EXHIBIT 10.47
EXECUTION VERSION
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT, dated as of December 29, 2003 by and among XXXX
X. XXXXXX and XXXXXXX X. XXXXXX (each a "Subordinated Lender"; and collectively,
together with any other holders from time to time of the Subordinated
Obligations, the "Subordinated Lenders"), SCHLOTZSKY'S FRANCHISOR, LLC, a
Delaware limited liability company (together with its successors and assigns,
the "Franchisor"), SCHLOTSKY'S, INC., a Texas corporation (together with its
successors and assigns, "Schlotzsky's"), SCHLOTZSKY'S FRANCHISE OPERATIONS, LLC,
a Delaware limited liability company ("Manager"), and DFW Restaurant Transfer
Corp., a Texas corporation ("DFW"; DFW, Schlotzsky's, Manager and Franchisor may
be referred to herein collectively as the "Credit Parties" and individually as a
"Credit Party") and NS ASSOCIATES I, LTD., a Texas limited partnership (together
with its successors and assigns, the "Senior Lender").
WHEREAS, (a) Schlotzsky's has issued to Subordinated Lenders that certain
promissory note, dated April 8, 2003, in the original principal amount of
$1,000,000.00 (as modified by that certain Modification, Extension and Renewal
of Promissory Note dated August 8, 2003, and as it may be further amended,
restated, modified, replaced, renewed or extended, in each case subject to the
provisions hereof, the "SI Subordinated Note"), and (b) in connection with the
SI Subordinated Note (and as security therefor), Schlotzsky's and Subordinated
Lenders are parties to that certain Security Agreement dated as of April 8, 2003
(as amended or otherwise modified from time to time subject to the provisions
hereof, the "SI Subordinated Security Agreement"), pursuant to which
Schlotzsky's granted to Subordinated Lenders security interests in certain
collateral defined therein;
WHEREAS, (a) Franchisor has issued to Subordinated Lenders that certain
promissory note, dated November 12, 2003, in the original principal amount of
$2,500,000.00 (as amended as of the date hereof, and as it may be further
amended, restated, modified, replaced, renewed or extended from time to time, in
each case subject to the provisions hereof, the "Franchisor Subordinated Note",
and together with the SI Subordinated Note, each a "Subordinated Note" and
collectively the "Subordinated Notes"), and (b) in connection with the
Franchisor Subordinated Note (and as security therefor), Franchisor and
Subordinated Lenders are parties to that certain Security Agreement dated as of
November 12, 2003 (as amended or otherwise modified from time to time subject to
the provisions hereof, the "Franchisor Subordinated Security Agreement", and
together with the SI Subordinated Security Agreement, each a "Subordinated
Security Agreement" and collectively the "Subordinated Security Agreements"),
pursuant to which Franchisor granted to Subordinated Lenders security interests
in certain collateral defined therein;
WHEREAS, Subordinated Lenders have provided certain security, for the
benefit of Schlotzsky's, securing obligations of Schlotzsky's to American Bank
of Commerce in a principal amount of $150,000 under that certain Note and
Security Agreement dated as of March 27, 2003, between Schlotzsky's and American
Bank of Commerce (the "Bank of Commerce Agreement"; and any rights of
Subordinated Lenders for reimbursement from Schlotzsky's with respect to any
amounts relating to such Bank of Commerce Agreement, including any rights of
subrogation resulting from any collection or enforcement against the collateral
pledged by any Subordinated Lender, the "Subordinated Reimbursement Rights");
WHEREAS, pursuant to that certain Contribution Agreement dated as of June
7, 2003 (the "Contribution Agreement") between Schlotzsky's and Franchisor,
Schlotzsky's, with the consent of Subordinated Lenders, contributed and
transferred to Franchisor certain Conveyed Assets defined in the Contribution
Agreement (which assets included certain assets pledged as collateral under the
SI Subordinated Security Agreement); and
WHEREAS, (a) pursuant to that certain Debt Restructuring Agreement dated
as of December 29, 2003 among DFW, Schlotzsky's, Franchisor, Manager and Senior
Lender (the "Restructuring Agreement"), DFW has issued to Senior Lender that
certain amended and restated promissory note dated as of December 15, 2003
(amending and restating that certain promissory note dated August 30, 2002
issued by DFW) in the original principal amount of $23,268,000.00 (as so amended
and restated, and as it may be amended, restated, modified, replaced, renewed or
extended, the "Senior Note"), and (b) in connection with the Senior Note (and as
security therefor), (i) DFW and Senior Lender are parties to that certain
Security Agreement dated as of August 30, 2002 (as amended or otherwise modified
from time to time, the "DFW Senior Security Agreement"), (ii) Franchisor has
provided a guaranty of obligations under the Senior Note pursuant to that
certain Guaranty dated as of December 29, 2003 (the "Franchisor Senior
Guaranty"), (iii) Franchisor and Senior Lender are parties to that certain
Security Agreement, dated as of even date herewith (as amended or otherwise
modified from time to time, the "Franchisor Senior Security Agreement", and
together with the DFW Senior Security Agreement, each a "Senior Security
Agreement" and collectively the "Senior Security Agreements"), pursuant to which
Franchisor has granted to Senior Lender security interests in certain collateral
defined therein (and including substantially all assets of Franchisor), and (iv)
Schlotzsky's has provided a guaranty of obligations under the Senior Note
pursuant to that certain Guaranty of Payment dated as of August 30, 2002 (as
amended or otherwise modified, the "SI Senior Guaranty", and together with the
Franchisor Senior Guaranty, each a "Senior Guaranty" and collectively the
"Senior Guaranties").
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. (a) Unless otherwise defined herein, terms defined in the Senior
Security Agreement and used herein shall have the meanings given to them in the
Senior Security Agreement.
(b) The following terms shall have the following meanings:
"ABC Security Agreement": has the meaning set forth in Section 9(a)
hereof.
"Agreement": this Subordination Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
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"Bank of Commerce Agreement": has the meaning assigned in the recitals
hereto.
"Branding Subsidiary" means Schlotzsky's Brand Products, LLC, a Delaware
limited liability company.
"Collateral": the collective reference to any and all Senior Lender
Collateral and/or Subordinated Lender Collateral.
"Collateral Enforcement Action": shall mean any action by any Subordinated
Lender to (a) exercise or seek to exercise any rights or exercise any
remedies with respect to any Senior Lender Collateral, (b) institute any
action or proceeding with respect to such rights or remedies, including
without limitation, any action of foreclosure or (c) contest, protest or
object to any foreclosure proceeding, postpetition financing, use of cash
collateral or action brought by the Senior Lender or to any other exercise
by the Senior Lender of any rights and remedies under any Senior Loan
Documents. For purposes of clarification, the exercise by Subordinated
Lenders of rights and remedies described in clauses (a) and (b) above with
respect to Subordinated Lender Collateral consisting of property of any
Person other than the Credit Parties or Branding Subsidiary, or property
of Schlotzksy's not constituting Senior Lender Collateral, shall not be
considered a "Collateral Enforcement Action".
"Collection Action": shall mean (a) to demand, xxx for, take or receive
from or on behalf of any Credit Party or any guarantor of the Subordinated
Obligations, by set-off or in any other manner, the whole or any part of
any moneys which may now or hereafter be owing by any Credit Party with
respect to the Subordinated Obligations, (b) to initiate or participate
with others in any suit, action or proceeding against any Credit Party to
(i) enforce payment of or to collect the whole or any part of the
Subordinated Obligations or (ii) commence judicial enforcement of any of
the rights and remedies under the Subordinated Loan Documents or
applicable law with respect to the Subordinated Obligations or the
Subordinated Loan Documents, (c) to accelerate any Subordinated
Obligations, or (d) to exercise any put option or to cause any Credit
Party to honor any redemption or mandatory prepayment obligation under any
Subordinated Loan Document.
"Contribution Agreement": has the meaning assigned in the recitals hereto.
"Credit Party": has the meaning set forth in the recitals hereto.
"DFW": has the meaning assigned in the recitals hereto.
"Event of Default": any Event of Default under the Senior Security
Agreement or any of the Senior Loan Documents or any other event the
occurrence of which (without further notice or the passage of time, in
each case other than as required by law) entitles the Senior Lender to
accelerate the maturity of any of the Senior Obligations.
"Franchisor": has the meaning assigned in the recitals hereto.
"Franchisor Senior Guaranty": has the meaning set forth in the recitals
hereto.
"Franchisor Senior Security Agreement": has the meaning set forth in the
recitals hereto.
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"Franchisor Subordinated Note": has the meaning set forth in the recitals
hereto.
"Franchisor Subordinated Security Agreement": has the meaning set forth in
the recitals hereto.
"Insolvency Event": (a) Any Credit Party or any of its Subsidiaries
commencing any case, proceeding or other action (1) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, conservatorship or relief of
debtors, seeking to have an order for relief entered with respect to it,
or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (2) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or any Credit Party or any of its Subsidiaries making a general
assignment for the benefit of its creditors; or (b) there being commenced
against any Credit Party or any of its Subsidiaries any case, proceeding
or other action of a nature referred to in clause (a) above which (1)
results in the entry of an order for relief or any such adjudication or
appointment or (2) remains undismissed, undischarged or unbonded for a
period of 60 days; or (c) there being commenced against any Credit Party
or any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (d) any Credit Party or any of its Subsidiaries
taking any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (a),
(b) or (c) above; or (e) any Credit Party or any of its Subsidiaries
generally not paying, or being unable to pay, or admitting in writing its
inability to pay, its debts as they become due.
"Permitted Securities": securities of any Credit Party or other Person,
the payment of which is subordinated, at least to the extent and
substantially on the terms set forth in this Agreement, to the prior
payment in full of all then outstanding Senior Obligations and to any
securities issued in respect of any Senior Obligations under any plan of
partial or complete liquidation, reorganization, readjustment,
arrangement, composition or extension.
"Permitted Subordinated Debt Payments": has the meaning set forth in
Section 2(b) hereof.
"Schlotzsky's": has the meaning set forth in the recitals hereto.
"Senior Guaranties": has the meaning set forth in the recitals hereto.
"Senior Lender Collateral": the collective reference to any and all
property from time to time pledged by any Credit Party as security for (or
otherwise subject to security interests to secure) the payment or
performance of the Senior Obligations (whether or not the same also
constitutes Subordinated Lender Collateral).
"Senior Loan Documents": the collective reference to the Senior Note, the
Senior Guaranties, the Senior Security Documents and all other documents
that from time to time evidence the Senior Obligations or secure payment
or performance thereof, as modified from time to time.
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"Senior Note": has the meaning assigned in the recitals hereto, and
includes, without limitation, amendments, modifications, supplements and
restatements thereof giving effect to increases, renewals, extensions,
refundings, deferrals, restructurings, replacements or refinancings of, or
additions to, the arrangements provided in such Senior Note (whether
provided by the original Senior Lender or a successor Senior Lender or
other lenders), in each case to the extent permitted pursuant to this
Agreement.
"Senior Obligations": the collective reference to the unpaid principal of
and interest on the Senior Note and all other obligations and liabilities
of the Credit Parties to the Senior Lender of whatever kind or nature
pursuant to, under or in connection with the Senior Loan Documents
(including, without limitation, interest accruing at the then applicable
rate provided in the Senior Loan Documents after the maturity of the
Senior Note and interest accruing at the then applicable rate provided in
the Senior Loan Documents after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to any Credit Party, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, whether arising under, out of, or in connection with,
the Senior Note, this Agreement, the other Senior Loan Documents or any
other document made, delivered or given by any Credit Party in connection
therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
the Senior Lender that are required to be paid by Credit Parties pursuant
to the terms of the Senior Note or this Agreement or any other Senior Loan
Document).
"Senior Security Agreements": has the meaning set forth in the recitals
hereto.
"Senior Security Documents": the collective reference to the Senior
Security Agreements, that certain Stock Pledge Agreement dated as of the
date hereof between Schlotzsky's and Senior Lender, that certain Stock
Pledge Agreement dated as of the date hereof between Franchisor and Senior
Lender, that certain Trademark Security Agreement dated as of the date
hereof between Franchisor and Senior Lender, and all other documents and
instruments, now existing or hereafter arising, which create or purport to
create a security interest in property to secure payment or performance of
the Senior Obligations.
"SI Senior Guaranty": has the meaning set forth in the recitals hereto.
"SI Subordinated Note": has the meaning set forth in the recitals hereto.
"SI Subordinated Security Agreement": has the meaning set forth in the
recitals hereto.
"Subordinated Lender Collateral": the collective reference to any and all
property from time to time subject to security interests to secure payment
or performance of the Subordinated Obligations.
"Subordinated Loan Documents: the collective reference to the Subordinated
Notes, the Subordinated Security Documents and any other documents or
instruments that from time to time
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evidence the Subordinated Obligations or secure or support payment or
performance thereof.
"Subordinated Notes": has the meaning set forth in the recitals hereto.
"Subordinated Obligations": the collective reference to the unpaid
principal and interest on the Subordinated Notes, the Subordinated
Reimbursement Rights, and all other obligations and liabilities of the
Credit Parties to the Subordinated Lenders (including, without limitation,
interest accruing at the then applicable rate provided in the Subordinated
Notes after the maturity thereof and interest accruing at the then
applicable rate provided in the Subordinated Notes after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Credit Party, whether
or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Subordinated Notes, the Bank of
Commerce Agreement, this Agreement, or any other Subordinated Loan
Document, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
the Subordinated Lenders that are required to be paid by any Credit Party
pursuant to the terms of the Subordinated Notes or this Agreement or any
other Subordinated Loan Document). For purposes of clarification, it is
expressly understood and agreed that the Subordinated Obligations do not
include any past, present or future amounts paid, payable or owing to
either or both of the Subordinated Lenders in connection with or arising
under any employment agreement, bonus, or other arrangement or agreement
to the extent relating to the past, present or future employment of either
or both of the Subordinated Lenders with any of the Credit Parties.
"Subordinated Reimbursement Rights": has the meaning assigned in the
recitals hereto.
"Subordinated Security Agreements": has the meaning set forth in the
recitals hereto.
"Subordinated Security Documents": the collective reference to (a)
Subordinated Security Agreements, as the same may be amended, modified or
otherwise supplemented from time to time with the prior written consent of
the Senior Lender, (b) a trademark security agreement, if executed,
pursuant to which Franchisor may grant to Subordinated Lender a security
interest in certain collateral having been pledged to Senior Lender (the
pledge of which shall be permitted by Senior Lender so long as such
agreement is substantially in the form of the trademark security agreement
executed by Franchisor in favor of Senior Lender, and covers only the
collateral pledged to Senior Lender thereunder), as the same may be
amended, modified or otherwise supplemented from time to time with the
prior written consent of the Senior Lender, and (c) any other documents
executed by any Credit Party with the prior written consent of the Senior
Lender (which consent shall not be required to the extent not involving
any of Franchisor, DFW, Branding Subsidiary or any Senior Lender
Collateral) that from time to time secure payment or performance of the
Subordinated Obligations.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of
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this Agreement, and section and paragraph references are to this Agreement
unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Subordination. (a) Each Credit Party and each of the Subordinated Lenders
agrees, for itself and each future holder of the Subordinated Obligations, that
the Subordinated Obligations are expressly "subordinate and junior in right of
payment" (as that phrase is defined in paragraph 2(b)) to all Senior
Obligations.
(b) "Subordinate and junior in right of payment" means that (1) no part of
the Subordinated Obligations shall have any claim to the assets of any Credit
Party on a parity with or prior to the claim of the Senior Obligations (to the
extent payable or guarantied by such Credit Party), and (2) unless and until the
Senior Obligations have been paid in full, then, without the express prior
written consent of the Senior Lender no Subordinated Lender will take, demand or
receive from any Credit Party, and no Credit Party will make, give or permit,
directly or indirectly, by set-off, redemption, purchase or in any other manner,
any payment of (of whatever kind or nature, whether in cash, property,
securities or otherwise) the Subordinated Obligations, including, without
limitation, any letter of credit or similar credit support facility to support
payment of the Subordinated Obligations; provided, however, that, the following
payments shall be permitted (such payments, the "Permitted Subordinated Debt
Payments"):
(A) Subordinated Lender may receive payments on the Subordinated
Obligations from sources of repayment other than DFW, Franchisor or
Branding Subsidiary (or any other Credit Party from proceeds of or
payments on, or distributions by DFW or Franchisor of proceeds of or
payments on, the Senior Lender Collateral), including realizations on
collateral which is not part of the Senior Lender Collateral, and
(B) except when an Event of Default has occurred and is continuing (or
would occur if such payment were made under such Subordinated Note, or
such payment is otherwise prohibited under the Restructuring Agreement,
whether or not a cure period may be applicable to such prohibition), any
of Schlotzsky's and Franchisor may make, and the Subordinated Lenders may
receive, payments with respect to Subordinated Obligations in accordance
with the terms of the Subordinated Notes or the Bank of Commerce
Agreement, as applicable, as follows ):
(i) Schlotzsky's may make payments (including prepayments) to the
Subordinated Lenders with respect to the SI Subordinated Note, in an
aggregate principal amount not to exceed $360,000 (plus interest thereon
at the interest rate in effect on the date hereof), in each case out of
excess cash flow at such times as may be determined as reasonable to be
paid by Schlotzsky's management;
(ii) Schlotzsky's may make payments with respect to the Subordinated
Reimbursement Rights (or make payments or prepayments under the Bank of
Commerce Agreement), in an aggregate principal amount not to exceed
$150,000 (plus any interest thereon charged by American Bank of Commerce
at the interest rate determined in accordance with the controlling loan
documents as in effect on the date hereof), in each case out of excess
cash flow at such times as may be determined as reasonable to be paid by
Schlotzsky's
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management; and
(iii) From and after January 1, 2004 Franchisor may repay the
Franchisor Subordinated Note pursuant to a 36-month payment schedule (with
each such payment being in a principal amount equal to 1/36th of the
principal amount of the Franchisor Subordinated Note as of January 1,
2004, together with interest accrued on such amount, or, alternatively,
with an initial three or four month period of interest payments only
followed by monthly payments in an equal principal amount, together with
interest accrued on such amount, during the remainder of such 36 month
period).
In furtherance of the foregoing, Subordinated Lender hereby agrees that, without
the express written consent of Senior Lender (which consent may be granted or
withheld in Senior Lender's sole discretion), at no time will Subordinated
Lender charge, or any Credit Party be obligated to pay to Subordinated Lender,
(i) interest under the Franchisor Subordinated Note at a rate higher than 2.5%
per annum over the prime rate from time to time in effect (as such prime rate is
determined pursuant to the definition of "Index" in the Franchisor Subordinated
Note), or (ii) any fees or charges (other than interest and reimbursement of
reasonable attorneys' fees) in connection with any amendment, modification,
waiver, consent or other change with respect to the Subordinated Obligations.
(c) The expressions "prior payment in full," "payment in full," "paid in
full" and any other similar terms or phrases when used herein with respect to
the Senior Obligations shall mean the payment in full, in immediately available
funds, of all of the Senior Obligations.
3. Additional Provisions Concerning Subordination. (a) The Subordinated Lenders
and each Credit Party agree that upon the occurrence of any Insolvency Event:
(1) all Senior Obligations shall be paid in full before any payment
or distribution of whatever kind or nature is made with respect to
the Subordinated Obligations; provided, however, that Subordinated
Lenders may receive and retain any distributions on account of
Subordinated Obligations to the extent such distributions consist
solely of Permitted Securities; and
(2) any payment or distribution of assets of any Credit Party,
whether in cash, property or securities (other than Permitted
Securities), to which any Subordinated Lender would be entitled
except for the provisions hereof, shall be paid or delivered by such
Credit Party, or any receiver, trustee in bankruptcy, liquidating
trustee, disbursing agent or other Person making such payment or
distribution, directly to the Senior Lender, to the extent necessary
to pay in full all Senior Obligations, before any payment or
distribution of any kind or nature shall be made to any Subordinated
Lender.
(b) Upon the occurrence of any "Insolvency Event":
(1) each Subordinated Lender irrevocably authorizes and empowers the
Senior Lender (A) to demand, xxx for, collect and receive every
payment or distribution on account of the Subordinated Obligations
payable or deliverable in connection with such event or proceeding
and give acquittance therefor, (B) to file claims and proofs of
claim in any statutory or non-statutory proceeding, and (C) to take
such other actions, in its own name
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as Senior Lender, or in the name of the Subordinated Lenders or
otherwise, as the Senior Lender may deem necessary or advisable for
the enforcement of the provisions of this Agreement; provided,
however, that the foregoing authorization and empowerment imposes no
obligation on the Senior Lender to take any such action;
(2) each Subordinated Lender shall take such action, duly and
promptly, as the Senior Lender may request from time to time (A) to
collect the Subordinated Obligations for the account of the Senior
Lender and (B) to file appropriate proofs of claim in respect of the
Subordinated Obligations; and
(3) each Subordinated Lender shall execute and deliver such powers
of attorney, assignments or proofs of claim or other instruments as
the Senior Lender may request to enable the Senior Lender to enforce
any and all claims in respect of the Subordinated Obligations and to
collect and receive any and all payments and distributions which may
be payable or deliverable at any time upon or in respect of the
Subordinated Obligations.
(c) If any payment or distribution, whether consisting of money, property
or securities, shall be collected or received by any Subordinated Lender in
respect of the Subordinated Obligations, except payments permitted to be made at
the time of payment as provided in paragraph 2(b), such Subordinated Lender
shall forthwith deliver the same to the Senior Lender, in the form received,
duly indorsed to the Senior Lender, if required, to be applied to the payment or
prepayment of the Senior Obligations until the Senior Obligations are paid in
full. Until so delivered, such payment or distribution shall be held in trust by
such Subordinated Lender as the property of the Senior Lender, segregated from
other funds and property held by such Subordinated Lender.
(d) Until the Senior Obligations are paid in full in cash, the
Subordinated Lenders shall not take any Collection Action or Collateral
Enforcement Action with respect to the Subordinated Obligations, except for a
Collection Action as permitted in the following sentence. Upon the acceleration
of the Senior Obligations, the Subordinated Lenders may, upon five days' prior
written notice to Senior Lender, accelerate the Subordinated Obligations or take
any other Collection Action (but not a Collateral Enforcement Action) which is
not in contravention of the provisions of this Agreement; provided, however,
that if following the acceleration of the Senior Debt, such acceleration is
rescinded, then all Collection Actions taken by the Subordinated Lenders shall
likewise be rescinded. Notwithstanding the foregoing, until the Senior
Obligations are paid in full in cash, the Subordinated Lenders shall not (nor
shall any agent on their behalf), without the prior written consent of the
Senior Lender, take any Collateral Enforcement Action.
4. Rights in Collateral. (a) Notwithstanding anything to the contrary contained
in the Senior Note, any Senior Security Document, any other Senior Loan Document
or the Subordinated Notes, any Subordinated Security Document or other
Subordinated Loan Document and irrespective of:
(1) the time, order or method of attachment or perfection of the
security interests created by any Senior Security Document or any
Subordinated Security Document,
(2) the time or order of filing or recording of financing statements
or other documents filed or recorded to perfect security interests
in any Collateral,
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(3) anything contained in any filing or agreement to which the
Senior Lender or any Subordinated Lender now or hereafter may be a
party,
(4) any provision of the Uniform Commercial Code or any other
applicable law,
(5) whether the liens securing the Senior Obligations are valid,
enforceable, void, avoidable, subordinated, disputed, or allowed, or
(6) any other circumstance whatsoever,
any security interest in any Collateral pursuant to any Senior Security Document
has and shall have priority, to the extent of any unpaid Senior Obligations,
over any security interest in such Collateral pursuant to any Subordinated
Security Document.
(b) So long as the Senior Obligations have not been paid in full and any
Senior Security Document remains in effect, whether or not any Insolvency Event
has occurred,
(1) no Subordinated Lender will take any Collateral Enforcement
Action; and
(2) the Senior Lender shall have the exclusive right to enforce
rights and exercise remedies with respect to the Senior Lender
Collateral and Senior Lender shall not be required to marshal any
Senior Lender Collateral.
(c) In exercising rights and remedies with respect to the Senior Lender
Collateral, the Senior Lender may enforce the provisions of the Senior Security
Documents and exercise remedies thereunder and under any other Senior Loan
Documents, all in such order and in such manner as it may determine in the
exercise of its sole business judgment. Such exercise and enforcement shall
include, without limitation, the rights to sell or otherwise dispose of Senior
Lender Collateral, to incur expenses in connection with such sale or disposition
and to exercise all the rights and remedies of a secured lender under the
Uniform Commercial Code of any applicable jurisdiction. In conducting any public
or private sale under the Uniform Commercial Code, the Senior Lender shall give
the Subordinated Lenders such notice of such sale as may be required by the
applicable Uniform Commercial Code; provided, however, that 10 days' notice
shall be deemed to be commercially reasonable notice; and provided, further,
that regardless of whether required under the Uniform Commercial Code, Senior
Lender shall give the Subordinated Lenders not less than 10 days' prior notice
of any such public or private sale.
(d) When all Senior Obligations have been paid in full and the Senior
Security Documents no longer are in effect, the Subordinated Lenders shall have
the right to enforce the provisions of the Subordinated Security Documents and
exercise remedies thereunder.
(e) Any money, property or securities realized upon the sale, disposition
or other realization by the Senior Lender upon all or any part of the Senior
Lender Collateral, shall be applied by the Senior Lender in the following order:
(1) First, to the payment in full of all costs and expenses
(including, without limitation, attorneys' fees and disbursements)
paid or incurred by the Senior Lender in connection
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with such realization on the Senior Lender Collateral or the
protection of their rights and interests therein;
(2) Second, to the payment in full of all Senior Obligations in such
order as the Senior Lender may elect in its sole discretion;
(3) Third, to the extent applicable, to payment in full of all
Subordinated Obligations then due and which are secured by such
Senior Lender Collateral, which shall be paid to Xxxx X. Xxxxxx, as
agent for the Subordinated Lenders (or any successor agent
designated by written notice from both Subordinated Lenders to the
Senior Lender); and
(4) Fourth, to pay to Franchisor, or its representative or as a
court of competent jurisdiction may direct, any surplus then
remaining.
Notwithstanding the foregoing, Senior Lender shall have the right (but no
obligation), exercisable at any time or from time to time in its sole
discretion, to cause the application of any such funds to all or any portion of
the Subordinated Obligations in advance of application thereof for payment of
such portion of the Senior Obligations as Senior Lender may determine in its
sole discretion.
(f) The Senior Lender's rights with respect to the Senior Lender
Collateral include the right to release any or all of the Senior Lender
Collateral from the Lien under any Senior Security Document or Subordinated
Security Document in connection with any sale of all or any portion of the
Senior Lender Collateral notwithstanding that the net proceeds of any such sale
may not be used to permanently prepay any Senior Obligations or Subordinated
Obligations. The Subordinated Lenders are hereby deemed to have consented to
such sale(s) under the Subordinated Loan Documents. Concurrently with the
execution of this Agreement, and from time to time thereafter, the Subordinated
Lenders shall deliver to the Senior Lender such duly executed and undated UCC
and, as applicable, intellectual property terminations, satisfactions and
discharges of mortgages (the term "mortgage" being deemed to include mortgage
deeds, deeds of trust and other similar instruments creating a lien on real
property), termination statements and partial release statements (in blank as to
the assets being released), as the Senior Lender may request with respect to the
Subordinated Lenders' liens on the Credit Parties' assets. If the Senior Lender
shall determine, in connection with any sale of Senior Lender Collateral, that
the termination, satisfaction, discharge or partial release of the Lien on all
or any portion of the Senior Lender Collateral under any Subordinated Security
Document in connection with such sale is necessary or advisable, the Senior
Lender may deliver to the applicable purchaser at such sale (or, upon the
request of such purchaser, file) such previously delivered termination,
satisfaction, discharge or partial release documents, which partial release
documents the Senior Lender is hereby authorized to complete (whether one or
more and from time to time)) by inserting the description of the assets to be
released. The Subordinated Lenders shall execute such other release,
satisfaction, discharge and termination documents and instruments and shall take
such further actions as the Senior Lender shall request. Each Subordinated
Lender hereby irrevocably constitutes and appoints the Senior Lender and any
officer or Senior Lender, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Subordinated Lender and in the name of such Subordinated
Lender or in the Senior Lender's own name, from time to time in the Senior
Lender's discretion, for the purpose of carrying out the terms of this
paragraph, to take any and
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all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
paragraph, including, without limitation, any terminations of financing
statements, partial lien releases, mortgage satisfactions and discharges,
endorsements, assignments or other instruments of transfer, termination or
release, and, in addition, to take any and all other appropriate and
commercially reasonably action for the purpose of carrying out the terms of this
paragraph. Each Subordinated Lender hereby ratifies all that said attorneys
shall lawfully do or cause to be done pursuant to the power of attorney granted
in this paragraph. No person to whom this power of attorney is presented, as
authority for Senior Lender to take any action or actions contemplated hereby,
shall be required to inquire into or seek confirmation from any Subordinated
Lender as to the authority of Senior Lender to take any action described herein,
or as to the existence of or fulfillment of any condition to this power of
attorney, which is intended to grant to Senior Lender unconditionally the
authority to take and perform the actions contemplated herein. Each Subordinated
Lender irrevocably waives any right to commence any suit or action, in law or
equity, against any person or entity which acts in reliance upon or acknowledges
the authority granted under this power of attorney.
5. Consent of Subordinated Lenders. (a) Each Subordinated Lender consents that,
without the necessity of any reservation of rights against any Subordinated
Lender, and without notice to or further assent by any Subordinated Lender:
(1) any demand for payment of any Senior Obligations made by the
Senior Lender may be rescinded in whole or in part by the Senior
Lender, and any Senior Obligation may be continued, and the Senior
Obligations, or the liability of any Credit Party or any other party
upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, or any
obligation or liability of any Credit Party or any other party under
any Senior Loan Document or any other agreement, may, from time to
time, in whole or in part, be renewed, extended, modified,
accelerated, compromised, waived, surrendered, or released by the
Senior Lender; and
(2) the Senior Note and any other Senior Loan Document may be
amended, modified, extended, supplemented, restated, refinanced,
refunded, restructured or terminated, in whole or in part, as the
Senior Lender may deem advisable from time to time, and any
collateral security at any time held by the Senior Lender for the
payment of any of the Senior Obligations may be sold, exchanged,
waived, surrendered or released;
in each case all without notice to or further assent by any Subordinated Lender,
which will remain bound under this Agreement, and all without impairing,
abridging, releasing or affecting the subordination provided for herein;
provided, however, that Senior Lender agrees that it will not so amend or
otherwise modify the Senior Note or other Senior Loan Documents so as to
increase the principal amount thereof to an amount in excess of the outstanding
principal amount on the date hereof without the prior written consent of
Subordinated Lender except in connection with (i) Senior Lender's option to
provide additional financing in lieu of the Senior Lender Financing, or (ii)
additional advances of funds in connection with curing defaults or making
required payments of the Credit Parties under Area Development Agreements,
Franchise Agreements or related documents, in each case (for clauses (i) and
(ii) above) as described in the Restructuring Agreement.
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(b) Each Subordinated Lender waives any and all notice of the creation,
renewal, extension or accrual of any of the Senior Obligations and notice of or
proof of reliance by the Senior Lender upon this Agreement. The Senior
Obligations, and any of them, shall be deemed conclusively to have been created,
contracted or incurred in reliance upon this Agreement, and all dealings between
any Credit Party, on one hand, and the Senior Lender, on the other hand, shall
be deemed to have been consummated in reliance upon this Agreement. Each
Subordinated Lender acknowledges and agrees that the Senior Lender has relied
upon the subordination provided for herein in entering into the Senior Loan
Documents and in permitting the indebtedness of any Credit Party thereunder to
remain outstanding pursuant to the terms thereof. Each Subordinated Lender
waives notice of or proof of reliance on this Agreement and protest, demand for
payment and notice of default (other than any such notice required pursuant to
this Agreement).
6. Negative Covenants of the Subordinated Lenders. So long as any of the Senior
Obligations shall remain outstanding, no Subordinated Lender shall, without the
prior written consent of the Senior Lender:
(a) sell, assign, or otherwise transfer, in whole or in part, the
Subordinated Obligations or any interest therein to any other Person (a
"Transferee") or create, incur or suffer to exist any security interest, lien,
charge or other encumbrance whatsoever upon the Subordinated Obligations in
favor of any Transferee unless (1) such action is made expressly subject to this
Agreement and (2) the Transferee expressly acknowledges to the Senior Lender, by
a writing in form and substance reasonably satisfactory to the Senior Lender,
the subordination provided for herein and agrees to be bound by all of the terms
hereof;
(b) permit any of the Subordinated Loan Documents to be amended, modified
or otherwise supplemented (including by way of changes to definitions) in any
manner (other than (i) to extend the maturity date for the Subordinated
Obligations, (ii) to include a right to accelerate amounts due thereunder upon
the occurrence of a "Change in Control" as defined in the Restructuring
Agreement, (iii) as required pursuant to Section 4(c) of the Restructuring
Agreement, (iv) to change the payment schedule thereof so as to conform to the
Permitted Subordinated Debt Payments or (iv) as permitted in the definition of
Subordinated Security Documents), and the parties hereto agree that any such
amendment shall be null and void ab initio and without legal force and effect;
(c) commence, or join with any creditors other than the Senior Lender in
commencing any case or proceeding referred to in the definition of Insolvency
Event; or
(d) permit any obligations of any Credit Party to Subordinated Lenders not
constituting Subordinated Obligations to at any time be secured by Senior Lender
Collateral, or otherwise to be secured in contravention of the restrictions in
the Restructuring Agreement and the other Senior Loan Documents.
7. Senior Obligations Unconditional. All rights and interests of the Senior
Lender hereunder, and all agreements and obligations of the Subordinated Lenders
and the Credit Parties hereunder, shall remain in full force and effect
irrespective of:
(a) any lack of validity or enforceability of any Senior Security
Documents or any other Senior Loan Documents;
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(b) subject to paragraph 5(a), any change in the time, manner or place of
payment of, or in any other term of, all or any of the Senior Obligations, or
any amendment or waiver or other modification, whether by course of conduct or
otherwise, of the terms of the Senior Note or any other Senior Loan Document;
(c) subject to paragraph 5(a), any exchange, release or non-perfection of
any security interest in any Senior Lender Collateral, or any release,
amendment, waiver or other modification, whether in writing or by course of
conduct or otherwise, of all or any of the Senior Obligations or any guarantee
thereof; or
(d) any other circumstances which otherwise might constitute a defense
available to, or a discharge of, any Credit Party in respect of the Senior
Obligations, or of any Subordinated Lender or any Credit Party in respect of
this Agreement.
8. Additional Rights of Subordinated Lender.
(a) each Subordinated Lender upon 2 business days prior written notice to
Senior Lender shall have the right to purchase the Senior Obligations in whole,
but not in part, at a price (the "Purchase Price") equal to the unpaid principal
balance thereof, plus all accrued but unpaid interest thereon, plus all other
costs expenses and fees that are due and payable in connection therewith. Upon
payment of the Purchase Price, Senior Lender shall execute such documents as may
be reasonably requested by the purchasing Subordinated Lender in order to
accomplish the transfer, assignment and sale of the Senior Obligations.
(b) In the event of a breach of the Senior Loan Documents, and in the
event that the Credit Parties are entitled to notice of such breach and an
opportunity to cure such breach, Senior Lender shall provide Subordinated
Lenders notice at or about the same time as notice is provided to the Credit
Parties under the Senior Loan Documents and shall give Subordinated Lenders the
same opportunity to cure such breach in the same time frame as is provided to
the Credit Parties under the Senior Loan Documents.
(c) Notwithstanding anything to the contrary contained herein, each
Subordinated Lender shall have the right to redeem the Senior Lender Collateral
in accordance with the provisions of section 9-623 of the Uniform Commercial
Code in effect in the State of Texas.
(d) Subject to the indefeasible payment in full of all Senior Obligations,
the Subordinated Lenders shall be subrogated to the rights of the Senior Lenders
to receive payments or distributions of assets of any Credit Party applicable to
the Senior Obligations until the principal of, and interest and premium, if any,
on, and all other amounts payable in respect of the Subordinated Obligations
shall be paid in full. For purposes of such subrogation, no payment or
distribution to the Senior Lenders under the provisions hereof to which the
Subordinated Lenders would have been entitled but for the provisions of this
Agreement, and no payment pursuant to the provisions of this Agreement to the
Senior Lenders by the Subordinated Lenders, as among any Credit Party and its
creditors other than the Senior Lenders, shall be deemed to be a payment by such
Credit Party to or on account of the Senior Obligations.
9. Representations and Warranties. Each Subordinated Lender represents and
warrants to the
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Senior Lender that:
(a) each its Subordinated Notes (each, as attached hereto as Schedule 1)
(1) has been issued to it for good and valuable consideration, (2) is owned by
such Subordinated Lender free and clear of any security interests, liens,
charges or encumbrances whatsoever arising from, through or under such
Subordinated Lender, other than the interest of the Senior Lender under this
Agreement and the security interest of American Bank of Commerce in the SI
Subordinated Note pursuant to that certain Security Agreement dated as of April
8, 2003 (the "ABC Security Agreement"), a true and correct copy of which
Subordinated Lenders represent and warrant that they have delivered to Senior
Lender, (3) is payable solely and exclusively to the Subordinated Lenders and to
no other Person (except for the endorsements issued in connection with the
pledge of the SI Subordinated Note to American Bank of Commerce pursuant to the
ABC Security Agreement, a true and correct copy of which endorsements
Subordinated Lenders represent and warrant that they have delivered to Senior
Lender) and is payable without deduction for any defense, offset or
counterclaim, and (4) constitutes the only evidence of the obligations evidenced
thereby;
(b) as of the date hereof, the outstanding Subordinated Obligations
consist only of (1) $360,000 of principal and $20,395 of accrued and unpaid
interest on the SI Subordinated Note, (2) $2,500,000 of principal and $20,312.50
of accrued and unpaid interest on the Franchisor Subordinated Note, and (3)
Subordinated Reimbursement Rights not yet having arisen in favor of Subordinated
Lenders, in connection with $150,000 of principal and $650 of accrued and unpaid
interest payable by Schlotzsky's under the Bank of Commerce Agreement;
(c) such Subordinated Lender has the power and authority and the legal
right to execute and deliver and to perform its obligations under this Agreement
and has taken all necessary action to authorize its execution, delivery and
performance of this Agreement;
(d) this Agreement constitutes a legal, valid and binding obligation of
such Subordinated Lender;
(e) the execution, delivery and performance of this Agreement will not
violate any provision of any requirement of law or contractual obligation of
such Subordinated Lender and will not result in the creation or imposition of
any Lien on any of the properties or revenues of such Subordinated Lender
pursuant to any requirement of law affecting or any contractual obligation of
such Subordinated Lender, except the interest of the Senior Lender under this
Agreement; and
(f) except for consents and/or authorizations that have been obtained and
are in full force and effect, no consent or authorization of, filing with, or
other act by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any stockholder or
creditor of such Subordinated Lender), is required in connection with the
execution, delivery, performance, validity or enforceability of this Agreement;
without limiting the foregoing, Subordinated Lenders represent and warrant that
they have obtained the consent of American Bank of Commerce with respect to the
execution, delivery and performance of this Agreement and its effect on the
security interest of American Bank of Commerce in the SI Subordinated Note under
the ABC Security Agreement (and the subordination of the payment obligations
under the SI Subordinated Note).
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10. Representation by Senior Lender. The Senior Lender has not made and does not
hereby or otherwise make to the Subordinated Lenders, any representations or
warranties, express, or implied other than the following: (a) the Senior Lender
has the corporate/partnership power and authority and the legal right to execute
and deliver and to perform its obligations under this Agreement and has taken
all necessary corporate/partnership action to authorize its execution, delivery
and performance of this Agreement; (b) this Agreement constitutes a legal, valid
and binding obligation of the Senior Lender; (c) the execution, delivery and
performance of this Agreement will not violate any provision of any requirement
of law or contractual obligation of Senior Lender and will not result in the
creation or imposition of any Lien on any of the properties or revenues of
Senior Lender pursuant to any requirement of law affecting or any contractual
obligation of Senior Lender; and (d) except for consents and/or authorizations
which have been obtained in connection with this transaction (or are the
responsibility of Subordinated Lenders or any Credit Party), no consent or
authorization of, filing with (other than filings with respect to security
interests), or other act by or in respect of, any arbitrator or Governmental
Authority and no consent of any other Person (including, without limitation, any
stockholder or creditor of such Senior Lender), is required by Senior Lender in
connection with its execution, delivery and performance of this Agreement or the
validity or enforceability thereof. The Senior Lender does not assume, and shall
not have, any liability to any Subordinated Lender with respect to: (a) the
financial or other condition of obligors under any instruments of guarantee with
respect to the Senior Obligations, (b) the enforceability, validity, value or
collectibility of the Senior Obligations or the Subordinated Obligations, any
collateral therefor, or any guarantee or security which may have been granted in
connection with any of the Senior Obligations or the Subordinated Obligations or
(c) any Credit Party's title or right to transfer any collateral or security.
11. Waiver of Claims. To the maximum extent permitted by law, each Subordinated
Lender waives any claim it might have against the Senior Lender with respect to,
or arising out of, any action or failure to act or any error of judgment,
negligence, or mistake or oversight whatsoever on the part of the Senior Lender
or its directors, officers, employees or agents with respect to any exercise of
rights or remedies under the Senior Loan Documents or any transaction relating
to the Senior Lender Collateral. In no event shall Senior Lender, or any of its
respective directors, officers, employees or agents, be liable for failure to
demand, collect or realize upon any of the Senior Lender Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Senior Lender Collateral upon the request of any Credit Party or any
Subordinated Lender or any other Person or to take any other action whatsoever
with regard to the Senior Lender Collateral or any part thereof.
12. Provisions Applicable After Bankruptcy. The provisions of this Agreement
shall continue in full force and effect notwithstanding the occurrence of any
Insolvency Event. To the extent that any Subordinated Lender has or acquires any
rights under Section 362, 363 or 364 of the Bankruptcy Code with respect to the
Senior Lender Collateral, such Subordinated Lender hereby agrees not to assert
such rights without the prior written consent of the Senior Lender; provided
that, if requested by the Senior Lender, such Subordinated Lender shall seek to
exercise such rights in the manner requested by the Senior Lender, including the
rights in payments in respect of such rights. Without limiting the generality of
the foregoing sentence, to the extent that Senior Lender consents to any Credit
Party's use of cash collection under Section 363 of the Bankruptcy Code or
Senior Lender agrees to provide financing to Franchisor under Section 364 of the
Bankruptcy Code, each Subordinated Lender hereby agrees not to impede, object to
(on grounds
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of lack of adequate protection, or otherwise), or otherwise interfere with such
use of cash collateral or financing. Each Subordinated Lender specifically
agrees that the Senior Lender may consent to any Credit Party's use of cash
collateral or provide financing to any Credit Party on such terms and conditions
and in such amounts as the Senior Lender, in its sole discretion, may decide and
that, in connection with such cash collateral usage or such financing, any
Credit Party (or a trustee appointed for the estate of such Credit Party) may
grant to the Senior Lender liens and security interests upon all or any part of
the assets of the Franchisor or other Credit Party, which liens and security
interests: (i) shall secure payments of all Senior Obligations (whether such
Senior Obligations arose prior to the filing of the bankruptcy petition or
thereafter); and (ii) shall be superior in priority to the liens on and security
interests in the assets of Franchisor or other Credit Party held by the
Subordinated Lenders. Each Subordinated Lender (both in its capacity as a
Subordinated Lender and in its capacity (if any) as a party which may be
obligated to any Credit Party or any Credit Party's Affiliates with respect to
contracts which are part of the Senior Lender Collateral) agrees not to initiate
or prosecute or encourage any other Person to initiate or prosecute any claim,
action, objection or other proceeding (A) challenging the enforceability of the
claim of Senior Lender, (B) challenging the enforceability of any liens or
security interests in any assets securing the Senior Obligations, or (C)
asserting any claims which any Credit Party may hold with respect to Senior
Lender. All allocations of payments among the Senior Lender and the Subordinated
Lender shall, subject to any court order, continue to be made after the filing
of a petition under the United States Bankruptcy Code, as amended (the
"Bankruptcy Code"), or any similar proceeding, on the same basis that the
payments were to be allocated prior to the date of such filing. Each
Subordinated Lender agrees that it will not object to or oppose a sale or other
disposition of any assets securing the Senior Obligations (or any portion
thereof) free and clear of its security interests, liens or other claims under
Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code
if the Senior Lender has consented to such sale or disposition of such assets.
Each Subordinated Lender agrees not to assert any right it may have to "adequate
protection" of its interest in the Senior Lender Collateral in any bankruptcy
proceeding and agrees that it will not seek to have the automatic stay lifted
with respect to such security, without the prior written consent of the Senior
Lender. Each Subordinated Lender waives any claim it may now or hereafter have
against the Senior Lender arising out of the election of Senior Lender, in any
case instituted under the Bankruptcy Code, of the application of Section
1111(b)(2) of the Bankruptcy Code, and/or out of any cash collateral
arrangement, or financing arrangement, or out of any grant of a security
interest, under Section 363 or 364 of the Bankruptcy Code, with or by any Credit
Party, as debtor in possession (or with or by any trustee for any Credit Party).
Each Subordinated Lender agrees that it will not, in its capacity as a secured
creditor: (a) propose, vote to accept, or otherwise support confirmation of, a
plan of reorganization opposed by the Senior Lender, or (b) vote to reject,
object to confirmation of, or otherwise oppose confirmation of, a plan of
reorganization supported by the Senior Lender. The subordination and other
provisions of this Agreement shall be enforceable under Section 510(a) of the
Bankruptcy Code.
13. Further Assurances. The Subordinated Lenders and the Franchisor, at
Franchisor's expense and at any time from time to time, upon the written request
of the Senior Lender, will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the Senior Lender
reasonably may request for the purposes of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted. Each
Subordinated Lender will pay, indemnify and hold the Senior Lender harmless from
and against any and all liabilities, obligations damages, penalties, actions
(whether sounding in tort, contract
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or on any other ground), judgments, suits, costs, expenses and disbursements of
any kind or nature whatsoever arising out of or relating to a breach by any
Subordinated Lender of any of its obligations under this Agreement.
14. Expenses. (a) Each Credit Party will pay or reimburse the Senior Lender,
upon demand, for all of its costs and expenses in connection with the
enforcement or preservation of any rights under this Agreement, including,
without limitation, fees and disbursements of counsel to the Senior Lender.
(b) Each Credit Party will pay, indemnify, and hold the Senior Lender
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions (whether sounding in contract, tort or on any other
ground), judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of, or in any other way arising out of or
relating to this Agreement or any action taken or omitted to be taken by the
Senior Lender or Subordinated Lender with respect to any of the foregoing.
15. Provisions Define Relative Rights. This Agreement is intended solely for the
purpose of defining the relative rights of the Senior Lender on the one hand and
the Subordinated Lenders on the other, and no other Person shall have any right,
benefit or other interest under this Agreement. Except as expressly set forth in
this Agreement, nothing herein shall: (a) impair, as between any Credit Party
and the Senior Lender and any Credit Party and any Subordinated Lender, the
obligation of such Credit Party, which is absolute and unconditional, to pay
principal of, interest on and all other portions of the Senior Obligations, on
the one hand, and the Subordinated Obligations and all other obligations of such
Credit Party, if any, to any Subordinated Lender, on the other hand, in each
case in accordance with their respective terms; or (b) affect the relative
rights of the Senior Lender or Subordinated Lenders with respect to any other
creditors of any Credit Party.
16. Legend. Each Subordinated Lender and each Credit Party will cause each of
the Subordinated Notes and each Subordinated Security Document to bear upon its
face a legend referring to this Agreement and indicating that such documents are
subordinated as provided herein, all in form and substance satisfactory to the
Senior Lender. The Credit Parties and the Senior Lender will cause the Senior
Note to bear upon its face a legend referring to this Agreement and indicating
that such document is entitled to the benefits, and subject to the terms, of
this Agreement.
17. Powers Coupled With An Interest. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable
until the Senior Obligations are paid in full.
18. Notices. All notices, requests and demands to or upon the Senior Lender or
any Credit Party or any Subordinated Lender to be effective shall be in writing
(or by telex, fax or similar electronic transfer confirmed in writing) and shall
be deemed to have been duly given or made (1) when delivered by hand or (2) if
given by mail, when deposited in the mails by certified mail, return receipt
requested, or (3) if by telex, fax or similar electronic transfer, when sent and
receipt has been confirmed, addressed as follows:
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If to the Subordinated Lenders:
Xxxx X. Xxxxxx Xxxxxxx X. Xxxxxx
203 Colorado 203 Colorado
Xxxxxx, Xxxxx 00000 Xxxxxx, Xxxxx 00000
With a copy to:
DuBois, Bryant, Xxxxxxxx & Xxxxxxxx, LLP
000 Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. XxXxxx III
Telephone No.: 000.000.0000
Fax: 000.000.0000
Email: xxxxxxx@xxxxxxx.xxx
If to any Credit Party, then to such party, care of:
Schlotzsky's Inc.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: General Counsel
Telephone No.: 000-000-0000
Telecopy No.: 512-236-3740
If to Senior Lender: NS Associates I, Ltd.
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxx
Telephone No.: 000-000-0000, ext. 2
Telecopy No.: 000-000-0000
With a copy to: Xxxxxx x. Xxxx, Esq.
Power & Xxxxxxx, L.L.P.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
With a copy to: Xxxx X. Xxxxxxxx
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxx-xxxxx Xxxxx
Xxx Xxxxxxx, XX 00000
Telephone No.: 000-000-0000
Telecopy No.: 000-000-0000
The Senior Lender, the Credit Parties and any Subordinated Lender may change
their respective addresses and transmission numbers for notices by notice in the
manner provided in this paragraph.
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19. Default Notices. The Subordinated Lenders shall provide the Senior Lender
with written notice of any event of default with respect to, or acceleration of,
all or any part of the Subordinated Obligations concurrently with the sending
thereof to any Credit Party and promptly shall notify the Senior Lender in the
event a default which is the subject of such a notice is cured or waived.
20. Counterparts. This Agreement may be executed by one or more of the parties
on any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
counterparts of this Agreement signed by all the parties shall be lodged with
the Senior Lender.
21. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
22. Integration. This Agreement represents the agreement of the Senior Lender
and the Subordinated Lenders with respect to the subject matter hereof and there
are no promises or representations by the Senior Lender or any Subordinated
Lender relative to the subject matter hereof not reflected herein.
23. Amendments in Writing; No Waiver: Cumulative Remedies. (a) None of the terms
or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Senior Lender,
each Credit Party and each Subordinated Lender; provided that any provision of
this Agreement may be waived by the Senior Lender in a letter or agreement
executed by the Senior Lender or by telex or facsimile transmission from the
Senior Lender.
(b) No failure to exercise, nor any delay in exercising, on the part of
the Senior Lender, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
24. Section Headings. The section and paragraph headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
25. Successors and Assigns. (a) This Agreement shall be binding upon and shall
inure to the benefit of the Senior Lender, each Subordinated Lender, each Credit
Party and each of their respective heirs, administrators, executors, successors
and assigns.
(b) Upon a successor Senior Lender becoming the Senior Lender under the Senior
Loan Documents or upon another lender (a "Refinancing Lender") refinancing all
or with the prior
-20-
written consent of the then existing Senior Lender, any portion, of the Senior
Obligations, such successor Senior Lender or Refinancing Lender shall
automatically be entitled to all the rights and powers of the Senior Lender
hereunder without the need for any further action on the part of any party
hereto. In further confirmation of the foregoing, each Subordinated Lender
agrees that it will, at the request of Senior Lender, enter into an agreement,
in the form of this Agreement, mutatis mutandis, to subordinate the Subordinated
Obligations and any security interests or liens it now or hereafter has in or
upon the Senior Lender Collateral, to the same extent as provided herein, to the
party refinancing all or a portion of the Senior Obligations.
26. Invalidated Payments. To the extent that the Senior Lender receives payments
on, or proceeds of Senior Lender Collateral for, the Senior Obligations which
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to any Credit Party, a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law, or
equitable cause, then to the extent of such payment or proceeds received, the
Senior Obligations, or part thereof, intended to be satisfied shall be revived
and continue in full force and effect as if such payments or proceeds had not
been received by the Senior Lender.
27. Specific Performance. The Senior Lender is hereby authorized to demand
specific performance of this Agreement at any time when any Subordinated Lender
shall have failed to comply with any of the provisions of this Agreement
applicable to such Subordinated Lender whether or not the Credit Parties shall
have complied with any of the provisions hereof applicable to any Credit Party,
and the Subordinated Lender hereby irrevocably waives any defense based on the
adequacy of a remedy at law which might be asserted as a bar to such remedy of
specific performance.
28. GOVERNING LAW: CONSENT TO JURISDICTION AND VENUE. The validity of this
Agreement, its construction, interpretation, and enforcement, and the rights of
the parties hereunder, shall be determined under, governed by, and construed in
accordance with the laws of the State of Texas. The parties agree that all
actions or proceedings arising in connection with this Agreement shall be tried
and litigated only in the County of Dallas, State of Texas, or in Senior
Lender's sole discretion, such other court in which Lender shall initiate legal
or equitable proceedings and which shall have subject matter jurisdiction over
the matter in controversy. Each of the Credit Parties and the Subordinated
Lenders waives any rights it may have to assert the doctrine of forum non
conveniens or to object to such venue and hereby consents to any court ordered
relief. Each of the Credit Parties and the Subordinated Lenders hereby waives
personal service of the summons, complaints and other process issued in any such
action or suit and agrees that service of such summons, complaints and other
process may be made by registered or certified mail addressed to it at the
address set forth in Section17 hereof, as the case may be, and that service so
made shall be deemed completed upon the earlier of any Credit Party's or any
Subordinated Lender's actual receipt thereof or three (3) days after deposit in
the u.s. mails, proper postage prepaid.
29. MUTUAL WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN
-21-
THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE SENIOR LOAN DOCUMENTS OR
THE TRANSACTIONS RELATED THERETO.
30. Termination. Subject to the provisions of paragraph 25, this Agreement shall
terminate upon the indefeasible payment in full of the Senior Obligations.
31. No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
[signature page follows]
-22-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
SENIOR LENDER:
NS ASSOCIATES I, LTD,
By: NS Associates, Inc.,
its General Partner
By: /s/ XXXXXX XXXXXXXXX
---------------------------
Xxxxxx Xxxxxxxxx, President
SUBORDINATED LENDERS:
XXXX X. XXXXXX
/s/ XXXX X. XXXXXX
-----------------------------
XXXXXXX X. XXXXXX
/s/ XXXXXXX X. XXXXXX
-----------------------------
CREDIT PARTIES:
SCHLOTZSKY'S FRANCHISOR, LLC
By: /s/ XXXXX XXXXX
-----------------------------
Title: Senior Vice President
SCHLOTSKY'S, INC.
By: /s/ XXXXX XXXXX
-----------------------------
Title: Sr. VP - Franchise Operations
DFW RESTAURANT TRANSFER CORP.
By: /s/ XXXXXXX X. XXXXXX
-----------------------------
Title: Senior Vice President
SCHLOTZSKY'S FRANCHISE OPERATIONS, LLC
By: /s/ XXXXX XXXXX
-----------------------------
Title: Senior Vice President
Schedule 1
SUBORDINATED NOTES
[see attached]
MODIFICATION, EXTENSION AND RENEWAL OF PROMISSORY NOTE
$1,000,000.00 October 31, 2003
For value received, the undersigned (the "Makers," whether one or more),
promise to pay to the order of XXXX X. XXXXXX AND XXXXXXX X. XXXXXX (the
"Payee"), at 000 Xxxxxxxx, Xxxxxx, Xxxxxx Xxxxxx, Xxxxx 00000, or such other
location as the Payee designates to the Makers in writing, the principal sum of
ONE MILLION AND NO/100 DOLLARS ($1,000,000.00), or the outstanding principal
amount advanced hereunder, whichever is less, in legal and lawful money of the
United States of America, with interest thereon from the date hereof through the
maturity date of this Note (whether by acceleration or otherwise) (the "Maturity
Date") at the rate of six percent (6.0%) per annum (calculated on the basis of
the actual number of days elapsed but computed as if each year consisted of 360
days), the interest being payable as hereinafter specified. After the Maturity
Date until paid, unpaid principal and accrued unpaid interest shall bear
interest at a rate per annum equal to the lesser of (i) eighteen percent (18%),
or (ii) the Maximum Lawful Rate. As used herein, the term "Maximum Lawful Rate"
shall mean the greater of (i) the highest non-usurious rate of interest
permitted by applicable United States law, or (ii) a rate per annum equal to the
applicable weekly ceiling described in Chapter 303 of the Texas Finance Code, as
amended, as such indicated rate ceiling is in effect from time to time, but in
no event greater than twenty-four (24.0%) per annum. Unless precluded by law,
changes in the Maximum Lawful Rate created by statute or governmental action
during the term of this Note shall be immediately applicable to this Note on the
effective date of such changes. If the applicable law ceases to provide for a
Maximum Lawful Rate, the Maximum Lawful Rate shall be equal to eighteen percent
(18%) per annum, unless the loan evidenced by this Note is subject to Regulation
Z of the Board of Governors of the Federal Reserve System, 12 C. F. R. ss.226
and is secured by a dwelling, in which case the Maximum Lawful Rate shall be
equal to twenty-four percent (24.0%) per annum.
Notwithstanding the foregoing, if, at any time, the rate of interest
applicable to this Note (but for the limitation thereof to the Maximum Lawful
Rate) exceeds the Maximum Lawful Rate, the rate of interest to accrue on this
Note shall be limited to the Maximum Lawful Rate, but any subsequent reductions
in such rate of interest applicable to this Note (but for the limitation thereof
to the Maximum Lawful Rate) shall not reduce the rate of interest to accrue on
this Note below the Maximum Lawful Rate until the total amount of interest which
would have accrued if a varying rate per annum equal to the rate of interest
applicable to this Note (but for the limitation thereof to the Maximum Lawful
Rate) had at all times been in effect.
If the Maximum Lawful Rate is increased by statute or other governmental
action subsequent to the date hereof, then the Makers agree that the new Maximum
Lawful Rate will be applicable hereto from the effective date of the new Maximum
Lawful Rate, unless such application is precluded by statute or governmental
action or by the general law of the jurisdiction governing the transaction
evidenced hereby.
This Note is in renewal, extension and modification of that one certain
Modification, Renewal and Extension of Promissory Note between Maker and Payee
dated effective August 8, 2003, which renewed and extended the term of that
certain Promissory Note in the original principal amount of $1,000,000.00
between Maker and Payee dated effective April 8, 2003. The only change the
parties wish to make to the previous note is to extend the maturity date from
October 31, 2003 to January 16, 2004. The parties intend all other terms to
remain the same.
TERMS OF PAYMENT:
The accrued interest on this Note shall be due and payable in monthly
installments, commencing on November 8, 2003, and continuing regularly
thereafter on the same day of each calendar month until January 16, 2004, when
the entire amount of this Note, principal and accrued interest then remaining
unpaid, shall be due and payable. Interest shall be calculated on the unpaid
principal to the date each installment is paid and each such payment shall be
credited to the discharge of the interest accrued, the reduction of principal,
and other authorized charges, if any, in such manner and order as the Payee
shall determine in its sole discretion.
PAYMENT ON NON-BUSINESS DAYS:
If any payment hereunder falls due on a Saturday, Sunday or public holiday
on which commercial banks in Austin, Texas are permitted or required by law to
be closed, the time for such payment shall be extended to the next day on which
the Payee is open for business, and such extension of time shall be included in
the calculation of interest accruing and payable hereunder.
PREPAYMENT:
The Makers reserve the right to prepay this Note in any amount at any time
prior to maturity without penalty. Interest shall be calculated on the unpaid
principal to the date of any prepayment and any such prepayment shall be applied
first toward the payment of accrued interest and next to the principal
installments of this Note in the inverse order of maturity.
SECURITY FOR PAYMENT:
Payment of this Note is secured by, and this Note is entitled to the
benefits of, all security agreements, assignments, deeds of trust, mortgages and
lien instruments executed by the Makers (or any of them), or other similar
instruments, guaranties, endorsements or other agreements, executed by any other
person or entity (the "Collateral Agreements," whether one or more) to secure,
guarantee or otherwise provide for the payment hereof, in favor of or for the
benefit of the Payee, including any previously executed and any now or hereafter
executed. Without limiting the foregoing, the Collateral Agreements include
Security Agreement dated of even date herewith executed by the Makers and Payee
covering certain of the Makers' personal property.
USE OF PROCEEDS:
This Note represents funds advanced to the Makers at the Makers' special
instance and request and used to provide working capital for the Makers.
REPRESENTATIONS AND WARRANTIES:
The Makers expressly represent and warrant to the Payee that it is a
corporation duly organized and existing under the laws of the State of Texas;
that it possesses full power and authority to own its property and to conduct
its business as now conducted and as presently proposed to be conducted; that
the execution and delivery of this Note will not contravene any provisions of
its articles incorporation, bylaws or any other agreement relating to its form
of entity; that the officer executing this Note is the legally qualified and
acting officer of said corporation and is expressly authorized to execute this
Note by appropriate resolution of the Board of Directors of said corporation.
LIMITATION OF INTEREST:
All agreements and transactions among the Makers and the Payee, whether
now existing or hereafter arising, whether contained herein or in any other
instrument, and whether written or oral, are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of the
maturity hereof, late payment, prepayment, or otherwise, shall the amount of
interest contracted for, charged or received by the Payee from the Makers for
the use, forbearance, or detention of the principal indebtedness or interest
hereof, which remains unpaid from time to time, exceed the Maximum Lawful Rate,
it particularly being the intention of the parties hereto to conform strictly to
the applicable usury laws of the Xxxxx xx Xxxxx (xx xxxxxxxxxx Xxxxxx Xxxxxx law
to the extent that it permits the Payee to contract for, charge or receive a
greater amount of interest than under Texas law). Any interest payable hereunder
or under any other instrument relating to the indebtedness evidenced hereby that
is in excess of the Maximum Lawful Rate, shall, in the event of acceleration of
maturity, late payment, prepayment, or otherwise, be applied to a reduction of
the unrepaid indebtedness hereunder and not to the payment of interest, or if
such excessive interest exceeds the unpaid balance of such unrepaid
indebtedness, such excess shall be refunded to the Makers. To the extent not
prohibited by applicable law, determination of the Maximum Lawful Rate shall at
all times be made by amortizing, prorating, allocating and spreading in equal
parts during the full term of this loan, all interest at any time contracted
for, charged or received from the Makers in connection with this loan, so that
the actual rate of interest on account of such indebtedness is uniform
throughout the term thereof.
SUCCESSORS AND ASSIGNS:
As used herein, the term "Payee" shall include the successors and assigns
of the Payee and any subsequent owner and holder of this Note, and the term
"Makers" shall include co-makers, endorsers, guarantors, sureties and their
respective successors and assigns.
DEFAULT AND COLLECTION:
Subject to the express notice and cure provisions contained in this Note,
it is expressly provided that, upon default in the punctual payment of this
Note, or any part hereof, principal or interest, as the same shall become due
and payable, or upon default in the performance of or compliance with any of the
terms of any of the Collateral Agreements, or if the Payee deems the Payee
insecure, either because the prospect of timely payment of this Note becomes
impaired, or because the prospect of timely performance of any of the Collateral
Agreements becomes impaired, at the option of the Payee, the entire indebtedness
evidenced hereby shall be matured, and in the event default is made in the
prompt payment of this Note when due or declared due, and the same is placed in
the hands of an attorney for collection, or suit is brought on the same, or the
same is collected through probate, bankruptcy or other judicial proceedings,
then the Makers jointly and severally agree and promise to pay all reasonable
attorney's fees, court costs and collection costs incurred by the Payee.
NOTICE AND CURE RIGHTS:
In the event of any default under the Collateral Agreements or this Note,
the Makers and each Guarantors named below shall be entitled to receive written
notice of any such default and a period of fifteen (15) days after such notice
is sent by the Payee within which to cure such default prior to the Payee's
being entitled to exercise any remedy which may arise due to the occurrence of
such default, other than the right to withhold making further advances of funds
during the period any such default remains uncured. However, nothing herein
shall obligate the Payee to give the Makers more than one (1) notice of default
during any ninety (90) day period. The provisions of this paragraph shall
control over any inconsistent provision in any of the Collateral Agreements; and
any right to accelerate the maturity of this Note contained in any of the
Collateral Agreements is subject to prior compliance with this paragraph.
WAIVERS AND CONSENTS:
Subject to the express notice and cure provisions contained in this Note,
each of the Makers waives presentment for payment, notice of intent to
accelerate, notice of acceleration, protest and notice of protest, dishonor and
diligence in collecting and the bringing of suit against any other party, and
agrees to all renewals, extensions, partial payments, releases and substitutions
of security, in whole or in part, with or without notice, before or after
maturity. The Payee may remedy any default, without waiving the same, or may
waive any default without waiving any prior or subsequent default.
GOVERNING LAWS AND VENUE:
This Note is governed by and is to be construed and enforced in accordance
with the laws of the Xxxxx xx Xxxxx xxx xx xxx Xxxxxx Xxxxxx. The Makers agree
and consent to the jurisdiction of the District Courts of Xxxxxx County, Texas,
and of the United States District Court for the Western District of Texas
(Austin Division) and acknowledge that such courts shall constitute proper and
convenient forums for the resolution of any actions among the Makers and the
Payee with respect to the subject matter hereof, and agree that such courts
shall be the exclusive forums for the resolution of any actions among the Makers
and the Payee with respect to the subject matter hereof.
Schlotzsky's, Inc.,
a Texas corporation
By: /s/ XXXXX XXXXX
-------------------
Xxxxx Xxxxx,
Senior Vice President
PROMISSORY NOTE
$2,500,000.00 November 14, 2003
For value received, the undersigned (the "Makers," whether one or more),
promise to pay to the order of XXXX X. XXXXXX AND XXXXXXX X. XXXXXX (the
"Payee"), at 000 Xxxxxxxx, Xxxxxx, Xxxxxx Xxxxxx, Xxxxx 00000, or such other
location as the Payee designates to the Makers in writing, the principal sum of
TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000.00), or the
outstanding principal amount advanced hereunder, whichever is less, in legal and
lawful money of the United States of America, with interest thereon from the
date hereof through the maturity date of this Note (whether by acceleration or
otherwise) (the "Maturity Date") at the Applicable Interest Rate (hereinafter
defined), the interest being payable as hereinafter specified.
Prior to maturity, the term "APPLICABLE INTEREST RATE" means a varying
rate per annum equal to the lower of (w) the sum of the Index (hereinafter
defined) and 250 basis points or (x) the Maximum Lawful Rate. After maturity,
the term "Applicable INTEREST RATE" means a varying rate per annum equal to the
lower of (y) sum of the Index plus 500 basis points (but never less than 6% per
annum) or (z) the Maximum Lawful Rate. The rate per annum at which interest
accrues hereunder shall be adjusted without notice to the Makers on the
effective date of any change in the Index or the Maximum Lawful Rate, as the
case may be.
The term "INDEX" means the annual lending rate of interest announced from
time to time by X.X. Xxxxxx Xxxxx & Co., New York, New York, as its prime rate,
or in the event no such rate is announced, then a comparable rate reasonably
selected by the Payee and specified in a written notice to the Makers. The Index
in effect as of November 14, 2003 (the date this Note was printed) is 4.0%. The
Makers understand that the Index may not be the lowest rate of interest charged
to or paid by customers of the Payee or of any financial institution, that the
Index is not necessarily more favorable than another rate or index, and that
rates on other loans or credit facilities may be based on indices other than the
Index.
The term "Maximum Lawful Rate" shall mean the greater of (i) the highest
non-usurious rate of interest permitted by applicable United States law, or (ii)
a rate per annum equal to the applicable weekly ceiling described in Chapter 303
of the Texas Finance Code, as amended, as such indicated rate ceiling is in
effect from time to time, but in no event greater than twenty-four (24.0%) per
annum. Unless precluded by law, changes in the Maximum Lawful Rate created by
statute or governmental action during the term of this Note shall be immediately
applicable to this Note on the effective date of such changes. If the applicable
law ceases to provide for a Maximum Lawful Rate, the Maximum Lawful Rate shall
be equal to eighteen percent (18%) per annum.
Notwithstanding the foregoing, if, at any time, the rate of interest
applicable to this Note (but for the limitation thereof to the Maximum Lawful
Rate) exceeds the Maximum Lawful Rate, the rate of interest to accrue on this
Note shall be limited to the Maximum Lawful Rate, but any subsequent reductions
in such rate of interest applicable to this Note (but for the limitation thereof
to the Maximum Lawful Rate) shall not reduce the rate of interest to accrue on
this Note below the Maximum Lawful Rate until the total amount of interest which
would have accrued if
a varying rate per annum equal to the rate of interest applicable to this Note
(but for the limitation thereof to the Maximum Lawful Rate) had at all times
been in effect.
If the Maximum Lawful Rate is increased by statute or other governmental
action subsequent to the date hereof, then the Makers agree that the new Maximum
Lawful Rate will be applicable hereto from the effective date of the new Maximum
Lawful Rate, unless such application is precluded by statute or governmental
action or by the general law of the jurisdiction governing the transaction
evidenced hereby.
Interest on this Note shall be calculated at a daily rate based on a year
of 360 days, with the daily rate so determined being applied for the actual
number of days elapsed, provided that in no event shall the amount or rate of
interest payable hereunder exceed that calculated under or constituting the
Maximum Lawful Rate.
TERMS OF PAYMENT:
The accrued interest on this Note shall be due and payable in monthly
installments, commencing on December 15, 2003, and continuing regularly
thereafter on the same day of each calendar month until January 16, 2004, when
the entire amount of this Note, principal and accrued interest then remaining
unpaid, shall be due and payable. Interest shall be calculated on the unpaid
principal to the date each installment is paid and each such payment shall be
credited to the discharge of the interest accrued, the reduction of principal,
and other authorized charges, if any, in such manner and order as the Payee
shall determine in its sole discretion.
PAYMENT ON NON-BUSINESS DAYS:
If any payment hereunder falls due on a Saturday, Sunday or public holiday
on which commercial banks in Austin, Texas are permitted or required by law to
be closed, the time for such payment shall be extended to the next day on which
the Payee is open for business, and such extension of time shall be included in
the calculation of interest accruing and payable hereunder.
PREPAYMENT:
The Makers reserve the right to prepay this Note in any amount at any time
prior to maturity without penalty. Interest shall be calculated on the unpaid
principal to the date of any prepayment and any such prepayment shall be applied
first toward the payment of accrued interest and next to the principal
installments of this Note in the inverse order of maturity.
SECURITY FOR PAYMENT:
Payment of this Note is secured by, and this Note is entitled to the
benefits of, all security agreements, assignments, deeds of trust, mortgages and
lien instruments executed by the Makers (or any of them), or other similar
instruments, guaranties, endorsements or other agreements, executed by any other
person or entity (the "Collateral Agreements," whether one or more) to secure,
guarantee or otherwise provide for the payment hereof, in favor of or for the
benefit of the Payee, including any previously executed and any now or hereafter
executed. Without limiting the foregoing, the Collateral Agreements include
Security Agreement dated of even date herewith executed by the Makers and Payee
covering certain of the Makers' personal property.
USE OF PROCEEDS:
This Note represents funds advanced to the Makers at the Makers' special
instance and request and used to provide working capital for the Makers.
NO SETOFF:
The Makers covenant and agree that it will not exercise any right which it
might otherwise have at common law, or otherwise, to setoff amounts due and
owing to such Makers hereunder against amounts which are or may be due and owing
to any one or more of the Makers by the Payee.
REPRESENTATIONS AND WARRANTIES:
The Makers expressly represent and warrant to the Payee that it is a
limited liability company duly organized and existing under the laws of the
State of Delaware and qualified to conduct business as a foreign limited
liability company in good standing under the laws of the State of Texas; that it
possesses full power and authority to own its property and to conduct its
business as now conducted and as presently proposed to be conducted; that the
execution and delivery of this Note will not contravene any provisions of its
certificate of formation, LLC Agreement or any other agreement relating to its
form of entity; that the representative executing this Note is the legally
qualified and acting representative of said company and is expressly authorized
to execute this Note by appropriate resolution.
LIMITATION OF INTEREST:
All agreements and transactions among the Makers and the Payee, whether
now existing or hereafter arising, whether contained herein or in any other
instrument, and whether written or oral, are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of the
maturity hereof, late payment, prepayment, or otherwise, shall the amount of
interest contracted for, charged or received by the Payee from the Makers for
the use, forbearance, or detention of the principal indebtedness or interest
hereof, which remains unpaid from time to time, exceed the Maximum Lawful Rate,
it particularly being the intention of the parties hereto to conform strictly to
the applicable usury laws of the Xxxxx xx Xxxxx (xx xxxxxxxxxx Xxxxxx Xxxxxx law
to the extent that it permits the Payee to contract for, charge or receive a
greater amount of interest than under Texas law). Any interest payable hereunder
or under any other instrument relating to the indebtedness evidenced hereby that
is in excess of the Maximum Lawful Rate, shall, in the event of acceleration of
maturity, late payment, prepayment, or
otherwise, be applied to a reduction of the unrepaid indebtedness hereunder and
not to the payment of interest, or if such excessive interest exceeds the unpaid
balance of such unrepaid indebtedness, such excess shall be refunded to the
Makers. To the extent not prohibited by applicable law, determination of the
Maximum Lawful Rate shall at all times be made by amortizing, prorating,
allocating and spreading in equal parts during the full term of this loan, all
interest at any time contracted for, charged or received from the Makers in
connection with this loan, so that the actual rate of interest on account of
such indebtedness is uniform throughout the term thereof.
SUCCESSORS AND ASSIGNS:
As used herein, the term "Payee" shall include the successors and assigns
of the Payee and any subsequent owner and holder of this Note, and the term
"Makers" shall include co-makers, endorsers, guarantors, sureties and their
respective successors and assigns.
DEFAULT AND COLLECTION:
Subject to the express notice and cure provisions contained in this Note,
it is expressly provided that, upon default in the punctual payment of this
Note, or any part hereof, principal or interest, as the same shall become due
and payable, or upon default in the performance of or compliance with any of the
terms of any of the Collateral Agreements, or if the Payee deems the Payee
insecure, either because the prospect of timely payment of this Note becomes
impaired, or because the prospect of timely performance of any of the Collateral
Agreements becomes impaired, at the option of the Payee, the entire indebtedness
evidenced hereby shall be matured, and in the event default is made in the
prompt payment of this Note when due or declared due, and the same is placed in
the hands of an attorney for collection, or suit is brought on the same, or the
same is collected through probate, bankruptcy or other judicial proceedings,
then the Makers jointly and severally agree and promise to pay all reasonable
attorney's fees, court costs and collection costs incurred by the Payee.
NOTICE AND CURE RIGHTS:
In the event of any default under the Collateral Agreements or this Note,
the Makers and each guarantor shall be entitled to receive written notice of any
such default and a period of fifteen (15) days after such notice is sent by the
Payee within which to cure such default prior to the Payee's being entitled to
exercise any remedy which may arise due to the occurrence of such default, other
than the right to withhold making further advances of funds during the period
any such default remains uncured. However, nothing herein shall obligate the
Payee to give the Makers more than one (1) notice of default during any ninety
(90) day period. The provisions of this paragraph shall control over any
inconsistent provision in any of the Collateral Agreements; and any right to
accelerate the maturity of this Note contained in any of the Collateral
Agreements is subject to prior compliance with this paragraph.
WAIVERS AND CONSENTS:
Subject to the express notice and cure provisions contained in this Note,
each of the Makers waives presentment for payment, notice of intent to
accelerate, notice of acceleration, protest and notice of protest, dishonor and
diligence in collecting and the bringing of suit against any other party, and
agrees to all renewals, extensions, partial payments, releases and substitutions
of security, in whole or in part, with or without notice, before or after
maturity. The Payee may remedy any default, without waiving the same, or may
waive any default without waiving any prior or subsequent default.
GOVERNING LAWS AND VENUE:
This Note is governed by and is to be construed and enforced in accordance
with the laws of the Xxxxx xx Xxxxx xxx xx xxx Xxxxxx Xxxxxx. The Makers agree
and consent to the jurisdiction of the District Courts of Xxxxxx County, Texas,
and of the United States District Court for the Western District of Texas
(Austin Division) and acknowledge that such courts shall constitute proper and
convenient forums for the resolution of any actions among the Makers and the
Payee with respect to the subject matter hereof, and agree that such courts
shall be the exclusive forums for the resolution of any actions among the Makers
and the Payee with respect to the subject matter hereof.
Schlotzsky's Franchisor, LLC,
a Delaware limited liability company
By: /s/ XXXXX XXXXX
-------------------
Xxxxx Xxxxx,
Senior Vice President
