Page 378 - מיזוגים ורכישות - פרופ' אהוד קמר תשפב

Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate
Acquisitions

By James Freund
pp. 242-248 excerpts (1975)

7.3. Every Seller’s Favorite Caveats

There are two recurrent themes sounded by every seller’s attorney who ever
negotiated the representations article of an acquisition agreement. One is materiality
and the other is knowledge. Some bitter pitched battles have been fought over these
innocuous-sounding concepts, to which we now turn.

7.3.1. Materiality is in the Eye of the Beholder

First, materiality. The seller’s attorney argues that he should only be required to
list material contracts, not every insignificant commitment. He wants the representation
to read that the seller has no material liabilities other than those set forth on the balance
sheet; or that the seller is not a party to any material litigation, except as set forth in the
disclosure schedule; and so forth. A typical colloquy on the subject runs as follows:

Seller’s Attorney: "I would like the word ‘material’ inserted ahead [off-handedly]
of the word ‘litigation’ in paragraph 3(h)."

Purchaser’s Attorney: "No dice, Harry. I want to know about all your [with a
knowing smile] litigation; then I’ll decide what is material and what isn’t."

Seller’s Attorney: "Look, Joe, in the ordinary course of business [feigning irritation]
we have a bundle of small litigation, penny ante stuff. It’s handled by twenty-five
different lawyers, all over the country. I’m not sure we could even compile a list of every
matter."

Purchaser’s Attorney: "Anyway, Harry, what is the test of materiality? Sure, you
have a big company here, but if there’s a multiplicity of litigation, it might have
significance in the aggregate — and perhaps it will educate us on some risks in your
business — and maybe some of it involves basic principles, although miniscule dollars. So
I want to know all about it."

Seller’s Attorney: "Come on, Joe, you’re going to make this deal for the same price
whether you have all these details or not. And I don’t want you tracking down the seller

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