Note and Warrant Purchase Agreement

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Note and Warrant Purchase Agreement

A Note and Warrant Purchase Agreement is a document which allows a company to raise money for corporate needs, to complete a sale or a merger when needed. In order to complete a sale or a merger, a company needs to sell all or part of its shares to the Purchaser, and this document acts as legal proof of the transaction taking place.

A Note and Warrant Purchase Agreement can be defined as an agreement that is used by a company when the said company is selling all or part of its shares to a purchaser outside the organization. This agreement is generally used in circumstances where the selling company (referred to as “the company”) is shutting down its operations or merging with another organization (referred to as “the purchaser”).

This document shares a lot of similar characteristics with those of a loan agreement wherein the Seller needs to fulfill some pre-existing conditions, and also agree to the terms and conditions that have been mutually agreed upon by both the stakeholders.

When do you need a Note and Warrant Purchase Agreement?

A Note and Warrant Purchase Agreement is most commonly used in either of two cases:

  1. When a Company is shutting down its operations and thereby selling all its shares to an external organization, also referred to as the Purchaser.
  2. When a Company is merging with an external company and thereby selling some of its shares, to establish a new organization.

The note agreement states the amount in which the Note Amount will be allocated and also the percentage of the stake.

Inclusions in Note and Warrant Purchase Agreement

Similar to all other corporate contracts that are created from time to time, a Note and Warrant Purchase Agreement too has a list of inclusions that must be present in each of its versions. Among all the inclusions that are present, some of the most important ones are the Parties Involved, The Effective Date and also the applicability of the contract. The details of the same have been shared below.

When creating a Note and Warrant Purchase Agreement, two parties are involved which are known as The Company and The Purchaser respectively.

The Effective Date mentioned in the Note and Warrant Purchase Agreement states the date on which the sale of the shares and stocks will begin and also mentions the closing date of the sale. Both these dates are mutually agreed upon by both the parties before drafting the contract and both the stakeholders need to abide by the dates mentioned in the contract.

A Note and Warrant Purchase Agreement is applicable whenever there is a sale (either partial or whole) taking place or two companies are merging with each other and therefore a transaction needs to take place.

How to Draft a Note and Warrant Purchase Agreement

Drafting a note and warrant purchase agreement for your organization, you need the assistance of a trained and experienced legal counsel. Before creating the agreement you need to make sure that both your organization and the purchaser has agreed to create the said document because it cannot be issued without mutual consent from both parties.

After the following criteria have been met, follow the underlying pointers.

  1. Organize a meeting with the management counsel of our organization and decide upon which legal counsel to use. You can opt for either an internal counsel as well as for an external one.
  2. Once you have decided upon the legal counsel, organize a meeting between The Company and The Purchaser, wherein you need to decide upon the terms and conditions of the transactions, along with the finer details of the transactions.
  3. After the agreement has been reached upon, reach out to your legal counsel, share the details with them and ask them to draw a Note and Warrant Purchase Agreement for your organization.

Benefits of Having a Note and Warrant Purchase Agreement

The advantages of having a Note and Warrant Purchase Agreement are many and can be listed as mentioned below.

  1. It acts as documented proof of a transaction taking place for both the involved parties.
  2. The agreement is a legal document and thus can be presented at court if there is a need to do so.
  3. The creation of the document protects both the stakeholders from fraud and guarantees that the transaction outlined in the contract will be abided to by both the parties.

Consequences of Not Having a Note and Warrant Purchase Agreement

The consequences of not having a Note and Warrant Purchase Agreement can be listed as below:

  1. The absence of a Note and Warrant Purchase Agreement opens the way for a fraud that might take place.
  2. Both the parties involved are at risk since there is no legal proof of a transaction taking place.
  3. If there is a need to take the matter to court, the absence of a contract will lead to a poor case being formed due which either or both the parties will suffer a loss.

Key Terms of Note and Warrant Purchase Agreement

Some key terms which are included in the Note and Warrant Purchase Agreement are the following.

  1. The Company mentioned in the contract is the seller who is selling part or whole of their stakes in a company or organization.
  2. The Purchaser mentioned in the contract is the buyer who is buying the shares from The Company.
  3. Opening and Closing Date of Sale are the dates on which the said transaction will start and also the date by which the sale needs to be completed.
  4. Disclaimer: This section introduces the disclaimers which have been earlier mutually agreed upon by both the parties.
  5. Obligations: This section includes the obligations and terms and conditions that both parties need to abide by before, after, and during the sale.
  6. Notice: This section outlines the notice period that is assigned to both the Company and The Purchase before the transaction takes place.

Sample Note and Warrant Purchase Agreement

A sample of the agreement can be downloaded from below.

Download A Note and Warrant Purchase Agreement

Note and Warrant Purchase Agreement

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