Unit 3 - Price and Payment Flashcards
What is an SPA?
It’s the key document for the sale and purchase of a company.
It’s the buyer’s agreement to purchase the shares and pay relevant price on Closing and the Seller’s agreement to sell the target company.
It can be seen as a risk allocation tool.
What’s the order of the agreement?
1) parties and date;
2) operative provisions;
3) schedules;
4) execution by the parties.
what should the operative provision contain?
Definitions and Interpretations, Conditions Precedent, Agreeement to purchases or sell of the shares, consideration, contractual protection, dispute resolution and governing law.
What does the definitions and interpretation section of the SPA contain?
Terms definiton that are used throughout the whole agreement.
What does the condition precedent section of the SPA contain?
It’s the terms that are needed to be completed before the completion of acquisition occurs.
What does the agreement to purchase or sell the share section of the SPA contain?
Sets out what is exactly being bought and sold.
Provides parties agree to sell and purchase the shares.
Who are the sellers in a share sale?
It’s the SH. Their details will be set out in Schedule 1 along with the amount of shares they own and are intending to sell.
Who are the sellers in an Asset Sale?
It’s the Company or a Sole Trader.
Who is the buyer?
They’re normally the ones acquiring the shares in the company and buying the assets. They draft the SPA.
what happens when a party executes an agreement?
It will be dated, the signing is the final execution and they will be contractually binding on each other.
What does the operative provision set out?
the basis on which the buyer agrees to purchase or when the seller agrees to sell.
what does the definition clause entail?
The terms used throughout the whole agreement (including Schedules)
What do the whole conditions precedent clauses do?
Completion normally occurs once the contracts have been exchanged but there are occasions where completion will only happen once certain conditions have been met. If there are obligations that need to be fulfilled, there needs to be a long stop date or duration where the condition can be fulfilled or waived.
What do the Agreement to purchases or sell the shares do?
They set out the details of what is exactly being sold and how this would be conducted for completion. It will set out how the payment will be made too, either by lump sum or by instalments or cash in consideration or securities. There sometimes may be an earn out if this was proposed by the seller.
What’s an earn out?
it is when the seller at completion takes a lesser amount than they would have the ability to do so to take on the future profitability of the company.
