SUBORDINATION AGREEMENT
This
SUBORDINATION AGREEMENT is entered into as of February 1, 2006 (the
"Subordination Agreement"), by and among Xxxxxxx X. Xxxxxxx, an individual
(the
"Junior Lender"), whose address is 000 Xxxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxxx,
CHARTER ONE BANK, N.A., a national banking association (the "Senior Lender"),
whose address is 00 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000,
and
CTI Industries Corporation, an Illinois corporation (the "Borrower"), whose
address is 00000 Xxxxx Xxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000.
R
E C I T
A L S:
A. The
Borrower and its United States subsidiaries are now or will be from time to
time
hereafter indebted in various sums to the Junior Lender pursuant to certain
existing and/or future notes, agreements and instruments (collectively, the
"Junior Debt Instruments").
B. The
Junior Lender desires that the Senior Lender extend and/or continue the
extension of credit to the Borrower from time to time as the Senior Lender
in
its sole discretion may determine, and the Senior Lender has refused to consider
the extension and/or continued extension of such credit until the "Junior Debt"
(as defined below) is subordinated to the "Senior Debt" (as defined below)
in
the manner hereinafter set forth; and
C. The
extension and/or continued extension of credit, as aforesaid, by the Senior
Lender is necessary or desirable to the conduct and operation of the business
of
the Borrower, and will inure to the benefit of the Junior Lender.
NOW,
THEREFORE, in consideration of the extension and/or continued extension of
credit by the Senior Lender to the Borrower, as the Senior Lender may, in its
sole discretion, determine, and for other good and valuable consideration to
the
Junior Lender, the receipt and sufficiency of which are hereby acknowledged,
the
Junior Lender and the Borrower hereby agree with the Senior Lender as
follows:
A
G R E E
M E N T S:
1. Subordination.
1.1 The
Junior Lender hereby subordinates the indebtedness evidenced by the Junior
Debt
Instruments, and any and all other indebtedness now or at any time or times
hereafter owing by the Borrower, or any successor or assign of the Borrower,
including without limitation, a receiver, trustee or debtor-in-possession (the
term "Borrower" as used hereinafter shall include any such successor or assign)
to the Junior Lender, whether such indebtedness is absolute or contingent,
direct or indirect and howsoever evidenced, including without limitation, all
interest thereon, including pre-petition and post-petition interest, fees and
expenses and any other charges, and any refinancings thereof (collectively,
the
"Junior Debt") to any and all indebtedness now or at any time hereafter owing
by
the Borrower to the Senior Lender, whether absolute or contingent, direct or
indirect and howsoever evidenced, including, but not limited to, all
pre-petition and post-petition interest thereon, fees, expenses and all other
demands, claims, liabilities or causes of action for which the Borrower may
now
or at any time or times hereafter in any way be liable to the Senior Lender,
whether under any agreement, instrument or document executed and delivered
or
made by the Borrower to the Senior Lender or otherwise, including any
refinancings thereof (collectively, the "Senior Debt").
1.2 The
Junior Lender hereby subordinates all security interests, liens, encumbrances
and claims, whether now existing or hereafter arising, which in any way secure
the payment of the Junior Debt (the "Junior Lender's Collateral") to all
security interests, liens, encumbrances and claims, whether now existing or
hereafter arising, which in any way secure the payment of the Senior Debt (the
"Senior Lender's Collateral").
1.3 The
Junior Lender shall not take any action to enforce any of its liens on the
Junior Lender's Collateral, and shall not ask for or receive from the Borrower
or any other person or entity any security for the Junior Debt not specifically
granted by the Junior Debt Instruments.
1.4 The
Junior Lender agrees that it shall have no right to possession of any assets
included in the Junior Lender's Collateral or in the Senior Lender's Collateral,
whether by judicial action or otherwise.
1.5 The
Junior Lender agrees to instruct the Borrower not to pay, and agrees not to
accept payment of, or assert, demand, xxx for or seek to enforce against the
Borrower or any other person or entity, by setoff or otherwise, all or any
portion of the Junior Debt with the exception that the Borrower may pay accrued
interest (but no principal) on the Junior Debt Instruments at a per annum rate
of interest not in excess of the rate in effect from time to time under the
Junior Debt Instruments (which rate may not be increased without the prior
written consent of the Bank); provided, however, that the Borrower shall not
pay, and the Junior Lender shall not accept, any payments of the Junior Debt
following the occurrence of a default under any of the loan documents evidencing
the Senior Debt.
1.6 The
Junior Lender hereby assigns to the Senior Lender and subrogates to the Senior
Lender all of the Junior Lender's right, title and interest in and to the Junior
Debt and the Junior Lender's Collateral, and hereby irrevocably authorizes
the
Senior Lender (i) to collect, receive, enforce and accept any and all sums
or
distributions of any kind, whether cash, securities or other property, that
may
become due, payable or distributable on or in respect of the Junior Debt or
the
Junior Lender's Collateral, whether paid directly by the Borrower or paid or
distributed in any liquidation, bankruptcy, arrangement, receivership,
assignment, reorganization or dissolution proceedings or otherwise, and (ii)
in
the Senior Lender's sole discretion, to make, present and vote claims therefor
in, and take such other actions as the Senior Lender deems necessary or
advisable in connection with, any such proceedings, either in the Senior
Lender's name or in the name of the Junior Lender, including, but not limited
to, any election in any proceeding instituted under Chapter 11 of Title 11
of
United States Code (11 U.S.C. § 101 et. seq.) (the "Bankruptcy Code"); and
agrees that upon the written request of the Senior Lender it will promptly
assign, endorse and deliver to and deposit with the Senior Lender all
agreements, instruments and documents evidencing the Junior Debt, including
without limitation the Junior Debt Instruments.
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1.7 The
Junior Lender hereby agrees that all agreements, instruments and documents
evidencing the Junior Debt and the Junior Lender's Collateral will be endorsed
with proper notice of this Subordination Agreement as follows:
"This
Note is subordinated to all indebtedness now or hereafter owing by the maker
to
Charter One Bank, N.A., Chicago, Illinois, as provided in that certain
Subordination Agreement dated as of January _____, 2006."
The
Junior Lender will promptly deliver to the Senior Lender a certified copy
of
the Junior Debt Instruments, as well as certified copies of all other
agreements, instruments and documents hereafter evidencing any Junior Debt,
in
each case showing such endorsement.
1.8 The
Junior Lender agrees to receive and hold in trust for and promptly turn over
to
the Senior Lender, in the form received (except for the endorsement or
assignment by the Junior Lender where necessary), any sums at any time paid
to,
or received by, the Junior Lender in violation of the terms of this
Subordination Agreement and to reimburse the Senior Lender for all costs,
including reasonable attorney's fees, incurred by the Senior Lender in the
course of collecting said sums should the Junior Lender fail to voluntarily
turn
the same over to the Senior Lender as herein required.
1.9 The
Junior Lender hereby irrevocably makes, constitutes and appoints the Senior
Lender (and any officer of the Senior Lender or any person designated by the
Senior Lender for that purpose) as the Junior Lender's true and lawful proxy
and
attorney-in-fact (and agent-in-fact) in the Junior Lender's name, place and
stead, with full power of substitution, to (i) take any and all actions as
are
permitted in this Subordination Agreement, (ii) execute such financing
statements and other documents and to do such other acts as the Senior Lender
may require to perfect and preserve the Junior Debt and the Junior Lender's
Collateral, and (iii) carry out any remedy provided for in this Subordination
Agreement. The Junior Lender hereby acknowledges that the constitution and
appointment of such proxy and attorney-in-fact are coupled with an interest
and
are irrevocable. The Junior Lender hereby ratifies and confirms all that said
attorney-in-fact may do or cause to be done by virtue of any provision of this
Subordination Agreement.
1.10
The
Junior Lender agrees that it shall not modify or amend any agreement, instrument
or document evidencing or securing the Junior Debt, including without limitation
the Junior Debt Instruments, without the prior written consent of the Senior
Lender.
2. Representations.
2.1 The
Junior Lender represents and warrants to the Senior Lender that the Junior
Lender has not assigned or otherwise transferred the Junior Debt or the Junior
Lender's Collateral, or any interest therein to any person or entity, that
the
Junior Lender will make no such assignment or other transfer
thereof.
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2.2 The
Junior Lender represents and warrants to the Senior Lender that no default
or of
any event which, with the lapse of time, the giving of notice or both, would
constitute a default under the Junior Debt or any instrument evidencing or
securing the Junior Debt, has occurred and is continuing (a "Junior Debt
Default"), and the Junior Lender further agrees to promptly provide the Senior
Lender with written notice of any Junior Debt Default.
2.3 The
Junior Lender represents and warrants to the Senior Lender that a true and
complete copy of all Junior Debt Instruments existing as of the date hereof
have
been delivered to the Senior Lender and that the amount of the Junior Debt
is
properly stated on the financial statements of Borrower delivered to Senior
Lender.
3. Further
Agreements.
3.1 The
Junior Lender expressly waives all notice of the acceptance by the Senior Lender
of the subordination and other provisions of this Subordination Agreement and
all notices not specifically required pursuant to the terms of this
Subordination Agreement, and the Junior Lender expressly waives reliance by
the
Senior Lender upon the subordination and other provisions of this Subordination
Agreement as herein provided.
3.2 The
Junior Lender consents and agrees that all Senior Debt shall be deemed to have
been made, incurred and/or continued at the request of the Junior Lender and
in
reliance upon this Subordination Agreement.
3.3 The
Junior Lender agrees that the Senior Lender has made no warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the documents, instruments and agreements
evidencing the Senior Debt, that the Senior Lender shall be entitled to manage
and supervise its financial arrangements with the Junior Lender in accordance
with its usual practices, without impairing or affecting this Subordination
Agreement.
3.4 The
Junior Lender agrees that the Senior Lender shall have no liability to the
Junior Lender, and in particular, the Junior Lender hereby waives any claim
which it may now or hereafter have against the Senior Lender arising out of
(i)
any and all actions which the Senior Lender takes or omits to take (including
without limitation actions with respect to the creation, perfection or
continuation of liens or security interests in any existing or future the Senior
Lender's Collateral, actions with respect to the occurrence of an event of
default under any documents, instruments or agreements evidencing the Senior
Debt, actions with respect to the foreclosure upon, sale, release, or
depreciation of, or failure to realize upon, any of the Senior Lender's
Collateral and actions with respect to the collection of any claim for all
or
any part of the Senior Debt from any account debtor, guarantor or other person
or entity) with respect to the documents, instruments and agreements evidencing
the Senior Debt or to the collection of the Senior Debt or the valuation, use,
protection or release of the Senior Lender's Collateral, (ii) the Senior
Lender's election (whether on behalf of the Senior Lender or the Junior Lender)
in any proceeding instituted under the Bankruptcy Code, and/or (iii) any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code by the Borrower, as debtor-in-possession.
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4. Further
Assurances.
The
Junior Lender agrees that the Senior Lender, at any time and from time to time
hereafter, may enter into such agreements with the Borrower as the Senior Lender
may deem proper extending the time of payment of or renewing or otherwise
altering the terms of all or any of the Senior Debt or affecting any of the
Senior Lender's Collateral, and may sell or surrender or otherwise deal with
any
of the Senior Lender's Collateral, and may release any balance of funds of
the
Borrower with the Senior Lender, without notice to the Junior Lender and without
in any way impairing or affecting this Subordination Agreement.
5. Continuing
Agreement.
This
Subordination Agreement shall be irrevocable and shall constitute a continuing
agreement of subordination and shall be binding on the Junior Lender and its
heirs, personal representatives, successors and assigns, and shall inure to
the
benefit of the Senior Lender, its successors and assigns until the Senior Lender
has, in writing, notified the Junior Lender that all of the Senior Debt has
been
paid in full and all obligations arising in connection therewith have been
discharged. The Senior Lender may continue, without notice to the Junior Lender,
to lend monies, extend credit and make other accommodations to or for the
account of the Borrower on the faith hereof. The Junior Lender hereby agrees
that all payments received by the Senior Lender may be applied, reversed, and
reapplied, in whole or in part, to any of the Senior Debt, without impairing
or
affecting this Subordination Agreement.
6. No
Reliance.
The
Junior Lender hereby assumes responsibility for keeping itself informed of
the
financial condition of the Borrower, any and all endorsers and any and all
guarantors of the Senior Debt and the Junior Debt, and of all other
circumstances bearing upon the risk of nonpayment of the Senior Debt and the
Junior Debt that diligent inquiry would reveal, and the Junior Lender hereby
agrees that the Senior Lender shall have no duty to advise the Junior Lender
of
information known to the Senior Lender regarding such condition or any such
circumstances or to undertake any investigation. If the Senior Lender, in its
sole discretion, undertakes, at any time or from time to time, to provide any
information of the type described herein to the Junior Lender, the Senior Lender
shall be under no obligation to subsequently update any such information or
to
provide any such information to the Junior Lender on any subsequent
occasion.
7. Senior
Lender's Duty Limited.
The
rights granted to the Senior Lender in this Subordination Agreement are solely
for its protection and nothing herein contained imposes on the Senior Lender
any
duties with respect to any property of either the Borrower or of the Junior
Lender received by the Senior Lender beyond the duty to exercise reasonable
care
in the custody and preservation of such property while in the Senior Lender's
possession. The Senior Lender shall have no duty to preserve rights against
prior parties on any instrument or chattel paper received from the Borrower
or
the Junior Lender as collateral security for the Senior Debt or any portion
thereof.
8. No
Marshalling.
The
Junior Lender, on its own behalf and on behalf of its successors and assigns
hereby expressly waives all rights, if any, to require a marshalling of the
Borrower's assets by the Senior Lender or to require that the Senior Lender
first resort to some or any portion of any collateral for the Senior Debt before
foreclosing upon, selling or otherwise realizing on any other portion
thereof.
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9. Reinstatement.
To the
extent that the Borrower makes a payment to the Senior Lender or the Senior
Lender receives any payment or proceeds of the collateral securing the Senior
Debt for the Borrower's benefit, which payment or proceeds or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable
doctrine, then, to the extent of such payment or proceeds received and not
retained by the Senior Lender, the Junior Lender's obligations intended to
be
satisfied thereby and this Subordination Agreement shall be reinstated and
continue in full force and effect until full and final payment shall have been
made to the Senior Lender. The Junior Lender agrees to hold in trust for the
Senior Lender and promptly remit to the Senior Lender any payments received
by
the Junior Lender after such invalidated, rescinded or returned payment was
originally made.
10. Waiver
In Writing.
No
waiver shall be deemed to be made by the Senior Lender of any of its rights
hereunder unless the same shall be in writing signed on behalf of the Senior
Lender and each such waiver, if any, shall be a waiver only with respect to
the
specific matter or matters to which the waiver relates and shall in no way
impair the rights of the Senior Lender or the obligations of the Junior Lender
to the Senior Lender in any other respect at any other time.
11. Choice
Of Law.
This
Subordination Agreement shall be governed and controlled by the internal laws
of
the State of Illinois.
12. FORUM.
TO
INDUCE THE SENIOR LENDER TO ACCEPT THIS SUBORDINATION AGREEMENT, THE JUNIOR
LENDER IRREVOCABLY AGREES THAT, SUBJECT TO THE SENIOR LENDER'S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING
OUT
OF OR FROM OR RELATED TO THIS SUBORDINATION AGREEMENT SHALL BE LITIGATED IN
COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. THE JUNIOR
LENDER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
OR
FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. THE JUNIOR LENDER HEREBY
IRREVOCABLY APPOINTS AND DESIGNATES THE SECRETARY OF STATE OF ILLINOIS, WHOSE
ADDRESS IS SPRINGFIELD, ILLINOIS (OR ANY OTHER PERSON HAVING AND MAINTAINING
A
PLACE OF BUSINESS IN SUCH STATE WHOM THE JUNIOR LENDER MAY FROM TIME TO TIME
HEREAFTER DESIGNATE UPON TEN (10) DAYS WRITTEN NOTICE TO THE SENIOR LENDER
AND
WHO THE SENIOR LENDER HAS AGREED IN ITS SOLE DISCRETION IN WRITING IS
SATISFACTORY AND WHO HAS EXECUTED AN AGREEMENT IN FORM AND SUBSTANCE
SATISFACTORY TO THE SENIOR LENDER AGREEING TO ACT AS SUCH ATTORNEY AND AGENT),
AS THE JUNIOR LENDER'S TRUE AND LAWFUL ATTORNEY AND DULY AUTHORIZED AGENT FOR
ACCEPTANCE OF SERVICE OF LEGAL PROCESS. THE JUNIOR LENDER AGREES THAT SERVICE
OF
SUCH PROCESS UPON SUCH PERSON SHALL CONSTITUTE PERSONAL SERVICE OF SUCH PROCESS
UPON THE JUNIOR LENDER. THE JUNIOR LENDER HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST THE JUNIOR LENDER
BY THE SENIOR LENDER IN ACCORDANCE WITH THIS PARAGRAPH.
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13. WAIVER
OF JURY TRIAL.
THE
JUNIOR LENDER AND THE SENIOR LENDER, AFTER CONSULTING OR HAVING HAD THE
OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE IRREVOCABLY, THE RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY
ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS SUBORDINATION
AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK GRANTING ANY
FINANCIAL ACCOMMODATION TO THE BORROWER AND ENTERING INTO THIS SUBORDINATION
AGREEMENT.
14. Additional
Borrower Agreements.
14.1 The
Borrower hereby agrees that until all Senior Debt is paid in full and all
obligations arising in connection therewith have been satisfied, the Borrower
will make no payments or distributions contrary to the provisions hereof and
will do every other thing necessary to carry out such provisions. The Borrower
will give the Senior Lender notice of any suit or action brought in violation
of
said agreement.
14.2 The
Borrower represents and warrants to the Senior Lender that no Junior Debt
Default exists and agrees to promptly provide the Senior Lender with written
notice of any Junior Debt Default.
14.3 In
the
event of any violation of any of the provisions of this Subordination Agreement,
then, at the election of the Senior Lender, any and all obligations of the
Borrower to the Senior Lender shall immediately become due and payable and
any
and all agreements of the Senior Lender to make loans, advances or other
financial accommodations to the Borrower shall immediately terminate,
notwithstanding any provision hereof to the contrary.
IN
WITNESS WHEREOF, the Junior Lender, the Senior Lender and the Borrower have
executed this Subordination Agreement as of the date set forth
above.
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JUNIOR
LENDER:
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/s/Xxxxxxx
X. Xxxxxxx
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Xxxxxxx
X. Xxxxxxx, individually
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SENIOR
LENDER:
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CHARTER
ONE BANK, N.A., a national banking association
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By:
/s/Xxxxxxx Xxxx
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Name:
Xxxxxxx Xxxx
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Title:
Senior Vice-President
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BORROWER'S
CONSENT
The
Borrower hereby agrees and consents to the foregoing Subordination Agreement
(and the terms thereof) and agrees to abide thereby and to keep, observe and
perform the several matters and things therein intended to be kept, observed
and
performed by it, and specifically agrees not to make any payments contrary
to
the intention and terms of the Subordination Agreement.
A
breach
of any of the terms or conditions contained in the Subordination Agreement
shall
constitute a default in any and all of the Senior Debt.
Signed
and delivered by the Borrower as of February _____, 2006.
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BORROWER:
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CTI
Industries Corporation, an Illinois corporation
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By: /s/Xxxxxx
X. Xxxxxx
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Name:
Xxxxxx X. Xxxxxx
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Title:
President
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