Document:

efsh_ex103.htm

EXHIBIT 10.7

 

This instrument and the indebtedness evidenced hereby, and the rights and remedies of the holders of this instrument, are subordinate in the manner and to the extent set forth in that certain Subordination Agreement (Respecting Seller Note and Earn Out Payments) (as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the provisions thereof, the “Subordination Agreement”) dated as of April 5, 2019, by and among Goedeker Television Co., Inc., a Missouri corporation, and Burnley Capital LLC, a Delaware limited liability company, to the Senior Indebtedness (as defined in the Subordination Agreement); and each holder of this instrument, by its acceptance hereof, shall be bound by the provisions of the Subordination Agreement.

 

This instrument and the indebtedness evidenced hereby, and the rights and remedies of the holders of this instrument, are subordinate in the manner and to the extent set forth in that certain Subordination Agreement (Respecting Seller Note and Earn Out Payments) (as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the provisions thereof, the “Subordination Agreement”) dated as of April 5, 2019, by and among Goedeker Television Co., Inc., a Missouri corporation, and Small Business Community Capital L.P., a Delaware limited liability company, to the Senior Indebtedness (as defined in the Subordination Agreement); and each holder of this instrument, by its acceptance hereof, shall be bound by the provisions of the Subordination Agreement.

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

1847 GOEDEKER INC.

 

9% SUBORDINATED PROMISSORY NOTE

 

	
        US $4,100,000
	
        ______________April 5, 2019

 

FOR VALUE RECEIVED, 1847 Goedeker Inc., a Delaware corporation (the “Company”), promises to pay to Steve Goedeker, in his capacity as the Sellers’ Representative (the “Holder”), the principal sum of Four Million, One Hundred Thousand Dollars ($4,100,000.00) (the “Principal”) in lawful money of the United States of America, with interest payable thereon at the rate of nine percent (9%) per annum. The unpaid principal amount hereof and all accrued but unpaid interest thereon shall be paid in full to the Holder on the fifth (5th) anniversary of the date of this Note (the “Maturity Date”). 

 

Capitalized terms used herein but not defined herein shall have the meaning ascribed to them in that certain Asset Purchase Agreement, dated January 18, 2019 (the “Purchase Agreement”), among the Company, the Holder, Mike Goedeker and Goedeker Television Co., Inc. (the “Seller”), pursuant to which the Company acquired all or substantially all of the assets of the Seller. 

 

	 
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The following is a statement of the rights of the Holder of this Note and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment. The outstanding principal amount of this Note shall be amortized on a five-year straight-line basis and payable quarterly in accordance with the amortization schedule set forth on Exhibit A to this Note (the “Amortization Schedule”) with all of the unpaid principal being fully paid on the Maturity Date, unless this Note has been earlier redeemed. Notwithstanding the foregoing, upon the sale of all or substantially all of the assets of the Company or a sale by 1847 Holdings LLC to an unaffiliated third party of a controlling interest in the Company (whether such sale takes place through a merger, share exchange, stock sale or other structure), the unpaid principal amount and all accrued but unpaid Interest thereon shall automatically become due and payable and the proceeds of any such sale, after the payment of obligations to the Senior Indebtedness, shall be first used to repay amounts due under this Note. 

 

2. Interest. 

 

(a) Computation. Interest (the “Interest”) shall accrue on the unpaid principal amount of this Note from the date hereof until such principal amount is repaid in full at the rate of nine percent (9%) per annum. Interest shall be paid in accordance with the Amortization Schedule with all unpaid Interest being paid on the Maturity Date or the date of the redemption of this Note. All computations of the Interest rate hereunder shall be made on the basis of a 360-day year of twelve 30-day months. In the event that any Interest rate provided for herein shall be determined to be unlawful, such Interest rate shall be computed at the highest rate permitted by applicable law. Any payment by the Company of any Interest amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the principal of this Note without prepayment premium or penalty. 

 

(b) Taxes, Charges, and Expenses. The Company, at its own cost, shall report interest income, if any, to the IRS and/or other applicable tax authorities and to the Holder on a Form 1099-INT or other appropriate form in accordance with applicable law. The Company shall bear sole responsibility for any costs or fees in connection with the payment of Interest with respect to this Note, including, but not limited to, wire transfer fees, bank check fees and escrow agent fees.

 

3. Redemption. The Company will have the right to redeem all or any portion of the Note at any time prior to the Maturity Date without premium or penalty of any kind. The redemption price will be payable in cash and is equal to the then outstanding principal amount of this Note plus accrued but unpaid interest thereon. 

 

4. Events of Default. In the event that any of the following (each, an “Event of Default”) shall occur:

 

	 
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(a) Non-Payment. The Company shall default in the payment of the principal of, or accrued interest on, this Note as and when the same shall become due and payable, whether by acceleration or otherwise; or

 

(b) Default in Covenants. The Company shall default in any material manner in the observance or performance of any covenants or agreements set forth in any of the Transaction Documents; or

 

(c) Breach of Representations and Warranties. The Company materially breaches any representation or warranty contained in the Transaction Documents; or

 

(d) Illegality of Note. Any court of competent jurisdiction issues an order declaring the Note or any provision thereunder to be illegal; 

 

(e) Cross Default. There occurs with respect to any Senior Indebtedness (as defined below): (i) a default with respect to any payment obligation thereunder that then entitles the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity, or (ii) any other default thereunder that entitles, and has caused, the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity; or

 

(f) Bankruptcy. The Company shall: (i) admit in writing its inability to pay its debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property; or (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; 

 

then, and so long as such Event of Default is continuing for a period of two (2) business days in the case of non-payment under Section 4(a) or for a period of thirty (30) calendar days in the case of events under Sections 4(b) through 4(d) or for a period of five (5) calendar days in the case of an event under Section 4(e) (and the event which would constitute such Event of Default, if curable, has not been cured), by written notice to the Company from the Holder, all obligations of the Company under this Note shall be immediately due and payable without presentment, demand, protest or any other action nor obligation of the Holder of any kind, all of which are hereby expressly waived, and Holder may exercise any other remedies the Holder may have at law or in equity. If an Event of Default specified in Section 4(f) above occurs, the principal of, and accrued interest on, the Note shall automatically, and without any declaration or other action on the part of any Holder, become immediately due and payable.

 

5. Affirmative Covenants of the Company. The Company hereby agrees that, so long as the Note remains outstanding and unpaid, or any other amount is owing to the Holder hereunder, the Company will:

 

	 
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(a) Corporate Existence and Qualification. Take the necessary steps to preserve its corporate existence and its right to conduct business in all states in which the nature of its business requires qualification to do business;

 

(b) Compliance with Law. Comply with the charter and bylaws or other organizational or governing documents of the Company, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon the Company or any of its property or to which each of the Company or any of its properties is subject;

 

(c) Taxes. Duly pay and discharge all taxes or other claims, which might become a lien upon any of its property except to the extent that any thereof are being in good faith appropriately contested with adequate reserves provided therefor;

 

(d) Further Assurances. The Company shall execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary or appropriate to carry out the intent and purposes of this Note and to consummate the transactions contemplated herein.

 

6. Subordination.

 

(a) All claims of the Holder to principal, interest and any other amounts at any time owed under this Note (collectively, “Junior Indebtedness”) is hereby expressly subordinated in right of payment, as herein set forth, to the prior payment in full of all Senior Indebtedness (as defined below). No payment under Junior Indebtedness shall be made by the Company, nor shall the Holder exercise any remedies under the Junior Indebtedness (including taking any legal action (whether judicial or otherwise) to collect the Junior Indebtedness), if, at the time of such payment, exercise or immediately after giving effect thereto, (i) there shall exist any material “Default” or “Event of Default” under any agreements governing any of the Senior Indebtedness or (ii) the maturity of any of the Senior Indebtedness has been accelerated and such acceleration has not been waived or such Senior Indebtedness has not been paid in full; provided, however, that (x) in the event that the holder of any Senior Indebtedness accelerates such Senior Indebtedness, then the Holder may accelerate the indebtedness evidenced by this Note, and (y) if the Company is permitted under the terms of the Senior Indebtedness to pay an amount due and owing under this Note and fails to make such payment, then so long as the terms of the Senior Indebtedness do not prohibit such action, the Holder may exercise its rights to be paid such amount, but only such amount (and Holder shall not be permitted to accelerate hereunder). 

 

(b) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money, before any payment is made under Junior Indebtedness; and upon any such dissolution or winding up or liquidation or reorganization, any distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holder as holder of the Junior Indebtedness would be entitled except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holder if received by Holder, directly to the holder of the Senior Indebtedness, or its representatives, to the extent necessary to pay all such Senior Indebtedness in full, in money, after giving effect to any concurrent prepayment or distribution to or for the benefit of the holders of such Senior Indebtedness, before any payment or distribution is made to the Holder with respect to the Junior Indebtedness. 

 

	 
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(c) If the holders of the Senior Indebtedness in good faith believe Holder may fail to timely file a proof of claim in any such proceeding, the holder(s) of the Senior Indebtedness may do so for Holder. 

 

(d) In the event that any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing where the holder has actual knowledge of a Senior Indebtedness payment default shall be received by the Holder before all the Senior Indebtedness is paid in full, or provisions made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of the Senior Indebtedness or their representative or representatives, as their respective interests may appear, for application to the payment of all the Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full, in money, in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. 

 

(e) The provisions hereof are solely for the purpose of defining the relative rights of the holders of the Senior Indebtedness on the one hand and the Holder as holder of the Junior Indebtedness on the other hand, and nothing herein shall impair, as between the Company and the Holder, the obligations of the Company under the Junior Indebtedness, which are unconditional and absolute. With this in mind, notwithstanding the other provisions of this Section 6, if and so long as all documents governing the Senior Indebtedness permit one of the actions restricted by this Section 6, the restriction shall be waived and the restricted action permitted hereunder. 

 

(f) No right of any present or future holder of any Senior Indebtedness to enforce the subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any act or failure to act, in good faith, by any such holder of the Senior Indebtedness, or any noncompliance by the Company with the terms, provisions and covenants hereof, regardless of any knowledge thereof any holder of the Senior Indebtedness may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the holders of the Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Note or the obligations hereunder of the Holder to the holders of the Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or create, renew or alter, the Senior Indebtedness, or otherwise amend or supplement in any manner the Senior Indebtedness or any instrument evidencing the same or any agreement under which the Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Indebtedness; (iii) release any person liable or contingently liable in any manner for the payment or collection of the Senior Indebtedness; and/or (iv) exercise or refrain from exercising any rights against the Company or any other person.

 

	 
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(g) Each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of this Note, shall be entitled to rely on the subordination provisions set forth in this Note.

 

(h) Notwithstanding the provisions of this Section 6, the Holder shall not be charged with knowledge of the existence of facts which would prohibit the making of any payments on the Junior Indebtedness unless and until the holder(s) of the Senior Indebtedness or their representatives send written notice to Holder of same.

 

(i) Subject to the payment in full of all the Senior Indebtedness, Holder as holder of the Junior Indebtedness shall be subrogated to the rights of the holders of the Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the Senior Indebtedness shall be paid in full.

 

(j) The Holder shall confirm (in writing) the above subordination provisions if requested by any holder of the Senior Indebtedness, and shall execute and deliver such additional subordination agreements, consistent with the foregoing as any holder of Senior Indebtedness may require.

 

(k) For purposes hereof, “Senior Indebtedness” means, with respect to the Company, all indebtedness of the Company, whether outstanding on the date of the execution of this Note or thereafter created, to Burnley Capital and SBCC or one or more of their respective affiliates; provided, however, that any term loan included in the definition of Senior Indebtedness shall not exceed $1,500,000 and the $1,500,000 cap on any such term loan shall be decreased by any amounts repaid to the term loan lender under the Company’s term loan with such lender.

 

7. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to its satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity (which shall not include the posting of any bond) as may be reasonably required by the Company to hold the Company harmless. 

 

8. Waiver of Demand, Presentment, etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. The Company agrees that, in the event of an Event of Default, to reimburse the Holder for all reasonable costs and expenses (including reasonable legal fees of one counsel) incurred in connection with the enforcement and collection of this Note.

 

	 
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9. Payment. All payments with respect to this Note shall be made in lawful money of the United States of America, at the address of the Holder as of the date hereof or as designated in writing by the Holder from time to time. The receipt by the Holder of immediately available funds shall constitute a payment of principal and interest hereunder and shall satisfy and discharge the liability for principal and interest on this Note to the extent of the sum represented by such payment. Payment shall be credited first to the accrued interest then due and payable and the remainder applied to principal. 

 

10. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the successors and permitted assigns of the parties hereto. To complete an assignment or transfer this Note, the Holder shall deliver a completed and executed Form of Assignment attached hereto as Exhibit B and surrender and deliver this Note, duly endorsed, to the Company’s office or such other address which the Company shall designate, upon receipt of which a new Note, in substantially the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Note that the Holder has in respect of this Note. Interest and principal are payable only to the registered Holder of this Note set forth on the books and records of the Company. 

 

11. Waiver and Amendment. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

 

12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if given in accordance with the provisions of the Purchase Agreement. 

 

13. Governing Law and Arbitration. This Note shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Missouri. Any dispute shall be resolved by arbitration conducted in St. Louis Missouri, in accordance with Chapter 435 of the Missouri Revised Statutes. The provisions of this Section 13 shall survive the entry of any judgment, and will not merge, or be deemed to have merged, into any judgment.

 

14. Headings. The descriptive headings contained in this Note are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Note.

 

15. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.

 

[Signature Page Follows]

 

	 
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IN WITNESS WHEREOF, the undersigned have caused this Note to be issued as of the date first above written.

 

	 	1847 GOEDEKER INC.	
	 	   	  	 
		By:	/s/ Robert D. Barry 	
	
         
	
        Name:
	Robert D. Barry	 
	 	Title:	Chief Financial Officer	 

  

	
         

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EXHIBIT A

 

Amortization Schedule

 

Quarterly payments begin on July 1, 2019 and shall be made on each July 1, October 1 and January 1 and April 1 thereafter. 

 

	
        Quarter
	
         
	
         
	
        Payment
	
         
	
         
	
        Principal Paid
	
         
	
         
	
        Interest Paid
	
         
	
         
	
        Remaining Balance
	
         

	
        1.
	
         
	
         
	$	256,832.49	
         
	
         
	$	164,582.49	
         
	
         
	$	92,250.00	
         
	
         
	$	3,935,417.51	
         

	
        2.
	
         
	
         
	$	256,832.49	
         
	
         
	$	168,285.60	
         
	
         
	$	88,546.89	
         
	
         
	$	3,767,131.91	
         

	
        3.
	
         
	
         
	$	256,832.49	
         
	
         
	$	172,072.02	
         
	
         
	$	84,760.47	
         
	
         
	$	3,595,059.89	
         

	
        4.
	
         
	
         
	$	256,832.49	
         
	
         
	$	175,943.64	
         
	
         
	$	80,888.85	
         
	
         
	$	3,419,116.25	
         

	
        5.
	
         
	
         
	$	256,832.49	
         
	
         
	$	179,902.37	
         
	
         
	$	76,930.12	
         
	
         
	$	3,239,213.88	
         

	
        6.
	
         
	
         
	$	256,832.49	
         
	
         
	$	183,950.18	
         
	
         
	$	72,882.31	
         
	
         
	$	3,055,263.70	
         

	
        7.
	
         
	
         
	$	256,832.49	
         
	
         
	$	188,089.06	
         
	
         
	$	68,743.43	
         
	
         
	$	2,867,174.64	
         

	
        8.
	
         
	
         
	$	256,832.49	
         
	
         
	$	192,321.06	
         
	
         
	$	64,511.43	
         
	
         
	$	2,674,853.58	
         

	
        9.
	
         
	
         
	$	256,832.49	
         
	
         
	$	196,648.28	
         
	
         
	$	60,184.21	
         
	
         
	$	2,478,205.30	
         

	
        10.
	
         
	
         
	$	256,832.49	
         
	
         
	$	201,072.87	
         
	
         
	$	55,759.62	
         
	
         
	$	2,277,132.43	
         

	
        11.
	
         
	
         
	$	256,832.49	
         
	
         
	$	205,597.01	
         
	
         
	$	51,235.48	
         
	
         
	$	2,071,535.42	
         

	
        12.
	
         
	
         
	$	256,832.49	
         
	
         
	$	210,222.94	
         
	
         
	$	46,609.55	
         
	
         
	$	1,861,312.48	
         

	
        13.
	
         
	
         
	$	256,832.49	
         
	
         
	$	214,952.96	
         
	
         
	$	41,879.53	
         
	
         
	$	1,646,359.52	
         

	
        14.
	
         
	
         
	$	256,832.49	
         
	
         
	$	219,789.40	
         
	
         
	$	37,043.09	
         
	
         
	$	1,426,570.12	
         

	
        15.
	
         
	
         
	$	256,832.49	
         
	
         
	$	224,734.66	
         
	
         
	$	32,097.83	
         
	
         
	$	1,201,835.46	
         

	
        16.
	
         
	
         
	$	256,832.49	
         
	
         
	$	229,791.19	
         
	
         
	$	27,041.30	
         
	
         
	$	972,044.27	
         

	
        17.
	
         
	
         
	$	256,832.49	
         
	
         
	$	234,961.49	
         
	
         
	$	21,871.00	
         
	
         
	$	737,082.78	
         

	
        18.
	
         
	
         
	$	256,832.49	
         
	
         
	$	240,248.13	
         
	
         
	$	16,584.36	
         
	
         
	$	496,834.65	
         

	
        19.
	
         
	
         
	$	256,832.49	
         
	
         
	$	245,653.71	
         
	
         
	$	11,178.78	
         
	
         
	$	251,180.94	
         

	
        20.
	
         
	
         
	$	256,832.51	
         
	
         
	$	251,180.94	
         
	
         
	$	5,651.57	
         
	
         
	$	0	
         

	
        Totals
	
         
	
         
	$	5,136,649.82	
         
	
         
	$	4,100,000.00	
         
	
         
	$	1,036,649.82	
         
	
         
	
         
	
         
	
         

 

	 
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EXHIBIT B

 

Form of Assignment

 

TO: 1847 Goedeker Inc.,

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________ (name), __________________________________________ (address), US$____________ of 9% Subordinated Promissory Note (“Note”) of 1847 Goedeker Inc. (the “Company”), including any and all accrued and unpaid interest owing thereon, registered in the name of the undersigned on the records of the Company represented by the within certificate, and irrevocably appoints ___________________ the attorney of the undersigned to transfer the said securities on the books or register with full power of substitution.

 

DATED this ________ day of, __________________, 20 ____.

 

 

	
         
	
         

	
        (Signature of Registered Note Holder)
	
         

	
            
	
         

	
          
	
         

	
        (Print name of Registered Note Holder)
	
         

 

Instructions:

 

	1.	Signature of Holder must be the signature of the person appearing on the face of the Note.
	
         
	
          

	2.	If the transfer of Note is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 

 

	10efsh_ex104.htm

EXHIBIT 10.8

 

SUBORDINATION AGREEMENT

(Respecting Seller Note and Earn Out Payments)

 

This Subordination Agreement (this “Agreement”) is made as of April 5, 2019, by and between Goedeker Television Co., Inc., a Missouri corporation (the “Subordinated Creditor”), and Burnley Capital LLC, a Delaware limited liability company (the “Senior Lender”). Each of the Subordinated Creditor and Senior Lender may be referred to herein as a “Creditor” or collectively as the “Creditors”.

 

RECITALS:

 

A. 1847 Goedeker Inc., a Delaware corporation (the “Borrower”), and 1847 Goedeker Holdco Inc. (“Holdco” and together with the Borrower, the “Loan Parties”) are now, or may hereafter be, indebted to Senior Lender as a result of extensions of credit under that certain Loan and Security Agreement, dated as of the date hereof, among the Loan Parties and the Senior Lender (as such agreement may be amended, modified, supplemented, replaced or refinanced from time to time, the “Loan Agreement”).

 

B. Borrower is indebted to Subordinated Creditor under that certain 9% Subordinated Promissory Note of even date herewith, a copy of which is attached hereto as Exhibit A (the “Subordinated Note”).

 

C. The Subordinated Creditor is entitled to receive from Borrower “Earn Out Payments” as such term is defined in the Asset Purchase Agreement (the “Earn Out Payments”), of even date herewith, a copy of which is attached hereto as Exhibit B (the “Asset Purchase Agreement”).

 

D. Subordinated Creditor and Senior Lender desire to agree to their respective rights, priorities and interests regarding each of their loans to Borrower, all as set forth herein.

 

AGREEMENTS:

 

IN CONSIDERATION of the foregoing premises, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Subordinated Creditor and Senior Lender agree as follows:

 

1. Subordination. The payment of all amounts owed under the Subordinated Note and all Earn Out Payments (collectively, the “Subordinated Indebtedness”) is hereby subordinated to the payment in full of all indebtedness owed to the Senior Lender under the Loan Agreement and all other loan documents, whether now existing or hereafter incurred or created (the “Senior Indebtedness”), and no payments or other distributions whatsoever in respect of any Subordinated Indebtedness shall be made by the Loan Parties and no property or assets of the Loan Parties shall be applied to the purchase, redemption or other acquisition or retirement of any Subordinated Indebtedness, until the Senior Indebtedness shall have been indefeasibly paid in full and all commitments of the Senior Lender to make loans and other credit accommodations to the Loan Parties have been terminated. Notwithstanding the foregoing:

 

	 
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(a) Permitted Payments on Subordinated Note. So long as no “Default” or “Event of Default” (each as defined in the Loan Agreement or any other loan document evidencing Senior Indebtedness) has occurred and is continuing (or would result on a pro forma basis after giving effect to the then due payment on the Subordinated Note) and such payments were reflected in the business plan most recently delivered to the Senior Lender by the Borrower, Borrower may pay and the Subordinated Creditor may receive regularly scheduled quarterly payments of interest and principal (but not accelerated payments) when and as due under the Subordinated Note as in effect on the date hereof.

 

(b) Permitted Earn Out Payments. So long as no “Default” or “Event of Default” (each as defined in the Loan Agreement or any other loan document evidencing Senior Indebtedness) has occurred and is continuing (or would result on a pro forma basis after giving effect to the then due Earn Out Payment), and provided that the Loan Parties’ Chief Financial Officer has delivered to the Senior Lender a notice setting forth the Earn Out Payment then due under the Asset Purchase Agreement as in effect on the date hereof, and certifying that the Borrower is in compliance a pro forma basis after giving effect to such Earn Out Payment with the financial covenants set forth in Section 7.3 of the Loan Agreement and such Earn Out Payments were reflected in the business plan most recently delivered to the Senior Lender by the Borrower, Borrower may pay and the Subordinated Creditor may receive such Earn Out Payment.

 

2. No Right of Action. If an Event of Default occurs and is continuing under the Seller Note, the Subordinated Creditor may accelerate all or a portion of the Subordinated Indebtedness, but will not commence any action or proceeding against the Loan Parties to recover all or any part of the Subordinated Indebtedness, or join with any creditor (unless the Senior Lender shall so join) in bringing any proceeding against the Loan Parties under any bankruptcy, reorganization, readjustment of debt, arrangement of debt, receivership, liquidation or insolvency law or statute of the federal or any state government, unless and until the Senior Indebtedness has been indefeasibly paid in full and all commitments of the Senior Lender to make loans and other credit accommodations to the Loan Parties have been terminated. The Subordinated Creditor will not obtain or otherwise acquire or accept any lien in any property or assets of the Loan Parties. The Subordinated Creditor will not commence any action or proceeding with respect to any property or assets of the Loan Parties, will not take possession of, sell, or dispose of any property or assets of the Loan Parties, and will not exercise or enforce any right or remedy available to the Subordinated Creditor with respect to any property or assets of the Loan Parties other than to accelerate all or a portion of the Subordinated Indebtedness, unless and until the Senior Indebtedness has been paid in full and all commitments of the Senior Lender to make loans and other credit accommodations to the Loan Parties have been terminated. 

 

Notwithstanding anything to the contrary contained in this Agreement, the Subordinated Creditor shall be permitted to commence any action or proceeding against the Loan Parties to recover all or any part of the Subordinated Indebtedness, or join with any creditor in bringing any proceeding against the Loan Parties under any bankruptcy, reorganization, readjustment of debt, arrangement of debt, receivership, liquidation or insolvency law or statute of the federal or any state government at any time following the two hundredth day (200th) day after the Subordinated Creditor has provided written notice of an Event of Default (as defined in the Seller Note) to the Loan Parties and the Senior Lender; provided that such Event of Default (as so defined) is continuing and has not been cured.

 

	 
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3. No Security. The Subordinated Creditor warrants and represents that the Subordinated Indebtedness is unsecured and agrees that (i) the Subordinated Creditor hereafter will not accept any security of any kind for the Subordinated Indebtedness, and (ii) in the event the Subordinated Creditor does obtain any security for the Subordinated Indebtedness, the Subordinated Creditor shall execute and deliver to the Senior Lender, and hereby authorizes the Senior Lender to prepare and record, such termination statements and releases as the Senior Lender shall reasonably request or require to release the Subordinated Creditor’s security interest in or lien against such property. The Subordinated Creditor hereby agrees that any lien or security interest that it may now or hereafter have in any property in contravention of the preceding sentence is subject and subordinate, to the extent and in the manner provided herein, to any liens and security interests that the Senior Lender may now or hereafter have in such property to secure the Senior Indebtedness. The Subordinated Indebtedness shall continue to be subordinated to the Senior Indebtedness even if the Senior Indebtedness is deemed unsecured, under-secured, subordinated, avoided or disallowed under the United States Bankruptcy Code or other applicable law.

 

4. Subordinated Indebtedness Owed Only to Subordinated Creditor. The Subordinated Creditor warrants and represents that the Subordinated Creditor has not previously assigned any interest in the Subordinated Indebtedness, that no other entity or person owns an interest in the Subordinated Indebtedness (whether as joint holders of the Subordinated Indebtedness, participants or otherwise), and that all of the Subordinated Indebtedness is owing only to the Subordinated Creditor. The Subordinated Creditor further covenants that all of the Subordinated Indebtedness shall continue to be owing only to the Subordinated Creditor unless it is assigned to an entity or a person who agrees with the Senior Lender to be bound by the subordination provisions set forth herein.

 

5. Receipt of Prohibited Payments. If the Subordinated Creditor receives any payment in respect of the Subordinated Indebtedness that the Subordinated Creditor is not entitled to receive under the provisions of this Agreement and the Subordinated Creditor knows, or reasonably should have known that an Event of Default has occurred and is continuing, or receives written notice from Senior Lender of the same, the Subordinated Creditor will hold the amount so received in trust for the Senior Lender and will forthwith turn over such payment to the Senior Lender in the form received (except for the endorsement of the Subordinated Creditor where necessary) for application to then‐existing Senior Indebtedness (whether or not due), in such manner of application as the Senior Lender may deem appropriate. If the Subordinated Creditor exercises any right of setoff or takes any other action which the Subordinated Creditor is not permitted to exercise or take under the provisions of this Agreement, the Subordinated Creditor will promptly pay over to the Senior Lender, in immediately available funds, an amount equal to the amount of the claims or obligations so offset or an amount equal to any amount recovered from any such action, as applicable. If the Subordinated Creditor fails to make any endorsement required under this Agreement, the Senior 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. The turnover of any prohibited payments by the Subordinated Creditor to the Senior Lender pursuant to this Section 5 shall not limit or restrict any other claims, actions, rights or remedies which the Senior Lender may have against the Subordinated Creditor as a result of the Subordinated Creditor’s exercising any right or taking any action which is not permitted under the terms of this Agreement.

 

	 
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6. Continuing Nature of Subordination. This Agreement shall be effective and may not be terminated or otherwise revoked by the Subordinated Creditor until all of the Senior Indebtedness shall have been fully paid and discharged and all financing arrangements between the Loan Parties and the Senior Lender have been terminated. This Agreement shall constitute a continuing agreement of subordination, and the Senior Lender may, without notice to or consent by the Subordinated Creditor, modify any term of the Senior Indebtedness in reliance upon this Agreement. 

 

7. Instrument Legend; No Amendments to Subordinated Indebtedness. Any instrument evidencing the Subordinated Indebtedness will be inscribed with a legend conspicuously indicating that payment thereof is subordinated to the claims of the Senior Lender pursuant to the terms of this Agreement. The Subordinated Creditor will not agree to any amendment, restatement or other modification of the Subordinated Note or of the Asset Purchase Agreement, without the prior written consent of the Senior Lender.

 

8. Binding Effect. This Agreement shall be binding upon the Creditors (and their respective successors and assigns), and shall inure to the benefit of the Senior Lender (and its successors and assigns).

 

9. Governing Law and Construction. The validity, construction and enforceability of this Agreement shall be governed by the internal laws of the state of Minnesota, without giving effect to the conflict of laws principles thereof.

 

10. Consent to Jurisdiction. THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE SUBORDINATED CREDITOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE SUBORDINATED CREDITOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE SENIOR LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

 

	 
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11. Waiver of Jury Trial. THE SUBORDINATED CREDITOR IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

12. No Obligation to Provide Financial Accommodations. The Subordinated Creditor acknowledges and agrees that this Agreement is executed and delivered to the Senior Lender to induce the Senior Lender to make financial accommodations available to the Borrower, but this Agreement does not obligate the Senior Lender to make any financial accommodations available to the Borrower.

 

13. Counterparts. This Agreement may be signed in any number of counterpart copies and by the parties hereto on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Agreement by facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by facsimile transmission.

 

(Signature page follows)

 

	 
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THE UNDERSIGNED HAS EXECUTED this Subordination Agreement as of the date first above written.

 

	 	
        GOEDEKER TELEVISION CO., INC.
	
	 	 	 	 
		By:	/s/ Stephen Goedeker 	
	
         
	
        Name:
	Stephen Goedeker 	 
	 	Its: 	
        President 
	 
	 	 	 	 
	
         
	
         
	
         
	
         

	
         
	
        Address for Notices:
	
         

	
         
	
        Steve Goedeker 
	
         

	
         
	
        9013 Pilot
	
         

	
         
	
        St. Louis, MO 63123 
	
         

	
         
	
         
	
         

	
         
	
         
	
         
	
         

 

	 
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THE UNDERSIGNED HAS EXECUTED this Subordination Agreement as of the date first above written.

 

	 	
        BURNLEY CAPITAL LLC
	
	 	 	 	 
		By:	/s/ Daniel O’Rourke 	
	
         
	
        Name:
	Daniel O’Rourke 	 
	 	Its: 	
        Authorized Officer 
	 
	 	 	 	 
	
         
	
        Address for Notices:
	
         

	
         
	
        212 3rd Avenue N., Suite 505 
	
         

	
         
	
        Minneapolis, MN 55401 
	
         

	
         
	
         
	
         

	
         
	
         
	
         

	
         
	
         
	
         
	
         

 

	 
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LOAN PARTIES’ ACKNOWLEDGMENT

 

The Loan Parties hereby acknowledge receipt of a copy of the foregoing Subordination Agreement, and agree to be bound by the terms and provisions thereof, to make no payments or distributions contrary to the terms and provisions thereof, and to do every other act and thing necessary or appropriate to carry out such terms and provisions. 

 

	 	
        1847 GOEDKER INC. 
	
	 	 	 	 
		By:	/s/ Robert D. Barry 	
	
         
	
        Name:
	Robert D. Barry 	 
	 	Its: 	
        Chief Financial Officer 
	 
	 	 	 	 
	
         
	
        1847 GOEDEKER HOLDCO INC.
	
         

	
         
	
         
	
         

	
         
	By:	/s/ Robert D. Barry 	
         

	
         
	
        Name:
	 Robert D. Barry 	
         

	
         
	Its:	
        President 
	
         

 

 

	
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