Ex-10.2 Senior Subordination Agreement



 





Exhibit 10.2

EXECUTION DOCUMENT





SENIOR SUBORDINATION AGREEMENT




          This SENIOR SUBORDINATION AGREEMENT, dated as of February 28, 2005 (this “Agreement”), by MHR
CAPITAL PARTNERS LP, MHR CAPITAL PARTNERS (100) LP and OTQ LLC (collectively, the “Junior Lender”)
and MHR CAPITAL PARTNERS LP in its capacity as Collateral Agent for the Junior Lender under the
Junior Agreement referred to below (in such capacity, the “Junior Collateral Agent”), in favor of
CAPITALSOURCE FINANCE LLC, a Delaware limited liability company (the “Senior Lender”) under the
Senior Credit Agreement referred to below and is joined by RGGPLS HOLDING, INC. (“RGGPLS”) for
purposes of, and only for purposes of, Section 20 hereof.



W I T N E S S E T H :




          WHEREAS, the Senior Lender and United States Pharmaceutical Group, L.L.C. (“USPG”),
NationsHealth Holdings, L.L.C. (“Holdings”) and NationsHealth, Inc. (“NationsHealth” and sometimes
individually or collectively with USPG and Holdings, “Borrower”) are parties to a certain Amended
and Restated Revolving Credit and Security Agreement dated as of June 29, 2004 (as amended through
the date hereof and as further amended, restated, supplemented, replaced or otherwise modified from
time to time, the “Senior Loan Agreement”) under which the Senior Lender has made or may make loans
and other financial accommodations to Borrower;



          WHEREAS, pursuant to the Senior Loan Agreement, Borrower has granted in favor of the Senior
Lender a lien on and security interest in (collectively, the “Senior Lien”) substantially all of
the assets and property of Borrower as security for their obligations to the Senior Lender under
the Senior Loan Agreement;



          WHEREAS, the Junior Lender and Borrower are parties to a certain Investment Unit Purchase
Agreement of even date herewith (as amended, supplemented or otherwise modified from time to time,
the “Junior Agreement”) under which the Junior Lender has purchased certain convertible secured
promissory notes issued by Borrower (collectively, the “Junior Note”) and 1,785,714 shares of
common stock issued by NationsHealth;



          WHEREAS, pursuant to the Junior Agreement and the Junior Note, Borrower has granted in favor
of the Junior Lender a lien on and security interest in (collectively, the “Junior Lien”)
substantially all of Borrower’s assets and property as security for its obligations to the Junior
Lender under the Junior Agreement;



          WHEREAS, the transactions described above are prohibited by the Senior Loan Agreement and
Borrower has requested the Senior Lender provide, and the Senior Lender has agreed to provide of
even date herewith, a Consent and Waiver to permit the consummation of such transactions (the
“Senior Consent”); and



 









 





          WHEREAS, it is a condition precedent to the effectiveness of the Senior Consent that, among
other things, the Junior Lender shall have executed and delivered this Agreement subordinating its
rights with respect to the Junior Obligations (as defined below) to the rights of the Senior Lender
with respect to the Senior Obligations (as defined below) and that Borrower shall have acknowledged
this Agreement.



          NOW, THEREFORE, in consideration of the promises contained herein and to induce the Senior
Lender to enter into the Senior Consent, the Junior Lender hereby agrees as follows:



          SECTION 1. Definitions. Capitalized terms used but not defined herein shall have the
meanings given to them in the Senior Loan Agreement, and the rules of usage set forth therein shall
apply hereto.



          SECTION 2. Subordination.



               (a) All Junior Obligations, and all rights and remedies of the Junior Lender with respect
thereto, are and shall continue at all times to be subject, subordinate and junior in right of
payment to the Senior Obligations including, without limitation, all interest on the Senior
Obligations at the rate stated in the Senior Loan Agreement from the date of the filing by or
against Borrower of a petition under any bankruptcy, insolvency or similar law to the date of the
indefeasible payment in full of the Senior Obligations (“Postpetition Interest”). The term “Junior
Obligations,” as used in this Agreement, shall mean and include the principal amount of and the
premium, if any, and interest on all indebtedness and other monetary obligations of Borrower to the
Junior Lender under the Junior Agreement and the Junior Note, together with all fees, costs and
expenses relating thereto, whether direct or contingent, now or hereafter existing, due or to
become due to, or held or to be held by the Junior Lender, whether created directly or acquired by
assignment or otherwise, including, without limitation, all principal of and premium, if any, and
interest on the Junior Note (including extensions, modifications, refinancings, renewals and
refundings thereof). For the avoidance of doubt, the obligation of Borrower to issue equity or
equity related securities to the Junior Lender pursuant to the Junior Note, any payments on or in
respect of any equity or equity related securities and any exercise of rights by the Junior Lender
with respect to any equity or equity related securities as the holder thereof (as long as such
rights do not constitute an Enforcement Action) shall not constitute Junior Obligations. The term
“Senior Obligations,” as used in this Agreement, shall mean and include the principal amount of and
the premium, if any, and interest (including Postpetition Interest) and all other amounts on all of
the Obligations including, without limitation, all fees, costs and expenses relating thereto,
whether direct or contingent, now or hereafter existing, due or to become due to, or held or to be
held by, the Senior Lender, whether created directly or acquired by assignment or otherwise
(including extensions, modifications, refinancings, renewals and refundings thereof).



               (b) Except for the payments specified in Section 2(c), the Junior Lender shall not receive or
accept any payment on the Junior Obligations, whether as principal, premium, interest or otherwise,
unless and until all the Senior Obligations including, without limitation, all Postpetition
Interest, have been indefeasibly paid in full in cash, and the obligation



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(the “Commitment”) of the Senior Lender to make loans and advances under the Senior Loan
Agreement has been terminated.




               (c) The Junior Lender may receive, accept and retain (i) regularly scheduled monthly interest
payments under the Junior Note at a rate per annum equal to 73/4%, (ii) any and all
fees and expenses required to be paid or reimbursed by Borrower in connection with the closing of
the transactions contemplated by the Junior Agreement and the Junior Note, (iii) payments for
redemptions or puts as contemplated by Section 5 of the Junior Note and made in accordance with
clause (C) of the proviso contained in Section 7.5 of the Loan Agreement (as such Section 7.5 is in
effect as of the date of this Agreement) and (iv) all expenses required to be paid or reimbursed by
Borrower as contemplated by Section 4(d)(v) of the Junior Note unless:




(A)(i) an Event of Default has occurred and is continuing under Section 8.1(a) of the Senior
Loan Agreement (a “Senior Payment Default”) and (ii) the Junior Lender has not received a
written notice from the Senior Lender informing the Junior Lender that such Senior Payment
Default has been waived or cured; or




(B)(i) a Default or an Event of Default has occurred and is continuing under the Senior Loan
Agreement (other than under Section 8.1(a) thereof)(a “Senior Non-Payment Default”) with
respect to which the Junior Lender has received from the Senior Lender a notice (a “Senior
Non-Payment Default Notice”) prohibiting the Junior Lender from receiving, collecting or
accepting any of the foregoing payments and from commencing any Enforcement Action (as
defined below) and (ii) either (x) the Junior Lender has not received a written notice from
the Senior Lender informing the Junior Lender that such Senior Non-Payment Default has been
waived or cured, or (y) less than one hundred eighty (180) days have passed since the date
of the Junior Lender’s receipt of such Senior Non-Payment Default Notice (provided that
there shall be no more than one hundred eighty (180) days during which one or more Senior
Non-Payment Default Notices are in effect during any period of three hundred sixty (360)
consecutive days).


Nothing in this subsection (c) shall prohibit the accrual (but not the payment to the Junior
Lender) of interest on the Junior Obligations at the default rate in accordance with the terms of
the Junior Agreement or the Junior Note following the occurrence of an event of default under the
Junior Agreement or the Junior Note.




               (d) If the Junior Lender shall receive any payment or prepayment (including from any account
debtor under any accounts receivable of Borrower) on the Junior Obligations that it is not entitled
to receive under this Agreement, the Junior Lender or the Junior Collateral Agent, as applicable,
will hold any amount so received in trust for the Senior Lender and shall, as soon as possible,
turn over such payment to the Senior Lender in the form received (together with any necessary
endorsements) to be applied to the Senior Obligations.



               (e) Unless and until the Senior Obligations shall have been indefeasibly paid in full in cash
and the Commitment has been terminated, the Junior Lender will not accelerate the maturity of the
Junior Obligations or commence any action or proceeding against Borrower to recover all or any part
of the Junior Obligations, or join with any other creditor in doing so, unless (i) in the case of
the acceleration of the Junior Obligations, (A) only



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if the Senior Lender has accelerated the Senior Obligations or (B) on or after February 28,
2006, an event of default has occurred and is continuing under Section 2(d) of the Junior Note (a
“Junior Default”), written notice of which the Junior Lender has delivered to the Senior Lender
(the “Junior Default Notice”), and thirty (30) days (or one hundred eighty (180) days from the date
of delivery by the Senior Lender of a Senior Non-Payment Default Notice if delivered during such
thirty-day period) have expired since the date of the Senior Lender’s receipt of the Junior Default
Notice and such Junior Default has not been cured or waived during such time periods, or (ii) in
the case of any action or proceeding brought against Borrower under any bankruptcy, insolvency or
similar law or any other proceeding the result of which could give rise to an Insolvency Event (as
defined below), the Senior Lender shall have joined therein or (iii) in the case of any other
action or proceeding that does not involve an Enforcement Action (which shall be governed
exclusively by Section 3(q) hereof), on or after February 28, 2006, a Junior Default has occurred
and is continuing with respect to which the Junior Lender has delivered a Junior Default Notice to
the Senior Lender, and thirty (30) days (or one hundred eighty (180) days from the date of delivery
by the Senior Lender of a Senior Non-Payment Default Notice if delivered during such thirty-day
period) have expired since the date of the Senior Lender’s receipt of such Junior Default Notice
and such Junior Default has not been cured or waived during such time periods. For purposes of the
foregoing clauses (i) and (iii), any Junior Default which arises pursuant to clause (vii) of
Section 2(d) of the Junior Note because of the existence of a breach or violation of the Senior
Loan Agreement shall be deemed to be cured or waived for purposes of this Agreement (and shall not
serve as the basis for a Junior Default) if the breach or violation under the Senior Loan Agreement
is waived or cured or if the Senior Loan Agreement is amended to remove such breach or violation.
For purposes of this Agreement, the term “Insolvency Event” shall mean, with respect to any
Borrower, the occurrence of any of the following: (i) such Borrower shall be adjudicated insolvent
or bankrupt or institutes proceedings to be adjudicated insolvent or bankrupt, or shall generally
fail to pay or admit in writing its inability to pay its debts as they become due, (ii) such
Borrower shall seek dissolution or reorganization or the appointment of a receiver, trustee,
custodian, or liquidator for it or a substantial portion of its property, assets or business or to
effect a plan or other arrangement with its creditors, (iii) such Borrower shall make a general
assignment for the benefit of its creditors, or consent to or acquiesce in the appointment of a
receiver, trustee, custodian, or liquidator for a substantial portion of its property, assets or
business, (iv) such Borrower shall file a voluntary petition under any bankruptcy, insolvency, or
similar law, (v) such Borrower shall take any corporate or similar act in furtherance of any of the
foregoing, or (vi) such Borrower, or a substantial portion of its property, assets or business,
shall become the subject of an involuntary proceeding or petition for (A) its dissolution or
reorganization or (B) the appointment of a receiver, trustee, custodian or liquidator , and (I)
such proceeding shall not be dismissed or stayed within sixty (60) days, (II) such receiver,
trustee, custodian or liquidator shall be appointed or (III) such Person fails to contest in a
timely or appropriate manner any such proceeding or petition.




               (f) Upon the occurrence of any Insolvency Event of Borrower or in the event of a sale of all
or substantially all of the assets, or any other marshaling of the assets and liabilities, or any
recapitalization, refinancing or reorganization, of Borrower, the Senior Obligations shall first be
indefeasibly paid in full in cash and the Commitment terminated before the Junior Lender shall be
entitled to receive any money, distributions or other assets in any such proceeding. In any such
event, the Junior Lender shall demand, sue for, collect or receive every



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such payment or distribution of cash, property, stock or obligations, give acquittance
therefor, file claims and proofs of claim in any statutory or nonstatutory proceeding, exercise the
rights of the Junior Lender arising under or relating to the Junior Agreement or the Junior Note
and vote the claim of the Junior Lender under the Junior Agreement or the Junior Note in its sole
discretion in connection with any such event, including, without limitation, the right to
participate in any composition of creditors and to vote at creditors’ meetings for the election of
trustees, acceptances of plans of reorganization and any other matter upon which the Junior Lender
would be otherwise entitled to vote; provided, that if the Junior Lender votes its claim, the
Junior Lender shall not, without the prior written consent of the Senior Lender, vote to accept a
plan of liquidation, reorganization, arrangement, composition or extension that does not provide
for the payment, refinancing, restatement or recognition in full of all of the Senior Obligations.
In the event that the Junior Lender shall fail to take any such action following the written
request of the Senior Lender or fail to vote its claim in any proceedings prior to 5 days before
the expiration of the time to vote, the Senior Lender may (but shall not be obligated) demand, sue
for, collect or receive every such payment or distribution of cash, property, stock or obligations,
give acquittance therefor, file claims and proofs of claim in any statutory or nonstatutory
proceeding, exercise the rights of the Junior Lender arising under or relating to the Junior
Agreement or the Junior Note and vote the claim of the Junior Lender under the Junior Agreement or
the Junior Note in its sole discretion in connection with any such event, including, without
limitation, the right to participate in any composition of creditors and to vote at creditors’
meetings for the election of trustees, acceptances of plans of reorganization and any other matter
upon which the Junior Lender would be otherwise entitled to vote. In such an event, the Junior
Lender hereby irrevocably authorizes the Senior Lender and grants to the Senior Lender an exclusive
power of attorney (which power of attorney is coupled with an interest and is irrevocable), but
without imposing any obligation upon the Senior Lender, to demand, sue for, collect or receive
every such payment or distribution of cash, property, stock or obligations, to give acquittance
therefor, to file claims and proofs of claim in any statutory or nonstatutory proceeding, to
exercise the rights of the Junior Lender arising under or relating to the Junior Agreement or the
Junior Note and to vote the claim of the Junior Lender under the Junior Agreement or the Junior
Note in its sole discretion in connection with any such event, including, without limitation, the
right to participate in any composition of creditors and to vote at creditors’ meetings for the
election of trustees, acceptances of plans of reorganization and any other matter upon which the
Junior Lender would be otherwise entitled to vote. In furtherance of the foregoing, at the request
of the Senior Lender, the Junior Lender shall execute and deliver to the Senior Lender a separate
power of attorney and such further powers and instruments as the Senior Lender may request to
enable the Senior Lender to enforce its rights under this subsection.




               (g) The Senior Lender may, at any time and from time to time, without the consent of or notice
to the Junior Lender, without incurring responsibility or liability to the Junior Lender and
without impairing or releasing any right or remedy of the Senior Lender hereunder:




	 	(i)  	change the manner, place
or terms of payment of, change or extend the time of payment
of, or renew, increase or alter the Senior Obligations, or
waive defaults under or amend the Senior Loan Agreement or
any other Loan Document in any




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	 	   	manner or enter into or amend in any manner or waive defaults
under any other agreement relating to the Senior Obligations;
	 
	 	(ii)  	sell, exchange, release
or otherwise deal with any property by whomsoever at any
time pledged to secure, or howsoever securing, the Senior
Obligations;
	 
	 	(iii)  	release any Person
liable in any manner for the payment or collection of any of
the Senior Obligations;
	 
	 	(iv)  	exercise or refrain from
exercising any rights against Borrower or any other Person;
or
	 
	 	(v)  	apply any sums by
whomsoever paid or however realized to the Senior
Obligations.




The Senior Lender agrees not to increase the outstanding aggregate principal amount of the Senior
Obligations to an aggregate amount greater than, or to refinance the Senior Obligations so that the
outstanding aggregate principal amount thereof exceeds, an amount equal to (i) the amounts set
forth in Section 6(c) of the Junior Note plus (ii) any amount of post-petition financing approved
by the court in a bankruptcy proceeding. The immediately preceding sentence shall not be construed
to limit or otherwise affect the Senior Lender’s right to accrue and receive payment of interest
(including at the default rate and including Postpetition Interest), fees or other charges
comprising part of the Senior Obligations.




               (h) The Junior Lender waives notice of acceptance of this Agreement.



               (i) The Junior Lender will cause each note or other instrument that evidences any Junior
Obligations (including, without limitation, the Junior Agreement and the Junior Note) to bear upon
its face a statement or legend to the effect that such note or other instrument is subordinated to
the Senior Obligations in the manner and to the extent set forth in this Agreement. The Junior
Lender shall mark its books and records, including any financial statements, to show that the
Junior Obligations are so subordinated to the Senior Obligations.



               (j) The Junior Lender will not (i) increase the per annum rate of interest applicable to the
Junior Obligations or (ii) make any covenant or event of default under the Junior Agreement or the
Junior Note more restrictive than such covenants and events of default thereunder as of the date
hereof.



               (k) Subject to the indefeasible payment in full of the Senior Obligations in cash and the
termination of the Commitment, the Junior Lender shall be subrogated to the Senior Lender’s rights
to receive payments or distributions in cash or property applicable to the Senior Obligations, and
no payment or distribution made to the Senior Lender by virtue of this Agreement that otherwise
would have been made to the Junior Lender shall be deemed to be a payment by Borrower on account of
the Junior Obligations.



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               (l) The Junior Lender will not sell, assign, transfer or otherwise dispose of all or any part
of, or any interest in, the Junior Obligations to any Person without having first obtained (i) such
Person’s agreement in writing to be bound as the Junior Lender’s successor by the terms of this
Agreement or, in the case of an interest in the Junior Obligations, an acknowledgment by such
interest holder of the terms hereof, or (ii) the Senior Lender’s prior written consent.



               (m) The Junior Lender agrees that it will not exercise any right of setoff it may have against
the Junior Obligations in respect of any obligation owed by the Junior Lender to Borrower.



               (n) If Borrower shall become subject to a case under the Bankruptcy Code, and if the Senior
Lender desires to permit the use of cash collateral or to provide (or to permit another Person to
provide) financing to Borrower under either Section 363 or Section 364 of the Bankruptcy Code, the
Junior Lender agrees as follows: (i) adequate notice to the Junior Lender shall be deemed to have
been given to the Junior Lender if the Junior Lender receives notice at least five (5) Business
Days prior to the hearing held by the applicable bankruptcy court to consider entry of an order
approving such use or financing, provided that nothing in this subsection shall be deemed
to entitle the Junior Lender to any notice not required by the Bankruptcy Code and that no such
notice need be given with respect to an interim order approving such use or financing so long as
the conditions in clause (ii) hereof to avoid an objection by the Junior Lender have been met, and
(ii) no objection will be raised by the Junior Lender to any such use or financing on the grounds
of a failure to provide “adequate protection” of the Junior Lien or any other ground if the Junior
Lender is granted, with the approval of the applicable bankruptcy court, a lien on and security
interest in the post-petition Collateral to secure any claim that it may have on account of the
post-petition diminution in value of the Collateral, which lien shall be subordinate to the Lien
of the Senior Lender and any Liens to which the Lien of the Senior Lender is subordinate. For
purposes of this subsection, “Lien” shall mean any liens granted to the Senior Lender pursuant to
the Senior Loan Documents together with any post-petition liens and/or super-priority claims for
Post-Petition Financing and adequate protection of the Senior Lender’s pre-petition liens. For
purposes of this subsection, notice of a proposed financing or use of cash collateral shall be
deemed given when made in the manner prescribed by this Agreement, or as the applicable bankruptcy
court may approve, or, actual notice is given to the Junior Lender or its counsel, whichever is
soonest.



               (o) All liens, pledges, and security interests of any nature upon or in any Collateral held by
the Junior Lender, including, without limitation, the Junior Lien, shall be and are hereby made
inferior and junior to the liens, pledges and security interests of any nature upon or in any
Collateral held by or in favor of the Senior Lender, regardless of the failure to perfect or the
order or manner of perfection of any such liens, pledges and security interests. The priorities
set forth in this Agreement are applicable irrespective of any priority available to the Senior
Lender or the Junior Lender under contract or applicable law or any representation or warranty of
Borrower to the contrary in any agreement, instrument, or other document to which the Junior Lender
is a party.



               (p) The Senior Lender may take any judicial or nonjudicial action, including any action to
enforce its liens on or security interests in any or all of the Collateral,



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including, without limitation, to foreclose, execute, levy upon, or collect or dispose of any
or all of the Collateral (each, an “Enforcement Action”) as it shall determine in its sole and
exclusive judgment.




               (q) The Junior Lender agrees that, until all the Senior Obligations have been indefeasibly
paid in full in cash and the Commitment has been terminated, the Junior Lender shall not commence
or continue to prosecute or otherwise proceed with an Enforcement Action, contact any account
debtor of Borrower, or otherwise take any action that will impede, interfere with, restrict or
restrain the exercise by the Senior Lender of its right and remedies under the Senior Loan
Agreement or which is contrary, prejudicial or inconsistent with the Senior Lender’s first priority
secured position in the Collateral unless (i) on and after February 28, 2006, a Junior Default has
occurred and is continuing, the Junior Lender has delivered a Junior Default Notice to the Senior
Lender and either (A) thirty (30) days have expired since the date of the Junior Lender’s delivery
of such Junior Default Notice and the Junior Lender has not received a Senior Non-Payment Default
Notice from the Senior Lender or (B) the Junior Lender has received a Senior Non-Payment Default
Notice from the Senior Lender and one hundred eighty (180) days have expired since the date of such
receipt and at the end of the relevant time period described in (A) and (B), the Senior Lender has
not commenced or is not continuing to prosecute or otherwise proceed with an Enforcement Action, it
being understood that (1) the Junior Lender shall not commence any Enforcement Action if no Junior
Default has occurred and is continuing (or if there exists no basis for such Junior Default as set
forth in Section 2(e) hereof), (2) the Junior Lender shall discontinue any Enforcement Action
commenced by it at any time thereafter if the Senior Lender shall have commenced an Enforcement
Action with respect to any Collateral, and (3) in no event shall the Junior Lender have the right
to instruct any bank holding proceeds of any Collateral in a lockbox or blocked account as to the
disposition of such proceeds. The Senior Lender (to the exclusion of the Junior Lender and the
Junior Collateral Agent) shall have (whether or not any default or event of default under the
Senior Loan Agreement, the Junior Agreement, the Junior Note, or any agreement relating thereto
shall have occurred and be continuing, and both before and after the occurrence of any Insolvency
Event of Borrower) the sole and exclusive right to administer, enforce and consent to all matters
in respect of the Collateral, including the right (A) to release, or direct or consent to the
release of, with or without consideration, the Collateral from the lien of the Senior Loan
Agreement or the Junior Note, and (B) to direct or consent to the sale, transfer, lease, or other
disposition of the Collateral, the foreclosure or forbearance from foreclosure in respect of the
Collateral (including, without limitation, seeking or not seeking relief from any stay against
foreclosure in respect of the Collateral upon the occurrence of any Insolvency Event), and the
acceptance of the Collateral in full or partial satisfaction of the Senior Obligations.



               (r) Upon the sale of any Collateral by or on behalf of the Senior Lender (whether in
connection with any Enforcement Action by the Senior Lender or otherwise), the Junior Lender and
the Junior Collateral Agent shall be deemed to have consented (and does hereby consent) to such
sale and to have released (and does hereby release) any Junior Lien in the Collateral being sold in
such sale and shall, at the request of the Senior Lender, take all action and, if required, execute
and deliver all documents requested by the Senior Lender in connection therewith. Each of the
Junior Lender and the Junior Collateral Agent hereby appoints and constitutes the Senior Lender as
its attorney-in-fact and authorizes the Senior Lender to make



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any payment on or take any act necessary or desirable to protect or preserve any of the
Collateral. This power of attorney is coupled with an interest and is irrevocable.




               (s) Each of the Junior Lender and the Junior Collateral Agent agrees not to seek to avoid,
contest or bring (or join in) any action or proceeding to contest the validity of any rights of the
Senior Lender with respect to the Collateral, or the validity or reasonableness of any actions
taken or omitted to be taken by the Senior Lender hereunder or in connection herewith, under the
Senior Loan Agreement or under any other Loan Document, or in respect of any of the Collateral
including, without limitation, (i) the timing, method, or manner of collecting, disposing of or
liquidating any of the Collateral, (ii) the terms, including the price and percentage of
consideration received in cash, of any such disposition or liquidation, or (iii) the failure to
dispose of or liquidate any of the Collateral. Without limitation of the foregoing, the Junior
Lender hereby waives, to the fullest extent permitted by law, (A) any right under Section 9-615(a)
of the Code with respect to the application of disposition proceeds to the Senior Obligations, (B)
any right to notice and objection under Section 9-620 of the Code, promptness, diligence, notice of
acceptance, and any other notice with respect to any of the obligations under the Junior Agreement
or the Junior Note, and (C) any requirement that the Senior Lender exhaust any right or take any
action against Borrower, any other Person, the Collateral, or any other collateral. In addition,
the Junior Lender agrees that the Senior Lender shall have no obligation to marshal any Collateral
or to seek recourse against or satisfaction of any of the Senior Obligations from one source before
seeking recourse against or satisfaction from another source. The Junior Lender further agrees
that the net cash proceeds resulting from the Senior Lender’s exercise of any right to liquidate
all or substantially all of the Collateral, including any and all Collections (after deducting all
of the Senior Lender’s expenses related thereto), may be applied by the Senior Lender to such of
the Senior Obligations and in such order as the Senior Lender may elect in its sole and absolute
discretion, whether due or to become due. The Junior Lender further agrees that all of the Senior
Lender’s remedies under the Loan Documents shall be cumulative, may be exercised simultaneously
against any Collateral and either Loan Party or in such order and with respect to such Collateral
or such Loan Party as the Senior Lender may deem desirable, and are not intended to be exhaustive.



               (t) Notwithstanding the lack of perfection of any of the liens or security interests of the
Senior Lender with respect to any or all of the Collateral or any priority in time of perfection of
any of the liens or security interests of the Junior Lender over the liens or security interests of
the Senior Lender with respect to any or all of the Collateral, the liens and security interests of
the Senior Lender with respect to the Collateral shall be superior and prior in right of payment
and enforcement to the liens and security interests of the Junior Lender and/or the Junior
Collateral Agent with respect to the Collateral.



               (u) Notwithstanding any provision of this Agreement to the contrary, this Agreement shall not
limit the right of the Junior Lender to exercise any right of conversion set forth in Section 3 of
the Junior Note.



               (v) Notwithstanding any provision of this Agreement to the contrary, this Agreement shall not
limit the right of the Junior Lender to receive any Reorganized Securities. For purposes hereof,
“Reorganized Securities” shall mean securities of Borrower or any other Person (including those of
Borrower as reorganized) issued to the Junior Lender in



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respect of all or a part of the Junior Obligations and provided for by a plan of
reorganization in a proceeding under the Bankruptcy Code or in connection with an Insolvency Event
of Borrower, provided, that (i) such securities are (a) equity securities or (b) debt securities
subordinated to the Senior Obligations (and any debt securities received by the holders of the
Senior Obligations in such proceeding) at least to the same extent as the Junior Obligations are
subordinated to the Senior Obligations pursuant to this Agreement and (ii) such securities are
authorized by a court of competent jurisdiction in a final order or decree which, in the case of
debt securities, gives effect to this proviso and the subordination of such debt securities to the
Senior Obligations (and any debt securities received by the holders of the Senior Obligations in
such proceeding) on the terms set forth in this Agreement.




               (w) The Junior Lender agrees to provide written notice to the Senior Lender within three (3)
Business Days following the appointment of a successor to the Junior Collateral Agent pursuant to
Section 7(e) of the Junior Agreement, such notice to set forth the name, address and other contact
information of such successor.



          SECTION 3. Further Assurances. The Junior Lender and/or the Junior Collateral Agent
shall, at any time and from time to time, at Borrower’s expense, promptly execute and deliver all
further instruments and documents and take all further action that the Senior Lender may request to
protect any right or interest granted or purported to be granted hereby or to enable the Senior
Lender to exercise and enforce its rights and remedies hereunder.



          SECTION 4. Obligations Unimpaired. Nothing in this Agreement shall impair as between
Borrower, on the one hand, and the Senior Lender or the Junior Lender, on the other hand, the
obligations of Borrower to the Senior Lender or the Junior Lender, as the case may be.



          SECTION 5. Termination; Reinstatement. (a) This Agreement shall terminate and cease
to be of any further force or effect ninety (90) days after the later of (i) the termination of
the Commitment and (ii) the indefeasible payment in full in cash of the Senior Obligations.



               (b) If, at any time, all or part of any payment with respect to the Senior Obligations
theretofore made by Borrower or any other Person is rescinded or must otherwise be returned by the
Senior Lender for any reason whatsoever (including, without limitation, as a result of Borrower or
any other Person becoming the subject of an Insolvency Event), this Agreement shall continue to be
effective or be reinstated, as the case may be, all as though such payment had not been made.



          SECTION 6. Benefit of Agreement. Except as expressly provided in Section 4, nothing
in this Agreement, express or implied, shall give or be construed to give to any Person including,
without limitation, Borrower (but excluding the Senior Lender) any legal or equitable right, remedy
or claim under this Agreement or under any covenant or provision contained herein, all such
covenants and provisions being for the sole and exclusive benefit of the Senior Lender.



10









 





          SECTION 7. Notices. (a) All notices and other communications hereunder shall be in
writing and sent by certified or registered mail, return receipt requested, by overnight delivery
service, with all charges prepaid, by hand delivery, or by telecopier followed by a hard copy sent
by regular mail, if to the Senior Lender, then to CapitalSource Finance, LLC, 4445 Willard Avenue,
12th Floor, Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio
Manager (Telecopier: (301) 841-2340); if to Borrower, then to NationsHealth, Inc., 13650 N.W.
8th Street, Suite 109, Sunrise, Florida 33325 Attention: President (Telecopier: (954)
903-5005); and if to the Junior Lender or the Collateral Agent, then to MHR Fund Management, LLC,
40 West 57th Street, 24th Floor, New York, New York 10019 Attention: Hal
Goldstein and Emily Fine (Telecopier: (212) 262-9356); and in each case, to such other address as a
party may specify to the other parties in the manner required hereunder. All such notices and
correspondence shall be deemed given (i) if sent by certified or registered mail, three (3)
Business Days after being postmarked, (ii) if sent by overnight delivery service or by hand
delivery, when received at the above stated addresses or when delivery is refused, and (iii) if
sent by telecopier transmission, when such transmission is confirmed.



               (b) The Senior Lender shall provide the Junior Lender and the Junior Lender shall provide the
Senior Lender with a copy of each notice of default (to the extent permitted hereunder) sent to
Borrower concurrently with the sending thereof and promptly notify the Junior Lender or the Senior
Lender, respectively, in the event that the default which is the subject of such default notice is
cured or waived, provided that the failure to give any such notice shall not limit or
otherwise affect any party’s rights under this Agreement. The Senior Lender and the Junior Lender,
as applicable, shall use its best efforts to provide Borrower with a copy of any Senior Payment
Default Notice, Senior Non-Payment Default Notice and Junior Default Notice, as applicable,
concurrently with the sending thereof and promptly notify Borrower of any cure or waiver thereof,
provided that the failure to give any such notice shall not limit or otherwise affect any
party’s rights under this Agreement.



          SECTION 8. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement, or consent to any departure by the Junior Lender, the Junior Collateral Agent or
Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed
by the Senior Lender (and if such amendment, waiver or consent affects the Collateral Agent, by the
Junior Collateral Agent), Borrower and the Junior Lender.



          SECTION 9. Delays; Partial Exercise of Remedies. No delay or omission of the Senior
Lender to exercise any right or remedy hereunder shall impair any such right or operate as a waiver
thereof. No single or partial exercise by the Senior Lender of any right or remedy shall preclude
any other or further exercise thereof, or preclude any other right or remedy.



          SECTION 10. Counterparts; Telecopied Signatures. This Agreement and any waiver or
amendment related hereto may be executed in counterparts and by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. This Agreement may be executed and
delivered by telecopier or other facsimile transmission all with the same force and effect as if
the same were a fully executed and delivered original manual counterpart.



11









 





          SECTION 11. Severability. If any provision in or obligation under this Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.



          SECTION 12. Entire Agreement; Successors and Assigns. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof, supersedes any prior
written and verbal agreements among them with respect to the subject matter hereof, and shall bind
and benefit the parties (including, without limitation, the Senior Lender and the Junior Collateral
Agent) and their respective successors and permitted assigns. Borrower and Junior Lender each
acknowledge and agree that Senior Lender, subject to Section 20 hereof, at any time and from time
to time may sell, assign or grant participating interests in or transfer all or any part of its
rights or obligations under this Agreement, the Senior Obligations, the Collateral and/or the Loan
Documents to one or more other persons, including, without limitation, financial institutions
(each such transferee, assignee or purchaser, a “Transferee”). In such case, the Transferee shall
have all of the rights and benefits with respect to the portion of such Senior Obligations, the
Collateral, this Agreement and/or the Loan Documents, as the case may be, held by it as fully as if
such Transferee were the original holder thereof (including, without limitation, rights of set off
and recoupment), and shall become vested with all of the powers and rights given to Lender
hereunder with respect thereto, and shall be deemed to be the “Senior Lender” for all purposes
hereunder, the predecessor Senior Lender shall thereafter be forever released and fully discharged
from any liability or responsibility hereunder with respect to the rights and interests so
assigned, and either the Senior Lender or any Transferee may be designated as the sole agent to
manage the transactions and obligations contemplated herein.



          SECTION 13. Conflict. In the event of any express conflict between any term, covenant
or condition of this Agreement and any term, covenant or condition of any of the Senior Loan
Agreement, the other Loan Documents, the Junior Agreement or the Junior Note, the provisions of
this Agreement shall control.



          SECTION 14. Statement of Indebtedness. Upon demand by the Senior Lender, the Junior
Lender will furnish to the Senior Lender a statement of indebtedness owing from Borrower to the
Junior Lender. The Senior Lender may rely without further investigation upon any such statement.



          SECTION 15. SPECIFIC PERFORMANCE. THE SENIOR LENDER IS HEREBY AUTHORIZED TO DEMAND
SPECIFIC PERFORMANCE OF THIS AGREEMENT AT ANY TIME WHEN THE JUNIOR LENDER OR THE JUNIOR COLLATERAL
AGENT SHALL HAVE FAILED TO COMPLY WITH ANY OF THE PROVISIONS OF THIS AGREEMENT APPLICABLE TO IT.
EACH OF THE JUNIOR LENDER AND THE JUNIOR COLLATERAL AGENT HEREBY IRREVOCABLY WAIVES ANY DEFENSE
BASED ON THE ADEQUACY OF A REMEDY AT LAW THAT MIGHT BE ASSERTED AS A BAR TO SUCH REMEDY OF SPECIFIC
PERFORMANCE.



          SECTION 16. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, WHETHER SOUNDING IN



12









 




CONTRACT, TORT OR EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS
(AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF MARYLAND.




          SECTION 17. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN OR AMONG ANY OF THE
PARTIES HERETO, WHETHER SOUNDING IN CONTRACT, TORT OR EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY
BY STATE AND FEDERAL COURTS LOCATED IN THE STATE OF MARYLAND AND THE COURTS TO WHICH AN APPEAL
THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE SENIOR LENDER SHALL HAVE THE RIGHT, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE JUNIOR LENDER OR THE JUNIOR
COLLATERAL AGENT TO ENFORCE THE PROVISIONS HEREOF IN ANY OTHER COURT OF COMPETENT JURISDICTION OR
VENUE. EACH OF THE JUNIOR LENDER, THE JUNIOR COLLATERAL AGENT AND BORROWER WAIVES ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF ANY SUCH COURT IN WHICH THE SENIOR LENDER HAS COMMENCED A
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM
NON CONVENIENS.



          SECTION 18. JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO (I) THIS AGREEMENT OR (II) ANY CONDUCT, ACT OR
OMISSION OF THE JUNIOR LENDER, THE JUNIOR COLLATERAL AGENT, BORROWER, THE SENIOR LENDER OR ANY OF
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR OTHER AFFILIATE, IN EACH CASE
WHETHER SOUNDING IN CONTRACT, TORT OR EQUITY OR OTHERWISE.



          SECTION 19. SERVICE OF PROCESS. THE JUNIOR LENDER HEREBY IRREVOCABLY DESIGNATES THE
JUNIOR COLLATERAL AGENT AS THE DESIGNEE AND AGENT OF THE JUNIOR LENDER TO RECEIVE, FOR AND ON
BEHALF OF THE JUNIOR LENDER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS
WILL BE PROMPTLY FORWARDED BY MAIL TO THE JUNIOR LENDER, BUT THE FAILURE OF THE JUNIOR LENDER TO
RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE SENIOR LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.



          SECTION 20. RIGHT OF FIRST OFFER. If at any time , the Senior Lender (a) desires to sell,
assign or transfer all of the Senior Obligations to, or (b) accept an offer for the purchase,
assignment or transfer of all of the Senior Obligations from, a Person who (i) is an Affiliate of
Borrower or is, directly or indirectly, controlled by one or more members of the management of
Borrower or (ii) is a member of the management of Borrower (each of the foregoing, a “Covered
Person”), the Senior Lender shall first notify the Junior Lender and



13









 




RGGPLS (each, individually, an “Offeree” and, collectively, the “Offerees”) in writing and
offer to each of the Junior Lender and RGGPLS the right to make an offer to the Senior Lender to
purchase all of the Senior Obligations (the “Senior Lender Offer”). For purposes of this Section
20, each Offeree agrees that it shall advise the Senior Lender if a Person is a Covered Person
within two (2) Business Days following its receipt of a written request from the Senior Lender
(which request shall be sent to each Offeree). If both of the Offerees fail to respond to such
request within such time period, the Person which is the subject of such request shall not be
considered a Covered Person for purposes of this Section 20. The Senior Lender Offer shall set
forth in reasonable detail the full amount of the Senior Obligations as of the date of the Senior
Lender Offer, including outstanding principal, accrued and unpaid interest, unpaid fees and
expenses and such other amounts payable in respect thereof. Each of the Offerees shall have five
(5) calendar days after the receipt of the Senior Lender Offer (the “Offer Period”) to submit to
the Senior Lender separate offers to to purchase the Senior Obligations. The Offerees shall
separately notify the Senior Lender in writing of their acceptance of the Senior Lender Offer (the
“Acceptance Notice”), which Acceptance Notice shall set forth the purchase price offered by the
such Offeree for all of the Senior Obligations and the date for the closing of the purchase of the
Senior Obligations (the “Closing Date”)(which shall not be later than ten (10) calendar days from
the date of the Acceptance Notice). If any Acceptance Notice offers to purchase all of the Senior
Obligations at a purchase price which is equal to the full amount of the Senior Obligations as of
the Closing Date (a “Par Purchase Offer”), the Senior Lender shall be obligated to accept such
offer; provided, that if each of the Offerees offers a Par Purchase Offer the Senior Lender shall
accept the offer submitted by RGGPLS or an RGGPLS Permitted Assignee (as such term is defined in
the Junior Note). Notwithstanding the foregoing sentence, if (i) no Acceptance Notice has been
received by the Senior Lender within the Offer Period, (ii) if each offer of the Offerees is for
less than all of the Senior Obligations or the purchase price offered by each of the Offerees shall
be less than the full amount of the Senior Obligations as of the Closing Date (a “Non-Par Purchase
Price”), (iii) the purchase price offered by the Offerees is in consideration other than cash, (iv)
the terms of the Acceptance Notice from the Offerees require the Senior Lender to make
representations or warranties other than as to its title to and the amount of the Senior
Obligations or is otherwise not “non-recourse” to the Senior Lender, or (v) the Offeree whose
Acceptance Notice is accepted by the Senior Lender shall fail to close on the purchase of all of
the Senior Obligations on the Closing Date (an “Offeree Default”), the Senior Lender shall have no
further obligation under this Section 20 and shall be free to transfer the Senior Obligations to
any Person (including a Covered Person) at any time and without further notice to the Offerees;
provided, that if any Acceptance Notice offers a Non-Par Purchase Price, the Senior Lender shall
have thirty (30) days to determine whether to accept such offer (with the Closing Date being
extended for a corresponding period) and the Offerees may not revoke such offer during such period
and provided, further, that if there is an Offeree Default and the non-defaulting Offeree also
submitted a Par Purchase Offer which does not violate clauses (iii) and (iv) of this sentence the
Senior Lender shall notify the non-defaulting Offeree and allow such non-defaulting Offeree three
(3) calendar days in which to close upon its offer. Notwithstanding the foregoing, if the Senior
Lender elects not to accept a Non-Par Purchase Offer, the Senior Lender shall not be permitted to
sell, assign or transfer the Senior Obligations to a Covered Person on terms which are either (i)
substantially the same as or (ii) less favorable to the Senior Lender than those set forth in the
Acceptance Notice for a period of sixty (60) days without again complying with this Section 20
(although this proviso shall not apply if an Insolvency Event shall have occurred with




14









 







respect to Borrower). The provisions of this Section 20 shall not apply to restrict the
ability of the Senior Lender to grant participating interests in the Senior Obligations or
otherwise transfer the Senior Obligations under Section 12.2 of the Senior Loan Agreement as long
as (x) CapitalSource Finance LLC or its Affiliates acts as the agent for any such participating or
transferred interest or (y) CapitalSource Finance LLC or any of its Affiliates makes any such
transfer to any of its funding sources and/or financing sources. For purposes of this Section 20,
the term “Affiliate” shall mean, as to any Person, any other Person (a) that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is under common
control with, such Person, (b) who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to
such Person, or (c) which, directly or indirectly through one or more intermediaries, is the
beneficial or record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, as the same is in effect on the date hereof) of twenty percent (20%) or more of any class
of the outstanding voting stock, securities or other equity or ownership interests of such Person.
For purposes of this definition, the term “control” (and the correlative terms, “controlled by” and
“under common control with”) shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies, whether through ownership of
securities or other interests, by contract or otherwise. “Affiliate” shall include any Subsidiary.
Time is of the essence for all time periods set forth in this Section 20. The refinancing of the
Senior Obligations by a bank or financial institution in the ordinary course of its business which
results in the termination of the Commitment shall not constitute a sale, assignment or transfer
for purposes of this Section 20.




          SECTION 21. LIMITATION ON AGREEMENT. Notwithstanding any provision of this Agreement to the
contrary, if at any time (i) the outstanding Senior Obligations consist solely of Borrower’s
obligations to the Senior Lender under the Equity Participation Fee Agreement and (ii) the
Commitment has been terminated, then the provisions of Sections 2(e), 2(f)(other than the first
sentence thereof) and 2(q) hereof shall no longer have any force or effect with respect to the
Junior Lender.



[SIGNATURE PAGES NEXT FOLLOW]




15









 








          IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed by its proper and
duly authorized officer or general partner as of the date first set forth above.




	 	 	 	 	 	 
	 	 	MHR CAPITAL PARTNERS LP
	 	 	By: MHR Advisors LLC, its general partner
	 
	 	 	 	 
	

	 	By:
	 	/s/ Hal Golstein
	

	 	 	 	 
	

	 	 	 	Name: Hal Goldstein
	

	 	 	 	Title: Authorized Signatory
	 
	 	 	 	 
	 	 	MHR CAPITAL PARTNERS (100) LP
	 	 	By: MHR Advisors LLC, its general partner
	 
	 	 	 	 
	

	 	By:
	 	/s/ Hal Goldstein
	

	 	 	 	 
	

	 	 	 	Name: Hal Goldstein
	

	 	 	 	Title: Authorized Signatory
	 
	 	 	 	 
	 	 	OTQ LLC
	 
	 	 	 	 
	

	 	By:
	 	/s/ Hal Goldstein
	

	 	 	 	 
	

	 	 	 	Name: Hal Goldstein
	

	 	 	 	Title: Authorized Signatory
	 
	 	 	 	 
	 	 	MHR CAPITAL PARTNERS LP AS
	 	 	COLLATERAL AGENT
	 	 	By: MHR Advisors LLC, its general partner
	 
	 	 	 	 
	

	 	By:
	 	/s/ Hal Goldstein
	

	 	 	 	 
	

	 	 	 	Name: Hal Goldstein
	

	 	 	 	Title: Authorized Signatory
	 
	 	 	 	 
	 	 	RGGPLS HOLDING, INC. (for purposes of
	 	 	Section 20 only)
	 
	 	 	 	 
	

	 	By:
	 	Glenn Parker
	

	 	 	 	 
	

	 	 	 	Name: Glenn Parker,M.D.
	

	 	 	 	Title:






16









 






Acknowledged:




CAPITALSOURCE FINANCE LLC




	 	 	 	 
	By:
	 	/s/ Keith D. Reuben
	
	 	 
	
	 	Name:  Keith D. Reuben
	

	 	Title:    Managing Director






17








 






ACKNOWLEDGMENT




               Each of the undersigned hereby acknowledges the provisions of the foregoing Senior
Subordination Agreement and agrees to abide by the terms thereof.



	 	 	 	 	 	 
	 	 	UNITED STATES PHARMACEUTICAL
	

	 	 	 	GROUP, L.L.C.
	 
	 	 	 	 
	

	 	By:
	 	Glenn Parker
	

	 	 	 	 
	

	 	 	 	Name: Glenn Parker,M.D.
	

	 	 	 	Title:
	 
	 	 	 	 
	 	 	NATIONSHEALTH HOLDINGS, L.L.C.
	 
	 	 	 	 
	

	 	By:
	 	Glenn Parker
	

	 	 	 	 
	

	 	 	 	Name: Glenn Parker,M.D.
	

	 	 	 	Title:
	 
	 	 	 	 
	 	 	NATIONSHEALTH, INC.
	 
	 	 	 	 
	

	 	By:
	 	Glenn Parker
	

	 	 	 	 
	

	 	 	 	Name: Glenn Parker,M.D.
	

	 	 	 	Title:







18