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What preliminary agreements are commonly drafted?
Letter of intent
A letter of intent will normally be negotiated and will broadly set out the type of transaction being contemplated, its timing and any applicable key terms and conditions, including:
- the type and amount of consideration to be paid;
- the types of warranties to be given; and
- any non-compete covenants that may be given.
Letters of intent are usually non-binding, with the exception of certain provisions such as those concerning exclusivity, confidentiality, access to information or cooperation during the due diligence period and governing law. A term sheet, heads of agreement or memorandum of understanding can be executed instead of a letter of intent, as they contain the same information.
Non-disclosure agreement A mutual non-disclosure or confidentiality agreement is typically entered into and provides that:
- the buyer will use the information only for the purpose of evaluating the acquisition; and
- neither party will disclose information to third parties about the negotiations.
It is important for confidential information to be fully outlined, including any necessary carve-outs or exceptions. Typically the buyer and seller will want to provide that the non-disclosure provisions extend to any agents, advisers or employees of the other party. The seller will also want to try to ensure that the buyer will not solicit any of the target's employees, suppliers or clients.
Exclusivity agreement Exclusivity provisions are typically built into the letter of intent or non-disclosure agreement. However, if this is not the case, a separate exclusivity agreement is often sought by the buyer because it allows the buyer to negotiate the acquisition with the seller for a period of time without threat of another potential buyer being identified. The buyer will generally want to negotiate for a longer exclusivity period while the seller will want a shorter period.
Due diligence request list A due diligence request list will usually be compiled by the buyer and include all items that the seller must disclose in relation to the target (and group) in order to carry out its due diligence before the acquisition. There may be negotiations involved between the buyer and seller over this due diligence list.
What documents are required?
The main acquisition documents on a share or asset purchase include:
- a share or asset purchase agreement (typically prepared by the buyer);
- a disclosure letter or schedules qualifying the representations and warranties (typically prepared by the seller);
- conveyance documents (typically prepared by the buyer), including:
- share transfer form; and
- assignment/assumption agreements for certain assets or liabilities;
- employment/consulting agreements with key employees (typically prepared by the buyer);
- change of control consents (if applicable);
- release of security documentation (if applicable); and
- any required transitional service agreements (specific to the transaction).
The main acquisition documents on an amalgamation or merger include:
- an agreement and plan of amalgamation or merger setting out the terms on which the amalgamation or merger is to be effected (typically prepared by the buyer);
- an amalgamation or merger agreement (typically prepared by the buyer); and
- any transaction-specific agreements.
The main acquisition documents in a takeover offer include:
- a circular or announcement summarising the terms and conditions of the offer (issued by the target);
- the offer document;
- an acceptance form (issued by the buyer); and
- a prospectus, if required.
Which side normally prepares the first drafts?
What are the substantive clauses that comprise an acquisition agreement?
The key terms for a binding contract under basic contract law principles are an offer, acceptance and consideration. However, the main substantive clauses of an acquisition agreement include:
- a description of the transaction structure and its terms, including the purchase price and purchase price adjustment provisions (if applicable);
- payment provisions;
- conditions and closing requirements;
- representations and warranties;
- indemnification and limitation of liability;
- termination provisions; and
- boilerplate clauses relating to:
- third-party rights;
- the entire agreement;
- further assurances; and
- governing law and jurisdiction.
An asset purchase agreement also normally includes a description of the assets being acquired and specifies the liabilities being assumed by the buyer.
What provisions are made for deal protection?
Deal protection is increasingly common in cross-border Bermuda M&A deals. The key forms of deal protection include:
- full exclusivity;
- break fees;
- termination fees;
- no-talk or no-shop provisions;
- lock-up agreements; and
- standstill agreements.
What documents are normally executed at signing and closing?
The documents executed on signing and closing vary widely according to the nature of the transaction. However, the definitive agreement should typically be executed at signing, if signing and closing are not contemporaneous, and will normally be subject to fulfilment conditions including, among other things, receipt of all regulatory and other necessary approvals. Documentation relating to shares or conveyances, resignations of directors and officers, bank mandates and any applicable board and shareholder approvals should be executed at or before closing.
Are there formalities for the execution of documents by foreign companies?
Under Bermuda law, no specific or special formalities for the execution of documents by foreign companies exist.
Are digital signatures binding and enforceable?
Digital signatures are binding and enforceable, provided that they satisfy the conditions set out in the Electronic Transactions Act 1999, as amended.
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