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1980s and the Year 2000 representations that were commonly sought by buyers in the late1990s. See Section 3.26.Considerations When Drafting “Adverse Effect” Language in Representations: Theimportance of the specific wording of the Seller’s representations cannot be emphasized toomuch because they provide the foundation for both the Buyer’s “walk rights” in Section 7.1and the Buyer’s indemnification rights in Section 11.2.Consider, for example, the following simplified version of the litigationrepresentation: “There is no lawsuit pending against Seller that will have an adverse effect onSeller.” The phrase “that will have an adverse effect on Seller” clearly provides adequateprotection to the Buyer in the context of a post-closing indemnification claim against theSeller and the Shareholders. If there is a previously undisclosed lawsuit against the Sellerthat has an adverse effect on the Seller (because, for example, a judgment is ultimatelyrendered against the Seller in the lawsuit), the Buyer will be able to recover damages fromthe and the Seller and the Shareholders because of the breach of the litigation representation(see subsection 11.2(a)). However, the quoted phrase may not adequately protect the Buyerif the Buyer is seeking to terminate the acquisition because of the lawsuit. To terminate theacquisition (without incurring any liability to the Seller), the Buyer will have to demonstrate,on the scheduled closing date, that the lawsuit “will have an adverse effect on Seller” (seeSection 7.1). The buyer may find it difficult to make this showing, especially if there isdoubt about the ultimate outcome of the lawsuit.To address this problem, a Buyer might be tempted to reword the litigationrepresentation so that it covers lawsuits that “could reasonably be expected to have” anadverse effect on the seller (as distinguished from lawsuits that definitely “will” have such aneffect). However, while this change in wording clearly expands the scope of the Buyer’s“walk rights,” it may actually limit the buyer’s indemnification rights, because even if thelawsuit ultimately has an adverse effect on the seller, the seller and its shareholders may beable to avoid liability to the buyer by showing that, as of the closing date, it wasunreasonable to expect that the lawsuit would have such an effect.To protect both its indemnification rights and its “walk rights” in the context ofundisclosed litigation, the buyer may propose that the litigation representation be rewordedto cover any lawsuit “that may have an adverse effect” on the Seller (see Section 3.15(a)). Ifa seller objects to the breadth of this language, the buyer may propose, as a compromise, thatthe litigation representation be reworded to cover lawsuits “that will, or that could reasonablybe expected to,” have an adverse effect on the seller.Considerations When Drafting Representations Incorporating Specific Time Periods:Representations that focus on specific time periods require careful drafting because of the“bring down” clause in Section 7.1 (the clause stating that the Seller’s representations mustbe accurate as of the closing date as if made on the closing date). For example, consider therepresentation in Section 3.17(a)(iii), which states that the Seller has not received notice ofany alleged legal violation “since” a specified date. Absent a cut-off date, this would requiredisclosure of all violations since the organization of the Seller. In some acquisitionagreements, this representation is worded differently, stating that no notice of an allegedviolation has been received at any time during a specified time period (such as a five-yearperiod) “prior to the date of this agreement.” If the representation were drafted in thismanner, the Buyer would not have a “walk right” if the Seller received notice of a significantalleged violation between the signing date and the closing date — the representation would3148166v1- 70 -