The M&A Journal
The independent report on deals and dealmakers
M&A Engagement Letters:
Trend Spotting and Hostile Takeovers
Brad L. Bacon1
2007 was an interesting year for M&A law-
yers, thanks in large part to a deterioration of
the credit markets during the second half of the
year. Several high-profile deals cratered (e.g.,
Harman and United Rentals), while others closed
only after they were re-priced (e.g., HD Supply
and Lone Star Capital) or ended the year mired
in acrimonious litigation (e.g., Sallie Mae and
Genesco).2
Not surprisingly, 2008 is shaping up to be
another interesting year, as the credit crisis con-
tinues to reshape the M&A landscape. The credit
crunch has wreaked further havoc on private
equity deals, killing some (e.g., NIBC Holding
and Reddy Ice), pushing others to the brink of
failure (e.g., Clear Channel), and calling into
question the markets’ ability to absorb deals
coming down the pipeline (e.g., BCE and Penn
Gaming). Lenders have tried to escape funding
commitments,3 and the federal government even
brokered a unique and controversial deal to save
once-storied Bear Stearns. The credit squeeze has
also facilitated a resurgence of unsolicited bids
in large, strategic deals (e.g., Microsoft/Yahoo!,
United Technologies/Diebold, Electronic Arts/
Take-Two Interactive, and Blockbuster/Circuit
City).4
These events will certainly influence the way
M&A agreements are drafted and, to the delight
of M&A practitioners, may even produce mean-
ingful guidance concerning “best efforts”, “mate-
rial adverse effect”, and other key contractual
provisions. At the same time, these and other
recent events can be used to spot developing
issues and trends in terms of how companies
negotiate M&A engagement letters with invest-
Reprinted with permission 1
Volume 8 Number 7
ment banks, some of which are discussed below.
Given that unsolicited offers have once again
become en vogue, also explained below is the
fee structure customarily employed when a tar-
get company hires an investment bank to help
thwart a hostile takeover.
Developing Issues & Trends
A. Conflicts of Interest.
Given the choppy credit markets and that
investment banks have sued clients to nullify
funding commitments for deals they once sup-
ported, companies should be very cautious about
hiring an investment bank as both M&A advi-
sor and lead lender. As investment banks work
to strengthen their balance sheets over the next
several months, they may attempt to improve the
pricing of, if not walk away from, “underwater”
financing commitments. Although companies
may be offended and angered when this hap-
pens, companies must appreciate that investment
banks are no different than other companies:
when push comes to shove, they will do what’s in
their own best interests.5
What should companies do to help avoid
unwieldy conflicts? First, before hiring an invest-
ment bank, a company should run to ground any
conflicts (potential or real) that exist at that time.
Commercial diligence will help to ensure that a
company is not caught by surprise by a conflict
that existed when the engagement letter was
signed, which is inexcusable. Second, the engage-
ment letter should make clear that the investment
bank has an obligation to bring to the company’s
attention any conflicts (potential or real) that
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Engagement Letters
continued
arise during the term of the engagement, and
require the company’s consent for any action that
crystallizes a conflict of interest (e.g., providing
“stapled” financing to the buyer in a sell-side
engagement or joining the bank syndicate pro-
viding the acquisition financing in a buy-side
engagement). Here, notice and consent rights are
reasonable tools to help companies avoid and
manage conflict situations.
Companies should also consider the interplay
between the conflict provisions and the termi-
nation and remedy provisions. For example, to
motivate its investment bankers to avoid con-
flict situations, companies should consider nego-
tiating the right to terminate the engagement
(without being subject to a fee tail) if a conflict
of interest materializes based on the investment
bank’s unilateral actions. Investment banks may
resist this termination right without a fair degree
of specificity around the definition of conflict
of interest; however, given the intense scrutiny
about conflicts over the past several years, direc-
tors’ fiduciary duties to shareholders, and vari-
ous other factors, investment banks should con-
cede this right so long as a company’s board
makes a good-faith determination that a conflict
of interest exists and that elimination of the con-
flict is in the best interest of the company and its
shareholders (therefore, justifying termination
of the engagement letter). Moreover, companies
should consider whether, as a commercial mat-
ter, termination of the engagement letter alone is
an acceptable remedy.6
B. Fees.
Investment banks are charging less in today’s
environment and accepting engagements they
may not have accepted early last year. This should
come as no surprise, as keeping people busy (even
if busy on less profitable work) is traditionally
a better alternative to employee lay-offs. Along
similar lines, it should come as no surprise that
companies now have more leverage to further
back-load the payment of success fees, and that
investment banks may push harder for inclusion
of “break” fees in M&A engagement letters.
Deal certainty is important to companies when
the markets are good, but it becomes even more
important (particularly to sellers) when the mar-
kets are bad. Accordingly, to motivate its invest-
ment bankers to help sign up a deal that can be
closed in jittery market conditions, a company
should strongly consider making a higher per-
2 Reprinted with permission
centage of the success fee payable at closing.
Companies sometimes pay a portion (say, 20-40
percent) of the success fee before closing when
certain milestones are achieved; however, in
today’s market, it may be more appropriate to tie
most of the success fee to closing (for instance,
75-90 percent of the success fee paid at closing).
This approach further reduces the risk that com-
panies will have to pay sizeable fees to their M&A
advisors for deals that cannot be completed.
Also, considering the increasing rate at which
deals seem to be failing and the sheer size of
the termination/settlement payments associ-
ated with failed deals7, investment banks may
push for a bigger slice of any termination fees
paid to sellers. The bankers will make arguments
grounded in fairness, and companies will coun-
ter by pointing out the “high risk, high reward”
nature of the advisory business and arguing that
large success fees compensate them for wearing
this risk. Nevertheless, sellers could face more
push back from investment banks on this point
until the markets improve and, in turn, deal vol-
ume and deal certainty improve.8
C. Fairness Opinions.
Relying heavily upon the terms of an M&A
engagement letter, a federal court of appeals
recently affirmed a trial court’s decision that an
investment bank was not grossly negligent for
issuing a fairness opinion based on management
projections (which may have contained unrealis-
tic forecasts), or for failing to withdraw or update
its fairness opinion after several adverse events
occurred that undercut assumptions used by the
investment bank to issue the fairness opinion.
In The HA2003 Liquidating Trust v. Credit
Suisse Securities (USA) LLC 9, HA-LO Industries
hired Credit Suisse as its M&A advisor in con-
nection with HA-LO’s acquisition of Starbelly.
com, Inc. Credit Suisse issued a fairness opin-
ion to HA-LO’s board of directors representing
that, as of the signing date, the merger consider-
ation was fair to HA-LO from a financial point
of view. After the deal closed, HA-LO filed for
bankruptcy protection and a trust created for
HA-LO’s creditors sued Credit Suisse, alleging it
should (i) not have relied on management’s pro-
jections, but instead, made its fairness determina-
tion based on information provided to HA-LO’s
board by another consultant (Ernest & Young),
and (ii) have withdrawn its fairness opinion or
issued a new fairness opinion after the market
price of several dot-com companies began to
decline.10 The trial court held that Credit Suisse
was entitled to rely on projections provided by
HA-LO without independent verification under

the terms of its engagement letter and, therefore,
Credit Suisse had not been grossly negligent. On
appeal, the Seventh Circuit affirmed.
M&A engagement letters, particularly for sell-
side deals, frequently contemplate the issuance
of a fairness opinion as part of the investment
bank’s mandate. When this happens, the engage-
ment letter commonly provides that the fairness
opinion will be issued in such form as the invest-
ment bank determines appropriate (which may
include statements in the fairness opinion that
the investment bank has relied upon information
provided by the client and has assumed the accu-
racy and completeness of such information).11
Generally speaking, when negotiating engage-
ment letters, the expectation has been that invest-
ment banks have no obligation to update or with-
draw any fairness opinion issued as part of their
engagements, although this expectation typically
didn’t manifest itself in writing until a written
fairness opinion was delivered. In light of the
HA2003 decision, however, investment banks
may attempt to clarify in M&A engagement let-
ters that they have no obligation to update or
withdraw any fairness opinion issued as part of
their engagements.12
The HA2003 decision also suggests that, if
companies really want the fairness opinion to
cover fairness as of the closing date of a transac-
tion, they can always negotiate for that right.
Companies may revisit the commercial value
of being able to have multiple opinions issued
by their M&A advisors in light of the HA2003
decision. As a practical matter, however, having
the right to have a fairness opinion issued by its
investment bank after a deal is signed has lim-
ited value, because M&A deals are rarely condi-
tioned upon the delivery of a “bring down” fair-
ness opinion at closing. In circumstances where
another fairness opinion may add value (e.g., a
board of directors is deciding whether to extend
the termination date of a cash-and-stock merger
after a significant period of time has passed since
the deal was signed), the company can simply
ask its investment bank to issue another fairness
opinion, even if it means paying a little extra to
receive an updated fairness opinion.
D. “Key Man” Provisions.
The turn-over rate among investment bankers
is relatively high in normal market conditions,
and it only seems to increase when the markets
take a turn for the worse. Higher turn-over rates
help to explain why “key man” provisions are
becoming more important to companies, particu-
larly those that hire an investment bank based on
Reprinted with permission 3
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specific banker relationships and those consider-
ing investment banks rumored to be acquisition
targets.13 In addition to increasingly using “key
man” provisions to preserve relationships and
help maintain consistency and quality of the
M&A advice, companies are urged to focus on
what the consequences (e.g., grounds for termina-
tion or fee reduction) should be if a “key man”
provision cannot be honored or there’s a change-
in-control of the investment bank.
Moreover, because they may help to reduce
the risk that the investment bank will walk away
from a financing commitment, “key man” pro-
visions are valuable to companies considering
an investment bank for both M&A adviser and
lender roles. The involvement of highly-regarded
partners and senior managing directors on a
project, as memorialized in the engagement let-
ter, may create more political pressure within
the investment bank to honor its commitment
should the firm decides to reduce its funding
exposure under various M&A financing com-
mitments. In other words, if an investment bank
later determines it must further jettison funding
commitments to help shore up its balance sheet,
the involvement of prominent investment bank-
ers in the company’s deal could help favorably
sway the investment bank to follow through on
its financing commitment to the company.
E. Financing Rights.
When negotiating the engagement letter, an
investment bank will often request the right to
arrange the acquisition financing or other financ-
ing work (e.g., equity placements and interest
rate swaps) required by the company in con-
nection with the transactions covered by the
M&A engagement letter. In the past, companies
would weigh the pros and cons of going this
route before deciding whether to grant or reject
the request. Today, companies should be reluc-
tant to even consider this request, based in part
on the volatile market conditions, concerns that
Bear Stearns might not be the only investment
bank to implode, the fact that lenders are suing
their clients to avoid financing commitments,
etc. This is not to say a company cannot decide
to obtain acquisition or take-out financing from
the investment bank, but commercial flexibility
on financing matters is even more important for
companies in today’s credit environment.
Fee Structures: Defending Hostile
Takeover Bids
When a company learns that an unsolicited
Engagement Letters
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Engagement Letters
continued
bid has been or will be made for the company,
it will customarily hire experienced legal and
financial advisors to help understand the process
and the company’s options, if not develop a plan
to thwart the takeover offer. Because hostile take-
overs are often the weapon of last resort for the
interested buyer, most companies have not nego-
tiated M&A engagement letters with investment
banks in these settings. Experienced legal counsel
can be invaluable with helping to negotiate these
engagement letters, as the fee structures can be
complicated and involve significant fees.
Because hostile takeover bids frequently turn
into negotiated deals, the fees paid to investment
banks in these engagements normally include
both “stand alone” and transactional elements. A
company will customarily pay an advisory fee to
its M&A advisor while fending off the unwanted
offer, and agree to pay a success fee to its advisor
if the unsolicited bid turns morphs into a negoti-
ated deal.14 As hostile takeover bids can require
tremendous up-front work by the advisors on
very short notice, it is also common for compa-
nies to pay up-front retainer fees to their invest-
ment bankers.
Advisory fees are normally paid on a monthly
or quarterly basis, if not another period of short
duration such as each successive three-month
anniversary of the date of the engagement letter
(the applicable payment date is herein referred to
as a “Triggering Date”). Subject to the termina-
tion provisions, the company will pay the same
amount of advisory fees on each Triggering Date
so long as the hostile bid remains “live” and
a success fee has not been paid. If the hostile
bid is withdrawn or otherwise ceases before a
Triggering Date and a success fee has not be
paid, the company is sometimes required to pay
the advisory fee on that Triggering Date and
for an extended period of time following that
Triggering Date, such as the next one or two suc-
cessive payment periods. It is also customary that
a majority, if not all, of the advisory fees paid by
the company will be credited against any success
fee that becomes payable within a certain period
of time (often, 12 months) following the date of
the engagement agreement. To illustrate these
points, a sample provision follows:
“Advisory Fee. If, as of the three-month
anniversary of this Agreement or any suc-
cessive three-month anniversary thereof
(each such date, a “Trigger Date”), (i) a
4 Reprinted with permission
Success Fee has not been paid to us pursuant
to paragraph ( ) below and (ii) a Triggering
Event 15 has occurred, then the Company
will pay, or cause to be paid, to us in cash
an advisory fee of $( ) on each Trigger
Date and on each of the next two succes-
sive three-month anniversaries thereof. The
Company’s obligation to pay us pursuant to
this paragraph will survive any termination
of our services under this Agreement any
decision by [Potential Acquirer] and/or any
other person or group (as defined in Section
13 of the Securities Exchange Act of 1934, as
amended), including the Company or any of
its subsidiaries, to cease pursuing a transac-
tion with the Company. The advisory fee,
to the extent paid, will be credited on a one-
time basis against the Success Fee (or any
part thereof) that becomes payable within 12
months of the date of this Agreement pursu-
ant to paragraph ( ) below.”
As for the transactional element of these fee
arrangements, the success fees are very similar to
success fees structured for mergers, acquisitions,
and divestitures that do not involve unsolicited
bids.16
Companies faced with defending hostile take-
over bids need to understand that investment
banks have significant bargaining leverage when
negotiating fees in these circumstances. This
leverage arises from a combination of factors,
such as the high-stakes nature of hostile take-
overs, the sense of urgency that executives often
experience to respond immediately to unsolicited
offers, the fact that executives may be panicking if
they haven’t been through this drill before, and a
general lack of transparency around the fees paid
to financial advisors in these situations (mak-
ing it more difficult for companies to determine
whether the fees being quoted are exorbitant).
As a result, companies should expect investment
banks to attempt to extract lucrative fees in these
engagements, if not better terms in general (e.g.,
securing exclusivity, obtaining financing rights,
or negotiating longer fee tails).
In addition, companies should carefully con-
sider how the fees are structured, as fees tied to
a successful takeover defense could be criticized
by shareholders, proxy advisory firms, and other
interested parties. According to some invest-
ment bankers at major Wall Street firms, there
are no “standard” fee ranges for the retainer
and advisory fees sought by investment banks
under mandates related to defending hostile
bids. Instead, because most investment banks
have established internal guidelines spelling out

the minimum level of fees (say, $5 million) that
should be generated for this type of advisory
work, most investment banks are willing to struc-
ture the fees however a company prefers so long
as the minimum fee requirement will be satisfied.
The bottom line is, as with any M&A engagement
letter, companies should be mindful of percep-
tions associated with large-dollar mandates.
* * * * *
As 2008 continues, M&A lawyers can expect
more interesting developments, some of which
will inevitably influence the manner in which
companies negotiate engagement letters with
investment banks. Maybe these trends will
reverse themselves as the financial and M&A
market rebounds. For now, though, companies
would be well served to take stock of the events
that have occurred since last summer when nego-
tiating M&A engagement letters with investment
banks.
ENDNOTES:
1. Brad L. Bacon is Vice President, Assistant
General Counsel & Assistant Corporate Secretary
of Aquila, Inc. He has negotiated engagement
letters with investment banks for more than $10
billion of M&A transactions involving domestic
and international energy, utility, and telecom-
munication assets and operations. For additional
information on many of the concepts discussed in
this article, such as “break” fees and “key man”
provisions, see Brad L. Bacon, Negotiating and
Drafting M&A Engagement Letters with Investment
Banks: A Client’s Perspective, The M&A Journal,
Volume 8, No. 2 (Dec., 2007).
2. The Sallie Mae and Genesco transactions
were terminated in the first quarter of 2008.
3. The Genesco/Finish Line and Clear Channel/
Provident Equity storylines are particularly inter-
esting. In the Genesco deal, Finish Line hired UBS
as its M&A advisor and lead lender. As the credit
markets dried up, UBS, which was hit hard by
the sub-prime mortgage meltdown, had a change
in heart and wanted out of its financing commit-
ment. To accomplish this, UBS took the extraordi-
nary step of suing its own client, requesting that
a court declare the combined company insolvent
and declare void the bank’s funding obligation. In
the litigation that ensued, UBS (in its capacity as
Finish Line’s M&A advisor) was judicially dressed
down for failing to request key financial informa-
tion before Finish Line entered into the Genesco
deal, which may help to explain why UBS funded
a large chunk of the $175 million termination fee
paid to Genesco.
In the Clear Channel/Provident Equity deal,
Reprinted with permission 5
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Wachovia sued its client to avoid funding its
portion of the acquisition financing needed by
the private equity buyer to purchase several tele-
vision stations from Clear Channel. Although
the lawsuit was dismissed and the acquisition
completed, Vice Chancellor Leo Strine provided
a gold nugget to M&A lawyers during one of
the hearings. Specifically, Vice Chancellor Strine
implied that, at least in private equity deals,
commercial reasonability may require a “shell”
acquirer to shop an equity commitment to other
private equity sponsors and sue its lenders for
debt financing. See Transcript of Oral Argument
and Ruling on Motion to Expedite, Clear Channel
Broadcasting, Inc., et al. v. Newport Television
LLC, No. 3550-VCS (Del. Ch. Ct. Feb. 26, 2008).
This suggestion seems to have been taken to
heart by private equity buyers, as Bain Capital
and Thomas H. Lee Partners have caused their
“shell” purchaser to sue its lenders for the debt
financing needed by the private equity firms to
complete their pending buyout of Clear Channel.
It will be interesting to learn whether the concept
of shopping the equity commitments in private
equity buyouts gains traction in the future.
4. As potential sellers become more concerned
about timing the market (i.e., concerns around
closing certainty or a narrowing of premiums as
cheap credit becomes more scarce), fewer sellers
may be willing to put themselves into play. At
the same time, the stock prices and valuations of
many companies have been reduced significantly.
Strategic buyers with strong balance sheets may
be more willing to make unsolicited offers or
launch hostile takeovers to acquire companies
in these camps, particularly as the reputation of
financial buyers falters and they no longer have
unfettered access to cheap capital (translating
into a smaller pool of “white knight” candidates
and better odds that a strategic buyer will not
face competition from financial buyers able to
pay juiced premiums), etc.
5. The M&A fees generated by an invest-
ment bank may pale in comparison to the fees
earned by providing acquisition financing. At
the same time, if an investment bank is forced to
sell loan commitments at a steep discount (which
is around 15% today), then the loss associated
with the financing commitment could very eas-
ily outstrip the profit generated by providing
M&A advice. If this happens, such as it did in
the Genesco case, it’s not hard to understand how
an investment bank could use the potential loan
losses to justify an “economic breach” of the com-
mitment letter, even if the investment bank loses
millions from the M&A advisory mandate.
Engagement Letters
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Engagement Letters
continued
6. Assume, for instance, that an investment
bank is entitled to a $10 million success fee under
an engagement letter, and that $5 million of that
fee will be paid upon achievement of certain
milestones prior to closing. Now, if the invest-
ment bank unilaterally creates a conflict that puts
the deal in jeopardy after the company has paid
the $5 million of milestone fees, and the company
feels compelled to terminate the engagement to
remove the risk and increase closing certainty,
should the investment bank be allowed to keep
the $5 million? Without appropriate language
in the engagement letter, the investment bank
would not have to return the fees to the com-
pany, and the company would remain subject
to a fee tail following the termination date. This
seems like a poor result, particularly as compa-
nies face greater closing uncertainty in the M&A
markets today, especially if the financial advi-
sor created the conflict. Accordingly, companies
should revisit whether foregone fees should be
viewed as “sunk” costs of a failed transaction,
or whether they should be recouped in specified
situations.
7. Examples of recent termination payments
/ settlement concessions include: (a) payment of
$175 million and the issuance of roughly $12 mil-
lion of Finish Line common stock to Genesco; (b)
payment of a $100 million reverse bust-up fee to
United Rentals; (c) the purchase of $400 million
of Harmon convertible debt securities; and (d)
roughly $31 billion of debt commitments to Sallie
Mae for purposes of refinancing a credit line.
8. Given the possible components of a termi-
nation/settlement package, valuation methods
and fee caps must be carefully thought through
if a company is entertaining the notion of paying
a “break” fee to its M&A advisor. For example,
although members of the Sallie Mae buy-out
group agreed to arrange a new $31 billion credit
facility for Sallie Mae as part of the termination
settlement, Sallie Mae would certainly not regard
the syndication and lending efforts to be the cash
equivalent of $31 billion (and, therefore, would
not want to pay a sizeable “break” fee to its M&A
advisor based on the $31 billion headline num-
ber). See Bacon, supra note 1 at 11-12 (explaining,
among other things, the rationale for companies
not paying “break” fees to M&A advisors).
9. Order Granting CSFB’s Motion and Denying
HA-LO’s Motion for Judgment on Partial
Findings, No. 04 C 3163 (N.D. Ill. Sept. 20, 2006),
aff’d No. 06-3842, 2008 U.S. App. Lexis 3504 (7th
6 Reprinted with permission
Cir. Feb. 20, 2008).
10. E&Y had determined and informed
HA-LO’s board that management’s projections
were, in E&Y’s opinion, unrealistic. HA-LO
chose to disregard E&Y’s conclusions and pro-
ceeded with the acquisition. Thereafter, the dot-
com bubble began to burst and the value of sev-
eral dot.com companies (including companies
contained in indexes used by Credit Suisse for
purposes of its fairness opinion) deteriorated
significantly.
11. Note that, beyond the provisions specific
to the issuance of a fairness opinion, engage-
ment agreements customarily provide that an
investment bank will rely solely on information
provided by the company without independent
verification.
12. From a drafting perspective, the HA2003
decision seems consistent with existing contract
law: investment banks should not need to expressly
provide that they have no duty to update or with-
draw their opinions, in order not to have a con-
tractual obligation to do so. Also, because the trial
court made no finding of fact regarding whether
E&Y’s conclusions had been provided to CSFB,
the decision should not be construed as limiting
an investment bank’s potential liability under
federal securities law. Under the Securities Act
of 1933, as amended, and rules and regulations
promulgated pursuant thereto, if the investment
bank’s fairness opinion is expertised and included
in a Form S-4 filed with the SEC, the investment
bank has liability exposure if the fairness opinion
included in the Form S-4 is misleading.
13. For example, Alan Schwartz, CEO of Bear
Stearns, reportedly advised Microsoft in its failed
bid to acquire Yahoo!. If Mr. Schwartz were to
have left Bear Stearns before Microsoft revoked
its offer, would Microsoft have continued to use
Bear Stearns? See, e.g., Alain Sherter, Microsoft
taps Bear Stearns CEO as consigliere for advice on
Yahoo! deal, THE DEAL.COM, March 5, 2008,
available at www.techconfidential.com/behind-
the-money/blog/internet/microsoft-is-bringing-
in-some.php; Alex Lash, Bear Stearns’ impact on
IPOs, THE DEAL.COM, March 18, 2008, avail-
able at www.thedeal.com/dealscape/2008/03/
we_know_that_bear_stearns.php (questioning
whether advisor changes could be in store for
IPOs that Bear Stearns is spearheading as lead or
co-lead underwriter).
14. Investment banks sometimes request a
success fee if a company successfully fends off a
hostile takeover. As explained later in this article,
companies should be wary about paying “stand
alone” success fees, as they can be perceived
negatively by shareholders, proxy advisory

firms, and other interested parties. For example,
when PeopleSoft was trying to stave off Oracle’s
takeover offer, PeopleSoft highlighted that the
fees payable to its financial advisors (Citi and
Goldman Sachs) in connection with the hostile
takeover bid were not contingent on the com-
pany remaining independent. See PeopleSoft,
Inc., Schedule 14A, at p. 10 (Mar. 9, 2004). If an
investment bank wants to ensure that it generates
at least a minimum amount of fees in connection
with defending a hostile takeover effort, this can
certainly be accomplished without the involve-
ment of an offensive “stand alone” success fee.
15. In these situations, “Triggering Event”
will typically be defined very broadly to mean
pretty much any offer actually made or publicly
contemplated by one or more potential buyers. A
sample provision follows:
“For purposes of this Agreement, a
“Triggering Event” will occur when (A)
any person or group (as defined in Section
13 of the Securities Exchange Act of 1934,
as amended), company or entity, includ-
ing [Potential Acquirer] or any of its affili-
ates (a “Potential Acquiring Entity”), either
directly or indirectly, (i) commences a tender
or exchange offer with respect to the out-
standing stock of the Company, (ii) publicly
delivers a proposal or offer (either written or
oral) subsequent to the date hereof describ-
ing an acquisition of the Company or its
outstanding securities or assets by way of
tender offer, exchange offer, merger, busi-
ness combination or other strategic trans-
action or a recapitalization, restructuring,
liquidation, dissolution or other extraordi-
nary transaction, including any leveraged
buy-out or management buyout, involving
the Company, (iii) commences any solicita-
tion of proxies or consents to change the
composition of the Board of Directors of
the Company, (iv) commences any solicita-
tion of proxies or consents to vote any vot-
ing securities of the Company where the
subject matter of such solicitation relates to
any proposal or action of the type set forth
herein, or (v) acquires beneficial ownership
of more than [5%] of the outstanding voting
stock of the Company or acquires beneficial
ownership of any stock of the Company
if the Potential Acquiring Entity publicly
discloses such acquisition, or (B) it becomes
public knowledge that a Potential Acquiring
Entity has contacted the Company regard-
ing any of the transactions or matters set
forth herein or that such Potential Acquiring
Entity intends to initiate, or is considering
Reprinted with permission 7
the M&A journal
initiating, any of the transactions or matters
set forth herein.”
16. A sample provision describing the success
fee payable under an engagement letter relating
to the defense of a hostile takeover offer follows:
“Sale of the Company. Upon announce-
ment of, or execution of a definitive agree-
ment with respect to, a sale of 50% or more
of outstanding common stock or assets
(based on the book value thereof) of the
Company, the Company will pay us a fee
of $( ) (the “Announcement Fee”). If a sale,
whether in one or a series of transactions,
of 50% or more of the assets (based on the
book value thereof) or 50% or more of the
outstanding voting stock of the Company,
as well as any recapitalization, restructuring
or liquidation of the Company, or any other
form of disposition which results in the
effective sale of the principal business and
operations of the Company by the current
owners is completed, directly or indirectly
with any person or group (as defined in
Section 13 of the Securities Exchange Act of
1934, as amended), including the Company,
by means of a tender offer, exchange offer,
merger or other business combination trans-
action, issuances of securities, private or
open market purchases of stock, sales of
assets or otherwise, the Company will at
completion pay, or cause to be paid, to us
a success fee (the “Success Fee”) in cash as
follows: (A) if the price per share paid to
a holder of shares of common stock of the
Company (the “Price Per Share”) is less than
or equal to $( ), the Success Fee will be an
amount equal to ( )% of the aggregate con-
sideration paid in such transaction or trans-
actions; or (B) if the Price Per Share is greater
than $( ), the Success Fee will be an amount
equal to ( )% of the aggregate consideration
paid in such transaction or transactions; pro-
vided, in each case, that the Success Fee will
be reduced by the Announcement Fee. For
purposes of the preceding sentence, (x) all
amounts will be adjusted to reflect any stock
split, stock dividend or recapitalization or
similar transaction occurring after the date
of this Agreement and (y) in the case of an
asset sale, the Price Per Share will be calcu-
lated in good faith and mutually agreed to
by us and the Company.”
MA
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“For God’s sake, Ms. Williams, can’t you see it’s some kind of takeover? Call my attorneys!”

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