An acquisition agreement often obligates the buyer of the shares to notify the sellers of any claims against the sellers arising from an infringement of the provided representations and warranties within a certain term (e.g. 2 months) after becoming aware of the fact causing the infringement. The reason behind this is that timely notification enables the sellers to take action to restrict the damage. A second purpose of imposing a term is to establish legal certainty between parties. Terms of 30 days, 2 months, etc., which at the time of the negotiations may have seemed long enough for the buyer,…
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In acquisition agreements, the value of a company is often based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or another parameter. If, in retrospect, the communicated figures appear to paint an overstated picture of the company, the indemnification mechanism will usually provide for compensation at a rate of EUR 1 in damages for each euro in deviation of the communicated net equity (or another formula whereby the adapted price equals the established lesser value). However if the correction involves a parameter to which a multiple was applied for price determination purposes, then that same multiple…
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Acquisition agreements may provide for either a fixed or a variable price. A variable price is valid only if it can be determined. Hence the parameters that serve as the basis for establishing the variable price must constitute objective criteria that do not require a new indication of intent from the parties. Acquisition agreements often contain an earn-out clause: (part of) the price is determined based on the profit earned by the company in the years following the acquisition. Usage of the earn-out clause is most common when the selling party retains an important role in the management of the…
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In majority shareholding transfers, the acquisition agreement commonly includes the resignation of the board of directors and discharge of liability with respect to their mandate. By granting discharge the company approves the policies conducted by the board and waives its right to hold the directors liable for any management errors. In accordance with the provisions of the Belgian Companies code, the company decides annually – upon approval of the financial statements – whether or not to discharge its board of liability. The discharge granted at the time of a share transfer usually does not coincide with approval of the financial…
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Companies may be transferred via asset deals or share deals. As one of their main concerns in such takeovers, buyers will want to have the opportunity – at least for a transitional period – to work towards actively retaining the company’s clients without being obstructed by the transferring party who (immediately) after the takeover, might resume their transferred activities and create a competitive business. The question arises whether under current legislation for sale of goods, buyers find sufficient protection against such actions and whether including a conventional non-competition clause in the acquisition agreement is required to achieve such protection. In…
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Acquisition agreements are often preceded by some preliminary agreement (also called a declaration of intent; letter of intent; memorandum of understanding; agreement in principle, etc.) that not seldom is considered as non-binding by the parties. Such initial document aims at describing the status of the negotiations, the agreed principles, and any further steps required to arrive at a final acquisition agreement. Parties who do not yet wish to enter into a binding agreement must make an explicit statement to that effect in the preliminary agreement. If they fail to do so and then reach an agreement on the subject of the…
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