SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT, dated as of June 27, 1997, by and between
FIRST BANK NATIONAL ASSOCIATION, a National Banking Association, (the "Senior
Lender"), XXXX X. XXXXXXX, individually (the "Subordinated Lender"), and TECH
SQUARED INC., a Minnesota Corporation (the "Company").
A. The Company and the Senior Lender have entered into a Financing
Agreement dated as of June 27,1997 (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 June
27,1997, 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
pursuant to the terms of a Promissory Note dated January 3, 1996 in the
original principal amount of $ 882,096.00, as amended by agreement dated as
of March 3, 1997 (the "Subordinated Debt").
E. 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.
F. 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 principal of and interest on the Subordinated Debt not to exceed
the sum of Two Hundred Thousand Dollars ( $200,000.00) in the aggregate in
any one calendar year and further provided that before and after each
payment to Subordinate Creditor the Company is within all applicable margins
required under the Financing Agreement (but the Subordinated Lender shall not
accept, nor shall the Company make, any prepayment on the Subordinated Debt,
nor amend the payment schedule under the Subordinated Debt, without the prior
written consent of the Senior Lender).
(b) Upon the maturity of the Senior Debt by demand for payment of
the Senior Debt, termination of the Credit Agreement 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) Upon the happening of an event of default with respect to the
Senior Debt, as such event of default is defined in the Credit Agreement,
permitting the holder of the Senior Debt to accelerate the maturity thereof,
then, unless and until such event of default shall have been cured or waived
or shall have ceased to exist, no payment shall be made by the Subordinated
Lender with respect to the principal of or interest on the Subordinated Debt.
(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 the provisions of this Subordination Agreement 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. NO SECURITY INTEREST. The Company and the Subordinated Lender
represent and warrant that the Subordinated Debt is unsecured, and the
Company and the Subordinated Lender agree that the Company will not grant,
and the Subordinated Lender will not accept from the Company or from any
person liable for all or any part of the Senior Debt, any lien or other
security therefor. The Subordinated Lender further agrees that in the event
that the Subordinated Lender does obtain any such lien or security for the
Subordinated Debt, at the request of the Senior Lender, the subordinated
Lender shall execute and deliver to the Senior Lender such termination
statements or releases as the Senior Lender shall reasonably request to
release the security interest or lien of the Subordinated Lender against such
property.
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. 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 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, 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 is
subordinated to the claims 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 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 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, 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 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. The
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
Lender, 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
XXXXXX COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE SUBORDINATED LENDER 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, sent by telefacsimile 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.
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.
TECH SQUARED INC.
By
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Its
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Address: 0000 Xxxx 00xx Xxxxxx
Xxxxx, Xxxxxxxxx 00000
XXXX X. XXXXXXX
By
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Its
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Address: 0000 Xxxxxxxxx Xxxx
Xxxxxxxx, Xx 00000
FIRST BANK NATIONAL ASSOCIATION
By
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Its
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Address: 0000 Xxxxxxx Xxxxxx X.X.
Xxxxxxxxxxx, Xxxxxxxxx 00000
