;
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APPENDIX 2
EXAMPLE PURCHASER ‘NO LEAKAGE’ CLAUSE
1.1 Each of the Sellers [jointly and] severally undertakes to the Purchaser that since the [insert date from when the locked box runs]:
(a)there has not been any Leakage and there will not be any Leakage in the Pre-Closing Period; and
(b)no arrangement or agreement has been made or will be made that will result in any Leakage.
1.2Each Seller jointly and severally undertakes to the Purchaser:
(c)that if there is a breach by it or any of its Affiliates of any of the undertakings set out in this clause 1, it shall pay or procure payment in cash to the Purchaser on demand a sum equal to the aggregate of: (i) the amount which would be necessary to put the relevant Target Company into the financial position which would have existed had there been no breach of the undertaking; and (ii) all costs, losses, liabilities or expenses (including taxes) suffered or incurred by the Purchaser or any of its Affiliates in connection with the breach; and
(d)to notify the Purchaser in writing promptly after becoming aware of anything which would constitute a breach by it or any of its Affiliates of any of the undertakings set out in this clause 1.
Relevant definitions
Affiliate means:
(a)in the case of a person which is a body corporate, any subsidiary or parent company of that person and any subsidiary of any such parent company, in each case from time to time;
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(b)in the case of a person which is an individual, any spouse, co-habitee and/or lineal descendants by blood or adoption or any person or persons acting in its or their capacity as trustee or trustees of a trust of which such individual is the settler;
(c)in the case of a person which is a limited partnership, the partners of the person or their nominees or a nominee or trustee for the person, or any investors in a fund which holds interests, directly or indirectly, in the limited partnership; and
(d)any Affiliate of any person in paragraphs (a) to (c) above.
Closing Date means [ |
]; |
Connected Persons means (in relation to a Seller) the officers, employees, agents and advisers of that Seller or any of its Affiliates;
Leakage means:
(e)in each case to, on behalf of, or for the benefit of any Seller or any of its Affiliates or Connected Persons:
(i)any dividend or distribution (whether in cash or in kind) declared, paid or made by any Target Company;
(ii)any management, service or other charges or fees paid by any Target Company;
(iii)any return of capital (whether by reduction of capital or redemption or purchase of shares or otherwise) by any Target Company or any amount payable on the repurchase, repayment, redemption, reduction or cancellation of any share capital, loan capital or other securities of a Target Company;
(iv)any waiver, deferral or release by any Target Company of any amount or obligation owed or due to such Target Company;
(v)any payment of interest or principal in respect of any indebtedness owed by any Target Company;
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(vi)any transaction other than on arm’s length third party terms;
(vii)any payment of any costs, bonuses or other sums by any Target Company;
(viii)any assumption or discharge of any liability (including in relation to any recharging of costs of any kind) by any Target Company;
(ix)any guarantee, indemnity or security provided by any Target Company in respect of the obligations or liabilities of any Seller or any of its Affiliates;
(x)any other payments made (whether in cash or kind) or benefits conferred by any Target Company; and
(b)any payments made, or liabilities incurred, by any Target Company [to any third party outside the ordinary course of business and/or] relating to the Proposed Transaction (including any transaction or retention bonuses for management or advisers’ fees payable in connection with the Proposed Transaction),
but does not include Permitted Leakage.
Permitted Leakage means the following payments made, or to be made, by the Company or any other Target Company to the Investors or otherwise: [set out details];
Pre-Closing Period means the period from and including the date of this Agreement to and including the Closing Date;
Target Companies means the Company and its subsidiaries, and Target Company means any of them;
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