Preliminary agreements

What preliminary agreements are commonly drafted?

The documents signed between the parties to the transaction at its initial or preparatory stage are various types of agreement and statement regulating the principles of transaction evaluation, preparation for it and proceeding towards its implementation. None of these documents are mandatory by law, but constitute good investor practice. At least one of the following should be included:

  • letter of intent;
  • memorandum of understanding;
  • a confidentiality agreement; and
  • agreements on the non-use of data and information.

Principal documentation

What documents are required?

The scope and type of transaction documentation used varies depending on the type of the transaction, the industry in which the transaction is carried out and the status of its participants. In the most general terms, however, the standard scope of transaction documentation includes:

  • a main contract in the preliminary (conditional or final) variant;
  • a partnership;
  • an investment agreement;
  • clauses and agreements on corporate governance and ownership/investor supervision;
  • optional agreements;
  • collateral agreements; and
  • power of attorney and authorisation to perform specific activities.

Which side normally prepares the first drafts?

It is common practice for the original versions of transaction documentation to be prepared by the buyer. A different practice applies to organised auction proceedings, where the documents are proposed by the seller's adviser.

What are the substantive clauses that comprise an acquisition agreement?

The fundamental feature of the acquisition agreement is its structure, which reflects the structure of the transaction. The content of sales contracts in Poland is not standardised by law. The nature and content of this type of contract have been informed by M&A practice and are fundamentally based on Western law models.

The main clauses in sale contracts include:

  • statements and guarantees, including a description of the company and its enterprise status;
  • liability clauses and indemnification clauses;
  • substantive liability clauses;
  • clauses for price calculation and adjustment;
  • suspension conditions clauses;
  • regulations regarding the transitional period, including material adverse change clauses;
  • closing procedures;
  • post-closing procedures;
  • confidentiality;
  • exclusivity; and
  • applicable law and jurisdiction.

What provisions are made for deal protection?

There are various mechanisms and clauses securing transactions in various areas:

  • Securing the transaction:
    • deposit;
    • advance;
    • contractual penalties;
    • authorisations for replacement performances; and
    • exclusive liabilities.
  • Security for the payment of the price:
    • bank deposit;
    • notary deposit;
    • guarantees and sureties;
    • joint and several liability; and
    • bills of exchange and the rigor of submission to execution.
  • Security for the implementation of transaction obligations:
    • reserve ownership of shares until the price is paid;
    • instruments of cancellation and extinction of rights; and
    • power of attorney and authorisation.
  • Assignment of rights and options on rights.
  • Joint and several liability.  

Closing documentation

What documents are normally executed at signing and closing?

Signing and closing are characteristic for transactions in which there is a suspensive condition (ie, an event on which the completion of the transaction depends). Signing a contract is, from the formal point of view, a stage of a transaction in which all transaction elements and the content of all transaction documents are negotiated, although not all are signed or enter into force. The satisfaction of the condition precedent results in a closure where the transaction is completed and implemented.

The following take place at signature stage:

  • preliminary or conditional sale agreement;
  • documentation including corporate approvals;
  • agreements securing the execution of transactions;
  • catalogues of claims and guarantees;
  • confirmation of content of the virtual data room; and
  • initialising documentation that will carry out the transaction closing.

The following take place at closing stage:

  • the sale agreement;
  • contracts and hedging instruments;
  • notifications about the establishment of a dominance relationship;
  • adoption of resolutions regarding changes in the bodies of the company being acquired;
  • changes in the corporate governance of the acquired company;
  • transfer of corporate documentation of the acquired company; and
  • accompanying agreements (partners' agreement, non-competition, managerial contracts, post-closing commitments).

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

If the transaction is signed in the form of a notarial deed, the participation of foreign entities will require the participation of a sworn translator. Information from the relevant register of entrepreneurs of such parties and authorisations will require a sworn translation into Polish and an apostille clause. Apart from this case, in principle, all documents can be prepared in Polish without the participation of an interpreter. The purchase of shares or stocks does not require a notarial deed, but signatures must be certified by a notary. However, the registration documents and power of attorney should be translated into Polish.

Are digital signatures binding and enforceable?

Despite the fact that electronic signatures exist in the Polish legal system (enabling the creation of a company in the electronic system of the national court register), in the practice of M&A transactions this type of transaction does not play a major role. This is mainly due to the fact that in the majority of cases, transaction documentation is signed with the participation of a notary and requires for its effectiveness a form higher than the standard one, which the electronic signature does not replace.