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Structuring Reverse and Forward

Triangular Mergers Anti-Assignment Triggers, Tax Implications and Employment Considerations

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THURSDAY, JANUARY 18, 2018

Presenting a live 90-minute webinar with interactive Q&A

Christina Queiros Bouchot, Counsel, Goodwin Procter, Los Angeles

Jason C. Breen, Partner, Goodwin Procter, Los Angeles

Christopher M. Flanagan, Partner, Locke Lord, Boston

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Structuring Reverse and Forward Triangular Mergers

Corporate Considerations and Anti-Assignment Clauses

Jason Breen

*This presentation and its contents are solely for informational purposes and does not constitute legal advice.

Corporate Considerations and Anti-Assignment Clauses

6

• Overview of Structure of Triangular Mergers

• Legal Considerations for Triangular Mergers

• Anti-Assignment Clauses in Triangular Mergers

• Advantages/Disadvantages of Triangular Mergers

TOPICS TO BE COVERED

OVERVIEW OF STRUCTURE OF TRIANGULAR MERGERS

7

• Asset Purchase

• Stock Purchase

• Merger

- Direct Merger

- Forward Triangular Merger

- Reverse Triangular Merger

ACQUISITIONS CAN TAKE SEVERAL TRANSACTIONAL FORMS


8

Target Acquirer

Target

Shareholders

Acquirer

Shareholders

DIRECT MERGER OVERVIEW

• Target merges directly with Acquirer with Acquirer as surviving entity and Target ceases to exist as a separate entity

• Target stock cancelled in the merger in exchange for the merger consideration (which may be in the form of cash and/or Acquirer stock)

POST MERGER ACQUIRER STRUCTURE – DIRECT MERGER

Acquirer

Shareholders

Acquirer


9

All assets and liabilities of Target are held by Acquirer

If stock consideration, Target shareholders included with Acquirer shareholders

Acquisition

Subsidiary

Merger

PARTIES INVOLVED IN A TRIANGULAR MERGER

Acquirer

Shareholders

Acquirer

Target

Shareholders

Target

10

Acquisition Subsidiary (or Subsidiaries) formed by Acquirer to effect the acquisition


Acquisition

Subsidiary

Merger

Consideration

Merger

FORWARD TRIANGULAR MERGER OVERVIEW

Acquirer

Shareholders

Acquirer Target

Target

Shareholders


11

• Target merges directly with Acquisition Subsidiary with Acquisition Subsidiary as surviving entity and Target ceases to exist as a separate entity


POST MERGER ACQUIRER STRUCTURE – FORWARD TRIANGULAR MERGER

Acquirer

Shareholders

Acquirer

Acquisition

Subsidiary


12

All assets and liabilities of Target are held by Acquisition Subsidiary

Merger

Consideration

Merger

REVERSE TRIANGULAR MERGER OVERVIEW

Acquirer

Shareholders

Acquirer Target

Target

Shareholders

13

• Target merges directly with Acquisition Subsidiary with Target as surviving entity and Acquisition Subsidiary ceases to exist as a separate entity



Acquisition

Subsidiary

Acquirer

Shareholders

Acquirer

Target

POST MERGER ACQUIRER STRUCTURE – REVERSE TRIANGULAR MERGER

14


All assets and liabilities of Acquisition Subsidiary are held by Target

15

Legal requirements for the parties to enter into merger agreement and effect the

merger will be dependent on many factors which should be considered when

determining the acquisition structure. Some examples include:

• Entity type (corporation, LLC, partnership)

• Entity jurisdiction of organization

• Organizational documents

• Type of consideration

• Public company requirements

• Regulatory requirements

• Size of transaction and need for antitrust approvals

• Contractual requirements (e.g. investor agreements; anti-assignment clauses)

• Tax considerations

• Employment considerations

LEGAL CONSIDERATIONS FOR TRIANGULAR MERGERS

EXAMPLES OF LEGAL REQUIREMENTS FOR TRIANGULAR MERGERS

16

Acquirer:

• Formation of Acquisition Subsidiary

• Approval of Board of Directors of Acquisition Subsidiary

• Approval of Board of Directors of Acquirer (as sole shareholder of Acquisition Subsidiary)

• Agreement and Plan of Merger (principal transaction document for merger)

Target:

• Approval of Board of Directors of Target

• Approval of Target Shareholders

- State Merger laws typically require majority of Target Shareholder’s consent to approve

merger (in addition to any other votes required by Target’s charter)

• Filing of Certificate of Merger

• Notices to Target Shareholders (e.g. stockholder written consent notice; appraisal notice)

Other Considerations:

• Additional Considerations for Public Companies (e.g. Form 8-K; Target financial statements)

• Regulatory Approvals (e.g. antitrust; securities law compliance)

• Acquirer Stockholder Approval (e.g. if consideration includes Acquirer stock)

• Notices of Change of Entity if Target does not survive (e.g. IRS; payroll; bank accounts)

LEGAL CONSIDERATIONS FOR TRIANGULAR MERGERS

DOES THE ACQUISITION/MERGER CONSTITUTE AN ASSIGNMENT?

Asset Acquisition

By definition, Target’s assets

(including contracts) are assigned or transferred

Direct Merger

Target survives

Acquirer survives

Triangular Merger

Forward Triangular Merger

• Acquisition Subsidiary survives

Reverse Triangular Merger

• Target survives as a subsidiary of the

Acquirer

ANTI-ASSIGNMENT CLAUSES IN TRIANGULAR MERGERS

17

STATE MERGER STATUTES: “VESTING” LANGUAGE


18

• Effect of Merger: Vesting Language in State Merger Statutes

- Current ABA Model Business Corporation Act (“MBCA”) “Vesting” Language:

▪ “all property owned by, and every contract right possessed by, each corporation or

other entity that merges into the survivor is vested in the survivor without reversion

or impairment”

▪ Many state merger statutes include provisions similar to the effect of merger

provision of the MBCA, but not necessarily from the current version of the MBCA

- Vesting Language in Delaware Merger Statute:

▪ “…the rights, privileges, powers and franchises of each of [the merged]

corporations, and all property, real, personal and mixed, and all debts due to any of

said constituent corporations on whatever account…shall be vested in the

corporation surviving or resulting from such merger or consolidation; …and shall

not revert or be in any way impaired by reason of this chapter…”

- Vesting Language in California Merger Statute:

▪ “…the surviving corporation shall succeed, without other transfer, to all the rights

and property of each of the disappearing corporations and shall be subject to all the

debts and liabilities of each in the same manner as if the surviving corporation had

itself incurred them.”

ANTI-ASSIGNMENT CLAUSES: GARDEN VARIETY


19

1. “[Target] may not assign its rights or obligations under this Agreement, in whole or in part.”

2. “[Target] may not assign its rights or obligations under this Agreement, in whole or in part, without [the other party’s] prior written consent.”

3. “[Target] may not assign its rights or obligations under this Agreement, in whole or in part, without [the other party’s] prior written consent (not to be unreasonably withheld or delayed).”

4. “[Target] may not assign or transfer its rights or obligations under this Agreement, in whole or in part, without [the other party’s] prior written consent.”

5. “[Target] may not assign or transfer its rights or obligations under this Agreement, in whole or in part, whether by operation of law or otherwise, without [the other party’s] prior written consent.”

6. “[Target] may not assign or transfer its rights or obligations under this Agreement, in whole or in part, without [the other party’s] prior written consent. A change of control of [Target] will be deemed an “assignment” by [Target].”

7. “[Target] may not assign or transfer its rights or obligations under this Agreement, in whole or in part, without [the other party’s] prior written consent, and any attempted assignment without such consent shall be void and without effect.”

ANTI-ASSIGNMENT CLAUSES: GARDEN VARIETY EXCEPTIONS


20

1. “[Target] may not assign its rights or obligations under this Agreement, in whole

or in part, without [the other party’s] prior written consent, except that it may,

without such consent, assign this Agreement to its parent, affiliate or

subsidiary, or to any successor in interest by consolidation,

reorganization, merger or acquisition of substantially all of its assets.”

2. “[Target] may not assign its rights or obligations under this Agreement, in whole

or in part, without [the other party’s] prior written consent, except that it may,

without such consent, assign this Agreement to its parent, affiliate or subsidiary,

or to any successor in interest by consolidation, reorganization, merger or

acquisition of substantially all of its assets related to this Agreement or the

business to which this Agreement relates.”

OTHER CLAUSES TRIGGERED BY A MERGER / ACQUISITION


21

• Change of control

• Termination

• License restrictions (e.g., non-transferability, enterprise restrictions, etc.)

• Springing rights (e.g., payments, single/double trigger acceleration)

• Competitor specific provisions

• Rights of first refusal, negotiation or offer, right of last offer, last matching

right, etc.

DEFAULT ASSIGNMENT RULES


22

• Generally, the governing law of the contract controls whether a contract is

assignable without the consent of the other party

• Certain types of contracts may not be assignable in certain jurisdictions.

For example:

- Certain IP licenses

- Agreements for personal services

- The Restatement (Second) of the Law of Contracts (if statute, public policy or

contractual clauses prohibit assignment)

- UCC restrictions (if the assignment materially changes the obligor’s duty,

increases materially the burden or risk imposed on obligor by the contract, or

impairs materially obligor’s chance of obtaining return performance)

TRIANGULAR MERGER

TRIANGULAR MERGER

Forward Triangular

Merger

Acquisition Subsidiary survives

Generally, an assignment or transfer by “operation of law”

Anti-assignment & anti-transfer clauses may be triggered; watch out for contracts that are silent on assignment but contain IP licenses,

relate to personal services, or otherwise materially change the obligor’s duty

Change of control provisions may be triggered

Reverse Triangular

Merger

Target survives

Traditional practitioners’ view: no assignment, subject to exceptions (e.g. California-related reverse triangular merger may trigger anti-

assignment and anti-transfer clauses in light of SQL Solutions v. Oracle)

Change of control provisions may be triggered

23


PRACTITIONER’S TIPS


24

• Understand the transaction structure

• Carefully review Target’s commercial agreements:

- Are there anti-assignment or anti-transfer clauses?

- Does the agreement include any IP license grants to the Target that will

require consent for transfer purposes?

- Is the agreement for the personal services of the Target that will require

consent for transfer purposes?

- Does the assignment materially change the obligor’s duty?

- Are there other clauses that would be triggered by a change of control?

• As part of your analysis, consider the state merger statute that would be

applicable to the merger and the governing law of the commercial

agreement

ADVANTAGES AND DISADVANTAGES: MERGERS GENERALLY

25

Advantages

• Acquisition effected by operation of law, with all equity and assets acquired

• Typically does not require all equityholders to approve

• Structure may facilitate the ability to undertake a tax-free transaction in certain instances

Disadvantages

• Corporate approvals and filings (which adds to process and are publicly available)

• Appraisal rights

• Less flexibility to give different types and amounts consideration

• No ability to leave behind liabilities of Target

• Privity with equityholders

- Cigna Health and Life Insurance Co. v. Audax Health Solutions Inc. (Delaware; 2014)

ADVANTAGES/DISADVANTAGES OF TRIANGULAR MERGERS

ADVANTAGES AND DISADVANTAGES: DIRECT VS. TRIANGULAR MERGERS

26

ADVANTAGES/DISADVANTAGES OF TRIANGULAR MERGER

Direct Forward Triangular Reverse Triangular

New Entity Formation and Maintenance

No Yes Yes

Intermingling of Target/Acquiror Liabilities

Yes No No

Integration of Target with Acquiror’s Business

More Likely Less Likely Less Likely

Disruption to Target Business

More Likely More Likely Less Likely

Tracking Earnouts More Difficult Less Difficult Less Difficult

Acquirer Shareholder Approval (Corp. Statute)

Generally Yes Generally No Generally No

Anti-Assignment Clause Concerns

More Likely More Likely Less Likely

Migration of Target to New Jurisdiction of Organization

N/A Yes No

Structuring Reverse and Forward Triangular Mergers - Tax Implications

Christopher M. Flanagan Locke Lord LLP January 18, 2018

27

28

Tax and Structuring Issues in

Acquisitions

■ Potential forms for transaction ■ Asset acquisition ■ Stock acquisition ■ Merger

■ Forward ■ Forward subsidiary ■ Reverse subsidiary

■ Potential consideration ■ Cash ■ Acquiror stock ■ Mix of cash and stock

29

Forward Merger

Acquiror Shareholders

Target Acquiror

Target Shareholders

Post-Transaction Structure The Transaction

Acquiror (including

Target’s assets)

Acquiror Shareholders (including

former Target Shareholders if Acquiror stock Is used)

Target merges into

Acquiror

30

Forward Subsidiary Merger

Merger Sub (including Target’s

assets)

Acquiror Target stock (cancelled in the

transaction)

Purchase consideration


Target Shareholders

Target

Acquiror

Merger Sub


former Target Shareholders if Acquiror

stock is used)


Target merges into Merger Sub

31

Reverse Subsidiary Merger

Merger Sub merges into

Target

Target (including Merger

Sub’s assets, if any)

Acquiror Target Stock

(cancelled in the transaction)

Purchase consideration


Target Shareholders

Target

Acquiror

Merger Sub


former Target Shareholders if Acquiror

stock is used)


32

Merger Form Differences

■ Direct Merger ■ Assets and liabilities of

target become direct assets and liabilities of acquiror

■ Involves acquiror directly, so may require approval of acquiror’s shareholders

■ If tax-free status desired (discussed below), more flexible

■ Subsidiary Merger ■ Assets and liabilities of

acquiror insulated from target assets and liabilities

■ Generally does not require approval of acquiror’s shareholders

■ If tax-free status desired (discussed below), has more stringent requirements

vs.

33

■ Reverse Merger ■ Target survives ■ Target retains assets

■ Less likely to need third-party consents

■ If tax-free status desired (discussed below), has more stringent requirements

Merger Form Differences

■ Forward Merger ■ Target is eliminated ■ Target transfers assets

■ More likely to need third-party consents

■ If tax-free status desired (discussed below), more flexible

vs.

34

Tax Character of Transaction

Structures

■ “Stock” Acquisition ■ Stock acquisition ■ Reverse subsidiary

merger ■ Can be taxable or tax

free

■ “Asset” Acquisition ■ Asset acquisition ■ Forward merger ■ Forward subsidiary

merger ■ Can be taxable or tax

free

Hybrid Transactions — Stock acquisitions treated as asset acquisitions Section 338 and 338(h)(10) elections (and Section

336(e) elections)

Acquisition of all the interests in an LLC

35

Tax Consequences of Taxable

Transactions Corporate Target

“Asset” Acquisition Two levels of tax

Corporate tax on asset sale

Shareholder tax on ensuing liquidation

Possible exception for corporate shareholder

Acquiror gets increased (“stepped-up”) tax basis in assets

Tax attributes of target lost

“Stock” Acquisition Single level of tax on

Target shareholders

Target retains historic tax basis in assets

Tax attributes of target retained (subject to limitations)

36


Transactions

Target is an S Corporation

■ Corporate level of tax avoided on asset sale ■ Section 1374 “built-in gains” tax ■ State level S corporation tax ■ Acquiror still gets stepped-up basis

■ Character of “pass-through” income on asset sale determined at

corporate level ■ Potential conversion of capital gain into ordinary income ■ State and local tax consequences

■ Generally no additional tax on liquidation due to stock basis

adjustment ■ Potential acceleration of installment gain

■ May be able to make Section 338(h)(10)(or Section 336(e)) election to treat taxable stock acquisition as an asset sale.

37


Transactions Target is a Partnership (LLC)

“Asset” Acquisition Gain or loss calculated at

partnership level and passes through to partners Capital gain vs. ordinary

income

Generally no gain or loss on liquidation Basis in partnership interests

reflects asset sale gain/loss

Acquiror gets stepped-up tax basis in assets

“Stock” Acquisition Generally capital gain or

loss on sale of interests

Ordinary income treatment for Section 751 “hot assets”

Single buyer of all interests gets stepped-up asset basis

Two or more buyers, target retains historic tax basis in assets

Section 754 election may permit effective step-up

38

Tax-Free Transactions (IRC § 368)

■ Above transactions can generally be accomplished partially or wholly “tax-free”

■ Requires corporate parties ■ Potential issue on incorporation prior to deal

■ Definitional, not elective

■ Deferral of tax at both corporate and shareholder levels ■ Resulting tax basis carryover

■ Varying requirements depending on form — but all require

significant acquiror stock as consideration

■ Tradeoff: tax-free vs. liquidity

39

Requirements Applicable to All Tax-

Free Reorganizations ■ Continuity of proprietary interest

■ Target shareholders must continue their interest through receipt of an equity interest in acquiror

■ Focuses on percentage of consideration received in exchange for stock

■ Aggregate calculation — no requirement for proportionality among shareholders

■ Amount of consideration ■ Current stated IRS ruling position = 50% ■ Regulations contain 40% example ■ PLRs at 40%

■ When measured ■ Meet binding agreement guidelines – measured at signing

■ Avoids effect of value fluctuating up to closing

40

Specific Requirements for Different

Forms of Reorganization

■ Direct Forward Merger (“A” Reorganization) ■ Must be structured as a statutory merger or consolidation of corporations

■ Recent regulations permit foreign law mergers ■ Recent regulations permit mergers into disregarded entities owned by acquiror

■ All of target’s assets and liabilities must be transferred to acquiring corporation

■ Generally, least restrictive of reorganization forms

41


Forms of Reorganization ■ Forward Subsidiary Merger (“(a)(2)(D)” Reorganization)

■ Must qualify under direct forward merger rules ■ Acquiring subsidiary must acquire “substantially all” of target’s property

■ Pre- and post-acquisition dispositions of target assets can adversely affect this

■ Cannot use Merger Sub or grandparent stock

42


Forms of Reorganization ■ Reverse Subsidiary Merger (“(a)(2)(E)” Reorganization)

■ Must qualify under direct forward merger rules ■ Target (surviving the merger) must continue to hold “substantially all” of its property

■ Pre- and post-acquisition dispositions of target assets can adversely affect this

■ Target shareholders must surrender “control” of the target for acquiror voting stock in the transaction

■ 80% of vote and 80% of each non-voting class ■ Potential overlap with “B” reorganization ■ Cannot use grandparent stock

43

Practice Refinements

■ Use of single-member LLC in place of merger sub

■ Mimics subsidiary merger but treated as direct merger for tax purposes

■ Forward merger where target merges into LLC ■ If target survives, treated as a stock acquisition

■ Isolates target assets and liabilities ■ Less stringent requirements for tax-free qualification

■ “A” reorg v. “(a)(2)(D)” or “(a)(2)(E)”

44


Merger into LLC

Acquiror Target Stock (cancelled in the

transaction)

Acquiror Stock


Target Shareholders

Target

Acquiror

LLC

Single-Member LLC

Target Shareholders


LLC (Holding

Target assets)

Tested as an “A” reorganization

100%

45

■ Are two mergers twice as good?

■Multi-step transactions used to achieve corporate and tax efficiencies

■ Properly structured, overall transaction is tested for tax-free qualification (rather than separate steps)

■ If fail to qualify, revert to separate steps ■ Definitional, not elective

■ Exception for certain 338 elections made for first step

■ Combination of Rev. Rul. 2001-26, Rev. Rul. 2001-46, and Rev. Rul. 90-95


46

Practice Refinements ■ Multi-step mergers can be used to “block” potential

corporate-level tax ■ Forward Merger transaction intended to be tax-deferred ■ Do first step reverse subsidiary merger ■ Follow with forward merger (direct or subsidiary)

■ Test overall transaction to determine tax-deferred status ■ If qualifies, treated as a single transaction (RR 2001-46) ■ If doesn’t qualify, treated as separate taxable stock

acquisition, followed by second transaction (RR 90-05) ■ No asset sale gain

47


Merger into Target

Acquiror

100% of T Stock

70% voting stock plus 30% cash


Target Shareholders

Target

Acquiror

Merger Sub

Rev. Rul. 2001-46

Target Shareholders


Target


Target Shareholders

Acquiror (Holding Acquiror and Target Assets)

Aggregate consideration paid by

Acquiror

-70% voting stock

-30% cash

-Qualifies as an “A” reorganization

Step 1 – Reverse Merger Step 2 – Merger Up

100% Target merges

into Acquiror

48

■ Multi-step mergers can be used for non-tax efficiencies ■ Hardwire transactions more quickly or with fewer consents ■ Clean up loose ends with second step (squeeze out merger) ■ Test overall transaction to determine tax-deferred status

(RR 2001-26)


49


Acquiror


Target Acquiror

Rev. Rul. 2001-26

Target 51%


Target 49%


Target Shareholders Aggregate consideration paid by Acquiror:

-83 2/3% (51% plus 2/3 of 49%) voting

stock

-16 1/3% cash

-Qualifies as an “(a)(2)(E)” reorganization

Step 1 – Tender Offer Step 2 – Merger

Merger Sub Target

Target 51%

Target

Acquiror

Target 49%

Merger into

Target

100%

51%

49% of T

Stock

Voting Stock

plus cash

50

Christopher M. Flanagan

Locke Lord LLP

[email protected]

Tel: 617.239.0485

Structuring Reverse and Forward Triangular Mergers

Employment Law Considerations

Christina Queiros Bouchot

*This presentation and its contents are solely for informational purposes and does not constitute legal advice.

DUE DILIGENCE

REVERSE AND FORWARD TRIANGULAR MERGERS

52

• Acquirer: should seek key information in diligence to assess liabilities and

scope of obligations, including:

- Employee census showing job title, location, salary or hourly wage (as applicable),

status as exempt or nonexempt, bonus and commission opportunity, date of hire,

accrued unused vacation, and visa status

- Census of independent contractors showing nature of services provided, location,

fee arrangement, date of engagement, expected end date and notice requirements

- Contracts with employees and contractors, including those with non-disclosure, IP

assignment and covenants not to compete

- Bonus, retention, severance, CIC and commission plans and practices, whether

formal or informal

- Labor union related documents

- Employee handbooks / personnel policies

- Employment & labor related litigation, charges, audits and investigations

• Target: should also conduct internal diligence to understand potential liability

and for negotiation purposes

HOT BUTTON ISSUES FOR CONSIDERATION IN BOTH FORMS OF MERGER


53

• Misclassification of Employees as Exempt

- Use census and call with management to assess risk and determine additional information needed

- Review job descriptions

- Obtain average hours worked for positions in questions

- Obtain information on any internal or external audits conducted and method and practice of target in determining exempt status

- Liability includes: unpaid overtime, in some states meal and rest break liability, record keeping liability, fines and penalties

- Can require special indemnification, review of practices going forward, whether to re-classify prior to or after closing, whether to obtain a release and require target to pay liability directly to employee

• Proper Tracking of Hours and Payment to Non-Exempt Employees

- Confirm system used to track hours (rounding practices, clocking out for meal breaks, staying clocked in for rest breaks)

- Confirm minimum wage and overtime compliance, inclusion of non-discretionary bonuses into regular rate of pay



54

• Misclassification of Independent Contractors

- Use census and call with management to assess risk and determine

additional information needed

- Review contracts with independent contractors

- Obtain average hours worked per week/month (day as applicable)

- Obtain information on any internal or external audits conducted and method

and practice of target in determining contractor status

- Liability includes: unpaid overtime, in some states meal and rest break

liability, record keeping liability, payment of employment taxes and withholding

taxes, retroactive participation in employee benefit plans, including

participation in equity plans, fines and penalties

- Can require special indemnification, review of practices going forward,

determination whether to keep contractor engaged, terminate contract or hire

as an employee



55

• Immigration Matters (Form I-9, visa sponsorship)

• Compliance of personnel policies with applicable laws (e.g. vacation payout, FMLA), and

• Whether personnel policies and practices have created a legally enforceable right to

severance payments.

• Are non-competition and non-solicitation agreements enforceable and assignable?

• Union Issues: the NLRA applies to union and non-union employers

• Foreign operations of target – obtain local counsel review

• Pending litigation and charges and whether covered by EPLI insurance and potential

exposure

• Consider requiring pre-closing resolution of some issues (e.g. correction of classification

issues, settlement of some non-EEOC potential or pending claims)

Reverse Forward

• Benefit plans and employees remain

undisturbed in the deal – no change in the

“employer”

• Buyer thus assumes all liabilities relating to

Seller’s benefit plans

• This greater risk requires higher level of

due diligence and stronger contract

provisions (representations, warranties and

indemnification)

• Has potential for “seamless” integration of

employees and benefit plans

• Even though integration is less complicated

legally in a Reverse, challenges of

integrating corporate cultures remain

• Employees will have a change in their

“employer”

• Buyer does not normally assume Seller’s

benefit plans or plan liabilities

• Buyer may agree to assume benefit plans

as part of union negotiations or for other

reasons

• Risk is lower if benefit plans are not

assumed:

• Buyer may still have to provide

COBRA

• Risk of “successor employer” liability

for unpaid contributions to

multiemployer plans

• Employee and benefits integration may be

more complicated


56

Reverse Forward

• Collective bargaining agreements may

restrict changes to benefit plans

• Collective bargaining agreements may be

assumed; likely requirement to bargain in

good faith as successor employer

• Typical transition services:

• Payroll administration

• Continued participation in Seller’s

benefit plans:

• Multiple employer plan issues –

amendment and testing

• Insurers may refuse coverage if

advance consent not obtained

• Employee leasing:

• Seller continues to employ

employees during a transition

period

• Issue of who is the common

law employer


57

Reverse Forward

• Severance benefits may be payable as a

result of the transaction (even if employees

are rehired by the buyer)

• Buyer and seller can specify whether

employees who transfer to buyer will be

deemed separated from service:

• All employees must be treated

consistently

• Must be arms’ length transaction

• Must state in writing

• Have to look at facts to determine whether

separation from service will occur for all

purposes

• Notwithstanding general rule that liabilities

are not assumed by a buyer of assets, the

7th Circuit has found successor liability for

FLSA violations in an asset deal (and thus

presumably in a forward triangular merger)


58

CONTACT INFORMATION

Jason Breen, partner at Goodwin Procter LLP 601 S. Figueroa Street, Los Angeles, CA 90068 (213) 426-2574 [email protected]

Christopher M. Flanagan, partner at Locke Lord LLP 111 Huntington Avenue, Boston, MA 02199 (617) 239-0485 [email protected]

Christina Queiros Bouchot, counsel at Goodwin Procter LLP 601 S. Figueroa Street, Los Angeles, CA 90068 (213) 426-2541 [email protected]

59

BIOS

Jason Breen, Partner Goodwin Procter LLP, Los Angeles

Mr. Breen represents startup and later-stage companies in the software, technology, life sciences and agriculture industries throughout their corporate life cycle, with a particular focus on mergers, acquisitions, divestitures, joint ventures, carveouts, financings and other strategic transactions. He also represents venture capital, growth equity and private equity funds focusing on technology and life sciences companies.

Christopher M. Flanagan, Partner Locke Lord LLP, Boston

Mr. Flanagan’s general corporate and partnership tax practice focuses on tax planning and analysis in the transactional area. He has particular experience in representing public and private companies in taxable and tax-free acquisitions and divestitures of corporate subsidiaries and divisions, and in reorganizations and restructurings. Mr. Flanagan also represents companies in the structuring and formation of major corporate joint ventures, LLCs, and large venture capital/private equity funds, as well as advising companies on the tax issues attendant to both public and private debt and equity offerings.

Christina Queiros Bouchot, Counsel Goodwin Procter LLP, Los Angeles

Ms. Bouchot advises and represents employers in a broad range of employment matters and provides employment expertise on various corporate transactions. She handles employment-related litigation (including wage and hour class actions and whistleblowing and retaliation matters) before state and federal courts and agencies. Ms. Bouchot counsels clients on employment-related issues, such as employee discipline and termination, large-scale reductions-in-force, sexual harassment and other discrimination matters, development of well-crafted personnel policies, compliance with wage and hour and classification regulations, and the development and enforcement of employee noncompetition and confidentiality agreements.

Documents

Structuring Reverse and Forward Triangular Mergersmedia.straffordpub.com/products/structuring-reverse-and... · 2018. 1. 15. · reorganization, merger or acquisition of substantially