Document:

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                                                                   EXHIBIT 10.80

                          GUARANTOR SECURITY AGREEMENT

            SECURITY AGREEMENT, dated as of May 2, 2000, made by Decora
Industries, Inc., a Delaware corporation (the "Grantor"), in favor of Ableco
Finance LLC, as collateral agent for the Lenders parties to the Financing
Agreement referred to below (in such capacity, the "Collateral Agent").

                                   WITNESSETH:

            WHEREAS, the Grantor, Decora, Incorporated (the "Borrower"), the
financial institutions from time to time party thereto (the "Lenders"), The CIT
Group/Business Credit, Inc., as administrative agent for the Lenders (the
"Administrative Agent"), and the Collateral Agent, are parties to a Financing
Agreement, dated as of the date hereof (such Agreement, as amended, restated or
otherwise modified from time to time, being hereinafter referred to as the
"Financing Agreement");

            WHEREAS, pursuant to the Financing Agreement, the Lenders have
agreed to extend credit to the Grantor consisting of (i) term loans to the
Grantor in an aggregate principal amount at any one time outstanding not to
exceed $13,000,000 and (ii) revolving credit loans to the Grantor in an
aggregate principal amount at any one time outstanding not to exceed $14,000,000
(each a "Loan" and collectively, the "Loans"), which will include a letter of
credit (the "Support Letter of Credit") issued with the assistance of the
Administrative Agent and the Lenders for the account of the Grantor;

            WHEREAS, it is a condition precedent to the Lenders making any Loan
or assisting the Borrower in obtaining the issuance of the Support Letter of
Credit pursuant to the Financing Agreement that the Grantor shall have executed
and delivered to the Collateral Agent a security agreement providing for the
grant to the Collateral Agent for the benefit of the Lenders of a security
interest in all personal property of the Grantor, except as otherwise noted
herein;

            NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans and to
assist the Borrower in obtaining the issuance of the Support Letter of Credit
pursuant to the Financing Agreement, the Grantor hereby agrees with the
Collateral Agent as follows:

            SECTION 1. Definitions. Reference is hereby made to the Financing
Agreement for a statement of the terms thereof. All terms used in this Agreement
which are defined in the Financing Agreement or in Article 9 of the Uniform
Commercial Code (the "Code") currently in effect in the State of New York and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein. In addition, as used in this Agreement, the following terms
shall have the following meanings:

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            "Guaranteed Other Obligations" means any Guaranteed Obligations (as
defined in Section 3 hereof) other than Guaranteed Term Loan Obligations.

            "Guaranteed Term Loan Obligations" means any Guaranteed Obligations
with respect to the Term Loans (including, without limitation, the principal
thereof, the interest thereon, and fees and expenses specifically related
thereto).

            SECTION 2. Grant of Security Interest. (a) As collateral security
for all of the Guaranteed Other Obligations, the Grantor hereby pledges and
assigns to the Collateral Agent, and grants to the Collateral Agent for the
benefit of the Lenders a continuing security interest in, all personal property
and fixtures of the Grantor, wherever located and whether now or hereafter
existing and whether now owned or hereafter acquired, of every kind and
description, tangible or intangible, including, without limitation, all of the
Grantor's right, title and interest in and to the following (the "Collateral"):

            (i) all equipment of any kind including, without limitation, all
furniture, fixtures and machinery, wherever located and whether now or hereafter
existing and whether now owned or hereafter acquired, together with all
substitutes, replacements, accessions and additions thereto, and all tools,
parts, accessories and attachments used in connection therewith (hereinafter
collectively referred to as the "Equipment");

            (ii) all inventory of any kind wherever located and whether now or
hereafter existing and whether now owned or hereafter acquired (including,
without limitation, all types of inventory, merchandise, goods, property and
other assets that are held by the Grantor for sale, lease or other disposition
or to be furnished under a contract for services, whether such inventory,
merchandise, goods, property and other assets are raw, in process or finished
goods, and materials used or consumed in the business of the Grantor, and goods
returned to or repossessed by the Grantor and goods in which the Grantor has an
interest in mass or in joint or other interest or right of any kind, including
consigned goods and goods being processed), and all accessions thereto and
products thereof and all packing and shipping materials (any and all such
inventory, accessions and products being hereinafter referred to as the
"Inventory");

            (iii) (A) all present and future accounts, contract rights, chattel
paper, documents, instruments, general intangibles and other obligations of any
kind arising out of or in connection with the sale, lease or other disposition
of goods or the rendering of services or otherwise; (B) all of the Grantor's
right, title and interest, and all of the Grantor's rights, remedies, security
and Liens, in, to and in respect of any credit insurance, accounts (including,
without limitation, rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party), guaranties or other contracts of suretyship with respect to accounts,
and deposits or other security for the obligation of any Account Debtor; (C) all
rights relating to the sale or other transfer of property to, or the
construction, renovation, processing or other improvement of property by or for
the Grantor; (D) all rights now or hereafter existing in and to all letters of
credit, security agreements, leases and other contracts now or hereafter
existing and securing or otherwise relating to such accounts, contract rights,
chattel paper, instruments, documents, general intangibles or other rights or
obligations (including, without limitation, the contracts described in Schedule
I hereto); and (E) all of the Grantor's right,

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title and interest in, to and in respect of all goods relating to, or which by
sale have resulted in, accounts, including, without limitation, all goods
described in invoices or other documents or instruments with respect to, or
otherwise representing or evidencing, any accounts, and all returned, reclaimed
or repossessed goods (any and all such accounts, contract rights, chattel paper,
instruments, documents, general intangibles and obligations being hereinafter
referred to collectively as the "Receivables", and any and all such credit
insurance, guaranties, letters of credit, security agreements, leases and other
contracts being hereinafter referred to collectively as the "Related
Contracts");

            (iv) (A) all trademarks, service marks, trade names, business names,
d/b/a's, Internet domain names, trade styles, designs, logos and other source or
business identifiers and all general intangibles of like nature, now or
hereafter owned, adopted, acquired or used by the Grantor (including, without
limitation, all trademarks and service marks described in Schedule II hereto and
all trade names, business names, trade styles, designs, logos and other source
or business identifiers described in Schedule VI hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision thereof), and
all reissues, extensions or renewals thereof, together with all goodwill of the
business symbolized by such marks and all customer lists, formulae and other
records of the Grantor relating to the distribution of products and services in
connection with which any of such marks are used, and all income, royalties,
damages and payments now or hereafter due and/or payable under and with respect
thereto, including, without limitation, payments under all licenses entered into
in connection therewith and damages and payments for past and future
infringements or dilutions thereof and the right to sue for past, present and
future infringements and dilutions thereof (hereinafter referred to collectively
as the "Trademarks"), and (B) all licenses, contracts or other agreements,
whether written or oral, naming the Grantor as licensor or licensee and
providing for the grant of any right to use any Trademark, including, without
limitation, all trademark licenses described in Schedule II hereto, together
with any goodwill connected with and symbolized by any such trademark licenses
or agreements and the right to prepare for sale and sell any and all Inventory
now or hereafter owned by the Grantor and now or hereafter covered by such
licenses (hereinafter referred to collectively as the "Trademark Licenses");

            (v) (A) all letters patent, design patents and utility patents, and
all inventions, trade secrets, proprietary information and technology, know-how,
formulae and other general intangibles of like nature, now existing or hereafter
acquired (including, without limitation, all letters patent, design patents and
utility patents and applications therefor described in Schedule III hereto), all
applications, issuances and recordings thereof (including, without limitation,
applications, issuances and recordings in the United States Patent and Trademark
Office or in any similar office or agency of the United States or any other
country or any political subdivision thereof), and all reissues, divisions,
continuations, continuations-in-part and extensions or renewals thereof
(hereinafter referred to collectively as the "Patents"), and (B) all licenses,
contracts or other agreements, whether written or oral, naming the Grantor as
licensee or licensor and providing for the grant of any right to manufacture,
use or sell any invention covered by any patent (hereinafter referred to
collectively as the "Patent Licenses") (including, without limitation, all
Patent Licenses set forth in Schedule III hereto);

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            (vi) (A) all copyrights, including, without limitation, all original
works of authorship fixed in any tangible medium of expression, acquired or used
by the Grantor (including, without limitation, all copyrights described in
Schedule IV hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Copyright Office or in any similar office or agency of the
United States or any other country or any political subdivision thereof), and
all reversions, restorations, continuations, continuations in part and
extensions or renewals thereof (hereinafter referred to collectively as the
"Copyrights"), and (B) all licenses, contracts or other agreements, whether
written or oral, naming the Grantor as licensee or licensor and providing for
the grant of any right to use or sell any works covered by any copyright
(hereinafter referred to collectively as the "Copyright Licenses" and together
with the Trademark Licenses and the Patent Licenses, the "Licenses") (including,
without limitation, all Copyright Licenses set forth in Schedule IV hereto);

            (vii) (A) all moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, any Agent or
any Lender from or for the Grantor, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of the Grantor's sums and credits
with, and all of the Grantor's claims against any Agent or any Lender at any
time existing; (B) all rights, interests, choses in action, causes of actions,
claims and all other intangible property of every kind and nature, in each
instance whether now owned or hereafter acquired by the Grantor, including,
without limitation, all corporate and other business records, all loans,
royalties, and all other forms of obligations receivable whatsoever (other than
Receivables); (C) all computer programs, software, printouts and other computer
materials, customer lists, credit files, correspondence, advertising materials
and other source or business identifiers; (D) all customer and supplier
contracts, sale orders, rights under license and franchise agreements, and other
contracts and contract rights; (E) all interests in partnerships, limited
liability companies and joint ventures, including all moneys due from time to
time in respect thereof; (F) all federal, state and local tax refunds and
federal, state and local tax refund claims and all judgments in favor of Grantor
and all of Grantor's rights with respect thereto; (G) all right, title and
interest under leases, subleases, licenses and concessions and other agreements
relating to personal property, including all moneys due from time to time in
respect thereof; (H) all payments due or made to the Grantor in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of any
property by any Person or Governmental Authority; (I) all lock-box and all
deposit accounts (general or special) or other accounts with any bank or other
financial institution, including, without limitation, all depository or other
accounts maintained by the Grantor at any Agent or any Lender and all funds on
deposit therein; (J) all credits with and other claims against third parties
(including carriers and shippers) (other than Receivables); (K) all rights to
indemnification; (L) all reversionary interests in pension and profit sharing
plans and reversionary, beneficial and residual interests in trusts; (M) all
proceeds of insurance of which the Grantor is the beneficiary; (N) all letters
of credit, guaranties, liens, security interests and other security held by or
granted to the Grantor; (O) all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral; and (P) all general
intangibles, whether or not similar to the foregoing, in each instance, however
and wherever arising;

            (viii) the books and records of the Grantor relating to any of the
foregoing Collateral, including, without limitation, all customer contracts,
sale orders, minute books, ledgers, records, computer programs, software,
printouts and other computer materials, customer

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lists, credit files, correspondence and advertising materials, in each case
indicating, summarizing or evidencing any of the Collateral;

            (ix) all investment property, securities, securities accounts,
financial assets and securities entitlements of the Grantor, excluding the
Capital Stock of any Restricted Subsidiary (as defined in the Indenture) of the
Grantor; and

            (x) all cash and non-cash proceeds of any and all of the foregoing
Collateral (including, without limitation, (A) damages and payments for past or
future infringements of the Trademarks, the Patents or the Copyrights and (B)
the right to sue for past, present and future infringements of the Trademarks,
the Patents or the Copyrights) and, to the extent not otherwise included, all
payments under insurance (whether or not the Collateral Agent is the loss payee
thereof) and any indemnity, warranty or guaranty payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral;

in each case howsoever the Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise);

            (b) As collateral security for all of the Guaranteed Term Loan
Obligations, the Grantor hereby pledges and assigns to the Collateral Agent, and
grants to the Collateral Agent for the benefit of the Lenders a continuing
security interest in, all of the Collateral.

            (c) The Collateral Agent's security interest in the Collateral
securing the Guaranteed Other Obligations shall have priority over the
Collateral Agent's security interest in the Collateral securing the Guaranteed
Term Loan Obligations.

            SECTION 3. Security for Guaranteed Obligations. The security
interest created hereby in the Collateral constitutes continuing collateral
security for all of the following obligations, whether now existing or hereafter
incurred (the "Guaranteed Obligations"):

            (a) the prompt payment by the Grantor, as and when due and payable
(by scheduled maturity, required prepayment, acceleration, demand or otherwise),
of all amounts from time to time owing by it in respect of its guaranty made
pursuant to Article XI of the Financing Agreement dated the date hereof, in
favor of the Agents and the Lenders, whether for principal, interest (including,
without limitation, all interest that accrues after the commencement of any
case, proceeding or other action relating to bankruptcy, insolvency or
reorganization of the Grantor, whether or not a claim for post-filing interest
is allowed in such proceeding), Letter of Credit Obligations, fees,
indemnification payments, expense reimbursements or otherwise; and

            (b) the due performance and observance by the Grantor of all of its
other obligations from time to time existing in respect of its guaranty made
pursuant to Article XI of the Financing Agreement and all other Loan Documents
to which it is a party.

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            SECTION 4. Representations and Warranties. The Grantor represents
and warrants as follows:

            (a) There is no pending or, to the knowledge of the Grantor,
threatened action, suit, proceeding or claim before any court or other
Governmental Authority or any arbitrator, or any order, judgment or award by any
court or other Governmental Authority or arbitrator, that may adversely affect
the grant by the Grantor, or the perfection, of the security interest purported
to be created hereby in the Collateral, or the exercise by the Collateral Agent
of any of its rights or remedies hereunder.

            (b) All taxes, assessments and other governmental charges imposed
upon the Grantor or any property of the Grantor (including, without limitation,
all federal income and social security taxes on employees' wages) and which have
become due and payable on or prior to the date hereof have been paid, except to
the extent contested in good faith by proper proceedings which stay the
imposition of any penalty, fine and Lien resulting from the non-payment thereof
and with respect to which adequate reserves in accordance with GAAP have been
established for the payment thereof.

            (c) All Equipment and Inventory now existing is, and all Equipment
and Inventory hereafter existing will be located at the addresses specified
therefor in Schedule V hereto or at such other locations permitted by the terms
of Section 5(b) hereof. The Grantor's chief place of business and chief
executive office, the place where the Grantor keeps its records concerning
Receivables and all originals of all chattel paper which constitute Receivables
are located at the addresses specified therefor in Schedule V hereto. None of
the Receivables is evidenced by a promissory note or other instrument. Set forth
in Schedule VI hereto is a complete and correct list of each trade name used by
the Grantor.

            (d) The Grantor has delivered to the Collateral Agent complete and
correct copies of each Related Contract described on Schedule I hereto, which
represent all of the Related Contracts existing on the date of this Agreement
and each License described in Schedule II, Schedule III and Schedule IV hereto,
including in each such case all schedules and exhibits thereto. Each Related
Contract and License sets forth the entire agreement and understanding of the
parties thereto relating to the subject matter thereof, and there are no other
agreements, arrangements or understandings, written or oral, relating to the
matters covered thereby or the rights of the Grantor in respect thereof. Each
Related Contract now existing is, and each other Related Contract will be, the
legal, valid and binding obligation of the Grantor, and to the best knowledge of
the Grantor, the other parties thereto, enforceable against the Grantor, and to
the best knowledge of the Grantor, the other parties thereto, in accordance with
its terms. No default thereunder by the Grantor and, to the best knowledge of
the Grantor, any other party thereto, has occurred, nor does any defense,
offset, deduction or counterclaim exist thereunder in favor of the Grantor, or
to the best knowledge of the Grantor, the other party thereto.

            (e) The Grantor owns, or otherwise possesses adequate rights to use,
all Trademarks, Patents and Copyrights necessary to conduct its business in
substantially the same manner as conducted as of the date hereof. Schedule II
hereto sets forth a true and complete list of all Trademarks owned by the
Grantor and all Trademark Licenses to which the Grantor is a

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party, in each case as of the date hereof. Schedule III hereto sets forth a true
and complete list of all Patents and Patent Licenses owned or used by the
Grantor as of the date hereof. Schedule IV hereto sets forth a true and complete
list of all Copyrights owned by the Grantor and all Copyright Licenses (other
than licenses for commercially available software entered into by the Grantor in
the ordinary course of its business) to which the Grantor is a party, in each
case as of the date hereof. All of such Patents, Trademarks and Copyrights are
subsisting and in full force and effect, have not been abandoned in whole or in
part, have not been adjudged invalid or unenforceable, and to the best knowledge
of the Grantor, are valid and enforceable. Except as set forth in Schedule II,
III or IV hereto, (i) none of such Patents, Trademarks or Copyrights is the
subject of any licensing or franchising agreement and (ii) the Grantor has no
knowledge of any conflict with the rights of others to any Trademark, Patent or
Copyright and, to the best knowledge of the Grantor, the Grantor is not now
infringing or in conflict with any such rights of others in any material
respect, and to the best knowledge of the Grantor, no other Person is now
infringing or in conflict in any material respect with any such properties,
assets and rights owned or used by the Grantor.

            (f) The Grantor is and will be at all times the sole and exclusive
owner of the Collateral free and clear of any Lien, except for (i) the security
interest created by this Agreement, and (ii) the security interests and other
encumbrances permitted by the Financing Agreement. No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording or filing office, except (i) such as may
have been filed in favor of the Collateral Agent relating to this Agreement, and
(ii) such as may have been filed to perfect or protect any security interest or
encumbrance permitted by the Financing Agreement.

            (g) The exercise by the Collateral Agent of any of its rights and
remedies hereunder will not contravene law or any contractual restriction
binding on or otherwise affecting the Grantor or any of its properties and will
not result in or require the creation of any Lien, security interest or other
charge or encumbrance upon or with respect to any of its properties.

            (h) No authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority or any other Person, is required
for (i) the grant by the Grantor, or the perfection, of the security interest
purported to be created hereby in the Collateral or (ii) the exercise by the
Collateral Agent of any of its rights and remedies hereunder, except (A) for the
filing under the Uniform Commercial Code as in effect in the applicable
jurisdiction of the financing statements described in Schedule VII hereto, (B)
with respect to the perfection of the security interest created hereby in the
United States Trademarks and the United States Patents, for the recording of the
Collateral Assignment for Security (Trademarks), substantially in the form of
Exhibit A hereto and the Collateral Assignment for Security (Patents),
substantially in the form of Exhibit B hereto, in the United States Patent and
Trademark Office, (C) with respect to the perfection of the security interest
created hereby in the United States Copyrights, the registration of such United
States Copyrights and the recordation of the Collateral Assignment for Security
(Copyrights), substantially in the form of Exhibit C hereto, in the United
States Copyright Office or (D) with respect to the perfection of the security
interest created hereby in foreign Trademarks, Patents and Copyrights, for
recordings and filings in jurisdictions located outside of the United States and
covering rights in such jurisdictions relating to Patents, Trademarks,
Copyrights, Patent Licenses, Trademark Licenses and Copyright Licenses.

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            (i) This Agreement creates valid security interests in favor of the
Collateral Agent for the benefit of the Lenders in the Collateral, as security
for the Guaranteed Obligations. The Collateral Agent's having possession of all
instruments and cash constituting Collateral from time to time, the recording of
the Collateral Assignment for Security (Trademarks), the Collateral Assignment
for Security (Patents) and the Collateral Assignment for Security (Copyrights),
as applicable, executed pursuant hereto in the United States Patent and
Trademark Office and the United States Copyright Office, as applicable, and the
filing of the financing statements described in Schedule VII hereto and, with
respect to Patents, Trademarks and Copyrights hereafter existing and not covered
by a Collateral Assignment for Security (Trademarks), a Collateral Assignment
for Security (Patents) or a Collateral Assignment for Security (Copyrights), as
applicable, the recording in the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, of appropriate instruments of
assignment with respect to such after-acquired Patents, Trademarks and
Copyrights and, in the case of such after acquired Copyrights, the registration
of such Copyrights in the United States Copyright Office, result in the
perfection of such security interests. Such security interests are, or in the
case of Collateral in which the Grantor obtains rights after the date hereof,
will be, perfected, first priority security interests, subject only to the
security interests and other encumbrances permitted pursuant to the Financing
Agreement. Such filings and all other action necessary or desirable to perfect
and protect such security interests have been duly taken, except for the
Collateral Agent's having possession of Collateral constituting of instruments
or cash after the date hereof, the recording of a Collateral Assignment for
Security (Trademarks), a Collateral Assignment for Security (Patents) or a
Collateral Assignment for Security (Copyrights), as applicable, with respect to
hereafter existing Trademarks, Patents or Copyrights and the taking of
appropriate action with respect to foreign Trademarks.

            SECTION 5. Covenants as to the Collateral. So long as any of the
Guaranteed Obligations shall remain outstanding or the Total Commitment shall
not have terminated, unless the Collateral Agent shall otherwise consent in
writing:

            (a) Further Assurances. The Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable or that
the Collateral Agent may request in order (i) to perfect and protect the
security interest purported to be created hereby; (ii) to enable the Agent to
exercise and enforce its rights and remedies hereunder in respect of the
Collateral; or (iii) otherwise to effect the purposes of this Agreement,
including, without limitation: (A) marking conspicuously each chattel paper
included in the Receivables and each License and Related Contract and, at the
request of the Collateral Agent, each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Collateral
Agent, indicating that such chattel paper, License, Related Contract or
Collateral is subject to the security interest created hereby, (B) if any
Receivable shall be evidenced by a promissory note or other instrument or
chattel paper, delivering and pledging to the Collateral Agent hereunder any
such note, instrument or chattel paper duly endorsed and accompanied by executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Collateral Agent, (C) executing and filing such financing or continuation
statements, or amendments thereto, as may be necessary or desirable or that the
Collateral Agent may request in order to perfect and preserve the security
interest purported to be created hereby, and (D) furnishing to the Collateral
Agent from time to

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time statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Collateral Agent
may reasonably request, all in reasonable detail.

            (b) Location of Equipment and Inventory. The Grantor will keep the
Equipment and Inventory (other than used Equipment and Inventory sold in the
ordinary course of business in accordance with Section 5(g) hereof) at the
locations specified therefor in Section 4(c) hereof, or, upon not less than
thirty (30) days' prior written notice to the Collateral Agent accompanied by a
new Schedule V hereto indicating each new location of the Equipment and
Inventory, at such other locations in the continental United States as the
Grantor may elect, provided that (i) all action has been taken to grant to the
Collateral Agent a perfected, first priority security interest in such Equipment
and Inventory, and (ii) the Collateral Agent's rights in such Equipment and
Inventory, including, without limitation, the existence, perfection and priority
of the security interest created hereby in such Equipment and Inventory, are not
adversely affected thereby.

            (c) Condition of Equipment. The Grantor will maintain or cause to be
maintained in good repair, working order and condition, excepting ordinary wear
and tear and damage due to casualty, all of the Equipment and make or cause to
be made all of the appropriate repairs, renewals and replacements thereof which
are necessary or desirable and consistent with past practice of the Grantor, as
quickly as practicable after the occurrence of any loss or damage thereto. The
Grantor shall promptly furnish to the Collateral Agent a statement describing in
reasonable detail any loss or damage in excess of $100,000 to any Equipment or
Inventory due to casualty.

            (d) Taxes, Etc. The Grantor will pay promptly when due all property
and other taxes, assessments and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory, except to the extent the validity thereof is being
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves in accordance with GAAP have been set aside for the
payment thereof.

            (e) Insurance.

                  (i) The Grantor will, at its own expense, maintain insurance
      (including, without limitation, comprehensive general liability and
      property insurance) with respect to the Equipment and Inventory in such
      amounts, against such risks, in such form and with such insurers as shall
      be reasonably satisfactory to the Collateral Agent from time to time. Each
      policy for liability insurance shall provide for all losses to be paid on
      behalf of the Collateral Agent and the Grantor as their respective
      interests may appear. Each policy for property damage insurance shall
      provide for all losses, except for losses of less than $100,000 per
      occurrence to be adjusted with, and paid directly to, the Collateral
      Agent. Each such policy shall in addition (A) name the Grantor and the
      Collateral Agent as insured parties thereunder (without any representation
      or warranty by or obligation upon the Collateral Agent) as their interests
      may appear, (B) contain the agreement by the

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      insurer that any loss thereunder shall be payable to the Collateral Agent
      on its own account, notwithstanding any action, inaction or breach of
      representation or warranty by the Grantor, (C) provide that there shall be
      no recourse against the Collateral Agent for payment of premiums or other
      amounts with respect thereto, and (D) provide that at least 30 days' prior
      written notice of cancellation or of lapse shall be given to the
      Collateral Agent by the insurer. The Grantor will, if so requested by the
      Collateral Agent, deliver to the Collateral Agent original or duplicate
      policies of such insurance and, as often as the Collateral Agent may
      reasonably request, a report of a reputable insurance broker with respect
      to such insurance. The Grantor will also, at the request of the Collateral
      Agent, execute and deliver instruments of assignment of such insurance
      policies and cause the respective insurers to acknowledge notice of such
      assignment.

                  (ii) Payment under any liability insurance maintained by the
      Grantor pursuant to this Section 5(e) may be paid directly to the Person
      who shall have incurred liability covered by such insurance. In the case
      of any loss involving damage to Equipment or Inventory as to which clause
      (iii) of this Section 5(e) is not applicable, the Grantor will make or
      cause to be made the necessary repairs to or replacements of such
      Equipment and Inventory, and any proceeds of insurance maintained by the
      Grantor pursuant to this Section 5(e) shall be paid to the Grantor as
      reimbursement for the costs of such repairs or replacements.

                  (iii) Upon the occurrence and during the continuance of an
      Event of Default under the Financing Agreement or the actual or
      constructive total loss of any Equipment that will not be promptly
      replaced with the proceeds of such insurance or Inventory, all insurance
      payments in respect of such Equipment and Inventory shall be paid to the
      Collateral Agent and applied as specified in Section 7(b) hereof.

            (f) Provisions Concerning the Receivables, the Related Contracts and
the Licenses.

                  (i) The Grantor will (A) give the Collateral Agent at least 30
      days' prior written notice of any change in the Grantor's name, identity
      or corporate structure, (B) keep its chief place of business and chief
      executive office and all originals of all chattel paper which constitute
      Receivables at the location(s) specified therefor in Schedule V hereof,
      and (C) keep adequate records concerning the Receivables and such chattel
      paper and permit representatives of the Collateral Agent to inspect and
      make abstracts from such records and chattel paper pursuant to the terms
      of the Financing Agreement.

                  (ii) The Grantor will duly perform and observe all of its
      obligations under each Related Contract and, except as otherwise provided
      in this subsection (f), continue to collect, at its own expense, all
      amounts due or to become due under the Receivables. In connection with
      such collections, the Grantor may (and, at the Administrative Agent's
      direction, will) take such action as the Grantor or the Administrative
      Agent may deem necessary or advisable to enforce collection or performance
      of the Receivables; provided, however, that the Collateral Agent shall
      have the right at any time, upon the occurrence and during the continuance
      of an Event of

                                       10
<PAGE>   11
      Default, to notify the Account Debtors or obligors under any Receivables
      of the assignment of such Receivables to the Collateral Agent and to
      direct such Account Debtors or obligors to make payment of all amounts due
      or to become due to the Grantor thereunder directly to the Collateral
      Agent or its designated agent and, upon such notification and at the
      expense of the Grantor and to the extent permitted by law, to enforce
      collection of any such Receivables and to adjust, settle or compromise the
      amount or payment thereof, in the same manner and to the same extent as
      the Grantor might have done. After receipt by the Grantor of a notice from
      the Collateral Agent that the Collateral Agent has notified or intends to
      notify the Account Debtors or obligors under any Receivables as referred
      to in the proviso to the immediately preceding sentence (A) all amounts
      and proceeds (including instruments) received by the Grantor in respect of
      the Receivables shall be received in trust for the benefit of the
      Collateral Agent hereunder, shall be segregated from other funds of the
      Grantor and shall be forthwith paid over to the Collateral Agent in the
      same form as so received (with any necessary indorsement) to be held as
      cash collateral and either (1) credited to the relevant Loan Account so
      long as no Event of Default shall have occurred and be continuing or (2)
      if any Event of Default shall have occurred and be continuing, applied as
      specified in Section 7(b) hereof, and (B) the Grantor will not adjust,
      settle or compromise the amount or payment of any Receivable or release
      wholly or partly any Account Debtor or obligor thereof or allow any credit
      or discount thereon. In addition, upon the occurrence and during the
      continuance of an Event of Default, the Collateral Agent shall have the
      right to notify the United States Postal Service authorities to change the
      address for delivery of mail addressed to the Grantor to such address as
      the Collateral Agent may designate and to do all other acts and things
      necessary to carry out this Agreement.

                  (iii) Upon the occurrence and during the continuance of any
      breach or default under any Related Contract referred to in Schedule I
      hereto or otherwise specified in writing by any Agent from time to time or
      any License referred to in Schedule II, III or IV hereto by any party
      thereto other than the Grantor, the Grantor will (A) promptly after
      obtaining knowledge thereof, give each Agent written notice of the nature
      and duration thereof, specifying what action, if any, it has taken and
      proposes to take with respect thereto, and (B) upon written instructions
      from any Agent and at the Grantor's expense, take such action as such
      Agent may deem necessary or advisable in respect thereof.

                  (iv) The Grantor will, at its expense, promptly deliver to
      each Agent a copy of each notice or other communication received by it by
      which any other party to any Related Contract referred to in Schedule I
      hereto or otherwise specified by any Agent from time to time or any
      License referred to in Schedule II, III or IV hereto purports to exercise
      any of its rights or affect any of its obligations thereunder, together
      with a copy of any reply by the Grantor thereto.

                  (v) The Grantor will exercise promptly and diligently each and
      every right which it may have under each License (other than any right of
      termination) to the extent warranted in the conduct of the business and
      will duly perform and observe in all respects all of its obligations under
      each License and will take all action necessary to maintain all Licenses
      necessary for the operation of its business in full force and effect.

                                       11
<PAGE>   12
      The Grantor will not, without the prior written consent of the Collateral
      Agent, cancel, terminate, amend or otherwise modify in any material
      respect, or waive any material provision of, any Related Contract referred
      to in Schedule I hereto or any License referred to in Schedule II, III or
      IV hereto.

            (g) Transfers and Other Liens.

                  (i) The Grantor will not sell, assign (by operation of law or
      otherwise), lease, exchange or otherwise transfer or dispose of any of the
      Collateral except to the extent permitted under Section 7.02(c)(ii) of the
      Financing Agreement, subject to the obligation of the Borrower to make
      payments pursuant to Section 2.05(c) of the Financing Agreement.

                  (ii) The Grantor will not create or suffer to exist any Lien,
      security interest or other charge or encumbrance upon or with respect to
      any Collateral, except for (A) the Liens and security interest created by
      this Agreement and the other Loan Documents and (B) the Liens, security
      interests and other encumbrances permitted by the Financing Agreement.

            (h) Trademarks, Patents and Copyrights.

                  (i) If applicable, the Grantor has duly executed and delivered
      the Collateral Assignment for Security (Trademarks) in the form attached
      hereto as Exhibit A, the Collateral Assignment for Security (Patents) in
      the form attached hereto as Exhibit B or the Collateral Assignment for
      Security (Copyrights) in the form attached hereto as Exhibit C. The
      Grantor (either itself or through licensees) will, and will cause each
      licensee thereof to, take all action necessary to maintain all of the
      Trademarks, Patents and Copyrights in full force and effect, including,
      without limitation, using the proper statutory notices and markings and
      using the Trademarks on each applicable trademark class of goods in order
      to so maintain the Trademarks in full force free from any claim of
      abandonment for non-use, and the Grantor will not (and will not permit any
      licensee thereof to) do any act or knowingly omit to do any act whereby
      any Trademark, Patent or Copyright may become invalidated; provided,
      however, that so long as no Event of Default has occurred and is
      continuing, the Grantor shall have no obligation to use or to maintain any
      Trademark, Patent or Copyright (A) that relates solely to any product or
      work that has been, or is in the process of being, discontinued, abandoned
      or terminated, (B) that is being replaced with a trademark, patent or
      copyright substantially similar to the Trademark, Patent or Copyright, as
      the case may be, that may be abandoned or otherwise become invalid, so
      long as such replacement Trademark, Patent or Copyright, as the case may
      be, is subject to the security interest purported to be created by this
      Agreement, (C) that is substantially the same as another Trademark, Patent
      or Copyright that is in full force, so long as such other Trademark,
      Patent or Copyright, as the case may be, is subject to the Lien and
      security interest created by this Agreement, or (D) that is not necessary
      for the operation of the Grantor's business and is discontinued or
      disposed of in the ordinary course of business. The Grantor will cause to
      be taken all necessary steps in any proceeding before the United States
      Patent and Trademark Office and the United

                                       12
<PAGE>   13
      States Copyright Office to maintain each registration of the Trademarks,
      the Patents and the Copyrights (other than those Trademarks, Patents and
      Copyrights described in the proviso to the immediately preceding
      sentence), including, without limitation, filing of renewals, affidavits
      of use, affidavits of incontestability and opposition, interference and
      cancellation proceedings and payment of taxes. If any Trademark, Patent or
      Copyright is infringed, misappropriated or diluted in any material respect
      by a third party, the Grantor shall (x) upon learning of such
      infringement, misappropriation or dilution, promptly notify the Collateral
      Agent and (y) to the extent the Grantor shall deem appropriate under the
      circumstances, promptly sue for infringement, misappropriation or
      dilution, seek injunctive relief where appropriate and recover any and all
      damages for such infringement, misappropriation or dilution, or take such
      other actions as the Grantor shall deem appropriate under the
      circumstances to protect such Trademark, Patent or Copyright. The Grantor
      shall furnish to the Collateral Agent from time to time (but, unless an
      Event of Default has occurred and is continuing, no more frequently than
      annually) statements and schedules further identifying and describing the
      Patents, the Trademarks and the Copyrights and such other reports in
      connection with the Patents, the Trademarks and the Copyrights as the
      Collateral Agent may reasonably request, all in reasonable detail and
      promptly upon request of the Collateral Agent, following receipt by the
      Collateral Agent of any such statements, schedules or reports, the Grantor
      shall modify this Agreement by amending Schedules II, III or IV hereto, as
      the case may be, to include any Patent, Trademark or Copyright which
      becomes part of the Collateral under this Agreement. Notwithstanding
      anything herein to the contrary, upon the occurrence and during the
      continuance of an Event of Default the Grantor may not abandon or
      otherwise permit a Trademark, Patent or Copyright to become invalid
      without the prior written consent of the Collateral Agent, and if any
      Trademark, Patent or Copyright is infringed, misappropriated or diluted in
      any material respect by a third party, the Grantor will take such action
      as the Collateral Agent shall deem appropriate under the circumstances to
      protect such Trademark, Patent or Copyright.

                  (ii) If either the Grantor or any agent, employee, licensee or
      designee thereof, files an application for the registration of any
      Trademark or Copyright or for the issuance of any Patent with the United
      States Patent and Trademark Office or the United States Copyright Office,
      as applicable, within 5 days of such filing the Grantor shall provide the
      Collateral Agent written notice thereof. Upon request of the Collateral
      Agent, the Grantor shall execute and deliver any and all assignments,
      agreements, instruments, documents and papers as the Collateral Agent may
      reasonably request to evidence the Collateral Agent's security interest
      hereunder in such Trademark, Patent or Copyright and the general
      intangibles of the Grantor relating thereto or represented thereby, and
      the Grantor hereby constitutes the Collateral Agent its attorney-in-fact
      to execute and file all such writings for the foregoing purposes, all acts
      of such attorney being hereby ratified and confirmed, and such power
      (being coupled with an interest) shall be irrevocable until the
      termination of the Total Commitment, the repayment of all of the
      Guaranteed Obligations in full and the termination of each of the Loan
      Documents.

            (j) Inspection and Reporting. The Grantor shall permit the
Collateral Agent or any Lender, or any agents or representatives thereof or such
professionals or other Persons as

                                       13
<PAGE>   14
the Collateral Agent may designate (i) to examine and inspect the books and
records of the Grantor and take copies and extracts therefrom, (ii) to verify
materials, leases, notes, receivables, inventory and other assets of the Grantor
from time to time, and (iii) to conduct physical counts, appraisals and/or
valuations at the locations of the Grantor, in each case as provided in the
Financing Agreement.

            SECTION 6. Additional Provisions Concerning the Collateral.

            (a) The Grantor hereby authorizes the Collateral Agent to file,
without the signature of the Grantor where permitted by law, one or more
financing or continuation statements, and amendments thereto, relating to the
Collateral.

            (b) The Grantor hereby irrevocably appoints the Collateral Agent the
Grantor's attorney-in-fact and proxy, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Collateral Agent's discretion upon the occurrence and during the continuance
of an Event of Default, to take any action and to execute any instrument which
such Collateral Agent may deem necessary or advisable to accomplish the purposes
of this Agreement (subject to the rights of the Grantor under Section 5(f)
hereof), including, without limitation, (i) to obtain and adjust insurance
required to be paid to the Collateral Agent pursuant to Section 5(e) hereof, and
to receive, indorse and collect any drafts or other instruments, documents and
chattel paper in connection therewith, (ii) to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any Collateral, (iii) to receive, indorse,
and collect any drafts or other instruments, documents and chattel paper in
connection with clause (i) or (ii) above, and (iv) to file any claims or take
any action or institute any proceedings which the Collateral Agent may deem
necessary or desirable for the collection of any Collateral or otherwise to
enforce the rights of the Agents and the Lenders with respect to any Collateral.

            (c) For the purpose of enabling the Collateral Agent to exercise
rights and remedies hereunder, at such time as the Collateral Agent shall be
lawfully entitled to exercise such rights and remedies, and for no other
purpose, the Grantor hereby grants to the Collateral Agent, to the extent
assignable, an irrevocable, non-exclusive license (exercisable without payment
of royalty or other compensation to the Grantor) to use, assign, license or
sublicense any of the Patents, Trademarks or Copyrights now owned or hereafter
acquired by the Grantor, wherever the same may be located, including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof, subject with respect to Trademarks to the reasonable rights of
quality control and inspection in favor of the Grantor as shall be reasonably
necessary to preserve the validity of such Trademarks. Notwithstanding anything
contained herein to the contrary, but subject to the provisions of the Financing
Agreement that limits the right of the Grantor to dispose of its property and
Section 5(h) hereof, so long as no Event of Default shall have occurred and be
continuing, the Grantor may exploit, use, enjoy, protect, license, sublicense,
assign, sell, dispose of or take other actions with respect to the Patents,
Trademarks or Copyrights in the ordinary course of the business of the Grantor.
In furtherance of the foregoing, unless an Event of Default shall have occurred
and be continuing the Collateral Agent shall from time to time, upon the request
of the Grantor, execute and deliver any instruments, certificates or

                                       14
<PAGE>   15
other documents, in the form so requested, which the Grantor shall have
certified are appropriate (in its judgment) to allow it to take any action
permitted above (including relinquishment of the license provided pursuant to
this clause (c) as to any Patents, Trademarks or Copyrights). Further, upon the
payment in full of all of the Guaranteed Obligations and cancellation or
termination of the Total Commitments, the Collateral Agent (subject to Section
10(e) hereof) shall release and reassign to the Grantor all of the Collateral
Agent's right, title and interest in and to the Patents, Trademarks, Copyrights
and the Licenses, all without recourse, representation or warranty whatsoever.
The exercise of rights and remedies hereunder by the Collateral Agent shall not
terminate the rights of the holders of any licenses or sublicenses theretofore
granted by the Grantor in accordance with the second sentence of this clause
(c). The Grantor hereby releases the Collateral Agent from any claims, causes of
action and demands at any time arising out of or with respect to any actions
taken or omitted to be taken by the Collateral Agent under the powers of
attorney granted herein other than actions taken or omitted to be taken through
the Collateral Agent's gross negligence or willful misconduct.

            (d) If the Grantor fails to perform any agreement contained herein,
the Collateral Agent may itself perform, or cause performance of, such agreement
or obligation, in the name of the Grantor or the Collateral Agent, and the
expenses of the Collateral Agent incurred in connection therewith shall be
payable by the Grantor pursuant to Section 8 hereof and shall be secured by the
Collateral.

            (e) The powers conferred on the Collateral Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral.

            (f) Anything herein to the contrary notwithstanding (i) the Grantor
shall remain liable under the Related Contracts and Licenses and otherwise with
respect to any of the Collateral to the extent set forth therein to perform all
of its obligations thereunder to the same extent as if this Agreement had not
been executed, (ii) the exercise by the Collateral Agent of any of its rights
hereunder shall not release the Grantor from any its obligations under the
Related Contracts and Licenses or otherwise in respect of the Collateral, and
(iii) the Collateral Agent shall not have any obligation or liability by reason
of this Agreement under the Related Contracts and Licenses or with respect to
any of the other Collateral, nor shall the Collateral Agent be obligated to
perform any of the obligations or duties of the Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.

            SECTION 7. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:

            (a) The Collateral Agent may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under the Code (whether or not the Code applies to the affected Collateral), and
also may (i) require the Grantor to, and the Grantor hereby agrees that it

                                       15
<PAGE>   16
will at its expense and upon request of the Collateral Agent forthwith, assemble
all or part of the Collateral as directed by the Collateral Agent and make it
available to the Collateral Agent at a place or places to be designated by the
Collateral Agent which is reasonably convenient to both parties and (ii) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of the Collateral Agent's
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Collateral Agent may deem
commercially reasonable. The Grantor agrees that, to the extent notice of sale
shall be required by law, at least 10 days' notice to the Grantor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. The Grantor hereby waives any claims against the Agents and the
Lenders arising by reason of the fact that the price at which the Collateral may
have been sold at a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Guaranteed Obligations, even if the Collateral Agent accepts the first offer
received and does not offer the Collateral to more than one offeree and waives
all rights which the Grantor may have to require that all or any part of the
Collateral be marshalled upon any sale (public or private) thereof. In addition
to the foregoing, (i) upon written notice from the Collateral Agent, the Grantor
shall cease any use of the Trademarks, Patents or Copyrights or any mark or
patent similar thereto for any purpose described in such notice; (ii) the
Collateral Agent may, at any time and from time to time, upon 10 days' prior
notice to the Grantor, license, whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis, any of the Trademarks, Patents
and Copyrights throughout the world for such term or terms, on such conditions,
and in such manner, as the Collateral Agent shall in its sole discretion
determine; and (iii) the Collateral Agent may, at any time, pursuant to the
authority granted in Section 6 hereof (such authority being effective upon the
occurrence of an Event of Default), execute and deliver on behalf of the
Grantor, one or more instruments of assignment of the Trademarks, Patents and
Copyrights (or any application or registration thereof), in form suitable for
filing, recording or registration in any country.

            (b) Any cash held by the Collateral Agent as Collateral and all cash
proceeds received by the Collateral Agent in respect of any sale of or
collection from, or other realization upon, all or any part the Collateral may,
in the discretion of the Collateral Agent, be held by the Collateral Agent as
collateral for, and/or then or at any time thereafter applied in whole or in
part by the Collateral Agent against, all or any part of the Guaranteed
Obligations as provided in Section 4.04 of the Financing Agreement.

            (c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Agents and the
Lenders are legally entitled, the Grantor shall be liable for the deficiency,
together with interest thereon at the highest rate specified in any applicable
Loan Document for interest on overdue principal thereof or such other rate as
shall be fixed by applicable law, together with the costs of collection and the
reasonable fees, costs, expenses of any attorneys employed by the Collateral
Agent to collect such deficiency.

                                       16
<PAGE>   17
            SECTION 8. Indemnity and Expenses.

            (a) The Grantor agrees to indemnify and hold each Agent harmless
from and against any and all claims, damages, losses, liabilities, obligations,
penalties, costs or expenses (including, without limitation, legal fees and
disbursements of such Agent's counsel) to the extent that they arise out of or
otherwise result from this Agreement (including, without limitation, enforcement
of this Agreement), except claims, losses or liabilities resulting solely and
directly from such Agent's gross negligence or willful misconduct as determined
by a final judgment of a court of competent jurisdiction.

            (b) The Grantor will upon demand pay to the Collateral Agent the
amount of any and all costs and expenses, including the reasonable fees and
disbursements of the Collateral Agent's counsel and of any experts and agents,
which the Collateral Agent may incur in connection with (i) the preparation,
negotiation, execution, delivery, recordation, administration, amendment, waiver
or other modification or termination of this Agreement, or (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of the Collateral Agent hereunder, or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.

            SECTION 9. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to the Grantor, to it at the address specified in the [Financing Agreement]
[Guaranty] or if to any Agent, to it at the address specified in the Financing
Agreement; or as to either such Person at such other address as shall be
designated by such Person in a written notice to such other Person complying as
to delivery with the terms of this Section 9. All such notices and other
communications shall be effective (i) if sent by certified mail, return receipt
requested, when received or three Business Days after mailing, whichever first
occurs, (ii) if telecopied, when transmitted and confirmation is received,
provided same is on a Business Day and, if not, on the next Business Day or
(iii) if delivered, upon delivery, provided same is on a Business Day and, if
not, on the next Business Day.

            SECTION 10. Miscellaneous.

            (a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Grantor and the Collateral
Agent, and no waiver of any provision of this Agreement, and no consent to any
departure by the Grantor therefrom, shall be effective unless it is in writing
and signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

            (b) No failure on the part of any Agent to exercise, and no delay in
exercising, any right hereunder or under any other Loan Document shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Agents provided herein and in the other
Loan Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of any Agent under any Loan
Document against any party

                                       17
<PAGE>   18
thereto are not conditional or contingent on any attempt by such Agent to
exercise any of its rights under any other Loan Document against such party or
against any other Person.

            (c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.

            (d) This Agreement shall create a continuing security interest in
the Collateral and shall (i) remain in full force and effect until the payment
in full of the Guaranteed Obligations after the Total Commitment has been
terminated and the Support Letter of Credit have been canceled or cash
collateralized, and (ii) be binding on the Grantor and its successors and
assigns and shall inure, together with all rights and remedies of the Collateral
Agent hereunder, to the benefit of the Agents and the Lenders their respective
permitted successors, transferees and assigns. Without limiting the generality
of clause (ii) of the immediately preceding sentence and subject to the terms of
the Financing Agreement, the Agents and Lenders may assign or otherwise transfer
their rights under this Agreement and any other Loan Document, to any other
Person and such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Agents and the Lenders herein or
otherwise. None of the rights or obligations of the Grantor hereunder may be
assigned or otherwise transferred without the prior written consent of the
Collateral Agent, and any such assignment or transfer shall be null and void.

            (e) Upon the satisfaction in full of the Guaranteed Obligations
after the Total Commitment has been terminated and the Support Letter of Credit
has been canceled or cash collateralized, (i) this Agreement and the security
interests created hereby shall terminate and all rights to the Collateral shall
revert to the Grantor, and (ii) the Collateral Agent will, upon the Grantor's
request and at the Grantor's expense, (A) return to the Grantor such of the
Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof, and (B) execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination,
all without any representation, warranty or recourse whatsoever.

            (f) This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York, except as
required by mandatory provisions of law and except to the extent that the
validity and perfection or the perfection and effect of perfection or
non-perfection of the security interest created hereby or remedies hereunder, in
respect of any particular Collateral are governed by the law of a jurisdiction
other than the State of New York.

                                       18
<PAGE>   19
            IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized as of the date
first above written.

                                            DECORA INDUSTRIES, INC.

                                            By: ________________________________
                                                Name:
                                                Title:

<PAGE>   20

                        SCHEDULE I TO SECURITY AGREEMENT

                                RELATED CONTRACTS

None.

<PAGE>   21

                        SCHEDULE II TO SECURITY AGREEMENT

                                   TRADEMARKS
                                       AND
                               TRADEMARK LICENSES

See attached lists.

<PAGE>   22

                       SCHEDULE III TO SECURITY AGREEMENT

                           PATENTS AND PATENT LICENSES

See attached lists.

<PAGE>   23

                        SCHEDULE IV TO SECURITY AGREEMENT

                      COPYRIGHTS AND COPYRIGHT APPLICATIONS

None.

<PAGE>   24

                        SCHEDULE V TO SECURITY AGREEMENT

I.    Locations of Equipment and Inventory

None.

II.   Grantor's chief place of business, chief executive office and place where
      the Grantor keeps its books and records

      Grantor's chief place of business, chief executive office and place where
Grantor keeps its books and records is 1 Mill Street, Fort Edward, New York.

<PAGE>   25

                        SCHEDULE VI TO SECURITY AGREEMENT

                                   TRADE NAMES

None.

<PAGE>   26

                       SCHEDULE VII TO SECURITY AGREEMENT

                           UCC-1 FINANCING STATEMENTS

<TABLE>
<CAPTION>
                                                       COUNTY CLERK (OR
                             SECRETARY OF STATE        CORRESPONDING OFFICER) OF
NAME OF DEBTOR               OF THE STATE OF           THE FOLLOWING COUNTIES
--------------               ------------------        -------------------------
<S>                          <C>                       <C>
DECORA INDUSTRIES, INC.      New York                  Saratoga County, NY
                                                       Washington County, NY

                             California

                             Florida

                                                       Fulton County, GA

                             Ohio                      Lorain County, OH
                                                       Portage County, OH
                                                       Wayne County, OH
</TABLE>

<PAGE>   27

                                                                       EXHIBIT A

                       COLLATERAL ASSIGNMENT FOR SECURITY

                                  (TRADEMARKS)

            WHEREAS, DECORA INDUSTRIES, INC. (the "Assignor") has adopted, used
and is using the trademarks and service marks listed on the annexed Schedule 1A,
which trademarks and service marks are registered or applied for in the United
States Patent and Trademark Office (the "Trademarks");

            WHEREAS, the Assignor, has entered into a Security Agreement dated
May 2, 2000 (the "Security Agreement") in favor of Ableco Finance LLC, as
collateral agent for certain lenders (the "Assignee");

            WHEREAS, pursuant to the Security Agreement, the Assignor has
pledged and assigned to the Assignee and granted to the Assignee for the benefit
of the lenders a continuing security interest in all right, title and interest
of the Assignor in, to and under the Trademarks together with, among other
things, the good-will of the business symbolized by the Trademarks and the
applications and registrations thereof, and all proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Guaranteed Obligations (as defined in the Security Agreement);

            NOW, THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, the Assignor hereby pledges and assigns to the
Assignee and grants to the Assignee for the benefit of the lenders a continuing
security interest in the Collateral to secure the prompt payment, performance
and observance of the Guaranteed Obligations.

            The Assignor hereby further acknowledges and affirms that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.

            IN WITNESS WHEREOF, the Assignor has caused this Collateral
Assignment to be duly executed by its officer thereunto duly authorized as of
_____________ __, 200_.

                                            DECORA INDUSTRIES, INC.

                                            By: ________________________________
                                                Name:
                                                Title:

<PAGE>   28
STATE OF NEW YORK
                     ss.:
COUNTY OF NEW YORK

            On this ____ day of _______________, 200_, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of _________________________, a __________ corporation, and
that he executed the foregoing instrument in the firm name of
_________________________, and that he had authority to sign the same, and he
acknowledged to me that he executed the same as the act and deed of said firm
for the uses and purposes therein mentioned.

                        ________________________________

<PAGE>   29

                SCHEDULE 1A TO COLLATERAL ASSIGNMENT FOR SECURITY

                     (TRADEMARKS AND TRADEMARK APPLICATIONS)

<PAGE>   30
                                                                       EXHIBIT B

                       COLLATERAL ASSIGNMENT FOR SECURITY

                                    (PATENTS)

            WHEREAS, DECORA INDUSTRIES, INC. (the "Assignor") holds all right,
title and interest in the letter patents, design patents and utility patents
listed on the annexed Schedule 1A, which patents are issued or applied for in
the United States Patent and Trademark Office (the "Patents");

            WHEREAS, the Assignor, has entered into a Security Agreement dated
May 2, 2000 (the "Security Agreement") in favor of ABLECO FINANCE LLC, as
collateral agent for certain lenders (the "Assignee");

            WHEREAS, pursuant to the Security Agreement, the Assignor has
pledged and assigned to the Assignee and granted to the Assignee for the benefit
of the lenders a continuing security interest in all right, title and interest
of the Assignor in, to and under the Patents and the applications and issuances
thereof, and all proceeds thereof, including, without limitation, any and all
causes of action which may exist by reason of infringement thereof (the
"Collateral"), to secure the payment, performance and observance of the
Guaranteed Obligations (as defined in the Security Agreement);

            NOW, THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, the Assignor hereby pledges and assigns to the
Assignee and grants to the Assignee for the benefit of the lenders a continuing
security interest in the Collateral to secure the prompt payment, performance
and observance of the Guaranteed Obligations.

            The Assignor hereby further acknowledges and affirms that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.

            IN WITNESS WHEREOF, the Assignor has caused this Collateral
Assignment to be duly executed by its officer thereunto duly authorized as of
__________ __, 200_.

                                            DECORA INDUSTRIES, INC.

                                            By: ________________________________
                                                Name:
                                                Title:

<PAGE>   31
STATE OF NEW YORK
                    ss.:
COUNTY OF NEW YORK

            On this ____ day of _______________, 200_, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of _________________________, a ______________ corporation, and
that he executed the foregoing instrument in the firm name of
_________________________, and that he had authority to sign the same, and he
acknowledged to me that he executed the same as the act and deed of said firm
for the uses and purposes therein mentioned.

                                            ____________________________________

<PAGE>   32
                SCHEDULE 1A TO COLLATERAL ASSIGNMENT FOR SECURITY

                        (PATENTS AND PATENT APPLICATIONS)

<PAGE>   33

                                                                       EXHIBIT C

                       COLLATERAL ASSIGNMENT FOR SECURITY

                                  (COPYRIGHTS)

            WHEREAS, DECORA INDUSTRIES, INC. (the "Assignor") holds all right,
title and interest in the copyrights listed on the annexed Schedule 1A, which
copyrights are registered in the United States Copyright Office (the
"Copyrights");

            WHEREAS, the Assignor, has entered into a Security Agreement dated
May 2, 2000 (the "Security Agreement") in favor of ABLECO FINANCE LLC, as
collateral agent for certain lenders (the "Assignee");

            WHEREAS, pursuant to the Security Agreement, the Assignor has
pledged and assigned to the Assignee and granted to the Assignee for the benefit
of the lenders a continuing security interest in all right, title and interest
of the Assignor in, to and under the Copyrights and the registrations thereof,
and all proceeds thereof, including, without limitation, any and all causes of
action which may exist by reason of infringement thereof (the "Collateral"), to
secure the payment, performance and observance of the Guaranteed Obligations (as
defined in the Security Agreement);

            NOW, THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, the Assignor hereby pledges and assigns to the
Assignee and grants to the Assignee for the benefit of the lenders a continuing
security interest in the Collateral to secure the prompt payment, performance
and observance of the Guaranteed Obligations.

            The Assignor hereby further acknowledges and affirms that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.

            IN WITNESS WHEREOF, the Assignor has caused this Collateral
Assignment to be duly executed by its officer thereunto duly authorized as of
_____________ __, 200_.

                                            DECORA INDUSTRIES, INC.

                                            By: ________________________________
                                                Name:
                                                Title:

<PAGE>   34
STATE OF NEW YORK
                    ss.:
COUNTY OF NEW YORK

            On this ____ day of _______________, 200_, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of _________________________, a ______________ corporation, and
that he executed the foregoing instrument in the firm name of
_________________________, and that he had authority to sign the same, and he
acknowledged to me that he executed the same as the act and deed of said firm
for the uses and purposes therein mentioned.

                                            ____________________________________

<PAGE>   35
                SCHEDULE 1A TO COLLATERAL ASSIGNMENT FOR SECURITY

                     (COPYRIGHTS AND COPYRIGHT APPLICATIONS)<PAGE>   1
                                                                   EXHIBIT 10.81

                           GUARANTOR PLEDGE AGREEMENT

               PLEDGE AND SECURITY AGREEMENT dated as of May 2, 2000, made by
DECORA INDUSTRIES, INC., a Delaware corporation (the "Pledgor"), in favor of
Ableco Finance LLC, as collateral agent for the Lenders parties to the Financing
Agreement referred to below (in such capacity, the "Collateral Agent").

                              W I T N E S S E T H:

               WHEREAS, the Pledgor, Decora, Incorporated (the "Borrower"), the
financial institutions from time to time party thereto (the "Lenders"), The CIT
Group/Business Credit, Inc., as administrative agent for the Lenders (the
"Administrative Agent") and the Collateral Agent have entered into a Financing
Agreement, dated as of the date hereof (such Agreement, as amended, restated or
otherwise modified from time to time, being hereinafter referred to as the
"Financing Agreement");

               WHEREAS, it is a condition precedent to the Lenders making and
maintaining Loans and assisting the Borrower in obtaining the Support Letter of
Credit under the Financing Agreement that the Pledgor shall have executed and
delivered to the Collateral Agent a pledge and security agreement providing for
the pledge to the Collateral Agent of, and the grant to the Collateral Agent for
the benefit of the Lenders of a security interest in, certain indebtedness from
time to time owing to the Pledgor and certain of the outstanding shares of
capital stock from time to time owned by the Pledgor of each Subsidiary now or
hereafter existing and in which Pledgor has any interest at any time;

               WHEREAS, the Pledgor has determined that the execution, delivery
and performance of this Agreement directly benefits, and is in the best interest
of the Pledgor;

               NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to induce the Agents and the Lenders to enter
into the Financing Agreement with the Borrower, the Pledgor hereby agrees with
the Collateral Agent as follows:

               SECTION 1. Definitions. All terms used in this Agreement which
are defined in the Financing Agreement or in Article 8 or Article 9 of the
Uniform Commercial Code (the "Code") currently in effect in the State of New
York and which are not otherwise defined herein shall have the same meanings
herein as set forth therein. In addition, as used in this Agreement, the
following terms shall have the following meanings:

               "Guaranteed Other Obligations" means any Guaranteed Obligations
(as defined in Section 3 hereof) other than Guaranteed Term Loan Obligations.

<PAGE>   2

               "Guaranteed Term Loan Obligations" means any Guaranteed
Obligations with respect to the Term Loans (including, without limitation, the
principal thereof, the interest thereon, and fees and expenses specifically
related thereto).

               "Guaranteed Term Loan A Obligations" means any Guaranteed
Obligations with respect to the Term Loans A (including, without limitation, the
principal thereof, interest thereon, and fees and expenses specifically related
thereto).

               "Guaranteed Term Loan B Obligations" means any Guaranteed
Obligations with respect to the Term Loans B (including, without limitation, the
principal thereof, interest thereon, and fees and expenses specifically related
thereto).

               SECTION 2. Pledge and Grant of Security Interest. (a) As
collateral security for all of the Guaranteed Other Obligations, the Pledgor
hereby pledges and assigns to the Collateral Agent, and grants to the Collateral
Agent for the benefit of the Lenders a continuing security interest in, the
following (the "Pledged Collateral"):

               (i) the indebtedness described in Schedule I hereto and all
indebtedness from time to time required to be pledged to the Collateral Agent
pursuant to the terms of the Financing Agreement (the "Pledged Debt"), the
promissory notes and other instruments evidencing the Pledged Debt and all
interest, cash, instruments, investment property and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Debt;

               (ii) the shares of stock described in Schedule II hereto (the
"Pledged Shares") issued by the corporations described in such Schedule II (the
"Existing Subsidiaries"), the certificates representing the Pledged Shares, all
options and other rights, contractual or otherwise, in respect thereof and all
dividends, cash, instruments, investment property and other property (including
but not limited to, any stock dividend and any distribution in connection with a
stock split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;

               (iii) the shares of stock at any time and from time to time
acquired by the Pledgor, of any and all Subsidiaries which are Unrestricted
Subsidiaries (as defined in the Indenture), whether now or hereafter existing,
all or a portion of the stock of which is acquired by the Pledgor at any time
(such Subsidiaries, together with the Existing Subsidiaries, being hereinafter
referred to collectively as the "Pledged Subsidiaries" and individually as a
"Pledged Subsidiary"), the certificates representing such shares, all options
and other rights, contractual or otherwise, in respect thereof and all
dividends, cash, instruments, investment property and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares;

               (iv) all additional shares of stock, from time to time acquired
by the Pledgor, of any Pledged Subsidiary, the certificates representing such
additional shares, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, cash, instruments, investment

                                       2

<PAGE>   3

property and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares; and

               (v) all proceeds of any and all of the foregoing;

               in each case, whether now owned or hereafter acquired by the
Pledgor and howsoever its interest therein may arise or appear (whether by
ownership, security interest, claim or otherwise).

               (b) As collateral security for all of the Guaranteed Term Loan A
Obligations and Guaranteed Term Loan B Obligations, the Pledgor hereby pledges
and assigns to the Collateral Agent, and grants to the Collateral Agent for the
benefit of the Lenders a continuing security interest in, all of the Collateral.

               (c) The Collateral Agent's security interest in the Collateral
securing the Guaranteed Other Obligations shall have priority over the
Collateral Agent's security interest in the Collateral securing the Guaranteed
Term Loan A Obligations and Guaranteed Term Loan B Obligations.

               SECTION 3. Security for Guaranteed Obligations. The security
interest created hereby in the Pledged Collateral constitutes continuing
collateral security for all of the following obligations whether now existing or
hereafter incurred (the "Guaranteed Obligations"):

               (a) the prompt payment by the Pledgor, as and when due and
payable (by scheduled maturity, required prepayment, acceleration, demand or
otherwise), of all amounts from time to time owing by it in respect of its
guaranty made pursuant to Article XI of the Financing Agreement, dated the date
hereof, in favor of the Agents and the Lenders, whether for principal, interest
(including, without limitation, all interest that accrues after the commencement
of any case, proceeding or other action relating to bankruptcy, insolvency or
reorganization of the Pledgor, whether or not a claim for post-filing interest
is allowed in such proceeding), Letter of Credit Obligations, fees,
indemnification payments, expense reimbursements or otherwise; and

               (b) the due performance and observance by the Pledgor of all of
its other obligations from time to time existing in respect of its guaranty made
pursuant to Article XI of the Financing Agreement and all other Loan Documents
to which it is a party.

                                       3
<PAGE>   4

               SECTION 4. Delivery of the Pledged Collateral.

               (a) All promissory notes currently evidencing the Pledged Debt
and all certificates currently representing the Pledged Shares shall be
delivered to the Collateral Agent on or prior to the execution and delivery of
this Agreement. All other promissory notes, certificates and instruments
constituting Pledged Collateral from time to time or required to be pledged to
the Collateral Agent pursuant to the terms of the Financing Agreement (the
"Additional Collateral") shall be delivered to the Collateral Agent within ten
(10) days of receipt thereof by or on behalf of Pledgor. All such promissory
notes, certificates and instruments shall be held by or on behalf of the
Collateral Agent pursuant hereto and shall be delivered in suitable form for
transfer by delivery or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance reasonably
satisfactory to the Collateral Agent. Within ten (10) days of the receipt by
Pledgor of the Additional Collateral, a Pledge Amendment, duly executed by the
Pledgor, in substantially the form of Schedule III hereto (a "Pledge Amendment")
shall be delivered to the Collateral Agent, in respect of the Additional
Collateral which are to be pledged pursuant to this Agreement and the Financing
Agreement, which Pledge Amendment shall from and after delivery thereof
constitute part of Schedules I and II hereto. The Pledgor hereby authorizes the
Collateral Agent to attach each Pledge Amendment to this Agreement and agrees
that all promissory notes, certificates or instruments listed on any Pledge
Amendment delivered to the Collateral Agent shall for all purposes hereunder
constitute Pledged Collateral and the Pledgor shall be deemed upon delivery
thereof to have made the representations and warranties set forth in Section 5
with respect to such Additional Collateral.

               (b) If the Pledgor shall receive, by virtue of its being or
having been an owner of any Pledged Collateral, any (i) stock certificate
(including, without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by the Pledgor pursuant to
Section 7 hereof) or in securities or other property or (iv) dividends or other
distributions in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or paid-in
surplus, the Pledgor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of
the Collateral Agent, shall segregate it from the Pledgor's other property and
shall deliver it forthwith to the Collateral Agent in the exact form received,
with any necessary indorsement and/or appropriate stock powers duly executed in
blank, to be held by the Collateral Agent as Pledged Collateral and as further
collateral security for the Guaranteed Obligations.

                                       4
<PAGE>   5

               SECTION 5. Representations and Warranties. The Pledgor represents
and warrants as follows:

               (a) The Existing Subsidiaries set forth in Schedule II hereto are
the Pledgor's only Subsidiaries existing on the date hereof. The Pledged Shares
have been duly authorized and validly issued, are fully paid and nonassessable
and, except as noted in Schedule II hereto, constitute 100% of the issued shares
of capital stock of the Pledged Subsidiaries as of the date hereof. All other
shares of stock constituting Pledged Collateral will be, when issued, duly
authorized and validly issued, fully paid and nonassessable.

               (b) The promissory notes currently evidencing the Pledged Debt
have been, and all other promissory notes from time to time evidencing Pledged
Debt, when executed and delivered, will have been, duly authorized, executed and
delivered by the respective makers thereof, and all such promissory notes are or
will be, as the case may be, legal, valid and binding obligations of such
makers, enforceable against such makers in accordance with their respective
terms.

               (c) The Pledgor is and will be at all times the legal and
beneficial owner of the Pledged Collateral free and clear of any Lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement.

               (d) The exercise by the Agents of any of their rights and
remedies hereunder will not contravene law or any material contractual
restriction binding on or affecting the Pledgor or any of its properties and
will not result in or require the creation of any Lien, security interest or
other charge or encumbrance upon or with respect to any of its properties other
than pursuant to this Agreement and the other Loan Documents.

               (e) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority is required to be obtained
or made by the Pledgor for (i) the due execution, delivery and performance by
the Pledgor of this Agreement, (ii) the grant by the Pledgor, or the perfection,
of the security interest purported to be created hereby in the Pledged
Collateral or (iii) the exercise by the Agents or the Lenders of any of their
rights and remedies hereunder, except as may be required in connection with any
sale of any Pledged Collateral by laws affecting the offering and sale of
securities generally.

               (f) This Agreement creates a valid security interest in favor of
the Collateral Agent in the Pledged Collateral, as security for the Guaranteed
Obligations. The Collateral Agent's having possession of the promissory notes
evidencing the Pledged Debt, the certificates representing the Pledged Shares
and all other certificates, instruments and cash constituting Pledged Collateral
from time to time results in the perfection of such security interest. Such
security interest is, or in the case of Pledged Collateral in which the Pledgor
obtains rights after the date hereof, will be, a perfected, first priority
security interest. All action necessary or desirable to perfect and protect such
security interest has been duly taken, except for the Collateral Agent's having
possession of certificates, instruments and cash constituting Pledged Collateral
after the date hereof.

                                       5
<PAGE>   6

               SECTION 6. Covenants as to the Pledged Collateral. So long as any
Guaranteed Obligations shall remain outstanding, the Pledgor will, unless the
Collateral Agent shall otherwise consent in writing:

               (a) keep adequate records concerning the Pledged Collateral and
permit the Agents or any agents or representatives thereof at any time or from
time to time to examine and make copies of and abstracts from such records
pursuant to the terms of Section 7.01(f) of the Financing Agreement;

               (b) at its expense, promptly deliver to the Collateral Agent a
copy of each notice or other communication received by it in respect of the
Pledged Collateral;

               (c) at its expense, defend the Collateral Agent's right, title
and security interest in and to the Pledged Collateral against the claims of any
Person;

               (d) at its expense, at any time and from time to time, promptly
execute and deliver all further instruments and documents and take all further
action that may be necessary or that the Collateral Agent may reasonably request
in order to (i) perfect and protect the security interest purported to be
created hereby, (ii) enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder in respect of the Pledged Collateral or (iii)
otherwise effect the purposes of this Agreement, including, without limitation,
delivering to the Collateral Agent, after the occurrence and during the
continuation of an Event of Default, irrevocable proxies in respect of the
Pledged Collateral;

               (e) not sell, assign (by operation of law or otherwise), exchange
or otherwise dispose of any Pledged Collateral or any interest therein except as
permitted by Section 7(a)(i) hereof;

               (f) not create or suffer to exist any Lien, security interest or
other charge or encumbrance upon or with respect to any Pledged Collateral
except for the security interest created hereby or pursuant to any other Loan
Document;

               (g) not make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral other
than pursuant to the Loan Documents;

               (h) not permit the issuance of (i) any additional shares of any
class of capital stock of any Pledged Subsidiary, (ii) any securities
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such shares of capital stock or (iii) any warrants, options, contracts
or other commitments entitling any Person to purchase or otherwise acquire any
such shares of capital stock; and

               (i) not take or fail to take any action which would in any manner
impair the value or enforceability of the Collateral Agent's security interest
in any Pledged Collateral.

                                       6

<PAGE>   7

               SECTION 7. Voting Rights, Dividends, Etc. in Respect of the
Pledged Collateral.

               (a) So long as no Event of Default shall have occurred and be
continuing:

                      (i) the Pledgor may exercise any and all voting and other
consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent with the terms of this Agreement, the Financing Agreement or the
other Loan Documents; provided, however, that (A) the Pledgor will not exercise
or refrain from exercising any such right, as the case may be, if the Collateral
Agent gives it notice that, in the Collateral Agent's reasonable judgment, such
action would have a material adverse effect on the value of any Pledged
Collateral and (B) the Pledgor will give the Collateral Agent at least five (5)
Business Days' notice of the manner in which it intends to exercise, or the
reasons for refraining from exercising, any such right which is reasonably
likely to have a Material Adverse Effect;

                      (ii) the Pledgor may receive and retain any and all
dividends or interest paid in respect of the Pledged Collateral to the extent
permitted by the Financing Agreement; provided, however, that any and all (A)
dividends and interest paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of or in exchange for, any Pledged Collateral, (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, and (C) cash
paid, payable or otherwise distributed in redemption of, or in exchange for, any
Pledged Collateral, together with any dividend or interest payment which at the
time of such payment was not permitted by the Financing Agreement, shall be, and
shall forthwith be delivered to the Collateral Agent to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust for the
benefit of the Collateral Agent, shall be segregated from the other property or
funds of the Pledgor, and shall be forthwith delivered to the Collateral Agent
in the exact form received with any necessary indorsement and/or appropriate
stock powers duly executed in blank, to be held by the Collateral Agent as
Pledged Collateral and as further collateral security for the Guaranteed
Obligations; and

                      (iii) the Collateral Agent will execute and deliver (or
cause to be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of enabling
the Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (i) of this Section 7(a) and to receive the
dividends which it is authorized to receive and retain pursuant to paragraph
(ii) of this Section 7(a).

               (b) Upon the occurrence and during the continuance of an Event
of Default:

                      (i) all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to paragraph (i) of subsection (a) of this Section 7, and to receive
the dividends and interest payments which it would otherwise be authorized to
receive and retain pursuant to paragraph (ii) of subsection (a) of this Section
7, shall cease, and all such rights shall thereupon become vested in the
Collateral Agent which shall

                                       7

<PAGE>   8
thereupon have the sole right to exercise such voting and other consensual
rights and to receive and hold as Pledged Collateral such dividends and interest
payments;

                      (ii) the Collateral Agent is authorized to notify each
debtor with respect to the Pledged Debt to make payment directly to the
Collateral Agent and may collect any and all monies due or to become due to the
Pledgor in respect of the Pledged Debt and the Pledgor hereby authorizes each
such debtor to make such payment directly to the Collateral Agent without any
duty of inquiry;

                      (iii) without limiting the generality of the foregoing,
the Collateral Agent may at its option exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Collateral as if it were the absolute owner
thereof, including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Collateral upon the merger,
consolidation, reorganization, recapitalization or other adjustment of any
Pledged Subsidiary, or upon the exercise by any Pledged Subsidiary of any right,
privilege or option pertaining to any Pledged Collateral, and, in connection
therewith, to deposit and deliver any and all of the Pledged Collateral with any
committee, depository, transfer agent, registrar or other designated agent upon
such terms and conditions as it may determine; and

                      (iv) all dividends and interest payments which are
received by the Pledgor contrary to the provisions of paragraph (i) of this
Section 7(b) shall be received in trust for the benefit of the Collateral Agent,
shall be segregated from other funds of the Pledgor, and shall be forthwith paid
over to the Collateral Agent as Pledged Collateral in the exact form received
with any necessary indorsement and/or appropriate stock powers duly executed in
blank, to be held by the Collateral Agent as Pledged Collateral and as further
collateral security for the Guaranteed Obligations.

               SECTION 8. Additional Provisions Concerning the Pledged
Collateral.

               (a) The Pledgor hereby authorizes the Collateral Agent to file,
without the signature of the Pledgor where permitted by law, one or more
financing or continuation statements, and amendments thereto, relating to the
Pledged Collateral.

               (b) The Pledgor hereby irrevocably appoints the Collateral Agent
the Pledgor's attorney-in-fact and proxy, with full authority in the place and
stead of the Pledgor and in the name of the Pledgor or otherwise, from time to
time in the Collateral Agent's discretion exercised reasonably, to take any
action and to execute any instrument which the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement (subject to
the rights of the Pledgor under Section 7(a) hereof), including, without
limitation, to receive, indorse and collect all instruments made payable to the
Pledgor representing any dividend, interest payment or other distribution in
respect of any Pledged Collateral and to give full discharge for the same.

               (c) If the Pledgor fails to perform any agreement or obligation
contained herein, the Collateral Agent itself may perform, or cause performance
of, such agreement or

                                        8
<PAGE>   9

obligation, and the expenses of the Collateral Agent incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 10 hereof.

               (d) Other than the exercise of reasonable care to assure the safe
custody of the Pledged Collateral while held hereunder, the Collateral Agent
shall have no duty or liability to preserve rights pertaining thereto and shall
be relieved of all responsibility for the Pledged Collateral upon surrendering
it or tendering surrender of it to the Pledgor. The Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Collateral Agent accords its own
property, it being understood that the Collateral Agent shall not have
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Pledged Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.

               (e) The Collateral Agent may at any time after the occurrence and
during the continuation of an Event of Default in its discretion (i) without
notice to the Pledgor, transfer or register in the name of the Collateral Agent
or any of its nominees any or all of the Pledged Collateral, subject only to the
revocable rights of the Pledgor under Section 7(a) hereof, and (ii) exchange
certificates or instruments constituting Pledged Collateral for certificates or
instruments of smaller or larger denominations.

               SECTION 9. Remedies Upon Default. If any Event of Default shall
have occurred and be continuing:

               (a) The Collateral Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the Code then in effect in the State of New York; and without
limiting the generality of the foregoing and without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Collateral Agent may deem
commercially reasonable. The Pledgor agrees that, to the extent notice of sale
shall be required by law, at least ten (10) days' notice to the Pledgor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Collateral Agent shall not
be obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Collateral Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.

               (b) The Pledgor recognizes that it may be impracticable to effect
a public sale of all or any part of the Pledged Shares or any other securities
constituting Pledged Collateral and that the Collateral Agent may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the

                                       9
<PAGE>   10

distribution or resale thereof. The Pledgor acknowledges that any such private
sale may be at prices and on terms less favorable to the seller than the prices
and other terms which might have been obtained at a public sale and,
notwithstanding the foregoing, agrees that such private sales shall be deemed to
have been made in a commercially reasonable manner and that the Collateral Agent
shall have no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933, as amended (the
"Securities Act"). The Pledgor further acknowledges and agrees that any offer to
sell such securities which has been (i) publicly advertised on a bona fide basis
in a newspaper or other publication of general circulation in the financial
community of New York, New York (to the extent that such an offer may be so
advertised without prior registration under the Securities Act) or (ii) made
privately in the manner described above to not less than fifteen bona fide
offerees shall be deemed to involve a "public sale" for the purposes of Section
9-504(3) of the Code (or any successor or similar, applicable statutory
provision) as then in effect in the State of New York, notwithstanding that such
sale may not constitute a "public offering" under the Securities Act, and that
the Agents may, in such event, bid for the purchase of such securities.

               (c) Any cash held by the Collateral Agent as Pledged Collateral
and all cash proceeds received by the Collateral Agent in respect of any sale
of, collection from, or other realization upon, all or any part of the Pledged
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent pursuant
to Section 10 hereof) in whole or in part by the Collateral Agent against, all
or any part of the Guaranteed Obligations in such order as the Collateral Agent
shall elect consistent with the provisions of the Financing Agreement. Any
surplus of such cash or cash proceeds held by the Collateral Agent and remaining
after payment in full of all of the Guaranteed Obligations shall be paid over to
the Pledgor or to such person as may be lawfully entitled to receive such
surplus.

               (d) In the event that the proceeds of any such sale, collection
or realization are insufficient to pay all amounts to which any Agent or any
Lender is legally entitled, the Pledgor shall be liable for the deficiency,
together with interest thereon at the highest rate specified in the Financing
Agreement for interest on overdue principal thereof or such other rate as shall
be fixed by applicable law, together with the costs of collection and the
reasonable fees of any attorneys employed by any Agent and any Lender to collect
such deficiency.

               SECTION 10. Indemnity and Expenses.

               (a) The Pledgor agrees to indemnify the Agents from and against
any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting solely and directly from either Agent's
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.

               (b) The Pledgor will upon demand pay to the Agents the amount of
any and all reasonable costs and expenses, including the fees and disbursements
of each Agent's counsel and of any experts and agents, which the Agents may
incur in connection with (i) the administration of

                                       10
<PAGE>   11

this Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any Pledged Collateral,
(iii) the exercise or enforcement of any of the rights of any Agent or any of
the Lenders hereunder, or (iv) the failure by the Pledgor to perform or observe
any of the provisions hereof.

               SECTION 11. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to the Pledgor, to it at its address specified in the Financing Agreement, and
if to any Agent, to it at its address specified in the Financing Agreement, or
as to either such Person at such other address as shall be designated by such
Person in a written notice to such other Person complying as to delivery with
the terms of this Section 11. All such notices and other communications shall be
effective (i) if sent by certified mail, return receipt requested, when received
or three (3) Business Days after mailing, whichever first occurs, (ii) if
telecopied, when transmitted and confirmation is received, provided same is on a
Business Day and, if not, on the next Business Day, or (iii) if delivered, upon
delivery, provided same is on a Business Day and, if not, on the next Business
Day.

               SECTION 12. Consent to Jurisdiction, Etc.

               (a) Any legal action or proceeding with respect to this Agreement
or any document related thereto may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, the Pledgor hereby accepts
unconditionally the jurisdiction of the aforesaid courts. The Pledgor hereby
irrevocably waives any objection, including without limitation, any objection to
the laying of venue or based on the grounds of forum non conveniens, which the
Pledgor may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions.

               (b) The Pledgor irrevocably consents to the service of process of
any of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
Pledgor at its address referred to in Section 11 hereof.

               (c) Nothing contained in this Section 12 shall affect the right
of the Agents to serve legal process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Pledgor in any other
jurisdiction.

               SECTION 13. Waiver of Jury Trial. EACH OF THE PLEDGOR AND THE
COLLATERAL AGENT (BY ACCEPTING THIS AGREEMENT) WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING FROM ANY OTHER LOAN DOCUMENT AND
AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.

                                       11
<PAGE>   12

               SECTION 14. Miscellaneous.

               (a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Pledgor and the Collateral
Agent, and no waiver of any provision of this Agreement, and no consent to any
departure by the Pledgor therefrom, shall be effective unless it is in writing
and signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

               (b) No failure on the part of the Collateral Agent to exercise,
and no delay in exercising, any right hereunder or under any other document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The rights and remedies of the Collateral Agent provided herein
and in the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the
Collateral Agent under any document against any party thereto are not
conditional or contingent on any attempt by the Collateral Agent to exercise any
of its rights under any other document against such party or against any other
person.

               (c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.

               (d) This Agreement shall create a continuing security interest in
the Pledged Collateral and shall (i) remain in full force and effect until the
payment in full or release of the Guaranteed Obligations after the Total
Commitment has been terminated and all Letters of Credit have been canceled or
cash collateralized and (ii) be binding on the Pledgor and by its acceptance
hereof, the Collateral Agent, and their respective successors and assigns and
shall inure, together with all rights and remedies of the Agents and the Lenders
hereunder, to the benefit of the Pledgor, the Agents and the Lenders and their
respective successors, transferees and assigns. Without limiting the generality
of clause (ii) of the immediately preceding sentence, the Collateral Agent may
assign or otherwise transfer its rights and obligations under this Agreement to
any other Person pursuant to the terms of the Financing Agreement, and such
other Person shall thereupon become vested with all of the benefits in respect
thereof granted to the Collateral Agent herein or otherwise. Upon any such
assignment or transfer, all references in this Agreement to the Collateral Agent
shall mean the assignee of the Collateral Agent. None of the rights or
obligations of the Pledgor hereunder may be assigned or otherwise transferred
without the prior written consent of the Collateral Agent.

               (e) Upon the satisfaction in full of the Guaranteed Obligations
after the Total Commitment has been terminated and the Support Letter of Credit
has been canceled or cash collateralized, (i) this Agreement and the security
interest created hereby shall terminate and all rights to the Pledged Collateral
shall revert to the Pledgor, and (ii) the Collateral Agent will, upon the
Pledgor's request and at the Pledgor's expense, (A) return to the Pledgor such
of the Pledged Collateral as shall not have been sold or otherwise disposed of
or applied pursuant to the terms

                                       12
<PAGE>   13

hereof and (B) execute and deliver to the Pledgor, without recourse,
representation or warranty, such documents as the Pledgor shall reasonably
request to evidence such termination.

               (f) This Agreement shall be governed by and construed in
accordance with the law of the State of New York, except as required by
mandatory provisions of law and except to the extent that the validity and
perfection or the perfection and the effect of perfection or non-perfection of
the security interest created hereby, or remedies hereunder, in respect of any
particular Pledged Collateral are governed by the law of a jurisdiction other
than the State of New York.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       13
<PAGE>   14

               IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.

                                            DECORA INDUSTRIES, INC.

                                            By:
                                               ---------------------------------
                                                  Name:
                                                  Title:

ACCEPTED AND AGREED:

ABLECO FINANCE LLC,
as Collateral Agent

By:
   -----------------------------
    Name:
    Title:

<PAGE>   15

                   SCHEDULE I TO PLEDGE AND SECURITY AGREEMENT

                                  Pledged Debt
<TABLE>
<CAPTION>

                                                                          Original
         Name of Maker                     Description                Principal Amount
         -------------                     -----------                ----------------
<S>                                <C>                                <C>
     Decora, Incorporated          Promissory note, dated April         $90,000,000
                                            29, 1998.
</TABLE>

<PAGE>   16

                  SCHEDULE II TO PLEDGE AND SECURITY AGREEMENT

                                 Pledged Shares
<TABLE>
<CAPTION>

                                                                               Certificate
     Name of Issuer          Number of Shares             Class                   No.(s)
     --------------          ----------------             -----                   ------

<S>                          <C>                          <C>                     <C>
None.

</TABLE>

<PAGE>   17

                                  SCHEDULE III

                                       TO

                          PLEDGE AND SECURITY AGREEMENT

                                PLEDGE AMENDMENT

               This Pledge Amendment, dated ___________________________, is
delivered pursuant to Section 4 of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement, dated as of May 2, 2000 made by Decora Industries, Inc. in
favor of Ableco Finance LLC, as Collateral Agent for the Lenders party to the
Financing Agent referred to in the Pledge Agreement, as it may heretofore have
been or hereafter may be amended or otherwise modified or supplemented from time
to time and that the promissory notes or shares listed on this Pledge Amendment
shall be and become part of the Pledged Collateral referred to in said Pledge
Agreement and shall secure all of the Guaranteed Obligations referred to in said
Pledge Agreement.

                                  Pledged Debt
                                  ------------
<TABLE>
<CAPTION>

                                                                          Original
         Name of Maker                     Description                Principal Amount
         -------------                     -----------                ----------------
<S>                                        <C>                        <C>

</TABLE>

                                 Pledged Shares
                                 --------------
<TABLE>
<CAPTION>

     Name of Issuer           Number of Shares              Class           Certificate No(s)
     --------------           ----------------              -----           -----------------
<S>                           <C>                           <C>             <C>

</TABLE>

                                DECORA INDUSTRIES, INC.

                                By:
                                   -----------------------------------
                                        Name:
                                        Title:

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