Common use of Right of First Offer and Right of First Refusal Clause in Contracts

Right of First Offer and Right of First Refusal. a right of first offer generally refers to the right of a non-selling co-venturer to receive an offer from a selling party to sell all of the latter’s interest in the JV and if such offer is not accepted by the non-selling co-venturer, the seller can offer for a specified period all of its JV interest for sale to a third party at a price equal to or better than that offered to the non-selling co-venturer. • a right of first refusal is a right of the non-selling party to require the selling co-venturer to sell its interest in the JV to the non-selling co-venturer under the terms of a third party offer that the selling co-venturer is otherwise prepared to accept • a right of first offer is less favorable to the non-selling co-venturer than a right of first refusal because the pricing will be higher, the non-selling co-venturer will not have a third party offer to confirm value and the non-selling co- venturer will not be able to control who its new co-venturer is if it passes on the selling co-venturer’s initial offer • from a selling co-venturer’s point of view, it is difficult to name an acceptable price in advance of being able to negotiate it with a third party and under a right of first refusal, the selling co-venturer will find it difficult to obtain a good price from a third party who knows its offer is subject to a right of first refusal, particularly as there may be substantial costs involved in doing the necessary due diligence to enable the pricing of a firm offer • need to consider these rights in the context of default exit/termination rights • these rights and the interplay of the various default and non-default rights can become very complicated. Note that if the third party offer is for anything other than all cash, it becomes very difficult to match. If the third party proposes non-cash consideration can the non-selling co-venturer “match” with cash? If so, how does valuation work? Who values? Also, “standard” language often does not catch collateral consideration. • make sure that the non-selling co-venturer has a right to receive copies of all relevant agreements entered into between selling co-venturer and third party as soon as possible after they are entered into • consider timing—both for period of time during which the right of first refusal can be accepted, and also the permitted sale period following the time when the non-selling co-venturer turned down the offer • consider whether sale to third party should include drag-along or tag-along rights • consider in light of intercorporate support and license agreements, etc. • sometimes negotiate for a prohibition against sales to third parties who are competitors

Right of First Offer and Right of First Refusal. a right of first offer generally refers to the right of a non-selling co-venturer to receive an offer from a selling party to sell all of the latter’s interest in the JV and if such offer is not accepted by the non-selling co-venturer, the seller can offer for a specified period all of its JV interest for sale to a third party at a price equal to or better than that offered to the non-selling co-venturer. • a right of first refusal is a right of the non-selling party to require the selling co-venturer to sell its interest in the JV to the non-selling co-venturer under the terms of a third party offer that the selling co-venturer is otherwise prepared to accept • a right of first offer is less favorable to the non-selling co-venturer than a right of first refusal because the pricing will be higher, the non-selling co-venturer will not have a third party offer to confirm value and the non-selling co- venturer will not be able to control who its new co-venturer is if it passes on the selling co-venturer’s initial offer • from a selling co-venturer’s point of view, it is difficult to name an acceptable price in advance of being able to negotiate it with a third party and under a right of first refusal, the selling co-venturer will find it difficult to obtain a good price from a third party who knows its offer is subject to a right of first refusal, particularly as there may be substantial costs involved in doing the necessary due diligence to enable the pricing of a firm offer • need to consider these rights in the context of default exit/termination rights • these rights and the interplay of the various default and non-default rights can become very complicated. Note that if the third party offer is for anything other than all cash, it becomes very difficult to match. If the third party proposes non-cash consideration can the non-selling co-venturer “match” with cash▇▇▇▇? If so, how does valuation work? Who values? Also, “standard” language often does not catch collateral consideration. • make sure that the non-selling co-venturer has a right to receive copies of all relevant agreements entered into between selling co-venturer and third party as soon as possible after they are entered into • consider timing—both for period of time during which the right of first refusal can be accepted, and also the permitted sale period following the time when the non-selling co-venturer turned down the offer • consider whether sale to third party should include drag-along or tag-along rights • consider in light of intercorporate support and license agreements, etc. • sometimes negotiate for a prohibition against sales to third parties who are competitors