SUBORDINATION AGREEMENT
Exhibit 10.3
THIS SUBORDINATION AGREEMENT (the “Agreement”) is effective March 16, 2011, among VALIANT
INVESTMENTS, L.L.C., an Oklahoma limited liability company (the “Subordinated Lender”),
APOTHECARYRX, LLC, an Oklahoma limited liability company (“ARX”), SDC HOLDINGS, LLC, an Oklahoma
limited liability company (“SDC”) and GRAYMARK HEALTHCARE, INC., an Oklahoma corporation
(“Graymark” and together with ARX and SDC, the “Borrowers”), in favor of ARVEST BANK, an Arkansas
banking corporation (the “Lender”).
W I T N E S S E T H :
A. The Lender has extended credit to the Borrowers and their affiliates pursuant to the
Amended and Restated Loan Agreement dated December 17, 2010, executed and delivered by the
Borrowers and the Borrowers’ affiliates (the “Loan Agreement”), evidenced by: (a) the Amended and
Restated Promissory Note dated May 21, 2008, in the principal amount of $30,000,000.00, executed
and delivered by the Borrowers, as amended (the “Term Note”); and (b) that certain Promissory Note
dated May 21, 2008, in the principal amount of $15,000,000.00, executed and delivered by the
Borrowers (the “Acquisition Note” and together with the Term Note, the “Notes”). The obligations
of the Borrower under the Notes are secured by certain property of the Borrower (such property is
referred to herein as the “Collateral”) under that certain Security Agreement dated May 21, 2008,
executed and delivered by the Borrowers, as amended (the “Security Agreement,” and together with
the Loan Agreement, the Security Agreement and any other documents and instruments executed and/or
delivered to evidence or secure the Notes, the “Loan Documents”).
B. Graymark is currently attempting to secure equity financing for Graymark in a securities
offering from which Graymark expects to receive $15,000,000.00 to $18,000,000.00 in proceeds (the
“Equity Offering”).
C. Graymark has indicated to the Lender that Graymark needs to obtain a $1,000,000.00
unsecured line of credit to fund its operating expenses (the “Line of Credit”).
D. Pursuant to the Letter Agreement among the Lender and Graymark dated March 11, 2011, the
Lender agreed to permit Graymark to pursue a Line of Credit from other lenders, subject to certain
conditions.
E. The Subordinated Lender has agreed to make the Line of Credit available to Graymark
pursuant to a Loan Agreement between the Subordinated Lender and Graymark dated March 16, 2011, as
amended (the “Subordinated Loan Agreement”), and a Promissory Note in the original principal amount
of $1,000,000.00 made by Graymark payable to the order of the Subordinated Lender dated March 16,
2011, as amended (the “Subordinated Note”), and any other documents entered into in connection with
the Subordinated Loan Agreement or Subordinated Note (together, the “Subordinated Loan Documents”).
F. The Subordinated Lender, the Borrowers and the Lender desire to enter into this Agreement
pursuant to which the Subordinated Lender and the Borrowers agree that all
obligations now existing or arising in the future of the Borrowers under the Subordinated Loan
Documents (the “Subordinated Debt”) will be subordinate in right of payment to all obligations of
the Borrowers to the Lender.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein,
the parties hereto, intending to be legally bound hereby, agree as follows:
1. Subordination. The Subordinated Lender hereby agrees that, except as and to the extent
hereinafter provided, the Subordinated Debt is and will be subordinate and subject in right of
payment to the prior payment in full of all obligations now existing or arising in the future of
the Borrowers under the Note, the Loan Documents, this Agreement and any other agreements executed
in connection with the Notes (the “Senior Debt”), whether or not the Senior Debt has been voided,
disallowed or subordinated pursuant to Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx Bankruptcy Code or any
applicable state fraudulent conveyance laws, whether asserted directly or under Section 544 of the
United States Bankruptcy Code, and that should the Subordinated Lender have any security interest
or other lien in the Collateral, that security interest or other lien will be subject and
subordinate in all respects and for all purposes to the liens and security interests of the Lender
in the Collateral, regardless of the order of creation, attachment, filing or other means of
perfection.
| 1.1 | Payments Not Permitted. None of the Borrowers is permitted to make any
payments of interest or principal on the Subordinated Debt before August 1, 2011,
except that if Graymark receives more than $10,000,000.00 in proceeds from the Equity
Offering before June 30, 2011, then Graymark may pay off the Subordinated Debt in full
on June 30, 2011. Beginning on August 1, 2011, and thereafter, while no default has
occurred and is continuing under the Loan Documents, or would be caused thereby, the
Subordinated Lender may from time to time receive from Graymark regularly scheduled
payments of interest on the Subordinated Debt. Nothing in this Agreement will limit
the right of the Subordinated Lender to receive payments on or in respect of the
Subordinated Debt at any time after the Senior Debt has been indefeasibly paid in full.
The aggregate of all advances under the Subordinated Loan Documents may not exceed
$1,000,000.00. |
| 1.2 | Subordinated Debt Unsecured. The Subordinated Debt is unsecured and
the Subordinated Lender will not take any action to obtain a security interest in any
assets of the Borrowers or their respective affiliates. |
| 1.3 | Deferred Acceleration. The Subordinated Lender covenants and agrees
that following notification of a default under the Loan Documents by the Lender until
the earlier of: (a) payment in full of all of the Senior Debt, and (b) the passage of
one hundred eighty (180) days from the date of notification, the Subordinated Lender
will not take any action to accelerate, demand or collect the Subordinated Debt, to
exercise any of its remedies in respect of the Subordinated Debt, to initiate a
reorganization of, or litigation against, the Borrowers or to foreclose or otherwise
realize on any security including, without limitation, the Collateral, given by the
Borrowers or any other person to secure the Subordinated Debt,
except that the Subordinated Lender may accelerate the Subordinated Debt, prior to
repayment in full of the Senior Debt, if: (i) the Lender has first accelerated the
Senior Debt, and (ii) the Subordinated Lender takes no further action to cause
repayment of any portion of the Subordinated Debt until the Senior Debt is repaid in
full. |
| 1.4 | Lender’s Remedies Not Impaired. The Subordinated Lender and the
Borrowers acknowledge that after the occurrence and during the continuance of a
default, the Lender, at its option, may take any action to foreclose or realize upon or
enforce any of the Lender’s rights including, without limitation, any of its rights
with respect to any Collateral, without the prior consent of the Borrowers or the
Subordinated Lender. |
| 1.5 | Acceleration of Senior Debt. Upon the acceleration of the Senior Debt,
the exercise of the Lender’s rights, the distribution of assets, winding up, total or
partial liquidation, dissolution, reorganization or readjustment of debt,
custodianship, bankruptcy, receivership, or insolvency or upon an assignment for the
benefit of creditors or upon any other marshalling of the assets and liabilities of the
Borrowers or upon any similar proceeding relating to the Borrowers or its property
(whether voluntary or involuntary): (a) all of the Senior Debt, whether or not then due
and payable, will first be paid in full before any payment of principal, interest, or
any other amount due under the Subordinated Debt; and (b) any payment or distribution
of assets of the Borrowers of any kind or character, whether in cash, property or
securities to which the Subordinated Lender would be otherwise entitled (but for the
terms hereof), will be paid or delivered by the trustee in bankruptcy, receiver,
assignee for the benefit of creditors or other similar person making such distribution
directly to the Lender for application to the payment of the Senior Debt until the
Senior Debt is paid in full in cash. |
| 1.6 | Payments Received by Subordinated Lender. If, notwithstanding the
provisions of this Agreement, any payment or distribution of any character (whether in
cash, securities, or other property) or any security will be received, directly or
indirectly, by the Subordinated Lender in contravention of the terms of this Agreement
(a “Prohibited Transfer”), and before all of the Senior Debt will have been paid in
full in cash, such Prohibited Transfer will not be commingled with any asset of the
Subordinated Lender, will be held IN TRUST for the benefit of the Lender and will
immediately be paid over or delivered or transferred to the Lender, or its
representative, for application to the payment of all of the Senior Debt remaining
unpaid, until all of the Senior Debt will has been paid in full in cash. |
| 1.7 | Continuing Subordination, Etc. The subordination effected by this
Agreement is a continuing subordination, and the Subordinated Lender hereby agrees that
at any time and from time to time, without notice to the Subordinated Lender: |
| 1.7.1 | the time for the Borrower’s performance of or compliance with
any of its agreements contained in any of the Loan Documents may be extended or
such performance or compliance may be waived by the Lender; |
| 1.7.2 | any of the acts mentioned in any of the Loan Documents may be
done; |
| 1.7.3 | any of the Loan Documents may be amended for the purpose of
adding any provisions thereto or increasing the amount of, or changing the
terms of, the Senior Debt or changing in any manner the covenants or rights of
the Lender or the Borrowers or any other person thereunder; |
| 1.7.4 | the amount of the Senior Debt may be increased or payment
terms respecting any of the Senior Debt or any portion thereof may be extended; |
| 1.7.5 | the maturity of any of the Senior Debt may be accelerated, and
any or all collateral security therefor may be exchanged, sold, surrendered,
released or otherwise dealt with; |
| 1.7.6 | the Borrowers, any guarantor or any other person may be
released of its obligations, whether or not in connection with a bankruptcy; |
| 1.7.7 | payments received by the Lender from any source which could
lawfully be applied to payment, in full or in part, of the Senior Debt, but
which could also lawfully be used for some other purpose may be used for such
other purpose; |
| 1.7.8 | any other event which could, but for this provision, be used
as a defense to the obligations of the Subordinated Lender hereunder may occur;
and |
| 1.7.9 | the Senior Obligations may be refinanced or restructured by
the Lender or any other lender (and in such event the Subordinated Lender will
enter into a subordination agreement in form and substance as this Agreement
with any such other lender); |
all without impairing or affecting the obligations of the Subordinated Lender
hereunder.
| 1.8 | Waivers. The Subordinated Lender hereby unconditionally waives (a)
notice of the incurring of the Senior Debt or any part thereof (b) reliance by the
Lender upon the subordination of the Subordinated Debt to the Senior Debt (c) any
marshalling rights or equities and (d) any other notice or rights provided by law,
equity or contract. |
| 1.9 | Subrogation. No payment or distribution to the Lender pursuant to the
provisions of this Agreement will entitle the Subordinated Lender to exercise any
rights of subrogation in respect thereof (and any such rights existing under law are
hereby waived) until such time as: (a) the Senior Debt has been indefeasibly paid in
full; and (b) there exists no commitment under the Loan Documents. |
| 1.10 | Certain Covenants of Subordinated Lender. The Subordinated Lender
agrees that promptly upon the written request of the Lender, it will take such other
action as may be reasonably requested by the Lender to protect the rights of the Lender
under this Agreement or effectuate the subordination provided herein. |
| 1.11 | No Amendments. The Subordinated Loan Documents may not be amended or
supplemented without the Lender’s prior written consent. |
2. Miscellaneous. The parties further agree as follows:
| 2.1 | Governing Law. This Agreement and the rights and obligations of the
parties hereunder will be construed and enforced in accordance with, and will be
governed by, the laws of the State of Oklahoma (without giving effect to its choice of
law principles). |
| 2.2 | Notice. Any notice, payment, demand, communication or delivery
required or permitted to be given by any provision of this Agreement will be in writing
and will be deemed to have been given when delivered personally or by telefacsimile to
the party designated to receive such communication or on the date following the day
sent by overnight courier, or on the third business day after the same is sent by
certified mail, postage and charges prepaid, directed to the following address: |
To Subordinated Lender:
|
Xx. Xxx X. Xxxxxx | |
| Valiant Investments, L.L.C. | ||
| 000 Xxxxx Xxxxxxxx, Xxxxx 000 | ||
| Xxxxxxxx Xxxx, Xxxxxxxx 00000 | ||
To the Borrowers:
|
c/o Xx. Xxxxxxx Xxxxxx | |
| 000 Xxxxx Xxxxxxxx, Xxxxx 000 | ||
| Xxxxxxxx Xxxx, Xxxxxxxx 00000 | ||
| Fax: (000) 000-0000 | ||
With a copy to:
|
Xxxx X. Xxxxxxxxx, Esquire | |
| 0000 XX Xxxxxxxxxx, Xxxxx 000 | ||
| Xxxxxxxx Xxxx, Xxxxxxxx 00000 | ||
| Fax: (000) 000-0000 | ||
To the Lender:
|
Xx. Xxxxx Xxxxx | |
| Arvest Bank | ||
| 0000 Xxxxx Xxxxxxx Xxxxxxxxx | ||
| Xxxxxxxx Xxxx, Xxxxxxxx 00000 | ||
| Fax: (000) 000-0000 | ||
With a copy to:
|
Xxx Xxxxxxx, Esquire | |
| Commercial Law Group, P.C. | ||
| 0000 Xxxxx Xxxxxxx Xxxxxx | ||
| Xxxxxxxx Xxxx, Xxxxxxxx 00000 | ||
| Fax: (000) 000-0000 |
| 2.3 | Waivers. The terms of this Agreement may be waived, altered or amended
only by an instrument in writing duly executed by the Subordinated Lender and the
Lender, or their successors and assigns. |
| 2.4 | Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns, provided, however, that neither the Subordinated Lender nor the
Borrowers will assign or transfer their rights hereunder without the prior written
consent of the Lender. |
| 2.5 | Counterparts. This Agreement may be executed in one or more
counterparts, each of which will constitute an original, but all of which taken
together will constitute one and the same instrument. Delivery of a photocopy or
telecopy of an executed counterpart of a signature page to this Agreement will be
effective as delivery of a manually executed counterpart of this Agreement. |
| 2.6 | Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the remaining
provisions hereof in such jurisdiction, and any such prohibition or unenforceability in
any jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction. |
| 2.7 | Inconsistencies with Loan Agreement. To the extent any terms hereof
are inconsistent with the terms of the Loan Agreement, the terms of the Loan Agreement
will control. |
[SIGNATURE PAGES FOLLOW]
SIGNATURE PAGE TO SUBORDINATION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
| SUBORDINATED LENDER: VALIANT INVESTMENTS, L.L.C., an Oklahoma limited liability company |
||||
| By: | ||||
| Xxx X. Xxxxxx, Manager | ||||
SIGNATURE PAGE TO SUBORDINATION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
| BORROWER: | ||||||||
| GRAYMARK HEALTHCARE, INC., an Oklahoma Corporation |
||||||||
| By: | ||||||||
| Xxxxxxx X. Xxxxxx, CEO | ||||||||
| BORROWER: | ||||||||
| APOTHECARYRx LLC, an Oklahoma limited liability company |
||||||||
| By: | GRAYMARK HEALTHCARE, INC., an Oklahoma Corporation, its Manager |
|||||||
| By | ||||||||
| Xxxxxxx X. Xxxxxx, CEO | ||||||||
| BORROWER: | ||||||||
| SDC HOLDINGS, LLC, an Oklahoma limited liability company |
||||||||
| By: | GRAYMARK HEALTHCARE, INC., an Oklahoma Corporation, its Manager |
|||||||
| By | ||||||||
| Xxxxxxx X. Xxxxxx, CEO | ||||||||
SIGNATURE PAGE TO SUBORDINATION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
| LENDER: | ||||||
| ARVEST BANK, an Arkansas banking corporation | ||||||
| By | |
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