Exclusivity (Lock Out) Agreement under English law.

LOCK OUT AGREEMENT

                                                                                     relating to

  • LIMITED [address]

 

THIS LOCK OUT AGREEMENT is made the · day of ·

BETWEEN

(1)       [·] of [·] (the “Vendor”); and

(2)       [·] of [·] (the “Purchaser”).

 

INTRODUCTION

(A)      The Vendor has offered to sell to the Purchaser and the Purchaser wishes to buy the entire issued share capital of · Limited (the “Company”).  [Heads of agreement, subject to contract, relating to the sale and purchase of the entire issued share capital of the Company (the “Shares”) are annexed to this agreement.]

(B)      The Purchaser has informed the Vendor that it does not wish to enter into a formal legal agreement for the purchase of the Shares until it has had an opportunity to carry out an investigation relating to the Company [and  and  (the “Subsidiaries”)] through its [accountants], [solicitors] and [surveyors].

(C)      The Purchaser has informed the Vendor that it is not prepared to proceed with the proposed purchase of the Shares unless the Vendor agrees not to offer the Shares or all or any material part of the business or assets of the Company [or the Subsidiaries] for sale to any other person other than the Purchaser for a period of [one month] from today’s date.

(D)      The Vendor and the Purchaser have agreed to enter into this agreement to record the basis on which the Vendor will agree not to offer the Shares or all or any material part of the business or assets of the Company [or the Subsidiaries] for sale to any person other than the Purchaser for a period of [one month] from today’s date.

AGREED TERMS

  1. Investigation

1.1      With effect from today’s date the Purchaser shall use all reasonable endeavours to carry out those investigations which it considers necessary with respect to the proposed purchase of the Shares.  [The Purchaser agrees to enter into a confidentiality agreement with the Vendor in the form agreed by the Vendor and the Purchaser to cover all information which it receives as part of such investigation.[1]]

1.2      The Vendor agrees to give the Purchaser such information and assistance as the Purchaser reasonably requires in order to carry out its investigations whether personally or through its agents.

1.3      The Vendor acknowledges that any investigations to be carried out by or on behalf of the Purchaser may be expensive for the Purchaser and that if the Vendor subsequently decides to sell the Shares or all or any material part of the business or assets of the Company [or the Subsidiaries] to another person then the Purchaser will have suffered loss through the costs of such expenditure.

  1. Exclusivity

2.1      In consideration of the Purchaser incurring costs and expenses in the investigation of the Company [and the Subsidiaries] and the payment of one pound (1) (receipt of which the Vendor hereby acknowledges), the Vendor agrees that for the period from the date of this agreement until the date of completion of the purchase of the Shares or the expiry of the period of one month from the date of this agreement or the receipt by the Vendor of notice pursuant to clause 2.5 (whichever shall first occur) (the “Lock Out Period”):

(a)       he will not directly or indirectly enter into or continue discussions or negotiations relating to the proposed sale or purchase of the Shares or (other than in the normal course of trading[2]) all or any material part of the business or assets of the Company [or the Subsidiaries (in each case)] with any person other than the Purchaser;

(b)       he will not directly or indirectly enter into any agreement or arrangement with any person relating to the proposed sale or purchase of the Shares or (other than in the normal course of trading) all or any material part of the business or assets of the Company [or the Subsidiaries (in each case)] with any person other than the Purchaser;

(c)       he will not directly or indirectly make available any information relating to the Shares or (other than in the normal course of trading) a disposal of all or any material part of the business or assets of the Company [or the Subsidiaries (in each case)] to any person other than the Purchaser; and

(d)       he will not withdraw from negotiations with the Purchaser for the purchase of the Shares.[3]

2.2      The Vendor agrees to ensure that during the Lock Out Period the Company, the Subsidiaries, the employees and agents of the Company and the Subsidiaries and the advisers of the Vendor or the Company shall comply with the obligations contained in sub- clauses 2.1(a) to (c) inclusive.

2.3      The Vendor confirms that neither he nor his advisers are now, directly or indirectly, in discussions or negotiations relating to the purchase of the Shares or (other than in the normal course of trading) a disposal of all or any material part of the business or assets of the Company or the Subsidiaries (in each case) with any person other than the Purchaser and the Vendor acknowledges that the Purchaser will be incurring costs in connection with the proposed purchase of the Shares in reliance on the representations and obligations of the Vendor set out in this agreement.

2.4      The Vendor acknowledges and agrees that, on breach of any of his obligations under this agreement or if during the Lock Out Period the Vendor withdraws from the negotiations for the purchase of the Shares, the Purchaser shall be entitled to recover all its costs and expenses of and in relation to the investigation and proposed acquisition of the Shares [including, without limitation, the sum of  per day from  ·[4] to the date on which negotiations cease between the Vendor and Purchaser to compensate the Purchaser for its expenditure of management time and effort during that period[5]].

2.5      If the Purchaser shall determine that it wishes to withdraw from negotiations for the purchase of the Shares it shall as soon as reasonably practicable after such determination notify the Purchaser of such fact.

  1. Restrictions

3.1      Without prejudice to any other obligation assumed by the Vendor pursuant to this agreement, the Vendor covenants and undertakes to and with the Purchaser that he will not cause the Company [or any Subsidiary] during the Lock Out Period to do any of the matters set out in the schedule without the prior written consent of the Purchaser [such consent not to be unreasonably withheld or delayed].

3.2      The Vendor hereby acknowledges and declares that the restrictions in clause 3.1 and the schedule are reasonable in all the circumstances as at today’s date; that such restrictions are integral to the terms on which the Purchaser has agreed to incur costs and expenses in carrying out the investigations referred to in clause 1 and in negotiating to purchase the Shares; and that each of such restrictions shall be construed and take effect independently of the others.

3.3      Whilst the restrictions in clause 3.1 and the schedule are considered by the parties to be reasonable in all the circumstances as at the date of this agreement it is acknowledged that restrictions of such a nature may be invalid because of changing circumstances or other unforseen reasons and accordingly it is agreed and declared that if any one or more of those restrictions is judged to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Vendor and the Purchaser but would be valid if part of the wording of the restriction was deleted or its duration was reduced or the range of activities covered by it was reduced in scope then each restriction(s) shall apply with such modification(s) as may be necessary to make it valid and effective and any such modification shall not thereby affect the validity of any other restrictions contained in clause 3.1 and the schedule.

  1. Confidentiality

4.1      Subject to sub-clauses 4.3 and 4.4, the provisions of this agreement, the existence of this agreement, the proposed purchase of the Shares by the Purchaser, all negotiations relating thereto [and all information supplied by the Vendor or the Company pursuant to clause 1][6] are strictly confidential and no announcement or disclosure of the terms of this agreement shall be made by the Vendor or the Purchaser to any third party (other than the professional advisers and bankers of the Vendor or the Purchaser [and in the case of a party which is a body corporate, those of its employees and employees of affiliated companies necessarily involved in the transaction]) without the written consent of the other.

4.2      The obligations in clause 4.1 shall be continuing obligations (subject to sub-clause 4.3) without limit in time and shall continue in full force and effect indefinitely notwithstanding any cessation of the negotiations or discussions between the parties.

4.3      The obligations in clause 4.1 shall not apply in respect of any of the information which:

(a)       either party is required to disclose:

(i)        by law;

(ii)      by any rule or regulation of any stock exchange;

(iii)     [on discovery in any legal proceedings] OR [7][by any Court procedure]; or

(iv)      [in response to any subpoena or investigative demand whether under the Companies Acts or otherwise] OR 7[by any rule or regulation of any governmental or quasi‑governmental authority],

provided that, so far as is practicable to do so, the parties shall consult prior to such disclosure with a view to agreeing its timing and content;

(b)       is already commonly known to the public or subsequently becomes commonly known to the public (except through breach by either party of its obligations under this agreement);

(c)       is already known to the Purchaser or subsequently becomes known to the Purchaser from a third party who owes no obligation of confidence to the Vendor, the Company [or to [any of] the Subsidiaries] in relation to such information and which the Purchaser can show to be the case.

4.4      The obligations of the Purchaser under clause 4.1 will automatically cease on the entering into of a binding unconditional agreement with the Vendor in respect of the proposed purchase of the Shares [without prejudice to any previously accrued rights hereunder].

  1. Legal Agreement

5.1      The Vendor and the Purchaser confirm that this agreement shall be binding in full on each of them and that this agreement shall not be considered to be an agreement to negotiate but a fully effective and binding agreement on both parties.

5.2      The Vendor acknowledges and agrees that should the Vendor be in breach of this agreement damages are likely not to be sufficient compensation for such breach and that injunctive relief is reasonable and essential to safeguard the interests of the Purchaser and that injunctive relief (in addition to any other remedies afforded by a court of equity) may (subject to the discretion of the courts) be obtained.  No waiver of any breach or violation shall be implied from forbearance or failure by the Purchaser to take action.

  1. Miscellaneous

6.1      In this agreement and the recitals and the schedule:

(a)       reference to the singular includes a reference to the plural and vice versa;

(b)       reference to any recital, clause, sub-clause or schedule is to a recital, clause, sub-clause or schedule (as the case may be) of or to this agreement;

(c)       reference to any gender includes a reference to all other genders; and

(d)       references to persons include bodies corporate, unincorporated associations and partnerships and any reference to any party who is an individual is also deemed to include their respective legal personal representative(s).

6.2      No term or provision of this agreement shall be varied or modified by any prior or subsequent statement, conduct or act of any party, except that hereafter the parties may amend this agreement only by letter or written instrument signed by all of the parties.

6.3      The headings to the clauses and any underlining in this agreement and in the schedules are for ease of reference only and shall not form any part of this agreement for the purposes of construction.

6.4      This agreement may be entered into in any number of counterparts and by the parties to it on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument.

6.5      If at any time any term or provision in this agreement shall be held to be illegal, invalid or unenforceable, in whole or in part, under any rule of law or enactment, such term or provision or part shall to that extent be deemed not to form part of this agreement, but the enforceability of the remainder of this agreement shall not be affected.

  1. Law and Jurisdiction

This agreement shall be governed by and construed in accordance with English law and each party to this agreement submits to the non-exclusive jurisdiction of the English courts.

The parties to this agreement have signed this agreement on the day and in the year first before written.

 

SIGNED by                                     )

for and on behalf of                         )

in the presence of:                           )

 

SIGNED by                                     )

for and on behalf of                         )

in the presence of:                           )

 

SCHEDULE

                                                              Restrictions

The matters referred to in clause 3 in relation to the Company [and each Subsidiary (each a “Relevant Company”) are as follows]:[8]

(a)       dispose of or encumber any of the assets of the Company or enter into any agreement for the disposal of the same except removals or disposals of stock or work in progress of the Company made in the normal course of trading in carrying on its business consistently with past practices;

(b)       acquire any assets otherwise than at arm’s length or enter into any agreement for the acquisition of the same;

(c)       grant recognition to any trade union for the purposes of collective bargaining;

(d)       declare any dividend or make any other distribution to the shareholders of the Company;

(e)       make any material and substantial alteration (including cessation) to the general nature of the business carried on by the Company;

(f)       carrying out any form of material financial restructuring;

(g)       enter into any transaction, arrangement, or agreement with or for the benefit of any director of the Company or any person connected with any such director within the meaning of section 839 of the Income and Corporation Taxes Act 1988;

(h)       make or agree to make any material change to the terms of engagement and any change to the emoluments of (i) any director or (ii) any employee of the Company [whose emoluments exceed   per annum];

(i)        terminate the employment of any employee of the Company [other than in circumstances permitting the Company to dismiss such employee summarily];

(j)        commence or settle any litigation or arbitration proceedings other than in the normal course of trading or for the purpose of collecting book or trade debts owing to the Company;

(k)       [alter the memorandum or articles of association of the Company or vary the rights attaching to any of the Shares.[9]]

 

                                                           DRAFTING NOTES

  1. Delete if there is to be no separate confidentiality agreement and incorporate reference to information provided pursuant to this clause in clause 4.1.
  2. Use of “ordinary course of business” may not achieve the desired effect.  See for example, Re Borax Co [1901] 1 Ch 326 where it was held that almost any transaction within a company’s powers short of the disposal of the whole undertaking may be within the ordinary course of business.
  3. The intention of this sub-clause is to prevent a Vendor from sitting out the Lock-out Period.  However, the Purchaser cannot be compelled to agree or negotiate.
  4. Insert date upon which negotiations involving Vendor incurring costs began or today’s date, as appropriate.
  5. This provision is a bit of a try on.  If a liquidated damage figure is inserted, it must be a genuine pre-estimate of loss.  The figure will therefore have to be capable of being substantiated.
  6. Delete if a separate confidentiality agreement is to be entered into in respect of this information.
  7. More favourable to the Purchaser.
  8. The restrictions will need to be amended to reflect the particular concerns of the Purchaser and the extent to which the Vendor is willing to be bound restricted during this period.
  9. Not required if the Purchaser is acquiring 100% of the share capital of the Company.

 

 

                                                      VENDOR PROTECTION

 

A. Insert cap on liability under clause 2.1 or generally in relation to breaches of the agreement:

The aggregate liability of the Vendor in relation to all losses, damages or expenses suffered or incurred by the Purchaser as a result of a breach by the Purchaser of [clause 2.1] [the provisions of this agreement] shall not in any event exceed the sum of .

B. Unless a separate confidentiality agreement is to be entered into, consider:

(a)       modifying clause 4 (confidentiality) to include:

(i)        safe custody of information;

(ii)      Purchaser’s right to approve distribution of information;

(iii)     direct obligations of professional advisers/bankers/employees to the Vendor;

(iv)      prohibition on contacting employees/suppliers or customers of the Company/Subsidiaries in relation to the transaction;

(v)       exclusion of warranty or representation as to accuracy of information provided;

(vi)      express obligation to return information at end of Lock Out Period unless sale agreed;

(vii)    limitation on purpose for which information may be used; and

(b)       covenants from Purchaser re non-solicitation of employees, suppliers and customers.

See letter of confidentiality for further information.

—————————————————————————————————————————————–

[1].         Delete if there is to be no separate confidentiality agreement and incorporate reference to information provided pursuant to this clause in clause 4.1.

[2].         Use of “ordinary course of business” may not achieve the desired effect.  See for example, Re Borax Co [1901] 1 Ch 326 where it was held that almost any transaction within a company’s powers short of the disposal of the whole undertaking may be within the ordinary course of business.

[3].         The intention of this sub-clause is to prevent a Vendor from sitting out the Lock-out Period.  However, the Purchaser cannot be compelled to agree or negotiate.

[4].         Insert date upon which negotiations involving Vendor incurring costs began or today’s date, as appropriate.

[5].         This provision is a bit of a try on.  If a liquidated damage figure is inserted, it must be a genuine pre-estimate of loss.  The figure will therefore have to be capable of being substantiated.

[6].         Delete if a separate confidentiality agreement is to be entered into in respect of this information.

[7].         More favourable to the Purchaser.

[8].         The restrictions will need to be amended to reflect the particular concerns of the Purchaser and the extent to which the Vendor is willing to be bound restricted during this period.

[9].         Not required if the Purchaser is acquiring 100% of the share capital of the Company.