USA Law and Practice Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
that it includes customary lender-protection pro- visions, often referred to as the “Xerox” provi- sions. These provisions will, among other things: • waive any potential claims by the seller and target company against the financing sourc- es; • establish New York courts as the exclusive forum for any disputes involving the financing sources, and waive any right to a jury trial in respect such disputes; • extend the benefit of certain provisions to the financing sources, such as any cap on dam- ages; and • provide that the financing sources are third- party beneficiaries of these protective provi- sions such that they cannot be modified in a manner adverse to them without consent. The commitment letter will include a condition precedent that any other contemplated financ- ing, such as a financial sponsor’s equity con- tribution or the refinancing of indebtedness of the acquirer or target company, will be consum- mated substantially concurrently with (or prior to) the funding of the facilities. The commitment letter will also include a condition that no mate- rial adverse change (MAC) has occurred at the target business since the date of the acquisition agreement, and for this purpose the definition of “material adverse change” normally matches the definition of such term in the definitive acquisi- tion agreement. In the case of a strategic acquir- er, the commitment letter may also include a no MAC condition with respect to the acquirer’s business. Other customary conditions include the execu- tion of the loan documentation, the payment of all fees and the delivery of specified historical and pro forma financial information, customary legal opinions of counsel to the borrower, bor-
rowing notices and other borrower certificates, and “know your customer” documentation. Although drafts of the commitment papers will typically include a condition that the lenders are satisfied with the results of their due diligence investigation, this diligence-related condition is almost always satisfied and removed before the commitment papers are executed. The banks also often negotiate to include a co-operation covenant, whereby the acquirer agrees to co-operate (and will use commercially reasonable efforts to procure co-operation from the target) with the financing process (including the drafting of offering documentation, if appli- cable, and participating in diligence sessions and the marketing or syndication process). Syndication Depending on the nature and timing of any contemplated syndication, the arrangers may include a condition that a minimum number of consecutive business days (often 15) have elapsed between the delivery of the required financial information and the required funding date. This minimum period is referred to as the “marketing period” and is designed to ensure that the arrangers have sufficient information for a sufficient period of time in order to syndicate the facilities. Alternatively, the arrangers might include a con- dition stating that the lenders are not required to fund prior to a specified date, which is referred to as the “inside date” . Although the specific date chosen as the “inside date” is very important to such a comparison (the greater the amount of time, the more flexibility afforded to the lend- ers), lenders generally prefer to have a market- ing period rather than an inside date because a marketing period ensures they have the required
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