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Monthly Archives: August 2003

August 22, 2003

MATERIALITY RELATED BLOG GENERATES STIR

MATERIALITY RELATED BLOG GENERATES STIR IN BLOGGING COMMUNITY.

O.K., not really, but it sounds good, doesn’t it? Anyway, for those readers who might not have access to “bring down condition” language that eliminates, at least in the walk right arena, the problem of double materiality, we thought we would take the liberty of posting an example, as follows:

“ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects, in each case on the date hereof and at the Effective Time (unless the representations and warranties address matters as of a particular date, in which case they shall remain true and correct in all material respects as of such date); provided, however, if any such representation or warranty shall be subject of a qualification as to “materiality,” such qualified representation and warranty shall be true and correct in all respects, in each case on the date hereof and at the Effective Time (unless the representations and warranties address matters as of a particular date, in which case they shall remain true and correct in all respects as of such date).”

If you think is fun (and who wouldn’t) just wait until we drop in an MAE condition!

(Comments? Gripes? Pls feel free to email us: wilson.chu@haynesboone.com or lglasgow@gardere.com )

August 21, 2003

EXACTLY HOW DO YOU QUANTIFY

EXACTLY HOW DO YOU QUANTIFY DOUBLE MATERIALITY (A/K/A THE METAPHYSICAL ASPECT OF M&A)?

Why would you want to, you ask? Isn’t materiality already something where reasonable minds might differ without doubling up on the concept, you ask?

Well, ponder this …. fully 35% of the transactions we reviewed (see parameters below) applied a test of materiality in individual seller reps and warranties and then again in the condition usually entitled “Accuracy of Representations and Warranties” (i.e., the “bring down” walk right). How wrong can a seller be when “double materiality” is applied to a rep in the context of a walk right? Some might say “completely!!”

Parameters: In our recent Deal Points Study we reviewed acquisition agreements relating to public company acquisitions of private companies with transaction values of between $25M and $150M (pulled from the LiveEDGAR M&A Database).

(Comments? Gripes? Pls feel free to email us: wilson.chu@haynesboone.com or lglasgow@gardere.com )

August 17, 2003

Ocassionally, we’ll be posting mesages

Ocassionally, we’ll be posting mesages from Bloggees and as musings from “Guest Bloggers.”

Here’s an observation from Ben Orlanski to our “We Don’t Need no Stinkin’ Signatures” posting.

Of course, Larry and I reserve the right post Bloggee messages that we deem appropriate (i.e., that are practical, show keen insight and sophistication… and otherwise make us look good)

August 12, 2003

SURPRISE FINDINGS REGARDING THE “ACCURACY

SURPRISE FINDINGS REGARDING THE “ACCURACY OF REPS AND WARRANTIES” CONDITION IN ACQUISITION AGREEMENTS! URBAN LEGEND REGARDING BUYER’S WALK RIGHT SENT PACKING AT THE ABA NEGOTIATED ACQUISITIONS COMMITTEE MEETING IN SAN FRANCISCO!”

One section of most acquisition agreements that can control when a buyer can walk a deal, usually entitled “Accuracy of Representations and Warranties” (in M&A slang, the “bring down” section) has long been the subject of debate for a lot of reasons. One of the principal debates is whether practitioners require that the reps and warranties be correct (i) only at signing (i.e., “true when made”), (i) only at closing (i.e., “as brought down”), or (iii) at both signing and closing(i.e., “true when made and as brought down”). As an extension of our recent Deal Points Study, wherein we reviewed acquisition agreements relating to public company acquisitions of private companies with transaction values of between $25M and $150M (pulled from the LiveEDGAR M&A Database), we compiled the following statistics about when reps and warranties have to be true:

True at signing only (i.e., “true when made”): 7%

True at closing only (i.e., “as brought down”): 48%

True at signing and closing (i.e., “true when made and as brought down”): 45%

From a statistical standpoint it looks fairly evenly matched between “true at closing only” and “true at signing and closing.” Depending on which side of the buyer/seller aisle you sit these findings may be as big of a surprise to you as they were to a lot of our colleagues (and us too) on the ABA Negotiated Acquisitions Committee.

Can sellers and buyers call it a draw in the bring down arena? Hard to tell without analyzing other key features of this particular walk right. So with that teaser, tune in again over the next several days for more of these dramatic statistical findings on the all important bring down condition, including those related to “materiality” (a/k/a How wrong can the seller be?).

Comments? Gripes? Pls feel free to email us: wilson.chu@haynesboone.com or lglasgow@gardere.com ).

August 6, 2003

Signatures? We don’t need no

Signatures? We don’t need no stinkin’ signatures! Well… at least in NY.

So says a Fed Judge for NY in his July opinion in AIH Acquisition Corp. v. Alaska Industrial Hardware, (S.D.N.Y. July 1, 2003) as he granted specific performance in Buyer’s favor even though seller refused the definitive acq K!

After extensive due diligence and negotiation, buyer’s counsel sent the definitive K to seller’s counsel in an email saying: “Attached is the final SPA. Everyone, including the lawyers, has stated it is final without qualification. Please endeavor mightily to have the SPA executed tomorrow. Thank you for your efforts.”

At the eleventh hour, guess what – Target’s majority shareholder refused to ink it.

The Court said signature-schmignature!: “Here, the parties had more than an oral agreement. They had a complete written agreement containing all material terms in final form with signatures coming the next day as a mere formality. … It is clear from this that the agreement was — and the parties were in agreement that it was — final and therefore binding even though signatures had not been affixed.”

Would it have been a good idea for seller’s counsel to send a reply email reminding buyer’s counsel that there’s no agreement until there’s execution and delivery? Probably – but that’s easy to say with my perfect 20-20 hindsight. (Nevertheless, score one for buyer’s counsel for his/her exquisite, self-serving email!).

Have I ever been lulled into thinking that merely saying (especially in correspondence) “subject to execution” is good enough? Maybe probably.

Will I think twice about making sure all confidentiality Ks, LOIs, and the like – and even minor things like an email – clearly state that we ain’t got no deal (i.e., nothing’s legally binding) until the definitive K is executed and delivered? Yep.

(Comments? Gripes? Pls feel free to email us: wilson.chu@haynesboone.com or lglasgow@gardere.com ).