Top Up provisions and short form merger agreements

A senior partner at one of our large firm clients (a very large AmLaw 100 firm) recently spoke with us about changes in Delaware merger agreements law regarding top up provisions or clauses, and I thought I would pass along the discussion.

Generally, the issue is that acquiring companies will attempt to use a top up clause in merger agreements to effectuate a short form merger, which obviates the need for further involvement of either the target company’s board of directors or its shareholders.  This is in contrast to a long form merger agreement, in which a shareholders meeting and approval is required following the tender close.

It is generally quite difficult for an acquiring company to effectuate a short form merger, which has given rise to the relatively recent phenomenon of the “top up” option.  The top up clause in merger agreements is granted by the target’s board of directors and enables the acquiring company to easily acquire the 90% shareholding required to enable a short form merger.

If you want to see dozens of these types of provisions in high profile merger agreements, go to www.realdealdocs.com and search across the “Agreement and Plan of Merger” category under either the “Agreements” or the “Mergers & Acquisitions” deal categories.  Additional free previews of these agreement and plan of merger documents are also available.  If you want to drill down into these types of provisions, you can review them for free by following these steps (it’s easier than it seems – I have to walk you through to find the page, but you can click on the link in Step 3 to get to the clause search page):

1)  Go to www.RealDealDocs.com

2)  Click on the Search Now tab

3)  Click on the “Search for Clauses” tab

4)  Select “Mergers and Acquisitions” from the Deal/Documents pull down menu

5)  Select “Agreement and Plan of Merger” from the Specific Document type pull down menu

6)  Enter “top up” (without the quotes) in the “Clause Heading” search box, and then hit Search

By the way, there is a very helpful discussion about some of the Delaware case law changes regarding these types of provisions at http://www.potteranderson.com/news-publications-0-54.html.  I encourage you to comment here, and I’ll  do my best to respond to you individually, or post further notes as warranted.  Thanks!