SUBORDINATION AGREEMENT

 

This Subordination Agreement (the “Agreement”) is made as of March 28, 2012, by
and between Shannon Zimmerman and Angel Zimmerman (collectively, “Creditor”),
and SILICON VALLEY BANK, a California-chartered bank, with its principal place
of business at 3003 Tasman Drive, Santa Clara, California 95054 (“Bank”).

 

Recitals

 

A. SAJAN, LLC, a Delaware limited liability company and SAJAN, INC., a Delaware
corporation (collectively, “Borrower”) has requested and/or obtained certain
loans or other credit accommodations from Bank to Borrower which are or may be
from time to time secured by assets and property of Borrower.

 

B. Creditor has extended loans or other credit accommodations to Borrower,
and/or may extend loans or other credit accommodations to Borrower from time to
time.

 

C. In order to induce Bank to extend credit to Borrower and, at any time or from
time to time, at Bank’s option, to make such further loans, extensions of
credit, or other accommodations to or for the account of Borrower, or to
purchase or extend credit upon any instrument or writing in respect of which
Borrower may be liable in any capacity, or to grant such renewals or extension
of any such loan, extension of credit, purchase, or other accommodation as Bank
may deem advisable, Creditor is willing to subordinate: (i) all of Borrower’s
indebtedness to Creditor (including, without limitation, principal, premium (if
any), interest, fees, charges, expenses, costs, professional fees and expenses,
and reimbursement obligations), plus any dividends and/or distributions or other
payments pursuant to call, put, or conversion features in connection with equity
securities of Borrower issued to or held by Creditor, whether presently existing
or arising in the future (the “Subordinated Debt”) to all of Borrower’s
indebtedness and obligations to Bank; provided, however, that Subordinated Debt
shall not include any salary or bonuses payable in the ordinary course by
Borrower to Creditor; and (ii) all of Creditor’s security interests, if any, to
all of Bank’s security interests in the Borrower’s property.

 

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

 

1. Creditor subordinates to Bank any security interest or lien that Creditor may
have in any property of Borrower. Notwithstanding the respective dates of
attachment or perfection of the security interest of Creditor and the security
interest of Bank, the security interest of Bank in the Collateral (the
“Collateral”), as defined in a certain Loan and Security Agreement between
Borrower and Bank dated as of March 28, 2012, as may be amended from time to
time (the “Loan Agreement”), shall at all times be senior to the security
interest of Creditor.

 

2. All Subordinated Debt is subordinated in right of payment to all obligations
of Borrower to Bank now existing or hereafter arising, together with all
reasonable costs of collecting such obligations (including reasonable attorneys’
fees), including, without limitation, all interest accruing after the
commencement by or against Borrower of any bankruptcy, reorganization or similar
proceeding, and all obligations under the Loan Agreement (the “Senior Debt”).

 

3. Creditor will not demand or receive from Borrower (and Borrower will not pay
to Creditor) all or any part of the Subordinated Debt, by way of payment,
prepayment, setoff, lawsuit or otherwise, nor will Creditor exercise any remedy
with respect to the Collateral, nor will Creditor accelerate the Subordinated
Debt, or commence, or cause to commence, prosecute or participate in any
administrative, legal or equitable action against Borrower, until such time as
(i) the Senior Debt is fully paid in cash, (ii) Bank has no commitment or
obligation to lend any further funds to Borrower, and (iii) all financing
agreements between Bank and Borrower are terminated. The foregoing
notwithstanding, provided that an Event of Default, as defined in the Loan
Agreement, has not occurred and is not continuing and would not exist
immediately after such payment, Creditor shall be entitled to receive each
regularly scheduled, non-accelerated payment of non-default interest as and when
due and payable in accordance with the terms of that certain Promissory Note
dated February 23, 2010, as amended by that certain Amendment to Promissory Note
dated as of February 22, 2011, and as amended from time to time as approved by
Bank (collectively, the “Note”) in a principal amount of $750,000 issued by
Borrower to Creditor as in effect on the date hereof or as modified with the
written consent of the Bank.

 

1.

 

4. Creditor shall promptly deliver to Bank in the form received (except for
endorsement or assignment by Creditor where required by Bank) for application to
the Senior Debt any payment, distribution, security or proceeds received by
Creditor with respect to the Subordinated Debt other than in accordance with
this Agreement.

 

5. In the event of Borrower’s insolvency, reorganization or any case or
proceeding under any bankruptcy or insolvency law or laws relating to the relief
of debtors, these provisions shall remain in full force and effect, and Bank’s
claims against Borrower and the estate of Borrower shall be paid in full before
any payment is made to Creditor.

 

6. Until the Senior Debt is fully paid in cash and Bank’s arrangements to lend
any funds to Borrower have been terminated, Creditor irrevocably appoints Bank
as Creditor’s attorney-in-fact, and grants to Bank a power of attorney with full
power of substitution, in the name of Creditor or in the name of Bank, for the
use and benefit of Bank, without notice to Creditor, to perform at Bank’s option
the following acts in any bankruptcy, insolvency or similar proceeding involving
Borrower:

 

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

 

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

 

7. Creditor shall immediately affix a legend to the instruments evidencing the
Subordinated Debt stating that the instruments are subject to the terms of this
Agreement. By the execution of this Agreement, Creditor hereby authorizes Bank
to amend any financing statements filed by Creditor against Borrower as follows:
“In accordance with a certain Subordination Agreement by and among the Secured
Party, the Debtor and Silicon Valley Bank, the Secured Party has subordinated
any security interest or lien that Secured Party may have in any property of the
Debtor to any security interest or lien that Silicon Valley Bank may have in any
property of the Debtor, notwithstanding the respective dates of attachment or
perfection of the security interest of the Secured Party and Silicon Valley
Bank.”

 

8. No amendment of the documents evidencing or relating to the Subordinated Debt
shall directly or indirectly modify the provisions of this Agreement in any
manner which might terminate or impair the subordination of the Subordinated
Debt or the subordination of the security interest or lien that Creditor may
have in any property of Borrower without the written consent of Bank. By way of
example, such instruments shall not be amended to (i) increase the rate of
interest with respect to the Subordinated Debt, or (ii) accelerate the payment
of the principal or interest or any other portion of the Subordinated Debt. Bank
shall have the sole and exclusive right to restrict or permit, or approve or
disapprove, the sale, transfer or other disposition of Collateral except in
accordance with the terms of the Senior Debt. Upon written notice from Bank to
Creditor of Bank's agreement to release its lien on all or any portion of the
Collateral in connection with the sale, transfer or other disposition thereof by
Bank (or by Borrower with consent of Bank), Creditor shall be deemed to have
also, automatically and simultaneously, released its lien on such Collateral,
and Creditor shall upon written request by Bank, immediately take such action as
shall be necessary or appropriate to evidence and confirm such release. All
proceeds resulting from any such sale, transfer or other disposition shall be
applied first to the Senior Debt until payment in full thereof, with the
balance, if any, to the Subordinated Debt, or to any other entitled party. If
Creditor fails to release its lien as required hereunder, Creditor hereby
appoints Bank as attorney in fact for Creditor with full power of substitution
to release Creditor's liens as provided hereunder. Such power of attorney being
coupled with an interest shall be irrevocable.

 

2.

 

9. All necessary action on the part of the Creditor, its officers, directors,
partners, members and shareholders, as applicable, necessary for the
authorization of this Agreement and the performance of all obligations of the
Creditor hereunder has been taken. This Agreement constitutes the legal, valid
and binding obligation of Creditor, enforceable against Creditor in accordance
with its terms subject to applicable bankruptcy, insolvency, reorganization,
fraudulent transfer or conveyance, equitable subordination, moratorium, or
similar laws affecting the rights of creditors generally. The execution,
delivery and performance of and compliance with this Agreement by Creditor will
not (i) result in any material violation or default of any term of any of the
Creditor’s charter, formation or other organizational documents (such as
Articles or Certificate of Incorporation, bylaws, partnership agreement,
operating agreement, etc.) or (ii) violate any material applicable law, rule or
regulation.

 

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

 

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

 

12. Creditor hereby agrees to execute such documents and/or take such further
action as Bank may at any time or times reasonably request in order to carry out
the provisions and intent of this Agreement, including, without limitation,
ratifications and confirmations of this Agreement from time to time hereafter,
as and when requested by Bank.

 

13. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
instrument.

 

14. This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to conflicts of laws
principles. Creditor and Bank submit to the exclusive jurisdiction of the state
and federal courts located in Santa Clara, California in any action, suit, or
proceeding of any kind, against it which arises out of or by reason of this
Agreement. CREDITOR AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREIN.

 

3.

 

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.

 

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

 

16. In the event of any legal action to enforce the rights of a party under this
Agreement, the party prevailing in such action shall be entitled, in addition to
such other relief as may be granted, all reasonable costs and expenses,
including reasonable attorneys’ fees, incurred in such action.

 

 

 

[Signature page follows.] 

 

4.

 

 

 

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

 

“Creditor”     “Bank”         /s/ Shannon Zimmerman   SILICON VALLEY BANK
Shannon Zimmerman                 /s/ Angel Zimmerman       Angel Zimmerman    
                  By: /s/ Dennis P. Grunt                 Title: Relationship
Manager                     The undersigned approves of the terms of this
Agreement.           “Borrower”               SAJAN, LLC, a Delaware limited
liability company               By: /s/ Timothy Clayton                 Title:
Chief Financial Officer                 SAJAN, INC., a Delaware corporation    
          By: /s/ Timothy Clayton                 Title: Chief Financial Officer
     

 

 

5.