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EXHIBIT 10.5
SUBORDINATION AGREEMENT
To: Congress Financial Corporation (Western)
Maxtor Corporation, a Delaware corporation ("Creditor"), requests you to make
loans or extend credit to Storage Dimensions, Inc., a Delaware corporation,
formerly known as SDI Acquisition Corporation ("Borrower") and to induce you so
to do and in consideration thereof and of benefits to accrue to Creditor and
Borrower therefrom, Creditor agrees with Borrower, and Creditor and Borrower
represent to and agree with you as follows:
1. Creditor, as assignee of Storage Dimensions, Inc., a
California corporation, and Borrower each represents to you
that (a) the total indebtedness (including contingent and all
other liabilities) owing on the date hereof by Borrower to
Creditor under that certain Subordinated Promissory Note (the
"Subordinated Note") dated December 26, 1992 as amended by
that certain letter from Xxxxxx X. Xxxxxx, Vice President,
Finance and CFO of Creditor to Xxxxxx X. Xxxxx, Senior Vice
President, Operations and Finance, CFO, of Borrower, dated
January 13, 1995 ("Junior Indebtedness") is as per the
Schedule of Junior Indebtedness described below; (b) no part
of the Junior Indebtedness is, or will be, evidenced by a
negotiable instrument or secured except as set forth in said
Schedule of Junior Indebtedness; (c) no part of the Junior
Indebtedness has heretofore been assigned or otherwise
transferred to or for the benefit of others; and (d) no
subordination agreement relating to all or any part of the
Junior Indebtedness has heretofore been executed in favor of
others.
2. Creditor and Borrower each agree with you that the references
to the "Loan Agreement" in the Subordinated Note shall be
deemed to mean the "Loan Agreement" described in Section 3.
below.
3. Creditor agrees with you that (a) the Junior Indebtedness
shall be and hereby is subordinated and the payment thereof,
except as otherwise provided in paragraph 3 below, is deferred
to all amounts now or hereafter owing by Borrower to you
("Senior Indebtedness"); (b) except as otherwise provided in
paragraph 5 below, Creditor will not, without your prior
written consent, assert, accelerate, collect or enforce the
Junior Indebtedness or any part thereof or realize upon or
enforce any collateral securing same; (c) Creditor will hold
in trust and forthwith pay to you for application to the
Senior Indebtedness, any payment Creditor receives on the
Junior Indebtedness in violation of this Agreement; (d)
Creditor will not demand or accept any property of Borrower as
collateral for the Junior Indebtedness or any part thereof,
and will forthwith deliver or cause to be delivered to you any
such collateral; and (e) each note or other instrument
evidencing all or any part of the Junior Indebtedness will be
marked with a legend, acceptable to you, stating that all
rights thereunder are subject to this Subordination Agreement.
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4. Borrower and Creditor agree with you that Borrower will not,
without your prior written consent, pay to Creditor, and
Creditor will not accept, all or any part of the Junior
Indebtedness except as follows:
Unless (i) an Event of Default, as defined
in the Loan and Security Agreement dated as
of May 16, 1996, between you and Borrower
(including any extensions, riders,
supplements, notes, amendments, or
modifications to or in connection
therewith, the ("Loan Agreement") shall
have occurred and be continuing and
Creditor has received notice of such
occurrence, or (ii) an Event of Default
would occur as a result of such payment
(and you notify Creditor within ninety (90)
days of the date that such payment caused
an Event of Default to occur), Borrower may
pay Creditor interest payable monthly in
arrears on the first day of each month
commencing June 1, 1996 on the unpaid
principal amount of the obligations
evidenced by the Subordinated Note,
computed on the basis of a 365-day year at
a rate of twelve percent (12%) per annum;
provided that in no case shall the interest
charged exceed the maximum rate under
applicable law. Unless (i) an Event of
Default under the Loan Agreement shall have
occurred and be continuing and Creditor has
received notice of such occurrence, or (ii)
an Event of Default would occur as a result
of such payment (and you notify Creditor
within ninety (90) days of the date of such
payment caused an Event of Default to
occur), Borrower may pay Creditor scheduled
payments of principal payable pursuant to
the Subordinated Note. If (i) an Event of
Default under the Loan Agreement has
occurred and is continuing and Creditor has
received notice of such occurrence, or (ii)
an Event of Default would occur as a result
of such payment (and you notify Creditor
within ninety (90) days of the date that
such payment caused an Event of Default to
occur), no payment of principal or interest
may be made on the Subordinated Note. If
Borrower fails to meet the financial
covenants conditioning the payment of
principal of the Subordinated Note under
Section 9.9 of the Loan Agreement, then no
payment of principal may be made on the
Subordinated Note, and payments of
principal otherwise scheduled to be made
shall not be
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considered "due" until such time as
Borrower meets such financial covenants.
5. Borrower agrees with you that it will not, without your prior
written consent, transfer any property to Creditor as security
for the payment of the Junior Indebtedness; execute or deliver
any negotiable instrument (other than described in paragraph 7
below) as evidence of the Junior Indebtedness or any part
thereof; assign or transfer all or any part of the Junior
Indebtedness to or for the benefit of others or execute any
subordination agreement in favor of others with respect to all
or any part of the Junior Indebtedness unless such other
subordination agreement is expressly made subject, in a manner
satisfactory to you, to your prior rights under this
Agreement. Borrower further agrees that if any representation
made to you by Borrower or Creditor under or pursuant to this
Agreement shall be false, or if Borrower or Creditor defaults
in the performance of any agreement contained herein, any and
all Senior Indebtedness may, at your option, be declared to be
immediately due and payable notwithstanding the maturity
stated in any presently outstanding or future note or other
instrument evidencing or governing any such Senior
Indebtedness.
6. Unless and until the Senior Indebtedness has been paid and
discharged in full, Creditor shall not, without your prior
written consent, which you may give or withhold in your sole
discretion, directly or indirectly take any action or declare
any default under the Junior Indebtedness including, without
limitation:
(a) Commencing and prosecuting any lawsuit or legal
proceeding against Borrower to collect the Junior Indebtedness
and perfecting any lien arising out of any resultant judgment
against Borrower;
(b) Repossessing and/or foreclosing upon any
collateral or property of Borrower, whether judicially or
nonjudicially;
(c) Accelerating the maturity of any of the Junior
Indebtedness;
(d) Seeking to attach any asset of Borrower, or
seeking the appointment of a liquidator, trustee, conservator,
receiver, keeper or custodian for Borrower or any of its
assets;
(e) Commencing or join in the commencement of
involuntary bankruptcy or insolvency proceedings against
Borrower; or
(f) Taking any other enforcement action against
Borrower with respect to the Junior Indebtedness;
Provided, however, that (i) Creditor may, upon a principal
payment default under the Subordinated Note (other than a
principal payment default caused by your exercise of
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your rights under this Agreement) take action under paragraphs
6(a) and (c) above to collect or enforce the payments on the
Subordinated Note, after providing written notice of such
default to you and the passage of six months from the date of
such notice, and (ii) Creditor may, upon an interest payment
default under the Subordinated Note take action under
paragraphs 6(a) and (c) above to collect or enforce the
payments on the Subordinated Note, after providing written
notice of such default to you and the passage of six months
from the date of such notice. In no event shall any such
action or any enforcement of any judgment or lien or any other
enforcement of Creditor's rights or remedies under the
Subordinated Note impair your security interest or any other
interest that you may have in the Collateral or your rights
under the Loan Agreement, or the interest or rights of any
third party, the proceeds of whose loan to Borrower would be
used to repay the Senior Indebtedness under the Loan
Agreement. Any other collection action on such payments is
subject to your prior written approval and consent. Provided
further that Creditor may accelerate the maturity of any of
the Junior Indebtedness in accordance with Section 3 of the
Subordinated Note.
If Creditor, in violation of this Agreement, shall institute
or participate in any suit, action or proceeding against
Borrower, Borrower may interpose as a defense or dilatory plea
this Agreement and you are irrevocably authorized to intervene
and to interpose such defense or plea in your or Borrower's
name. If Creditor attempts to enforce or realize upon any
collateral securing the Junior Indebtedness in violation of
this Agreement, Borrower or you (in Borrower's or your name)
may by virtue of this Agreement restrain such realization or
enforcement.
7. No termination of this subordination prior to payment of all
amount due under, and the termination of, the Loan Agreement
shall be effective without your prior written consent.
Creditor waives notice of acceptance hereof and of
presentment, demand, protest and notice of nonpayment or
protest as to any note or obligation signed, accepted,
endorsed or assigned to you by Borrower, and all exemptions
and any other demands and notices required by law, and waives
all defenses, setoffs and counterclaims whether hereunder or
with respect to any obligations owing to Creditor by you or by
Borrower. Until you have received payment in full of the
Senior Indebtedness, Creditor agrees that you may at any time
and from time to time, without Creditor's consent, and without
notice to Creditor, do any one or more of the following in
your sole and absolute discretion: (a) renew, accelerate,
extend the time for payment of, or increase the Senior
Indebtedness and any or all of the obligations of Borrower's
customers, of any guarantors of Borrower, or of any other
party at any time directly or contingently liable for the
payment of any of the Senior Indebtedness; (b) grant any other
indulgence to Borrower or any other person in respect of any
or all of the Senior Indebtedness or any other matter; (c)
amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Senior Indebtedness,
including the rate of interest thereon, or the loan documents
relating thereto; (d) substitute or add, or take any action or
omit to take any action which results in the release of any
one or more endorsers or guarantors of all or any part of
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the Senior Indebtedness; (e) apply any sums received from
Borrower, any guarantor, endorser, or co-signer, or from the
disposition of any collateral to any indebtedness whatsoever
owing from such person or secured by such collateral, in such
manner and order as you determine in your sole discretion, and
regardless of whether such indebtedness is part of the Senior
Indebtedness, is secured, or is due and payable; (f) permit
Borrower to use proceeds of any collateral for any purpose;
(g) make loans or advances to Borrower secured in whole or in
part by any collateral or refrain from making any such loans
or advances; (h) accept partial payments of, compromise or
settle, refuse to enforce, or release all or any parties to,
any or all of the Senior Indebtedness; (i) settle, release (by
operation of law or otherwise), compound, compromise, collect
or liquidate any of the Senior Indebtedness or any collateral
in any manner permitted by applicable law; and (j) accept,
release, waiver, surrender, enforce, exchange, modify, impair,
or extend the time for the performance, discharge, or payment
of, any and all property of any kind securing any or all of
the Senior Indebtedness, or on which you at any time may have
a lien, or refuse to enforce your rights or make any
compromise or settlement or agreement therefor in respect of
any or all of such property. You are not under and shall not
hereafter be under any obligation to xxxxxxxx any assets in
favor of Creditor, or against or in payment of any or all of
the Senior Indebtedness, and may proceed against any
collateral in such order and manner as you elect. This
subordination shall bind our respective heirs, administrators,
executors, successors and assigns, and shall enure to your
successors and assigns. Waiver of any default shall not be
deemed a waiver of any other or subsequent default. All of
your rights are cumulative and not alternative.
8. Schedule of Junior Indebtedness.
(a) The total Junior Indebtedness (including contingent
and other liabilities) owing on the date hereof by
Borrower to Creditor is as follows:
Creditor Amount Payable on
-------- ------ ------- --
Maxtor Corporation, $4,000,000 December 23, 1996
a Delaware corporation
(b) Note evidencing above Junior Indebtedness is as
follows:
Date Principal Interest
Creditor of Note Amount Per Annum
-------- ------- ------ ---------
Maxtor Corporation, Dec. 26, 1992, $4,000,000 12%
a Delaware corporation as amended
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MATURITY
Dec 23, 1996
(c) Collateral for above Junior Indebtedness is as
follows:
The Junior Indebtedness is and will remain unsecured.
9. In the event Borrower becomes the debtor in any voluntary or
involuntary bankruptcy proceeding, Creditor shall have the
following rights:
(1) Creditor may file one or more proofs of claim in such
bankruptcy with respect to the Junior Indebtedness,
provided that Creditor shall not be entitled to
receive payment of its claims prior to payment in
full of the Senior Indebtedness, and, in the event of
any distribution to Creditor with respect to the
Junior Indebtedness at a time when any Senior
Indebtedness remains unpaid, Creditor shall pay over
such distribution to you to be applied in reduction
of the Senior Indebtedness, and Creditor shall become
subrogated to your claims to the extent of any such
payments made at such time, if any, as the Senior
Indebtedness is fully satisfied, but not sooner.
(2) Creditor may vote its claim with respect to the
Junior Indebtedness in connection with any matter
requiring the vote of creditors, but shall not vote
in favor of any plan that would cause Creditor to be
paid ahead of you in violation of the provisions of
this Agreement.
(3) Creditor may appear and be heard on any matter
relating to its claim, but shall not seek to assert
rights contrary to the provisions of this Agreement.
If Creditor should fail to file a proof of claim within thirty (30)
days of the expiration of the time period within which creditors must
file their proofs of claim or take any other action advisable to
preserve its claims against Borrower within thirty (30) days of your
request to take such action, Creditor agrees that you may file such
claim or take such action in the Creditor's place and stead, as its
attorney-in-fact, and Creditor hereby irrevocably appoints you as its
attorney-in-fact for such purposes for the term of this Agreement.
10. In the event of any action based upon or arising out of this Agreement,
the prevailing party shall be entitled to recover from the
non-prevailing party all out-of-pocket costs, fees and reasonable
expenses incurred in connection therewith, including without limitation
reasonable attorneys' fees. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California. Each
party hereto hereby agrees to execute such additional documents and
instruments and take such further actions as may reasonably be required
to carry out the purposes and intent of this Agreement.
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11. BORROWER AND CREDITOR 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 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. BORROWER AND CREDITOR
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 BORROWER, CREDITOR OR YOU 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.
12. All notices and other communications provided for hereunder
must be in writing and must be mailed, telecopied or delivered
to the appropriate party at the address set forth below or at
any other address as may be designated by it in a written
notice sent to all other parties in accordance with this
paragraph, and shall be effective (a) if given by mail, on the
earlier of receipt or the third calendar day after deposit in
the United States mail with first class or airmail postage
paid, (b) if given by telecopier, when sent, or (c) if given
by personal delivery, when delivered.
If to Borrower, at:
Storage Dimensions, Inc.
0000 XxXxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attn: Chief Financial Officer
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Creditor, at:
Maxtor Corporation
000 Xxxxx Xxxx Xxxxxxx
Xxx Xxxx, XX 00000
Attn: General Counsel
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Congress Financial Corporation (Western), at
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Congress Financial Corporation (Western)
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
Attn: Account Executive - Storage Dimensions
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
13. This Agreement may be executed in one or more counterparts,
all of which counterparts together shall constitute one and
the same instrument.
Borrower and Creditor have severally duly executed this Agreement as of May 16,
1996.
STORAGE DIMENSIONS, INC. MAXTOR CORPORATION,
a Delaware corporation a Delaware, corporation
"Borrower" "Creditor"
By: /s/ XXXXXX X. XXXXX By: /s/ XXXXXX XXXXXX
-------------------------------- --------------------------------
Xxxxxx X. Xxxxx Xxxxxx Xxxxxx
Title: CFO Title: VP, CFO
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