#10211 - Signing Completion - Mergers and Acquisitions (Private Acquisitions)

Closing Agenda(Workshop Task Part 1)

Closing agenda:Having a list of what you need from whom is the essential part of the Closing Agenda, the right version of documents should be used and two copies should be made for each document.

Things to be deal with prior to exchange:

• Transfer of Land

• Banking Arrangements and Debts

• Pensions

Documentation that needs to be signed and exchanged:

• The SPA

• Tax Deeds

Documentation that needs to be handed over:

• Share Transfer Form

• Share Certificate

• Disclosure documentation

• Letter of consent (with respect to those contracts where there is a change of control clause)

• Title over the Properties

• IP indemnity format

• An opinion by the local counsel

Completion Board Meeting:

• This will be the Target Company’s Board Meeting

• Approve the share transfers

• Appointment of Directors

• Acceptance of resignation of auditors

• Acceptance of resignation of Directors and Secretaries

• Approve the change of articles.

• Resolve to call a GM/circulate a WR

Workshop Task Part 2

See Points to Note and Note for WS (5)&(6)

Conditional Contracts

Alternatives if threat of gap between signature & completion:

1. The buyer may want to walk away

2. The Buyer may want to wait(check if there is an exclusivity clause in the Letter of Intent. If there is none then, B may want to reconsider waiting as the seller could offer the assets/Co. to 3^rd party)

3. Take the risk and go ahead with the transaction and hope that the condition is fulfilled afterwards (taking the risk will depend on how important the whole contract is for the buyer and what the importance of the fulfillment of the condition is to the contract). The Buyer could take warranties and indemnities from the seller regarding this.

4. The Buyer may proceed immediately only after renegotiating the Purchase Price. (This has the advantage of assigning a value to the contracts and therefore discounting that value from the contract price.) It may also be possible for the buyer to include a Retention of Purchase Price clause into the contract whereby the buyer will retain part of the purchase price of the target for a certain period after completion.

5. The Buyer wants to proceed by making a CONDITIONAL CONTRACT(The following are the conditions that the Buyer will want to include in the SPA in this type of scenario and therefore, we assume that this is what the buyer will want to do in a threatened gap between signature and completion). Conditional Contracts are binding on both parties and therefore carry all normal contractual characteristics of compliance and breach.

Provisions to be included inSPA for risks arising from delay between signing & completion.

In general terms,SPA should have the following Provisions (Conditions Precedent) to Protect the Buyer:

1. An obligation to purchase subject to the satisfaction of the conditions precedent.

2. Buyer will reserve the right to wave any of the conditions

3. An obligation on the seller (or the buyer) to take all reasonable steps (or best endeavours) to try to procure the waiver from the third party in relation to the change of control provision;

4. A long-stop date by which the above condition should be satisfied (or waived) and, in default, provision for the agreement to terminate automatically without liability attaching to either party;

5. If the condition is satisfied prior to the long-stop date, provision for completion to take place within a specified period of this happening;

6. Management Restrictions: Get negative undertaking from seller in relation to the management of the business not to:

   1. Borrow, grant security or lend unless in the ordinary course of business;

   2. Settle any claim or dispute;

   3. Buy any large assets, enter hire-purchase agreements;

   4. Dispose of any assets other than in ordinary course of business;

   5. Alter the terms of employment of any directors or employees;

   6. Appoint any additional directors (relevant for share acquisition)

Monitoring: The buyer also will want to be kept informed and to have a representative attend all board meetings. This gives reassurance to the Buyer that the business will not be neglected.

7. Material Adverse Change (MAC): The Buyer will want the right to terminate the contract should the business undergo MAC between exchange and completion.

   • The MAC clause will require a clear definition in order to avoid any potential disputes.

   • Seller will strongly resist this and only a buyer in a strong negotiating position will get it into the contract as it passes all general risk back to the buyer. As a compromise, make an exclusive list of events that could be termed MAC and are within the Seller’s control, e.g. losing key contracts or customer but not a terrorist attack. The result will depend on the bargaining position of the parties.

8. Repetition of warranties:

   • B wants protection by having Warranties & Indemnities repeated at closing (so has a right to withdraw if they are no longer true at that point and maintain the risk on the S’s side).

   • Different approaches are possible: some buyers accept them being restated on completion date, others attempt to have them restated every day between exchange and completion (this gives more protection for the Buyer and flushes out breaches by making the Seller disclose any contrary occurrences as and when they occur).

   • Buyer will need to be in a strong position to get this into the SPA. If they already have a lot of control (attendance at board meetings, saying what seller can and can’t do etc.) it will be unlikely that the Seller will agree.

   • Compromise position may be to limit the right to terminate to “Material Breaches” of the warranties only.

   • Seller will want to be able to update disclosure letter and so avoid liability under the repeated warranties. Where further disclosures are made against warranties between exchange and completion the Buyer is still bound to complete. Buyer must avoid someone disclosing post-exchange something known beforehand (in an attempt to avoid breach of warranty suit), as this would not be fair.

• This can be solved by imposing an obligation to disclose on Seller and making this subject to the Buyer being able to claim damages or exercise any termination rights if something material is disclosed before completion i.e. the Buyers remedies stay unaffected

  • A breach of the warranties and indemnities may also be a MAC clause breach

9. Termination events: Include a list of provisions if conditions are not fulfilled and in which event the Buyer can terminate without liability and walk away, e.g. MAC, loss of key contract. The buyer doesn’t want to be force into buying a business which is no longer what it wanted.

10. Provide for a bearing of costs clause in case that the transaction does not go to completion. (Costs depending on whose fault it is that the transaction did not)

If the conditions are not satisfied the Buyer has (See above options available above):

• A right of Recession: Where there is an interval between exchange and completion, the buyer will usually seek to negotiate a contractual right to withdraw from the contract if it becomes aware of any breach of warranty. This will be backed up by obliging the seller to inform the buyer if the seller becomes aware of anything which is inconsistent with the warranties or makes them inaccurate.

Checking S’s Authority to Sell & B’s Authority to Buy

2. Ascertain the authority requirements for signature of documentation by both B & S at both signing and completion. This should entail checking what form of signature and authority will be required and if either party are likely to require additional confirmations when dealing with a foreign party.

Transaction involves purchase of an English Co by an American Co from a German Co.; SPA is subject to E-law.

Checking Buyer’s Authority:We need to confirm that The American Co has power/authority to BUY

• Certified...