Reading the Fine Print They Had Already Signed Away

The situation

Sukhwinder had tried to review the term sheet himself first. He drove a school bus during the day and had built the company's routing software on evenings and weekends for years before it grew into something worth selling, and he was not about to pay a lawyer to read a document he assumed was standard for a deal of this size. He read it twice, asked a friend who had once sold a small business to look it over, and signed it, satisfied he had done his diligence. It was only when Simran, his co-shareholder who worked as a pharmacy technician and held a smaller stake earned through years helping run the company's customer support, sat down to read the customer contracts referenced in the term sheet that something did not quite add up.

The two shareholders had also never fully agreed on timing. Simran was ready to walk away the moment a fair offer appeared, wanting to focus on her own career, while Sukhwinder had hoped to stay on in some advisory capacity for a while after any sale. That difference had mostly stayed in the background during the early conversations with the buyer, but it meant neither of them had pushed hard to slow the process down and get proper advice before the term sheet went out.

The company licensed a mapping and data component from a larger software provider and had, over the years, embedded that licensed component into the product it sold to its own customers, a group of small transit and delivery operators. Every one of those customer contracts included a clause promising to indemnify the customer, without any dollar limit, if the licensed component ever infringed someone else's intellectual property. Nobody on the company's side had thought much about that clause when it was first added to the customer contract template years earlier; it read as boilerplate, the kind of language everyone assumes nobody ever actually invokes in practice.

Emre, representing the buyer, a slightly larger technology company in the transit software space looking to expand through acquisition, had flagged the clause during preliminary review, not as a dealbreaker but as an open question his own counsel would need answered before a definitive agreement could be signed. The transaction was valued in the three-to-eight-million-dollar range, modest enough that neither side wanted to spend heavily on due diligence, but the uncapped indemnity, multiplied across a customer base of several dozen contracts, represented a theoretical exposure that could, in a genuinely bad scenario, exceed the entire purchase price several times over.

By the time Sukhwinder and Simran came to us, the term sheet was already signed, committing them in principle to move forward on terms that did not yet address this exposure at all, and the clock was running on getting a definitive agreement in place before the buyer's interest cooled and the whole deal quietly slipped away.

The complication

The complication was not just that the indemnity was uncapped. It was that nobody could say, with any precision, how big the real exposure actually was, and an uncapped promise attached to an unknown number is far harder to negotiate than a large but bounded one, because neither side has a fixed figure to argue toward. We started by identifying exactly which licensed component created the risk: a mapping and geolocation data set licensed from a third-party provider under an agreement that itself limited that provider's liability to the company to a modest, capped amount, far less than what the company had, in turn, promised its own customers over the years.

That mismatch was the real problem underneath the visible one. The company had, without meaning to, taken on more downstream risk toward its own customers than it had received protection for upstream from its own licensor. If a customer ever brought a genuine infringement claim tied to the mapping component, the company would owe that customer an uncapped amount, while its own recovery from the licensor who had actually caused the problem would be capped at a small fraction of that figure. This kind of gap is common when a business licenses a component early, before it fully understands how heavily its own product will come to depend on it years later, and then rolls the same customer contract template forward for years without anyone revisiting the underlying terms as the business grows.

We also found that the term sheet Sukhwinder had signed included a representation that the company's contracts were, to the sellers' knowledge, free of unusual or non-standard liability provisions. Strictly read, the uncapped indemnity arguably qualified as exactly that kind of provision, which meant that if it surfaced during the buyer's formal due diligence without having first been disclosed, it could look less like an honest oversight and more like a misrepresentation, exposing Sukhwinder and Simran personally after closing rather than remaining a contained, company-level problem the corporate entity alone would answer for.

Emre's side had not yet raised the misrepresentation angle directly, but it was a live risk sitting underneath the more visible indemnity question, and it needed to be addressed before the buyer's counsel found it independently during formal diligence, at which point the company would have had far less room to negotiate a fair resolution and much less credibility left to negotiate with once trust in the disclosure process had already been dented.

What we did

1. Mapped every customer contract carrying the uncapped clause. We reviewed the company's full customer list line by line to confirm exactly how many of the several dozen active contracts included the indemnity language, since the buyer's concern and our negotiating position both depended on knowing the true scope of the exposure rather than assuming every contract in the file was identical.
2. Quantified a realistic exposure range rather than the theoretical worst case. We estimated likely damages based on the size of each customer relationship and the practical nature of the licensed component, producing a defensible range far below the alarming worst-case figure, which gave both sides a concrete, grounded number to negotiate around instead of an open-ended, abstract fear neither party could ever fully resolve.
3. Reviewed the upstream licence to quantify the mismatch. We confirmed exactly what the company could recover from its own licensor if a claim ever arose, establishing the precise size of the gap between what the company owed its customers and what it could actually recover itself, which became the central, decisive fact in the entire indemnity negotiation and shaped every proposal that followed.
4. Disclosed the issue proactively to the buyer's counsel. Rather than waiting for Emre's team to find the clause independently during formal due diligence, we raised it directly ourselves, framed carefully with our quantified exposure range attached, which preserved the sellers' credibility and avoided the representation in the signed term sheet turning into a misrepresentation claim after the fact, once trust had already been established rather than eroded.
5. Negotiated a defined cap on the indemnity going forward. We worked closely with the buyer's counsel to amend the customer contract template, replacing the uncapped promise with a cap tied to a multiple of each contract's annual value, which brought future exposure into a bounded, genuinely insurable range for whoever owned the business next, rather than a liability nobody could actually price.
6. Addressed existing customer contracts through a closing condition. For contracts already signed under the old uncapped language, we negotiated a seller indemnity built into the purchase agreement itself, capped and time-limited, so the buyer remained protected without the sellers carrying open-ended personal liability forward past closing and into their retirement, long after they had stopped running the business day to day.
7. Revised the term sheet representation before the definitive agreement was drafted. We clarified the language describing the company's contracts to accurately and fully reflect the indemnity issue and its resolution, closing the gap that had created personal exposure risk for Sukhwinder and Simran under the originally signed term sheet, and giving the buyer's counsel language they could sign off on without reservation.
8. Walked both shareholders through the final structure together. Given their different timelines and different comfort levels with risk, we met with Sukhwinder and Simran jointly to confirm they both understood exactly what the revised terms meant for them personally, so neither would be surprised by an obligation after closing that they had not agreed to, and so both could sign with genuine confidence rather than lingering doubt.

The outcome

The definitive purchase agreement closed with the uncapped customer indemnity issue fully addressed: a capped indemnity structure for future contracts, and a bounded, time-limited seller indemnity covering the existing ones, in place of the open-ended exposure that had sat undetected in the company's contract template for years. The purchase price in the three-to-eight-million-dollar range was not reduced, since the quantified exposure, once properly bounded, was manageable enough that the buyer did not require a price adjustment on top of the contractual protections already negotiated.

Sukhwinder and Simran avoided the personal exposure that the original term sheet representation could have created had the issue surfaced later, during formal due diligence, framed as something they had failed to disclose rather than something they had proactively identified and fixed. Emre's team completed the acquisition confident that the licensed component's risk profile had been properly bounded rather than simply papered over for the sake of closing quickly.

Simran's preference to exit cleanly and Sukhwinder's hope to stay on informally were both accommodated within the final structure, since neither the cap negotiation nor the seller indemnity depended on either of them remaining involved with the business afterward. Both shareholders signed the closing documents with a clear, shared understanding of what they were and were not still responsible for.

The lesson for Sukhwinder, in particular, was less about the specific clause than about the limits of reviewing a term sheet alone, however carefully. What he had read twice and shown to a friend looked like standard language precisely because it was written to look that way. Untangling what it actually committed the company to took a specific kind of review, one aimed squarely at finding the mismatch between what the company promised its customers and what it could actually recover if that promise was ever called in by someone with a real claim.

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