Exhibit 10.5
SUBORDINATION AGREEMENT
This SUBORDINATION AGREEMENT ("Agreement"), is made as of August
14, 2002, by the undersigned (the "Subordinated Lender") in favor of the lender
that is a signatory hereto (the "Senior Lender").
RECITALS
A. The Senior Lender and Peregrine/Bridge Transfer Corporation
(the "Maker") have entered into two promissory notes (the "Notes") and a related
security agreement (the "Security Agreement"), each of which is dated the date
hereof.
B. As a condition precedent to the Notes, the Subordinated
Lender must enter into this agreement and subordinate its outstanding loans to
the Maker to the debt owed to the Senior Lender by the Maker under the Notes.
AGREEMENT
NOW THEREFORE, in consideration of the premises and as an
inducement to the Senior Lender to grant financial accommodations to the Maker,
and in consideration of the granting thereof, the parties hereby agree as
follows:
1. (a) As used in this Agreement, the following terms have the
following respective meanings:
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of voting stock, by contract or
otherwise.
"Senior Debt" means all obligations of the Maker to the Senior
Lender arising under the Notes, as amended, modified or supplemented from time
to time, whether now existing or hereafter arising, whether for principal,
interest, fees, expenses or otherwise, together with all renewals, extensions or
rearrangements thereof.
"Subordinated Debt" means all obligations of the Maker to the
Subordinated Lender, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising.
"Notes" means that certain promissory note between Senior Lender
and Maker in the aggregate principal amount of $3,584,028 dated of even date
herewith and that certain convertible promissory note between Senior Lender and
Maker in the aggregate principal amount of $3,000,000 dated of even date
herewith.
(b) Any capitalized term used herein and not defined herein shall
have the meaning attributed to such term in the Security Agreement.
2. Until all Senior Debt shall have been indefeasibly paid in
full:
(a) The Subordinated Lender acknowledges and agrees that,
notwithstanding anything to the contrary in any instrument governing the
Subordinated Debt, the Subordinated Debt is subordinated, to the extent and in
the manner set forth herein, to the Senior Debt.
(b) The Subordinated Lender shall not receive (and if
involuntarily received, shall hold in trust for the holders of Senior Debt and
promptly pay over to the Senior Lender) any payment from the Maker on account of
the Subordinated Debt (directly or indirectly, by way of setoff or otherwise),
or any collateral in respect thereof, provided that the Subordinated Lender may
receive payments of interest on account of the Subordinated Debt in accordance
with the terms of the relevant governing agreement, if, and to the extent that,
amounts are available; and
(c) The Subordinated Lender shall not otherwise take any action
prejudicial to or inconsistent with the Senior Lender's priority position over
the Subordinated Lender created by this Agreement.
3. Each instrument evidencing Subordinated Debt shall bear a
legend providing that payment of fees, principal and interest thereon has been
subordinated to prior payment of the Senior Debt in the manner and to the extent
set forth in this Agreement, and a copy of this Agreement shall be attached to
each such instrument.
4. (a) So long as any of the Senior Debt shall not have been
indefeasibly paid in full, the Subordinated Lender shall not commence, or join
with or assist any other creditor or creditors of the Maker in commencing, or
permit any Person that it directly or indirectly controls to commence or join
with or assist any other Person in commencing, any bankruptcy, reorganization or
insolvency proceedings against the Maker. At any general meeting of creditors of
the Maker or in the event of any proceeding, voluntary or involuntary, for the
distribution, division or application of all or part of the assets of the Maker
or the proceeds thereof, whether such proceeding be for the liquidation,
dissolution or winding up of the Maker or its business, receivership, insolvency
or bankruptcy proceeding, an assignment for the benefit or creditors or
proceeding by or against the Maker for position or extension or otherwise, if
all Senior Debt has not been indefeasibly paid in full at the time, the Senior
Lender is hereby irrevocably authorized at any such meeting or in any such
proceeding:
(i) To enforce claims comprising Subordinated Debt in the
name of the Subordinated Lender, by proof of debt, proof of claim, suit or
otherwise;
(ii) To collect any assets of the Maker distributed,
divided or applied by way of dividend or payment, or securities issued, on
account of Subordinated Debt and apply the same, or the proceeds of any
realization upon the same that the Senior Lender in its discretion elects to
effect, to Senior Debt until all Senior Debt shall have been paid in full in
accordance with the terms of the Notes (the Senior Lender hereby agreeing to
render any surplus to the Subordinated Lender and/or other subordinated
creditors, as their interests appear, or to interplead such surplus with a court
of competent jurisdiction);
(iii) To vote claims comprising Subordinated Debt to accept
or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension; and
(iv) To take generally any action in connection with any
such meeting or proceeding that the Subordinated Lender might otherwise take.
(b) After the commencement of any such bankruptcy, insolvency or
reorganization proceeding, the Subordinated Lender may inquire in writing
whether the Senior Lender intends to
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exercise the foregoing rights with respect to the Subordinated Debt. Should the
Senior Lender fail, within a reasonable time after receipt of such inquiry,
either to file a proof of claim with respect to the Subordinated Debt and to
furnish a copy thereof to the Subordinated Lender, or to inform the Subordinated
Lender in writing that the Senior Lender intends to exercise its rights to
assert the Subordinated Debt in the manner hereinabove provided, the
Subordinated Lender may, but shall not be required to, proceed to file a proof
of claim with respect to the Subordinated Debt and take such further steps with
respect thereto, not inconsistent with this Agreement, as the Subordinated
Lender may deem proper.
5. Should any payment on account of, or any collateral for any
part of, the Subordinated Debt be received by the Subordinated Lender or an
Affiliate of the Subordinated Lender in violation of this Agreement, such
payment or collateral shall be delivered forthwith to the Senior Lender by the
Subordinated Lender or such Affiliate for application to the Senior Debt. The
Senior Lender is irrevocably authorized to supply any required endorsement or
assignment that may have been omitted. Until so delivered, any such payment or
collateral shall be held by the Subordinated Lender or such Affiliate in trust
for the Senior Lenders and shall not be commingled with other funds or property
of the Subordinated Lender or such Affiliate.
6. The Subordinated Lender represents and warrants that it is
the lawful owner of the Subordinated Debt and no part thereof has been assigned
to or subordinated or subjected to any other security interest in favor of
anyone other than the Senior Lender. The Subordinated Lender may not assign all
or any portion of the Subordinated Debt without the prior written consent of the
Senior Lender and only upon the execution and delivery to the Senior Lender of
an agreement by any such assignee to be bound by the terms of this Agreement
(including provisions relating to assignment), in form and substance reasonably
satisfactory to the Senior Lender.
7. The Senior Lender is hereby authorized to demand specific
performance of this Agreement at any time when the Subordinated Lender shall
have failed to comply with any provision hereof. The Subordinated Lender hereby
irrevocably waives any defense based on the adequacy of a remedy at law that
might be asserted as a bar to the remedy of specific performance hereof in any
action brought therefor by the Senior Lender. The Subordinated Lender further
waives presentment, notice and protest in connection with all negotiable
instruments evidencing Senior Debt or Subordinated Debt to which the
Subordinated Lender may be a party, notice of the acceptance of this Agreement
by the Senior Lender, notice of any loan made, extension granted or other action
taken in reliance hereon, and all demands and notices of every kind in
connection with this Agreement, Senior Debt or time of payment of Senior Debt or
Subordinated Debt, hereby assents to any renewal, extension or postponement of
the time of payment of Senior Debt or any other indulgence with respect thereto,
to any increase in the amount of the Senior Debt, to any substitution, exchange
or release of collateral therefor and to the addition or release of any person
primarily or secondarily liable thereon, and assents to the provisions of any
instrument, security or other writing evidencing Senior Debt, and any amendment
or modification to the documentation evidencing or executed and delivered in
connection with the Senior Debt.
8. The Subordinated Lender shall not amend or modify the
relevant governing agreements or any other documentation delivered in connection
with or related to the Subordinated Debt if such amendment or modification would
have, or could reasonably be expected to have, an adverse effect on the Senior
Lender or other obligations arising under the Senior Debt. Without the prior
written consent of the Subordinated Lender, the Senior Debt shall not include,
and the Notes and the other documentation delivered in connection therewith
shall not be amended, modified or supplemented to cause, any increase after the
date hereof in the principal amount of the loans issued pursuant to the Notes or
any interest or fees to be payable on or in connection with (i) any increase in
the principal amount of
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such Notes or (ii) any amendment, modification or supplement of the Notes which
increases the interest rate or fees payable in respect of such Notes.
9. The Subordinated Lender shall execute and deliver to the
Senior Lender such further instruments and shall take such further action as may
be necessary or as the Senior Lender may at any time or times reasonably request
in order to carry out the provisions and intent of this Agreement.
10. The rights granted to the Senior Lender hereunder are solely
for their protection and nothing herein contained shall impose on the Senior
Lender any duties with respect to any property of the Maker or the Subordinated
Lender received hereunder. The Senior Lender shall have no duty to preserve
rights against prior parties in any property of any kind received hereunder.
11. Nothing contained in this Agreement is intended to or shall
impair, as between the Maker, its creditors other than the Senior Lender and the
Subordinated Lender, the obligation of the Maker to pay to the Subordinated
Lender the fees, principal of and the interest on the Subordinated Debt as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the Subordinated Lender and creditors of the Maker
other than the Senior Lender. It is intended that there be no third party
beneficiaries of this Agreement, including, without limitation, the Maker.
12. No failure or delay by the Senior Lender in exercising any
right, power or privilege hereunder or under the Notes or the Security Agreement
shall operate as a waiver of any provision hereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
13. The obligations of the Subordinated Lender under this
Agreement shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Debt, or any other payment
to any holder of any Senior Debt in its capacity as such, is rescinded or must
otherwise be restored or returned by the holder of such Senior Debt upon the
occurrence of any bankruptcy proceeding, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Maker or any substantial part of its property, or otherwise,
all as though such payment had not been made.
14. This Agreement shall remain in full force and effect as
between the Subordinated Lender and the Senior Lender notwithstanding the
occurrence of any bankruptcy proceeding affecting the Maker.
15. Any provision of this Agreement may be amended or waived
only by written instrument signed by the Senior Lender and the Subordinated
Lender.
16. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
agreement. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart signed by each of the parties
hereto.
17. This Agreement shall be binding upon the Senior Lender, the
Subordinated Lender, and their respective successors and assigns, and shall
inure to the benefit of the Senior Lender, the Subordinated Lender and their
respective successors and assigns. This Agreement shall be governed by the laws
of the State of Texas without giving effect to any conflicts of law provisions
that might cause this Agreement to be governed by or construed or enforced in
accordance with the laws of any other jurisdiction.
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18. EACH OF THE SUBORDINATED CREDITOR AND THE SENIOR CREDITOR
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES
HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SENIOR CREDITOR TO ENTER
INTO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this
Subordination Agreement to be duly executed as of the date first above written.
SKUNKWARE, INC., as Subordinated Lender
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
Date:
NEON SYSTEMS, INC., as Senior Lender
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
Date:__________________________________________
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