Mergers and Acquisitions Advisory: New Limitation on the Use of Lock-up Agreements
5/25/2004
A recent split decision (3-2) of the Delaware Supreme Court has changed the rules regarding the use of shareholder lock-up agreements. Traditionally, lock-up agreements have been used by acquirers seeking assurance that certain target company shareholders (usually management or controlling shareholders) will vote in favor of a proposed transaction. The ability to obtain this assurance, and the concomitant bargaining chip it represented for a target company and its shareholders, has been substantially diminished by the Delaware Court's recent decision.
This decision applies to every corporation incorporated under Delaware law. Consequently, this new obligation should be recognized by officers and directors of companies entering into merger negotiations and fully understood by their legal and financial advisors.
