EXHIBIT 10.35
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SUBORDINATION AGREEMENT
This Subordination Agreement is made as of the 6th day of September, 1996
by and between Massachusetts Capital Resource Company (the "Subordinated
Creditor") and Fleet National Bank (the "Bank").
WHEREAS, the Bank is about to enter into certain financing arrangements
with Peritus Software Services, Inc., a Massachusetts corporation (the
"Borrower"), pursuant to which the Bank may make loans and other extensions of
credit to the Borrower on the terms and conditions described in a letter
agreement dated September 6, 1996 between the Bank and the Borrower (as same may
be from time to time amended, the "Loan Agreement"); and
WHEREAS, the Subordinated Creditor is the holder of a $1,000,000 principal
amount promissory note due 2002 (the "Subordinated Note") issued by the Borrower
and payable to the Subordinated Creditor as provided in that certain Note and
Warrant Purchase Agreement (the "Subordinated Note Agreement") dated as of May
30, 1995 between the Borrower and the Subordinated Creditor (the obligations and
indebtedness represented by said Subordinated Note and/or said Subordinated Note
Agreement, as same may be from time to time amended or extended, including,
without limitation, all principal, interest, fees, charges and the purchase
price due upon the exercise of any put rights, being hereinafter referred to as
the "Subordinated Debt"); and
WHEREAS, the Bank requires that the Subordinated Creditor enter into this
Subordination Agreement as a condition precedent to the Bank's loans to the
Borrower;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby act and
agree as follows:
1. The Subordinated Creditor agrees that the payment of all of the
Subordinated Debt is expressly subordinated, in the manner hereinafter set
forth, in right of payment to the prior payment and satisfaction in full of the
Senior Debt. As used herein, "Senior Debt" means (i) the principal, interest,
fees and other sums payable from time to time to the Bank under the Loan
Agreement, the Revolving Note (as defined in the Loan Agreement) and/or the Term
Notes (as defined in the Loan Agreement), each as same may be from time to time
amended and (ii) any and all other indebtedness or liabilities of the Borrower
to the Bank resulting from any other or additional credit hereafter extended by
the Bank to or for the benefit of the Borrower; provided, however, that the
principal amount of the loans giving rise to such Senior Debt shall not exceed
$5,000,000 in the aggregate. Interest, fees and charges constituting Senior
Debt will be calculated as provided for in the notes and
other instruments governing same and without regard to whether or not same are
allowable in any bankruptcy or insolvency proceedings involving the Borrower.
2. (a) So long as any part of the Senior Debt shall be unpaid or any
facility for loans or other extensions of credit by the Bank to or for the
benefit of the Borrower shall remain in effect, no payment of or with respect to
any Subordinated Debt shall be made at any time by the Borrower or received by
the Subordinated Creditor without the prior written consent of the Bank, except
as expressly provided below in this Section 2. If the Subordinated Creditor
receives any payment to which the Subordinated Creditor shall not be entitled
under this Section 2, the Subordinated Creditor will hold any such payment in
trust for the benefit of the Bank and, upon demand, will forthwith remit same to
the Bank.
(b) Notwithstanding the provisions of Subsection 2(a) of this
Subordination Agreement, at any time when neither a Payment Default Standstill
Period nor a Covenant Default Standstill Period is in effect, the Borrower may
pay, and the Subordinated Creditor may receive and retain for its own account,
current payments of interest on the Subordinated Note at the rate provided for
in the Subordinated Note, any fees and charges provided for in the Subordinated
Note Agreement and mandatory redemption payments as scheduled pursuant to
Section 1.05(a) of the Subordinated Note Agreement. Further, at any time when
only a Covenant Default Standstill Period (and not a Payment Default Standstill
Period) is in effect, the Borrower may pay, and the Subordinated Creditor may
receive and retain for its own account, current payments of interest on the
Subordinated Note at the rate provided for in the Subordinated Note.
(c) As used in this Section 2, a "Payment Default Standstill Period" will
be deemed to be in effect:
(i) during any period commencing with the date on which the Borrower
fails to pay any principal of and/or interest then due on the Loans (as
defined in the Loan Agreement) (such failure to pay being hereinafter
referred to as a "Payment Default") and ending on the 90th day after the
date of such Payment Default (subject to extension as hereinafter
provided), unless judicial proceedings regarding collection of any
defaulted payments on the Senior Debt shall have been commenced prior to
such 90th day and/or other proceedings (judicial or non-judicial) relating
to realization on collateral shall have been commenced prior to such 90th
day; or
(ii) during any period commencing with the commencement of any
judicial proceeding and/or other proceedings (judicial or non-judicial) as
described in clause (i) above and ending only upon payment in full of the
Senior Debt in cash.
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If at any time during a Payment Default Standstill Period existing pursuant to
clause (i) above, the Bank shall be restrained, prohibited or ordered by a court
of competent jurisdiction or governmental agency asserting jurisdiction (or
prohibited or prevented by any relevant law, rule or statute) from accelerating
the Senior Debt or any of same or from commencing the judicial or non-judicial
proceedings described in clause (i) above, the Payment Default Standstill Period
shall be extended until the later of: (A) the date upon which it would have
otherwise expired pursuant to the terms of clauses (i) and (ii) above, or (B)
the 30th day following the last day on which the Bank is so restrained,
prohibited, ordered or prevented. If any Payment Default occurs, the Bank will
give the Subordinated Creditor prompt written notice thereof.
(d) As used in this Section 2, a "Covenant Default Standstill Period" will
be deemed to be in effect:
(i) during any period commencing with the giving of any Covenant
Default Standstill Notice by the Bank to the Subordinated Creditor and
ending on the 90th day thereafter (subject to extension as hereinafter
provided), unless (A) the Bank shall have accelerated any of the Senior
Debt prior to such 90th day (in which case a Payment Default will be deemed
to have resulted from such acceleration and a Payment Default Standstill
Period will be deemed to have occurred, commencing on the date of such
Payment Default and terminating as provided in Subsection 2(c) above) or
(B) judicial proceedings regarding enforcement of rights of the Bank shall
have been commenced prior to such 90th day and/or other proceedings
(judicial or non-judicial) relating to realization on collateral shall have
been commenced prior to such 90th day; or
(ii) during any period commencing with the commencement of any
judicial proceeding and/or other proceedings (judicial or non-judicial) as
described in clause (i) above and ending only upon payment in full of the
Senior Debt in cash.
If at any time during a Covenant Default Standstill Period existing pursuant to
clause (i) above, the Bank shall be restrained, prohibited or ordered by a court
of competent jurisdiction or governmental agency asserting jurisdiction (or
prohibited or prevented by any relevant law, rule or statute) from accelerating
the Senior Debt or any of same or from commencing the judicial or non judicial
proceedings described in clause (i) above, the Covenant Default Standstill
Period shall be extended until the later of: (A) the date upon which it would
have otherwise expired pursuant to the terms of clauses (i) and (ii) above, or
(B) the 30th day following the last day on which the Bank is so restrained,
prohibited, ordered or prevented. As used herein, a "Covenant Default
Standstill Notice" is a written notice given by the Bank to the Subordinated
Creditor, at its address set forth below, stating that an Event of Default (as
defined in the Loan Agreement) has occurred under any of Sections 3.7, 3.8, 3.9
and/or 3.10 of the Loan Agreement and is then continuing or would result from
any proposed
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payment in respect of Subordinated Debt. Notwithstanding anything provided
above, the Bank may not give more than one Covenant Default Standstill Notice
during any 180-day period.
3. The Subordinated Creditor agrees to execute and deliver all such
Uniform Commercial Code subordination statements as the Bank may reasonably
request in order to evidence the subordination contained herein. The
Subordinated Creditor agrees not to commence foreclosure proceedings against any
collateral for the Subordinated Debt unless the Bank has already commenced
foreclosure proceedings against the same collateral or (if earlier) that date on
which no Payment Default Standstill Period nor any Covenant Default Standstill
Period then remains in effect and in any event after the Subordinated Creditor
has given the Bank not less than 30 days' prior written notice of its intent so
to proceed. In any event, the Subordinated Creditor will turn over to the Bank
all proceeds of any foreclosure against collateral for the Subordinated Debt,
such proceeds to be applied against the Senior Debt until same shall have been
paid in full.
4. In the event of an acceleration of any Senior Debt or the failure to
pay any Senior Debt at maturity, or in the event of any foreclosure by the Bank
with respect to any Collateral (as defined in the Loan Agreement), or in the
event of a distribution of the assets, dissolution, winding-up, liquidation or
reorganization of the Borrower (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise):
(a) The Senior Debt shall be paid and satisfied in full in cash before the
Subordinated Creditor is entitled to receive any payment on account of
Subordinated Debt, and any payment or distribution to which any holder of
Subordinated Debt would otherwise be entitled on account of its Subordinated
Debt, but for the subordination provisions of this Agreement, shall be paid
directly to the Bank.
(b) In the event that any such payment on account of Subordinated Debt or
distribution of assets of the Borrower shall be received by the Subordinated
Creditor in violation of the subordination provisions of this Agreement, such
payment or distribution shall be held by the Subordinated Creditor in trust for
the benefit of the Bank and, upon demand, shall be paid over forthwith to the
Bank.
5. The Subordinated Creditor irrevocably authorizes and directs the Bank
and its successors and assigns and any trustee in bankruptcy, receiver or
assignee for the benefit of creditors of the Borrower, whether in voluntary or
involuntary liquidation, dissolution or reorganization, to take such action in
the name of the Subordinated Creditor as the Bank may deem to be necessary or
appropriate to effectuate the subordination provided for in this Agreement and
to file all such claims and proofs of claim as the Bank may deem necessary or
appropriate to collect on the Subordinated Debt or any of same; and the
Subordinated Creditor hereby
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irrevocably appoints the Bank and its successors and assigns, acting severally,
or any such trustee, receiver or assignee, as the attorney- or attorneys-in-fact
of the Subordinated Creditor for such purpose, with full powers of substitution
and resubstitution. The power of attorney granted herein is a power coupled with
an interest and is, therefore, irrevocable.
6. The terms of this Agreement, the subordination effected hereby and the
rights of the holder or holders of Senior Debt shall not be affected by: (i) any
amendment of or addition or supplement to the Loan Agreement, the Revolving
Note, any Term Note or any other instrument or agreement relating to the Senior
Debt or securing or guaranteeing any of the Senior Debt, (ii) any exercise or
non-exercise of any right, power or remedy under or in respect of the Senior
Debt or any instrument or agreement relating thereto, or securing or
guaranteeing any of same, or (iii) any waiver, consent, release, indulgence,
extension, renewal, modification, delay or other action, inaction or omission in
respect of any Senior Debt or any instrument or agreement relating thereto, or
securing or guaranteeing any of same, all whether or not the holders of the
Subordinated Debt shall have had notice or knowledge of any of the foregoing.
7. As long as any of the Senior Debt shall be outstanding or any
agreement by the Bank as to the advance of funds or other extension of credit to
the Borrower shall be in effect:
(a) No note or instrument evidencing any Subordinated Debt shall be
amended, terminated or otherwise affected without the prior written consent of
the Bank.
(b) The Subordinated Creditor will neither demand nor receive any payment
of any of the Subordinated Debt, under the Subordinated Note or otherwise,
except payments expressly permitted under Section 2 above.
8. Unless and until the Senior Debt has been paid in full in cash, the
Subordinated Creditor shall not be entitled to any right of subrogation,
contribution or similar right, regardless of any payment made hereunder.
9. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
10. The Subordinated Note and each other promissory note now or hereafter
evidencing any of the Subordinated Debt shall be marked with the following
legend:
"Payment of this note is subject to the terms and conditions of a
Subordination Agreement dated September 6, 1996 between the payee
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and Fleet National Bank. A copy of said Subordination Agreement may be
obtained, upon written request of any holder of this note, from Fleet
National Bank, 00 Xxxxx Xxxxxx, Xxxxxx, XX 00000."
11. Nothing contained in this Agreement or otherwise (including, without
limitation, any right of subrogation, contribution or similar rights now or
hereafter held by the Subordinated Creditor) will in any event be deemed to
constitute any holder of Senior Debt the agent of the Subordinated Creditor for
any purpose nor to create any fiduciary relationship between any such holder of
Senior Debt and the Subordinated Creditor. The Subordinated Creditor
acknowledges and agrees that, notwithstanding any subrogation, contribution or
similar rights or any other right which the Subordinated Creditor may now or
hereafter have, due to payment of the Senior Debt or otherwise, no release,
action or inaction with respect to any collateral for Senior Debt; nor any
amendment to the Loan Agreement, the Revolving Note, any Term Note or any
instrument or agreement relating to, securing or guaranteeing any of the Senior
Debt; nor any exercise or non-exercise of any right, power or remedy under or in
respect of any of the Senior Debt or any instrument or agreement relating to,
securing or guaranteeing any of the Senior Debt; nor any waiver, consent,
release, indulgence, extension, renewal, modification, delay or other action,
inaction or omission (intentional or unintentional) in respect of any of the
Senior Debt or any collateral therefor or any instrument or agreement relating
to, securing or guaranteeing any of the Senior Debt will in any event give rise
to any claim against any holder of Senior Debt or any officer, director,
employee or agent of such holder.
12. This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
Executed, as an instrument under seal, as of the day and year first above
written.
SUBORDINATED CREDITOR:
MASSACHUSETTS CAPITAL
RESOURCE COMPANY
By:/s/Xxx Xxxxxx III
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Name:
Title:
Address:
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Accepted:
FLEET NATIONAL BANK
By: /s/ Xxxxxx Xxxxxx
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Name:
Title:
Acknowledged and agreed to:
PERITUS SOFTWARE SERVICES, INC.
By: /s/ Xxxxx X. Xxxxx
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Name:
Title:
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