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EXHIBIT 10.7
SUBORDINATED LOAN AGREEMENT
THIS SUBORDINATED LOAN AGREEMENT (the "Agreement") is made and entered
into as of this 30th day of September, 1997 by and between XXXXXXX FINANCIAL
SERVICES CORPORATION, a Michigan corporation ("Borrower"), whose address is
00000 Xxxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000, and SUN
COMMUNITIES, INC., a Maryland corporation ("Lender"), whose address is 00000
Xxxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000.
RECITAL:
A. Borrower has requested from Lender, and Lender has agreed to make the
loan described below (the "Loan") to Borrower, in accordance with the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. LOAN. Upon the closing of the first sale of Borrower's securities to
the public pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "IPO"), Lender will make the following Loan to
Borrower:
Type of Loan Interest Rate Note Amount Maturity
------------ ------------- ----------- --------
Term 9.75% $4,000,000 seven years
Line of Credit Line Rate $6,000,000 five years
The Loan and any amendments, extensions, renewals, or refinancing thereof are
subject to this Agreement.
2. LINE OF CREDIT LOAN. Provided that no Event of Default exists and no
Event of Default will be caused by any draw under the Line of Credit Loan (as
defined below), Lender agrees to loan to Borrower, from time to time upon not
less than thirty (30) days written notice to Lender, up to the principal amount
of $6,000,000 (the "Line of Credit Loan"), in increments of not less than
$500,000 in accordance with the terms of the Line of Credit Note. Lender's
obligation to make any advance to Borrower under the Line of Credit Loan and
the Line of Credit Note shall automatically: (a) cease and terminate upon the
maturity date stated in the Line of Credit Note; and (b) suspend upon any
earlier occurrence of an Event of Default unless and until waived by Lender in
writing.
3. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender, all of which representations and warranties shall be
continuing until the Loan is fully paid and Borrower's obligations under this
Agreement and the Related Documents are fully performed, as follows:
A. Borrower's Existence and Authority. Borrower is a Michigan
corporation, the person executing this Agreement has full power and
complete authority to execute this Agreement and all Related Documents,
and this Agreement and the Related Documents are valid, binding and
enforceable against Borrower.
B. Financial Information. All financial information provided to
Lender has been prepared and will continue to be prepared in accordance
with generally accepted
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accounting principles ("GAAP"), consistently applied, and fully and
fairly presents the financial condition of Borrower as of the date or for
the operating period thereof. There has been no material adverse change
in Borrower's business, property, or financial condition since the date
of Borrower's latest Financial Statements provided to Bank.
C. No Litigation/No Misrepresentations. There are no civil or
criminal proceedings pending before any court, government agency,
arbitration panel, or administrative tribunal or, to Borrower's
knowledge, threatened against Borrower, which may result in any material
adverse change in the business, property, or financial condition of
Borrower. All representations and warranties in this Agreement and the
Related Documents are true and correct and no material fact has been
omitted.
4. AFFIRMATIVE COVENANTS. As of the date of this Agreement and
continuing until all of Borrower's obligations under this Agreement and the
Related Documents are fully performed and the Loan is fully repaid to Lender,
Borrower shall at all times comply with the following covenants:
A. Financial Requirements. The Interest Coverage Ratio for any Test
Period ending on the last day of each fiscal quarter shall not be less
than ____. Within fifteen (15) days after the end of each fiscal
quarter, Borrower shall deliver to Lender a certificate to the effect
that Borrower was in compliance with the Interest Coverage Ratio for such
fiscal quarter and showing the calculation of such compliance.
B. Notice of Adverse Events. Borrower shall promptly notify Lender
in writing of any litigation, indictment, governmental proceeding,
default, or any other occurrence which may have a material adverse effect
on Borrower's business, property or financial condition.
C. Maintain Business Existence and Operations. Borrower shall do
all things necessary to keep in full force and effect Borrower's
corporate existence and continue its business as presently conducted.
D. General Compliance with Law. Borrower shall at all times operate
its business in strict compliance with all applicable Federal, State, and
local laws, ordinances and regulations, and refrain from engaging in any
civil or criminal activity proscribed by Federal, State or local law.
E. Delivery of Financial Statements. Within forty-five (45) days
after the end of each fiscal quarter, Borrower shall deliver to Lender
copies of its unaudited financial statements prepared in accordance with
GAAP, consistently applied. Within ninety (90) days after the end of
each fiscal year, Borrower shall deliver to Lender copies of its audited
financial statements prepared in accordance with GAAP, consistently
applied.
5. EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an Event of Default under this Agreement:
A. Failure to Pay Amounts Due. Any principal or interest under
either of the Notes is not paid when due.
B. Misrepresentations; False Financial Information. Any statement,
warranty or representation of Borrower in connection with or contained in
this Agreement, the Related Documents, or any Financial Statements now or
hereafter furnished to Lender by or on behalf of Borrower, is false or
misleading.
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C. Noncompliance with Loan Agreements. Borrower breaches any
covenant, term, condition or agreement stated in this Agreement, the
Related Documents or any agreement relating to Senior Debt (as defined
below).
D. Cessation/Termination of Existence. Borrower shall cease doing
business or Borrower's existence is terminated by sale, dissolution,
merger or otherwise.
E. Bankruptcy or Receivership. Any conveyance is made of
substantially all of Borrower's assets, any assignment is made for the
benefit of creditors, any receiver is appointed, or any insolvency,
liquidation or reorganization proceeding under the Bankruptcy Code or
otherwise shall be filed by or against Borrower.
F. Attachments; Tax Liens. Any attachment, execution, levy,
forfeiture, tax lien or similar writ or process is issued against any
property of Borrower.
G. Material Adverse Change. Any material adverse change occurs or
is imminent the effect of which would be to substantially diminish
Borrower's financial condition, business, or the ability to perform its
agreements with Lender.
H. Other Lender Default. Any other indebtedness to Lender or any
other creditor (including, without limitation, Financial Institutions (as
defined below)) becomes due and remains unpaid after acceleration of the
maturity or after the stated maturity.
I. Other Indebtedness. Borrower incurs any indebtedness (other than
Senior Debt) after the date of this Agreement.
J. Change of Control Event. Any Change of Control Event occurring
after the effective date of the IPO.
6. REMEDIES ON DEFAULT.
A. Acceleration Set-Off. Upon the occurrence of any Event of
Default, Lender may, at Lender's option, declare the Loan to be
immediately due and payable.
B. Remedies; No Waiver. The remedies provided in this Agreement are
cumulative and not exclusive, and Lender may exercise any remedies
available to it at law, in equity, and as are provided in this Agreement,
the Related Documents and any other written agreement between Borrower
and Lender. No delay or failure of Lender in exercising any right,
remedy, power, or privilege under this Agreement or the Related Documents
shall affect that right, remedy, power or privilege, nor shall any single
or partial exercise preclude the exercise of any other right, remedy,
power or privilege. No delay or failure of Lender to demand strict
adherence to the terms of this Agreement or the Related Documents shall
be deemed to constitute a course of conduct inconsistent with Lender's
right at any time, before or after any Event of Default, to prospectively
demand strict adherence to the terms of this Agreement and the Related
Documents.
7. SUBORDINATION. The indebtedness evidenced by the Notes and any
renewals or extensions thereof (such indebtedness being herein called the
"Subordinated Indebtedness") shall at all times be wholly subordinate and
junior in right to prior payment in full of all Senior Debt (as defined below).
The provisions of this section on subordination shall constitute a continuing
offer to all persons who, in reliance upon such provisions, become holders of,
or continue to
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hold, Senior Debt, and such provisions are made for the benefit of the holders
of Senior Debt, and such holders are hereby made obligees hereunder the same as
if their names were written herein as such, and they and/or each of them may
proceed to enforce such provisions. Unless and until an event of default under
any of the Senior Debt (other than an event of default which exists solely by
reason of a default under this Agreement) shall have occurred and be continuing
("Superior Default"), Borrower shall pay the principal and interest on all
Subordinated Indebtedness according to the terms thereof.
For purposes of this Agreement, "Senior Debt" means the principal of, and
interest on and other amounts due on or in connection with any Indebtedness of
Borrower (other than the Notes) to any Financial Institution (as defined
below), whether outstanding on the date of this Agreement, or thereafter
created, incurred or assumed by Borrower (including all deferrals, renewals,
extensions or refundings of, or amendments, modifications or supplements to,
Indebtedness of the kind described in this clause). Notwithstanding anything
herein to the contrary, Senior Debt shall not include: (a) Indebtedness of or
amounts owed by Borrower for compensation to employees, or for goods or
materials purchased in the ordinary course of business or for services, or (b)
Indebtedness of Borrower to a subsidiary or affiliate of Borrower. In no event
shall any Financial Institution be deemed to be an affiliate of Borrower.
Indebtedness of Borrower to a subsidiary or affiliate of Borrower shall be pari
passu in all respects with the Subordinated Indebtedness.
For purposes of this Agreement, "Financial Institution" means any bank as
defined in section 3(a)(2) of the Securities Act of 1933, as amended (the
"Securities Act"), savings and loan association or other institution as defined
in section 3(a)(5)(A) of the Securities Act, insurance company as defined in
section 2(13) of the Securities Act, or investment banking firm.
For purposes of this Agreement, "Indebtedness" means, with respect to any
person, (a) any liability, contingent or otherwise, of such person (i) for
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such person or only to a portion thereof), (ii) evidenced by a
note, debenture or similar instrument or representing the balance deferred and
unpaid of the purchase price of any property purchased, or (iii) for the
payment of money relating to a lease that is required to be capitalized under
generally accepted accounting principles; (b) any obligation secured by a lien
to which the property or assets of such person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such person's legal liability; and (c) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a) or (b).
The terms hereof, the subordination effected hereby and the rights of the
holders of the Senior Debt shall not be affected by (a) any amendment of or
addition or supplement to any Senior Debt or any instrument or agreement
relating thereto, (b) any exercise or non-exercise of any right, power or
remedy under or in respect of any Senior Debt or any instrument or agreement
relating thereto, or (c) any waiver, consent, release, indulgence, extension,
renewal, modification, delay or other action, inaction or omission, in respect
of any Senior Debt or any instrument or agreement relating thereto or any
security therefor or guaranty thereof, whether or not any holder of any
Subordinated Indebtedness shall have had notice or knowledge of any of the
foregoing.
Upon the happening of (a) a Superior Default which is a default in respect
of payment of principal, premium, if any, or interest on Senior Debt or (b) a
Superior Default (other than a Superior Default in respect of payment of
principal, premium, if any, or interest on Senior Debt) and receipt by Lender
of written notice thereof from any holder of Senior Debt, unless and until all
Senior Debt shall have been paid in full, Borrower shall not, directly or
indirectly, make or agree to make, and neither Lender nor any assignee or
successor holder of any Subordinated
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Indebtedness shall demand, accept or receive (a) any payment (in cash, property
or securities, by set-off or otherwise), direct or indirect, of or on account
of any principal or interest in respect of any Subordinated Indebtedness, and
no such payment shall be accepted by any holder of any Subordinated
Indebtedness, or (b) any payment for the purpose of any redemption, purchase or
other acquisition, direct or indirect, of any Subordinated Indebtedness, and no
such payment shall be due.
In the case of any Superior Default (other than a Superior Default with
respect to payment of principal, premium, if any, or interest on Senior Debt),
the foregoing restrictions shall cease to apply to any payment received with
respect to the Subordinated Indebtedness after the expiration of 180 days after
the holder of the Notes shall have received notice of the Superior Default,
unless prior to the expiration of such 180 day period one or more holders of
the Senior Debt shall have commenced and be diligently prosecuting an action,
suit or other legal or equitable proceeding against Borrower or its property
based upon the Superior Default or unless a Superior Default which is a payment
default shall have occurred and be continuing; provided, further, that during
such 180-day period following the Superior Default (other than a Superior
Default with respect to payment of principal, premium, if any, or interest on
Senior Debt) the holders of the Subordinated Indebtedness shall refrain from
prosecuting any such action, suit or other legal or equitable proceeding
against Borrower or its property based upon an Event of Default hereunder.
In the event that a Superior Default (other than a Superior Default with
respect to payment of principal, premium or interest on Senior Debt) is cured
or is waived by the appropriate holders of the Senior Debt (whether by
amendment to the applicable loan agreement, forbearance agreement or otherwise)
prior to the expiration of the aforesaid 180-day period applicable to such
Superior Default, then any Event of Default occurring under this Agreement
solely by reason of the occurrence of such Superior Default shall be deemed not
to have occurred. Any judicial proceedings initiated by a holder of
Subordinated Indebtedness at a time when such holder has no knowledge that such
proceedings are prohibited by this paragraph shall not be deemed a violation of
any provisions of this Agreement and, upon receipt of notice from the holder of
the Senior Debt that such proceedings are so prohibited, such holder of the
Subordinated Indebtedness shall terminate such proceedings, without prejudice.
Upon any distribution (whether of cash, securities or other property) to
creditors of Borrower in a liquidation or dissolution of Borrower, or in a
bankruptcy, reorganization, insolvency, receivership, assignment for the
benefit of creditors, marshalling of assets or similar proceeding relating to
Borrower or its property:
(1) holders of Senior Debt shall be entitled to receive payment in
full in cash of such Senior Debt (including interest accruing after the
commencement of any such proceeding or interest that would have accrued but for
the commencement of such proceeding to the date of payment on, and other
amounts included in, Senior Debt) before holders of the Notes shall be entitled
to receive any payment of principal of, premium (if any) or interest on the
Notes or any other distributions with respect to the Notes;
(2) until the Senior Debt is paid in full in cash as provided in
clause (1) of this paragraph, any distribution to which holders of the Notes
would be entitled but for this section on subordination shall be made to the
holders of Senior Debt as their interests may appear.
In the event that any payment or distribution of assets of Borrower
prohibited by the provisions of this section on subordination of any kind or
character, whether in cash, property or securities, shall be received by the
holder of the Notes before all Senior Debt is paid in full, or provision made
for such payment in accordance with the terms of the Senior Debt, such payment
or distribution shall be held in trust for the benefit of, and shall be paid
over or delivered to, the holders of such Senior Debt or their representative
or representatives, or to the trustee or trustees
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under any indenture pursuant to which any instruments evidencing any of such
Senior Debt may have been issued, as their respective interests may appear, for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay such Senior Debt in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Debt.
In the event that the Notes are declared due and payable before their
stated maturity because of the occurrence of an Event of Default hereunder, the
holders of the Senior Debt shall be entitled to receive payment in full of all
amounts due with respect to all Senior Debt before the holders of the Notes
are entitled to receive any payment on account of the principal of, premium (if
any) or interest on, or any repurchase, redemption or other retirement
(including, without limitation, any defeasance) of, the Notes.
Subject to the payment in full of all Senior Debt, the holders of
Subordinated Indebtedness shall be subrogated to the rights of the holders of
Senior Debt to receive payments or distributions of assets of Borrower
applicable to the Senior Debt until all amounts owing on the Subordinated
Indebtedness shall be paid in full, and for the purpose of such subrogation no
such payments or distributions to the holders of Senior Debt by or on behalf of
Borrower or by or on behalf of the holders of the Notes by virtue of this
Agreement which otherwise would have been made to the holders hereof, shall, as
between Borrower and the holders hereof, be deemed to be payment by Borrower to
or on account of the Senior Debt, it being understood that the provisions of
this paragraph are and are intended solely for the purpose of defining the
relative rights of the holders of Subordinated Indebtedness on the one hand and
the holders of Senior Debt, on the other hand.
Nothing contained herein is intended to or shall impair, as between
Borrower and Lender, the obligation of Borrower, which is absolute and
unconditional, to pay to Lender, the principal of and interest on the
Subordinated Indebtedness as and when the same shall become due and payable in
accordance with its terms, or is intended to or shall affect (except to the
extent specifically provided in the above paragraph) the relative rights of the
holders hereof and creditors of Borrower other than the holders of the Senior
Debt, nor shall anything herein or therein prevent any holder hereof from
exercising all remedies otherwise permitted by applicable law upon default
hereunder subject to the rights, if any, hereunder of the holders of Senior
Debt in respect of cash, property or securities of Borrower received upon the
exercise of any such remedy.
8. MISCELLANEOUS.
A. Compliance with Lender Agreements. Borrower acknowledges that
Borrower has read and understands this Agreement, the Related Documents,
and all other written agreements between Borrower and Lender, and
Borrower agrees to fully comply with all of the agreements.
B. Further Action. Borrower agrees, from time to time, upon
Lender's request to make, execute, acknowledge, and deliver to Lender,
such further and additional instruments, documents, and agreements, and
to take such further action as may be required to carry out the intent
and purpose of this Agreement and prompt repayment of the Loan.
C. Governing Law/Partial Illegality. This Agreement and the Related
Documents shall be interpreted and the rights of the parties determined
under the laws of the State of Michigan. Should any part, term, or
provision of this Agreement be adjudged
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illegal or in conflict with any law of the United States of America or
State of Michigan, the validity of the remaining portion or provisions
of the Agreement shall not be affected.
D. Writings Constitute Entire Agreement; Modifications Only in
Writing. This Agreement together with all other written agreements
between Borrower and Lender, including, without limitation, the Related
Documents, constitute the entire agreement of the parties and there are
no other agreements, express or implied. None of the parties shall be
bound by anything not expressed in writing, and neither this Agreement
nor the Related Documents can be modified except by a writing executed by
Borrower and by Lender. This Agreement shall inure to the benefit of and
shall be binding upon all of the parties to this Agreement and their
respective successors and assigns; provided however, that Borrower cannot
assign or transfer its rights or obligations under this Agreement without
Lender's prior written consent.
E. Headings. All section and paragraph headings in this Agreement
are included for reference only and do not constitute a part of this
Agreement.
F. Term of Agreement. This Agreement shall continue in full force
and effect until all of Borrower's obligations to Lender are fully
satisfied and the Loan is fully repaid.
G. Warrants. As partial consideration for making the Loan, Borrower
has issued Lender detachable warrants to purchase up to 400,000 shares of
Borrower's common stock in accordance with the terms and conditions of
that certain Detachable Warrant Agreement.
9. DEFINITIONS. The following words shall have the following meanings
in this Agreement:
A. "Bank" shall mean Michigan National Bank, a national banking
association, and any successor or assign.
B. "Change of Control Event" shall mean (a) an event or series of
events by which any person, entity or group (as such term is used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of persons or other entities acting in
concert as a partnership or other group (a "Group of Persons") (other
than persons who are, or Groups of Persons entirely made up of, (i)
management personnel of Borrower or (ii) any affiliates of any such
management personnel) shall, as a result of a tender or exchange offer or
offers, an open market purchase or purchases, a privately negotiated
purchase or purchases or otherwise, become the beneficial owner (within
the meaning of Rule 13d-3 under the Exchange Act, except that a person or
entity shall be deemed to have "beneficial ownership" of all securities
that such person or entity has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly
or indirectly, of 20% or more of the combined voting power of the then
outstanding voting stock of Borrower; (b) Borrower consolidates with, or
merges with or into, another person or entity, or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially
all of its assets to any person or entity, or any person or entity
consolidates with, or merges with or into Borrower, in any such event
pursuant to a transaction in which the outstanding voting stock of
Borrower is converted into or exchanged for cash, securities or other
property; or (c) during any consecutive two-year period, individuals who
at the beginning of such period constituted the Board of Directors of
Borrower (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of
Borrower, was
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approved by a vote of 66-2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors then in office.
C. "EBIT" shall mean, for any period, Borrower's earnings before
interest and taxes as determined in accordance with GAAP, consistently
applied.
D. "Event of Default" shall mean any of the events described in
Section 5 of this Agreement or in the Related Documents.
E. "Financial Statements" shall mean all balance sheets, income
statements, and other financial information which have been, are now, or
in the future are furnished to Lender.
F. "Interest Coverage Ratio" shall mean, for any period, the ratio
of EBIT to Interest Expense for such period.
G. "Interest Expense" shall mean, for any period, Borrower's total
interest expense, including, without limitation, the interest expense
related to the Senior Debt and the Subordinated Indebtedness, as
determined in accordance with GAAP, consistently applied.
H. "Line of Credit Note" shall mean that certain $6,000,000 line of
credit promissory note from Borrower to Lender, in the form attached
hereto as Exhibit "A".
I. "Line Rate" shall mean the per annum rate of interest equal to
the Prime Rate plus 125 basis points.
J. " Notes" shall mean the Term Note and the Line of Credit Note.
K. "Prime Rate" shall mean that variable rate of interest from time
to time established by Bank as its base or prime commercial lending rate.
L. "Related Documents" shall mean any and all documents, promissory
notes, and agreements executed in connection with this Agreement. The
term shall include documents existing before, at the time of execution
of, and documents executed concurrent with or after the date of, this
Agreement.
M. "Term Note" shall mean that certain $4,000,000 promissory note
from Borrower to Lender, in the form attached hereto as Exhibit "B".
N. "Test Period" shall mean: (a) for any determination made on and
prior to December 31, 1997, the period from January 1, 1997 to the last
day of the fiscal quarter of Borrower then ended; and (b) for any
determination made thereafter, the four consecutive fiscal quarters of
Borrower then ended.
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IN WITNESS WHEREOF, the parties have executed this Subordinated Loan
Agreement as of the date first written above.
BORROWER:
XXXXXXX FINANCIAL SERVICES CORPORATION, a
Michigan corporation
By:________________________________________
Its:_______________________________________
LENDER:
SUN COMMUNITIES, INC., a Maryland
corporation
By:________________________________________
Its:_______________________________________
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