EXHIBIT 10.6
SUBORDINATION AGREEMENT
AMONG
X.X. XXXXXXX MEZZANINE FUND, L.P.,
FOOTHILL CAPITAL CORPORATION,
as Agent
AND
MERCURY AIR GROUP, INC.
and certain of its subsidiaries signatory hereto
December 30, 2002
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of December 30,
2002 is entered into by and among X.X. XXXXXXX MEZZANINE FUND, L.P.
("Subordinating Lender"), FOOTHILL CAPITAL CORPORATION, as agent (in such
capacity, "Agent") for the Senior Lenders (defined below)) and MERCURY AIR
GROUP, INC. and certain of its subsidiaries signatory hereto (each an "Obligor"
and collectively, "Obligors"), with reference to the following facts:
RECITALS
A. Certain of the Obligors have entered into the Junior Debt Documents (as
defined below) with Subordinating Lender.
B. Obligors have requested that Agent and the lenders signatory thereto
(the "Senior Lenders") enter into various agreements with Obligors, including
that certain Loan and Security Agreement dated as of the date hereof (as in
effect from time to time, the "Loan Agreement"), the Loan Documents (as defined
in the Loan Agreement) and other related supplements, agreements, documents and
instruments, as amended or modified from time to time (collectively, the "Senior
Debt Documents"), pursuant to which the Senior Lenders would extend certain
loans and other financial accommodations to certain of the Obligors.
C. Agent and the Senior Lenders are unwilling to enter into the Senior
Debt Documents with Obligors and to extend to the applicable Obligors the loans
and other financial accommodations contemplated thereunder unless Subordinating
Lender enters into this Agreement.
D. Subordinating Lender is interested in the financial success of Obligors
and will benefit by the loans which the Senior Lenders propose to extend to the
applicable Obligors under the Senior Debt Documents.
E. Accordingly, to induce Agent and the Senior Lenders to enter into the
Senior Debt Documents with Obligors and to extend to the applicable Obligors the
loans contemplated thereunder, Subordinating Lender is willing to enter into
this Agreement with Agent.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Certain Defined Terms.
(a) General. When used in this Agreement, the following terms have
the following respective meanings:
"Agent" has the meaning set forth in the introduction hereto,
and in addition, includes any Senior Lender with respect to rights
and interests of the Agent hereunder and under the Senior Debt
Documents.
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"Agreement" has the meaning set forth in the introduction
hereto.
"Amended Note" means the Amended and Restated WMF Senior
Subordinated Promissory Note issued to the Subordinating Lender by
Mercury Air Group, Inc. dated September 10, 1999.
"Asset Sale Reserve" has the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Cure Period" has the meaning set forth in Section 3(c).
"FBO Enterprise Value" has the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Insolvency Proceeding" means (i) any insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment,
custodianship, composition or other proceeding or case relating to
Obligors, any of their subsidiaries, or any of their respective
assets, (ii) any dissolution or winding up of Obligors or any of
their subsidiaries, whether voluntary or involuntary and whether or
not involving an insolvency or bankruptcy case or (iii) any
assignment for the benefit of creditors or any other marshalling of
any assets of Obligors or any of their subsidiaries.
"Junior Debt" means all present and future indebtedness and
other obligations (direct or indirect) owing by Obligors to
Subordinating Lender under the Junior Debt Documents. "Junior Debt"
includes (without limitation) indebtedness owed under the Junior
Debt Documents, together with any other debts, demands, monies,
indebtedness, liabilities, and obligations now or hereafter owed by
Obligors to Subordinating Lender, including interest, principal,
costs, and other charges, together with all claims, rights, causes
of action, judgments, decrees and other obligations (whether or not
incurred prior to or after any Insolvency Proceeding).
"Junior Debt Documents" means that Securities Purchase
Agreement, dated as of September 10, 1999, between Borrower and the
Subordinating Lender, as amended, and the Amended Note, copies of
which are attached hereto as Exhibit A and incorporated herein by
this reference, together with all other documents related thereto.
"Junior Default Notice" means a notice delivered by
Subordinating Lender to Agent and Obligors in accordance with
Section 17(i) and stating that an event of default has occurred and
is continuing under the Junior Debt Documents.
"Net Cash Proceeds" has the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Obligors" has the meaning set forth in the recitals of this
Agreement.
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"Senior Debt" has the meaning set forth in Section 3(a) of
this Agreement.
"Senior Debt Documents" has the meaning set forth in the
recitals of this Agreement.
"Senior Default Notice" means a notice delivered by Agent to
Subordinating Lender and Obligors in accordance with Section 17(i)
and stating that an Event of Default has occurred and is continuing
under the Senior Debt Documents.
"Senior Lenders" has the meaning set forth in the introduction
of this Agreement.
"Subordinating Lender" has the meaning set forth in the
introduction of this Agreement.
"Target Amount" has the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Voided Payment" has the meaning set forth in Section 13(b).
(b) Other Terms. Unless otherwise defined in this Agreement, any and
all initially capitalized terms set forth in this Agreement shall have the
meaning ascribed thereto in the Senior Debt Documents.
2. Representations, Warranties, Waivers and Covenants.
(a) Amount of Junior Debt. Subordinating Lender and Obligors
represent and warrant that as of the date of this Agreement, the aggregate
outstanding balance (principal plus interest) of the Junior Debt is Twenty-Four
Million Dollars ($24,000,000).
(b) Junior Debt Documents. Subordinating Lender and Obligors
covenant to Agent that the Amended Note shall be marked with the following
legend and, upon Agent's request, to be given by notice to Obligors and
Subordinating Lender: (i) a copy of all Junior Debt Documents other than the
Amended Note shall be delivered to Agent; and/or (ii) all Junior Debt Documents
shall be conspicuously marked with substantially the following legend, modified
as may be necessary to reflect proper references to such Junior Debt Document:
"THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATE IN THE
MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION
AGREEMENT, DATED AS OF DECEMBER 30, 2002, BY AND AMONG THE MAKER HEREOF,
THE PAYEE NAMED HEREIN, AND FOOTHILL CAPITAL CORPORATION, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND EACH HOLDER OF THIS NOTE,
BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF SUCH
SUBORDINATION AGREEMENT."
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and after being so marked, the originals of the Junior Debt Documents shall be
exhibited to Agent and a copy of the marked Junior Debt Documents shall be
delivered to Agent.
(c) No Default. Obligors represent and warrant that Schedule A sets
forth a complete list of past and existing defaults under the Junior Debt
Documents. Subordinating Lender hereby represents and warrants that it is not
aware of any past or existing default under the Junior Debt Documents that is
not set forth on Schedule A and hereby waives the defaults listed on Schedule A.
(d) Ownership of Junior Debt. The Subordinating Lender represents
and warrants that it owns the Junior Debt, free and clear of any lien, charge or
other adverse claim or encumbrance.
(e) Further Action. Upon the reasonable request of another party,
each party covenants that it will promptly take all actions which are necessary
to carry out the purposes of this Agreement.
3. Subordination. This Section supercedes Section 7 of the Amended Note.
(a) General. To the extent provided in the remainder of this Section
3, the Junior Debt is hereby subordinated and made junior to all obligations now
or hereafter owing to Agent and/or the Senior Lenders under the Loan Documents
by Obligors. The obligations referred to in the preceding sentence as being
owing to Agent and/or the Senior Lenders are referred to in this Agreement as
the "Senior Debt," and include the Obligations, all present and future
representations, warranties, covenants, agreements, indemnities, all principal
incurred (including debtor-in-possession loans or advances), all interest and
all fees and expenses incurred after the commencement of an Insolvency
Proceeding or any other federal or state bankruptcy, insolvency or
reorganization act regardless of whether Agent's claim therefor or the security
interests asserted are valid, binding, enforceable, void, voidable, voided,
subordinated, reduced, disallowed or allowable in the Insolvency Proceeding.
(b) Payments to Subordinating Lender.
(i) Unless a Default or Event of Default resulting from the
failure of Obligors to make any payment when due with respect to the Senior Debt
has occurred or a Senior Default Notice has been delivered to Obligors, in which
case the provisions of Section 3(b)(iii) and 3(b)(iv) hereof shall apply,
Obligors may, subject to the other provisions of this Agreement, pay to
Subordinating Lender quarterly interest payments at the non-default rate
therefor not to exceed 12% per annum.
(ii) Provided:
A. no Default or Event of Default under the Senior
Debt Documents shall have occurred,
B. so long as Obligors, after giving effect to any
such payments, have at least $4,000,000 of Excess
Availability, and
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C. at all times both before and after giving effect
to any such payments and the transactions relating
to them, Obligors maintain FBO Operations at FBO's
having an aggregate FBO Enterprise Value of at
least $10,000,000,
Obligors shall pay the following payments:
(1) from Net Cash Proceeds which exceed
$500,000, which payments shall be made as
follows:
(I) First, until the aggregate amount of
$15,000,000 of Net Cash Proceeds have
been so applied, equally to Agent for
application to the Term Loan and to
Subordinating Lender for application
to the principal amount of the Junior
Debt;
(II) Second, until an additional aggregate
amount of $4,500,000 of Net Cash
Proceeds have been so applied, to
Subordinating Lender for application
to the principal amount of the Junior
Debt;
(III) Third, if such Net Cash Proceeds are
received (a) prior to January 1, 2004
and the Asset Sale Reserve is then
less than the Target Amount, equally
to Subordinating Lender for
application to the principal amount of
the Junior Debt and to Agent for
application to the Advances, (b) prior
to January 1, 2004 and the Asset Sale
Reserve is then equal to the Target
Amount, to Subordinating Lender for
application to the principal amount of
the Junior Debt until the principal
amount of the Junior Debt has been
repaid in the amount of $24,000,000,
or (c) on or after January 1, 2004, to
Subordinating Lender for application
to the principal amount of the Junior
Debt until the principal amount of the
Junior Debt has been repaid in the
amount of $24,000,000;
(IV) Fourth, to Subordinating Lender for
application to the principal amount
of the Junior Debt until the principal
amount of the Junior Debt has been
repaid in the amount of $24,000,000;
and
(V) Fifth, to any Senior Debt;
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provided, however, if at any time such payments
are to be made the only condition provided above
not satisfied is Obligors' failure to maintain
Excess Availability of at least $4,000,000 as
provided above, to the extent there are Net Cash
Proceeds remaining after such Net Cash Proceeds
are remitted to Agent and applied against the
Advances (which Agent agrees to do) so as to cause
the amount of Excess Availability to be $4,000,000
or greater, then any such remaining Net Cash
Proceeds shall be applied as provided above; and
(2) to Subordinating Lender for application to
the principal amount of the Junior Debt on
the first day of each fiscal quarter
occurring prior to January 1, 2004 and on
January 1, 2004, if the amount by which the
Asset Sale Reserve is (I) greater than or
equal to the previous fiscal quarter's
Target Amount, an amount equal to the
reduction in the Target Amount from the
previous fiscal quarter and such fiscal
quarter or (II) less than the previous
quarter's Target Amount and greater than
such fiscal quarter's Target Amount, an
amount equal to the Asset Sale Reserve less
such fiscal quarter's Target Amount, or
(III) less than such fiscal quarter's Target
Amount, none.
Except as otherwise expressly provided above, Agent may
apply the proceeds of any such asset sales or any other
amounts to any portion of the Senior Debt in its sole
discretion. Any reductions in the Term Loan shall be
made in the inverse order of maturity of payments.
(iii) Subsequent to the occurrence of a Default or Event of
Default resulting from the failure of Obligors to make any payment when due with
respect to the Senior Debt, Obligors may not pay, nor may Subordinating Lender
receive and retain, any payment with respect to the Junior Debt, until such time
as (A) such Default or Event of Default has been cured or waived or has ceased
to exist (all in accordance with the terms of the Loan Agreement), (B) the
Senior Debt has been indefeasibly paid in full, in cash and the Senior Lenders'
commitments to provide financing to any Obligors have been terminated or (C)
three hundred sixty-five (365) days have elapsed since the occurrence of such
Default or Event of Default; provided, however, no payments may be made or
received if Agent exercises its default rights and remedies or has accelerated
the Senior Debt. There shall be no limit on the number of times that payments to
Subordinating Lender may be prohibited pursuant to this Section 3(b)(iii) nor of
the time period that such prohibition is in effect.
(iv) Subsequent to the delivery of a Senior Default Notice
other than resulting from the failure of Obligors to make any payment when due
with respect to the Senior Debt, Obligors may not pay, nor subsequent to
Subordinating Lender's receipt of a Senior
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Default Notice, may Subordinating Lender receive and retain, any payment with
respect to the Junior Debt; provided, however, on the earliest to occur of (A)
one hundred eighty (180) days after the delivery of such Senior Default Notice,
(B) the events set forth in the Senior Default Notice having been waived or
cured or having ceased to exist (all in accordance with the terms of the Loan
Agreement) or (C) the indefeasible payment of the Senior Debt, in full, in cash
and the Senior Lenders' commitments to provide financing to any Obligors have
been terminated; and provided that Agent has not subsequently delivered a Senior
Default Notice pursuant to Section 3(b)(iii) above, such Senior Default Notice
shall thereupon not be in effect for the current applicable period and
Subordinating Lender may receive and retain (X) regularly scheduled payments of
interest at the non-default rate therefor not to exceed 12% per annum and (Y) so
long as both immediately before and immediately after giving effect to such
payment Obligors have at least $4,000,000 of Excess Availability, interest
payments which were prevented from being made as provided herein, but not any
principal payments which were prevented from being made as provided herein;
provided, further, however, that after giving effect to any such payment to
Subordinating Lender, no default, event of default or unmatured event of default
by Obligors under any present or future instrument or agreement (including an
Event of Default under the Senior Debt Documents) will have occurred as a result
therefrom. Agent may deliver a Senior Default Notice pursuant to this Section
3(b)(iv) each time there is a separate default or Event of Default under the
Senior Debt Documents; provided, however, the aggregate number of days in any
three hundred sixty (360) day period for which a Senior Default Notice (other
than resulting from the failure of Obligors to make any payment when due or
deemed by Agent to be due with respect to the Senior Debt) may be in effect
shall not exceed one hundred eighty (180) days.
(v) Notwithstanding anything in this Agreement to the
contrary, the failure of Obligors to make a payment with respect to the Junior
Debt by reason of the operation of this Section 3 shall not be construed as
preventing or delaying the occurrence of a default under the Amended Note or the
other Junior Debt Documents.
(c) Actions by Subordinating Lender. Subordinating Lender hereby
agrees that it shall deliver a Junior Default Notice to Obligors and Agent upon
any default or event of default under the Junior Debt Documents and that,
notwithstanding anything to the contrary in the Amended Note or the other Junior
Debt Documents, Obligors shall have thirty (30) days (in addition to any
applicable cure or grace periods, if any, set forth in the Junior Debt
Documents) after receipt of such Junior Default Notice in which to cure the
defaults or events of defaults set forth in such Junior Default Notice (the
"Cure Period"). If after such Cure Period the events described in such Junior
Default Notice have not been cured or waived by Subordinating Lender, then on
the earliest to occur of (i) the ninetieth (90th) day following the expiration
of such Cure Period, (ii) the acceleration of the Senior Debt, (iii) the
occurrence of an Insolvency Proceeding or (iv) the indefeasible payment of the
Senior Debt, in full, in cash, and the termination of the Senior Lenders'
commitments to provide financing to any Obligors, Subordinating Lender may
(subject to the provisions of this Agreement including, without limitation,
Section 3(b) and Section 13 hereof), if Agent has not delivered a Senior Default
Notice due to the failure of Obligors to make a payment to Agent when due with
respect to the Senior Debt, exercise its rights as a general, unsecured creditor
of Obligors to commence judicial action on the Junior Debt and otherwise seek a
judgment on the Junior Debt but in no event shall Subordinating Lender exercise
any default rights or remedies with respect to the Collateral whether as a
secured
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party, a judgment lienholder or otherwise, which limitation includes
prohibitions on judicial or non-judicial foreclosure, possession of the
Collateral, collection actions and other such activities. Notwithstanding the
foregoing, Subordinating Lender shall be entitled, to the extent necessary, to
commence any action required in order to toll the running of any applicable
statute of limitation that might otherwise prevent Subordinating Lender from
making claims in respect of the Junior Debt. Subordinating Lender shall not
issue more than one Junior Default Notice after the date hereof in any three
hundred sixty (360) day period. Subordinating Lender may not, except in
accordance with the terms of this Section 3(c) exercise its rights as a general
unsecured creditor of Obligors to commence judicial action on the Junior Debt or
otherwise seek a judgment on the Junior Debt.
(d) Priority of Interests in Collateral. Subordinating Lender's
security interest, lien, judgment lien, claim in an Insolvency Proceeding or
other right or interest in the Collateral shall at all times be junior,
subordinate and subject to any security interest, lien or other right or
interest Agent may now have or may hereafter acquire in the Collateral. The
subordination provided in this Section 3 shall apply irrespective of the time or
order of attachment or perfection of any security interest, irrespective of the
time or order of filing of any financing statement or other document, and
irrespective of any statute, rule, law, or court decision to the contrary.
Subordinating Lender confirms that the Senior Debt and the liens securing the
Senior Debt are in all respects senior to the Junior Debt and the liens securing
the Junior Debt, and that this Agreement shall govern as between Agent and
Subordinating Lender irrespective of whether the Senior Debt or the liens
securing the Senior Debt, are held to be unperfected, deficient, invalid, void,
voidable, voided, unenforceable, subordinated, reduced, discharged or are set
aside by a court of competent jurisdiction, including, without limitation,
pursuant to any Insolvency Proceeding. Subordinating Lender agrees to release,
terminate, reconvey and extinguish any security interest, lien or other right or
interest it may have in any Collateral at the request of Agent taking such
identical action. Agent agrees that, solely with respect to any Collateral as to
which Agent has perfected its security interest therein by possession and as to
which Subordinating Lender has also been granted a security interest by
Obligors, Agent will also hold such Collateral on behalf of Subordinating Lender
for purposes of perfecting its junior security interest therein, provided that,
Agent's only duties to Subordinating Lender with respect to such Collateral
shall be to take commercially reasonable care of such Collateral and to deliver
such Collateral, to the extent not disposed of as a result of Agent exercising
its security interest with respect thereto, after the indefeasible payment in
full in cash of the Senior Debt and the termination of the Senior Lenders'
commitments to provide financing to any Obligors. Subordinating Lender agrees
that, solely with respect to any Collateral as to which Subordinating Lender has
perfected its security interest therein by possession and as to which Agent has
also been granted a security interest by Obligors, Subordinating Lender will
also hold such Collateral on behalf of Agent for purposes of perfecting its
senior security interest therein, provided that, Subordinating Lender's only
duties to Agent with respect to such Collateral shall be to take commercially
reasonable care of such Collateral and to deliver such Collateral to Agent upon
its request.
(e) Subordination of Guaranties. In the event Subordinating Lender
acquires any guaranty with respect to the Junior Debt, whether secured or
unsecured, from any affiliate of Obligors, Subordinating Lender agrees that its
rights with respect to such guaranty shall at all times be junior, subordinate
and subject to the rights of Agent with respect to any guaranties
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Agent may receive from such affiliates with respect to the Senior Debt on terms
substantially the same as those set forth herein as if such affiliates were
Obligors.
4. Restrictions On Subordinating Lender's Actions. Except as permitted in
Section 3(c) hereof and unless it shall have obtained the Agent's prior written
consent, until the Senior Debt has been paid in full, in cash, and the Senior
Lenders' commitments to provide financing to any Obligors have been terminated,
Subordinating Lender will not:
(a) Demand or accept any payment upon the Junior Debt, except as may
be permitted by this Agreement;
(b) Foreclose, collect or realize upon any collateral hereafter
securing the Junior Debt (whether such collateral constitutes part of the
Collateral or consists of other assets of Obligors), or otherwise enforce any
security agreement, mortgage, lien instrument, or other encumbrance hereafter
securing the Junior Debt.
5. Remedies. If any Obligor or Subordinating Lender attempts to violate
Section 3 or Section 4(a), or if Subordinating Lender in any other manner
receives any funds which by virtue of this Agreement it is precluded from
receiving, Subordinating Lender shall be deemed to hold any payment or
distribution it receives in trust for the Agent's benefit. In such case,
Subordinating Lender shall immediately remit such payment or distribution to the
Agent. If Subordinating Lender attempts to violate Section 4(b), the Agent (in
its or Obligors' name), or Obligors may seek injunctive or other equitable
relief to prevent or stop Subordinating Lender's actions, it being agreed that
legal remedies may be inadequate. The remedies provided in this Section 5 are
not exclusive; the parties hereto shall be entitled to all other remedies
available at law or in equity. The parties hereto shall not in any event be
liable for any impairment or nonpayment of the Junior Debt that results,
directly or indirectly, from the exercise by the other parties hereto of any of
their rights or remedies under this Agreement, the any other agreement or under
applicable law.
6. No Action to Violate Senior Debt Documents. Subordinating Lender shall
not take any action which is reasonably likely to cause Obligors to violate the
Senior Debt Documents or any other agreement between Obligors on the one hand
and Agent and/or the Senior Lenders on the other hand.
7. No Amendment of Junior Debt Documents. Unless the Agent's prior written
consent shall have been obtained, no Junior Debt Document may be amended or
modified to: (a) increase the maximum principal amount of the Junior Debt or the
rate of interest with respect to any of the Junior Debt, (b) accelerate the
dates (including maturity dates) upon which payments of principal or interest
with respect to the Junior Debt are due, (c) make more restrictive or add any
event of default or any covenant with respect to the Junior Debt, (d) change the
redemption or prepayment provisions with respect to the Junior Debt, (e) alter
the subordination provisions with respect to the Junior Debt, including, without
limitation, subordinating the Junior Debt to any other debt, (f) grant any
additional liens or security interest in any assets of any Obligor or any other
assets securing the Senior Debt or (g) if such modification or amendment would
(i) materially increase the obligations of any Obligor, (ii) confer additional
material rights upon
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Subordinating Lender or any other holder of Junior Debt, or (iii) otherwise
adversely affect any Obligor, Agent or any Senior Lender.
8. Extensions, Compromises, Etc. Without having to obtain either Obligors
or Subordinating Lender's consent, the Agent may grant to Obligors extensions of
the time of payment or performance, and may enter into compromises (including
releases of collateral and settlements) with Obligors with respect to the Senior
Debt.
9. Waiver. Subordinating Lender waives any right it may now or hereafter
have to require the Agent to xxxxxxxx assets, to exercise rights or remedies in
a particular manner, or to forbear from exercising such rights and remedies in
any particular manner or order.
10. No Constraint on Agent and the Senior Lenders. Nothing contained in
this Agreement shall preclude Agent and the Senior Lenders from discontinuing
their extension of credit to Obligors (whether under the Senior Debt Documents
or otherwise) or from taking (without notice to Subordinating Lender, Obligors,
or any other individual or entity) any other action in respect of the Senior
Debt or the Collateral which Agent and/or the Senior Lenders are otherwise
entitled to take with respect to the Senior Debt or the Collateral. Among the
actions which Agent and the Senior Lenders may take in accordance with this
Section 10 are: renewing, extending, and increasing the amount of the Senior
Debt; otherwise changing the terms of the Senior Debt; settling, releasing,
compromising, and collecting on the Senior Debt; making (and refraining from
making) other secured and unsecured loans and advances to Obligors; amending any
present or future agreement between Agent and/or the Senior Lenders on the one
hand and Obligors on the other hand; and all other actions which Agent and/or
the Senior Lenders deem advisable. Notwithstanding the foregoing, Agent agrees
that it shall not, without the prior written consent of Subordinating Lender,
amend or otherwise modify the Senior Debt Documents so as to: (a) increase the
maximum principal amount available for borrowing thereunder to an amount in
excess of $49,000,000, (b) increase the rate of interest set forth therein by
more than two (2) percentage points or (c) except after an Event of Default,
increase the frequency or amount of regularly scheduled principal payments with
respect to the Term Loan.
11. Continuing Agreement. This Agreement (a) shall automatically terminate
upon the indefeasible payment and satisfaction in full, in cash, of all Senior
Debt and the termination of the Senior Debt Documents and the obligation of the
Senior Lenders to make loans, advances and/or extensions of credit thereunder,
(b) is a continuing agreement of subordination, (c) shall be binding upon
Subordinating Lender, Obligors, any holder of Junior Debt and their respective
successors, transferees and assigns, (d) shall inure to the benefit of and be
enforceable by the parties hereto, any holders of Senior Debt, any holders of
Junior Debt and their respective successors, transferees and assigns and (e)
shall inure to the benefit of any lenders which provide replacement or other
subsequent financing of Obligors. It is expressly intended that any successor,
transferee, assignee, replacement or subsequent lender be a third party
beneficiary of this Agreement without any further action required. Subordinating
Lender agrees to take all actions reasonably necessary to amend and ratify this
Agreement as to such lender. Without limiting the generality of the foregoing,
the Agent and Senior Lenders may assign or otherwise transfer the Senior Debt to
any other person or entity, such transferee shall thereupon become vested with
all the rights and benefits in respect thereof granted to the Agent and/or
Senior
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Lenders herein or otherwise. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Debt is rescinded or must otherwise be returned by Agent or any Senior Lender in
connection with any Insolvency Proceeding or otherwise, all as though such
payment had not been made.
12. Rights in Insolvency Proceedings.
(a) Subordinating Lender hereby irrevocably authorizes and empowers
the Agent, in any Insolvency Proceeding to file a proof of claim on behalf of
Subordinating Lender with respect to the Junior Debt if Subordinating Lender
fails to file such proof of claim prior to ten (10) days before the expiration
of the time period during which such claims must be submitted; provided,
however, that any failure of the Agent to file such proof of claim shall not be
deemed to be a waiver by the Agent of any of the rights and benefits granted
herein by Subordinating Lender. Subordinating Lender hereby covenants and agrees
promptly to provide the Agent with a copy of any proof of claim filed by
Subordinating Lender in any Insolvency Proceeding.
(b) Subordinating Lender hereby irrevocably grants to the Agent, the
sole and exclusive authority and power in any Insolvency Proceeding, unless and
until this Agreement is terminated in accordance with its terms to accept and
receive any payment or distribution which may be payable or deliverable at any
time upon or in respect of the Junior Debt. Subordinating Lender shall provide
to the Agent all information and documents reasonably necessary to present
claims or seek enforcement as described in the immediately preceding sentence.
(c) Subordinating Lender hereby agrees that, while it shall retain
the right to vote its claims and, except as otherwise provided in this
Agreement, otherwise act in any Insolvency Proceeding relative to the Obligors
or any of their subsidiaries (including, without limitation, the right to vote
to accept or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition, or extension), Subordinating Lender shall not: (i)
take any action or vote in any way so as to directly or indirectly challenge or
contest (A) the validity or the enforceability of the Senior Debt Documents or
the liens and security interests granted to the Agent, with respect to the
Senior Debt, (B) the rights and duties of Agent and/or the Senior Lenders
established in the Senior Debt Documents, or (C) the validity or enforceability
of this Agreement; (ii) seek, or acquiesce in any request, to convert an
Insolvency Proceeding under chapter 11 of Title 11 of the United States Code to
a case under chapter 7 of Title 11 of the United States Code; (iii) seek the
appointment of a trustee or examiner with expanded powers for the Obligors or
any of their subsidiaries; or (iv) take any other actions or exercise any voting
rights which may impair timely repayment of the Senior Debt or otherwise impair
or impede any rights of Agent or any Senior Lender.
13. Junior Debt Subordinated to Prior Payment of all Senior Debt in
Insolvency.
(a) Upon any payment or distribution of assets of Obligors or any of
their subsidiaries of any kind, whether in cash, property or securities
(including, without limitation, any issuance of securities by Obligors or any of
their subsidiaries), in connection with any Insolvency Proceeding:
12
(i) Agent, for the benefit of the Senior Lenders, shall first
be entitled to receive indefeasible payment in full in cash of all Senior Debt
and the Senior Lenders' commitments to provide financing to any Obligors have
been terminated before Subordinating Lender shall be entitled to receive any
payment or other distribution of assets in respect of the Junior Debt;
(ii) any payment or distribution of assets of Obligors or any
of their subsidiaries of any kind or character, whether in cash, property or
securities (including, without limitation, any issuance of securities by
Obligors or any of their subsidiaries) to which Subordinating Lender would be
entitled except for the provisions of this Agreement will be paid by Obligors or
any of their subsidiaries, the liquidating trustee or agent or such other person
or entity making such a payment or distribution directly to Agent for the
benefit of the Senior Lenders, until all Senior Debt is indefeasibly paid in
full, in cash; and
(iii) if, notwithstanding the foregoing, any payment or
distribution of assets of Obligors or any of their subsidiaries of any kind or
character, whether in cash, property or securities (including, without
limitation, any issuance of securities by Obligors or any of their
subsidiaries), is received by Subordinating Lender as payment in respect of the
Junior Debt before all Senior Debt is indefeasibly paid in full in cash (or in
such other consideration as Agent and the Senior Lenders may, in their sole
discretion, expressly agree to in a signed writing), such payment or
distribution shall be received and held for and shall be paid over to Agent, or
its representative, for application to the payment of the Senior Debt until all
Senior Debt has been indefeasibly paid in full in cash.
(b) To the extent that the Obligors or other provider of Collateral
makes a payment on the Senior Debt that is subsequently invalidated, declared to
be fraudulent or preferential or set aside or is required to be repaid to a
trustee, receiver or any other party under any bankruptcy, insolvency or
reorganization act, state of federal law, common law or equitable cause,
including without limitation any Insolvency Proceeding (such payment being
hereinafter referred to as a "Voided Payment"), then to the extent of such
Voided Payment, that portion of the Senior Debt that had previously been
satisfied by such Voided Payment shall be revived and continue in full force and
effect as if such Voided Payment had never been made. In the event that a Voided
Payment is recovered from Agent or any Senior Lender, an Event of Default shall
be deemed to have existed and to be continuing under the Senior Debt Documents
from the date of Agent or such Senior Lender's initial receipt of such Voided
Payment until the full amount of such Voided Payment is restored to Agent or
such Senior Lender. During any continuance of any such Event of Default, this
Agreement shall be in full force and effect with respect to the Junior Debt. To
the extent that Subordinating Lender has received any payments with respect to
the Junior Debt subsequent to the date of Agent's or any Senior Lender's initial
receipt of such Voided Payment and such payments have not been invalidated,
declared to be fraudulent or preferential or set aside or are required to be
repaid to a trustee, receiver, or any other party under any bankruptcy act,
state of federal law, common law or equitable cause, Subordinating Lender shall
be obligated and hereby agrees that any such payment so made or received shall
be deemed to have been received in trust for the benefit Agent and the Senior
Lenders, and Subordinating Lender hereby agrees to pay to Agent, for the benefit
of the Senior Lenders, upon demand, the full amount so received by Subordinating
Lender to the extent necessary to fully restore to Agent and the Senior Lenders
the amount of such Voided Payment. In the event that the Subordinating
13
Lender makes any such payment to Agent, that portion of the Junior Debt that had
been satisfied but, by reason of such payment to Agent, has ceased to be
satisfied, shall be revived and continue in full force and effect as if the
underlying payment with respect to that Junior Debt had never been made.
14. Subordination Rights Not Impaired by Acts or Omissions of Obligors,
Agent or the Senior Lenders. No right of Agent or any Senior Lender to enforce
subordination as provided in this Agreement will at any time in any way be
prejudiced or impaired by any act or failure to act on the part of Obligors, or
any of their subsidiaries, or by any act or failure to act by Agent or any
Senior Lender, or by any noncompliance by Obligors, any of their subsidiaries,
or any agent thereof with the terms of this Agreement, regardless of any
knowledge thereof with which any such Person may have or otherwise by charged.
Except as expressly provided to the contrary herein, Agent and the Senior
Lenders may extend, renew, modify or amend any terms of the Senior Debt or any
security therefore or guaranty thereof and grant any waiver, release or consent
in respect of, or release, sell or exchange such security or Collateral and
otherwise deal freely with Obligors, any of Obligors' subsidiaries, and their
respective affiliates, all without notice to or consent from Subordinating
Lender and without in any way impairing or affecting this Agreement.
15. Lien Related Bankruptcy Provisions. The provisions of this Agreement
shall continue in full force and effect notwithstanding the occurrence of any
Insolvency Proceeding. To the extent that Subordinating Lender has or acquires
any rights under Section 362, 363 or 364 of the Bankruptcy Code with respect to
the Collateral, Subordinating Lender hereby agrees not to assert such rights
without the prior written consent of Agent; provided that, if requested by
Agent, Subordinating Lender shall seek to exercise such rights in the manner
requested by Agent, including the rights in payments in respect of such rights.
Without limiting the generality of the foregoing sentence, to the extent that
Agent consents to any Obligor's use of cash collateral under Section 363 of the
Bankruptcy Code or Agent or any of the Senior Lenders agree to provide financing
to any Obligor under Section 364 of the Bankruptcy Code, Subordinating Lender
hereby agrees not to impede, object to (on grounds of lack of adequate
protection, or otherwise), or otherwise interfere with such use of cash
collateral or financing. Subordinating Lender specifically agrees that in
connection with such cash collateral usage or such financing, Obligors (or a
trustee appointed for the estate of Obligors) may grant to Agent liens and
security interests upon all or any part of the assets of the Obligors, which
liens and security interests: (i) shall secure payments of all Senior
Obligations (whether such Senior Obligations arose prior to the filing of the
bankruptcy petition or thereafter); and (ii) shall be superior in priority to
the liens on and security interests in the assets of Obligors held by
Subordinating Lenders. Subordinating Lender (both in its capacity as a
Subordinating Lender and in its capacity (if any) as a party which may be
obligated to Obligors or its Affiliates with respect to contracts which are part
of Agent's Collateral) agrees not to initiate or prosecute or encourage any
other Person to initiate or prosecute any claim, action, objection or other
proceeding (A) challenging the enforceability of the claim of Agent or any
Senior Lender, (B) challenging the enforceability of any liens or security
interests in any assets securing the Senior Obligations, or (C) asserting any
claims which any Obligor may hold with respect to Agent or any Senior Lender.
Subordinating Lender agrees that it will not object to or oppose a sale or other
disposition of any assets securing the Senior Obligations (or any portion
thereof) free and clear of its security interests, liens or other claims under
Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code
if
14
Agent has consented to such sale or disposition of such assets. Subordinating
Lender agrees not to assert any right it may have to "adequate protection" of
its interest in the Collateral in any Bankruptcy Proceeding and agrees that it
will not seek to have the automatic stay lifted with respect to such security,
without the prior written consent of Agent. Subordinating Lender waives any
claim it may now or hereafter have against Agent arising out of the election of
Agent, in any case instituted under the Bankruptcy Code, of the application of
Section 1111(b)(2) of the Bankruptcy Code, and/or out of any cash collateral
arrangement, or financing arrangement, or out of any grant of a security
interest, under Section 363 or 364 of the Bankruptcy Code, with or by Obligors,
as debtor in possession (or with or by any trustee for Obligors). Subordinating
Lender agrees that it will not, in its capacity as a secured creditor: (a)
propose, vote to accept, or otherwise support confirmation of, a plan of
reorganization opposed by Agent, or (b) vote to reject, object to confirmation
of, or otherwise oppose confirmation of, a plan of reorganization supported by
Agent. The subordination and other provisions of this Agreement shall be
enforceable under Section 510 of the Bankruptcy Code.
16. Releases of Collateral. If Agent releases, terminates or subordinates
its security interest in any Collateral, the Subordinating Lender agrees to
similarly release, terminate or subordinate its security interest in such
Collateral.
17. Miscellaneous.
(a) Amendment. No amendment or waiver of this Agreement shall be
effective unless in a writing signed by each party hereto.
(b) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (applicable to
contracts made and performed in such State). All actions and proceedings arising
in connection with this Agreement shall be tried and litigated only in state or
federal courts located in the Borough of Manhattan, County of New York, State of
New York, or (at Agent's sole option) in any other court in which Agent may
initiate legal or equitable proceedings, so long as such court has subject
matter jurisdiction. Subordinating Lender and Obligors each waive any right it
may have to plead forum non-conveniens or otherwise to object to venue, and
hereby consents to any court-ordered relief.
(c) WAIVER OF RIGHT TO JURY TRIAL. THE PARTIES HERETO EACH HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE
PARTIES HERETO EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
15
(d) Counterparts, etc. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of this Agreement by telefacsimile shall have the same force and
effect as the delivery of an original executed counterpart of this Agreement.
Any party delivering an executed counterpart of any such agreement by
telefacsimile shall also deliver an original executed counterpart, but the
failure to do so shall not affect the validity, enforceability or binding effect
of such agreement.
(e) Headings. The headings contained in this Agreement are for
convenience only. They shall not affect the interpretation of this Agreement.
(f) Attorneys' Fees; Etc. In any suit or action brought to enforce
this Agreement or to obtain an adjudication (declaratory or otherwise) of rights
or obligations hereunder, the losing party shall pay to the prevailing party
reasonable attorneys' fees and other costs and expenses incurred by the
prevailing party.
(g) Severability. Any provision of this Agreement that is prohibited
by law or unenforceable in any jurisdiction shall be ineffective in that
jurisdiction to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permissible, the parties waive any law that renders this Agreement prohibited or
unenforceable.
(h) Entire Agreement. This Agreement constitutes the entire
agreement between and among the parties regarding the subject matter hereof.
This Agreement supersedes all prior and contemporaneous agreements between or
among the parties with respect to the subject matter hereof.
(i) Notice. All notices or demands by any party hereunder must be in
writing and shall be deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing. All such notices or
demands are to be given as follows:
Agent: FOOTHILL CAPITAL CORPORATION
0000 Xxxxxxxx Xxxxxx
Xxxxx 0000 Xxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000-0000
Attn: Business Finance Division Manager
Fax No.: 000.000.0000
16
with a copy to: MAYER, BROWN, XXXX & MAW
000 Xxxxx Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxxxx X. Xxxxxxxx, Xx., Esq.
Fax No.: 000.000.0000
and a copy to: ABLECO FINANCE LLC
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxx
Fax No.: 000.000.0000
Subordinating Lender: X.X. XXXXXXX MEZZANINE FUND, L.P.
000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attn: Xx. Xxxxxx X. X'Xxxxx
Xx. Xxxxx Xxxxx
Xxxxx Xxxxxx, Esq.
Fax No.: 000.000.0000
with a copy to: XXXXXXXX & XXXXX
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Fax No.: 000.000.0000
Obligors: MERCURY AIR GROUP, INC.
0000 XxXxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Chief Executive Officer
Fax No.: 000.000.0000
with a copy to: MERCURY AIR GROUP, INC.
Legal Department
0000 XxXxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx, Esq.
Fax No. 000.000.0000
The parties may change the address at which they receive notice by giving notice
to each other in the foregoing manner.
(j) Rules of Construction. As used in this Agreement, the singular
includes the plural; the plural includes the singular. References to one gender
include all genders. Unless otherwise specified, references to Sections,
Exhibits, and parties refer to Sections, Exhibits, and
17
parties of or to this Agreement. The words "include," "including," and similar
words are not intended to be limiting.
18. Agreement by Obligors. Each Obligor hereby approves of, consents to
and agrees to be bound by the terms of this Agreement. Each Obligor further
agrees that this Agreement may be amended by the Agent and Subordinating Lender
without notice to, or the consent of, Obligors.
[Signatures follow on next page.]
18
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, as of the date first
above written.
X.X. XXXXXXX MEZZANINE FUND, L.P.
By:
-----------------------------------------
Title:
--------------------------------------
FOOTHILL CAPITAL CORPORATION,
as Agent
By:
-----------------------------------------
Title: Vice President
MERCURY AIR GROUP, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTERS, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CARGO, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCFUEL, INC.
By:
----------------------------------------
Title:
--------------------------------------
19
MAYTAG AIRCRAFT CORPORATION
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-BIRMINGHAM, LLC
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-BAKERSFIELD, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-BURBANK, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-FRESNO, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-LOS ANGELES, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-ONTARIO, INC.
By:
----------------------------------------
Title:
--------------------------------------
20
MERCURY AIR CENTER-SANTA XXXXXXX, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-XXXXXXXXXX, LLC
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER- FT. XXXXX, LLC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-XXXXXXX, LLC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-RENO, LLC
By:
----------------------------------------
Title:
--------------------------------------
21
MERCURY AIR CENTER-TULSA, LLC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-CHARLESTON, LLC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-XXXXX ISLAND, LLC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-NASHVILLE, LLC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER-ADDISON, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY AIR CENTER - CORPUS CHRISTI, INC.
By:
----------------------------------------
Title:
--------------------------------------
HERMES AVIATION, INC.
By:
----------------------------------------
Title:
--------------------------------------
22
VULCAN AVIATION, INC.
By:
----------------------------------------
Title:
--------------------------------------
EXCEL CARGO, INC.
By:
----------------------------------------
Title:
--------------------------------------
MERCURY ACCEPTANCE CORPORATION
By:
----------------------------------------
Title:
--------------------------------------
JUPITER AIRLINE AUTOMATION SERVICES, INC.
By:
----------------------------------------
Title:
--------------------------------------
AEG FINANCE CORPORATION
By:
----------------------------------------
Title:
--------------------------------------
23
EXHIBIT A
Copies of Junior Debt Documents
SCHEDULE A
Junior Debt Defaults
TABLE OF CONTENTS
PAGE
1. Certain Defined Terms................................................................................. 2
(a) General...................................................................................... 2
(b) Other Terms.................................................................................. 4
2. Representations, Warranties, Waivers and Covenants.................................................... 4
(a) Amount of Junior Debt........................................................................ 4
(b) Junior Debt Documents........................................................................ 5
(c) No Default................................................................................... 5
(d) Further Action............................................................................... 5
3. Subordination......................................................................................... 5
(a) General...................................................................................... 5
(b) Payments to Subordinating Lender............................................................. 5
(c) Actions by Subordinating Lender.............................................................. 8
(d) Priority of Interests in Collateral.......................................................... 8
4. Restrictions On Subordinating Lender's Actions........................................................ 9
5. Remedies.............................................................................................. 9
6. No Action to Violate Senior Debt Documents............................................................ 9
7. No Amendment of Junior Debt Documents................................................................. 10
8. Extensions, Compromises, Etc.......................................................................... 10
9. Waiver................................................................................................ 10
10. No Constraint on Agent and the Senior Lenders......................................................... 10
11. Continuing Agreement.................................................................................. 10
12. Rights in Insolvency Proceedings...................................................................... 11
13. Junior Debt Subordinated to Prior Payment of all Senior Debt in Insolvency............................ 12
14. Subordination Rights Not Impaired by Acts or Omissions of Obligors, Agent or the Senior Lenders....... 13
15. Lien Related Bankruptcy Provisions.................................................................... 13
16. Releases of Collateral................................................................................ 14
17. Miscellaneous......................................................................................... 14
(a) Amendment.................................................................................... 14
(b) Governing Law; Venue......................................................................... 14
-i-
TABLE OF CONTENTS
(continued)
PAGE
(c) Waiver of Right to Jury Trial................................................................ 15
(d) Counterparts, etc............................................................................ 15
(e) Headings..................................................................................... 15
(f) Attorneys' Fees; Etc......................................................................... 15
(g) Severability................................................................................. 15
(h) Entire Agreement............................................................................. 15
(i) Notice....................................................................................... 15
(j) Rules of Construction........................................................................ 16
18. Agreement by Obligors................................................................................. 17
-ii-
