September Edition 2020

52 continue in order to declare a material adverse change, whether the adverse impact on a target is disproportionate to that of other companies in the target’s industry, and whether such threshold is subject to exclusions specific to the target’s business. Closing Conditions and Operating Covenants – The closing conditions should allocate responsibility among the parties for cleaning up any actions taken by the target in response to COVID-19 (e.g., furloughing employees or delaying accounts payable). Covenants requiring the target to operate in the ordinary course of business consistent with past practices between signing and closing may need to be modified, and disclosures related to any material changes to the target’s business due to COVD-19 should be closely evaluated and specifically-tailored to its business. Bringdown of Representations – Sellers and buyers should have an increased focus on confirming that representations and warranties are true as of signing and the closing, and making sure to address any issues or inconsistencies that arise between signing and closing. Potential buyers may want to have more leverage to walk away from a deal in the event there is a change in representations and warranties made at the time of signing that are no longer true at closing. Termination Rights – If negotiating an “outside date” in a definitive agreement, on which an agreement terminates if the transaction has not been consummated by such date, the parties should take into account any delays that could occur from a more extensive due diligence process and acquisition financing process, and additional possible delays that could occur in connectionwith seeking governmental, regulatory and third party approvals. Parties may want to consider building in automatic extensions of the outside date under certain circumstances. Strong Representations – Parties should ensure that the target’s representations cover all business risks and regulatory risks; specifically, increased representations around the target’s supply chain, business continuity plans, cyber security infrastructure, employment matters and general compliance with laws—and the inclusion of non-reliance language— should be considered. 2. Risk Allocation