Seller Representative Clause

Summary

This clause appoints a representative and grants such representative with the authority to act on behalf of the sellers in connection with an acquisition transaction. This clause includes practical guidance, drafting notes, and optional clauses. In a transaction with multiple sellers, the sellers may appoint one person or entity to act as a sellers' representative on behalf of all the sellers regarding matters relating to the acquisition in order to facilitate interactions between the buyer and the various sellers. Typically, the seller representative will be one of the sellers in the transaction and, commonly, will be the seller with the greatest economic interest in the acquisition. Drafting a Seller Representative Provision The seller representative provision in an acquisition transaction should (1) establish the scope and authority of the representative, (2) provide for certain protections for the representative, and (3) provide a mechanism for the replacement of the seller representative. Scope and Authority of the Representative. The authority granted to a seller representative is usually broadly defined to allow the representative to act on all matters on behalf of the sellers. However, this power may be narrowly drafted to limit the representative's authority to a particular circumstance, such as dealing with indemnification matters. This model clause grants broad authority for the seller representative which may be pared back based upon the agreement between the representative and the sellers. Each seller must agree to grant the seller representative with the authority to act on its behalf in connection with the negotiation and execution of the acquisition agreement and any other ancillary agreements. This authority is commonly granted by appointing the representative as the attorney-in-fact of each seller with "full power of substitution" and giving the representative "full power and authority". Reliance. Both the seller representative and the buyer that interacts with the representative will seek assurances that the seller representative is dully authorized. To assure each of the seller representative and the buyer that the seller representative is authorized to act on behalf of the sellers, a seller representative clause should provide that the representative may rely on (1) documents that the representative reasonably believes to be genuine and accurate from a seller, or (2) instructions provided by persons who appear to have been authorized by a seller. The seller representative clause should also provide that a buyer can rely on any actions taken, or documents delivered, by the seller representative as duly authorized by the sellers. Seller Representative Liability Protections. A person or entity appointed as a seller representative will be reluctant to accept such appointment if acting in such capacity will expose them to liability. Thus, a seller representative clause will include language providing the representative with protection for actions taken or omitted while acting in their capacity as the representative. Further, the sellers will customarily indemnify the representative for any losses incurred while performing the function of the representative, subject to standard exceptions for gross negligence and willful misconduct. Replacement of Seller Representative. A well-drafted seller representative clause will specify the manner in which a seller representative can resign and the process by which the sellers can replace a seller representative when necessary. For a full listing of related stock acquisition and ancillary agreement resources, see Ancillary Agreements in M&A Transactions Resource Kit and Stock Acquisition Resource Kit. For a seller representative and contribution agreement, see Seller Representative and Contribution Agreement. For a template stock purchase agreement with seller representative provisions, see Stock Purchase Agreement (Pro-Seller) (DE).