Merger Agreements, Termination Fees, and the Contract-Corporate Tension
57 Pages Posted: 25 Jan 2008
This article addresses an important but under-explored conflict between contract and corporate law, namely, how to respond when honoring contract rights would sanction a breach of fiduciary duty. Termination fees in merger agreements¿provisions that clearly implicate both bodies of law - provide the springboard for the analysis. After reviewing how termination fees are viewed under both contract and corporate law, the article uncovers wildly different approaches for resolving the tension, develops their previously unchartered contours and implications, and critiques each alternative according to the contract, corporate, and other interests any resolution to a contract-corporate problem should aim to satisfy. In the end, the article offers a resolution that best reconciles contract and corporate law, best serves both disciplines' concerns, and vastly improves upon the blindly followed approach that unfortunately prevails in corporate law today.
Keywords: termination fees, lock-ups, mergers, fiduciary duties, corporations, contracts
JEL Classification: K12, K22
Suggested Citation: Suggested Citation