What Does Your Watch, My Watch Clause Mean?
The "your watch, my watch" clause refers to the general indemnification provided by the seller in most purchase and sale agreements. It usually states that the seller will indemnify the purchaser from any third party claims that may arise from issues related to the time prior to the transaction. The name comes from the fact that the seller is responsible for all costs/issues during "their watch" pre-transaction, and the buyer is responsible for all costs/issues during "their watch" post transaction.
Divestopedia Explains Your Watch, My Watch Clause
The "your watch, my watch" clause can be punitive to sellers, but it is meant to protect buyers from unforeseen problems that were brewing pre-transaction. Good examples would be litigation or warranty costs brought forward from circumstances or events under the seller's watch well before the transaction was completed. This clause is particularly applicable when the buyer conducts a share purchase (rather than an asset purchase), since the buyer then acquires all liabilities — accrued and not accrued, disclosed and undisclosed — of the company.
Given the potential impact on the seller of the "your watch, my watch" clause, stock purchase agreements usually include some limitations often referred to as baskets and caps. A basket places a ceiling on the total cost of the claim under the general indemnity. A cap limits the amount of the claim a buyer may place.
