Exhibit 10.19
SUBORDINATION AGREEMENT
between
U.S. HOME & GARDEN, INC.
and
CAPITALSOURCE FINANCE LLC
October 29, 2003
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of October 29,
2003 is entered into by and between U.S. HOME & GARDEN, INC., a Delaware
corporation (the "Subordinated Lender"), and CAPITALSOURCE FINANCE LLC, a
Delaware limited liability company, in its capacity as agent ("Agent") for the
financial institutions party to the Term Loan Agreement (as hereinafter defined)
from time to time (collectively, the "Lenders") (the Lenders and Agent are
collectively referred to herein as the "Senior Lenders" and individually, the
"Senior Lender"), with reference to the following facts:
RECITALS
A. Reference is hereby made to that certain Asset Purchase Agreement,
dated as of December 11, 2002 (as amended, the "Purchase Agreement"), entered
into by and among Easy Gardener Products, Ltd., a Texas limited partnership
("EGP"), EYAS International, Inc., a Texas corporation and an affiliate of EGP
("EYAS"), U.S. Home & Garden Inc., a Delaware corporation ("USHG"), Easy
Gardener, Inc., a Delaware corporation and wholly-owned subsidiary of USHG
("Easy Gardener"), Ampro Industries, Inc., a Michigan corporation and
wholly-owned subsidiary of USHG ("Ampro") (each of Easy Gardener and Ampro are
sometimes referred to herein as a Seller and collectively, as the "Sellers") and
Weed Wizard Acquisition Corp., a wholly-owned subsidiary of Easy Gardener ("Weed
Wizard").
B. In consideration for the sale of substantially all of the Sellers'
assets and certain of USHG's and Weed Wizard's assets, as set forth in the
Purchase Agreement, EGP has agreed to pay the Sellers and USHG an amount equal
to the Purchase Price, as defined in the Purchase Agreement, $1,600,000 of which
shall be financed by the Subordinated Lender as evidenced by that certain
Subordinated Promissory Note in the principal aggregate amount of $1,600,000
made by EGP for the benefit of the Subordinated Lender (such Subordinated
Promissory Note, the "Junior Debt Documents").
C. In order to finance the remaining Purchase Price, EGP and certain of
its affiliates signatory to the Acknowledgment attached hereto (the "Credit
Parties") have requested that Senior Lenders enter into various agreements with
the Credit Parties pursuant to which the Senior Lenders would extend certain
loans and other financial accommodations to Credit Parties, including that
certain Term Loan and Security Agreement, entered into by and among the Credit
Parties, the Agent, and the financial institutions party thereto from time to
time ("Term Loan Agreement"), together with all other documents related thereto
(collectively, the "Senior Debt Documents").
D. Senior Lenders are unwilling to enter into the Senior Debt Documents
with the Credit Parties and to extend to EGP or the Credit Parties, as the case
may be, the loans and other financial accommodations contemplated thereunder
unless Subordinated Lender enters into this Agreement.
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E. Subordinated Lender is interested in the financial success of the
Credit Parties and in the consummation of the transactions contemplated in the
Purchase Agreement and will benefit by the loans which the Senior Lenders
propose to extend to EGP or the Credit Parties, as the case may be, under the
Senior Debt Documents.
F. Accordingly, to induce the Senior Lenders to enter into the Senior Debt
Documents with the Credit Parties and to extend to EGP or the Credit Parties, as
the case may be, the loans contemplated thereunder, Subordinated Lender is
willing to enter into this Agreement with Agent.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Certain Defined Terms.
(a) General. When used in this Agreement, the following terms have
the following respective meanings:
"Agent" has the meaning set forth in the introduction hereto.
"Agreement" has the meaning set forth in the introduction
hereto.
"Collateral" has the meaning ascribed to the term "Collateral"
as defined in the Senior Debt Documents.
"Cure Period" has the meaning set forth in Section 3(b).
"Credit Parties" has the meaning set forth in the recitals
hereto.
"Default" has the meaning ascribed to the term "Default" as
defined in the Senior Debt Documents.
"Event of Default" has the meaning ascribed to the term "Event
of Default as defined in the Senior Debt Documents.
"Excess Availability" shall have the meaning assigned to it in
the Foothill Loan Agreement.
"Excess Cash Flow Payment" shall have the meaning assigned to
it in the Foothill Loan Agreement.
"Foothill" shall mean Xxxxx Fargo Foothill, Inc., as agent
under the Foothill Loan Agreement.
"Foothill Intercreditor Agreement" shall mean that certain
Subordination and Intercreditor Agreement dated as of the date
hereof by and between CS and Xxxxx Fargo Foothill, Inc. in
connection with their loans to EGP.
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"Foothill Loan Agreement" shall mean that certain Amended and
Restated Loan and Security Agreement entered into by and among EGP,
EYAS, Xxxxxxxxx Consumer Products, Inc., a Delaware corporation,
Xxxxxxxxx Consumer Products Group, Inc., a Delaware corporation,
Foothill, and the financial institutions party thereto from time to
time, as in effect on the date hereof.
"Insolvency Proceeding" means (i) any insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment,
custodianship, composition or other proceeding or case relating to
the Credit Parties, any of its respective subsidiaries or
affiliates, or any of their respective assets, (ii) any dissolution
or winding up of the Credit Parties or any of its respective
subsidiaries, whether voluntary or involuntary and whether or not
involving an insolvency or bankruptcy case or (iii) any assignment
for the benefit of creditors or any other marshalling of any assets
of the Credit Parties or any of its respective subsidiaries.
"Junior Debt" means the indebtedness owed by EGP to
Subordinated Lender under the Junior Debt Documents, together with
any other debts, demands, monies, indebtedness, liabilities, and
obligations now or hereafter owed by EGP to Subordinated Lender
arising from the Junior Debt Documents, including interest,
principal, costs, and other charges, together with all claims,
rights, causes of action, judgments, decrees and other obligations
relating thereto.
"Junior Debt Documents" has the meaning set forth in the
recitals hereto.
"Junior Default Notice" means a notice delivered by
Subordinated Lender to Agent and the Credit Parties that an event of
default has occurred and is continuing under the Junior Debt
Documents.
"Obligations" has the meaning ascribed to the term
"Obligations" as defined in the Senior Debt Documents.
"Reorganization Debt Securities" means debt securities of the
Credit Parties or any of its respective subsidiaries or affiliates
as reorganized or readjusted, or debt securities of the Credit
Parties or any of its respective subsidiaries or affiliates (or any
other company, trust or organization provided for by a plan of
reorganization or readjustment succeeding to the assets and
liabilities of the Credit Parties or any of its respective
subsidiaries or affiliates), that are subordinated, to at least the
same extent as the Junior Debt, to the payment of all Senior Debt
that will be outstanding after giving effect to such plan of
reorganization or readjustment, so long as (i) the non-default rate
of interest and the default rate of interest on such debt securities
shall not exceed the effective non-default rate of interest and the
default rate of interest (as the case may be) on the Junior Debt on
the date hereof (without modification or amendment thereof of any
kind), (ii) after giving effect to such plan of reorganization or
readjustment such debt securities shall not be entitled to the
benefits of covenants or defaults more beneficial to the holders of
such debt securities than those in effect with
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respect to the Junior Debt on the date hereof (without modification
or amendment thereof of any kind) or the Senior Debt, (iii) such
debt securities shall not require cash interest to be paid more
frequently than is required under the Junior Debt on the date hereof
(without modification or amendment thereof of any kind), and (iv)
such debt securities shall not provide for amortization, including
mandatory prepayment provisions, commencing earlier than six months
following the final scheduled maturity date of the Senior Debt (as
modified by such plan of reorganization or readjustment).
"Senior Debt" has the meaning set forth in Section 3(a) of
this Agreement.
"Senior Default Notice" means a written notice delivered by
Agent to Subordinated Lender and EGP that an Event of Default has
occurred and is continuing under the Senior Debt Documents.
"Senior Lenders" has the meaning set forth in the introduction
of this Agreement.
"Senior Debt Documents" has the meaning set forth in the
recitals of this Agreement.
"Subordinated Lender" has the meaning set forth in the
introduction of this Agreement.
"Voided Payment" has the meaning set forth in Section 13(b).
(b) Other Terms. Unless otherwise defined in this Agreement, any and
all initially capitalized terms set forth in this Agreement shall have the
meaning ascribed thereto in the Senior Debt Documents.
2. Representations, Warranties, And Covenants. Subordinated Lender and the
Credit Parties represent, warrant, and covenant (jointly and severally) to Agent
and Senior Lenders that:
(a) Amount of Junior Debt. As of the date of this Agreement, the
principal amount of the Junior Debt is $1,600,000.
(b) Junior Debt Documents. Upon Agent's request, to be given by
notice to EGP and Subordinated Lender: (i) a copy of all Junior Debt Documents
shall be delivered to Agent; and/or (ii) all Junior Debt Documents shall be
conspicuously marked with substantially the following legend:
"The obligations hereunder (and the payments with respect thereto) are
subject to that certain Subordination Agreement dated as of October 29,
2003, by and between U.S. Home & Garden, Inc. and CapitalSource Finance
LLC"
and after being so marked, the originals of the Junior Debt Documents shall be
exhibited to Agent and a copy of the marked Junior Debt Documents shall be
delivered to Agent.
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(c) No Default. EGP is not in default under any Junior Debt
Document.
(d) Notice of Default. Subordinated Lender and the Credit Parties
shall each promptly notify Agent of all defaults, events of default, and events
which with the giving of notice or the passage of time, or both, would become
events of default ("unmatured events of default") under any Junior Debt
Document.
(e) Further Action. Upon Agent's request, Subordinated Lender will
promptly take all actions which Agent believes appropriate to carry out the
purposes of this Agreement.
3. Subordination.
(a) General. As more fully provided in the remainder of this Section
3, the Junior Debt is hereby subordinated and made junior to all obligations now
or hereafter owing to the Senior Lenders by the Credit Parties. The obligations
referred to in the preceding sentence as being owing to the Senior Lenders are
referred to in this Agreement as the "Senior Debt," and include the Obligations,
all present and future representations, warranties, covenants, agreements,
indemnities, all principal incurred (including debtor-in-possession loans or
advances), all interest and all fees and expenses incurred after the
commencement of an Insolvency Proceeding or any other federal or state
bankruptcy, insolvency or reorganization act regardless of whether Senior
Lenders' claim therefore or the security interests asserted are valid, binding,
enforceable, void, voidable, voided, subordinated, reduced, disallowed or
allowable in the Insolvency Proceeding and any other obligations which the
Credit Parties or its respective successors and assigns may incur to Agent or
Senior Lenders.
(b) Payments to Subordinated Lender.
(i) If no default, event of default, or unmatured event of
default by the Credit Parties under any present or future instrument or
agreement (including a Default or an Event of Default under the Senior Debt
Documents) among the Credit Parties and the Senior Lenders shall have occurred,
EGP may pay to Subordinated Lender on or after the one hundred and tenth (110th)
day following the end of each fiscal year of EGP, 25% of the Excess Cash Flow
(as defined in the Senior Debt Documents as in effect on the date hereof) for
the immediately preceding fiscal year of EGP, so long as; (A) Agent has received
its Excess Cash Flow Payment; (B) the Excess Availability for the 30 consecutive
day period preceding the date of the Excess Cash Flow Payment to Agent is at
least $1,500,000; (C) the Excess Availability on the date of Excess Cash Flow
Payment to Agent is at least $1,500,000 after giving effect to such payment; (D)
5 Business Days prior to the Excess Cash Flow Payment to Agent, EGP provides
financial information to Agent and Foothill, in form and substance satisfactory
to Agent, evidencing that the Excess Availability on the date of such payment
and for the 30 day period following the date of such payment will be $1,500,000
at all times after giving effect to such payment; and (E) no Event of Default
under the Senior Debt Documents has occurred and is continuing or would result
from such Excess Cash Flow Payment to Agent and to Subordinated Lender.
Notwithstanding anything herein to the contrary, if Agent receives an Excess
Cash Flow Payment of greater than 50% for any fiscal year, Subordinated Lender
shall not receive any cash payments from EGP for such fiscal year.
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(ii) Subsequent to the delivery of a Senior Default Notice,
the Credit Parties may not pay, nor may Subordinated Lender receive and retain,
any payment with respect to the Junior Debt (other than payments of interest in
kind), until such time as Agent notifies Subordinated Lender that the events set
forth in the Senior Default Notice have been cured or waived or that the Senior
Debt has been indefeasibly paid in full, in cash. There shall be no limit on the
number of times a Senior Default Notice pursuant to this Section 3(b)(ii) may be
given nor the time period it is in effect.
(c) Actions by Subordinated Lender. The Subordinated Lender hereby
agrees that it shall deliver a Junior Default Notice to the Credit Parties and
Senior Lenders upon any default or event of default under the Junior Debt
Documents and that the Credit Parties shall have thirty (30) days (in addition
to any applicable cure or grace periods, if any, set forth in the Junior Debt
Documents) after receipt of such Junior Default Notice in which to cure the
defaults or events of defaults set forth in such Junior Default Notice (the
"Cure Period"). If after such Cure Period the events described in such Junior
Default Notice have not been cured or waived by Subordinated Lender, then
Subordinated Lender may (subject to the provisions of this Agreement including,
without limitation, Section 3(b) hereof), if Agent has not delivered a Senior
Default Notice due to the failure of the Credit Parties to make a payment to
Senior Lenders when due or deemed by Senior Lenders to be due with respect to
the Senior Debt, on the later of (i) the one hundred and eighty-second (182nd)
day following the expiration of such Cure Period and (ii) the second (2nd) day
following the expiration of the first one hundred and eighty (180) day period
during which the Senior Lenders are permitted to exercise their rights and
remedies under the Foothill Intercreditor Agreement, exercise its rights as a
general, unsecured creditor of the Credit Parties to commence judicial action on
the Junior Debt and otherwise seek a judgment on the Junior Debt but in no event
shall Subordinated Lender exercise any default rights or remedies with respect
to the Collateral whether as a secured party or judgment lienholder, which
limitation shall include so as to prohibit judicial or non-judicial foreclosure,
possession of the Collateral, collection actions or otherwise; provided,
however, so long as Senior Lenders are exercising default rights and remedies
pursuant to a Senior Default Notice then Subordinated Lender shall not exercise
any such rights or remedies until the earliest to occur of (i) notice from Agent
to Subordinated Lender that the events set forth in the Senior Default Notice
have been waived or cured or (ii) the indefeasible payment of the Senior Debt,
in full, in cash. Subordinated Lender shall not issue more than one Junior
Default Notice in any three hundred sixty (360) day period.
(d) Priority of Interests in Collateral. Subordinated Lender
currently holds no security interest or lien in the Collateral, or in any other
assets of the Credit Parties, as security for EGP's payment and performance of
its obligations to Subordinated Lender under the Junior Debt Documents, and no
such security interest or lien is currently contemplated to be granted by the
Credit Parties to Subordinated Lender. In the event Subordinated Lender
hereafter acquires any security interest, lien, or other right or interest in
the Collateral, (i) Subordinated Lender hereby authorizes Agent to terminate
such security interest, lien or other right, and (ii) such security interest,
lien, or other right or interest shall at all times prior to the indefeasible
payment in full of the Senior Debt be junior, subordinate and subject to any
security interest, lien or other right or interest Senior Lender now has or may
hereafter acquire in the Collateral. In the event Subordinated Lender acquires
any guaranty with respect to the Junior Debt, whether secured or unsecured, from
any Subsidiary of the Credit Parties, Subordinated Lender agrees that its rights
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with respect to such guaranty shall at all times be junior, subordinate and
subject to the rights of Senior Lenders with respect to any guaranties Senior
Lenders may receive from such Subsidiaries with respect to the Senior Debt. The
subordination provided in this Section 3 shall apply irrespective of the time or
order of attachment or perfection of any security interest, irrespective of the
time or order of filing of any financing statement or other document, and
irrespective of any statute, rule, law, or court decision to the contrary.
Subordinated Lender confirm that the Senior Debt is in all respects senior to
the Junior Debt and that this Agreement shall govern as among the Senior Lenders
and Subordinated Lender irrespective of whether the Senior Debt or the liens
securing the Senior Debt, are held to be unperfected, deficient, invalid, void,
voidable, voided, unenforceable, subordinated, reduced, discharged or are set
aside by a court of competent jurisdiction, including, without limitation,
pursuant to any Insolvency Proceeding.
4. Restrictions On Subordinated Lender's Actions. Except as permitted in
Sections 3(b) and (c) hereof and unless it shall have obtained Agent's prior
written consent, until the Senior Debt has been indefeasibly paid in full in
cash, Subordinated Lender will not:
(a) Demand or accept any payment upon the Junior Debt;
(b) Take any collateral for or otherwise secure the Junior Debt;
(c) Foreclose, collect or realize upon any collateral hereafter
securing the Junior Debt (whether such collateral constitutes part of the
Collateral or consists of other assets of the Credit Parties), or otherwise
enforce any security agreement, mortgage, lien instrument, or other encumbrance
hereafter securing the Junior Debt; or
(d) Commence, prosecute, or participate in any collection,
enforcement, default, administrative, legal, judicial, non-judicial, equitable
or any other action that in Agent's judgment might adversely affect the Credit
Parties' business or the Credit Parties' ability to timely pay the Senior Debt,
including in any Insolvency Proceeding.
5. Remedies. If the Credit Parties or Subordinated Lender attempts to
violate Section 3 or Section 4(a), or if Subordinated Lender in any other manner
receives any funds which by virtue of this Agreement Subordinated Lender is
precluded from receiving, Subordinated Lender shall be deemed to hold any
payment or distribution Subordinated Lender receives in trust for the Senior
Lenders' benefit. In such case, Subordinated Lender shall immediately remit such
payment or distribution to Agent, for the benefit of the Senior Lenders. If
Subordinated Lender attempts to violate Section 4(b), Agent, for the benefit of
the Senior Lenders (in its or the Credit Parties' name), or the Credit Parties
may seek injunctive or other equitable relief to prevent or stop Subordinated
Lender's actions, it being agreed that legal remedies may be inadequate. If
Subordinated Lender attempts to violate Section 4(c), the Credit Parties may
interpose as a defense or plea the making of this Agreement, and Agent, for the
benefit of the Senior Lenders, may intervene and interpose such defense or plea
in its own or the Credit Parties' name. The remedies provided in this Section 5
are not exclusive; Agent, for the benefit of the Senior Lenders, shall be
entitled to all other remedies available at law or in equity. Neither Agent nor
the Senior Lenders shall in any event be liable for any impairment or nonpayment
of the Junior Debt that results, directly or indirectly, from the exercise by
Agent or
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Senior Lenders of any of their rights or remedies under this Agreement, the
Senior Debt Documents or under applicable law.
6. No Action to Violate Senior Debt Documents. Subordinated Lender shall
not take any action which in Senior Lenders' reasonable judgment would cause the
Credit Parties to violate the Senior Debt Documents or any other agreement among
the Credit Parties and the Agent for the benefit of the Senior Lenders.
7. No Amendment of Junior Debt Documents. Unless Agent's prior written
consent shall have been obtained, no Junior Debt Document may be amended or
modified.
8. Extensions, Compromises, Etc. Without having to obtain either the
Credit Parties' or Subordinated Lender's consent, the Senior Lenders may grant
to the Credit Parties extensions of the time of payment or performance, and may
enter into compromises (including releases of collateral and settlements) with
the Credit Parties with respect to the Senior Debt.
9. Waiver. Subordinated Lender waives any right it may now or hereafter
have to require the Senior Lenders to marshal assets, to exercise rights or
remedies in a particular manner, or to forbear from exercising such rights and
remedies in any particular manner or order.
10. No Constraint on Senior Lenders. Nothing contained in this Agreement
shall preclude the Senior Lenders from discontinuing its extension of credit to
the Credit Parties (whether under the Senior Debt Documents or otherwise) or
from taking (without notice to Subordinated Lender, the Credit Parties, or any
other individual or entity) any other action in respect of the Senior Debt or
the Collateral which the Senior Lenders are otherwise entitled to take with
respect to the Senior Debt or the Collateral. Among the actions which the Senior
Lenders may take in accordance with this Section 10 are: renewing, extending,
and increasing the amount of the Senior Debt; otherwise changing the terms of
the Senior Debt; settling, releasing, compromising, and collecting on the Senior
Debt; making (and refraining from making) other secured and unsecured loans and
advances to the Credit Parties; amending any present or future agreement between
the Senior Lenders and the Credit Parties; and all other actions which the
Senior Lenders deem advisable.
11. Continuing Agreement. This Agreement (a) may be terminated only upon
the indefeasible payment and satisfaction in full in cash (or in such other
consideration as the Senior Lenders may in their sole discretion expressly agree
to in a signed writing) of all Senior Debt and termination of the Senior Debt
Documents and the obligation of the Senior Lenders to make loans, advances
and/or extensions of credit thereunder, (b) is a continuing agreement of
subordination, (c) shall be binding upon Subordinated Lender, the Credit Parties
and its respective successors, transferees and assigns, (d) shall inure to the
benefit of and be enforceable by Agent and the Senior Lenders and their
successors, transferees and assigns and (e) shall inure to the benefit of any
lenders which provide replacement or other subsequent financing of the Credit
Parties. It is expressly intended that any successor, transferee, assignee,
replacement or subsequent lender be a third party beneficiary of this Agreement
without any further action required. Subordinated Lender agrees to take all
actions reasonably necessary to amend and ratify this Agreement as to such
lender. Without limiting the generality of the foregoing, the Senior Lenders may
assign or otherwise transfer the Senior Debt to any other person or entity,
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such transferee shall thereupon become vested with all the rights and benefits
in respect thereof granted to the Senior Lenders herein or otherwise. 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 Senior Lenders in connection with any Insolvency
Proceeding or otherwise, all as though such payment had not been made.
12. Rights in Insolvency Proceedings.
(a) Subordinated Lender hereby irrevocably authorizes and empowers
Agent, for the benefit of the Senior Lenders, in any Insolvency Proceeding to
file a proof of claim on behalf of Subordinated Lender with respect to the
Junior Debt (i) if Subordinated Lender fails to file such proof of claim prior
to ten (10) days before the expiration of the time period during which such
claims must be submitted, or (ii) if Agent, in its reasonable discretion,
believes that any statements or assertions in a proof of claim filed by
Subordinated Lender is not consistent with the terms and conditions hereof;
provided, however, that any failure of Agent to file such proof of claim shall
not be deemed to be a waiver by Agent or the Senior Lenders of any of the rights
and benefits granted herein by Subordinated Lender. Subordinated Lender hereby
covenants and agrees promptly to provide Agent with a copy of any proof of claim
filed by Subordinated Lender in any Insolvency Proceeding.
(b) Subordinated Lender hereby irrevocably grants to Agent, for the
benefit of the Senior Lenders, the sole and exclusive authority and power in any
Insolvency Proceeding, unless and until this Agreement is terminated in
accordance with its terms: (i) to accept and receive any payment or distribution
which may be payable or deliverable at any time upon or in respect of the Junior
Debt; and (ii) to take such other action as may be reasonably necessary or
advisable to effectuate the foregoing. Subordinated Lender shall provide to
Agent all information and documents reasonably necessary to present claims or
seek enforcement as described in the immediately preceding sentence.
(c) Subordinated Lender hereby agrees that, while it shall retain
the right to vote its claims and, except as otherwise provided in this
Agreement, otherwise act in any Insolvency Proceeding relative to the Credit
Parties or any of its respective subsidiaries (including, without limitation,
the right to vote to accept or reject any plan of partial or complete
liquidation, reorganization, arrangement, composition, or extension),
Subordinated Lender shall not: (i) take any action or vote in any way so as to
directly or indirectly challenge or contest (A) the validity or the
enforceability of the Senior Debt Documents or the liens and security interests
granted to Agent, for the benefit of the Senior Lenders, with respect to the
Senior Debt, (B) the rights and duties of Agent and the Senior Lenders
established in the Senior Debt Documents, or (C) the validity or enforceability
of this Agreement; (ii) seek, or acquiesce in any request, to convert an
Insolvency Proceeding under chapter 11 of Title 11 of the United States Code to
a case under chapter 7 of Title 11 of the United States Code; (iii) seek the
appointment of a trustee or examiner with expanded powers for the Credit Parties
or any of its respective subsidiaries; or (iv) take any other actions or
exercise any voting rights which may impair timely repayment of the Senior Debt
or otherwise impair or impede any rights of Senior Lenders.
13. Junior Debt Subordinated to Prior Payment of all Senior Debt in
Insolvency.
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(a) Upon any payment or distribution of assets of the Credit Parties
or any of its respective subsidiaries of any kind, whether in cash, property or
securities (including, without limitation, any issuance of securities by the
Credit Parties or any of its respective subsidiaries other than Reorganization
Debt Securities), in connection with any Insolvency Proceeding:
(i) Agent, for the benefit of the Senior Lenders shall first
be entitled to receive payment in full in cash (or in such other consideration
as Agent may, in its sole discretion, expressly agree to in a signed writing) of
all Senior Debt before Subordinated Lender shall be entitled to receive any
payment or other distribution of assets in respect of the Junior Debt;
(ii) any payment or distribution of assets of the Credit
Parties or any of its respective subsidiaries of any kind or character, whether
in cash, property or securities (including, without limitation, any issuance of
securities by the Credit Parties or any of its respective subsidiaries other
than Reorganization Debt Securities) to which Subordinated Lender would be
entitled except for the provisions of this Agreement will be paid by the Credit
Parties or any of its respective subsidiaries, the liquidating trustee or agent
or such other person or entity making such a payment or distribution directly to
Senior Lenders, to the extent necessary to make payment in full in cash (or in
such other consideration as Agent may, in its sole discretion, expressly agree
to in a signed writing) of all Senior Debt remaining unpaid; and
(iii) if, notwithstanding the foregoing, any payment or
distribution of assets of the Credit Parties or any of its respective
subsidiaries of any kind or character, whether in cash, property or securities
(including, without limitation, any issuance of securities by the Credit Parties
or any of its respective subsidiaries other than Reorganization Debt
Securities), is received by Subordinated Lender as payment in respect of the
Junior Debt before all Senior Debt is indefeasibly paid in full in cash (or in
such other consideration as Agent may, in its sole discretion, expressly agree
to in a signed writing), such payment or distribution shall be received and held
for and shall be paid over to Agent, for the benefit of the Senior Lenders, or
its representative for application to the payment of the Senior Debt until all
Senior Debt has been indefeasibly paid in full in cash (or in such other
consideration as Agent may, in its sole discretion, expressly agree to in a
signed writing).
(b) To the extent that the Credit Parties or other provider of
Collateral makes a payment on the Senior Debt that is subsequently invalidated,
declared to be fraudulent or preferential or set aside or is required to be
repaid to a trustee, receiver or any other party under any bankruptcy,
insolvency or reorganization act, state or federal law, common law or equitable
cause, including without limitation any Insolvency Proceeding (such payment
being hereinafter referred to as a "Voided Payment"), then to the extent of such
Voided Payment, that portion of the Senior Debt that had previously been
satisfied by such Voided Payment shall be revived and continue in full force and
effect as if such Voided Payment had never been made. In the event that a Voided
Payment is recovered from any Senior Lender, an Event of Default shall be deemed
to have existed and to be continuing under the Senior Debt Documents from the
date of the Senior Lenders' initial receipt of such Voided Payment until the
full amount of such Voided Payment is restored to the Senior Lenders. During any
continuance of any such Event of Default, this Agreement shall be in full force
and effect with respect to the Junior Debt. To the extent that the Subordinated
Lender has received any payments with respect to the Junior Debt
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subsequent to the date of the Senior Lenders' initial receipt of such Voided
Payment and such payments have not been invalidated, declared to be fraudulent
or preferential or set aside or are required to be repaid to a trustee,
receiver, or any other party under any bankruptcy act, state or federal law,
common law or equitable cause, the Subordinated Lender shall be obligated and
hereby agree that any such payment so made or received shall be deemed to have
been received in trust for the Agent, for the benefit of the Senior Lenders, and
the Subordinated Lender hereby agrees to pay to Senior Lenders, upon demand, the
full amount so received by the Subordinated Lender to the extent necessary to
fully restore to the Senior Lenders the amount of such Voided Payment.
For the purpose of this Section 13, the words "cash, property or securities"
shall not be deemed to include (x) shares of stock or any partnership or
membership interest of the Credit Parties Borrower or any of its respective
subsidiaries as reorganized or readjusted or (y) Reorganization Debt Securities
or securities of any other corporation paid or distributed to Subordinated
Lender by a plan of reorganization or readjustment; provided that, pursuant to
such plan of reorganization or readjustment, the legal, equitable and
contractual rights of Senior Lenders under the Senior Debt Documents are not,
without the consent of Senior Lenders, altered by any such plan of
reorganization or readjustment (including, without limitation, such legal,
equitable and contractual rights being impaired within the meaning of Section
1124 of Title 11 of the United States Code, or any impairment of the right to
receive interest accruing during the pendency of an Insolvency Proceeding).
14. Subordination Rights Not Impaired by Acts or Omissions of the Credit
Parties or the Senior Lenders. No right of Senior Lenders to enforce
subordination as provided in this Agreement will at any time in any way be
prejudiced or impaired by any act or failure to act by Agent or Senior Lenders,
on the part of the Credit Parties, or any of its respective subsidiaries, or by
any act or failure to act by Agent or Senior Lenders, or by any noncompliance by
the Credit Parties, any of its respective subsidiaries, or any agent thereof
with the terms of this Agreement, regardless of any knowledge thereof with which
any such Person may have or otherwise by charged. Except as expressly provided
to the contrary herein, Senior Lenders may extend, renew, modify or amend any
terms of the Senior Debt or any security therefore or guaranty thereof and grant
any waiver, release or consent in respect of, or release, sell or exchange such
security or Collateral and otherwise deal freely with the Credit Parties, any of
the Credit Parties' subsidiaries, and its respective affiliates, all without
notice to or consent from Subordinated Lender and without in any way impairing
or affecting this Agreement.
15. Lien Related Bankruptcy Provisions. The provisions of this Agreement
shall continue in full force and effect notwithstanding the occurrence of any
Insolvency Proceeding. To the extent that Subordinated Lender has or acquire any
rights under Section 362, 363 or 364 of the Bankruptcy Code with respect to the
Collateral, Subordinated Lender hereby agrees not to assert such rights without
the prior written consent of Agent; provided that, if requested by the Agent,
Subordinated Lender shall seek to exercise such rights in the manner requested
by the Agent, on behalf of the Senior Lenders, including the rights in payments
in respect of such rights. Without limiting the generality of the foregoing
sentence, to the extent that Senior Lenders consent to Subordinating Lenders'
use of cash collateral under Section 363 of the Bankruptcy Code or Senior
Lenders agree to provide financing to the Credit Parties under Section 364 of
the Bankruptcy Code, Subordinated Lender hereby agrees not to impede, object to
11
(on grounds of lack of adequate protection, or otherwise), or otherwise
interfere with such use of cash collateral or financing. Subordinated Lender
specifically agrees that in connection with such cash collateral usage or such
financing, the Credit Parties (or a trustee appointed for the estate of the
Credit Parties) may grant to the Agent, for the benefit of the Senior Lenders,
liens and security interests upon all or any part of the assets of the Credit
Parties, which liens and security interests: (i) shall secure payments of all
Obligations (whether such Obligations arose prior to the filing of the
bankruptcy petition or thereafter); and (ii) shall be superior in priority to
the liens on and security interests in the assets of the Credit Parties held by
the Subordinated Lender. Subordinated Lender (both in its capacity as
Subordinated Lender and in its capacity (if any) as a party which may be
obligated to the Credit Parties or its respective affiliates with respect to
contracts which are part of the Senior Lenders' Collateral) agrees not to
initiate or prosecute or encourage any other Person to initiate or prosecute any
claim, action, objection or other proceeding (A) challenging the enforceability
of the claim of Senior Lenders, (B) challenging the enforceability of any liens
or security interests in any assets securing the Obligations, or (C) asserting
any claims which the Credit Parties may hold with respect to Senior Lenders.
Subordinated Lender agrees that it will not object to or oppose a sale or other
disposition of any assets securing the Obligations (or any portion thereof) free
and clear of its security interests, liens or other claims under Section 363 of
the Bankruptcy Code or any other provision of the Bankruptcy Code if the Senior
Lenders have consented to such sale or disposition of such assets. Subordinated
Lender agrees not to assert any right it may have to "adequate protection" of
its interest in the Collateral in any Bankruptcy Proceeding and agrees that it
will not seek to have the automatic stay lifted with respect to such security,
without the prior written consent of the Agent. Subordinated Lender waives any
claim it may now or hereafter have against the Agent or the Senior Lenders
arising out of the election of Agent, for the benefit of the Senior Lenders, in
any case instituted under the Bankruptcy Code, of the application of Section
1111(b)(2) of the Bankruptcy Code, and/or out of any cash collateral
arrangement, or financing arrangement, or out of any grant of a security
interest, under Section 363 or 364 of the Bankruptcy Code, with or by the Credit
Parties, as debtors in possession (or with or by any trustee for the Credit
Parties). Subordinated Lender agrees that it will not, in its capacity as a
secured creditor: (a) propose, vote to accept, or otherwise support confirmation
of, a plan of reorganization opposed by the Agent, for the benefit of the Senior
Lenders, or (b) vote to reject, object the confirmation of, or otherwise oppose
confirmation of, a plan of reorganization supported by the Agent, for the
benefit of the Senior Lenders. The subordination and other provisions of this
Agreement shall be enforceable under Section 510(a) of the Bankruptcy Code.
16. Consents, Waivers and Releases of Collateral. If the Credit Parties
seek and obtain any consents or waivers from the Agent, on behalf of the Senior
Lenders under the Senior Debt Documents, Subordinated Lender shall provide a
similar consent and waiver under the Junior Debt Documents. If the Senior
Lenders release, terminate or subordinate their security interest in any
Collateral, the Subordinated Lender agrees to similarly release, terminate or
subordinate its security interest in such Collateral.
17. Miscellaneous.
(a) Amendment. No amendment or waiver of this Agreement shall be
effective unless in a writing signed by each party hereto.
12
(b) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (applicable to
contracts made and performed in such State). All actions and proceedings arising
in connection with this Agreement shall be tried and litigated only in state or
federal courts located in the Borough of Manhattan, County of New York, State of
New York, or (at Agent's sole option) in any other court in which Agent, for the
benefit of the Senior Lenders may initiate legal or equitable proceedings, so
long as such court has subject matter jurisdiction. Subordinated Lender and the
Credit Parties each waive any right they may have to plead forum non-conveniens
or otherwise to object to venue, and hereby consents to any court-ordered
relief.
(c) WAIVER OF RIGHT TO JURY TRIAL. THE PARTIES HERETO EACH HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE
PARTIES HERETO EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(d) Counterparts, etc. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of this Agreement by telefacsimile shall have the same force and
effect as the delivery of an original executed counterpart of this Agreement.
Any party delivering an executed counterpart of any such agreement by
telefacsimile shall also deliver an original executed counterpart, but the
failure to do so shall not affect the validity, enforceability or binding effect
of such agreement.
(e) Headings. The headings contained in this Agreement are for
convenience only. They shall not affect the interpretation of this Agreement.
(f) Attorneys' Fees; Etc. In any suit or action brought to enforce
this Agreement or to obtain an adjudication (declaratory or otherwise) of rights
or obligations hereunder, the losing party shall pay to the prevailing party
reasonable attorneys' fees and other costs and expenses incurred by the
prevailing party.
(g) Severability. Any provision of this Agreement that is prohibited
by law or unenforceable in any jurisdiction shall be ineffective in that
jurisdiction to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permissible, the parties waive any law that renders this Agreement prohibited or
unenforceable.
13
(h) Entire Agreement. This Agreement constitutes the entire
agreement between and among the parties regarding the subject matter hereof.
This Agreement supersedes all prior and contemporaneous agreements between or
among the parties with respect to the subject matter hereof.
(i) Notice. All notices or demands by any party hereunder must be in
writing and shall be deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing. All such notices or
demands are to be given as follows (provided that notice to Blank Rome Xxxxxx
Xxxxxxxxxx and to Naman, Howell, Xxxxx & Xxx LLP shall be for courtesy purposes
only, and shall not be required to meet the "notice" requirements hereunder):
Agent: CAPITALSOURCE FINANCE LLC
0000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxx Xxxxx, Xxxxxxxx 00000
Attention: Corporate Finance Group,
Portfolio Manager
Fax No.: (000) 000-0000
Subordinated Lender: U.S. HOME & GARDEN, INC.
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx, Chief Executive
Officer
Fax No.: (000) 000-0000
with a copy to: BLANK ROME XXXXXX XXXXXXXXX
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxxx Xxxxxx, Esq.
Fax No.: (000) 000-0000
EGP, on behalf
of all the Credit Parties: EASY GARDENER PRODUCTS, LTD.
0000 Xxxxxxxx Xxxxxx
Xxxx, Xxxxx 00000
Attn: Xxxxxxx Xxxx, Chief Financial
Officer
Fax No. (000) 000-0000
with a copy to: NAMAN, HOWELL, XXXXX & XXX, LLP
000 Xxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Fax No. (000) 000-0000
14
The parties may change the address at which they receive notice by giving notice
to each other in the foregoing manner.
(j) Rules of Construction. As used in this Agreement, the singular
includes the plural; the plural includes the singular. References to one gender
include all genders. Unless otherwise specified, references to Sections,
Exhibits, and parties refer to Sections, Exhibits, and parties of or to this
Agreement. The words "include," "including," and similar words are not intended
to be limiting.
15
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, as of the date first
above written.
U.S. HOME & GARDEN, INC.,
a Delaware corporation
By: /s/ Xxxxxx Xxxxxx
-------------------------------
Title: CFO
-----------------------------
CAPITALSOURCE FINANCE LLC, as Agent
By: /s/ Xxxxxx Xxxxxx
-------------------------------
Title: Associate General Counsel
----------------------------
16
ACKNOWLEDGMENT
The undersigned, being the Credit Parties referred to in the foregoing
Subordination Agreement hereby approves of, and agrees and consents to the terms
thereof. Unless otherwise defined in this Acknowledgment, terms defined in the
Subordination Agreement have the same meanings when used in this Acknowledgment.
Each of the Credit Parties agrees to be bound by the Subordination
Agreement. Each of the Credit Parties further agrees that the Subordination
Agreement may be amended by Agent, on behalf of the Senior Lenders, and
Subordinated Lender without notice to, or the consent of, the Credit Parties.
EASY GARDENER PRODUCTS, LTD.,
a Texas limited partnership
By: E G Product Management, L.L.C,
its General Partner
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Title: Xxxxxxx Xxxxxx
----------------------------------
XXXXXXXXX CONSUMER PRODUCTS GROUP, INC.,
a Delaware corporation
By: Xxxxxxx Xxxxxx
------------------------------------
Title:
----------------------------------
XXXXXXXXX CONSUMER PRODUCTS, INC.,
a Delaware corporation
By: Xxxxxxx Xxxxxx
------------------------------------
Title:
----------------------------------
EYAS INTERNATIONAL, INC.,
a Texas corporation
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Title: President
----------------------------------
EG, L.L.C.,
a Nevada limited liability company
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Title: Manager
----------------------------------
E G PRODUCT MANAGEMENT, L.L.C.,
a Texas limited liability company
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Title: Manager
----------------------------------
NBU GROUP, LLC,
a Texas limited liability company
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Title: President
----------------------------------
-ii-
Table of Contents
Page
1. Certain Defined Terms.....................................................2
2. Representations, Warranties, And Covenants................................4
3. Subordination.............................................................5
4. Restrictions On Subordinated Lender'S Actions.............................7
5. Remedies..................................................................7
6. No Action to Violate Senior Debt Documents................................8
7. No Amendment of Junior Debt Documents.....................................8
8. Extensions, Compromises, Etc..............................................8
9. Waiver....................................................................8
10. No Constraint on Senior Lenders...........................................8
11. Continuing Agreement......................................................8
12. Rights in Insolvency Proceedings..........................................9
13. Junior Debt Subordinated to Prior Payment of all Senior
Debt in Insolvency........................................................9
14. Subordination Rights Not Impaired by Acts or Omissions of
Borrower or the Senior Lenders...........................................11
15. Lien Related Bankruptcy Provisions.......................................11
16. Consents, Waivers and Releases of Collateral.............................12
17. Miscellaneous............................................................12
-i-
