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Standard Of Disclosure For Specific Disclosure Notes

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STANDARD OF DISCLOSURE FOR SPECIFIC DISCLOSURE Contractual protections where delay between exchange and completion Conditional contract = where the parties sign and exchange SPA, but there is then a delay between exchange and completion normally because S is waiting to obtain consents, clearances or approvals from third parties which are critical to the acquisition. EXAMPLES:
? landlord consent to assign a lease
? third party waiver to a change of control clause
? shareholder approvals
? transfer of a market sector regulatory license from S to B
? clearances, e.g. tax clearance from HMRC on roll-over relief being applicable on securities exchange or competition clearance from Competition Authorities Completion will not take place until that condition has been fulfilled
- if it has not been fulfilled within a certain period of time, B will normally have the right to rescind the contract and withdraw from the acquisition. ALTERNATIVES...

1. Delay exchange a. Problem? not contractually bound: i. S problem - B may withdraw ii. B problem - S may find better offer b. Uncertain - may lead to constant renegotiation c. Delay - change in the market/business may lead B to want to walk away. d. Time and cost May be better bring negotiations to a close, put the agreement to bed, exchange contracts and then wait to complete

2. Exclusivity arrangement in separate contract a. B won't be worried if S gets better offer b. avoids need to exchange too early

3. Complete and take the risk, then adjust the price afterwards a. Take the risk that the consent or approval will be obtained b. Negotiate two separate prices for each eventuality: i. If condition is fulfilled, price PSX ii. If condition is not fulfilled, price PSY Risk allocation - conditional contracts are risky for B:
? B is agreeing to acquire the company but won't actually gain control until all SPA conditions are satisfied.
? S will no longer own the company after completion, it may begin to neglect business between signing and completion.
? S will want to retain as little risk as possible and will be reluctant to allow B to withdraw or renegotiate terms, as it will argue that any change in circumstances are risks assumed by B.

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