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Appointing a Stockholder Representative in Private Merger Agreements
Practical Law Legal Update 6-563-6366 (Approx. 4 pages)
Appointing a Stockholder Representative in Private Merger Agreements
by Practical Law Corporate & Securities
| Published on 03 Apr 2014 • USA (National/Federal) |
An excerpt from Standard Document, Merger Agreement (Private Company, Pro-Buyer) containing the provisions for the appointment of a stockholder representative.
Although acquisitions of private companies are commonly structured as stock acquisitions, buyers and sellers may choose to structure an acquisition as a merger if the target company has a large number of stockholders. When there are many stockholders, a stock acquisition can become burdensome, with a greater potential for holdouts, lengthy negotiations and other complications. By structuring the acquisition as a merger, the buyer avoids having to find, negotiate and otherwise convince each selling stockholder to sign a stock purchase agreement. Instead, the buyer acquires the target company through the merger and deals with any dissenting stockholders separately through the appraisal process.
Even if the acquisition is structured as a merger, the buyer may find it cumbersome to have to negotiate post-closing matters (such as the post-closing purchase price adjustment and indemnification matters) with all of the stockholders. To avoid this, the buyer usually requires the target company to appoint a stockholder representative to act on behalf of the stockholders regarding post-closing matters.
The following sample provisions for appointing a stockholder representative in a private merger agreement are taken from Practical Law's newest Corporate resource, Standard Document, Merger Agreement (Private Company, Pro-Buyer). The provisions of Section 10.01: Stockholder Representative begin as follows:
Section 10.01 Stockholder Representative
(a) By approving this Agreement and the transactions contemplated hereby or by executing and delivering a Letter of Transmittal [or an Option Termination Agreement], each Stockholder [or Optionholder] shall have irrevocably authorized and appointed Stockholder Representative as such Person's representative and attorney-in-fact to act on behalf of such Person with respect to this Agreement and the Escrow Agreement and to take any and all actions and make any decisions required or permitted to be taken by Stockholder Representative pursuant to this Agreement or the Escrow Agreement, including the exercise of the power to:
(i) give and receive notices and communications;
(ii) authorize delivery to Parent of cash from the Purchase Price Adjustment Escrow Fund (or, if necessary, the Indemnification Escrow Fund) in satisfaction of any amounts owed to Parent pursuant to Section 2.17 or from the Indemnification Escrow Fund in satisfaction of claims for indemnification made by Parent pursuant to Article VI and Article VIII;
(iii) agree to, negotiate, enter into settlements and compromises of, and comply with orders or otherwise handle any other matters described in Section 2.17;
(iv) agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to claims for indemnification made by Parent pursuant to Article VI and Article VIII;
(v) litigate, arbitrate, resolve, settle or compromise any claim for indemnification pursuant to Article VI and Article VIII;
(vi) execute and deliver all documents necessary or desirable to carry out the intent of this Agreement and any Ancillary Document (including the Escrow Agreement);
(vii) make all elections or decisions contemplated by this Agreement and any Ancillary Document (including the Escrow Agreement);
(viii) engage, employ or appoint any agents or representatives (including attorneys, accountants and consultants) to assist Stockholder Representative in complying with its duties and obligations; and
(ix) take all actions necessary or appropriate in the good faith judgment of Stockholder Representative for the accomplishment of the foregoing.
Parent shall be entitled to deal exclusively with Stockholder Representative on all matters relating to this Agreement (including Article VIII) and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Stockholder [or Optionholder] by Stockholder Representative, and on any other action taken or purported to be taken on behalf of any Stockholder [or Optionholder] by Stockholder Representative, as being fully binding upon such Person. Notices or communications to or from Stockholder Representative shall constitute notice to or from each of the Stockholders [and Optionholders]. Any decision or action by Stockholder Representative hereunder, including any agreement between Stockholder Representative and Parent relating to the defense, payment or settlement of any claims for indemnification hereunder, shall constitute a decision or action of all Stockholders [and Optionholders] and shall be final, binding and conclusive upon each such Person. No Stockholder or Optionholder shall have the right to object to, dissent from, protest or otherwise contest the same. The provisions of this Section, including the power of attorney granted hereby, are independent and severable, are irrevocable and coupled with an interest and shall not be terminated by any act of any one or Stockholders [or Optionholders], or by operation of Law[, whether by death or other event].
Drafting Note: Stockholder Representative's Powers
Section 10.01(a) provides for the authorization and appointment of the stockholder representative to act on behalf of the stockholders and provides a relatively standard list of the powers that the stockholder representative may exercise. Generally, the buyer wants the list of powers to be broad to ensure the stockholder representative has the necessary powers to deal with any post-closing matters (for example, see Section 2.17, Article VI and Article VIII). The buyer does not want the stockholder representative to have to obtain additional approvals to take some actions. Depending on the terms of the transaction, the buyer may want to add to the list of powers in Section 10.01(a) (for example, it may want the stockholder representative to be able to amend, modify or waive any provisions of the merger agreement).
Resignation and Removal; Stockholder Representative Losses
For provisions and drafting notes concerning the resignation and removal of the stockholder representative and indemnification for the stockholder representative's losses, see the remaining provisions of Section 10.01: Stockholder Representative.