busted m&a deals headed for litigation - Jackson Walker LLP

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Articles 5 and 6 contain covenants in which the parties commit to perform (affirmative covenants) or not to perform (negative covenants) certain acts in the period between signing the acquisition agreement and closing the acquisition. The main burden of the covenants falls on the Seller, which must take organizational steps toward consummating the acquisition and operate its business in the manner provided after signing the agreement and before the closing. Articles 7 and 8 contain conditions precedent to the obligations of the buyer and the seller, respectively, to consummate the acquisition. These sections specify what each party is entitled to expect from the other at the closing. If a condition is not satisfied by one party, the other party may be able to elect not to complete the acquisition. Article 9 outlines the circumstances in which each party may terminate the acquisition agreement and the effects of such termination. Article 10 contains certain additional covenants of the parties. Article 11 contains indemnification provisions giving each party specific remedies for the other’s breach of certain obligations under the acquisition agreement. These provisions cover matters such as calculation of damages, recovery of expenses and costs (including legal fees) in addition to damages (a right that may not exist absent an indemnification provision), and procedures for claiming damages. Article 12 contains comprehensive confidentiality and access to information provisions, which are applicable both prior to and after the closing and supersede the confidentiality agreement previously entered into between the parties. Article 13 contains general provisions such as notice, severability, and choice of law. B. Letter of Intent In some transactions, the parties do not sign a binding agreement until the closing. If a letter of intent has been executed that includes a no-shop provision and gives the buyer adequate opportunity to conduct due diligence, the buyer may resist becoming contractually bound until it is ready to close. Conversely, the seller has an interest in not permitting extensive due diligence until the buyer is contractually bound. This is especially so in circumstances in which the buyer is a competitor or in which the seller is concerned that the due diligence process will necessitate or risk disclosure to employees, customers or competitors that the business is for sale. C. Gap Between Signing and Closing Occasionally it is the seller that is reluctant to sign before the closing. This may be the case, for example, if the seller has announced that the business is for sale, has several potential buyers and does not want to preclude talking to alternative buyers until the seller is certain that the transaction will close. Sometimes a simultaneous signing and closing occurs because the transaction simply evolves that way. The parties may be negotiating an agreement that contemplates a period between signing and closing, but the due diligence may proceed more rapidly than the negotiations, and it may 4032470v.1 - 21 -
develop that a waiting period would be pointless or even harmful to the transaction. In such circumstances, counsel should consider whether it is appropriate to remove from the agreement the pre-closing covenants, conditions to the parties’ obligations to close, and other provisions rendered unnecessary by the decision to sign and close simultaneously. Care should be taken to ensure that no contractual obligation applicable post-closing is affected by such changes. VII. SELECTED ASSET PURCHASE AGREEMENT PROVISIONS To illustrate and amplify the matters discussed above, there are set forth below the following selected provisions of a hypothetical Asset Purchase Agreement (the page number references are to pages herein) which are derived from a pre-publication draft of the Model Asset Purchase Agreement. The selected provisions below represent only certain parts of an Asset Purchase Agreement which are relevant to issues discussed herein and do not represent a complete Asset Purchase Agreement, the principal provisions thereof or even all of the provisions which distinguish an asset purchase from another form of business combination. 1. DEFINITIONS AND USAGE ................................................................................... 26 1.1 DEFINITIONS................................................................................................................. 26 1.2 USAGE ........................................................................................................................... 39 2. SALE AND TRANSFER OF ASSETS; CLOSING .......................................... 40 2.1 ASSETS TO BE SOLD...................................................................................................... 40 2.2 EXCLUDED ASSETS ....................................................................................................... 44 2.3 CONSIDERATION........................................................................................................... 46 2.4 LIABILITIES .................................................................................................................. 47 2.5 ALLOCATION ................................................................................................................ 52 2.6 CLOSING ....................................................................................................................... 53 2.7 CLOSING OBLIGATIONS ............................................................................................... 54 2.8 ADJUSTMENT AMOUNT AND PAYMENT ....................................................................... 59 2.9 ADJUSTMENT PROCEDURE........................................................................................... 61 2.10 CONSENTS..................................................................................................................... 65 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS................................................................................................................ 68 3.1 ORGANIZATION AND GOOD STANDING........................................................................ 71 3.2 ENFORCEABILITY; AUTHORITY; NO CONFLICT ......................................................... 73 3.4 FINANCIAL STATEMENTS ............................................................................................. 81 3.6 SUFFICIENCY OF ASSETS .............................................................................................. 86 3.13 NO UNDISCLOSED LIABILITIES.................................................................................... 86 3.14 TAXES ........................................................................................................................... 88 3.15 NO MATERIAL ADVERSE CHANGE .............................................................................. 93 3.18 LEGAL PROCEEDINGS; ORDERS ................................................................................ 100 3.19 ABSENCE OF CERTAIN CHANGES AND EVENTS......................................................... 103 3.25 INTELLECTUAL PROPERTY ASSETS ........................................................................... 105 3.32 SOLVENCY .................................................................................................................. 115 3.33 DISCLOSURE ............................................................................................................... 118 5. COVENANTS OF SELLER PRIOR TO CLOSING..................................... 120 5.1 ACCESS AND INVESTIGATION..................................................................................... 121 4032470v.1 - 22 -
Page 1 and 2: BUSTED M&A DEALS HEADED FOR LITIGAT
Page 3 and 4: VII. SELECTED ASSET PURCHASE AGREEM
Page 5 and 6: valid basis to terminate the merger
Page 7 and 8: 1986, as amended (the “Code”)).
Page 9 and 10: A purchase of assets also is cumber
Page 11 and 12: • Liabilities can be assumed by i
Page 13 and 14: of stock would avoid this “double
Page 15 and 16: There are a number of business reas
Page 17 and 18: The Third Circuit’s reasoning sug
Page 19 and 20: that every buyer would be liable fo
Page 21 and 22: (b) Environmental On the environmen
Page 23: and actual conflicts of interest th
Page 27 and 28: 12. CONFIDENTIALITY................
Page 29 and 30: Agreement The parties, intending to
Page 31 and 32: “Breach” -- any breach of, or a
Page 33 and 34: use, voting (in the case of any sec
Page 35 and 36: “Ground Lease” -- any long-term
Page 37 and 38: “Order” -- any order, injunctio
Page 39 and 40: “Part” -- a part or section of
Page 41 and 42: “Seller Contact” -- as defined
Page 43 and 44: COMMENT Clauses (v), (vii), (viii)
Page 45 and 46: parties should always pay close att
Page 47 and 48: therewith (the “Business”), inc
Page 49 and 50: carefully review the breadth of thi
Page 51 and 52: Course of Business prior to the Eff
Page 53 and 54: uyer to negotiate the indemnificati
Page 55 and 56: 2.5 ALLOCATION The Purchase Price s
Page 57 and 58: satisfaction of some conditions may
Page 59 and 60: (iii) the Escrow Agreement, execute
Page 61 and 62: Once a certified check has been cer
Page 63 and 64: espect to the Real Property and Tan
Page 65 and 66: work papers and other documents and
Page 67 and 68: expressly provide for arbitration i
Page 69 and 70: Closing, the parties shall use Best
Page 71 and 72: Alternatively, the Buyer can elect
Page 73 and 74: environmental representations that
Page 75 and 76:
owned or used by it, or the nature
Page 77 and 78:
(c) Except as set forth in Part 3.2
Page 79 and 80:
in the usual and regular course of
Page 81 and 82:
The term “Contemplated Transactio
Page 83 and 84:
Seller) a “walk right” if they
Page 85 and 86:
the evaluation of nearly all potent
Page 87 and 88:
motion to dismiss, the Court wrote
Page 89 and 90:
and financing agreements, as well a
Page 91 and 92:
v. General Housewares Corp., 482 N.
Page 93 and 94:
Seller is an S corporation as defin
Page 95 and 96:
(2) The Seller is an S corporation
Page 97 and 98:
ecause (i) the material adverse cha
Page 99 and 100:
While noting that IBP v. Tyson appl
Page 101 and 102:
exception carves out the exclusions
Page 103 and 104:
In summary, the debate over the con
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2. pending violations (clause (i));
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Except as set forth in Part 3.19, s
Page 109 and 110:
Seller is the owner or licensee of
Page 111 and 112:
(iii) No Net Name of Seller has bee
Page 113 and 114:
seventeen years from the date of gr
Page 115 and 116:
year of registration of a mark to s
Page 117 and 118:
3. For anonymous works, pseudonymou
Page 119 and 120:
anticipated uses of the cash, will
Page 121 and 122:
Fraudulent Transfer Without Intent
Page 123 and 124:
of the consequences of disclosed it
Page 125 and 126:
In many acquisitions, the buyer’s
Page 127 and 128:
(b) except as otherwise directed by
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ecome directly involved in making b
Page 131 and 132:
the waiting period, Section 5.4 giv
Page 133 and 134:
provision because obtaining the Con
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assure that the new consideration f
Page 137 and 138:
the Closing, the Buyer may decline
Page 139 and 140:
Pursuant to this Section, all of th
Page 141 and 142:
that these historical financial sta
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means of a “bring down” represe
Page 145 and 146:
(d) A statement from the holder of
Page 147 and 148:
Section 7.5 relates only to litigat
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A seller may take the position that
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Buyer shall have obtained on terms
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and (d) have no materiality test. T
Page 155 and 156:
the part of the seller. In lieu of
Page 157 and 158:
enefits and salary and wage structu
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to the sale of any property to the
Page 161 and 162:
prohibits the Buyer from making any
Page 163 and 164:
for stock ownership in a public com
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investigation or assessment) conduc
Page 167 and 168:
sue on the breach, under the common
Page 169 and 170:
should be limited to situations in
Page 171 and 172:
eaches of noncompetition agreements
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Thomas Drayage & Rigging Co., 442 P
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the Facilities, Assets, or the busi
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The issue of control of cleanup and
Page 179 and 180:
effect that such a materiality qual
Page 181 and 182:
Section 11.7 provides that claims g
Page 183 and 184:
Rather than inviting counterproposa
Page 185 and 186:
Person of its election to assume th
Page 187 and 188:
Section 11.9(d) permits the Buyer t
Page 189 and 190:
in order for an indemnity to be enf
Page 191 and 192:
The Model Agreement follows typical
Page 193 and 194:
(c) From and after the Closing, the
Page 195 and 196:
Agreement and all materials of any
Page 197 and 198:
Party’s Confidential Information
Page 199 and 200:
The courts have developed two doctr
Page 201 and 202:
13. GENERAL PROVISIONS 13.4 JURISDI
Page 203 and 204:
Noting that Tyson had not argued th
Page 205 and 206:
parties’ negotiations, if any, re
Page 207 and 208:
may not be available in arbitration
Page 209 and 210:
Rules and the provisions of this Se
Page 211 and 212:
As with all ADR provisions, the sub
Page 213 and 214:
arguing that any limitations on dam
Page 215 and 216:
disclaimer at issue here is general
Page 217 and 218:
Disclosure Letter with respect to a
Page 219 and 220:
an orderly manner and then distribu
Page 221 and 222:
arred the shareholders’ derivativ
Page 223 and 224:
there is a fundamental conflict wit
Page 225 and 226:
e used in lieu of the original Agre
Page 227 and 228:
pen. A digital signature is not a r
Page 229 and 230:
the injured party, and who can best
Page 231 and 232:
Over time, some courts have used le
Page 233 and 234:
focus of the inquiry is the continu
Page 235 and 236:
The product line exception is not w
Page 237 and 238:
Court created the continuity of ent
Page 239 and 240:
3. Labor, Employment and Benefits C
Page 241 and 242:
5. Contract Cases In certain instan
Page 243 and 244:
4. Choice of Law In transactions wh
Page 245 and 246:
Appendix B ACQUISITION OF A DIVISIO
Page 247 and 248:
As a general rule, buyer will requi
Page 249 and 250:
would continue to manufacture and s
Page 251 and 252:
will require carefully drawn confid
Page 253 and 254:
EXAMPLE 1 SAMPLE DESCRIPTION OF ASS
Page 255 and 256:
INTRODUCTION TO TRANSITIONAL SERVIC
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1.3 “Fully Allocated Cost” shal
Page 259 and 260:
5. Force Majeure 5.1 Seller shall n
Page 261 and 262:
12. Entire Agreement 12.1 This Agre
Page 263 and 264:
SCHEDULE 1.2 FIXED PRICE SERVICES P
Page 265 and 266:
SCHEDULE 1.4 HR SERVICES HR Service
Page 267 and 268:
Appendix C In re IBP, Inc. Sharehol
Page 269 and 270:
If our belief is proven wrong and t
Page 271 and 272:
Section 5.01. Corporate Existence a
Page 273 and 274:
the information incrporated (sic) b
Page 275 and 276:
(b) liabilities incurred in the ord
Page 277 and 278:
operations that is consequential to
Page 279 and 280:
Appendix D Frontier Oil Corp. v. Ho
Page 281 and 282:
ureau, agency or instrumentality, o
Page 283 and 284:
(a) the Mergers shall not have been
Page 285 and 286:
(i) by Holly or Frontier, after the
Page 287 and 288:
Frontier Commences Litigation The f
Page 289 and 290:
seek the break-up fee was condition
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