When it comes to private mergers and acquisitions (M&A) transactions, most are structured as acquisitions of stock. The key document governing these transactions is the Stock Purchase Agreement (SPA), which outlines the sale of shares in a target company to a buyer in exchange for cash or other consideration. SPAs are intricate documents designed to mitigate risks and maximize rewards for both parties involved. This guide provides an overview of the key provisions of an SPA, with detailed analysis to follow in future posts.

Key Provisions of a Stock Purchase Agreement

PREAMBLE AND RECITALS

The Preamble introduces the agreement, identifies the parties, and sets the effective date. The Recitals, beginning with "WHEREAS," provide context and outline the intentions of the parties. While generally not binding, they help in interpreting the SPA.

ARTICLE 1: DEFINITIONS

This section lists definitions of important terms used throughout the agreement. These definitions are crucial as they can significantly alter the impact of various provisions. Terms like “Liabilities,” “Material Adverse Effect,” and “Seller’s Knowledge” are often heavily negotiated.

ARTICLE 2: THE TRANSACTION

This article specifies the terms of the stock sale, including the purchase price, any adjustments, and the documents to be exchanged at closing, such as share certificates and legal opinions.

ARTICLE 3: SELLER REPRESENTATIONS AND WARRANTIES

The seller provides statements about the target company, covering a wide range of subjects like financial statements, tax matters, intellectual property, and compliance with laws. Inaccurate representations can result in liability for the seller.

ARTICLE 4: BUYER REPRESENTATIONS AND WARRANTIES

These are the buyer’s statements to the seller, often covering fewer topics since cash transactions are more straightforward. They include organization, authority, financing, and investment intent.

ARTICLE 5: COVENANTS

This section governs the parties' actions between signing and closing. It includes promises to operate the business as usual, provide access for due diligence, and obtain necessary approvals and consents.

ARTICLE 6: CLOSING CONDITIONS

Conditions precedent that must be met before closing include the accuracy of representations, compliance with covenants, and obtaining regulatory approvals. The buyer may also require that no material adverse changes have occurred.

ARTICLE 7: INDEMNIFICATION

Indemnification rights allow parties to seek compensation for losses due to breaches of representations, warranties, and covenants. This article details the survival period for claims, caps on liability, and procedures for making claims.

ARTICLE 8: TERMINATION

This section outlines the parties' rights to terminate the SPA if conditions are not met, by mutual consent, or if the transaction is enjoined or fails to obtain necessary consents. It also explains the consequences of termination, such as expense reimbursement and liability for pre-termination breaches.

ARTICLE 9: GENERAL PROVISIONS

Miscellaneous provisions include governing law, dispute resolution, notices, severability, assignment, and amendment procedures. These clauses ensure the SPA remains enforceable and governs the parties' relationship.

Conclusion

A Stock Purchase Agreement is a complex but essential document in M&A transactions. Understanding its key provisions helps both buyers and sellers navigate the process and protect their interests. For more detailed analysis of each section, stay tuned to The M&A Lawyer Blog.

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Always consult with a legal professional for specific guidance.