Exhibit 10.41
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT is dated as of October 26, 1995, and is
entered into by and among INFORMATION MANAGEMENT ASSOCIATES, INC., a Connecticut
corporation (the "Company"), PEOPLE'S BANK, a Connecticut chartered bank (the
"Bank"), and WAND/IMA INVESTMENTS, L.P., a limited partnership organized under
the laws of the State of Delaware (the "Noteholder").
W I T N E S S E T H:
WHEREAS, the Company and the Noteholder have heretofore entered into
that certain Note and Warrant Purchase Agreement, dated as of December 21, 1990,
as amended by an Exchange and Note Modification Agreement and Amendment to Note
and Warrant Purchase Agreement, dated as of October 29, 1991, as further amended
by an Amendment to Note and Warrant Purchase Agreement, dated as of March 1,
1993 and, as further amended by Amendment No. 2 to Note and Warrant Purchase
Agreement, dated as of June 1, 1994, all in the form attached hereto as Exhibit
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A (the "Purchase Agreement"), pursuant to which the Noteholder presently holds
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$1,000,000 in aggregate principal amount of the Company's 12% Senior
Subordinated Notes due 1997 (the "Notes") and warrants to purchase the Company's
common stock; and
WHEREAS, in order to induce the Bank to enter into the Loan Agreement
(as hereinafter defined), the Company has requested that the Noteholder enter
into this Subordination Agreement in order to amend and to supplement certain of
the terms contained in the Purchase Agreement pertaining to the subordination of
the Notes; and
WHEREAS, the Bank is willing to enter into a Loan and Security
Agreement of even date herewith (the "Loan Agreement") among the Company,
Information Management Associates Limited, a corporation registered under the
laws of England ("IMA Limited") and the Bank, pursuant to which the Bank has
agreed to (i) extend to the Company and IMA Limited (together, "Borrowers") a
term loan in the amount of $2,500,000 (the "Term Loan"), and (ii) make advances
to Borrowers in principal amount not to exceed $6,000,000 ("Line of Credit
Loans"), on the condition, inter alia, that the Notes and the indebtedness
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evidenced thereby be subordinated to the Term Loan and the Line of Credit Loans
pursuant to the terms of the Purchase Agreement, as modified and supplemented by
this Subordination Agreement;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
Section 1. Effective Date; Termination
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(a) The Purchase Agreement, as amended and supplemented by
this Subordination Agreement, shall govern in all respects the subordination of
the Notes to all Senior Indebtedness (as hereinafter defined) outstanding under
and pursuant to the Loan Agreement.
(b) This Subordination Agreement shall take effect as of the
date hereof and shall remain in full force and effect while the Loan Agreement,
or any extensions, renewals, refinancings or modifications thereof or any part
thereof, or any amount payable thereunder is outstanding. After termination of
the Loan Agreement and full payment of all Obligations (as defined in the Loan
Agreement) to the Bank, this Agreement shall terminate. This Subordination
Agreement shall not amend or otherwise affect the terms of the Purchase
Agreement as the same may apply to lenders other than the Bank.
Section 2. Definitions. All capitalized terms used herein without
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definition shall have the meanings prescribed therefor in the Purchase
Agreement, except as modified herein.
(a) Definition of Senior Indebtedness. The first sentence of
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the definition of "Senior Indebtedness" in Section 15 of the Purchase Agreement
is hereby amended and restated to read in its entirety as follows:
"Senior Indebtedness: The principal of and interest on
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(including post bankruptcy petition interest, whether or
not allowed), and penalties, indemnities, reimbursement
obligations, costs, fees and expenses (including reasonable
attorneys' fees and expenses), and any other amounts in
respect of, any secured Indebtedness of the Company for
borrowed money owed to any financial institution, whether
outstanding on the date of this Agreement or hereafter
created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes or shall be
junior or subordinate to any other Indebtedness or
obligation of the Company."
(b) The Noteholder hereby acknowledges that the Term Loan,
Additional Interest (as defined in that certain Term Loan Promissory Note dated
October 26, 1995 evidencing the Term Loan), and any and all Line of Credit Loans
made by the Bank pursuant to the Loan Agreement constitute Senior Indebtedness
under the Purchase Agreement.
Section 3. Subordination of the Notes.
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(a) The first paragraph of Section 10 of the Purchase Agreement
is amended and restated in its entirety to read as follows:
"The Company covenants and agrees and the holders of Notes,
by their acceptance of the Notes likewise covenant and
agree, that, to the extent and in the manner hereinafter
set forth in this Section 10, the payment of the principal
of and interest on (including post bankruptcy petition
interest, whether or not allowed), and penalties,
indemnities, reimbursement obligations, costs, fees and
expenses (including attorneys' fees and expenses), and any
other amounts in respect of, the Notes is hereby expressly
made subordinate and subject in right of payment as
provided in this Section 10 to the prior payment in full,
in cash, cash equivalents or in any other manner
acceptable to the holders of Senior Indebtedness, of all
Senior Indebtedness; provided, however that the Notes, the
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Indebtedness represented hereby and the payment of the
principal of and interest on the Notes and of all other
amounts payable
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under this Agreement in all respects shall rank prior to
all existing and future unsecured Indebtedness of the
Company that is not Senior Indebtedness."
(b) Section 10.1 of the Purchase Agreement is
amended by:
(i) in the first sentence, deleting the words, "principal
of or interest on" where they appear at the bottom of page 37;
(ii) in the sixth and seventh lines of the second
paragraph, deleting the words, "or payment thereof provided for."
(c) Section l0.2(a) of the Purchase Agreement is amended and
restated in its entirety to read as follows:
"(a) Unless Section 10.l shall be applicable, in the
event that a Payment Event of Default has occurred and is
continuing, then no payment or distribution of any assets
of the Company of any kind or character (excluding
Permitted Junior Securities) shall be made by the Company
on account of the Notes or on account of the purchase,
redemption or acquisition of the Notes, unless and until
such Payment Event of Default shall have been waived or
such Senior Indebtedness shall have been discharged in full
or, within ten (10) business days of the date that a
Payment Event of Default occurred, such Payment Event of
Default shall have been cured, after which the Company
shall resume making any and all required payments in
respect of the Notes, including any missed payments; the
holder of the Senior Indebtedness shall give notice to the
Noteholder or other holder of the Notes whose name and
address the holder of the Senior Indebtedness has received
written notice of stating the date of the occurrence of
such Payment Event of Default within ten (10) business
days after its occurrence, provided that failure to give
such notice shall not affect the covenants and obligations
of the Company hereunder;"
(d) The first sentence of Section 10.2(b) of the Purchase
Agreement is amended and restated in its entirety to read as follows:
"(b) Unless Section 10.1 shall be applicable, in the
event that written notice is given by the Company or any
holder of Senior Indebtedness to the Noteholder or other
holder of the Notes whose name and address the holder of
the Senior Indebtedness has received written notice of that
a Non-Payment Event of Default has occurred and is
continuing, then no payment or distribution of any assets
of the Company of any kind or character (excluding
Permitted Junior Securities), shall be made by the Company
on account of the Notes or on account of the purchase,
redemption or acquisition of the Notes for a period
("Payment Blockage Period") commencing on the effective
date of such notice until (subject to any blockage of
payments that may then be in effect under subsection (a) of
this Section 10.2) the earlier of the time when (x) more
than 269 days shall have elapsed since the effective date
of such notice, (y) such Non-Payment Event of Default
shall have been cured or waived or shall have ceased to
exist or such Senior Indebtedness shall
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have been discharged, or (z) such Payment Blockage Period
shall have been terminated by notice to the Company and the
holders of the Notes from the holder of the Senior
Indebtedness as to which the Non-Payment Event of Default
shall have occurred, after which, in the case of clause
(x), (y) or (z), the Company shall resume making any and
all required payments in respect of the Notes, including
any missed payments."
(e) Section 10.2(c) of the Purchase Agreement is amended and
restated in its entirety to read as follows:
"(c) Unless Section 10.1 shall be applicable, upon the
occurrence of a Payment Event of Default or a Non-Payment
Event of Default and continuing for a period which shall
terminate upon the earlier to occur of (i) the date on
which such Payment Event of Default has been cured, waived
or shall have ceased to exist in accordance with Section
10.2(a) and/or such Non-Payment Event of Default has been
cured, waived or shall have ceased to exist in accordance
with Section 10.2(b), or (ii) the 270th day after the
occurrence of a Payment Event of Default or the effective
date of written notice of a Non-Payment Event of Default in
accordance with Section 10.2(b) (the "Enforcement
Suspension Period"), no holder of the Notes shall, without
the prior written consent of all the holders of Senior
Indebtedness, engage in any of the following activities
("Restricted Enforcement Activities"): (x) accelerate the
maturity of any of the Notes; (y) commence or join in the
commencement of any bankruptcy or insolvency proceeding
against the Company; or (z) subject to the provisions set
forth in the following two sentences of this Section
10.2(c), institute any legal or other similar proceeding
(whether at law, in equity, by arbitration or otherwise) to
enforce all or any portion of the provisions of this
Agreement or the Notes. In the event the Bank accelerates
prior to the expiration of any Enforcement Suspension
Period the maturity of the Senior Indebtedness outstanding
under the Loan Agreement, the Noteholder may accelerate the
maturity of the Notes (but may until expiration of the then
applicable Enforcement Suspension Period take no other
enforcement action except for sending the Company written
notice of such acceleration); provided, however, if the
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Bank rescinds any such acceleration prior to the expiration
of the then applicable Enforcement Suspension Period, the
Noteholder agrees to similarly rescind its acceleration of
the Notes. In the event the Bank institutes prior to the
expiration of an applicable Enforcement Suspension Period
any proceedings or takes any other action beyond
accelerating the Senior Indebtedness outstanding under the
Loan Agreement in order to enforce all or a portion of the
provisions of the Loan Agreement or such Senior
Indebtedness, the Noteholder may institute any proceedings
or take any other action beyond accelerating the maturity
of the Notes in order to enforce all or a portion of the
provisions of this Agreement or the Notes, provided,
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however, that the Noteholder does so in a manner that does
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not unduly delay or interfere with any action taken by the
holders of such Senior Indebtedness or the payment in full
of such Senior Indebtedness.
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Notwithstanding any other provision of this Agreement,
upon the termination of any Enforcement Suspension Period,
a subsequent Enforcement Suspension Period may not commence
for at least ninety (90) consecutive days after the date of
such termination and no Non-Payment Event of Default or
Payment Event of Default with respect to the Senior
Indebtedness which existed or was continuing on the date of
commencement of any Enforcement Suspension Period shall be,
or be made, the basis for the commencement of a subsequent
Enforcement Suspension Period unless such event of default
shall have been cured or waived for a period of not less
than ninety (90) consecutive days. Following the expiration
of any Enforcement Suspension Period and prior to the
commencement of any subsequent Enforcement Suspension
Period, the Noteholder, subject to the provisions of the
following paragraph, may engage in any Restricted
Enforcement Activity.
In any event, no Noteholder shall engage in any
Restricted Enforcement Activity unless such holder shall
have given to the holder of Senior Indebtedness not less
than seven (7) days prior written notice of the intention
of such holder to take such action."
(f) The second sentence of Section 10.2(d) of the Purchase
Agreement is amended and restated in its entirety to read as follows:
"No holder of Notes shall at any time be charged with
knowledge of the existence of any facts other than a
voluntary prepayment which is expressly prohibited by
Section 7.3 as amended hereby which would require such
holder to deliver any payment to such agent for the holders
of Senior Indebtedness unless such holder shall have been
given written notice thereof by the Company or such agent
and, prior to the effective date of such written notice,
such holder shall be entitled in all respects to
conclusively assume that no such facts exist."
(g) Section 10.3 of the Purchase Agreement is hereby deleted in
its entirety.
(h) Section 10.8 of the Purchase Agreement is amended and
restated in its entirety as follows:
"10.8 Notice to Holders of Notes. No holder of Notes
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shall be charged with knowledge of the existence of any
fact that would prohibit the making of any payment to such
holder under this Agreement or the Notes other than a
voluntary prepayment which is expressly prohibited by
Section 7.3 as amended hereby unless such holder shall have
been given written notice thereof as contemplated hereby;
and, prior to the effective date of any such written
notice, such holder of Notes shall be entitled in all
respects to assume that no such fact exists."
(i) Section 10 of the Purchase Agreement is amended by adding
the following Section 10.11 immediately following Section 10.10:
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"10.11 Covenant to Cooperate. In the event of any
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insolvency or bankruptcy proceedings, and any receivership,
liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company, its
creditors, or its property (whether voluntary or
involuntary), and, in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of
the Company or distribution or marshalling of its assets or
any composition with creditors of the Company, whether or
not involving insolvency or bankruptcy, the Noteholder
hereby agrees to file all proofs of claims on account of
the Notes, and to vote such claims, in a timely manner. The
Noteholder shall in no event vote such claims in a manner
that will unduly delay or interfere with the payment in
full of the Senior Indebtedness. In order that the Bank may
recover for its own account dividends, payments and
distributions in respect of the Notes, the Noteholder
hereby agrees to cooperate with the Bank in filing such
proofs of claims on account of the Notes as the Bank
reasonably request and in receiving and collecting any and
all dividends, payments or other distributions made thereon
in whatever form the same may be paid or issued and in
applying the same on account of the Senior Indebtedness.
The Noteholder further agrees to supply such information
and evidence, provide access to and copies of such of
Noteholder's records as may pertain to the Notes as may be
reasonably requested by the Bank."
Section 4. Optional Prepayments. Section 7.3 of the Purchase Agreement
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is hereby amended by adding at the end of such section thereto the following:
"Notwithstanding the foregoing, as long as the Loan
Agreement is in effect and as long as there is any Senior
Indebtedness owed by the Company to the Bank, no such
prepayment may be made without the prior written consent of
the Bank."
Section 5. Notices under this Subordination Agreement. Section 20 of
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the Purchase Agreement is amended by adding the following sentence at the end of
such Section:
"All such notices and other communications shall be
effective (i) when hand delivered, upon receipt, (ii) when
mailed, five (5) days after the date of deposit in the
mails, (iii) when delivered by air courier guaranteeing
overnight delivery, the next business day after delivery to
the air courier, and (iv) when transmitted by telex or
telecopier, when received by the party to whom the telex or
telecopy was transmitted. Any notice or other communication
sent by telex or telecopy shall be accompanied by a request
for confirmation of receipt."
Section 6. Representations and Warranties of the Noteholder. The
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Noteholder represents and warrants to Borrowers and the Bank as follows:
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(a) Organization and Power. The Noteholder is a limited
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partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full power and authority to execute and deliver
this Subordination Agreement.
(b) Due Authorization; Effect of Transaction. All requisite
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partnership and other authorizations for the execution, delivery, performance
and satisfaction by the Noteholder of this Subordination Agreement have been
duly obtained. This Subordination Agreement will, upon execution and delivery,
be a legal, valid and binding obligation of the Noteholder, enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles are applied in
a court of equity or at law. No authorization or approval of, or filing with,
any governmental agency, authority or other body or any other third persons will
be required in connection with the execution and delivery of this Subordination
Agreement.
(c) Purchase Agreement and Notes. True, accurate and complete
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copies of the Purchase Agreement and the 12% Senior Subordinated Note due
December 21, 1997 dated October 29, 1991 made by the Company to the Noteholder
in the principal amount of $1,000,000 (the "Note") have been attached hereto as
Exhibits A and B, respectively. Neither the Purchase Agreement nor the Note has
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been amended or modified since June l, 1994 and no such amendment is currently
contemplated except for the amendments contained in this Subordination
Agreement. The Noteholder is the holder of record of all the issued and
currently outstanding Notes issued pursuant to the Purchase Agreement.
Section 7. Amendment of the Purchase Agreement. No amendment to,
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modification of or supplement to the Note or the Purchase Agreement which would
have the effect of advancing to an earlier date the time when the Note (or any
Note issued pursuant to the Purchase Agreement) would otherwise be payable or
prepayable, or increasing the principal amount thereof or the rate of interest
on principal sums outstanding thereunder, or adding any defaults or covenants,
or making any existing defaults or covenants materially more restrictive, or
amending Section 10 thereof or other provisions thereof amended hereby, shall
become effective without the prior written consent of the Bank.
Section 8. Survival of Rights. The right of the Bank to enforce the
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provisions of this Subordination Agreement shall not be prejudiced or impaired
by any act or omitted act of Borrowers or the Bank, including forbearance,
waiver, consent, compromise, amendment, extension, renewal, or taking or release
of security in respect of any part of the Senior Indebtedness or noncompliance
by Borrowers with such provisions, regardless of the Bank's actual or imputed
knowledge.
Section 9. Specific Performance. The Bank is hereby authorized to
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demand specific performance by the Noteholder and Borrowers of the subordination
provisions of this Subordination Agreement when the Noteholder shall have failed
to comply with any such provisions hereof, and the Noteholder hereby irrevocably
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to the remedy of the Bank.
Section 10. Waivers by the Noteholder. Except as required by the Loan
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Agreement and this Subordination Agreement, the Noteholder hereby waives
presentment, demand, protest and all other notices under the Loan Agreement. The
Noteholder acknowledges and agrees that the Bank has relied upon and will
continue to rely upon this Subordination Agreement in entering into the Loan
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Agreement and making the extensions of credit provided for therein. The
Noteholder hereby waives notice of or proof of reliance thereon.
Section 11. Transfers. The Noteholder and Borrowers further agree to
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attach to the Note (or any Note issued pursuant to the Purchase Agreement) an
allonge bearing a legend indicating that it is subject to the terms of this
Subordination Agreement and will provide the Bank with evidence thereof.
Section 12. Miscellaneous.
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(a) Notices. Notices and other communications hereunder shall
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be in writing and shall be delivered by hand, mailed by first class mail
(postage prepaid), transmitted by telex or telecopier or sent by air courier
guaranteeing overnight delivery to the Company, the Bank or the Noteholder at
the address set forth below the signature of each such party. Any party may
designate a different address by written notice to the other parties. All such
notices and other communications shall be effective (i) when hand delivered,
upon receipt, (ii) when mailed, five (5) days after the date of deposit in the
mails, (iii) when delivered by air courier guaranteeing overnight delivery, the
next business day after delivery to the air courier, and (iv) when transmitted
by telex or telecopier, when received by the party to whom the telex or telecopy
was transmitted. Any notice or other communication sent by telex or telecopy
shall be accompanied by a request for confirmation of receipt.
(b) Severability. Any provision of this Subordination Agreement
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which is prohibited, unenforceable or not authorized in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality or such
provision in any other jurisdiction.
(c) Successors and Assigns. The provisions of this
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Subordination Agreement shall inure to the benefit of and shall be binding upon
each of Borrowers, the Bank and the Noteholder and their respective successors
and assigns.
(d) Amendments. This Subordination Agreement (together with the
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relevant sections of the Purchase Agreement) amends and restates the
Subordination Agreement dated as of June 3, 1994 among the Company, the Bank and
the Noteholder. The Subordination Agreement sets forth the entire agreement of
the parties with respect to the subject matter hereof and may not be amended or
waived in any manner except in a writing signed by the Company, the Bank and the
Noteholder.
(e) Governing Law. This Subordination Agreement shall be
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governed by, and construed in accordance with, the law of the State of
Connecticut.
(f) Headings. Section headings in this Subordination Agreement
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are included herein for convenience or reference only and shall not constitute a
part of this Subordination Agreement for any other purpose.
(g) Counterparts. This Subordination Agreement may be executed
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in several counterparts, each of which shall be regarded as the original and all
of which shall constitute one and the same Subordination Agreement.
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IN WITNESS WHEREOF, each of the undersigned has caused this
Subordination Agreement to be executed under seal and delivered by its duly
authorized representative or officer as of the date first written above.
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By /S/Xxxx X. Xxxxxxx
___________________________
Xxxx X. Xxxxxxx
Its Chief Financial Officer
Address:
Xxx Xxxxxxxxx Xxxxx - Xxxxx 000
Xxxxxxx, Xxxxxxxxxxx 00000
Facsimile (000) 000-0000
PEOPLE'S BANK
By /s/Xxxxx X. Xxxxx
___________________________
Xxxxx X. Xxxxx
Its Vice President
Address:
Xxx Xxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000-0000
Facsimile (000) 000-0000
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WAND/IMA INVESTMENTS, L.P.
By WAND PARTNERS, INC.
Its General Partner
By /s/ Xxxxx X. Xxxxxxx
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Its President
Address:
000 0xx Xxx. - Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile (000) 000-0000
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