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What preliminary agreements are commonly drafted?
Parties typically enter into letters of intent, memoranda of understanding, recommendation letters or confidentiality agreements, which may be governed by non-Russian law, given that enforceability of these documents under Russian law is questionable.
Under Russian law, the parties may enter into a preliminary agreement obliging them to enter into the main agreement under the terms specified by the preliminary agreement. Parties tend to use preliminary agreements if they want to have a reliable mechanism to oblige the other party to enter into the main agreement on the terms set out in the preliminary agreement through the courts. A Russian law-governed preliminary agreement is valid for one year, unless stated otherwise in the agreement. If there are any disagreements between the parties with respect to the terms and conditions of the main agreement, the courts will determine these terms and conditions. There are no specific rules on disclosing preliminary agreements; however, certain provisions of these agreements may require disclosure as a material event (for a public joint stock company).
What documents are required?
The documents required for an M&A transaction depend on the nature and structure of the transaction. The following documents are frequently entered into:
- an acquisition agreement;
- a shareholder agreement;
- security documents, if necessary; and
- ancillary agreements (eg, services, loan, employment, IP-related and debt assignment agreements).
Which side normally prepares the first drafts?
The buyer normally prepares the first drafts, except in the event of an auction sale.
What are the substantive clauses that comprise an acquisition agreement?
If the acquisition agreement is governed by non-Russian law (parties tend to use English or New York law), the substantive clauses are similar to those seen in agreements for M&A in other jurisdictions, including provisions on:
- transaction mechanics;
- purchase price;
- representation and warranties;
- pre-closing covenants;
- closing conditions; and
If the acquisition agreement is governed by Russian law, it generally includes the following substantive clauses:
- transaction mechanics (eg, asset or stock purchases);
- representations and obligations of the parties;
- purchase price and other related provisions (eg, adjustments to purchase price, method and timing of payment);
- term and termination; and
- general provisions relating to notices, confidentiality, assignment, expenses, governing law and dispute resolution.
What provisions are made for deal protection?
Common deal protections include:
- break fees;
- support agreements;
- forced vote provisions;
- exclusivity provisions; and
- bank letters of credit, notary deposit or escrow.
Some of these types of deal protection may raise competition issues under Russian law (eg, exclusivity and forced vote provisions) and certain protections commonly used in other jurisdictions (eg, exclusivity provisions) may not be enforceable under Russian law. Separate security agreements may also be executed (eg, suretyship or guarantees and pledges or mortgages).
What documents are normally executed at signing and closing?
The specifics of what is executed (and the timing of this) vary from deal to deal and may depend on the circumstances. Although signing and closing concepts are not specifically set out in Russian law, parties negotiate these provisions in a similar manner to that seen in other jurisdictions. Thus, documents often executed at signing include:
- the principal transaction agreement;
- written consents and resolutions approving the transaction and related documentation; and
- deal protection agreements.
Documents often executed at closing include:
- applicable ancillary agreements (eg, escrow agreements, IP-related documentation and employment agreements);
- certificates confirming the performance of conditions precedent; and
- transfer instruments.
Are there formalities for the execution of documents by foreign companies?
Generally, there are no specific formalities imposed by Russian law regarding the execution of documents by foreign companies.
In practice, foreign companies must present certain documents, including foundation documents and powers of attorney. A specific requirement for these documents is that they be notarised, affixed with an apostille or another form of legalisation and translated into Russian. This is required, for instance, where an agreement must be notarised by a Russian notary (eg, the sale and purchase of a participatory interest in a Russian limited liability company), or where further filing or registration with the Russian state authorities (eg, the Federal Anti-monopoly Service) or other Russian-specialised companies (eg, registrars) is required.
Are digital signatures binding and enforceable?
Although Russian law provides for the use of electronic and digital signatures, parties tend to sign by hand, which is also a typical requirement of the Russian state authorities (should any further filings or registrations with the state authorities be required).
Nevertheless, parties can use electronic signatures (eg, facsimile or analogous methods), which should be binding and enforceable, but only if it has been expressly agreed between the parties beforehand in a separate agreement. It is generally accepted that this separate agreement containing a provision allowing electronic signatures must be signed by hand to prove that the representatives of the parties had all of the powers required to execute the separate agreement. Agreements to be notarised by a Russian notary (eg, agreements relating to a participatory interest in a Russian limited liability company, such as a sale and purchase agreement or a pledge agreement) must be signed by hand.
Russian law provides for the use of electronic digital signatures (EDSs) as well. The parties must apply to certification centres to obtain an EDS and other necessary components (eg, encryption codes). Depending on the type of EDS used (eg, simple, qualified or non-qualified), an EDS is equal to a handwritten signature either in all cases where the EDS is qualified or only in cases stipulated by Russian law if the signature is simple or non-qualified.
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