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.
2
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 ins