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SUBORDINATION AGREEMENT
THIS AGREEMENT is entered into this 16 day of September, 1997, among
CAPITOL AMERICAN LIFE INSURANCE COMPANY, an Arizona Corporation, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇ ▇. ▇▇▇▇▇▇ (hereinafter jointly
and severally referred to as the "Creditors"), and GENERAL ACCEPTANCE
CORPORATION, an Indiana corporation (the "Company") for the benefit of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇ (hereinafter jointly and severally
referred to as the "Algoods").
RECITALS
A. The Company is presently indebted to the Creditors in the aggregate
principal amount of Thirteen Million Two Hundred Fifty Thousand Dollars
($13,250,000.00), which indebtedness is evidenced by 12% Subordinated
Convertible Notes of the Company dated April 11, 1997, and payable April 11,
2000. The indebtedness evidenced by such Note(s) is hereinafter referred to as
the "Junior Debt".
B. The Company desires to borrow from the Algoods for working capital
purposes an additional aggregate principal amount of One Million Five Hundred
Thousand Dollars ($1,500,000.00) (the "New ▇▇▇▇▇▇ Loans") to be evidenced by 12%
Subordinated Convertible Notes of even date herewith in such aggregate principal
amount due and payable on June 30, 1999. The New ▇▇▇▇▇▇ Loans, evidenced by such
Notes, are hereinafter referred to as the "Superior Debt."
C. The Algoods are unwilling to provide the New ▇▇▇▇▇▇ Loans for the
benefit of the Company unless the Creditors and the Company enter into this
Subordination Agreement for the benefit of the Algoods.
D. Creditors acknowledge that Creditors have a substantial interest in
the Company and will benefit, directly or indirectly, from the New ▇▇▇▇▇▇ Loans
to be made by the Algoods to the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the Recitals, and to induce the
Algoods to provide the New ▇▇▇▇▇▇ Loans to the Company, the parties hereto,
intending to be legally bound, agree as follows:
1. Recitals. The foregoing Recitals, and the definitions contained
therein, are incorporated herein by this reference.
2. Subordination. The Creditors hereby subordinate, to the extent and
in the manner provided in this Agreement, all of the Junior Debt, including
principal and interest thereon, and all rights of the Creditors pursuant
thereto, to the prior payment of all of the Superior Debt, including principal
and interest thereon, costs of collection, including reasonable attorneys' fees,
and the exercise of all rights thereunder by the holders of the Superior
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Debt. Each instrument and document evidencing the Junior Debt shall bear a
conspicuous legend that it is subordinated to the Superior Debt. The Company's
and Creditors' books shall be marked to evidence the subordination of all of the
Junior Debt to the Superior Debt. The Algoods are authorized to examine such
books from time to time and to make any notations required by this Agreement.
3. Warranties and Representations of the Company and Creditors. The
Company and the Creditors each hereby represent and warrant to and for the
benefit of the Algoods that: (a) as of the date hereof, the total principal
amount of the Junior Debt is $13,250,000.00; (b) no part of the Junior Debt is
evidenced by any instrument, security or other writing which has not previously
been or is not concurrently herewith being marked to evidence the within
subordination or being deposited with the Algoods; (c) Creditors are the lawful
owners of the Junior Debt and no part thereof is subject to any defense, offset
or counterclaim; (d) Creditors have not heretofore assigned or transferred any
of the Junior Debt, any interest therein or any collateral or security
pertaining thereto; and (e) Creditors have not heretofore given any
subordination in respect of the Junior Debt, except as set forth in the Notes
evidencing the Junior Debt.
4. Negative Covenants. Until all of the Superior Debt has been fully
and finally paid, the Company and, as applicable, the Creditors shall not,
without the prior written consent of the holders of the Superior Debt: (a)
directly or indirectly, make any principal payment on account of or grant a
security interest in, mortgage, pledge, assign or transfer any properties to
secure or satisfy all or any part of the Junior Debt; and (b) demand or accept
from the Company or any other person any such payment or collateral.
5. Permitted Payments and Liens. Notwithstanding the provisions of
paragraph 4 hereof, for so long as no material event of default has occurred or
exists under any instrument or agreement evidencing or securing the Superior
Debt, the indebtedness to General Electric Capital Corporation ("GE Capital"),
or the New Conseco Note (as defined in paragraph 22 hereof), the Company may
make and Creditors may demand and receive regularly scheduled payments of
interest, but not of principal, on the Junior Debt.
6. Turnover of Prohibited Transfers. If any payment on account of or
any collateral for any part of the Junior Debt is received by Creditors other
than as permitted in paragraph 5 hereof, or as approved by the Algoods in
writing prior to such payment or transfer, such payment or collateral shall be
delivered forthwith by Creditors to the Algoods for application to, or as
additional security for, the Superior Debt, in the form received except for the
addition of any endorsement or assignment necessary to effect a transfer of all
rights therein to Algoods. Until so delivered any such payment or collateral
shall be held by Creditors in trust for the Algoods and shall not be commingled
with other funds or property of Creditors.
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7. Obligations of Algoods. In no event shall the Algoods be liable to
Creditors for any failure to prove the Junior Debt, to exercise any right with
respect thereto or to collect any sums payable thereon.
8. Subrogation. Provided that the Superior Debt has been fully and
finally paid and discharged, Creditors shall be subrogated to the rights of
Algoods to receive payments or distributions of cash, property or securities
payable or distributable on account of the Superior Debt to the extent of all
payments and distributions paid over to or for the benefit of the Algoods
pursuant to this Agreement.
9. No Effect on Conversion Rate of Junior Debt. The Creditors agree
that the issuance by the Company of the 12% Subordinated Convertible Notes
representing the Superior Debt at a Conversion Rate which may be less than the
Conversion Rate contained in the 12% Subordinated Convertible Notes which
represent the Junior Debt shall not constitute the issuance of rights and
options for the purchase of, or stock and other securities convertible into,
Additional Shares of Common Stock as defined in Section 7(e) of the Notes
evidencing the Junior Debt. Nothing contained in the Notes evidencing the
Superior Debt, or herein, shall affect the Conversion Rate contained in the
Notes evidencing the Junior Debt.
10. Duration and Termination. This Agreement shall constitute a
continuing agreement of subordination, and shall remain in effect until all
Superior Debt, and any extensions or renewals of the Superior Debt have been
fully and finally discharged with interest and other applicable charges,
including cost of collection and reasonable attorneys' fees.
11. Default. If any representation or warranty in this Agreement or in any
instrument evidencing or securing the Superior Debt proves to have been
materially false when made, or, in the event of a breach by either the Company
or Creditors in the performance of any of the terms of this Agreement or any
instrument or agreement evidencing or securing the Superior Debt, all of the
Superior Debt shall, at the option of the Algoods, become immediately due and
payable without presentment, demand, protest, or notice of any kind,
notwithstanding any time or credit otherwise allowed. At any time Creditors fail
to comply with any provision of this Agreement that is applicable to Creditors,
the Algoods may demand specific performance of this Agreement, whether or not
the Company has complied with this Agreement, and may exercise any other remedy
available at law or equity.
12. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
shall be deemed to have been duly given, made and received only when delivered
against receipt or when deposited in the United States mail, certified or
registered mail,
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return receipt requested, postage prepaid, addressed as set forth below, and
actually presented at the address of the noticed party.
(a) If to the Algoods: c/o ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) If to Creditors: At the addresses set forth
opposite their signatures below
(c) If to the Company: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Any addressee may change the address to which communications are to be sent by
giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
13. Algoods' Duties Limited. The rights granted to the Algoods in this
Agreement are solely for their protection and nothing herein contained imposes
on the Algoods any duties with respect to any property either of the Company or
of Creditor heretofore or hereafter received by the Algoods beyond reasonable
care in the custody and preservation of such property while in their possession.
The Algoods have no duty to preserve rights against prior parties on any
instrument or chattel paper received from the Company or Creditors as collateral
security for the Superior Debt or any portion thereof.
14. Authority. The Company and Creditors represent and warrant that they
have authority to enter into this Agreement and that the persons signing for
each party are authorized and directed to do so.
15. Entire Agreement. This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contempor aneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written. Neither this Agreement nor any portion or provision hereof may be
changed, waived or amended orally or in any manner other than by an agreement in
writing signed by the Company and Creditors, and approved in writing by the
Algoods.
16. Additional Documentation. The Company and Creditors shall execute and
deliver to the Algoods such further instruments and shall take such further
action as the Algoods may at any time or times reasonably request in order to
carry out the provisions and intent of this Agreement.
17. Expenses. The Company and the Creditors, as the case may be, agree to
pay the Algoods on demand all reasonable expenses of every kind, including
reasonable attorneys' fees, that the Algoods may incur in enforcing any of their
rights under this Agreement.
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18. Successors and Assigns. This Agreement shall inure to the benefit of the
Algoods, their heirs, legatees, personal representatives, successors and
assigns, and shall be binding upon the Company and Creditors and their
respective heirs, legatees, personal representatives, successors and assigns.
19. Governing Law. The validity, construction and enforcement of this
Agreement shall be governed by the internal laws of the State of Indiana.
20. Severability. The provisions of this Agreement are independent of and
separable from each other. If any provision hereof shall for any reason be held
invalid or unenforceable, it is the intent of the parties that such invalidity
or unenforceability shall not affect the validity or enforceability of any other
provi sion hereof, and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.
21. Counterparts. This Agreement may be executed in counterparts which
together shall constitute this agreement, although all parties have not signed
the same counterpart.
22. New Conseco Note. It is acknowledged that concurrently herewith the
Company is issuing its 12% Subordinated Convertible Note in the principal amount
of $10,000,000 to Conseco, Inc. (the "New Conseco Note") to evidence its
obligation to repay all amounts paid by Conseco, Inc. to GE Capital pursuant to
a Limited Continuing Guaranty of even date herewith. The indebtedness evidenced
by the New Conseco Note is superior to the Junior Debt pursuant to the Conseco
Subordination Agreement, and to the New ▇▇▇▇▇▇ Loans pursuant to the provisions
of the 12% Subordinated Convertible Notes given to the Algoods, each of even
date herewith.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and delivered, this 16 day of September, 1997.
GENERAL ACCEPTANCE CORPORATION
By /s/ ▇▇▇▇▇▇ ▇. BOZARON
Printed:▇▇▇▇▇▇ ▇. BOZARON
Title:CFO
"Company"
CAPITOL AMERICAN LIFE INSURANCE COMPANY
Address for Notices:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Printed:▇▇▇▇▇▇ ▇. ▇▇▇▇
Attention: General Counsel Title:Executive Vice President
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ Chief Financial Officer
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇. /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Bloomington, IN 47401 ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇
"Creditors"
The foregoing SUBORDINATION AGREEMENT is accepted by the Algoods this
16th day of September, 1997.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
"Algoods"
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