COVENANTS WORKSHEET

I.

Identify the drafting errors, and correct them:

a. Use of Proceeds. The Borrower will not use, and hereby specifically agrees not to
use, directly or indirectly, the Borrowings proceeds for any purpose, except that
stated in this Section 3.4.
b. Fees and Expenses. The fees of the Escrow Agent and all expenses reasonably
incurred by the Escrow Agent in performing its obligations hereunder must be
borne one-half by Rapid Transportation and one-half by Eagle.
c. Discharge. No employee shall be discharged without two weeks notice.

II.

Draft the following provisions. You may need more than one sentence. No need to
draft definitions; just use a defined term that you think works in the context, if
needed.
a. Sam Student wants to rent an apartment. The landlord was leery of renting it to a
student, but he agreed to do so because Sam said that he would return the
apartment in good condition.

b. Same facts as in II(a), plus the following: Sam wanted it made clear that he had
not agreed to repair any damage that existed when he moved in. Draft this
provision as a non-obligation. It should be a follow-on sentence to the provision
you wrote for II(a).

Sam shall pay for any repairs arising out of damage during his tenancy
period, except for any pre-existing damage arising before his tenancy.
c. Private Equity LLP is borrowing money from Big Bank N.A. The bank doesnt
want the borrower to merge or sell substantially all of its assets without the banks
consent. The bank agreed it would not unreasonably withhold its consent.
Private Equity LLP will not merge or sell Big Bank N.A.s assets without the
banks consent provided that the bank shall not unreasonably withhold its
consent.
Risk Allocation Who has the burden of handling something that arises?

III.

A buyer is purchasing the sellers business, which involves manufacturing and has
various manufacturing plants. The parties are ready to sign the agreement, but the
buyer wishes for some covenants between the date of entering the agreement and the
closing date. Which of the following covenants would the seller prefer and why?
Which would the buyer prefer and why?
a. Maintenance. Seller shall maintain its plants, structures, and equipment in good
operating condition and repair. - BUYER
b. Maintenance. Seller shall maintain its plants, structures, and equipment in good
operating condition and repair, subject only to ordinary wear and tear. - SELLER
c. Maintenance. Seller shall maintain its plants, structures, and equipment in
customary operating condition and repair. - SELLER
d. Maintenance. Seller shall maintain its plants, structures, and equipment in
accordance with industry standards. e. Maintenance. Seller shall steam clean, oil, and otherwise maintain each piece of
equipment as prescribed in Exhibit B. - BUYER
f. Maintenance. Seller shall not permit its plants, structures, and equipment to be in
a state of operating condition and repair that would materially and adversely
affect the operations of Buyer. -

CONDITIONS:
A condition is a circumstance, or set of circumstances, that must occur to trigger an
obligation of a party to perform.
If an unsafe condition exists on the Leased Premises, the landlord shall make
immediate repairs.
-------When drafting a condition, keep in mind that:
A partys own action cannot be a condition
Use must
-

If the owner suffers a loss because of theft, the Owner must give the Insurer written
notice of the claim no later than ten days after the loss.
-Please Define must as language that indicates a condition.

The use of must in this Agreement signals a condition

If the Owner suffers a loss because of theft, the Owner must give the Insurer written
notice of claim no later than ten days after the loss.