SUBORDINATION AGREEMENT
This Subordination Agreement (as amended or supplemented
from time to time, this "Agreement") is made and entered into as
of the 12th day of April 2000 by and among X.X. XXXXXXX (the
"Junior Creditor"), UNITED BANK, a Virginia banking corporation
(the "Bank"), and HADRON, INC., a New York corporation (the
"Debtor").
1. To induce the Bank to extend or continue credit and
other financial accommodations to the Debtor and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Junior Creditor hereby subordinates
the payment of all loans, advances, liabilities and indebtedness
owed by the Debtor to the Junior Creditor under that certain
$430,000.00 Note dated February 15, 2000, from the Debtor in
favor of the Junior Creditor, whether now owed or hereafter
arising, whether direct or indirect, absolute or contingent,
joint or several, secured or unsecured, liquidated or
unliquidated, and however owned, held or acquired by the Junior
Creditor, whether by assignment, discount, direct loan, purchase,
as a matter of law, or otherwise, and however evidenced, whether
by note, book entry or otherwise, whether for principal, interest
(except as provided in paragraph 4 below), fees, expenses or
otherwise, and all renewals, extensions, and modifications
thereof and substitutions therefor (the "Subordinated Debt") to
the payment in full of all loans, advances, liabilities and
indebtedness owed by the Debtor to the Bank, whether now owed or
hereafter arising, whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, liquidated or
unliquidated, and however owned, held or acquired by the Bank,
whether by assignment, discount, direct loan, overdraft,
purchase, as a matter of law, or otherwise, and however
evidenced, whether by note, check, book entry or otherwise,
whether for principal, interest, fees, expenses or otherwise, and
all renewals, extensions, and modifications thereof and
substitutions therefor (the "Senior Debt"). The Junior Creditor
further agrees that any lien, encumbrance or other security for
the payment of the Subordinated Debt, whether now existing or
hereafter arising, is and shall be expressly subordinated to any
lien, encumbrance or other security for the payment of the Senior
Debt.
Nothing herein shall be construed as preventing the payment
of $200,000 to the Junior Creditor by the Debtor as contemplated
by that certain Securities Purchase Agreement dated March 30,
2000, and the Bank hereby consents to such payment.
Notwithstanding the provisions of this paragraph 1, if (i)
no Default (as defined in the Loan and Security Agreement) has
occurred under any instrument or agreement evidencing or securing
the Senior Debt and is then continuing, (ii) the "Working
Capital" covenant set forth in Section VI(A)(4) of the Loan and
Security Agreement (defined below) (as modified pursuant to a
certain letter dated April 12, 2000, from the Bank to the Debtor)
would not be violated as a result thereof, (iii) the Debtor is
then in compliance with the covenant described in Section
VI(A)(2) of the Loan and Security Agreement (defined below)
(notwithstanding the waiver of the requirements of said sections
pursuant to a certain letter dated April 12, 2000, from the Bank
to the Debtor), and (iv) the "Adjusted Net Worth" covenant set
forth in Section VI(A)(5) of the Loan and Security Agreement
(defined below) (as modified pursuant to a certain letter dated
April 12, 2000, from the Bank to the Debtor) would not be
violated as a result thereof, then payments on the Subordinated
Debt may be received, accepted and retained by the Junior
Creditor. As used herein, the "Loan and Security Agreement"
means that certain Loan and Security Agreement dated June 29,
1999 between the Debtor (and related entities) and the Bank, all
instruments and agreements executed and delivered to the Bank in
connection therewith, and all extensions, modifications,
supplements to, and replacements of, any of the foregoing.
2. The Junior Creditor agrees that until the Senior Debt
is paid in full it will not (i) except as expressly permitted by
this Agreement, ask, demand, xxx for take or receive from the
Debtor directly or indirectly, in cash, securities or other
property or by set-off or in any other manner (including, without
limitation, from or by way of collateral), payment of all or any
part of the Subordinated Debt, or (ii) commence or join with
other creditors in commencing any bankruptcy, reorganization,
receivership or insolvency proceeding against the Debtor.
3. In the event of (i) any insolvency or bankruptcy case
or proceeding or any receivership, liquidation, reorganization or
similar case or proceeding in connection therewith relative to
the Debtor or its creditors as such or to its assets, (ii) any
liquidation, dissolution or other winding up of the Debtor
whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit
of creditors or other marshalling of assets and liabilities of
the Debtor then and in any such event the Bank shall be entitled
to receive payment in full in cash or cash equivalents of all
amounts due or to become due on or in respect of all Senior Debt
before the Junior Creditor shall be entitled to receive and
retain any payment on account of the principal, interest or other
amounts due or to become due on the Subordinated Debt, and to
that end the Bank shall be entitled to receive, for application
to the payment of the Senior Debt, any payment or distribution of
any kind or character whether in cash, securities, or other
property, which may be payable or deliverable in respect of the
Subordinated Debt in any such case, proceeding, dissolution,
liquidation or other winding up or event. Accordingly, any
payment or distribution of assets of the Debtor of any kind or
character whether in cash, securities, or other property, which
would otherwise have been made to the Junior Creditor but for the
provisions of this paragraph shall instead be made by the Debtor
or by the trustee in bankruptcy, receiver liquidating trustee,
custodian, assignee, agent or other person making payment or
distribution of assets of the Debtor directly to the Bank for
application to the payment of all Senior Debt remaining unpaid to
the extent necessary to pay all Senior Debt in full in cash or
cash equivalents after giving effect to any concurrent payment or
distribution to or for the benefit of the Bank. The Junior
Creditor irrevocably authorizes and empowers the Bank to (i)
demand, xxx for collect and receive every such payment or
distribution and give acquittance therefor (ii) file claims and
take such other actions, in the Bank's own name or in the name of
the Junior Creditor or otherwise, as the Bank may deem necessary
or advisable for the enforcement of this Agreement, and (iii)
vote the full amount of the Junior Creditor's claims in any
receivership, insolvency or bankruptcy proceeding in the Junior
Creditor's place and stead. The Junior Creditor further
irrevocably appoints the Bank its true and lawful attorney-in-
fact for the purposes specified herein, with full power of
substitution, and such power shall be a power coupled with an
interest. The Junior Creditor further agrees to execute and
deliver to the Bank such powers of attorney, assignments or other
instruments as may be requested by the Bank in order to enable
the Bank to enforce any and all claims upon or with respect to
any or all of the Subordinated Debt and to collect and receive
any and all payments or distributions which may be payable or
deliverable at any time upon or with respect to any of the
Subordinated Debt.
4. If, other than as permitted in this Agreement, the
Junior Creditor shall have received any payment or distribution
of assets of the Debtor of any kind or character whether in cash,
securities, or other property, before all amounts due or to
become due on or in respect of all Senior Debt have been paid in
full in cash or cash equivalents, then and in such event such
payment or distribution shall be received in trust for the Bank
and shall be forthwith paid over or delivered by the Junior
Creditor receiving the same directly to the Bank or to the extent
legally required, to the trustee in bankruptcy, receiver
liquidating trustee, custodian, assignee, agent or other person
making such payment or distribution of assets of the Debtor for
application to the payment of all Senior Debt remaining unpaid to
the extent necessary to pay all Senior Debt in full after giving
effect to any concurrent payment or distribution to or for the
Bank.
5. The Junior Creditor agrees that until the Senior Debt
is paid in full it will not (i) subordinate any part of the
Subordinated Debt to any indebtedness owed to any person other
than the Bank, or (ii) assign, transfer or pledge all or any part
of the Subordinated Debt unless such assignment, transfer or
pledge is made expressly subject to this Agreement. The Junior
Creditor agrees to xxxx any notes or other evidence of the
Subordinated Debt with a legend to the effect that payment of
such instrument is subordinated to payment of the Senior Debt.
6. The Junior Creditor represents and warrants that the
Junior Creditor is the lawful owner of the Subordinated Debt and
no part thereof is subject to any defense, offset or
counterclaim, and, except as disclosed in writing to the Bank
prior to the execution of this Agreement, (i) the Subordinated
Debt has not previously been subordinated to the indebtedness or
claims of any other party, (ii) no part of the subordinated Debt
is secured by property of the Debtor, and (iii) no part of the
subordinated Debt has been assigned, transferred or pledged to
any other party.
7. The Bank may at any time, and from time to time,
without the consent of or notice to the Junior Creditor, without
incurring responsibility to the Junior Creditor, and without
impairing or releasing any of the Bank's rights, or any of the
obligations of the Junior Creditor hereunder (i) change the time,
amount, manner, place or terms of payment, or change or extend
the time of payment of, or renew or otherwise alter, any
instrument or agreement evidencing any Senior Debt (whether or
not in a commercially reasonable manner), (iii) release anyone
liable in any manner for the payment or collection of any Senior
Debt, (iv) exercise or refrain from exercising any rights against
the Debtor or others (including the Junior Creditor), (v) apply
any sums received by the Bank by whomsoever paid and however
realized, to the payment of the Senior Debt in such manner as the
Bank, in its sole discretion, shall deem appropriate, and (vi)
take any other action which might otherwise constitute a defense
available to, or a discharge of, the Junior Creditor in respect
of the Subordinated Debt in respect of these provisions.
8. The terms of 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 the Bank upon the insolvency, bankruptcy
or reorganization of the Debtor or otherwise, all as though such
payment had been due but not made at such time.
9. No failure or delay by the Bank in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
10. Any provision of this Agreement may be amended or
waived if, but only if, such amendment or waiver is in writing
and is signed by the Bank, the Junior Creditor and the Debtor.
11. Subject to paragraph 6, the provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Any
reference herein to the Bank and the Junior Creditor shall
include any holder of the Senior Debt and Subordinated Debt,
respectively, as applicable.
12. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
WITNESS the following signatures and seals.
Junior Creditor:
000 Xxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
/S/ X.X. XXXXXXX
-------------------- [SEAL]
X.X. XXXXXXX
Debtor:
HADRON, INC [SEAL]
0000 Xxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
/S/ S. XXXXX XXXXXX
By: ----------------------
Name: S. XXXXX XXXXXX
Title: Executive Vice President
Bank:
UNITED BANK [SEAL]
0000 Xxxxx Xxxxxx Xxxx
Xxxxxx, Xxxxxxxx 00000
/S/ XXXXXX X. XXXXX
By:---------------------------
Xxxxxx X. Xxxxx,
Vice President
