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Exhibit 10.6
SUBORDINATION AGREEMENT
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THIS SUBORDINATION AGREEMENT (this "Agreement") is made as of the ____ day
of August, 2000, by and between PEOPLE'S BANK, a Connecticut banking corporation
("Lender"), KENNETH KARLAN, MARILYN KARLAN and PETER NISSELSON, each an
individual (collectively "Subordinating Creditors" and individually a
"Subordinating Creditor") and STAR STRUCK, INC., a Connecticut corporation
("Borrower").
RECITALS
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Lender has made certain revolving credit loans to Borrower (collectively,
the "Loans") which Loans are evidenced and/or secured by (i) a certain Loan
Agreement by and between Lender and Borrower dated as of October 29, 1998 (as
amended and in effect from time to time, the collectively, "Loan Agreement") and
(ii) certain other documents evidencing, securing, guaranteeing or otherwise
executed in connection with the Loans (collectively with the Loan Agreement, the
"Senior Loan Documents").
Subordinating Creditors have made a subordinated loan to Borrower in the
aggregate principal amount of $[1,000,000.00] (the "Subordinated Loan"). The
Subordinated Loan arises under or is evidenced and/or secured by (i) certain
Promissory Notes dated August __, 2000 from Borrower in favor of each
Subordinating Creditor (the "Note") and (ii) certain other documents evidencing,
securing, guaranteeing or otherwise executed in connection with the Subordinated
Loan (collectively with the Note, the "Subordinated Loan Documents").
All terms capitalized herein and not otherwise defined shall have the
meaning ascribed to them in the Loan Agreement.
Any loans made prior to, on or following the date hereof by any
Subordinating Creditor to Borrower shall be referred to herein in the singular
or collectively as the "Subordinated Loan" and any promissory notes evidencing
loans made prior to, on or following the date hereof by any Subordinating
Creditor to Borrower shall be referred to herein in the singular or collectively
as the "Subordinated Note". All terms capitalized herein and not otherwise
defined shall have the meaning ascribed to them in the Loan Agreement.
In order to induce Lender to continue the Loans to Borrower, each
Subordinating Creditor has agreed to enter into this Agreement with Lender.
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NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1. DEFINITIONS. The following terms shall have the following meanings:
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Collateral. Any and all real and personal property which now
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constitutes or hereafter will constitute collateral or other security for
payment of the Senior Debt and/or the Subordinated Claims.
Obligations. All principal, interest, fees, charges, collateral
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protection expenses, enforcement costs and other sums (in each case whether pre-
or-post petition) due or to become due and payable by Borrower to Lender under
or in respect of the Senior Loan Documents.
Senior Debt. (a) The Obligations and (b) any and all indebtedness of
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Borrower to Lender or any additional or successor lending institution or
institutions arising out of any modification, extension, renewal, increase or
refinancing of any of the Obligations.
Subordinated Claims. All monetary claims of Subordinating Creditors
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against Borrower created or evidenced by or relating to the Subordinated Loan or
the Subordinated Note.
2. GENERAL. The Subordinated Claims and the Subordinated Note shall be
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and hereby are subordinated to the Senior Debt. Notwithstanding the foregoing
and subject to the provision of Section 4, Borrower may make and Subordinating
Creditors may receive (i) regularly scheduled quarterly interest payments and
(ii) following the third anniversary of the date of this Agreement, one or more
principal payments in respect of Subordinated Claims, so long as, at the time of
each such payment (x) Borrower would be entitled to borrow at least $1.00 under
the Loans after giving effect to such payment and (y), no Default or Event of
Default shall have occurred and be continuing under the Senior Loan Documents or
would occur after giving effect to such payment.
3. ENFORCEMENT. Subordinating Creditors will not assert, collect (except
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for receipt of payments as and when permitted under paragraph 2), make demand
under, accelerate or enforce the Subordinated Note or take any action to realize
upon any of the Subordinated Claims or any collateral therefor or enforce the
Subordinated Note, whether by legal process, exercise of rights of set-off,
exercise of any rights or remedies (including without limitation, prejudgment
remedies) or otherwise until the full, final and indefeasible payment in cash of
the Senior Debt, except to the extent (but only to such extent) that the
commencement of a legal action may be required to toll the running of any
applicable statute of limitation.
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If at the time that each Subordinating Creditor initiates any enforcement
action permitted by the Agreement, Lender has also initiated action against
Borrower, or Lender thereafter initiates such action, the Subordinating Creditor
agrees to permit Lender to control the process of liquidating the Collateral in
accordance with the terms and conditions contained in the Loan Documents and as
more specifically provided in Section 9 hereof.
4. PAYMENTS HELD IN TRUST; TURNOVER. Each Subordinating Creditor will
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hold in trust and immediately pay over to Lender, in the same form of payment
received, for application, in the case of cash, upon the amount of the Senior
Debt and, in the case of non-cash assets, as additional collateral for the
Senior Debt, any amount that Borrower pays to such Subordinating Creditor with
respect to the Subordinated Note or any assets of Borrower that such
Subordinating Creditor may receive with respect to any of the Subordinated
Claims, other than those sums expressly permitted to be paid by Borrower to a
Subordinating Creditor pursuant to Section 2.
If (i) any payment, distribution or security, or the proceeds of any
thereof, shall be collected or received by a Subordinating Creditor in
contravention of any of the terms of this Agreement and prior to the
indefeasible payment in full in cash of the Senior Debt or (ii) Lender notifies
a Subordinating Creditor in writing, within sixty (60) days following the day on
which such payment, distribution or security is so collected or received by such
Subordinating Creditor, that such payment, collection or receipt is or was in
contravention of this Agreement or that an Event of Default under the Loan
Documents existed or would have been deemed to exist (based on financial
statements or compliance certificates provided by the Borrower or otherwise) as
of the date of such payment, collection or receipt, then the holder thereof will
forthwith deliver such payment, distribution, security or proceeds to Lender in
the same form of payment received, for application, in the case of cash, upon
the amount of the Senior Debt and, in the case of non-cash assets as additional
collateral for the Senior Debt, and, until so delivered, the same shall be held
in trust by such holder as the property of Lender.
5. DEFENSE TO ENFORCEMENT. If any Subordinating Creditor, in violation
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of this Agreement, shall commence, prosecute or participate in any suit, action
or proceeding against Borrower, then Borrower may interpose as a defense or plea
the making of this Agreement, and Lender may intervene and interpose such
defense or plea in its name or in the name of Borrower. If a Subordinating
Creditor, in violation of this Agreement, shall attempt to collect any of the
Subordinated Claims or to enforce the Subordinated Note, then Lender or (as the
case may be) Borrower may, by virtue of this Agreement, restrain the enforcement
thereof in the name of Lender or in the name of Borrower. If a Subordinating
Creditor, in violation of this Agreement, obtains any cash or other assets of
Borrower as a result of any administrative, legal or equitable actions, or
otherwise, such Subordinating Creditor agrees forthwith to pay, deliver and
assign to Lender any such cash or other assets for application, in the case of
cash, upon the amount of the Senior Debt and, in the case of non-cash assets, as
additional collateral for the Senior Debt.
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6. BANKRUPTCY, ETC. At any meeting of creditors of Borrower or in the
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event of any proceeding, voluntary or involuntary, for the distribution,
division or application of all or part of the assets of Borrower or the proceeds
thereof, whether such proceeding be for the liquidation, dissolution or winding
up of Borrower or its business, a receivership, insolvency or bankruptcy
proceeding, an assignment for the benefit of creditors or a proceeding by or
against Borrower for relief under any bankruptcy, reorganization or insolvency
law or any law relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangement, composition or extension or otherwise, Lender is
hereby irrevocably authorized at any such meeting or in any such proceeding to
receive or collect any assets of Borrower distributed, divided or applied by way
of dividend or payment, or any securities issued (other than any securities
issued upon conversion of the Subordinated Note pursuant to Section 4 thereof),
on account of any Subordinated Claims and apply the same, or the proceeds of any
realization upon the same that Lender in its discretion elects to effect, to the
Senior Debt until all Senior Debt shall have been paid in full in cash,
rendering any surplus to Subordinating Creditors. In the event and during the
continuation of any proceeding, Subordinating Creditors shall not (i) object to
or oppose any cash collateral order approved by the Lender provided such order
is not inconsistent with this Agreement (ii) challenge, oppose, or otherwise
seek to alter or modify the priority of liens in the Collateral established by
this Agreement or otherwise, (iii) challenge this Agreement or seek to have any
of its material terms declared invalid or unenforceable, or (iv) join with the
Borrower or any of its affiliates or with any other group or class of creditors
in a "cramdown" plan or in the filing of an involuntary petition in bankruptcy
against the Borrower.
7. FREEDOM OF DEALING. Each Subordinating Creditor agrees, with respect
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to the Senior Debt and any and all collateral therefor or guaranties thereof,
that Lender may grant extensions of the time of payment or performance to and
make compromises, including releases of collateral or guaranties, and
settlements with Borrower and all other persons without the consent of
Subordinating Creditor and without affecting the agreements of Subordinating
Creditor hereunder.
8. TERMINATION: FINAL PAYMENT. This Agreement shall continue in full
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force and effect, and the obligations and agreements of Subordinating Creditors
and Borrower hereunder shall continue to be fully operative, until all of the
Senior Debt shall have been paid and satisfied in full in cash and such full
payment and satisfaction shall be final and not avoidable. To the extent that
Borrower makes any payment on the Senior Debt that is subsequently invalidated,
declared to be fraudulent or preferential or set aside or is required to be
repaid to a trustee, receiver or any other party under any bankruptcy,
insolvency or reorganization act, state or federal law, common law or equitable
cause (such payment being hereinafter referred to as a "Voided Payment"), then
to the extent of such Voided Payment, that portion of the Senior Debt that had
been previously satisfied by such Voided Payment shall be revived and continue
in full force and effect as if such Voided Payment had never been made. In the
event that a Voided Payment is recovered from Lender, an Event of Default shall
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be deemed to have existed and to be continuing from the date of Lender's initial
receipt of such Voided Payment until the full amount of such Voided Payment is
restored to Lender. During any continuance of any such Event of Default, this
Agreement shall be in full force and effect with respect to the Subordinated
Claims. To the extent that a Subordinating Creditor has received any payments
with respect to any of the Subordinated Claims subsequent to the date of
Lender's initial receipt of such Voided Payment, such Subordinating Creditor
shall be obligated and hereby agrees that any such payment so made or received
shall be deemed to have been received in trust for the benefit of Lender and
such Subordinating Creditor hereby agrees to pay to Lender, upon demand, the
full amount so received by Subordinating Creditor during such period of time to
the extent necessary to fully restore to Lender the amount of such Voided
Payment.
9. PRIORITY OF PERFECTION; FURTHER ASSURANCES. The Senior Debt, and any
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and all other documents and instruments evidencing or creating the Senior Debt
and all mortgages, security agreements, pledges and other collateral securing
the Senior Debt shall be senior to the Subordinated Claims and the Subordinated
Note irrespective of the time of the execution, delivery or issuance of any
thereof or the filing or recording for perfection of any thereof or the filing
of any financing statement or continuation statement relating to any thereof.
Except as otherwise permitted by Lender, the Subordinated Note and each other
document, agreement or instrument evidencing or securing the Subordinated Claims
(collectively with the Subordinated Note, the "Subordinated Documents") and
entered into after the date hereof shall expressly refer therein to this
Agreement and shall specifically state that a copy of this Agreement is on file
with Borrower and Lender and is available for inspection at Borrower's and
Lender's offices. Each Subordinating Creditor hereby agrees to execute such
other documents or instruments as may be requested by Lender further to
evidence, or evidence of record, the agreement of Subordinating Creditor herein
contained or to perfect or preserve the rights of Lender hereunder. At any time
during which all or any part of the Senior Debt remains outstanding, and whether
or not the same is then due and payable, the proceeds of any sale, disposition
or other realization by Lender or other party hereto (or any agent therefor)
upon all or any part of the Collateral shall be applied in the following order
of priorities irrespective of the application of any rule of law or the defect
or impairment of any Loan Document, Subordinate Loan Document or security
interest, lien or assignment thereunder:
first, to the payment of interest and all costs and expenses of Lender
(including, without limitation, the reasonable fees and expenses
of legal counsel and other agents) incurred in connection with
the collection of such proceeds or the protection of the rights
and interests of Lender therein;
second, to the payment in full in cash of all Senior Debt in such order
as Lender shall determine in its sole discretion;
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third, to the payment of all interest and costs and expenses of
Subordinating Creditor (including, without limitation, the
reasonable fees and expenses of legal counsel and other agents)
incurred in connection with the collection of such proceeds or
the protection of the rights and interests of Subordinating
Creditor therein;
fourth, to the payment in full of all Subordinated Claims in such order
as Subordinating Creditor shall determine in its sole discretion;
and
finally, to the payment of any surplus then remaining to the owner of the
Collateral or its successors or assigns or as a court of
competent jurisdiction may direct.
Subordinating Creditor hereby consents to the collection, sale or other
disposition of the Collateral by the Lender free of any security interest, lien,
claim, attachment or right of the Subordinating Creditor or, if Lender requests,
by Borrower or its successor, including a trustee in bankruptcy, provided that
the proceeds shall first be used to repay the Senior Debt in full in cash, and
then to repay the Subordinated Claims and provided further, that the respective
security interests of the Lender and Subordinating Creditor shall continue in
the proceeds of any such sale or in any replacement collateral, which proceeds
shall be distributed in accordance with the provisions of this Agreement.
Subordinating Creditor agrees to take such action as Lender may request to
facilitate such collection, sale or disposition, including, without limitation,
the release of its lien or security interest and the termination of financing
statements, attachments and the like with respect to the Collateral.
Subordinating Creditor hereby consents to any and all dispositions of the
Collateral now or hereafter made by Lender upon Borrower's default or demand by
the Lender as to any Senior Debt (including without limitation the compromise of
any accounts or claims of Borrower). Notwithstanding anything to the contrary
contained in this Agreement or in the Lender Documents or the Subordinate Loan
Documents, Lender and Subordinating Creditor agree that in the event Borrower
requests permission to sell, transfer or dispose of any Collateral and Lender
approves such a request, the Subordinating Creditor will consent to the sale of
such Collateral, release any lien or security interest held by it therein, and
terminate any financing statements, attachments and the like provided that the
proceeds of such Collateral are used to pay Senior Debt and that, following the
full, final and indefeasible payment in cash of the Senior Debt, any excess
proceeds are used to pay Subordinated Claims. Lender shall use reasonable
efforts to provide Subordinating Creditor with notice of its intent to take any
actions described in this paragraph but the failure for any reason whatsoever of
Lender to so provide shall not affect the rights, duties and obligations of
Lender or Subordinating Creditor under, or be deemed to be a breach or default
under this Agreement, nor shall such failure give Subordinating Creditor the
right to challenge such action, or the distribution of proceeds thereof, for any
reason whatsoever.
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10. LIMITATIONS ON SALE AND AMOUNT OF SUBORDINATED CLAIMS. Subordinating
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Creditor will not sell or otherwise dispose (except in the case of the death of
a Subordinating Creditor, in which event the estate of that Subordinating
Creditor shall succeed to the rights and obligations of such Subordinating
Creditor hereunder and the second sentence of this paragraph 10 shall not apply)
of any of the Subordinated Claims or any of the Subordinated Documents except in
accordance with this Section 10 or with the prior written consent of Lender.
Each Subordinating Creditor shall give Lender at least thirty (30) days prior
written notice of any such proposed transfer stating the identity of the buyer
or other transferee and providing such other information as Lender shall
reasonably require. No such sale, transfer or other disposal shall be valid or
binding upon Lender unless the transferee agrees in writing in form and
substance satisfactory in all respects to Lender to be bound by the terms and
conditions of and subject to the obligations contained in this Agreement.
11. NOTICES. All notices which are required and may be given pursuant to
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the terms of this Agreement shall be in writing and shall be sufficient and
effective in all respects if telecopied or given in writing and delivered or
mailed by registered or certified mail, postage prepaid as follows:
1. If to the Lender: People's Bank
850 Main Street
Bridgeport, CT 06604-4913
Attn: Peter Coates, Vice President
Telecopy No.: (203) 338-2639
with a copy to: Pepe & Hazard LLP
Goodwin Square
Hartford, CT 06103-4302
Attn: James C. Schulwolf, Esq.
Telecopy No.: (860) 522-2796
2. If to the Borrower: Star Struck, Inc.
8 Francis J. Clarke Circle
P.O. Box 308
Bethel, CT 06801-0308
Attn: Kenneth Karlan, President
Telecopy No.: (800) 962-8345
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with a copy to: Schoeman, Updike & Kaufman, LLP
60 East 42nd Street
New York, NY 10165
Attn: Michael E. Schoeman, Esq.
Telecopy No.: (212) 687-2123
3. If to Kenneth Karlan c/o Star Struck, Inc.
or Marilyn Karlan: 8 Francis J. Clarke Circle
P.O. Box 308
Bethel, CT 06801-0308
Telecopy No.: (800) 962-8345
4. If to Peter Nisselson: c/o Star Struck, Ltd.
1865 Palmer Avenue
Larchmont, NY 10538
Notices shall be deemed given and effective upon the earlier to occur of
(i) the third (3rd) day following deposit thereof in the U.S. mail, or (ii)
receipt by the party to whom such notice is directed.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
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ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CONNECTICUT.
13. MISCELLANEOUS. Until the Senior Debt has been finally and irrevocably
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paid in full in cash, Subordinating Creditors shall not have any right of
subrogation, reimbursement or indemnity whatsoever. Each Subordinating Creditor
waives any and all rights with respect to marshalling and consents to the
granting to Lender by Borrower, to secure the payment and performance of any
Senior Debt, of any security interest in any amounts due or to become due and
payable or other claims against such Subordinating Creditor or Borrower under or
in respect of the Subordinated Note. Lender may, in its sole and absolute
discretion, waive any provisions of this Agreement benefiting Lender; provided,
however, that such waiver shall be effective only if in writing and delivered to
each other party hereto. This Agreement shall be binding upon the successors
and assigns of Subordinating Creditors and Borrower and inure to the benefit of
Lender and its respective successors and assigns, but shall not otherwise create
any rights or benefits for any third party. This Agreement may be executed in
any number of counterparts, each of which shall constitute an original and all
of which taken together shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LENDER:
PEOPLE'S BANK
By:____________________________________
Name: Peter Coates
Title: Vice President
SUBORDINATING CREDITORS:
_______________________________________
Kenneth Karlan
_______________________________________
Marilyn Karlan
_______________________________________
Peter Nisselson
BORROWER:
STAR STRUCK, INC.
By:____________________________________
Name: Kenneth Karlan
Title: President
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