STANDBY AND SUBORDINATION AGREEMENT
This Standby And Subordination Agreement (the "Agreement") is made as
of the 31st day of May, 2001, by and between Fifth Third Bank, an Ohio banking
corporation ("Bank") and Interlott Technologies, Inc., a Delaware corporation
("Borrower").
A. Bank has existing loans to Borrower pursuant to the Credit Agreement
between Borrower and Bank dated January 25, 2001, as amended or as it may be
amended from time to time, with the latest amendment being that Third Amendment
to Credit Agreement dated of even date herewith (the "Senior Credit Agreement")
and all associated and ancillary documents evidencing such Obligations (as
defined in the Senior Credit Agreement). When acting in regard to the Senior
Credit Agreement, Bank shall be referred to as "Senior Bank".
B. Bank has also made loans and financial accommodations to Borrower
pursuant to the Credit Agreement ($5,000,000 Subordinate Debt) by and between
Bank and Borrower of even date herewith as the same may be amended from time to
time (the "Subordinated Debt Credit Agreement"). The debt of the Borrower to
Bank under the Subordinated Debt Credit Agreement (the "Subordinated Claim")
shall be subordinated to the debt of the Borrower to the Bank under the Senior
Credit Agreement on the terms set forth herein. When acting in regard to the
Subordinated Credit Agreement, bank shall be referred to as "Junior Bank".
C. The Subordinated Claim is secured by security interest in and lien
upon substantially all business assets of Borrower pursuant to the Security
Agreement and other Loan Documents (as defined in the Senior Credit Agreement)
executed by Borrower in favor of Bank on or about January 25, 2001 in connection
with the Senior Credit Agreement. Borrower and Bank agree that the indebtedness
of Borrower to Junior Bank represented by the Subordinated Claim, as well as the
security interest granted to Junior Bank to secure the Subordinated Claim, shall
be in all ways junior and subordinate to the indebtedness of Borrower to Senior
Bank under the Senior Credit Agreement, subject to the terms set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. The amount of the Subordinated Claim shall not, in the absence of
the written consent of Senior Bank to the contrary, be increased by the amount
of any and all additional indebtedness, regardless of its nature, hereafter
owing by Borrower to Junior Bank, and in such event "Subordinated Claim" shall
mean the amount above set forth together with such additional indebtedness.
2. The Subordinated Claim is postponed in favor of, and made junior and
subordinate in all respects to any and all obligations, liabilities and
indebtedness of Borrower to Senior Bank under the Senior Credit Agreement, due
or to become due, direct or contingent and whether now existing or
contemporaneously or hereafter arising or contracted, whether with any other
person or not (all hereinafter called "Senior Debt"), upon the terms and to the
extent set forth herein.
3. Borrower shall make no payments upon the Subordinated
Debt, except that Borrower shall be permitted to make the scheduled monthly
interest payment provided that: (i) Borrower is in compliance with all covenants
set forth in Section 5 of the Senior Credit Agreement; (ii) there is no Event of
Default or breach of the Senior Credit Agreement or the Loan Documents (as
defined therein), and (iii) payment of the proposed payment will not cause
Borrower to be in violation of the terms of the Senior Credit Agreement or the
Loan Documents (as defined therein). Borrower shall further be permitted to make
one principal payment per fiscal quarter provided that Borrower has met each of
conditions (i), (ii), and (iii) above, and further provided that Borrower shall
have maintained available credit under the Facility (as defined in the Credit
Agreement) of at least $2,000,000 plus the amount of the proposed principal
payment on a proforma basis on each of: a) the last day of each month for the
fiscal quarter prior to the quarter in which the proposed principal payment is
to be made, and b) the last day of each month for the fiscal quarter in which
the payment is made.
.
4. Except as set forth herein, without the prior written consent of
Senior Bank, Borrower will not make, and Junior Bank will not accept or receive,
any payments, in cash or otherwise, on account of the principal of, the
Subordinated Claim. In the event that Borrower makes any payment upon the
Subordinated Claim in violation of this Agreement, Senior Bank shall recover
such payment from Junior Bank and shall apply any such payment to the Senior
Debt in the manner prescribed in the Senior Credit Agreement.
5. It is acknowledged that the Subordinated Claim is secured by a
security interest in and lien upon substantially all business assets of the
Borrower (the "Collateral") pursuant to the Security Agreement and other Loan
Documents (as defined in the Senior Credit Agreement) executed by Borrower in
favor of Bank dated January 25, 2001. Notwithstanding anything to the contrary
in the Senior Credit Agreement, the Security Agreement, or the Subordinate Debt
Credit Agreement, the security interest of Junior Bank in the Collateral
securing the Subordinated Claim shall be at all times be subject, junior and
subordinate to any security interest or lien in favor of Senior Bank securing
Borrower's obligations under the Senior Credit Agreement. It is agreed and
acknowledged that all proceeds of the Collateral shall first be applied to
satisfy the Senior Debt in full, and only after the Senior Debt is paid in full
shall any remaining proceeds be applied to the Subordinated Claim. Absent Senior
Bank's written consent, Borrower will not give, and the Junior Bank will not
take, any additional collateral or security for the Subordinated Claim or any
part thereof.
6. Junior Bank agrees that it shall take no action to enforce its
rights under the Subordinated Debt Credit Agreement, without the prior written
consent of Senior Bank under the Senior Credit Agreement, for a period of one
hundred eighty (180) days after the earlier of a) occurrence of an Event of
Default, or b) a breach under the Subordinated Debt Credit Agreement. Junior
Bank shall provide notice to Senior Bank of the occurrence of any such Event of
Default or breach. The foregoing shall not act in any way to qualify or restrict
Senior Bank's right to exercise its remedies under the Senior Credit Agreement
or the Loan Documents (as defined therein) during such period.
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7. Bank agrees that until the Senior Debt is satisfied in full:
a) any and all consents and approvals of any secured party
relating to the Collateral shall be given by Senior
Bank, with the consent of Junior Bank;
b) the application of the net proceeds of any insurance
recovery shall be applied first to the Senior Debt, and
thereafter to the Subordinated Claim;
c) any and all demands to be made with respect to the
Collateral (including without limitation demands that
Borrower deliver possession of Collateral), shall be
made first by Senior Bank under the Senior Credit
Agreement in its sole discretion;
d) any and all decisions relating to the release of
Collateral from the liens of the Bank shall be made by
Senior Bank only with the consent of Junior Bank.
8. Upon any breach of this Agreement by Borrower, Bank, at its option,
may declare all indebtedness of Borrower to it to be immediately due and
payable, and shall, in addition, reapply any and all payments made on account of
the Subordinated Claim in violation of the provisions hereof on account of the
Senior Debt.
9. This Agreement shall continue in force in any event for so long as
Borrower shall be indebted to Senior Bank under the Senior Credit Agreement.
10. This Agreement shall be binding upon and shall inure to the benefit
of the respective heirs, executors, administrators, successors and assigns of
Bank and Borrower.
11. No postponement or delay on the part of Bank in the enforcement of
any right hereunder shall constitute a waiver of such right and any waiver of
any default by Bank of Borrower's obligations hereunder under any indebtedness
of Borrower owed to Bank will not be deemed to be a waiver of any subsequent
default by Borrower.
THIS SPACE INTENTIONALLY LEFT BLANK
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WITNESS the due execution hereof as of this 31st day of May, 2001.
FIFTH THIRD BANK
By: ________________________
Its: ________________________
INTERLOTT TECHNOLOGIES,
INC.
By: ________________________
Its: ________________________
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