Ui - Drafting Spa (Abnr)

Contract Drafting: Case Study on the Share Purchase Agreement
ABNR
INTRODUCTION
• Types of commercial/corporate contracts

• Content of share purchase agreements
– Parties
– Recitals
– Definitions and interpretation
– Body of the contract
– Signature page
– Schedules
• Sellers’ vs purchasers’ friendly agreements
• Using language
Ali Budiardjo, Nugroho, Reksodiputro

1. CORPORATE CONTRACTS
• Sale and Purchase Agreements (SPAs)

– Shares = Share Purchase Agreements or SPAs
– Business / assets = Business Purchase Agreement or BPAs
– Shares + Business = Share and Business Purchase
Agreements
• Share Subscription Agreements

• Loan Agreements (i.e. facility, intercompany)

1. CORPORATE CONTRACTS
• Employment Agreements
• Commercial Agreements, i.e.:

- License Agreements
- Transitional Services Agreements

2. CONTENT OF SPAS

Parties
• Details of parties: identification
• Certainty of funds
– Third party guarantee (for instance bank or parent
company)
– Escrow account
• Only parties can be bound by the agreement, not third

parties!

Recitals
• A formal statement appearing in a legal document

such as a deed that is preliminary in nature and
provides an explanation of the reasons for the
transaction.
• Types of recitals: context, purpose, “lead-in”
• Non-binding, but explaining the intent of parties

Definitions and interpretation
• List of terms that are frequently used in the agreement

(sometimes in separate schedule), i.e. Agreement,
Closing, Conditions Precedent, Disclosed, Parties,
Purchase Price, Purchaser, Seller, Warranties
• Be careful when reviewing definitions, see for instance
terms like Affiliates, Law, Losses, Subsidiaries

Body of the contract
Sale and Purchase; transfer
• Clause describing the core of the transaction
• Often there is a time gap between “signing” (of the

agreement) on the one hand and “closing” or
“completion” (transfer of the shares) on the other hand.
Transfer then only takes place upon the fulfilment of
so-called conditions precedent

Purchase price
• Cash or kind
• Timing of payment – deferred payment, earnout (see

also clause relating to closing)
• Possibility to adjust the purchase price?
• Non-embarrassment clause

Conditions precedent
• Positive conditions precedent (CPs):

– Corporate approvals: Board of Directors, Board of
Commissioners, shareholders (check Articles of Association
and Shareholders’ Agreement)
– Third party approvals: i.e. customers, suppliers, spouses (in
case of individual seller)
– Regulatory government approvals: i.e. BKPM, OJK,
competition authorities

Conditions precedent (cont.)
• Negative CPs:
– MAC-clause: Material Adverse Change / MAE-clause:
Material Adverse Effect
– No breach of covenants / warranties

Conditions precedent (cont.)
• Waivers - CPs for whose benefit?
• Materiality and “exit option” – deposit, break fee

• Long stop date

Pre-closing covenants
• Pre-closing covenants clause lists certain actions that

may not be undertaken by the seller unless with written
approval from the purchaser
• Purpose: “preserve” target between signing and
completion
• Positive covenants: carry on business in the ordinary
course
• Negative covenants: No change in constitution, share
capital, debt, distribution, business, M&A, employees,
litigation, etc., carve-outs for known or anticipated events
Closing (also called completion)
• Common closing steps:

– Provision evidence satisfaction conditions precedent
– Transfer of shares, assets
– Payment of purchase price
• Order of steps matters!

Purchase price adjustment
• No purchase price adjustment
• Closing accounts
– Purchase price agreed on cash free, debt free basis
– Adjustments post-closing
• Locked box
– Purchase price fixed at signing, calculated based on historical
balance sheet at a pre-signing date (Locked Box Date)
– Protection against leakage of value between Locked Box Date
and Closing through representations and warranties + indemnity
Post-closing actions
• Release of guarantee
• Change of name
• Retention of records
• Tax indemnity

Non-compete undertaking
• Parties agree not to compete in certain fields
• Limitation in time and place

Warranties
• Seller’s Warranties vs Purchaser’s Warranties
• Type of Warranties
– Transaction – due authorisation, no breach, enforceability,
etc
– Title – shares duly authorised, validly issued, fully paid,
free from encumbrances, etc
– Business – overall and specific

Warranties (cont.)
• Purpose of warranties
• Discovery – prompts disclosure
• Termination (prior to closing)
• Risk allocation – claim for loss arising from breach of
warranties (prior to or after closing)
• Scope of warranties
• Knowledge qualifier
• True at date of signing or also at date of closing
Warranties (cont.)
• Warranties and disclosure

• Disclosure “neutralises” warranty
• But indemnity claims
• Disclosure letter:
• General (data room, Q&A log) vs specific disclosure
• Fair disclosure

Limitations of liability
• Disclosure
• Financial limits: minimum claims, aggregate minimum

claims, maximum liability
• Time limits: claim notice period, claim pursuit period,
statutory time bar

Limitations of liability (cont.)
• Definition of loss: direct vs indirect, consequential

loss, loss of profit
• Mitigation of losses, insurance
• Notification procedure
• Joint and several liability vs several, but not joint,
liability

Specific indemnities
• Indemnities vs warranties claim:
• Foreseability
• Default requirement
• Limitations of liability
• Effect of disclosure
• Indemnities:
• Tax indemnity
• Environmental indemnity
• Third party guarantees / joint and several liability
Default and remedies
• Specific performance
• Compensation for loss

• Termination: usually only prior to closing
• Dissolution: usually excluded (and party in error to
bear risk of that error)

Confidentiality
• Confidentiality generally relating to the agreement, the

negotiations, parties to the agreement
• Exceptions:
– Disclosure required by law
– Disclosure for purpose of any legal proceedings arising out of the
agreement
– Disclosure to professional advisors
– Information that is already publicly available
– Disclosed with prior written approval from the other party

Boilerplate clauses
• Boilerplate is any text that is or can be re-used in new

contexts or applications without being greatly changed
from the original
• In contract law, the term "boilerplate language"
describes the parts of a contract that are considered
standard

Further assurances
• Obligation of parties to cooperate in the execution of

the agreement

Entire agreement
• Agreement is only agreement and superseeds any

previous written agreement between the parties

No assignment
• Interest over and right and obligations under the

agreement may not be transferred, unless with prior
written consent of a party

Invalidity
• Invalidity of a clause should have no consequences for

the rest of the agreement
• Parties to negotiate on alternative wording of clause
that is valid

Counterparts
• Agreement does not need to be signed by all parties,

instead they can sign counterparts

Governing law and dispute resolution
• Choice of law limited in the sense that there should be

a connection between the law and the parties or the
obligations to be performed
• Dispute resolution: courts are often avoided, instead
choice for arbitration, for instance under the Rules of
BANI, SIAC, ICC

Language
• Language law: documents involving an Indonesian

party should be in the Indonesian language
• Case law: agreement rendered void because
agreement involving an Indonesian party was in the
English language only

Signature page
• If party is company an authorised representative

should sign the agreement – generally one or several
members of the Board of Directors
• Check Articles of Association and Shareholders’
Agreement and ask for Power of Attorney (in notary
deed form)!

Schedules
• Definitions
• Warranties
• (Agreed form) disclosure letter
• (Agreed form) deeds of transfer
• (Agreed form) ancillary agreements, i.e. transitional
services, trademark license, secondment of personnel

3. SELLER VS PURCHASER FRIENDLY
• Crucial clauses in SPA relate to risk allocation:

– Conditions precedent (MAC-clause, approvals)
– Guarantees
– Warranties and scope
– Limitations of liability (financial limits, time limits, disclosure,
definition of loss)
– Specific indemnities
• Negotiate!
4. USING LANGUAGE
• Use simple, not complex words

• Avoid unnecessary legalese (specialised vocabulary of
the legal profession)
• Use active verbs
• Keep sentences short, gramatically correct and properly
punctuated
• Delete redundant words and phrases

Questions & Answers

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Contract Drafting: Case Study on the Share Purchase Agreement

• Types of commercial/corporate contracts

Ali Budiardjo, Nugroho, Reksodiputro

• Sale and Purchase Agreements (SPAs)

• Share Subscription Agreements

Ali Budiardjo, Nugroho, Reksodiputro

• Commercial Agreements, i.e.:

Ali Budiardjo, Nugroho, Reksodiputro

Ali Budiardjo, Nugroho, Reksodiputro

• Details of parties: identification

• Only parties can be bound by the agreement, not third

Ali Budiardjo, Nugroho, Reksodiputro

• A formal statement appearing in a legal document

Ali Budiardjo, Nugroho, Reksodiputro

• List of terms that are frequently used in the agreement

Ali Budiardjo, Nugroho, Reksodiputro

Sale and Purchase; transfer

• Clause describing the core of the transaction

• Often there is a time gap between “signing” (of the

Ali Budiardjo, Nugroho, Reksodiputro

• Timing of payment – deferred payment, earnout (see

• Possibility to adjust the purchase price?

Ali Budiardjo, Nugroho, Reksodiputro

• Positive conditions precedent (CPs):

Ali Budiardjo, Nugroho, Reksodiputro

Conditions precedent (cont.)

Ali Budiardjo, Nugroho, Reksodiputro

Conditions precedent (cont.)

• Waivers - CPs for whose benefit?

• Materiality and “exit option” – deposit, break fee

Ali Budiardjo, Nugroho, Reksodiputro

• Pre-closing covenants clause lists certain actions that

Closing (also called completion)

• Common closing steps:

• Order of steps matters!

Ali Budiardjo, Nugroho, Reksodiputro

Purchase price adjustment

• No purchase price adjustment

Ali Budiardjo, Nugroho, Reksodiputro

• Parties agree not to compete in certain fields

• Limitation in time and place

Ali Budiardjo, Nugroho, Reksodiputro

• Seller’s Warranties vs Purchaser’s Warranties

Ali Budiardjo, Nugroho, Reksodiputro

• Warranties and disclosure

Ali Budiardjo, Nugroho, Reksodiputro

• Financial limits: minimum claims, aggregate minimum

Ali Budiardjo, Nugroho, Reksodiputro

Limitations of liability (cont.)

• Definition of loss: direct vs indirect, consequential

Ali Budiardjo, Nugroho, Reksodiputro

Default and remedies

• Compensation for loss

Ali Budiardjo, Nugroho, Reksodiputro

• Confidentiality generally relating to the agreement, the

– Information that is already publicly available

– Disclosed with prior written approval from the other party

• Boilerplate is any text that is or can be re-used in new

Ali Budiardjo, Nugroho, Reksodiputro