Document:

ex_96598.htm

Exhibit 10.2

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF OR IN ACCORDANCE WITH APPLICABLE LAW.

 

WARRANT TO PURCHASE STOCK

 

	
			Corporation:

				
			Bridgeline Digital, Inc.

			
	
			Number of Shares:

				
			See below

			
	
			Class of Stock:

				
			Common Stock

			
	
			Initial Exercise Price:

				
			See below

			
	
			Issue Date:

				
			October 10, 2017

			
	
			Expiration Date:

				
			October 10, 2025

			

 

THIS WARRANT CERTIFIES THAT MONTAGE CAPITAL II, L.P. or registered assignee (“Holder”) is entitled to purchase the number of fully paid and nonassessable shares (the “Shares”) of the common stock of Bridgeline Digital, Inc. (the “Company”), in the number, at the initial exercise price, and for the term specified herein, and as adjusted according to Section 2 of this Warrant. The initial number of Shares issuable upon exercise of this Warrant is 66,315, which Company represents and warrants is equal to 1.5% of Company’s outstanding capital stock on a Fully Diluted Basis measured as of the date hereof (“Initial Shares”). In addition to the Initial Shares granted to Holder on the Issue Date, on the date the Second Tranche Advance (as defined in that certain Loan and Security Agreement of even date herewith between the Company and Holder and as amended from time to time, the “Loan Agreement”)) is made, Holder shall be entitled to purchase additional Shares equal to 0.75% of the Company’s outstanding capital stock on a Fully Diluted Basis, such that after the funding of the Second Tranche Advance, this Warrant shall entitle Holder to purchase the number of Shares equal to 100,235, which Borrower represents and warrant is 2.25% of the Company’s outstanding capital stock on a Fully Diluted Basis measured as of the date hereof. The initial exercise price (“Warrant Price”) shall be $2.65. “Fully Diluted Basis” shall mean the Company’s outstanding capital stock, including (i) all common stock, and (ii) all preferred stock on an as-converted to common stock basis. 

 

ARTICLE 1.     EXERCISE

 

1.1     Method of Exercise. Holder may exercise this Warrant by delivering this Warrant and a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased.

 

1.2     Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.3.

 

1.3     Fair Market Value. If the Shares are traded regularly in a public market, the fair market value of the Shares shall be the closing price of the Shares reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not regularly traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder.

 

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1.4     Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

 

1.5     Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

1.6     Equity Buy Out. 

 

(a)     On earlier of (i) the dissolution or liquidation of the Company (“Wind-Up”), (ii) any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction (an “Acquisition”), or (iii) a transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of the Company ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of the Company, who did not have such power before such transaction (“Change in Control”), the Company shall, at the request of Holder, purchase all rights that Holder has under this Warrant for a cash payment (the “Buyout Fee”) in the amount of $250,000 if only the First Tranche Advance has been funded or (ii) $375,000 if both the First Tranche Advance and Second Tranche Advance have been funded. If Holder exercises its rights in connection with an Acquisition, the Buyout Fee shall be paid concurrently with the closing of the Change in Control or Acquisition or if Holder exercises its rights in connection with a Wind-Up, the Buyout Fee shall be paid immediately prior to the effectiveness of the Wind-Up. Upon Holder’s receipt of the Buyout Fee, Holder shall promptly return this Warrant to the Company for cancellation. The Company will give the Holder at least 15 days’ prior written notice of any Change in Control, Acquisition or Wind-Up and, if exercised, the Holder’s election to exercise its put right under this Section shall be deemed conditional upon the closing or effectiveness of the Change in Control, Acquisition or Wind-Up, as applicable.

 

(b)     In addition to the foregoing, upon the occurrence of any equity financing transaction of the Company that does not constitute a Change in Control in which existing shares of the Company are repurchased or redeemed in connection with such transaction, Holder may elect to receive a portion of the Buyout Fee (“Partial Buyout Payment”) equal to the Buyout Fee multiplied by a percentage equal to the number of shares redeemed divided by the number of outstanding shares of the Company prior to such transaction. Upon Holder’s receipt of the Partial Buyout Payment, the number of Shares issuable upon exercise of this Warrant shall be reduced by a fraction equal to the Partial Buyout Payment divided by the Buyout Fee, and the remaining Buyout Fee to be earned and/or payable to Holder pursuant to clause (a) above shall be reduced by the Partial Buyout Payment received by Holder; and the Company shall execute and deliver a certificate of amendment to this Warrant to reflect the adjustment to the Shares in accordance with this section and the revised Buyout Fee amount.

 

ARTICLE 2.     ADJUSTMENTS TO THE SHARES. 

 

2.1     Dividends. If the Company declares or pays a dividend on its common stock payable in common stock, or other securities or property, subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares on the record date of the dividend or subdivision as of the Issue Date. If the Company makes any other distribution with respect to the Shares, then in each case the Company shall cause Holder upon exercise or conversion of this Warrant to receive a proportionate share of that consideration as though it were the holder of the Shares as of the record date fixed for the determination of stockholders of the Company entitled to receive that distribution based on the date hereof.

 

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2.2     Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Upon the closing of any Acquisition, the successor entity shall assume the obligations of this Warrant, and this Warrant thereafter shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 

 

2.3     Adjustments for Combinations. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, then upon exercise of this Warrant, Holder shall receive the lesser total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the combination or consolidation occurred, and the Warrant Price shall be proportionately increased.

 

2.4     No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article against impairment. If the Company takes any action not in good faith affecting the Shares or its common stock other than as described above that adversely affects Holder’s rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged.

 

2.5     Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

 

ARTICLE 3.     REPRESENTATIONS AND COVENANTS OF THE COMPANY.

 

3.1     Representations and Warranties. The Company hereby represents and warrants to the Holder as follows:

 

(a)     All Shares that may be issued upon the exercise of the purchase right represented by this Warrant, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

 

(b)     The capitalization table attached hereto as Appendix 2 correctly sets forth the authorized, issued and outstanding shares of capital stock of the Company and all options to acquire any such shares, as of the date hereof.

 

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3.2     Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its capital stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of capital stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company’s securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of capital stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of capital stock will be entitled to exchange their capital stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.

 

3.3     Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) within one hundred twenty (120) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company along with a detailed capitalization table reflecting authorized and outstanding shares, options, warrants and other shares reserved for issuance, and (b) within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company’s quarterly, unaudited financial statements, provided Company need not provide such information for any period in which Company has filed Form 10Q or Form 10K with the Securities and Exchange Commission. Company shall pay to Holder a monthly fee of $1,500 (each, a “Management Fee”) for each month in which Company has failed to comply with the foregoing obligations; provided however that for so long as the Loan Agreement is in effect and the Company is in compliance with the reporting requirements in the Loan Agreement, no Management Fee is due or payable.

 

ARTICLE 4.     MISCELLANEOUS.

 

4.1     Term. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. 

 

4.2     Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR IN ACCORDANCE WITH APPLICABLE LAW.

 

4.3     Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee.

 

4.4     Transfer Procedure. Subject to the provisions of Section 4.3, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable), provided that no such notice shall be required for a transfer to an affiliate of Holder.

 

4.5     Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effectively given (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery; at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time.

 

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4.6     Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

 

4.7     Attorneys’ Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

 

4.8     Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

 

	 	 	
			Bridgeline Digital, Inc.

			
	 	 	 
	 	 	
			By:                                                                                        

			
	 	 	 
	 	 	
			Name: Michael D. Prinn

			
	 	 	 
	 	 	
			Title: Chief Financial Officer

			

 

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APPENDIX 1

 

NOTICE OF EXERCISE

 

1.     The undersigned hereby elects to purchase ______________ shares of the Common Stock of Bridgeline Digital, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full.

 

1.     The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to ______________ of the Shares covered by the Warrant.

 

[Strike paragraph that does not apply.]

 

2.     Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

 

MONTAGE CAPITAL II, L.P.

____________________

____________________

Or Registered Assignee

 

3.     The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.

 

	
			MONTAGE CAPITAL II, L.P. or Registered Assignee

				 
	 	 	 
	 	 	 
	 	 	 
	
			(Signature)

				 	 
	 	 	 
	 	 	 
	 	 	 
	
			(Date)

				 	 

 

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APPENDIX 2

Capitalization Table

 

	 	
			As of

				 
	 	
			10/5/2017

				
			Fully Diluted

			
	
			Common Stock shares outstanding

				 	
			       4,200,219

			
	
			Preferred Shares reserved

				
			      250,927

				
			          154,417

			
	 	 	
			       4,354,636ex_96599.htm

Exhibit 10.3

 

INTERCREDITOR AGREEMENT

 

 

This Intercreditor Agreement is entered into as of October 10, 2017, by and between HERITAGE BANK OF COMMERCE (“Bank”), and MONTAGE CAPITAL II, L.P. (“Montage”). Bank and Montage are sometimes referred to herein individually as a “Lender” and collectively, as the “Lenders.” 

 

RECITALS

 

A.     Bank and Bridgeline Digital, Inc. ("Borrower") are parties to a Loan and Security Agreement dated as of June 9, 2016 (as amended from time to time, the "Bank Loan Agreement") pursuant to which Bank has provided (and continues to provide) Advances to Borrower. Montage and Borrower are parties to a Loan and Security Agreement dated as of October 10, 2017 (as amended from time to time, the "Montage Loan Agreement”). Borrower has granted to Bank and Montage a security interest in the Collateral (as defined in the Bank Loan Agreement, the "Collateral"). The Bank Loan Agreement and Montage Loan Agreement are sometimes referred to herein as the "Loan Documents".

 

B.     The Lenders desire to set forth in this Agreement their respective rights and obligations with respect to the Loan Documents (and the credit to be extended thereunder) and the exercise of rights with respect to the Collateral.

 

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

 

1.     DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: 

 

“Advance” means a cash advance by a Lender to Borrower.

 

“A/R Collateral” means Borrower’s Accounts, as defined in the Code, and the Proceeds thereof, including but not limited to the Rights to Payment.

 

“Cash” means all of Borrower’s cash and cash equivalents.

 

“Code” means the Uniform Commercial Code as in effect in California from time to time.

 

“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

 

“Enforcement Action” means any action, whether judicial or nonjudicial, to repossess, collect, accelerate, offset, recoup, give notification to third parties with respect to, sell, dispose of, foreclose upon, give notice of sale, disposition, or foreclosure with respect to, or obtain equitable or injunctive relief with respect to, the Collateral.

 

“IP Collateral” means all of Borrower’s right, title, and interest in and to the following:

 

(a)     Copyrights, Trademarks and Patents;

 

(b)     Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

 

 

 

 

(c)     Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

 

(d)     Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

 

(e)     All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

 

(f)     All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

 

(g)     All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing, and all proceeds from the sale or disposition of any of the foregoing except for Rights of Payment.

 

“Other Collateral” means the Collateral other than IP Collateral, A/R Collateral and Cash.

 

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

“Proceeds” has the meaning given in the Code.

 

“Rights to Payment” means all accounts and accounts receivable, arising in the ordinary course of business, that consist of rights to payment and proceeds from the licensing of all or any part, or rights in, the IP Collateral.

 

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

 

2.     INTERCREDITOR ARRANGEMENTS.

 

2.1     Priority of Security Interests. Except as otherwise provided in this Agreement, notwithstanding any contrary priority established by (i) the filing dates of their respective financing statements, (ii) the recording dates of any other security perfection documents, or (iii) which Lender has possession of any of the Collateral: 

 

(a)     the Liens of Bank in the A/R Collateral and Cash shall at all times be senior in rank and order of priority to the Liens of Montage;

 

(b)     the Liens of Montage in the IP Collateral and the Other Collateral shall at all times be senior in rank and order of priority to the Liens of Bank; and

 

(c)     the Proceeds of the disposition of the Collateral shall be distributed as provided in Articles 3 and 4 below.

 

Bank’s lien on Rights to Payment shall be prior to Montage’s lien, even if the A/R Collateral arises from the disposition of IP Collateral in the ordinary course of business. The relative priority of the Liens specified in this Agreement applies only to Liens held by the Lenders (and by their respective agents) to secure loans and other advances made under the respective Loan Documents.

 

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2.2     Possession of Collateral. If any Lender shall obtain possession of any Collateral, it shall hold such Collateral for itself and as agent and bailee for the other Lenders for purposes of perfecting the Lenders’ security interest therein.

 

3.     NO DEBT SUBORDINATION. This agreement is to order the priority of security interests and does not constitute a subordination of debt. Except for application of the proceeds of the disposition of Collateral after a Lender has given written notice to the other Lender and the Borrower that an Event of Default (as defined in the Loan Documents) has occurred and is continuing under any of the Loan Documents to the extent that such proceeds are required to be shared hereunder, any Lender may accept and retain payments made by the Borrower in accordance with the terms of the Loan Documents. 

 

4.     REMEDIES UPON AN EVENT OF DEFAULT.

 

4.1     Decision to Exercise Remedies. Upon the occurrence of an Event of Default, each Lender may take such lawful actions as such Lender deems appropriate to enforce its rights and remedies under its Loan Agreement; provided, however, that (i) Bank shall have the right to determine and shall control the timing, order and type of Enforcement Actions that will be taken and all other matters in connection with any such Enforcement Actions with respect to Cash and A/R Collateral; and (ii) Montage shall have the right to determine and shall control the timing, order and type of Enforcement Actions that will be taken and all other matters in connection with any such Enforcement Actions with respect to the IP Collateral and the Other Collateral. In taking such Enforcement Actions pursuant to the previous sentence, the respective Lender shall act reasonably and in good faith and shall keep the other Lender informed thereof at reasonable intervals.

 

4.2     Application of Cash and A/R Collateral after an Event of Default. Notwithstanding anything to the contrary in the Loan Documents, as between the Lenders, all Cash and the Proceeds of collection or disposition of all A/R Collateral, or any part thereof, shall upon receipt by any Lender be paid to and applied as follows: 

 

(a)     First, to the payment of all amounts that Borrower owes to Bank; and

 

(b)     Second, to the payment of all amounts that Borrower owes to Montage, and 

 

(c)     Third, to Borrower, its successors and assigns, or to whomsoever may be lawfully entitled to receive the same.

 

4.3     Application of IP Collateral and Other Collateral after an Event of Default. Notwithstanding anything to the contrary in the Loan Documents, as between the Lenders, the Proceeds of Collection of the IP Collateral and the Other Collateral, or any part thereof, shall upon receipt by any Lender be paid to and applied as follows: 

 

(a)     First, to the payment of all amounts that Borrower owes to Montage; and

 

(b)     Second, to the payment of all amounts that Borrower owes to Bank on account of the Advances; and 

 

(c)     Third, to Borrower, its successors and assigns, or to whomsoever may be lawfully entitled to receive the same.

 

4.4     Return of Payments. To the extent any payment for the account of Borrower is required to be returned as a voidable transfer or otherwise, the Lenders shall contribute to one another as is necessary to ensure that such return of payment is in accordance with the terms of this Agreement.

 

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4.5     Insurance. In the event of any loss affecting any Collateral, the Lender having a senior Lien in the Collateral under this Agreement shall, subject to the Borrower’s rights under the relevant Loan Agreement with respect to such Collateral, have the sole and exclusive right, to adjust settlement of any insurance policy applicable to such Collateral. All proceeds of such insurance applicable to such Collateral shall (subject to the Borrower’s rights under the relevant Loan Agreement with respect to such Collateral) be applied in the same manner set forth in Sections 4.2, 4.3 and 4.4 with respect to such Collateral itself and other Proceeds thereof.

 

5.     Insolvency. In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the property of Borrower or the proceeds thereof to the creditors of Borrower, or the readjustment of any of the Lenders’ claims against Borrower, whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding involving the readjustment of all or any part of any of such claims (each, a “Lender’s Claims”), or the application of the property of Borrower to the payment or liquidation thereof, or upon the dissolution or other winding up of Borrower’s business, or upon the sale of all or any substantial part of Borrower’s property (any of the foregoing being hereinafter referred to as an “Insolvency Event”), then, and in any such event, and subject to any subordination arrangements to which the Lenders may be subject, (a) all payments and distributions of any kind or character, whether in cash or property or securities in respect of the Lenders’ Claims shall be distributed among the Lenders in accordance with the provisions of Sections 2.2, 4.2, 4.3 and 4.4 hereof; (b) each Lender shall promptly file a claim or claims, on the form required in such proceeding, for the full outstanding amount of such Lender’s Claims, and shall use its best efforts to cause said Claim or Claims to be approved; and (c) in the event that, notwithstanding the foregoing, but subject to the provisions of Sections 2.2, 4.2, 4.3 and 4.4 hereof, any payment or distribution of any kind or character, whether in cash, properties or securities, shall be received by a Lender in excess of its share, then the portion of such payment or distribution in excess of such Lender’s share shall be received by such Lender in trust for and shall be promptly paid over to the other Lender for application to the payments of amounts due on the other Lender’s Claims.

 

6.     Legal Effect; Miscellaneous. This Agreement shall remain effective for so long as both Lenders have any obligation to make credit extensions to Borrower or Borrower owes any amounts to both Lenders under the Loan Documents or otherwise. This Agreement shall terminate upon irrevocable payment in full to each of Montage and Bank of all amounts owing to them under their respective Loan Documents and the termination of all lending commitments thereunder. Notwithstanding the prior termination of this Agreement, the respective obligations of the parties to indemnify each other shall survive until all applicable statute of limitations periods with respect to actions that may be brought against any party have run. If, at any time after payment in full of the Obligations any payments must be disgorged by either 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 each Lender shall immediately pay over to the other Lender all payments received with respect to such Obligations to the extent that such payments would have been prohibited hereunder. At any time and from time to time, without notice to the other Lender, but subject to the terms and conditions of this Agreement, each Lender may take such actions with respect to the Obligations of Borrower owing such Lender as such Lender, 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 of the Loan Documents and any 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 the Lenders’ rights hereunder. Each Lender waives the benefits, if any, of California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433. 

 

7.     Amendments. Notwithstanding anything to the contrary set forth herein, Bank shall not, without the prior written consent of the Creditor which shall not be unreasonably withheld, (i) increase the Advances made under the Bank Loan Agreement to exceed an aggregate principal amount of $2,800,000 or (ii) provide any term loans or Advances on a non-formula basis (other than the availability under the Non-Formula Sublimit in effect on the date hereof), or any advances in excess of 80% of the value of accounts eligible for inclusion in the borrowing base under the Bank Loan Agreement (as determined by Bank at the time of the advance, notwithstanding Bank’s later determination that one or more supporting accounts were ineligible). No amendment of the Loan Documents shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the obligations owing the Lenders.

 

8.     No Collateral Recourse. No action that either Lender may take or omit to take in connection with any of the Collateral, except in the case of gross negligence or willful malfeasance, shall affect this Agreement in any way, or afford either Lender any recourse against any other such party, regardless of whether any such action or inaction may increase any risks to or liabilities of any of them or any person or increase any risk to or diminish any safeguard of any of the liens in the Collateral.

 

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9.     EXCULPATION; DELEGATION; AND INDEMNIFICATION OF LENDERS

 

9.1     Exculpation. In connection with any exercise of Enforcement Actions hereunder, no Lender or any of its partners, or any of their respective directors, officers, employees, attorneys, accountants, or agents shall be liable as such for any action taken or omitted by it or them, except for its or their own gross negligence or willful misconduct with respect to its duties under this Agreement.

 

9.2     Delegation of Duties. Each Lender may execute any of its powers and perform any duties hereunder either directly or by or through agents or attorneys-in-fact. Each Lender shall be entitled to advice of counsel concerning all matters pertaining to such powers and duties. No Lender shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it, if the selection of such agents or attorneys-in-fact was done without gross negligence or willful misconduct.

 

10.     RELATIONSHIP OF THE LENDERS. Lenders shall not under any circumstances be construed to be partners or joint venturers of one another; nor shall the Lenders under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with one another, or to owe any fiduciary duty to one another. Lenders do not undertake or assume any responsibility or duty to one another to select, review, inspect, supervise, pass judgment upon or otherwise inform each other of any matter in connection with Borrower’s property, any Collateral held by any Lender or the operations of Borrower. Each Lender shall rely entirely on its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by any Lender in connection with such matters is solely for the protection of such Lender.

 

11.     Successors; No Third Party Beneficiaries. This Agreement shall bind and inure to the benefit of any successors or assignees of Montage and the Bank. This Agreement is solely for the benefit of Montage and Bank, and not for the benefit of Borrower or any other person.

 

12.     CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE. 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. Each of the Lenders hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES. IF THIS JURY WAIVER IS UNENFORCEABLE, THE PARTIES WILL RESOLVE ALL DISPUTES PURSUANT TO JUDICIAL REFERENCE UNDER CODE OF CIVIL PROCEDURE SECTION 638 ET SEQ BEFORE A MUTUALLY ACCEPTABLE REFEREE SITTING WITHOUT A JURY, OR IF NONE IS MUTUALLY ACCEPTABLE, BEFORE A REFEREE SITTING WITHOUT A JURY APPOINTED BY THE PRESIDING JUDGE OF THE CALIFORNIA SUPERIOR COURT FOR SANTA CLARA COUNTY.

 

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13.     NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Montage or to Bank, as the case may be, at its addresses set forth below:

 

	
			If to Montage:

				
			Montage Capital II, L.P.

			
			900 E. Hamilton Ave., Suite 100

			Campbell, CA 95008

			

			
			Attn: Mike Rose

			

			
			Fax: (408) 659-2318

			

			
			Email: mrose@montagecapital.com

			

			

 

	
			If to Bank:

				
			Heritage Bank of Commerce

			
			150 Almaden Blvd.

			

			
			San Jose, CA 95113

			

			
			Attn: Karla Schrader

			

			
			FAX: (408) 947-6910

			

			
			Email: Karla.Schrader@herbank.com

			

			

 

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

 

14.     Purchase Option. Bank shall promptly provide Montage with written notice upon Bank’s acceleration of the Indebtedness under the Bank Agreement. Within ten days of Montage’s receipt of such notice, Montage may, but is not obligated to, elect to purchase the outstanding obligations owing by Borrower to Bank under the Bank Loan Agreement (“Purchase Election”) at a purchase price equal to all Advances then outstanding and unpaid, plus all accrued and unpaid interest, fees and expenses (the “Purchase Right”). Following Bank’s receipt of the Purchase Election, Bank shall not dispose of any Collateral or exercise other rights against Borrower; and upon Bank’s receipt of the Purchase Price (which shall be made in immediately available funds by federal funds wire transfer within ten days following Montage’s election to exercise its Purchase Right), Bank shall promptly assign all of its rights and obligations under this Agreement, the Bank Loan Agreement and all other documents, agreements and instruments entered into in connection therewith and Bank shall take such other actions as are reasonably necessary to assign to Montage the lien and other security interests granted by Borrower in favor of Bank and securing the obligations owing to Bank. 

 

15.     General. This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments. Neither Lender is relying on any representations by the other Lender or Borrower in entering into this Agreement, and each Lender 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 Montage and Bank.

 

16.     Prevailing Party. 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.

 

17.     Counterparts. This Agreement may be executed in any number of 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 or other electronic 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” or electronic signature page were an original thereof.

 

[Balance of Page Intentionally Left Blank]

 

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

 

	 	
			“Montage”

			 

			MONTAGE CAPITAL L.P.

			 

			
	 	By:	 
	 	 	 
	 	Title:	 
	 	 	 
	 	 	 
	 	 	 
	 	
			“Bank”

			 

			HERITAGE BANK OF COMMERCE

			
	 	 	 
	 	By:	 
	 	 	 
	 	Title:	 

 

 

 

	Borrower acknowledges the foregoing agreement.	 	 
	 	 	 
	 	
			“Borrower”

			 

			BRIDGELINE DIGITAL, INC.

			 

			
	 	 
	 	By:	 
	 	 	 
	 	Title:	 

 

 

 

 

[Signature Page to Intercreditor Agreement]

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