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Preliminary agreements

What preliminary agreements are commonly drafted?

Letters of intent and memorandums of understanding
The most common preliminary agreements are letters of intent and memorandums of understanding. These cover material issues such as the percentage of share capital to be transferred and the agreed consideration for the transfer. The parties can also choose to set out the procedure to be followed throughout the acquisition process and afterwards.

The term ‘letter of intent’ is commonly used in strategic investment transactions. Terms such as ‘memorandum of understanding’, ‘term sheet’ and ‘non-binding offer letter’ are mostly used in financial investment transactions. These agreements can either be binding or non-binding, depending on the parties’ intentions.  

Exclusivity agreements
Exclusivity agreements preventing the parties from entering into negotiations with other parties are commonly used in M&A practice. Exclusivity agreements can be made separately or provisions can be included in a letter of intent. Exclusivity agreements usually include a long-stop date, by which negotiations between the parties will continue. Such agreements may foresee that until the long-stop date, the transferor party must not offer shares or other rights in the target to third parties.

Non-disclosure agreements
Transaction parties will usually sign a confidentiality agreement when due diligence requests are made and before receiving non-public information from the target. Non-disclosure provisions usually determine the scope of negotiations, as well as stating that information shared with the opposing party during the negotiations is strictly confidential and must not be disclosed to any party or authority without obtaining the other party's written consent.

Principal documentation

What documents are required?

The main documents in a typical M&A transaction include:

  • the share purchase agreement, including the parties' representations and warranties and the terms of the transaction;
  • the shareholder agreement, which governs the company’s management after the takeover (if the acquisition is a partial takeover of the shares);
  • ancillary agreements and the closing documents relating to the transaction – these may include share certificates representing the target’s shares, board resolutions, general assembly decision drafts, management and consultancy agreements and key employee agreements;
  • if the transaction includes a merger or demerger, a merger/demerger agreement, along with corporate documentation necessary to register the merger before the Commercial Registry; 
  • if the transaction includes an asset transfer, a separate asset transfer agreement, along with the documents necessary to register the asset transfer before the Title Deed Registry; and
  • approvals from related government bodies, if the transaction is subject to the capital markets and competition law legislation.  

Which side normally prepares the first drafts?

The buyer usually prepares the first drafts of transaction documents.

What are the substantive clauses that comprise an acquisition agreement?

An acquisition agreement mainly consists of clauses regarding the parties’ material obligations, particularly regarding the sale and transfer of shares or assets and consideration or payment.

Acquisition agreements also include:

  • conditions precedent for completion of the transaction;
  • representations and warranties regarding the shares, company or enterprise being transferred;
  • claims and indemnities in case of breach of representations, warranties or other agreement provisions; and
  • closing provisions and procedures.

What provisions are made for deal protection?

Parties may agree on penalties for breach of contractual obligations or other contractual arrangements. These may serve as a break fee to protect the deal from third parties. A typical penalty clause allows the claiming party to claim the penalty amount solely based on the breach of the agreement, with no obligation to prove damages resulted from the breach. 

Closing documentation

What documents are normally executed at signing and closing?

The main documents prepared and signed at a signing meeting are the share purchase agreement and its annexes. Ancillary documents are also signed, as required by the nature of the transaction: it is common to sign agreements regarding the company's real estate, IP rights and key employees during the signing.

At closing, parties usually sign the corporate documents finalising the deal. The most common documents signed during closing are:

  • release letters;
  • share certificate transfer and delivery documents;
  • bank transfer documents;
  • resolutions and approvals from management regarding the share transfer;
  • registration of the share transfer in the company's share ledger;
  • resolutions regarding the appointment of the new management of the target; and
  • amendments to the articles of association, if required.

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

No specific regulations relate to the execution of documents by foreign companies. A foreign company can execute a document with the signature of the person authorised to represent the company. However, this authority to represent the company must be legally established, such as via a notarised signatory circular or a document with similar effect.

For a foreign notarised document to be enforceable in Turkey, the document must be apostilled by the competent authority in the contracting states of the Hague Convention Abolishing the Requirement for Legalisation for Foreign Public Documents 1961. In states which are not signatories to the Hague Convention, documents must be certified by the Turkish consulate in the relevant state.

Are digital signatures binding and enforceable?

An electronic signature is electronic data attached to other electronic data, or which has a logical connection with some electronic data, and is used for the purpose of identity verification (Article 3(b) of the Electronic Signature Code).

A secure electronic signature has the same legal effect as a handwritten signature under Turkish law (Article 5 of the Electronic Signature Code and Article 15 of the Code of Obligations).

However, bills of exchange, bonds, cheques and commercial bills similar to bills of exchange cannot be issued using secure electronic signatures (Article 1526 of the Commercial Code). In addition, legal transactions such as acceptance, surety and endorsement relating to these documents cannot be executed via secure electronic signatures.

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