Docket Entries Since Last Update
NOTE: This court's RSS feed does not list MOTION entries, so Bloomberg Law cannot detect them and thus they will not be listed here. However, motions will be included if you update the docket.
Editor's Note: This Covid-19 (novel coronavirus) pandemic exclusion may be inserted into the definition of material adverse effect (MAE) in a mergers and acquisitions (M&A) contract in order to clarify that the parties do not intend for such an event to qualify as an MAE. The parties may opt to keep the exclusion specific by including the name of the disease as done in the sample language below or keep it more general by covering pandemics without naming any specific diseases. In that case the parties would delete the reference to Covid-19.
[Contract's MAE definition…]; provided that no event, circumstance, development, change, occurrence or effect to the extent resulting from, arising out of, or relating to any of the following shall be deemed to constitute, or shall be taken into account in determining whether there has been, a [Company/Parent] Material Adverse Effect, or whether a [Company/Parent] Material Adverse Effect would reasonably be expected to occur: any […] epidemic, pandemic or disease outbreak (including the Covid-19 virus).
Comment: The purpose of this language is to exclude the Covid-19 pandemic from the definition of a Material Adverse Effect in an M&A contract. It may also be adapted for inclusion in a material adverse change (MAC) clause. In most deal agreements there is a list of circumstances or events that are deemed excluded from the MAE definition; to the extent that such a list of exclusions already exists a portion of the language above would be added to the list so as to exclude the pandemic. The language above is based on a version of the exclusion included in some very large public M&A deals as part of an emerging drafting trend. The language above is typically included with the exclusions covering acts of God, natural disasters, and war.
Comment: In addition, the parties may opt to add the following language to their MAE provisions in order to limit the exclusion. The limitation provides that if either party experiences a “disproportionate adverse effect” as a result of the pandemic, the exclusion may not apply, meaning that the other party may be able to claim an MAE has occurred:
“except to the extent that any such event, circumstance, development, change, occurrence or effect has a disproportionate adverse effect on [Company/Parent] and its Subsidiaries, taken as a whole, relative to the adverse effect such event, circumstance, development, change, occurrence or effect has on other companies operating in the [Name] industry or the other industries in which the [Company/Parent] or any of its Subsidiaries materially engages.”
⇒ Pro Seller/Pro Target. An MAE clause can serve more than one purpose in an M&A contract, for example (1) to qualify representations and warranties and (2) to create a condition precedent to closing in certain deals in which signing and closing are not simultaneous. The latter, sometimes called a No-MAE condition precedent, conditions the buyer's obligation to close on the requirement that no MAE, as defined in the agreement, has occurred between signing and closing. Generally, a narrower definition of MAE is more desirable and advantageous for a seller or target in an M&A deal because, in the context of representations and warranties, a narrower MAE reduces the risk of a dispute about whether the seller failed to disclose an MAE, and, in the context of a “bring down” of the representations and warranties and/or a No-MAE condition precedent, limits the situations in which the acquirer is able to walk away from a deal. (A bring-down of the representations and warranties, normally at closing, occurs when the parties update each other on any developments that are required to be disclosed.)
The use of exclusions to the MAE clause, such as this pandemic exclusion, is most commonly a pro-seller/pro-target request.
Example Clause Search: For additional precedents, access the Bloomberg Law Transactional Database of M&A Agreements containing pandemic material adverse effect exclusion clauses.
Value/Risk Analysis: A Covid-19 pandemic exclusion is an decision by the parties that a pandemic is a well-known risk (or in any event a risk that the parties have agreed to undertake) and should have already been factored into the terms of the deal, including the deal price. As such, it tends to increase deal certainty. The value of the clause is not only in the protections offered by the exception itself but also in the exercise of assessing pandemic-related risks during the contract negotiation phase of a deal. The risk of not excluding pandemic from the MAE scope is that, unless other MAE language arguably excludes the event, the acquirer could potentially raise pandemic-related MAE claims against the seller/target.
Affected Clauses: Potentially impacted clauses are: Closing, Representations & Warranties; Absence of Certain Changes or Events; No Material Adverse Effect, Conditions Precedent, Closing Conditions.