Contribution Agreement
(Seller Indemnification, Acquisition Transaction)

Summary

This contribution agreement template may be used in situations where (a) the sellers have agreed to joint and several liability for indemnification obligations in the acquisition agreement but wish to ensure among themselves that any indemnification obligations are borne on a pro-rata basis or (b) where one or more controlling stockholders has undertaken indemnification obligations in the acquisition agreement but wishes to receive contribution from the remaining sellers in the event that payments must be made. This template contains practical guidance and drafting notes. This template provides for a relatively straightforward and neutral contribution right that requires each seller to pay their fair share of any joint indemnification obligation paid by another seller. Contribution obligations ensure that sellers share equally in the burden and benefit of payments made against joint indemnification obligations. The default provisions in this template require each seller to pay their allocable percentage of an indemnification payment made to the buyer, provides a claw back for contributions that have been reimbursed by another party, prevents a seller from seeking or obtaining contribution for an indemnification payment that resulted from their own wrongdoing or breach of a representation made individually, and addresses the recalculation of contributions if one seller fails to make a required contribution. You should customize these provisions as necessary to reflect the relationships, bargaining power, and dynamics among the parties to the agreement. For example, though purchase agreements may contain caps, baskets, and other provisions which may limit or reduce the sellers' maximum indemnification liability, you can make the contribution provisions in this agreement more favorable to an individual contributing seller by capping that party's contribution to a certain percentage or amount (as opposed to their allocable percentage). For a full listing of related M&A provisions content, see M&A Provisions Resource Kit. For more information on indemnification obligations and contribution agreements, see Indemnification Clause (Deductible), Indemnification Claims in Acquisitions, Key Drafting Considerations for Indemnification Provisions (Chart), and Indemnification Provisions in Private Acquisition Agreements. For a template contribution agreement with the appointment of a seller representative, see Seller Representative and Contribution Agreement.