Document:

ex10-185.htm

    
      

    

    EXHIBIT
10.185

     

     

    
      HYPOTHECATION
OF MOVABLES

      

      

      
        	
                BETWEEN:

              	
                VERSO BACKHAUL SOLUTIONS, INC.,
      a legal person duly incorporated and subsisting under the laws of
      Georgia, having
      its principal office at 400 Galleria Parkway, Suite 200, in the City of
      Atlanta, Georgia, U.S.A. 30339, herein acting and represented by Martin D.
      Kidder, its President, duly authorized in virtue of a Resolution of its
      Board of Directors duly enacted on December 20, 2007;

              
	 
      	 
      
	 
      	
                (hereinafter
      referred to as the “Grantor”)

              
	 
      	 
      
	
                AND:

              	
                LAURUS MASTER FUND,
      LTD., a corporation duly incorporated and subsisting under the laws
      of the Cayman Islands, having its principal place of business c/o Laurus
      Capital Management, LLC, 335 Madison Avenue, 10th
      Floor, in the City of New York, U.S.A. 10017, herein acting and
      represented by Scott Bluestein, its authorized representative, duly
      authorized for the purposes hereof as declared,

              
	 
      	 
      
	 
      	
                (hereinafter
      referred to as the “Creditor”)

              

      

      

      

      WHEREAS the Creditor has
entered and/or will enter into arrangements with the Grantor whereby the Grantor
is or may hereafter become indebted to the Creditor;

       

      WHEREAS the Grantor had
agreed, as security for payment of such indebtedness, to hypothecate the
“Charged Property” (as hereinafter defined) in favour of the Creditor;
and,

      

      WHEREAS the Grantor carries on
an enterprise;

      

      THE
PARTIES AGREE AS FOLLOWS:

      

      
        	
                1.  

              	
                PREAMBLE

              

      

       

      
        	
                1.1.  

              	
                The
      preamble forms part hereof as if recited at length
  herein.

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

       

      
        	
                2.  

              	
                DEFINITIONS

              

      

       

      
        	
                2.1.  

              	
                Unless
      the context otherwise requires, the following expressions will have the
      respective meanings hereinafter set
forth:

              

      

       

      (a)    “Ancillary Agreements” shall
have the meaning ascribed thereto in the Security Agreement, as each may be
amended, modified, restated or supplemented from time to time;

       

      (b)    “Charged Property” means all
of the movable property enumerated and/or referred to in Clause  3.1 hereof;

       

      (c)    “Claims” means, collectively,
all accounts receivable, book accounts, book debts, debts, claims, monies,
rentals, revenues, incomes, loans receivable, demands, rebates, refunds, amounts
owing by or claimable from the crown, state or government or any departments,
agents or agencies thereof and choses in action which now are or which may at
any time hereafter be due or owing to or owned by the Grantor or in which the
Grantor now or hereafter has any other interest and all security interests,
hypothecs, assignments, guarantees, bills of exchange, notes, chattel paper,
negotiable instruments, contracts, invoices, books of account, letters of credit
and other documents and rights now held or owned or which may be hereafter held
or owned by the Grantor or any third party on behalf of the Grantor in respect
of any of the foregoing and all rights of an unpaid vendor, including rights to
merchandise returned, repossessed or recovered;

       

      (d)    “Costs” means:

       

      
        	
                (i)         
        

              	
                all
      costs and expenses (including, without limitation, all costs and expenses
      referred to herein and/or in the Security Agreement) which may hereafter
      be incurred, in any manner and under any circumstances, by and/or on
      behalf of the Creditor in and/or relating to (i) the enforcement of the
      Hypothec, (ii) the sale and/or disposal of any of the Charged Property
      forming the object of the Hypothec, and/or (iii) dealing with the Charged
      Property forming the object of the
Hypothec;

              

      

       

      
        	
                (ii)        
       

              	
                any
      and all fees, disbursements and applicable sales taxes incurred by any
      professionals (including, without limitation, any attorneys, receivers,
      trustees, monitors and/or consultants) which may hereafter be engaged by
      and/or on behalf of the Creditor or for which the Creditor may hereafter
      become obliged for and/or pertaining to (i) the enforcement of the
      Hypothec, (ii) the sale and/or disposal of any of the Charged Property
      forming the object of the Hypothec, and/or (iii) dealing with the Charged
      Property forming the object of the Hypothec;
and

              

      

       

      
        	
                (iii)       
       

              	
                any
      and all other costs and expenses, of any nature or form whatsoever, which
      may hereafter be incurred by and/or on behalf of the Creditor or for which
      the Creditor may hereafter become obliged, under any circumstances
      whatsoever, for and/or pertaining to (i) the enforcement of the Hypothec,
      (ii) the sale and/or disposal of any of the Charged Property forming the
      object of the Hypothec, and/or (iii) dealing with the Charged Property
      forming the object of the Hypothec,

              

      

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      to the
extent that, in accordance with the Law, same are not secured by the
Hypothec;

       

      (e)    “Documents of Title” means,
collectively, all documents of title, whether negotiable or non-negotiable
including, without limitation, all warehouse receipts and bills of lading in
which the Grantor now or hereafter has an interest;

       

      (f)    “Equipment” means,
collectively, all machinery, equipment, furniture, fixtures, materials,
supplies, appliances, dyes, molds, tanks, vehicles, furnaces, boilers, motors,
engines, accessories and tools now owned or hereafter acquired by the Grantor,
whether or not the same be affixed to any immovable property or used upon or in
connection therewith, together with all present and future improvements,
appurtenances and accessories thereto;

       

      (g)    “Hypothec” means collectively
the hypothecation and the additional hypothecation of the Charged Property by
the Grantor in favour of the Creditor created pursuant to Clauses 3.1 and 3.2
hereof;

       

      (h)    “Hypothec Amount” means the
sum of Twenty-Five Million
Dollars ($25,000,000);

       

      (i)     “Insurance” means,
collectively, all insurance policies relating directly or indirectly to any of
the Charged Property or any part thereof and all rights and claims under all
policies of insurance of whatever nature including, without limitation, under
life insurance policies and under insurance against loss or damage;

       

      (j)    “Intangible Property” means,
collectively, all incorporeal property now owned or hereafter acquired by the
Grantor or its interest therein including, without limitation, all patents and
patents pending, registered and unregistered trade marks, trade or brand names,
service marks, copyrights, industrial designs, formulae, processes, trade
secrets, goodwill, contractual rights, licences and permits;

       

      (k)    “Interest Rate” means
Twenty-Five percent (25%) per annum;

       

      (l)    “Inventory” means,
collectively, all property in stock and inventory now owned and hereafter
acquired by the Grantor including, without limitation, all raw materials, goods
in process, finished goods, goods in transit and all packaging and shipping
materials and all materials and merchandise procured for the manufacture or
production thereof and all goods, wares and merchandise held for sale, lease or
resale or furnished or to be furnished under contracts for service or used or
consumed in the business of the Grantor;

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (m)   “Joinder Agreement” means that
certain “Joinder and Amendment Agreement” dated on or about December 20, 2007
pursuant to which the Grantor has become party to the Security Agreement and has
become bound by all of the terms, conditions and obligations thereof and
indebtedness thereunder;

       

      (n)    “Law” means the Civil Code of
Québec;

       

      (o)    “Monies” means, collectively,
all monies, cash, foreign currencies and credits in which the Grantor now or
hereafter has an interest;

       

      (p)    “Notes” shall have the meaning
ascribed thereto in the Security Agreement;

       

      (q)    “Obligations” means and
includes all debts, liabilities and obligations owing by the Grantor to the
Creditor arising under, out of, or in connection with: (i) the Security
Agreement; the (ii) Joinder Agreement; and (iii) the Ancillary Agreements
(collectively, the “Documents”) and in connection
with any documents, instruments or agreements relating to or executed in
connection with the Documents or any documents, instruments or agreements
referred to therein or otherwise, and in connection with any other indebtedness,
obligations or liabilities of the Grantor to the Creditor, whether now existing
or hereafter arising, direct or indirect, liquidated or unliquidated, absolute
or contingent, due or not due and whether under, pursuant to or evidenced by a
note, agreement, guaranty, instrument or otherwise, in each case, irrespective
of the genuineness, validity, regularity or enforceability of such Obligations,
or of any instrument evidencing any of the Obligations or of any collateral
therefore or of the existence or extent of such collateral, and irrespective of
the allowability, allowance or disallowance of any or all of the Obligations, in
any case commenced by or against the Grantor under Title 11, United States Code, the Bankruptcy and Insolvency Act
(Canada) and the Companies’
Creditors Arrangement Act, including, without limitation, obligations or
indebtedness of the Grantor for post-petition interest, fees, costs and charges
that would have accrued or been added to the Obligations but for the
commencement of such case;

       

      (r)    “Proceeds” means,
collectively, all property in any form derived directly or indirectly from any
dealings with any of the Charged Property including:

       

      
        	
                (i)         
       

              	
                identifiable
      or traceable personal or movable property that is derived directly or
      indirectly with any dealing with the Charged Property or proceeds of the
      Charged Property and in which the Grantor acquires an
      interest;

              

      

       

      
        	
                (ii)        
       

              	
                an
      insurance or other payment that represents indemnity or compensation for
      loss of or damage to the Charged Property or proceeds of the Charged
      Property or a right to such a payment;
and

              

      

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      
        	
                (iii)         
      

              	
                a
      payment made in total or partial discharge or redemption of chattel paper,
      a security, an instrument, an intangible or incorporeal
      property;

              

      

       

      (s)    “Records” means, collectively,
all computer programs, firmware and software and all computer and other records
and data, whether in hard copy or otherwise, pertaining to any of the Charged
Property and the equipment containing same and owned by the
Grantor;

       

      (t)    “Securities” means,
collectively, all shares, stocks, warrants, bonds, debentures, debenture stock,
and other securities, now or hereafter owned and/or held by the Grantor, in
which the Grantor now or hereafter has an interest;

       

      (u)    “Security” means the Hypothec
and rights created in the Creditor’s favour hereunder; and

       

      (v)    “Security Agreement” means that
certain “Security Agreement” dated as of September 20, 2006 executed among,
inter alia, Verso
Technologies, Inc. and the Creditor to which the Grantor has become party in
virtue of the Joinder Agreement, as amended, restated, renewed, modified,
replaced and/or supplemented from time to time.

       

      
        	
                3.  

              	
                HYPOTHEC AND
      ADDITIONAL HYPOTHEC

              

      

       

      
        	
                3.1.  

              	
                Hypothec

              

      

       

      As
continuing and collateral security for the payment and the fulfillment of the
Obligations by the Grantor to and in favour of the Creditor as well as the
payment and fulfillment of all of the obligations of the Grantor hereunder, the
Grantor hereby hypothecates to and in favour of the Creditor for and in the
Hypothec Amount together with interest thereon at the Interest Rate (both before
and after maturity, demand, default and judgment), the following movable
property of the Grantor, wherever situate, and all renewals thereof, accretions
thereto, replacements thereof, substitutions therefore as well as everything
united thereto by accession, namely:

       

      3.1.1       
As a
universality, the Claims;

       

      3.1.2       
As a
universality, the Documents of Title;

       

      3.1.3      
As a
universality, the Proceeds;

       

      3.1.4      
As a
universality, the Records;

       

      3.1.5      
As a
universality, the Monies;

       

      3.1.6       
As a
universality, the Securities;

       

      3.1.7       
As a
universality, the Insurance;

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

       

      3.1.8       
As a
universality, the Intangible Property;

       

      3.1.9       
As a
universality, the Inventory;

       

      3.1.10    
As a
universality, the Equipment; and

       

      3.1.11    
As a
universality, all other corporeal and incorporeal movable property, assets,
rights and undertakings of any nature and kind, now owned or hereafter acquired
by the Grantor.

       

      
        	
                3.2.  

              	
                Additional
      Hypothec

              

      

       

      In order
to further secure the performance and observance of all the Grantor’s
obligations hereunder, the Grantor hereby further hypothecates all of the
Charged Property to and in favour of the Creditor for and in an additional
amount equal to twenty-percent (20%) of the Hypothec Amount.

       

      
        	
                3.3.  

              	
                Dealings with Charged
      Property

              

      

       

      Notwithstanding
the existence of the Security over the Charged Property:

       

      (a)    Subject
to Clause 6 hereof, the Creditor authorizes the
Grantor to collect the Claims as they fall due; and

       

      (b)    Until
such time as an Event of Default has occurred and is continuing, nothing will
prevent the Grantor from selling, disposing of or dealing with any of the
Inventory in the ordinary course of its business,

       

      provided
that the Security shall continue to extend to any proceeds resulting from the
disposition of any Inventory and on any rights to such Inventory which are
retained or reacquired at any time by the Grantor.

       

      
        	
                3.4.  

              	
                Voting and Other
      Rights

              

      

       

      3.4.1      
Should
any of the Charged Property consist of any shares, bonds, debentures, warrants
or any other securities or instruments entitling the Grantor to exercise any
voting rights, redemption rights, conversion rights or any other rights or
privileges whatsoever, the Creditor shall, if an Event of Default has occurred
and is continuing, be entitled (but not obliged) to become the registered or
named holder or beneficiary thereof as well as to fully exercise all of such
rights or privileges on behalf of the Grantor and in such manner and at such
times as the Creditor deems appropriate. The Creditor's becoming the registered
or named holder or beneficiary of any Charged Property or the Creditor's
exercise of any of such rights or privileges shall neither necessitate nor
constitute the exercise by the Creditor of any of its rights under Clause 5.1 hereof.  The
Creditor shall not, in any manner whatsoever, be responsible or liable to the
Grantor or any other person(s) resulting from either the failure by the Creditor
to exercise any of the foregoing rights or privileges or the manner or timing of
the Creditor's exercise of any of the foregoing rights or
privileges;

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      3.4.2       
Should
any of the Charged Property consist of any certificate of deposit, investment
certificate or any other debt instrument or evidence of indebtedness issued by
the Creditor, then, notwithstanding any restrictions or prohibitions regarding
negotiability or transferability attaching to same, such restrictions or
prohibitions shall, as between the Creditor and the Grantor, be completely
inapplicable and any such certificate of deposit, investment certificate or any
other debt instrument or evidence of indebtedness issued by the Creditor shall
be deemed for all purposes to have been properly hypothecated and delivered to
the Creditor and in the Creditor's full possession by the mere retention thereof
by the Creditor and/or its representatives.

       

      3.4.3      
 Should
any of the Charged Property consist of cash, monies, funds on deposit with the
Creditor or any certificate of deposit, investment certificate or any other debt
instrument or evidence of indebtedness (whether issued by the Creditor or any
other person[s]), then, subject only to the notification and other formalities
strictly required by law, the Creditor shall be entitled to exercise its rights
to sell any of the foregoing by the Creditor's simply obtaining payment of the
proceeds thereof.  The exercise of such rights by the Creditor shall
not, in any manner whatsoever, constitute a taking in payment of any of the
foregoing property.

       

      4.           EVENT OF
DEFAULT

       

      
        	
                4.1  

              	
                The
      occurrence of any “Event of Default” under and as defined in the Security
      Agreement shall ipso
      facto and automatically constitute and is hereafter defined as an
      “Event of Default” hereunder.

              

      

       

      
        	
                5.  

              	
                REMEDIES IN CASE OF
      DEFAULT

              

      

       

      
        	
                5.1  

              	
                Upon
      the occurrence and during the continuance of an Event of Default, the
      Creditor, without the necessity of any notice or formality (other than
      those strictly required under the Law) shall immediately be entitled
      to:

              

      

       

      
        	
                5.1.1    
        

              	
                exercise
      all available rights and recourses against the Grantor and/or the Charged
      Property including, without limitation, any and all of the hypothecary
      rights in respect of the whole or any portion of the Charged Property in
      accordance with Law; and/or

              

      

       

      
        	
                5.1.2    
        

              	
                exercise
      different and separate hypothecary rights and/or other rights and
      recourses against different portions (or components of portions) of the
      Charged Property as the Creditor sees fit and the Creditor shall at all
      times be entitled, subject only to such notification or formalities as
      strictly required by Law, to change or substitute any hypothecary rights
      and/or other rights and recourses for other hypothecary rights and/or
      other rights and recourses as it sees
fit.

              

      

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      

       

      
        	
                5.2  

              	
                Additional
      Rights

              

      

       

      Upon the
occurrence of and during the continuance of an Event of Default:

       

      
        	
                5.2.1    
       

              	
                Administration after
      Surrender

              

      

       

      In the
event that the Creditor obtains the surrender of the whole or any portion of the
Charged Property and until such time as such Charged Property is restored to the
Grantor or, as regards any portion thereof, the Creditor has concluded a
recourse by way of taking in payment, sale by the Creditor, sale under judicial
authority or otherwise, or in the event that the Creditor withdraws the
Grantor's right to collect the Claims, then, subject to applicable
Law:

       

      (a)    The
Creditor will be entitled to generally delegate the whole or any part of the
administration of any Charged Property (including without limitation, the
exercise of all discretionary powers) to such person(s) as the Creditor may
designate or re-designate in the Creditor's sole discretion (any such person
being herein referred to as an “Administrator”);

       

      (b)    The
Creditor and any Administrator will be entitled to reimbursement of all costs
and expenses (including, without limitation, all costs, expenses and reasonable
fees incurred by any attorneys or other persons engaged by the Creditor or the
Administrator in order to assist in such administration or any matter pertaining
thereto), as well as all reasonable fees of the Creditor and the Administrator
incurred in such administration, all of which may be charged by the Creditor
against any fruits, revenues or proceeds of alienation of the whole or any
portion of the Charged Property;

       

      (c)    The
Creditor or the Administrator may alienate any Charged Property which by its
nature is destined for alienation in the course of the operation of the
enterprise of the Grantor, by onerous title in such manner as it, in its sole
discretion, deems appropriate, the whole notwithstanding that it may have only
simple administration of the Charged Property;

       

      (d)    The
Creditor will be entitled to acquire the whole or any portion of any Charged
Property alienated by onerous title in the course of any administration
thereof;

       

      (e)    In the
event that the Creditor or the Administrator acquires full administration of any
Charged Property, neither the Creditor nor the Administrator will be under any
obligation whatsoever to make such Charged Property productive, increase such
Charged Property or the value thereof or appropriate such Charged Property to
any purpose other than payment of the Obligations;

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      (f)    The
Creditor and the Administrator will be entitled, whether or not for value, to
renounce to any right affecting, benefiting, pertaining to and/or forming part
of any Charged Property administered by either of them;

       

      (g)    Neither
the Creditor nor the Administrator will be obliged, in any manner whatsoever, to
prepare any inventory of any Charged Property, insure any Charged Property, take
any steps to preserve rights against others with respect to instruments,
securities or chattel paper, keep the Charged Property identifiable or give any
security for any Charged Property or their administration
thereof.  Should the Creditor or the Administrator, in its discretion,
insure the whole or any portion of any Charged Property, the costs and expenses
of any insurance shall form part of the costs and expenses referred to in
subparagraph (b) hereof;

       

      (h)    The
Creditor and the Administrator may change the destination of the whole or any
portion of any Charged Property under their administration and will not be bound
to continue the use or operation of any Charged Property under their
administration which produces fruits or revenues; and

       

      (i)    The
Creditor and the Administrator will only be obliged to render an account to the
Grantor upon the written request of the Grantor and once the Creditor or
Administrator has determined, to its satisfaction, the details of such
account.

       

      
        	
                5.2.2    
        

              	
                Taking in
      payment

              

      

       

      In the
event that the Creditor exercises its right to become the absolute owner of the
Charged Property or any part thereof, the Grantor, concurrently with surrender
or at any time thereafter at the request of the Creditor, will sign a voluntary
deed or agreement providing for the Creditor to take in payment the Charged
Property or any part thereof.  In the event that the Grantor requires
the Creditor to sell any such Charged Property, the Grantor acknowledges that
the Creditor will not be required to abandon its recourse of taking in payment
unless, before the expiration of the delay to surrender, the Creditor: (i) shall
have been reimbursed the costs it has incurred; and (ii) shall have been
advanced all amounts necessary for the sale of the Charged Property in
question.

       

      All
expenditures and improvements made by any holder of the Charged Property and all
payments made on account of the Obligations and the accessories thereof will
belong to the Creditor without return or compensation. The Creditor will not be
obliged to compensate or indemnify the Grantor or any other person for any cause
whatsoever.

       

      
        	
                5.2.3    
        

              	
                Sale of Charged
      Property

              

      

       

      In the
event that the Creditor exercises its right to sell the whole or any portion of
the Charged Property by judicial authority or pursuant to a sale by the
Creditor, the following will apply:

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (a)    Such
Charged Property may be sold subject to and upon such terms and conditions
(including, without limitation, terms extending credit) by way of one (1) or
more sales by private agreement, call for tenders or public auction or
combinations thereof as the Creditor or the Administrator sees fit, acting
reasonably, and the Creditor or the Administrator may, at any time, change or
substitute any method of sale for any other method of sale of such Charged
Property;

       

      (b)    In any
call for tenders, the Creditor or Administrator will not be obliged to accept
the highest offer or any offer and, in the event that no offer is accepted, may
proceed to sell such Charged Property by any other method; and

       

      (c)    The
Grantor expressly agrees that the Creditor will not be required to obtain or
present to the Court any appraisals of such Charged Property and that such
Charged Property may be sold without any upset price therefor.

       

      
        	
                6.  

              	
                CLAIMS

              

      

       

      
        	
                6.1  

              	
                The
      Creditor may, in the event of the occurrence and during the continuance of
      an Event of Default, withdraw the authorization of the Grantor to collect
      the Claims as they fall due and, thereafter, the following will
      apply:

              

      

       

      (a)    The
Creditor will be the only party authorized and entitled to collect, dispose of
and deal with the Claims;

       

      (b)    The
Creditor will have the right to collect, dispose of and deal with the Claims as
it may deem expedient including, without limiting the generality of the
foregoing, to demand, sue for, enforce, recover and receive payment of the
Claims and to compound, compromise, grant extensions, take and give up
securities, accept compositions and grant releases and discharges with respect
thereto, the whole without notice to the Grantor and without any liability for
any loss resulting therefrom;

       

      (c)    Actions
to enforce rights with respect to the Claims may be instituted by the Creditor,
at its discretion, in its own name, in the name of the Grantor, or in the name
of the Creditor and the Grantor jointly; and

       

      (d)    The
Creditor will not be obliged to inform the Grantor of any irregularity in the
payment of any of the Claims.

       

      
        	
                6.2  

              	
                All
      amounts collected or received by the Grantor in respect of the Claims
      (after the occurrence and during the continuance of an Event of Default)
      will be deemed to have been collected or received by the Grantor as
      mandatary of the Creditor and will be deposited into such bank accounts as
      are acceptable from time to time to the Creditor.  At all times
      after the Creditor has withdrawn the right of the Grantor to collect the
      Claims in accordance with Clause 6.1 hereof, all amounts collected or
      received by the Grantor in respect of the Claims will be received by the
      Grantor as mandatary for the Creditor and will be remitted to the Creditor
      in identical form as received.

              

      

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      
        	
                7.  

              	
                APPLICATION AND
      IMPUTATION OF PROCEEDS

              

      

       

      
        	
                7.1.  

              	
                Notwithstanding
      any provisions of Law to the contrary, the proceeds of enforcement of any
      rights of the Creditor with respect to the Charged Property, including,
      without limitation, proceeds of any sale of the Charged Property by the
      Creditor and collections of any Claims, will be applied in accordance with
      the Security Agreement.

              

      

       

      
        	
                7.2.  

              	
                The
      Creditor shall have the right to impute any amounts or proceeds received
      by it from or for the account of the Grantor, whether pursuant to the
      terms hereof or as a result of a judicial or other sale, or as an
      inducement to grant mainlevée or discharge hereof or otherwise, against
      any portion of the Obligations which it, in its sole discretion,
      determines and from time to time to vary such determination, the whole
      notwithstanding any pretended contrary imputation by the Grantor or by any
      other party.

              

      

       

      
        	
                7.3.  

              	
                If
      the proceeds of the realization of the Charged Property are insufficient
      to pay the entire Obligations, the Grantor shall remain liable and
      forthwith pay such deficiency to the
Creditor.

              

      

       

      
        	
                8.  

              	
                COSTS

              

      

       

      
        	
                8.1.  

              	
                In
      addition to its obligation to pay and/or reimburse to the Creditor all
      costs and expenses referred to herein (in general and under Clause 5.2.1 hereof in particular) and referred to in
      the Security Agreement, the Grantor hereby agrees and undertakes to pay
      and/or reimburse to the Creditor the full amount of the Costs upon the
      Creditor’s simple demand therefore.

              

      

       

      
        	
                9.  

              	
                REMEDIES
      CUMULATIVE

              

      

       

      
        	
                9.1.  

              	
                The
      different recourses of the Creditor hereunder are cumulative and not
      alternative.  The rights and remedies of the Creditor hereunder
      are in addition to every other right and remedy now or hereafter existing
      in favour of the Creditor, whether by law or
  otherwise.

              

      

       

      
        	
                10.  

              	
                WAIVERS

              

      

       

      
        	
                10.1.  

              	
                No
      delay or failure on the part of the Creditor in exercising any right or
      remedy hereunder shall affect such right or remedy, nor shall any single
      or partial exercise hereof preclude any further exercise thereof or the
      exercise of any other right or remedy.  Any waiver by the
      Creditor of any of its rights or remedies hereunder will be valid only if
      express and in writing. No waiver shall be deemed to be or constitute a
      waiver of any other rights or remedies of the Creditor.  In no
      event will the Creditor's acceptance, after the full payment of the
      Obligations may have become due and payable, of any partial payment, be
      deemed to alter or affect the Creditor's rights with respect to any
      subsequent payment or default thereon.  Moreover, should the
      Creditor grant or tolerate any extension or delay for payment or
      performance of any obligations of the Grantor, such extension, delay,
      indulgence or tolerance will not be deemed an acquiescence by the Creditor
      in such default or waiver of any of the Creditor's rights and remedies
      hereunder or in respect of any future
default.

              

      

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      
        	
                11.  

              	
                CREDITOR NOT
      LIABLE

              

      

       

      
        	
                11.1.  

              	
                The
      Creditor shall not be liable or accountable for any failure to seize,
      collect, realize, dispose of, enforce or otherwise deal with the Charged
      Property, shall not be bound to institute proceedings for any such
      purposes or for the purpose of preserving any rights of the Creditor, the
      Grantor or any other person, firm or corporation in respect of the Charged
      Property and shall not be liable or responsible for any loss, cost or
      damage whatsoever which may arise in respect of any such failure
      including, without limitation, resulting from the negligence of the
      Creditor or any of its officers, servants, agents, solicitors, attorneys,
      Administrators, receivers or otherwise, except for the intentional or
      gross fault of the Creditor.  Neither the Creditor nor its
      officers, servants, agents, Administrators or receivers shall be liable by
      reason of any entry into possession of the Charged Property or any part
      thereof, to account as a mortgagee in possession, for anything except
      actual receipts, for any loss on realization, for any act or omission for
      which a mortgagee in possession might be liable, for any negligence in the
      carrying on or occupation of the business or undertaking of the Grantor as
      provided herein or for any loss, cost, damage or expense whatsoever which
      may arise in respect of any such actions, omissions or negligence, except
      for the actual bad faith, intentional or gross fault of the
      Creditor.

              

      

       

      
        	
                12.  

              	
                NATURE OF OBLIGATIONS
      AND SECURITY

              

      

       

      
        	
                12.1.  

              	
                The
      Security secures and will continue to secure the Obligations on a
      continuing and fluctuating basis and is and will be valid notwithstanding
      that the whole or any portion of the prestations in consideration of which
      the Grantor has undertaken its obligations towards the Creditor have not
      yet been received and notwithstanding that the whole or any portion of the
      Obligations may not yet exist.

              

      

       

      
        	
                12.2.  

              	
                The
      Security shall remain in full force and effect (for the full Hypothec
      Amount and additional hypothec amount) unless and until no amounts
      whatsoever are owing (absolutely or contingently) under the Obligations
      and the Creditor is not, in any manner whatsoever, obliged (absolutely or
      contingently) to extend any credit under the Obligations. The Security
      will not be extinguished, reduced, novated or otherwise affected by any
      payments made to or amounts received by the Creditor, directly or
      indirectly, from the Grantor or any other party or as a result of any
      insurance indemnities arising from loss or damage to any of the Charged
      Property or by reason of the collection of any
  Claims.

              

      

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      
        	
                12.3.  

              	
                Should
      the Obligations at any time be fully extinguished without an express
      discharge of the Security, and should new Obligations arise, the Security
      will secure the new Obligations in the same manner and to the same extent
      as if there had never occurred an extinction of the old Obligations and
      the Grantor is and will be obligated under the provisions
      hereof.  The Grantor will be deemed to have obligated itself for
      the new Obligations pursuant to the provisions hereof and the Security
      will secure such new Obligations.

              

      

       

      
        	
                13.  

              	
                NO
      NOVATION

              

      

       

      
        	
                13.1.  

              	
                Neither
      the taking of any judgment nor the exercise of any of the rights available
      to the Creditor hereunder shall operate to novate or otherwise extinguish
      the liability of the Grantor to make payment of or satisfy the
      Obligations.

              

      

       

      
        	
                14.  

              	
                OTHER
      SECURITY

              

      

       

      
        	
                14.1.  

              	
                The
      Security is in addition to and not in substitution for nor deemed to be
      substituted by any other security now or hereafter held by or for the
      benefit of the Creditor and shall not be diminished or novated or
      otherwise affected by any other security or any promissory note or other
      evidence of indebtedness which the Creditor or any party for the benefit
      of the Creditor may have or obtain from the Grantor or any other person,
      nor shall any other security or note or evidence of indebtedness be
      diminished or novated or otherwise affected
  hereby.

              

      

       

      
        	
                15.  

              	
                GOVERNING
      LAW

              

      

       

      
        	
                15.1.  

              	
                This
      agreement shall be governed by and interpreted in accordance with the laws
      of the Province of Quebec and the laws of Canada in
  force.

              

      

       

      
        	
                16.  

              	
                INTERPRETATION

              

      

       

      
        	
                16.1.  

              	
                Any
      word herein contained in the singular number will include the plural; any
      word importing any gender will include the masculine, feminine and neuter
      genders; any word importing a person will include a corporation, a
      partnership and any other entity and vice-versa.  The headings
      of this agreement are for convenience of reference only and shall not
      affect in any manner any of the terms and conditions hereof or the
      construction or interpretation of this
  agreement.

              

      

       

      
        	
                17.  

              	
                OTHER
      DOCUMENTS

              

      

       

      
        	
                17.1.  

              	
                The
      Grantor undertakes to perform all acts and enter into all documentation
      which may be useful or necessary or required by the Creditor for purposes
      of giving full force and effect to the provisions hereof or to perfect the
      rights of the Creditor hereunder including, without limitation, the right
      to recover and collect the Claims and to exercise all rights, recourses
      and remedies as herein set forth.

              

      

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      
        	
                18.  

              	
                SEVERABILITY

              

      

       

      
        	
                18.1.  

              	
                This
      agreement shall not be considered as an indivisible whole and every
      provision of this agreement is and shall be independent of the
      other.  In the event that any part of this agreement is declared
      invalid, illegal or unenforceable, then the remaining terms, clauses and
      provisions of this agreement shall not be affected by such declaration and
      all of the remaining clauses of this agreement shall remain valid, binding
      and enforceable.

              

      

       

      
        	
                19.  

              	
                PARAMOUNTCY

              

      

       

      
        	
                19.1.  

              	
                In
      the event of any inconsistency between the terms hereof and those
      contained in the Security Agreement (except in respect of the terms
      governing the constitution of the Hypothec in virtue hereof), the terms of
      the Security Agreement shall prevail. Nothing herein contained shall be
      construed as limiting any rights of the Creditor or obligations of the
      Grantor under the Security Agreement or any other agreements or documents
      presently or in the future existing between the Creditor and the
      Grantor.

              

      

       

      
        	
                20.  

              	
                NOTICE

              

      

       

      
        	
                20.1.  

              	
                All
      notices, requests and demands hereunder shall be given in accordance with
      the terms of the Security
Agreement.

              

      

       

      
        	
                21.  

              	
                COUNTERPARTS

              

      

       

      
        	
                21.1.  

              	
                These
      presents may be executed in one or more counterparts and by facsimile,
      each of which shall be deemed an original and all of which together shall
      constitute one and the same
document.

              

      

       

      
        	
                22.  

              	
                LANGUAGE

              

      

       

      
        	
                22.1.  

              	
                The
      parties acknowledge that they have required that this agreement and all
      related documents be prepared in English./Les parties reconnaissent avoir
      exigé que la présente convention et tous les documents connexes soient
      rédigés en anglais.

              

      

       

      

       

      [Remainder
of page intentionally left blank, signature page to follow]

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      IN
WITNESS WHEREOF THE GRANTOR AND THE CREDITOR HAVE EXECUTED THE PRESENT
HYPOTHECATION OF MOVABLES AT THE CITY OF MONTREAL, PROVINCE OF QUEBEC, THIS
20th
DAY OF DECEMBER, 2007.

       

       

      
        	 
      	 
      	
                VERSO
      BACKHAUL SOLUTIONS, INC.

              	 
      
	 
      	 
      	
                Per:

              	 
      
	 
      	 
      	 
      	 
      
	 	 	/s/
      Martin D. Kidder	 
	 
      	 
      	
                Name:
      Martin D. Kidder

              	 
      
	 
      	 
      	
                Title:
      President

              	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	
                LAURUS
      MASTER FUND, LTD.

              	 
      
	 
      	 
      	
                Per:

              	 
      
	 
      	 
      	 
      	 
      
	 	 	/s/
      Scott Bluestein	 
	 
      	 
      	
                Name:  Scott
      Bluestein

              	 
      
	 
      	 
      	
                Title:
      Authorized Representative

              	 
      

      

      

      
 

      [Hypothecation
of Movables-Verso Backhaul Solutions, Inc./Laurus Master Fund,
Ltd.]

       

       

      16ex10-186.htm

    
      

    

    EXHIBIT
10.186

     

    HYPOTHECATION
OF MOVABLES

    

    

    
      	
              BETWEEN:

            	
              VERSO TECHNOLOGIES CANADA INC.,
      a legal person duly incorporated and subsisting under the laws of
      Canada, having its
      registered office at 4105 D Matte Blvd., in the City of Brossard, Quebec,
      J4Y 2P4, herein acting and represented by Martin D. Kidder, its President
      and Secretary, duly authorized in virtue of a Resolution of its Board of
      Directors duly enacted on January 15, 2008;

            
	 
      	 
      
	 
      	
              (hereinafter
      referred to as the “Grantor”)

            
	 
      	 
      
	
              AND:

            	
              VALENS U.S. SPV I, LLC,
      a limited liability company duly incorporated and subsisting under the
      laws of Delaware, having its principal place of business c/o Valens
      Capital Management, LLC, 335 Madison Avenue, 10th
      Floor, in the City of New York, U.S.A. 10017, herein acting and
      represented by Scott Bluestein, its authorized representative, duly
      authorized for the purposes hereof as declared,

            
	 
      	 
      
	 
      	
              (hereinafter
      referred to as the “Creditor”)

            

    

    

    

    WHEREAS the Creditor has
entered and/or will enter into arrangements with the Debtor (as hereafter
defined) whereby the Debtor is or may hereafter become indebted to the
Creditor;

    

    WHEREAS the Grantor has agreed
to guarantee the payment of all indebtedness and the performance of all
obligations which may become due from time to time to the Creditor;

    

    WHEREAS the Grantor has
agreed, as security for all obligations due by the Grantor to the Creditor from
time to time, to hypothecate the “Charged Property” (as hereinafter defined) in
favour of the Creditor; and

    

    WHEREAS the Grantor carries on
an enterprise;

     

    THE
PARTIES AGREE AS FOLLOWS:

    

    
      	
              1.  

            	
              PREAMBLE

            

    

     

    
      	
              1.1.  

            	
              The
      preamble forms part hereof as if recited at length
  herein.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              2.  

            	
              DEFINITIONS

            

    

     

    
      	
              2.1.  

            	
              Unless
      the context otherwise requires, the following expressions will have the
      respective meanings hereinafter set
forth:

            

    

     

    (a)    “Charged Property” means all
of the movable property enumerated and/or referred to in Clause  3.1 hereof;

     

    (b)    “Claims” means, collectively,
all accounts receivable, book accounts, book debts, debts, claims, monies,
rentals, revenues, incomes, loans receivable, demands, rebates, refunds, amounts
owing by or claimable from the crown, state or government or any departments,
agents or agencies thereof and choses in action which now are or which may at
any time hereafter be due or owing to or owned by the Grantor or in which the
Grantor now or hereafter has any other interest and all security interests,
hypothecs, assignments, guarantees, bills of exchange, notes, chattel paper,
negotiable instruments, contracts, invoices, books of account, letters of credit
and other documents and rights now held or owned or which may be hereafter held
or owned by the Grantor or any third party on behalf of the Grantor in respect
of any of the foregoing and all rights of an unpaid vendor, including rights to
merchandise returned, repossessed or recovered;

     

    (c)    “Costs” means:

     

    
      	
              (i)           
      

            	
              all
      costs and expenses (including, without limitation, all costs and expenses
      referred to herein and/or in the Security Agreement) which may hereafter
      be incurred, in any manner and under any circumstances, by and/or on
      behalf of the Creditor in and/or relating to (i) the enforcement of the
      Hypothec, (ii) the sale and/or disposal of any of the Charged Property
      forming the object of the Hypothec, and/or (iii) dealing with the Charged
      Property forming the object of the
Hypothec;

            

    

     

    
      	
              (ii)          
      

            	
              any
      and all fees, disbursements and applicable sales taxes incurred by any
      professionals (including, without limitation, any attorneys, receivers,
      trustees, monitors and/or consultants) which may hereafter be engaged by
      and/or on behalf of the Creditor or for which the Creditor may hereafter
      become obliged for and/or pertaining to (i) the enforcement of the
      Hypothec, (ii) the sale and/or disposal of any of the Charged Property
      forming the object of the Hypothec, and/or (iii) dealing with the Charged
      Property forming the object of the Hypothec;
and

            

    

     

    
      	
              (iii)         
      

            	
              any
      and all other costs and expenses, of any nature or form whatsoever, which
      may hereafter be incurred by and/or on behalf of the Creditor or for which
      the Creditor may hereafter become obliged, under any circumstances
      whatsoever, for and/or pertaining to (i) the enforcement of the Hypothec,
      (ii) the sale and/or disposal of any of the Charged Property forming the
      object of the Hypothec, and/or (iii) dealing with the Charged Property
      forming the object of the Hypothec,

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    to the
extent that, in accordance with the Law, same are not secured by the
Hypothec;

     

    (d)    “Debtor” means collectively,
Verso Technologies, Inc., a corporation incorporated and subsisting under the
laws of Georgia, Verso Backhaul Solutions, Inc., Telemate Net Software, Inc.,
Verso Verilink, LLC, Sentito Networks, Inc. and any other Eligible Subsidiary
(as such term is defined in the Security Agreement) from time to time, as well
as their respective successors and assigns;

     

    (e)    “Documents of Title” means,
collectively, all documents of title, whether negotiable or non-negotiable
including, without limitation, all warehouse receipts and bills of lading in
which the Grantor now or hereafter has an interest;

     

    (f)    “Equipment” means,
collectively, all machinery, equipment, furniture, fixtures, materials,
supplies, appliances, dyes, molds, tanks, vehicles, furnaces, boilers, motors,
engines, accessories and tools now owned or hereafter acquired by the Grantor,
whether or not the same be affixed to any immovable property or used upon or in
connection therewith, together with all present and future improvements,
appurtenances and accessories thereto;

     

    (g)    “Guarantee” means that certain
Guarantee executed by the Grantor in favour of the Creditor, Laurus Master Fund,
Ltd. and Valens Offshore SPV II, Corp. on or about the date hereof, pursuant to
which the Grantor has guaranteed the payment of all indebtedness and the
performance of all obligations due from time to time by the Debtor to the
Creditor under the Security Agreement;

     

    (h)    “Hypothec” means collectively
the hypothecation and the additional hypothecation of the Charged Property by
the Grantor in favour of the Creditor created pursuant to Clauses 3.1 and 3.2
hereof;

     

    (i)    “Hypothec Amount” means the
sum of One Million Dollars
($1,000,000);

     

    (j)    “Insurance” means,
collectively, all insurance policies relating directly or indirectly to any of
the Charged Property or any part thereof and all rights and claims under all
policies of insurance of whatever nature including, without limitation, under
life insurance policies and under insurance against loss or damage;

     

    (k)    “Intangible Property” means,
collectively, all incorporeal property now owned or hereafter acquired by the
Grantor or its interest therein including, without limitation, all patents and
patents pending, registered and unregistered trade marks, trade or brand names,
service marks, copyrights, industrial designs, formulae, processes, trade
secrets, goodwill, contractual rights, licences and permits;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (l)    “Interest Rate” means
Twenty-Five percent (25%) per annum;

     

    (m)   “Inventory” means,
collectively, all property in stock and inventory now owned and hereafter
acquired by the Grantor including, without limitation, all raw materials, goods
in process, finished goods, goods in transit and all packaging and shipping
materials and all materials and merchandise procured for the manufacture or
production thereof and all goods, wares and merchandise held for sale, lease or
resale or furnished or to be furnished under contracts for service or used or
consumed in the business of the Grantor;

     

    (n)    “Law” means the Civil Code of
Québec;

     

    (o)    “Monies” means, collectively,
all monies, cash, foreign currencies and credits in which the Grantor now or
hereafter has an interest;

     

    (p)    “Notes” shall have the meaning
ascribed thereto in the Security Agreement;

     

    (q)    “Obligations” means and
includes all debts, liabilities and obligations owing by the Grantor to the
Creditor arising under, out of, or in connection with  the Guarantee
and in connection with any documents, instruments or agreements relating to or
executed in connection with the Guarantee or any documents, instruments or
agreements referred to therein or otherwise, and in connection with any other
indebtedness, obligations or liabilities of the Grantor to the Creditor, whether
now existing or hereafter arising, direct or indirect, liquidated or
unliquidated, absolute or contingent, due or not due and whether under, pursuant
to or evidenced by a note, agreement, guaranty, instrument or otherwise, in each
case, irrespective of the genuineness, validity, regularity or enforceability of
such Obligations, or of any instrument evidencing any of the Obligations or of
any collateral therefore or of the existence or extent of such collateral, and
irrespective of the allowability, allowance or disallowance of any or all of the
Obligations, in any case commenced by or against the Grantor under Title 11,
United States Code, the
Bankruptcy and Insolvency
Act (Canada) and the Companies’ Creditors Arrangement
Act, including, without limitation, obligations or indebtedness of the
Grantor for post-petition interest, fees, costs and charges that would have
accrued or been added to the Obligations but for the commencement of such
case;

     

    (r)    “Proceeds” means,
collectively, all property in any form derived directly or indirectly from any
dealings with any of the Charged Property including:

     

    
      	
              (i)         
       

            	
              identifiable
      or traceable personal or movable property that is derived directly or
      indirectly with any dealing with the Charged Property or proceeds of the
      Charged Property and in which the Grantor acquires an
      interest;

            

    

     

    
      	
              (ii)          
      

            	
              an
      insurance or other payment that represents indemnity or compensation for
      loss of or damage to the Charged Property or proceeds of the Charged
      Property or a right to such a payment;
and

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
              (iii)         
      

            	
              a
      payment made in total or partial discharge or redemption of chattel paper,
      a security, an instrument, an intangible or incorporeal
      property;

            

    

     

    (s)    “Records” means, collectively,
all computer programs, firmware and software and all computer and other records
and data, whether in hard copy or otherwise, pertaining to any of the Charged
Property and the equipment containing same and owned by the
Grantor;

     

    (t)    “Securities” means,
collectively, all shares, stocks, warrants, bonds, debentures, debenture stock,
and other securities, now or hereafter owned and/or held by the Grantor, in
which the Grantor now or hereafter has an interest;

     

    (u)    “Security” means the Hypothec
and rights created in the Creditor’s favour hereunder; and

     

    (v)    “Security Agreement” means that
certain “Security Agreement” dated as of September 20, 2006 executed among,
inter alia, Verso
Technologies, Inc. and Laurus Master Fund, Ltd. (in respect of which there has
been a partial assignment of rights in favour of each of the Creditor and Valens
Offshore SPV II, Corp. in virtue of that certain “Assignment of Loans, Liens and
Documents” dated as of December 21, 2007), as amended, restated, renewed,
modified, replaced and/or supplemented from time to time.

     

    
      	
              3.  

            	
              HYPOTHEC AND
      ADDITIONAL HYPOTHEC

            

    

     

    
      	
              3.1.  

            	
              Hypothec

            

    

     

    As
continuing and collateral security for the payment and the fulfillment of the
Obligations by the Grantor to and in favour of the Creditor as well as the
payment and fulfillment of all of the obligations of the Grantor hereunder, the
Grantor hereby hypothecates to and in favour of the Creditor for and in the
Hypothec Amount together with interest thereon at the Interest Rate (both before
and after maturity, demand, default and judgment), the following movable
property of the Grantor, wherever situate, and all renewals thereof, accretions
thereto, replacements thereof, substitutions therefore as well as everything
united thereto by accession, namely:

     

    3.1.1      
 As a
universality, the Claims;

     

    3.1.2      
 As a
universality, the Documents of Title;

     

    3.1.3      
 As a
universality, the Proceeds;

     

    3.1.4      
 As a
universality, the Records;

     

    3.1.5      
 As a
universality, the Monies;

     

    3.1.6       
As a
universality, the Securities;

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    3.1.7      
 As a
universality, the Insurance;

     

    3.1.8      
 As a
universality, the Intangible Property;

     

    3.1.9      
 As a
universality, the Inventory;

     

    3.1.10    
As a
universality, the Equipment; and

     

    3.1.11    
As a
universality, all other corporeal and incorporeal movable property, assets,
rights and undertakings of any nature and kind, now owned or hereafter acquired
by the Grantor.

     

    
      	
              3.2.  

            	
              Additional
      Hypothec

            

    

     

    In order
to further secure the performance and observance of all the Grantor’s
obligations hereunder, the Grantor hereby further hypothecates all of the
Charged Property to and in favour of the Creditor for and in an additional
amount equal to twenty-percent (20%) of the Hypothec Amount.

     

    
      	
              3.3.  

            	
              Dealings with Charged
      Property

            

    

     

    Notwithstanding
the existence of the Security over the Charged Property:

     

    (a)    Subject
to Clause 6 hereof, the Creditor authorizes the
Grantor to collect the Claims as they fall due; and

     

    (b)    Until
such time as an Event of Default has occurred and is continuing, nothing will
prevent the Grantor from selling, disposing of or dealing with any of the
Inventory in the ordinary course of its business,

     

    provided
that the Security shall continue to extend to any proceeds resulting from the
disposition of any Inventory and on any rights to such Inventory which are
retained or reacquired at any time by the Grantor.

     

    
      	
              3.4.  

            	
              Voting and Other
      Rights

            

    

     

    3.4.1       
Should
any of the Charged Property consist of any shares, bonds, debentures, warrants
or any other securities or instruments entitling the Grantor to exercise any
voting rights, redemption rights, conversion rights or any other rights or
privileges whatsoever, the Creditor shall, if an Event of Default has occurred
and is continuing, be entitled (but not obliged) to become the registered or
named holder or beneficiary thereof as well as to fully exercise all of such
rights or privileges on behalf of the Grantor and in such manner and at such
times as the Creditor deems appropriate. The Creditor's becoming the registered
or named holder or beneficiary of any Charged Property or the Creditor's
exercise of any of such rights or privileges shall neither necessitate nor
constitute the exercise by the Creditor of any of its rights under Clause 5.1 hereof.  The
Creditor shall not, in any manner whatsoever, be responsible or liable to the
Grantor or any other person(s) resulting from either the failure by the Creditor
to exercise any of the foregoing rights or privileges or the manner or timing of
the Creditor's exercise of any of the foregoing rights or
privileges;

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    3.4.2      
 Should
any of the Charged Property consist of any certificate of deposit, investment
certificate or any other debt instrument or evidence of indebtedness issued by
the Creditor, then, notwithstanding any restrictions or prohibitions regarding
negotiability or transferability attaching to same, such restrictions or
prohibitions shall, as between the Creditor and the Grantor, be completely
inapplicable and any such certificate of deposit, investment certificate or any
other debt instrument or evidence of indebtedness issued by the Creditor shall
be deemed for all purposes to have been properly hypothecated and delivered to
the Creditor and in the Creditor's full possession by the mere retention thereof
by the Creditor and/or its representatives.

     

    3.4.3      
 Should
any of the Charged Property consist of cash, monies, funds on deposit with the
Creditor or any certificate of deposit, investment certificate or any other debt
instrument or evidence of indebtedness (whether issued by the Creditor or any
other person[s]), then, subject only to the notification and other formalities
strictly required by law, the Creditor shall be entitled to exercise its rights
to sell any of the foregoing by the Creditor's simply obtaining payment of the
proceeds thereof.  The exercise of such rights by the Creditor shall
not, in any manner whatsoever, constitute a taking in payment of any of the
foregoing property.

     

    4.           EVENT OF
DEFAULT

     

    
      	
              4.1  

            	
              The
      occurrence of any “Event of Default” under and as defined in the Security
      Agreement shall ipso
      facto and automatically constitute and is hereafter defined as an
      “Event of Default” hereunder.

            

    

     

    
      	
              4.2  

            	
              In
      addition, the occurrence of any of the following events shall also
      constitute and be defined as an “Event of Default”
    hereunder:

            

    

     

    
      	
              4.2.1   
        

            	
              the
      failure by the Creditor to receive payment in full of any of the
      Obligations, once any of the Obligations shall become due and exigible in
      accordance with the terms and conditions thereof (whether by lapse of
      time, demand, acceleration or
otherwise);

            

    

     

    
      	
              4.2.2      

            	
              the
      failure by the Grantor to fulfil or respect any of the Grantor’s
      Obligations, representations or warranties under the Guarantee, hereunder
      or under law (including, without limitation, payment of all amounts
      requested to be paid by the Grantor
hereunder);

            

    

     

    
      	
              4.2.3    
       

            	
              the
      insolvency or bankruptcy of the Grantor, the filing by the Grantor of a
      proposal or notice of intention to file a proposal under the relevant
      provisions of the Bankruptcy and Insolvency
      Act (Canada), the Grantor becoming the object of a winding up under
      the Winding-Up and
      Restructuring Act (Canada) or the Winding-Up Act (Quebec)
      or seeking or attempting  to seek the application of or
      protection under the Companies Creditors
      Arrangements Act (Canada) or any other similar legislation
      presently or in the future in force;
or

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	
              4.2.4    
       

            	
              the
      Grantor withdrawing or purporting to withdraw or otherwise terminate, the
      Guarantee or any guarantee or any security given in connection
      therewith.

            

    

     

    
      	
              5.  

            	
              REMEDIES IN CASE OF
      DEFAULT

            

    

     

    
      	
              5.1  

            	
              Upon
      the occurrence and during the continuance of an Event of Default, the
      Creditor, without the necessity of any notice or formality (other than
      those strictly required under the Law) shall immediately be entitled
      to:

            

    

     

    
      	
              5.1.1      

            	
              exercise
      all available rights and recourses against the Grantor and/or the Charged
      Property including, without limitation, any and all of the hypothecary
      rights in respect of the whole or any portion of the Charged Property in
      accordance with Law; and/or

            

    

     

    
      	
              5.1.2    
       

            	
              exercise
      different and separate hypothecary rights and/or other rights and
      recourses against different portions (or components of portions) of the
      Charged Property as the Creditor sees fit and the Creditor shall at all
      times be entitled, subject only to such notification or formalities as
      strictly required by Law, to change or substitute any hypothecary rights
      and/or other rights and recourses for other hypothecary rights and/or
      other rights and recourses as it sees
fit.

            

    

     

    
      	
              5.2  

            	
              Additional
      Rights

            

    

     

    Upon the
occurrence of and during the continuance of an Event of Default:

     

    
      	
              5.2.1      

            	
              Administration after
      Surrender

            

    

     

    In the
event that the Creditor obtains the surrender of the whole or any portion of the
Charged Property and until such time as such Charged Property is restored to the
Grantor or, as regards any portion thereof, the Creditor has concluded a
recourse by way of taking in payment, sale by the Creditor, sale under judicial
authority or otherwise, or in the event that the Creditor withdraws the
Grantor's right to collect the Claims, then, subject to applicable
Law:

     

    (a)    The
Creditor will be entitled to generally delegate the whole or any part of the
administration of any Charged Property (including without limitation, the
exercise of all discretionary powers) to such person(s) as the Creditor may
designate or re-designate in the Creditor's sole discretion (any such person
being herein referred to as an “Administrator”);

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (b)    The
Creditor and any Administrator will be entitled to reimbursement of all costs
and expenses (including, without limitation, all costs, expenses and reasonable
fees incurred by any attorneys or other persons engaged by the Creditor or the
Administrator in order to assist in such administration or any matter pertaining
thereto), as well as all reasonable fees of the Creditor and the Administrator
incurred in such administration, all of which may be charged by the Creditor
against any fruits, revenues or proceeds of alienation of the whole or any
portion of the Charged Property;

     

    (c)    The
Creditor or the Administrator may alienate any Charged Property which by its
nature is destined for alienation in the course of the operation of the
enterprise of the Grantor, by onerous title in such manner as it, in its sole
discretion, deems appropriate, the whole notwithstanding that it may have only
simple administration of the Charged Property;

     

    (d)    The
Creditor will be entitled to acquire the whole or any portion of any Charged
Property alienated by onerous title in the course of any administration
thereof;

     

    (e)    In the
event that the Creditor or the Administrator acquires full administration of any
Charged Property, neither the Creditor nor the Administrator will be under any
obligation whatsoever to make such Charged Property productive, increase such
Charged Property or the value thereof or appropriate such Charged Property to
any purpose other than payment of the Obligations;

     

    (f)    The
Creditor and the Administrator will be entitled, whether or not for value, to
renounce to any right affecting, benefiting, pertaining to and/or forming part
of any Charged Property administered by either of them;

     

    (g)    Neither
the Creditor nor the Administrator will be obliged, in any manner whatsoever, to
prepare any inventory of any Charged Property, insure any Charged Property, take
any steps to preserve rights against others with respect to instruments,
securities or chattel paper, keep the Charged Property identifiable or give any
security for any Charged Property or their administration
thereof.  Should the Creditor or the Administrator, in its discretion,
insure the whole or any portion of any Charged Property, the costs and expenses
of any insurance shall form part of the costs and expenses referred to in
subparagraph (b) hereof;

     

    (h)    The
Creditor and the Administrator may change the destination of the whole or any
portion of any Charged Property under their administration and will not be bound
to continue the use or operation of any Charged Property under their
administration which produces fruits or revenues; and

     

    (i)    The
Creditor and the Administrator will only be obliged to render an account to the
Grantor upon the written request of the Grantor and once the Creditor or
Administrator has determined, to its satisfaction, the details of such
account.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	
              5.2.2     
       

            	
              Taking in
      payment

            

    

     

    In the
event that the Creditor exercises its right to become the absolute owner of the
Charged Property or any part thereof, the Grantor, concurrently with surrender
or at any time thereafter at the request of the Creditor, will sign a voluntary
deed or agreement providing for the Creditor to take in payment the Charged
Property or any part thereof.  In the event that the Grantor requires
the Creditor to sell any such Charged Property, the Grantor acknowledges that
the Creditor will not be required to abandon its recourse of taking in payment
unless, before the expiration of the delay to surrender, the Creditor: (i) shall
have been reimbursed the costs it has incurred; and (ii) shall have been
advanced all amounts necessary for the sale of the Charged Property in
question.

     

    All
expenditures and improvements made by any holder of the Charged Property and all
payments made on account of the Obligations and the accessories thereof will
belong to the Creditor without return or compensation. The Creditor will not be
obliged to compensate or indemnify the Grantor or any other person for any cause
whatsoever.

     

    
      	
              5.2.3     
       

            	
              Sale of Charged
      Property

            

    

     

    In the
event that the Creditor exercises its right to sell the whole or any portion of
the Charged Property by judicial authority or pursuant to a sale by the
Creditor, the following will apply:

     

    (a)    Such
Charged Property may be sold subject to and upon such terms and conditions
(including, without limitation, terms extending credit) by way of one (1) or
more sales by private agreement, call for tenders or public auction or
combinations thereof as the Creditor or the Administrator sees fit, acting
reasonably, and the Creditor or the Administrator may, at any time, change or
substitute any method of sale for any other method of sale of such Charged
Property;

     

    (b)    In any
call for tenders, the Creditor or Administrator will not be obliged to accept
the highest offer or any offer and, in the event that no offer is accepted, may
proceed to sell such Charged Property by any other method; and

     

    (c)    The
Grantor expressly agrees that the Creditor will not be required to obtain or
present to the Court any appraisals of such Charged Property and that such
Charged Property may be sold without any upset price therefor.

     

    
      	
              6.  

            	
              CLAIMS

            

    

     

    
      	
              6.1  

            	
              The
      Creditor may, in the event of the occurrence and during the continuance of
      an Event of Default, withdraw the authorization of the Grantor to collect
      the Claims as they fall due and, thereafter, the following will
      apply:

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (a)    The
Creditor will be the only party authorized and entitled to collect, dispose of
and deal with the Claims;

     

    (b)    The
Creditor will have the right to collect, dispose of and deal with the Claims as
it may deem expedient including, without limiting the generality of the
foregoing, to demand, sue for, enforce, recover and receive payment of the
Claims and to compound, compromise, grant extensions, take and give up
securities, accept compositions and grant releases and discharges with respect
thereto, the whole without notice to the Grantor and without any liability for
any loss resulting therefrom;

     

    (c)    Actions
to enforce rights with respect to the Claims may be instituted by the Creditor,
at its discretion, in its own name, in the name of the Grantor, or in the name
of the Creditor and the Grantor jointly; and

     

    (d)    The
Creditor will not be obliged to inform the Grantor of any irregularity in the
payment of any of the Claims.

     

    
      	
              6.2  

            	
              All
      amounts collected or received by the Grantor in respect of the Claims
      (after the occurrence and during the continuance of an Event of Default)
      will be deemed to have been collected or received by the Grantor as
      mandatary of the Creditor and will be deposited into such bank accounts as
      are acceptable from time to time to the Creditor.  At all times
      after the Creditor has withdrawn the right of the Grantor to collect the
      Claims in accordance with Clause 6.1 hereof, all amounts collected or
      received by the Grantor in respect of the Claims will be received by the
      Grantor as mandatary for the Creditor and will be remitted to the Creditor
      in identical form as received.

            

    

     

    
      	
              7.  

            	
              APPLICATION AND
      IMPUTATION OF PROCEEDS

            

    

     

    
      	
              7.1.  

            	
              Notwithstanding
      any provisions of Law to the contrary, the proceeds of enforcement of any
      rights of the Creditor with respect to the Charged Property, including,
      without limitation, proceeds of any sale of the Charged Property by the
      Creditor and collections of any Claims, will be applied in accordance with
      the Security Agreement.

            

    

     

    
      	
              7.2.  

            	
              The
      Creditor shall have the right to impute any amounts or proceeds received
      by it from or for the account of the Grantor, whether pursuant to the
      terms hereof or as a result of a judicial or other sale, or as an
      inducement to grant mainlevée or discharge hereof or otherwise, against
      any portion of the Obligations which it, in its sole discretion,
      determines and from time to time to vary such determination, the whole
      notwithstanding any pretended contrary imputation by the Grantor or by any
      other party.

            

    

     

    
      	
              7.3.  

            	
              If
      the proceeds of the realization of the Charged Property are insufficient
      to pay the entire Obligations, the Grantor shall remain liable and
      forthwith pay such deficiency to the
Creditor.

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      	
              8.  

            	
              COSTS

            

    

     

    
      	
              8.1.  

            	
              In
      addition to its obligation to pay and/or reimburse to the Creditor all
      costs and expenses referred to herein (in general and under Clause 5.2.1 hereof in particular) and referred to in
      the Security Agreement, the Grantor hereby agrees and undertakes to pay
      and/or reimburse to the Creditor the full amount of the Costs upon the
      Creditor’s simple demand therefore.

            

    

     

    
      	
              9.  

            	
              REMEDIES
      CUMULATIVE

            

    

     

    
      	
              9.1.  

            	
              The
      different recourses of the Creditor hereunder are cumulative and not
      alternative.  The rights and remedies of the Creditor hereunder
      are in addition to every other right and remedy now or hereafter existing
      in favour of the Creditor, whether by law or
  otherwise.

            

    

     

    
      	
              10.  

            	
              WAIVERS

            

    

     

    
      	
              10.1.  

            	
              No
      delay or failure on the part of the Creditor in exercising any right or
      remedy hereunder shall affect such right or remedy, nor shall any single
      or partial exercise hereof preclude any further exercise thereof or the
      exercise of any other right or remedy.  Any waiver by the
      Creditor of any of its rights or remedies hereunder will be valid only if
      express and in writing. No waiver shall be deemed to be or constitute a
      waiver of any other rights or remedies of the Creditor.  In no
      event will the Creditor's acceptance, after the full payment of the
      Obligations may have become due and payable, of any partial payment, be
      deemed to alter or affect the Creditor's rights with respect to any
      subsequent payment or default thereon.  Moreover, should the
      Creditor grant or tolerate any extension or delay for payment or
      performance of any obligations of the Grantor, such extension, delay,
      indulgence or tolerance will not be deemed an acquiescence by the Creditor
      in such default or waiver of any of the Creditor's rights and remedies
      hereunder or in respect of any future
default.

            

    

     

    
      	
              11.  

            	
              CREDITOR NOT
      LIABLE

            

    

     

    
      	
              11.1.  

            	
              The
      Creditor shall not be liable or accountable for any failure to seize,
      collect, realize, dispose of, enforce or otherwise deal with the Charged
      Property, shall not be bound to institute proceedings for any such
      purposes or for the purpose of preserving any rights of the Creditor, the
      Grantor or any other person, firm or corporation in respect of the Charged
      Property and shall not be liable or responsible for any loss, cost or
      damage whatsoever which may arise in respect of any such failure
      including, without limitation, resulting from the negligence of the
      Creditor or any of its officers, servants, agents, solicitors, attorneys,
      Administrators, receivers or otherwise, except for the intentional or
      gross fault of the Creditor.  Neither the Creditor nor its
      officers, servants, agents, Administrators or receivers shall be liable by
      reason of any entry into possession of the Charged Property or any part
      thereof, to account as a mortgagee in possession, for anything except
      actual receipts, for any loss on realization, for any act or omission for
      which a mortgagee in possession might be liable, for any negligence in the
      carrying on or occupation of the business or undertaking of the Grantor as
      provided herein or for any loss, cost, damage or expense whatsoever which
      may arise in respect of any such actions, omissions or negligence, except
      for the actual bad faith, intentional or gross fault of the
      Creditor.

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      	
              12.  

            	
              NATURE OF OBLIGATIONS
      AND SECURITY

            

    

     

    
      	
              12.1.  

            	
              The
      Security secures and will continue to secure the Obligations on a
      continuing and fluctuating basis and is and will be valid notwithstanding
      that the whole or any portion of the prestations in consideration of which
      the Grantor has undertaken its obligations towards the Creditor have not
      yet been received and notwithstanding that the whole or any portion of the
      Obligations may not yet exist.

            

    

     

    
      	
              12.2.  

            	
              The
      Security shall remain in full force and effect (for the full Hypothec
      Amount and additional hypothec amount) unless and until no amounts
      whatsoever are owing (absolutely or contingently) under the Obligations
      and the Creditor is not, in any manner whatsoever, obliged (absolutely or
      contingently) to extend any credit under the Obligations. The Security
      will not be extinguished, reduced, novated or otherwise affected by any
      payments made to or amounts received by the Creditor, directly or
      indirectly, from the Grantor or any other party or as a result of any
      insurance indemnities arising from loss or damage to any of the Charged
      Property or by reason of the collection of any
  Claims.

            

    

     

    
      	
              12.3.  

            	
              Should
      the Obligations at any time be fully extinguished without an express
      discharge of the Security, and should new Obligations arise, the Security
      will secure the new Obligations in the same manner and to the same extent
      as if there had never occurred an extinction of the old Obligations and
      the Grantor is and will be obligated under the provisions
      hereof.  The Grantor will be deemed to have obligated itself for
      the new Obligations pursuant to the provisions hereof and the Security
      will secure such new Obligations.

            

    

     

    
      	
              13.  

            	
              NO
      NOVATION

            

    

     

    
      	
              13.1.  

            	
              Neither
      the taking of any judgment nor the exercise of any of the rights available
      to the Creditor hereunder shall operate to novate or otherwise extinguish
      the liability of the Grantor to make payment of or satisfy the
      Obligations.

            

    

     

    
      	
              14.  

            	
              OTHER
      SECURITY

            

    

     

    
      	
              14.1.  

            	
              The
      Security is in addition to and not in substitution for nor deemed to be
      substituted by any other security now or hereafter held by or for the
      benefit of the Creditor and shall not be diminished or novated or
      otherwise affected by any other security or any promissory note or other
      evidence of indebtedness which the Creditor or any party for the benefit
      of the Creditor may have or obtain from the Grantor or any other person,
      nor shall any other security or note or evidence of indebtedness be
      diminished or novated or otherwise affected
  hereby.

            

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      	
              15.  

            	
              GOVERNING
      LAW

            

    

     

    
      	
              15.1.  

            	
              This
      agreement shall be governed by and interpreted in accordance with the laws
      of the Province of Quebec and the laws of Canada in
  force.

            

    

     

    
      	
              16.  

            	
              INTERPRETATION

            

    

     

    
      	
              16.1.  

            	
              Any
      word herein contained in the singular number will include the plural; any
      word importing any gender will include the masculine, feminine and neuter
      genders; any word importing a person will include a corporation, a
      partnership and any other entity and vice-versa.  The headings
      of this agreement are for convenience of reference only and shall not
      affect in any manner any of the terms and conditions hereof or the
      construction or interpretation of this
  agreement.

            

    

     

    
      	
              17.  

            	
              OTHER
      DOCUMENTS

            

    

     

    
      	
              17.1.  

            	
              The
      Grantor undertakes to perform all acts and enter into all documentation
      which may be useful or necessary or required by the Creditor for purposes
      of giving full force and effect to the provisions hereof or to perfect the
      rights of the Creditor hereunder including, without limitation, the right
      to recover and collect the Claims and to exercise all rights, recourses
      and remedies as herein set forth.

            

    

     

    
      	
              18.  

            	
              SEVERABILITY

            

    

     

    
      	
              18.1.  

            	
              This
      agreement shall not be considered as an indivisible whole and every
      provision of this agreement is and shall be independent of the
      other.  In the event that any part of this agreement is declared
      invalid, illegal or unenforceable, then the remaining terms, clauses and
      provisions of this agreement shall not be affected by such declaration and
      all of the remaining clauses of this agreement shall remain valid, binding
      and enforceable.

            

    

     

    
      	
              19.  

            	
              NOTICE

            

    

     

    
      	
              19.1.  

            	
              All
      notices, requests and demands hereunder shall be given in accordance with
      the terms of the Security
Agreement.

            

    

     

    
      	
              20.  

            	
              COUNTERPARTS

            

    

     

    
      	
              20.1.  

            	
              These
      presents may be executed in one or more counterparts and by facsimile,
      each of which shall be deemed an original and all of which together shall
      constitute one and the same
document.

            

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
      	
              21.  

            	
              LANGUAGE

            

    

     

    
      	
              21.1.  

            	
              The
      parties acknowledge that they have required that this agreement and all
      related documents be prepared in English./Les parties reconnaissent avoir
      exigé que la présente convention et tous les documents connexes soient
      rédigés en anglais.

            

    

     

     

    [Remainder
of page intentionally left blank, signature page to follow]

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF THE GRANTOR AND THE CREDITOR HAVE EXECUTED THE PRESENT
HYPOTHECATION OF MOVABLES AT THE CITY OF MONTREAL, PROVINCE OF QUEBEC, THIS
15TH
DAY OF JANUARY, 2008.

     

    
      	 
      	 
      	
              VERSO
      TECHNOLOGIES CANADA INC.

            	 
      
	 
      	 
      	
              Per:

            	 
      
	 
      	 
      	 
      	 
      
	 	 	/s/ Martin
      D. Kidder 	 
	 
      	 
      	
              Martin
      D. Kidder, President & Secretary

            	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	
              VALENS
      U.S. SPV I, LLC

            	 
      
	 
      	 
      	
              Per:

            	 
      
	 
      	 
      	 
      	 
      
	 	 	/s/
      Scott Bluestein	 
	 
      	 
      	
              Name:  Scott
      Bluestein

            	 
      
	 
      	 
      	
              Title:
      Authorized Representative

            	 
      

    

    
 

    

    [Hypothecation
of Movables-Verso Technologies Canada Inc./Valens U.S. SPV I, LLC January 15,
2008.]

     

    16

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}]]