Mergers Acquisitions: Negotiating and Closing the Transactions

1. Mergers & Acquisitions: Negotiating and Closing the Transactions Professor Jack Williams

2. 2 Director�s Duties Preliminary negotiations Duties during negotiations Merger agreements and letters of intent Deal protection measures Material adverse change clauses

3. 3 Preliminary Negotiations Role of BOD Fiduciary duties Care Loyalty Obedience Business Judgment Rule Protect decisions from informed disinterested directors who act in good faith

4. 4 Preliminary Merger Negotiations Extent of duty to disclose preliminary merger negotiations � Public Co. No duty to disclose Extent of duty to respond � Public Co. Old rule: Price and structure of the merger New rule: Ad hoc; No comment response

5. 5 Duties During Negotiations Duty in making or assessing a merger proposal Delaware employs three tests� Business Judgment Test: Van Gorkom Test Enhanced Scrutiny Test: Unocal and Revlon Test Intrinsic Fairness Test: Mills Acquisition Test

6. 6 Business Judgment Test Protect decisions from informed disinterested directors who act in good faith Informed Disinterested Good faith Absent all elements, court employs intrinsic fairness test

7. 7 Van Gorkom Rules Application of BJR to decision to sell Court found that selling board did not make informed decision (gross negligence) Short notice Quick meeting Brief oral introduction by target CEO Court found that s/hs were not informed

8. 8 Van Gorkom Changes to Selling Company Procedures Requirement of fairness opinion from independent investment bankers on price offered Lengthy and detailed meeting with both internal and external experts

9. 9 Board v. Shareholders BOD negotiations merger agreement S/hs have no power to initiate merger S/hs have no power to amend or veto specific provisions S/hs approve or disapprove merger agreement as whole

10. 10 Merger Agreements and Letters of Intent Negotiation through both oral and written agreements Letters of intent �No shop� provisions Plan of Merger is the operative document Adopted by BOD Approved by s/hs

11. 11 United Acquisition Corp. Contract is a matter of mutual intent Can require that any agreement must be in writing Partial performance may save the agreement if accepted

12. 12 Stock Purchase Agreement Complete and correct financials No new issuance of securities, debt, etc. No incurrence of new liabilities other than current liabilities No sales of IP No casualty losses No material changes in employee compensation

13. 13 Stock Purchase Agreement (cont�d) Good and marketable title to assets Tax compliance No material changes No employment contracts No duty to contribute to multi-employer retirement plan No material contracts above $XXXX Compliance with all laws

14. 14 California Natural C/A: Breach of contract, promissory estoppel ,and fraud Jurisdiction: Diversity Remedy: Injunction Procedural Posture: Cross-MSJ

15. 15 California Natural cont�d Issue is whether the differences were such that they amounted to mere formalities or to pre-reqs

16. 16 Asset Purchase Agreement Price Audit Earn outs Transaction fees Typical clauses Typical resolutions

17. 17 Deal Protection Measures Termination, walk-away or break up fees Liquidation damages or punitive 4% generally acceptable Topping fees Secure protection for lost opportunity cost and due diligence expenses No shop and no talk Lock ups Lock outs Fiduciary outs

18. 18 Material Adverse Change Clauses Parties may walk away from the deal if there is a drastic change in circumstances between the agreement and the closing of the deal Facts and circumstances Cyclical or volatile business factors Waiver

19. 19 Conclusion