Agreement and Plan of Merger
(Private Target) (Pro-Seller) (DE)

Summary

This template is an Agreement and Plan of Merger (Private Target) (Pro-Seller) (DE) for use in an all cash reverse triangular merger between a private company target and a private company buyer. This template includes practical guidance, drafting notes, alternate clauses, and optional clauses. A merger transaction involves the combination of two business entities and is typically structured as (1) a direct merger, in which the target merges with and into the acquiring party, (2) a forward triangular merger, in which the target merges with and into a newly formed subsidiary of the acquiring party, or (3) a reverse triangular merger, in which a newly formed subsidiary of the acquiring party merges with and into the target. The merger itself is governed by applicable state law and typically involves the filing of a certificate of merger with the relevant secretary of state (or equivalent). In a two-step merger, which is uncommon in a private-target transaction, the acquiring company purchases a portion of the target company's stock in the first step (usually in connection with a tender offer), and then in the second step it merges into the target company either after a stockholder vote or after a filing under applicable state or federal law, depending on the percentage of target company stock it acquires in the first step. A merger agreement is the operative agreement governing a statutory merger. The agreement addresses merger mechanics, the merger consideration, and the post-merger surviving entity (including its charter, by-laws, and management). In order to address business and risk allocation issues, the merger agreement also includes representations and warranties, covenants, indemnification (in a private merger), and termination provisions. Delaware law requires that two merging Delaware entities must include the following in a merger agreement: 1. the terms and conditions of the merger; 2. the mode of carrying the merger into effect; 3. any amendments to be made to the charter of the surviving company; 4. the manner of cancelling the shares of the target and acquirer companies, or of converting them into shares of the surviving company; and 5. any other material terms deemed desirable to include (see 8 Del. C. § 251(b)). A merger involving a private target company presents different drafting issues than a merger agreement for a public company merger. The representations and warranties in a private-target merger agreement will typically request more disclosures since public filings are not available as a source of information. A private target merger agreement will also often include indemnification provisions by which some or all of the target company's stockholders will indemnify the acquirer for losses arising out of breaches of the representations and warranties in the merger agreement. Because the target stockholders are not party to the merger agreement, however, this is frequently accomplished through an escrow arrangement. The benefits of a merger are much the same as a stock purchase in that effectively all of the assets and liabilities transfer to the buyer (generally, contracts just transfer to the surviving entity, so there are fewer third party consents and transfer approvals required ("change of control" provisions may still be triggered, however). There is no need for the buyer to get 100% of the stockholder vote to control the company, as once it has complied with the state law and company voting requirements, the buyer controls the company. Drawbacks to a merger are similar to a stock purchase transaction in that the acquiring company cannot pick and choose the assets and liabilities to acquire; the acquisition is subject to the approval by the requisite percentage of stockholders. Tax treatment for the transaction will depend on the merger structure selected. The regulatory schemes that are addressed in this template are those that are generally applicable without regard to industry, such as anti-trust, tax, ERISA, environmental, anti-corruption and federal securities regulation. This template is generally pro-seller. For a full listing of key content for in-house counsel and corporate secretaries when performing corporate functions, see In-House Corporate Secretary Resource Kit. For a pro-buyer agreement and plan of merger, see Agreement and Plan of Merger (Private Target) (Pro-Buyer) (DE). For more detailed discussion of the considerations in drafting a private-target agreement and plan of merger and for additional background on mergers, see Private Merger Agreement Basics; Private Merger Transaction Resource Kit; and Asset Purchase, Stock Purchase, and Merger Structures: Benefits and Drawbacks.