asset acquisitions - Jackson Walker LLP

declared) occurring after the date of this Agreement whichmaterially impair the Company’s ability to conduct itsoperations except on a temporary basis, (iii) changes ordevelopments in financial or securities markets or theeconomy in general except to the extent caused by amaterial worsening of current conditions caused by acts ofterrorism or war (whether or not declared) occurring afterthe date of this Agreement…” (italics added).In this case, the italicized language creates two different types ofexceptions to the provisions limiting the scope of the MAC clause. Oneexception (which is quite understandable) encompasses events that arematerially adverse to the target and affect the target company specifically,e.g., by disrupting state or local transmission or distribution systems(although the clause also addresses changes that are much broader, and thataffect national power systems, and presumably would affect the targetcompany only as one of many other power companies). The otherexception carves out the exclusions from the MAC clause changes inmarkets or the economy to the extent caused by terrorism or war, giving thebuyer the right in certain circumstances not to close because of generalchanges due to terrorism or war. However the buyer must accept the risk ofother general changes in the securities markets or the economy.There are a number of interpretive and probative issues with theReliant-type clause. If the buyer seeks to invoke the clause, the buyer mustprove: (a) that terrorism or war caused a change; (b) the extent to whichterrorism or war caused the change; and (c) specifically in the case of theparticular language in Reliant, that there has been a material worsening ofcurrent conditions and, in the first of the two italicized clauses, that thechange is not temporary. These issues create potentially significantobstacles to invoking the clause as a basis for termination.As the Reliant transaction is an acquisition of Orion by Reliant andtherefore the clause is not reciprocal, it is somewhat surprising that Reliantwas able to negotiate “outs” for general changes caused by acts of terrorismor war, and it is to be expected that most sellers will vigorously resist such aprovision. Granted, the effect of terrorism or war on the financial marketsor business conditions could be unusually and unforeseeably severe, butsellers will likely object that the allocation to the seller of the risks ofgeneral changes caused by terrorism or war is arbitrary, particularly where,as in the Reliant transaction, other general changes in securities markets andthe economy, regardless of their cause or severity, are for the account of thebuyer. Moreover, by their very nature, acts of terrorism or war areunpredictable, and are as likely to occur the day after closing as the daybefore.* * *An alternative approach that would address a party’s concern topreserve an escape clause in the face of major market disruption caused byterrorism would be to include a “Dow Jones” clause in the acquisition3148166v1- 92 -