EXHIBIT 99.1
[EXECUTION COPY]
CASH COLLATERAL
AGREEMENT
THIS
CASH COLLATERAL AGREEMENT (this “ Agreement ”)
is made as of February 4, 2005 by and among VERSO
TECHNOLOGIES, INC., a Minnesota corporation (the “
Company ”), the investors signatory hereto (each, an
“ Investor ” and, collectively, the “
Investors ”), and WACHOVIA BANK, NATIONAL ASSOCIATION
(the “ Collateral Agent ”). Capitalized terms
used herein but not defined have the respective meanings set forth
in the Securities Purchase Agreement, dated as of February 4,
2005, between each Investor and the Company (the “
Purchase Agreement ”).
WHEREAS,
on the terms and subject to the conditions set forth in the
Purchase Agreement, each Investor has agreed to purchase from the
Company, severally and not jointly with any other Investor, a 6%
Senior Unsecured Convertible Debenture (collectively, the “
Debentures ”);
WHEREAS,
pursuant to the Purchase Agreement, on the Closing Date each
Investor will deduct from the Purchase Price and deposit into a
cash collateral account (the “ Collateral Account
”) an amount of cash (the “ Collateral Amount
”) equal to the aggregate amount of interest scheduled to
accrue on the Debentures during the period beginning on the Closing
Date and ending on the two (2) year anniversary of the Closing
Date, assuming for such purpose that the aggregate original
principal amount of the Debentures remains outstanding through the
last day of such period (the “ Initial Collateral
Amount ”);
WHEREAS,
the Company and each Investor have requested that the Collateral
Agent (i) hold the Collateral Amount as secured party for the
benefit of the Investors and successor holders of the Debentures
(each, a “ Holder ” and, collectively, the
“ Holders ”) to secure the Company’s
performance of its obligations under the Debentures and
(ii) disburse the Collateral Amount pursuant to the terms of
this Agreement; and
WHEREAS,
the Collateral Agent is willing to hold the Collateral Amount as
secured party for the benefit of the Holders and to disburse the
Collateral Amount pursuant to the terms of this Agreement;
NOW,
THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I
ESTABLISHMENT OF
COLLATERAL ACCOUNT
1.1 The parties hereby agree to
establish the Collateral Account or, if the Collateral Account has
been established prior to the date hereof, hereby ratify and
approve such action. Each Investor shall, on the Closing Date,
deposit such Investor’s Pro Rata Share of the Initial
Collateral Amount into the Collateral Account by means a wire
transfer made in accordance with the instructions attached as
Exhibit A hereto. The name of each Investor and its Pro
Rata Share are set forth on Schedule A attached hereto.
.
1.2 The Company and each Investor
hereby directs the Collateral Agent to invest and reinvest the
Collateral Amount in Evergreen US Government Money Market Fund #636
( the “ Initial Investment ”). The
Company and each Investor acknowledge receipt of a prospectus
and/or disclosure materials associated with the Initial Investment,
either through means of hardcopy or via access to the website
associated with the Initial Investment. Each party acknowledges
that it has reviewed the Initial Investment and agrees that it
constitutes an appropriate investment of the Collateral Amount. The
Company and each Holder may change the investment in which amounts
contained in the Collateral Account are invested (subject to
applicable minimum investment requirements) by furnishing written
joint instructions to the Collateral Agent; provided,
however, that no such reinvestment may be made except in:
a. direct obligations of the United
States of America or obligations the principal of and the interest
on which are unconditionally guaranteed by the United States of
America;
b. certificates of deposit issued by
any bank, bank and trust company, or national banking association
(including the Collateral Agent and its affiliates), and insured by
the Federal Deposit Insurance Corporation or a similar governmental
agency;
c. repurchase agreements with any
bank, trust company, or national banking association (including the
Collateral Agent and its affiliates); or
d. any institutional money market
fund offered by the Collateral Agent, including any institutional
money market fund managed by the Collateral Agent or any of its
affiliates.
If the Collateral Agent has not
received written joint instructions from the Company and each
Holder at the time that an investment decision must be made with
respect to amounts contained in the Collateral Account, the
Collateral Agent shall invest such amount, or such portion thereof
as to which no written direction has been received, in investments
described in clause (d) above. Each of the foregoing
investments shall be made in the name of the Collateral Agent. No
investment shall be made in any instrument or security that has a
maturity of greater than six (6) months. Notwithstanding
anything to the contrary contained herein, the Collateral Agent
may, without notice to the Company or any Holder, sell or liquidate
any of the foregoing investments at any time if the proceeds
thereof are required for any disbursement of amounts contained in
the Collateral Account that is permitted or required hereunder. All
investment earnings shall become part of the Collateral Amount and
investment losses shall be charged against the Collateral Amount.
The Collateral Agent shall not be liable or responsible for loss in
the value of any investment made pursuant to this Agreement, or for
any loss, cost or penalty resulting from any sale or liquidation of
the Collateral Amount. With respect to any Collateral Amount
received by the Collateral Agent after ten o’clock, a.m.,
Boston, Massachusetts, time, the Collateral Agent shall not be
required to invest such funds or to effect any investment
instruction until the next Business Day.
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1.3 The Company shall be responsible
for any taxes due or payable in respect of interest generated by
the investment of the Collateral Amount. The Company’s
federal tax identification number, as set forth on the signature
page hereof, shall be used to open the Collateral Account.
ARTICLE II
SECURITY INTEREST
2.1 As security for the payment and
performance of all of the Company’s indebtedness, liabilities
and other obligations under and pursuant to the Debentures,
including all unpaid principal of and all interest accrued thereon,
whether now existing or hereafter arising, and whether due or to
become due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and including interest that accrues
after the commencement by or against the Company of any bankruptcy
or insolvency proceeding naming the Company as the debtor in such
proceeding (collectively, the “ Obligations ”),
the Company hereby grants to the Collateral Agent, in its capacity
as secured party and as agent for the Holders, ratably in
accordance with each Holder’s Pro Rata Share, a security
interest in all of the Company’s right, title and interest
in, to and under all funds held by the Collateral Agent under or
pursuant to this Agreement, including without limitation the
Collateral Amount and all proceeds of any and all of the foregoing,
in each case whether presently existing or owned or hereafter
arising or acquired (collectively, the “ Pledged
Collateral ”).
2.2 This Agreement shall create a
continuing security interest in the Pledged Collateral which shall
remain in effect until the Release Date (as defined below) and
thereafter until all of the Pledged Collateral has been disbursed
in accordance with Article III hereof.
2.3 The Company shall
(i) execute and deliver to the Collateral Agent, to hold on
behalf and at the direction of the Holders, and the Company hereby
authorizes the Collateral Agent to file or cause to be filed (with
or without the Company’s signature), at any time and from
time to time, all such financing statements, continuation financing
statements, termination statements, notices, and all other
documents and instruments which the Collateral Agent or any Holder
may reasonably request, in form reasonably satisfactory to the
Collateral Agent or any Holder, as the case may be, and
(ii) take such other action, which the Collateral Agent or any
Holder may reasonably request, to perfect and continue perfected,
maintain the priority of or provide notice of the pledge of and
security interest in the Pledged Collateral and to accomplish the
purposes of this Agreement. The Company ratifies and authorizes the
filing by the Collateral Agent of any financing statements filed
prior to the date hereof.
2.4 The Company shall not be entitled
to withdraw or otherwise take possession of or exercise control
over any of the Pledged Collateral other than as expressly provided
in this Agreement.
2.5 Except for the accounting for
funds actually received by the Holders, no Holder shall have any
duty or liability to exercise or preserve any rights, privileges or
powers pertaining to the Pledged Collateral. The Company agrees
that the Holders shall have no responsibility to the Company with
respect to any losses sustained on any item of, or investment in,
the Pledged Collateral or for any failure to realize any yields
desired by the Company.
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2.6 The Company represents and
warrants to each Holder that the Company’s chief executive
office and principal place of business, and all books and records
concerning the Pledged Collateral, are located at its address set
forth in the Purchase Agreement; and that the Company’s
jurisdiction of organization and the Company’s exact legal
name each is as set forth in the first paragraph of this
Agreement.
2.7 The Company waives, to the
fullest extent permitted by law, any right to require the Holders
(a) to proceed against any Person, (b) to exhaust any
other collateral or security for any of the Obligations,
(c) to pursue any remedy, or (d) to make or give any
presentments, demands for performance, notices of nonperformance,
protests, notices of protests or notices of dishonor in connection
with any of the Pledged Collateral.
2.8 So long as any of the Obligations
remain unsatisfied, the Company agrees that:
(a) The Company will, at its own
expense, appear in and defend any action, suit or proceeding which
purports to affect its title to, or right or interest in, the
Pledged Collateral or the security interest of the Holders therein
and the pledge to Holders thereof.
(b) The Company shall give prior
written notice to each Holder and to the Collateral Agent (and in
any event not less than thirty (30) days’ written notice
prior to any such change) of: (i) any change in the location
of the Company’s chief executive office or principal place of
business; (ii) any change in the location of books and records
pertaining to Pledged Collateral; (iii) any change in its
name; (iv) any changes in its identity or structure in any
manner which might make any financing statement filed hereunder
incorrect or misleading; (v) any change in its jurisdiction of
organization; or (vi) any change in its registration as an
organization (or any new such registration).
(c) The Company will not convey,
transfer, assign or otherwise dispose of or transfer the Pledged
Collateral or any right, title or interest therein, nor will the
Company create, incur or permit to exist any pledge, security
interest, assignment, deposit arrangement, charge or encumbrance or
other lien, upon or with respect to the Pledged Collateral, other
than the security interest of and pledge to the Holders created by
this Agreement.
(d) The Company will promptly, upon
the written request from time to time of the Collateral Agent,
execute, acknowledge and deliver, and file and record, all such
financing statements and other documents and instruments, and take
all such action, as shall be reasonably necessary to carry out the
purposes of this Agreement.
ARTICLE III
DISBURSEMENT OF
COLLATERAL AMOUNT
3.1 The Collateral Agent shall
disburse the Collateral Amount as follows:
(i) On
or before the fifth (5 th ) Business Day
prior to each Designated Interest Payment Date (as defined below),
the Company shall deliver to the Collateral Agent and to each
Holder a written notice signed by the Chief Financial Officer of
the Company (an “ Interest
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Payment Notice
”), which notice shall (A) specify the amount of
interest accrued and owing on the Debentures on such date, both in
the aggregate and as to each Holder and (B) certify that a
copy of such notice has been delivered to each Holder. If the
Company chooses or is required under the Debentures to pay all or a
portion of such interest in cash, the Interest Payment Notice shall
so state and shall direct the Collateral Agent to pay from the
Collateral Account to the Holders in the respective amounts
specified in such notice cash in an amount equal to such interest
to be paid in cash. If the Company chooses to pay all or a portion
of such interest in Commo
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