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Materiality Qualification in Section 7.1(a). Section 7.1(a) allows the Buyer to refuseto complete the acquisition only if there are material inaccuracies in the Seller’srepresentations. A materiality qualification is needed in Section 7.1 because most of theSeller’s representations do not contain any such qualification. The materiality qualificationin Section 7.1(a) prevents the Buyer from using a trivial breach of the Seller’srepresentations as an excuse for terminating the acquisition.Subsection 7.1(a) provides that the materiality of any inaccuracies in the Seller’srepresentations is to be measured both by considering each of the representations on anindividual basis and by considering all of the representations on a collective basis.Accordingly, even though there may be no individual representation that is materiallyinaccurate when considered alone, the Buyer will be able to terminate the acquisition ifseveral different representations contain immaterial inaccuracies that, considered together,reach the overall materiality threshold.The materiality qualification in Section 7.1 can be expressed in different ways. Insome acquisition agreements, the materiality qualification is expressed as a specific dollaramount, which operates as a cumulative “basket” akin to the indemnification “basket” inSection 11.5.Absence of Materiality Qualification in Section 7.1(b). A few of the Seller’srepresentations (such as the “no material adverse change” representation in Section 3.15 andthe “disclosure” representation in Section 3.33) already contain express materialityqualifications. It is appropriate to require that these representations be accurate “in allrespects” (rather than merely “in all material respects”) in order to avoid “double materiality”problems. Section 7.1(b), which does not contain a materiality qualification, accomplishesthis result. Section 3.4 is included because GAAP contains its own materiality standards.For a further discussion of “double materiality” issues, see Freund, Anatomy of a Merger35-36, 245-46 (1975), and Kling & Nugent Simon, Negotiated Acquisitions of Companies,Subsidiaries and Divisions § 14.02[3] (1999).In addition, some of the Seller’s representations that do not contain expressmateriality qualifications may be so fundamental that the Buyer will want to retain the abilityto terminate the acquisition if they are inaccurate in any respect. Consider, for example, theSeller’s representations in Section 3.2(a), which state that the acquisition agreementconstitutes the legal, valid and binding obligation of Seller and the Shareholders, enforceableagainst them, that the Seller has the absolute and unrestricted right, power, authority andcapacity to execute and deliver the acquisition agreement, and that the Shareholders have allrequisite legal capacity to enter into the agreement and to perform their respectiveobligations thereunder. To avoid a dispute about the meaning of the term “material” in such asituation, the Buyer may seek to include the representations in Section 3.2(a) (and otherfundamental representations made by the Seller) among the representations that must beaccurate in all respects pursuant to Section 7.1(b).To the extent that there is no materiality qualification in the representationsidentified in Section 7.1(b), a court might establish its own materiality standard to prevent abuyer from terminating the acquisition because of a trivial inaccuracy in one of thoserepresentations. See Business Acquisitions ch. 31, n.24 (Herz & Baller eds., 2d ed. 1981).Time as of Which Accuracy of Representations Is Determined. The first clause inSection 7.1(a) focuses on the accuracy of the Seller’s representations on the date of the3148166v1- 126 -