SUBORDINATION AGREEMENT
Exhibit
10.3
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BORROWER:
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microHelix,
Inc.
0000
Xxxxxxx Xxxx, Xxxxx 000
Xxxx
Xxxxxx, XX 00000
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LENDER:
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Aequitas
Commercial Finance, LLC
0000
Xxxxxxx Xxxx, Xxxxx 000
Xxxx
Xxxxxx, XX 00000
Telephone:
(000) 000-0000
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CREDITOR:
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Aequitas
Capital Management, Inc.
0000
Xxxxxxx Xxxx, Xxxxx 000
Xxxx
Xxxxxx, XX 00000
MH
Financial Associates, LLC
0000
Xxxxxxx Xxxx, Xxxxx 000
Xxxx
Xxxxxx, XX 00000
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1. THIS SUBORDINATION AGREEMENT dated
January 15, 2010, is made and executed among microHelix, Inc. ("Borrower"),
Aequitas Commercial Finance, LLC ("Lender"), Aequitas Capital Management, Inc.
and MH Financial Associates, LLC. Aequitas Capital Management, Inc.
and MH Financial Associates, LLC are collectively referred to herein as
“Creditor”.
2. CURRENT INDEBTEDNESS OWING TO
CREDITOR. As of the date of this Agreement, Borrower is indebted to
Aequitas Capital Management, Inc. pursuant to that certain Multiple Advance
Promissory Note dated December 31, 2008 in the original principal amount of
$300,000, as amended by that certain First Amendment to Multiple Advance
Promissory Note dated December 31, 2009 (the “ACM Note”). In
addition, Borrower is indebted to MH Financial Associates, LLC pursuant to that
certain Third Amended and Restated Promissory Note dated June 27, 2008 in the
principal amount of $977,742.96, as amended by that certain First Amendment to
Third Amended and Restated Promissory Note dated December 31, 2009 (the “MH Note”)
3. REQUESTED FINANCIAL
ACCOMMODATIONS. Creditor and Borrower each want Lender to provide
financial accommodations to Borrower in the form of (A) new credit or loan
advances, (B) an extension of time to pay or other compromises regarding all or
part of Borrower's present indebtedness to Lender, or (C) other benefits to
Borrower. Borrower and Creditor each represent and acknowledge to Lender that
Creditor will benefit as a result of these financial accommodations from Lender
to Borrower, and Creditor acknowledges receipt of valuable consideration for
entering into this Agreement. Based on the representations and
acknowledgments contained in this Agreement, Borrower and Creditor agree with
Lender as follows:
4. SUBORDINATED INDEBTEDNESS. The
words "Subordinated
Indebtedness" as used in this Agreement mean all present and future
indebtedness, obligations, liabilities, claims, rights and demands of any kind
which may be now or hereafter owing from Borrower to Creditor pursuant to the
ACM Note and the MH Note. The term "Subordinated Indebtedness" is
used in its broadest sense and includes without limitation all principal, all
interest, all costs, attorneys' fees, all sums paid for the purpose of
protecting the rights of a holder of security, and all other obligations,
secured or unsecured, of any nature whatsoever pursuant to the ACM Note, the MH
Note and any related documents including, without limitation, any security
agreements executed in connection with the ACM Note and the MH
Note.
5. SUPERIOR INDEBTEDNESS. The
words "Superior
Indebtedness" as used in this Agreement mean and include all present and
future indebtedness, obligations, liabilities, claims, rights and demands of any
kind which may be now or hereafter owing from Borrower to Lender pursuant to
that certain Promissory Note of even date herewith in the principal amount of
$500,000 evidencing a revolving credit facility provided to Borrower by Lender
(the “LOC Note”). The term
"Superior Indebtedness" is used in its broadest sense and includes without
limitation all principal, all interest, all costs, attorneys' fees, all sums
paid for the purpose of protecting Lender's rights in security (such as paying
for insurance on collateral if the owner fails to do so), and all other
obligations of Borrower to Lender under the LOC Note and the Related
Documents.
6. SUBORDINATION. All
Subordinated lndebtedness of Borrower to Creditor is and shall be subordinated
in all respects to all Superior lndebtedness of Borrower to Lender. If Creditor
holds one or more Security Interests, whether now existing or hereafter
acquired, in any of Borrower's real property or personal property, Creditor also
subordinates all Creditor's Security Interests to all Security Interests held by
Lender, whether now existing or hereafter acquired.
7. PAYMENTS TO CREDITOR. Except
with the prior written consent of Lender, Borrower will not make and Creditor
will not accept, at any time while any Superior lndebtedness is owing to Lender,
(A) any payment upon any Subordinated Indebtedness, (B) any advance, transfer or
assignment of assets to Creditor in any form whatsoever that would reduce at any
time or in any way the amount of Subordinated Indebtedness, or (C) any transfer
of any assets as security for the Subordinated Indebtedness. Creditor may not
accelerate any amounts owed to Creditor without Lender's prior written
consent.
In the
event of any distribution, division or application, whether partial or complete,
voluntary or involuntary, by operation of law or otherwise, of all or any part
of Borrower's assets, or the proceeds of Borrower's assets, in whatever form, to
creditors of Borrower or upon any indebtedness of Borrower, whether by reason of
the liquidation, dissolution or other winding-up of Borrower, or by reason of
any execution sale, receivership, insolvency or bankruptcy proceeding,
assignment for the benefit of creditors, proceedings for reorganization, or
readjustment of Borrower or Borrower's properties, then and in such event, (A)
the Superior lndebtedness shall be paid in full before any payment is made upon
the Subordinated Indebtedness, and (B) all payments and distributions, of any
kind or character and whether in cash, property or securities, which shall be
payable or deliverable upon or in respect of the Subordinated lndebtedness shall
be paid or delivered directly to Lender for application in payment of the
amounts then due on the Superior lndebtedness until the Superior lndebtedness
shall have been paid in full.
In order
that Lender may establish its right to prove claims and recover for its own
account dividends based on the Subordinated Indebtedness, Creditor does hereby
assign all its right, title and interest in such claims to Lender. Creditor
further agrees to supply such information and evidence, provide access to and
copies of such of Creditor's records as may pertain to the Subordinated
Indebtedness, and execute such instruments as may be required by Lender to
enable Lender to enforce all such claims and collect all dividends, payments or
other disbursements which may be made on account of the Subordinated
Indebtedness. For such purposes, Creditor hereby irrevocably authorizes Lender
in its discretion to make and present for or on behalf of Creditor such proofs
of claims on account of the Subordinated lndebtedness as Lender may deem
expedient and proper and to vote such claims in any such proceeding 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 Superior Indebtedness.
Should
any payment, distribution, security or proceeds thereof be received by Creditor
at any time on the Subordinated lndebtedness contrary to the terms of this
Agreement, Creditor immediately will deliver the same to Lender in precisely the
form received (except for the endorsement or assignment of Creditor if
necessary) for application on or to secure the Superior Indebtedness, whether it
is due or not due, and until so delivered the same shall be held in trust by
Creditor as property of Lender. In the event Creditor fails to make any such
endorsement or assignment, Lender, or any of its officers on behalf of Lender,
is hereby irrevocably authorized by Creditor to make the same.
8. STANDSTILL
PROVISIONS. Unless all of the Superior Indebtedness has been
paid in full and Lender has no further obligation to extend credit to Borrower,
Creditor shall not take any of the following actions without Lender’s consent
(which consent may be withheld by Lender in its sole and absolute discretion)
for a period of 6 months after Creditor provides Lender with written notice of a
default by Borrower under the agreement governing the Subordinated Indebtedness
(provided that such default is not cured during that 6-month period): (A)
accelerate the Subordinated Indebtedness, commence, prosecute, or participate in
any action, whether private, judicial, equitable, administrative, or otherwise
(including, without limitation, any bankruptcy case) against Borrower or any
assets of Borrower; provided that Creditor may file a proof of claim in a
bankruptcy or insolvency case or proceeding involving Borrower, which proof of
claim shall indicate Creditor's subordination hereunder; (B) possess any of
Borrower's assets, or enforce any security interests in, foreclose, levy, or
execute upon or collect or attach any such assets, whether by private or
judicial action or otherwise; (C) commence, or join with any creditors in
commencing (unless Lender also has joined therein), any bankruptcy case or
proceeding against Borrower; and (D) contest, protest or object to any
foreclosure proceeding, postpetition financing, use of cash collateral, or other
action brought by Lender or any other exercise by Lender of any rights and
remedies under any of the Related Documents. Creditor shall notify
Lender in writing of any default by Borrower in respect of the Subordinated
Indebtedness. Creditor acknowledges and agrees that the fact that
Creditor can take the above-described actions under the circumstances specified
in this paragraph does not entitle Creditor to receive or obtain any payments in
respect of the Subordinated Indebtedness, or to accept or obtain any assets (or
any interest therein) of Borrower, except as expressly permitted in this
Agreement.
9. CREDITOR'S NOTES. Creditor
agrees to deliver to Lender, at Lender's request, all notes of Borrower to
Creditor, or other evidence of the Subordinated Indebtedness, now held or
hereafter acquired by Creditor, while this Agreement remains in effect. At
Lender's request, Borrower also will execute and deliver to Creditor a
promissory note evidencing any book account or claim now or hereafter owed by
Borrower to Creditor, which note also shall be delivered by Creditor to Lender.
Creditor agrees not to sell, assign, pledge or otherwise transfer any of such
notes except subject to all the terms and conditions of this
Agreement.
10. CREDITOR'S REPRESENTATIONS AND
WARRANTIES. Creditor represents and warrants to Lender that: (A) no
representations or agreements of any kind have been made to Creditor which would
limit or qualify in any way the terms of this Agreement; (B) this Agreement is
executed at Borrower's request and not at the request of Lender; (C) Lender has
made no representation to Creditor as to the creditworthiness of Borrower; and
(D) Creditor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Creditor
agrees to keep adequately informed from such means of any facts, events or
circumstances which might in any way affect Creditor's risks under this
Agreement, and Creditor further agrees that Lender shall have no obligation to
disclose to Creditor information or material acquired by Lender in the course of
its relationship with Borrower.
11. CREDITOR'S WAIVERS. Creditor
waives any right to require Lender: (A) to make, extend, renew or modify any
loan to Borrower or to grant any other financial accommodations to Borrower
whatsoever; (B) to make any presentment, protest, demand or notice of any kind,
including notice of any nonpayment of the Superior lndebtedness or of any
nonpayment related to any Security Interests, or notice of any action or
nonaction on the part of Borrower, Lender, any surety, endorser or other
guarantor in connection with the Superior Indebtedness, or in connection with
the creation of new or additional Superior Indebtedness; (C) to resort for payment or
to proceed directly or at once against any person, including Borrower; (D) to
proceed directly against or exhaust any Security lnterests held by Lender from
Borrower, any other guarantor or any other person; (E) to give notice of the
terms, time and place of any public or private sale of personal property
security held by Lender from Borrower or to comply with any other applicable
provisions of the Uniform Commercial Code; (F) to pursue any other remedy within
Lender's power; or (G) to commit any act or
omission of any kind, at any time, with respect to any matter
whatsoever.
12. LENDER'S RIGHTS. Lender may
take or omit any and all actions with respect to the Superior lndebtedness or
any Security lnterests for the Superior lndebtedness without affecting
whatsoever any of Lender's rights under this Agreement. In particular, without
limitation, Lender may, without notice of any kind to Creditor, (A) make one or
more additional secured or unsecured loans to Borrower; (B) repeatedly alter,
compromise, renew, extend, accelerate, or otherwise change the time for payment
or other terms of the Superior lndebtedness or any part thereof, including
increases and decreases of the rate of interest on the Superior lndebtedness;
extensions may be repeated and may be for longer than the original loan term;
(C) take and hold Security Interests for the payment of the Superior
Indebtedness, and exchange, enforce, waive and release any such Security
Interests, with or without the substitution of new collateral; (D) release,
substitute, agree not to xxx, or deal with any one or more of Borrower's
sureties, endorsers or guarantors on any terms or manner Lender chooses;
(E) determine how,
when and what application of payments and credits shall be made on the Superior
Indebtedness; (F) apply such security and direct the order or manner of sale
thereof as Lender in its discretion may determine; and (G) assign this Agreement in
whole or in part.
13. DEFAULT BY BORROWER. If
Borrower becomes insolvent or bankrupt, this Agreement shall remain in full
force and effect. Any default by Borrower under the terms of the Subordinated
lndebtedness also shall constitute an event of default under the terms of the
Superior lndebtedness in favor of Lender.
14. DURATION AND TERMINATION. This
Agreement will take effect when received by Lender, without the necessity of any
acceptance by Lender, in writing or otherwise, and will remain in full force and
effect until Creditor shall notify Lender in writing at the address shown above
to the contrary. Any such notice shall not affect the Superior lndebtedness owed
Lender by Borrower at the time of such notice, nor shall such notice affect
Superior lndebtedness thereafter granted in compliance with a commitment made by
Lender to Borrower prior to receipt of such notice, nor shall such notice affect
any renewals of or substitutions for any of the foregoing. Such notice shall
affect only indebtedness of Borrower to Lender arising after receipt of such
notice and not arising from financial assistance granted by Lender to Borrower
in compliance with Lender's obligations under a commitment. Any notes lodged
with Lender pursuant to the section titled "Creditor's Notes" above need not be
returned until this Agreement has no further force or effect.
15. OTHER TERMS AND CONDITIONS.
The following provisions are a part of this Agreement: (A) Any payments on the
Subordinated lndebtedness received by Creditor (including without limitation
prepayments on the Subordinated Indebtedness), other than as expressly permitted
in this Agreement, shall be held in trust for Lender and Creditor will forthwith
turn over any such payments in the form received, properly endorsed, to Lender
to be applied to the Superior lndebtedness as determined by Lender. (B) Creditor
agrees that Creditor will not make any assertion or claim in any action or
proceeding of any nature in any way challenging the priority, validity or
effectiveness of the liens and security interests granted to Lender under and in
connection with the Superior Indebtedness, or any amendment, extension or
replacement thereof, or any related instrument, document or agreement among
Lender and Borrower. (C) Creditor will not commence any action or proceeding
against Borrower to recover all or any part of the Subordinated lndebtedness not
paid when due, and shall at no time join with any creditor in bringing any
proceeding against Borrower under any liquidation, conservatorship, bankruptcy,
reorganization, rearrangement or other insolvency law now or hereafter existing,
unless and until the Superior lndebtedness shall have been paid in full.
Notwithstanding the foregoing, Creditor may accelerate the amount of the
Subordinated Indebtedness upon the occurrence of: (a) the acceleration of all
the Superior Indebtedness; and (b) the filing of a petition under the federal
Bankruptcy Code by Borrower. (D) In the event of any liquidation,
conservatorship, bankruptcy, reorganization, rearrangement or other insolvency
proceeding of Borrower, Creditor will at Lender's request file any claims,
proofs of claim or other instruments of similar character necessary to enforce
the obligations of Borrower in respect of the Subordinated Indebtedness, and
will hold in trust for Lender and pay over to Lender in the same form received,
to be applied on the Superior lndebtedness as determined by Lender, any and all
money, dividends or other assets received in any such proceedings on account of
the Subordinated Indebtedness, unless and until the Superior lndebtedness shall
be paid in full, including without limitation interest owing to Lender after the
commencement of a bankruptcy proceeding at the rate specified in Lender's loan
documents, whether or not such interest is an allowable claim in any such
proceeding. Lender may, as attorney-in-fact for Creditor, take such action on
behalf of Creditor and Creditor hereby appoints Lender as attorney-in-fact for
Creditor, coupled with an interest, to demand, xxx for, collect and receive any
and all such money, dividends or other assets and give acquittance therefor and
to file any claim, proof of claim or other instrument of similar character and
to take such other proceedings in Lender's name or in the name of Creditor, as
Lender may deem necessary or advisable for the enforcement of this Agreement.
Creditor will execute and deliver to Lender such other and further powers of
attorney or other instruments as either reasonably may request in order to
accomplish the foregoing.
16. DEFINITIONS. The following
capitalized words and terms shall have the following meanings when used in this
Agreement. Unless specifically stated to the contrary, all references to dollar
amounts shall mean amounts in lawful money of the United States of America.
Words and terms used in the singular shall include the plural, and the plural
shall include the singular, as the context may require. Words and terms not
otherwise defined in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code:
(a) Agreement. The word
"Agreement" means this Subordination Agreement, as this Subordination Agreement
may be amended or modified from time to time, together with all exhibits and
schedules attached to this Subordination Agreement from time to
time.
(b) Borrower. The word "Borrower"
means the person(s) shown as Borrower on the first page of this Agreement and
includes all co-signers and co-makers signing the LOC Note.
(c) Indebtedness. The word
"lndebtedness" means the indebtedness evidenced by the LOC Note or Related
Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Borrower is responsible under this
Agreement or under any of the Related Documents.
(d) LOC Note. The words
“LOC Note” means each promissory note executed and delivered by Borrower to
Lender to evidence the Superior Indebtedness, together with all renewals of,
extensions of, modifications of, refinancings of, consolidations of, and
substitutions for each note.
(e) Related Documents. The words
"Related Documents" mean all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, security deeds, collateral mortgages, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Superior Indebtedness.
(f) Security Interest. The words
"Security Interest" mean, without limitation, any and all types of collateral
security, present and future, whether in the form of a lien, charge,
encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop
pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's
lien, equipment trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or any other
security or lien interest whatsoever whether created by law, contract or
otherwise.
(g) Subordinated Indebtedness. The
words "Subordinated Indebtedness" mean the indebtedness described in the section
of this Agreement titled "Subordinated Indebtedness".
(h) Superior Indebtedness. The
words "Superior Indebtedness" mean the indebtedness described in the section of
this Agreement titled "Superior Indebtedness".
17. MISCELLANEOUS PROVISIONS. The
following miscellaneous provisions are a part of this Agreement:
(a) Amendments. This Agreement,
together with any Related Documents, constitutes the entire understanding and
agreement of the parties as to the matters set forth in this Agreement. No
alteration of or amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or bound by the
alteration or amendment.
(b) Attorneys' Fees; Expenses.
Creditor agrees to pay upon demand all of Lender's costs and expenses, including
Lender's attorneys' fees and Lender's legal expenses, incurred in connection
with the enforcement of this Agreement. Lender may hire or pay someone else to
help enforce this Agreement, and Creditor shall pay the costs and expenses of
such enforcement. Costs and expenses include Lender's attorneys' fees and legal
expenses whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals and any anticipated post-judgment
collection services. Creditor also shall pay all court costs and such additional
fees as may be directed by the court.
(c) Authority. The person who
signs this Agreement as or on behalf of Creditor represents and warrants that he
or she has authority to execute this Agreement and to subordinate the
Subordinated lndebtedness and Creditor's Security Interests in Creditor's
property, if any.
(d) Caption Headings. Caption
headings in this Agreement are for convenience purposes only and are not to be
used to interpret or define the provisions of this Agreement.
(e) Governing Law; Choice of Venue.
This Agreement will be governed by, construed and enforced in accordance
with the laws of the State of Oregon. This Agreement has been accepted by Lender
in the State of Oregon. If there is a lawsuit in connection with any
dispute arising out of or related to this Agreement, Creditor agrees to submit
to the jurisdiction of the courts located in Portland, Oregon and waives any
objections that such venue is an inconvenient forum.
(f) Interpretation. In all cases
where there is more than one Creditor, then all words used in this Agreement in
the singular shall be deemed to have been used in the plural where the context
and construction so require; and where there is more than one Creditor named in
this Agreement or when this Agreement is executed by more than one, the words
"Creditor" shall mean all and any one or more of them. Reference to
the phrase "Creditor" includes the heirs, successors, assigns and transferees of
each of them.
(g) Successors and Assigns. This
Agreement shall be understood to be for the benefit of Lender and for such other
person or persons as may from time to time become or be the holder or owner of
any of the lndebtedness or any interest therein, and this Agreement shall be
transferable to the same extent and with the same force and effect as any such
lndebtedness may be transferable.
(h) No Waiver by Lender. Lender
shall not be deemed to have waived any rights under this Agreement unless such
waiver is given in writing and signed by Lender. No delay or omission on the
part of Lender in exercising any right shall operate as a waiver of such right
or any other right. A waiver by Lender of a provision of this Agreement shall
not prejudice or constitute a waiver of Lender's right otherwise to demand
strict compliance with that provision or any other provision of this Agreement.
No prior waiver by Lender, nor any course of dealing between Lender and
Creditor, shall constitute a waiver of any of Lender's rights or of any of
Creditor's obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER
AND CREDITOR EACH ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
SUBORDINATION AGREEMENT, AND BORROWER AND CREDITOR EACH AGREE TO ITS
TERMS.
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BORROWER:
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microHELIX,
INC.
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By:
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/s/ Xxxxxx X. Xxxxxx
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Xxxxxx
X. Xxxxxx, President
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CREDITOR:
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AEQUITAS
CAPITAL MANAGEMENT, INC.
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By:
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/s/Xxxxxx X. XxxXxxxxxx
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Xxxxxx
X. XxxXxxxxxx
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Executive
Vice President
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MH
FINANCIAL ASSOCIATES, LLC
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By:
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Aequitas Capital Management, Inc., its Manager | |
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By:
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/s/Xxxxxx X. XxxXxxxxxx
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Xxxxxx
X. XxxXxxxxxx
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Executive
Vice President
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Page 5 of
5 – SUBORDINATION AGREEMENT
