BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale 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 con - trol. Alternatively, additional governance rights could be enshrined within the target’s by-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 provisions on the remaining shareholders. Sub - ject to any different voting thresholds in the existing by-laws, the by-laws of a Bermuda company may be amended 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, 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 company 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 member 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 meeting, except in the case of an amalgamation or merger, where all shares
operate to provide commercial compensation to a party on termination, instead constituting a penalty, the fee may be unenforceable. “No Shop” Agreement “No shop” agreements or “lock-out” clauses, whereby the target agrees not to solicit or engage with any other parties regarding the potential transaction during a defined period of time, can be included in transaction agreements involving Bermuda companies. 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 acquisition. In particular, directors will need to be careful to act in the best interests of the company, acting honestly and in good faith as required under the Companies Act. “fiduci - ary out” provision allows the board of a target company to change its recommendation for the proposed bid and/or terminate the agree - ment if following through with the transaction would result in a breach of the directors’ fiduci - ary 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 submit 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 proposal.
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