1
EXHIBIT 10.6
SUBORDINATION AGREEMENT
This SUBORDINATION AGREEMENT (this "Agreement") is dated as of
February 16, 1999 and made among ASCENT PEDIATRICS, INC., a Delaware corporation
(the "Company"), the original lenders named on the signature pages hereto (the
"Original Lenders"), and ALPHARMA USPD, INC., a Maryland corporation
("Alpharma").
WHEREAS, the Original Lenders have entered into a Series G
Securities Purchase Agreement dated as of May 13, 1998, with the Company,
pursuant to which they purchased 7,000 shares of Series G Preferred Stock of the
Company (the "Series G Preferred") and $9,000,000 principal amount of 8%
Subordinated Notes of the Company (the "Subordinated Notes");
WHEREAS, the Original Lenders on or prior to the Closing Date are
exchanging all outstanding shares of the Series G Preferred for 8% Convertible
Subordinated Notes (the "Convertible Notes" and, together with the "Subordinated
Notes", the "Xxxxxx Notes");
WHEREAS, Alpharma has agreed to enter into a Loan Agreement (the
"Loan Agreement") with the Company, pursuant to which Alpharma will make loans
to the Company to be evidenced by a 7.5% Convertible Subordinated Note in the
maximum principal amount of $40,000,000 (the "Alpharma Note"); and
WHEREAS, the extension of credit by Alpharma to the Company will
benefit the Original Lenders, and in extending such credit, Alpharma has relied
on the subordination of the Original Lenders as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
mutually acknowledged, the Original Lenders hereby agree with Alpharma as
follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings set forth in the Loan Agreement. The following definitions
shall for all purposes apply to the respective terms used in this Agreement.
"Officers' Certificate" means the certificate signed by two Officers
or by an Officer and an Assistant Treasurer or an Assistant Secretary of the
Company.
"Senior Indebtedness" means the principal, premium, if any, and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such proceeding), fees,
charges, expenses, reimbursement and indemnification obligations, and all other
amounts payable under or in respect of Borrowed Money Indebtedness in an
aggregate principal amount not greater than $50,000,000 (which (i) prior to or
on the Option Expiration Date, must consist solely of Screened Project
Indebtedness and (ii) thereafter, may include up to
2
$10,000,000 of Borrowed Money Indebtedness that is not Screened Project
Indebtedness) , which is designated by the Company as Senior Indebtedness.
2. Subordination.
2.1 Agreement to Subordinate. The Company, Alpharma and the Original
Lenders agree, that (a) the Indebtedness evidence by the Alpharma Note and the
Xxxxxx Notes and the payment of principal thereof will be subordinated in right
of payment to the prior payment in full of the Senior Indebtedness and (b) the
Xxxxxx Notes will be subordinate in right of payment to the Alpharma Note to the
extent of any Negative Equity Position. To the extent not subordinate in right
of payment pursuant to clause (b) of the immediately preceding sentence, the
Xxxxxx Notes will rank pari passu with the Alpharma Note.
2.2 Liquidation; Dissolution; Bankruptcy. Upon any distribution of
assets to creditors of the Company in a liquidation, winding up or dissolution
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property:
(a) holders of Senior Indebtedness shall be entitled to receive payment
in full in cash of the principal of and interest (including interest
accruing after the commencement of any such proceeding) to the date
of payment on the Senior Indebtedness before Alpharma or the
Original Lenders shall be entitled to receive any payment of
principal of or interest on the Alpharma Note and the Xxxxxx Notes,
respectively;
(b) if the Company has a Negative Equity Position, Holders of the
Alpharma Note shall be entitled to receive payment in cash of
principal and interest (including interest accruing after the
commencement of any such proceeding) to the date of payment on the
Alpharma Note to the extent of such Negative Equity Position, before
the Original Lenders shall be entitled to receive any payment of
principal of or interest on the Xxxxxx Notes; and
(c) until the Senior Indebtedness is paid in full in cash, any
distribution to which Alpharma or the Original Lenders would be
entitled but for this Section shall be made to holders of Senior
Indebtedness as their interests may appear.
2.3 Company Not to Make Payments with Respect to Securities in
Certain Circumstances.
(a) No payment of principal of, or premium, if any, or interest may be
made by the Company, directly or indirectly, on the Alpharma Note or
Xxxxxx Notes at any time if a default in payment or interest on
Senior Indebtedness exists, and (i) such default is subject to
judicial proceedings or (ii) notice of such default has been
received by the Company from a holder of Senior Indebtedness, unless
and until
2
3
such default shall have been cured or waived or shall have ceased to
exist. During the continuance of any event of default with respect
to any Senior Indebtedness, as such event of default is defined
under any such Senior Indebtedness or in any agreement pursuant to
which any Senior Indebtedness has been issued (other than default in
payment of the principal of, or premium, if any, or interest on any
Senior Indebtedness), permitting the holders of such Senior
Indebtedness to accelerate the maturity thereof, no payment may be
made by the Company, directly or indirectly, with respect to
principal of, or premium, if any, or interest on the Alpharma Note
or Xxxxxx Notes for 183 days following written notice to the
Company, from any holder or holders of such Senior Indebtedness or
their representative or representatives or the trustee or trustees
under any indenture under which any instrument evidencing any such
Senior Indebtedness may have been issued, that such an event of
default has occurred and is continuing. However, if the maturity of
such Senior Indebtedness is accelerated, no payment may be made on
the Alpharma Note or Xxxxxx Notes until such Senior Indebtedness
that has matured has been paid or such acceleration has been cured
or waived.
(b) In the event that, notwithstanding the foregoing, any payment by the
Company of any kind or character, whether in cash, property or
securities, prohibited by the foregoing, shall be received by
Alpharma or the Original Lenders before all Senior Indebtedness is
paid in full, in cash, or provision is made for such payment to the
satisfaction of the holders thereof, and if such fact shall then
have been or thereafter be made known to such holders, then and in
such event such payment shall be paid over or delivered to the
holders of Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, for
application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment to or for the
holders of such Senior Indebtedness, and, until so delivered, the
same shall be held in trust by Alpharma or the Original Lenders as
the property of the holders of Senior Indebtedness.
(c) The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to Alpharma or the Original
Lenders, without incurring responsibility to Alpharma or the
Original Lenders and without impairing or releasing the obligations
of Alpharma or the Original Lenders hereunder to the holders of
Senior Indebtedness: (i) change the manner, place or terms of
payment or change or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement
under which Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any Property pledged, mortgaged or
otherwise securing Senior Indebtedness; (iii)
3
4
release any Person liable in any manner for the collection of Senior
Indebtedness; and/or (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
Nothing contained in this Section 2 will limit the right of Alpharma or
the Original Lender to take any action to accelerate the maturity of the
Alpharma Note or the Xxxxxx Notes or to pursue any rights or remedies
hereunder.
2.4 Acceleration of Securities. If payment of the Alpharma Note or
Xxxxxx Notes is accelerated because of an event of default, the Company shall
promptly notify holders of Senior Indebtedness of the acceleration. If payment
of the Xxxxxx Notes is accelerated because of an event of default, the Company
shall promptly notify Alpharma.
2.5 Notice by Company. The Company shall promptly notify Alpharma
and the Original Lenders in writing of any facts known to the Company that would
cause a payment of principal of or interest on the Alpharma Note and the Xxxxxx
Notes, as applicable, to violate this Section, but failure to give such notice
shall not affect the subordination of the Alpharma Note and the Xxxxxx Notes, as
applicable, to the Senior Indebtedness as provided in this Section.
2.6 Subrogation. After all Senior Indebtedness is paid in full in
cash and until the Alpharma Note and the Xxxxxx Notes are paid in full in cash,
Alpharma or the Original Lenders shall be subrogated to the rights of holders of
Senior Indebtedness to receive distributions applicable to Senior Indebtedness
to the extent that distributions otherwise payable to Alpharma or the Original
Lenders have been applied to the payment of Senior Indebtedness. A distribution
made under this Section to holders of Senior Indebtedness which otherwise would
have been made to Alpharma or the Original Lenders is not, as between the
Company and Alpharma or the Original Lenders, a payment by the Company on Senior
Indebtedness.
2.7 Relative Rights. This Section defines the relative rights of
Alpharma, the Original Lenders and holders of Senior Indebtedness. Nothing in
this Agreement shall:
(a) impair, as between the Company and Alpharma or the Original Lenders,
the obligation of the Company, which is absolute and unconditional,
to pay principal of and interest on the Alpharma Note and the Xxxxxx
Notes, as applicable, in accordance with its terms;
(b) affect the relative rights of Alpharma or the Original Lenders and
creditors of the Company other than holders of Senior Indebtedness;
or
(c) prevent Alpharma or the Original Lenders from exercising its
available remedies upon a Default or Event of Default, subject to
the rights of holders of Senior Indebtedness to receive
distributions otherwise payable to Alpharma or the Original Lenders.
4
5
If the Company fails because of this Section to pay principal of or
interest on the Alpharma Note or the Xxxxxx Notes on the due date, the
failure is still a default or event of default.
2.8 Subordination May Not Be Impaired by Company. No right of any
holder of Senior Indebtedness to enforce the subordination of the indebtedness
evidenced by the Alpharma Notes or the Xxxxxx Notes shall be impaired by any act
or failure to act by the Company or by its failure to comply with this
Agreement.
2.9 Officers' Certificate. If there occurs an event referred to in
Section 2.2 or 2.3 the Company shall promptly give to Alpharma and the Original
Lenders an Officers' Certificate (on which Alpharma and the Original Lenders may
conclusively rely) identifying all holders of Senior Indebtedness and the
principal amount of Senior Indebtedness then outstanding held by each such
holder and stating the reasons why such Officers' Certificate is being delivered
to Alpharma or the Original Lenders.
2.10 Obligation of Company Unconditional. Nothing contained in this
Section 2 or elsewhere in this Agreement, the Loan Agreement, the May 1998
Securities Purchase Agreement, the Alpharma Note or the Xxxxxx Notes is intended
to or shall impair, as between the Company, its creditors other than holders of
Senior Indebtedness and Alpharma and the Original Lenders, the obligation of the
Company, which is absolute and unconditional, to pay to Alpharma and the
Original Lenders the principal of and interest on the Alpharma Note and the
Xxxxxx Notes, as applicable, as and when the same shall become due and payable
in accordance with their terms, or is intended to or shall affect the relative
rights of Alpharma and the Original Lenders and creditors of the Company other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent Alpharma and the Original Lenders from exercising all remedies
otherwise permitted by applicable law upon default under this Agreement, subject
to the rights, if any, under this Section 2 of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy. Upon any distribution of assets of the
Company referred to in this Section 2, Alpharma and the Original Lenders are
entitled to rely upon any order or decree by any court of competent jurisdiction
in which such dissolution, winding up, liquidation or reorganization proceedings
are pending, or a certificate of the liquidating trustee or agent or other
Person making any distribution to Alpharma and the Original Lenders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Section
2. Nothing contained in this Section 2 or elsewhere in this Agreement, the
Alpharma Note or the Xxxxxx Notes is intended to or shall affect the obligation
of the Company to make, or prevent the Company from making, at any time except
during the pendency of any dissolution, winding up, liquidation or
reorganization proceeding, and except during the continuance of any default
specified in Section 2.3 (not cured or waived), payments at any time of the
principal or of interest on the Securities.
2.11 This Agreement Not To Prevent Events of Default. The failure to
make a payment of principal of or interest on the Alpharma Note or the Xxxxxx
Notes by reason of
5
6
any of the provisions of this Section 2 shall not be construed as preventing the
occurrence of an Event of Default or an event of default under the Xxxxxx Notes.
3. Effect of Failure to Pay. The failure to make any payment on
account of the Alpharma Note or the Xxxxxx Notes by reason of the operation of
any provision of this Agreement shall not be construed as preventing the
occurrence of an event of default under the applicable documents.
4. No Disposition. No holder of the Alpharma Note or the Xxxxxx
Notes will sell, assign, pledge, encumber or otherwise dispose of any of the
Alpharma Note or the Xxxxxx Notes, as the case may be, unless such sale,
assignment pledge, encumbrance or disposition is made expressly subject to this
Agreement.
5. Legends. The Company and the holders of the Alpharma Note and the
Xxxxxx Notes shall cause each instrument or document which now or hereafter
evidences all or any portion of the Alpharma Note and the Xxxxxx Notes to be
conspicuously marked with the following legend:
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED AS OF FEBRUARY [ ], 1999, AMONG ASCENT PEDIATRICS, INC.,
ALPHARMA USPD, INC. AND THE ORIGINAL LENDERS NAMED THEREIN, WHICH
AGREEMENT IS INCORPORATED HEREIN BY REFERENCE. NOTWITHSTANDING ANY
STATEMENT TO THE CONTRARY CONTAINED IN THIS INSTRUMENT, NO PAYMENT
OF ANY NATURE ON ACCOUNT OF THE OBLIGATIONS HEREUNDER, WHETHER
PRINCIPAL OR INTEREST, SHALL BE MADE, PAID, RECEIVED OR ACCEPTED
EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS OF SUCH AGREEMENT.
6. Enforcement. The holders of the Alpharma Note and the Xxxxxx
Notes hereby acknowledge that the provisions of this Agreement are intended to
be enforceable at all times, whether before or after the commencement of a
proceeding in connection with or premised on the occurrence of a Bankruptcy
Event.
7. Successors and Assigns. This Agreement shall be binding upon the
Company, Alpharma and the Original Lenders. This Agreement shall be freely
assignable at any time by Alpharma or the Original Lenders provided any such
assignment is in conjunction with the assignment of the related Alpharma Note or
Xxxxxx Notes.
8. GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, EXCEPT FOR ITS RULES RELATING TO THE CONFLICTS OF LAW.
6
7
9. Amendments and Waivers. Except as otherwise provided herein, this
Agreement may be changed, modified or waived only by a writing signed by the
Company, Alpharma and the Original Lenders.
10. Further Assurances. The Company, Alpharma and the Original
Lenders each will, at the Company's expense and at any time and from time to
time, promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or desirable, or that the any of
them may request, in order to protect any right or interest granted or purported
to be granted by this Agreement or to enable the holders of the Alpharma Note or
the Xxxxxx Notes to exercise and enforce their rights and remedies hereunder.
11. Notices. All notices, requests, claims, and other communications
to any party hereunder or pursuant to the terms hereof shall be in writing. Any
such notice, request, demand, claim, or other communication to any party
hereunder shall be deemed duly delivered three Business Days after it is sent by
registered or certified mail, return receipt requested, postage prepaid, or one
Business Day after it is sent via a reputable nationwide overnight courier
service, in each case to the intended recipient as set forth below:
Notices shall be addressed as follows: (i) if to the Company or
Alpharma, to the addresses set forth in the Loan Agreement; (ii) if to the
Original Lenders, to the addresses set forth in the May 1998 Securities Purchase
Agreement; and (iii) to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section 11. A notice not given as provided above shall, if
it is in writing, be deemed given if and when actually received by the party to
whom given.
* * * * *
7
8
IN WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ASCENT PEDIATRICS, INC.
By: /s/ Xxxx X. Xxx
--------------------------------------------
Name: Xxxx X. Xxx
Title: President and Chief Executive Officer
ALPHARMA USPD, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
--------------------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: President
ORIGINAL LENDERS:
XXXXXX XXXX INVESTORS II L.P.
FS EMPLOYEE INVESTORS L.L.C.
FS PARALLEL FUND L.P.
By: FS PRIVATE INVESTMENTS LLC
MANAGER
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Managing Member
BANCBOSTON VENTURES INC.
By /s/ Xxxxxx X. Xxxxx
--------------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Managing Director
8
9
XXXXX PARTNERS
By: /s/ Xxxxx X. Xxxxx
--------------------------------------------
Name: Xxxxx X. Xxxxx, General Partner
Xxxxx Partners
9
