As soon as businesses decide to merge, the respective legal teams from each entity must immediately mobilize and accurately deploy a merger plan that addresses everything from due diligence to the final filings. Any missed steps can incur serious costs or cause adverse delays.

1. MERGERS
A PRIMER
PRESENTED BY:
LORI ANN FOX, ESQ.

2. SEMINAR PREVIEW
• Mergers & Acquisitions Overview
• Merger Types
• Pre-Transaction Planning
• Post-Transaction Filing Issues

3. ANNOUNCED M&A: NORTH AMERICA – 1985-2014

4. ANNOUNCED M&A: WORLDWIDE– 1985-2014

5. BUSINESS DEAL VS. STATUTORY MERGER
• Corporations do business “deals” to gain market share, add products,
reduce costs, etc.
• The price is always part of the deal
• The statutory merger is not the deal
• The statutory merger is the legal device used to effectuate the deal

6. ACQUISITIONS DEFINED
• The act of becoming the owner of certain property
• Taking with or without consent, especially a material possession
obtained by any means
• Two types
– Share
– Asset

7. WHAT IS A MERGER?
A statutory device which allows the combination of two or more
business entities by the transfer of assets, liabilities and business
of all to one of them, which continues in existence, the other(s)
being swallowed up or merged into the continuing entity

8. “MERGERS” VS. “ACQUISITIONS”
• Terms are not interchangeable
• Mergers are a subset of acquisitions

9. BASIC M&A TERMINOLOGY
• Acquiring = Acquirer = Acquiror = Buyer = Continuing Entity =
Survivor
• Target = Acquired = Seller = Disappearing Entity = Merged Entity
= Non-survivor
• Constituent Entity = All
• Acquisition sub = Merger subsidiary

10. WHY LAWYERS LIKE STATUTORY MERGERS
• Precise way to acquire another business entity
• The results are clearly prescribed by law
• It is an old adage that mergers call for less lawyering but
more paperwork than other types of acquisition vehicles
Statutory
Merger

11. WHAT STATUTES PRESCRIBE
• Document contents and effects
• Post-merger status of parties
– Survivor gets all assets and liabilities
– Seller’s shareholders (or members/partners) usually receive shares
(or membership/partnership interests) in the survivor or cash
• Appraisal rights may be available to minority owners

12. EVEN SO, MERGERS CAN BE COMPLEX
• Laws different in every state
• Multi-state regulations and timing
issues
• Many types of document orders
• Many filings required
• Possible federal agency filings
• Unknown, unpublished requirements
of filing officers
Regulations Requirements
LawsDocuments
Filings Research

13. TYPES OF MERGERS

14. POLLING QUESTION #1
In your practice, which type of merger do you handle most often?
A. General merger
B. Parent-sub merger
C. Triangular merger
D. Multi-entity merger

15. GENERAL MERGER
A B

16. GENERAL MERGER
• Target merges into acquirer
• Target’s shareholders/members/partners may receive
shares/membership interests/partnership interests in the
acquirer, cash or other property
• Most mergers occur under the “general” merger statute
• No special requirements must be met
• Corporation, LLC, LP, GP laws have general merger statutes
• Cross entity mergers allowed

17. APPROVAL BY CORPORATIONS
• Boards of each constituent must approve Plan
• Shareholders of merged corporation(s) must approve
• Shareholders of the survivor usually do not have to approve
– Approval required under certain circumstances
– Situations where shareholders’ interests are substantially affected

18. APPROVAL BY LLCS, LPS, LLPS
• LLC
– May be set forth in operating agreement
– Some states have a default rule requiring unanimous member
approval
– Some states have a default rule requiring majority approval
• LPs
– As provided in partnership agreement or default rule
• GPs, LLPs, and other entities that may be involved in merger
– Approval as provided in organizational documents and statute

19. PARENT-SUBSIDIARY MERGERS
• Up-stream: parent survives
• Down-stream: sub survives
• Short form mergers
– Simplified procedure
– Approval by subsidiary’s board of directors not required
– No vote required by shareholders of surviving parent or
disappearing sub

20. PARENT-SUB | UP-STREAM MERGER
S
P

21. PARENT-SUB UP-STREAM MERGER
• Statutory merger of subsidiary into its parent
• Short form procedure authorized by corporation laws
• Does parent own statutory percentage required?
• Shareholder vote unnecessary – why?
• Avoids costly proxy solicitations and meetings of publicly traded
companies
• Amendment of the parent’s formation document is restricted
• LLC/LP laws may or may not authorize short form procedure

22. PARENT-SUB DOWN-STREAM MERGER
S
P

23. PARENT-SUB DOWN-STREAM MERGER
• Parent merges into subsidiary
• Can use to change the parent’s home state
• Some corporation laws permit short form merger of parent into sub
– Parent must own a certain % of sub
– Parent’s shareholders must approve
– Amendment of the survivor’s formation document may be restricted
• If short form provision unavailable, use the general merger statute

24. TRIANGULAR MERGERS
• Involves three parties – acquirer, subsidiary formed by acquirer,
and target
• Only the target and subsidiary actually merge
• Statute must permit ownership interests of one constituent to
be exchanged for ownership interests of a non-constituent entity

25. FORWARD TRIANGULAR MERGER
T S
A
A
ST

26. FORWARD TRIANGULAR MERGER
• Action
– Merger subsidiary created for the transaction
– Target merges into subsidiary
– Merger sub survives
– Target disappears
• Owners of Target receive ownership interests in Parent/Acquirer,
not merger sub
• Parent/Acquirer not a constituent
• Parent/Acquirer not liable for obligations & liabilities of Target

27. REVERSE TRIANGULAR MERGER
A
T S
A
A
ST

28. REVERSE TRIANGULAR MERGER
• Action
– New merger sub created for this transaction
– Merger sub merges into Target
– Target survives
– Merger sub disappears
• Two exchanges take place
– Target’s owners get ownership interests in Acquirer
– Sub’s owners get ownership interests in Target

29. MULTI-ENTITY MERGER
A B

30. MULTI-ENTITY MERGERS
• Mergers between different entity types (Example: corporation
merges with LLC)
• Also referred to as cross-entity, inter-entity or inter-species
merger
• Can be used as a vehicle to change entity forms as well as a
vehicle to acquire an entity

31. SOME CONSIDERATIONS
• Domestic state statutes must be examined for each constituent
• Determine if statutes authorize each of the constituents to
participate
• Manner of adoption for different entities
• Execution requirements for each constituent
• Exchange of ownership interest issues will need to be addressed
in the plan

32. PRE-TRANSACTION
PLANNING

33. PRE-TRANSACTION PLANNING ISSUES
• Status
• Tax
• Qualifications
• Timing
• Effective date

34. POTENTIAL COMPLEXITIES
• Multi-state aspects of filings and
document orders can be
overwhelming
• Multi-entity transactions are even
more complicated
• Precise timing is crucial
• Good organizational skills and
planning are your best defense
against confusion

35. POTENTIAL COMPLEXITIES
• Multi-state aspects of filings and document orders can be
overwhelming
• Multi-entity transactions are even more complicated
• Precise timing is crucial
• Good organizational skills and planning are your best defense
against confusion

36. WHERE ARE THE ENTITIES?
• Know who the parties to the transaction are
• Are they in good standing in their home states?
• Are they in good standing where they are qualified?
• If not, all delinquent reports must be filed and any fees and taxes
due must be paid
• It may take time to remedy delinquencies

37. GOOD STANDING STATUS
• If the entity has been administratively revoked, follow the
reinstatement procedures where available
• Reinstatement relates back, but name rights may have been lost

38. TAX STATUS
• Non-surviving entities need to determine if they have
outstanding taxes
• Two basic standards
– Status - many jurisdictions only require the entity’s tax status to
be good, meaning that the entity has no taxes due
– Clearance - some jurisdictions require that a formal tax clearance
be obtained from the tax department

39. POLLING QUESTION #2
Do you generally assume tax liability during your merger instead
of obtaining tax clearances?
A. Yes
B. No

40. ASSUMPTION OF TAX LIABILITY
• May avoid having to obtain tax clearance by having the survivor
assume tax liability of other constituent(s)
• Advantageous if tax clearance certificates difficult or time
consuming to obtain
• States generally permit tax assumption but may require the
assuming entity to be a domestic or qualified foreign entity

41. PRE-TRANSACTION PLANNING: NAME ISSUES
• Check availability of name
• Name protection
– Reservation or registration
• State name standards
• Options if name is unavailable
• Assumed/fictitious name/trade name
– Not to be confused with trademarks

42. NAME AVAILABILITY
• Check name availability
– Telephone
– On-line at the SOS web site
– Written request to filing office
• Even if available on the SOS records, another party may have
superior rights under federal or state trademark law
• Avoid getting a cease & desist letter from name holder with
superior rights
• Trademark searches
– Compare service marks, trademarks, trade names
– Search federal and state trademark listings, business listings,
internet search

43. NAME AVAILABILITY STANDARDS
• Distinguishable standard
– A name that is “distinguishable upon the records of the filing
office” from specific types of entities or all entities on record
• Deceptively similar standard
– A name that is “not deceptively similar to” or does “not have a
likelihood of confusion with” the name of specific types of entities
or all entities on record

44. NAME RESERVATION
• Name reservation provides short term protection for a name
filed at the central filing office
– Generally 30 to 120 days depending on state
• Do not allow the reservation period to expire before the
effective date of the transaction
• Calendar the date

45. NAME REGISTRATION
• Protects the legal name of an entity in a foreign jurisdiction in
which it has not yet qualified
• Usually involves a long term of protection

46. NAME PROTECTION - PRACTICE POINTER
• Generally, use name reservation to protect the name of an
entity not yet formed (Short term protection)
• Use name registration to protect the name of an entity that is
planning to qualify in the state at a future time (long term
protection)

47. DOMAIN NAMES
• What about domain names?
• In determining if a name is available on the state’s records,
states generally disregard the .com, .net
• Although search with domain name registrar may indicate name
is available, check name availability under trademark law and
on the SOS records

48. NAME NOT AVAILABLE
• Option 1: Obtain written consent of name holder
– Must be permitted by statute
• Option 2: Use of a conflict name
– Required in those foreign jurisdictions where the true name is
unavailable
– Generally referred to as fictitious name in statute
– Fictitious name is set forth on the qualification document

49. VOLUNTARY ASSUMED NAME
• In most states, entities may voluntarily use a name other than
the true name
• Easy to confuse conflict name and voluntary assumed name
• States will often use same term to refer to these two distinct
concepts
• Different states use different terms: assumed name/fictitious
name/trade name

50. POLLING QUESTION #3
When a business entity client will need to qualify as a result of a
merger, when do you generally file the qualification documents?
A. Before filing the merger documents
B. At the same time as the merger documents
C. After filing the merger documents

51. PRE-TRANSACTION QUALIFICATIONS
• If the transaction will result in an entity engaging in activities in
a state where it is not qualified, consider in advance whether
the entity will need to be qualified
• Do the activities constitute “doing business” within the meaning
of the relevant statute?

52. PRE-TRANSACTION QUALIFICATIONS
• In a merger, the survivor is not automatically qualified by the
merger filing in a state where it was not previously qualified
• When to qualify?
• Supporting documents may have to be dated within a certain
number of days before filing
• Each jurisdiction’s requirements vary and should be checked

53. PENALTIES FOR FAILURE TO QUALIFY
• Monetary penalties and fines
• Penalties may accrue to individuals acting for the entity
• Cannot institute suit in state courts

54. TIMING ISSUES
• Determine projected effective date
• Can use delayed effective dates
• Account for filing office backlog
• Tax considerations
• Prepare documents for filing
• Obtain supporting documents
• Expedited service availability
• Pre-clearance of documents
• Almost every state permits delayed effective dates

55. ABANDONMENT
• Some states allow abandonment without owner approval at any
time prior to filing
• Others allow abandonment without owner approval after filing,
but prior to effective date

56. PRE-TRANSACTION AUTHENTICATIONS
• International transactions
• Making a document authentic so it is legally admissible in a foreign
country
• Internal documents can be authenticated
– Power of attorney or legal transcripts, for example
• State issued documents can be authenticated
– Good standing certificate, for example
• Authenticating by apostille
– Applicable in “Hague Convention” countries
– Submit notarized document to a secretary of state and request an
apostille
– Certification makes the document valid in any Hague Convention
country without further formalities

57. PRE-TRANSACTION AUTHENTICATIONS
• Non-Hague Convention countries require formal authentication
– Check with embassy or consulate for precise instructions
– But generally, submit document sequentially to
• County clerk in the jurisdiction where the document was notarized if
necessary
• Secretary of State
• US Secretary of State
• Foreign consulate or embassy

58. PRE-TRANSACTION PLANNING: HSR FILINGS
• HSR: Hart-Scott-Rodino Act
• 1976 Amendment to Clayton Antitrust Act
• Requires entities planning certain large mergers or acquisitions
to file Notification and Report Form
• Form gives details about the transaction
• Filed with Premerger Notification Office of the Federal Trade
Commission (FTC) and the Antitrust Division of the Department
of Justice (DOJ)

59. MORE ABOUT THE HSR ACT
• Parties must wait before consummating transaction
– Generally, 30 days
• Purpose - give agencies advance notice and an opportunity to
oppose transactions that might violate antitrust laws
• Fines imposed for failure to file
• Only need to report M & A that meets jurisdictional thresholds
• Thresholds adjusted annually
• For more specific information on Hart-Scott-Rodino please go to
the FTC’s web site at www.ftc.gov

60. GETTING ORGANIZED
• Review laws of constituents’ home states
– File primary merger documents here
• Review laws of states where the survivor is presently qualified
– May be required to file evidence of merger or amend
qualification here
• Review laws of states where qualifications will be needed
– Qualify the survivor here
• Review laws of states where the non-survivors are presently
qualified
– File withdrawals for the non-survivors or evidence of the merger
as applicable

61. GETTING ORGANIZED
• Review laws of constituents’ home states
• Review laws of states where the survivor is presently qualified
• Review laws of states where qualifications will be needed
• Review laws of states where the non-survivors are presently
qualified

62. PRIMARY MERGER DOCUMENTS
• The two primary documents necessary to effect a merger are
– The Plan or Agreement of Merger which contains the terms and
conditions of the merger
– The Articles of Merger or Certificate of Merger which is the
document filed that effectuates the merger on the records of
the constituents’ domestic states
• In some states, Articles or Certificate of Merger must contain
the Plan of Merger or abbreviated terms and conditions of the
merger
• Other states have notice filing requirements and do not require
the details of the agreement or terms and conditions to be put
on the public record

63. POST-TRANSACTION
FILING ISSUES

64. POST-TRANSACTION FILINGS
• Make the public record reflect post transaction reality
• Foreign post-merger filings may include
– Filings to remove entity from records
– Qualifications
– Name change amendments
– Articles of Correction

65. FOREIGN POST-MERGER FILINGS
• File evidence of the merger or formally withdraw in states
where the nonsurvivors are qualified
• Qualify the survivor where it will transact business
• File name change amendments if necessary
• What do you file in the state where
– Both the surviving entity and non-surviving entity are qualified
– Surviving entity qualified; non-surviving entity not qualified
– Surviving entity not qualified; non-surviving entity qualified

66. PENALTIES FOR FAILING TO WITHDRAW
• Consequences of failure to withdraw
– Fines and penalties
– Fines may accrue to individuals acting for the entity and to
successor entities
– Continuing liability for annual reports, state tax filings and
payments and other regulations

67. POTENTIAL PROBLEMS
• Tax clearance may be needed
• Name conflicts
• Withdrawal may be a time consuming process

68. CORRECTING DOCUMENTS
• MBCA: Articles of Correction may be used to correct a
document filed by the Secretary of State if the document
– Contains an inaccuracy
– Was defectively executed, attested, sealed, verified, or
acknowledged
– Electronic transmission was defective
• Some statutes limit time for corrections

69. ARTICLES OF CORRECTION
• Articles of Correction may not correct or alter
– Entity names or purpose clauses
– Substantive provisions
– Class and number of authorized shares
– Names and addresses of incorporators or initial directors
• Articles are effective on effective date of the document they
correct

70. COMMON STATUTORY EXCLUSIONS
• Articles of Correction may not correct or alter
– Entity names or purpose clauses
– Substantive provisions
– Class and number of authorized shares
– Names and addresses of incorporators or initial directors

71. COMMON REASONS FOR REJECTED FILINGS
• Documents improperly executed or executed by a person not
authorized to sign for the entity
• Faxed filing illegible
• Electronic transmission defective
• Incorrect fee sent with filing
• Missing or faulty attachment
• Incorrect/outdated state-issued form
• Wrong number of required copies

72. SUMMARY
• Definitions
• Types of Mergers and Transactions
• Pre-Transaction Planning
• Post-Transaction Filing Issues

73. THANK YOU FOR
ATTENDING