SUBORDINATION AGREEMENT

 

This Subordination Agreement is made and entered into as of August 13, 2013, by
and between the undersigned (“Creditor”), and Square 1 Bank (“Bank”).

 

Recitals

 

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

 

B. Creditor has 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 Bank to extend credit to Borrower and, at any time or from
time to time, at Bank’s option, to make such further loans, extensions of
credit, or other accommodations to or for the account of Borrower, or to
purchase or 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, purchase, or other accommodation as Bank
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 Bank; and (ii) all of Creditor’s security interests, if any, in
Borrower’s property, to all of Bank’s security interests in Borrower’s property.
Notwithstanding the foregoing or anything to the contrary contained in this
Agreement, the term Subordinated Debt shall not include any obligations of
Borrower arising under or in connection with (a) any warrants issued by Borrower
to Creditors pursuant to which Creditors may purchase equity securities of
Borrower or agreements exclusively governing the rights of the holders of equity
securities of Borrower; and (b) any equity securities of Borrower held by
Creditors including those issuable upon exercise of any warrants or the
conversion of any convertible notes.

 

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

 

1. Creditor subordinates to Bank any security interest or lien that Creditor may
have in any property of Borrower. Notwithstanding the respective dates of
attachment or perfection of the security interest of Creditor and the security
interest of Bank, the security interest of Bank in the Collateral, as defined in
that certain Loan and Security Agreement between Borrower and Bank, dated as of
November 2, 2012 (as amended from time to time, the “Loan Agreement”), shall at
all times be prior to the security interest of Creditor. Capitalized terms not
otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2. All Subordinated Debt is subordinated in right of payment to all obligations
of Borrower to Bank now existing or hereafter arising, together with all costs
of collecting such obligations (including attorneys’ fees), including, without
limitation, all interest accruing after the commencement by or against Borrower
of any bankruptcy, reorganization or similar proceeding, and all obligations
under the Loan Agreement (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, nor will Creditor commence, or cause to
commence, prosecute or participate in any administrative, legal or equitable
action against Borrower, for so long as any portion of the Senior Debt remains
outstanding. Notwithstanding the foregoing, Creditor shall be: (a) permitted to
convert any part or all of the Subordinated Debt into equity securities of
Borrower; and (b) entitled to a receive a one (1) time payment of principal and
interest pursuant to Section 2 of that certain Promissory Note, by and between
Creditor and Borrower, attached hereto as Exhibit A.

 

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4. Creditor shall promptly deliver to Bank in the form received (except for
endorsement or assignment by Creditor where required by Bank) for application to
the Senior Debt any 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 Bank’s
claims against Borrower and the estate of Borrower shall be paid in full before
any payment is made to Creditor.

 

6. For so long as any of the Senior Debt remains unpaid, Creditor irrevocably
appoints Bank as Creditor’s attorney in fact, and grants to Bank a power of
attorney with full power of substitution, in the name of Creditor or in the name
of Bank, for the use and benefit of Bank, without notice to Creditor, to perform
at Bank’s option the following acts in any bankruptcy, insolvency or similar
proceeding involving Borrower:

 

(i) To file the appropriate claim or claims in respect of the Subordinated Debt
on behalf of Creditor if Creditor does not do so prior to 30 days before the
expiration of the time to file claims in such proceeding and if Bank elects, in
its sole discretion, to file such claim or claims; and

 

(ii) To accept or reject any plan of reorganization or arrangement on behalf of
Creditor and to otherwise vote Creditor’s claims in respect of any Subordinated
Debt in any manner that Bank deems appropriate for the enforcement of its rights
hereunder.

 

7. 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.

 

8. This Agreement shall remain effective for so long as the Bank has any
obligation to make credit extensions to Borrower or Borrower owes any amounts to
Bank under the Loan Agreement or otherwise. If, at any time after payment in
full of the Senior Debt any payments of the Senior Debt must be disgorged by
Bank for any reason (including, without limitation, the bankruptcy of Borrower),
this Agreement and the relative rights and priorities set forth herein shall be
reinstated as to all such disgorged payments as though such payments had not
been made and Creditor shall immediately pay over to Bank all payments received
with respect to the Subordinated Debt to the extent that such payments would
have been prohibited hereunder. At any time and from time to time, without
notice to Creditor, Bank may take such actions with respect to the Senior Debt
as Bank, in its sole discretion, may deem appropriate, including, without
limitation, terminating advances to Borrower, increasing the principal amount,
extending the time of payment, increasing applicable interest rates, renewing,
compromising or otherwise amending the terms of any documents affecting the
Senior Debt and any collateral securing the Senior Debt, and enforcing or
failing to enforce any rights against Borrower or any other person. No such
action or inaction shall impair or otherwise affect Bank’s rights hereunder.
Creditor waives the benefits, if any, of Civil Code Sections 2809, 2810, 2819,
2845, 2847, 2848, 2849, 2850, 2899 and 3433.

 

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9. This Agreement shall bind any successors or assignees of Creditor and shall
benefit any successors or assigns of Bank. This Agreement is solely for the
benefit of Creditor and Bank and not for the benefit of Borrower or any other
party. Creditor further agrees that if Borrower is in the process of refinancing
a portion of the Senior Debt with a new lender, and if Bank makes a request of
Creditor, Creditor shall agree to enter into a new subordination agreement with
the new lender on substantially the terms and conditions of this Agreement.

 

10. 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.

 

11. This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Jurisdiction shall lie in the State of California. All
disputes, controversies, claims, actions and similar proceedings arising with
respect to this Agreement or any related agreement or transaction shall be
brought in the state and federal courts located in County of San Mateo, State of
California, except as provided below with respect to arbitration of such
matters. BANK AND CREDITOR EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSULTING OR
HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY CREDITOR OR BANK, EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. If the jury waiver set forth in
this Section is not enforceable, then any dispute, controversy, claim, action or
similar proceeding arising out of or relating to this Agreement, the Loan
Agreement or any of the transactions contemplated therein shall be settled by
final and binding arbitration held in San Mateo County, California in accordance
with the then current Commercial Arbitration Rules of the American Arbitration
Association by one arbitrator appointed in accordance with those rules. The
arbitrator shall apply California law to the resolution of any dispute, without
reference to rules of conflicts of law or rules of statutory arbitration.
Judgment upon any award resulting from arbitration may be entered into and
enforced by any state or federal court having jurisdiction thereof.
Notwithstanding the foregoing, the parties may apply to any court of competent
jurisdiction for preliminary or interim equitable relief, or to compel
arbitration in accordance with this Section. The costs and expenses of the
arbitration, including without limitation, the arbitrator’s fees and expert
witness fees, and reasonable attorneys’ fees, incurred by the parties to the
arbitration may be awarded to the prevailing party, in the discretion of the
arbitrator, or may be apportioned between the parties in any manner deemed
appropriate by the arbitrator. Unless and until the arbitrator decides that one
party is to pay for all (or a share) of such costs and expenses, both parties
shall share equally in the payment of the arbitrator’s fees as and when billed
by the arbitrator. 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.

 

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12. This Agreement represents the entire agreement with respect to the subject
matter hereof, and supersedes all prior negotiations, agreements and
commitments. Creditor is not relying on any representations by Bank or Borrower
in entering into this Agreement, and Creditor has kept and will continue to keep
itself fully apprised of the financial and other condition of Borrower. This
Agreement may be amended only by written instrument signed by Creditor and Bank.

 

13. Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.

 

14. 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]

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.

 

  “Creditor”       ACORN ENERGY, INC.       By:     Name:     Title:          
Address for Notices:       Acorn Energy, Inc.   3903 Centerville Road  
Wilmington, DE 19807         “Bank”       SQUARE 1 BANK         By:     Name:  
  Title:  

 

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The undersigned approves of the terms of this Agreement.

 

  “Borrower”       GRIDSENSE INC.       By:     Name:     Title:  

 

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EXHIBIT A

 

Promissory Note

 

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