EXHIBIT 10.3

 
This Subordinated Promissory Note (this “Note”) and the indebtedness evidenced
by this Note are subordinate to any and all indebtedness, obligations and
liabilities of the Maker to the Lenders (collectively, the “Senior Lenders”)
party to that Credit Agreement with the Maker dated as of September 14, 2007
(the “Credit Agreement”), as the same may be amended, modified, restated or
supplemented from time to time, in the manner and to the extent set forth
herein.
 
Subordinated Promissory Note

 

 $2,500,000.00  Cincinnati, Ohio    March 31, 2010 (the “Issuance Date”)

 
    For value received, the undersigned, Champion Industries, Inc., a West
Virginia corporation (the “Maker”), hereby promises to pay to an account
designated in writing by Marshall Reynolds, a individual residing in the State
of West Virginia (the “Payee”), in lawful money of the United States of America,
in immediately available funds to such account, the principal amount of Two
Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) or, if less,
the aggregate unpaid principal amount of all Loans (as hereinafter defined) made
by the Payee to the Maker under the terms of this Note, together with interest
accruing on such amount from the Issuance Date, at the rate provided in this
Note.  
 
    1.Loans.  Prior to the Maturity Date, the Payee agrees, subject to the terms
and conditions of, and at the times and in the manner required by the
Contribution Agreement and Cash Collateral Security Agreement dated of event
date herewith among the Maker, the Payee and the Administrative Agent (as
hereinafter defined) (such Contribution Agreement and Cash Collateral Security
Agreement, as the same may be amended, restated, supplemented or otherwise
modified in its entirety from time to time, the “Contribution Agreement”), to
make loans (each individually a “Loan” and, collectively, the “Loans”) in U.S.
Dollars to the Maker from time to time in an aggregate principal amount of up to
Two Million Five Hundred Thousand and 00/100 Dollars.
 
    2.Interest. Interest under this Note will accrue beginning on the Issuance
Date (computed on the basis of a 365 day year and based upon the number of days
actually elapsed), at an interest rate which is subject to change from time to
time based on changes in an independent index which is the highest Prime Rate
most recently published in “The Wall Street Journal’s money rates column” as the
base rate on corporate loans at large U.S. money center commercial banks (the
“Index”).  If the Index becomes unavailable during the term of this loan, the
Payee may designate a substitute index after notifying Maker.  The interest rate
change will not occur more often than each day.  Any change in the Prime Rate
shall be effective as of the day on which the change is announced to become
effective.
 
    3.Payment. Subject to the terms hereof, the Maker shall pay all outstanding
accrued interest and the outstanding principal balance of this Note, if not paid
sooner, on September 14, 2014 (the “Maturity Date”).  The Payee acknowledges
that no cash payments of principal or interest (except as provided in Section 8
hereof) shall be made prior to January 31, 2011, and thereafter, only to the
extent expressly permitted by the Administrative Agent in writing pursuant to
Section 7 hereof.
 
    4.Event of Default. The Maker will be in default under this Note upon the
occurrence of any of the following events of default (each, an “Event of
Default”):
 
       (a)the failure to pay any amount of the principal or interest due on this
Note within 10 days after notice to the Maker that such amount is past due; or

 
       (b)the dissolution, voluntary or involuntary bankruptcy, termination of
existence, insolvency or appointment of a receiver of any part of the property
of the Maker or any of the obligations of the Maker, and in the case of an
involuntary proceeding filed against the Maker, such proceeding is not
discharged or dismissed within 90 days.

 
    5.Default Rate.  Subject to Section 7 hereof, upon the occurrence of an
Event of Default, the then entire outstanding principal balance of this Note,
together with all accrued interest, will, at the Payee’s option (exercised then
or thereafter), accrue interest until such default is cured, payable on demand,
at a rate per annum equal to the Index plus two percent (2%).
 
    6.Acceleration.  Upon the occurrence of any Event of Default defined in
Section 3(a), and at any time thereafter as long as any such Event of Default is
continuing, subject to Section 7 hereof, the Payee may declare all liabilities
and obligations of the Maker under this Note immediately due and payable and the
same will thereupon become immediately due and payable without any further
action on the part of the Payee.  Upon the occurrence of any Event of Default
defined in Section 3(b), subject to Section 7 hereof, all liabilities and
obligations of the Maker under this Note will become due and payable without any
action upon the part of the Payee.
 
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    7.Subordination. Notwithstanding anything to the contrary contained in this
Note, the Maker and the Payee agree that all indebtedness evidenced by this
Note, including principal, interest and all other amounts payable hereunder
(collectively, the “Subordinated Indebtedness”), shall be and remain junior and
subordinate to any and all indebtedness, obligations and liabilities, including
principal and interest, of the Maker to the Senior Lenders now existing or
hereafter arising, whether direct or indirect, secured or unsecured, absolute or
contingent, joint or several or joint and several, and howsoever owned, held or
acquired, whether through discount, purchase, direct loan or as collateral or
otherwise and all post-petition interest in a bankruptcy or similar proceeding
whether or not allowed (collectively, the “Superior Indebtedness”), all on the
following terms and conditions:
 
 
(a)So long as any Superior Indebtedness shall remain outstanding and unpaid or
the Senior Lenders have any obligation to extend credit to the Maker, no payment
either of principal or interest (notwithstanding the expressed maturity or any
time for the payment of principal of or interest on any Subordinated
Indebtedness) shall be made on the Subordinated Indebtedness prior to January
31, 2011, and thereafter, such payments shall only be permitted with the
Administrative Agent’s prior written consent.  The Payee will take no steps,
whether by suit or otherwise, to compel or enforce the collection of
Subordinated Indebtedness, nor will the Payee use Subordinated Indebtedness by
way of counterclaim, set-off, recoupment or otherwise so as to diminish,
discharge or otherwise satisfy in whole or in part any indebtedness or liability
of the Payee to the Maker, whether now existing or hereafter arising and
howsoever evidenced.

 
 
(b)In the event of any distribution, dividend, or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the assets of the Maker or of the proceeds thereof to the creditors
of the Maker or upon any indebtedness of the Maker, occurring by reason of the
liquidation, dissolution, or other winding up of the Maker, or by reason of any
execution sale, or bankruptcy, receivership, reorganization, arrangement,
insolvency, liquidation or foreclosure proceeding of or for the Maker or
involving its property, no dividend, distribution or application shall be made,
and the Payee shall not be entitled to receive or retain any dividend,
distribution, or application on or in respect of principal of or interest on
Subordinated Indebtedness, unless and until all principal of and interest on
Superior Indebtedness then outstanding shall have been paid and satisfied in
full, and in any such event any dividend, distribution or application otherwise
payable in respect of Subordinated Indebtedness shall be paid and applied on
Superior Indebtedness until such Superior Indebtedness has been fully paid and
satisfied.

 
 
(c)No Senior Lender need at any time give the Payee notice of any kind of the
creation or existence of any Superior Indebtedness, nor of the amount or terms
thereof, all such notice being hereby expressly waived.  Also, the Senior
Lenders may at any time from time to time, without the consent of or notice to
the Payee, without incurring responsibility to the Payee, and without impairing
or releasing the obligation of the Payee under this Note (i) renew, refund or
extend the maturity of, or increase or decrease the amount of, any Superior
Indebtedness, or any part thereof, or otherwise revise, amend or alter the terms
and conditions thereof, (ii) sell, exchange, release or otherwise deal with any
property by whomsoever at any time pledged, mortgaged or otherwise hypothecated
or subjected to a lien to secure any Superior Indebtedness, and (iii) exercise
or refrain from exercising any rights against the Maker and others, including
the Payee.

 
 
(d)The Payee will not sell, assign or otherwise transfer any Subordinated
Indebtedness, or any part thereof, except subject to and in accordance with the
terms of this Note and upon the agreement of the transferee or assignee to abide
by and be bound by the terms of this Note.

 
 
(e)The Payee represents and warrants that the Payee has no lien on or security
interest in any assets of the Maker and will not accept any such lien or
security interest so long as any Superior Indebtedness shall remain outstanding
and unpaid or the Senior Lenders have any obligations to extend credit to the
Maker.  Notwithstanding the foregoing, the Payee expressly subordinates all of
the Payee’s rights in any collateral now or later securing the Subordinated
Indebtedness (the “Collateral”) to all rights of Fifth Third Bank, as
Administrative Agent for the Senior Lenders, and any and all of its successors
and assigns (collectively, the “Administrative Agent”), now or later existing in
any of the same Collateral to secure the Superior Indebtedness, and any and
every lien or security interest with respect to the Collateral in favor of or
held for the benefit of the Administrative Agent has and shall have priority
over every lien and security interest that the Payee now has or may hereafter
acquire with respect to the Collateral, all notwithstanding any statement or
provision contained in the instruments evidencing the Subordinated Indebtedness,
or agreements with respect thereto or otherwise to the contrary and irrespective
of the time or order of filing or recording of financing statements, deeds of
trust, mortgages or other notices of security interests, liens or assignments
granted pursuant thereto, and irrespective of anything contained in any filing
or agreement to which any part hereto or its respective successors and assigns
may now or hereafter be a party, and irrespective of the ordinary rules for
determining priorities under the Uniform Commercial Code of the State of Ohio or
under any other law governing the relative priorities of secured creditors.  The
Payee consents to the creation and continuance of all present and future liens
and security interests of the Administrative Agent in the Collateral to secure
the Superior Indebtedness and to the enforcement of those liens and security
interests, including the removal of the Collateral from the real property of the
Maker.  This subordination as to the Collateral is intended to define the rights
and duties of the Administrative Agent and the Payee; it is not intended that
any third party shall benefit from it.  If the effect of any provision of this
Note would be to give any third party a priority status to which that party
would not otherwise be entitled, that provision shall, to the extent necessary
to avoid that priority, be given no effect and the rights and priorities of the
Administrative Agent and the Payee shall be determined in accordance with
applicable law.

 
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(f)If notwithstanding the provisions of this Section 7, the Payee shall receive
any payment of principal or interest on Subordinated Indebtedness which the
Maker is not entitled to make pursuant to the terms hereof, whether or not the
Payee has knowledge that the Maker is not entitled to make such payment, the
Payee shall promptly account for such payment and upon the Administrative
Agent’s demand pay over such payment to the Administrative Agent for application
to the Superior Indebtedness owing to the Senior Lenders.  No payment or any
distribution received by the Administrative Agent in respect of Subordinated
Indebtedness pursuant to any of the terms hereof shall entitle the Payee to any
right, whether by virtue of subrogation or otherwise, in and to any Superior
Indebtedness unless and until all Superior Indebtedness owing to the Senior
Lenders has been fully paid and satisfied and the Senior Lenders obligations, if
any, to extend credit to the Maker have expired or otherwise been terminated.

 
    8.Prepayment.  The Maker has the right to prepay, in whole or in part,
without premium or penalty, the unpaid principal amount (or any portion thereof)
of this Note and accrued interest on such amount (i) if consented to in writing
by the Administrative Agent and the Lenders or (ii) at any time after the
payment in full in cash of all Obligations (as defined in the Credit Agreement)
and the termination of the Credit Agreement.
 
    9.Successors and Assigns.  This Note will bind the Maker and its successors
and assigns, and the benefits of this Note will inure to the benefit of the
Payee and its successors and assigns.  The Payee may not assign all or any
portion of its rights or obligations under this Note.  Furthermore, this Note
may not be assigned by the Maker without the prior written consent of the other
party.  All references herein to the “Maker” and the “Payee” are deemed to apply
to the Maker and the Payee, respectively, and to their respective successors and
assigns.
 
    10.Interest Rate Limitation.  Nothing contained in this Note or any
transaction related to this Note, will be construed or so operate as to require
the Maker to pay interest at a greater rate than is now lawful or in such case
to contract for, or to make any payment, or to do any act contrary to applicable
law.  Should any interest or other charges paid by the Maker, or parties liable
for the payment of this Note, in connection with the indebtedness evidenced by
this Note or any other document delivered in connection with this Note, result
in the computation or earning of interest in excess of the maximum legal rate of
interest that is legally permitted under applicable law, then any and all such
excess will be, and the same hereby is, waived by the Payee, and any and all
such excess will be automatically credited against and in reduction of the
balance due under this Note, and the portion of said excess that exceeds the
balance due under this Note shall be paid by the Payee to the Maker.
 
    11.Failure to Make Payments.  If the Maker is not able to perform any of its
obligations under this Note because, in the judgment of the board of directors
of the Maker, based on the advice of counsel, such performance would violate
applicable statutes, the by-laws or the articles of incorporation of the Maker,
any agreement to which the Maker is a party or any rule, regulation, decree or
order to which the Maker is subject, the Maker will take all commercially
reasonable action (including, without limitation, seeking waivers, consents and
approvals and making partial payments to the extent permitted) to fulfill its
obligations as soon as practicable.  The Maker shall not voluntarily amend its
by-laws or articles of incorporation or enter into any agreement with the intent
or result of avoiding its obligations under this Note.
 
    12.Governing Law and Severability.  The provisions of this Note will be
construed according to the laws of the State of Ohio without regard to conflict
of laws principles.  If any provision of this Note is in conflict with any
statute or rule of law of the State of Ohio or is otherwise unenforceable for
any reason whatsoever, then such provision will be ineffective to the extent of
such invalidity and will be deemed separable from and will not invalidate any
other provision of this Note.
 
[Signature Page Follows]

 
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In witness whereof, the Maker has caused this Note to be executed by its officer
thereunto duly authorized, as of the date first written above.
 
 

Champion Industries, Inc.                By   /s/ Todd R. Fry     Name   Todd R.
Fry    Title   Senior Vice President and Chief Financial Officer  

 

Acknowledged and Agreed to:            /s/  Marshall T. Reynolds      Marshall
Reynolds, individually    

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