THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT AND MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM, OR IN THE ABSENCE OF RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE MAKER THAT THEY MAY BE SOLD OR TRANSFERRED
WITHOUT SUCH REGISTRATION.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13)
OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
THIS NOTE IS SUBJECT TO CERTAIN RIGHTS OF CANCELLATION AS PROVIDED IN A PURCHASE
AND SALE AGREEMENT DATED AS OF DECEMBER 21, 1998, A COPY OF WHICH MAY BE
OBTAINED FROM MAKER.
NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE
Atlanta, Georgia
$13,553,148 June 9, 2000
FOR VALUE RECEIVED, the undersigned, MATRIA HEALTHCARE, INC., a
Delaware corporation (the "Maker"), promises to pay to GAINOR MEDICAL
MANAGEMENT, L.L.C., a Georgia limited liability company (together with any
subsequent holders or transferees hereof, individually and collectively, the
"Holder"), at 40301 Fisher Island Drive, Fisher Island, Florida 33109-0972, or
at such other address as Holder may designate to Maker from time to time in
writing, the principal sum of Thirteen Million Five Hundred Fifty-three Thousand
One Hundred Forty-eight and 00/100 Dollars ($13,553,148), in immediately
available funds and in such coin or currency of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment together with (i) interest on the principal amount from time to time
outstanding under this Non-Negotiable Subordinated Promissory Note (this "Note")
until said principal amount is paid in full, payable as provided herein and (ii)
any and all other amounts that may be due by the Maker to the Holder pursuant to
this Note.
Interest shall accrue on the unpaid principal balance of this Note from
time to time outstanding and shall be payable as follows:
<PAGE>
(A) interest shall accrue at the fixed rate of eight percent (8%)
per annum on the principal amount outstanding from time to
time under this Note and shall be due and payable to Holder in
arrears on January 1, April 1, July 1 and October 1 of each
year this Note remains outstanding; and
(B) interest shall accrue at the fixed rate of four percent (4%)
per annum on the principal amount outstanding from time to
time under this Note ("Specified Interest") and shall be due
and payable to Holder on each of the "Third Anniversary", the
"Fourth Anniversary" and the "Maturity Date" (each as defined
below).
Interest shall accrue on the basis of the actual number of days elapsed based on
a 360 day year made up of twelve (12) thirty-day months.
Provided that the following payment will not result in a default under
the Maker's Senior Debt (as defined herein) and unless sooner accelerated by
Holder pursuant to the terms hereof, the Maker shall prepay to Holder on the
third anniversary of the date of this Note (the "Third Anniversary") (i)
$4,517,716, such amount being one-third of the initial principal amount of this
Note, and (ii) all Specified Interest then outstanding. Provided that the
following payment will not result in a default under the Maker's Senior Debt and
unless sooner accelerated by Holder pursuant to the terms hereof, the Maker
shall prepay to Holder on the fourth anniversary of the date of this Note (the
"Fourth Anniversary") (i) $4,517,716, such amount being one-third of the initial
principal amount of this Note, and (ii) all Specified Interest then outstanding.
Subject to the subordination provisions set forth in this Note and unless sooner
accelerated by Holder pursuant to the terms hereof, the Maker shall pay to
Holder on the fifth anniversary of the date of this Note (the "Maturity Date")
(i) the remaining principal balance of this Note, (ii) all accrued but unpaid
interest thereon, and (iii) all other amounts owing hereunder, if any.
If any date for the payment of principal or interest, as set forth
above, falls on Saturday, Sunday or a holiday for which banks are authorized to
be closed in Atlanta, Georgia, then such payment shall be made on the next
business day for which banks are not so authorized and interest shall continue
to accrue thereon. Payments received by Holder after 2:00 p.m., Atlanta, Georgia
time on any business day shall not be credited as received until the following
business day.
Upon the occurrence of an "Acceleration Event" (as defined below) and
during the continuance thereof, the outstanding principal balance of this Note
shall bear interest at a rate per annum ("Default Interest") equal to the lesser
of (i) fifteen percent (15%) per annum or (ii) the maximum rate permitted by
applicable law. Maker shall pay Default Interest upon demand by Holder, provided
that the payment of such Default Interest shall not be required to be made for
so long as such payment is not permitted under the Maker's Senior Debt Documents
(as hereinafter defined).
<PAGE>
Maker covenants and agrees that the indebtedness evidenced by this Note
shall be senior in right of payment to all promissory notes issued by the Maker
to sellers or their affiliates or shareholders in connection with acquisitions
consummated after the date hereof ("Junior Seller Notes"), and each of the
Junior Seller Notes shall contain a legend clearly stating that such note is
subordinate in right of payment to the Holder hereof and shall contain
subordination provisions, acknowledged by the holder thereof, substantially
similar to those contained in numbered paragraphs 1 through 13 (except 5(b))
hereof.
This Note is issued pursuant to that certain Purchase and Sale
Agreement dated as of December 21, 1998 (the "Purchase Agreement"), by and
between the Maker and Gainor Medical Management, LLC and represents an
"Additional Purchase Price Payment" due under the Purchase Agreement.
Capitalized terms used in this Note but not otherwise defined herein shall have
the respective meanings assigned to such terms in the Purchase Agreement. This
Note is subject to certain rights of cancellation pursuant to Article 9 of the
Purchase Agreement. If the Maker is entitled to cancel all or a portion of this
Note pursuant thereto, notice of cancellation shall be mailed, first class,
postage prepaid, not less than 30 days nor more than 60 days prior to the
cancellation date, to the Holder. In addition to any information required by
law, such notice shall set forth the cancellation date and the amount of
principal and accrued interest outstanding hereunder to be cancelled. In case
less than the total amount of principal and accrued interest outstanding
hereunder is to be cancelled, a new note in substantially the same form as this
Note representing the total principal and accrued interest that was not
cancelled will be issued to the Holder upon surrender of this Note without cost
to Holder. Except as set forth in this paragraph, Maker waives and agrees not to
assert any right of setoff or offset against Holder in connection with any
amounts due under this Note.
Maker shall be entitled, at any time and from time to time, without the
consent of Holder and without paying any penalty or premium therefor, to prepay
all or any portion of the outstanding principal and accrued interest owing
thereon due hereunder by delivering 30 days' prior written notice to Holder;
provided that no such prepayment shall be made to the extent such prepayment is
then prohibited by the terms of any of Maker's Senior Debt.
Any of the following shall constitute an "Acceleration Event" under
this Note:
(a) Maker fails to pay any installment of principal or interest within
10 days after such installment is due;
(b) Maker fails to pay any other amount due and owing under this
Note within 30 days following receipt by Maker of written
notice from Holder that such amount is due and owing to
Holder;
(c) Maker (i) files a voluntary petition or assignment in bankruptcy or a
voluntary petition, assignment or answer seeking liquidation, reorganization,
arrangement, or readjustment of its debts under the Bankruptcy Reform Act of
1978, as amended (the "Bankruptcy Code"), or under any similar federal, state or
foreign law pertaining to insolvency or debtor relief, (ii)
enters into an agreement indicating its consent to or approval of any such
petition or proceeding, (iii) applies for or consents to the appointment of a
receiver, custodian or trustee of Maker, or of all or substantially all of its
property, (iv) makes an assignment for the benefit of its creditors, (v) becomes
insolvent or is unable or fails to pay its debts generally as they become due or
(vi) takes corporate or other official action in furtherance of the foregoing;
<PAGE>
(d) there is filed against Maker an involuntary petition in bankruptcy
seeking the liquidation, reorganization, arrangement or readjustment of Maker's
debts or any similar relief under the Bankruptcy Code or any similar state,
federal or foreign law, which remains undismissed or unstayed for a period of 90
days;
(e) the occurrence of a Change in Control of Maker, which for purposes of
this subparagraph (e), shall mean any of the following events: (i) any person
(as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended), other than an "Existing
Stockholder" (as hereinafter defined) is or becomes the direct or indirect
beneficial owner of shares of the Maker's capital stock representing greater
than 50% of the power to vote in the election of directors under ordinary
circumstances or (ii) the Maker sells, transfers or otherwise disposes of all or
substantially all of the assets of the Maker other than in a transaction between
the Maker and a wholly-owned subsidiary of the Maker in which the wholly-owned
subsidiary assumes this Note pursuant to an assignment and assumption agreement
in form and substance acceptable to the Holder and such wholly-owned subsidiary
causes a law firm acceptable to the Holder to issue a legal opinion as to the
corporate authority and capacity of the subsidiary, the enforceability of this
Note (as assumed) and such other matters as the Holder may reasonably require,
all in form and substance satisfactory to each Holder in its reasonable
discretion, or (iii) the Maker is a party to a merger or a consolidation in
which the holders of the Maker's voting securities prior to such merger or
consolidation own, directly or indirectly, securities representing less than 50%
of the voting power in the surviving entity. "Existing Stockholder" shall mean
Mark J. Gainor, SZ Investments, LLC., any holder of
Convertible Preferred Stock, Redeemable Preferred Stock or Warrants or any
affiliate of any of them;
(f) the failure of the Maker to comply with or perform any other
provision of this Note (and not constituting an Acceleration
Event under any of the other provisions of this paragraph) and
continuance of such failure for 30 days following receipt of
written notice thereof by Maker from Holder; or
(g) the acceleration of any of Maker's Senior Debt or the taking
of any collection action by any of the "Senior Debt Holders"
against the Maker or any of its subsidiaries or their
respective properties.
<PAGE>
Subject at all times to the subordination provisions set forth below in
this Note, including without limitation the standstill provisions of paragraph 5
below, (i) if an Acceleration Event described in subparagraphs (c) or (d) above
shall occur, this Note and all interest and other amounts due hereunder shall
become immediately due and payable, all without notice of any kind, and (ii)
upon the occurrence and during the continuation of an Acceleration Event
(including, without limitation, an Acceleration Event under subparagraphs (c) or
(d) above), the Holder (x) may, at its option, declare this Note and all
interest and other amounts due hereunder immediately due and payable, and (y)
shall have all of the rights and remedies provided to it at law or in equity.
Until this Note has been fully satisfied in cash, Maker shall mail to
Holder within 105 days after the close of each fiscal year of Maker and within
50 days after the close of each of the first three quarters of each fiscal year
of Maker financial statements, including any notes thereto (and, in the case of
fiscal year end, an auditors' report by a firm of established national
reputation) and the Management's Discussion and Analysis of Financial Condition
and Results of Operations, for Maker comparable to those required to be included
in annual and quarterly reports furnished pursuant to the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Until this Note has been fully satisfied in cash, Maker will not enter
into any material transaction with any Affiliate (as hereinafter defined) of
Maker (other than the Holder of this Note or any wholly-owned subsidiary of
Maker) unless such transaction is on terms and conditions at least as favorable
to Maker as could be obtained through arm's length negotiations with an
independent third party. For purposes of this Note, an "Affiliate", as applied
to any person or entity, shall mean any other person or entity directly or
indirectly controlling or controlled by or under direct or indirect common
control with that person or entity. For the purposes of this definition,
"control" when used with respect to any person or entity means the power to
direct the management and policies of such person or entity, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
Maker agrees to pay all costs of collection of this Note in the event
of nonpayment as required hereunder, including reasonable attorneys' fees and
court costs actually incurred.
Except as expressly provided herein, Maker hereby waives presentment,
demand, protest, notice of dishonor or protest, notice of nonpayment, notice of
maturity, notice of acceleration of maturity, diligence of collection and all
other notices of any kind.
No failure or delay on the part of the Holder in the exercise of any
right, power or privilege under this Note shall impair such right, power or
privilege or be construed to be a waiver of any default or Acceleration Event or
acquiescence therein nor shall any single or partial exercise of any such right,
power or privilege preclude other or further exercise thereof or of any other
right, power or privilege. All rights and remedies under this Note are
cumulative to and not exclusive of any rights or remedies otherwise available.
<PAGE>
Any consent, notice or other communication herein required or permitted
shall be given in writing and in the manner set forth in Section 12.1 of the
Purchase Agreement and shall be given to the addresses of the Holder and the
Maker set forth therein or, as to each party, at such other address as may be
designated by such party in a written notice to all of the other parties.
The obligations, duties and rights of Maker under this Note are
personal to Maker and may not be assigned or assumed without the prior written
consent of Holder; provided, however, subject to compliance with applicable
securities laws and provided that any transferee agrees in writing to be bound
by the terms and conditions hereof, Holder may assign all or a portion of its
interest in this Note, to any member of Holder as of the Closing Date or any
"Permitted Transferee" (as such term is defined in that certain Standstill
Agreement dated January 19, 1999 between Maker, Mark J. Gainor and SZ
Investments, L.L.C.) (each, an "Assignee"), or may sell or convey participations
interests in this Note to any member of Holder as of the Closing Date or any
Permitted Transferee. Upon an assignment by a Holder of an interest in the Note,
and at the request of Holder, Maker will issue a note to each such Assignee in
the principal amount assigned and shall also reissue this Note so that each
Holder shall hold a note in the face principal amount of the indebtedness owing
to such Holder, and the aggregate principal balance of the notes shall equal the
then outstanding principal balance owed by Maker to Holder hereunder. The
percentage of principal held by any Holder of the then outstanding principal
balance of the indebtedness of Maker to Holder hereunder shall be the
"Percentage Interest" of such party in the indebtedness evidenced hereby.
Subject to the terms of the Subordination provisions of this Note and
any applicable Senior Debt (to the extent any such provisions, agreements or
instruments require the consent of any other parties), and except as set forth
in the next succeeding sentence, this Note may be altered, amended or modified
by a writing signed by Maker and the Holders which, in the aggregate, hold a
Percentage Interest equal to, in the aggregate, at least sixty-six percent
(66%), but excluding for purposes of this calculation any Percentage Interest
held by the Maker or an Affiliate of Maker. The following waivers, alterations,
amendments or modifications of this Note require the written consent of Holders
which, in the aggregate, hold a Percentage Interest equal to at least ninety
percent (90%), but excluding for purposes of this calculation any Percentage
Interest held by the Maker or an Affiliate of Maker: any change in the principal
amount or the Maturity Date of this Note or the manner, place or time of any
payment of principal; any change in the interest rate or the manner, place or
time of any payment of interest; any change in the entitlement of each Holder to
receive principal, interest and other amounts due under this Note in proportion
to their respective Percentage Interest; any change in the Acceleration Events
or any waiver of any default or Acceleration Event; any assumption or assignment
of the obligations, duties or rights of Maker under this Note; and any change to
this paragraph.
The provisions of this Note shall be construed and interpreted, and all
rights and obligations of the parties under this Note determined, in accordance
with the laws of the State of Georgia without regard to principles of conflicts
of law.
<PAGE>
It is the intention of the parties to conform strictly to the usury
laws, whether state or federal, that are applicable to this Note. All agreements
between Maker and Holder, whether now existing or hereafter arising and whether
oral or written, are hereby expressly limited so that in no contingency or event
whatsoever, shall the amount paid or agreed to be paid to the Holder hereof, or
collected by the Holder, for the use, forbearance or detention of the money
loaned or to be loaned hereunder or otherwise, or for the payment or performance
of any covenant or obligation contained herein, or in any other document
evidencing, securing or pertaining to the indebtedness evidenced hereby, exceed
the maximum amount permissible under applicable federal or state usury laws. If
under any circumstances whatsoever fulfillment of any provision hereof or any
other documents, at the time performance of such provision shall be due, shall
involve exceeding the limit of validity prescribed by law, then the obligation
to be fulfilled shall be reduced to the limit of such validity; and if under any
circumstances the Holder hereof shall ever receive an amount deemed interest by
applicable law, which would exceed the highest lawful rate, such amount that
would be excessive interest under applicable usury laws shall be applied to the
reduction of the principal amount owing hereunder and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal
and such other indebtedness, the excess shall be deemed to have been a payment
made by mistake and shall be refunded to Maker or to any other person making
such payment on Maker's behalf. All sums paid or agreed to be paid to the Holder
hereof for the use, forbearance or detention of the indebtedness of Maker
evidenced hereby outstanding from time to time shall, to the extent permitted by
applicable law, and to the extent necessary to preclude exceeding the limit of
validity prescribed by law, be amortized, prorated, allocated and spread from
the date of disbursement of the proceeds of this Note until payment in full of
the loan evidenced hereby so that the actual rate of interest on account of such
indebtedness is uniform throughout the term hereof. The terms and provisions of
this paragraph shall control and supersede every other provision of all
agreements between Maker and the Holder.
Maker warrants and represents to the Holder that the indebtedness
evidenced by this Note is with respect to an exempt transaction under the
Truth-In-Lending Act, 15 U.S.C. 1601, et seq. and that this Note is made for
business or commercial purposes (and not for personal or agricultural purposes).
Time is of the essence with respect to the performance of the
obligations of Maker under this Note.
MAKER AND HOLDER HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
GEORGIA AND THAT OF ANY GEORGIA STATE COURT SITTING IN ATLANTA, GEORGIA FOR THE
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE AND
HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. MAKER AND THE HOLDER
IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS
NOTE.
<PAGE>
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Note and this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein or therein.
SUBORDINATION TERMS
This Note and the entire indebtedness evidenced hereby from time to
time, whether for principal, interest or any other amounts payable hereunder or
in respect hereof, shall be subject, subordinate and junior in all respects to
the following: (i) all "Obligations" of Maker under and as such term is defined
in the Credit Agreement dated as of January 19, 1999 (as amended, modified,
extended or restated, the "Credit Agreement"), among the Maker, the Lenders
party thereto from time to time, and First Union National Bank, as
Administrative Agent (in such capacity, together with any successor or
replacement agent under such agreement or any refinancing or replacement
agreement, the "Agent") (as such may be amended, modified, supplemented or
restated from time to time, the "Senior Credit Facility"); (ii) all obligations
of Maker to any lender or group of lenders for borrowed money, whether to
refinance, in whole or in part, the indebtedness owing under the Credit
Agreement pursuant to an infusion of new money that pays in full the Obligations
under the Senior Credit Facility or consisting of a new credit facility which is
established after the Senior Credit Facility has been terminated (as such new
facility may be amended, modified, supplemented or restated from time to time,
the "New Senior Credit Facility"); and (iii) all obligations of Maker to holders
of any non-investment grade securities (as such may be amended, modified,
supplemented or restated from time to time, the "High Yield Debt").
All indebtedness, obligations and liabilities of Maker under the Senior
Credit Facility, the New Senior Credit Facility, or the High Yield Debt, whether
such indebtedness, obligations and liabilities are now existing or hereafter
arising, whether or not evidenced by notes or other instruments, and whether
direct or indirect, fixed or contingent, liquidated or unliquidated, due or to
become due, secured or unsecured, and whether for principal, interest (including
interest accruing after the filing of a petition initiating any bankruptcy,
insolvency or a similar proceeding as described in Section 9.1(f) or Section
9.1(g) of the Credit Agreement, whether or not such interest is an allowed claim
enforceable against the Maker in any such proceeding), and all other obligations
or liabilities (including all fees, taxes, additional compensation, expense
reimbursements and indemnification) now or hereafter payable under or with
respect to any of the foregoing are collectively referred to as the "Senior
Debt". All documents evidencing the Senior Credit Facility, the New Senior
Credit Facility, or the High Yield Debt, including without limitation, all
credit agreements, security agreements, pledge agreements, notes, bonds or other
instruments, financing statements, mortgages, deeds of trust, deeds to secure
debt, investment property, securities, financing statements, certificates,
powers of attorney, stock powers or similar documents, agreements or
certificates, are hereinafter referred to as the "Senior Debt Documents".
<PAGE>
By its acceptance of this Note, Holder covenants and agrees that the
subordination terms set forth below shall inure to the benefit of the "Lenders"
under and as such term is defined in the Senior Credit Facility from time to
time party thereto (hereinafter the "Senior Lenders"), the lenders from time to
time party to any New Senior Credit Facility (hereinafter the "New Senior
Lenders"), and the holders from time to time of any High Yield Debt (the "High
Yield Debt Holders"; the Senior Lenders, the New Senior Lenders and the High
Yield Debt Holders are hereinafter collectively sometimes referred to as the
"Senior Debt Holders"), and the successors and assigns of any of the Senior Debt
Holders.
Holder hereby covenants and agrees that it will, upon the Maker's
request, from time to time enter into such subordination agreements as requested
by Maker or a Senior Debt Holder to evidence the subordination of the
indebtedness evidenced hereby to the Senior Debt to the fullest extent provided
hereunder with respect to debt subordination, the restrictions placed on
Holder's acceleration of the debt evidenced hereby and the enforcement of
remedies against Maker.
In the event Maker fails to pay the principal balance of this Note on
the Maturity Date, Holder shall be entitled in connection with (i) a
modification of the Senior Credit Facility other than a modification resulting
from a default or event of default thereunder, (ii) a refinancing of the senior
indebtedness of Maker pursuant to a proposed New Senior Credit Facility, or any
negotiations resulting from the occurrence of an event of default thereunder; or
(iii) the issuance of new High Yield Debt, or any negotiations resulting from
the occurrence of an event of default thereunder, to participate in such
negotiations to express its position concerning its rights under this Note.
However, the consent of Holder to the terms of such modification, new financing
or placement of new High Yield Debt or modification thereof shall not be
required to be obtained as a condition to such transactions, and Holder shall
not have standing to object to Maker's consummation of the transaction
contemplated by any of (i), (ii) or (iii) of this paragraph on terms Maker and
deems appropriate in its sole and absolute discretion.
1. Subordination. Anything in this Note to the contrary notwithstanding,
all principal, interest and other amounts due or to become due on
this Note shall be subordinate and junior in right of payment to the extent set
forth herein to the prior payment in full in cash of all Senior Debt.
2. Priority and Payment Over Upon Insolvency and Dissolution. In the
event of (i) any insolvency or bankruptcy case or proceeding or any
receivership, liquidation, reorganization or similar case or proceeding in
connection therewith relative to the Maker or to its assets, (ii) any
liquidation, dissolution or other winding up of the Maker, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Maker, then and in any such event the Senior Debt Holders
shall be entitled to receive payment in full in cash of all amounts due or to
become due on or in respect of all Senior Debt before the Holder of this Note
shall be entitled to receive and retain any payment on account of the principal,
interest or other amounts due or to become due on this Note and to that end the
Senior Debt Holders shall be entitled to receive, for application to the payment
of the Senior Debt, any payment or distribution of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Maker which is subordinated to the payment of this
Note, which may be payable or deliverable in respect of this Note in any such
<PAGE>
case, proceeding, dissolution, liquidation or other winding up or event.
Accordingly, any payment or distribution of assets of the Maker of any kind or
character, whether in cash, property or securities, which would otherwise have
been made to the Holder of this Note but for the provisions of this Section 2
shall instead be made by the Maker or by the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other person making payment
or distribution of assets of the Maker directly to the Senior Debt Holders (or
the agent or trustee for the Senior Debt Holders on their behalf) for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay all Senior Debt in full in cash after giving effect to any
concurrent payment or distribution to or for the benefit of the Senior Debt
Holders.
If, notwithstanding the foregoing provisions of this Section 2, the
Holder of this Note shall have received any payment of distribution of assets of
the Maker of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other indebtedness of the Maker which is
subordinated to the payment of this Note, before all amounts due or to become
due on or in respect of all Senior Debt have been paid in full in cash, then and
in such event such payment or distribution shall be received in trust for the
Senior Debt Holders and shall be forthwith paid over or delivered by the Holder
of this Note receiving the same directly to the Senior Debt Holders (or to the
agent or trustee for the Senior Debt Holders on their behalf) or, to the extent
legally required, to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making such payment or distribution
of assets of the Maker, for application to the payment of all Senior Debt
remaining unpaid to the extent necessary to pay all Senior Debt in full in cash
after giving effect to any concurrent payment or distribution to or for the
benefit of the Senior Debt Holders. Notwithstanding anything set forth in this
Section 2 or elsewhere in this Note, the Maker may make and the Holder may
retain any payment received on account of this Note prior to the occurrence of
an event described in clauses (i) through (iii) of this Section 2 or clauses (i)
through (ii) of Section 3.
3. Payment on Note Suspended When Senior Debt is in Default. In the
event and during the continuation of (i) any default in the payment of principal
of or interest on any Designated Senior Debt (as hereinafter defined), whether
at maturity, at a date fixed for prepayment or by declaration of acceleration or
otherwise, or any default in the payment of any other obligations or liabilities
constituting Designated Senior Debt, or (ii) any other event of default (after
expiration of any applicable grace or cure periods) with respect to any
Designated Senior Debt which would permit the holders of such Designated Senior
Debt (or a person or persons, including the agent or trustee for such holders,
acting on their behalf) to declare such Designated Senior Debt to become due and
payable prior to the date on which it would otherwise have become due and
payable, then in the case of either (i) or (ii) above, unless and until such
default or event of default shall have been cured or waived or shall have ceased
to exist or such acceleration shall have been rescinded or annulled, or in the
<PAGE>
event any judicial proceeding shall be pending with respect to any such event of
default, then no payment (including any payment which may be payable by reason
of the payment of any other indebtedness of the Maker which is subordinated to
the payment of this Note) shall be made by the Maker on account of the principal
of or interest on this Note or on account of the purchase or other acquisition
by it of this Note. The "Designated Senior Debt" shall mean, all Senior Debt
under the Senior Credit Facility or the New Senior Credit Facility, and,
provided there is no Senior Credit Facility or New Senior Credit Facility, then
Designated Senior Debt shall mean the High Yield Debt.
If, notwithstanding the foregoing provisions of this Section 3 or the
provisions of Section 5, the Maker shall make any payment or distribution on or
with respect to this Note prohibited by the foregoing provisions of this Section
3 or the provisions of Section 5, or the Holder of this Note shall have received
any payment or distribution of assets of the Maker of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Maker which is subordinated to the payment of this
Note, at a time when such payment or distribution is prohibited by the foregoing
provisions of this Section 3 or the provisions of Section 5, then and in such
event such payment or distribution shall be received in trust for the Senior
Debt Holders and shall be forthwith paid over or delivered by the Holder of this
Note receiving the same directly to the Senior Debt Holders (or to the agent or
trustee for the Senior Debt Holders on their behalf) or, to the extent legally
required, to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making such payment or distribution
of assets of the Maker, for application to the payment of all Senior Debt
remaining unpaid to the extent necessary to pay all Senior Debt in full in cash
after giving effect to any concurrent payment or distribution to or for the
benefit of the Senior Debt Holders. Nothing set forth in this Section 3 or
elsewhere in this Note, shall prohibit or restrict the Holder from accepting and
retaining for its own account at any time common stock in the Maker or its
Affiliate (but nothing herein shall require the Holder to accept or require the
Maker to offer such common stock) in full or partial payment of amounts due
under this Note.
4. Obligation to Pay Note Not Impaired; Provisions Solely to Define
Relative Rights. The subordination provisions of this Note are intended solely
for the purpose of defining the relative rights of the Holder of this Note on
the one hand and the Senior Debt Holders on the other hand. It is and shall be
the intent of the parties that these provisions shall constitute a present
assignment by the Holder of this Note of its rights to receive payments or
distributions of cash, property and securities of the Maker otherwise payable to
the Holder of this Note in the circumstances described in Sections 2 and 3
hereof. Nothing contained herein shall (i) impair or affect, as among the Maker,
its creditors (other than the Senior Debt Holders) and the Holder of this Note,
the obligation of the Maker, which is absolute and unconditional, to pay the
Holder of this Note the principal of and interest on this Note as of when the
same shall become due and payable in accordance with their terms, or (ii) affect
the relative rights against the Maker of the Holder of this Note and the
creditors of the Maker (other than the Senior Debt Holders), or (iii) prevent
the Holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default under the instrument or instruments governing this
Note, subject to the rights, if any, under this Note of the Senior Debt Holders
to receive cash, property and securities otherwise payable or deliverable to the
Holder and subject to the other subordination provisions of this Note.
<PAGE>
5. Actions Against the Maker.
(a) No Holder of this Note will (i) declare this Note or any portion
hereof due and payable before the stated maturity hereof (other than any
Acceleration Event described in paragraphs (c) or (d) of the definition thereof,
which results in an automatic acceleration of this Note) or commence any action
or proceeding against the Maker to recover all or any part of this Note, (ii)
ask, demand, sue for, or take other collection action against the Maker,
directly or indirectly, in cash, property or securities or other property or by
set-off or in any manner (including without limitation from or by way of
collateral) receive payment of all or any part of this Note, or (iii) join with
any creditor in bringing any proceeding against the Maker under Title 11 of the
United States Code or any other state or federal insolvency statute, unless and
until, in each case under (i), (ii) and (iii) above, either (a) the requisite
percentage of the Senior Debt Holders necessary to take such action under the
instrument or instruments governing the Senior Debt shall have commenced or
joined action or (b) all Senior Debt has been paid in full in cash, all
commitments to extend credit under the Senior Debt Documents have been
terminated, and all letters of credit issued pursuant to the Senior Debt
Documents have been canceled or otherwise terminated, all as more fully set
forth in Section 3 hereof.
(b) Notwithstanding the foregoing paragraph 5(a) or anything else set
forth in this Note, in the event (i) Maker fails to pay the principal balance of
and any other amounts due under this Note on the Maturity Date, (ii) the Senior
Credit Facility Maturity Date has occurred and (iii) solely as to the Senior
Credit Facility (and not the New Senior Credit Facility or the High Yield Debt),
no event described in clauses (i) through (iii) of Section 2 or clauses (i)
through (ii) of Section 3 exists, Holder shall be allowed to accelerate the
obligations due under this Note and to exercise such remedies as are available
to Holder under this Note or applicable law provided that Holder forbear from
exercising any remedies for a period of not less than one hundred eighty days
(180) after the Maturity Date (hereinafter the "Standstill Period"). Any cash or
property acquired by Holder in connection with its exercise of its remedies
under the Note or any judgment obtained by Holder in connection with the Note
shall be held in trust for the benefit of the Senior Debt Holders until all
Senior Debt has been paid in full, in cash, all commitments to extend credit to
Maker pursuant to the Senior Debt Documents have been canceled or otherwise
terminated, and all letters of credit issued pursuant to the Senior Debt
Documents have been canceled or otherwise terminated, all as more fully set
forth in Section 3 hereof. The "Senior Credit Facility Maturity Date" shall mean
the earlier of (x) March 31, 2004, subject to extension of such date to the
then-current maturity date of that certain Credit Agreement dated as of January
19, 1999 among the Maker, the Lenders and the Agent, as amended, modified or
extended, but (as to extensions) only to the extent that the March 31, 2004
maturity date is being extended because of a default or event of default under
the Senior Credit Facility or in connection with a workout of the Maker's
obligations under the Senior Credit Facility required in order to avoid a future
default or event of default thereunder or (y) the date the Obligations under and
as such term is defined in the Credit Agreement executed in connection with the
Senior Credit Facility are paid in full and the Credit Agreement has been
terminated by the Agent.
<PAGE>
6. Subrogation. Subject to the payment in full in cash of all Senior
Debt, the termination of all commitments to extend credit under the Senior Debt
Documents, and the cancellation or termination of all letters of credit issued
pursuant to the Senior Debt Documents, the Holder of this Note shall be
subrogated to the extent of the payments or distributions made to the Senior
Debt Holders pursuant to these provisions to the rights of the holders of such
Senior Debt to receive payments and distributions of cash, property and
securities applicable to the Senior Debt until the principal of and interest on
this Note shall be paid in full. For purposes of such subrogation, no payments
or distributions to the Senior Debt Holders of any cash, property or securities
to which the Holder of this Note would be entitled but for these provisions, and
no payments over pursuant to the provisions of Section 2 or 3 to the Senior Debt
Holders by the Holder of this Note shall, as among the Maker, its creditors
(other than the Senior Debt Holders) and the Holder of this Note, be deemed to
be a payment or distribution by the Maker to or on account of the Senior Debt.
7. Proofs of Claim. The Holder of this Note or any trustee or other
person acting on its behalf may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Holder of this Note in respect of this Note allowed in any bankruptcy,
insolvency or other judicial proceedings relative to the Maker (or any other
obligor on this Note, including any guarantor), its creditors or its property.
Any term or provision of this Section 7 to the contrary notwithstanding,
however, if any bankruptcy, insolvency or judicial proceeding referred to above
is commenced by or against the Maker, and so long as all Senior Debt has not
been paid in full: (i) each of the Senior Debt Holders (and the agent or trustee
of such Senior Debt Holders on their behalf) is hereby irrevocably authorized
and empowered (in its own name or in the name of the Holder of this Note or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution received in respect of any such proceeding
and give acquittances therefor, to file claims and proofs of claims, to vote the
claims of the Holder of this Note in any proceeding (and for that purpose, the
Holder of this Note hereby irrevocably assigns to the Senior Debt Holders the
right to file a proof of claim in the Holder's name and to vote its claims in
any such proceeding), and to take such other action as it may deem necessary or
advisable for the exercise or enforcement of any of the rights or interests of
such Senior Debt Holders or Holder of this Note with respect hereto, and (ii)
the Holder of this Note shall duly and promptly take, for the account of the
Senior Debt Holders, such action as the Senior Debt Holders (or the agent or
trustee for the Senior Debt Holders on their behalf) may request (a) to collect
all amounts payable by the Maker in respect of this Note and to file the
appropriate claims or proofs of claim in respect of this Note, (b) to execute
and deliver to the Senior Debt Holders such assignments or other instruments as
the Senior Debt Holders (or the agent or trustee for the Senior Debt Holders on
their behalf) may request in order to enable the Senior Debt Holders (or the
agent or trustee for the Senior Debt Holders on their behalf) to enforce any and
all claims with respect to any and all security interests and other liens
securing payment of all amounts payable in respect of this Note and (c) to
insure that all payments and distributions made in respect of any such
proceedings are made to the Senior Debt Holders as it or their interests may
appear.
<PAGE>
8. Reliance on Subordination. The Holder of this Note by its acceptance
hereof consents and agrees that all Senior Debt shall be deemed to have been
made or incurred at the request of the Holder of this Note and in reliance upon
the subordination of this Note pursuant to the subordination provisions hereof.
9. Restrictions on Certain Actions. The Holder of this Note by its
acceptance hereof agrees not to sell, assign or transfer all or any part of this
Note while any Senior Debt remains unpaid unless such sale, assignment or
transfer is made expressly subject to these provisions. The Holder of this Note
represents that no other subordination of this Note is in existence on the date
hereof, and such Holder agrees that this Note will not be subordinated to any
indebtedness owed to any person other than the Senior Debt Holders. Until the
Senior Debt has been paid in full, no Holder of this Note will file or create,
or cause to be filed or created, any lien or encumbrance of any kind upon the
assets of the Maker or any of its subsidiaries, without the prior consent of the
Senior Debt Holders.
10. Changes. The Senior Debt Holders may at any time, and from time to
time, without the consent of or notice to the Holder of this Note, without
incurring responsibility to such Holder, and without impairing or releasing any
of the rights of the Senior Debt Holders, or any of the obligations of the
Holder of this Note hereunder:
(i) change the time, amount, manner, place or terms of payment
of, or change or extend the time of payment of, or renew or otherwise alter, any
of the Senior Debt Documents, or any other instrument or agreement evidencing
any Senior Debt or securing payment thereof or relating to the Senior Debt in
any manner;
(ii) sell, exchange, release or otherwise deal with any collateral for all
or any of the Senior Debt (whether or not in a commercially reasonable manner);
(iii) release anyone liable in any manner for the payment or collection of
any Senior Debt;
(iv) exercise or refrain from exercising any rights against the Maker or
others (including the Holder of this Note);
(v) apply any sums received by the Senior Debt Holders, by
whomsoever paid and however realized, to the payment of the Senior Debt in such
manner as the Senior Debt Holders, in their sole discretion, shall deem
appropriate; and
(vi) take any other action which might otherwise constitute a
defense available to, or a discharge of, this Note in respect of these
provisions.
<PAGE>
11. Continued Effectiveness. These provisions shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by any Senior
Debt Holders upon the insolvency, bankruptcy or reorganization of the Maker or
otherwise, all as though such payment had been due but not made at such time.
12. Amendments. The subordination provisions of this Note are for the
benefit of the Senior Debt Holders and, so long as any Senior Debt remains
unpaid, may not be amended, modified, rescinded or canceled in whole or in part
in any manner that would be adverse to any holder of Senior Debt without the
prior written consent of such holder.
13. Binding Affect; Assignment. This Note shall be binding upon and
inure to the benefit of Maker and Holder and their respective successors and
permitted assigns, and representatives. Holder may not assign its rights or
obligations under this Note (by operation of law or otherwise) other than to any
Permitted Transferee or Assignee as expressly provided in this Note without the
prior written consent of Maker, and any attempted assignment without consent
where required shall be void. The subordination provisions of this Note shall
inure to the benefit of the successors and assigns of each of the Senior Debt
Holders.
IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered as of the day and year first above written.
MAKER:
MATRIA HEALTHCARE, INC.
By:/s/ Donald R. Millard
Title: President and CEO
Accepted and agreed as of this ____ day of __________, 2000.
HOLDER:
GAINOR MEDICAL MANAGEMENT, L.L.C.
By: ___________________________________
Title: President and CEO
