This is a summary of the Hotshot course “Materiality Scrapes: Drafting,” a look at typical materiality scrape provisions, featuring drafting tips and perspectives. View the course here.
Drafting Materiality Scrapes
- An example of a typical double materiality scrape says:
[For purposes of indemnification], including for determining whether a breach has occurred and for determining Losses, the representations and warranties of Target shall not be deemed qualified by any references to materiality or to Material Adverse Effect.
- The language isn’t limited to just the calculation of losses or to determining whether a breach has occurred.
- It covers both, so it’s a double materiality scrape.
- An example of a typical damages scrape states:
For the sole purpose of determining Losses (and not for determining whether or not any breaches of representations or warranties have occurred), the representations and warranties of Target shall not be deemed qualified by any references to materiality or to Material Adverse Effect.
- It’s the words “for the sole purpose of determining Losses” that make it a damages scrape.You may also see the parenthetical, “(and not for determining whether or not any breaches of representations or warranties have occurred),” which reinforces that there’s no breach scrape in the provision.
- Scrape provisions may relate to covenants as well as to reps and warranties, but that’s less common.
The rest of the video includes interviews with ABA M&A Committee members Rita-Anne O’Neill from Sullivan & Cromwell LLP and Craig Menden from Willkie Farr & Gallagher LLP.
