Glossary

An asset deal refers to the sale of a business or part of a business in the form of an asset transfer. The asset deal is opposed to the share deal.

In the context of business acquisitions, the cap refers to the maximum amount the seller may be liable for under their warranty obligations. The cap is often defined in the share purchase agreement as a percentage of the sale price.

This clause generally allows one party to terminate an agreement if the co-contracting party undergoes a change of control.

The closing refers to the completion of the sale of shares, which is the actual transfer of ownership of the shares from the seller to the buyer. By extension, the closing also refers to the meeting between the parties where the transfer of shares is finalized.

The conditions precedent, as stipulated in the share purchase agreement, are uncertain events whose fulfilment gives rise to the seller’s obligation to sell and the buyer’s obligation to purchase the shares.

The de minimis clause limits the seller’s obligation to provide compensation under their warranty. According to this clause, the seller is not obligated to provide compensation for individual damages that are below a contractually defined threshold.

Disclosures refer to information that the seller has provided to the buyer prior to the signing of the share purchase agreement. They may be included within the share purchase agreement itself. The parties agree that these disclosures serve as exceptions to the seller’s representations, meaning that the buyer will not be entitled to seek warranty claims from the seller with regards to the disclosed items.

Due diligence refers to the series of verifications that the buyer conducts before the signing of the share purchase agreement, concerning the shares they intend to purchase and the target company.

An earn-out is an additional payment that may be owed to the seller, based on the target company’s financial performance after the closing.

Leakage is a generic term used to designate the various transactions by which the seller may, prior to closing, reduce the assets of the target company to the detriment of the buyer. The share transfer agreement defines which leakage transactions are permitted and which are not, and determines their impact on the rights and obligations of the parties.

The locked-box is a price determination mechanism in which the share price is set on the basis of reference accounts prior to the share purchase agreement, without adjustment to take account of subsequent profits or losses recorded between the date of the accounts and the closing. Where applicable, the buyer must pay the seller interest on the value thus determined, to take account of the time lag between the time when the value of the shares was set and the time when the price was paid.

Because the price is not adjusted at closing, the share transfer agreement defines the leakage transactions that are prohibited (or give rise to an obligation on the part of the seller to compensate the buyer), making the target company a ‘locked-box’.

The LOI refers to the “letter of intent”. A letter of intent (LOI) is a formal document outlining the preliminary terms, intentions, and conditions of a proposed transaction between parties before a definitive agreement is reached.

The NDA refers to a “non-disclosure agreement”. A non-disclosure agreement (NDA) is a legal contract that protects confidential information by restricting its disclosure or use by the parties involved.

This is a clause through which the seller agrees not to engage in any business activity that competes with the company whose shares are being sold. For the clause to be valid, it typically must include three limitations: a material limitation (defining the prohibited activity), a territorial limitation (the geographic area where the defined activity is prohibited), and a temporal limitation (the duration of the prohibition).

Representations are statements made by the seller about the shares being sold and the target company. Through these representations, the seller affirms, among other things, that they are the rightful owner of the shares being sold and that the shareholders’ structure (and more broadly the securities issued by the company) is as described. The seller also declares that the target company is in good working order and operates in compliance with various legal aspects.

A share deal refers to the sale of a business through a transfer of shares. The share deal is opposed to the asset deal.

SPA refers to a “share purchase agreement”. A share purchase agreement (SPA) is a legal contract that outlines the terms and conditions under which shares in a company are bought and sold between a seller and a buyer.

The target or target company is the company whose shares are being sold.

The vendor loan is a loan granted by the seller to the buyer. In other words, the seller allows the buyer to pay the price, or a portion of it, on a deferred basis, meaning after the closing.