SUBORDINATION AGREEMENT
Agreement made this 24th day of December, 1997, by and among MIDLAND USA,
INC. (the "Debtor"), INTEK DIVERSIFIED CORPORATION (the "Junior Creditor") and
SUMMIT COMMERCIAL/GIBRALTAR CORP. (the "Senior Creditor").
W I T N E S S E T H:
WHEREAS, the above-named Debtor is indebted to Junior Creditor, as of
November 30, 1997, in the principal amount of $17,133,679.00, which debt is
unsecured; and
WHEREAS, Debtor has requested that Senior Creditor make loans and advances
or otherwise extend financial accommodations to Debtor pursuant to the terms and
conditions of certain agreements, including, but not limited to, the Loan and
Security Agreement and other supplements, agreements, documents and guaranties
granting collateral security or creating or evidencing indebtedness (all of the
foregoing, together with all other related documents, instruments or notes, as
the same may now exist or hereafter be amended or supplemented are collectively
referred to as the "Loan Documents"); and
WHEREAS, Senior Creditor is willing to make such loans and advances or
otherwise extend financial accommodations only upon the due execution and
delivery of this Subordination Agreement ("Agreement"), pursuant to which Junior
Creditor shall subordinate all of the present and future indebtedness of Debtor
to Junior Creditor from time to time existing to the payment of any and all
indebtedness now or hereafter owed by Debtor to Senior Creditor, except as
otherwise permitted herein;
NOW, THEREFORE, in consideration of the premises and as an inducement to
Senior Creditor to grant said request of Debtor for loans, advances and other
financial accommodations, the parties hereto agree as follows:
1. The Junior Creditor hereby subordinates payment of all the
Debtor's "Obligations" to the Junior Creditor ("Junior Debt") to the
indefeasible full payment of any and all the Debtor's "Obligations" to the
Senior Creditor ("Senior Debt"). "Obligations" means all obligations,
liabilities and indebtedness of any kind, nature or description whatsoever,
direct or indirect, absolute or contingent, matured or unmatured, consensual or
created by law, now existing or hereafter incurred or created, both before and
after the commencement of any case under Title 11 of the United States Code, as
amended ("Bankruptcy Code") and including charges, commissions, costs, expenses
and fees.
2. (a)Debtor and Junior Creditor agree that until all Senior Debt is
indefeasibly paid in full to Senior Creditor: The Debtor shall not, directly or
indirectly,
make any payment of any Junior Debt and that no collateral or guarantees, or
proceeds thereof, will be enforced or applied to any Junior Debt, except in
favor of Senior Creditor as provided herein; that the Junior Creditor will not
accept payment or prepayment of or seek to collect any Junior Debt or join in
any petition or otherwise initiate against the Debtor any proceeding described
in paragraph 5 hereof; that no collateral will be granted for any Junior Debt;
that the Debtor shall not directly or indirectly make any loan, gift or
distribution of any assets to the Junior Creditor; and that no Junior Debt will
be waived, forgiven or canceled unless converted to or exchanged for
non-convertible capital stock of Debtor.
(b) Notwithstanding anything to the contrary contained herein,
Debtor may make, and Junior Creditor may accept and retain, payments on account
of the Junior Debt in accordance with and subject to Section 10.16(a) of the
Loan and Security Agreement.
3. An endorsement shall be written on any instrument evidencing the
Junior Debt to the effect that it is subordinate to the Senior Debt and subject
to the terms and conditions of this Agreement and such instrument shall be
delivered to Senior Creditor. The Debtor and Junior Creditor agree to notify
Senior Creditor in writing immediately of the creation of any additional debt
due to the Junior Creditor from the Debtor ("New Junior Debt") and of the
acquisition of any collateral for or guaranty of any Junior Debt; and agree to
issue and endorse or assign to Senior Creditor said guarantees and collateral
and evidence of New Junior Debt, and to give Senior Creditor such Financing
Statements under the Uniform Commercial Code as Senior Creditor requires. All
New Junior Debt shall be and is subject to the same terms and conditions of this
Agreement as Junior Debt and is included in the term "Junior Debt". In the
event any endorsement is omitted, Senior Creditor is hereby irrevocably
authorized on behalf of the Junior Creditor to make the same. However, no
specific endorsement or assignment shall be necessary to subject any Junior Debt
to the assignment and subordination thereof contained in this Agreement. The
Debtor and the Junior Creditor will make appropriate notations in their books
and records to show the subordinate character of all Junior Debt and make such
books available for Senior Creditor to examine during regular business hours,
and deliver financial statements to Senior Creditor on request.
4. The Debtor and the Junior Creditor warrant to Senior Creditor
that the Junior Creditor is and will be the exclusive legal and beneficial owner
of all Junior Debt and related collateral and guarantees, and that none of the
Junior Debt or collateral or guarantees is or will be subject to any lien,
security interest, financing statement, subordination, assignment or other
claim, except in favor of Senior Creditor (and the Debtor and Junior Creditor
agree to notify Senior Creditor immediately in writing of any claims made or
adverse occurrence pertaining to any Junior Debt).
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5. In the event of any insolvency or bankruptcy case, under the
Bankruptcy Code or any other federal or state insolvency statute, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Debtor or its property, or in the event of
any proceedings for voluntary liquidation, dissolution or other winding up of
the Debtor, whether or not involving insolvency or bankruptcy, or in the event
of any assignment for the benefit of creditors of the Debtor or any marshalling
of assets of the Debtor ("Insolvency Case"), then the Senior Creditor shall
first be entitled to receive indefeasible payment in full of all Senior Debt
before the Junior Creditor shall be entitled to receive any payment on account
of the Junior Debt, and the Senior Creditor shall be entitled to receive for
application in payment of the Senior Debt any payment or distribution of any
kind or character, whether in cash, property or securities, which may be payable
or deliverable in any such Insolvency Case in respect of the Junior Debt,
including, without limitation, securities of the Debtor as reorganized or
readjusted or securities of the Debtor or any other corporation provided for by
a plan of reorganization or readjustment. In any such Insolvency Case, Senior
Creditor is irrevocably authorized to:
(a) Enforce and vote claims comprising any of the Junior Debt
either in its own name or the name of the Junior Creditor, by proof of debt,
proof of claim, suit or otherwise;
(b) Vote claims comprising any of the Junior Debt to accept or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; and/or
(c) Take generally any action in connection with any such
Insolvency Case which the Junior Creditor might otherwise take.
6. Should any payment of or distribution on account of any Junior
Debt be received by the Junior Creditor, such payment shall be held in trust by
the Junior Creditor for the benefit of the Senior Creditor and shall be
delivered forthwith to Senior Creditor for application to Senior Debt, in the
form received with any necessary endorsement or assignment. The Junior Creditor
shall not be subrogated to, or be entitled to any assignment or reassignment of
any Senior Debt or Junior Debt, or of any collateral for or guarantees or
evidences of any Senior Debt or Junior Debt.
7. The Junior Creditor and Debtor waive notice of acceptance hereof
by Senior Creditor, and waive notice of and consent to the creation of any
Senior Debt, extensions granted or other action taken by Senior Creditor in
reliance hereon, the acquisition or release of collateral for or guarantors of
the payment of Senior Debt, the releasing of any other subordinating creditor;
and the Junior Creditor and Debtor waive
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demand, presentment, protest, notice of protest and of default and any and all
other notices to which either of them might otherwise be entitled. No failure
or delay by Senior Creditor to exercise any right granted herein, or in any
other agreement or by law shall constitute a waiver of such right or of any
other right. The Debtor and the Junior Creditor agree to execute and deliver to
Senior Creditor such additional documents and to take such further action as
Senior Creditor may hereafter require to effect the purposes of this Agreement.
8. The parties hereto hereby waive trial by jury in any action or
proceeding arising out of or in any way relating to this Agreement and hereby
irrevocably consent to the non-exclusive jurisdiction of the State and Federal
Courts in the State of New York in all actions or proceedings arising out of or
in any way relating to this Agreement. Junior Creditor and Debtor waive the
right to interpose any claims, offset, deductions or counterclaims of any kind,
nature or description in any action or proceeding, except compulsory
counterclaims.
9. This Agreement constitutes the entire agreement of subordination
between the parties, and shall bind and benefit the Junior Creditor, the Debtor
and Senior Creditor (and any of its affiliates, subsidiaries or parent to which
the Debtor may now or hereafter be indebted), and their respective heirs,
executors, administrators, successors and assigns. This Agreement shall be
governed by the laws of the State of New York.
IN WITNESS WHEREOF, the Junior Creditor and Debtor have executed and
delivered this Agreement on the day and year first above written.
INTEK DIVERSIFIED CORPORATION
By:
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Title:
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MIDLAND USA, INC.
By:
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Title:
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ACKNOWLEDGED:
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By:
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Title:
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