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Chapter 4: DEBT
Commentary: The debt provisions presented here
are premised on whatever definition the parties agree to use for
"Debt," a term intended
in many transactions to be narrower than the more comprehensive
concept of "Indebtedness"
(as it is usually called). In certain transactions, the parties
may choose to use the broader term "Indebtedness"
in these covenants. "Debt"
and "Indebtedness" are
seldom the pure GAAP concept, so
financial professionals should consider in the course of designing
the debt covenants how the figures appearing in the Company's
GAAP financial statements may need
to be adjusted to measure compliance with covenants using non-GAAP
terms.
- Covenants -
Covenant
4.01
| | Incurrence of [Funded] Debt.
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable with respect to, any [Funded] Debt, unless on the date the Company or such Subsidiary becomes liable with respect to any such Debt and immediately after giving effect thereto and the concurrent retirement of any other Debt, |
| (a) no Default or Event of Default exists, and |
| (b) Consolidated [Funded] Debt does not exceed [insert one or more formulas such as Formulas 4.21 through 4.24].16 | | For the purposes of this Section [ ___ ], any Person
becoming a Subsidiary after the date hereof shall be deemed, at the time
it becomes a Subsidiary, to have incurred all of its then outstanding Debt, and any Person extending, renewing or refunding any Debt shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. |
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Covenant
4.03.1
| | Clean Up of Current Debt. The Company will not at any time have any Consolidated Current Debt outstanding unless there shall have been during the immediately preceding [ ___ days] [ ___ months] a period of at least [ ___ ] consecutive days on each of which there shall have been no Consolidated Current Debt outstanding. |
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An alternative follows:
Covenant
4.03.2
(to specified amount)
| | Clean Down of Current Debt. The Company will not at any time have any Consolidated Current Debt outstanding unless there shall have been during the immediately preceding [ ___ days] [ ___ months] a period of at least [ ___ ] consecutive days on each of which there shall have been no Consolidated Current Debt outstanding in excess of $[ ___ ]. |
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An alternative follows:
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Covenant
4.03.3
(to amount of permitted additional Funded Debt)
| | Clean Down of Current Debt. The Company will not at any time have any Consolidated Current Debt outstanding unless there shall have been during the immediately preceding [ ___ days] [ ___ months] a period of at least [ ___ ] consecutive days on each of which there shall have been no Consolidated Current Debt outstanding in excess of the amount of additional Funded Debt that the Company would have been permitted to (but did not) incur on such day under Section [ ___ ].18 |
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Covenant
4.04.1
(prohibited with three exceptions; no basket)
| | Subsidiary Debt.
The Company will not at any time permit any Subsidiary to, directly or
indirectly, create, incur, assume, guarantee, have outstanding, or
otherwise become or remain directly or indirectly liable with respect
to, any Debt other than: |
| (a) Debt of a Subsidiary outstanding on the date hereof and disclosed in Schedule [ ___ ], provided that such Debt may not be extended, renewed or refunded except as otherwise permitted by this Agreement;19 |
| (b) Debt of a Subsidiary owed to the Company or a Wholly-Owned20 Subsidiary; and |
| (c) Debt of a Subsidiary outstanding at the time such Subsidiary becomes a Subsidiary, provided that (i) such Debt shall not have been incurred in contemplation of such Subsidiary becoming a Subsidiary and (ii) immediately after such Subsidiary becomes a Subsidiary no Default or Event of Default shall exist, and provided further that such Debt may not be extended, renewed or refunded except as otherwise permitted by this Agreement.21 |
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An alternative follows:
Covenant
4.04.2
(prohibited with three exceptions; basket)
| | [same as Covenant 4.04.1 but add after subparagraph (c):] |
| (d) Debt
of a Subsidiary in addition to that otherwise permitted by the foregoing
provisions of this Section [ ___ ], provided that on the date the
Subsidiary incurs or otherwise becomes liable with respect to any such
additional Debt and immediately after giving effect thereto and the concurrent retirement of any other Debt, |
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| (i) no Default or Event of Default exists, and |
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| (ii) [a: the total amount of all Debt incurred pursuant to this subparagraph (d)] [b: the total amount of all Debt of Subsidiaries (except Debt owed to the Company or a Wholly-Owned Subsidiary)] [c: Priority Debt] does not exceed [insert one or more formulas such as Formulas 4.21 through 4.24]. |
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An alternative follows:
Covenant
4.04.3
(prohibited with two exceptions; basket)
| | [same as Covenant 4.04.1 but substitute the following for subparagraph (c):] |
| (c) Debt of a Subsidiary in addition to that otherwise permitted by the foregoing provisions of this Section [ ___ ], provided that on the date the Subsidiary incurs or otherwise becomes liable with respect to any such additional Debt and immediately after giving effect thereto and the concurrent retirement of any other Debt, |
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| (i) no Default or Event of Default exists, and |
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| (ii) [a: the total amount of all Debt incurred pursuant to this subparagraph (c)] [b: the total amount of all Debt of Subsidiaries (except Debt owed to the Company or a Wholly-Owned Subsidiary)] [c: Priority Debt] does not exceed [insert one or more formulas such as Formulas 4.21 through 4.24]. | | For the purposes of this Section [ ___ ], any Person
becoming a Subsidiary after the date hereof shall be deemed, at the time
it becomes a Subsidiary, to have incurred all of its then outstanding Debt, and any Person extending, renewing or refunding any Debt shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. |
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An alternative follows:
- Formulas -
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Formula
4.22
(income statement measurement)
| | [ ___ ]% of [base]25 for
the then most recently ended [period of 12 consecutive months] [period
of four consecutive fiscal quarters] [fiscal year] of the Company. |
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Formula
4.23
(balance sheet measurement at end of last period)
| | [ ___ ]% of [base]26 as of the then most recently ended [month] [fiscal quarter/year] of the Company. |
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Formula
4.24
(balance sheet measurement at date of determination)
| | [ ___ ]% of [base]27 determined at such time. |
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