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Note: To purchase two consulting engineering companies, WCW International, Inc. (Buyer), signed a Stock Purchase Agreement ("SPA") with the companies' shareholders.

Buyer agreed to provide initial consideration of USD 4,600,000 in cash, deferred consideration of promissory notes in the amount of USD 3,800,000 to be secured by a standby letter of credit, and earnout consideration of USD 2,800,000. The shareholders "agreed to repay any outstanding indebtedness on company loans" upon payment of Buyer's initial consideration and delivery of the standby.

When Buyer failed to provide the initial consideration or deliver the standby, the Shareholders amended the SPA permitting Buyer to pay the initial consideration in three installments with the standby and requiring Buyer to pay off the shareholders' officer loans. Buyer's CEO and President, Chris Wilmot, further "executed a [commercial] guaranty, wherein he agreed to be bound with [Buyer] and deliver a letter of credit to Shareholders." When Buyer failed to pay the last installment of the initial consideration, deliver the standby, or pay off the shareholders' loans, the shareholders sued Buyer for breach of contract and Wilmot for breach of guaranty. The Court of Appeals of Texas, Fourteenth District, Brown, J., ruled in favor of the shareholders.

The Judge concluded that Buyer breached the SPA first and that the shareholders were not required "to pay back the officer loans ... until [Buyer] fulfilled its "closing" requirements." The Judge stated that Buyer's failure to provide the required considerations including the standby was sufficient evidence of Buyer's SPA breach, which was not excused by any prior material breach by the shareholders in failing to disclose or misrepresenting the companies' financial information.

[JL]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.