USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters LLP
6.12 Irrevocable Commitments Prior to announcing a transaction, the acqui- ror may wish to execute agreements with the target company’s board of directors and senior management to ensure that they will tender any shares they own into a tender offer or vote in favour of a proposed merger. If the target com- pany has one or more significant shareholders, requiring such shareholders to sell their stock to the acquiror, to vote their stock in favour of the merger and/or to tender their stock into the offer is an effective way to “lock up” the deal. However, Delaware courts have struck down such lock-up agreements that absolutely pre- clude the target company’s shareholders from availing themselves of a more attractive subse- quent offer. Further, any commitments by direc- tors will be subject to review in light of the direc- tors’ duties. 6.13 Securities Regulator’s or Stock To solicit the stockholder vote required to approve a merger, the target must prepare and file a detailed “proxy statement” with the SEC that complies with the SEC’s proxy rules. The proxy statement may not be disseminated to stockholders until the SEC staff has commented on it and all such comments have been resolved. Upon finalisation, the target then mails the proxy statement to its shareholders and files the final version with the SEC. State law, the target’s constitutional documents and rules of the stock exchange on which the target is listed will dictate the minimum length of time between the mailing of the proxy materials and the date of the target stockholders’ meeting to approve the merger, though a period of 20 business days is typical. Exchange Process Merger Transactions
any confidential information to any third-party bidders, in each case, subject to the direc- tors’ fiduciary duties. These clauses typically permit the target company to entertain unso- licited proposals. • Break fees: payable to the acquiror if the tar- get company’s board of directors’ recommen- dation is withdrawn or if the transaction is not approved by the target company sharehold- ers due to another transaction that has been proposed by an interloper. A break fee may also be payable by the acquiror in the event it fails to close the acquisition (“reverse” break fees). • Board or “force the vote” commitments: require the board of directors to submit the transaction to target company’s shareholders for a vote, even if the board no longer recom- mends that shareholders vote in favour of the transaction. • Right to match (or top) other offers: the bid- der has the right to change the terms of its proposal to “match” or “top” a third-party proposal. See also 6.12 Irrevocable Commitments . State law imposes fiduciary duties on any target company’s board of directors that can limit the use of certain deal-protection terms and make it virtually impossible to “lock-in” a transaction. Generally, unless the deal is signed and closed simultaneously, the transaction will also involve interim operating covenants to maintain the tar- get business between signing and closing and to deliver it at closing without material impairment. 6.11 Additional Governance Rights This topic is not applicable.
448 CHAMBERS.COM
Powered by FlippingBook