SUBORDINATION AGREEMENT
Exhibit 10.4
This Subordination Agreement (“Agreement”) is made and entered into this 3rd day of
April, 2006 among Xponential, Inc., Curtiswood Capital, LLC (each a “Junior Creditor” and
collectively the “Junior Creditors”), American IronHorse Motorcycle Company, Inc., a Texas
corporation (“Debtor”), and Textron Financial Corporation (“Senior Creditor”).
WITNESSETH:
WHEREAS, Debtor may from time to time be indebted to Junior Creditors; and
WHEREAS, Debtor desires to continue to obtain loans, extensions of credit or other financial
accommodations from Senior Creditor; and
WHEREAS, Senior Creditor is unwilling to continue to provide such financial accommodations to
Debtor unless Junior Creditors and Debtor enter into this Agreement with Senior Creditor;
NOW, THEREFORE, for Ten Dollars ($10.00) and other valuable consideration and the mutual
covenants herein and to induce Senior Creditor to continue to provide financial accommodations to
or for the benefit of Debtor, the parties hereto, intending to be legally bound hereby, do agree as
follows:
1. Definitions. All terms used in this Agreement that are defined in the UCC shall have the
meanings ascribed thereto in the UCC unless otherwise expressly defined herein. As used in this
Agreement, the following terms shall have the meanings respectively set forth after each such term:
“Junior Creditor Documents” shall mean the Subordinated Notes and any and all present and
future agreements, documents and/or instruments evidencing, documenting, securing or otherwise
relating to any or all of the indebtedness evidenced by the Subordinated Notes, all as the same may
from time to time be amended, modified, extended, renewed or restated.
“Junior Creditor Indebtedness” shall mean all of the present and future indebtedness
(principal, interest (including, without limitation, interest accruing after the commencement of a
bankruptcy proceeding by or against Debtor), fees, collection costs and expenses and other
amounts), liabilities and obligations of Debtor to Junior Creditors evidenced by or arising under
any one or more of the Junior Creditor Documents, all whether fixed or contingent, matured or
unmatured, liquidated or unliquidated, and whether arising under contract, in tort or otherwise.
“Senior Creditor Collateral” shall mean all of the property and assets of Debtor described on
Exhibit A attached hereto and incorporated herein by reference and all cash and non-cash proceeds
thereof.
“Senior Creditor Documents” shall mean that certain (a) Amended and Restated Loan and Security
Agreement between Senior Creditor, as lender, and
Debtor, as borrower, dated as of March 28, 2005, as amended by instrument dated January 20,
2006 (the “Senior Loan Agreement”) and (b) any and all present and future agreements, documents
and/or instruments evidencing, documenting, securing or otherwise relating to any or all of the
Senior Creditor Indebtedness, all as the same may from time to time be amended, modified, extended,
supplemented, renewed or restated.
“Senior Creditor Indebtedness” shall mean all of the present and future indebtedness
(principal, interest (including, without limitation, interest accruing after the commencement of a
bankruptcy proceeding by or against Debtor), fees, collection costs and expenses and other
amounts), liabilities and obligations (including, without limitation, letter of credit
reimbursement obligations) of Debtor to Senior Creditor (including, without limitation, all of the
indebtedness evidenced by or arising under any one or more of the Senior Creditor Documents), all
whether fixed or contingent, matured or unmatured, liquidated or unliquidated, and whether arising
under contract, in tort or otherwise.
“Subordinated Notes” means those two certain Promissory Notes made by Debtor to the order of
each Junior Creditor, one in the principal amount of $900,000.00 and one in the principal amount of
$100,000, a true and correct copy of each of which is annexed hereto as Exhibits B-1 and B-2 and
made a part hereof.
“UCC” shall mean the Uniform Commercial Code, as in effect from time to time in the State of
Texas.
2. Subordination. Subject to the provisions of Paragraph 3 hereof, Junior Creditors hereby
postpone and subordinate all of the Junior Creditor Indebtedness to the full and final payment and
discharge of the Senior Creditor Indebtedness. Without limiting the generality of the foregoing,
in the event of any distribution, division or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part of the assets of Debtor or the
proceeds thereof to creditors of Debtor or upon any indebtedness of Debtor by reason of the
liquidation, dissolution or other winding up of Debtor or Debtor’s business or in the event of any
sale, receivership, insolvency or bankruptcy proceeding or assignment for the benefit of creditors
or any proceeding by or against Debtor for any relief under any bankruptcy or insolvency laws
relating to the relief of Debtor’s readjustment of indebtedness, reorganization, composition or
extension, then, and in any such event, any payment or distribution of any kind or character,
either in cash, securities or other property, which shall be payable or deliverable upon or with
respect to any of the Junior Creditor Indebtedness shall be payable and delivered directly to
Senior Creditor for application for the Senior Creditor Indebtedness (whether or not the same is
then due) until all of the Senior Creditor Indebtedness has been fully paid and discharged. The
Subordinated Notes shall at all times bear a conspicuous legend that the Junior Creditor
Indebtedness evidenced thereby is subordinated to the Senior Creditor Indebtedness pursuant to this
Agreement. Debtor’s and Junior Creditors’ books shall be marked to evidence the subordination of
all of the Junior Creditor Indebtedness to Senior Creditor. Senior Creditor is authorized to
examine such books from time to time and to make any notations required by this Agreement. The
provisions of this Paragraph 2
shall remain effective and binding upon Junior Creditors, to the full extent of the Senior
Creditor Indebtedness, even if any of the Senior Creditor Indebtedness is avoided, equitably
subordinated or nullified in any bankruptcy case.
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3. Permitted Payments. If and for so long as no Default or Event of Default (as those terms
are defined in the Senior Creditor Documents) exists at the time, or would result from the making
of such payment, Debtor may pay to Junior Creditors, and Junior Creditors may accept and retain,
any regularly scheduled payments of interest only due and owing to Junior Creditors by Debtor under
the Subordinated Notes in accordance with their present tenor. Principal reduction payments or
prepayments of principal of any kind to Junior Creditors shall be allowed only if made from
Permitted Recapitalization Proceeds of Debtor where no Default or Event of Default (as those terms
are defined in the Senior Loan Agreement) exists at the time or would result from making such
payments. For purposes of this Agreement, “Permitted Recapitalization Proceeds” means cash
proceeds from any recapitalization of Debtor or any subsidiary of Debtor involving the public or
private sale or issuance of one or more classes of stock, bonds, debentures, notes or other equity
or debt securities of Debtor.
4. No Third Party Beneficiaries. All undertakings, agreements, representations and warranties
contained in this Agreement are solely for the benefit of Junior Creditors and Senior Creditor and
there are no other parties (including, without limitation, Debtor) who are intended to be benefited
in any way by this Agreement. The existence of this Agreement shall not commit or obligate Junior
Creditors or Senior Creditor to make loans or extend credit to Debtor.
5. Standstill.
(a) Notwithstanding anything to the contrary contained in the Junior Creditor Documents:
(1) Until Senior Creditor notifies Junior Creditors by certified mail, return receipt
requested, that Senior Creditor has exercised its right to declare that all obligations of Debtor
due to Senior Creditor under any of the Senior Creditor Documents have become immediately due and
payable as a result of a Default or an Event of Default under the Senior Creditor Documents (the
“Notice of Acceleration”), Junior Creditors shall not have the right to take any action with
respect to the Junior Creditor Indebtedness, including, without limitation, declaring an event of
default, or accelerating the Junior Creditor Indebtedness; and
(2) Junior Creditors shall not have the right to institute any legal action or to otherwise
attempt to enforce Junior Creditor’s rights with respect to the Junior Creditor Indebtedness until
one hundred eighty (180) days after Junior Creditor’s receipt of the Notice of Acceleration.
6. Turnover of Senior Creditor Collateral Received by Junior Creditors. In the event of any
payment or distribution to Junior Creditors, or any of them, is made from any of the Senior
Creditor Collateral upon or with respect to any of
the Junior Creditor Indebtedness prior to the time all of the Senior Creditor Indebtedness
shall have been fully, finally and indefeasibly paid in cash and all financing arrangements and
commitments by and between Debtor and Senior Creditor shall have been terminated (other than
voluntary payments by Debtor to Junior Creditors on the Junior Creditor Indebtedness to the extent
permitted under Paragraph 3 above), Junior Creditors shall receive and hold the same in trust, as
trustee, for the benefit of Senior
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Creditor and shall forthwith deliver the same to Senior Creditor
in precisely the form received (except for the endorsement or assignment of Junior Creditors where
necessary) for application against the Senior Creditor Indebtedness whether due or not due, and,
until so delivered, the same shall be in trust by Junior Creditors as the property of Senior
Creditor.
7. Representations and Agreements of Junior Creditors and Debtor. Junior Creditors, and each
of them, and Debtor represent and warrant to, and covenant and agree with, Senior Creditor that:
(a) as of the date hereof the outstanding principal balance of the Junior Creditor Indebtedness as
defined herein is $1,000,000.00; (b) Junior Creditors will provide Senior Creditor with written
notice of the declaration by Junior Creditors of any default or event of default under any of the
Junior Creditor Documents; (c) Junior Creditors agree not to oppose, interfere with or otherwise
attempt to prevent Senior Creditor from enforcing its security interests in and/or liens on any of
the Senior Creditor Collateral or otherwise realizing upon any of the Senior Creditor Collateral;
(d) Junior Creditors and Debtor shall not amend, alter or modify any provision of the Subordinated
Notes without the prior written consent of Senior Creditor; (e) Junior Creditors shall not commence
or join with any other creditors of Debtor in commencing any bankruptcy, reorganization,
receivership or insolvency proceeding against Debtor; and (f) neither Debtor nor any Junior
Creditor otherwise shall take or permit any action prejudicial to, or inconsistent with, Senior
Creditor’s priority position over Junior Creditors that is created by this Agreement.
8. Insurance Proceeds. In the event of the occurrence of any casualty with respect to any of
the Senior Creditor Collateral, Junior Creditors and Senior Creditor agree that Senior Creditor
shall have the sole and exclusive right to adjust, compromise or settle any such loss with the
insurer thereof, and to collect and receive the proceeds from such insurer. Any proceeds of
insurance in excess of the Senior Creditor Indebtedness and other secured indebtedness of Debtor
will be available for payment of the Junior Creditor Indebtedness. Any insurer shall be fully
protected if it acts in reliance on the provisions of this Paragraph 8.
9. Waiver of Certain Rights. Each Junior Creditor hereby waives any and all rights to (a)
require Senior Creditor to marshal any property or assets of Debtor or to resort to any of the
property or assets of Debtor in any particular order or manner; (b) require Senior Creditor to
enforce any guaranty or any security interest or lien given by any person or entity other than
Debtor to secure the payment of any or all of the Senior Creditor Indebtedness as a condition
precedent or concurrent to taking any action against or with respect to the Senior Creditor
Collateral; (c) commence any proceedings (whether through the filing of an involuntary petition
against Debtor or otherwise) under any bankruptcy, insolvency, reorganization, receivership or
similar laws for arrangement of debts of Debtor; and/or (d) bring any action to contest the
validity, legality, enforceability, perfection, priority or avoidability of any of the Senior
Creditor Indebtedness, any of the Senior Creditor Documents or any of the security interests and/or
liens of Senior Creditor in or on any of the Senior Creditor Collateral.
10. Bankruptcy Financing Issues. This Agreement shall continue in full force and effect after
the filing of any petition for relief by or against Debtor under the United States Bankruptcy Code
(the “Code”) and all converted or succeeding cases in
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respect thereof (all references herein to the
Debtor being deemed to apply to Debtor as debtor-in-possession and to a trustee for the Debtor),
and shall apply with full force and effect with respect to all Senior Creditor Collateral acquired
by the Debtor, and to all Senior Creditor Indebtedness and Junior Creditor Indebtedness incurred by
the Debtor, subsequent to such filing. If Debtor shall become subject to a proceeding under the
Code, and if Senior Creditor shall desire to permit the use of cash collateral by Debtor or to
provide post-petition financing from Senior Creditor to Debtor, each Junior Creditor agrees as
follows: (a) adequate notice to Junior Creditors shall be deemed to have been provided for such use
of cash collateral or such post-petition financing if Junior Creditors receive notice thereof at
least three (3) business days prior to the earlier of (i) any hearing on a request to approve such
use of cash collateral or such post-petition financing or (ii) the date of entry of an order
approving the same. No objection will be raised by Junior Creditors to Senior Creditor’s motion
for relief from the automatic stay in any such proceeding to foreclose on, sell or otherwise
realize upon the Senior Creditor Collateral.
11. Assignment of Junior Creditor Indebtedness. Each Junior Creditor represents and warrants
to Senior Creditor that it has not previously assigned any interest in any of the Junior Creditor
Indebtedness, that no other party owns an interest in any of the Junior Creditor Indebtedness other
than Junior Creditors (whether as joint holders of the Junior Creditor Indebtedness, as
participants or otherwise) and that the entire Junior Creditor Indebtedness is owed only to Junior
Creditors. Each Junior Creditor covenants and agrees with Senior Creditor that the entire Junior
Creditor Indebtedness shall continue to be owing only to Junior Creditors, unless such indebtedness
is assigned expressly subject to the terms, provisions and conditions of this Agreement, the
assignee of such indebtedness agrees in writing to be bound by the terms, provisions and conditions
of this Agreement and Junior Creditors shall have delivered such executed assignment and assumption
agreements to Senior Creditor.
12. Term. This Agreement shall remain in full force and effect until all of the Senior
Creditor Indebtedness shall have been fully, finally and indefeasibly paid in cash and all
financing arrangements and commitments between Debtor and Senior Creditor shall have been
terminated. This Agreement shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any of the Senior Creditor Indebtedness is rescinded or must otherwise
be returned by Senior Creditor upon the insolvency, bankruptcy or reorganization of Debtor or
otherwise, all as though such payment had not been made. This is a continuing agreement of
subordination and Senior Creditor may continue to extend credit or other financial accommodations
and loan monies to or for the benefit of Debtor, on the faith hereof, under the Senior Creditor
Documents or otherwise without notice to Junior Creditors.
13. Amendment of Senior Creditor Indebtedness; Release of Senior Creditor Collateral. Senior
Creditor may at any time and from time to time (a) enter into such agreements with Debtor as Senior
Creditor may deem proper (i) increasing or decreasing the principal amount of extending the time of
payment of and/or renewing or otherwise amending or altering the terms (including, without
limitation, the interest rates) of any or all of the Senior Creditor Indebtedness and/or (ii)
amending, modifying or otherwise altering the terms of the Senior Creditor Documents and (b)
exchange,
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sell, release, surrender or otherwise deal with any or all of the Senior Creditor
Collateral, all without in any way compromising or affecting this Agreement.
14. Reliance by Senior Creditor; Waiver of Notices; No Representations by Senior Creditor;
Management of Credit Facilities by Senior Creditor. All of the Senior Creditor Indebtedness shall
be deemed to have been made or incurred in reliance upon this Agreement. Each Junior Creditor
expressly waives all notice of the acceptance by Senior Creditor of the provisions of this
Agreement and all other notices not specifically required pursuant to the terms of this Agreement.
Each Junior Creditor agrees that Senior Creditor has not made any representation or warranty with
respect to the due execution, legality, validity, completeness or enforceability of any of the
Senior Creditor Documents, the perfection or priority of any security interest or lien securing any
or all of the Senior Creditor Indebtedness or the collectibility of any of the Senior Creditor
Indebtedness. Senior Creditor shall be entitled to manage and supervise its credit facilities with
Debtor in accordance with applicable law and its usual business practices, modified from time to
time as it deems appropriate under the circumstances, without regard to the existence of any rights
that any Junior Creditor may have now or hereafter in or to any of the property or assets of
Debtor, and Senior Creditor shall have no liability to any Junior Creditor for any loss, claim or
damage allegedly suffered by any Junior Creditor in any proceeding by Senior Creditor to foreclose
or otherwise enforce any of its security interests in and/or liens on any of the Senior Creditor
Collateral.
15. Financial Conditions of Borrower. Each Junior Creditor hereby assumes responsibility for
keeping itself informed of the financial condition of Debtor and any and all guarantors of the
Junior Creditor Indebtedness and of all other circumstances bearing upon the risk of nonpayment of
the Junior Creditor Indebtedness that diligent inquiry would reveal and each Junior Creditor hereby
agrees that Senior Creditor shall have no duty to advise each Junior Creditor of any information
regarding such condition or any such circumstances.
16. Notices. Any notice, request, demand, consent or other communication hereunder shall be
in writing and (a) delivered in person or (b) sent by telecopy and confirmed by certified mail,
return receipt requested and postage pre-paid or (c) sent by certified mail, return receipt
requested, to the applicable party at its address or telecopy number set forth on the signature
pages hereof, or at such other address or telecopy number as any party hereto may designate as its
address for communications hereunder by notice so given. Such notices shall be deemed effective on
the day on which delivered or sent if delivered in person or sent by telecopy, or on the third
business day after the day on which mailed, if sent by certified mail.
17. Further Assurances. Each Junior Creditor hereby covenants and agrees at its own expense
to take any and all additional actions and execute, deliver, file and/or record any and all
additional agreements, documents and instruments as may be necessary or as Senior Creditor may from
time to time reasonably request to effect the subordination and other provisions of this Agreement.
18. Modifications in Writing. No amendment, modification, supplement, termination, consent or
waiver of or to any provision of this Agreement nor any consent
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to any departure therefrom shall in
any event be effective unless the same shall be in writing and signed by or on behalf of each
Junior Creditor and Senior Creditor. Any waiver of any provision of this Agreement, and any
consent to any departure from the terms of any provision of this Agreement, shall be effective only
in the specific instance and for the specific purpose for which given.
19. Waivers; Failure or Delay. No failure or delay on the part of Junior Creditors, or any
one of them, or Senior Creditor in the exercise of any power, right, remedy or privilege under this
Agreement shall impair such power, right, remedy or privilege or shall operate as a waiver thereof;
nor shall any single or partial exercise of any such power, right, remedy or privilege preclude any
other or further exercise of any other power, right, remedy or privilege. The waiver of any such
right, power, remedy or privilege with respect to particular facts and circumstances shall not be
deemed to be a waiver with respect to other facts and circumstances.
20. Severability. Whenever possible, each provision of this Agreement shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Agreement.
21. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of
Junior Creditors and Senior Creditor and their respective successors and assigns.
22. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be
governed by and construed in accordance with the substantive laws of the State of Texas (without
reference to conflict of law principles). EACH JUNIOR CREDITOR, DEBTOR AND SENIOR CREDITOR HEREBY
IRREVOCABLY (A) CONSENT AND SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS LOCATED IN THE STATE OF TEXAS, IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT AND (B) WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION IN WHICH
JUNIOR CREDITORS (OR ANY ONE OF THEM), DEBTOR AND SENIOR CREDITOR ARE PARTIES RELATING TO OR
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
23. Equitable Remedies. Each party to this Agreement acknowledges that the breach by it of
any of the provisions of this Agreement is likely to cause irreparable
damage to the other parties. Therefore, the relief to which any party shall be entitled in
the event of any such breach or threatened breach shall include, but not be limited to, a mandatory
injunction for specific performance, injunctive or other judicial relief to prevent a violation of
any of the provisions of this Agreement, damages and any other relief to which it may be entitled
at law or in equity.
24. Attorneys’ Fees and Expenses. In the event of any dispute concerning the meaning or
interpretation of this Agreement which results in litigation, or in the event of any litigation by
a party hereto to enforce the provisions hereof, the prevailing party
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shall be entitled to recover
from the non-prevailing party,
in addition to its other damages, its reasonable attorneys’ fees and
expenses and any actual court costs incurred.
25. Headings. Paragraph headings used in this Agreement are for convenience of reference only
and shall not constitute a part of this Agreement for any purpose or affect the construction of
this Agreement.
26. Execution in Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement. This Agreement shall become effective upon the
execution and delivery of a counterpart hereof by each of the parties hereto. Any signature
delivered by a party via facsimile shall be deemed to be an original signature hereto.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written.
| JUNIOR CREDITORS: | XPONENTIAL, INC. | |||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||||
| Xxxxxx X. Xxxxxx, Chairman of | ||||||
| the Board, Chief Executive Officer and | ||||||
| Vice President | ||||||
| 0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000 | ||||||
| Xxxxxxxx, Xxxxxxx 00000 | ||||||
| Telecopy: 000-000-0000 | ||||||
| CURTISWOOD CAPITAL, LLC | ||||||
| By: | /s/ Xxxx Xxxxxx | |||||
| Name: Xxxx Xxxxxx | ||||||
| Title: Managing Director | ||||||
| 000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000 | ||||||
| Xxxxxxxxx, Xxxxxxxxx 00000 | ||||||
| Telecopy: 000- 000-0000 | ||||||
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| SENIOR CREDITOR: | TEXTRON FINANCIAL | |||||
| CORPORATION | ||||||
| By: | /s/ Xxxx X. Xxxxxxx | |||||
| Name: Xxxx X. Xxxxxxx | ||||||
| Title: Duly Authorized Signatory | ||||||
| 00000 Xxxxx Xxxx Xxxxxxx | ||||||
| Xxxxx 000 | ||||||
| Xxxxxxxxxx, Xxxxxxx 00000 | ||||||
| Attn: SVP — ABLG Portfolio Mgmt. | ||||||
| Telecopy: 000-000-0000 | ||||||
| WITH A COPY TO: | 00000 Xxxxx Xxxx Xxxxxxx | |||||
| Xxxxx 000 | ||||||
| Xxxxxxxxxx, Xxxxxxx 00000 | ||||||
| Attn: ABLG Group Counsel | ||||||
| Telecopy: 000-000-0000 | ||||||
| DEBTOR: | AMERICAN IRONHORSE | |||||
| MOTORCYCLE COMPANY, INC. | ||||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||||
| Name: Xxxxxx X. Xxxxxx | ||||||
| Title: Chief Financial Officer | ||||||
| 0000 Xxxx Xxxxx Xxxx | ||||||
| Xxxx Xxxxx, Xxxxx 7610 | ||||||
| Telecopy: 000-000-0000 | ||||||
| WITH A COPY TO: | Xxxxxxxx X. Xxxxxxx | |||||
| Xxxxxxx, Xxxxx, Xxxxxxxx & Xxxxx, L.L.P. | ||||||
| 000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 000 | ||||||
| Xxxx Xxxxx, Xxxxx 00000-0000 | ||||||
| Telecopy: 000-000-0000 | ||||||
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