Exhibit 10.5
AFFILIATE SUBORDINATION AGREEMENT
AFFILIATE SUBORDINATION AGREEMENT, dated as of August 25, 2003, among (i)
Austin Ventures III-A, L.P., a Delaware limited partnership, Austin Ventures
III-B, L.P., a Delaware limited partnership, Austin Ventures V, L.P., a Delaware
limited partnership, Austin Ventures V Affiliates Fund, L.P., a Delaware limited
partnership (collectively, and jointly, severally and jointly and severally,
"Austin Ventures"), (ii) Capital Resource Lenders II, L.P., a Delaware limited
partnership, Capital Resource Partners II, L.P., a Delaware limited partnership
(collectively, and jointly, severally and jointly and severally, "Capital
Resources"), (iii) ABRY Partners IV, L.P., a Delaware limited partnership, ABRY
Investment Partnership, L.P., a Delaware limited partnership (collectively, and
jointly, severally and jointly and severally, "ABRY"), (iv) Windward Capital
Partners II, L.P., a Delaware limited partnership, Windward Capital LP II, LLC,
a Delaware limited liability company (collectively, and jointly, severally and
jointly and severally, "Windward"), (v) The Northwestern Mutual Life Insurance
Company ("NML"), (vi) Hull Family Limited Partnership, a Texas limited
partnership ("Hull Partnership"), (vii) James Hull, individually, (viii) Robert
Sherman, individually, (ix) Michael Gregory, individually, (x) Michael Meyers,
individually and (xi) Stephen Hedrick, individually (Austin Ventures, Capital
Resources, ABRY, Windward, NML, Hull Partnership, James Hull, Robert Sherman,
Michael Gregory, Michael Meyers, Stephen Hedrick, collectively the "Subordinated
Creditors", and each a "Subordinated Creditor"), and Fleet National Bank, as
Secured Party for the Lenders from time to time party to the credit agreement
referred to below (in such capacity, the "Secured Party"). The Secured Party and
the other Credit Parties referred to in the Credit Agreement referred to below
are sometimes referred to herein collectively as the "Senior Creditor".
W I T N E S S E T H :
WHEREAS, Monitronics International, Inc., a Texas corporation (the
"Borrower"), the Secured Party, Bank of America, N.A., as syndication agent, and
the Lenders party thereto have entered into a Credit Agreement dated as of the
date hereof (as amended, modified, supplemented and/or extended from time to
time, the "Credit Agreement", capitalized terms used herein and not otherwise
defined shall have the same meanings herein as in the Credit Agreement),
pursuant to which the Lenders agreed, subject to the terms and conditions set
forth therein, to make revolving credit loans and term loans to the Borrower
(collectively, the "Loans"), such Loans to be evidenced by the Borrower's
Revolving Credit and Term Notes, payable to the order of the respective Lenders
(collectively, as amended, modified, supplemented and/or extended from time to
time the "Notes"); and
WHEREAS, the Subordinated Creditors collectively own substantially all of
the capital stock and warrants of the Borrower and will thereby benefit from the
making of the Loans; and
WHEREAS, the obligation of the Lenders to make the Loans is subject to the
conditions, among others, that the Subordinated Creditors shall execute and
deliver this Agreement and
agree to the subordination provisions contained herein, and the Subordinated
Creditors hereby enter into this Agreement to induce the Lenders to enter into
the Credit Agreement and make the Loans;
NOW, THEREFORE, in consideration of the willingness of the Lenders to enter
into the Credit Agreement and to agree, subject to the terms and conditions set
forth therein, to make the Loans to the Borrower pursuant thereto, and for other
good and valuable consideration, receipt and sufficiency of which is hereby
acknowledged by the Subordinated Creditors, it is hereby agreed as follows:
1. Representations by Subordinated Creditors.
(a) Each Subordinated Creditor represents and warrants for itself to
the Senior Creditor that (i) all Indebtedness of the Borrower to such
Subordinated Creditor, if any, is set forth in Schedule 4.4 to the Credit
Agreement, (ii) such Indebtedness, if any, is not subject to any currently
effective assignment to or subordination in favor of any other Person and that
such Subordinated Creditor holds no security therefor, and (iii) the rights
associated with the Capital Stock established under the Borrower's Articles of
Incorporation, as amended through the date hereof, or warrants issued by the
Borrower to the Subordinated Creditors are the only rights or options held by
such Subordinated Creditor to acquire additional shares of any class or series
of Capital Stock of the Borrower.
(b) Each Subordinated Creditor that is a business entity is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all necessary power and authority to enter
into this Agreement, to carry out its respective obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by such Subordinated Creditor, the performance by such
Subordinated Creditor of its respective obligations hereunder, and the
consummation by such Subordinated Creditor of the transactions contemplated
hereby have been duly authorized by all requisite limited partnership,
corporate, limited liability company or other analogous powers on the part of
such Subordinated Creditor that is a business entity. This Agreement has been
duly executed and delivered by such Subordinated Creditor, and (assuming due
authorization, execution and delivery by the Secured Party) this Agreement
constitutes the legal, valid and binding obligation of such Subordinated
Creditor, enforceable against such Subordinated Creditor in accordance with its
terms, except as such enforcement may be limited by applicable Debtor Relief
Laws generally and by general equity principles (whether enforcement is sought
at law or in equity).
(c) Each Subordinated Creditor agrees and acknowledges that this
Agreement is a "subordination agreement" within the meaning of Section 510(a) of
the United States Bankruptcy Code, 11 U.S.C (S)510(a).
2. Subordination; Limitation on Sale Right During an Event of Default.
(a) Subordination. Each Subordinated Creditor hereby subordinates (i)
all present and future Indebtedness of the Borrower to such Subordinated
Creditor and (ii) any and
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all obligations or liabilities of the Borrower and any rights of such
Subordinated Creditor now existing or hereafter arising, absolute or contingent,
arising by contract, at law or otherwise, with respect to dividends payable on
the Capital Stock, the purchase, redemption or other acquisition by the Borrower
of such Capital Stock and any other amount payable to the holders of such
Capital Stock as such (collectively the "Subordinated Indebtedness"), to any and
all Indebtedness now or hereafter owing by the Borrower (including any interest
accruing after the commencement of any proceeding by or against the Borrower
under the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, and any
other interest that would have accrued but for the commencement of such
proceeding, whether or not any such interest is allowed as a claim enforceable
against the Borrower in such proceeding) to the Senior Creditor (the "Senior
Indebtedness") to the extent and in the manner hereinafter set forth, and such
Subordinated Creditor agrees not to demand, accept or receive any payment in
respect of the Subordinated Indebtedness, including, without limitation, any
payment received through the exercise of any right of setoff, counterclaim or
cross claim, or any collateral therefor, or any right to cause the Borrower to
redeem, purchase, assume or otherwise retire the Subordinated Indebtedness, in
contravention hereof:
(i) In the event of any insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Borrower or to
its creditors, as such, or to its properties, or in the event of any
proceedings for voluntary liquidation, dissolution or other winding up
of the Borrower, whether or not involving insolvency or bankruptcy,
then the Senior Creditor shall be entitled to receive payment in full
in cash of all of the Senior Indebtedness before such Subordinated
Creditor is entitled to receive any payment in respect of the
Subordinated Indebtedness (except securities which are subordinate and
junior in right of payment to all Senior Indebtedness then
outstanding), and to that end the holder of the Senior Indebtedness
shall be entitled to receive for application in payment thereof any
payment or distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in any
such proceedings in respect of the Subordinated Indebtedness; and
(ii) No amount shall be paid (except in securities which are
subordinate and junior in right of payment to all Senior Indebtedness
then outstanding, it being understood that all such securities shall
constitute "Subordinated Indebtedness" hereunder), whether in cash,
property, or securities or otherwise, and the Subordinated Creditors
will not exercise any rights with respect to the Capital Stock, in
respect of the Subordinated Indebtedness, except as expressly
permitted under the Credit Agreement or the Pledge Agreement.
(b) Limitation on Sale Rights During an Event of Default.
Notwithstanding any provision to the contrary in any agreement between the
Borrower and the Subordinated Creditors, in the event of the enforcement by the
Senior Creditor of its rights during the existence of an Event of Default that
shall be continuing after applicable grace and cure periods, the Subordinated
Creditors may not exercise any rights under any agreement between the Borrower
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and the Subordinated Creditors involving rights to block a Change in Control of
the Borrower or a public offering of the Borrower's common stock.
3. Limitations on Remedies. So long as any Senior Indebtedness is
outstanding, no Subordinated Creditor shall (i) as a holder of Subordinated
Indebtedness commence or join (unless the Senior Creditor shall also join) in
any involuntary proceeding against the Borrower or any of its Subsidiaries under
any bankruptcy, reorganization, readjustment of debt, arrangement of debt,
receivership, liquidation or insolvency law or statute of any federal or state
government, or (ii) commence any action or proceeding against the Borrower or
any of its Subsidiaries to enforce payment of all or any part of the
Subordinated Indebtedness. Notwithstanding the foregoing, nothing contained
herein shall prohibit or otherwise restrict the Borrower or any of its
Subsidiaries from filing any voluntary proceeding under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt, receivership,
liquidation or insolvency law or statute of any federal or state government.
4. Delivery of Payments. If, prior to the satisfaction of the Senior
Indebtedness in full in cash and the termination of the obligation of the Senior
Creditor to make Loans to the Borrower under the Credit Agreement and the
documents related thereto, any of the Subordinated Creditors receives any
payment with respect to any of the Subordinated Indebtedness (except payment, if
any, expressly permitted under the Credit Agreement), or any security for or on
account of the Subordinated Indebtedness, such Subordinated Creditor shall
forthwith deliver such payment or security to the Secured Party for the benefit
of the Senior Creditor, in precisely the form received, except for such
Subordinated Creditor's endorsement when necessary, to be applied in payment of
(or if no Default or Event of Default shall then be continuing, to be held by
the Senior Creditor as security for) the Senior Indebtedness and until so
delivered, such payment or security shall be held in trust by such Subordinated
Creditor as the property of the Senior Creditor. In the event of the failure of
such Subordinated Creditor to endorse any instrument for the payment of money so
received by such Subordinated Creditor, the Secured Party for the benefit of the
Senior Creditor is irrevocably appointed attorney for such Subordinated Creditor
with full power to make such endorsement and with full power of substitution.
5. Further Assurances. In order to carry out the terms and intent of this
Agreement more effectively, the Subordinated Creditors will do all acts and
execute all further documents and instruments necessary or convenient to
preserve for the Senior Creditor the benefits of this Agreement.
6. Waivers, etc. No action which the Senior Creditor, or the Borrower, may
take or refrain from taking with respect to any Senior Indebtedness, or any note
or notes representing the same, or any collateral therefor, including any waiver
or release thereof or of any agreement or agreements (including guaranties) in
connection therewith, shall affect this Agreement or the obligations of the
Subordinated Creditors hereunder. No waiver shall be deemed to be made by the
Senior Creditor of any of its rights hereunder unless the same shall be in
writing and then only with respect to the specific instance involved, and shall
in no way impair or offset the rights of the Senior Creditor or the obligations
of the Subordinated Creditors in any other respect or at any other time.
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7. Transfer. The Subordinated Creditors may transfer, sell or otherwise
dispose of all or a portion of the Subordinated Indebtedness, but only on the
condition that a transferee of the Subordinated Indebtedness first becomes a
party hereto; provided, however, that in the event that there shall exist an
Event of Default under the Credit Agreement on account of the Borrower's failure
to pay principal or interest on any Note when the same is due and payable
(whether at maturity, upon acceleration or otherwise) or on account of the
Borrower's failure to perform or comply with any covenant or term contained in
Sections 8.16 or 8.17 of the Credit Agreement, and such Event of Default shall
be continuing after applicable grace and cure periods, the Subordinated
Creditors may not transfer any of the Subordinated Indebtedness without the
prior written consent of the Lenders, which consent shall not be unreasonably
withheld or delayed.
8. Miscellaneous. This Agreement shall be binding upon the Subordinated
Creditors and the Borrower and their respective heirs, legal representatives,
successors and assigns and shall inure to the benefit of the Senior Creditor and
its legal representatives, successors and assigns (including without limitation
any transferee of any Senior Indebtedness). This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of the counterparts shall together constitute one and the same
instrument.
9. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement,
including the validity hereof and the rights and obligations of the parties
hereunder, shall be governed by, and construed in accordance with, the internal
laws (as opposed to the conflicts of law provisions, but including sections
5-1401 and 5-1402 of the general obligations law of the State of New York) and
decisions of the State of New York. Each party hereto hereby irrevocably submits
to the nonexclusive jurisdiction of any New York or Federal court sitting in the
City of New York, New York over any suit, action or proceeding arising out of or
relating to this Agreement and waives, to the fullest extent permitted or not
prohibited by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such a
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.
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10. Amendments to Senior Indebtedness. Notwithstanding anything contained
in this Agreement to the contrary, the Senior Creditor shall not, without the
prior written consent of the Subordinated Creditors, (a) increase the stated
principal amount of the Senior Indebtedness to an amount in excess of the
Aggregate Commitment from time to time in effect under the Credit Agreement (up
to $470,000,000) plus $47,000,000, or (b) extend the Revolving Loan Maturity
Date or the Term Loan Maturity Date or any Incremental Term Loan Maturity Date
more than sixty (60) days.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
AUSTIN VENTURES III-A, L.P.
By: AV Partners III, L.P.,
General Partner
By: /s/ Blaine F. Wesner
------------------------------------
Blaine F. Wesner
Authorized Signatory
AUSTIN VENTURES III-B, L.P.
By: AV Partners III, L.P.,
General Partner
By: /s/ Blaine F. Wesner
------------------------------------
Blaine F. Wesner
Authorized Signatory
AUSTIN VENTURES V, L.P.
By: AV Partners V, L.P.
Its General Partner
By: /s/ Blaine F. Wesner
------------------------------------
Blaine F. Wesner
General Partner
AUSTIN VENTURES V AFFILIATES FUND, L.P.
By: AV Partners V, L.P.
Its General Partner
By: /s/ Blaine F. Wesner
------------------------------------
Blaine F. Wesner
General Partner
CAPITAL RESOURCE LENDERS II, L.P.
By: Capital Resource Partners II, L.P.
Its General Partner
By: /s/ Stephen M. Jenks
------------------------------------
Name: Stephen M. Jenks
Title: Class B Limited Partner
CAPITAL RESOURCE PARTNERS II, L.P.
By:
------------------------------------
Its General Partner
By: /s/ Stephen M. Jenks
------------------------------------
Name: Stephen M. Jenks
Title: Class B Limited Partner
WINDWARD CAPITAL PARTNERS II, L.P.
By: Windward Capital GP, LLC,
Its General Partner
By:
------------------------------------
Name:
Title:
WINDWARD CAPITAL L.P. II, LLC
By:
------------------------------------
Name:
Title:
CAPITAL RESOURCE LENDERS II, L.P.
By: Capital Resource Partners II, L.P.
Its General Partner
By:
------------------------------------
Name:
Title:
CAPITAL RESOURCE PARTNERS II, L.P.
By:
------------------------------------
Its General Partner
By:
------------------------------------
Name:
Title:
WINDWARD CAPITAL PARTNERS II, L.P.
By: Windward Capital GP, LLC,
Its General Partner
By: /s/ Peter Scott Macdonald
------------------------------------
Name: Peter Scott Macdonald
Title: Managing Member
WINDWARD CAPITAL L.P. II, LLC
By: /s/ Peter Scott Macdonald
------------------------------------
Name: Peter Scott Macdonald
Title: Managing Member
ABRY PARTNERS IV, L.P.
By: ABRY Capital Partners, L.P.,
its general partner
By: /s/ Jay Grossman
------------------------------------
Name: Jay Grossman
Title:
ABRY INVESTMENT PARTNERSHIP, L.P.
By: ABRY Investment GP, LLC,
its general partner
By: /s/ Jay Grossman
------------------------------------
Name: Jay Grossman
Title:
HULL FAMILY LIMITED PARTNERSHIP
By: James R. Hull Management Trust,
Its General Partner
By:
------------------------------------
James R. Hull, Trustee
----------------------------------------
James R. Hull, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
----------------------------------------
Robert Sherman, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
ABRY PARTNERS IV, L.P.
By: ABRY Capital Partners, L.P.,
its general partner
By:
------------------------------------
Name:
Title:
ABRY INVESTMENT PARTNERSHIP, L.P.
By: ABRY Investment GP, LLC,
its general partner
By:
------------------------------------
Name:
Title:
HULL FAMILY LIMITED PARTNERSHIP
By: James R. Hull Management Trust,
Its General Partner
By: /s/ James R. Hull
------------------------------------
James R. Hull, Trustee
/s/ James R. Hull
----------------------------------------
James R. Hull, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
/s/ Robert Sherman
----------------------------------------
Robert Sherman, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
/s/ Michael Meyers
----------------------------------------
Michael Meyers, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
/s/ Michael Gregory
----------------------------------------
Michael Gregory, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
/s/ Stephen Hedrick
----------------------------------------
Stephen Hedrick, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:
------------------------------------
Name:
Title:
----------------------------------------
Michael Meyers, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
----------------------------------------
Michael Gregory, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
----------------------------------------
Stephen Hedrick, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Mark E. Kishler
------------------------------------
Name: Mark E. Kishler
Title: Its Authorized Representative
FLEET NATIONAL BANK,
as Secured Party
By: /s/ John F. Lynch
------------------------------------
Name: John F. Lynch
Title: Senior Vice President
ACKNOWLEDGMENT:
The Borrower hereby acknowledges notice of the within and foregoing
Agreement and agrees to be bound by all of the terms, provisions and conditions
hereof.
MONITRONICS INTERNATIONAL, INC.
By:
-------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as Secured Party
By:
------------------------------------
Name:
Title:
ACKNOWLEDGMENT:
The Borrower hereby acknowledges notice of the within and foregoing
Agreement and agrees to be bound by all of the terms, provisions and conditions
hereof.
MONITRONICS INTERNATIONAL, INC.
By: /s/ Michael Meyers
-------------------------------
Name: Michael Meyers
Title: Vice President & CFO