Article 3 of the share purchase agreement includes the representation authorities and the assurances of the seller. This is an extraordinary detailed specification which is not to be recommended in all the individual points under German law. On the question of the assurance of the seller that the company whose shares are being acquired is a properly established undertaking, the assurance of the seller is not sufficient on this particular point. The provision of copies of all documents as envisaged in the agreement should be made under German law by the submission of authenticated copies of the relevant trade and commercial registries. This also applies to the copies of the management board meetings and shareholders' meetings.

The authority of the seller to execute the sale can also be documented by submission of the appropriate extracts from the trade and commercial registry. This also applies to subsidiary companies if there are any which are also involved in the share purchase agreement in any way.

The number of shares in the company, together with their nominal value, is also to be documented by submission of the appropriate extracts from the trade and commercial registry. What is of special importance is the statement on whether and to what extent payments have been made by the respective owners in respect of the individual shareholdings and whether the company still has any claims in this respect against the shareholders appearing as sellers.

In addition to any possible claims of the company against the shareholders for payment of the share capital, there may also be claims under =A7=A7 30 and 31 of the German Companies Act (GmbH-Gesetz). These are claims of the company against a shareholder for the repayment of a so-called hidden distribution of profit. Under German law, a company may on do business with its shareholders on an "arms length" basis. This means that the company is only allowed to do business with its shareholders which it would also have done with an independent third party. Each beneficial position granted to a shareholder which a carefully acting and thinking businessman would not have granted to an independent third party constitutes a so-called "hidden distribution of profit" under German law and results in a repayment claim of the company against the beneficiary of the hidden distribution of profit which has been made.

Finally, it should also be examined whether the company or shareholders have any claims against former shareholders.

The present assurances concerning the financial status of the company are also included in agreements for the purchase and sale of companies in Germany, namely those in favour of the buyer in the share purchase agreement. This can give the buyer a right to reverse the share purchase agreement if the buyer has given false assurances. The same also applies to insurances of the seller concerning the condition and the use of the individual parts and divisions of the company and buildings, and also the personnel status. The inclusion of assurances relating to the existing contracts of the company with third parties and the current insurance cover is also advisable.

As far as employees are concerned, it should be ensured that the employment contracts with the company whose shares are being purchased are not affected as a result of the purchase of shares. In this respect, an assurance of the seller on the number of current employment contracts is advisable but an additional ruling on employment contracts is not necessary. After all, the additional assurances of the seller relating to the properness of the business operation in accordance with all the local statutory regulations together with the statements made on current litigation cases and claims of employees can also be included in the contractual agreement under German law.

For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.

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