A materiality scrape is a contract clause that disregards materiality qualifiers in representations and warranties when calculating damages or determining indemnification thresholds. This ensures that all breaches, regardless of their impact, can be considered in assessing liability or indemnification.
For purposes of this Article 9, any breach or inaccuracy of any representation or warranty or Damages calculated in respect of such breach or inaccuracy of any representation or warranty shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty (the "Materiality Scrape"), provided, however, that the Materiality Scrape will not apply to the representations and warranties set out in Section 3.2(u) (Financial Statements and Financial Controls) to the extent materiality qualifiers are contained in ASPE, the definition of Material Contracts in Section 3.2(y) (Contracts) or Section 3.2(w) (Material Adverse Change), nor will the Materiality Scrape affect the materiality qualifications or limitations applicable to the conditions set out in Sections 6.2(a) and 6.4(a). The amount of the Damages suffered by Purchaser shall be reduced to the extent of any Tax benefit available to Purchaser arising in connection with the accrual, incurrence or payment of any such Damages (including the net present value of any Tax benefit arising in subsequent taxable years). The amount of the Damages suffered by Purchaser shall include the net present value of any net Tax cost incurred by the Purchaser arising from the receipt of indemnity payments under this Agreement.
For purposes of determining both (1) whether the Company, the Seller Representative or any Security Holders, as applicable, has breached any of its representations and warranties or covenants or agreements herein, and (2) the amount of Losses suffered or incurred by any Buyer Indemnitee by reason of such breach, qualifications therein referring to “material”, “in all material respects”, “Material Adverse Effect” and other qualifications of similar import or effect shall be disregarded (the “Materiality Scrape”); provided, however, that if Buyer did not have a basis for a Fraud claim under this Article IX prior to the Materiality Scrape, application of the Materiality Scrape shall not result in Buyer having a basis to bring a Fraud claim after such application. The Materiality Scrape (i) shall not apply to the representations contained in Sections 4.7(b), 4.18(a), and the first sentence of Section 4.24, and (ii) shall not apply to references to “Material Contracts” and will be disregarded in the definition of “Company Material Adverse Effect”.
Notwithstanding anything to the contrary contained elsewhere in this Agreement, solely for purposes of this Article 6 if any representation or warranty contained in Article III or in any certification delivered by a Selling Party pursuant hereto or referred to herein is limited or qualified based on materiality, including the terms “material”, “materiality” or “Material Adverse Effect”, or similar qualifications (the “Materiality Scrape”), such limitation or qualification shall in all respects be ignored and given no effect for purposes of determining whether any breach of any such representation or warranty has occurred and the amount of Losses resulting from any breach of any such representation or warranty.
Materiality Qualifiers. For purposes of calculating the amount of any Losses resulting from a breach of any representation or warranty of this Agreement, and for purposes of determining whether any such breach has occurred, all limitations and qualifications relating to “materiality” or “Company Material Adverse Effect” contained in any representation or warranty of the Company contained in this Agreement shall be disregarded, other than with respect to the Materiality Scrape Exceptions. For the purposes of this Article IX, “Materiality Scrape Exceptions” means any definitions in this Agreement that include in the defined term the word(s) “material” or “Material Adverse Effect” (which specifically includes the defined terms “Company Material Adverse Effect” and “Material Contract” but specifically excludes, for the avoidance of doubt, the defined term “Hazardous Materials”). For the avoidance of doubt, the terms of this Section 9.4(e) will not apply to the determination of the satisfaction of the closing conditions in Article VI (Conditions to Closing) of this Agreement relating to the accuracy of representations and warranties, which will be governed by Section 6.2(a) and Section 6.3(a), respectively.
Materiality Scrape. For purposes of this Article VIII, any inaccuracy in or breach of any representation or warranty and the amount of any Losses in connection therewith shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty.
Materiality Scrape. For the purposes of determining (a) whether any breach of any representation or warranty contained in this Agreement has occurred and (b) the amount of Losses resulting from any such breach, the determination shall, other than in the case of Fundamental R&Ws, in each case, be made without references to the terms “material”, “materiality”, “Material Adverse Effect”, “material adverse effect” or other similar qualifications as to materiality contained in any such representation or warranty.
Materiality Scrape. For purposes of Section 7.1(a), in determining whether there has been a breach of any representation or warranty, and for purposes of calculating any Damages pursuant to Section 7.1(a), all qualifications in a representation or warranty referencing the terms “material,” “materiality,” “Material Adverse Effect” or other terms of similar import or effect with respect to materiality shall be disregarded (other than, for the avoidance of doubt, any specific dollar amount thresholds), except for the definition of “Material Contract”.
Materiality Scrape. For purposes of the indemnification obligations under this ARTICLE 6, including for purposes of both determining whether there has been an inaccuracy, misrepresentation or breach and for determining the amount of Losses resulting therefrom, the representations and warranties set forth in ARTICLE 5 of this Equity Restructuring Agreement that are qualified as to “material,” “materiality,” “material respects,” or words of similar import or effect shall be deemed to have been made without any such qualification. For the avoidance of doubt, nothing in this Section 6.06 shall be deemed or interpreted in any way to alter any representation and warranty for purposes of determining the existence of a Party’s Fraud or willful or intentional misconduct.
Knowledge and Materiality Scrape. For purposes of the indemnity contained in Section 4.7(a), all qualifications and limitations set forth in the parties’ representations and warranties as to “Company’s Knowledge,” “materiality,” “Material Adverse Effect” and words of similar import shall be disregarded in determining whether there shall have been any inaccuracy in or breach of any representations and warranties in this Agreement and the Losses arising therefrom.
A materiality scrape is a provision in transactional agreements, particularly in mergers and acquisitions, which removes the qualifier of materiality from the representations and warranties. This means that in assessing whether a breach has occurred for indemnification purposes, the significance or material impact of the issue is disregarded. Essentially, it allows every breach, regardless of materiality, to be actionable.
A materiality scrape should be used when both parties in a transaction want to ensure that any breach of representation or warranty is considered for indemnification without the filter of materiality. It is particularly useful when the buyer wants to ensure that they are compensated for even minor breaches that, when aggregated, may have a significant impact.
When drafting a materiality scrape, it is important to explicitly state that materiality qualifiers in the representations and warranties will be disregarded for specific purposes, usually for determining indemnification and survival. Below is an example of a materiality scrape clause:
“For purposes of determining whether a breach of any representation or warranty has occurred, and for calculating the amount of any Losses resulting therefrom, any materiality, Material Adverse Effect (or similar qualifications) contained in such representations and warranties shall be disregarded.”
Materiality scrapes are typically found in the following types of contracts:
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