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INTERCREDITOR AGREEMENT
between
FOOTHILL CAPITAL CORPORATION
and
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee and Collateral Agent
Dated as of July 17, 1998
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FORM OF
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT, dated as of July 17, 1998 (this
"Agreement"), is made by and between Foothill Capital Corporation, a California
corporation ("Lender"), as senior secured lender under and pursuant to the
Lender Credit Agreement (as hereinafter defined), and Firstar Bank of Minnesota,
N.A. (the "Subordinated Creditor"), solely in its capacity as trustee and
collateral agent under and pursuant to the Priority Senior Note Indenture (as
hereinafter defined).
RECITALS
A. Discovery Zone, Inc., a Delaware corporation (the "Borrower"),
certain subsidiaries of the Borrower and State Street Bank and Trust Company,
solely in its capacity as trustee and collateral agent (the "Old Notes
Trustee"), entered into the Indenture, dated July 22, 1997 (the "Old Notes
Indenture"), pursuant to which, and upon the terms and conditions stated
therein, indebtedness was incurred by the Borrower (the "Old Notes
Indebtedness"), the repayment of which is secured by priority security interests
in and liens on the assets and properties of the Borrower (the "Collateral")
described in the collateral security documents executed and delivered in
connection therewith (collectively, the "Old Notes Security Agreements" and,
together with the Old Notes Indenture, the "Old Notes Agreements").
B. The Borrower, certain subsidiaries of the Borrower and the
Subordinated Creditor entered into an Indenture (the "New Notes Indenture"),
dated the date hereof, pursuant to which, and upon the terms and conditions
stated therein, indebtedness was incurred by the Borrower (the "New Notes
Indebtedness"), the repayment of which is secured by security interests in and
liens on the assets and properties described in the collateral security
documents executed and delivered in connection therewith (collectively, the "New
Notes Security Agreements" and, together with the New Notes Indenture, the "New
Notes Agreements").
C. Borrower and Lender entered into a Loan and Security Agreement,
dated as of March 31, 1998, as amended by that certain Amendment Number One to
Loan and Security Agreement, dated the date hereof (as amended, the "Lender
Credit Agreement"), pursuant to which Lender agreed, upon the terms and
conditions stated therein, to make loans and advances to or to issue letters of
credit (or guaranties in respect thereof) on account of the Borrower (and
certain of its subsidiaries) in an aggregate principal amount and undrawn
amount, as the case may be, not to exceed in the aggregate $15 million (such
aggregate principal and undrawn amount, together with all interest, fees and
expenses payable thereon or with respect thereto being the "Maximum Senior
Indebtedness"), secured by security interests in and liens on the
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collateral pursuant to the Lender Credit Agreement and the collateral security
documents executed and delivered in connection therewith (the "Senior Security
Agreements" and, together with the Lender Credit Agreement, the "Senior Loan
Agreements").
D. Lender and the Old Notes Trustee, solely in its capacity as
collateral agent and trustee under the Old Notes Indenture, entered into an
Intercreditor Agreement (the "Old Notes Intercreditor Agreement") concerning the
respective rights of the Old Notes Trustee and Lender with respect to the
priority of their respective security interests in and liens on the Collateral.
E. The Subordinated Creditor, solely in its capacity as collateral
agent and trustee under the New Notes Indenture, and the Old Notes Trustee,
solely in its capacity as collateral agent and trustee under the Old Notes
Indenture, entered into an Intercreditor Agreement (the "Noteholder
Intercreditor Agreement") concerning the respective rights of the Subordinated
Creditor and the Old Notes Trustee with respect to the priority of their
respective security interests in and liens on the Collateral.
F. One of the conditions of the Lender Credit Agreement is that the
priority of the security interests in and liens on the Collateral under the
Senior Loan Agreements be senior to the security interests in and liens on the
Collateral under the New Notes Security Agreements, in the manner and to the
extent provided in this Agreement.
G. Lender and the Subordinated Creditor, solely in its capacity as
trustee and collateral agent under the New Notes Indenture, desire to enter into
this Agreement concerning the respective rights of Lender and the Subordinated
Creditor with respect to the priority of their respective security interests in
and liens on the Collateral.
H. The terms of the New Notes Indenture permit the Borrower to enter
into the Senior Loan Agreements and, in connection therewith, provides for and
directs that the Subordinated Creditor shall enter into a subordination
agreement substantially in the form of this Agreement.
I. The Lender and the Subordinated Creditor agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Terms Defined Above and in the Recitals. As
used in this Agreement, the following terms shall have the
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respective meanings indicated in the opening paragraph hereof and
in the above Recitals:
"Agreement"
"Borrower"
"Collateral"
"Lender"
"Lender Credit Agreement"
"Maximum Senior Indebtedness"
"New Notes Agreements"
"New Notes Indebtedness"
"New Notes Indenture"
"New Notes Security Agreements"
"Noteholder Intercreditor Agreement"
"Old Notes Agreements"
"Old Notes Indebtedness"
"Old Notes Indenture"
"Old Notes Intercreditor Agreement"
"Old Notes Security Agreements"
"Old Notes Trustee"
"Senior Loan Agreements"
"Senior Security Agreements"
"Subordinated Creditor"
Section 1.02. Other Definitions. As used in this
Agreement, the following terms shall have the meanings set forth
below:
"Bankruptcy Code" shall mean Title 11 of the United States
Code, 11 U.S.C. xx.xx. 101 et seq, as amended.
"Event of Default" shall have the meaning ascribed thereto in the
Lender Credit Agreement.
"Fully Paid" shall mean the payment in cash in full of all obligations
under each Lender Loan Document at such time when there shall no longer be any
obligation of the Lender to make loans or advances or issue letters of credit
(or guaranties in respect thereof) and there shall no longer be any letter of
credit (or guaranty in respect thereof) outstanding thereunder or such letter of
credit (or guaranty in respect thereof) shall have been cash collateralized in
an amount not less than 105% of the undrawn amount thereof.
"Insolvency Proceeding" shall mean any proceeding for the purposes of
dissolution, winding up, liquidation, arrangement or reorganization of the
Borrower or its Subsidiaries or their respective successors or assigns, whether
in bankruptcy, insolvency, arrangement, reorganization or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Borrower or its Subsidiaries, or
their respective successors or assigns.
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"Issue Date" shall have the meaning ascribed thereto in the Old Notes
Indenture.
"Lender Loan Documents" shall mean the Senior Loan Agreements, the
collateral documents and instruments executed and delivered in connection
therewith, and such other agreements, instruments and certificates as defined or
referred to in the Lender Credit Agreement, as any or all of the same may be
amended or supplemented from time to time.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction,
excluding true lease and consignment filings).
"Lien Priority" shall mean with respect to any Lien of the Lender or
the Subordinated Creditor in the Collateral, the order of priority of such Lien
as specified in Section 2.01 of this Agreement.
"Loan Documents" shall mean the Lender Loan Documents and
the Subordinated Creditor Loan Documents.
"McDonald's" shall mean the XxXxxxxx'x Corporation, a
Delaware corporation, and its successors and assigns.
"McDonald's Collateral" shall mean those certain fourteen parcels of
real property and related fixtures, including, without limitation, any proceeds
thereof, which properties and proceeds are subject to McDonald's Senior Liens.
"McDonald's Secured Note" shall mean a secured promissory note issued
on the Issue Date by the Borrower in favor of McDonald's pursuant to the Plan of
Reorganization, which note represents restructured secured claims against the
Borrower in an estimated aggregate principal amount of up to $4,600,000.
"McDonald's Secured Rent Deferral Notes" shall mean secured promissory
notes issued on the Issue Date by the Borrower in favor of McDonald's pursuant
to the Plan of Reorganization, which notes represent restructuring of rent
deferrals which McDonald's granted to the Borrower during bankruptcy proceedings
of the Borrower in an estimated aggregate principal amount of up to $300,000.
"McDonald's Senior Liens" shall mean the first priority liens of
McDonald's on the McDonald's Collateral, as set forth in the first mortgages,
deeds of trust and/or deeds to secure debt, which McDonald's Senior Liens
secure, among other things, the payment of the McDonald's Secured Note, the
McDonald's Secured
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Rent Deferral Notes and any obligations of the Debtors (as defined in the Plan
of Reorganization) or the Borrower or any of the other Reorganized Debtors (as
defined in the Plan of Reorganization) that may arise under (i) the agreement to
indemnify as set forth in Section 10.3(f) and Section 11.2(a)(iii) of the
Agreement and Plan of Merger, dated as of August 30, 1994, by and among
Discovery Zone, Inc., Discovery Zone International, Inc., Leaps & Bounds, Inc.
and McDonald's and (ii) the Stipulation and Order Between Debtors and McDonald's
Providing for the Resolution, Settlement and Compromise of Disputes and for Rent
Deferrals and Allowance of Certain Claims, entered by the United States
Bankruptcy Court for the District of Delaware on November 18, 1996, which liens
are senior to the subordinate liens on the McDonald's Collateral granted by the
Borrower to Subordinated Creditor as set forth in the Subordination Agreement,
dated as of July 22, 1997, by and between McDonald's and the Subordinated
Creditor.
"Party" shall mean any signatory to this Agreement.
"Plan of Reorganization" shall mean the Third Amended Joint Plan of
Reorganization of the Borrower, dated March 11, 1997, as amended and as
confirmed by order of the United States Bankruptcy Court for the District of
Delaware, dated July 18, 1997.
"Senior Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors under the Lender Credit
Agreement to the Lender and the obligations, contingent or otherwise, of the
subsidiaries of the Borrower arising under or pursuant to the Senior Loan
Agreements, including, in each case, interest (including interest after the
commencement of any Insolvency Proceeding at the rate specified in the
applicable Senior Loan Agreements, whether or not such interest is an allowed
claim in any such Insolvency Proceeding), fees and expenses accruing after the
initiation of any Insolvency Proceeding (irrespective of whether allowed as a
claim in such proceeding), and including the secured claims of the Lender in
respect of the Collateral in any Insolvency Proceeding (irrespective of whether
allowed as a claim in such proceeding).
"Subordinated Creditor Enforcement Event" shall mean the occurrence and
continuance of an "Event of Default" under Section 6.01 of the New Notes
Indenture.
"Subordinated Creditor Loan Documents" shall mean the New Notes
Agreements, the Collateral Agreements (as defined in the New Notes Indenture),
the Subordinated Creditor Notes, the real property mortgages referred to in the
New Notes Indenture (now existing or hereafter negotiated, executed, delivered
and recorded), and such other agreements, instruments and certificates as
defined or referred to in the New Notes Indenture, as any or all of the same may
be amended or supplemented from time to time.
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"Subordinated Creditor Notes" shall mean the notes issued to the
holders thereof pursuant to the New Notes Indenture.
"Subordinated Holders" shall mean the holders of New Notes
Indebtedness under the New Notes Indenture.
"Subordinated Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors (as defined in the New
Notes Indenture) to the Subordinated Creditor and the Subordinated Holders, and
the obligators, contingent or otherwise, of the subsidiaries of the Borrower
arising under or pursuant to the New Notes Agreements, including, in each case,
interest (including interest after the commencement of any Insolvency Proceeding
at the rate specified in the applicable Subordinated Creditor Notes, whether or
not such interest is an allowed claim in any such Insolvency Proceeding), fees
and expenses accruing after the initiation of any Insolvency Proceeding
(irrespective of whether allowed as a claim in such proceeding), and including
the secured claims of the Subordinated Creditor in respect of the Collateral in
any Insolvency Proceeding (irrespective of whether allowed as a claim in such
proceeding).
"Trigger Event" shall mean any of (a) the occurrence of an Event of
Default, (b) the acceleration of or demand for payment with respect to the
Senior Liabilities by Lender pursuant to the Lender Credit Agreement, or (c) the
commencement of any action by Lender, whether judicial or otherwise, for the
enforcement of the rights and remedies of Lender under any of the Lender Loan
Documents, including (i) commencement of any receivership or foreclosure
proceedings against or any other sale of, collection on or disposition of any
Collateral, including any notification to third parties to make payment directly
to Lender, (ii) exercise of any right of set-off, (iii) commencement of any
Insolvency Proceeding, and (iv) commencement of any action or proceeding against
the Borrower to recover all or any part of the Senior Liabilities.
Section 1.03. Singular and Plural. All definitions herein (whether set
forth herein directly or by reference to definitions in other documents) shall
be equally applicable to both the singular and the plural forms of the terms
defined.
Section 1.04. Miscellaneous. The words "hereof", "herein" or
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Article and section references are to articles and sections of this
Agreement unless otherwise specified. The term "including" shall mean
"including, without limitation".
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ARTICLE II
LIEN PRIORITY
Section 2.01. Agreement to Subordinate. The Subordinated Creditor
hereby agrees that the Liens of the Subordinated Creditor in the Collateral are
and shall be junior to and subordinate in priority to the Liens of the Lender in
the Collateral securing the Senior Liabilities up to and not exceeding the
Maximum Senior Indebtedness; provided, however, that the terms, provisions and
restrictions of this Agreement shall be void and of no further force and effect
in the event, but only to the extent, that the Lender's Liens in the Collateral
are avoided, disallowed, set aside or otherwise invalidated in any judicial
proceeding by a court, tribunal or administrative agency of competent
jurisdiction, to the extent of such Collateral which is the subject of any such
proceeding. The subordination of Liens by the Subordinated Creditor in favor of
the Lender herein shall not be deemed to subordinate the Subordinated Creditor's
Liens to the Liens of any other Person.
Section 2.02. Standstill Period. If a Subordinated Creditor Enforcement
Event has occurred and is continuing, the Subordinated Creditor may give the
Lender written notice thereof, specifying the nature of the Subordinated
Creditor Enforcement Event in reasonable detail. If such Subordinated Creditor
Enforcement Event is continuing for more than 180 days after the delivery of
such notice, and if the Lender has not by the expiration of such 180-day period
notified the Subordinated Creditor that the Lender has commenced one or more
types of enforcement actions described in Section 3.01 or that the Borrower is
the subject of an Insolvency Proceeding, then the Subordinated Creditor may,
subject to the Lien Priority and prior application of proceeds of the Collateral
to the Senior Liabilities, as provided herein, take one or more types of
enforcement actions described in Section 3.01 or otherwise available to the
Subordinated Creditor under the New Notes Indenture and the other Subordinated
Creditor Loan Documents. If the Lender has taken or commenced any such
enforcement action within such 180-day period and thereafter discontinues such
enforcement action or actions, and no Insolvency Proceeding is pending against
the Borrower and no action described in Section 3.01 is then being taken by the
Lender, and if, following the expiration of such 180-day period, such
Subordinated Creditor Enforcement Event is then continuing, then the
Subordinated Creditor may, subject to the Lien Priority and prior application of
proceeds of the Collateral to the Senior Liabilities, as provided herein, take
one or more types of enforcement actions described in Section 3.01 or otherwise
available to the Subordinated Creditor under the New Notes Indenture and the
other Subordinated Creditor Loan Documents.
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Section 2.03. Exercise of Rights.
(a) Subject to Section 2.02, the Subordinated Creditor may
exercise, and nothing herein shall constitute a waiver of, any right it may have
at law or equity to receive notice of, or to commence or join with any creditor
in commencing any Insolvency Proceeding or, subject to Section 2.02, to join or
participate in, any action or proceeding or other activity described in Section
3.01; provided, however, that exercise of any such right by the Subordinated
Creditor shall be subject to the Lien Priority and prior application of proceeds
of Collateral to the Senior Liabilities as provided herein.
(b) The Subordinated Creditor may make such demands or file
such claims in respect of the Subordinated Liabilities as may be necessary to
prevent the waiver or bar of such claims under applicable statutes of
limitations or other statutes, court orders or rules of procedure, but except as
provided in this Section 2.03, the Subordinated Creditor shall not take any
actions restricted by Section 3.01 in respect of such claims until the Senior
Liabilities up to the amount of the Maximum Senior Indebtedness are Fully Paid.
Section 2.04. Priority of Liens. Irrespective of the order of recording
of mortgages, financing statements, security agreements or other instruments,
and irrespective of the descriptions of Collateral contained in the Loan
Documents, including any financing statements, the Parties agree among
themselves that their respective liens and security interests in the Collateral
shall be governed by the Lien Priority, which shall be controlling in the event
of any conflict between this Agreement and any of the Loan Documents.
Section 2.05. Notice of Trigger Event. The Lender and the Subordinated
Creditor each agree that it will notify the other if it receives actual notice
of the occurrence of a Trigger Event or Subordinated Creditor Enforcement Event,
respectively, not later than 30 days after the date of any such occurrence, in
accordance with Section 5.06. The foregoing to the contrary notwithstanding, the
Lender shall not incur any liability to the Subordinated Creditor for the
failure to provide any such notice so long as the failure to so provide such
notice was not the result of wilful misconduct, bad faith or gross negligence.
ARTICLE III
ACTIONS OF THE PARTIES
Section 3.01. Limitation on Certain Actions. Subject to Section 2.02,
so long as any of the Senior Liabilities up to the amount of the Maximum Senior
Indebtedness are not Fully Paid, the Subordinated Creditor will not, without the
prior written consent of the Lender, take any of the following actions:
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(a) commencement of any action, whether judicial or otherwise,
for the enforcement of the Lender's rights and remedies as a secured creditor
with respect to the Collateral including commencement of any receivership or
foreclosure proceedings against or any other sale of, collection on, or
disposition of any Collateral; or
(b) notifying any third party account debtors of the Borrower
or its subsidiaries to make payment directly to it or any of its agents or other
Persons acting on its behalf.
Section 3.02. Notices. The Lender shall provide the Subordinated
Creditor with written notice at least 15 days prior to the Lender first
exercising any of its secured creditor remedies with respect to the Collateral.
The foregoing to the contrary notwithstanding, the Lender (a) shall not be
obligated to provide such prior written notice in the event that exigent
circumstances require that the Lender act immediately in order to preserve,
protect, or obtain possession or control over the Collateral or any portion
thereof; provided, however, that, in the event any such exigent circumstances do
require the Lender to so act immediately, the Lender agrees promptly to provide
the Subordinated Creditor with written notice as soon as practicable following
the Lender first exercising any of its secured creditor remedies with respect to
the Collateral, and (b) the Lender shall not incur any liability to the
Subordinated Creditor for the failure to provide any such notice so long as the
failure to so provide such notice was not the result of wilful misconduct, bad
faith or gross negligence.
Section 3.03. Perfection of Possessory Security Interests.
(a) For the limited purpose of perfecting the security
interests of the Parties in those types of Collateral in which a security
interest only may be perfected by possession or control, each Party hereby
appoints the other as its representative for the limited purpose of possessing
on its behalf any such Collateral that may come into the possession or control
of such other Party from time to time, and each Party agrees to act as the
other's representative for such limited purpose of perfecting the other's
security interest by possession or control through a representative, provided
that neither Party shall incur any liability to the other by virtue of acting as
the other's representative hereunder, and either Party may relinquish possession
of Collateral in its possession or control without the consent of the other
Party, and without incurring liability to the other Party unless there is an
express written agreement to the contrary in effect between the Parties, subject
to Section 3.03(b).
(b) The Lender acknowledges and agrees that it has been
advised by the Subordinated Creditor that the Subordinated Creditor has a
security interest in and lien on certain pledged collateral pursuant to the
Pledge Agreement by Borrower in favor
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of the Subordinated Creditor dated the date hereof, and the Subsidiary Pledge
Agreement by the Subsidiary Guarantors in favor of the Subordinated Creditor
dated the date hereof, and that in the event the Lender is holding the physical
certificates evidencing such pledged collateral subject to a pledge in its
favor: (i) the Lender acknowledges and agrees that it is holding such
certificates on behalf of and for the benefit of the Subordinated Creditor,
subject to the Intercreditor Agreement, and (ii) at such time as the Senior
Liabilities are paid in full, and in the event the Subordinated Liabilities are
not satisfied in full, the Lender shall, and is authorized and directed to,
deliver all such certificates and other collateral under such Pledge Agreement
to the possession of the Subordinated Creditor or its designee, with any
necessary endorsements in favor of the Subordinated Creditor.
ARTICLE IV
ENFORCEMENT OF PRIORITIES
Section 4.01. In Furtherance of Lien Priorities. The
Lender and the Subordinated Creditor agree as follows:
(a) Upon any distribution of all or any of the assets of the
Borrower or its Subsidiaries to creditors of the Borrower or its Subsidiaries
(whether in cash, securities or other property) in connection with any
Insolvency Proceeding, which otherwise would be payable or deliverable upon or
with respect to the Collateral, such assets shall be paid or delivered by the
Subordinated Creditor directly to the Lender for application (in the case of
cash) to or as collateral (in the case of securities or other non-cash property)
for the payment or prepayment of the Senior Liabilities until the Senior
Liabilities up to the Maximum Senior Indebtedness shall have been Fully Paid.
(b) If any Insolvency Proceeding is commenced by or against
the Borrower or its Subsidiaries, the Subordinated Creditor, to the extent party
to any such Insolvency Proceeding, and to the extent it has commenced any action
described in Section 3.01, shall (i) use its commercially reasonable efforts to
duly and promptly take such action as the Lender may reasonably request to
collect the proceeds of Collateral for account of the Lender at Lender's
reasonable cost and expense and to file appropriate claims or proofs of claim in
respect of the Subordinated Liabilities and (ii) receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Collateral and to hold such payments or distributions in trust for the Lender to
the extent set forth herein; provided, however, that Subordinated Creditor shall
have no liability to the Lender regarding the adequacy of any such proceeds or
for any action taken pursuant to Lender's request under clause (i) hereof except
for liabilities resulting from
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Subordinated Creditor's wilful misconduct, bad faith or gross negligence.
(c) All payments or distributions upon or with respect to the
Subordinated Liabilities which are received by the Subordinated Creditor
contrary to the provisions of this Agreement shall be segregated from other
funds and property held by the Subordinated Creditor and shall be held in trust
for the Lender and shall forthwith pay over such remaining proceeds to the
Lender in the same form as so received (with any necessary endorsement without
recourse or warranty) to be applied (in the case of cash) to or held as
Collateral (in the case of non-cash property or securities) for the payment or
prepayment of up to the Maximum Senior Indebtedness in accordance with the terms
of the Lender Credit Agreement; provided, however, that if, after such
application of proceeds, the Senior Liabilities up the Maximum Senior
Indebtedness are Fully Paid, the balance of any amounts received by the Lender
from the Subordinated Creditor shall be segregated by the Lender from the
Lender's other funds and properties, and the Lender shall hold such surplus
amounts in trust for the Subordinated Creditor and shall forthwith pay over such
amounts to the Subordinated Creditor in the same form as so received (with any
necessary endorsement without recourse or warranty) to be applied (in the case
of cash) to or held as Collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Subordinated Liabilities in
accordance with the terms of the New Notes Indenture.
(d) Each of the Lender and the Subordinated Creditor is hereby
authorized to demand specific performance of this Agreement, whether or not the
Borrower shall have complied with any of the provisions hereof applicable to it,
at any time when the other shall have failed to comply with any of the
provisions of this Agreement applicable to it, provided, however, the remedy of
specific performance shall not be available, and the asserting party shall be
free to assert any and all legal defenses it may possess, if such remedy would
result in, or otherwise constitute, a violation of the Employee Retirement
Income Security Act of 1974, as amended. Each of the Lender and the Subordinated
Creditor hereby irrevocably waives any defense based on the adequacy of a remedy
at law, which might be asserted as a bar to such remedy of specific performance.
(e) This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Liabilities is, other than as a result of any wilful misconduct, bad faith or
gross negligence of the Lender, rescinded or must otherwise be returned by the
Lender upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
Section 4.02 Control of Dispositions of Collateral
and Effect thereof on Junior Liens. Except to the extent, if
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any, expressly prohibited by the terms and conditions of Section 4.15 or Section
5.01 of the New Notes Indenture:
(a) each Party hereby agrees that if the Party with the senior
security interest in such Collateral shall have agreed with the Borrower (or its
subsidiary, as applicable) that the Borrower (or its subsidiary, as applicable)
may sell or otherwise dispose of such Collateral, then the security interest of
the other Party in such Collateral shall be released by such other Party
concurrently with such sale or other disposition and the net cash proceeds
therefrom may, at the sole election of the Party with the senior security
interest therein, be applied to the claims of the Parties in the manner provided
for herein, or be used by the Borrower (or its subsidiary, as applicable) for
its lawful general corporate purposes;
(b) each Party hereby further agrees that any UCC collection,
sale, or other disposition of Collateral by the Lender shall be free and clear
of any lien of the Subordinated Creditor in such Collateral, provided that the
Subordinated Creditor shall retain a Lien (having the same priority as the lien
it previously had on the item of Collateral that was sold or otherwise disposed
of) on the proceeds of such collection, sale, or other disposition (except to
the extent such proceeds are applied to the Senior Liabilities, as provided
herein, or are used by the Borrower (or its subsidiary, as applicable) for
general corporate purposes as set forth in subsection (a) of this Section 4.02);
and
(c) to the extent reasonably requested by either Party, the
other Party will cooperate in providing any necessary or appropriate releases to
permit a collection, sale, or other disposition of Collateral, as provided in
subsections (a) or (b) of this Section 4.02, by the Party holding the senior
lien therein free and clear of the other Party's junior Lien.
ARTICLE V
MISCELLANEOUS
Section 5.01. Rights of Subrogation. The Subordinated Creditor
agrees that no payment or distribution to the Lender pursuant to the provisions
of this Agreement shall entitle the Subordinated Creditor to exercise any rights
of subrogation in respect thereof until the Senior Liabilities up to the Maximum
Senior Indebtedness shall have been Fully Paid.
Section 5.02. Further Assurances. The Parties will, at their
own expense and at any time and from time to time, promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or desirable, or that either Party may reasonably request, in order to
protect any right or interest granted or purported to be granted hereby or to
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enable the Lender or the Subordinated Creditor to exercise and enforce its
rights and remedies hereunder; provided, however, that neither Party shall be
required to pay over any payment or distribution, execute any instruments or
documents, or take any other action referred to in this Section 5.02 to the
extent that such action would contravene any law, order or other legal
requirement binding upon such Party, and in the event of a controversy or
dispute, either Party may interplead any payment or distribution in any court of
competent jurisdiction, without further responsibility in respect of such
payment or distribution under this Section 5.02.
Section 5.03. Defenses Similar to Suretyship Defenses. All
rights and interests of the Lender hereunder, and all agreements and obligations
of the Subordinated Creditor under this Agreement, shall remain in full force
and effect irrespective of:
(a) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Senior Liabilities, or any other
amendment or waiver of or any consent to departure from the Senior Loan
Agreements, provided, however, that this clause (a) shall not apply to, and the
Subordinated Creditor's Liens and security interests in the Collateral shall not
be subordinated in priority by virtue of this Agreement to the Lender's liens
and security interests therein to the extent that the Senior Liabilities exceed
the Maximum Senior Indebtedness without the express written consent of the
Subordinated Creditor; or
(b) any release or non-enforcement of the Lender's Liens with
respect to any Collateral, or any release, amendment or waiver of or consent to
departure from any guaranty for all or any of the Senior Liabilities.
Section 5.04. Waiver. Except as otherwise provided herein, to
the maximum extent permitted by applicable law, the Subordinated Creditor hereby
waives, with respect to the Collateral to which the Lien Priority hereunder
relates (i) any failure, omission, delay or lack on the part of the Lender to
enforce, assert or exercise any right, power or remedy conferred on the Lender
in any of the Lender Loan Documents or this Agreement or the inability of the
Lender to enforce any provision of the Lender Loan Documents or this Agreement,
and (ii) without limiting the generality of the foregoing, any requirement that
the Lender protect, secure, perfect or insure any Liens or other lien or any
property subject thereto or exhaust any right or take any action against the
Borrower or any other Person or any Collateral; provided, however, that the
foregoing shall not be deemed to conflict with the proviso to Section 2.01.
Section 5.05. Amendments, Etc. No amendment or waiver
of any provision of this Agreement nor consent to any departure
by any Party shall in any event be effective unless the same
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shall be in writing and signed by the each Party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
Section 5.06. Addresses for Notices. All demands, notices and
other communications provided for hereunder shall be in writing and, if to the
Subordinated Creditor, mailed or sent by telecopy or delivered to it, addressed
to it as follows:
Firstar Bank of Minnesota, N.A.
000 Xxxx 0xx Xxxxxx
Xx. Xxxx, XX 00000
Attn: Corporate Trust
Telephone Number: (000) 000-0000
Telecopy Number: (000) 000-0000
and if to the Lender, mailed, sent or delivered thereto,
addressed to it as follows:
Foothill Capital Corporation
0000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Business Finance Division Manager
Telephone Number:
Telecopy Number: (000) 000-0000
or as to any party at such other address as shall be designated by such party in
a written notice to the other parties complying as to delivery with the terms of
this Section 5.06. All such demands, notices and other communications shall be
effective, when mailed, two business days after deposit in the mails, postage
prepaid, when sent by telecopy, when receipt is acknowledged by the receiving
telecopy equipment (or at the opening of the next business day if receipt is
after normal business hours), or when delivered, as the case may be, addressed
as aforesaid.
Section 5.07. No Waiver, Remedies. No failure on the part of
any Party to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
Section 5.08. Continuing Agreement, Transfer of Senior
Liabilities. This Agreement is a continuing agreement and shall (i) remain in
full force and effect until the Senior Liabilities and, solely for the purposes
of Section 5.14, the Subordinated Liabilities shall have been Fully Paid, (ii)
be binding upon the Parties and their successors and assigns, and (iii) inure to
the benefit of and be enforceable by the Parties and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), the Lender or the
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Subordinated Creditor may assign or otherwise transfer the Senior Liabilities or
the Subordinated Liabilities, as applicable, to any other Person (other than
Borrower or an Affiliate of the Borrower), and such other Person shall thereupon
become vested with all the rights in respect thereof granted to the Lender or
Subordinated Creditor, as the case may be, herein or otherwise.
Section 5.09. Governing Law: Entire Agreement. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New York except as otherwise preempted by applicable federal law. This Agreement
constitutes the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.
Section 5.10. Counterparts. This Agreement may be executed in
any number of counterparts, and it is not necessary that the signatures of all
Parties be contained on any one counterpart hereof, each counterpart will be
deemed to be an original, and all together shall constitute one and the same
document.
Section 5.11. No Third Party Beneficiary. This Agreement is
solely for the benefit of the Parties (and their successors and assignees). No
other Person (including Borrower or any Subsidiary or Affiliate of Borrower)
shall be deemed to be a third party beneficiary of this Agreement.
Section 5.12. Headings. The headings of the articles
and sections of this Agreement are inserted for purposes of
convenience only and shall not be construed to affect the meaning
or construction of any of the provisions hereof.
Section 5.13. Severability. If any of the provisions in this
Agreement shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement and shall not invalidate the Lien Priority
or any other priority set forth in this Agreement.
Section 5.14. Payment in Full of Senior Liabilities. From and
after the date on which the Senior Liabilities (up to the Maximum Senior
Indebtedness) have been Fully Paid:
(a) all payments or distributions from the Borrower or with
respect to the Collateral received by the Lender shall be segregated from other
funds and property held by the Lender and held in trust by the Lender for the
Subordinated Creditor and shall be promptly paid over to the Subordinated
Creditor in the same form as received (with any necessary endorsement without
recourse or warranty) to be applied to or held for the payment or prepayment of
the Subordinated Liabilities in accordance with the terms of the New Notes
Indenture; and
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(b) the Lender will promptly execute and deliver all further
instruments and documents, and take all further acts that may be necessary or
desirable, or that the Subordinated Creditor may reasonably request, to permit
the Subordinated Creditor to enforce the Subordinated Liabilities or recover any
proceeds of the Collateral; provided, however, that the Lender shall not be
required to pay over any payment or distribution, execute any instruments or
documents, or take any other action referred to in this Section 5.14 to the
extent that such action would contravene any law, order or other legal
requirement binding upon the Lender, and in the event of a controversy or
dispute, the Lender may interplead any payment or distribution in any court of
competent jurisdiction, without further responsibility in respect of such
payment or distribution under this Section 5.14.
Section 5.15. Other Non-Subordinated Encumbered Assets.
(a) Notwithstanding any term herein to the contrary, it is
hereby acknowledged and agreed that the subordination set forth in this
Agreement (and the term "Collateral" as defined in this Agreement) does not
include or apply to (i) cash, securities, instruments and/or certificates in an
escrow account established with and pledged to the Old Notes Trustee under and
pursuant to a certain Escrow and Security Agreement between the Borrower and the
Old Notes trustee dated July 22, 1997, (ii) McDonald's rights in the McDonald's
Collateral encumbered by the McDonald's Senior Liens.
(b) Notwithstanding any term herein to the contrary, it is
hereby further acknowledged and agreed that the subordination set forth in this
agreement (and the term "Collateral" as defined in this agreement) does not
include or apply to cash, securities, instruments and/or certificates held
pursuant to the Escrow and Security Agreement dated the date hereof, among
Borrower, Subordinated Creditor and Xxxxxxxxx & Company, Inc. (the "Escrow
Agreement"), and the Pledged Securities, the Escrowed Funds (as each such term
is defined in Escrow Agreement) or any other property or assets, held in the
Escrowed Interest Account (as defined in the Escrow Agreement); that Lender
hereby acknowledges and agrees that it has no security interest in or Lien on
any such cash, securities, instruments and/or certificates, Pledged Securities,
Escrowed Funds or other property or assets held in the Escrowed Interest
Account, nor any other right, title or interest therein and hereby acknowledges
Subordinated Creditor's security interest in and Lien on such cash, securities,
instruments and/or certificates, Pledged Securities, Escrowed Funds or other
property or assets held in the Escrowed Interest Account, and hereby forever
discharges and releases any claim to such cash, securities, instruments and/or
certificates, Pledged Securities, Escrowed Funds or other property or assets
held in the Escrowed Interest Account.
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Section 5.16. Subordinated Creditor Trustee Status. Notwithstanding any
term herein to the contrary, it is hereby expressly agreed and acknowledged that
the subordination and related agreements set forth herein by the Subordinated
Creditor are made solely in its capacity as trustee and collateral agent under
the New Notes Indenture and with respect to the Subordinated Creditor Notes (and
not in its individual commercial capacity, except to the extent that it is or
becomes the holder of any such Subordinated Creditor Note). The Subordinated
Creditor shall not have any duties, obligations, or responsibilities to the
Lender under this Agreement except as expressly set forth herein. Nothing in
this Agreement shall be construed to operate as a waiver by the Subordinated
Creditor, with respect to the Borrower or any Subordinated Holder, of the
benefit of any exculpatory provisions, presumptions, indemnities, or reliance
rights contained in the New Notes Indenture, and the Borrower expressly agrees
that as between itself and the Subordinated Creditor, the Subordinated Creditor
shall have such benefit with respect to all actions or omissions by the
Subordinated Creditor pursuant to this Agreement. For all purposes of this
Agreement, Subordinated Creditor may (a) rely in good faith, as to matters of
fact, on any representation of fact believed by Subordinated Creditor to be true
(without any duty of investigation) and that is contained in a written
certificate of any authorized representative of Borrower, of the Lender, or of
any Subordinated Holder, (b) rely in good faith, as to matters of law, on any
advice received from its legal counsel, and shall have no liability for any
action or omission taken in reliance thereon, and (c) assume in good faith
(without any duty of investigation), and rely upon, the genuineness, due
authority, validity, and accuracy of any certificate, instrument, notice, or
other document believed by it in good faith to be genuine and presented by the
proper person.
Section 5.17. Acknowledgement of Priority Liens. The Subordinated
Creditor acknowledges the rights and interests of Lender as a senior secured
lender (i) pursuant to the terms and provisions of the Lender Credit Agreement,
and (ii) pursuant to the terms and provisions of the Old Notes Intercreditor
Agreement pursuant to which the Old Notes Trustee agreed that, subject to the
terms of the Old Notes Intercreditor Agreement, the Liens (as defined in the Old
Notes Intercreditor Agreement) of the Old Notes Trustee shall be subordinate in
priority to the liens and security interests of Lender in the Collateral. The
Lender acknowledges that it has been advised by the Subordinated Creditor that
the rights and interests of the Subordinated Creditor as (i) a secured lender
pursuant to the terms and provisions of the New Notes Indenture, and (ii) a
senior secured lender pursuant to the terms and provisions of the Noteholder
Intercreditor Agreement pursuant to which the Old Notes Trustee agreed that,
subject to the terms of the Noteholder Intercreditor Agreement, the Liens (as
defined in the Noteholder Intercreditor Agreement) of the Old Notes Trustee
shall be subordinate in
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priority to the liens and security interests of the Subordinated
Creditor in the Collateral.
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* * * * *
IN WITNESS WHEREOF, the Lender and the Subordinated Creditor
each has caused this Agreement to be duly executed and delivered as of the date
first above written.
LENDER: FOOTHILL CAPITAL CORPORATION
By: /s/ Xxxxx Xxxxxx
-----------------------------------------
Name: Xxxxx Xxxxxx
Title: Account Executive
SUBORDINATED FIRSTAR BANK OF MINNESOTA, N.A.,
CREDITOR: solely in its capacity as Trustee (and
not individually)
By: /s/ Xxxxx X. Xxxxxx, III
-----------------------------------------
Name: Xxxxx X. Xxxxxx, III
Title: Vice President
ACKNOWLEDGMENT
The undersigned ("Borrower"), hereby acknowledges that it has
received a copy of the foregoing Intercreditor Agreement and consents thereto,
and agrees to recognize all rights granted thereby to the parties thereto, and
will not do any act or perform any obligation which is not in accordance with
the agreements set forth in such Intercreditor Agreement. Borrower further
acknowledges that it is not an intended beneficiary or third party beneficiary
under the Intercreditor Agreement.
Dated as of July 17, 1998.
DISCOVERY ZONE, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: President and Chief
Executive Officer
