Mergers and Acquisitions in Germany, 2nd Edition

I. General remarks regarding the purchase 
    and restructuring of enterprises

II. The importance of the law of contract for the corporate 
      acquisition and the restructuring of enterprises

III. Preparation, concept, procedure and types of corporate acquisition
     1. Concept of the corporate acquisition
     2. Procedure of the corporate acquisition
         a) The traditional corporate acquisition procedure
         aa) 1st stage: Internal planning of the transaction
         bb) 2nd stage: Contractual negotiations
         cc) 3rd stage: Conclusion of contract and Transfer
         b) The (restricted) bidding procedure/auction process
         aa) 1st stage: Internal planning of the transaction and internal 
              preparation of the acquisition
         bb) 2nd stage: Start of the sales activities
         cc) 3rd stage: First round of the bidding procedure
         dd) 4th stage: Further and final round of the bidding procedure
         ee) 5th stage: Contractual negotiations and conclusion of contract
         ff ) Schedule for the bidding procedure
     3. Types of corporate acquisition
         a) Acquisition of individual assets (Asset Deal)
         b) Acquisition of shares or participations in an enterprise (Share Deal)

IV. Pre-contractual negotiation stage
     1. Confidentiality agreements
     2. Negotiation protocol
     3. Letter of Intent
     4. Option
     5. Preliminary agreement
     6. Due Diligence and Pre-Acquisition Audit Due Diligence Checklist

V. Formation of the Sale and Purchase Agreement
     1. Subject matter of the agreement
         a) Subject matter in the case of the acquisition of individual assets 
             (Asset Deal)
         aa) Certainty of the individual assets
         bb) Purchase price / evaluation
         cc) Transfer Date
         dd) Transfer of claims and legal relations, in particular employment relations
          b) Subject matter in the case of the acquisition of the shares of 
                 an enterprise or a participation in an enterprise (Share Deal)
         aa) Corporation (Kapitalgesellschaft)
         bb) Partnership (Personengesellschaft)
     2. Law relating to warranty and liability
         a) The law relating to warranty and liability in the acquisition of 
             individual assets (Asset Deal)
        aa) Defect of Enterprise (Fehler/Mangel)
        bb) Promised characteristics of the enterprise (Zugesicherte Eigenschaft)
        cc) Culpa in contrahendo (Verschulden bei Vertragsschlu?)
        dd) Frustration of contract (Wegfall der Geschäftsgrundlage)
        ee) Statute of limitations (Verjährung)
         ff) Guarantees
        gg) Consultant and third party liability
         b)  Warranty and liability law upon the corporate acquisition by way of 
              Share Deal
     3. Liability for previous obligations (Haftung für Altverbindlichkeiten)
         a) Liability for previous obligations upon the acquisition of individual 
             assets (Asset Deal)
        aa) Continuation of the trading name (sec. 25 Commercial Code /
             Handelsgesetzbuch - HGB)
        bb) Statute of limitations and restriction of liability in terms of time 
             (secs. 159, 160 Commercial Code)
        cc) Acquisition of assets (Vermögensübernahme) 
             (sec. 419 German Civil Code / Bürgerliches Gesetzbuch - BGB)
        dd) Transfer of a business (Betriebsübergang) (sec. 613a German Civil Code)
        ee) Establishment taxes (sec. 75 Tax Code / Abgabenordnung)
        b) Liability for previous obligations in the acquisition of shares (Share Deal)
        aa) Liability for previous obligations in the acquisition of a limited 
             partner's share (Kommanditgesellschaft - KG)
        bb) Liability for prior obligations in the case of a change of 
             general (commercial) partner (Offene Handelsgesellschaft - OHG)
        cc) Liability for prior obligations in the acquisition of corporations 
              or participations, in particular shares in Limited Liability 
             Companies (Gesellschaft mit beschränkter Haftung GmbH)
     4. Competition agreements (Wettbewerbsvereinbarung)
         a) Compatibility with sec. 138 I German Civil Code
         b) Compatibility with sec. 1 of the Act against Restraints on 
             Competition (Gesetz gegen Wettbewerbsbeschränkungen - GWB)
         c) Compatibility with European antitrust law
         aa) Substantive law
         bb) Peculiarities under procedural law
     5. Form of the Sale and Purchase Agreement
         a) Form of the agreement for the acquisition of individual assets (Asset Deal)
         b) Form of the agreement for corporate acquisition by way of the 
             acquisition of shares (Share Deal)
         aa) Form of the agreement for the acquisition of a corporation 
              or participation
         bb) Form of the agreement for the acquisition of a partnership or 
                  participation
     6. Restraints on disposal, requirements of consent and authorization
         a) Restrictions under company law
         aa) Requirements of consent to the acquisition of a corporation 
               or participation
         bb) Requirements of consent to the acquisition of a partnership 
               or participation
         b) Restrictions under public law
         c) Restrictions under family law and the law of guardianship
         d) Restrictions under the law of inheritance

VI. Conclusion and execution of the Sale and Purchase Agreement
     1. European and German Antitrust Law
        a) European Merger Control
        aa) Applicability
        (1) Concentrations within the meaning of the EMCR
        (2) Thresholds pursuant to the EMCR
        bb) Filing requirements
        cc) Prohibition of prior completion
        dd) Merger control proceeding
        ee) Prior contacts with the Merger Task Force
        ff) Merger control test and final decision
        gg) Third parties' rights
        hh) Referral to national antitrust authorities
        b) German Merger Control
        aa) Applicability
        (1) Concentration under German Merger Control Law
        (2) Thresholds pursuant to German Merger Control Law
        bb) Filing proceedings
        cc) Prohibition of prior completion
        dd) Merger control proceedings
        ee) Prior contacts with the FCO
         ff) Merger control test and final decision
        hh) Third parties' rights
     2. Closing
     3. Registration of the acquisition of a stock corporation or participation 
        (sec. 16 Limited Liability Companies Act/ Gesetz betreffend die Gesellschaften
        mit beschränkter Haftung - GmbHG)

VII. The transfer of a business and of the employment contracts by way 
        of legal transaction pursuant to sec. 613a German Civil Code
       (Betriebsübergang)
     1. The prerequisites of sec. 613a I German Civil Code for the transfer 
         of employment contracts0
         a) Transfer of a business or a part of a business 
             (Übergang eines Betriebes oder Betriebsteiles)
         aa) Transfer of a business (Übergang eines Betriebes)
         bb) Transfer of a part of business (Übergang eines Betriebsteiles)
         cc) The case law of the German Federal Labor Court and the 
               European Court of Justice
         b) Transfer of a business by way of legal transaction (Rechtsgeschäft)
     2. Assumption by the new business owner of the rights and obligations 
         arising from the employment relations existing at the time of the 
         transfer of the business as a legal consequence of the transfer of 
         the business
         a) Individual legal claims
         b) Claims under collective law
     3. The employee's right of objection
     4. The system of liability of sec. 613a II German Civil Code and the 
         exemption clause of sec. 613a III German Civil Code
     5. Protection against unlawful dismissal pursuant to sec. 613a IV 
         German Civil Code
         a) Protection against unlawful dismissal under substantive law
         b) Questions relating to procedural law
         c) Special provisions in the Conversion Act281 (Umwandlungsgesetz)
     6. The special regulations of sec. 613a German284 Civil Code for the 
         new Federal States of Germany
     7. Sec. 613a German Civil Code and Insolvency Law

VIII. Change in the business, in particular the balance of interests
         (Interessenausgleich) and the social compensation plan for
         disadvantages of employees (Sozialplan)
     1. Stage 1: Preconsiderations, studies and analysis for the decision-making 
        and scheduling of the action plan concerning change in business operations
        Schedule of action plan
         a) Notification of the economic committee, the works council, the 
             European works council and the personnel, as well as the supervisory
             board and the minority shareholders
         aa) Notification of the economic committee pursuant to sec. 
              106 II Works Constitution Act
         bb) Notification of the works council and consultation pursuant to sec. 
              111 Works Constitution Act
         (1) Changes in the business within the meaning of sec. 111 
              Works Constitutions Act
         (a) Restriction and closing down of the entire business or essential part 
              of business (sec. 111 sentence 2 no. 1 Works Constitution Act)
         (b) Relocation of the entire314 business or of essential parts of a 
              business (sec. 111 sentence 2 no. 2 Works Constitution Act)
         (c) Merger with other businesses or the division of businesses 
              (sec. 111 sentence 2 no. 3 Works Constitution Act)
         (d) Fundamental changes to the business organization, the purpose of 
              the business or the installations of the business (sec.111 sentence 
              2 no. 4 Works Constitution Act)
         (e) Introduction of fundamentally new working methods and production
              processes (sec. 111 sentence 2 no. 5 Works Constitution Act)
         (2) Timely notification of the works council
         (3) Comprehensive notification of the works council
         (4) Notification of the works council pursuant to the Conversion 
               Act (Umwandlungsgesetz)
         cc) Notification of the European works council
         dd) Notification of the spokesman committee of the managerial employees
         ee) Notification of the severely handicapped persons' representative
          ff) Notification of the works assembly
         gg) Notification of the supervisory board
         hh) Notification of the minority shareholders
           ii) Further notifications
          b) Consultation with the works council relating to the planned changes 
              in operation and personnel measures with the aim of agreeing upon 
              a balance of interests and a social compensation plan (secs. 111, 92
              Works Constitution Act)
         aa) Balance of interests (Interessenausgleich)
         (1) Balance of interests pursuant to secs. 112, 113 Works Constitution Act
         (2) Balance of interests pursuant to sec. 323 Conversion Act
              (Umwandlungsgesetz
         (3) The balance of interests pursuant to sec. 122 Insolvency 
                Ordinance (Konkursordnung)
         bb) The social compensation plan (Sozialplan) (sec. 112 Works 
                 Constitution Act)
         (1) Negotiations relating to the social compensation plan
         (2) The social compensation plan as a (genuine) codetermination 
              right (sec. 118 Works Constitution Act)
         (3) The content of the social compensation plan
         (4) The termination of employment relations and the effects of 
              the social compensation plan under individual labor law
         (5) Public subsidies for the reduction of the economic burden 
              on the enterprise
         (6) Compulsive social compensation plan in the case of the reduction 
              of personnel, new foundations (sec. 112 a Works Constitution Act)
     3. Stage 3: Implementation of the restructuring
         a) Notification to the Labor Authority (Arbeitsamt) pursuant to sec. 
             17 of the Act against Unjustified Dismissal (Kündigungsschutzgesetz)
         b) Notification to the president of the District Labor Authority
             (Landesarbeitsamt) pursuant to sec. 8 Employment Promotion 
             Act (Arbeitsförderungsgesetz)
         c) Execution of dismissals
       aa) Hearing the works council pursuant to440 sec. 102 Works 
             Constitution Act
       bb) Social justification of the dismissals 443 pursuant to sec. 
            1 of the Act against Unjustified Dismissal
       (1) Reasons in the person or in the448 performance of the employee
       (2) Urgent operational requirements
       (3) Employer's duty to provide evidence
       cc) Notice periods
       dd) Special protection against dismissal
       (a) Special protection against dismissal for severely handicapped 
            persons
       (b) Special protection against dismissal for mothers
       (c) Special protection against dismissal for members of the 
            works council etc.
       (d) Special protection against dismissal for employees who can 
            only be dismissed for an important reason
       ee) Continued existence of the individual labor law protection
         d) Industrial action
       aa) Wildcat strike
       bb) Lawful strike
       cc) Warning strike / demonstration strike

IX. Rescission of corporate transfers

X. Financing the corporate acquisition
     1. The procurement of equity capital by the public limited company 
         as an instrument of external financing
         a) The procurement of capital through the issue of new shares
         b) The procurement of capital by the issuing of convertible bonds 
             and bonds with warrants attached
     2. The procurement of equity capital by enterprises not capable 
          of issuing securities
     3. Other means of procuring capital by way of external financing

XI. Special financing of a corporate acquisition by way of Management
       Buy-Out (MBO), Leveraged Buy-Out (LBO) or Management Buy-In (MBI)
     1. Main areas of application of MBOs
     2. Leveraged Buy-Out (LBO) and financing of MBOs
     3. Legal Framework for MBOs in Germany
          a) Company Law
        aa) Preservation of the capital of a limited liability company (GmbH)
        bb) Preservation of the capital of a stock corporation (Aktiengesellschaft - AG)
        cc) Preservation of the capital of a partnership with a company with 
             limited liability as general partner (GmbH & Co. KG)
          b) Tax Law
          c) Insolvency Law
     4. Structuring MBOs in Germany
         a) Single-stage MBO
         b) Two-stage MBO
     5. MBO Contracts

XII. Private International Law concerning governing law, jurisdiction 
        and arbitration
     1. Law of obligations
     2. Transfer of title to the individual assets (Verfügungsgeschäft)
     3. Formalities
         a) Obligation to effect the transfer of title to the individual 
             assets (Verpflichtungsgeschäft)
         b) Transfer of title to the individual assets (Verfügungsgeschäft)
         c) Notarization by a Foreign Notary
     4. Liability arising from the acquisition of assets and the continuation 
         of the trading name
     5. Labor law and the law of co-determination
     6. Financing
     7. Company law

Extracts from German Legislation / Provisions important for M & A
     1. German Civil Code Bürgerliches Gesetzbuch
     2. Commercial Code Handelsgesetzbuch
     3. Stock Corporation Act Aktiengesetz
     4. Limited Liability Companies Act Gesetz betreffend die Gesellschaften 
         mit beschränkter Haftung
     5. Conversion Act Umwandlungsgesetz
     6. Works Constitution Act Betriebsverfassungsgesetz

Glossary of Terms