SPA
Key provisions
Identity of sellers & number of shares being sold by each of them
Where more than 1, usually set out in a schedule
Price
Earn out clause
Completion Accounts
Agreed mechanism for drawing them up usually in a schedule
Definition of Completion
Conditions Precedent
What happens if remain unfulfilled?
Right to dividends paid on or after Completion
Restraint of trade clause
Must be reasonable
Reasonable in time
Specific about geographical area
Specific about a legitimate business interest
Undertakings
Notices
When is a gap between exchange of contracts & completion desirable or essential?
Waiting for HMRC to issue a clearance
Waiting for a response from OFT about whether it intends to refer the acquisition to the Competition Commission
Provision or transfer of a regulatory licence for the particular industry
Waiting for a substantial customer or landlord to provide its consent to an assignment, or confirming that it will not exercise a contractual right to terminate an agreement with the target company on the change of control of the target company
Waiting for shareholders of a corporate buyer to pass a resolution
Asset sale
Assignments/novations of contracts which may need landlord’s/3rd party consents
Share sale
Change of control clauses in leases and contracts which may need to be waived
Provisions to protect purchaser in time gap
Bound to purchase
Between signing contracts and completion, the purchaser and the seller are committed to complete the acquisition on the terms agreed at signing, subject to any conditions precedent
Purchaser will want to ensure that the business it has agreed to acquire on the terms agreed is not substantially different as a result of the seller knowing the ‘deal is done’ and therefore neglecting the business in the period between signing and completion
Conduct of business provisions (not needed if buyer has control of the business)
Target business will be carried on in the normal way between signing and completion so suppliers should be paid on time with no undue aggression towards debtors etc.
This ensures that the target does nothing to prejudice the position or prospects of the business
No lending or borrowing money except in relation to routine matters
No granting any charge, mortgage or debenture over its assets
No settling any claim or dispute
No acquiring or agreeing to acquire any property
No capital expenditure above a certain level or entering into onerous contracts
No hiring or firing any key employees
Restrictions on entering into agreement to dispose of all or part of the business or assets except in relation to routine matters
Purchaser should require some managerial control between signing & completion
Negative undertakings from target
Target will not re-negotiate contracts being assigned or novated to purchaser
Provision of ongoing information about the business to the purchaser, including the right for purchaser to attend target’s board meetings
Gives purchaser additional comfort that the business is not being prejudiced
Repetition of warranties at completion
Gives purchaser warranty protection if anything untoward arises during the period between signing and completion
Agreement should also specify what has been agreed about accepting disclosures against repeated warranties where the buyer is contractually bound to complete the purchase
Common compromise is to accept disclosure but provide that purchaser should retain the right to terminate in the event that something...
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