After the due diligence has been completed, business valuations conducted, terms and conditions negotiated, and financing arranged, the legal counsel for the parties must work together to structure and prepare the merger agreement. A merger is a fundamental change in the existence of a business entity and is accomplished primarily pursuant to procedures prescribed in state law.
A merger typically refers to two companies joining together to become one and the transaction is memorialized in a definitive legal document commonly known as a merger agreement or plan of merger. Simply put, a merger agreement is a contract governing the amalgamation of two companies into a single surviving business entity. In a classic merger, there is no buyer or seller, and the culture and spirit of the negotiations are focused on mutual exchange of information.
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The merger agreement focuses on the key terms of the transaction, the history of the seller, the current condition of the business and the terms and conditions to be applied in the future. In addition, the agreement describes the nature and scope of the acquiring company’s warranties and representations, the indemnification of the acquirer, the duties and responsibilities of the parties between executing the agreement and closing the transaction, and the terms and structure of the payment. Among the terms typically included in a merger agreement or plan of merger in the United States, are the structure of the merger and the surviving company , the closing date, the effective date of the merger, the conversion of securities, representations and warranties, conditions to closing, and other general provisions such as governing law, termination, assignment, and others.
Moreover, in a merger, regulatory considerations must be taken into account, whether general regulatory issues or industry-specific regulatory issues. The general regulatory considerations include issues such as antitrust, environmental, securities, and employee benefits matters. In the case of industry-specific regulatory considerations, federal and state regulators exercise approval rights over those transactions that involve change of ownership or control or may have an anticompetitive effect on a given industry. In certain industries, government approvals are needed to transfer government-granted licenses, permits or franchises.
The companies involved in a merger transaction are typically subject to the Securities and Exchange Commission (SEC) disclosure rules and shareholders must receive certain information about the merger. However, mergers among small and medium-sized privately held companies do not generally raise filing issues and requirements under the federal securities laws. In the case of a merger where one or both of the companies are traded on a stock exchange such as the New York Stock Exchange, the companies have registered their securities under the Securities Act of 1933.
However, the registration of securities under the federal securities laws trigger a host of reporting obligations for the registered companies. As a result, the acquiring company is usually obligated to disclose the 10-Q and 10-K reports, file a registration statement with the SEC if it plans to issue new securities as compensation for the merger, provide proxy information in certain cases and disclose tender offers.
Mergers are highly complex and have many moving parts. Contact us, your business attorney in Florida, to advise you on merger transactions and help you execute merger agreements and supplementary documents, including preparing disclosure documents and filings with regulatory entities such as SEC and the Financial Industry Regulatory Authority (FINRA).
Contact us, your business attorney in Florida, to advise you on the optimal structure for the acquisition and execute the merger agreement.