Exhibit 10.21
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of August 13th,
2002, is by and among W. XXXXX XXXXXXX (the "Subordinated Creditor"), AVATECH
SOLUTIONS, INC., ("Parent") and TECHNICAL LEARNINGWARE COMPANY, INC.
(collectively the "Companies" or individually a "Company") and THE CIT
GROUP/BUSINESS CREDIT, INC. (the "Lender").
RECITALS:
A. The Lender has agreed to make loans to the Companies pursuant to the
terms of and as evidenced by that certain Financing Agreement, dated as October
25, 2000, as amended (if amended), by and between the Companies and the Lender
(hereinafter such Financing Agreement as amended, extended, renewed, modified
and/or replaced from time to time shall be referred to as the "Senior Financing
Agreement").
B. Because of the direct benefit to the Subordinated Creditor on account
of the loans made pursuant to the Senior Financing Agreement, the Subordinated
Creditor has agreed to enter into this Subordination Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS.
For the purposes hereof:
(a) "Lender" has the meaning set forth in the preamble hereof, and
any other person that is the holder of Senior Obligations at such time,
including, without limitation, any person holding Senior Obligations by
assignment or pledge.
(b) "Senior Obligations" means (i) the principal amount of, and
accrued interest (including, without limitation, any interest which accrues
after or would accrue but for the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of any Company)
payable on, the Senior Financing Agreement, (ii) all liabilities and
obligations, whenever arising, owing from any Company to the Lender, or any
affiliate of the Lender, arising under any interest rate protection agreement
(including xxxxxx, swaps, collars and caps) now or hereafter extended by the
Lender or any of its affiliates to or for the benefit of any Company (the
"Interest Rate Protection Agreements") and (iii) all other indebtedness,
obligations and liabilities of the Companies to the Lender now existing or
hereafter
incurred or created, under or with respect to the Senior Financing Agreement or
the Interest Rate Protection Agreements.
(c) "Subordinated Creditor" has the meaning set forth in the preamble
hereof.
(d) "Subordinated Debt Instrument" means the promissory note in the
amount of $500,000 issued by Parent in favor of the Subordinated Creditor, as
such promissory note is modified, amended or replaced from time to time.
(e) "Subordinated Obligations" means any and all obligations of the
Subordinated Creditor under the Subordinated Debt Instrument.
1.02 OTHER DEFINITIONAL PROVISIONS.
The words "hereof," "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and section, subsection, schedule
and exhibit references are to this Agreement unless otherwise specified.
ARTICLE II
TERMS OF SUBORDINATION
2.01 SUBORDINATION.
(a) The Subordinated Creditor agrees, for itself and each future
holder of the Subordinated Obligations, that the Subordinated Obligations are
expressly subordinated and junior in right and time of payment (as defined in
subsection 2.01(b)) to all Senior Obligations.
(b) "Subordinated and junior in right and time of payment" shall mean
that:
(i) Unless and until the Senior Obligations shall have been
paid in full and satisfied, the Subordinated Creditor will not,
without the express prior written consent of the Lender, take,
demand or receive, and no Company will make, give or permit,
directly or indirectly, by set-off, redemption, purchase or in
any other manner, any payment or prepayment on or security or
guaranty for the whole or any part of Subordinated Obligations,
and without the express prior written consent of the Lender, the
Subordinated Creditor will not accelerate the payment of the
Subordinated Obligations or accept any payments on account of any
excess cash flow provisions set forth in the Subordinated Debt
Instrument, or declare to be immediately due and payable, enforce
or take any action to enforce or collect the Subordinated
Obligations or any portion thereof or any security of guaranty
therefor; PROVIDED, HOWEVER, the Subordinated Creditor shall be
entitled to receive regularly scheduled
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current interest payments under the Subordinated Debt Instrument
pursuant to, and in accordance with, the terms thereof so long as
the Lender gives its written consent to the making of such
payments.
(ii) Until the Senior Obligations shall have been paid in
full in cash and satisfied, the Subordinated Creditor shall not
accelerate, declare to be immediately due and payable, enforce or
take any action to enforce or collect, the Subordinated
Obligations or any portion thereof or any security or guaranty
therefor without the express prior written consent of the Lender
except with respect to payments permitted by Section 2.01(b)(i)
above.
(iii) Except for payments permitted by Section 2.01(b)(i)
above or Section 2.01(b)(iv) below, without the express written
consent of the Lender, no payment, prepayment or distribution or
any kind of character, whether in cash, property or securities
(including without limitation, proceeds of collateral for the
Subordinated Obligations), which, but for the subordination
provisions contained herein, would otherwise be payable or
deliverable to the Subordinated Creditor upon or in respect of
the Subordinated Obligations shall be paid to the Subordinated
Creditor, and, the Subordinated Creditor shall not receive or
accept any such payment or distribution or any benefit therefrom
unless and until the Senior Obligations shall have been fully
paid and satisfied in cash.
(iv) Without limiting the generality of the foregoing
provisions of this Section 2.01, in the event of any liquidation,
termination, revocation or other winding-up of any Company, or in
the event of any receivership, insolvency, reorganization or
bankruptcy proceedings, assignment for the benefit of creditors
or any proceeding by or against any Company for any relief under
any bankruptcy, reorganization or insolvency law or laws, federal
or state, or any law, federal or state, relating to the relief of
debtors, readjustment of indebtedness, reorganization,
composition or extension of indebtedness, then, and in any such
event, all Senior Obligations shall first be paid in full in
cash, before any payment or distribution is made in respect of
the Subordinated Obligations, and any payment or distribution of
any kind or character, whether in cash, property or securities
which, but for the subordination provisions contained herein,
would otherwise be payable or deliverable to the Subordinated
Creditor upon or in respect of the Subordinated Obligations,
shall instead be paid over or delivered to the Lender if the
Senior Obligations have not been fully paid and satisfied in
cash, and the Subordinated Creditor shall not receive any such
payment or distribution or any benefit therefrom unless and until
the Senior Obligations shall have been fully paid and satisfied
in cash; PROVIDED, HOWEVER, that the Subordinated Creditor may
receive payments permitted by Section 2.01(b)(i) above, and may
retain securities that are subordinated to at least
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the same extent as the Subordinated Obligations to (A) the Senior
Obligations and (B) any securities issued in exchange for the
Senior Obligations.
2.02 PAYMENTS RECEIVED BY SUBORDINATED CREDITOR.
Should any payment or distribution or security, or the proceeds of any
thereof, be collected or received by the Subordinated Creditor in respect of the
Subordinated Obligations, and such collection or receipt is not expressly
permitted hereunder (it being understood that the Subordinated Creditor is
expressly permitted hereunder to collect and receive payments and distributions
made in respect of the Subordinated Obligations in accordance with the
provisions of Section 2.01(b)(i)), the Subordinated Creditor will forthwith turn
over the same to the Lender in the form received (except for endorsement or
assignment by the Subordinated Creditor when necessary) and, until so turned
over, the same shall be held in trust by the Subordinated Creditor as the
property of the Lender.
2.03 SUBROGATION.
After, but only after, the Lender shall have received, in satisfaction of
the Senior Obligations, indefeasible payment in full in cash of the Senior
Obligations, the Subordinated Creditor shall be subrogated to the rights of the
Lender to receive payments on or distributions of assets with respect to the
Senior Obligations.
2.04 NO COLLATERAL, SECURITY, GUARANTIES OR OFFSETS.
Until the Lender shall have received, in satisfaction of the Senior
Obligations, payment in full in cash of the Senior Obligations, the Subordinated
Creditor shall not, directly or indirectly, (i) take any additional collateral
or security to secure the repayment of the Subordinated Obligations, (ii) accept
any guaranties to guarantee the repayment of the Subordinated Obligations, or
(iii) offset any present and/or future amounts owing by the Subordinated
Creditor to any Company against any present and/or future amounts owing by any
Company to the Subordinated Creditor (including, without limitation, the
Subordinated Obligations).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 The Subordinated Creditor represents and warrants to the Lender that:
(a) POWER AND AUTHORITY; AUTHORIZATION; NO VIOLATION. The
Subordinated Creditor has full power, authority and legal right to execute,
deliver and perform this Agreement and, to the best of its knowledge, the
execution of this Agreement does not require any approval or consent of any
holders of any indebtedness or obligations of the Subordinated Creditor and will
not violate any provision of law, governmental regulation, order
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or decree or any provision of any indenture, mortgage, contract or other
agreement to which the Subordinated Creditor is party or by which it or its
assets are bound.
(b) CONSENTS. To the best of its knowledge, no consent, license,
approval or authorization of, or registration or declaration with, any
governmental instrumentality, domestic or foreign, is required in connection
with the execution, delivery and performance by the Subordinated Creditor of
this Agreement.
(c) BINDING OBLIGATION. This Agreement constitutes the legal, valid
and binding obligation of the Subordinated Creditor enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
ARTICLE IV
MODIFICATION OF SENIOR
OBLIGATION; RELIANCE
4.01 The Subordinated Creditor consents, without the necessity of any
reservation of rights against it, and without notice to or further assent by it,
to the following: (a) any demand for payment of any Senior Obligation may be
continued, and the Senior Obligations or the liability of the Companies or any
other party upon or for any part thereof, or any collateral security or guaranty
therefor, or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, modified, accelerated, compromised,
waived, surrendered, or released and (b) the Senior Financing Agreement, the
Interest Rate Protection Agreements, or any document or instrument evidencing or
governing the terms of any other Senior Obligations or any collateral security
documents or guaranties or documents in connection with the Senior Financing
Agreement, the Interest Rate Protection Agreements or the Senior Obligations may
be amended, modified, supplemented or terminated, in whole or in part, as the
Lender and the Companies may agree from time to time, and any collateral
security at any time held by the Lender for payment under the Senior Financing
Agreement or the Interest Rate Protection Agreements or otherwise of the Senior
Obligations may be sold, exchanged, waived, surrendered or released, in each
case all without notice to or further assent by the Subordinated Creditor, which
will remain bound under this Agreement, and all without impairing, abridging,
releasing or affecting the subordination provided for herein, notwithstanding
any such renewal, extension, modification, acceleration, compromise, amendment,
supplement, termination, sale, exchange, waiver, surrender or release. The
Subordinated Creditor waives any and all notice of the creation, modification,
renewal, extension or accrual of any of the Senior Obligations or any of the
obligations under the Senior Financing Agreement or the Interest Rate Protection
Agreements and notice of or proof of reliance by the Lender upon this Agreement,
the Senior Financing Agreement, the Interest Rate Protection Agreements and the
Senior Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred in reliance upon this Agreement, and all
dealings between the Subordinated Creditor and the Lender shall be deemed to
have been consummated in reliance upon this Agreement, except that the foregoing
provisions shall not constitute an agreement to waive the notice provisions of
Section 2.01(b)(i). The Subordinated Creditor acknowledges and agrees that the
Lender has relied upon the
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subordination provided for herein in making certain credit facilities available
under the Senior Financing Agreement. The Subordinated Creditor waives notice of
or proof of reliance on this Agreement and protest, demand for payment and
notice of default.
ARTICLE V
MODIFICATION OF SUBORDINATED DEBT INSTRUMENT
5.01 Until the Senior Obligations have been paid in full, the Subordinated
Creditor agrees that it will not, without the prior written consent of the
Lender in each instance (i) amend, modify, waive or supplement the terms of the
Subordinated Debt Instrument in a manner that increases or otherwise makes more
onerous the obligations of Parent thereunder with respect to the Subordinated
Obligations, (ii) accept any security interest, lien or mortgage on any assets
or property of any party to the Senior Financing Agreement as security for the
Subordinated Obligations (except for liens subordinate to the liens in favor of
the Lender) or (iii) accept any guaranty for purposes of guaranteeing the
repayment of the Subordinated Obligations.
ARTICLE VI
TRANSFER OF SUBORDINATED DEBT INSTRUMENT
6.01 Until the Senior Obligations have been paid in full, the Subordinated
Creditor agrees that it will not, without the prior written consent of the
Lender in each instance, (a) sell, assign or otherwise transfer, in whole or in
part, the Subordinated Debt Instrument or any interest in the foregoing to any
other person or entity (PROVIDED, HOWEVER, that the Subordinated Creditor may so
transfer the Subordinated Debt Instrument or any interest therein without the
prior written consent of the Lender if the transferee agrees in writing to be
bound by all of the terms of this Agreement as if it were a party to this
Agreement) or (b) create, incur or suffer to exist any security interest, lien,
charge or other encumbrance whatsoever upon the Subordinated Debt Instrument.
ARTICLE VII
MISCELLANEOUS
7.01 NO WAIVER; CUMULATIVE REMEDIES.
No failure to exercise, and no delay in exercising on the part of the
Lender, from time to time, any right, power or privilege under the Senior
Obligations, or any right, power or privilege under this Agreement shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege under this Agreement preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided in this Agreement and in any agreement relating to any of the
Senior Obligations and all other agreements, instruments and documents referred
to in any of the foregoing are cumulative and shall not be exclusive of any
rights or remedies provided by law.
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7.02 FURTHER ASSURANCES.
The Subordinated Creditor agrees to execute and deliver such further
documents and to do such other acts and things as the Lender may reasonably
request in order fully to effect the purposes of this Agreement.
7.03 NOTICES.
All notices, requests and demands to or upon the respective parties hereto
to be effective shall be in writing and, unless otherwise expressly provided
therein, shall be deemed to have been fully given or made when delivered by
hand, or five days after having been given by certified mail, return receipt
requested or, in the case of telegraphic notice, when delivered to the telegraph
company, or in the case of telex notice, when sent, answerback received,
addressed as set forth on the signature pages of this Agreement by the parties
hereto or to such address or other address as may be hereafter notified by the
respective parties hereto.
7.04 GOVERNING LAW; SUCCESSORS AND ASSIGNS.
This Agreement and the rights and obligations of the parties under this
Agreement shall be governed by, and construed and interpreted in accordance
with, the laws of the State of North Carolina applicable to contracts made and
to be performed in such state, and shall be binding upon and inure to the
benefit of the Lender, the Subordinated Creditor, the Companies and their
respective successors, transferees and assigns, except that the Subordinated
Creditor may not assign or transfer any of its obligations hereunder without the
prior written consent of the Lender.
7.05 COUNTERPARTS.
This Agreement may be executed by the parties hereto in any number of
separate counterparts all of which taken together shall constitute one and the
same instrument.
7.06 WAIVERS, AMENDMENTS, ETC.
The subordination provisions contained herein are for the benefit of the
Lender and its successors and assigns as holders from time to time of Senior
Obligations and may not be rescinded or canceled or modified in any way, nor,
unless otherwise expressly provided for herein, may any provision of this
Agreement be waived or changed without the express prior written consent thereto
of the Lender.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal as of the day and year first above written.
WITNESS:
/s/ [ILLEGIBLE] /s/ X. X. Xxxxxxx
----------------------------- ------------------------------------
W. XXXXX XXXXXXX
Address for Notices:
0000 Xxxxxxxxx Xxxx
--------------------------------
Xxxxxxxxxxx, XX 00000
---------------------------------
Fax No. (000) 000-0000
The undersigned agrees to comply with the provisions of this Subordination
Agreement applicable to it and to make payment to the Subordinated Creditor only
in strict accordance with the terms hereof.
AVATECH SOLUTIONS, INC.
/s/ Xxxxx X. Xxxxx By: /s/ Xxxxx X. Xxxxxx
--------------------- ----------------------------------
Witness Name: Xxxxx X. Xxxxxx
Title: CEO
TECHNICAL LEARNINGWARE COMPANY, INC.
By: /s/ Xxxxx X. Xxxxxx
----------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
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