What preliminary agreements are commonly drafted?
The most common agreements that are entered into at the initial stages of the negotiations are:
- non-disclosure or confidentiality agreements – a non-disclosure agreement is entered into by the parties to protect sensitive information relating to the company disclosed throughout the due diligence process; and
- letters of intent – a letter of intent typically outlines the basic terms of the proposed transactions and lays down both binding (eg, governing law and exclusivity) and non-binding terms (eg, timing, process and structure of the transaction).
What documents are required?
The principal document for an M&A transaction is the share purchase agreement or asset purchase agreement.
Where a merger is concerned, draft terms of a merger must be prepared by the directors of the merging companies. It is the key documentation for this type of transaction.
Which side normally prepares the first drafts?
Regarding share purchase agreements, the buyer’s counsel usually prepares the first drafts of the transaction documents, except where the shares are sold as part of a competitive process, in which case the seller’s counsel would prepare the first drafts.
Typically, the buyer’s counsel would also prepare the acquisition agreement documentation.
Merger documentation is prepared by the directors of the merging companies.
What are the substantive clauses that comprise an acquisition agreement?
Generally, the substantive clauses in the acquisition agreement comprise:
- the object of the transaction document (asset purchase or share purchase) and, in the case of an asset purchase, the assets of the company which will be acquired;
- the purchase price, adjustment mechanism and payment terms;
- conditions precedent to the transaction;
- representations and warranties;
- closing conditions;
- termination; and
- general clauses (eg, notices, confidentiality, severability, assignment and taxes).
Draft terms of mergers include the following information:
- the status, name and registered office of each of the amalgamating companies;
- the share exchange ratio and the amount of any cash payment;
- the terms relating to the allotment of shares in the acquiring company;
- the date from which the holding of such shares entitles the holders to participate in profits and any special conditions affecting that entitlement;
- the date from which the transactions of each of the companies being acquired will be treated for accounting purposes as being those of the acquiring company; and
- the rights conferred by the acquiring company on the holders of shares to which special rights are attached and on the holders of debentures or other securities, or the measures proposed concerning them.
What provisions are made for deal protection?
Deal protection provisions principally include exclusivity and confidentiality provisions, as well as non-solicitation clauses. Other alternatives of protection include:
- restrictive covenants as to how the target should be managed in the period between signing and closing of the transaction;
- seeking an irrevocable undertaking from the target’s majority shareholders that they will not sell or transfer to a third party other than the prospective buyer; or
- a letter of comfort to this effect from such shareholders.
Break fee provisions may also be provided for in the acquisition agreement. However it would be necessary to ensure that such provisions do not give rise to a breach of the financial assistance restrictions under the Companies Act (Cap 386). The financial assistance provisions essentially provide that a company may not provide, directly or indirectly, any financial assistance for the purpose of an acquisition or subscription made or to be made by any person of or for any shares in the company (or its parent).
What documents are normally executed at signing and closing?
On signing, it is usually the share purchase or acquisition agreement, including the disclosure letter signed off by the buyer, that would be signed.
Between signing and closing, the documentation implementing the conditions precedent is typically signed.
On financial closing of a share purchase transaction, the following documentation is processed:
- the share transfer instruments relating to the share transfers are signed by the existing shareholders and delivered;
- the register of members of the target are duly updated;
- statutory forms noting the transfer of shares are registered with the Registry of Companies in Malta;
- share certificates are delivered;
- director resignations of the board of directors are typically delivered; and
- a closing checklist is signed.
In an asset acquisition, the documentation required for the transfer of assets is signed. In the event that special formalities apply to the transfer of particular assets of the business, such as immovable property which would require the execution of a public deed in order to be transferred, these formalities will need to be addressed. In addition, if customer contracts need to be assigned as part of the asset transfer, notices must be sent to customers, and in some cases, consent needs to be sought, in anticipation of formalising such transfers.
The draft terms of a merger are signed and registered with the Registry of Companies (including any corporate authorisations approving the merger and any other additional merger documentation, where applicable). The merger will be completed within three months of the publication of a notice in the government gazette relating to the decision to approve the amalgamation, provided that no creditor brings any claims within the three-month waiting period.
Are there formalities for the execution of documents by foreign companies?
There are no formalities for the execution of documents by foreign companies under Maltese law.
Are digital signatures binding and enforceable?
Electronic signatures are binding and enforceable under Maltese law, subject to the conditions of the Electronic Commerce Act (Cap 426). There are exceptions to the general rule, such as:
- granting a power of attorney; and
- contracts that create or transfer rights over immovable property other than leasing rights.
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