Locked box provisions: share purchase agreement

by Practical Law Corporate

Standard clauses providing drafting for implementing a locked box pricing mechanism within a share purchase agreement (SPA). This approach typically involves valuing the target company by reference to a specific set of accounts drawn up to a date before completion (Locked Box Accounts), and the seller undertaking to reimburse the buyer in respect of any unauthorised leakage of value between the date of those accounts and completion of the transaction. These clauses offer definitions for the key concepts of Leakage and Permitted Leakage, a seller undertaking against unauthorised Leakage and a remedy framework requiring the seller to reimburse the buyer on a pound-for-pound basis for any breach. The provisions also include warranties concerning the Locked Box Accounts and an optional clause for interest to be payable on the agreed purchase price between the date of the Locked Box Accounts and completion.