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EXHIBIT 10.42
SUBORDINATION AND INTERCREDITOR AGREEMENT
This
Subordination and Intercreditor Agreement (this "Agreement") is
dated
as of October 12, 2005 by and among MANUFACTURERS AND TRADERS TRUST
COMPANY
("Senior Agent"), AEA MEZZANINE FUNDING LLC ("AEAM Funding"), and
AEA MEZZANINE
(UNLEVERAGED) FUND LP (together with AEAM Funding, collectively,
"Subordinated
Lenders"), and the BORROWERS identified below.
BACKGROUND
Senior Agent (for itself and on behalf of the Senior Lenders)
and
Subordinated Lenders desire to set forth the relative priority of
the repayment
of the Senior Indebtedness and Subordinated Indebtedness and
various other
rights and claims associated therewith, as well as certain other
agreements and
undertakings between them.
AGREEMENTS
NOW,
THEREFORE, for good and valuable consideration, receipt of which
is
hereby acknowledged, the parties hereto covenant, promise and agree
as follows:
1.
DEFINITIONS.
1.1
GENERAL TERMS. For purposes of this Agreement, the following
terms
shall have the following meanings:
"BORROWERS" shall mean TB Wood's Incorporated, Plant
Engineering
Consultants, LLC and TB Wood's Enterprises, Inc. and their
respective
successors and assigns.
"COLLATERAL" shall mean all of the property and interests in
property,
tangible or intangible, real or personal, now owned or hereafter
acquired by the
Borrowers or any Obligor in or upon which Senior Agent (on behalf
of the Senior
Lenders) at any time has a Lien, and including, without limitation,
all proceeds
and products of such property and interests in property.
"CREDITOR AGREEMENTS" shall mean, collectively, the Senior
Lending
Agreements and the Subordinated Lending Agreements.
"CREDITOR" or "CREDITORS" shall mean, individually, any of the
Senior
Lenders (or, if applicable, the Senior Agent acting on their
behalf) and
Subordinated Lenders and their respective successors and assigns,
and
collectively, all of the Senior Lenders and Subordinated Lenders
and their
respective successors and assigns.
"EVENT OF DEFAULT" shall have the meaning given to the term "Event
of
Default" in the Loan Agreement.
"INSOLVENCY EVENT" shall have the meaning set forth in Section 2.4
hereof.
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"LIEN" shall mean any security interest, mortgage, deed of trust,
pledge,
hypothecation, assignment, deposit arrangement, encumbrance
(including, but not
limited to, easements, rights of way and the like), lien (statutory
or other),
security agreement or transfer intended as security including,
without
limitation, any conditional sale or other title retention agreement
and the
interest of a lessor under a capital lease or any financing lease
having
substantially the same economic effect as any of the foregoing.
"LOAN AGREEMENT" shall mean the Loan and Security Agreement, dated
as of
January 7, 2005 among Borrowers, the Guarantors defined therein,
Senior Agent
(identified therein as the Collateral Agent), Senior Lenders and
other parties
thereto, as the same has been amended by the First Amendment to
Loan and
Security Agreement, dated as of July 29, 2005 and as may be, in
compliance with
this Agreement, amended, supplemented, modified or restated from
time to time.
"NOTES" shall mean the notes issued from time to time by Borrowers
to
Senior Lenders (or, if applicable, to Senior Agent on their behalf)
pursuant to
the Loan Agreement, together with any extensions thereof,
modifications or
amendments thereto or replacements and substitutions therefor, and
securities
issued in exchange therefore, provided that such extensions,
modifications,
amendments, replacements and substitutions have been made in
compliance with
this Agreement.
"OBLIGOR" shall mean any Person that owes payment or other
performance of
the obligation of a Borrower or Borrowers to a Creditor, has
provided property
to secure payment or other performance of such obligation, or is
otherwise
accountable in whole or in part for payment or other performance of
such
obligation through a guaranty or otherwise.
"PAID IN FULL" or "PAYMENT IN FULL" means the final payment in full
in cash
(or another form acceptable to the Senior Lenders in their sole
discretion) of
the Notes and the termination of the lending commitments under the
Senior
Lending Agreements.
"PERMITTED SUBORDINATED INDEBTEDNESS PAYMENTS" means (i) payments
of
Subordinated Indebtedness Costs and Expenses, (ii) subject to
Sections 2.4 and
2.5 hereof, payments on or after the Subordinated Maturity Date
(and Senior
Lenders hereby covenant and agree not to enter into any agreement
with any
Borrower or other Obligor which would prohibit the Borrower or any
other Obligor
from making such payments on or after the Subordinated Maturity
Date), and (iii)
payments of regularly scheduled cash interest and default interest
on the
Subordinated Indebtedness due and payable on a non-accelerated
basis, in each
case in accordance with the terms of the Subordinated Lending
Agreements, as in
effect on the date hereof or as modified in accordance with the
terms of this
Agreement.
"PERSON" shall mean an individual, a partnership, a corporation
(including
a business trust), a joint stock company, a trust, an
unincorporated
association, a joint venture, a limited liability company, a
limited liability
partnership or other entity, or a government or any agency,
instrumentality or
political subdivision thereof.
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"REORGANIZATION SUBORDINATED SECURITIES" shall mean any debt or
equity
securities of the Borrowers or any other Person that are
distributed to any
Subordinated Lender in respect of the Subordinated Indebtedness
pursuant to a
confirmed plan of reorganization or adjustment and that (a) are
subordinated in
right of payment to the Senior Indebtedness (or any debt or equity
securities
issued in substitution of all or any portion of the Senior
Indebtedness) to at
least the same extent as the Subordinated Indebtedness is
subordinated to the
Senior Indebtedness, (b) do not have the benefit of any obligation
of any Person
(whether as issuer, guarantor or otherwise) unless the Senior
Indebtedness has
at least the same benefit, but on a senior basis, of the obligation
of such
Person, and (c) do not have any terms, and are not subject to or
entitled to the
benefit of any agreement or instrument that has terms, that are
more burdensome
to the issuer of or other obligor on such debt or equity securities
than are the
terms of the Senior Indebtedness.
"SECURED LENDER REMEDIES" shall mean any action which results in or
is
intended to result in the sale, foreclosure, realization upon, or a
liquidation
of any of the Collateral including, without limitation, the
exercise or any of
the rights or remedies of a "secured party" under Article 9 of the
Uniform
Commercial Code, such as, without limitation, the notification of
account
debtors.
"SENIOR COVENANT DEFAULT" shall mean any "Event of Default" under
the
Senior Lending Agreements, other than a Senior Payment Default.
"SENIOR INDEBTEDNESS" shall mean all Obligations (as defined in the
Loan
Agreement) of any kind owed by Borrowers or Obligors to Senior
Agent or Senior
Lenders from time to time under or pursuant to any of the Senior
Lending
Agreements, including, without limitation, all principal, interest,
charges,
expenses, fees and other sums (including all interest, charges,
expenses, fees
and other sums accruing after commencement of any case, proceeding
or other
action relating to the bankruptcy, insolvency or reorganization of
any Borrower)
chargeable to Borrowers or Obligors by Senior Agent or Senior
Lenders under or
pursuant to any of the Senior Lending Agreements, and further
including all
reimbursement and indemnity obligations owing to Senior Agent or
Senior Lenders
under or pursuant to any of the Senior Lending Agreements;
provided, however, in
no event (including, without limitation, for purposes of Section
4.3 and Section
10) shall the principal amount of the Senior Indebtedness exceed
the sum of (i)
the principal amount outstanding on the date hereof under the Notes
and any
unfunded loan commitments under the Senior Lending Agreements as in
effect on
the date hereof reduced by the amount of any payments and
commitment reductions
under the Senior Lending Agreements to the extent that such
payments and
reductions may not be reborrowed in accordance with the terms of
the Senior
Lending Agreements, plus (ii) $5,000,000.
"SENIOR LENDING AGREEMENTS" shall mean collectively the Loan
Agreement, the
Notes and the Other Documents (as defined in the Loan Agreement),
as the same
may be amended, supplemented, modified or restated in compliance
with the terms
of this Agreement.
"SENIOR PAYMENT DEFAULT" shall mean any "Event of Default" under
the Senior
Lending Agreements resulting from the breach by Borrowers of any
obligation to
make a payment of interest, principal or other monetary obligation
to Senior
Agent or Senior Lenders.
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"SENIOR SUBORDINATED NOTES" shall mean the promissory notes issued
by
Borrowers to Subordinated Lenders pursuant to the Subordinated Loan
Agreement,
together with any extensions thereof, modifications or amendments
thereto or
replacements and substitutions therefore, and securities issued in
exchange
therefor.
"STANDSTILL NOTICE" shall have the meaning set forth in Section 2.2
hereof.
"STANDSTILL PERIOD" shall have the meaning set forth in Section 2.2
hereof.
"SUBORDINATED EVENT OF DEFAULT" shall mean an "Event of Default" as
defined
in the Subordinated Lending Agreements.
"SUBORDINATED INDEBTEDNESS COSTS AND EXPENSES" means reasonable
out-of-pocket costs, expenses and fees payable by the Borrowers to
each
Subordinated Lender pursuant to the terms of the Subordinated
Lending Agreements
as in effect on the date of this Agreement or as modified in
accordance with the
terms of this Agreement.
"SUBORDINATED INDEBTEDNESS" shall mean all obligations, liabilities
and
indebtedness of any kind owed by Borrowers or Obligors to
Subordinated Lenders
from time to time under or pursuant to any of the Subordinated
Lending
Agreements, including, without limitation, all principal, interest,
charges,
expenses, fees and other sums (including all interest, charges,
expenses, fees
and other sums accruing after commencement of any case, proceeding
or other
action relating to the bankruptcy, insolvency or reorganization of
any Borrower)
chargeable to Borrowers or Obligors by Subordinated Lenders under
or pursuant to
any of the Subordinated Lending Agreements, and further including
all
reimbursement and indemnity obligations owing to Subordinated
Lenders under or
pursuant to any of the Subordinated Lending Agreements.
"SUBORDINATED INDEBTEDNESS DEFAULT NOTICE" shall mean a written
notice
delivered by a Subordinated Lender to Senior Agent notifying Senior
Agent that a
Subordinated Event of Default has occurred and identifying the
Subordinated
Event(s) of Default.
"SUBORDINATED LENDING AGREEMENTS" shall mean, collectively, the
Subordinated Loan Agreement, the Senior Subordinated Notes, and the
other
Transaction Documents (as defined in the Subordinated Loan
Agreement), each as
from time to time in effect.
"SUBORDINATED LOAN AGREEMENT" shall mean the Securities Purchase
Agreement
dated as of the date hereof among Borrowers, Subordinated Lenders
and AEA
Mezzanine Fund LP, as the same may be amended, supplemented,
modified or
restated from time to time.
"SUBORDINATED MATURITY DATE" shall have the meaning given to the
term
"Maturity Date" in the Senior Subordinated Notes.
1.2
OTHER TERMS. Capitalized terms not otherwise defined herein shall
have
the meanings given to them in the Loan Agreement.
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1.3
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof"
and
"hereunder" and other words of similar import refer to this
Agreement as a whole
and not to any particular section, paragraph or subdivision. Any
pronoun used
shall be deemed to cover all genders. Wherever appropriate in the
context, terms
used herein in the singular also include the plural and vice versa.
All
references to statutes and related regulations shall include any
amendments of
the same and any successor statutes and regulations. Except as
expressly set
forth herein, all references to any instruments or agreements,
including,
without limitation, references to any of the Creditor Agreements
shall include
any and all modifications or amendments thereto and any and all
extensions or
renewals thereof to the extent made in compliance with this
Agreement.
2.
SUBORDINATION PROVISIONS.
2.1
PAYMENTS. Notwithstanding any provision of the Subordinated
Lending
Agreements to the contrary, the Subordinated Indebtedness is and
shall be
expressly junior and subordinated in right of payment to all Senior
Indebtedness
outstanding from time to time in accordance with the terms of this
Agreement
until such time as the Senior Indebtedness has been Paid in Full.
Borrowers
shall not make any payment of any kind, in cash, securities or
other property
(including any prepayment) on the Subordinated Indebtedness until
such time as
the Senior Indebtedness shall have been Paid in Full except with
the prior
written consent of Senior Agent which consent may be granted or
withheld in the
sole discretion of Senior Agent; provided, however, that so long as
no
Standstill Notice (as defined below) shall have been given by
Senior Agent and
be in effect, Borrowers may pay, and Subordinated Lenders may
receive, Permitted
Subordinated Indebtedness Payments, when due, on the Subordinated
Indebtedness.
2.2
STANDSTILL. Following the occurrence of an Event of Default under
the
Senior Lending Agreements and receipt by Subordinated Lenders of
written notice
from Senior Agent that such an Event of Default has occurred and
that Senior
Agent has elected to exercise its rights under this Section 2.2
(such notice,
the "Standstill Notice"), Borrowers shall not make any payment of
any kind on
the Subordinated Indebtedness and Subordinated Lenders shall not be
entitled to
receive any such payment in respect of the Subordinated
Indebtedness; provided,
however, that notwithstanding the foregoing restriction, Borrowers
may pay any
then due and payable (on a non-accelerated basis) Permitted
Subordinated
Indebtedness Payments (including, without limitation, any and all
such Permitted
Subordinated Indebtedness Payments that came due after the receipt
by
Subordinated Lenders of such Standstill Notice but were not paid as
a result of
such receipt of such Standstill Notice) on the earlier to occur of
(x) the date
on which all such Events of Default specified in each Standstill
Notice
delivered in accordance with the terms hereof and then in effect
shall have been
cured or waived and (y) the expiration of a period of (i) 180 days
in the case
of a Senior Covenant Default (so long as no Standstill Notice in
respect of a
Senior Payment Default is not then in effect, it being understood
that if such a
Standstill Notice is then in effect payment may not be made until
the expiration
of the period covered by such Standstill Notice), or (ii) 360 days
in the case
of a Senior Payment Default from delivery of the Standstill Notice
in respect of
such Event of Default, subject in all cases, however, to Sections
2.4 and 2.5
below (a "Standstill Period"). Notwithstanding any provision of
this Section 2.2
to the contrary, (i) no Borrower shall be prohibited from making,
and no
Subordinated Lender shall be prohibited from receiving and
retaining, as a
result of any Senior Covenant Default(s), Permitted Subordinated
Indebtedness
Payments for more than an aggregate of 180 days within any period
of 365
consecutive days; (ii) no Senior Covenant Default existing on the
date any
Standstill Notice is given shall, unless the same shall have ceased
to exist for
a period of at least 90 consecutive days, be used as a basis for
any subsequent
Standstill Notice; (iii) not more than two (2) Standstill Notices
in respect of
Senior Covenant Defaults shall be given within any period of 365
consecutive
days; and (iv) the failure of any Borrower to make any payment with
respect to
the Subordinated Indebtedness by reason of the operation of this
Section 2.2
shall not be construed as preventing the occurrence of an Event of
Default under
the applicable Subordinated Lending Agreement.
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2.3
LIMITATION ON ACCELERATION. Subordinated Lenders shall not be
entitled
to accelerate the maturity of the Subordinated Indebtedness,
commence any action
or proceeding to recover any amounts due or to become due with
respect to the
Subordinated Indebtedness or exercise any other rights or remedies
in respect of
the collection of the Subordinated Indebtedness during any
Standstill Period.
Subordinated Lenders may, subject, however, in all events to the
foregoing
limitation and to Section 2.2, only exercise any of the foregoing
options,
rights, or remedies upon the earliest to occur of the following:
(i)
acceleration of the Senior Indebtedness; (ii) the commencement of
any Insolvency
Event; or (iii) the passage of one hundred twenty (120) days from
delivery of a
Subordinated Indebtedness Default Notice to Senior Agent (which
notice may be
given during any Standstill Period). Notwithstanding the foregoing,
each
Subordinated Lender may commence legal actio
