CALIFORNIA BUSINESS LAW PRACTITIONER Summer 2011 Financing Provisions in Acquisition Agreements 3
word for word to the material adverse change
condition in
Example 1:
Sample Buyer Financing Representation
(Availability of Commitment Letters)
Parent has delivered to the Company true,
correct and complete copies of the executed
commitment letters from Bank of America, N.A.,
Merrill Lynch, Pierce, Fenner & Smith Incorpo-
rated and Royal Bank of Canada, dated as of
the date hereof (the “Debt Commitment Letter”),
pursuant to which, and subject to the terms and
conditions thereof, the lender parties thereto
have committed to lend the amounts set forth
therein to Parent for the purpose of funding the
transactions contemplated by this Agreement
(the “Debt Financing”), and (ii) the executed
equity commitment letter, dated as of the date
hereof (the “Equity Commitment Letter” and,
together with the Debt Commitment Letter, the
“Financing Commitments”) from certain funds
affiliated with Apax Partners, L.P. (“Sponsor”)
pursuant to which Sponsor has caused such
funds to commit to invest the amounts set forth
therein (the “Equity Financing” and, together
with the Debt Financing, the “Financing”). The
Equity Commitment Letter provides, and will
continue to provide, that the Company is a third
party beneficiary thereof.
See Epicor Software Corporation, Current Report
on Form 8-K, Exhibit 2.1 (Agreement and Plan of
Merger dated as of April 4, 2011 between Eagle
Parent, Inc., Element Merger Sub, Inc., and Epicor
Software Corporation) (Epicor Merger Agreement),
Section 5.8(a), filed April 6, 2011, available at
http://www.sec.gov/Archives/edgar/data/891178/
000119312511090368/dex21.htm.
the acquisition agreement. Both buyer and seller will
focus on, and attempt to eliminate, conditions to the
debt financing that are not conditions to the
acquisition (e.g., minimum EBITDA or other
financial conditions). So called “SunGard” provisions
(limiting conditionality in debt financing
commitments with respect to representations and
warranties required for closing, and with respect to
certain collateral matters) are common in the current
market.
One particular point of contention in the financing
representation can be whether a redacted version of
the fee letter between the buyer and its lenders will be
disclosed to the seller, and what information will be
redacted. It has become customary in preparing
acquisition financing commitments to include in the
fee letters not only the amount of any fees payable to
the lenders, but also other potentially confidential
provisions. A key set of provisions often included in
fee letters are the so-called “market flex” provisions,
which give the lenders some flexibility to change
provisions of the financing commitment in connection
with the syndication of the debt. Because fee letters
are subject to confidentiality requirements, a buyer
will need to obtain its lenders’ consent for any
disclosure, which the lenders may be unwilling to
provide. At a minimum, they will insist on redaction
of the fee amounts. They may also redact certain of
the market flex provisions and other amounts. If the
buyer has entered into an engagement letter with an
investment bank to place a portion of the financing,
the treatment of confidential economic information
may be similar to that of the fee letter. (See Example
2, p 87.)
The seller, however, may request limited
information relating to market flex and the maximum
amount of fees payable under the commitment
letter(s). The market flex provisions of the fee letter
give the lenders flexibility on pricing and potentially
other terms in connection with syndication of the
loans, but in reviewing these provisions, the seller
will want to make sure that they do not give the
lenders the ability to impose new conditions to the
availability of the financing at closing.
The buyer’s financing representation also normally
includes the following matters relating to the
financing commitments:
• A representation with respect to the enforceability
of the financing commitment letters;
• A representation that, as of the date of the
acquisition agreement, there has been no event
that would constitute a default under the financing
commitment letters;
• A statement that there are no contingencies to
funding the full amount of the financing, other
than as set forth in the financing commitment
letters;
• A representation that, assuming the full amount of
the financing is funded at closing, the buyer will
have sufficient funds to pay the acquisition
consideration, as well as any fees and expenses
required to be paid in connection with the
acquisition and the financing, and to pay amounts
related to refinancing of any outstanding
indebtedness of the seller contemplated by the
acquisition agreement and financing commitment
letters.