DealLawyers.com Blog

Here are some thoughts from Ken Adams, originally posted in his “Adams Drafting” Blog:

Methinks that the recitals in the average big-time-M&A merger agreement are bloated. By way of example, below are the recitals from the August 31st merger agreement for Disney’s acquisition of Marvel. I’ve noted some big-picture comments in bracketed italics; I’ll spare you my many micro-level objections.

RECITALS

WHEREAS, the parties intend that, subject to the terms and conditions hereinafter set forth [“subject to” phrase occurs several times, but flawed logic–the intent precedes the contract, not the other way round], Merger Sub shall merge with and into the Company (the “Merger”) [appropriate topic for recitals], on the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (“DGCL”);

WHEREAS, the parties intend that the Merger shall be immediately followed by a merger of the Surviving Corporation (as defined below) with and into Merger LLC (the ” Upstream Merger “) [appropriate topic for recitals], on the terms and subject to the conditions of this Agreement and in accordance with the Delaware Limited Liability Company Act (the ” LLC Act “);

WHEREAS, the parties intend that the Merger be mutually interdependent with and a condition precedent to the Upstream Merger and that the Upstream Merger shall, through the binding commitment evidenced by Section 5.18 , be effected immediately following the Effective Time (as defined below), on the terms and subject to the conditions of this Agreement and in accordance with the LLC Act, without further approval, authorization or direction from or by any of the parties hereto [too much information for recitals, and anyway covered in the body of the contract];

WHEREAS, the Boards of Directors of Parent and the Company each have determined that a business combination between Parent and the Company is advisable and in the best interests of their respective companies and stockholders and accordingly have agreed to effect the Merger provided for herein upon the terms and subject to the conditions set forth herein [standard feature of merger-agreement recitals, but is unnecessary, given that authorization is addressed in board consents and in representations in the merger agreement; if this is in effect PR intended for shareholders, that function is better served by the proxy statement];

WHEREAS, simultaneously with the execution and delivery of this Agreement and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, Parent is entering into a voting agreement with the Company and certain stockholders of the Company (the “Voting Agreement”) [if this is a condition to entry into the merger agreement, I’d expect to see that stated in the body of the contract; simpler just to say in the recitals that the parties have entered into the voting agreement]; and

WHEREAS, it is intended that the Merger and the Upstream Merger, considered together as a single integrated transaction for United States federal income Tax purposes along with the other transactions effected pursuant to this Agreement, shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the ” Code “) [omit, as (1) covered in the body of the contract, in obligations relating to tax treatment, and (2) is misleading, as I gather that it’s settled law that intent of the parties doesn’t control the tax consequences of their actions; instead, when referring to the merger for first time say that it’s structured as a regoranization].

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto agree as follows [as always, a joke]:

Recently, the ABA Journal named Ken as one of their fifty “Legal Rebels.” The ABA’s profile of Ken includes a video in which he spend four minutes critiquing two bits of the merger agreement in Oracle’s proposed acquisition of Sun Microsystems.