EXHIBIT 10.3
SECOND AMENDED AND RESTATED DEBT SUBORDINATION AGREEMENT
THIS AGREEMENT effective as of the 5th day of May, 2006, by and among
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual (the "Creditor"), ARGAN, INC., a Delaware
corporation ("Argan"), SOUTHERN MARYLAND CABLE, INC., a Maryland corporation
("SMC"), VITARICH LABORATORIES, INC., a Delaware corporation ("Vitarich" and
collectively with Argan and SMC, the "Debtor") and BANK OF AMERICA, N.A., a
national banking association, its successors and assigns (the "Lender").
WHEREAS, reference is made to that certain Financing and Security
Agreement among Argan, SMC and the Lender dated as of August 19, 2003 (as the
same may be amended, supplemented or modified from time to time, the "FSA")
pursuant to which the Lender has extended to the Debtor certain loans as more
particularly described therein (collectively, the "Loans"); and
WHEREAS, Argan, executed and delivered to the Creditor a subordinated
promissory note (the "Subordinated Note"); and
WHEREAS, Argan, SMC, the Creditor and the Lender entered into a certain
Debt Subordination Agreement dated as of January 31, 2005 (as amended, restated
supplemented or modified from time to time, the "Existing Debt Subordination
Agreement"); and
WHEREAS, Argan executed and delivered to the Creditor a Subordinated
Promissory Note (Earn-back Obligations) dated as of November 30, 2005 (the
"Earn-back Subordinated Note"); and
WHEREAS, the Debtor has requested that the Lender extend the maturity date
of a revolving line of credit, make a new term loan to the Debtor under the FSA
and combine the Subordinated Note and the Earn-back Subordinated Note into one
Amended and Restated Subordinated Term Note (the "Amended and Restated
Subordinated Term Note"), and the Lender has agreed on the condition that the
Debtor amend and restate the Existing Debt Subordination Agreement with the
Creditor as set forth herein; and
WHEREAS, capitalized terms used herein and not defined herein shall have
the meanings assigned to such terms in the FSA; and
NOW, THEREFORE, for value received and in consideration of the mutual
benefits to be derived from this Agreement, the parties hereto agree to amend
and restate the Existing Debt Subordination Agreement as follows:
1. Definitions.
(a) "Junior Debt" means all of the present and future indebtedness
(principal, interest (including, without limitation, default interest and
interest accruing after the commencement of a bankruptcy proceeding by or
against the Debtor), fees, charges, collection and other costs (including,
without limitation, attorney's fees) and expenses and other amounts),
liabilities and obligations of the Debtor to the Creditor, all whether fixed or
contingent, matured or unmatured, and liquidated or unliquidated and whether
arising under contract, in tort or otherwise, including without limitation, the
indebtedness arising under the Amended and Restated Subordinated Term Note, and
all increases, extensions, modifications, refinancings, assignments and renewals
thereof, but does not include any Collateral.
(b) "Superior Debt" means all of the present and future indebtedness
(principal, interest (including, without limitation, default interest and
interest accruing after the commencement of a bankruptcy proceeding by or
against the Debtor), fees, charges, collection and other costs (including,
without limitation, attorney's fees) and expenses and other amounts),
liabilities and obligations (including, without limitation, letter of credit
reimbursement obligations, protective advances permitted under the FSA and the
other Financing Documents for unpaid taxes, insurance, etc., and yield
maintenance and other indemnification amounts) of the Debtor to the Lender
including any such indebtedness under the FSA or any of the other Financing
Documents, all whether fixed or contingent, matured or unmatured, liquidated or
unliquidated, and whether arising under contract, in tort or otherwise, and all
increases, extensions, modifications, refinancings, assignments and/or renewals
thereof, and all Collateral.
2. Subordination.
(a) The Creditor hereby postpones and subordinates all of the Junior
Debt to the full and final payment of all of the Superior Debt to the extent and
in the manner set forth herein, provided that so long as (i) no Default or Event
of Default has occurred and is continuing under or within the meaning of the FSA
or any of the other Financing Documents and after giving effect to such payment
no Default or Event of Default would occur (including, without limitation, any
default of any financial covenant set forth in the FSA or any of the other
Financing Documents), and (ii) no event or condition has occurred which would
constitute such a Default or Event of Default but for the giving of notice or
passage of time, or both (including, without limitation, any event or condition
that would cause a default of any financial covenant set forth in the FSA or any
of the other Financing Documents), Lender agrees that for purposes of the FSA
and the other Financing Documents Debtor is permitted to, and may make, and the
Creditor is permitted to, and may accept: (A) regularly scheduled payments of
interest under the Junior Debt; (B) payments of principal after August 1, 2007,
and (C) mandatory and optional prepayments of the Junior Debt including, without
limitation, any Mandatory Prepayment, the Acquisition Mandatory Prepayment, the
Additional Term Loan Mandatory Prepayment or any other optional prepayment
allowed under the Junior Debt, but only to the extent such prepayments do not
otherwise violate the prohibitions in clauses (i) and (ii) above.
(b) The Creditor agrees that so long as the Debtor is indebted to
the Lender under or in connection with the FSA and the other Financing
Documents, the Creditor shall promptly provide the Lender (or its successors or
assigns, as the case may be) with a copy of all notices which the Creditor from
time to time may serve upon the Debtor in connection with the Junior Debt.
2
3. Collateral for Superior Debt. In furtherance of and for the sole
purposes of enforcing, exercising and securing the rights of the Lender under
Section 7 herein relating to the Lender's authority to act as the Creditor's
attorney-in-fact in connection with a bankruptcy or similar proceeding against
the Creditor, the Creditor hereby transfers and assigns to the Lender, its
successors and assigns, all of its right, title and interest in and to, and
grants to the Lender, its successors and assign, a security interest in, the
Junior Debt. The Creditor agrees to execute and deliver to the Lender any
additional assignments and instruments deemed necessary by the Lender to effect
or confirm such assignment and transfer and to effect collection of any and all
payments which may be made at any time on account of the Junior Debt.
4. Warranties and Representations of Creditor and Debtor. The Creditor and
the Debtor hereby represent and warrant: (a) that the Creditor has not relied
and will not rely on any representation or information of any nature made by or
received from Lender relative to the Debtor in deciding to execute this
Agreement or to permit it to continue in effect; (b) that the Creditor is or
will be the lawful owner of the Junior Debt and no part thereof is subject to
any defense, offset or counterclaim; (c) that the Creditor has not heretofore
assigned or transferred any Junior Debt or any interest therein; and (d) that
the Creditor has not heretofore given any subordination in respect of the Junior
Debt.
5. Negative Covenants. Except to the extent otherwise permitted under
Section 2 hereof, until all of the Superior Debt has been fully and finally paid
and any obligations of the Lender to extend further Superior Debt is terminated:
(a) the Debtor shall not, directly or indirectly, make any payment on account of
the Junior Debt and shall not grant any security interest in, mortgage, pledge,
assign or transfer any of their respective assets to secure or satisfy all or
any part of the Junior Debt; (b) the Creditor shall not demand or accept from
the Debtor or any other person any such payment of, or collateral for the Junior
Debt, nor shall the Creditor enforce any part of the Junior Debt; (c) the
Creditor shall not hereafter give any subordination in respect of the Junior
Debt, or transfer or assign any of the Junior Debt to any person other than the
Lender; (d) the Debtor will not hereafter issue any instrument, security or
other writing evidencing any part of the Junior Debt, and the Creditor will not
receive any such writing, except upon the prior written approval of the Lender
or at the request of and in the manner requested by the Lender; (e) the Creditor
will not commence or join with any other creditors of the Debtor in commencing
any bankruptcy, reorganization, receivership or insolvency proceeding against
the Debtor; and (f) neither the Creditor nor the Debtor shall otherwise take or
permit any action prejudicial to or inconsistent with the provisions of this
Agreement.
6. Turnover of Prohibited Transfers. If any payment on account of or any
collateral for any part of the Junior Debt is received by the Creditor in
violation of the terms of this Agreement, such payment or collateral shall be
delivered within one (1) business day by the Creditor to the Lender for
application to the Superior Debt, in the form received, except for the addition
of any endorsement or assignment necessary to effect a transfer of all rights
therein to the Lender. The Lender is irrevocably authorized to supply any
required endorsement or assignment which may have been omitted. Until so
delivered, any such payment or collateral shall be held by the Creditor in trust
for the Lender and shall not be commingled with other funds or property of the
Creditor.
3
7. Authority to Act for Creditor. For so long as any of the Superior Debt
shall remain unpaid, the Lender shall have the right to act as the Creditor's
attorney-in-fact for the purposes specified herein and the Creditor hereby
irrevocably appoints the Lender its true and lawful attorney, with full power of
substitution, in the name of the Creditor or in the name of the Lender, for the
use and benefit of the Lender, without notice to the Creditor or any of its
successors or assigns, to perform the following acts, at the Lender's option, at
any meeting of creditors of the Debtor or in connection with any case or
proceeding, whether voluntary or involuntary, for the distribution, division or
application of the assets of the Debtor or the proceeds thereof, regardless of
whether such case or proceeding is for the liquidation, dissolution, winding up
of affairs, reorganization or arrangement of the Debtor, or for the composition
of the creditors of the Debtor, in bankruptcy or in connection with a
receivership, or under an assignment for the benefit of creditors of the Debtor
or otherwise:
(a) To enforce claims comprising the Junior Debt, either in its own
name or in the name of the Creditor, by proof of debt, proof of claim, suit or
otherwise;
(b) To collect any assets of the Debtor distributed, divided or
applied by way of dividend or payment on account of the Junior Debt, or any
securities issued on account of the Junior Debt and to apply the same, or the
proceeds of any realization upon the same that Lender in its discretion elects
to effect, to the Superior Debt until all of the Superior Debt (including,
without limitation, all interest accruing on the Superior Debt after the
commencement of any bankruptcy case) has been paid in full, rendering any
surplus to the Creditor if and to the extent permitted by law;
(c) To vote claims comprising the Junior Debt to accept or reject
any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; and
(d) To take generally any action in connection with any such
meeting, case or proceeding that the Creditor would be authorized to take but
for this Agreement.
In no event shall the Lender be liable to the Creditor for any failure to
prove the Junior Debt, to exercise any right with respect thereto or to collect
any sums payable thereon.
8. Waivers, Etc.
(a) The Creditor and the Debtor hereby waive any defense based on
the adequacy of a remedy at law which might be asserted as a bar to the remedy
of specific performance of this Agreement in any action brought therefor by the
Lender. To the fullest extent permitted by law, the Creditor and the Debtor each
hereby further waives: presentment, demand, protest, notice of protest, notice
of default or dishonor, notice of payment or nonpayment and any and all other
notices and demands of any kind in connection with instruments, documents and
agreements evidencing, securing or relating in any way to all or any portion of
the Superior Debt or the Junior Debt to which the Creditor or the Debtor may be
a party; notice of the acceptance of this Agreement by the Lender; notice of any
loans made, extensions granted or other action taken by the Lender in reliance
hereon, including without limitation: (i) granting time or other indulgences to
the Debtor, (ii) renewing, extending, modifying or compromising any of the
Superior Debt, (iii) possessing, substituting, modifying, waiving or releasing
any collateral held as security for any of the Superior Debt, or (iv) adding or
releasing any person primarily or secondarily liable thereon; and all other
demands and notices of every kind in connection with this Agreement, the
Superior Debt or Junior Debt, and no such action taken by the Lender shall
affect the subordination or other provisions herein in any manner.
4
(b) In the event of any sale, assignment, disposition or other
transfer of the Junior Debt, the Creditor shall cause the transferee thereof to
execute and deliver to the Lender an agreement (substantially identical with
this Agreement or otherwise in form and substance satisfactory to the Lender)
providing for the continued subordination of the Junior Debt to the Superior
Debt as provided herein and for the continued effectiveness of all of the rights
arising under this Agreement.
9. Indulgences Not Waivers. Neither the failure nor any delay on the part
of the Lender to exercise any right, remedy, power or privilege hereunder or
under any instruments, documents or agreements evidencing or relating to the
Superior Debt shall operate as a waiver thereof or give rise to an estoppel, nor
be construed as an agreement to modify the terms of this Agreement, nor shall
any single or partial exercise of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No consent or waiver by a
party hereunder shall be effective unless it is in writing and signed by the
party making such consent or waiver, and then only to the extent specifically
stated in such writing.
10. Duration and Termination. This Agreement shall constitute a continuing
agreement of subordination and shall terminate only upon the full and final
payment of the Superior Debt and termination of any obligation of the Lender to
extend any further Superior Debt. Neither the dissolution nor the bankruptcy of
the Creditor shall effect a termination hereof.
11. Administration by the Lender. In the administration of the Superior
Debt, either before or after a demand or default, the Creditor acknowledges and
agrees that the Lender may proceed in its sole discretion, including without
limitation, raising or lowering loan advances, interest rates or fees, charging
additional fees, declining to make further advances, extending additional loans
or other financing accommodations to the Debtor, increasing the dollar amounts
of the Debtor's credit limits, extending credit terms and maturities,
compromising claims and exchanging and releasing collateral or obligors; all
with no duty to the Creditor, and no such action shall affect the subordination
or other provisions herein in any manner.
12. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
shall be deemed to have been duly given, made and received only when delivered
against receipt or when deposited in the United States mails, certified mail,
return receipt requested, postage prepaid, or when delivered by next day express
delivery service, addressed as set forth below:
5
(a) If to the Lender: Bank of America, N.A.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Senior Vice President
(b) If to the Creditor: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(c) If to the Debtor: Argan, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Senior Vice President and CFO
Any addressee may alter the address to which communications are to be sent
by giving notice of such change of address in conformity with the provisions of
this Paragraph 12 for the giving of notice.
13. Lender's Duties Limited. The rights granted to the Lender in this
Agreement are solely for its protection and nothing herein contained imposes on
the Lender any duties with respect to any property of the Creditor or of the
Debtor heretofore or hereafter received by the Lender. The Lender has no duty to
preserve rights against prior parties on any instrument or chattel paper
received from the Debtor as collateral security for the Superior Debt or any
portion thereof.
14. Effect on Creditor and Debtor. This Agreement is being entered into
solely for the benefit of the Lender, its successors and assigns, and is not
intended to give any rights, benefits or privileges to the Creditor or the
Debtor.
15. Authority. The Creditor and the Debtor represent and warrant that they
have the legal power, capacity and authority to enter into this Agreement and
that the person signing for the Creditor and Debtor is authorized and directed
to do so.
16. Entire Agreement, Amendment. This Agreement constitutes and expresses
the entire understanding between the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written. Neither this Agreement nor any portion or provision hereof may be
amended orally or in any manner other than by an agreement in writing signed by
the Lender, Creditor and Debtor.
17. Additional Documentation. Each of the Creditor and the Debtor shall
execute and deliver to the Lender such further instruments and shall take such
further action as the Lender may at any time or times request in order to carry
out the provisions and intent of this Agreement.
6
18. Successors and Assigns. This Agreement shall inure to the benefit of
the Lender, its successors and assigns, and shall be binding upon the Creditor
and Debtor and their respective heirs, personal representatives, successors and
assigns.
19. Defects Waived. This Agreement is effective notwithstanding any defect
in the validity or enforceability of any instrument or document evidencing the
Superior Debt.
20. Governing Law. The validity, construction and enforcement of this
Agreement shall be governed by the internal laws of the State of Connecticut.
21. Severability. The provisions of this Agreement are independent of and
separable from each other. If any provision hereof shall for any reason be held
invalid or unenforceable, it is the intent of the parties that such invalidity
or unenforceability shall not affect the validity or enforceability of any other
provision hereof, and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.
22. Amendment and Restatement. This Agreement amends, restates, supercedes
and replaces in its entirety the Existing Debt Subordination Agreement.
THE NEXT PAGE IS A SIGNATURE PAGE
7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered, as of the 5th day of May, 2006.
WITNESSES:
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------ ----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
WITTNESS/ATTEST: BANK OF AMERICA, N.A.
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------ ------------------------------------
Its Senior Vice President
ARGAN, INC.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------ -------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Title: CFO
-----------------------------
SOUTHERN MARYLAND CABLE, INC.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------ -------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Title: CFO
-----------------------------
VITARICH LABORATORIES, INC.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------ -------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Title: CFO
-----------------------------
[Signature Page to Second Amended and Restated Subordination Agreement]
Page 1