[EXHIBIT 2]
SUBORDINATION AGREEMENT
This Subordination Agreement ("Agreement") is made as of May 2, 1997,
by the undersigned, HAROLD JAY LEFKOVITZ, an individual ("Creditor"), in favor
of CHASE MANHATTAN BANK, as agent ("Bank"). Creditor is a creditor of DUKE CITY
VIDEO, INC., a New Mexico corporation ("Debtor") and Creditor understands that
Debtor is or shall become indebted to Bank in respect of that certain Credit
Agreement dated as of July 27, 1995, by and among (i) Matthews Studio Equipment
Group, Matthews Studio Equipment, Inc., Hollywood Rental Co., Inc., Matthews
Studio Electronics, Inc., Matthews Acceptance Corporation, (ii) the guarantors
named therein, (iii) the lenders named therein, and (iv) Chemical Bank (as
predecessor in interest to Bank), as agent for the lenders named therein. Such
Credit Agreement, as amended, renewed, restated, substituted and modified from
time to time, shall be referred to herein as the Credit Agreement.
At the request of Debtor, and in order to induce Bank to, at any time
or from time to time at Bank's option, make loans or extend credit or other
accommodation or benefit to or for the account of Debtor, with or without
security, or to grant such renewals or extensions of any thereof as Bank may
deem advisable, it is agreed as follows:
1. The following terms used in this Agreement shall have the
following meaning:
(a) "Indebtedness" shall mean all present and future indebtedness of
Debtor which from time to time may be incurred, whether directly or indirectly,
by Debtor, including, but not limited to, any negotiable instruments evidencing
the same, all debts, demands, indebtedness, liabilities and obligations owed or
to become owing, including interest, principal, costs, and other charges, and
all claims, rights, causes of action, judgments, decrees, remedies, security
interests, and other obligations of any kind whatsoever and howsoever arising,
whether voluntary, involuntary, absolute, contingent, or by operation of law.
(b) "Default" shall mean any default under or pursuant to the terms of
any agreement with, or Indebtedness owing by Debtor to, Bank, including, but not
limited to, obligations and indebtedness of Debtor to Bank under or with respect
to the Credit Agreement.
2. Creditor represents and warrants to Bank that:
(a) At the date hereof, the Indebtedness owing by Debtor to Creditor
consists of Five Hundred Eighty-Five Thousand Five Hundred Sixty-One Dollars and
15/100 in principal, which is
- 1 -
evidenced by the Promissory Note dated May 2, 1997, a copy of which is attached
hereto as Exhibit A (the "Note").
(b) The Note bears a legend stating that it is subject to this
Agreement.
(c) There is no default under the Note or Indebtedness owed by Debtor
to Creditor.
(d) The Indebtedness of Debtor to Creditor is not secured by any
property of Debtor or other collateral, nor is such Indebtedness guaranteed by
any party.
3. Creditor agrees with Bank that:
(a) Except as set forth in Paragraph 10 hereof, the Indebtedness from
Debtor to Creditor, including all liens of any kind, all security interests,
deeds of trust, mortgages or other security instruments of Creditor against
Debtor, or any rights and remedies of Creditor, whether legal or equitable,
whether now existing or hereafter acquired, shall be and hereby are subordinated
to, and the payment of such Indebtedness is deferred until the full and final
payment in cash or its equivalent of, any and all Indebtedness (including all
interest accruing after the date of the filing of a petition by or against
Debtor under the U.S. Bankruptcy Code) now due to Bank from Debtor or which may
hereafter be incurred and become due to Bank from Debtor, and the performance of
all other covenants, agreements, warranties and obligations of any nature
whatsoever owed by Debtor to Bank. This subordination shall be effective
regardless of the time or order of perfection, attachment, priority, or filing
of any such liens, security interests or other rights and remedies.
(b) Creditor will not, without Bank's prior written consent, take any
action to enforce the Indebtedness owed by Debtor to Creditor or any part
thereof, nor shall Creditor take any action to dispose of, foreclose, realize
upon or release any collateral securing the Indebtedness owed by Debtor to
Creditor or enforce any liens, security interests, deeds of trust, mortgages,
security instruments, or other encumbrances securing the Indebtedness owed by
Debtor to Creditor, or any other rights and remedies.
(c) If Bank so requests, Creditor shall take all steps necessary to
collect and enforce the Indebtedness owing to Creditor. Following the
occurrence and during the continuation of a Default, Creditor will hold in trust
and immediately pay to Bank any amount Debtor pays to Creditor on account of the
Indebtedness owing to Creditor, in the same form of payment received, for
application upon the Indebtedness now or hereafter owing to Bank by Debtor.
- 2 -
(d) Creditor will, upon Bank's request, assign, deliver or cause to be
delivered to Bank any collateral which Creditor may receive in the future as
security for the Indebtedness owed by Debtor to Creditor.
(e) Creditor agrees that he will not, without Bank's prior written
consent, commence, prosecute or participate in any administrative, legal, or
equitable action against Debtor or in any administrative, legal or equitable
action that might adversely affect Debtor or its interest, and shall not join in
any petition for bankruptcy or assignment for the benefit of creditors.
(f) If Creditor, in violation of this Agreement, shall commence,
prosecute or participate in any suit, action, petition or proceeding against
Debtor, Debtor may assert as a defense this Agreement and Bank may also assert
such defense in Bank's name or in the name of Debtor. If Creditor shall attempt
to enforce any liens, security interests, deeds of trust, mortgages or any other
security instruments, or any rights and remedies, Bank or Debtor may by virtue
of this Agreement restrain the enforcement thereof in Bank's name or in the name
of Debtor. If Creditor obtains any assets of Debtor as a result of any
administrative, legal, or equitable action, or otherwise, such assets shall be
received in trust for Bank, and Creditor agrees to promptly pay, deliver, and
assign to Bank any such assets for application upon the Indebtedness now or
hereafter owing to Bank by Debtor.
(g) Debtor agrees with Bank that it will not (except as permitted
pursuant to Paragraph 10 hereof) without Bank's prior written consent, pay
Creditor any sum on account of the Indebtedness owing Creditor, or execute or
deliver any negotiable instruments (whether in replacement of the Note or
otherwise) as evidence of the Indebtedness of Debtor to Creditor, or any portion
thereof.
(i) Creditor agrees that Bank shall have absolute power and
discretion, without notice to Creditor to deal in any manner with the
Indebtedness owing to Bank, including interest, costs and expenses payable by
Debtor to Bank, and any security and guarantees therefor including, but not by
way of limitation, any and all release, surrender, extension, renewal,
modification, acceleration, compromise, or substitution thereof. Creditor
hereby waives and agrees not to assert against Bank any rights which a guarantor
or surety could exercise; provided that nothing in this Agreement shall
constitute Creditor a guarantor or surety. Creditor hereby waives the right, if
any, to require that Bank marshal or otherwise require Bank to proceed to
dispose of or foreclose upon any collateral for any Indebtedness in any manner
or order.
- 3 -
4. If, at any time hereafter, Bank shall, in Bank's own judgment
determine to discontinue the extension of credit to Debtor, Bank may do so.
Except as permitted under Paragraph 10 below, this Agreement and the obligations
of Debtor and Creditor and Bank's rights and privileges hereunder shall continue
until payment in full of all Indebtedness owing to Bank by Debtor,
notwithstanding any action or non-action by Bank with respect thereto or any
collateral therefor or any guarantees thereof. All rights, powers and remedies
hereunder shall apply to all present and future Indebtedness of Debtor to Bank,
including under successive transactions which may continue, renew, increase,
decrease or from time to time create new Indebtedness to Bank.
5. If Debtor or Creditor violates any of the provisions of this
Agreement, or if Debtor's Indebtedness to Creditor is accelerated, Bank may
elect by notice in writing delivered to Debtor and Creditor to cause all
Indebtedness of Debtor to Bank to become immediately due and payable. In the
event that any party to this Agreement shall retain an attorney as a result of
any dispute over or to enforce any provision of this Agreement, the prevailing
party in any litigation, arbitration, or other formal or informal resolution of
any such dispute over or enforcement of this Agreement shall be entitled to all
of its expenses, costs (whether legally recoverable or actual out-of-pocket
costs) and attorneys' fees incurred as a result of such dispute or enforcement.
The right to recover such expenses, costs and attorneys' fees shall survive the
rendering of any judgment on this Agreement and shall not be deemed merged into
such judgment.
6. In the event any portion of this Agreement is found invalid,
that portion may be severed from this Agreement, and shall not affect the
validity of the remainder of such Agreement.
7. The obligations of Debtor and Creditor hereunder shall continue
irrespective of, and Debtor and Creditor hereby waive, to the fullest extent
legally permitted, any existing or any future statute of limitations applicable
thereto.
8. This Agreement shall be binding upon the heirs, administrators,
personal representatives, successors and assigns of Creditor and Debtor, and
shall inure to the benefit of Bank's successors and assigns.
9. This Agreement and the obligations which it secures and all
rights and liabilities of the parties shall be governed as to validity,
interpretations, enforcement and effect by the laws of the State of California.
- 4 -
10. Notwithstanding anything herein contained to the contrary, and
provided no Default has occurred and be continuing, Creditor may accept and
Debtor may make the payments of interest due quarterly under the terms of the
Note, and the payment of principal and interest called for on the maturity date
of the Note, which is May 1, 2000, without prior written notice to or approval
by Bank.
11. Bank shall give Creditor notice of the occurrence and
continuation of a Default, but Bank's failure to so notify Creditor will not,
however, affect or impair in any way the subordination made in this Agreement or
the terms and provisions of this Agreement.
IN WITNESS WHEREOF, Creditor has duly executed this Agreement as of
May 2, 1997.
/s/ Harold Jay Lefkovitz
-------------------------
HAROLD JAY LEFKOVITZ
- 5 -