EXHIBIT 10.32
DEBT SUBORDINATION AGREEMENT
This Agreement is entered into as of the 20th day of July, 1995, by K-TEL
INTERNATIONAL (USA), INC. (the "Creditor"), for the benefit of TCF BANK
MINNESOTA FSB, a federally chartered stock savings bank (the "Bank").
K-Tel, Inc., a Minnesota corporation (the "Borrower"), is now or hereafter may
be indebted to the Bank on account of loans or the other extensions of credit or
financial accommodations from the Bank to the Borrower.
The Creditor has made or may make loans or grant other financial accommodations
to the Borrower.
As a condition to making any loan or extension of credit to the Borrower, the
Bank has required that the Creditor subordinate the payment of the Creditor's
loans and other financial accommodations to the payment of any and all
indebtedness of the Borrower to the Bank. Assisting the Borrower in obtaining
credit accommodations from the Bank and subordination pursuant to the terms of
this Agreement are in the Creditor's best interest.
ACCORDINGLY, in consideration of the loans and other financial
accommodations that have been made and may hereafter be made by the Bank for the
benefit of the Borrower, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Creditor hereby
agrees as follows:
1. Definitions. As used herein, the following terms have the meanings set
forth below:
"Bank Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Bank, whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it
is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several or joint and several, all interest thereon, all renewals,
extensions and modifications thereof and any notes issued in whole or
partial substitution therefor.
"Borrower Default" means a Default or Event of Default as defined in
any agreement or instrument evidencing, governing, or issued in connection
with Bank Indebtedness, including, but not limited to, the Revolving Credit
Agreement dated as of January 30, 1995, as the same may be amended or
restated from time to time, by and between the Borrower and the Bank (the
"Credit Agreement"), or any default under or breach of any such agreement
or instrument.
"Subordinated Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Creditor, whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it
is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several or joint and several.
2. Subordination. The payment of all of the Subordinated Indebtedness is
hereby expressly subordinated to the extent and in the manner hereinafter set
forth to the payment in full of the Bank Indebtedness; and regardless of any
priority otherwise available to the Creditor by law or by agreement, the Bank
shall hold a first security interest in all collateral securing payment of the
Bank Indebtedness (the "Collateral"), and any security interest claimed therein
(including any proceeds thereof) by the Creditor shall be and remain fully
subordinate for all purposes to the security interest of the Bank therein for
all purposes whatsoever.
3. Payments. Until all of the Bank Indebtedness has been paid in full, the
Creditor shall not, without the Bank's prior written consent, demand, receive or
accept any payment (whether of principal, interest or otherwise) from the
Borrower in respect of the Subordinated Indebtedness, or exercise any right of
or permit any setoff in respect of the Subordinated Indebtedness.
4. Receipt of Prohibited Payments. If the Creditor receives any payment on
the Subordinated Indebtedness that the Creditor is not entitled to receive under
the provisions of this Agreement, the Creditor will hold the amount so received
in trust for the Bank and will forthwith turn over such payment to the Bank in
the form received (except for the endorsement of the Creditor where necessary)
for application to then-existing Bank Indebtedness (whether or not due), in such
manner of application as the Bank may deem appropriate. In the event that the
Creditor shall exercise any right of setoff which the Creditor is not permitted
to exercise under the provisions of this Agreement, the Creditor will promptly
pay over to the Bank, in immediately available funds, an amount equal to the
amount of the claims or obligations offset. If the Creditor fails to make any
endorsement required under this Agreement, the Bank, or any of its officers or
employees or agents on behalf of the Bank, is hereby irrevocably appointed as
the attorney-in-fact (which appointment is coupled with an interest) for the
Creditor to make such endorsement in the Creditor's name.
5. Action on Subordinated Debt. The Creditor will not commence any action
or proceeding against the Borrower to recover all or any part of the
Subordinated Indebtedness, or join with any creditor (unless the Bank shall so
join) in bringing any proceeding against the Borrower under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt receivership,
liquidation or insolvency law or statute of the federal or any state government,
or take possession of, sell, or dispose of any Collateral, or exercise or
enforce any right or remedy available to the Creditor with respect to any such
Collateral, unless and until the Bank Indebtedness has been paid in full.
6. Foreclosure of Collateral. Notwithstanding any security interest now
held or hereafter acquired by the Creditor, the Bank may take possession of,
sell, dispose of, and otherwise deal with all or any part of the Collateral, and
may enforce any right or remedy available to it with respect to the Collateral,
all without notice to or consent of the Creditor except as specifically required
by applicable law. The Bank shall have no duty to preserve, protect, care for,
insure, take possession of, collect, dispose of, or otherwise realize upon any
of the Collateral, and in no event shall the Bank be deemed the Creditor's agent
with respect to the Collateral. All proceeds received by the Bank with respect
to any Collateral may be applied, first, to pay or reimburse the Bank for all
costs and expenses (including reasonable attorneys' fees) incurred by the Bank
in connection with the collection of such proceeds, and, second, to any
indebtedness secured by the Bank's security interest in that Collateral in any
order that it may choose.
7. Bankruptcy and Insolvency. In the event of any receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization or
arrangement with creditors, whether or not pursuant to bankruptcy law, the sale
of all or substantially all of the assets of the Borrower, dissolution,
liquidation or any other marshalling of the assets or liabilities of the
Borrower, the Creditor will file all claims, proofs of claim or other
instruments of similar character necessary to enforce the obligations of the
Borrower in respect of the Subordinated Indebtedness and will hold in trust for
the Bank and promptly pay over to the Bank in the form received (except for the
endorsement of the Creditor where necessary) for application to the
then-existing Bank Indebtedness, any and all moneys, dividends or other assets
received in any such proceedings on account of the Subordinated Indebtedness,
unless and until the Bank Indebtedness has been paid in full. If the Creditor
shall fail to take any such action, the Bank, as attorney-in-fact for the
Creditor, may take such action on the Creditor's behalf. The Creditor hereby
irrevocably appoints the Bank, or any of its officers or employees on behalf of
the Bank, as the attorney-in-fact for the Creditor (which appointment is coupled
with an interest) with the power but not the duty to demand, xxx for, collect
and receive any and all such moneys, dividends or other assets and give
acquittance therefor and to file any claim, proof of claim or other instrument
of similar character, to vote claims comprising Subordinated Indebtedness to
accept or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension and to take such other action in the
Bank's own name or in the name of the Creditor as the Bank may deem necessary or
advisable for the enforcement of the agreements contained herein; and the
Creditor will execute and deliver to the Bank such other and further
powers-of-attorney or instruments as the Bank may request in order to accomplish
the foregoing.
8. Restrictive Legend; Transfer of Subordinated Indebtedness. The Creditor
will cause all notes, bonds, debentures or other instruments evidencing the
Subordinated Indebtedness or any part thereof to contain a specific statement
thereon to the effect that the indebtedness thereby evidenced is subject to the
provisions of this Agreement, and the Creditor will xxxx its books conspicuously
to evidence the subordination effected hereby. At the request of the Bank, the
Creditor shall deposit with the Bank all of the notes, bonds, debentures or
other instruments evidencing the Subordinated Indebtedness, which notes, bonds,
debentures or other instruments may be held by the Bank so long as any Bank
Indebtedness remains outstanding. Without the prior written consent of the Bank,
the Creditor will not assign, transfer or pledge to any other person any of the
Subordinated Indebtedness or agree to a discharge or forgiveness of the same so
long as there remains outstanding any of the Bank Indebtedness.
9. Continuing Effect. This Agreement shall constitute a continuing
agreement of subordination, and the Bank may, without notice to or consent by
the Creditor, modify any term of the Bank Indebtedness in reliance upon this
Agreement. Without limiting the generality of the foregoing, the Bank may, at
any time and from time to time, either before or after receipt of any such
notice of revocation, without the consent of or notice to the Creditor and
without incurring responsibility to the Creditor or impairing or releasing any
of the Bank's rights or any of the Creditor's obligations hereunder:
(a) change the interest rate or change the amount of payment or extend
the time for payment or renew or otherwise alter the terms of any Bank
Indebtedness or any instrument evidencing the same in any manner;
(b) sell, exchange, release or otherwise deal with any property at any
time securing payment of the Bank Indebtedness or any part thereof;
(c) release anyone liable in any manner for the payment or collection
of the Bank Indebtedness or any part thereof;
(d) exercise or refrain from exercising any right against the Borrower
or any other person (including the Creditor); and
(e) apply any sums received by the Bank, by whomsoever paid and
however realized, to the Bank Indebtedness in such manner as the Bank shall
deem appropriate.
10. No Commitment. None of the provisions of this Agreement shall be deemed
or construed to constitute or imply any commitment or obligation on the part of
the Bank to make any future loans or other extensions of credit or financial
accommodations to the Borrower.
11. Notice. All notices and other communications hereunder shall be in
writing and shall be (i) personally delivered, (ii) transmitted by registered
mail, postage prepaid, or (iii) transmitted by telecopy, in each case addressed
to the party to whom notice is being given at its address as set forth below:
If to the Bank:
TCF Bank Minnesota fsb
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxx Xxxxxx
Telecopier: (000) 000-0000
If to the Creditor:
K-Tel International (USA), Inc.
c/o K-Tel International, Inc.
00000 Xxxxxx Xxxx
Xxxxxxxx, Xxxxxxxxx 00000
Attention: Chief Financial Officer
Telecopier: (000) 000-0000
or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy.
12. Conflict in Agreements. If the subordination provisions of any
instrument evidencing Subordinated Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between the
Bank and the Creditor.
13. No Waiver. No waiver shall be deemed to be made by the Bank of any of
its rights hereunder unless the same shall be in writing signed on behalf of the
Bank, and each such waiver, if any, shall be a waiver only with respect to the
specific matter or matters to which the waiver relates and shall in no way
impair the rights of the Bank or the obligations of the Creditor to the Bank in
any other respect at any time.
14. Miscellaneous. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the Creditor has executed this Agreement as of the date
and year first above-written.
K-TEL INTERNATIONAL (USA), INC.
By /S/ Xxxx Xxxxx
Its Vice President
Acknowledgment by Borrower
(i) acknowledges receipt of a copy thereof, (ii) agrees to all of the terms
and provisions thereof, (iii) agrees to and with the Bank that it shall make no
payment on the Subordinated Indebtedness that the Creditor would not be entitled
to receive under the provisions of the Agreement, (iv) agrees that any such
payment will constitute a default under the Bank Indebtedness, and (v) agrees to
xxxx its books conspicuously to evidence the subordination of the Subordinated
Indebtedness effected hereby.
K-TEL, INC.
By /S/ Xxxx Xxxxx
Its Vice President
