SUBORDINATION AGREEMENT

(UCC Article 9 - Security Interest Priority)

AGREEMENT DATE AND PARTIES

Effective Date: [DATE]

This Subordination Agreement ("Agreement") is entered into by and among:

SENIOR SECURED PARTY (First Priority Creditor)

JUNIOR SECURED PARTY (Subordinating Creditor)

DEBTOR/BORROWER (Obligor)

RECITALS

A. Senior Secured Party has made or agreed to make loans or extend credit to Debtor pursuant to [DESCRIBE SENIOR LOAN DOCUMENTS - e.g., "that certain Loan Agreement dated [DATE]"] (the "Senior Loan Documents"), which are secured by a security interest in certain property of Debtor.

B. Junior Secured Party has made or agreed to make loans or extend credit to Debtor pursuant to [DESCRIBE JUNIOR LOAN DOCUMENTS - e.g., "that certain Promissory Note dated [DATE]"] (the "Junior Loan Documents"), which are or will be secured by a security interest in certain property of Debtor.

C. As a condition to [Senior Secured Party making/continuing its loans to Debtor] OR [Junior Secured Party making its loans to Debtor], the parties have agreed to establish the relative priority of their respective security interests in the Collateral as set forth herein.

D. Under UCC § 9-339, a person entitled to priority may subordinate its interest by agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1: DEFINITIONS

1.1 Defined Terms

"Collateral" means all property described in Section 2.2 in which both Senior Secured Party and Junior Secured Party hold or will hold security interests.

"Junior Debt" means all present and future indebtedness, liabilities, and obligations of Debtor to Junior Secured Party under the Junior Loan Documents.

"Junior Lien" means any security interest, lien, or encumbrance of Junior Secured Party on the Collateral.

"Junior Loan Documents" means [DESCRIBE], together with all amendments, modifications, renewals, and extensions thereof.

"Senior Debt" means all present and future indebtedness, liabilities, and obligations of Debtor to Senior Secured Party under the Senior Loan Documents, including:
- All principal, interest, fees, and other amounts
- All future advances, whether obligatory or discretionary
- All costs of collection and enforcement, including attorneys' fees
- All amounts that would be owed but for the operation of bankruptcy law
Maximum Senior Debt: $[AMOUNT] OR ☐ Unlimited

"Senior Lien" means any security interest, lien, or encumbrance of Senior Secured Party on the Collateral.

"Senior Loan Documents" means [DESCRIBE], together with all amendments, modifications, renewals, and extensions thereof.

"UCC" means the Uniform Commercial Code as adopted in [STATE].

ARTICLE 2: IDENTIFICATION OF SECURED OBLIGATIONS AND COLLATERAL

2.1 Secured Obligations

Senior Debt:
| Item | Information |
|------|-------------|
| Loan Agreement Date | [DATE] |
| Original Principal Amount | $[AMOUNT] |
| Current Principal Balance | $[AMOUNT] |
| Maximum Commitment | $[AMOUNT] |
| Maturity Date | [DATE] |
| Interest Rate | [RATE]% |
| UCC Filing Number | [FILE NUMBER] |
| UCC Filing Date | [DATE] |
| Filing Jurisdiction | [STATE] |

Junior Debt:
| Item | Information |
|------|-------------|
| Loan Agreement/Note Date | [DATE] |
| Original Principal Amount | $[AMOUNT] |
| Current Principal Balance | $[AMOUNT] |
| Maximum Commitment | $[AMOUNT] |
| Maturity Date | [DATE] |
| Interest Rate | [RATE]% |
| UCC Filing Number | [FILE NUMBER] |
| UCC Filing Date | [DATE] |
| Filing Jurisdiction | [STATE] |

2.2 Collateral Subject to Subordination

Select scope of subordination:

☐ ALL COLLATERAL - The subordination in this Agreement applies to all collateral in which both parties hold security interests, including:

All assets of Debtor, whether now owned or hereafter acquired, including all accounts, chattel paper, commercial tort claims, deposit accounts, documents, equipment, fixtures, general intangibles, goods, health-care-insurance receivables, instruments, inventory, investment property, letter-of-credit rights, money, and supporting obligations, together with all proceeds thereof.

☐ SPECIFIC COLLATERAL ONLY - The subordination in this Agreement applies only to the following collateral:

[DESCRIBE SPECIFIC COLLATERAL SUBJECT TO SUBORDINATION]

☐ EXCLUDED COLLATERAL - The following collateral is EXCLUDED from this subordination (Junior Secured Party retains existing priority in excluded collateral):

[DESCRIBE EXCLUDED COLLATERAL]

ARTICLE 3: SUBORDINATION

3.1 Type of Subordination

Select type of subordination:

☐ LIEN SUBORDINATION ONLY - Junior Lien ranks junior and subordinate to Senior Lien as to the Collateral. Payment rights are not affected.

☐ PAYMENT SUBORDINATION ONLY - Junior Secured Party may not receive payments on Junior Debt until Senior Debt is paid in full. Lien priority is not affected.

☐ COMPLETE SUBORDINATION - Both lien subordination AND payment subordination apply. (Recommended for most transactions)

3.2 Lien Subordination

[If Lien Subordination or Complete Subordination selected]

(a) Subordination of Junior Lien. Junior Secured Party hereby subordinates the Junior Lien to the Senior Lien. Notwithstanding the date, time, method, or order of filing, perfection, attachment, or grant of any security interest:

• The Senior Lien shall be FIRST and PRIOR in right to the Collateral
• The Junior Lien shall be SECOND and SUBORDINATE in right to the Collateral
• The Senior Lien shall have priority over the Junior Lien to the full extent of the Senior Debt

(b) Effect of Subordination. Upon any enforcement, foreclosure, or realization upon the Collateral:

• Senior Secured Party shall be entitled to receive payment in full of all Senior Debt before Junior Secured Party receives any payment from the Collateral
• Any proceeds of Collateral shall first be applied to Senior Debt until Senior Debt is paid in full
• Only after Senior Debt is paid in full shall proceeds be available for Junior Debt

(c) Preserved Priority. Notwithstanding this subordination, Junior Secured Party retains its security interest and lien on the Collateral, subject and subordinate to the Senior Lien, and Junior Secured Party's lien shall retain priority over:

• All unsecured creditors
• All creditors with liens that are junior to Junior Secured Party's lien (other than Senior Secured Party)
• The trustee in any bankruptcy proceeding

3.3 Payment Subordination

[If Payment Subordination or Complete Subordination selected]

(a) Payment Blockage. Until the Senior Debt has been paid in full:

☐ Full Blockage - Junior Secured Party shall not accept or receive any payment on account of the Junior Debt, whether in cash, property, or otherwise.

☐ Partial Blockage - Junior Secured Party may receive the following Permitted Payments:
- Regularly scheduled interest payments: ☐ Yes ☐ No
- Regularly scheduled principal payments: ☐ Yes ☐ No
- Maximum annual payment amount: $[AMOUNT]
- Other permitted payments: [DESCRIBE]

☐ Payment Blockage Only Upon Default - Junior Secured Party may receive payments unless and until a Senior Default exists.

(b) Senior Default Payment Blockage. Upon the occurrence of a Senior Default:

• Senior Secured Party may deliver a Payment Blockage Notice to Junior Secured Party and Debtor
• Upon receipt of such notice, Junior Secured Party shall not accept any payment on the Junior Debt
• The payment blockage shall continue until:
  ☐ [180] days from the date of the Payment Blockage Notice; OR
  ☐ Senior Default is cured or waived; OR
  ☐ Senior Debt is accelerated and enforcement proceedings commence; OR
  ☐ Senior Debt is paid in full
  (whichever occurs first)

(c) Turnover of Payments. If Junior Secured Party receives any payment or distribution on the Junior Debt in violation of this Agreement:

• Junior Secured Party shall hold such payment in trust for Senior Secured Party
• Junior Secured Party shall promptly deliver such payment to Senior Secured Party
• Such payment shall be applied to Senior Debt

3.4 Enforcement Standstill

(a) Standstill Period. Junior Secured Party shall not, without Senior Secured Party's prior written consent:

☐ Accelerate the Junior Debt
☐ Exercise any enforcement remedies under the Junior Loan Documents
☐ Commence any action to foreclose on or realize upon the Collateral
☐ Exercise any rights of setoff against Debtor
☐ Attach, levy, or garnish any property of Debtor
☐ Commence any bankruptcy or insolvency proceeding against Debtor

for a period of [___] DAYS (the "Standstill Period") following written notice to Senior Secured Party of Junior Secured Party's intent to take any such action, PROVIDED THAT:

• The Standstill Period shall not exceed [180] days in any 365-day period
• Senior Secured Party is diligently pursuing remedies during the Standstill Period
• The Standstill Period shall terminate if Senior Secured Party releases its lien on all Collateral

(b) Exception for Cure. Notwithstanding the foregoing, Junior Secured Party may take action during the Standstill Period to:

• Cure any default by Debtor that would trigger cross-default under Junior Loan Documents
• File proofs of claim in any bankruptcy proceeding
• Protect Junior Secured Party's lien from being primed or avoided

ARTICLE 4: REPRESENTATIONS AND WARRANTIES

4.1 Senior Secured Party Represents and Warrants:

☐ The Senior Loan Documents have been duly authorized, executed, and delivered
☐ The Senior Debt is a valid and binding obligation of Debtor
☐ The Senior Lien has been properly perfected by [filing/possession/control]
☐ Senior Secured Party has not assigned or transferred the Senior Debt (except: [DESCRIBE])
☐ There is no existing default under the Senior Loan Documents
☐ The information provided regarding the Senior Debt is true and accurate

4.2 Junior Secured Party Represents and Warrants:

☐ The Junior Loan Documents have been duly authorized, executed, and delivered
☐ The Junior Debt is a valid and binding obligation of Debtor
☐ The Junior Lien has been properly perfected by [filing/possession/control]
☐ Junior Secured Party has not assigned or transferred the Junior Debt (except: [DESCRIBE])
☐ There is no existing default under the Junior Loan Documents
☐ The information provided regarding the Junior Debt is true and accurate
☐ Junior Secured Party has reviewed the Senior Loan Documents

4.3 Debtor Represents and Warrants:

☐ Debtor has duly authorized this Agreement
☐ Debtor has not granted any other security interest in the Collateral (except as disclosed)
☐ No default exists under the Senior Loan Documents or Junior Loan Documents
☐ The information provided regarding the Collateral is true and accurate

ARTICLE 5: COVENANTS

5.1 Senior Secured Party Covenants:

(a) Notice of Default. Senior Secured Party shall provide Junior Secured Party with written notice of:
- Any default under the Senior Loan Documents within [10] days of occurrence
- Any acceleration of the Senior Debt
- Any enforcement action against the Collateral
- Any amendment that increases the Senior Debt beyond the cap (if applicable)

(b) Release of Collateral. Upon payment in full of the Senior Debt, Senior Secured Party shall:
- Release the Senior Lien
- File UCC-3 termination statements
- Deliver any Collateral in its possession to Junior Secured Party

(c) Insurance Proceeds. Senior Secured Party shall apply insurance proceeds from Collateral first to Senior Debt, with any surplus paid to Junior Secured Party or Debtor as appropriate.

5.2 Junior Secured Party Covenants:

(a) No Interference. Junior Secured Party shall not:
- Interfere with Senior Secured Party's exercise of remedies
- Object to Senior Secured Party's enforcement actions
- Contest the validity, perfection, or priority of the Senior Lien

(b) Cooperation. Junior Secured Party shall:
- Execute any documents reasonably requested by Senior Secured Party to evidence this subordination
- Cooperate with Senior Secured Party in any enforcement action
- Provide information regarding the Junior Debt upon request

(c) Amendments. Junior Secured Party shall not, without Senior Secured Party's prior written consent:
- Increase the principal amount of the Junior Debt beyond $[AMOUNT]
- Increase the interest rate on the Junior Debt beyond [__]%
- Shorten the maturity of the Junior Debt
- Add additional Collateral that secures Senior Debt
- [OTHER RESTRICTIONS]

(d) Assignment. Junior Secured Party shall not assign the Junior Debt or Junior Lien without:
☐ Senior Secured Party's prior written consent; OR
☐ Requiring assignee to agree in writing to be bound by this Agreement

5.3 Debtor Covenants:

(a) Notice. Debtor shall provide notice to both Senior and Junior Secured Parties of any default under either loan.

(b) No Prepayment. Debtor shall not prepay any Junior Debt while any Senior Debt remains outstanding without Senior Secured Party's consent.

(c) Further Assurances. Debtor shall execute any additional documents reasonably necessary to effectuate this Agreement.

ARTICLE 6: AMENDMENTS TO SENIOR DEBT

6.1 Permitted Amendments

Senior Secured Party may amend, modify, extend, renew, refinance, or replace the Senior Loan Documents without the consent of Junior Secured Party, including:

☐ Extensions of maturity date
☐ Changes in interest rate
☐ Additions or releases of Collateral
☐ Waivers or modifications of covenants
☐ Changes in payment terms

6.2 Cap on Senior Debt (If Applicable)

☐ No Cap - Senior Debt is not capped

☐ Cap Applies - This subordination applies only to Senior Debt up to $[MAXIMUM AMOUNT]. Any Senior Debt in excess of this cap shall rank pari passu with or junior to the Junior Debt (as provided in separate agreement).

6.3 Future Advances

This subordination covers all future advances made under the Senior Loan Documents, whether obligatory or discretionary, to the extent permitted by UCC § 9-323.

ARTICLE 7: BANKRUPTCY AND INSOLVENCY

7.1 Subordination in Bankruptcy

This subordination agreement shall remain in full force and effect in any bankruptcy, insolvency, receivership, or similar proceeding. Specifically:

(a) Application of Proceeds. Any distribution or payment on account of the Collateral or the Junior Debt shall be paid to Senior Secured Party until Senior Debt is paid in full.

(b) Turnover. If Junior Secured Party receives any distribution in violation of this Agreement, Junior Secured Party shall turn over such distribution to Senior Secured Party.

(c) Claims. Junior Secured Party may file proofs of claim for the Junior Debt but shall not oppose or object to Senior Secured Party's claims or adequate protection.

(d) Relief from Stay. Junior Secured Party shall not oppose Senior Secured Party's motions for relief from the automatic stay.

(e) Plan Voting. Junior Secured Party shall not vote in favor of any plan that does not provide for payment in full of Senior Debt before any distribution to Junior Secured Party on account of the Collateral.

(f) DIP Financing. Junior Secured Party shall not object to debtor-in-possession financing approved by Senior Secured Party, provided such financing is on commercially reasonable terms.

7.2 Reinstatement

If any payment on the Senior Debt is rescinded, avoided, or recovered (as a preference, fraudulent transfer, or otherwise), the subordination shall be reinstated as if such payment had not been made.

ARTICLE 8: REMEDIES AND ENFORCEMENT

8.1 Senior Secured Party's Remedies

Upon the occurrence of a default under the Senior Loan Documents:

(a) Sale of Collateral. Senior Secured Party may sell, dispose of, or otherwise realize upon the Collateral in accordance with the UCC. Any such disposition shall:
- Transfer the Collateral free and clear of the Junior Lien (to the extent permitted by law)
- Apply proceeds first to Senior Debt

(b) Notice to Junior Secured Party. Senior Secured Party shall provide Junior Secured Party with notice of any disposition of Collateral at least [10] days prior to such disposition (or such shorter period as may be commercially reasonable).

(c) Right to Credit Bid. Senior Secured Party may credit bid up to the full amount of the Senior Debt at any disposition of Collateral.

8.2 Junior Secured Party's Remedies

(a) After Standstill Period. Following expiration of the Standstill Period (if applicable), Junior Secured Party may exercise remedies under the Junior Loan Documents, subject to the Senior Lien.

(b) Purchase Option. Upon Senior Secured Party's exercise of remedies, Junior Secured Party shall have the option (but not the obligation) to purchase the Senior Debt from Senior Secured Party:
☐ At par (100% of outstanding Senior Debt)
☐ At a discount of [__]%
☐ No purchase option

(c) Cure Rights. Junior Secured Party may cure defaults under the Senior Loan Documents to prevent Senior Secured Party's enforcement.

ARTICLE 9: GENERAL PROVISIONS

9.1 Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of [STATE], including Article 9 of the UCC.

9.2 Jurisdiction and Venue

The parties submit to the exclusive jurisdiction of the courts located in [COUNTY], [STATE], and waive any objection to venue.

9.3 Jury Waiver

☐ JURY WAIVER: EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING FROM THIS AGREEMENT.

☐ No jury waiver

9.4 Notices

All notices shall be in writing and delivered to the addresses set forth above, or as otherwise designated.

9.5 Amendments

This Agreement may be amended only by written instrument signed by all parties.

9.6 Severability

If any provision is invalid, the remaining provisions shall remain in full force.

9.7 No Third-Party Beneficiaries

This Agreement is solely for the benefit of the parties and their successors and assigns, and does not create rights in any third party.

9.8 Successors and Assigns

This Agreement binds and benefits the parties and their successors and assigns.

9.9 Counterparts

This Agreement may be executed in counterparts.

9.10 Entire Agreement

This Agreement constitutes the entire agreement among the parties regarding subordination of the security interests described herein.

9.11 Survival

This Agreement shall remain in effect until Senior Debt is indefeasibly paid in full and Senior Secured Party has no further commitment to extend credit to Debtor.

ARTICLE 10: SIGNATURES

IN WITNESS WHEREOF, the parties have executed this Subordination Agreement as of the date first written above.

SENIOR SECURED PARTY:

[SENIOR SECURED PARTY NAME]

JUNIOR SECURED PARTY:

[JUNIOR SECURED PARTY NAME]

DEBTOR (Acknowledgment):

[DEBTOR NAME]

Debtor acknowledges this Subordination Agreement and agrees to be bound by its terms applicable to Debtor.

EXHIBIT A: SENIOR LOAN DOCUMENTS

[LIST ALL SENIOR LOAN DOCUMENTS WITH DATES]

1. Loan Agreement dated [DATE]
2. Promissory Note dated [DATE]
3. Security Agreement dated [DATE]
4. Guaranty dated [DATE]
5. [OTHER DOCUMENTS]

EXHIBIT B: JUNIOR LOAN DOCUMENTS

[LIST ALL JUNIOR LOAN DOCUMENTS WITH DATES]

1. [DOCUMENT] dated [DATE]
2. [DOCUMENT] dated [DATE]
3. [OTHER DOCUMENTS]

EXHIBIT C: UCC FILINGS

Senior Secured Party Filings:

Junior Secured Party Filings:

RECORDING AND FILING RECOMMENDATIONS

UCC Amendment (Optional but Recommended)

While not required to make this subordination effective between the parties, filing a UCC-3 Amendment referencing this Subordination Agreement provides public notice to third parties.

File with: [STATE] Secretary of State

Recommended language for UCC-3:

"This financing statement is subject to a Subordination Agreement dated [DATE] in favor of [SENIOR SECURED PARTY NAME]."

UCC ARTICLE 9 CITATIONS

Subordination Provisions

• § 9-339: Priority subject to subordination
  "This article does not preclude subordination by agreement by a person entitled to priority."

Priority Provisions

• § 9-322: Priorities among conflicting security interests
• § 9-322(a): General priority rules
• § 9-323: Future advances
• § 9-324: Priority of purchase-money security interests
• § 9-325: Priority of security interests in transferred collateral
• § 9-327: Priority of security interests in deposit account
• § 9-328: Priority of security interests in investment property
• § 9-329: Priority of security interests in letter-of-credit right
• § 9-330: Priority of purchaser of chattel paper or instrument
• § 9-331: Priority of rights of purchasers of instruments, documents, and securities
• § 9-334: Priority of security interests in fixtures

Bankruptcy Code Provisions

• 11 U.S.C. § 362: Automatic stay
• 11 U.S.C. § 510(a): Subordination agreements enforceable in bankruptcy
• 11 U.S.C. § 544: Trustee's avoidance powers
• 11 U.S.C. § 547: Preferences
• 11 U.S.C. § 1129: Plan confirmation requirements

CHECKLIST: SUBORDINATION AGREEMENT

☐ Correct parties identified (Senior, Junior, Debtor)
☐ Senior Debt accurately described with current balance
☐ Junior Debt accurately described with current balance
☐ Collateral subject to subordination clearly identified
☐ Type of subordination selected (lien, payment, or both)
☐ Payment blockage terms specified (if applicable)
☐ Standstill period defined (if applicable)
☐ Cap on Senior Debt specified (if applicable)
☐ Amendment restrictions on Junior Debt specified
☐ Bankruptcy provisions included
☐ All exhibits completed
☐ UCC filings referenced
☐ All parties signed
☐ Consider filing UCC-3 amendment for public notice
☐ Legal counsel review completed

This Subordination Agreement template is for professional use. Verify all terms, priority issues, and applicable law before execution.