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Preliminary agreements

What preliminary agreements are commonly drafted?

Parties usually enter into the following preliminary agreements:

  • Letters of intent – the parties set out the main terms and conditions of the transaction by providing both binding (eg, exclusivity and confidentiality) and non-binding provisions (eg, scope, consideration, process, timing and other material terms).
  • Exclusivity or standstill provisions (which can also be contained in the letter of intent) – the parties may agree to be the sole negotiating parties for a certain period during a perspective transaction.
  • Non-disclosure agreements – both parties agree to keep certain information provided by the other party confidential.

Principal documentation

What documents are required?

In addition to the above, the main document is the share or asset sale and purchase agreement or the board and shareholder resolutions approving the merger or de-merger.

Which side normally prepares the first drafts?

Buyers usually prepare the first drafts, unless (in public or private share or asset deals) the seller chooses a buyer through a bidding procedure, in which case the first drafts are normally prepared by the seller.

What are the substantive clauses that comprise an acquisition agreement?

An acquisition agreement often includes the following:

  • the parties to the agreement;
  • the recitals, definitions, subject and scope of the agreement;
  • the purchase price;
  • conditions precedent;
  • the execution terms;
  • the pre-closing and post-closing covenants;
  • closing;
  • representations and warranties;
  • indemnification; and
  • general provisions (eg, notices, applicable law, dispute resolution, confidentiality, termination, assignment and costs).

What provisions are made for deal protection?

Generally, any attempt by a bidder to seek deal protection would be limited under Italian law in light of the rules set out to promote the contestability of corporate control. Clauses regarding break-up fees, if set out by the parties, will likely be unenforceable under Article 44 of Italian Stock Exchange Commission Regulation 11,971/1999, which allows shareholders to revoke their acceptance of the public offer where a competing public offer is promoted.

M&A deals involving public companies are subject to the specific provisions of the Financial Act concerning hostile takeovers (eg, the so-called ‘passivity rule’).

Closing documentation

What documents are normally executed at signing and closing?

At signing, the parties usually execute the main share, quota or asset purchase agreement (along with its schedules).

In a share or quota purchase agreement, the parties usually execute the following at closing:

  • a deed of transfer before a public notary, pursuant to Article 2470 of the Civil Code, for the sale and transfer of quotas of an Italian limited liability company;
  • an endorsement of share certificates before a public notary in case of a transfer of shares of an Italian company limited by shares and annotation of the transfer in the shareholders’ ledger;
  • waivers of any pre-emption, option, drag-along, tag-along or similar rights that in any way may become effective due to the transfer of shares or quotas;
  • letters of resignation of the target’s directors and auditors;
  • shareholders’ meeting of the target to resolve the appointment of new directors and auditors;
  • documents to confirm in writing that the sellers have complied with all covenants to be performed before closing and that all representations and warranties of the sellers are true and correct in all material respects as of the closing date;
  • new employment agreements among target’s key managers and the acquiring company;
  • documents to confirm in writing that sellers have paid their outstanding debts with regard to the target before closing;
  • third party consent to the transaction;
  • an escrow agreement (applicable to all or part of the consideration or shares); and
  • bank guarantees as collateral for the possible payments of indemnification by the sellers.

In an asset purchase agreement, the parties may further execute or provide for the following at closing:

  • public deeds to transfer real estate assets;
  • documents or forms required to transfer certain assets (eg, permits, licenses and registered trademarks); and
  • tax certificates to confirm the target’s outstanding tax exposure, if any.

Are there formalities for the execution of documents by foreign companies?

No specific formalities exist for the execution of documents by foreign companies. However, the parties may agree that the foreign company provides documentation to confirm its legal status, capacity and the authority of its signatories (eg, excerpts from the relevant commercial or trade registries).

Should the foreign company grant special powers of attorney for the execution of the required agreements, this should be duly notarised and, as the case may be, legalised or apostilled pursuant to the Hague Convention of October 5 1961, as applicable.

Are digital signatures binding and enforceable?

If complying with certain legal requirements, digital signatures are recognised as original signatures for the execution of deeds and agreement.

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