https://content.next.westlaw.com/practical-law/document/Iebb08192671711e698dc8b09b4f043e0/Exclusivity-agreement-share-and-asset-acquisitions-seller-friendly?viewType=FullText&transitionType=Default&contextData=(sc.Default) An exclusivity agreement (also known as "lock out", "no talk" or "no shop" agreement) used in acquisitions. Exclusivity agreements are generally used to give the buyer a period in which to conduct due diligence and negotiations without competition from other prospective buyers. This agreement relates to share or asset acquisitions where both the seller and the buyer are proprietary companies limited by shares, and is drafted from the perspective of the seller.
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An exclusivity agreement (also known as "lock out", "no talk" or "no shop" agreement) used in acquisitions. Exclusivity agreements are generally used to give the buyer a period in which to conduct due diligence and negotiations without competition from other prospective buyers. This agreement relates to share or asset acquisitions where both the seller and the buyer are proprietary companies limited by shares, and is drafted from the perspective of the seller.
Exclusivity agreements (also known as "lock out", "no talk" or "no shop" agreements) are often used in share and asset acquisitions to give the buyer a fixed period to conduct due diligence and negotiations without competition from other prospective buyers. Exclusivity provisions are more common in share purchases, where transactions can involve complex due diligence and lengthy negotiations. For more information on exclusivity agreements, see Practice note, Exclusivity: acquisitions.
Although it is common for exclusivity agreements to be drafted as a letter from the potential buyer to the seller of the target (the company that is the subject of the acquisition), this standard document is drafted as a letter from the seller of the target to the potential buyer. An exclusivity agreement can also take the form of a more formal agreement. It is also common for an exclusivity provision to be included in a heads of agreement or terms sheet (see Practice note, Heads of agreement) or in a confidentiality agreement (see Practice note, Confidentiality agreements), rather than in a standalone exclusivity agreement. For standard forms of these documents, see Standard documents:
This document is seller friendly and provides only the most limited protection to the buyer. In this agreement, the seller agrees not to solicit offers from parties other than the prospective buyer or enter into any negotiations relating to a sale of the target. If you are acting for a buyer, see Standard document, Exclusivity agreement: share and asset acquisitions (buyer friendly), which is drafted from the perspective of the buyer and contains a wide range of restrictions on the seller. The buyer-friendly agreement includes, for example:
A restriction on making information available to any other in connection with a competing offer.Reimbursement of the buyer's costs and expenses by the seller if the seller breaches any of its obligations in the agreement.
[NAME OF BUYER] [ADDRESS LINE 1] [ADDRESS LINE 2] [STATE] [POSTCODE] Dear [NAME OF ADDRESSEE],1. In this letter agreement (Letter), "we" and "our" means [SELLER] and "you" and "your" means [BUYER].
2. We refer to our recent discussions relating to the proposed purchase by you of [all of the issued share capital of [TARGET COMPANY] and its subsidiaries OR the business and assets of [TARGET COMPANY]] (Target) by means of a [share purchase agreement (SPA) OR asset purchase agreement (APA)] (Proposed Transaction).
3. Subject to Paragraph 4, in consideration of your entering into or continuing negotiations relating to the Proposed Transaction, we agree not to solicit interest from, or enter into any negotiations with, any other party in relation to the sale of the Target from the date of this Letter until 5:30 pm on [DATE] ( Exclusivity Period).
Consideration (whether financial or otherwise) must be given by each party to the other in order for the agreement to be binding, unless the agreement is expressed to take effect as a deed. Accordingly, Paragraph 3 is drafted on the basis that the mutual exchange of promises by the seller and the buyer form the valuable consideration necessary for this letter to take effect as an agreement. However, the parties may prefer that this document be drafted as a deed to ensure its enforceability.
4. We reserve the right to revoke and cancel the grant of exclusivity set out in Paragraph 33 by notice in writing if:
(a) at any time during the Exclusivity Period, we believe that it is unlikely that completion of the Proposed Transaction will occur before [DATE];
(b) you indicate any reduction is possible in the price you have indicated you are willing to pay for the Target (being $[AMOUNT]) (Purchase Price);
(c) any issue is raised by you that has not been discussed with us previously that will in our opinion have the effect of reducing the Purchase Price or increasing any of the liabilities or potential liabilities to be accepted by us in respect of the sale of the Target;
(d) you suggest any change in the terms and conditions of your offer letter dated [DATE] attached to this Letter (Offer Letter)[. We do not accept all the terms and conditions set out in the Offer Letter but we believe they represent a starting point (subject to suitable amendment) for our negotiations and we do not expect you to modify them to our detriment];
(e) an agreement for the purchase of the Target has not been entered into by [DATE]; or(f) you breach the terms of the attached confidentiality agreement [to be] entered into between ourselves and yourselves (Confidentiality Agreement).
Paragraph 4 should clearly set out the circumstances under which the seller is permitted to terminate the agreement. This paragraph should reflect the commercial arrangements of the parties.
5. You must notify us in writing immediately following any decision you make not to proceed with the Proposed Transaction, at which time the grant of exclusivity set out in Paragraph 3 will automatically terminate.
6. [You agree to confirm to us in writing by the close of business on [DATE] and by close of business on each following [DAY] during the Exclusivity Period that the Purchase Price and other material terms of your offer to acquire the Target, as set out in the Offer Letter, are unchanged.]
7. [You undertake to:(a) complete your review of information made available to you as part of the due diligence process on a timely basis; and
(b) take all reasonable steps that a prudent and determined buyer acting in its own interests would take to ensure that such information is properly reviewed to ensure that an [SPA OR ASA] can be entered into for the Proposed Transaction to allow completion of the Proposed Transaction to occur by [DATE].
OR It is agreed between us that: (a) we will take all reasonable steps that a prudent and determined seller would take; and(b) you will take all reasonable steps that a prudent and determined buyer acting in their own respective interests and anxious to conclude the Proposed Transaction would take,
to ensure that the deadlines set out in the attached timetable are met.]8. Nothing in this Letter prevents any member of our Group (as defined in Paragraph 12 below), or any of its directors, employees, agents or advisers, from making any disclosure or announcement required to be made in relation to the Proposed Transaction by any applicable law or the requirements of a regulatory body and no such disclosure or announcement will be taken to be soliciting interest from any third party.
9. Any notice or other communication to a party under this Letter (Notice):(a) must be in writing and in English and signed by the sender or a person authorised to sign on behalf of the sender;
(b) must be addressed to that party in accordance with the details set out on page [1] of this Letter (or any alternative details nominated to the sending party by Notice);
(c) must be given by one of the methods set out in the table below; [and] (d) is regarded as given and received at the time set out in the table below[; and(e) [must not be given by electronic means of communication (other than fax or email as permitted in Paragraph 9(c)) OR must not be given by email or other electronic means of communication (other than fax as permitted in Paragraph 9(c))]].
10. If as a result of Paragraph 9(c) and Paragraph 9(d) a Notice would be regarded as given and received outside the period between 9.00 am and 5.00 pm (addressee's time) on a Business Day (as defined in Paragraph 12 below) (Business Hours Period), then the Notice will instead be regarded as given and received at the start of the following Business Hours Period.
Notice delivery method When Notice is regarded as given and received By hand to the nominated address When delivered to the nominated address. By pre-paid post to the nominated address At 9.00 am (addressee's time) on the second Business Day after the date of posting. By fax to the nominated fax numberAt the time indicated by the sending party's transmission equipment as the time that the fax was sent in its entirety.
However, if the recipient party informs the sending party within four hours after that time that the fax transmission was illegible or incomplete, then the Notice will not be regarded as given or received. When calculating this four-hour period, only time within a Business Hours Period is to be included.
[By email to the nominated email address][[Five OR [NUMBER]] hours after the time sent (as recorded on the device from which the sender sent the email) unless the sender receives an automated message that the email has not been delivered.]
Update Paragraph 9 and the table in Paragraph 10 as necessary to reflect the preferred form of delivery of notices to be given under this letter (for example, consider whether email or fax delivery is acceptable). For information about the notices provisions in Paragraph 9 and Paragraph 10, see Standard clause, Notices.
11. This Letter is governed by the law in force in [JURISDICTION] and we both irrevocably:(a) submit to the [non-exclusive OR exclusive] jurisdiction of the courts exercising jurisdiction in [JURISDICTION] and courts of appeal from them in respect of any proceedings arising of or in connection with this agreement; and
(b) waive any right either of us has to object to the venue of any legal process in the courts described in Paragraph 11(a) on the basis that:
any proceeding arising out of or in connection with this Letter has been brought in an inconvenient forum; or
the courts described in Paragraph 11(a) do not have jurisdiction.(a) Group means [SELLER], any subsidiary or any holding company from time to time of [SELLER], and any subsidiary from time to time of a holding company of [SELLER]; and
(b) Business Day means a day on which banks are open for business in [CITY], other than a Saturday, Sunday or public holiday in that city.
The potential buyer and its legal advisers should make sure that the appropriate seller party is bound by the agreement. For example, if the transaction being discussed is a sale of the shares of a subsidiary , then even though those discussions may take place partially with the subsidiary's directors or management, the buyer should ensure that the parent company that owns, and has the power to sell, the shares of the target company is the party that signs the exclusivity agreement.
For convenience, this document contemplates one individual representative signing on behalf of each of the corporate seller and buyer, rather than two directors or one director and one company secretary. Ordinarily, companies can rely on the statutory ability of an individual acting with a company's express or implied authority and on behalf of the company to execute any document (including a deed ), and to exercise the company's power to make, vary, ratify or discharge a contract , provided for by section 126 of the Corporations Act 2001 (Cth) (CA 2001). It is good practice both to grant any such individual express authority either by appointing the individual as an attorney or delegating the directors' authority to that individual by means of a board resolution, and to confirm that each party is satisfied for any letter agreement to be signed by the relevant individual on that basis.
As noted in the drafting note for Paragraph 3 above, this document has been drafted as an agreement on the basis that that the mutual exchange of promises by the seller and the buyer form the valuable consideration necessary for this letter to take effect as an agreement; however, this can be drafted as a deed if there is doubt about whether consideration is being given by either party. If so, take care that the document describes itself as a deed, including by reciting "Executed as a deed" on the signature page.