Exhibit 10.2
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT, dated as of March __, 2006, among the 8.0%
SUBORDINATED SECURED CONVERTIBLE Debenture Holders (the "JUNIOR CREDITORS"),
Onstream Media Corporation (the "BORROWER"), and the 8% Senior Convertible
Debenture Holders as defined in Schedule 3.1 of the Note (the "SENIOR
CREDITORS").
I. Pursuant the Securities Purchase Agreement, dated as of June 8, 2004
among the Borrower and the Senior Creditors (as amended, supplemented or
otherwise modified from time to time, the "PURCHASE AGREEMENT"), the Senior
Creditors, severally, loaned the Borrower an aggregate principal amount of
$6,500,000, pursuant to the terms and conditions of the Borrower's 8% Secured
Convertible Notes, due 2008(as amended, supplemented or otherwise modified from
time to time, the "SENIOR NOTES"). In connection with the Senior Notes, the
Senior Creditors were granted a first priority lien on all of the assets of the
Borrower and its Subsidiaries (as defined in the Security Agreement).
II. The Junior Creditors made loans to the Borrower in the aggregate
principal amount of $2,500,000 with an over allotment of an additional
$1,000,000 upon approval of the Borrower's shareholders pursuant to the terms
and conditions of the Secured 8% Convertible Note, dated ___________, 2006 (as
amended, supplemented or otherwise modified from time to time, the "SUBORDINATED
CONVERTIBLE NOTES").
Accordingly, the parties hereto agree as follows:
1. Definitions. Unless the context otherwise requires, capitalized terms
used herein and not defined herein shall have the meanings assigned to such
terms in the Senior Notes.
"AGENT" means the Agent appointed under the Security
Agreement, dated as of _________, _____, among the Borrower and the Senior
Creditors.
"JUNIOR OBLIGATIONS" means all of the obligations and
liabilities of the Borrower to the Junior Creditors, including with out
limitation, all loans (including the Subordinated Convertible Notes), advances
and other extensions of credit made by the Junior Creditors to the Borrower,
whether fixed, contingent, now existing or hereafter arising, created, assumed
or incurred, including all post-petition interest and make-whole premiums,
whether or not allowed as a secured claim or as an unsecured claim in any
proceeding, including any proceeding arising under Title 11 of the United States
Code.
"PAYMENT" means any payment, whether in the form of cash,
property or otherwise, whether in respect of principal, interest, fees, expenses
or otherwise, whether in respect of a scheduled payment, a prepayment, a
repurchase, a redemption, a defeasance, an acceleration, the sale or redemption
of any collateral security or otherwise and whether voluntary or involuntary;
provided that payment shall in no event include the issuance by the Borrower to
the Junior Creditor of any equity, including common stock, of the Borrower (by
way of setoff, offset or otherwise).
"PAYOFF TIME" means any time upon which all payments of
principal and interest of the Senior Creditors under the Senior Notes shall have
been satisfied in full or otherwise released.
"SENIOR DOCUMENTS" means (i) the Senior Notes, (ii) the
Security Agreement, dated as of __________, 2006, among the Borrower and the
Senior Creditors, (iii) the Transaction Documents, (v) each agreement,
instrument or other document executed or delivered in connection with any Senior
Obligations, and (vi) each agreement, instrument or other document executed or
delivered in connection with any of the foregoing, as each may be amended,
supplemented or otherwise modified from time to time in accordance with their
respective terms.
"SENIOR OBLIGATIONS" means all of the obligations and
liabilities of the Borrower under the Senior Notes, whether fixed, contingent,
now existing or hereafter arising, created, assumed or incurred, and including
all post-petition interest and make-whole premiums, whether or not allowed as a
secured claim or as an unsecured claim in any proceeding, including any
proceeding arising under Title 11 of the United States Code; provided, however,
that Senior Obligations shall not exceed, in the aggregate, the principal amount
and interest of the Senior Notes outstanding and in any event more than
$3,400,000.
2. Subordination.
(a) The Junior Creditors hereby subordinate, upon the terms and conditions
herein contained, the Junior Obligations to the Senior Obligations.
(b) Until the later of (i) the Payoff Time and (ii) 6 months from the
occurrence of an Event of Default under the Junior Obligations ("Standstill
Expiration Date"), the Junior Creditors shall not be entitled to receive and the
Borrower shall not make any Payment in respect of the Junior Obligations except
as to the payment of interest and scheduled principal payments as per the
Subordinated Convertible Notes and the issuance of equity of the Borrower,
including but not limited to the issuance of Common Stock to be issued by the
Borrower upon conversion of the Junior Obligations. The principal payments for
the Junior Creditors commence twenty-one (21) months from the execution date of
the Note.
(c) The Junior Creditors agree that they shall not declare any part of the
Junior Obligations to be due and payable or exercise any of the rights or
remedies that they may have (including, without limitation, bringing, or joining
with any other creditor in instituting, any proceeding in contemplation of, or
in connection with, any Bankruptcy Event until the Standstill Expiration Date.
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(d) Until the Standstill Expiration Date (i) the Borrower shall not grant,
and the Junior Creditors shall not receive or accept, any Lien of any kind or
nature on any property (whether now existing or hereafter acquired) of the
Borrower or any Subsidiary that secures the Junior Obligations, and (ii) the
Junior Creditors shall not accept any guaranty of any Junior Obligation, or any
"put" or other arrangement similar thereto.
(e) Nothing contained in this Subordination Agreement is intended to or
shall impair, as among the Borrower, its creditors (other than the Senior
Creditors) and the Junior Creditors, the obligation of the Borrower to pay the
Junior Creditors any amount due in respect of the Junior Obligations as and when
the same shall become due and payable in accordance with the terms thereof, or
affect the relative rights of the Borrower and its creditors (other than the
Senior Creditors), in each case subject to the rights of each Senior Creditor
under this Subordination Agreement.
(f) The Junior Creditors agree that this Subordination Agreement shall not
be affected by any action or failure to act by a Senior Creditor that results,
or may result, in affecting, impairing or extinguishing any right of
reimbursement or subrogation or other right or remedy of the Junior Creditors.
(g) The Junior Creditors agree that any statement of account with respect
to the Senior Obligations from the Senior Creditors to the Borrower that binds
the Borrower shall also be binding upon the Junior Creditors, and that copies of
any such statement of account maintained in the ordinary course of business may
be used in evidence against the Junior Creditors.
(h) The Junior Creditors agree that no Payment received by the Junior
Creditors and paid over to any Senior Creditor pursuant to the provisions hereof
shall entitle the Junior Creditors to exercise any rights of subrogation in
respect thereof until the Standstill Expiration Date, and for the purpose of
such subrogation no such Payment that otherwise would have been made to the
Junior Creditors shall, as among the Borrower, its creditors (other than the
Senior Creditors) and the Junior Creditors, be deemed to be a payment by the
Borrower to or on account of the Senior Obligations, it being understood that
the provisions hereof are intended solely for the purpose of defining the
relative rights of the Junior Creditors, on the one hand, and the Senior
Creditors, on the other hand. The Junior Creditors shall be subrogated to all
rights of the Senior Creditors to receive any further payments or distributions
until the Senior Obligations shall have been indefeasibly paid in full. The
subordination provisions contained herein shall not be affected by any action,
or failure to act, by any Senior Creditor that results, or may result, in
affecting, impairing or extinguishing any right of reimbursement or subrogation
or other right or remedy of the Junior Creditors.
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(i) Any document or instrument evidencing the Junior Obligations,
including, without limitation, the Subordinated Convertible Notes, shall bear
the following legend:
THIS INSTRUMENT AND THE RIGHTS TO PAYMENT HEREUNDER ARE SUBORDINATED PURSUANT
THE SUBORDINATION AGREEMENT, DATED AS OF March __, 2006, AMONG THE JUNIOR
CREDITORS AND THE SENIOR CREDITORS PARTY THERETO.
3. Pari Passu Acknowledgement Regarding Senior Notes. Crescent
International Ltd. ("Crescent"), a Junior Creditor, have/will purchase from
certain Senior Creditor(s) their respective Senior Note(s). The Senior Creditors
acknowledge and agree that such Senior Note(s) held by Crescent shall maintain
their status as having rights pari passu with all other Senior Note(s) as if
Crescent were an original Senior Creditor and accordingly Crescent shall share
pro-rata with the Senior Creditors in respect to any exercise of rights under,
and distributions to, the Senior Note(s).
4. Representations and Warranties. The Junior Creditors represent and
warrant to the Agent and each Senior Creditor as follows:
(a) The Junior Creditors are duly organized, validly existing and in good
standing under the laws of the jurisdiction of their organizations and have all
requisite power and authority to carry on their business as now conducted.
(b) The transactions contemplated hereby are within the corporate or other
analogous powers of the Junior Creditors and have been duly authorized by all
necessary corporate or other analogous and, if required, equityholder action.
This Subordination Agreement has been duly executed and delivered by the Junior
Creditors and constitutes a legal, valid and binding obligation thereof,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally.
(c) The transactions contemplated hereby will not (i) violate the
organizational documents of the Junior Creditors and (ii) violate or result in a
default under any indenture, agreement or other instrument binding upon the
Junior Creditors or its assets, or give rise to a right thereunder to require
any payment to be made by the Junior Creditors.
(d) All of the Junior Obligations are represented by the Subordinated
Convertible Notes.
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5. Subordination Absolute.
(a) All rights and interests of the Agent and each other Senior Creditor
hereunder, and all agreements and obligations of the Junior Creditors and the
Borrower hereunder, shall remain in full force and effect irrespective of (i)
the invalidity or lack of enforceability of any Senior Notes, (ii) any amendment
of, supplement to or other modification of (including by any amendment, waiver
or consent) the Senior Debentures or all or any of the Senior Obligations,
including any renewal, extension, acceleration or replacement thereof, (iii) the
existence, enforceability, perfection or validity of any collateral security or
any guarantor, (iv) the liability of any other Person in respect of the Senior
Obligations, (v) any failure, delay, neglect or omission by the Agent or any
other Senior Creditor to obtain, realize upon or perfect any security interest
in any Collateral, guaranty, indebtedness, liability or obligation, or by any
direct or indirect collateral security therefore, (vi) the bankruptcy,
reorganization or insolvency of, or by any other proceeding for the relief of
debtors commenced by or against, the Junior Creditors, the Borrower or any other
Person, (vii) the subordination of the Senior Obligations to any other
liabilities or obligations or (viii) any other reason or circumstance
whatsoever, whether similar or dissimilar to the foregoing, that might otherwise
constitute a defense available to, or a discharge of, the Junior Creditors in
respect of this Subordination Agreement or the Borrower in respect of the Senior
Obligations or this Subordination Agreement.
(b) The Junior Creditors hereby waive any right to require that resort be
had by the Agent or any other Senior Creditor against the Borrower or any other
Person, or to require that resort be had by the Agent or any other Senior
Creditor to any collateral security. Neither the Agent nor any other Senior
Creditor shall have any obligation to enforce any Senior Documents by any
action, including making or perfecting any claim against the Borrower prior to
being entitled to the benefits of this Subordination Agreement.
(c) The Junior Creditors agree that the provisions of this Subordination
Agreement shall be applicable notwithstanding the fact that no Senior
Obligations may be outstanding from time to time or may have been paid down to
zero at any time or from time to time.
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6. Binding Effect; Several Agreement; Assignments; Continuing Agreement;
Termination. Whenever in this Subordination Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and agreements by or on
behalf of the Borrower or the Junior Creditors that are contained in this
Subordination Agreement shall bind and inure to the benefit of each party hereto
and its respective successors and assigns. This Subordination Agreement shall
become effective when a counterpart hereof executed on behalf of each of the
Borrower and the Junior Creditors shall have been delivered to the Senior
Creditors and a counterpart hereof shall have been executed on behalf of the
Senior Creditors, and thereafter shall be binding upon the Borrower or the
Junior Creditors, as applicable, and the Secured Creditors and their respective
successors and assigns, and shall inure to the benefit of the Borrower or the
Junior Creditors, as applicable, the Agent and the other Senior Creditors, and
their respective successors and assigns, except that neither the Borrower or the
Junior Creditors shall have the right to assign its rights or obligations
hereunder or any interest herein (and any such attempted assignment shall be
void), except as expressly contemplated by this Subordination Agreement or the
other Senior Documents. This Subordination Agreement shall be a continuing
agreement and shall be irrevocable, provided, however, that this Subordination
Agreement shall terminate one year and one day after the payment in full of the
Junior Obligations; provided further that no Event of Default or breach under
the Senior Obligations shall have occurred.
7. Waivers; Amendment.
(a) No failure or delay of the Secured Creditors in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Senior Creditors hereunder and under the other Senior
Documents are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Subordination
Agreement or consent to any departure by the Borrower or the Junior Creditors
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on the Borrower or the Junior Creditors in any case shall
entitle the Borrower or the Junior Creditors, as applicable, to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Subordination Agreement nor any provision hereof may be
waived, amended or modified except pursuant to a written agreement entered into
by, between or among the Senior Creditors and the Borrower and/or the Junior
Creditors, as applicable.
8. GOVERNING LAW. THIS SUBORDINATION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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9. Notices. All notices and other communications provided for herein shall
be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by facsimile to each party hereto
at the address set forth with respect to such party on the signature pages
hereof. Any party hereto may change its address or facsimile number for notices
and other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Subordination Agreement shall be deemed to have been
given on the date of receipt.
10. Survival of Agreement; Severability.
(a) All covenants, agreements, representations and warranties made by each
of the Borrower and the Junior Creditors herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Subordination Agreement shall be considered to have been relied upon by the
Senior Creditors and shall survive the execution and delivery of this Agreement,
regardless of any investigation made by the Senior Creditors or on their behalf,
and shall continue in full force and effect until this Subordination Agreement
shall terminate. The agreements made herein shall continue to be effective or be
reinstated, as applicable, if at any time payment, or any part thereof, of any
Senior Obligation is rescinded or must otherwise be restored by any Senior
Creditor or the Junior Creditors upon the bankruptcy or reorganization of the
Borrower, the Junior Creditors or otherwise.
(b) In the event any one or more of the provisions contained in this
Subordination Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein or therein shall not in any way be affected or impaired thereby
(it being understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the validity of such
provision in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
11. Counterparts. This Subordination Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one contract. Delivery of an executed
counterpart of this Subordination Agreement by facsimile transmission shall be
as effective as delivery of a manually executed counterpart of this
Subordination Agreement.
12. Headings. Section headings used herein are for convenience of
reference only, are not part of this Subordination Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Subordination Agreement.
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13. Jurisdiction; Consent to Service of Process.
(a) Each of the Borrower and the Junior Creditors hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Subordination
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that, to the extent
permitted by applicable law, all claims in respect of any such action or
proceeding may be heard and determined in such New York State court or, to the
extent permitted by applicable law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Subordination Agreement
shall affect any right that the Senior Creditors may otherwise have to bring any
action or proceeding relating to this Subordination Agreement against the
Borrower or the Junior Creditors, or any of its property, in the courts of any
jurisdiction.
(b) Each of the Borrower and the Junior Creditors hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Subordination
Agreement in any court referred to in paragraph (a) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.
(c) Each party to this Subordination Agreement irrevocably consents to
service of process in the manner provided for notices in Section 10. Nothing in
this Subordination Agreement will affect the right of any party to this
Subordination Agreement to serve process in any other manner permitted by law.
(d) If any party shall commence a proceeding to enforce any provisions of
this Subordination Agreement, then the prevailing party in such proceeding shall
be reimbursed by the other party for its reasonable attorney's fees and other
actual costs and expenses incurred with the investigation, preparation and
prosecution of such proceeding.
14. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS SUBORDINATION AGREEMENT. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS SUBORDINATION
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
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15. Miscellaneous.
(a) Except as otherwise specifically provided in this Subordination
Agreement, the Junior Creditors hereby waive presentment, demand for payment,
notice of default, nonperformance and dishonor, protest and notice of protest
under this Subordination Agreement, notice of acceptance of this Subordination
Agreement and reliance hereupon by the Senior Creditors, and the incurrence or
accrual of any other obligations and notice of any sale of collateral or any
default of any sort.
(b) Nothing herein shall limit or affect in any manner any right any
Senior Creditor may have by virtue of any other instrument or agreement.
(c) The Borrower, for the consideration hereinabove stated, authorizes and
approves any act or thing which may be done in accordance herewith and agrees to
act in accordance herewith.
(d) This Agreement constitutes the entire contract among the parties
relating to the subject matter hereof and supersedes any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Subordination Agreement as of the day and year first above written.
JUNIOR CREDITORS
By:
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Name:
Title:
Address for Notice:
With a copy to:
|---------------------|
By:
---------------------------------
Name:
Title:
Address for Notice:
Attn: Chief Executive Officer
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Subordination Agreement as of the day and year first above written.
SENIOR CREDITOR'S AGENT
By:
---------------------------------
Name:
Title:
Address for Notice:
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