SUBORDINATION AND INTERCREDITOR AGREEMENT

 

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                                                                  Exhibit 4.10

 

 

                    SUBORDINATION AND INTERCREDITOR AGREEMENT

 

 

         THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (this "AGREEMENT") is

entered into as of September 9, 2004, by and among LAMINAR DIRECT CAPITAL, L.P.,

a Delaware limited partnership ("LAMINAR", and, together with any other Person

that becomes a party hereto as a "Subordinated Creditor" pursuant to a

Subordinated Creditor Supplement (as hereinafter defined), each, a "SUBORDINATED

CREDITOR", and collectively, "SUBORDINATED CREDITORS"), SECURUS TECHNOLOGIES,

INC., a Delaware corporation ("COMPANY"), the Subsidiaries of Company party

hereto (collectively, "SUBSIDIARY GUARANTORS" and, together with Company,

collectively, "DEBTORS") and THE BANK OF NEW YORK TRUST COMPANY, N.A., as

Trustee ("TRUSTEE") under the Indenture (as defined below) governing the

Company's 11% Second-priority Senior Secured Notes Due 2011 (the "NOTES").

 

                                  R E C I T A L S

 

         A. Debtors, Trustee and certain initial purchasers have entered into a

Purchase Agreement with respect to the initial sale of the Notes and Debtors and

Trustee have entered into an Indenture dated as of even date herewith (as the

same may be amended, restated, supplemented or otherwise modified from time to

time, the "INDENTURE"; capitalized terms used herein and not otherwise defined

shall have the meanings ascribed to such terms in the Indenture) pursuant to

which, among other things, the Notes have been issued. All of Debtors'

obligations to Trustee and the holders of the Notes under the Indenture and the

other Senior Debt Documents (as hereinafter defined) are guaranteed by

Subsidiary Guarantors and secured by liens on and security interests in

substantially all of the now existing and hereafter acquired personal property

of Debtors (other than accounts receivable, inventory and any and all proceeds

thereof) and substantially all hereafter acquired real property of Debtors.

 

         B. Subordinated Creditors are extending credit to Company as evidenced

by its 17% Senior Subordinated Notes due September 9, 2014, in the aggregate

principal amount of $40,000,000 (the "INITIAL SUBORDINATED NOTES"). The

obligations of Company under the Subordinated Note Documents (as defined herein)

are guaranteed by Subsidiary Guarantors.

 

         C. As an inducement to and as one of the conditions precedent to the

agreement of Trustee and the holders of the Notes to consummate the transactions

contemplated by the Purchase Agreement and the Indenture, Trustee and the

holders of the Notes have required the execution and delivery of this Agreement

by Subordinated Creditors and Debtors in order to set forth the relative rights

and priorities of Trustee, the other Senior Creditors and Subordinated Creditors

under the Senior Debt Documents and the Subordinated Debt Documents (as

hereinafter defined).

 

                  NOW, THEREFORE, in order to induce (i) Trustee to enter into

the Indenture and (ii) the initial purchasers of the Notes to purchase such

Notes and for other good and

 

 

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valuable consideration, the receipt and sufficiency of which hereby are

acknowledged, the parties hereto hereby agree as follows:

 

1.        DEFINITIONS. The following terms shall have the following meanings in

         this Agreement:

 

                  "AGENT" shall mean ING Capital LLC, as Agent for the credit

         parties under the ING Loan Documents, or any other Person appointed by

         such credit parties as administrative agent for purposes of the Senior

         Credit Agreement and this Agreement.

 

                  "BANKRUPTCY CODE" shall mean Chapter 11 of Title 11 of the

         United States Code, as amended from time to time and any successor

          statute and all rules and regulations promulgated thereunder.

 

                  "DISTRIBUTION" shall mean, with respect to any indebtedness,

         obligation or security, (a) any payment or distribution by any Person

         of cash, securities or other property, by set-off or otherwise, on

         account of such indebtedness, obligation or security, (b) any

         redemption, purchase or other acquisition of such indebtedness,

         obligation or security by any Person or (c) the granting of any lien or

         security interest to or for the benefit of the holders of such

         indebtedness, obligation or security in or upon any property of any

         Person.

 

                  "ENFORCEMENT ACTION" shall mean (a) to take from or for the

         account of any Debtor or any guarantor of the Subordinated Debt, by

         set-off or in any other manner, the whole or any part of any moneys

         which may now or hereafter be owing by any such Debtor or any such

         guarantor with respect to the Subordinated Debt, (b) to sue for payment

         of, or to initiate or participate with others in any suit, action or

         proceeding against any such Debtor or any such guarantor to (i) enforce

         payment of or to collect the whole or any part of the Subordinated Debt

         or (ii) commence judicial enforcement of any of the rights and remedies

         under the Subordinated Debt Documents or applicable law with respect to

         the Subordinated Debt, (c) to accelerate the Subordinated Debt, (d) to

         exercise any put option or to cause any such Debtor or any such

         guarantor to honor any redemption or mandatory prepayment obligation

         under any Subordinated Debt Document or (e) to take any action under

         the provisions of any state or federal law, including, without

         limitation, the Uniform Commercial Code, or under any contract or

         agreement, to enforce, foreclose upon, take possession of or sell any

         property or assets of any such Debtor or any such guarantor, PROVIDED

         that the receipt by any Subordinated Creditor of PIK Subordinated Debt

         Payments shall not be deemed to be an Enforcement Action.

 

                   "FUNDED DEBT" shall mean with respect to Debtors, on a

         consolidated basis and without duplication, as of any calculation date,

         (a) any obligation of such Person for borrowed money, including,

         without limitation, all of the "Obligations" (as defined in the Senior

          Credit Agreement); (b) any obligation of such Person evidenced by

         bonds, debentures, notes or other similar instruments; (c) any

         obligation of such Person to pay the deferred purchase price of

         property or for services (other than in the ordinary course of

         business); (d) any Capitalized Lease Obligation (as defined in the

         Senior Credit

 

 

 

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         Agreement); (e) any obligation or liability of others secured by a Lien

         on property owned by such Person, whether or not such obligation or

         liability is assumed; (f) any reimbursement obligations (contingent or

         otherwise) of such Person with respect to letters or credit, bankers

         acceptances and similar instruments issued for the account of such

         Person; (g) any Guaranty (as defined in the Senior Credit Agreement)

         (except items of shareholders' equity or Equity Interests or surplus or

         general contingency or deferred tax reserves); (h) any financial

         obligation of such Person under purchase money mortgages; (i) any

         financial obligation of such Person under asset securitization

         vehicles; (j) any obligations of such Person under conditional sales

         contracts and similar title retention instruments with respect to

         property acquired; and (k) any financial obligation of such Person as

         issuer of Equity Interests redeemable in whole or in part at the option

         of a Person other than such issuer, at a fixed and determinable date or

         upon the occurrence of an event not solely within the control of such

         issuer.

 

                  "ING LOAN DOCUMENTS" shall mean the Senior Credit Agreement,

          the Loan Documents (as defined in the Senior Credit Agreement) and all

         other agreements, documents and instruments executed from time to time

         in connection therewith, as the same may be amended, restated,

         supplemented or otherwise modified from time to time.

 

                  "INTERCREDITOR AGREEMENT" shall mean the Intercreditor

         Agreement among Debtors, Agent and Trustee, dated as of even date

         herewith, as the same may be amended, restated, supplemented or

          otherwise modified from time to time.

 

                  "JUNIOR OBLIGATIONS" means securities and other obligations

         issued by any Debtor in the course of a Proceeding involving such

         Debtor, PROVIDED that such securities or other obligations are

         subordinated to the Senior Debt on terms at least as favorable, in all

         material respects, as the terms and provisions of this Agreement.

 

                  "NOTE PURCHASE AGREEMENT" shall mean that certain Note

         Purchase Agreement dated the date hereof among Debtors and Laminar.

 

                  "PIK SUBORDINATED DEBT PAYMENTS" shall mean payments, in the

         form of increases of the outstanding principal amount of the

         Subordinated Notes, of interest on the Subordinated Debt due and

         payable on a non-accelerated basis in accordance with the terms of the

         Subordinated Debt Documents.

 

                  "PERMITTED ENFORCEMENT ACTION" shall mean (a) the acceptance

         by any Subordinated Creditor of cash payments of interest to the extent

         that the same is permitted by subsection 2.3(a)(ii) hereof, (b) the

         filing of a lawsuit for payment of, or initiating or participating with

         others in any suit, action or proceeding against any Debtor to (i)

         enforce payment of or to collect the whole or any part of the

         Subordinated Debt or (ii) commence judicial enforcement of any of the

         rights and remedies under the Subordinated Debt Documents or applicable

         law with respect to the Subordinated Debt or (c) the acceleration of

         the Subordinated Debt.

 

 

 

 

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                  "PERMITTED REFINANCING" shall mean Funded Debt that is

         incurred to refund, refinance, replace, exchange, renew, repay or

         extend the Subordinated Debt (and including any Funded Debt that

         refinances Funded Debt incurred pursuant to a Permitted Refinancing);

         PROVIDED, HOWEVER, that the Funded Debt incurred pursuant to such

         Permitted Refinancing:

 

                           (a) shall have a final maturity date that is no

                  earlier than the final maturity date of the Subordinated Debt;

 

                           (b) shall be in an aggregate principal amount (or if

                  issued with original issue discount, an aggregate issue price)

                  that is equal to or less than the principal amount of the

                  Subordinated Debt then outstanding;

 

                           (c) shall be subject to a subordination agreement

                  containing provisions that are, in substance, identical to the

                  provisions of this Agreement; and

 

                           (d) shall not (i) have the effect of (A) increasing

                  principal, interest, fee or other payment obligations

                  thereunder, (B) adding collateral or other guarantors (other

                  than as contemplated as of the Agreement Date with respect to

                  the Subordinated Debt), (C) shortening the maturity or

                  increasing the amortization of the obligations thereunder, or

                  (D) making the covenants, defaults or other provisions thereof

                   more burdensome in any material respect or (ii) otherwise have

                  a material adverse effect on the interests of Senior

                  Creditors.

 

                  "PERSON" shall mean an individual, corporation, partnership,

          trust, joint stock company, limited liability company, unincorporated

         organization, other legal entity or joint venture or a government or

         any agency or political subdivision thereof.

 

                  "PROCEEDING" shall mean any voluntary or involuntary

         insolvency, bankruptcy, receivership, custodianship, liquidation,

         dissolution, reorganization, assignment for the benefit of creditors,

         appointment of a custodian, receiver, trustee or other officer with

          similar powers or any other proceeding for the liquidation, dissolution

         or other winding up of a Person.

 

                  "REFINANCING SENIOR DEBT DOCUMENTS" shall mean any financing

         documentation which replaces the Indenture and pursuant to which the

         Senior Debt under the Indenture is refinanced, as such financing

         documentation may be amended, restated, supplemented or otherwise

         modified from time to time.

 

                  "SENIOR CREDIT AGREEMENT" shall mean the Credit Agreement

         among Debtors, Agent and the other credit parties named therein, dated

         as of even date herewith, as the same may be amended, supplemented or

         otherwise modified from time to time.

 

                  "SENIOR CREDITORS" shall mean the holders of the Senior Debt.

 

 

 

 

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                  "SENIOR DEBT" shall mean the Obligations with respect to the

         Notes and all other obligations, liabilities and indebtedness of every

         nature of Debtors from time to time owed to the Trustee or any Senior

         Creditor under the Senior Debt Documents, including, without

         limitation, the principal amount of all debts, claims and indebtedness,

          accrued and unpaid interest and all fees, costs and expenses, whether

         primary, secondary, direct, contingent, fixed or otherwise, heretofore,

         now and from time to time hereafter owing, due or payable, whether

         before or after the filing of a Proceeding under the Bankruptcy Code

         together with (a) any amendments, restatements, modifications, renewals

         or extensions thereof from time to time and (b) any interest accruing

         thereon after the commencement of a Proceeding, without regard to

         whether or not such interest is an allowed claim. Senior Debt shall be

         considered to be outstanding whenever any Note is outstanding.

 

                  "SENIOR DEBT DOCUMENTS" shall mean the Indenture, the Notes

         and, after any refinancing of the Senior Debt under the Indenture, the

         Refinancing Senior Debt Documents.

 

                  "SENIOR DEFAULT" shall mean any "Default" under the Senior

         Debt Documents.

 

                  "SUBORDINATED CREDITOR SUPPLEMENT" means a Subordinated

         Creditor Supplement substantially in the form of ANNEX A hereto that is

         delivered to Trustee in accordance with subsection 2.6(b) hereof.

 

                  "SUBORDINATED DEBT" shall mean all of the obligations of

         Debtors to Subordinated Creditors evidenced by or incurred pursuant to

         the Subordinated Debt Documents.

 

                  "SUBORDINATED DEBT DEFAULT" shall mean a default in the

         payment of the Subordinated Debt or in the performance of any term,

         covenant or condition contained in the Subordinated Debt Documents or

         any other occurrence permitting Subordinated Creditors to accelerate

         the payment of all or any portion of the Subordinated Debt.

 

                  "SUBORDINATED DEBT DEFAULT NOTICE" shall mean a written notice

         from Subordinated Creditors or Company to Trustee pursuant to which

         Trustee is notified of the occurrence of a Subordinated Debt Default,

          which notice incorporates a reasonably detailed description of such

         Subordinated Debt Default and which notice expressly states that it is

         a "Subordinated Debt Default Notice" hereunder.

 

                  "SUBORDINATED DEBT DOCUMENTS" shall mean the Subordinated

         Notes, the Note Purchase Agreement, any guaranty with respect to the

         Subordinated Debt and all other documents, agreements and instruments

         now existing or hereinafter entered into in connection with any of the

         foregoing or evidencing or pertaining to all or any portion of the

         Subordinated Debt, as each is in effect on the date hereof or as

         modified in accordance with the terms of this Agreement.

 

 

 

 

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                  "SUBORDINATED NOTES" shall mean the Initial Subordinated Notes

         and any other notes issued under the Note Purchase Agreement.

 

2.        SUBORDINATION.

 

         2.1 SUBORDINATION OF SUBORDINATED DEBT TO SENIOR DEBT. Debtors covenant

and agree, and Subordinated Creditors, by their respective acceptance of the

Subordinated Debt Documents (whether upon original issue or upon transfer or

assignment) likewise covenant and agree, notwithstanding anything to the

contrary contained in any of the Subordinated Debt Documents, that the payment

of any and all of the Subordinated Debt shall be subordinate and subject in

right and time of payment, to the extent and in the manner hereinafter set

forth, to the prior indefeasible payment in full in cash to the satisfaction of

Senior Creditors of all Senior Debt. Each holder of Senior Debt, whether such

Senior Debt is now outstanding or hereafter created, incurred, assumed or

guaranteed, shall be deemed to have acquired Senior Debt in reliance upon the

provisions contained in this Agreement.

 

         2.2 LIQUIDATION, DISSOLUTION, BANKRUPTCY. In the event of any

Proceeding involving any Debtor:

 

                  (a) All Senior Debt shall first be indefeasibly paid in full

          in cash to the satisfaction of Senior Creditors before any

         Distribution, whether in cash, securities or other property, shall be

         made to any Subordinated Creditor on account of any Subordinated Debt.

 

                  (b) Any Distribution, whether in cash, securities or other

         property which would otherwise, but for the terms hereof, be payable or

         deliverable in respect of the Subordinated Debt (other than Junior

         Obligations) shall be, subject to the provisions of the Intercreditor

         Agreement, paid or delivered directly to Agent or Trustee, as the case

         may be (to be held and/or applied by Agent or Trustee in accordance

         with the terms of the Senior Debt Documents and the Intercreditor

         Agreement), until all Senior Debt is indefeasibly paid in full in cash

         to the satisfaction of Senior Creditors. Each Subordinated Creditor

         irrevocably authorizes, empowers and directs any debtor, debtor in

         possession, receiver, trustee, liquidator, custodian, conservator or

         other Person having authority, to pay or otherwise deliver all such

         Distributions to Agent or Trustee, as the case may be, other than

         Junior Obligations. Each Subordinated Creditor also irrevocably

         authorizes and empowers Agent or Trustee, as the case may be, in the

         name of such Subordinated Creditor, to demand, sue for, collect and

         receive any and all such Distributions, other than Junior Obligations.

 

                  (c) Each Subordinated Creditor agrees not to initiate,

         prosecute or participate in any claim, action or other proceeding

         challenging the enforceability, validity, perfection or priority of the

         Senior Debt or any liens and security interests securing the Senior

         Debt.

 

 

 

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                  (d) Each Subordinated Creditor agrees to execute, verify,

         deliver and file any proofs of claim in respect of the Subordinated

         Debt requested by Agent or Trustee, as the case may be, in connection

         with any such Proceeding and hereby irrevocably authorizes, empowers

         and appoints Agent or Trustee its agent and attorney-in-fact to (i)

          execute, verify, deliver and file such proofs of claim upon the failure

         of such Subordinated Creditor promptly to do so prior to 30 days before

         the expiration of the time to file any such proof of claim a