Q: I am planning to merge my agency into a larger one, and I will become a junior partner in the combined operation. We have signed a letter of intent and a confidentiality agreement. I want to try to begin integrating my business into the larger one as soon as possible, but our attorney is taking a very long time to draft the actual contract. Do you think that it is safe for me to hand over my client list and have my employees move to the bigger agency before we sign the contract? If I really need to wait until we sign before moving, do I also need to continue to wait until closing? Finally, do I have to wait for ARC approval before moving?A:
You should not begin moving any people or data until the closing has occurred. Otherwise, you run the huge risk that the larger agency may call off the deal and simply keep your people and your data, effectively putting you out of business.
Letters of intent are generally not binding on the parties. They usually expressly state that they are not binding, or if they don't, they are generally missing so many key terms that a court would probably refuse to enforce the terms.
Confidentiality agreements typically obligate the party that receives your information to keep it confidential, which does not necessarily preclude that party's use of the information.
Even if the agreement provides that the receiving party must use the data only for the merger, that party can copy it, give back the original if the deal is called off and use the copy without your knowledge.
If your staff moves before closing, it may be impossible to get them to return if the deal is called off. They may not want to move twice, and clients may not appreciate being switched back and forth either.
Even waiting until the merger agreement is signed carries risk, if closing does not happen at the same time that you sign the agreement. By "closing", I mean the legal transfer of ownership, just like a real estate closing.
In travel agency mergers and acquisitions, the signed agreement typically designates a future date, such as the first day of the following month, as the closing date. Between signing and closing, specified events may have to occur, and closing may never take place if they don't.
For example, in the merger you contemplate, the agreement could provide that, before closing, the larger agency's landlord must agree to lease more space to accommodate your staff after the merger. If the landlord fails to agree before the planned closing date, either party to your agreement may have the right to call the whole thing off.
So don't jump the gun. Wait until after closing to begin the move. If your attorney is delaying the agreement, find another attorney who can meet your timetable if you have a pressing business reason to begin the move soon.
For most mergers, the combined operation will only need one ARC appointment, so you may decide to terminate yours, in which case there is no ARC approval involved. Otherwise, wait for ARC approval of any needed change of ownership, unless you trust the other party with your money and reputation.