Agreement and Plan of Merger
(Public Target, One Step, Stock for Stock) (Pro-Buyer) (DE)

Summary

This template is an Agreement and Plan of Merger (Stock for Stock) (Pro-Buyer) (DE) for use in a reverse triangular merger between a public company target and a public company buyer in which all or some of the consideration will be common stock of the acquirer. This template includes practical guidance, drafting notes, alternate clauses, and optional clauses. A public merger transaction involves the combination of two business entities and, like private mergers, 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, 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, bylaws, 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. Important ancillary documents are typically included as exhibits to public company merger agreements, including voting agreements, forms of charter and bylaws for the surviving entity that will become effective when the merger is consummated, and other ancillary documents that might be necessary to consummate the transaction. 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 public target company presents different drafting issues than those for a private company merger. Public filings eliminate the need for extensive representations due to the extent of company information filed with the SEC. There are generally no indemnification provisions in public merger agreements (other than the purchaser's obligation to indemnify the target's directors and officers for a period post-closing), as the target company is merged into the buyer and the stockholders of the public target are too numerous to hold to indemnification obligations, nor are they parties to the merger agreement. 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; and in a public merger the board of directors of the target company has a fiduciary out to the transaction, adding additional uncertainty to closing the deal. 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 antitrust, tax, ERISA, environmental, anticorruption and federal securities regulation. This template is generally pro-buyer. For a merger agreement for an all-cash transaction, see Agreement and Plan of Merger (Public Target, One Step, Cash) (Pro-Buyer) (DE). For more detailed discussion of the considerations in drafting a public agreement and plan of merger and for additional background on mergers, see Public Merger Agreement Basics; Public Merger Transaction Resource Kit; and Asset Purchase, Stock Purchase, and Merger Structures: Benefits and Drawbacks.