CHAPTER 9 Termination Rights

Overview of Termination Rights

Termination rights permit a party to terminate a transaction agreement upon notice. Usually termination rights are provided for a subset of the matters that would give rise to a failure of a closing condition. Termination rights operate differently from closing conditions because they can cut short the deal process without requiring the parties to wait to determine whether or not the conditions will be satisfied.

Termination rights operate in the gap between signing and closing. In the rare deals that sign and close at the same time, there would be no need for termination rights.

Almost all acquisition agreements include a termination right that is generally referred to as the “drop-dead date” or “outside date.” Either party can terminate after that agreed date has passed. All other termination rights can be thought of as “early” termination rights, allowing the parties to terminate in advance of the drop-dead date.

Termination rights can permit termination by the buyer, the seller or both, depending on the particular right and the circumstances. The parties can also terminate by mutual agreement.

Drop-Dead Date

As noted above, acquisition agreements typically have a termination right in favor of each party as of the drop-dead date. That is the point at which the parties are no longer, in effect, required to keep using their efforts to satisfy the closing conditions and close the transaction. Of course, until they ...

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