Burnett: Another thing that that I’ve begun to see is Brexit is that being excluded from the scope of material adverse effect (MAE) provisions. This would most commonly be a pro-seller/pro-target request. They’re saying, “We know the risks and we’ve already taken them into account.” Sample exclusion language:
Provided, however, that no event, development, change, effect or occurrence resulting from or arising out of any of the following shall be deemed to constitute, or shall be taken into account in determining whether there has been or would reasonably be expected to be, a “Material Adverse Effect”: (x) any actual or potential break-up of any existing political or economic union within any country or countries or any actual potential exist by any country or countries from, or suspension or termination of its or their membership in, any such political or economic union (including, for the avoidance of doubt, “Brexit”).
Twomey: The #MeToo movement has also seen new representations, such as sellers having to represent the absence of settlements or allegations of any sexual harassment or hostile work environment. And then we are also seeing MAE qualifiers expand. I think as new issues come in that generally affect companies, they are finding their way into MAE qualification definitions.
Burnett: I have looked at a large number of publicly filed M&A contracts that contain these #MeToo reps and warranties. I’ll refer to them as “#MeToo reps.” They have also been referred to as “Weinstein provisions” in the market. These provisions are generally in the section of the contract dealing with labor and employment representations and warranties. They’re usually made by the target, but they can be made reciprocally by both sides.
In the contracts I looked at, five years was the most common lookback period and most of them had a knowledge qualifier. Here’s a sample based on a rep that was included in a mega deal:
To [target/seller]’s knowledge, in the last five (5) years, (i) no allegations of sexual harassment have been made against any employee at the level of vice President or above, and (ii) neither the [target/seller] nor any of the [target/seller] Subsidiaries have entered into any settlement agreements related to allegations of sexual harassment or misconduct by any employee at the level of Vice President or above.
[Download Bloomberg Law 2020 – Transactions to get a first look at the market-shaping issues our analysts will be following in the new year.]