INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT

EXHIBIT 4.4

 

INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT

 

This INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT (this “ Intercreditor Agreement ”) dated as of August 31, 2005 is by and among (i) BANK OF AMERICA, N.A., as collateral agent (in such capacity, the “ Collateral Agent ”) for the Secured Parties (as hereinafter defined), (ii) BANK OF AMERICA, N.A., as administrative agent (in such capacity, the “ Revolver Agent ”) for and on behalf of the Revolver Lenders (as hereinafter defined), and (iii) BANK OF AMERICA, N.A., as administrative agent (in such capacity, the “ Term Loan Agent ”) for and on behalf of the Term Loan Lenders.

 

R E C I T A L S:

 

A. Under and pursuant to the Amended and Restated Credit Agreement (as amended, modified, supplemented and extended from time to time, the “ Revolver Credit Agreement ”) dated as of April 11, 2003 among School Specialty, Inc., a Wisconsin corporation (the “ Borrower ”), the guarantors identified therein, the Revolver Lenders (defined below) and the Revolver Agent, the Revolver Lenders have agreed to provide a $250,000,000 revolving credit facility to the Borrower.

 

B. Under and pursuant to the Term Loan Credit Agreement (as amended, modified, supplemented and extended from time to time, the “ Term Loan Credit Agreement ”) dated as of the date hereof among the Borrower, the guarantors identified therein, the Term Loan Lenders (defined below) and the Term Agent, the Term Loan Lenders have agreed to provide a $100,000,000 term loan facility to the Borrower.

 

C. Under and pursuant to the Pledge Agreement (defined below), the Loan Parties have pledged, or will pledge, to the Collateral Agent, for the benefit of the Secured Parties, 100% of the shares of capital stock of each Domestic Subsidiary of any Loan Party and 65% of the shares of capital stock of each Foreign Subsidiary directly owned by any Loan Party.

 

D. Under and pursuant to the Security Agreement, each of the Loan Parties has granted a security interest to the Collateral Agent, for the benefit of the Secured Parties, in the Personal Property Collateral in which such Loan Party has an interest.

 

E. The Revolving Loans have been unconditionally guaranteed by the Revolver Guarantors under the Revolver Credit Agreement, and the Term Loans have been unconditionally guaranteed by the Term Loan Guarantors under the Term Loan Credit Agreement.

 

F. The Secured Parties (defined below) desire that Bank of America, N.A. shall be the Collateral Agent to act on behalf of all Secured Parties regarding the Collateral and the Secured Parties have entered into this Intercreditor Agreement to, among other things, further define the rights, duties, authority and responsibilities of the Collateral Agent and the relationship among the Secured Parties regarding the relative rights and priorities with respect to the Collateral and to provide for the sharing of certain other amounts recovered by a Secured Party as more fully provided for herein.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows:

 

SECTION 1 DEFINITIONS .

 

The following terms shall have the meanings assigned to them below in this Section 1 or as otherwise defined in the provisions of this Intercreditor Agreement:

 

“ Act ” shall have the meaning assigned thereto in Section 4.5 hereof.

 

“ Bankruptcy Code ” shall have the meaning assigned thereto in Section 7.1.

 

“ Borrower ” shall have the meaning assigned thereto in the Recitals hereof.

 

“ Business Day ” means any day other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions are authorized or required by law or other governmental action to close in New York, New York or Charlotte, North Carolina.

 

“ Collateral ” means the Pledged Capital Stock, the Personal Property Collateral and the Mortgaged Property (if any).

 

“ Collateral Agent ” shall have the meaning assigned thereto in the introductory paragraph hereto, together with any successors and assigns

 

“ Collateral Documents ” means the Pledge Agreement, the Security Agreement and the Mortgages (if any).

 

“ Domestic Subsidiaries ” means all direct and indirect Subsidiaries that are domiciled, incorporated or organized under the laws of any state of the United States or the District of Columbia (or have any material assets located in the United States or the District of Columbia) whether existing as of the date hereof or hereafter created or acquired.

 

“ Enforcement Event ” means any of the following: (a) the exercise by any Secured Party of set-off or similar rights against any obligation of any of the Loan Parties (excluding applications of funds pursuant to non-default contract rights), (b) the acceleration of any of the Revolver Obligations or Term Loan Obligations, (c) the occurrence of any Event of Default under the Revolver Credit Agreement or the Term Loan Credit Agreement and (d) a demand for payment or performance is made under any Guaranty.

 

“ Event of Default ” means (i) any “Event of Default” under and as defined in the Revolver Credit Agreement or (ii) any “Event of Default” under and as defined in the Term Loan Credit Agreement.

 

“ Financing Documents ” means the Revolver Documents and the Term Loan Documents.

 

“ Foreign Subsidiary ” means any Subsidiary of the Borrower that is not a Domestic Subsidiary.

 

“ Guaranties ” means the Revolver Guaranties and the Term Loan Guaranties, and “ Guaranty ” means any one of them.

 

“ Guarantors ” means the Revolver Guarantors and the Term Loan Guarantors and “ Guarantor ” means any one of them.

 

“ Intercreditor Agreement ” shall have the meaning assigned thereto in the introductory paragraph hereto.

 

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“ Letter of Credit ” means a letter of credit issued by the L/C Issuer under the Revolver Credit Agreement, as any such letter of credit may be amended, modified, extended, renewed or replaced.

 

“ Letter of Credit Collateral Account ” shall have the meaning assigned thereto in Section 6.3(c) hereof.

 

“ L/C Issuer ” means Bank of America, N.A. or any successor L/C Issuer appointed pursuant to the terms of the Revolver Credit Agreement.

 

“ Loan Parties ” means the Borrower and the Guarantors.

 

“ LOC Obligations ” means, at any time, without duplication, the sum of (i) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit plus (ii) the aggregate amount of all drawings under Letters of Credit honored by the L/C Issuer but not theretofore reimbursed (with a Revolving Loan or otherwise).

 

“ Majority Secured Parties ” means, at the time of any determination hereunder, (a) Revolver Lenders holding in the aggregate more than 50% of the principal amount of the Revolver Obligations then outstanding (including the outstanding LOC Obligations) and (b) Term Loan Lenders holding in the aggregate more than 50% of the principal amount of the Term Loan Obligations then outstanding.

 

“ Mortgages ” means those certain mortgages, deeds of trust, deeds to secure debt or like instruments that may from time to time be given by a Loan Party to the Collateral Agent, for the benefit of the Secured Parties, as amended or modified from time to time.

 

“ Mortgaged Property ” means the real property subject to, and identified in, the Mortgages (if any).

 

“ Notice of Event of Default ” means a written notice issued to the Collateral Agent with a copy to the Borrower by any Secured Party certifying that an Event of Default has occurred and is continuing under the Revolver Credit Agreement or the Term Loan Credit Agreement, as applicable.

 

“ Obligations ” means the Revolver Obligations and the Term Loan Obligations.

 

“ Person ” means any individual, partnership, joint venture, firm, corporation, limited liability company, trust or other enterprise (whether or not incorporated) or any government authority.

 

“ Personal Property Collateral ” means the collateral in which each of the Loan Parties has granted a security interest in favor of the Collateral Agent, for the benefit of the Secured Parties, pursuant to the terms of the Security Agreement.

 

“ Pledge Agreement ” means that certain Amended and Restated Pledge Agreement dated as of the date hereof among the Borrower, the Guarantors and the Collateral Agent, for the benefit of the Secured Parties, as amended or modified from time to time.

 

“ Pledged Capital Stock ” means the shares of capital stock pledged to the Collateral Agent, for the benefit of the Secured Parties, pursuant to the terms of the Pledge Agreement.

 

“ Pro Rata Share ” means, with respect to each Secured Party as of any time of determination, the percentage of all Obligations owed to such Secured Party, if any, as of such time of determination.

 

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“ Proceeds ” shall have the meaning assigned thereto in Section 4.3.

 

“ Recovery Payment ” means the rescinding, restoring or returning by any Secured Party of any payment, or any part thereof, of any amount of the Obligations if (a) such payment was made to the Secured Party pursuant to Section 4.3 after the occurrence of an Enforcement Event and (b) such rescinding, restoring or returning is required in connection with the insolvency, bankruptcy, dissolution, liquidation or reorganization of any or all of the Loan Parties, upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any of the Loan Parties or any substantial part of their respective property or otherwise.

 

“ Revolver Agent ” shall have the meaning assigned thereto in the introductory paragraph hereto, together with any successors and assigns.

 

“ Revolver Credit Agreement ” shall have the meaning assigned thereto in the Recitals hereof.

 

“ Revolver Documents ” means the Loan Documents (as defined in the Revolver Credit Agreement).

 

“ Revolver Guaranties ” means the guaranty obligations of the Revolver Guarantors made pursuant to the Revolver Credit Agreement and shall include each additional guaranty delivered pursuant to the requirements of the Revolver Credit Agreement.

 

“ Revolver Guarantor ” means any Subsidiary of the Borrower as may from time to time become a guarantor under the Revolver Credit Agreement in accordance with the provisions of the Revolver Credit Agreement.

 

“ Revolver Lender ” means each Person that is a lender under the Revolver Credit Agreement on the date hereof (including the Swing Line Lender and the L/C Issuer) and each Person that hereafter becomes a lender under to the Revolver Credit Agreement in accordance with the terms thereof, together with their successors and assigns.

 

“ Revolver Obligations ” means, collectively, (a) all principal, interest, fees and other amounts (including reimbursement obligations and indemnity obligations) owing by the Borrower and the Revolver Guarantors to the Revolver Agent and the Revolver Lenders under the Revolver Documents (including, without limitation, interest accruing at the then applicable rate provided in the Revolver Credit Agreement after an Event of Default occurs under the Revolver Credit Agreement and interest accruing at the then applicable rate provided in the Revolver Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower or any Revolver Guarantor, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), and (b) all obligations owing by the Borrower and the Revolver Guarantors to any Revolver Lender, or any affiliate of a Revolver Lender, under any Swap Contract permitted under the Revolver Credit Agreement, in each case whether direct or indirect, absolute or contingent, due or to become due, and now existing or hereafter incurred.

 

“ Revolving Loans ” shall mean all loans (other than letters of credit) made under the Revolver Credit Agreement.

 

“ Secured Party ” means a Revolver Lender, the Revolver Agent, a Term Loan Lender and the Term Loan Agent. The Revolver Lenders, the Revolver Agent, the Term Loan Lenders and the Term Loan Agent are sometimes collectively referred to herein as the “ Secured Parties ”.

 

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“ Security Agreement ” means that certain Amended and Restated Security Agreement dated as of the date hereof among the Borrower, the Guarantors and the Collateral Agent, for the benefit of the Secured Parties, as amended or modified from time to time.

 

“ Subsidiary ” means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, limited liability company, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries has more than a 50% equity interest at any time.

 

“ Swap Contract ” means means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.

 

“ Term Loan Agent ” shall have the meaning assigned thereto in the introductory paragraph hereto, together with any successors and assigns.

 

“ Term Loan Credit Agreement ” shall have the meaning assigned thereto in the Recitals hereof.

 

“ Term Loan Documents ” means the Loan Documents (as defined in the Term Loan Credit Agreement).

 

“ Term Loan Guaranties ” means the guaranty obligations of the Term Loan Guarantors made pursuant to the Term Loan Credit Agreement and shall include each additional guaranty delivered pursuant to the requirements of the Term Loan Credit Agreement.

 

“ Term Loan Guarantor ” means any Subsidiary of the Borrower as may from time to time become a guarantor under the Term Loan Credit Agreement in accordance with the provisions of the Term Loan Credit Agreement.

 

“ Term Loan Lender ” means each Person that is a lender under the Term Loan Credit Agreement on the date hereof and each Person that hereafter becomes a lender under to the Term Loan Credit Agreement in accordance with the terms thereof, together with their successors and assigns.

 

“ Term Loan Obligations ” means, collectively, (a) all principal, interest, fees and other amounts (including reimbursement obligations and indemnity obligations) owing by the Borrower and the Term Loan Guarantors to the Term Loan Agent and the Term Loan Lenders under the Term Loan Documents (including, without limitation, interest accruing at the then applicable rate provided in the Term Loan

 

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Credit Agreement after an Event of Default occurs under the Term Loan Credit Agreement and interest accruing at the then applicable rate provided in the Term Loan Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower or any Term Loan Guarantor, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), and (b) all obligations owing by the Borrower and the Term Loan Guarantors to any Term Loan Lender, or any affiliate of a Term Loan Lender, under any Swap Contract permitted under the Term Loan Credit Agreement, in each case whether direct or indirect, absolute or contingent, due or to become due, and now existing or hereafter incurred.

 

“ Term Loans ” shall mean all loans made under the Term Loan Credit Agreement.

 

“ Unfunded LOC Exposure ” means, at any time, the aggregate undrawn amount of all outstanding Letters of Credit at such time.

 

“ Uniform Commercial Code ” means the Uniform Commercial Code as in effect from time to time in the State of North Carolina.

 

SECTION 2 APPOINTMENT AND AUTHORITY OF COLLATERAL AGENT .

 

(a) The Secured Parties hereby appoint Bank of America, N.A. to act as Collateral Agent on the terms and conditions set forth in this Intercreditor Agreement and the Collateral Documents and authorize the Collateral Agent to execute the Collateral Documents in the name of and for the benefit of the Secured Parties, and Bank of America, N.A. hereby accepts such appointment and shall have all of the rights and obligations of the Collateral Agent hereunder and under the Collateral Documents.

 

(b) The Secured Parties hereby appoint the Collateral Agent as agent for the purposes of perfecting the security interest in the Collateral and the Collateral Agent hereby acknowledges that it shall hold the certificates, if any, representing the Pledged Capital Stock for the ratable benefit of all Secured Parties.

 

(c) Subject to the requirements of Section 4.2 hereof relating to the instructions of the Majority Secured Parties, each Secured Party hereby authorizes, and each Secured Party shall be deemed to authorize, the Collateral Agent to take such action on its behalf hereunder and under the provisions of the Collateral Documents and any other instrument and agreement referred to therein or now or hereafter delivered thereunder and to exercise such powers thereunder as are specifically delegated to or required of the Collateral Agent by the terms thereof, subject to the provisions hereof.

 

SECTION 3 PRIORITY OF LIENS; SHARING OF GUARANTIES .

 

Notwithstanding any contrary provision contained in the Uniform Commercial Code, any applicable law or judicial decision or the Financing Documents, or whether any Secured Party has possession or control of all or any part of the Collateral, and irrespective of the time, order or method of attachment, perfection, filing or recording of any lien or security interest existing under the Collateral Documents, as among the Secured Parties the respective rights of each Secured Party in respect of liens and security interests existing under the Collateral Documents shall at all times remain on a parity with one another without preference, priority or distinction and shall be shared as provided herein, and any payments, proceeds or other distributions realized or received in respect thereof shall be shared by the Secured Parties and distributed in accordance with the rights and priorities set forth in this Intercreditor Agreement. Any payments or proceeds received by the Collateral Agent, the Revolver Agent, the Term Loan Agent or any Secured Party by way of right of setoff or banker’s lien or counterclaim (whether by law, contract or otherwise) shall be shared by the Secured Parties and distributed in accordance with the

 

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rights and priorities set forth in this Intercreditor Agreement. Each Secured Party further agrees with each other Secured Party that all payments made pursuant to the terms of any Guaranty shall be shared as provided herein.

 

SECTION 4 ENFORCEMENT AGAINST COLLATERAL; APPLICATION OF PROCEEDS FROM COLLATERAL AND GUARANTIES .

 

Section 4.1 Limit on Enforcement .

 

The Secured Parties agree among themselves and for their own benefit alone that the liens and security interests granted and provided for in the Collateral Documents shall not be enforced as against any of the Collateral except by the Collateral Agent at the direction of the Majority Secured Parties upon the occurrence of an Event of Default and in compliance with the provisions hereof. Each Secured Party agrees that, as long as any Obligations exist or may become outstanding pursuant to the terms of the Financing Documents, the provisions of this Intercreditor Agreement shall provide the exclusive method by which any Secured Party may exercise rights and remedies under the Collateral Documents.

 

Section 4.2 Enforcement .

 

Upon the occurrence of any Event of Default and the Collateral Agent’s receipt of a Notice of Event of Default for the same, the Collateral Agent, at the direction of the Majority Secured Parties, shall seek to realize upon the security interests and liens granted to the Collateral Agent under the Collateral Documents in such manner as shall be directed by the Majority Secured Parties. Whether before or after any Event of Default, subject to the terms and conditions hereof, the Collateral Agent shall follow the instructions of the Majority Secured Parties with respect to the preservation, protection, collection or realization upon any Collateral. If the Collateral Agent has requested instructions from the Majority Secured Parties at a time when a Notice of Event of Default shall be outstanding and the Majority Secured Parties have not responded to such request within 30 days thereafter, the Collateral Agent may take (unless any Secured Party shall have given the Collateral Agent notification that the Majority Secured Parties have not agreed upon the actions to be taken by the Collateral Agent, in which case the Collateral Agent shall take no action until instructions of the Majority Secured Parties are received), but shall have no obligation to take, any and all actions under the Collateral Documents or otherwise, including foreclosure of any lien or any other exercise of remedies, as the Collateral Agent shall determine to be in the best interests of the Secured Parties and to maximize both the value of the Collateral and the present value of the recovery by each of the Secured Parties on the Obligations; provided, however , if instructions are thereafter received from the Majority Secured Parties, then any subsequent actions of the Collateral Agent shall be subject to such instructions.

 

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Section 4.3 Application of Proceeds .

 

The Collateral Agent and each of the Secured Parties agree that (a) the proceeds of any sale of the Collateral, or any part thereof, and the proceeds of any right or remedy under the Collateral Documents, (b) the proceeds received by any Secured Party through the exercise of any right of set-off or banker’s lien, (c) any and all amounts at any time recovered by any Secured Party from any Guarantor as a result of the enforcement by such Secured Party of its rights and remedies under any Guaranty and (d) any and all amounts recovered by any Secured Party from any Loan Party on or in respect of the Obligations by any means and/or for any reason following the occurrence of an Enforcement Event (collectively, the “ Proceeds ”) shall be turned over to the Collateral Agent (in the case of Proceeds that were received by a Secured Party) by the Secured Party that received such Proceeds, and all Proceeds in all cases shall be shared by the Secured Parties (as specified in this Section 4.3), within five (5) Business Days after receipt thereof by any Secured Party or the Collateral Agent, and shall be paid to and applied as follows:

 

(a) First , to the payment of the costs and expenses of the Collateral Agent incurred in connection with the execution of its duties as Collateral Agent, in exercising or attempting to exercise any right or remedy hereunder or under the Collateral Documents or in taking possession of, protecting, preserving or disposing of any item of Collateral, and all amounts against or for which the Collateral Agent is to be indemnified or reimbursed hereunder (excluding any such costs, expenses or amounts which have theretofore been reimbursed);

 

(b) Second , after payment in full of the amounts set forth in clause (a) above, to the Revolver Agent and to the Term Loan Agent, ratably, in accordance with the respective amounts of (i) the portion of the Revolver Obligations constituting fees, indemnities, expenses and other amounts (including fees and expenses of counsel) payable to the Revolver Agent in its capacity as such and (ii) the portion of the Term Loan Obligations constituting fees, indemnities, expenses and other amounts (including fees and expenses of counsel) payable to the Term Loan Agent in its capacity as such, for application to such Revolver Obligations and Term Loan Obligations, without priority of one over the other;

 

(c) Third , after payment in full of the amounts set forth in clause (b) above, to the Revolver Lenders and to the Term Loan Lenders, ratably, in accordance with the respective amounts of (i) the portion of the Revolver Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Revolver Lenders (including fees and expenses of counsel) and (ii) the portion of the Term Loan Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Term Loan Lenders (including fees and expenses of counsel), for application to such Revolver Obligations and Term Loan Obligations, without priority of one over the other;

 

(d) Fourth , after payment in full of the amounts set forth in clause (c) above, to the Revolver Lenders and to the Term Loan Lenders, ratably, in accordance with the respective amounts of (i) the portion of the Revolver Obligations constituting accrued and unpaid interest on the Revolving Loans and L/C Borrowings (as defined in the Revolver Credit Agreement) and fees, premiums and scheduled periodic payments, and any interest accrued thereon, due under any Swap Contract between any Loan Party and any Revolver Lender, or any affiliate of a Revolver Lender, to the extent such