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Exhibit: 10.33FT
SUBORDINATION AGREEMENT
(Debt and Security)
THIS SUBORDINATION AGREEMENT, dated as of August 1, 1995 by and between Republic
Acceptance Corporation, a Minnesota corporation (the "Senior Lender"), Gary R.
Billings, a/k/a Joe Billings, an individual (the "Subordinated Lender"), and XYZ
Group, Inc., a/k/a XYZ Distributors, a Wisconsin corporation (the "Company").
A. The Company and the Senior Lender have entered into a Financing
Agreement dated as August 1, 1995 (as the same may hereafter be amended,
supplemented, extended, restated or otherwise modified from time to time, the
"Credit Agreement").
B. Pursuant to the terms of the Credit Agreement, the Lender has
agreed to extend credit accommodations to the Company (the "Senior Debt").
C. The Senior Debt is secured by a Security Agreement dated as of
August 1, 1995 pursuant to which the Company granted to the Senior Lender a
security interest in and to all personal property of the Company.
D. The Company is obligated and indebted to the Subordinated Lender,
inter alia, for credit extended by the Subordinated Lender to the Company as
evidenced by two promissory notes as follows: (i) promissory note dated as of
July 10, 1995 in the principal amount of $250,000.00, and (ii) promissory note
dated as of December 31, 1994 in the principal amount of $532,637.00
(collectively the "Subordinated Debt").
E. The Subordinated Debt is secured by a security interest in and to
certain personal property of the Company.
F. It is a condition precedent to the obligation of the Senior Lender
to extend credit accommodations to the Company pursuant to the Credit Agreement
that the Subordinated Lender and the Company execute and deliver this
Subordination Agreement to the Senior Lender.
G. The Subordinated Lender and the Company each find it advantageous,
desirable and in their respective best interests to comply with the requirement
that it execute and deliver this Subordination Agreement to the Senior Lender.
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Senior Lender, Subordinated Lender and the Company agree
as follows:
1. Subordination of Debt.
(a) The Subordinated Lender and the Company covenant and agree
that the obligations of the Company with respect to any payment of principal,
interest or other amounts payable with respect to the Subordinated Debt are and
shall be subordinate, to the extent and in the manner hereinafter set forth, for
right of payment and subject to the prior payment or provision for payment in
full of all principal, interest or other amounts payable with respect to the
Senior Debt, and all amendments, renewals, extensions and refundings of the
Senior Debt; provided however that as long as none of the events described in
Sections 1(b) or 1(c) have occurred, the Subordinated Lender shall be entitled
to receive and retain all regularly scheduled payments of interest (up to a
maximum interest rate of fifteen percent) on the Subordinated Debt (but the
Subordinated Lender shall not accept, nor shall the Company make, any prepayment
on the Subordinated Debt, nor amend the payment schedule or the interest rate
under the Subordinated Debt, without the prior written consent of the Senior
Lender).
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(b) Upon the maturity of the Senior Debt by lapse of time,
demand, acceleration or otherwise (including without limitation upon any
assignment, transfer or sale of all or substantially all of the Company's
business), all principal thereof and interest due thereon shall first be paid
in full, or such payment duly provided for in cash or in a manner satisfactory
to the holder of the Senior Debt, before any payment is made on account of the
principal of or interest on the Subordinated Debt.
(c) Whether or not Senior Debt is due, upon receipt by the
Subordinated Lender and the Company of written notice from Senior Lender that no
payment may be made by the Company to the Subordinated Lender, the Subordinated
Lender shall not accept, and the Company shall not make, any payment of
principal or interest of Subordinated Debt. The determination to so notify the
Company and the Subordinated Lender shall be in Senior Lender's sole and
absolute discretion.
(d) In the event that, contrary to the provisions of Sections
1(b) or 1(c) hereof, any payment or distribution of assets of the Company of any
character, whether in cash, securities or other property, is received by the
Subordinated Lender before the Senior Debt is paid in full, such payment or
distribution will be held in trust for the benefit of, and will be paid over or
delivered to, the holder of the Senior Debt (or its duly authorized
representative) until the Senior Debt has been paid in full, after giving effect
to the concurrent payment or distribution (or provision therefor) to the holder
of the Senior Debt. Under no circumstances, however, shall the Subordinated
Lender be obligated to turn over any scheduled interest payment on the
Subordinated Debt that is received by the Subordinated Lender pursuant to
Section 1(a) and prior to the occurrence of the earliest event specified in
Sections 1(b) or 1(c) to occur.
(e) Subject to the payment in full of the Senior Debt, the
Subordinated Lender shall be subrogated to the rights of the holder of the
Senior Debt to receive payments or distribution of cash, property or securities
of the Company applicable to the Senior Debt until all amounts owing on the
Subordinated Debt shall be paid in full, and, as between the Company, its
creditors other than the holder of the Senior Debt, and the Subordinated Lender,
it being understood that the provisions of this Section 1 are and are intended
solely for the purpose of defining the relative rights of the Subordinated
Lender, on the one hand, and the holder of the Senior Debt, on the other hand.
(f) No right of any present or future holder of the Senior
Debt to enforce subordination as provided in this Section 1 will at any time in
any way be prejudiced or impaired by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Subordination Agreement, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
2. Subordination of Security Interest.
(a) The Company and the Subordinated Lender hereby agree that,
regardless of any priority otherwise available to the Subordinated Lender by law
or by agreement, any security interest which the Subordinated Lender may now
hold or may now or at any time hereafter acquire in any or all of the assets of
the Company (the "Collateral"), together with all proceeds thereof, is, shall be
and shall remain fully subordinate for all purposes to the security interest of
the Senior Lender in the Collateral.
(b) The Subordinated Lender will not exercise any collection
rights with respect to the Collateral, will not take possession of, sell or
dispose of, or otherwise deal with, the Collateral, and will not exercise or
enforce any right or remedy which may be available to the Subordinated
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Lender with respect to the Collateral upon default, without the prior written
consent of the Senior Lender.
(c) The Senior Lender may exercise collection rights, may take
possession of, sell or dispose of, and otherwise deal with, the Collateral, and
may exercise and enforce any right or remedy available prior to or after the
occurrence of any default, all without notice to or consent by anyone. The
Senior Lender may apply the proceeds of the Collateral to any indebtedness
secured by the Senior Lender's above-described security interest, in any order
of application.
(d) In the event that the Company determines to sell
Collateral and the Senior Lender consents thereto, the Subordinated Lender shall
execute and deliver unconditional releases of its security interests in the
Collateral to be sold if requested by the Company.
(e) Neither the Subordinated Lender nor the Senior Lender (i)
makes any representation or warranty concerning the Collateral or the validity,
perfection or (except as to the subordination accomplished hereby) priority of
any security interest therein, or (ii) shall have any duty to preserve, protect,
care for, insure, take possession of, collect, dispose of or otherwise realize
upon any of the Collateral.
3. Bankruptcy Issues.
(a) In the event of any insolvency, bankruptcy or similar
proceeding relating to the Company or its property, any Voluntary liquidation,
dissolution or other winding up of the Company, or any assignment for the
benefit of its creditors or any other marshalling of its assets, the Senior Debt
shall first be paid in full before any payment or distribution is made on
account of the Subordinated Debt, and to that end the holder of the Senior Debt
shall be entitled to receive for application and payment thereof any payment or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceeding in
respect of the Subordinated Debt, including any such payment or distribution
which may be payable or deliverable by virtue of the provisions of any
indebtedness which is subordinate and junior in right of payment to the
Subordinated Debt, except securities which are subordinate in right of payment
to the payment of the Senior Debt. In order to enable the Senior Lender to
enforce the foregoing rights in any bankruptcy, insolvency or similar action or
proceedings, the Senior Lender is hereby irrevocably authorized and empowered in
its discretion to make and present for or on behalf of the Subordinated Lender
such proof of claims or claims against the Company on account of the
Subordinated Debt as the Senior Lender may deem expedient and proper, and to
vote such claims in any such proceedings and to receive and collect any and all
dividends or other payments or disbursements made thereon in whatever form the
same may be paid or issued and to apply the same on account of the Senior Debt.
The Subordinated Lender agrees to and does hereby assign all such claims to the
Senior Lender, and the Subordinated Lender further agrees to execute such
instruments as may be required by the Senior Lender to enable the Senior Lender
to enforce any and all such claims and collect any and all dividends or other
payments or disbursements which may be made on account of the Subordinated Debt.
(b) If Company becomes the subject of proceedings under the
Bankruptcy Code and if the Senior Lender desires to permit the use of cash
collateral or to provide financing to Company under either Section 363 or
Section 364 of Title 11 of the United States Code (the "Bankruptcy Code") the
Subordinated Lender agrees that adequate notice of such financing to the
Subordinated Lender shall have been provided if the undersigned receives notice
two (2) Business Days prior to the entry of any order approving such cash
collateral usage or financing. Notice of a proposed financing or use of cash
collateral shall be deemed given upon the sending of such notice by telegraph,
telecopy or hand delivery to the undersigned at the address indicated on the
signature page hereof. All allocations of
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payments between the Senior Lender and the Subordinated Lender shall continue to
be made after the filing of a petition under the Bankruptcy Code on the same
basis that the payments were to be allocated prior to the date of such filing.
The Subordinated Lender agrees not to assert any right it may have to "adequate
protection" of its interest in any security for the Subordinated Debt in any
bankruptcy proceeding, or to seek to have its claims in such bankruptcy
proceeding treated as "secured claims" under Section 506(a) of the Bankruptcy
Code, without the prior written consent of the Senior Lender. To the extent that
the Senior Lender receives payments on, or proceeds of any collateral for, the
Senior Debt which are subsequently avoided, invalidated, declared to be
fraudulent or preferential, set aside and/or required to be prepaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds received, the Senior Debt, or part thereof, intended to be satisfied
shall be revived and continue in full force and effect as if such payments or
proceeds had not been received by the Senior Lender.
4. Instrument Legend. Any agreement or instrument evidencing
the Subordinated Debt and/or the security interest held by the Subordinated
Lender, or any portion thereof, which has been or is hereafter executed by the
Company will, on the date hereof or the date of execution, be inscribed with a
legend conspicuously indicating that payment thereof or the security interest
held by the Subordinated Lender, as the case may be, is subordinated to the
claims or the security interests of the Senior Lender pursuant to the terms of
this Agreement. A copy of any such agreement or instrument will be delivered to
the Senior Lender within five (5) Business Days after the date hereof or the
date of its execution, and the original thereof will be immediately delivered to
the Senior Lender upon request therefor by the Senior Lender after the
occurrence of an Event of Default.
5. Transfer of the Subordinated Debt. The Subordinated Lender
warrants and represents that it has not previously assigned any interest in the
Subordinated Debt, and that no other party owns an interest in the Subordinated
Debt. The Subordinated Lender further covenants and agrees that it will not
assign or transfer the Subordinated Debt or its security interest in the
Collateral to any other person without the prior written consent of the Senior
Lender. Such consent will be conditioned upon satisfactory proof that any
purchaser or transferee of, or successor to, the Subordinated Debt or any
security interest of the Subordinated Lender in any or all of the Collateral has
been given detailed written notice of the subordination accomplished hereby,
prior to the time of purchase, transfer or succession, and agrees to be bound by
the same on terms satisfactory to the Senior Lender.
6. Rights Unimpaired. Nothing contained in this Agreement is
intended to or shall impair, as between the Company, its creditors other than
the holder of the Senior Debt, and the Subordinated Lender, the obligation of
the Company, which is absolute and unconditional, to pay to the Subordinated
Lender the principal of and interest on the Subordinated Debt as and when the
same shall become due and payable in accordance with its terms, or affect the
relative rights of the Subordinated Lender and creditors of the Company other
than the holder of the Senior Debt, nor shall anything herein prevent the
Subordinated Lender from exercising all remedies otherwise permitted by
applicable law upon default under the Subordinated Debt (other than the right to
foreclose on the Collateral), subject to the rights, if any, under this
Agreement of the holder of the Senior Debt in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
7. Termination of Agreement. Upon irrevocable payment in full
of the Senior Debt, this Agreement shall terminate, provided that if any payment
received by the Senior Lender and applied to the Senior Debt is subsequently set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Company or any other obligor), the Senior Debt to which such payment was
applied shall for the purposes of this Agreement be deemed to have continued in
existence, notwithstanding such application, and this Agreement shall be
enforceable as to such Senior Debt as fully as if such application had never
been
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made. References in this Agreement to amounts "irrevocably paid" or to
"irrevocable payment" refer to payments that cannot be set aside, recovered,
rescinded or required to be returned for any reason.
8. Information Concerning Financial Condition of Company.
Subordinated Lender warrants and agrees that it is the responsibility of the
Subordinated Lender to keep informed of the financial condition of the Company,
any and all endorsers and any and all guarantors of the Subordinated Debt and of
all other circumstances bearing upon the risk of nonpayment of the Senior Debt
and/or the Subordinated Debt that diligent inquiry would reveal. The
Subordinated Lender hereby agrees that the Senior Lender shall have no duty to
advise the Subordinated Lender of information known to the Senior Lender
regarding such condition or any such circumstances. In the event the Senior
Lender, in its sole discretion, undertakes, at any time or from time to time, to
provide any such information to the Subordinated Lester, the Senior Lender shall
be under no obligation to (i) to provide any such information to the undersigned
on any subsequent occasion, (ii) to undertake any investigation not a part of
its regular business routine, or (iii) to disclose any information which,
pursuant to its usual practices, the Senior Lender wishes to maintain
confidential. The undersigned 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, as the Senior Lender, in its sole discretion, deems
appropriate and assents to any extension or postponement of the time of payment
of the Senior Debt or to any other indulgence with respect thereto, to any
substitution, exchange or release of collateral which may at any time secure the
Senior Debt and to the addition or release of any Person primarily or
secondarily liable therefor.
9. Waiver of Jury Trial: Jurisdiction. (a) THE SUBORDINATED
LENDER BY THE EXECUTION AND DELIVERY HEREOF BY THE SUBORDINATED LENDER, AND THE
SENIOR LENDER, BY ITS ACCEPTANCE HEREOF, HEREBY EXPRESSLY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY CREDIT
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
(b) THE SUBORDINATED LENDER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR
RAMSEY COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE SUBORDINATED DEBTOR HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT THE SUBORDINATED LENDER MAY EFFECTIVELY DO SO, THE DEFENSE
OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
10. Miscellaneous. This Agreement is made under the laws of
the State of Minnesota. It cannot be waived or changed, except by a writing
signed by the party to be bound thereby. The headings of the sections of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement. All notices and other communications
required or permitted under this Agreement shall be in writing and shall be
delivered, or mailed first class postage prepaid, registered or certified mail,
to the parties at the addresses appearing under their signatures, or such other
address as any party may specify by written notice to the other parties. All
such notices and other communications shall for all purposes of this Agreement
be treated as being effective or having been given if delivered upon receipt or,
if sent by mail as provided above, upon the earlier of receipt or the fifth
(5th) day following the date of deposit in the United States Mail.
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IN WITNESS WHEREOF, the Company, the Subordinated Lender and the Senior
Lender have caused this Agreement to be signed on the date first dated above.
XYZ GROUP, INC., a/k/a XYZ Distributors
By /s/ Gary R. Billings
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Its President
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Address: 12221 West Feerick Street
Wauwatosa, WI 53222-2117
/s/ Gary R. Billings
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Gary R. Billings, a/k/a Joe Billings
Address:
REPUBLIC ACCEPTANCE CORPORATION
By /s/ D.E. Shoemaker
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Its Acct. Executive
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Address: 2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
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