SUBORDINATION AGREEMENT
(NationsBank of Texas, N.A. )
This Subordination Agreement dated as of March 30, 1998 ("Agreement"),
is made by ______________________________________ ("Subordinated Creditor"), and
CASTLE DENTAL CENTERS, INC., a Delaware corporation ("Debtor"), in favor of
NATIONSBANK OF TEXAS, N.A. and the other banks under the Credit Agreement
referred to below (collectively, "Senior Creditor").
INTRODUCTION
Reference is made to the Credit Agreement dated as of November 7, 1997
(as may be modified from time to time, the "Credit Agreement") among NationsBank
of Texas, N.A., as agent, the Debtor and Senior Creditor. It is a condition
precedent to the Senior Creditor's permitting the Debtor to incur the
indebtedness represented by the Subordinated Note that the Subordinated Creditor
enter into this Agreement. In consideration of the foregoing and for other good
and valuable consideration, the Subordinated Creditor, the Debtor, and the
Senior Creditor hereby agree as follows:
Section 1. DEFINITIONS. The following terms shall have the following means
"Event of Default" means any "Default" or "Event of Default" as defined
in, and which may occur under the Credit Agreement.
"Loan Documents" shall have the meaning specified by the Credit
Agreement.
"Senior Debt" means (a) all principal, interest, fees, reimbursements,
indemnifications, and other amounts now or hereafter owed by the Debtor to
Senior Creditor under the Credit Agreement, the Loan Documents, and any other
instrument or agreement related thereto and (b) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations.
"Subordinated Debt" means all present and future indebtedness,
liabilities, and obligations of any kind owed by the Debtor to the Subordinated
Creditor, including debt obligations, equity obligations, and other contractual
obligations requiring payments of any kind to be made to the Subordinated
Creditor, whether such indebtedness, liabilities, and obligations are absolute
or contingent, joint, several, or independent arising by operation of law or
contract, created directly with the Subordinated Creditor or acquired by
assignment, participation, or otherwise, or direct or indirect (including
indebtedness, liabilities, obligations of the Debtor to the Subordinated
Creditor as a result of either's membership in any partnership, syndicate,
association, or other group, and whether
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incurred by the Debtor as principal, guarantor, surety, endorser, accommodation
party, or otherwise. Subordinated Debt specifically includes the Subordinated
Note.
"Subordinated Note" means all subordinated promissory notes made by the
Debtor and payable to the Subordinated Creditor pursuant to the terms of that
certain Master Combination and Contribution Agreement dated as of January 30,
1998, by and among, Debtor, the Subordinated Creditor and the other parties
thereto ("Contribution Agreement"), as the same may be increased, extended,
rearranged, amended, supplemented, and otherwise modified from time to time in
accordance with this Agreement.
Section 2. TERMS OF SUBORDINATION. Unless and until the Senior Debt shall have
been irrevocably paid in full and the Senior Creditor shall have no commitment
to extend further Senior Debt, the payment and performance of the Subordinated
Debt is hereby made expressly subordinate and junior in right of payment and
performance to the prior payment and performance of all obligations and
liabilities under the Senior Debt to the extent and in the manner set forth in
this Section 2.
2.1 LIMITATION ON PAYMENTS.
(a) Except as otherwise provided herein, no payment or prepayment
of any sum on the Subordinated Debt, whether by acceleration or otherwise, shall
be made, if at the time of such payment, prepayment, or immediately after giving
effect thereto there shall exist a default in the payment or prepayment with
respect to any of the Senior Debt, or immediately after giving effect thereto
(i) there shall exist a default in the payment or prepayment of the principal or
interest with respect to any of the Senior Debt or (ii) there shall have
occurred, or after giving effect to such payment there shall occur, an Event of
Default (other than an Event of Default in the payment of prepayment of
principal or interest with respect to any of the Senior Debt) permitting the
Senior Creditor to accelerate the maturity thereof (with notice, lapse of time,
or both) and such Event of Default shall not have been cured to the satisfaction
of or waived by the Senior Creditor.
(b) If at any time there shall occur an Event of Default, the
Subordinated Creditor shall not be entitled to receive any payment on the
Subordinated Debt before the earlier of (i) cure of the Event of Default to the
satisfaction of, or waiver thereof by, the Senior Creditor or (ii) the
irrevocable payment in full of the Senior Debt and the termination of all
commitments to extend Senior Debt.
(c) In the event that any Subordinated Debt is declared due and
payable before their expressed maturity (including, without limitation, upon the
exercise of CDC's Call Option (as defined in the Combination Agreement)) because
of the occurrence of an event of default (under circumstances when the
provisions of the foregoing paragraphs (a) or (b) are not applicable), the
Senior Creditor shall be entitled to receive payment in full of all principal,
interest, and other sums outstanding in connection with the Senior Debt before
the Subordinated Creditor is entitled to receive any payment on account of such
Subordinated Debt.
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(d) Any payments received by the Subordinated Creditor in
violation of this Agreement shall be held by the Subordinated Creditor in trust
for the benefit of the Senior Creditor and shall be immediately turned over to
the Senior Creditor in the form received (together with any necessary
endorsements) for application to the Senior Debt until all outstanding Senior
Debt has been irrevocably paid in full.
2.2 REMEDY BLOCKAGE. During certain periods specified below (each a
"Remedy Blockage Period"), the holders of the Subordinated Debt will not have
any of the following rights (a "Remedy Blockage"): (i) to demand, xxx for or
take from or on behalf of the Debtor, by set-off or in any other manner, any
moneys which may then or thereafter be owing by the Debtor on the Subordinated
Debt, (ii) to commence, or to join with any Person in commencing, any suit,
action or proceeding against the Debtor (A) to enforce payment of or to collect
all or any portion of the Subordinated Debt or (B) to commence judicial
enforcement of any of the rights and remedies under the documents or instruments
governing the Subordinated Debt or applicable law, (iii) to accelerate the
principal of or interest on or any other amount under the Subordinated Debt, or
(iv) to commence, or to join with any Person in commencing, against Debtor or
any of its property a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding (except that the holders of the Subordinated Debt may
(1) charge interest at a default rate, (2) accelerate the Subordinated Debt
after the Senior Debt is accelerated or otherwise take such actions in respect
of the Subordinated Debt as are taken by the holders of the Senior Debt in
respect of the Senior Debt after such actions are taken by the holders of the
Senior Debt, (3) xxx for specific performance, but not for damages or other sums
of money, or obtain injunctive relief, in either case, in respect of the
covenants of the Subordinated Debt which do not require, directly or indirectly,
the payment by the Debtor of money, and (4) give notices and file law suits to
prevent the running of the relevant statute of limitations, pursue rights in
bankruptcy, reorganization, insolvency, receivership, or other similar
proceedings, and otherwise protect legal rights)
The Remedy Blockage Periods shall be as follows:
(a) if there shall exist a default in the payment of any amounts
owing under the Subordinated Debt (a "Payment Default"), the Remedy Blockage
shall remain in effect for a Remedy Blockage Period ending 180 days after agent
for the Senior Debt receives written notice from any holder of the Subordinated
Debt (or any designed representative thereof) of the occurrence of the Payment
Default, and
(b) if there shall exist any default with respect to the
Subordinated Debt other than a Payment Default, the Remedy Blockage Period shall
remain in effect until such default is cured or waived or the Senior Debt is no
longer outstanding; provided, however, that all Remedy Blockage Periods pursuant
to this Section 2.2(b) shall terminate and no further such Remedy Blockage
Periods shall commence upon the expiration of any Remedy Blockage Period which
has expired pursuant to Section 2.2(a) hereof.
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2.3 SUBORDINATION ON LIQUIDATION. Upon any receivership, insolvency
proceeding, bankruptcy proceeding, assignment for the benefit of creditors,
reorganization, arrangement with creditors, sale of assets for creditors,
dissolution, liquidation, or marshalling of the assets of the Debtor (each, a
"Bankruptcy Event"), all amounts due with respect to the Senior Debt shall be
irrevocably paid in full before the Subordinated Creditor shall be entitled to
collect or receive any payment with respect to the Subordinated Debt. Any
payments received by the Subordinated Creditor in such proceedings shall be held
by the Subordinated Creditor in trust for the benefit of the Senior Creditor and
shall be immediately turned over to the Senior Creditor in the form received
(together with any necessary endorsements) for application to the Senior Debt
until all outstanding Senior Debt has been irrevocably paid in full.
2.4 SUBORDINATION OF LIENS. The Subordinated Creditor will not create,
assume, or suffer to exist any lien, security interest, or assignment of
collateral securing the repayment of the Subordinated Debt. Any such judgment
lien, and any other lien, security interest, or assignment existing in violation
of the foregoing shall be fully subordinate to any lien, security interest, or
assignment in favor of the Senior Creditor which secures any of the Senior Debt.
At the request of the Senior Creditor, the Subordinated Creditor and the Debtor
will take any and all steps necessary to fully effect the release of any such
lien, security interest, assignment, or collateral.
2.5 FURTHER ASSURANCES. The Subordinated Creditor and the Debtor agree
to execute any and all other instruments reasonably requested by the Senior
Creditor to further evidence the subordination of the Subordinated Debt to the
Senior Debt as herein provided.
2.6. SUBROGATION. After all Senior Debt is irrevocably paid in full and
until the Subordinated Note is irrevocably paid in full, the Subordinated
Creditor shall be subrogated to the rights of holders of the Senior Debt to
receive distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Subordinated Creditors have been applied to the payment
of the Senior Debt. A distribution made under this Section 2, directly or
indirectly, to holders of Senior Debt that otherwise would have been made to the
Subordinated Creditors is not, as between the Debtor and the Subordinated
Creditors, a payment by the Debtor on the Subordinated Note.
2.7 RELATIVE RIGHTS. This Section 2 defines the relative rights of the
Subordinated Creditors and the Senior Creditor. Nothing in this Agreement shall:
(a) impair, as between the Debtor and the Subordinated Creditors, the
obligation of the Debtor, which is absolute and unconditional, to pay all of the
obligations under the Subordinated Note in accordance with its terms; or
(b) affect the relative rights of the Subordinated Creditors and
creditors of the Debtor other than their rights in relation to the Senior
Creditor.
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If the Debtor fails because of this Section 2 to pay any obligation
under the Subordinated Note on the applicable due date thereof (within any
applicable grace periods), such failure shall remain a default or event of
default under the Subordinated Note.
Section 3. SUBORDINATION ABSOLUTE. This is an irrevocable agreement of
subordination and the Senior Creditor may, without notice to any of the parties
hereto and without impairing or releasing the obligations of the Debtor and the
Subordinated Creditor hereunder, (a) create Senior Debt by extending credit
under the Credit Agreement; (b) change the terms of or increase the amount of
the Senior Debt by increasing, extending, rearranging, amending, supplementing,
or otherwise modifying any of the Loan Documents or other instruments or
agreements creating Senior Debt; (c) sell, exchange, release, or otherwise deal
with any collateral securing any Senior Debt; (d) release anyone, including the
Debtor or any guarantor, liable in any manner for the payment or collection of
any Senior Debt; (e) exercise or refrain from exercising any rights against the
Debtor or any other Person; and (f) apply any sums received by any Senior
Creditor, from whatever source, to the payment of the Senior Debt.
Section 4. PROVISIONS REGARDING SUBORDINATED DEBT.
4.1 There may be no increases, extensions, rearrangements, amendments,
supplements, or other modifications to the Subordinated Note which increase the
principal amount of, increase the interest rate payable on, or accelerate the
scheduled principal and interest payments on the Subordinated Note without the
prior written permission of the Senior Creditor.
4.2 The Subordinated Creditor will cause all Subordinated Debt to be
evidenced by a note, debenture, instrument, or other writing evidencing the
Subordinated Debt and will inscribe a statement or legend thereon to the effect
that such note, debenture, instrument, or other writing is subordinated to the
Senior Debt in favor of the Senior Creditor in the manner and to the extent set
forth in this Agreement.
4.3 The Subordinated Creditor shall xxxx the books of Subordinated
Creditor to show that the Subordinated Debt is subordinated to the Senior Debt
in the manner and to the extent set forth in this Agreement and cause all
financial statements of the Subordinated Creditor hereafter prepared for
delivery to any person to make specific reference to the provisions of this
Agreement.
4.4 The Subordinated Creditor shall not assign or otherwise transfer to
any other person any interest in the Subordinated Debt unless the Subordinated
Creditor causes the assignee or other transferee to execute and deliver to the
Senior Creditor a subordination agreement in substantially the form of this
Agreement or otherwise acknowledges to the reasonable satisfaction of the Senior
Creditor the subordination of the Subordinated Debt in accordance with this
Agreement.
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Section 5. MISCELLANEOUS.
5.1 The Debtor shall reimburse the Senior Creditor for all reasonable
expenses of the Senior Creditor, including reasonable charges and disbursements
of legal counsel for the Senior Creditor, in connection with the execution,
amendment, modification, waiver, and interpretation of this Agreement, and the
administration, preservation, and enforcement of any rights of the Senior
Creditor under this Agreement. The Debtor shall indemnify the Senior Creditor
against all claims, liabilities, damages, and expenses in connection with any
litigation or proceeding relating to this Agreement, INCLUDING CLAIMS CAUSED BY
THE SENIOR CREDITOR'S OWN NEGLIGENCE except as a result of the Senior Creditor's
gross negligence or willful misconduct. The Senior Creditor is hereby authorized
to setoff and apply any obligations owed by the Senior Creditor to the Debtor
against any obligations of the Debtor under this Agreement. The provisions of
this paragraph shall survive termination of this Agreement.
5.2 This Agreement shall be governed by the laws of the State of Texas.
If any provision in this Agreement is held to be unenforceable, such provision
shall be severed and the remaining provisions shall remain in full force and
effect. The Senior Creditor's remedies under this Agreement shall be cumulative,
and no delay in enforcing this Agreement shall act as a waiver of the Senior
Creditor's rights hereunder. The provisions of this Agreement may be waived or
amended only in a writing signed by all of the parties hereto. This Agreement
shall bind the Subordinated Creditor and the Debtor and their successors and
assigns and shall inure to the benefit of the Senior Creditor and its successors
and assigns. This Agreement may be executed in multiple counterparts which
together shall constitute one and the same agreement. Unless otherwise
specified, all notices provided for in this Agreement shall be in writing,
delivered to the following addresses:
If to the Subordinated Creditor:
with a copy to:
Xxxxx X. Xxxxxxxx, Esq.
Kaye, Scholer, Xxxxxxx, Xxxxx & Handler, L.L.P.
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
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If to the Debtor:
Castle Dental Centers, Inc.
Attn: Xxxx X. Xxxxxx, Xx
0000 Xxxx Xxx Xxxxxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to the Senior Creditor:
NationsBank of Texas, N.A.
Attn: Xxxxxxxx Xxxxxxxx
000 Xxxxxxxxx, 0xx Xxxxx
Xxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telecopier: 000-000-0000
or to such other address as shall be designated by one party in writing to the
other parties. Notice sent by telecopy shall be deemed to be given and received
when receipt of such transmission is acknowledged, and delivered notice shall be
deemed to be given and received when receipted for by, or actually received by,
an authorized officer of the receiving party.
THIS WRITTEN AGREEMENT AND THE RELATED CREDIT DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARITIES.
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EXECUTED as of the date first above written.
NATIONSBANK OF TEXAS, N.A.
By:____________________________
Xxxxxxxx Xxxxxxxx
Senior Vice President
CASTLE DENTAL CENTERS. INC.
By:____________________________
Xxxx X. Xxxxx, Vice President and
Chief Financial Officer
_________________________________
By:_____________________________
Name____________________________
Title:__________________________
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