Week 7 Flashcards
In an effort to protect themsleves against unforeseen changes to the target’s business during the gap period, virtually all buyers will include a clause in the merger agreement called ______
material adverse change (MAC) or material adverse effect (MAE)
What does the MAC clause allow the buyer to do?
gives the buyer the right to terminate the agreement if the target experiences material adverse change to the business
What do courts mitigating MAC claims typically focus on whether there is a substantial threat to _______.
overall earnings related to past performance, not projections
Who bears the burden of proof in MAC?
the buyer
a payment a seller owes a buyer should a deal fall through due to reasons explicitly specified in the merger agreement
breakup fee
Why are breakup fees most common in public deals but not common in middle market deals?
the merger announcement and terms are made public, enabling competing bidders to emerge
Who are ancillary agreements ususally between?
parties to the acquisition agreement
or third parties whose commitments will be critical to the consummation of the transaction
Who do the ancillary agreements protect?
the buyer
How are ancillary agreements usually attached to the aggrement?
in draft form as exhibits, with the expectation that the final forms will be executed at or prior to the closing
Who owes the breakup fee?
Seller owes buyer
3 types of ancillary agreements
covenants not to compete, consulting, contribution
What is the gap period?
between when the agreement is signed and when the agreement is closed
