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What preliminary agreements are commonly drafted?
Confidentiality agreements are standard and form part of most negotiated deals. They are entered into before any exchange of sensitive information and cover not only the deal itself and the terms of the envisaged transaction, but also information made available in the data room, information memorandum, teaser, management presentations and other non-public information related to the parties and their business. Breach of confidentiality has rarely been enforced in Romania since it may be difficult to prove – the burden of proof lies with the party claiming damages for the breach of confidentiality.
Exclusivity is requested by the interested buyer in order to bind the seller to deal exclusively with the buyer for a certain period of time. Exclusivity diminishes the seller’s leverage in negotiation and a seller will always seek only short exclusivity periods. Such provisions are included in either a letter of intent or a confidentiality agreement, or a separate exclusivity agreement. A breach of the exclusivity agreement does not invalidate the transaction concluded with the third party, but rather entitles the damaged party to obtain compensation.
Letter of intent, memorandum of understanding and heads of terms
Letters of intent are also quite common in most M&A transactions, typically covering the main terms of the transaction and outlining the envisaged process and timeline. Most provisions are usually non-binding; only exclusivity, confidentiality, non-solicitation, governing law and dispute resolution are of binding nature.
What documents are required?
Documentation differs depending on the structure of the transaction.
In a share deal, the main document is the share purchase agreement, tailored to the specifics of the transaction and taking into account the outcome of the due diligence. If less than 100% of the shares are purchased, a shareholder agreement may also have to be put in place. In an asset deal, parties enter into an asset purchase agreement. Transitional services agreements may be necessary if the seller or the seller’s group continues to provide certain services to the target for a limited period of time after closing (eg, payroll or IT-related services). Parties may also conclude an escrow agreement if part of the purchase price is held back in an escrow account.
In case of mergers or demergers, the main transaction document is the merger or demerger project.
Corporate approvals, disclosure letters or other ancillary documentation may be required, depending on the particularities of the deal.
Which side normally prepares the first drafts?
Market practice is that buyers prepare the first drafts for the acquisition agreement. In case of sales organised as informal auctions, the first drafts are prepared by the sellers and interested bidders are invited to submit mark-ups together with their financial offers.
What are the substantive clauses that comprise an acquisition agreement?
The acquisition agreement typically comprises the following substantive clauses:
- the object of the transaction (shares or assets);
- the purchase price, adjustment mechanism and payment terms (including deferred payment, instalments, earn-outs and escrow provisions);
- the transaction mechanism;
- signing and closing;
- conditions precedent;
- the conduct of business between signing and closing;
- warranties and indemnities;
- legal remedies and limitation of liability;
- non-compete and non-solicitation clauses;
- other covenants of the parties;
- the governing law and jurisdiction; and
- boilerplate clauses (eg, notices, confidentiality, severability, assignment, taxes and costs, and the entire agreement).
What provisions are made for deal protection?
Deal protection provisions include exclusivity and confidentiality, break fees and non-solicitation. The Civil Code also requires negotiation in good faith. Break fees usually cover the costs incurred by the party through using consultants and actions undertaken in view of preparing the transaction. In practice, the extent of damages and the fault of the party ceasing the negotiation may be quite difficult to prove.
What documents are normally executed at signing and closing?
At signing, the parties execute the share or asset purchase agreement and the escrow agreement (if applicable).
Between signing and closing, any documents related to the fulfilment of conditions precedent (eg, the termination of related party transactions, directors’ resignation letters and approvals from third parties) must be executed or procured and delivered either before or at closing.
At closing, the parties typically:
- record the transfer of ownership in the shareholder registry;
- execute the shareholder agreement (if not already signed) and the transitional services agreement (if applicable);
- hold a shareholder meeting for the target to approve the transaction, the change of directors, amendment of the articles of association and other corporate aspects of interest to the buyer; and
- execute closing minutes confirming that all conditions precedent have been fulfilled or waived by the parties entitled to benefit from them, and confirming that all actions for closing have taken place.
Are there formalities for the execution of documents by foreign companies?
Romanian law does not require specific formalities for the execution of documents by foreign companies – rather, they benefit from equal treatment with domestic companies.
If a transaction document must be executed in notarised form, the special power of attorney issued by a foreign company would also have to be notarised and, as the case may be, legalised or apostilled pursuant to the Hague Convention 1961.
Are digital signatures binding and enforceable?
Digital signatures are binding and enforceable subject to the conditions of Law 455/2001 on Digital Signatures.
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