Table of Contents

Preface xi

Acknowledgments xv

Chapter 1 Structuring Fundamentals 1

Basic Corporate Finance Concepts 1

Reasons for Acquisitions 7

Three Basic Acquisition Structures 11

Structuring Considerations: Overview 14

Chapter 2 The Acquisition Process 20

Overview 20

Valuation of the Business 27

Investment Bank Engagement Letters 30

Confidentiality Agreements 35

Letters of Intent 37

Stay Bonuses and Other Employee Retention Arrangements 39

Business and Legal Due Diligence 42

Intellectual Property Due Diligence 55

From Signing to Closing 66

Appendixes 67

Chapter 3 Corporate (Nontax) Structuring Considerations 69

Business Objectives and Other Nontax Structuring Considerations 69

Acquisition Structure Diagrams 78

Forms of Acquisition Consideration 78

Debt 83

Cash, Stock, and Earnouts 96

Successor Liability and the De Facto Merger Doctrine 101

Securities Law Compliance 104

Antitrust Compliance: Hart-Scott-Rodino Act 114

Equity Compensation 120

Incentive Stock Options 126

Employment Agreements and Noncompetition Covenants 130

Indemnification 136

Employment and Benefits Law 138

Acquisition Accounting 140

Recapitalization Accounting 144

Appendixes 145

Chapter 4 Tax Considerations 146

Taxable Versus Tax-Free Transactions: Overview of Relevant Situations 146

Detailed Analysis of the Positions of the Target and Its Owners and of the Buyer 148

Taxable Transactions and Their Tax Effects 150

Tax-Free Transactions 154

Special Situations 159

Golden Parachute Tax 164

Chapter 5 The Definitive Acquisition Agreement 169

Economic Terms 169

Representations and Warranties 184

Covenants 196

Additional Agreements 199

Conditions to Closing 200

Survival of Representations and Indemnification 201

Termination 206

Miscellaneous 206

Representing Targets: A Summary 207

Appendixes 210

Chapter 6 Acquisitions of Public Companies 211

Public-to-Public Mergers: What is Different? 211

Case Law–Developed Fiduciary Duties and Standards of Review 214

Evolution of Fiduciary Duty Case Law and Judicial Review 220

Securities Laws and Public Company Acquisitions 237

Anti-Takeover Devices 247

Appendix 256

Chapter 7 Leveraged Buyouts (Structural and Tax Issues) and Acquisitions of a Troubled Business (Creditors’ Rights and Bankruptcy) 257

Leveraged Buyouts: Structural and Tax Issues 257

Acquisition of a Troubled Business Generally 263

Fraudulent Transfers 265

Acquisitions Out of Bankruptcy 272

Chapter 8 International M&A 282

Cross-Border Acquisitions 282

Chapter 9 Joint Ventures 292

Reasons for Joint Ventures 292

Types of Joint Ventures 293

Typical Joint Venture Terms 295

Appendix 304

About the Website 305

Index 307

About the Author

EDWIN L. MILLER, JR. is a partner with Sullivan & Worcester. He has practiced corporate and securities law for over forty years. He has represented both issuers and underwriters in numerous IPOs, secondary stock offerings, and other public market transactions. In addition, he has organized a number of private equity/venture capital funds and has represented venture capital firms and technology companies in venture financings.

LEWIS N. SEGALL is a corporate partner and leader of the Corporate/M&A Group at Sullivan & Worcester. He regularly represents public and private companies in equity and debt financings, joint ventures, domestic and international mergers and acquisitions, and general corporate matters. He also represents financial institutions in secured and unsecured credit facilities.