Merger Plan and Agreement is a legal document that outlines the parameters for a merger between two companies. In the Agreement, corporations consumed by larger corporations are referred to as “joint corporations”, and larger corporations are referred to as “sustaining corporations”. This contract usually begins with a Recital, stating the authority each corporation is permitted to enter into this agreement, that the Board of Directors of each corporation has determined it is in the best interests of both corporations to merge, and that the merger is to be governed by the following conditions:
1. Merger and Related Transactions. This provision regulates the effective date of the merger and which corporation will survive as a new corporation and which corporation will be merged. These terms will also cover any related transactions that will be completed on or before the conclusion of the agreement. These related transactions may include Subsidiary Formation Agreements, Asset Transfer Agreements, Generation Purchase Agreements, Compensation Agreements, formal Resignations of company officials, and other agreements related to merger agreements.
2. Share Exchange and Treatment. These provisions cover how the shares of the merged company will be exchanged and treated. Generally, the shares of the company resulting from the merger are canceled, converted and become the shares of the company that received the merger based on the merger. This section must deal with the treatment of common stock and preferred stock. This section should also address the debt treatment and credit rating of the merged company.
3. Cover. These provisions should briefly include details of the closure, and when and where it will take place.
4. Representations and Warranties. In this section, both the parent company, the surviving company, and the merged company must substantially undertake that everything they represent in the Agreement is true and that they have disclosed all of the facts material to the transaction. The promises made by surviving companies are very important. The surviving corporation must undertake that it is a legally established corporation in each jurisdiction in which it operates, that it has the authority to enter into Merger Agreements, and that it owns assets that it claims as its own. These provisions may also include a Non-Contravention sub-provision, in which the surviving company undertakes that the amendment to this Agreement does not violate, conflict with, or result in a material breach of any other Agreement it has entered into. The agreement must also state that the surviving company undertakes to comply with any law, statute, order, regulation, ordinance or judgment of any Government Authority.
5. Agreement. Here the surviving corporation must promise to do or not do certain things that have been agreed upon by the parties. These agreements can include promises to maintain accurate books of account, to fully disclose all material transactions to shareholders, or to not assume substantial debt.
6. Conditions. Finally, the drafter of the agreement must include a section that includes the terms agreed upon by the parties. These conditions must be met for a merger to occur. For example, the parties may agree that no temporary restraining order or injunction will be imposed against the corporation, that the merger receives statutory approval, that the surviving corporation will have sufficient financing to acquire the common and preferred stock of the merged corporation, and that the representations and warranties of both corporations are true and correct.
This is the most critical provision found in the Merger Agreement. Other boilerplate contract terms must also be included, such as provisions covering governing law, severance, modification, and termination.