SUBORDINATION AGREEMENT
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Exhibit
10.5
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Subordination
Agreement dated as of October 30, 2009 between Xxxx Xxxxxxxxx, Xxxxxxx
Xxxxxx, Xxxxx Xxxxx, Xxxxxxxxx Xxxxxxxxx, Xxxxx Xxxxx and Silicon Valley
Bank
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This
Subordination Agreement (the “Agreement”) is made as of October 30, 2009, by and
between Xxxx Xxxxxxxxx,
Xxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxxxx Xxxxxxxxx and Xxxxx Xxxxx (collectively,
“Creditor”), and SILICON VALLEY
BANK, a California corporation, with its principal place of business at
0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a loan production
office located at 0000 Xxxxx Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 00000
(“Bank”).
Recitals
A. BRAINTECH, INC., a Nevada
corporation, BRAINTECH
INDUSTRIAL, INC., a Delaware corporation, and BRAINTECH GOVERNMENT & DEFENSE,
INC., a Delaware corporation (jointly and severally, individually and
collectively, “Borrower”) have requested and/or obtained certain loans or other
credit accommodations from Bank to Borrower under (a) a certain Loan and
Security Agreement (term loan) between Borrower and Bank dated as of even date
herewith (the “Term Loan Agreement”), and (b) a certain Loan and Security
Agreement (accounts receivable line of credit) between Borrower and Bank dated
as of even date herewith (“Working Capital Loan Agreement”) (as each may be
amended, restated, or otherwise modified from time to time, collectively, the
“Loan Agreements”), which are or may be from time to time secured by assets and
property of Borrower.
B. Creditor
has extended loans or other credit accommodations to Borrower, and/or may extend
loans or other credit accommodations to Borrower from time to time.
C. In order
to induce Bank to extend credit to Borrower and, at any time or from time to
time, at Bank’s option, to make such further loans, extensions of credit, or
other accommodations to or for the account of Borrower, or to purchase or extend
credit upon any instrument or writing in respect of which Borrower may be liable
in any capacity, or to grant such renewals or extension of any such loan,
extension of credit, purchase, or other accommodation as Bank may deem
advisable, Creditor is willing to subordinate: (i) all of Borrower’s
indebtedness to Creditor (including, without limitation, principal, premium (if
any), interest, fees, charges, expenses, costs, professional fees and expenses,
and reimbursement obligations), whether presently existing or arising in the
future (the “Subordinated Debt”) to all of Borrower’s indebtedness and
obligations to Bank; and (ii) all of Creditor’s security interests, if any, to
all of Bank’s security interests in the Borrower’s property. Notwithstanding the
foregoing, the term “Subordinated Debt” shall not include (i) Borrower’s
obligation to issue common stock of Borrower to Creditor as compensation for
providing the Letter of Credit or Pledged Account (as each such term is defined
in the Term Loan Agreement); (ii) subject to an aggregate annual limit of
$100,000, Borrower’s obligation to reimburse Creditor for all initial and
ongoing expenses incurred by Creditor relating to the establishment, amendment
and/or maintenance of the Letter of Credit or Pledged Account (as each such term
is defined in the Term Loan Agreement); (iii) during calendar year 2009 only and
subject to an aggregate annual limit for 2009 of $100,000, Borrower’s obligation
to reimburse Creditor for all expenses incurred by Creditor relating to
Creditor’s previous letter of credit (the “RBC LC”) provided in support of
Borrower’s previous loan from the Royal Bank of Canada (the “RBC Loan”); (iv)
Borrower’s obligation to pay any standard compensation to Creditor for service
as a member of Borrower’s Board of Directors and/or any committee thereof; (v)
Borrower’s obligation to pay any compensation provided to Xxxx Xxxxxxxxx
(“Xxxxxxxxx”) pursuant to the Employment and Retention Agreement dated as of
January 1, 2009 or pursuant to any successor agreement approved by Borrower’s
Board of Directors or a committee thereof; (vi) Borrower’s obligation to pay
Xxxxxxxxx amounts due under the following promissory notes issued to him by
Borrower for deferral of amounts due to him: (A) the Promissory Note ($90,300
Cash Bonus plus interest) issued September 21, 2009, (B) the Promissory Note
(Deferred Salary plus interest) issued September 21, 2009 which applies to
deferrals of Salary, bonus, expense reimbursements, stock repurchase payments,
legal fee reimbursements, subject to an aggregate amount outstanding of up to
$1,250,000, and (C) the Promissory Note ($30,000 Stock Repurchase plus interest)
issued September 25, 2009; (vii) Borrower’s obligation to indemnify and advance
or reimburse customary expenses to directors, officers, employees and agents in
their capacities as such; or (viii) amounts owed by Borrower to Creditor as a
result of payment of the RBC Loan with funds drawn from the RBC
LC. Notwithstanding the exclusions from Subordinated Debt set forth
in the immediately preceding sentence, any security interest or lien that
Creditor has in any property of Borrower in respect of any obligations of
Borrower to Creditor (whether in respect of Subordinated Debt, the obligations
set forth in the immediately preceding sentence, or otherwise) will be
subordinated to any security interest or lien in favor of Bank pursuant to the
terms of this Agreement.
NOW,
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor
subordinates to Bank any security interest or lien that Creditor may have in any
property of Borrower. Notwithstanding the respective dates of
attachment or perfection of the security interest of Creditor and the security
interest of Bank, the security interest of Bank in the Collateral (the
“Collateral”), as defined in the Loan Agreements, shall at all times be senior
to the security interest of Creditor. Notwithstanding anything to the
contrary in this Agreement, Bank shall not, without Creditor’s prior written
consent, either (a) extend the term for repayment of the Term Advances (as
defined in the Term Loan Agreement) beyond the date that is forty (40) months
from the date of this Agreement, or (b) increase the Facility Amount (as defined
in the Working Capital Loan Agreement).
2. All
Subordinated Debt is subordinated in right of payment to all obligations of
Borrower to Bank now existing or hereafter arising, together with all costs of
collecting such obligations (including attorneys’ fees), including, without
limitation, all interest accruing after the commencement by or against Borrower
of any bankruptcy, reorganization or similar proceeding, and all obligations
under the Loan Agreements (the “Senior Debt”).
3. Creditor
will not demand or receive from Borrower (and Borrower will not pay to Creditor)
all or any part of the Subordinated Debt, by way of payment, prepayment, setoff,
lawsuit or otherwise, nor will Creditor exercise any remedy with respect to the
Collateral, nor will Creditor accelerate the Subordinated Debt, or commence, or
cause to commence, prosecute or participate in any administrative, legal or
equitable action against Borrower, until such time as (i) the Senior Debt is
fully paid in cash, (ii) Bank has no commitment or obligation to lend any
further funds to Borrower, and (iii) all financing agreements between Bank and
Borrower are terminated. Nothing in this Section 3 shall prohibit
Creditor from converting all or any part of the Subordinated Debt into equity
securities of Borrower which do not have any call, put or other conversion
features that would obligate Borrower to pay any money or deliver any other
securities or consideration to the holder.
4. Until
such time as (i) the Senior Debt is fully paid in cash, (ii) Bank has no
commitment or obligation to lend any further funds to Borrower, and (iii) all
financing agreements between Bank and Borrower are terminated, Creditor shall
promptly deliver to Bank in the form received (except for endorsement or
assignment by Creditor where required by Bank) for application to the Senior
Debt any payment, distribution, security or proceeds received by Creditor with
respect to the Subordinated Debt other than in accordance with this
Agreement.
5. In the
event of Borrower’s insolvency, reorganization or any case or proceeding under
any bankruptcy or insolvency law or laws relating to the relief of debtors,
these provisions shall remain in full force and effect, and Bank’s claims
against Borrower and the estate of Borrower shall be paid in full before any
payment is made to Creditor.
6. Until the
Senior Debt is fully paid in cash and Bank’s arrangements to lend any funds to
Borrower have been terminated, Creditor irrevocably appoints Bank as Creditor’s
attorney-in-fact, and grants to Bank a power of attorney with full power of
substitution, in the name of Creditor or in the name of Bank, for the use and
benefit of Bank, without notice to Creditor, to perform at Bank’s option the
following acts in any bankruptcy, insolvency or similar proceeding involving
Borrower:
(i) To file
the appropriate claim or claims in respect of the Subordinated Debt on behalf of
Creditor if Creditor does not do so prior to 30 days before the expiration of
the time to file claims in such proceeding and if Bank elects, in its sole
discretion, to file such claim or claims; and
(ii) To accept
or reject any plan of reorganization or arrangement on behalf of Creditor and to
otherwise vote Creditor’s claims in respect of any Subordinated Debt in any
manner that Bank deems appropriate for the enforcement of its rights
hereunder.
7. Creditor
shall immediately affix a legend to the instruments evidencing the Subordinated
Debt stating that the instruments are subject to the terms of this
Agreement. By the execution of this Agreement, Creditor hereby
authorizes Bank to amend any financing statements filed by Creditor against
Borrower as follows: “In accordance with a certain Subordination Agreement by
and among the Secured Party, the Debtor and Silicon Valley Bank, the Secured
Party has subordinated any security interest or lien that Secured Party may have
in any property of the Debtor to the security interest of Silicon Valley Bank in
all assets of the Debtor, notwithstanding the respective dates of attachment or
perfection of the security interest of the Secured Party and Silicon Valley
Bank.”
8. No
amendment of the documents evidencing or relating to the Subordinated Debt shall
directly or indirectly modify the provisions of this Agreement in any manner
which would reasonably be expected to terminate or impair the subordination of
the Subordinated Debt or the subordination of the security interest or lien that
Creditor may have in any property of Borrower. By way of example,
such instruments shall not be amended to (i) increase the rate of interest with
respect to the Subordinated Debt, or (ii) accelerate the payment of the
principal or interest or any other portion of the Subordinated
Debt. Bank shall have the sole and exclusive right to restrict or
permit, or approve or disapprove, the sale, transfer or other disposition of
Collateral except in accordance with the terms of the Senior Debt. In the event
of and during the continuation of an Event of Default (as defined in the Loan
Agreements), upon written notice from Bank to Creditor of Bank's agreement to
release its lien on all or any portion of the Collateral in connection with the
sale, transfer or other disposition thereof by Bank (or by Borrower with consent
of Bank), Creditor shall be deemed to have also, automatically and
simultaneously, released its lien on such Collateral, and Creditor shall upon
written request by Bank, immediately take such action as shall be necessary or
appropriate to evidence and confirm such release. All proceeds
resulting from any such sale, transfer or other disposition shall be applied
first to the Senior Debt until payment in full thereof, with the balance, if
any, to the Subordinated Debt, or to any other entitled party. If
Creditor fails to release its lien as required hereunder, Creditor hereby
appoints Bank as attorney in fact for Creditor with full power of substitution
to release Creditor's liens as provided hereunder. Such power of
attorney being coupled with an interest shall be irrevocable.
9. All
necessary action on the part of the Creditor, its officers, directors, partners,
members and shareholders, as applicable, necessary for the authorization of this
Agreement and the performance of all obligations of the Creditor hereunder has
been taken. This Agreement constitutes the legal, valid and binding
obligation of Creditor, enforceable against Creditor in accordance with its
terms. The execution, delivery and performance of and compliance with
this Agreement by Creditor will not violate any material applicable law, rule or
regulation.
10. If, at
any time after payment in full of the Senior Debt any payments of the Senior
Debt must be disgorged by Bank for any reason (including, without limitation,
the bankruptcy of Borrower), this Agreement and the relative rights and
priorities set forth herein shall be reinstated as to all such disgorged
payments as though such payments had not been made and Creditor shall
immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to
Creditor, Bank may take such actions as may be permitted under applicable
agreements with Borrower with respect to the Senior Debt as Bank, in its sole
discretion, may deem appropriate, including, without limitation, the following
actions to the extent that they may be permitted under the applicable agreements
with Borrower: terminating advances to Borrower, increasing the principal
amount, extending the time of payment, increasing applicable interest rates,
renewing, compromising or otherwise amending the terms of any documents
affecting the Senior Debt and any collateral securing the Senior Debt, and
enforcing or failing to enforce any rights against Borrower or any other
person. No such action or inaction shall impair or otherwise affect
Bank’s rights hereunder. Creditor waives the benefits, if any, of any
statutory or common law rule that may permit a subordinating creditor to assert
any defenses of a surety or guarantor, or that may give the subordinating
creditor the right to require a senior creditor to marshal assets, and Creditor
agrees that it shall not assert any such defenses or rights.
11. This
Agreement shall bind any successors or assignees of Creditor and shall benefit
any successors or assigns of Bank. This Agreement shall remain
effective until the first to occur of (a) termination in writing by Bank, or (b)
such time as when (i) the Senior Debt is fully paid in cash, (ii) Bank has no
commitment or obligation to lend any further funds to Borrower, and (iii) all
financing agreements between Bank and Borrower are terminated. This Agreement is
solely for the benefit of Creditor and Bank and not for the benefit of Borrower
or any other party. Creditor further agrees that if Borrower is in
the process of refinancing any portion of the Senior Debt with a new lender, and
if Bank makes a request of Creditor, Creditor shall agree to enter into a new
subordination agreement with the new lender on substantially the terms and
conditions of this Agreement.
12. Creditor
hereby agrees to execute such documents and/or take such further action as Bank
may at any time or times reasonably request in order to carry out the provisions
and intent of this Agreement, including, without limitation, ratifications and
confirmations of this Agreement from time to time hereafter, as and when
requested by Bank.
13. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one
instrument.
14. This
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to conflicts of laws
principles. Creditor and Bank submit to the exclusive jurisdiction of
the state and federal courts located in Boston, Massachusetts, in any action,
suit, or proceeding of any kind, against it which arises out of or by reason of
this Agreement; provided, however, that if for any reason Bank cannot avail
itself of the Courts of the Commonwealth of Massachusetts, Creditor accepts
jurisdiction of the Courts and venue in Santa Xxxxx County,
California. CREDITOR AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
15. This
Agreement represents the entire agreement with respect to the subject matter
hereof, and supersedes all prior negotiations, agreements and
commitments. Creditor is not relying on any representations by Bank
or Borrower in entering into this Agreement, and Creditor has kept and will
continue to keep itself fully apprised of the financial and other condition of
Borrower. This Agreement may be amended only by written instrument
signed by Creditor and Bank.
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
“Creditor” “Bank”
SILICON VALLEY BANK
____________________________________________
Xxxx
Xxxxxxxxx
By:________________________________________
Title:_______________________________________
____________________________________________
Xxxxxxx Xxxxxx
Xxxxxxx Xxxxxx
____________________________________________
Xxxxx Xxxxx
Xxxxx Xxxxx
____________________________________________
Xxxxxxxxx Xxxxxxxxx
Xxxxxxxxx Xxxxxxxxx
____________________________________________
Xxxxx Xxxxx
Xxxxx Xxxxx
The
undersigned approves of the terms of this Agreement.
“Borrower”
BRAINTECH,
INC.
By:_________________________________________
Title:________________________________________
BRAINTECH
INDUSTRIAL, INC.
By:_________________________________________
Title:________________________________________
BRAINTECH
GOVERNMENT & DEFENSE, INC.
By:_________________________________________
Title:________________________________________
