SUBORDINATION AGREEMENT
THIS AGREEMENT is dated this ____ day of _______________, 1997, among
XXXXXXX BANK, N.A., a national banking association (hereinafter called the
"Lender"), TECHDYNE, INC., a Florida corporation (hereinafter called the
"Borrower"), and MEDICORE, INC., a Florida corporation (hereinafter called the
"Subordinating Creditor").
W I T N E S S E T H
WHEREAS, the Borrower has requested the Lender to make a $2,500,000
revolving credit facility available to Borrower in accordance with the terms of
a Loan and Security Agreement dated February 8, 1996 between Borrower and
Xxxxxxx Bank of South Florida, N.A., as amended by a First Amendment to Loan and
Security Agreement of even date herewith between Borrower and Lender (as so
amended and as it may be modified, amended, renewed or extended from time to
time without the necessity of notice to or the consent of the Subordinating
Creditor, the "Loan Agreement");
WHEREAS, pursuant to the Loan Agreement, the Lender shall made loans
(collectively, the "Loans") to Borrower and may issue banker's acceptances
(collectively, the "Banker's Acceptances") at the request of Borrower;
WHEREAS, the Loans are to be evidenced by a Revolving Demand Promissory
Note in the principal amount of $2,500,000 of even date herewith executed by
Borrower in favor of Lender (as it may be modified, amended, renewed or extended
from time to time without the necessity of notice to or the consent of the
Subordinating Creditor, the "Note");
WHEREAS, the Subordinating Creditor directly owns an interest in the
Borrower and as such will enjoy substantial benefits from the availability to
Borrower of the Loans and Banker's Acceptances.
NOW, THEREFORE, in consideration of the Lender's execution of the Loan
Agreement and making Loans and issuing Banker's Acceptances and in consideration
of the benefits accruing to the Subordinating Creditor by reason of said Loans
and Banker's Acceptances, and as an inducement to the Lender to make said Loans
and issue the Banker's Acceptances, the parties hereto agree as follows:
1. All capitalized terms used in this Agreement, unless otherwise defined
herein, shall have the meanings set forth in the Loan Agreement.
2. The Subordinating Creditor hereby subordinates to the "Obligations",
as such term is defined in the Loan Agreement, whether now existing or hereafter
arising, including without limitation, interest after the commencement of any
bankruptcy proceeding affecting the Borrower, whether under Title 11 of the
United States Code or otherwise, at the rate specified in the Loan Documents,
whether or not such interest is an allowable claim in any such proceeding
(collectively, the "Senior Debt") all of the following:
(a) $2,150,000 in principal indebtedness now owing from Borrower to
the Subordinating Creditor and all renewals, extensions, replacements,
substitutions, and modifications thereof;
(b) All interest, fees, costs and other liabilities which may now or
hereafter be due in connection with the indebtedness identified in
subsection (a) above, both prior to and subsequent to any bankruptcy of the
Borrower; and
(c) Any debts, claims, redemption rights, loan obligations or any
other obligations of any type whatever of the Borrower now or hereafter
held by the Subordinating Creditor as a result of or in connection with the
Subordinated Debt.
The indebtedness, interest, fees, costs, obligations and other liabilities
identified in subsections (a), (b), and (c) above are collectively called the
"Subordinated Debt".
3. Notwithstanding anything to the contrary provided in this Agreement,
the Borrower may make, and the Subordinating Creditor may receive, payments on
the Subordinated Debt on a dollar for dollar basis from additional equity that
is injected into Borrower or from the use, on a quarterly basis, of retained
earnings arising subsequent to March 31, 1995, so long as at the time of any
payment of the Subordinated Debt: (a) the Borrower shall be in full compliance
with all financial covenants contained in the Loan Agreement as of the end of
the most recent quarter, (b) both before and immediately after the contemplated
payment, no Event of Default shall exist under the Loan Agreement, and (c) both
before and immediately after the contemplated payment, no facts or circumstances
exist which, with notice and/or lapse of time, could constitute an Event of
Default under the Loan Agreement. The payments on the Subordinated Debt that
are expressly permitted under this Section 3 are hereinafter called the
"Permitted Reductions".
4. Except for the Permitted Reductions, no direct or indirect payment
shall be made on or in connection with, or with respect to, the Subordinated
Debt. Except for the Permitted Reductions, the Senior Debt must be paid in full
prior to any payment of any kind or nature on the Subordinated Debt and all
claims of the Subordinating Creditor against the Borrower under or in connection
with the Subordinated Debt are hereby assigned to Lender as security for all
Senior Debt. Subordinating Creditor will, from time to time upon Lender's
request, execute and file such documents (including, without limitation,
financing statements) as the Lender deems necessary or appropriate to perfect,
preserve or enforce its rights hereunder. In the event that there is any
promissory note or other evidence of indebtedness (whether now or hereafter
existing) relating to the Subordinated Debt, then the Borrower and the
Subordinating Creditor shall endorse the same with a legend stating that it is
subject to this Agreement and, if so requested, will deliver the same to the
Lender.
5. The Borrower hereby agrees that while the Obligations or any part
thereof remain outstanding, it will not satisfy nor make any principal, interest
or other payments of any nature whatsoever upon the Subordinated Debt (including
debts, claims, redemption rights, loan obligations or any other obligations of
any type whatever to the Subordinating Creditor) except as expressly permitted
under Section 3 above. The Borrower agrees that should it make any payment in
contravention of this Agreement while any part of the Obligations remain
outstanding, the same shall constitute an Event of Default under the Loan
Agreement, entitling the Lender to exercise any and all remedies for default
thereunder unless said payment is in the form of trade payables arising in the
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ordinary course of business between Borrower and Subordinating Creditor.
6. The Subordinating Creditor hereby agrees as follows:
(a) The Subordinating Creditor will not accept or receive (directly
or indirectly) from the Borrower any payment in contravention of this
Agreement, nor will any Subordinating Creditor make any transfer to third
parties not a party to this Agreement or take any other action designed to
secure indirectly from the Borrower the payment of any sums in
contravention of this Agreement.
(b) The Subordinating Creditor shall be liable to Lender for any sums
it accepts or receives from the Borrower in contravention of this
Agreement, and such sums, when remitted to Lender, shall be applied to the
Obligations in such order as Lender may elect in its sole discretion. All
sums received by the Subordinating Creditor in contravention of this
Agreement shall be deemed to be trust funds held for the benefit of Lender.
(c) In the event of the liquidation of the Borrower or distribution
of its assets, any obligation of the Borrower to the Lender (including
interest after the commencement of any proceeding under Chapter 11 of the
United States Code at the rate specified in the Loan Documents, whether or
not such interest is an allowable claim in any such proceeding) shall be
satisfied and discharged before the Subordinating Creditor receives any
distributive share or payment on account of the obligations of the Borrower
to Subordinating Creditor.
(d) The Subordinating Creditor agrees that it will not hereafter
assign, transfer or convey all or any portion of the Subordinated Debt or
any interest therein.
(e) The Subordinating Creditor will xxxx its books and records and
all documents evidencing the Subordinated Debt to reflect that such debt is
subordinated pursuant to the terms and conditions of this Agreement.
7. All of the Obligations, whether now existing or hereafter arising
(including, without limitation, interest after the commencement of any
bankruptcy proceeding affecting the Borrower, whether under Title 11 of the
United States Code or otherwise, at the rate specified in the Loan Documents,
whether or not such interest is an allowable claim in any such proceeding) and
any and all renewals, extensions, enlargements and modifications thereof, shall
be entitled to the benefit of this Agreement and shall constitute Senior Debt.
8. Payments in contravention of this Agreement may be made by the
Borrower only with express written approval of the Lender, which may be granted
or denied in Lender's sole discretion.
9. The Subordinating Creditor hereby represents and warrants to Lender
that the Subordinated Debt constitutes the only liabilities of Borrower to the
Subordinating Creditor, except for trade payables in the ordinary course of
business.
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10. The Borrower and Subordinating Creditor acknowledge and agree that
the Note is a demand obligation, and notwithstanding anything to the contrary
provided in the Loan Documents, the Lender may demand payment thereof at any
time.
11. This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns, including without
limitation all successor owners of the Senior Debt or any portion thereof.
12. LENDER, BORROWER AND SUBORDINATING CREDITOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, THE SUBORDINATED DEBT, THE LOAN DOCUMENTS, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PERSON IN CONNECTION WITH THE OBLIGATIONS (AS DEFINED IN THE LOAN AGREEMENT),
THE LOAN AGREEMENT, THE SUBORDINATED DEBT, THE SENIOR DEBT OR ANY DOCUMENTS
RELATING TO THE FOREGOING. THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO
MAKE THE LOANS AND ISSUE BANKER'S ACCEPTANCES.
IN WITNESS WHEREOF, this Agreement was executed as of the date first above
written.
LENDER: XXXXXXX BANK, N.A.
By_______________________________
Name:
Title:
BORROWER: TECHDYNE, INC., Florida corporation
By___________________________
Name:
Title:
SUBORDINATING CREDITOR: MEDICORE, INC., a Florida corporation
By___________________________
Name:
Title:
