SUBORDINATION AGREEMENT
THIS
SUBORDINATION AGREEMENT executed effective as of the 13th day of July 2007,
by
and between 1041 Partners, LP (“Loan
Holder”),
Wachovia Bank, National Association ("Lender"),
SMF
Energy Corporation, a Delaware corporation (“SMF”),
H
& W Petroleum Company, Inc. (“H
& W”)
and
SMF Services, Inc. (“SSI”)
(SMF,
H & W and SSI are referred to collectively as “Borrower").
W
I T N E
S S E T H:
WHEREAS,
Loan Holder is the legal owner and holder of an unsecured Promissory Note dated
July 12, 2007, executed by SMF in favor of Loan Holder (the "Note")(the
loan evidenced by the Note, together with any present or future unsecured
indebtedness of Borrower to Loan Holder of every kind and description, direct
or
contingent, due or not due, original, renewed or extended and whether now in
existence or hereafter arising in connection with the Note are referred to
as
the "Subordinated
Debt”);
and
WHEREAS,
Lender and Borrower have entered into that certain Loan and Security Agreement
dated September 26, 2002 and certain other loan documents in connection
therewith (collectively, the "Loan
Documents")
which
provides to Lender a first priority security interest ("Lender's
Security Interest")
in
certain assets of Borrower whether now owned or hereafter acquired (the
"Collateral"),
in
exchange for prior and continuing loans by Lender to Borrower (the “Loans");
and
WHEREAS,
Borrower will materially benefit as a result of Lender making the Loans to
Borrower; and
WHEREAS,
Loan Holder is a shareholder of SMF and as such will benefit from Lender
continuing to extend the Loans to Borrower; and
WHEREAS,
Loan Holder acknowledges that Lender is willing to continue extending the Loans
only on the condition that the Subordinated Debt be subordinate and inferior
to
the Loans, and to all other indebtedness of Borrower to Lender, whether now
in
existence or hereafter created; and
WHEREAS,
Loan Holder has agreed to subordinate the Note and Subordinated Debt to the
lien
and effect of the Loans and Lender's Security Interest and all security
instruments securing the Loans, and all other indebtedness of Borrower to Lender
of every kind and description, direct or contingent, due or not due, secured
or
unsecured, original, renewed
or
extended, whether now in existence or hereafter arising; and
WHEREAS,
Loan Holders acknowledge that Lender would not continue to extend the Loans
without the execution of this Agreement by Loan Holder and by any other
subsequent lenders to Borrower (“Other
Loan Holders”);
and
NOW,
THEREFORE, in consideration of, and as an inducement to Lender to continue
to
extend the Loans to Borrower, Loan Holder, Lender and Borrower do hereby agree
as follows:
1. The
facts
as set forth above are true and correct and are incorporated herein by
reference.
2. Loan
Holder and Borrower do hereby warrant and represent that the Note represents
the
only indebtedness currently outstanding which is due and owing from Borrower
to
Loan Holder.
3. Loan
Holder hereby unconditionally subordinates the Note and Subordinated Debt to
the
Loans and all other present and future debts and obligations of Borrower to
Lender, including all obligations of Borrower to Lender of every kind and
description, direct or contingent, due or not due, secured or unsecured,
original, renewed or extended, whether now in existence or hereafter arising
and
to the lien and effect of Lender's Security Interest in and to the Collateral
and to all Loan Documents and all other debts and obligations of Borrower to
Lender.
4. Loan
Holder and Borrower do hereby warrant, represent and agree that no payment
(principal, interest or any other payment) shall be made, permitted or accepted
under the Note or Subordinated Debt (or under any other document or agreement)
during the term of the Loans, excepting for payments of interest in money or
shares of stock of Borrower which shall be permitted so long as no Event of
Default (as defined in the Loan Documents) has occurred and is continuing.
If
any payment is made to a Loan Holder in payment of the Note or the Subordinated
Debt or otherwise, or if any security or proceeds thereof is received on account
of the Note or the Subordinated Debt contrary to the terms of this Agreement,
the Borrower agrees that the same shall be and constitute an Event of Default.
Loan Holder acknowledges that (i) upon the occurrence of an Event of Default,
Lender shall be entitled to immediately exercise all remedies provided to Lender
in connection with the Collateral and under the Loan Documents, and (ii)
following the occurrence of such Event of Default and so long as the same shall
be continuing, (A) each and every amount paid by or on behalf of any Borrower
to
such Loan Holder or items received by such Loan Holder (from any Borrower or
from an individual or an entity on behalf of any Borrower) from and after such
occurrence shall be forthwith paid by such Loan Holder to Lender, in precisely
the form received (except for such Loan Holder's endorsement, where necessary),
to be credited and applied, in Lender's sole discretion, upon any indebtedness
(principal and/or interest and/or otherwise as Lender may elect, in its sole
discretion) then owing to Lender by Borrower and, whether matured or unmatured,
and, until so delivered, the same shall be held in trust by such Loan Holder
as
the property of Lender; and (B) in the event of a failure of a Loan Holder
to
endorse any instrument for the payment of monies so received by such Loan Holder
payable to such Loan Holder's order, Lender, or any officer or employee of
Lender, is hereby irrevocably constituted and appointed attorney-in-fact
(coupled with an interest) for Loan Holder and each of them, with full power
to
make any such endorsement and with full power of substitution. Notwithstanding
anything herein to the contrary and in accordance with the terms and conditions
of the Note or Subordinated Debt, (i) Loan Holder may, at Loan Holder’s
election, convert all or part of the Note or Subordinated Debt into common
stock
of SMF; to the extent permitted by the terms of the Note and (ii) Borrower
shall
be entitled, so long as no Event of Default (as defined in the Loan Documents)
has occurred and is continuing, to repay to Loan Holder in accordance with
the
terms of the Note, as the same may be hereinafter amended, the outstanding
principal balance of the Note and the Subordinated Debt associated therewith
from the proceeds
of any issuance or sale by SMF of equity securities after the date hereof (but
only to the extent of the net proceeds from such issuance or sale), and
Loan
Holder may accept and retain any such payment without regard to the provisions
of this Agreement.
2
5. Loan
Holder agrees that it will not exercise any collection rights with respect
to
the Note or Subordinated Debt, will not take possession of, sell or dispose
of,
or otherwise deal with any Collateral, and will not exercise or enforce any
right or remedy which may be available to them with respect to the Notes or
Subordinated Debt upon default of Borrower under the Loans or any other
indebtedness of Borrower to Lender or under the Subordinated Debt until such
time as the Loans, as the same may be modified from time to time, including
all
principal, interest and other charges associated therewith, has been paid in
full and no other debts or obligations are due and owing from Borrower to
Lender. Loan Holder agrees to promptly notify Lender, in writing, by certified
mail, return receipt requested, of any default by Borrower under the Notes
or
Subordinated Debt; and Lender agrees to promptly notify Loan Holder in the
same
manner of any Event of Default, but failure of Lender to notify Loan Holder
shall not negate the Event of Default. If an indenture trustee is appointed
for
the Note or Subordinated Debt, then Lender may give notice to the trustee in
lieu of notice to Loan Holder.
6. Upon
any
distribution of the assets or readjustment of indebtedness of Borrower, whether
by reason of reorganization, liquidation, dissolution, bankruptcy, receivership,
assignment for the benefit of creditors, or any other action or proceeding
involving the readjustment of all or any part of the Subordinated Debt or the
application of the assets of the Borrower to the payment or liquidation thereof,
either in whole or in part, Lender shall be entitled to receive payment in
full
of any and all indebtedness under the Loans or otherwise then owing to Lender
by
Borrower prior to the payment of all or any of the Subordinated
Debt.
7. Loan
Holder (severally and not jointly) agrees that Loan Holder shall not transfer,
assign, encumber, hypothecate or subordinate, at any time while this Agreement
remains in effect, any right, claim or interest of any kind in or to any of
its
Subordinated Debt, either principal or interest or otherwise, unless such
transfer, encumbrance, hypothecation or subordination is made upon prior written
notice to Lender, subject to this Subordination Agreement, and the transferee
or
recipient has expressly assumed the covenants and obligations contained herein;
and provided further that there shall promptly be placed on each of the Notes
a
legend reciting that the same is subject to this Agreement.
8. Loan
Holder acknowledges that Lender may, at any time, in its discretion, increase
or
decrease the amount of the Loans, renew or extend the time of payment of all
or
any portion of the Loans or any other existing or future indebtedness or
obligations of Borrower to Lender and/or waive or delay in enforcing any rights
or release any collateral relative thereto at any time(s) and, in reference
thereto, to modify or amend the Loan Documents and/or make and enter into such
agreement(s), compromise(s) and other indulgence(s), as Lender may deem proper
or desirable, without notice to or further assent of all or any of Loan Holders,
all without in any manner impairing or affecting this Agreement or any of
Lender's rights hereunder.
3
9. Loan
Holder hereby agrees that Loan Holder will render to Lender, upon demand, from
time to time, a statement of the account of such Loan Holder with Borrower.
Borrower agrees to duly comply with and conform with each and every term of
this
Agreement, on its part required to be performed.
10. All
notices, demands and communications given or made hereunder or pursuant thereto
shall be in writing and shall be hand delivered, delivered by recognized
expedited carrier, or mailed by registered or certified mail with postage
prepaid, addressed in each case as follows and shall be deemed to have been
given or made when so mailed:
| To Loan Holder: |
1041
Partners, LP
|
000
Xxx
Xxxxx Xxxxxx Xxxx, Xxxxx 000,
Xxxxx,
XX
00000
Attention:
Xxxxx Xxxxxxxx, General Partner
| To Lender: |
Wachovia
Bank, National Association.
|
000
Xxxx
Xxxxxxx Xxxxxxxxx
Xxxxx
00000
Xxxxx,
XX
00000
Attention:
Portfolio Manager
| To Borrower: |
SMF
Energy Corporation.
|
000
Xxxx
Xxxxxxx Xxxxx Xxxx
Xxxxx
000
Xxxx
Xxxxxxxxxx, XX 00000
Attn:
Xxxxxxx X. Xxxxxxxxx, President
or
to
such other address or to such other person as any party shall designate to
the
others for such purposes in the manner hereinabove set forth.
11. The
parties hereto acknowledge and agree that other creditors of Borrower may become
parties to this Agreement by accepting one or more promissory notes by Borrower
in favor of such creditors, which promissory note expressly incorporates by
reference the terms of this Agreement. Upon the acceptance of any such
promissory note, and the receipt of a copy of this Agreement, by any such
creditor, (i) such creditor shall be deemed to have joined this Agreement as
a
"Loan Holder" hereunder, (ii) such promissory note shall be deemed a "Note"
hereunder, the indebtedness evidenced by such Note shall be deemed "Subordinated
Debt" hereunder, (iii) all of the terms and provisions of this Agreement shall
apply to such creditor, such Note, such Subordinated Debt and the Collateral,
(iv) such creditor shall be deemed to have appointed Lender as the creditor’s
attorney-in-fact (coupled with an interest) solely for the purposes of ensuring
compliance with Lender’s rights under Section 4 hereof, and (v) this Agreement
shall be deemed amended to add such creditor as a party hereto. The terms of
this Agreement shall remain in full force and effect until the Loan and any
other indebtedness of any Borrower to Lender, or any Replacement Facility (as
defined below) is indefeasibly paid in full and Lender's commitments to make
further extensions of credit to any Borrower have been terminated
4
12. This
Agreement may be signed in multiple counterparts, and each such counterpart
shall have the same binding force and effect as if it were signed by all parties
hereto. This Agreement shall be governed by the laws of the State of Delaware.
The terms of this Agreement cannot be waived, changed or terminated, except
by a
written document signed by Lender. This Agreement shall be binding upon the
undersigned and their successors and assigns and shall inure to the benefit
of
and shall be enforceable by Lender, and any participants, successors or assigns
of Lender. In addition, any person or entity whose loans (a "Replacement
Facility")
are
used to refinance and pay in full the Loan shall be deemed for all purposes
hereof to be the successor to Lender, and from and after the date of any such
refinancing and satisfaction in full of the Loan, such persons or entities
shall
be deemed a party hereto in the place and stead of Lender, as if such persons
or
entities had been original signatories hereto, and all loans, advances,
liabilities, debit balances, covenants and duties at any time or times owed
by
Borrowers to such successor shall be deemed for all purposes hereunder to
constitute and be the "Loan".
13. WAIVER
OF JURY TRIAL.
BORROWER, EACH LOAN HOLDER AND LENDER HEREBY MUTUALLY, KNOWINGLY, WILLINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVE THEIR RIGHT TO TRIAL BY JURY AND NO PARTY
NOR ANY ASSIGNEE, SUCCESSOR, HEIR, OR LEGAL REPRESENTATIVE OF THE PARTIES (ALL
OF WHOM ARE HEREINAFTER COLLECTIVELY REFERRED TO AS THE "PARTIES") SHALL SEEK
A
JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION
PROCEEDING BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE LOAN DOCUMENTS
OR
ANY INSTRUMENT EVIDENCING, SECURING OR RELATING TO THIS AGREEMENT OR THE LOAN
DOCUMENTS, THE INDEBTEDNESS OR OTHER OBLIGATIONS REFERRED TO HEREIN OR ANY
RELATED AGREEMENT OR INSTRUMENT, ANY OTHER COLLATERAL FOR THE INDEBTEDNESS
REFERRED TO HEREIN OR ANY COURSE OF ACTION, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS RELATING TO THE LOAN OR TO THIS
AGREEMENT. THE PARTIES ALSO WAIVE ANY RIGHT TO CONSOLIDATE ANY ACTION IN WHICH
A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL HAS
NOT
BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY
THE
PARTIES. THE WAIVER CONTAINED HEREIN IS IRREVOCABLE, CONSTITUTES A KNOWING
AND
VOLUNTARY WAIVER, AND SHALL BE SUBJECT TO NO EXCEPTIONS. LENDER HAS IN NO WAY
AGREED WITH OR REPRESENTED TO ANY LOAN HOLDER OR ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
5
IN
WITNESS WHEREOF, the undersigned have executed this Subordination Agreement
as
of the date first written above.
|
LOAN
HOLDER:
|
1041
PARTNERS, LP
|
|
By:
______________________________________
|
|
|
Xxxxx
Xxxxxxxx, General Partner
|
|
|
LENDER:
|
WACHOVIA
BANK, NATIONAL ASSOCIATION
|
|
By:
__________________________________
|
|
|
Name:
_______________________________
|
|
|
Title:
________________________________
|
|
|
BORROWER:
|
SMF
ENERGY CORPORATION
|
|
By:
_____________________________________
|
|
|
Xxxxxxx
X. Xxxxx
|
|
|
Senior
Vice President & Chief Financial Officer
|
|
|
H
& W PETROLEUM COMPANY, INC.
|
|
|
By:
_____________________________________
|
|
|
Xxxxxxx
X. Xxxxx
|
|
|
Senior
Vice President & Chief Financial
Officer
|
6
|
SMF
SERVICES, INC.
|
|
|
By:
_____________________________________
|
|
|
Xxxxxxx
X. Xxxxx
|
|
|
Senior
Vice President & Chief Financial
Officer
|
7
