Merger Agreement Among - AND - , - AND

2500: Taxable Reverse Subsidiary Merger
MERGER AGREEMENT AMONG __________ AND ______________, ________ AND __________ _______ ____, _______
TABLE OF CONTENTS 1. Definitions.................................................................................................................................................................4 2. Basic Transaction......................................................................................................................................................7 (a) Merger..................................................................................................................................................................7 (b) Closing.................................................................................................................................................................8 (c) Actions at Closing................................................................................................................................................8 (d) Effect of Merger..................................................................................................................................................8 (e) Procedure for Payment.........................................................................................................................................9 (f) Closing of Transfer Records.................................................................................................................................9 3. Targets Representations and Warranties.................................................................................................................9
(a) Organization, Qualification, and Corporate Power............................................................................................10 (b) Capitalization.....................................................................................................................................................10 (c) Authorization of Transaction.............................................................................................................................10 (d) Non-contravention.............................................................................................................................................10 (e) Filings with SEC................................................................................................................................................11 (f) Financial Statements...........................................................................................................................................11 (g) Events Subsequent to Most Recent Fiscal Quarter End....................................................................................11 (h) Undisclosed Liabilities......................................................................................................................................11 (i) Brokers Fees......................................................................................................................................................11 (j) Disclosure...........................................................................................................................................................11
4. Buyers and Transitory Subsidiarys Representations and Warranties...................................................................12 (a) Organization.......................................................................................................................................................12 (b) Financing...........................................................................................................................................................12 (c) Authorization of Transaction.............................................................................................................................12 (d) Non-contravention.............................................................................................................................................12 (e) Brokers Fees.....................................................................................................................................................13 (f) Disclosure...........................................................................................................................................................13 5. Covenants................................................................................................................................................................13 (a) General...............................................................................................................................................................13 (b) Notices and Consents.........................................................................................................................................13 (c) Regulatory Matters and Approvals....................................................................................................................14 (d) Fairness Opinion and Comfort Letters..............................................................................................................14 (e) Financing............................................................................................................................................................15 (f) Operation of Business........................................................................................................................................15 (g) Full Access.........................................................................................................................................................15 (h) Notice of Developments....................................................................................................................................16 (i) Exclusivity..........................................................................................................................................................16 (j) Insurance and Indemnification...........................................................................................................................16 6. Conditions to Obligation to Close...........................................................................................................................16 (a) Conditions to Buyers and Transitory Subsidiarys Obligation.........................................................................16 (b) Conditions to Targets Obligation.....................................................................................................................18 7. Termination.............................................................................................................................................................19 (a) Termination of Agreement.................................................................................................................................19 (b) Effect of Termination........................................................................................................................................19 8. Miscellaneous.........................................................................................................................................................20 (a) Survival..............................................................................................................................................................20 (b) Press Releases and Public Announcements.......................................................................................................20 (c) No Third-Party Beneficiaries.............................................................................................................................20 (d) Entire Agreement...............................................................................................................................................20 (e) Succession and Assignment...............................................................................................................................20 (f) Counterparts.......................................................................................................................................................20 (g) Headings............................................................................................................................................................20 (h) Notices...............................................................................................................................................................20 (i) Governing Law...................................................................................................................................................21 (j) Amendments and Waivers..................................................................................................................................21 (k) Severability........................................................................................................................................................21 (l) Expenses.............................................................................................................................................................21 (m) Construction......................................................................................................................................................21 (n) Incorporation of Exhibits and Schedules...........................................................................................................22 (o) Tax Disclosure Authorization............................................................................................................................22
Exhibit ACertificate of Merger Exhibit BForm of Indenture Exhibit CForm of Letter of Transmittal Exhibit DPermitted Investments Exhibit EForm of Opinion of Targets Counsel Exhibit FForm of Opinion of Buyers and the Transitory Subsidiarys Counsel Disclosure ScheduleExceptions to Representations and Warranties [EXHIBITS AND SCHEDULES HAVE BEEN OMITTED FROM THIS SAMPLE ACQUISITION AGREEMENT 2500]
MERGER AGREEMENT1
This Merger Agreement (this Agreement) is entered into on [as of] _________ ____, _____, by and among ___________, a ____________ corporation (Buyer), ___________, a [Delaware] corporation and a wholly owned Subsidiary of Buyer (Transitory Subsidiary), and __________, a [Delaware] corporation (Target). Buyer, Transitory Subsidiary, and Target are referred to collectively herein as the Parties.2 This Agreement contemplates a transaction in which Buyer will acquire all of Targets outstanding stock for cash and debentures through a reverse subsidiary merger of Transitory Subsidiary with and into Target.3 Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 1. Definitions.
1 A reverse subsidiary merger is generally treated as a stock sale for federal income tax purposes. See 202. Buyer may choose to make a Code 338 election on a timely basis after an acquisition structured as a taxable reverse subsidiary merger. See 107.1, 204, 205, 403, and 405. If Buyer makes a timely Code 338 election, Target in effect becomes "New Target" immediately following the acquisition date: Target's tax basis in its assets is stepped up (or down) so that Target's aggregate asset basis equals the purchase price (plus Target's liabilities, including tax liabilities generated in the transaction, and Buyer's expenses of the acquisition), and "Old Target's" corporate attributese.g., earnings and profits and tax accounting methodsare expunged for tax purposes. Concomitantly, effective upon the close of the acquisition date, "Old Target" is taxed as if it had sold its assets, i.e., Target is taxed on its full gain or loss inherent in its tangible and intangible assets (including goodwill), with Target's gain or loss on each asset being ordinary or capital in character, depending on the nature of each asset treated as sold. If Buyer intends to make a Code 338 election, it may well be desirable to add language to this Agreement (and to have the board of directors of Target adopt resolutions) stating that New Target "expressly assumes" certain enumerated liabilities (and all other unenumerated liabilities) of the Target that have not yet matured into tax deductions. See 304.4 and 205.12.4. For a discussion of accounting issues see 1703 regarding purchase accounting. Some LBO structures prejudice Target's creditors and hence might permit payments, transfers, liens, and obligations arising out of the LBO to be attacked under fraudulent conveyance law. See 1706. 2 This Agreement contemplates that Buyer will acquire all of the outstanding Target Shares for cash and debentures through the mechanism of a reverse subsidiary merger (i.e., a merger of Transitory Subsidiary with and into Target). The reverse subsidiary merger technique is used when Target has so many shareholders that it would be unwieldy for all of them to become parties to a stock purchase agreement (or when Target has only a few shareholders, but some minority shareholders decline to participate). This Agreement contemplates a single-step reverse subsidiary merger. The Parties would have to modify the Agreement accordingly if the transaction involved a first-step Buyer tender offer for Target's stock followed by a second-step squeeze out merger. See 1702.9. 3 When Transitory Subsidiary merges into Target, Target becomes a subsidiary of Buyer (assuming Buyer is a corporation). Target generally retains all of its assets and rights and remains responsible for all of its liabilities and obligations. Thus it is generally not necessary to prepare asset transfer documents or liability assumption documents in a reverse subsidiary merger, as it is in a purchase of assets. 5
Affiliate has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. Buyer has the meaning set forth in the preface above. Buyer-owned Share means any Target Share that Buyer or Transitory Subsidiary owns beneficially. Buyer Comfort Letter has the meaning set forth in 5(d) below. Buyer Debentures has the meaning set forth in 2(d)(v) below. Certificate of Merger has the meaning set forth in 2(c) below. Closing has the meaning set forth in 2(b) below. Closing Date has the meaning set forth in 2(b) below. Confidential Information means any information concerning the business and affairs of Target and its Subsidiaries that is not already generally available to the public. Definitive Financing Agreements has the meaning set forth in 5(e) below. Definitive Proxy Materials means the definitive proxy materials relating to the Special Meeting. Delaware General Corporation Law means the General Corporation Law of the State of Delaware, as amended.4 Disclosure Schedule has the meaning set forth in 3 below. Dissenting Share means any Target Share held of record by any stockholder who or that has exercised his, her, or its appraisal rights under the Delaware General Corporation Law. Effective Time has the meaning set forth in 2(d)(i) below. Fairness Opinion has the meaning set forth in 5(d) below. Financing Commitments has the meaning set forth in 4(b) below. Form T-1 has the meaning set forth in 5(c)(i) below. GAAP means United States generally accepted accounting principles as in effect from time to time, consistently applied. Hart-Scott-Rodino Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Indenture has the meaning set forth in 2(d)(v) below. Joint Disclosure Document means the disclosure document combining the Prospectus and the Definitive Proxy Materials.
4 This Agreement assumes that Target and Transitory Subsidiary are Delaware corporations. The Parties must modify the Agreement accordingly if Target or Transitory Subsidiary is incorporated under the laws of another jurisdiction. 6
Knowledge means actual knowledge [PRO-BUYER: after reasonable investigation] [PROSELLER: without independent investigation]. Lien means any mortgage, pledge, lien, encumbrance, charge, or other security interest[, other than (a) liens for taxes not yet due and payable [or for taxes that the taxpayer is contesting in good faith through appropriate proceedings], (b) purchase money liens and liens securing rental payments under capital lease arrangements, and (c) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money]. Material Adverse Effect or Material Adverse Change means5 [PRO-BUYER: any effect or change that would be (or could reasonably be expected to be) materially adverse to the business, assets, condition (financial or otherwise), operating results, operations, or business prospects of Target and its Subsidiaries, taken as a whole, or to the ability of Sellers to consummate timely the transactions contemplated hereby (regardless of whether or not such adverse effect or change can be or has been cured at any time or whether Buyer has knowledge of such effect or change on the date hereof), including any adverse change, event, development, or effect arising from or relating to (a) general business or economic conditions, including such conditions related to the business of Target and its Subsidiaries, (b) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (c) financial, banking, or securities markets (including any suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange, American Stock Exchange, or Nasdaq Stock Market for a period in excess of three hours or any decline of either the Dow Jones Industrial Average or the Standard & Poors Index of 500 Industrial Companies by an amount in excess of 15% measured from the close of business on the date hereof), (d) changes in United States generally accepted accounting principles, (e) changes in laws, rules, regulations, orders, or other binding directives issued by any governmental entity, and (f) the taking of any action contemplated by this Agreement and the other agreements contemplated hereby.] [PRO-SELLER: any effect or change that would be materially adverse to the business of Target and its Subsidiaries, taken as a whole, or to the ability of any Party to consummate timely the transactions contemplated hereby; provided that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect or Material Adverse Change: (a) any adverse change, event, development, or effect [(other than in the case of (1) through (6) below, a change, event, development, or effect that adversely impacts Target and its Subsidiaries disproportionately compared to their competitors)6] arising from or relating to (1) general business or economic conditions [affecting the industry in which Target and its Subsidiaries operate], including such conditions related to the business of Target and its Subsidiaries, (2) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or
5 The pro-buyer definition of "Material Adverse Effect" and "Material Adverse Change" specifically includes such items as changes in general business conditions, hostilities involving the United States, changes in financial market conditions, changes in laws, and changes arising from actions taken pursuant to this Agreement, and also includes such items regardless of whether Buyer had knowledge of such effect or change as of the date of the agreement and whether such effect or change has been cured. The pro-seller definition specifically excludes such items and also excludes any such adverse effect or change of which Buyer had knowledge as of the date of the agreement or that has been cured. The neutral definition contains only the general definition set forth above and omits the specific clarifications contained in the pro-buyer and pro-seller versions. 6 This parenthetical language cuts back on the pro-seller nature of exceptions (1) through (5). 7
consular offices or upon any military installation, equipment or personnel of the United States, (3) financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (4) changes in United States generally accepted accounting principles, (5) changes in laws, rules, regulations, orders, or other binding directives issued by any governmental entity, or (6) the taking of any action contemplated by this Agreement and the other agreements contemplated hereby, (b) any existing event, occurrence, or circumstance with respect to which Buyer has knowledge as of the date hereof, and (c) any adverse change in or effect on the business of Target and its Subsidiaries that is cured by Target before the earlier of (1) the Closing Date and (2) the date on which this Agreement is terminated pursuant to 7 hereof.] [NEUTRAL: any effect or change that would be materially adverse to the business, assets, condition (financial or otherwise), operating results, operations, or business prospects of Target and its Subsidiaries, taken as a whole, or to the ability of any Party to consummate timely the transactions contemplated hereby.] Merger has the meaning set forth in 2(a) below. Merger Consideration has the meaning set forth in 2(d)(v) below. Most Recent Fiscal Quarter End has the meaning set forth in 3(f) below. Ordinary Course of Business means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). Party has the meaning set forth in the preface above. Paying Agent has the meaning set forth in 2(e) below. Payment Fund has the meaning set forth in 2(e) below. Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity, or a governmental entity (or any department, agency, or political subdivision thereof). Prospectus means the final prospectus relating to the registration of the Buyer Debentures under the Securities Act. Public Reports has the meaning set forth in 3(e) below. Registration Statement has the meaning set forth in 5(c)(i) below. Requisite Stockholder Approval means the affirmative vote of the holders of [a majority] of the Target Shares in favor of this Agreement and the Merger.7 SEC means the Securities and Exchange Commission. Securities Act means the Securities Act of 1933, as amended. Securities Exchange Act means the Securities Exchange Act of 1934, as amended.
7 The Parties should determine whether any statute (e.g., the Delaware General Corporation Law) or corporate document (e.g., the charter or bylaws of the Target) imposes any supermajority or class vote requirement for the Merger. It may be necessary to revise this definition if Target has additional classes of capital stock. 8
Special Meeting has the meaning set forth in 5(c)(ii) below. Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation), a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entitys gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation). The term Subsidiary shall include all Subsidiaries of such Subsidiary. Surviving Corporation has the meaning set forth in 2(a) below. Target has the meaning set forth in the preface above. Target Comfort Letter has the meaning set forth in 5(d) below. Target Share means any share of the common stock, $____________ par value per share, of Target.8 Target Stockholder means any Person who or that holds any Target Shares. Transitory Subsidiary has the meaning set forth in the preface above. Trust Indenture Act means the Trust Indenture Act of 1939, as amended. 2. Basic Transaction.9 (a) Merger. On and subject to the terms and conditions of this Agreement, Transitory Subsidiary will merge with and into Target (the Merger) at the Effective Time. Target shall be the corporation surviving the Merger (the Surviving Corporation). (b) Closing. The closing of the transactions contemplated by this Agreement (the Closing) shall take place at the offices of _______________, in ______________, ____________, commencing at 9:00 a.m. local time on the [second] business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as the Parties may mutually determine (the Closing Date); provided, however, that the Closing Date shall be no earlier than _________ ____, _____. (c) Actions at Closing. At the Closing, (i) Target will deliver to Buyer and Transitory Subsidiary the various certificates, instruments, and documents referred to in 6(a) below, (ii) Buyer and Transitory Subsidiary will deliver to Target the various certificates, instruments, and documents referred to in 6(b)
8 It may be necessary to revise this definition if Target has additional classes of capital stock. 9 Target may seek to have Buyer make an earnest-money deposit upon execution of this Agreement. If the Merger is thereafter completed, the deposit would be applied against the Merger Consideration. If the Merger is thereafter aborted, the deposit would be refunded to Buyer or paid to Target as liquidated damages depending upon the terms of this Agreement and the reasons for the termination. 9
below, (iii) Target and Transitory Subsidiary will file with the Secretary of State of the State of [Delaware] a Certificate of Merger in the form attached hereto as Exhibit A (the Certificate of Merger), and (iv) Buyer will cause Surviving Corporation to deliver the Payment Fund to the Paying Agent in the manner provided below in this 2. (d) Effect of Merger. (i) General. The Merger shall become effective at the time (the Effective Time) Target and Transitory Subsidiary file the Certificate of Merger with the Secretary of State of the State of [Delaware]. The Merger shall have the effect set forth in the Delaware General Corporation Law. Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either Target or Transitory Subsidiary in order to carry out and effectuate the transactions contemplated by this Agreement. (ii) Certificate of incorporation. The certificate of incorporation of Surviving Corporation shall be amended and restated at and as of the Effective Time to read as did the certificate of incorporation of Transitory Subsidiary immediately prior to the Effective Time (except that the name of Surviving Corporation will remain unchanged). (iii) Bylaws. The bylaws of Surviving Corporation shall be amended and restated at and as of the Effective Time to read as did the bylaws of Transitory Subsidiary immediately prior to the Effective Time (except that the name of Surviving Corporation will remain unchanged). (iv) Directors and Officers. The directors and officers of Transitory Subsidiary shall become the directors and officers of Surviving Corporation at and as of the Effective Time (retaining their respective positions and terms of office). (v) Conversion of Target Shares.10 At and as of the Effective Time, (A) each Target Share (other than any Dissenting Share or Buyer-owned Share) shall be converted into the right to receive an amount (the Merger Consideration) equal to $__________ in cash (without interest) plus $__________ in principal amount of debentures (the Buyer Debentures) issued by Buyer and having the terms and provisions set forth in an indenture in the form attached hereto as Exhibit B (the Indenture), (B) each Dissenting Share shall be converted into the right to receive payment from Surviving Corporation with respect thereto in accordance with the provisions of the Delaware General Corporation Law, and (C) each Buyer-owned Share shall be cancelled; provided, however, that the Merger Consideration shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split, or other change in the number of Target Shares outstanding. No Target Share shall be deemed to be outstanding or to have any rights other than those set forth above in this 2(d)(v) after the Effective Time.11 (vi) Conversion of Transitory Subsidiarys Capital Stock. At and as of the Effective Time, each share of Transitory Subsidiarys common stock, $_____________ par value per share, shall be converted into one share of Surviving Corporations common stock, $___________ par value per share. (e) Procedure for Payment. (i) Immediately after the Effective Time, (A) Buyer will cause Surviving Corporation to furnish
10 It may be necessary to revise this 2(d)(v) if Target has additional classes of capital stock. See the definition of Target Shares in 1 above. 11 It may be necessary or desirable to issue the Buyer Debentures only in integral multiples of $1,000. In that event, the Parties will have to address the disposition of fractional interests (e.g., Buyer could cause the Paying Agent to sell the aggregate fractional interest in the public market and distribute the cash proceeds pro rata among former Target Stockholders who or that otherwise would have been entitled to receive the fractional interests). 10
to _____________ (the Paying Agent) a corpus (the Payment Fund) consisting of cash and Buyer Debentures (registered in the name of the Paying Agent or its nominee) sufficient in the aggregate for the Paying Agent to make full payment of the Merger Consideration to the holders of all of the outstanding Target Shares (other than any Dissenting Shares and Buyer-owned Shares) and (B) Buyer will cause the Paying Agent to mail a letter of transmittal (with instructions for its use) in the form attached hereto as Exhibit C to each record holder of outstanding Target Shares for the holder to use in surrendering the certificates that represented his, her, or its Target Shares against payment of the Merger Consideration. No interest will accrue or be paid to the holder of any outstanding Target Shares (other than any interest on the Buyer Debentures in accordance with their terms). (ii) Buyer may cause the Paying Agent to invest the cash included in the Payment Fund in one or more of the permitted investments set forth on Exhibit D attached hereto; provided, however, that the terms and conditions of the investments shall be such as to permit the Paying Agent to make prompt payment of the Merger Consideration as necessary. Buyer may cause the Paying Agent to pay over to Surviving Corporation any net earnings with respect to the investments, and Buyer will cause Surviving Corporation to replace promptly any portion of the Payment Fund that the Paying Agent loses through investments. (iii) Buyer may cause the Paying Agent to pay over to Surviving Corporation any portion of the Payment Fund (including any earnings thereon) remaining [180 days] after the Effective Time, and thereafter all former stockholders shall be entitled to look to Surviving Corporation (subject to abandoned property, escheat, and other similar laws) as general creditors thereof with respect to the cash and Buyer Debentures payable upon surrender of their certificates. (iv) Buyer shall cause Surviving Corporation to pay all charges and expenses of the Paying Agent. (f) Closing of Transfer Records. After the close of business on the Closing Date, transfers of Target Shares outstanding prior to the Effective Time shall not be made on the stock transfer books of Surviving Corporation. 3. Targets Representations and Warranties.12 Target represents and warrants to Buyer and
12 This Agreement assumes that Target is a publicly held company and thus contains very limited representations and warranties about Target and its Subsidiaries (based primarily on the Public Reports) and no post-Closing indemnification from Target Stockholders. Public company acquisitions often contain limited representations and warranties and typically contain no post-Closing indemnification from Target's Stockholders for two reasons. First, Buyer has the comfort of the substantial public information about Target and its Subsidiaries available in the Public Reports and hence the risk of material undisclosed liabilities and other breaches of representations and warranties is reduced. Second, the Merger Consideration is generally disbursed to Target Stockholders as soon as the Merger is effective, so that collection on Buyer's indemnification claims would be difficult. Although an escrow for a portion of the Merger Consideration is feasible, it is not frequently used. If Target is either publicly or privately held, Buyer may seek extensive representations and warranties about Target and its Subsidiaries and, if Target is privately held, Buyer may seek post-Closing indemnification from Target stockholders against any breaches thereof. Sample acquisition agreement 2201 (the pro-buyer stock purchase agreement) contains provisions which are more favorable to Buyer in this respect than the provisions in this sample acquisition agreement 2500. Indeed, even sample acquisition agreement 2202 (the pro-seller stock purchase agreement) contains provisions which are more favorable to Buyer in this respect than the provisions in this sample acquisition agreement 2500 (but of course not as favorable to Buyer as the provisions in sample acquisition agreement 2201). Naturally the acquisition documents covering an actual transaction must be carefully tailored to the economic terms and the risk-sharing arrangements agreed upon by the parties. It is therefore unlikely that any 11
Transitory Subsidiary that the statements contained in this 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this 3), except as set forth in the disclosure schedule accompanying this Agreement and initialed by the Parties (the Disclosure Schedule).13 The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this 3. (a) Organization, Qualification, and Corporate Power. Each of Target and its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each of Target and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required [PRO-SELLER:, except where the lack of such qualification would not have a Material Adverse Effect]. Each of Target and its Subsidiaries has full corporate power and authority to carry on the business in which it is engaged and to own and use the properties owned and used by it. (b) Capitalization. The entire authorized capital stock of Target consists of __________ Target Shares, of which ________ Target Shares are issued and outstanding and _________ Target Shares are held in treasury.14 All of the issued and outstanding Target Shares have been duly authorized and arevalidly issued, fully paid, and non-assessable. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Target to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Target. (c) Authorization of Transaction. Target has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder; provided, however, that Target cannot consummate the Merger unless and until it receives the Requisite Stockholder Approval. This Agreement constitutes the valid and legally binding obligation of Target, enforceable in accordance with its terms and conditions. (d) Non-contravention. [PRO-SELLER: To the Knowledge of any director or officer of Target,] neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Target or any of its Subsidiaries is subject or any provision of the charter or bylaws of Target or any of its Subsidiaries or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any
sample acquisition agreement is ever appropriate in its entirety for a particular negotiated transaction. Indeed, in preparing the acquisition documents for a particular negotiated transaction, it is frequently necessary to mix and match between sample acquisition agreements, i.e., to use parts of several. When one portion of a sample acquisition agreement is changed, however, all appropriate changes must be made in other parts of the sample acquisition agreement, because many clauses of a sample acquisition agreement are interrelated. 13 Because Target Stockholders have no obligation to indemnify Buyer after the Closing for any breach of this Agreement, these representations and warranties in effect serve only as closing conditions for Buyer. See the closing condition in 6(a)(iii) below. Buyer does not, however, have any closing condition with respect to any adverse matter that Target discloses in the Disclosure Schedule. This is because the disclosure cures any misrepresentation or breach of warranty that might otherwise have existed. Thus, if Target reveals an adverse matter in the Disclosure Schedule, Buyer may seek to add a specific closing condition requiring an acceptable resolution of the matter. 14 It may be necessary to revise this sentence if Target has more than one class of capital stock. See the definition of Target Shares in 1 above. 12
notice under any agreement, contract, lease, license, instrument, or other arrangement to which Target or any of its Subsidiaries is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of its assets) [PRO-SELLER:, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Lien would not have a Material Adverse Effect]. [PRO-SELLER: To the Knowledge of any director or officer of Target, and] other than in connection with the provisions of the Hart-Scott-Rodino Act, the Delaware General Corporation Law, the Securities Exchange Act, the Securities Act, the Trust Indenture Act, and the state securities laws, neither Target nor any of its Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement [PRO-SELLER:, except where the failure to give notice, to file, or to obtain any authorization, consent, or approval would not have a Material Adverse Effect]. (e) Filings with SEC. Target has made all filings with SEC that it has been required to make [PROSELLER: within the past [3] years] under the Securities Act and the Securities Exchange Act (collectively the Public Reports). Each of the Public Reports has complied with the Securities Act and the Securities Exchange Act in all material respects. None of the Public Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Target has delivered to Buyer a correct and complete copy of each Public Report (together with all exhibits and schedules thereto and as amended to date). (f) Financial Statements. Target has filed quarterly reports on Form 10-Q for the fiscal quarters ended _________ ____, _____ (the Most Recent Fiscal Quarter End), _________ ____, _____, and _________ ____, _____ and an annual report on Form 10-K for the fiscal year ended _________ ____, _____. The financial statements included in or incorporated by reference into these Public Reports (including the related notes and schedules) have been prepared in accordance with GAAP throughout the periods covered thereby[,] [and] present fairly the financial condition of Target and its Subsidiaries as of the indicated dates and the results of operations of Target and its Subsidiaries for the indicated periods [PRO-BUYER:, are correct and complete in all respects, and are consistent with the books and records of Target and its Subsidiaries]; provided, however, that the interim statements are subject to normal year-end adjustments. (g) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most Recent Fiscal Quarter End, there has not been any Material Adverse Change.15 (h) Undisclosed Liabilities. [PRO-BUYER: Neither Target nor any of its Subsidiaries has any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for taxes, except for (i) liabilities set forth on the face of the balance sheet dated as of the Most Recent Fiscal Quarter End (rather than in any notes thereto) and (ii) liabilities that have arisen after the Most Recent Fiscal Quarter End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law).] (i) Brokers Fees. Neither Target nor any of its Subsidiaries has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (j) Disclosure. The Definitive Proxy Materials will comply with the Securities Exchange Act in all
15 See 1 above which provides a pro-buyer, pro-seller, and neutral definition of Material Adverse Change. 13
material respects. The Definitive Proxy Materials will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they will be made, not misleading; provided, however, that Target makes no representation or warranty with respect to any information that Buyer and Transitory Subsidiary will supply specifically for use in the Definitive Proxy Materials. None of the information that Target will supply specifically for use in the Registration Statement or the Prospectus will contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they will be made, not misleading. 4. Buyers and Transitory Subsidiarys Representations and Warranties.16 Each of Buyer and Transitory Subsidiary represents and warrants to Target that the statements contained in this 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this 4), except as set forth in the Disclosure Schedule. 17 The Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this 4. (a) Organization. Each of Buyer and Transitory Subsidiary is a corporation (or other entity) duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation (or other formation). (b) Financing. [Buyer has furnished to Target correct and complete copies of written commitments from third parties (the Financing Commitments) committing to provide Buyer and Transitory Subsidiary with all of the financing they will require in order to consummate the Merger and fund the working capital needs of Surviving Corporation and its Subsidiaries after the Closing.]18 (c) Authorization of Transaction. Each of Buyer and Transitory Subsidiary has full power and authority (including full corporate or other entity power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of each of Buyer and Transitory Subsidiary, enforceable in accordance with its terms and conditions. (d) Non-contravention. [PRO-BUYER: To the Knowledge of any director or officer of Buyer,] neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment,
16 Target may seek to obtain additional representations and warranties concerning Buyer and its Subsidiaries (e.g., the typical representations and warranties contained in a loan agreement or an underwriting agreement) because Target Stockholders are receiving the Buyer Debentures in the Merger as part of the Merger Consideration. Any such representations and warranties would normally survive the Closing and remain applicable for so long as the Buyer Debentures remained outstanding. 17 Because Buyer has no obligation to indemnify Target Stockholders after the Closing for any breach of this Agreement, these representations and warranties in effect serve only as closing conditions for Target. See the closing condition in 6(b)(iii) below. However, Target has no closing condition with respect to any adverse matter that Buyer reveals in the Disclosure Schedule. This is because the disclosure cures any misrepresentation or breach of warranty that might otherwise have existed. Thus, if Buyer reveals an adverse matter in the Disclosure Schedule, Target may seek to add a specific closing condition requiring an acceptable resolution of the matter. 18 If Target agrees to give Buyer a closing condition concerning financing, Target in return may seek a representation and warranty to the effect that Buyer has already obtained financing commitments and a covenant to the effect that Buyer will use its [reasonable] best efforts to enter into definitive financing agreements as soon as practicable. See 5(e) and 6(a)(xi) below. 14
order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which either Buyer or Transitory Subsidiary is subject or any provision of the charter, bylaws, or other governing documents of either Buyer or Transitory Subsidiary or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which either Buyer or Transitory Subsidiary is a party or by which it is bound or to which any of its assets is subject [PRO-BUYER:, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a Material Adverse Effect on the ability of the Parties to consummate the transactions contemplated by this Agreement]. [PRO-BUYER: To the Knowledge of any director or officer of Buyer, and] other than in connection with the provisions of the Hart-Scott-Rodino Act, the Delaware General Corporation Law, the Securities Exchange Act, the Securities Act, the Trust Indenture Act, and the state securities laws, neither Buyer nor Transitory Subsidiary needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement [PRO-BUYER:, except where the failure to give notice, to file, or to obtain any authorization, consent, or approval would not have a Material Adverse Effect on the ability of the Parties to consummate the transactions contemplated by this Agreement.] (e) Brokers Fees. Neither Buyer nor Transitory Subsidiary has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Target or any of its Subsidiaries could become liable or obligated. (f) Disclosure. The Registration Statement and the Prospectus will comply with the Securities Act in all material respects. The Registration Statement and the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they will be made, not misleading; provided, however, that Buyer and Transitory Subsidiary make no representation or warranty with respect to any information that Target will supply specifically for use in the Registration Statement and the Prospectus. None of the information that Buyer and Transitory Subsidiary will supply specifically for use in the Definitive Proxy Materials will contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they will be made, not misleading. 5. Covenants.19 The Parties agree as follows with respect to the period from and after the execution of this Agreement.20 (a) General. Each of the Parties will use its [reasonable] best efforts to take all actions and to do all things necessary[, proper, or advisable] in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set
19 Target Stockholders may seek to obtain additional covenants from Buyer and its Subsidiaries (e.g., the typical covenants contained in a loan agreement or indenture) because Buyer is issuing the Buyer Debentures to Target Stockholders in the Merger as part of the Merger Consideration. Any such covenants would remain applicable so long as the Buyer Debentures remained outstanding. 20 The Parties are likely to incur significant costs and expenses in connection with the transaction. For example, the Parties and their agents will have to (a) prepare and/or review this Agreement, the Disclosure Schedule, and the Joint Disclosure Document, (b) make filings under the Securities Act and the Securities Exchange Act and respond to comments thereon, (c) make filings under the Hart-Scott-Rodino Act and respond to requests for additional information, (d) obtain the Fairness Opinion, the Target Comfort Letter, and the Buyer Comfort Letter, and (e) give notices to third parties and obtain their consents. 8(l) below allocates responsibility among the respective parties for these costs and expenses through the Closing. 15
forth in 6 below). (b) Notices and Consents. Target will give any notices (and will cause each of its Subsidiaries to give any notices) to third parties, and will use its [reasonable] best efforts to obtain (and will cause each of its Subsidiaries to use its [reasonable] best efforts to obtain) any third-party consents referred to in 3(d) above and the items set forth in 5(b) of the Disclosure Schedule. (c) Regulatory Matters and Approvals. Each of the Parties will (and Target will cause each of its Subsidiaries to) give any notices to, make any filings with, and use its [reasonable] best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in 3(d) and 4(d) above. Without limiting the generality of the foregoing: (i) Securities Act, Securities Exchange Act, Trust Indenture Act, and State Securities Laws. Target will prepare and file with SEC preliminary proxy materials under the Securities Exchange Act relating to the Special Meeting. Buyer will prepare and file with SEC a registration statement under the Securities Act relating to the offering and issuance of the Buyer Debentures (the Registration Statement) and a statement of eligibility and qualification under the Trust Indenture Act (the Form T-I) relating to the trustee under the Indenture. The filing Party in each instance will use its [reasonable] best efforts to respond to the comments of SEC thereon and will make any further filings (including amendments and supplements) in connection therewith that may be necessary[, proper, or advisable]. Buyer will provide Target, and Target will provide Buyer, with whatever information and assistance in connection with the foregoing filings the filing Party may [reasonably] request. Buyer will take all actions that may be necessary[, proper, or advisable] under state securities laws in connection with the offering and issuance of the Buyer Debentures.21 (ii) Delaware General Corporation Law. Target will call a special meeting of its stockholders (the Special Meeting) as soon as [reasonably] practicable in order that the stockholders may consider and vote upon the adoption of this Agreement and the approval of the Merger in accordance with the Delaware General Corporation Law. Target will mail the Joint Disclosure Document to its stockholders as soon as [reasonably] practicable. The Joint Disclosure Document will contain the affirmative recommendation of the board of directors of Target in favor of the adoption of this Agreement and the approval of the Merger; provided, however, that no director or officer of Target shall be required to violate any fiduciary duty or other requirement imposed by law in connection therewith. (iii) Hart-Scott-Rodino Act. Each of the Parties will file (and Target will cause each of its Subsidiaries to file) any Notification and Report Forms and related material that it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart-Scott-Rodino Act, will use its [reasonable] best efforts to obtain (and Target will cause each of its Subsidiaries to use its [reasonable] best efforts to obtain) an early termination of the applicable waiting period, and will make (and Target will cause each of its Subsidiaries to make) any further filings pursuant thereto that may be necessary[, proper, or advisable]. (d) Fairness Opinion and Comfort Letters. Target will deliver to Buyer and Transitory Subsidiary on or before the date the Joint Disclosure Document is mailed to the stockholders of Target (i) an opinion of [TARGETS INVESTMENT BANK] as to the fairness of the Merger to Target Stockholders from a financial point of view (the Fairness Opinion) and (ii) a letter of [TARGETS ACCOUNTING FIRM] stating their conclusions as to the accuracy of certain information derived from the financial records of Target and its Subsidiaries and contained in the Joint Disclosure Document (the Target Comfort Letter).
21 The Parties should determine whether any additional filings will be required under the Securities Act, the Securities Exchange Act, the Trust Indenture Act, and state securities laws (such as reports of ownership on Schedule 13D and transaction statements on Schedule 13E-3). This especially might be the case in transactions with management participation. 16
Each of the Fairness Opinion and the Target Comfort Letter shall be [reasonably] satisfactory to Buyer and Transitory Subsidiary in form and substance. Buyer and Transitory Subsidiary will deliver to Target on or before the date the Joint Disclosure Document is mailed to the stockholders of Target a letter of [BUYERS ACCOUNTING FIRM] stating their conclusions as to the accuracy of certain information derived from the financial records of Buyer and its Subsidiaries and contained in the Joint Disclosure Document (the Buyer Comfort Letter). The Buyer Comfort Letter shall be [reasonably] satisfactory to Target in form and substance. (e) Financing. [Buyer and Transitory Subsidiary will use their [reasonable] best efforts to enter into definitive agreements (the Definitive Financing Agreements) as soon as [reasonably] practicable on terms and conditions substantially in accordance with the Financing Commitments. Buyer will furnish correct and complete copies of the Definitive Financing Agreements to Target. In the event any or all of the financing becomes unavailable for any reason, Buyer will use its [reasonable] best efforts to obtain replacement financing on substantially equivalent terms and conditions from alternative sources. Any provision of this Agreement to the contrary notwithstanding, Target will not have any obligation to mail the Joint Disclosure Document to its stockholders until Buyer has delivered copies of the Definitive Financing Agreements to Target.]22 (f) Operation of Business.23 Target will not (and will not cause or permit any of its Subsidiaries to) engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing: (i) neither Target nor any of its Subsidiaries will authorize or effect any change in its charter or bylaws; (ii) neither Target nor any of its Subsidiaries will grant any options, warrants, or other rights to purchase or obtain any of its stock or issue, sell, or otherwise dispose of any of its capital stock (except upon the conversion or exercise of options, warrants, and other rights currently outstanding); (iii) neither Target nor any of its Subsidiaries will declare, set aside, or pay any dividend or distribution with respect to its stock (whether in cash or in kind), or redeem, repurchase, or otherwise acquire any of its capital stock[, in either case outside the Ordinary Course of Business]; (iv) neither Target nor any of its Subsidiaries will issue any note, bond, or other debt security or create, incur, assume, or guarantee any indebtedness for borrowed money or capitalized lease obligation outside the Ordinary Course of Business; (v) neither Target nor any of its Subsidiaries will impose any Lien upon any of its assets outside the Ordinary Course of Business; (vi) neither Target nor any of its Subsidiaries will make any capital investment in, make any loan to, or acquire the securities or assets of any other Person outside the Ordinary Course of Business; (vii) neither Target nor any of its Subsidiaries will make any change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; and
22 If Target agrees to give Buyer a closing condition concerning financing, Target in return may seek a representation and warranty to the effect that Buyer has already obtained financing commitments and a covenant to the effect that Buyer will use its [reasonable] best efforts to enter into definitive financing agreements as soon as practicable. See 4(b) above and 6(a)(xi) below. 23 Buyer may seek to expand upon the specific prohibitions in this covenant. Sample acquisition agreement 2201 (the pro-buyer stock purchase agreement) contains provisions more favorable to Buyer in this regard. Target may seek to narrow (or even eliminate) the specific prohibitions in this covenant. Sample acquisition agreement 2202 (the pro-seller stock purchase agreement) contains provisions more favorable to Target in this regard. 17
(viii) neither Target nor any of its Subsidiaries will commit to any of the foregoing. (g) Full Access. Target will (and will cause each of its Subsidiaries to) permit representatives of Buyer (including legal counsel and accountants) to have full access [PRO-SELLER: at all reasonable times, and in a manner so as not to interfere with the normal business operations of Target and its Subsidiaries,] to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to Target and each of its Subsidiaries. Each of Buyer and the Transitory Subsidiary will treat and hold as such any Confidential Information it receives from Target or any of its Subsidiaries in the course of the reviews contemplated by this 5(g), will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, agrees to return to Target all tangible embodiments (and all copies) thereof that are in its possession. (h) Notice of Developments. Each Party will give prompt written notice to the others of any material adverse development causing a breach of any of its own representations and warranties in 3 and 4 above. No disclosure by any Party pursuant to this 5(h), however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (i) Exclusivity. Target will not (and will not cause or permit any of its Subsidiaries to) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of all or substantially all of the capital stock or assets of Target or any of its Subsidiaries (including any acquisition structured as a merger, consolidation, or share exchange); provided, however, that Target, its Subsidiaries, and their directors and officers will remain free to participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing to the extent their fiduciary duties may require. [PRO-BUYER: Target shall notify Buyer immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.] (j) Insurance and Indemnification. (i) [PRO-SELLER: Buyer will provide each individual who served as a director or officer of Target at any time prior to the Effective Time with liability insurance for a period of [48 months] after the Effective Time no less favorable in coverage and amount than any applicable insurance in effect immediately prior to the Effective Time] [PRO-BUYER: ; provided, however, that Buyer may reduce the coverage and amount of liability insurance to the extent the cost of liability insurance having the full coverage and amount would exceed $_____________ per annum]. (ii) Buyer will not take any action to alter or impair any exculpatory or indemnification provisions now existing in the certificate of incorporation or bylaws of Target for the benefit of any individual who served as a director or officer of Target at any time prior to the Effective Time. (iii) [PRO-SELLER: Buyer will indemnify each individual who served as a director or officer of Target at any time prior to the Effective Time from and against any and all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, Liens, losses, expenses, and fees, including all court costs and [reasonable] attorneys fees and expenses, resulting from, arising out of, relating to, in the nature of, or caused by this Agreement or any of the transactions contemplated herein.] 6. Conditions to Obligation to Close. (a) Conditions to Buyers and Transitory Subsidiarys Obligation. The obligation of each of Buyer and Transitory Subsidiary to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:
18
(i) this Agreement and the Merger shall have received the Requisite Stockholder Approval [PROBUYER: and the number of Dissenting Shares shall not exceed ________% of the number of outstanding Target Shares]; (ii) [PRO-BUYER: Target and its Subsidiaries shall have procured all of the third-party consents specified in 5(b) above;]24 (iii) the representations and warranties set forth in 3 above shall be true and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term material, or contain terms such as Material Adverse Effect or Material Adverse Change, in which case such representations and warranties (as so written, including the term material or Material) shall be true and correct in all respects at and as of the Closing Date;25 (iv) Target shall have performed and complied with all of its covenants hereunder in all material respects through the Closing, except to the extent that such covenants are qualified by the term material, or contain terms such as Material Adverse Effect or Material Adverse Change, in which case Target shall have performed and complied with all of such covenants (as so written, including the term material or Material) in all respects through the Closing; (v) [PRO-BUYER: no action, suit, or proceeding shall be pending or threatened before (or that could come before) any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before (or that could come before) any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) adversely affect the right of Buyer to own the capital stock of Surviving Corporation and to control Surviving Corporation and its Subsidiaries, or (D) adversely affect the right of any of Surviving Corporation and its Subsidiaries to own its assets and to operate its business (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);] [PRO-SELLER: there shall not be any judgment, order, decree, stipulation, injunction, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement;] (vi) Target shall have delivered to Buyer and Transitory Subsidiary a certificate to the effect that each of the conditions specified above in 6(a)(i)-(v) is satisfied in all respects; (vii) the Registration Statement shall have become effective under the Securities Act; (viii) [all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the Parties shall have received all other authorizations, consents, and approvals of governments and governmental agencies referred to in 3(d) and 4(d) above]; (ix) Buyer and Transitory Subsidiary shall have received from counsel to Target an opinion in form and substance as set forth in Exhibit E attached hereto, addressed to Buyer and Transitory Subsidiary and on which Buyers lenders shall be entitled to rely, and dated as of the Closing Date;
24 Buyer may also seek covenants and closing conditions concerning title insurance and surveys to be delivered at the Closing. Sample acquisition agreement 2201 (the pro-buyer stock purchase agreement) contains provisions that are more favorable to Buyer in this regard. 25 Note that this provision does not give Buyer any closing condition with respect to any adverse matter that Target may disclose in the Disclosure Schedule. This is because the disclosure cures any misrepresentation or breach of warranty that might otherwise have existed. Thus, if Target discloses an adverse matter in the Disclosure Schedule, Buyer may seek to add a specific closing condition requiring an acceptable resolution of the matter. 19
(x) [PRO-BUYER: Buyer and Transitory Subsidiary shall have received the resignations, effective as of the Closing, of each director and officer of Target and its Subsidiaries other than those whom Buyer shall have specified in writing at least [5] business days prior to the Closing;] (xi) [PRO-BUYER: Buyer and Transitory Subsidiary shall have obtained all of the financing they will require in order to consummate the Merger and fund the working capital needs of Surviving Corporation and its Subsidiaries after the Closing on terms and conditions substantially in accordance with the Financing Commitments;]26 and (xii) all actions to be taken by Target in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be [reasonably] satisfactory in form and substance to Buyer and Transitory Subsidiary. Buyer and Transitory Subsidiary may waive any condition specified in this 6(a) if they execute a writing so stating at or prior to the Closing. (b) Conditions to Targets Obligation. The obligation of Target to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the Registration Statement shall have become effective under the Securities Act; (ii) [CONFORM TO BUYERS CLOSING CONDITION IN 6(a)(xi) ABOVE]; (iii) the representations and warranties set forth in 4 above shall be true and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term material, or contain terms such as Material Adverse Effect or Material Adverse Change, in which case such representations and warranties (as so written, including the term material or Material) shall be true and correct in all respects at and as of the Closing Date; (iv) each of Buyer and Transitory Subsidiary shall have performed and complied with all of its covenants hereunder in all material respects through the Closing, except to the extent that such covenants are qualified by the term material, or contain terms such as Material Adverse Effect or Material Adverse Change, in which case Buyer and Transitory Subsidiary shall have performed and complied with all of such covenants (as so written, including the term material or Material) in all respects through the Closing; (v) [CONFORM TO BUYERS CLOSING CONDITION IN 6(a)(v) ABOVE]; (vi) each of Buyer and Transitory Subsidiary shall have delivered to Target a certificate to the effect that each of the conditions specified above in 6(b)(i)-(v) is satisfied in all respects; (vii) this Agreement and the Merger shall have received the Requisite Stockholder Approval; (viii) [all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the Parties shall have received all other authorizations, consents, and approvals of governments and governmental agencies referred to in 3(d) and 4(d) above];
26 If Target agrees to give Buyer a closing condition concerning financing, Target in return may seek a representation and warranty to the effect that Buyer has already obtained financing commitments and a covenant to the effect that Buyer will use its [reasonable] best efforts to enter into definitive financing agreements as soon as practicable. See 4(b) and 5(e) above. 20
(ix) Target shall have received from counsel to Buyer and Transitory Subsidiary an opinion in form and substance as set forth in Exhibit F attached hereto, addressed to Target, and dated as of the Closing Date; and (x) all actions to be taken by Buyer and Transitory Subsidiary in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be [reasonably] satisfactory in form and substance to Target. Target may waive any condition specified in this 6(b) if it executes a writing so stating at or prior to the Closing. 7. Termination. (a) Termination of Agreement. Any of the Parties may terminate this Agreement with the prior authorization of its board of directors (whether before or after stockholder approval) as provided below: (i) the Parties may terminate this Agreement by mutual written consent at any time prior to the Effective Time; (ii) Buyer and Transitory Subsidiary may terminate this Agreement by giving written notice to Target at any time prior to the Effective Time (A) in the event Target has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer or Transitory Subsidiary has notified Target of the breach, and the breach has continued without cure for a period of [30 days] after the notice of breach or (B) if the Closing shall not have occurred on or before _________ ____, _____, by reason of the failure of any condition precedent under 6(a) hereof (unless the failure results primarily from Buyer or Transitory Subsidiary breaching any representation, warranty, or covenant contained in this Agreement); (iii) Target may terminate this Agreement by giving written notice to Buyer and Transitory Subsidiary at any time prior to the Effective Time (A) in the event Buyer or Transitory Subsidiary has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Target has notified Buyer and Transitory Subsidiary of the breach, and the breach has continued without cure for a period of [30 days] after the notice of breach or (B) if the Closing shall not have occurred on or before _________ ____, _____, by reason of the failure of any condition precedent under 6(b) hereof (unless the failure results primarily from Target breaching any representation, warranty, or covenant contained in this Agreement); (iv) [PRO-SELLER: Target may terminate this Agreement by giving written notice to Buyer and Transitory Subsidiary at any time prior to [Requisite Stockholder Approval] [the Effective Time] in the event Targets board of directors concludes that termination would be in the best interests of Target and its stockholders;] 27 (v) any Party may terminate this Agreement by giving written notice to the other Parties at any time prior to the Effective Time in the event the Fairness Opinion is withdrawn; or (vi) any Party may terminate this Agreement by giving written notice to the other Parties at any
27 This pro-seller provision (as drafted) permits Target to terminate the Agreement whether or not Target has received a third party competing offer. A more neutral approach (in the absence of a higher offer) would be to (i) permit Targets board of directors to withdraw its recommendation for approval of the Merger (as described in the provision at the end of 5(c)(ii)) but not permit Targets board to terminate the Agreement and (ii) afford Buyer the right to either (x) terminate the Agreement as a result of the change in recommendation or (y) compel Target to nonetheless submit the Agreement to its stockholders for approval despite the change in recommendation (referred to as a force the vote provision, and specifically permitted under Delaware General Corporate Law 146). 21
time after the Special Meeting in the event this Agreement and the Merger fail to receive the Requisite Stockholder Approval. (b) Effect of Termination. If any Party terminates this Agreement pursuant to 7(a) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); provided, however, that the confidentiality provisions contained in 5(g) above shall survive any such termination.28 8. Miscellaneous. (a) Survival. None of the representations, warranties, and covenants of the Parties (other than the provisions in 2 above concerning payment of the Merger Consideration and the provisions in 5(j) above concerning insurance and indemnification) will survive the Effective Time. (b) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other Parties; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case the disclosing Party will use its [reasonable] best efforts to advise the other Party prior to making the disclosure). (c) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns; provided, however, that (i) the provisions in 2 above concerning payment of the Merger Consideration are intended for the benefit of Target Stockholders and (ii) the provisions in 5(j) above concerning insurance and indemnification are intended for the benefit of the individuals specified therein and their respective legal representatives. (d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof. (e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties. (f) Counterparts. This Agreement may be executed in one or more counterparts, (including by means of facsimile), each of which shall be deemed an original but all of which together will constitute one and the same instrument.
28 This Agreement does not contain any breakup fee, lockup option, or similar provision for the benefit of Buyer (other than the limited exclusivity provisions in 5(i) above) designed to address the threat of competing transactions (most frequently utilized when Target is a publicly held company). Buyer might also seek to have Target give Buyer an option to acquire Target Shares (with an exercise price at or below the Merger Consideration) or an option (sometimes referred to as a "Crown Jewel" option) to acquire certain desirable assets of Target (with an exercise price at or below fair market value) in the event the Parties terminate this Agreement under certain specified circumstances. Such protective provisions come in many forms, raise complex issues concerning the fiduciary duties of directors and officers, and generally are negotiated extensively. For protective provisions concerning a breakup fee, reverse breakup fee, no-shop clause, go-shop clause, and certain other deal protections, see sample acquisition agreement 2501 (protective provisions). 22
(g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (h) Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given (i) when delivered personally to the recipient, (ii) 1 business day after being sent to the recipient by reputable overnight courier service (charges prepaid), (iii) 1 business day after being sent to the recipient by facsimile transmission or electronic mail, or (iv) 4 business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below: If to Target: If to Buyer: If to Transitory Subsidiary: Copy to: Copy to: Copy to:
Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of [Delaware] without giving effect to any choice or conflict of law provision or rule (whether of the State of [Delaware] or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of [Delaware]. (j) Amendments and Waivers. The Parties may mutually amend any provision of this Agreement at any time prior to the Effective Time with the prior authorization of their respective boards of directors; provided, however, that any amendment effected subsequent to stockholder approval will be subject to the restrictions contained in the Delaware General Corporation Law. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver by any Party of any provision of this Agreement or any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless the same shall be in writing and signed by the Party making such waiver nor shall such waiver be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such default, misrepresentation, or breach of warranty or covenant. (k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (l) Expenses. Each of the Parties will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.29
29 This Agreement makes each of the Parties responsible for its own costs and expenses whether or not the Merger is consummated. This means Buyer will inherit the costs and expenses of Target and its Subsidiaries if the Merger is consummated, but will be responsible for only its own costs and expenses if the Merger is aborted. Buyer may seek reimbursement from Target for Buyer's costs and expenses if the Merger is aborted under certain specified circumstances. Similarly, Target may seek reimbursement from Buyer for Target's costs and expenses if the Merger is aborted under certain other specified circumstances. The Parties may settle on a compromise allocation of responsibility for costs and expenses if the Merger is aborted (such as sharing the costs and expenses in a predetermined ratio or making one Party responsible for the costs and expenses up to a specified 23
(m) Construction. [The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.] Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. The word including shall mean including without limitation. (n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. [(o) Tax Disclosure Authorization.30 Notwithstanding anything herein to the contrary, the Parties (and each Affiliate and Person acting on behalf of any Party) agree that each Party (and each employee, representative, and other agent of such Party) may disclose to any and all Persons, without limitation of any kind, the transactions tax treatment and tax structure (as such terms are used in regulations promulgated under Code 6011) contemplated by this agreement and all materials of any kind (including opinions or other tax analyses) provided to such Party or such Person relating to such tax treatment and tax structure, except to the extent necessary to comply with any applicable federal or state securities laws; [provided, however, that such disclosure many not be made until the earlier of date of (A) public announcement of discussions relating to the transaction, (B) public announcement of the transaction, or (C) execution of an agreement (with or without conditions) to enter into the transaction.] This authorization is not intended to permit disclosure of any other information including (without limitation) (A) any portion of any materials to the extent not related to the transactions tax treatment or tax structure, (B) the identities of participants or potential participants, (C) the existence or status of any negotiations, (D) any pricing or financial information (except to the extent such pricing or financial information is related to the transactions tax treatment or tax structure), or (E) any other term or detail not relevant to the transactions tax treatment or the tax structure.] ***** IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as of] the date first above written.
[BUYER] By: ___________________________ Title: __________________________ aggregate ceiling and the other Party responsible for any excess). The Parties may seek a different allocation of costs and expenses in the event the transaction is aborted under specified circumstances. See sample acquisition agreement 2501 (protective provisions) for terms related to a breakup fee, reverse breakup fee, no-shop clause, go-shop clause, or certain other provisions relevant to the payment of fees and/or expenses under various circumstances where the transaction is terminated. 30 Authorization to disclose the tax treatment and tax structure of a transaction, in the form set forth in text above, was commonly included in M&A transaction documents following IRS's 2/03 issuance of Code 6011, 6111, and 6112 tax shelter disclosure regulations. Those regulations imposed reporting requirements on taxpayers (and in certain cases reporting and list maintenance requirements on material advisors) with respect to any "confidential transaction," the broad definition of which potentially encompassed common M&A transactions absent such disclosure authorization. Revised 12/03 tax shelter disclosure regulations (principally under Code 6011) contain a more limited definition of "confidential transaction," also applicable for purposes of the excise tax imposed in 5/06 by Code 4965 on certain tax-exempt entities that participate in confidential (and certain other) transactions to which Code 4965 applies. Based on the 12/03 regulations, we believe that disclosure authorization is no longer necessary to avoid classification of a transaction as confidential except where an advisor receiving a large fee imposes confidentiality to protect the advisor's tax strategy. See 407, 614, 911, and 1013. 24
[TARGET] By: ___________________________ Title: __________________________
[TRANSITORY SUBSIDIARY]
By: ___________________________ Title: __________________________
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[TARGET] By: ___________________________ Title: __________________________

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