SUBORDINATION AND POSTPONEMENT AGREEMENT
Exhibit
10.5
THIS
AGREEMENT, dated for reference May 7, 2008, is made among:
SILVERBIRCH INC., an Ontario
corporation, having an office at Xxxxx 000, 000 Xxxxxxx Xxxxx, Xxxxxxx, Xxxxxxx
X0X 0X0
(“Senior Lender”)
AND:
TIGER PAW CAPITAL CORP., an
Alberta corporation, having an office at 0000 00xx Xxxxxx
XX, Xxxxxxx, Xxxxxxx X0X E42
(“Subordinate
Lender”)
AND:
RED MILE ENTERTAINMENT INC., a
Delaware corporation, having an office at 000 Xxx Xxxxxxx Xxx, #0, Xxx Xxxxxxx,
XX 00000
(the
“Borrower”)
WHEREAS:
A. The
Borrower is indebted to the Subordinate Lender in an amount of up to
CAD$1,000,000 under or by virtue the Subordinate Lender Credit Agreement and
Subordinate Lender Promissory Note, secured by the Subordinate Lender Security
(capitalized terms as hereinafter defined).
B. The
Senior Lender has agreed, subject to certain conditions, to lend monies to the
Borrower in the principal amount of CAD$750,000 under or by virtue of the Senior
Lender Credit Agreement and Senior Lender Promissory Note, and secured by the
Senior Lender Security (capitalized terms as hereinafter defined).
C. The
parties have agreed that all indebtedness of the Borrower to the Subordinate
Lender and the Subordinate Lender Charges will be subordinate to the
indebtedness of the Borrower to the Senior Lender and the Senior Lender Charges,
as under the terms of this Agreement.
D. The
parties hereto have agreed to enter into this Agreement in order to set out the
respective priorities of the Senior Lender Charges and the Subordinate Lender
Charges and to establish certain terms and conditions in respect of the
Subordinate Lender Indebtedness and the Senior Lender Indebtedness (capitalized
terms as hereafter defined).
NOW
THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the
respective covenants and agreements of the parties specified in this Agreement
and of other good and valuable consideration (the receipt and sufficiency of
which is hereby acknowledged by each of the parties hereto) the parties hereto
agree as follows:
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1.
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Definitions
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In this Agreement the following terms
shall have the following meanings:
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(a)
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“Business Day” means any
day, other than a Saturday, Sunday or statutory holiday in
Ontario;
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(b)
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“Charge” means any
mortgage, assignment, pledge, hypothecation, lien, lease, charge, security
interest, conditional sale or other title retention agreement, right of
set-off or other encumbrance of any nature whatsoever in or of the
Collateral, whether now existing or hereafter
arising;
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(c)
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“Collateral” means all of
the present and after-acquired property, both real and personal, assets
and undertaking of the Borrower, and for clarification purposes, any
reference to “Collateral” in this Agreement shall, unless the context
shall otherwise require, be deemed to be a reference to “all or any part
of the Collateral”;
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(d)
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“Demand” means a demand
made by a Secured Party for the payment in full of any indebtedness owing
to such Secured Party by the Borrower or the acceleration by a Secured
Party of the time for payment of any of such indebtedness to a time prior
to its stated maturity;
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(e)
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“Distribution” has the
meaning set forth in section 9
below;
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(f)
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“Enforcement Action”
means any action to enforce payment of or recover indebtedness or
liabilities or to enforce any Charge or any rights and remedies of a
Secured Party in connection therewith, whether by way of power of sale,
taking of possession, commencement of bankruptcy proceedings, appointment
of a Receiver, foreclosure proceedings or otherwise, but excludes making
Demand or issuing a Notice of
Default;
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(g)
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“Notice of Default”
means a notice in writing of one or more defaults or events of default
issued by the Subordinate Lender to the Borrower in relation to any of the
Subordinate Lender Loan Documents or a notice in writing of one or more
defaults or events of default issued by the Senior Lender to the Borrower
in relation to any of the Senior Lender Loan
Documents;
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(h)
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“Purchase Agreement”
means the purchase of all of the issued and outstanding shares of the
Borrower by the Senior Lender, as contemplated by a letter of intent
agreement between the Borrower and Senior Lender dated or about May 6,
2008 (“LOI”);
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(i)
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“Receiver” means a
receiver, receiver-manager, custodian and receiver and
manager;
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(j)
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“Secured Parties” means
the Subordinate Lender and the Senior Lender and “Secured Party” means
either one of them;
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(k)
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“Senior Lender Charges”
means any and all Charges now or hereafter held by the Senior Lender as
they may be modified, amended, extended or supplemented from time to time,
pursuant to the Senior Lender Security and as set out in Part One of
Schedule “A” hereto;
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-3-
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(l)
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“Senior Lender Credit
Agreement” means the loan agreement between the Senior Lender and
the Borrower dated May 7, 2008 whereby the Senior Lender approved a loan
facility of CAD$750,000 in favour of the
Borrower;
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(m)
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“Senior Lender Event of
Default” means the making of any Demand by the Senior Lender or the
occurrence of any default or event of default by the Borrower under any of
the Senior Lender Loan Documents;
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(n)
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“Senior Lender Promissory
Note” means the promissory note between the Senior Lender and the
Borrower, dated May 7, 2008 for the principal sum of
$750,000;
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(o)
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“Senior Lender
Indebtedness” means all present and future indebtedness and other
liabilities and obligations, including, without limitation, all interest,
charges, fees and costs, whether absolute or contingent, matured or
unmatured, at any time or from time to time owing or otherwise payable by
the Borrower (whether alone or with another or others and whether as
principal or surety), or any of them, to the Senior Lender
arising under or in connection with the credit facilities made available
by the Senior Lender pursuant to the Senior Lender Promissory Note for the
purposes set out therein;
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(p)
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“Senior Lender Loan
Documents” means, collectively, the Senior Lender Credit Agreement
and Senior Lender Promissory Note any and all other instruments,
agreements and documents entered into by the Borrower with or in favour of
the Senior Lender as evidence of, security for or otherwise in relation to
the credit facilities made available pursuant to the Senior Lender Credit
Agreement, including, without limitation, the Senior Lender Security, all
as any of them may be amended, supplemented, restated or replaced from
time to time;
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(q)
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“Senior Lender Security”
means, collectively, any and all of the instruments, agreements and
documents pursuant to which any of the Senior Lender Charges have been
created, including, without limitation, the Senior Lender Security
Agreements;
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(r)
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“Senior Lender Security
Agreements” means the general security agreement between the
Borrower and the Senior Lender governed by Ontario law dated May 7, 2008,
and the general security agreement between the Borrower and the Lender
governed by California law, dated May 7,
2008;
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(s)
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“Subordinate Lender
Charges” means any and all Charges now or hereafter held by the
Subordinate Lender over the property and assets of the Borrower,
including, without limitation, general security agreements from the
Borrower, as they may be modified, amended, extended or supplemented from
time to time, and the Charges referred to in Part Two of Schedule A
hereto;
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(t)
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“Subordinate Lender Credit
Agreement” means the uncommitted revolving line of credit
agreement, as amended between the Subordinate Lender and the Borrower
dated February 11, 2008;
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(u)
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“Subordinate Lender
Indebtedness” means all present and future indebtedness and other
liabilities and obligations, including, without limitation, all interest,
charges, fees and costs, whether absolute or contingent, matured or
unmatured, at any time or from time to time owing or otherwise payable by
the Borrower (whether alone or with another or others and whether as
principal or surety), or any of them, to the Subordinate Lender arising
under or in connection with any loan or loans or other credit facilities
made available by the Subordinate Lender to the Borrower, or any of
them;
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(v)
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“Subordinate Lender Loan
Documents” means, collectively, the Subordinate Lender Credit
Agreement and Subordinate Lender Promissory Note, and any and all
instruments, agreements and documents, entered into by the Borrower, or
any of them, with or in favour of the Subordinate Lender as evidence of,
security for or otherwise in relation to the Subordinate Lender Credit
Agreement, including, without limitation the Subordinate Lender Security,
all as any of them may be amended, supplemented, restated or replaced from
time to time;
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(w)
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“Subordinate Lender Promissory
Note” means the promissory note between the Subordinate Lender and
the Borrower, as amended, for the principal sum of $1,000,000 and dated
for reference ,
2008;
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(x)
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“Subordinate Lender
Security” means, collectively, any and all of the instruments,
agreements and documents pursuant to which any of the Subordinate Lender
Charges have been created, together with any amendments and supplements
thereto and replacements thereof;
and
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(y)
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“UCC” means the Uniform
Commercial Code.
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2.
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Representations
and Warranties
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(a)
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The
Subordinate Lender represents and warrants in favour of the Senior Lender
that:
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(i)
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it
has not assigned any of its right, title or interest in or to any of the
Subordinate Lender Charges or the Subordinate Lender
Indebtedness;
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(ii)
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the
Borrower is not, to the best of the Subordinate Lender’s knowledge, in
default under any of the Subordinate Lender Loan Documents;
and
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(iii)
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it
is entitled to all of the monies secured by the Subordinate Lender
Charges.
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(b)
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The
Senior Lender represents and warrants in favour of the Subordinate Lender
that:
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(i)
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it
has not assigned any of its right, title or interest in or to any of the
Senior Lender Charges or the Senior Lender
Indebtedness;
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(ii)
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the
Borrower is not, to the best of the Senior Lender’s knowledge, in default
under any of the Senior Lender Loan Documents;
and
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(iii)
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it
is entitled to all of the monies secured by the Senior Lender
Charges.
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3.
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Consent
to Security
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(a)
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The
Subordinate Lender hereby consents to the creation, issuance, delivery,
registration and perfection of the Senior Lender Charges and the
incurrence by the Borrower of the Senior Lender Indebtedness and further
waives any breach or default under any of the Subordinate Lender Loan
Documents and the Subordinate Lender Indebtedness, respectively, which may
have been occasioned by the creation, issuance, delivery, registration or
perfection of any of the Senior Lender Charges or the incurrence by the
Borrower of the Senior Lender Indebtedness. Notwithstanding the foregoing,
the Subordinate Lender’s consent to the Senior Lender Charges shall not be
considered or deemed to be consent to any change of ownership or control
of the Borrower which may result in a default by the Borrower under any of
the Subordinate Lender Charges.
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(b)
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The
Senior Lender hereby consents to the creation, issuance, delivery,
registration and perfection of the Subordinate Lender Charges and the
incurrence by the Borrower of the Subordinate Lender Indebtedness and
further waives any breach or default under any of the Senior Lender Loan
Documents and the Senior Lender Indebtedness, respectively, which may have
been occasioned by the creation, issuance, delivery, registration or
perfection of any of the Subordinate Lender Charges or the incurrence by
the Borrower of the Subordinate Lender
Indebtedness.
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4.
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Priority
and Postponement
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(a)
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The
Senior Lender Loan Documents shall, in all respects, rank in priority to
the Subordinate Lender Loan Documents and the Senior Lender Charges shall
have priority to the Collateral over any and all of the Subordinate Lender
Charges.
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(b)
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The
Subordinate Lender hereby subordinates and postpones all of its right,
title and interest in and to the Collateral under or by virtue of the
Subordinate Lender Security to the prior right, title and interest of the
Senior Lender in and to the Collateral under or by virtue of the Senior
Lender Security, including all principal, interest and costs payable by
the Borrower to the Senior Lender pursuant to the Senior Lender Credit
Agreement and Senior Lender Promissory
Note.
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5.
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Application
of Priorities
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(a)
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The
priorities established in this Agreement shall be effective
notwithstanding:
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(i)
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any
provisions of the common law or any statute (including without limitation
the Personal Property
Security Act (Ontario) and the UCC) to the
contrary;
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(ii)
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the
affixation or degree of affixation to any real property of all or any part
of the Collateral;
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(iii)
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the
respective dates or times of execution, delivery or enforcement of any of
the Subordinate Lender Security and the Senior Lender
Security;
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(iv)
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the
respective dates or times of attachment, registration or perfection or the
crystallization of any floating charge constituting part of the
Subordinate Lender Charges or the Senior Lender
Charges;
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(v)
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the
respective dates or times of registration or filing of any financing
statements or other instruments or documents in respect of any of the
Subordinate Lender Charges and the Senior Lender
Charges;
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(vi)
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the
timing of any advances or re-advances secured by or demand made in respect
of any indebtedness secured by any of the Subordinate Lender Charges and
the Senior Lender Charges; and
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(vii)
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the
giving of or the failure to give any notice to any person in respect of
the creation or granting of any of the Senior Lender Charges or in respect
of this Agreement or the timing of the giving of such
notice.
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6.
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Consent
to Payments
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(a)
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The
Subordinate Lender postpones payment of the Subordinate Lender
Indebtedness to the prior payment and satisfaction of the Senior Lender
Indebtedness in accordance with the terms of this
Agreement. Except as provided herein, the Subordinate Lender
shall not accept from the Borrower or from any guarantor of the
Subordinate Lender Indebtedness, and the Borrower shall not pay, any
payments, whether of principal, interest, fees, costs or expenses under
the Subordinate Lender Indebtedness, while any of the Senior Lender
Indebtedness remains outstanding.
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7.
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Duration
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(a)
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The
provisions of this Agreement shall remain in effect until the first of the
following dates, being:
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(i)
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the
date of the cancellation of this Agreement following a written consent of
all the parties hereto;
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(ii)
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the
date on which the Senior Lender Indebtedness is indefeasibly repaid and
satisfied; or
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(iii)
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the
date on which the Subordinate Lender Indebtedness is indefeasibly repaid
and satisfied in accordance with this
Agreement.
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8.
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Notice
of Default and Demand
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(a)
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Each
Secured Party shall, concurrently with the giving of any Notice of
Default, Demand or any pleadings in respect of any Enforcement Action,
provide a copy of such Notice of Default, Demand or pleadings to the other
Secured Party.
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(b)
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A
Notice of Default shall be deemed to have been terminated
if:
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(i)
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the
Secured Party that issued such Notice of Default subsequently issues to
the Borrower a written waiver of the event or events of default specified
in such Notice of Default; or
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(ii)
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the
Secured Party that issued such Notice of Default subsequently issues to
the Borrower a written notice revoking such Notice of
Default.
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(c)
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Each
Secured Party shall provide the other Secured Party with a copy of any
waiver or revocation terminating any Notice of Default concurrently with
the issuance of such waiver or revocation notice to the
Borrower.
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(d)
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No
Secured Party shall have any liability whatsoever to the other Secured
Party for any inadvertent failure to provide such other Secured Party with
a copy of any Notice of Default, Demand or waiver or termination thereof
as contemplated in this Section, provided that nothing in this section
shall in any way limit or derogate from any of the rights or obligations
under section 10
below.
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9.
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Priority
on Realization or Liquidation
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(a)
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Upon
any disposition or realization of Collateral pursuant to any of the Senior
Lender Charges, the Subordinate Lender Charges or otherwise upon any
distribution of or in respect of the Borrower; or upon any dissolution or
winding up or total liquidation or reorganization of the Borrower, whether
in receivership, bankruptcy, insolvency; or upon an assignment for the
benefit of creditors; or any other marshalling of the assets and
liabilities of the Borrower (any such event being referred to herein as a
“Distribution”),
the Subordinate Lender agrees that all of the Senior Lender Indebtedness
shall be indefeasibly paid in full, in cash from the proceeds of such
Distribution, in priority before any payment is made therefrom on account
of any of the Subordinate Lender Indebtedness. Any Distribution to which
the Subordinate Lender would be entitled but for the provisions of this
section will be retained by the Senior Lender or directed to be paid by
the person making such Distribution (whether a liquidator, agent, trustee
in bankruptcy, Receiver or otherwise) directly to the Senior Lender, to
the extent necessary to pay all of the Senior Lender Indebtedness in full
in cash.
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10.
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Trust
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(a)
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All
payments, Distributions and other sums (including without limitation the
proceeds of any Enforcement Action) which are received by the Subordinate
Lender contrary to the provisions of this Agreement shall be received in
trust for the benefit of the Senior Lender, shall be segregated from other
funds and property of the Subordinate Lender and shall immediately be paid
over to the Senior Lender in the same form received (with any necessary
endorsement) to be applied (in the case of cash) to, or held as collateral
(in the case of non-cash property or securities) for, the payment or
prepayment of the Senior Lender Indebtedness in accordance with its
terms.
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11.
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Insurance
Proceeds
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(a)
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Any
insurance proceeds received by the Borrower, the Senior Lender or the
Subordinate Lender in respect of the Collateral shall be dealt with
according to the provisions of this Agreement as though such insurance
proceeds were paid or payable as proceeds of realization of such of the
Collateral for which they
compensate.
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12.
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Validity
of Security
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(a)
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The
Subordinate Lender will not:
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-8-
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(i)
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assert
in any action, suit or proceeding whatsoever the invalidity,
unenforceability or ineffectiveness of this Agreement, any of the Senior
Lender Loan Documents or any of the Senior Lender Charges;
or
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(ii)
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participate
in or co-operate with any other party to pursue any such action, suit or
proceeding.
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(b)
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The
Senior Lender will not:
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(i)
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assert
in any action, suit or proceeding whatsoever the invalidity,
unenforceability or ineffectiveness of this Agreement, any of the
Subordinate Lender Loan Documents or any of the Subordinate Lender
Charges; or
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(ii)
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participate
in or co-operate with any other party to pursue any such action, suit or
proceeding.
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13.
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Borrower
Bound
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(a)
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By
executing this Agreement, the Borrower acknowledges its existence and
agrees to be bound by its terms. Nothing in this Agreement
shall confer or be deemed to confer any right, benefit or advantage on the
Borrower. The consent of the Borrower to any amendment to this
Agreement shall not be required.
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14.
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Amendment/Waiver
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(a)
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No
amendment, modification or waiver of any of the provisions of this
Agreement by the Subordinate Lender or the Senior Lender shall be deemed
to be made unless the same shall be in writing signed on behalf of each of
the Senior Lender and the Subordinate Lender and each waiver, if any,
shall be a waiver only with respect to the specific instance involved and
shall in no way impair the rights of the parties making such waiver or the
obligations of the other parties to such party in any other respect or at
any other time. As contemplated in Section 13 above, the Borrower shall not have any right
to consent to or approve any amendment, modification or waiver of any
provision of this Agreement.
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15.
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Further
Assurances
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(a)
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The
Subordinate Lender hereby agrees that it will, from time to time at the
reasonable request of the Senior Lender execute and deliver such further
documents, agreements, opinions, certificates and instruments and so such
other acts and things as may be necessary or desirable to accomplish the
covenants and agreements hereunder or to create, preserve, validate or
otherwise protect the subordinations and postponements hereby constituted,
or intended so to be constituted, or to state more fully the obligations
of the Subordinate Lender or the rights, powers, authority and discretion
of the Senior Lender as set out herein or to make any recording, file any
notice or obtain any consents as may be necessary or appropriate in
connection herewith or therewith or to enable the Senior Lender to
exercise and enforce its rights and remedies
hereunder.
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16.
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Time
of Essence
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(a)
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Time
shall be of the essence of this
Agreement.
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17.
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Notices
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(a)
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Any
notice, direction or other communication required or permitted to be given
under this Agreement shall be in writing and given by delivering it or
sending it by facsimile or other similar form of recorded communication
addressed:
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(i)
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to
SilverBirch Inc. at:
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Xxxxx
000, 000 Xxxxxxx Xxxxx
Xxxxxxx,
Xxxxxxx X0X 0X0
Attention: Xxxxx
van der Plaat
Fax
No.: (000)
000-0000
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(ii)
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to
Tiger Paw Capital Corp. at:
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0000 00xx Xxxxxx
XX
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxx
Xxxxxx
Fax
No.: (000)
000-0000
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(iii)
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to
Red Mile Entertainment Inc. at:
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000 Xxx Xxxxxxx Xxx, #0
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx
Xxxxxxxx
Fax
No: (000)
000-0000
Any such
communication shall be deemed to have been validly and effectively given (i) if
personally delivered, on the date of such delivery if such date is a Business
Day and such deliver was made prior to 4:00 p.m. (local time in Toronto,
Ontario), otherwise on the next Business Day, and (ii) if transmitted by
facsimile or similar means of recorded communication, on the Business Day
following the date of transmission. Any party may change its address
for service from time to time by notice given in accordance with the foregoing
and any subsequent notice shall be sent to the party at its changed
address.
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18.
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Assignment
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(a)
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The
Subordinate Lender shall not assign any of its interests in the
Subordinate Lender Indebtedness or any of its right, title or interest in,
to, or arising under the Subordinate Lender Charges unless it also assigns
to such assignee a corresponding interest in this Agreement and such
assignee executes and delivers to the Senior Lender an agreement, in form
and content satisfactory to the Senior Lender, acting reasonably, whereby
such assignee agrees to be bound, to the extent of the interest acquired
from the Subordinate Lender, by the covenants and obligations of the
Subordinate Lender hereunder.
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-10-
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(b)
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The
Senior Lender shall not assign any of its interests in the Senior Lender
Indebtedness or any of its right, title or interest in, to, or arising
under the Senior Lender Charges unless it also assigns to such assignee a
corresponding interest in this Agreement and such assignee executes and
delivers to the Subordinate Lender an agreement, in form and content
satisfactory to the Subordinate Lender, acting reasonably, whereby such
assignee agrees to be bound, to the extent of the interest acquired from
the Senior Lender, by the covenants and obligations of the Senior Lender
hereunder.
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19.
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Applicable
Law and Attornment
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(a)
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This
Agreement shall be construed in accordance with and shall be governed by
the laws of the Province of Ontario and the federal laws of Canada in
effect therein. The parties hereto hereby irrevocably attorn to
the non-exclusive jurisdiction of the courts of the Province of Ontario
with respect to any proceedings relating to this
Agreement.
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20.
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Counterparts
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(a)
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This
Agreement may be executed in one or more counterparts and by telecopier,
all of which when taken together shall constitute one and the same legally
valid, binding and enforceable agreement. Any party executing
and delivering a counterpart of this Agreement by telecopier shall use its
best efforts to deliver to the other parties hereto a counterpart of this
Agreement originally executed by such party as soon as possible and in any
event within ten days of the date of delivery of the counterpart of this
Agreement by telecopier.
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21.
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Enurement
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(a)
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This
Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and
assigns.
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IN
WITNESS WHEREOF the Senior Lender, the Subordinate Lender and the Borrower have
executed this Agreement as of the _____ day of May, 2008
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SILVERBIRCH
INC.
Per:________________________________________
Authorized
Signatory
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TIGER
PAW CAPITAL CORP.
Per:________________________________________
Authorized
Signatory
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Per:________________________________________
Authorized
Signatory
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-11-
SCHEDULE A
Part One
The
Senior Lender Charges:
With the
Delaware Secretary of State, UCC financing statements registered under base
registration no(s) on
Part Two
The
Subordinate Lender Charges:
With the
Delaware Secretary of State, the UCC financing statements registered under base
registration no(s) on
