"Subordination Agreement Template"

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Subordination Agreement
Document 2081A
www.leaplaw.com
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document to you nor your receipt of this document creates an attorney-client relationship.
Subordination Agreement
Document 2081A
www.leaplaw.com
Access to this document and the LeapLaw web site is provided with the understanding that neither
LeapLaw Inc. nor any of the providers of information that appear on the web site is engaged in rendering
legal, accounting or other professional services. If you require legal advice or other expert assistance, you
agree that you will obtain the services of a competent, professional person and will not rely on information
provided on the web site as a substitute for such advice or assistance. Neither the presentation of this
document to you nor your receipt of this document creates an attorney-client relationship.
SUBORDINATION AGREEMENT
This SUBORDINATION AGREEMENT (this “Agreement”) is made and entered into as
of this ____ day of _____, 20__, by and between [NAME OF BANK], a _______________
[institution], (“Lender”) and [NAME OF CREDITOR], a ________________ [corporation] (the
“Creditor”).
RECITALS
WHEREAS, [NAME OF BORROWER], a ___________ corporation (“Borrower”)
intends to incur indebtedness to Creditor in an amount equal to $__________.
Such
indebtedness will be evidenced by the Creditor Notes and the repayment thereof will be secured
by a security interest in the Subordinated Debt Collateral.
WHEREAS, Borrower and Lender have entered into a financing arrangement pursuant to
which the Lender has provided and will continue to provide Borrower with [type of financing]
and other financial accommodations, all as more fully described in the [Loan/Credit Agreement].
All liabilities and obligations of Borrower to Lender under the [Loan/Credit Agreement] are
secured by the Senior Debt Collateral. The [Loan/Credit Agreement] prohibits Borrower from
incurring additional indebtedness like the indebtedness to Creditor contemplated in the Recital
above and granting to Creditor a security interest in the Subordinated Debt Collateral without
Lender’s consent.
WHERESAS, Lender is willing to consent to Borrower incurring additional indebtedness
as contemplated by above and granting Creditor a security interest in the Subordinated Debt
Collateral, provided that Creditor enter into this Agreement with Lender.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Lender and Creditor hereby agree as follows:
1.
Definitions. For purposes of this Agreement, the following terms shall be defined in the
following manner:
(a)
“Creditor Notes” shall collectively mean, the ___% Junior Subordinated
Convertible Notes, made by Borrower and payable to the order of the Creditor in an aggregate
principal amount of $______________ as described in the [NAME OF PURCHASE
AGREEMENT] and on Exhibit A attached hereto, as such notes may be amended, supplemented
or restated from time to time.
(b)
“Code” shall mean the Uniform Commercial Code as in effect in the [STATE]
from time to time.
(c)
“Event of Bankruptcy” shall mean any of the following: (i) the filing by
Borrower of a voluntary petition in bankruptcy under any provision of any bankruptcy law
(including, without limitation, the Bankruptcy Code, 11 U.S.C. §101-1331) or the filing by
Borrower of any other petition to take advantage of any receivership or insolvency laws,
Subordination Agreement
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including, without limitation, any petition seeking the dissolution, winding up, total or partial
liquidation, reorganization, composition, arrangement, adjustment or readjustment or other relief
of Borrower, Borrower's debts or Borrower's assets; (ii) the admission in writing by Borrower of
its inability to pay its debts generally as they become due; (iii) the appointment of a receiver,
liquidator, trustee, custodian or other similar official for Borrower or all or a material part of
Borrower's assets; (iv) the filing of any petition against Borrower under any provision of any
bankruptcy law (including, without limitation, the Bankruptcy Code, 11 U.S.C. §101-1331) or
any other receivership or insolvency law, including, without limitation, any petition seeking the
dissolution, winding up, total or partial liquidation, reorganization, composition, arrangement,
adjustment or readjustment or other relief of Borrower, Borrower's debts or Borrower's assets;
(v) an assignment by Borrower for the benefit of creditors or any other marshalling of the assets
and liabilities of Borrower; or (vi) any corporate action taken by Borrower to authorize any of
the foregoing.
(d)
“[Loan/Credit Agreement]” shall mean the [Name of] Agreement dated as of
[DATE] between Lender and Borrower, together with all amendments, modifications, and
supplements thereto and all renewals, extensions and restatements thereof.
(e)
“Note Purchase Agreement” shall mean the Note Purchase Agreement dated as
of [DATE] between Borrower and Creditor, together with all amendments, modifications,
supplements thereto and all renewals, extensions and restatements thereof.
(f)
“Senior Debt” shall mean all present and future obligations, liabilities and
indebtedness of Borrower to Lender, including, without limitation (i) principal, premium, if any,
and interest (including, without limitation, interest accruing after the commencement of a case
under the Bankruptcy Code, 11 U.S.C. §101-1331, regardless of whether such interest is paid to
Lender) on loans, advances, accommodations or other extensions of credit by Lender to or for
the benefit of Borrower (including Borrower operating as Debtor or Debtor in Possession under
the Bankruptcy Code, 11 U.S.C. §101-1331 (the “Bankruptcy Code”), whether now outstanding
or hereafter made and however evidenced, (ii) amounts owing by reason of guarantees by Lender
of Borrower's indebtedness to others, (iii) accrued interest, costs, attorneys fees and expenses
incurred by Lender in enforcing Lender’s rights in the event of a default by Borrower in its
obligations to Lender, (iv) all other indebtedness (matured and unmatured) for which Borrower is
now, or at any time hereafter may be, liable to Lender in any manner, whether primarily or
secondarily, absolutely or contingently, directly or indirectly, including all indebtedness arising
directly out of transactions between Borrower and Lender or out of transactions acquired by
Lender outright, conditionally or as collateral security from another person or entity and (v) in
the case of all of the foregoing, any and all renewals and extensions of all or any part thereof.
(g)
“Senior Debt Collateral” the property of Borrower described on Exhibit B
attached hereto, and all proceeds thereof.
(h)
“Senior [Loan/Credit Agreement]s” the [Loan/Credit Agreement], together with
(i) all other instruments, documents and agreements executed by Borrower and/or Lender in
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Subordination Agreement
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connection therewith, (ii) all other financing agreements, security agreements and instruments
now or hereafter existing between Lender and Borrower, (iii) all amendments, modifications, and
supplements to any one or more of the foregoing and (iv) all renewals, extensions, restatements,
refunding or refinancing of any one or more of the foregoing.
(i)
“Subordinated Agreements” shall collectively mean, the Creditor Notes, the
Note Purchase Agreement, and all [Loan/Credit Agreement]s, security agreements and other
documents relating thereto, together with all amendments, modifications, and supplements to any
one or more of the foregoing and all renewals, extensions and restatements of any one or more of
the foregoing.
(j)
“Subordinated Debt” shall mean all of Borrower's obligations, liabilities and
indebtedness now or hereafter owed to Creditor pursuant to the Subordinated Agreements, and
all costs and expenses (including attorneys' fees) owing by Borrower to Creditor in connection
with the exercise of the Creditor’s rights under, and the enforcement of, the Subordinated
Agreements.
(k)
“Subordinated Debt Collateral” shall mean all property of Borrower in which
Creditor is granted a security interest to secure all or any portion the Subordinated Debt.
2.
Subordination. Subject to the provisions of Section 3 of this Agreement, Creditor
hereby agrees to subordinate, and does hereby subordinate: (a) the payment by Borrower of all or
any part of the Subordinated Debt to the full and final payment and satisfaction of the Senior
Debt; and (b) all liens on, and security interests in the Subordinated Debt Collateral to the liens
and security interests of Lender in the Senior Debt Collateral.
3.
Permitted Payments to Creditor.
(a)
Notwithstanding anything to the contrary herein contained, provided no Event of
Default (as defined in the Senior [Loan/Credit Agreement]) exists or is continuing or that the
making of a Permitted Payment (as hereinafter defined) would cause such an Event of Default
Borrower may make and Creditor may retain regularly scheduled semi-annual payments of
interest on the Creditor Notes of $___________ payable in arrears in cash, commencing [DATE]
(each a “Permitted Payment”), subject to adjustment, as necessary, to include interest payments
due on the PIK Notes (as hereinafter defined).
(b)
Notwithstanding anything to the contrary herein contained, Creditor may accept
notes, substantially in the form attached hereto as Exhibit C (each a “PIK Note”) bearing a
legend as required by this Agreement in lieu of scheduled payments of interest on the Creditor
Notes or the PIK Notes on or before [DATE], regardless of whether an Event of Default has
occurred or is continuing; provided that all such notes are subject hereto. Creditor shall furnish
Lender copies of any such PIK Notes, which shall be deemed Creditor Notes for purposes of this
Agreement.
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Subordination Agreement
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(c)
Creditor shall be entitled to retain any Permitted Payment made pursuant to
paragraph (a) above; provided that Creditor has not received written notice from Lender that an
Event of Default existed or was continuing or occurred as a result of making a Permitted
Payment and sixty (60) days has lapsed from the date Creditor received any such Permitted
Payment.
(d)
Should Creditor receive (i) a payment in any form and from any source with
respect to the Subordinated Debt (including without limitation pursuant to any redemption rights
granted to Creditor under the Creditor Notes or otherwise), other than a payment permitted to be
made under paragraph (a) of this Section 3, or (ii) any Senior Debt Collateral or proceeds
thereof, Creditor shall immediately deliver to Lender, for application against the Senior Debt, in
the form received (except for proper endorsements or assignments, if necessary), such payment
or Senior Debt Collateral. Pending such delivery Creditor shall hold such payment or Senior
Debt Collateral in trust for the account of Lender.
4.
Enforcement of Creditor’s Rights.
(a) Creditor shall not accelerate the maturity or payment of any Subordinated Debt or
assert, participate in or bring any sort of action, suit or proceeding, either at law or in equity, for
the enforcement, collection or realization of all, or any part of, the Subordinated Debt, unless:
(i)
there occurs an Event of Bankruptcy; or
(ii)
Lender accelerates the maturity of the Senior Debt in accordance with the terms
of the [Loan/Credit Agreement], and fifteen (15) days have elapsed from the effective date of
such acceleration and Lender has not rescinded or revoked such acceleration.
(b)
Creditor shall not, without Lender’s prior written consent, (i) commence or join
with any other creditor or creditors of Borrower in commencing any bankruptcy, reorganization,
receivership or insolvency proceeding against Borrower, or (ii) take any action to enforce or
foreclose any liens on or security interests in, or levy against, or exercise any other rights or
remedies which Creditor may have under the Subordinated Agreements or applicable law with
respect to, the Subordinated Debt Collateral or any other property of Borrower, until the Senior
Debt has been fully and finally paid and satisfied.
(c)
Any amounts received by Creditor as a result of any acceleration, action, suit or
proceeding permitted in paragraph (a) of this Section 4, if received prior to the full and final
payment and satisfaction of the Senior Debt, shall be held in trust by Creditor for Lender and
promptly paid to Lender in accordance with the provisions of this Subordination Agreement.
5.
Insolvency Proceedings. Upon the occurrence of an Event of Bankruptcy:
(a)
Any payment or distribution of assets of Borrower of any kind or character that
occurs after the Event of Bankruptcy with respect to the Subordinated Debt Collateral, whether
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