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Climan: In many deals, particularly where the target company is a lot smaller than
the acquiring company, and where the stock issued by the acquirer in the merger either
is registered with the SEC or is issued in reliance on the § 3(a)(10) exemption from
registration, there won’t be any meaningful post-closing resale restrictions under the
securities laws. So, absent contractual restrictions, the target company stockholders can
dispose of their shares of the acquirer’s stock immediately after the closing of the merger.
In those situations, where the operative pricing formulation is a pure floating exchange
ratio, acquirers are typically successful in resisting a request for a MAC-out by the target
company.

Glover: I agree with that.

Chu: How do courts construe MAC clauses and how do they determine whether a
"material adverse change" has actually occurred? What we learned from the IBP/Tyson
court is that materiality is determined from the perspective of a reasonable buyer of the
business in question. The determination is made in the context of all the facts and
circumstances of the particular transaction. It’s important for everyone to understand
that there’s still a lot of ambiguity out there.

If there is litigation regarding the MAC clause, here’s what courts are going to look
at: They’re going to take a look at the drafting history to discern intent. They’re going to
look at the contemporaneous writings exchanged by the parties. They’re going to
consider oral discussions, and they’ll give weight to privately-expressed views that may
never have been aired publicly or even communicated to the other party. They’ll give
weight to industry standards. And finally, corporate lawyers will be called as witnesses.

When considering MACs as the lawyer for the acquirer, it’s a good idea to remind
your client that a MAC-out is usually best considered a walk right of last resort. The
closing conditions you should look to first are the "bring-down" of the target’s
representations and warranties, and more specific closing conditions that are tailored to
the target’s business — including any specific risks uncovered by the acquirer’s due
diligence investigation — and the acquirer’s expectations. For example, if the purchase
price is based on a multiple of the target’s cash flow, consider whether it makes sense to
have a closing condition requiring the target’s EBITDA to be at least "x."

One last MAC-related consideration I’d like to point out relates to walk rights
based on the acquirer’s financing. In those deals where the acquirer has a financing-out,
the target’s counsel should keep in mind that a lender’s financing commitment may
include a MAC condition that’s much broader than the one so carefully negotiated in the
acquisition agreement. For example, the lender’s MAC definition may not contain any
carve-outs. For the target’s lawyer, it’s a double-MAALOX moment if you get blind-sided
by a termination based on the acquirer’s financing-out that’s triggered because of the

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