Private Placement Financial Covenants Reference Manual

Commentary: A "Lien covenant" is typically structured as a prohibition against Liens followed by a list of particular Liens or types of Liens that are permitted. Six versions of a prohibition are presented below as covenants and a list of commonly permitted types of Liens follow as individual Addenda, any combination of which may be inserted into the covenant.

Alternative modules are provided in this section to facilitate four particular choices in constructing a Lien covenant:

Equal and ratable Lien:31	Company to provide an equal and ratable Lien for the Notes when it incurs a prohibited Lien, but that does not cure the default. (Covenants 6.01 and 6.04)	or	Company may incur a Lien otherwise prohibited so long as it provides an equal and ratable Lien for the Notes. (Covenants 6.02 and 6.05)
Liens not involving borrowed money:32	Describe Liens not involving borrowed money as exceptions to a broad prohibition. (Covenants 6.01, 6.02, and 6.03)	or	Limit the prohibition to those Liens that secure Debt for borrowed money. (Covenants 6.04, 6.05, and 6.06)
Liens for appeal bonds or unstayed attachments/ judgments	Permitted regardless of amount (no cap). (Addendum 6.22.1 and 6.23.1)	or	Permitted if not greater than a certain amount (capped). (Addendum 6.22.2 and 6.23.2)
Inter-company Liens:	Allow Lien on Company or Subsidiary property in favor of Company or any Subsidiary. (Addendum 6.25.1)	or	Allow Lien on Company or Subsidiary property in favor of Company or Wholly-Owned Subsidiary. (Addendum 6.25.2)

Another basic choice is whether to provide a basket for Liens not otherwise permitted (Addendum 6.30).

Covenant 6.01 (Liens prohibited notwithstanding equal and ratable Lien for the Notes)

Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the last paragraph of this Section [ ___ ]), or assign or otherwise convey any right to receive income or profits, except: [insert desired exceptions to the prohibition from among the Addenda] If, notwithstanding the prohibition contained herein, the Company shall, or shall permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist any Lien, other than those Liens permitted by the provisions of paragraphs (a) through (  )33 of this Section [ ___ ], it will make or cause to be made effective provision whereby the Notes will be secured equally and ratably with any and all other obligations thereby secured, such security to be pursuant to agreements reasonably satisfactory to the Required Holders34 and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property. Such violation of this Section [ ___ ] will constitute a[n Event of] Default, whether or not provision is made for an equal and ratable Lien pursuant to this Section [ ___ ].

Covenant 6.02 (Liens prohibited unless equal and ratable Lien for the Notes)

Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom or assign or otherwise convey any right to receive income or profits (unless it makes, or causes to be made, effective provision whereby the Notes will be equally and ratably secured with any and all other obligations thereby secured, such security to be pursuant to an agreement reasonably satisfactory to the Required Holders35 and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property), except: [insert desired exceptions to the prohibition from among the Addenda]

Covenant 6.03 (Liens prohibited; no mention of equal and ratable Lien for the Notes)

Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except: [insert desired exceptions to the prohibition from among the Addenda]

Covenant 6.04 (Liens securing Debt for borrowed money prohibited notwithstanding equal and ratable Lien for the Notes)

Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien securing Debt for borrowed money36 on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the last paragraph of this Section [ ___ ]), or assign or otherwise convey any right to receive income or profits, except: [insert desired exceptions to the prohibition from among the Addenda] If, notwithstanding the prohibition contained herein, the Company shall, or shall permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist any Lien securing Debt for borrowed money, other than those Lien permitted by the provisions of paragraphs (a) through (  )37 of this Section [ ___ ], it will make or cause to be made effective provision whereby the Notes will be secured equally and ratably with any and all other obligations thereby secured, such security to be pursuant to agreements reasonably satisfactory to the Required Holders38 and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property. Such violation of this Section [ ___ ] will constitute a[n Event of] Default, whether or not provision is made for an equal and ratable Lien pursuant to this Section [ ___ ].

Covenant 6.05 (Liens securing Debt for borrowed money prohibited unless equal and ratable Lien for the Notes)

Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien securing Debt for borrowed money39 on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom or assign or otherwise convey any right to receive income or profits (unless it makes, or causes to be made, effective provision whereby the Notes will be equally and ratably secured with any and all other obligations thereby secured so long as such other Debt40 shall be so secured, such security to be pursuant to an agreement reasonably satisfactory to the Required Holders41 and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property), except: [insert desired exceptions to the prohibition from among the Addenda]

Covenant 6.06 (Liens securing Debt for borrowed money prohibited; no mention of equal and ratable Lien for the Notes)

Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien securing Debt for borrowed money42 on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except: [insert desired exceptions to the prohibition from among the Addenda]

Addendum 6.20 (taxes, etc.)

( _ ) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section [ ___ ];43

Addendum 6.21 (mechanics' Lien, etc.)

( _ ) statutory Liens of landlords and Lien of carriers, warehousemen, mechanics, materialmen and other similar Lien, in each case, incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section [ ___ ];44

Addendum 6.22.1 (performance bonds, etc. - appeal bonds not capped)

( _ ) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property;

Addendum 6.22.2 (performance bonds, etc. - appeal bonds capped)

( _ ) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds (not in excess of $[ ___ ])45 , bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property;

Addendum 6.23.1 (stayed judgments - not capped)

( _ ) any attachment or judgment Lien, unless the judgment it secures shall not, within [ ___ ] days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within [ ___ ] days after the expiration of any such stay;

Addendum 6.23.2 (stayed judgments - capped)

( _ ) any attachment or judgment Lien, unless the judgment it secures (i) shall not, within [ ___ ] days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within [ ___ ] days after the expiration of any such stay or (ii) exceeds $[ ___ ];46

Addendum 6.24 (easements, etc.)

( _ ) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property;

Addendum 6.25.1 (inter-company Lien to Company or Subsidiaries)

( _ ) Liens on property or assets of the Company or any of its Subsidiaries securing Debt owing to the Company or to another Subsidiary;

Addendum 6.25.2 (inter-company Lien to Company or Wholly-Owned Subsidiaries)

( _ ) Liens on property or assets of the Company or any of its Subsidiaries securing Debt owing to the Company or to any of its Wholly-Owned Subsidiaries;

Addendum 6.26 (existing Lien)

( _ ) Liens existing on the date of this Agreement and securing the Debt of the Company and its Subsidiaries referred to in item[s] [ ___ ] [and ___ ] of Schedule [ ___ ];47

Addendum 6.27 (purchase money Liens)

( _ ) any Lien created to secure all or any part of the purchase price, or to secure Debt incurred or assumed to pay all or any part of the purchase price or cost of construction, of [tangible] property (or any improvement thereon) acquired or constructed by the Company or a Subsidiary after the date of the Closing, provided that      (i) any such Lien shall extend solely to the item or items of such property (or improvement thereon) so acquired or constructed and, if required by the terms of the instrument originally creating such Lien, other property (or improvement thereon) which is an improvement to or is acquired for specific use in connection with such acquired or constructed property (or improvement thereon) or which is real property being improved by such acquired or constructed property (or improvement thereon),      (ii) the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to [ [ ___ ]% (but 100% in the case of property (or improvement thereon) the acquisition of which is financed through a Capital Lease Obligation) of]48 the lesser of (A) the cost to the Company or such Subsidiary of the property (or improvement thereon) so acquired or constructed and (B) the Fair Market Value (as determined in good faith by the board of directors of the Company) of such property (or improvement thereon) at the time of such acquisition or construction, and      (iii) any such Lien shall be created contemporaneously with, or within [ ___ ] days after, the acquisition or construction of such property;

Addendum 6.28 (pre-existing Liens on acquired property)

( _ ) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Subsidiary or its becoming a Subsidiary, or any Lien existing on any property acquired by the Company or any Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (i) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person's becoming a Subsidiary or such acquisition of property, and (ii) each such Lien shall extend solely to the item or items of property so acquired and, if required by the terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property;

Addendum 6.29 (renewals, extensions, refundings)

( _ ) any Lien renewing, extending or refunding any Lien permitted by paragraphs ( _ ), ( _ ) or ( _ )49 of this Section [ ___ ], provided that (i) the principal amount of Debt secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (ii) such Lien is not extended to any other property, and (iii) immediately after such extension, renewal or refunding no Default or Event of Default would exist;

Addendum 6.30 (basket)

( _ ) other Liens not otherwise permitted by paragraphs ( _ ) through ( _ ),50 provided that [here insert either a quantitative test similar to that used in the Debt covenant or cross-reference to the subparagraphs of that covenant containing the test, such as subparagraph (b) of Covenant 4.01] [;][.]

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