Exhibit 10.37
SUBORDINATION AGREEMENT
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This SUBORDINATION AGREEMENT, dated as of October 7, 2003 (the
"Agreement"), is made by and among Xxxxxx Respiratory Care Inc. (the
"Borrower"), FS Equity Partners IV, L.P., a Delaware limited partnership, and
the additional parties signatory hereto (collectively, the "Subordinated
Creditors"), and MW Post Advisory Group, LLC, as the administrative agent (in
such capacity, the "Agent") for the lenders (collectively, the "Lenders") from
time to time party to the Loan Agreement (as defined below).
RECITALS
A. The Borrower has entered into that certain Loan and Security
Agreement (as amended, restated, supplemented, or modified from time to time,
the "Loan Agreement") dated as of October 7, 2003, among the Borrower, the
Lenders and the Agent, whereby the Lenders agreed to extend credit to the
Borrower upon the terms and conditions contained in the Loan Agreement.
B. The Borrower has borrowed an aggregate of $14,951,520 from the
Subordinated Creditors pursuant to several Senior Subordinated Convertible
Promissory Notes dated as of April 23, 2001 or August 15, 2001 made by the
Borrower in favor of the Subordinated Creditors (collectively, and together with
any accrued interest thereon, the "Subordinated Debt").
C. The Subordinated Creditors and the Borrower have agreed that the
Subordinated Debt will be subordinated to the Senior Debt (as defined in Section
D. The Subordinated Creditors desire to subordinate their right to
payment of the Subordinated Debt at any time owed to the Subordinated Creditors
to the Senior Debt in accordance with the provisions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the
Subordinated Creditors, the Borrower and the Agent hereby agree as follows:
AGREEMENT
1. Agreement to Subordinate. The Subordinated Creditors and the
Borrower agree that the Subordinated Debt is and shall be subordinate, to the
extent and in the manner hereinafter set forth, in right of payment to the prior
payment in full in cash of the Senior Debt.
"Senior Debt" of the Borrower means all obligations consisting of the
principal, accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Borrower to the extent post-filing interest is allowed in such proceeding) and
fees and other amounts payable by the
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Borrower to the Agent or the Lenders from time to time under the Loan Documents
(as defined in the Loan Agreement) in respect of indebtedness of the Borrower
under the Loan Documents.
2. No Payment on the Subordinated Debt. Unless and until the
Senior Debt is paid in full in cash, the Subordinated Creditors hereby agree not
to accept, ask, demand, xxx for, take, create or receive from the Borrower,
directly or indirectly, in cash or other property or by set-off or in any other
manner (including without limitation from or by way of collateral), payment of
all or any of the Subordinated Debt. The parties hereto acknowledge that at the
option of the Borrower, interest on the Subordinated Debt may (a) be paid
semi-annually on each April 15 and October 15, beginning on October 15, 2003
(each such semi-annual date that an interest payment is due, an "Interest
Payment Date") but only through the issuance on any Interest Payment Date of an
additional promissory note of equal ranking to the Subordinated Debt and on the
same terms and conditions provided for therein, such additional promissory note
to be issued in a principal amount that corresponds with the amount of the
interest payment that would otherwise be due on such Interest Payment Date or
(b) accrue, such accruing amount to be compounded semi-annually.
3. In Furtherance of Subordination. The Subordinated Creditors
hereby agree as follows:
a. Upon any distribution of all or any of the assets of the
Borrower to creditors of the Borrower, in connection with any bankruptcy,
reorganization, insolvency or other similar proceeding (a "Proceeding"), any
payment or distribution of any kind (whether in cash, property or securities)
which otherwise would be payable or deliverable upon or with respect to the
Subordinated Debt shall be paid or delivered directly to the Agent in such
capacity.
b. If any Proceeding is commenced by or against the Borrower:
i. The Agent is hereby irrevocably authorized and
empowered, but shall have no obligation, to demand, xxx for, collect and receive
every payment or distribution referred to in subsection 3.a. above and give
acquittance therefor and to file claims and proofs of claim and take such other
actions (including, without limitation, voting the Subordinated Debt) as it may
deem necessary or advisable for the exercise or enforcement of any of its rights
or interests hereunder; and
ii. The Subordinated Creditors shall duly and promptly take
such action as the Agent may request (A) to collect the Subordinated Debt for
account of the Agent and to file appropriate claims or proofs of claim in
respect of the Subordinated Debt, (B) to execute and deliver to the Agent on
behalf of the Lenders such powers of attorney, assignment, or other instruments
as it may request in order to enable it to enforce any and all claims with
respect to the Subordinated Debt, and (C) to collect
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and receive any and all payments or distributions which may be payable or
deliverable upon or with respect to the Subordinated Debt.
c. All payments or distributions upon or with respect to the
Subordinated Debt which are received by any Subordinated Creditor contrary to
the provisions of this Agreement shall be received in trust for the benefit of
the Agent, on behalf of the Lenders, shall be segregated from other funds and
property held by such Subordinated Creditor and shall be forthwith paid over to
the Agent in the same form as so received (with any necessary indorsement) to be
applied (in the case of cash) to or held as collateral (in the case of non-cash
property or securities) for the payment or prepayment of Senior Debt in
accordance with its terms.
d. The Agent is hereby authorized to demand specific
performance of this Agreement, whether or not the Borrower shall have complied
with any of the provisions hereof applicable to it, at any time when any
Subordinated Creditor shall have failed to comply with any of the provisions of
this Agreement applicable to it. The Subordinated Creditors hereby irrevocably
waive any defense based on the adequacy of a remedy at law, which might be
asserted as a bar to such remedy of specific performance.
e. The Agent acknowledges that the exercise of the rights
provided in this Section may at some times be subject to the provisions of the
Intercreditor Agreement (as such term is defined in the Loan Agreement).
4. No Commencement of Any Proceeding. Each Subordinated Creditor
agrees that, so long as any of the obligations under the Senior Debt shall
remain unpaid, such Subordinated Creditor will not commence, or join with any
creditor other than the Agent in commencing, any Proceeding.
5. Rights of Subrogation. The Subordinated Creditors agree that no
payment or distribution to the Agent pursuant to the provisions of this
Agreement shall entitle any Subordinated Creditor to exercise any rights of
subrogation in respect thereof until the Senior Debt has been paid in full in
cash.
6. Further Assurances. The Subordinated Creditors and the Borrower
will further xxxx their respective books of account in such a manner as shall be
effective to give proper notice of the effect of this Agreement and will, in the
case of any Subordinated Debt which is not evidenced by any instrument, upon the
Agent's written request, cause such Subordinated Debt to be evidenced by an
appropriate instrument or instruments. The Subordinated Creditors will upon the
Agent's request deliver to the Agent true and correct copies of all instruments,
if any, evidencing Subordinated Debt. The Subordinated Creditors and the
Borrower will, at their expense and at any time and from time to time, promptly
execute and deliver all further instruments and documents, and take all further
action, that, may be necessary or desirable, or that the Agent may reasonably
request, in order to protect any right or interest granted or purported to be
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granted hereby or to enable the Agent to exercise and enforce its rights and
remedies hereunder.
7. No Change in or Disposition of Subordinated Debt. The
Subordinated Creditors will not, without the consent of the Agent:
a. Cancel or otherwise discharge any of the Subordinated Debt
(except upon (a) payment of the Senior Debt in full in cash to the Agent and the
Lenders or (b) conversion of the Subordinated Debt into common stock of the
Borrower in accordance with the terms of the Subordinated Debt) or subordinate
any of the Subordinated Debt to any indebtedness of the Borrower other than the
Senior Debt and the debt of the Borrower under the WFF Loan Agreement;
b. Sell, assign, pledge, encumber or otherwise dispose of any
of the Subordinated Debt; or
c. Permit the terms of any of the Subordinated Debt to be
changed in any manner other than changes that only extend the maturity of or
lower the interest rate on the Subordinated Debt.
8. Agreements by the Borrower. The Borrower agrees that it will not
make any payment of any of the Subordinated Debt, or take any other action, in
contravention of the provisions of this Agreement.
9. Obligations Hereunder Not Affected. All rights and interests of
the Agent hereunder, and all agreements and obligations of the Subordinated
Creditors and the Borrower under this Agreement, shall remain in full force and
effect irrespective of:
i. any lack of validity or enforceability of the Senior
Debt or any agreement or instrument relating thereto;
ii. any change in the time, manner of place of payment
of, or in any other term of the Senior Debt, or any other amendment or waiver of
or any consent to departure from the Senior Debt;
iii. any taking and holding of any collateral or
security or additional guarantees for all or any of the Senior Debt; or any
amendment, alteration, exchange, substitution, transfer, enforcement, waiver,
subordination, termination or release of any collateral or such guarantees, or
any non-perfection of any collateral, or any consent to departure from any such
guaranty;
iv. any manner of application of collateral or proceeds
thereof, to all or any of the Senior Debt, or the manner of sale of any
collateral or other security;
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v. any consent by the Agent to the change, restructure
or termination of the corporate structure or existence of the Borrower and any
corresponding restructure of the Senior Debt, or any other restructure or
refinancing of the Senior Debt or any portion thereof;
vi. any modification, compounding, compromise,
settlement, release by the Agent, collection or other liquidation of the Senior
Debt or of any collateral or security in whole or in part, and any refusal of
payment to the Agent in whole or in part, from any obligor or guarantor in
connection with any of the Senior Debt, whether or not with notice to, or
further assent by, or any reservation of rights against, the Subordinated
Creditors; or
vii. any other circumstance (including, but not limited
to, any statute of limitations) which might otherwise constitute a defense
available to, or a discharge of the Borrower or the Subordinated Creditors.
Without limiting the generality of the foregoing, the Subordinated
Creditors hereby consent to, and hereby agree, that the rights of the Agent
hereunder, and the enforceability hereof, shall not be affected by any and all
releases of any collateral or security from the liens and security interests
created by any security agreement, pledge agreement or other agreement whether
for purposes of sales or other dispositions of assets or for any other purpose.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Senior Debt is rescinded or must
otherwise be returned by the Agent upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
10. Waiver.
a. The Subordinated Creditors and the Borrower hereby waive
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Senior Debt and this Agreement and any requirement that the Agent
protect, secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action against the Borrower or
any collateral or security.
b. The Subordinated Creditors and the Borrower hereby waive any
right to require the Agent to proceed against any party hereto or any other
Person, or proceed against or exhaust any collateral or security, or pursue any
other remedy in the power of the Agent or any other Person.
c. The Subordinated Creditors and the Borrower agree that the
Agent, in its sole discretion, without notice or demand and without affecting
the enforceability of this Agreement, may foreclose on any deed of trust or
mortgage securing all or a portion of the Senior Debt and the interests in real
property secured thereby by nonjudicial sale; and the Subordinated Creditors and
the Borrower hereby waive any defense to the enforceability hereof by the Agent
against the Subordinated
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Creditors or the Borrower after a nonjudicial sale even though the Subordinated
Creditors' right of subrogation may be altered, impaired or extinguished
thereby.
11. Representations and Warranties. Each of the Subordinated
Creditors and the Borrower hereby represents and warrants as follows:
a. The Subordinated Debt (i) has been duly authorized by the
Borrower as applicable, (ii) has not been, and will not be, amended or otherwise
modified and (iii) constitutes the legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms.
b. The Subordinated Creditors own the Subordinated Debt free
and clear of any lien, security interest, charge or encumbrance or any rights of
others.
c. There exists no default in respect of the Subordinated Debt.
12. Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Subordinated Creditors or the
Borrower therefrom shall in any event be effective unless the same shall be in
writing and signed by all the Lenders or the Required Lenders (as defined in the
Loan Agreement) in accordance with the Loan Agreement and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
13. Expenses. The Subordinated Creditors and the Borrower jointly and
severally agree to pay, upon demand, to the Agent the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel,
which the Agent may incur in connection with the exercise or enforcement of any
of its rights or interests hereunder.
14. Addresses for Notices. All notices, requests, demands and other
communications provided for or permitted hereunder shall, unless otherwise
stated herein, be in writing (including telex, or telecopied communications) and
shall be sent by mail (by registered or certified mail, return receipt
requested), telex, telecopier or hand delivery:
a. If to any Subordinated Creditor or the Borrower, to it at
its address set forth on the signature pages hereof or at such other address as
shall be designated by it in a written notice to the Agent complying as to
delivery with the terms of this Section; or
b. If to the Agent, addressed to it at the address for notices
to the Agent provided in the Loan Agreement.
All such notices, requests, demands and other communications shall be effective
(a) when mailed, on the earlier of receipt or the third Business Day after being
deposited in the
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mails with postage prepaid, (b) when sent by telex, upon confirmation by telex
answerback, (c) when sent by telecopy, upon receipt thereof, and (d) upon
personal delivery thereof.
15. References to the Agent. Any reference herein to the "Agent"
shall be a reference herein to the Agent or any successor Agent appointed
pursuant to the terms of the Loan Agreement. It is understood and agreed that
the Agent is not required to act or to refrain from acting without the consent
of the Lenders to the extent such consent is required by the Loan Agreement.
16. No Waiver; Remedies. No failure on the part of the Agent to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
17. Continuing Agreement. This Agreement is a continuing agreement
and shall (i) remain in full force and effect until the Senior Debt shall have
been paid in full in cash, (ii) be binding upon the Subordinated Creditors and
the Borrower and their respective successors and assigns, and (iii) inure to the
benefit of, and shall be enforceable by the Agent and its respective successors,
transferees and assigns.
18. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective as to each party hereto after a counterpart hereof shall
have been signed by such party, and such effectiveness shall not be diminished
if one or more of the intended signatories (as reflected on the signature pages
hereof) fails to sign this Agreement.
19. Waiver of Jury Trial. The parties hereto hereby irrevocably waive
all right to trial by jury in any action, proceeding or counterclaim arising out
of or relating to this Agreement.
20. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
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WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
BORROWER: XXXXXX RESPIRATORY CARE INC.
By:
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Title:
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Address:
00000 Xxxx Xxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
AGENT: MW POST ADVISORY GROUP, LLC, as Agent
under the Loan Agreement
By:
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Title: Xxxxxxxx Post, Chief Executive
Officer
Address:
MW Post Advisory Group, LLC
00000 Xxxxxxxx Xxxx., Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx Xxxxxxxxxx, CFA
SUBORDINATED FS EQUITY PARTNERS IV, L.P.
CREDITORS:
By: FS CAPITAL PARTNERS, LLC,
General Partner
By:
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By:
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Title:
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Address:
c/o Xxxxxxx Xxxxxx & Co. Incorporated
00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxx X. Xxxxx
Signature Page
Subordination Agreement
ADDITIONAL
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SUBORDINATED CREDITORS
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Address: THE XXXXX XXXXXX XXXXXX
----------------------------------- SEPARATE PROPERTY TRUST
----------------------------------- U/D/T/ DATED JULY 17, 1997
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By:
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Xxxxx Xxxxxx Xxxxxx, Trustee
Address:
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----------------------------------- Xxxxxxx X. Xxxxxxxx
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Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxx X. Xxxxx
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Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxxxxxx Xxxxxxxx
-----------------------------------
Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxxxxxx X. Xxxxx
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Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxxxx X. Xxxxxx
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Signature Page
Subordination Agreement
ADDITIONAL
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SUBORDINATED CREDITORS
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Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxx Xxxxxxxxx
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Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxxxxxx Xxxxx
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Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxxx X. Xxxxxxxx
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Address:
----------------------------------- ----------------------------------------
----------------------------------- Xxxxxxx X. Xxxxx
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Signature Page
Subordination Agreement
