Exhibit 10.9
Execution Copy
SUBORDINATION AGREEMENT
     This SUBORDINATION AGREEMENT is entered into as of September 15, 2006 (the
“Subordination Agreement”), by and among Robert W. Lackey (“Lackey”), as
collateral agent (in such capacity, the “Agent”) for Lackey, Robert W. Lackey,
Jr., Imagine One Resources, LLC, a North Carolina limited liability company, RWL
Corporation, a North Carolina corporation and R.L. Products Corporation, a
Georgia corporation (together with Lackey, Robert W. Lackey, Jr., Image One
Resources, LLC and RWL Corporation, the “Junior Lender”), whose address is 420
Third Avenue NW, Hickory, NC 28603, THE FROST NATIONAL BANK, a national banking
association (the “Senior Lender”), whose address is 100 W. Houston Street, San
Antonio, Texas 78205, Trade Source International, Inc., a Delaware corporation
(“TSI”), MARKETING IMPRESSIONS, INC., a Georgia Corporation (“MI”), Prime/Home
Impressions, LLC, a North Carolina limited liability company (“PHI”), and
Craftmade International, Inc., a Delaware corporation (“Craftmade”), whose
address is 650 South Royal Lane, Suite 100, Coppell, Texas 75019.
RECITALS:
     A. Craftmade, TSI and Lackey are parties to a Stock Purchase Agreement,
dated as of even date herewith (as amended, modified or supplemented from time
to time, the “Stock Purchase Agreement”), pursuant to which TSI is
(i) purchasing all of Lackey’s interest in MI, (ii) purchasing certain
intellectual property from Lackey, RWL Corporation and R.L. Products
Corporation, (iii) entering into a non-competition agreement with, and
purchasing the goodwill of, each of Lackey and Robert W. Lackey, Jr. and
(iv) entering into a consulting agreement with Image One Resources, LLC, all
upon the terms and conditions set forth therein. The Stock Purchase Agreement
provides that the purchase price for all the assets listed in clauses
(i) through (iv) above will be paid partially at the closing, with the remainder
to be paid through an earn-out over time as provided for therein.
     B. TSI and MI each owns a 50% membership interest in PHI and, subsequent to
the acquisition of MI, TSI will directly or indirectly own all of the membership
interests of PHI.
     C. TSI, MI, PHI and Agent have entered into a Partially Subordinate
Security Agreement of even date herewith wherein each of TSI, MI and PHI
(collectively, the “Pledgors”) granted a security interest in the collateral
described in such Partially Subordinated Security Agreement (such collateral
hereinafter referred to as the “Junior Lender Collateral”) in favor of the
Agent, for the benefit of the Junior Lender, to secure the obligations of TSI
and Craftmade under the Stock Purchase Agreement (such obligations hereinafter
referred to as the “Stock Purchase Debt”).
     D. The Senior Lender has a security interest in TSI’s accounts and
inventory and all products and proceeds of such collateral (including, without
limitation, insurance payable by reason of loss or damage to the foregoing
collateral) (collectively, the “TSI Collateral”), and TSI has agreed not to
grant any further security interests in the TSI Collateral (as used herein,
“accounts” and “inventory” have the meanings given to such terms in the Texas
Business and Commerce Code as in effect in the State of Texas on the date of
this Subordination or as it may hereafter be amended from time to time).

 

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     E. The Junior Lender and TSI desire that the Senior Lender consent to the
grant of a security interest in the TSI Collateral in favor of the Junior
Lender, and the Senior Lender is willing to grant such consent on the terms
hereinafter set forth.
     F. PHI intends to grant to the Junior Lender a security interest is PHI’s
accounts and inventory and all products and proceeds of such collateral
(including, without limitation, insurance payable by reason of loss or damage to
the foregoing collateral) (collectively, the “PHI Collateral”).
     NOW, THEREFORE, in consideration of the granting of such consent, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Agent, on behalf of the Junior Lender, the Pledgors and
Craftmade hereby agree with the Senior Lender as follows:
AGREEMENTS:
     1. Subordination; Consent; Estimated Acceleration Amount Payment Extension.
          1.1 The Junior Lender hereby subordinates (i) the priority of Junior
Lender’s security interest in the TSI Collateral to the priority of the security
interest of Senior Lender in the TSI Collateral and (ii) the priority of Junior
Lender’s security interest in the PHI Collateral to the priority of any security
interest, whenever created, of the Senior Lender in the PHI Collateral. The
Junior Lender’s subordination as set forth in the foregoing sentence in favor of
Senior Lender shall be irrespective of the time, order or method of attachment
or perfection of the security interests granted in favor of such parties or the
time or order of filing or recording of financing statements. The Senior Lender
hereby consents to (i) TSI granting a security interest in the TSI Collateral in
favor of the Junior Lender and (ii) PHI granting a security interest in the PHI
Collateral in favor of the Junior Lender.
          1.2 Notwithstanding anything in Section 2.06(b) of the Stock Purchase
Agreement to the contrary, if (i) Lackey has elected to accelerate the amounts
due under the Stock Purchase Agreement based on the occurrence of the triggering
event described in Section 2.06(a)(ii) of the Stock Purchase Agreement and
(ii) at the time Lackey elects to cause such acceleration, Craftmade has failed
to pay when due any part of the principle or interest due to Senior Lender under
the Amended and Restated Loan Agreement dated October 31, 2005 between Craftmade
and Senior Lender (as amended, modified, restated or supplemented from time to
time, the “Loan Agreement”) and such failure is then continuing, the Junior
Lender hereby agrees that (y) TSI and Craftmade shall have 90 days, rather than
30 days, from the date of the notice described in Section 2.06(a) of the Stock
Purchase Agreement to pay the Estimated Acceleration Amount and (z) the
automatic release of the obligations of Lackey and Robert W. Lackey, Jr. under
the Shareholder Non-Competition Agreement (as defined in the Stock Purchase
Agreement) and the RLJ Non-Competition Agreement (as defined in the Stock
Purchase Agreement), respectively, and the automatic release of the obligations
of Imagine One Resources, LLC under the Consulting Agreement (as defined in the
Stock Purchase Agreement) shall occur if TSI and Craftmade have not paid such
Estimated Acceleration Amount within 105 days, rather than 45 days, of the date
of the notice described in Section 2.06(a) of the Stock Purchase Agreement. TSI
shall provide the Junior Lender and Senior Lender with notice of any payment
default under the Loan Agreement or the Stock Purchase Agreement. The Senior

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Lender shall provide the Junior Lender with notice of any payment default under
the Loan Agreement and, if the Senior Lender has provided such notice to the
Junior Lender, the Junior Lender shall thereafter provide the Senior Lender with
notice of any payment default and of any acceleration of amounts due under the
Stock Purchase Agreement.
          1.3 TSI will promptly deliver to the Senior Lender a certified copy of
the Stock Purchase Agreement, as well as certified copies of all other
agreements, instruments and documents executed in connection therewith. The
Senior Lender hereby agrees to keep all such documents confidential and not to
disclose such documents to any third party except for disclosures made in the
ordinary course of the Senior Lender’s business or as required by law.
          1.4 The parties acknowledge that the description of the collateral
contained in Section 1(c) of the Security Agreement dated November 6, 2001
between TSI and the Senior Lender contains the phrase “and any property,
securities, guaranties or monies of [TSI] which may at any time come into the
possession of the [Senior Lender]” and that any security agreement between PHI
and the Senior Lender may contain the same phrase. The Senior Lender hereby
subordinates (i) the priority of the security interest, if any, in the equipment
and general intangibles of TSI, whether created by such phrase or otherwise, in
favor of the Senior Lender to the priority of the Junior Lender’s security
interest in the Junior Lender Collateral and (ii) the priority of the security
interest, if any, whenever created, in the equipment and general intangibles of
PHI, whether created by such phrase or otherwise, in favor of the Senior Lender
to the priority of the Junior Lender’s security interest in the Junior Lender
Collateral. The Junior Lender hereby subordinates (i) the priority of the Junior
Lender’s security interest in the Junior Lender Collateral to the security
interest, if any, in any property, securities, guaranties or monies of TSI
except equipment and general intangibles created by such phrase in favor of the
Senior Lender and (ii) the priority of the Junior Lender’s security interest in
the Junior Lender Collateral to the security interest, if any, in any property,
securities, guaranties or monies of PHI except equipment and general intangibles
created by such phrase in favor of the Senior Lender in any security agreement
between PHI and the Senior Lender.
          1.5 The Junior Lender hereby agrees to include the following notice in
any financing statement its files covering the Junior Lender Collateral:
“The security interest described herein is subject to the terms and conditions
of the Subordination Agreement dated September 15, 2006 between the debtor, the
secured party and The Frost National Bank, San Antonio, Texas.”
     2. Further Agreement. The Junior Lender agrees that the Senior Lender, at
any time and from time to time hereafter, may enter into such agreements with
Craftmade, any Pledgor or any guarantor of any of the indebtedness now or at any
time hereafter owing by Craftmade or any of the Pledgors to the Senior Lender,
whether absolute or contingent, direct or indirect and howsoever evidenced,
including, but not limited to, all pre-petition and post-petition interest
thereon, fees, expenses and all other demands, claims, liabilities or causes of
action for which Craftmade or any of the Pledgors may now or at any time or
times hereafter in any way be liable to the Senior Lender, whether under any
agreement, instrument or document executed and delivered or made by Craftmade or
any of the Pledgors to the Senior Lender or otherwise, including any
refinancings thereof (collectively, the “Senior Debt”) as the Senior Lender may
deem proper extending the time of payment of or renewing or otherwise altering
the terms of all

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or any of the Senior Debt, and may release any balance of funds of Craftmade,
any Pledgor or any guarantor of the Senior Debt with the Senior Lender, without
notice to the Junior Lender and without in any way impairing or affecting this
Subordination Agreement.
     3. Continuing Agreement. This Subordination Agreement shall be irrevocable
and shall constitute a continuing agreement of subordination and shall be
binding on the Junior Lender and its heirs, personal representatives, successors
and assigns, and shall inure to the benefit of the Senior Lender, its successors
and assigns until all of the Senior Debt has been paid in full and all
obligations arising in connection therewith have been discharged. The Senior
Lender may continue, without notice to the Junior Lender, to lend monies, extend
credit and make other accommodations to or for the account of Craftmade on the
faith hereof.
     4. No Reliance. The Junior Lender hereby assumes responsibility for keeping
itself informed of the financial condition of Craftmade and the Pledgors, any
and all endorsers and any and all guarantors of the Senior Debt, and of all
other circumstances bearing upon the risk of nonpayment of the Senior Debt that
diligent inquiry would reveal, and the Junior Lender hereby agrees that the
Senior Lender shall have no duty to advise the Junior Lender of information
known to the Senior Lender regarding such condition or any such circumstances or
to undertake any investigation. If the Senior Lender, in its sole discretion,
undertakes, at any time or from time to time, to provide any information of the
type described herein to the Junior Lender, the Senior Lender shall be under no
obligation to subsequently update any such information or to provide any such
information to the Junior Lender on any subsequent occasion.
     5. Senior Lender’s Duty Limited. The rights granted to the Senior Lender in
this Subordination Agreement are solely for its protection and nothing herein
contained imposes on the Senior Lender any duties with respect to any property
of either Craftmade or the Pledgors beyond the duty to exercise reasonable care
in the custody and preservation of such property while in the Senior Lender’s
possession. The Senior Lender shall have no duty to preserve rights against
prior parties on any instrument or chattel paper received from Craftmade or any
Pledgor as collateral security for the Senior Debt or any portion thereof.
     6. No Marshalling. The Junior Lender, on its own behalf and on behalf of
its successors and assigns hereby expressly waives all rights, if any, to
require a marshalling of Craftmade’s or any Pledgor’s assets by the Senior
Lender or to require that the Senior Lender first resort to some or any portion
of any collateral for the Senior Debt before foreclosing upon, selling or
otherwise realizing on any other portion thereof.
     7. Waiver In Writing. No waiver shall be deemed to be made by any party
hereto of any of its rights hereunder unless the same shall be in writing signed
on behalf of such party 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 such party.
     8. Choice Of Law. This Subordination Agreement shall be governed and
controlled by the internal laws of the State of Texas.
     9. WAIVER OF JURY TRIAL. THE JUNIOR LENDER AND THE SENIOR LENDER, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY

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WAIVE IRREVOCABLY, THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR
PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS SUBORDINATION
AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE ENTERING INTO OF THIS
SUBORDINATION AGREEMENT.
     10. Counterparts. This Subordination Agreement may be executed in one or
more counterparts (including by means of facsimile or electronic mail), each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
     11. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing, and shall be deemed to be
given or delivered when actually received by the party to whom directed, or, if
earlier and regardless of whether actually received, upon deposit in a regularly
maintained receptacle for the United States mail, registered or certified,
postage fully prepaid, addressed to the party to whom directed at its address
set forth below or at such other address as such party may have specified
previously by notice actually received by the other party:

     
If to Junior Lender:
  Robert W. Lackey, as Agent
 
  420 Third Avenue NW
 
  Hickory, North Carolina 28603
 
   
If to Senior Lender:
  The Frost National Bank
 
  P.O. Box 1600
 
  San Antonio, Texas 78296
 
  Attn: Mike Randall, Executive Vice President

     12. Additional Agreements of Craftmade and Pledgors.
          12.1 Craftmade and Pledgors hereby acknowledge, consent and agree to
the terms and provisions of this Subordination Agreement and agree not to take
any action in contravention of the terms hereof. Craftmade and Pledgors will
give the Senior Lender notice of any suit or action brought in violation of this
Subordination Agreement.
          12.2 Craftmade and Pledgors represent and warrant to the Senior Lender
that no Stock Purchase Debt default exists and agree to promptly provide the
Senior Lender with written notice of any Stock Purchase Debt default.
          12.3 A default or violation of any of the provisions of this
Subordination Agreement by Craftmade or the Pledgors shall constitute a default
or event of default under the Loan Agreement.
     13. FORUM. TO INDUCE THE SENIOR LENDER TO ACCEPT THIS SUBORDINATION
AGREEMENT, THE JUNIOR LENDER IRREVOCABLY AGREES THAT, SUBJECT TO THE SENIOR
LENDER’S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY,
MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS SUBORDINATION
AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF SAN
ANTONIO, STATE

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OF TEXAS. THE JUNIOR LENDER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF
ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. THE
JUNIOR LENDER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST THE JUNIOR LENDER BY THE SENIOR LENDER
IN ACCORDANCE WITH THIS PARAGRAPH.

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     IN WITNESS WHEREOF, the Agent, on behalf of the Junior Lender, the Senior
Lender, Pledgors and Craftmade have executed this Subordination Agreement as of
the date set forth above.

            JUNIOR LENDER:             By:   /s/ Robert W. Lackey         Robert
W. Lackey, as Agent             

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            SENIOR LENDER:                 THE FROST NATIONAL BANK,
a national banking association
      By:   /s/ Mike Randall         Mike Randall, Senior Vice President       
     

[signatures continue on the following page]
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                  CRAFTMADE:
 
   
 
                CRAFTMADE INTERNATIONAL, INC.,         a Delaware corporation  
 
 
           
 
  By:   /s/ Brad Heimann
 
Brad Heimann, President    
 
                PLEDGORS:    
 
                TRADE SOURCE INTERNATIONAL, INC.,         a Delaware corporation
   
 
           
 
  By:   /s/ Brad Heimann    
 
           
 
      Brad Heimann, President    
 
                MARKETING IMPRESSIONS, INC.,         a Georgia corporation    
 
           
 
  By:   /s/ Brad Heimann    
 
           
 
  Name:  Brad Heimann    
 
  Title: President    
 
                PRIME/HOME IMPRESSIONS, LLC,         a North Carolina limited
liability company    
 
           
 
  By:   Trade Source International, a    
 
           
 
      Delaware Corporation, its Manager    
 
           
 
  By:   /s/ Brad Heimann    
 
           
 
  Name:  Brad Heimann    
 
  Title: President    

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