SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is made as of the 2nd day
of November, 2000 by and among XXXXX FARGO BUSINESS CREDIT, INC., a
Minnesota corporation ("Senior Lender"), BANK OF NEW YORK, as Securities
Agent ("BONY"), and SPECIAL VALUE BOND FUND, LLC, a Delaware limited
liability company (together with BONY, "Junior Creditor"), and PEMCO
AVIATION GROUP, INC., for itself and as Agent for Pemco Aeroplex, Inc., an
Alabama corporation; Space Vector Corporation, a Delaware corporation;
Pemco Air Services System, Inc., a Colorado corporation; Pemco Nacelle
Services, Inc., a Colorado corporation; Pemco World Air Services, Inc., a
Colorado corporation; Precision Standard Corp., a Delaware corporation;
Xxxxx Holdings I Inc., a Delaware corporation; Xxxxx Holdings II Inc., a
Delaware corporation, Air International Incorporated, a Delaware
corporation, and Pemco Capital Corp., a Colorado corporation (as more
particularly defined below, the "Obligors").
RECITALS
Prior to the effectiveness of this Agreement, some or all of the Obligors
are directly or indirectly indebted in the principal amount of $3,690,000
to Junior Creditor pursuant to a Second Amended and Restated Senior
Subordinated Loan Agreement (as the same may now exist or may hereafter be
amended, modified, supplemented, renewed or extended, the "Subordinated
Loan Agreement");
Senior Lender and certain of the Obligors have entered into a Credit and
Security Agreement of even date herewith (as amended, restated or
otherwise modified from time to time, the "Credit Agreement;" together
with all other guaranties, documents, agreements, and instruments now or
hereafter executed in connection therewith, all as amended, supplemented,
restated or otherwise modified from time to time, are collectively called
the "Senior Loan Agreements") pursuant to which the Senior Lender has
agreed to make loans and extend other financial accommodations to the
Obligors party thereto;
The Obligors that are not a party to the Credit Agreement have agreed to
guarantee the obligations of the other Obligors under the Credit
Agreement; and
As a condition to entering into the Credit Agreement, Senior Lender has
required that the Junior Creditor agree to subordinate its loans to the
Obligors on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the provisions
set forth herein, Senior Lender, Junior Creditor, and Obligors agree as
follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings given in the Credit Agreement. In addition, the
following terms in this Agreement shall have the following meanings:
"Junior Securities" means any payment or distribution of capital stock or
other securities of any Obligor or other Person provided for by a plan of
reorganization or readjustment authorized by an order or decree of a court
of competent jurisdiction in a reorganization proceeding under any
applicable bankruptcy law, which stock or securities are subordinated in
right of payment to all then outstanding Senior Debt to substantially the
same extent as, or to a greater extent than, the Subordinated Debt is
subordinated to Senior Debt as provided in this Agreement.
"Obligors" shall mean, individually and collectively, the Persons
identified as such in the opening paragraph of this Agreement, and any
other person now or hereafter obligated to Senior Lender under the Senior
Loan Agreements and to Junior Creditor under the Subordinated Loan
Agreement, together with each of their respective successors and assigns,
including, without limitation, any trustee in bankruptcy or other court
appointed receiver.
"Senior Debt" means all indebtedness, liabilities and obligations of every
kind or nature, absolute or contingent, now or existing or hereafter
arising, of Obligors owed to Senior Lender under the Senior Loan
Agreements, including without limitation the principal of, and interest on
(including any interest accruing after the commencement of any bankruptcy,
insolvency or similar proceeding with respect to Obligors whether or not
allowed as a claim in such proceeding), and all premiums, fees, charges,
expenses and indemnities arising under or in connection with the Senior
Loan Agreements.
"Senior Lender" means individually and collectively, Senior Lender and its
successors and assigns and any person who refinances or refunds all or any
portion of the Senior Debt.
"Subordinated Debt" means all indebtedness of any Obligor to the Junior
Creditor arising under the Subordinated Loan Agreement, including without
limitation, principal, interest, fees, charges, indemnities and other
liabilities now or hereafter existing with respect to the Subordinated
Loan Agreement, whether direct or indirect, absolute or contingent,
secured or unsecured, due or to become due, now existing or hereafter
arising, together with all interest, fees charges, expenses and attorney's
fees with respect thereto for which any Obligor is now or hereafter
becomes liable to pay to Junior Creditor under any agreement or by law.
2. Subordination to Senior Debt. Notwithstanding any other provision of
the Subordinated Loan Agreement, any document or instrument executed by
Obligors in connection therewith, or any collateral now or hereafter
securing the Subordinated Loan Agreement, all Subordinated Debt is and
shall be subordinate and junior in right of payment, to the extent and in
the manner hereinafter set forth, to the prior indefeasible payment in
full of all Senior Debt.
3. Distributions in Liquidation and Bankruptcy.
(a) In the Event of any insolvency or bankruptcy case under Title 11
of the United States Code (the "Bankruptcy Code") or any other
federal or state insolvency statute, or any receivership,
liquidation, reorganization or other similar proceedings in
connection therewith, relative to any Obligor or its property, or in
the event of any proceedings for voluntary liquidation, dissolution
or other winding up of any Obligor, whether or not involving
insolvency or bankruptcy or in the event of any assignment for the
benefit of creditors of any Obligor or any marshaling of assets of
any Obligor (any such event an "Insolvency Case"), then the Senior
Lender shall first be entitled to receive payment in full of all
Senior Debt before the Junior Creditor shall be entitled to receive
any payment on account of the Subordinated Debt, and the Senior
Lender shall be entitled to receive for application in payment of the
Senior Debt any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or
deliverable in any such Insolvency Case in respect of the
Subordinated Debt, including, without limitation, securities or
interests of any Obligor as reorganized or readjusted or securities
or interests of any Obligor or any other entity provided for by a
plan of reorganization or readjustment (other than, in any such case,
Junior Securities).
(b) In any Insolvency Case, Senior Lender is irrevocably authorized
to:
(i) If the Junior Creditor fails to do so reasonably
promptly after written request therefor by the Senior
Lender, enforce claims comprising any of the Subordinated
Debt either in its own name or the name of the Junior
Creditor, by proof of debt, proof of claim, suit, adversary
proceeding, or otherwise; and/or
(ii) Collect any assets of any Obligor distributed, divided
or applied by way of dividend or payment, or any securities
issued, on account of any of the Subordinated Debt, and
apply the same, or the proceeds of any realization upon the
same, to the Senior Debt.
(c) To enable Senior Lender to assert and enforce its rights
hereunder upon the occurrence of an Insolvency Case, Senior Lender
and any person whom Senior Lender may designate are hereby
irrevocably appointed attorney in fact for the Junior Creditor, with
full power to act in the place and stead of the Junior Lender in
accordance with the powers granted in this Agreement, including the
right to make, present, and file proofs of claim against any Obligor
on account of all or any part of the Subordinated Debt as Senior
Lender may deem advisable and to receive and collect any and all
dividends or other payments (other than payments of Junior
Securities) made thereon and to apply the same on account of the
Senior Debt. Junior Creditor will execute and deliver to Senior
Lender such instruments as may be required by it to enforce any and
all of the Subordinated Debt to effectuate the aforesaid power of
attorney and to effect collection of any and all dividends or other
payments (other than payments of Junior Securities) which may be made
at any time on account of the Subordinated Debt.
(d) If Senior Lender shall desire to permit the use of cash
collateral or to provide post-petition financing from Senior Lender
to any Borrower, Junior Lender hereby agrees that it shall raise no
objection to any such use of cash collateral or such post-petition
financing from Senior Lender regardless of any diminution in the
value of any collateral which may result from the use of cash
collateral or provision of post-petition financing.
4. Permitted Payments. Obligors shall not pay and Junior Creditor shall
not accept any payments (whether of principal, interest, or otherwise) on
the Subordinated Debt; provided, however, that Obligors may pay and Junior
Creditor may accept the regularly scheduled installments of interest and
principal due under the Subordinated Loan Agreement so long as (a) no
default has arisen and continues with respect to the Senior Debt and (b)
after giving effect to such payment, no default would be created thereby.
5. Default on Senior Debt. If Junior Creditor shall receive any payment
or distribution of any kind (whether from any collateral securing such
debt or otherwise) that the Junior Creditor is not entitled to receive
under the provisions of this Agreement (including any payment received in
reliance on the Senior Debt having been paid in full, if and to the extent
any payment applied by the Senior Lender to the Senior Debt is thereafter
set aside, recovered, rescinded or required to be returned for any reason,
including, without limitation, the bankruptcy, insolvency or
reorganization of any Obligor or any other person), such payment or
distribution shall be delivered to Senior Lender promptly in precisely the
form received (except for the endorsement or assignment by Junior Creditor
where necessary) for application to payment of the Senior Debt, whether
then due or not due.
6. No Acceleration or Exercise of Remedies. So long as any Senior Debt
remains unpaid, Junior Creditor will promptly give written notice to the
Senior Lender of any uncured default under the Subordinated Loan
Agreement; and Junior Lender will not at any time prior to such notice,
nor for a period of six months from the date of such notice (a)
accelerate, or cause to be accelerated, the Subordinated Debt or otherwise
cause the Subordinated Debt to become due prior to its original stated
maturity; or (b) exercise any remedies with respect to the Subordinated
Debt or any collateral at any time securing payment or performance thereof
unless and until, in each such case, all of the Senior Debt shall have
been indefeasibly paid in full, or Senior Lender shall have otherwise
consented in writing, but in no event shall Junior Creditor exercise any
remedies against any of the collateral securing the Senior Debt while any
of the Senior Debt remains unpaid regardless of the nature of the default
by Obligors with Junior Creditor if Senior Lender has commenced the
exercise of its remedies as a secured lender with respect to such
collateral. So long as any Senior Debt remains unpaid, Junior Creditor
will not (x) accept any payment, prepayment or defeasance of any portion
of the Subordinated Debt prior to the due date for such Subordinated Debt
as set forth in the Subordinated Loan Agreement or in any other document
creating any Subordinated Debt, except as provided herein; or (y) modify
or alter in any way the terms of the Subordinated Debt if the effect of
such is to accelerate the payments due thereon.
7. Bankruptcy. Until the Senior Debt shall have been indefeasibly paid
in full, Junior Creditor will not without the prior written consent of
Senior lender commence, or join with any other person in commencing, any
proceeding against any person with respect to the Subordinated Debt under
any bankruptcy reorganization, readjustment of debt, dissolution,
receivership, liquidation or insolvency law or statute now or hereafter in
effect in any jurisdiction.
8. Continuing Subordination. The subordination effected by these
provisions is a continuing subordination and may not be modified or
terminated by Junior Creditor or any other holder of any Subordinated Debt
until all of the Senior Debt shall have been indefeasibly paid in full.
Subordinated Lender has amended its Subordinated Loan Agreement pursuant
to Exhibit A hereto which amendment and Subordinated Loan Agreement shall
not be further amended without Senior Lender's prior written consent. At
any time and from time to time, without consent of or notice to Junior
Creditor or any other holder of Subordinated Debt, and without impairing
or affecting the obligations of any of them hereunder;
(a) The time for Obligors' performance of, or compliance with, any
of their agreements contained in the Senior Loan Agreements, or any
other agreement, instrument or document relating to the Senior Debt,
may be modified or extended or such performance or compliance may be
waived;
(b) Senior Lender may exercise or refrain from exercising any rights
under the Senior Loan Agreements, or any other agreement, instrument
or document relating to the Senior Debt;
(c) The Senior Loan Agreements, or any other agreement, instrument
or document relating to the Senior Debt, may be revised, amended or
otherwise modified for the purpose of adding or changing any
provisions thereof (including, without limitation, increases in the
principal amount or increases in the interest charges or fees), or
changing in any manner the rights of Senior Lender, Obligors, or any
guarantor of the Senior Debt;
(d) Payment of the Senior Debt or any portion thereof may be
extended, refunded or refinanced or any Senior Loan Agreements
evidencing such Senior Debt may be renewed in whole or in part;
(e) The maturity of the Senior Debt may be accelerated, and any
collateral security therefor or any other rights of Senior Lender may
be exchanged, sold, surrendered, released or otherwise dealt with, in
accordance with the terms of any present or future agreement with
Obligors or any guarantor and any other agreement of subordination
(and the debt covered thereby) may be surrendered, released or
discharged, or the terms thereof modified or otherwise dealt with in
any manner;
(f) Any person liable in any manner for payment of the Senior Debt
may be released by holders of Senior Debt; and
(g) Notwithstanding the occurrence of any of the foregoing, these
subordination provisions shall remain in full force and effect with
respect to the Senior Debt, as the same shall have been extended,
renewed, modified, refunded or refinanced.
9. Waivers. Junior Creditor hereby waives, and agrees not to assert:
(a) any right, now or hereafter existing, to require Senior Lender to
proceed against or exhaust any collateral at any time securing the Senior
Debt, or to marshal any assets in favor of Junior Creditor or any other
holder of Subordinated Debt; and (b) any notice of the incurrence of
Senior Debt, it being understood that Senior Lender may, in reliance upon
these subordination provisions, make advances under the Loan Documents, or
any other agreement, document or instrument now or hereafter relating to
the Senior Debt, without notice to or authorization of Junior Creditor.
10. Lien Subordination and Standby. Any lien, security interest,
encumbrance, charge or claim of Junior Creditor for itself or as agent on
any assets or property of any Obligor or any proceeds or revenues
therefrom which Junior Creditor for itself or as agent may have at any
time as security for any Subordinated Debt or as security for any other
indebtedness owed to it of any nature whatsoever including, without
limitation, all loans, advances, debit balances, liabilities, covenants,
duties or obligations whether direct or acquired indirectly by assignment,
pledge, purchase or otherwise shall be, and hereby is, subordinated to all
liens, security interests, or encumbrances now or hereafter granted to
Senior Lender by Obligors or by law, notwithstanding the date or order of
attachment or perfection of any such lien, security interest, encumbrance
or claim or charge of the provision of any applicable law. Senior Lender
may dispose of any of all of the collateral for the Senior Debt free of
any and all liens, including but not limited to liens created in favor of
Junior Creditor for itself or as agent through judicial or nonjudicial
proceedings, in accordance with applicable law including taking title,
after notice to Junior Creditor. Junior Creditor agrees that any such
sale or other disposition by Senior Lender of so much of the collateral
for the Senior Debt as is necessary to satisfy in full, all of the
principal of, interest on and reasonable costs of collection of the Senior
Debt, shall be made free and clear of any security interest granted to
holder provided the entire proceeds (after deducting reasonable expenses
of sale) are applied in reduction of the Senior Debt. Upon Senior
Lender's request, Junior Creditor shall execute and deliver any releases
or other documents and agreements that Senior Lender in its reasonable
discretion deems necessary to dispose of the collateral for the Senior
Debt free of Junior Creditor's interest in same. Junior Creditor retains
all of its rights as a junior secured creditor with respect to the
surplus, if any, arising from any such disposition of the collateral for
the Senior Debt. Notwithstanding the foregoing, should Junior Creditor
provide any purchase money financing of specific equipment which is
secured by separate discrete UCC financing statements listing only such
specific items of equipment as subject to Junior Creditor's lien such
purchase money liens shall be excluded from the provisions of this
agreement.
11. Subrogation. Until the Senior Debt shall have been indefeasibly paid
in full, Junior Creditor hereby waives all rights of subrogation with
respect to the rights of Senior Creditor to receive payments or
distributions and with respect to any rights to any collateral for the
Senior Debt. Upon payment in full of the Senior Debt, Junior Creditor
shall be subrogated, to the extent permitted by law, to all rights of the
holders of Senior Debt.
12. Subordination Not Impaired by Obligors. No right of any holder of
Senior Debt to enforce the subordination of the Subordinated Debts shall
be impaired by any act or failure to act by any Obligor or by its failure
to comply with these provisions.
13. No Third Party Beneficiaries. This Agreement is not intended to give
or confer any rights to any person other than the holders of the Senior
Debt. No other party, including Obligors, is intended to be a third party
beneficiary of this Agreement.
14. Legend on Subordinated Loan Agreement. If any portion of the
Subordinated Debt is evidenced by a promissory note, debenture, stock
certificate or other instrument, Junior Creditor and Obligors agree to
promptly add a conspicuous legend or other reference to such instrument
stating that the rights of any holder and Obligors thereof are subject to
this Agreement.
15. Representations and Warranties. Junior Creditor hereby represents
and warrants that: (a) the execution and delivery of this Agreement and
the performance by Junior Creditor of its obligations hereunder have
received all necessary approvals, corporate or otherwise, and do not and
will not contravene or conflict with any provision of law or any provision
of any indenture, instrument or other agreements to which Junior Creditor
is a party or by which it or its property may be bound or affected; (b)
Junior Creditor has full power, authority and legal right to make and
perform this Agreement; (c) Junior Creditor has not assigned or
transferred any indebtedness owing by Obligors or any of the collateral or
any interest therein for the Subordinated Debt and Junior Creditor will
not assign or transfer same without at least ten (10) days prior written
notice to Senior Lender and without obtaining the agreement in writing of
any such assignee to be bound by the provisions hereof, and (d) this
Agreement is the legal, valid and binding obligation of Junior Creditor,
enforceable against Junior Creditor in accordance with its terms.
16. No Waiver. No failure on the part of Senior Lender to exercise, no
delay in exercising and no course of dealing with respect to, any right or
remedy hereunder will operate as a waiver thereof, nor will any single or
partial exercise of any right or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right or remedy.
This Agreement may not be amended or modified except by written agreement
of Senior Lender and Junior Creditor and no consent or waiver hereunder
shall be valid unless in writing and signed by Senior Lender.
17. Successor and Assigns. This Agreement, and the terms, covenants and
conditions hereof, shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and assigns.
18. Governing Law. This Agreement will be construed in accordance with
and governed by the laws of the State of Colorado, THE PARTIES HERETO
WAIVE ANY RIGHTS TO A JURY TRIAL IN CONNECTION WITH ANY JUDICIAL
PROCEEDINGS HEREUNDER AND HEREBY IRREVOCABLY CONSENT TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF COLORADO IN
ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT.
19. Counterparts. This Agreement may be signed by separate counterparts
all of which when taken together shall constitute one agreement. This
Agreement may be executed by telefaxed signatures which may be relied upon
as if original.
20. Acknowledgments; Further Assurances.
(a) Junior Creditor acknowledges and agrees that the term "BNY Credit
Agreement" as used in the Subordinated Loan Agreement means and
refers to the Credit Agreement and, accordingly, the closing of the
Credit Agreement does not constitute or otherwise result in the "BNY
Termination Date" under the Subordinated Loan Agreement. Junior
Creditor also acknowledges that the Credit Agreement is a "Senior
Agreement" as defined in the Subordinated Loan Agreement.
(b) Junior Creditor further acknowledges that the Obligors presently
contemplate a corporate restructuring substantially as outlined in
Schedule A and in connection therewith Junior Creditor agrees to
execute and deliver such documents and take such other actions as may
be reasonably requested by Senior Lender to continue and confirm the
subordination effected hereby and to carry out the terms and
provisions hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
XXXXX FARGO BUSINESS CREDIT, INC.
By: /s/Xxx Xxxxxx
Xxx Xxxxxx, Vice President
Notice Address:
MAC C7300-300
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000
Attn: Xxx Xxxxxx
Fax No. (000) 000-0000
BANK OF NEW YORK
By: /s/Xxxxxx Llasser
Title: Assistant Vice President
Address:
Fax No.
SPECIAL VALUE BOND FUND, LLC
By: /s/Xxxxxx Xxxxxxxxx
Title: Principal
Notice Address:
Fax No.
PEMCO AVIATION GROUP, INC.
for itself and as agent for the
Obligors
By: /s/Xxxx Xxx
Title: Senior Vice President and CFO
Notice Address:
0000 Xxxxx 00xx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn: Xxxx Xxx
SCHEDULE A
Pemco Aviation Group, Inc.
The presently contemplated proposed restructuring (see attached charts)
consists of performing the following actions:
transferring the assets of the Pemco Engineers Division of Pemco to
Precision Standard Corp. and re-naming that entity Pemco Engineers, Inc.;
merging Pemco Capital Corp. out of existence;
merging Xxxxx Holdings I Inc. into Xxxxx Holdings II Inc. and merging
Xxxxx Holdings II Inc. into Pemco Aeroplex, Inc.;
changing the name of Pemco World Air Services, Inc. to Pemco Air, Inc; and
creating a new subsidiary of Pemco Aeroplex, Inc. entitled Pemco World Air
Services, Inc. The assets of the Dothan Division of Pemco Aeroplex, Inc.
will be transferred to this new entity. The stock of this new entity will
then be contributed to Pemco Aviation Group, Inc.
