Reference no: EM132997521

Material Adverse Change

Assume you represent The Literary Figures, Inc., in an acquisition transaction. Literary Figures is purchasing all of the stock of Shakespeare, Inc. Both companies are in the business of editing and publishing. The transaction agreement contains a material adverse change clause, as stated below:

The obligations of the Buyer to complete the transaction are subject to the satisfaction (or waiver) of the following conditions: . . . . since the date of signing the agreement, there must not have been any Material Adverse Change.

For purposes of this agreement, a Material Adverse Change is defined as "any event, occurrence, or development of a state of circumstances or facts, which has had, or reasonably could be expected to have, a material adverse effect on the condition (financial or otherwise), business, assets, liabilities or results of operation of Shakespeare, Inc., or any of its subsidiaries.

Before the closing occurs, Hemingway, another company, sues Shakespeare, Inc. for copyright infringement. Does either party face any liability if it walks away from the deal?