Portfolio 61-2nd: Negotiated Acquisitions

I. Introduction

II. 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 Considerations

III. Overview of the Acquisition
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 Issues

V. 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 Act

VI. 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 securities

VII. Closing Mechanics
A. Simultaneous Versus Deferred Closings
B. Closing Documents and Certificates
C. In-Person Versus Remote Closings

VIII. Legal Opinions
A. The Purpose of Legal Opinions
B. Typical Coverage of Legal Opinions 5
C. General Provisions in Legal Opinions

IX. 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 Transactions