SUBORDINATION AGREEMENT
SUBORDINATION
AGREEMENT
(this
“Agreement”)
dated
as of October 31st, 2007 among (a) YA Global Investments, L.P., a Cayman Islands
exempt limited partnership, (“YA
Global,”
or
“Senior
Creditor”),
(b)
eBaum’s World, Inc., a New York corporation (“EBW”),
and
(c) Handheld Entertainment, Inc., a Delaware corporation (the “Company”).
RECITALS
WHEREAS,
pursuant to that certain Securities Purchase Agreement, dated as of August
2,
2007, YA Global has agreed, upon the terms and subject to the conditions
contained therein, to purchase (among other things) Convertible Debentures,
which shall be convertible into the Company’s Common Stock; and
WHEREAS,
the
obligations of the Senior Creditor are secured by
security interests in all of the assets of the Company and of each of the
Company's subsidiaries as evidenced by the Security Agreements, including a
pledge of all
of
the issued and outstanding capital stock of EBW Acquisition, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (“EBW
Acquisition”);
and
WHEREAS,
EBW,
the Company, and EBW Acquisition entered into that certain Asset Purchase
Agreement, dated as of August 1, 2007, pursuant to which, among other things,
EBW sold to EBW Acquisition substantially all of the assets of EBW relating
to
the operation of xXxxxxxxxxx.xxx; and
WHEREAS,
pursuant to the Asset Purchase Agreement the Company is, or may be, obligated
to
make certain payments to EBW, either in cash or in Common Stock, or a
combination of each, including, without limitation, the Protected Payments,
which may be or become due to EBW; and
WHEREAS,
in
order to secure to EBW the payment of the Protected Payments, which may be
or
become due to EBW, including all sums reasonably expended by EBW for protection
of its interests, such as expenses of collection after the occurrence of an
Event of Default as defined in the Pledge Agreement, the Company has granted
to
EBW a pledge of all of the issued and outstanding capital stock of EBW
Acquisition as specified in the Pledge Agreement;
WHEREAS,
the
Senior Creditor and EBW have entered into a Collateral Agency Agreement with
LaSalle Bank National Association as collateral agent (the “Collateral
Agent”),
of
even date herewith, to set forth their respective rights in connection with
the
security interests granted to them pursuant to the Security Agreements and
the
Pledge Agreement; and
WHEREAS,
it is a
condition precedent to YA Global’s purchase of Convertible Debentures, and a
condition precedent to EBW’s obligation to consummate the transactions
contemplated by the Asset Purchase Agreement, that the Company, YA Global and
EBW enter into this Agreement, providing, among other things, that the security
interests granted to YA Global shall be senior to any security interests granted
to EBW, irrespective of the time or order of attachment or perfection, subject
to certain limitations and certain rights of EBW as set forth
herein;
NOW,
THEREFORE,
in
consideration of the foregoing, the mutual agreements herein contained and
other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree
as
follows:
1. Definitions.
Terms
not otherwise defined herein have the same respective meanings given to them
in
the Securities Purchase Agreement. In addition, the following terms shall have
the following meanings:
Asset
Purchase Agreement.
Means
the Asset Purchase Agreement made and entered into as of August 1, 2007, by
and
among the Company, EBW Acquisition and EBW (as amended, amended and restated,
supplemented or otherwise modified and in effect from time to time, including
any replacement agreement therefor, in each case, pursuant to the terms hereof).
Bankruptcy
Code.
The
provisions of Title 11 of the United States Code, as amended from time to time
and any successor statute and all rules and regulations promulgated thereunder
or any state insolvency, debtor relief or assignment for the benefit of creditor
law.
Business
Day.
Shall
mean a day other than Saturday, Sunday or any day on which banks located in
the
City of New York, New York are authorized or obligated to close.
Cash
Flow Test.
The
“Cash Flow Test” shall be satisfied as of any applicable date of determination
if the Company and its subsidiaries, on a consolidated basis, shall have
generated cash flow from operations for the most recent rolling 12-month period
for which financial statements are available, equal to or greater than 1.1
times
the anticipated benchmarks for cash flow from operations for such period, as
reflected in Exhibit A.
Common
Stock.
Shall
mean the common stock, par value $0.0001, of the Company and the stock of any
other class into which such shares may hereafter be changed or
reclassified.
Convertible
Debentures.
Shall
mean all such “Convertible Debentures” purchased under the Securities Purchase
Agreement (as amended, amended and restated, supplemented or otherwise modified
and in effect from time to time, including any replacement agreement
therefor).
Credit
Party
or
Credit
Parties.
Collectively, the Company and its subsidiaries, any other guarantor of all
or
any portion of the Senior Debt or the Subordinated Debt and any other Person
granting a security interest in and Lien on such Person’s assets to secure the
obligations arising under the Senior Debt or the Subordinated Debt.
Discharge
of all Senior Debt.
Shall
mean the payment in full of all Senior Debt.
Lien.
With
respect to any asset, any mortgage, lien, pledge, charge, security interest
or
encumbrance of any kind, or any other type of preferential arrangement that
has
the practical effect of creating a security interest, in respect of such
asset.
Person.
Any
natural person, corporation, general or limited partnership, limited liability
company, firm, trust, association, government, governmental agency or other
entity, whether acting in an individual, fiduciary or other
capacity.
2
Pledge
Agreement.
The
pledge agreement made on or about the date hereof by the Company in favor of
the
Senior Creditor, EBW and the collateral agent identified therein.
Pledged
Stock.
Means
(i) all of the issued and outstanding capital stock of the Company in EBW
Acquisition, now or at any time hereafter owned by the Company, including
without limitation any options, stock appreciation rights, stock splits, shares
of stock of different par value, class or series issued in substitution,
replacement or exchange therefore and any other stock rights, (ii) all of the
right, title and interest of the Company, as a stockholder of EBW Acquisition,
in and to the profits, losses, income, gains, deductions, credits or similar
items of EBW Acquisition, and the right to receive dividends or distributions
of
cash, assets or other property of EBW Acquisition, whether now existing or
hereafter arising and (iii) any and all income, interest or earnings thereon
and
proceeds in any form thereof.
Proceeding.
Any
voluntary or involuntary insolvency, bankruptcy, receivership, custodianship,
liquidation, dissolution, reorganization, assignment for the benefit of
creditors, appointment of a custodian, receiver, trustee or other officer with
similar powers or any other proceeding for the liquidation, dissolution or
other
winding up of a Person.
Protected
Payments.
Means
any payments of Par B Shares, Par C Shares, Performance Earn Out Cash Payments,
and Earn Out Payments (as each of these terms are defined in the Asset Purchase
Agreement), which may be or become due to EBW provided that (i) such payments
are made strictly in accordance with the terms of the Asset Purchase Agreement
and (ii) no conditions to such payments were modified, amended, or waived by
any
party in any manner adverse to the rights of any holder of the Senior Debt.
Securities
Purchase Agreement.
The
securities purchase agreement dated as of August 1, 2007 (as amended, amended
and restated, supplemented or otherwise modified and in effect from time to
time, including any replacement agreement therefor) between the Company and
YA
Global.
Security
Agreements.
The
security agreement dated as of the date hereof (as amended, amended and
restated, supplemented or otherwise modified and in effect from time to time,
including any replacement agreement therefor) between the Company, each
subsidiary of the Company, and YA Global, and the patent security agreement
dated as of the date hereof (as amended, amended and restated, supplemented
or
otherwise modified and in effect from time to time, including any replacement
agreement therefor) between the Company, each subsidiary of the Company, and
YA
Global.
Senior
Debt.
All
principal (up to an original maximum of Twenty-Three Million Dollars,
$23,000,000, without giving effect to any reborrowings), interest, fees, costs,
enforcement expenses (including legal fees and disbursements), collateral
protection expenses and other reimbursement or indemnity obligations created
or
evidenced by the Securities Purchase Agreement or the Convertible Debentures
issued thereunder, or any of the other Senior Debt Documents, less
the
principal amount of all conversions of Convertible Debentures and any other
principal payments and principal redemptions under or with respect to the
Convertible Debentures. Subject
to the foregoing, Senior Debt shall expressly include any and all interest
accruing or out of pocket costs or expenses incurred after the date of any
filing by or against the Company or any other Credit Party of any petition
under
the federal Bankruptcy Code or any other bankruptcy, insolvency or
reorganization act regardless of whether the Senior Creditor’s claim therefor is
allowed or allowable in the case or proceeding relating thereto. For the
avoidance of doubt, nothing contained in this definition shall limit the Senior
Creditor’s rights under Section 8 hereof.
3
Senior
Debt Documents.
Collectively, (i) the Securities Purchase Agreement, (ii) all Convertible
Debentures issued pursuant to the Securities Purchase Agreement, (iii) the
Security Agreements, (iv) any and all other documents and instruments evidencing
or creating the Senior Debt and (v) all guaranties, mortgages, security
agreements, pledges and other collateral guarantying or securing directly or
indirectly any Senior Debt, whether now existing or hereafter created, as each
such agreement, document or instrument may be amended, restated or otherwise
modified and in effect from time to time.
Subordinated
Debt.
All
obligations created or evidenced by the Asset Purchase Agreement, any of the
other Subordinated Debt Documents or any related documents, solely to the extent
related to the Protected Payments, or any subsequent notes, instruments or
agreements of indebtedness, liabilities or obligations of any type or form
whatsoever relating thereto in favor of EBW.
Subordinated
Debt Documents.
Collectively, (i) the Asset Purchase Agreement, (ii) the Pledge Agreement,
(iii) any protected payments escrow agreement executed and delivered in
connection with the Asset Purchase Agreement, by and among EBW, EBW Acquisition
and LaSalle Bank National Association, as escrow agent, and (iii) any and all
other documents or instruments evidencing or further guarantying or securing
directly or indirectly any of the Subordinated Debt, whether now existing or
hereafter created, as each such agreement, document or instrument may be
amended, restated or otherwise modified and in effect with the consent of the
Senior Creditor as provided herein and in effect from time to time.
2. General.
(a) Subordination.
The
Subordinated Debt shall be and hereby is subordinated and the payment thereof
is
deferred until the Discharge of all Senior Debt, whether now or hereafter
incurred or owed by the Company or any other Credit Parties.
(b) Permitted
Payments.
Notwithstanding the terms of Section 2(a) above, the Company shall be permitted
to pay, and EBW shall be permitted to accept, (i) any and all non-cash Protected
Payments, including the Par B Shares, the Par C Shares and any portions of
the
Earn Out Payments to be paid in Common Stock, and (ii) any Protected Payments
consisting of cash provided that (x) at the time of such payment no “Payment
Blockage Period,” as defined in subsection (c) below, is in effect,
(y) the
making of such payment shall not cause a Payment Blockage Period to be in effect
and (z) such payments do not violate the provisions of section 2(g). The Company
shall provide not less than 15 days prior written notice to the Senior Creditor
prior to making any Protected Payment to EBW.
4
(c) Payment
Blockages.
For
purposes of this Agreement, a “Payment Blockage Period” shall mean:
(i) in
the
case of any Event of Default (as defined in the Convertible Debentures), or
any
event that with the passage of time or giving notice would constitute an Event
of Default in the payment of principal or interest (whether in cash or in Common
Stock or through conversion or redemption) with respect to any Senior Debt,
whether at maturity, at scheduled times for payment or otherwise, that occurs
and is continuing (a “Payment Default”), the time period from the date that the
Senior Creditor provides written notice of the Payment Default to EBW until
the
earliest of (i) one hundred eighty (180) days after the date of EBW’s receipt of
such Payment Default notice, (ii) fifteen days after the acceleration of the
maturity of the Senior Debt, (iii) the date upon which the Senior Debt shall
be
paid in full or (iv) the date, if any, on which such Payment Default is cured
or
waived in writing pursuant to the Senior Debt Documents; or
(ii) in
the
case of any Event of Default, or any event that with the passage of time or
giving notice would constitute an Event of Default with respect to the Senior
Debt other than a Payment Default, that occurs and is continuing, and that
permits the Senior Creditor to accelerate the maturity of the Senior Debt (a
“Non-Payment Default”), the time period from the date that the Senior Creditor
provides written notice of the Non-Payment Default to EBW until the earliest
of
(i) two hundred seventy (270) days after the date of EBW’s receipt of such
Non-Payment Default notice, (ii) fifteen days after the acceleration of the
maturity of the Senior Debt, (iii) the date upon which the Senior Debt shall
be
paid in full or (iv) the date, if any, on which such Non-Payment Default is
cured or waived in writing pursuant to the Senior Debt Documents;
or
(iii) in
the
event that a Payment Blockage Period shall not be in effect under clauses (c)(i)
or (ii) above, and an event of default under any of the Subordinated Debt
Documents with respect to the payment or acceleration of any Protected Payment
shall have occurred and be continuing (a “Protected Payment Default”), the time
period from the date that EBW provides notice to the Senior Creditor that it
desires to pursue its rights and remedies under the Subordinated Debt Documents
with respect to the Protected Payment Default, until the earliest of (i) one
hundred eighty (180) days after the date of the Senior Creditor’s receipt of
such Protected Payment Default notice, (ii) fifteen days after the acceleration
of the maturity of the Senior Debt, (iii) the date upon which the Senior Debt
shall be paid in full or (iv) the date, if any, on which such Protected Payment
Default is cured or waived in writing pursuant to the Subordinated Debt
Documents and any related cross-default is cured or waived in writing pursuant
to the Senior Debt Documents.
(d) Limitation
on Payment Blockages.
During
any three hundred and sixty-five (365) day period, no more than two (2)
Non-Payment Default notices may be used to invoke Payment Blockage Periods.
EBW
shall not be prohibited from receiving any Protected Payments for more than
two
hundred seventy (270) days in the aggregate during any such three hundred and
sixty-five (365) day period. No Non-Payment Default that results in any
Non-Payment Default notice or is otherwise known to Senior Creditor at the
time
of issuance of such Non-Payment Default notice, unless the same shall have
ceased to exist for a period of at least thirty (30) consecutive days, may
be
used as a basis for any subsequent Non-Payment Default notice.
5
(e) Restrictions
on Action.
Subject
to the terms and conditions set forth below in this subsection (e), EBW shall
not take any “Action,” as defined in subsection (f) below, until the earliest
of:
(i) the
date
on which the Senior Debt shall be paid in full;
(ii) the
date
on which the Company commences a Proceeding; or
(iii) the
date
on which an order for relief is entered against the Company in a
Proceeding;
provided,
however,
that if
such Action is based exclusively on an Event of Default or event of default
which in either case was the cause of the commencement of a Payment Blockage
Period, and such Payment Blockage Period ends without such underlying Event
of
Default or event of default having been cured or waived, then if EBW provides
ten (10) days’ written notice to the Senior Creditor that it intends to pursue
its rights and remedies under the Subordinated Debt Documents, it shall be
permitted to proceed with an Action as allowed by the Subordinated Debt
Documents.
Notwithstanding
the foregoing, if EBW is permitted hereunder to accelerate the maturity of
all
or any portion of the Protected Payments, and does so at a time at which no
Proceeding is then pending, based upon an acceleration of the Senior Debt and
such acceleration is rescinded by the Senior Creditor (whether or not any
existing Payment Default or Non-Payment Default has been cured or waived),
then
all Actions taken by EBW shall likewise be rescinded if such Actions were based
on account of such acceleration of the Senior Debt by the Senior Creditor.
Additionally, if EBW commences any Action (assuming such Action is permitted
hereunder) that is against or in connection with any Pledged Stock, it shall
immediately cease such Action until further notice from the Senior Creditor
at
such time as it receives notice that the Senior Creditor has commenced an action
against or in connection with the Pledged Stock; provided, however, that EBW
may
take limited action, such as the giving of notice or placing a bid at a sale,
but only to the extent reasonably necessary to protect its interest in excess
proceeds of the Pledged Stock.
(f) Definition
of Action.
For
purposes of this Agreement, “Action” shall mean (i) the exercise of any and all
remedies permitted by the Subordinated Debt Documents or applicable law upon
any
defaults thereunder, including without limitation causing any acceleration
of
the maturity of all or any portion of the Protected Payments, (ii) the
commencement of any other action or proceeding to recover any amounts due or
to
become due with respect to the Protected Payments, (iii) joining in, soliciting
any Person to commence, or causing the commencement of, any Proceeding involving
the Company (whether direct or indirect), (iv) any judicial levy, foreclosure,
possession or similar judicial enforcement against all or a portion of the
Pledged Stock, (v) any non-judicial foreclosure assisted by the Company or
any
other Person, including transfers in lieu of foreclosure or voluntary surrender
of possession of all or any portion of the Pledged Stock, and/or (vi) any
non-judicial enforcement effort against the Pledged Stock, whether voluntary
or
involuntary, including without limitation, any repossession, setoff or turnover
(including any asset sales received after any notice of default) of all or
a
portion of the Pledged Stock.
6
(g) Cash
Flow Requirement. At
any
time when the outstanding principal amount of the Senior Debt exceeds eight
million dollars ($8,000,000), no Earn Out Payment (as defined in the Asset
Purchase Agreement) may be made in cash unless (i) the Company has met the
Cash
Flow Test as of the date of determination for payment of such Earn Out Payment
and (ii) the Company has complied with the provisions of Section 3(g) of the
Convertible Debentures.
(h) Instructions
to Collateral Agent. Each
of
the Senior Creditor and EBW agree that, at any time at the request of the other
(the “Requesting
Party”),
it
will cooperate fully and promptly in issuing joint written instructions to
the
Collateral Agent in order to effectuate any instruction directing the Collateral
Agent to act, if, pursuant to the terms of this Agreement, such action is
permitted to be taken pursuant to this Agreement. In the event that either
the
Senior Creditor or EBW does not at any time promptly comply with its obligations
under the immediately preceding sentence, the Requesting Party may issue such
instructions to the Collateral Agent on a unilateral basis, provided that the
Requesting Party also provides (i) the Collateral Agent with an opinion of
counsel reasonably satisfactory to the Collateral Agent to the effect that
the
taking of such action is allowed pursuant to this Agreement and (ii) the other
party with five (5) Business Days prior written notice of such instructions
and
legal opinion.
3. Enforcement.
Until
the Discharge of all Senior Debt, EBW shall not have any right of subrogation,
reimbursement, restitution, contribution or indemnity whatsoever from any assets
of the Company or any Credit Party or any provider of collateral security for
the Senior Debt. EBW further waives any and all rights with respect to
marshalling.
4. Payments
Held in Trust.
EBW will
hold in trust and immediately pay over to the Senior Creditor, for the account
of the Senior Creditor, in the same form of payment received, with appropriate
endorsements, for application to the Senior Debt, any payment, distribution,
security or proceeds received by EBW at any time with respect to the
Subordinated Debt contrary to the terms of this Agreement.
EBW
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment in respect of the Subordinated Debt, unless
and until EBW shall have received written notice from the Senior Creditor of
a
Payment Default or a Non-Payment Default. Prior to its receipt of any such
written notice, EBW shall be entitled in all respects to assume no such facts
exist and to receive payments otherwise permitted hereunder without the
obligation to hold them in trust for the Senior Creditor.
5. Defense
to Enforcement.
If EBW,
in contravention of the terms of this Agreement, shall commence, prosecute
or
participate in any suit, action or proceeding against the Company or any Credit
Party, then the Company may interpose as a defense or plea the making of this
Agreement, and the Senior Creditor may intervene and interpose such defense
or
plea in its name or in the name of the Company or such Credit Party. If EBW,
in
contravention of the terms of this Agreement, shall attempt to collect any
of
the Subordinated Debt or enforce any of the Subordinated Debt Documents, then
the Senior Creditor or the Company may, by virtue of this Agreement, restrain
the enforcement thereof in the name of the Senior Creditor or in the name of
the
Company. If EBW, in contravention of the terms of this Agreement, obtains any
cash or other assets of the Company or any Credit Party as a result of any
administrative, legal or equitable actions, or otherwise, EBW agrees forthwith
to pay, deliver and assign to the Senior Creditor, for the account of the Senior
Creditor, with appropriate endorsements, any such cash for application to the
Senior Debt and any such other assets as collateral for the Senior
Debt.
7
6. Bankruptcy,
etc.
6.1. Payments
Relating to Subordinated Debt.
At any
meeting of creditors of the Company or in the event of any case or proceeding,
voluntary or involuntary, for the distribution, division or application of
all
or part of the assets of the Company or the proceeds thereof, whether such
case
or proceeding be for the liquidation, dissolution or winding up of the Company
or its business, a receivership, insolvency or bankruptcy case or proceeding,
an
assignment for the benefit of creditors or a proceeding by or against the
Company for relief under the federal Bankruptcy Code or any other bankruptcy,
reorganization or insolvency law or any other law relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangement, composition
or extension or marshalling of assets or otherwise, the Senior Creditor is
hereby irrevocably authorized at any such meeting or in any such proceeding
to
receive or collect for the benefit of the Senior Creditor any cash or other
assets of the Company distributed, divided or applied by way of dividend or
payment, or any securities issued on account of any Subordinated Debt, and
apply
such cash to or to hold such other assets or securities as collateral for the
Senior Debt, and to apply to the Senior Debt any cash proceeds of any
realization upon such other assets or securities that the Senior Creditor in its
discretion elects to effect, until the Discharge of all Senior Debt, rendering
to EBW any surplus to which EBW is then entitled.
6.2. Securities
by Plan of Reorganization or Readjustment.
Notwithstanding the foregoing provisions of Section
6.1,
EBW
shall be entitled to receive and retain any securities of the Company, EBW
Acquisition or any other corporation or other entity provided for by a plan
of
reorganization or readjustment the payment of which securities is subordinate,
at least to the extent provided in this Agreement with respect to Subordinated
Debt, to the payment of all Senior Debt under any such plan of reorganization
or
readjustment (“Junior Securities”).
6.3. Subordinated
Debt Voting Rights.
At any
such meeting of creditors or in the event of any such case or proceeding, EBW
shall retain the right to vote and otherwise act with respect to the
Subordinated Debt (including, without limitation, the right to vote to accept
or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension), provided
that EBW
shall not vote with respect to any such plan or take any other action in any
way
so as to contest (i) the validity of any Senior Debt or any collateral
therefor or guaranties thereof, (ii) the relative rights and duties of any
holders of any Senior Debt established in any instruments or agreements creating
or evidencing any of the Senior Debt with respect to any of such collateral
or
guaranties or (iii) any of EBW’s obligations and agreements set forth in
this Agreement.
8
6.4. Liquidation,
Dissolution, Bankruptcy Generally. In
the
event of any Proceeding involving any Credit Party:
(a) the
Senior Creditor is hereby authorized to file an appropriate claim for and on
behalf of EBW on account of the Subordinated Debt, if EBW does not file, and
there is not otherwise filed on behalf of EBW, a proper claim or proof of claim
in the form required in any Proceeding prior to thirty (30) days before the
expiration of the time to file such claim or claims, and in connection with
such
authorization, EBW hereby irrevocably authorizes, empowers, and appoints the
Senior Creditor as EBW’s agent and attorney-in-fact to execute, verify, deliver
and file such proofs of claim and to receive and collect any and all dividends,
payments, or other disbursements made thereon in whatever form the same may
be
paid or issued and to apply the same on account of the Senior Debt (other than
distributions of Junior Securities);
(b) EBW
agrees not to (a) object to (i) any use of cash collateral by the Company or
any
other Credit Party under Section 363 of the Bankruptcy Code (or under a similar
provision of any applicable insolvency laws of any foreign jurisdiction)
consented to by the Senior Creditor or any borrowing by the Company or any
other
Credit Party from the Senior Creditor, (ii) any grant of a lien or security
interest by any Person in favor of Senior Creditor, under Section 364 of the
Bankruptcy Code (or under a similar provision of any applicable insolvency
laws
of any foreign jurisdiction); provided,
however,
that
the Lien of the Senior Creditor on the Pledged Stock shall not provide security
for any indebtedness other than the Senior Debt, (iii) any adequate protection
sought by Senior Creditor in such Proceeding, or (iv) any debtor-in-possession
financing that Senior Creditor may seek to provide in such Proceeding; (b)
assert (or support any Person in asserting) any right it may have to "adequate
protection" in such Proceeding; or (c) seek, directly or through an affiliate,
to provide debtor-in-possession financing in such Proceeding without the prior
written consent of Senior Creditor;
(c) EBW
will
not seek to have the automatic stay lifted or modified with respect to any
security interest held by it unless the Senior Creditor is also seeking or
has
sought to have the automatic stay lifted or modified, and EBW waives any
objection to the Senior Creditor’s election to lift or modify the automatic stay
except to the extent an unsecured creditor may object to such
motion;
(d) EBW
shall
execute and deliver to the Senior Creditor all such agreements, instruments
and
other documents confirming the above authorizations, and shall take all such
other action as may be reasonably requested by the Senior Creditor to enforce
such claims and carry out the intent of this Section
6.4;
(e) the
Senior Debt shall continue to be treated as Senior Debt and the provisions
of
this Agreement shall continue to govern the relative rights and priorities
of
the Senior Creditor and EBW even if all or part of the Senior Debt or the Liens
securing same are subordinated, set aside, avoided, invalidated or disallowed
in
connection with any Proceeding;
9
(f) To
the
extent that the Senior Creditor receives payments (whether in cash, property
or
securities) on the Senior Debt or the Pledged Stock which are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then,
to
the extent of such payment or proceeds received, the Senior Debt, or part
thereof, intended to be satisfied shall be revived and continue in full force
and effect as if such payments or proceeds had not been received by the Senior
Creditor; and
(g) Notwithstanding
any other provision of this Agreement, (i) EBW shall be entitled to file any
necessary responsive or defensive pleadings in opposition to any motion, claim,
adversary proceeding or other pleading made by any Person objecting to or
otherwise seeking the disallowance of the claims of EBW, including without
limitation any claims secured by the Pledged Stock, if any, (ii) EBW shall
be
entitled to file any pleadings, objections, motions or agreements which assert
rights or interests available to creditors of the Credit Parties arising under
either the Bankruptcy Code or applicable non-bankruptcy law, and (iii) subject
to Section
6.4(a),
EBW
shall be entitled to file any proof of claim and other filings and make any
arguments and motions that are, in each case, in accordance with the terms
of
this Agreement and necessary to preserve their rights with respect to the
Subordinated Debt and the Pledged Stock.
7. Priority
of Security Interest.
All
security interests in favor of the Senior Creditor (including without
limitation, the security interests created pursuant to the Security Agreements
and the security interest in Pledged Stock) shall be senior to any security
interest in favor of EBW (including, without limitation, the security interest
in Pledged Stock irrespective of the physical location or custody of the Pledged
Stock) irrespective of the time of the execution, delivery or issuance thereof
or the filing or recording for perfection of any security interest therein
or
the filing of any financing statement or continuation statement relating
thereto; provided,
however,
that
such security interests in the Pledged Stock shall not provide security for
any
indebtedness other than the Senior Debt.
7.1. Further
Assurances.
EBW
hereby agrees, upon request of the Senior Creditor at any time and from time
to
time, to execute such other documents or instruments as may be requested by
the
Senior Creditor further to evidence of public record or otherwise the senior
priority of the Senior Debt as contemplated hereby.
7.2. Books
and Records.
EBW
further agrees to maintain on its books and records such notations as the Senior
Creditor may reasonably request to reflect the subordination contemplated hereby
and to perfect or preserve the rights of the Senior Creditor hereunder. A copy
of this Agreement may be filed as a financing statement in any Uniform
Commercial Code recording office.
8. YA
Global’s Freedom of Dealing.
EBW
agrees, with respect to the Senior Debt Documents and any and all collateral
therefor or guaranties thereof, that the Company and the Senior Creditor may
agree to increase the amount of the debt owed to the Senior Creditor under
the
Senior Debt Documents or otherwise modify the terms of any of the Senior Debt
Documents, and the Senior Creditor may grant extensions of the time of payment
or performance to and make compromises, including releases of collateral or
guaranties, and settlements with the Company and all other persons in connection
with the Senior Debt Documents, in each case without the consent of EBW and
without affecting the agreements of EBW contained in this Agreement;
provided,
however,
that
any additional principal amounts of indebtedness incurred by the Company to
the
Senior Creditor, including any reborrowings, shall not be deemed “Senior Debt”
hereunder and shall not be entitled to the rights and protections offered to
the
Senior Creditor hereunder.
10
9. Modification
or Sale of the Subordinated Debt Documents.
EBW will
not, at any time while this Agreement is in effect, modify any of the terms
of
any of the Subordinated Debt or any terms of the Subordinated Debt Documents
relating to the Subordinated Debt in a manner that would increase the amount
of
the Subordinated Debt or accelerate the anticipated payment schedule related
to
the Subordinated Debt; nor will EBW sell, transfer, pledge, assign, hypothecate
or otherwise dispose of any or all of the Subordinated Debt to any Person other
than a Person who agrees in a writing, satisfactory in form and substance to
the
Senior Creditor, to become a party hereto and to succeed to the rights and
to
bound by all of the obligations of EBW hereunder. In the case of any such
disposition by EBW, EBW will notify the Senior Creditor at least 10 days prior
to the date of any of such intended disposition.
Neither
EBW nor the Company may waive, amend, or modify any conditions to EBW’s right to
receive any Protected Payments under the Asset Purchase Agreement in any manner
adverse to the rights and benefits of the Senior Creditor
hereunder.
10. EBW
Purchase Option.
The
Senior Creditor acknowledges and agrees that EBW shall have the option, subject
to the terms and conditions hereof (the “Option”),
to
purchase from the Senior Creditor at par (i.e., an amount equal to the
outstanding amount of the Senior Debt as of the date of exercise of the Option)
(the “Option Price”) the entire outstanding Senior Debt, including any and all
interest and penalties due and owing thereunder, such Option to become effective
on the day following EBW’s receipt of written notice from the Senior Creditor of
its acceleration of the maturity of the Senior Debt. In connection therewith,
the Senior Creditor acknowledges that it shall provide written notice to EBW
upon its acceleration of the maturity of the Senior Debt. Any exercise by EBW
of
the Option shall be in accordance with the next succeeding paragraph and shall
be contingent upon such acceleration remaining in effect both at the time of
the
exercise thereof and at the time of any closing with respect thereto. Upon
proper and timely exercise of the Option and payment in full of the Option
Price, the Senior Creditor shall transfer and assign to EBW all of its right,
title and interest in and to the Senior Debt Documents, together with all of
its
right, title and interest to its security interest in and to the assets of
the
Company and each of the Company’s subsidiaries thereunder.
EBW
may
exercise the Option in accordance with the following: within 15 days following
EBW’s receipt of written notice from the Senior Creditor of the acceleration of
the maturity of all amounts due and owing under the Senior Debt, EBW shall
provide written notice to the Company and the Senior Creditor of the exercise
of
the Option and closing (with payment of the Option Price in cash) shall be
within 60 days of such notice. Upon any failure of EBW to timely pay the Option
Price after exercise of the Option, the Option shall terminate and be of no
further force or effect, the Senior Creditor shall have no right to request
or
receive the Option Price and the Senior Creditor shall have the right to
transfer the Senior Debt and the Senior Debt Documents without regard to the
Option.
11
Notwithstanding
anything herein or in any other document or agreement to the contrary, until
EBW
shall irrevocably pay the Option Price to the Senior Creditor, (a) the Company
shall have the absolute right to cure (with the Senior Creditor’s consent, where
so required) any and all defaults or events of default (and any related
acceleration) under the Senior Debt Documents (in which case all payment and
Action blockages under Section 2 above shall terminate and the Company shall
reimburse EBW for all third party expenses reasonably incurred to exercise
the
Option prior to the Company’s curing such defaults or events of default) and (b)
the Senior Creditor may effect any conversion or redemption or amend, waive,
modify or terminate any term, condition or action under the Senior Debt
(including without limitation any acceleration of the maturity of the Senior
Debt) or take any other action consistent with its rights under the Senior
Debt
Documents, which amendment, waiver, modification, termination or other action
shall be binding upon EBW provided that it does not cause the aggregate
principal amount of the Senior Debt to which the Subordinated Debt is
subordinated hereunder to exceed the amount specified in the definition of
Senior Debt herein, but such limitation, and the other terms and conditions
of
this Agreement, shall not in any way impair the ability of the Company to incur
any indebtedness or the Senior Creditor to provide any financing (including
without limitation under the Securities Purchase Agreement and/or the
Convertible Debentures) that does not constitute Senior Debt.
11. Company’s
Obligations Absolute.
Nothing
contained in this Agreement shall impair, as between the Company and EBW, the
obligation and right of the Company to pay to EBW all amounts payable in respect
of the Subordinated Debt as and when the same shall become due and payable
in
accordance with the terms thereof, or prevent EBW (except as expressly otherwise
provided in Section
2,
Section
3
or
Section
6)
from
exercising all rights, powers and remedies otherwise permitted by the
Subordinated Debt Documents and by applicable law upon a default in the payment
of the Subordinated Debt or under any Subordinated Debt Document as permitted
herein.
To the
extent that any payment received by EBW with respect to the Subordinated Debt
must be paid to the Senior Creditor hereunder, as between the Company and EBW
such payment shall be deemed a payment of Senior Debt and not Subordinated
Debt.
12. Termination
of Subordination.
This
Agreement shall continue in full force and effect, and the obligations and
agreements of EBW and the Company hereunder shall continue to be fully
operative, until the Discharge of all Senior Debt. To the extent that the
Company or any guarantor of or provider of collateral for the Senior Debt 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 the Senior Creditor an Event
of
Default shall be deemed to have existed and to be continuing under the Senior
Debt Documents from the date of the Senior Creditor’s initial receipt of such
Voided Payment until the full amount of such Voided Payment is restored to
the
Senior Creditor. During any continuance of any such Event of Default, this
Agreement shall be in full force and effect with respect to the Subordinated
Debt. To the extent that EBW has received any payments with respect to the
Subordinated Debt subsequent to the date of the Senior Creditor’s initial
receipt of such Voided Payment and such payments have not been invalidated,
declared to be fraudulent or preferential or set aside, or required to be repaid
to a trustee, receiver, or any other party under any bankruptcy act, state
or
federal law, common law or equitable cause, EBW 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 the Senior Creditor, and EBW hereby agrees
to pay to the Senior Creditor, upon demand, the full amount so received by
EBW
during such period of time to the extent necessary to restore fully to the
Senior Creditor the amount of such Voided Payment. Upon the Discharge of all
Senior Debt, which payment shall be final and not avoidable, this Agreement
will
automatically terminate without any additional action by any party hereto.
12
13. Notices.
All
notices and other communications which are required and may be given pursuant
to
the terms of this Agreement shall be in writing and shall be sufficient and
effective in all respects if given in writing, telecopied, delivered in person,
deposited with Federal Express or other overnight delivery service for overnight
delivery, or mailed by registered or certified mail, postage prepaid, as
follows:
|
If
to the Senior Creditor:
|
YA
Global Investments, L.P.
000
Xxxxxx Xxxxxx
Xxxxx
0000
Xxxxxx
Xxxx, Xxx Xxxxxx 00000
Attention:
Xxxx Xxxxxx
Facsimile:
(000) 000-0000
|
|
|
With
a copy to
(such copy not to constitute notice hereunder):
|
Xxxx
Xxxxx, Esq.
000
Xxxxxx Xxxxxx
Xxxxx
0000
Xxxxxx
Xxxx, Xxx Xxxxxx 00000
Facsimile:
(000) 000-0000
|
|
|
If
to EBW:
|
Xxxx
Xxxxxx
0000
Xxxxxxxx-Xxxxxxxxx Xxxxxxxx Xxxx
Xxxxxxxxx,
Xxx Xxxx 00000-0000
Facsimile:
(000) 000-0000
and
Xxxx
Xxxxxx
0000
Xxxxxxxx-Xxxxxxxxx Xxxxxxxx Xxxx
Xxxxxxxxx,
Xxx Xxxx 00000-0000
Facsimile:
(000) 000-0000
|
13
|
With
a copy to
(such copy not to constitute notice hereunder):
|
Xxxxxx
Beach PLLC
00
Xxxxxxx Xxxx
Xxxxxxxxx,
Xxx Xxxx 00000
Attention:
Xxxxxxx X. Xxxxxx, Esq.
Facsimile:
(000) 000-0000
|
|
|
If
to the Company:
|
Handheld
Entertainment, Inc.
000
Xxxxxx Xxxxxx, Xxxxx 000
Xxx
Xxxxxxxxx, XX 00000
Attention:
President
Facsimile:
000-000-0000
|
|
|
With
a copy to
(such copy not to constitute notice hereunder):
|
Xxxxxx
and Xxxxx, LLP
000
Xxxx 00xx
Xxxxxx, Xxxxx 0000
Xxx
Xxxx, XX 00000
Attention:
Xxxxxx X. Xxxxxx, Esq.
Facsimile:
000-000-0000
|
or
such
other address or addresses as any party hereto shall have designated by written
notice to the other parties hereto. Notices shall be deemed given and effective
upon the earlier to occur of (i) the third day following deposit thereof in
the
U.S. mail, (ii) the first day following deposit with Federal Express or other
overnight delivery service for overnight delivery, or (iii) receipt by the
party
to whom such notice is directed.
14. Governing
Law.
THIS
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF NEW YORK,
WITHOUT
GIVING EFFECT TO ANY PROVISION THEREOF WHICH WOULD REQUIRE THE APPLICATION
OF
THE LAW OF ANY OTHER JURISDICTION. EACH OF THE PARTIES HERETO HEREBY CONSENTS
AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY
OF
NEW YORK, NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY
CLAIMS OR DISPUTES BETWEEN THE PARTIES HERETO PERTAINING TO THIS AGREEMENT
OR TO
ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED,
THAT
EACH OF THE PARTIES HERETO HEREBY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY,
AND
THAT CERTAIN BANKRUPTCY ACTIONS OR PROCEEDINGS MAY REQUIRE ANOTHER JURISDICTION
OR VENUE. SUBJECT TO THE FOREGOING, EACH OF THE PARTIES HERETO HEREBY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND HEREBY WAIVES ANY OBJECTION THAT SUCH PERSON
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS
AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS
MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PERSON AT THE ADDRESS
SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF SUCH PERSON’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE UNITED STATES MAIL, REGISTERED OR CERTIFIED, WITH PROPER POSTAGE
PREPAID.
14
15. Waiver
of Jury Trial.
EACH OF
THE PARTIES HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO
ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH OF THE PARTIES HERETO HEREBY
WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION
REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES. EACH OF THE PARTIES HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OR
ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
IT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS
AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG
OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
16. Miscellaneous.
(a) This
Agreement may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered shall be
an
original, and all of which together shall constitute one instrument. In proving
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart signed by the party against which enforcement is sought.
(b) This
Agreement may not be amended except in a writing signed by the parties hereto.
The Senior Creditor may, in its sole and absolute discretion, without any
consent or approval of the Subordinated Creditor, waive any provisions of this
Agreement benefiting the Senior Creditor; provided,
however,
that
such waiver shall be effective only if in writing and signed by the Senior
Creditor and, if such action affects the Company, if also signed by the Company,
and shall be limited to the specific provision or provisions expressly so
waived.
(c) This
Agreement shall be binding upon the permitted successors and assigns of the
parties hereto and shall inure to the benefit of the parties hereto and their
respective successors and assigns. EBW may assign this Agreement to any Person
controlling, controlled by or under common control with EBW who or which agrees
in a writing to become a party hereto and to succeed to the rights and be bound
by all of the obligations of EBW hereunder and (ii) subject to the Option
granted to EBW pursuant to Section 10 above (including the time periods
associated with exercise of the Option), the Senior Creditor may assign this
Agreement to any Person who or which agrees in a writing to become a party
hereto and to succeed to the rights and be bound by all of the obligations
of
the Senior Creditor hereunder.
[Remainder
of Page Intentionally Left Blank]
15
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement as of the date first above
written.
| SENIOR CREDITOR: |
YA
GLOBAL INVESTMENTS, L.P.
|
|
| |
|
|
| By: | Yorkville Advisors, LLC, its Investment Manager | |
| By: | /s/ Xxxx Xxxxxx | |
|
Name:
Xxxx Xxxxxx
Title:
President and Founder
|
||
| EBW: |
EBAUM’S
WORLD, INC.
|
|
| |
|
|
| By: | /s/ Xxxx Xxxxxx | |
|
Name:
Xxxx Xxxxxx
Title:
President
|
||
| COMPANY: |
HANDHELD
ENTERTAINMENT, INC.
|
|
| |
|
|
| By: | /s/ Xxxxxxx X. Xxxx | |
|
Name: Xxxxxxx X. Xxxx
Title: Chief Financial
Officer
|
||
16
