Materiality Scrape Clause

What It Does

For in-house counsel, the practical question is which inaccuracies can become claims and how much the buyer can recover.

• Removes specified materiality hurdles from the breach analysis when the scrape covers that stage.

• Expands the loss calculation after an established breach when the scrape covers damages.

• Allows otherwise eligible smaller losses to count toward an indemnity basket, subject to any separate claim threshold.

• Changes the disclosure review by requiring the team to test covered representations as the scrape makes them operate.

• Preserves the need to prove a covered breach and resulting loss, then apply the remaining recovery limits.

A practical test: take an undisclosed issue that falls below a representation's materiality threshold. A damages-only scrape leaves that threshold intact, so the issue alone may establish no breach. A double scrape may change that result. The buyer must still establish an indemnifiable loss and satisfy the applicable basket. The ABA/Hotshot explanation walks through this distinction.

In JanCo, LLC v. ISS Facility Services, Inc., the Delaware Superior Court inserted the MAE definition before applying the scrape to an absence-of-changes representation. That broadened the representation, but the buyer still failed to establish recoverable damages tied to the breach. The decision reflects the agreement and evidence before that court. Read the primary opinion alongside Mayer Brown's analysis, which identifies questions about the treatment of exclusions embedded in the MAE definition.

Examples

Navitas Semiconductor Corporation, Gemini Acquisition LLC, GeneSiC Semiconductor Inc., Ranbir Singh, The Ranbir Singh Irrevocable Trust dated February 4, 2022, and Ranbir Singh as Stockholder Representative

Agreement and Plan of MergerBuyer-favorable double scrape with carve-outsMutual2022

when determining whether a representation or warranty is inaccurate or has been breached

Source

Amedisys Holding, L.L.C., Amedisys Commodore, L.L.C., Contessa Health, Inc., Shareholder Representative Services LLC, and Amedisys, Inc. solely for Section 10.17

Agreement and Plan of MergerBuyer-favorable double scrape with carve-outsOne-Sided2021

“Material Adverse Effect” and other qualifications of similar import or effect shall be disregarded

Source

Cree, Inc., Alan J. Ruud, Christopher A. Ruud individually and as Seller Representative, Susan B. Ruud-Stover, Cynthia A. Ruud-Johnson, Theodore O. Sokoly, JZC Legacy Trust, AJR Legacy Trust, Susan B. Ruud Stover Family Endowment Trust, and Susan B. Ruud Stover Living Trust

Stock Purchase AgreementSeller-favorable damages-only scrapeMutual2011

the terms “material,” “materiality,” and “material adverse effect” will be disregarded

Source

General R.V. Center, Inc., LDL of Fort Pierce, LLC, Lazydays RV of Longmont, LLC, Lazydays RV of Phoenix, LLC, and Lazydays Holdings, Inc.

Asset Purchase AgreementSeller-favorable damages-only scrapeMutual2025

shall be determined without regard to any materiality, Material Adverse Effect

Source

PTC Inc. and Rockwell Automation, Inc.

Securities Purchase AgreementMutual double scrape with exceptionMutual2018

and (ii) the amount of Indemnified Liabilities arising from such breach or failure

Source

GlobalTech Corporation, 123 Investments Limited, and the Shareholders of 123 Investments Limited

Share Exchange AgreementMutual double scrape preserving specific monetary thresholdsMutual2025

the amount of Loss resulting from any such breach

Source

Negotiate

Buyer Positions:

Seek a clear path from an inaccurate representation to recovery for the resulting loss.

• Ask for a double scrape when your position requires disregarding specified qualifiers at both the breach and loss stages.
• Identify the covered representations and parties, then decide separately whether any covenants need the same treatment.
• Negotiate the basket and any minimum claim threshold together so eligible smaller claims receive the treatment you intend.
• Test each proposed carve-out against the representation it preserves, including financial statements and absence of changes.
• Compare contractual indemnity with the R&W policy so any difference in scrape scope or available recovery is deliberate.

Seller Positions:

Preserve the thresholds and exceptions that reflect the disclosure work and risk you can accept.

• Seek a damages-only scrape if you need materiality to remain part of the breach test.
• Preserve agreed treatment for material contracts, financial statements, and absence-of-changes representations through specific exceptions.
• Review the full MAE definition, including embedded exclusions, and agree on what survives the scrape.
• Negotiate the basket, cap, and survival period against the potential claims created by the scrape, with clear treatment of fraud and other exceptions.
• Recheck the disclosure schedules against the final scrape and keep closing-condition standards separate from indemnity standards.

Use Playbooks to apply your team's approved review positions to the agreement. Have counsel check the identified provisions against the definitions, schedules, and insurance terms, then use GC AI for Word to review proposed redlines in the document. Record the agreed exceptions for the deal team and incorporate approved positions into future reviews.

Red Flags

• The provision uses a label such as single scrape without specifying whether it affects breach, losses, or both.

• The review treats a materiality scrape as removing knowledge qualifiers or resolving the separate effect of buyer knowledge.

• The scrape reaches an MAE definition or disclosure category without clear treatment of embedded exclusions and express carve-outs.

• The indemnity analysis assumes the same scrape governs bringdown conditions or the buyer's obligation to close.

• The recovery analysis skips the basket, minimum claim threshold, cap, survival period, or insurance policy, or assumes breach alone proves damages.