Exhibit 10.33


 


EXECUTION COPY


 


 


AMENDED AND RESTATED SECURITY AGREEMENT


 


 


among


 


 


CELLU TISSUE HOLDINGS, INC.


 


 


and certain of its Subsidiaries,


 


 


and


 


 


THE BANK OF NEW YORK TRUST COMPANY, NA.,


 


 


as Collateral Agent


 


Dated as of June 12, 2006


 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  
	
  SECTION 1.   DEFINED
  TERMS

  	
  2

  
	
   

  	
  1.1

  	
  Definitions

  	
  2

  
	
   

  	
  1.2

  	
  Other Definitional Provisions

  	
  8

  
	
   

  	
   

  
	
  SECTION 2.   APPOINTMENT
  OF COLLATERAL AGENT

  	
  9

  
	
   

  	
   

  
	
  SECTION 3.   GRANT
  OF SECURITY INTEREST

  	
  9

  
	
   

  	
  3.1

  	
  Grant of First Priority Interest

  	
  9

  
	
   

  	
  3.2

  	
  Grant of Second Priority Interest

  	
  9

  
	
   

  	
  3.3

  	
  Right of Setoff

  	
  9

  
	
   

  	
  3.4

  	
  Excluded Property

  	
  9

  
	
   

  	
   

  
	
  SECTION 4.   REPRESENTATIONS
  AND WARRANTIES

  	
  10

  
	
   

  	
  4.1

  	
  Title; No Other Liens

  	
  10

  
	
   

  	
  4.2

  	
  Perfected First Priority Liens

  	
  10

  
	
   

  	
  4.3

  	
  Perfected Second Priority Liens

  	
  10

  
	
   

  	
  4.4

  	
  Jurisdiction of Organization; Chief
  Executive Office

  	
  10

  
	
   

  	
  4.5

  	
  Equipment

  	
  11

  
	
   

  	
  4.6

  	
  Farm Products

  	
  11

  
	
   

  	
  4.7

  	
  Investment Property

  	
  11

  
	
   

  	
  4.8

  	
  Intellectual Property

  	
  11

  
	
   

  	
  4.9

  	
  Receivables

  	
  12

  
	
   

  	
  4.10

  	
  Deposit Accounts and Securities Accounts

  	
  12

  
	
   

  	
  4.11

  	
  Excluded Property

  	
  12

  
	
   

  	
   

  
	
  SECTION 5.   COVENANTS

  	
  12

  
	
   

  	
  5.1

  	
  Delivery of Instruments, Certificated
  Securities and Chattel Paper

  	
  12

  
	
   

  	
  5.2

  	
  Maintenance of Insurance

  	
  12

  
	
   

  	
  5.3

  	
  Maintenance of Perfected Security Interest;
  Further Documentation

  	
  13

  
	
   

  	
  5.4

  	
  Changes in Locations, Name, etc.

  	
  14

  
	
   

  	
  5.5

  	
  Notices

  	
  14

  
	
   

  	
  5.6

  	
  Investment Property

  	
  14

  
	
   

  	
  5.7

  	
  Intellectual Property

  	
  15

  
	
   

  	
  5.8

  	
  Receivables

  	
  16

  
	
   

  	
  5.9

  	
  Securities Accounts and Deposit Account

  	
  17

  
	
   

  	
  5.10

  	
  Payment of Obligations

  	
  17

  
	
   

  	
  5.11

  	
  Good Standing Certificates

  	
  17

  
	
   

  	
  5.12

  	
  Terminations; Amendments Not Authorized

  	
  17

  
	
   

  	
   

  
	
  SECTION 6.   REMEDIAL
  PROVISIONS

  	
  17

  
	
   

  	
  6.1

  	
  Certain Matters Relating to Receivables

  	
  17

  
	
   

  	
  6.2

  	
  Communications with Grantors; Grantors
  Remain Liable

  	
  18

  
	
   

  	
  6.3

  	
  Pledged Stock

  	
  18

  
	
   

  	
  6.4

  	
  Application of Proceeds

  	
  19

  
						



 


i

















 


	
   

  	
  6.5

  	
  Code and Other Remedies

  	
  19

  
	
   

  	
  6.6

  	
  Registration Rights

  	
  20

  
	
   

  	
  6.7

  	
  Deficiency

  	
  21

  
	
   

  	
  6.8

  	
  Proceeds to be Turned Over To Collateral
  Agent

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7.   ACTIONS
  AFTER EVENT OF DEFAULT

  	
  22

  
	
   

  	
  7.1

  	
  General Authority of the Collateral Agent
  over the Collateral

  	
  22

  
	
   

  	
  7.2

  	
  Judicial Proceedings and Insolvency Events

  	
  22

  
	
   

  	
  7.3

  	
  Right to Appoint a Receiver

  	
  22

  
	
   

  	
  7.4

  	
  Remedies Not Exclusive

  	
  23

  
	
   

  	
  7.5

  	
  Waiver and Estoppel

  	
  23

  
	
   

  	
  7.6

  	
  Limitation on Collateral Agent’s Duty in
  Respect of Collateral

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 8.   COLLATERAL
  ACCOUNT; DISTRIBUTIONS

  	
  24

  
	
   

  	
  8.1

  	
  The Collateral Account

  	
  24

  
	
   

  	
  8.2

  	
  Control of Collateral Account

  	
  24

  
	
   

  	
  8.3

  	
  Investment of Funds Deposited in Collateral
  Account

  	
  24

  
	
   

  	
  8.4

  	
  Withdrawals by the Grantors

  	
  24

  
	
   

  	
  8.5

  	
  Application of Moneys

  	
  24

  
	
   

  	
  8.6

  	
  Collateral Agent’s Calculations

  	
  25

  
	
   

  	
  8.7

  	
  Excess Payments

  	
  25

  
	
   

  	
   

  
	
  SECTION 9.   AGREEMENTS
  WITH THE COLLATERAL AGENT

  	
  25

  
	
   

  	
  9.1

  	
  Delivery of Secured Debt Documents

  	
  25

  
	
   

  	
  9.2

  	
  Compensation and Expenses

  	
  25

  
	
   

  	
  9.3

  	
  Stamp and Other Similar Taxes

  	
  25

  
	
   

  	
  9.4

  	
  Filing Fees, Excise Taxes, Etc.

  	
  26

  
	
   

  	
  9.5

  	
  Indemnification

  	
  26

  
	
   

  	
  9.6

  	
  Collateral Agent’s Lien

  	
  26

  
	
   

  	
   

  
	
  SECTION 10.  THE
  COLLATERAL AGENT

  	
  26

  
	
   

  	
  10.1

  	
  Collateral Agent’s Appointment as
  Attorney-in-Fact, etc.

  	
  26

  
	
   

  	
  10.2

  	
  Duty of Collateral Agent

  	
  28

  
	
   

  	
  10.3

  	
  Filing of Financing Statements

  	
  29

  
	
   

  	
  10.4

  	
  Authority of Collateral Agent

  	
  29

  
	
   

  	
  10.5

  	
  Exculpatory Provisions

  	
  29

  
	
   

  	
  10.6

  	
  Delegation of Duties

  	
  30

  
	
   

  	
  10.7

  	
  Reliance by Collateral Agent

  	
  30

  
	
   

  	
  10.8

  	
  Limitations on Duties of Collateral Agent

  	
  31

  
	
   

  	
  10.9

  	
  Moneys to be Held in Trust

  	
  31

  
	
   

  	
  10.10

  	
  Resignation and Removal of the Collateral
  Agent

  	
  32

  
	
   

  	
  10.11

  	
  Status of Successor Collateral Agent

  	
  32

  
	
   

  	
  10.12

  	
  Merger of the Collateral Agent

  	
  33

  
	
   

  	
  10.13

  	
  Co-Collateral Agent; Separate Collateral
  Agent

  	
  33

  
	
   

  	
  10.14

  	
  Treatment of Payee or Indorsee by
  Collateral Agent; Representatives of Secured Parties

  	
  34

  
	
   

  	
   

  
	
  SECTION 11.  MISCELLANEOUS

  	
  34

  
	
   

  	
  11.1

  	
  Notices

  	
  34

  



 


ii

















 


	
   

  	
  11.2

  	
   

  	
  Amendments in Writing

  	
  35

  
	
   

  	
  11.3

  	
   

  	
  No Waiver by Course of Conduct; Cumulative
  Remedies

  	
  35

  
	
   

  	
  11.4

  	
   

  	
  Enforcement Expenses

  	
  36

  
	
   

  	
  11.5

  	
   

  	
  Successors and Assigns

  	
  36

  
	
   

  	
  11.6

  	
   

  	
  Counterparts

  	
  36

  
	
   

  	
  11.7

  	
   

  	
  Severability

  	
  36

  
	
   

  	
  11.8

  	
   

  	
  Section Headings

  	
  36

  
	
   

  	
  11.9

  	
   

  	
  Integration

  	
  36

  
	
   

  	
  11.10

  	
   

  	
  GOVERNING LAW

  	
  36

  
	
   

  	
  11.11

  	
   

  	
  Submission To Jurisdiction; Waivers

  	
  36

  
	
   

  	
  11.12

  	
   

  	
  Acknowledgements

  	
  37

  
	
   

  	
  11.13

  	
   

  	
  Additional Grantors

  	
  37

  
	
   

  	
  11.14

  	
   

  	
  Releases; Termination of Security Interests

  	
  38

  
	
   

  	
  11.15

  	
   

  	
  Reinstatement

  	
  38

  
	
   

  	
  11.16

  	
   

  	
  WAIVER OF JURY TRIAL

  	
  38

  



 


SCHEDULES


 


	
  Schedule 1

  	
   

  	
  Notice Addresses

  	
   

  
	
  Schedule 2

  	
   

  	
  Investment Property

  	
   

  
	
  Schedule 3

  	
   

  	
  Perfection Matters

  	
   

  
	
  Schedule 4

  	
   

  	
  Jurisdictions of
  Organization and Chief Executive Offices

  	
   

  
	
  Schedule 5

  	
   

  	
  Inventory and Equipment
  Locations

  	
   

  
	
  Schedule 6

  	
   

  	
  Intellectual Property

  	
   

  
	
  Schedule 7

  	
   

  	
  Deposit Accounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEXES

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Annex 1

  	
   

  	
  Form of Assumption
  Agreement

  	
   

  
	
  Annex 2

  	
   

  	
  Form of Issuer’s Acknowledgement
  and Consent

  	
   

  



 


iii














 


AMENDED AND RESTATED SECURITY AGREEMENT


 


AMENDED AND RESTATED SECURITY AGREEMENT, dated as of
June 12, 2006, made by CELLU TISSUE HOLDINGS, INC. (the “Company”)
and each of its subsidiaries signatories hereto (the Company and such
subsidiaries, together with any other entity that may become a party hereto as
provided herein, the “Grantors”) in favor of THE BANK OF NEW YORK TRUST
COMPANY, N.A., as Collateral Agent (in such capacity, the “Collateral Agent”)
for the holders of the notes (the “Holders”) issued pursuant to the
Indenture, dated as of March 12, 2004 (as amended by the First
Supplemental Indenture dated June 2, 2006 and as may be further amended,
supplemented or otherwise modified from time to time, the “Indenture”),
among the Company, the subsidiary guarantors parties thereto (the “Subsidiary
Guarantors”) and The Bank of New York Trust Company, N.A., as successor
trustee to The Bank of New York (the “Trustee”).


 


W I T N E S S E T H:


 


WHEREAS, pursuant to the Indenture, the Company has
issued to the Holders its 93⁄4% Senior Secured Notes due 2010, and may issue from
time to time additional notes in connection with the provisions of the
Indenture (as the same may be amended, restated, replaced, supplemented,
substituted or otherwise modified from time to time, collectively, the “Notes”);


 


WHEREAS, pursuant to the Indenture, each Subsidiary
Guarantor has guaranteed the obligations of the Company with respect to the
Notes and the Indenture; and


 


WHEREAS, as a condition precedent to the purchase by
the Holders of the Notes, the Grantors executed and delivered a security
agreement, dated as of March 12, 2004, to the Collateral Agent for the
ratable benefit of the Holders and the Trustee for the purpose of providing
security for the Company Obligations and the Guarantor Obligations (the “Prior
Security Agreement”);


 


WHEREAS, the Company is a party to a Credit
Agreement, dated the date hereof (as amended and in effect from time to time,
the “Credit Agreement”) among the Company, Cellu Paper Holdings, Inc.,
Interlake Acquisition Corporation Limited, the other loan guarantors party
thereto, the lenders party thereto, JP Morgan Chase Bank, N.A., Toronto Branch,
as Canadian administrative agent, and JP Morgan Chase Bank, N.A., as U.S.
administrative agent, which replaces in its entirety the Financing Agreement,
dated as of March 12, 2004, among Cellu Tissue Corporation-Natural Dam,
Cellu Tissue Corporation-Neenah, Cellu Tissue LLC, Coastal Paper Company and
Menominee Acquisition Corporation, as U.S. borrowers, Interlake Acquisition
Corporation Limited, as Canadian borrower, the Company, Van Paper Company and
Van Timber Company, as guarantors, Cellu Paper Holdings, Inc., the lenders
party thereto and THE CIT Group/Business Credit, Inc., as agent; and


 


WHEREAS, in connection with the Credit Agreement,
the Grantors and the Collateral Agent are entering into this Agreement, which
amends and restates in its entirety the Prior Security Agreement;


 


NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, each Grantor hereby agrees with the Collateral Agent,
for the ratable benefit of the Holders and the Collateral Agent, that the Prior
Security Agreement is hereby amended and restated as follows:


 

















 


SECTION 1.  DEFINED TERMS


 


1.1  Definitions.  (a)  Unless otherwise defined
herein, the following terms are used herein as defined in the New York UCC:
Accessions, Account Debtor, Accounts, Certificated Security, Chattel Paper,
Documents, Commercial Tort Claims, Equipment, Farm Products, Fixtures, General
Intangibles, Instruments, Inventory, Letter-of-Credit Rights, Securities
Accounts and Supporting Obligations.


 


(b)  The following terms have the
following meanings:


 


“Additional Interest”: any additional
interest payable on the Notes pursuant to Section 2(d) of the
Registration Rights Agreement.


 


“Affiliate”: as to any specified Person means
any other Person, directly or indirectly, controlling or controlled by or under
direct or indirect common control with such specified Person. For the purposes
of this definition, “control” when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing; provided that beneficial ownership of 10%
or more of the Voting Stock of a Person shall be deemed to be control.


 


“Agreement”: this Amended and Restated
Security Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.


 


“Asset Disposition”: as defined in the
Indenture.


 


“Asset Swap”: as defined in the Indenture.


 


“Bank Administrative Agent”: the collective
reference to JPMorgan Chase Bank, N.A., as U.S. administrative agent for the
U.S. lenders and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian
administrative agent for the Canadian lenders, under the Pledge and Security
Agreement and the General Security Agreement related to the Working Capital
Facility.


 


“Bank Documents”: the collective reference to
the Working Capital Facility and any other documents entered in connection
therewith.


 


“Business Day”: a day other than a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
or required by law to close.


 


“Capital Stock”: of any Person means any and
all shares, interests, rights to purchase, warrants, options, participation or
other equivalents of or interests in (however designated) equity of such
Person, including any Preferred Stock, but excluding any debt securities
convertible into such equity.


 


“Cash Equivalents”: as defined in the
Indenture.


 


“Collateral”: the First-Priority Collateral
and the Second-Priority Collateral.


 


“Collateral Accounts”: the First-Priority
Collateral Account and the Second-Priority Collateral Account.


 


2

















 


“Collateral Agent Fees”: all fees, costs and
expenses of the Collateral Agent of the types described in Sections 9.2, 9.3,
9.4 and 9.5.


 


“Collateral Documents”: the collective
reference to this Agreement, the Mortgages and each other document or agreement
pursuant to which the Collateral Agent is granted a Lien in any or all of the
Collateral for the benefit of the Secured Parties or is entitled to exercise,
or restricted from exercising, any rights or remedies with respect to any or
all of the Collateral and any other agreement, document or instrument delivered
by or on behalf of any Grantor pursuant to or in connection with any of the
foregoing.


 


“Company Obligations”: the collective
reference to the unpaid principal of and interest (including Additional
Interest) on the Notes and all other obligations and liabilities of the Company
to the Collateral Agent or any Secured Party, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, this Agreement,
the other Note Documents or any other document made, delivered or given in
connection with any of the foregoing, in each case whether on account of
principal, interest (including Additional Interest), reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Collateral Agent or to the Secured
Parties that are required to be paid by the Company pursuant to the terms of
any of the foregoing agreements).


 


“Copyright Licenses”: any written agreement
naming any Grantor as licensor or licensee (including, without limitation,
those listed in Schedule 6), granting any right under any Copyright,
including, without limitation, the grant of rights to manufacture, distribute,
exploit and sell materials derived from any Copyright.


 


“Copyrights”: (i) all copyrights arising
under the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether published
or unpublished (including, without limitation, those listed in Schedule 6),
all registrations and recordings thereof and all applications in connection
therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, and (ii) the right to
obtain all renewals thereof.


 


“Deposit Account”: as defined in the Uniform
Commercial Code of any applicable jurisdiction and, in any event, including,
without limitation, any demand, time, savings, passbook or like account
maintained with a depositary institution.


 


“Dollars” and “$”: lawful currency of
the United States.


 


“Event of Default”: as defined in the
Indenture.


 


“Exchange Act”: the Securities Exchange Act
of 1934, as amended.


 


“First-Priority Collateral”: with respect to
each Grantor, the following property now owned or hereafter acquired by such
Grantor or in which such Grantor has now or at any time in the future may
acquire any right, title or interest: all Chattel Paper, Deposit Accounts,
Documents (other than title documents with respect to Vehicles), Equipment,
General Intangibles, Instruments, Intellectual Property, Investment Property,
Letter-of-Credit Rights and all other property not described above, all books
and records pertaining to the foregoing and, to the extent not otherwise 


 


3

















 


included in the foregoing,
all Proceeds, all Supporting Obligations and all products of any and all of the
foregoing and all collateral security and guarantees given by any Person with
respect to any of the foregoing; but, excluding, however, all Second-Priority
Collateral and the Number 1 Paper Machine located at the Menominee, Michigan
facility and all equipment directly related thereto; provided, however,
that any Collateral, regardless of type, received in connection with an Asset
Disposition or Asset Swap of First-Priority Collateral or otherwise in exchange
for First-Priority Collateral, or any additional issuance of Notes, pursuant to
the terms of the Indenture shall be treated as First-Priority Collateral under
this Agreement and the Intercreditor Agreement; provided, further,
that any Collateral of the type that constitutes First-Priority Collateral, if
received in connection with an Asset Disposition or Asset Swap of
Second-Priority Collateral or otherwise in exchange for Second-Priority
Collateral pursuant to the term of the Indenture, shall be treated as
Second-Priority Collateral under this Agreement and the Intercreditor
Agreement.


 


“First-Priority Collateral Account”: the “Cellu
Tissue First-Priority Collateral Account” established by the Collateral Agent
as provided in Section 8.1.


 


“First Priority Interest”: as defined in Section 3.1.


 


“Foreign Subsidiary”: any Subsidiary
organized under the laws of any jurisdiction outside the United States of
America.


 


“Foreign Subsidiary Voting Stock”: any
Restricted Subsidiary that is not organized under the laws of the United States
of America or any state thereof or the District of Columbia and any Subsidiary
of such Restricted Subsidiary.


 


“GAAP”: generally accepted accounting
principles in the United States of America as in effect as of the date of the
Indenture, including those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession.


 


“Governmental Authority”: any nation or
government, any state or other political subdivision thereof, any agency,
authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory,
supervisory or administrative functions or of pertaining to government, any
securities exchange and any self-regulatory organization (including the
National Association of Insurance Commissioners).


 


“Guarantor Obligations”: with respect to any
Subsidiary Guarantor, the collective reference to all obligations and
liabilities of such Guarantor which may arise under or in connection with any
Subsidiary Guarantee or any other document related thereto to which such
Subsidiary Guarantor is a party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise.


 


“Intellectual Property”: the collective
reference to all rights, priorities and privileges relating to intellectual
property owned, held or used, whether arising under United States,
multinational or foreign laws or otherwise, including, without limitation, the
Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the
Trademarks, the Trademark Licenses, technology, know how and processes, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.


 


4

















 


“Intercompany Note”: any promissory note
evidencing loans made by any Grantor to the Company or any of its Subsidiaries.


 


“Intercreditor Agreement”: the Amended and
Restated Intercreditor Agreement, dated as of June 12, 2006, among the
Company, the Subsidiary Guarantors, Cellu Paper Holdings, Inc., the
Collateral Agent and the Bank Administrative Agent.


 


“Investment Property”: the collective
reference to (i) all “investment property” as such term is defined in Section 9-102(a)(49)
of the New York UCC (other than any Foreign Subsidiary Voting Stock excluded
from the definition of “Pledged Stock”) and (ii) whether or not
constituting “investment property” as so defined, all Pledged Notes and all
Pledged Stock.


 


“Issuers”: the collective reference to each
issuer of any Investment Property.


 


“License”: any Copyright License, Patent
License, Trademark License or other license of rights or interests now held or
hereafter acquired by any Grantor.


 


“Liens”: any mortgage, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof.


 


“Mortgages”: each of the mortgages and deeds
of trust now or hereafter made by any Grantor in favor of, or for the benefit
of, the Collateral Agent for the benefit of the Secured Parties, substantially
in the form attached to the Indenture.


 


“New York UCC”: the Uniform Commercial Code
as from time to time in effect in the State of New York.


 


“Note Documents”: the collective reference to
the Indenture, the Collateral Documents, the Intercreditor Agreement, the
Registration Rights Agreement and any other documents entered in connection
therewith.


 


“Obligations”: the Company Obligations and
the Guarantor Obligations.


 


“Opinion of Counsel”: an opinion in writing
signed by legal counsel satisfactory to the Collateral Agent.


 


“Patent License”: all agreements, whether
written or oral, providing for the grant by or to any Grantor of any right to
manufacture, license, disclose, use or sell any invention covered in whole or
in part by a Patent, including, without limitation, any of the foregoing
referred to in Schedule 6.


 


“Patents”: (i) all letters patent of the
United States, any other country or any political subdivision thereof, all
reissues and extensions thereof and all goodwill associated therewith,
including, without limitation, any of the foregoing referred to in Schedule
6, (ii) all applications for letters patent of the United States or
any other country and all divisions, continuations and continuations-in-part
thereof, including, without limitation, any of the foregoing referred to in Schedule
6, and (iii) all rights to obtain any reissues or extensions of the
foregoing.


 


5

















 


“Person”: any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, limited liability company, government or any
agency or political subdivision hereof or any other entity.


 


“Pledged Notes”: all promissory notes listed
on Schedule 2, all Intercompany Notes at any time issued to any Grantor
and all other promissory notes issued to or held by any Grantor (other than
promissory notes issued in connection with extensions of trade credit by any
Grantor in the ordinary course of business).


 


“Pledged Stock”: the shares of Capital Stock
listed on Schedule 2, together with any other shares, stock
certificates, options, interests or rights of any nature whatsoever in respect
of the Capital Stock of any Person, whether certificated or uncertificated,
that may be issued or granted to, or held by, any Grantor while this Agreement
is in effect; provided, that in no event shall more than 66% of the
total outstanding Foreign Subsidiary Voting Stock of any Foreign Subsidiary
(other than Interlake Acquisition Corporation Limited or any Foreign Subsidiary
that becomes a Subsidiary Guarantor under the Indenture) be required to be
pledged hereunder, unless a greater percentage is pledged to secure any other
Indebtedness of any Grantor, in which case such greater percentage shall be
required to be pledged hereunder; provided, further, that to the
extent that the pledge of any Capital Stock results in the Company being
required to file separate financial statements of any Subsidiary of the Company
with the Securities and Exchange Commission pursuant to Rule 3-10 or Rule 3-16
of Regulation S-X under the Securities Act, such Capital Stock shall
automatically be deemed not to be part of the Collateral, but only to the
extent necessary for the Company not to be subject to such filing requirement.


 


“Preferred Stock”: as applied to the Capital
Stock of any corporation, means Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital Stock of any other
class of such corporation.


 


“Proceeds”: all “proceeds” as such teen is
defined in Section 9-102(a)(64) of the New York UCC and, in any event,
shall include, without limitation, all dividends or other income from the
Investment Property, collections thereon or distributions or payments with
respect thereto.


 


“Receivable”: any right to payment for goods
sold or leased or for services rendered, whether or not such right is evidenced
by an Instrument or Chattel Paper and whether or not it has been earned by
performance (including, without limitation, any Account).


 


“Registration Rights Agreement”: the
Registration Rights Agreement, dated as of March 12, 2004, among the
Company, the Subsidiary Guarantors and J.P. Morgan Securities Inc., on behalf
of itself and the other initial purchasers.


 


“Requirement of Law”: as to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.


 


6

















 


“Responsible Officer”: the chief executive
officer, president or chief financial officer of the Company, but in any event,
with respect to financial matters, the chief financial officer of the Company.


 


“Restricted Subsidiary”: any Subsidiary of
the Company other than an Unrestricted Subsidiary.


 


“Second-Priority Collateral”: with respect to
each Grantor, all such Grantor’s now existing or hereinafter arising (i) Inventory,
(ii) Receivables, (iii) Instruments, Chattel Paper and other
contracts, in each case evidencing or substituted for any Receivable, (iv) guarantees,
Supporting Obligations, Letter-of-Credit Rights, security and other credit
enhancements for the Receivables, (v) documents of title for any
Inventory, (vi) claims and causes of action in any way relating to any of
the Receivables or Inventory, (vii) Deposit Accounts into which any
proceeds of Receivables or Inventory are initially deposited (including all
cash and other funds on deposit therein) but only with respect to and including
such Proceeds of Receivables or Inventory, (viii) all books and records
pertaining to any of the foregoing, and all substitutions, replacements,
Accessions, products or Proceeds (including, without limitation, insurance
proceeds) of any of the foregoing; but, excluding, however, the property
described in Section 3.4; provided, however, that any
Collateral, regardless of type, received in connection with an Asset
Disposition or Asset Swap of Second-Priority Collateral or otherwise in
exchange for Second-Priority Collateral pursuant to the terms of the Indenture
shall be treated as Second-Priority Collateral under this Agreement and the
Intercreditor Agreement; provided, further, that any Collateral
of the type that constitutes Second-Priority Collateral, if received in
connection with an Asset Disposition or Asset Swap of First-Priority Collateral
or otherwise in exchange for First-Priority Collateral pursuant to the terms of
the Indenture, shall be treated as First-Priority Collateral under this
Agreement and the Intercreditor Agreement.


 


“Second-Priority Collateral Account”: the “Cellu
Tissue Second-Priority Collateral Account” established by the Collateral Agent
as provided in Section 8.1.


 


“Second Priority Interest”: as defined in Section 3.2.


 


“Secured Debt Documents”: the collective
reference to the Note Documents and the Bank Documents.


 


“Secured Parties”: the collective reference
to the Trustee and the Holders.


 


“Securities Act”: the Securities Act of 1933,
as amended.


 


“Subsidiary”: as to any Person means (a) any
corporation, association or other business entity (other than a partnership,
joint venture, limited liability company or similar entity) of which more than
50% of the total ordinary voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof (or persons performing similar
functions) or (b) any partnership, joint venture limited liability company
or similar entity of which more than 50% of the capital accounts, distribution
rights, total equity and voting interests or general or limited partnership
interests, as applicable, is, in the case of clauses (a) and (b), at the
time owned or controlled, directly or indirectly, by (1) such Person, (2) such
Person and one or more Subsidiaries of such Person or (3) one or more
Subsidiaries of such 


 


7

















 


Person. Unless otherwise
specified herein, each reference to a Subsidiary will refer to a Subsidiary of
the Company.


 


“Subsidiary Guarantee”: the guarantee by the
Subsidiaries of the Company of the Notes under the Indenture, as amended from
time to time.


 


“Trademark License”: any agreement, whether
written or oral, providing for the grant by or to any Grantor of any right to
use any Trademark, including, without limitation, any of the foregoing referred
to in Schedule 6.


 


“Trademarks”: (i) all trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers, and all goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the
right to obtain all renewals thereof.


 


“Unrestricted Subsidiary”: (1) any
Subsidiary of the Company that at the time of determination shall be designated
an Unrestricted Subsidiary by the Board of Directors of the Company in the
manner provided in the Indenture; and (2) any Subsidiary of an
Unrestricted Subsidiary.


 


“Vehicles”: all cars, trucks, trailers,
construction and earth moving equipment and other vehicles covered by a
certificate of title law of any state and all tires and other appurtenances to
any of the foregoing.


 


“Voting Stock”: as to a corporation, all
classes of Capital Stock of such corporation then outstanding and normally
entitled to vote in the election of directors.


 


“Working Capital Facility”: the Credit
Agreement, dated as of June 12, 2006, among Cellu Paper Holdings, Inc.,
the Company, Interlake Acquisition Corporation Limited, the other loan
guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank,
N.A., as U.S. administrative agent, and JPMorgan Chase Bank, N.A., as Canadian
administrative agent.


 


1.2  Other Definitional
Provisions.  (a)  The words
“hereof,” “herein”, “hereto” and “hereunder” and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section and Schedule
references are to this Agreement unless otherwise specified.


 


(b)  The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of
such terms.


 


(c)  Where the context requires,
terms relating to the Collateral or any part thereof, when used in relation to
a Grantor, shall refer to such Grantor’s Collateral or the relevant part
thereof.


 


(d)  Subject to Section 11.15,
the phrases “satisfied in full” or “payment in full” (or phrases of similar
import) when used in this Agreement with respect to any of the Obligations (or
the 


 


8

















 


Liens securing such obligations), as the case may be, shall mean
satisfaction or payment in full of such applicable obligations other than
contingent indemnification obligations which are not then due and payable (or
reasonably expected to become due and payable in the then foreseeable future).


 


SECTION 2.  APPOINTMENT OF COLLATERAL AGENT


 


The Secured Parties hereby appoint and authorize The
Bank of New York Trust Company, N.A. to act as Collateral Agent hereunder and
under each other Collateral Document and the Intercreditor Agreement with such
powers as are expressly delegated to the Collateral Agent by the terms of this
Agreement, the other Collateral Documents or the Intercreditor Agreement,
together with such other powers as are reasonably incidental thereto. The
Collateral Agent shall not have any duties or responsibilities except those
expressly set forth in this Agreement, the Collateral Documents and the
Intercreditor Agreement. The Bank of New York Trust Company, N.A. hereby agrees
to and accepts such appointment.


 


SECTION 3.  GRANT OF SECURITY INTEREST


 


3.1  Grant of First Priority
Interest.  Each Grantor hereby
assigns and transfers to the Collateral Agent, and hereby grants to the
Collateral Agent, for the benefit of the Secured Parties, a first priority
security interest (the “First Priority Interest”) in all right, title
and interest of such Grantor in the First-Priority Collateral, as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, at redemption, by acceleration or otherwise) of such
Grantor’s Obligations.


 


3.2  Grant of Second Priority
Interest.  Each Grantor hereby
assigns and transfers to the Collateral Agent, and hereby grants to the
Collateral Agent, for the benefit of the Secured Parties, a second priority
security interest (the “Second Priority Interest”) in all right, title
and interest of such Grantor in the Second-Priority Collateral, as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, at redemption, by acceleration or otherwise) of such
Grantor’s Obligations.


 


3.3  Right of Setoff.  To secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce the
Collateral Agent and the Secured Parties as aforesaid, each Grantor hereby
grants to the Collateral Agent, for itself and the benefit of the Secured
Parties, a right of setoff against the Collateral of such Grantor held by the
Collateral Agent or any Secured Party now or hereafter in the possession or
custody of, or in transit to, the Collateral Agent or any Secured Party, for
any purpose, including safekeeping, collection or pledge, for the account of
such Grantor, or as to which such Grantor may have any right or power.


 


3.4  Excluded Property.  Notwithstanding anything to the contrary
contained in the definition of Collateral, Sections 3.1 and 3.2 or any other
provisions of this Agreement or any Mortgage, neither this Agreement nor any
Mortgage shall constitute a grant of a security interest in any property to the
extent that, and for so long as, such grant of a security interest: (A) is
prohibited by any Requirements of Law of a Governmental Authority, (B) requires
a consent not obtained of any Governmental Authority pursuant to such
Requirement of Law or (C) is prohibited by, or constitutes a breach or
default under or results in the termination of, or requires any consent not
obtained under, any contract, license, agreement, instrument or other document
evidencing or giving rise to such property or, in the case of any Investment
Property, Pledged Stock or Pledged Note, any applicable shareholder or similar
agreement, except to the extent that such Requirement of Law or the term in 


 


9

















 


such contract, license,
agreement, instrument or other document or shareholder or similar agreement
providing for such prohibition, breach, default or termination or requiring
such consent is ineffective under applicable law.


 


SECTION 4.  REPRESENTATIONS AND WARRANTIES


 


To induce each of the Holders to purchase the Notes,
each Grantor hereby represents and warrants to the Collateral Agent and each
Secured Party that:


 


4.1  Title; No Other Liens.  Except for the security interests granted to
the Collateral Agent for the benefit of the Secured Parties pursuant to this
Agreement and the Mortgages and the other Liens permitted to exist on the
Collateral by all of the Secured Debt Documents, such Grantor owns and has good
title to each item of the Collateral free and clear of any and all Liens,
options in favor of or claims of any other Person. No effective security
agreement, financing statement or other public notice with respect to all or
any part of the Collateral is on file or of record in any public office, except
such as have been filed in favor of the Collateral Agent, for the benefit of
the Secured Parties, pursuant to this Agreement or the Mortgages or as are
permitted by all of the Secured Debt Documents.


 


4.2  Perfected
First Priority Liens.  The First Priority Interests
granted pursuant to this Agreement (a) upon completion of the filings and
other actions specified on Schedule 3 (which, in the case of all filings
and other documents referred to on said Schedule, have been delivered to the
Collateral Agent in completed and duly executed form) will constitute valid
perfected security interests in all of the First-Priority Collateral in favor
of the Collateral Agent, for the ratable benefit of the Secured Parties, as collateral
security for such Grantor’s Obligations, enforceable in accordance with the
terms hereof against all creditors of such Grantor and any Persons purporting
to purchase any First-Priority Collateral from such Grantor and (b) are
prior to all other Liens on the First-Priority Collateral in existence on the
date hereof except for Liens permitted by all of the Secured Debt Documents
that have priority over the Liens on the First-Priority Collateral granted
hereby by operation of law.


 


4.3  Perfected Second Priority
Liens.  The Second Priority Interests
granted pursuant to this Agreement (a) upon completion of the filings and
other actions specified on Schedule 3 (which, in the case of all filings
and other documents referred to on said Schedule, have been delivered to the
Collateral Agent in completed and duly executed form) will constitute valid
perfected security interests in all of the Second-Priority Collateral in favor
of the Collateral Agent, for the ratable benefit of the Secured Parties, as
collateral security for such Grantor’s Obligations, enforceable in accordance
with the terms hereof against all creditors of such Grantor and any Persons
purporting to purchase any Second-Priority Collateral from such Grantor and (b) are
prior to all other Liens on the Second-Priority Collateral in existence on the
date hereof except for the Liens permitted by all of the Secured Debt Documents
that have priority over the Liens on the Second-Priority Collateral granted
hereby by operation of law.


 


4.4  Jurisdiction of
Organization; Chief Executive Office. 
On the date hereof, such Grantor’s jurisdiction of organization, name as
it appears in and identification number, if any from the official filings in
its jurisdiction of organization (if any), and the location of such Grantor’s
chief executive office are specified on Schedule 4. Such Grantor’s
jurisdiction of organization is the only jurisdiction in which such Grantor is
a “registered organization” (as such term is used in Section 9-307 of the
New York UCC). Such Grantor has furnished to the Collateral Agent a certified
charter, certificate of 


 


10

















 


incorporation or other
organization document and long-form good standing certificate as of a date that
is recent to the date hereof. Except as disclosed in Schedule 4, during
the five years ending on the date hereof, such Grantor has not changed its
name, location, chief executive office, type of organization, jurisdiction of
organization or organizational identification number from the information set
forth on Schedule 4.


 


4.5  Equipment.  On the date hereof, the Inventory and
Equipment is kept at the locations listed on Schedule 5.


 


4.6  Farm Products.  None of the Collateral constitutes, or is the
Proceeds of, Farm Products.


 


4.7  Investment Property.  (a)  The shares of Pledged Stock
pledged by such Grantor hereunder constitute all the issued and outstanding
shares or interests of all classes of the Capital Stock of each Issuer owned by
such Grantor or, in the case of Foreign Subsidiary Voting Stock (other than
Interlake Acquisition Corporation Limited), if less, 66% of the outstanding
Foreign Subsidiary Voting Stock of each relevant Issuer.


 


(b)  All the shares of the Pledged
Stock have been duly and validly issued and are fully paid and nonassessable.


 


(c)  Each of the Pledged Notes
constitutes the legal, valid and binding obligation of the obligor with respect
thereto, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors’ rights generally,
general equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing. The Pledged
Notes listed on Schedule 2 hereto constitute all of the Pledged Notes
held by such Grantor on the date hereof.


 


(d)  Schedule 2 lists all
Instruments, Letter-of-Credit Rights, Chattel Paper and Securities Accounts of
each Grantor that is included in the Collateral on the date hereof. All action
by each Grantor necessary or desirable to protect and perfect the Lien of the
Collateral Agent on each item set forth on Schedule 2 (including
delivery of originals thereof to the Collateral Agent and the actions referred
to in Sections 5.1 and 5.3) has been duly taken.


 


4.8  Intellectual Property.  (a)  Schedule 6 lists all
Intellectual Property owned by such Grantor in its own name on the date hereof.


 


(b)  On the date hereof, all
material Intellectual Property is valid, subsisting, unexpired and enforceable,
has not been abandoned and does not infringe the intellectual property rights
of any other Person.


 


(c)  Except as set forth in Schedule
6, on the date hereof, none of the Intellectual Property is the subject of
any licensing or franchise agreement pursuant to which such Grantor is the
licensor or franchisor. Schedule 6 lists all Intellectual Property,
which, on the date hereof, is the subject of a license agreement pursuant to
which such Grantor is a licensee thereof. Each such license agreement is valid
and binding and in full force and effect with respect to such Grantor and such
Grantor has not received any notice of termination or cancellation or received
any notice of a breach or default under such agreement. To the extent that Section 9-408
of the New York UCC is applicable thereto or such agreement permits the
assignment of such Grantor’s rights thereunder,


 


11














 


such license agreement will not cease to be valid and binding and in
full force and effect (other than such terms as are deemed ineffective pursuant
to Section 9-408 of the New York UCC) with respect to such Grantor on
terms identical to those currently in effect as a result of the rights and
interest granted herein, nor will the grant of such rights and interest
constitute a material breach or default under such agreement or otherwise give
any party thereto a right to terminate such agreement.


 


(d)  No holding, decision or
judgment has been rendered by any Governmental Authority which would limit,
cancel or question the validity of, or such Grantor’s rights in, any
Intellectual Property in any material respect.


 


(e)  No action or proceeding is
pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking
to limit, cancel or question the validity of any Intellectual Property or such
Grantor’s ownership interest or rights therein, or (ii) which, if
adversely determined, would have a material adverse effect on the value of any
Intellectual Property.


 


4.9  Receivables.  None of the obligors on any Receivable is a
Governmental Authority.


 


4.10  Deposit Accounts and
Securities Accounts.  All of the
Deposit Accounts and Securities Accounts maintained by such Grantor on the date
hereof are listed on Schedule 7 and Schedule 2, respectively.


 


4.11  Excluded Property.  No property or assets are excluded from the
security interests granted to the Secured Parties hereunder in reliance on Section 3.4.


 


SECTION 5.  COVENANTS


 


Each Grantor covenants and agrees with the
Collateral Agent for the benefit of the Secured Parties that, from and after
the date of this Agreement until the Obligations shall have been paid in full:


 


5.1  Delivery of Instruments,
Certificated Securities and Chattel Paper. 
If any amount payable under or in connection with any of the
First-Priority Collateral shall be or become evidenced by any Instrument,
Certificated Security or Chattel Paper, such Instrument, Certificated Security
or Chattel Paper shall be immediately delivered to the Collateral Agent, duly
indorsed in a manner reasonably satisfactory to the Collateral Agent, to be
held as First-Priority Collateral pursuant to this Agreement. If any amount
payable under or in connection with any of the Second-Priority Collateral shall
be or become evidenced by any Instrument, Certificated Security or Chattel
Paper, such Instrument, Certificated Security or Chattel Paper shall be
immediately delivered to the Bank Administrative Agent, duly indorsed in a
manner reasonably satisfactory to the Bank Administrative Agent, to be held as
Second-Priority Collateral pursuant to the Intercreditor Agreement.


 


5.2  Maintenance of Insurance.  (a)  Such Grantor will maintain,
with financially sound and reputable companies, insurance policies (i) insuring
the Collateral against loss by fire, explosion, theft and such other casualties
as is customary for companies of the same industry and geographic region and (ii) insuring
such Grantor, the Collateral Agent and the Secured Parties against liability
for personal injury and property damage relating to the Collateral, such
policies to be with The Travelers Indemnity Co. of Illinois, Factory Mutual
Insurance Co. or such insurance companies of nationally recognized standing and
in such form and amounts and having such coverage as is customary for companies
of the same industry and geographic region. Such Grantor will not use or 


 


12

















 


permit the Collateral to be
used in any manner that would violate the terms of any insurance policy
covering such Collateral.


 


(b)  All such insurance shall (i) provide
that no cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after receipt by the
Collateral Agent of written notice thereof, (ii) with respect to liability
insurance, name the Collateral Agent as an additional insured as its interest
may appear and, with respect to casualty insurance, name the Collateral Agent
as insured party and loss payee on a lender loss payable endorsement and (iii) include
a breach of warranty clause.


 


(c)  The Company shall deliver to
the Collateral Agent a report of a reputable insurance broker with respect to
such insurance substantially concurrently with each delivery of the Company’s
annual reports to the Secured Parties pursuant to Section 3.11 of the
Indenture, describing in reasonable detail the casualty and liability insurance
then carried and maintained by each Grantor and stating that such insurance
complies with this Section 5.2.


 


5.3  Maintenance of Perfected
Security Interest; Further Documentation. 
(a)  Such Grantor shall maintain each security interest
created by this Agreement as a perfected security interest having at least the
priority described in Sections 3.1 and 3.2 and shall defend such security
interest against the claims and demands of all Persons whomsoever, subject to
the rights of such Grantor under the Secured Debt Documents to dispose of the
Collateral.


 


(b)  Such Grantor will furnish to
the Collateral Agent from time to time statements and schedules further
identifying and describing the assets and property of such Grantor and such
other reports in connection therewith, all in reasonable detail.


 


(c)  At any time and from time to
time, at the sole expense of such Grantor, such Grantor will promptly and duly
execute and deliver, and have recorded, any and all such further instruments
and documents and take such further actions as necessary to perfect and protect
any pledge or security interest purported to be granted by such Grantor
hereunder or under the Mortgages and obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted, including, without
limitation, (i) using its reasonable best efforts to secure all consents
and approvals necessary or appropriate for the assignment to or for the benefit
of the Collateral Agent of any License held by such Grantor and to enforce the
security interests granted hereunder, (ii) filing any financing or
continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby, (iii) in the case of Chattel Paper (including electronic
chattel paper), Investment Property (including Securities Accounts), Deposit
Accounts, Letter-of-Credit Rights and any other relevant Collateral, taking any
actions necessary to enable the Collateral Agent to obtain “control” (within
the meaning of the applicable Uniform Commercial Code) with respect thereto or
possession thereof. Each Grantor also hereby authorizes the Collateral Agent to
sign and file any such financing or continuation statements without the
signature of such Grantor to the extent permitted by applicable law.
Notwithstanding the foregoing, in no event shall the Collateral Agent have any
obligation to monitor the perfection, continuation of perfection or the
sufficiency or validity of any security interest in or related to the Collateral
or to prepare or file any Uniform Commercial Code financing statement or
continuation statement.


 


(d)  Such Grantor shall take all
steps necessary to grant the Collateral Agent control of all electronic chattel
paper in accordance with the Uniform Commercial Code and all “transferable 


 


13

















 


records” as defined in each of the Uniform Electronic Transactions Act
and the Electronic Signatures in Global and National Commerce Act.


 


(e)  If such Grantor is or becomes
the beneficiary of a letter of credit with respect to any Receivable, Grantor
shall promptly, and in any event within two Business Days after becoming a
beneficiary, notify the Collateral Agent and Bank Administrative Agent thereof
and enter into an agreement with the Collateral Agent, the Bank Administrative
Agent and the issuer and/or confirmation bank with respect to such
Letter-of-Credit Rights assigning such Letter-of-Credit Rights to the
Collateral Agent, in the event such Letter-of-of-Credit Right constitutes
First-Priority Collateral, or to the Bank Administrative Agent, in the event
such Letter-of-Credit Right constitutes Second-Priority Collateral, and
directing all payments thereunder to the collateral account specified pursuant
to the Secured Debt Documents, all in form and substance reasonably
satisfactory to the Collateral Agent or the Bank Administrative Agent, as the
case may be.


 


(f)  Such Grantor shall promptly,
and in any event within two Business Days after the same is acquired by it,
notify the Collateral Agent of any Commercial Tort Claim for an amount in
excess of $250,000 acquired by it and shall enter into a supplement to this
Agreement, granting to the Collateral Agent a Lien in such Commercial Tort
Claim on behalf of the Secured Parties.


 


5.4  Changes in Locations, Name,
etc.  Such Grantor will not, except
after not less than 15 days’ prior written notice to the Collateral Agent and
delivery to the Collateral Agent of (a) all additional authenticated
financing statements and other documents necessary to maintain the validity,
perfection and priority of the security interests provided for herein and (b) if
applicable, a written supplement to Schedule 5 showing any additional location
at which Inventory and Equipment shall be kept:


 


(i)                                     change its jurisdiction of organization or
the location of its chief executive office from, or take any action to become a
“registered organization” (as used in Section 9-307 of the New York UCC)
in any jurisdiction other than, that referred to on Schedule 4; or


 


(ii)                                  change its name.


 


5.5  Notices.  Such Grantor will advise the Collateral Agent
promptly, in reasonable detail, of (a) any Lien (other than security
interests created hereby or by any Mortgage or Liens permitted under each
Secured Debt Document) on any of the Collateral; and (b) of the occurrence
of any other event that could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral or on the security interests
created hereby or by any Mortgage.


 


5.6  Investment Property.  (a)  If such Grantor shall become
entitled to receive or shall receive any certificate (including, without
limitation, any certificate representing a dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the
same as the agent of the Collateral Agent, hold the same in trust for the
Collateral Agent and deliver the same forthwith to the Collateral Agent in the
exact form received, duly indorsed by such Grantor to the Collateral Agent, if
required, together with an undated stock power covering such certificate duly
executed in blank by such Grantor and, if the Collateral Agent so requests,
signature guaranteed, to be held by 


 


14

















 


the Collateral Agent,
subject to the terms hereof, as additional collateral security for the
Obligations. Any sums paid upon or in respect of the Investment Property upon
the liquidation or dissolution of any Issuer shall be paid over to the
Collateral Agent to be held by it hereunder as additional collateral security
for the Obligations, and in case any distribution of capital shall be made on
or in respect of the Investment Property or any property shall be distributed
upon or with respect to the Investment Property pursuant to the
recapitalization or reclassification of the capital of any Issuer or pursuant
to the reorganization thereof, the property so distributed shall, unless
otherwise subject to a perfected security interest in favor of the Collateral
Agent, be delivered to the Collateral Agent to be held by it hereunder as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Investment Property shall be
received by such Grantor, such Grantor shall, until such money or property is
paid or delivered to the Collateral Agent, hold such money or property in trust
for the Collateral Agent, segregated from other funds of such Grantor, as additional
collateral security for the Obligations.


 


(b)  Such Grantor will not (i) vote
to enable, or take any other action to permit, any Issuer to issue any Capital
Stock of any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any Capital Stock of any nature
of any Issuer (except as expressly permitted by each of the Note Documents), (ii) sell,
assign, transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Investment Property or Proceeds thereof (except pursuant to a
transaction expressly permitted by each of the Note Documents), (iii) create,
incur or pet trait to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Investment Property or Proceeds thereof, or
any interest therein, except for the security interests created by this
Agreement (except as expressly permitted by each of the Note Documents) or (iv) enter
into any agreement or undertaking restricting the right or ability of such
Grantor or the Collateral Agent to sell, assign or transfer any of the
Investment Property or Proceeds thereof (except as expressly permitted by each
of the Note Documents).


 


(c)  In the case of each Grantor
that is an Issuer, such Issuer agrees that (i) it will be bound by the
terms of this Agreement relating to the Investment Property issued by it and
will comply with such terms insofar as such terms are applicable to it, (ii) it
will notify the Collateral Agent promptly in writing of the occurrence of any
of the events described in Section 5.6(a) with respect to the
Investment Property issued by it and (iii) the terms of Sections 6.3(c) and
6.6 shall apply to it, mutatis  mutandis, with respect to all
actions that may be required of it pursuant to Section 6.3(c) or 6.6
with respect to the Investment Property issued by it. Upon execution hereof,
the Grantors shall cause each Issuer that is not a party to this Agreement to
execute and deliver to the Collateral Agent an Acknowledgement and Consent in
the form attached hereto as Annex 2.


 


5.7  Intellectual Property.  (a)  Such Grantor (either itself or
through licensees) will (i) continue to use each material Trademark on
each and every trademark class of goods applicable to its current line as
reflected in its current catalogs, brochures and price lists in order to
maintain such Trademark in full force free from any claim of abandonment for
non-use, (ii) maintain as in the past the quality of products and services
offered under such Trademark, (iii) use such Trademark with the
appropriate notice of registration and all other notices and legends required
by applicable Requirements of Law, (iv) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark unless the
Collateral Agent shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark may become invalidated or impaired in any way.


 


15

















 


(b)  Such Grantor (either itself or
through licensees) will not do any act, or omit to do any act, whereby any
material Patent may become forfeited, abandoned or dedicated to the public.


 


(c)  Such Grantor (either itself or
through licensees) (i) will employ each material Copyright and (ii) will
not (and will not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any material portion of the Copyrights may
become invalidated or otherwise impaired. Such Grantor will not (either itself
or through licensees) do any act whereby any material portion of the Copyrights
may fall into the public domain.


 


(d)  Such Grantor (either itself or
through licensees) will not do any act that knowingly uses any material
Intellectual Property to infringe the intellectual property rights of any other
Person.


 


(e)  Such Grantor will notify the
Collateral Agent immediately if it knows, or has reason to know, that any application
or registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office or any
court or tribunal in any country) regarding such Grantor’s ownership of, or the
validity of, any material Intellectual Property or such Grantor’s right to
register the same or to own and maintain the same.


 


(f)  Whenever such Grantor, either
by itself or through any agent, employee, licensee or designee, shall file an
application for the registration of any Intellectual Property with the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof, such Grantor shall report such filing to the Collateral Agent within
five Business Days after the last day of the fiscal quarter in which such
filing occurs. Such Grantor shall execute and deliver, and have recorded, any
and all agreements, instruments, documents, and papers necessary to evidence
the Collateral Agent’s security interest in any Copyright, Patent or Trademark
and the goodwill and general intangibles of such Grantor relating thereto or
represented thereby.


 


(g)  Such Grantor will take all
reasonable and necessary steps, including, without limitation, in any
proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the
material Intellectual Property, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of incontestability.


 


(h)  In the event that any material
Intellectual Property is infringed, misappropriated or diluted by a third
party, such Grantor shall (i) take such actions as such Grantor shall
reasonably deem appropriate under the circumstances to protect such
Intellectual Property and (ii) if such Intellectual Property is of
material economic value, promptly notify the Collateral Agent after it learns
thereof and sue for infringement, misappropriation or dilution, seek injunctive
relief where appropriate and recover any and all damages for such infringement,
misappropriation or dilution.


 


5.8  Receivables.  (a)            Other
than in the ordinary course of business consistent with its past practice, such
Grantor will not (i) grant any extension of the time of payment of any
Receivable, (ii) compromise or settle any Receivable for less than the
full amount thereof, (iii) release, wholly or 


 


16

















 


partially, any Person liable
for the payment of any Receivable, (iv) allow any credit or discount
whatsoever on any Receivable or (v) amend, supplement or modify any
Receivable in any manner that could adversely affect the value thereof.


 


(b)  Such Grantor will deliver to
the Collateral Agent a copy of each material demand, notice or document
received by it that questions or calls into doubt the validity or
enforceability of any of the then outstanding Receivables.


 


5.9  Securities Accounts and
Deposit Account.  No Grantor shall
maintain or establish any Deposit Account or any Securities Account included in
the Collateral with any financial institution unless such Grantor, the
Collateral Agent, in the case of First-Priority Collateral, the Bank
Administrative Agent, in the case of Second-Priority Collateral, and such
financial institution shall have entered into a control agreement in form and
substance reasonably satisfactory to the Collateral Agent, in the case of
First-Priority Collateral, or the Bank Administrative Agent, in the case of
Second-Priority Collateral, with respect to such Deposit Account or Securities
Account included in the Collateral or the Collateral Agent, in the case of
First-Priority Collateral, or the Bank Administrative Agent, in the case of
Second-Priority Collateral, otherwise has “control” (within the meaning of the
Uniform Commercial Code of any applicable jurisdiction) of such Deposit Account
or Securities Account included in the Collateral.


 


5.10  Payment of Obligations.  Such Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all taxes, assessments and government charges or levies
imposed upon the Collateral or in respect of income or profits therefrom, as
well as all claims of any kind (including, without limitation, claims for
labor, material and supplies) against or with respect to the Collateral, except
that no such charge need be paid if the amount or validity thereof is currently
being contested in good faith by appropriate proceedings, reserves in
conformity with GAAP with respect thereto have been provided on the books of
such Grantor and such proceedings could not reasonably be expected to result in
the sale, forfeiture or loss of any material portion of the Collateral or any
interest therein.


 


5.11  Good Standing Certificates.  Not less frequently than once during each
fiscal year, such Grantor shall provide to the Collateral Agent a certificate
of good standing from its state of incorporation or organization.


 


5.12  Terminations; Amendments
Not Authorized.  Such Grantor
acknowledges that it is not authorized to file any financing statement with
respect to the Collateral or amendment or termination statement with respect to
any financing statement covering the Collateral and agrees that it will not do
so, subject to such Grantor’s rights under Section 9-509(d)(2) of the
New York UCC.


 


SECTION 6.  REMEDIAL PROVISIONS


 


6.1  Certain Matters Relating to
Receivables.  (a)  The
Collateral Agent shall have the right to make test verifications of the
Receivables in any manner and through any medium that it reasonably considers
advisable, and each Grantor shall furnish all such assistance and information
required in connection with such test verifications; and at any time and from
time to time, upon the Collateral Agent’s request and at the expense of the
relevant Grantor, such Grantor shall cause independent public accountants or
others satisfactory to the Collateral Agent to furnish to the Collateral Agent
reports showing reconciliations, aging and test verifications of, and trial
balances for, the Receivables.


 


17

















 


(b)  The Collateral Agent shall
authorize each Grantor to collect such Grantor’s Receivables, subject to the
Collateral Agent’s direction and control, and the Collateral Agent may curtail
or terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Collateral Agent at any
time after the occurrence and during the continuance of an Event of Default,
any payments of Receivables, when collected by any Grantor, (i) shall be
forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the
Collateral Agent if required, in the Second-Priority Collateral Account
maintained under the sole dominion and control of the Collateral Agent, subject
to withdrawal by the Collateral Agent only as provided in Section 8.5 and
the rights of the Bank Administrative Agent pursuant to the Intercreditor
Agreement, and (ii) until so turned over, shall be held by such Grantor in
trust for the Collateral Agent, segregated from other funds of such Grantor;
and each such deposit of Proceeds of Receivables shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.


 


(c)  At the Collateral Agent’s
request, each Grantor shall deliver to the Collateral Agent all original and
other documents evidencing, and relating to, the agreements and transactions
which gave rise to the Receivables, including, without limitation, all original
orders, invoices and shipping receipts.


 


6.2  Communications with
Grantors; Grantors Remain Liable. 
(a)               The Collateral
Agent in its own name or in the name of others may at any time after the
occurrence and during the continuance of an Event of Default communicate with
obligors under the Receivables to verify with them to the Collateral Agent’s
satisfaction the existence, amount and terms of any Receivable.


 


(b)  Without limiting or affecting
any other right or remedy of the Collateral Agent hereunder, upon the request
of the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, each Grantor shall notify obligors on the
Receivables that the Receivables have been assigned to the Collateral Agent and
that any payments owing to such Grantor in respect thereof shall be made
directly to the Collateral Agent.


 


(c)  Anything herein to the
contrary notwithstanding, each Grantor shall remain liable under each of the
Receivables to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of
any agreement giving rise thereto. The Collateral Agent shall not have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Collateral Agent of any payment relating thereto, nor shall the Collateral
Agent be obligated in any manner to perform any of the obligations of any
Grantor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.


 


6.3  Pledged Stock.  (a)  Unless an Event of Default
shall have occurred and be continuing and the Collateral Agent shall have given
notice to the relevant Grantor of the Collateral Agent’s intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be
permitted to receive all cash dividends paid in respect of the Pledged Stock
and all payments made in respect of the Pledged Notes, in each case paid in the
normal course of business of the relevant Issuer and consistent with past
practice, to the extent permitted in the Note Documents, and to exercise all 


 


18

















 


voting and corporate or
other organizational rights with respect to the Investment Property; provided,
however, that no vote shall be cast or corporate or other organizational
right exercised or other action taken which would impair the Collateral or
which would be inconsistent with or result in any violation of any provision of
this Agreement or any Note Document.


 


(b)  If an Event of Default shall
occur and be continuing and the Collateral Agent shall give notice of its
intent to exercise such rights to the relevant Grantor or Grantors, subject to
the Intercreditor Agreement, (i) the Collateral Agent shall have the right
to receive any and all cash dividends, payments, additional Capital Stock or
property or other Proceeds paid in respect of the Investment Property and make
application thereof to the Obligations in such order as the Collateral Agent
may determine, and (ii) any or all of the Investment Property shall be
registered in the name of the Collateral Agent or its nominee, and the
Collateral Agent or its nominee may thereafter exercise (x) all voting,
corporate and other rights pertaining to such Investment Property at any
meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any
and all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to such Investment Property as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Investment Property upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate or other organizational structure of any Issuer, or upon the
exercise by any Grantor or the Collateral Agent of any right, privilege or
option pertaining to such Investment Property, and in connection therewith, the
right to deposit and deliver any and all of the Investment Property with any
committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as the Collateral Agent may determine), all
without liability except to account for property actually received by it, but
the Collateral Agent shall have no duty to any Grantor or any Secured Party to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.


 


(c)  Each Grantor hereby authorizes
and instructs each Issuer of any Investment Property pledged by such Grantor
hereunder to (i) comply with any instruction received by it from the
Collateral Agent in writing that (x) states that an Event of Default has
occurred and is continuing and (y) is otherwise in accordance with the
terms of this Agreement, without any other or further instructions from such
Grantor, and each Grantor agrees that each Issuer shall be fully protected in
so complying, and (ii) unless otherwise expressly permitted hereby, pay
any dividends or other payments with respect to the Investment Property
directly to the Collateral Agent.


 


6.4  Application of Proceeds.  The Collateral Agent may apply, subject to
the terms of the Intercreditor Agreement, all or any part of Proceeds
constituting Collateral, whether or not held in a Collateral Account, in
accordance with the provisions of the Indenture. Any balance of such Proceeds
remaining after the Obligations shall have been paid in full shall be paid over
to the Grantors or to whomsoever may be lawfully entitled to receive the same.


 


6.5  Code and Other Remedies.  If an Event of Default shall occur and be
continuing, the Collateral Agent may, subject to the terms of the Intercreditor
Agreement, exercise, in addition to all other rights and remedies granted to
them in this Agreement, in the Mortgages and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the New York UCC or any other applicable law. Without
limiting the generality of the foregoing, the Collateral Agent, without demand
of performance or other demand, presentment, protest, advertisement or notice
of any kind (except any notice required by law referred to below) to or upon
any Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may, subject to the terms of the
Intercreditor 


 


19

















 


Agreement, in such
circumstances forthwith (i) collect, receive, appropriate and realize upon
the Collateral, or any part thereof, (ii) transfer all or any part of the
Collateral into the Collateral Agent’s name or the name of its nominee or
nominees, (iii) vote all or any part of the Pledged Stock (whether or not
transferred into the name of the Collateral Agent) and give all consents,
waivers and ratification in respect of the Pledged Stock and otherwise act with
respect thereto as though it were the outright owner thereof (each Grantor
hereby irrevocably constituting and appointing the Collateral Agent the proxy
and attorney-in-fact of such Grantor, with full power of substitution to do so)
and to exercise any and all of the rights or power of such Grantor in its
capacity as shareholder of any relevant Issuer, and/or (iv) forthwith
sell, lease, assign, give option or options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Collateral Agent or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Collateral Agent shall have the right, subject to the
terms of the Intercreditor Agreement, upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in any Grantor, which right or equity is hereby waived and
released. If an Event of Default shall have occurred and shall be continuing,
each Grantor further agrees, at the Collateral Agent’s request, to assemble the
Collateral and, subject to the terms of the Intercreditor Agreement, make it
available to the Collateral Agent at places which the Collateral Agent shall
reasonably select, whether at such Grantor’s premises or elsewhere, and
promptly to execute and deliver to the Collateral Agent such instruments or
other documents as may be necessary or advisable to enable the Collateral Agent
or its agent or representative to obtain, subject to the terms of the
Intercreditor Agreement, possession of all or any part of the Collateral the
possession of which the Collateral Agent shall at the time be entitled to
hereunder. The Collateral Agent shall, subject to the terms of the
Intercreditor Agreement, also be entitled, so long as an Event of Default shall
have occurred and be continuing, to occupy any premises owned or leased by any
Grantor where the Collateral or any part thereof is assembled or located for a
reasonable period to effectuate its rights and remedies hereunder or under law,
without obligation to such Grantor for such occupation and to otherwise
exercise, subject to the terms of the Intercreditor Agreement, any and all
rights and remedies of any Grantor under or in connection with the Collateral,
or otherwise in respect of the Collateral. The Collateral Agent shall apply the
net proceeds of any action taken by it pursuant to this Section 6.5, after
deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Collateral Agent hereunder, including, without limitation, reasonable attorneys’
fees and disbursements, in the manner required by Section 8.5, and only
after such application and after the payment by the Collateral Agent of any
other amount required by any provision of law, including, without limitation, Section 9-615(a)(3) of
the New York UCC, need the Collateral Agent account for the surplus, if any, to
any Grantor. To the extent permitted by applicable law, each Grantor waives all
claims, damages and demands it may acquire against the Collateral Agent arising
out of the exercise by the Collateral Agent of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition.


 


6.6  Registration Rights.  (a)               If
the Collateral Agent shall, subject to the terns of the Intercreditor
Agreement, determine to exercise its right to sell any or all of the Pledged
Stock pursuant to Section 6.5, and if it is necessary or advisable to have
the Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act, the relevant Grantor will 


 


20

















 


cause the Issuer thereof to (i) execute
and deliver, and cause the directors and officers of such Issuer to execute and
deliver, all such instruments and documents, and do or cause to be done all
such other acts as may be necessary or advisable to register the Pledged Stock,
or that portion thereof to be sold, under the provisions of the Securities Act,
(ii) use its best efforts to cause the registration statement relating
thereto to become effective and to remain effective for a period of one year
from the date of the first public offering of the Pledged Stock, or that
portion thereof to be sold, and (iii) make all amendments thereto and/or
to the related prospectus which are reasonably necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. Each
Grantor agrees to cause such Issuer to comply with the provisions of the
securities or “Blue Sky” laws of any and all applicable jurisdictions and to
make available to its security holders, as soon as practicable, an earnings
statement (which need not be audited) which will satisfy the provisions of Section 11(a) of
the Securities Act.


 


(b)  Each Grantor recognizes that
the Collateral Agent may be unable to effect a public sale of any or all the
Pledged Stock, by reason of certain prohibitions contained in the Securities
Act and applicable state securities laws or otherwise, and may be compelled to
resort to one or more private sales thereof to a restricted group of purchasers
which will be obliged to agree, among other things, to acquire such securities
for their own account for investment and not with a view to the distribution or
resale thereof. Each Grantor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Collateral Agent shall be under no obligation to delay a sale of
any of the Pledged Stock for the period of time necessary to permit the Issuer
thereof to register such securities for public sale under the Securities Act,
or under applicable state securities laws, even if such Issuer would agree to
do so.


 


(c)  Each Grantor agrees to use its
best efforts to do or cause to be done all such other acts as may be necessary
to make such sale or sales of all or any portion of the Pledged Stock pursuant
to this Section 6.6 valid and binding and in compliance with any and all
other applicable Requirements of Law. Each Grantor further agrees that a breach
of any of the covenants contained in this Section 6.6 will cause
irreparable injury to the Collateral Agent and the Secured Parties, that the
Collateral Agent and the Secured Parties have no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant
contained in this Section 6.6 shall be specifically enforceable against
such Grantor, and such Grantor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred and is continuing.


 


6.7  Deficiency.  Each Grantor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay its Obligations and the fees and disbursements of any
attorneys employed by the Collateral Agent to collect such deficiency.


 


6.8  Proceeds to be Turned Over
To Collateral Agent.  In addition to
the rights of the Collateral Agent specified in Section 6.1 with respect
to payments of Receivables, if an Event of Default shall occur and be
continuing, all Proceeds with respect to Second-Priority Collateral received by
any Grantor consisting of cash, checks and other near-cash items shall be held
by such Grantor in trust for the Collateral Agent and the Secured Parties,
segregated from other funds of such Grantor, and shall, forthwith upon receipt
by such Grantor, be turned over to the Collateral Agent in the exact form
received by such Grantor (duly indorsed by such Grantor to the Collateral
Agent, if


 


21














 


required). All Proceeds with
respect to Second-Priority Collateral received by the Collateral Agent
hereunder shall be held by the Collateral Agent in the Second-Priority
Collateral Account maintained under its sole dominion and control; provided,
that the security interest and lien of the Bank Administrative Agent pursuant
to the Bank Documents shall have been satisfied and discharged in full with
respect to such Proceeds and the Collateral Agent is not required under the
Intercreditor Agreement to deliver such Proceeds to the Bank Administrative
Agent. All Proceeds with respect to Second-Priority Collateral while held by
the Collateral Agent in the Second-Priority Collateral Account (or by such
Grantor in trust for the Collateral Agent and the Secured Parties) shall
continue to be held as collateral security for all the Obligations and shall
not constitute payment thereof until applied as provided by the Indenture.


 


SECTION 7.  ACTIONS AFTER EVENT OF DEFAULT


 


7.1  General Authority of the
Collateral Agent over the Collateral. 
Each Grantor and, by its acceptance of the benefits hereof, each Secured
Party, hereby irrevocably constitutes and appoints the Collateral Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full power and authority in its or his own name,
from time to time in the Collateral Agent’s discretion so long as an Event of
Default has occurred and is continuing, to take any and all actions and to
execute any and all documents and instruments which may be necessary or
desirable to carry out the tetras of this Agreement and accomplish the purposes
hereof.


 


7.2  Judicial Proceedings and
Insolvency Events.  If an Event of
Default has occurred and is continuing, the Collateral Agent (i) shall
have the right and power to institute, maintain, defend and participate in such
suits and proceedings as it may deem appropriate to protect and enforce the
rights vested in it by this Agreement and the interests of the Secured Parties,
(ii) may, either after entry, or without entry, proceed by suit or suits
at law or in equity to enforce such rights and to foreclose upon the Collateral
and to sell all or, from time to time, any of the Collateral under the judgment
or decree of a court of competent jurisdiction and (iii) may, on behalf of
the Secured Parties, file claims concerning, stipulate or consent to, any
matter concerning, and otherwise represent the interests of the Secured Parties
concerning, the Collateral.


 


7.3  Right to Appoint a Receiver.
If an Event of Default has occurred and is continuing, upon the filing of a
bill in equity or other commencement of judicial proceedings to enforce the
rights of the Collateral Agent under this Agreement, the Collateral Agent
shall, to the extent permitted by law, with notice to the Company but without
notice to any party claiming through the Grantors, without regard to the
solvency or insolvency at the time of any Person then liable for the payment of
any of the Obligations, without regard to the then value of the Collateral, and
without requiring any bond from any complainant in such proceedings, be
entitled as a matter of right to the appointment of a receiver or receivers of
the Collateral, or any part thereof, and of the rents, issues, tolls, profits,
royalties, revenues and other income thereof, pending such proceedings, with
such powers as the court making such appointment shall confer, and to the entry
of an order directing that the rents, issues, tolls, profits, royalties,
revenues and other income of the property constituting the whole or any part of
the Collateral be segregated, sequestered and impounded for the benefit of the
Collateral Agent and the Secured Parties, and each Grantor irrevocably consents
to the appointments of such receiver or receivers and to the entry of such
order; provided that, notwithstanding the appointment of any receiver,
the Collateral Agent shall be entitled to retain possession and control of all
cash and Cash Equivalents held by or deposited with it pursuant to this Agreement.


 


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7.4  Remedies Not Exclusive.  (a)  No remedy conferred upon or
reserved to the Collateral Agent herein is intended to be exclusive of any
other remedy or remedies, but every such remedy shall be cumulative and shall
be in addition to every other remedy conferred herein or now or hereafter
existing at law or in equity or by statute.


 


(b)  No delay or omission by the
Collateral Agent to exercise any right, remedy or power hereunder or under any
other Collateral Document shall impair any such right, remedy or power or shall
be construed to be a waiver thereof, and every right, power and remedy given by
this Agreement to the Collateral Agent may be exercised from time to time and
as often as may be deemed expedient by the Collateral Agent.


 


(c)  If the Collateral Agent shall
have proceeded to enforce any right, remedy or power under this Agreement and
the proceeding for the enforcement thereof shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the
Collateral Agent, then the Grantors, the Collateral Agent and the Secured
Parties shall, subject to any determination in such proceeding, severally and
respectively be restored to their former positions and rights hereunder or
thereunder with respect to the Collateral and in all other respects, and
thereafter all rights, remedies and powers of the Collateral Agent shall
continue as though no such proceeding had been taken.


 


(d)  All rights of action and of asserting
claims upon or under this Agreement may be enforced by the Collateral Agent
without the possession of any Note Document or instrument evidencing any
Obligation or the production thereof at any trial or other proceeding relative
thereto, and any suit or proceeding instituted by the Collateral Agent shall
be, subject to Section 10, brought in its name as Collateral Agent and any
recovery of judgment shall be held as part of the Collateral.


 


7.5  Waiver and Estoppel.  (a)  Each Grantor agrees, to the
extent it may lawfully do so, that it will not at any time in any manner
whatsoever claim, or take the benefit or advantage of, any appraisement,
valuation, stay, extension, moratorium, turnover or redemption law, or any law
permitting it to direct the order in which the Collateral shall be sold, now or
at any time hereafter in force, which may delay, prevent or otherwise affect
the performance or enforcement of this Agreement or any other Collateral
Document and hereby waives all benefit or advantage of all such laws and
covenants that it will not hinder, delay or impede the execution of any power
granted to the Collateral Agent in this Agreement or in any other Collateral
Document but will suffer and permit the execution of every such power as though
no such law were in force.


 


(b)  Each Grantor, to the extent it
may lawfully do so, on behalf of itself and all who may claim through or under
it, including without limitation any and all subsequent creditors, vendees,
assignees and lienors, waives and releases all rights to demand or to have any
marshaling of the Collateral upon any sale, whether made under any power of
sale granted herein or pursuant to judicial proceedings or upon any foreclosure
or any enforcement of this Agreement or any other Collateral Document and
consents and agrees that all the Collateral may at any such sale be offered and
sold as an entirety.


 


(c)  Each Grantor waives, to the
extent permitted by applicable law, presentment, demand, protest and any notice
of any kind (except notices explicitly required hereunder or under any Note
Document) in connection with this Agreement and any other Collateral Document
and any action taken by the Collateral Agent with respect to the Collateral.


 


23

















 


7.6  Limitation on Collateral
Agent’s Duty in Respect of Collateral. Beyond its duties as to the custody
thereof expressly provided in Section 10.2 herein and to account to the
Secured Parties and the Grantors for moneys and other property received by it
hereunder, the Collateral Agent shall not have any duty to the Grantors or to
the Secured Parties as to any Collateral in its possession or control or in the
possession or control of any of its agents or nominees, or any income thereon
or as to the preservation of rights against prior parties or any other rights
pertaining thereto.


 


SECTION 8.  COLLATERAL ACCOUNT; DISTRIBUTIONS


 


8.1  The Collateral Account.  On the date hereof, there shall be
established and, at all times thereafter until the Liens created by this
Agreement and by each other Collateral Document shall have terminated, there
shall be maintained with the Collateral Agent at the office of the Collateral
Agent’s corporate trust administration, an account which shall be entitled the “Cellu
Tissue First Priority Collateral Account” (the “First-Priority Collateral
Account”) and an account which shall be entitled the “Cellu Tissue
Second-Priority Collateral Account” (the “Second-Priority Collateral Account”).
All moneys which are required by the Indenture, this Agreement or by any
Mortgage to be delivered to the Collateral Agent while an Event of Default has
occurred and is continuing or which are received by the Collateral Agent or any
agent or nominee of the Collateral Agent in respect of the Collateral or
otherwise in accordance with the tee ins of the Indenture, whether in
connection with the exercise of the remedies provided in this Agreement or in
any other Collateral Document or otherwise, shall be deposited (as directed
pursuant to an Officers’ Certificate as defined under the Indenture) (a) in
the First-Priority Collateral Account, to the extent that such moneys
constitute Proceeds of First-Priority Collateral or constitute First-Priority
Collateral under the terms of the Indenture and (b) in the Second-Priority
Collateral Account, to the extent that such moneys constitute Proceeds of
Second-Priority Collateral or constitute Second-Priority Collateral under the
terms of the Indenture and are not otherwise required under the Intercreditor
Agreement to be delivered to the Bank Administrative Agent. Moneys in the
First-Priority Collateral Account and the Second-Priority Collateral Account
shall be held by the Collateral Agent as part of the Collateral and applied in
accordance with the terms of this Agreement.


 


8.2  Control of Collateral
Account.  All right, title and
interest in and to the Collateral Accounts shall vest in the Collateral Agent,
and funds on deposit in the Collateral Accounts shall constitute part of the
Collateral. The Collateral Accounts shall be subject to the exclusive dominion
and control of the Collateral Agent and no Grantor shall have any right of
withdrawal from the Collateral Accounts without the Collateral Agent’s consent.


 


8.3  Investment of Funds
Deposited in Collateral Account. The Collateral Agent shall invest and
reinvest moneys on deposit in the Collateral Accounts at any time in Cash
Equivalents. In the absence of such directions, moneys shall remain uninvested.
All such investments and the interest and income received thereon and the net
proceeds realized on the sale or redemption thereof shall be held in the
Collateral Accounts as part of the Collateral. The Collateral Agent shall not
be responsible for any diminution in funds resulting from such investments or
any liquidation prior to maturity.


 


8.4  Withdrawals by the Grantors.  The Grantors shall be permitted to make
withdrawals from the Collateral Accounts pursuant to the provisions of the
Indenture.


 


8.5  Application of Moneys.  The Collateral Agent shall hold and apply
moneys in the Collateral Accounts in accordance with the provisions of the
Indenture.


 


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8.6  Collateral Agent’s
Calculations.  All distributions made
by the Collateral Agent pursuant to Section 8.5 shall be final (absent
manifest error), and the Collateral Agent shall have no duty to inquire as to
the application of any amounts distributed by it.


 


8.7  Excess Payments.  If at any time when an Event of Default shall
have occurred and be continuing, any Secured Party (a “Receiving Party”)
shall receive any payment or distribution on account of the Obligations owed to
such Receiving Party (whether voluntary, involuntary, through the exercise of
any rights of set-off, or otherwise, and whether in cash, property or
securities) representing proceeds of any of the Collateral and which is in
excess of the payments or distributions such Receiving Party would have
received through the operation of Section 8.5 and after giving effect to
the circumstances described in Section 11.15 (such payments or
distributions, “Excess Payments”), then such Receiving Party shall hold
such Excess Payments in trust for the benefit of all Secured Parties and shall
promptly pay over such Excess Payments in the form received (duly endorsed, if
necessary, to the Collateral Agent) to the Collateral Agent, for distribution
by the Collateral Agent pursuant to Section 8.5.


 


SECTION 9.  AGREEMENTS WITH THE COLLATERAL AGENT


 


9.1  Delivery of Secured Debt
Documents.  On the date hereof, the
Company shall deliver to the Collateral Agent true and complete copies of each
Secured Debt Document as in effect on the date hereof. The Company shall
deliver to the Collateral Agent, promptly upon the execution thereof, (i) a
true and complete copy of all amendments, modifications or supplements to any
Secured Debt Document entered into after the date hereof, and (ii) a true
and complete copy of any new Secured Debt Document entered into after the date
hereof.


 


9.2  Compensation and Expenses.  Each Grantor, jointly and severally, agrees
to pay to the Collateral Agent, from time to time upon demand, (i) compensation
(which shall not be limited by any provision of law in regard to compensation
of fiduciaries or of a Collateral Agent of an express trust) for its services
hereunder and for administering the Collateral and (ii) all of the fees,
costs and expenses of the Collateral Agent (including, without limitation, the
reasonable fees and disbursements of its counsel, advisors and agents) (A) arising
in connection with the preparation, execution, delivery, modification,
termination and administration of this Agreement, each other Note Document or
the enforcement of any of the provisions hereof or thereof, (B) incurred
or required to be advanced in connection with the administration of the
Collateral, the sale or other disposition of Collateral and the preservation,
protection or defense of the Collateral Agent’s rights under this Agreement,
each other Note Document and in and to the Collateral, (C) incurred by the
Collateral Agent in connection with the removal of the Collateral Agent
pursuant to Section 10.10 or (D) the failure by any Grantor to
perform or observe any of the provisions of this Agreement or any other Note
Document. Such fees, costs and expenses are intended to constitute expenses of
administration under any other bankruptcy law relating to creditors’ rights
generally. The obligations of the Grantors under this Section 9.2 shall
survive the termination of the other provisions of this Agreement and the other
Note Documents and the resignation or removal of the Collateral Agent
hereunder.


 


9.3  Stamp and Other Similar
Taxes.  Each Grantor, jointly and
severally, agrees to indemnify and hold harmless the Collateral Agent and each
Secured Party from any present or future claim for liability for any stamp or
any other similar tax, and any penalties or interest with respect thereto,
which may be assessed, levied or collected by any jurisdiction in connection
with this Agreement, any other Note Document or any Collateral. The obligations
of the Grantors under this 


 


25

















 


Section 9.3 shall
survive the termination of the other provisions of this Agreement and the other
Note Documents and the resignation or removal of the Collateral Agent
hereunder.


 


9.4  Filing Fees, Excise Taxes,
Etc.  Each Grantor, jointly and
severally, agrees to pay or to reimburse the Collateral Agent for any and all
payments made by the Collateral Agent in respect of all search, filing, recording
and registration fees, taxes, excise taxes and other similar imposts which may
be payable or determined to be payable in respect of the execution and delivery
of this Agreement and the other Note Documents. The obligations of the Grantors
under this Section 9.4 shall survive the termination of the other
provisions of this Agreement and the other Note Documents and the resignation
or removal of the Collateral Agent hereunder.


 


9.5  Indemnification.  Each Grantor, jointly and severally, agrees
to pay, indemnify, and hold the Collateral Agent and each Secured Party (and
their respective directors, officers, agents and employees) harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including, without limitation, the
reasonable fees and expenses of counsel, advisors and agents) or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, and each other
Note Document including, without limitation in connection with any action taken
with respect to the Collateral and any contract, agreement, interest or
obligation constituting part of the Collateral, unless arising from the gross
negligence or willful misconduct of the indemnified party, including for taxes
in any jurisdiction in which the Collateral Agent is subject to tax by reason
of actions hereunder, unless such taxes are imposed on or measured by
compensation paid to the Collateral Agent under Section 9.2. In any suit,
proceeding or action brought by the Collateral Agent under or with respect to
any contract, agreement, interest or obligation constituting part of the
Collateral for any sum owing thereunder, or to enforce any provisions thereof,
each Grantor, jointly and severally will save, indemnify and keep the
Collateral Agent and each Secured Party harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever of the obligor thereunder,
arising out of a breach by any Grantor of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing to or
in favor of such obligor or its successors from any Grantor, and all such
obligations of any Grantor shall be and remain enforceable against and only
against the Grantors and shall not be enforceable against the Collateral Agent
or any Secured Party. The agreements in this Section 9.5 shall survive the
termination of the other provisions of this Agreement and the other Note
Documents and the resignation or removal of the Collateral Agent hereunder.


 


9.6  Collateral Agent’s Lien.  Notwithstanding anything to the contrary in
this Agreement or in any other Note Document, as security for the payment of
the Collateral Agent Fees (i) the Collateral Agent is hereby granted a
lien upon all Collateral and (ii) the Collateral Agent shall have the
right to use and apply any of the funds held by the Collateral Agent in the
Collateral Accounts to cover such Collateral Agent Fees.


 


SECTION 10.  THE COLLATERAL AGENT


 


10.1  Collateral Agent’s
Appointment as Attorney-in-Fact, etc. 
(a)  Each Grantor hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, for the purpose of carrying out the terms of
this Agreement and the other Collateral Documents, to take any and all
appropriate action and to execute any and all documents and instruments which
may be 


 


26

















 


necessary or desirable to
accomplish the purposes of this Agreement and the other Collateral Documents,
and, without limiting the generality of the foregoing, each Grantor hereby
gives the Collateral Agent the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do any or all of the following:


 


(i)            in the name of such Grantor
or its own name, or otherwise, take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment of
moneys due under any Receivable or with respect to any other Collateral and
file any claim or take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Collateral Agent for the purpose
of collecting any and all such moneys due with respect to the Collateral
whenever payable;


 


(ii)           in the case of any
Intellectual Property, execute and deliver, and have recorded, any and all
agreements, instruments, documents and papers as necessary to evidence the
Collateral Agent’s and the Secured Parties’ security interest in such
Intellectual Property and the goodwill and general intangibles of such Grantor
relating thereto or represented thereby;


 


(iii)          pay or discharge taxes and
Liens levied or placed on or threatened against the Collateral, effect any
repairs or any insurance called for by the terms of this Agreement or any
Mortgage and pay all or any part of the premiums therefor and the costs
thereof;


 


(iv)          execute, in connection with
any sale provided for in Section 6.5 or 6.6, any endorsements, assignments
or other instruments of conveyance or transfer with respect to the Collateral;
and


 


(v)           (1) direct any party
liable for any payment under any of the Collateral to make payment of any and
all moneys due or to become due thereunder directly to the Collateral Agent or
as the Collateral Agent shall direct; (2) ask or demand for, collect, and
receive payment of and receipt for, any and all moneys, claims and other
amounts due or to become due at any time in respect of or arising out of any
Collateral; (3) sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (4) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (6) settle,
compromise or adjust any such suit, action or proceeding and, in connection
therewith, give such discharges or releases as the Collateral Agent may deem
appropriate; (7) assign any Copyright, Patent or Trademark (along with the
goodwill of the business to which any such Copyright, Patent or 


 


27

















 


Trademark pertains),
throughout the world for such term or terms, on such conditions, and in such
manner, as the Collateral Agent may in its sole discretion determine; and (8) generally,
sell, transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and do, at the
Collateral Agent’s option and such Grantor’s expense, at any time, or from time
to time, all acts and things which the Collateral Agent deems necessary to
protect, preserve or realize upon the Collateral and the Collateral Agent’s and
the Secured Parties’ security interests therein and to effect the intent of
this Agreement and the other Collateral Documents, all as fully and effectively
as such Grantor might do.


 


Anything in this Section 10.1(a) to
the contrary notwithstanding, the Collateral Agent agrees that it will not
exercise any rights under the power of attorney provided for in this Section 10.1(a) unless
an Event of Default shall have occurred and be continuing.


 


(b)  If any Grantor fails to
perform or comply with any of its agreements contained herein, the Collateral
Agent, at its option, but without any obligation so to do, may perform or
comply, or otherwise cause performance or compliance, with such agreement.


 


(c)  The expenses of the Collateral
Agent incurred in connection with actions undertaken as provided in this Section 10.1,
together with interest thereon at a rate per annum equal to the highest rate
per annum at which interest would be payable on any category of past due
payments under the Indenture, from the date of payment by the Collateral Agent
to the date reimbursed by the relevant Grantor, shall be payable by such
Grantor to the Collateral Agent on demand.


 


(d)  Each Grantor hereby ratifies
all that said attorneys shall lawfully do or cause to be done by virtue hereof.
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement and each other Note
Document is terminated and the security interests created hereby and thereby
are released.


 


10.2  Duty of Collateral Agent.  The Collateral Agent’s sole duty with respect
to the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the New York UCC or otherwise, shall be
to deal with it in the same manner as the Collateral Agent deals with similar
property for its own account. Neither the Collateral Agent, any Secured Party
nor any of their respective officers, directors, employees or agents shall be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of any Grantor or any other Person
or to take any other action whatsoever with regard to the Collateral or any
part thereof. The powers conferred on the Collateral Agent and the Secured
Parties hereunder are solely to protect the Collateral Agent’s and the Secured
Parties’ interests in the Collateral and shall not impose any duty upon the
Collateral Agent or any Secured Party to exercise any such powers. The
Collateral Agent and the Secured Parties shall be accountable only for amounts
that they actually receive as a result of the exercise of such powers, and neither
they nor any of their officers, directors, employees or agents shall be
responsible to any Grantor or any Secured Party for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct.


 


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10.3  Filing of Financing
Statements.  Pursuant to any
applicable law, each Grantor authorizes the Collateral Agent to file or record
financing statements and other filing or recording documents or instruments
with respect to the Collateral without the signature of such Grantor in such
form and in such offices as necessary to perfect the security interests of the
Collateral Agent under this Agreement and under each other Collateral Document.
Each Grantor authorizes the Collateral Agent to use the collateral description “all
personal property” in any such appropriate financing statements. Each Grantor
hereby ratifies and authorizes the filing by the Collateral Agent of any
financing statement with respect to the Collateral made prior to the date
hereof. Notwithstanding the foregoing, in no event shall the Collateral Agent
have any obligation to monitor the perfection, continuation of perfection or
the sufficiency or validity of any security interest in or related to the
Collateral or to prepare or file any Uniform Commercial Code financing
statement or continuation statement.


 


10.4  Authority of Collateral
Agent.  Each Grantor acknowledges
that the rights and responsibilities of the Collateral Agent under this
Agreement and the other Collateral Documents with respect to any action taken
by the Collateral Agent or the exercise or non-exercise by the Collateral Agent
of any option, voting right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Agreement or any other
Collateral Document shall, as between the Collateral Agent and the Secured
Parties, be governed by the Note Documents and by such other agreements with
respect thereto as may exist from time to time among the Collateral Agent and the
Secured Parties, but, as between the Collateral Agent and the Grantors, the
Collateral Agent shall be conclusively presumed to be acting as agent for the
Secured Parties with full and valid authority so to act or refrain from acting,
and no Grantor shall be under any obligation, or entitlement, to make any
inquiry respecting such authority.


 


10.5  Exculpatory Provisions.  (a)  The Collateral Agent shall not
be responsible in any manner whatsoever for the correctness of any recitals,
statements, representations or warranties in any Note Document, all of which
are made solely by the Grantors. The Collateral Agent makes no representations
as to, nor shall it be responsible for, the existence, genuineness, value or
condition of any of the Collateral or any part thereof, the title of the
Grantors thereto or the security afforded or intended to be afforded by this
Agreement and the other Collateral Documents, or the validity, execution
(except its execution), enforceability, legality or sufficiency of this Agreement,
the other Collateral Documents or the Intercreditor Agreement or the
Obligations or the validity, perfection, priority or enforceability of the
liens or security interests in any of the Collateral created or intended to be
created by this Agreement or the other Collateral Documents, or the validity or
sufficiency of the Collateral, or insuring the Collateral or the payment of
taxes, charges, assessments or liens upon the Collateral or otherwise as to the
maintenance of the Collateral, and the Collateral Agent shall incur no
liability or responsibility in respect of any such matters. The Collateral
Agent shall have no responsibility for preparing, recording, filing,
re-recording or refiling any financing statement, continuation statement or
other instrument in any public office at any time.


 


(b)  The Collateral Agent shall not
be required to ascertain or inquire as to the performance by the Grantors of
any of the covenants or agreements contained herein, in the other Collateral
Documents or in any Secured Debt Document. Whenever it is necessary, or in the
opinion of the Collateral Agent advisable, for the Collateral Agent to
ascertain the amount of Obligations then held by Secured Parties, the
Collateral Agent may rely on a certificate of the Trustee.


 


(c)  The Collateral Agent shall be
under no obligation or duty to take any action under this Agreement or any
other Note Document or otherwise if taking such action (i) would subject
the 


 


29

















 


Collateral Agent to a tax in any jurisdiction where it is not then
subject to a tax or (ii) would require the Collateral Agent to qualify to
do business in any jurisdiction where it is not then so qualified, unless the
Collateral Agent shall receive security or indemnity satisfactory to it against
such tax (or equivalent liability), or any liability resulting from such
qualification, in each case as results from the taking of such action under
this Agreement or any other Note Document.


 


(d)  The Collateral Agent shall
have the same rights with respect to any Obligation held by it as any other
Secured Party and may exercise such rights as though it were not the Collateral
Agent hereunder, and it and its Affiliates may accept deposits from, lend money
to, provide services to and generally engage in any kind of banking or trust
business with, any of the Grantors as if it were not the Collateral Agent.


 


(e)  The Collateral Agent shall not
be liable for any action taken or omitted to be taken in accordance with this
Agreement or any other Collateral Document except for its own gross negligence
or willful misconduct.


 


(f)  The permissive right of the
Collateral Agent to take any action under this Agreement or any other
Collateral Document shall not be construed as a duty to so act.


 


10.6  Delegation of Duties.  The Collateral Agent may execute any of the
trusts or powers hereof and perform any duty hereunder or under any other Note
Document either directly or by or through agents or attorneys-in-fact. The
Collateral Agent shall be entitled to advice of counsel concerning all matters
pertaining to such trusts, powers and duties. The Collateral Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it without gross negligence or willful misconduct.


 


10.7  Reliance by Collateral
Agent.  (a)  Whenever in
the administration of this Agreement, or any other Collateral Document the
Collateral Agent shall deem it necessary or desirable that a factual matter be
proved or established in connection with the Collateral Agent taking, suffering
or omitting any action hereunder or thereunder, such matter (unless other
evidence in respect thereof is herein specifically prescribed) may be deemed to
be conclusively proved or established by a certificate of a Responsible Officer
delivered to the Collateral Agent, and such certificate shall be full warrant
to the Collateral Agent for any action taken, suffered or omitted in reliance
thereon.


 


(b)  The Collateral Agent may, at
the expense of the Grantors, consult with counsel, and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered by it hereunder in accordance therewith. The
Collateral Agent shall have the right at any time to seek instructions
concerning the administration of this Agreement or any other Note Document from
any court of competent jurisdiction. Any Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate of a Responsible
Officer or representations made by a Responsible Officer in a writing delivered
to the Collateral Agent.


 


(c)  The Collateral Agent may
conclusively rely upon, and shall be fully protected in acting upon or failing
to act as a consequence of, any resolution, statement, certificate, instrument,
opinion, report, notice, request, consent, order, bond or other paper or
document which it believes in good faith is genuine and has been signed or
presented by the proper party or parties or, in the case of cables, telecopies
and telexes, to have been sent by the proper party or parties. In the absence
of its own gross negligence or willful misconduct, the Collateral Agent may
conclusively rely, as to the 


 


30

















 


truth of the statements and the correctness of the opinions expressed
therein, upon any such certificates, opinions or other information and need not
investigate any fact or matter stated therein.


 


(d)  The Collateral Agent shall not
be under any obligation to exercise any of the rights or powers vested in the
Collateral Agent by this Agreement or by any other Note Document, unless the
Collateral Agent shall have been provided adequate security and indemnity
against the costs, expenses and liabilities which may be incurred by the
Collateral Agent, its agents and its counsel in the exercise of any such right
or power or in compliance with such request or direction, including such
reasonable advances as may be requested by the Collateral Agent.


 


(e)  Upon any application or demand
by any of the Grantors to the Collateral Agent to take or permit any action
under any of the provisions of this Agreement or any other Note Document, the
Company shall furnish to the Collateral Agent a certificate of a Responsible
Officer stating that all conditions precedent, if any, provided for in this
Agreement or in any Note Document relating to the proposed action have been
complied with, and in the case of any such application or demand as to which
the furnishing of any document is specifically required by any provision of
this Agreement or any Note Document relating to such particular application or
demand, such additional document shall also be furnished.


 


10.8  Limitations on Duties of
Collateral Agent.  (a)  The
Collateral Agent shall be obligated to perform such duties and only such duties
as are specifically set forth in this Agreement, or any other Note Document,
and no implied covenants or obligations shall be read into this Agreement or
any other Note Document against the Collateral Agent. If and so long as an
Event of Default has occurred and is continuing, the Collateral Agent may
exercise the rights and powers vested in the Collateral Agent by this Agreement
or any other Note Document. The Collateral Agent shall not be liable with
respect to any action taken or omitted to be taken.


 


(b)  Except as herein otherwise
expressly provided, the Collateral Agent shall not be under any obligation to
take any action that is discretionary under the provisions of this Agreement or
of any other Note Document, except upon the written request of the Trustee or
the other Secured Parties pursuant to the terms of the Indenture.


 


(c)  No provision of this
Agreement, or any other Note Document shall be deemed to impose any duty or
obligation on the Collateral Agent to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Collateral Agent
shall be unqualified or incompetent, to perform any such act or acts or to
exercise any such right, power, duty or obligation or if such performance or
exercise would constitute doing business by the Collateral Agent in such
jurisdiction or impose a tax on the Collateral Agent by reason thereof or to
risk its own funds or otherwise incur any financial liability in the
performance of its duties hereunder.


 


10.9  Moneys to be Held in Trust.  All moneys received by the Collateral Agent
under or pursuant to any provision of this Agreement, or any other Note
Document (except Collateral Agent Fees) shall be held in trust for the purposes
for which they were paid or are held. The Collateral Agent shall not be liable
for interest on any money or assets received by it except as the Collateral
Agent may agree in writing. Assets held in trust by the Collateral Agent need
not be segregated from other assets except to the extent required by law.


 


31














 


10.10  Resignation and Removal
of the Collateral Agent.  (a)  The
Collateral Agent may at any time, by giving written notice to the Company,
resign and be discharged of the responsibilities hereby created, such
resignation to become effective upon (i) the appointment of a successor
Collateral Agent and (ii) the acceptance of such appointment by such
successor Collateral Agent. If no successor Collateral Agent shall be appointed
and shall have accepted such appointment within 60 days after the Collateral Agent
gives the aforesaid notice of resignation, the Collateral Agent, the Company or
any Secured Party may apply to any court of competent jurisdiction at the
expense of the Grantors to appoint a successor Collateral Agent to act until
such time, if any, as a successor Collateral Agent shall have been appointed as
provided in this Section 10.10. Any successor so appointed by such court
shall immediately and without further act be superseded by any successor
Collateral Agent appointed by the Trustee or its successor as provided in Section 10.10(b).
The Collateral Agent shall be entitled to the Collateral Agent Fees to the
extent incurred or arising, or relating to events occurring, before such
resignation or removal or in connection with actions taken in accordance with Section 10.10(b).


 


(b)  If at any time the Collateral
Agent shall resign or be removed or otherwise become incapable of acting, or if
at any time a vacancy shall occur in the office of the Collateral Agent for any
other cause, a successor Collateral Agent may be appointed by the Company,
which consent shall not be unreasonably withheld. The powers, duties, authority
and title of the predecessor Collateral Agent shall be terminated and canceled
without procuring the resignation of such predecessor and without any other
formality (except as may be required by applicable law) than appointment and
designation of a successor in writing duly acknowledged and delivered to the
predecessor and the Company. Such appointment and designation shall be full evidence
of the right and authority to make the same and of all the facts therein
recited, and this Agreement shall vest in such successor, without any further
act, deed or conveyance, all the estates, properties, rights, powers, trusts,
duties, authority and title of its predecessor; but such predecessor shall,
nevertheless, on the written request of the Company or the successor, execute
and deliver an instrument transferring to such successor all the estates,
properties, rights, powers, trusts, duties, authority and title of such
predecessor hereunder and shall deliver all Collateral held by it or its agents
to such successor. Should any deed, conveyance or other instrument in writing
from any Grantor be required by any successor Collateral Agent for more fully
and certainly vesting in such successor the estates, properties, rights,
powers, trusts, duties, authority and title vested or intended to be vested in
the predecessor Collateral Agent, any and all such deeds, conveyances and other
instruments in writing shall, on request of such successor, be executed,
acknowledged and delivered by such Grantor. If such Grantor shall not have
executed and delivered any such deed, conveyance or other instrument within 10
days after it received a written request from the successor Collateral Agent to
do so, or if an Event of Default has occurred and is continuing, the
predecessor Collateral Agent may execute the same on behalf of such Grantor.
Such Grantor hereby appoints any predecessor Collateral Agent as its agent and
attorney to act for it as provided in the next preceding sentence.


 


10.11  Status of Successor
Collateral Agent.  Every successor
Collateral Agent appointed pursuant to Section 10.10(b) shall be a
bank or trust company in good standing and having power to act as Collateral
Agent hereunder, incorporated under the laws of the United States of America or
any State thereof or the District of Columbia and having its principal
corporate trust office within the 48 contiguous States and shall also have
capital, surplus and undivided profits of not less than $100,000,000, if there
be such an institution with such capital, surplus and undivided profits
willing, qualified and able to accept the trust hereunder upon reasonable or
customary terms.


 


32

















 


10.12  Merger of the Collateral
Agent.  Any corporation into which
the Collateral Agent may be merged, or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Collateral
Agent shall be a party, shall be Collateral Agent under this Agreement without
the execution or filing of any paper or any further act on the part of the
parties hereto.


 


10.13  Co-Collateral Agent;
Separate Collateral Agent.  (a)  If
at any time or times it shall be necessary or prudent in order to conform to
any law of any jurisdiction in which any of the Collateral shall be located, or
to avoid any violation of law or imposition on the Collateral Agent of taxes by
such jurisdiction not otherwise imposed on the Collateral Agent, or the
Collateral Agent shall be advised by Opinion of Counsel that it is necessary or
prudent in the interest of the Secured Parties or the Collateral Agent shall
deem it desirable for its own protection in the performance of its duties
hereunder, the Collateral Agent and each of the Grantors shall execute and
deliver all instruments and agreements necessary or proper to constitute
another bank or trust company, or one or more persons approved by the
Collateral Agent and the Grantors, either to act as Collateral Agent or
co-Collateral Agents of all or any of the Collateral under this Agreement,
jointly with the Collateral Agent originally named herein or therein or any
successor Collateral Agent, or to act as separate Collateral Agent or
Collateral Agents of any of the Collateral. If any of the Grantors shall not
have joined in the execution of such instruments and agreements within 10 days
after it receives a written request from the Collateral Agent to do so, or if
an Event of Default has occurred and is continuing, the Collateral Agent may
act under the foregoing provisions of this Section 10.13(a) without
the concurrence of such Grantors and execute and deliver such instruments and
agreements on behalf of such Grantors. Each of the Grantors hereby appoints the
Collateral Agent as its agent and attorney to act for it under the foregoing
provisions of this Section 10.13(a) in either of such contingencies.


 


(b)  Every separate Collateral
Agent and every co-Collateral Agent, other than any successor Collateral Agent
appointed pursuant to Section 10.10(b), shall, to the extent permitted by
law, be appointed and act and be such, subject to the following provisions and
conditions:


 


(i)            all rights, powers, duties
and obligations conferred upon the Collateral Agent in respect of the custody,
control and management of moneys, papers or securities shall be exercised
solely by the Collateral Agent or any agent appointed by the Collateral Agent;


 


(ii)           all rights, powers, duties
and obligations conferred or imposed upon the Collateral Agent hereunder shall
be conferred or imposed and exercised or performed by the Collateral Agent and
such separate Collateral Agent or separate Collateral Agents or co-Collateral
Agent or co-Collateral Agents, jointly, as shall be provided in the instrument
appointing such separate Collateral Agent or separate Collateral Agents or
co-Collateral Agent or co-Collateral Agents, except to the extent that under
any law of any jurisdiction in which any particular act or acts are to be
performed the Collateral Agent shall be incompetent or unqualified to perform
such act or acts, or unless the performance of such act or acts would result in
the imposition of any tax on the Collateral Agent which would not be imposed
absent such joint act or acts, in which event such rights, powers, duties and
obligations shall be exercised and performed by such separate Collateral Agent
or separate Collateral Agents or co-Collateral Agent or co-Collateral Agents;


 


33

















 


(iii)          no power given hereby to, or
which it is provided herein or therein may be exercised by, any such
co-Collateral Agent or co-Collateral Agents or separate Collateral Agent or
separate Collateral Agents shall be exercised hereunder or thereunder by such
co-Collateral Agent or co-Collateral Agents or separate Collateral Agent or
separate Collateral Agents except jointly with, or with the consent in writing
of, the Collateral Agent, anything contained herein to the contrary notwithstanding;


 


(iv)          no Collateral Agent
hereunder shall be personally liable by reason of any act or omission of any
other Collateral Agent hereunder; and


 


(v)           the Company and the
Collateral Agent, at any time by an instrument in writing executed by them jointly,
may accept the resignation of or remove (for any reason or no reason at all)
any such separate Collateral Agent or co-Collateral Agent and, in that case by
an instrument in writing executed by them jointly, may appoint a successor to
such separate Collateral Agent or co-Collateral Agent, as the case may be,
anything contained herein to the contrary notwithstanding. If the Company shall
not have joined in the execution of any such instrument within 10 days after it
receives a written request from the Collateral Agent to do so, or if an Event
of Default has occurred and is continuing, the Collateral Agent shall have the
power to accept the resignation of or remove any such separate Collateral Agent
or co-Collateral Agent and to appoint a successor without the concurrence of
the Company, the Company hereby appointing the Collateral Agent its agent and
attorney to act for it in such connection in such contingency. If the
Collateral Agent shall have appointed a separate Collateral Agent or separate
Collateral Agents or co-Collateral Agent or co-Collateral Agents as above
provided, the Collateral Agent may at any time, by an instrument in writing,
accept the resignation of or remove any such separate Collateral Agent or
co-Collateral Agent and the successor to any such separate Collateral Agent or
co-Collateral Agent shall be appointed by the Company and the Collateral Agent,
or by the Collateral Agent alone pursuant to this Section 10.13(b).


 


10.14  Treatment of Payee or
Indorsee by Collateral Agent;  Representatives
of Secured Parties.  (a)  The
Collateral Agent may treat the registered holder or, if none, the payee or
indorsee of any promissory note or debenture evidencing an Obligation as the
absolute owner thereof for all purposes and shall not be affected by any notice
to the contrary, whether such promissory note or debenture shall be past due or
not.


 


(b)  Any Person that shall be
designated as the duly authorized representative of one or more Secured Parties
to act as such in connection with any matters pertaining to this Agreement, any
other Note Document or the Collateral shall present to the Collateral Agent
such documents, including, without limitation, Opinions of Counsel, as the
Collateral Agent may reasonably require, in order to demonstrate to the
Collateral Agent the authority of such Person to act as the representative of
such Secured Parties.


 


SECTION 11.  MISCELLANEOUS


 


11.1  Notices.  Unless otherwise specified herein, all
notices, requests, demands or other communications given to any of the Grantors
or the Collateral Agent shall be given in writing or by 


 


34

















 


facsimile transmission and
shall be deemed to have been duly given when personally delivered or when duly
deposited in the mails, registered or certified mail postage prepaid, or when
transmitted by facsimile transmission, addressed to such party at its address
specified on Schedule 1 hereof, in the case of the Grantors, or on the
signature pages thereof, in the case of the Collateral Agent, or any other
address which such party shall have specified as its address for the purpose of
communications hereunder, by notice given in accordance with this Section 11.1
to the party sending such communication; provided that any notice,
request or demand to the Collateral Agent shall not be effective until received
by the Collateral Agent in writing or by facsimile transmission in the
corporate trust administration at the office designated by it pursuant to this Section 11.1.


 


11.2  Amendments in Writing.  (a)  The Collateral Agent and the
Grantors may, from time to time, enter into written agreements supplemental
hereto for the purpose of amending, modifying or adding to, or waiving any
provisions of, this Agreement or changing in any manner the rights of the
Collateral Agent, the Secured Parties or the Grantors hereunder in accordance
with and subject to the terms set forth in Article IX of the Indenture.
Notwithstanding the foregoing, such supplemental agreements shall not amend,
modify or waive any provision of Section 9 or 10 or alter the duties,
rights or obligations of the Collateral Agent hereunder without the written
consent of the Collateral Agent.


 


(b)  Without the consent of any
Secured Party, the Collateral Agent and any of the Grantors, at any time and
from time to time, may in accordance with Section 9.1 of the Indenture
enter into one or more agreements supplemental hereto, in form satisfactory to
the Collateral Agent, (i) to add to the covenants of such Grantor for the
benefit of the Secured Parties or to surrender any right or power herein
conferred upon such Grantor; (ii) to mortgage or pledge to the Collateral
Agent, or grant a security interest in favor of the Collateral Agent in, any
types or items of property or assets that constitute types or items of property
or assets included in the definition of Collateral as additional security for
the Obligations; (iii) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
herein or therein, or to make any other provision with respect to matters or
questions arising hereunder which shall not be inconsistent with any provision
hereof; provided that any such action contemplated by this clause (iii) shall
not adversely affect the interests of the Secured Parties; or (iv) to the
extent that the pledge of any Capital Stock results in the Company being
required to file separate financial statements of any Subsidiary of the Company
with the Securities and Exchange Commission pursuant to Rule 3-10 or Rule 3-16
of Regulation S-X under the Securities Act, to release such Capital Stock from
the Collateral but only to the extent necessary for the Company not to be
subject to such filing requirement.


 


(c)  The Collateral Agent may, but
shall not be obligated to, enter into any supplemental agreement pursuant to
this Section 11.2 that would adversely affect its interests hereunder.


 


11.3  No Waiver by Course of
Conduct; Cumulative Remedies. 
Neither the Collateral Agent nor any Secured Party shall by any act
(except by a written instrument pursuant to Section 11.2), delay,
indulgence, and omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any default or event of default under
the Note Documents No failure to exercise, nor any delay in exercising, on the
part of the Collateral Agent or any Secured Party, any right, power or
privilege hereunder or under any other Note Document shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder or under any other Note Document shall preclude any other or further
exercise thereof or the exercise of any other 


 


35

















 


right, power or privilege. A
waiver by the Collateral Agent or any Secured Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Collateral Agent or such Secured Party would otherwise have on
any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.


 


11.4  Enforcement Expenses.  (a)  Each Grantor agrees to pay or
reimburse each Secured Party and the Collateral Agent for all its costs and
expenses incurred in enforcing or preserving any rights under this Agreement,
the other Note Documents and the Secured Debt Documents to which such Grantor
is a party, including, without limitation, the fees and disbursements of
counsel to each Secured Party and of counsel to the Collateral Agent.


 


(b)  The agreements in this Section 11.4
shall survive repayment of the Obligations and all other amounts payable under
the Note Documents.


 


11.5  Successors and Assigns.  This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Collateral Agent and the Secured Parties and their successors and assigns; provided
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Collateral Agent.


 


11.6  Counterparts.  This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.


 


11.7  Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.


 


11.8  Section Headings.  The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.


 


11.9  Integration.  This Agreement, the Mortgages, the Note
Documents and the Intercreditor Agreement represent the agreement of the
Grantors, the Collateral Agent and the Secured Parties with respect to the
subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent or any Secured Party
related to the subject matter hereof and thereof not expressly set forth or
referred to herein or in the Note Documents and the Intercreditor Agreement.


 


11.10  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.


 


11.11  Submission To
Jurisdiction; Waivers.  Each Grantor
hereby irrevocably and unconditionally:


 


36

















 


(i)            submits for itself and its
property in any legal action or proceeding relating to this Agreement and the
Note Documents to which it is a party, or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America
for the Southern District of New York, and appellate courts from any thereof;


 


(ii)           consents that any such
action or proceeding may be brought in such courts and waives any objection
that it may now or hereafter have to the venue of any such action or proceeding
in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;


 


(iii)          agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Grantor at its address referred to in Section 11.1
or at such other address of which the Collateral Agent shall have been notified
pursuant thereto;


 


(iv)          agrees that nothing herein
shall affect the right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction; and


 


(v)           waives, to the maximum
extent not prohibited by law, any right it may have to claim or recover in any
legal action or proceeding referred to in this Section any special,
exemplary, punitive or consequential damages.


 


11.12  Acknowledgements.  Each Grantor hereby acknowledges that:


 


(i)            it has been advised by
counsel in the negotiation, execution and delivery of this Agreement, the other
Note Documents and the other Secured Debt Documents to which it is a party;


 


(ii)           neither the Collateral Agent
nor any Secured Party has any fiduciary relationship with or duty to any
Grantor arising out of or in connection with this Agreement, any of the other
Note Documents or any of the Secured Debt Documents, and the relationship
between the Grantors, on the one hand, and the Collateral Agent and Secured
Parties, on the other hand, in connection herewith or therewith is solely that
of debtor and creditor; and


 


(iii)          no joint venture is created
hereby or by the Note Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Secured Parties or among the
Grantors and the Secured Parties.


 


11.13  Additional
Grantors.  Each Subsidiary of the
Company that is required to become a party to this Agreement pursuant to any
Note Document shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex 1 hereto.


 


37

















 


11.14  Releases; Termination of
Security Interests.  (a)  The
Liens on the Collateral shall be released at the times, and to the extent,
provided under Section 11.6 of the Indenture; provided, that the
provisions of Sections 9.2, 9.3, 9.4 and 9.5 shall not be affected by any such
termination. At the request and sole expense of any Grantor following any such
termination, the Collateral Agent shall deliver to such Grantor any Collateral
held by the Collateral Agent hereunder, and execute and deliver to such Grantor
such documents as such Grantor shall reasonably request to evidence such
termination.


 


(b)  By acceptance of the benefits
hereof, each Secured Party acknowledges and consents to the provisions of this Section 11.14,
agrees that the Collateral Agent shall incur no liability whatsoever to any
Secured Party for any release effected by the Collateral Agent in accordance
with this Section 11.14.


 


11.15  Reinstatement.  Each Grantor agrees that if any payment made
by a Grantor or other Person and applied to the Obligations is at any time
annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent
or preferential or otherwise required to be refunded or repaid, or is required
to be paid to the Collateral Agent or any other Secured Party pursuant to the
terms hereof, for application in accordance with the priorities set forth
herein, or the proceeds of Collateral are required to be returned by any
Secured Party to such Grantor, its estate, trustee, receiver or any other
Person under any Requirement of Law of any Governmental Authority, then to the
extent of such payment or repayment, any Lien or other Collateral securing such
Obligation shall be and remain in full force and effect as fully as if such
payment had never been made or, if prior thereto the Lien granted hereby or by
any other Collateral Document or other Collateral securing such Obligation
hereunder shall have been released or terminated by virtue of such cancellation
or surrender, such Lien or other Collateral shall be reinstated in full force
and effect, and such prior cancellation or surrender shall not diminish,
release, discharge, impair or otherwise affect any Lien or other Collateral
securing the Obligations of any Grantor in respect of the amount of such
payment.


 


11.16  WAIVER OF
JURY TRIAL.  EACH
GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY SECURED DEBT
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.


 


38

















 


IN WITNESS WHEREOF, each of the undersigned has
caused this Security Agreement to be duly executed and delivered as of the date
first above written.


 


	
   

  	
   

  	
  CELLU
  TISSUE HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU
  TISSUE CORPORATION - NATURAL DAM

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU
  TISSUE CORPORATION - NEENAH

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU
  TISSUE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COASTAL
  PAPER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  Van Paper Company, its managing partner

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INTERLAKE
  ACQUISITION CORPORATION LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MENOMINEE
  ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  



 

















 


	
   

  	
   

  	
  VAN
  PAPER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  VAN
  TIMBER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Dianne M. Scheu

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Financial Office

  
	
   

  	
   

  	
   

  
	
  Acknowledged
  and Agreed to as of the date first above written:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  THE
  BANK OF NEW YORK TRUST COMPANY, as Collateral Agent

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:  Peter Murphy

  	
   

  	
   

  
	
   

  	
  Title:  Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address
  for Notices:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  222
  Berkley Street, 2nd Floor

  	
   

  	
   

  
	
  Boston,
  Massachusetts 02116

  	
   

  	
   

  
	
  Facsimile:  (617) 351-2401

  	
   

  	
   

  
	
  Attention:  Peter Murphy

  	
   

  	
   

  



 

















 


Schedule 1


 


NOTICE ADDRESSES


 


Cellu Tissue Holdings, Inc.

3440 Francis Road

Alpharetta, GA 30004


 


Cellu Tissue LLC

2 Forbes Street

East Hartford, CT 06108


 


Cellu Tissue Corporation - Natural Dam

4921 Route 58 North

Gouverneur, NY 13642


 


Cellu Tissue Corporation - Neenah

249 North Lake Street

Neenah, WI 54956


 


Coastal Paper Company

1321 South Magnolia Drive

Wiggins, MS 39577


 


Van Paper Company

1321 South Magnolia Drive

Wiggins, MS 39577


 


Van Timber Company

1321 South Magnolia Drive

Wiggins, MS 39577


 


Menominee Acquisition
Corporation

144 First Street

Menominee, MI 49858


 


Interlake Acquisition
Corporation Limited

45 Merritt Street

St. Catharines, Ontario, CANADA

L2T 134


 














 


Schedule 2


 


INVESTMENT PROPERTY


 


	
  Grantor(s)

  	
   

  	
  Issuer

  	
   

  	
  Pledged Interest

  	
   

  	
  Percentage

  Issued and

  Outstanding

  	
   

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Cellu
  Tissue LLC

  	
   

  	
  100%
  of membership interests

  	
   

  	
  100

  	
   

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Cellu Tissue Corporation - Natural Dam

  	
   

  	
  1,000 Common Shares, $0.01 par

  	
   

  	
  100

  	
   

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Cellu
  Tissue Corporation - Neenah

  	
   

  	
  700
  Common Shares, $0.01 par

  	
   

  	
  100

  	
   

  
	
  Van Paper Company

  	
   

  	
  Coastal Paper Company

  	
   

  	
  99% of partnership
  interests

  	
   

  	
  99

  	
   

  
	
  Van
  Timber Company

  	
   

  	
  Coastal
  Paper Company

  	
   

  	
  1%
  of partnership interests

  	
   

  	
  1

  	
   

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Interlake Acquisition Corporation Limited

  	
   

  	
  1,000
  Common Shares, no par

  	
   

  	
  100

  	
   

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Menominee
  Acquisition Corporation

  	
   

  	
  1,000 Common Shares, $0.01 par

  	
   

  	
  100

  	
   

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Van
  Paper Company

  	
   

  	
  10,000
  Common Shares

  	
   

  	
  100

  	
   

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Van
  Timber Company

  	
   

  	
  1,000
  Common Shares

  	
   

  	
  100

  	
   

  



 

















 


Schedule 3


 


PERFECTION MATTERS


 


	
  Grantor

  	
   

  	
  Filing Office(s)

  
	
  Cellu
  Tissue Holdings, Inc.

  	
   

  	
  Delaware
  - Secretary of
  State

  
	
  Cellu
  Tissue LLC

  	
   

  	
  Delaware
  - Secretary of
  State

  
	
  Cellu
  Tissue Corporation - Natural Dam

  	
   

  	
  Delaware
  - Secretary of
  State

  
	
  Cellu
  Tissue Corporation - Neenah

  	
   

  	
  Delaware
  - Secretary of
  State

  
	
  Menominee
  Acquisition Corporation

  	
   

  	
  Delaware
  - Secretary of
  State

  
	
  Van
  Paper Company

  	
   

  	
  Mississippi
  - Secretary of
  State

  
	
  Van
  Timber Company

  	
   

  	
  Mississippi
  - Secretary of
  State

  
	
  Coastal
  Paper Company

  	
   

  	
  Mississippi
  - Secretary of
  State

  Virginia - Secretary of State

  
	
  Interlake
  Acquisition Corporation Limited

  	
   

  	
  District of Columbia - Secretary of
  State Nova Scotia Province, Canada Ontario Province, Canada

  



 

















 


Schedule 4


 


JURISDICTIONS OF ORGANIZATION AND CHIEF
EXECUTIVE OFFICES


 


Cellu Tissue Holdings, Inc.

333 East River Drive

East Hartford, CT 06108


 


Jurisdiction of Organization:  Delaware

Organizational ID:  2293394


 


Cellu Tissue LLC

2 Forbes Street

East Hartford, CT 06108


 


Jurisdiction of Organization:  Delaware

Organizational ID:  2029001


 


Cellu Tissue Corporation - Natural Dam

4921 Route 58 North

Gouverneur, NY 13642


 


Jurisdiction of Organization:  Delaware

Organizational ID:  2863273


 


Cellu Tissue Corporation - Neenah

249 North Lake Street

Neenah, WI 54956


 


Jurisdiction of Organization:  Delaware|

Organizational ID:  3522616


 


Coastal Paper Company

1321 South Magnolia Drive

Wiggins, MS 39577


 


Jurisdiction of Organization:  Virginia

Organizational ID:  N/A


 


Van Paper Company

1321 South Magnolia Drive

Wiggins, MS 39577


 


Jurisdiction of Organization:  Mississippi

Organizational ID:  0580737


 

















 


Van Timber Company

1321 South Magnolia Drive

Wiggins, MS 39577


 


Jurisdiction of Organization:  Mississippi

Organizational ID:  0605033


 


Menominee Acquisition
Corporation

144 First Street

Menominee, MI 49858


 


Jurisdiction of Organization:  Delaware

Organizational ID:  2858864


 


Interlake Acquisition
Corporation Limited

45 Merritt Street

St. Catharines, Ontario, CANADA

L2T 1 J4


 


Jurisdiction of Organization:  Nova Scotia

Organizational ID:  3017493


 

















 


Schedule 5


 


INVENTORY AND EQUIPMENT LOCATIONS


 


	
  Cellu Tissue LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2 Forbes Street

  	
  Eastern Park Warehouse

  	
  C&M Warehouse

  
	
  East Hartford, CT 06108

  	
  12 Eastern Park Road East

  	
  95 Leggett Street

  
	
   

  	
  Hartford, CT 06108

  	
  East Hartford, CT 06108

  



 


Cellu
Tissue Corporation - Natural Dam


 


4921
Route 58 North


Gouverneur,
NY 13842


 


Cellu
Tissue Corporation - Neenah


 


249
North Lake Street


Neenah,
WI 54956


 


	
  Coastal Paper Company

  	
   

  
	
   

  	
   

  
	
  1321 South Magnolia Drive

  	
  John Fayard Warehouse

  
	
  Wiggins, MS 39577

  	
  1 Fastway Lane

  
	
   

  	
  Gulf Port, MS 39503

  



 


Menominee
Acquisition Corporation


 


144
First Street


Menominee,
MI 49858


 


Interlake
Acquisition Corporation Limited


 


	
  45 Merritt Street

  	
  CAT Warehouse

  	
  296 Collier Road

  
	
  St. Catharines, Ontario,

  	
  75 Rexdale Boulevard 

  	
  Thorold, Ontario, CANADA

  
	
  CANADA L2T 1J4

  	
  Etobicoke, Ontario, CANADA

  	
  L2V 5B6

  
	
   

  	
  M9W 1P1

  	
   

  



 

















 


Schedule 6


 


INTELLECTUAL PROPERTY


 


Menominee
Acquisition Corporation


 


1.             “WAXTEX”,
Trademark Registration No. 1,618,760, registered October 23, 1990;
International Class No. 16 for waxed paper.


 


Cellu
Tissue Corporation - Neenah


 


1.             “MAGIC SOFT”,
Trademark Registration No. 2,080,681, registered July 22, 1997;
International Class No. 16 for facial tissue.


 


2.             “MAGIC SOFT”,
Trademark Registration No. 2,022,635, registered December 10, 1996;
International Class No. 16 for paper towels, paper napkins and
bathroom tissue.


 


Interlake
Acquisition Corporation Limited


 


1.             “INTERLAKE”,
Canadian Trademark Registration No. TMA5 18841, registered October 28,
1999; International Class Nos. 7, 16, 17 and 24 for sanitary tissues;
industrial and commercial paper wipers; towels and napkins, etc.


 


2.             “INTERLAKE”,
Trademark Registration No. 2,584,184, registered June 25, 2002;
International Class No. 16 for paper towels; paper napkins; paper
bags and paper boxes for packaging by the food industry; filter paper; bathroom
and facial tissue; toilet seat cover paper; printed wrapping paper; wax paper;
paper packaging materials, namely, interleaving paper; laminated paper and
cellulose wiper paper for industrial use.


 


3.             “INTERLAKE
PAPER”, Trademark Registration No. 2,568,785, registered May 14,
2002; International Class No. 16 for industrial and commercial
disposable paper wipers not impregnated with chemicals or compounds; paper
towels; paper napkins; paper for wrapping and packaging; filter paper; etc.


 

















 


Cellu
Tissue Corporation - Natural Dam


Key
Bank of New York


62
Church Street


Gouverneur,
NY 13642-1424


Account:  322140014422


 


Cellu
Tissue Corporation - Neenah


Wells
Fargo Bank Michigan, N.A.


1329
8th Avenue


Menominee,
MI 49858


Account:  752-610030


 


Coastal
Paper Company


Bank
of Wiggins


P.O. Drawer
67


Wiggins,
MS 39577


Account:  541-7171


 


Menominee
Acquisition Corporation


Wells
Fargo Bank Michigan, N.A.


1329
8th Avenue


Menominee,
MI 49858


Account:  788-0181921


 


Interlake
Acquisition Corporation Limited


Canadian
Imperial Bank of Commerce Accounts


15
Front Street N.


Thorold,
Ontario, CANADA 12V 1X3


Account:  02572-50-01110


 

















 


Annex 1 to


Security Agreement


 


ASSUMPTION AGREEMENT, dated as of
                  ,
200  , made by
                                                
(the “Additional Grantor”), in favor of THE BANK OF NEW YORK TRUST
COMPANY, as collateral agent (in such capacity, the “Collateral Agent”)
for the Secured Parties. All capitalized terms not defined herein shall have
the meaning ascribed to them in the Security Agreement referred to below.


 


W I T N E S S E T H:


 


WHEREAS, Cellu Tissue Holdings, Inc. (the “Company”),
certain of its subsidiaries and the Collateral Agent have entered into an
Amended and Restated Security Agreement, dated as of
                    ,
2006 (as amended, supplemented or otherwise modified from time to time, the “Security
Agreement”);


 


WHEREAS, the Security Agreement requires the
Additional Grantor to become a party to the Security Agreement; and


 


WHEREAS, the Additional Grantor has agreed to
execute and deliver this Assumption Agreement in order to become a party to the
Security Agreement;


 


NOW, THEREFORE, IT IS AGREED:


 


1.             Security
Agreement.  By executing and
delivering this Assumption Agreement, the Additional Grantor, as provided in Section 11.13
of the Security Agreement, hereby becomes a party to the Security Agreement as
a Grantor thereunder with the same force and effect as if originally named
therein as a Grantor and, without limiting the generality of the foregoing,
hereby expressly assumes all obligations and liabilities of a Grantor
thereunder. The information set forth in Annex 1-A hereto is hereby added to
the information set forth in the Schedules to the Security Agreement. The
Additional Grantor hereby represents and warrants that each of the representations
and warranties contained in Section 4 of the Security Agreement is true
and correct on and as the date hereof (after giving effect to this Assumption
Agreement) as if made on and as of such date.


 


2.             Governing Law.  THIS ASSUMPTION
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.


 


IN WITNESS WHEREOF, the undersigned has caused this
Assumption Agreement to be duly executed and delivered as of the date first
above written.


 


	
   

  	
  [ADDITIONAL
  GRANTOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 

















 


Annex 1-A to


Assumption Agreement


 


Supplement to Schedule 1


 


 


Supplement to Schedule 2


 


 


Supplement to Schedule 3


 


 


Supplement to Schedule 4


 


 


Supplement to Schedule 5


 


 


Supplement to Schedule 6


 


 


Supplement to Schedule 7


 

















 


Annex 2 to


Security Agreement


 


ACKNOWLEDGEMENT AND CONSENT


 


The undersigned hereby acknowledges receipt
of a copy of the Amended and Restated Security Agreement dated as of
                  ,
2006 (the “Agreement”), among the Grantors parties thereto, the Secured
Parties named therein and The Bank of New York Trust Company, N.A., as
Collateral Agent. The undersigned agrees for the benefit of the Collateral
Agent and the Secured Parties as follows:


 


1.             The
undersigned will be bound by the terms of the Agreement and will comply with
such terms insofar as such terms are applicable to the undersigned.


 


2.                             The
undersigned will notify the Collateral Agent promptly in writing of the
occurrence of any of the events described in Section 5.6(a) of the Agreement.


 


3.                             The
terms of Sections 6.3(c) and 6.6 of the Agreement shall apply to it, mutatis
mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(c) or 6.6 of the Agreement.


 


	
   

  	
  [NAME
  OF ISSUER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address
  for Notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Fax: