Where signing and closing are separated, the buyer needs protection against changes to the business it agreed to buy, and the seller needs freedom to operate.
Affirmative covenant. Operate in the ordinary course consistent with past practice, preserve the business organisation, keep the assets in good repair, maintain insurance and relationships with customers, suppliers and employees.
Negative covenants. A list of actions requiring consent: issuing equity, incurring debt above a threshold, capital expenditures above a threshold, selling assets outside the ordinary course, entering, amending or terminating material contracts, increasing compensation, hiring or terminating key personnel, settling litigation, changing accounting or tax methods, and declaring distributions.
Consent standard. Not to be unreasonably withheld, conditioned or delayed, with a deemed-consent period so that silence does not paralyse the business.
Antitrust limits. Covenants must not give the buyer control of the seller’s competitive decisions before closing. Excessively granular consent rights over pricing and customers create gun-jumping exposure.
Access. Reasonable access to books, records and personnel, subject to confidentiality, privilege and clean team arrangements.
Efforts covenants on obtaining consents and regulatory clearance, with the divestiture question addressed expressly.