Making A Binding Contract For Exclusive Negotiating Rights

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Drafting Note to Introduction Although for the sake of convenience the defined terms “Seller” and “Buyer” are used here, consider changing the defined terms to the names of the parties (or a shortened form of their names) so as to avoid any potential confusion regarding the parties’ intention that this agreement does not create a binding contract for the sale of the business. WHEREAS, in consideration of the receipt of the Fee (as hereinafter defined), Seller has agreed to grant to Buyer exclusive rights as more particularly set forth herein to negotiate the Transaction and to conduct its due diligence investigation of Seller during the Exclusivity Period (as hereinafter defined). Drafting Note to Alternate to Second Recital If Buyer…show more content…
If Seller has not yet performed a market check, Seller should either grant a shorter Exclusivity Period, generally 14-30 days, or include in the Exclusivity Agreement a “fiduciary out” clause that allows Seller to terminate the agreement if doing so is necessary to avoid breaching its fiduciary duties (see, e.g., Ace Ltd. v. Capital Re Corp., 747 A.2d 95). From Seller’s perspective, if the Transaction is a sale of less than all or substantially all of Seller (e.g., a sale of a division or subsidiary), it is critically important that the scope of the exclusivity be restricted to the scope of the Transaction. In other words, if Seller is negotiating with Buyer to sell a small division, the Exclusivity Agreement usually should not restrict Seller from engaging in discussions regarding a sale of the whole company or other divisions. Seller and Buyer should consider carefully whether Seller is required to “turn off” its virtual data room during the Exclusivity Period to prohibit access by other bidders that may have participated in an auction. Doing so would send a strong signal to competing bidders and their representatives that Seller is engaged in exclusive

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