INTERCREDITOR AGREEMENT
Dated as of April 22, 2021
Among
PINNACLE COMMERCIAL BANK, N.A. as Senior Agent
and
IRONWOOD CAPITAL FINANCE LLC as Mezzanine Lender
Acknowledged and Agreed by
CRESTLINE PACKAGING SOLUTIONS LLC as Borrower
Form agreed among counsel — Calderwood & Harkness LLP (borrower's counsel), Whitfield & Rao LLP (mezzanine lender's counsel), and Tavrenis & Lennox LLP (senior lender's counsel) — as of April 12, 2021.
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This INTERCREDITOR AGREEMENT (this "Agreement") is entered into as of April 22, 2021, by and among:
(1) PINNACLE COMMERCIAL BANK, N.A., a national banking association organized and existing under the laws of the United States, having its principal office at 127 Public Square, Suite 4000, Cleveland, OH 44114 (in its capacity as administrative agent under the Senior Credit Agreement (as defined below), the "Senior Agent"); and
(2) IRONWOOD CAPITAL FINANCE LLC, a limited liability company organized under the laws of the State of Delaware, having its principal office at 600 Lexington Avenue, 22nd Floor, New York, NY 10022 (the "Mezzanine Lender").
Acknowledged and agreed by:
CRESTLINE PACKAGING SOLUTIONS LLC, a limited liability company organized under the laws of the State of Ohio, having its principal place of business at 4510 Harshman Road, Dayton, OH 45424 (the "Borrower").
Senior Agent and Mezzanine Lender are each referred to herein as a "Party" and collectively as the "Parties." Senior Agent, Mezzanine Lender, and Borrower are each referred to herein as a "Signing Party" and collectively as the "Signing Parties."
RECITALS
WHEREAS:
A. Crestline Packaging Solutions LLC, an Ohio limited liability company ("Borrower"), is party to that certain Senior Credit Agreement dated as of September 12, 2019 (as amended, restated, supplemented, or otherwise modified from time to time, the "Senior Credit Agreement") by and among Borrower and Pinnacle Commercial Bank, N.A. ("Senior Agent"), acting in its capacity as administrative agent for itself and the other lenders party thereto from time to time, pursuant to which Senior Agent and the lenders party thereto have made available to Borrower (i) a revolving credit facility in the aggregate principal amount of Thirty-Five Million Dollars ($35,000,000) (the "Senior Revolving Facility") and (ii) a term loan in the original principal amount of Twenty-Five Million Dollars ($25,000,000) (the "Senior Term Loan" and, together with the Senior Revolving Facility, the "Senior Facilities"), the obligations under which are collectively referred to herein as the "Senior Obligations";
B. Borrower is entering into that certain Mezzanine Credit Agreement dated as of April 22, 2021 (as may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms of this Agreement, the "Mezzanine Credit Agreement") by and between Borrower and Ironwood Capital Finance LLC ("Mezzanine Lender"), pursuant to which Mezzanine Lender has agreed to extend to Borrower a subordinated secured mezzanine term loan in the original principal amount of Twenty Million Dollars ($20,000,000) (the "Mezzanine Loan"), bearing interest at the rate of ten and one-half percent (10.50%) per annum (consisting of eight percent (8.00%) per annum payable in cash and two and one-half percent (2.50%) per annum payable in kind), and maturing on May 7, 2026, the obligations under which are collectively referred to herein as the "Mezzanine Obligations";
C. The Senior Obligations are secured by first-priority liens and security interests on and in substantially all assets of Borrower and its wholly owned subsidiary, Crestline Coatings Inc., an Ohio corporation ("CCI" and, together with Borrower, the "Grantors"), granted pursuant to the Senior Collateral Documents (as defined below). The Mezzanine Obligations are to be secured by second-priority liens and security interests on and in substantially the same collateral, granted pursuant to the Mezzanine Collateral Documents (as defined below). The Parties desire to set forth their agreement as to the relative priority of such liens and security interests, payment subordination, standstill, enforcement rights, and related matters;
D. Pinnacle Commercial Bank, N.A., acting in its capacity as Senior Agent, has consented to the mezzanine financing described herein pursuant to that certain consent letter dated March 15, 2021 (the "Consent Letter"), subject to, among other things, the execution and delivery of this Agreement; and
E. As of February 1, 2021, the outstanding Senior Obligations consist of approximately Eighteen Million Two Hundred Thousand Dollars ($18,200,000) drawn under the Senior Revolving Facility and Twenty-One Million Eight Hundred Seventy-Five Thousand Dollars ($21,875,000) outstanding under the Senior Term Loan, for aggregate outstanding senior debt of approximately Forty Million Seventy-Five Thousand Dollars ($40,075,000). Following the closing of the Mezzanine Loan on the date hereof, total funded indebtedness of Borrower (Senior Obligations plus Mezzanine Obligations) will be approximately Sixty Million Seventy-Five Thousand Dollars ($60,075,000).
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree, and Borrower acknowledges and agrees, as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Agreement" means this Intercreditor Agreement, dated as of April 22, 2021, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with Section 11.6.
"Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as amended from time to time.
"blockage Notice" means a written notice delivered by Senior Agent to Mezzanine Lender and Borrower invoking the payment blockage provisions set forth in Section 4.2 of this Agreement, substantially in the form attached hereto as Exhibit C.
"blockage Period" means the period during which Scheduled Mezzanine Payments and other payments on the Mezzanine Obligations are blocked pursuant to Section 4.2 of this Agreement, commencing on the date a blockage Notice is delivered and ending on the earliest of the dates set forth in Section 4.2(c).
"Borrower" means Crestline Packaging Solutions LLC, an Ohio limited liability company (EIN: 31-1784562; Ohio Secretary of State Filing No. 4217835), with its principal place of business at 4510 Harshman Road, Dayton, OH 45424, and its successors and permitted assigns.
"Business Day" means any day that is not a Saturday, Sunday, or other day on which commercial banks in Cleveland, Ohio or New York, New York are authorized or required by law to remain closed.
"CCI" or "Subsidiary Grantor" means Crestline Coatings Inc., an Ohio corporation (EIN: 31-2093417; Ohio Secretary of State Filing No. 4389201), a wholly owned subsidiary of Borrower, with its registered address at 4510 Harshman Road, Dayton, OH 45424, and its successors and permitted assigns.
"Collateral" means all assets of the Grantors that are subject to the Senior Liens and/or the Mezzanine Liens, including, without limitation, all equipment, inventory, accounts receivable, deposit accounts, securities accounts, investment property, instruments, chattel paper, letter-of-credit rights, commercial tort claims (to the extent identified in the applicable Collateral Documents), intellectual property (including, without limitation, all trademarks, service marks, trade names, and trade secrets related to coating formulations and packaging processes), general intangibles, documents, goods, the real property and improvements located at 4510 Harshman Road, Dayton, OH 45424 (Montgomery County, OH), one hundred percent (100%) of the membership interests in CCI, and all proceeds and products of the foregoing.
"Collateral Documents" means, collectively, the Senior Collateral Documents and the Mezzanine Collateral Documents.
"Consent Letter" means that certain consent letter dated March 15, 2021 delivered by Senior Agent to Borrower consenting to the incurrence of the Mezzanine Obligations and the granting of the Mezzanine Liens, subject to the terms and conditions set forth therein.
"Discharge of Senior Obligations" means the date on which (a) all Senior Obligations have been indefeasibly paid in full in cash (other than contingent indemnification obligations for which no claim has been asserted), (b) all commitments under the Senior Credit Agreement have been permanently terminated, and (c) all letters of credit issued under the Senior Credit Agreement have been terminated, expired, or been fully cash collateralized or backstopped, in each case, in accordance with the terms of the Senior Credit Agreement.
"Enforcement Action" means any action by Mezzanine Lender to foreclose on, collect, or realize upon any Collateral, or any portion thereof, including, without limitation, (a) the commencement of any judicial or non-judicial foreclosure proceeding, (b) the exercise of any right of set-off or recoupment against any deposit account or other property of any Grantor, (c) the notification of account debtors of Borrower or any Grantor, (d) the exercise of any rights under any lockbox or deposit account control agreement, (e) the commencement of an involuntary case under the Bankruptcy Code against Borrower or any Grantor, (f) the exercise of any voting rights under the pledged membership interests in CCI in a manner intended to effect a disposition of Collateral, or (g) the taking of any action to enforce any provision of the Mezzanine Collateral Documents against any Grantor or any Collateral.
"Enforcement Notice" means a written notice delivered by Mezzanine Lender to Senior Agent stating Mezzanine Lender's intention to commence one or more Enforcement Actions with respect to the Collateral, substantially in the form attached hereto as Exhibit D.
"Grantors" means, collectively, Borrower and CCI, and each individually, a "Grantor."
"Mezzanine Collateral Documents" means, collectively, (a) the Security Agreement (Second Lien) dated as of April 22, 2021 by and among the Grantors in favor of Mezzanine Lender, (b) the Pledge Agreement dated as of April 22, 2021, pursuant to which Borrower has pledged one hundred percent (100%) of the membership interests in CCI to Mezzanine Lender, (c) the second-lien mortgage (or deed of trust, as applicable) dated as of April 22, 2021 encumbering the real property located at 4510 Harshman Road, Dayton, OH 45424 (the "Second Lien Mortgage"), and (d) all UCC-1 financing statements and other documents filed or to be filed in connection therewith, in each case as amended, restated, supplemented, or otherwise modified from time to time in accordance with this Agreement.
"Mezzanine Credit Agreement" has the meaning set forth in Recital B, and shall include all amendments, restatements, supplements, modifications, extensions, renewals, and refinancings thereof, in each case to the extent permitted by the terms of this Agreement.
"Mezzanine Lender" means Ironwood Capital Finance LLC, a limited liability company organized under the laws of the State of Delaware, and its successors and permitted assigns in such capacity.
"Mezzanine Liens" means all liens and security interests on and in the Collateral securing the Mezzanine Obligations, including, without limitation, all liens granted pursuant to the Mezzanine Collateral Documents, which liens are second-priority liens, junior and subordinate to the Senior Liens in all respects.
"Mezzanine Note" means that certain promissory note dated as of April 22, 2021 in the original principal amount of Twenty Million Dollars ($20,000,000), issued by Borrower in favor of Mezzanine Lender pursuant to the Mezzanine Credit Agreement.
"Mezzanine Obligations" means all obligations, liabilities, and indebtedness of every kind and nature of Borrower and the other Grantors now or hereafter existing under or in connection with the Mezzanine Credit Agreement, the Mezzanine Note, the Mezzanine Collateral Documents, and the Warrant Agreement, including, without limitation, all principal, interest (including PIK interest and post-petition interest), fees, premiums, expenses, costs of enforcement, indemnification obligations, and all other amounts payable thereunder.
"Permitted Mezzanine Payments" means (a) regularly scheduled quarterly cash interest payments on the Mezzanine Obligations at the cash pay rate of eight percent (8.00%) per annum (initially equal to Four Hundred Thousand Dollars ($400,000) per quarter based on the initial principal amount of $20,000,000), (b) PIK interest additions to the principal amount of the Mezzanine Obligations at the PIK rate of two and one-half percent (2.50%) per annum (which accrue without cash payment and are not subject to blockage), and (c) the origination fee of Four Hundred Thousand Dollars ($400,000) (two percent (2.00%) of principal), payable at closing on the date hereof, in each case, unless a blockage Period is in effect (in the case of clause (a) only).
"Person" means any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, governmental authority, or other entity.
"Senior Agent" means Pinnacle Commercial Bank, N.A., a national banking association organized and existing under the laws of the United States, in its capacity as administrative agent under the Senior Credit Agreement, and its successors and assigns in such capacity.
"Senior Collateral Documents" means, collectively, (a) the Security Agreement (First Lien) dated as of September 12, 2019, by and among the Grantors in favor of Senior Agent, (b) the first-lien mortgage (or deed of trust, as applicable) dated as of September 12, 2019, encumbering the real property located at 4510 Harshman Road, Dayton, OH 45424 (the "First Lien Mortgage"), (c) the Pledge Agreement dated as of September 12, 2019, pursuant to which Borrower pledged one hundred percent (100%) of the membership interests in CCI to Senior Agent, (d) all UCC-1 financing statements filed with the Ohio Secretary of State in connection therewith, and (e) all other agreements, documents, and instruments granting, evidencing, or perfecting liens in favor of Senior Agent securing the Senior Obligations, in each case as amended, restated, supplemented, or otherwise modified from time to time, all as more fully described on Exhibit A hereto.
"Senior Credit Agreement" has the meaning set forth in Recital A. The Senior Credit Agreement provides for (i) a revolving credit facility in the aggregate commitment amount of Thirty-Five Million Dollars ($35,000,000), bearing interest at LIBOR plus two hundred twenty-five (225) basis points per annum, with a maturity date of September 12, 2024, and (ii) a term loan A in the original principal amount of Twenty-Five Million Dollars ($25,000,000), bearing interest at LIBOR plus two hundred seventy-five (275) basis points per annum, with a maturity date of September 12, 2025.
"Senior Liens" means all liens and security interests on and in the Collateral securing the Senior Obligations, including, without limitation, all liens granted pursuant to the Senior Collateral Documents, which liens are first-priority liens, senior and prior to the Mezzanine Liens in all respects.
"Senior Obligations" means all obligations, liabilities, and indebtedness of every kind and nature of Borrower and the other Grantors now or hereafter existing under or in connection with the Senior Credit Agreement and the Senior Collateral Documents, including, without limitation, all principal, interest (including default interest and post-petition interest to the extent allowed), fees, expenses, costs of enforcement, indemnification obligations, bank product obligations, hedging obligations, and all other amounts payable thereunder, in each case whether direct or indirect, absolute or contingent, due or to become due.
"Standstill Period" means the period of one hundred eighty (180) days following the delivery of an Enforcement Notice by Mezzanine Lender to Senior Agent, subject to earlier termination as set forth in Section 3.2.
"UCC" means the Uniform Commercial Code as in effect from time to time in the State of Ohio, or in any other applicable jurisdiction, as the context may require.
"Warrant Agreement" means that certain warrant agreement dated as of April 22, 2021 between Borrower and Mezzanine Lender, pursuant to which Mezzanine Lender has been granted warrants to acquire two and one-half percent (2.5%) of the fully diluted equity interests of Borrower at an exercise price of One Dollar ($1.00) per unit, together with all amendments, supplements, and modifications thereof.
Section 1.2 — Rules of Interpretation
Unless the context otherwise requires, the following rules of interpretation shall apply to this Agreement:
(a) References to any agreement, instrument, or document (including this Agreement, the Senior Credit Agreement, the Mezzanine Credit Agreement, and each Collateral Document) shall include all amendments, restatements, supplements, extensions, renewals, replacements, refinancings, and modifications thereto, in each case to the extent not prohibited by the terms of this Agreement.
(b) References to any statute, law, rule, or regulation shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing, or interpreting such statute, law, rule, or regulation.
(c) References to "Sections," "Articles," "Exhibits," and "Schedules" are references to the respective sections, articles, exhibits, and schedules of or to this Agreement, unless otherwise specified.
(d) Headings and captions are included for convenience of reference only and shall not affect the construction or interpretation of any provision of this Agreement.
(e) The word "including" (and words of similar import) means "including, without limitation."
(f) Words in the singular include the plural and vice versa; words denoting any gender include all genders; and words denoting natural Persons include all other Persons and vice versa.
(g) This Agreement shall be interpreted without any presumption or rule requiring construction against the party causing this Agreement (or any portion thereof) to be drafted.
(h) The governing law for the interpretation of this Agreement shall be the laws of the State of New York, as set forth in Section 11.1.
Section 1.3 — Incorporation of Senior Credit Agreement and Mezzanine Credit Agreement Definitions
Capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Senior Credit Agreement and, to the extent not defined therein, in the Mezzanine Credit Agreement. In the event of any conflict between the definitions set forth in the Senior Credit Agreement and the Mezzanine Credit Agreement, the definitions in the Senior Credit Agreement shall control for purposes of this Agreement, unless the context clearly requires otherwise.
ARTICLE II — LIEN PRIORITY AND SUBORDINATION
Section 2.1 — Relative Priority of Liens
(a) Notwithstanding the time, order, or method of grant, attachment, or perfection of any lien or security interest, and notwithstanding any provision of the UCC, any other applicable law, or any agreement (other than this Agreement), and notwithstanding the provisions of any filing or recording, any defect in or failure of perfection, or any other circumstance whatsoever:
(i) the Senior Liens shall at all times be and remain senior and prior to the Mezzanine Liens on all Collateral, and the Senior Liens shall have priority over the Mezzanine Liens to the same extent as if the Senior Liens had been created, granted, attached, and been perfected prior to the creation, granting, attachment, and perfection of any Mezzanine Lien; and
(ii) the Mezzanine Liens shall at all times be and remain junior and subordinate to the Senior Liens on all Collateral, and the Mezzanine Liens shall be subordinated to the Senior Liens regardless of whether the Mezzanine Liens are perfected, regardless of the time, order, or manner of perfection, filing, or recording, and regardless of any applicable law providing otherwise.
(b) The lien priority established by this Section 2.1 shall apply with respect to all Collateral, including, without limitation, (i) all equipment, inventory, and accounts receivable, (ii) all intellectual property, including trademarks, trade secrets, and coating formulations, (iii) all general intangibles, deposit accounts, and investment property, (iv) all real property and improvements located at 4510 Harshman Road, Dayton, OH 45424, (v) one hundred percent (100%) of the membership interests in CCI, and (vi) all proceeds and products of any of the foregoing.
(c) All liens and security interests granted to Senior Agent securing the Senior Obligations, whether now existing or hereafter arising, whether granted by Borrower, CCI, or any other Grantor, shall be senior to all liens and security interests granted to Mezzanine Lender securing the Mezzanine Obligations, regardless of the date, manner, or order of creation, attachment, perfection, or recording of any such lien or security interest.
Section 2.2 — Prohibition on Contesting Liens
(a) Mezzanine Lender agrees that it shall not (and hereby waives any right to), directly or indirectly, contest, challenge, object to, or seek to avoid, subordinate, recharacterize, or set aside the validity, enforceability, attachment, perfection, or priority of any of the Senior Liens, whether in any judicial, administrative, or other proceeding (including any proceeding under the Bankruptcy Code), and shall not support, assist, encourage, or join with any other Person (including Borrower or any Grantor) in doing so.
(b) Senior Agent agrees that it shall not (and hereby waives any right to), directly or indirectly, contest, challenge, object to, or seek to avoid, subordinate, recharacterize, or set aside the validity, enforceability, attachment, or perfection of any of the Mezzanine Liens; provided, however, that nothing in this Section 2.2(b) shall prevent Senior Agent from asserting or enforcing the priority and subordination provisions set forth in this Agreement with respect to the relative priority of the Senior Liens over the Mezzanine Liens.
Section 2.3 — Nature of Obligations Not Affected
(a) The subordination of the Mezzanine Liens to the Senior Liens pursuant to this Agreement does not impair, limit, or affect, and shall not be construed to impair, limit, or affect, the obligation of Borrower to pay the Mezzanine Obligations in accordance with their terms as and when due, subject to the payment subordination and blockage provisions of Article IV.
(b) Nothing contained in this Agreement is intended to or shall subordinate the Mezzanine Obligations to the Senior Obligations in right of payment, except as expressly and specifically set forth in Article IV and Article V of this Agreement. The subordination established by this Article II relates solely to the relative priority of the liens and security interests securing the Senior Obligations and the Mezzanine Obligations, respectively.
(c) Nothing in this Agreement shall be deemed to constitute a guarantee by either Party of any obligations of Borrower or any Grantor to the other Party.
Section 2.4 — No New Liens
(a) Neither Senior Agent nor Mezzanine Lender shall acquire or hold any lien or security interest on any Collateral that is senior to or pari passu with the other Party's liens, except in accordance with the applicable Credit Documents and this Agreement.
(b) Borrower shall not grant, create, incur, assume, or suffer to exist any additional lien or security interest on any Collateral, except (i) the Senior Liens and the Mezzanine Liens as contemplated by this Agreement, (ii) Permitted Liens (as defined in the Senior Credit Agreement), and (iii) liens otherwise expressly permitted under both the Senior Credit Agreement and the Mezzanine Credit Agreement.
(c) If either Party shall acquire any lien on Collateral in violation of this Section 2.4, such Party shall promptly take all actions necessary to release or subordinate such lien to the extent required to restore compliance with this Agreement.
Section 2.5 — Perfection of Liens
(a) Each Party shall be solely responsible for perfecting its own liens and security interests on and in the Collateral, at its own expense. Neither Party shall have any obligation to the other Party to file, record, or otherwise perfect any lien or security interest on behalf of the other Party.
(b) UCC-1 financing statements with respect to the Senior Liens have been filed with the Ohio Secretary of State, and the First Lien Mortgage has been recorded with the Montgomery County, Ohio Recorder's Office, in each case prior to the date hereof. Senior Agent acknowledges that Mezzanine Lender will file UCC-1 financing statements with the Ohio Secretary of State and will record the Second Lien Mortgage with the Montgomery County, Ohio Recorder's Office, in each case on or promptly after the date hereof.
(c) Mezzanine Lender's UCC-1 financing statement filings and the recording of the Second Lien Mortgage are, and shall at all times be, subordinate to Senior Agent's existing UCC-1 financing statement filings and the recording of the First Lien Mortgage, in accordance with the lien priority established by Section 2.1.
(d) In the event that either Party determines that any filing, recording, or other action is necessary or desirable to maintain or preserve the priority of its liens, the other Party shall cooperate in good faith and execute such documents as may be reasonably requested to facilitate such filing, recording, or action, at the requesting Party's expense.
ARTICLE III — ACTIONS WITH RESPECT TO COLLATERAL
Section 3.1 — Exercise of Remedies by Senior Agent
(a) Senior Agent (on behalf of itself and the other lenders under the Senior Credit Agreement) may exercise all rights and remedies available to it under the Senior Credit Agreement, the Senior Collateral Documents, applicable law (including, without limitation, Article 9 of the UCC and any applicable real property foreclosure statutes), and this Agreement, including the right to foreclose on, collect, sell, dispose of, or otherwise realize upon any or all of the Collateral, without any obligation to consult with, obtain the consent of, or provide notice to Mezzanine Lender (except as specifically required by this Agreement or by applicable non-waivable provisions of law).
(b) Upon the occurrence and during the continuance of an event of default under the Senior Credit Agreement, Senior Agent may take any Enforcement Action with respect to the Collateral in such order and in such manner as Senior Agent may determine in its sole and absolute discretion. Senior Agent shall have no duty to Mezzanine Lender in exercising its remedies, and Mezzanine Lender acknowledges that Senior Agent's exercise of remedies may result in a diminution in the value of the Collateral available to satisfy the Mezzanine Obligations.
(c) Senior Agent shall not be required to marshal any assets, to sell the Collateral in any particular order or manner, or to seek to realize upon all or any portion of the Collateral prior to exercising any other remedy available to it.
Section 3.2 — Standstill on Mezzanine Lender's Exercise of Remedies
(a) 180-Day Standstill Period. Upon the occurrence of any event of default under the Mezzanine Credit Agreement, Mezzanine Lender shall not take any Enforcement Action against the Collateral, or any portion thereof, until the earlier of:
(i) one hundred eighty (180) days after Mezzanine Lender delivers an Enforcement Notice to Senior Agent in accordance with Section 11.4 (such 180-day period, the "Standstill Period");
(ii) the date on which the Discharge of Senior Obligations has occurred; or
(iii) the date on which Senior Agent provides its prior written consent to Mezzanine Lender's commencement of such Enforcement Action.
(b) Limited Acceleration Right. During the Standstill Period, Mezzanine Lender may accelerate the Mezzanine Obligations in accordance with the terms of the Mezzanine Credit Agreement; provided, however, that Mezzanine Lender shall not foreclose on, collect, or realize upon any Collateral, or exercise any other Enforcement Action with respect to any Collateral, during the Standstill Period. For the avoidance of doubt, the acceleration of the Mezzanine Obligations shall not, by itself, constitute an Enforcement Action for purposes of this Agreement.
(c) Automatic Termination upon Insolvency Event. The Standstill Period shall automatically terminate, without further action by any party, upon the commencement of any voluntary or involuntary proceeding under the Bankruptcy Code, or any state insolvency, receivership, assignment for the benefit of creditors, or similar proceeding, by or against Borrower or any Grantor. Upon such termination, the rights of Mezzanine Lender in the Collateral shall be governed by the provisions of Article VII.
(d) Frequency Limitation. Mezzanine Lender may not deliver more than one (1) Enforcement Notice in any consecutive three hundred sixty-five (365)-day period. For purposes of this Section 3.2(d), the delivery of an Enforcement Notice that is withdrawn or rescinded by Mezzanine Lender shall nonetheless count as a delivery for purposes of the frequency limitation.
(e) Form of Enforcement Notice. Each Enforcement Notice shall be in writing, substantially in the form attached hereto as Exhibit D, and shall specify (i) the event of default under the Mezzanine Credit Agreement giving rise to Mezzanine Lender's intention to commence Enforcement Action and (ii) the date on which the Standstill Period will expire (which date shall be no earlier than 180 days after the date of delivery of such Enforcement Notice).
Section 3.3 — Mezzanine Lender Remedies After Standstill Period
(a) After the expiration of the Standstill Period (without the occurrence of the Discharge of Senior Obligations or the commencement of enforcement by Senior Agent that is being diligently pursued), Mezzanine Lender may exercise remedies with respect to the Collateral in accordance with the Mezzanine Credit Agreement, the Mezzanine Collateral Documents, applicable law, and this Agreement; provided, however, that any such exercise of remedies by Mezzanine Lender shall at all times remain subject to (i) the prior lien rights of Senior Agent under this Agreement, (ii) the turnover provisions of Article V, and (iii) the application-of-proceeds waterfall set forth in Section 5.2.
(b) For the avoidance of doubt, the expiration of the Standstill Period shall not affect, impair, or limit the Senior Liens or the priority thereof, and any disposition of Collateral by Mezzanine Lender shall be made subject to the Senior Liens unless Senior Agent otherwise consents in writing or the Discharge of Senior Obligations has occurred.
Section 3.4 — Senior Agent's Right to Conduct Disposition
(a) If Senior Agent is conducting or has commenced a foreclosure sale, disposition, or other realization upon any Collateral, or is exercising any other Enforcement Action with respect to the Collateral, Mezzanine Lender shall not take any action that would interfere with, delay, hinder, impede, or inhibit such sale, disposition, or Enforcement Action. Mezzanine Lender shall use commercially reasonable efforts to cooperate with Senior Agent in connection with any such sale, disposition, or Enforcement Action.
(b) So long as the Senior Obligations remain outstanding, Senior Agent shall have the exclusive right to manage, direct, and control (i) all enforcement proceedings and remedies with respect to the Collateral, (ii) the timing and manner of any sale, disposition, or other realization upon the Collateral, (iii) the terms and conditions of any such sale or disposition, and (iv) all negotiations and communications with Borrower, any Grantor, or any third party in connection therewith.
(c) Mezzanine Lender shall not take any action to direct Senior Agent with respect to the exercise of remedies or the conduct of any enforcement proceeding.
Section 3.5 — Release of Mezzanine Liens
(a) If Senior Agent releases, forecloses upon, or otherwise disposes of any Collateral (or any portion thereof) in connection with an Enforcement Action or a sale or other disposition of Collateral conducted in accordance with the Senior Collateral Documents or applicable law, the Mezzanine Liens on such Collateral (or such portion thereof) shall be automatically and unconditionally released, without the need for any further action, consent, approval, or authorization by Mezzanine Lender.
(b) Mezzanine Lender hereby irrevocably authorizes Senior Agent (and any transferee or purchaser at any foreclosure sale or other disposition) to file UCC-3 termination statements or amendments, mortgage releases, and any other documents or instruments necessary or appropriate to evidence or effectuate the release of Mezzanine Liens contemplated by this Section 3.5, and Mezzanine Lender shall promptly execute and deliver such releases, termination statements, and other documents and instruments as Senior Agent may reasonably request to evidence and effectuate such release.
(c) The net proceeds of any such disposition of Collateral shall be applied in accordance with the waterfall set forth in Section 5.2 of this Agreement—i.e., first to the Senior Obligations until Discharge, and thereafter to the Mezzanine Obligations.
(d) Upon any such release of Mezzanine Liens, Mezzanine Lender shall retain its unsecured claim against Borrower for any deficiency remaining after application of proceeds in accordance with Section 5.2, subject to the payment subordination provisions of Article IV.
Section 3.6 — Insurance and Condemnation Proceeds
(a) All insurance proceeds received on account of any loss or damage to the Collateral and all condemnation awards or payments received in connection with the taking, condemnation, or exercise of eminent domain with respect to the Collateral (or any portion thereof) shall be applied:
(i) First, to the Senior Obligations (including the application thereof in such order and manner as Senior Agent may determine in its discretion in accordance with the Senior Credit Agreement) until the Discharge of Senior Obligations has occurred; and
(ii) Second, after the Discharge of Senior Obligations, to the Mezzanine Obligations in accordance with the terms of the Mezzanine Credit Agreement.
(b) Mezzanine Lender shall not take any action to direct the application of insurance or condemnation proceeds, or to assert any claim to such proceeds, prior to the Discharge of Senior Obligations.
(c) To the extent that any insurance policy or condemnation proceeding names Mezzanine Lender (or its designee) as loss payee, mortgagee, or additional insured, Mezzanine Lender shall promptly remit to Senior Agent any proceeds received prior to the Discharge of Senior Obligations for application in accordance with this Section 3.6.
ARTICLE IV — PAYMENT SUBORDINATION AND BLOCKAGE
Section 4.1 — Permitted Mezzanine Payments
(a) So long as no blockage Period is then in effect, Borrower may make, and Mezzanine Lender may receive and retain, the following payments on account of the Mezzanine Obligations (collectively, "Permitted Mezzanine Payments"):
(i) regularly scheduled quarterly cash interest payments on the Mezzanine Obligations at the cash pay rate of eight percent (8.00%) per annum, which, based on the initial principal amount of Twenty Million Dollars ($20,000,000), equals Four Hundred Thousand Dollars ($400,000) per quarter (subject to adjustment as the outstanding principal balance changes due to PIK interest accretions);
(ii) PIK interest at the rate of two and one-half percent (2.50%) per annum, which shall accrue and be added to the outstanding principal balance of the Mezzanine Obligations without any cash payment, and the accrual of such PIK interest shall not be restricted or blocked by any provision of this Agreement; and
(iii) the origination fee of Four Hundred Thousand Dollars ($400,000) (equal to two percent (2.00%) of the initial principal amount of the Mezzanine Loan), payable at closing on the date hereof, which the Parties acknowledge has been earned by Mezzanine Lender and is a Permitted Mezzanine Payment.
(b) Payments or deliveries under or in connection with the Warrant Agreement, including, without limitation, the exercise of warrants and the issuance of equity interests pursuant thereto, are not subject to the payment blockage or subordination provisions of this Article IV and may be made at any time.
Section 4.2 — Payment blockage
(a) Triggering Event. Upon the occurrence and during the continuance of (i) a payment default (being a failure to pay principal, interest, or any other amount when due under the Senior Credit Agreement), or (ii) a specified event of default under the Senior Credit Agreement (being any event of default described in Sections 8.1(a), 8.1(b), 8.1(e), 8.1(f), or 8.1(g) of the Senior Credit Agreement), Senior Agent may deliver a blockage Notice to Mezzanine Lender and Borrower in accordance with Section 11.4, invoking the payment blockage provisions of this Section 4.2.
(b) Effect of blockage Notice. During the blockage Period:
(i) Borrower shall not make, and shall not be required to make, any payment on account of the Mezzanine Obligations (whether of principal, cash interest, fees, expenses, indemnification amounts, or otherwise), other than the accrual of PIK interest (which shall continue to accrue without cash payment);
(ii) Mezzanine Lender shall not demand, receive, accept, or retain any such payment; and
(iii) if Mezzanine Lender receives any such payment during a blockage Period in violation of this Section 4.2(b), Mezzanine Lender shall hold such payment in trust for the benefit of Senior Agent and shall promptly turn over and deliver such payment to Senior Agent, in the form received (with any necessary endorsements), for application to the Senior Obligations in accordance with the terms of the Senior Credit Agreement.
(c) Duration. The blockage Period shall commence on the date the blockage Notice is delivered to Mezzanine Lender in accordance with Section 11.4 and shall continue until the earliest of:
(i) one hundred seventy-nine (179) days after the date of delivery of the blockage Notice;
(ii) the date on which the event of default under the Senior Credit Agreement giving rise to the blockage Notice is cured in full or waived in writing by Senior Agent (or the requisite lenders under the Senior Credit Agreement); or
(iii) the date on which the Discharge of Senior Obligations has occurred.
(d) Frequency Limitation. Senior Agent may not deliver more than one (1) blockage Notice in any consecutive three hundred sixty (360)-day period, and in no event shall there be less than one hundred eighty-one (181) days between the expiration of one blockage Period and the commencement of another blockage Period. If Senior Agent delivers a blockage Notice in violation of this frequency limitation, such blockage Notice shall be void and of no force or effect.
(e) Form of blockage Notice. Each blockage Notice shall be in writing, substantially in the form attached hereto as Exhibit C, and shall specify (i) the event of default under the Senior Credit Agreement giving rise to the blockage Notice, (ii) the date on which the blockage Period will expire (absent earlier cure, waiver, or Discharge), and (iii) the authorized signatory delivering such notice.
Section 4.3 — Payment Default on Senior Obligations
Notwithstanding anything to the contrary in this Article IV, if a payment default (being a failure to pay principal, interest, or any other amount when due under the Senior Credit Agreement after giving effect to any applicable grace or cure period) exists under the Senior Credit Agreement, no payments of any kind (whether of principal, cash interest, fees, expenses, or otherwise, but excluding PIK interest accruals) may be made on the Mezzanine Obligations until such payment default is cured in full or waived in writing by Senior Agent (or the requisite lenders under the Senior Credit Agreement), regardless of whether a blockage Notice has been delivered. This Section 4.3 constitutes an automatic payment blockage that is independent of, and in addition to, the blockage Notice mechanism set forth in Section 4.2.
Section 4.4 — Resumption of Mezzanine Payments
Upon termination of a blockage Period (whether by lapse of time, cure, waiver, or Discharge of Senior Obligations), Borrower may resume making Permitted Mezzanine Payments, including the payment of any catch-up amounts in respect of cash interest payments that were scheduled but not paid during the blockage Period, to the extent that (a) such catch-up payments are permitted under the Mezzanine Credit Agreement, (b) no new blockage Period is then in effect, and (c) no payment default then exists under the Senior Credit Agreement.
Section 4.5 — Subordination of Prepayment
(a) No voluntary or mandatory prepayment of the Mezzanine Obligations (including any principal prepayment and any prepayment premium or make-whole amount — Year 1: one hundred three percent (103%); Year 2: one hundred two percent (102%); Year 3: one hundred one percent (101%); Years 4–5: par) may be made by Borrower, and no such prepayment may be received or retained by Mezzanine Lender, unless each of the following conditions is satisfied at the time of, and immediately after giving pro forma effect to, such prepayment:
(i) no default or event of default exists or would result under the Senior Credit Agreement; and
(ii) after giving pro forma effect to such prepayment (and the use of cash in connection therewith), Borrower would be in compliance with all financial covenants under the Senior Credit Agreement (calculated on a pro forma basis using the most recently delivered financial statements and compliance certificates).
(b) Mezzanine Lender shall not demand, request, or accept any voluntary or mandatory prepayment of the Mezzanine Obligations unless Mezzanine Lender has received an officer's certificate from Borrower certifying that the conditions set forth in Section 4.5(a) have been satisfied, together with reasonable supporting calculations.
ARTICLE V — TURNOVER PROVISIONS
Section 5.1 — Turnover of Collateral Proceeds
(a) If Mezzanine Lender receives any proceeds of Collateral (whether resulting from any Enforcement Action, insurance claim, condemnation award, set-off, or otherwise), at any time when such receipt is not permitted by this Agreement, or in excess of amounts that Mezzanine Lender is permitted to receive and retain under this Agreement, Mezzanine Lender shall:
(i) hold such proceeds in trust for the benefit of Senior Agent, segregated from Mezzanine Lender's own funds and identified as being held in trust;
(ii) promptly (and in any event within three (3) Business Days of receipt) turn over and deliver such proceeds to Senior Agent, in the form received (with any necessary endorsements or assignments), for application to the Senior Obligations in accordance with the terms of the Senior Credit Agreement; and
(iii) provide Senior Agent with a written accounting of all such proceeds received and turned over.
(b) The obligation of Mezzanine Lender to turn over proceeds pursuant to this Section 5.1 shall apply regardless of whether Mezzanine Lender received such proceeds (i) directly from Borrower or any Grantor, (ii) from a purchaser at a foreclosure sale or other disposition, (iii) from an insurance company or condemning authority, (iv) from a court, trustee, or other Person, or (v) by way of set-off, counterclaim, or recoupment.
(c) Senior Agent shall apply all proceeds received pursuant to this Section 5.1 to the Senior Obligations in accordance with the terms of the Senior Credit Agreement. Any surplus remaining after the Discharge of Senior Obligations shall be promptly remitted by Senior Agent to Mezzanine Lender for application to the Mezzanine Obligations.
Section 5.2 — Application of Proceeds
All proceeds of Collateral received by any Party in connection with any Enforcement Action, sale, disposition, collection, or realization upon all or any portion of the Collateral shall be applied in the following order of priority:
First, to the payment of all costs and expenses of Senior Agent in connection with such Enforcement Action, sale, disposition, collection, or realization, including, without limitation, reasonable attorneys' fees, court costs, foreclosure expenses, and other costs of enforcement;
Second, to the Senior Obligations (in such order and manner as Senior Agent may determine in its discretion in accordance with the Senior Credit Agreement) until the Discharge of Senior Obligations has occurred;
Third, to the payment of all costs and expenses of Mezzanine Lender in connection with such Enforcement Action, sale, disposition, collection, or realization, including, without limitation, reasonable attorneys' fees and other costs of enforcement;
Fourth, to the Mezzanine Obligations (in such order and manner as Mezzanine Lender may determine in its discretion in accordance with the Mezzanine Credit Agreement) until paid in full;
Fifth, to Borrower or as a court of competent jurisdiction may direct.
Section 5.3 — Subrogation
Upon the Discharge of Senior Obligations, Mezzanine Lender shall be subrogated to the rights of Senior Agent in respect of the Senior Liens and the Senior Collateral Documents, but only to the extent of payments or distributions actually received by Senior Agent pursuant to the turnover provisions of this Article V (and not applied to the Senior Obligations from other sources). Until the Discharge of Senior Obligations, Mezzanine Lender shall not assert or enforce any right of subrogation against Borrower or any Grantor with respect to the Senior Obligations or the Senior Liens.
ARTICLE VI — MODIFICATIONS TO CREDIT DOCUMENTS
Section 6.1 — Amendments to Senior Credit Agreement
(a) Senior Agent, the lenders under the Senior Credit Agreement, and Borrower may, without the consent of Mezzanine Lender, amend, restate, refinance, replace, renew, supplement, or otherwise modify the Senior Credit Agreement and the Senior Collateral Documents, provided that no such amendment, restatement, refinancing, replacement, renewal, supplement, or modification shall, without the prior written consent of Mezzanine Lender (which consent shall not be unreasonably withheld, conditioned, or delayed):
(i) increase the aggregate principal amount of the Senior Obligations (including undrawn commitments under the Senior Revolving Facility) above Sixty Million Dollars ($60,000,000), being the sum of the existing Thirty-Five Million Dollar ($35,000,000) revolving credit commitment and the Twenty-Five Million Dollar ($25,000,000) term loan;
(ii) increase the applicable interest rate or applicable margin on any Senior Obligation by more than two hundred (200) basis points above the interest rate or applicable margin in effect on the date hereof (being LIBOR plus two hundred twenty-five (225) basis points per annum for the Senior Revolving Facility and LIBOR plus two hundred seventy-five (275) basis points per annum for the Senior Term Loan), exclusive of default rate interest;
(iii) extend the scheduled maturity date of any Senior Obligation beyond one (1) year after the current maturity date applicable to such Senior Obligation (September 12, 2024 for the Senior Revolving Facility; September 12, 2025 for the Senior Term Loan); or
(iv) add additional categories or types of assets to the Collateral that are not included in the Collateral as of the date hereof.
(b) Mezzanine Lender acknowledges that any amendment, modification, or refinancing of the Senior Credit Agreement that is not prohibited by Section 6.1(a) above may be effected without notice to or consent of Mezzanine Lender, and the intercreditor arrangements set forth in this Agreement shall continue to apply to the Senior Obligations as so amended, modified, or refinanced.
Section 6.2 — Amendments to Mezzanine Credit Agreement
(a) Mezzanine Lender and Borrower may, without the consent of Senior Agent, amend, restate, supplement, or otherwise modify the Mezzanine Credit Agreement and the Mezzanine Collateral Documents, provided that no such amendment, restatement, supplement, or modification shall, without the prior written consent of Senior Agent (which consent shall not be unreasonably withheld, conditioned, or delayed):
(i) increase the aggregate principal amount of the Mezzanine Obligations above Twenty Million Dollars ($20,000,000), plus the amount of PIK interest that has accrued and been added to the outstanding principal balance in accordance with the terms of the Mezzanine Credit Agreement;
(ii) increase the cash pay interest rate on the Mezzanine Obligations above eight percent (8.00%) per annum;
(iii) shorten the scheduled maturity date of the Mezzanine Obligations (currently May 7, 2026) or add any scheduled mandatory amortization of principal of the Mezzanine Obligations that is not provided for in the Mezzanine Credit Agreement as of the date hereof;
(iv) add any financial maintenance covenant that is more restrictive than the financial covenants set forth in the Mezzanine Credit Agreement as of the date hereof, which are: (A) Total Leverage Ratio not to exceed 4.75 to 1.00, (B) Fixed Charge Coverage Ratio not less than 1.15 to 1.00, (C) Minimum EBITDA of Twelve Million Five Hundred Thousand Dollars ($12,500,000), and (D) annual capital expenditures not to exceed Eight Million Dollars ($8,000,000), excluding Permitted Expansion Capital Expenditures (as defined in the Mezzanine Credit Agreement);
(v) modify the definition of "Event of Default" in the Mezzanine Credit Agreement to add any additional events of default not contained therein as of the date hereof; or
(vi) alter, amend, or modify any subordination, intercreditor, standstill, or turnover provision in the Mezzanine Credit Agreement, the Mezzanine Collateral Documents, or this Agreement.
(b) Senior Agent acknowledges that any amendment, modification, or supplement of the Mezzanine Credit Agreement that is not prohibited by Section 6.2(a) above may be effected without notice to or consent of Senior Agent.
Section 6.3 — Refinancing of Senior Obligations
(a) Senior Agent may be replaced by a successor administrative agent, and the Senior Obligations may be refinanced, replaced, renewed, or extended by one or more successor senior lenders or agents, and such replacement lender or agent shall succeed to, and be entitled to enforce, all rights, benefits, and protections of Senior Agent under this Agreement, provided that:
(i) Mezzanine Lender receives written notice of such refinancing or replacement not less than ten (10) Business Days prior to the effectiveness thereof (or such shorter period as may be commercially practicable under the circumstances);
(ii) the replacement senior lender or agent executes and delivers to Mezzanine Lender a written instrument acknowledging and agreeing to be bound by the terms of this Agreement (or a replacement intercreditor agreement on terms no less favorable to Mezzanine Lender than those set forth herein); and
(iii) the aggregate principal amount of the refinanced Senior Obligations does not exceed the limits set forth in Section 6.1(a)(i).
(b) Upon the effectiveness of any such refinancing or replacement, all references in this Agreement to "Senior Agent" shall be deemed to refer to the successor administrative agent, and all references to "Senior Obligations" shall be deemed to refer to the obligations arising under the refinanced or replacement senior credit facility.
ARTICLE VII — BANKRUPTCY AND INSOLVENCY PROVISIONS
Section 7.1 — Relative Rights in Bankruptcy
(a) This Agreement shall continue in full force and effect, and the relative rights and priorities of Senior Agent and Mezzanine Lender in and to the Collateral shall be determined in accordance with the provisions of this Agreement, notwithstanding the commencement of any voluntary or involuntary case or proceeding under the Bankruptcy Code, or any state insolvency, receivership, assignment for the benefit of creditors, dissolution, winding up, liquidation, or similar proceeding (each, an "Insolvency Proceeding"), by or against Borrower or any Grantor.
(b) The provisions of this Agreement are intended to be and shall be enforceable as a subordination agreement within the meaning of Section 510(a) of the Bankruptcy Code and applicable state law.
Section 7.2 — DIP Financing
(a) If Borrower or any Grantor becomes the subject of an Insolvency Proceeding, Mezzanine Lender shall not object to, and hereby irrevocably consents to, any debtor-in-possession financing ("DIP Financing") provided by Senior Agent or its designee (or any other lender approved by Senior Agent) that is secured by liens on the Collateral senior to the Mezzanine Liens, including superpriority administrative expense claims under Section 364(c) of the Bankruptcy Code and priming liens under Section 364(d) of the Bankruptcy Code; provided, however, that if such DIP Financing requires the priming of the Mezzanine Liens (i.e., the grant of liens senior to the Mezzanine Liens that were not otherwise contemplated by this Agreement), Mezzanine Lender shall be entitled to receive adequate protection of its second-priority liens as required by applicable provisions of the Bankruptcy Code.
(b) Mezzanine Lender's consent to DIP Financing under this Section 7.2 shall extend to all orders approving such DIP Financing, including interim and final orders under Section 364 of the Bankruptcy Code, and Mezzanine Lender shall not file or support any objection to any such order.
(c) Nothing in this Section 7.2 shall require Mezzanine Lender to consent to DIP Financing that, by its terms, (i) requires the use of proceeds thereof to repay the Mezzanine Obligations in violation of the terms of this Agreement, or (ii) cross-collateralizes pre-petition Senior Obligations with post-petition Collateral in a manner not otherwise permitted by this Agreement.