Trends in Combination Filings in India

This month the merger control regime in India will celebrate its fourth birthday. The regime was born after nine years of gestation period on June 1, 2011, when the provisions under section 5 & 6 (dealing with regulation of combination) of the Competition Act, 2002 (Competition Act) and the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations) came into force. Since its inception, the Combination Regulation in keeping with the market dynamics has been amended three times and the fourth amendment is on cards this year.

Competition Act provides for a mandatory and suspensory regime which requires acquisitions, mergers and amalgamations (Combinations) meeting the prescribed thresholds of assets and turnover to the notified by the parties to a Combination transaction to the Competition Commission of India (Commission or CCI)for its prior approval. While undertaking the analysis for review of the Combination, the CCI undertakes an extensive analysis of whether the Combination reported causes or is likely to cause an appreciable adverse effect on competition (AAEC) within the relevant market in India.

Trends in Combination notification

Number of notifications: The CCI has received around 270 Combination notifications (in both Form I (short-form) and Form II (long or detailed form, similar to Form CO under the EU merger regulations or a second request pursuant to Hart–Scott–Rodino Antitrust Improvements Act, 1976 of the US). The Combination filings peaked to 82 filings in year 2012 only to plateau down to 64 and 69 filings in years 2013 and 2014 respectively. CCI has so far approved 248 proposed Combinations of these 270 notifications within the span to 30 days as required under the Competition Act.

Days for clearing Combination and stopping of clock: Under the Combination Regulation, CCI is required to scrutinize the Combination filings and give its prima facie opinion within thirty days of filing of the notification (Phase I review). In case, the CCI believes that the Combination require some more analysis and scrutiny, the review goes to Phase II stage and the CCI is mandated to approve or reject or approve with modification the Combination within 210 days of the filing of the notification. For its review, the CCI may “stop the clock” during the Phase I or Phase II reviews to seek additional information or clarification from the parties. This effectively means that the review periods provided in the Competition Act (of 210 days) are not absolute.

CCI is generally taking 35-45 calendar days for reviewing and approving or approving with modification of the Combination and this review period is increasing in last year or so to around 60-70 days, which is an area of concern for the parties to Combinations. Additionally, in 184 cases (i.e., 74% of the cases) out of the 248 approved Combinations the CCI has stopped the clock.

Modifications/ Conditions: CCI has imposed behavioral and structural commitments in six cases so far. Two of which related to the scope and duration of non-compete clauses between enterprises in the pharmaceutical sector. In one case, CCI sought undertakings from the acquirer, to the effect that post-transaction, the acquirer will comply with the provisions of the Petroleum and Natural Gas Regulatory Board Act, 2006, and the regulations made thereunder and will also review the customer contracts entered into between the target and its customers and submit a report to the CCI within a period of six months post the closing of the transaction, to ensure that such contracts are in compliance with the provisions of the Competition Act. In another case, CCI directed the parties to pass requisite board resolutions in relation to amendment of certain clauses (on lock-in-period, minimum shareholding clause, no restriction in transfer of shares) along with certain commitments. In two cases, CCI ordered for structural commitments and appointed Monitoring Agencies in these cases.

Penalty for belated filings: If the notifiable transaction has not been notified, CCI can impose a penalty of up to 1% of the combined assets or turnover of the parties to the Combination, whichever is higher. CCI has imposed penalties in nine cases so far with penalties ranging from INR 5 million to INR 30 million. In practice, in the case of belated Combination filings, the CCI initiates parallel proceedings to determine penalty, despite granting approval to the Combination.

Reasons for approving Combination: As per a recent EY-FIDS study (2015), major reasons for approving the Combination transaction (some of these may overlap) are (a) insignificant/ non-existent horizontal or vertical relationship (84 cases); (b) insignificant market share of the resulting entity (65 cases; and (c) large number of players and low barriers to entry (58 cases). Interestingly, CCI has approved about 4 cases which appeared to be exempt under Schedule I of the Combination Regulations. In fact in one of the cases it has acknowledged that and in spite of that gone ahead with approving the Combination.

Concept of Control

Another perplexing issues which the parties to Combination and the CCI face is the concept of ‘control’. CCI is taking an expansive view in defining ‘control’. The ‘ability to exercise decisive influence over the management or affairs’ of another enterprise (including its division(s)), is tantamount to ‘control’ over such enterprise, whether such influence is being exercised by way of majority shareholding, veto rights (attached to minority shareholding) or contractual covenants. Further, in one matter, CCI recognized the existence of certain reserved matters in the a share purchase agreement to constitute control such as (a) appointment and removal of the managing director and the chief financial officer; (b) increasing or decreasing the number of directors on the board or any committees thereof; and (c) approv­ing, adopting, amending or modifying the annual budget and business plan (including any capi­tal expenditure budget, operating budget and financing plan) etc. Due to such precedent, there is a huge confusion about the concept and meaning of control as certain genuine minority protection rights and control may in some circumstance leads to a change in control situation.

Road Ahead

At times there appears to be lack of legal as well as economic analysis in the CCI’s order approving the Combination. It is expected that in its speaking orders, the CCI will devote some more efforts in analysing a particular Combination and which in my view will act as a solid foundation for the competition law jurisprudence in times to come. Further, issues have been raised in the industry that for review of Combination, CCI is asking for information/ documents which are very confidential and have nothing to do with its analysis of AAEC of the Combination transaction. It is expected that CCI will rationalize its practice of information requests with the ultimate objective of examining the AAEC for the proposed combination in question. As regards the clarity on the issues of meaning and extent of ‘control’ it is expected that the CCI should soon come up with some guidelines/ notification in relation to how it views the concept of control.

Analysis of a Term Sheet for a VC Transaction

What is a Term Sheet?

In the venture capital community space, a term sheet outlines the terms for a deal; it serves as a letter of intent given to a company seeking investments by a venture firm/ seeking a strategic partnership or takeover in order to outline the proposed terms for an investment/ acquisition transaction between the two parties. A term sheet has two important functions: it summarizes all the important financial and legal terms related to a contemplated transaction; and it quantifies, both in numbers and qualified terms, the value of the transaction or the venture capital financing. Typically, a term sheet is not a legal and binding document but is often considered a ‘gentleman’s promise’, from which the parties will not deviate 180 degrees. Often this ‘gentleman’s promise’ is linked to reputation an investor or a venture capital firm.

If the terms for a financing or acquisition as captured in the term sheet are agreed to by the parties, the document then serves the basis by which to draft the legal document surrounding the class of securities contemplated by the financing and to make modifications to the articles of association, where necessary. The value of a term sheet is its ability to focus parties in a deal on the essence of the deal prior to initiating costly legal drafting and to move them to close the transaction.

As a part of the process of agreeing on the terms of a term sheet, the two parties (the investor and the investee (typically represented by CEO or a core executive team of the company seeking investment)) participate in a series of discussions, with the expectations from the investors that the company will accept their proposed terms.

When an entrepreneurs or the company(ies) receives the first term sheet, they should consult their lawyer and decide whether the economics of the deal are close to what they expected them to be. If not so, then they should negotiate and square back the term sheet to the venture capitalist and their lawyers and finalize the tentative terms of the proposed transaction.

Section by Section Analysis of a Term Sheet

1. The Preamble: There can be certain exclusions or assumptions as to the length of time that a term sheet will remain in place, provisions as to entrepreneur’s ability to shop a deal to other investors, language pertaining to any quiet period or lock-up period.

2. Opening Information: Fairly standard provision and it has information on name of the parties, binding value of the term sheet and documentation of the fact that the proposed investment/ transaction is specifically subject to signing of definitive documents, legal due diligence, and other conditions precedents.

3. New Securities offered/ preferential issue: Information on number of equity shares/ preference shares/ options to be issued to the investor/ venture capitalist. This may have reference to SEBI ICDR guidelines on preferential allotment of equity shares (in case of listed companies). This clause could be expanded to include, board rights, level of influence etc over the company.

4. Total amount raised, number of shares, and purchase price per share

5. Post-Financing/ acquisition capitalization: The purpose of the post-financing capitalization section is to summarize what the capital structure of the company will look after the proposed new financing/ acquisition.

6. Liquidation Preference: This doesn’t necessarily have to be devastating for a venture capitalist. This tool enables favorable treatment for preferred shareholders in the event of liquidation.

7. Redemption: One way for venture capitalists to ensure the company does not become a lifestyle company. The purpose of the redemption clause is to make certain that the investors do not invest in companies that are unable to generate liquidity.

8. Conversion and Automatic Conversion: The purpose of this clause is to enable preferred shareholders to convert in the event of a liquidity event that is likely to generate a return that is higher than the multiple that is prescribed as mandated in the liquidation preference section (such as IPO of the company).

9. Dilution: Dilution clauses are the single most important tool for investors who want to ensure that any subsequent financing will, at the very least, not dilute the value of their investments below the price they paid in prior round.

10. Voting Rights

11. Protective Provisions: This would include prior approval in cases of merger, reorganization, sale, amendments to the company’s certificate of incorporation, be-laws, increase or decrease in the company’s number of authorized shares or the size of the board, declaration of dividends. 

12. Board Composition

13. Information Rights

14. Share Purchase Agreement: This clause contain a brief on some of the important clauses in a share purchase agreement along with representations, warranties etc.

15. Conditions Precedent: This is provided more for education purposes, because it is often not necessarily included in entirety in most term sheets. This clause has information on completed due-diligence and customary share purchase agreement, satisfactory review of company’s compensation program etc.

16. Use of proceeds

17. Additional definitive agreements: Non-disclosure and no-competition agreements.

18. Restriction Agreements: such as right of first refusal, right of first offer,Tag-along rights, drag-along rights etc.

19. Miscellaneous: Clauses include, confidentiality, closing date, expenses, employee matters, legal counsel clauses etc.

Drafting and Negotiating Indemnity clause under a Merger Agreement

A press release dated 15 February, 2012 (Press Release) issued by Telenor Group (Telenor) seeking indemnification from their Indian counterparts, Unitech Limited (Unitech) regarding the cancellation of the telecommunication licenses (Licenses) by the Supreme Court of their joint-venture, Uninor Limited (Uninor) drew my attention to a seemingly boilerplate provision used/ written  in a typical merger/ share purchase/ share subscription agreement (Merger Agreement)- Indemnification.  This note is not about the 'Telenor- Unitech deal-what went wrong?' or the implications of Supreme Court's order but is an attempt to understand (a) how a typical indemnification clause is drafted in a Merger Agreement and (b) how to negotiate an indemnification clause in a Merger Agreement from the perspective of the buyer (Buyer) and the seller (Seller).

According to the Press Release:

“The legality and validity of the licenses was a fundamental term of the share subscription agreement between Telenor Group and Unitech Limited. We believe that the Supreme Court’s cancellation of the Unified Access Service Licenses (UASL) conclusively demonstrates a clear breach of Unitech’s warranties,” said Pål Wien Espen, Group General Counsel, Telenor Group.

In the share subscription agreement between the partners, Unitech Ltd. has irrevocably and unconditionally agreed to indemnify and hold harmless the Telenor Group from all damages which may be suffered as a result of breach of any of the agreed warranties.

“The fact is that Uninor as a consequence of the judgment will no longer hold any UASLs. Telenor will therefore exercise its entitled right under the share subscription agreement to hold Unitech Ltd. liable to indemnify and compensate Telenor Group for its investment in India,” said Pål Wien Espen. [Underlines and italics are mine and Emphasis implied]

Undoubtedly, its an inter-play of word and phraseology used in the share subscription agreement (SSA) mainly the conditions precedents clause, representations and warranties clause (Reps & Warranties) and indemnity clause (Indemnity or Indemnity Clause), which would determine whether the claims of Telenor would be successful. 

Drafting Indemnity Clause

Indemnity Clause needs to be drafted carefully and cannot be a mere boilerplate provision copied and pasted from the earlier precedents of the Merger Agreements available to a law firm.  Typically an Indemnity Clause may be of two types- (a) General Indemnity Clause- concerning with the general breach of Reps & Warranties or any other covenants under the Merger Agreement, and (b) Special Indemnity Clause- concerning with certain special/ certain circumstances regardless of the breach on the part of Seller or Buyer e.g. certain pending litigation, tax issues, environmental issues etc).  Some of the issues encountered during the drafting of Indemnity Clause are discussed below:

(A) Who is indemnifying whom – a Merger Agreement should in clear terms specify who is an indemnifying party and who is an indemnified party.

(B) “..hereby agree to jointly and severally indemnify, defend and hold harmless”- This language is typically used in the first paragraph of an Indemnity clause.  It should be kept in mind that words- indemnify, defend and hold harmless all have different meanings under varied circumstances.  A party may have duty to defend (for e.g. in law suits) but may not indemnify the other party.  To cover this a broad array of situations may be inserted (whichmay be left open ended (beneficial for Buyers)) defined as 'Loses' to cover the harm done to the  indemnified party.

(C)  “...directly arise out of, result from or may be payable by virtue of any breach”-  A Merger Agreement may use words 'due to' the conduct of indemnifying party (this may be good for the Sellers!), however more general y the language 'directly arising' is used when Buyer is in a strong position.

(D) To provide significant clarity in the Merger Agreement, the parties may resolve to negotiate and define words like 'Claim', 'Indemnifying Party Conduct', 'Damages'.

(E) “The liability of Seller in respect of any Claim shall be equal to...”- A Merger Agreement may specify the monetary limits of the Seller under a Basket, Ceiling or threshold clause.  Buyers may like this to be open-ended or as large as possible.

(F) Failure to give notice clause – In a typical Merger Agreement, certain procedures are described for claiming the damages from the indemnifying party.  However, in some case inadvertently, Buyer may miss some steps to claim damages, to cure this a language is generally inserted to waive any of the failure on the part of Buyer.

(G) Jointly or Severally- Often there may be situations, when Sellers are accompanied by scores of its affiliates, which may range from promoter of the Seller to the holding company of the Seller who may make good the losses for damages incurred to the Buyer. 

(H) Time Limitations/ Survival clause: The parties will need to agree upon the length of time during which indemnification claims must be raised.  The length of time may be different for different items. For example, the time for raising an indemnification claim for breaches of representations and warranties may be two years while claims for fraud may be unlimited as to time. By not specifying a time limitation, the length of time for raising claims will be controlled by the applicable statute of limitations.

Negotiating Indemnity Clause

Some of important and common issues involved in an Indemnity Clause are discussed below:

(A) Seller's indemnification of Buyer for breaches of Reps & Warranties

• By far the most common matter with respect to which indemnities are given by the Sellers to the Buyers. 
• From Buyer's perspective it would be helpful to state clearly from when does the duty to indemnify arises- signing or closing under the Merger Agreement, in my view the earlier the better.
• From the Seller's perspective, it would be better to fully disclose its liabilities and potential liabilities/ risk factors to the Buyer during the due-diligence process so that a milder Reps & Warranties clause may be drafted in Seller's favor.  Typically, an anti-sandbagging provision is inserted in such cases, limiting the liabilities of a Seller.

(B) Buyer's indemnification of Seller for breaches of Reps & Warranties

• This is largely used as a matter of reciprocity.
• In a typical Merger Agreement, Buyer may be liable to indemnify/ make good the losses incurred by the Seller acting on the representations of the Buyer.

(C) Buyer's post-closing activities

• In a Merger Agreement, indemnification is generally drafted as a post-closing matter, with the parties tacitly agreeing to leave the resolution of pre-closing breach of contract claims in the event the deal does not close, and the appropriate measure of the damages, to a court of competent jurisdiction. 
• From Buyer's perspective it is important to draft this provision carefully, as Buyers would not like to the burdened by Seller's activities pre-signing or pre-closing.

(D) Third Party Claims

• From the Buyer's perspective, it would be prudent to ask for Seller's indemnity for third-party claims in cases where the root cause of the third-party rights/ claims arises from factor existing pre-closing of the Merger Agreement.
• Depending on whats the importance of this clause of the Seller, Seller's counsel may draft for no liability for Seller's in a case of third-party claims.

(E) Escrow

• Along side of a Merger Agreement, typically an escrow agreement (Escrow Agreement) is also executed between a Buyer and a Seller. 
• Under the terms of Escrow Agreement, typically an amount of upto 10-15% of the deal size is deposited with a third-party, which is typically a financial institution who keeps the money for the benefit of Buyer is case  liability for any breach by Sellers arises. 
• Time period of such an escrow is generally 12 or 18 months depending upon how the Escrow Agreement and Merger Agreement is negotiated by the parties.

(F) Non-reliance clause

• A typical ‘non-reliance’ clause is intended to limit a Buyer's ability to make a Rule 10b-5 claim by prohibiting the buyer's reliance on information not explicitly included or incorporated in the purchase agreement itself.  
• Seller should consider requesting non-reliance clause under the Merger Agreement.

(G) Illegality committed by the indemnifying party

In most of the jurisdictions there are strict anti-bribery laws, however, they are not strictly followed.  Often these days some of the private equity investors insist on inserting a provision as to indemnification if any bribery is committed or proved.

(H) Payment on Indemnification 

Many times, the question of when an actual indemnification will occur is not clearly addressed in the Merger Agreement. Not addressing this issue may not be a bad idea for the Seller. However, the Buyer should require that indemnification occur within some established time period, such as within 30 days of notice to the Seller of any claim, expense or obligation incurred by the buyer.

In addition to above, subject to negotiations between the parties certain specific Indemnity Clauses like Director's liability, insurance claims, third-party environmental damages claims, materiality qualifiers, major litigation crossing certain threshold amount may be inserted in a Merger Agreement.

Leveraged Buy-out of Kinetic Concepts Inc. by Apax Partners led consortium

This note deals with one of the famous deals of the year- acquisition of Kinetic Concepts Inc., (KCI or Company or Target), a Delaware corporation, a leading global technology company in the area of high-technology therapies and products for wound care, tissue regeneration and therapeutic support system markets by investment funds advised by Apax Partners (Apax Partners) and controlled affiliates of Canada Pension Plan Investment Board (CPPIB) and Public Sector Pension Investment Board (PSPIB) (KCI, Apax Partners, CPPIB and PSPIB are collectively referred as Parties and Apax Partners, CPPIB and PSPIB and their affiliates are collectively referred as Sponsors) and discusses in brief (a) the structure employed by the Parties for the acquisition and (b) the ‘financing clause’ under the merger agreement (Merger Agreement) signed between the Company and the entities controlled by the Sponsors.  

What in my view makes this acquisition deal interesting is that (a) the management was not very much interesting in running the Company, and (b) this happens to be a classic leveraged buy-out (LBO) transaction involving the issue of junk bonds for debt financing, which the US markets have seen in recent times.

Structure of the LBO transaction

Under the Merger Agreement executed on 12 July, 2011 between KCI, Chiron Holdings, Inc., (Chiron Holdings or Parent), a Delaware corporation, and Chiron Merger Sub Inc., (Chiron Merger Sub or Merger Sub), a Texas corporation and a wholly owned subsidiary (WoS) of Chiron Holdings, Chiron Merger Sub will merge with and into KCI (Merger) under the Texas Business Organizations Code and KCI will become WoS of Chiron Holdings, an entity owned by a consortium comprised of investment fund advised by Apax Partners and controlled affiliates of CPPIB and PSPIB (Chiron Holdings, Chiron Merger Sub, Apax Partners, CPPIB and PSPIB are collectively referred as Acquirers).  If the Merger is completed, shareholder of KCI will receive $68.50 per share in cash from the Acquirers (estimating the transaction value of KCI acquisition upto $6.1 billion) and the Company would be delisted from the New York Stock Exchange (NYSE) and made private.

 Financing clauses under the Merger Agreement

Among other things, the most important clauses of the Merger Agreement are ‘section 4.7’ and ‘section 6.15’ concerning with ‘Financing’ of the Merger transaction (Financing Clauses).  Under the Financing Clauses, the Merger/ acquisition would be funded by (a) equity financing up to $1.75 billion to be provided by the Sponsors to the Parent and Merger Sub (Equity Financing) and (b) borrowing of up to $2.6 billion under a senior secured term loan facility and $2.15 billion in aggregate principal amount of senior notes (or, to the extent those are not issued at or prior to the closing of the Merger, $900 million in senior unsecured bridge loans and $1.25 billion in senior secured second lien bridge loan) (Debt Financing).

               (a)   Equity Financing

Pursuant to equity commitment letter dated 12 July, 2011 the Sponsors (Apax Europe VII-A, L.P., Apax Europe VII-B, L.P., Apax Europe VII-1, L.P., Apax US VII, L.P., Port-aux-Choix Private Investments Inc. and CPP Investment Board (USRE V) Inc.) have committed to provide an aggregate equity contribution in the amount of approx. $1.75 billion to Chiron Holdings for the purpose of funding the equity portion for the financing contemplated under the Merger Agreement.

(b)   Debt Financing 

Pursuant to the debt commitment letter dated 12 July, 2011, Bank of America, N.A., Credit Suisse AG, Cayman Islands Branch, Morgan Stanley Senior Funding, Inc., Royal Bank of Canada and UBS Loan Finance LLC (Lenders) have committed to provide Merger Sub borrowings of up to $2.8 billion under senior secured loan term and revolving facilities and $2.15 billion in aggregate principal amount of senior notes (or, to the extent those are not issued at or prior to the closing of the Merger, $900 million in senior unsecured bridge loans and $1.25 billion in senior secured second lien bridge loans), on the terms and subject to the conditions set forth in the debt commitment letter.

Among other things, the obligations of the Lenders to provide debt financing under the debt commitment letter are subject to a following conditions:

•   consummation of the Merger in accordance with the Merger Agreement;
• execution and delivery of the definitive credit agreements and delivery of customary closing documents and legal opinions, including a solvency certificate;
• delivery of an offering document for use in a Rule 144A offering involving senior secured and senior unsecured notes, the proceeds of which would be used to complete the Merger and related transactions, and other data and information for use in such offering;
• expiration of a 20 consecutive business day marketing period  with customary blackout periods to seek placement of the notes with qualified purchasers 
• As a matter of market practice, the debt commitment letter was not subject to due diligence or a “market out” condition, which would allow the Lenders not to fund their respective commitments if the financial markets are materially adversely affected.

Further, under section 6.15 (c), prior to the closing, the Company shall and shall cause its subsidiaries to, and shall use its reasonable best efforts to provide to Parent and Merger Sub, at Parent’s sole expense, all reasonable cooperation reasonably requested by Parent necessary in connection with the financing, including:

• furnishing Parent and Merger Sub and their Financing sources required in registration statements on Form S-1 by Regulation S-X and Regulation S-K under the Securities Act, 1933 (Securities Act) and of a type and form customarily included in private placements pursuant to Rule 144A under the Securities Act;
• participating in a reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies in connection with the financing;
• assisting with the preparation of customary materials for rating agency presentations, bank information memoranda, offering documents, private placement memoranda and similar documents required in connection with the financing;
• using reasonable best efforts to obtain accountants’ comfort letters and legal opinions as reasonably requested by Parent and facilitate the pledging of collateral in connection with the financing, including, executing and delivering any customary pledge and security documents (including security documents to be filed with the United States Copyright Office and the United States Patent and Trademark Office to register copyrights, patents and trademarks, as applicable, of the Company and its subsidiaries to the extent required in connection with the Financing), currency or interest hedging arrangements or other definitive financing documents or other certificates, legal opinions, surveys, title insurance and documents as may be reasonably requested by Parent (including a certificate of the chief financial officer of the Company with respect to solvency matters as of the Closing, on a pro forma basis); and
• assisting Parent in connection with its amendment of any of the Company’s or its subsidiaries’ hedging, swap or derivative arrangements on terms satisfactory to Parent.

 
Under the Form 8-K filed with the US Securities and Exchange Commission (SEC) on 11 October,    2011 the Company, KCI USA Inc., and investment funds advised by the Sponsors announced that Chiron Merger Sub, intends to commence an offering on or about 11 October, 2011, of $1,650 million in aggregate principal amount of second lien senior secured notes due 2019, comprised of a Dollar tranche and a Euro tranche, and $900 million in aggregate principal amount of senior notes due 2019 (collectively, the Senior Notes).  Upon consummation of the acquisition, the Company and KCI USA, Inc. will assume all of the obligations of Merger Sub under the Senior Notes and will become the co-issuers of the Senior Notes. 

Further, according to the Form 8-K filed with the SEC on 4 November, 2011, the Merger/acquisition was completed (consummation of acquisition) and it was announced- ‘In connection with the consummation of the acquisition, KCI and KCI USA obtained approximately $2,500 million of senior secured financing under new credit facilities and issued $1,750 million aggregate principal amount of second lien senior secured notes due 2018 and $750 million aggregate principal amount of senior notes due 2019.  The new credit facilities and the second lien senior secured notes will be guaranteed by certain of KCI’s and KCI USA’s parents and subsidiaries and will be secured by substantially all of the assets of KCI, KCI USA and certain of their parents and subsidiaries.  The senior notes will be senior obligations of KCI and KCI USA and will be guaranteed on a senior basis by certain of their parents and subsidiaries.  KCI used the net proceeds from the new credit facilities and the notes offerings to pay the consideration under the merger agreement and related transactions, to refinance existing debt and to pay certain costs and expenses of the transactions. 
 
It is pertinent to note that the total debt raised by KCI post-Merger/ acquisition by Sponsors is equal to 7550 million, which is much more than as required under the debt commitment letter provided by the Lenders.  Now, the balance-sheet of KCI is highly leveraged and now it is upto the performance of Sponsors how they run the Company and repay the debt and exit out of the Company in near future.