The Brand New Weinstein Clause. What is it? Singapore M&A Lawyer Explains
- In October 2017, the press reported that many women accused American film producer Harvey Weinstein of rape, sexual assault and sexual abuse covering a period of 30 plus years.
- More than 80 women from the film industry have since then accused Weinstein of such acts. Weinstein denied "any non-consensual sex".
- Also in October 2017, Weinstein was dismissed from the company which he and his brother had founded, TWC.
- In the turmoil that followed, TWC which had a debt load of about USD520m, looked for a buyer.
- However, TWC was not successful and it went into bankruptcy.
- On May 25, 2018, Weinstein was arrested and charged with rape and other offenses before being released on bail.
- Clearly, the behaviour of a top executive of a company can adversely and severely affect the reputation and goodwill of the company.
- This is a clause usually put into a Share Purchase Agreement to
- bind the seller to make certain warranties and representations about the company's executives' behaviour; and
- allow the buyer to get out of buying the company (or get their money back) if sexual misconduct is subsequently discovered.
- Its purpose is for the buyer to try to protect itself from sexual misconduct that surfaces later as this may adversely impact the company's future earnings.
- Some clauses provide for part of the purchase price to be put in an escrow account for a specified period before being released at the end of that period to the sellers -- provided no sexual misconduct surfaces.
- A typical warranty and representation is that specified executives have not been accused by anyone of sexual harassment in, say, the last five years.
An example of such a clause is:
- To the Knowledge of the Company,
- (i) no allegations of sexual harassment have been made against
- (A) any officer or director of the Acquired Companies or
- (B) any employee of the Acquired Companies who, directly or indirectly, supervises at least eight (8) other employees of the Acquired Companies, and
- (ii) the Acquired Companies have not entered into any settlement agreement related to allegations of sexual harassment or sexual misconduct by an employee, contractor, director, officer or other Representative.
- If you have any questions or wish to incorporate or review a Weinstein Clause in an agreement, please feel free to call Lam & Co. at 6535 1800.
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