A. INTRODUCTION
In share purchase agreements (“SPA”), it is common practice to set the signing date and the closing date as different dates, and the execution of dispositive transactions is left to be set place in the closing phase. The period between the signing and closing dates is referred to as the interim period.
The purpose of this structure is to designate certain prerequisites that must be fulfilled during the interim period, such as regulatory or contractual approvals required for the company whose shares are subject to the transaction (“Target Company”) or the parties of the SPA, and other matters deemed necessary for completion. Consequently, the closing -i.e., the execution of the share transfer- becomes contingent upon the completion of these priority actions.
However, the existence of a time gap between the date on which the parties’ obligations under the SPA commence, and the date on which the SPA’s primary obligation of share transfer takes place, creates a natural risk, especially for the buyer. This is because the buyer -subject to the fulfillment of the conditions precedent- commits to acquiring the shares and assumes the risk of any adverse changes that may affect the value of the Target Company’s shares until the closing date. To mitigate and allocate this risk between the parties, SPAs typically include provisions regulating the operations of the target company during the interim period and addressing potential developments that may arise, and this ensures that the conditions present at the time of signing are preserved until closing.
B. REGULATION of the INTERIM PERIOD
Interim period provisions generally focus on three key aspects: (i) identifying the transactions that must be completed, (ii) restricting changes to the terms of the SPA, and (iii) setting a final deadline for the interim period.
ⅰ. Positive Requisites (Conditions Precedent)
As is common in international practice, Turkish competition law also mandates obtaining approval from the Competition Authority for share transfers that meet the qualitative and quantitative thresholds set by legislation, as a prerequisite for the validity of such transactions and to avoid administrative sanctions. Accordingly, SPAs typically make the validity of the share transfer contingent upon fulfilling this approval requirement, and additionally, if the Target Company is subject to any regulatory approval due to the nature of its activities or structure, the relevant regulatory authority’s consent must also be obtained.
Moreover, as often is the case with bank loan agreements, the Target Company may be required to obtain consent from third parties or provide notifications in connection with a share transfer or change of control under its existing contractual relationships. These procedures are also foreseen to be completed during the interim period.
Additionally, during the due diligence process conducted as part of SPA preparations, it may be identified that certain obligations in the Target Company’s operational processes have not been fulfilled. Similarly, the parties may agree to carve out certain assets or operations of the Target Company from the planned transfer. If these actions are desired to be completed before the transfer of the Target Company’s shares, interim period provisions can be structured accordingly.
ⅰⅰ. Negative Requisites (Material Adverse Change)
To ensure that the conditions at the time of signing are maintained until the closing date, the concepts of ordinary course of business and material adverse change have emerged in structuring the framework for permissible activities during the interim period.
SPAs often include the seller’s commitment to operate the Target Company within the “ordinary course of business” during the interim period, and transactions deemed outside this scope may be subjected to the buyer’s prior approval. If the seller breaches this obligation, the buyer is typically granted the right to terminate the agreement or request an adjustment to its terms. This mechanism ensures that the valuations and assessments made before signing remain valid as of the closing date.
To clarify what the term “ordinary course of business” means for the parties, it can be defined and narrowed within the SPA. For instance, it may be specified that the activities conducted during the interim period must be consistent with the Target Company’s past practices, making the definition more subjective to the Target Company itself. Alternatively, an objective criterion may be adopted by referencing the practices of other similarly situated companies in the industry.
As an alternative, the SPA may explicitly define and enumerate specific criteria for transactions carried out within the Target Company until the closing date, considering their impact on the company’s valuation, and classify them as material adverse changes. By cataloging which circumstances will constitute a material adverse effect or be deemed a material adverse change, the general characteristics of the ordinary course of business definition are narrowed specifically for the Target Company. This approach eliminates the need to define the “ordinary course of business” for the interpretation and enforcement of the SPA.
Depending on the parties’ negotiating positions, the SPA may also stipulate that external events -such as economic developments, accidents resulting in loss of assets, or operational disruptions like strikes- constitute a material adverse change affecting the contractual terms.
In practice, these mechanisms are applied individually or in combination based on specific circumstances and needs, with remedies such as penalty clauses, termination rights, or purchase price adjustments incorporated into the agreement to adapt to changing conditions.
ⅰⅰⅰ. Interim Period Deadline (Long-Stop Date)
For fulfillment of the conditions precedent designated as interim period obligations, setting a deadline known as the long-stop date, is crucial for clarifying the SPA’s fate in case these conditions are not met. The long-stop date serves as a driving force for the parties to complete the conditions precedent and fulfil the requirements for closing. If the conditions precedent are not satisfied by the long-stop date, the SPA may grant the parties the right to terminate or withdraw from the agreement.
In cases where the long-stop date needs to be extended due to force majeure events, pending regulatory approvals or other unforeseen developments affecting contractual obligations, the parties may mutually agree to postpone their obligations to a new date.
C. CONCLUSION
In light of the above explanations, interim period provisions in SPAs aim to enable the Target Company to carry out preparatory transactions for the share transfer while preserving the parties’ intent from the signing date throughout this period.
Beyond defining the Target Company’s scope of action and restricted transactions during the interim period, the SPA may also stipulate that material adverse changes occurring independently of the parties will require adjustments to the contractual terms or a reduction in the purchase price. This ensures that the buyer’s commitment to acquire the shares is upheld under the same conditions as at signing, while the establishment of a long-stop date provides a mechanism for terminating both the commitment and the SPA if the conditions precedent are not met.
Since each transaction has unique characteristics, the contractual mechanisms needed to manage the interim period must be tailored accordingly. To maintain a fair risk balance between the parties and ensure a smooth closing, it is essential to accurately assess the positions of the Target Company, the buyer, and the seller, along with their expectations from the transaction.
