Corporate & Securities Law

The Bear Stearns Merger Agreement?It?s Not a Thing of Beauty

By Ken Adams

I’m grateful to stalwart readers Steven Sholk and Mike Wokasch for contacting me about the Bear Stearns merger agreement. (Click here to go to a PDF copy.)

This deal raises all sorts of policy issues, but we at AdamsDrafting say to heck with the big picture?let’s look at the drafting angle! I offer below some random impressions derived from ten minutes spent skimming through the agreement.

The Good News

• Hey, they used an index of defined terms! And they didn’t clog up the works by putting a big definition section at the front of the body of the contract.
• And they used a ragged-right margin.

The Bad News

• “Merger Agreement” would have been fine as a title: including “plan of merger” in a title accomplishes nothing, as discussed in this post. Besides, the DGCL uses the phrase “plan of merger” only twice, and in a way that suggests that it was inadvertent.
• Not all defined terms are included in the index of defined terms. I noticed in passing that “Guaranty” appears to be missing.
• Above the recitals is the heading WITNESSETH. With a space between each letter. That tells you that the battle for clear drafting was lost before it even began.
• What’s with all those shalls in the recitals?
• The lead-in contains a traditional recital of consideration. The fact that you can find them in 98.2% of all contracts doesn’t make them any less useless.
• Ah, intending to be legally bound. Sigh.
• Whoever drafted this agreement has a terminal case of the shalls.
• Section 1.7 seeks to impose obligations on Bear Stearns officers and directors. But they’re not party to this agreement; it would make more sense to address the matters in question in a condition rather than an obligation.
• Because they dispensed entirely with a definition section, some of the provisions are clogged with integrated definitions of snore-bore defined terms. See for example section 3.4. They would have been better off sticking those definitions in a definition section placed at the back, with the boilerplate.
• Section 6.10 says that in certain circumstances, “each of the parties shall in good faith use its reasonable best efforts to negotiate a restructuring of the transaction.” Oy veh. It would have been more accurate and vastly more concise to simply require the parties to negotiate in good faith.

That’s all I have time for, I’m afraid. I invite you to chime in.

Full post as published by AdamsDrafting on March 19, 2008 (boomark / email).