SUBORDINATION AGREEMENT
Exhibit 4.11
This Subordination Agreement (the “Agreement”) is made as of this 13th day of March, 2006, by
and among SILICON VALLEY BANK, a California-chartered bank with its principal place of business at
0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, XX 00000, (the “Bank”) and Bonanza Master Fund, LTD., for itself
and as agent for each Purchaser (the “Agent”), HHMI Investments, L.P., SRB Greenway Capital LP, SRB
Greenway Capital (QP) LP, SRB Greenway Offshore Operating Fund, LP, Xxxxxx Xxxxx Capital (QP), LP,
Xxxxxx Xxxxx Capital, LP, and Xxxxxx Xxxxx International Fund, Ltd. (collectively, the “Purchasers”
and each a “Purchaser”) the purchasers jointly but not severally, on a pro rata basis, of Secured
Notes due 2009 (together with any Additional Notes (as defined in that certain Purchase Agreement
dated March 13, 2006 by and between the Borrower and the Purchasers) (the “Purchase Agreement”),
the “Notes”) of TELECOMMUNICATION SYSTEMS, INC. (the “Borrower”).
Recitals
A. Bank and the Borrower have entered into the Second Amended and Restated Loan and Security
Agreement (Revolver) between them, dated as of October 14, 2005, as such agreement is amended or
otherwise modified from time to time (referred to herein as the “Loan Agreement”), pursuant to
which Bank has extended credit accommodations to Borrower secured by a first priority interest in
certain collateral described in the Loan Agreement (the “Collateral”).
B. The Purchasers have entered into the Purchase Agreement with the Borrower, pursuant to
which the Purchasers have purchased an initial aggregate principal amount of $10,000,000 (which may
be increased by the issuance of Additional Notes) of the Borrower’s Notes, which shall be secured
by that certain Intellectual Property Security Agreement dated March 13, 2006 (the “Security
Agreement”).
C. In order to induce Bank to continue to extend the credit accommodations to Borrower as the
Loan Agreement contemplates, Purchasers are willing to subordinate (i) all of Borrower’s
indebtedness, liabilities, guarantees and all other obligations owing to Purchasers arising from
time to time, including, without limitation, with respect to the Notes (collectively the
“Subordinated Debt”) to and in favor of all of Borrower’s indebtedness, liabilities, guarantees and
all other obligations owing to Bank, now existing or hereafter arising, including without
limitation, under the Loan Agreement (the “Senior Debt”) and (ii) all security interests, liens,
encumbrances, ownership interests and all other interests of similar import of Purchasers now in
existence and arising hereafter with respect to any and all property of the Borrower now in
existence or hereafter arising, including, without limitation, the Collateral, except those
security interests, liens and encumbrances arising pursuant to the Security Agreement (the
“Subordinate Interest”) to and in favor of the rights and interests of Bank in and to any and all
of such property, in each of the foregoing cases to the extent and as otherwise set forth herein.
Agreement
NOW, THEREFORE, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. Purchasers hereby subordinate their Subordinate Interest regarding any and all assets and
property of the Borrower to and in favor of Bank. Further, notwithstanding the respective dates of
attachment or perfection of the Subordinate Interest and the security interest and lien of Bank,
the security interest and lien of Bank in the assets and property of Borrower granted pursuant to
the Loan Agreement and otherwise arising from time to time in connection with the Senior Debt,
including, without limitation, the Collateral, shall at all times be prior and superior to the
Subordinate Interest. Bank and Purchasers each hereby acknowledge and agree that (i) the
Collateral, includes Accounts or General Intangibles (as such terms are defined in the Uniform
Commercial Code in the State of Maryland) now or hereafter arising out of Borrower’s
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intellectual property; (ii) any security interest now or hereafter arising in favor of Bank
with respect to any intellectual property of Borrower is junior and subordinate in all respects to
any security interest now or hereafter arising in favor of Purchasers with respect to such
intellectual property; and (ii) any proceeds from the sale by the Purchasers of Borrower’s
intellectual property are not Accounts or General Intangibles.
2. On the terms and conditions set forth herein, Purchasers hereby subordinate all
Subordinated Debt in right of payment to and in favor of all Senior Debt. Nothing herein shall be
deemed to subordinate, waive or restrict the performance of the obligations of Borrower to issue
capital stock of Borrower under any warrants that the Borrower may have issued to Purchasers from
time to time.
3. Subject to and except as set forth in Section 4 below, Purchasers will not: (a) demand or
receive from Borrower (and Borrower will not pay to Purchasers) all or any part of the Subordinated
Debt, by way of payment, prepayment, setoff, lawsuit or otherwise; (b) exercise any right or
remedy, or take any enforcement action regarding any property or assets of Borrower; or (c)
commence, or cause to be commenced, prosecute or participate in any administrative, legal or
equitable action against Borrower or the Collateral as defined in the Loan Agreement, for the
longer of such time as any Senior Debt remains outstanding or the Loan Agreement remains effective
and not terminated; provided, however, Agent may on behalf of Purchasers, during
the existence and continuance of any default in respect of the Subordinated Debt, and in accordance
with the terms thereof, take an enforcement or other remedial action with respect to the Borrower
or any of the property described in the Security Agreement on and after the date that is one
hundred eighty (180) days after Agent on behalf of Purchasers has given Bank written notice of its
intention to do any of the foregoing in a letter that specifically references this section and
indicates what actions are contemplated (and with the understanding that any such written notice
may be given during a Blockage Period if Agent on behalf of Purchasers so desires).
4. (a) Notwithstanding anything to the contrary contained in Sections 2 and 3 above, but
expressly subject to (b) below, Borrower shall be permitted to make, and Purchasers shall be
permitted to accept or receive the following permitted payments (“Permitted Payments”) on the
Subordinated Debt: (i) scheduled repayments of principal when due (as contemplated by the
agreements in effect as of the date hereof) under the Notes (as long as the maximum principal
amount of the Subordinated Debt in the aggregate does not exceed $10,000,000), (ii) scheduled
quarterly payments of accrued interest when due under the Notes (as contemplated by the agreements
in effect as of the date hereof), (iii) payments of reimbursable expenses, costs and professional
fees and expenses as and when due under the Subordinated Debt facility (as contemplated by the
agreements in effect as of the date hereof), (iv) payments of liquidated damages as and when due
under the Subordinated Debt (as contemplated by the agreements in effect as of the date hereof),
provided that at the time of such payment and after giving effect thereto, no default shall have
occurred and be continuing under the Loan Agreement, and (v) other payments consented to in writing
by the Bank. Borrower further covenants and agrees that it will not make any of the payments
permitted to be made to Purchasers pursuant to this Section 4(a), if at the time of any such
payment or after giving effect to any such payments a Payment Default or Non-Payment Default (each
as hereinafter defined) would exist. In the event Borrower makes such a determination, it shall
immediately notify Bank of such determination.
(b) Notwithstanding anything to the contrary contained in this Section 4 or elsewhere in this
Agreement, if the Bank delivers to Agent written notice (a “Blockage Notice”) which states that
either:
(i) a specific default by Borrower involving the payment of the Senior Debt (a
“Payment Default”) has occurred under the Loan Agreement and continues to exist after the
giving of any notice, if any is so required, and the expiration of any applicable grace or
cure period, or
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(ii) a specific default by Borrower not involving the payment of Senior Debt
(a “Non-Payment Default”) has occurred under the Loan Agreement and continues to exist
after the giving of any notice, if any is so required, and the expiration of any applicable
grace or cure period, such notice to include all such defaults in existence at the time,
then, from and after the date of delivery of any such Blockage Notice, Purchasers shall not
accept or receive any payment of any kind of or on account of the Subordinated Debt (including any
Permitted Payment), unless and until the earlier of (A) the time such Payment Default or
Non-Payment Default shall have been cured by Borrower or waived in writing by Bank, or (B) the
expiration of the Blockage Period (as defined below) for such Blockage Notice.
As used herein, “Blockage Period” means a period of time beginning on the date a Blockage
Notice is delivered to Agent and termination on the earlier to occur of:
(1) 180 days following such date; provided that if, prior to the expiration of
such 180-day period, Bank has commenced a judicial proceeding or non-judicial actions to
collect or enforce the Senior Debt or the collateral for the Senior Debt, or a case or
proceeding by or against Borrower is commenced under the federal Bankruptcy Code or any
other insolvency law, then such period shall be extended during the continuation of such
proceedings and actions under the payment in cash or other property or securities in the
full amount of the allowed claim of the Senior Debt; or
(2) Bank’s written consent to such termination.
In no event shall the Blockage Period during any period of 365 consecutive days exceed 180
days in the aggregate, whether pursuant to one (1) Blockage Notice or multiple Blockage Notices;
provided, however, the foregoing limitation shall not apply in the event that prior to the
expiration of such 180 day period Bank has commenced a judicial proceeding or non-judicial actions
to collect or enforce the Senior Debt or a case of proceeding by or against Borrower is commenced
under the federal Bankruptcy Code or any other insolvency law, then such period shall be extended
during the continuation of such proceedings and actions until the payment in cash or other property
or securities in the full amount of the allowed claim of the Senior Debt. After termination of any
Blockage Period pursuant to the conditions specified in (1) or (2) above and until Agent’s receipt
of a subsequent Blockage Notice from Bank, Purchasers shall be entitled to receive all Permitted
Payments.
5. If Agent or any Purchaser sends the Borrower a notice of default under the Purchasers
Facility, Purchasers shall use best efforts to promptly deliver a copy of the notice of default to
Bank, but failure to do so shall not, in and of itself, be a breach of this Agreement nor affect
any of Purchasers’ rights in respect of the Subordinated Debt.
6. Purchasers shall promptly deliver to Bank in the form received (except for endorsement or
assignment by Purchasers where required by Bank) for application to the Senior Debt any payment,
distribution, security or proceeds received by Purchasers with respect to the Subordinated Debt
other than in accordance with this Agreement.
7. 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 payment is made to Purchasers.
8. For so long as any of the Senior Debt remains unpaid, Purchasers irrevocably appoint Bank
as Purchasers’ attorney-in-fact, and grants to Bank a power of attorney with full power of
substitution, in the name of Purchasers or in the name of Bank, for the use and benefit
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of Bank,
without notice to Purchasers, in any bankruptcy, insolvency or similar proceeding
involving Borrower to (i) file the appropriate claim or claims in respect of the Subordinated
Debt on behalf of Purchasers if Purchasers do not do so prior to 30 days before the expiration of
the time to file claims in such proceeding and (ii) accept or reject any plan of reorganization or
arrangement on behalf of Purchasers and otherwise to vote Purchasers’ claims in respect of any
Subordinated Debt in any manner that Bank chooses.
9. Purchasers 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 Purchasers may have in
any property of Borrower. Additionally, no amendment of the documents evidencing the Subordinated
Debt may change the timing or amount of the regularly scheduled payments of principal and interest
without Bank’s consent.
10. The Purchasers shall not be subrogated to, or be entitled to any assignment of any Senior
Debt or evidence of any evidence of Senior Debt or any Collateral until all Senior Debt is
indefeasibly paid and satisfied in full.
11. All necessary action on the part of the Purchasers, their respective officers, directors,
partners, members and shareholders, as applicable, necessary for the authorization of this
Agreement and the performance of all obligations of the Purchasers hereunder has been taken.
Additionally, the execution, delivery and performance of and compliance with this Agreement will
not result in any material violation or default of any term of any of the Purchasers’ charter,
formation or other organizational documents (such as Articles or Certificate of Incorporation,
bylaws, partnership agreement, operating agreement, etc.).
12. This Agreement shall remain effective until the later to occur of the repayment in full in
cash of the Senior Debt or the termination of the Loan Agreement. 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 Purchasers 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 Purchasers, Bank may
take such actions with respect to the Senior Debt as Bank, in its sole discretion, may deem
appropriate, including, without limitation, terminating advances to Borrower, 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 securing the Senior Debt, and
enforcing or failing to enforce any rights against Borrower or any other person. Purchasers waives
the benefits, if any, of any statutory or common law rule that may permit a subordinating Purchaser
to assert any defenses of a surety or guarantor, or that may give the subordinating Purchaser the
right to require a senior Purchaser to marshal assets, and Purchasers agree that it shall not
assert any such defenses or rights.
13. This Agreement shall bind any successors or assignees of Purchasers and shall benefit any
successors or assigns of Bank. This Agreement is solely for the benefit of Purchasers and Bank and
not for the benefit of Borrower or any other party.
14. 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. This Agreement shall become
effective only when it shall have been executed by Purchasers and Bank.
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15. This Agreement shall be governed by and construed in accordance with the laws of the State
of California without giving effect to conflicts of law principles. Purchasers and Bank
submit to the exclusive jurisdiction of the state and federal courts located in Santa Xxxxx
County, California. PURCHASERS 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.
16. This Agreement represents the entire agreement with respect to the subject matter hereof,
and supersedes all prior negotiations, agreements and commitments. Purchasers is not relying on
any representations by Bank or Borrower in entering into this Agreement, and Purchasers has kept
and will continue to keep itself fully apprised of the financial and other condition of Borrower.
This Agreement may be amended only by written instrument signed by Purchasers and Bank.
17. 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.
18. Except as otherwise provided herein, all notices required, contemplated, or permitted
under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be
deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the
first business day after transmission by facsimile or hand delivery or deposit with an overnight
express service or overnight mail delivery service; or (ii) the third calendar day after deposit in
the United States mails, with proper first class postage prepaid, and shall be sent to the address
set forth below or to such other address as each party may designate for itself by like notice.
Bank shall satisfy any notice requirement with respect to the Purchasers under this Agreement by
providing notice to the Agent.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first
above written.
| BANK | ||||
| SILICON VALLEY BANK | ||||
| By: | /s/ Xxxx Xxxxx | |||
| Name: Xxxx Xxxxx | ||||
| Title: Relationship Manager | ||||
| Address for Notice: | ||||
| 0000 Xxxxxx Xxxxx | ||||
| Mail Sort HA 000 | ||||
| Xxxxx Xxxxx, Xxxxxxxxxx 00000 | ||||
| Attention: General Counsel | ||||
| PURCHASERS: | ||||
| Bonanza Master Fund, Ltd. | ||||
| By: | /s/ Xxxxx Xxxxx | |||
| Name: Xxxxx Xxxxx | ||||
| Title: Partner | ||||
| Address for Notice: | ||||
| Bonanza Capital | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 000 | ||||
| Xxxxxx, XX 00000 | ||||
| HHMI Investments, L.P. | ||||
| By: WS Capital Management, L.P, Investment Manager | ||||
| By: WS Capital, L.L.C., General Partner | ||||
| By: | /s/ Xxxx X. Xxxxxx | |||
| Name: Xxxx X. Xxxxxx | ||||
| Title: Member | ||||
| Address for Notice: | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
0
| XXX Xxxxxxxx Xxxxxxx, X.X. | ||||
| By: SRB Management, L.P., General Partner |
||||
| By: BC Advisors, L.L.C., General Partner | ||||
| By: | /s/Xxxxxx X. Xxxxxx | |||
| Name: Xxxxxx X. Xxxxxx | ||||
| Title: Member | ||||
| Address for Notice: | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| SRB Greenway Capital QP, L.P. | ||||
| By: SRB Management, L.P., General Partner | ||||
| Br: BC Advisors, L.L.C., General Partner | ||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||
| Name: Xxxxxx X. Xxxxxx | ||||
| Title: Member | ||||
| Address for Notice: | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| SRB Greenway Offshore Operating Fund, L.P. | ||||
| By: SRB Management, L.P., General Partner | ||||
| By: BC Advisors, L.L.C., General Partner | ||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||
| Name: Xxxxxx X. Xxxxxx | ||||
| Title: Member | ||||
| Address for Notice: | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| Xxxxxx Xxxxx Capital (Q.P.), L.P. | ||||
| By: WS Capital Management, L.P., General Partner | ||||
| By: WS Capital, L.L.C., General Partner | ||||
| By: | /s/ Xxxx X. Xxxxxx | |||
| Name: Xxxx X. Xxxxxx | ||||
| Title: Member | ||||
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| Address for Notice: | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| Xxxxxx Xxxxx Capital, L.P. | ||||
| By: WS Capital Management, L.P., General Partner | ||||
| By: WS Capital, L.L.C., General Partner | ||||
| By: | /s/ Xxxx X. Xxxxxx | |||
| Name: Xxxx X. Xxxxxx | ||||
| Title: Member | ||||
| Address for Notice: | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| Xxxxxx Xxxxx International Fund, Ltd. | ||||
| By: WS Capital Management, L.P., Attorney-in-fact | ||||
| By: WS Capital, L.L.C., General Partner | ||||
| By: | /s/ Xxxx X. Xxxxxx | |||
| Name: Xxxx X. Xxxxxx | ||||
| Title: Member | ||||
| Address for Notice: | ||||
| 000 Xxxxxxxx Xxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| Seen and Agreed: | ||||
| BORROWER | ||||
| TELECOMMUNICATION SYSTEMS, INC. | ||||
By:
|
/s/ Xxxxxx X. Xxxxxx, Xx. | |||
| Name: Xxxxxx X. Xxxxxx, Xx. | ||||
| Title: Senior Vice President and Chief Financial Officer | ||||
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| Address for Notice: | ||||
| 000 Xxxx Xxxxxx | ||||
| Xxxxxxxxx, XX 00000 | ||||
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