Roger is preparing to buy all of the stock of FlyNet Inc., a successful C Corporation that is owned by five individuals. He knows that there are others in the wings ready to make an offer for the stock. He needs to move fast and he needs to be reasonable.
The term sheet for the deal sets the price of the stock at $18 million and lays out other key terms. It also references one of Roger's real concerns with the deal- a potential dispute over a patented product owned by FlyNet and developed by Walter. The term sheet states that this concern will be appropriately addressed to the mutual satisfaction of all parties in the definitive agreement between the parties.
FlyNet claims that Walter owns no financial interest in FlyNet that it purchased the Patent from Walter for $250,000 and that is has documents to support these claims. Rogers preliminary due diligence has confirmed that Walter has a reputation as a trouble maker and has stated to others on various occasions that FlyNet did a number on him when it stole my patent. Three weeks ago, in a drunken stupor Walter called the CEO of FlyNet and ranted that he still owned the Patent because he was never given the 20,000 shares of stock he was promised.
Roger is concerned that a dispute with Walter could surface after the acquisition is closed and Walter discovers that each of the five stockholders of FlyNet walked away with millions from the sale. If FlyNet's ownership of the Patent was lost, Roger would still have an interest in purchasing the stock of FlyNet, but the price would be no more then $15 million.
Describe how Rogers concerns with respect to the Patent may be addressed in drafting the following elements of the stock purchase agreement between the parties: (1) recitals, (2) convenants, (3) representations and warranties, (4) conditions, (5) indemnifications provisions, (6) the legal opinions provided by FlyNet counsel. Which is most effective from Rogers perspective? What options will reduce an overkill risk that may incent the owners of FlyNet to reopen discussions with other interested buyers?