Presenting a live 90-minute webinar with interactive Q&A Secured Lending: Negotiating and Interpreting Best Efforts, Ordinary Course of Business, and Anti-Assignment Provisions Documenting Grant of Security Interest in Assets Subject to Anti-Assignment Clause and Interpreting Complex Covenants THURSDAY, MARCH 2, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Darius J. Mehraban, Partner, Gibson Dunn & Crutcher , New York Yair Y . Galil, Of Counsel, Gibson, Dunn & Crutcher , New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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<Presentation Title/Client Name> Selected Topics in Secured Lending Transactions Interpreting and Drafting “Ordinary Course of Business” and “Best Efforts” Clauses, and Addressing Anti-Assignment Provisions Presented by: Darius Mehraban and Yair Galil Thursday, March 2, 2017
<Presentation Title/Client Name> Interpretation of Certain Common Terms in Debt Agreements • “Ordinary course of business” – Examples of common usage – Legal guidance – Recommendations • “Best efforts,” “reasonable best efforts,” and “commercially reasonable efforts” – Examples of common usage – Legal guidance – Recommendations 6
<Presentation Title/Client Name> “Ordinary Course of Business”: Examples of Common Usage • Exceptions to asset sale covenant – “Borrower may sell inventory in the ordinary course of business.” – “Borrower may liquidate or otherwise dispose of obsolete, damaged, expired, uneconomic, or worn-out property in the ordinary course of business.” • Exceptions to indebtedness covenant – “Indebtedness in respect of bid, performance or surety bonds or letters of credit issued in the ordinary course of business, including letters of credit supporting lease obligations or supporting (or in lieu of) such bid, performance or surety bonds or in respect of workers’ compensation claims.” 7
<Presentation Title/Client Name> “Ordinary Course of Business”: Examples of Common Usage • Exceptions to affiliate transactions covenant – “Payments made and other transactions entered into in the ordinary course of business with Affiliates upon fair and reasonable terms no less favorable to the relevant Borrower than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.” 8
<Presentation Title/Client Name> “Ordinary Course of Business”: Legal Guidance • Black’s Law Dictionary definition – “Normal routine in managing a trade or business.” • Contexts where term has been interpreted – Commercial contracts • There is no case law interpreting “ordinary course of business” in the context of debt agreements; however, there is case law interpreting this term in commercial contracts, which may provide guidance when interpreting the term in the context of debt agreements. 9
<Presentation Title/Client Name> “Ordinary Course of Business”: Legal Guidance • Contexts where term has been interpreted (cont’d) – U.C.C. “buyer in the ordinary course of business” • U.C.C. § 9-320(a) – “[A] buyer in ordinary course of business . . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.” • U.C.C. § 1-201(b)(9) – “A person buys goods in the ordinary course if the sale . . . comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices.” 10
<Presentation Title/Client Name> “Ordinary Course of Business”: Legal Guidance • Contexts where term has been interpreted (cont’d) – Bankruptcy • 11 U.S.C. § 363(c) – Limitations on transactions and use of property during bankruptcy. Unless the court orders otherwise, the debtor may enter into transactions, including the sale or lease of property of the estate, in the “ordinary course of business,” without notice or a hearing, and may use property of the estate in the “ordinary course of business” without notice or a hearing. • 11 U.S.C. § 547(c)(2) – The trustee may not avoid a preferential transfer to the extent that such transfer was in payment of a debt incurred by the debtor in the “ordinary course of business” of the debtor and the transferee, and such transfer was made in the “ordinary course of business” of the debtor and the transferee. 11
<Presentation Title/Client Name> “Ordinary Course of Business”: Legal Guidance • Contexts where term has been interpreted (cont’d) – Tax • I.R.C. § 1221(a)(1) – Income from certain sales of goods is treated as ordinary income rather than capital gains if it is derived from the sale of property held for sale to customers in the “ordinary course of the business.” 12
<Presentation Title/Client Name> “Ordinary Course of Business”: Legal Guidance • Various meanings in other areas of law – Previous conduct/past practice • Unisys Corp. v. Hercules Inc . (N.Y. App. Div. 1996) 1 – Under New York law, in a dispute over the interpretation of an agreement for the sale of a subsidiary, a New York intermediate appellate court stated that something done as a matter of “corporate historical practice” constitutes “ordinary course of business” as a matter of law. • Preferred Care Partners Holding Corp. v. Humana, Inc . (S.D. Fla. 2009) 2 – A federal district court in Florida, applying Florida law, interpreting a confidentiality agreement that prohibited contact with doctors who were part of plaintiff’s healthcare network except “in the ordinary course of business,” determined that defendant’s contract renegotiations with doctors who were both within defendant’s and plaintiff’s healthcare network were in the ordinary course of business since those negotiations were “normal” and “routine” compensation discussions with providers within defendant’s network. 13
<Presentation Title/Client Name> “Ordinary Course of Business”: Legal Guidance • Various meanings in other areas of law (cont’d) – Previous conduct/past practice (cont’d) • Grober v. Comm’r (T.C. 1972) 3 – When U.S. Tax Court reviewed whether a sale of machinery and equipment was in ordinary course of business, court looked at “the taxpayer’s purpose in acquiring and in disposing of the property, the continuity of sales or sales-related activity over a period of time, the number and frequency of sales, the substantiality of sales and the overall history of the operation.” 14
<Presentation Title/Client Name> “Ordinary Course of Business”: Legal Guidance • Various meanings in other areas of law (cont’d) – Infrequent conduct/first-time conduct • Tanbro Fabrics Corp. v. Deering Milliken, Inc . (N.Y. 1976) 4 – New York Court of Appeals deemed a company’s sale of excess fabric as within the ordinary course of business for purposes of U.C.C. § 9-307 even though the seller’s predominant business was dyeing unfinished fabric. The court pointed to the fact that the company had previously sold such goods and there was, in fact, a common practice in the industry, i.e., to be reasonably expected. • Bontemps v. Bank of Babylon (N.Y. App. Div. 1983) 5 – New York intermediate appellate court ruled a company’s sale of a car may still be part of ordinary course of business for purposes of U.C.C. § 9-307 even if it is infrequent or incidental to its predominant business of leasing cars. 15
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