BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale, Hannah Tildesley and Marah Smith, Walkers
6.8 Additional Governance Rights Theoretically, a bidder could seek contractual rights to appoint and remove directors of the target upon closing/acquisition of the target, in order to flood the target’s board and gain control. Alternatively, addition - al governance rights could be enshrined within the target’s bye-laws that would be adopted upon closing, and/or a shareholders’ agreement could be entered into, which could grant a wide variety of contractual governance rights. However, it would be difficult to force any such provi - sions on the remaining shareholders. Subject to any different voting thresholds in the existing bye-laws, the bye-laws of a Bermuda company may be amend - ed upon the approval of a majority of shareholders present and voting in person or by proxy at a meeting, and such amendments must first be recommended by the board of directors. Shareholders’ agreements entered into by some but not all shareholders will not be binding on those who do not agree to be bound, although the company will be so bound if it is a party. Care must be exercised by the directors in agreeing to any such additional governance rights as they have a fiduciary duty to act in the best interests of the com - pany as a whole and not to act solely in the interests of a particular shareholder or shareholders. 6.9 Voting by Proxy Under Bermuda law, at a general meeting, each mem - ber is generally entitled to one vote for each share they hold, and such votes may be given in person or by proxy. Only shareholders with voting rights attached to their shares may attend and vote at a general meet - ing, except in the case of an amalgamation or merger, where all shares carry the right to vote regardless of Please see 2.1 Acquiring a Company regarding the squeeze-out mechanisms under Sections 102 and 103 of the Companies Act. Short-form mergers and amalgamations (which do not require shareholder approval) are permitted in Ber - muda between: whether or not they would otherwise. 6.10 Squeeze-Out Mechanisms
the directors’ fiduciary duties at statute and common law are being properly discharged. This will depend on the circumstances of the transaction and the overall deal terms, taking all factors into consideration. As a matter of practice, break fees in transactions involving Bermuda companies operating in the North American market tend to range from 1% to 4% of the amalgamation or merger consideration. If the Ber - muda court were to determine that a particular break fee was excessive and did not operate to provide commercial compensation to a party on termination, instead constituting a penalty, the fee may be unen - forceable. “No Shop” Agreement “No shop” agreements or “lock-out” clauses can be included in transaction agreements involving Ber - muda companies, whereby the target agrees not to solicit or engage with any other parties regarding the potential transaction during a defined period of time. The restrictions will often include provisions to prevent the target company from soliciting a transaction or accepting a proposal from a third-party prospective bidder during a defined period of exclusivity. A “Fiduciary Out” Clause Directors must be mindful of their fiduciary duties to the company during the course of any potential acqui - sition. In particular, directors will need to be careful to act in the best interests of the company, acting hon - estly and in good faith as required under the Compa - nies Act. A “fiduciary out” provision allows the board of a target company to change its recommendation for the proposed bid and/or terminate the agreement if following through with the transaction would result in a breach of the directors’ fiduciary duties. While these provisions are usually the subject of intense negotiation in transactions, they are often accepted in principle. “Force the Vote” Such provisions may require the target board to sub - mit the transaction to its shareholders for approval, even when the board is no longer recommending the transaction – for example, where the target has received what it regards as a superior alternative pro - posal.
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