Share Purchase Agreement: single company, completion accounts and earnout
Share Purchase Agreement for the purchase of a company which is not part of a group of companies from a single seller and with the consideration being subject to a completion accounts adjustment and additional consideration on an earnout basis.
What are the main features of a Share Purchase Agreement?
The Share Purchase Agreement (SPA) is the principal legal document for a share purchase transaction.
The first draft SPA is usually prepared by the buyer. An exception is in the case of a competitive auction process, where the seller may provide a draft SPA for review and comment by the competing bidders for the company.
The main features of an SPA are:
- sale and purchase: the mechanics for the sale and purchase of the target company shares and closing of the transaction
- conditions: any conditions that need to be satisfied prior to closing
- consideration: the consideration to be paid by the buyer, including the form of consideration (cash, shares or a combination), upfront consideration paid on closing, deferred consideration, earnout consideration and adjustment for the net assets of the target company on the business of completion accounts
- warranties: warranties from the seller about the target company, its business, finances, assets, intellectual property, contracts, liabilities and tax history
- indemnities: any specific indemnities identified during the due diligence and disclosure process and, usually, a tax indemnity relating to pre-closing tax liabilities and compliance
- restrictive covenants: covenants prohibiting the seller from competing with the target company and soliciting the target company’s customers, suppliers and employees for a period following closing of the transaction
About this Share Purchase Agreement
This Share Purchase Agreement is for the purchase of a company which is not part of a group of companies from a single seller and with the consideration being subject to a completion accounts adjustment and with additional consideration to be paid on an earnout basis.
The document is suitable for a transaction on the following terms:
- simultaneous signature and completion of the acquisition, with no closing conditions
- payment of initial consideration in cash at completion
- post-completion adjustment to the consideration based on the net current assets of the target company at completion
- earnout consideration, payable on the basis of the EBITDA of the target company for a defined earnout period following completion
- full-form SPA with 22 clauses and 7 schedules over 43 pages
- process for the sale and purchase of shares and completion deliverables
- process for a post-completion adjustment to the purchase price, based on the net current assets of the company and determined by completion accounts
- additional consideration on an earnout basis, payable depending on the EBITDA of the company for a defined earnout period and with protections for the benefit of the seller relating to the conduct of the business during the earnout period
- warranties from the seller relating to the target company
- seller limitations from liability under the warranties
- provision for indemnities for specific issues
- restrictive covenants from the seller
- tax covenant for pre-completion tax liabilities
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