EXHIBIT 99.6
SILICON VALLEY BANK
SUBORDINATION AGREEMENT
(DEBT AND SECURITY INTEREST)
BORROWER: VERSO TECHNOLOGIES, INC.
NACT TELECOMMUNICATIONS, INC.
XXXXXXXX.XXX SOFTWARE, INC.
SUBORDINATING
CREDITOR: WA TELCOM PRODUCTS CO., INC.
DATE: April 25, 2002
THIS SUBORDINATION AGREEMENT is executed by the above-named Creditor
("Creditor") in favor of Silicon Valley Bank ("Silicon"), whose address is 0000
Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000, with respect to the above-named
Borrowers (collectively, "Borrower"). In order to induce Silicon to extend or
continue to extend financing to the Borrower (but without obligation on
Silicon's part to do so), the Creditor hereby agrees as follows:
1. SUBORDINATION OF SECURITY INTEREST. All security interests now
or hereafter acquired by Silicon in any or all of the Collateral (as defined
below), in which the Borrower now has or hereafter acquires any ownership,
leasehold or other interest shall at all times be prior and superior to any
lien, ownership interest, security interest or other interest or claim now held
or hereafter acquired by the Creditor in the Collateral (the "Subordinate
Interest"). Said priority shall be applicable irrespective of the time or order
of attachment or perfection of any security interest or the time or order of
filing of any financing statements or other documents, or any statutes, rules or
law, or court decisions to the contrary. Upon any disposition of any of the
Collateral by Silicon, or by the Borrower with Silicon's written consent, the
Creditor hereby agrees, if requested by Silicon, to authorize Silicon to file
UCC terminations with respect to any financing statements in favor of Creditor
with respect to Borrower and the Collateral, and Creditor agrees, if requested
by Silicon, to execute and immediately deliver any and all other releases,
terminations and other documents or agreements which Silicon deems necessary to
accomplish a disposition of the Collateral free of the Subordinate Interest;
provided that Creditor shall retain its Subordinate Interest in the proceeds of
the Collateral so disposed of. Creditor represents and warrants to Silicon that
Creditor is the sole holder of all security interests perfected by all UCC-1
financing statements authorized by Borrower to be filed in favor of Creditor.
2. "COLLATERAL." As used in this Agreement, "Collateral" shall
mean all of the following types of property, in which the Borrower now has or
hereafter acquires any ownership, leasehold or other interest, wherever
located: all personal property assets of Borrower, including, without
limitation, the "Collateral" as defined in that certain Loan and Security
Agreement, dated December 14, 2001 by and among Borrower and Silicon (as
amended from time to time, the "Loan Agreement").
3. DISPOSITION OF COLLATERAL. The Creditor agrees that, until
Silicon has received payment in full of all indebtedness, liabilities,
guarantees and other obligations of the Borrower to Silicon, now existing or
hereafter arising (including without limitation interest accruing after
commencement of any bankruptcy or insolvency proceeding with respect to
Borrower) (the "Silicon Debt"), Silicon may dispose of, and exercise any other
rights with respect to, any or all of the Collateral, free of the Subordinate
Interest, provided that the Creditor retains any rights it may have as a junior
secured creditor with respect to the surplus, if any, arising from any such
disposition or enforcement. The Creditor agrees that any funds of the Borrower
which it obtains through the exercise of any right of setoff or other similar
right constitute Collateral, and the Creditor shall immediately pay such funds
to Silicon to be applied to the outstanding Silicon Debt.
4. SUBORDINATION OF DEBT. Creditor hereby subordinates payment
by the Borrower of any and all indebtedness, liabilities, guarantees and other
obligations of the Borrower to Creditor, now existing or hereafter arising
(collectively, the "Subordinated Debt"), to the payment to Silicon, in full in
cash, of all Silicon Debt, and Creditor agrees not to ask for, demand, xxx for,
take or receive all or any part of the Subordinated Debt nor any security
therefor unless and until all of the Silicon Debt has been paid and performed
in full, in cash; provided that, so long as no default or event of default has
occurred under any document instrument or agreement evidencing, securing or
relating to the Silicon Debt, both before and after giving effect to the
following payments, Creditor may accept payment of the following amounts on the
Subordinated Debt:
(i) an initial payment of $1,500,000 to be paid in
accordance with the terms of that certain
Convertible Secured Promissory Note dated April 25,
2002 by Verso Technologies, Inc. in favor of
Creditor (the "Verso Note);
(ii) scheduled payments of $500,000 each on July 1, 2002,
October 1, 2002 and January 1, 2003;
(iii) a payment of $1,250,000 on the Final Payment Date
(as defined in the Verso Note);
(iv) the payment of accrued but unpaid interest on the
Final Payment Date; and
(v) payment(s) of fifty-percent (50%) of all Excess Net
Cash Proceeds (as defined below). Excess Net Cash
Proceeds shall mean the amount of Net Cash Proceeds
(as defined in the Verso Note) received by Borrower
in excess of $2,500,000 in the aggregate from one or
more Financings (as defined in the Verso Note).
Creditor represents and warrants that the amount of Subordinated Debt
outstanding on the date hereof is the following amount:
$4,250,000.
and that Creditor has not executed any other subordination agreements with
respect to such debt or the Collateral or the Borrower. Creditor agrees that
upon any distribution of the assets or readjustment of the indebtedness of the
Borrower whether by reason of liquidation, composition, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any of the Subordinated Debt, or
the application of the assets of the Borrower to the payment or liquidation
thereof, Silicon shall be entitled to receive payment in full in cash of all of
the Silicon Debt prior to the payment of all or any part of the Subordinated
Debt, and in order to enable Silicon to enforce its rights hereunder in any such
action or proceeding, Silicon is hereby irrevocably authorized and empowered in
its discretion (but without any obligation on its part) to make and present for
and on behalf of Creditor such proofs of claim against the Borrower on account
of the Subordinated Debt, if Creditor does not do so prior to 20 days before the
expiration of the time to file such proofs of claim in such proceeding, as
Silicon may deem expedient or proper and, if Silicon has received written
confirmation from Creditor that Creditor does not intend to vote or if Silicon
has not received such confirmation from Creditor at least 10 days prior to any
deadline for voting such proofs of claim, to vote such proofs of claim in any
such proceeding and to receive and collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued and to apply same on account of the Silicon Debt. Creditor further agrees
to execute and deliver to Silicon, upon Silicon's request, such assignments or
other instruments as may be required by Silicon in order to enable Silicon to
enforce
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any and all such claims and to collect any and all dividends or other payments
or disbursements which may be made at any time on account of all and any of the
Subordinated Debt. Creditor shall endorse all notes and other written evidence
of the Subordinated Debt with a statement that they are subordinated to the
Silicon Debt pursuant to the terms of this agreement, in such form as Silicon
shall require, and Creditor will exhibit the originals of such notes and other
written evidence of the Subordinated Debt to Silicon so that Silicon can
confirm that such endorsement has been made, but this Subordination Agreement
shall be fully effective, even if no such endorsement is made.
5. MODIFICATIONS TO SILICON DEBT; WAIVERS. Until Silicon has
received payment in full of all Silicon Debt, the Creditor agrees that, in
addition to any other rights that Silicon may have at law or in equity, Silicon
may at any time, and from time to time, without the Creditor's consent and
without notice to the Creditor, renew, extend or increase any of the Silicon
Debt or that of any other person at any time directly or indirectly liable for
the payment of any Silicon Debt, accept partial payments of the Silicon Debt,
settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of the Silicon Debt, make loans or advances to the
Borrower secured in whole or in part by the Collateral or refrain from making
any loans or advances to the Borrower, change, waive, alter or vary the
interest charge on, or any other terms or provisions of the Silicon Debt or any
present or future instrument, document or agreement between Silicon and the
Borrower, release, exchange, fail to perfect, delay the perfection of, fail to
resort to, or realize upon any Collateral, and take any other action or omit to
take any other action with respect to the Silicon Debt or the Collateral as
Silicon deem necessary or advisable in Silicon's sole discretion. The Creditor
waives any right to require Silicon to marshal any assets in favor of the
Creditor or against or in payment of any or all of the Silicon Debt. Creditor
further waives any defense arising by reason of any claim or defense based upon
an election of remedies by Silicon which in any manner impairs, affects,
reduces, releases, destroys and/or extinguishes the Creditor's subrogation
rights, rights to proceed against the Borrower for reimbursement, and/or any
other rights of the Creditor.
6. DEFAULT. The Creditor shall promptly give Silicon written
notice of any default or event of default under any document, instrument or
agreement evidencing, securing or relating to any of the Subordinated Debt, and,
until the Silicon Debt has been paid and performed in full, the Creditor shall
not accelerate the maturity of the Subordinated Debt, commence or join in any
action or proceeding to recover any amounts due on the Subordinated Debt,
commence or join in any involuntary bankruptcy petition or similar judicial
proceeding against the Borrower, or collect, take possession of, foreclose upon,
or exercise any other rights or remedies with respect to, the Collateral,
judicially or non-judicially, or attempt to do any of the foregoing. In the
event that Silicon provides notice to Borrower of the occurrence of an event of
default under the Loan Agreement, Silicon agrees to promptly provide a copy of
such notice to Creditor; provided, however, Silicon shall not incur any
liability to Creditor, Borrower or other third party for negligently or
inadvertently failing to send such notice to Creditor and any such failure by
Silicon to send such notice to Creditor shall not in any way impair, diminish or
affect the rights and remedies of Silicon under the Loan Agreement and related
documents.
7. NO COMMITMENT. It is understood and agreed that this
Agreement shall in no way be construed as a commitment or agreement by Silicon
to continue financing arrangements with the Borrower and that Silicon may
terminate such arrangements at any time, in accordance with Silicon's
agreements with the Borrower.
8. NO CONTEST. Creditor agrees not to contest the validity,
perfection, priority or enforceability of Silicon' security interest in the
Collateral or the Silicon Debt.
9. FINANCIAL CONDITION OF BORROWER. The Creditor is presently
informed of the financial condition of the Borrower and of all other
circumstances which a diligent inquiry would reveal and which bear upon the risk
of non-payment of the Silicon Debt and the Subordinated Debt. If Creditor
desires to be kept informed as to Borrower's financial condition and all other
circumstances which bear upon the risk of non-payment of the Silicon debt and
the subordinated debt, Creditor covenants that it will do so to the extent
Creditor deems appropriate in its sole discretion. The Creditor waives any right
to require Silicon to disclose to it any information which Silicon may now or
hereafter acquire concerning the Borrower.
10. REVIVOR. If, after payment of the Silicon Debt, the Borrower
thereafter becomes liable to Silicon on account of the Silicon Debt, or any
payment made on the Silicon Debt shall for any reason be returned by Silicon,
this Agreement shall thereupon in all respects become effective with respect to
such subsequent or reinstated Silicon Debt, without the necessity of any
further act or agreement between Silicon and the Creditor.
11. GENERAL. The Creditor agrees, upon Silicon's request, to
execute all such documents and instruments and take all such actions as Silicon
shall deem necessary or advisable in order to carry out the purposes of this
Agreement, including, without limitation appropriate amendments to financing
statements executed by the Borrower in favor of Creditor in order to refer to
this Agreement (but this Agreement shall remain fully effective notwithstanding
any failure to execute any
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additional documents or instruments). The word "indebtedness" is used in this
agreement in its most comprehensive sense and includes without limitation any
and all present and future loans, advances, credit, debts, obligations,
liabilities, representations, warranties, and guarantees, of any kind and
nature, absolute or contingent, liquidated or unliquidated, and individual or
joint. Creditor represents and warrants that it has not heretofore transferred
or assigned the Subordinated Debt, the Subordinate Interest or any financing
statement naming Borrower as debtor and Creditor as secured party, and that it
will not do so without prior written notice to Silicon and without making such
transfer or assignment expressly subject to this Agreement. This Agreement is
solely for the benefit of Silicon and Silicon's successors and assigns, and
neither the Borrower nor any other person shall have any right, benefit,
priority or interest under, or because of the existence of, this Agreement. All
of Silicon's rights and remedies hereunder and under applicable law are
cumulative and not exclusive. This Agreement sets forth in full the terms of
agreement between the parties with respect to the subject matter hereof, and may
not be modified or amended, nor may any rights hereunder be waived, except in a
writing signed by Silicon and the Creditor. The Borrower agrees to reimburse
Silicon, upon demand, for all costs and expenses (including reasonable
attorneys' fees) incurred by Silicon in enforcing this Agreement against
Creditor, whether or not suit be brought. In the event of any litigation between
the parties based upon or arising out of this Agreement, the prevailing party
shall be entitled to recover all of its costs and expenses (including without
limitation attorneys fees) from the non-prevailing party. This Agreement shall
be construed in accordance with, and governed by, the laws of the State of
California. As a material part of the consideration to the parties for entering
into this Agreement, each party (i) agrees that all actions and proceedings
based upon, arising out of or relating in any way directly or indirectly to,
this Agreement shall be litigated exclusively in courts located within Santa
Xxxxx County, California, (ii) consents to the jurisdiction of any such court
and consents to the service of process in any such action or proceeding by
personal delivery, first-class mail, or any other method permitted by law, and
(iii) waives any and all rights to transfer or change the venue of any such
action or proceeding to any court located outside Santa Xxxxx County,
California. This Agreement shall be binding upon the Creditor and its successors
and assigns and shall inure to the benefit of Silicon and Silicon's successors
and assigns.
12. MUTUAL WAIVER OF JURY TRIAL. CREDITOR AND SILICON EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN CREDITOR AND SILICON;
OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF CREDITOR OR SILICON OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH CREDITOR OR SILICON; IN EACH OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
"CREDITOR:"
WA TELCOM PRODUCTS CO., INC.
BY /s/ Xxxxxxx X. Xxxx
-----------------------------------------
VICE PRESIDENT
ADDRESS: 000 X. Xxxxx Xxxxx Xxxx, Xxxxx 0000
------------------------------------
Xxxxxxx, XX 00000
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CONSENT AND AGREEMENT OF BORROWER
The undersigned Borrower hereby approves of, agrees to and consents to
all of the terms and provisions of the foregoing Subordination Agreement and
agrees to be bound thereby and further agrees that any default or event of
default by the Borrower under any present or future instrument or agreement
between the Borrower and the Creditor shall constitute an immediate default and
event of default under all present and future instruments and agreements
between the Borrower and Silicon. Borrower further agrees that, at any time and
from time to time, the foregoing Agreement may be altered, modified or amended
by Silicon and the Creditor without notice to or the consent of Borrower.
BORROWER:
VERSO TECHNOLOGIES, INC.
BY /s/ Xxxxxx X. Xxxxxxx
-----------------------------
VICE PRESIDENT
NACT TELECOMMUNICATIONS, INC.
BY /s/ Xxxxxx X. Xxxxxxx
-----------------------------
VICE PRESIDENT
XXXXXXXX.XXX SOFTWARE, INC.
BY /s/ Xxxxxx X. Xxxxxxx
-----------------------------
VICE PRESIDENT
ACCEPTED:
SILICON:
SILICON VALLEY BANK
BY /s/ Xxxxx Xxxxxxxx
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TITLE Vice President
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