Exhibit 10.5
SUBORDINATION AGREEMENT
This Agreement, dated as of October 26, 2001, is made by The ▇▇▇▇▇▇▇▇
Family Charitable Foundation (the "Subordinated Creditor"), for the benefit of
▇▇▇▇▇ Fargo Business Credit, Inc., a Minnesota corporation (the "Lender").
Royal Grip, Inc., a Nevada corporation ("RG") Royal Grip Headwear Company,
a Nevada corporation ("RGHC"), FM Precision Golf Manufacturing Corp., a Delaware
corporation ("FMM") and FM Precision Golf Sales Corp., a Delaware corporation
("FMS") are now or hereafter may be indebted to the Lender on account of loans
or the other extensions of credit or financial accommodations from the Lender to
them, or to any other person under the guaranty or endorsement of them.
Royal Precision, Inc., a Delaware corporation ("RP") is the guarantor of
all indebtedness owed to RG, RGHC, FMM and FMS to Lender. RP, RG, RGHC, FMS and
FMM are collectively referred to as the "Borrower".
The Subordinated Creditor has made or may make loans or grant other
financial accommodations to the Borrower.
As a condition to making any loan or extension of credit to the Borrower,
the Lender has required that the Subordinated Creditor subordinate the payment
of the Subordinated Creditor's loans and other financial accommodations to the
payment of any and all indebtedness of the Borrower to the Lender. Assisting the
Borrower in obtaining credit accommodations from the Lender and subordinating
its interests pursuant to the terms of this Agreement are in the Subordinated
Creditor's best interest.
ACCORDINGLY, in consideration of the loans and other financial
accommodations that have been made and may hereafter be made by the Lender for
the benefit of the Borrower, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Subordinated
Creditor hereby agrees as follows:
1. DEFINITIONS. As used herein, the following terms have the meanings set
forth below:
"Borrower Default" means a Default or Event of Default as defined in
any agreement or instrument evidencing, governing, or issued in connection
with Lender Indebtedness, including, but not limited to, (i) the Amended
and Restated Credit and Security Agreement dated as of October 9, 1998, as
amended from time to time by and between RG, RGHC and the Lender as the
same may hereafter be amended, supplemented or restated from time to time,
(ii) the Credit and Security Agreement dated as of October 9, 1998, as
amended from time to time, by and between FMS, FMM and the Lender as the
same may hereafter be amended, supplemented or restated from time to time,
(iii) the Guaranty dated as of October 9, 1998 by RP in favor of Lender, as
the same may hereafter be amended, supplemented or restated from time to
time, and (iv) the Replacement Guaranty dated as of October 9, 1998 by RP
in favor of Lender, as the same may hereafter be amended, supplemented or
restated from time to time, or any default under or breach of any such
agreement or instrument.
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"Lender Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it
is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several or joint and several, all interest thereon, all renewals,
extensions and modifications thereof and any notes issued in whole or
partial substitution therefor.
"Subordinated Indebtedness" means all obligations to repay funds
borrowed as evidenced by the Subordinated Note as amended, renewed,
substituted or restated from time to time.
"Subordinated Note" means RP's Revolving Promissory Note, dated as of
October 26, 2001, payable to the order of the Subordinated Creditor in the
original principal amount of $1,250,000.00, together with all renewals,
extensions and modifications thereof and any note or notes issued in
substitution therefor.
2. SUBORDINATION. The payment of all of the Subordinated Indebtedness is
hereby expressly subordinated to the extent and in the manner hereinafter set
forth to the payment in full of the Lender Indebtedness; and regardless of any
priority otherwise available to the Subordinated Creditor by law or by
agreement, the Lender shall hold a first security interest in all collateral
securing payment of the Lender Indebtedness (the "Collateral"), and any security
interest claimed therein (including any proceeds thereof but excluding the
Option (as defined in the Subordinated Note) and the proceeds from the exercise
of the Option) by the Subordinated Creditor shall be and remain fully
subordinate for all purposes to the security interest of the Lender therein for
all purposes whatsoever.
3. PRINCIPAL PAYMENTS. Until all of the Lender Indebtedness has been paid
in full, the Subordinated Creditor shall not, without the Lender's prior written
consent, demand, receive or accept any principal payment from the Borrower in
respect of the Subordinated Indebtedness, or exercise any right of, or permit
any, setoff in respect of the Subordinated Indebtedness, except that the
Subordinated Creditor may accept scheduled payments (but not prepayments and the
Lender acknowledges that October 26, 2002 is the maturity of the Subordinated
Note) of principal required to be paid under the Subordinated Note, so long as
(i) no Borrower Default has occurred and is continuing or will occur as a result
of or immediately following any such payment, (ii) the aggregate excess
Availability, as defined in the Credit Agreements (exclusive of any Availability
existing as a result of any overadvance component of either Borrowing Base) for
the 60 days immediately preceding any such payment is not less than $500,000.00
and (iii) after giving effect to each such payment the aggregate Availability
(exclusive of any Availability existing as a result of any overadvance
components of either Borrowing Base) under both Credit Agreements minus accounts
payable more than 30 days past respective due date is not less than $500,000.00.
4. INTEREST PAYMENTS. Without the Lender's prior written consent, the
Subordinated Creditor shall not demand, receive or accept any interest payment
from the Borrower in respect of the Subordinated Indebtedness so long as any
Borrower Default exists or if a Borrower Default will occur as a result of or
immediately following such interest payment.
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5. RECEIPT OF PROHIBITED PAYMENTS. If the Subordinated Creditor receives
any payment on the Subordinated Indebtedness that the Subordinated Creditor is
not entitled to receive under the provisions of this Agreement, the Subordinated
Creditor will hold the amount so received in trust for the Lender and will
forthwith turn over such payment to the Lender in the form received (except for
the endorsement of the Subordinated Creditor where necessary) for application to
then-existing Lender Indebtedness (whether or not due), in such manner of
application as the Lender may deem appropriate. If the Subordinated Creditor
exercises any right of setoff which the Subordinated Creditor is not permitted
to exercise under the provisions of this Agreement, the Subordinated Creditor
will promptly pay over to the Lender, in immediately available funds, an amount
equal to the amount of the claims or obligations offset. If the Subordinated
Creditor fails to make any endorsement required under this Agreement, the
Lender, or any of its officers or employees or agents on behalf of the Lender,
is hereby irrevocably appointed as the attorney-in-fact (which appointment is
coupled with an interest) for the Subordinated Creditor to make such endorsement
in the Subordinated Creditor's name.
6. ACTION ON SUBORDINATED DEBT. The Subordinated Creditor will not commence
any action or proceeding against the Borrower to recover all or any part of the
Subordinated Indebtedness, or join with any creditor (unless the Lender shall so
join) in bringing any proceeding against the Borrower under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt receivership,
liquidation or insolvency law or statute of the federal or any state government,
or take possession of, sell, or dispose of any Collateral, or exercise or
enforce any right or remedy available to the Subordinated Creditor with respect
to any such Collateral, unless and until the Lender Indebtedness has been paid
in full.
7. ACTION CONCERNING COLLATERAL.
(a) Notwithstanding any security interest now held or hereafter
acquired by the Subordinated Creditor, the Lender may take possession of, sell,
dispose of, and otherwise deal with all or any part of the Collateral (other
than the Option and the proceeds from the exercise of the Option) and may
enforce any right or remedy available to it with respect to the Collateral, all
without notice to or consent of the Subordinated Creditor except as specifically
required by applicable law.
(b) In addition, and without limiting the generality of the foregoing,
if a Borrower Default has occurred and is continuing and the Borrower intends to
sell any Collateral to an unrelated third party outside the ordinary course of
business, the Subordinated Creditor shall, upon the Lender's request, execute
and deliver to such purchaser such instruments as may reasonably be necessary to
terminate and release any security interest or lien the Subordinated Creditor
has in the Collateral to be sold.
(c) The Lender shall have no duty to preserve, protect, care for,
insure, take possession of, collect, dispose of, or otherwise realize upon any
of the Collateral, and in no event shall the Lender be deemed the Subordinated
Creditor's agent with respect to the Collateral. All proceeds received by the
Lender with respect to any Collateral may be applied, first, to pay or reimburse
the Lender for all costs and expenses (including reasonable attorneys' fees)
incurred by the Lender in connection with the collection of such proceeds, and,
second, to any indebtedness secured by the Lender's security interest in that
Collateral in any order that it may choose.
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8. BANKRUPTCY AND INSOLVENCY. In the event of any receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization or
arrangement with creditors, whether or not pursuant to bankruptcy law, the sale
of all or substantially all of the assets of the Borrower, dissolution,
liquidation or any other marshalling of the assets or liabilities of the
Borrower, the Subordinated Creditor will file all claims, proofs of claim or
other instruments of similar character necessary to enforce the obligations of
the Borrower in respect of the Subordinated Indebtedness and will hold in trust
for the Lender and promptly pay over to the Lender in the form received (except
for the endorsement of the Subordinated Creditor where necessary) for
application to the then-existing Lender Indebtedness, any and all moneys,
dividends or other assets received in any such proceedings on account of the
Subordinated Indebtedness, unless and until the Lender Indebtedness has been
paid in full. If the Subordinated Creditor shall fail to take any such action,
the Lender, as attorney-in-fact for the Subordinated Creditor, may take such
action on the Subordinated Creditor's behalf. The Subordinated Creditor hereby
irrevocably appoints the Lender, or any of its officers or employees on behalf
of the Lender, as the attorney-in-fact for the Subordinated Creditor (which
appointment is coupled with an interest) with the power but not the duty to
demand, ▇▇▇ for, collect and receive any and all such moneys, dividends or other
assets and give acquittance therefor and to file any claim, proof of claim or
other instrument of similar character, to vote claims comprising Subordinated
Indebtedness to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension and to take such other
action in the Lender's own name or in the name of the Subordinated Creditor as
the Lender may deem necessary or advisable for the enforcement of the agreements
contained herein; and the Subordinated Creditor will execute and deliver to the
Lender such other and further powers-of-attorney or instruments as the Lender
may request in order to accomplish the foregoing.
9. RESTRICTIVE LEGEND; TRANSFER OF SUBORDINATED INDEBTEDNESS. The
Subordinated Creditor will cause the Subordinated Note or any part thereof to
contain a specific statement thereon to the effect that the indebtedness thereby
evidenced is subject to the provisions of this Agreement, and the Subordinated
Creditor will ▇▇▇▇ its books conspicuously to evidence the subordination
effected hereby. Attached hereto is a true and correct copy of the Subordinated
Note bearing such legend. At the request of the Lender, after and during the
continuance of a Borrower Default, the Subordinated Creditor shall deposit with
the Lender the Subordinated Note and all of the other notes, bonds, debentures
or other instruments evidencing the Subordinated Indebtedness, which notes,
bonds, debentures or other instruments may be held by the Lender so long as any
Lender Indebtedness remains outstanding. The Subordinated Creditor is the lawful
holder of the Subordinated Note and has not transferred any interest therein to
any other person.
10. CONTINUING EFFECT. This Agreement shall constitute a continuing
agreement of subordination, and the Lender may, without notice to or consent by
the Subordinated Creditor, modify any term of the Lender Indebtedness in
reliance upon this Agreement. Without limiting the generality of the foregoing,
the Lender may, at any time and from time to time, either before or after
receipt of any such notice of revocation, without the consent of or notice to
the Subordinated Creditor and without incurring responsibility to the
Subordinated Creditor or impairing or releasing any of the Lender's rights or
any of the Subordinated Creditor's obligations hereunder:
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(a) change the interest rate or change the amount of payment or extend
the time for payment or renew or otherwise alter the terms of any Lender
Indebtedness or any instrument evidencing the same in any manner;
(b) sell, exchange, release or otherwise deal with any property at any
time securing payment of the Lender Indebtedness or any part thereof;
(c) release anyone liable in any manner for the payment or collection
of the Lender Indebtedness or any part thereof;
(d) exercise or refrain from exercising any right against the Borrower
or any other person (including the Subordinated Creditor); and
(e) apply any sums received by the Lender, by whomsoever paid and
however realized, to the Lender Indebtedness in such manner as the Lender shall
deem appropriate.
11. NO COMMITMENT. None of the provisions of this Agreement shall be deemed
or construed to constitute or imply any commitment or obligation on the part of
the Lender to make any future loans or other extensions of credit or financial
accommodations to the Borrower.
12. NOTICE. All notices and other communications hereunder shall be in
writing and shall be (i) personally delivered, (ii) transmitted by registered
mail, postage prepaid, or (iii) transmitted by telecopy, in each case addressed
to the party to whom notice is being given at its address as set forth below:
If to the Lender:
▇▇▇▇▇ Fargo Business Credit, Inc
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ Floor
MAC S4101-076
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
If to the Subordinated Creditor:
c/o ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy.
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13. CONFLICT IN AGREEMENTS. If the subordination provisions of any
instrument evidencing Subordinated Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between the
Lender and the Subordinated Creditor.
14. NO WAIVER. No waiver shall be deemed to be made by the Lender or the
Subordinated Creditor of any of its rights hereunder unless the same shall be in
writing signed on behalf of the Lender or the Subordinated Creditor, as the case
may be, and each such waiver, if any, shall be a waiver only with respect to the
specific matter or matters to which the waiver relates and shall in no way
impair the rights of the Lender or the Subordinated Creditor or the obligations
of the Subordinated Creditor to the Lender or the obligations of the Lender to
the Subordinated Creditor in any other respect at any time.
15. BINDING EFFECT; ACCEPTANCE. This Agreement shall be binding upon the
parties hereto and their legal representatives, successors and assigns and shall
inure to the benefit of each party hereto and its participants, successors and
assigns irrespective of whether this or any similar agreement is executed by any
other Subordinated Creditor of the Borrower.
16. MISCELLANEOUS. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
17. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. Each party
consents to the personal jurisdiction of the state and federal courts located in
the State of Arizona in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient,
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the Superior Court of Maricopa County,
Arizona or the United States District Court, District of Arizona. THE PARTIES
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS ACKNOWLEDGMENT.
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IN WITNESS WHEREOF, each party has executed this Agreement as of the day
and year first above-written.
THE ▇▇▇▇▇▇▇▇ FAMILY CHARITABLE FOUNDATION
Witness: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its: President
▇▇▇▇▇ FARGO BUSINESS CREDIT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------
Its: Vice President
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ACKNOWLEDGMENT BY BORROWER
The undersigned, being the Borrower referred to in the foregoing Agreement,
hereby (i) acknowledges receipt of a copy thereof, (ii) agrees to all of the
terms and provisions thereof, (iii) agrees to and with the Lender that it shall
make no payment on the Subordinated Indebtedness that the Subordinated Creditor
would not be entitled to receive under the provisions of the Agreement, (iv)
agrees that any such payment will constitute a default under the Lender
Indebtedness, and (v) agrees to ▇▇▇▇ its books conspicuously to evidence the
subordination of the Subordinated Indebtedness effected hereby.
ROYAL PRECISION, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Its: President
ROYAL GRIP, INC., a Nevada corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Its: President
ROYAL GRIP HEADWEAR COMPANY,
a Nevada corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Its: President
FM PRECISION GOLF MANUFACTURING CORP.,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Its: President
FM PRECISION GOLF SALES CORP.,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Its: President
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EXHIBIT A
attach copy of Subordinated Note with following legend
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY THE
▇▇▇▇▇▇▇▇ FAMILY CHARITABLE FOUNDATION IN FAVOR OF ▇▇▇▇▇ FARGO BUSINESS CREDIT,
INC. DATED AS OF OCTOBER 26, 2001.
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