SUBORDINATION AGREEMENT
Exhibit 10.15
This Subordination Agreement (this “Agreement”) is entered into as of the
31st day of August, 2007, by and among Applied Digital Solutions, Inc., a Delaware
corporation (the “Subordinated Lender”), Xxxxxxx Corporation, a Delaware corporation
(“Xxxxxxx”), Valens Offshore SPV II, Corp., a Delaware corporation (“SPV II”), and
Valens U.S. SPV I, LLC, a Delaware limited liability company (“SPV I” and, together with
Xxxxxxx and SPV II, the “Senior Lenders” and each, a “Senior Lender”). Unless
otherwise defined herein, capitalized terms used herein shall have the meaning provided such terms
in the Xxxxxxx Note referred to below.
BACKGROUND
WHEREAS, Senior Lenders have agreed to make that certain loan in the aggregate amount of $6.0
million to Digital Angel Corporation (the “Company”), which loan is subject to the terms
and conditions described in, and evidenced by, that certain Secured Revolving Note dated as of
August 31, 2007 (the “Xxxxxxx Note”). In connection therewith, Company has granted Senior
Lenders a security interest in all of Company’s now owned or hereafter acquired assets (the
“Collateral”).
WHEREAS, Subordinated Lender has agreed to make that certain loan in the aggregate amount of
$7.0 million to Company, which loan is subject to the terms and conditions described in, and
evidenced by, that certain Secured Term Note dated as of August 31, 2007. In connection therewith,
Company has granted Subordinated Lender a security interest in the Collateral.
WHEREAS, Senior Lenders and Subordinated Lender desire to enter into this Agreement by which
the parties shall establish certain of their respective rights, priorities and duties as respects
the Collateral.
NOW, THEREFORE, the Subordinated Lender and each Senior Lender agree as follows:
TERMS
1. All obligations of the Company and/or any of its subsidiaries to the Senior Lenders,
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 made by the Subordinated Lender to the Company and/or any of its subsidiaries,
together with all other obligations (whether monetary or otherwise) of the Company and/or any of
its subsidiaries to the Subordinated Lender (in each case, including any 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”. 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 Lenders, as against the Company, its
subsidiaries or anyone else, to collect such interest, fees or penalties, as the case may be.
2. Except as expressly otherwise provided in this Agreement or as the Senior Lenders may
otherwise expressly consent in writing, the payment of the Junior Liabilities shall be postponed
and subordinated in right of payment and priority to the payment in full of all Senior Liabilities.
Furthermore, whether directly or indirectly, no payments or other distributions whatsoever in
respect of any Junior Liabilities shall be made (whether at stated maturity, by acceleration or
otherwise), 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 until such time as the
Senior Liabilities have been indefeasibly paid in full. Notwithstanding anything to the contrary
contained in this paragraph 2 or elsewhere in this Agreement, the Company and its subsidiaries may
make regularly scheduled principal and interest 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 Xxxxxxx Note) has occurred and is continuing at the time of any such payment or after giving
effect to 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. The Subordinated Lender hereby subordinates all claims and security interests it may have
against, or with respect to, any of the assets of the Company and/or any of its subsidiaries (the
“Subordinated Lender Liens”), to the security interests granted by the Company and/or any
of its subsidiaries to each Senior Lender in respect of the Senior Liabilities. No Senior Lender
shall owe any duty to the Subordinated Lender as a result of or in connection with the Subordinated
Lender Liens, including without limitation any marshalling of assets or protection of the rights or
interests of any Subordinated Lender. Each Senior Lender shall have the exclusive right to manage,
perform and enforce the underlying terms of the Xxxxxxx Note and each other document, instrument
and agreement executed from time to time in connection therewith (collectively, the “Security
Agreements”) relating to the assets of the Company and its subsidiaries and to exercise and
enforce its rights according to its discretion. The Subordinated Lender waives all rights to
affect the method or challenge the appropriateness of any action taken by the Senior Lenders in
connection with the Senior Lenders’ enforcement of their rights under the Security Agreements.
Only the Senior Lenders shall have the right to restrict, permit, approve or disapprove the sale,
transfer or other disposition of the assets of the Company or any of its subsidiaries. As between
each of the Senior Lender and the Subordinated Lender, the terms of this Agreement shall govern
even if all or part of the Senior Lenders’ liens are avoided, disallowed, set aside or otherwise
invalidated.
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 the Subordinated Lender shall be entitled to receive and to retain any payment,
distribution, other rights or benefits in respect of any Junior Liability. In order to enable each
Senior Lender to enforce its rights hereunder in any such action or proceeding, each Senior Lender
is hereby irrevocably authorized and empowered in its discretion as attorney in fact for the
Subordinated Lender to make and present for and on behalf of the Subordinated Lender such proofs of
claims against the Company and/or its subsidiaries as Senior Lenders may deem expedient or proper
and to vote such proofs of claims in any such proceeding and to receive and collect any and all
dividends or other payments or disbursements made thereon in whatever form the same may be paid or
issued and to apply same on account of any the Senior Liabilities. In the event, prior to
indefeasible payment in full of the Senior Liabilities, the Subordinated Lender shall receive any
payment in respect of the Junior Liabilities and/or in connection with the enforcement of the
Subordinated Lender’s rights and remedies against the Company and/or any of its subsidiaries,
whether arising in connection with the Junior Liabilities or otherwise, then the Subordinated
Lender shall forthwith deliver, or cause to be delivered, the same to the Senior Lenders in
precisely the form held by the Subordinated Lender (except for any necessary endorsement) and until
so delivered the same shall be held in trust by the Subordinated Lender as the property of the
Senior Lenders, respectively.
2
5. The Subordinated Lender will xxxx its books and records so as to clearly indicate that its
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 any of the Senior Lenders may reasonably request from time to time 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. Until such time as the Senior Liabilities have been indefeasibly paid in full, the
Subordinated Lender will not, without the prior written consent of each Senior Lender: (a) attempt
to enforce or collect the Junior Liabilities or any rights in respect of the Junior Liabilities or
any other rights or remedies of any kind or nature whatsoever against any Company and/or any of
their respective subsidiaries whether in respect of the Junior Liabilities or otherwise (each an
“Enforcement Action”); unless, in each case (i) an event of default shall have occurred and
be continuing under any one or more agreements between and among the Subordinated Lender, any
Company and/or any of their respective subsidiaries which would entitle the Subordinated Lender to
take such action (each, a “Subordinated Lender Default”), (ii) the Subordinated Lender
shall have provided each Senior Lender written notice of the occurrence of each such Subordinated
Lender Default and that it intends to take an Enforcement Action (each, a “Subordinated Lender
Enforcement Action Notice”), and (iii) a period of at least one hundred and twenty (120) days
shall have elapsed after the receipt by the Senior Lenders of the respective Subordinated Lender
Enforcement Action Notice; provided that, notwithstanding the foregoing, the Subordinated Lender
shall only be permitted to provide the Senior Lenders with one Subordinated Lender Enforcement
Action Notice in any three hundred and sixty five (365) day period; or (b) commence, or join with
any other creditor in commencing, any bankruptcy, reorganization or insolvency proceedings with respect to any Company and/or any of their
respective subsidiaries.
3
8. Each Senior Lender may, from time to time, at their sole discretion and without notice to
the 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, increase 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. Each Senior Lender may, from time to time, whether before or after any discontinuance of
this Agreement, without notice to the 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 a Senior Lender, as applicable; provided, however,
that, unless the Senior Lenders shall otherwise consent in writing, the Senior Lenders shall each
have an unimpaired right, prior and superior to that of any such assignee or transferee, to enforce
this Agreement, for the benefit of each Senior Lender, as to those of the Senior Liabilities which
such Senior Lender has not assigned or transferred.
10. No Senior Lender shall be prejudiced in its rights under this Agreement by any act or
failure to act of the Subordinated Lender, or any noncompliance of the Subordinated Lender with any
agreement or obligation, regardless of any knowledge thereof which a Senior Lender may have or with
which a Senior Lender may be charged; and no action of a Senior Lender permitted under this
Agreement shall in any way affect or impair the rights of the Senior Lenders and the obligations of
the Subordinated Lender under this Agreement.
11. No delay on the part of the Senior Lenders 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
Lenders 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 Lenders except as expressly set forth in a
writing duly signed and delivered on behalf of the Senior Lenders. 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.
4
12. This Agreement shall continue in full force and effect after the filing of any petition
(“Petition”) by or against the Company and/or any of its subsidiaries under the United
States Bankruptcy Code (the “Code”) and all converted or succeeding cases in respect
thereof. All references herein to the Company and/or subsidiary shall be deemed to apply to the
Company and such subsidiary as debtor-in-possession and to a trustee for the Company and/or such
subsidiary. If the Company or any of its subsidiaries shall become subject to a proceeding under
the Code, and if the Senior Lenders shall desire to permit the use of cash collateral or to provide
post-Petition financing from any Senior Lender to the Company or any subsidiary under the Code, the
Subordinated Lender agrees as follows: (1) adequate notice to the Subordinated Lender shall be
deemed to have been provided for such consent or post-Petition financing if the Subordinated Lender
receives notice thereof three (3) business days (or such shorter notice as is given to the Senior
Lenders) prior to the earlier of (a) any hearing on a request to approve such post-petition
financing or (b) the date of entry of an order approving same and (2) no objection will be raised
by the Subordinated Lender to any such use of cash collateral or such post-Petition financing from
the Senior Lender.
13. 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 the Subordinated Lender. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall be deemed to constitute one
agreement. It is understood and agreed that if facsimile copies of this Agreement bearing
facsimile signatures are exchanged between the parties hereto, such copies shall in all respects
have the same weight, force and legal effect and shall be fully as valid, binding, and enforceable
as if such signed facsimile copies were original documents bearing original signature.
14. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED ACCORDING TO,
THE LAWS OF THE STATE OF FLORIDA, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS PROVISIONS
THEREOF AND SHALL BE BINDING UPON THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY
IN THE STATE COURTS OF FLORIDA OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF FLORIDA; PROVIDED,
HOWEVER, THAT THE SENIOR LENDERS MAY CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE
STATE OF FLORIDA. The individuals executing this Agreement on behalf of the Subordinated Lenders
agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorneys’ fees and costs.
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]
5
IN WITNESS WHEREOF, this Agreement has been made and delivered this 31ST day of
August, 2007.
| APPLIED DIGITAL SOLUTIONS, INC. | ||||
| By: | /s/ Xxxxxxxx X. Xxxxxx | |||
| Name: | Xxxxxxxx X. Xxxxxx | |||
| Title: | SVP, ACFO | |||
| XXXXXXX CORPORATION | ||||
| By: | /s/ Xxxxx Grin | |||
| Name: | Xxxxx Grin | |||
| Title: | Director | |||
| VALENS OFFSHORE SPV II, CORP. |
||||
| By: | Valens Capital Management, LLC, its Investment Manager |
|||
| By: | /s/ Xxxxx Grin | |||
| Name: | Xxxxx Grin | |||
| Title: | Authorized Signatory | |||
| VALENS U.S. SPV I, LLC | ||||
| By: | Valens Capital Management, LLC, its Investment Manager |
|||
| By: | /s/ Xxxxx Grin | |||
| Name: | Xxxxx Grin | |||
| Title: | Authorized Signatory | |||
6
