Newcorp, Inc. is a newly formed corporation with two shareholders who have exper
ID: 2703188 • Letter: N
Question
Newcorp, Inc. is a newly formed corporation with two shareholders who have experience in the timber industry. The two shareholders also jointly own Lumber Corporation, which operates two lumber mills in the state of Washington. Newcorp was formed specifically to acquire the assets of ABC's paper division. On February 1, 2008, ABC and Newcorp signed a letter of intent specifying a closing no later than July 1, 2008, subject to Newcorp obtaining the required financing. The letter of intent provided that ABC and Newcorp would enter into a long-term contract according to which Newcorp would supply specified quantities of paper packaging to ABC.
On February 15, 2008, Newcorp approached the Bank of Hope seeking a term loan to acquire the assets of ABC's paper division and a revolving line of credit to meet its day-to-day working capital requirements. On March 31, 2008, the Bank of Hope delivered to Newcorp a letter stating that it would agree to extend a credit facility to Newcorp on specific terms and conditions, one of which was that the credit be secured by all fixed and current assets of Newcorp.
Carlos Banker, the account officer for the bank, gave the bank a valid first-priority lien on all collateral. A major source of revenue for Newcorp will be the long-term supply contract with ABC. The Bank of Hope requires an assignment of the supply contract that prohibits ABC and Newcorp from making any amendments to the contract without the bank
Explanation / Answer
1.As a manager at Newcorp, the objections would be: that all fixed and current asset should not be kept mortgaged.Newcoprp should prefer other ways of financing instead of only term loan... 2.No, i wouldnot have any objections as ABC has a food company and entering into long term contract with newcorp would be beneficial. 3.The arguments would be: the assignment of supply contract should not be prohibited. if newcorp is mortaging all current and fixed asset,then their should not be any requirement of guarantee from each shareholder and Lumber corporation. 4.As i am the majority shareholder of the Newcorp ,the arguments are: there should not be any need of guarantee from each shareholder and Lumber corporation. 5.the advice would be that the bsnk should give the loan by mortgaging only assets of the company..