Debt Subordination Agreement

DEBT SUBORDINATION AGREEMENT

(Payment and Lien Subordination)

Effective Date: [DATE]
Agreement Number: [UNIQUE IDENTIFIER]

PARTIES

This Debt Subordination Agreement ("Agreement") is entered into as of [EFFECTIVE DATE] by and among:

SENIOR CREDITOR:

SUBORDINATED CREDITOR:

DEBTOR/BORROWER:

RECITALS

A. Senior Debt: Senior Creditor has extended or agrees to extend credit to Debtor pursuant to [DESCRIBE SENIOR LOAN DOCUMENTS] dated [DATE] in the original principal amount of $[AMOUNT] (the "Senior Loan"), secured by [DESCRIBE COLLATERAL] (collectively, the "Senior Debt Documents").

B. Subordinated Debt: Subordinated Creditor is owed or will be owed by Debtor pursuant to [DESCRIBE SUBORDINATED LOAN DOCUMENTS] dated [DATE] in the original principal amount of $[AMOUNT] (the "Subordinated Loan"), which may be secured by [DESCRIBE COLLATERAL OR STATE "UNSECURED"] (collectively, the "Subordinated Debt Documents").

C. Purpose: As a condition to extending or continuing credit under the Senior Debt Documents, Senior Creditor requires that the Subordinated Debt be subordinated to the Senior Debt on the terms set forth herein.

D. Benefit: Subordinated Creditor will benefit from Senior Creditor's extension of credit to Debtor, and this subordination is given in consideration thereof.

NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:

ARTICLE 1: DEFINITIONS

"Bankruptcy Code" means Title 11 of the United States Code.

"Collateral" means all property, real or personal, tangible or intangible, now or hereafter securing any of the Senior Debt.

"Default" means any event of default under the Senior Debt Documents.

"Debtor" means [DEBTOR NAME] and its successors.

"Enforcement Action" means any action to collect, enforce, accelerate, foreclose, realize upon, or exercise any rights or remedies with respect to the Subordinated Debt or any collateral therefor.

"Permitted Payments" has the meaning set forth in Section 3.2.

"Senior Creditor" means [SENIOR CREDITOR NAME] and its successors and assigns.

"Senior Debt" means all present and future indebtedness, obligations, and liabilities of Debtor to Senior Creditor under the Senior Debt Documents, including:

• All principal, interest, fees, costs, and expenses
• All renewals, extensions, modifications, and refinancings
• All amounts advanced to preserve or protect Collateral
• All obligations under guaranties
• Interest accruing after bankruptcy filing

"Senior Debt Cap" means $[MAXIMUM AMOUNT] (or "unlimited" if not capped).

"Subordinated Creditor" means [SUBORDINATED CREDITOR NAME] and its successors and assigns.

"Subordinated Debt" means all present and future indebtedness, obligations, and liabilities of Debtor to Subordinated Creditor under the Subordinated Debt Documents, including all principal, interest, fees, and costs.

"Termination Date" means the date on which all Senior Debt has been indefeasibly paid in full and all commitments to extend Senior Debt have terminated.

ARTICLE 2: SUBORDINATION OF DEBT

2.1 Payment Subordination

Subordinated Creditor hereby subordinates the payment of all Subordinated Debt to the prior payment in full of all Senior Debt. Until the Termination Date:

(a) No payment of principal, interest, or any other amount on the Subordinated Debt shall be made except as permitted under Section 3.2 (Permitted Payments);

(b) Subordinated Creditor shall not demand, accept, or retain any payment or distribution of any kind on account of the Subordinated Debt except as permitted under Section 3.2;

(c) If Subordinated Creditor receives any payment or distribution in violation of this Agreement, Subordinated Creditor shall hold such payment in trust for Senior Creditor and immediately pay it over to Senior Creditor.

2.2 Lien Subordination

☐ Not Applicable (Subordinated Debt is unsecured)

☐ Applicable: Subordinated Creditor hereby subordinates any and all liens, security interests, and encumbrances securing the Subordinated Debt to all liens, security interests, and encumbrances securing the Senior Debt. Such subordination applies regardless of:

(a) The order of attachment, perfection, or filing of any financing statement or other document;

(b) The time of granting of any lien or security interest;

(c) Any provision of the UCC or other applicable law.

2.3 Scope of Subordination

This subordination applies to all Senior Debt:

• Whether now existing or hereafter arising
• Whether direct, indirect, or contingent
• Whether secured or unsecured
• Whether evidenced by note, agreement, or otherwise
• Including interest accruing after any bankruptcy filing

Senior Debt Cap:
☐ The subordination hereunder is limited to Senior Debt up to the Senior Debt Cap.
☐ The subordination hereunder is unlimited.

ARTICLE 3: PAYMENT TERMS

3.1 Blockage of Payments

Unless and until the Termination Date:

(a) No Payments During Default: Upon the occurrence and during the continuance of any Default under the Senior Debt Documents, no payment of any kind shall be made on the Subordinated Debt, and Subordinated Creditor shall not demand or accept any such payment.

(b) Payment Blockage Notice: Senior Creditor may, at any time during the continuance of a Default, deliver a Payment Blockage Notice to Subordinated Creditor, which shall suspend all Permitted Payments.

(c) Blockage Period: The blockage period shall continue until the earlier of:
(i) Cure or waiver of all Defaults;
(ii) [179] days after the Payment Blockage Notice (unless a new Default occurs);
(iii) Written notice from Senior Creditor terminating the blockage.

3.2 Permitted Payments

Notwithstanding Section 2.1, so long as no Default has occurred and is continuing and no Payment Blockage Notice is in effect, Subordinated Creditor may receive:

☐ Regular Scheduled Payments: Regularly scheduled payments of principal and interest as set forth in the Subordinated Debt Documents, provided that:

• Debtor is not in default under the Senior Debt Documents
• No event has occurred that, with notice or lapse of time, would constitute a Default
• Debtor remains in compliance with all financial covenants under the Senior Debt Documents

☐ Interest Only: Scheduled interest payments only (no principal payments)

☐ No Payments Permitted: No payments on the Subordinated Debt are permitted until the Termination Date

☐ Capped Payments: Payments up to $[AMOUNT] per [YEAR/MONTH]

☐ Other: [DESCRIBE PERMITTED PAYMENTS]

3.3 Turnover

If Subordinated Creditor receives any payment or distribution on account of the Subordinated Debt (other than Permitted Payments) at any time prior to the Termination Date, Subordinated Creditor shall:

(a) Hold such payment or distribution in trust for the benefit of Senior Creditor;

(b) Segregate such payment from Subordinated Creditor's other funds;

(c) Promptly (and in any event within [5] Business Days) deliver such payment to Senior Creditor in the form received, endorsed as necessary;

(d) Such payment shall be applied to the Senior Debt in such order as Senior Creditor determines.

ARTICLE 4: ENFORCEMENT STANDSTILL

4.1 Standstill Period

Until the Termination Date, Subordinated Creditor shall not take any Enforcement Action, including:

(a) Accelerating the Subordinated Debt;

(b) Commencing or joining any legal proceeding against Debtor;

(c) Exercising any set-off or recoupment rights;

(d) Foreclosing on or taking possession of any collateral;

(e) Exercising any other remedy under the Subordinated Debt Documents or applicable law;

EXCEPT that after the expiration of the Standstill Period (defined below), Subordinated Creditor may take Enforcement Actions, provided that any proceeds received are subject to this Agreement.

4.2 Standstill Period

"Standstill Period" means:

☐ Permanent Standstill: Subordinated Creditor may not take any Enforcement Action until the Termination Date.

☐ Limited Standstill: Subordinated Creditor may not take any Enforcement Action for [180] days after written notice to Senior Creditor of a default under the Subordinated Debt Documents. After such period, Subordinated Creditor may take Enforcement Action subject to this Agreement.

4.3 Senior Creditor's Right to Cure

Senior Creditor shall have the right (but not the obligation) to cure any default under the Subordinated Debt Documents, and any amounts paid shall constitute additional Senior Debt.

ARTICLE 5: BANKRUPTCY AND INSOLVENCY

5.1 Subordination in Bankruptcy

In the event of any bankruptcy, insolvency, receivership, liquidation, reorganization, or similar proceeding involving Debtor:

(a) All Senior Debt shall first be paid in full before any payment or distribution is made on account of the Subordinated Debt;

(b) Any payment or distribution that would otherwise be payable to Subordinated Creditor shall be paid directly to Senior Creditor until the Senior Debt is paid in full;

(c) Subordinated Creditor shall promptly file all claims and proofs of claim and take all other actions to effectuate this subordination;

(d) Senior Creditor is authorized to file claims on behalf of Subordinated Creditor if Subordinated Creditor fails to do so timely.

5.2 No Challenge

Subordinated Creditor shall not:

(a) Challenge or contest the validity, priority, or enforceability of the Senior Debt or any liens securing it;

(b) Object to any DIP financing or use of cash collateral consented to by Senior Creditor;

(c) Support any plan of reorganization that does not provide for payment in full of the Senior Debt before payment on the Subordinated Debt;

(d) Take any action inconsistent with this Agreement.

5.3 Post-Petition Interest

The subordination herein applies to all Senior Debt including interest accruing after the filing of any bankruptcy petition, whether or not such interest is allowed as a claim.

ARTICLE 6: MODIFICATIONS

6.1 Modifications to Senior Debt

Senior Creditor may, without notice to or consent of Subordinated Creditor:

(a) Renew, extend, modify, amend, or refinance the Senior Debt;

(b) Increase the principal amount (subject to the Senior Debt Cap, if any);

(c) Change the interest rate, fees, or other terms;

(d) Release, substitute, or exchange collateral;

(e) Release guarantors or other obligors;

(f) Grant waivers or forbearances.

Such actions shall not affect the subordination hereunder.

6.2 Modifications to Subordinated Debt

Without Senior Creditor's prior written consent, Subordinated Creditor shall not:

(a) Increase the principal amount of the Subordinated Debt;

(b) Increase the interest rate beyond [PERCENTAGE]%;

(c) Shorten the maturity date;

(d) Accelerate payments or demand prepayment;

(e) Grant additional liens or security interests;

(f) Amend the Subordinated Debt Documents in any manner adverse to Senior Creditor.

ARTICLE 7: REPRESENTATIONS AND WARRANTIES

7.1 Subordinated Creditor Represents:

(a) The Subordinated Debt is currently outstanding in the principal amount of $[AMOUNT];

(b) The Subordinated Debt Documents are valid and enforceable;

(c) Subordinated Creditor has the authority to enter into this Agreement;

(d) No default exists under the Subordinated Debt Documents;

(e) The Subordinated Debt is ☐ secured / ☐ unsecured;

(f) Subordinated Creditor has not assigned or transferred any interest in the Subordinated Debt.

7.2 Debtor Represents:

(a) Debtor has the authority to enter into this Agreement;

(b) The information regarding the Senior Debt and Subordinated Debt is accurate;

(c) No other subordination agreements exist except: [LIST OR "NONE"].

ARTICLE 8: GENERAL PROVISIONS

8.1 Governing Law

This Agreement shall be governed by the laws of the State of [GOVERNING LAW STATE].

8.2 Bankruptcy Enforceability

This Agreement is intended to be enforceable in any bankruptcy or insolvency proceeding pursuant to Bankruptcy Code Section 510(a).

8.3 Termination

This Agreement shall terminate on the Termination Date. The termination shall not affect any rights or obligations accrued prior thereto.

8.4 Notices

All notices shall be in writing and delivered to the addresses above.

8.5 Amendments

This Agreement may be amended only by written instrument signed by Senior Creditor and Subordinated Creditor. Debtor's consent is not required.

8.6 Successors and Assigns

This Agreement binds and benefits the parties and their successors and assigns. Subordinated Creditor may not assign the Subordinated Debt without Senior Creditor's consent (which shall not be unreasonably withheld if the assignee agrees to be bound by this Agreement).

8.7 Waiver of Jury Trial

EACH PARTY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF THIS AGREEMENT.

8.8 Severability

Invalid provisions shall be modified to the minimum extent necessary; the remainder continues.

8.9 Counterparts

This Agreement may be executed in counterparts. Electronic signatures are valid.

8.10 Debtor Not Third-Party Beneficiary

Debtor is not a third-party beneficiary of this Agreement and may not enforce any provision hereof.

SIGNATURES

IN WITNESS WHEREOF, the parties have executed this Debt Subordination Agreement as of the Effective Date.

SENIOR CREDITOR:

[SENIOR CREDITOR NAME]

By: _________________________________

Name: [NAME]

Title: [TITLE]

Date: ___________

SUBORDINATED CREDITOR:

If Individual:

Signature: _________________________________

Printed Name: [NAME]

Date: ___________

If Entity:

[SUBORDINATED CREDITOR NAME]

By: _________________________________

Name: [NAME]

Title: [TITLE]

Date: ___________

ACKNOWLEDGED AND AGREED BY DEBTOR:

[DEBTOR NAME]

By: _________________________________

Name: [NAME]

Title: [TITLE]

Date: ___________

COMPLIANCE CHECKLIST

☐ Senior Debt and Subordinated Debt accurately described
☐ Payment subordination terms specified
☐ Lien subordination terms specified (if applicable)
☐ Permitted Payments clearly defined
☐ Standstill period specified
☐ Bankruptcy provisions included
☐ Senior Debt Cap specified (if limited)
☐ Modification restrictions included
☐ All parties executed
☐ Legal counsel review completed

LEGAL CITATIONS REFERENCE

UCC Article 9

• § 9-339: Priority subject to subordination

Bankruptcy Code

• 11 U.S.C. § 510(a): Enforceability of subordination agreements
• 11 U.S.C. § 510(b): Subordination of securities claims
• 11 U.S.C. § 364: DIP financing

Prepared for professional use. Verify all terms before execution.