Statements are statements of fact (past or present) at the time made and given to convince another party to enter into a contract or to take (or refrain from) any other action. A representation precedes and initiates the agreement and is usually information used by a party to decide whether or not to enter into a contract. A guarantee is a guarantee given to ensure that something is as promised, stays that way and is usually accompanied by a promise of compensation if the claim turns out to be false. Pre-closing covenants generally limit what a seller can do before closing. Typically, the seller`s commitments are heavier than the buyer`s, as the seller usually retains control of the target until the transaction is completed. Since certain things are promised to do or not to do, pre-closing covenants are common in deferred closing transactions to protect and maintain the value of the acquired company between the execution of the PPS and the closing of the acquisition. This article deals with common terms and variations of an SPA, but is by no means exhaustive. Some transactions and companies from different industries require different conditions and are often the subject of extensive negotiations between the parties. This article does not take into account the laws of a particular jurisdiction, or antitrust or competition law considerations that may be relevant to certain M&A transactions.
In addition, PPS may also be controlled or influenced by existing shareholder agreements between the shareholders of a target company. In some cases, a buyer may want the flexibility of indemnification as a non-exclusive remedy that allows them to pursue other remedies or remedies to ensure that it can be done in its entirety. This is desirable if there is a risk that the compensation provisions will not adequately protect the buyer in the event of unforeseeable damage and allow him to avail himself of all the precautionary measures and reparations provided for by the applicable legislation, without being limited to the remedies provided for by the SPA. Sellers may prefer exclusive remedies because without them, a buyer could circumvent the negotiated terms and compromise the primary purpose of the indemnification provisions. Exclusive remedies may also serve as an upper limit of indemnification liability. A SPA, which is subject to intense negotiations and nuances, usually includes a indemnification clause that deals with liability for losses resulting from misrepresentation and breaches of warranties, obligations and other agreements. The indemnification clause may be formulated as an exclusive remedy or as a non-exclusive remedy to assert such claims. As an exclusive remedy, the indemnification provisions should specify when and how claims are to be made, processed and paid, as well as any limitations or limitations on payment and liability.
Agreeing to an exclusive remedy would normally constitute a waiver by the parties of any remedy that would otherwise be available under applicable law (applicable laws). However, there are exceptions to this exclusivity in cases of fraud, intentional violations, wilful misconduct and fair remedies. Previously, if a shareholder wanted to sell his shares, the company was allowed to buy them, but if they exceeded 10% of the share capital, it was necessary to reduce the capital at the same time. Now the rules are more flexible so that the company can buy the shares and keep them at the same time, e.B. in the search for a new shareholder who is willing to buy the shares of the company. A „single materiality scraper” retains the qualifiers of materiality and knowledge when determining whether a seller has made a false representation or breached a warranty, but if a false statement or breach has been established, the qualifier of materiality is not taken into account in determining the damage. Subject to any deductible and other limitation of indemnification in the SPA, the buyer may claim the full amount of his damages due to the violation. A „double scratch of materiality” nullifies the qualifiers of materiality and knowledge both to determine whether a false statement has been made and whether a warranty has been breached, as well as to calculate the damages due to such a breach.
In the case of the acquisition of shares, binding legal opinions are often prepared by the seller`s lawyers, and their delivery to the buyer is a frequent prerequisite for closing. These legal notices are intended for a buyer to rely on and provide a warranty. In case of inaccuracy or inaccuracy, the Buyer may appeal to the law firm as well as to the Seller with regard to violations of the SPA or additional documents. In such legal notices, the seller`s attorney will generally comment on the following, among other things: A seller`s typical indemnification obligations are, among other things, the buyer`s exemption from: Please note that holding its own shares should not be included in a dividend distribution. Similarly, own shares may not be used to vote at the Company`s annual general meeting; and finally, own shares do not entitle the Company to subscribe for new shares in the event of a capital increase of the Company. Certain meanings must be assigned to specific words in each contract to be accurate or to change the meaning of words commonly used in certain industries or contexts. Although some words or phrases may be defined in the body of a contract, all words or phrases whose meaning is critical or ambiguous or which require lengthy definitions or explanations should be included in the definitions section. This is especially useful for recurring words, phrases, or concepts. Each defined term must first be enclosed in quotation marks, so that it is clear that it is a defined term, in bold (so that it is easy to find) and the first letter of each defined word is capitalized, so that throughout the agreement it is clear that if the word is in such a capitalized form, it is actually a defined term and is less easily misunderstood (as happened in this article). For example, if „party” is a defined term that refers to a party to the agreement, it avoids confusion when the word „party” is used in lower case to refer to a party other than a party to the agreement. When a company acquires all or a substantial part of the shares of a target company, that investor also acquires its liabilities.
Therefore, a merger and acquisition transaction is usually accompanied by full due diligence („DD”) to understand not only what liabilities the acquirer will be exposed to, but also to clarify important information about the seller, such as. B its actual asset base (fixed assets, contracts, finance, personnel and customers, among others). DD is the fundamental review or investigation of a target company conducted by a buyer to compile and evaluate information that directly affects the decision to acquire. From a legal point of view, DD is usually conducted in relation to company records, general legal claims and disputes relating to the target company, intellectual property („IP”) and trade secrets, labor, anti-money laundering, anti-corruption, data protection, environment and other regulations that may be relevant to the specific sector of the target company. DD is also performed in relation to the finances of the target company by accountants and auditors. For cross-border mergers and acquisitions where the target has assets and transactions in different countries, DD must be conducted in multiple jurisdictions and carefully coordinated to verify the target company`s actual assets and liabilities against the laws and practices of each site. Aon`s superior due diligence services provide support for financial, insurance, pension and benefits transactions to improve investments, pricing and strategic decision-making. Throughout the due diligence process, we work with your other suppliers to ensure thorough and coordinated analysis and cost-effective solutions. Our merger advisors focus on transactional issues and share the results with you in real time to have an immediate impact on your business relationships. Our clear and concise reports provide a better understanding of historical, current and future risks. The rules applicable to public limited companies and limited liability companies are now identical and there is no fixed limit to the number of shares that a limited liability company can buy.
This means that own shares can be acquired freely, provided that this acquisition is in the distributable reserves of the company. As a result, the company must have sufficient distributable reserves to acquire its own shares. In addition, such a purchase must be appropriate in view of the financial situation of the undertaking. Holdbacks can be very useful in bridging the gap between the target`s divergent ratings and allowing these notices to prove themselves for a certain period of time after closing (the hold period) and even protecting a buyer`s access to offset payments for post-closing risks so that they are secured (usually by escrow) and do not depend on a subsequent refund from the seller. .