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INTERCREDITOR AGREEMENT
between
FIRSTAR BANK OF MINNESOTA, N.A.,
as Collateral Agent
and
STATE STREET BANK AND TRUST COMPANY,
as 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 State Street Bank and Trust Company (the
"Subordinated Creditor"), solely in its capacity as trustee and collateral agent
under and pursuant to the Subordinated Creditor Indenture (as hereinafter
defined), and Firstar Bank of Minnesota, N.A. (the "Senior 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 the Subordinated Creditor entered into
an Indenture, dated July 22, 1997 (as amended by the First Supplemental
Indenture, defined below, the "Subordinated Creditor Indenture"), pursuant to
which, and upon the terms and conditions stated therein, indebtedness was
incurred by the Borrower (the "Subordinated Indenture 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
Security Agreement (the "Security Agreement") and the Collateral Assignment of
Trademarks (the "Trademark Assignment" and, together with the Security Agreement
and the Subordinated Creditor Indenture, the "Subordinated Indenture
Agreements"), each dated the date of the Subordinated Creditor Indenture, by and
between the Borrower and the Subordinated Creditor.
B. Borrower and Foothill Capital Corporation, a California corporation
("Foothill"), 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 as of the date hereof (as amended, the "Lender Credit
Agreement"), pursuant to which Foothill 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, secured by security
interests in and liens on the assets and properties described therein and in the
collateral security documents executed and delivered in connection therewith.
C. On March 31, 1998, Foothill and the Subordinated Creditor, solely in
its capacity as collateral agent and trustee under the Subordinated Creditor
Indenture, entered into an Intercreditor Agreement (the "Subordinated Creditor
Intercreditor Agreement") which was acknowledged by the Borrower and concerning
the respective rights of the Subordinated Creditor and Foothill with respect to
the priority of their respective security interests in and liens on the
Collateral.
D. As of the date hereof, the Borrower and the Subordinated Creditor
have entered into a first supplemental indenture (the "First Supplemental
Indenture").
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E. As of the date hereof, the Borrower, certain subsidiaries of the
Borrower and the Senior Creditor entered into an Indenture (the "Priority Senior
Note Indenture"), pursuant to which, and upon the terms and conditions stated
therein, indebtedness was incurred by the Borrower (the "Priority Indenture
Indebtedness") in an aggregate principal amount not to exceed $20 million (such
aggregate principal amount, together with all interest, fees and expenses
payable thereon or with respect thereto being the "Maximum Senior
Indebtedness"), the repayment of which is secured by security interests in and
liens on the Collateral pursuant to the terms and conditions of the Priority
Senior Note Indenture and the collateral security documents executed and
delivered in connection therewith (collectively, the "Priority Security
Agreements" and, together with the Priority Senior Note Indenture, the "Senior
Loan Agreements").
F. One of the conditions of the Priority Senior Note Indenture 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 Subordinated Indenture Agreements, in the manner and to the
extent provided in this Agreement.
G. The Senior Creditor and the Subordinated Creditor desire to enter
into this Agreement concerning the respective rights of the Senior Creditor 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 Subordinated Creditor Indenture (as amended by the
First Supplemental Indenture) permit, subject to compliance with certain
conditions, 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 Senior Creditor and the Subordinated Creditor hereby 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 respective meanings indicated in
the opening paragraph hereof and in the above Recitals:
"Agreement"
"Borrower"
"Collateral"
"First Supplemental Indenture"
"Foothill"
"Lender Credit Agreement"
"Maximum Senior Indebtedness"
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"Priority Indenture Indebtedness"
"Priority Senior Note Indenture"
"Priority Security Agreements"
"Senior Creditor"
"Senior Loan Agreements"
"Subordinated Creditor"
"Subordinated Creditor Indenture"
"Subordinated Creditor Intercreditor Agreement"
"Subordinated Indenture Indebtedness"
"Subordinated Indenture Agreements"
"Trademark Assignment"
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
Priority Senior Note Indenture.
"Fully Paid" shall mean the payment in cash in full of all obligations
under each Senior Creditor Loan Document at such time when there shall no longer
be any obligation of the Senior Creditor to make loans or advances or issue
letters of credit (or guaranties in respect thereof).
"Insolvency Proceeding" shall mean any proceeding for the purposes of
dissolution, winding up, liquidation, arrangement or reorganization of the
Borrower or its Subsidiaries (as defined in the Indenture) 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.
"Issue Date" shall have the meaning ascribed thereto in the
Subordinated Creditor Indenture.
"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 Senior
Creditor or the Subordinated Creditor in the Collateral, the order of priority
of such Lien as specified in Section 2.01 of this Agreement.
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"Loan Documents" shall mean the Senior Creditor 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 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 Creditor Intercreditor Agreement" shall mean that certain
Intercreditor Agreement, dated as of the date hereof, between the Senior
Creditor and Foothill.
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"Senior Creditor Loan Documents" shall mean the Senior Loan Agreements,
the collateral documents and instruments executed and delivered in connection
therewith, the Senior Creditor Notes, and such other agreements, instruments and
certificates as defined or referred to in the Priority Senior Note Indenture, as
any or all of the same may be amended or supplemented from time to time.
"Senior Creditor Notes" shall mean the promissory notes issued to the
holders thereof pursuant to the Priority Senior Note Indenture.
"Senior Holders" shall mean the holders of Priority Indenture
Indebtedness under the Priority Senior Note Indenture.
"Senior Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors under the Priority
Senior Note Indenture to the Senior Creditor and/or the Senior Note Holders, 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 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, and including the secured claims of the Senior Creditor 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 Subordinated
Creditor Indenture.
"Subordinated Creditor Loan Documents" shall mean the Subordinated
Indenture Agreements, the Collateral Agreements (as defined in the Subordinated
Creditor Indenture), the Subordinated Creditor Notes, the real property
mortgages referred to in the Subordinated Creditor Indenture (now existing or
hereafter negotiated, executed, delivered and recorded), and such other
agreements, instruments and certificates as defined or referred to in the
Subordinated Creditor Indenture, as any or all of the same may be amended or
supplemented from time to time.
"Subordinated Creditor Notes" shall mean the promissory notes issued to
the holders thereof pursuant to the Subordinated Creditor Indenture.
"Subordinated Holders" shall mean the holders of Subordinated Indenture
Indebtedness under the Subordinated Creditor Indenture.
"Subordinated Liabilities" shall mean the obligations, contingent or
otherwise, of the Borrower and the Subsidiary Guarantors under the Subordinated
Creditor Indenture to the Subordinated Creditor and/or the Subordinated Holders,
including, in each case, interest (including interest after the commencement of
any Insolvency Proceeding at the rate specified in the applicable Senior
Creditor Notes, whether or not such interest is an allowed claim in
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any such Insolvency Proceeding), fees and expenses accruing after the initiation
of any Insolvency 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 on the Senior Creditor
Notes by the Senior Creditor pursuant to the Priority Senior Note Indenture, or
(c) the commencement of any action by the Senior Creditor, whether judicial or
otherwise, for the enforcement of the rights and remedies of the Senior Creditor
under any of the 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 the Senior Creditor, (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".
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 Senior
Creditor 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 Senior
Creditor'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 Senior Creditor 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
Senior Creditor written notice thereof, specifying the nature of the
Subordinated Creditor Enforcement Event in
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reasonable detail. If such Subordinated Creditor Enforcement Event is continuing
for more than 240 days after the delivery of such notice, and if the Senior
Creditor has not by the expiration of such 240-day period notified the
Subordinated Creditor that the Senior Creditor 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 Subordinated Creditor Indenture and the other Subordinated
Creditor Loan Documents. If the Senior Creditor has taken or commenced any such
enforcement action within such 240-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
Senior Creditor, and if, following the expiration of such 240-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 Subordinated Creditor Indenture
and the other Subordinated Creditor Loan Documents. Notwithstanding anything to
the contrary in this Section 2.02, if the Senior Creditor Intercreditor
Agreement is at any time terminated or expires in accordance with its terms, and
the Senior Creditor is no longer subject to a subordination or similar agreement
with a lender under an Eligible Credit Facility (as defined in the Subordinated
Creditor Indenture), the 240-day period referred to in this Section 2.02 shall
be 180 days.
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
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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 Senior Creditor 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 Subordinated Creditor and the Senior Creditor shall not
incur any liability to the other 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 Senior Creditor, take any of the following actions:
(a) commencement of any action, whether judicial or otherwise,
for the enforcement of the Senior Creditor'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 Senior Creditor shall provide the
Subordinated Creditor with written notice at least 15 days prior to the Senior
Creditor first exercising any of its secured creditor remedies with respect to
the Collateral. The foregoing to the contrary notwithstanding, the Senior
Creditor (a) shall not be obligated to provide such prior written notice in the
event that exigent circumstances require that the Senior Creditor 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 Senior Creditor to so act immediately,
the Senior Creditor agrees promptly to provide the Subordinated Creditor with
written notice as soon as practicable following the Senior Creditor first
exercising any of its secured creditor remedies with respect to the Collateral,
and (b) the Senior Creditor 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.
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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 Subordinated Creditor acknowledges and agrees that the
Senior Creditor has a security interest in and lien on certain pledged
collateral pursuant to the Pledge Agreement by Borrower in favor of the Senior
Creditor dated the date hereof, and the Subsidiary Pledge Agreement by the
Subsidiary Guarantors in favor of the Senior 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 Subordinated
Creditor acknowledges and agrees that it is holding such certificates on behalf
of and for the benefit of the Senior Creditor, subject to this Intercreditor
Agreement, and (ii) at such time as the Subordinated Liabilities are paid in
full, and in the event the Senior Liabilities are not satisfied in full, the
Subordinated Creditor shall, and is authorized and directed to, deliver all such
certificates and other collateral under such Pledge Agreement to the possession
of the Senior Creditor or its designee, with any necessary endorsements in favor
of the Senior Creditor.
Section 3.04. Adequate Protection Payments.
(a) The Subordinated Creditor, for and on behalf of the
Subordinated Holders, covenants and agrees (but does not represent or warrant)
that, as of the date hereof, assuming the collateral securing the Priority
Senior Notes is substantially the same collateral as that securing the
Subordinated Indenture Indebtedness, the value of the collateral securing the
Priority Senior Notes exceeds the amount of all obligations owing by the
Borrower to the Senior Holders thereunder.
(b) In the event that an Insolvency Proceeding is filed by or
against the Borrower, the Subordinated Creditor, for and on behalf of the
Subordinated Holders, hereby covenants and agrees not to file, cause to be
filed, or otherwise support an objection on any grounds to any application for
"adequate protection" (as such term is contemplated in, among other statutes,
Sections 361 and 362 of the Bankruptcy Code) made by or on behalf of the Senior
Holders. The Subordinated Creditor, for and on behalf of the Subordinated
Holders, further agrees that all such adequate protection payments and/or
payments deemed "in lieu" of adequate protection provided for the benefit of the
Senior Holders, shall be deemed proceeds of the collateral securing the Priority
Senior Notes and shall be applied by the
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trustee under the Priority Senior Note Indenture, subject to the provisions of
Section 2.01 of the Subordinated Creditor Indenture, as affected by the First
Supplemental Indenture, concerning payment of the Subordinated Creditor's fees
and expenses: (A) first to the payment of any interest upon the principal amount
of the Priority Senior Notes, including interest after the commencement of an
Insolvency Proceeding at the rate specified in the applicable Priority Senior
Notes, whether or not such interest is an allowed claim in such Insolvency
Proceeding, (B) second, for the reasonable costs and expenses incurred or
accrued, directly or indirectly, by the Senior Holders in connection with the
Insolvency Proceeding, and (C) third, to the payment of outstanding principal
and all remaining obligations under the Priority Senior Notes.
ARTICLE IV
ENFORCEMENT OF PRIORITIES
Section 4.01. In Furtherance of Lien Priorities. The Senior Creditor
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 Liabilities, such assets shall be paid or
delivered by the Subordinated Creditor directly to the Senior Creditor 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 Senior Creditor may reasonably request
to collect the proceeds of Collateral for account of the Senior Creditor at
Senior Creditor'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 Senior Creditor to the extent set forth herein; provided, however,
that Subordinated Creditor shall have no liability to the Senior Creditor
regarding the adequacy of any such proceeds or for any action taken pursuant to
Senior Creditor's request under clause (i) hereof except for liabilities
resulting from 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 Senior Creditor and shall forthwith pay over such
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remaining proceeds to the Senior 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 Senior Liabilities up to the
Maximum Senior Indebtedness in accordance with the terms of the Priority Senior
Note Indenture; 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 Senior Creditor from the Subordinated
Creditor shall be segregated by the Senior Creditor from the Senior Creditor's
other funds and properties, and the Senior Creditor shall hold such surplus
amounts in trust for the Subordinated Creditor and shall forthwith pay 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 Subordinated Creditor Indenture.
(d) Each of the Senior Creditor 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 Senior Creditor
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 Senior Creditor, rescinded or must otherwise be returned
by the Senior Creditor 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 any, expressly prohibited by the terms
and conditions of Section 4.15 or Section 5.01 of the Subordinated Creditor
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;
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(b) each Party hereby further agrees that any UCC collection,
sale, or other disposition of Collateral by the Senior Creditor 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 Senior Creditor 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
enable the Senior Creditor 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 Senior Creditor 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 Creditor
Notes or the Priority Senior Note Indenture,
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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 Senior Creditor'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 Senior Creditor'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, and except to the extent caused in
whole or in part by the gross negligence, bad faith or willful misconduct of the
Senior Creditor, 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 Senior Creditor to enforce, assert or
exercise any right, power or remedy conferred on the Senior Creditor in any of
the Senior Creditor Loan Documents or this Agreement or the inability of the
Senior Creditor to enforce any provision of the Senior Creditor Loan Documents
or this Agreement, and (ii) without limiting the generality of the foregoing,
any requirement that the Senior Creditor 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 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:
State Street Bank and Trust
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: Corporate Trust Department
Telephone Number: (000) 000-0000
Telecopy Number: (000) 000-0000
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and if to the Senior Creditor, mailed, sent or delivered thereto, 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
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 Creditor Notes.
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 Senior Holders or the Subordinated Holders may assign or otherwise
transfer the Senior Creditor Notes or the Subordinated Creditor Notes, 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 Senior Creditor 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.
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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 any of
its Subsidiaries or with respect to the Collateral received by the Senior
Creditor shall be segregated from other funds and property held by the Senior
Creditor and held in trust by the Senior Creditor 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 Subordinated Creditor Indenture; and
(b) the Senior Creditor 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 Senior Creditor 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, and in the event of
a controversy or dispute, the Senior Creditor 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.
(c) the Senior Creditor agrees promptly to notify the
Subordinated Creditor after the Senior Liabilities have been fully paid up to
the Maximum Senior Indebtedness.
Section 5.15. Other Non-Subordinated Encumbered Assets. 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
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established with and pledged to the Subordinated Creditor under and pursuant to
a certain Escrow and Security Agreement between the Borrower and the
Subordinated Creditor dated July 22, 1997 (the "Subordinated Creditor Escrow
Agreement"), (ii) McDonald's rights in the McDonald's Collateral encumbered by
the McDonald's Senior Liens or (iii) cash, securities, instruments and/or
certificates in an escrow account established with and pledged to the Senior
Creditor under and pursuant to a certain Escrow and Security Agreement between
the Borrower, the Senior Creditor and Xxxxxxxxx & Company, Inc. dated the date
hereof (the "Senior Creditor Escrow Agreement"). It is further acknowledged and
agreed by the Subordinated Creditor that it has no security interest in or Lien
on any cash, securities and/or certificates, Pledged Securities, Escrowed Funds
or any other assets or properly held in the Escrowed Interest Account (as each
such capitalized term is defined in the Senior Creditor Escrow Agreement) nor
any other right, title or interest therein and Subordinated Creditor hereby
forever discharges and releases any claim to such cash, securities and/or
certificates, the Pledged Securities, Escrowed Funds and other property and
assets held in the Escrowed Interest Account and Subordinated Creditor hereby
acknowledges Senior Creditor's security interest in and Lien on such cash,
securities and/or certificates, the Pledged Securities, Escrowed Funds and other
property and assets held in the Escrowed Interest Account; provided, however,
that, upon the termination of the Escrow and Security Agreement in accordance
with its terms, any cash, securities and/or certificates, Pledged Securities,
Escrowed Funds or any other assets or property held in the Escrowed Interest
Account when the same are reassigned and redelivered to the Borrower, which have
not been sold, disposed of, retained or applied by the collateral agent under
the Escrow and Security Agreement in accordance with the terms thereof, will be
subject in all respects to the valid and existing security interests and Liens
under each of the Subordinated Indenture Agreements and Senior Loan Agreements
and subject to the terms of this Agreement (other than the provisions in this
Section excluding such property from Subordinated Creditor's security interest
and Lien).
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 Subordinated Creditor 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 Senior Creditor 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 Subordinated Creditor
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 Senior Creditor, or of any Subordinated Holder, (b) rely
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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 Foothill Capital as Senior Lender.
Each of the Senior Creditor and the Subordinated Creditor acknowledge the rights
and interests of Foothill 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 each of the Senior Creditor Intercreditor Agreement and the
Subordinated Creditor Intercreditor Agreement pursuant to which the Senior
Creditor and the Subordinated Creditor, respectively, have agreed that, subject
to the terms of the Senior Creditor Intercreditor Agreement and the Subordinated
Creditor Intercreditor Agreement, the Liens (as defined in the Senior Creditor
Intercreditor Agreement) of the Senior Creditor and the Liens (as defined in the
Subordinated Creditor Intercreditor Agreement) of the Subordinated Creditor
shall be, in each case, subordinate in priority to the liens and security
interests of Foothill in the Collateral.
IN WITNESS WHEREOF, the Senior Creditor and the Subordinated
Creditor each has caused this Agreement to be duly executed and delivered as of
the date first above written.
SENIOR CREDITOR: FIRSTAR BANK OF MINNESOTA, N.A.,
solely in its capacity as Trustee (and
not individually)
By: /s/ Xxxxx X. Xxxxxx, III
--------------------------------------------------
Name: Xxxxx X. Xxxxxx, III
Title: Vice President
SUBORDINATED STATE STREET BANK AND TRUST COMPANY,
CREDITOR: solely in its capacity as Trustee (and not individually)
By: /s/ Xxxx Xxx Xxxxxx
--------------------------------------------------
Name: Xxxx Xxx Xxxxxx
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 17th, 1998.
DISCOVERY ZONE, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: President and Chief
Executive Officer
