This checklist describes the points of attention that must be observed when drafting acquisition contracts. The checklist relates exclusively to a takeover contract governed by Dutch law.

It is not intended as advice. It applies only as an aid in drafting, negotiating and reviewing an acquisition contract. This will help you avoid pitfalls in a business acquisition.

1. Drawing up contracts

• Stay sharp on descriptions and wording and do not rely too much on the intent of the parties to interpret the contract. The adage is: "he who writes stays", which means in so many words that the literal text is often normative for the interpretation of the contract. So always consider; what does it actually say here and what is meant by this?
• Provide customization and write out specific industry-related topics.
• Identify relevant issues, negotiate them and clarify the party's intent, if necessary with possible calculation examples.
• Be alert to the use of Anglo-Saxon legal terms and/or Anglo-Saxon constructions as well as their elaboration and interpretation under Dutch law.
• Check the logical structure of the contract and check what impact, if any, certain agreements in one paragraph of the contract could potentially have on agreements in another paragraph. To clarify, do the limitations of liability apply only with respect to the warranties provided or also with respect to all other agreements in the contract? And if so, is this properly and consistently implemented in the purchase agreement?

2. Scenarios

Think through the different scenarios carefully:

• How does a breach of a guarantee affect the purchase price mechanism?
• What does a breach of warranty e.g. mean for the earn-out to be agreed?
• What are the consequences of a breach of warranty that occurs between signing and closing, but after effective date?
• Are there any specific agreements to be made regarding the possible confluence between an earn-out payment and a so-called post-closing settlement based on e.g. debtors collected, inventory sold, etc.?
• Is there a seasonal business and highly fluctuating working capital? And if so, what impact does this have on the definitions of working capital used in the purchase agreement, the content of guarantees to be provided and effective date versus delivery date?

3. Unbundling/carve out

• How to deal with continuing liability after legal division(2:334t BW).
• Has the parent company issued a so-called 403 declaration? And if so, how is liability under a 403 statement terminated?
• What about the financial covenants; split the group financing as well as the collateral package, but separate financing for target and separate financing for lagging group with associated collateral packages.
• Is there a tax entity and what about other tax liabilities?

4. Period between signing and closing

• What do the parties agree on the breach of warranty during this period.
• Tension between ensuring deal certainty on the one hand and including suspensive conditions for delivery on the other, e.g. required approval from ACM, works council, supervisory board.
• Are there any change-of-control issues that need to be discussed with third parties, and how do you ensure that confidentiality is maintained as much as possible while the deal is pending, but completion of the deal is conditional on third-party approval and cooperation?
• Customize MAC (Material Adverse Change) clause ("Force Majeure")especially in light of the current COVID-19 pandemic.
• Aligning financing terms with acquisition terms.

5. Guarantees in acquisition contracts

• A warranty is seen as a contractual allocation of risk. Do you include a specific definition for this or do you fall back on the law and case law?
• What guarantees are important to the Target in question (consider the specific industry in which the Target operates, the results of due diligence, etc.).
• Which guarantees are more fundamental and which guarantees are less relevant?
• In particular, what risk do you want to hedge and does the text of the guarantee properly cover that risk?
• Note that an indemnity from the seller is usually required for a risk identified by the buyer.
• An indemnity is not a legal concept and in so many words implies that the seller vouches, euro for euro, for any payment obligation arising from that identified risk. The description requires customization.
• Note the more standard text of definitions such as "Taxes/Tax," "Intellectual Property Rights," "Encumbrance," etc. Whether or not to exclude statutory warranty provisions and non-conformity (Title 1 Book 7 BW).

6. Damage

• Subjective harm concept or objective harm concept.
• What damages do you expect in this particular business and is it desirable to include a specific damage definition for this or can reference be made to law?
• Compensation euro for euro or with a multiplier?
• Threshold/basket construction: try to match the ceiling and threshold amounts as much as possible to the types of violations you can expect in the sector in which the Target operates.

7. Standard Provisions

• Don't walk too easily over the more standard provisions (aka "boilerplates"), but ask yourself each time: what does this mean for this particular deal?
• E.g., pay attention to the use of entire agreement clause. If so, is the set to the agreement complete?
• Whether or not to exclude the legal possibilities of dissolution/annihilation or partial annulment of the contract and the possible consequences thereof.
• What are the consequences of including or not including a third-party clause or transferring the rights and obligations under the agreement to a third party (contract assumption).

Questions?

Contact corporate acquisition attorney Ernest Loor at 055 - 303 19 50.