Exhibit 10.71
SUBORDINATION AGREEMENT
This Agreement, dated as of January 27, 1997, is made between and among
Peaches Entertainment Corp. ("Peaches"); URT Industries, Inc. ("URT"); and
Universal Music and Video Distribution, Inc. ("Universal"). URT and Universal
may be referred to as the "Creditors." Capitalized terms not otherwise defined
herein shall have the same meanings ascribed to them in Peaches' plan of
reorganization (the "Plan"), confirmed by order of the United States Bankruptcy
Court for the Southern District of Florida (case number 96-20153-BKC-RBR) on
January 27, 1997.
WHEREAS:
A. Peaches has incurred obligations, and may in the future incur additional
obligations, to the Creditors under the Allowed Claim Note, the URT Note, the
Peaches-URT Reimbursement Agreement and under any Post-confirmation Credit
extended to Peaches (collectively, the "Obligations"). "Post-confirmation
Credit" shall mean credit extended, subsequent to the Effective Date of the
Plan, by Universal to Peaches for the purchase of product by Peaches from
Universal.
B. Peaches also has granted to the Creditors certain security interests to
secure payment of the Obligations to the Creditors. Each Creditor has filed or
may file financing statements under the Uniform Commercial Code.
C. The Creditors desire to agree as to the relative priority of their
respective claims and interests with respect to both payment of the Obligations
to them and the security interests granted to them by Peaches securing the
Obligations.
D. Pursuant to the Plan:
i. Peaches has executed and delivered to Universal an Allowed Claim
Note, in an amount equal to Universal's Allowed Claim, less the Initial
Payment made to Universal on account of its Allowed Claim.
ii. Peaches has granted to Universal, to secure the Obligation's owing
to Universal under Universal's Allowed Claim Note and any obligation
arising under the extension of Post-confirmation Credit by Universal, a
security interest solely in inventory that was originally distributed by
Universal and is held and owned by Peaches, and all proceeds thereof. (The
inventory sold by Universal to Peaches shall hereinafter be referred to as
"Universal's Inventory.")
iii. Peaches has executed and delivered to URT a promissory note (the
"URT Note") evidencing the Effective Date Deficiency Advance made by URT to
Peaches.
iv. URT has guaranteed Peaches' payment Obligations to Universal under
the Allowed Claim Notes, but not any of the obligations arising from the
extension of Post-confirmation Credit (the "URT Guarantee"), and Peaches
has agreed to reimburse URT for any payments that URT is required to make
to the Universal pursuant to the URT Guarantee (the "Peaches-URT
Reimbursement Agreement").
v. Peaches has granted to URT, to secure the URT Note and Peaches'
obligations to URT under the Peaches-URT Reimbursement Agreement, inter
alia, a security interest in Universal's Inventory and all other inventory
of Peaches (such other inventory being, "Peaches' Other Inventory").
vi. Peaches and URT have entered into a Subordination Agreement dated
January 27, 1997 with BMG Distribution, Sony Music Entertainment, Inc.,
Polygram Group Distribution, Warner/Elektra/Atlantic Corp., and EMI Music
Distribution (collectively, the "Majors") and Alliance Entertainment Corp.
("Alliance").
NOW, THEREFORE, in consideration of the premises and the agreements set
forth hereinbelow, the parties agree as follows:
1. Peaches and the Creditors agree that, solely during any period in which
an Event of Default exists under clauses (i), (iv), (v) or (vi) of the Allowed
Claim Note or an event of default exists under substantially similar terms of
any Post-confirmation Credit extension or if any Allowed Claim Note or
obligation arising from the extension of Post-confirmation Credit has been duly
accelerated (any of such events or acceleration being an "Event of
Subordination"), Peaches shall not make to URT, and URT shall not accept from
Peaches, any payment on account of Peaches' Obligations to URT under the URT
Note or the Peaches-URT Reimbursement Agreement. The parties agree that the
subordination of the URT Note and the Peaches-URT Reimbursement Agreement as set
forth in the preceding sentence (the "URT Subordination"): (a) shall be
triggered only upon the occurrence of any Event of Subordination, and not upon
any other default under any Allowed Claim Note nor any other default of a term
arising under any Post-confirmation Credit extension, and (b) shall continue
only so long as such Event of Subordination exists (the "Default
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Period"), shall terminate upon the curing or termination of such Event of
Subordination, and shall not affect in any way (or require any return or
disgorgement, in whole or in part, of) any payment by Peaches to URT on account
of the URT Note or the Peaches-URT Reimbursement Agreement that is made prior to
or after any Default Period.
2. URT agrees that: (a) it shall not knowingly accept or receive from
Peaches any payment made by Peaches in contravention of the URT Subordination,
and (b) should it, whether inadvertently or otherwise, accept or receive any
such payment from Peaches in contravention of the URT Subordination, then,
unless the payment default by Peaches has been cured or the Allowed Claim Notes
and obligations arising under any Post-confirmation Credit extension have been
paid in full, such payment shall be held in trust by URT and URT shall pay to
Universal, the Majors and Alliance the lesser (the "Returned URT Payments") of:
(i) the amount accepted or received by URT in contravention of the URT
Subordination, and (ii) the aggregate amount of all payments that are due or
past due under the Allowed Claim Notes and the terms of any Post-confirmation
Credit extension. The portion of the Returned URT Payment that Universal shall
be entitled to shall equal a fraction, the numerator of which shall be the
amount of payments in default to Universal and the denominator of which shall be
the aggregate amount of the payments in default to Universal, the Majors and
Alliance. The payment to Universal of the Returned URT Payments, as set forth
above, shall be the sole remedy of Universal against URT for any breach of the
URT Subordination. The Obligations of Peaches to URT shall be increased by the
full amount of all Returned URT Payments, and the indebtedness of Peaches to
Universal shall be decreased by the full amount of the Returned URT Payments
paid to Universal.
3. The URT Subordination shall be applicable solely to the URT Note,
repayments under the URT - Peaches Reimbursement Agreement and any and all
renewals, enlargements and modifications thereof, and not to any other
obligations of Peaches to URT.
4. Payments in contravention of the URT Subordination may be made by
Peaches to URT with the express written approval of Universal.
5. This Subordination Agreement shall terminate on the date that the
Allowed Claim Notes and any obligations arising under any Post-confirmation
Credit extension are paid in full (the "Debt Payment Date"); provided, however,
that if Universal is required to repay or disgorge any
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payment received on account of the Allowed Claim Notes or any obligation arising
under any Post-confirmation Credit extension, this Subordination Agreement shall
be automatically reinstated by the parties hereto. This Subordination Agreement
may be terminated prior to the Debt Payment Date only by written notice received
by URT from Universal.
6. With respect to the security interests granted by Peaches to the
Creditors in Universal's Inventory, the Creditors agree between and among
themselves that, irrespective of the time or order of attachment or perfection
of security interests or the time or order of filing of financing statements or
the giving or failure to give notice of the acquisition or expected acquisition
of purchase money or other security interests, the security interest of each
Creditor in Universal's Inventory ranks and will rank in priority according to
subsections (a), (b), and (c) of this paragraph 6. Proceeds from any foreclosure
sale, liquidation or other disposition of, or realization upon, any of the
collateral consisting of Universal's Inventory (a "Collateral Disposition")
shall be applied in the following manner:
a. First, to the payment of all reasonable costs and expenses,
including reasonable attorneys' fees, relating to such
Collateral Disposition incurred by such Creditor initiating
and conducting such Disposition (the "Collateral Disposition
Expenses").
b. Second, to Universal in an amount equal to the lesser of: (i)
the proceeds of Universal's collateral, less the Collateral
Disposition Expenses, and (ii) all amounts due and owing to
Universal under any Allowed Claim Note or any obligation
arising under any Post-confirmation Credit extension payable
to Universal.
c. Third, to URT until URT is paid in full with respect to all
obligations of Peaches to URT (whether or not otherwise due or
payable), including but not limited to all Obligations of
Peaches to URT under the URT Note and the Peaches-URT
Reimbursement Agreement.
7. URT shall be automatically subrogated to the rights and remedies of,
including but not limited to the security interests granted by Peaches to,
Universal with respect to the full amount of each and every payment made by URT
to Universal pursuant to the URT Guaranty, provided,
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however, that URT shall not be entitled to exercise any rights, remedies and/or
security interests to which it is thus subrogated until all indebtedness of
Peaches to Universal under the Allowed Claim Notes and any obligation arising
under any Post-confirmation Credit extension has been paid in full.
Notwithstanding anything contained in the preceding sentence, URT shall be
permitted to take all lawful action to protect its subrogation rights, remedies
and security interests.
8. Universal has not been granted a security interest in Peaches' Other
Inventory, in Peaches' personal property other than Universal's Inventory, or in
any of Peaches' real property. Peaches has granted to URT a valid, perfected
first-priority security interest in Peaches' Other Inventory and Peaches'
personal property other than Universal's Collateral, and has granted to URT a
valid, perfected mortgage on Peaches' real property. Nothing contained in this
Agreement, including but not limited to the URT Subordination, is intended to,
or shall be construed to, limit or restrict or subordinate any rights or
remedies that URT has or may hereafter have: (a) under its mortgage and/or
security agreements with Peaches respecting Peaches Other Inventory, Peaches
personal property other than Universal's Collateral, and Peaches' real property,
and (b) with respect to the security interest that URT has in inventory
collateral of Universal following the full payment of Universal; all of which
rights and remedies of URT are expressly and fully reserved by URT.
9. Except as otherwise specifically provided herein, priority shall be
determined in accordance with applicable law.
10. This Agreement is solely for the benefit of the Creditors and their
successors or assigns and no other person or persons (including without
limitation any bankruptcy trustee or other trustee, receiver or custodian for
Peaches or any of its property) shall have any right, benefit, priority or
interest under, or because of the existence of, this Agreement. Nothing
contained in this Agreement is intended to affect or limit, in any way
whatsoever, any security interest (or any other interest, lien or claim) that
any of the Creditors may otherwise have in any or all of the assets of Peaches,
insofar as the rights of Peaches and third parties are concerned. The Creditors
specifically reserve any and all of their respective rights, security interests,
other interests, liens and claims, and rights to assert any of the same, as
against Peaches and any third parties.
11. Each Creditor agrees that it will give written notice to Peaches upon
its declaration of a default or an event of default under any of the loan
documents relating to Peaches' Obligations
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to it or its acceleration of any of those Obligations and before giving Peaches
any instructions with respect to Universal's Inventory or taking any actions
with respect to any of the collateral consisting of Universal's Inventory ;
provided, however, that the failure to provide such notice shall not affect the
respective rights of the parties hereunder. Peaches shall then notify each other
Creditor.
12. Peaches agrees that it will give written notice to Universal upon the
making by Peaches of any payment to URT arising under the URT Note.
13. Each notice or other communication given hereunder or in connection
herewith shall be in writing and shall be sent by first class certified mail,
postage prepaid, return receipt requested.
Notices shall be addressed as follows:
Peaches Entertainment Corp. URT Industries, Inc.
0000 Xxxx Xxxxxxxxxx Xxxxx Xxxx. 0000 Xxxx Xxxxxxxxxx Xxxxx Xxxx.
Xxxxxxxxxx, Xxxxxxx 00000 Xxxxxxxxxx, Xxxxxxx 00000
Universal Music and Video Distribution, Inc.
00 Xxxxxxxxx Xxxx Xxxxx
Xxxxxxxxx Xxxx, XX 00000
or, in each case, at such other address as a Creditor wishing to change its
address for notices may specify from time to time by notice hereunder to the
other parties hereto.
14. The parties to this Subordination Agreement hereby irrevocably waive
trial by jury in any court in connection with this Subordination Agreement, and
each hereby certifies that no representative of any other party has expressly or
impliedly represented that such other party might not enforce this jury waiver.
15. Each of the several executed counterparts of this Agreement shall be an
original. All such counterparts shall together constitute one and the same
instrument. This Agreement may be amended only by a writing signed by all of the
Creditors. In the event of any conflict between this Agreement and the Plan or
any term sheet on which the Plan is based, this Agreement shall control.
16. This Subordination Agreement shall be governed by and construed in
accordance with the laws of the State of Florida in all respects, including,
without limitation, matters of construction, validity and performance, and the
undersigned consent to service of process on the undersigned at that address of
the undersigned appearing hereinabove by certified mail, return receipt
requested (if
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possible), and such service shall be deemed to be complete five (5) days after
the same shall have been so mailed. The undersigned further consent and submit
to the jurisdiction of the courts (state and federal) of the State of Florida in
connection with any lawsuit relating hereto. In addition, the undersigned hereby
irrevocably waive, to the fullest extent they may effectively do so, the defense
of an inconvenient forum to the maintenance of any such lawsuit in any
jurisdiction.
17. There shall be no limit under this Subordination Agreement upon the
amount of Post-confirmation Credit that may be extended by Universal to Peaches;
provided, however, that following the later (the "Material Event Date") of
notification of, or the occurrence of, a Material Event (as defined below): (a)
unless URT agrees otherwise in writing, this Subordination Agreement shall
terminate on the date that Peaches' outstanding obligations, existing as of the
Material Event Date, to Universal under the Allowed Claim Notes and extensions
of Post-confirmation Credit (including without limitation extensions of
Post-confirmation Credit evidenced by the acceptance by Universal of purchase
orders from Peaches on or before the Material Event Date) (the "PreMaterial
Event Obligations") are paid in full, and (b) all payments made by Peaches to
Universal after the Material Event Date shall be applied first, or shall be
deemed to be applied first, in payment of the Pre-Material Event Obligations,
and not in payment of, inter alia, credit extended after the Material Event
Date. URT shall provide written notice to Universal of the occurrence of any
Material Event. Material Event shall mean: (a) the ownership by URT of less than
51% of the voting stock of Peaches, (b) the inability of URT to elect a majority
of the directors of Peaches, (c) a trustee, receiver, or person with similar
powers or duties is appointed for Peaches, or (d) a voluntary or involuntary
bankruptcy, receivership, assignment for the benefit of creditors, or similar
proceeding is commenced by or against Peaches.
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IN WITNESS WHEREOF, the parties have hereby executed and delivered this
Subordination Agreement on the day and year first set forth above.
Signed and delivered
in the presence of:
PEACHES ENTERTAINMENT
CORP.
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Witness
Print Name__________________ By: __________________________
Print Name: ___________________
----------------------------
Witness As Its: _______________________
Print Name__________________
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URT INDUSTRIES, INC.
s/Xxxxxxx Xxxxxxxxx
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Witness
Print Name Xxxxxxx Xxxxxxxxx By: s/Xxxxx Xxxx
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Print Name: Xxxxx Xxxx
s/Xxxx X. Xxxxxxx
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Witness As Its: Executive Vice-President
Print Name Xxxx X. Xxxxxxx
UNIVERSAL MUSIC AND VIDEO
DISTRIBUTION, INC.
s/Xxxxx Xxxxxxxxxx
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Witness
Print Name Xxxxx Xxxxxxxxxx By: s/name illegible
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Print Name: name illegible
s/Xxxxxx X. Xxxxxx
----------------------------------
Witness As Its: title illegible
Print Name Xxxxxx X. Xxxxxx
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