The buyer is demanding a first-dollar indemnity basket and a liability cap equal to twenty percent of the total purchase price. How do we use our EOS® operating history and disclosure schedules to negotiate a safer tipping basket and a lower cap?

Question

Tyler Smith · Accepted Answer

Accepting a first-dollar indemnity basket and a high liability cap exposes your exit proceeds to serious post-close erosion. A first-dollar basket means the buyer can sue you for every minor issue once the total claims exceed a certain threshold. You must negotiate for a tipping basket or, ideally, a true deductible basket, where you are only liable for damages that exceed the deductible amount, shielding you from minor nuisance claims. To negotiate a lower cap, often targeted at five to ten percent of the purchase price, you must prove your business is highly de-risked. Use your EOS® operating history to demonstrate a track record of compliance, stable operations, and clear decision-making. Your documented history of Level 10 Meeting™ records and resolved Issues on your IDS® logs provides a paper trail showing that operational risks have been systematically addressed. Combine this operational transparency with a meticulous disclosure schedule. By fully disclosing every potential issue, no matter how small, you legally exclude those items from the buyer's ability to make indemnity claims post-close. This operational diligence directly justifies a lower liability cap.