VENDOR INTERCREDITOR AGREEMENT

 

 

 

                                                                  Exhibit 10.6

 

 

                        VENDOR INTERCREDITOR AGREEMENT

                        ------------------------------

 

                  This Vendor Intercreditor Agreement (this "Agreement"),

dated as of September 8, 2004, is entered into by and between William Kaye

("Collateral Trustee"), in his capacity as the collateral agent for the Trade

Creditors (as defined below), and Bank of America, N.A. ("Senior Agent"), in

its capacity as the collateral agent for the Lenders (as defined below). This

Agreement is made with respect to the following facts:

 

         A. Friedman's Inc. ("Friedman's") and certain of its subsidiaries

have entered into that certain Second Amended and Restated Credit Agreement

dated as of September 7, 2004 (the "Credit Agreement"), with each of the

lending institutions from time to time party thereto as lenders (the

"Lenders"), Bank of America, N.A., as the Revolving Agent and the Collateral

Agent, and Jewelry Investors II, L.L.C., as the Term Agent.

 

         B. Collateral Trustee is the collateral trustee for each of the trade

creditors (the "Trade Creditors") who has entered, or will enter, into a

secured trade credit program letter agreement (each, a "Letter Agreement,"

and, collectively, the "Letter Agreements") with one or more of the Credit

Parties (as defined herein) substantially in the form attached hereto as

Exhibit A. Each Letter Agreement provides, among other things, that the Trade

Creditor party thereto will continue to supply goods to the Credit Parties on

the terms and conditions set forth therein in consideration for the receipt of

certain payment assurances from the Credit Parties.

 

         C. In connection with the Letter Agreements, the Credit Parties have

entered into the following documents, each dated as of the date hereof: (1)

the security agreement with Collateral Trustee in the form attached hereto as

Exhibit B (the "Trade Creditor Security Agreement"); (2) the Collateral Trust

Agreement with the Collateral Trustee in the form attached hereto as Exhibit C

(the "Collateral Trust Agreement"); and (3) the Guaranty Agreement (the

"Guaranty Agreement") attached hereto as Exhibit D.

 

         D. The Lenders are proposing to continue to make available to certain

of the Credit Parties (collectively, the "Borrower") various secured financial

accommodations for the purposes of, among others, restructuring the Borrower's

indebtedness and providing working capital. However, the Lenders have

conditioned the extension of such financial accommodations on, among other

things, the forbearance and standstill of the Vendor Creditors (as defined

herein), as well as the subordination of the liens of the Collateral Trustee,

in the manner set forth below and in the Letter Agreements. Collateral

Trustee, on behalf of the Trade Creditors, hereby acknowledges and affirms

that Senior Creditors' financial accommodations to the Borrower constitute

valuable consideration to Trade Creditors.

 

                  NOW, THEREFORE, in order to induce the Lenders to make

available the loans and to extend such financial accommodations under the

Credit Agreement and to induce the Collateral Trustee and the Trade Creditors

to enter into the Letter Agreements and extend such financial accommodations

to the Credit Parties and for other good and valuable consideration the

receipt and adequacy of which are hereby acknowledged, the parties hereto

agree as follows:

 

                  1. Definitions and Rules of Construction.

                      -------------------------------------

 

                     a. As used in this Agreement, the following terms have the

meanings set forth below unless the context or use expressly indicates a

different meaning or intent:

 

                  "Borrower" has the meaning given to it in the recitals to

this Agreement.

 

                  "Collateral" means any assets or property in which any

Credit Party has rights or the power to transfer rights to a secured party and

in which Senior Agent or any other Senior Creditor now has or later obtains a

Lien to secure any portion of the Senior Indebtedness, including the proceeds

thereof.

 

                  "Collateral Trustee" has the meaning given to it in the

preamble to this Agreement.

 

                  "Collateral Trust Agreement" has the meaning given to it in

the recitals to this Agreement.

 

                  "Consigning Trade Creditor" means any Trade Creditor that:

(i) delivers inventory in a consignment to any Credit Party; (ii) is a party

to the Trade Creditor Program Documents; and (iii) has at all times complied

with and not breached any of its obligations under the Trade Creditor Program

Documents.

 

                  "Consigning Trade Creditor Interests" means the interest of

a Consigning Trade Creditor in inventory delivered in a consignment to a

Credit Party, but only to the extent (x)(i) such consignment is evidenced by a

written agreement between the Consigning Trade Creditor and the Credit Party

at the time of the delivery of the inventory; (ii) the Credit Parties have

accurately and timely complied with the reporting requirements of the Credit

Agreement with respect to the inventory, and (iii) such reports have

identified such inventory as having been delivered in a consignment or (y) the

Consigning Trade Creditor has perfected its interest in the applicable

inventory pursuant to the UCC and has satisfied the conditions set forth in

Section 9-324 of the UCC to obtain priority over a conflicting security

interest in such inventory.

 

                  "Credit Agreement" has the meaning given to it in the

preamble to this Agreement.

 

                  "Credit Documents" means the Credit Agreement and all other

agreements, instruments and documents delivered in connection with the Credit

Agreement.

 

                   "Credit Parties" means Friedman's, each of its subsidiaries

party to the Credit Agreement, all other Persons who may become Credit Parties

(as defined in the Credit Agreement) and all of their respective predecessors,

successors and assigns.

 

                   "Discharge of Senior Indebtedness" means the satisfaction of

each of the following requirements: (a) indefeasible payment in full in cash

of all Senior Indebtedness; (b) with respect to all letters of credit issued

in connection with the Senior Indebtedness, termination of such letters of

credit or delivery of a supporting letter of credit satisfactory to the Senior

Creditors; (c) termination of all obligations by the Senior Creditors to

advance funds or otherwise provide value to any Credit Party; (d) adequate

provision is made for the satisfaction of any indemnification right of any

Senior Creditor in respect of an asserted claim (whether or not such claim has

been filed or registered with any court, governmental authority, or any other

governing body, as applicable) that is required to be treated as a material

loss contingency under generally accepted accounting principles in the United

States applied on a consistent basis and such contingency is established by

the Senior Creditor(s) no later than 90 days after the indefeasible payment in

full in cash of all Senior Indebtedness, provided that the Vendor Creditors

will be entitled to petition a court of competent jurisdiction to determine

the propriety of any such contingency to the extent the contingency exceeds

$4,000,000; and (e) Senior Agent has provided written notice of satisfaction

of conditions (a) through (d) above to Collateral Trustee.

 

                  "Enforcement Action" means any of the following actions when

taken by any Vendor Creditor:

 

                            (i) enforcement of a Lien of the Collateral

                  Trustee;

 

                            (ii) commencement of legal action against any

                  Credit Party or any portion of the Collateral for

                   foreclosure or replevin or other enforcement of a Lien on

                  any of the Collateral; or bidding on any of the Collateral

                  at a foreclosure or like sale;

 

                            (iii) taking control or possession of any

                  Collateral or any other properties or assets of any Credit

                  Party;

 

                            (iv) exercising any remedy (judicially or

                  non-judicially), including a right of setoff, against any

                  Credit Party or any of their respective properties or

                  assets, but excluding adjustments, credits and debits

                  between the Credit Parties and the Trade Creditors in the

                  ordinary course of business;

 

                            (v) joining any petition for the involuntary

                  bankruptcy of any Credit Party;

 

                            (vi) taking any action to interfere with any

                  rights of the Senior Agent or any other Senior Creditor in

                  respect of any Credit Party and their respective properties

                  or assets or the ability of any Senior Creditor to realize

                  upon or otherwise deal with any Credit Party or such

                  property or assets;

 

                            (vii) notifying any account debtor of any Credit

                  Party to make payment directly to it, as secured party;

 

                            (viii) taking any action to collect any or all of

                  the Standstill Amount or any claim in respect thereof

                  against any Credit Party or any of its properties or assets

                  or any property or assets of any direct or indirect

                   Subsidiary of any Credit Party; or

 

                            (ix) commencement or maintenance of any action,

                  suit or other proceeding at law, in equity or otherwise in

                  furtherance of any of the foregoing or to otherwise enforce

                  rights against any Credit Party or any of their respective

                  properties or assets or to direct the owner of such property

                  or assets to sell or otherwise dispose of any interest

                   therein.

 

                  provided, that an "Enforcement Action" does not include the

                  commencement or maintenance of an action at law to collect

                  amounts owing by a Credit Party other than the Standstill

                   Amount so long as the action does not relate to (a) the

                  enforcement of a Lien or any similar action constituting

                  action against the Collateral, including the foreclosure on

                  any Collateral or any other taking of Collateral outside the

                  ordinary course of business (other than obtaining and filing

                  judgments against the Credit Parties and the payment of

                  amounts owed by a Credit Party), or (b) joining or otherwise

                  participating in a petition or pleading seeking an

                  Insolvency Proceeding.

 

                  "Friedman's" has the meaning given to it in the recitals to

this Agreement

 

                  "Guaranty Agreement" has the meaning given to it in the

recitals to this Agreement.

 

                   "Insolvency Proceedings" means, severally and collectively,

any of the following:

 

                                    (i) any insolvency, bankruptcy,

                   receivership, liquidation, reorganization, readjustment,

                  composition, or other similar proceeding relating to any

                  Credit Party, its creditors, or its property;

 

                                    (ii) any proceeding for the liquidation,

                  dissolution, or other winding-up of any Credit Party,

                  voluntary or involuntary, whether or not involving

                  insolvency, reorganization, or bankruptcy proceedings;

 

                                     (iii) any assignment by any Credit Party

                  for the benefit of creditors; or

 

                                    (iv) any other marshalling of the assets

                  of any Credit Party.

 

                  "Lenders" has the meaning given to it in the recitals to

this Agreement.

 

                  "Letter Agreement" has the meaning given to it in the

recitals of this Agreement.

 

                  "Lien" means any security interest, mortgage, pledge,

hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory

or other), consignment, right of offset or recoupment, charge, preference,

priority, or other lien or preferential arrangement of any kind or nature

whatsoever (including any conditional sale or other title retention agreement

and any financing lease having substantially the same economic effect as any

of the foregoing).

 

                  "Person" means any individual, partnership, joint venture,

firm, corporation, limited liability company, association, trust, or other

enterprise (whether or not incorporated) or any governmental authority.

 

                  "Senior Agent" has the meaning given to it in the preamble

to this Agreement.

 

                  "Senior Creditor" means any of the Senior Agent, the Term

Agent, the Revolving Agent, or any Lender, and "Senior Creditors" means all of

them, collectively.

 

                  "Senior Indebtedness" means, collectively, (i) all

indebtedness and other obligations of any Credit Party now or hereafter

existing or hereafter incurred or which arise under, out of or in connection

with the Credit Agreement, the Credit Documents and all other documents,

instruments and agreements made, executed, delivered, filed or given by any

Credit Party with or in favor of any Senior Creditor in connection herewith or

therewith, as they may be amended, supplemented, extended, renewed, modified

or restated from time to time, whether for principal, premium, interest

(including all interest accruing after the initiation of any Insolvency

Proceeding at the then-applicable rate provided in the Credit Agreement,

whether or not allowed), fees, expenses, indemnities or otherwise; (ii) all

other indebtedness for credit extended by any Senior Creditor to any Credit

Party from time to time, whether for principal, premium, interest (including

all interest accruing after the initiation of any Insolvency Proceeding at the

then-applicable rate provided in the relevant documents, whether or not

allowed), fees, expenses, indemnities or otherwise; and (iii) any and all

refinancings of any or all of the indebtedness and other obligations referred

to in clauses (i) or (ii) above.

 

                  "Standstill Amount" means the amounts owed and past due as

of July 31, 2004 (inclusive of interest, as applicable, as of such date), with

respect to asset merchandise invoices and memo merchandise invoices, which

remain unpaid by a Credit Party to a Trade Creditor.

 

                  "Trade Creditor Program Documents" means, collectively, the

Letter Agreements, the Trade Creditor Security Agreement, the Collateral Trust

Agreement and the Guaranty Agreement.

 

                  "Trade Creditors" has the meaning given to it in the

recitals to this Agreement.

 

                  "Trade Creditor Security Agreement" has the meaning given to

it in the recitals to this Agreement.

 

                  "UCC" means the Uniform Commercial Code (or any successor

statute), as in effect from time to time, of the State of New York or of any

other state, the laws of which are required as a result thereof to be applied

in connection with the issue of perfection of security interests; provided

that to the extent that the UCC is used to define any term in this Agreement

and such term is defined differently in different Articles or Divisions of the

UCC, the definition of such term contained in Article or Division 9 governs.

 

                  "Vendor Creditor" means any of the Collateral Trustee or any

Trade Creditor and "Vendor Creditors" means all of them, collectively.

 

                      b. For purposes of this Agreement, the following additional

rules of construction apply, unless specifically indicated to the contrary:

(a) wherever from the context it appears appropriate, each term stated in

either the singular or plural includes the singular and the plural, and

pronouns stated in the masculine, feminine or neuter gender include the

masculine, the feminine, and the neuter; (b) the term "or" is not exclusive;

(c) the term "including" (or any form thereof) is not limiting or exclusive;

(d) all references to statutes and related regulations include any amendments

of same and any successor statutes and regulations; (e) the words "this

Agreement", "herein", "hereof", "hereunder" or other words of similar import

refer to this Agreement as a whole including the schedules, exhibits, and

annexes hereto, as the same may be amended, modified or supplemented; (f) all

references in this Agreement to sections, schedules, exhibits, and annexes

refer to the corresponding sections, schedules, exhibits and annexes of or to

this Agreement; (g) all references to any instruments, documents or

agreements, including references to the Credit Agreement, include any and all

modifications, amendments and supplements thereto and any and all extensions

or renewals thereof to the extent permitted under this Agreement, and any and

all instruments, documents and agreements evidencing any refinancing or

replacement of any of the financing provided thereby or in connection

therewith; and (h) terms used in this Agreement that are defined in the UCC

and are not otherwise defined in this Agreement, including the terms

"consignment," "