Scarica Appunti di Inglese Giuridico (LEGAL ENGLISH di Renzo Villata) e più Appunti in PDF di Inglese Giuridico solo su Docsity! LEGAL ENGLISH a Cura di Maria Gigliola Di Renzo Villata UNIT 1: LEGALESE AND PLAIN ENGLISH The plain English movement Before the 20th century, English-language writers often used very complex prose, with sentences that could take up half a page and word choice which prevented most readers from understanding their texts. In the late 19th century writers such as Lincoln and Twain started to challenge this trend and showed that writing could be clear and elegant at the same time. The way to reach this aim is now shown: 1-know matter perfectly and adapt style to the reader's needs; 2-write in clear, simple and concise manner; 3-be precise and complete; 4-avoid generic words and use familiar ones. Writing in “plain English” means choosing a clear, concise and effective way of transmitting information, making it accessible to every reader. It aims avoiding obscurity, inflated vocabulary and tortuous sentences. It is not, however, an oversimplified form of English. You can write a document in plain English using technical words, including legal terms. Plain English applied to legal writing. Legal English consists of a set of lexical, syntactical and stylistic rules which have developed over the centuries. “Legalese” is the expression used to define its traditional features, which we can group as follows: 1-Archaic words and phrases; 2-Antique formulas and clichés 3-Complex and unfamiliar words and phrases; 4-Latin and other foreign words and phrases; 5-Legal pairs and triplets; 6-Redundant and compound words; 7-Tautologies; 8-Passive voice; 9-Nominalization; 10-Very long sentences with numerous modifying clauses. The following table lists some typical legalistic words and phrases, followed by their description and their preferred options in plain English. These recommendations will allow to make your English legal texts accessible to everyone, avoiding redundancies, tautologies, the passive voice and other typical legalistic features makes the text “lighter” and therefore more pleasing to read. Use of the passive voice. The passive voice is very common in legal English. Lawyers use it to give their texts a formal, impersonal tone and whenever they prefer not to reveal the agent of a specific action. However, choosing to highlight the object omitting the subject of a sentence may prevent clear understanding and exclude important information. This is why we can consider the passive voice as part of the “legalese” features which we should avoid as much as possible in favour of the clearer and more user-friendly plain English style. We should therefore prefer the active voice to the passive one in general, even though using the passive is sometimes necessary: 1-to avoid being too straightforward by omitting the agent of a specific action; 2-when the subject of a sentence is understood, unknown, irrelevant or secret. If you do know the actor, however, use an active construction to add clarity and meaning to your writing; 3-to have readers focus on the object rather than the subject of a sentence and any time you wish underline the result of an action; 4-to avoid using the relative clauses, especially in short sentences. Here's the syntax for a passive sentence: form of “to be”+ past participle = passive voice UNIT 2: LEGAL VOCABULARY AND COMMON MISTAKES Verbs + prepositions Verbs+ prepositions are very common in English legal texts. Do not mix them up with phrasal When choosing the most appropriate equivalent for a word or phrase, we should also consider that there can even be differences between institutions belonging to the same legal system. This is the case with common law countries, especially the United Kingdom and the United States of America. Take the word “avvocato” again. Let us consider its translation depending on whether it refers to the British, American or Italian legal professional. In the first case “barrister” or “sollicitor”; in the second such distinction does not exist in the US. If the word were referred to the Italian legal professional, the best choice would be: a)leaving the term in Italian for expert; b)translating the term and explaining the differences in a note for non-experts (if possible). Translating lawyers or legal translators? Translating increases our linguistic and legal knowledge at the same time. This is due to the research that we carry out in looking for a translation that accounts for the differences between the legal systems. A perfect mixture of legal and linguistic knowledge is actually the recipe for a good legal translation. A qualified legal translator should combine language, translation and legal skills. Also consider that legal translators usually have to process various types of documents in different fields of law, which forces them to carry out research in many technical fields. The cooperation between legal and language experts is therefore essential for producing a correct and reliable translation. The legal editing of a text that has been translated by a language expert and the language editing of a text translated by a law expert is therefore the winning tactic. Choosing the right language. Even translators who consider themselves at least bilingual or trilingual usually prefer to translate into just one of their languages, which they consider as their native one. Non-professional translator often neglect this rule, often producing texts that are incomprehensible. When you choose to translate into a lingual which is not your own, you should at least have your final text revised by a native speaker. In doing this, bear in mind that editing a bad translation may take longer than doing it anew. A translation by a native speaker, however, is not necessarily free from mistakes: in fact, all non- qualified translators usually ignore legal translation requirements such as register and proper word choice. Is there a model translation? The point is at least making your translation clear and correct. There is no model translation in any event. Much of the quality of a translation, however, depends on its source text. There are limits to the possibility for a translator to improve the quality of the source text in the target text. Sometimes, on the contrary, you can change your source text, especially if you are both its writer and its translator. One of the common mistakes you may find in translating from Italian into English is sentences and paragraphs that are too long and complex, which are not acceptable, especially in a English text. Some differences between legal Italian and legal English. Although legal Italian and legal English have the same general features, they differ in some respects that we must consider when translating: 1-Both legal Italian and legal English are characterised by long complex sentences, and embedded clauses with frequent recourse to passive and hypotaxis rather than parataxis. Hypotaxis, however, is more frequent in legal text drafted in Italian. Translating from Italian into English may therefore mean writing shorter and clearer texts. The trick is to avoid doing the opposite when translating from English into Italian. 2-English usually sacrifices the beauty of a text without repetitions on the altar of maximum referential clarity. One of the main purposes in legal writing is being consistent by never changing the language except to signal a change in meaning. Legal Italian follows the same rule but is usually more inclined to choose elegant variants that may cause confusion and make life harder for translators. 3-You may need long sentences to connect more related ideas but the average sentence length should be of about 25 words, especially when punctuation is rare. The use of long sentences is actually typical of both legal Italian and legal English. Translators, however, should bear in mind that Italian produces longer sentences for the simple reason that its words are generally longer than the English ones. Longer paragraphs are also due to the Italian tendency to merge sentences, usually making one sentence out of two or three of an English text. 4-On a lexical level, like its English equivalent, Italian legalese uses terminology which only experts can understand, even when addressed to the public. Many Italian legal documents are anything but reader-friendly: the use of undefined technical words and Latin expressions, besides the syntactic and stylistic options outlined above make them almost impossible to understand. If these documents are written with the aim of illustrating and informing, it is surprising that their drafting criteria rather seem to aspire to obscurity. The legal Italian register is also more formal than the English. Italian and English seem to be sitting on different steps of a hypothetical ladder of language formality, with Italian always choosing a higher step. A serial translation? Legal texts (and therefore legal translation) are often accused of being monotonous and reproduced on the basis of patterns and sample documents which only have to be updated and slightly changed. Antique formulas, fixed expressions, clichés, legal pairs and triplets, just to mention the main features of legalese, supposedly repeat themselves over and over, making legal texts predictable and far from creative, but most legal documents leave much space for creativity. It is true, however, that the translation of some legal texts follows strict rules and recommendations. This is the case for the texts issued by the EU institutions. The European Union has 20 official languages and publishes its legislation in all of them. This implies a huge work of translation carried out by in-house or freelance professionals in each Member State. The EU has an official on- line multilingual term bank and various glossaries issued by its institutions and bodies. Official EU translators are made aware of the existence of all these term bank and are invited to consult them and comply with them when translating. Even non-EU translators who need to translate names of European agencies, laws and agreements must look for the correct official translation. We should consider names of agencies, treaties and other legislation like those of human beings. Calling them by the wrong name would mean failing to identify them. Computer-assisted translation and machine translation. You may translate legal document with translation memory programs. These programs are part of the Computer Assisted Translation tools designed to help the translator work quickly and more effectively. CAT tools include spell and grammar checkers, full-text search tools, dictionaries on CD-ROM, translation memories and terminology databases. You should not confuse CAT with machine translation. In computer-assisted translation, the text is translated by the translator with the support of special tools, whereas in machine translation the text is translated by a program and edited by the translator if necessary. The texts processed by automatic translation system are rarely usable without final editing. These systems are based on the computer's ability to break down the structure of a sentence in the source language into easily translatable elements and produce a sentence having the same structure in the target language. In doing so, they ignore most translation rules on the importance of context, co-text, denotation, connotation, syntax, style etc. These programs may therefore be useful for de-contextualised translations of short and simple sentences but you should avoid them in all other cases. CAT tools, in allowing human intervention during and after the translation, are much more useful and reliable, especially for complex texts such as the legal one. The limits of automatic translation systems: a)It takes a human translator to tell the differences between a verb and an adjective depending on their co-text; b)Only a professional translator can identify the correct translation of a noun when there is more than one possibility; c)The system does not conjugate irregular verbs, nor can it choose the correct tense of a verb or make a verb agree with a subject; d)Automatic translation software is even less able to reproduce the syntax of another language by putting the necessary parts in the correct order. UNIT 4: LEGAL CORRESPONDENCE Tips for correspondence writing The following tips will help you write clear and effective legal correspondence. Most of them apply to legal writing in general. Before writing. Always plan your writing: it will help you write more effectively and save much revision time. Before you start writing, ask yourself the following questions: -Who is my reader? -Why am I writing? -What shall I write? -How shall I organise my writing? Who -Ask yourself if your addressee is a law expert. If not, avoid using technical terms or explain them Under common law, there can be no binding contract without consideration. In other word consideration is the requirement of reciprocal obligations on the part of both parties to a contract, and both parties must receive valuable consideration for performance on their side of the contract. This is was distinguishes enforceable promises from those promises which are gratuitous. Common law does not extend the protection of contract law to purely gratuitous offers, which are made without anything offered in exchange (such as gifts or donations). Contract formation. We can divide contract formation into three successive stages: the invitation to negotiate, offer, and acceptance (or consent). In a sales contract, for example, an invitation to negotiate is a general indication by the seller that it is prepared to enter into a contract. Acceptance is a certain willingness to accept the terms of a specific offer. If both parties give their mutual agreement to the same terms, the contract is accepted and becomes binding. The consent or acceptance of the parties to a contract must be free, mutual and communicated by each to the other. The moment of acceptance is the moment from which a contract is said to exist, and not before. Acceptance need not always be express and can, in certain circumstances, be implied by conduct. Electronic contracts. In the last decade the incremental use of the internet and the development of online commerce have introduced a brand new type of commercial transaction conducted entirely online: electronic contracts or “e-contracts”. All types of contract can be made online and very few still have to be made in writing and physically signed by the parties. Contracting online is basically the same as contracting in writing. The basis forms of e-contracts are the following: -Click-Wrap or Web-Wrap Agreements are those in which a party, after going through the terms and conditions provided in the website or program, typically has to indicate his assent to those terms and conditions by clicking on an “I agree” icon, or decline them by clicking “I disagree”. These types of contract are extensively used on the Internet, whether in order to grant permission to access a site or download software or to sell something on a website. -Shrink-Wrap Agreements derive their name from the “shrink-wrap” packaging that software CDs ore DVDs are covered in. The terms and conditions for accessing the particular software are printed on the shrink-wrap cover of the CD/DVD and the buyer, after going through the terms and conditions, tears the cover to access the CD/DVD. Sometimes extra terms are also imposed but appear on the screen only when you load the CD/DVD onto the computer. The user always has the option of returning the software if the new terms are not to his liking for a full refund. UNIT 6: CONTRACT DRAFTING. Introduction A contract is an agreement between two or more parties which is legally valid and enforceable when executed under specific terms and requirements agreed by the parties themselves. Contracts can be in writing, made orally or created through acts of parties. Most commercial contract are written because there is a clear need to keep a proper record of the agreements. Oral contract create a greater potential for disputes on the terms agreed to by the parties, and both parties may have difficulty providing evidence to support their position. The parties form contracts with great attention to their essential parts: the conditions. Conditions The following conditions should be included in any agreement: -Parties: the name and full addresses of the contracting parties should be clearly stated in each agreement. -Definitions and interpretation: in each contract there are defined conditions that are used several times in the body of the agreement itself. This section should provide a specific and clear definition of all of them. -Payment provisions: each party should be aware of the exact price to be paid for the goods or services provided and the date when payments must be made. This section should also note any agreed rate of interest payable on overdue amounts. -Description of goof or services and delivery: the contract should also include a specific description of the goods or services to be provided under the contract, including the level of service if the contract is for services. Where products or goods are concerned, there should also be a clear description of the delivery terms. -Duration of the contract: the length of time the contract will be in force should be stated in this section. It should also be noted whether there is any option to continue the contract after the first expiration date. The “Effective Date”, that is, the exact date from which the contract enters into effect for the parties, should also be noted here. [Example= “This contract will be effective as from January 1st, 2007 (the “Effective date”). The period from the Effective Date through December 31st, 2007 (the “Expiration Date”) is defined as the “Term”. Further extensions after the Expiration Date shall be agreed in writing by both parties with 120 days advance notice]. -Limitation of liability: this section limits the liability of either party or both parties to the contract. Each party will try to limit its own liability during negotiations. [Example: the limitation of liability will not apply if and to the extent the damage was caused by willful intent or gross negligence on the part of either Party]. -Termination clause: the circumstances under which the parties to the contract can end the agreement should be clearly stated in this section. The exact procedure for giving notice of termination to the other party should also be included in this section. -Dispute resolution: the procedure to be followed if the parties have a dispute should be stated in this section of the contract. For example, if there is an option for alternative dispute resolution, such as arbitration or mediation, that should be noted and the scope of issues to be submitted to this process. -Confidentiality: commercial contracts often deal with commercially sensitive information that the parties wish to keep confidential. This section should always be included in a commercial contract with a clear statement of whom the confidentiality requirement will apply to. Some companies may adopt, instead of this clause, a specific agreement called a “Non-Disclosure Agreement” to be signed by all the parties to the contract before entering into any negotiations. [Example: this clause sets out the terms for identification of information which is considered confidential and proprietary by a part and restrictions against use and disclosure of such confidential information after disclosure to the other party]. -Intellectual Property rights: many commercial contracts may include a clause stating who will own the intellectual property rights to any products provided under the contract. This section should be used to specifically state who owns such rights. Warranties. In a contract for supply of goods or services there should always be warranties in place stating that the goods will comply with relevant regulations. Warranties give the other party a contractual right to sue for damages if there is a breach of warranty. [Example: the company warrants and conditions that the product furnished will be, under normal use, free from defects in materials and workmanship]. Force Majeure This clause covers situations where performance of the contract becomes impossible through no fault of either party, for example, if there is a natural disaster or civil unrest. [Example: any delay or failure of any party to perform any obligation under this contract caused by governmental restrictions, labor disputes, storms or natural disasters, emergency, or other causes beyond the reasonable control of the party, shall not be deemed a breach of this contract]. Applicable law This section should state which law governs the contract. [Example: this contract shall be governed by the laws of England and the parties hereby submit to the exclusive jurisdiction of the English Courts]. UNIT 7: BREACH OF CONTRACT. Introduction. A breach of contract is the failure, without legal excuse, of one party to perform as stated in the contract entered into with the other party. Unless the parties agree to a specific change in the contract terms, or the actions of the party who deviates from the terms of the contract are implicitly accepted by the other party, each failure to perform is a breach of the contract. A material breach is any failure to perform that allows the other party to the contract to either ask for performance or collect damages because of the breach. Breach of contract comes in many forms. One can have a complete breach, where one party completely refuses to deliver on any part of his or her undertaking. In other situations, a person may do most of what the contract requires but omit or refuse to do a small residual portion. This latter situation is called substantial performance and it has the effect of binding the other party to performance, at least in a equivalent proportion as the party that has not fully performed. Another type of breach is called anticipatory breach. This is when there is an unequivocal indication in advance of performance that one of the parties to a contract will not perform when the performance is due. The first thing a lawyer will look for when faced with a possible breach of contract is examine any provisions about direct and indirect damages, penalties, with particular attention to a clause calling for liquidated damages. Breach of contract leaves the non-performing or improperly performing party open to a claim for damages by the other party. Main provisions regarding damages. handle all the Principal 's affairs during a specific time frame. -The Special Power of Attorney provides the Attorney the specific powers indicated by the Principal and/or allows the Attorney to handle the specific situations named by the Principal during the specified time frame. In both cases, the Attorney has to comply with all the instructions he/she has been given by the Principal and act only in the business or legal matters he/she has been appointed to within the relevant time frames. If he/she fails to do so, the rights and obligations of the relevant legal or business matter will not be assigned to the Principal but to the Attorney him/herself and the Attorney may be held responsible for all the damages suffered by the Principal. However, the Principal may always ratify a “posthumous” authorisation to those actions and thus allowing the rights and obligations of the relevant legal or business matter to be assigned to him/herself. A Power of Attorney is revocable and may be granted by anyone who has the legal capacity to act in the relevant legal or business matter. Under the common law, a Power of Attorney ceases to be effective if, during its validity, the Principal becomes incapacitated, whether because of physical injury or mental illness. To prevent the termination of the Power of Attorney in such an event, the Principal may grant a so-called “Durable Power of Attorney”, by specifying that the Power of Attorney will continue to be effective even if he/she becomes incapacitated. The Power of Attorney ceases to be effective at the death of the Principal. The formalities for granting a Power of Attorney are the same as those needed for the act or business matter for which the Power of Attorney is granted. This is know as the equal dignity rule or, in Latin, forma per relationem. For example, if the Principal appoints the Attorney to sign a contract to be executed by notarial deed, the relevant Power of Attorney has to be granted by notarial deed too. If you have to produce a Notorised Power of Attorney internationally, then it has to be legalised by a Consular Officer of the Country from which the Power of Attorney was granted. However, if the relevant Countries are parties to the Hague Convention of 5 October 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents, such legalisation is not necessary. The only necessary formality is an Apostille by the relevant Public Authorities of the Country in which the Power of Attorney was granted. Hot words. Apostille. A simplified, but rigid, form of legalisation of notarial and public deeds in force between the parties to The Hague Convention of 5 October 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents. It certifies the legal qualification of the public official who has undersigned the deed, and of the authenticity of his/her seal or stamp. It does not concern the validity or efficacy of the act in the country of origin. Each country adhering to the 1961 The Hague Convention points out which authorities are competent to issue the Apostille Act in somebody's name [to]: to act as the representative of the relevant person. Act on somebody's behalf [to]: to act in somebody's interest. Appoint [to]: to designate somebody to perform a duty. Cease [to]: to stop. Formality: a formal or conventional requirement under the relevant provisions of law. Grant [to]: to formally confer. Incapacitated: deprived of the legal capacity to act on his/her own and for his/her own interests. Legalise [to]: to officially certify -by a consular or diplomatic authority- the legal qualification of the public official who has signed the deed and of the authenticity of his/her signature. This procedure does not concern the validity or efficacy of the deed and does not imply any verification or acceptance of the contents of the document. Notarial deed: a deed executed before a notary public. UNIT 10: M&A -MERGERS AND ACQUISITION. Mergers and acquisition – definition and general overview. M&A deals are large transactions used not only to change the control of a company, but also to alter the strategic direction of the business. Basically, an Acquisition is a purchase by a person (the Buyer) from another person (the Seller) of a stake in a given company (called the Target Company). In contrast, a Merger is a combination of two or more companies into a single entity (the Combined Entity). There are three different kinds of Merger: 1.the Merger “per se” -that is the combination of two or more independent companies into the Combined Entity; 2. the Forward Merger -that is the incorporation by the controlling company of one or more of its subsidiaries; 3.the Reverse Merger -that is the incorporation by a subsidiary of the controlling company; The choice between an Acquisition and a Merger depends on the strategic plans of the parties and on the situation of the companies involved. However, the parties usually consider the following factors: 1-the consolidation and integration of the two (or more) businesses and the creation of a synergies through that integration; 2-financial goals. For example, a Buyer may make a purchase to improve and revitalise the acquired business and eventually sell it at a substantial gain; 3-the intent to (or the need) exit from the business, allowing the Seller to sell a part or all of his stake in the Target Company, to get cash and/or to solidify the relationship with the Buyer. However, there is a common thread between Mergers and Acquisitions: the parties want to learn as much as they can about the business, understand it deeply and try to maximise its value; both types of transactions involve many people (or companies) related to the parties, like their managers, employees, customers. In addition, the key steps in both kinds of transaction are very similar. The process of an M&A transaction. It is important to understand the roles of the various players. A first broad category of people in every M&A deal is the investors, who may play the role of the Buyer and/or of the Seller: -Founders/angels: people who started the business from scratch and helped it take its first steps. Founders are always on the selling side of an M&A transaction. -Venture capital firms: entities that help promising, early-stage businesses develop and grow and eventually sell their stake at a financial gain; -Private equity firms: entities that provide the company with the human and financial resources to auction-runner and the bidders. This is why the auction-runner usually hires an Investment Bank to do the job on its behalf. The auction-runner is in charge of ensuring and preserving an equal playing field among the bidders, proper communication to and from the bidders, and the secrecy of the process. Running a competitive auction allows the auction-runner to identify the most interested counterpart, which is likely to offer the best terms. Competitive auction procedures are not very different from those of one-on-one negotiations, although every step must follow a rigid schedule to ensure an equal playing field among the bidders: -The bidders provide the “teaser” -The bidders and the auction-runner sing an NDA and exchange an “information memorandum”. -The bidders present a formal LOI. -In larger auctions, the auction-runner may decide to set some “cuts” to winnow the group of bidders down to a smaller number. -The bidders who make the cut are given access to extensive due diligence information; they then present a more refined (and final) offer. -The auction-runner chooses the winning offer(s) and starts to negotiate one-on-one the final version of the legal documentation with the auction-winner(s). -If the negotiation(s) with the auction-winner fall through, the auction-runner may pick the auction- runner-up and doesn't have to start the whole process from scratch. The core of deal process. The most important aspects of an M&A are perhaps the review (Due Diligence, or “DD”) and the valuation of the relevant business, along with planning for the integration of the involved companies. These areas require the most work by the people involved in the deal and raise the most critical issues. In every M&A transaction the combined entity (or the Buyer) takes over all the assets, liabilities, rights and obligations of the companies involved (or of the Seller). DD is an extensive review of the details of all aspects of business to identify all the company's assets, liabilities, rights and obligations, even those that are merely potential or uncertain. DD applies to almost every are than may be relevant to the business (operations, finance, accounting, legal, regulation, technology, product, customers, employees, environment, etc.) and the DD team must be formed of people with knowledge and expertise in all the relevant areas. The DD is usually run by the following people: -Lawyers: every business is a pool of legal rights and obligations, besides assets, liabilities and a brand. The lawyers verify what that pool is made up of and help discover the impact the transaction will have on it. -Accountants and Auditors: the accounting staff tells how much the business is worth and the auditors certify that the financial statements related to the business are accurate. -Regulation and compliance experts: if the business is subject to any regulation, these experts will advise how to comply with them (procedures, policies, etc.). -Other experts: help understand and point out other issues relevant to the business, such as technology, product, customers, environment, etc. The results of DD not only significantly influence the behaviour of both side during the negotiations, but also affect the terms and the conditions of the transaction itself. The valuation is aimed at setting the price of the transaction. There are many different valuation methods. It is very important to know when and how to apply each one. Some of these methods are: -Trading comparable: analysis of the stock market prices of companies with similar activities -a useful method to value listed company. -Transaction comparable: analysis of the value assigned to similar companies in similar transactions. -Discounted cash flow: analysis of the capacity of a business to produce cash in the foreseeable future -a useful method to value companies with stable cash flow. During the valuation the consultants must consider the results of the DD as well as the following factors: -Control Premium: when a transaction is aimed at acquiring the majority stake of a company, this stake has a higher value than a small, non-controlling stake. That control merits a premium over the valuation of the company. -Synergy and integration costs: if the transaction is driven by the creation of synergies or integrations between the companies involved, their cost must be considered with an accurate cost/ benefit analysis. -Future profitability: a business has value not only for its current profitability, but even more for the profits it will yield in the foreseeable future. Integration of business is the most important drive behind an M&A transaction, and the greatest determinant of its success of failure. This is why the integration planning documentation -which describes how the business will integrate- must be prepared well in advance and updated throughout the negotiation process to reflect the DD results. Integrating two or more businesses means creating a synergy between them, a situation that leads to cost saving and greater efficiency in the following areas: -Operations -Supply chain -Employees -Technology -Products -Customers DD play a key role throughout the whole process, since it allows the parties to: -identify all the assets, liabilities, rights and obligations, event those which are potential and uncertain, related to the business. -have a guide to the critical issues of the business during negotiations. -find out the content of the legal documentation. -better assess how much the business is worth. -gain useful information for drawing up the integration planning documents. Financing the costs of a transaction. An M&A transaction carries multiple costs. The most important is the purchase price, but there are also fees that must be paid to the other entities involved in the transaction (the Investment Banks, Lawyers, Consultants, etc.). While a Merger does not involve an out-of-pocket payment to the shareholders of the incorporated entities, the Buyer in an acquisition transaction must pay the purchase price to the Seller. This payment may be made in cash, in share in other assets or through a combination of payment methods. The payment methods is an important issue to the parties. The Buyer needs to consider it to be able to draw up the financial structure of the deal. The Seller may prefer to receive consideration in cash instead of a stock position in the Buyer's capital, the value of which may vary. Usually, when the consideration is to be paid in cash, the Buyer borrows money from other investors (by issuing bonds or through private loan) or from banks, thus entering into an acquisition financing agreement. Closing the deal. Until that documentation is signed, it is still possible for either party to walk away and let the agreement fall through. The completion of an acquisition transaction is usually a two-steps process. First comes the signing of the deal, in which the parties execute a binding agreement to complete the sale subject to certain conditions. After fulfilling those conditions, the parties complete the sale by signing the documents related to the transfer of ownership of assets and securities and by paying the purchase price. The gap between the signing and the closing gives the parties the time to get all the regulatory authorisations, to complete the financing or to adjust the consideration and/or other terms of the deal. To complete a Merger you need the approval of the relevant corporate bodies (board of directs and shareholders' meeting), the signing of the documents for the transfer of ownership of assets, as well as the share exchange. Hot Words. Board of directors: the corporate body representing the managers of the company. Bond: a debt security in which the issuers owes the holders a debt and has to reply the principal and interest. Business: either a commercial or industrial enterprise or activity or a single matter, affair or activity. CEO: the Chief Executive Officer, the head manager of a company. Control: the power, by virtue of a shareholding, to influence and direct the management of a company. Controlling company: a company that holds enough shares to control another company. Corporate bodies: the parties involved in the governance of the company (CEO, board of directors, management, shareholders' meeting). Independent company: with reference to two (or more) given companies, a company that is not controlled by any of the others. Issue [to]: to formally offer securities to third parties. Security: a transferable interest representing financial value. Shareholder: a person who owns a share interest in the capital of a company. Shareholders' meeting: the corporate body representing the shareholders of a company. Shareholding/Stake: a share interest in a given company. Subsidiary: a company that is subject to the control of another company. The offeror may react to these measures by increasing the offer price and/or altering the terms and conditions of the bid. After the relevant national supervisory Authority has approved the offer document, the acceptance period starts, that is the offeree's shareholders may accept the Take-Over Bid. At the end of the acceptance period ,the offeror gives public notice of the results of the Take-Over Bid, pays for the shares and complies with other relevant applicable disclosure duties. If the offeror holds more than 90% of the offeree's securities, the holders of the remaining securities have the right to ask the offeror to buy their securities for the same price offered in Take-Over Bid (“right of sell-out”). If it holds more than 95% of the offeree's securities, the offeror has the right to buy the remaining shares for the same price offered in the Takeover Bid (“squeeze-out”). Hot words. Bid: an offer to buy a security. Infringement: violation, failure to comply with. Mandatory: compulsory. Minority holding: a share interest in a given company that does not allow the shareholder to control the company. Voluntary: un-prescribed. UNIT 12: ACQUISITION FINANCING AGREEMENTS Acquisition financing – definition and general overview. In corporate acquisition, the Buyer may obtain the money to pay for an interest in a company through equity and/or debt. Mostly, the Buyer uses either form of financing, with debt over- weighing equity by a wide margin. The ratio between debt and equity (called “Leverage” or “Gearing”) signals the degree to which an investor or business is using borrowed money. This is why a corporate acquisition financed mainly through debt is called a “Leveraged buy-out”). Leverage allows the Buyer to make a corporate acquisition even if it does not have the money to do it on its own. At the same time it increases the risk of the business, because if the acquired company does not perform well, the Buyer may not have the money to pay the debt back. As a general rule, the higher leverage, the higher the risk for the business. We can say that Acquisition Financing is a scheme to provide the Buyer the money to finance part or all the acquisition of the Target Company and the parties to Acquisition Financing, which provide the money, and the Buyer which borrows the Money to finance the relevant corporate acquisition, essentially rely on the capacity of the Target Company to generate enough cash flow to service the debt. The Lenders provide the Borrower the money to finance the acquisition of the Target Company. Over the years, the Borrower will manage the Target Company, thus making the money to pay the debt back to the Lenders. During the life on an Acquisition Financing Contract there is a continuous relationship between the Lenders and the Borrower. This is mainly because, since the only real guarantee the Lenders have of getting their money back is the capacity of the Target Company to generate enough cash flow to service the debt, the Lenders heavily monitor the behaviour of the Borrower to prevent its managers from acting in ways which benefits its shareholders while damaging the interests of the Lenders. The Contract therefore plays a role key in balancing the interests of the parties. One one hand, it takes into account the interest of the Lenders to increase their credit protection by having more influence over the Borrower and more control over the loan. On the other hand, it must take into account the interest of the Borrower to minimise the intrusiveness and cost of these controls. Real life documents. The structure of an Acquisition Financing Agreement. Pay particular attention to the following issues when drafting such a long and complex document: -The Acquisition Financing Contract must clearly state the object and purpose of the business. -The Acquisition Financing Contract must truly and unequivocally represent the position of the parties with respect to the business. -The Acquisition Financing Contract must cover very foreseeable situation related to the business. -The Acquisition Financing Contract must suggest the interpretation given by the parties of key words or of words whose meaning may be controversial. -Every clause must be concise, clear and to-the- point. -Every clause must be consistent with the other clauses and provisions of the document. All the contract structures behind every Acquisition Financing are also protected by a security package aimed at ensuring an effective separation between the Lenders and the Borrower on one hand, and the other Borrower's creditors on the other hand; and strengthening the Lenders' control over the behaviour of the Borrower. The security package consists in: -A pledge on the Borrower's share capital; -A pledge on the Target Company's share capital; -A pledge on all the Borrower's receivables; -A mortgage on the Borrower's/Target Company's real estate. Hot words. Business: depending on the context, either a commercial or industrial enterprise or activity, or a single matter, affair or activity. Cash Flow: the cash (that is the money in the form of liquid currency) that a business receives (or spends) during a specific period of time. Debt: money borrowed from (and owned to) a third party under a loan agreement and/or by issuing bonds. Equity: the net investment made by owners and/or stockholders in a given business. Mortgage: an interest given on a real estate asset to guarantee the payment of a debt. It automatically becomes void when the debt is paid. Pledge: a deposit of personal property as a security for a debt. It automatically becomes void when the debt is paid. Security: a guarantee that an obligation will be met, that is an instrument which makes certain performance of a contract in a form of property that the Lenders can claim in case the Borrower defaults on its obligation. UNIT 13: LISTING ON THE STOCK EXCHANGE – INITIAL PUBLIC OFFERINGS (IPO) relevant consultants and under the supervision of the Sponsor, which is often in charge of coordinating the advisors' work. The prospectus and the role of the authorities. The prospectus is the most important IPO document. It is the document by which the company introduces itself to investors and is the main source of information for them to assess whether to invest in its shares. In drawing up the prospectus, the company must enable investors to make an informed assessment of the company's assets and liabilities, its financial position, profit and losses, prospects and the rights attaching to the company's shares. These requirements are set forth by EC Directive 2003/71 and EC Regulation 809/2004 and are designed to (a) ensure equal standards for the protection of investors throughout the European Union, (b) improve the efficiency of European markets, and (c) broaden the range of intra-EU investments in listed companies by making these companies more easily comparable. An IPO prospectus consists of three parts: -The share registration document: contains general information about the company's structure, business overview, investments and strategic plans, risks, corporate governance, present and future shareholder structure, financial situation and outlook as well as its share capital structure. -The additional pro-forma financial information document: this document is compulsory only in the event of a significant gross change (that is a variation of more than 25% in one or more indicators of the size of the company's business) in the situation of the company due to a particular transaction that has recently occurred, except for those situations requiring merger accounting. -The share securities note: contains a description of the rights attached to the company's shares and the procedure for the exercise of any of these rights, as well as a description of the IPO price and procedures. The prospectus is prepared by the company with the help of the relevant advisors during meetings aimed at ensuring that all the statements reported are correct. All this caution is for protecting these responsible for the information in the prospectus, but also for ensuring that the prospectus represents the company in an appealing fashion to potential investors. Before its publication, the prospectus must be approved by the relevant stock-exchange authority, and, in some cases, by the market on which the company's shares will be listed. Once a draft of the prospectus is ready, it is filed with the relevant national stock-exchange authorities and with the relevant listing market for an inquiry aimed at ensuring that the prospectus contains all the necessary information and complies with the relevant regulations. During the inquiry, the stock- exchange authorities may ask the company to provide extra information or to clarify specific issues. The national stock-exchange authority and the market may approve or reject the prospectus, thus admitting or refusing to admit the company to listing. In the UE, the stock-exchange authority's approval gives the prospectus a “European Passport”, which means that the IPO may be carried out in every UE country without further approval, provided that the relevant stock-exchange authorities are notified. The procedures for IPO 's on the most important U.S markets are basically the same. The company must fulfill the requirements of the U.S market regulations and the SEC, as well as the provisions of the 2002 Sarbanes-Oxley Act. The underwriting agreement and the IPO mechanisms. In an IPO, the Underwriting Agreement is entered into by the company and the Corporate Broker, which is in charge of selling the IPO shares to public investors through its sales force. The Corporate Broker may also bear the risk associated with the IPO by buying the entire offering from the company for a fixed price and reselling the shares at whatever price it can get from public investors. In other cases, the Corporate Broker guarantees only that I t will make its “best efforts” to sell the offering, being paid only for what it sells. The U.S. Investment bank W.R. Hambrecht has developed an Internet-based auction system for the IPO 's it underwrites, but so far, this method has not been widely used. One of the main duties of the Corporate Broker is to give the company its advice on the best way to sell shares to public investors. The choices usually include the following mechanisms: -Book-building: the Corporate Broker sales force approaches potential investors (in Europe, even before publishing the prospectus; this is not allowed in the U.S.) and compiles nonbinding indications of interest, assessing institutional and retail demand for the IPO and determining the final size, timing and pricing of the IPO itself. The process is helped by the PR firm, which organizes presentations and road shoes with potential investors and helps put the company “on the map” of the business community. Book-building is the dominant mechanism worldwide. -Auction: the investors suggest to the Corporate Broker the number of shares they are willing to pay. The intersection of the demand curve and the fixed supply of shares determine the offer price. -Fixed price: the company assesses the price and the corporate broker collects the orders. This process may be combined with a prior book-building. After the publication of the prospectus, the Corporate Broker collects the final, binding applications from the investors as well as their payment. If the investors request more shares than are available, the Corporate Broker may be granted a “Greenshoe Option”, which allows it to allocate more shares to the investors. If the investors request fewer shares than are available, the Corporate Broker may agree to pick up the unallocated shares at the agreed price. At this point, the company's share may be allocated to the public investors. Once the shares have been allocated to the investors and the company has cashed the IPO price, the shares start floating and can be continuously traded by investors. In a listing without an IPO, the shares start floating right after the publication of the prospectus. A public company is now born. Life as a public company. In the first days of trading, the trade volume of the company's shares (that is the number of the company's shares traded on a given day) is usually high, until the market settles and discovers the right price. This process may drive the shares' price down excessively, increase their volatility, and, ultimately, increase the risk of the investment. High volatility may harm the shares' performance in the long run. To speed up the price discovery by the market and to keep volatility down, banks intervene to stabilise the market price. The sponsor, the Corporate Broker or a third bank engages in market transactions to absorb the excessive supply/demand. This stabilises the shares' price at a certain level. This stabilisation activity may have a positive effect on the IPO value, since investors know in advance that they pay for the company's shares on the IPO will not fall too much once the company starts floating. Stabilisation alters the price discovery process and the formation of a fair price. The price discovery process is vital to an efficient market and, therefore, any stabilisation activity has to conform with the EU Market Abuse Directive (Directive 2003/6). Practices that impede a fair and undisturbed price formation are generally prohibited and may result in a criminal offence, because stabilisation it is seen as an effective way of promoting the interests of both the company and the investors. Therefore, stabilisation, if it follows the guidelines set forth in EC Directive 2003/6, is granted a “safe harbour”- which means that very price-altering activity performed within the stabilisation rules is exempt from any sanction. Stabilisation may be also achieved by the following mechanisms: -Lock-up undertakings: some or all of the company's core shareholders undertake not to sell their shares, showing the market their commitment to the company. These provisions are compulsory for the listing in some markets. -Extra shares: after a certain period of time, the most faithful shareholders are granted extra shares for free. This encourages them not to sell their shares after the IPO. These provisions are undertaken before the IPO and made public in the prospectus, but become effective only when the company starts floating. Being listed requires the company's management to address many more issues than staying private, since a listed company has to comply with regulations to which private companies are not subject. The advanced evaluation of the issues play a key role in the whole listing process, and the way these issues must be tackled once the company is listed affects the way the whole business is run and the behaviour of each manager/director. If the company fails to adequately address these issues, it runs the risk of breaking the law or negatively affecting the company's share price: -Loss of control: outside shareholders may have a different view of the company's business than the company's management, and require a return on their investment on a continuing basis. The management of a listed company must take their opinions into account, particularly when it comes to making decisions that require the shareholders' approval. This obliges the management to aim for short-term performance instead of long term goals. Otherwise, managers risk being ousted at the shareholders' meeting. -Loss of privacy: the way a listed company is run is under heavy scrutiny by the public, the press and market analysts. Because of this, the company's results, good or bad, are worsened by all the attention the company has from being listed and that may have a big impact on the share price. -Disclosure of information: a listed company has an obligation, under EC Directive 2003/6 and the relevant national provisions of law, to notify the market of any information which is likely to affect the share price. This disclosure must be timely and accurate to ensure that all investors trade the company's shares on the basis of the same information. -Directors' behaviour: the listed company's directors must both ensure compliance with the rules placed on a listed company and comply with their own responsibilities. These responsibilities include (a) a broad set of disclosure rules related to their compensation (salaries, stock-options etc.) and the dealings they conduct in the company's shares, (b) bans on dealing in the company's shares during many periods of the year, (c) monitoring their fellow directors' behaviour and (d) a prohibition on exploiting inside information when dealing in the company's shares. -Financial reporting obligations: listed companies must provide the market with periodic financial statements. These reports must accurately reflect the financial position of the company and, in the case of the annual report, must be fully certified by an Auditing Firm to ensure compliance with financial reporting standards. All European listed companies must now prepare their financial reports in compliance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board. Companies listed on a U.S. Stock-exchange are still subject to U.S. Accounting standards, the U.S GAAP, and to the 2002 Sarbanes-Oxley Act. -Transaction disclosure: because of the duty to disclose price-sensitive information, a listed company must give the market extensive, information about all major strategic transactions it is involved in, whether they require shareholder approval or not. -Compliance with the best practices: to comply with applicable laws and regulations, listed companies must often abide by a wide range of practices and codes of conduct that improve their relations with the public and the business community. This benefits their share price as well as their core business results, as how the company reacts to non-business issues (corporate governance, social responsibility, environmental, labour and consumer protection, etc.) is nowadays very important and deeply influences the public's perception of the company. -Relationship with investors and media: the above issues are dealt with by enforcing proper corporate governance principles and guidelines within the company -as well as proper corporate policies concerning all the relevant issues- but also by planning and effectively communicating these principles and policies to the public, the press and the whole business community. This keeps interest in company high and growing, to the benefit of both the share price and the company's business. -Monitoring shareholders' activity: management must always be well aware of how the shareholder base is structured (the balance between institutional investors and private individuals and the single investor's shareholding), to better assess any issues about relationship among shareholders and spot early any stake-building in preparation for a potential take-over. -Dividend policy: from a financial point of view, an investor buys shares in a listed company hoping The law protects industrial property from any use of the invention without the authorisation of the owner. To be protected by IP law, the invention must be made known to the public through a specific procedure of publication in an official register. Copyright protects creative and artistic works and gives a copyright holder the exclusive right to control the reproduction and adaptation of such works for a certain period of time. Copyright law protects only the form of the expression of ideas and not the ideas themselves. There are two types of rights protected under copyright: moral rights and economic rights. Economic rights allow the owner to commercialise his or her work and make money out of it. The exclusive right conferred by intellectual property laws, can generally be transferred or licensed or rented to third parties. There are some international agreements about the protection of intellectual property. For example, the Berne Convention (1886) was the first treaty ratified by almost all countries in the world that was designed for the protection of literary and artistic works. A more recent agreement is Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Signed in 1994, the treaty is administered by the World Trade Organisation (WTO) and sets forth global minimum standards for many forms of intellectual property regulation. The TRIPS also specifies enforcement procedures, remedies, and dispute resolution procedures that can be used to defend IP rights. Sample clause regarding IP. The main clauses concerning Intellectual property rights that are usually included in commercial contracts are those involving software and infringements. Intellectual property rights: Intellectual property rights mean any patent, trademark, copyrights, trade secrets, concepts, know-how or other proprietary right owned by this company. Customers may utilize, including without limitation software, computer programs, methodologies, templates acquired through a proper contract but the company shall retain at all times ownership of its IP rights. Infringement: REAL WORLD Inc. (SUPPLIER) warrants Mr. Ian White (CUSTOMER) that the software provided does not infringe any registered patent, copyright or trademark of a third party in the country where said software is installed. In case of claim or action filed by third parties because of a violation of their rights, the parties shall inform each other and consult each other regularly about the development of this claim or dispute. PRINCIPAL ATTORNEY Grants a POA PRINCIPAL'S LEGAL/ BUSINESS MATTER Acts in the name and on behalf of the Principal BUYER TARGET COMPANY “A”COMPANY “B” COMPANY “A”COMPANY “B” COMPANY SUBSIDIARY CONTROLLING COMPANY CONTROLLING COMPANY SUBSIDIARY Bidder/Offeror Offeree/Target LENDERS BORROWER TARGET COMPANY money Payback for the debt Cash flow Acquisition