1 UNIVERSITÀ CARLO CATTANEO - LIUC FACOLTÀ DI GIURISPRUDENZA Anno Accademico 2009/2010 CONTRACT LAW, DRAFTING TECHNIQUES Carlo Monesi attorney-at-law Phone:

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UNIVERSITÀ CARLO CATTANEO - LIUCFACOLTÀ DI GIURISPRUDENZA

Anno Accademico 2009/2010

CONTRACT LAW, DRAFTING TECHNIQUES

Carlo Monesiattorney-at-law

Phone: 02-6880391 - Mobile: 333-4709933E-mail: [email protected]

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• Acquisition agreements are those contracts by which a party purchases from another party, in whole or in part, a company or a business concern.

• We are going to examine certain clauses of the acquisition agreement of a company. In the case of the acquisition of a company, the purpose of the contract is to transfer the ownership of all or part of the stock (shares) of the company.

• In legal and business practice, the company whose shares are being acquired is frequently designated “Target Company” or “Target”.

• Conceptually, acquisition agreements are just purchase-sale contracts. However, the provisions of law set in the various jurisdictions for common purchase-sale contracts are inadequate in case of acquisition agreements, in particular if the Target is a company.

• The warranties provided by law normally cover the shares of the Target Company (such as their existence and their ownership by the seller) and may not extend to the underlying situation of the Target Company itself (such as quantity, quality and value of the company assets and liabilities and the capability of the company of generating profits).

• As a consequence, the parties to an acquisition agreement need to write down in the detail the rules which apply to their specific transaction, in a manner which is typical of common law legal systems and which has now been also adopted by the business and legal community in civil law jurisdictions.

1. Acquisition agreements

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• The above need and the frequent involvement of international law firms and of international audit firms have led to a general international standardization of many clauses of acquisition agreements, of the procedures and paths to be followed and of the verifications to be made in the course of acquisition transactions.

• During this part of the course, we will analyze some of these clauses and some possible variations of them, intended to reflect the different interests of the parties.

2. The role of Competition Authorities in acquisitions• Acquisitions of companies or business concerns may be subject to

transnational or national competition regulations and may require a notification to and approval by competition authorities.

• In the European Union, Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (known as the EC Merger Regulation), which replaced the former Council Regulation (EC) No. 4064/89, requires concentrations, including acquisitions, to be notified to the European Union competition authorities if, by effect of the concentration, the aggregate turnover of the undertakings concerned exceeds certain thresholds.

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• A concentration which would significantly impede effective competition in the common market or in substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market (article 2(3) of the EC Merger Regulation).

• Similar provisions exist in most national jurisdictions. The thresholds or “dimensions" above which a notification to national authorities is required are usually much lower than those established by the EC Merger Regulation. Notification is required and governed by the Clayton Act (Section 7) in the U.S.A., by the new Code de Commerce (livre IV) of 2000 in France, by the Fair Trading Act 1973 in the United Kingdom, by the Gesetz gegen Wettbewerbsbeschränkungen (GWB) in Germany and by law of October 10, 1990, No. 287, as amended, in Italy.

• In other words, acquisitions having certain dimensions may be vetoed, approved, or approved subject to specific conditions.

3. Letters of intent and confidentiality agreements• At the beginning of a negotiation for an acquisition, the parties would normally agree

on the area of the negotiation and on certain rules to be complied with until the closing of the acquisition.

• This agreement would generally be documented in writing, through an exchange of letters or the signature of a memorandum. The most common name given to these documents is letter of intent (memorandum of understanding being one of the alternatives).

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• Generally, the exchange of letters of intent is not meant to constitute an obligation for the parties to enter into the acquisition agreement which is being negotiated. However, certain clauses of letters of intent may be binding for the parties and establish undertakings on them.

• Among other things, letters of intent would normally establish the valuation criteria of the Target and designate the Target reference balance sheet to be used for the determination of the purchase price.

• In letters of intent, the parties would also frequently stipulate that all information exchanged by the parties about their businesses which is not publicly available should be considered as confidential. As an alternative, confidentiality might be the subject of a specific separate agreement (usually called confidentiality agreement).

4. Due diligence• What is known in the international business and legal community as due diligence

is basically an investigation to find all facts and circumstances that would have a negative impact on the financial situation of a company or a business concern.

• Due Diligence investigations on the Target are presently a current practice in all acquisitions, and are commonly carried out in the interest of purchasers. The results of the investigation are used by the latter for requesting the sellers to undertake appropriate warranties in the acquisition agreement.

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• Additionally, directors and managers of purchasing companies may avoid being held liable to their constituents in case of problems arising from an acquisition by showing to have used all reasonable diligence in investigating on all relevant facts pertaining to a Target.

• Due diligence is a multidisciplinary activity and involves the intervention of auditors, lawyers, technical people and experts in other fields of business activities.

• Frequently, in order to facilitate access to relevant documents without disrupting the activities of the seller or Target, a data room is organized, where copies of the documents to be inspected are kept and made accessible to the due diligence teams.

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Example of path of acquisition agreementsThis is a typical path in the event that the agreement is a preliminary one and does not operate the transfer of title to the shares of the target company or to the target business, which occur later, i.e. at the closing. In the event of a final agreement, i.e. transferring the title, the signature of the agreement would coincide with the closing (see section 7, second bullet).

• Claims Under R&W

• Indemnification

Negotiations Start

• Letter of intent

• Confidentiality agreement

• Exclusive dealing

• Due Diligence Rules

• Interim Management Rules

• Data Room

• Due Diligence Performance

• Reference Balance Sheet

Agreement is signed

• Interim Management

• Notification to Competition and other Authorities

• Other conditions

Negotiations Continue

Closing

• First Installment Of Price Is Paid

• Management Change

• Balance Sheet As Of Closing

Price Adjustment

2nd Deadline for claims

• Balance Of Price Is Paid

• Claims Under R&W

• Indemnification

1st Deadline for claims

Time Line

Price adjustment 8

Acquisition agreements: Selected clauses

ARTICLE IIIPurchase Price Adjustment

3.01 Preparation of the Draft Closing Date Balance Sheet. The Parties agree and covenant as follows:(a) as soon as practicable, and in any event not later than thirty (30)

Business Days following the Closing Date, the Seller shall prepare a balance sheet of the Target Company as of the Closing Date (the "Draft Closing Date Balance Sheet") and by such date the Seller shall deliver the Draft Closing Date Balance Sheet to the Seller’s Auditor;

(b) the Draft Closing Date Balance Sheet will be prepared in accordance with the Accounting Principles, consistently applied;

(c) the Purchaser or its representatives, auditors or consultants will be permitted to follow, at all reasonable times, the preparation of the Draft Closing Date Balance Sheet pursuant to this Agreement;

3.02 Audit. (a) The Seller shall instruct the Seller’s Auditor to audit (at the Seller’s

expense), in accordance with the Accounting Principles which shall prevail on any generally accepted accounting standards, the Draft Closing Date Balance Sheet.

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(b) The Draft Closing Date Balance Sheet so audited by the Seller’s Auditors and the audit report of the Seller’s Auditor prepared in connection therewith, will be delivered to the Parties and to the Purchaser’s Auditor within ten (10) Business Days following the date on which the Draft Closing Date Balance Sheet will have been delivered to the Seller’s Auditor pursuant to paragraph 3.01(a).(c) Within ten (10) Business Days following the delivery provided for in paragraph (b) preceding, the Purchaser’s Auditor will (i) review (at the Purchaser’s expense) the audited Draft Closing Date Balance Sheet and audit report so delivered together with such other documents as may be provided by the Seller or the Seller’s Auditor or may be reasonably requested by the Purchaser’s Auditor, and (ii) deliver the Draft Closing Date Balance Sheet so audited to the Parties and to the Seller’s Auditor.(d) If there is no discrepancy between the audit carried out by the Seller’s Auditors and the audit carried out by the Purchaser’s Auditor, the Draft Closing Date Balance Sheet so audited and reviewed will be final and binding upon the Parties. However, in the case of discrepancies, a written notice of disagreement with respect thereto (a "Notice of Disagreement"), specifying in reasonable detail the nature and reasons of such disagreement, may be delivered by the Purchaser to the Seller within five (5) Business Days

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following the date of delivery to the Parties of the Draft Closing Date Balance Sheet audited by the Purchaser’s Auditor according to paragraph (c) preceding. If no Notice of Disagreement is timely delivered, the Draft Closing Date Balance Sheet as audited by the Seller’s Auditors, shall be final and binding upon the Parties hereto (the Draft Closing Date Balance Sheet, final according to the provisions of this section 3.02(d), being referred to as the “Closing Date Balance Sheet”).3.03 Resolution of Disagreement. (a) If a Notice of Disagreement is given as provided in section 3.02(d), within ten (10) Business Days of the giving of such notice, the Seller and the Purchaser will attempt to resolve any differences which they may have with respect to any matter specified in the Notice of Disagreement. If at the end of such period the Seller and the Purchaser fail to reach an agreement with respect to all of such matters, then all matters as to which an agreement is not so reached (the "Disputed Matters") will be submitted to and reviewed by the Milan office of Ernst & Young (the "Expert"). The Expert shall consider only the Disputed Matters, shall be empowered to act as an arbitrator to the extent required to make any determination required hereunder in respect of the Disputed Matters, shall act promptly to resolve all such Disputed Matters and its determination with respect thereto shall be final and binding upon the

Price adjustment 11

Parties. Upon resolution by the Expert of all Disputed Matters, the Expert shall prepare and deliver to the Seller and the Purchaser a balance sheet of the Target Company as of the Closing Date prepared, audited and reviewed in accordance with the Accounting Principles and with the other provisions of this article III, appropriately adjusted to reflect any determination of the Expert with respect to any Disputed Matter. Such balance sheet so prepared and delivered shall be final and binding, solely for the purposes of section 3.05, upon the Seller and the Purchaser and shall not be subject to appeal, and shall, therefore, become the Closing Date Balance Sheet.(b) All fees and disbursements of the Expert due in connection with the review and resolution of the Disputed Matters pursuant hereto and the provision of the other services contemplated hereby shall be equally shared between the Seller and the Purchaser.3.04 Cooperation and Access. During the period from the Closing Date to the date on which the Closing Date Balance Sheet is final and binding pursuant to the applicable provisions of this article III, the Purchaser shall (i) assist and cooperate with the Seller and the Seller’s Auditor in the preparation and audit of the Draft Closing Date Balance Sheet and (if applicable) with the Expert in the conduct of any reviews, examination or other actions required for the purposes of this

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Agreement; and (ii) grant all access to the properties, books, files and records of the Target Company and to the employees, agents and attorneys thereof necessary for the purpose of conducting such reviews and examinations (including any examination of the audit or review work papers of any independent accountant) as may reasonably be required to complete all the procedures contemplated hereby. 3.05 Determination of the Price Adjustment. The Purchase Price shall be adjusted (upward or downward) based upon the Closing Date Balance Sheet, final according to this article III, in accordance with the following provisions (the “Price Adjustment”):(i) in the event that the Net Assets shown in the Closing Date Balance Sheet exceed the Net Assets shown in the Reference Balance Sheet, the Purchase Price will be increased by an amount equal to the difference between the Net Assets shown in the Closing Date Balance Sheet and the Net Assets shown in the Balance Sheet;(ii) in the event that the Net Assets shown in the Reference Balance Sheet exceed the Net Assets shown in the Closing Date Balance Sheet, the Purchase Price will be reduced by an amount equal to the difference between the Net Assets shown in the Reference Balance Sheet and the Net Assets shown in the Closing Date Balance Sheet.

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3.06 Payment of the Price Adjustment. The Price Adjustment shall be paid in cash by the Purchaser to the Seller (in the event referred to under section 3.05(i) above) or by the Seller to the Purchaser (in the event referred to under section 3.05(ii) above), within fifteen (15) Business Days of the date on which the Closing Date Balance Sheet became final and binding, according to this article III.

Representations and warranties - Indemnification 14

ARTICLE VIRepresentations and Warranties of the Seller

6.01 Undertaking of the Seller. The Seller hereby makes the following representations and warranties to the Purchaser, provided that Seller shall have no liability whatsoever under said representations and warranties for any events or circumstances disclosed in any Schedules attached to this Agreement, [or otherwise disclosed or notified by the Seller, its representatives, directors, auditors, employees or officers to the Purchaser, also during the Due Diligence, or any event or circumstances otherwise known by the Purchaser, or that the Purchaser should have known by using the ordinary diligence, before the execution of this Agreement,]6.01.01 Organization and Standing.The Seller and the Target Company are corporations duly incorporated, validly existing and in good standing under the Laws of their jurisdiction of incorporation and have full power and authority to conduct their businesses as presently conducted and to own their assets and properties as presently owned.


6.01.02 Authorization. All corporate actions required to be taken by, or on behalf of, the Seller to authorize it to enter into and to perform this Agreement have been duly and properly taken, and this Agreement has been duly executed and delivered by the Seller and constitutes the valid and binding obligation of the Seller, enforceable against it in accordance with its terms.6.01.03 Ownership. The Seller has the full right, power and authority to sell, assign, transfer and deliver the shares of the Target Company, which are free and clear of any Encumbrances.6.01.04 Financial Statements. The Financial Statements of the Target Company as of December 31 2005, 2006 and 2007 have been prepared in accordance with the applicable laws and consistent accounting principles, on the basis of the books and records as of the reference date thereof.6.01.05 Absence of Material Changes. Since the date of the Reference Balance Sheet and until the date of execution of this Agreement, the Seller has conducted and operated the Target Company in the ordinary course consistent with past practice and there has not been any Material Adverse Change.


6.01.06 Personal Tangible Property. (a) The Target Company has good and valid title to, or a valid and binding leasehold interest or license in, all personal tangible assets currently, respectively, owned or used under lease or license for the conduct of its business, free and clear of any Encumbrance, except for assets the absence of which could not reasonably be expected to have a Material Adverse Effect. (b) Each material item of equipment of the business of the Target Company is in reasonable operating condition, in light of its age, for the purposes for which it is currently being used, but is otherwise being transferred on an “as is” basis. 6.01.07 Real Property. (a) Schedule 1.01.37 contains a list, as of the date hereof, of the Leased Premises. As of the date of execution of this Agreement each lease agreement relating to a Leased Premise is in full force and effect and the Target Company has not violated, and the landlord has not waived, any of the material terms or conditions of any such leases and all the material covenants to be performed by the Target Company and the landlord under such leases have been performed in all material respects.


(b) Schedule 1.01.42 contains a complete and accurate list, as of the date hereof, of the Owned Property. The Target Company has, as of the date of execution of this Agreement, good, marketable and valid title to each of the Owned Property. Except as set forth on Schedule 6.01.07(b), as of the date of execution of this Agreement, none of such Owned Property is subject to any Encumbrance that could reasonably be expected to have a Material Adverse Effect. 6.01.08 Intellectual Property. (a)The Target Company owns the intellectual property and the know-how, trade secrets and other non-registered proprietary intellectual property rights which are necessary for carrying its business as conducted at the date of this Agreement (collectively, the “Intellectual Property”). 6.01.09 Taxes. (a) All material Tax returns, reports and forms required to be filed by any applicable state, local or foreign Tax Laws by or on behalf of the Target Company have been filed in a timely manner.(b) All Taxes shown to be due on such returns, reports and forms have been timely paid in full or will be timely paid in full by the due date thereof, or adequate reserves have been created in the Balance Sheet.


(c) No material claims are being asserted in writing with respect to any Taxes of the Target Company.6.01.10 Employees. (a) Schedules 1.01.09, 1.01.10 and 1.01.34 contain a complete and accurate list of all the Employees of the Target Company as of the date specified on such list, showing for each Employee the position held and aggregate annual compensation for the last fiscal year. All Employees are regularly recorded in the appropriate books in accordance with applicable Laws and regulations.(b) The Target Company has made all filings and taken all actions required to be made or taken in respect of the Employees under applicable social security, labor and welfare Laws, and all social security and welfare charges due under such Laws and regulations in respect of such Business Employees have been fully paid.(c) With respect to the Target Company, as of the date of this Agreement, there is not pending or existing or threatened any strike, slowdown, picketing or work stoppage.6.01.11 Litigation and Claims. Except as set forth on Schedule 6.01.12, as of the date of this Agreement there is no claim, action, suit, proceeding or governmental investigation


pending or threatened in writing against the Target Company that individually has had or could be reasonably expected to have a Material Adverse Effect.6.01.12 Permits. Except as set forth in Schedule 6.1.13, the Target Company (A) has in full force and effect all permits, licenses or other authorizations required under any applicable statutes, rules, regulations or directives for the conduct of its business as currently conducted and (B) is in compliance in all material respects with the provisions of such permits, licenses or authorizations, except where failures to obtain, have, maintain or be in compliance with, such permits, licenses or other authorizations, individually or in the aggregate, has not had and could not reasonably be expected to have a Material Adverse Effect.6.01.13 Contracts. Schedule 6.01.13 contains a complete and accurate list, as of the date of this Agreement, of all existing written contracts and commitments of the Target Company that would require over the full term thereof payments by the Target Company of more than Euro twenty thousand (20,000) every 12 months


period (the “Material Contracts”). Each Material Contract is valid, binding and enforceable against the Target Company and the other parties thereto, in accordance with its terms, and is in full force and effect.6.01.14 Insurance. The Target Company maintains insurance policies as set out in Schedule 6.01.14. Premiums due under all such insurance policies have been regularly and timely paid. 6.01.15 Compliance with Laws. As of the date of this Agreement the Target Company is in substantial compliance with all applicable Laws and all decrees, orders, judgments, permits and licenses of or from Governmental Bodies, except for instances of noncompliance or possible noncompliance that individually have not had and could not reasonably be expected to have a Material Adverse Effect.6.01.16 Environmental Matters. Except as set forth on Schedule 6.01.17, as of the date of this Agreement: (a) the Target Company has obtained all permits, licenses or other authorizations relating to environmental matters necessary for the operation or conduct of its business, and all such permits, licenses or other authorizations are in good standing and the Target Company is in compliance with all terms and conditions of such permits, except where failures to obtain, maintain in


good standing or be in compliance with, such permits, licenses or other authorizations, individually or in the aggregate, has not had and could not reasonably be expected to have a Material Adverse Effect; (b) except for those matters that individually or in the aggregate have not had and could not reasonably be expected to have a Material Adverse Effect, none of the Leased Premises or Owned Property is subject to any on-going investigation by, order from or agreement with any Governmental Body relating to (i) any Environmental Law or (ii) any remedial action arising from the release or threatened release of a Hazardous Material into the Environment; (c) the Target Company has not been notified in writing that it is subject to any judicial or administrative proceeding, order, judgment, decree or settlement alleging or addressing a material violation of, or material liability under, any Environmental Law; (d) the Target Company has filed all notices required to be filed under any Environmental Law indicating past or present treatment, storage or disposal of a Hazardous Material or reporting a spill or release of a Hazardous Material into the Environment, except where failures to file any such notices, individually or in the aggregate, have not had and could not reasonably be expected to have a Material Adverse Effect.


ARTICLE VIIIndemnification

7.01 Seller's ResponsibilitySubject to the conditions and limitations set forth in paragraph 6.01, the Seller agrees to hold the Purchaser harmless and indemnified from and against any actual damage or loss (for all purposes of this Agreement, the “Loss”) which is a direct consequence of the breach of any of the undertakings, representations and warranties specified in Article VI above, directly deriving from facts or circumstances occurred before the Closing Date, even if the Loss arose after such date, or of the breach of any other obligation of the Seller under this Agreement. The Losses shall not include any decrease in value of the Shares of the Target Company and/or of the Target Company itself, any loss of expected income by the Target Company or the Purchaser, or any indirect or consequential damage, it being understood that Losses shall only include the amount of any final and successful third-party claim or cash disbursement made by the Target Company. 7.02 Indemnification paymentsAny indemnification due by the Seller hereunder shall become payable only when the relevant claim has become final and is not subject to any further appeal or the Target Company has made a disbursement in relation to the


Loss and shall be paid on the date which is on or before ninety (90) days after (a) the date on which the claim has become final and not subject to further appeal, or (b) the date on which the Target Company has made a disbursement as above.7.03 Losses covered by reserves. The Purchaser shall not be entitled to indemnification for Losses covered by specific or general provisions or reserves accounted for in the Closing Date Balance Sheet. 7.04 Exclusive remedy. It is understood that the right to obtain indemnification pursuant to this Article VII shall exclude any other right, action, remedy, claim or means of protection available to the Purchaser in relation to the Seller's breach of the representations and warranties specified in Article VI above.

Interim management 24

ARTICLE VIIIInterim Management

8.01Undertakings of the Sellers. (a) Except as otherwise provided for in this Section 8.01 or in other clauses of, or Schedules to, this Agreement or otherwise approved in writing by the Purchaser after the date hereof (which approval cannot be unreasonably withheld or delayed), during the period from the date of this Agreement to the Closing Date (the “Interim Period”) the Sellers shall take all reasonable actions within their powers (including by voting in respect of its Shares), to the extent permitted under applicable Law, to cause the Target Company to conduct its business in the ordinary course, consistently with past practice.(b) In particular, subject to the aforesaid exceptions, the Sellers shall take all reasonable actions to cause the Target Company not to: (i) make any single capital expenditure exceeding Euro one hundred thousand (100,000); (ii) acquire or dispose of, in any form, participations in the equity of other companies or acquire, dispose of or lease (as lessor or lessee) any business or segment of business or any real property exceeding in value Euro one hundred thousand (100,000) for each transaction;


iii) enter into any guarantees of the obligations of third parties, provided however that nothing herein shall prevent the Target Company from issuing guarantees in favour of third parties for the obligation of any of its subsidiaries; (iv) waive any right having a value in excess of Euro twenty-five thousand (25,000); (v) list its shares on a regulated stock exchange, approve or make any stock offering or other change in their capital structure involving the increase of shares of capital stock, declare or pay any dividend, or purchase or otherwise acquire any interest in their equity; (vi) issue any bonds or convertible bonds; (vii) hire or terminate personnel having individual total gross annual earnings in excess of Euro fifty thousand (50,000); (viii) change their accounting methods, principles, practices or policies (including, without limitation, any changes in depreciation or amortization policies or rates or any changes in any assumptions underlying any method of calculating reserves); or (ix) undertake or agree to do any of the foregoing.


(c) If, during the Interim Period, the Target Company intends to take any of the actions referred to in Paragraph (b), the Sellers shall or shall cause theTarget Company to notify in writing the Purchaser’s designated representatives which the Purchaser will identify in writing within and not later than two (2) Business Days after the date hereof (the “Designated Representatives”).(d) Any action notified to the Designated Representatives as provided in Paragraph (c) in respect of which the Designated Representatives do not express their dissent in writing within and not later than two (2) Business Days from the date of receipt of the relevant written notification, shall be deemed to have been approved by the Purchaser.

Non-clearance or conditional clearance by competiton authorities 27

ARTICLE XCondition Precedent

10.01 The Clearance. (a) The obligation of the Parties to proceed with the Closing pursuant to this Agreement is subject to the fact that, on or prior to June 30, 2008, the purchase and sale of the Shares pursuant to this Agreement, shall have been approved, cleared or granted an exemption by any competent authority of the European Union, the Republic of Italy, the Federal Republic of Germany or any other member State of the European Union to the extent that any such approval, clearance or exemption is required by any applicable Law (the approvals, clearances and exemptions contemplated above are hereinafter collectively referred to as the "Clearance"). (b) The Parties agree that, for the purposes of this Agreement, to the extent permissible under any applicable Law, the Clearance will be deemed to have been granted even if the approvals, clearances and exemptions contemplated under paragraph 10.01(a) above are subject to orders, provisions, conditions or obligations on the Purchaser by the relevant authorities which subordinate the execution of the provisions of this Agreement to the fulfilment of prescriptions, measures and/or conditions of any type. To this effect, the


Purchaser waives any exception deriving out of such prescriptions, measures and/or conditions, in order to seek the termination or amendment of the provisions of this Agreement. Furthermore, the Purchaser undertakes to accept any prescriptions, measures and/or conditions imposed by any competent authority, provided that nothing in this paragraph (b) shall be construed as requiring any of the Parties to agree to any amendments to the terms and conditions of this Agreement which would materially alter the substance of the transactions contemplated hereby. Therefore, if in order to obtain the Clearance, any amendment to the terms and conditions of this Agreement is required, the Parties agree to negotiate in good faith to agree upon such amendments, provided that the latter shall not imply a material change of the arrangements herein contemplated or any material expenditure or the increase of the risk of any Party. (Note: This paragraph 10.01(b) is an example of high waters or hell clause, shifting most of the risk of conditional clearance on the purchaser. The effect of the clause may be attenuated by the part in italics).10.02 Satisfaction of Condition. Not later than ten [10] Business Days after the date of this Agreement, the Purchaser shall duly and properly file all applications, requests and other documents that are required, or advisable, to obtain the Clearance; the


Purchaser shall keep the Seller timely informed of all steps taken pursuant hereto, and the Seller shall actively cooperate with the Purchaser to obtain the Clearance as soon as possible.10.03 Termination. If the Clearance is not obtained on or prior to June 30, 2008, this Agreement shall automatically terminate and the Parties shall be released of all obligations hereunder.[Alternative (example of walk-away or break-up clause): :10.03 Termination rights. If the Clearance is not obtained on or prior to June 30, 2008, this Agreement may be terminated forthwith by each of the Parties by giving to the other a written notice to this effect within July 31, 2009. Upon the termination, the Parties shall be released of all obligations hereunder.]

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5. Distribution and franchise agreements• A distribution agreement is a contract by which a producer or a trader of

goods (the “supplier”) supplies said goods (the “goods”) on a continuous basis to a trader (the “distributor”) for resale to retailers or consumers (the “customers”).

• A franchise agreement is a contract by which the owner of industrial or intellectual property rights relating to trade marks, trade names, shop signs, utility models, designs, copyrights, know-how or patents (the “franchisor”) grants to another party (the “franchisee”) in exchange for direct or indirect financial consideration, the right to exploit said industrial or intellectual property rights for the purposes of marketing specified types of goods and/or services.

• Frequently, distribution agreements include exclusivity clauses by which the supplier undertakes (a) not to directly sell the goods and not to authorize other distributors to sell them within the territory allocated to the distributor or (b) not to directly sell the goods and not to authorize other distributors to sell them to the group of customers allocated to the distributor and the distributor undertakes not to resell the good outside said territory or to customers not belonging to the designated group.

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• It would be in the interest of the supplier (and sometimes also of the distributor) to stipulate in the distribution agreement that the goods which are the object of the agreement be resold only at a designated price (resale price maintenance clauses).

• The same type of clauses could be considered for inclusion in those franchise agreements which concern the manufacture and sale (or the sale only) by the franchisee of goods covered by the franchisor’s industrial or intellectual property rights.

• However, exclusivity and resale price maintenance clauses in distribution and franchising agreements, in view of their possible hindering effect on competition, are permitted by EU competition law within strict limits only, as provided for by Regulation CE) No. 2790/1999, as interpreted by the EU Commission’s “Guidelines for vertical restraints”.

• With regard to exclusivity clauses, these are generally permitted only if the obligation of the distributor or the franchisee not to sell outside the contractual territory or group of customers is limited to “active” sales. An exclusive clause, in order to be considered legal, cannot forbid the distributor or the franchisee to make “passive” sales.

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• “Active” sales mean actively approaching customers inside another distributor’s exclusive territory or exclusive customer group by for instance direct mail or visits or through advertisement in media or other promotions specifically targeted at that customer group or targeted at customers in that territory; or establishing a warehouse or distribution outlet in another distributor’s exclusive territory.

• “Passive” sales mean responding to unsolicited requests from individual customers including delivery of goods or services to such customers. General advertising or promotion in media or on the Internet that reaches customers in other exclusive territories or customer groups but which is a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers in nonexclusive territories or in one’s own territory, are passive sales.

• With regard to price maintenance clauses, agreements or concerted practices having as their direct or indirect object the establishment of a fixed or minimum resale price are in general not permitted, without prejudice to the possibility of the supplier's (or franchisor’s) imposing a maximum resale price or recommending a resale price.

Territory and customers restrictions 33

Distribution agreements: Selected clausesDistribution agreements: Selected clauses

2. Resale pricesThe Distributor is free to fix the resale prices of the Products, with the only exception of maximum resale prices that the Supplier may impose. The Supplier may indicate non binding resale prices, provided this does in no way limit the Distributor's right to practice lower prices to his customers.6. Active sales outside the TerritoryThe Distributor agrees not to actively promote sales (e.g. through advertising, establishing branches or distribution depots) into the territoriesreserved by the Supplier exclusively for himself or allocated bythe Supplier to other exclusive distributors or buyers.8. Exclusivity8.1 Except as set out hereafter, the Supplier will sell, in the Territory, only to the Distributor. He agrees furthermore not to appoint in the Territory any distributors, agents or intermediaries, for the purpose of distributing the Products. He will however be free to send his personnel to the Territory in order to harmonize the Distributor's activities with his own commercial policy and to contact directly the customers of the Territory.

Territory and customers restrictions 34

8.2 As an exception to the exclusivity set forth under article 8.1, hereabove, the Supplier is authorized to make direct sales to the customers established in the Territory, provided he informs the Distributor in advance. The Distributor shall be entitled on such direct sales to a remuneration to beagreed upon case by case.8.3 The Supplier reserves the right to make direct sales to the customers or categories of customers indicated in Annex A-5. On such sales the Distributor shall not be entitled to any remuneration, except the reimbursement of the expenses (if any) actually incurred by the Distributor in assisting the Supplier, on the latter's request.

Documents

1 UNIVERSITÀ CARLO CATTANEO - LIUC FACOLTÀ DI GIURISPRUDENZA Anno Accademico 2009/2010 CONTRACT LAW, DRAFTING TECHNIQUES Carlo Monesi attorney-at-law Phone: