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

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.” It would have been more accurate and vastly more concise to simply require the parties to negotiate in good faith. And what’s more, in some jurisdictions an agreement to use efforts to agree is unenforceable.

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

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.