PORTUGAL Law and Practice Contributed by: Bernardo Abreu Mota, David Oliveira Festas and Francisco Albuquerque Reis, CS’Associados
progress in negotiations and enter into binding com - mitments if prior comfort on available funds or feasible financing was not provided by the bidder. 6.7 Types of Deal Security Measures Typical deal security measures are deployed by bid - ders when preparing and negotiating M&A transac - tions in Portugal, often in conjunction with exclusivity negotiation periods. Break-Up Fees Break-up fees are relatively common in sophisticated transactions, mostly seeking to protect the bidder (and provide some level of reimbursement for transaction costs incurred) if a seller terminates negotiations at an advanced stage or elects another bidder. Although less common, break-up fees may also be agreed to protect the seller in cases where the sales procedure has a negative impact on ongoing businesses or on the overall value of the targeted asset. Match Rights Match right undertakings may also be set forth in some transactions, normally to give bidders the opportuni - ty to meet or match competitive offers presented by other interested parties. Permanence Agreements/Non-Solicitation Provisions Permanence agreement provisions are also fairly common, with a view to retaining key employees of the targeted businesses, although they tend to be deemed invalid under applicable labour law as the requirements for the retention of employees are often not met. Non-solicitation covenants are usually deemed invalid as Portuguese labour law states that companies cannot limit their employees’ freedom to work. Nonetheless, such provisions are often agreed between companies and enacted as a gentleman’s agreement. Non-Compete Provisions Finally, non-compete provisions are also standard when trying to protect bidders against future com - petition from sellers with relevant knowledge that is capable of disrupting the overall competitiveness or client base of the acquired business, although these
provisions are also required to abide by the applicable legal framework relating to competition and labour. 6.8 Additional Governance Rights Securing Governance Rights Via Shareholders’ Agreements Regardless of whether or not they are seeking to hold the entire share capital of a target company, bid - ders may aim to secure specific governance rights or mechanisms under shareholders’ agreements, to be entered into with the remaining or major shareholders of the target. In fact, it is not uncommon for bidders to include negotiation and simultaneous execution upon the completion of shareholders’ agreements when structuring the transaction, in order to safeguard their overall position in the target company. These agreements may be varied in terms of content and level of commitment, commonly setting forth rules regarding: • the appointment of members of the corporate bod - ies; • reserved matters requiring favourable votes from the contracting shareholders (if subject to share - holder resolution) or from appointed corporate bodies; • conflict of interest rules stricter than those resulting from legal provisions; and • the overall principles to be observed in the man - agement of the company and the conduct of its business. Shareholders’ agreements also usually contain typical tag-along, call or put option clauses, as well as pre- emption rights regarding stakes held by other share - holders, or even lock-up provisions. Challenging Shareholders’ Agreements Without prejudice to the above, it should be noted that shareholders’ agreements are only binding on the contracting shareholders and may not be used to challenge or dispute actions of the company or of shareholders, which means that a breach thereof only triggers contractual liability towards the non-default - ing parties.
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