SUBORDINATION AGREEMENT
Exhibit 4.3
This
Subordination Agreement (this “Agreement”) is made as
of March 28, 2018 by and between SHSP Holdings, Inc., a Delaware
limited liability company (“Creditor”) and Western
Alliance Bank (“Bank”).
Recitals
A. SHARPSPRING,
INC. (“SharpSpring”), SHARPSPRING TECHNOLOGIES, INC.
and QUATTRO HOSTING LLC (individually and collectively,
“Borrower”) has requested and/or obtained certain loans
or other credit accommodations from Bank which are or may be from
time to time secured by assets and property of
Borrower.
B. Creditor
has made a loan to Borrower evidenced by that certain Convertible
Promissory Note dated as of March ___, 2018 issued by SharpSpring
to Creditor (the “Convertible Note” and, together with
all PIK Notes, as such term is defined in the in Convertible Note
in effect on the date hereof, issued as provided in the Convertible
Note, the “Convertible Notes”) pursuant to that certain
Convertible Note Purchase Agreement between SharpSpring and
Creditor dated as of March __, 2018 (the “Note Purchase
Agreement, and together with the Convertible Notes, the
“Subordinated Debt Documents”).
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 extend credit upon any instrument or
writing in respect of which Borrower may be liable in any capacity,
or to grant such renewals or extensions of any such loan, extension
of credit, or other accommodation as Bank may deem advisable,
Creditor is willing to subordinate: (i) all of
Borrower’s indebtedness to Creditor under the Subordinated
Debt Documents, whether presently existing or arising in the future
(the “Subordinated Debt”) to all of Borrower’s
indebtedness and obligations to Bank (including, without
limitation, principal, premium (if any), interest, fees, charges,
expenses, costs, professional fees and expenses, and reimbursement
obligations); and (ii) all of Creditor’s security
interests, if any, to all of Bank’s security interests in the
property of Borrower.
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 accounts, including health care
receivables, chattel paper, general intangibles, inventory,
equipment, instruments, including promissory notes, deposit
accounts, investment property, documents, letter of credit rights,
any commercial tort claim of Borrower which is now or hereafter
identified by Borrower or Bank, and other property of the Borrower
(the "Collateral"), shall at all times be prior to any security
interest of Creditor.
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 (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 until such time
as (i) the Senior Debt is fully paid (other than contingent
indemnification and cost reimbursement obligations for which a
claim has not been made) in cash, (ii) all of Bank’s
obligations owing to Borrower (including any commitment or
obligation to lend any further funds to Borrower) have been
terminated, and (iii) all financing agreements between Bank and
Borrower are terminated (other than provisions relating to
contingent indemnification and cost reimbursement obligations which
expressly survive termination of the Senior Debt) (collectively,
the “Termination of the Senior Debt”).
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4. Until
the Termination of the Senior Debt, Creditor shall not exercise any
remedy with respect to any Collateral or any other collateral
securing the Subordinated Debt, nor shall Creditor commence, or
cause to commence, prosecute or participate in any administrative,
legal or equitable action against Borrower to collect the
Subordinated Debt. The foregoing notwithstanding, neither the
foregoing restrictions nor any other provision contained in this
Agreement shall restrict or limit in any way: (i) the issuance of
the PIK Notes, (ii) the conversion of all or any portion of the
Subordinated Debt into equity securities of Borrower pursuant to
the terms of the Subordinated Debt (subject to the last sentence of
this Section), (iii) any rights with respect to any equity
securities of Borrower issued upon conversion of the Subordinated
Debt (subject to the last sentence of this Section), (iv) the
acceleration of the Subordinated Debt upon the acceleration of the
Senior Debt or the commencement of any proceeding identified in
Section 6 below (but subject to the restrictions of Section 3 of
this Agreement), or (v) Creditor’s ability to commence,
prosecute or participate in any administrative, legal or equitable
action solely with respect to seeking specific performance to
compel Borrower to convert the Subordinated Debt into equity
securities of Borrower. Creditor acknowledges that the Senior Debt
documents provide certain restrictions on Borrower’s ability
to declare, pay or make dividends, distributions or other payments
on such equity securities of Borrower or otherwise pay any money or
deliver any other securities or consideration to the holder of such
equity securities, and Creditor shall not receive any dividends,
distributions or other payments that are made in cash on such
equity securities received from the conversion of the Convertible
Notes except to the extent permitted by the terms of the Senior
Debt documents.
5. 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 cash payment, distribution,
security or proceeds received by Creditor with respect to the
Subordinated Debt other than in accordance with this
Agreement.
6. 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 cash
payment is made to Creditor. For the avoidance of any doubt, Senior
Debt includes, without limitation, any of Bank's claims against
Borrower and the estate of Borrower arising from the granting of
credit under Section 364 or the use of cash collateral under
Section 363 of the United States Bankruptcy Code, and Creditor
agrees that it will raise no objection thereto.
7. Until
the Termination of the Senior Debt, Creditor agrees that it will
not object to or oppose (i) the sale of the Borrower, or (ii) the
sale or other disposition of any property of the Borrower, if Bank
has consented to such sale of the Borrower or sale or disposition
of any property of the Borrower. If requested by Bank, Creditor
shall affirmatively consent to such sale or disposition and shall
take all necessary actions and execute such documents and
instruments as Bank may reasonably request in connection with and
to facilitate such sale or disposition. 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. 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 (other than contingent
indemnification and cost reimbursement claims for which a claim has
not been made) 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.
8. Until
Termination of the Senior Debt, 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 15 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.
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9. 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. 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 might
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. Without limiting the
foregoing, 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, except, in either such case, to
the extent any such principal or interest is paid only through the
issuance of PIK Notes or equity securities of
Borrower.
10. This
Agreement shall remain effective for so long as Bank has any
obligation to make credit extensions to Borrower or Borrower owes
any amounts to Bank. 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 with respect
to the Senior Debt and the Collateral as Bank, in its sole
discretion, may deem appropriate, including, without limitation,
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,
judicial foreclosure, nonjudicial foreclosure, exercise of a power
of sale, and taking a deed, assignment or transfer in lieu of
foreclosure as to any of the Collateral, 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 agrees not to assert against Bank (a)
any rights which a guarantor or surety could exercise; but nothing
in this Agreement shall constitute Creditor as a guarantor or
surety; (b) the right, if any, to require Bank to marshal or
otherwise require Bank to proceed to dispose of or foreclose upon
any of the Collateral in any manner or order; and (c) any right of
subrogation, contribution, reimbursement, or indemnity which it may
have against Borrower arising directly or indirectly out of this
Agreement. Creditor waives the benefits, if any, of California
Civil Code Sections 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821,
2822, 2839, 2845, 2847, 2848, 2849, 2850, 2899 and 3433. Pursuant
to Section 2856 of the California Civil Code, Creditor waives all
rights and defenses that Creditor may have because the Senior Debt
may be secured by real property. These rights and defenses include,
but are not limited to, any rights or defenses based upon Section
580a, 580b, 580d, or 726 of the California Code of Civil
Procedure.
11. All
necessary action on the part of Creditor, its officers, directors,
partners, members and shareholders, as applicable, necessary for
the authorization of this Agreement and the performance of all
obligations of Creditor hereunder has been taken. This Agreement
constitutes the legal, valid and binding obligation of Creditor,
enforceable against Creditor in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of
creditors’ rights generally or by equitable principles
relating to enforceability. The execution, delivery and performance
of and compliance with this Agreement by Creditor will not (i)
result in any material violation or default of any term of any of
Creditor’s formation or operating agreement or (ii) violate
any material applicable law, rule or regulation.
12. This
Agreement shall bind any successors or assignees of Creditor and
shall benefit any successors or assigns of Bank. 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 a 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.
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13. This
Agreement shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to conflicts
of laws principles. Creditor and Bank submit to the exclusive
jurisdiction of the state and federal courts located 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.
14. Reference
Provision.
a. In
the event the jury trial waiver set forth above is not enforceable,
the parties elect to proceed under this judicial reference
provision.
b. With
the exception of the items specified in the subsection (c) below,
any controversy, dispute or claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement or
any other document, instrument or agreement between the undersigned
parties (collectively in this Section, the “Loan
Documents”), will be resolved by a reference proceeding in
California in accordance with the provisions of Sections 638 et
seq. of the California Code of Civil Procedure (“CCP”),
or their successor sections, which shall constitute the exclusive
remedy for the resolution of any Claim, including whether the Claim
is subject to the reference proceeding. Except as otherwise
provided in the Loan Documents, venue for the reference proceeding
will be in the state or federal court in the county or district
where the real property involved in the action, if any, is located
or in the state or federal court in the county or district where
venue is otherwise appropriate under applicable law (the
“Court”).
c. The
matters that shall not be subject to a reference are the following:
(i) nonjudicial foreclosure of any security interests in real or
personal property, (ii) exercise of self-help remedies (including,
without limitation, set-off), (iii) appointment of a receiver and
(iv) temporary, provisional or ancillary remedies (including,
without limitation, writs of attachment, writs of possession,
temporary restraining orders or preliminary injunctions). This
reference provision does not limit the right of any party to
exercise or oppose any of the rights and remedies described in
clauses (i) and (ii) or to seek or oppose from a court of competent
jurisdiction any of the items described in clauses (iii) and (iv).
The exercise of, or opposition to, any of those items does not
waive the right of any party to a reference pursuant to this
reference provision as provided herein.
d. The
referee shall be a retired judge or justice selected by mutual
written agreement of the parties. If the parties do not agree
within ten (10) days of a written request to do so by any party,
then, upon request of any party, the referee shall be selected by
the Presiding Judge of the Court (or his or her representative). A
request for appointment of a referee may be heard on an ex parte or
expedited basis, and the parties agree that irreparable harm would
result if ex parte relief is not granted. Pursuant to CCP §
170.6, each party shall have one peremptory challenge to the
referee selected by the Presiding Judge of the Court (or his or her
representative).
e. The
parties agree that time is of the essence in conducting the
reference proceedings. Accordingly, the referee shall be requested,
subject to change in the time periods specified herein for good
cause shown, to (i) set the matter for a status and trial-setting
conference within fifteen (15) days after the date of selection of
the referee, (ii) if practicable, try all issues of law or fact
within one hundred twenty (120) days after the date of the
conference and (iii) report a statement of decision within twenty
(20) days after the matter has been submitted for
decision.
f. The
referee will have power to expand or limit the amount and duration
of discovery. The referee may set or extend discovery deadlines or
cutoffs for good cause, including a party’s failure to
provide requested discovery for any reason whatsoever. Unless
otherwise ordered based upon good cause shown, no party shall be
entitled to “priority” in conducting discovery,
depositions may be taken by either party upon seven (7) days
written notice, and all other discovery shall be responded to
within fifteen (15) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be
submitted to the referee whose decision shall be final and
binding.
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g. Except
as expressly set forth herein, the referee shall determine the
manner in which the reference proceeding is conducted including the
time and place of hearings, the order of presentation of evidence,
and all other questions that arise with respect to the course of
the reference proceeding. All proceedings and hearings conducted
before the referee, except for trial, shall be conducted without a
court reporter, except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee,
and the referee will be provided a courtesy copy of the transcript.
The party making such a request shall have the obligation to
arrange for and pay the court reporter. Subject to the
referee’s power to award costs to the prevailing party, the
parties will equally share the cost of the referee and the court
reporter at trial.
h. The
referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law
in the State of California will be applicable to the reference
proceeding. The referee shall be empowered to enter equitable as
well as legal relief, enter equitable orders that will be binding
on the parties and rule on any motion which would be authorized in
a court proceeding, including without limitation motions for
summary judgment or summary adjudication. The referee shall issue a
decision at the close of the reference proceeding which disposes of
all claims of the parties that are the subject of the reference.
Pursuant to CCP § 644, such decision shall be entered by the
Court as a judgment or an order in the same manner as if the action
had been tried by the Court and any such decision will be final,
binding and conclusive. The parties reserve the right to appeal
from the final judgment or order or from any appealable decision or
order entered by the referee. The parties reserve the right to
findings of fact, conclusions of laws, a written statement of
decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
i. If
the enabling legislation which provides for appointment of a
referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by
reference procedure will be resolved and determined by arbitration.
The arbitration will be conducted by a retired judge or justice, in
accordance with the California Arbitration Act §1280 through
§1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery set forth above shall apply
to any such arbitration proceeding.
j. THE
PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND
CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A
REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE,
EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF
ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY
CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF
OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS.
15. This
Agreement may be amended only by written instrument signed by
Creditor and Bank.
16. 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. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a
“.pdf” format data file, such signature shall create a
valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect
as if such facsimile or “.pdf” signature page were an
original thereof.
17. 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.
18. In
the event of any legal action to enforce the rights of a party
under this Agreement, the party prevailing in such action shall be
entitled, in addition to such other relief as may be granted, all
reasonable costs and expenses, including reasonable
attorneys’ fees, incurred in such action.
[signature pages follow]
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In Witness
Whereof, the undersigned have executed this Agreement as of
the date first above written.
“Bank”
Western
Alliance Bank
By: /s/
Name:
Title:
Address
for Notices:
Attn:
Note Department
00
Xxxxxxx Xxxx.
Xxx
Xxxx, XX 00000
FAX:
(000) 000-0000
In Witness
Whereof, the undersigned have executed this Agreement as of
the date first above written.
“Creditor”
SHSP
HOLDINGS, LLC,
a
Delaware limited liability company
By:
/s/
Name:
Title:
Address
for Notices:
000 Xxxx Xxxxxx Xxxxx
Xxxxx 00000
Xxx Xxxx, Xxx Xxxx 00000
The
undersigned acknowledge and agree to the terms of this
Agreement.
“Borrower”
By:
/s/
Name:
Title:
SHARPSPRING
TECHNOLOGIES, INC.
By:
/s/
Name:
Title:
QUATTRO
HOSTING LLC
By:
/s/
Name:
Title:
