Exhibit 10.3

 

SUBORDINATION AGREEMENT

 

 

This Subordination Agreement is made as of _________, ___, 2018 by and among
___________ (“Creditor”) and Heritage Bank of Commerce and Montage Capital II,
L.P. (“Lenders”).

 

Recitals

 

A.     Bridgeline Digital, Inc. (“Borrower”), has requested and/or obtained
certain loans or other credit accommodations from Lenders which are or may be
from time to time secured by assets and property of Borrower.

 

B.     Creditor has extended loans or other credit accommodations to Borrower,
and/or may extend loans or other credit accommodations to Borrower from time to
time.

 

C.     In order to induce Lenders to extend credit to Borrower and, at any time
or from time to time, at Lenders’ 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 extension of any such loan,
extension of credit, or other accommodation as Lenders may deem advisable,
Creditor is willing to subordinate: (i) all of Borrower’s indebtedness and
obligations to Creditor, whether presently existing or arising in the future
(the “Subordinated Debt”) to all of Borrower’s indebtedness and obligations to
Lenders (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 Lenders’ security interests in the property of Borrower.

 

Now, Therefore, the Parties Agree as Follows:

 

1.     Creditor subordinates to Lenders 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 Lenders, the security interest of Lenders 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 Lenders,
and other property of the Borrower (the "Collateral"), shall at all times be
prior to the security interest of Creditor.

 

2.     All Subordinated Debt is subordinated in right of payment to all
obligations of Borrower to any Lender, 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, nor will Creditor exercise any remedy
with respect to the Collateral or any other collateral securing the Subordinated
Debt, nor will Creditor accelerate the Subordinated Debt, or commence, or cause
to commence, prosecute or participate in any administrative, legal or equitable
action against Borrower, until such time as (i) the Senior Debt is fully paid in
cash, (ii) all of Lenders’ 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 Lenders and Borrower are
terminated. Notwithstanding the foregoing prohibition on Creditor receiving (and
Borrower paying) any of the Subordinated Debt, provided that an Event of
Default, as defined in any of the Senior Debt documents, has not occurred and is
not continuing and would not exist immediately after such payment, Creditor
shall be entitled to receive each regularly scheduled, non-accelerated payment
of non-default interest or principal as and when due and payable in accordance
with the terms of the Subordinated Debt , as long as Borrower’s unrestricted
cash maintained in its accounts with Heritage Bank of Commerce is at least
$500,000 after giving effect to such payment. Nothing in the foregoing paragraph
shall prohibit Creditor from converting all or any part of the Subordinated Debt
into equity securities of Borrower. Creditor acknowledges that the Senior Debt
documents provides 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 no Creditor shall
receive any dividends, distributions or other payments on such equity securities
, until such time as (i) the Senior Debt is fully paid in cash, (ii) neither
Lender has any commitment or obligation to lend any further funds to Borrower,
and (iii) all financing agreements between Lenders and Borrower are terminated.

 

1.

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4.     Creditor shall promptly deliver to Lenders in the form received (except
for endorsement or assignment by Creditor where required by Lenders) for
application to the Senior Debt any payment, distribution, security or proceeds
received by Creditor with respect to the Subordinated Debt other than in
accordance with this Agreement.

 

5.     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 Lenders’
claims against Borrower and the estate of Borrower shall be paid in full before
any payment is made to Creditor. For the avoidance of any doubt, Senior Debt
includes, without limitation, any Lenders’ 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.

 

6.     Until the Senior Debt is fully paid in cash, and all of Lenders’
obligations owing to Borrower have been terminated, 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 or the estate of Borrower, if
Lenders have consented to such sale of the Borrower or sale or disposition of
any property of the Borrower or the estate of Borrower. If requested by Lenders,
Creditor shall affirmatively consent to such sale or disposition and shall take
all necessary actions and execute such documents and instruments as Lenders may
reasonably request in connection with and to facilitate such sale or
disposition.

 

7.     Until the Senior Debt is fully paid in cash and Lenders’ obligations
owing to Borrower have been terminated, Creditor irrevocably appoints Lenders as
Creditor’s attorney in fact, and grants to Lenders a power of attorney with full
power of substitution, in the name of Creditor or in the name of Lenders, for
the use and benefit of Lenders, without notice to Creditor, to perform at
Lenders’ 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 30
days before the expiration of the time to file claims in such proceeding and if
Lenders elect, in their 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 Lenders deem appropriate for the
enforcement of their rights hereunder.

 

8.     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. By way of example, 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.

 

9.     This Agreement shall remain effective for so long as any Lender has any
obligation to make credit extensions to Borrower or Borrower owes any amounts to
any Lender. If, at any time after payment in full of the Senior Debt any
payments of the Senior Debt must be disgorged by any Lender 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 the applicable Lender(s) 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, Lenders may take such actions with respect to the Senior
Debt and the Collateral as Lenders, in their 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 Lenders’
rights hereunder. Creditor agrees not to assert against Lenders (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
Lenders to marshal or otherwise require Lenders 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.

 

2.

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10.     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. 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 charter, formation or other
organizational documents (such as Articles or Certificate of Incorporation,
bylaws, partnership agreement, operating agreement, etc.) as applicable or (ii)
violate any material applicable law, rule or regulation.

 

11.     This Agreement shall bind any successors or assignees of Creditor and
shall benefit any successors or assigns of Lenders. This Agreement is solely for
the benefit of Creditor and Lenders 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 Lenders make
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.

 

12.     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 Lenders submit to the exclusive jurisdiction of the
state and federal courts located in Santa Clara County, California. CREDITOR AND
LENDERS 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. If the jury waiver set forth in this section is not
enforceable, then any dispute, controversy or claim arising out of or relating
to this Agreement or any of the transactions contemplated therein shall be
settled by judicial reference pursuant to California Code of Civil Procedure
Section 638 et seq. before a referee sitting without a jury, such referee to be
mutually acceptable to the parties or, if no agreement is reached, by a referee
appointed by the Presiding Judge of the California Superior Court for Santa
Clara County.

 

13.     This Agreement may be amended only by written instrument signed by
Creditor and Lenders. 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.

 

14.     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 Lenders 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.

 

3.

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15.     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 page follows]

 

4.

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In Witness Whereof, the undersigned have executed this Subordination Agreement
as of the date first above written

 

 

“Lenders”

      Heritage Bank of Commerce

 

 

 

     

 

 

By:

 

 

 

Name:

 

 

 

 

  Title:                 Montage Capital II, L.P.            

 

  By:  

 

  Name:           Title:                       “Creditor”             (Name of
Individual or Entity)           (Signature)           (Name of Signatory and
Capacity, if Entity)

 

 

 

The undersigned acknowledges and agrees to the terms of this Agreement.

 

 

“Borrower”

 

Bridgeline Digital, Inc.

 

 

By:                                                                            
                           

 

Name:   Michael D. Prinn

 

Title:    Treasurer