Buying or Selling a Business II: Mergers and Acquisitions and "Deal Litigation"
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19 terms
Terms | Definitions |
|---|---|
 Defensive due diligence | director or underwriter may avoid liability by establishing that after undertaking a reasonable investigation such person reasonably believed the statement at issue to be accurate |
| Due diligence | process through which VCs examine a company's concept, product, potential market, financial health, and legal situation |
| Term Sheet | allows parties to agree on principal terms of investment before lawyers proceed to draft a stock purchase agreement and any necessary amendment to corporate charter |
| Binding | terminating party may be liable to other side if a merger agreement is not executed |
| Non-binding | written motion adopted by a deliberative body that cannot progress into a law; substance of resolution can be anything that can normally be proposed as a motion |
| Duty to negotiate in good faith | honesty; a sincere intention to deal fairly with others; encompasses a sincere belief or motive without any malice or desire to defraud others; bona fide |
| definitive agreement | contract used with mergers in which one company is combining its business with one or more other companies; manages all terms and conditions relating to the merger |
| representations | underlying matters or facts as they are being presented in terms of contract; an account of statement of facts, allegations, or arguments; present everything from its past to current status |
| warranties | underlying matters or facts as they are being presented in terms of contract; generally moves from present to future; ex. agreement by company to fix any defects for a specified amount of time into the future |
| 10b-5 | prohibits any act or omission resulting in fraud or deceit in connection with purchase or sale of any security; elements: manipulation or deception; materiality; "in connection with" purchase or sale of securities; and scienter |
| Ordinary course | covers usual transactions, customs, and practices of a certain business and of a certain firm; used particularly to judge the validity of certain transactions |
| financial contingency | transaction is contingent upon buyer's ability to obtain financing; unless boilerplate terms of agreement have been altered, buyer is typically entitled to full return of earnest funds if denied a loan at any point prior to close of escrow |
| Material Adverse Change (MAC) | legal provision often found in mergers and acquisitions contracts and venture financing agreements that enable acquirer (or funder) to refuse to complete acquisition or merger or financing with party being acquired if target suffers such a change |
| Hart-Scott Radino (HSR) Act | legislation in US requiring any investor or company that buys 15% of equity or more than $15 million in stock in publicly-traded company to register with Justice Department and Federal Trade Commission; requires same registration from some mergers and acquisitions; once registration occurs, those organizations have 30 days to determine whether transaction violates any laws or regulations |
| Break-Up (Termination) Fee | paid to prospective acquirer if contemplated transaction is not consummated for reasons specified in purchase agreement |
| Ancillary Agreements | document that aids main legal contract; in M&A transaction, often included and states that offer cannot be withdrawn at any time |
| Consulting Agreement | a form of deal structure whereby seller provides business advice and direction for specified period of time in return for specific amount |
| License Agreement | a contract that sets forth terms and conditions under which a licensor grants a license to a licensee in exchange for compensation (usually a negotiated fee) |
| Earn-out | a contractual provision stating that seller of a business is to obtain additional future compensation based on business achieving certain future financial goals |
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