An escrow account is an agreement by which a third party (for example. B, a law firm or bank) temporarily holds the assets associated with a transaction and is responsible for them until it is closed to provide security to the parties. In the event of mergers and acquisitions, all or part of the purchase price may be deposited in trust to secure the interests of the parties. Escrow is particularly useful for holdbacks, earn-outs and purchase price adjustments, as well as a benchmark for compensation funds (if necessary). Escrow is the subject of a separate agreement and sets out the conditions under which the trustee may distribute the deposited funds or property held by the trustee on behalf of the parties. An escrow contract must be carefully and specifically designed to capture the key elements that determine whether funds should be paid or withheld in relation to its purpose. If the seller transfers only part of his share and retains the rest, it is important that the purchase contract regulates the assignment of the seller`s rights. The default position under the shareholders` agreement – which may be undesirable – may require the seller and the new investor to jointly exercise these rights. The purchase agreement includes requirements for the seller to disclose certain information related to the transaction. This includes the list of assets, liabilities, ongoing litigation, employees, licenses, and hardware contracts. The disclosure is made according to schedules, which are then attached to the purchase contract. The seller is responsible for the scheduling process (which is only slightly less tedious than the due diligence process) based on the requirements of the purchase agreement. If material information is not included in Seller`s disclosures, it will not technically be deemed to have been disclosed to Buyer.
Particular attention should be paid to the elements to be disclosed and appropriate restrictions on disclosure should be negotiated. Investments in private companies through secondary acquisitions may at first glance seem like opportunities to take or leave with little room for negotiation. However, savvy investors still evaluate all important aspects of investment construction as with primary investments, and they will usually find room for negotiation and creativity on critical trading terms. The seller should also be required to ensure compliance with the shareholders` agreement, as the new investor is generally responsible for all of the seller`s obligations in the shareholders` agreement under an accession or instrument of accession. This last point should also include full compliance with ROFR, ROFO or tag-along regulations as described above. If the transaction is structured in such a way that it involves the acquisition of a company that owns the company`s shares, a typical set of “special purpose vehicle” warranties is essential (including valid training, absence of business activities and liabilities, capitalization, ownership of the seller of SPV shares, etc.). Since stock purchase agreements are designed to protect all parties involved, there are very few cases where you should consider not using one: diligence is usually more limited in secondary transactions. The company may be slow or even reluctant to facilitate the due diligence process. After all, the company does not receive the investor`s money. At the same time, due diligence is important for an investor because, unlike a typical primary investment (see section 9 below), they cannot expect a contractual relapse of the company`s representations, warranties and indemnities in their purchase agreement with the Seller. The first section of your share purchase agreement is often referred to as the preamble.
This section identifies the agreement, identifies the parties and sets the date of the contract. In the preamble, you often see parties called “sellers” and “buyers.” A “materiality scratch” is a provision typically included in a SPA compensation clause to favor a buyer. It generally provides that in determining whether an insurance is inaccurate or whether a warranty has been breached, or in calculating the amount of damage or loss due to inaccuracy or breach (or both), all qualifiers relating to materiality or knowledge in Seller`s representations and warranties for indemnification purposes will be ignored (overwritten). In the case of the acquisition of shares, binding legal opinions are often prepared by the seller`s lawyers, and their delivery to the buyer is a frequent prerequisite for closing. These legal notices are intended for a buyer to rely on and provide a warranty. In case of inaccuracy or inaccuracy, the Buyer may appeal to the law firm as well as to the Seller with regard to violations of the SPA or additional documents. In such legal notices, seller`s attorney will typically comment on issues such as: In some cases, a buyer may want the flexibility of indemnification as a non-exclusive remedy, allowing them to pursue other causes of action or remedies to ensure that it can be complete. This is desirable if there is a risk that the compensation provisions will not adequately protect the buyer in the event of unforeseeable damage and allow him to avail himself of all the precautionary measures and reparations provided for by the applicable legislation, without being limited to the remedies provided for by the SPA. Sellers may prefer exclusive remedies because without them, a buyer could circumvent the negotiated terms and compromise the primary purpose of the indemnification provisions.
Exclusive remedies may also serve as an upper limit of indemnification liability. A share purchase agreement exists between a buyer who wishes to buy shares of a company from a seller at a fixed price. The agreement includes the number (#) of shares, the price ($) per share and the date of sale. All other terms must be negotiated between the parties and after signing, the exchange of funds for shares usually takes place as soon as possible. Once the shareholders` agreement is drafted, other contracts and annexes will also be drafted to form part of the final agreement. In addition, the parties must take into account the manner and place of dispute resolution. The parties are generally free to choose the applicable law and it does not have to be linked to the location of the parties or the subject matter of the contract. Therefore, parties to an SPA should also indicate in which country a dispute is to be resolved and whether such a decision will be made in court or by arbitration. Some courts are willing to apply the laws of another jurisdiction.
Some courts require that one of the parties or the transaction have a connection with the jurisdiction in which the decision is to take place and apply a test to determine a link with the jurisdiction or to apply a monetary threshold that a dispute must exceed in order for the courts of that jurisdiction to have jurisdiction over the case. .