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Preliminary agreements

What preliminary agreements are commonly drafted?

The parties to a transaction commonly enter into confidentiality agreements and often other preliminary agreements, such as letters of intent, memorandums of understanding or term sheets covering key aspects of the transaction (eg, price, exclusivity, non-solicitation, deal structure, process, timing and key terms of the transaction).

In case of a public target, before the launch of the bid it is common for the target and the bidder to enter into a combination agreement, and to seek an irrevocable undertaking from major shareholders to accept the bid.

Principal documentation

What documents are required?

In a share purchase, the main document is the share purchase agreement. In an asset purchase, the main document is the asset purchase agreement.

Several other documents are also usually prepared in addition to the relevant purchase agreement, such as:

•employment or service agreements, which are often renegotiated with management and key employees, and are not usually necessary in either share or asset deals;

•a transitional service agreement if the target or business is dependent on services provided by the seller group after closing;

•a shareholders’ agreement if the seller remains a shareholder in the target or if there are multiple buyers or certain financing agreements; and

•other ancillary agreements where necessary (eg, an escrow agreement or documentation with the insurer in case of warranty and indemnity insurance).

In a public takeover, the bidder must submit a written offer to the target’s shareholders and publish a tender document. The tender document must be pre-approved by the Financial Supervisory Authority. 

Which side normally prepares the first drafts?

In cases where the seller runs an auction or structured sales process, the seller usually prepares the first draft. Otherwise this varies on a case-by-case basis. If one party has a significantly stronger negotiation position, that party may be keen to prepare the first draft.

In public takeovers, all bid documentation is prepared by the bidder.

What are the substantive clauses that comprise an acquisition agreement?

A definitive agreement typically includes the following substantive clauses:

•transfer of shares or assets;

•the purchase price, including any adjustment mechanisms;

•conditions precedent, closing mechanics and covenants;

•the conduct of business between signing and closing;

•warranties given by the parties;

•indemnification obligations (including possible specific indemnities) and limitation of liability;

  • non-compete and non-solicitation;

•governing law; and

•dispute resolution.

In addition, an asset purchase agreement will contain a detailed list of the relevant assets and liabilities to be transferred to the buyer, as well as a list of assets and liabilities excluded from the transfer.

What provisions are made for deal protection?

Private deals are often subject to an exclusivity agreement or undertaking under which the seller undertakes not to shop the company or business to third parties or entertain any negotiations regarding the same.

In a public deal, the target’s board should not agree to any contractual commitments (eg, an exclusivity arrangement limiting the company’s and the board’s possibilities to act). The Helsinki Takeover Coder further requires that boards should be careful in agreeing to pay break-up fees. However, limited commitments can be entered into by the board if there are justified reasons to do so and the board considers the bid to be a good alternative for the shareholders.

Closing documentation

What documents are normally executed at signing and closing?

The following documents are commonly produced and executed at signing:

•corporate resolutions by the seller and buyer to approve and enter into the relevant share or asset transfer and any related agreements;

•a share purchase agreement or asset purchase agreement between the seller and the buyer regarding the transfer of the relevant shares or assets;

•a transitional service agreement, if applicable (often executed at closing);

•a shareholders’ agreement (in a share sale where there are multiple buyers or the seller remains as a shareholder in the target); and

•relevant financing agreements (or financing commitments are delivered).

The following documents are commonly produced and executed at closing:

•board resolutions of the target regarding the update of the target’s shareholder register (in a share sale);

•a closing memorandum;

•a release of relevant security or guarantees;

•relevant corporate resolutions regarding, for example, the change of board of directors, signatory rights and the articles of association of the target (in a share sale);

•renewed employment or service contracts for the target’s management;

•resignation letters of resigning directors of the target (in a share sale);

•an escrow agreement, if a portion of the purchase price is put in escrow; and

•relevant supply or other ancillary agreements.

Are there formalities for the execution of documents by foreign companies?

No general formalities apply to the execution of documents by foreign companies under Finnish law.

Are digital signatures binding and enforceable?


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