HYPOTHECATIONOF MOVABLES BETWEEN: VERSO TECHNOLOGIES, INC., a legal person duly incorporated and subsisting under the laws of Minnesota, having its principal office at 400 Galleria Parkway, Suite 200, in the City of Atlanta, State of Georgia, 30339, herein acting and represented by Martin D. Kidder, its Chief Financial Officer, 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: 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 Grantor had agreed, as security for payment of such indebtedness, to hypothecate the “Charged Property” (as hereinafter defined) in favour of the Creditor; and

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

(b)    “Assignment Agreement” means that certain “Assignment of Loans, Liens and Documents” dated on or about December 20, 2007 entered into by and among the Creditor, Valens Offshore SPV II, Corp. and Laurus,  as accepted and agreed by, inter alia, the Grantor, pursuant to which certain rights and obligations of Laurus under the Security Agreement have been assigned by Laurus to the Creditor, as may be amended, restated, renewed, modified, replaced and/or supplemented from time to time;

(d)    “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;

(f)    “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;

(g)    “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;

(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;

(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;

(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;

(r)    “Obligations” means and includes all debts, liabilities and obligations owing by the Grantor to the Creditor from time to time, including without limitation, those arising under, out of, or in connection with: (i) the Security Agreement; (ii) the Ancillary Agreements; and (iii) the Assignment Agreement (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;

(t)    “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;

(u)    “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;

(w)    “Security Agreement” means that certain “Security Agreement” dated as of September 20, 2006 executed among, inter alia, the Grantor and Laurus, as amended, restated, renewed, modified, replaced and/or supplemented from time to time.

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.

3.4.1    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;

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.

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;

(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.

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.

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.

(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