Material Adverse Change Definitions

Summary

Concepts of "material adverse change" or "material adverse effect" are frequently used in acquisition agreements for a number of purposes. These purposes may include: (1) facilitating the making of representations and warranties as to the absence of specified impairments to the object of the proposed transaction; (2) establishing a standard of materiality by which individual representations and warranties of a party are qualified in order to exclude the effects of less significant matters; and (3) establishing the degree of impairment to the object of the proposed transaction that would excuse a party from proceeding with the transaction. Due to the significant impact that these concepts can have on the manner in which consummation risks are allocated between the agreement parties, both of the definitions that encompass these concepts and the specific manner in which these concepts are used throughout the acquisition agreement warrant careful consideration.