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Sales and Mergers of California Businesses

Everything you need to plan, document, and close a business acquisition, sale, or merger. Incisive coverage includes securities law, accounting and tax factors, directors’ duties, indemnification, and other issues in California-based transactions. 

Everything you need to plan, document, and close a business acquisition, sale, or merger. Incisive coverage includes securities law, accounting and tax factors, directors’ duties, indemnification, and other issues in California-based transactions.

  • Overview of merger and acquisition structures
  • Major factors affecting the choice of transaction (with table)
  • Due diligence
  • Tax and accounting factors, securities law considerations
  • Antitrust issues
  • Successor liability, financially troubled businesses
  • Sample letter of intent
  • Sample closing memorandum
  • Annotated forms of stock and asset purchase and sale agreements
  • Annotated form of merger agreement
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Everything you need to plan, document, and close a business acquisition, sale, or merger. Incisive coverage includes securities law, accounting and tax factors, directors’ duties, indemnification, and other issues in California-based transactions.

  • Overview of merger and acquisition structures
  • Major factors affecting the choice of transaction (with table)
  • Due diligence
  • Tax and accounting factors, securities law considerations
  • Antitrust issues
  • Successor liability, financially troubled businesses
  • Sample letter of intent
  • Sample closing memorandum
  • Annotated forms of stock and asset purchase and sale agreements
  • Annotated form of merger agreement

1

Preliminary Considerations

  • I.  DEFINING THE LAWYER’S ROLE  1.1
    • A.  Factors to Consider
      • 1.  Conflicts of Interest  1.2
      • 2.  Involvement of Accountants and Other Specialists  1.3
        • a.  Accountants  1.4
        • b.  Investment Bankers  1.5
        • c.  Form: Broker Agreement  1.5A
        • d.  Form: Finder’s Agreement for Prospective Seller  1.5B
        • e.  Valuation Experts  1.6
      • 3.  Fees and Fee Agreements
        • a.  Estimation and Payment  1.7
        • b.  Requirement for Written Contract  1.8
      • 4.  Length of Lawyer’s Involvement  1.9
    • B.  Lawyer’s Role  1.10
      • 1.  Narrowing the Lawyer’s Role  1.11
      • 2.  Broadening the Lawyer’s Role: Business Adviser and Expert  1.12
  • II.  COORDINATING THE ACQUISITION PROCESS  1.13
    • A.  Sample Closing Memorandum
      • 1.  Form: Title, Table of Contents, Recitals  1.14
      • 2.  Actions Taken Before Closing
        • a.  Form: Caption and Acquiror’s Approval of Real Estate and Stock Purchase Agreement  1.15
        • b.  Form: Shareholder’s Approval of Real Estate and Stock Purchase Agreement  1.16
        • c.  Form: Shareholder’s Delivery of Financial Statements  1.17
        • d.  Form: Preliminary Title Report Delivery  1.18
        • e.  Form: Shareholder Delivers Articles and Bylaws  1.19
        • f.  Form: Shareholder Delivers Schedules of Information and Exceptions  1.20
        • g.  Form: Schedules of Information and Exceptions Delivery  1.21
        • h.  Form: Loan Documents Delivery  1.22
        • i.  Form: Acquiror Opens Escrow  1.23
        • j.  Form: Shareholder Terminates Participation in Retirement Plan  1.24
        • k.  Form: Compliance With Securities Laws  1.25
      • 3.  Form: Preclosing Meeting  1.26
      • 4.  The Closing
        • a.  Form: Caption and Introduction  1.27
        • b.  Form: Delivery of Agreements  1.28
        • c.  Form: Documents Delivered to Acquiror by Shareholder  1.29
        • d.  Form: Documents and Funds Delivered to Shareholder by Acquiror  1.30
        • e.  Form: Funds Delivered to Shareholder by Target  1.31
        • f.  Form: Request for Recordation  1.32
        • g.  Form: Confirmation of Recordation  1.33
      • 5.  Postclosing Actions
        • a.  Form: Target’s Payment to Shareholder  1.34
        • b.  Form: Target’s Name Change or Dissolution  1.35
    • B.  Establishing Priorities  1.36
    • C.  Preparing a Time and Responsibility Chart  1.37
    • D.  Table: Sample Time and Responsibility Chart  1.38
  • III.  UNDERTAKING DUE DILIGENCE
    • A.  Reasons for Due Diligence  1.39
    • B.  Counsel’s Differing Roles in Due Diligence  1.40
    • C.  Division of Responsibility  1.41
    • D.  Confidentiality  1.42
    • E.  Timing of Due Diligence  1.43
    • F.  Collecting Information  1.44
    • G.  Virtual and Physical Data Rooms  1.44A
    • H.  Due Diligence Matters  1.45
      • 1.  Form: Basic Corporate Documents  1.46
      • 2.  Form: Stock and Securities Matters  1.47
      • 3.  Form: Insider Information, Arrangements, and Contracts  1.47A
      • 4.  Form: Business Activities  1.48
      • 5.  Form: Environmental Issues  1.48A
      • 6.  Form: Material Contracts and Permits  1.49
      • 7.  Form: Real and Tangible Personal Property, Financial Assets, and Related Agreements  1.50
      • 8.  Form: Liabilities  1.51
      • 9.  Form: Litigation and Regulatory Issues  1.51A
      • 10.  Form: Employees  1.52
      • 11.  Form: Insurance  1.53
      • 12.  Form: Intellectual Property and Related Rights and Liabilities  1.54
      • 13.  Form: Cybersecurity  1.54A
      • 14.  Form: Tax Matters  1.55
      • 15.  Form: Financial Matters  1.56
      • 16.  Form: Miscellaneous Matters  1.57
      • 17.  Checklist: Due Diligence  1.57A
    • I.  Third Party Verification  1.58
    • J.  Maintenance of Files After Closing  1.59
  • IV.  MAJOR PRELIMINARY CONSIDERATIONS  1.60

2

California Statutory Provisions

  • I.  GENERAL REVIEW
    • A.  Introduction  2.1
    • B.  Approvals Required  2.2
    • C.  Special Problems
      • 1.  Sale of Corporate Division  2.3
      • 2.  Sale of Controlling Interest at Premium  2.4
      • 3.  Leveraged Buyout  2.5
      • 4.  Usury  2.6
  • II.  REORGANIZATIONS
    • A.  Director and Shareholder Approval  2.7
    • B.  Dissenters’ Rights  2.8
  • III.  CONTROLLED CORPORATIONS  2.9
  • IV.  MANAGEMENT BUYOUTS  2.10
  • V.  STOCK REPURCHASES  2.11
  • VI.  NONCOMPETITION COVENANTS  2.12
  • VII.  NONPROFIT CORPORATIONS  2.13
  • VIII.  PSEUDOFOREIGN CORPORATIONS  2.14
  • IX.  MERGERS WITH FOREIGN CORPORATIONS  2.14A
  • X.  BULK SALES LAW AND FRAUDULENT TRANSFER ACT
    • A.  Bulk Sales  2.15
    • B.  Voidable Transactions Act  2.16
  • XI.  PURCHASE AND SALE OF REGULATED BUSINESSES  2.17
  • XII.  LIMITED LIABILITY COMPANIES AND PARTNERSHIPS
    • A.  Limited Liability Companies  2.18
    • B.  Partnerships  2.19
  • XIII.  MERGER AND ACQUISITION STRUCTURES
    • A.  Mergers  2.20
    • B.  Sale of Assets  2.21
    • C.  Stock Sales  2.22
  • XIV.  SUMMARY TABLES OF CALIFORNIA CORPORATE LAW
    • A.  Introduction  2.23
    • B.  Table: Mergers  2.24
    • C.  Table: Sales of Assets  2.25
    • D.  Table: Stock Sales  2.26
    • E.  Notes to Tables  2.27

2A

Directors’ Duties in Takeovers and Mergers

Eric G. Groen

Lawrence P. Schnapp

  • I.  DIRECTORS’ DUTIES IN GENERAL
    • A.  Statutory Basis of Directors’ Duties  2A.1
    • B.  Directors, Officers, and Controlling Shareholders as Fiduciaries  2A.2
    • C.  Business Judgment Rule  2A.3
      • 1.  Elements of Rule  2A.4
        • a.  Requirement of Business Decision  2A.5
        • b.  Requirement of Due Care  2A.6
        • c.  Requirement of Good Faith  2A.7
        • d.  Requirement of Some Basis in Rationality  2A.8
      • 2.  Application to Actions by Officers  2A.9
  • II.  DIRECTORS’ DUTIES IN CONNECTION WITH DEFENSIVE RESPONSES TO TAKEOVER ATTEMPTS  2A.10
    • A.  Delaware Approach
      • 1.  Unocal Test  2A.11
      • 2.  Application of Unocal  2A.12
      • 3.  Expansion and Clarification of Unocal  2A.13
    • B.  Approach in California  2A.14
  • III.  DIRECTORS’ DUTIES IN CONNECTION WITH POTENTIAL SALE OF CORPORATE CONTROL: REVLON AND ITS PROGENY
    • A.  Delaware Approach: “Revlon Duties”  2A.15
    • B.  California Approach  2A.16
    • C.  Negotiated Transactions  2A.17
    • D.  Advice to Directors  2A.18
  • IV.  APPLICATIONS OF BUSINESS JUDGMENT RULE TO SPECIFIC TAKEOVER DEFENSES  2A.19
    • A.  Break-Up Fees and Expense Reimbursement Provisions  2A.20
      • 1.  Cases Upholding  2A.21
      • 2.  Cases Invalidating  2A.22
    • B.  Poison Pills  2A.23
    • C.  Lock-Up Options  2A.24
    • D.  No-Shop Provisions  2A.25
    • E.  Golden Parachutes  2A.26
    • F.  Charter and Bylaw Provisions  2A.27
      • 1.  Fair Price Provisions  2A.28
      • 2.  Supermajority Voting Provisions  2A.29
      • 3.  Election-Related Provisions  2A.30
  • V.  ROLE OF INDEPENDENT DIRECTORS AND OUTSIDE COMMITTEES
    • A.  When Directors Are Interested in the Transaction  2A.31
    • B.  When There Are No Interested Directors  2A.32
  • VI.  NONSHAREHOLDER CONSTITUENCIES  2A.33
  • VII.  TEN PRINCIPLES OF TAKEOVERS  2A.34

3

Tax Factors

  • I.  GENERAL TAX CONCEPTS AND FILING REQUIREMENTS  3.1
    • A.  Tax-Free and Taxable Transactions  3.2
    • B.  Applicable Tax Rates  3.3
      • 1.  Qualified Small Business Stock  3.3A
      • 2.  Alternative Minimum Tax (AMT)  3.3B
    • C.  Advance Rulings  3.4
  • II.  TAX-FREE TRANSACTIONS
    • A.  IRC §368 Reorganizations  3.5
      • 1.  Different Forms of Reorganization Transaction  3.6
        • a.  Type A Reorganization  3.7
        • b.  Type B Reorganization  3.8
        • c.  Type C Reorganization  3.9
        • d.  Reverse Triangular Merger  3.10
        • e.  Variations for Subsidiary/Parent Transactions  3.11
      • 2.  Additional Requirements for Reorganizations  3.12
        • a.  Plan of Reorganization  3.13
        • b.  Valid Business Purpose  3.14
        • c.  Step Transactions and Substance Over Form  3.15
        • d.  Economic Substance Doctrine  3.15A
        • e.  Continuity of Business Interest  3.16
        • f.  Continuity of Shareholders’ Interest  3.17
    • B.  Treatment of “Boot”  3.18
    • C.  Other Tax-Free Transactions
      • 1.  IRC §351 Transfers to Controlled Corporations  3.19
      • 2.  IRC §1031 Like-Kind Exchanges  3.20
    • D.  Contingent Stock and Imputed Interest  3.21
    • E.  Stock Rights and Warrants; Planning Considerations  3.21A
      • 1.  Voting Stock Requirement  3.21B
      • 2.  Eighty Percent Control  3.21C
      • 3.  Continuity of Shareholder Interest  3.21D
      • 4.  Warrants as Sole Consideration  3.21E
  • III.  TAXABLE TRANSACTIONS
    • A.  Forms of Transactions  3.22
      • 1.  Sale of Stock  3.23
        • a.  IRC §338 Elections  3.24
        • b.  Zenz or Bootstrap Transactions  3.25
          • (1)  Tax Treatment of Dividends Before Sale  3.26
          • (2)  Deductibility of Redemption Fees and Expenses  3.27
      • 2.  Sale of Assets  3.28
        • a.  Treatment of Goodwill  3.28A
        • b.  Character of Gain  3.29
        • c.  Assumption of Liabilities  3.30
      • 3.  Forward and Reverse Mergers
        • a.  Taxable Forward Merger  3.31
        • b.  Taxable Reverse Merger  3.32
      • 4.  S Corporations and C Corporation Conversion  3.33
    • B.  IRC §197: Goodwill and Other Intangibles  3.34
      • 1.  IRC §197 Definition of Intangibles  3.35
      • 2.  Exclusions From Definition of §197 Intangibles  3.36
      • 3.  Reporting Requirements  3.37
      • 4.  Covenants Not to Compete: Special Issues  3.38
    • C.  Installment Sale and Contingent Payments  3.39
    • D.  Imputed Interest  3.40
  • IV.  STATE AND LOCAL TAXES  3.41
    • A.  California Sales Tax  3.42
      • 1.  Occasional Sale Exemption  3.43
      • 2.  Sales Tax on Assumption of Liabilities  3.44
    • B.  California Property Tax  3.45
  • V.  DEDUCTIBILITY OF TRANSACTION EXPENSES
    • A.  INDOPCO Doctrine  3.46
    • B.  Regulations Under IRC §263  3.46A
      • 1.  “But For” Not Determinative  3.46B
      • 2.  Bright-Line Rule; Inherently Facilitative Costs  3.46C
      • 3.  Defense Costs for Hostile Takeovers  3.46D
      • 4.  Success-Based Fees  3.46E
      • 5.  Break-Up Fees  3.46F
      • 6.  Salaries, Overhead, and De Minimis Costs  3.46G
    • C.  Debt-Related Costs  3.46H
  • VI.  NET OPERATING LOSSES
    • A.  General NOL Rules  3.47
    • B.  NOLs in Corporate Acquisitions  3.47A
  • VII.  DEDUCTIBILITY OF INTEREST EXPENSE
    • A.  30 Percent Limitation on Interest Expense Deductibility  3.47B
    • B.  Limitation on Deductibility of Interest on Certain Acquisition Indebtedness  3.47C
  • VIII.  DEPRECIATION OF ASSETS; IMMEDIATE EXPENSING
    • A.  Depreciation Generally  3.47D
    • B.  Bonus Depreciation of Capital Assets  3.47E
    • C.  Immediate Expensing of Qualifying Property  3.47F
  • IX.  OTHER SPECIAL TAX CONSIDERATIONS
    • A.  Compensation Matters Generally  3.48
    • B.  Golden Parachute Payments (IRC §280G)  3.49
    • C.  Qualified Retirement Plans  3.50
    • D.  ESOPs and ESOTs  3.51
    • E.  Consolidated Tax Returns  3.52
    • F.  Tax-Free Separation of Unwanted Assets  3.53

4

Securities Law Factors

  • I.  OVERVIEW  4.1
    • A.  Applicability of Securities Laws
      • 1.  Cash and Other Nonsecurity Consideration  4.2
      • 2.  Promissory Notes as Securities  4.3
      • 3.  Family Resemblance Test  4.4
      • 4.  Incidental to Sale of Business  4.5
    • B.  Consequences of Noncompliance With Securities Regulations  4.6
  • II.  ACQUIRING CORPORATION’S COMPLIANCE WITH SECURITIES LAWS
    • A.  Federal Securities Laws
      • 1.  Overview: Securities Act of 1933  4.7
      • 2.  Registration Under Rule 145  4.8
      • 3.  Securities Act §4(2)  4.9
      • 4.  Regulation D  4.10
        • a.  Rule 504  4.11
        • b.  Rule 505 (Repealed)  4.12
        • c.  Rule 506  4.13
          • (1)  “Bad Actor” Disqualification  4.13A
          • (2)  Additional Reg D Provisions  4.14
      • 5.  Securities Act §3(a)(10) Fairness Hearing  4.15
      • 6.  Intrastate Exemptions: Securities Act §3(a)(11), SEC Rules 147 and 147A  4.16
      • 7.  Regulation A and Regulation A+  4.17
      • 8.  Crowdfunding Exemption  4.17A
    • B.  California
      • 1.  SCOR Offering  4.18
      • 2.  Regulation D Preemption  4.19
      • 3.  California Qualification Requirements  4.20
      • 4.  Qualification Methods and Exemptions
        • a.  Permit After Fairness Hearing  4.21
        • b.  Exemptions From Qualifications  4.22
          • (1)  Corporations Code §25100(o)  4.23
          • (2)  Corporations Code §25103(c)–(d)  4.24
          • (3)  Corporations Code §25102(f)  4.25
          • (4)  Corporations Code §25102(n)  4.26
          • (5)  Corporations Code §25103(h)  4.27
          • (6)  10 Cal Code Regs §260.105.15  4.28
          • (7)  10 Cal Code Regs §260.103  4.29
      • 5.  Business Oversight Commissioner’s Consent  4.30
  • III.  DISCLOSURE REQUIREMENTS  4.31
    • A.  Issuer Obligations to Securities Recipient  4.32
    • B.  Issuer Obligations to the Securities Markets  4.33
  • IV.  INSIDER ISSUES  4.34
    • A.  Insider Trading  4.35
    • B.  Short-Swing Profits  4.36
  • V.  FREEZE-OUT MERGERS  4.37
  • VI.  RESALES OF STOCK RECEIVED  4.38
    • A.  Federal  4.38A
      • 1.  Rule 144  4.39
        • a.  “Restricted Securities”  4.40
        • b.  “Affiliate” Defined  4.41
        • c.  Reporting Requirements  4.42
        • d.  Volume Limitations  4.43
        • e.  Manner of Sale  4.44
        • f.  Holding Period  4.45
        • g.  Chart: Summary of Conditions Applicable to Resale Under Rule 144  4.45A
        • h.  Rule 144A  4.46
      • 2.  Rule 701  4.47
      • 3.  Rule 145  4.48
      • 4.  Private (Nonpublic) Resales of Restricted Securities  4.49
      • 5.  Registered Securities  4.50
      • 6.  Securities Act §3(a)(10) Fairness Hearing  4.51
    • B.  Intrastate Offerings  4.52
    • C.  Table: Effects of Securities Laws on Liquidity  4.53
  • VII.  ADDITIONAL CONSIDERATIONS  4.54

5

Antitrust Factors

  • I.  RELEVANT STATUTES  5.1
  • II.  FEDERAL LAW
    • A.  Hart­Scott­Rodino Act and Premerger Notification  5.2
    • B.  Clayton Act  5.3
      • 1.  Coverage  5.4
      • 2.  Substantive Analysis  5.5
    • C.  Sherman Act §1: Unreasonable Restraint of Trade  5.6
    • D.  Sherman Act §2: Monopolies  5.7
  • III.  CALIFORNIA LAW
    • A.  Unfair Competition Law  5.8
    • B.  State Enforcement  5.9

6

Seller’s Liabilities and Financially Troubled Businesses

  • I.  GENERAL CONCERNS
    • A.  What Are Seller’s Liabilities?   6.1
    • B.  Buyer’s Risks and Deal Structure  6.1A
    • C.  WARN Act Requirements  6.1B
  • II.  BUYER’S PROTECTIVE MEASURES  6.2
  • III.  SUCCESSOR LIABILITY  6.3
    • A.  Common Law Principles and Product-Line Liability  6.4
      • 1.  Assumption of Liability  6.5
      • 2.  De Facto Merger  6.6
      • 3.  Mere Continuation Theory  6.7
      • 4.  Fraud  6.8
      • 5.  Product-Line Liability  6.9
    • B.  California Sales and Use Taxes  6.10
    • C.  California Employment Development Department  6.11
    • D.  California Franchise Tax Board (Withholding Taxes)  6.12
    • E.  Hazardous Waste Disposal and Cleanup  6.13
    • F.  Collective Bargaining Obligations; Other Employment-Related Liabilities  6.14
  • IV.  INSURANCE BENEFITS  6.15
  • V.  DISSOLVED CORPORATIONS  6.16
  • VI.  BULK SALES LAW  6.17
  • VII.  UNIFORM VOIDABLE TRANSACTIONS ACT AND RELATED LAWS  6.18
  • VIII.  DIRECTOR RESPONSIBILITIES  6.19

7

Major Factors Affecting a Choice of the Transaction (With Table)

  • I.  GENERAL GUIDE  7.1
  • II.  TABLE: SUMMARY OF FACTORS AND TRANSACTION CHOICE  7.2
  • III.  FACTORS  7.3
    • A.  Corporate Approval  7.4
    • B.  Tax-Free Reorganization and Boot  7.5
    • C.  Taxable Transaction  7.6
    • D.  Seller’s Liabilities and Obligations  7.7
    • E.  Nonassignable Contracts, Leases, and Other Rights  7.8
    • F.  Resulting Minority Interests  7.9
    • G.  California Sales Tax  7.10
    • H.  Unwanted Assets in Tax-Free Reorganization  7.11
    • I.  Securities Laws  7.12

7A

Intellectual Property Issues in Merger and Acquisition Agreements

Stephen D. Gillespie

  • I.  INTRODUCTION: ROLE OF INTELLECTUAL PROPERTY COUNSEL  7A.1
  • II.  FUNCTIONS OF INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES  7A.2
    • A.  Confirming Seller’s Disclosures  7A.3
    • B.  Risk Allocation  7A.4
    • C.  Creating Closing Conditions  7A.5
    • D.  Postclosing Remedies  7A.6
      • 1.  Indemnification  7A.7
      • 2.  Escrows and Deferred Consideration  7A.8
      • 3.  Remedies in Mergers and Acquisitions of Public Companies  7A.9
  • III.  LIMITING SELLER’S LIABILITY  7A.10
    • A.  Time of Application  7A.11
    • B.  Knowledge Qualifiers  7A.12
    • C.  Materiality Qualifiers  7A.13
  • IV.  HOW DEAL STRUCTURE AFFECTS INTELLECTUAL PROPERTY CONSIDERATIONS  7A.14
    • A.  Stock Purchases  7A.15
    • B.  Statutory Mergers  7A.16
      • 1.  Straight-In Mergers  7A.17
      • 2.  Forward Triangular Mergers  7A.18
      • 3.  Reverse Triangular Mergers  7A.19
    • C.  Asset Purchases  7A.20
  • V.  TYPICAL INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES  7A.21
    • A.  Intellectual Property Definitions  7A.22
    • B.  No Adverse Effect  7A.23
    • C.  Ownership and License  7A.24
    • D.  Sufficiency  7A.25
    • E.  Schedule of Registered Intellectual Property  7A.26
    • F.  Schedule of Inbound Licenses and Royalties  7A.27
    • G.  No Pending or Threatened Infringement Claims by Third Parties  7A.28
    • H.  Noninfringement by Seller  7A.29
    • I.  Noninfringement by Third Parties  7A.30
    • J.  Employee and Consultant Invention Assignments  7A.31
    • K.  Contracts Restricting Operation of Business  7A.32
    • L.  Government Funding; University Affiliations  7A.33
    • M.  Open Source Software  7A.34
    • N.  No Prior Sale of Intellectual Property  7A.35
    • O.  Validity of Registered Intellectual Property  7A.36
    • P.  No Encumbrances  7A.37
    • Q.  Opinion of Counsel Regarding Infringement  7A.38
    • R.  Protection of Trade Secrets and Other Confidential Information  7A.39
    • S.  Membership in Standards Organizations  7A.40
    • T.  Compliance With Customer Warranties  7A.41
    • U.  Compliance With Privacy Laws  7A.42
    • V.  Source Code Escrows  7A.43
  • VI.  CONCLUSION: KEEPING INTELLECTUAL PROPERTY ISSUES IN PERSPECTIVE  7A.44
  • VII.  CHECKLIST OF TYPICAL INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES  7A.45

8

Letters of Intent

  • I.  USE OF LETTERS OF INTENT  8.1
  • II.  SAMPLE FORM: LETTER OF INTENT
    • A.  Use of Sample Form  8.2
    • B.  Form: Introductory Matter  8.3
    • C.  Form: Description of Transaction  8.4
    • D.  Form: Accuracy of Financial Statements  8.5
    • E.  Form: Closing Date  8.6
    • F.  Form: Conduct of Business Before Closing  8.7
    • G.  Form: Repayment of Loans and Release  8.8
    • H.  Form: Definitive Agreement  8.9
    • I.  Form: Parties’ Agreement; Introduction  8.10
      • 1.  Form: Confidentiality  8.11
      • 2.  Form: Publicity  8.12
      • 3.  Form: Fees and Expenses  8.13
      • 4.  Form: Broker’s or Finder’s Fees  8.14
      • 5.  Form: Buyer’s Investigation  8.15
      • 6.  Form: No Negotiations With Other Parties  8.16
    • J.  Form: Nonbinding Nature of Letter of Intent  8.17
    • K.  Form: Signatures  8.18

8A

Indemnification Issues

Neal H. Brockmeyer

Eric S. Waxman

  • I.  USE OF INDEMNIFICATION PROVISIONS  8A.1
  • II.  PROCESS OF NEGOTIATION  8A.2
  • III.  DRAFTING CONSIDERATIONS  8A.3
  • IV.  WHEN INDEMNIFICATION IS APPROPRIATE  8A.4
  • V.  KEY ELEMENTS
    • A.  Scope  8A.5
    • B.  Special Indemnity  8A.6
    • C.  Persons Indemnified  8A.7
    • D.  Persons Liable  8A.8
    • E.  Losses Recoverable  8A.9
    • F.  Calculating Lost Profits  8A.9A
    • G.  Form of Payment  8A.10
  • VI.  IMPACT OF KNOWLEDGE  8A.11
  • VII.  SHOULD INDEMNIFICATION BE THE EXCLUSIVE REMEDY?  8A.12
    • A.  LIMITATIONS  8A.13
    • B.  Minimum Indemnification Amount  8A.14
    • C.  Maximum Indemnification Amount  8A.15
    • D.  Tax Benefits  8A.16
    • E.  Insurance  8A.17
    • F.  Found Assets  8A.18
    • G.  Post-Closing Adjustments  8A.19
    • H.  Survival and Time Limits  8A.20
    • I.  Conduct of Indemnified Party  8A.21
  • VIII.  HOW CAN A BUYER ASSURE RECOVERY?
    • A.  Setoffs  8A.22
    • B.  Escrows  8A.23
    • C.  Letters of Credit  8A.24
    • D.  Insurance  8A.25
  • IX.  THIRD PARTY CLAIMS  8A.26
  • X.  DISPUTE RESOLUTION MECHANISM  8A.27
  • XI.  ETHICAL ISSUES
    • A.  Representing Multiple Indemnifying Parties  8A.28
    • B.  When a Dispute Arises  8A.29
    • C.  INDEMNIFICATION CHECKLIST  8A.30

9

Short Forms of Agreement

  • I.  INTRODUCTION
    • A.  Short Form of Asset Purchase and Sale Agreement  9.1
    • B.  Short Form of Stock Purchase and Sale Agreement  9.1A
  • II.  SHORT FORM OF ASSET PURCHASE AND SALE AGREEMENT
    • A.  Form: Introductory Clause  9.2
    • B.  Form: Sale and Purchase of Assets  9.3
    • C.  Form: Purchase Price and Payment  9.4
    • D.  Form: Liabilities, Bulk Sales Law, and Sales Tax  9.5
    • E.  Form: Lease and Other Obligations  9.6
    • F.  Form: Seller’s Representations, Warranties, and Covenants  9.7
      • 1.  Form: Approval, Authority, and Ownership  9.8
      • 2.  Form: Financial Statements and Business Conduct  9.9
      • 3.  Form: Assets Condition  9.10
      • 4.  Form: Existing Relationships  9.11
      • 5.  Form: Distributions and Compensation Payments  9.12
      • 6.  Form: Claims and Litigation  9.13
      • 7.  Form: Seller’s Knowledge and Disclosure  9.14
      • 8.  Form: Seller Covenants  9.15
    • G.  Form: Buyer’s Representations, Warranties, and Covenants  9.16
    • H.  Form: Arbitration  9.17
    • I.  Form: Notices  9.18
    • J.  Form: Construction  9.19
  • III.  SHORT FORM OF STOCK PURCHASE AND SALE AGREEMENT
    • A.  Form: Introductory Clause  9.20
    • B.  Form: Purchase and Sale of Shares  9.21
    • C.  Form: Representations and Warranties of Company and Sellers  9.22
      • 1.  Form: Due Incorporation, Qualification, and Corporate Power  9.23
      • 2.  Form: Outstanding Capital Stock; Title  9.24
      • 3.  Form: Subsidiaries and Other Affiliates  9.25
      • 4.  Form: Consents  9.26
      • 5.  Form: No Material Breach  9.27
      • 6.  Form: Financial Statements of Company  9.28
      • 7.  Form: Absence of Certain Changes  9.29
      • 8.  Form: Tax Matters  9.30
      • 9.  Form: Litigation  9.31
      • 10.  Form: Compliance With Laws  9.32
      • 11.  Form: Title to and Condition of Assets  9.33
      • 12.  Form: Inventory  9.34
      • 13.  Form: Product Recall  9.35
      • 14.  Form: Labor Matters  9.36
      • 15.  Form: Intellectual Property  9.37
      • 16.  Form: Privacy and Data Security Compliance  9.37A
      • 17.  Form: Employee Benefits Plan  9.38
      • 18.  Form: Employment Contracts  9.39
      • 19.  Form: Contracts  9.40
      • 20.  Form: Insurance  9.41
      • 21.  Form: Environmental Compliance  9.42
      • 22.  Form: Related Transactions  9.43
      • 23.  Form: Knowledge  9.44
      • 24.  Form: Survival  9.45
    • D.  Form: Representations and Warranties of Buyer  9.46
      • 1.  Form: Due Incorporation  9.47
      • 2.  Form: Power and Authority  9.48
      • 3.  Form: Consents  9.49
      • 4.  Form: No Breach  9.50
      • 5.  Form: Financing  9.51
      • 6.  Form: Investment Intent  9.52
      • 7.  Form: Survival  9.53
    • E.  Form: Covenants of Company and Sellers  9.54
      • 1.  Form: Operation of Business of the Company  9.55
      • 2.  Form: Access to Records  9.56
      • 3.  Form: Consents  9.57
      • 4.  Form: Notification  9.58
      • 5.  Form: Other Transactions  9.59
      • 6.  Form: Hart­Scott­Rodino Act  9.60
    • F.  Form: Buyer’s Covenants  9.61
      • 1.  Form: Confidentiality  9.62
      • 2.  Form: Hart­Scott­Rodino Act  9.63
      • 3.  Form: Notification of Certain Matters  9.64
      • 4.  Form: Company Records  9.65
      • 5.  Form: Brokers and Finders  9.66
    • G.  Form: Conditions to Buyer’s Obligations  9.67
      • 1.  Form: Representations and Covenants  9.68
      • 2.  Form: Compliance With Hart-Scott-Rodino Act  9.69
      • 3.  Form: Resignation of Directors  9.70
      • 4.  Form: No Knowledge of Breach by Other Parties  9.71
      • 5.  Form: Opinion of Counsel  9.72
    • H.  Form: Conditions to Sellers’ Obligations  9.73
      • 1.  Form: Representations and Covenants  9.74
      • 2.  Form: Hart-Scott-Rodino Act  9.75
      • 3.  Form: No Knowledge of Breach by Other Party  9.76
    • I.  Indemnification and Certain Remedies
      • 1.  Form: Sellers’ Obligation  9.77
      • 2.  Form: Buyer’s Obligation  9.78
      • 3.  Form: Claims  9.79
    • J.  Termination and Abandonment
      • 1.  Form: Methods of Termination  9.80
      • 2.  Form: Procedure on Termination  9.81
    • K.  Miscellaneous Provisions
      • 1.  Form: Counterparts  9.82
      • 2.  Form: Notices  9.83
      • 3.  Form: Public Announcement  9.84
      • 4.  Form: Successors and Assigns  9.85
      • 5.  Form: Governing Law  9.86
      • 6.  Form: Waiver and Modification  9.87
      • 7.  Form: Entire Agreement  9.88
      • 8.  Form: Severability  9.89
      • 9.  Form: Interpretation  9.90
      • 10.  Form: Third Party Beneficiaries  9.91
      • 11.  Form: Arbitration of Disputes  9.92
    • L.  Form: Signatures  9.93

10

Stock Purchase and Sale Agreement

  • I.  INTRODUCTION  10.1
    • A.  Form: Introductory Clause  10.2
    • B.  Form: Recitals  10.3
  • II.  ARTICLE 1: PURCHASE AND SALE OF SHARES
    • A.  Form: Tax-Free Reorganization  10.4
    • B.  Form: Sale and Transfer of Shares  10.5
    • C.  Consideration From Buyer at Closing
      • 1.  Form: Introduction  10.6
      • 2.  Form: Cash  10.7
      • 3.  Form: Note  10.8
        • a.  Form: Shares as Security  10.9
        • b.  Form: Guaranty  10.10
      • 4.  Shares of Buyer’s Stock  10.11
        • a.  Form: Number Specified  10.12
        • b.  Form: Number Determined at Closing  10.13
        • c.  Form: Number Based on Average Value  10.14
        • d.  Form: Number Limited  10.15
    • D.  Contingent Consideration
      • 1.  Form: Fluctuating Assets  10.16
      • 2.  Form: Consideration Based on Future Operations  10.17
    • E.  Form: Payment for Noncompetition Covenant  10.18
    • F.  Holdbacks  10.19
      • 1.  Form: Promissory Note Clause for Holdback  10.20
      • 2.  Form: Cash Holdback Provision  10.21
      • 3.  Form: Stock Holdback Provision  10.22
  • III.  ARTICLE 2: WARRANTIES OF SELLING PARTIES
    • A.  Form: Introduction  10.23
    • B.  Form: Organization, Standing, and Qualification of Corporation  10.24
    • C.  Stock of Corporation
      • 1.  Form: Capital Structure  10.25
      • 2.  Form: Title to Shares  10.26
    • D.  Form: Subsidiaries  10.27
    • E.  Form: Financial Statements  10.28
    • F.  Form: Absence of Specified Changes  10.29
    • G.  Form: Absence of Undisclosed Liabilities  10.30
    • H.  Form: Tax Returns and Audits  10.31
    • I.  Assets of Business  10.32
      • 1.  Real Property
        • a.  Form: Description  10.33
        • b.  Form: Zoning  10.34
        • c.  Form: Hazardous Materials  10.35
      • 2.  Form: Inventory  10.36
      • 3.  Form: Other Tangible Personal Property  10.37
      • 4.  Form: Accounts Receivable  10.38
      • 5.  Form: Trade Names, Trademarks, and Copyrights  10.39
      • 6.  Form: Patents and Patent Rights  10.40
      • 7.  Form: Trade Secrets  10.41
      • 8.  Form: Shareholder’s Name  10.42
    • J.  Form: Title to Assets  10.43
    • K.  Form: Customers and Sales  10.44
    • L.  Form: Insurance Policies  10.45
    • M.  Form: Other Contracts  10.46
    • N.  Form: Compliance With Laws  10.47
    • O.  Form: Privacy and Data Security  10.47A
    • P.  Form: Litigation  10.48
    • Q.  Form: Agreement Will Not Cause Breach or Violation  10.49
    • R.  Form: Authority and Consents  10.50
    • S.  Form: Interest in Customers, Suppliers, and Competitors  10.51
    • T.  Form: Corporate Documents  10.52
    • U.  Personnel
      • 1.  Form: Identification and Compensation  10.53
      • 2.  Form: Employment Contracts and Benefits  10.54
      • 3.  Form: Persons With Certain Authority  10.55
    • V.  Form: Information for Buyer’s Shareholders  10.56
    • W.  Form: Full Disclosure  10.57
  • IV.  ARTICLE 3: BUYER’S REPRESENTATIONS AND WARRANTIES
    • A.  Form: Cash Sale  10.58
    • B.  Noncash Sale  10.59
  • V.  ARTICLE 4: SELLING PARTIES’ OBLIGATIONS BEFORE CLOSING
    • A.  Form: Selling Parties’ Obligations Before Closing; Introduction  10.60
    • B.  Form: Buyer’s Access to Premises and Information  10.61
    • C.  Form: Conduct of Business in Normal Course  10.62
    • D.  Form: Preservation of Business and Relationships  10.63
    • E.  Form: Corporate Matters  10.64
    • F.  Form: Maintenance of Insurance  10.65
    • G.  Form: Employees and Compensation  10.66
    • H.  Form: New Transactions  10.67
    • I.  Form: Dividends, Distributions, and Stock Acquisitions  10.68
    • J.  Form: Payment of Liabilities and Waiver of Claims  10.69
    • K.  Form: Existing Agreements  10.70
    • L.  Form: Consents of Others  10.71
    • M.  Form: Documentation of Procedures and Trade Secrets  10.72
    • N.  Form: Warranties True at Closing  10.73
  • VI.  ARTICLE 5: BUYER’S OBLIGATIONS BEFORE CLOSING
    • A.  Form: Information to Hold in Confidence  10.74
    • B.  Other Obligations  10.75
  • VII.  ARTICLE 6: CONDITIONS PRECEDENT TO BUYER’S PERFORMANCE
    • A.  Form: Conditions Precedent to Buyer’s Performance; Introduction  10.76
    • B.  Form: Accuracy of Selling Parties’ Warranties  10.77
    • C.  Form: Performance by Selling Parties  10.78
    • D.  Form: No Material Adverse Change  10.79
    • E.  Form: Certification by Selling Parties  10.80
    • F.  Form: Opinion of Selling Parties’ Counsel  10.81
    • G.  Form: Absence of Litigation  10.82
    • H.  Form: Letter Regarding Corporation’s Financial Changes  10.83
    • I.  Form: Corporate Approval  10.84
    • J.  Form: Title Policies  10.85
    • K.  Form: Franchise Tax Board Clearance [Deleted]  10.86
    • L.  Form: Employment Development Department Release  10.87
    • M.  Form: FIRPTA Withholding  10.88
    • N.  Form: Consents  10.89
    • O.  Form: Employment Agreement  10.90
    • P.  Form: Approval of Documentation  10.91
    • Q.  Form: Resignations  10.92
    • R.  Form: Other Agreements  10.93
    • S.  Other Conditions  10.94
  • VIII.  ARTICLE 7: CONDITIONS PRECEDENT TO SELLER’S PERFORMANCE
    • A.  Form: Introduction  10.95
    • B.  Form: Accuracy of Buyer’s Representations and Warranties  10.96
    • C.  Form: Buyer’s Performance  10.97
    • D.  Form: Opinion of Buyer’s Counsel  10.98
    • E.  Form: Buyer’s Corporate Approval  10.99
    • F.  Form: Qualification With California Commissioner of Business Oversight  10.100
    • G.  Form: Listing of Buyer’s Stock  10.101
    • H.  Form: Investment Undertaking  10.102
    • I.  Form: Absence of Litigation  10.103
    • J.  Other Conditions Precedent  10.104
  • IX.  ARTICLE 8: THE CLOSING
    • A.  Form: Time and Place  10.105
    • B.  Form: Selling Parties’ Obligations at Closing  10.106
    • C.  Form: Buyer’s Obligations at Closing  10.107
  • X.  ARTICLE 9: SELLING PARTIES’ OBLIGATIONS AFTER CLOSING
    • A.  Form: Guaranty of Accounts Receivable  10.108
    • B.  Form: Assignment of Delinquent Accounts to Shareholder  10.109
    • C.  Form: Seller’s Indemnity
      • 1.  Form: Basic Provisions  10.110
      • 2.  Form: Deduction for Buyer’s Tax Benefits  10.111
      • 3.  Form: Sellers’ Right to Defend  10.112
    • D.  Form: Shareholder’s Competition  10.113
  • XI.  ARTICLE 10: BUYER’S OBLIGATIONS AFTER CLOSING
    • A.  Form: Continuation of Employee Benefits  10.114
    • B.  Form: Buyer’s Indemnity  10.115
    • C.  Registration Rights  10.116
  • XII.  FORM: ARTICLE 11: PUBLICITY  10.117
  • XIII.  ARTICLE 12: COSTS
    • A.  Form: Finder’s or Broker’s Fees  10.118
    • B.  Form: Expenses  10.119
  • XIV.  ARTICLE 13: FORM OF AGREEMENT
    • A.  Form: Effect of Headings  10.120
    • B.  Form: Word Usage  10.121
    • C.  Form: Entire Agreement; Modification; Waiver  10.122
    • D.  Form: Counterparts; Delivery by E-mail or Facsimile  10.123
  • XV.  ARTICLE 14: PARTIES
    • A.  Form: Parties in Interest  10.124
    • B.  Form: Assignment  10.125
  • XVI.  ARTICLE 15: REMEDIES
    • A.  Form: Arbitration  10.126
    • B.  Form: Specific Performance and Waiver of Rescission Rights  10.127
    • C.  Form: Recovery of Litigation Costs  10.128
    • D.  Termination
      • 1.  Form: Conditions Permitting Termination  10.129
      • 2.  Form: Defaults Permitting Termination  10.130
  • XVII.  FORM: ARTICLE 16: NATURE AND SURVIVAL OF WARRANTIES AND OBLIGATIONS  10.131
  • XVIII.  FORM: ARTICLE 17: NOTICES  10.132
  • XIX.  FORM: ARTICLE 18: GOVERNING LAW  10.133
  • XX.  FORM: ARTICLE 19: SEVERABILITY  10.134
  • XXI.  FORM: ARTICLE 20: CONFLICTS; ATTTORNEY-CLIENT PRIVILEGE  10.135
  • XXII.  FORM: SIGNATURES  10.136
  • XXIII.  FORM: DELIVERY OF EXHIBITS  10.137
  • XXIV.  FORM: LIST OF EXHIBITS USED IN AGREEMENT  10.138

11

Asset Purchase and Sale Agreement

  • I.  INTRODUCTION  11.1
    • A.  Form: Introductory Clause  11.2
    • B.  Form: Recitals  11.3
    • C.  Form: Definitions  11.4
  • II.  ARTICLE 1: PURCHASE AND SALE OF ASSETS
    • A.  Form: Tax-Free Reorganization  11.5
    • B.  Form: Sale and Transfer of Assets  11.6
    • C.  Form: Consideration From Buyer at Closing  11.7
      • 1.  Form: Payment by Wire Transfer  11.8
      • 2.  Form: Payment by Note; Security  11.9
      • 3.  Form: Note Guaranty  11.10
      • 4.  Form: Shares of Buyer’s Stock  11.11
      • 5.  Form: Payment for Fluctuating Assets  11.12
    • D.  Form: Assumption of Liabilities  11.13
    • E.  Consideration Based on Future Operations  11.14
    • F.  Form: Holdback Provision  11.15
    • G.  Form: Purchase Price and Allocation  11.16
    • H.  Form: Excise and Property Taxes  11.17
  • III.  ARTICLE 2: WARRANTIES OF SELLING PARTIES
    • A.  Form: Warranties of Selling Parties; Introduction  11.18
    • B.  Form: Organization, Standing, and Qualification of Corporation  11.19
    • C.  Stock of Corporation
      • 1.  Form: Capital Structure  11.20
      • 2.  Form: Title to Shares  11.21
    • D.  Form: Subsidiaries  11.22
    • E.  Form: Financial Statements  11.23
    • F.  Form: Absence of Changes in Corporation or Subsidiary  11.24
    • G.  Claims and Liabilities
      • 1.  Form: Debts, Obligations, and Liabilities  11.25
      • 2.  Creditors  11.26
    • H.  Form: Tax Returns and Audits  11.27
    • I.  Assets of Business
      • 1.  Real Property
        • a.  Form: Listed or Described  11.28
        • b.  Form: Zoning  11.29
        • c.  Form: Hazardous Materials  11.30
      • 2.  Form: Inventory  11.31
      • 3.  Form: Other Tangible Personal Property  11.32
      • 4.  Form: Accounts Receivable  11.33
      • 5.  Form: Intellectual Property  11.34
      • 6.  Form: Shareholder’s Name  11.35
      • 7.  Form: Other Intangible Property  11.36
    • J.  Form: Title to Assets; Sufficiency of Assets  11.37
    • K.  Form: Customers and Sales  11.38
    • L.  Form: Employment Contracts and Benefits  11.39
    • M.  Form: Insurance Policies  11.40
    • N.  Form: Other Contracts  11.41
    • O.  Form: Compliance With Laws  11.42
    • P.  Form: Privacy and Data Security  11.42A
    • Q.  Form: Litigation  11.43
    • R.  Form: Agreement Will Not Cause Breach or Violation  11.44
    • S.  Form: Authority and Consents  11.45
    • T.  Form: Interest in Customers, Suppliers, and Competitors  11.46
    • U.  Form: Corporate Documents  11.47
    • V.  Personnel
      • 1.  Form: Identity and Compensation  11.48
      • 2.  Form: Persons With Certain Authority  11.49
    • W.  Form: Information for Buyer’s Shareholders  11.50
    • X.  Prospectus Information  11.51
    • Y.  Form: Full Disclosure  11.52
  • IV.  ARTICLE 3: BUYER’S WARRANTIES
    • A.  Form: Cash Sale  11.53
    • B.  Noncash Sale  11.54
  • V.  ARTICLE 4: SELLING PARTIES’ OBLIGATIONS BEFORE CLOSING
    • A.  Form: Sellers’ Obligations; Introduction  11.55
    • B.  Form: Buyer’s Access to Premises and Information  11.56
    • C.  Form: Conduct of Business in Normal Course  11.57
    • D.  Form: Preservation of Business and Relationships  11.58
    • E.  Form: Corporate Matters  11.59
    • F.  Form: Maintenance of Insurance  11.60
    • G.  Form: Employees and Compensation  11.61
    • H.  Form: New Transactions  11.62
    • I.  Form: Dividends, Distributions, and Acquisitions of Stock  11.63
    • J.  Form: Payment of Liabilities and Waiver of Claims  11.64
    • K.  Form: Existing Agreements  11.65
    • L.  Form: Consents of Others  11.66
    • M.  Form: Documentation of Procedures and Trade Secrets  11.67
    • N.  Form: Approval of Governmental Authorities  11.68
    • O.  Form: Corporate and Shareholder Approvals  11.69
    • P.  Form: Information to Be Held in Confidence  11.70
  • VI.  ARTICLE 5: BUYER’S OBLIGATIONS BEFORE CLOSING
    • A.  Form: Information to Be Held in Confidence  11.71
    • B.  Form: Cooperation in Securing Consents of Third Parties  11.72
    • C.  Form: Resale Certificate  11.73
    • D.  Form: Bulk Sales Law  11.74
    • E.  Form: Tax Rulings  11.75
    • F.  Corporate and Shareholder Approvals  11.76
  • VII.  ARTICLE 6: CONDITIONS PRECEDENT TO BUYER’S PERFORMANCE
    • A.  Form: Conditions Precedent to Buyer’s Performance; Introduction  11.77
    • B.  Form: Accuracy of Selling Parties’ Representations and Warranties  11.78
    • C.  Form: Performance by Selling Parties  11.79
    • D.  Form: No Material Adverse Change  11.80
    • E.  Form: Certification by Selling Parties  11.81
    • F.  Form: Opinion of Selling Parties’ Counsel  11.82
    • G.  Form: Absence of Litigation  11.83
    • H.  Form: Letter Regarding Financial Changes  11.84
    • I.  Form: Corporate Approval  11.85
    • J.  Form: Deeds and Title Policies  11.86
    • K.  Form: Franchise Tax Board Clearance [Deleted]  11.87
    • L.  Form: Employment Development Department Release  11.88
    • M.  Form: Sales and Use Tax on Prior Sales  11.89
    • N.  Form: FIRPTA Withholding  11.90
    • O.  Form: Consents; Hart-Scott-Rodino Clearance  11.91
    • P.  Form: Employment Agreement  11.92
    • Q.  Form: Approval of Documentation and Delivery  11.93
    • R.  Other Conditions  11.94
  • VIII.  ARTICLE 7: CONDITIONS PRECEDENT TO SELLER’S PERFORMANCE
    • A.  Form: Conditions Precedent to Seller’s Performance; Introduction  11.95
    • B.  Form: Accuracy of Buyer’s Representations and Warranties  11.96
    • C.  Form: Buyer’s Performance  11.97
    • D.  Form: Opinion of Buyer’s Counsel  11.98
    • E.  Form: Buyer’s Corporate Approval  11.99
    • F.  Form: Qualification With California Commissioner of Business Oversight  11.100
    • G.  Form: Listing of Buyer’s Stock  11.101
    • H.  Form: Absence of Litigation  11.102
    • I.  Form: Approval of Documentation and Delivery  11.103
    • J.  Other Conditions Precedent  11.104
  • IX.  ARTICLE 8: THE CLOSING
    • A.  Form: Time and Place  11.105
    • B.  Form: Selling Parties’ Obligations at Closing  11.106
    • C.  Form: Buyer’s Obligations at Closing  11.107
  • X.  ARTICLE 9: SELLING PARTIES’ OBLIGATIONS AFTER CLOSING
    • A.  Form: Guaranty of Accounts Receivable  11.108
    • B.  Form: Assignment of Delinquent Accounts to Shareholder  11.109
    • C.  Sellers’ Indemnity
      • 1.  Form: Basic Provisions  11.110
      • 2.  Form: Deduction for Buyer’s Tax Benefits  11.111
      • 3.  Form: Deduction for Insurance Proceeds  11.112
      • 4.  Form: Sellers’ Right to Defend  11.113
    • D.  Form: Shareholder’s Competition  11.114
    • E.  Form: Change of Corporation’s Name  11.115
    • F.  Form: Dissolution of Selling Corporation  11.116
    • G.  Form: Further Assurances  11.116A
    • H.  Form: Information to Be Held in Confidence  11.116B
  • XI.  ARTICLE 10: BUYER’S OBLIGATIONS AFTER CLOSING
    • A.  Continuation of Employee Benefits  11.117
    • B.  Form: Buyer’s Indemnity  11.118
    • C.  Registration Rights  11.119
  • XII.  FORM: ARTICLE 11: PUBLICITY  11.120
  • XIII.  ARTICLE 12: COSTS
    • A.  Form: Finder’s or Broker’s Fees  11.121
    • B.  Form: Expenses  11.122
  • XIV.  ARTICLE 13: FORM OF AGREEMENT
    • A.  Form: Effect of Headings  11.123
    • B.  Form: Word Usage  11.124
    • C.  Form: Entire Agreement; Modification; Waiver  11.125
    • D.  Form: Counterparts; E-mail or Facsimile Delivery  11.126
  • XV.  ARTICLE 14: PARTIES
    • A.  Form: Parties in Interest  11.127
    • B.  Form: Assignment  11.128
  • XVI.  ARTICLE 15: REMEDIES
    • A.  Form: Arbitration  11.129
    • B.  Form: Specific Performance and Waiver of Rescission Rights  11.130
    • C.  Form: Recovery of Litigation Costs  11.131
    • D.  Termination
      • 1.  Form: Conditions Permitting Termination  11.132
      • 2.  Form: Termination for Pending Litigation or Governmental Prohibition  11.133
      • 3.  Form: Defaults Permitting Termination  11.134
      • 4.  Form: Effect of Termination  11.135
  • XVII.  FORM: ARTICLE 16: NATURE AND SURVIVAL OF REPRESENTATIONS AND OBLIGATIONS  11.136
  • XVIII.  FORM: ARTICLE 17: NOTICES  11.137
  • XIX.  FORM: ARTICLE 18: GOVERNING LAW  11.138
  • XX.  FORM: ARTICLE 19: SEVERABILITY  11.139
  • XXI.  FORM: SIGNATURES  11.140
  • XXII.  EXHIBITS  11.141

12

Merger Agreement

  • I.  INTRODUCTION: MERGER AS A FORM OF ACQUISITION  12.1
  • II.  THE MERGER AGREEMENT  12.2
    • A.  Introductory Clauses
      • 1.  Form: Title and Table of Contents  12.3
      • 2.  Form: Preamble, Parties  12.4
      • 3.  Form: Recitals  12.5
      • 4.  Form: Definitions  12.6
    • B.  Article 1: Effect of the Transaction; Term
      • 1.  Form: Agreement to Merge  12.7
      • 2.  Form: Closing Date; Effective Time  12.8
      • 3.  Governance of Surviving Corporation
        • a.  Form: Articles of Incorporation  12.9
        • b.  Form: Bylaws  12.10
        • c.  Form: Directors and Officers  12.11
    • C.  Article 2: Conversion of Shares
      • 1.  Form: Conversion of Target’s Shares  12.12
      • 2.  Form: Closing of Stock Transfer Books  12.13
      • 3.  Form: Stock Options  12.14
      • 4.  Form: Conversion of Stock Option  12.14A
      • 5.  Form: Dissenters’ Rights  12.15
      • 6.  Form: Exchange of Shares  12.16
    • D.  Article 3: Target’s Representations and Warranties
      • 1.  Form: Introductory Clause  12.17
      • 2.  Form: Organization, Standing, Qualification; Corporate Power and Action  12.18
      • 3.  Form: Capital Structure of Target  12.19
      • 4.  Form: Subsidiaries  12.20
      • 5.  Form: Financial Statements; Balance Sheet Date  12.21
      • 6.  Form: Real and Tangible Personal Property Except Inventory  12.22
      • 7.  Form: Inventory  12.23
      • 8.  Form: Intellectual Property  12.23A
      • 9.  Form: Privacy and Data Security  12.23B
      • 10.  Form: Accounts Receivable  12.24
      • 11.  Form: Interests in Target’s Property  12.25
      • 12.  Form: Absence of Undisclosed Liabilities  12.26
      • 13.  Form: Absence of Specified Changes  12.27
      • 14.  Form: Permits, Licenses, and Franchises  12.28
      • 15.  Form: Judgments, Decrees, or Orders Restraining Business  12.29
      • 16.  Form: Insurance  12.30
      • 17.  Form: Labor Disputes  12.31
      • 18.  Form: Environmental Compliance; Hazardous Materials  12.32
      • 19.  Form: Disclosure  12.33
      • 20.  Form: Powers of Attorney  12.34
      • 21.  Form: No Violation of Other Instruments  12.35
      • 22.  Form: No Brokers  12.35A
    • E.  Article 4: Buyer’s Representations and Warranties
      • 1.  Form: Introductory Clause  12.36
      • 2.  Form: Organization and Standing of Buyer and Buyer Subsidiary  12.37
      • 3.  Form: Corporate Power and Action  12.38
      • 4.  Form: No Violation of Other Instruments  12.39
      • 5.  Form: No Brokers  12.40
    • F.  Article 5: Conditions Precedent to Buyer’s Obligation to Close
      • 1.  Form: Introductory Clause  12.41
      • 2.  Form: Performance of Acts and Undertakings of Target  12.42
      • 3.  Form: Certified Resolutions  12.43
      • 4.  Form: Continued Accuracy of Target’s Warranties  12.44
      • 5.  Form: Opinion of Target’s Counsel Required  12.45
      • 6.  Form: Approvals From Authorities  12.46
      • 7.  Form: Consents  12.47
      • 8.  Form: Shareholder Approval  12.48
      • 9.  Form: Dissenting Shares  12.49
      • 10.  Form: Employment Agreements  12.50
      • 11.  Form: Filing of Merger Agreement  12.51
      • 12.  Form: Target’s Delivery of Updated Schedules  12.52
      • 13.  Form: Buyer’s Approval of Updated Schedules  12.53
      • 14.  Form: Termination of Outstanding Convertible Securities  12.54
      • 15.  Form: No Order, Injunction, Restraint, or Proceedings  12.54A
    • G.  Article 6: Conditions Precedent to Target’s Obligation to Close
      • 1.  Form: Introductory Clause  12.55
      • 2.  Form: Performance of Acts and Undertakings by Buyer  12.56
      • 3.  Form: Certified Resolutions  12.57
      • 4.  Form: Continued Accuracy of Buyer’s Warranties  12.58
      • 5.  Form: Shareholder Approval  12.59
      • 6.  Form: Opinion of Buyer’s Counsel Required  12.60
    • H.  Form: Article 7: Schedules of Target’s Assets and Liabilities  12.61
    • I.  Form: Article 8: Buyer’s Investigation  12.62
    • J.  Article 9: Survival of Representations and Warranties; Indemnification; Escrow  12.63
      • 1.  Indemnification of Third Party Claims  12.64
      • 2.  Form: Survival of Representations, Warranties, and Indemnities  12.65
      • 3.  Form: Indemnification  12.66
      • 4.  Form: Establishment of Escrow  12.67
    • K.  Article 10: Termination of Agreement
      • 1.  Form: Grounds for Termination  12.68
      • 2.  Form: Right to Proceed  12.69
      • 3.  Form: Return of Target’s Documents in Event of Termination  12.70
      • 4.  Form: Attorney Fees and Costs in Event of Termination  12.71
    • L.  Form: Article 11: Public Announcement  12.72
    • M.  Form: Article 12: Meeting of Target’s Shareholders  12.73
    • N.  Form: Article 13: Covenants  12.74
    • O.  Form: Article 14: Governing Law; Successors and Assigns; Counterparts; Entire Agreement  12.75
    • P.  Form: Article 15: Notices  12.76
    • Q.  Form: Article 16: Amendments  12.77
    • R.  Form: Signatures  12.78
  • III.  APPENDICES TO AGREEMENT
    • A.  Form: Exhibit A: Letter of Transmittal to Accompany Return of Target’s Stock Certificates  12.79
    • B.  Form: Exhibit B: List of Target’s Jurisdictions  12.80
    • C.  Form: Exhibit C: List of Holders of Target Capital Stock and Options  12.80A
    • D.  Form: Exhibit D: List of Target’s Subsidiaries  12.81
    • E.  Form: Exhibit E: Opinion Letter of Target’s Counsel  12.82
    • F.  Exhibit F: Schedules  12.83
      • 1.  Form: Introduction Clause  12.83A
      • 2.  Form: Schedule 1 (Target’s Real Property)  12.84
      • 3.  Form: Schedule 2 (Target’s Litigation)  12.85
      • 4.  Form: Schedule 3 (Target’s Contracts)  12.86
      • 5.  Form: Schedule 4 (Target’s Taxes)  12.87
      • 6.  Form: Schedule 5 (Target’s Intellectual Property)  12.88
      • 7.  Form: Schedule 6 (Target’s Securities)  12.89
      • 8.  Form: Schedule 7 (Target’s Important Suppliers and Customers)  12.90
      • 9.  Form: Schedule 8 (Target’s Affiliated Businesses)  12.91
      • 10.  Form: Schedule 9 (Target’s Government Reports)  12.92
      • 11.  Form: Schedule 10 (Claims, Inquiries, and Citations Affecting Target)  12.93
    • G.  Exhibit G: Escrow Agreement
      • 1.  Form: Introduction  12.94
      • 2.  Form: Recitals  12.95
      • 3.  Form: Escrow Amount  12.96
      • 4.  Form: Escrow Period  12.97
      • 5.  Form: Shareholder Agent  12.98
      • 6.  Form: Investment of Escrow Funds  12.99
      • 7.  Form: Distributing Escrow Funds to Buyer  12.100
      • 8.  Form: Objections to Distributions  12.101
      • 9.  Form: Settlement of Disputed Claims  12.102
      • 10.  Form: Final Distributions  12.103
      • 11.  Form: Signatures  12.104
  • IV.  FILING REQUIREMENTS; SHORT-FORM AGREEMENT
    • A.  Use of Short-Form Agreement for Filing  12.105
    • B.  Short-Form Agreement of Merger
      • 1.  Form: Title and Introduction  12.106
      • 2.  Form: Merger  12.107
      • 3.  Form: Effective Time  12.108
      • 4.  Form: Corporate Structure  12.109
      • 5.  Form: Conversion of Shares  12.110
      • 6.  Form: Termination  12.111
      • 7.  Form: Choice of Law  12.112
      • 8.  Form: Counterparts  12.113
      • 9.  Form: Signatures  12.114
    • C.  Form: Officers’ Certificate of Approval  12.115

SALES AND MERGERS OF CALIFORNIA BUSINESSES

(1st Edition)

September 2018

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH01

Chapter 1

Preliminary Considerations

01-005A

§1.5A

Broker Agreement

01-005B

§1.5B

Finder’s Agreement for Prospective Seller

01-014

§§1.14-1.35

Title, Table of Contents, Recitals

 

§1.15

Caption and Acquiror’s Approval of Real Estate and Stock Purchase Agreement

 

§1.16

Shareholder’s Approval of Real Estate and Stock Purchase Agreement

 

§1.17

Shareholder’s Delivery of Financial Statements

 

§1.18

Preliminary Title Report Delivery

 

§1.19

Shareholder Delivers Articles and Bylaws

 

§1.20

Shareholder Delivers Schedules of Information and Exceptions

 

§1.21

Schedules of Information and Exceptions Delivery

 

§1.22

Loan Documents Delivery

 

§1.23

Acquiror Opens Escrow

 

§1.24

Shareholder Terminates Participation in Retirement Plan

 

§1.25

Compliance With Securities Laws

 

§1.26

Preclosing Meeting

 

§1.27

Caption and Introduction

 

§1.28

Delivery of Agreements

 

§1.29

Documents Delivered to Acquiror by Shareholder

 

§1.30

Documents and Funds Delivered to Shareholder by Acquiror

 

§1.31

Funds Delivered to Shareholder by Target

 

§1.32

Request for Recordation

 

§1.33

Confirmation of Recordation

 

§1.34

Target’s Payment to Shareholder

 

§1.35

Target’s Name Change or Dissolution

01-046

§§1.46-1.57

Basic Corporate Documents

 

§1.47

Stock and Securities Matters

 

§1.47A

Insider Information, Arrangements, and Contracts

 

§1.48

Business Activities

 

§1.48A

Environmental Issues

 

§1.49

Material Contracts and Permits

 

§1.50

Real and Tangible Personal Property, Financial Assets, and Related Agreements

 

§1.51

Liabilities

 

§1.51A

Litigation and Regulatory Issues

 

§1.52

Employees

 

§1.53

Insurance

 

§1.54

Intellectual Property and Related Rights and Liabilities

 

§1.54A

Cybersecurity

 

§1.55

Tax Matters

 

§1.56

Financial Matters

 

§1.57

Miscellaneous Matters

01-057A

§1.57A

Checklist: Due Diligence

CH07A

Chapter 7A

Intellectual Property Issues in Merger and Acquisition Agreements

07A-003

§7A.3

Confirming Seller’s Disclosures

07A-004

§7A.4

Risk Allocation

07A-005

§7A.5

Creating Closing Conditions

07A-007

§7A.7

Indemnification

07A-008

§7A.8

Escrows and Deferred Consideration

07A-011

§7A.11

Time of Application

07A-012

§7A.12

Knowledge Qualifiers

07A-013

§7A.13

Materiality Qualifiers

07A-022

§7A.22

Intellectual Property Definitions

07A-023

§7A.23

No Adverse Effect

07A-024

§7A.24

Ownership and License

07A-025

§7A.25

Sufficiency

07A-026

§7A.26

Schedule of Registered Intellectual Property

07A-027

§7A.27

Schedule of Inbound Licenses and Royalties

07A-028

§7A.28

No Pending or Threatened Infringement Claims by Third Parties

07A-029

§7A.29

Noninfringement by Seller

07A-030

§7A.30

Noninfringement by Third Parties

07A-031

§7A.31

Employee and Consultant Invention Assignments

07A-032

§7A.32

Contracts Restricting Operation of Business

07A-033

§7A.33

Government Funding; University Affiliations

07A-034

§7A.34

Open Source Software

07A-035

§7A.35

No Prior Sale of Intellectual Property

07A-036

§7A.36

Validity of Registered Intellectual Property

07A-037

§7A.37

No Encumbrances

07A-038

§7A.38

Opinion of Counsel Regarding Infringement

07A-039

§7A.39

Protection of Trade Secrets and Other Confidential Information

07A-040

§7A.40

Membership in Standards Organizations

07A-041

§7A.41

Compliance With Customer Warranties

07A-042

§7A.42

Compliance With Privacy Laws

07A-043

§7A.43

Source Code Escrows

07A-045

§7A.45

CHECKLIST OF TYPICAL INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES

CH08

Chapter 8

Letters of Intent

08-003

§§8.3-8.18

Introductory Matter

 

§8.4

Description of Transaction

 

§8.5

Accuracy of Financial Statements

 

§8.6

Closing Date

 

§8.7

Conduct of Business Before Closing

 

§8.8

Repayment of Loans and Release

 

§8.9

Definitive Agreement

 

§8.10

Parties’ Agreement; Introduction

 

§8.11

Confidentiality

 

§8.12

Publicity

 

§8.13

Fees and Expenses

 

§8.14

Broker’s or Finder’s Fees

 

§8.15

Buyer’s Investigation

 

§8.16

No Negotiations With Other Parties

 

§8.17

Nonbinding Nature of Letter of Intent

 

§8.18

Signatures

CH08A

Chapter 8A

Indemnification Issues

08A-030

§8A.30

INDEMNIFICATION CHECKLIST

CH09

Chapter 9

Short Forms of Agreement

09-002

§§9.2-9.19

Introductory Clause

 

§9.3

Sale and Purchase of Assets

 

§9.4

Purchase Price and Payment

 

§9.5

Liabilities, Bulk Sales Law, and Sales Tax

 

§9.6

Lease and Other Obligations

 

§9.7

Seller’s Representations, Warranties, and Covenants

 

§9.8

Approval, Authority, and Ownership

 

§9.9

Financial Statements and Business Conduct

 

§9.10

Assets Condition

 

§9.11

Existing Relationships

 

§9.12

Distributions and Compensation Payments

 

§9.13

Claims and Litigation

 

§9.14

Seller’s Knowledge and Disclosure

 

§9.15

Seller Covenants

 

§9.16

Buyer’s Representations, Warranties, and Covenants

 

§9.17

Arbitration

 

§9.18

Notices

 

§9.19

Construction

09-020

§§9.20-9.93

Introductory Clause

 

§9.21

Purchase and Sale of Shares

 

§9.22

Representations and Warranties of Company and Sellers

 

§9.23

Due Incorporation, Qualification, and Corporate Power

 

§9.24

Outstanding Capital Stock; Title

 

§9.25

Subsidiaries and Other Affiliates

 

§9.26

Consents

 

§9.27

No Material Breach

 

§9.28

Financial Statements of Company

 

§9.29

Absence of Certain Changes

 

§9.30

Tax Matters

 

§9.31

Litigation

 

§9.32

Compliance With Laws

 

§9.33

Title to and Condition of Assets

 

§9.34

Inventory

 

§9.35

Product Recall

 

§9.36

Labor Matters

 

§9.37

Intellectual Property

 

§9.37A

Privacy and Data Security Compliance

 

§9.38

Employee Benefits Plan

 

§9.39

Employment Contracts

 

§9.40

Contracts

 

§9.41

Insurance

 

§9.42

Environmental Compliance

 

§9.43

Related Transactions

 

§9.44

Knowledge

 

§9.45

Survival

 

§9.46

Representations and Warranties of Buyer

 

§9.47

Due Incorporation

 

§9.48

Power and Authority

 

§9.49

Consents

 

§9.50

No Breach

 

§9.51

Financing

 

§9.52

Investment Intent

 

§9.53

Survival

 

§9.54

Covenants of Company and Sellers

 

§9.55

Operation of Business of the Company

 

§9.56

Access to Records

 

§9.57

Consents

 

§9.58

Notification

 

§9.59

Other Transactions

 

§9.60

Hart­Scott­Rodino Act

 

§9.61

Buyer’s Covenants

 

§9.62

Confidentiality

 

§9.63

Hart­Scott­Rodino Act

 

§9.64

Notification of Certain Matters

 

§9.65

Company Records

 

§9.66

Brokers and Finders

 

§9.67

Conditions to Buyer’s Obligations

 

§9.68

Representations and Covenants

 

§9.69

Compliance With Hart-Scott-Rodino Act

 

§9.70

Resignation of Directors

 

§9.71

No Knowledge of Breach by Other Parties

 

§9.72

Opinion of Counsel

 

§9.73

Conditions to Sellers’ Obligations

 

§9.74

Representations and Covenants

 

§9.75

Hart-Scott-Rodino Act

 

§9.76

No Knowledge of Breach by Other Party

 

§9.77

Sellers’ Obligation

 

§9.78

Buyer’s Obligation

 

§9.79

Claims

 

§9.80

Methods of Termination

 

§9.81

Procedure on Termination

 

§9.82

Counterparts

 

§9.83

Notices

 

§9.84

Public Announcement

 

§9.85

Successors and Assigns

 

§9.86

Governing Law

 

§9.87

Waiver and Modification

 

§9.88

Entire Agreement

 

§9.89

Severability

 

§9.90

Interpretation

 

§9.91

Third Party Beneficiaries

 

§9.92

Arbitration of Disputes

 

§9.93

Signatures

CH10

Chapter 10

Stock Purchase and Sale Agreement

10-002

§§10.2-10.138

Introductory Clause

 

§10.3

Recitals

 

§10.4

Tax-Free Reorganization

 

§10.5

Sale and Transfer of Shares

 

§10.6

Introduction

 

§10.7

Cash

 

§10.8

Note

 

§10.9

Shares as Security

 

§10.10

Guaranty

 

§10.12

Number Specified

 

§10.13

Number Determined at Closing

 

§10.14

Number Based on Average Value

 

§10.15

Number Limited

 

§10.16

Fluctuating Assets

 

§10.17

Consideration Based on Future Operations

 

§10.18

Payment for Noncompetition Covenant

 

§10.20

Promissory Note Clause for Holdback

 

§10.21

Cash Holdback Provision

 

§10.22

Stock Holdback Provision

 

§10.23

Introduction

 

§10.24

Organization, Standing, and Qualification of Corporation

 

§10.25

Capital Structure

 

§10.26

Title to Shares

 

§10.27

Subsidiaries

 

§10.28

Financial Statements

 

§10.29

Absence of Specified Changes

 

§10.30

Absence of Undisclosed Liabilities

 

§10.31

Tax Returns and Audits

 

§10.33

Description

 

§10.34

Zoning

 

§10.35

Hazardous Materials

 

§10.36

Inventory

 

§10.37

Other Tangible Personal Property

 

§10.38

Accounts Receivable

 

§10.39

Trade Names, Trademarks, and Copyrights

 

§10.40

Patents and Patent Rights

 

§10.41

Trade Secrets

 

§10.42

Shareholder’s Name

 

§10.43

Title to Assets

 

§10.44

Customers and Sales

 

§10.45

Insurance Policies

 

§10.46

Other Contracts

 

§10.47

Compliance With Laws

 

§10.47A

Privacy and Data Security

 

§10.48

Litigation

 

§10.49

Agreement Will Not Cause Breach or Violation

 

§10.50

Authority and Consents

 

§10.51

Interest in Customers, Suppliers, and Competitors

 

§10.52

Corporate Documents

 

§10.53

Identification and Compensation

 

§10.54

Employment Contracts and Benefits

 

§10.55

Persons With Certain Authority

 

§10.56

Information for Buyer’s Shareholders

 

§10.57

Full Disclosure

 

§10.58

Cash Sale

 

§10.60

Selling Parties’ Obligations Before Closing; Introduction

 

§10.61

Buyer’s Access to Premises and Information

 

§10.62

Conduct of Business in Normal Course

 

§10.63

Preservation of Business and Relationships

 

§10.64

Corporate Matters

 

§10.65

Maintenance of Insurance

 

§10.66

Employees and Compensation

 

§10.67

New Transactions

 

§10.68

Dividends, Distributions, and Stock Acquisitions

 

§10.69

Payment of Liabilities and Waiver of Claims

 

§10.70

Existing Agreements

 

§10.71

Consents of Others

 

§10.72

Documentation of Procedures and Trade Secrets

 

§10.73

Warranties True at Closing

 

§10.74

Information to Hold in Confidence

 

§10.76

Conditions Precedent to Buyer’s Performance; Introduction

 

§10.77

Accuracy of Selling Parties’ Warranties

 

§10.78

Performance by Selling Parties

 

§10.79

No Material Adverse Change

 

§10.80

Certification by Selling Parties

 

§10.81

Opinion of Selling Parties’ Counsel

 

§10.82

Absence of Litigation

 

§10.83

Letter Regarding Corporation’s Financial Changes

 

§10.84

Corporate Approval

 

§10.85

Title Policies

 

§10.87

Employment Development Department Release

 

§10.88

FIRPTA Withholding

 

§10.89

Consents

 

§10.90

Employment Agreement

 

§10.91

Approval of Documentation

 

§10.92

Resignations

 

§10.93

Other Agreements

 

§10.95

Introduction

 

§10.96

Accuracy of Buyer’s Representations and Warranties

 

§10.97

Buyer’s Performance

 

§10.98

Opinion of Buyer’s Counsel

 

§10.99

Buyer’s Corporate Approval

 

§10.100

Qualification With California Commissioner of Business Oversight

 

§10.101

Listing of Buyer’s Stock

 

§10.102

Investment Undertaking

 

§10.103

Absence of Litigation

 

§10.105

Time and Place

 

§10.106

Selling Parties’ Obligations at Closing

 

§10.107

Buyer’s Obligations at Closing

 

§10.108

Guaranty of Accounts Receivable

 

§10.109

Assignment of Delinquent Accounts to Shareholder

 

§10.110

Basic Provisions

 

§10.111

Deduction for Buyer’s Tax Benefits

 

§10.112

Sellers’ Right to Defend

 

§10.113

Shareholder’s Competition

 

§10.114

Continuation of Employee Benefits

 

§10.115

Buyer’s Indemnity

 

§10.117

FORM: ARTICLE 11: PUBLICITY

 

§10.118

Finder’s or Broker’s Fees

 

§10.119

Expenses

 

§10.120

Effect of Headings

 

§10.121

Word Usage

 

§10.122

Entire Agreement; Modification; Waiver

 

§10.123

Counterparts; Delivery by E-mail or Facsimile

 

§10.124

Parties in Interest

 

§10.125

Assignment

 

§10.126

Arbitration

 

§10.127

Specific Performance and Waiver of Rescission Rights

 

§10.128

Recovery of Litigation Costs

 

§10.129

Conditions Permitting Termination

 

§10.130

Defaults Permitting Termination

 

§10.131

FORM: ARTICLE 16: NATURE AND SURVIVAL OF WARRANTIES AND OBLIGATIONS

 

§10.132

FORM: ARTICLE 17: NOTICES

 

§10.133

FORM: ARTICLE 18: GOVERNING LAW

 

§10.134

FORM: ARTICLE 19: SEVERABILITY

 

§10.135

FORM: ARTICLE 20: CONFLICTS; ATTTORNEY-CLIENT PRIVILEGE

 

§10.136

FORM: SIGNATURES

 

§10.137

FORM: DELIVERY OF EXHIBITS

 

§10.138

FORM: LIST OF EXHIBITS USED IN AGREEMENT

CH11

Chapter 11

Asset Purchase and Sale Agreement

11-002

§§11.2-11.140

Introductory Clause

 

§11.3

Recitals

 

§11.4

Definitions

 

§11.5

Tax-Free Reorganization

 

§11.6

Sale and Transfer of Assets

 

§11.7

Consideration From Buyer at Closing

 

§11.8

Payment by Wire Transfer

 

§11.9

Payment by Note; Security

 

§11.10

Note Guaranty

 

§11.11

Shares of Buyer’s Stock

 

§11.12

Payment for Fluctuating Assets

 

§11.13

Assumption of Liabilities

 

§11.15

Holdback Provision

 

§11.16

Purchase Price and Allocation

 

§11.17

Excise and Property Taxes

 

§11.18

Warranties of Selling Parties; Introduction

 

§11.19

Organization, Standing, and Qualification of Corporation

 

§11.20

Capital Structure

 

§11.21

Title to Shares

 

§11.22

Subsidiaries

 

§11.23

Financial Statements

 

§11.24

Absence of Changes in Corporation or Subsidiary

 

§11.25

Debts, Obligations, and Liabilities

 

§11.27

Tax Returns and Audits

 

§11.28

Listed or Described

 

§11.29

Zoning

 

§11.30

Hazardous Materials

 

§11.31

Inventory

 

§11.32

Other Tangible Personal Property

 

§11.33

Accounts Receivable

 

§11.34

Intellectual Property

 

§11.35

Shareholder’s Name

 

§11.36

Other Intangible Property

 

§11.37

Title to Assets; Sufficiency of Assets

 

§11.38

Customers and Sales

 

§11.39

Employment Contracts and Benefits

 

§11.40

Insurance Policies

 

§11.41

Other Contracts

 

§11.42

Compliance With Laws

 

§11.42A

Privacy and Data Security

 

§11.43

Litigation

 

§11.44

Agreement Will Not Cause Breach or Violation

 

§11.45

Authority and Consents

 

§11.46

Interest in Customers, Suppliers, and Competitors

 

§11.47

Corporate Documents

 

§11.48

Identity and Compensation

 

§11.49

Persons With Certain Authority

 

§11.50

Information for Buyer’s Shareholders

 

§11.52

Full Disclosure

 

§11.53

Cash Sale

 

§11.55

Sellers’ Obligations; Introduction

 

§11.56

Buyer’s Access to Premises and Information

 

§11.57

Conduct of Business in Normal Course

 

§11.58

Preservation of Business and Relationships

 

§11.59

Corporate Matters

 

§11.60

Maintenance of Insurance

 

§11.61

Employees and Compensation

 

§11.62

New Transactions

 

§11.63

Dividends, Distributions, and Acquisitions of Stock

 

§11.64

Payment of Liabilities and Waiver of Claims

 

§11.65

Existing Agreements

 

§11.66

Consents of Others

 

§11.67

Documentation of Procedures and Trade Secrets

 

§11.68

Approval of Governmental Authorities

 

§11.69

Corporate and Shareholder Approvals

 

§11.70

Information to Be Held in Confidence

 

§11.71

Information to Be Held in Confidence

 

§11.72

Cooperation in Securing Consents of Third Parties

 

§11.73

Resale Certificate

 

§11.74

Bulk Sales Law

 

§11.75

Tax Rulings

 

§11.77

Conditions Precedent to Buyer’s Performance; Introduction

 

§11.78

Accuracy of Selling Parties’ Representations and Warranties

 

§11.79

Performance by Selling Parties

 

§11.80

No Material Adverse Change

 

§11.81

Certification by Selling Parties

 

§11.82

Opinion of Selling Parties’ Counsel

 

§11.83

Absence of Litigation

 

§11.84

Letter Regarding Financial Changes

 

§11.85

Corporate Approval

 

§11.86

Deeds and Title Policies

 

§11.88

Employment Development Department Release

 

§11.89

Sales and Use Tax on Prior Sales

 

§11.90

FIRPTA Withholding

 

§11.91

Consents; Hart-Scott-Rodino Clearance

 

§11.92

Employment Agreement

 

§11.93

Approval of Documentation and Delivery

 

§11.95

Conditions Precedent to Seller’s Performance; Introduction

 

§11.96

Accuracy of Buyer’s Representations and Warranties

 

§11.97

Buyer’s Performance

 

§11.98

Opinion of Buyer’s Counsel

 

§11.99

Buyer’s Corporate Approval

 

§11.100

Qualification With California Commissioner of Business Oversight

 

§11.101

Listing of Buyer’s Stock

 

§11.102

Absence of Litigation

 

§11.103

Approval of Documentation and Delivery

 

§11.105

Time and Place

 

§11.106

Selling Parties’ Obligations at Closing

 

§11.107

Buyer’s Obligations at Closing

 

§11.108

Guaranty of Accounts Receivable

 

§11.109

Assignment of Delinquent Accounts to Shareholder

 

§11.110

Basic Provisions

 

§11.111

Deduction for Buyer’s Tax Benefits

 

§11.112

Deduction for Insurance Proceeds

 

§11.113

Sellers’ Right to Defend

 

§11.114

Shareholder’s Competition

 

§11.115

Change of Corporation’s Name

 

§11.116

Dissolution of Selling Corporation

 

§11.116A

Further Assurances

 

§11.116B

Information to Be Held in Confidence

 

§11.118

Buyer’s Indemnity

 

§11.120

FORM: ARTICLE 11: PUBLICITY

 

§11.121

Finder’s or Broker’s Fees

 

§11.122

Expenses

 

§11.123

Effect of Headings

 

§11.124

Word Usage

 

§11.125

Entire Agreement; Modification; Waiver

 

§11.126

Counterparts; E-mail or Facsimile Delivery

 

§11.127

Parties in Interest

 

§11.128

Assignment

 

§11.129

Arbitration

 

§11.130

Specific Performance and Waiver of Rescission Rights

 

§11.131

Recovery of Litigation Costs

 

§11.132

Conditions Permitting Termination

 

§11.133

Termination for Pending Litigation or Governmental Prohibition

 

§11.134

Defaults Permitting Termination

 

§11.135

Effect of Termination

 

§11.136

FORM: ARTICLE 16: NATURE AND SURVIVAL OF REPRESENTATIONS AND OBLIGATIONS

 

§11.137

FORM: ARTICLE 17: NOTICES

 

§11.138

FORM: ARTICLE 18: GOVERNING LAW

 

§11.139

FORM: ARTICLE 19: SEVERABILITY

 

§11.140

FORM: SIGNATURES

CH12

Chapter 12

Merger Agreement

12-003

§§12.3-12.104

Title and Table of Contents

 

§12.4

Preamble, Parties

 

§12.5

Recitals

 

§12.6

Definitions

 

§12.7

Agreement to Merge

 

§12.8

Closing Date; Effective Time

 

§12.9

Articles of Incorporation

 

§12.10

Bylaws

 

§12.11

Directors and Officers

 

§12.12

Conversion of Target’s Shares

 

§12.13

Closing of Stock Transfer Books

 

§12.14

Stock Options

 

§12.14A

Conversion of Stock Option

 

§12.15

Dissenters’ Rights

 

§12.16

Exchange of Shares

 

§12.17

Introductory Clause

 

§12.18

Organization, Standing, Qualification; Corporate Power and Action

 

§12.19

Capital Structure of Target

 

§12.20

Subsidiaries

 

§12.21

Financial Statements; Balance Sheet Date

 

§12.22

Real and Tangible Personal Property Except Inventory

 

§12.23

Inventory

 

§12.23A

Intellectual Property

 

§12.23B

Privacy and Data Security

 

§12.24

Accounts Receivable

 

§12.25

Interests in Target’s Property

 

§12.26

Absence of Undisclosed Liabilities

 

§12.27

Absence of Specified Changes

 

§12.28

Permits, Licenses, and Franchises

 

§12.29

Judgments, Decrees, or Orders Restraining Business

 

§12.30

Insurance

 

§12.31

Labor Disputes

 

§12.32

Environmental Compliance; Hazardous Materials

 

§12.33

Disclosure

 

§12.34

Powers of Attorney

 

§12.35

No Violation of Other Instruments

 

§12.35A

No Brokers

 

§12.36

Introductory Clause

 

§12.37

Organization and Standing of Buyer and Buyer Subsidiary

 

§12.38

Corporate Power and Action

 

§12.39

No Violation of Other Instruments

 

§12.40

No Brokers

 

§12.41

Introductory Clause

 

§12.42

Performance of Acts and Undertakings of Target

 

§12.43

Certified Resolutions

 

§12.44

Continued Accuracy of Target’s Warranties

 

§12.45

Opinion of Target’s Counsel Required

 

§12.46

Approvals From Authorities

 

§12.47

Consents

 

§12.48

Shareholder Approval

 

§12.49

Dissenting Shares

 

§12.50

Employment Agreements

 

§12.51

Filing of Merger Agreement

 

§12.52

Target’s Delivery of Updated Schedules

 

§12.53

Buyer’s Approval of Updated Schedules

 

§12.54

Termination of Outstanding Convertible Securities

 

§12.54A

No Order, Injunction, Restraint, or Proceedings

 

§12.55

Introductory Clause

 

§12.56

Performance of Acts and Undertakings by Buyer

 

§12.57

Certified Resolutions

 

§12.58

Continued Accuracy of Buyer’s Warranties

 

§12.59

Shareholder Approval

 

§12.60

Opinion of Buyer’s Counsel Required

 

§12.61

Article 7: Schedules of Target’s Assets and Liabilities

 

§12.62

Article 8: Buyer’s Investigation

 

§12.65

Survival of Representations, Warranties, and Indemnities

 

§12.66

Indemnification

 

§12.67

Establishment of Escrow

 

§12.68

Grounds for Termination

 

§12.69

Right to Proceed

 

§12.70

Return of Target’s Documents in Event of Termination

 

§12.71

Attorney Fees and Costs in Event of Termination

 

§12.72

Article 11: Public Announcement

 

§12.73

Article 12: Meeting of Target’s Shareholders

 

§12.74

Article 13: Covenants

 

§12.75

Article 14: Governing Law; Successors and Assigns; Counterparts; Entire Agreement

 

§12.76

Article 15: Notices

 

§12.77

Article 16: Amendments

 

§12.78

Signatures

 

§12.79

Exhibit A: Letter of Transmittal to Accompany Return of Target’s Stock Certificates

 

§12.80

Exhibit B: List of Target’s Jurisdictions

 

§12.80A

Exhibit C: List of Holders of Target Capital Stock and Options

 

§12.81

Exhibit D: List of Target’s Subsidiaries

 

§12.82

Exhibit E: Opinion Letter of Target’s Counsel

 

§12.83A

Introduction Clause

 

§12.84

Schedule 1 (Target’s Real Property)

 

§12.85

Schedule 2 (Target’s Litigation)

 

§12.86

Schedule 3 (Target’s Contracts)

 

§12.87

Schedule 4 (Target’s Taxes)

 

§12.88

Schedule 5 (Target’s Intellectual Property)

 

§12.89

Schedule 6 (Target’s Securities)

 

§12.90

Schedule 7 (Target’s Important Suppliers and Customers)

 

§12.91

Schedule 8 (Target’s Affiliated Businesses)

 

§12.92

Schedule 9 (Target’s Government Reports)

 

§12.93

Schedule 10 (Claims, Inquiries, and Citations Affecting Target)

 

§12.94

Introduction

 

§12.95

Recitals

 

§12.96

Escrow Amount

 

§12.97

Escrow Period

 

§12.98

Shareholder Agent

 

§12.99

Investment of Escrow Funds

 

§12.100

Distributing Escrow Funds to Buyer

 

§12.101

Objections to Distributions

 

§12.102

Settlement of Disputed Claims

 

§12.103

Final Distributions

 

§12.104

Signatures

12-106

§§12.106-12.115

Title and Introduction

 

§12.107

Merger

 

§12.108

Effective Time

 

§12.109

Corporate Structure

 

§12.110

Conversion of Shares

 

§12.111

Termination

 

§12.112

Choice of Law

 

§12.113

Counterparts

 

§12.114

Signatures

 

§12.115

Officers’ Certificate of Approval

 

Selected Developments

September 2018 Update

A discussion of virtual data rooms has been added in chap 1, comparing the use of virtual data rooms with physical data rooms. See §1.44A.

In Central Laborers’ Pension Fund v McAfee, Inc. (2017) 17 CA5th 292, 346, relying on State Farm Mutual Automobile Ins. Co. v Superior Court (2003) 114 CA4th 434, 442, the California court of appeal held that although Delaware law supplied the relevant standard of care in the breach of fiduciary duty action, there was “no basis on which to extend the internal affairs doctrine to matters properly governed by local forum rules, including form of the action (equitable or legal) and mode of trial (jury or bench).” The court found that the action was equitable and the plaintiff was therefore not entitled to a jury trial. See §2.14.

A discussion of California and Delaware law concerning the fiduciary duties of officers and controlling shareholders has been added in chap 2A. See §2A.2.

The discussion of corporate directors’ duties in connection with defensive responses to takeover attempts in chap 2A has been revised and updated. See §§2A.11–2A.16.

On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act (HR 1) (Pub L 115–97, 131 Stat 2054) was signed into law by the President. The official name of the new law is “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” but it is referred to in this title as either the Tax Cuts and Jobs Act or the TCJA. The TCJA made substantial changes to the federal tax laws, generally effective for tax years beginning on or after January 1, 2018. It represents the most significant revisions to United States tax law since the Internal Revenue Code of 1986. Certain changes sunset on December 31, 2025 (or other specified dates). Chapter 3 has been updated to reflect the TCJA, but practitioners should remain alert to the overall impact of the TCJA on any tax matters that may affect their clients. See §3.1.

None of the TCJA provisions directly addressed merger or acquisition transactions. Thus, the corporate reorganization provisions in IRC §368 (see §§3.5–3.18) remain unchanged. However, the TCJA modified many Internal Revenue Code provisions that indirectly affect mergers and acquisitions, including transaction structure and valuation. These provisions include the new reduced corporate tax rate (see §3.3), new limits on the deductibility of interest (see §3.47B), 100 percent expensing of costs for certain capital investments (see §§3.47D–3.47F), and changes to the rules concerning net operating losses (see §§3.47–3.47A). In general, the TCJA made asset acquisitions and sales more attractive because of the reduced corporate tax rate for sellers and buyers’ ability to 100 percent expense the cost of capital assets acquired. In addition, the TCJA made debt-financed acquisitions less attractive because of the new limits on interest deductibility. Finally, the TCJA reduced the value of tax benefits such as the net operating loss deduction and tax-free reorganization structures because of the new reduced corporate tax rate. See §§3.1, 3.2, 3.5.

For tax years beginning January 1, 2018 and ending December 31, 2025, the Tax Cuts and Jobs Act (TCJA) has replaced the existing tax rates for individuals with seven new rates varying from a low bracket of 10 percent to a high bracket of 37 percent, with rates of 12, 22, 24, 32, and 35 percent in between. IRC §1. The TCJA generally retained the previous 0, 15, and 20 percent rates on long term capital gains and qualified dividends. However for tax years from 2018 through 2025, these rates are no longer tied to the ordinary income brackets but have their own brackets. See §3.3.

The TCJA eliminated the graduated corporate tax structure previously in force and replaced it with a single flat tax of 21 percent. IRC §11. In addition, corporations are no longer subject to the alternative minimum tax. IRC §55(a). See §3.3B. In general, corporations are taxed on capital gains at regular ordinary income tax rates. IRC §1201. See §3.3.

Because of the lower corporate tax rate, corporate sellers may be more willing to sell appreciated assets because the tax consequences to them are reduced. In effect, it is less expensive for a corporation to dispose of unwanted assets because the corporate tax on the sale will be less. In addition, the lower corporate tax rate means that the advantages of structuring a transaction as a tax-free reorganization under IRC §368 (see §§3.5–3.18) have been reduced. See §3.3.

After the Tax Cuts and Jobs Act, the AMT is still in effect for noncorporate taxpayers, but the exemption amount has been increased to $109,400 (up from $84,500) for joint returns and surviving spouses; $70,300 for single taxpayers (up from $54,300); and $54,700 for taxpayers married filing separately (up from $42,250). The TCJA repealed the corporate alternative minimum tax, effective for taxable years beginning after December 31, 2017. IRC §38(c)(6)(E). See §3.4.

Before the Tax Cuts and Jobs Act, it was possible to exchange certain assets (including real property, and tangible and intangible personal property) in similar businesses tax free in a like-kind exchange transaction under IRC §1031. The TCJA amended IRC §1031 to limit its application to real estate not primarily held for sale, generally effective for exchanges engaged in after December 31, 2017. Personal property is no longer eligible for §1031 treatment. As a consequence, any personal property related to a real property exchange, such as laundry and kitchen equipment, office furniture and equipment, or landscaping equipment, is treated as taxable “boot” in the exchange. An exception is provided for exchanges in which either the relinquished property was sold or the replacement property was acquired on or before December 31, 2017. See §3.20.

The tax elections under IRC §§336(e) and 338, which enable taxpayers to treat a stock sale as if it were an asset sale for tax purposes, may become more attractive given the provisions in the Tax Cuts and Jobs Act that allow for immediate expensing of equipment and other depreciable assets purchased. See §3.24.

After the TCJA, the dividends-received deduction is now generally 50 percent, but it is 65 percent for any dividend received from any corporation if 20 percent or more of the stock of that corporation (by vote and value) is owned by the taxpayer, and 100 percent for a small business investment company or affiliated group recipient. IRC §243. See §3.26.

Before the TCJA, NOLs could be carried back 2 years and carried forward 20 years to offset taxable income in such years. The TCJA amended IRC §172 to eliminate the 2-year carryback (except as noted in §3.47), but allows NOLs to be carried forward indefinitely until the NOL is used up. IRC §172(b). In addition, the limit (discussed in §3.47) on carryovers of losses arising in years beginning after December 31, 2017 is increased annually to take into account the time value of money. See §3.47.

Before the TCJA, business taxpayers were generally entitled to deduct interest expenses, subject to several limitations. For noncorporate taxpayers, the deductibility of interest related to investments was limited to investment income. Under the earnings-stripping provisions, interest deductions were disallowed if the payor’s debt-to-equity ratio exceeded 1.5 to 1, the net interest expenses exceeded 50 percent of the taxpayer’s adjusted gross income, and the interest was payable to certain described payees. The TCJA limits the amount of interest expense that can be deducted by large businesses (including corporations and pass-through entities) to the sum of (1) business interest income; (2) 30 percent of the business’s “adjusted taxable income” for the year at issue; and (3) floor plan financing interest (which is fully deductible). Investment interest expense and investment interest income is not taken into account when applying this limitation. IRC §163(j). Note that interest on existing debt is not grandfathered; this limitation applies to all interest expense, regardless of when the debt was incurred. Clients are therefore well advised to review their existing capital structures. See §3.47B.

The new limitations on interest deductibility do not apply to expenses that are not “interest,” even if those expenses are akin to interest, such as licensing, leasing, or rental expenses. Thus, alternative financing structures—such as sale-leasebacks, issuance of preferred stock, or borrowing short term or via convertible debt—should be considered. See §3.47B.

Under IRC §279(a), a corporation’s annual deduction for interest on “corporate acquisition indebtedness” as defined is generally limited to $5 million. The TCJA made no changes to IRC §279. See §3.47C.

A bonus first-year depreciation allowance applies to certain “qualified property” as described in IRC §168(k). The allowance is claimed in the first year that the property is placed in service by the taxpayer for use in its trade or business or for the production of income. Before the TCJA, IRC §168(k) permitted “bonus depreciation” in the year placed in service for (1) 20-year property; (2) computer software; (3) water utility property; and (4) qualified improvement property, as long as the property was new and placed in service before January 1, 2020 (January 1, 2021, for longer production assets and certain aircraft). The bonus depreciation permitted was 50 percent in 2017, 40 percent in 2018, 30 percent in 2019, and no bonus depreciation in later years. The TCJA increased the 50 percent allowance to 100 percent for property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for certain longer-production property and qualified aircraft). The allowance phases down after those dates. The allowances under prior law (as noted above) remain in effect for property acquired before September 28, 2017. See §3.47E.

Under prior law, a taxpayer’s use of qualified property was required to be the original use of the property. In other words, the property placed in service had to be new; a deduction was not allowed for used property. Now, the TCJA allows this deduction to be taken for both new and used property, as long as the property was not used by the taxpayer before the taxpayer’s acquisition of the property and the taxpayer did not acquire the property from a related person. As a consequence, asset acquisitions should become more desirable, because purchasers will now be allowed to deduct immediately that portion of the purchase price allocable to qualified property. See §3.47E.

Before the TCJA, the maximum amount that a taxpayer could expense under §179 was $500,000 for qualifying property placed in service in a taxable year. The $500,000 was reduced by the amount that the cost of qualifying property placed in service that year exceeded $2 million. The TCJA increased the maximum amount a taxpayer can expense under IRC §179 to $1 million and increased the phase-out threshold amount to $2.5 million. The TCJA allows this deduction to be taken for both new and used property, as long as the property was not used by the taxpayer before the taxpayer’s acquisition of the property and the taxpayer did not acquire the property from a related person. As a consequence, asset acquisitions should become more desirable, because purchasers will now be allowed to deduct immediately that portion of the purchase price allocable to qualified property. See §3.47F.

After the TCJA, the tax benefits of immediate expensing under IRC §179 (discussed in §3.47F) and bonus depreciation under IRC §168(k) (discussed in §3.47E) for purchases of qualified equipment at a cost under the §179 ceiling appear substantially the same. Bonus depreciation under IRC §168(k) is useful to large businesses that spend more than the §179 ceiling on capital equipment. In addition, businesses operating at a loss are still allowed to deduct some of the cost of equipment under §168(k) and carry the loss forward. Compare IRC §168(k) with IRC §179(a)(3). In applying these provisions, taxpayers generally apply the §179 deduction first, followed by the bonus depreciation deduction, unless the business had no taxable income. See §3.47F.

The new 2018 notification thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 USC §18a) are set forth in chap 5. See §5.2.

In FTC v Penn State Hershey Med. Ctr. (3rd Cir 2016) 838 F3d 327, the Federal Trade Commission (FTC) had filed suit seeking a preliminary injunction to prevent a merger of the two largest hospitals in the Harrisburg, Pennsylvania area. The federal district court denied the FTC’s request on the basis that the FTC had not met its burden to define the relevant geographic market. In reversing the district court’s finding and granting the injunction, the Third Circuit applied the hypothetical monopolist test to determine whether payors and patients would look outside of the four-county Harrisburg area for general acute care services sold to commercial payors. See §5.5.

About the Authors

ROBERT R. TUFTS is a partner in the San Francisco law firm of Tufts Stephenson & Kasper, LLP. He served as consulting editor and principal author of this book and was both a contributing author and update author for Drafting Agreements for the Sale of California Businesses. Mr. Tufts specializes in general corporate law, including the formation and financing of corporations and other business entities, federal and California securities law compliance, corporate income tax matters, mergers and acquisitions, and other general business matters. He is also a certified tax specialist. Mr. Tufts has lectured and written extensively on various subjects relating to corporate law. Mr. Tufts received his A.B. from New York University. He received his law degree from Harvard Law School.

NEAL H. BROCKMEYER received his J.D. from the University of California, Berkeley, School of Law in 1963 and his A.B. from Stanford University in 1960. He is Of Counsel to Locke Lord LLP, Los Angeles, and practices in the areas of corporate and securities law. He has served as chair of the Corporations Committee, State Bar Business Law Section, and as chair of the Business and Corporations Law Section Executive Committee, Los Angeles County Bar Association, and as a member of the Committee on Federal Regulation of Securities of the American Bar Association’s Business Law Section. Mr. Brockmeyer is the coauthor of Chapter 8A (Indemnification Issues).

TWILA L. FOSTER is a partner in the San Francisco office of Crosby, Heafey, Roach & May. Ms. Foster previously contributed material to Drafting Agreements for the Sale of California Businesses. She specializes in general corporate law, including the formation and financing of corporations and other business entities, federal and California securities law compliance, mergers and acquisitions, and other general business advice. She has served as chair of the Executive Committee of the Business Law Section of the California State Bar. She received her bachelor’s degree with great distinction from the University of California (Berkeley). She received her law degree from Harvard Law School in 1980.

STEPHEN D. GILLESPIE received his Ph.D. degree in jurisprudence and social policy from the University of California (Berkeley) in 1995; his J.D. degree from the University of California, Berkeley, School of Law, in 1994; and his B.A. degree, magna cum laude, from the University of California (Berkeley) in 1990. Mr. Gillespie is a partner in the Technology Transactions group at the San Francisco office of Fenwick & West LLP. He concentrates on helping software and Internet companies structure and negotiate their strategic transactions, including national and international technology development deals, direct customer and channel arrangements, inbound and outbound technology licenses, e-commerce and Internet publishing agreements, strategic alliances, joint ventures, and mergers and acquisitions. He has developed extensive expertise regarding open source software and U.S. export control regulations. Mr. Gillespie is the author of Chapter 7A (Intellectual Property Issues in Merger and Acquisition Agreements).

ERIC G. GROEN received his B.A. from the University of California (Santa Barbara) in 1993 and his J.D. from Harvard Law School in 1996. Mr. Groen joined Troy & Gould in 1996 as an associate in the Corporate Department. He is now with Amgen, Inc., in Thousand Oaks. Mr. Groen is the coauthor of Chapter 2A (Directors’ Duties in Takeovers and Mergers).

KENNETH A. LINHARES is a partner in the Corporate Group of Fenwick & West LLP. His practice emphasizes mergers and acquisitions, the representation of venture capital-backed growth companies, employee benefits, and public company securities compliance. Mr. Linhares has spoken on venture capital financing structures and private securities placements and written for the California Continuing Education of the Bar’s Business Law Practitioner on financing techniques for high-technology companies. Mr. Linhares received his B.A. magna cum laude from the University of Santa Clara in 1977 and received his J.D. summa cum laude in 1980 from the University of Santa Clara School of Law, where he was an editor of the Law Review.

MARK E. PORTER is Of Counsel in the Corporate Group of Fenwick & West LLP. His practice concentrates on corporate matters, particularly mergers and acquisitions, and on bankruptcy and insolvency matters. Mr. Porter graduated cum laude with a B.A. in English in 1981 from the University of Southern California and received his J.D. from the University of California, Hastings College of the Law, in 1988. From 1988 until 1990, Mr. Porter clerked for the Hon. Lloyd King, U.S. Bankruptcy Judge, Northern District of California, and then was a bankruptcy practitioner in private practice in San Francisco before joining Fenwick & West. He is a member of the American Bar Association Section on Business Law and a member of the Bar Association of San Francisco, Commercial Bar and Bankruptcy Section. He is also a member of the Insolvency Law Committee, a standing committee of the State Bar of California.

LAWRENCE P. SCHNAPP received his B.S. from The Wharton School of the University of Pennsylvania in 1983 and his J.D. from the University of California, Los Angeles, School of Law in 1988, where he was a member of the Order of the Coif and the UCLA Moot Court. Mr. Schnapp joined Troy & Gould in 1994 as an associate in the Corporate Department, and was admitted as a member of the firm in 1997. Before joining the firm, he was a Certified Public Accountant with Mann Judd Landau, CPAs, in New York City, and was associated with Skadden, Arps, Slate, Meagher & Flom LLP in Los Angeles. Mr. Schnapp specializes primarily in corporate and securities law, including public offerings, private placements, and mergers and acquisitions. He has represented major investment banks, such as Donaldson, Lufkin & Jenrette Securities Corporation; Bear, Stearns & Co.; and Salomon Brothers Inc., as well as corporations such as Occidental Petroleum and Carter Hawley Hale Stores. Mr. Schnapp is a member of the American Bar Association and State Bar of California. Mr. Schnapp is the coauthor of Chapter 2A (Directors’ Duties in Takeovers and Mergers).

ERIC S. WAXMAN received his J.D. from the University of California, Davis, School of Law, in 1982, where he was editor of the law review, and his B.A., magna cum laude, from the University of California (Los Angeles) in 1979. He is a partner at Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles. Mr. Waxman has been recognized as a “leading lawyer” by Chambers USA: America’s Leading Lawyers for Business and has been selected for inclusion in The Best Lawyers in America. He was also named among the top 40 “Most Influential M & A Advisors” in Los Angeles by the Los Angeles Business Journal. His commercial litigation practice emphasizes securities litigation, director misconduct, and related claims. Mr. Waxman is the coauthor of Chapter 8A (Indemnification Issues).

About the 2018 Update Authors

ALYSON V. TUFTS is a partner at Cuyler & Tufts LLP, a San Francisco­based firm. Ms. Tufts’ practice encompasses a wide range of corporate and technology-related transactional matters, including complex commercial transactions, telecommunications, and other technology agreements, with a particular emphasis in health care and other regulated sectors. In addition, Ms. Tufts assists nonprofit entities with obtaining state and federal tax-exempt status. Ms. Tufts received her B.A. in Communication Studies and German from the University of California, Los Angeles, and her law degree from the University of California, Berkeley, School of Law.

ROBERT R. TUFTS is a partner in the San Francisco law firm of Tufts Stephenson & Kasper, LLP. He served as consulting editor and principal author of this book and was both a contributing author and update author for Drafting Agreements for the Sale of California Businesses. Mr. Tufts specializes in general corporate law, including the formation and financing of corporations and other business entities, federal and California securities law compliance, corporate income tax matters, mergers and acquisitions, and other general business matters. He is also a certified tax specialist. Mr. Tufts has lectured and written extensively on various subjects relating to corporate law. Mr. Tufts received his A.B. from New York University. He received his law degree from Harvard Law School.

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