Exhibit 10.70
SUBORDINATION AGREEMENT
This Agreement, dated as of January 27,1997, is made between and among
Peaches Entertainment Corp. ("Peaches"); URT Industries, Inc. ("URT"); 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"). URT, the Majors, and
Alliance may hereinafter 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:
1. Peaches has incurred obligations, and may in the future incur additional
obligations, to the Creditors, including obligations arising under the Allowed
Claim Notes, the URT Note, the Peaches-URT Reimbursement Agreement, and 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 any Major, Universal Music and Video Distribution
("Universal") and/or Alliance to Peaches for the purchase of product by Peaches
from such Major, Universal and/or Alliance.
2. Peaches also has granted to the Creditors certain security interests to
secure payment of Peaches' Obligations to the Creditors. Each Creditor has filed
or may file financing statements under the Uniform Commercial Code.
3. The Creditors desire to agree as to the relative priority of their
respective claims and interests with respect to both
payment of Peaches' Obligations to them and the security interests granted to
them by Peaches securing the Obligations.
4. Pursuant to the Plan:
i. Peaches has executed and delivered to each Major an Allowed Claim Note,
in an amount equal to such Major's Allowed Claim, less the Initial Payment made
to such Major on account of its Allowed Claim.
ii. Peaches has granted to each Major, to secure Peaches' obligations to
such Major under such Major's Allowed Claim Note and extension of
Post-confirmation Credit by such Major, a security interest solely in inventory
that was originally distributed by such Major and is held and owned by Peaches.
(The inventory sold by a particular Major to Peaches shall hereinafter be
referred to as the "Individual Major's Inventory," and the inventory sold by all
Majors to Peaches shall hereinafter be referred to as the "Majors' Inventory.")
iii. Peaches has executed and delivered to Alliance an Allowed Claim Note,
in an amount equal to Alliance's Allowed Claim, less the Initial Payment made to
Alliance on account of its Allowed Claim.
iv. Peaches has granted to Alliance, to secure Peaches' obligations to
Alliance under Alliance's Allowed Claim Note and under the extension of
Post-confirmation Credit by Alliance, a security interest in inventory that was
originally distributed by Alliance and is held and owned by Peaches (the
"Alliance Inventory").
v. Peaches has executed and delivered to URT a promissory note (the "URT
Note") evidencing the Effective Date Deficiency Advance made by URT to Peaches.
-2-
vi. URT has guaranteed Peaches' payment Obligations to the Majors and
Alliance under the Allowed Claim Notes, but not any of the obligations arising
from the extension by the Majors (or any Major) or by Alliance 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 Majors and/or
Alliance pursuant to the URT Guarantee (the "Peaches-URT Reimbursement
Agreement").
vii. 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 the Majors' Inventory, the Alliance Inventory and all other
inventory of Peaches (such other inventory being, "Peaches' Other Inventory").
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 any 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 any
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
-3-
any other default under any Allowed Claim Note nor any other default under any
term of any Post-confirmation Credit extension, and (b) shall continue only so
long as such Event of Subordination exists (the "Default 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
the Majors, Universal 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 obligations arising under terms of
the extension of Post-confirmation Credit (including any Allowed Claim Note held
by, and any obligation under Post-confirmation Credit extended by , Universal).
The portion of the Returned URT Payment that each Major, Universal and Alliance
shall be entitled to shall equal a fraction, the numerator of which shall be the
amount of payments in default to such Major, Universal or Alliance and the
denominator of which shall be the aggregate amount of payments in
-4-
default to all of the Majors, Universal and Alliance. The payment to the Majors,
Universal and Alliance of the Returned URT Payments, as set forth above, shall
be the sole remedy of the Majors and Alliance 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 the
Majors and Alliance shall be decreased by the full amount of the Returned URT
Payments paid to the Majors, Universal and Alliance.
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 the Majors and Alliance.
5. This Subordination Agreement shall terminate on the date that the
Allowed Claim Notes and the obligations arising under the extension of
Post-confirmation Credit are paid in full (the "Debt Payment Date"); provided,
however, that if any of the Majors or Alliance is required to repay or disgorge
any payment received on account of the Allowed Claim Notes or obligations
arising under the extension of Post-confirmation Credit, 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 the Majors and Alliance.
6. With respect to the security interests granted by Peaches to the
Creditors in the Majors' Inventory and the Alliance Inventory, the Creditors
agree between and among themselves that,
-5-
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 the
Majors' Inventory and the Alliance 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 the Individual Major's Inventory or the
Alliance 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 the Creditor initiating and
conducting such Disposition (the "Collateral Disposition
Expenses").
b. Second, to each Creditor (other than URT) whose collateral
is the subject of such Collateral Disposition in an amount
equal to the lesser of: (i) the proceeds of such
Creditor's collateral, less the Collateral Disposition
Expenses, and (ii) all amounts due and owing to such
Creditor under any Allowed Claim Note or obligation
arising under the extension of Post-confirmation Credit
payable to such Creditor.
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, the
Majors and Alliance with respect to the
-6-
full amount of each and every payment made by URT to any of the Majors and/or
Alliance pursuant to the URT Guaranty, provided, 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 the Majors and Alliance
under the Allowed Claim Notes and arising on account of the extension of
Post-confirmation Credit 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. Neither the Majors nor Alliance has been granted any security interest
in Peaches' Other Inventory, in Peaches' personal property other than the
Majors' Inventory and the Alliance 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
the Majors' Collateral and the Alliance 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 the Majors' Collateral and the Alliance Collateral,
and Peaches' real property, and (b) with respect to the security interest that
URT has in inventory collateral of any Major (or Alliance) following the full
payment of such Major (or Alliance); all of which rights and remedies of URT are
expressly and fully reserved by URT.
-7-
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 to it or its acceleration of any of
those Obligations, and before giving Peaches any instructions with respect to
any of the Majors' Inventory or the Alliance Inventory or taking any actions
with respect to any of the collateral consisting of the Majors' Inventory or the
Alliance 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 of the other Creditors.
12. Each notice or other communication given hereunder or in connection
herewith shall be in writing and shall be sent by first
-8-
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
BMG Distribution Sony Music Entertainment, Inc.
000 Xxxx Xxxxxx 000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Polygram Group Distribution Universal Music and Video
000 0xx Xxxxxx Xxxxxxxxxxxx Xxxx.
Xxx Xxxx, XX 00000 00 Xxxxxxxxx Xxxx Xxxxx
Xxxxxxxxx Xxxx, XX 00000
Warner/Elektra/Atlantic Corp. EMI Music Distribution
000 Xxxxx Xxxxxxxxx Xxx 00000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000 Xxxxxxxx Xxxxx, XX 00000-0000
Alliance Entertainment Corp.
00000 X.X. 00xx Xxxxxx
Xxxxx, 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.
13. 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.
14. Each of the several executed counterparts of this Agreement shall be an
original. All such counterparts shall
-9-
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.
15. 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 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.
16. There shall be no limit under this Subordination Agreement upon the
amount of Post-confirmation Credit that may be extended by any Major and/or
Alliance 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 all of the Majors and Alliance under
the Allowed Claim Notes and extensions of Postconfirmation Credit (including,
without limitation, the extensions of Post-confirmation Credit evidenced by the
acceptance by any of
-10-
the Majors and/or Alliance of purchase orders from Peaches on or before the
Material Event Date) (the "Pre-Material Event Obligations") are paid in full,
and (b) all payments made by Peaches to the Majors and Alliance 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 the Majors and Alliance 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.
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.
____________________________
Witness
Print Name__________________ By: __________________________
Print Name: __________________
____________________________
Witness As Its: ______________________
Print Name__________________
-11-
URT INDUSTRIES, INC.
s/Xxxxxxxx Xxxxxxxxx
------------------------------
Witness
Print Name Xxxxxxxx Xxxxxxxxx By: s/Xxxxx Xxxx
-----------------------------
Print Name: Xxxxx Xxxx
s/Xxxx X. Xxxxxxx
------------------------------
Witness As Its: Executive Vice-President
Print Name Xxxx X. Xxxxxxx
BMG DISTRIBUTION
s/Xxxxx Xxxxxxx
------------------------------
Witness
Print Name Xxxxx Xxxxxxx By: s/Xxxxxx Xxxxxx
-----------------------------
Print Name: Xxxxxx Xxxxxx
s/Xxxxx Xxxxx
------------------------------
Witness As Its: Director of Credit
Print Name Xxxxx Xxxxx
SONY MUSIC
ENTERTAINMENT, INC.
s/Xxxx Xxxxxx
------------------------------
Witness
Print Name Xxxx Xxxxxx By: s/Xxxx X. Xxxxxxx
-----------------------------
Print Name: Xxxx X. Xxxxxxx
s/Xxxxxxx Xxxxxxxx
------------------------------
Witness As Its: VP Customer Financial
Relations
Print Name Xxxxxxx Xxxxxxxx
Signed and delivered
in the presence of:
-12-
POLYGRAM GROUP DISTRIBUTION
s/Xxxxxx Xxxxx
------------------------------
Witness
Print Name Xxxxxx Xxxxx By: s/Xxxxxx X. Xxxxx, Xx.
------------------------------
Print Name: Xxxxxx X. Xxxxx, Xx.
----------------------------
Witness As Its: VP Credit
Print Name__________________
WARNER/ELEKTRA/ATLANTIC CORP.
s/Xxxxxx X. Xxxxxxxx
------------------------------
Witness
Print Name Xxxxxx X. Xxxxxxxx By: s/Xxxxxxx X. Xxxxx
------------------------------
Print Name: Xxxxxxx X. Xxxxx
------------------------------
Witness As Its: Senior VP, Credit
Print Name__________________
EMI MUSIC DISTRIBUTION
s/Xxxxxx Xxxxxxx
------------------------------
Witness
Print Name Xxxxxx Xxxxxxx By: s/Xxxxx Xxxxxx
------------------------------
Print Name: Xxxxx Xxxxxx
s/Xxx Xxxxxx
------------------------------
Witness As Its: Vice-President, Credit
Print Name Xxx Xxxxxx
Signed and delivered
in the presence of:
ALLIANCE ENTERTAINMENT CORP.
s/Xxxxxxx Xxxx
------------------------------
Witness
Print Name Xxxxxxx Xxxx By: s/Xxxxxxxxxxx Xxxxx
------------------------------
Print Name: Xxxxxxxxxxx Xxxxx
s/Xxxxxxx Xxxxx
------------------------------
Witness As Its: Executive Vice President
Print Name Xxxxxxx Xxxxx
-13-
