Securities Purchase Agreement Lawyer
Securities Purchase Agreements: Key Provisions, Negotiation Issues, and Issuer Protections
Securities purchase agreements govern the most significant capital markets transactions an issuer will undertake. Every provision creates rights and obligations that affect the company for years. Securities counsel ensures the agreement protects issuer interests while maintaining the commercial terms necessary to close the transaction.
Anatomy of a Securities Purchase Agreement
A securities purchase agreement is organized around several core components: the terms of the sale (securities being purchased, price, closing mechanics), representations and warranties of both parties, covenants governing pre-closing and post-closing conduct, closing conditions that must be satisfied before the transaction closes, and indemnification provisions that allocate risk for breaches of the agreement. Each of these components is subject to negotiation, and the balance struck in the negotiation materially affects the rights and obligations of the issuer for years after closing.
Representations and Warranties
The representations and warranties section is where most of the negotiation occurs. Investors seek broad representations about the company's business, financial condition, compliance with law, capitalization, and the absence of undisclosed liabilities. Issuers seek to qualify representations with materiality and knowledge qualifiers, and to limit representations to matters disclosed in SEC filings. Securities counsel negotiates the scope of representations to balance investor information needs with the issuer's exposure to breach claims.
Registration Rights and Future Obligations
Many institutional SPAs include registration rights that obligate the issuer to register the resale of the purchased securities within a specified timeframe. Failure to meet registration deadlines can trigger liquidated damages, typically calculated as a percentage of the purchase price per month. These obligations create ongoing compliance requirements that must be tracked and managed. Securities counsel ensures that registration rights provisions contain commercially reasonable cure periods and that liquidated damages caps protect the issuer from disproportionate exposure.
Frequently Asked Questions
What is a securities purchase agreement?
A securities purchase agreement (SPA) is a contract between an issuer and investors that governs the sale and purchase of securities. It contains representations and warranties, covenants, closing conditions, and indemnification provisions. Unlike a subscription agreement used in smaller private placements, SPAs are typically used in larger institutional transactions.
How does an SPA differ from a subscription agreement?
Subscription agreements are simpler documents used primarily in Regulation D private placements. SPAs are more detailed and negotiated documents typically used in PIPE transactions, registered direct offerings, and institutional private placements. SPAs contain extensive representations, warranties, and covenants that create ongoing obligations for both parties.
What provisions are most important for issuers?
Issuers should focus on the scope of representations and warranties, disclosure schedule requirements, most-favored-nation provisions, registration rights obligations, anti-dilution protections, information rights granted to investors, and any restrictions on future capital raises. Securities counsel negotiates these provisions to protect issuer interests while maintaining investor confidence.
Questions about your specific situation?
Frederick M. Lehrer is a former SEC Enforcement Attorney with over 30 years of issuer-side securities law experience. All consultations are confidential. Flat-fee engagements.