INTERCREDITOR AND SUBORDINATION AGREEMENT

 

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                                                                  EXHIBIT 10.119

 

                    INTERCREDITOR AND SUBORDINATION AGREEMENT

 

         THIS INTERCREDITOR AND SUBORDINATION AGREEMENT ("Agreement"), is made

this 5th day of April, 2004, between and among LJH, LTD., a Texas limited

partnership ("Junior Creditor"); THE CIT GROUP/BUSINESS CREDIT, INC., a New York

corporation, in its capacity as agent (in such capacity, together with its

successors and assigns, the "Agent") for the CIT Lenders under the CIT Financing

Agreement, as hereinafter further defined; and HILCO CAPITAL LP, a Delaware

limited partnership (together with its successors and assigns, "Hilco"; the CIT

Lenders and Hilco being collectively called the "Senior Creditors").

 

                                   WITNESSETH:

 

         WHEREAS, Aircraft Interior Design, Inc., a Florida corporation, Brice

Manufacturing Company, Inc., a California corporation, TIMCO Aviation Services,

Inc., a Delaware corporation (the "Parent"), TIMCO Engine Center, Inc., a

Delaware corporation, TIMCO Engineered Systems, Inc., a Delaware corporation,

and Triad International Maintenance Corporation, a Delaware corporation

(collectively, the "Borrowers" and, individually, a "Borrower"), and Aviation

Sales Distribution Services Company, Aviation Sales Leasing Company, Aviation

Sales Property Management Corp., AVS/M-1, Inc., AVS/M-2, Inc., AVS/M-3, Inc. and

Whitehall Corporation, each a Delaware corporation, AVS/CAI, Inc., a Florida

corporation, AVSRE, L.P., a Delaware limited partnership, Hydroscience, Inc., a

Texas corporation, and TMAS/ASI, Inc., an Arkansas corporation (collectively,

the "Guarantors" and, individually, a "Guarantor" and, together with the

Borrowers, collectively, the "Credit Parties" and, individually, a "Credit

Party"), Agent, and other lenders and financial institutions (the "CIT Lenders")

which are parties from time to time, have each entered into a certain Financing

Agreement, dated of even date herewith (such Financing Agreement, as amended,

modified, supplemented or restated from time to time, being herein called

collectively the "CIT Financing Agreement" as hereinafter further defined),

pursuant to which the CIT Lenders have agreed to make or extend to the Borrowers

a $35.0 million revolving credit loan facility and a $7.0 million term loan

evidenced by the Borrowers' promissory notes, also dated of even date herewith,

in the aggregate original principal amount of up to $35.0 million (the "CIT

Revolving Notes") and in the aggregate original principal amount of $6.4 million

(the "CIT Term Notes"), upon the term and subject to the conditions set forth

therein (the CIT Financing Agreement, the CIT Revolving Notes, the CIT Term

Notes, and all related documentation as in effect from time to time, being

herein referred to as the "CIT Lender Documents");

 

         WHEREAS, the Credit Parties have each entered into a certain Financing

Agreement with Hilco, dated of even date herewith (such Financing Agreement, as

amended, modified, restated or supplemented from time to time, being herein

called the "Hilco Financing Agreement" as hereinafter further defined), pursuant

to which Hilco has agreed to make an $8.0 million term loan to the Borrowers

evidenced by the Borrowers' promissory note, also dated of even date herewith,

in the original principal amount of $8.0 million (the "Hilco Term Note"), upon

the terms and subject to the conditions set forth therein (the Hilco Financing

Agreement, the Hilco Term Note, and all related documentation as in effect from

time to time, being herein referred to as the "Hilco Documents");

 

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         WHEREAS, to induce the CIT Lenders and Hilco to enter into the CIT

Lender Documents and the Hilco Documents, respectively, and to make the loans

and extend the credit contemplated thereby, the Guarantors have executed

guaranties as part of the CIT Lender Documents and the Hilco Documents thereby

guaranteeing all of the indebtedness and other obligations owing by the

Borrowers to the Agent and the CIT Lenders and Hilco, respectively, thereunder;

 

                  WHEREAS, pursuant to the CIT Lender Documents and the Hilco

Documents, the Credit Parties have granted Liens in substantially all of their

property to the Agent for the benefit of the CIT Lenders and Hilco,

respectively; and

 

                  WHEREAS, the Senior Creditors, as a condition to entering into

the CIT Lender Documents and the Hilco Documents require the execution of this

Agreement by the Junior Creditor establishing the relative priorities of the

Senior Creditors' and the Junior Creditor's Liens upon the property of the

Credit Parties and the relative right of payment and claim of the indebtedness

of the Credit Parties owing to the Senior Creditors under the CIT Lender

Documents and the Hilco Documents and the Junior Creditor under the LJH

Documents (as hereinafter defined);

 

                  NOW, THEREFORE, for good and valuable consideration, the

receipt and sufficiency of which are expressly acknowledged, and in order to

induce the Senior Creditors to make loans and extend credit and other financial

accommodations to the Credit Parties from time to time and to better secure the

Senior Creditors in respect of the foregoing, the Agent on behalf of the CIT

Lenders, Hilco and Junior Creditor hereby agree as follows:

 

         1. DEFINED TERMS. In addition to the terms defined in the recitals

hereto, the following terms shall have the following meanings for the purposes

of this Agreement:

 

                  "Agreement" - shall mean this Intercreditor and Subordination

         Agreement, as the same may be modified, amended or supplemented from

         time to time.

 

                  "Blockage Notice" - shall mean a written notice from Agent or

         Hilco to the Junior Creditor that an Event of Default has occurred and

         is continuing.

 

                  "CIT Financing Agreement" - shall mean the Financing

         Agreement, dated of even date herewith, among the Credit Parties, the

         Agent and the CIT Lenders that are parties thereto, as in effect on the

         date hereof, and as the same may be amended, modified, supplemented or

         restated from time to time, and including any agreement with the same

         or other lenders extending the maturity of, or restructuring,

         refinancing or replacing all or any portion of the indebtedness and

         obligations owing to the Agent and the CIT Lenders thereunder.

 

                  "Event of Default" - shall mean an Event of Default as defined

         in any Senior Credit Document.

 

                  "Hilco Financing Agreement" - shall mean the Financing

         Agreement, dated of even date herewith, among the Credit Parties and

         Hilco, as in effect on the date hereof, and as the same may be amended,

          modified, supplemented or restated from

 

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         time to time, and including any agreement with the same or other

         lenders extending the maturity of, or restructuring, refinancing or

         replacing all or any portion of the indebtedness and obligations owing

         to Hilco thereunder.

 

                  "Junior Debt" - shall mean all present and future indebtedness

         (whether principal, interest (including, without limitation, interest

         accruing after the commencement of a bankruptcy proceeding by or

         against any Credit Party), fees, collection costs, expenses,

         liabilities, obligations, indemnities and other amounts now or

         hereafter owed by any Credit Party to the Junior Creditor (including,

         without limitation, all of the indebtedness arising under or pursuant

         to the LJH Documents), whether direct or indirect, absolute or

         contingent, secured or unsecured, due or to become due, liquidated or

         unliquidated, whether now existing or hereafter arising, and all

         whether arising under contract, in tort, or otherwise.

 

                  "Lease Agreement" - shall mean that certain Equipment Lease,

         dated April 4, between the Parent, as lessee, and the Junior Creditor,

         as lessor.

 

                  "Leased Equipment" - shall mean the Equipment owned by LJH and

         leased to the Parent pursuant to the Lease Agreement, more particularly

         described on EXHIBIT A attached hereto and incorporated by reference.

 

                  "Liens" - shall mean the liens and security interests with

         respect to the Collateral or any portion thereof granted at any time by

         the Credit Parties or any of them to the Junior Creditor or the Agent

         for the benefit of the CIT Lenders, or to Hilco, respectively.

 

                  "LJH Documents" - shall mean and include the LJH Note, the

         Lease Agreement, that certain Amended and Restated Guaranty, dated

         March 31, 2004, and that certain Amended and Restated Security

         Agreement, dated March 31, 2004, each as amended, modified,

         supplemented or restated from time to time, and all other security

         agreements, assignments, instruments, documents and agreements now or

         hereafter evidencing or security the payment of all or any part of the

         Junior Debt.

 

                  "LJH Note" - shall mean the Amended and Restated Consolidated

         Term Promissory Note, dated March 31, 2004, in the original principal

         amount of $14,411,704.00.

 

                  "Payment in full" - shall mean, together with the phrase

         "prior payment in full", "paid in full", "fully paid" and any other

          similar terms or phrases when used herein with respect to any Senior

         Debt, the final indefeasible payment in full in cash of all such Senior

         Debt (other than contingent indemnity obligations of any Credit Party

         that survive payment in full).

 

                  "Permitted Junior Securities" - shall have the meaning

         ascribed to such term in Section 8 of this Agreement.

 

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                  "Permitted Payments" - shall have the meaning ascribed to such

         term in Section 4 of this Agreement.

 

                  "Person" shall mean an individual, partnership, corporation,

         joint stock company, land trust, business or unincorporated

         organization, or a government or agency or political subdivision

         thereof.

 

                  "Senior Creditor Collateral" - shall mean all of the assets,

         properties and interests in property of each Credit Party, whether now

         owned or hereafter acquired or arising, wherever located.

 

                  "Senior Creditor Documents" - shall collectively mean the CIT

         Lender Documents and the Hilco Documents.

 

                  "Senior Debt" - shall mean all present and future indebtedness

         (whether principal, interest (including, without limitation, interest

         accruing after the commencement of a bankruptcy proceeding by or

         against any Company), fees, collection costs, expenses, liabilities,

         obligations (including, without limitation, letter of credit

         reimbursement obligations), and other amounts now or hereafter owed by

         any Company to the Agent or to the CIT Lenders (including, without

         limitation, all of the indebtedness arising under or pursuant to the

         CIT Lender Documents), or to Hilco (including, without limitation, all

         of the indebtedness arising under or pursuant to the Hilco Documents)

         whether direct or indirect, absolute or contingent, secured or

         unsecured, due or to become due, liquidated or unliquidated, whether

         now existing or hereafter arising, and all whether arising under

         contract, in tort, or otherwise.

 

         2. PRIORITY OF SECURITY INTERESTS. The Senior Creditors and the Junior

Creditor agree that at all times, whether before, after or during the pendency

of any bankruptcy, reorganization or other insolvency proceeding with respect to

any Company, and notwithstanding the priorities which would ordinarily result

from the order of execution or granting of any security interest in any

Company's assets or the order of filing of any financing statements related to

the Senior Creditor Documents or the LJH Documents:

 

                  (a) Each Senior Creditor's Lien in the Senior Creditor

Collateral shall be a Lien in the Senior Creditor Collateral, superior to any

Lien of the Junior Creditor therein arising pursuant to the LJH Documents or

otherwise, and the Junior Creditor's Lien in the Senior Creditor Collateral

shall be subordinate to the Liens of the Secured Creditors therein.

 

                  (b) The Junior Creditor's interest in the Leased Equipment

shall be superior to any Lien of any Senior Creditor arising pursuant to the

Senior Creditor Documents in the Leased Equipment, and the Senior Creditors'

Liens in the Leased Equipment shall be subordinated to the Lien of the Junior

Creditor therein.

 

                  (c) The subordinations and priorities specified in this

Section 2 are expressly conditioned upon the validity, perfection and

non-avoidance of the Lien to which the other Lien is subordinated, and, if the

Lien to which the other Lien is subordinated is invalid, unperfected or is

 

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avoided for any reason, then the subordination and relative priority agreements

provided for herein shall not be effective as to that portion of the Lien which

is the subject of the unperfected, invalid or avoided Lien.

 

         3. DEBT SUBORDINATION.

 

                  (a) The Junior Creditor hereby agrees that the Junior Debt is

subordinate, and the payment thereof, directly or indirectly, by any means

whatsoever, is deferred, to the prior payment in full of all of the Senior Debt,

to the extent and in the manner set forth in this Agreement.

 

                  (b) Except as set forth in Section 4 below, unless and until

the Senior Debt shall have been fully paid and the Senior Creditor Documents and

all outstanding commitments of each Senior Creditor for the incurring of

additional Senior Debt shall have been irrevocably terminated in writing, the

Junior Creditor will not:

 

                  (i) Accelerate, ask, demand, sue for, take or receive from or

         on behalf of any Company, by setoff or in any other manner, the whole

         or any part of any monies which may now or hereafter be owing to the

         Junior Creditor on the Junior Debt; or

 

                  (ii) Initiate or participate with others in any suit, action

         or proceeding against any Company, or otherwise take action against any

         Company or any of its assets, to enforce payment of or to collect the

         whole or any part of the Junior Debt; or

 

                  (iii) Commence any bankruptcy, arrangement, reorganization or

         insolvency proceeding against any Company; or

 

                  (iv) Ask, demand, take or receive any security for any of the

         Junior Debt other than that granted pursuant to the LJH Documents.

 

                  (c) The provisions of this Agreement shall apply with respect

to all of the Senior Debt, regardless of whether the Senior Debt has already

been incurred or may be incurred in the future by future advances or other

financial accommodations made or extended by a Senior Creditor to a Company

pursuant to the Senior Creditor Documents.

 

                  (d) If the Junior Creditor in violation of this Agreement

shall commence, prosecute or participate in any suit, action or proceeding

against any Company or shall attempt to enforce, foreclose or realize upon any

security for the Junior Debt, including, without limitation, the Senior Creditor

Collateral, such Company or any Senior Creditor may interpose as a defense or

plea the making of this Agreement and any Senior Creditor may intervene and

interpose such defense in its name or in the name of such Company, and such

Company or such Senior Creditor may by virtue of this Agreement restrain the

enforcement thereof in the name of such Company or such Senior Creditor.

 

         4. PERMITTED PAYMENTS.

 

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         (a) Notwithstanding the provisions of Section 3 hereof, until the

giving of a Blockage Notice, the Companies may pay to the Junior Creditor, and

the Junior Creditor may demand, accept and retain from the Companies, (i)

periodic payments of interest accruing on the Junior Debt, as and when the same

become due under the terms of the LJH Note and (ii) monthly lease payments not

to exceed $74,076.67 under the Lease Agreement, so long as both immediately

before, and after giving effect to the payment of such interest, (i) no Default

or Event of Default exists, (ii) Availability (as defined in any Senior Credit

Document) is not less than $3,000,000 and (iii) such payment(s) are made in any

year only after Hilco has received payment in full of all Surplus Cash (as

defined in the Hilco Financing Agreement) required to be paid to Hilco for the

Fiscal Year (as defined in the Hilco Financing Agreement) just ended pursuant to

Section 4.3 of the Hilco Financing Agreement (the foregoing payments being

herein called the "Permitted Payments") and no other payments with respect to

the Junior Debt.

 

         (b) Upon the issuance of a Blockage Notice, the subordination

provisions of Section 3 shall govern and control until the earlier to occur of:

 

                  (i) The Event of Default giving rise to such Blockage Notice

         shall have been cured to the satisfaction of the Senior Creditors or

         waived in writing or shall have ceased to exist; or

 

                  (ii) All of the Senior Debt shall have been fully paid and the

         Senior Creditor Documents and all outstanding commitments of each

         Senior Creditor for the incurring of additional Senior Debt shall have

         been irrevocably terminated in writing.

 

         5. STANDBY AS TO ENFORCEMENT OF SECURITY INTERESTS. Notwithstanding any

provision of the LJH Documents to the contrary, until all of the Senior Debt

shall have been fully paid and the Senior Creditor Documents and all outstanding

commitments of each Senior Creditor for the incurring of additional Senior Debt

shall have been irrevocably terminated in writing, the Junior Creditor shall not

ask for, demand, sue for, take, receive, or repossess from any Company, by

setoff or in any other manner, the whole or any part of the Senior Creditor

Collateral, or foreclose or otherwise realize upon the whole or any part of the

Senior Creditor Collateral, whether by judicial action or under power of sale,

by self-help repossession or otherwise.

 

         6. USE OF LEASED EQUIPMENT. If the Senior Creditors desire to exercise

their respective rights and remedies with respect to any portion of the Senior

Creditor Collateral which is located in any premises in respect of which the

Junior Creditor has an ownership or leasehold interest, or in which the Junior

Creditor may have been granted a Lien or in which any Leaded Equipment may be

located, the Junior Creditor agrees that it will do nothing to impede or impair

the rights of the Senior Creditors to enter upon such premises without force or

process of law and without obligation to pay rent or other compensation of any

kind to the Junior Creditor. Junior Creditor further agrees to permit the Senior

Creditors, in the exercise of their rights and remedies under the Senior

Creditor Documents, to use any Leased Equipment, wherever located, without

charge, for a period starting with the date on which the Senior Creditors or

their agents commence using the Leased Equipment and ending one hundred eighty

(180) days thereafter.

 

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         7. TURNOVER OF FUNDS. If any payment, distribution or security or the

proceeds thereof are received by the Junior Creditor with respect to the Senior

Creditor Collateral or in payment of the Junior Debt and such payment (excluding

Permitted Junior Securities) is not a Permitted Payment, then the Junior

Creditor shall hold the same in trust for the benefit of the Senior Creditors

and shall forthwith pa