**Exhibit 10.10**

 

 

 

SECURITY AGREEMENT

 

By

 

POLYMER GROUP, INC.

 

and

 

THE DOMESTIC SUBSIDIARIES PARTY HERETO,as Grantors,

 

and

 

CITICORP NORTH AMERICA, INC.,as Collateral Agent

 

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Dated as of November 22, 2005

 

 

 

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TABLE OF CONTENTS

 
| ** **                      | ** **                                                                             | **Page** |
|---------------------------------|----------------------------------------------------------------------------------------|----------|
|                            |                                                                                   |     |
| ARTICLE I                       |
|                            |                                                                                   |     |
| DEFINITIONS                     |
|                            |                                                                                   |     |
| SECTION  1.01.                  | Uniform Commercial Code Defined Terms                                                  | 2        |
| SECTION  1.02.                  | Credit Agreement Defined Terms                                                         | 2        |
| SECTION  1.03.                  | Definition of Certain Terms Used Herein                                                | 2        |
| SECTION  1.04.                  | Rules of Construction                                                                  | 8        |
|                            |                                                                                   |     |
| ARTICLE II                      |
|                            |                                                                                   |     |
| SECURITY  INTERESTS             |
|                            |                                                                                   |     |
| SECTION  2.01.                  | Security Interests                                                                     | 8        |
| SECTION  2.02.                  | No Assumption of Liability                                                             | 8        |
|                            |                                                                                   |     |
| ARTICLE III                     |
|                            |                                                                                   |     |
| REPRESENTATIONS  AND WARRANTIES |
|                            |                                                                                   |     |
| SECTION  3.01.                  | Title and Authority                                                                    | 8        |
| SECTION  3.02.                  | Filings                                                                                | 8        |
| SECTION  3.03.                  | Validity of Security Interests                                                         | 9        |
| SECTION  3.04.                  | Limitations on and Absence of Other Liens                                              | 9        |
| SECTION  3.05.                  | Other Actions                                                                          | 10       |
| SECTION  3.06.                  | Condition and Maintenance of Equipment.                                                | 13       |
| SECTION  3.07.                  | No Conflicts, Consents, etc.                                                           | 13       |
|                            |                                                                                   |     |
| ARTICLE IV                      |
|                            |                                                                                   |     |
| COVENANTS                       |
|                            |                                                                                   |     |
| SECTION  4.01.                  | Change of Name; Location of Collateral;  Records; Place of Business                    | 13       |
| SECTION  4.02.                  | Protection of Security                                                                 | 13       |
| SECTION  4.03.                  | Further Assurances                                                                     | 14       |
| SECTION  4.04.                  | Inspection and Verification                                                            | 14       |
| SECTION  4.05.                  | Taxes; Encumbrances                                                                    | 14       |
| SECTION  4.06.                  | Assignment of Security Interest                                                        | 14       |
| SECTION  4.07.                  | Continuing Obligations of the Grantors                                                 | 14       |
| SECTION  4.08.                  | Use and Disposition of Collateral                                                      | 14       |
| SECTION  4.09.                  | Limitation on Modification of Accounts                                                 | 14       |
| SECTION  4.10.                  | Insurance                                                                              | 15       |
| SECTION  4.11.                  | Certain Covenants and Provisions Regarding  Patent, Trademark and Copyright Collateral | 15       |

 

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| ARTICLE V             |
|-----------------------|
|                  |   |   |
| REMEDIES              |
|                  |   |   |
| SECTION  5.01.        | Remedies upon Default | 17 |
| SECTION  5.02.        | Application of Proceeds | 18 |
| SECTION  5.03.        | Collateral Agent’s Calculations | 19 |
| SECTION  5.04.        | Grant of License to Use Intellectual  Property | 19 |
|                  |   |   |
| ARTICLE VI            |
|                  |   |   |
| COLLATERAL  ACCOUNT   |
|                  |   |   |
| SECTION  6.01.        | Establishment of Collateral Account | 20 |
| SECTION  6.02.        | Proceeds of Destruction, Taking and  Excluded Asset Sale | 20 |
|                  |   |   |
| ARTICLE VII           |
|                  |   |   |
| The  Collateral Agent |
|                  |   |   |
| SECTION  7.01.        | General Authority of the Collateral Agent  over the Collateral | 21 |
| SECTION  7.02.        | Exercise of Powers | 21 |
| SECTION  7.03.        | Remedies Not Exclusive | 21 |
| SECTION  7.04.        | Waiver and Estoppel | 22 |
| SECTION  7.05.        | Limitation on Collateral Agent’s Duty in  Respect of Collateral | 22 |
| SECTION  7.06.        | Limitation by Law | 22 |
| SECTION  7.07.        | Rights of Secured Parties in Respect of  Obligations | 22 |
| SECTION  7.08.        | Compensation and Expenses | 23 |
| SECTION  7.09.        | Stamp and Other Similar Taxes | 23 |
| SECTION  7.10.        | Filing Fees, Excise Taxes, etc. | 23 |
| SECTION  7.11.        | Indemnification | 23 |
|                  |   |   |
| ARTICLE VIII          |
|                  |   |   |
| MISCELLANEOUS         |
|                  |   |   |
| SECTION  8.01.        | Notices | 24 |
| SECTION  8.02.        | Survival of Agreement | 24 |
| SECTION  8.03.        | Binding Effect | 24 |
| SECTION  8.04.        | Successors and Assigns | 24 |
| SECTION  8.05.        | GOVERNING LAW | 24 |
| SECTION  8.06.        | Waivers; Amendment; Several Agreement | 24 |
| SECTION  8.07.        | WAIVER OF JURY TRIAL | 25 |
| SECTION  8.08.        | Severability | 25 |
| SECTION  8.09.        | Counterparts | 25 |
| SECTION  8.10.        | Headings | 25 |
| SECTION  8.11.        | Jurisdiction; Consent to Service of Process | 25 |
| SECTION  8.12.        | Termination | 26 |
| SECTION  8.13.        | Additional Grantors | 26 |
| SECTION  8.14.        | Financing Statements | 27 |
| SECTION  8.15.        | No Deemed Dividend. | 27 |

 

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| SECTION  8.16. | Collateral Agent Appointed Attorney-in-Fact | 27     |
|----------------|---------------------------------------------|--------|
|           |                                        |   |
| SCHEDULES      |
|           |                                        |   |
| Schedule I     | Domestic Subsidiaries                       |   |
|           |                                        |   |
| ANNEXES        |
|           |                                        |   |
| Annex I        | Form of Joinder Agreement                   |   |
| Annex II       | Form of Perfection Certificate              |   |
| Annex III      | Form of Bailee Letter                       |   |

 

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SECURITY AGREEMENT

 

SECURITYAGREEMENT (as amended, amended and restated, supplemented or otherwise modifiedfrom time to time, this “Agreement”) dated as of November 22, 2005among POLYMER GROUP, INC., a Delaware corporation (the “Borrower”),each Domestic Subsidiary of the Borrower listed on Schedule Ihereto (collectively, together with each Domestic Subsidiary that becomes aparty hereto pursuant to Section 8.13 of this Agreement, the “SubsidiaryGuarantors” and, together with the Borrower, the “Grantors”), and CITICORPNORTH AMERICA, INC. (in such capacity, the “Collateral Agent”) onbehalf of the Secured Parties (as defined in the Credit Agreement) pursuant tothe Credit Agreement (as hereinafter defined), as pledgee, assignee and securedparty.

 

RECITALS

 

A.                                   TheBorrower, the Collateral Agent, Citicorp North America, Inc., asadministrative agent  (in such capacityand together with any successors in such capacity, the “Administrative Agent”)for the Lenders (as defined herein), as documentation agent (in such capacity,the “Documentation Agent”) and as syndication agent (in such capacity,the “Syndication Agent”), and Citigroup Global Markets Inc. (“CGMI”),as sole lead arranger and sole bookrunner (in such capacity, the “Lead Arranger”),and the lending institutions from time to time party thereto (the “Lenders”)have, in connection with the execution and delivery of this Agreement, enteredinto that certain credit agreement, dated as of the date hereof (as amended,amended and restated, supplemented or otherwise modified from time to time, the“Credit Agreement”), providing for the making of Loans to the Borrowerand the issuance of and participations in Letters of Credit for the account ofthe Borrower, pursuant to, and upon the terms and subject to the conditionsspecified in, the Credit Agreement.

 

B.                                     EachSubsidiary Guarantor has, pursuant to the Guarantee Agreement, dated as of thedate hereof, among other things, unconditionally guaranteed the obligations ofthe Borrower under the Credit Agreement.

 

C.                                     TheBorrower and each Subsidiary Guarantor will receive substantial benefits fromthe execution, delivery and performance of the obligations under the CreditAgreement and is, therefore, willing to enter into this Agreement.

 

D.                                    Itis contemplated that, to the extent permitted by the Credit Agreement, one ormore of the Grantors may enter into one or more Hedging Agreements withone or more Persons that were Lenders or Affiliates of a Lender at the timesuch Hedging Agreements were entered into (collectively, the “Hedging Exchangers”) fixing interest ratesrelating to the Loans.

 

E.                                      Contemporaneouslywith the execution and delivery of this Agreement, the Borrower and certainSubsidiary Guarantors have executed and delivered to the Collateral Agent aPledge Agreement (as amended, amended and restated, supplemented or otherwisemodified from time to time, the “Pledge Agreement”).

 

F.                                      ThisAgreement is given by each Grantor in favor of the Collateral Agent for thebenefit of the Secured Parties (as hereinafter defined) to secure the paymentand performance of all of the Obligations (as hereinafter defined).

 

NOW THEREFORE,in consideration of the foregoing and other benefits accruing each Grantor, thereceipt and sufficiency of which are hereby acknowledged, each Grantor herebymakes the following

 

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representationsand warranties to the Collateral Agent for the benefit of the Secured Parties(and each of their respective successors and assigns), as follows:

 

# ARTICLE I

#  

# DEFINITIONS

#  

## SECTION 1.01.                 *Uniform Commercial Code Defined Terms.*Unless otherwisedefined herein, terms used herein that are defined in the UCC shall have themeanings assigned to them in the UCC, including the following which are capitalizedherein:

 

“Accounts”; “Bank”; “Certificatesof Title”; “Chattel Paper”; “Commercial Tort Claim”; “CommodityAccount”; “Commodity Contract”; “Commodity Intermediary”; “DepositAccounts”; “Documents”; “Electronic Chattel Paper”; “EntitlementOrder”; “Equipment”; “Fixtures”; “Goods”; “Instruments”(as defined in Article 9 rather than Article 3); “Inventory”; “InvestmentProperty”; “Letter-of-Credit Rights”; “Letters of Credit”; “SecuritiesAccount”; “Securities Intermediary”; “Security Entitlement”; “SupportingObligations”; and “Tangible Chattel Paper”.

 

## SECTION 1.02.                 *Credit Agreement Defined Terms*. Capitalized terms used butnot otherwise defined herein that are defined in the Credit Agreement shallhave the meanings given to them in the Credit Agreement.

 

## SECTION 1.03.                 *Definition of Certain Terms Used Herein*. As used herein, thefollowing terms shall have the following meanings:

 

“AccountDebtor” shall mean any Person who is or who may become obligated toany Grantor under, with respect to or on account of an Account.

 

“AccountsReceivable” shall mean all Accounts and all right, title and interest inany returned goods, together with all rights, titles, securities and guaranteeswith respect thereto, including any rights to stoppage in transit,replevin, reclamation and resales, and all related security interests, liensand pledges, whether voluntary or involuntary, in each case whether nowexisting or owned or hereafter arising or acquired.

 

“BaileeLetter” shall mean an agreement in form substantially similar to AnnexIII hereto.

 

“Books andRecords” shall mean all instruments, files, records, ledger sheets anddocuments evidencing, covering or relating to any of the Collateral.

 

“Borrower”shall have the meaning assigned to such term in the preamble of this Agreement.

 

“Charges”shall mean any and all property and other taxes, assessments and specialassessments, levies, fees and all governmental charges imposed upon or assessedagainst, and all claims (including, without limitation, landlords’, carriers’,mechanics’, maritime, workmen’s, repairmen’s, laborers’, materialmen’s,suppliers’ and warehousemen’s Liens and other claims arising by operation oflaw) against, all or any portion of the Collateral.

 

“Collateral”shall mean with respect to each of the Grantors all of the following, in eachcase, whether now owned or hereafter acquired:

 

2

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(a)                                  Accounts Receivable;

 

(b)                                 Books and Records;

 

(c)                                  cash and DepositAccounts;

 

(d)                                 Chattel Paper;

 

(e)                                  Collateral Accountand Collateral Account Funds;

 

(f)                                    Commercial TortClaims described on Schedule 15 to the Perfection Certificate;

 

(g)                                 Documents;

 

(h)                                 Equipment;

 

(i)                                     Fixtures;

 

(j)                                     GeneralIntangibles;

 

(k)                                  Goods;

 

(l)                                     Instruments;

 

(m)                               Inventory;

 

(n)                                 Investment Property;

 

(o)                                 Letter-of-Credit Rights;

 

(p)                                 Letters of Credit;

 

(q)                                 SupportingObligations;

 

(r)                                    IntellectualProperty;

 

(s)                                     tothe extent not covered by clauses (a) through (r) of this definition,all other personal property, whether tangible or intangible; and

 

(s)                                  Proceedsof any and all of the foregoing;

 

providedthat, for purposes of this Agreement, “Collateral” shall not include anyExcluded Property.

 

“CollateralAccount” shall mean that collateral account established pursuant to Section 6.01of this Agreement.

 

“CollateralAccount Funds” shall mean, collectively, the following from time to time ondeposit in the Collateral Account:  allfunds, investments (including, without limitation, all Permitted Investments)and all certificates and instruments from time to time representing orevidencing such investments; all notes, certificates of deposit, checks andother instruments from time to time hereafter delivered to or otherwisepossessed by the Collateral Agent for or on behalf of any Grantor insubstitution for, or in addition to, any or all of the Collateral; and allinterest, dividends, cash, instruments and other property from

 

3

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time to timereceived, receivable or otherwise distributed in respect of or in exchange forany or all of the items constituting Collateral.

 

“CollateralAgent” shall have the meaning assigned to such term in the preamble of thisAgreement.

 

“CollateralAgent Fees” shall mean all fees, costs and expenses of the Collateral Agentof the****types described in****Sections7.08, 7.09, 7.10 and 7.11.

 

“CollateralEstate” shall have the meaning assigned in Section 7.01(c).

 

“Control”shall mean (i) in the case of each Deposit Account, “control,” as suchterm is defined in Section 9-104 of the UCC, (ii) in the case of anySecurity Entitlement, “control,” as such term is defined in Section 8-106(d) ofthe UCC, and (iii) in the case of any Commodity Contract, “control,” assuch term is defined in Section 9-106(b) of the UCC.

 

“ControlAgreement” shall mean an agreement in form and substance reasonablyacceptable to the Collateral Agent for the purpose of effecting Control withrespect to any Deposit Account, Securities Account or Commodity Account.

 

“CopyrightLicense” shall mean each written agreement, now or hereafter in effect,granting any right to any third party under any Copyright now or hereafterowned by any Grantor or which such Grantor otherwise has the right to license,or granting any right to such Grantor under any Copyright now or hereafterowned by any third party, and all rights of such Grantor under any suchagreement.

 

“Copyrights”shall mean, collectively, with respect to each Grantor, all copyrights (whetherstatutory or common law, whether established or registered in the United Statesby a Grantor or established or registered in any other country or any politicalsubdivision thereof by a Grantor if the beneficial interest is owned by suchGrantor, whether registered or unregistered and whether published orunpublished) and all copyright registrations and applications made by suchGrantor, in each case, whether now owned or hereafter created or acquired by orassigned to such Grantor, including, without limitation, the copyrights,registrations and applications listed in Schedule 14(b) of thePerfection Certificate, together with any and all (i) rights andprivileges arising under applicable law with respect to such Grantor’s use ofsuch copyrights, (ii) reissues, renewals, continuations and extensionsthereof, (iii) income, fees, royalties, damages, claims and payments nowor hereafter due and/or payable with respect thereto, including, withoutlimitation, damages and payments for past, present or future infringementsthereof, (iv) rights corresponding thereto throughout the world and (v) rightsto sue for past, present or future infringements thereof.

 

“CreditAgreement” shall have the meaning assigned to such term in the Recitals ofthis Agreement.

 

“DistributionDate” shall mean each date fixed by the Collateral Agent in its solediscretion for a distribution to the Secured Parties of funds held in theCollateral Account.

 

“ExchangeRate” shall mean,****at any date ofdetermination thereof with respect to any currency, the spot rate of exchangefor the conversion of such currency into dollars determined by reference tosuch rate publishing service as is customarily utilized by the Collateral Agentfor such purpose; provided that, to the extent that “Exchange Rate” isused herein to refer to an actual exchange by the Collateral Agent of onecurrency for another, “Exchange Rate” shall be deemed to refer to the rate atwhich such exchange actually occurs so long as such exchange is effected undercustomary market conditions. Any such determination of the Exchange Rate shallbe conclusive absent manifest error.

 

4

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“ExcludedAccount” shall mean (i) any petty cash Deposit Account, opened by anyGrantor; provided that average daily balance during any ten day periodof any such excluded petty cash Deposit Account, when aggregated with theaverage daily balance during any ten day period of all other excluded pettycash Deposit Accounts shall not exceed $100,000 and (ii) any DepositAccount used solely for payroll taxes or employee related benefit accounts.

 

“ExcludedProperty” shall mean:

 

(a)                                  anypermit, lease or license, or the assets (owned by a Person other than a LoanParty) subject thereto or covered thereby, held by any Grantor that validlyprohibits the creation by such Grantor of a security interest therein or thereon(other than to the extent that any such prohibition would be renderedineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (orany successor provision or provisions) of any relevant jurisdiction or anyother applicable law (including the Bankruptcy Code) or principles of equity);

 

(b)                                 anypermit, lease or license, or the assets (owned by a Person other than a LoanParty) subject thereto or covered thereby, held by any Grantor to the extentthat any Requirement of Law applicable thereto prohibits the creation of asecurity interest therein or thereon (other than to the extent that any suchprohibition would be rendered ineffective pursuant to Sections 9-406, 9-407,9-408 or 9-409 of the UCC (or any successor provision or provisions) of anyrelevant jurisdiction or any other applicable law (including the BankruptcyCode) or principles of equity);

 

(c)                                  goodsowned by any Grantor on the date hereof or hereafter acquired that are subjectto a Lien securing a purchase money obligation or Capital Lease Obligationpermitted to be incurred pursuant to the provisions of Section 6.01(vii) ofthe Credit Agreement if the contract or other agreement in which such Lien isgranted (or the documentation providing for such purchase money obligation orCapital Lease Obligation) validly prohibits the creation of any other Lien onsuch Goods;

 

(d)                                 anyIntellectual Property Collateral, including without limitation, intent-to-usetrademark applications, for which the creation by a Grantor of a securityinterest therein is prohibited (i) without the consent of third party, (ii) byRequirement of Law, or (iii) would otherwise result in the loss by anyLoan Party of any material rights therein (other than to the extent that anysuch prohibition would be rendered ineffective pursuant to Sections 9-406,9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) ofany relevant jurisdiction or any other applicable law (including the BankruptcyCode) or principles of equity);

 

(e)                                  SecuritiesCollateral (as defined in the Pledge Agreement);

 

(f)                                    anyEquity Interests pledged pursuant to any Non-U.S. Pledge Agreement; and

 

(g)                                 EquityInterests in PGI Nonwovens, B.V. held by Chicopee Holdings, B.V. on the datehereof;

 

providedthat the term “Excluded Property” shall not include any Proceeds, substitutionsor replacements of any Excluded Property (unless such Proceeds, substitutionsor replacements would constitute Excluded Property).

 

5

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“GeneralIntangibles” shall mean, collectively, all “general intangibles,” as suchterm is defined in the UCC, and in any event shall include, without limitation,all choses in action and causes of action and all other intangible personalproperty of any Grantor of every kind and nature now owned or hereafteracquired by any Grantor, including all rights and interests in partnerships,limited partnerships, limited liability companies and other unincorporatedentities, corporate or other business records, indemnification claims, contractrights (including rights under leases, whether entered into as lessor orlessee, Hedging Agreements and other agreements), Intellectual Property,goodwill, registrations, franchises and tax refund claims.

 

“Grantors”shall have the meaning assigned to such term in the preamble of this Agreement.

 

“HedgingExchangers” shall have the meaning assigned to such term in the Recitals ofthis Agreement.

 

“IntellectualProperty” shall mean all intellectual and similar property of any Grantorof every kind and nature now owned in the United States by a Grantor, or withrespect to any country other than the United States, established, registered orrecorded by a Grantor and beneficially owned by such Grantor, or hereafteracquired by any Grantor, including inventions, designs, Patents, Copyrights,Licenses, Trademarks, trade secrets, confidential or proprietary technical andbusiness information, know-how, show-how or other data or information, softwareand databases and all embodiments or fixations thereof and relateddocumentation, registrations and franchises, and all additions, improvementsand accessions to, and books and records describing or used in connection with,any of the foregoing.

 

“Lenders”shall have the meaning assigned to such term in the Recitals of this Agreement.

 

“License”shall mean any Patent License, Trademark License, Copyright License or otherlicense or sublicense to which any Grantor is a party, including, withoutlimitation, those listed on Schedules 14(a) and 14(b) ofthe Perfection Certificate (other than those license agreements in existence onthe date hereof and listed on Schedules 14(a) and 14(b) ofthe Perfection Certificate).

 

“PatentLicense” shall mean any written agreement, now or hereafter in effect,granting to any third party any right to make, use or sell any invention onwhich a Patent, now or hereafter owned by any Grantor or which any Grantorotherwise has the right to license, is in existence, or granting to any Grantorany right to make, use or sell any invention on which a Patent, now orhereafter owned by any third party, is in existence, and all rights of anyGrantor under any such agreement.

 

“Patents”shall mean all of the following now owned in the United States by a Grantor, orwith respect to any country other than the United States, registered orrecorded by a Grantor and beneficially owned by such Grantor, or hereafteracquired by any Grantor:  (a) allpatents and all applications for patent of the United States or any othercountry, including registrations, recordings and pending applications in theUnited States Patent and Trademark Office or any other country, including thoselisted on Schedule 14(a) of the Perfection Certificate, and (b) allreissues, continuations, divisions, continuations-in-part, renewals orextensions thereof, and the inventions disclosed or claimed therein, includingthe right to make, use and/or sell the inventions disclosed or claimed therein.

 

“PerfectionCertificate” shall mean a certificate substantially in the form ofAnnex II hereto, completed and supplemented with the schedules andattachments contemplated thereby, and duly executed by the Grantors.

 

“PledgeAgreement” shall have the meaning assigned to such term in the Recitals ofthis Agreement.

 

6

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“PledgedSecurities” shall have the meaning assigned to such term in the PledgeAgreement and shall include Equity Interests pledged pursuant to Non-U.S.Pledge Agreements; provided, however, that Pledged Securitiesshall not include the pledge of Equity Interests in PGI Nonwovens B.V. held byChicopee Holdings, B.V. on the date hereof.

 

“Proceeds”shall mean, collectively, all “proceeds,” as such term is defined in the UCC,and in any event shall include, without limitation, any consideration receivedfrom the sale, exchange, license, lease or other disposition of any asset orproperty that constitutes Collateral, any payment received from any insurer orother Person or entity as a result of the destruction, loss, theft, damage orother involuntary conversion of whatever nature of any asset or property thatconstitutes Collateral, and shall include (a) all cash and negotiableinstruments received by or held on behalf of the Collateral Agent, (b) anyclaim of any Grantor against any third party for (and the right to sue andrecover for and the rights to damages or profits due or accrued arising out ofor in connection with) (i) past, present or future infringement ofany Patent now or hereafter owned by any Grantor, or licensed under a PatentLicense, (ii) past, present or future infringement or dilution of anyTrademark now or hereafter owned by any Grantor or licensed under a TrademarkLicense or injury to the goodwill associated with or symbolized by anyTrademark now or hereafter owned by any Grantor, (iii) past, present orfuture breach of any License and (iv) past, present or future infringementof any Copyright now or hereafter owned by any Grantor or licensed under aCopyright License and (c) any and all other amounts from time to time paidor payable under or in connection with any of the Collateral.

 

“SecurityInterests” shall have the meaning assigned to such term in Section 2.01.

 

“SubsidiaryGuarantors” shall have the meaning assigned to such term in the preamble ofthis Agreement.

 

“TrademarkLicense” shall mean any written agreement, now or hereafter in effect,granting to any third party any right to use any Trademark now or hereafterowned by any Grantor or that any Grantor otherwise has the right to license, orgranting to any Grantor any right to use any Trademark now or hereafter ownedby any third party, and all rights of any Grantor under any such agreement.

 

“Trademarks”shall mean all of the following now owned in the United States by a Grantor, orwith respect to any country other than the United States, registered orrecorded by a Grantor and beneficially owned by such Grantor, or hereafteracquired by any Grantor:  (a) alltrademarks, service marks, trade names, corporate names, company names,business names, fictitious business names, trade styles, trade dress, logos,designs and general intangibles of like nature, now existing or hereafteradopted or acquired, all registrations and recordings thereof, and allregistration and recording applications filed in connection therewith,including registrations and registration applications in the United StatesPatent and Trademark Office, any State of the United States or any similaroffices in any other country or any political subdivision thereof, and allextensions or renewals thereof, including those listed on Schedule 14(a) ofthe Perfection Certificate, (b) all goodwill associated therewith orsymbolized thereby and (c) all other assets, rights and interests thatuniquely reflect or embody such goodwill.

 

“UCC”shall mean the Uniform Commercial Code as in effect on the date hereof inthe State of New York; provided, however, that if by reason of mandatoryprovisions of law, any or all of the attachment, perfection or priority ofeither Collateral Agent’s and the Secured Parties’ security interest in anyitem or portion of the Collateral is governed by the Uniform CommercialCode as in effect in a jurisdiction other than the State of New York, theterm “UCC” shall mean the Uniform Commercial Code as in effect on the datehereof in such other jurisdiction for purposes of the provisions hereofrelating to such attachment, perfection or priority and for purposes ofdefinitions relating to such provisions.

 

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## SECTION 1.04                    *Rules of Construction*. Unless the context otherwiserequires:

 

#### (1)                                  a term has themeaning assigned to it;

####  

#### (2)                                  an accounting termnot otherwise defined has the meaning assigned to it in accordance with GAAP;

####  

#### (3)                                  “or” is notexclusive;

####  

#### (4)                                  words in the singularinclude the plural, and in the plural include the singular; or

####  

#### (5)                                  provisions apply tosuccessive events and transactions.

####  

# ARTICLE II

#  

# SECURITYINTERESTS

#  

## SECTION 2.01.                 *Security Interests*. It being expressly understood and agreedthat the security interests granted herein for the benefit of the CollateralAgent on behalf of the Secured Parties shall be subject to the terms of theCredit Agreement, as collateral security for the payment and performance infull of all the Obligations, each Grantor hereby pledges and grants to theCollateral Agent, for the benefit of the Secured Parties, a lien on andsecurity interest in and to all of the right, title and interest of suchGrantor in, to and under the Collateral.

 

The Liensgranted hereunder to secure the Obligations are collectively referred to hereinas the “Security Interests”.

 

## SECTION 2.02.                 *No Assumption of Liability*. The Security Interests aregranted as security only and shall not subject the Collateral Agent or anyother Secured Party to, or in any way alter or modify, any obligation or liabilityof any Grantor with respect to or arising out of the Collateral.

 

# ARTICLE III

#  

# REPRESENTATIONSAND WARRANTIES

#  

The Grantorsjointly and severally represent and warrant to the Collateral Agent and theSecured Parties that:

 

## SECTION 3.01.                 *Title and Authority*. Each Grantor has good and valid rightsin and title to the Collateral with respect to which it has purported to granta Security Interest hereunder and has full power and authority to grant to theCollateral Agent the Security Interest in such Collateral pursuant hereto andto execute, deliver and perform its obligations in accordance with theterms of this Agreement, without the consent or approval of any other Personother than any consent or approval which has been obtained.

 

## SECTION 3.02.                 *Filings*. (a)  All information set forth herein asof the date hereof and in the Perfection Certificate (as of the latest datesuch document is required to be updated), including the Schedules annexedhereto and thereto, has been duly prepared, completed and executed and theinformation set forth herein and therein is correct and complete in allmaterial respects. Except with regard to foreign Intellectual Property, theCollateral described on the Schedules annexed to the Perfection Certificate constitutesall of the property of such type of Collateral owned or held by the Grantors tothe extent required to be scheduled thereon. Fully completed UCC financingstatements (including fixture filings, as applicable)

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##  

## or other appropriate filings,recordings or registrations containing a description of the Collateral havebeen delivered to the Collateral Agent for filing in each governmental,municipal or other office specified in Schedule 7 to the PerfectionCertificate, which, except with regard to (i) foreign IntellectualProperty and (ii) collateral located outside the United States, are allthe filings, recordings and registrations that are necessary to publish noticeof and protect the validity of and to establish a legal, valid and perfectedsecurity interest in favor of the Collateral Agent (for the benefit of theSecured Parties) in respect of all Collateral in which a security interest may beperfected by filing, recording or registration under Article 9 of the UCCin the United States (or any political subdivision thereof) and its territoriesand possessions, and no further or subsequent filing, refiling, recording,rerecording, registration or reregistration under Article 9 of the UCC isnecessary in any such jurisdiction, except as provided under applicable lawwith respect to the filing of continuation statements.

 

### (b)                                 EachGrantor represents and warrants that fully executed security agreements in the form hereof(or short form security agreements) containing a description of allCollateral consisting of Intellectual Property with respect to United StatesPatents, United States registered Trademarks (and Trademarks for which UnitedStates registration applications are pending) have been delivered to theCollateral Agent for registration with the United States Patent and TrademarkOffice pursuant to 35 U.S.C. § 261 or 17 U.S.C. § 205 andthe regulations thereunder, as applicable, and otherwise as may berequired pursuant to the laws of any other necessary jurisdiction to protectthe validity of and to establish a legal, valid and perfected security interestin favor of the Collateral Agent for the benefit of the Secured Parties inrespect of all Collateral consisting of Patents and Trademarks in which asecurity interest may be perfected by filing, recording or registration inthe United States (or any political subdivision thereof) and its territoriesand possessions, and, except with regard to foreign Intellectual Property, no furtheror subsequent filing, refiling, recording, prerecording, registration orpreregistration is necessary (other than such actions as are necessary toperfect the Security Interest with respect to any Collateral consisting ofPatents, Trademarks and Copyrights (or registration or application forregistration thereof) acquired or developed after the date hereof).

###  

## SECTION 3.03.                 *Validity of Security Interests*. The Security Interestsconstitute (a)  legal and valid security interests under New York law in allthe Collateral securing the payment and performance of the Obligations, (b) subjectto the filings described in Section 3.02 above, perfected securityinterests in all Collateral in which a security interest may be perfectedby filing, recording or registering a financing statement or analogous documentin the United States (or any political subdivision thereof) and its territoriesand possessions pursuant to the UCC in such jurisdictions, (c)  securityinterests that shall be perfected in all Collateral in which a securityinterest may be perfected upon the receipt and registering and recordingof this Agreement or a short form security agreement with the UnitedStates Patent and Trademark Office, and (d)  perfected security interestsin all Collateral in which a security interest may be perfected bypossession or control by the Collateral Agent, in each case, to the extentrequired pursuant to the provisions hereof. The Security Interests are andshall be prior to any other Lien on any of the Collateral, other than PermittedLiens.

 

## SECTION 3.04.                 *Limitations on and Absence of Other Liens*. The Collateral isowned by the Grantors or the Grantors have rights therein, free and clear ofany Lien, except for Permitted Liens. The Grantors have not filed or consentedto the filing of (a) any financing statement or analogous document underthe UCC or any other applicable laws covering any Collateral, (b) anyassignment in which any Grantor assigns any Collateral or any securityagreement or similar instrument covering any Collateral with the United StatesPatent and Trademark Office and the United States Copyright Office or (c) anyassignment in which any Grantor assigns any Collateral or any securityagreement or similar instrument covering any Collateral with any foreigngovernmental, municipal or other office, which financing statement or analogousdocument, assignment, security agreement or similar instrument is still ineffect, except, in each case, for Permitted Liens or dispositions permitted bythe Credit Agreement.

 

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## SECTION 3.05.                 *Other Actions*. In order to further ensure the attachment,perfection and priority of, and the ability of the Collateral Agent to enforce,the Collateral Agent’s security interests in the Collateral, each Grantoragrees, in each case at such Grantor’s own expense, to take the followingactions with respect to the following Collateral:

 

(a)                                  *Instruments and Tangible Chattel Paper.*As of the datehereof, each Instrument and each item of Tangible Chattel Paper specified in Schedule 13to the Perfection Certificate valued in excess of $500,000 has been properlyendorsed, assigned and delivered to the Collateral Agent, and, if necessary,accompanied by instruments of transfer or assignment duly executed in blank. Ifany amount individually or in the aggregate in excess of $500,000 payable underor in connection with any of the Collateral shall be evidenced by anyInstrument or Tangible Chattel Paper, the Grantor acquiring such Instrument orTangible Chattel Paper shall, on a quarterly basis, notify the Collateral Agentand promptly endorse, assign and deliver the same to the Collateral Agent,accompanied by such instruments of transfer or assignment duly executed inblank as the Collateral Agent may from time to time reasonably request; provided,however, that so long as no Event of Default shall have occurred and becontinuing, the Collateral Agent shall return such Instrument or TangibleChattel Paper to such Grantor from time to time, to the extent necessary forcollection in the ordinary course of such Grantor’s business.

 

(b)                                 *Deposit Accounts.*Each Grantor hereby represents andwarrants that (i) it has neither opened nor maintains any Deposit Accountsother than the accounts listed in Schedule 16 of the PerfectionCertificate as supplemented from time to time and (ii) the CollateralAgent has a perfected security interest in each Deposit Account, other than anyExcluded Accounts, by Control. No Grantor shall hereafter establish andmaintain any Deposit Account, other than an Excluded Account, unless (1) theapplicable Grantor shall have given the Collateral Agent 10 days’ prior writtennotice (or such shorter period as the Collateral Agent shall agree to) of itsintention to establish such new Deposit Account with a Bank, and (2) suchBank and such Grantor shall have duly executed and delivered to the CollateralAgent a Control Agreement with respect to such Deposit Account. The CollateralAgent agrees with each Grantor that the Collateral Agent shall not give anyinstructions directing the disposition of funds from time to time credited toany Deposit Account or withhold any withdrawal rights from such Grantor withrespect to funds from time to time credited to any Deposit Account unless an Eventof Default of the type specified in Section 7.01(a) of the CreditAgreement has occurred and is continuing or upon the occurrence of the Loans orother Obligations becoming declared immediately due and payable and/or theCommitments being declared terminated. Upon cure or waiver of all Events ofDefault, the Collateral Agent shall promptly notify the relevant Bank(s) thatthe applicable Loan Party may withdraw funds from the relevant DepositAccount(s). No Grantor shall grant Control of any Deposit Account to any Personother than the Collateral Agent.

 

Notwithstanding the provisions of theimmediately preceding paragraph, each Grantor will not be required to enterinto Control Agreements, subject to the conditions set forth in this paragraph,with respect to the following Deposit Accounts:  (i) any Deposit Accounts used to fundpetty cash expenditures to the extent such accounts do not hold greater than$30,000 at any time; (ii) any Deposit Accounts used solely to fund payrolldisbursements to employees; (iii) the Deposit Account held at Wachovia(Acct no: 2000003339970) to the extent such account does not hold over $30,000at any one time; (iv) the Deposit Account held at Wachovia (Acct no:6728001483) to the extent such account does not hold over $30,000 for any consecutivefive Business Days; (v) the Deposit Accounts held at JP Morgan Chase Bank- Hong Kong Branch and identified on the Perfection Certificate on the datehereof, to the extent that these accounts do not hold over $2,000,000 (or theU.S. dollar equivalent thereof at the then prevailing rates of foreignexchange), in the aggregate, at any time; (vi) the Deposit Account held atThe Fuji Bank, Ltd.

 

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and identified on the Perfection Certificateon the date hereof, to the extent that this account does not hold over $30,000(or the U.S. dollar equivalent thereof at the then prevailing rates of foreignexchange) at any time; (vii) the Deposit Accounts held at Bank of NovaScotia and identified on the Perfection Certificate as amended on the AmendmentEffectiveness Date, to the extent that all funds held in these accounts aredeposited bi-weekly pursuant to an agreement which is reasonably satisfactoryto the Collateral Agent into a Deposit Account subject to a Control Agreement infavor of the Collateral Agent; and (viii) any Deposit Account held at theCollateral Agent. The Grantors shall use their Deposit Accounts in accordancewith past practices and shall not manipulate the balances in any of theirDeposit Accounts solely to ensure that the balances in the Deposit Accountsmeet the limits set forth in the foregoing clauses (i), (iii), (iv) and(vi).

 

(c)                                  *Investment Property.*(i)  Each Grantor herebyrepresents and warrants that (1) it has neither opened nor maintains anySecurities Accounts or Commodity Accounts other than those listed in Schedule 16of the Perfection Certificate and the Collateral Agent has a perfected firstpriority security interest in such Securities Accounts and Commodity Accountsby Control and (2) it does not hold, own or have any interest in anycertificated securities or uncertificated securities other than thoseconstituting Securities Collateral under the Pledge Agreement and thosemaintained in Securities Accounts or Commodity Accounts listed in Schedule 16of the Perfection Certificate. If any Grantor shall at any time hold or acquireany certificated securities constituting Investment Property valued in excessof $500,000 that are not Pledged Securities under the Pledge Agreement, suchGrantor shall immediately endorse, assign and deliver the same to theCollateral Agent, accompanied by such instruments of transfer or assignmentduly executed in blank, all in form and substance reasonably satisfactoryto the Collateral Agent; provided that in no event shall such Grantor berequired to pledge more than 65% of the voting stock of any non-U.S. Subsidiary.If any securities now or hereafter acquired by any Grantor constitutingInvestment Property that are not Pledged Securities are uncertificated, suchGrantor shall promptly notify each Collateral Agent thereof and use itscommercially reasonable efforts to, within five (5) Business Days and inany event no later than 30 days (except where legally prohibited therefrom),pursuant to an agreement in form and substance reasonably satisfactory tothe Collateral Agent, either (at such Grantor’s option) (a) cause theissuer to agree to comply with instructions from the Collateral Agent as tosuch securities, without further consent of any Grantor, or (b) arrangefor the Collateral Agent to become the registered owner of the securities. NoGrantor shall hereafter establish and maintain any Securities Account orCommodity Account with any Securities Intermediary or Commodity Intermediaryunless (1) the applicable Grantor shall have given the Collateral Agent 10days’ prior written notice of its intention to establish such new SecuritiesAccount or Commodity Account with such Securities Intermediary or CommodityIntermediary and (2) such Securities Intermediary or CommodityIntermediary, as the case may be, and such Grantor shall have dulyexecuted and delivered to the Collateral Agent a Control Agreement with respectto such Securities Account or Commodity Account, as the case may be. EachGrantor shall accept any cash and Investment Property (not subject to thePledge Agreement or Non-U.S. Pledge Agreements) in trust for the benefit of theCollateral Agent and within five (5) Business Days of actual receiptthereof, deposit such Investment Property and any new securities, instruments,documents or other Investment Property by reason of ownership of suchInvestment Property received by it into a Securities Account or CommodityAccount subject to a Control Agreement in favor of the Collateral Agent. The CollateralAgent agrees with each Grantor that the Collateral Agent shall not give anyEntitlement Orders or instructions or directions to any issuer ofuncertificated securities, Securities Intermediary or Commodity Intermediary,and shall not withhold its consent to the exercise of any withdrawal or dealingrights by such Grantor, unless an Event of Default has occurred and iscontinuing. Upon cure or waiver of all Events of Default, the Collateral Agentshall promptly notify the relevant Securities Intermediary or CommoditiesIntermediary that the applicable Grantor may withdraw funds from the relevantSecurities

 

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Accounts or Commodities Accounts. No Grantorshall grant control over any Investment Property to any Person other than theCollateral Agent. Notwithstanding the foregoing, the “Collateral InvestmentAccount” as identified on Schedule 16 of the Perfection Certificateneed not be subject to a Control Agreement for a period not to exceed thirtydays from the date hereof.

 

(ii)                                  EachGrantor shall promptly pay all Charges and fees with respect to the InvestmentProperty pledged by it under this Agreement, other than any Charges and feesconstituting Liens permitted by Section 6.02(iii) of the CreditAgreement. In the event any Grantor shall fail to make such paymentcontemplated in the immediately preceding sentence, the Collateral Agent may uponnotice to such Grantor, do so for the account of such Grantor and the Grantorsshall promptly reimburse and indemnify the Collateral Agent from all reasonablecosts and expenses incurred by the Collateral Agent under this Section 3.05(c).

 

(d)                                 *Electronic Chattel Paper and Transferable Records.*If anyamount individually or in the aggregate in excess of $500,000 payable under orin connection with any of the Collateral shall be evidenced by any ElectronicChattel Paper or any “transferable record,” as that term is defined in Section 201of the Federal Electronic Signatures in Global and National Commerce Act, or inSection 16 of the Uniform Electronic Transactions Act as in effect inany relevant jurisdiction, the Grantor acquiring such Electronic Chattel Paperor transferable record shall, on a quarterly basis, notify the Collateral Agentand shall, promptly, take such action as the Collateral Agent may reasonablyrequest to vest in the Collateral Agent control under UCC Section 9-105 ofsuch Electronic Chattel Paper or control under Section 201 of the FederalElectronic Signatures in Global and National Commerce Act or, as the case may be,Section 16 of the Uniform Electronic Transactions Act, as so ineffect in such jurisdiction, of such transferable record. The Collateral Agentagrees with such Grantor that the Collateral Agent will arrange, pursuant toprocedures reasonably satisfactory to the Collateral Agent and so long as suchprocedures will not result in the Collateral Agent’s loss of control, for theGrantor to make alterations to the Electronic Chattel Paper or transferablerecord permitted under UCC Section 9-105 or, as the case may be, Section 201of the Federal Electronic Signatures in Global and National Commerce Act or Section 16of the Uniform Electronic Transactions Act for a party in control to allowwithout loss of control, unless an Event of Default has occurred and iscontinuing or would occur after taking into account any action by such Grantorwith respect to such Electronic Chattel Paper or transferable record.

 

(e)                                  *Letter-of-Credit Rights.*If any Grantor is at any time abeneficiary under a Letter of Credit now or hereafter issued in favor of suchGrantor in an amount individually in excess of $100,000 or in the aggregate inexcess of $500,000, such Grantor shall notify the Collateral Agent on aquarterly basis thereof and such Grantor shall promptly, use commerciallyreasonable efforts to either (at the option of such Grantor) (i) arrangefor the issuer and any confirmer of such Letter of Credit to consent to anassignment to the Collateral Agent of the proceeds of any drawing under theLetter of Credit or (ii) arrange for the Collateral Agent to become thetransferee beneficiary of such Letter of Credit in each case, pursuant to anagreement in form and substance reasonably satisfactory to the CollateralAgent.

 

(f)                                    *Commercial Tort Claims.*As of the date hereof each Grantorhereby represents and warrants that it holds no Commercial Tort Claims otherthan those listed in Schedule 15 to the Perfection Certificate (assupplemented from time to time). If any Grantor shall at any time hold oracquire a Commercial Tort Claim having a value individually or in the aggregatein excess of $500,000, such Grantor shall promptly notify the Collateral Agentin writing signed by such Grantor of the brief details thereof and grant to theCollateral Agent in such writing a security

 

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interest therein and in the Proceeds thereof,all upon the terms of this Agreement, with such writing to be in form andsubstance reasonably satisfactory to the Collateral Agent.

 

(g)                                 *Motor Vehicles*. Upon the reasonable request of theCollateral Agent, each Grantor shall deliver to the Collateral Agent originalsof the certificates of title or ownership for the motor vehicles (and any otherEquipment covered by Certificates of Title or ownership) owned by it with theCollateral Agent listed as a lienholder therein. Such requirement shall applyto the Grantors if any such motor vehicle (or any such other Equipment) isvalued over $50,000, provided that the value of all such motor vehicles(and such Equipment) as to which any Grantor has not delivered a Certificate ofTitle or ownership is over $500,000.

 

(h)                                 *Landlord’s Access Agreements/Bailee Letters*. Each Grantorshall use its commercially reasonable efforts to obtain a Bailee Letter or aLandlord Access Agreement, as applicable, from all such bailees and landlords,as applicable, who from time to time have possession of Collateral in excess of$100,000.

 

## SECTION 3.06.                 *Condition and Maintenance of Equipment*.The Equipment of suchGrantor is in good repair, working order and condition, reasonable wear andtear, casualty and condemnation excepted. Except as determined by such Grantor’scommercially reasonable business judgment, each Grantor shall cause theEquipment to be maintained and preserved in good repair, working order andcondition, reasonable wear and tear excepted, and shall as quickly ascommercially reasonably practicable make or cause to be made all repairs,replacements and other improvements which are necessary or appropriate in theconduct of such Grantor’s business.

 

## SECTION 3.07.                 *No Conflicts, Consents, etc.*In the event that the CollateralAgent desires to exercise any remedies, voting or consensual rights or attorney-in-factpowers set forth in this Agreement and determines it necessary to obtain anyapprovals or consents of any Governmental Authority or any other Persontherefor, then, upon the reasonable request of the Collateral Agent, suchGrantor agrees to use its commercially reasonable efforts to assist and aid theCollateral Agent to obtain as soon as practicable any necessary approvals orconsents for the exercise of any such remedies, rights and powers.

 

# ARTICLE IV

#  

# COVENANTS

#  

## SECTION 4.01.                 *Change of Name; Location of Collateral; Records; Place of Business*.(a)  Each Grantor shall comply with the provisions of Section 5.07of the Credit Agreement.

 

### (b)                                 EachGrantor agrees to maintain, at its own cost and expense, records which are completeand accurate in all material respects with respect to the Collateral owned byit as is consistent with its current practices and, at such time or times as theCollateral Agent may reasonably request, promptly to prepare and deliverto the Collateral Agent a duly certified schedule or schedules in form anddetail reasonably satisfactory to the Collateral Agent showing the identity,amount and location of any and all Collateral.

###  

## SECTION 4.02.                 *Protection of Security*. Except as determined by such Grantor’scommercially reasonable business judgment, each Grantor shall, at its own costand expense, take any and all actions necessary and reasonable to defend titleto the Collateral against all Persons and to defend the Security Interests ofthe Collateral Agent in the Collateral and the priority thereof against anyLien other than Permitted Liens.

 

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## SECTION 4.03.                 *Further Assurances*. Each Grantor agrees, at its own expense,to execute, acknowledge, deliver and cause to be duly filed all such furtherinstruments and documents and take all such actions as the Collateral Agent may fromtime to time reasonably request to preserve, protect and perfect the SecurityInterests and the rights and remedies created hereby, including the payment ofany fees and taxes required in connection with the execution and delivery ofthis Agreement, the granting of the Security Interests and the filing of anyfinancing statements (including fixture filings) or other documents inconnection herewith or therewith.

 

## SECTION 4.04.                 *Inspection and Verification*. The Collateral Agent and itsrepresentatives as the Collateral Agent may reasonably designate shallhave the right, at the Grantors’ own cost and expense, to at all reasonabletimes and intervals and upon reasonable prior notice inspect the Collateral,all records related thereto (and to make extracts and copies from such records)and the premises upon which any of the Collateral is located in each caseduring business hours. The Collateral Agent shall have the absolute right toshare any information it gains from such inspection or verification with anySecured Party (subject to Section 9.16 of the Credit Agreement).

 

## SECTION 4.05.                 *Taxes; Encumbrances*. At its option, the Collateral Agent may dischargepast due taxes, assessments, charges, fees, Liens, security interests or otherencumbrances at any time levied or placed on the Collateral except to theextent the same constitute Permitted Liens, and may pay for themaintenance and preservation of the Collateral to the extent any Grantor failsto do so as required by this Agreement (in each case with reasonable prior writtennotice to such Grantor), and each Grantor jointly and severally agrees toreimburse the Collateral Agent within 15 days of written demand for any paymentmade or any expense incurred by the Collateral Agent pursuant to the foregoingauthorization; provided, however, that nothing in this Section 4.05shall be interpreted as excusing any Grantor from the performance of, orimposing any obligation on the Collateral Agent or any Secured Party to cure orperform, any covenants or other promises of any Grantor with respect to taxes,assessments, charges, fees, liens, security interests or other encumbrances andmaintenance as set forth herein or in the other Loan Documents.

 

## SECTION 4.06.                 *Assignment of Security Interest*. If at any time any Grantorshall take a security interest in any property of an Account Debtor or anyother Person to secure payment and performance of an Account valued in excessof $500,000, such Grantor shall promptly assign such security interest to theCollateral Agent. Such assignment need not be filed of public record unlessnecessary to continue the perfected status of the security interest againstcreditors of and transferees from the Account Debtor or other Person grantingthe security interest.

 

## SECTION 4.07.                 *Continuing Obligations of the Grantors*. Each Grantor shallremain liable to observe and perform all the conditions and obligations tobe observed and performed by it under each contract, agreement or instrumentrelating to the Collateral, all in accordance with the terms and conditionsthereof, and each Grantor jointly and severally agrees to indemnify and holdharmless the Collateral Agent and the Secured Parties from and against any andall liability for such performance unless finally judicially determined to havearisen from the gross negligence, bad faith or willful misconduct of the indemnifiedparty.

 

## SECTION 4.08.                 *Use and Disposition of Collateral*. None of the Grantorsshall make or permit to be made an assignment for security, pledge orhypothecation of the Collateral or shall grant any other Lien in respect of theCollateral other than Liens securing the Obligations and Permitted Liens.

 

## SECTION 4.09.                 *Limitation on Modification of Accounts*. None of the Grantorswill, without the Collateral Agent’s prior written consent, grant any extensionof the time of payment of any of the Accounts Receivable, compromise, compoundor settle the same for less than the full amount thereof, release,

##  

## 14

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## wholly or partly, any Personliable for the payment thereof or allow any credit or discount whatsoeverthereon, other than extensions, credits, discounts, compromises or settlementsgranted or made in the ordinary course of business and consistent with itscurrent practices and in accordance with such prudent and standard practicesused in industries that are the same as or similar to those in which such Grantoris engaged.

 

## SECTION 4.10.                 *Insurance*. The Grantors, at their own expense, shallmaintain or cause to be maintained insurance covering physical loss or damageto the Inventory and Equipment in accordance with Section 5.04 of theCredit Agreement. Each Grantor irrevocably makes, constitutes and appoints theCollateral Agent (and all officers, employees or agents designated by theCollateral Agent) as such Grantor’s true and lawful agent (and attorney-in-fact)for the purpose, during the continuance of an Event of Default, of making,settling and adjusting claims in respect of Collateral under policies ofinsurance, endorsing the name of such Grantor on any check, draft, instrumentor other item of payment for the proceeds of such policies of insurance and formaking all determinations and decisions with respect thereto. In the event thatany Grantor at any time or times shall fail to obtain or maintain any of thepolicies of insurance required hereby or to pay any premium in whole or part relatingthereto, the Collateral Agent may, without waiving or releasing any obligationor liability of the Grantors hereunder or any Event of Default, in itsreasonable discretion and upon prior notice to the Grantors obtain and maintainsuch policies of insurance and pay such premium and take any other actions withrespect thereto as the Collateral Agent deems reasonably advisable. All sumsdisbursed by the Collateral Agent in connection with this Section 4.10,including reasonable attorneys’ fees, court costs, out-of-pocket expenses andother charges relating thereto, shall be payable, upon written demand, by theGrantors to the Collateral Agent and shall be additional Obligations securedhereby in the same priority as the original Obligations. So long as no Event ofDefault has occurred and is continuing, all actions to be taken with respect tothe making, settling and adjusting of claims under insurance policies may betaken by the Grantors without any requirement of participation or consent from theCollateral Agent and all proceeds received from any insurance with respect toany claim may be paid directly to the applicable Grantor to be applied inaccordance with the provisions of Section 6.02 hereof.

 

## SECTION 4.11.                 *Certain Covenants and Provisions Regarding Patent, Trademark andCopyright Collateral*. (a)  Except as determined by suchGrantor’s reasonable business judgment, each Grantor agrees that it will not,nor will it permit any of its licensees to, do any act, or omit to do any act,whereby any Patent which is material to the conduct of such Grantor’s business may becomeinvalidated or dedicated to the public, and agrees that it shall continue tomark any products covered by a Patent with the relevant patent number asnecessary and sufficient to establish and preserve its maximum rights underapplicable patent laws.

 

### (b)                                 Exceptas determined by such Grantor’s reasonable business judgment, each Grantor(either itself or through its licensees or its sublicenses) will, for eachTrademark material to the conduct of such Grantor’s business, use itscommercially reasonable efforts to (i) maintain such Trademark in fullforce free from any claim of abandonment or invalidity for nonuse, (ii) maintainthe quality of products and services offered under such Trademark, (iii) displaysuch Trademark with notice of Federal or foreign registration to the extentnecessary and sufficient to establish and preserve its rights under applicablelaw and (iv) not knowingly use or knowingly permit the use of suchTrademark in violation of any third party rights.

###  

### (c)                                  Exceptas determined by such Grantor’s reasonable business judgment, each Grantor(either itself or through licensees) will, for each work covered by a materialregistered Copyright, publish, reproduce, display, adopt and distribute suchwork with such appropriate copyright notice as necessary and sufficient toestablish and preserve its rights under applicable copyright laws.

###  

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### (d)                                 EachGrantor shall notify the Collateral Agent as soon as practicable if it knowsthat any Patent, Trademark or Copyright material to the conduct of its businessmay become abandoned, lost or dedicated to the public, or of anymaterially adverse determination or development including the institution of,or any such determination or development in, any proceeding in the United StatesPatent and Trademark Office or United States Copyright Office (or any court orsimilar office of any country) regarding such Grantor’s ownership of anyPatent, Trademark or Copyright, or its right to register the same, or to keepand maintain the same.

###  

### (e)                                  Inthe event that any Grantor, either itself or through any agent, employee,licensee or designee, files an application for any Patent, Trademark orCopyright (or for the registration of any Trademark or Copyright) with theUnited States Patent and Trademark Office or United States Copyright Office, orany office or agency in any political subdivision of the United States or inany other country or any political subdivision thereof, such Grantor shallnotify the Collateral Agent (within at least three months of the initial filingthereof) and execute and deliver any and all agreements, instruments, documentsand papers as the Collateral Agent may reasonably request to evidence theCollateral Agent’s security interests in such Patent, Trademark or Copyright orapplication therefor, and pursuant to Section 8.16 of this Agreement, eachGrantor hereby appoints the Collateral Agent as its attorney-in-fact to executeand file such writings with prior written notice to such Grantor solely for theforegoing purposes, all acts of such attorney being hereby ratified andconfirmed; such power, being coupled with an interest, is irrevocable.

###  

### (f)                                    EachGrantor will take all necessary steps that are consistent with its reasonablebusiness judgment in any proceeding before the United States Patent andTrademark Office or United States Copyright Office, or any office or agency inany political subdivision of the United States or in any other country or anypolitical subdivision thereof, to maintain and pursue each material applicationrelating to the Patents, Trademarks and/or Copyrights (and to obtain therelevant grant or registration) and to maintain each issued Patent and eachregistration of the Trademarks or Copyrights that is material to the conduct ofany Grantor’s business, including timely filings of applications for renewal,affidavits of use, affidavits of incontestability and payment of maintenancefees, and, if consistent with commercially reasonable business judgment, toinitiate opposition, interference and cancellation proceedings against third parties.

###  

### (g)                                 Inthe event that any Grantor has reason to believe that any Collateral consistingof a material Patent, Trademark or Copyright has been or is about to beinfringed, misappropriated or diluted by a third party, such Grantor promptlyshall notify the Collateral Agent and shall, if consistent with commerciallyreasonable business judgment, promptly sue for infringement, misappropriationor dilution and to recover any and all damages for such infringement,misappropriation or dilution, and take such other actions as are reasonablyappropriate under the circumstances to protect such Collateral.

###  

### (h)                                 Toeach Grantor’s actual knowledge, on and as of the date hereof, such Grantor isnot infringing upon any Patent, Trademark or Copyright of any other Personother than such infringement that, individually or in the aggregate, would not(or would not reasonably be expected to) result in a material adverse effect onthe value or utility of the Collateral consisting of Intellectual Property orany portion thereof material to the use and operation of the Collateral and noproceedings have been instituted or are pending against such Grantor or, tosuch Grantor’s knowledge, threatened, and no claim against such Grantor hasbeen received by such Grantor, alleging any such violation.

###  

### (i)                                     Uponand during the continuance of an Event of Default, each Grantor shall upon thewritten request of the Collateral Agent use its commercially reasonable effortsto obtain all requisite consents or approvals by the licensor of each CopyrightLicense, Patent License or Trademark License to effect the assignment of all ofsuch Grantor’s right, title and interest thereunder to the Collateral Agent or itsdesignees.

###  

### 16

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Notwithstandinganything herein to the contrary, any Grantor may, for commercially reasonablecause, abandon or allow to become lost or dedicated to the public any Patent,Trademark or Copyright.

 

# ARTICLE V

#  

# REMEDIES

#  

## SECTION 5.01.                 *Remedies upon Default*. Upon the occurrence and during thecontinuance of an Event of Default, each Grantor agrees upon written request todeliver each item of Collateral to the Collateral Agent, and it is agreed thatthe Collateral Agent shall have the right to take any of or all the followingactions at the same or different times:  (a) withrespect to any Collateral consisting of Intellectual Property, on demand, tocause the Security Interest to become an assignment, transfer and conveyance ofany of or all such Collateral by the applicable Grantors to the CollateralAgent, or to license or sublicense, whether general, special or otherwise, andwhether on an exclusive or nonexclusive basis, any such Collateral throughoutthe world on such terms and conditions and in such manner as the CollateralAgent shall determine (other than in violation of applicable law or any thenexisting licensing arrangements to the extent that waivers cannot be obtained),and (b) with or without legal process and with or without prior notice ordemand for performance, to take possession of the Collateral and withoutliability for trespass to enter peaceably any premises where the Collateral may belocated for the purpose of taking possession of or removing the Collateral and,generally, to exercise any and all rights afforded to a secured party under theUCC or other applicable law. Without limiting the generality of the foregoing,each Grantor agrees that the Collateral Agent shall have the right, subject tothe mandatory requirements of applicable law, to sell or otherwise dispose ofall or any part of the Collateral, at public or private sale or at anybroker’s board or on any securities exchange, for cash, upon credit or forfuture delivery as the Collateral Agent shall deem reasonably appropriate. TheCollateral Agent shall be authorized at any such sale (if it deems it advisableto do so) to restrict the prospective bidders or purchasers to Persons who willrepresent and agree that they are purchasing the Collateral for their ownaccount for investment and not with a view to the distribution or sale thereof,and upon consummation of any such sale the Collateral Agent shall have theright to assign, transfer and deliver to the purchaser or purchasers thereofthe Collateral so sold. Each such purchaser at any such sale shall hold theproperty sold absolutely, free from any claim or right on the part of anyGrantor, and each Grantor hereby waives (to the extent permitted by law) allrights of redemption, stay and appraisal which such Grantor now has or may atany time in the future have under any rule of law or statute now existingor hereafter enacted.

 

The CollateralAgent shall give a Grantor ten (10) Business Days’ prior writtennotice (which each Grantor agrees is reasonable notice within the meaning of Section 9-611of the UCC) of the Collateral Agent’s intention to make any sale or otherdisposition of such Grantor’s Collateral. Such notice, in the case of a publicsale, shall state the time and place for such sale and, in the case of a saleat a broker’s board or on a securities exchange, shall state the board orexchange at which such sale is to be made and the day on which the Collateral,or portion thereof, will first be offered for sale at such board or exchange. Anysuch public sale shall be held at such time or times within ordinary businesshours and at such place or places as the Collateral Agent may fix andstate in the notice of such sale. At any such sale, the Collateral, or portionthereof, to be sold may be sold in one lot as an entirety or in separateparcels, as the Collateral Agent may (in its sole and absolute discretion)determine. The Collateral Agent shall not be obligated to make any sale of anyCollateral if it shall determine not to do so, regardless of the fact thatnotice of sale of such Collateral shall have been given. The Collateral Agentmay, without notice or publication, adjourn any public or private sale or causethe same to be adjourned from time to time by announcement at the time andplace fixed for sale, and such sale may, without further notice, be made at thetime and place to which the same was so adjourned. In case any sale of all orany part of the Collateral is made on credit or for future delivery, theCollateral so sold may be retained by the Collateral Agent until the saleprice is paid by the purchaser or purchasers thereof, but the Collateral Agentshall not incur any liability

 

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in case anysuch purchaser or purchasers shall fail to take up and pay for the Collateralso sold and, in case of any such failure, such Collateral may be soldagain upon like notice. At any public (or, to the extent permitted by law,private) sale made pursuant to this Section, any Secured Party may bid foror purchase, free (to the extent permitted by law) from any right ofredemption, stay, valuation or appraisal on the part of any Grantor (allsaid rights being also hereby waived and released), the Collateral or any part thereofoffered for sale and may make payment on account thereof by using anyObligation then due and payable to such Secured Party from any Grantor as acredit against the purchase price, and such Secured Party may, upon compliancewith the terms of sale, hold, retain and dispose of such property withoutfurther accountability to any Grantor therefor. For purposes hereof, a writtenagreement to purchase the Collateral or any portion thereof shall be treated asa sale thereof; the Collateral Agent shall be free to carry out such sale pursuantto such agreement and no Grantor shall be entitled to the return of theCollateral or any portion thereof subject thereto, notwithstanding the factthat after the Collateral Agent shall have entered into such an agreement allEvents of Default shall have been remedied and the Obligations paid in full. Asan alternative to exercising the power of sale herein conferred upon it, theCollateral Agent may proceed by a suit or suits at law or in equity toforeclose this Agreement and to sell the Collateral or any portion thereofpursuant to a judgment or decree of a court or courts having competentjurisdiction or pursuant to a proceeding by a court-appointed receiver. Anysale pursuant to the provisions of this Section shall be deemed to conform tothe commercially reasonable standards as provided in Section 9-611 of theUCC.

 

## SECTION 5.02.                 *Application of Proceeds*. All Proceeds received by theCollateral Agent in respect of any sale of, collection from or otherrealization upon all or any part of the Collateral pursuant to theexercise by the Collateral Agent of its remedies, together with any othermoneys then held by the Collateral Agent in the Collateral Account shall, tothe extent available for distribution (it being understood that the CollateralAgent may liquidate investments prior to maturity in order to make adistribution pursuant to this Section 5.02), be distributed (subject tothe provisions of Section 5.03) by the Collateral Agent on eachDistribution Date in the following order of priority:

 

First:  to the Collateral Agent for any unpaidCollateral Agent Fees;

 

Second:  without duplication of amounts appliedpursuant to clause First above, to any other Secured Party which hastheretofore advanced or paid any Collateral Agent Fees constituting administrativeexpenses allowable under Section 503(b) of the Bankruptcy Code, anamount equal to the amount thereof so advanced or paid by such Secured Partyand for which such Secured Party has not been reimbursed prior to suchDistribution Date, and, if such moneys shall be insufficient to pay suchamounts in full, then ratably (without priority of any one over any other) tosuch Secured Parties in proportion to the amounts of such Collateral Agent Feesadvanced by the respective Secured Parties and remaining unpaid on such DistributionDate;

 

Third:  without duplication of the amounts appliedpursuant to clause First and Second above, to any Secured Partywhich has theretofore advanced or paid any Collateral Agent Fees other thansuch administrative expenses, an amount equal to the amount thereof so advancedor paid by such Secured Party and for which such Secured Party has not beenreimbursed prior to such Distribution Date, and, if such moneys shall beinsufficient to pay such amounts in full, then ratably (without priority of anyone over any other) to such Secured Parties in proportion to the amounts ofsuch Collateral Agent Fees advanced by the respective Secured Parties andremaining unpaid on such Distribution Date;

 

Fourth:  without duplication of the amounts appliedpursuant to clauses First, Second and Third above, subjectto the provisions of Section 2.06(j) of the Credit Agreement, to theSecured Parties, in an amount equal to all Obligations, whether or not then dueand payable (but other than

 

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contingent indemnification obligations not then claimed or due), and,if such moneys shall be insufficient to pay such amounts in full, then ratably(without priority of any one over any other) to such Secured Parties inproportion to the unpaid amounts thereof on such Distribution Date;

 

Fifth,without duplication of the amounts applied pursuant to clauses First, Second,Third and Fourth above, any surplus then remaining shall be paidto the Grantors or their successors or assigns or to whomever may belawfully entitled to receive the same or as a court of competent jurisdiction may direct.

 

In the eventthat any such proceeds are insufficient to pay in full the items described inclauses First through Fourth of this Section 5.02, theGrantors shall remain liable for any deficiency.

 

The term “unpaid”as used in this Section 5.02 refers:

 

##### (i)                                     inthe absence of a bankruptcy proceeding with respect to the relevant Grantor(s),to all amounts of the relevant Obligations outstanding as of a DistributionDate, and

#####  

##### (ii)                                  during the pendencyof a bankruptcy proceeding with respect to the relevant Grantor(s), to allamounts allowed by the bankruptcy court in respect of the relevant Obligationsas a basis for distribution (including estimated amounts, if any, allowed inrespect of contingent claims), to the extent that prior distributions have notbeen made in respect thereof.

#####  

## SECTION 5.03.                 *Collateral Agent’s Calculations*. In making thedeterminations and allocations required by Section 5.02, the CollateralAgent may conclusively rely upon information supplied by theAdministrative Agent as to the amounts of unpaid principal and interest andother amounts outstanding with respect to any Obligations, and the CollateralAgent shall have no liability to any of the Secured Parties for actions takenin reliance on such information; provided that nothing in this sentenceshall prevent any Grantor from contesting any amounts claimed by any SecuredParty in any information so supplied. In addition, for purposes of making theallocations required by Section 5.02 with respect to any amount that isdenominated in any currency other than Dollars, the Collateral Agent shall, onthe applicable Distribution Date, convert such amount into an amount of Dollarsbased upon the relevant Exchange Rate as of a recent date specified by theCollateral Agent in its reasonable discretion. All distributions made by theCollateral Agent pursuant to Section 5.02 shall be (subject to any decreeof any court of competent jurisdiction) final (absent manifest error), and theCollateral Agent shall have no duty to inquire as to the application by theAdministrative Agent of any amounts distributed to it for distribution to anyLenders.

 

## SECTION 5.04.                 *Grant of License to Use Intellectual Property*. For thepurpose of enabling the Collateral Agent to exercise rights and remedies underthis Article at such time as the Collateral Agent shall be lawfullyentitled to exercise such rights and remedies, each Grantor hereby grants to theCollateral Agent an irrevocable, nonexclusive license (exercisable withoutpayment of royalty or other compensation to the Grantors) to use, license orsublicense any of the Collateral, except to the extent that such license may notbe granted as a result of a pre-existing exclusive license arrangement,consisting of Intellectual Property now owned or hereafter acquired by suchGrantor, and wherever the same may be located, and including in suchlicense reasonable access to all media in which any of the licensed items may berecorded or stored and to all computer software and programs used for thecompilation or printout thereof. The use of such license by the CollateralAgent may only be exercised, at the option of the Collateral Agent, uponthe occurrence and during the continuation of an Event of Default.

 

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# ARTICLE VI

#  

# COLLATERALACCOUNT

#  

## SECTION 6.01.                 *Establishment of Collateral Account*. (a)  TheCollateral Agent is hereby authorized to establish and maintain, in the name ofthe Collateral Agent and pursuant to a Control Agreement, a restricted depositaccount designated “Polymer Group, Inc. Collateral Account.”  Each Grantor shall deposit into the CollateralAccount from time to time all amounts required to be deposited in theCollateral Account by the Credit Agreement and any amounts specifically requiredto be deposited therein by any other Loan Documents.

 

### (b)                                 Thebalance from time to time in the Collateral Account shall constitute part ofthe Collateral and shall not constitute payment of the Obligations untilapplied as hereinafter provided. So long as no Event of Default has occurredand is continuing or will result therefrom and to the extent Grantor is notrequired to repay debt under any Loan Documents, the Collateral Agent shallwithin two Business Days of receiving a request of the applicable Grantor forrelease of cash proceeds constituting (A) Net Proceeds from anyDestruction or Taking from the Collateral Account remit such cash proceeds on depositin the Collateral Account to or upon the order of such Grantor, so long as suchGrantor has satisfied the conditions relating thereto set forth in Section 6.02hereof and, (B) Net Proceeds from any Asset Sale from the Collateral Account,remit such cash proceeds on deposit in the Collateral Account, so long as suchGuarantor has satisfied the conditions relating thereto set forth in Section 6.02hereof. At any time following the occurrence and during the continuance of anEvent of Default, the Collateral Agent may in its reasonable discretionapply or cause to be applied (subject to collection) the balance from time totime outstanding to the credit of the Collateral Account to the payment of theObligations in the manner specified in Section 5.02; provided, however,notwithstanding the foregoing, moneys deposited in the Collateral Accountpursuant to Section 2.06(j) of the Credit Agreement shall be held andapplied as set forth therein.

###  

### (c)                                  Amountson deposit in the Collateral Account shall be invested from time to time inPermitted Investments as the applicable Grantor (or, after the occurrence andduring the continuance of an Event of Default, the Collateral Agent) shalldetermine, which Permitted Investments shall be held in the name and be underthe control of the Collateral Agent (or any subagent); provided that atany time after the occurrence and during the continuance of an Event ofDefault, the Collateral Agent may in its reasonable discretion at any timeand from time to time elect to liquidate any such Permitted Investments and toapply or cause to be applied the proceeds thereof to the payment of theObligations in the manner specified in Section 5.02.

###  

## SECTION 6.02.                 *Proceeds of Destruction, Taking and Excluded Asset Sale*. (a)  Solong as no Default or Event of Default shall have occurred and be continuing,and to the extent the applicable Grantor is permitted by Section 2.05(c)(iii) or(iv) of the Credit Agreement to apply any Net Proceeds as contemplatedtherein, in the event there shall be any Net Proceeds in respect of any Takingor any Destruction or from any Asset Sale, the applicable Grantor shall havethe right, at such Grantor’s option, to apply such Net Proceeds within the timeperiods provided in Section 2.05(c)(iii) or (iv) of the CreditAgreement for purposes permitted thereby and the Collateral Agent shall releasesuch Net Proceeds to such Grantor in accordance with the provisions of Section 6.01(b) hereof.

 

### (b)                                 NotwithstandingSection 6.02(a), the Collateral Agent shall not release any amounts in theCollateral Account constituting Net Proceeds of a Taking or Destruction or froman Asset Sale, until the applicable Grantor has furnished to the CollateralAgent an Officers’ Certificate, at least five (5) days’ prior to theproposed date of release, setting forth: (1) a brief description of the application to be made (includingthe dollar amount thereof), (2) to the extent the application is a reinvestmentin properties or

###  

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### 

###  

###  

### assets, suchreinvestment properties or assets will be Collateral to the extent required bythe Credit Agreement and all security agreements and mortgages and other itemsrequired to subject such reinvestment properties or assets to the Lien of thisAgreement in favor of the Collateral Agent, for its benefit and for the benefitof the other Secured Parties, shall be accomplished at the times requiredhereby and by Section 5.11 of the Credit Agreement and (3)  thereinvestment otherwise complies with the terms of the Credit Agreement.

###  

# ARTICLE VII

#  

# *TheCollateral Agent*

#  

## SECTION 7.01.                 *General Authority of the Collateral Agent over the Collateral*.(a)  Subject to the provisions herein, each Grantor hereby appoints theCollateral Agent as its true and lawful attorney-in-fact for the purpose,during the continuance of an Event of Default, of taking any action andexecuting any and all documents and instruments that the Collateral Agent may deemnecessary to carry out the terms of this Agreement and accomplish the purposeshereof and, without limiting the generality of the foregoing, each Grantorhereby acknowledges that the Collateral Agent shall have all powers andremedies set forth in the Security Documents. The foregoing grant of authorityis a power of attorney coupled with an interest and such appointment shall beirrevocable for the term hereof.

 

### (b)                                 Byacceptance of the benefits of this Agreement and the Security Documents:  each Secured Party shall be deemedirrevocably (1) to consent to the appointment of the Collateral Agent asits agent hereunder and under the Security Documents, (2) to confirm thatthe Collateral Agent shall have the authority to act as the exclusive agent ofsuch Secured Party for enforcement of any provisions of this Agreement and theSecurity Documents against any Grantor or the exercise of remedies hereunder orthereunder, (3) to agree that such Secured Party shall not take any actionto enforce any provisions of this Agreement or any Security Document againstany Grantor or to exercise any remedy hereunder or thereunder and (4) toagree to be bound by the terms of this Agreement and the Security Documents.

###  

### (c)                                  TheCollateral Agent hereby agrees that it holds and will hold all of its right,title and interest in, to and under the Security Documents and the Collateralgranted to the Collateral Agent thereunder whether now existing or hereafterarising (all such right, title and interest being hereinafter referred to asthe “Collateral Estate”) under and subject to the conditions set forthin this Agreement; and the Collateral Agent further agrees that it will holdsuch Collateral Estate for the benefit of the Secured Parties, for theenforcement of the payment of all Obligations (subject to the limitations andpriorities set forth herein and in the respective Security Documents) and assecurity for the performance of and compliance with the covenants andconditions of this Agreement and each of the Security Documents.

###  

## SECTION 7.02.                 *Exercise of Powers*. All of the powers, remedies and rightsof the Collateral Agent as set forth in this Agreement may be exercised bythe Collateral Agent in respect of any Security Document as though set forth infull therein and all of the powers, remedies and rights of the Collateral Agentas set forth in any Security Document may be exercised from time to timeas herein and therein provided.

 

## SECTION 7.03.                 *Remedies Not Exclusive*. (a)  No remedy conferred uponor reserved to the Collateral Agent herein or in the Security Documents isintended to be exclusive of any other remedy or remedies, but every such remedyshall be cumulative and shall be in addition to every other remedy conferredherein or in any Security Document or now or hereafter existing at law or inequity or by statute.

 

### (b)                                 Noundue delay or omission by the Collateral Agent to exercise any right, remedyor power hereunder or under any Security Document shall impair any such right,remedy or power or shall

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### 

###  

### be construedto be a waiver thereof, and every right, power and remedy given by thisAgreement or any Security Document to the Collateral Agent may beexercised from time to time and as often as may be deemed expedient by theCollateral Agent.

###  

### (c)                                  Ifthe Collateral Agent shall have proceeded to enforce any right, remedy or powerunder this Agreement or any Security Document and the proceeding for the enforcementthereof shall have been discontinued or abandoned for any reason or shall havebeen determined adversely to the Collateral Agent, then the Grantors, theCollateral Agent and the other Secured Parties shall, subject to anydetermination in such proceeding, severally and respectively be restored totheir former positions and rights hereunder or thereunder with respect to theCollateral Estate and in all other respects, and thereafter all rights,remedies and powers of the Collateral Agent shall continue as though no suchproceeding had been taken.

###  

### SECTION 7.04.                 *Waiver and**Estoppel*.

### (a)                                  EachGrantor, to the extent it may lawfully do so, on behalf of itself and allwho may claim through or under it, including without limitation any andall subsequent creditors, vendees, assignees and licensors, waives and releasesall rights to demand or to have any marshaling of the Collateral upon any sale,whether made under any power of sale granted herein or in any Security Documentor pursuant to judicial proceedings or upon any foreclosure or any enforcementof this Agreement or any Security Document and consents and agrees that all theCollateral may at any such sale be offered and sold as an entirety.

 

### (b)                                 EachGrantor waives, to the extent permitted by applicable law, presentment, demand,protest and any notice of any kind (except notices explicitly requiredhereunder or under any Security Document) in connection with this Agreement andthe Security Documents and any action taken by the Collateral Agent withrespect to the Collateral.

###  

## SECTION 7.05.                 *Limitation on Collateral Agent’s Duty in Respect of Collateral*.Except as required by applicable law, beyond its duties as to the custodythereof expressly provided herein or in any Security Document and to account tothe Secured Parties and the Grantors for moneys and other property received by ithereunder or under any Security Document and any other express duties specifiedin the Security Documents, the Collateral Agent shall not have any duty to theGrantors or to the Secured Parties as to any Collateral in its possession orcontrol or in the possession or control of any of its agents or nominees, orany income thereon or as to the preservation of rights against prior parties orany other rights pertaining thereto.

 

## SECTION 7.06.                 *Limitation by Law*. All rights, remedies and powers providedin this Agreement or any Security Document may be exercised only to theextent that the exercise thereof does not violate any applicable provision oflaw, and all the provisions hereof are intended to be subject to all applicablemandatory provisions of law which may be controlling and to be limited tothe extent necessary so that they will not render this Agreement invalid,unenforceable in whole or in part or not entitled to be recorded,registered or filed under the provisions of any applicable law.

 

## SECTION 7.07.                 *Rights of Secured Parties in Respect of Obligations*. Notwithstandingany other provision of this Agreement or any Security Document, the right ofeach Secured Party to receive payment of the Obligations held by such SecuredParty when due (whether at the stated maturity thereof, by acceleration orotherwise), as expressed in the instruments evidencing or agreements governingsuch Obligations, or to institute suit for the enforcement of such payment onor after such due date, shall not be impaired or affected without the consentof such Secured Party given in the manner prescribed by the instrumentsevidencing or agreements governing such Obligations.

 

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## SECTION 7.08.                 *Compensation and Expenses*. Each Grantor agrees to pay to theCollateral Agent, from time to time upon written demand, (a) reasonablecompensation for its services hereunder and under the Security Documents andfor administering the Collateral Estate, as agreed by the Grantors and theCollateral Agent, and (b) all of the reasonable out-of-pocket costs andexpenses of the Collateral Agent (including, without limitation, the reasonablefees and disbursements of its counsel, advisors and agents) (i) arising inconnection with the preparation, execution, delivery, modification andtermination of this Agreement and each Security Document or the enforcement ofany of the provisions hereof or thereof or (ii) incurred or required to beadvanced in connection with the sale or other disposition of Collateralpursuant to any Security Document and the preservation, protection or defenseof the Collateral Agent’s rights under this Agreement and the SecurityDocuments and in and to the Collateral and the Collateral Estate. Such fees,costs and expenses are intended to constitute expenses of administration underany bankruptcy law relating to creditors’ rights generally. The obligations ofeach Grantor under this Section 7.08 shall survive the termination of theother provisions of this Agreement and the resignation or removal of the CollateralAgent hereunder.

 

## SECTION 7.09.                 *Stamp and Other Similar Taxes*. Each Grantor agrees toindemnify and hold harmless the Collateral Agent, the Administrative Agent andeach other Secured Party from any present or future claim for liability for anystamp or any other similar tax, and any penalties or interest with respectthereto, which may be assessed, levied or collected by any jurisdiction inconnection with this Agreement, any Security Document, the Collateral Estate orany Collateral. The obligations of each Grantor under this Section 7.09shall survive the termination of the other provisions of this Agreement and theresignation or removal of the Collateral Agent hereunder.

 

## SECTION 7.10.                 *Filing Fees, Excise Taxes, etc*.Each Grantor agrees to pay orto reimburse the Collateral Agent for any and all payments made by theCollateral Agent in respect of all search, filing, recording and registrationfees, taxes, excise taxes and other similar imposts which may be payableor determined to be payable in respect of the execution and delivery of thisAgreement and each Security Document. The obligations of each Grantor underthis Section 7.10 shall survive the termination of the other provisions ofthis Agreement and the resignation or removal of the Collateral Agent hereunder.

 

## SECTION 7.11.                 *Indemnification*. Each Grantor agrees to pay, indemnify andhold the Collateral Agent, the Administrative Agent and the other SecuredParties (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 out-of-pocket expenses of counseland agents) or disbursements of any kind or nature whatsoever with respect tothe execution, delivery, enforcement, performance and administration of thisAgreement and the Security Documents, unless finally judicially determined tohave arisen from the gross negligence, bad faith or willful misconduct of theindemnified party, including for taxes in any jurisdiction in which theCollateral Agent is subject to tax by reason of actions hereunder or under theSecurity Documents, unless such taxes are imposed on or measured by compensationpaid to the Collateral Agent under Section 7.08. To the extent permittedby applicable law, in any suit, proceeding or action brought by the CollateralAgent under or with respect to any contract, agreement, interest or obligationconstituting part of the Collateral for any sum owing thereunder, or toenforce any provisions thereof, each Grantor will save, indemnify and keep theCollateral Agent, the Administrative Agent and the other Secured Partiesharmless from and against all expense, loss or damage suffered by reason of anydefense, setoff, counterclaim, recoupment or reduction of liability whatsoeverof the obligor thereunder, arising out of a breach by any Grantor of anyobligation thereunder or arising out of any other agreement, indebtedness orliability at any time owing to or in favor of such obligor or its successorsfrom any Grantor, and all such obligations of each Grantor shall be and remainenforceable against and only against each Grantor and shall not be enforceableagainst the Collateral Agent, the Administrative Agent or any other SecuredParty.

##  

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##  

## The agreements in this Section 7.11shall survive the termination of the other provisions of this Agreement and theresignation or removal of the Collateral Agent hereunder.

 

# ARTICLE VIII

#  

# MISCELLANEOUS

#  

## SECTION 8.01.                 *Notices*. All communications and notices hereunder shall(except as otherwise expressly permitted herein) be in writing and given asprovided in Section 9.01 of the Credit Agreement. All communications andnotices hereunder to any Subsidiary Guarantor shall be given to it c/o theBorrower at the Borrower’s address as provided in Section 9.01 of theCredit Agreement, with a copy to the Borrower.

 

## SECTION 8.02.                 *Survival of Agreement*. All covenants, agreements,representations and warranties made by any Grantor herein and in thecertificates or other instruments prepared or delivered in connection with orpursuant to this Agreement or any other Loan Document shall be considered tohave been relied upon by the Collateral Agent and the other Secured Parties andshall survive the making by the Lenders of the Loans and the Lenders’ issuanceof and participations in Letters of Credit, regardless of any investigationmade by the Secured Parties or on their behalf, and shall continue in fullforce and effect until this Agreement shall terminate.

 

## SECTION 8.03.                 *Binding Effect*. This Agreement shall become effective as toany Grantor when a counterpart hereof executed on behalf of such Grantorshall have been delivered to the Collateral Agent and a counterpart hereofshall have been executed on behalf of the Collateral Agent, and thereaftershall be binding upon such Grantor and the Collateral Agent and theirrespective successors and assigns, and shall inure to the benefit of suchGrantor, the Collateral Agent and the other Secured Parties and theirrespective permitted successors and assigns, except that no Grantor shall havethe right to assign or transfer its rights or obligations hereunder or anyinterest herein or in the Collateral (and any such assignment or transfer shallbe void) except as expressly permitted by each of the other Loan Documents.

 

## SECTION 8.04.                 *Successors and Assigns*. Whenever in this Agreement any ofthe parties hereto is referred to, such reference shall be deemed to includethe permitted successors and assigns of such party; and all covenants, promisesand agreements by or on behalf of any Grantor or the Collateral Agent that arecontained in this Agreement shall bind and inure to the benefit of theirrespective successors and assigns.

 

## SECTION 8.05.                 ***GOVERNING LAW*. THIS AGREEMENT SHALL BECONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OFNEW YORK.**

 

## SECTION 8.06.                 *Waivers; Amendment; Several Agreement*. (a)  Nofailure or delay of the Collateral Agent in exercising any power or righthereunder shall operate as a waiver thereof, nor shall any single or partialexercise of any such right or power, or any abandonment or discontinuance ofsteps to enforce such a right or power, preclude any other or further exercisethereof or the exercise of any other right or power. The rights and remedies ofthe Collateral Agent hereunder and of the other Secured Parties under the otherLoan Documents are cumulative and are not exclusive of any rights or remediesthat they would otherwise have. No waiver of any provisions of this Agreementor any other Loan Document or consent to any departure by any Grantor therefromshall in any event be effective unless the same shall be permitted byparagraph (b) below, and then such waiver or consent shall beeffective only in the specific instance and for the purpose for which given. Nonotice to or demand on any Grantor in any case

##  

## 24

## 

##  

## shall entitle such Grantor orany other Grantor to any other or further notice or demand in similar or othercircumstances.

 

### (b)                                 Neitherthis Agreement nor any provision hereof may be waived, amended or modifiedexcept pursuant to an agreement or agreements in writing entered into among theBorrower, the Collateral Agent and the Grantors with respect to which suchwaiver, amendment or modification is to apply, subject to any consents requiredin accordance with Section 9.08 of the Credit Agreement.

###  

### (c)                                  ThisAgreement shall be construed as a separate agreement with respect to eachGrantor and may be amended, modified, supplemented, waived or releasedwith respect to any Grantor without the approval of any other Grantor andwithout affecting the obligations of any other Grantor hereunder.

###  

## SECTION 8.07.                 ***WAIVER OF JURY TRIAL*. EACH PARTY HERETOHEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVETO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISINGOUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOANDOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENTOR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THATSUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THEFOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETOHAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, ASAPPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS INTHIS SECTION 8.07.**

 

## SECTION 8.08.                 *Severability*. In the event any one or more of the provisionscontained in this Agreement should be held invalid, illegal or unenforceable inany respect, the validity, legality and enforceability of the remainingprovisions contained herein shall not in any way be affected or impairedthereby (it being understood that the invalidity of a particular provision in aparticular jurisdiction shall not in and of itself affect the validity of suchprovision in any other jurisdiction). The parties shall endeavor in good-faithnegotiations to replace the invalid, illegal or unenforceable provisions withvalid provisions the economic effect of which comes as close as possible tothat of the invalid, illegal or unenforceable provisions. It is understood andagreed among the parties that this Agreement shall create separate securityinterests in the Collateral securing the Obligations as provided in Section 2.01,and that any determination by any court with jurisdiction that the securityinterest securing any Obligation or class of Obligations is invalid forany reason shall not in and of itself invalidate the Security Interestssecuring any other Obligations hereunder.

 

## SECTION 8.09.                 *Counterparts*. This Agreement may be executed in two ormore counterparts, each of which shall constitute an original but all of whichwhen taken together shall constitute a single contract and shall become effectiveas provided in Section 8.03. Delivery of an executed signature page tothis Agreement by facsimile transmission or .pdf Adobe file shall be effectiveas delivery of a manually executed counterpart hereof.

 

## SECTION 8.10.                 *Headings*. Article and Section headings used hereinare for the purpose of reference only, are not part of this Agreement andare not to affect the construction of, or to be taken into consideration ininterpreting, this Agreement.

 

## SECTION 8.11.                 *Jurisdiction; Consent to Service of Process*. (a)  Eachparty hereto hereby irrevocably and unconditionally submits, for itself and itsproperty, to the nonexclusive jurisdiction of any New York State court orFederal court of the United States of America sitting in New York City,and any

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## appellate court from anythereof, in any action or proceeding arising out of or relating to thisAgreement or the other Loan Documents, or for recognition or enforcement of anyjudgment, and each of the parties hereto hereby irrevocably and unconditionallyagrees that all claims in respect of any such action or proceeding may beheard and determined in such New York State court or, to the extentpermitted by law, in such Federal court. Each of the parties hereto agrees thata final judgment in any such action or proceeding shall be conclusive and may beenforced in other jurisdictions by suit on the judgment or in any other mannerprovided by law. Nothing in this Agreement shall affect any right that theCollateral Agent or any other Secured Party may otherwise have to bringany action or proceeding relating to this Agreement or the other Loan Documentsagainst any Grantor or its properties in the courts of any jurisdiction.

 

### (b)                                 Eachparty hereto hereby irrevocably and unconditionally waives, to the fullestextent it may legally and effectively do so, any objection which it may nowor hereafter have to the laying of venue of any suit, action or proceedingarising out of or relating to this Agreement or the other Loan Documents in anyNew York State or Federal court referred to in paragraph (c) ofthis Section. Each of the parties hereto hereby irrevocably waives, to thefullest extent permitted by law, the defense of an inconvenient forum to themaintenance of such action or proceeding in any such court.

###  

### (c)                                  Eachparty to this Agreement irrevocably consents to service of process in themanner provided for notices in Section 9.15 of the Credit Agreement. Nothingin this Agreement will affect the right of any party to this Agreement to serveprocess in any other manner permitted by law.

###  

## SECTION 8.12.                 *Termination*. (a)  This Agreement and the SecurityInterests (i) shall automatically terminate when (a) all theObligations (other than contingent indemnification obligations not then claimedor due) have been paid in full, (b) the Lenders have no further commitmentto lend under the Credit Agreement or to issue or participate in Letters ofCredit and (c) the LC Exposure has been reduced to zero (at which time theCollateral Agent shall execute and deliver to the Grantors, at the Grantors’expense, all UCC termination statements and other documents which the Grantorsshall reasonably request to evidence such termination) and (ii) shallcontinue to be effective or shall be reinstated, as the case may be, if atany time any payment in respect of any Obligation is rescinded or mustotherwise be restored by any Secured Party upon any bankruptcy orreorganization of any Grantor or otherwise. Any execution and delivery oftermination statements or documents pursuant to this Section 8.12(a) shallbe without recourse to or warranty by the Collateral Agent. A SubsidiaryGuarantor shall automatically be released from its obligations hereunder andthe Security Interests in the Collateral of such Subsidiary Guarantor shall beautomatically released in the event that the Equity Interests of suchSubsidiary Guarantor shall be sold, transferred or otherwise disposed of to aPerson that is not an Affiliate of Borrower such that such Person is no longera Subsidiary of Borrower in accordance with the terms of each Loan Document.

 

### (b)                                 Uponany sale or other transfer by any Grantor of any Collateral that is permittedunder the Credit Agreement or, upon the effectiveness of any written consent tothe release of the security interests granted hereby in any Collateral pursuantto Section 9.08 of the Credit Agreement, security interests in suchCollateral shall be automatically released. In connection with such release,the Collateral Agent shall execute and deliver to any Grantor, at such Grantor’sexpense, all UCC termination statements and other documents that such Grantorshall reasonably request to evidence such termination or release. Any executionand delivery of UCC termination statements and similar documents pursuant tothis Section 8.12(b) shall be without recourse to or warranty by theCollateral Agent.

###  

## SECTION 8.13.                 *Additional Grantors*. To the extent any Domestic Subsidiaryshall be required to become a Grantor pursuant to any Loan Document, uponexecution and delivery by the Collateral Agent and such Domestic Subsidiary ofan instrument in the form of Annex I hereto, such DomesticSubsidiary shall become a Grantor hereunder with the same force and effect asif originally named as a Grantor herein. Each such Domestic Subsidiary shall atsuch time deliver to the Collateral Agent a completed

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## Perfection Certificate. Theexecution and delivery of any such instrument shall not require the consent ofany other Grantor hereunder. The rights and obligations of each Grantor thereundershall remain in full force and effect notwithstanding the addition of any newGrantor as a party to this Agreement.

 

## SECTION 8.14.                 *Financing Statements*. Each Grantor hereby irrevocablyauthorizes the Collateral Agent at any time and from time to time to file inany relevant jurisdiction (a) any filing with the United States Patent andTrademark Office or United States Copyright Office (or any successor office orany similar office in any other country), (b) any initial financingstatements (including fixture filings) and amendments thereto that contain theinformation required by Article 9 of the Uniform Commercial Code ofeach applicable jurisdiction for the filing of any financing statement oramendment relating to the Collateral, including (i) whether such Grantoris an organization, the type of organization and any organizationalidentification number issued to such Grantor, (ii) any financing orcontinuation statements or other documents without the signature of suchGrantor where permitted by law, including the filing of a financing statementdescribing the Collateral as “all assets in which the Grantor now owns orhereafter acquires rights, and the proceeds thereof” and (iii) in the caseof a financing statement filed as a fixture filing or covering Collateralconstituting minerals or the like to be extracted or timber to be cut, asufficient description of the real property to which such Collateral relates,and (c) any other documents for the purpose of perfecting, confirming,continuing, enforcing or protecting the Security Interests granted by eachGrantor without the signature of any Grantor. Each Grantor agrees to provideall information described in the immediately preceding sentence to theCollateral Agent promptly upon request. Copies of such financing statements, asfiled, should be sent promptly to the Borrower at its address provided in Section 9.01of the Credit Agreement.

 

## SECTION 8.15.                 *No Deemed Dividend.*Notwithstanding the foregoing, no LoanParty shall be required to take any action pursuant to this Agreement that theBorrower has reasonably determined would either result in adverse taxconsequences under Section 956 of the Code or would contravene anyapplicable law, rule or regulation.

 

## SECTION 8.16.                 *Collateral Agent Appointed Attorney-in-Fact*. Each Grantorhereby appoints the Collateral Agent the attorney-in-fact of such Grantor forthe purpose of carrying out the provisions of this Agreement and taking anyaction and executing any instrument that the Collateral Agent may deemnecessary to accomplish the purposes hereof, which appointment is irrevocableand coupled with an interest. Without limiting the generality of the foregoing,the Collateral Agent shall have the right, upon the occurrence and during thecontinuance of an Event of Default, with full power of substitution either inthe Collateral Agent’s name or in the name of such Grantor, (a) toreceive, endorse, assign or deliver any and all notes, acceptances, checks,drafts, money orders or other evidences of payment relating to the Collateralor any part thereof; (b) to demand, collect, receive payment of, givereceipt for and give discharges and releases of all or any of the Collateral; (c) toask for, demand, sue for, collect, receive and give acquittance for any and allmoneys due or to become due under and by virtue of any Collateral; (d) tosign the name of any Grantor on any invoice or bill of lading relating to anyof the Collateral; (e) to send verifications of Accounts to any AccountDebtor; (f) to commence and prosecute any and all suits, actions orproceedings at law or in equity in any court of competent jurisdiction to collector otherwise realize on all or any of the Collateral or to enforce any rightsin respect of any Collateral; (g) to settle, compromise, compound, adjustor defend any actions, suits or proceedings relating to all or any of theCollateral; (h) with 2 days prior notice to the Grantor to notify, or torequire any Grantor to notify Account Debtors to make payment directly to theCollateral Agent; and (i) to use, sell, assign, transfer, pledge, make anyagreement with respect to or otherwise deal with all or any of the Collateral,and to do all other acts and things necessary to carry out the purposes of thisAgreement, as fully and completely as though the Collateral Agent were theabsolute owner of the Collateral for all purposes; provided that nothingherein contained shall be construed as requiring or obligating the CollateralAgent to make any commitment or to make any inquiry

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## as to the nature or sufficiencyof any payment received by the Collateral Agent, or to present or file anyclaim or notice, or to take any action with respect to the Collateral or any part thereofor the moneys due or to become due in respect thereof or any property covered thereby.The Collateral Agent and the other Secured Parties shall be accountable onlyfor amounts actually received as a result of the exercise of the powers grantedto them herein, and neither they nor their officers, directors, employees oragents shall be responsible to any Grantor for any act or failure to acthereunder, except for their own gross negligence, willful misconduct or badfaith.

 

28

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IN WITNESSWHEREOF, the parties hereto have duly executed this Agreement as of the day andyear first above written.

 

 
|   | POLYMER GROUP, INC.                                |
|--------|---------------------------------------------------------|
|   |                                                    |
|   |                                                    |
|   | By:                                                     |   |
|   |                                                    | Name: |
|   |                                                    | Title: |
|   |                                                    |
|   |                                                    |
|   | BONLAM (S.C.), INC.                                |
|   | CHICOPEE, INC.                                     |
|   | DOMINION TEXTILE (USA) INC.                             |
|   | FABPRO ORIENTED POLYMERS, INC.                     |
|   | FABRENE CORP.                                           |
|   | FABRENE GROUP L.L.C.                                    |
|   | FIBERGOL CORPORATION                                    |
|   | FIBERTECH GROUP, INC.                              |
|   | FNA ACQUISITION, INC.                              |
|   | FNA POLYMER CORP.                                       |
|   | LORETEX CORPORATION                                     |
|   | PGI EUROPE, INC.                                   |
|   | PGI POLYMER, INC.                                  |
|   | PNA CORP.                                               |
|   | POLY-BOND INC.                                          |
|   | POLYIONIX SEPARATION TECHNOLOGIES, INC.            |
|   | PRISTINE BRANDS CORPORATION                             |
|   | TECHNETICS  GROUP, INC.,  as Subsidiary Guarantors |
|   |                                                    |
|   |                                                    |
|   | By:                                                     |   |
|   |                                                    | Name: |
|   |                                                    | Title: |

 

----

 
|   | CITICORP NORTH AMERICA, INC., |
|--------|------------------------------------|
|   |                               | as Collateral Agent |
|   |                               |
|   | By:                                |   |   |
|   |                               | Name: |   |
|   |                               | Title: |   |

 

2

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SCHEDULE I

Security Agreement

 

DOMESTIC SUBSIDIARIES

 
| **Name**                                     | ** ** | ** ** |
|----------------------------------------------|------------|------------|
|                                         |       |       |
| BONLAM (S.C.), INC.                     |       |       |
| CHICOPEE, INC.                          |       |       |
| DOMINION TEXTILE (USA) INC.                  |       |       |
| FABPRO ORIENTED POLYMERS, INC.          |       |       |
| FABRENE CORP.                                |       |       |
| FABRENE GROUP L.L.C.                         |       |       |
| FIBERGOL CORPORATION                         |       |       |
| FIBERTECH GROUP, INC.                   |       |       |
| FNA ACQUISITION, INC.                   |       |       |
| FNA POLYMER CORP.                            |       |       |
| LORETEX CORPORATION                          |       |       |
| PGI EUROPE, INC.                        |       |       |
| PGI POLYMER, INC.                       |       |       |
| PNA CORP.                                    |       |       |
| POLY-BOND INC.                               |       |       |
| POLYIONIX SEPARATION TECHNOLOGIES, INC. |       |       |
| PRISTINE BRANDS CORPORATION                  |       |       |
| TECHNETICS GROUP, INC.                  |       |       |

 

----

 

Annex I to the

Security Agreement

 

Form of Joinder Agreement

 

SUPPLEMENT NO.       dated as of[               ],to the Security Agreement (the “Security Agreement”) dated as of[            ], 2005,among POLYMER GROUP, INC., a Delaware corporation (the “Borrower”),each Domestic Subsidiary of the Borrower listed on Schedule Ithereto (collectively, together with each Domestic Subsidiary that becomes aparty thereto, the “Subsidiary Guarantors” and, together with Borrower,the “Grantors”), and CITICORP NORTH AMERICA, INC., as collateral agent(the “Collateral Agent”) on behalf of the Secured Parties (as defined inthe Credit Agreement).

 

A.                                   Referenceis made to (a) the Credit Agreement dated as of [               ],2005 (as amended, supplemented or otherwise modified from time to time, the “CreditAgreement”), among the Borrower, the Collateral Agent, Citicorp NorthAmerica, Inc., as administrative agent (in such capacity and together with any successors in such capacity, the“Administrative Agent”) for the Lenders (as defined herein), asdocumentation agent (in such capacity, the “Documentation Agent”) and assyndication agent (in such capacity, the “Syndication Agent”), andCitigroup Global Markets Inc. (“CGMI”), as sole lead arranger and solebookrunner (in such capacity, the “Lead Arranger”), and the lendinginstitutions from time to time party thereto (the “Lenders”), (b) theGuarantee Agreement dated as of [               ],2005 (as amended, supplemented or otherwise modified from time to time, the “GuaranteeAgreement”), among the Domestic Subsidiaries and the Collateral Agent, and (c) thePledge Agreement dated [               ],2005 among certain Grantors and the Collateral Agent (as amended, supplementedor otherwise modified from time to time, the “Pledge Agreement” and,together with the Security Agreement and the Guarantee Agreement, the “CollateralDocuments”).

 

B.                                     Capitalizedterms used herein and not otherwise defined herein shall have the meaningsassigned to such terms in the Security Agreement.

 

C.                                     Pursuantto Section 5.16 of the Credit Agreement, each Domestic Subsidiary of the Borrowerthat was not in existence or not a Domestic Subsidiary on the date of theCredit Agreement is required to enter into the Collateral Documents uponbecoming a Domestic Subsidiary. Each of the Collateral Documents provides thatsuch Domestic Subsidiary may become a party to the Collateral Documents byexecution and delivery of an instrument in the form of this Supplement. Theundersigned Domestic Subsidiary (the “New Domestic Subsidiary”) isexecuting this Supplement in accordance with the requirements of the CreditAgreement to become a party to the Collateral Documents.

 

Accordingly,the Collateral Agent and the New Domestic Subsidiary agree as follows:

 

SECTION 1.                                Inaccordance with Section 5.16 of the Credit Agreement, the New DomesticSubsidiary by its signature below becomes a Grantor and Pledgor under each ofthe Collateral Documents with the same force and effect as if originally namedtherein as a party thereto and hereby (a) agrees to all terms andprovisions of the Collateral Documents applicable to it as a Grantor andPledgor thereunder and (b) represents and warrants that therepresentations and warranties made by it as a Grantor and Pledgor thereunderare true and correct in all material respects on and as of the date hereof(except to the extent such representations and warranties relate to an earlierdate and in such case they shall be true and correct in all material respectsas of such date). In furtherance of the foregoing, the New Domestic Subsidiary,as security for the payment and performance in full of the Obligations (asdefined in the Security Agreement), does hereby create and grant to theCollateral Agent, its permitted successors

 

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and assigns, for the benefit of the Secured Parties and their permittedsuccessors and assigns, a security interest in and lien on all of the NewDomestic Subsidiary’s right, title and interest in and to the Collateral (asdefined in the Security Agreement) of the New Domestic Subsidiary. Each of theCollateral Documents is hereby incorporated herein by reference.

 

SECTION 2.                                TheNew Domestic Subsidiary represents and warrants to the Collateral Agent and theother Secured Parties that this Supplement has been duly authorized, executedand delivered by it and constitutes its legal, valid and binding obligation,enforceable against it in accordance with its terms, except that theenforcement thereof may be subject to bankruptcy, insolvency,reorganization, moratorium or other similar laws now or hereafter in effectrelating to creditors’ rights generally.

 

SECTION 3.                                ThisSupplement may be executed in counterparts (and by different partieshereto on different counterparts), each of which shall constitute an original,but all of which when taken together shall constitute a single contract. ThisSupplement shall become effective when the Collateral Agent shall have receivedcounterparts of this Supplement that, when taken together, bear the signaturesof the New Domestic Subsidiary and the Collateral Agent. Delivery of anexecuted signature page to this Supplement by facsimile transmission shallbe as effective as delivery of a manually signed counterpart of thisSupplement.

 

SECTION 4.                                TheNew Domestic Subsidiary hereby represents and warrants that (a) allinformation set forth in the Perfection Certificate, including the schedulesannexed thereto, has been duly prepared, completed and executed and theinformation set forth therein is correct and complete in all material respectsand (b) set forth on Schedule II attached hereto is a true andcorrect schedule describing the securities of the New Domestic Subsidiarybeing pledged hereunder.

 

SECTION 5.                                Exceptas expressly supplemented thereby, each of the Collateral Documents shallremain in full force and effect.

 

SECTION 6.                                THISSUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OFTHE STATE OF NEW YORK.

 

SECTION 7.                                Incase any one or more of the provisions contained in this Supplement should beheld invalid, illegal or unenforceable in any respect, the validity, legalityand enforceability of the remaining provisions contained herein and in theCollateral Documents shall not in any way be affected or impaired thereby (itbeing understood that the invalidity a particular provision in a particularjurisdiction shall not in and of itself affect the validity of such provisionin any other jurisdiction). The parties hereto shall endeavor in good-faithnegotiations to replace the invalid, illegal or unenforceable provisions withvalid provisions the economic effect of which comes as close as possible tothat of the invalid, illegal or unenforceable provisions.

 

SECTION 8.                                Allcommunications and notices hereunder shall be in writing and given as providedin Section 8.01 of the Security Agreement. All communications and noticeshereunder of the New Domestic Subsidiary shall be given to it at the addressset forth under its signature below.

 

SECTION 9.                                TheNew Domestic Subsidiary agrees to reimburse the Collateral Agent for itsreasonable out-of-pocket expenses in connection with this Supplement, including

 

2

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the reasonable fees, other charges and disbursements of counsel for theCollateral Agent in each case in accordance with the terms of the CreditAgreement.

 

IN WITNESSWHEREOF, the New Domestic Subsidiary and the Collateral Agent have dulyexecuted this Supplement to the Security Agreement as of the day and year firstabove written.

 

3

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|   | [Name  of New Subsidiary]                                |
|--------|----------------------------------------------------------|
|   |                                                     |
|   |                                                     |
|   | By:                                                      |   |
|   |                                                     | Name: |
|   |                                                     | Title: |
|   |                                                     | Address: |
|   |                                                     |
|   |                                                     |
|   | CITICORP  NORTH AMERICA, INC.,  as Collateral Agent |
|   |                                                     |
|   |                                                     |
|   | By:                                                      |   |
|   |                                                     | Name: |
|   |                                                     | Title: |

 

S-1

----

 

SCHEDULE I

tothe Joinder Agreement

 

Guarantors

 

----

 

SCHEDULE II

tothe Joinder Agreement

 

**PledgedSecurities of the New Grantor**

 

PLEDGED STOCK

 
| **Issuer** | ** ** | **Number of  Certificate** | ** ** | **Registered Owner** | ** ** | **Number and  Class of Shares** | ** ** | **Percentage  of Shares** | ** ** |
|------------|------------|---------------------------------|------------|---------------------------|------------|------------------------------------------------|------------|--------------------------------|------------|
|       |       |                            |       |                      |       |                                           |       |                           |       |
|       |       |                            |       |                      |       |                                           |       |                           |       |
|       |       |                            |       |                      |       |                                           |       |                           |       |

 

 

DEBT SECURITIES

 
| **Issuer** | ** ** | **Principal Amount** | ** ** | **Date of Note** | ** ** | **Maturity Date** | ** ** |
|------------|------------|---------------------------|------------|----------------------------|------------|------------------------|------------|
|       |       |                      |       |                       |       |                   |       |
|       |       |                      |       |                       |       |                   |       |
|       |       |                      |       |                       |       |                   |       |

 

----

 

Annex II to the

Security Agreement

 

Form of Perfection Certificate

 

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Annex III tothe Security Agreement

 

FORM OF NOTICE TO BAILEE OF SECURITY INTEREST IN COLLATERAL

 

CERTIFIED MAIL— RETURN RECEIPT REQUESTED

 

[                    ],200[  ]

 

TO:                            [Bailee’sName]

                                                [Bailee’sAddress]

 

Re:                               [Borrower]

 

Ladies and Gentlemen:

 

In connectionwith that certain Security Agreement, dated as of  [               ],2005 (the “Security Agreement”), made by Borrower, the Grantors partythereto and Citicorp North America, Inc. (“Citicorp”), asCollateral Agent, we have granted to the Collateral Agent a security interestin substantially all of our personal property, including our inventory.

 

This letterconstitutes notice to you, and your signature below will constitute youracknowledgment, of the Collateral Agent’s continuing security interests in allgoods with respect to which you are acting as bailee. Until you are notified inwriting to the contrary by the Collateral Agent, however, you may continueto accept instructions from us regarding the delivery of goods stored by you.

 

Youracknowledgment also constitutes a waiver and release, for the Collateral Agent’sbenefit, of any and all claims, liens, including bailee’s liens, and demands ofevery kind which you have or may later have against such property(including any right to include such property in any secured financing to whichyou may become party).

 

In order tocomplete our records, kindly have a duplicate of this letter signed by anofficer of your company and return same to us at your earliest convenience. 

 
|                                           | Very truly yours,    |
|------------------------------------------------|----------------------|
|                                           |                 |
| Receipt acknowledged, confirmed and  approved: |                 |
|                                           |                 |
|                                           |                 |
| [BAILEE]                                       | [APPLICABLE GRANTOR] |
|                                           |                 |
|                                           |                 |
| By:                                            |                 |   | By: |   |   |
|                                           | Name:                |   | Name: |
|                                           | Title:               |   | Title: |
|                                                |                      |  |  |  |  |

 

cc:                                 CiticorpNorth America, Inc.

 

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