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EXHIBIT 10.23
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INTERCREDITOR AND SUBORDINATION AGREEMENT
Dated as of October 26, 1998
Among
THE TRADE CREDITORS NAMED HEREIN,
UNITED STATES TRUST COMPANY OF NEW YORK,
as COLLATERAL AGENT FOR THE TRADE CREDITORS
And
CONGRESS FINANCIAL CORPORATION (WESTERN)
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INTERCREDITOR AND SUBORDINATION AGREEMENT ("Agreement") dated as of
October 26, 1998, by and among BMG MUSIC aka BMG DISTRIBUTION ("BMG"), EMI MUSIC
DISTRIBUTION, a Division of Capitol Records, Inc., ("EMI") POLYGRAM GROUP
DISTRIBUTION, INC. ("Polygram"), RELATIVITY ENTERTAINMENT DISTRIBUTORS, INC.
("RED"), SONY MUSIC ENTERTAINMENT, INC. ("Sony"), UNIVERSAL MUSIC AND VIDEO
DISTRIBUTION, INC. ("Universal"), and WARNER/ELEKTRA/ATLANTIC CORP. ("WEA")
(BMG, EMI, Polygram, RED, Sony, Universal, WEA and such other trade creditors
that execute an Agreement Regarding Additional Trade Creditor pursuant to
Section 3.13 are hereafter referred to collectively as the "Trade Creditors"),
UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation, as
collateral agent (in such capacity, the "Collateral Agent") for the Trade
Creditors and CONGRESS FINANCIAL CORPORATION (WESTERN), a California corporation
("Congress").
A. Wherehouse Entertainment, Inc. ("Wherehouse") has acquired all
the outstanding capital stock of Wherehouse Holding I Co., Inc. (formerly known
as Blockbuster Music Holding Corporation) and Wherehouse Holding II Co., Inc.
(formerly known as Blockbuster SC Holding Corporation) (collectively the
"Subsidiary Holding Companies"); and
B. The Subsidiary Holding Companies own all of the capital stock
of Wherehouse Subsidiary I Co., Inc., Wherehouse Subsidiary II Co., Inc., and
Wherehouse Subsidiary III Co., Inc. (each a "Borrower" and collectively
"Borrowers"); and
C. Borrowers were formerly known as Blockbuster Music Retail,
Inc., Show Industries, Inc., and Blockbuster SC Music Corporation, respectively,
and did business under the name Blockbuster Music; and
D. Borrowers, the Trade Creditors and the Collateral Agent have
entered into that certain Security Agreement and other agreements, documents and
instruments dated as of even date herewith, as amended or modified from time to
time (collectively, the "Trade Financing Agreement"), pursuant to which the
Trade Creditors have agreed to extend certain trade financing to Borrowers on
the terms and conditions set forth therein.
E. Pursuant to the terms of the Trade Financing Agreement, the
Borrowers have granted security interests in the Trade Collateral (as
hereinafter defined) to the Collateral Agent for the benefit of the Trade
Creditors.
F. Borrowers and Wherehouse have requested that Congress enter
into various agreements, including that certain Amended and Restated Loan and
Security Agreement and other agreements, documents and instruments, of even date
herewith, as amended or modified from time to time (collectively, the "Senior
Loan Agreement"), pursuant to which Congress would extend certain loans and
financial accommodations to Borrowers and to Wherehouse. Pursuant to the terms
of the Senior Loan Agreement, Congress would take a security interest in the
Congress Collateral (as hereinafter defined).
G. Congress in unwilling to enter into the Senior Loan Agreement
with Borrowers and Wherehouse and to extend to Borrowers and Wherehouse the
loans contemplated thereunder unless the Trade Creditors and the Collateral
Agent enter into this Agreement.
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H. The Trade Creditors and the Collateral Agent are interested in
the financial success of Borrowers and will benefit by the loans which Congress
proposes to extend to Borrowers and Wherehouse under the Senior Loan Agreement.
I. Accordingly, to induce Congress to enter into the Senior Loan
Agreement with Borrowers and Wherehouse and to extend to Borrowers the loans
contemplated thereunder, the Trade Creditors and the Collateral Agent are
willing to enter into this Agreement with Congress.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below.
"Advances" means Revolving Loans as defined in the Senior Loan
Agreement.
"Agreement" has the meaning set forth in the preamble of this Agreement.
"Blockage Commencement Date" has the meaning set forth in Section 2.02
of this Agreement.
"Blockage Period" has the meaning set forth in Section 2.02 of this
Agreement.
"Borrower" or "Borrowers" has the meaning set forth in the recitals of
this Agreement.
"Compliance Period" has the meaning set forth in Section 2.03 of this
Agreement.
"Congress Collateral" means the "Collateral" as defined in the Senior
Loan Agreement.
"Congress Obligations" means the "Obligations" as defined in the Senior
Loan Agreement; provided, the Obligations shall not include any Advances to the
extent such Advances would, at the time made, cause the Obligations to exceed by
more than $4,000,000 the maximum amount Borrower may be entitled to borrow or be
obligated to repay under the formulas set forth in the Senior Loan Agreement and
Congress has actual knowledge that such Advances exceed such amount.
"Defaulting Borrower" has the meaning set forth in Section 2.02 of this
Agreement.
"Default Notice" has the meaning set forth in Section 2.02 of this
Agreement.
"Enforcement Action" has the meaning set forth in Section 2.02 of this
Agreement.
"Expired Blockage Days" has the meaning set forth in Section 2.03
hereof.
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"Majority Trade Creditors" means the holders of at least 66-2/3% in
dollar amount of the Trade Obligations existing at a point in time when
measured.
"Person" means any individual, corporation, partnership, limited
liability company, limited liability partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Senior Loan Agreement" has the meaning set forth in the recitals of
this Agreement.
"Subsidiary" means any person at least a majority of the outstanding
voting securities or other voting interests of which is at the time owned or
controlled directly or indirectly by any of the Company, Seller, or one or more
Subsidiaries.
"Subsidiary Holding Companies" has the meaning set forth in the recitals
to this Agreement.
"Trade Collateral" means the collateral the Collateral Agent was granted
a security interest in for the benefit of the Trade Creditors as set forth in
Exhibit A hereto.
"Trade Default" has the meaning set forth in Section 2.02 of this
Agreement.
"Trade Obligations" means all obligations of Borrower to the Trade
Creditors pursuant to the terms of the Trade Financing Agreement.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles and Sections shall be deemed references to
Articles and Sections of this Agreement unless the context shall otherwise
require. Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Senior Loan Agreement.
ARTICLE II.
INTERCREDITOR ARRANGEMENTS
SECTION 2.01. Priority of Security Interests. Each of the Trade
Creditors and the Collateral Agent hereby agrees that any security interest,
lien, or other right or interest in the Congress Collateral acquired by any of
them at any time, present or future, shall at all times prior to the
indefeasible payment and satisfaction in full of the Congress Obligations be
junior, subordinate and subject to any present or future security interest, lien
or other right or interest Congress now has or may hereafter acquire in the
Congress Collateral. The subordination provided in this Section 2.01 shall apply
irrespective of the time or order of attachment or perfection of any security
interest, irrespective of the time or order of filing or recording of any
financing statement or other document, and irrespective of any statute, rule,
law, or court decision to the contrary.
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SECTION 2.02. Standstill of Enforcement Remedies Upon Default Under
Trade Obligations. Except as provided below, upon the occurrence of any default
with respect to any Trade Obligations or any other secured obligation owing to
any Trade Creditor, none of the Trade Creditors or the Collateral Agent may
institute an Enforcement Action (as hereinafter defined). Upon the occurrence
and during the continuance of a payment default by a Borrower (a "Defaulting
Borrower") with respect to 25% or more of the then outstanding dollar amount of
the Trade Obligations owed by such Defaulting Borrower, measured on a daily
basis (a "Trade Default"), the Collateral Agent may initiate an Enforcement
Action on behalf of the Trade Creditors against the Defaulting Borrower or with
respect to the Congress Collateral (i) provided that the Majority Trade
Creditors of such Defaulting Borrower or the Collateral Agent on behalf of the
Majority Trade Creditors of such Defaulting Borrower shall have first given
Congress and Borrowers written notice of such default and their or its intention
to exercise such Enforcement Action (a "Default Notice"), and (ii) only after
the expiration of a period (a "Blockage Period"), commencing upon the date of
the receipt by Congress of said Default Notice (the "Blockage Commencement
Date") and ending on that date which is one hundred fifty (150) days after the
Blockage Commencement Date, minus the cumulative number (up to a maximum of
sixty (60)) Expired Blockage Days (as hereinafter defined) for such Defaulting
Borrower, if any, incurred as of the Blockage Commencement Date within the
relevant Compliance Period (as hereinafter defined) for such Defaulting
Borrower. For purposes of this Agreement, an "Enforcement Action" means any
action to: (i) exercise any right, remedy or power with respect to, or otherwise
take any action to enforce, any lien on or security interest in, or realize upon
any Trade Collateral or Congress Collateral; (ii) seek to have a trustee,
receiver, liquidator or similar official appointed for or over any Trade
Collateral or Congress Collateral; or (iii) pursue any judicial action or
otherwise enforce any rights or remedies in or to any Trade Collateral or
Congress Collateral. Upon the expiration of the Blockage Period, the Majority
Trade Creditors of the Defaulting Borrower (or the Collateral Agent on behalf
and upon the direction of the Majority Trade Creditors) may institute an action
against the Defaulting Borrower to enforce the Trade Obligations of the
Defaulting Borrower; provided, however, that in no event shall the Trade
Creditors or the Collateral Agent take any action described in clauses (i)
through (iii) of the immediately preceding sentence if Congress has commenced or
given notice of the intention to commence an action with respect to the Congress
Collateral or the exercise of any right or remedy under this Agreement, the
Senior Loan Agreement or applicable law and the Trade Creditors or the
Collateral Agent have notice of such action, unless such Trade Creditors or the
Collateral Agent have obtained Congress' prior written consent.
SECTION 2.03. (a) Calculation of Blockage Period. In the event a Trade
Default giving rise to a Default Notice is cured or waived (including, for
example, if a Defaulting Borrower has made payments to Trade Creditors such that
the amounts then due by the Defaulting Borrower and remaining unpaid do not
equal at least 25% of the dollar amount of the Trade Obligations owed by such
Borrower then outstanding) after the Blockage Commencement Date with respect to
such Trade Default, but prior to the expiration of the applicable Blockage
Period with respect to such Trade Default, then the Defaulting Borrower shall
promptly notify Congress in writing of such cure or waiver, and upon Congress'
receipt of said notice, the Blockage Period with respect to said Trade Default
shall cease to run (and consequently, the conditions to the initiation of an
Enforcement Action by the Collateral Agent which are set forth in the second
sentence of Section 2.02 shall not be deemed to have been satisfied). The
number of days having elapsed between the Blockage Commencement Date and
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the date of Congress' receipt of notice of said cure or waiver (referred to as
the "Expired Blockage Days"), up to a maximum of sixty (60) Expired Blockage
Days, shall be subtracted from the one hundred fifty (150) day period in
calculating such Defaulting Borrower's Blockage Period with respect to any
subsequent Trade Default by such Defaulting Borrower, if any, during the
relevant Compliance Period for such Defaulting Borrower, as set forth in clause
(ii) of the second sentence of Section 2.02. By way of example, if on January 1
of a given Compliance Period of a Borrower, Congress receives a Default Notice
in accordance with Section 2.02, and on February 1 of that same Compliance
Period, Congress receives a notice from the Defaulting Borrower that the Trade
Default giving rise to such Default Notice has been cured or waived, the
Blockage Period with respect to such Trade Default shall cease to run as of
February 1 and thirty-one (31) Expired Blockage Days shall have elapsed. If on
March 1 of that same Compliance Period, Congress receives a second Default
Notice (with respect to a subsequent Trade Default by the same Defaulting
Borrower) in accordance with Section 2.02, the Blockage Period in respect of
said subsequent Trade Default shall commence on the date of the receipt by
Congress of said second Default Notice (the second Blockage Commencement Date)
and shall expire one hundred and nineteen (119) days thereafter (representing
a period of one hundred fifty (150) days minus the thirty-one (31) Expired
Blockage Days incurred as of the second Blockage Commencement Date). The method
of calculating the applicable Blockage Period with respect to any one Borrower
shall be repeated in like manner, cumulating and then subtracting such
Borrower's Expired Blockage Days for such subsequent Trade Default occurring
during a given Compliance Period for such Borrower, subject, however, to the
provisions of paragraph (b) of this Section 2.03.
(b) Expired Blockage Days for any one Borrower shall be cumulated and
subtracted from the initial one hundred fifty (150) day maximum blockage period
in calculating the Blockage Period with respect to any specific Trade Default by
such Borrower in accordance with Section 2.03(a) only within the applicable
Compliance Period, and upon the expiration date of such Compliance Period,
Expired Blockage Days accumulated prior to such expiration date shall no longer
be subtracted in calculating any Blockage Period commencing after such
expiration date. For purposes of this Agreement, "Compliance Period" means
initially with respect to any Borrower, the period commencing on the date of
receipt by Congress of the first Default Notice with respect to a Trade Default
by such Borrower in accordance with Section 2.02, and expiring (i) on that date
which is 364 days later, provided that no Trade Default by such Borrower is
continuing as of such later date, or (ii) in the event a Trade Default is
continuing as of such date, on such later date on which said Trade Default is
cured or waived. After the expiration of an initial Compliance Period for any
Borrower, the next (and each subsequent) Compliance Period for such Borrower
shall commence on the date of the receipt by Congress of a subsequent Default
Notice with respect to a Trade Default by such Borrower and shall continue until
the later to occur of (i) that date which is 364 days after the commencement of
such Compliance Period provided that no Trade Default is continuing on such
date, or (ii) the date on which such continuing Trade Default is either cured or
waived.
SECTION 2.04. Election of Remedies by Trade Creditors. To the extent
that any Trade Creditor elects to pursue its default remedies it may otherwise
have against the Trade Collateral or the Congress Collateral, in violation of
the terms of this Agreement and the result is a material impairment of Congress'
ability to exercise its rights with respect to the Congress Collateral, then
regardless of the outcome of such action with respect to the Congress
Collateral, such action
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shall constitute an irrevocable relinquishment by such Trade Creditor of any and
all lien rights it may have against the Trade Collateral and such Trade
Creditor's actions thereafter shall be limited to those of a general unsecured
creditor.
SECTION 2.05. Remittance of Proceeds to Congress. If any Trade Creditor,
the Collateral Agent, any agent of any Trade Creditor or the Collateral Agent,
or any Person engaged by any Trade Creditor or the Collateral Agent to sell or
otherwise dispose of the Trade Collateral or the Congress Collateral, receives
any proceeds from the sale or disposition of Congress Collateral (regardless of
whether or not such sale is made in accordance with the terms of this Agreement)
as a result of or arising in any way from any Enforcement Action by any Person,
such Trade Creditor or Trade Creditors or Collateral Agent, as the case may be,
shall be deemed to hold any such payment or distribution in trust for Congress'
benefit. In such case, such Trade Creditor or Collateral Agent shall immediately
remit such payment or distribution to Congress in satisfaction of the Congress
Obligations.
SECTION 2.06. Remedies of Congress. If any Trade Creditor or the
Collateral Agent attempts to violate this Agreement (i) Congress (in Congress'
or any Borrower's name) or any Borrower may seek injunctive or other equitable
relief to prevent or stop such Trade Creditor's or the Collateral Agent's
actions, it being agreed that legal remedies may be inadequate and/or (ii) any
Borrower may interpose as a defense or plea the making of this Agreement, and
Congress may intervene and interpose such defense or plea in its own or any
Borrower's name. The remedies provided in this Section 2.06 are not exclusive;
Congress shall be entitled to all other remedies available at law or in equity.
SECTION 2.07. Sale of Licensed Inventory by Congress; Waiver of Rights
by Trade Creditors. The parties acknowledge that the Congress Collateral may
consist of, in part, of licensed inventory sold to a Borrower by the Trade
Creditors. The Trade Creditors hereby irrevocably grant Congress the right to
sell or otherwise dispose of such licensed inventory pursuant to the terms of
the Senior Loan Agreement.
SECTION 2.08. Acknowledgement. Each of the parties hereto hereby
acknowledges and agrees that, except as otherwise provided in this Agreement,
any other party hereto may, without notice or demand and without affecting or
impairing the obligations of such party under this Agreement, from time to time
(i) waive any default under this Agreement, the Senior Loan Agreement or the
Trade Financing Agreement, and (ii) exercise or refrain from exercising any
rights against any Borrower or other Person under this Agreement, the Senior
Loan Agreement, or the Trade Financing Agreement.
SECTION 2.09. Obligations Hereunder Not Affected. All rights,
obligations, agreements and interests of the parties hereto under this Agreement
shall remain in full force and effect irrespective of:
(a) any lack of validity or enforceability of the Senior Loan Agreement
or the Trade Financing Agreement;
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(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Congress Obligations or any other amendment or
waiver of, or consent to departure from, the Senior Loan Agreement;
(c) any exchange, release or non-perfection of any security interest in
any Congress Collateral or Trade Collateral, or any release or amendment or
waiver of, or consent or departure from, any guaranty of all or any of the
Congress Obligations or the Trade Obligations;
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Borrower or other Person in respect of the
Congress Obligations or the Trade Obligations; or
(e) any filing of a voluntary or involuntary bankruptcy petition in
respect of Borrower.
If a voluntary or involuntary bankruptcy petition shall be filed
respecting Borrower none of the Trade Creditors shall take any action themselves
or shall direct the Collateral Agent to take any action on their behalf in the
bankruptcy proceeding which might adversely affect Congress' rights and
interests respecting the Congress Obligations without the prior written consent
of Congress.
SECTION 2.10. Amendment of Trade Financing Agreement. The Trade
Financing Agreement may not be amended without the prior written consent of
Congress, if, in Congress' reasonable determination, such amendment may impair
the discretion or ability of Congress to take any action or refrain from taking
any action permitted or contemplated by this Agreement or the Senior Loan
Agreement with respect to the Congress Collateral.
SECTION 2.11. No Action to Violate Senior Loan Agreement. None of the
Trade Creditors shall take any action or shall direct the Collateral Agent to
take any action on their behalf which might cause any Borrower to violate the
Senior Loan Agreement or any other agreement between a Borrower and Congress
without the prior written consent of Congress. Nothing contained in this Section
2.11 shall prevent the Trade Creditors or the Collateral Agent from taking any
action otherwise permitted under this Agreement.
SECTION 2.12. Extensions, Compromises, etc. Without having to obtain the
consent of any Trade Creditor or the Collateral Agent, Congress may grant to any
Borrower extensions of the time of payment or performance, and may enter into
compromises (including releases of Congress Collateral and settlements) with any
Borrower with respect to the Congress Obligations.
SECTION 2.13. Waiver. Each of the Trade Creditors and the Collateral
Agent waives any fight it may now or hereafter have to require Congress to
▇▇▇▇▇▇▇▇ assets, to exercise rights or remedies in a particular manner, or to
forbear from exercising such rights and remedies in any particular manner or
order.
SECTION 2.14. No Constraint on Congress. Nothing contained in this
Agreement shall preclude Congress from discontinuing its extension of credit to
any Borrower (whether under the Senior Loan Agreement or otherwise) or from
taking (without notice to the Trade Creditors, Collateral Agent, any Borrower,
or any other Person) any other action in respect of the Congress
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Obligations or the Congress Collateral which Congress is otherwise entitled to
take with respect to the Congress Obligations or the Congress Collateral. Among
the actions which Congress may take in accordance with this Section 2.14 are:
(a) renewing, extending, and increasing the amount of the Congress Obligations;
(b) otherwise changing the terms of the Congress Obligations; (c) settling,
releasing, compromising, and collecting on the Congress Obligations; (d) making
(and refraining from making) other secured and unsecured loans and advances to
any Borrower; (e) amending any present or future agreement between Congress and
any Borrower; and (f) all other actions which Congress deems advisable.
SECTION 2.15. No Constraint on Trade Creditors and Collateral Agent.
Nothing contained in this Agreement shall preclude any Trade Creditor from
discontinuing its extension of trade financing to any Borrower (whether under
the Trade Financing Agreement or otherwise) or from taking (without notice to
Congress or any Borrower or other Person) any other action in respect of the
Trade Obligations which such Trade Creditor is otherwise entitled to take as an
unsecured creditor or, from taking any action which such Trade Creditor or the
Collateral Agent, subject to this Agreement, may take with respect to the Trade
Collateral. Among the actions which any Trade Creditor may take in accordance
with this Section 2.15 are: (a) renewing, extending, and increasing and
decreasing the amount of the Trade Obligations, (b) otherwise changing the terms
of the Trade Obligations; (c) settling, raising, compromising and collecting on
the Trade Obligations, subject to this Agreement; (d) making (and refraining
from making) other secured and unsecured credit extensions to any Borrower; (e)
amending any present or future agreement between any Trade Creditor and any
Borrower; and (f) all other actions which any Trade Creditor deems advisable,
subject to this Agreement.
ARTICLE III.
MISCELLANEOUS
SECTION 3.01. Notices. All notices and other communications provided for
in this Agreement shall be in writing and shall be delivered by hand or sent by
registered or certified mail, postage prepaid, return receipt requested, or by
prepaid telex, facsimile, telecopy, telegram (with messenger delivery
specified), or other method of electronic communication as follows:
(i) if to Congress, to it at: Congress Financial Corporation
(Western), ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention of ▇▇▇▇▇ ▇▇▇▇▇▇ (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇; Confirmation Tel. No.
(▇▇▇) ▇▇▇-▇▇▇▇);
with a copy to: ▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention of ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., Esq.
(Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇; Confirmation Tel. No. (▇▇▇) ▇▇▇-▇▇▇▇);
(ii) if to any of the Trade Creditors or the Collateral Agent, as
follows: United States Trust Company of New York, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention of ▇▇▇▇▇ ▇▇▇▇▇, Corporate Trust Department
(Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇; Confirmation Tel. No. (▇▇▇) ▇▇▇-▇▇▇▇);
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with a copy, in the case of any notice pursuant to this clause (ii), to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C., ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention of ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq. (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇; Confirmation
Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇); and
▇▇▇▇▇▇, ▇▇▇▇▇ & Bockius LLP, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇, Attention of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq., (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇;
Confirmation Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇)); and
(iii) if to Borrowers at: Wherehouse Entertainment, Inc., ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Chief Financial
Officer (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇; Confirmation Tel. No. (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇.
2350);
with a copy, in the case of any notice pursuant to this clause (iii), to:
▇▇▇ ▇. ▇▇▇▇▇, O'Melveny & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇; Confirmation Tel. No. (213)
▇▇▇-▇▇▇▇).
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telex, telecopy or other telegraphic communications equipment of the sender, or
on the date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 3.01 or in accordance with the latest
unrevoked direction from such party.
SECTION 3.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the parties in this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement, and shall continue in full
force and effect as long as any Congress Obligation is outstanding and unpaid.
SECTION 3.03. Authority of Collateral Agent; Binding Effect: Successors
and Assigns. Each Trade Creditor hereby represents and warrants to Congress that
(i) such Trade Creditor has duly authorized the execution and delivery of this
Agreement; (ii) the Collateral Agent is duly authorized to act for such Trade
Creditor as provided herein, (iii) the execution, delivery and performance of
this Agreement and the transactions contemplated hereunder are all within the
corporate powers of such Trade Creditor, and are not in contravention of law or
the terms of the certificate of incorporation, by-laws or other organizational
documentation of such Trade Creditor, or any indenture, agreement or undertaking
to which such Trade Creditor is a party or by which such Trade Creditor or any
of its property is bound and (iv) this Agreement constitutes the legal, valid
and binding obligation of such Trade Creditor, enforceable in accordance with
its terms. The Collateral Agent hereby represents and warrants to Congress that
(i) the Collateral Agent has duly authorized the execution and delivery of this
Agreement, and (ii) the execution, delivery and performance of this Agreement
and the transactions contemplated hereunder are all within the corporate powers
of the Collateral Agent, and are not in contravention of law or the terms of the
certificate of incorporation, by-laws or other organizational documentation of
Collateral Agent, or any indenture, agreement or undertaking to which Collateral
Agent is a party
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or by which Collateral Agent or any of its property is bound. This Agreement
shall become effective when it shall have been executed by each of the parties
hereto, and thereafter shall be binding upon and inure to the benefit of such
parties and their respective successors and permitted assigns, except that none
of the parties hereto shall have the right to assign or delegate its rights or
duties hereunder, without the prior written consent of all the other parties;
provided, however, that each of the Trade Creditors shall be permitted to
consolidate with, or merge with or into, any person if (i) such consolidation or
merger is bona fide, in good faith and not agreed to or consummated to avoid the
prohibition on assignments contained in this Section 3.03 and (ii) in the case
of a consolidation or a merger where such Trade Creditor is not the surviving
corporation, the consolidated corporation or the surviving corporation, as the
case may be, shall expressly assume in writing all of such Trade Creditors
rights and duties under this Agreement, in form and substance satisfactory to
the Company. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and permitted
assigns of such party.
SECTION 3.04. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS AND PRINCIPLES OF SUCH STATE.
SECTION 3.05. Waivers; Amendments (a) No failure or delay of any of the
parties hereto in exercising, any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuation of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the parties hereunder are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure by any party therefrom shall in any event be effective unless the same
shall be in writing and signed by each of the parties hereto, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No notice or demand on any party hereto in any case
shall entitle such party to any other or further notice or demand in similar or
other circumstances. No failure to exercise nor any delay in exercising on the
part of any party hereto, any right, power or privilege under this Agreement,
shall operate as a waiver thereof; further, no single or partial exercise of any
right, power or privilege under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by each of the parties hereto. Each of the parties hereto shall be
bound by any waiver, amendment or modification authorized by this Section 3.05.
SECTION 3.06. Entire Agreement. This Agreement constitutes the entire
contract among the parties relative to the subject matter hereof. Any previous
agreement among the parties with respect to the subject matter hereof is
superseded by this Agreement.
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SECTION 3.07. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (I) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 3.07.
SECTION 3.08. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. To the extent permissible, the parties waive any
law that renders this Agreement prohibited or unenforceable.
SECTION 3.09. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract.
SECTION 3.10. Headings. Article and Section headings and the Table of
Contents used in this Agreement are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 3.11. Jurisdiction: Consent to Service of Process. (a) Each of
the parties hereto irrevocably submits to the nonexclusive jurisdiction of the
United States District Court for the Central District of California in any
action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such Federal court
(except that Congress shall have the right to bring any action or proceeding
against Borrower or its property in the courts of any other jurisdiction which
Congress deems necessary or appropriate in order to realize on the Congress
Collateral). Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection it may
now or hereafter have to the laying of venue of any suit, action or proceeding
pursuant to this Agreement. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each of the parties hereto irrevocably consents to service of
process in the manner provided for notices in Section 3.01. Nothing in this
Agreement will affect the right of any party hereto to serve process in any
other manner permitted by law.
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SECTION 3.12. Termination of Agreement. This Agreement shall terminate
upon the indefeasible payment in full of the Congress Obligations.
SECTION 3.13. Additional Trade Creditors. Borrowers may add additional
entities as Trade Creditors under this Agreement in its discretion so long as
any such additional Trade Creditor has agreed to provide Borrowers with credit
of $1,000,000.00 or more in the aggregate for Borrowers on terms acceptable to
Borrowers. Such additional Trade Creditor shall be added as a Trade Creditor
under this Agreement effective upon the delivery by Borrowers to the Collateral
Agent and Congress of an Agreement Regarding Additional Trade Creditor in the
form attached hereto as Exhibit B, executed by each Borrower and such additional
Trade Creditor. Upon delivery of such Agreement Regarding Additional Trade
Creditor, the entity designated therein as an Additional Trade Creditor shall be
deemed a Trade Creditor for all purposes under this Agreement, entitled to all
benefits and subject to all obligations set forth in this Agreement.
Notwithstanding anything herein. to the contrary, this Section 3.13 may not be
amended without the prior written consent of each Borrower.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the date
first above written.
UNITED STATES TRUST COMPANY OF
NEW YORK, AS COLLATERAL AGENT
By: /s/ ▇▇▇ ▇▇▇▇▇
----------------------------------------
Its: Vice President
----------------------------------------
TRADE CREDITORS:
BMG MUSIC AKA BMG DISTRIBUTION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
Its: Vice President, Credit
----------------------------------------
EMI MUSIC DISTRIBUTION, A DIVISION OF
CAPITOL RECORDS, INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Its: President
----------------------------------------
POLYGRAM GROUP DISTRIBUTION, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
----------------------------------------
Its: Vice President, Credit
----------------------------------------
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ACKNOWLEDGMENT OF BORROWER AND SUBSIDIARY HOLDING
COMPANIES
Each of the undersigned Borrowers and the Subsidiary Holding Companies
hereby approves of, and agrees and consents to, the foregoing Intercreditor and
Subordination Agreement, dated as of October 26, 1998 as the same may be
amended, modified or supplemented from time to time (the "Intercreditor
Agreement") among United States Trust Company of New York, a New York banking
corporation, as collateral agent for the Trade Creditors named therein (the
"Collateral Agent"), the Trade Creditors, and Congress Financial Corporation
(Western). Unless otherwise defined in this Acknowledgment, terms defined in the
Intercreditor Agreement have the same meanings when used in this Acknowledgment.
Each of the Borrowers and the Subsidiary Holding Companies agrees to be
bound by the Intercreditor Agreement and any amendments, modifications or
supplements. Each of the Borrowers and the Subsidiary Holding Companies further
agrees that the Intercreditor Agreement may be amended by Congress, the
Collateral Agent and/or the Trade Creditors without notice to, or the consent
of, the Borrowers, or the Subsidiary Holding Companies except as provided in
Section 3.13 of the Intercreditor Agreement.
BORROWERS
WHEREHOUSE SUBSIDIARY I CO., INC.,
a Delaware corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Senior Vice President-
Chief Financial Officer
WHEREHOUSE SUBSIDIARY II CO., INC.,
a California corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Senior Vice President-
Chief Financial Officer
WHEREHOUSE SUBSIDIARY III CO., INC.,
a Delaware corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Senior Vice President-
Chief Financial Officer
[Intercreditor and Subordination Agreement]
15
WHEREHOUSE HOLDING I CO., INC.,
a Delaware corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
WHEREHOUSE HOLDING II CO., INC.,
a Delaware corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Senior Vice President-
Chief Financial Office
[Intercreditor and Subordination Agreement]
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EXHIBIT A
Description of Trade Collateral
All of Borrowers' now owned or hereafter existing Inventory (as defined
below) and all products and proceeds of Inventory, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the Inventory.
For purposes of this description: (i) "Inventory" shall mean tangible
personal property held for sale and raw materials, work in process and materials
used, produced or consumed in business, and shall include tangible personal
property sold on a sale or return basis, tangible personal property returned by
the purchaser following a sale thereof and tangible personal property
represented by Documents of Title, but shall not include Rental Inventory; and
(ii) "Documents of Title" shall mean a ▇▇▇▇ of lading, dock warrant, dock
receipt, warehouse receipt or order for the delivery of goods, and also any
other document which in the regular course of business or financing is treated
as adequately evidencing that the person in possession of it is entitled to
receive, hold and dispose of the document and the goods it covers, and (iii)
"Rental Inventory" shall mean all finished merchandise of Borrowers held for
rental to retail customers, provided that such merchandise has not previously
been reported to the Collateral Agent as comprising part of Borrowers'
Inventory.
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EXHIBIT B
Agreement Regarding Additional Trade Creditor
This Agreement Regarding Additional Trade Creditor ("Agreement") is dated as of
_________________,_____ by and between _____________________ ("Additional Trade
Creditor") and [insert one or more of Borrowers as appropriate] ("Borrower"), as
successor to WEI Acquisition Co.
A. Certain of Borrower's trade creditors have entered into that
certain Intercreditor and Subordination Agreement (the "Intercreditor
Agreement") dated as of October 26, 1998, by and among United Trust Company of
New York, as Collateral Agent for the trade creditors named therein ("Collateral
Agent") and Congress Financial Corporation (Western), a California corporation
("Congress").
B. Pursuant to that certain Security Agreement dated as of
October 26, 1998, by and between Borrower and Collateral Agent (the "Trade
Security Agreement"), Borrower granted to Collateral Agent, for the benefit of
Trade Creditors (as defined therein), a lien in its sale inventory and proceeds
thereof. Section _____ of the Trade Security Agreement provides that Borrower
may designate additional entities as Trade Creditors entitled to the benefits of
such lien granted pursuant to the Trade Security Agreement.
C. The Trade Creditors who are parties to the Intercreditor
Agreement and the Trade Security Agreement have entered into that certain
[Collateral Agent Agreement] dated as of _____________, 1998 pursuant to which
Collateral Agent has been appointed by such Trade Creditors. Section _______
of the Collateral Agent Agreement provides that Borrower may designate
additional entities as Trade Creditors for purposes of the Collateral Agent
Agreement.
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D. Borrower and Additional Trade Creditor desire to add
Additional Trade Creditor as a Trade Creditor for purposes of the Intercreditor
Agreement, the Trade Security Agreement and the Collateral Agent Agreement.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Section 1. Additional Trade Creditor acknowledges that it has
committed to extend an open line of credit to Borrower equal to $1,000,000.00 or
more and Borrower acknowledges that the terms and conditions of this line of
credit are acceptable to it; provided, however, that nothing herein shall
obligate Additional Trade Creditor to maintain this open line of credit for any
period of time and the parties acknowledge that the Additional Trade Creditor is
free to adjust the terms and conditions (or eliminate) this line of credit at
any time.
Section 2. Additional Trade Creditor acknowledges that it has
received copies of and agrees to be bound by the terms of the Intercreditor
Agreement, the Trade Security Agreement and the Collateral Agent Agreement and
appoints Collateral Agent pursuant to the terms of the Collateral Agent
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers hereunder to duly authorize, as of the
date first above written.
[BORROWER]
By:
-------------------------------------
Its:
-------------------------------------
[ADDITIONAL TRADE CREDITOR)
By:
-------------------------------------
Its:
-------------------------------------
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