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2ND Amended & Restated Subordination Agrmt

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Sectors: Health Products and Services
Governing Law: United States
Effective Date: February 09, 2001
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Loan No. 99-407


SECOND AMENDED AND RESTATED
SUBORDINATION AGREEMENT


THIS SECOND AMENDED AND RESTATED SUBORDINATION AGREEMENT (this "Agreement") is made as of February 9, 2001, by and among the entities listed on Exhibit A hereto, each a Delaware corporation (collectively, "Borrowers"), BALANCED CARE CORPORATION, a Delaware corporation ("BCC"), the entities listed on Exhibit D hereto, each a Delaware corporation, which are direct or indirect subsidiaries of BCC and shareholders of one or more of the Borrowers (collectively "BCC Subs", and collectively with BCC, "Pledgor"), FRR Investments Limited, a Cayman Islands corporation ("FRR"), IPC Advisors, S.a.r.l., a Luxembourg corporation ("IPC"), HR Investments Limited, a Cayman Islands corporation ("HR"), RH Investments Limited, a Cayman Islands corporation ("RH"), VXM Investments Limited, a Cayman Islands corporation ("VXM") (FRR, IPC, RH, HR and VXM, together with any successors or assigns in such capacity, are collectively referred to herein as the "Junior Lender"), and HELLER HEALTHCARE FINANCE, INC., a Delaware corporation, (together with any successors or assigns in such capacity, "Senior Creditor").


W I T N E S S E T H:


WHEREAS, Borrowers, BCC, BCC Subs, FRR, IPC and Senior Creditor are parties to that certain Amended and Restated Subordination Agreement dated as of November 6, 2000 (the "Original Amended and Restated Subordination Agreement");


WHEREAS, Borrowers have executed and delivered a Second Amended and Restated Promissory Note A in the principal amount of Thirty Million Six Hundred Thousand and No/100 Dollars ($30,600,000.00) in favor of Senior Creditor (the "Senior Note A"), a Second Amended and Restated Subordinated Promissory Note B in the principal amount of Six Million Four Hundred Thousand and No/100 Dollars ($6,400,000.00) in favor of Senior Creditor (the "Senior Note B"; Senior Note A and Senior Note B being referred to herein collectively as the "Senior Notes"), and a Promissory Note C in the principal amount of Five Million and No/100 Dollars ($5,000,000.00) in favor of Senior Creditor ("Note C");


WHEREAS, in connection with the execution and delivery of the Original Amended and Restated Subordination Agreement,


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(i) a reserve account originally funded with some of the proceeds of Note C was disbursed to Senior Creditor to repay, in part, Note C, (ii) Note C was repaid in its entirety, and (iii) a Third Amendment to Loan Documents dated as of November 6, 2000 (the "Third Amendment") was entered into among Borrowers, BCC, Senior Creditor and certain affiliates of BCC and Borrowers;


WHEREAS, all amounts owed by Borrowers to Senior Creditor under the Senior Notes or otherwise under the Senior Security Documents (as defined below) and all amounts owed by BCC Borrowers (as defined in the Third Amendment) to Senior Creditor pursuant to the Revolving Credit Facility Loan Documents (as defined in (and amended by) the Third Amendment) or otherwise are being hereinafter referred to collectively as the "Senior Debt;"


WHEREAS, the Senior Debt is secured by, among other things, those certain mortgages and deeds of trust, each dated December 30, 1999 listed on Exhibit B hereto, as each has been amended (together with the Revolving Credit Facility Mortgages (as defined in (and amended by) the Third Amendment), collectively, the "Senior Mortgages"), covering certain real property including the real property more particularly described on Exhibit C attached hereto and incorporated herein by reference (together with the properties encumbered by the Revolving Credit Facility Mortgages, collectively, the "Properties");


WHEREAS, (i) FRR agreed to loan an amount not to exceed Seven Million and No/100 Dollars ($7,000,000.00) to BCC, which loan was evidenced by a Series One 1999 BCC Discount Note dated December 29, 1999, executed by BCC in favor of FRR, and which loan was subsequently repaid in full, and (ii) BCC has executed and delivered in favor of IPC that certain Indemnification, Defense, Hold Harmless and Reimbursement Agreement dated as of December 29, 1999 (the "Indemnification Agreement");


WHEREAS, some or all of the Junior Lenders have agreed to loan BCC (through one or more disbursements, made on one or more dates and evidenced by one or more notes) an amount not to exceed Eight Million Seven Hundred and Fifty Thousand and No/100 Dollars ($8,750,000.00) in aggregate (the note(s) evidencing such loan being referred to (collectively) as the "Junior Note");


WHEREAS, the indebtedness and other obligations of BCC to each Junior Lender under the Indemnification Agreement, and the indebtedness and other obligations of the Borrowers to each Junior Lender pursuant to the Junior Note, is hereinafter referred to collectively as the "Junior Debt";


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WHEREAS, the Junior Debt is secured by a Pledge Agreement pursuant to which Pledgor is pledging the capital stock of Borrowers (the "Stock") to Junior Lender as security for the Junior Debt (as amended from time to time, the "Pledge Agreement", and together with the Junior Note and Indemnification Agreement, the "Junior Loan Documents");


WHEREAS, Junior Lender has agreed to fully subordinate the Junior Debt and the Junior Loan Documents to the Senior Debt and Senior Security Documents;


WHEREAS, that certain Loan Agreement dated December 30, 1999 among Senior Creditor and Borrowers, as amended to date, including by the Third Amendment (the "Loan Agreement"), the Senior Mortgages, the Senior Notes and all other documents evidencing, securing or otherwise executed in connection with the Senior Notes or the Senior Debt (other than this Agreement), together with the Revolving Credit Facility Loan Documents are referred to herein as the "Senior Security Documents;"


WHEREAS, all capitalized terms used herein and not defined herein shall have the meanings as signed to them in the Loan Agreement; and


WHEREAS, the parties intend that the Original Subordination Agreement is hereby amended and restated in its entirety to read as provided in this Agreement.


NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the parties agree as follows:


1. The Junior Loan Documents and the Junior Debt and the liens, security interests and assignments created thereunder (including without limitation the Pledge Agreement and any liens created thereby) are and shall continue to be expressly subject and subordinate to (a) the Senior Debt and the liens, security interests and assignments created by the Senior Security Documents (regardless of the relative times and method of attachment or perfection thereof or the order of filing, of financing statements, mortgages, deeds of trust, assignments or other security agreements or documents, or anything in the Junior Loan Documents or this Agreement to the contrary); (b) all the terms, covenants and conditions contained in the Senior Security Documents and any extensions, replacements, consolidation, modifications and supplements thereto, including without limitation any and all advances (whether or not obligatory), in whatever amounts and whenever made, with interest thereon, and to


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any expenses, charges and fees incurred thereby, including any and all advances, interest, expenses, charges and fees which may increase the indebtedness secured by the Senior Security Documents above the original principal amount thereof and any post-petition interest which accrues, or would have accrued but for such filing, after the commencement of any case under the Federal Bankruptcy Code, to the full extent of all of the foregoing; and (c) any amounts advanced or incurred, in the sole judgment of Senior Creditor whether or not in accordance with the Senior Security Documents, for the benefit of the Properties or for costs and expenses associated with the Senior Debt or otherwise. In foreclosing on the Senior Creditor's security interests and liens, Senior Creditor may proceed to foreclose on its security interests and liens in any manner which Senior Creditor, in its sole discretion, chooses, even though a higher price might have been realized if Senior Creditor had proceeded to foreclose on its security interests and liens in another manner. Notwithstanding the foregoing to the contrary, nothing in this Agreement shall be construed to prevent Junior Lender from receiving (i) payment of the obligations under the Indemnification Agreement at any time from BCC, (ii) so long as no Event of Default has occurred and is continuing under (and as defined in) any of the Senior Security Documents, regularly scheduled interest payments under the Junior Note may be made by BCC to the Junior Lender, and (iii) so long as (1) BCC obtains new funds to repay the Junior Note from either (A) an equity contribution (without an increase in BCC's liabilities as would be the case, for example, if convertible debt were issued, as opposed to common or preferred stock) or (B) new debt incurred by BCC which debt is consented to by Senior Creditor (whose consent will not be unreasonably withheld), and which new debt is subject to a complete standstill and subordination in favor of Senior Creditor by the holder of such debt, pursuant to a written agreement in substantially the form of this Agreement, and (2) no Event of Default has occurred and is continuing under (and as defined in) any of the Senior Security Documents, payment due under the Junior Note upon maturity (as the maturity date may be extended from time to time) (the payments described in clauses (i), (ii) and (iii) of this sentence being referred to collectively as the "Permitted Payments").


2. (a) Until the Senior Debt has been satisfied in full, Junior Lender shall not be entitled to receive or retain any payment made by BCC, any of the BCC Borrowers, any of the Borrowers or any of the BCC Subs with respect to the Junior Debt or under the Junior Loan Documents, except for the Permitted Payments. The BCC Subs, BCC, BCC Borrowers and Borrowers agree


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that they shall not, directly or indirectly, make any payments (whether of principal, interest or otherwise) on account of the Junior Debt (other than the Permitted Payments) or redeem, purchase or otherwise acquire, directly or indirectly, any Junior Debt, and Junior Lender agrees that it will not accept any such payment (other than the Permitted Payments) or payment from any other source including, without limitation, proceeds of insurance or any condemnation award or participate in any such redemption, purchase or other acquisition.


(b) Until the Senior Debt has been satisfied in full, Junior Lender agrees that it shall not exercise any remedies whatsoever under the Junior Loan Documents, including without limitation, any remedies with respect to the capital shares of any of the Borrowers or of any of the Pledgors (or if applicable at any time hereafter, any of the BCC Borrowers), whether under the Junior Loan Documents or otherwise.


(c) Until the Senior Debt has been fully satisfied, Junior Lender shall not take, require or accept from BCC, any BCC Borrower, any Borrower or any BCC Sub any security or collateral for the Junior Debt or any guaranty of the Junior Debt (except for pledges of shares by the Pledgor and other security granted by the Pledgor under the Pledge Agreement).


3. At all times during which the Senior Debt is outstanding, Junior Lender agrees that it shall not (i) vote for any plan of reorganization of BCC Borrowers, Borrowers or Pledgor without the written consent of the Senior Creditor; (ii) commence or join with any other creditor or creditors of BCC Borrowers, Borrowers or Pledgor in commencing any bankruptcy, reorganization or insolvency proceeding against BCC Borrowers, Borrowers or Pledgor; (iii) object to any motion filed in any bankruptcy proceeding that rents from the Properties, or any of them, shall constitute cash collateral of the Senior Creditor; (iv) oppose any motion filed by the Senior Creditor to lift the automatic stay in a bankruptcy proceeding; or (v) take any action to appoint a receiver for Pledgor, Borrowers, BCC Borrowers or any of the Properties.


4. Nothing contained in this Agreement is intended to or shall impair the obligations of Borrowers, BCC and BCC Borrowers, which are absolute and unconditional, to pay to Senior Creditor the principal of the prepayment premium, if any, and the interest on the Senior Debt as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of Senior Creditor and creditors of BCC Borrowers, Borrowers or Pledgor, other than Junior Lender.


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5. Should any payment on account of, or any stock as collateral (or other collateral) for any part of, the Junior Debt be paid to Junior Lender in violation of the terms of this Agreement, such payment or collateral shall be delivered forthwith to Senior Creditor by the recipient for application to the Senior Debt, in the form received. Senior Creditor is irrevocably authorized to supply any required endorsement or assignment which may have been omitted. Until so delivered, any such payment or collateral shall be held by Junior Lender in trust for Senior Creditor and shall not be commingled with other funds or property of Junior Lender.


6. Each of FRR, IPC, HR, RH and VXM represents that it has not transferred or assigned its rights under the Junior Note, in the case of HR, RH and VXM, and the Indemnification Agreement, in the case of IPC, and no part thereof has been subordinated in favor of anyone except Senior Creditor. Junior Lender may not sell, assign or transfer its collateral interest in the Stock or its interest in the Junior Note or any of the Junior Loan Documents without Senior Creditor's consent.


7. The rights in favor of Senior Creditor created hereunder are solely for its benefit and protection and for the benefit and protection of its participants, successors and assigns. Nothing herein contained shall impose on Senior Creditor any duties with respect to any property of BCC Borrowers, Borrowers, Pledgor or the Junior Lender.


8. Senior Creditor is hereby authorized to demand specific performance of this Agreement, whether or not BCC Borrowers, Borrowers or Pledgor shall have complied with the provisions hereof applicable to it, at any time when Junior Lender shall have failed to comply with any provision hereof applicable to it. Junior Lender hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance hereof in any action brought therefor by Senior Creditor. Junior Lender consents that, without the necessity of any reservation of rights against Junior Lender, and without notice to or further assent by Junior Lender:


(a) any demand for payment of any Senior Debt may be rescinded in whole or in part, and any Senior Debt may continue;


(b) the Senior Debt, or the liability of BCC, BCC Borrowers, Borrowers or any other party upon or for any part thereof, or any collateral security therefor or guaranty thereof or right of offset with respect thereto, may, from time to time,


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in whole or in part, be renewed, increased, extended, modified, compromised, waived, surrendered or released;


(c) the Senior Notes and any other agreement or instrument evidencing the Senior Debt or governing the terms of the Senior Debt, and any collateral security documents or guaranties or documents signed in connection therewith, and the Revolving Credit Facility Loan Documents, may be amended, modified, supplemented or terminated, in whole or in part, as Senior Creditor may deem advisable from time to time; and


(d) any collateral security at any time held by the Senior Creditor for the payment of any of the Senior Debt may be sold, waived, surrendered or released, and Senior Creditor may take any other action it deems desirable with respect to the collateral for the Senior Debt.


9. Junior Lender shall execute and deliver to the Senior Creditor such further instruments and shall take such further action as the Senior Creditor may reasonably request from time to time in order to carry out the provisions and intent of this Agreement or to enable Senior Creditor to exercise and enforce its rights and remedies hereunder.


10. Junior Lender and Senior Creditor agree to provide to each other estoppel certificates current to the date of such request within thirty (30) business days of the request of the other party, but not more frequently than three times per year, which estoppel certificate shall provide that the Junior Debt or Senior Debt (as the case may be) is in full force and effect, that, to the affirming party's knowledge, no defaults have occurred and are continuing thereunder, and as to any other matters reasonably requested by the requesting party.


11. Junior Lender agrees that in the event of a casualty to one or more of the Properties or a condemnation or taking under a power of eminent domain of all or any portion of one or more of the Properties, or a threat of such a condemnation or taking, all adjustments of insurance claims, condemnation claims and settlements in anticipation of such a condemnation or taking shall be prosecuted, at Senior Creditor's election, by Senior Creditor or at Senior Creditor's direction pursuant to the terms and provisions of the Senior Security Documents, and all payments and settlements of ins
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