Termination Fee Clause
(Change in Board Recommendation)

Summary

This clause contains a termination fee (or break-up fee) payable by the seller if a transaction is terminated following a change in recommendation by the target company's board of directors. This clause includes practical guidance, drafting notes, and alternate clauses. Most acquisition agreements contain a covenant by the target's board of directors to recommend that the target's shareholders approve the transaction. However, many acquisition agreements also contain a provision permitting the board of directors to rescind that recommendation if they determine that doing so is required to fulfill their fiduciary duties. See Fiduciary Duties and Director Approvals in M&A Deals (DE). Most commonly, this occurs if there has been a competing proposal to acquire the target that is deemed superior to that contemplated in the acquisition agreement or if there has been an unforeseen intervening event or change in circumstances of the target that makes the proposed acquisition no longer as ...