EXHIBIT 10.8
ESCALADE SUBORDINATION AGREEMENT
This Escalade Subordination Agreement (the "Agreement") is
made and entered into as of September 5, 2003, by and between ESCALADE,
INCORPORATED, an Indiana corporation ("Escalade") and BANK ONE, NATIONAL
ASSOCIATION, a national banking association with its principal office in
Indianapolis, Indiana ("Bank").
Recitals
A. Escalade is the sole shareholder of Martin Yale
Industries, Inc., an Indiana corporation ("Martin Yale"), Indian Industries,
Inc., an Indiana corporation ("Indian Industries"), and the owner of 100% of the
outstanding shares of Indian-Martin, Inc., a corporation organized and existing
under the laws of the State of Nevada ("Indian-Martin"). Martin Yale is the sole
shareholder of Master Products Manufacturing Company, Inc., a Delaware
corporation ("Master Products"), and Indian Industries is the sole shareholder
of Harvard Sports, Inc., a California corporation ("Harvard Sports"), U.S.
Weight, Inc., a corporation organized under the laws of the State of Illinois
("U.S. Weight") and Bear Archery, Inc., a corporation organized under the laws
of the State of Florida ("Bear Archery"). (Hereinafter, Martin Yale, Indian
Industries, Master Products, Harvard Sports, U.S. Weight and Bear Archery shall
be referred to herein collectively as the "Domestic Subsidiaries," and
individually as a "Domestic Subsidiary.")
B. Indian-Martin and Bank have entered into a Credit
Agreement as of even date (the "Credit Agreement"), that , among other things,
establishes a credit facility for Indian-Martin with the Bank authorizing a loan
to Indian-Martin from the Bank of up to the aggregate principal sum of
$45,000,000.00 (the "Loan"). The Loan is secured by the grant of a security
interest and assignment to Bank of all of Indian-Martin's rights, title and
interests, now owned or hereafter acquired by Indian-Martin, in and to that
Collateral defined and described in the Credit Agreement. (Hereinafter, all
indebtedness, Obligations and liabilities and any renewals or extensions thereof
owed by Indian-Martin to Bank under the Credit Agreement and Loan Documents
shall be referred to collectively as the "Indian-Martin/Bank One Obligations.")
All capitalized terms used, but not otherwise defined, herein shall have the
respective meanings ascribed to them in the Credit Agreement.
C. In accordance with those six (6) certain Receivables
Purchase Agreements executed by Indian-Martin and each of the Domestic
Subsidiaries, respectively, before or concurrent with execution of the Credit
Agreement, other Loan Documents and this Agreement, Indian-Martin shall purchase
certain accounts receivable from each of the Domestic Subsidiaries. Payment by
Indian-Martin for the purchase of such receivables shall be made with proceeds
of Indian-Martin's borrowings under the Loan.
D. Pursuant to the Receivables Purchase Agreements,
among other things, Indian-Martin shall have and be granted certain indemnities
and rights of limited recourse owing to it from Domestic Subsidiaries,
respectively, all of which indemnities and rights are required to and shall be
assigned by Indian-Martin to Bank, and Bank shall be granted a security interest
therein, under the Company Security Agreement (hereinafter, collectively the
"Domestic Subsidiaries/Indian-Martin/Bank One Obligations").
E. The permitted use of the proceeds of the Loan under
the Credit Agreement requires Indian-Martin, on a one time basis, to loan to
Escalade $14,000,000.00, for which Escalade shall issue the Escalade Note
payable to Indian-Martin evidencing such loan (the "Escalade/Indian-Martin
Loan"). (Hereinafter, all indebtedness, obligations and liabilities, and all
renewals and extensions thereof, owed by Escalade to Indian-Martin arising out
of the Escalade/Indian-Martin Loan shall be referred to collectively as the
"Escalade/Indian-Martin Obligations.")
F. Escalade intends to use the proceeds of the
Escalade/Indian-Martin Loan to repay existing indebtedness to Bank and/or fund
unsecured loans from Escalade to each of the Domestic Subsidiaries,
respectively, to finance their current ongoing operations (the "Domestic
Subsidiaries/Escalade Loans"). (Hereinafter, all indebtedness, obligations and
liabilities, and all renewals and extensions thereof, owed by the Domestic
Subsidiaries, individually and collectively, to Escalade arising out of the
Domestic Subsidiaries/Escalade Loans shall be referred to collectively as the
"Domestic Subsidiaries/Escalade Obligations".)
G. As a condition precedent to execution and delivery of
the Credit Agreement, Bank requires the execution and delivery of this Agreement
whereby Escalade will subordinate all payment by the Domestic Subsidiaries in
full or in part of the Domestic Subsidiaries/Escalade Obligations to payment in
full by the Domestic Subsidiaries of the Domestic
Subsidiaries/Indian-Martin/Bank One Obligations.
NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING, AND FOR GOOD
AND VALUABLE CONSIDERATIONS, THE RECEIPT, SUFFICIENCY AND MUTUALITY OF WHICH ARE
HEREBY ACKNOWLEDGED, AND IN ORDER TO SATISFY THE CONDITIONS PRECEDENT OF THE
CREDIT AGREEMENT, ESCALADE AGREES WITH BANK AS FOLLOWS:
1. Escalade hereby agrees to subordinate and does hereby
subordinate, (a) payment by the Domestic Subsidiaries of all or any part of the
Domestic Subsidiaries/Escalade Obligations (all of the obligations, liabilities
and indebtedness described or to which reference is made in this clause (a)
being hereinafter called the "Subordinated Debt") to the payment in full by the
Domestic Subsidiaries of the Domestic Subsidiaries/Indian-Martin/Bank One
Obligations (all of the obligations, liabilities and indebtedness described or
included within the Domestic Subsidiaries/Indian-Martin/Bank One Obligations
being hereinafter called the "Senior Debt"); and (b) all security interests,
mortgages, liens, claims or rights now or hereafter securing the Subordinated
Debt to all security interests, mortgages, liens, claims or rights now or
hereafter securing the Senior Debt.
2. Upon maturity of the Senior Debt, or any portion
thereof, by lapse of time, acceleration or otherwise, all amounts due or to
become due in connection therewith shall first be paid in full in cash before
any payment is made by any of the Domestic Subsidiaries or any Person acting on
behalf of the Domestic Subsidiaries on account of any Subordinated Debt. Upon a
distribution of the assets or readjustment of the indebtedness of any of the
Domestic Subsidiaries
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by reason of liquidation, composition, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding
involving the readjustments of all or any of the debts of the Domestic
Subsidiaries, or the application of the assets of the Domestic Subsidiaries to
the payment or liquidation thereof, Escalade acknowledges that the payment and
satisfaction of the Senior Debt shall have priority over the payment and
satisfaction of the Subordinated Debt. Bank is irrevocably authorized and
empowered to receive and collect any and all dividends, payments and
distributions made on account of any proof of claim relating to the Subordinated
Debt in whatever form the same may be paid or issued until the Senior Debt is
finally paid and satisfied in full. Escalade agrees to file a proof of claim in
respect of the Subordinated Debt and to execute and deliver to Bank such
assignments or other instruments as the Bank may require to enable the Bank to
collect all dividends, payments and distributions which may be made at any time
on account of the Subordinated Debt until the Senior Debt is finally paid and
satisfied in full.
3. Escalade shall not, without Bank's prior written
consent, (i) take any action to foreclose or otherwise enforce its Liens, if
any, on any of the Domestic Subsidiaries' assets, respectively, (ii) commence or
join with any other creditor or creditors of any of the Domestic Subsidiaries in
commencing any bankruptcy, reorganization, receivership or insolvency proceeding
against any of the Domestic Subsidiaries, (iii) exercise any other rights or
remedies it may have pursuant to the Domestic Subsidiaries/Escalade Obligations,
the Uniform Commercial Code or any other applicable law with respect to the
Domestic Subsidiaries' assets, respectively, or (iv) take or permit any action
prejudicial to, or inconsistent with, Bank's priority position over Escalade
that is created by this Agreement.
4. In the event that Indian-Martin defaults on the
Senior Debt, and as a result, Bank undertakes to enforce its security interests
and Liens with respect to any of the Domestic Subsidiaries' assets,
respectively, Escalade agrees that Escalade will not hinder, delay, or otherwise
prevent Bank from taking any and all action which the Bank deems necessary or
advisable to enforce its security interests and Liens in the Domestic
Subsidiaries' assets, respectively, and to realize thereon.
5. If any unauthorized payment on account of, or any
collateral for any part of, the Subordinated Debt is received by Escalade, such
payment or collateral shall be delivered forthwith by Escalade to the Bank for
application to the Senior Debt, in the form received except for the addition of
any endorsement or assignment necessary to effect a transfer of all rights
therein to the Bank. Bank is irrevocably authorized to supply any required
endorsement or assignment which may have been omitted. Until so delivered any
such unauthorized payment or collateral required to be delivered by Escalade to
Bank under this paragraph 5 shall be held by Escalade in trust for Bank and
shall not be commingled with other funds or property of Escalade.
6. Escalade represents, warrants and covenants to Bank
that: (a) it has not relied and will not rely on any representations or
information of any nature made by or received from Bank relating to the Domestic
Subsidiaries in deciding to execute this Agreement; (b) Escalade is the lawful
owner of the Subordinated Debt free and clear of all liens and encumbrances, and
it has not subordinated, encumbered, assigned or transferred, and agrees that it
will not subordinate, encumber, assign or transfer at any time while this
Agreement remains in effect, any right, claim or interest of any kind in or to
the Subordinated Debt, and any
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subordination, assignment or transfer in violation of this sub-paragraph shall
be null and void; and (c) Escalade has received all consents and approvals
required in order for it to execute and deliver this Agreement.
7. Escalade hereby waives any rights it has or may have
in the future to require Bank to marshal its Collateral, and agrees that Bank
may, in addition to its other rights hereunder, proceed against its Collateral
in any order that Bank deems appropriate in the exercise of its absolute
discretion. Escalade also waives any right to be subrogated to the Senior Debt
unless and until the Senior Debt is indefeasibly paid and satisfied in full.
8. Escalade agrees that it will advise each future
holder of all or any part of the Subordinated Debt that the Subordinated Debt is
subordinated to the Senior Debt in the manner and to the extent set forth
herein. To that end, Escalade hereby agrees (and is hereby so authorized by
Domestic Subsidiaries) to endorse upon each instrument and document evidencing
all or any part of the Subordinated Debt the following legend:
The payment of the indebtedness evidenced by this instrument
is subordinated to the payment of the "Senior Debt" defined
and described in the Escalade Subordination Agreement dated
September 5, 2003, between Escalade, Incorporated and Bank
One, National Association, and reference is made to such
Agreement for a full statement of the terms and conditions of
such subordination. Such indebtedness is also subject to that
certain Offset Waiver Agreement, dated September 5, 2003,
wherein offset and certain related rights are waived.
9. Escalade further agrees to indemnify Bank against any
losses, damages, costs and expenses incurred or suffered by Bank by reason of
Escalade's failure to so notify any future holder of the Subordinated Debt, or
any part thereof. Escalade hereby authorizes Bank to file such notices of record
as Bank may from time to time deem appropriate to evidence or give notice of
this Agreement.
10. Escalade agrees that it will not at any time directly
or indirectly contest the validity, perfection, priority or enforceability of
any Lien, security interest, encumbrance or claim granted to Bank in or on the
assets of the Domestic Subsidiaries, and hereby agrees not to hinder the Bank or
take a position adverse to Bank in the defense of any action contesting the
validity, perfection, priority or enforceability of any such Liens, security
interests, encumbrances or claims. Escalade further agrees that the provisions
of this Agreement shall remain in full force and effect notwithstanding a
successful challenge to the validity, perfection, priority or enforceability of
all or any of the Senior Debt or the Liens and security interests securing the
Senior Debt.
11. The occurrence of any of the following events shall
constitute an Event of Default by Escalade under this Agreement (referred to
herein as an "Event of Default"):
(a) Escalade admitting in writing its inability
to pay its debts as they mature or an administrative or
judicial order of dissolution or determination of insolvency
being entered against Escalade; or Escalade applying for,
consenting to,
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or acquiescing in the appointment of a trustee or receiver for
Escalade or any property thereof, or Escalade making a general
assignment for the benefit of creditors, or, in the absence of
such application, consent or acquiescence, a trustee or
receiver being appointed for Escalade or for a substantial
part of the property of Escalade and not being discharged
within sixty (60) days; or any bankruptcy, reorganization,
debt arrangement, or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding
being instituted by or against Escalade, and, if involuntary,
being consented to or acquiesced in by Escalade, as
applicable, or remaining for sixty (60) days undismissed.
(b) Any breach by Escalade of any term, covenant
or provision of this Agreement.
12. This Agreement shall be governed by the substantive
laws of the State of Indiana without reference to the conflicts of laws rules or
principles of any jurisdiction. This Agreement contains the entire agreement
between Escalade and Bank with respect to this subject, and may only be modified
by a writing signed by both Escalade and Bank.
(a) Bank's failure to exercise any right
hereunder shall not be construed as a waiver of the right to
exercise the same or any other right at any other time and
from time to time thereafter, and such rights shall be
cumulative and not exclusive.
(b) The knowledge by Bank of any breach or other
non-observance by Escalade of the terms of this Agreement
shall not constitute a waiver thereof or of any obligations to
be performed by Escalade.
(c) Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
(d) This Agreement shall continue in full force
and effect until final payment and satisfaction in full of the
Senior Debt and shall be binding upon Escalade and its
successors and permitted assigns, including, without
limitation, any future holder of all or any part of the
Subordinated Debt, and shall inure to the benefit of Bank and
its successors and assigns, including, without limitation, any
future holder of all or any part of the Senior Debt, it being
expressly acknowledged that Bank's rights under this Agreement
may be assigned by Bank in connection with any assignment or
transfer of all or any portion of the Senior Debt and that
each holder of any portion of the Senior Debt shall be equally
and ratably entitled to the benefits of this Agreement.
References herein to the Domestic Subsidiaries shall include
any successor to, or assign of, the Domestic Subsidiaries,
including without limitation any debtor-in-possession or
trustee for the Domestic Subsidiaries in any proceeding under
the United States Bankruptcy Code.
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(e) This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an
original hereof and submissible in evidence and all of which
together shall be deemed to be a single instrument.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
ESCALADE, INCORPORATED,
an Indiana corporation
By: _________________________________
_____________________________________
(Printed Name and Title)
BANK ONE, NATIONAL ASSOCIATION,
a national banking association
By: _________________________________
_____________________________________
(Printed Name and Title)
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CONSENT
Each of the undersigned Domestic Subsidiaries, respectively,
acknowledges receipt of a copy of the foregoing Subordination Agreement,
consents to all of the terms and conditions thereof, and agrees that it will not
pay any Subordinated Debt, except as provided therein. Each of the undersigned
Domestic Subsidiaries, respectively, agrees to mark its records to reflect the
subordination of the Subordinated Debt.
INDIAN INDUSTRIES, INC., MARTIN YALE INDUSTRIES, INC.,
an Indiana corporation an Indiana corporation
By:_________________________________ By: _________________________________
____________________________________ _____________________________________
(Printed Name and Title) (Printed Name and Title)
HARVARD SPORTS, INC., MASTER PRODUCTS MANUFACTURING
a California corporation COMPANY, INC., a Delaware corporation
By:_________________________________ By: _________________________________
____________________________________ _____________________________________
(Printed Name and Title) (Printed Name and Title)
U.S. WEIGHT, INC., an Illinois BEAR ARCHERY, INC., a Florida
corporation corporation
By:_________________________________ By: _________________________________
____________________________________ _____________________________________
(Printed Name and Title) (Printed Name and Title)