July 17, 2003
As our kickoff post, we
As our kickoff post, we thought we’d ponder about a subject near-and-dear to our hearts: sell-side representation.
At the risk of oversimplifying things (which, you’ll find, we have a tendency to do), buy-side engagements are relatively plain-vanilla exercises in upholding the Golden Rule: “He who has the gold, makes the rules.” More often than not, that “he” tends to be the buyer. As such, it’s pretty easy for buyer’s counsel to fend off seller’s requests with standard replies ranging from “Why would you want that? Are you trying to hide something?” to “No, you want the money or not?”
Sell-side representation is a more challenging game for us lawyers who are in search of what we’ll call seller’s “Holy Trinity” of bottom-line objectives:
(I) Get your number (i.e., a price that makes seller giddy);
(2) Get the deal closed (i.e., don’t let buyer walk and otherwise turn your company into damaged goods); and
(3) Get a good night’s sleep (i.e., worries about post-closing indemnification and purchase price adjustments).
A recent example of aggressive seller-favorable terms that we found is the recently announced purchase by Invitrogen (Nasdaq) of Molecular Probes (private). Some of the more seller-friendly terms include:
(i) A “Target Material Adverse Effect” definition with a kitchen-sink approach to carveouts – and then some;
(ii) Acquiror’s rep that Acquiror has no knowledge of any inaccuracies in Target’s reps;
(iii) Acquiror’s bring-down condition that disregards any inaccuracies in Target’s reps (x) known by Acquiror; or (y) don’t measure up to that mother-of-all definitions of Target MAE;
(iv) For indemnification purposes, a “Damages” definition that excludes special, indirect, consequential, exemplary and punitive damages, damages from lost profits and lost opportunities, and tax benefits and insurance proceeds receivable; and
(v) Anti-sandbagging limitations on Acquiror’s ability to close-and-sue for indemnification.
So which crafty firm so dares to level the playing field with an I-got-the-gold buyer? The “Notices” section lists Cooley Godward as Target’s counsel. Could the Wizard of Oz behind Target’s handiwork be none other than Rick Climan, Head of Cooley’s M&A Group as well as Chair of the ABA’s Negotiated Acquisitions Committee?
By the looks of the merger agmt, we’re pretty confident that buyer’s counsel got its pound-of-flesh, too!
Is the Invitrogen/Molecular merger agmt a “high-water mark” for sell-side representation protection? We don’t know but we’re sure putting this one in our form files ( http://www.sec.gov/Archives/edgar/data/1073431/000093639203000919/a91276exv2w1.htm )…
(Comments? Gripes? Pls feel free to email us: wilson.chu@haynesboone.com or lglasgow@gardere.com ).