Corporate Practice Series Portfolio No. 61-3rd, Negotiated Acquisitions, discusses the planning requirements and transactional mechanics of acquiring a company through a negotiated acquisition. The discussion will apply primarily to the acquisition of privately held companies by other privately held companies, for such transactions tend to be heavily negotiated. After identifying the players and their roles in pre-acquisition planning, the portfolio provides an overview of the transaction, considering the possible structures available, and the tax, securities law, and accounting issues involved. The portfolio then examines the due diligence investigation, explores the government's regulatory concerns, discusses the actual negotiations and the closing of the deal, and looks at some of the issues raised in particular transactions.
Portfolio 61-3rd: Negotiated AcquisitionsI. IntroductionII. Pre-Acquisition Planning A. Identifying Client Objectives B. The Acquisition Team 1. Role of attorneys 2. Role of accountants 3. Role of investment bankers 4. Role of brokers 5. Client acquisition team members C. Acquisition Timetable D. Drafting Privileges E. Ethical ConsiderationsII. Pre-Acquisition Planning A. Investigating the Transaction B. Identifying Objectives C. The Acquisition Team 1. Role of attorneys 2. Role of accountants 3. Role of investment bankers and brokers 4. Client acquisition team members
D. Acquisition Timetable E. Drafting Privileges F. Ethical ConsiderationsIII. Overview of the Acquisition . Introductory Material A. Structural Alternatives and Related Considerations 1. Asset acquisitions 2. Stock acquisitions 3. Mergers 4. Business considerations 5. Corporate law considerations a. Board and shareholder approvals b. Filing requirements for mergers c. Anti-takeover statutes B. Federal Income Tax Implications 1. Taxable stock purchase 2. Taxable asset purchase 3. Tax-free transactions (reorganizations) a. Section 368(a)(1)(A): Statutory merger—‘A' reorganization b. Section 368(a)(1)(B): Acquisition of stock in exchange solely for stock—‘B' reorganization c. Section 368(a)(1)(C): Acquisition of assets for stock—‘C' reorganization d. Section 368(a)(2)(D): ‘Forward triangular' merger—‘D' reorganization e. Section 368(a)(2)(E): ‘Reverse triangular' merger—‘E' reorganization C. Federal and State Securities Law Issues 1. Federal securities laws a. Registration exemptions for the buyer (1). Regulation D: Limited offerings (2). Regulation CE (SEC Rule 1001): Coordinated exemptions for certain issues of securities exempt under state law (3). Sections 4(2) and 4(6) of the 1933 Act: Private placements and sales to accredited investors (4). Section 3(a)(10) of the 1933 Act: Approved exchanges (5). Section 3(a)(11) of the 1933 Act and SEC Rule 147: Intrastate offerings (6). Other exemptions under §3(a) of the 1933 Act (7). Regulation A: Simplified registration b. Registration of securities issued by the buyer (1). SEC Form S-4 (2). SEC Form S-3 (3). SEC Form S-2 (4). SEC Form S-1 (5). SEC Forms SB-1 and SB-2 c. Resales of securities received from a buyer (1). Securities received pursuant to a registered offering (2). SEC Rule 144 (3). SEC Rule 145 d. Exemptions from registration for the seller’s shareholders 2. State securities laws a. Exemptions from registration for the buyer b. Registration of securities issued by a buyer c. Exemptions and registration for the seller’s shareholders d. Federal preemption D. Accounting Considerations E. Letters of Intent 1. Protection of the seller’s trade secrets 2. ‘No-shop' or ‘lockup' clauses 3. Binding versus non-binding letters of intent 4. Contents of letters of intent IV. Due Diligence Investigation and Successor Liability Issues A. Purpose of Due Diligence B. Developing a Due Diligence Strategy 1. Information systems department 2. Personnel matters 3. Manufacturing/operations 4. Research and development 5. Marketing and distribution; warranties 6. General accounting 7. Charter documents 8. Good-standing certificates 9. Securities issuances 10. Intellectual property audit 11. Material Contracts a. Identifying contractual concerns b. Assignability of contracts c. Real and personal property leases d. Employment agreements e. Loan agreements and other financial arrangements f. Insurance policies 12. Litigation 13. Ownership of assets 14. Business licenses 15. Environmental audit 16. Insider transactions C. Timing and Mechanics of Due Diligence D. Successor Liability 1. General doctrine of no liability 2. Traditional exceptions to general doctrine a. Express or implied agreement b. Consolidation or de facto merger c. Mere continuation d. Fraud 3. ‘Product line' exception 4. ‘Continuity of enterprise' exception E. Certain Liabilities Imposed By Law 1. Bulk sales 2. Taxes 3. Sales taxes a. Statutory merger or consolidation b. Transfers of intangible property or services c. Occasional or casual sales d. Sales-for-resale e. Manufacturing property f. Transactional exemptions 4. Unemployment insurance F. Environmental Liability G. Employment IssuesV. Regulatory Concerns A. Hart-Scott-Rodino Filing Requirements and Mechanics 1. Jurisdictional prerequisites a. Size of the transaction, size of the parties b. Determining transaction size c. Formation of a joint venture d. Limited liability companies e. Partnerships 2. Exemptions 3. Foreign transactions a. Exemption for acquisitions of foreign assets b. Exemption for acquisitions of voting securities of a foreign issuer c. Additional exemption if both parties are foreign 4. Confidentiality 5. Completing and filing the form B. Other Regulatory Concerns 1. Additional antitrust guidelines 2. U.S. Department of Commerce regulations regarding foreign investors 3. Exon-Florio amendments to the Defense Production Act of 1950 4. The Plant Closing ActVI. Negotiating the Definitive Agreement A. Objectives and Concerns of the Seller B. Objectives and Concerns of the Buyer C. Structuring the Definitive Acquisition Agreement D. Earn-Out Rights 1. Duties to the earn-out holder 2. Earn-out rights as securitiesVII. Closing Mechanics A. Simultaneous Versus Deferred Closings B. Closing Documents and Certificates C. In-Person Versus Remote ClosingsVIII. Legal Opinions A. The Purpose of Legal Opinions B. Typical Coverage of Legal Opinions 5 C. General Provisions in Legal OpinionsIX. Special Acquisitions A. Leveraged Buyouts 1. Fraudulent conveyance issues 2. Other issues a. Transactions with affiliated parties b. Dividends c. Going-private transactions B. Tender Offers 1. Section 14(d) 2. Section 14(e) C. Auction TransactionsXIII. Regulatory Concerns A. Hart-Scott-Rodino Filing Requirements and Mechanics 1. Jurisdictional prerequisites a. Size of the transaction, size of the parties b. Determining transaction size c. Formation of a joint venture d. Limited liability companies e. Partnerships 2. Exemptions 3. Foreign transactions a. Exemption for acquisitions of foreign assets b. Exemption for acquisitions of voting securities of a foreign issuer c. Additional exemption if both parties are foreign 4. Confidentiality 5. Completing and filing the form B. Workers' Adjustment and Retraining Notification Act (‘WARN') C. Other Regulatory Concerns 1. Additional antitrust guidelines 2. U.S. Department of Commerce regulations regarding foreign investors 3. Exon-Florio amendments to the Defense Production Act of 1950 4. The Patriot Act a. Special due diligence for correspondent accounts and private banking accounts b. Prohibition on U.S. correspondent accounts with foreign shell banks c. Cooperative efforts to deter money laundering d. Customer identification programs e. Anti-money laundering programs f. Reporting of suspicious activities by securities brokers and dealers 5. Sarbanes-Oxley Act 6. Foreign Corrupt Practices Act and export control laws 7. Federal and state securities law a. Overview b. Registration exemptions under the federal securities laws (1). Sections 4(2) and 4(6) of the 1933 Act: private placements and sales to accredited investors (2). Regulation D: limited offerings (3). Regulation CE (SEC Rule 1001): coordinated exemptions for certain issues of securities exempt under state law (4). Section 3(a)(10) of the 1933 Act: approved exchanges (5). Section 3(a)(11) of the 1933 Act and SEC Rule 147: intrastate offerings (6). Other exemptions under Section 3(a) of the 1933 Act c. Registration exemptions under state securities laws d. Federal preemption e. Resale restrictions pertaining to securities received in M&A transactions f. SEC Rule 144 g. SEC Rule 145 h. State resale restrictions