MERGERS & ACQUISITIONS (M&A)M&A | Marc Cunningham LLC

Mergers, Acquisitions and Divestitures (M&A)

Legal support for the premiums paid analysis, reviewing comparable completed transactions and the average purchase premiums paid for such transactions, as compared to the proposed deal.

Consultation regarding how to structure the deal, whether as a traditional merger – generally as reverse triangular (also known as reverse subsidiary), requiring the establishment of a new temporary subsidiary of the acquirer, into which the target is merged, and then the temporary subsidiary is eventually dissolved – or as a tender offer or exchange offer (as may be necessary if the deal involves a hostile takeover).

Review and editing of the language in the press release announcing the merger, to avoid anything that might be construed as a representation or guarantee of outcome.

Legal support for obtaining target board approval and shareholder approval (generally at least 50% shareholder approval is required, unless the bylaws require a supermajority) or acquirer shareholder approval (as may be necessary if the acquirer will have to issue more than 20% of its own stock to make the purchase).

Negotiation and drafting of the SEC Section 14A Forms PREM14A and DEFM14A merger proxy.

Negotiation and drafting of the definitive purchase agreement, whether a definitive asset purchase agreement (for the transfer of particular assets of the target to the acquirer, with the target retaining control over the shares and remaining assets), or a definitive stock purchase agreement (for the target to transfer all shares to the acquirer).

Particular attention to critical clauses in the definitive purchase agreement, such as:

closing costs and pro-rations (who will pay which closing costs, whether split equally between the acquirer and the target, with each paying their own advisors),

contingencies (generally included if a substantial period of time – gap – will occur between signing and closing; acquirer contingencies may include obtaining third-party financing of some minimum amount within some time period, obtaining a license, transferring a lease, or getting franchise approval; target contingencies may include the acquirer approving the target’s credit and financial position if the acquirer is offering financing to the target),

default and remedies (conditions for canceling the definitive purchase agreement and penalties for defaulting, including limitation of damages and specifying a break-up fee in lieu of liquidated damages),

earnest money deposit (who holds the earnest money deposit, whether it is refundable or non-refundable, and the conditions for refunding such deposit),

indemnification (generally the most heavily negotiated clause, specifies in detail the precise conditions for who indemnifies whom),

purchase price and financing (specifying the earnest money deposit, the down payment, any additional funds needed upon conclusion of due diligence, amount of target financing, third-party financing, the hold-back amount, whether obtaining third-party financing is a contingency and if so, specifying the time limit for the acquirer to obtain such third-party financing, and whether an earn-out is involved in the deal),

representations and warranties (typical target’s representations may include statements such as all the assets are in good repair, all taxes will be paid at closing, the target has the legal capacity to sign the definitive purchase agreement, the target has complied with all laws).

Negotiation and drafting of any documents required to support the definitive purchase agreement, such as:

allocation of purchase price (for an asset sale, lists purchase price as separate asset classes for IRS purposes),

assignment of contracts (transfers third-party contracts from the target to the acquirer upon closing, for agreements that allow transfer despite a major change in the ownership of the target, may not be necessary for some stock sales),

assignment of equipment leases (transfers the leases for fixtures within the target’s plant to the acquirer, the target usually remains a guarantor for all leases until their expiration, must also be signed by landlord if different from the target, not necessary if all existing leases can be cancelled and new leases with the acquirer directly can be created, a different form of agreement is necessary if the plant will be sub-leased from the target to the acquirer),

assignment of intellectual property (including the items specified in the schedule of intellectual property, such as copyrights, patents, trademarks, works for hire, or other registered intellectual property and may include the non-registered intellectual property specified in the schedule of intangible assets),

assignment of shares (for a stock sale, transfers shares of the entity),

bill of sale (if selling the entire entity, transfers specified target assets, may include the schedule of tangible assets),

closing documents (may often be executed remotely prior to the closing, or if particular signatures are required to be witnessed at the moment of closing, supplemental documents can be appended to whatever closing documents are already complete),

confidential information memorandum (CIM) (contains general and vaguely-worded attractive details about the prospective target, used by an M&A advisory firm or investment bank in a sell-side engagement to market a such target to prospective acquirers),

corporate resolution (generally required in an asset sale, if the target is selling a majority of the assets, may not be required for a stock sale),

deed of sale of entity (if the target is selling the entity or shares),

form of training log (specifying the details of any post-closing training required for the acquirer’s personnel),

independent contractor agreement (or employment contract, if the target will continue working for the acquirer in some capacity post-closing),

letter of intent (LOI) (a non-binding aspirational document generally more detailed than a letter of interest, may not include any payment of earnest money from the acquirer to the target),

letter of interest (a non-binding aspirational document, depending on the preferences of the parties, may be used if the anticipated deal process will involve a broad auction, limited auction or targeted auction),

memorandum of understanding (MOU) (a formal aspirational agreement between the acquirer and the target, stronger than a letter of interest or an LOI but generally non-binding so not as strong as the definitive purchase agreement, specifies the general terms of the proposed deal and the will of both parties to move forward towards a definitive purchase agreement),

non-competition agreement (included even if there already is a stand-alone non-competition agreement between the parties, describes post-closing behavior for the target, specifies the length of time this clause survives the closing, should provide for automatic termination if the target defaults on any required payments to the seller),

promissory note (required in an asset sale if the acquirer requires financing from the target, specifies the payment terms and establishes a personal obligation incumbent on the acquirer),

release of holdback (a specified percentage of the purchase price is held in escrow – the holdback – for the benefit of the acquirer until any required training period is completed to the satisfaction of the acquirer, or held in escrow for some specified post-closing period to cover any unknown variables, once any specified conditions are fulfilled – as may be evidenced by the acquirer executing a certificate of completion or the like – the escrow agent releases the holdback to the target),

security agreement and Uniform Commercial Code Form 1 (UCC-1) (required in an asset sale if the acquirer requires financing from the target, allows the target to place a lien on the assets included in the sale until the acquirer has paid in full, the UCC-1 needs to be filed to perfect the target’s lien on those subject assets),

share pledge agreement (if the target is financing a stock sale, shares of the entity can be held in trust or escrow until the target has been paid in full, a mutually-agreed third-party should have actual custody of the shares until the target has been paid in full),

schedule of intangible assets (for non-registered intellectual property, such as phone numbers, websites, content),

schedule of intellectual property (any specified intellectual property to be included in the deal, such as copyrights, patents, trademarks, works for hire or other registered intellectual property),

schedule of real property assets (all the target’s real property assets to be included in the deal, such as owned properties covered by deeds, leased properties, easements, licenses, right-of-ways, riparian rights, drilling rights),

schedule of tangible assets (any tangible item to be included in the deal that is not covered anywhere else in the documents, such as automobiles, ships, trucks, wells, and the like),

target’s disclosure statement (specifies in detail any material adverse conditions of which the acquirer should be aware – such as existing or pending lawsuits or government investigations, or environmental conditions, the subject of intense due diligence and subsequent negotiation),

third-party consents (for any third-party contracts with the target that do not expressly allow transfer despite a major change in the ownership of the target, providing such required consents within a specified time period may be a condition precedent for the closing or the deal terminates automatically).

Experience with tender offers (if the acquirer offers cash) and exchange offers (if the acquirer offers stock), also known as a two-step merger, in which the buyer as a first step makes a direct and public offer to all shareholders to purchase their shares for cash or stock, or some combination thereof by sending an “Offer to Purchase” to each shareholder (generally conditioned on reaching a certain minimum threshold – generally a minimum controlling majority – of target shareholder participation by a specified date, usually at least 20 days from the tender offer), and completing an SEC Schedule TO filing (with the offer attached as an exhibit) and then attempts capitalize on that offer by actually acquiring all the shares of the target (if there is a concentrated shareholder base), or at least a controlling majority thereof (if there is a diffused shareholder base), and if such minimum controlling majority is achieved, the acquirer proceeds with the second step, known as the back-end (or squeeze-out) merger, in which the acquirer forces the remaining minority shareholders to convert their shares for the consideration offered by the acquirer.

Experience with the SEC Schedule 14D-9 filing and fairness opinion in response to a tender offer or exchange offer.

Experience with long-form mergers (in which the buyer has managed to acquire at least 90% of the shares of the target through the offer, which involve additional SEC filings and disclosures).

Experience with short-form mergers (in which the buyer has managed to acquire at least 90% of the shares of the target through the offer, but accelerated state procedures allow the buyer to acquire the remaining shares without additional SEC filings and disclosures).

Familiarity with sell-side processes, such as a broad auction, limited auction, targeted auction and exclusive negotiation.

Legal support as may be required for delisting the target company’s stock, exchanging shares of the delisted stock for the required cash or shares of the acquirer’s stock, and cancelling the target shares.

Participation in public-private partnership (PPP) transactions and build-operate-transfer (BOT) transactions.

Experience with deals involving public companies in the technology, media and telecommunications (TMT) space.

Experience with both asset sales (to acquire only the assets of the target without any of the target’s liabilities, and to give the ) and stock sales (to acquire the shares of the target to achieve control of the target’s entire business, and to avoid a corporate-level tax).

Drafting and negotiating ancillary stand-alone documents for strategic M&A transactions to enhance bankability, such as agreements (confidentiality, concession, employment, joint venture, non-compete, non-disclosure, operating, project development, security, share purchase, shareholders’, venture capital), articles of association, by-laws, carve-outs, engineer-procure-construct (EPC) contracts, letters of interest, letters of intent (LOIs), memorandum of understanding (MOU), operation and maintenance (O&M) contracts, recapitalizations, spin-offs, term sheets.

Development of extensive due diligence checklists for various buy-side and sell side transactions, including sections such as the basic corporate documents for the parent and all subsidiaries, all securities issuances to date, as much information about controlling shareholders as possible, all material contracts and agreements, all intellectual property patent and trademark matters, detailed specifications and sales figures for all products, detailed schedule of all software applications used in daily operations, all sales and marketing data for all operations, detailed schedule of all real property, detailed schedule of all current and pending legal actions and governmental investigations, all information regarding any environmental issues, a complete human resources schedule of employees and compensation, resumes and compensation schedules for all management, schedule of all insurance policies, all financial information including certified GAAP-compliant financial statements for at least the past seven years.

Management of due diligence teams for transactions of all sizes and complexities.

Preparation of extensive due diligence checklists, relating to all forms of entities, departments, functions and assets.

Familiarity with the general regulatory issues related to the financial industry, particularly as relates to financial technologies (fintech).

Consultation for project-financed equity investments in special purpose companies (also known as project companies) typically established to realize large infrastructure projects, and subsequent coordination of acquisitions, divestitures, joint ventures and mergers related to such special purpose companies.

Representation of domestic, cross-border and international participants in public and private companies, and preparation of all documents for transactions such as domestic and cross-border mergers, acquisitions, joint ventures, and other transactions.

Structuring and forming hedge funds, private equity funds, real estate funds and venture capital funds, and advising fund sponsors in connection with formations, offerings and operations, addressing securities and investment company issues in structuring the entities, assisting funds for qualification as Small Business Investment Companies (SBIC), consultation for fund managers regarding compensation, equity, employment and governance issues clawback obligations, limited liability companies and other entities for fund operations and management, limited partner commitment workouts, management fee structures, structuring partnerships, preparation of offering terms and documents and negotiating terms with investors, structuring for bank regulatory, foreign and other unique issues of investors.

Search fund formation, structuring, preparation of fund formation documents and transaction offering memoranda, day-to-day operational issues, and acquisitions, follow-on investments and liquidations, preparing the initial offering materials and agreements, coordinating with investors regarding all aspects of the financing transactions, completing the initial acquisition, any follow-on acquisitions, and any sale transactions.

Litigation consultation for various issues such as enjoining M&A transactions, enforcement of fiduciary duties, pre-closing litigation counseling (such as for risk assessment and mitigation strategies), response to stockholder demand letters, response to Delaware Rule 220 stockholder inspection demands, class actions challenging M&A transactions, defending against stockholder derivative lawsuits, defenses under the Private Securities Litigation Reform Act (PSLRA), the Securities Litigation Uniform Standards Act (SLUSA), substantive defenses pertaining to loss causation and preemption, and resolution of disputes with competitors regarding non-compete and non-solicit agreements.

Selection and management of domestic and international counsel, subject matter experts (SMEs) and consultants.

Employee benefits and executive compensation agreements, equity and 162(m) plans (such as annual and long-term incentive plans, stock option, restricted stock/restricted stock unit, performance share and broad-based equity), executive compensation plans (such as deferred compensation, incentive compensation, supplemental retirement, severance and change-in-control), retirement plans (such as 401(k) and defined-benefit), employee stock ownership plan (ESOP), compliance with the () and the Health Insurance Portability and Accountability Act (HIPAA), fringe benefits (such as PTO, company car, reserved parking space, educational assistance), funding vehicles such as trusts and Voluntary Employees' Beneﬁciary Associations (VEBAs), directors and officers (D&O) liability, insurance and indemnification.

Negotiating and structuring exit transactions in a manner to reduce or eliminate residual risk of entity ownership.

Compliance with SEC executive compensation disclosure requirements, and advice on annual proxy statements, registration statements and for Form S-8 situations involving issuance of stock to employees.

Particular attention to the compensation discussion and analysis (CD&A) language in a public company’s annual proxy statement, providing shareholders material information and perspective about the company’s compensation objectives and policies for the named executive officers (NEOs), explaining the compensation decisions made during the year and the resulting payouts, the compensation strategy, providing a succinct executive summary of the good governance and best practice policies, and including visual illustrations to justify the rational basis for the compensation as a result of the company’s profitability.

Drafting, negotiation and review of compensation plan documents and employee communications, executive employment, severance and change-in-control agreements, proxy statement and Form 8-K disclosure of executive and equity compensation arrangements and Form S-8 registration statements, stock options and other equity-granting mechanisms, Section 16 filings.

Familiarity with the master limited partnership (MLP) structure and issues in relation to IPOs, capital markets offerings, drop-downs, mergers and acquisitions, MLP buy-ins and mergers, incentive distribution right (IDR) waivers and restructurings, preferred unit issuances and other related-party transactions, fairness opinions for conflicts committees of MLPs and lenders to MLPs.

Assistance with identifying strategic business opportunities, collaboration with various departments to analyze business and legal risks involved in strategic commercial relationships, oversight of the legal aspects of financial modeling, spearheading due diligence, driving new business development and corporate finance efforts, coordinating closings, leading integration and operations of newly-integrated business lines, and supporting post-merger integration and post-acquisition strategies.

Last updated 200515_1013