A Plan and Agreement for Merger is a legal document laying out the parameters for a merger between two corporations. In the Agreement, the corporation being consumed by the larger corporation is referred to as the "merged corporation", and the larger corporation is called the "surviving corporation." This contract usually begins with a Recitals sections, which declares the authority by which each corporation is permitted to enter into this agreement, that the Board of Directors of each corporation have determined it is in both corporation's best interest to merge, and that the merger shall be governed by the following provisions:
1. The Merger and Related Transactions. This provision lays out the effective date of the merger and which corporation shall survive as the new corporation and which shall be merged. This provision will also cover any related transactions that will be consummated at or prior to the closing of the agreement. These related transactions can include a Formation of Subsidiaries Agreement, an Agreement to Transfer Assets, a Generation Purchase Agreement, an Indemnification Agreement, formal Resignations of any corporate officers, and any other agreements that are related to the merger agreement.
2. Exchange and Treatment of Shares. This provision covers how the stocks of the merged corporation will be exchanged and treated. Generally, stock of the merged corporation is cancelled, converted over and becomes stock of the surviving corporation by virtue of the merger. This section must deal with the treatment of both common and preferred stock. This section should also discuss the treatment of the merged corporation's debt and credit rating.
3. Closing. This provision should briefly cover the details of the closing, and when and where it will take place.
4. Representations and Warranties. In this section both the parent, surviving corporation and the merged corporation must essentially promise that everything that it represents in the Agreement is true and that they have disclosed all facts material to the transaction. The promises made by the surviving corporation are especially critical. The surviving corporation must promise that it is a validly existing corporation in good standing in every jurisdiction where it operates, that it has the authority to enter into the Merger Agreement, and that it owns the assets it claims to own. This provision may also include a Non-Contravention sub-provision, whereby the surviving corporation promises that the consummation of this Agreement does not violate, conflict with, or result in a material breach of any other Agreement it has entered into. The Agreement should also recite that the surviving corporation promises it has complied with any law, statute, order rule, regulation, ordinance, or judgment of any Governmental Authority.
5. Covenants. Here the surviving corporation must promise to do or refrain from doing certain things as agreed upon by the parties. These covenants may include a promise to keep accurate accounting, to fully disclose to shareholders all material transactions, or not to incur any substantial indebtedness.
6. Conditions. Finally, the drafter of the agreement should include a section covering any conditions the parties have agreed on. These conditions must be met in order for the merger to occur. For instance, the parties may agree that no injunction or temporary restraining order shall be imposed against the corporation, that the merger receive statutory approval, that the surviving corporation shall have adequate financing to acquire the common and preferred stock of the merged corporation, and that the representation and warranties of both corporations are true and correct.
These are the most critical provisions found in Merger Agreements. Other boilerplate contract provisions should be included as well, such as provisions covering the governing law, severability, modification and termination.
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