Class 10 - Readings -...

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Unformatted text preview: [[[NYCORP:2569798v8:4434W:10/02/08--06:52 p]] Class 10: Public Company Deals f No Shops, Options and Break-Up Fees. In the event that the agreement has a delayed closing, Seller could be faced with an unsolicited offer between signing and closing from a competing bidder. To protect against this possibility, Buyer will often request certain covenants which minimize the actions Seller can take with respect to a third party competing bidder, discourage third party offers and compensate Buyer if the transaction is consummated with a third party. These protections generally prohibit Seller from negotiating with competing bidders. The provisions may also grant Buyer certain rights in the event that the contemplated transaction is never consummated, such as reimbursement of the potential Buyers expenses, a specified termination fee or an option to purchase certain assets or stock of Seller. These provisions are discussed below. f No Shop Provisions. The agreement will generally contain a no shop provision prohibiting Seller from soliciting other offers. This is so Buyer can protect the deal from competing bidders. In public company acquisitions, Seller will generally insist upon an exception which enables Seller to entertain unsolicited third party offers if the failure to do so would violate the fiduciary duties of Sellers board of directors to its shareholders. This exemption is typically referred to as a fiduciary out. The fiduciary out generally plays a more important role when Seller is a publicly held, as opposed to a closely held, company for two reasons. First, in a closely held company, it is likely that the shareholders have agreed to the transaction with the initial Buyer and may indeed all be parties to the acquisition agreement. Second, since there is no public market for the shares, it is less likely that a competing bid would emerge without cooperation of the shareholders. f Stock or Asset Options. As a result of the fiduciary out typically included in the no shop provision, the potential Buyer is at risk of the transaction not being consummated due to a competing bid. Accordingly, Buyer will often ask for an option to purchase stock or assets of Target upon the occurrence of a triggering event in order to deter, and give itself an advantage over, other potential bidders. The triggering event is typically the termination of the acquisition agreement or the acquisition by another potential Buyer of a certain percentage of Targets stock. Stock Options. A stock option grants the initial Buyer the right to purchase authorized but unissued stock of Target upon the occurrence of a triggering event. Such an option is advantageous to the initial Buyer in three respects....
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This note was uploaded on 11/28/2009 for the course LAW 7591 at Cornell University (Engineering School).

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Class 10 - Readings -...

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