Stock Purchase Agreement
(Pro-Buyer) (Single Corporate Seller) (DE)

Summary

This is a template Stock Purchase Agreement for use in the acquisition of 100% of the outstanding capital stock of a private corporation owned by a single corporate seller in a transaction governed by Delaware law, drafted in favor of the buyer. This template includes practical guidance, drafting notes, and alternate and optional clauses. Click here to see recent examples of publicly filed stock purchase agreements in Market Standards—M&A Market Standards enables users to search, compare, and analyze its comprehensive database of transactions using over 150 detailed data points to filter search results. You can customize any search to your needs by adding filters or modifying the search criteria. For stock transactions involving more than one stockholder, refer to Stock Purchase Agreement (Pro-Buyer) (DE) or Stock Purchase Agreement (Pro-Seller) (DE). Stock Acquisition Structure A stock purchase agreement is the operative agreement in stock purchase transactions. In a standard stock purchase transaction, a buyer purchases all of the outstanding capital stock of the target corporation from its current stockholders. Stock purchase transactions differ substantially from asset acquisitions, in which the buyer acquires specified assets and assumes specific liabilities directly from the target business, and statutory mergers, in which the target corporation's legal existence generally ceases and its assets and liabilities are transferred by operation of law to the surviving entity in the merger. Benefits and Drawbacks of Stock Acquisition Structure Stock purchase transactions offer several advantages over asset acquisitions and statutory mergers. Unlike asset purchase transactions, which require the buyer and seller to identify and agree on the specific assets and liabilities of the target company that will be transferred to the buyer and involve extensive due diligence and the preparation of detailed disclosure schedules, in a stock acquisition legal ownership of the entire target company is transferred to the buyer, inclusive of all assets and liabilities of the target business. And unlike statutory mergers, buyers in stock acquisitions do not generally need to create a new subsidiary entity to complete the acquisition or file a certificate of merger with state authorities. In addition, because the target entity continues to own all of its assets after closing, fewer third-party consents and transfer approvals, which generally delay and complicate a transaction, are needed to complete the sale. The streamlined transaction mechanics and documentation requirements can make stock acquisitions preferable to other structures when the target has few (or relatively few) stockholders and either all of the stockholders agree to the sale or can be compelled by a majority stockholder to participate in the sale (e.g., through the exercise of a drag-along right). Stock acquisitions are generally less advantageous in transactions where: • The buyer wishes to purchase only specific assets or portions of a target business, or is unwilling to assume all of the liabilities of the target company (both disclosed and undisclosed)–or– • The target company has a diverse mix of stockholders who many not all agree to the sale of their stock to the buyer, and there is no mechanism by which a majority stockholder or stockholders can compel others to participate in the sale In addition to general structural concerns, the buyer and seller(s) in a stock acquisition must consider whether the offer and sale of the target company's shares are exempt from registration under U.S. federal and state securities laws. Additionally, the parties must consult with tax counsel to understand the tax consequences of the stock acquisition structure, and whether alternative transaction structures would be more advantageous from a tax perspective. Stock Purchase Agreement Provisions This template assumes that (1) the target company is a private Delaware corporation, (2) there is only one corporate buyer and one corporate stockholder, (3) the buyer and seller are not affiliates (e.g., the buyer does not have an interest in the seller entity), and (4) registration of the offer and sale of the target company shares is exempt from U.S. federal and state securities laws. This template also makes the following assumptions about the overall transaction and target company: • Buyer will acquire 100% of the outstanding capital stock of the target company, which consists of only one class of common stock owned by a single corporation, and there will be no equity rollover • The transaction will be structured with a separate signing and closing (a "sign-then-close" transaction) • Target company is not a reporting company under the Securities Act of 1933, as amended, and does not have subsidiaries • The purchase price for the acquired shares will be paid in cash • Pre-merger notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 are required • No notice to, or review by, the Committee on Foreign Investment in the United States (CFIUS) is required • Target company does not operate in a highly regulated industry (e.g., energy, telecommunications, healthcare, insurance, defense) • No representations and warranties insurance (RWI) policy will be obtained This template includes comprehensive representations and warranties across subjects that are generally applicable to U.S. businesses without special regard to industry, such as antitrust, tax, employee benefits (ERISA), environmental, anti-corruption (FCPA), and U.S. federal securities regulation. You should be sure to involve and consult appropriate legal specialists in non-corporate areas of review (e.g., tax, intellectual property, real estate, environmental, etc.) when preparing, reviewing, and negotiating a stock purchase agreement. Pro-seller Considerations It is customary for buyer's counsel to draft the initial draft of the acquisition agreement. However, there are instances when the seller may take the pen. First, the seller may have the bargaining power or leverage to serve up the initial draft, and if this is the case, this delegation should be agreed upon in the preliminary agreement, whether it is a letter of intent, indication of interest, or term sheet. The seller's counsel should adhere to the terms and conditions agreed upon in the preliminary agreement, but seller will also take liberties to make representations and warranties, covenants, and indemnification provisions as pro-seller as is reasonable without contradicting the preliminary agreements. Second, the seller typically prepares an auction draft for prospective bidders to mark-up during an auction process. The initial auction draft may be aggressively pro-seller. The bidder's counsel is then tasked with adding more robust, representations and warranties, detailed mechanics and dispute resolutions, adjustments to purchase price and contingent payments, broad limitations on indemnification obligations, and customary interim covenants and restrictions. Ultimately, each of the buyer and seller parties together with their respective counsel need to carefully assess whether to take an aggressive drafting approach versus a more marketable approach to promote more efficient and faster negotiations of the definitive agreement. Pro-seller acquisition agreements tend to have the following characteristics: • Fewer representations and warranties • Narrow and less detailed representations and warranties • Fewer scheduling requirements • Aggressive limitations on indemnification obligations (unless the preliminary agreement clearly outlines the scope of indemnification and agreed limitations) • Fewer restrictions on the conduct of business between signing and closing • No restrictive covenants • Minimal access rights and interim obligations • Purchase price adjustment and dispute mechanics favorable to the seller • Buyer financing representations and warranties and related financing covenants • Fewer termination triggers to minimize the buyer's opportunity to walk away from the deal • Inclusion of a reverse break-fee requiring the buyer to pay a fee for certain termination triggers M&A counsel should consider the cost and time associated with receiving heavier markups from bidders, especially in a less competitive auction with fewer participants where a markup may garner a negative reaction and lead to bidders dropping out. Accordingly, it may make the most sense to choose middle-of-the-road, market provisions that bidders would likely expect to see. This tactic does not imply that auction drafts need to cater to bidders, but that counsel may wish to approach overly aggressive drafts with more caution. Industry-specific Considerations An acquisition agreement should be tailored to the specific industry in which a business operates, especially if the industry is highly regulated. This means adding provisions to address: • Representations and warranties regarding compliance with industry-specific laws, maintenance and enforceability of third-party contracts, licenses, and permits, or any third-party approvals for a change of control, and absence of litigation, court orders, defaults, or violations affecting the business • Interim covenants relating to any state, federal, or local regulatory approvals, licenses, and permits necessary to operate the business after closing and effectiveness of the merger • Special indemnities related to known liabilities, especially for regulatory matters • Termination rights specific to the applicable regulatory scheme—and— • Outside date extension rights in the event any regulatory or other third-party delay or action prevents the parties from closing the transaction on or before the outside date Related Content Practice Notes • Stock Purchase Agreement Basics • Stock Acquisition Resource Kit • M&A Provisions Resource Kit • Asset Purchase, Stock Purchase, and Merger Structures: Benefits and Drawbacks • Stock Purchase Transactions Training Presentation • Stock Transaction Key Considerations Video • Indemnification Provisions in Private M&A Transactions Video Templates • Stock Purchase Agreement (Pro-Buyer) (DE) • Stock Purchase Agreement (Pro-Seller) (DE) • Stock Purchase Agreement (Pro-Buyer) (Short Form) (DE) • Stock Purchase Agreement (Pro-Seller) (Short Form) (DE) Checklists • Stock Purchase Agreement Drafting Checklist • Acquisition Agreements Key Covenants Chart • Closing Conditions Drafting Considerations Chart • Key Drafting Considerations for Indemnification Provisions (Chart) • Key Representations and Warranties in Acquisition Agreements (Chart) • Private Acquisition Agreements Key Negotiating Points Checklist • Termination Provisions and Fees Checklist For recent examples of publicly filed stock purchase agreements in Market Standards—M&A, click here. Market Standards enables users to search, compare, and analyze its comprehensive database of transactions using over 150 detailed data points to filter search results. You can customize any search to your needs by adding filters or modifying the search criteria.