Preparing for Litigation Resulting from a COVID-Related Busted Deal
There’s a disconnect between valuations, as we said, so buyers and sellers are analyzing both reps and warranties, conditions to close and termination provisions to figure out what leverage they have to terminate, renegotiate or extend the outside date of a deal. So, today we have four litigators from McDermott throughout our country to give you advice on these issues. Ashley Altschueler, from Delaware, will speak about MAE in termination provisions. John Calandra, from our New York office, will speak about Akorn, the big MAE case, as well as breakup fees. Andrew Kratenstein will get into the nuts and bolts of agreements, giving you advice as what provisions to focus on when you’re figuring out whether to terminate an agreement. And last, Michael Nadel will speak about the nuts and bolts of going through litigation during the COVID 19 environment. He’ll also give you tips as to what to do pre-litigation to be in the best position when you’re actually going to enter the courts. With that, Ash, you’re going to be talking about MAEs, and I have this question. Why are MAEs a nonstarter for terminating a deal?
Thanks, Heidi. So, it has been a hot topic right now in Delaware’s, as you can imagine, that we’re in the middle of this pandemic, and everyone’s been looking to Delaware to say, what is Delaware going to do with the current environment? And because we have a court system that a specialized Court of Chancery as well as Delaware Supreme Court who has been giving law on these matters for, now for decades. Delaware is the place that we’re likely going to be seeing the pandemic law to take shape. We don’t yet have all the answers. We have some lawsuits that have begun where deals are being busted up, but we don’t have the answers as what Delaware will do in the current pandemic environment as well as the post pandemic environment. So, it’s a very interesting time for us. The courts are open, and there’s no public access, but the judges are working very hard as well as the litigators and practitioners. So with respect to MAEs, people are very focused on these. What is interesting about an MAE is an MAE is a creature of contract. The Delaware courts were very clear on that, especially the Akorn case, which my colleague John Calandra will speak on earlier. But these are heavily negotiated provisions by sophisticated counsel in an M&A deal between a buyer and seller. And they’re deciding where they’re going apportion the liability and the risk. And what’s important about an MAE is its focus is on risk. Who takes the risk that the industry or the company will have a downfall? And where the courts have come out on this point is that at first, the MAE looks to the particular contractual language and every one’s different. And what you need to do is to find out, did the buyer or the seller take on that risk? Most times, there has to be a significant adverse effect on the target’s business. That’s usually the first part we look at. 40, greater than 40% earnings decline may qualify, but we have seen cases where there’s been up towards of 60% and there’s been no MAE. So, it changes pursuant to the facts, and each case is going to be different. One point that needs to be made very clear is that there is no bright-line rule for how an MAE will come out. The Delaware courts have said that they are known to be broad terms, and they need to be made, made fine and clear by the actual litigation. And so, the party is actually contracting, Judge Vice Chancellor Laster made this clear in his decision, the parties make, make them broad for a reason because they don’t know what facts will later on come, and particularly trigger an MAE. The second part of an MAE that’s very important is that it has to be an adverse effect that extends for a durationally significant period. This is crucial because it has to be usually measured in years and not months. It can’t just be a short-term hiccup. And why this is key for the COVID environment, is that most people are predicting that we will bounce out of the tight COVID business environment in a period of months, not years. And therefore, we don’t know yet whether the effects of an MAE that are triggered by a COVID environment will be to durationally significant. Parties are making those arguments, but we don’t know yet with the Delaware courts will do. So, the standard MAE definitions exclude industry-wide adverse changes, unless there’s a disproportionate effect on the seller’s business. So first, what you do is, a buyer is going to say, judge, your honor, there’s been a trigger. There, the company has had a significant adverse effect. It is durational significance. And then you look to the MAE clause and say yes, but there’s a series of exclusions that are created by the parties that were benefit of the bargain. And those exclusions, often times, sometimes, will include a pandemic, act of God, force majeure, market conditions. Those are areas where the buyer is taking on the risk because those are not specific to the running of the actual company. But then, however, there is usually a triggering event that says those exceptions will not apply if there’s a disproportionate effect on this seller’s business. And that’s where we’re seeing a lot of the current litigation, including the L Brands and Sycamore transaction, focusing on, because the, there needs to be a showing. And it’s a heavy burden of showing this, that there’s a disproportionate effect on the seller’s particular business. We right now won’t know if one business engaged in retail is having a disproportionate effect on its services in its products, as opposed to another mall retailer. So, we’re all looking for the various arguments that, that will be embedded in those disputes.
So, Ash, what, Ash, one thing to look, focus on when you’re dealing with retail is online activity. I have a client who wanted to get out of transaction because the target did not have a good online curbside pickup business, and so all of its competitors did. So they said there was a disproportionate impact on that particular seller because they didn’t have that feature of their business compared to the competitors.
And those are the exact kind of creative arguments that we have seen and will be seeing. But the question is, is for the MAE, what type of MAE will trigger like in Akorn? Was there a general MAE? Was there a MAE on the bring downs? Because the reps and warranties that get made, they can constitute an MAE? In Akorn, the court found that they were both applicable. We’re interested to see how those various MAEs, many of which were drafted in a pre-COVID period. I mean, most of which now were drafted in pre-COVID period. We’re interested to see how those exclusions and disproportionate impact arguments are going to be made, and ultimately, adjudicated in Delaware, which we’ll talk about later on, with Mike Nadel and myself about, what is the status in Delaware courts, and how issues will be litigated in the current environment where courtrooms are closed.
Another good thing to mention is that just a drop-in valuation typically does not trigger an MAE. Buyer’s remorse is not a good reason to try to terminate an agreement. So, that’s usually the first reason why people come to us trying to get out of a contractor renegotiate it. But we really have to figure out how the MAE applies and how we can use that to try to terminate.
That’s right, Heidi. That’s a good point. And in fact, that was a very poignant issue in the Akorn trial. Of course, of the Akorn entity there made the argument that, while this is just simply a story of buyer’s remorse, where if we’re saying it’s no longer sought to consummate the transaction for its own selfish purposes. And the judge looked at that argument very strenuously and decided that this was not a case of buyer’s remorse that, in fact, the issues have quote fallen off a cliff, which I know John Calandra later will talk to with respect in the financial viability of Akorn in the post signing period.
Well, great. With that, I think, John, you are going to be talking about the specific Akorn case, which everyone looks at. I mean, obviously, there’s not a lot of litigation on MAEs because people have looked and realized it’s a high hurdle to meet, so you don’t use it. Can you give us some feedback as to what Akorn has told us about MAEs in terms of roadmaps for companies when they draft their provision?
Sure, Heidi. So for years, parties have gone into court in Delaware arguing that they were entitled to terminate their merger agreement, alleging an MAE occurred to the target company sometime after they signed the merger agreement. And under Delaware law, Ash is right on point. You have a heavy, quote unquote, burden proving a MAE occurred. And so, not surprisingly, was not until recently, the Akorn decision in fall 2018, that a Delaware court ever found a MAE actually, did in fact, occur. What Akorn shows us, and to answer the question that Heidi posed in the beginning is that, yes, breaking up is hard to do, but it can be done. In Akorn, Vice Chancellor Laster actually found not one, but two MAEs had occurred. The first one was what the court referred to as a regulatory MAE, because it resulted from Akorn’s failure to comply with the FDA regulations. And that was a big deal because Akorn was a pharmaceutical company. The second one the one I will discuss today is what the court referred to is a general MAE. The general MAE was not caused by any breach of representation in the agreement. Instead, it was caused by the entry of new competition and the loss of the key contract, which caused Akorn to lose revenue and profitability. Up until the Akorn decision, the only rulings that were issued by Delaware courts were that no MAE occurred, usually because the change was not deemed sufficiently material or not material in a durationally significant way. As Ash explained, the MAE cannot be a mere hiccup. So what was so different about Akorn that led Vice Chancellor Laster to find MAE? I would say there were four key facts. First, it’s actual results, in the four quarters that followed the execution of the MA, reflected in the words of the court, that it fell off a cliff with no signs of abating. For example, Akorn’s operating income was down 105% from last year. I think it bears emphasis, though here that Akorn had four quarters of actual results to analyze at trial. That’s unusual and it’s unique. In a number of earlier cases, including one that I actually tried before then Vice Chancellor Strine, the parties had to prove an MAE based on a single quarter of actual results.
John, can I ask you, we actually got a question on this point about duration. If a short-term hiccup forces the business to go into bankruptcy, is that durationally significant to trigger an MAE?
That’s an excellent question. If the company goes into bankruptcy, I would argue it was. I don’t know, I would love to hear Ash’s view on that. But if it does end up going into bankruptcy, I would think that would then take on a durational significance. What do you think, Ash?
Well, the question is that if the company goes into bankruptcy, what’s going to happen to the transaction anyway?
So, we haven’t seen that example yet that’s occurred. We know that some of the companies like Victoria’s Secret, were having significant issues, financially. But the question is, is so far the law in the books is the Delaware courts are going to want to see that what occurred is something that will last long enough that would allow a buyer to walk from a transaction and actually make, making sure that that risk got shifted. Because you have got to assume that the parties contracted to shift that risk. And if, in fact, the pandemic is there and it does have significant impact on that underlying business, then it’s, you could make a good argument as the buyer that it’s been triggered.
So, so going back to Akorn. I think the second key fact that drove the Akorn decision was a significant decline that was observed on the court in the value of Akorn following the execution of the agreement. At the time the agreement was executed, the court pointed out that Akorn’s financial advisor valued acorn at $32 a share. But post execution, looking at analysts and what they were saying, Akorn’s value is only $5 to $12 a share, a drop in the value of 63% and 84%. Alone, not sufficient, but it does indicate something going on. Third, the court found that the cause of the sudden cliff dive, if you will, was specific to Akorn. It was not a condition shared by the industry overall, as I said earlier, it was the result of entry of new competition and the loss of the key contract. The court did conclude that these underlying causes were specific enough to Akorn to avoid the MAE exclusion that applies to industry-wide impacts. But the court hedged a bit and said, well, you know, even if there is some industry impact in play, it was disproportionately impacting Akorn. And to support that conclusion, the court cited the fact that Akorn’s huge decline in value and compared that to the decline in value experienced by the peers, which was only 15%. So, obviously, Akorn was having a much huger decline based upon some underlying condition. Fourth, and finally, the court had little trouble concluding that the impact in Akorn’s case was not a blip or a hiccup but had durational significance. Court looked at number of factors, but it also looked at that EBITDA estimates for Akorn for the next three years, were much, much lower, and that indicated durational significance. To sum up, Akorn, you know, every case turns on its own facts and its own contract language. But Akorn does give a good road map for a party who is thinking about terminating their deal.
Ash, you were actually in the court when Akorn was litigated. Any insights as to what the court was focusing on when they were asking questions of the parties during the case?
Yes, Heidi. I did attend the Akorn trial in 2018 on behalf of a client who was very closely following the case because of the implications of the MAE. It was a five-day trial, very expedited setting. I think the two things that stood out to me as a witness at the trial, watching it, was, one, the intense credibility determinations that Vice Chancellor Laster was making with the live witnesses, especially the CEO of Akorn. These MAE clauses are specifically negotiated, and therefore, for a client to be able to trigger them and to scuttle a deal based on them, it’s going to be an intense, intense factual analysis as to whether there was good faith, whether the ordinary course covenants were complied with, was there reasonably best faced, best efforts that gone into it, and those kinds of issues requiring intense factual analysis. So, I one, saw that the judge himself placed a lot of time and effort and it comes out in his opinion, discussing those. So, I think in the MAE context for COVID, you can expect that people should be papering their records so that later on, if there’s going to be litigation over this, that they’re able to explain what they did at the time, how they tried to work with the other side to resolve the issues, and ultimately, how they came out. Because those are the issues that ultimately will cause the MAE to trigger or not trigger. I also believe, in terms of the durational significance manner, that is a requirement of MAE, Vice Chancellor Laster placed an intense amount of scrutiny and, ultimately, credibility with respect to the expert that … has put forward. Professor Dan Forchelle from the Chicago school economics who produced significant information showing that, in fact, Akorn’s earnings, post signing, had fallen off a cliff because that was a significant part of the judge’s ruling. So, I think those kinds of experts, people should be thinking about who their expert is going to be and what type of information they are going to be providing the court early on so that when they get to expedited litigation, they’re up and running, ready to go.
Thanks, Ash. So we’ve talked about Akorn and the MAE case, but there are other provisions in, and a definitive agreement that people should be focusing on as where, as well. Those are the ones that you really need to digest and really analyze to figure out if you have termination rights. With that, we’re going to turn to the next slide and Andrew Kratenstein is going to give us a deep dive into those provisions.
Thanks so much, Heidi. So I’m going to talk about breaches of covenants, representations and warranties, as well as financing issues. And what were, what we typically see in litigations over busted deals is a, sort of, kitchen sink approach by whoever is trying to get out of the deal. Where you’re not just asserting an MAE because, as you’ve just heard, that’s such a high standard to meet, you’ll also assert breaches of various other contractual clauses covenants, reps and warranties, etcetera. One of the clauses that we see already getting litigated, and we believe will continue to be litigated in this COVID environment, is the Ordinary Course Operational Covenant. And that’s, as its name suggests, a covenant by which the seller agrees to operate the target company in the ordinary course and may also provide more specific operational covenants. And obviously, given all the changes brought by COVID, including governmental shutdown orders, social distancing, etcetera. As well as just a broader economic impact that COVID is having, we see a number of companies obviously cutting back on their workforces, not being able to fulfill orders or get orders, having to react to government shutdown orders, etcetera. All of which raises the question of whether, is this company now operating in the quote ordinary course? A related clause, that we, that is a typical clause in a M&A agreement is a Reasonable Best Efforts or Commercially Reasonable Efforts Covenant pursuant to which the covenanting party agrees to basically take reasonable steps to solve problems that come up, and to get whatever approvals are required to close the deal, such as governmental approvals, etcetera. And that obviously all gets complicated when, again, you have government mandated lockdowns or manufacturing directors, and other laws and directives that may impact the ability of the buyer to comply with all of that, or the seller. And finally, the Financing Covenants. As the market has significantly turned down, lenders are looking carefully at their agreements to see whether they have to lend or have any ability to get out of the lending should they so choose. So all of these issues are in effect now. And if we can turn to the next slide, which are reps and warranties, there are likewise various reps and warranties that are typically made at signing and then brought down at closing that are implicated concerning the conduct of the target business.
Whether, for example, there’s been any material loss of suppliers, vendors, customers. There are often financial, there are often financial condition covenants, compliance with law covenants, etcetera. All of which, then, have to be brought down at closing. Now, often, the closing bring-down clause has some kind of materiality qualifier, such as a material adverse effect, and that’s what Ash and John were talking about earlier. So, you have the General MAE and then also looking at whether there’s been a breach of any representation or warranty or other obligation in the agreement subject to materiality, and often, MAE qualifier. So you have to look at that also. That’s where the MAE analysis may merge with the breach of rep and warranty or covenant analysis. And then finally, insurance. As you may know, most deals now of any significant size, the parties agree that there will be rapid warranty insurance. Insurers for deals that are in place are unlikely to renegotiate those, but we are already seeing that for new deals. Insurers who are always reacting to the market are inserting a specific COVID-related exclusions. And you also see COVID-related exclusions or clauses being inserted in deals between the buyer and the seller themselves, now that we have it. So, all of these things are going to be impacted, both as to deals that have been done, that are post signing, preclosing and then deals that are being done in the future, or amendments to deals that are pre signing, post-closing.
And Andrew, when you talk about these new COVID provisions, they’re all over the board as to what you see, and what we had strongly recommend is try to make them as narrowly focused as possible. You know, make sure, like, if there’s a COVID exception out, that it’s just not the COVID 19 pandemic. If you’re acting in good faith or you’re taking certain actions, you’re doing everything you can in connection with the, the adversities facing your business, maybe that shouldn’t be an out. If you’re complying with law in the COVID 19 new laws to stay at home orders, maybe that shouldn’t be it out as well. So, there’s a lot of actual negotiation with respect to these carveouts as well.
Absolutely. And we actually want to talk about one of the litigations that, that was recently filed, it was recently filed and settled, so if we can turn to the next slide.
This is the Sycamore-L Brands case that got a lot of press. It involves Victoria Secret. Sycamore agreed to buy or take private L brands, which is the owner of Victoria’s Secret, for $525 million. And between signing and closing, we had the COVID outbreak, which has had such a detrimental impact on retailers. Victoria’s Secret closed its retail stores and furloughed a bunch of employees and had to take various other actions in response to COVID. The buyer argued and tried to get out of the deal, terminated the deal, claiming that L brands was not operating the business in the ordinary course, for all of those reasons, all the steps that it took, and that there was an MAE. And the seller, L brands, countersuit for seeking specific performance, arguing that, in substance, they were doing everything that everybody else, every other retailer was doing. And not only were they doing things that other retailers were doing now, but that also was similar to steps that had been taken in response to prior crises. And they also noted, and this was a unique aspect of this deal, that the seller was actually maintaining some equity in the target. And so, it wouldn’t have made any sense for them to try to sabotage the business. They were actually trying to preserve the business. We did put up on the slide here the MAE clause in this particular case because it’s interesting. First of all, one of the notable things about this clause is that there was a specific exclusion for pandemics, which, the seller with some foresight, had included. And we’re actually, I think, going to see more and more of these pandemic exclusions included, or at least sellers trying to negotiate for them in the wake of COVID. You might start seeing MAE clauses read more like typical force majeure clauses in commercial contracts. And so, that forced the buyer to rely on the first part of the clause that there would be an event or something that prevented the seller from complying with all of its obligations under the contracts. And they focused on the or there, that they were in the disjunctive. And so, that’s what led back to the ordinary course argument, arguing again that well, even if there wasn’t an MAE, and even if the pandemic’s exclusion applies, they still haven’t operated in the ordinary course. I think most commentators, me included, thought that L brands probably had the stronger argument there, given that it was able to show, we thought at least in its counterclaim, pretty convincingly that it was operating as other retailers were doing. Plus, they had the pandemic’s exclusion. But interestingly enough, soon after these lawsuits were filed, countersuits, the case settled without the payment of any termination fee, which, I will confess, is a bit of a head scratcher, and we don’t know exactly what’s going on behind the scenes. But that’s what happened in that particular case. So we won’t know or see how that got litigated, which would have been nice to see, because flipping to the next slide, at least for the development in the law in this area, there’s actually not a lot of law on what constitutes operating in the ordinary course, particularly during extraordinary times such as these.
There is the Cooper Tire case from Delaware, where there was an unqualified, ordinary course clause that meant, one, that just said flatly, you have to operate in the ordinary course. And in an event outside the target’s control the court held might not relieve it of that obligation. Nonetheless, the court really focused on the fact that the target company had actually taken steps and the seller to disrupt the operations of the company. There were labor strikes that a minority owner had apparently fomented, and that was the real focus of the court’s decision in that case. In the Akorn case, there was a commercially reasonable efforts qualifier to the ordinary course covenant, which is a bit unusual. Usually, you see a flat ordinary course covenant, followed by an agreement to use commercially reasonable efforts to do certain things such as maintain good will and other things. Maintain your employees, etcetera. And Akorn, which again, we encourage everyone to read just because it covers so many of these issues, the court there held that the commercially reasonable efforts qualifier softened the obligation a bit, and so that an unexpected event outside the target’s control might relieve the target of its ordinary course obligation. Notwithstanding that, the court found a violation of the ordinary courts covenant because Akorn, which again is a generic pharmaceutical company, had failed to conduct compliance audits, it had failed to contain its data integrity systems, it had falsely reported to the FDA based on bad data. It had failed to adequately investigate whistleblower complaints. All things that were within the seller’s control. And so, it just, it was a really bad set of facts for the seller there. The one area where the court didn’t find a breach was a destruction of a database, which the court found was outside of Akorn’s control. And so that was a relevant fact there. So then that leads, yeah go ahead.
Andrew, we have a question, and it’s one that actually, I have as well. I mean, how can we apply this ordinary course concept in this COVID 19 pandemic? Because we’re all doing non ordinary course things. And the question from the audience is, does, in accordance with past practice provision in the ordinary course, it’s ordinary course consistent with past practice mean you can’t change actions in regards to a pandemic?
I would argue that the answer is no, because, and this actually dovetails perfectly into the next slide, so you can flip it. I think the real inquiry there is going to be what, what has the business done in relation to similar such events? And if the business has a long enough operating history, it’s maybe a little bit easier to conduct this inquiry. So, for example, if you were around in 2008, what did you do in response to that crisis? You would expect, I would say that there’s an overarching rule of reasonableness here. Our courts are going to look to see whether sellers were acting reasonably and prudently in a response to a crisis. You would actually expect a company to do unusual things, things that might otherwise be unusual or extraordinary because what they’re responding to is extraordinary. You wouldn’t expect a company operating with reasonable business judgment to just sit pat and let itself be destroyed, for example, by COVID. You would expect it to do certain things to try to preserve the business, which in regular times would be extraordinary, but in extraordinary times are actually, in some respect ordinary. In other words, what you would reasonably expect to do. And that’s the type of advice we’ve been giving clients who ask us that very question. There’s no guarantee, these issues are still being litigated, but the case is teach, sort of, a rule of reasonableness that I think is very important. And going back to the slide, that’s why it’s important to read your ordinary course clauses. Is there a commercially reasonable efforts modifier or not, that may be relevant. But just as, if not more important, document carefully what you’re doing and why, both internally and if necessary, externally to your counterparty. Are events within your control or not inside your control? Document that. Explain, internally and if necessary, externally so that there’s a record. Why are you doing this? Why are you taking this, what may seem like an extreme step? And also compare that to what you, your own business has done in the past if you’ve had similar extraordinary events, and what others in the industry are doing. And this is, again to, to go back to what Ash said, why it may be important to have experts involved, industry experts. If you’re the buyer and you want to get out of a deal because you think the seller is behaving in an extreme way, you’re going to want to do the opposite. In the sense that you’re going to want to document why this seller is, is taking extreme action that you wouldn’t expect it to take in these circumstances, that’s inconsistent with standard operating procedures, generally, or even in a crisis. And why it’s also outside the norm, importantly, for what other similar businesses are doing in response to the crisis. And that, I think, will help get a court, if, if the, if the target is taking extreme steps like we saw in Akorn or just doing things that strike the court is outrageous and not normal and not reasonable, that’s when the seller is going to get into, into big, big trouble.
And I assume this really also is something for the to focus on with respect to the lenders, because the lenders usually have the commitment agreements or credit facilities, and they’re looking for commercially reasonable efforts as well, with respect to these times.
Absolutely. And let’s, let’s flip to the next slide and we can talk a little bit about financing. And I’ll move through these relatively quickly, but we haven’t seen a lot of deals yet, at least being litigated where lenders are backing out. We do know that lenders are carefully scrutinizing their loan agreements, and they may look to walk. So you need to consider, particularly if you’re a buyer, whether you have any obligation should the seller walk to obtain alternate financing. There are many agreements where the seller has negotiated a clause that absolves it from having to seek alternate financing. In addition, if the buyer and seller are agreeing to modify their deal in some way, particularly extend the closing date, which we see a lot happening now, given just all the delays that are being caused by COVID, you must remember to check your financing. Because the financing agreement will likely have timetables in it. And there’s nothing that requires, necessarily, the lender to go along with your extensions. And so, if you’re going to extend, and you’ve agreed with your counterparty to do that, it’s important to keep the lender in the loop and make sure your financing is going to be there. Otherwise, you may unwittingly give the lender an excuse to walk. If we could flip slides.
So, quickly, the best practices, always review your agreements in circumstances like this to see what the provisions are that give any party an excuse from performing. Most financing agreements don’t contain force majeure clauses like we’re used to in commercial contracts. Although, construction loan agreements often do. Review all the conditions precedent to the financing and document that they’ve been satisfied, if you have to, for example, bring materials in to build a facility and the supply chain has been disrupted. That may give the lender a reason to walk, that may be a condition of the financing. And you need to make sure you’re meeting all of those conditions. And then document your efforts to obtain alternate financing. If you are going to sue the lender because they won’t fund, typically the buyer suing a lender will argue first, seeking to compel the lender to lend. You can’t just get that; you have to show that your damages can’t just be remedied in money. If you’re seeking what’s known as specific performance or an injunction, you have to show, for example, that there’s something unique about the company you’re buying. It’s also helpful if there’s some real estate component to the deal that’s deemed unique. But you have to think about that in terms of your remedies. And then, you’ll often, also, in the alternative, seek damages, and you’ll want to itemize all of your potential damages. For example, if the deal fell through, was there a breakup fee that had to be paid if the lender walked and there’s a, in breach of its loan agreements? Asses all of your damages limitation provisions. Often contracts will preclude a party from obtaining what are known as consequential or exemplary damages. And that’s a whole separate webinar on what the difference is between consequential and direct damages, but you need to study those clauses carefully with your counsel and itemize all the different types of damages that your business is suffering. Are they, can you put a dollar number on those damages or not? And that will affect the type of remedies that you can obtain from a court, which dovetails into the next section of our presentation.
So let’s move to the next slide. We’re going to talk about terminating a deal. Most parties right now, at least the buyers, are saying it’s better at this point that, I just want to deal with this deal at this point, I don’t want to negotiate. I don’t want to kick the can down the road. I just want to terminate. That being said, it’s very difficult to do so. John’s going to walk through some termination issues that arise in litigation.
Thanks, Heidi. So if you’re thinking about terminating in this environment, read the agreement very carefully because it probably imposes certain conditions that you have to meet. Notice requirements, cure periods, all of which were play an Akorn in other cases. Let’s talk a minute, though, about termination fees. If you can prove you have suffered an MAE, then you’re fine. You can terminate, and if you can prove that, you’re not going to owe any breakup fee. But often there will be a termination, or a breakup fee owed by the party who terminates the deal. These are typical provisions. When the buyer must pay a termination fee or breakup fee, we call that a reverse termination fee. And you see that in a lot of agreements. Generally speaking, breakup or termination fees are considered the sole and exclusive remedy that the non-terminating party has against the terminating party. Generally, the terminating party cannot sue for more than the breakup fee, even if that party can prove its damages far exceed the termination. But, beware. There have been several cases in Delaware, who, of course, have in fact allowed the non-terminating party to seek damages above and beyond the breakup fee. And you should keep that in mind if you’re thinking about terminating your deal. These cases, again, turn on specific language in the agreement. So again, you have to look very closely at that. But one good example of this phenomena was a case that came down in 2008. It’s the Hexion Specialty Chemicals case v. Huntsman. And in that case, in short, Hexion was buying Huntsman but got cold feet after Huntsman’s reported lower than expected quarterly earnings. Now, according to the court, Hexion thereafter attempted to manufacture the grounds on which to declare an MAE, which it later did. So, Hexion did sue for declaratory judgment that in terminating, that it’s termination on the grounds of an MAE was valid. But, at most, worst case, even if it wasn’t valid, the most it would owe is the breakup fee that was in the contract. Well, the court did not agree on any count. It ruled, one, no MAE had occurred. Two, that the declaration of an MAE was contrived, not taken in good faith. And one of the things that led to that was they thought the company wasn’t a going concern. And rather than raise those concerns with the other side, their counterparty, they took it onto themselves to hire Duff and Phelps to do an insolvency opinion. And in the end of the day, the court felt that was all done for the purpose of trying to establish a contrived MAE. And as a result, the court said, since you, because of this, you cannot rely upon the breakup fee as your cap. Now, the key to that decision, as any decision, is the language of the agreement. And in that case, there was a carveout to the breakup fee for a knowing an intentional breach of any covenant. The court found that Hexion knowingly and intentionally breached its covenant to use reasonable best efforts, something Andrew was talking about, to close the deal when it manufactured this false MAE defense. Now there’s another case that I’m going to turn over to Ash, he’ll talk about, that turned on different language but came to the same conclusion. Ash?
Thanks, John. You could flip the slide. So, this is a recent case that’s filed in the Court of Chancery in Delaware. We call it GPC versus Essendant, and it’s currently being litigated, so we don’t have the decision yet. I must say I represent two of the banker parties involved in this case, and so, we’re still ongoing. But what was interesting is it also involves Sycamore, which was involved in the L Brands case, who was the buyer there that, that sought to walk away. And Sycamore owns the Staples franchise, or, the Staples business. And what happened in GPC and Essendant is GPC had a deal with Essendant. Sycamore had smelled out the deal earlier, prior to them signing with GPC, but decided not to go for it. And then GPC and Essendant effectuate a merger agreement, in which had a breakup fee that was payable. And there was also an important, very important clause to the court, which was with respect to a non-solicitation clause, where Essendant, after locking up the deal with GPC, was not permitted to go out and solicit the transaction to other potential buyers, which is common and been approved under the Delaware jurors groups. So here, what happened is the GPC was unknowing of this other potential transaction. In come Sycamore, the Essendant party say, hey, it’s a superior offer. We have to terminate the GPC transaction and we have to go forward with the Sycamore deal, which ultimately, they did. And Essendant said okay, the payment that we’re going to make to you, GPC, is the payment of a termination fee, which is somewhere in the vicinity of $13 million dollars, so it’s not insignificant. GPC, however, decides that that was not sufficient and brought suit in the Court of Chancery to say that their damages, in this circumstance, were not limited to the termination fee because there was evidence, according to GPC, that Essendant had breached the non-solicitation clause in the merger agreement. And therefore, their arguments, which are alleged and not decided yet, they were able to seek additional damages based on the fact that the non-solicitation clause may have been breached. It went to a motion to dismiss in front of Vice Chancellor Slights, who determined that enough had been pled to allow GPC to go forward and attempt to prove its claims that, in fact, there could be additional damages based on a potential breach of the non-solicitation clause. So we are seeing it, I think that what’s important about the case and the one, the Hexion decision that John mentioned, is to make sure that the language of the agreement is ironclad with respect to the limits on capped liabilities for the buyers. Because if not, we’re now seeing sellers coming to court or score-in sellers, in the case of GPC, and saying that more was owed. If I could just follow up to this slide. We’ve been getting some good comments from the audience on the issue of timing, with respect to seeking specific performance, or, as a buyer to notice termination, seek declaratory relief. And they’re very good questions about the timing, especially with respect to when there is lenders involved. We’ve seen a bunch of this go on, particularly in April, where clients were coming to us and concerned about, how do I manage the potential litigation when we have lenders who are out there, have their own interests. As the buyers, the buyers have to make sure that they keep their lending in check because that’s a risk that the buyer takes on or else ends up paying a termination fee if they can’t get the financing. And ultimately, if this needs to go in front of a Delaware court, when do you do it? Especially when you have closing dates that are now creeping up on some of these deals, which were then, in April, May and June. And the answer that we often counsel the client on is in this COVID environment, you, whether you’re the buyer or the seller, what you do not want to do is sit back, watch events go forward and allow them to occur, even though you have valid legal arguments where you could march into court and seek additional relief. Because if you let that time expire and then you’re up against a date, and there’s not enough time to get into court, expedited litigation, expedited discovery, which will take months like it did in Akorn. By the time it gets to a judicial resolution subject to appeal, you’ll have waited too long and you will face arguments by your opposition, which, a Delaware judge may very well be sympathetic towards, that you sat on your hands and you waited too long to bring these claims, especially in the COVID environment we’re in. So we’re counseling clients to make sure they give ample time and march into court when the time is ready after the record has been developed and you have the best possible arguments, while allowing very busy judge who’s at home with clerks who are at home, or they’re in court but they’re not able to have public access, allowing those judges have time to digest your issues, to order a, some sort of, emotion to expedition schedule that is viable for you to adjudicate your claims and have that discovery, and ultimately, get through a trial. Which at this point, we don’t know when we’ll be able to have trials in Delaware. But, if we’re, if we’re fortunate the courts will open for a limited public access this summer, we just don’t know yet.
So, Ash are you saying that sellers should be proactive and seeking relief from courts if they think there’s a potential dispute? I mean, I think, isn’t one of the issues is that the buyers spring this on the sellers at the last minute, like a day before the potential closing or the outside date, and the seller doesn’t have time or is not aware that there’s a potential dispute down the road?
And the problem, that’s exactly right, the problem with that if you’re a, if you’re a buyer, if you’re going to wait and spring on your seller that there’s financing concerns which happened and the deco, deco pack litigation has been filed in Delaware involved, involving Kohlberg Kravis, you have to be careful that you’re, what you’re going to get is some sort of a Hexion argument that was raised with front of Vice Chancellor Lamb back in 2008, that the buyer was aware of the issues with respect to financing but was playing games of some sort, whether it’s with respect to timing or with respect to trying to change what that lender was actually going to provide and when they were going to provide it. And what we’re counseling clients is be careful. If you’re going to notice your termination, you should do so when you believe that you have the facts and the record to create it. It may cause litigation from the seller who’s going to go into court and seek specific performance. But also remember, as the buyer, is often times we see buyers march into court after they, soon after they terminate and seek declaratory relief, asking the court to say, to bless what they did as being accurate. So it can go both ways.
And so, I think maybe it would be helpful for a seller in this context to start keeping a record now that they’re doing everything and that the buyer is not indicating that there’s any problems with anything with respect to closing. So, that would be a better record for the court if the if the buyer then does proceed to bring a claim the day before the outside date.
That’s right. So we’re advising our sellers, we’ve represented both, to keep very clear records on discussions that were had between the principles or the employees on the topics as to how this seller is operating in the ordinary course. If you’re the seller, you’re going to be trying to get as many assurances in writing as you can from the buyer, that what you’re doing and how you’re operating a business, whether it’s furloughing employees, closing down retail locations, etcetera. That what you’re doing is countenanced and approved and agreed to by the buyer. That’s hard to come by because the buyer will be advised by equally competent counsel to say, make sure you don’t give those assurances because then you’re agreeing that the seller has not operate—has not breached the ordinary course covenant.
And I’ve asked, I have asked this very question, I think to you and to Andrew. And we can go to the next slide, actually, and we’re talking about like, how, what’s the course of conduct between the parties? Often times in this environment, people are kicking the can. They are extending the outside date. They’re making amendments to their agreements to deal with the COVID 19 crisis. I mean, obviously, that’s sort of a dance because you want to preserve all rights that you have in case you want to have an exit strategy. But then again, if you want the deal down the road, you have to cooperate with the other party and make sure that you’re acting in good faith with respect to the transaction. Ash, what are thoughts on that?
That’s right. And, Heidi, you’ve been a part of some of those deals that we worked on ourselves. What we’re advising the clients, the buyers who say wow, this transaction. We did it because we really thought there was value here. We like this practice we’re going to buy, we like this business we’re going to buy. So we don’t want to lose it. But we surely just don’t know what’s going to happen in the next couple months. Especially back in early April, none of us knew. Maybe we know a little bit better now that we’re approaching it May as to where things will be. So what buyers have wanted to do is agree to extend outside dates via amendments. Negotiate them, show that they’re being reasonable, not become adversarial. But to really, to kick those, those dates down the road. And then, with more time, buyers are able to assess what the business may be or may not be. And at that point, what created a record that they extended the dates. They’ve worked with the seller back and forth to try to see if they can keep the business operating on ordinary course. But ultimately, it’s a bad deal, either way, either the company did suffer an MAE or, ultimately, has stopped operating ordinary course. And as the buyer’s counsel, we jealously protect that and make sure that we have created the record for our buyer to eventually say we’ve tried our best. There’s enough time. We’re going to walk and terminate.
That’s great. So, I think we’re going to move on to the next slide at this point. I don’t know if there’s any more takeaways, Ash, that you want to provide before we move on to discussing the details of going through litigation during the pandemic. But what are your takeaways?
Yeah, so my takeaway is that we still don’t know how the COVID 19 issues will affect the deal. We don’t have decisions from Delaware courts yet. We have a lot of interesting pleadings and creative arguments which are fascinating that the press has been reporting on. But we don’t yet have a judicial determination. And I believe it will be months before we have that, if any case is going to go in front of expedited litigation, just because it takes long enough to have discovery and, ultimately, we’re going to need to be in courtrooms together. The Delaware courts, again, are not open to that public access yet, although, we have seen Zoom hearings. I just think it’s impossible to litigate a case of the scope of the size of an Akorn type matter and bet the company case when you’re on Zoom and you don’t even have live witnesses. So, we need some more time for that to occur, but you certainly can create your record now. And you certainly can amend your deals now if you have that leverage to do so. And we’re telling folks to be careful of the termination rights, the termination fees, excused performance, amendments to agreements and extending your inside/outside date because those are the issues that we’re seeing. But the question is, what arguments will be raised by the buyer or seller if those things occur, and later on a party in litigation says, well, I was assuming that you waived that because you took this action in the amendment. Or, you’re now stopped, legally or equitably stopped from taking that action because I relied to my debt journal when you did. We’re seeing those arguments, which ultimately could play out, but we don’t know yet. But we charge you to, if you are in the grip, in the grass of COVID concerns, get your counsel involved now who can consult you on the strictures of Delaware law, which is a truly contractarian state. Note, we know the judges and how ultimately, you’ll get into a dispute with, with your other side. Want to make sure you have the best predictability as to how that dispute will play out. And as council, we try to create the record for you that will assist in that indenture. And, busy judges right now working from home, clerks working from home, but ultimately still very busy and active. We’re trying to make sure that we’re as responsive to the courts as the courts are being responsive to us.
And that’s a good point. I think, even if right now you think you’re not going to deal with a litigator, I think it’s very helpful to talk to them. One, because they can help you digest your M&A agreement and figure out what rights and obligations that you have under the agreement. They’ve dealt with this environment. It’s new for everyone. So it’s really good to get that further inside as to what to do. And even if you don’t want to terminate the agreement now, you might want to in the future, and it’s a really good idea to keep a good record at this point and get guidelines as to what you should and should not do. So in case you do go to litigation, you are well prepared. With that, let’s turn to the next slide, and Michael Nade from DC is going to talk to us about the nuts and bolts of doing litigation in this environment. Michael?
Thanks, Heidi. So, one thing I’d like to pick up on is Ash’s comment that it’s important, now, to consider developing the record for the litigation that’s coming. And one thing that we’re seeing is that, as a result of the pandemic and the social distancing, whereas previously, a lot of conversations that people might not have wanted to put into email took place in-person at the office. That’s not happening now, and so things we needed to be cautious of before, we need to be much more cautious now. Text conversations, instant message conversations through Jabber and LinkedIn and even Facebook are all taking place, and clients are using this as, sort of, a refuge from email. So people think, oh, well, I can’t put this statement in email, don’t want it to be discovered in litigation. I better put it to text message. That’s something that’s been going on for years. But I think because of the distancing, it’s accelerating. And one thing that’s going to accelerate with it is the end of text messaging being this frontier that we don’t quite know how to handle in litigation. In all of these cases that are developing, people are going to go straight to the text messages. So, clients need to be cautious that everyone, keep in mind that everything they’re doing on all of these applications is creating a record. Now, litigation is going on. For the first few weeks, everyone was in a wait and see stage. But now cases are going forward. Courts are expressing a desire to, at least, act like the cases are going forward. So we’re seeing depositions taking place. We’re seeing hearings taking place with witnesses over Zoom or other technology. The only thing we aren’t really seeing yet is jury trials, and I’ll talk about that. So probably, in all of these cases, the most important part of discovery is going to be the evidence that’s acquired from depositions. That’s true in the cases that were going on pre pandemic as well. And while there were occasionally remote or video depositions before, now we’re seeing it as standard. The way it’s taking place is that it will be a pure Zoom experience. A court reporter actually in one place, taking a stenographic record, a videographer somewhere else, somebody who’s operating as a hot seat operator somewhere else. And what that means is that they’re putting documents up on the screen that the witness can look at. They’re blowing up key portions of contractual provisions. They’re highlighting. And the effect may actually be a video that’s more usable at trial and more compelling than the standard deposition video we were seeing before. Generally, notwithstanding some apprehension by lawyers, these depositions are going fine. But I think what we’ve seen is that there’s always an advantage for somebody, and the advantage in a Zoom deposition lies with the defense. Witnesses tend to be more comfortable, less nervous, and actually better expressing themselves over Zoom than they are sitting in a room full of lawyers. And the counsel taking the deposition has a much harder time actually staring down the witness and drawing out the difficult testimony. So we’ve taken the position, generally, we are happy to defend Zoom depositions, but we don’t want to take Zoom depositions. We want to wait until social distancing requirements relax and we can all get in the same room. We’ve been able to take that position in most of our cases so far, but we have seen many orders where courts are just ordering the depositions to go forward. Under the federal rules of civil procedure, a deposition cannot be taken remotely unless the parties agree to it. And we’ve seen in other cases, lawyers feeling like, well, I guess I have to agree to it. Well, you don’t have to agree to it. So, if you’re planning to take a deposition, my advice would be hold off until you can do it in person. Stick to your guns on that. We’ve seen video hearings. We’ve seen telephonic hearings. The Supreme Court did telephonic arguments. Some of you may have seen the judge’s order out of Florida, where the judge commented that lawyers were showing up for video arguments, not wearing a shirt or in bed under the covers. Obviously, that is to be avoided, but we’re up against lawyers who don’t always follow those restrictions, and we always say that we know what to do when somebody is there who makes a mistake. So, that’s something to keep in mind. The thing that hasn’t started yet are jury trials. I was told by a judge on a hearing two days ago, I don’t think there are going to be any jury trials until 2021. That said, courts are not yet to a point of kicking the jury trials, even for this summer. We’re currently working towards a jury trial set for August 3rd, we have another jury trial in September, another jury trial in October. None of them have been canceled, and all that litigation needs to go forward, given the possibility that it won’t be canceled, or it will somehow take place in a way that we’re not counting on. We also are getting ready for the possibility that when jury trials resume, there may be state orders that require masks to be worn in those jury trials. And the kind of adjustments that need to be made or the possible appellate issues resulting from that, because how can they find, or, in fact, assess the credibility of a person who’s wearing a mask? And then finally, what do we expect from the juries in this new age? Well, what the jury consultants are telling us is that the biggest difference between a jury that you would have had in February and a jury that you can expect to have maybe late in the fall, is that your jury is going to be smarter, better educated, more professional. The reason for that is that jurors who were able to escape jury service before because of their jobs, unfortunately, don’t have those jobs anymore. It’s very stark to put it in those terms, but that’s what we’re hearing. And we’re also hearing that this generally benefits someone, and the person who it benefits is going to be the defendant because defendants better take advantage of the better educated juries. So, this says to us, if you’re a defendant, move things along. You want to try your case now under all these new restrictions. And if you’re a plaintiff, you’re the director of the show. That’s always how it is when you’re a plaintiff and you want to put things off until you can put on the show the way that you want to put it off to get the best result for your client.
And I know that, Ash makes a good point, and I think he will about Delaware being a good place to bring suits because of the Court of Chancery. Ash?
That’s right. Briefly, jury trials will be an issue. And as Mike correctly points out, in Delaware, however, most of our claims that involve MAEs and ordinary course breaches are done in the Court of Chancery, which is a court of equity where there’s seven specially judges, there are no juries, and therefore, one of those seven judges will decide the fate of the lawsuit. I do, right now, have some trials that are scheduled to go forward in May via Zoom. So it is going to happen, but it’ll be a different type of record because you can’t do it with all of those physical people in the room at the same time. So, a lot of it will be on paper record.
Exactly. So, we are coming to the end of our webinar. And I’m doing this rather abruptly because we are actually at the hour mark and I wanted to give the code for New Yorkers. It’s BLUE, all caps, 8 for getting your CLE credit. We also have a lot of Q&A’s. We’ll try to answer some of those right now, and with ones that we don’t answer right now, we will get back to you individually with your responses. We have one question about SEC guidance. Has SEC provided any guidance on these topics? SEC has given a lot of guidance on various aspects of COVID 19, not really on the M&A front. They’ve given it with respect to disclosures and timing of filings with the SEC. So, for example, if you can’t get your … or annual report done on time, they have given you the ability to delay it so it would not be a default under your credit agreement or under your merger and acquisition agreement. There’s also a question with respect to reps and warranty insurance. How are they addressing that in reps and warranty insurance? They are having COVID 19 exclusions, so any kind of insurance that you want to get to claim with respect to COVID 19, it probably will be excluded from your rep and warranty insurance coverage. One to note is that you should negotiate that rep and warranty insurance exclusion coverage language to be a specific and narrow as possible. You don’t want it to say just basically anything related to the COVID 19 pandemic, because that’s too broad. So you want to do it, hopefully, with respect to a non-compliance with laws relating to the COVID 19 pandemic or have some sort of action that you are not complying with, with respect to that. And then, we have another question, and I’m going to give this to Andrew, if that’s okay. Is there a time limit for a buyer to identify a breach of a rep and warranty or covenant? Or can they take a wait and see approach and see what happens?
Well, it depends. If it, if it’s most agreements will have survival periods for reps and warranties. And so, there is an outside date by which you must assert certain breaches of reps and warranties. That may vary based on whether it’s a breach of a so-called fundamental rep and warranty. So, there may be tiered levels in terms of the timing. But so if you’re just going to be suing for damages after closing, the contract usually will say what the time periods are by which you must assert those breaches. But if, if you are going to assert a breach of a rep and warranty and argue that you shouldn’t have to close at all, then you must, i’s critical to go in and make that argument expeditiously, because one of the other factors that courts consider in these cases is whether a party sat on its hands and sprung something, I think as Ash said earlier, at the last minute. You know, you also have a duty, both parties typically have a duty to operate in good faith with each other, and courts don’t like it when it looks like one party saw a problem and kept it a secret until it was advantageous for that party to spring it. So if there’s an issue, you want to create a record of having openly raised and discussed the issue. And then if the issue is not resolved and you want to terminate based on that, your record is much better than if you just sprung it at the last moment.
So, obviously, go on.
I’m just going to say, sometimes you’ll see the inclusion of what they call anti-sandbagging clauses. So if you know that there’s a breach of a rep, you have to speak up or you lose the right to assert the damage claim after the closing. So you’ll see that sometimes.
And if you read Akorn and if you read the GPC case, you will see various permutations of judges not happy with surprises. They’re just not going to buy in this commercially reasonable environment. They’re going to expect that you, when you knew of the problem, that you conferred with your counter party, attempted to work it out before you placed it in the court’s doorstep.
That’s very helpful. Another question we have is specifically really relating to the L brands litigation. And why did L brands surrender an apparently winning position?
That’s a great question. And the short answer is, none of us really know because, as I said, I think most people thought that L brands probably had the stronger position. One speculation I have, and I’m interested in any other panelist speculation, is, as I noted, this was a deal where the seller wasn’t just riding off into the sunset. They were going to own, L brands was going to still own a piece of the of the business after it was sold. So the marriage was not going to totally dissolve after the sale. And it may just be that they decided, look, you know, I don’t want this bad blood here. I don’t want to deal with these guys anymore. I just, there’s a lot going on that’s going to be a distraction from their business. It’s very hard to deal with these litigations, which are huge burn of legal fees, of resource, of expense, of people’s time. And it may be, and this is speculation, that they just didn’t want to deal with that and wanted to get on with their proverbial life. But I’m certainly interested in what others speculate might have occurred there. One thing I do think was, was very, even more so surprising is, and I don’t know whether they tried to do this, is at least negotiate a termination fee. That’s something that I would have expected most sellers to try to negotiate if they were going to walk away. But there wasn’t a termination fee here, which makes it doubly surprising.
My thoughts on that, Andrew, just quickly because we have to go, is having witnessed the Akorn trial and seeing what an intense exercise it is with the topic C suite executives of that, of, of the seller is that they looked at what’s going to happen to them and how much time those C suite executives are going to have to spend on litigating that case in the Court of Chancery and when they’re going to have to do it. And it’s an all hands effort that they decided that it wasn’t worth the distraction. And therefore, it was better to move, move on, move forward without paying those fees, or proceeding those fees in the seller’s case.
We have another question. Basically, it says, it says, prior to this loss of deals started to move towards rep and warranty insurance. Are there any of these issues that might fall under the insurance? When addressing that question, you have to figure out when the insurance was bound. Was it bound at signing of the definitive agreement, or is it going to be bound at closing? If you haven’t closed yet, obviously, the reps and warranty insurance is not an impact. And then oftentimes, the reps and warranty insurance has an interim period which is not covered by the insurance if the event arises during that interim period. So, if you signed an agreement, there’s no breach of a rep at the time of signing. And then, between signing and closing COVID 19 happens, and it causes breaches of reps, which you become aware of during that time period. Unfortunately, under most insurance, reps and warranty insurance provisions, that insurance would not cover that. That would be excluded because you’d have actual knowledge when you close the transaction. I don’t know if any of the panelists have thoughts on that as well, if you’ve been dealing with reps and warranty litigation, insurance litigation with respect to these issues at this point.
They do. They do cover things like this. Again, it’s, it’s difficult, though, whether you’re in a damages environment or you’re trying to not close a deal, right? And so, if there’s a breach of rep and warranty, that’s going to cover, you know, loss, capital L, in the policy, which has a definition which usually is damages associated with the breach of rep and warranty. It may not come into play if, again, you’re trying to terminate a deal. Based on a breach of rep of warranty or covenant, and so there may be a distinction there. But if you’re dealing with damages, then yes, many of these issues may, in fact, be covered by rep and warranty insurance.
So, with that, I’m not sure if we have any other questions to handle right now. I want to thank everyone for coming and listening to us. If you have any other questions after this, please reach out to any of the panelists. We’d love to get your feedback on this presentation. And I think the biggest takeaways from this is that even if you don’t think you want to enter into any kind of litigation or disputes, it’s helpful to talk to your litigation attorneys at this point. Because this is a new environment. The provisions should be scrutinized with the thought that you might have to deal with litigation in the future. We’re all dealing with unknowns right now, so that’s the biggest take away I have from my experiences in the last couple of months, with respect to my M&A deals. Talk to your litigators, review your agreements and figure out your rights and obligations. With that, thank you very much. We appreciate you attending.