The passage of time alone is often presumed evidence of facts that are otherwise unknown; the uninterrupted enjoyment of certain rights for twenty or twenty-one years is proof that the party enjoying them is legally entitled to them; After such a period, the law presupposes the payment of an obligation or other specialty. In the context of U.S. corporate and securities law, a fact is defined as material when there is a high probability that a reasonable shareholder will consider it important to decide how to reconcile their shares or invest their money. [4] In this respect, it is similar to the accounting concept of the same name. Evidence is said to be essential if it has a logical connection with a fact relevant to the outcome of a case. Materiality, along with probative value, is one of two characteristics that make a particular piece of evidence relevant. [2] This largely depends on the elements of the plea that the applicant wants to prove or that the prosecutor must prove in criminal proceedings in order to obtain a conviction. Issues that must be proved factually are therefore a product of the underlying substantive law. [3] Buried in the broader discussion of the meaning and application of the term “material adverse effect” in the recent Delaware Court of Chancery, Channel Medsystems, Inc. v. Boston Scientific Corp., C.A. No. 2018-0673-AGB, 2018 WL 4719347 (Del Ch December 18, 2019), is the meaning of “material” when used in other contexts in a takeover agreement.
As we mentioned in our previous article on the Channel Medsystems decision[1], Chancellor Bouchard has definitively confirmed what all transaction professionals and their lawyers should know about the meaning of the three-word term “material adverse effect”: whatever it may mean in other contexts, in the context of the acquisition, it means much more than just that a significant negative impact has occurred on the acquired business. Instead, it has the importance attributed to it by the Delaware precedent – that is, an impact that “significantly threatens the overall earning potential of the target in a significant way at all times.” Regardless of the significance, significance or consequence of the adverse event, a “substantial adverse effect” exists only if this definition, based on case law, is met. [2] Chancellor of the Exchequer Bouchard borrows Vice-Chancellor Laster`s disclosure-based “affect-the-decision” meaning from Channel Medsystems and applies it to several different contractual representations that the buyer claimed were inaccurate. Given that the undisclosed facts included the existence of certain falsified documents in reports submitted to the FDA, it seems far from clear how the use of the “influence the decision” disclosure-based materiality standard could have led to a different outcome from the use of the “non-trivial” or “significant enough to merit attention” standard. Finally, it is difficult to imagine that even a few falsified documents would be considered trivial or noteworthy, even if the existence of those documents would not otherwise affect the viability of the scheme in question. And Chancellor Bouchard did conclude that the “influence the decision” disclosure standard was met in all but one of the submissions at issue, in which he concluded that the buyer had in fact “identified no evidence of an actual material defect.” In any event, when Chancellor Bouchard concluded after applying the materiality qualifier that the presentation was inaccurate, he concluded that a reasonable acquirer would have considered the existence of the forged documents to be a significant risk that FDA approval would not be obtained. As insignificant as falsified records were, more was needed to meet the standard of materiality based on disclosure; and one could imagine a scenario in which it would be determined that the forged documents were not of sufficient importance, that a reasonable acquirer would conclude that there was a significant risk that FDA approval would not be obtained. Of course, Chancellor Bouchard then came to the conclusion that, despite the fact that the materiality standard had been met to render the various representations inaccurate, there was no real significant negative effect.
