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EXHIBIT 10.6
McCown De Leeuw Subordination Agreement
This SUBORDINATION AGREEMENT, dated as of November 8, 2000
(the "Agreement"), made by each of McCown De Leeuw & Co. III, L.P. (the
"Subordinated Creditor") and e-Satisfy.com Inc., a Delaware corporation (the
"Borrower"), in favor of Silicon Valley Bank ("SVB" or the "Senior Creditor").
PRELIMINARY STATEMENTS:
(1) SVB and the Borrower are parties to the Accounts
Receivable Purchase Agreement dated August 30, 2000 (the "Purchase Agreement")
pursuant to which SVB may advance to Borrower up to $800,000 for the purchase
from time to time of "receivables", as that term is defined in the Purchase
Agreement.
(2) The Borrower is indebted to the Subordinated Creditor
pursuant to the Subordinated Note dated March 31, 2000 in the principal amount
of $1,354,500 and the Convertible Promissory Note dated June 23, 2000 in the
principal amount of $451,500 (the "McCown Notes").
(3) It is contemplated by the terms of the Purchase Agreement
that the Subordinated Creditor shall subordinate such indebtedness and the
Subordinated Creditor has agreed to subordinate such indebtedness to obligations
of the Borrower to SVB under the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises hereunder the
Subordinated Creditor and the Borrower each hereby agrees as follows:
SECTION 1. Agreement to Subordinate. The Subordinated Creditor
and the Borrower each agrees that all obligations of the Borrower arising
relating to the McCown Note, including all principal, interest, fees and
expenses thereunder (the "Subordinated Debt") is and shall be subordinate, to
the extent and in the manner hereinafter set forth, to the prior payment in full
of all obligations of the Borrower now or hereafter existing under the Purchase
Agreement, whether for principal, interest (including, without limitation,
interest accruing after the filing of a petition initiating any proceeding under
the Bankruptcy Code or similar proceeding of the type referred to in Section 4
of this Agreement or is an allowed claim in any such proceeding), whether or not
such interest accrues after the filing of such petition for purposes of the
Bankruptcy Code or is an allowed claim in such proceeding), fees, expenses or
otherwise (such obligations being the "Senior Obligations").
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SECTION 2. No Payments on the Subordinated Debt.
(a) No payment (including any payment that may
be payable by reason of any other indebtedness of the Borrower
being subordinated to payment of the Subordinated Debt) shall
be made by or on behalf of the Borrower for or on account of
any Subordinated Debt, and the Subordinated Creditor shall not
take or receive from the Borrower, directly or indirectly, in
cash or other property or by set-off or in any other manner,
including, without limitation, from or by way of collateral,
payment of all or any of the Subordinated Debt, unless and
until full payment of amounts then due for principal, premium,
if any, and interest on all Senior Obligations has been made
in cash. No payment on account of principal or interest on the
Subordinated Debt shall be made if, at the time of such
payment or immediately after giving effect thereto, there
shall exist under any Senior Obligations or any agreement
pursuant to which any such Senior Obligations is issued any
default. No acceleration of the amounts evidenced by and due
on the Subordinated Debt shall be permitted or effected unless
the principal amount due on all Senior Obligations shall have
first been accelerated.
(b) Upon any acceleration of the principal
amount due on any Senior Obligations or upon any distribution
of all or substantially all of the assets of Borrower or any
payment or distribution of assets of Borrower of any kind or
character, whether in cash, property or securities, to
creditors in connection with any dissolution, winding-up,
total or partial liquidation or reorganization of Borrower
whether voluntary or involuntary and whether in bankruptcy,
insolvency, receivership, arrangement or other proceedings, or
upon an assignment for the benefit of creditors, or upon any
other marshaling of the assets and liabilities of Borrower,
all principal, premium, if any, and interest due or to become
due upon all Senior Obligations shall first be paid in full in
cash before the holder of the Subordinated Debt shall be
entitled to receive any payments for unpaid principal or
unpaid interest on the Subordinated Debt; and upon any such
acceleration, payment or distribution of assets, dissolution,
winding up, total or partial liquidation, reorganization,
assignment for the benefit of creditors, marshaling of assets
or liabilities, or similar proceedings, any payment or
distribution of assets of Borrower of any kind or character,
whether in cash, property or securities, to which the holder
of the Subordinated Debt, would, except for the provisions
hereof, be entitled, shall be paid or delivered by Borrower,
or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or
distribution, directly to the holders of the Senior
Obligations pro rata upon the basis of the respective amounts
of Senior Obligations held by such holders, to the extent
necessary to pay all principal, premium, if any, and interest
due or to become due upon all Senior Obligations in full in
cash (after giving effect to any concurrent payment or
distribution to or for the holders of Senior Obligations)
before any payment or distribution is made to the holder of
the Subordinated Debt.
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(c) Upon any such acceleration, payment or
distribution of assets, dissolution, winding-up, total or
partial liquidation or reorganization of Borrower, whether
voluntary or involuntary and whether in bankruptcy,
insolvency, receivership, arrangement or other proceedings, or
upon an assignment for the benefit of creditors, or upon any
other marshaling of the assets and liabilities of Borrower,
any payment or distribution of assets of Borrower of any kind
or character, whether in cash, property or securities, which
shall be received by the holder of the Subordinated Debt
before the entire principal, premium, if any, and interest on
the Senior Obligations shall have been paid in full in cash,
shall be held in trust for the benefit of and promptly paid
over to the holders of Senior Obligations pro rata as
aforesaid, for application to the payment of Senior
Obligations remaining unpaid until all principal, premium, if
any, and interest due or to become due upon all Senior
Obligations shall have been paid in full in cash, after giving
effect to any concurrent payment or distribution to or for the
holders of Senior Obligations.
(d) Subject to the payment in full of all Senior
Obligations, the holder of the Subordinated Debt shall,
together with others so entitled, be subrogated to the rights
of the holders of Senior Obligations to receive payments and
distribution of assets or securities of Borrower applicable to
the Senior Obligations until the principal of and interest on
the Subordinated Debt shall be paid in full, and no such
payments or distributions applicable to the Senior Obligations
shall, as between Borrower, its creditors other than the
holders of Senior Obligations, and the holders of the
Subordinated Debt, be deemed to be a payment of Borrower to or
on account of the Subordinated Debt.
(e) Notwithstanding the foregoing provisions of
the Agreement, the holder of the Subordinated Debt shall be
entitled to receive shares of the stock or other securities of
Borrower issued as part of a reorganization or readjustment of
securities of Borrower or any other corporation provided for
by a plan of reorganization or readjustment, provided that the
terms, rights and preferences of stock issued in payment of
the Subordinated Debt is subordinated at least to the same
extent as the Subordinated Debt to the payment of all Senior
Obligations which may at the time be outstanding, and provided
further that the rights of the holders of Senior Obligations
are not altered by such reorganization or readjustment.
(f) The foregoing provisions are solely for the
purpose of defining the relative rights of the holders of
Senior Obligations on the one hand and the holder of the
Subordinated Debt on the other hand, and nothing herein shall
impair, as between Borrower and the holder of the Subordinated
Debt, the obligation of Borrower, to pay to the holder hereof
the principal plus hereof and interest plus hereon in
accordance with its terms.
SECTION 3. Rights of Subrogation. The Subordinated Creditor
agrees that no payment or distribution to the Senior Creditors pursuant to the
provisions of this Agreement shall entitle the Subordinated Creditor to exercise
any right of subrogation in respect thereof until the Senior Obligations shall
have been paid in full.
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SECTION 4. Subordination Legend; Further Assurances. The
Subordinated Creditor and the Borrower will cause each instrument evidencing
Subordinated Debt to be endorsed with the following legend:
"The indebtedness evidenced by this instrument is subordinated
to the prior payment in full of the Senior Obligations (as defined in
the Subordination Agreement hereinafter referred to) pursuant to, and
to the extent provided in, the Subordination Agreement dated as of
November 8, 2000, by the Borrower hereof and payee named herein in
favor of Silicon Valley Bank under the Purchase Agreement (as defined
therein)."
The Subordinated Creditor and the Borrower each will further mark its books of
account in such a manner as shall be effective to give proper notice of the
effect of this Agreement and will, in the case of any Subordinated Debt that is
not evidenced by any instrument, upon the Senior Creditors' request cause such
Subordinated Debt to be evidenced by an appropriate instrument or instruments
endorsed with the above legend. The Subordinated Creditor and the Borrower each
will, at its expense and at any time and from time to time, promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Senior Creditors may request, in
order to protect any right or interest granted or purported to be granted hereby
or to enable the Senior Creditors to exercise and enforce its rights and
remedies hereunder.
SECTION 5. Agreement by the Borrower. The Borrower agrees that
it will not make any payment of any of the Subordinated Debt, or take any other
action, in contravention of the provisions of this Agreement.
SECTION 6. Obligations Hereunder Not Affected. All rights and
interests of the Senior Creditors hereunder, and all agreements and obligations
of the Subordinated Creditor and the Borrower under this Agreement, shall remain
in full force and effect irrespective of:
(i) any lack of validity or enforceability of the
Purchase Agreement or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Senior Obligations, or
any other amendment or waiver of or any consent to any departure from
the Purchase Agreement, including, without limitation, any increase in
the Senior Obligations resulting from the extension of additional
credit to the Borrower or any of its subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection of
any other collateral, or any taking, release or amendment or waiver of
or consent to departure from any guaranty, for all or any of the
Obligations;
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Obligations
or any other assets of the Borrower or any of its subsidiaries;
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(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
subsidiaries; or
(vi) any exercise or nonexercise of any right, power or
remedy under or in respect of any Senior Obligations or any instrument
or agreement relating thereto, or any waiver, consent, release,
indulgence, extension, renewal, modification, delay or other action,
inaction or omission, in respect of any Senior Obligations or any
instrument or agreement relating thereto or any security therefor or
guaranty thereof, whether or not the Subordinated Creditor shall have
had notice or knowledge of any of the foregoing; or
(vii) any release of any Person liable in any manner for
the collection of any Senior Obligations; or
(viii) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, the Borrower or a
subordinated creditor.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Senior Obligations is rescinded or
must otherwise be returned by the Senior Creditors upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment had not been made.
SECTION 7. Waiver. The Subordinated Creditor and the Borrower
each hereby waives promptness, diligence, notice of acceptance and any other
notice with respect to (a) any of the Senior Obligations and this Agreement
(including, without limitation, any creation or modification of the Senior
Obligations), (b) any requirement that the Senior Creditors protect, secure,
perfect or insure any security interest or lien or any property subject thereto
or exhaust any right or take any action against the Borrower or any other Person
or entity or any collateral or (c) any notice of or proof of reliance by the
Senior Creditors upon the subordination provided for herein.
SECTION 8. Amendments, Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Subordinated
Creditor or the Borrower herefrom, shall in any event be effective unless the
same shall be in writing and signed by the Senior Creditors and, as to any
amendment, the Subordinated Creditor, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 9. Expenses. The Subordinated Creditor and the
Borrower jointly and severally agree upon demand to pay to the Senior Creditors
the amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts or agents, which the Senior Creditors
may incur in connection with the (i) the exercise or enforcement of any of the
rights of the Senior Creditors hereunder or (ii) the failure by the Subordinated
Creditor or the Borrower to perform or observe any of the provisions hereof.
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SECTION 10. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Subordinated Creditor, at 3000
Sand Hill Road, Building 3, Suite 290, Menlo Park, CA 94025; and if to the
Borrower or SVB, at its address specified in the Purchase Agreement, or as to
each party, at such other address as shall be designated by such party in a
written notice to each other party. All such notices and other communications
shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective
when deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively.
SECTION 11. Continuing Agreement; Assignments Under the
Purchase Agreement. This Agreement is a continuing agreement and shall (i)
remain in full force and effect until the payment in full of the Senior
Obligations, (ii) be binding upon the Subordinated Creditor, the Borrower and
their respective successors and assigns, and (iii) inure to the benefit of, and
be enforceable by, the Senior Creditors and their respective successors,
transferees and assigns.
SECTION 12. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York.
SECTION 13. Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, transferees, heirs, executors and
administrators of the Senior Creditors and the Subordinated Creditor. The
Borrower may not assign or transfer its obligations hereunder.
SECTION 14. Severability. In case any provision of this
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
IN WITNESS WHEREOF, the Subordinated Creditor and the Borrower
each has caused this Agreement to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.
MCCOWN DE LEEUW & CO. III, L.P.
By ___________________________ Title: ________________________
E-SATISFY.COM INC.
By ___________________________ Title: ________________________
