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Contract Drafting Practicum

Fall 2015 – Mike Reeslund

Final Take-Home Exam – Prepare a Guaranty Agreement

Your partner tells you that a client, Titan Industries, Incorporated, a California
corporation (“Titan”), and its wholly-owned subsidiary, Music City Granite Corp., a Tennessee
corporation (“Music City Granite”), are entering into a loan transaction with U.S. Bank National
Association, a national banking association (the “Lender”). In this transaction, the Lender will
be making a loan in the amount of $125,000,000 to Music City Granite pursuant to a Loan
Agreement, dated as of December 1, 2015 (the “Loan Agreement”), for the purpose of financing
the construction of a new office building (the “Office Building”) to provide space for Music City
Granite's home office, as well as rental space. The Lender has agreed to make the loan without
any collateral securing it as long as Titan guarantees its repayment. Your partner asks you to
prepare a first draft of a guaranty agreement for this purpose, starting with the amended and
restated guaranty agreement from Godfrey B. Relph and GBR Properties, Inc. to First
Northwestern Bank, N.A., a copy of which he gives you.

He also tells you to include the following terms in, and make the following changes to,
the draft guaranty agreement (section references are to the sample agreement before any
revisions thereto):

The guaranty agreement should be dated and effective as of December 1, 2015.

The Loan Documents will consist of the Loan Agreement, a promissory note of
Music City Granite for the amount of the loan and the guaranty agreement. There
will be no mortgage, environmental agreement, etc.

A definition for “Person” needs to be added, which should include all types of
entities, as well as individuals.

There are a number of capitalized terms used in the sample agreement that are defined
in the Loan Agreement but not in the guaranty agreement. Add a clause that any
capitalized term that’s not defined in the guaranty agreement shall have the meaning
specified in the Loan Agreement.

The guaranty agreement needs to establish the adequacy of the consideration for Titan
giving its guaranty. Add a provision or a representation and warranty describing and
acknowledging how giving the guaranty will benefit Titan.

Add a binding arbitration clause specifying American Arbitration Association rules
before a single arbitrator, with the arbitration to be held in Nashville, for any disputes
arising under the guaranty agreement.

Lender wants Section 8 of the guaranty agreement to be explicit that the Lender can
disclose information relating to the guaranteed obligations, the guaranty agreement,
Titan, etc. to its affiliate, Glaxo Securities, Inc.
Titan’s obligations under the guaranty agreement will at no time be secured by any
real or personal property or by any other collateral. Changes will need to be made to
Section 6 and elsewhere in the guaranty agreement in this regard.

For purposes of Section 6(b) of the guaranty agreement, Titan will not be entitled to
receive salaries, but would like to be entitled to receive, in addition to management
fees, distributions from Music City Granite with respect to any income taxes imposed
upon Titan which are attributable to Music City Granite’s income from the Office

With respect to payment of any costs and expenses under Section 12 of the guaranty
agreement, Titan would like to receive written notice thereof, specifying each cost or
expense, and payment to be due two business days after receipt of such notice.

The Lender has made it clear that it’s relying on Titan performing its obligations
under the guaranty agreement in a timely manner. You need to add a “time is of the
essence” provision to address this.

The notice provisions in Section 16 of the sample agreement need to be changed.
These provisions should govern notices under the guaranty agreement only. There
also should be a provision for notice to be given by e-mail.

The term of the guaranty agreement should not extend beyond December 1, 2025.

For the addresses of the parties, use 1212 10th Street, Suite 1000, Nashville,
Tennessee 37201, Attention: Chief Executive Officer, Fax: (615) 311-5555, for Titan;
and 200 South 7th Street, 10th Floor, Nashville, Tennessee 37201, Attention: Bart
Simpson, Vice President of Commercial Lending, Fax: (615) 340-1234, for the
Lender. Also add lines for e-mail addresses, which will be left blank for now.

The governing law will be the State of California. Titan’s submission to a specified
forum in connection with actions or proceedings arising out of or relating to the
guaranty agreement will be limited to courts sitting in Hennepin County, Minnesota.

Your partner also asks you to observe three of his obsessions. First, don’t state any
number both spelled out and in arabic. Second, don’t leave any sections blank with
“Intentionally deleted.” And, third, don’t define terms that are not used or for which
there is no use.

There may be some outright mistakes in the sample agreement—please fix any of
those that you spot.

I will send you a copy of the sample guaranty agreement in Word format.

Please send me a clean copy of the guaranty agreement you prepare from the sample
(again, in Word format), with a draft line at the top of the first page (for example, “Draft of
12/3/15”). Please put your name on a separate page at the end of the guaranty agreement.

Please send me the guaranty agreement by e-mail no later than 4:00 p.m. on Saturday,
December 12, at the following address: If you have any questions,
please don't hesitate to send me an e-mail me at the foregoing address—not my Belmont e-mail

I don't expect you to clean up poor drafting that doesn’t affect the accuracy or
understanding of the guaranty agreement, nor do I advise that you do so—it will not change your

I will be checking whether your guaranty agreement incorporates each of the terms set
forth above in a well-drafted manner, and in a manner which is consistent with the rest of the
agreement. I'll also be checking whether you changed the things that obviously need to be
changed (names, dates, etc.); whether you fixed any outright mistakes; and whether your
numbering and any cross-references are accurate.