Exhibit 10.5
INTERCREDITOR AND SUBORDINATION AGREEMENT
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THIS INTERCREDITOR AND SUBORDINATION AGREEMENT ("Agreement") is
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entered into as of November 24, 1999, by and between ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CAPITAL
PARTNERS II, L.P., a California limited partnership ("Subordinated Lender"), and
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UNION BANK OF CALIFORNIA, N.A. ("Senior Lender").
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RECITALS
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A. Concurrently with the execution of this Agreement, Subordinated Lender
is purchasing from Overhill Farms, Inc., a Nevada corporation ("Debtor"), a
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Secured Senior Subordinated Note dated as of even date herewith in the aggregate
principal amount of $28,000,000 (the "Senior Subordinated Note") pursuant to a
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Securities Purchase Agreement (the "Securities Purchase Agreement") among
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Subordinated Lender, Debtor, Polyphase Corporation, a Nevada corporation
("Parent"), and Overhill L.C. Ventures, Inc., a California corporation ("LCV"),
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and a warrant to purchase 166.04 shares of common stock of Debtor (the
"Warrant").
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B. In addition, concurrently with the execution of this Agreement, Senior
Lender is providing to Debtor a senior, secured revolving credit facility in the
amount of up to $16,000,000 pursuant to that certain Loan and Security Agreement
dated as of even date herewith among Senior Lender, Debtor and LCV (the "Senior
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Loan Agreement").
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C. Concurrently with the execution of this Agreement, Parent, the holder
of 100% of the capital stock of Debtor, is guaranteeing the obligations under
the Senior Subordinated Note and the obligations under the Senior Loan Agreement
and is pledging such capital stock to Subordinated Lender and Senior Lender to
secure such guaranty obligations.
D. Senior Lender is unwilling to provide such revolving credit facility
unless Subordinated Lender subordinates its claims and security interests in the
manner set forth in this Agreement. Subordinated Lender is unwilling to purchase
the Senior Subordinated Note unless Senior Lender agrees to the terms of this
Agreement set forth below.
E. Subordinated Lender hereby acknowledges and affirms that Senior
Lender's financial accommodations to Debtor constitute valuable consideration to
Subordinated Lender. Senior Lender hereby acknowledges and affirms that
Subordinated Lender's financial accommodations to Debtor constitute valuable
consideration to Senior Lender.
AGREEMENT
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NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and to induce Senior Lender to
provide its revolving credit facility to Debtor and to induce Subordinated
Lender to purchase the Senior Subordinated Note from Debtor, the parties hereto
agree as follows:
1. Definitions. Unless otherwise defined in this Agreement, capitalized terms
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and matters of construction defined or established in Schedule A to the Senior
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Loan Agreement shall be applied herein as defined or established therein. As
used in this Agreement the following terms shall have the following respective
meanings:
"Allowed Payments" shall mean (a) regularly scheduled payments of
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interest (including default interest payable to Subordinated Lender pursuant to
the Subordinated Loan Documents) when due under the Senior Subordinated Note,
(b) payments of principal pursuant to Section 5(b) of the Senior Subordinated
Note, (c) reimbursements of reasonable out-of-pocket expenses of Subordinated
Lender pursuant to Section 15 of the Senior Subordinated Note, (d) regularly
scheduled payments of the Consulting Fee pursuant to Section 1.5 of the Investor
Rights Agreement by among Debtor, Parent and Subordinated Lender dated November
24, 1999, (e) payment of the outstanding principal amount of the Senior
Subordinated Note on the Maturity Date (as defined in the Senior Subordinated
Note), (f) repayment of the outstanding amount of the Subordinated Debt upon a
Permitted Subordinated Note Refinancing, and (g) payment of closing fees to
Subordinated Lender that have been consented to by Senior Lender; provided, that
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prepayments of the Subordinated Indebtedness or payments resulting from either
the breach of any covenant or warranty contained in the Subordinated Loan
Documents or the acceleration of any amounts due thereunder shall not constitute
Allowed Payments.
"Blockage Period" shall mean a period of 180 days (or 90 days as
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expressly provided in Section 7(c) of this Agreement) commencing on the date on
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which Subordinated Lender receives a Payment Blockage Notice from Senior Lender.
"Collateral" shall mean all property of Debtor, real or personal,
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tangible or intangible, now existing or hereafter acquired, that is or may at
any time be or become subject to a lien in favor of Senior Lender to secure the
Senior Indebtedness.
"Equity-Related Agreements" shall mean the Warrant, the
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Registration Rights Agreement between Debtor and Subordinated Lender dated as of
November 24, 1999, and the Investor Rights Agreement among Debtor, Parent and
Subordinated Lender dated as of November 24, 1999.
"Equity-Related Rights" shall mean Subordinated Lender's (a)
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rights under the Equity-Related Agreements and (b) rights (other than those
relating to the Senior Subordinated Note) under the Securities Purchase
Agreement.
"Insolvency Proceeding" shall mean any liquidation, bankruptcy,
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receivership, assignment for the benefit of creditors, or any other judicial,
equitable, or administrative action or proceeding commenced by or against a
Person or any of its assets or property under federal or state law and involving
the adjustment, restructuring, or liquidation of any or all of the assets,
obligations, business, or property of such Person.
"Lien" means, with respect to any property, any security deed,
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mortgage, deed to secure debt, deed of trust, lien, pledge, assignment, charge,
security interest, title retention agreement, negative pledge, levy, execution,
seizure, attachment, garnishment, or other encumbrance of any kind in respect of
such property, whether or not ▇▇▇▇▇▇, vested, or perfected.
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"Payment Blockage Notice" shall mean written notice delivered
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prior to any Allowed Payment in accordance with Section 7(b) or Section 7(c) of
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this Agreement by Senior Lender to Subordinated Lender containing in all capital
letters the following text: "THIS IS A PAYMENT BLOCKAGE NOTICE UNDER THE TERMS
OF THE INTERCREDITOR AND SUBORDINATION AGREEMENT DATED NOVEMBER 24, 1999."
"Permitted Equity Payments" shall mean the obligations by Debtor,
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Parent or LCV to make payments to Subordinated Lender under (a) Section 3.3 of
the Warrant or (b) Section 3.3 or Article 4 of the Registration Rights Agreement
between Debtor and Subordinated Lender.
"Person" shall mean any individual, partnership, joint venture,
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trust, unincorporated organization, association, corporation, limited liability
company, limited liability partnership, or governmental (whether federal, state,
local, foreign, or otherwise, including any instrumentality, division, agency,
body or department thereof) or other entity.
"Senior Default" shall mean a "Default" under and as defined in
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the Senior Loan Agreement.
"Senior Event of Default" shall mean an "Event of Default" under
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and as defined in the Senior Loan Agreement.
"Senior Indebtedness" shall mean (a) all indebtedness,
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liabilities and other obligations of Debtor, Parent, or any other guarantor, now
existing or hereafter arising under the Senior Loan Agreement and the other
Senior Loan Documents, as each may from time to time be amended, supplemented,
extended, renewed, modified or restated, whether for principal, premium,
interest (including all interest accruing after the initiation of any Insolvency
Proceeding of Debtor, whether or not such interest is allowed), fees, expenses,
indemnities or otherwise; and (b) all other indebtedness for credit extended by
Senior Lender to Debtor, whether for principal, premium, interest (including all
interest accruing after the initiation of any Insolvency Proceeding of Debtor,
whether or not such interest is allowed), fees, expenses, indemnities or
otherwise; provided, however, that the aggregate amount of principal that
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constitutes Senior Indebtedness shall not exceed $17,600,000 without the prior
written consent of Subordinated Lender, which consent may be granted or withheld
by Subordinated Lender in its sole discretion.
"Senior Loan Documents" shall mean (a) the Senior Loan Agreement,
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(b) the Continuing Guaranty dated as of November 24, 1999, executed by each of
Parent and LCV in favor of Senior Lender, (c) the Stock Pledge Agreement dated
as of November 24, 1999, executed by each of Parent and Debtor in favor of
Senior Lender, and (d) all other agreements, security agreements, pledge
agreements, guaranties, instruments, and documents executed and delivered to, or
in favor of, Senior Lender in connection therewith.
"Standstill Period" shall mean a period of 180 days (or such
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lesser period as expressly provided in the next sentence) following the date
Senior Lender receives written notice from Subordinated Lender that an event of
default under the Subordinated Loan Documents has occurred if such event of
default has not then been cured or waived; provided, that such written notice of
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the occurrence of any event of default under Section 10.1(e) of the Securities
Purchase
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Agreement shall be deemed to have occurred (without any requirement of notice
being provided by Subordinated Lender to Senior Lender) as of the date that
Subordinated Lender receives notice of such event of default from Senior Lender.
The 180-day period in the preceding sentence shall be reduced as follows:
(a) to 60 days in the case of an event of default resulting from
a breach of clauses (iv) or (v) of the definition of "Change in Control" in
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the Securities Purchase Agreement;
(b) to 90 days in the case of an event of default resulting from
a breach of clauses (ii), (vi) or (vii) of the definition of "Change in
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Control" in the Securities Purchase Agreement; and
(c) to 30 days in the case of an event of default resulting from
a breach of clauses (i) or (iii) of the definition of "Change in Control"
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in the Securities Purchase Agreement; provided, that, in the case of this
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clause (c), if Senior Lender has commenced and is continuing the process of
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an orderly liquidation of the Collateral as of the end of such initial 30-
day period, then such initial 30-day period shall be extended by an
additional 60 days, and during such additional 60-day period Subordinated
Lender may commence, prosecute or participate in any action, whether
private, judicial, equitable or otherwise, against Debtor, LCV or Parent
(other than participating in the commencement of an Insolvency Proceeding)
but, so long as Senior Lender is continuing the process of an orderly
liquidation of the Collateral, Subordinated Lender shall not have any right
to participate in the commencement of an Insolvency Proceeding against
Debtor, LCV or Parent or to obtain a writ of possession against, foreclose
or enforce any Liens in, levy or execute upon, or attach, any Collateral,
whether by private, judicial or equitable action or otherwise.
"Subordinated Indebtedness" shall mean all indebtedness,
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liabilities and other obligations of Debtor, Parent, LCV, or any other guarantor
(including any obligations to make payments under any Equity Related Agreement
to Subordinated Lender by Debtor, Parent or LCV, except that the Permitted
Equity Payments will not be deemed to be Subordinated Indebtedness), now
existing or hereafter arising under the Senior Subordinated Note, the other
Subordinated Loan Documents and the Equity Related Agreements, as each may from
time to time be amended, supplemented, extended, renewed, modified or restated,
whether for principal, redemption, put obligations, call obligations, premium,
interest (including all interest accruing after the initiation of any Insolvency
Proceeding of Debtor, whether or not such interest is allowed), guaranty claims,
fees, expenses, indemnities or otherwise. Notwithstanding the foregoing, the
Equity Related Rights that do not relate to payments to be made to Subordinated
Lender by Debtor, Parent or LCV shall not constitute Subordinated Indebtedness,
and the Equity Related Rights (other than the Permitted Equity Payments)
relating to payments to be made to Subordinated Lender by Debtor, Parent or LCV
shall constitute Subordinated Indebtedness.
"Subordinated Loan Documents" shall mean (a) the Senior
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Subordinated Note, (b) the Security Agreement of even date herewith between
Debtor and Subordinated Lender, (c) the Securities Purchase Agreement, (d) the
Patent, Trademark and Copyright Security Agreement of even date herewith between
Debtor and Subordinated Lender, (e) the Stock Pledge
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Agreement of even date herewith between Parent and Subordinated Lender, (f) the
Stock Pledge Agreement of even date herewith between Debtor and Subordinated
Lender, (g) the Security Agreement of even date herewith between LCV and
Subordinated Lender, and (h) the Suretyship Agreement of even date herewith
among Parent, LCV and Subordinated Lender.
2. Subordination of Claims. Except to the extent otherwise provided
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in Sections 6 and 7 of this Agreement, unless and until all Senior Indebtedness
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has been fully and finally paid and satisfied in cash, Subordinated Lender shall
not receive or accept from Debtor, Parent, LCV, or any other guarantor, by
setoff or in any other manner, any payment on behalf of the Subordinated
Indebtedness, and all amounts payable with respect to the Subordinated
Indebtedness are expressly made subordinate in priority to the Senior
Indebtedness. Failure by Debtor to make any payment on account of the
Subordinated Indebtedness under paragraph 5(a) of the Senior Subordinated Note
or paragraph 3.2(c) of the Warrant, shall not constitute an event of default
under the Subordinated Loan Documents.
3. Subordination of Security Interests. Notwithstanding the timing,
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order or manner of the grant or perfection of any of their respective Liens, the
Liens now or hereafter held by Senior Lender in any Collateral to secure the
Senior Indebtedness shall be senior and prior to any Liens now or hereafter held
by or for the benefit of Subordinated Lender in or to any of the Collateral.
The priorities set forth in this Agreement shall be effective notwithstanding
anything to the contrary contained in the Senior Loan Documents, the
Subordinated Loan Documents, or any plan of reorganization or similar document
filed by or on behalf of Debtor or any affiliate of Debtor under any Insolvency
Proceeding of Debtor, Parent, or LCV, as the case may be, including any prior
perfection of a Lien under the provisions of the Uniform Commercial Code or any
other applicable law of any jurisdiction, or the existence of any present or
future filing of financing statements under the Uniform Commercial Code or other
applicable law of any jurisdiction in which such filing has been made, or any
other recordation or filing of any document.
4. Standstill. Unless and until all of the Senior Indebtedness
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shall have been fully and finally paid and satisfied in cash, Subordinated
Lender shall not (a) commence, prosecute or participate in any action, whether
private, judicial, equitable, administrative or otherwise, including any
Insolvency Proceeding, against Debtor, Parent or LCV or any of their respective
assets or (b) have any right either to possess, enforce any Liens in, foreclose,
levy or execute upon, or collect or attach any Collateral, whether by private or
judicial action or otherwise, except as permitted in the following sentence.
Upon the earliest to occur of:
(i) the expiration of the Standstill Period;
(ii) the initiation of an Insolvency Proceeding; provided, that if
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such Insolvency Proceeding is dismissed, then the corresponding prohibition
against Subordinated Lender taking any of the actions described in clauses
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(a) and (b) of this Section 4 shall be immediately reinstated as of the
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date of dismissal as if such Insolvency Proceeding had not been initiated;
(iii) acceleration of the Senior Indebtedness; provided, that if
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acceleration of the Senior Indebtedness is rescinded, then any of the
actions described in clauses (a) and (b)
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of this Section 4 taken by Subordinated Lender shall likewise be rescinded
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if such action is based solely on an acceleration of the Senior
Indebtedness; and
(iv) the expiration of a period of three Business Days following the
date that each of Debtor and Subordinated Lender receives notice from
Senior Lender that Senior Lender has terminated or suspended its obligation
to make further Loans or incur further Letter of Credit Obligations;
provided, that if such termination or suspension is rescinded, then any of
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the actions described in clauses (a) and (b) of this Section 4 taken by
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Subordinated Lender shall likewise be rescinded if such action is based
solely on such termination or suspension,
Subordinated Lender may, upon five Business Days' prior written notice to Senior
Lender take the actions described in clauses (a) and (b) of this Section 4 so
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long as such action is not inconsistent with or in contravention of, and does
not interfere with, the enforcement actions taken by the Senior Lender and the
provisions of this Agreement. Notwithstanding the foregoing, but subject to
Section 11(c) of this Agreement, Subordinated Lender may file a proof of claim
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in an Insolvency Proceeding involving Debtor, Parent or LCV, which proof of
claim shall indicate Subordinated Lender's subordination hereunder.
5. Consent to Liens. Senior Lender hereby consents to the Liens on
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the Collateral created in favor of Subordinated Lender under the Subordinated
Loan Documents and agrees that the grant, perfection or existence of such Liens
does not and shall not constitute a default or an event of default under the
Senior Loan Documents. Subordinated Lender hereby consents to the Liens on the
Collateral created in favor of Senior Lender, under the Senior Loan Documents,
and agrees that the grant or existence of such Liens does not and shall not
constitute a default or an event of default under and as defined in or a breach
of any covenant under the Subordinated Loan Documents.
6. Allowed Payments. Subject to Section 11 of this Agreement,
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Debtor may pay to Subordinated Lender, and Subordinated Lender may accept or
receive and shall not be required to hold in trust for the benefit of Senior
Lender, Allowed Payments, unless and until (a) Subordinated Lender receives a
Payment Blockage Notice and for so long as the resulting Blockage Period is in
effect or Subordinated Lender is prohibited from receiving payments under
Section 7(d), or (b) an Insolvency Proceeding is commenced by or against Debtor.
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7. Payment Blockages.
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(a) If Subordinated Lender receives a Payment Blockage Notice
pursuant to Section 6 of this Agreement, and if (i) the Senior Event of Default
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referenced therein is a default in payment of any portion of the Senior
Indebtedness, or (ii) such Payment Blockage Notice includes notice of an
acceleration or demand for immediate payment of the Senior Indebtedness, then
Subordinated Lender shall not take or receive any payment on the Subordinated
Indebtedness until the earlier to occur of (x) receipt by Subordinated Lender of
written notice by Senior Lender of the cure, or Senior Lender's waiver, of such
Senior Event of Default, or (y) full and final payment, in cash, to Senior
Lender of the Senior Indebtedness.
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(b) If Subordinated Lender receives a Payment Blockage Notice
pursuant to Section 6 of this Agreement, and if each of the following conditions
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are met:
(i) the Senior Event of Default referenced therein is not (A) a
default in payment of any portion of the Senior Indebtedness or (B) a
default solely arising under Section 7.1(c)(ii) of the Senior Loan
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Agreement;
(ii) such Payment Blockage Notice does not include notice of an
acceleration or demand for immediate payment of the Senior Indebtedness;
and
(iii) Debtor has Net Borrowing Availability at the time of any
proposed payment of less than $1,000,000, both before and after giving
effect to such proposed payment,
then Subordinated Lender shall not take or receive such payment on the
Subordinated Indebtedness until the earliest to occur of (x) receipt by
Subordinated Lender of written notice by Senior Lender of the cure, or Senior
Lender's waiver, of such Senior Event of Default, (y) full and final payment, in
cash, to Senior Lender of the Senior Indebtedness, or (z) expiration of a period
of 180 days from the date Subordinated Lender receives such Payment Blockage
Notice.
(c) If Subordinated Lender receives a Payment Blockage Notice
pursuant to Section 6 of this Agreement, and if each of the following conditions
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are met:
(i) the Senior Event of Default referenced therein is a default
solely arising under Section 7.1(c)(ii) of the Senior Loan Agreement;
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(ii) at the time of any proposed payment, Subordinated Lender
has accelerated or demanded immediate payment of the Subordinated
Indebtedness; and
(iii) Debtor has Net Borrowing Availability at the time of any
proposed payment of less than $750,000, both before and after giving effect
to such proposed payment,
then Subordinated Lender shall not take or receive such payment on the
Subordinated Indebtedness until the earliest to occur of (x) receipt by
Subordinated Lender of written notice by Senior Lender of the cure, or Senior
Lender's waiver, of such Senior Event of Default, (y) full and final payment, in
cash, to Senior Lender of the Senior Indebtedness, or (z) expiration of a period
of 90 days from the date Subordinated Lender receives such Payment Blockage
Notice.
(d) If, as a result of any payment blockage instituted pursuant
to the provisions of this Section 7, one or more Allowed Payments are blocked
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prior to the termination of any such payment blockage (each such blocked Allowed
Payment, a "Blocked Payment" and collectively, the "Blocked Payments"), then, in
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the event of a termination of any such payment blockage effected pursuant to
this Section 7, so long as a subsequent Payment Blockage Notice is not then
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delivered, Debtor may pay, and Subordinated Lender shall be authorized to accept
payment of and shall not be required to hold in trust for the benefit of Senior
Lender, the Blocked
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Payments at such time as Debtor shall have Net Borrowing Availability of not
less than $750,000, both before and after giving effect to such proposed
payment.
(e) Notwithstanding anything herein to the contrary, (i) the
Senior Subordinated Note shall continue to accrue interest at all times
regardless of whether a Payment Blockage Notice is in effect and interest so
accrued may be paid to Subordinated Lender at such time as Debtor has satisfied
the conditions set forth in this Section 7, and (ii) Senior Lender shall not
block payment of Allowed Payments under Section 7(b) or Section 7(c) more than
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twice during any 360-day period.
8. Amendment of Documents. Subordinated Lender shall not amend or
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modify the Subordinated Loan Documents without Senior Lender's prior written
consent other than (a) waivers of any default or event of default under the
Subordinated Loan Documents, (b) increases in the interest rate or default
interest rate, each as set forth in the Subordinated Loan Documents as of the
Closing Date, with respect to the Subordinated Indebtedness by up to two
percentage points (2%), (c) any release of Lien (by application of law or
otherwise), (d) any release of Debtor or any guarantor, and (e) any other
amendment or modification that does not increase the aggregate principal amount
of the Subordinated Indebtedness and is on terms that are no less favorable to
the interests of Debtor or Senior Lender. Subordinated Lender shall not amend or
modify the Equity Related Agreements so as to provide for payments to be made
thereunder by Debtor, Parent or LCV to Subordinated Lender. Senior Lender shall
have the right, without notice to Subordinated Lender, to amend, supplement,
modify or grant waivers or consents with respect to the Senior Indebtedness, in
any manner whatsoever, including (a) any extension or reduction of the time of
payments (even if such reduction causes any Senior Indebtedness to be due on
demand or otherwise), (b) any revision of any amortization schedule with respect
thereto, (c) any increase in the amount of the Senior Indebtedness, (d) any
substitution of Collateral, (e) any release of Lien (by application of law or
otherwise), and (f) any release of Debtor or any guarantor. Debtor shall deliver
to Subordinated Lender copies of any amendment, extension, supplement or
modification of the Senior Loan Documents; provided, that Senior Lender shall
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not (i) increase the aggregate amount of principal that constitutes Senior
Indebtedness to an amount greater than $17,600,000, (ii) increase the interest
rate with respect to the Senior Indebtedness by more than two percentage points
in excess of Default Rate set forth in the Senior Loan Agreement as of the
Closing Date, or (iii) extend the Commitment Maturity Date beyond November 24,
2002, in each case without the prior written consent of Subordinated Lender,
which consent may be granted or withheld by Subordinated Lender in its sole
discretion.
9. Subordinated Indebtedness Owed Only to Subordinated Lender.
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Subordinated Lender represents and warrants that as of the date hereof it has
not previously assigned any interest in the Senior Subordinated Note or any
other Subordinated Loan Document, that no other party owns an interest in any of
the Subordinated Indebtedness (whether as joint holders, participants or
otherwise), and that the entire Subordinated Indebtedness is owing only to
Subordinated Lender. Subordinated Lender covenants and agrees that the entire
Subordinated Indebtedness shall continue to be owing only to it; provided, that
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Subordinated Lender may assign some or all of its interest in the Subordinated
Indebtedness owing to it after the assignee has executed and delivered to Senior
Lender an agreement in the form of Exhibit A or otherwise in form and substance
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satisfactory to Senior Lender confirming that such assignee, and all
Subordinated Indebtedness held or to be held by such assignee, shall be subject
in all respects to
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the terms and conditions of this Agreement. Any purported assignment,
hypothecation, or other conveyance by Subordinated Lender without the prior
execution and delivery to Senior Lender of such agreement shall be void.
10. Payments Received by Subordinated Lender. Except as provided in
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Section 6 of this Agreement, if any payment, distribution or any proceeds of
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Collateral is received by Subordinated Lender from Debtor with respect to the
Subordinated Indebtedness prior to the final satisfaction in full of all the
Senior Indebtedness in cash, such Subordinated Lender shall receive and hold
such payment, distribution or proceeds in trust as trustee for the benefit of
Senior Lender and shall forthwith deliver such assets to Senior Lender in
precisely the form received (except for an endorsement or assignment by
Subordinated Lender where necessary), for application to any of the Senior
Indebtedness, whether due or not due. In the event of the failure of
Subordinated Lender to make any such endorsement or assignment to Senior Lender,
Senior Lender and any of its officers or agents are hereby irrevocably
authorized to make such endorsement or assignment either in its own name or in
the name of and on behalf of Subordinated Lender.
11. Insolvency Proceedings. In the event of any Insolvency
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Proceeding of Debtor, then, and irrespective of the treatment, validity or
priority of the Senior Indebtedness or the Subordinated Indebtedness:
(a) Senior Lender shall be entitled to receive payment in full
in cash of all amounts due on or in respect of the Senior Indebtedness before
Subordinated Lender is entitled to receive any payment or distribution on or in
respect of the Subordinated Obligations.
(b) Any payment or distribution of assets of Debtor of any kind
or character, whether in cash, property or securities, by setoff or otherwise,
to which Subordinated Lender would be entitled (including any payment or
distribution in respect of the Subordinated Indebtedness by reason of any other
indebtedness of Debtor being subordinated to the Subordinated Indebtedness) but
for the provisions of this Section 11, shall be paid by Debtor or any other
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Person making such payment or distribution, whether a debtor in possession,
trustee in bankruptcy, receiver, custodian, conservator, or otherwise, directly
to Senior Lender, to the extent necessary to make payment in full, in cash, of
the Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to or for the benefit of Senior Lender, and Senior
Lender shall be entitled to demand, ▇▇▇ for, collect and receive every such
payment or distribution. Subordinated Lender irrevocably authorizes, empowers
and directs all trustees, receivers, custodians, conservators or any other
Persons having authority over the property to effect all such payments and
deliveries to Senior Lender.
(c) Subordinated Lender shall file all claims it may have
against Debtor, and shall direct the debtor in possession or trustee in
bankruptcy, as appropriate, to pay over to Senior Lender all amounts due to
Subordinated Lender on account of the Subordinated Indebtedness owed to it until
the Senior Indebtedness has been fully and finally paid and satisfied in cash.
If Subordinated Lender fails to file such claims by the date that is 15 Business
Days prior to the last day on which such claims may be timely filed, then Senior
Lender may file such claims in the name of and on behalf of such Subordinated
Lender (but only if Senior Lender has given Subordinated Lender five Business
Days' written notice thereof and Subordinated Lender does
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not make such filings prior to the end of such five Business Day period).
Subordinated Lender may vote its claims with respect to the Subordinated
Indebtedness in connection with any plan of reorganization or composition in any
Insolvency Proceeding of Debtor. If Subordinated Lender fails to vote its claims
with respect to the Subordinated Indebtedness in connection with any plan of
reorganization or composition in any Insolvency Proceeding of Debtor within 15
Business Days before the expiration of the time to vote such claims, then Senior
Lender shall have the right to vote such claims of Subordinated Lender.
12. Subrogation. Until the payment in full in cash of all Senior
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Indebtedness, Subordinated Lender shall not assert any claim of subrogation with
respect to Senior Lender and the Senior Indebtedness. Upon the payment in full
in cash of all Senior Indebtedness, Subordinated Lender shall be subrogated to
the rights of Senior Lender to receive payments or distributions of cash or
property applicable to the Senior Indebtedness until all Subordinated
Indebtedness shall be paid in full and, as between Debtor and its creditors
other than Senior Lender and Subordinated Lender, no such payment or
distribution made to Senior Lender by virtue of this Agreement which otherwise
would have been made to Subordinated Lender shall be deemed to be a payment by
Debtor on account of Senior Indebtedness, it being understood that the
provisions of this Agreement are intended solely for the purpose of defining the
relative rights of Subordinated Lender, on the one hand, and Senior Lender, on
the other hand. If Subordinated Lender has been subrogated to the rights of the
Senior Lender due to the operation of this Section 12, then Debtor and Parent
----------
will take all actions requested by Subordinated Lender in order to enable
Subordinated Lender to obtain payments from Debtor and Parent with respect to
such subrogation rights as soon as possible.
13. Perfection of Subordinated Security Interest in Pledged Stock;
--------------------------------------------------------------
Enforcement of Senior Security Interests. Senior Lender shall hold (a) the
----------------------------------------
capital stock of (i) Debtor pledged by Parent and (ii) LCV pledged by Debtor
(collectively, the "Pledged Stock"), and (b) the Indebtedness of Debtor and LCV
-------------
that is evidenced by promissory notes, instruments and letters of credit
(collectively, the "Pledged Indebtedness"), in each case for itself and as
--------------------
bailee for Subordinated Lender, and, upon full and final payment, in cash, of
the Senior Indebtedness, shall deliver to Subordinated Lender the certificates
representing the Pledged Stock and the promissory notes, instruments and letters
of credit evidencing the Pledged Indebtedness, or as otherwise directed by
Subordinated Lender or order of any court. Senior Lender shall have no duties
to Subordinated Lender in connection with its possession of the Pledged Stock or
the Pledged Indebtedness prior to any foreclosure of Senior Lender's security
interest in such Pledged Stock or Pledged Indebtedness, other than the duty to
take reasonable care to preserve rights in such Pledged Stock or Pledged
Indebtedness. Any collection, sale, or other disposition of any Collateral by
Senior Lender after a Senior Event of Default shall be conclusively presumed to
be commercially reasonable if Senior Lender conducts such collection, sale, or
other disposition in a manner consistent with its normal and customary business
practices.
14. Reinstatement. The provisions of this Agreement shall continue
-------------
to be effective or be reinstated, and the Senior Indebtedness shall not be
deemed to be paid in full, as the case may be, if at any time any payment of any
of the Senior Indebtedness is rescinded or avoided, or must otherwise be
returned by Senior Lender pursuant to any Insolvency Proceeding or otherwise,
all as though such payment had not been made.
10
15. Nonimpairment. No right of Senior Lender to enforce the
-------------
subordination provisions hereof shall at any time in any way be prejudiced or
impaired by any act or failure to act by Subordinated Lender, Senior Lender or
Debtor, or any noncompliance by Debtor or by Subordinated Lender with the terms
and provisions and covenants herein contained, regardless of any knowledge
thereof that Senior Lender may have or with which Senior Lender may otherwise be
charged.
16. Instrument Legends. Subordinated Lender shall forthwith inscribe
------------------
the face of the Senior Subordinated Note and any other instrument evidencing the
Subordinated Indebtedness or any portion thereof with a legend conspicuously
indicating that payment thereon is subordinated to the claims of Senior Lender
pursuant to the terms of this Agreement, and shall forthwith deliver copies
thereof to Senior Lender. Subordinated Lender shall further inscribe, on the
date thereof, any other instrument evidencing any of the Subordinated
Indebtedness or any portion thereof with the aforementioned legend, and shall
deliver copies thereof to Senior Lender on the date of its execution or within
five days thereafter.
17. Additional Remedies. If Subordinated Lender violates any of the
-------------------
terms of this Agreement, in addition to any remedies in law, at equity or
otherwise, Senior Lender may restrain such violation in any court of law or
equity and may interpose this Agreement as a defense in any action by
Subordinated Lender.
18. Certain Waivers. All of the Senior Indebtedness and Subordinated
---------------
Indebtedness shall be deemed to have been made or incurred in reliance upon this
Agreement. Subordinated Lender waives all notice of the acceptance by Senior
Lender of the subordination and other provisions of this Agreement and agrees
that Senior Lender has made no representations or warranties with respect to the
legality, validity, enforceability, collectability or perfection of the Senior
Indebtedness or any liens held by it in connection therewith. Senior Lender
agrees that Subordinated Lender has made no representations or warranties with
respect to the legality, validity, enforceability, collectability or perfection
of the Subordinated Indebtedness or any liens held by it in connection
therewith. Subordinated Lender agrees that Senior Lender shall be entitled to
manage and supervise its loans to Debtor in accordance with applicable law and
its normal business practices, modified from time to time as it deems
appropriate under the circumstances, without regard to the existence of any
rights that Subordinated Lender may now or hereafter have in or to any
Collateral, except that Senior Lender shall comply with the terms of this
Agreement. Senior Lender shall have no liability to Subordinated Lender as a
result of any and all lawful actions not in breach of this Agreement that Senior
Lender takes or omits to take (including actions with respect to the creation,
perfection or continuation of its liens, actions with respect to the occurrence
of a default or event of default under the Senior Loan Documents, actions with
respect to the foreclosure, sale, release or failure to realize upon, any
Collateral (except that Senior Lender must use care in accordance with its
normal and customary business practices to ensure the safe custody of the
Collateral in its possession), and actions with respect to the collection of any
claim for all or any part of the Senior Indebtedness from any account debtor of
Debtor or any other Person), regardless of whether any such actions or omissions
may affect Senior Lender's rights to a deficiency or Subordinated Lender's
rights of subrogation or reimbursement. Without limiting the generality of the
foregoing, Subordinated Lender waives any otherwise valid legal or equitable
right (a) to require Senior Lender to marshal any portion of the Collateral or
otherwise to seek satisfaction
11
from any particular property of Debtor or from any other Person, (b) to oppose
any motion or application by Senior Lender or Debtor for Senior Lender to
provide debtor-in-possession financing, allow use of cash collateral, provide
adequate protection of Senior Lender's interest in the Collateral, or grant
relief from the automatic stay to permit Senior Lender to enforce its rights and
remedies with respect to the Collateral, or (c) otherwise to prohibit, delay,
control, or limit in any manner the sale or other disposition by Senior Lender
of any portion of the Collateral.
19. Waivers. No waiver shall be deemed to be made by Senior Lender
-------
or Subordinated Lender of any of their respective rights hereunder unless it is
in writing signed by the waiving party. Each such waiver shall be a waiver only
with respect to the specific instance involved and shall in no way impair the
rights of the waiving party or the obligations of the other party to the waiving
party in any other respect at any other time.
20. Information Concerning Financial Condition. Each of Senior
------------------------------------------
Lender and Subordinated Lender hereby acknowledges that the other has no
obligation to keep it informed of the financial condition of Debtor or of other
circumstances bearing upon the risk of nonpayment of the Senior Indebtedness or
Subordinated Indebtedness. Each of Senior Lender and Subordinated Lender hereby
agree that the other shall have no duty to advise it of information known to it
regarding such condition or any such circumstances. In the event Senior Lender
or Subordinated Lender (the "providing party"), in its sole discretion,
---------------
undertakes, at any time or from time to time, to provide any such information to
the other (the "receiving party"), the providing party shall be under no
---------------
obligation to (a) provide any such information to the receiving party on any
subsequent occasion, (b) undertake any investigation not a part of its regular
business routine, or (c) disclose any information that, pursuant to its
commercial finance practices, the providing party wishes to maintain as
confidential. Notwithstanding the foregoing, this Section 20 is subject to the
----------
notices required by Section 22 of this Agreement.
----------
21. Third Party Beneficiaries. This Agreement is solely for the
-------------------------
benefit of Senior Lender, Subordinated Lender and their respective successors
and permitted assigns, and neither Debtor nor any other Person is intended to be
a third party beneficiary hereunder or to have any right, benefit, priority or
interest under, or because of the existence of, or to have any right to enforce,
this Agreement. This Agreement is intended solely for the purpose of defining
the relative rights of Senior Lender and Subordinated Lender and is not intended
to or will impair, as between Debtor, Parent and their respective creditors
other than Senior Lender and Subordinated Lender, the respective obligations,
which are absolute and unconditional, of Debtor and Parent to Senior Lender or
Subordinated Lender. Each of Senior Lender and Subordinated Lender shall have
the right to modify or terminate this Agreement at any time without notice to or
approval of Debtor or any other Person; provided, that Subordinated Lender may
--------
not terminate this Agreement unless and until (a) the Senior Indebtedness has
been fully and finally paid and satisfied in cash, or (b) Senior Lender has
otherwise consented thereto in writing; and provided, further, that Debtor has a
--- -------- -------
right to approve any modification of this Agreement that increases its duties
under this Agreement with respect to notices or additional duties.
Notwithstanding any of the foregoing, if any third party satisfies the Senior
Indebtedness owing to Senior Lender, Senior Lender may assign its rights and
remedies hereunder to such third party, and such third party shall be deemed to
be Senior Lender for all purposes of this Agreement.
22. Notices.
-------
12
(a) Debtor and Parent shall each give prompt written notice to
Subordinated Lender of any fact known to it which would prohibit the making of
any payment to Subordinated Lender in respect of the Senior Subordinated Note.
Senior Lender shall, within three Business Days after its knowledge of such
occurrence, (i) provide a copy to Subordinated Lender of any Payment Blockage
Notice, (ii) give written notice of the occurrence of a Senior Event of Default
and (iii) give written notice to Subordinated Lender of the expiration of any
payment blockage effected pursuant to Section 7. Subordinated Lender shall have
---------
the right, but not the obligation, to cure any Senior Default susceptible to
cure under the Senior Loan Documents that, after notice or lapse of time or
both, would become a Senior Event of Default at any time prior to such Senior
Default becoming a Senior Event of Default. Debtor and Parent shall give
written notice to Subordinated Lender within 48 hours time at which a Senior
Event of Default described in a Payment Blockage Notice is cured, no longer
continuing or waived by Senior Lender.
(b) Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by any other parties, or whenever any
of the parties desires to give or serve upon any other parties any communication
with respect to this Agreement, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and shall be
deemed to have been validly served, given or delivered (a) upon the earlier of
actual receipt and three Business Days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 21), (c) one Business Day after deposit with a reputable overnight
----------
courier with all charges prepaid, or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated beneath its signature line hereto
or to such other address (or facsimile number) as may be substituted by notice
given as herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than Debtor or Senior
Lender) designated to receive copies herein shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
23. Costs and Attorneys' Fees. If any action or proceeding is
-------------------------
commenced by or between any of the parties hereto in connection with this
Agreement, the prevailing party or parties therein shall be entitled to recover
from the other party or parties their reasonable costs and attorneys' fees.
24. Successors and Assigns. This Agreement shall be binding on and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns (including, in the case of any Insolvency Proceeding, any
receiver, assignee for the benefit of creditors, trustee or debtor in possession
on behalf of such Person), except as otherwise provided herein.
13
25. Integrated Agreement. This Agreement sets forth the entire
--------------------
understanding of the parties hereto with respect to the matters set forth herein
and may not be modified or amended except in a writing signed by all parties.
26. Interpretation. No provision of this Agreement shall be
--------------
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party's
having or being deemed to have structured, drafted or dictated such provision.
27. Authority. Each of the signatories hereto certifies that such
---------
party has all necessary authority to execute this Agreement.
28. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each one of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
agreement.
29. GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
-------------
CONSTRUCTION, VALIDITY, AND PERFORMANCE, THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT
REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA.
30. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
--------------------
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE, BETWEEN SENIOR LENDER AND SUBORDINATED LENDER ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR THE TRANSACTIONS RELATED
THERETO.
IN WITNESS WHEREOF, this Intercreditor and Subordination Agreement has
been duly executed as of the date first written above.
"Subordinated Lender"
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CAPITAL PARTNERS, INC.,
a California corporation
14
On behalf of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CAPITAL
PARTNERS II, L.P., a California limited
partnership
By:_______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chief Executive Officer
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
[SIGNATURES CONTINUED] Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
"Senior Lender"
UNION BANK OF CALIFORNIA, N.A.
By:_______________________________
Name:_____________________________
Title:____________________________
Address: Union Bank of California, N.A.
Commercial Finance Division
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Commercial Finance Division
Manager
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
15
ACKNOWLEDGEMENT
---------------
Each of the undersigned hereby acknowledges and consents to the
foregoing Intercreditor and Subordination Agreement ("Intercreditor Agreement")
-----------------------
and agrees to cooperate with the parties thereto to insure enforcement of the
priorities and other provisions specified therein, and not to make any payments
to Subordinated Lender that are not expressly permitted under Sections 6 and 7
of the Intercreditor Agreement.
Dated as of November 24, 1999.
"Debtor"
OVERHILL FARMS, INC.
By:____________________________
▇▇▇▇▇ ▇▇▇▇▇
President and Chief Executive Officer
By:____________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President and Chief Financial Officer
Address: Overhill Farms, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
"Parent"
POLYPHASE CORPORATION
By:____________________________
▇▇▇▇▇ ▇▇▇▇▇
President and Chief Executive Officer
By:____________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President and Chief Financial
Officer
Address: Polyphase Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
16
[SIGNATURES CONTINUED]
"LCV"
OVERHILL L.C. VENTURES, INC.
By:__________________________
▇▇▇▇▇ ▇▇▇▇▇
President and Chief Executive Officer
By:__________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President and Chief Financial Officer
Address: Overhill L.C. Ventures, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
17
EXHIBIT A
---------
The undersigned, as assignee of the holder of that certain Secured
Senior Subordinated Note dated as of November 24, 1999, in the original
aggregate principal amount of $26,000,000 executed by Overhill Farms, Inc. (the
"Senior Subordinated Note") originally in favor of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CAPITAL
------------------------
PARTNERS II, L.P., a California limited partnership ("LLCP"), hereby
----
acknowledges and agrees as follows:
(a) the undersigned shall be bound by and to the terms of that
certain Intercreditor and Subordination Agreement dated as of November 24, 1999,
by and between UNION BANK OF CALIFORNIA, N.A. ("Bank"), as senior lender, and
----
LLCP, as subordinated lender (the "Intercreditor Agreement");
-----------------------
(b) the undersigned represents and warrants to Bank that the
undersigned is legally authorized to enter this assignment and to become a party
to the Intercreditor Agreement;
(c) the undersigned has received a copy of, and has fully and
completely read the terms of, the Intercreditor Agreement and is familiar with
the terms thereof;
(d) the undersigned shall perform all of the obligations, in
accordance with their terms, which by the terms of the Intercreditor Agreement
are required to be performed by the undersigned as Subordinated Lender;
(e) the undersigned acknowledges that the transfer of, payment
on, and remedial action with respect to the Senior Subordinated Note are
restricted by the Intercreditor Agreement, which Intercreditor Agreement is on
file at the offices of the maker of the Note; and
(f) the undersigned specifies as its address for notices the
office set forth below.
This Agreement is effective as of [_______ __, ____]
[ASSIGNEE PARTY]
By:___________________
Name:_________________
Title:________________
Consented to as of [_______ __, ____] by:
UNION BANK OF CALIFORNIA, N.A.
By:__________________
Name:________________
Title:_______________
18