EXHIBIT 10.12(k)
SUBORDINATION AGREEMENT
AMONG
REGIONS BANK,
THE PURCHASERS PARTY HERETO
AND
CITIZENS, INC.
DATED AS OF JULY ___, 2004
SUBORDINATION AGREEMENT dated as of July __, 2004, among REGIONS BANK (the
"Bank"), each of the purchasers identified on the signature pages hereto (the
"Purchasers") and CITIZENS, INC., a Colorado corporation ("Citizens").
Preliminary Statement
A. The Bank has provided financing to Citizens, pursuant to a Loan
Agreement dated as of March 22, 2004 (such agreement, together with all
amendments, modifications, supplements and amendments and restatements, the
"Loan Agreement").
B. Pursuant to the Amendment to State Series of Series A-1 Senior
Convertible Stock and Series A-2 Senior Convertible Preferred Stock (the
"Certificate of Designations"), Citizens has authorized the issuance of two
series of preferred stock designated as the Series A-1 Preferred Stock (as
defined in the Certificate of Designations) and the Series A-2 Preferred Stock
(as defined in the Certificate of Designations). The Series A-1 Preferred Stock
and the Series A-2 Preferred Stock are collectively referred to herein as the
"Preferred Stock". Citizens and the Purchasers have entered into a Securities
Purchase Agreement dated as of ___________, 2004 (the "Securities Purchase
Agreement"), whereby Citizens has agreed to sell and the Purchasers have agreed
to purchase (i) certain initial units consisting of Series A-1 Preferred Stock
and a warrant for shares of Common Stock (as defined in the Certificate of
Designations) and (ii) a unit warrant exercisable for additional units of Series
A-2 Preferred Stock and a warrant for shares of Common Stock (such Preferred
Stock, and the Certificate of Designations and other agreements governing the
rights of holders thereof, together with all amendments and restatements of the
same, the "Citizens Equity Agreements").
C. The Purchasers are entering into this Agreement with the Bank relating
to amounts that may become due from time to time to the Purchasers from Citizens
under the Citizens Equity Agreements or in respect of any stock or other equity
interest of Citizens.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration and in consideration
of the agreement of the parties set forth herein, the parties hereto agree as
follows:
1. All obligations of Citizens howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or hereafter existing or
due or to become due, are called "Liabilities". All Liabilities to the Bank
under, or in connection with, the Loan Agreement are called "Senior
Liabilities"; and all Liabilities to the Purchasers under, or, in connection
with, the Citizens Equity Agreements are called "Junior Liabilities"; it being
expressly understood and agreed that the term "Senior Liabilities," as used
herein, shall include, without limitation, any and all interest accruing on any
of the Senior Liabilities after the commencement of any proceedings referred to
in Section 3, notwithstanding any provision or, rule of law which might restrict
the rights of the Bank, as against Citizens or anyone else, to collect such
interest. Senior Liabilities shall not include any amount by which the principal
of the Revolving Loans (as that term is defined in the Loan Agreement and used
herein) and the principal of any term loan under the Loan Agreement (if any)
exceeds in the aggregate $30,000,000. All amounts due or payable to the Bank
pursuant to this Agreement shall be applied first to all amounts constituting
Senior
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Liabilities until all Senior Liabilities are finally paid in full in cash.
Notwithstanding the exclusion of principal of such Revolving Loans and term loan
(if any) in excess of $30,000,000 from Senior Liabilities, the Purchasers shall
comply with this Agreement until all Senior Liabilities are finally paid in full
in cash, all as if no amounts were excluded from Senior Liabilities.
2. Section 7.22 of the Loan Agreement is modified to provide that any
payment in respect of Junior Liabilities other than in Common Stock shall not
constitute a Default (as defined in the Loan Agreement) unless such payment is
made in violation of this Agreement. Payments in respect of Junior Liabilities
in Common Stock are and will be permitted and will not constitute a Default
under the Loan Agreement. If at any time a Default (as defined in the Loan
Agreement and as modified herein) under the Loan Agreement has occurred and is
continuing or would result from any payment or distribution made in respect of
the Junior Liabilities, the payment of all Junior Liabilities with consideration
other than Common Stock and/or warrants for Common Stock shall be postponed and
subordinated to the payment in full in cash of all Senior Liabilities or until
such Default is cured, and no payment or other distribution whatsoever in
respect of any Junior Liabilities (other than in Common Stock and/or warrants
for Common Stock) shall be made, nor shall any property or assets of Citizens
shall be applied to the purchase of other acquisition or retirement of any
Junior Liabilities (other than in Common Stock and/or warrants for Common Stock)
until all Senior Liabilities have been paid in full in cash; provided, that (a)
Citizens may pay dividends in Common Stock and/or warrants for Common Stock in
accordance with the terms of the Certificate of Designations as it exists on the
date of this Agreement, and (b) Citizens may issue shares and/or warrants for
Common Stock in exchange for or conversion of Junior Liabilities.
3. In the event of any dissolution, winding up, liquidation,
reorganization or other similar proceeding relating to Citizens or to its
creditors, as such, or to its property (whether voluntary or involuntary,
partial or complete, and whether in bankruptcy, insolvency or receivership, or
upon an assignment for the benefit or creditors, or any other marshalling of the
assets and liabilities of Citizens, or any sale of all or substantially all of
the assets of Citizens, or otherwise), all Senior Liabilities shall first be
paid in full in cash before the Purchasers shall be entitled to receive and to
retain any payment or distribution (other than in Common Stock and/or warrants
for Common Stock) in respect of any of the Junior Liabilities.
4. In the event that the Purchasers receive any payment or other
distribution of any kind or character from Citizens (other than in Common Stock
and/or warrants for Common Stock) or from any other source whatsoever in respect
of any of the Junior Liabilities, other than as expressly permitted by the terms
of this Agreement, such payment or other distribution shall be received in trust
for the Bank and promptly turned over by the Purchasers to the Bank. Citizens
will cause to be inserted in any certificate, agreement, promissory note or
other instrument, which at any time, evidences any of the Junior Liabilities a
statement to the effect that the payment thereof is subordinated in accordance
with the terms of this Agreement.
5. All payments and distributions received by the Bank in respect of the
Junior Liabilities, to the extent received in, or converted into cash, may be
applied by the Bank first to the payment of any and all expenses (including
reasonable attorneys' fees and legal expenses) paid or incurred by the Bank in
enforcing this Agreement, or in endeavoring to collect, or realize
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upon any of the Junior Liabilities, or any security therefore, and any balance
thereof shall, solely as among the Purchasers and the Bank, be applied by the
Bank, in such order of application as the Bank may, from time to time, select
toward the payment of the Senior Liabilities remaining unpaid; but, as between
Citizens and its creditors, no such payment or distribution of any kind or
character shall be deemed to be a payment or distribution in respect of the
Senior Liabilities; and, notwithstanding any such payment or distribution
received by the Bank in respect of the Junior Liabilities and so applied by the
Bank toward the payment of the Senior Liabilities, the Purchasers shall be
subrogated to the then existing rights of the Bank, if any, in respect of the
Senior Liabilities only at such time as the Senior Liabilities shall have been
finally paid in full in cash.
6. Each of the Purchasers hereby waives with respect to the Bank:
a. notice of acceptance by the Bank of this Agreement;
b. notice of the existence, or creation of nonpayment of all, or any
of the Senior Liabilities;
c. notice of any renewal, extension, modification or substitution of
any Senior Liabilities;
d. demand, presentment for payment, and notice of demand, dishonor,
nonpayment, non-performance or default; and
e. all diligence in collection, or protection of, or realization
upon, the Senior Liabilities, or any thereof, or any security thereof.
7. Citizens will promptly provide to each Purchaser:
a. notice of the existence, or creation of nonpayment of all, or any
of the Senior Liabilities; and
b. notice of any renewal, extension, modification or substitution of
any Senior Liabilities.
8. The Purchasers will not, without the prior written consent of the Bank:
a. transfer or assign any of the Citizens Equity Agreements or any
rights with respect thereto, other than transfers and assignments of Citizens
Equity Agreements in which the transferee has agreed in writing prior to such
transfer or assignment to be bound by the terms of this Agreement;
b. seek to enforce any lien or security interest securing
performance of any of the Junior Liabilities;
c. convert or exchange any Junior Liabilities into or for stock or
other equity interests; provided, any or all of the Junior Liabilities may be
converted or exchanged into stock or other equity interests of Citizens if (i)
none of such stock or other equity interest matures or
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can be redeemed for cash prior to final payment in full in cash of all Senior
Liabilities, (ii) the performance of such stock or other equity interest is not
secured by any lien, security interest or collateral and does not benefit from
any guarantee or sinking fund, and (iii) no dividends, other than dividends
payable solely in stock or other equity interests of Citizens, are payable prior
to final payment in full in cash of all Senior Liabilities unless at the time of
payment of any cash dividend and after giving effect thereto no Default (as
defined in the Loan Agreement and as modified herein) has occurred and is
continuing or would result from such payment;
d. commence, or join with any other creditor in commencing, any
bankruptcy, reorganization or insolvency proceeding with respect to Citizens
unless the Purchasers shall have given the Bank thirty days prior written notice
thereof; or
e. amend or modify the Citizens Equity Agreements in contravention
of any provisions of this Agreement.
9. This Agreement shall, in all respects, be a continuing agreement and
shall remain in full force and effect (notwithstanding, without limitation, the
dissolution of any of the undersigned or that, at any time, or from time to
time, all Senior Liabilities may have been paid in full) until all Senior
Liabilities shall have been finally paid in full in cash and the Revolving
Commitment (as defined in the Loan Agreement and used herein) and term
commitment (if any) each under the Loan Agreement shall have terminated.
10. The Bank may, from time to time, at its sole discretion and without
notice to the Purchasers, take any or all of the following actions:
a. retain or obtain a security interest in any property to secure
any of the Senior Liabilities;
b. retain or obtain the primary or secondary obligation of any other
obligor or obligors with respect to any of the Senior Liabilities;
c. provide for a term loan to Citizens, provided that the
outstandings under such term loan together with the Revolving Loans shall not,
in the aggregate, exceed $30,000,000;
d. extend or renew for one or more periods (whether or not longer
than the original period), alter or exchange any of the Senior Liabilities, or
release or compromise any obligation of any nature of any obligor with respect
to any of the Senior Liabilities;
e. release its security interest in, or surrender, release or permit
any substitution or exchange for, all or any part of any property securing any
of the Senior Liabilities, or extend or renew for one or more periods (whether
or not longer than the original period) or release, compromise, alter or
exchange any obligation of any nature of any obligor with respect to any such
property; and
f. amend or restate in whole or in part any of the Loan Agreement;
provided that such an amendment or restatement shall not contravene any
provision of this Agreement.
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11. The Bank may, from time to time, without notice to the Purchasers,
assign or transfer its interest in any or all of the Senior Liabilities;
provided, however, prior to any such assignment or transfer, such assignee or
transferee shall agree to be bound by the terms of this Agreement.
Notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Senior Liabilities shall be and remain Senior Liabilities
for the purposes of this Agreement, and every immediate and successive assignee
or transferee of any of the Senior Liabilities or of any interest therein shall,
to the extent of the interest of such assignee or transferee in the Senior
Liabilities, be entitled to the benefits, and be subject to the obligations, of
this Agreement to the same extent as the applicable assignor or transferor.
12. The Bank shall not be prejudiced in its rights under this Agreement by
any act or failure to act of Citizens or the Purchasers, or any noncompliance of
Citizens or the Purchasers with any agreement or obligation, regardless of any
knowledge thereof which the Bank may have, or with which the Bank may be
charged; and, no action of the Bank permitted hereunder shall, in any way,
affect or impair the rights of the Bank and the obligations of the Purchasers or
Citizens this Agreement.
13. No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
the Bank, of any right or remedy, shall preclude other or further exercise
thereof or the exercise of any other right or remedy; nor shall any modification
or waiver of any provision of this Agreement be binding upon the Bank except as
expressly set forth in writing duly signed and delivered on behalf of the Bank.
14. The Purchasers represent and warrant to the Bank that:
a. the execution, delivery and performance by the Purchasers of this
Agreement has been duly authorized by all necessary corporate, partnership
and/or limited liability company action; and
b. this Agreement is a legal, valid and binding obligation of the
Purchasers enforceable against the Purchasers in accordance with its terms,
except to the extent such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other similar laws affecting
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
15. The Bank represents and warrants to the Purchasers that:
a. the execution, delivery and performance by the Bank of this
Agreement has been duly authorized by all necessary legal action; and
b. this Agreement is a legal, valid and binding obligation of the
Bank enforceable against the Bank in accordance with its terms, except to the
extent such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
16. Citizens represents and warrants to the Bank that:
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a. Bank has been provided with a complete and correct copy of the
Certificate of Designations of Citizens, as filed with the Colorado Secretary of
State on ______________, 2004.
b. the execution, delivery and performance by Citizens of this
Agreement has been duly authorized by all necessary corporate action.
17. This Agreement shall be binding upon the parties hereto and upon their
successors and assigns; and all references herein to Citizens, the Bank and the
Purchasers, respectively, shall be deemed to include any successor or assign to
such entity.
18. All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by facsimile), and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered by hand, or, in the case of notice by mail, when received,
or, in the case of facsimile notice, when received, addressed as follows or, in
any case, to such other address as may be hereafter notified by the respective
parties hereto.
If to the Bank:
Regions Bank
0000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attn: Xxxx X. Self
Telecopy: (000) 000-0000
With a copy to:
Xxxxxxxx Xxxxxxxx & Xxxxxx P.C.
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxxxxxxx
Telecopy: (000) 000-0000
If to a Purchaser:
Mainfield Enterprises, Inc.
c/o Sage Enterprises Growth, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Mor Sagi
With a copy to:
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Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxx X. Xxxxxxx, Esq
If to a Purchaser:
Portside Growth and Opportunity Fund
c/o Ramius Capital Group, LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxx Xxxxxxx
If to a Purchaser:
Smithfield Fiduciary LLC
c/o Highbridge Capital Management, LLC
0 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxx X. Xxxxxx/Xxxx X. Chill
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
If to a Purchaser:
Steelhead Investments Ltd.
c/o HBK Investments L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile No.: 000-000-0000
Telephone No.: 000-000-0000
Attn: General Counsel
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If to Citizens:
Citizens, Inc.
000 Xxxx Xxxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Attn: Xxxx X. Xxxxxx, President
Telecopy: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxx, P.C.
0000 Xxxxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Xxxxxxx
Telecopy: (000) 000-0000
19. Citizens shall promptly provide Bank with a copy of all Citizens
Equity Agreements.
20. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE. WHEREVER POSSIBLE, EACH PROVISION OF THIS AGREEMENT
SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER
APPLICABLE LAW, BUT IF ANY PROVISION OF THIS AGREEMENT SHALL BE PROHIBITED BY OR
INVALID UNDER SUCH LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF
SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH
PROVISION OR THE REMAINING PROVISIONS OF THIS AGREEMENT.
21. THE PURCHASERS (AND, BY ACCEPTING THE BENEFITS HEREOF, THE BANK)
EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, OR, UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED, OR WHICH MAY, IN THE FUTURE, BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
REGARDING THE SUBJECT MATTER OF THIS AGREEMENT AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR,
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CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[SIGNATURES FOLLOW]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
REGIONS BANK
By:___________________________________
Name:_____________________________
Title:____________________________
CITIZENS, INC.
By:___________________________________
Name:_____________________________
Title:____________________________
MAINFIELD ENTERPRISES, INC.
By:___________________________________
Name:_____________________________
Title:____________________________
PORTSIDE GROWTH AND OPPORTUNITY FUND
By:___________________________________
Name:_____________________________
Title:____________________________
SMITHFIELD FIDUCIARY LLC
By:___________________________________
Name:_____________________________
Title:____________________________
STEELHEAD INVESTMENTS LTD.
By: HBK Investments L.P.
Title: Investment Advisor
By:___________________________________
Name:_____________________________
Title: Authorized Signatory
