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Chapter 9: NET WORTH
Commentary:
The following examples are all phrased in terms of Consolidated Net Worth. Depending on the circumstances of any transaction, it may be appropriate additionally or alternatively
to include a covenant based upon the concept of Consolidated "Tangible"
Net Worth and/or Consolidated "Adjusted" Net Worth. Typically
Consolidated Tangible Net Worth deducts from Net Worth amounts in respect of intangible assets such as goodwill, copyrights (see Definitions Z.22.4 and Z.22.5).
Consolidated Adjusted Net Worth typically makes other deductions from
Net Worth that do not clearly fall into the "intangible" category (see Definition Z.22.3). Occasionally, the term Consolidated Adjusted Net Worth will be used when deductions included in both concepts, tangible and adjusted, are intended (see Definition Z.22.6) (one rarely uses the term "Consolidated Adjusted Tangible Net Worth").
Definitions Z.22.1 and Z.22.2 are the basic forms of "net worth" definition and should yield the same result. Definition Z.22.1
refers to "the par value ... of the capital stock" and would be
inappropriate for debtors that are organized in partnership or other
non-corporate form. Definitions Z.22.3 through Z.22.6
all deal with the "adjusted" and/or "tangible" modifications referred to
above and key off of one of the two base net worth concepts (either Definition Z.22.1 or Z.22.2, as appropriate).
While these net worth covenants affect the amount of Restricted Payments that may be distributed, a separate Restricted Payments covenant may nevertheless be appropriate.
- Covenants -
Covenant
9.01
(fixed minimum)
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| Consolidated Net Worth. The Company will not, at any time, permit Consolidated Net Worth to be less than $[ ___ ]. |
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Covenant
9.02
(sequential minimums)
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| Consolidated Net Worth. The Company will not permit Consolidated Net Worth to be less than the amounts specified below during the following periods: |
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Minimum Consolidated Net Worth | |
From the date of the Closing
through and including
____________, ____
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$____________
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From ____________, ____
through and including
____________, ____
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$____________
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and thereafter
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$____________ |
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Covenant
9.03
(periodic net income increase model)
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| Consolidated Net Worth. The Company will not, at any time, permit Consolidated Net Worth to be less than the sum of (a) $[ ___ ], plus (b)
an aggregate amount equal to [ ___ ]% of its Consolidated Net Income
(but, in each case, only if a positive number) for each completed
fiscal [quarter/year] beginning with the fiscal [quarter/year] ended
[ ____________, ____ ]. |
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Covenant
9.04
(aggregate net income increase model)
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| Consolidated Net Worth. The Company will not, at any time, permit Consolidated Net Worth to be less than the sum of (a) $[ ___ ], plus (b) [ ___ ]% of its aggregate Consolidated Net Income (but only if a positive number) for the period beginning on [a: the date of the Closing] [b: the first day of the fiscal year in which the Closing occurred] and ending [c: at such time] [d: at the end of the then most recently completed fiscal [year/quarter]]. |
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