INSIDER SUBORDINATION AGREEMENT
Exhibit
10.5
THIS
AGREEMENT is made and entered into effective this 9th
day of
March, 2007, by and between MISCOR Group, Ltd., HK Engine Components, LLC.
(collectively, the “Borrowers”), MFB Financial (hereinafter referred to as the
“Bank”), and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the “Subordinating Party”).
W
I-T ▇ ▇ ▇ ▇ ▇ ▇ ▇:
WHEREAS,
Borrowers are presently, or will hereafter become, indebted to Subordinating
Party as eAdenced by one or more promissory note(s) and other instruments
(the
“▇▇▇▇▇▇▇ Notes”); and
WHEREAS,
Borrowers and Subordinating Party have requested that Bank extend credit
to
Borrowers, but Bank is willing to do so if, and only if, all of the indebtedness
owing or to become owing by Borrowers to Subordinating Party, and all collateral
for such indebtedness, are expressly subordnated to any and all indebtedness
now
or hereafter owhg to Bank by Borrowers and all collateral for such
indebtedness.
NOW,
THEREFORE, in consideration of the mutual terms and provisions contained
herein,
and in order for Borrowers and Subordinating Party to induce Bank to extend
credit to Borrowers, the parties agree to as follows:
1. For
purposes hereof, the following terms shall have the following meanings:
| a. |
“Bank”
shall mean and refer to MFB Financial, a banking institution with
its
principal place of business located in St. ▇▇▇▇▇▇ County, Indiana,
as well
as to all related and affiliated financial institutions and entities,
as
well as to all successors, assigns and participants of MFB
Financial.
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| b. |
“Superior
Indebtedness” shall mean and refer to any and all indebtedness and
obligations now or hereafter owing by one or more of the Borrowers
to
Bank, including, but not limited to, future advances, and all obligations
of one or more of the Borrowers to Bank under any and all promissory
notes, mortgages, security agreements, assignments, leases, guaranties,
and all other agreements or documents heretofore or hereafter executed
by
one or more of the Borrowers to or in favor of Bank, including any
and all
interest, late charges, prepayment premiums, and all other amounts
accruing or payable under any such documents, including principal
and
interest accruing before or after commencement of any voluntary or
involuntary bankruptcy or reorganization, insolvency or similar
proceedings regarding one or more of the Borrowers, whether such
indebtedness or obligations be direct or indirect, absolute or contingent,
or primary or secondary, and all partial or full extensions, renewals
or
modifications thereof. The “Superior Indebtedness” shall specifically
include, but not be limited to, the indebtedness owing by Borrowers
to
Bank represented by a certain promissory note dated of even date
herewith,
in the original principal amount of $5,000,000.00, together with
all
renewals, extensions and modifications thereof, as well as all accrued
and
accruing interest and costs as provided in paragraph
3.
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| c. |
“Subordinated
Debt” shall mean any and all indebtedness and obligations now or hereafter
owing by one or more of the Borrowers to Subordinating Party, including,
but not limited to, future advances, and all obligations of one or
more of
the Borrowers under any and all notes, mortgages, security agreements,
assignments, leases, guaranties, and all other agreements or documents
heretofore or hereafter executed by one or more of the Borrowers
to or in
favor of Subordinating Party, including all interest, late charges,
prepayment premiums, and othor amounts set forth in any such documents,
and including principal and interest accruing before or after commencement
of any voluntary or involuntary bankruptcy or reorganization, insolvency
or similar proceedings regarding one or more of the Borrowers, whether
such indebtedness or obligations be direct or indirect, absolute
or
contingent, or primary or secondary, and all partial or full extensions,
renewals or modifications thereof. The “Subordinated Debt” shall
specifically include, but not be limited to, the ▇▇▇▇▇▇▇ Debt Instruments
and all amounts owing thereunder, together with all renewals, extensions
and modifications thereof.
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| d. |
It
is understood and agreed that the “Subordinated Debt” shall include any
and all indebtedness and liabilities of each and every nature and
description owing or to become owing by one or more of the Borrowers
to
the Subordinating Party and/or to Subordinating Party’s successors and
assigns. It is further understood and agreed that the “Superior
Indebtedness” shall include any and all indebtedness and liabilities of
each and every nature and description owing or to become owing by
one or
more of the Borrowers to Bank and/or to Bank’s successors and assigns.
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All
references herein to “Borrowers” shall mean and refer to one or more of the
Borrowers, in any combination. Accordingly, any reference to assets or property
of Borrowers shall include any and all assets and property of one or more
of the
Borrowers, in any combination. All promises and agreements of Borrowers
contained herein shall be construed as the promises and agreements of each
of
the Borrowers, Whenever the context thereof requires, reference herein made
to
the singular number shall be understood as including the plural, and likewise,
the plural shall be understood as including the singular. Specifically, but
not
in limitation of the foregoing, the term “Borrowers” shall refer to each entity
included in the definition of that term, above.
2. Subordinating
Party hereby agrees that any and all of the Subordinated Debt shall be and
hereby is absolutely and unconditionally subordinated in every manner and
to
every extent to the Superior Indebtedness and to the prior payment and
satisfaction in full of the Superior Indebtedness. The Subordinating Party
further agrees that each and every security interest, mortgage, lien, claim,
right or title of Bank in, to or against any real or personal property or
assets
of Borrowers shall be superior to each and every security interest, mortgage
or
lien which Subordinating Party has or may acquire in the same property or
assets. Each and every security interest, mortgage or lien hold by or in
favor
of Subordinating Party in, to or against such property or assets is and shall
remain absolutely and unconditionally subordinated, junior, inferior and
postponed in priority, operation and effect to the priority, operation and
effect of any security interest, mortgage or lien held by or in favor of
Bank,
all with the same force and effect as though such security interest, mortgage
or
lien field by or in favor of Bank had attached and was perfected prior to
the
perfection of any such security interest, mortgage or lien of Subordinating
Party. Subordinating Party agrees to execute such instruments and documents
as
Bank may request from time to time in order to evidence or accomplish the
intent
of this Agreement, and Subordinating Party and Borrowers expressly consent
to
the delivery, filing and recording of any such instruments or documents with
such persons and authorities as Bank shall deem appropriate. Bank makes no
representation or warranty concerning any collateral or the
validity,
perfection or priority of any security interest, lien or mortgage. Bank shall
have no duty to preserve, protect, care for, insure, take possession of,
collect, dispose of or realize upon any property. Bank may in its discretion
apply the proceeds of collateral to any indebtedness then owing by Borrowers
to
Bank secured thereby in any order as Bank deems appropriate.
3. Borrowers
agree that any and all of the Superior Indebtedness must be fully paid and
discharged, together with all interest thereon and all expenses of collecting
the same or otherwise protecting and/or enforcing the rights and/or interests
of
Bank, including, but not limited to, attorneys’ and legal assistants’ fees and
collection expenses, before any payment to Subordinating Party, by way of
cash,
setoff or otherwise, may be paid to Subordinating Party by Borrowers.
Notwithstanding the foregoing and any other provision hereof, Borrowers shall
be
entitled to pay regularly scheduled interest payments on the Subordinated
Debt
provided that there shall not have occurred a default in any of Borrower’s
obligations to Bank.
4. Subordinating
Creditor and Borrowers will cause each instrument evidencing Subordinated
Debt
to be endorsed with the following legend:
The
indebtedness evidenced by this instrument is subordinated to the prior payment
in full of the Superior Indebtedness (as defined in the Insider Subordination
Agreement hereinafter referred ant to the Insider Subordination Agreement
dated
effective as of March 9th,
2007,
by the maker hereof and payee named herein in favor of MFB Financial, the
Bank
referred to in such Insider Subordination Agreement.”
Subordinating
Party and Borrowers also agree that each and every financing statement filed
with any governmental office pertaining to the Subordinated Indebtedness
and/or
the security therefor shall contain the following:
Notwithstanding
the order of filing of financing statements concerning the Debtor, the security
interests described herein are, and shall at all times
remain,
subordinate and inferior to any and all security interests now or hereafter
held
by or in favor of MFB Financial and its successors and assigns.
Further,
Subordinating Party and Borrowers will ▇▇▇▇ their respective books of account
in
such a manner as shall be effective to give proper notice of the effect of
this
Subordination Agreement and will, in the case of any hereafter arising
Subordinated Debt which is not evidenced by an instrument, upon Bank’s request,
cause such Subordinated Debt to be evidenced by an appropriate instrument
or
instruments containing the language required above; provided however, that
the
foregoing shall not permit Borrowers to incur or assume any indebtedness
in
violation of the terms governing the Superior Indebtedness. Subordinating
Party
and Borrowers each will at their own expense and at any time and from time
to
time, promptly execute and deliver all further instruments and documents,
and
take all further action, that may be necessary or desirable, or that Bank
may
reasonably request, in order to protect any right or interest granted or
purported to be granted hereby or to enable Bank to exercise and enforce
its
rights and remedies hereunder.
5. Borrowers
shall not make any payment, and Subordinating Party shall not receive or
accept
any payment, with respect to any of the Subordinated Debt in violation of
this
Agreement. In the event Subordinating Party receives any payment from Borrowers
that is not expressly permitted hereby, whether such payment be in cash by
setoff (or otherwise, Subordinating Party shall be liable and accountable
therefor to Bank. Subordinating Party shall be deemed to have received each
and
every such payment in trust for the use and benefit of Bank, and Subordinating
Party shall not commingle the same with any other funds and shall pay over
and
deliver each such payment immediately to Bank, even if Bank does not make
demand
for such payment or delivery.
6. This
subordination shall survive and remain in full force and effect in the event
of
any administration of the property and/or affairs of Borrowers arising from
any
assignment for the benefit of creditors, bankruptcy, receivership, liquidation
or other like proceedings.
7. This
Agreement is a continuing subordination and shall continue in full force
and
effect, and Bank may make extensions of credit to Borrowers in reliance upon
this Agreement, at any time any Superior Indebtedness or costs described
in
Paragraph 3 hereof remain unpaid. Subordinating Party agrees that Bank, at
any
time and from time to time, may enter into such agreements with Borrowers
as
Bank may deem proper affecting any property which secures all or any portion
of
the Superior Indebtedness (the “Collateral”), and may sell, surrender or
otherwise deal with any of the Collateral without notice to Subordinating
Party
and without in any way impairing or affecting this Agreement. The obligations
of
Subordinating Party, and the subordination’s provided for herein, shall not be
affected or impaired by any compromise, release, renewal, extension,
forbearance, indulgence, alteration, change in, modification of, grant of
participation in, or other disposition of any documents or instruments executed
by Borrowers in favor of Bank, any release of any guarantor of the obligations
of Borrowers to Bank or any other person, any failure of Bank to pursue its
remedies against the Collateral or any one or more of the guarantors or any
other person, any failure to collect any of the indebtedness owing by Borrowers
to Bank when due, any failure to give notice of acquisition or expected
acquisition of a purchase money security interest, or any delay or omission
by
Bank in the exercise of any right or remedy against Borrowers or any guarantor
of the obligations of Borrowers to Bank.
8. In
the
event of the liquidation of Borrowers or the Collateral, or distribution
of
Borrowers’ assets, any obligation of Borrowers to Bank shall be satisfied and
discharged before Subordinating Party receives any distributive share or
payment
on account of its obligations
against
Borrowers. Any dividends or other payments with respect to the Collateral,
by
virtue of any insolvency proceedings instituted by or against Borrowers,
shall
also be distributed first to Bank, in an amount required to satisfy the full
about of the Superior Indebtedness. In order to enable Bank to enforce its
rights hereunder in any such action or proceeding, Bank is hereby irrevocably
authorized and empowered, in its discretion, to make and present, for and
on
behalf of Subordinating Party such proofs of claims against Borrowers or
against
any Bankruptcy trustee or debtor in possession on account of indebtedness
hereby
subordinated as Bank may deem expedient or proper, and to vote such proofs
of
claims in any such proceedings, and to receive and collect any and all Mends
or
other payments or disbursements made thereof in whatever form the same may
be
paid or issued, and to apply same on account of any indebtedness owing to
Bank
by Borrowers which relate to the Superior Indebtedness; and Subordinating
Party
further agree to execute and deliver to Bank such assignment(s), release(s)
or
other instruments as may be required by Bank in order to enable it to enforce
any and all such claims and to collect any and all dividends or other payments
or disbursements which may be made at any time (a) in connection with any
such
liquidation of Borrowers or the Collateral or the distribution of Borrowers’
assets and/or (b) on account of all or any of the indebtedness hereby
subordinated.
9. All
persons executing the Agreement in a representative capacity warrant that
they
have authority to execute this Agreement and bind the entities they purport
to
represent. Subordinating Party represents, warrants and certifies that the
execution and delivery of this Agreement (i) do not violate the provisions
of
the ▇▇▇▇▇▇▇ Debt Instruments and the documents pertaining thereto (ii) are
binding acts of Subordinating Party, and (iii) this Agreement will be an
enforceable obligation of Subordinating Party according to the terms and
provisions hereof.
10. This
Agreement constitutes the entire understanding of the parties hereto pertaining
to the matters covered hereby and may only be modified or amended by a writing
signed by ad parties. This Agreement is binding on, and shall inure to, the
parties hereto and their respective heirs, representatives, successors and
assigns.
11. Subordinating
Party and each of the Borrowers acknowledge and agree that (i) they have
been
given the opportunity to consult with counsel and other advisors of their
respective choice, and after having the opportunity to consult with such
counsel
and advisors, knowingly, voluntarily and without duress, coercion, unlawful
restraint, intimidation or compulsion, enter into this Agreement, (ii) this
Agreement has been entered into in exchange for good and valuable consideration,
the receipt and sufficiency of which Borrowers and the Subordinating Party
acknowledge, and (iii) they have carefully and completely read all of the
terms
and provisions of this Agreement and are not relying on the opinions or advice
of Bank or its agents or representatives in entering into this
Agreement.
12. The
parties agree that this Agreement is the product of their joint efforts,
that it
expresses their agreement, and that it should not be interpreted in favor
of or
against any party merely because of that party’s efforts in preparing
it.
13. This
Agreement shall be enforceable in, and interpreted under, the laws of the
State
of Indiana. The parties hereto acknowledge that the transactions contemplated
by
this Subordination Agreement bear a reasonable relation to the state of Indiana.
The parties hereto agree that the internal laws of the state of Indiana shall
govern this Subordination Agreement and the exhibits hereto, including, but
not
limited to, all issues related to usury. Any action to enforce the terms
of this
Subordination Agreement or any of its exhibits shall be brought exclusively
in
the
state
and/or federal courts situated in St. ▇▇▇▇▇▇ County, Indiana. Service of
process
upon any party hereto in any action to enforce the terms of this Subordination
Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier
to
such party at its principal address set forth in this Agreement.
14. The
subordination’s and priorities specified in this Agreement are not conditioned
upon the nonavoidability and perfection of the security interest to which
another security interest is subordinated and, if the security interest to
which
another security interest is subordinated is not perfected or is avoidable,
for
any reason, then the subordination’s and relative priority agreements provided
herein shall continue to be effective as to the particular Collateral which
is
the subject of the unperfected or avoidable security interest. In no event
shall
Subordinating Party institute, or join as a party in the institution of any
action, suit or proceeding or take any action of any kind whatsoever seeking
a
determination that a security interest held by Bank is unperfected or avoidable,
or in any way make any assertions to that effect.
15. The
following miscellaneous provisions shall apply to this Agreement:
| a. |
Waiver.
The failure of any party hereto at any time or from time to time
to
require performance of another party’s obligations under this Agreement
shall in no manner affect the right to enforce any provision of this
Agreement at a subsequent time, and the waiver of any rights arising
out
of any breach shall not be construed as a waiver of any rights arising
out
of any subsequent breach.
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| b. |
Severability.
If any one or more of the provisions of this Agreement shall be held
invalid or unenforceable, the validity and enforceability of all
other
provisions of this Agreement shall not be
affected.
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| c. |
Counterparts.
This Agreement may be executed in one or more counterparts, each
of which
shall be deemed an original but all of which together shall constitute
one
and the same instrument, and shall become effective when one or more
counterparts have been signed by each of the
parties.
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| d. |
Fees
and Expenses.
In the event any party breaches this Agreement, all costs and expenses,
including attorneys, fees, incurred by a non-breaching party shall
be
included in the damages which may be recovered as a result of such
breach
or default. In any litigation relating to this Agreement and the
transactions contemplated hereby, the prevailing party shall be entitled
to recover its costs and reasonable attorneys’
fees.
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| e. |
Limitations
on fights of Third Parties.
Nothing expressed or implied in this Agreement is intended or shall
be
construed to confer upon or give any person or entity other than
the
parties hereto any rights or remedies under or by reason of this
Agreement
or the transactions contemplated hereby.
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| f. |
Contents
of Agreement.
Each person signing this Agreement (whether for herself or for himself
Individually or on behalf of an entity or organization) acknowledges
that
this Agreement may reflect changes from previous drafts, if any,
and that
he or she has read and reviewed this Agreement carefully. Each person
signing this Agreement also acknowledges that he or she has not relied
on
any other party to this Agreement, or on any officer, agent, partner,
employee or attorney of any other party to this Agreement, to explain
the
provisions of this Agreement to him or her, or to identify changes
that
have been made from prior drafts or versions of this Agreement, if
any.
Rather, each person signing this Agreement agrees to be solely responsible
for being aware of the contents of this
Agreement.
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16. Borrowers
and Subordinating Party agree to give Bank written notice, by registered
or
certified mail, postage prepaid, of any action or inaction by Bank or any
of its
officers, directors, employees, agents or attorneys in connection with this
Agreement, the Superior Indebtedness, the Collateral, or any related
transactions, that may be actionable against Bank or any officer, director,
employee, agent or attorney of Bank, or a defense to the enforcement hereof
or
payment of any loans or any promissory note, including, but not limited to,
any
commission of a tort or violation of any contractual duty or duties implied
by
law. Borrowers and Subordinating Party agree that unless such notice is given
as
promptly as possible (and in any event within ninety (90) days) after Borrowers
and/or Subordinating Party have knowledge, or with the exercise of reasonable
diligence should have had knowledge, of any such
action
or
inaction, Borrowers and Subordinating Party shall not assert, and shall be
deemed to have waived, any such claim or defense.
All
notices and other communications required or permitted to be given pursuant
to
the terms of this Subordination Agreement shall be in writing and mailed
by
registered or certified mail with return receipt requested, and delivered
to the
applicable party at the address indicated below:
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If
to Subordinating Party:
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▇▇▇▇
▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
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If
to the Borrowers
|
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn:
President
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If
to Bank:
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MFB
Financial
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇. ▇▇▇▇, Chief Operating Officer
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With
a copy to:
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▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, Esq.
▇.▇.
▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
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17. WAIVER
OF JURY TRIAL.
THE
PARTIES HERETO, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT
WITH
COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF
THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF
THIS
AGREEMENT OR ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALINGS, STATEMENTS,
WHETHER ORAL OR WRITTEN, OR ACTIONS
OF
ANY OF
THEM. NONE OF THE PARTIES HERETO SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM
OR
OTHERWISE ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION
IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS
SHALL
NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY ANY
OF THE
PARTIES EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
Signatures
on Following Page
IN
WITNESS WHEREOF, the parties hereto ave executed this Agreement on the date
and
year first above written.
“BORROWERS”
By:
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇.
▇▇▇▇▇▇▇, President
HK
ENGINE
COMPONENTS, LLC
By:
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇.
▇▇▇▇▇▇▇, Management Member
MAGNETECH
INDUSTRIAL SERVICES, INC.
By:
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇.
▇▇▇▇▇▇▇, President
MAGNETECH
POWER SERVICES, LLC
By:
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇.
▇▇▇▇▇▇▇, President
▇▇▇▇▇▇▇
ELECTRIC, LLC
By:
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇.
▇▇▇▇▇▇▇, Managing Member
“SUBORDINATING
PARTY”
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇.
▇▇▇▇▇▇▇, Individually
“BANK”
MFB
Financial
By:
/s/
▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇
▇.
▇▇▇▇, Chief Operating Officer
STATE
OF
INDIANA )
)
SS:
ST.
▇▇▇▇▇▇ COUNTY )
Before
me, the undersigned, a Notary Public in and for said County and State personally
appeared ▇▇▇▇ ▇. ▇▇▇▇▇▇, Individually, and on behalf of MISCOR Group, Ltd.,
HK
Engine Components, LLC, Magnetech Industrial Services, Inc., Magnetech Power
Services, LLC, and ▇▇▇▇▇▇▇ Electric, LLC, and acknowledged of the execution
of
the foregoing Subordination Agreement this 8th
day of
March, 2007.
/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇
▇.
▇▇▇▇▇, Notary Public
Residing
in St. ▇▇▇▇▇▇ County, Indiana
▇▇▇▇▇
▇.
▇▇▇▇▇
Notary
Public, State of Indiana
St.
▇▇▇▇▇▇ County
My
Commission Expires
February
09, 2008
My
commission expires:
Feb
9,
▇▇▇▇
▇▇▇▇▇
▇▇
▇▇▇▇▇▇▇ )
)
SS:
ST.
▇▇▇▇▇▇ COUNTY )
Before
me, the undersigned, a Notary Public in and for said County and State personally
appeared ▇▇▇▇▇▇ ▇. ▇▇▇▇, Chief Operating Officer, on behalf of MFB Financial,
and acknowledged of the execution of the foregoing Subordination Agreement
this
9th
day of
March, 2007.
/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇
▇.
▇▇▇▇▇, Notary Public
Residing
in St. ▇▇▇▇▇▇ County, IN
My
commission expires:
1-21-2014