Basic Elements in a Merger Agreement

by admin

skylineA merger agreement is like a snowflake: no two are alike (some cynics might say they are also both cold and, in bad weather, get piled on thick).

Still, there are some basic sections in most merger agreements.

1.  The “mechanics” – Each merger agreement should spell which assets or stock are transferred, the price paid for them, and how the transaction will be executed.

2.  Other terms – Each merger agreement should spell out the other terms of the transactions.  For example, if the seller is getting an earn-out, the agreement should state how the earn-out will be handled.  Other common provision should spell out in detail how the agreement will handle the financing of the transaction, employment contracts, noncompete agreements, licenses, outstanding leases, and other similar contracts.

3.  Representations and warranties of the seller and buyer – Essentially, both parties give assurances to the other side on which the other side can rely.  Be prepared for lots of negotiating and back and forth.  Don’t make false representations or promises.  It’s better this way.  You will spend a lot of negotiating time here.

4.  Covenants of the seller pending closing – Here’s where you will promise to do something (or not do something as the case may be) before closing.  Again, be prepared for lots of negotiation.

5.  Conditions precedent to close – For both seller and buyer, here’s where they both promise something to the other party before closing.

6.  Closing and termination provisions – The closing provisions provide for the date of closing.  Termination provisions provide for conditions when the the deal is called off.

7.  Indemnification – If something goes wrong, one party reimburses the other.  Usually, the seller reimburses the buyer.


What you need to know

You will likely spend a lot of time negotiating the reps and warranties.  This is, after all, what you’re holding out as being true to the purchasing company.  The purchasing company will conduct due diligence on your reps and warranties.  If any are materially untrue, then deal may be called off.  Be prepared to discuss and strategize your reps and warranties with your lawyer.





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