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Exhibit 10.51
[Subordination Agreement dated December 2, 1998 between the Registrant
and Xxxxx Partners III, L.P., as Agent]
Execution Copy
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is made as of the 2nd day
of December, 1998, by and among XXXXX PARTNERS III, L.P., a Delaware limited
partnership ("Xxxxx"), acting in its capacity as agent on behalf of certain
lenders (in such capacity, the "Lenders' Agent"), including Xxxxx (each, a
"Lender", collectively, the "Lenders") in connection with and pursuant to a
certain Amended, Restated and Consolidated Bridge Loan Agreement dated as of the
date hereof and executed simultaneously herewith, (together with Schedules and
Exhibits thereto, as the same may be amended, extended, modified, restated or
supplemented, the "Consolidated Bridge Loan Agreement"); XXXXX, acting in its
capacity as agent on behalf of certain purchasers (in such capacity, the
"Purchasers' Agent"), including Xxxxx (each a "Purchaser", collectively, the
"Purchasers") in connection with and pursuant to a certain Debenture and Warrant
Purchase Agreement dated March 10, 1998 (together with Schedules and Exhibits
thereto, as the same may be amended, extended, modified, restated and
supplemented, from time to time, the "Purchase Agreement") and XXXXXX DRUG CO.,
INC., a New York corporation (the "Borrower"). Terms that are capitalized herein
and not otherwise defined shall have the meaning ascribed to them in
Consolidated Bridge Loan Agreement.
WHEREAS, pursuant to the Purchase Agreement, the Borrower granted to the
Purchasers' Agent, for the ratable benefit of the Purchasers, a security
interest (the "Purchase Agreement Security Interest") in and to any and all of
the property of the Borrower (the "Property") in accordance with the terms of
the General Security Agreement dated March 10, 1998 by and between the Borrower
and the Purchasers' Agent;
WHEREAS, the Borrower and certain Lenders funded the Original Bridge Loan
in accordance with the terms of the Original Bridge Loan Agreement, pursuant to
which the Borrower granted to the Xxxxx Entities and to Xxxxx, as agent to the
Weisbrots (in such capacity, the "Xxxxxxxx Agent"), for the ratable benefit of
the Xxxxx Entities and the Xxxxxxxx Agent, a security interest in and to the
Property (the "Original Bridge Loan Security Interest") in accordance with the
terms of a certain General Security Agreement dated as of August 12, 1998
(together with all Schedules and Exhibits thereto, as amended through the date
hereof, the "Original Bridge Loan Security Agreement"), and, the Purchasers'
Agent subordinated the Purchase Agreement Security Interest to the Original
Bridge Loan Security Interest in accordance with the terms of a certain
Subordination Agreement dated as of August 12, 1998 (as amended through the date
hereof, the "Original Subordination Agreement")
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WHEREAS, the Borrower has requested that some or all of the Lenders
consider making an additional bridge loan to Borrower on the terms and
conditions contained in the Consolidated Bridge Loan Agreement, the proceeds of
which will be used by the Borrower to finance its working capital needs;
WHEREAS, each Lender, the Borrower and the Agent have agreed to enter into
the Consolidated Bridge Loan Agreement pursuant to which each Lender, the
Borrower and the Agent has agreed (i) to amend and restate the Original Bridge
Loan Agreement; (ii) to fund its Additional Bridge Loan Commitment and (iii) to
consolidate its Additional Bridge Loan into the Original Bridge Loan pursuant to
the terms and conditions of the Consolidated Bridge Loan Agreement.
WHEREAS, as a condition precedent to entering into the Consolidated Bridge
Loan Agreement, the Lenders require that, among other things, (x) the Borrower
enter into a certain Amended and Restated Security Agreement dated the date
hereof and executed simultaneously herewith in order to grant the Lenders'
Agent, for the ratable benefit of the Lenders, a security interest in and to the
Collateral (the "Amended and Restated Security Interest") in order to secure the
payment and performance of the Obligations arising under the Consolidated Bridge
Loan Agreement, and, (y) the Purchasers' Agent enter into this Subordination
Agreement dated the date hereof and executed simultaneously herewith in order to
(1) subordinate the Purchase Agreement Security Interest to the Amended and
Restated Security Interest in accordance with the terms set forth below and (2)
subordinate the Subordinated Debt (as defined below) to the Senior Debt (as
defined below) in accordance with the terms set forth below.
NOW, THEREFORE, in consideration of the above recitals and the provisions
set forth herein, the Lenders' Agent on behalf of each Lender, the Purchasers'
Agent on behalf of each Purchaser, and Borrower agree as follows:
1. Definitions. The following terms in this Agreement shall have the
following meanings:
"Senior Debt" means (a) all indebtedness, liabilities and obligations of
every kind or nature, absolute or contingent, now or existing or hereafter
arising, of Borrower owed to the Lenders under the Senior Loan Documents,
including without limitation the principal of, and interest on (including any
interest accruing after the commencement of any bankruptcy, insolvency or
similar proceeding with respect to Borrower whether or not allowed as a claim in
such proceeding), and all premiums, fees, charges, expenses and indemnities
arising under or in connection with the Consolidated Bridge Loan Agreement; and
(b) any modifications, amendments, refunds, refinancings, renewals or extensions
of any indebtedness or obligation described in clause (a) above.
"Senior Loan Documents" means the Consolidated Bridge Loan Agreement, the
Bridge Loan Documents and the Collateral Documents, as defined in Section 1.1 of
the Consolidated Bridge Loan Agreement, and, any other agreements, including any
amendments, restatements, supplements or modifications thereto, relating to the
Senior Debt.
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"Subordinated Debt" means all present or future indebtedness loans,
advances, debit balances, liabilities, covenants, duties or obligations of
Borrower to the Purchasers under the Purchase Agreement, howsoever evidenced,
whether evidenced by the 1998 Debentures or otherwise, whether direct or
indirect, absolute or contingent, secured or unsecured, due or to become due,
now existing or hereafter arising, and whether created directly or acquired
indirectly by assignment, pledge, purchase or otherwise, together with all
interest, fees, charges, expenses and attorneys' fees for which Borrower is now
or hereafter becomes liable to pay to the Purchasers or Purchasers' Agent under
any agreement or by law.
2. Subordination of Amended and Restated Security Interest and
Subordination of Subordinated Debt to Senior Debt. The Purchasers' Agent hereby:
(i) subordinates the Purchase Agreement Security Interest to the Amended and
Restated Security Interest to the extent and in the manner hereinafter set forth
and (ii) subordinates all Subordinated Debt such that all Subordinated Debt is
and shall be subordinate and junior in right of payment, to the extent and in
the manner hereinafter set forth, to the prior indefeasible payment in full of
all Senior Debt. Except as and to the extent provided hereinafter, the
Purchasers or Purchasers' Agent, will not ask, demand, xxx for, take or receive
from Borrower, by set-off or in any other manner, direct or indirect payment
(whether in cash or property), of the whole or any part of the Subordinated
Debt, or any transfer of any property in payment of or as security therefor,
unless and until all of the Senior Debt has been fully and indefeasibly paid in
full and until any obligations owed by the Borrower to the Lenders under the
Senior Loan Agreements have been terminated.
3. Distributions in Liquidation and Bankruptcy. Notwithstanding anything
to the contrary in this Agreement or in the 1998 Debentures in the event of any
distribution, division or application partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part of the assets
of Borrower or the proceeds thereof (including any assets now or hereafter
securing any Subordinated Debt) to creditors of Borrower or upon any
indebtedness of Borrower, as a result of the liquidation, dissolution or other
winding up, partial or complete, of Borrower, or as a result of any
receivership, insolvency or bankruptcy proceeding, or assignment for the benefit
of creditors or marshalling of assets, or as a result of any proceeding by or
against Borrower for any relief under any bankruptcy or insolvency law or laws
relating to the relief of debtors, readjustment of indebtedness, arrangements,
reorganizations, compositions or extensions, or as a result of the sale of all
or substantially all of the assets of Borrower, then and in any such event:
(a) Lenders' Agent shall be entitled to receive payment in full of
all Senior Debt before Purchasers' Agent shall be entitled to receive any
payment or other distributions on, or with respect to, the Subordinated Debt;
(b) Any payment or distribution of any kind or character, whether in
cash, securities or other property, which but for these provisions would be
payable or deliverable upon or with respect to the Subordinated Debt shall
instead be paid or delivered directly to Lenders' Agent for the benefit of the
holders of the Senior Debt for application on the Senior Debt, whether then due
or not due, until the Senior Debt shall have first been fully and indefeasibly
paid in full;
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(c) The Purchasers and Purchasers' Agent shall duly and promptly
take such action as may reasonably be requested by Lenders' Agent to assist in
the collection of the Subordinated Debt for the account of any holder of the
Senior Debt, including the filing of appropriate proofs of claim with respect to
the Subordinated Debt and the voting of such claims;
(d) In the event that the Purchasers or Purchasers' Agent shall not
have filed a claim in any bankruptcy, insolvency or similar proceeding with
respect to Borrower at least sixty (60) days prior to the expiration of the time
to file such claims, then Lenders' Agent, on behalf of the Purchasers, shall be
authorized to file a claim with respect to the Subordinated Debt; and
(e) Should any direct or indirect payment be made to the Purchasers
or Purchasers' Agent upon or with respect to the Subordinated Debt prior to the
payment in full of the Senior Debt in accordance with these provisions,
Purchasers' Agent will forthwith deliver the same to Lenders' Agent in precisely
the form received (except for the endorsement or assignment by the Purchasers or
Purchasers' Agent, where necessary) for application on the Senior Debt, whether
then due or not due. Until so delivered, the payment or distribution shall be
held in trust by the Purchasers and Purchasers' Agent as property of the holders
of the Senior Debt. In the event of the failure of the Purchasers or Purchasers'
Agent to make any such endorsement or assignment, Lenders' Agent, or any of its
officers or employees, are hereby irrevocably authorized to make the same.
4. No Payments on Subordinated Debt. Until such time as the Senior Debt is
indefeasibly paid in full, Borrower may not make and neither the Purchasers, nor
the Purchasers' Agent, may accept, any payments on the Subordinated Debt,
including without limitation any payments of interest on or principal of the
Subordinated Debt; provided, however, that except as otherwise provided in
paragraph 3 above, unless and until an Event of Default has occurred and is
continuing under the Consolidated Bridge Loan Agreement, the Borrower may make
and the Purchasers' Agent may accept scheduled payments of interest on the
principal outstanding under the 1998 Debentures, strictly in accordance with the
terms of the 1998 Debentures as in effect on the date of execution thereof.
Without limiting the generality of the foregoing, Borrower shall not pay and
neither the Purchasers nor Purchasers' Agent shall not accept any prepayments of
the Subordinated Debt, whether voluntary or mandatory, or any payment of any
accelerated amounts due under the Subordinated Debt.
5. Turnover of Payments. If, notwithstanding the prohibition on payments
contained in paragraph 4 hereof, the Purchasers or Purchasers' Agent shall
receive any payment or distribution of any kind (whether from any collateral
securing the Subordinated Debt or otherwise), with the exception of the
scheduled payments of interest that are made in accordance the terms of
paragraph 4 above, such payment or distribution shall be received in trust for,
and shall be delivered to Lenders' Agent promptly in precisely the form received
(except for the endorsement or assignment by the Purchasers or Purchasers'
Agent, where necessary) for application on the Senior Debt, whether then due or
not due. Until so delivered, the payment or distribution shall be held in trust
by the Purchasers, or Purchasers' Agent, as property of the holders of Senior
Debt.
6. No Acceleration or Exercise of Remedies. So long as any Senior Debt
remains unpaid, Purchasers' Agent will not (a) accelerate, or cause to be
accelerated, the Subordinated Debt
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or otherwise cause the Subordinated Debt to become due prior to its original
stated maturity; or (b) accept any payment, prepayment or defeasance of any
portion of the Subordinated Debt, as provided herein; or (c) modify or alter in
any way the terms of the Subordinated Debt if the effect of such is to
accelerate the payments due thereon; or (d) exercise any remedies with respect
to the Subordinated Debt or any collateral at any time securing payment or
performance thereof unless and until, in each such case, all of the Senior Debt
shall have been indefeasibly paid in full, or the Lenders shall have otherwise
consented in writing.
7. Bankruptcy. Until the Senior Debt shall have been indefeasibly paid in
full, the Purchasers, or Purchasers' Agent, will not without the prior written
consent of each of the Lenders commence, or join with any other person in
commencing, any proceeding against any person with respect to the Subordinated
Debt under any bankruptcy reorganization, readjustment of debt, dissolution,
receivership, liquidation or insolvency law or statute now or hereafter in
effect in any jurisdiction.
8. Continuing Subordination. The subordination effected by these
provisions is a continuing subordination and may not be modified or terminated
by the Purchasers, or Purchasers' Agent, or any other holder of any Subordinated
Debt until all of the Senior Debt shall have been indefeasibly paid in full. At
any time and from time to time, without consent of or notice to the Purchasers,
or Purchasers' Agent, or any other holder of Subordinated Debt, and without
impairing or affecting the obligations of any of them hereunder:
(a) The time for Borrower's performance of, or compliance with, any
of its agreements contained in the Senior Loan Agreements, or any other
agreement, instrument or document relating to the Senior Debt, may be modified
or extended or such performance or compliance may be waived;
(b) The Lenders, or Lenders' Agent, may exercise or refrain from
exercising any rights under the Senior Loan Agreements, or any other agreement,
instrument or document relating to the Senior Debt;
(c) The Senior Loan Agreements, or any other agreement, instrument
or document relating to the Senior Debt, may be revised, amended or otherwise
modified for the purpose of adding or changing any provisions thereof
(including, without limitation, increases in the principal amount or increases
in the interest charges or fees), or changing in any manner the rights of the
Lenders, Borrower, or any guarantor of the Senior Debt;
(d) Payment of the Senior Debt or any portion thereof may be
extended, refunded or refinanced or any notes evidencing such Senior Debt may be
renewed in whole or in part;
(e) The maturity of the Senior Debt may be accelerated, and any
collateral security therefor or any other rights of Lender may be exchanged,
sold, surrendered, released or otherwise dealt with, in accordance with the
terms of any present or future agreement with Borrower or any guarantor and any
other agreement of subordination (and the debt covered thereby) may be
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surrendered, released or discharged, or the terms thereof modified or otherwise
dealt with in any manner;
(f) Any person liable in any manner for payment of the Senior Debt
may be released by holders of Senior Debt; and
(g) Notwithstanding the occurrence of any of the foregoing, these
subordination provisions shall remain in full force and effect with respect to
the Senior Debt, as the same shall have been extended, renewed, modified,
refunded or refinanced.
9. Waivers. Purchasers' Agent hereby waives, and agrees not to assert: (a)
any right, now or hereafter existing, to require the Lenders or Lenders' Agent
to proceed against or exhaust any collateral at any time securing the Senior
Debt, or to marshal any assets in favor of the Purchasers, or Purchasers' Agent,
or any other holder of Subordinated Debt; and (b) any notice of the incurrence
of Senior Debt, it being understood that Lender may, in reliance upon these
subordination provisions, make advances under the Loan Documents, or any other
agreement, document or instrument now or hereafter relating to the Senior Debt,
without notice to or authorization of Creditor.
10. Lien Subordination and Standby. Any lien, security interest,
encumbrance, charge or claim of the Purchasers, or Purchasers' Agent, on any
assets or property of Borrower or any proceeds or revenues therefrom which
Purchasers' Agent, may have at any time as security for any Subordinated Debt
shall be, and hereby is, subordinated to all liens, security interests, or
encumbrances now or hereafter granted to the Lenders' Agent by Borrower or by
law, notwithstanding the date or order of attachment or perfection of any such
lien, security interest, encumbrance or claim or charge or the provision of any
applicable law. Until each of the Lenders have received indefeasible payment in
full of the Senior Debt, the Purchasers, and Purchasers' Agent, agree that the
Purchasers, or Purchasers' Agent, will not assert or seek to enforce against
Borrower any interest of any of the Purchaser in any and all collateral for the
Subordinated Debt and that Lenders' Agent may dispose of any or all of the
collateral for the Senior Debt free of any and all liens, including but not
limited to liens created in favor of Purchasers' Agent through judicial or
nonjudicial proceedings, in accordance with applicable law including taking
title, after notice to Purchasers' Agent. The Purchasers agree that any such
sale or other disposition by Lenders' Agent of so much of the collateral for the
Senior Debt as is necessary to satisfy in full, all of the principal of,
interest on and reasonable costs of collection of the Senior Debt shall be made
free and clear of any security interest granted to holder provided the entire
proceeds (after deducting reasonable expenses of sale) are applied in reduction
of the Senior Debt. Upon Lenders' Agent's request, the Purchasers, and
Purchasers' Agent, shall execute and deliver any releases or other documents and
agreements that Lenders' Agent in its reasonable discretion deems necessary to
dispose of the collateral for the Senior Debt free of the Purchasers interest in
same. The Purchasers retain all of its rights as junior secured creditors with
respect to the surplus, if any, arising from any such disposition of the
collateral for the Senior Debt.
11. Subrogation. Until the Senior Debt shall have been indefeasibly paid
in full, the Purchasers, and Purchasers' Agent, hereby waive all rights of
subrogation with respect to the rights
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of the Lenders to receive payments or distributions and with respect to any
rights to any collateral for the Senior Debt. Upon payment in full of the Senior
Debt, Creditor shall be subrogated, to the extent permitted by law, to all
rights of the holders of Senior Debt.
12. Subordination Not Impaired by Borrower. No right of any holder of
Senior Debt to enforce the subordination of the Subordinated Debt shall be
impaired by any act or failure to act by Borrower or by its failure to comply
with these provisions.
13. No Third Party Beneficiaries. This Agreement is not intended to give
or confer any rights to any person other than the holders of the Senior Debt. No
other party, including Borrower, is intended to be a third party beneficiary of
this Agreement.
14. Legend on Note or Other Instrument. If any portion of the Subordinated
Debt is evidenced by a promissory note, debenture, stock certificate or other
instrument, the Purchasers' Agent and Borrower agree to promptly add a
conspicuous legend or other reference to such instrument stating that the rights
of any holder and Borrower thereof are subject to this Agreement.
15. Representations and Warranties. Each of the Purchasers hereby
represent and warrant that: (a) the execution and delivery of this Agreement and
the performance by the Purchasers and Purchasers' Agent of its obligations
hereunder have received all necessary approvals, corporate or otherwise, and do
not and will not contravene or conflict with any provision of law or any
provision of any indenture, instrument or other agreement to which the
Purchasers or Purchasers' Agent is a party or by which it or its property may be
bound or affected; (b) the Purchasers, and Purchasers' Agent, has full power,
authority and legal right to make and perform this Agreement; (c) neither the
Purchasers, or Purchasers' Agent, have assigned or transferred any indebtedness
owing by Borrower or any of the collateral for the Subordinated Debt and
Creditor will not assign or transfer same without at least ten (10) days prior
written notice to each of the Lenders and Lenders' Agent; and (d) this Agreement
is the legal, valid and binding obligation of each of the Purchasers and
Purchasers' Agent, enforceable against the Purchasers and Purchasers' Agent in
accordance with its terms.
16. No Waiver. No failure on the part of the Lenders or Lenders' Agent to
exercise, no delay in exercising, and no course of dealing with respect to, any
right or remedy hereunder will operate as a waiver thereof; nor will any single
or partial exercise of any right or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right or remedy. This
Agreement may not be amended or modified except by written agreement of the
Lenders' Agent, the Purchasers' Agent, and the Borrower, and no consent or
waiver hereunder shall be valid unless in writing and signed by the Lenders'
Agent.
17. Successor and Assigns. This Agreement, and the terms, covenants and
conditions hereof, shall be binding upon and inure to the benefit of the parties
hereto, and their respective successors and assigns.
18. Governing Law. This Agreement will be construed in accordance with and
governed by the laws of the State of New York, without reference to its conflict
of laws.
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19. Provisions Applicable to Borrower. Borrower has signed this Agreement
to indicate its acknowledgment thereof and its agreement to be bound by the
provisions applicable to it.
20. Original Subordination Agreement. This Agreement supercedes and
replaces, in its entirety, the Original Subordination Agreement, and, upon the
effectiveness of this Agreement, the Original Subordination Agreement is of no
further force and effect.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
Borrower: Xxxxxx Drug Co., Inc.
By: /S/
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Name: Xxxxxxx Xxxxxxx
Title: President
Purchasers: XXXXX PARTNERS III, L.P., as Agent on behalf
of the Purchasers
By: Claudius, L.L.C., General Partner
By: /S/
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Name: Xxxxx X. Xxxxxx
Title: Managing Member
Lenders: XXXXX PARTNERS III, L.P., as Agent on behalf
of the Lenders
By: Claudius, L.L.C., General Partner
By: /S/
----------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Managing Member
Notice Addresses:
Borrower:
Xxxxxx Drug Co., Inc.
Attn: Xxxxxxx Xxxxxxx, President
000 X. Xxxxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Fax No. (000) 000-0000
Purchasers' Agent and Lenders' Agent:
Xxxxx Partners III, X.X.
Xxxxxxxxxxx Center
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
