Private Placement Financial Covenants Reference Manual

Commentary:

The modules in this chapter are designed to help with at least six structural choices concerning the limitations on Restricted Payments and/or Restricted Investments.

1.	Will Restricted Payments and/or Restricted Investments be (a) completely prohibited (Covenants 10.01.1 and 10.02.1) or (b) permitted upon conditions?
2.	If they are permitted upon conditions, which combination of three conditions will apply?
	Condition(s) Restricted Payments Restricted Investments - No default exists. Covenant 10.03.1 Covenant 10.03.1 - No default exists. - Room in the basket. Covenants 10.01.2 and 10.03.2 Covenants 10.02.2 and 10.03.2 - No default exists. - Room in the basket. - Could incur $1 additional Debt. Covenants 10.01.3 and 10.03.3 Covenants 10.01.3 and 10.03.3
3.	If there is a basket condition, will there be separate baskets for Restricted Payments (Covenants 10.01.2 and 10.01.3) and Restricted Investments (Covenants 10.02.2 and 10.02.3), or will there be one combined basket for both (Covenants 10.03.2 and 10.03.3)?
4.	Will payments in respect of Redeemable stock be permitted without condition other than absence of default (but nonetheless be counted as Restricted Payments in ascertaining whether there is room in the basket to allow other Restricted Payments)? If yes, include Addendum 10.21.
5.	What types of Investments will not be subject to the Restricted Investments limitation or prohibition (i.e., what types will always be permitted)? See the list of types in Definition Z.63 ("Restricted Investments") and describe any additions, deletions or variations that are intended.
6.	Will voluntary prepayments of Subordinated Debt be treated as a Restricted Payment? If yes, choose Definition Z.64.1 for Restricted Payment; if no, choose Definition Z.64.2.

While holders of the Notes may generally favor restrictions on the Company's ability to make dividends or Investments, such holders would generally disfavor any restrictions on the Company's Subsidiaries to pay dividends or to make Investments in the Company. Covenant 10.04 addresses this converse inclination.

Covenant 10.01.1 (Restricted Payments prohibited)

Restricted Payments. The Company will not, and will not permit any of its Subsidiaries to, declare or make, or incur any liability to declare or make, any Restricted Payments.66

Covenant 10.01.2 (Restricted Payments - basket/no default)

Restricted Payments      (a) Limitation. The Company will not, and will not permit any of its Subsidiaries to, at any time, declare or make, or incur any liability to declare or make, any Restricted Payment67 unless immediately after giving effect to such action:      (i) the aggregate amount of Restricted Payments of the Company and its Subsidiaries declared or made during the period commencing on [ __________, ____ ],68 and ending on the date such Restricted Payment is declared or made, inclusive, would not exceed the sum of      (A) $[ ___ ], plus      (B) [ ___ ]% of Consolidated Net Income for such period (or minus 100% of Consolidated Net Income for such period if Consolidated Net Income for such period is a loss), plus      (C) the aggregate amount of Net Proceeds of Capital Stock for such period; and      (ii) no Default or Event of Default would exist.      (b) Time of Payment. The Company will not, nor will it permit any of its Subsidiaries to, authorize a Restricted Payment that is not payable within [ ___ ] days of authorization.

Covenant 10.01.3 (Restricted Payments - basket/no default/$1.00 additional debt)

[identical to Covenant 10.01.2 except add the following subparagraph (a)(iii) as an additional condition:]      (iii) the Company would be permitted by the provisions of Section [ ___ ]69 hereof to incur at least $1.00 of additional [Funded] Debt owing to a Person other than a Subsidiary of the Company.

Covenant 10.02.1 (Restricted Investments prohibited)

Restricted Investments. The Company will not, and will not permit any of its Subsidiaries to, make or authorize any Restricted Investments.70

Covenant 10.02.2 (Restricted Investments - basket/no default)

Restricted Investments.      (a) Limitation. The Company will not, and will not permit any of its Subsidiaries to, declare, make or authorize any Restricted Investment unless immediately after giving effect to such action:      (i) the aggregate value of all Restricted Investments of the Company and its Subsidiaries (valued immediately after such action) would not exceed71 the sum of:      (A) $[ ___ ], plus      (B) [ ___ ]% of Consolidated Net Income for the period commencing on [ ____________, ____ ]72 and ending on the date such Restricted Investment is made (or minus 100% of Consolidated Net Income for such period if Consolidated Net Income for such period is a loss), plus      (C) the aggregate amount of Net Proceeds of Capital Stock for such period; and      (ii) no Default or Event of Default would exist.      (b) Investments of Subsidiaries. Each Person which becomes a Subsidiary of the Company after the date of the Closing will be deemed to have made, on the date such Person becomes a Subsidiary of the Company, all Restricted Investments of such Person in existence on such date. Investments in any Person that ceases to be a Subsidiary of the Company after the date of the Closing (but in which the Company or another Subsidiary continues to maintain an Investment) will be deemed to have been made on the date on which such Person ceases to be a Subsidiary of the Company.

Covenant 10.02.3 (Restricted Investments - basket/no default/$1.00 additional debt)

[identical to Covenant 10.02.2 except add the following subparagraph (a)(iii) as an additional condition:]      (iii) the Company would be permitted by the provisions of Section [ ___ ]73 hereof to incur at least $1.00 of additional [Funded] Debt owing to a Person other than a Subsidiary of the Company.

Covenant 10.03.1 (no default)

Restricted Payments and Restricted Investments. The Company will not, and will not permit any of its Subsidiaries to, declare or make, or incur any liability to declare or make, any Restricted Payment or Restricted Investment unless immediately after giving effect to such action, no Default or Event of Default would exist.

Covenant 10.03.2 (combined basket/no default)

Restricted Payments and Restricted Investments.      (a) Limitation. The Company will not, and will not permit any of its Subsidiaries to, declare, make or incur any liability to make any Restricted Payment74 or make or authorize any Restricted Investment unless immediately after giving effect to such action:      (i) the sum of (x) the aggregate value of all Restricted Investments of the Company and its Subsidiaries (valued immediately after such action), plus (y) the aggregate amount of Restricted Payments of the Company and its Subsidiaries declared or made during the period commencing on [ __________, ____ ],75 and ending on the date such Restricted Payment or Restricted Investment is declared or made, inclusive, would not exceed the sum of      (A) $[ ___ ], plus      (B) [ ___ ]% of Consolidated Net Income for such period (or minus 100% of Consolidated Net Income for such period if Consolidated Net Income for such period is a loss), plus      (C) the aggregate amount of Net Proceeds of Capital Stock for such period; and      (ii) no Default or Event of Default would exist.      (b) Time of Payment. The Company will not, nor will it permit any of its Subsidiaries to, authorize a Restricted Payment that is not payable within [ ___ ] days of authorization.

Covenant 10.03.3 (combined basket/no default/$1.00 additional debt)

[identical to Covenant 10.03.2 except add the following subparagraph (a)(iii) as an additional condition:]      (iii) the Company would be permitted by the provisions of Section [ ___ ] hereof to incur at least $1.00 of additional [Funded] Debt owing to a Person other than a Subsidiary of the Company.76

Covenant 10.04

Restrictions on Dividends of Subsidiaries, etc. The Company will not, and will not permit any of its Subsidiaries to, enter into any agreement which would restrict any Subsidiary's ability or right to pay dividends to, or make advances to or Investments in, the Company or, if such Subsidiary is not directly owned by the Company, the "parent" Subsidiary of such Subsidiary.

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