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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
ARTICLE 1 – DEFINITIONS
In this Agreement, unless the context otherwise requires:
"Accounts" means the financial statements 1 of the Company with reference to the[……… ] 2 financial years.
"Accounts Date" means the date of reference of the last approved financial statements 3.
"Agreement" means this agreement and its annexes and schedules.
"Claim" and "Claim notice" have the meaning indicated in Article 10.1.
"Closing" means completion of the sale and purchase of the Shares by the performance by the parties of their respective obligations under Article 6.
"Closing Date" means the date on which the Closing takes place in accordance with Article 6.1.
"Company" ("Target Company") has the meaning set out in Annex 1.
"Day" means a calendar day.
"Encumbrances" shall mean any claims, interest, option or pre-emption right or other rights of any parties, charges, pledges, mortgages, special or general privileges, security, actions, liens, or encumbrances and the like of whatever nature.
"Environmental Law" means all laws, regulations, directives, codes of practice, circulars, guidance notes and the like concerning the protection of human health or the environment or the conditions of the workplace or the generation, transportation, storage, treatment or disposal of dangerous substances.
"Environmental License" means any permit, licence, authorization, consent or other approval required under or in relation to any Environmental Law.
"Event" has the meaning defined in Article 10.1.
"Intellectual Property Rights" mean any trademarks, service marks, trade and business names (including internet domain names), rights in designs, patents, copyrights, moral rights and rights in know-how, software and database rights and other intellectual property rights, as related to the Company, in each case whether registered or unregistered and including applications for the grant of any of the foregoing and all rights or forms of protection having equivalent or similar effects to any of the foregoing which may subsist anywhere in the world.
"Losses" has the meaning defined in Article 9.1.
"Purchase Price" has the meaning set out in Article 4.
"Shares" means all the shares held by the Seller in the Company as referred to in Annex 2.
"Warranty" and "Warranties" mean those warranties given by the Seller to the Buyer and contained in schedule A.
"Warranty Breach" means any claim for breach of a Warranty as referred to in Schedule A.
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ARTICLE 2 – GOOD FAITH AND FAIR DEALING
2 . 1 In carrying out their obligations under this Agreement the parties will act in accordance with the principles of good faith and fair dealing.
2 . 2 The provisions of this Agreement, as well as any statements made by the parties in connection with this Agreement, shall be interpreted in accordance with the principles of good faith and fair dealing.
ARTICLE 3 – OBJECT OF THE AGREEMENT
3.1 The object of this Agreement is to set out the terms including the conditions to and the timing of the sale and purchase of the Shares.
3.2 The Seller hereby agrees to sell and the Buyer agrees to purchase the Shares for the price set out in Article 4 free and clear of all Encumbrances. The Shares shall be transferred at Closing with the benefits of all rights attached to them as at the date of this Agreement, including all rights to dividends.
ARTICLE 4 – PRICE
The purchase price amounts to[………….], which shall be paid in accordance with Article 6.2 4 .
ARTICLE 5 – CONDUCT OF BUSINESS, AND MATERIAL ADVERSE CHANGE 5
5.1 As from the date of execution of this Agreement and until Closing, the Seller shall conduct the business of the Company or cause the business of the Company to be conducted in the ordinary course.
5.2 As from the date of execution of this Agreement and until Closing, the Seller shall notify the Buyer of any material adverse change in the business, operations, properties, prospects, assets or condition, (financial or other) of the Company, or of any event, development or circumstance that may result in such a material adverse change.
5 3 In the event of a material adverse change, the Buyer shall be excused from his obligations under this Agreement without prejudice to available remedies in the event of the material adverse change being the result of an action or omission on the part of the Seller 6.
5.4 The parties agree that material adverse changes are defined as those changes in the business, operations, properties, prospects, assets or condition (financial or other) of the Company, of a nature to fundamentally alter the economics of this Agreement.
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ARTICLE 6 – CLOSING 7
6 1 Closing shall occur 8 at the offices of ] on (date)], provided the conditions referred to in Annex 3 have been fulfilled and subject to Article 5.3. If the conditions for the Closing have not satisfied by that date then each party can terminate the Agreement with written notice with immediate effect. The right of termination does not prevent any party from claiming possible damages.
6 2 At Closing, payment of the Purchase Price shall occur against transfer of title of the Shares 9 .
6 3 Closing is the effective date of the transfer of the Shares 10.
ARTICLE 7 – POST-CLOSING UNDERTAKINGS
The Seller undertakes to the Buyer in the terms of Annex 4.
ARTICLE 8 – WARRANTIES
8.1 The Seller warrants to the Buyer that as at the date of this Agreement:
8 2 Each of the warranties set out in the several paragraphs of Schedule A is separate and independent and, except as expressly provided to the contrary in this Agreement, is not limited:
8 3 The right to damages and/or any other available remedy for breach of any of the warranties, covenants and obligations in this Agreement will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired at any time, whether before or after the execution and delivery of this Agreement or the Closing Date) with respect to the accuracy or inaccuracy of or compliance with any such warranty, covenant or obligation.
ARTICLE 9 – SELLER’S LIABILITY FOR WARRANTY BREACH 13
9.1 The Seller shall be liable to the Buyer for any liability, loss, damage, cost, expense (including reasonable attorney fees, and other reasonable legal and internal costs and expenses relating to a suit, action or other proceedings) 14 (collectively "Losses") which the Buyer or the Company may incur or suffer as a result of any Warranty Breach.
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9 2 Liability 15 of the Seller in accordance with Article 9.1 (subject to the limitations under Article 11) shall be treated as any one of the following, as the Buyer shall choose and direct:
ARTICLE 10 – CLAIM PROCEDURE
10.1 Claim Notice. Whenever the Buyer becomes aware that an event (the "Event") has occurred from which there may arise an obligation of the Seller pursuant to Article 9 above, including the notification of a tax, social security or other audit by public authorities, the Buyer shall, as soon as practicable, give notice ("Claim Notice") to the Seller and state its claim ("Claim") and the amount claimed if then known and ascertainable and the method of calculation thereof.
Failure of the Buyer to give timely Claim Notice hereunder shall not affect its rights to claim for breach of the Agreement except to the extent that the Seller demonstrates that the Buyer's delay violated its obligation to use reasonable endeavours to mitigate the Losses and except to the extent as set out in Article 11.
10.2 Information and co-operation of parties. In handling the Event, the Buyer shall keep the Seller fully and promptly informed and consult in good faith with the Seller before taking any material steps or decisions, such as a decision to settle with a third party, in order to allow the Seller to make all recommendations and suggestions to the Buyer in due time, and to this effect the Buyer shall give the Seller, or the Seller 's representatives, reasonable access to relevant accounts, documents, records and other documentation and the Seller shall provide full co-operation upon the Buyer's reasonable request.
The obligation of the Buyer to inform and consult with the Seller shall in no way imply any obligation for the Buyer to defer to or follow any recommendations and suggestions made by the Seller.
In all cases, the Buyer shall use reasonable endeavours to mitigate the Losses.
10.3 Rights of Seller to control of defence in the event of Admission of Claim (optional).
With respect to claims made by third parties, if the Seller admits to the Buyer and agrees in writing 16 that is liable for the full amount of the claim ("Admission of Claim") and agrees to provide reasonable security of its payment obligations under the claim, the Seller shall be entitled to assume control of the defence of such action or claim, at its sole expense, and shall be entitled to use its own counsel and legal advice provided that such counsel and provision of legal advice is reasonably satisfactory to the Buyer and provided that:
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ARTICLE 11 – LIMITATION OF LIABILITY FOR WARRANTY BREACHES
11.1 The liability of the Seller under this Agreement, except for any liability under Article 13 (Restrictive Covenants) shall not arise unless the liability for damages exceeds[………….] (in words: [……….]in which event the Seller shall be liable for the whole liability and not only for the excess over[…………..]; and
11.2 In determining the Sellers liability for damages, only claims for Warranty Breaches which exceed, each individually, an amount of […………..]17 (in words[……………]) shall be taken into account unless such an individual claim is part of a series of claims relating to the same Warranty Breach in which case all such[………….]claims will be treated cumulatively in assessing the value of claim for the purpose of this Article 11.2.
11.3 The maximum liability of the Seller under this agreement (except for any liability under Article 13 (Restrictive Covenants) shall not exceed an amount equal to[………] (in words[……………]).
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11.4 The Seller shall have no liability under this Agreement unless it receives from the Buyer a Claim Notice (pursuant to Article 10):
(a) on or before the[………] anniversary of the Closing Date in respect of any claim for breach of any of the tax warranties (contained in schedule A.7 of schedule A); and
(b) Within[…………….] months/years after the Closing Date in respect of any other claim.
11.5 Payments by the Seller under this clause shall be limited to the amount of the balance of the Loss after deducting therefrom
(i) any amount of contingency reserves provided against such Loss in the Accounts of the Company; and
(ii) any indemnity, contribution or other similar payment recoverable and recovered by the Buyer from any third party, including under an insurance policy less the costs of recovery and any consequential increase in the cost of insurance 18.
11.6 No liability of the Seller shall arise if and to the extent that a Claim occurs as a result of legislation which is not in force at the Closing Date or which takes effect retrospectively or occurs as a result of an increase in the rate of the taxes in force at the Closing Date or as a result of a change in the practice of the relevant authorities.
11.7 If any claim of the Buyer for a Warranty Breach is a result of or in connection with a liability or alleged liability of a third party, the Buyer shall take such actions as it reasonably considers necessary to prevent or limit to the extent possible any loss or damage for which the Seller may be liable (including taking such action to avoid, dispute or contest such liability as is reasonably practicable).
11.8.A
Remedies Cumulative. The remedies provided herein are cumulative and will not preclude assertion by any party of any rights or the seeking of any other remedies against the other party or any other third party at law or otherwise.
11.8.B 19
Sole Remedy. The Buyer shall have no rights with respect to breach of any warranty or obligation under this Agreement other than those expressly provided herein.
11.9 The limitation of liability provided in this Article 11 applies exclusively to Warranty Breaches, and the Parties agree that it does not apply to other breaches or deficiencies of this Agreement.
ARTICLE 12 – PAYMENT FOR BREACH 20
12.1 Any payment for Warranty Breaches shall be due immediately.
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12.2 In the case of claims for payment by third parties against the Buyer or the Company, any payment for Warranty Breaches by the Seller shall be due as soon as such third party claim has to be paid.
In the event the said payment obligation is thereafter finally determined not to be binding and enforceable, the Buyer shall be under the obligation to reimburse the Seller to the extent and as soon as the Buyer will have received a refund.
12.3 The Buyer shall use its reasonable endeavours to obtain postponement of payment when practicable provided the Seller shall counter-guarantee without delay any required guarantees to the effect of such postponement.
12.4 Any payment delay on the part of any of the parties shall give rise to an obligation to pay interest at the rate of […………].
ARTICLE 13 – RESTRICTIVE COVENANTS 21
13.1 Non competition clause. The Seller shall not, directly or indirectly (including, without limitation, through companies, associations, joint ventures, relatives or other means or persons) (i) engage in, assist or finance any activity which may be directly or indirectly in competition with the Company's business as per the Closing Date, (ii) perform any service which may be in competition with the business in which the Company is currently engaged at the time of Closing, for a period of […………..] 22 years from the Closing Date with respect to the territory where the Company is currently engaged at the time of Closing.
13.2 Non-Solicitations of employees. Without prejudice to applicable laws on unfair competition, for a period of two (2) years from the Closing Date, the Seller shall not in any way, directly or indirectly solicit, recruit 23, assist others in recruiting or hiring, or discuss employment arrangements with any employee of the Company without the prior consent of the Buyer.
13.3 Subject to Article 13.4 the Seller covenants with the Company and the Buyer that the Seller shall keep confidential and shall refrain from using all confidential information relating to the business of the Company and shall procure that none of its related companies shall at any time without the consent of the Company or the Buyer infringe this restriction.
13.4 The restriction in Article 13.3 shall not apply to the extent that:
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ARTICLE 14 – CONFIDENTIALITY/ANNOUNCEMENTS
14.1 The parties shall treat and keep confidential and shall not disclose 24 in whole or in part to any third party this agreement or any information contained within or related to this Agreement except as is:
14.2 The parties shall consult with each other as to the form of any announcement arising out of or connected with the Agreement, and no disclosure shall be made to any third party without the prior written agreement of the parties save as required by law or applicable stock exchange rules.
14.3 The obligations under this Article 14 shall survive any termination of this Agreement.
ARTICLE 15 – GENERAL
15.1 Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing.
15.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties in relation to the sale and purchase of the Shares and other matters covered by it and supersedes any previous agreement between the parties in relation to those matters, which shall cease to have any effect.
15.3 Non-reliance. Both Parties to this Agreement acknowledge that they could have not relied on any statement or representation (save in the event of fraud) or warranty not contained in the Agreement or contained in any of the agreed form documents and each party unconditionally waives any claims in relation to, any statement, representation (save in the event of fraud), warranty or undertaking which is not expressly set out or referred to in this Agreement or any of the "agreed form" documents.
15.4 Partial Invalidity; Conflict. In the event that any term of this Agreement is declared by an arbitral panel or a judicial or government authority to be legally invalid, non- binding or unenforceable, such term shall be deemed deleted here from and shall not affect the Agreement in other respects, nor the validity and enforceability of those remaining terms. In such an event, the Buyer and the Seller agree to replace the affected term with terms that will most nearly and fairly approach such deleted term. In the event of a conflict or discrepancy between the Articles of this Agreement and the Schedules, the Articles of this Agreement shall prevail.
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15.5 No assignment 25. This Agreement, or any rights hereunder, cannot be assigned by either Party without the consent of the other Party, except that corporate operations involving the universal transmission of the assets and liabilities of either of the parties will not require the consent of the other party.
15.6 Costs. Each party will be responsible for its own costs and expenses, including consultants and brokers fees incidental to the negotiation, preparation and execution of the Agreement, and agrees to hold harmless and indemnify the other party in respect of any such expenses, costs and fees which may be claimed from such other party 26
15.7 Transfer taxes, stamp and other duties and authentication costs. The Parties agree that all such costs shall be borne by the Buyer27.
15.8 Force majeure. The Parties agree to apply the ICC Force Majeure Clause 2003.
ARTICLE 16 – NOTICES
16.1 Any notice, consent or other communication under this Agreement shall be in writing and sent to the addresses, facsimile numbers and email addresses set out below (or to such other addresses, facsimile numbers or email addresses as the parties may designate by notice to each other).
(a) If to the Buyer:address:telephone number:fax number:e-mail address:
(b) To the Seller:address:telephone number:fax number:e-mail address:
16.2 Any notice or other communication served by hand, special courier, fax or post shall be deemed to have been received:
(a) in the case of delivery by hand, when delivered;
(b) in the case of email or fax, at the time of transmission, provided that the confirmation of the transmission is sent to the counterpart by registered mail within 24 hours. Failure to send the confirmation copy will invalidate the service of any facsimile or electronic data transmission,
( c ) in the case of registered mail with a return receipt, at the expiration of[………….]days after dispatch of the notice.
ARTICLE 17 – RESOLUTION OF DISPUTES
17.1 The parties may at any time, without prejudice to Article 17.2, seek to settle any dispute arising out of or in connection with this Agreement in accordance with the ICC ADR Rules28.
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17.2 A Arbitration
All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the Inter- national Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules. The place of such arbitration shall be[………….], and the language of such proceedings shall be[………………].
17.2B Litigation (ordinary courts)
In case of dispute the courts of place]country] shall have exclusive jurisdiction.
ARTICLE 18 – APPLICABLE LAW
18.1. A
This Agreement is governed by the laws of[…………….] (name of the country the law of which is to apply) 30.
18.1.B 29
Any questions relating to this Agreement which are not expressly or implicitly settled by the provisions contained in this Agreement shall be governed, in the following order:
18.2 In any event consideration shall be given to mandatory provisions of the law of the country where the Company is established which would be applicable even if the contract is governed by a foreign law. Any such provisions will be taken into account to the extent they embody principles which are universally recognised and provided their application appears reasonable in the context of international trade.
ARTICLE 19 – AUTOMATIC INCLUSION UNDER THE PRESENT AGREEMENT
If the parties have not made a choice among the alternative solutions provided in Articles 11.8, 17.2 and 18.1 under the letters A and B by deleting one of the alternatives, and provided they have not expressly made a choice by other means, alternative A shall be considered applicable.
(Date and signature line to be inserted as in the other contracts)
FOOTNOTES
Often powers of attorney are given by the Seller in favour of the Buyer, so that the Buyer can control the shares as beneficial owner until registration takes place, and the buyer becomes legal owner. Please consider if this stronger protection is required
1 Verify which documents form the financial statements of the Company in the Company’s jurisdiction
2 Fill in the years that you wish to consider
3 This model contract assumes that no closing financial statements will be prepared after closing.
4 See also Introduction, §4, for possible means of price adjustments like closing accounts and earn-outs. Check whether any applicable taxes apply
5 Material adverse change clauses (MACs) are more and more frequently discussed in M & A transactions as a result of a changing international environment. Their purpose is to allow the Buyer to escape a deal when a number of circumstances which have been determined in more or less detail in advance materially change. They can also be a protection for the Seller against a recalcitrant Buyer. Although not found as a rule in all transaction documents, their increasing frequency is the reason for their inclusion in this model form. There is not a great amount of experience in the effect of so-called MAC clauses in practice. The court decisions rendered up to now in several jurisdictions tend to adopt a rather restrictive view of their scope and to require an adverse change of very considerable significance to allow the parties to walk away from a binding contractual agreement. This model agreement chooses to limit the excuse in the event of a material adverse change to the Buyer, which is the most frequent hypothesis. It also does not go into any detail as to the definition of what the acceptable adverse changes would be, but the parties should give particular regard not only to the specificities of the transaction and business at hand but also to the evolution of practice and judge-made law in the relevant jurisdiction
6 The underlying concept is that the risk passes to the Buyer upon closing (see also discussion in the Introduction§7). The parties might consider whether they prefer different concepts, especially for events that are not attributable to either of the parties.
7 If transfer of the legal title to the shares will be perfected only after closing, a provision should be included whereby the Seller undertakes not to dispose of the shares and not to use the rights connected to them after the closing. A possible example could be the following:“The Seller hereby undertakes to the Buyer for so long as it remains the registered holder of any of the Shares afterClosing:1. not to dispose of the Shares or any interest therein.2. not to transfer any of the Shares nor to offer any new shares to a third party;3. to refrain from any acts or omissions, the purpose or effect of which is or might be the material dilution of the value of the Shares;4. not to pass any shareholders’ resolution in relation to the Company;5. not to dispose of any assets or rights of the Company;6. not to do any act whereby any person is entitled or empowered to terminate any agreement, arrangement or License, the benefits of which are enjoyed by the Company.”
8 In some jurisdictions it is either legally required or customary that certain documents or items be delivered by one party to the other, typically by the Seller to the Buyer. The Parties should carefully review the checklist provided in Annex 4. It is not an exhaustive list.
9 In some cases, e.g. if the capital of the company is not represented by share certificates, this solution may not be appropriate. The parties should in any case check very carefully the formalities for the transfer of title under the law of the target company
10 Particular regard should be given to this clause in jurisdictions where (i) there can be a lapse in time between the transfer of legal and beneficial ownership of the shares as seen in footnote 15 or where (ii) by the effect of legal provisions governing the effect in time of the satisfaction of conditions precedent there could be a retroaction of the transfer of ownership of the shares to the date of the signature of the contract. In those latter cases, article 6.3. should be complemented as follows: “The Parties agree that the fulfilment of the conditions referred to in Annex 3 shall not cause their agreement to sell and purchase the Shares to retroact at the date of this Contract but that the transfer of title to and risk relating to the Shares shall take place at the date of Closing
11 As the Buyer is free to ask for specific warranties the Seller might consider refusing such a catch-all clause, in particular if the Buyer had an opportunity to conduct a due diligence examination. Also, it is not unusual to exclude any claims not expressly provided for in the Agreement
12 Inevitably there will be an overlap in the warranties. The purpose of this clause is to eliminate any suggestion that the wording of a certain warranty or a qualification to such warranty operates to reduce the scope of another, overlapping warranty.[Page28:]
13 Buyer’s Representations and Warranties to the Seller and a corresponding Buyer’s right to damages may also be considered
14 In certain cases, it can be advisable to provide that a diminution of assets in substance or value may also be indemnifiable. The parties need to check this provision for consistence with Article 11.8 (optional).
15 The agreement does not provide for the rights of the Seller to rescind the agreement in case of a fundamental deficiency. The parties should thus check whether such right exists under the applicable law, or whether they wish to include such right in the Agreement.
16 The words “or tacitly according to the provisions of the last paragraph of 10.1” should be added if the optional clause provided under footnote 26 is used
17 Consider limiting liability to the purchase price.
18 A possible optional clause may be the following:“Buyer’s obligation as to insurance (optional). The Buyer undertakes to the Seller that it will at all times until (…) procure that the Company maintains in full force and effect insurance cover in amounts which are not less than and on terms which are at least comparable to those subsisting on the Closing Date
19 This clause does not necessarily exclude any right which the Buyer might have under the applicable law, e.g. on the ground of error.
20 If there are no other means for securing payment (such as, payment by instalments giving the buyer the possibility to withhold sums possibly due under this clause: see Introduction, § 5), parties may agree upon a bank guarantee or similar security to be provided by the Seller. An example of clause is the following:“Guarantee. For the purpose of implementing and securing the Seller’s payment obligations under this clause, the Seller shall provide, on or before the Closing Date, a ‘first demand’ bank guarantee issued by an issuer and in form and substance agreeable to the Buyer. The banking fees and other expenses relating to such bank guarantee shall be for the Seller’s account.”
21 Parties may wish to make this clause more effective by adding a penalty or liquidated damages clause. In this case, they should check to what extent such clauses are effective under the applicable law
22 Normally twoyears. Sometimes three or more years, but in this case the compliance with applicable antitrust rules should be checked
23 Under applicable law, a clause effectively preventing an employee from seeking employment with the Buyer may be held void.
24 The parties should consider a limitation period for this covenant.
25 In some cases the prohibition of assignment may not be advisable, e.g. if payment is made by instalments and the buyer needs in the meantime to be free to transfer the shares to others. At the same time, the Purchaser may need to discount its claim for the Price – group reorganisation should also be taken into consideration.
26 The Parties should consider sharing certain costs, e.g., for any necessary approvals from merger control authorities.
27 The Parties should carefully verify the impact of any transfer tax or any other duties.
28 The ICC ADR Rules can be found on the Web site www.iccadr.org
29 In case this alternative is chosen, it is advisable to choose arbitration (Article 17.2.A) for the resolution of disputes, since it is doubtful that ordinary courts would accept applying general principles instead of a domestic law.
30 This model form reflects standards used in cross-border SPA’s without considering a specific national law. Thus, if the parties submit the agreement to a specific domestic law, they should carefully check in advance, if the clauses of the model conform to the mandatory provisions of the law they have chosen.
31 Careful legal consideration is required as to the effect of choosing clause 18.1A and 18.1B. Whichever clause is chosen will have a substantial impact on the interpretation of the Agreement..