Document:

Exhibit 10.11

 

 

 

PLEDGE AGREEMENT

 

By

 

POLYMER GROUP, INC.,

 

and

 

THE DOMESTIC SUBSIDIARIES PARTY HERETO,

as Pledgors,

 

and

 

CITICORP NORTH AMERICA, INC.,

as Collateral Agent

 

 

Dated as of November 22, 2005

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.

  	
   

  	
  Pledge

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
   

  	
  Delivery
  of the Securities Collateral

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.

  	
   

  	
  Representations,
  Warranties and Covenants

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.

  	
   

  	
  Registration
  in Nominee Name; Denominations

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.

  	
   

  	
  Voting
  Rights; Dividends and Interest, etc.

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.

  	
   

  	
  Remedies
  upon Event of Default

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7.

  	
   

  	
  Application
  of Proceeds of Sale

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 8.

  	
   

  	
  Collateral
  Agent Appointed Attorney-in-Fact

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.

  	
   

  	
  Waivers;
  Amendment

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.

  	
   

  	
  Securities
  Act, etc.

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 11.

  	
   

  	
  Registration,
  etc.

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 12.

  	
   

  	
  Termination
  or Release

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 13.

  	
   

  	
  Notices

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 14.

  	
   

  	
  Further
  Assurances

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 15.

  	
   

  	
  Binding
  Effect; Several Agreement; Assignment

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 16.

  	
   

  	
  Survival
  of Agreement; Severability

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 17.

  	
   

  	
  GOVERNING
  LAW

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 18.

  	
   

  	
  Counterparts

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 19.

  	
   

  	
  Rules of
  Interpretation

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 20.

  	
   

  	
  Jurisdiction;
  Consent to Service of Process

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 21.

  	
   

  	
  WAIVER OF
  JURY TRIAL

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 22.

  	
   

  	
  Additional
  Pledgors

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 23.

  	
   

  	
  Financing
  Statements

  	
  12

  

 

-i-

 

	
   

  	
   

  	
   

  	
  Page

  
	
  SECTION 24.

  	
   

  	
  No Deemed
  Dividend.

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULES

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule I

  	
   

  	
  Domestic Subsidiaries

  	
   

  
	
  Schedule II

  	
   

  	
  Pledged Stock and Debt
  Securities

  	
   

  

 

ii

 

PLEDGE AGREEMENT

 

PLEDGE AGREEMENT (as amended, amended and restated,
supplemented or otherwise modified from time to time, this “Agreement”)
dated as of [         ], 2005, among
POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), each
Domestic Subsidiary of the Borrower listed on Schedule I hereto (collectively,
together with each Domestic Subsidiary that becomes a party hereto pursuant to
Section 22 of this Agreement, the “Subsidiary Guarantors” and, together
with the Borrower, the “Pledgors”), CITICORP NORTH AMERICA, INC., as
collateral agent (in such capacity, the “Collateral Agent”) on behalf of
the Secured Parties (as defined in the Credit Agreement) pursuant to the Credit
Agreement (as hereinafter defined), as pledgee, assignee and secured party.

 

R  E  C  I  T  A
L  S

 

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

 

B.            Each
Subsidiary Guarantor has, pursuant to the Guarantee Agreement, dated as of the
date hereof, among other things, agreed to unconditionally guarantee the
obligations of the Borrower under the Credit Agreement.

 

C.            The
Borrower and each Subsidiary Guarantor will receive substantial benefits from
the execution, delivery and performance of the obligations of the Borrower
under the Credit Agreement and are, therefore, willing to enter into this Agreement.

 

D.            Contemporaneously
with the execution and delivery of this Agreement, the Borrower and the
Subsidiary Guarantors have executed and delivered to the Collateral Agent a
Security Agreement (as amended, amended and restated, supplemented or otherwise
modified from time to time, the “Security Agreement”).

 

E.             This
Agreement is given by each Pledgor in favor of the Collateral Agent for the
benefit of the Secured Parties (as defined in the Security Agreement) to secure
the payment and performance of the obligations (whether or not constituting
future advances, obligatory or otherwise) of the Borrower and any and all of
the Subsidiary Guarantors from time to time arising under or in respect of this
Agreement, the Credit Agreement, the other Loan Documents and the other Obligations
(as defined in the Security Agreement).

 

Capitalized terms used herein and not defined herein
shall have meanings assigned to such terms in the Credit Agreement.

 

NOW, THEREFORE, in consideration of the foregoing
and other benefits accruing to each Pledgor, the receipt and sufficiency of
which are hereby acknowledged, each Pledgor hereby makes

 

 

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

 

SECTION 1.           Pledge. (a) 
The following liens are hereby granted:

 

(i)            As collateral security for the payment and
performance, in full of all the Obligations, each Pledgor hereby pledges and
grants to the Collateral Agent, for the ratable benefit of Secured Parties, a
lien on and security interest in and to all of the right, title and interest of
such Pledgor in, to and under (a) all the shares of capital stock and
other Equity Interests owned by it listed on Schedule II hereto and any shares
of capital stock and other Equity Interests obtained in the future by such
Pledgor and not deposited into a Securities Account pursuant to the Security
Agreement and the certificates, if any, representing all such shares or
interests (collectively, the “Pledged Stock”); provided that the
Pledged Stock shall not include (i) more than 65% of the issued and
outstanding shares of voting stock of any first tier Non-U.S. Subsidiary,
(ii) the issued and outstanding shares of any second tier Non-U.S. Subsidiary
or (iii) to the extent that applicable law requires that a Subsidiary of
the Pledgor issue directors’ qualifying shares, such qualifying shares; (b)(i)
all debt securities owned by it listed opposite the name of the Pledgor on
Schedule II hereto, (ii) all debt securities in the future issued to
the Pledgor and not deposited into a Securities Account (as defined in the
Security Agreement) pursuant to the Security Agreement and (iii) all promissory
notes and any other instruments evidencing such debt securities (collectively,
the “Pledged Debt Securities” and together with the Pledged Stock, the “Pledged
Securities”); (c) subject to Section 5, all payments of principal or
interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of, in exchange for or
upon the conversion of the securities referred to in clauses (a) and (b)
above; (d) subject to Section 5, all rights and privileges of the
Pledgor with respect to the securities and other property referred to in
clauses (a), (b) and (c) above; and (e) all proceeds of any and all of the
foregoing (all the foregoing, collectively, the “Securities Collateral”).

 

(b)           Upon delivery to the Collateral Agent, (a) any
certificated Pledged Securities now or hereafter included in the Securities
Collateral shall be accompanied by stock or bond powers duly executed in blank
or other instruments of transfer reasonably satisfactory to the Collateral
Agent and by such other instruments and documents as the Collateral Agent may
reasonably request and (b) all other property comprising part of the
Securities Collateral shall be accompanied by proper instruments of assignment
duly executed by the applicable Pledgor and such other instruments or documents
as the Collateral Agent may reasonably request. Each subsequent delivery of
Pledged Securities shall be accompanied by a schedule describing the securities
then being pledged hereunder, which schedule shall be attached hereto as a
supplement to Schedule II and made a part hereof. Each schedule so delivered
shall supplement any prior schedules so delivered.

 

TO HAVE AND TO HOLD the Securities Collateral,
together with all right, title, interest, powers, privileges and preferences
pertaining or incidental thereto, unto the Collateral Agent for the benefit of
the Secured Parties; subject, however, to the terms, covenants and conditions hereinafter set
forth.

 

SECTION 2.           Delivery of the Securities Collateral. (a)  Each Pledgor agrees to
promptly deliver or cause to be delivered to the Collateral Agent any and all
Pledged Securities, and any and all certificates or other instruments or documents
representing the Securities Collateral, other than those Pledged Securities to
be held in a Securities Account which Securities Account will be subject to a

 

2

 

Control Agreement (as
defined in the Security Agreement) pursuant to the terms of the Security Agreement.

 

(b)           Each Pledgor will cause any Indebtedness for
borrowed money owed to such Pledgor by any Person to be evidenced by a duly
executed promissory note that is pledged to the Collateral Agent for the
benefit of the respective Secured Parties and delivered to the Collateral Agent
pursuant to the terms hereof (provided that this clause (b) shall not
apply to any such Indebtedness in an aggregate principal amount less than
$500,000 of any Person that is not a Subsidiary).

 

(c)           If any Equity Interests now or hereafter acquired by
any Pledgor constituting Pledged Stock are uncertificated, such Pledgor shall
use commercially reasonable efforts to cause such Equity Interests to be
certificated. If, after using commercially reasonable efforts, such Pledgor is
not able to have such Equity Interests certificated, such Pledgor shall comply
with its obligations under Section 3.05(c) of the Security Agreement.

 

SECTION 3.           Representations, Warranties and Covenants. Each Pledgor hereby represents,
warrants and covenants, as to itself and the Securities Collateral pledged by
it hereunder, to and with each Collateral Agent that:

 

(a)           as of the date hereof the
Pledged Stock represents that percentage as set forth on Schedule II of the
issued and outstanding shares of each class of the capital stock or other
Equity Interests of the issuer with respect thereto;

 

(b)           except for the security
interests granted hereunder, such Pledgor (i) is as of the date hereof the
direct owner, beneficially and of record, of the Pledged Securities indicated
on Schedule II, (ii) holds the Pledged Securities free and clear of
all Liens, other than the Liens created hereunder, (iii) will make no
assignment, pledge, hypothecation or transfer of, or create or permit to exist
any security interest in or other Lien on, the Securities Collateral, other
than pursuant hereto or in accordance with the Credit Agreement, and (iv)
subject to Section 2 and Section 5, will cause any and all Securities Collateral,
whether for value paid by such Pledgor or otherwise, to be forthwith deposited
with the Collateral Agent and pledged or assigned hereunder;

 

(c)           except as set forth in the
proviso to Section 1(a)(i), the Pledged Stock and Pledged Securities set forth
on Schedule II constitute all of the securities owned by such Pledgor that are
not included in the definition of Collateral under the Security Agreement;

 

(d)           such Pledgor (i) has the
power and authority to pledge the Securities Collateral in the manner hereby
done or contemplated and (ii) will defend its title or interest thereto or
therein against any and all Liens (other than the Lien created by this
Agreement), however arising, of all Persons whomsoever;

 

(e)           by virtue of (i) the
execution and delivery by the Pledgors of this Agreement, when the Pledged
Securities, certificates or other documents representing or evidencing the
Securities Collateral are delivered to the Collateral Agent in accordance with
this Agreement or (ii) in the case of uncertificated Equity Interests, the
filing of a UCC financing statement or its equivalent in other jurisdictions,
each Collateral Agent will obtain a valid and perfected lien upon and security
interest in such Pledged Securities under New York law and/or any other
applicable jurisdiction as security for the payment and performance of the
Obligations, subject to no Liens other than the liens created hereunder or
Permitted Liens which arise by operation of law;

 

3

 

(f)            all of the Pledged Stock
issued by any Pledgor has been duly authorized and validly issued and is fully
paid and to the extent applicable, nonassessable;

 

(g)           all of the Pledged Debt
Securities issued by any Pledgor have been duly authorized, executed and delivered
and are the enforceable obligations of the issuer thereof; and

 

(h)           all information set forth
herein relating to the Pledged Securities is accurate and complete in all
material respects as of the date hereof.

 

SECTION 4.           Registration in Nominee Name; Denominations. The Collateral Agent, on behalf of the
Secured Parties, shall have the right (in its sole and absolute discretion) to
hold the Pledged Securities in its own name as pledgee, the name of its nominee
(as pledgee or as sub-agent) or the name of the Pledgors, endorsed or assigned
in blank or in favor of the Collateral Agent; provided that the
Collateral Agent shall only exercise such right to hold the Pledged Securities
in its own name as pledge or the name of its nominee (as pledgee or as
sub-agent) if (a) an Event of Default has occurred and is continuing and (b) it
has provided Borrower with prior written notice of its intent to exercise such
right. During the continuance of any Event of Default, each Pledgor will
promptly give to the Collateral Agent copies of any written notices or other
written communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. During the continuance of any Event of
Default, the Collateral Agent shall at all times have the right to exchange the
certificates representing Pledged Securities for certificates of smaller or
larger denominations for any purpose consistent with this Agreement.

 

SECTION 5.           Voting Rights; Dividends and
Interest, etc. (a)  Unless and until an Event of Default shall
have occurred and be continuing and until prior notice shall have been given to
the Pledgor:

 

(i)            Each Pledgor shall have the right to exercise any and all
voting and/or other consensual rights and powers enuring to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms of
this Agreement, the Credit Agreement and the other Loan Documents; provided, however, that such Pledgor will not be entitled to
exercise any such right if the result thereof would reasonably be expected to
materially and adversely affect the rights and remedies of any of the Secured
Parties under this Agreement, the Credit Agreement or any other Loan Document
or the ability of the Secured Parties to exercise the same;

 

(ii)           Each Collateral Agent shall execute and deliver to each
Pledgor, or cause to be executed and delivered to each Pledgor, all such
proxies, powers of attorney and other instruments as such Pledgor may
reasonably request for the purpose of enabling such Pledgor to exercise the
voting and/or consensual rights and powers it is entitled to exercise pursuant
to subparagraph (i) above and to receive the cash dividends it is entitled to
receive pursuant to subparagraph (iii) below; and

 

(iii)          Subject to the next sentence, each Pledgor shall be
entitled to receive and retain any and all cash dividends, interest, principal
and other amounts paid on the Pledged Securities to the extent and only to the
extent that such cash dividends, interest, principal and other amounts are
permitted by or not prohibited by, and otherwise paid in accordance with, the
terms and conditions of the Credit Agreement, the other Loan Documents and
applicable laws. All noncash dividends, interest, principal and other amounts,
and all dividends, interest, principal and other amounts paid or payable in
cash or otherwise in connection with a partial or total liquidation or

 

4

 

dissolution, return of capital, capital surplus or
paid-in surplus, and all other distributions (other than distributions referred
to in the preceding sentence) made on or in respect of the Pledged Securities,
whether paid or payable in cash or otherwise, whether resulting from a
subdivision, combination or reclassification of the outstanding capital stock
of the issuer of any Pledged Securities or received in exchange for Pledged
Securities or any part thereof, or in redemption thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which such
issuer may be a party or otherwise, shall be and become part of the Securities
Collateral, and, if received by any Pledgor, shall be forthwith delivered to
the Collateral Agent in the same form as so received (with any necessary endorsement).

 

(b)           Upon the occurrence and
during the continuance of an Event of Default and following notice to the
Pledgor, all rights of any Pledgor to dividends, interest, principal or other
amounts that such Pledgor is authorized to receive pursuant to paragraph
(a)(iii) above shall cease, and all such rights shall thereupon become vested
in the Collateral Agent, which shall have the sole and exclusive right and
authority to receive and retain such dividends, interest, principal or other
amounts. All dividends, interest, principal or other amounts received by the
Pledgor contrary to the provisions of this Section 5 shall be held for the
benefit of the Collateral Agent, shall be segregated from other property or
funds of such Pledgor and shall be forthwith delivered to the Collateral Agent
upon prior written demand in the same form as so received (with any necessary
endorsement). Any and all money and other property paid over to or received by
the Collateral Agent pursuant to the provisions of this paragraph (b) shall be
retained by the Collateral Agent in the Collateral Account established pursuant
to the Security Agreement and shall be applied in accordance with the provisions
of Section 7. Within five (5) Business Days after all such Events of
Default have been cured or waived, the Collateral Agent shall repay to each
Pledgor all cash dividends, interest or principal (including interest earned
thereon) that such Pledgor would otherwise be permitted to retain pursuant to
the terms of paragraph (a)(iii) above and which remain in such account; provided,
however, the Collateral Agent shall be under no obligation with respect
to the investment of such cash dividends, interest or principal, including, for
the avoidance of doubt, any requirement to invest such cash dividends, interest
or principal in any class of investment, interest-bearing or otherwise.

 

(c)           Upon the occurrence and
during the continuance of an Event of Default and following notice to the
Pledgor, all rights of any Pledgor to exercise the voting and consensual rights
and powers it is entitled to exercise pursuant to paragraph (a)(i) of this
Section 5, and the obligations of the Collateral Agent under paragraph (a)(ii)
of this Section 5, shall cease, and all such rights shall thereupon become
vested in the Collateral Agent, which shall have the sole and exclusive right
and authority to exercise such voting, managerial and consensual rights and
powers. After all Events of Default have been cured or waived, such Pledgor
will have the right to exercise the voting and consensual rights and powers
that it would otherwise be entitled to exercise pursuant to the terms of
paragraph (a)(i) above.

 

After any and all Events of
Default have been cured or waived, (i) Pledgor shall have the right to exercise
the voting, managerial and other consensual rights and powers that it would
otherwise be entitled to pursuant to this Agreement and to receive the
payments, proceeds, dividends, distributions, monies, compensation, property,
assets, instruments or rights that it would be authorized to receive and retain
pursuant to this Agreement; and (ii) promptly after such cure or waiver, the
Agent shall repay and deliver to Pledgor all cash and monies that such Pledgor
is entitled to retain pursuant to this Agreement which have not been applied to
the repayment of the Obligations pursuant to the Security Agreement or the
Credit Agreement.

 

5

 

SECTION 6.           Remedies upon Event of Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell or otherwise dispose of the
Securities Collateral, or any part thereof, at public or private sale or at any
broker’s board or on any securities exchange, for cash, upon credit or for
future delivery as the Collateral Agent shall deem appropriate; provided that
any disposition of Securities Collateral by private sale be deemed to have been
made in a commercially reasonable manner. Each such purchaser at any such sale
shall hold the property sold absolutely free from any claim or right on the
part of any Pledgor, and, to the extent permitted by applicable law, the
Pledgors hereby waive all rights of redemption, stay, valuation and appraisal
any Pledgor now has or may at any time in the future have under any rule of law
or statute now existing or hereafter enacted.

 

The Collateral Agent shall give a Pledgor ten (10)
Business Days’ prior written notice (which each Pledgor agrees is reasonable
notice within the meaning of Section 9-611 of the Uniform Commercial Code as in
effect in the State of New York or its equivalent in other jurisdictions (the “UCC”))
of the Collateral Agent’s intention to make any sale or other disposition of
such Pledgor’s Securities Collateral. Such notice, in the case of a public
sale, shall state the time and place for such sale and, in the case of a sale
at a broker’s board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Securities
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Collateral Agent may fix and
state in the notice of such sale. At any such sale, the Securities Collateral,
or portion thereof, to be sold may be sold in one lot as an entirety or in
separate parcels, as the Collateral Agent may (in its sole and absolute
discretion) determine. The Collateral Agent shall not be obligated to make any
sale of any Securities Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of such Securities Collateral shall
have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale
may, without further notice, be made at the time and place to which the same
was so adjourned. In case any sale of all or any part of the Securities
Collateral is made on credit or for future delivery, the Securities Collateral
so sold may be retained by the Collateral Agent until the sale price is paid in
full by the purchaser or purchasers thereof, but the Collateral Agent shall not
incur any liability in case any such purchaser or purchasers shall fail to take
up and pay for the Securities Collateral so sold and, in case of any such
failure, such Securities Collateral may be sold again upon like notice. At any
public (or, to the extent permitted by applicable law, private) sale made pursuant
to this Section 6, any Secured Party may bid for or purchase, free from
any right of redemption, stay, valuation or appraisal on the part of any
Pledgor (all said rights being also hereby waived and released), the Securities
Collateral or any part thereof offered for sale and may make payment on account
thereof by using any Obligation then due and payable to such Secured Party from
any Pledgor as a credit against the purchase price, and such Secured Party may,
upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to any Pledgor therefor. For purposes
hereof, (a) a written agreement to purchase the Securities Collateral or
any portion thereof shall be treated as a sale thereof, (b) the Collateral
Agent shall be free to carry out such sale pursuant to such agreement and
(c) no Pledgor shall be entitled to the return of the Securities Collateral
or any portion thereof subject thereto, notwithstanding the fact that after the
Collateral Agent shall have entered into such an agreement all Events of
Default shall have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon it, the
Collateral Agent may proceed by a suit or suits at law or in equity to
foreclose upon the Securities Collateral and to sell the Securities Collateral
or any portion thereof pursuant to a judgment or decree of a court or courts
having competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver. Any sale pursuant to the provisions of this Section shall be
deemed to conform

 

6

 

to the commercially
reasonable standards as provided in Section 9-611 of the UCC or its
equivalent in other jurisdictions, as applicable.

 

SECTION 7.           Application of Proceeds of Sale. The proceeds of any sale of Securities
Collateral pursuant to Section 6, as well as any Securities Collateral
consisting of cash, shall be applied by the Collateral Agent as provided in the
Security Agreement.

 

SECTION 8.           Collateral Agent Appointed
Attorney-in-Fact.
Subject to Section 25, each Pledgor hereby appoints each Collateral Agent the
attorney-in-fact of such Pledgor for the purpose of carrying out the provisions
of this Agreement and taking any action and executing any instrument that
either Collateral Agent may deem reasonably necessary to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest,
provided that the Collateral Agent shall only take any action pursuant
to such appointment upon the occurrence and during the continuation of an Event
of Default. Without limiting the generality of the foregoing, the Collateral
Agent shall have the right, upon the occurrence and during the continuance of
an Event of Default, with full power of substitution either in the Collateral
Agent’s name or in the name of such Pledgor, to ask for, demand, sue for, collect,
receive and give acquittance for any and all moneys due or to become due under
and by virtue of any Securities Collateral, to endorse checks, drafts, orders
and other instruments for the payment of money payable to the Pledgor representing
any interest or dividend or other distribution payable in respect of the
Securities Collateral or any part thereof or on account thereof and to give
full discharge for the same, to settle, compromise, prosecute or defend any
action, claim or proceeding with respect thereto, and to sell, assign, endorse,
pledge, transfer and to make any agreement respecting, or otherwise deal with,
the same; provided, however, that nothing herein contained shall
be construed as requiring or obligating either Collateral Agent to make any
commitment or to make any inquiry as to the nature or sufficiency of any
payment received by such Collateral Agent, or to present or file any claim or
notice, or to take any action with respect to the Securities Collateral or any
part thereof or the moneys due or to become due in respect thereof or any
property covered thereby. The Collateral Agent and the other Secured Parties
shall be accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to any Pledgor
for any act or failure to act hereunder, except for their own gross negligence,
willful misconduct or bad faith.

 

SECTION 9.           Waivers; Amendment. (a)  No failure or delay of
the Collateral Agent in exercising any power or right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other Secured Parties under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provisions of this Agreement or any other Loan Document or
consent to any departure by any Pledgor therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) below, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand on any Pledgor in any case shall entitle
such Pledgor or any other Pledgor to any other or further notice or demand in
similar or other circumstances.

 

(b)           Neither this Agreement nor
any provision hereof may be waived, amended or modified except pursuant to a
written agreement entered into among the Borrower, the Collateral Agent

 

7

 

and the Pledgors with respect to which such waiver, amendment or
modification is to apply subject to any consents required in accordance with
Section 9.08 of the Credit Agreement.

 

SECTION 10.         Securities Act, etc. In view of the
position of the Pledgors in relation to the Pledged Securities, or because of
other current or future circumstances, a question may arise under the
Securities Act of 1933, as now or hereafter in effect, or any similar statute
hereafter enacted analogous in purpose or effect (such Act and any such similar
statute as from time to time in effect being called the “Federal Securities
Laws”) or equivalent legislation in any other jurisdiction with respect to
any disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws or equivalent
legislation in any other jurisdiction might very strictly limit the course of
conduct of the Collateral Agent if the Collateral Agent was to attempt to
dispose of all or any part of the Pledged Securities, and might also limit the
extent to which or the manner in which any subsequent transferee of any Pledged
Securities could dispose of the same. Similarly, there may be other legal
restrictions or limitations affecting the Collateral Agent in any attempt to
dispose of all or part of the Pledged Securities under applicable Blue Sky or
other state securities laws or similar laws analogous in purpose or effect. Each
Pledgor recognizes that in light of such restrictions and limitations the
Collateral Agent may, with respect to any sale of the Pledged Securities, limit
the purchasers to those who will represent and agree, among other things, to
acquire such Pledged Securities for their own account for investment, and not
with a view to the distribution or resale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each
Pledgor acknowledges and agrees that in light of such restrictions and
limitations, the Collateral Agent, in its sole and absolute discretion (but
subject to the other provisions of this Agreement), (a) may proceed to make
such a sale whether or not a registration statement for the purpose of
registering such Pledged Securities or part thereof shall have been filed under
the Federal Securities Laws or equivalent legislation in any other jurisdiction
and (b) may approach and negotiate with a single potential purchaser to effect
such sale. Each Pledgor acknowledges and agrees that any such sale might result
in prices and other terms less favorable to the seller than if such sale were a
public sale without such restrictions. In the event of any such sale, the
Collateral Agent shall incur no responsibility or liability for selling all or
any part of the Pledged Securities at a price that the Collateral Agent, in its
sole and absolute discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid
or if more than a single purchaser were approached. The provisions of this
Section 10 will apply notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which the Collateral Agent sells.

 

SECTION 11.         Registration, etc. Each Pledgor agrees
that, upon the occurrence and during the continuance of an Event of Default hereunder,
if for any reason the Collateral Agent desires to sell any of the Pledged
Securities of the Borrower at a public sale, it will, at any time and from time
to time, upon the reasonable written request of the Collateral Agent, use its
commercially reasonable efforts to take or to cause the issuer of such Pledged
Securities to take such action and prepare, distribute, file and/or cause to
become effective such documents as are required or advisable in the reasonable
opinion of counsel for the Collateral Agent to permit the public sale of such
Pledged Securities. Each Pledgor further agrees to indemnify, defend and hold
harmless the Collateral Agent, each other Secured Party, any underwriter and
their respective officers, directors, affiliates and controlling Persons (collectively,
“indemnitees”) from and against all loss, liability, expenses, costs of
counsel (including, without limitation, reasonable fees and out-of-pocket
expenses to the Collateral Agent of legal counsel) and claims (including the
reasonable costs of investigation) that they may incur insofar as such loss,
liability, expense or

 

8

 

claim
arises out of or is based upon any alleged untrue statement of a material fact
contained in any prospectus (or any amendment or supplement thereto) or in any
notification or offering circular, or arises out of or is based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements in any thereof not misleading, except insofar
as the same may have been caused by any untrue statement or omission based upon
information furnished in writing to such Pledgor or the issuer of such Pledged
Securities by the Collateral Agent or any other Secured Party expressly for use
therein. Each Pledgor further agrees, upon such written request referred to
above, to use its reasonable best efforts to qualify, file or register, or
cause the issuer of such Pledged Securities to qualify, file or register, any
of the Pledged Securities under the Blue Sky or other securities laws of such
states as may be requested by the Collateral Agent and keep effective, or cause
to be kept effective, all such qualifications, filings or registrations. Each
Pledgor will bear all reasonable costs and expenses of carrying out its
obligations under this Section 11. Each Pledgor acknowledges that there is
no adequate remedy at law for failure by it to comply with the provisions of
this Section 11 and that such failure would not be adequately compensable in
damages, and therefore agrees that its agreements contained in this
Section 11 may be specifically enforced.

 

SECTION 12.         Termination or Release. (a)  This Agreement and the security interests
granted hereby (i) shall automatically terminate when all the Obligations have
been paid in full (except for contingent indemnity obligations not then due),
the Lenders have no further commitment to lend under the Credit Agreement or to
issue or participate in Letters of Credit and the LC Exposure has been reduced
to zero (at which time the Collateral Agent shall execute and deliver to each
Pledgor, at such Pledgor’s expense, all UCC termination statements or their
equivalent in any other jurisdiction and other documents which such Pledgor
shall reasonably request to evidence such termination) and (ii) to the extent
permitted by applicable law shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment in respect of any
Obligation is rescinded or must otherwise be restored by any Secured Party upon
any bankruptcy or reorganization of any Pledgor or otherwise. Any execution and
delivery of termination statements or documents pursuant to this Section 12(a)
shall be without recourse to or warranty by the Collateral Agent. A Subsidiary
Guarantor shall automatically be released from its obligations hereunder and
the Security Interests in the Collateral of such Subsidiary Guarantor shall be
automatically released in the event that the Equity Interests of such
Subsidiary Guarantor shall be sold, transferred or otherwise disposed of to a
Person that is not an Affiliate of Borrower such that such Person is no longer
a Subsidiary of Borrower in accordance with the terms of each Loan Document.

 

(b)           Upon any sale or other
transfer by any Pledgor of any Securities Collateral that is permitted under
each Loan Document to any Person that is not a Pledgor, or upon the
effectiveness of any written consent to the release of the security interests
granted hereby in any Securities Collateral pursuant to Section 9.08 of the
Credit Agreement, the security interests in such Securities Collateral shall be
automatically released. If the capital stock of a Pledgor is sold, transferred
or otherwise disposed of to a Person that is not an Affiliate of the Borrower
so that such Pledgor is no longer a Subsidiary of the Borrower pursuant to a
transaction permitted by the Credit Agreement, such Pledgor shall be released
from its obligations under this Agreement without further action.

 

(c)           In connection with any
termination or release pursuant to paragraph (a) or (b), the Collateral Agent
shall execute and deliver to any Pledgor, at such Pledgor’s expense, all
documents that such Pledgor shall reasonably request to evidence such termination
or release. Any execution and delivery of documents pursuant to this Section 12
shall be without recourse to or warranty by the Collateral Agent.

 

9

 

SECTION 13.         Notices. All communications and notices
hereunder shall be in writing and given as provided in Section 9.01 of the
Credit Agreement. All communications and notices hereunder to any Pledgor that
is a Domestic Subsidiary shall be given to it at the Borrower at the Borrower’s
address as provided in Section 9.01 of the Credit Agreement, with a copy to the
Borrower.

 

SECTION 14.         Further Assurances. Each Pledgor agrees
to do such further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments, as the Collateral Agent
may at any time reasonably request in writing in connection with the
administration and enforcement of this Agreement or with respect to the
Securities Collateral or any part thereof or in order to assure and confirm
unto the Collateral Agent, its rights and remedies hereunder.

 

SECTION 15.         Binding Effect; Several Agreement;
Assignment. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the permitted successors and assigns
of such party; and all covenants, promises and agreements by or on behalf of
any Pledgor that are contained in this Agreement shall bind and inure to the
benefit of its permitted successors and assigns. This Agreement shall become
effective as to any Pledgor when a counterpart (including a facsimile copy)
hereof executed on behalf of such Pledgor shall have been delivered to the
Collateral Agent and a counterpart hereof shall have been executed on behalf of
the Collateral Agent, and thereafter shall be binding upon such Pledgor and the
Collateral Agent and their respective successors and assigns, and shall enure
to the benefit of such Pledgor, the Collateral Agent and the other Secured
Parties, and their respective successors and assigns, except that no Pledgor
shall have the right to assign its rights hereunder or any interest herein or
in the Securities Collateral (and any such attempted assignment shall be void),
except as expressly contemplated by this Agreement or the other Loan Documents.
This Agreement shall be construed as a separate agreement with respect to each
Pledgor and may be amended, modified, supplemented, waived or released with
respect to any Pledgor without the approval of any other Pledgor and without
affecting the obligations of any other Pledgor hereunder.

 

SECTION 16.         Survival of Agreement; Severability. (a)  All covenants, agreements, representations
and warranties made by any Pledgor herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this Agreement
or any other Loan Document shall be considered to have been relied upon by the
Collateral Agent and the other Secured Parties and shall survive the making by
the Lenders of the Loans, and the Lenders’ issuance of and participations in
Letters of Credit, regardless of any investigation made by the Secured Parties
or on their behalf, and shall continue in full force and effect until this
Agreement shall terminate.

 

(b)           In the event any one or more
of the provisions contained in this Agreement should be held invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions. It is understood and agreed that this Agreement shall create
separate security interests in the Securities Collateral securing the
Obligations, as provided in Section 1, and that any determination by any court
with jurisdiction that the security interests securing any Obligation or class
of Obligations is invalid for any reason shall not in and of itself invalidate
the security interests securing any other Obligations hereunder.

 

10

 

SECTION 17.         GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 18.         Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all
of which, when taken together, shall constitute a single contract, and shall
become effective as provided in Section 15. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Agreement.

 

SECTION 19.         Rules of Interpretation. The rules of
interpretation specified in Section 1.03 of the Credit Agreement shall be
applicable to this Agreement. Section headings used herein are for convenience
of reference only, are not part of this Agreement and are not to affect the
construction of, or to be taken into consideration in interpreting, this Agreement.

 

SECTION 20.         Jurisdiction; Consent to Service of
Process. (a)  Each party hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that, to the extent permitted by applicable law, all claims in respect
of any such action or proceeding may be heard and determined in such New York
State court or, to the extent permitted by applicable law, in such Federal
court referred to above. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by applicable law. Nothing in this Agreement shall affect any right
that the Collateral Agent or any other Secured Party may otherwise have to
bring any action or proceeding relating to this Agreement or the other Loan
Documents against any Pledgor or its properties in the courts of any jurisdiction.

 

(b)           Each party hereto hereby
irrevocably and unconditionally waives, to the fullest extent it may legally
and effectively do so, any objection that it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or the other Loan Documents in any New York State or Federal
court referred to in paragraph (a) of this Section. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

 

(c)           Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 13. Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in any
other manner permitted by law.

 

SECTION 21.         WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED,

 

11

 

EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS SECTION.

 

SECTION 22.         Additional Pledgors. Pursuant to Section
5.16 of the Credit Agreement, each Domestic Subsidiary of the Borrower that was
not in existence or not a Domestic Subsidiary on the date of the Credit
Agreement is required to enter into this Agreement as a Pledgor upon becoming a
Domestic Subsidiary. Upon execution and delivery by the Collateral Agent and
such Domestic Subsidiary of an instrument in the form of Annex I attached to
the Security Agreement, such Domestic Subsidiary shall become a Pledgor
hereunder with the same force and effect as if originally named as a Pledgor
herein. The execution and delivery of such instrument shall not require the consent
of any Pledgor hereunder. The rights and obligations of each Pledgor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Pledgor as a party to this Agreement.

 

SECTION 23.         Financing Statements. Each Pledgor hereby
irrevocably authorizes the Collateral Agent at any time and from time to time
to file in any relevant jurisdiction any initial financing statements
(including fixture filings) and amendments thereto that contain the information
required by Article 9 of the Uniform Commercial Code of each applicable
jurisdiction for the filing of any financing statement or amendment relating to
the Securities Collateral, including (i) whether such Pledgor is an organization,
the type of organization and any organizational identification number issued to
such Pledgor, (ii) any financing or continuation statements or other documents
without the signature of such Pledgor where permitted by law, including the
filing of a financing statement describing the Securities Collateral as “all
assets in which the Pledgor now owns or hereafter acquires rights” and (iii) in
the case of a financing statement filed as a fixture filing or covering
Securities Collateral constituting minerals or the like to be extracted or
timber to be cut, a sufficient description of the real property to which such
Securities Collateral relates. Each Pledgor agrees to provide all information
described in the immediately preceding sentence to the Collateral Agent
promptly upon request. Copies of such financing statements, as filed, should be
sent promptly to the Borrower at the address provided in Section 9.01 of the
Credit Agreement.

 

SECTION 24.         No Deemed Dividend.Notwithstanding the
foregoing, no Pledgor shall be required to take any action pursuant to this
Agreement that the Borrower has reasonably determined would either result in
adverse tax consequences under Section 956 of the Code or would contravene any
applicable law, rule or regulation.

 

[SIGNATURE
PAGES FOLLOW]

 

12

 

IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the day and year first above written.

 

	
   

  	
  POLYMER GROUP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

S-1

 

	
   

  	
  BONLAM (S.C.), INC.

  
	
   

  	
  CHICOPEE, INC.

  
	
   

  	
  DOMINION TEXTILE (USA) INC.

  
	
   

  	
  FABPRO ORIENTED POLYMERS, INC.

  
	
   

  	
  FABRENE CORP.

  
	
   

  	
  FABRENE GROUP L.L.C.

  
	
   

  	
  FIBERGOL CORPORATION

  
	
   

  	
  FIBERTECH GROUP, INC.

  
	
   

  	
  FNA ACQUISITION, INC.

  
	
   

  	
  FNA POLYMER CORP.

  
	
   

  	
  LORETEX CORPORATION

  
	
   

  	
  PGI EUROPE, INC.

  
	
   

  	
  PGI POLYMER, INC.

  
	
   

  	
  PNA CORP.

  
	
   

  	
  POLY-BOND INC.

  
	
   

  	
  POLYIONIX SEPARATION TECHNOLOGIES, INC.

  
	
   

  	
  PRISTINE BRANDS CORPORATION

  
	
   

  	
  TECHNETICS GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

S-14

 

	
   

  	
  CITICORP NORTH AMERICA, INC.,

  	
   

  
	
   

  	
  as
  Collateral Agent

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

S-15

 

Schedule I to the

Pledge Agreement

 

DOMESTIC SUBSIDIARIES

 

Bonlam (S.C.), Inc.

Chicopee, Inc.

Dominion Textile (USA) Inc.

FabPro Oriented Polymers, Inc.

Fabrene Corp.

Fabrene Group L.L.C.

FiberGol Corporation

FiberTech Group, Inc.

FNA Acquisition, Inc.

FNA Polymer Corp.

Loretex Corporation

PGI Europe, Inc.

PGI Polymer, Inc.

PNA Corp.

Poly-Bond Inc.

PolyIonix Separation Technologies, Inc.

Pristine Brands Corporation

Technetics Group, Inc.

 

 

Schedule II to the

Pledge Agreement

 

PLEDGED STOCK

 

	
  Issuer

  	
   

  	
  Number 

  of 

  Certificate

  	
   

  	
  

  

  Registered Owner

  	
   

  	
  Number and

  Class of Shares/

  Type of Interest

  	
   

  	
  

  Percentage

  of Shares/Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

PLEDGED DEBT SECURITIES

 

	
  Issuer

  	
   

  	
  Payee

  	
   

  	
  Principal Amount

  	
   

  	
  Date of Note

  	
   

  	
  Maturity DateExhibit 10.12

 

GUARANTEE AGREEMENT

 

GUARANTEE AGREEMENT dated as of November 22,
2005, among each of the subsidiaries listed on Schedule I hereto (each
such subsidiary individually, a “Guarantor” and collectively, the “Guarantors”)
of POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), and
CITICORP NORTH AMERICA, INC., as Collateral Agent and Administrative Agent (the
“Agent”) for the Secured Parties (as defined in the Credit Agreement
referred to below).

 

Reference is made to the Credit Agreement
dated as of November 22, 2005 (the “Credit Agreement”), among POLYMER
GROUP, INC., a Delaware corporation (the “Borrower”), the guarantors
from time to time a party thereto, the financial institutions listed on Schedule 2.01
thereto, as such Schedule may from time to time be supplemented and amended
(the “Lenders”), CITICORP NORTH AMERICA, INC., as administrative agent
(in such capacity, the “Administrative Agent”) for the Lenders, as
documentation agent (in such capacity, the “Documentation Agent”), as syndication
agent (in such capacity, the “Syndication Agent”), as collateral agent
for the Secured Parties (in such capacity, the “Collateral Agent”), and
CITIGROUP GLOBAL MARKETS INC. (“CGMI”), as sole lead arranger and sole
bookrunner (in such capacity, the “Lead Arranger”). Terms used herein
without definition shall have the meanings assigned to such terms in the Credit
Agreement.

 

The Lenders have agreed to make Loans to the
Borrower, and the Issuing Bank has agreed to issue Letters of Credit for the
account of the Borrower, pursuant to, and upon the terms and subject to the
conditions specified in, the Credit Agreement. Each of the Guarantors is a
direct or indirect wholly owned Subsidiary of the Borrower and acknowledges
that it will derive substantial benefit from the making of the Loans by the
Lenders, and the issuance of the Letters of Credit by the Issuing Bank. The
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned on, among other things, the execution and
delivery by the Guarantors of a Guarantee Agreement in the form hereof. As
consideration therefor and in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit, the Guarantors are willing to execute
this Agreement.

 

Accordingly, the parties hereto agree as
follows:

 

SECTION 1.           Guarantee.
Each Guarantor unconditionally guarantees, jointly with the other Guarantors
and severally, as a primary obligor and not merely as a surety, (a) the due and
punctual payment of the Obligations and (b) the due and punctual performance of
all covenants, agreements, obligations and liabilities of the Loan Parties
under or pursuant to the Credit Agreement and the other Loan Documents (all the
monetary and other obligations referred to in the preceding
clauses (a) and (b) being collectively called the “Guaranteed Obligations”).
Each Guarantor further agrees that the Guaranteed Obligations may be extended
or renewed, in whole or in part, without notice to or further assent from it,
and that it will remain bound upon its guarantee notwithstanding any extension
or renewal of any Obligation. By execution of this Agreement, each Guarantor
agrees to be bound by the terms of the Credit Agreement as a Subsidiary Loan
Party as if it were a party to the Credit Agreement.

 

SECTION 2.           Guaranteed
Obligations Not Waived. To the fullest extent permitted by applicable law,
each Guarantor waives presentment to, demand of payment from and protest to the
Loan Parties of any of the Guaranteed Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. To the
fullest extent permitted by applicable law, the obligations of each Guarantor
hereunder shall not be affected by (a) the failure of the Agents or any other Secured
Party to assert any claim or demand or to enforce or exercise any right or
remedy against the Loan Parties under the provisions of the Credit Agreement,
any other Loan Document or otherwise, (b) any rescission, waiver, amendment or
modification of, or any release from any of the terms
or provisions of, this

 

 

Agreement, any other Loan Document, any
Guarantee or any other agreement, including with respect to any other Guarantor
under this Agreement, or (c) the failure to perfect any security interest in or
lien on, or the release of, any of the security held by or on behalf of the
Agents or any other Secured Party.

 

SECTION 3.           Guarantee
of Payment. Each Guarantor further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by the Agents or any other Secured Party to any
of the security held for payment of the Guaranteed Obligations or to any
balance of any deposit account or credit on the books of the Agents or any
other Secured Party in favor of the Borrower or any other Person.

 

SECTION 4.           No
Discharge or Diminishment of Guarantee. The obligations of each Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or termination
for any reason (other than the indefeasible payment in full in cash of the
Guaranteed Obligations), including any claim of waiver, release, surrender,
alteration or compromise of any of the Guaranteed Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Guaranteed Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of each Guarantor hereunder shall not be discharged
or impaired or otherwise affected by the failure of the Agents or any other
Secured Party to assert any claim or demand or to enforce any remedy under the
Credit Agreement, any other Loan Document or any other agreement, by any waiver
or modification of any provision of any thereof, by any default, failure or
delay, willful or otherwise, in the performance of the Guaranteed Obligations,
or by any other act or omission that may or might in any manner or to any
extent vary the risk of any Guarantor or that would otherwise operate as a
discharge of each Guarantor as a matter of law or equity (other than the
payment in full in cash or Cash Equivalents of all the Guaranteed Obligations).

 

SECTION 5.           Defenses
of Borrower Waived. To the fullest extent permitted by applicable law, each
of the Guarantors waives any defense based on or arising out of any defense of
any Loan Party or the unenforceability of the Guaranteed Obligations or any
part thereof from any cause, or the cessation from any cause of the liability
of any Loan Party, other than the final payment in full in cash or Cash
Equivalents of the Guaranteed Obligations. The Agents and the other Secured
Parties may, at their election, foreclose on any security held by one or more
of them by one or more judicial or nonjudicial sales, accept an assignment of
any such security in lieu of foreclosure, compromise or adjust any part of the
Guaranteed Obligations, make any other accommodation with any Loan Party or any
other guarantor or exercise any other right or remedy available to them against
any Loan Party or any other guarantor, without affecting or impairing in any
way the liability of any Guarantor hereunder except to the extent the
Guaranteed Obligations have been fully and finally paid in cash or Cash
Equivalents. Pursuant to applicable law, each of the Guarantors waives any
defense arising out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right of reimbursement
or subrogation or other right or remedy of such Guarantor against any Loan
Party or any other Guarantor or guarantor, as the case may be, or any security.

 

SECTION 6.           Agreement
to Pay; Subordination. In furtherance of the foregoing and not in
limitation of any other right that the Agents or any other Secured Party has at
law or in equity against any Guarantor by virtue hereof, upon the failure of
any Loan Party to pay any Obligation when and as the same shall become due,
whether at maturity, by acceleration, after notice of prepayment or otherwise,
promptly upon notice from the Agent each Guarantor hereby promises to and will
forthwith pay, or cause to be paid, to the Agents or such other Secured Party
as designated thereby in cash or Cash Equivalents the amount of such unpaid
Guaranteed Obligations. Upon payment by any Guarantor of any sums to the Agents
or any Secured Party as provided above, all rights of such Guarantor against
any Loan Party

 

2

 

arising as a result thereof by way of right
of subrogation, contribution, reimbursement, indemnity or otherwise shall in
all respects be subordinate and junior in right of payment to the prior payment
in full in cash or Cash Equivalents of all the Guaranteed Obligations. In
addition, any indebtedness of any Loan Party now or hereafter held by any
Guarantor is hereby subordinated in right of payment to the prior payment in
full in cash or Cash Equivalents of the Guaranteed Obligations. If any amount
shall erroneously be paid to any Guarantor on account of (i)  such subrogation, contribution,
reimbursement, indemnity or similar right or (ii) any such indebtedness of any
Loan Party, such amount shall be held for the benefit of the Secured Parties
and shall forthwith be paid to the Agents to be credited against the payment of
the Guaranteed Obligations, whether matured or unmatured, in accordance with
the terms of the Loan Documents.

 

SECTION 7.           Information.
Each of the Guarantors assumes all responsibility for being and keeping itself
informed of each other Loan Party’s financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks that such Guarantors
and incurs hereunder, and agrees that none of the Agents or the other Secured
Parties will have any duty to advise any of the Guarantors of information known
to it or any of them regarding such circumstances or risks.

 

SECTION 8.           Representations
and Warranties. Each of the Guarantors represents and warrants as to itself
that all representations and warranties relating to it contained in the Credit
Agreement are true and correct.

 

SECTION 9.           Termination.
(a)  The Guarantees made hereunder (i)
shall terminate when all the Guaranteed Obligations (other than contingent
indemnification provisions not then claimed or due) have been paid in full in
cash or Cash Equivalents and the Lenders have no further commitment to lend
under the Credit Agreement or to issue or participate in Letters of Credit and
the LC Exposure has been reduced to zero and (ii) shall continue to be effective
or be reinstated, as the case may be, if at any time any payment in respect
thereof, of any Obligation is rescinded or must otherwise be restored by any
Secured Party or any Guarantor upon the bankruptcy or reorganization of the
Borrower, any Guarantor or otherwise. In connection with the foregoing, the
Agents shall execute and deliver to such Guarantor or Guarantor’s designee, at
such Guarantor’s expense, any documents or instruments which such Guarantor
shall reasonably request from time to time in writing to evidence such
termination and release.

 

(b)           If
the Equity Interests of a Guarantor are sold, transferred or otherwise disposed
of to a Person that is not an Affiliate pursuant to a transaction permitted by
Section 6.05 of the Credit Agreement that results in such Guarantor ceasing to
be a Subsidiary, or upon the effectiveness of any written consent pursuant to
Section 9.08 of the Credit Agreement to the release of the guarantee granted by
such Guarantor hereby, such Guarantor shall be released from its obligations
under this Agreement without further action. In connection with such release,
the Agents shall execute and deliver to such Guarantor, at such Guarantor’s
expense, all documents that such Guarantor shall reasonably request to evidence
such termination or release. Any execution and delivery of documents pursuant
to this Section 9(b) shall be without recourse to or warranty by the Agents.

 

SECTION 10.         Binding
Effect; Several Agreement; Successors and Assigns. (a)  This Agreement shall become effective as to
any Guarantor when a counterpart hereof executed on behalf of such Guarantor
shall have been delivered to the Agents and a counterpart hereof (including a
facsimile copy) shall have been executed on behalf of the Agents, and
thereafter shall be binding upon such Guarantor and the Agents and their
respective permitted

 

3

 

successors and assigns, and shall inure to
the benefit of such Guarantor, the Agents and the other Secured Parties and
their respective permitted successors and assigns, except that no Guarantor
shall have the right to assign or transfer its rights or obligations hereunder
or any interest herein (and any such attempted assignment or transfer shall be
void) except as expressly permitted by each of the other Loan Documents.

 

(b)           Under
Oregon law, most agreements, promises and commitments made after October 3,
1989, concerning loans and other credit extensions which are not for personal,
family or household purposes or secured solely by the borrower’s residence must
be in writing, express consideration and be signed to be enforceable.

 

(c)           This
Agreement shall be construed as a separate agreement with respect to each
Guarantor and may be amended, modified, supplemented, waived or released with
respect to any Guarantor without the approval of any other Guarantor and
without affecting the obligations of any other Guarantor hereunder.

 

(d)           Whenever
in this Agreement any of the parties hereto is referred to, such reference
shall be deemed to include the successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of any Guarantor or the
Agents that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.

 

SECTION 11.         Waivers;
Amendment. (a)  No failure or delay
of the Agents in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agents hereunder and of
the other Secured Parties under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provisions of this Agreement or any other Loan Document or
consent to any departure by any Guarantor therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice to or demand on any Guarantor in any
case shall entitle such Guarantor or any other Guarantor to any other or
further notice or demand in similar or other circumstances.

 

(b)           Neither
this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to an agreement or agreements in writing entered into among the
Borrower, the Agents and the Guarantors with respect to which such waiver,
amendment or modification is to apply.

 

SECTION 12.       Governing
Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 13.         Notices.
All communications and notices hereunder shall (except as otherwise expressly
permitted herein) be in writing and given as provided in Section 9.01 of the
Credit Agreement. All communications and notices hereunder to any Guarantor
shall be given to it at its address or telecopy number set forth on Schedule
I, with a copy to Borrower.

 

SECTION 14.         Survival
of Agreement; Severability. (a)  All
covenants, agreements, representations and warranties made by any Guarantor
herein and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the Agents and the other Secured
Parties and shall survive the making by the Lenders of the Loans and the
Lenders’ issuance of and participations in Letters of Credit, regardless of any
investigation made by the Secured Parties or on their behalf, and shall
continue in full force and effect until this Agreement shall terminate.

 

4

 

(b)           In
the event any one or more of the provisions contained in this Agreement should
be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby (it being understood that the
invalidity of a particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other jurisdiction).
The parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

 

SECTION 15.         Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
constitute an original but all of which when taken together shall constitute a
single contract (subject to Section 10) and shall become effective as provided
in Section 10. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. It is understood and agreed among the parties that this
Agreement shall create separate guarantees in favor of each of the Term Lenders
and the Revolving Lenders, and that any determination by any court with
jurisdiction that the guarantee in favor of either group of Lenders is invalid
for any reason shall not in and of itself invalidate the guarantee with respect
to any other beneficiary hereunder.

 

SECTION 16.         Rules
of Interpretation; Headings. (a)  The
rules of interpretation specified in Section 1.03 of the Credit Agreement shall
be applicable to this Agreement.

 

(b)           Section
headings used herein are for the purpose of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting this Agreement.

 

SECTION 17.         Jurisdiction;
Consent to Service of Process. (a) 
Each party hereto hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York State
court or Federal court of the United States of America sitting in New York
City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan Documents, or
for recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
court or, to the extent permitted by law, in such Federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that the Agents or any other Secured Party may otherwise
have to bring any action or proceeding relating to this Agreement or the other
Loan Documents against any Guarantor or its properties in the courts of any
jurisdiction.

 

(b)           Each
party hereto hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or the other Loan Documents in any New
York State or Federal court referred to in paragraph (c) of this Section. Each
of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.

 

(c)           Each
party to this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 13. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.

 

5

 

SECTION 18.       WAIVER
OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 18.

 

SECTION 19.         Right
of Setoff. If an Event of Default or Event of Termination shall have
occurred and be continuing, each Secured Party is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such
Secured Party to or for the credit or the account any Guarantor against any of
and all the obligations of such Guarantor now or hereafter existing under this
Agreement and other Loan Documents held by such Secured Party, irrespective of
whether or not such Secured Party shall have made any demand under this
Agreement or such other Loan Document and although such obligations may be
unmatured. In connection with exercising its rights pursuant to the previous
sentence, a Secured Party may at any time use any of the such Guarantor’s
credit balances with the Secured Party to purchase at the Secured Party’s
applicable spot rate of exchange any other currency or currencies which the
Secured Party considers necessary to reduce or discharge any amount due by the
such Guarantor to the Secured Party, and may apply that currency or those
currencies in or towards payment of those amounts. The rights of each Secured
Party under this Section are in addition to other rights and remedies (including
other rights of setoff) which such Secured Party may have. Each Secured Party
agrees promptly to notify such Guarantor and the Agents after making any such
setoff.

 

[Signature
Page Follows]

 

6

 

IN WITNESS WHEREOF, the parties hereto have
duly executed this Agreement as of the day and year first above written.

 

	
   

  	
  BONLAM (S.C.), INC.

  
	
   

  	
  CHICOPEE, INC.

  
	
   

  	
  DOMINION TEXTILE (USA) INC.

  
	
   

  	
  FABPRO ORIENTED POLYMERS, INC.

  
	
   

  	
  FABRENE CORP.

  
	
   

  	
  FABRENE GROUP L.L.C.

  
	
   

  	
  FIBERGOL CORPORATION

  
	
   

  	
  FIBERTECH GROUP, INC.

  
	
   

  	
  FNA ACQUISITION, INC.

  
	
   

  	
  FNA POLYMER CORP.

  
	
   

  	
  LORETEX CORPORATION

  
	
   

  	
  PGI EUROPE, INC.

  
	
   

  	
  PGI POLYMER, INC.

  
	
   

  	
  PNA CORP.

  
	
   

  	
  POLY-BOND INC.

  
	
   

  	
  POLYIONIX SEPARATION TECHNOLOGIES, INC.

  
	
   

  	
  PRISTINE BRANDS CORPORATION

  
	
   

  	
  TECHNETICS GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

S-1

 

	
   

  	
  CITICORP
  NORTH AMERICA, INC., as

  
	
   

  	
  Administrative
  Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Schedule I to
the

Guarantee Agreement

 

Guarantors

 

	
  Name

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Bonlam (S.C.), Inc.

  	
   

  	
   

  
	
  Chicopee, Inc.

  	
   

  	
   

  
	
  Dominion Textile (USA) Inc.

  	
   

  	
   

  
	
  FabPro Oriented Polymers, Inc.

  	
   

  	
   

  
	
  Fabrene Corp.

  	
   

  	
   

  
	
  Fabrene Group L.L.C.

  	
   

  	
   

  
	
  FiberGol Corporation

  	
   

  	
   

  
	
  FiberTech Group, Inc.

  	
   

  	
   

  
	
  FNA Acquisition, Inc.

  	
   

  	
   

  
	
  FNA Polymer Corp.

  	
   

  	
   

  
	
  Loretex Corporation

  	
   

  	
   

  
	
  PGI Europe, Inc.

  	
   

  	
   

  
	
  PGI Polymer, Inc.

  	
   

  	
   

  
	
  PNA Corp.

  	
   

  	
   

  
	
  Poly-Bond Inc.

  	
   

  	
   

  
	
  PolyIonix Separation Technologies, Inc.

  	
   

  	
   

  
	
  Pristine Brands Corporation

  	
   

  	
   

  
	
  Technetics Group, Inc.

  	
   

  	
   

  

 

	
  Address/telecopy number for each Guarantor

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  c/o Polymer Group, Inc.

  	
   

  	
   

  
	
  4055 Faber Place, Suite 201

  	
   

  	
   

  
	
  North Charleston, South Carolina 29405

  	
   

  	
   

  
	
  attention: Willis C. Moore III

  	
   

  	
   

  
	
  (telecopy: 843-329-0415)

  	
   

  	
   

  

 

3

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