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Saying “never mind” in the middle of a transaction is never easy. When Synopsys Inc. said it to Monolithic System Technology Inc., canceling its planned $400 million acquisition, Monolithic took it to court. M&A lawyers say trials over busted deals are rare, and some hoped this case might clear up what constitutes good cause for backing out of a deal. So, lots of lawyers were watching when the two sides started trial earlier this month in the Delaware Court of Chancery. After three days, though, Monolithic agreed to dismiss the suit with prejudice. It will keep a $10 million “breakup” fee, and each side will bear its own legal fees. The outcome for the two publicly traded designers of semiconductor software left observers disappointed. “To the extent that the suit was going to give clarity on the ability of the purchaser to walk,” said Morrison & Foerster corporate partner Robert Townsend, “it would have been very helpful.” Deal agreements routinely include clauses covering the possibility of one partner pulling out. But suits are rare because the stakes are so high. “It’s like breaking up a wedding at the altar when guests are present. It’s very unpleasant,” said Fenwick & West litigator David Lisi. “No one wants to do it.” That’s been especially true for acquirers in the past few years. In a 2001 Delaware case, Tyson Foods Inc. was forced to honor its commitment to acquire beef processor IBP Inc. for $3.2 billion. A ruling on the Synopsys case, Townsend said, could have “shed further light on the interpretation of the ‘material adverse effect’ clause after IBP, which set a very high bar for purchasers’ ability to walk.” Mountain View, Calif.-based Synopsys struck a deal Feb. 23 to acquire Sunnyvale-based Monolithic, but pulled out April 16, shortly before the transaction was to close. Among other things, the company cited a March 3 patent infringement suit brought against Monolithic by UniRAM Technology Inc. Monolithic sued to enforce the merger agreement. It was represented by Bingham McCutchen partner William Bates III at the trial that began July 6. A lawyer for Synopsys, Cooley Godward partner John Dwyer, said the contract included a “material adverse effect” clause that allowed the buyer to pay a $10 million breakup fee to end the deal if circumstances arose that were believed to be detrimental to its interests. More often, deal lawyers say, breakup clauses call for the target to pay the acquirer. “They sued us, so they had the burden of showing we improperly terminated [the deal],” said Dwyer, whose team was led by Cooley Chairman and CEO Stephen Neal. Bates declined to comment on the specifics of the case. “The parties agreed not to talk about the settlement beyond the press release,” he said. Bates added that the outcome left questions about terminators’ rights unanswered. “The area has really only that first chapter written — the Tyson-IBP story. People are still waiting because nothing precedential came out of our case because we settled.”

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