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INTERCREDITOR AND SUBORDINATION AGREEMENT
Dated as of January 31, 1997
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 January 31, 1997, by and among ALLIANCE ENTERTAINMENT
CORP. ("Alliance"), ▇▇▇▇▇ & ▇▇▇▇▇▇ ("B&T"), BMG MUSIC
DISTRIBUTION ("BMG"), EMI MUSIC DISTRIBUTION ("EMI"), PARAMOUNT
PICTURES ("Paramount"), POLYGRAM GROUP DISTRIBUTION ("Polygram"),
RED INC. ("RED"), SONY MUSIC ENTERTAINMENT, INC. ("Sony"),
UNIVERSAL MUSIC AND VIDEO DISTRIBUTION ("Universal"), and
WARNER/ELEKTRA/ATLANTIC CORP. ("WEA") (Alliance, B&T, BMG, EMI,
Paramount, 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. WEI Acquisition Co. ("Borrower") has acquired
substantially all of the assets of Wherehouse Entertainment,
Inc., debtor and debtor-in-possession, a Delaware corporation
("Seller") pursuant to that certain Asset Purchase Agreement
dated as of even date herewith between Borrower and Seller (the
"Asset Purchase Agreement"). The terms of the Asset Purchase
Agreement have been approved pursuant to the terms of the
Confirmation Plan and the Confirmation Order (as hereinafter
defined.)
B. Borrower, 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
Borrower on the terms and conditions set forth therein.
C. Pursuant to the terms of the Trade Financing
Agreement, the Borrower has granted security interests in the
Trade Collateral (as hereinafter defined) to the Collateral Agent
for the benefit of the Trade Creditors.
D. Borrower has requested that Congress enter into
various agreements with Borrower, including that certain 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 Borrower. Pursuant to the terms of
the Senior Loan Agreement, Congress would take a security
interest in the Congress Collateral (as hereinafter defined).
E. Congress in unwilling to enter into the Senior
Loan Agreement with Borrower and to extend to Borrower the loans
contemplated thereunder unless the Trade Creditors and the
Collateral Agent enter into this Agreement.
F. The Trade Creditors and the Collateral Agent are
interested in the financial success of Borrower and will benefit
by the loans which Congress proposes to extend to Borrower under
the Senior Loan Agreement.
G. Accordingly, to induce Congress to enter into the
Senior Loan Agreement with Borrower and to extend to Borrower the
loans contemplated thereunder, all pursuant to the Confirmation
Plan and the Confirmation Order, 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.
"Bankruptcy Case" means that Chapter 11 Case No. 95-911
(HSB) in the United States Bankruptcy Court for the District of
Delaware wherein Seller is the debtor.
"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" 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.
"Confirmation Order" means the Findings of Fact,
Conclusions of Law and Order Confirming Debtor's First Amended
Chapter 11 Plan Under Chapter 11 of the Bankruptcy Code dated
January 7, 1997 and entered in the Bankruptcy Case.
"Confirmation Plan" means the Debtor's First Amended
Chapter 11 Plan in the Bankruptcy Case dated October 4, 1996, as
amended.
"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 Sections
2.1 and 2.2 of the Senior Loan Agreement and Congress has actual
knowledge that such Advances exceed such amount.
"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.
"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.
"Seller" has the meaning set forth in the recitals to
this Agreement.
"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.
"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.
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.
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
with respect to 25% or more of the then outstanding dollar amount
of the Trade Obligations, measured on a daily basis (a "Trade
Default"), the Collateral Agent may initiate an Enforcement
Action on behalf of the Trade Creditors against the Borrower or
Seller or with respect to the Congress Collateral (i) provided
that the Majority Trade Creditors or the Collateral Agent on
behalf of the Majority Trade Creditors shall have first given
Congress and Borrower 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), if any, incurred as of the Blockage
Commencement Date within the relevant Compliance Period (as
hereinafter defined). For purposes of this Agreement, an
"Enforcement Action" means: (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
(or the Collateral Agent on behalf and upon the direction of the
Majority Trade Creditors) may institute an action against the
Borrower, Seller or any Subsidiary to enforce the Trade
Obligations; 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 Borrower has made
payments to Trade Creditors such that no amounts then due remain
unpaid with respect to at least 25% of the dollar amount of the
Trade Obligations then outstanding) after the Blockage
Commencement Date with respect to such Trade Default, but prior
to the expiration of the Blockage Period with respect to such
Trade Default, then 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 (up to
a maximum of sixty (60)) having elapsed between the Blockage
Commencement Date and the date of Congress' receipt of notice of
said cure or waiver being referred to as the "Expired Blockage
Days") and said number (up to a maximum of sixty (60)) of Expired
Blockage Days shall be subtracted from the one hundred fifty
(150) day period in calculating the Blockage Period with respect
to any subsequent Trade Default by Borrower, if any, during the
relevant Compliance Period, 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, 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
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) 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
shall be repeated in like manner, cumulating and then subtracting
the Expired Blockage Days for such subsequent Trade Default
occurring during a given Compliance Period, subject, however, to
the provisions of paragraph (b) of this Section 2.03.
(b) Expired Blockage Days 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 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 the period commencing on the
date of receipt by Congress of the first Default Notice in
accordance with Section 2.02, and expiring (i) on that date which
is 364 days later, provided that no Trade Default 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, the next (and each subsequent)
Compliance Period shall commence on the date of the receipt by
Congress of a subsequent Default Notice 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 Collateral action, such action 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 Borrower's name) or
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)
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 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 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 the Borrower or any
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;
(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, the
Borrower or any other person in respect of the Congress
Obligations or the Trade Obligations;
(e) any filing of a voluntary or involuntary bankruptcy
petition in respect of Borrower; or
(f) the invalidation or any modification whatsoever of
the Confirmation Plan or the Confirmation Order upon appeal.
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 Borrower to violate the Senior Loan
Agreement or any other agreement between 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 Borrower extensions of
the time of payment or performance, and may enter into
compromises (including releases of Congress Collateral and
settlements) with Borrower with respect to the Congress
Obligations.
SECTION 2.13. Waiver. Each of the Trade Creditors and
the Collateral Agent waives any right 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 Borrower (whether under
the Senior Loan Agreement or otherwise) or from taking (without
notice to the Trade Creditors, Collateral Agent, Borrower, or any
other individual or entity) any other action in respect of the
Congress 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:
renewing, extending, and increasing the amount of the Congress
Obligations, otherwise changing the terms of the Congress
Obligations; settling, releasing, compromising, and collecting on
the Congress Obligations; making (and refraining from making)
other secured and unsecured loans and advances to Borrower;
amending any present or future agreement between Congress and
Borrower; and 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 Borrower (whether under the Trade Financing
Agreement or otherwise) or from taking (without notice to
Congress or Borrower, or any individual or entity) 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:
(1) renewing, extending, and increasing and decreasing the amount
of the Trade Obligations, (2) otherwise changing the terms of the
Trade Obligations; (3) settling, raising, compromising and
collecting on the Trade Obligations, subject to this Agreement;
(4) making (and refraining from making) other secured and
unsecured credit extensions to Borrower; (5) amending any present
or future agreement between any Trade Creditor and Borrower; and
(6) 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. (▇▇▇) ▇▇▇-▇▇▇▇);
with a copy, in the case of any notice pursuant to this clause
(ii), to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C., ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention of ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq. (Telecopy No. (516) 739-
0896; Confirmation Telephone No.
(▇▇▇) ▇▇▇-▇▇▇▇)); and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (Telecopy
No. (▇▇▇) ▇▇▇-▇▇▇▇; Confirmation Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇)).
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 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.
Notwithstanding the foregoing, in the event that Seller shall
succeed to the obligations of Borrower under the Senior Loan
Agreement as a result of the Confirmation Plan or Confirmation
Order being overturned or otherwise modified on appeal, the
parties hereto agree that all references herein to "Borrower"
shall be deemed to be references also to "Seller", and no further
consent of the parties shall be required in order to effectuate
such change.
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.
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.
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. Borrower
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 Borrower, as of the Date it is
added, with credit of $250,000 or more on terms acceptable to
Borrower. Such additional Trade Creditor shall be added as a
Trade Creditor under this Agreement effective upon the delivery
by Borrower to the Collateral Agent and Congress of an Agreement
Regarding Additional Trade Creditor in the form attached hereto
as Exhibit B, executed by 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 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:
ALLIANCE ENTERTAINMENT CORP.
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Its: Executive Vice President
▇▇▇▇▇ & ▇▇▇▇▇▇, INC.
By ▇▇▇▇▇ & ▇▇▇▇▇▇ Entertainment
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
Its: Vice President, Finance
BMG MUSIC DISTRIBUTION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
Its: Director of Credit
EMI MUSIC DISTRIBUTION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
Its: Vice President, Credit
PARAMOUNT PICTURES
By: /s/ Gari ▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------
Its: SVP Finance & Operations-VideO
POLYGRAM GROUP DISTRIBUTION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Its: VP, Credit
RED INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Its: VP-Customer Financial Relations
SONY MUSIC ENTERTAINMENT, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Its: VP-Customer Financial Relations
UNIVERSAL MUSIC AND VIDEO DISTRIBUTION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------
Its: VP NTL Credit
WARNER/ELEKTRA/ATLANTIC CORP.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
Its: Senior Vice President, Credit
CONGRESS FINANCIAL CORPORATION (WESTERN),
a California corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
Its: Senior Vice President
ACKNOWLEDGMENT OF BORROWER AND SELLER
Each of the undersigned Borrower and Seller hereby approves
of, and agrees and consents to, the foregoing Intercreditor and
Subordination Agreement, dated as of January 31, 1997 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)
(the "Intercreditor Agreement"). Unless otherwise defined in
this Acknowledgment, terms defined in the Intercreditor Agreement
have the same meanings when used in this Acknowledgment.
Each of Borrower and Seller agrees to be bound by the
Intercreditor Agreement and any amendments, modifications or
supplements. Each of Borrower and Seller 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, Borrower or Seller.
BORROWER
WEI ACQUISITION CO.,
a Delaware corporation
By:/s/ ▇▇▇▇▇ ▇▇▇▇
----------------------------
Title: VP/Treasurer
SELLER
WHEREHOUSE ENTERTAINMENT, INC.,
Debtor and Debtor-In-Possession,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------
Title: VP/Treasurer
EXHIBIT A
Description of Trade Collateral
All of Borrower's 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 Borrower held for rental
to retail customers, provided that such merchandise has not
previously been reported to the Collateral Agent as comprising
part of Borrower's Inventory.
EXHIBIT B
Agreement Regarding Additional Trade Creditor
This Agreement Regarding Additional Trade Creditor
("Agreement") is dated as of_____________, l9__ by and between
_________________ ("Additional Trade Creditor") and Wherehouse
Entertainment, Inc. ("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 January __,
1997, by and among _________________, 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 January __, 1997, 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 __________, 1997 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.
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 $250,000 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.
WHEREHOUSE ENTERTAINMENT, INC.
By:______________________________
Its:_____________________________
[ADDITIONAL TRADE CREDITOR]
By:______________________________
Its:_____________________________