Dick Wydick’s materials for our panel discussion at the ABA annual meeting included the following provision from the merger agreement for a transaction valued at more than $2 billion. (Like Dick, I’ve eliminated any identifying information.) As you read through it—I recommend a side order of Valium—ask yourself why Dick found it of interest.
In the event that (y) Parent is not able to obtain any of the IRS Rulings and Opinions of Counsel, or (z) in obtaining the IRS Rulings and Opinions of Counsel, the Parties would be required to make factual statements, representations and/or covenants that differ materially from the Representations and the differences in such factual statements, representations and/or covenants would reasonably be expected to result in, in the aggregate, a significant adverse effect on Parent and its Subsidiaries, taken as whole (provided that solely for purposes of determining whether the magnitude of such effect is “significant,” such effect shall be measured relative to the Spinco Entities only and Parent and its Subsidiaries (other than the Spinco Entities) shall be disregarded) (a “Parent Adverse Impact”), on the one hand, or a significant adverse effect on the Company and its Subsidiaries, taken as a whole (including by affecting Company’s ability to take actions in the ordinary course of operating a radio station or radio network, such as programming changes(including changes in format), adoption and change of call signs, contracts and other relationships with talent, sales, employment and labor matters, capital expenditures, ordinary-course acquisitions and dispositions of assets, acquisitions for cash or debt, and ordinary (i.e., non-equity-linked and not part of an investment unit) “straight” debt financing and refinancing as described in Section 1361 of the Code, but without regard to the identity of the borrower or the lender) (a “Company Adverse Impact”), on the other hand, Parent, Spinco and Company shall use their reasonable best efforts to restructure the Transactions in a manner that will preserve the economics of the Transactions to Parent, Spinco, Company, Parent Stockholders and Company Stockholders and result in the receipt of such rulings and opinions.
Here’s the problem: This provision consists of a convoluted conditional clause followed by a shorter matrix clause (“Parent, Spinco and Company shall use their reasonable best efforts …”). In MSCD 3.94 I say the following:
Conditional clauses have traditionally been placed at the beginning of a sentence, but you should feel free to place a conditional clause elsewhere if doing so would make the provision easier to read. The longer the conditional clause, the more likely it is that the provision would be more readable with the matrix clause rather than the conditional clause at the front of the sentence.
That’s certainly the case here: it’s excrutiating to have to read through the meandering conditional clause before getting to the payoff, namely the matrix clause.
Of course, switching the order of the conditional clause and the matrix clause would represent only the first step in the extensive surgery that would be required to turn this provision into rational prose. (I note in passing the unnecessary on the one hand … on the other hand and the puzzling reasonable best efforts.)
It would be unattractive to sneer at suboptimal language in deal documents—deal lawyers are often under severe time constraints, and expediency is generally the order of the day, even in big transactions.
On the other hand, I wouldn’t be surprised if the big-firm lawyers who put this provision together think that no one has anything to teach them about contract drafting.
As a former litigator, I’m not sure I buy the excuse that the drafters were under severe time constraints. M&A contracts are probably more likely to be litigated than routine commercial contracts. Perhaps producing a serviceable litigation exhibit for an M&A deal isn’t the drafters’ #1 priority, but I’ll bet it’s way ahead of whatever is #3.
You’re right, this particular clause would need extensive surgery to help a judge (or the judge’s law clerk) trace through the conditions. As an exercise, and to help me understand what the clause said, I took a stab at it below.
I don’t think putting the conditionals clause last would help much in this particular instance. I think you’d want the reader first to grasp the broad outline of the parties’ intent, then to drill down into the details. This suggests separating the definitional parentheticals and putting them later.
(I agree with you about the difficulties presented by “reasonable best efforts.)
For long clauses like this, I also like to put IF and THEN in capital letters (and sometimes underline them), as signposts for the reader.
Here’s a shot at the necessary surgery:
D.C.: Thanks for taking a crack at this, particularly as I was evidently too lazy to do so myself. Ken