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A lock up option is a strategic agreement where a company facing a potential hostile takeover offers to sell certain assets or shares to a friendly acquirer, often referred to as a white knight. This arrangement is designed to hinder the efforts of an unfriendly acquirer, known as a black knight, by locking up key assets or shares, thereby preventing their resale without the target company's consent. The white knight is given the opportunity to purchase selected subsidiaries or major assets at an attractive price, but this option can only be exercised if the merger with the white knight is not completed.
Table of content
Legal Use & context
Lock up options are primarily used in corporate law, particularly in the context of mergers and acquisitions. They serve as a defensive strategy for companies to protect themselves from hostile takeovers. This term is relevant in various legal practices, including corporate governance and securities law. Users may find it beneficial to utilize legal templates from US Legal Forms to draft agreements related to lock up options, ensuring compliance with applicable laws and regulations.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A technology firm facing a hostile takeover from a larger competitor offers a lock up option to a friendly investor. This investor can purchase key patents at a set price if the merger with the hostile acquirer fails.
Example 2: A retail company provides a lock up option to a private equity firm, allowing the firm to acquire a portion of its stores if negotiations with another buyer do not succeed. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Variation
California
More stringent disclosure requirements for lock up agreements.
Delaware
Commonly used in corporate governance; specific case law supports lock up options.
New York
Regulatory considerations may affect the structuring of lock up options.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Lock up agreement
A contract preventing the sale of shares for a specified period.
Lock up options are specific to asset sales, while agreements may cover broader share restrictions.
Hostile takeover
An acquisition attempt that is opposed by the target company's management.
Lock up options are defensive measures against hostile takeovers.
Common misunderstandings
What to do if this term applies to you
If you are a company considering a lock up option, consult with a legal professional to ensure that the agreement is structured correctly and complies with applicable laws. You can also explore US Legal Forms for templates that can help you draft a lock up option agreement efficiently. If the situation is complex, seeking professional legal advice is advisable.
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