EXHIBIT 10.26
SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is entered into as of the
30th day of June, 2005, by and among Spotless Plastic (USA), Inc., a Delaware
corporation, (the "Subordinated Lender"), and Laurus Master Fund, Ltd. (the
"Senior Lender"). Unless otherwise defined herein, capitalized terms used herein
shall have the meaning provided such terms in the Securities Purchase Agreement
referred to below.
BACKGROUND
WHEREAS, the Senior Lender has made a loan to WINDSWEPT ENVIRONMENTAL
GROUP, INC., a Delaware corporation (the "Company") pursuant to, and in
accordance with, (i) that certain Securities Purchase Agreement dated as of the
date hereof by and between the Company and Laurus (as amended, modified or
supplemented from time to time, the "Securities Purchase Agreement") and (ii)
the Related Agreements referred to in the Securities Purchase Agreement, each as
amended, modified or supplemented from time to time.
WHEREAS, the Subordinated Lender has made loans to the Company.
NOW, THEREFORE, the Subordinated Lender and the Senior Lender agree as
follows:
TERMS
1. All obligations of each the Company and/or any of its Subsidiaries to
the Senior Lender, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent or now or hereafter existing, or due or to
become due are referred to as "Senior Liabilities". Any and all loans, other
extensions of credit, or otherwise made by the Subordinated Lenders to the
Company and/or any of its Subsidiaries, together with all other obligations of
the Company and/or any of its Subsidiaries to the Subordinated Lender (in each
case, including any principal, interest, fees or penalties related thereto),
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent or now or hereafter existing, or due or to become due are referred to
as "Junior Liabilities". Notwithstanding this provision, the "Junior
Liabilities" shall not include the amounts owed by the Company to the
Subordinated Lender and Xxxxxx Xxxxxx (the "Service Payments") pursuant to the
terms and provisions of the Transition Services Agreement, dated as of the date
hereof, by and among, the Company, Spotless and Xxxxxx Xxxxxx. For the avoidance
of doubt, the parties hereto agree that the term "Junior Liabilities" shall not
include the Purchased Account (as hereinafter defined). It is expressly
understood and agreed that the term "Senior Liabilities", as used in this
Agreement, shall include, without limitation, any and all interest, fees and
penalties accruing on any of the Senior Liabilities after the commencement of
any proceedings referred to in paragraph 4 of this Agreement, notwithstanding
any provision or rule of law which might restrict the rights of the Senior
Lender, as against the Company, its Subsidiaries or anyone else, to collect such
interest, fees or penalties, as the case may be.
2. Except in respect of the open account receivable of the New York City
Department of Environmental Protection - Coney Island, I.D. No. NYC004 in the
open amount
as of the date hereof of $189,196.82 (the "Purchased Account") and in
respect of the Service Payments, or as expressly otherwise provided in this
Agreement or as the Senior Lender may otherwise expressly consent in writing,
the payment of the Junior Liabilities shall be postponed and subordinated to the
payment in full of all Senior Liabilities. Furthermore, no payments or other
distributions whatsoever in respect of any Junior Liabilities shall be made, nor
shall any property or assets of the Company or any of its Subsidiaries be
applied to the purchase or other acquisition or retirement of any Junior
Liability. Notwithstanding anything to the contrary contained in this paragraph
2 or elsewhere in this Agreement, the Senior Lender hereby agrees that the
Company and its Subsidiaries may make regularly scheduled principal, interest
and services payments, as the case may be, to the Subordinated Lender with
respect to the Junior Liabilities, so long as (i) no Event of Default (as
defined in the Note) has occurred and is continuing at the time of any such
payment and (ii) the amount of such regularly scheduled principal payments and
the rate of interest, in each case, with respect to the Junior Liabilities is
not increased from that in effect on the date hereof.
3. With the exception of the Purchased Account and the Service Payments,
the Subordinated Lender hereby subordinates all security interests that have
been, or may be, granted by the Company and/or any of its Subsidiaries to such
Subordinated Lender in respect of the Junior Liabilities, to the security
interests granted by the Company and/or any of its Subsidiaries to the Senior
Lender in respect of the Senior Liabilities.
4. In the event of any dissolution, winding up, liquidation, readjustment,
reorganization or other similar proceedings relating to the Company and/or any
of its Subsidiaries or to its creditors, as such, or to its property (whether
voluntary or involuntary, partial or complete, and whether in bankruptcy,
insolvency or receivership, or upon an assignment for the benefit of creditors,
or any other marshalling of the assets and liabilities of the Company and/or any
of its Subsidiaries, or any sale of all or substantially all of the assets of
the Company and/or any of its Subsidiaries, or otherwise), the Senior
Liabilities shall first be paid in full before any Subordinated Lender shall be
entitled to receive and to retain any payment or distribution in respect of any
Junior Liability.
5. The Subordinated Lender will xxxx his books and records so as to clearly
indicate that their respective Junior Liabilities are subordinated in accordance
with the terms of this Agreement. The Subordinated Lender will execute such
further documents or instruments and take such further action as the Senior
Lender may reasonably request from time to time request to carry out the intent
of this Agreement.
6. The Subordinated Lender hereby waives all diligence in collection or
protection of or realization upon the Senior Liabilities or any security for the
Senior Liabilities.
7. No Subordinated Lender will without the prior written consent of the
Senior Lender: (a) attempt to enforce or collect any Junior Liability or any
rights in respect of any Junior Liability (except in respect of the Purchased
Account and the Service Payments); or (b) commence, or join with any other
creditor in commencing, any bankruptcy, reorganization or insolvency proceedings
with respect to the Company and/or any of its Subsidiaries.
8. The Senior Lender may, from time to time, at its sole discretion and
without notice to any Subordinated Lender, take any or all of the following
actions: (a) retain or obtain a security interest in any property to secure any
of the Senior Liabilities; (b) retain or obtain the primary or secondary
obligation of any other obligor or obligors with respect to any of the Senior
Liabilities; (c) extend or renew for one or more periods (whether or not longer
than the original period), alter or exchange any of the Senior Liabilities, or
release or compromise any obligation of any nature of any obligor with respect
to any of the Senior Liabilities; and (d) release their security interest in, or
surrender, release or permit any substitution or exchange for, all or any part
of any property securing any of the Senior Liabilities, or extend or renew for
one or more periods (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any obligor with
respect to any such property.
9. The Senior Lender may, from time to time, whether before or after any
discontinuance of this Agreement, without notice to any Subordinated Lender,
assign or transfer any or all of the Senior Liabilities or any interest in the
Senior Liabilities; and, notwithstanding any such assignment or transfer or any
subsequent assignment or transfer of the Senior Liabilities, such Senior
Liabilities shall be and remain Senior Liabilities for the purposes of this
Agreement, and every immediate and successive assignee or transferee of any of
the Senior Liabilities or of any interest in the Senior Liabilities shall, to
the extent of the interest of such assignee or transferee in the Senior
Liabilities, be entitled to the benefits of this Agreement to the same extent as
if such assignee or transferee were the Senior Lender, as applicable; provided,
however, that, unless the Senior Lender shall otherwise consent in writing, the
Senior Lender shall have an unimpaired right, prior and superior to that of any
such assignee or transferee, to enforce this Agreement, for the benefit of the
Senior Lender, as to those of the Senior Liabilities which the Senior Lender has
not assigned or transferred.
10. The Senior Lender shall not be prejudiced in its rights under this
Agreement by any act or failure to act of any Subordinated Lender, or any
noncompliance of any Subordinated Lender with any agreement or obligation,
regardless of any knowledge thereof which the Senior Lender may have or with
which the Senior Lender may be charged; and no action of the Senior Lender
permitted under this Agreement shall in any way affect or impair the rights of
the Senior Lender and the obligations of any Subordinated Lender under this
Agreement.
11. No delay on the part of the Senior Lender in the exercise of any right
or remedy shall operate as a waiver of such right or remedy, and no single or
partial exercise by the Senior Lender of any right or remedy shall preclude
other or further exercise of such right or remedy or the exercise of any other
right or remedy; nor shall any modification or waiver of any of the provisions
of this Agreement be binding upon the Senior Lender except as expressly set
forth in a writing duly signed and delivered on behalf of the Senior Lender. For
the purposes of this Agreement, Senior Liabilities shall have the meaning set
forth in Section 1 above, notwithstanding any right or power of any Subordinated
Lender or anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
affect or impair the agreements and obligations of any Subordinated Lender under
this Agreement.
12. This Agreement shall be binding upon the Subordinated Lender and upon
the heirs, legal representatives, successors and assigns of the Subordinated
Lender and the successors and assigns of any Subordinated Lender.
13. This Agreement shall be construed in accordance with and governed by
the laws of New York without regard to conflict of laws provisions. Wherever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
[signature page follows]
IN WITNESS WHEREOF, this Agreement has been made and delivered this 30th
day of June, 2005.
SPOTLESS PLASTIC (USA), INC.
By: /s/ Xxxxxxx X. Xxxxx, Xx.
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Name: Xxxxxxx X. Xxxxx, Xx.
Title: Senior Vice President of Operations
LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx Grin
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Name: Xxxxx Grin
Title: Director
Acknowledged and Agreed to by:
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Xxxxxxx X'Xxxxxx
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Name: Xxxxxxx X'Xxxxxx
Title: President
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