Tender and Support Agreement
(DE)

Summary

This tender and support agreement is between a buyer and a stockholder of a target public company in connection with a two-step merger and provides that the stockholder will tender their shares and, if applicable, vote any remaining shares in favor of the merger. This template contains drafting notes, practical guidance, and alternate and optional clauses. A tender and support agreement is commonly used to assure a buyer that certain holders of a substantial portion of the target company's stock or symbolically important stockholders (like the target company's directors) will tender some or all of their shares in the first-step tender offer and, to the extent any shares are not purchased in the tender offer, vote to approve the proposed merger transaction, giving the buyer comfort (which may be substantial comfort depending on the percentage of the target company's outstanding shares that are the subject of tender and support agreements) that the tender offer will be successful, the merger will be approved, and the transaction will close. A tender and support agreement typically also prohibits the signing stockholder from transferring its shares in the target company and includes an irrevocable proxy granted by the subject stockholder to the buyer appointing a designee of the buyer the stockholder's proxy to vote the target company shares subject to the agreement. This template tender and support agreement assumes that the target company is a Delaware corporation and that the transaction will be governed by Delaware law. It is important to note that, under Delaware law (specifically, Omnicare v. NCS Healthcare, 809 A.2d 1163 (Del. Ch. 2002) and its progeny), arrangements with significant stockholders that "lock up" a transaction, making it a "fait accompli," are unenforceable. A buyer should carefully consider with its counsel the percentage of the vote that should be "locked up" in the particular transaction – practitioners are typically comfortable with between 30% and 35% of the outstanding shares being subject to tender and support agreements, although some transactions feature a higher percentage of the outstanding shares subject to a lock-up. Locking up, via tender and support agreements or otherwise, a greater percentage of the outstanding shares increases the risk of a successful challenge of the transaction in the Delaware courts. However, the analysis is highly dependent on the facts and circumstances of the particular transaction, and certain risks, facts, or circumstances may dictate a lower threshold or permit a higher threshold. See Voting Agreements in M&A Deals for further discussion of these issues. If the target company has 50% or greater controlling stockholder(s), in order to fit the transaction within the Omnicare framework, oftentimes there will be a cap on the percentage of shares that the stockholder(s) commits to tender/vote, which again is typically in the 30% to 35% range, or a "rachet" down of the committed percentage in certain circumstances (e.g., a board recommendation change). One cannot cite Omnicare without noting that it is widely regarded among practitioners as one of the more controversial decisions of the Delaware courts in memory; while Omnicare lives on, the decision has been criticized by judges, practitioners, and academics repeatedly in its 20+ year life, and many argue that its application should be limited to its distinct facts and have come up with creative ways to push its boundaries. For additional information, see Two-Step Merger Timetable Checklist (Cash Merger with First-Step Tender Offer), Closing the Steps of a Two-Step Acquisition, and Voting Agreements in M&A Deals.