1
EXHIBIT 10.3
This Senior Subordinated Secured Promissory Note (this "Note") and the
indebtedness evidenced hereby are subordinated in the manner and to the extent
set forth in the Subordination and Intercreditor Agreement (the "Subordination
Agreement") dated as of March __, 1999, by the payee of this Note in favor of
Congress Financial Corporation (Central) (together with its successors and
assigns, the "Senior Lender") to all indebtedness (including interest) at any
time owed by the maker of this Note to Senior Lender, and each holder of this
Note, by its acceptance hereof, shall be bound by the Subordination Agreement.
SENIOR SUBORDINATED SECURED PROMISSORY NOTE
Due July 26, 1999
$3,825,000 Dallas, Texas March 26, 1999
FOR VALUE RECEIVED, the undersigned, FOREST CITY AUTO PARTS COMPANY, a
Delaware corporation ("Maker"), hereby promises to pay to the order of TYLER
CORPORATION, a Delaware corporation ("Noteholder"), the principal amount of
THREE MILLION EIGHT HUNDRED TWENTY-FIVE AND NO/100 DOLLARS ($3,825,000),
together with interest on the unpaid principal balance of this Note from time to
time outstanding from the date hereof at the rate of eight and one-half percent
(8 1/2%) per annum, provided, however, that all past due principal of, and to
the extent permitted by and not usurious under applicable law, interest on, this
Note, shall bear interest from date due until paid at the rate of eighteen
percent (18%) per annum. Interest accrued on the unpaid principal balance of
this Note from time to time outstanding shall be calculated on the basis of the
actual days elapsed (including the first day but excluding the last) in a year
consisting of 365 or 366 days, as appropriate.
Section 1. Definitions. When used in this Note, the following terms
have the respective meanings specified herein or in the section referred to:
"Change of Control" means (i) the merger or consolidation of Maker, or
any entity that owns of record and/or beneficially more than twenty-five percent
(25%) of the issued and outstanding common stock of Maker (a "Controlling
Entity") with another entity and as a result of such merger or consolidation of
the outstanding voting securities of the surviving or resulting entity less than
fifty percent (50%) are owned in the aggregate by the former shareholders of
Maker or the Controlling Entity, or less than 30% are owned by Art Hawkins, (ii)
the acquisition by any person other than Art Hawkins or group within the meaning
of the Securities Exchange Act of 1934, as amended, of more than fifty percent
(50%) of any class of outstanding voting securities of Maker or a Controlling
Entity, whether directly, individually, beneficially or of record, pursuant to
any transaction or combination of transactions, (iii) a change of control of
Maker or a Controlling Entity of a nature that would require a report in
response to Item 6(e) of Schedule 14A of Regulations 14A promulgated under the
Securities Exchange Act of 1934, as amended, whether or not Maker or a
Controlling Entity is then subject to such reporting requirements, or (iv)
cessation, for any reason, of the individuals who, at the beginning of any
period of twelve (12) consecutive months, constituted the Board of Directors of
Maker or any Controlling Entity to constitute at least a majority thereof,
unless the nomination for election or election by Maker's or the Controlling
Entity's shareholders was approved by a vote of at least two-thirds of the
respective boards then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved.
"Event of Default" has the meaning set forth in Section 5 hereof.
2
"Mortgages" means, collectively, the mortgages, deeds of trust, deeds
to secure debt and similar instruments of even date herewith, executed by Maker
to or for the benefit of Noteholder for the purpose of encumbering real property
of Maker, more particularly described therein, as security for the payment of
the indebtedness evidenced by this Note and the other obligations of Maker to
Noteholder described therein.
"Note" means this Senior Subordinated Secured Promissory Note.
"payment in full," "paid in full" or any similar formulation, when used
with respect to the Senior Financing Debt, means payment (or due provision for
payment) in full in cash or cash equivalents of one hundred percent (100%) of
the principal, interest, fees, expenses, and other obligations due or to become
due under the documents governing or securing the Senior financing Debt in
accordance with the terms of such documents, or otherwise on terms and
conditions to which the holders thereof shall consent in writing.
"Security Agreement" means the Security Agreement of even date herewith
between Maker and Noteholder.
"Senior Financing" means the "Senior Financing" defined and described
in, and contemplated by, Section 4.4 of the Purchase Agreement dated as of March
22, 1999, between HalArt, L.L.C., and Tyler Corporation.
"Senior Financing Debt" means any and all indebtedness, whether for
principal, interest, fees, or other amounts, at any time and from time to time
owing or to become owing by Maker under any agreement, instrument or document
governing, evidencing and/or securing the Senior Financing.
Section 2. Payment. The principal of and accrued interest on this Note
shall be due and payable as follows:
(a) Interest, computed as aforesaid, shall be due and payable
monthly as it accrues, commencing on March 26, 1999, and
thereafter on the first day of each month until this Note,
with accrued interest, is paid in full; and
(b) the principal of this Note, together with all accrued but
unpaid interest thereon, shall be due and payable on July 26,
1999, but to the extent the Term Loan is not fully funded
because Sections 4.1(o) and 4.2 of the Loan Agreement cannot
be reasonably met by July 26, 1999, the balance of this Note
shall be rolled into Note A (defined below), and Note A shall
be reissued as therein provided.
Both principal of and interest on this Note are payable in lawful money of the
United States of America to Noteholder at 2800 West Mockingbird Lane, Dallas,
Texas 75235 (or at such other place as Noteholder shall specify in written
notice to Maker), in immediately available funds. All payments made hereon shall
be applied first to sums (other than the principal of and accrued interest on
this Note) payable by Maker pursuant to this Note or the Security Agreement,
then to accrued but unpaid interest on this Note, and thereafter to the unpaid
principal balance of this Note. Interest shall continue to accrue on unpaid
principal until receipt by Noteholder of good funds in payment thereof.
2
3
Section 3. Security. In order to secure the payment and performance of
the indebtedness and obligations evidenced by, or arising under or in respect
of, this Note and those certain Senior Subordinated Secured Promissory Notes of
even date herewith from Maker to Noteholder in the original principal amounts of
$2,000,000 ("Note A") and $1,155,000 ("Note B"), Maker has agreed to, and has,
as of the date hereof, executed and delivered to Noteholder the Security
Agreement and the Mortgages, pursuant to which Maker has granted to Noteholder
second priority (subject only to the liens and security interests securing the
Senior Financing Debt) liens and security interests in all of Maker's now owned
and hereafter acquired inventory (as that term is defined in the Texas Uniform
Commercial Code), real estate and other assets. Reference is hereby made to the
Security Agreement and the Mortgages for the descriptions of the property
covered thereby, the nature and extent of the liens and security interests
created and granted thereby, and the rights and powers of the holder of this
Note in respect of such liens and security interests. The liens and security
interest created under the Security Agreement and the Mortgage in Maker's now
owned and hereafter acquired inventory (as that term is defined in the Texas
Uniform Commercial Code), real estate and other assets shall be junior and
subordinate only to the liens and security interest securing payment and
performance of the Senior Financing Debt. The indebtedness and obligations
evidenced by, or arising under or in respect of, this Note shall rank pari
passu, with respect to payment and security, with the indebtedness and
obligations evidenced by, or arising under or in respect of, Notes A and B.
Section 4. Waiver. Except as provided herein or in the Security
Agreement, Maker and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable upon this Note, jointly and
severally waive presentment, demand, protest, notice of protest and non-payment
or other notice of default, notice of acceleration and intention to accelerate
or other notice of any kind, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes, regardless of the number of such renewals,
extensions, indulgences, releases or changes. No waiver by Noteholder of any of
its rights or remedies hereunder, or under any other document evidencing or
securing this Note or otherwise, shall be considered a waiver of any other
subsequent right or remedy of Noteholder; no delay or omission in the exercise
of enforcement by Noteholder of any rights or remedies shall ever be construed
as a waiver of any right or remedy of Noteholder; and no exercise or enforcement
of any such rights or remedies shall ever by held to exhaust any right or remedy
of Noteholder.
Section 5. Events of Default and Remedies. An "Event of Default" shall
exist hereunder if any one or more of the following events shall occur: (a)
Maker shall fail to pay when due any principal of, or interest upon, this Note;
(b) Maker shall (1) apply for or consent to the appointment of a receiver,
trustee, intervenor, custodian or liquidator of itself or of all or a
substantial part of its assets, (2) be adjudicated a bankrupt or insolvent or
file a voluntary petition for bankruptcy or admit in writing that it is unable
to pay its debts as they become due, (3) make a general assignment for the
benefit of creditors, (4) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, or (5) file an answer admitting the material allegations of, or consent
to, or default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding, or take corporate action for the
purpose of effecting any of the foregoing; (c) an order, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition seeking reorganization of maker or appointing a
receiver, trustee, intervenor or liquidator of Maker, or of all or
3
4
substantially all of its assets, and such order, judgment or decree shall
continue unstayed and in effect for a period of sixty (60) days; (d) the
dissolution or liquidation of Maker; (e) Maker shall breach any covenant under
this Note, (f) any "Event of Default," as defined in the Security Agreement or
the Mortgage, shall occur, (g) any failure to pay, when due, any obligations,
whether as to principal, interest or otherwise, including non-payment following
acceleration or maturity, shall occur with respect to the Senior Financing Debt
and continue past the expiration of any period of grace, if any, with respect
thereto provided in the document governing the same, (h) any default or event of
default, other than a default or event of default occasioned by a failure to pay
as described in the preceding clause (g), shall occur with respect to Senior
Financing Debt and, by reason thereof, the holder of the Senior Debt accelerates
the maturity of all or any part of the Senior Financing Debt and declares the
same to be due and payable prior to the stated maturity date thereof, (i) the
payment of dividends by Maker on or with respect to its common stock in any
fiscal year in excess of 50% of Maker's net income after taxes , (j) Maker shall
make a loan to any party (other than advances to employees for reasonable travel
expenses in the ordinary course of business), and/or (k) a Change of Control
shall occur. Upon the occurrence of any Event of Default hereunder, the
Noteholder may, at its option, at any time thereafter, (i) declare the entire
unpaid principal balance and accrued interest upon this Note to be, and the same
shall thereupon become, immediately due and payable without the presentment or
notice of any kind, which Maker hereby waives pursuant to Section 4 hereof,
and/or (ii) pursue and enforce any of Noteholder's rights and remedies available
pursuant to any applicable law or agreement; provided, however, upon the
occurrence of any Event of Default specified in clause (b), (c) or (d) of this
Section 5,with respect to Maker, without any notice to Maker or any other act by
Noteholder, the principal balance and interest accrued on this Note shall
automatically and without necessity of any act by Noteholder become immediately
due and payable without presentment, demand, protest or notice of protest,
notice of acceleration, notice of intent to accelerate or other notice of any
kind, all of which are hereby waived by Maker. Noteholder agrees to advise Maker
promptly if Noteholder is aware of an Event of Default.
Section 6. Notice. Whenever this Note requires or permits any notice,
approval, request or demand from one party to another, the notice, approval,
request or demand must be in writing and shall be deemed to have been given when
personally served or when deposited in the United States mails, registered or
certified, return receipt requested, addressed to the party to be notified at
the following address (or at such other address as may have been designated by
written notice):
Noteholder: Tyler Corporation
2800 West Mockingbird Lane
Dallas, Texas 75235
Attention: Ted Bathurst
Telecopy No.: (214) 902-5058
with a copy to (which shall not constitute notice) to:
H. Lynn Moore, Jr., Esq.
2800 West Mockingbird Lane
Dallas, Texas 75235
Telecopy No.: (214) 902-5058
4
5
Maker: Forest City Auto Parts Company
c/o Art Hawkins
6180 Cochran Road, 2nd Floor
Solon, Ohio 44139
with copies (which shall not constitute notice) to:
Art Hawkins
HalArt, L.L.C.
1520 Surria Court
Bloomfield Hills, MI 48304
Telecopy No.: (248) 593-4997
John M. Rickel, Esq.
Rickel & Baun, P.C.
63 Kercheval Avenue
Grosse Pointe Farms, Michigan 48236-3627
Telecopy No.: (313) 886-0405
Section 7. Prepayment.
(a) Voluntary Prepayment. Subject to the provisions of Section 10
of this Note, Maker reserves the right, upon thirty (30) days'
prior written notice to Noteholder, to prepay the outstanding
principal balance of this Note, in whole or in part, at any
time and from time to time, without premium or penalty. Any
such prepayment shall be made together with payment of
interest accrued on the amount of principal being prepaid
through the date of such prepayment.
(b) Mandatory Prepayment. Concurrently with each funding of the
proceeds of the Term Loan included within the Senior
Financing, Maker shall prepay the outstanding principal
balance of this Note in an amount equal to the proceeds so
funded. In addition, subject to the provisions of Section 10
of this Note, Maker shall prepay the outstanding principal
balance of this Note in whole upon (i) the sale of securities
of Maker or a Controlling Entity pursuant to a registration
statement that has been declared effective by the Securities
and Exchange Commission, (ii) Maker or a Controlling Entity
otherwise becoming a reporting company pursuant to the
Securities Exchange Act of 1934, as amended, (iii) Maker
selling or otherwise transferring all or any material part of
its assets, (iv) a Change of Control, (v) Maker incurring any
senior indebtedness for the purpose of a material expansion of
Maker's business and operations of more than $2,500,000, plus
senior financing for acquisitions of operating businesses.
Section 8. Usury Laws. Regardless of any provisions contained in this
Note, Noteholder shall never be deemed to have contracted for or be entitled to
receive, collect or apply as interest on or under this Note any amount in excess
of the maximum amount of interest permitted by applicable law (the "Maximum
Amount"), and, in the event that Noteholder ever receives, collects or applies
as interest any such excess, the amount which would be excessive interest shall
be deemed to be a partial prepayment of
5
6
principal and treated hereunder as such; and, if the principal amount of this
Note is paid in full, any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the Maximum Amount, Maker and Noteholder shall, to the
maximum extent permitted under applicable law, (i) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest; (ii) exclude
voluntary prepayments and the effects thereof; and (iii) amortize, prorate,
allocate and spread, in equal parts, the total amount of interest throughout the
entire contemplated term of this Note so that the interest rate is uniform
throughout the entire term; provided, however, that, if this Note is paid in
full prior to the end of the full contemplated term hereof, and if the interest
received for the actual period of existence thereof exceeds the relevant Maximum
Amount, Noteholder shall refund to Maker the amount of such excess or credit the
amount of such excess against the principal amount of this Note and, in such
event, Noteholder shall not be subject to any penalties provided by any Laws for
contracting for, charging, taking, reserving or receiving interest in excess of
the relevant Maximum Amount.
Section 9. GOVERNING LAW. THIS NOTE IS PAYABLE AND PERFORMABLE IN
DALLAS COUNTY, TEXAS, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE FEDERAL LAWS OF
THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, MAKER
AGREES THAT THE COURTS OF THE STATE OF TEXAS SITTING IN DALLAS, TEXAS, AND THE
FEDERAL COURTS SITTING IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER ANY
PROCEEDINGS IN CONNECTION HEREWITH.
Section 10. Subordination. Maker agrees, and Noteholder, for itself and
for each subsequent owner and holder of this Note, agrees that the obligation
represented by this Note is and shall be subordinated in right of payment to the
prior payment in full of the Senior Financing Debt, whether outstanding on the
date hereof or hereafter incurred. Upon any distribution of assets of Maker upon
or by reason of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to substantially all of its
assets, or (b) any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company, then and in any such event
specified in clause (a), (b) or (c) preceding (each such event, if any, herein
sometimes referred to as a "Proceeding"), (i) the holders of the Senior
Financing Debt will first be entitled to receive payment in full of the Senior
Financing Debt before Noteholder is entitled to receive any payment, whether of
principal, premium, if any, or interest, on account of this Note (other than
Junior Securities) and (ii) any payment or distribution of assets of Maker of
any kind or character from any source, whether in cash, property or securities
(other than Junior Securities) to which Noteholder would be entitled but for the
provisions of this Section 10 will be paid by the liquidating trustee or agent
or other person making such a payment or distribution directly to the holders of
the Senior Financing Debt or their representative to the extent necessary to
make payment in full of the Senior Financing Debt remaining unpaid, after giving
effect to any concurrent payment or distribution made directly to the holders of
such Senior Financing Debt. For purposes of this Section 10, "Junior Securities"
shall mean capital stock and/or securities of Maker provided for by a plan of
reorganization or readjustment, or of any other corporation provided for by such
plan of reorganization or readjustment authorized by an order or decree of a
court of competent jurisdiction in a reorganization Proceeding under any
applicable bankruptcy law which stock
6
7
or securities are subordinated in right of payment to all then outstanding
Senior Financing Debt to substantially the same extent as this Note is so
subordinated as provided in this Section 10. After all Senior Financing Debt is
paid in full and until this Note is paid in full, Noteholder shall be subrogated
(equally and ratably with all other indebtedness pari passu with this Note) to
the rights of holders of Senior Financing Debt to receive distributions
applicable to Senior Financing Debt to the extent that distributions otherwise
payable to Noteholder have been applied to the payment of Senior Debt. A
distribution made under this Section 10 to holders of Senior Financing Debt that
otherwise would have been made to Noteholder is not, as between Maker and
Noteholder, a payment by Maker on this Note. Nothing in this Note shall (1)
impair, as between Maker and Noteholder, the obligations of Maker to pay the
principal of and interest on this Note in accordance with its terms; (2) affect
the relative rights of Noteholder and creditors of Maker other than its rights
in relation to holders of Senior Financing Debt; or (3) prevent Noteholder from
exercising its available remedies upon an Event of Default, subject to the
rights of holders and owners of Senior Financing Debt to receive distributions
and payments otherwise payable to Noteholder to the extent provided in this
Section 10.
Section 11. "Noteholder". As used herein, the term "Noteholder"
includes Tyler Corporation and any subsequent owner and holder at the time in
question of this Note.
MAKER:
FOREST CITY AUTO PARTS COMPANY,
a Delaware corporation
By: /s/ ALAN E. GAUTHIER
---------------------------
Name: Alan E. Gauthier
-------------------------
Title: CFO
------------------------
7