What are salient terms of contracts?

Corporate lawyers spend a lot of time summarising salient terms from contracts into legal due diligence reports.

Disclosure of salient terms of certain contracts is required in prospectus and circulars to shareholders of public listed companies for certain corporate exercises.

When deciding whether certain provisions in contracts are salient terms to be included in legal due diligence reports, prospectus or contracts, consider the following:

1. Identify the relevant laws which govern the disclosure of salient terms of contracts.

For my practice areas, it is typically CMSA, Listing Requirements or Prospectus Guidelines.

2. Identify the legal requirements in respect of disclosure of salient terms of contracts.

For example, the Listing Requirements require disclosure of the date, parties, general nature, consideration and mode of satisfaction for material contracts outside ordinary course of business for certain corporate exercises.

3. Are there any provisions in the contracts which restrict or affect the corporate exercises?

For example, if a public listed company intends to undertake a rights issue of shares, provisions in banking facility agreements which state that consents from banks are required for any change of share capital of the PLC should be included as salient terms in the legal due diligence report.

4. Does the prospectus contain all such information that investors and their professional advisers would reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed assessment of:

– the assets and liabilities, financial position, profits and losses and prospects of the issuer;

– the rights attaching to the securities; and

– the merits of investing in the securities and the extent of the risk involved in doing so?

See section 236 of the CMSA on the general duty of disclosure in prospectus.

5. For acquisitions, would the terms in the contracts affect the buyer’s decision to acquire the shares or business? If yes, include such terms as salient terms.

6. Condition precedents in contracts are probably not relevant if the transactions contemplated under the contracts have already been completed. However, if the underlying transactions in the contracts have not been completed, consider whether the conditions precedents would have any effect on the corporate exercises. If yes, disclose the conditions precedent as salient terms.

What would you add to the list above?

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This post was first posted on Linkedin on 20 October 2021.