Stock Purchase Agreement
(Representations and Warranties Insurance) (Pro-Buyer) (DE)

Summary

This template is a Stock Purchase Agreement governed by Delaware law for use in the acquisition of all of a private company's outstanding shares for cash from the company's stockholders. This template contemplates that the parties will obtain representations and warranties insurance (RWI). This template includes practical guidance, drafting notes, alternate clauses, and optional clauses. In a stock purchase agreement, a buyer purchases the shares of a target company from its stockholders. Unlike an asset acquisition, it does not buy specific assets from the target company. As a result, the company continues to operate as it existed prior to the stock acquisition. It continues to exist as a separate entity, to remain a party to its contracts, and to hold title to its assets; only the ownership has changed. Structuring an acquisition as a stock purchase has benefits and drawbacks. It is generally simpler from a structuring and documentation standpoint. Unlike an asset purchase, the parties do not need to identify specific assets and liabilities to be transferred, which may require extensive disclosure schedules and lengthy due diligence. Unlike a merger, there is no need to create a merger subsidiary entity or file a certificate of merger with state authorities. In addition, because the same entity will continue to hold the assets following the transaction, fewer third-party consents and transfer approvals will be required, which could further delay or complicate a transaction (other provisions known as "change of control" provisions may still be triggered, however). Stock purchase agreements are ideal when there are fewer stockholders, and if either all the stockholders agree to sell their shares or if minority stockholders can be compelled to sell their shares. For a discussion of how to compel minority stockholders to sell their shares, see the discussion of drag along rights in Stockholders' Agreements in M&A Deals. For a broader overview of the advantages and disadvantages of different transaction structures, see Asset Purchase, Stock Purchase, and Merger Structures: Benefits and Drawbacks. For a comparison chart of transaction structures, see Transaction Type Comparison Chart. Structuring a transaction as a stock purchase provides less flexibility than an asset purchase. Because an entire company is being purchased, a buyer cannot purchase only specific assets or portions of a business. Even more importantly, asset purchases allow a buyer to limit assumed liabilities, which protects the buyer from unknown or undisclosed liabilities. To avoid such liabilities, consider using an Asset Purchase Agreement (Pro-Buyer) (DE). Further, unlike a merger, a stock purchase agreement may not be possible if too many target company stockholders oppose to the transaction. Parties to a stock purchase agreement should always consider whether the offer and sale of the company's shares by the company's stockholders are exempt from registration under federal and state securities laws. The regulatory schemes that are addressed in this template are those that are generally applicable without regard to industry, such as antitrust, tax, ERISA, environmental, anticorruption, and federal securities regulation. The template is pro-buyer. For a pro-seller stock purchase agreement that does not contemplate the parties' obtaining a RWI policy, see Stock Purchase Agreement (Pro-Seller) (DE). For more detailed discussion of the considerations in drafting a stock purchase agreement, see Stock Purchase Agreement Basics. The template is pro-buyer. For a pro-seller stock purchase agreement, see Stock Purchase Agreement (Pro-Seller) (DE). For more detailed discussion of the considerations in drafting a stock purchase agreement, see Stock Purchase Agreement Basics. For additional resources relating to representations and warranties insurance, see: • Representations and Warranties Insurance • Representations and Warranties Insurance Covenant Clause • Representations and Warranties Insurance Closing Condition Clause • Indemnification Clauses (Representations and Warranties Insurance) • Representations and Warranties Insurance Policy Selection • Representations and Warranties Insurance Policies Strategic Uses • Representations and Warranties Insurance Drafting and Counseling Considerations • Representations and Warranties Insurance: A Closer Look at Claims • Representations and Warranties Insurance for the Private Equity Industry See also: • Conditions to Closing in Acquisition Agreements • Covenants in Acquisition Agreements • Critical Boilerplate in Acquisition Agreements • Purchase Price Provisions in Acquisition Agreements • Representations and Warranties in Acquisition Agreements • Statutory and Common Law Remedies in Acquisition Agreements • Termination Rights and Fees in Acquisition Agreements