Document:

EXHIBIT 10.23

 

DOMESTIC SECURITY AGREEMENT dated as of
February 17, 2004, among PLIANT CORPORATION, a Utah corporation (the “Parent
Borrower”), each subsidiary of the Parent Borrower listed on
Schedule I hereto (each such subsidiary individually a “Guarantor”
and collectively, the “Guarantors”; the Guarantors and the Parent
Borrower are referred to collectively herein as the “Grantors”) and
DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation (“DBTCA”),
as collateral agent (in such capacity, the “Collateral Agent”) for the
Secured Parties (as defined herein).

 

Reference is made to (a) the Credit Agreement dated as of
February 17, 2004 (as amended, supplemented or otherwise modified from
time to time, the “Credit Agreement”), among the Parent Borrower, the
subsidiaries of the Parent Borrower party thereto as domestic subsidiary
borrowers (the “Domestic Subsidiary Borrowers”), Uniplast Industries
Co., a Nova Scotia company (the “Canadian Subsidiary Borrower” and,
together with the Parent Borrower and the Domestic Subsidiary Borrowers, the “Borrowers”),
the lenders from time to time party thereto (the “Lenders”), Credit
Suisse First Boston, acting through its Cayman Islands Branch, as
administrative agent (in such capacity, the “Administrative Agent”) for
the Lenders, the Collateral Agent, General Electric Capital Corporation, as
co-collateral agent (the “Co-Collateral Agent”), and JPMorgan Chase
Bank, as syndication agent (together with the Administrative Agent, the
Collateral Agent and the Co-Collateral Agent, the “Agents”), and (b) the
Guarantee Agreement dated as of February 17, 2004 (as amended,
supplemented or otherwise modified from time to time, the “Guarantee
Agreement”), among the Parent Borrower, the Guarantors and the
Administrative Agent.

 

The Collateral Agent and the trustees for the holders of the Senior
Secured Discount Notes and the Existing Senior Secured Notes have entered into
an Amended and Restated Intercreditor Agreement dated as of
February 17, 2004 (the “Intercreditor Agreement”), which
confirms the relative priority of the security interests of the Secured
Parties, the holders of the Senior Secured Discount Notes and the holders of
the Existing Senior Secured Notes in the Collateral.

 

The Lenders have agreed to make Loans to the Borrowers, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Parent
Borrower, in an amount up to $100,000,000, pursuant to, and upon the terms and
subject to the conditions specified in, the Credit Agreement.  The Guarantors have agreed to guarantee,
among other things, all the obligations of the Borrowers under the Credit
Agreement.  The Parent Borrower has
agreed to guarantee, among other things, all the obligations of the Domestic
Subsidiary Borrowers and the Canadian Subsidiary Borrower under the Credit
Agreement.  The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit under
the Credit Agreement are conditioned upon, among other things, the execution
and delivery by the Grantors of an agreement in the form hereof to secure (a)
the due and punctual payment by the Borrowers of (i) the principal of and

 

 

premium, if any, and interest (including interest accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment, or otherwise, (ii) each payment required to
be made by the Borrowers under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of each Loan Party to the Secured
Parties under the Credit Agreement and the other Loan Documents, (b) the
due and punctual performance of all covenants, agreements, obligations and
liabilities of each Loan Party under or pursuant to the Credit Agreement and
the other Loan Documents, (c) the due and punctual payment and performance
of all obligations of each Loan Party, monetary or otherwise, under each Swap
Agreement that (i) is effective on the Effective Date with a counterparty
that is a Lender (or an Affiliate of a Lender) as of the Effective Date or
(ii) is entered into after the Effective Date with any counterparty that
is a Lender (or an Affiliate thereof) at the time such Swap Agreement is
entered into and (d) the due and punctual payment and performance of all
monetary obligations of each Loan Party in respect of overdrafts and related
liabilities owed to any of the Lenders (or any Affiliates thereof) or Wachovia
Bank N.A. (or any Affiliates thereof) arising from treasury, depositary and
cash management services or in connection with any automated clearinghouse
transfers of funds (all the monetary and other obligations described in the
preceding clauses (a) through (d) being collectively called the “Obligations”).

 

Accordingly, each of the Grantors and the Collateral Agent, on behalf
of itself and each Secured Party (and each of their respective successors or
assigns), hereby agrees as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.01.  Definition
of Terms Used Herein. Unless the context otherwise requires, all
capitalized terms used but not defined herein shall have the meanings set forth
in the Credit Agreement and all terms defined in the Uniform Commercial Code
from time to time in effect in the State of New York (the “NY UCC”)
and not defined herein shall have the meaning specified in Article 9 of
the NY UCC.

 

SECTION 1.02.  Definition
of Certain Terms Used Herein.  As
used herein, the following terms shall have the following meanings:

 

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

 

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

 

“Cash Collection Period” means the period commencing on the
first Business Day after the occurrence of a Cash Collection Trigger Event and
ending on the date this Agreement is terminated in accordance with
Section 8.14.

 

“Cash Collection Trigger Event” shall mean that, on three
consecutive Business Days, the Availability Amount at any time during the day
is less than $35,000,000.

 

“Cash Concentration Account” means, with respect to any Grantor,
the cash concentration account maintained by such Grantor with the Collateral
Agent, to which such Grantor will cause to be transferred, on each Business Day
during the Cash Collection Period, amounts deposited in the Collection Deposit
Accounts on such Business Day, as and to the extent provided in
Section 5.01.

 

“Collateral” shall have the meaning assigned to such term in
Section 2.

 

“Collateral Proceeds Account” means an account maintained by and
in the name of the Administrative Agent, for purposes of this Agreement and the
Credit Agreement.

 

“Collection Deposit Accounts” means the respective collection
accounts maintained by the Collection Deposit Banks pursuant to the Collection
Deposit Letter Agreements and into which the Grantors will deposit or cause to
be deposited all Daily Receipts, as and to the extent provided in
Section 5.01.

 

“Collection Deposit Bank” means, at any time, any financial
institution then serving as a “Collection Deposit Bank” as provided in
Section 5.01.

 

“Collection Deposit Letter Agreement” means an agreement among
the applicable Grantor, a Collection Deposit Bank and the Collateral Agent, in
form and substance reasonably satisfactory to the Collateral Agent, pursuant to
which such Collection Deposit Bank shall maintain one or more Collection
Deposit Accounts, as such Collection Deposit Letter Agreement may be amended,
modified or supplemented from time to time.

 

“Commodity Account” shall mean an account maintained by a
Commodity Intermediary in which a Commodity Contract is carried out for a
Commodity Customer.

 

“Commodity Contract” shall mean a commodity futures contract, an
option on a commodity futures contract, a commodity option or any other
contract that, in each case, is (a) traded on or subject to the rules of a
board of trade that has been

 

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designated as a contract market for such a contract pursuant to the
federal commodities laws or (b) traded on a foreign commodity board of trade,
exchange or market, and is carried on the books of a Commodity Intermediary for
a Commodity Customer.

 

“Commodity Customer” shall mean a Person for whom a Commodity
Intermediary carries a Commodity Contract on its books.

 

“Commodity Intermediary” shall mean (a) a Person who is
registered as a futures commission merchant under the federal commodities laws
or (b) a Person who in the ordinary course of its business provides clearance
or settlement services for a board of trade that has been designated as a
contract market pursuant to federal commodities laws.

 

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

 

“Copyrights” shall mean all of the following now owned or
hereafter acquired by any Person: 
(a) all copyright rights in any work subject to the copyright laws
of the United States or Canada, whether as author, assignee, transferee or
otherwise, and (b) all registrations and applications for registration of
any such copyright in the United States or Canada, including registrations,
recordings, supplemental registrations and pending applications for
registration in the United States Copyright Office or any similar office in
Canada, including those listed on Schedule II.

 

“Credit Agreement” shall have the meaning assigned to such term
in the preliminary statement of this Agreement.

 

“Credit Card Payments” means all payments received or receivable
by or on behalf of any Grantor in respect of sales of Inventory paid for by
credit card charges, including payments from financial institutions that
process credit card transactions for any of the Grantors.

 

“Daily Receipts” means all amounts received by the Grantors,
whether in the form of cash, checks, any moneys received or receivable in
respect of charges made by means of credit cards, and other negotiable
instruments, in each case as a result of the sale of Inventory or in respect of
Accounts Receivable.

 

“Documents” shall mean all instruments, files, records, ledger
sheets and documents covering or relating to any of the Collateral.

 

“Entitlement Holder” shall mean a Person identified in the
records of a Security Intermediary as the Person having a Security Entitlement
against the Security Intermediary.  If a
Person acquires a Security Entitlement by virtue of Section 8-501(b)(2) or
(3) of the Uniform Commercial Code, such Person is the Entitlement Holder.

 

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“Equipment” shall mean all equipment, furniture and furnishings,
including tools, parts and supplies of every kind and description, and all
improvements, accessions or appurtenances thereto, that are now or hereafter
owned by any Grantor.

 

“Financial Asset” shall mean (a) a Security, (b) an obligation
of a Person or a share, participation or other interest in a Person or in
property or an enterprise of a Person, 
which is, or is of a type, dealt with in or traded on financial markets,
or which is recognized in any area in which it is issued or dealt in as a
medium for investment or (c) any property that is held by a Security
Intermediary for another Person in a Securities Account if the Security
Intermediary has expressly agreed with the other Person that the property is to
be treated as a Financial Asset under Article 8 of the Uniform Commercial
Code.  As the context requires, the term
Financial Asset shall mean either the interest itself or the means by which a
Person’s claim to it is evidenced, including a certificated or uncertificated
Security, a certificate representing a Security or a Security Entitlement.

 

“General Funds Account” means an account maintained by the
Parent Borrower, to which the Administrative Agent will, subject to the terms
and conditions set forth herein, cause to be transferred certain amounts on
deposit in the Collateral Proceeds Account.

 

“General Intangibles” shall mean all “general intangibles” as
such term is defined in the NY UCC, and in any event, with respect to any
Grantor, all choses in action and causes of action and all other assignable
intangible personal property of any Grantor of every kind and nature (other
than Accounts Receivable) now owned or hereafter acquired by any Grantor,
including corporate or other business records, indemnification claims, contract
rights (including rights under leases, whether entered into as lessor or
lessee, Swap Agreements and other agreements but excluding contract rights in
contracts which contain an enforceable prohibition on assignment or the
granting of a security interest), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts
Receivable.

 

“Intellectual Property” shall mean all intellectual and similar
property of any Grantor of every kind and nature now owned or hereafter
acquired by any Grantor, including inventions, designs, Patents, Copyrights,
Licenses, Trademarks, trade secrets, confidential or proprietary technical and
business information, know-how, show-how or other data or information, software
and databases and all embodiments or fixations thereof and related
documentation and registrations, and all additions, improvements and accessions
to, and books and records describing or used in connection with, any of the
foregoing.

 

“Inventory” shall mean all goods of any Grantor, whether now
owned or hereafter acquired, held for sale or lease, or furnished or to be
furnished by any Grantor under contracts of service, or consumed in any
Grantor’s business, including raw materials, intermediates, work in process,
packaging materials, finished goods, semi-finished

 

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inventory, scrap inventory, manufacturing supplies and spare parts, and
all such goods that have been returned to or repossessed by or on behalf of any
Grantor.

 

“Investment Property” shall mean all Securities (whether
certificated or uncertificated), Security Entitlements, Securities Accounts,
Commodity Contracts and Commodity Accounts of any Grantor,  whether now owned or hereafter acquired by
any Grantor.

 

“License” shall mean any Patent License, Trademark License,
Copyright License or other franchise agreement, license or sublicense to which
any Grantor is a party, including those listed on Schedule III.

 

“Obligations” shall have the meaning assigned to such term in
the preliminary statement of this Agreement.

 

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

 

“Patents” shall mean all of the following now owned or hereafter
acquired by any Person:  (a) all letters
patent of the United States or Canada, all registrations and recordings
thereof, and all applications for letters patent of the United States or
Canada, including registrations, recordings and pending applications in the
United States Patent and Trademark Office or any similar office in Canada,
including those listed on Schedule IV, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals or extensions
thereof, and the inventions disclosed or claimed therein, including the right
to make, use and/or sell the inventions disclosed or claimed therein.

 

“Perfection Certificate” shall mean a certificate substantially
in the form of Annex 1 (or any other form approved by the Collateral
Agent), completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and the chief
legal officer of the Parent Borrower.

 

“Proceeds” shall mean all “proceeds” as such term is defined in
Article 9 of the NY UCC and, in any event, shall include with respect
to any Grantor any consideration received from the sale, exchange, license,
lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include, (a) any claim of any Grantor against any
third party for (and the right to sue and recover for and the rights to damages
or profits due or accrued arising out of or in connection with) (i) past,
present or future infringement of any Patent now or hereafter owned by any Grantor,
or licensed under a Patent License, (ii) past, present or future

 

6

 

infringement or dilution of any Trademark now or hereafter owned by any
Grantor or licensed under a Trademark License or injury to the goodwill
associated with or symbolized by any Trademark now or hereafter owned by any
Grantor, (iii) past, present or future breach of any License and
(iv) past, present or future infringement of any Copyright now or
hereafter owned by any Grantor or licensed under a Copyright License and
(b) any and all other amounts from time to time paid or payable under or
in connection with any of the Collateral.

 

“Secured Parties” shall mean (a) the Lenders, (b) the
Administrative Agent, (c) the Collateral Agent and each of the other
Agents, (d) the Issuing Bank, (e) each counterparty to a Swap
Agreement with a Loan Party the obligations under which constitute Obligations,
(f) the beneficiaries of each indemnification obligation undertaken by any
Grantor under any Loan Document, (g) each lender in respect of overdrafts
and related liabilities owed to any of the Lenders (or any Affiliates thereof)
and arising from treasury, depositary and cash management services or in
connection with any automated clearinghouse transfers of funds,
(h) Wachovia Bank N.A. (or any Affiliates thereof) in respect of
overdrafts and related liabilities owed to Wachovia Bank N.A. (or any
Affiliates thereof) and arising from treasury, depositary and cash management
services or in connection with any automated clearinghouse transfers of funds
and (i) the permitted successors and assigns of each of the foregoing.

 

“Securities” shall mean any obligations of an issuer or any
shares, participations or other interests in an issuer or in property or an
enterprise of an issuer which (a) are represented by a certificate representing
a security in bearer or registered form, or the transfer of which may be
registered upon books maintained for that purpose by or on behalf of the
issuer, (b) are one of a class or series or by its terms is divisible into a
class or series of shares, participations, interests or obligations and (c)(i)
are, or are of a type, dealt with or traded on securities exchanges or
securities markets or (ii) are a medium for investment and by their terms
expressly provide that they are a security governed by Article 8 of the
Uniform Commercial Code.

 

“Securities Account” shall mean an account to which a Financial
Asset  is or may be credited in
accordance with an agreement under which the Person  maintaining the account undertakes to treat the Person for whom
the account is maintained as entitled to exercise rights that comprise the
Financial Asset.

 

“Security Entitlements” shall mean the rights and property
interests of an Entitlement Holder with respect to a Financial Asset.

 

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

 

“Security Intermediary” shall mean (a) a clearing
corporation or (b) a Person, including a bank or broker, that in the
ordinary course of its business maintains securities accounts for others and is
acting in that capacity.

 

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“Senior Collateral Agent” shall have the meaning assigned to
such term in the Intercreditor Agreement.

 

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

 

“Trademarks” shall mean all of the following now owned or
hereafter acquired by any Person: 
(a) all trademarks, service marks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, trade
dress, logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all registrations
and recordings thereof, and all registration and recording applications filed
in connection therewith, including registrations and registration applications
in the United States Patent and Trademark Office, any State of the United
States, Canada or any Province of Canada, and all extensions or renewals
thereof, including those listed on Schedule V, (b) all goodwill
associated therewith or symbolized thereby and (c) all other assets,
rights and interests that uniquely reflect or embody such goodwill.

 

SECTION 1.03.  Rules of
Interpretation.  The rules of
interpretation specified in Section 1.03 of the Credit Agreement shall be
applicable to this Agreement.

 

ARTICLE II

 

Security
Interest

 

SECTION 2.01.  Security
Interest.   (a)  Each
Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages,
pledges, hypothecates and transfers to the Collateral Agent, and hereby grants
to the Collateral Agent, for the ratable benefit of the Secured Parties, a
security interest (the “Security Interest”) in all of the following
property now owned or hereafter acquired by such Grantor or in which such
Grantor now has or at any time in future may acquire any right, title or
interest (collectively, the “Collateral”), as collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations:

 

(i)  all Accounts Receivable;

 

(ii)  all Chattel Paper;

 

(iii)  all Deposit Accounts;

 

(iv)  all Documents;

 

(v)  all Equipment;

 

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(vi)  all General Intangibles;

 

(vii)  all Instruments;

 

(viii)  all Inventory;

 

(ix)  all cash and cash
accounts;

 

(x)  all Investment Property;

 

(xi)  all books and records
pertaining to the Collateral;

 

(xii)  all Fixtures;

 

(xiii)  all Letter-of-credit
rights;

 

(xiv)  all commercial tort
claims listed on Schedule VI hereto; and

 

(xv)  to the extent not
otherwise included, all Proceeds and products of any and all of the foregoing, provided,
however, that Collateral shall not include with respect to any Grantor,
any item of property to the extent the grant by such Grantor of a security
interest pursuant to this Agreement in such Grantor’s right, title and interest
in such item of property is prohibited by an applicable enforceable contractual
obligation (including but not limited to a Capital Lease Obligation) or
requirement of law or would give any other Person the enforceable right to
terminate its obligations with respect to such item of property and provided,
further, that the limitation in the foregoing proviso shall not affect, limit,
restrict or impair the grant by any Grantor of a security interest pursuant to
this Agreement in any money or other amounts due or to become due under any
Account, contract, agreement or General Intangible.

 

(b)  Each Grantor hereby
irrevocably authorizes the Collateral Agent, in accordance with, and to the
extent consistent with, the Intercreditor Agreement, at any time and from time
to time to file in any relevant jurisdiction any initial financing statements
with respect to the Collateral or any part thereof and amendments thereto that
indicate the Collateral as all assets of such Grantor, or words of similar
effect, or as being of an equal or lesser scope or with greater detail, and
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, including whether such Grantor is an organization, the
type of organization and any organizational identification number issued to
such Grantor.  Each Grantor agrees to
provide such information to the Collateral Agent promptly upon request.

 

Each Grantor also ratifies its authorization for the Collateral Agent
to file in any relevant jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof.

 

9

 

The Collateral Agent is further authorized to file with the United
States Patent and Trademark Office or United States Copyright Office (or any
successor office or any similar office in Canada) such documents as may be
necessary or advisable for the purpose of perfecting, confirming, continuing,
enforcing or protecting the Security Interest granted by each Grantor, without
the signature of any Grantor (but, prior to the occurrence of any Event of
Default or Default, the Collateral Agent shall provide notice of such filing to
such Grantor), and naming any Grantor or the Grantors as debtors and the
Collateral Agent as secured party.

 

SECTION 2.02.  No
Assumption of Liability.  The
Security Interest is granted as security only and shall not subject the
Collateral Agent or any other Secured Party to, or in any way alter or modify,
any obligation or liability of any Grantor with respect to or arising out of
the Collateral.

 

ARTICLE III

 

Representations
and Warranties

 

The Grantors jointly and severally represent and warrant to the
Collateral Agent and the Secured Parties that:

 

SECTION 3.01.  Title and
Authority.  Each Grantor has good
and valid rights in and title to the Collateral with respect to which it has
purported to grant a Security Interest hereunder and has full power and
authority to grant to the Collateral Agent the Security Interest in such Collateral
pursuant hereto and to execute, deliver and perform its obligations in
accordance with the terms of this Agreement, without the consent or approval of
any other Person other than any consent or approval which has been obtained or
the failure of which to obtain could not reasonably be expected to have a
Material Adverse Effect.

 

SECTION 3.02.  Filings.   (a) 
The Perfection Certificate has been duly prepared, completed and
executed and the information set forth therein is correct and complete.  Uniform Commercial Code financing
statements, as applicable, or other appropriate filings, recordings or
registrations containing a description of the Collateral have been delivered to
the Collateral Agent for filing in each governmental, municipal or other office
specified in Schedule 6 to the Perfection Certificate, which are all the
filings, recordings and registrations (other than filings, recordings and
registrations required to be made in the United States Patent and Trademark
Office and the United States Copyright Office (or any similar office in Canada)
in order to perfect the Security Interest in Collateral consisting of United
States (or Canadian) Patents, United States Trademarks and
United States Copyrights) that are necessary to publish notice of and
protect the validity of and to establish a legal, valid and perfected security
interest in favor of the Collateral Agent (for the ratable benefit of the
Secured Parties) in respect of all Collateral in which the Security Interest
may be perfected by filing, recording or registration in the United States (or
any political subdivision thereof), and no further or subsequent filing,
refiling, recording, rerecording, registration or reregistration is necessary
in any such jurisdiction, except as provided under applicable law with respect
to the filing of

 

10

 

continuation statements and such filings, recordings and registrations
as may be necessary to perfect the Security Interest as a result of any event
described in Section 5.03 of the Credit Agreement.

 

(b)  Each Grantor represents and
warrants that fully executed security agreements in the form hereof (or a fully
executed short-form agreement in form and substance reasonably satisfactory to
the Collateral Agent) and containing a description of all Collateral consisting
of Intellectual Property shall have been received and recorded within three
months after the execution of this Agreement with respect to United States
Patents and United States registered Trademarks (and Trademarks for which
United States registration applications are pending) and within one month after
the execution of this Agreement with respect to United States registered
Copyrights by the United States Patent and Trademark Office and the United
States Copyright Office pursuant to 35 U.S.C. § 261, 15 U.S.C.
§ 1060 or 17 U.S.C. § 205 and the regulations thereunder (or in any
similar office in Canada within the time period prescribed by applicable law
and regulations), as applicable, to protect the validity of and to establish a
legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral
consisting of Patents, Trademarks and Copyrights in which a security interest
may be perfected by filing, recording or registration in the United States or
Canada (or any political subdivision of either) and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary (other than such actions as are necessary to perfect the Security
Interest with respect to any Collateral consisting of Patents, Trademarks and
Copyrights (or registration or application for registration thereof) acquired
or developed after the date hereof).

 

SECTION 3.03.  Validity
of Security Interest.  The Security
Interest constitutes (a) a legal and valid security interest in all the
Collateral securing the payment and performance of the Obligations,
(b) subject to the filings described in Section 3.02 above, a
perfected security interest in all Collateral in which a security interest may
be perfected by filing, recording or registering a financing statement or
analogous document in the United States or Canada (or any political subdivision
of either) pursuant to the Uniform Commercial Code or other applicable law in
such jurisdictions and (c) a security interest that shall be perfected in all
Collateral in which a security interest may be perfected in the
United States Patent and Trademark Office and the United States
Copyright Office upon the receipt and recording of this Agreement with the
United States Patent and Trademark Office and the United States Copyright
Office, as applicable, within the three month period (commencing as of the date
hereof) pursuant to 35 U.S.C. § 261 or 15 U.S.C. § 1060 or the
one-month period (commencing as of the date hereof) pursuant to 17 U.S.C.
§ 205 and otherwise as may be required pursuant to the laws of any other
necessary jurisdiction.  The Security
Interest is and shall be prior to any other Lien on any of the Collateral,
other than Liens expressly permitted to be prior to the Security Interest
pursuant to Section 6.03 of the Credit Agreement.

 

SECTION 3.04.  Absence
of Other Liens.  The Collateral is
owned by the Grantors free and clear of any Lien, except for Liens expressly
permitted pursuant to Section 6.03 of the Credit Agreement.  No Grantor has filed or consented to the
filing of

 

11

 

(a) any financing statement or analogous document under the Uniform
Commercial Code or any other applicable laws covering any Collateral,
(b) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral in the United
States Patent and Trademark Office or the United States Copyright Office or
(c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document is still in effect, except, in each case, for Liens
expressly permitted pursuant to Section 6.03 of the Credit Agreement.

 

ARTICLE IV

 

Covenants

 

SECTION 4.01.  Records.  Each
Grantor agrees to maintain, at its own cost and expense, such complete and
accurate records with respect to the Collateral owned by it as is consistent
with its current practices and in accordance with such prudent and standard
practices used in industries that are the same as or similar to those in which
such Grantor is engaged, but in any event to include complete accounting
records indicating all payments and proceeds received with respect to any part
of the Collateral, and, at such time or times as the Collateral Agent may reasonably
request, promptly to prepare and deliver to the Collateral Agent a duly
certified schedule or schedules in form and detail reasonably satisfactory
to the Collateral Agent showing the identity, amount and location of any and
all Collateral.

 

SECTION 4.02.  Protection
of Security.  Each Grantor shall, at
its own cost and expense, take any and all actions necessary to defend title to
the Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien
not expressly permitted pursuant to Section 6.03 of the Credit Agreement.

 

SECTION 4.03.  Further
Assurances.  Each Grantor agrees, at
its own expense, to execute, acknowledge, deliver and cause to be duly filed
all such further instruments and documents and take all such actions as the
Collateral Agent, in accordance with, and to the extent consistent with, the
terms of the Intercreditor Agreement, may from time to time reasonably request
to better assure, preserve, protect and perfect the Security Interest and the
rights and remedies created hereby, including the payment of any fees and taxes
required in connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any financing statements or
other documents in connection herewith or therewith.  If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be immediately pledged and delivered
to the Collateral Agent, duly endorsed in a manner satisfactory to the
Collateral Agent.

 

Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to

 

12

 

supplement this Agreement by supplementing Schedule II, III, IV or
V hereto or adding additional schedules hereto to specifically identify any
registered asset or item that may constitute Copyrights, Patents or Trademarks;
provided, however, that any Grantor shall have the right,
exercisable within 30 days after it has been notified by the Collateral
Agent of the specific identification of such Collateral, to advise the
Collateral Agent in writing of any inaccuracy of the representations and
warranties made by such Grantor hereunder with respect to such Collateral.  Each Grantor agrees that it will use its
best efforts to take such action as shall be necessary in order that all representations
and warranties hereunder shall be true and correct with respect to such
Collateral within 30 days after the date it has been notified by the Collateral
Agent of the specific identification of such Collateral.

 

SECTION 4.04.  Inspection
and Verification.  Subject to the
limitations set forth in Section 5.09 of the Credit Agreement, the  Collateral Agent and such Persons as the
Collateral Agent may reasonably designate shall have the right, at the
Grantors’ own cost and expense, to inspect the Collateral, all records related
thereto (and to make extracts and copies from such records) and the premises
upon which any of the Collateral is located, to discuss the Grantors’ affairs
with the officers of the Grantors and their independent accountants and to
verify under reasonable procedures the validity, amount, quality, quantity,
value, condition and status of, or any other matter relating to, the
Collateral, including, in the case of Accounts or Collateral in the possession
of any third party, by contacting Account Debtors or the third person
possessing such Collateral for the purpose of making such a verification.  The Collateral Agent shall have the absolute
right to share any information it gains from such inspection or verification
with any Secured Party (it being understood that any such information shall be
deemed to be “Information” subject to the provisions of Section 10.12 of
the Credit Agreement).

 

SECTION 4.05.  Taxes;
Encumbrances.  In accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement, at
its option, the Collateral Agent may discharge past due taxes, assessments,
charges, fees, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral and not permitted pursuant to Section 6.03
of the Credit Agreement, and may pay for the maintenance and preservation of
the Collateral to the extent any Grantor fails to do so as required by the
Credit Agreement or this Agreement, and each Grantor jointly and severally
agrees to reimburse the Collateral Agent on demand for any payment made or any
expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this
Section 4.05 shall be interpreted as excusing any Grantor from the performance
of, or imposing any obligation on the Collateral Agent or any Secured Party to
cure or perform, any covenants or other promises of any Grantor with respect to
taxes, assessments, charges, fees, Liens, security interests or other
encumbrances and maintenance as set forth herein or in the other Loan
Documents.

 

SECTION 4.06.  Assignment
of Security Interest.  If at any
time any Grantor shall take a security interest in any property of an Account
Debtor or any other Person to secure payment and performance of an Account,
such Grantor shall promptly assign such security interest to the Collateral
Agent.  Such assignment need not be
filed of public record unless necessary to continue the perfected status of the
security interest

 

13

 

against creditors of and transferees from the Account Debtor or other
Person granting the security interest.

 

SECTION 4.07.  Continuing
Obligations of the Grantors.  Each
Grantor shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it under each contract, agreement
or instrument relating to the Collateral, all in accordance with the terms and
conditions thereof, and each Grantor jointly and severally agrees to indemnify
and hold harmless the Collateral Agent and the Secured Parties from and against
any and all liability for such performance.

 

SECTION 4.08.  Use and
Disposition of Collateral.  None of
the Grantors shall make or permit to be made an assignment, pledge or hypothecation
of the Collateral or shall grant any other Lien in respect of the Collateral,
except as expressly permitted by Section 6.03 of the Credit
Agreement.  Unless and (in accordance
with, and to the extent consistent with, the terms of the Intercreditor
Agreement) until the Collateral Agent shall notify the Grantors that
(i) an Event of Default shall have occurred and be continuing and
(ii) during the continuance thereof the Grantors shall not sell, convey,
lease, assign, transfer or otherwise dispose of any Collateral (which notice
may be given by telephone if promptly confirmed in writing), the Grantors may
use and dispose of the Collateral in any lawful manner not inconsistent with
the provisions of this Agreement, the Credit Agreement or any other Loan
Document.  Without limiting the
generality of the foregoing, each Grantor agrees that it shall not permit any
Inventory to be in the possession or control of any warehouseman, bailee, agent
or processor at any time, other than Inventory that is in transit by any means,
unless such warehouseman, bailee, agent or processor shall have been notified
of the Security Interest and each Grantor shall use its best efforts to obtain
a written agreement in form and substance reasonably satisfactory to the
Collateral Agent to hold the Inventory subject to the Security Interest and the
instructions of the Collateral Agent and to waive and release any Lien held by
it with respect to such Inventory, whether arising by operation of law or
otherwise.

 

SECTION 4.09.  Limitation
on Modification of Accounts.  None of the Grantors will, without
the Collateral Agent’s prior written consent, grant any extension of the time
of payment of any of the Accounts Receivable, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or partly, any
Person liable for the payment thereof or allow any credit or discount
whatsoever thereon, other than extensions, credits, discounts, compromises or
settlements granted or made in the ordinary course of business and consistent
with its current practices and in accordance with such prudent and standard
practices used in industries that are the same as or similar to those in which
such Grantor is engaged.

 

SECTION 4.10.  Insurance.  The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage
to the Inventory and Equipment in accordance with Section 5.07 of the
Credit Agreement.  Subject to the
Intercreditor Agreement, each Grantor irrevocably makes, constitutes and
appoints the Collateral Agent (and all officers, employees or agents designated
by the Collateral Agent) as such Grantor’s true and lawful agent (and
attorney-in-fact) for the purpose, during the continuance of an Event of
Default, of making, settling and adjusting

 

14

 

claims in respect of Collateral under policies of insurance, endorsing
the name of such Grantor on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect thereto.  Subject to the Intercreditor Agreement, in the event that any
Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay
such premium and take any other actions with respect thereto as the Collateral
Agent deems reasonably advisable. 
Subject to the Intercreditor Agreement, all sums disbursed by the
Collateral Agent in connection with this Section 4.10, including
reasonable attorneys’ fees, court costs, expenses and other charges relating
thereto, shall be payable, upon demand, by the Grantors to the Collateral Agent
and shall be additional Obligations secured hereby.

 

SECTION 4.11.  Legend.  Each Grantor shall legend, in form and
manner reasonably satisfactory to the Collateral Agent, its Accounts Receivable
and its books, records and documents evidencing or pertaining thereto with an
appropriate reference to the fact that such Accounts Receivable have been
assigned to the Collateral Agent for the benefit of the Secured Parties and
that the Collateral Agent has a security interest therein.

 

SECTION 4.12.  Covenants
Regarding Patent, Trademark and Copyright Collateral.   (a) 
Each Grantor agrees that it will not, nor will it permit any of its
licensees to, do any act, or omit to do any act, whereby any Patent which is
material to the conduct of such Grantor’s business may become invalidated or
dedicated to the public, and agrees, to the extent practicable, that it shall
continue to mark any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its maximum rights
under applicable patent laws.

 

(b)  Each Grantor (either itself
or through its licensees or its sublicensees) will, for each Trademark material
to the conduct of such Grantor’s business, (i) maintain such Trademark in
full force free from any claim of abandonment or invalidity for non-use,
(ii) maintain the quality of products and services offered under such
Trademark, (iii) display such Trademark with notice of Federal or foreign
registration to the extent necessary and sufficient to establish and preserve
its maximum rights under applicable law and (iv) not knowingly use or
knowingly permit the use of such Trademark in violation of any third party
rights.

 

(c)  Each Grantor (either itself
or through licensees) will, for each work covered by a material Copyright,
continue to publish, reproduce, display, adopt and distribute the work with
appropriate copyright notice as necessary and sufficient to establish and
preserve its maximum rights under applicable copyright laws.

 

(d)  Each Grantor shall notify
the Collateral Agent promptly if it knows that any Patent, Trademark or
Copyright material to the conduct of its business may become abandoned, lost or
dedicated to the public, or of any adverse determination or development
(including the institution of, or any such determination or development in,

 

15

 

any proceeding in the United States Patent and Trademark Office or
United States Copyright Office or any similar office in Canada) regarding
such Grantor’s ownership of any Patent, Trademark or Copyright, its right to
register the same, or to keep and maintain the same.

 

(e)  In no event shall any
Grantor, either itself or through any agent, employee, licensee or designee,
file an application for any Patent, Trademark or Copyright (or for the
registration of any Trademark or Copyright) with the United States Patent and
Trademark Office, United States Copyright Office or any office or agency in any
political subdivision of the United States or any similar office in
Canada, unless it promptly informs the Collateral Agent, and, in accordance
with, and to the extent consistent with, the terms of the Intercreditor
Agreement, upon request of the Collateral Agent, executes and delivers any and
all agreements, instruments, documents and papers as the Collateral Agent may
request to evidence the Collateral Agent’s security interest in such Patent,
Trademark or Copyright, and, in accordance with, and to the extent consistent
with, the terms of the Intercreditor Agreement, each Grantor hereby appoints
the Collateral Agent as its attorney-in-fact to execute and file such writings
for the foregoing purposes (and, prior to the occurrence of any Event of
Default or Default, such Grantor shall be notified of such filing), all acts of
such attorney being hereby ratified and confirmed; such power, being coupled
with an interest, is irrevocable.

 

(f)  Each Grantor will take all
necessary steps that are consistent with the practice in any proceeding before
the United States Patent and Trademark Office, United States Copyright
Office or any office or agency in any political subdivision of the
United States or any similar office in Canada, to maintain and pursue each
material application relating to the Patents, Trademarks and/or Copyrights (and
to obtain the relevant grant or registration) and to maintain each issued Patent
and each registration of the Trademarks and Copyrights that is material to the
conduct of any Grantor’s business, including timely filings of applications for
renewal, affidavits of use, affidavits of incontestability and payment of
maintenance fees, and, if consistent with good business judgment, to initiate
opposition, interference and cancelation proceedings against third parties.

 

(g)  In the event that any
Grantor has reason to believe that any Collateral consisting of a Patent,
Trademark or Copyright material to the conduct of any Grantor’s business has
been or is about to be infringed, misappropriated or diluted by a third party,
such Grantor promptly shall notify the Collateral Agent and shall, if
consistent with good business judgment, promptly sue for infringement,
misappropriation or dilution and to recover any and all damages for such
infringement, misappropriation or dilution, and take such other actions as are
appropriate under the circumstances to protect such Collateral.

 

(h)  Upon and during the continuance
of an Event of Default, each Grantor shall use its reasonable best efforts to
obtain all requisite consents or approvals by the licensor of each Copyright
License, Patent License or Trademark License to effect the assignment of all of
such Grantor’s right, title and interest thereunder to the Collateral Agent or
their designees for the benefit of the Secured Parties in accordance with the
Intercreditor Agreement.

 

16

 

SECTION 4.13.  Deposit
Accounts.  Each Grantor will, within
60 days after the Effective Date, enter into control agreements in form and
substance reasonably satisfactory to the Collateral Agent with each depository
bank (other than the Collateral Agent) with which it maintains any deposit
accounts (other than, prior to the 2004 Notes First Lien Transition Date, the
Notes Collateral Account (each as defined in the Intercreditor Agreement)) and
thereafter shall cause all cash held by such Grantor (other than, prior to the
2004 Notes First Lien Transition Date, cash held by such Grantor in a Notes
Collateral Account in accordance with the terms of the 2004 Indenture (as in
effect on the date hereof) to be maintained in such accounts.

 

SECTION 4.14.  Commercial
Tort Claims.  If any Grantor shall
at any time hold or acquire a commercial tort claim in an amount reasonably
estimated to exceed $2,500,000, the Grantor shall promptly notify the
Collateral Agent thereof in a writing signed by such Grantor including a
summary description of such claim and grant to the Collateral Agent in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to the Collateral Agent.

 

SECTION 4.15.  Electronic
Chattel Paper and Transferable Records. 
If any Grantor at any time holds or acquires an interest in any
electronic chattel paper or any “transferable record,” as that term is defined
in Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act
as in effect in any relevant jurisdiction, in an amount exceeding $1,000,000
such Grantor shall promptly notify the Collateral Agent thereof and, at the
request of the Collateral Agent, shall take such action as the Collateral Agent
may reasonably request to vest in the Collateral Agent control under NY UCC
Section 9-105 of such electronic chattel paper or control under
Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or, as the case may be, Section 16 of the Uniform Electronic
Transactions Act, as so in effect in such jurisdiction, of such transferable
record.  The Collateral Agent agrees
with such Grantor that the Collateral Agent will arrange, pursuant to
procedures reasonably satisfactory to the Collateral Agent and so long as such
procedures will not result in the Collateral Agent’s loss of control, for the
Grantor to make alterations to the electronic chattel paper or transferable
record permitted under NY UCC Section 9-105 or, as the case may be,
Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or Section 16 of the Uniform Electronic Transactions Act for
a party in control to allow without loss of control, unless an Event of Default
has occurred and is continuing or would occur after taking into account any
action by such Grantor with respect to such electronic chattel paper or
transferable record.

 

SECTION 4.16.  Letter-of-Credit
Rights.  If any Grantor is at any
time a beneficiary under a letter of credit now or hereafter issued in favor of
such Grantor in an amount exceeding $1,000,000, such Grantor shall promptly
notify the Collateral Agent thereof and, at the request and option of the Collateral
Agent, such Grantor shall, pursuant to an agreement in form and substance
reasonably satisfactory to the Collateral Agent, either (i) arrange for the
issuer and any confirmer of such letter of credit to consent to an assignment
to the Collateral Agent of the proceeds of any drawing under

 

17

 

the letter of credit or (ii) arrange for the Collateral Agent to become
the transferee beneficiary of the letter of credit, with the Collateral Agent
agreeing, in each case, that the proceeds of any drawing under the letter of
credit are to be paid to the applicable Grantor unless an Event of Default has
occurred or is continuing.

 

ARTICLE V

 

Collections

 

SECTION 5.01.  Cash
Management Accounts.   (a)  Each Grantor will establish and maintain,
within 60 days after the Effective Date, (i) one Cash Concentration
Account and (ii) one or more Collection Deposit Accounts, in the case of
this clause (ii), with the Collateral Agent or with any financial institution
selected by such Grantor that (A) is reasonably satisfactory to the
Collateral Agent and (B) enters into a Collection Deposit Letter Agreement
with respect to the Collection Deposit Accounts of such Grantor with such
financial institution.  Each financial
institution with which a Collection Deposit Account is maintained is referred
to herein as a “Collection Deposit Bank”.

 

(b)  Each Grantor, commencing
within 60 days after the Effective Date, will deposit on each Business Day all
Daily Receipts into either (i) a Collection Deposit Account or (ii) a
Cash Concentration Account.  Each
Grantor shall use all reasonable efforts to prevent any funds that are not
Daily Receipts from being deposited into, or otherwise commingled with, the
funds held in the Collection Deposit Accounts or the Cash Concentration
Accounts.

 

(c)  On each Business Day during
the Cash Collection Period, all collected funds on deposit in each Collection
Deposit Account will be transferred to the applicable Cash Concentration
Account to the extent provided in the applicable Collection Deposit Letter
Agreement.

 

(d)  On each Business Day during
the Cash Collection Period, all collected funds on deposit in the Cash
Concentration Accounts will be transferred to the Collateral Proceeds Account
to be applied by the Administrative Agent, on behalf of the Borrowers, to
prepay Revolving Borrowings and Swingline Loans in the manner provided in
Section 2.10 of the Credit Agreement, until all outstanding Swingline
Loans and Revolving Borrowings have been repaid, and thereafter to be
transferred to the General Funds Account, subject to paragraph (f) below.

 

(e)  During the Cash Collection
Period, no Grantor shall have any control over, or any right or power to
withdraw any funds on deposit in, any Collection Deposit Account or Cash
Concentration Account; provided, however, that, subject to
paragraph (f) below, any Grantor may instruct any Collection Deposit Bank to
withdraw funds from its Collection Deposit Account to honor ACH instructions of
such Grantor to transfer funds to the Cash Concentration Account.  The Parent Borrower may at any time withdraw
any funds contained in the General Funds Account for use, subject to the
provisions of the Credit Agreement, for general corporate purposes.

 

18

 

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

 

(i)  Each Collection Deposit
Account and Cash Concentration Account will, without any further action on the
part of any Grantor, the Collateral Agent or any Collection Deposit Bank,
convert into a closed account under the exclusive dominion and control of the
Collateral Agent in which funds are held subject to the rights of the
Collateral Agent hereunder.  No Grantor
shall thereafter have any right or power to withdraw any funds from any
Collection Deposit Account or Cash Concentration Account without the prior
written consent of the Collateral Agent until all Events of Default are cured
or waived.  The Grantors irrevocably
authorize the Collateral Agent to notify each Collection Deposit Bank (A) of
the occurrence of an Event of Default and (B) of the matters referred to in
this paragraph (f)(i).

 

(ii)  The Collateral Agent will
instruct each Collection Deposit Bank to immediately transfer all funds held in
each Collection Deposit Account to a Cash Concentration Account.

 

(iii)  Any funds held in the
Collection Deposit Accounts, the Cash Concentration Accounts or the Collateral
Proceeds Account may be applied as provided in Section 7.02 so long as an
Event of Default is continuing.  The
Collateral Agent will not be required to transfer any funds from the Collateral
Proceeds Account to the General Funds Account until all Events of Default are
cured or waived.

 

(g)  All payments by any Grantor
into any Collection Deposit Account or Cash Concentration Account pursuant to
this Article V, whether in the form of cash, checks, notes, drafts, bills
of exchange, money orders or otherwise, shall be deposited in the relevant
Collection Deposit Account or Cash Concentration Account in precisely the form
in which received (but with any endorsements of such Grantor necessary for
deposit or collection), and until they are so deposited such payments shall be
held in trust by such Grantor for and as the property of the Collateral Agent.

 

SECTION 5.02.  Collections.   (a) 
Each Grantor agrees promptly to notify and direct each Account Debtor
and every other Person obligated to make payments with respect to the Accounts
Receivable or Inventory, commencing within 30 days after the Effective Date, to
make all such payments directly to a Collection Deposit Account or the
applicable Cash Concentration Account (subject to the proviso in the following
sentence).  Each Grantor shall use all
reasonable efforts to cause, commencing within 30 days after the Effective
Date, each Account Debtor and every other Person identified in the preceding
sentence to make all payments with respect to the Accounts Receivable or
Inventory either directly to a Collection Deposit Account or a Cash Concentration
Account; provided that Credit Card Payments shall be made directly to
the Cash Concentration Account.

 

19

 

(b)  In the event that a Grantor
directly receives any Daily Receipts during the Cash Collection Period,
notwithstanding the arrangements for payment directly into the Collection
Deposit Accounts pursuant to Section 5.02, such remittances shall be held
for the benefit of the Collateral Agent and the Secured Parties and shall be
segregated from other funds of such Grantor, subject to the Security Interest
granted hereby, and such Grantor shall cause such remittances and payments to
be deposited into a Collection Deposit Account or a Cash Concentration Account,
as applicable, as soon as practicable after such Grantor’s receipt thereof.

 

(c)  Without the prior written
consent of the Collateral Agent, no Grantor shall, under any circumstances
whatsoever, change the general instructions given to Account Debtors and other
Persons obligated to make payments with respect to the Accounts Receivable or
Inventory regarding the deposit of payments with respect to the Accounts
Receivable or Inventory in a Collection Deposit Account or a Cash Concentration
Account, as applicable.  Each Grantor
shall, and the Collateral Agent hereby authorizes each Grantor to, enforce and
collect all amounts owing with respect to the Accounts Receivable or Inventory
for the benefit and on behalf of the Collateral Agent and the other Secured
Parties; provided, however, that such privilege may at the option
of the Collateral Agent be terminated upon the occurrence and during the
continuance of an Event of Default.

 

ARTICLE VI

 

Power of
Attorney

 

Each Grantor irrevocably makes, constitutes and appoints the Collateral
Agent (and all officers, employees or agents designated by the Collateral
Agent) as such Grantor’s true and lawful agent and attorney-in-fact, and in
such capacity the Collateral Agent shall have the right, with power of
substitution for each Grantor and in each Grantor’s name or otherwise, for the
use and benefit of the Collateral Agent and the Secured Parties, upon the
occurrence and during the continuance of an Event of Default (a) to
receive, endorse, assign and/or deliver any and all notes, acceptances, checks,
drafts, money orders or other evidences of payment relating to the Collateral
or any part thereof; (b) to demand, collect, receive payment of, give
receipt for and give discharges and releases of all or any of the Collateral;
(c) to sign the name of any Grantor on any invoice or bill of lading
relating to any of the Collateral; (d) to send verifications of Accounts
Receivable to any Account Debtor; (e) to commence and prosecute any and
all suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral; (f) to settle,
compromise, compound, adjust or defend any actions, suits or proceedings
relating to all or any of the Collateral; (g) to notify, or to require any
Grantor to notify, Account Debtors to make payment directly to the Collateral
Agent; and (h) to use, sell, assign, transfer, pledge, make any agreement
with respect to or otherwise deal with all or any of the Collateral, and to do
all other acts and things necessary to carry out the purposes of this
Agreement, as fully and completely as though the Collateral Agent were the
absolute owner of the Collateral for all purposes; provided, however,
that nothing herein contained shall be construed as requiring or obligating the

 

20

 

Collateral Agent or any Secured Party to make any commitment or to make
any inquiry as to the nature or sufficiency of any payment received by the
Collateral Agent or any Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part
thereof or the moneys due or to become due in respect thereof or any property
covered thereby, and no action taken or omitted to be taken by the Collateral
Agent or any Secured Party with respect to the Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in favor of any Grantor
or (unless such action is the result of gross negligence or willful misconduct)
to any claim or action against the Collateral Agent or any Secured Party.  It is understood and agreed that the
appointment of the Collateral Agent as the agent and attorney-in-fact of the
Grantors for the purposes set forth above is coupled with an interest and is
irrevocable.  The provisions of this
Section shall in no event relieve any Grantor of any of its obligations
hereunder or under any other Loan Document with respect to the Collateral or
any part thereof or impose any obligation on the Collateral Agent or any
Secured Party to proceed in any particular manner with respect to the
Collateral or any part thereof, or in any way limit the exercise by the
Collateral Agent or any Secured Party of any other or further right which it may
have on the date of this Agreement or hereafter, whether hereunder, under any
other Loan Document, by law or otherwise.

 

Notwithstanding anything in this Article VI to the contrary, the
Collateral Agent agrees that it will not exercise any rights under the power of
attorney provided for in this Article VI unless it does so in accordance
with, and to the extent consistent with, the Intercreditor Agreement.

 

ARTICLE VII

 

Remedies

 

SECTION 7.01.  Remedies
upon Default.  In accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement,
upon the occurrence and during the continuance of an Event of Default, each
Grantor agrees to deliver each item of Collateral to the Collateral Agent on
demand, and it is agreed that the Collateral Agent shall have the right to take
any of or all the following actions at the same or different times:  (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine
(other than in violation of any then-existing licensing or contractual
arrangements to the extent that waivers cannot be obtained), and (b) with
or without legal process and with or without prior notice or demand for
performance, to take possession of the Collateral and without liability for
trespass to enter any premises where the Collateral may be located for the
purpose of taking possession of or removing the Collateral and, generally, to
exercise any and all rights afforded to a secured party under the Uniform
Commercial Code or other applicable law. 
Without limiting the generality of the foregoing, in accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement,
each Grantor

 

21

 

agrees that the Collateral Agent shall have the right, subject to the
mandatory requirements of applicable law, to sell or otherwise dispose of all
or any part of the Collateral, 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.  The Collateral Agent shall be authorized at
any such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such
sale the Collateral Agent shall have the right to assign, transfer and deliver
to the purchaser or purchasers thereof the Collateral so sold.  Each such purchaser at any such sale shall
hold the property sold absolutely, free from any claim or right on the part of
any Grantor, and each Grantor hereby waives (to the extent permitted by law)
all rights of redemption, stay and appraisal which such Grantor 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 the Grantors 10 days’ prior
written notice (which each Grantor agrees is reasonable notice within the
meaning of Section 9-611 of the NY UCC or its equivalent in other
jurisdictions) of the Collateral Agent’s intention to make any sale of
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
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 (if any) of such
sale.  At any such sale, the 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 Collateral if it shall determine not
to do so, regardless of the fact that notice of sale of such 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 Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid 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 Collateral
so sold and, in case of any such failure, such Collateral may be sold again
upon like notice.  At any public (or, to
the extent permitted by law, private) sale made pursuant to this Section, any
Secured Party may bid for or purchase, free (to the extent permitted by law)
from any right of redemption, stay, valuation or appraisal on the part of any
Grantor (all said rights being also hereby waived and released to the extent
permitted by law), the Collateral or any part thereof offered for sale and may
make payment on account thereof by using any claim then due and payable to such
Secured Party from any Grantor 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 Grantor
therefor.  For purposes hereof, a

 

22

 

written agreement to purchase the Collateral or any portion thereof
shall be treated as a sale thereof; the Collateral Agent shall be free to carry
out such sale pursuant to such agreement and no Grantor shall be entitled to
the return of the 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, in
accordance with, and to the extent consistent with, the terms of the
Intercreditor Agreement, the Collateral Agent may proceed by a suit or suits at
law or in equity to foreclose this Agreement and to sell the 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.

 

SECTION 7.02.  Application
of Proceeds.  In accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement,
the Collateral Agent shall apply the proceeds of any collection or sale of the
Collateral, as well as any Collateral consisting of cash, as follows:

 

FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such hereunder
or under any other Loan Document) in connection with such collection or sale or
otherwise in connection with this Agreement or any of the Obligations,
including all court costs and the fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Collateral Agent hereunder
or under any other Loan Document on behalf of any Grantor and any other costs
or expenses incurred in connection with the exercise of any right or remedy
hereunder or under any other Loan Document;

 

SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and

 

THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.

 

The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement.  Upon any sale of the
Collateral by the Collateral Agent (including pursuant to a power of sale
granted by statute or under a judicial proceeding), the receipt of the
Collateral Agent or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.

 

SECTION 7.03.  Grant of
License to Use Intellectual Property. 
In accordance with, and to the extent consistent with, the terms of the
Intercreditor Agreement, for the purpose of enabling the Collateral Agent to
exercise rights and

 

23

 

remedies under this Article at such time as the Collateral Agent
shall be lawfully entitled to exercise such rights and remedies, each Grantor
hereby grants to the Collateral Agent an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to the Grantors)
to the extent that such license does not violate any then existing licensing
arrangements (to the extent that waivers cannot be obtained) to use, license or
sub-license any of the Collateral consisting of Intellectual Property now owned
or hereafter acquired by such Grantor, and wherever the same may be located,
and 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 software and
programs used for the compilation or printout thereof and sufficient rights of
quality control in favor of Grantor to avoid the invalidation of the Trademarks
subject to the license.  The use of such
license by the Collateral Agent shall be exercised, at the option of the
Collateral Agent, upon the occurrence and during the continuation of an Event
of Default; provided that any license, sub-license or other transaction
entered into by the Collateral Agent in accordance herewith shall be binding
upon the Grantors notwithstanding any subsequent cure of an Event of Default.

 

ARTICLE VIII

 

Miscellaneous

 

SECTION 8.01.  Notices.  All communications and notices hereunder
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 10.01 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 the Parent Borrower.

 

SECTION 8.02.  Security
Interest Absolute.  All rights of
the Collateral Agent hereunder, the Security Interest and all obligations of
the Grantors hereunder shall be absolute and unconditional irrespective of
(a) any lack of validity or enforceability of the Credit Agreement, any
other Loan Document, any agreement with respect to any of the Obligations or
any other agreement or instrument relating to any of the foregoing,
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations, or any other amendment or waiver of or
any consent to any departure from the Credit Agreement, any other Loan Document
or any other agreement or instrument, (c) any exchange, release or
non-perfection of any Lien on other collateral, or any release or amendment or
waiver of or consent under or departure from any guarantee, securing or guaranteeing
all or any of the Obligations, or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Grantor in
respect of the Obligations or this Agreement.

 

SECTION 8.03.  Survival
of Agreement.  All covenants,
agreements, representations and warranties made by any Grantor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon by
the Secured Parties and shall survive the making by the Lenders of the Loans,
and the execution and delivery to the Lenders of any notes evidencing such
Loans, regardless of any investigation made by the Lenders or on

 

24

 

their behalf, and shall continue in full force and effect until this
Agreement shall terminate.

 

SECTION 8.04.  Binding
Effect; Several Agreement.  This
Agreement shall become effective as to any Grantor when a counterpart hereof
executed on behalf of such Grantor 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 Grantor and the
Collateral Agent and their respective successors and assigns, and shall inure
to the benefit of such Grantor, the Collateral Agent and the other Secured
Parties and their respective successors and assigns, except that no Grantor
shall have the right to assign or transfer its rights or obligations hereunder
or any interest herein or in the Collateral (and any such assignment or
transfer shall be void) except as expressly contemplated by this Agreement or
the Credit Agreement.  This Agreement
shall be construed as a separate agreement with respect to each Grantor and may
be amended, modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without affecting the
obligations of any other Grantor hereunder.

 

SECTION 8.05.  Successors
and Assigns.  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 Grantor or the Collateral Agent
that are contained in this Agreement shall bind and inure to the benefit of
their respective successors and assigns.

 

SECTION 8.06.  Collateral
Agent’s Expenses; Indemnification. 
In accordance with, and to the extent consistent with, the terms of the
Intercreditor Agreement,  (a)  each Grantor jointly and severally agrees to
pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, disbursements and other charges of its
counsel and of any experts or agents, which the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from or other
realization upon any of the Collateral, (iii) the exercise, enforcement or
protection of any of the rights of the Collateral Agent hereunder or
(iv) the failure of any Grantor to perform or observe any of the
provisions hereof.

 

(b)  Without limitation of its
indemnification obligations under the other Loan Documents, each Grantor
jointly and severally agrees to indemnify the Collateral Agent and the other
Indemnitees against, and hold each of them harmless from, any and all losses,
claims, damages, liabilities and related expenses, including reasonable fees,
disbursements and other charges of counsel, incurred by or asserted against any
of them arising out of, in any way connected with, or as a result of, the
execution, delivery or performance of this Agreement or any claim, litigation,
investigation or proceeding relating hereto or to the Collateral, whether or
not any Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses have resulted from the gross
negligence or willful misconduct of such Indemnitee.

 

25

 

(c)  Any such amounts payable as
provided hereunder shall be additional Obligations secured hereby and by the
other Security Documents.  The
provisions of this Section 8.06 shall remain operative and in full force
and effect regardless of the termination of this Agreement or any other Loan
Document, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term
or provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Collateral Agent or any Lender.  All amounts due under this Section 8.06
shall be payable on written demand therefor.

 

SECTION 8.07.  GOVERNING LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 8.08.  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 Collateral Agent, the Issuing
Bank, the Administrative Agent, the other Agents and the Lenders 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 Grantor 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 Grantor in any case shall entitle such Grantor or
any other Grantor 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
(i) pursuant to an agreement or agreements in writing entered into by the
Collateral Agent and the Grantor or Grantors with respect to which such waiver,
amendment or modification is to apply, subject to (A) any consent required in
accordance with Section 10.02 of the Credit Agreement and (B) to the
limitations in the Intercreditor Agreement or (ii) as provided in the
Intercreditor Agreement.

 

SECTION 8.09.  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

 

26

 

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 8.09.

 

SECTION 8.10.  Severability.  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 8.11.  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 but one contract (subject to
Section 8.04), and shall become effective as provided in
Section 8.04.  Delivery of an
executed signature page to this Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.

 

SECTION 8.12.  Headings.  Article and 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 8.13.  Jurisdiction;
Consent to Service of Process.  
(a)  Each Grantor 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 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 Collateral
Agent, the Administrative Agent, the Issuing Bank or any Lender may otherwise
have to bring any action or proceeding relating to this Agreement or the other
Loan Documents against any Grantor or its properties in the courts of any
jurisdiction.

 

(b)  Each Grantor 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 court or
Federal court of the United States of America sitting in New York City.  Each of the

 

27

 

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 8.01.  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 8.14.  Termination.   (a) 
This Agreement and the Security Interest shall terminate when all the
Obligations have been indefeasibly paid in full, the Lenders have no further
commitment to lend, the LC Exposure has been reduced to zero and the Issuing
Bank has no further commitment to issue Letters of Credit under the Credit
Agreement.

 

(b)  A Guarantor shall
automatically be released from its obligations hereunder and the Security
Interest in the Collateral of such Guarantor shall be automatically released in
the event that all the capital stock of such Guarantor shall be sold,
transferred or otherwise disposed of to a Person that is not an Affiliate of
the Parent Borrower in accordance with the terms of the Credit Agreement; provided
that the Required Lenders shall have consented to such sale, transfer or other
disposition (to the extent required by the Credit Agreement) and the terms of
such consent did not provide otherwise.

 

(c)  Upon any sale or other
transfer by any Grantor of any Collateral that is permitted under the Credit
Agreement, provided that the Required Lenders shall have consented to
such transaction (to the extent required by the Credit Agreement) and the terms
of such consent did not provide otherwise, or upon the effectiveness of any
written consent to the release of the security interest granted hereby in any
Collateral pursuant to Section 10.02 of the Credit Agreement, the security
interest in such Collateral shall be automatically released.

 

(d)  If any of the 2004 Notes
First Lien Collateral (as defined in the Intercreditor Agreement) shall become
subject to the release provisions set forth in Section 5.1(c) of the
Intercreditor Agreement, such Collateral shall be automatically released from
the Security Interest to the extent provided in Section 5.1(c) of the
Intercreditor Agreement.

 

(e)  In connection with any
termination or release pursuant to paragraph (a), (b), (c) or (d) above, the
Collateral Agent shall execute and deliver to the Grantors, at the Grantors’
expense, all UCC termination statements and similar documents which the Grantor
shall reasonably request to evidence such termination or release.  Any execution and delivery of termination
statements or release documents pursuant to this Section 8.14 shall be
without recourse to or warranty by the Collateral Agent.

 

SECTION 8.15.  Additional
Grantors.  Upon execution and
delivery by the Collateral Agent and a Subsidiary of an instrument in the form
of Annex 2, such

 

28

 

Subsidiary shall become a Grantor hereunder with the same force and
effect as if originally named as a Grantor herein.  The execution and delivery of any such instrument shall not
require the consent of any Grantor hereunder. 
The rights and obligations of each Grantor hereunder shall remain in
full force and effect notwithstanding the addition of any new Grantor as a
party to this Agreement.

 

SECTION 8.16.  Subject
to Intercreditor Agreement. 
Notwithstanding anything herein to the contrary, the Lien and security
interest granted to the Collateral Agent pursuant to this Agreement and the
exercise of any right or remedy by the Collateral Agent hereunder are subject
to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the
Intercreditor Agreement and this Agreement, the terms of the Intercreditor
Agreement shall govern.

 

SECTION 8.17.  2004
Indenture.  The Collateral Agent
acknowledges and agrees, on behalf of itself and the Secured Parties, that, any
provision of this Agreement to the contrary notwithstanding, until the 2004
Notes First Lien Transition Date (as defined in the Intercreditor Agreement),
the Grantors shall not be required to act or refrain from acting with respect
to any 2004 Notes First Lien Collateral on which the 2004 Trustee (as defined
in the Intercreditor Agreement) has a Lien superior in priority to the
Collateral Agent’s Lien thereon in any manner that would result in a default
under the terms and provisions of the 2004 Indenture (as defined in the
Intercreditor Agreement).

 

29

 

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

 

 

	
   

  	
  PLIANT CORPORATION,

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Brian E. Johnson

  
	
   

  	
   

  	
  Title: 
  Executive Vice-President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EACH OF THE GUARANTORS LISTED

  ON SCHEDULE I HERETO,

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   

  
	
   

  	
   

  	
  Name:Brian E. Johnson

  
	
   

  	
   

  	
  Title:Executive Vice-President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEUTSCHE BANK TRUST COMPANY

  AMERICAS, as Collateral Agent,

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

30

 

Schedule I to the

Domestic Security Agreement

 

GUARANTORS

 

 

Schedule II to the

Domestic Security Agreement

 

COPYRIGHTS

 

 

Schedule III to the

Domestic Security Agreement

 

LICENSES

 

 

Schedule IV to the

Domestic Security Agreement

 

PATENTS

 

 

Schedule V to the

Domestic Security Agreement

 

TRADEMARKS

 

 

Schedule VI to the

Domestic Security Agreement

 

COMMERCIAL TORT CLAIMS

 

 

Annex I

To the Domestic Security Agreement

 

[Form Of]

PERFECTION CERTIFICATE

 

Reference is made to the Security Agreement dated as of
February 17, 2004 (as amended, supplemented or otherwise modified from
time to time), the Security Agreement, among Pliant Corporation (the “Parent
Borrower”), the subsidiary grantors party thereto and Wilmington
Trust Company, as collateral agent (the “Notes Collateral Agent”) for the Secured
Parties (as defined in the Security Agreement).  Reference is also made to the Credit Agreement dated as of
February 17, 2004 (as amended, supplemented or otherwise modified from
time to time, the “Credit Agreement”),
among the Parent Borrower, the subsidiaries of the Parent Borrower party
thereto as domestic subsidiary borrowers, 
Uniplast Industries Co., a Nova Scotia company,  the lenders from time to time party thereto
(the “Lenders”),
Credit Suisse First Boston, as administrative agent for the Lenders, the
Collateral Agent, General Electric Capital Corporation, as co-collateral agent,
and JPMorgan Chase Bank, as syndication agent. 
Capitalized terms used but not defined herein have the meanings assigned
in the Credit Agreement or the Domestic Security Agreement referred to therein,
as applicable.

 

The undersigned, a Financial Officer and a Legal Officer, respectively,
of the Parent Borrower, hereby certify (i) to the Collateral Agent and
each other Secured Party and (ii) the Notes Collateral Agent and each
other Secured Party (as defined in the Security Agreement) as follows:

 

SECTION 1.  Names.  (a) 
Set forth below is (i) the exact legal name of each Grantor, as such
name appears in its document of formation, (ii) each other legal name each
Grantor has had in the past five years and (iii) the date of the relevant
change:

 

	
  Legal Name

  	
   

  	
  Former
  Name

  	
   

  	
  Date of
  Change

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(b)  Except as set forth in
Schedule 1 hereto, no Grantor has changed its identity or corporate structure
in any way within the past five years. Changes in identity or corporate
structure would include mergers, consolidations and acquisitions, as well as
any change in the form, nature or jurisdiction of corporate organization.  If any such change has occurred, include in
Schedule 1 the information required by Sections 1 and 2 of this
certificate as to each acquiree or constituent party to a merger or
consolidation.

 

(c)  Set forth below is a list
of all other names (including trade names or similar appellations) used by each
Grantor or any of its divisions or other business units in connection with the
conduct of its business or the ownership of its properties at any time during
the past five years:

 

 

	
  Legal Name

  	
   

  	
  Other Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

(d)  Set forth below is (i) the
organizational identification number, if any, issued by the jurisdiction of
formation of each Grantor that is a registered organization and (ii) the
Federal Taxpayer Identification Number of each Grantor:

 

	
  Legal Name

  	
   

  	
  Organizational
  No.

  	
   

  	
  Federal
  Taxpayer No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

SECTION 2.  Locations.  (a) 
Set forth below opposite the name of each Grantor that is a registered
organization is the jurisdiction of formation of such Grantor:

 

	
  Legal Name

  	
   

  	
  Jurisdiction
  of Formation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

(b)  Set forth below opposite
the name of each Grantor is the address and county of the chief executive
office of such Grantor:

 

	
  Legal Name

  	
   

  	
  Address of
  Chief Executive Office

  	
   

  	
  County

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(c)  Set forth below opposite the
name of each Grantor is the address and county of all locations where such
Grantor maintains any books or records relating to any Accounts Receivable
and/or General Intangibles (with each location at which chattel paper, if any,
is kept being indicated by an “*”):

 

	
  Legal Name

  	
   

  	
  Address of
  Accounts Receivable

  and/or General Intangibles

  	
   

  	
  County

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

2

 

(d)  Set forth below opposite
the name of each Grantor is the address and county of all locations where such
Grantor maintains any Inventory, Equipment and/or other Collateral not
identified above:

 

	
  Legal Name

  	
   

  	
  Address of
  Inventory,

  Equipment and/or Other Collateral

  	
   

  	
  Zip Code

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(e)  Set forth below opposite
the name of each Grantor is the address and county of all the places of
business of such Grantor not identified in paragraph (a), (b), (c) or (d)
above:

 

	
  Legal Name

  	
   

  	
  Other
  Business Addresses

  	
   

  	
  Zip Code

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(f)  Set forth below opposite
the name of each Grantor are the names, addresses and counties of all Persons
other than such Grantor that have possession of any of the Collateral of such
Grantor (with each such Person that holds such Collateral subject to a Lien
(including, but not limited to, warehousemen’s, mechanics’ and other statutory
liens) indicated by an “*”):

 

	
  Legal Name

  	
   

  	
  Other
  Collateral Addresses

  	
   

  	
  Zip Code

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

SECTION 3.  Unusual
Transactions.  All Accounts
have been originated by the Grantors and all Inventory has been acquired by the
Grantors in the ordinary course of business.

 

SECTION 4.  File Search
Reports.  File search reports
have been obtained from each Uniform Commercial Code filing office identified
with respect to such Grantor in Section 2 hereof, and such search reports
reflect no liens against any of the Collateral other than those permitted under
the Credit Agreement.

 

SECTION 5.  UCC Filings.  UCC financing statements in substantially the
form of Schedule 5 hereto have been prepared for filing in the UCC filing
office and, in the case of fixture filings, the applicable County recorder’s
office, in each jurisdiction identified with respect to such Grantor in
Section 2 and Section 10, as applicable, hereof.

 

3

 

SECTION 6.  Schedule of
Filings.  Attached hereto as
Schedule 6 is a true and correct list, with respect to the filings
described in Section 5 above, of each filing and the UCC filing office or,
in the case of fixture filings, the applicable County recorder’s office, in
which such filing is to be made.

 

SECTION 7.  Stock Ownership
and Other Equity Interests. 
Attached hereto as Schedule 7 is a true and correct list of all the
Equity Interests of each Grantor and the record and beneficial owners of such
Equity Interests.  Also set forth on
Schedule 7 is each equity investment of the Parent Borrower and each
Grantor that represents 50% or less of the equity of the entity in which such
investment was made.

 

SECTION 8.  Debt
Instruments.  Attached hereto
as Schedule 8 is a true and correct list of all instruments, including any
promissory notes, and other evidence of indebtedness held by each Grantor that
are required to be pledged under the Domestic Security Agreement, including all
intercompany notes between the Parent Borrower and any other Grantor or between
any Grantor and any other Grantor.

 

SECTION 9.  Advances.  Attached hereto as Schedule 9 is (a) a
true and correct list of all advances made by the Parent Borrower to any
Subsidiary of the Parent Borrower (other than those identified on
Schedule 8), which advances will be on and after the date hereof evidenced
by one or more intercompany notes pledged to the Collateral Agent under the
Domestic Security Agreement and (b) a true and correct list of all unpaid
intercompany transfers of goods sold and delivered by or to the Parent Borrower
or any Subsidiary of the Parent Borrower.

 

SECTION 10.  Mortgage
Filings.  Attached hereto as
Schedule 10 is a true and correct list, with respect to each Mortgaged Property,
of (a) the exact name of the Person that owns such property as such name
appears in its certificate of incorporation or other organizational document,
(b) if different from the name identified pursuant to clause (a), the exact
name of the current record owner of such property reflected in the records of
the filing office for such property identified pursuant to the following clause
and (c) the filing office in which a Mortgage with respect to such property
must be filed or recorded in order for the Collateral Agent to obtain a
perfected security interest therein.

 

SECTION 11.  Intellectual
Property.  Attached hereto as
Schedule 11(A) in proper form for filing with the United States Patent and
Trademark Office or the Canadian Intellectual Property Office, as applicable,
is a is a true and correct list of each Grantor’s Patents, Patent Licenses,
Trademarks and Trademark Licenses, including the name of the registered owner,
registration number and expiration date of each Patent, Patent License, Trademark
and Trademark License owned by any Grantor. 
Attached hereto as Schedule 11(B) in proper form for filing with
the United States Copyright Office or the Canadian Intellectual Property
Office, as applicable, is a true and correct list of each Grantor’s Copyrights
and Copyright Licenses, including the name of the registered owner,
registration number and expiration date of each Copyright or Copyright License
owned by any Grantor.

 

4

 

SECTION 12.  Commercial Tort
Claims.  Attached hereto as
Schedule 12 is a true and correct list of commercial tort claims in excess
of $250,000 held by any Grantor, including a brief description thereof.

 

SECTION 13.  Deposit
Accounts.  Attached hereto as
Schedule 13 is a true and correct list of deposit accounts maintained by
each Grantor, including the name and address of the depositary institution, the
type of account, and the account number.

 

5

 

IN WITNESS WHEREOF, the undersigned have duly executed this certificate
on this 17th day of February, 2004.

 

	
   

  	
  PLIANT CORPORATION,

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Brian E. Johnson

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
					

 

6

 

Annex 2 to the

Security Agreement

 

SUPPLEMENT NO.      dated
as of , to the Domestic Security Agreement dated as of February 17, 2004,
among PLIANT CORPORATION, a Utah corporation (the “Parent Borrower”),
each subsidiary of the Parent Borrower listed on Schedule I thereto (each
such subsidiary individually a “Guarantor” and collectively, the “Guarantors”;
the Guarantors and the Parent Borrower are referred to collectively herein as
the “Grantors”) and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York
banking corporation (“DBTCA”), as collateral agent (in such capacity,
the “Collateral Agent”) for the Secured Parties (as defined herein).

 

A.           Reference is made to (a) the Credit
Agreement dated as of February 17, 2004 (as amended, supplemented or
otherwise modified from time to time, the “Credit Agreement”), among the
Parent Borrower, the domestic subsidiary borrowers party thereto, Uniplast
Industries Co., the lenders from time to time party thereto (the “Lenders”),
Credit Suisse First Boston, acting through its Cayman Islands Branch, as
administrative agent (in such capacity, the “Administrative Agent”) for
the Lenders, the Collateral Agent, General Electric Capital Corporation, as
co-collateral agent, and JPMorgan Chase Bank, as syndication agent, and (b) the
Guarantee Agreement dated as of February 17, 2004 (as amended,
supplemented or otherwise modified from time to time, the “Guarantee
Agreement”), among the Parent Borrower, the Guarantors and the
Administrative Agent.

 

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

 

C.             The Grantors have entered into the
Domestic Security Agreement in order to induce the Lenders to make Loans and
the Issuing Bank to issue Letters of Credit. 
Section 8.15 of the Domestic Security Agreement provides that
additional Subsidiaries of the Parent Borrower may become Grantors under the
Domestic Security Agreement by execution and delivery of an instrument in the
form of this Supplement.  The undersigned
Subsidiary (the “New Grantor”) is executing this Supplement in
accordance with the requirements of the Credit Agreement to become a Grantor
under the Domestic Security Agreement in order to induce the Lenders to make
additional Loans and the Issuing Bank to issue additional Letters of Credit and
as consideration for Loans previously made and Letters of Credit previously
issued.

 

Accordingly, the Collateral Agent and the New Grantor agree as follows:

 

SECTION 1.  In accordance
with Section 8.15 of the Domestic Security Agreement, the New Grantor by
its signature below becomes a Grantor under the Domestic Security Agreement
with the same force and effect as if originally named therein as a Grantor and
the New Grantor hereby (a) agrees to all the terms and provisions of the
Domestic Security Agreement applicable to it as a Grantor thereunder and
(b) represents and warrants that the representations and warranties made
by it as a

 

 

Grantor thereunder are true and correct on and as of the date
hereof.  In furtherance of the
foregoing, the New Grantor, as security for the payment and performance in full
of the Obligations (as defined in the Domestic Security Agreement), does hereby
create and grant to the Collateral Agent, its successors and assigns, for the
benefit of the Secured Parties, their successors and assigns, a security
interest in and lien on all of the New Grantor’s right, title and interest in
and to the Collateral (as defined in the Domestic Security Agreement) of the
New Grantor.  Each reference to a
“Grantor” in the Domestic Security Agreement shall be deemed to include the New
Grantor. The Domestic Security Agreement is hereby incorporated herein by
reference.

 

SECTION 2.  The New Grantor
represents and warrants to the Collateral Agent and the other Secured Parties
that this Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.

 

SECTION 3.  This Supplement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract. This Supplement shall
become effective when the Collateral Agent shall have received counterparts of
this Supplement that, when taken together, bear the signatures of the New
Grantor and the Collateral Agent. 
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be effective as delivery of a manually signed counterpart of
this Supplement.

 

SECTION 4.  The New Grantor
hereby represents and warrants that (a) set forth on Schedule I
attached hereto is a true and correct schedule of the location of any and
all Collateral of the New Grantor and (b) set forth under or above its
signature hereto, is the true and correct legal name of the New Subsidiary, its
jurisdiction of formation, its organizational identification number (if any)
and the location of the chief executive office of the New Grantor.

 

SECTION 5.  Except as
expressly supplemented hereby, the Domestic Security Agreement shall remain in
full force and effect.

 

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

 

SECTION 7.  In case any one
or more of the provisions contained in this Supplement should be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and in the Domestic
Security Agreement 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 hereto 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.

 

2

 

SECTION 8.  All
communications and notices hereunder shall be in writing and given as provided
in Section 10.01 of the Credit Agreement. All communications and notices
hereunder to the New Grantor shall be given to it at the address set forth
under its signature below.

 

SECTION 9.  The New Grantor
agrees to reimburse the Collateral Agent for its reasonable out-of-pocket
expenses in connection with this Supplement, including the reasonable fees, other
charges and disbursements of counsel for the Collateral Agent.

 

IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Domestic Security Agreement as of the day and
year first above written.

 

	
   

  	
  [Name Of New Grantor],

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  Organizational
  I.D.:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEUTSCHE BANK TRUST COMPANY

  AMERICAS, as Collateral Agent,

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

3

 

SCHEDULE I

to Supplement No.       to the

Domestic Security Agreement

 

LOCATION OF COLLATERAL

 

	
  Description

  	
   

  	
  LocationEXHIBIT
10.24

 

CANADIAN
SECURITY AGREEMENT dated as of February 17, 2004, among UNIPLAST
INDUSTRIES CO., a Nova Scotia company (the “Canadian Subsidiary Borrower”),
each other subsidiary of Pliant Corporation, a Utah corporation (the “Parent
Borrower”), organized under the laws of Canada or any province thereof
listed on Schedule I hereto (each such subsidiary individually a “Guarantor”
and collectively, the “Guarantors”; the Guarantors and the Canadian
Subsidiary Borrower are referred to collectively herein as the “Grantors”)
and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation, as
collateral agent (in such capacity, the “Collateral Agent”) for the
Secured Parties (as defined herein).

 

Reference is made to (a) the Credit Agreement dated as of
February 17, 2004 (as amended, supplemented or otherwise modified from
time to time, the “Credit Agreement”), among the Parent Borrower, the
subsidiaries of the Parent Borrower party thereto as domestic subsidiary
borrowers (the “Domestic Subsidiary Borrowers”), the Canadian Subsidiary
Borrower (together with the Parent Borrower and the Domestic Subsidiary
Borrowers, the “Borrowers”), the lenders from time to time party thereto
(the “Lenders”), the Collateral Agent, Credit Suisse First Boston,
acting through its Cayman Islands Branch, as administrative agent (the “Administrative
Agent”), General Electric Capital Corporation, as co-collateral agent (the
“Co-Collateral Agent”), and JPMorgan Chase Bank, as syndication agent
(together with the Administrative Agent, the Collateral Agent and the
Co-Collateral Agent, the “Agents”), and (b) the Guarantee Agreement
dated as of February 17, 2004 (as amended, supplemented or otherwise
modified from time to time, the “Guarantee Agreement”), among, inter alia,
the Parent Borrower, the Canadian Subsidiary Borrower and the Administrative
Agent.

 

The Collateral Agent and the trustees for the holders of the Senior
Secured Discount Notes and the Existing Senior Secured Notes have entered into
an Intercreditor Agreement dated as of February 17, 2004 (the “Intercreditor
Agreement”), which confirms the relative priority of the security interests
of the Secured Parties, the holders of the Senior Secured Discount Notes and
the holders of the Existing Senior Secured Notes in the Collateral.

 

The Lenders have agreed to make Loans to the Borrowers, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Parent
Borrower, in an amount up to $100,000,000, pursuant to, and upon the terms and
subject to the conditions specified in, the Credit Agreement.  The Guarantors have agreed to guarantee,
among other things, all the obligations of the Borrowers under the Credit
Agreement.  The Canadian Subsidiary
Borrower has agreed to guarantee, among other things, all the obligations of
the Parent Borrower and the Domestic Subsidiary Borrowers under the Credit
Agreement.  The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit under
the Credit Agreement are conditioned upon, among other things, the execution
and delivery by the Grantors of an agreement in the form hereof to secure (a)
the due and punctual payment by the Borrowers of (i) the principal of and
premium, if any, and interest (including interest accruing during the pendency
of any

 

 

bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding) on the Loans, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment, or otherwise,
(ii) each payment required to be made by the Borrowers under the Credit
Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of each Loan Party to the Secured Parties under
the Credit Agreement and the other Loan Documents, (b) the due and
punctual performance of all covenants, agreements, obligations and liabilities
of each Loan Party under or pursuant to the Credit Agreement and the other Loan
Documents, (c) the due and punctual payment and performance of all
obligations of each Loan Party, monetary or otherwise, under each Swap
Agreement that (i) is effective on the Effective Date with a counterparty
that is a Lender (or an Affiliate of a Lender) as of the Effective Date or
(ii) is entered into after the Effective Date with any counterparty that
is a Lender (or an Affiliate thereof) at the time such Swap Agreement is
entered into and (d) the due and punctual payment and performance of all
monetary obligations of each Loan Party in respect of overdrafts and related
liabilities owed to any of the Lenders (or any Affiliates thereof) or Wachovia
Bank N.A. (or any Affiliates thereof) arising from treasury, depositary and
cash management services or in connection with any automated clearinghouse
transfers of funds (all the monetary and other obligations described in the preceding
clauses (a) through (d) being collectively called the “Obligations”).

 

Accordingly, each of the Grantors and the Collateral Agent, on behalf
of itself and each Secured Party (and each of their respective successors or
assigns), hereby agrees as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.01.  Definition
of Terms Used Herein. Unless the context otherwise requires, all
capitalized terms used but not defined herein shall have the meanings set forth
in the Credit Agreement.

 

SECTION 1.02.  Definition
of Certain Terms Used Herein.  As
used herein, the following terms shall have the following meanings:

 

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

 

“Accounts” shall mean any and all right, title and interest of
any Grantor to payment for goods and services sold or leased, including any
such right evidenced by chattel paper, whether due or to become due, whether or
not it has been earned by

 

2

 

performance, and whether now or hereafter
acquired or arising in the future, including accounts receivable from
Affiliates of the Grantors.

 

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

 

“Cash Collection Period” means the period commencing on the
first Business Day after the occurrence of a Cash Collection Trigger Event and
ending on the date this Agreement is terminated in accordance with
Section 8.14.

 

“Cash Collection Trigger Event” shall mean that, on three
consecutive Business Days, the Availability Amount at any time during the day
is less than U.S.$35,000,000.

 

“Cash Concentration Account” means, with respect to any Grantor,
the cash concentration account maintained by such Grantor with the Collateral
Agent, to which such Grantor will cause to be transferred, on each Business Day
during the Cash Collection Period, amounts deposited in the Collection Deposit
Accounts on such Business Day, as and to the extent provided in
Section 5.01.

 

“Chattel Paper” shall mean all “chattel paper” as such term is
defined in the PPSA.

 

“Collateral” means all of the present and future
undertaking, personal property (including any personal property that may be
described in any Schedule to this Agreement or any schedules, documents or
listings that a Grantor may from time to time sign and provide to the
Collateral Agent in connection with this Agreement) of the Grantor (including
all such property at any time owned, leased or licensed by the Grantor, or in
which the Grantor at any time has any interest or to which the Grantor is or
may at any time become entitled) and all Proceeds thereof, wherever located
including, without limiting the generality of the foregoing, the following:

 

all Accounts Receivable;

 

all Chattel Paper;

 

all Documents;

 

all Equipment;

 

all fixtures;

 

all General Intangibles;

 

all Instruments;

 

3

 

all Inventory;

 

all money, cash and cash accounts;

 

all Investment Property;

 

all books and records pertaining to the Collateral;

 

all letter-of-credit rights; and

 

to the extent not otherwise included, all Proceeds and products of any
and all of the foregoing.

 

“Collateral Proceeds Account” means an account maintained by and
in the name of the Administrative Agent, for purposes of this Agreement and the
Credit Agreement.

 

“Collection Deposit Accounts” means the respective collection
accounts maintained by the Collection Deposit Banks pursuant to the Collection
Deposit Letter Agreements and into which the Grantors will deposit or cause to
be deposited all Daily Receipts, as and to the extent provided in
Section  5.01.

 

“Collection Deposit Bank” means, at any time, any financial
institution then serving as a “Collection Deposit Bank” as provided in
Section 5.01.

 

“Collection Deposit Letter Agreement” means an agreement among
the applicable Grantor, a Collection Deposit Bank and the Collateral Agent, in
form and substance reasonably satisfactory to the Collateral Agent, pursuant to
which such Collection Deposit Bank shall maintain one or more Collection
Deposit Accounts, as such Collection Deposit Letter Agreement may be amended,
modified or supplemented from time to time.

 

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

 

“Copyrights” shall mean all of the following now owned or
hereafter acquired by any Person: 
(a) all copyright rights in any work subject to the copyright laws
of the United States or Canada, whether as author, assignee, transferee or
otherwise, and (b) all registrations and applications for registration of
any such copyright in the United States or Canada, including registrations,
recordings, supplemental registrations and pending applications for
registration in the United States Copyright Office or the Canadian Intellectual
Property Office, including those listed on Schedule II.

 

“Credit Agreement” shall have the meaning assigned to such term
in the preliminary statement of this Agreement.

 

4

 

“Credit Card Payments” means all payments received or receivable
by or on behalf of any Grantor in respect of sales of Inventory paid for by
credit card charges, including payments from financial institutions that
process credit card transactions for any of the Grantors.

 

“Daily Receipts” means all amounts received by the Grantors,
whether in the form of cash, checks, any moneys received or receivable in
respect of charges made by means of credit cards, and other negotiable
instruments, in each case as a result of the sale of Inventory or in respect of
Accounts Receivable.

 

“Documents” shall mean all instruments, files, records, ledger
sheets and documents covering or relating to any of the Collateral.

 

“Entitlement Holder” shall mean a Person identified in the
records of a Security Intermediary as the Person having a Security Entitlement
against the Security Intermediary.

 

“Equipment” shall mean all “equipment” as such term is defined
in the PPSA, and in any event, all equipment, furniture, fixtures and
furnishings, including tools, parts and supplies of every kind and description,
and all improvements, accessions or appurtenances thereto, that are now or
hereafter owned by any Grantor.

 

“Financial Asset” shall mean (a) a Security, (b) an obligation
of a Person or a share, participation or other interest in a Person or in
property or an enterprise of a Person, 
which is, or is of a type, dealt with in or traded on financial markets,
or which is recognized in any area in which it is issued or dealt in as a
medium for investment or (c) any property that is held by a Security
Intermediary for another Person in a Securities Account.  As the context requires, the term Financial
Asset shall mean either the interest itself or the means by which a Person’s
claim to it is evidenced, including a certificated or uncertificated Security,
a certificate representing a Security or a Security Entitlement.

 

“General Funds Account” means an account maintained by the
Parent Borrower, to which the Administrative Agent will, subject to the terms
and conditions set forth herein, cause to be transferred certain amounts on
deposit in the Collateral Proceeds Account.

 

“General Intangibles” shall mean all “intangibles” as such term
is defined in the PPSA, and in any event, with respect to any Grantor, all
choses in action and causes of action and all other assignable intangible
personal property of any Grantor of every kind and nature (other than Accounts
Receivable) now owned or hereafter acquired by any Grantor, including corporate
or other business records, indemnification claims, contract rights (including
rights under leases, whether entered into as lessor or lessee, Swap Agreements
and other agreements but excluding contract rights in contracts which contain
an enforceable prohibition on assignment or the granting of a security
interest), Intellectual Property, goodwill, registrations, franchises, tax
refund claims and any letter of credit, guarantee, claim, security interest or
other security held by or granted to any Grantor to secure payment by an
Account Debtor of any of the Accounts Receivable.

 

5

 

“Instrument” shall mean “instrument” as such term is defined in
the PPSA.

 

“Intellectual Property” shall mean all intellectual and similar
property of any Grantor of every kind and nature now owned or hereafter
acquired by any Grantor, including inventions, designs, Patents, Copyrights,
Licenses, Trademarks, trade secrets, confidential or proprietary technical and
business information, know-how, show-how or other data or information, software
and databases and all embodiments or fixations thereof and related
documentation and registrations, and all additions, improvements and accessions
to, and books and records describing or used in connection with, any of the
foregoing.

 

“Intellectual Property Rights” shall have the meaning assigned
to such term in Section 3.01.

 

“Inventory” shall mean all “inventory” as such term is defined
in the PPSA, and in any event, all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor’s business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing
supplies and spare parts, and all such goods that have been returned to or
repossessed by or on behalf of any Grantor.

 

“Investment Property” shall mean all Securities (whether
certificated or uncertificated), Security Entitlements and Securities Accounts,
whether now owned or hereafter acquired by any Grantor.

 

“License” shall mean any Patent License, Trademark License,
Copyright License or other franchise agreement, license or sublicense to which
any Grantor is a party, including those listed on Schedule III.

 

“Obligations” shall have the meaning assigned to such term in
the preliminary statement of this Agreement.

 

“PPSA” means the Personal Property Security Act (Ontario),
as such legislation may be amended, renamed or replaced from time to time (and
includes all regulations from time to time made under such legislation).

 

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

 

“Patents” shall mean all of the following now owned or hereafter
acquired by any Person:  (a) all
letters patent of the United States or Canada, all registrations and recordings
thereof, and all applications for letters patent of the United States or Canada,
including registrations, recordings and pending applications in the United
States Patent

 

6

 

and Trademark Office or the Canadian
Intellectual Property Office, including those listed on Schedule IV, and (b) all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof, and the inventions disclosed or claimed therein, including
the right to make, use and/or sell the inventions disclosed or claimed therein.

 

“Perfection Certificate” shall mean a certificate substantially
in the form of Annex 1 (or any other form approved by the Collateral
Agent), completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and the chief
legal officer of the Parent Borrower.

 

“Proceeds” shall mean all “proceeds” as such term is defined in
the PPSA and, in any event, shall include with respect to any Grantor any
consideration received from the sale, exchange, license, lease or other disposition
of any asset or property that constitutes Collateral, any value received as a
consequence of the possession of any Collateral and any payment received from
any insurer or other person or entity as a result of the destruction, loss,
theft, damage or other involuntary conversion of whatever nature of any asset
or property which constitutes Collateral, and shall include, (a) any claim
of any Grantor against any third party for (and the right to sue and recover
for and the rights to damages or profits due or accrued arising out of or in
connection with) (i) past, present or future infringement of any Patent
now or hereafter owned by any Grantor, or licensed under a Patent License,
(ii) past, present or future infringement or dilution of any Trademark now
or hereafter owned by any Grantor or licensed under a Trademark License or
injury to the goodwill associated with or symbolized by any Trademark now or
hereafter owned by any Grantor, (iii) past, present or future breach of
any License and (iv) past, present or future infringement of any Copyright
now or hereafter owned by any Grantor or licensed under a Copyright License and
(b) any and all other amounts from time to time paid or payable under or
in connection with any of the Collateral.

 

“Receiver” means a receiver, a manager or a receiver and
manager.

 

“Secured Parties” shall mean (a) the Lenders, (b) the
Administrative Agent, (c) the Collateral Agent and each of the other
Agents, (d) the Issuing Bank, (e) each counterparty to a Swap
Agreement with a Loan Party the obligations under which constitute Obligations,
(f) the beneficiaries of each indemnification obligation undertaken by any
Grantor under any Loan Document, (g) each lender in respect of overdrafts
and related liabilities owed to any of the Lenders (or any Affiliates thereof)
and arising from treasury, depositary and cash management services or in
connection with any automated clearinghouse transfers of funds, (h) Wachovia
Bank N.A. (or any Affiliates thereof) in respect of overdrafts and related
liabilities owed to Wachovia Bank N.A. (or any Affiliates thereof) and arising
from treasury, depositary and cash management services or in connection with
any automated clearinghouse transfers of funds and (i) the permitted
successors and assigns of each of the foregoing.

 

“Securities” shall mean the plural of “security” as such term is
defined in the PPSA, and in any event, any obligations of an issuer or any
shares, participations or other interests in an issuer or in property or an
enterprise of an issuer which (a) are represented by a certificate representing
a security in bearer or registered form, or the

 

7

 

transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of
shares, participations, interests or obligations or (c)(i) are, or are of a
type, dealt with or traded on securities exchanges or securities markets or (ii)
are a medium for investment.

 

“Securities Account” shall mean an account to which a Financial
Asset  is or may be credited in
accordance with an agreement under which the Person  maintaining the account undertakes to treat the Person for whom
the account is maintained as entitled to exercise rights that comprise the
Financial Asset.

 

“Security Entitlements” shall mean the rights and property
interests of an Entitlement Holder with respect to a Financial Asset.

 

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

 

“Security Intermediary” shall mean (a) a clearing
corporation or (b) a Person, including a bank or broker, that in the
ordinary course of its business maintains securities accounts for others and is
acting in that capacity.

 

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

 

“Trademarks” shall mean all of the following now owned or
hereafter acquired by any Person: 
(a) all trademarks, service marks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, trade
dress, logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all registration and recording
applications filed in connection therewith, including registrations and
registration applications in the United States Patent and Trademark Office, any
State of the United States or the Canadian Intellectual Property Office, and
all extensions or renewals thereof, including those listed on Schedule V,
(b) all goodwill associated therewith or symbolized thereby and
(c) all other assets, rights and interests that uniquely reflect or embody
such goodwill.

 

“U.S.$” refers to the lawful currency of the United States of
America.

 

“U.S. Intellectual Property” shall have the meaning assigned to
such term in Section 3.02(b).

 

SECTION 1.03.  Rules of
Interpretation.  The rules of
interpretation specified in Section 1.03 of the Credit Agreement shall be
applicable to this Agreement.

 

8

 

ARTICLE II

 

Security
Interest

 

SECTION 2.01.  Security
Interest.   (a)  As
general and continuing collateral security for the due payment and performance
when due (whether at the stated maturity, by acceleration or otherwise) of all
Obligations, each Grantor hereby mortgages, charges and assigns to the
Collateral Agent, and grants to the Collateral Agent, for the ratable benefit
of the Secured Parties, a security interest (the “Security Interest”)
in, the Collateral.

 

 (b)  The grant of any Security Interest in respect of the Collateral
shall not include with respect to any Grantor, any item of property to the
extent the grant by such Grantor of a security interest pursuant to this
Agreement in such Grantor’s right, title and interest in such item of property
is prohibited by an applicable enforceable contractual obligation (including
but not limited to a Capital Lease Obligation) or requirement of law or would
give any other Person the enforceable right to terminate its obligations with
respect to such item of property and provided, further, that the limitation in
the foregoing proviso shall not affect, limit, restrict or impair the grant by
any Grantor of a security interest pursuant to this Agreement in any money or
other amounts due or to become due under any Account, contract, agreement or
General Intangible.  In addition, the
Security Interests created by this Agreement do not extend to the last day of
the term of any lease or agreement for lease of real property.  Such last day shall be held by the Grantor
in trust for the Collateral Agent and, on the exercise by the Collateral Agent
of any of its rights under this Agreement following the occurrence and during
the continuance of an Event of Default, will be assigned by the Grantor as
directed by the Collateral Agent.

 

 (c)  Each Grantor confirms that value has been given by the Collateral
Agent and the other Secured Parties to the Grantor, that the Grantor has rights
in the Collateral (other than after-acquired property) and that the Grantor and
the Collateral Agent have not agreed to postpone the time for attachment of the
Security Interests created by this Agreement to any of the Collateral.

 

 (d)  Each Grantor hereby irrevocably authorizes the Collateral Agent,
in accordance with, and to the extent consistent with, the Intercreditor
Agreement, at any time and from time to time to file in any relevant
jurisdiction any financing statements with respect to the Collateral or any
part thereof and amendments thereto. 
Each Grantor also ratifies its authorization for the Collateral Agent to
file in any relevant jurisdiction any financing statements or amendments
thereto if filed prior to the date hereof.

 

The Collateral Agent is further authorized to file with the United
States Patent and Trademark Office, the United States Copyright Office or the
Canadian Intellectual Property Office such documents as may be necessary or
advisable for the purpose of perfecting, confirming, continuing, enforcing or
protecting the Security Interest in and to the Intellectual Property granted by
each Grantor, without the signature of any Grantor (but, prior to the occurrence
of any Event of Default or Default, the

 

9

 

Collateral Agent shall provide notice of such
filing to such Grantor), and naming any Grantor or the Grantors as debtors and
the Collateral Agent as secured party.

 

SECTION 2.02.  No
Assumption of Liability.  The
Security Interest is granted as security only and shall not subject the
Collateral Agent or any other Secured Party to, or in any way alter or modify,
any obligation or liability of any Grantor with respect to or arising out of
the Collateral.

 

ARTICLE III

 

Representations
and Warranties

 

The Grantors jointly and severally represent and warrant to the
Collateral Agent and the Secured Parties that:

 

SECTION 3.01.  Title and
Authority.  Each Grantor has good
and valid rights in and title to the Collateral with respect to which it has
purported to grant a Security Interest hereunder and has full power and
authority to grant to the Collateral Agent the Security Interest in such
Collateral pursuant hereto and to execute, deliver and perform its obligations
in accordance with the terms of this Agreement, without the consent or approval
of any other Person other than any consent or approval which has been obtained
or the failure of which to obtain could not reasonably be expected to have a
Material Adverse Effect.

 

Each Grantor further represents and warrants that all Intellectual
Property owned by such Grantor, and all rights of the Grantor pursuant to any
Trademark License, Patent License or Copyright License to use any Intellectual
Property (collectively, “Intellectual Property Rights”), are described
in the attached schedules and the Perfection Certificate.  To the best of the Grantor’s knowledge, each
such Intellectual Property Right is valid, subsisting, unexpired, enforceable
and has not been abandoned.  Except as
set out in the Perfection Certificate and the schedules hereto, none of such
Intellectual Property Rights has been licensed or franchised by the Grantor to
any Person.

 

SECTION 3.02.  Filings.   (a) 
The Perfection Certificate has been duly prepared, completed and
executed and the information set forth therein is correct and complete.  Personal
Property Security Act financing statements in each relevant
jurisdiction are all the filings, recordings and registrations (other than
filings, recordings and registrations required to be made in the United States
Patent and Trademark Office, the United States Copyright Office or the Canadian
Intellectual Property Office in order to perfect the Security Interest in
Collateral consisting of Intellectual Property) that are necessary to publish
notice of and protect the validity of and to establish a legal, valid and
perfected security interest in favor of the Collateral Agent (for the ratable
benefit of the Secured Parties) in respect of all Collateral in which the
Security Interest may be perfected by filing, recording or registration in any
relevant jurisdiction, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the
filing of continuation statements and such filings, recordings and
registrations as

 

10

 

may be
necessary to perfect the Security Interest as a result of any event described
in Section 5.03 of the Credit Agreement.

 

 (b)  Each Grantor represents and warrants that fully executed security
agreements in the form hereof (or a fully executed short-form agreement in form
and substance reasonably satisfactory to the Collateral Agent) and containing a
description of all Collateral consisting of Intellectual Property of such
Grantor acquired or developed in the United States (“U.S. Intellectual
Property”) shall have been received and recorded within three months after
the execution of this Agreement with respect to United States Patents and
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and within one month after the execution
of this Agreement with respect to United States registered Copyrights by
the United States Patent and Trademark Office and the United States Copyright
Office pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C.
§ 205 and the regulations thereunder, as applicable, to protect the
validity of and to establish a legal, valid and perfected security interest in
favor of the Collateral Agent (for the ratable benefit of the Secured Parties)
in respect of all Collateral consisting of U.S. Intellectual Property in which
a security interest may be perfected by filing, recording or registration in
the United States (or any political subdivision thereof) and no further or
subsequent filing, refiling, recording, rerecording, registration or reregistration
is necessary (other than such actions as are necessary to perfect the Security
Interest with respect to any Collateral consisting of U.S. Intellectual
Property (or registration or application for registration thereof) acquired or
developed after the date hereof).

 

SECTION 3.03.  Validity
of Security Interest.  The Security
Interest constitutes (a) a legal and valid security interest in all the
Collateral securing the payment and performance of the Obligations,
(b) subject to the filings described in Section 3.02 above, a
perfected security interest in all Collateral in which a security interest may
be perfected by filing, recording or registering a financing statement or
analogous document in the United States or Canada (or any political subdivision
of either) pursuant to the Uniform Commercial Code, the PPSA or other
applicable law in such jurisdictions and (c) a security interest that shall be
perfected in all Collateral in which a security interest may be perfected in
the United States Patent and Trademark Office and the United States
Copyright Office upon the receipt and recording of this Agreement with the
United States Patent and Trademark Office and the United States Copyright
Office, as applicable, within the three month period (commencing as of the date
hereof) pursuant to 35 U.S.C. § 261 or 15 U.S.C. § 1060 or the
one-month period (commencing as of the date hereof) pursuant to 17 U.S.C.
§ 205 and otherwise as may be required pursuant to the laws of any other
necessary jurisdiction.  The Security
Interest is and shall be prior to any other Lien on any of the Collateral,
other than Liens expressly permitted to be prior to the Security Interest
pursuant to Section 6.03 of the Credit Agreement.

 

SECTION 3.04.  Absence
of Other Liens.  Except for the
Security Interest created by this Agreement and other Liens expressly permitted
pursuant to Section 6.03 of the Credit Agreement, the Grantors own (or,
with respect to any leased or licensed property forming part of the Collateral,
hold a valid leasehold or licensed interest in) the Collateral free and clear
of any Liens.  No security agreement,
financing statement or

 

11

 

other notice
with respect to any or all of the Collateral is on file or on record in any
public office, except for filings in favour of the Collateral Agent or with
respect to Liens expressly permitted pursuant to Section 6.03 of the
Credit Agreement.

 

ARTICLE IV

 

Covenants

 

SECTION 4.01.  Records.  Each
Grantor agrees to maintain, at its own cost and expense, such complete and
accurate records with respect to the Collateral owned by it as is consistent
with its current practices and in accordance with such prudent and standard
practices used in industries that are the same as or similar to those in which
such Grantor is engaged, but in any event to include complete accounting
records indicating all payments and proceeds received with respect to any part
of the Collateral, and, at such time or times as the Collateral Agent may
reasonably request, promptly to prepare and deliver to the Collateral Agent a
duly certified schedule or schedules in form and detail reasonably
satisfactory to the Collateral Agent showing the identity, amount and location
of any and all Collateral.

 

SECTION 4.02.  Protection
of Security.  Each Grantor shall, at
its own cost and expense, take any and all actions necessary to defend title to
the Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien
not expressly permitted pursuant to Section 6.03 of the Credit Agreement.

 

SECTION 4.03.  Further
Assurances.  Each Grantor agrees, at
its own expense, to execute, acknowledge, deliver and cause to be duly filed
all such further instruments and documents and take all such actions as the
Collateral Agent, in accordance with, and to the extent consistent with, the
terms of the Intercreditor Agreement, may from time to time reasonably request
to better assure, preserve, protect and perfect the Security Interest and the
rights and remedies created hereby, including the payment of any fees and taxes
required in connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any financing statements or
other documents in connection herewith or therewith.  If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be immediately pledged and delivered
to the Collateral Agent, duly endorsed in a manner satisfactory to the
Collateral Agent.

 

Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V
hereto or adding additional schedules hereto to specifically identify any
registered asset or item that may constitute Copyrights, Patents or Trademarks;
provided, however, that any Grantor shall have the right,
exercisable within 30 days after it has been notified by the Collateral
Agent of the specific identification of such Collateral, to advise the
Collateral Agent in writing of any inaccuracy of the representations and warranties
made by such Grantor

 

12

 

hereunder with respect to such
Collateral.  Each Grantor agrees that it
will use its best efforts to take such action as shall be necessary in order
that all representations and warranties hereunder shall be true and correct
with respect to such Collateral within 30 days after the date it has been
notified by the Collateral Agent of the specific identification of such
Collateral.

 

SECTION 4.04.  Inspection
and Verification.  Subject to the
limitations set forth in Section 5.09 of the Credit Agreement, the  Collateral Agent and such Persons as the
Collateral Agent may reasonably designate shall have the right, at the
Grantors’ own cost and expense, to inspect the Collateral, all records related
thereto (and to make extracts and copies from such records) and the premises
upon which any of the Collateral is located, to discuss the Grantors’ affairs
with the officers of the Grantors and their independent accountants and to
verify under reasonable procedures the validity, amount, quality, quantity,
value, condition and status of, or any other matter relating to, the
Collateral, including, in the case of Accounts or Collateral in the possession
of any third party, by contacting Account Debtors or the third person
possessing such Collateral for the purpose of making such a verification.  The Collateral Agent shall have the absolute
right to share any information it gains from such inspection or verification
with any Secured Party (it being understood that any such information shall be
deemed to be “Information” subject to the provisions of Section 10.12 of
the Credit Agreement).

 

SECTION 4.05.  Taxes;
Encumbrances.  In accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement, at
its option, the Collateral Agent may discharge past due taxes, assessments,
charges, fees, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral and not permitted pursuant to Section 6.03
of the Credit Agreement, and may pay for the maintenance and preservation of
the Collateral to the extent any Grantor fails to do so as required by the
Credit Agreement or this Agreement, and each Grantor jointly and severally
agrees to reimburse the Collateral Agent on demand for any payment made or any
expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this
Section 4.05 shall be interpreted as excusing any Grantor from the
performance of, or imposing any obligation on the Collateral Agent or any
Secured Party to cure or perform, any covenants or other promises of any
Grantor with respect to taxes, assessments, charges, fees, Liens, security
interests or other encumbrances and maintenance as set forth herein or in the
other Loan Documents.

 

SECTION 4.06.  Assignment
of Security Interest.  If at any
time any Grantor shall take a security interest in any property of an Account
Debtor or any other Person to secure payment and performance of an Account,
such Grantor shall promptly assign such security interest to the Collateral
Agent.  Such assignment need not be
filed of public record unless necessary to continue the perfected status of the
security interest against creditors of and transferees from the Account Debtor
or other Person granting the security interest.

 

SECTION 4.07.  Continuing
Obligations of the Grantors.  Each
Grantor shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it under each contract, agreement
or instrument relating to the

 

13

 

Collateral,
all in accordance with the terms and conditions thereof, and each Grantor
jointly and severally agrees to indemnify and hold harmless the Collateral
Agent and the Secured Parties from and against any and all liability for such
performance.

 

SECTION 4.08.  Use and
Disposition of Collateral.  None of
the Grantors shall make or permit to be made an assignment, pledge or
hypothecation of the Collateral or shall grant any other Lien in respect of the
Collateral, except as expressly permitted by Section 6.03 of the Credit
Agreement.  Unless and (in accordance
with, and to the extent consistent with, the terms of the Intercreditor
Agreement) until the Collateral Agent shall notify the Grantors that
(i) an Event of Default shall have occurred and be continuing and
(ii) during the continuance thereof the Grantors shall not sell, convey,
lease, assign, transfer or otherwise dispose of any Collateral (which notice
may be given by telephone if promptly confirmed in writing), the Grantors may
use and dispose of the Collateral in any lawful manner not inconsistent with
the provisions of this Agreement, the Credit Agreement or any other Loan
Document.  Without limiting the
generality of the foregoing, each Grantor agrees that it shall not permit any
Inventory to be in the possession or control of any warehouseman, bailee, agent
or processor at any time, other than Inventory that is in transit by any means,
unless such warehouseman, bailee, agent or processor shall have been notified
of the Security Interest and each Grantor shall use its best efforts to obtain
a written agreement in form and substance reasonably satisfactory to the
Collateral Agent to hold the Inventory subject to the Security Interest and the
instructions of the Collateral Agent and to waive and release any Lien held by
it with respect to such Inventory, whether arising by operation of law or
otherwise.

 

SECTION 4.09.  Limitation
on Modification of Accounts.  None of the Grantors will, without
the Collateral Agent’s prior written consent, grant any extension of the time
of payment of any of the Accounts Receivable, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or partly, any
Person liable for the payment thereof or allow any credit or discount
whatsoever thereon, other than extensions, credits, discounts, compromises or
settlements granted or made in the ordinary course of business and consistent
with its current practices and in accordance with such prudent and standard
practices used in industries that are the same as or similar to those in which
such Grantor is engaged.

 

SECTION 4.10.  Insurance.  The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage
to the Inventory and Equipment in accordance with Section 5.07 of the
Credit Agreement.  Subject to the
Intercreditor Agreement, each Grantor irrevocably makes, constitutes and appoints
the Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor’s true and lawful agent (and
attorney-in-fact) for the purpose, during the continuance of an Event of
Default, of making, settling and adjusting claims in respect of Collateral
under policies of insurance, endorsing the name of such Grantor on any check,
draft, instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect
thereto.  Subject to the Intercreditor
Agreement, in the event that any Grantor at any time or times shall fail to
obtain or maintain any of the policies of insurance required hereby or to pay
any premium in whole or part relating thereto, the Collateral Agent may,
without

 

14

 

waiving or
releasing any obligation or liability of the Grantors hereunder or any Event of
Default, in its sole discretion, obtain and maintain such policies of insurance
and pay such premium and take any other actions with respect thereto as the
Collateral Agent deems reasonably advisable. 
Subject to the Intercreditor Agreement, all sums disbursed by the
Collateral Agent in connection with this Section 4.10, including reasonable
attorneys’ fees, court costs, expenses and other charges relating thereto,
shall be payable, upon demand, by the Grantors to the Collateral Agent and
shall be additional Obligations secured hereby.

 

SECTION 4.11.  Legend.  Each Grantor shall legend, in form and
manner reasonably satisfactory to the Collateral Agent, its Accounts Receivable
and its books, records and documents evidencing or pertaining thereto with an
appropriate reference to the fact that such Accounts Receivable have been
assigned to the Collateral Agent for the benefit of the Secured Parties and
that the Collateral Agent has a security interest therein.

 

SECTION 4.12.  Covenants
Regarding Patent, Trademark and Copyright Collateral.   (a) 
Each Grantor agrees that it will not, nor will it permit any of its
licensees to, do any act, or omit to do any act, whereby any Patent which is
material to the conduct of such Grantor’s business may become invalidated or
dedicated to the public, and agrees, to the extent practicable, that it shall
continue to mark any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its maximum rights
under applicable patent laws.

 

 (b)  Each Grantor (either itself or through its licensees or its sublicensees)
will, for each Trademark material to the conduct of such Grantor’s business,
(i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of
products and services offered under such Trademark, (iii) display such
Trademark with notice of Federal or foreign registration to the extent
necessary and sufficient to establish and preserve its maximum rights under
applicable law and (iv) not knowingly use or knowingly permit the use of
such Trademark in violation of any third party rights.

 

 (c)  Each Grantor (either itself or through licensees) will, for each
work covered by a material Copyright, continue to publish, reproduce, display,
adopt and distribute the work with appropriate copyright notice as necessary
and sufficient to establish and preserve its maximum rights under applicable
copyright laws.

 

 (d)  Each Grantor shall notify the Collateral Agent promptly if it
knows that any Patent, Trademark or Copyright material to the conduct of its
business may become abandoned, lost or dedicated to the public, or of any
adverse determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office or United States Copyright Office for U.S. Intellectual
Property, or the Canadian Intellectual Property Office for Intellectual
Property) regarding such Grantor’s ownership of any Patent, Trademark or
Copyright, its right to register the same, or to keep and maintain the same.

 

15

 

 (e)  In no event shall any Grantor, either itself or through any
agent, employee, licensee or designee, file an application for any Patent,
Trademark or Copyright (or for the registration of any Trademark or Copyright)
with the United States Patent and Trademark Office, United States Copyright
Office for U.S. Intellectual Property or the Canadian Intellectual Property
Office for Intellectual Property, unless it promptly informs the Collateral
Agent, and, in accordance with, and to the extent consistent with, the terms of
the Intercreditor Agreement, upon request of the Collateral Agent, executes and
delivers any and all agreements, instruments, documents and papers as the Collateral
Agent may request to evidence the Collateral Agent’s security interest in such
Patent, Trademark or Copyright, and, in accordance with, and to the extent
consistent with, the terms of the Intercreditor Agreement, each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes (and, prior to the occurrence of any Event
of Default or Default, such Grantor shall be notified of such filing), all acts
of such attorney being hereby ratified and confirmed; such power, being coupled
with an interest, is irrevocable.

 

 (f)  Each Grantor will take all necessary steps that are consistent
with the practice in any proceeding before the United States Patent and
Trademark Office, United States Copyright Office for U.S. Intellectual Property
or the Canadian Intellectual Property Office for Intellectual Property, to
maintain and pursue each material application relating to the Patents,
Trademarks and/or Copyrights (and to obtain the relevant grant or registration)
and to maintain each issued Patent and each registration of the Trademarks and
Copyrights that is material to the conduct of any Grantor’s business, including
timely filings of applications for renewal, affidavits of use, affidavits of incontestability
and payment of maintenance fees, and, if consistent with good business
judgment, to initiate opposition, interference and cancelation proceedings
against third parties.

 

 (g)  In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor’s business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.

 

 (h)  Upon and during the continuance of an Event of Default, each
Grantor shall use its reasonable best efforts to obtain all requisite consents
or approvals by the licensor of each Copyright License, Patent License or Trademark
License to effect the assignment of all of such Grantor’s right, title and
interest thereunder to the Collateral Agent or their designees for the benefit
of the Secured Parties in accordance with the Intercreditor Agreement.

 

SECTION 4.13.  Deposit
Accounts. Each Grantor will, within 60 days after the Effective Date, enter
into control agreements in form and substance reasonably satisfactory to the
Collateral Agent with each depository bank (other than the Collateral Agent)
with which it maintains any deposit accounts (other than, prior to the 2004
Notes

 

16

 

First Lien
Transition Date, the Notes Collateral Account (each as defined in the
Intercreditor Agreement)) and thereafter shall cause all cash held by such
Grantor (other than, prior to the 2004 Notes First Lien Transition Date, cash
held by such Grantor in a Notes Collateral Account in accordance with the terms
of the 2004 Indenture (as in effect on the date hereof) to be maintained in
such accounts.

 

SECTION 4.14.  Letter-of-Credit
Rights.  If any Grantor is at any
time a beneficiary under a letter of credit now or hereafter issued in favor of
such Grantor in an amount exceeding U.S.$1,000,000, such Grantor shall promptly
notify the Collateral Agent thereof and, at the request and option of the
Collateral Agent, such Grantor shall, pursuant to an agreement in form and
substance reasonably satisfactory to the Collateral Agent, either (i) arrange
for the issuer and any confirmer of such letter of credit to consent to an
assignment to the Collateral Agent of the proceeds of any drawing under the
letter of credit or (ii) arrange for the Collateral Agent to become the
transferee beneficiary of the letter of credit, with the Collateral Agent
agreeing, in each case, that the proceeds of any drawing under the letter of
credit are to be paid to the applicable Grantor unless an Event of Default has
occurred or is continuing.

 

ARTICLE V

 

Collections 

 

SECTION 5.01.  Cash
Management Accounts.   (a)  Each Grantor will establish and maintain,
within 60 days after the Effective Date, (i) one Cash Concentration
Account and (ii) one or more Collection Deposit Accounts, in the case of
this clause (ii), with the Collateral Agent or with any financial institution
selected by such Grantor that (A) is reasonably satisfactory to the
Collateral Agent and (B) enters into a Collection Deposit Letter Agreement
with respect to the Collection Deposit Accounts of such Grantor with such
financial institution.  Each financial
institution with which a Collection Deposit Account is maintained is referred
to herein as a “Collection Deposit Bank”.

 

 (b)  Each Grantor, commencing within 60 days after the Effective Date,
will deposit on each Business Day all Daily Receipts into either (i) a Collection
Deposit Account or (ii) a Cash Concentration Account.  Each Grantor shall use all reasonable
efforts to prevent any funds that are not Daily Receipts from being deposited
into, or otherwise commingled with, the funds held in the Collection Deposit
Accounts or the Cash Concentration Accounts.

 

 (c)  On each Business Day during the Cash Collection Period, all
collected funds on deposit in each Collection Deposit Account will be
transferred to the applicable Cash Concentration Account to the extent provided
in the applicable Collection Deposit Letter Agreement.

 

 (d)  On each Business Day during the Cash Collection Period, all
collected funds on deposit in the Cash Concentration Accounts will be
transferred to the Collateral Proceeds Account to be applied by the
Administrative Agent, on behalf of the

 

17

 

Borrowers, to
prepay Revolving Borrowings and Swingline Loans in the manner provided in
Section 2.10 of the Credit Agreement, until all outstanding Swingline
Loans and Revolving Borrowings have been repaid, and thereafter to be
transferred to the General Funds Account, subject to paragraph (f) below.

 

 (e)  During the Cash Collection Period, no Grantor shall have any
control over, or any right or power to withdraw any funds on deposit in, any
Collection Deposit Account or Cash Concentration Account; provided, however,
that, subject to paragraph (f) below, any Grantor may instruct any Collection
Deposit Bank to withdraw funds from its Collection Deposit Account to honor ACH
instructions of such Grantor to transfer funds to the Cash Concentration
Account.  The Parent Borrower may at any
time withdraw any funds contained in the General Funds Account for use, subject
to the provisions of the Credit Agreement, for general corporate purposes.

 

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

 

(i)  Each Collection Deposit
Account and Cash Concentration Account will, without any further action on the
part of any Grantor, the Collateral Agent or any Collection Deposit Bank,
convert into a closed account under the exclusive dominion and control of the
Collateral Agent in which funds are held subject to the rights of the
Collateral Agent hereunder.  No Grantor
shall thereafter have any right or power to withdraw any funds from any
Collection Deposit Account or Cash Concentration Account without the prior
written consent of the Collateral Agent until all Events of Default are cured
or waived.  The Grantors irrevocably
authorize the Collateral Agent to notify each Collection Deposit Bank (A) of
the occurrence of an Event of Default and (B) of the matters referred to in
this paragraph (f)(i).

 

(ii)  The Collateral Agent will
instruct each Collection Deposit Bank to immediately transfer all funds held in
each Collection Deposit Account to a Cash Concentration Account.

 

(iii)  Any funds held in the
Collection Deposit Accounts, the Cash Concentration Accounts or the Collateral
Proceeds Account may be applied as provided in Section 7.02 so long as an
Event of Default is continuing.  The
Collateral Agent will not be required to transfer any funds from the Collateral
Proceeds Account to the General Funds Account until all Events of Default are
cured or waived.

 

 (g)  All payments by any Grantor into any Collection Deposit Account
or Cash Concentration Account pursuant to this Article V, whether in the
form of cash, checks, notes, drafts, bills of exchange, money orders or
otherwise, shall be deposited in the relevant Collection Deposit Account or Cash
Concentration Account in precisely the form in which received (but with any
endorsements of such Grantor necessary for deposit or collection), and until
they are so deposited such payments shall be held in trust by such Grantor for
and as the property of the Collateral Agent.

 

18

 

SECTION 5.02.  Collections.   (a) 
Each Grantor agrees promptly to notify and direct each Account Debtor
and every other Person obligated to make payments with respect to the Accounts
Receivable or Inventory, commencing within 60 days after the Effective Date, to
make all such payments directly to a Collection Deposit Account or the
applicable Cash Concentration Account (subject to the proviso in the following
sentence).  Each Grantor shall use all
reasonable efforts to cause, commencing within 60 days after the Effective
Date, each Account Debtor and every other Person identified in the preceding
sentence to make all payments with respect to the Accounts Receivable or
Inventory either directly to a Collection Deposit Account or a Cash
Concentration Account; provided that Credit Card Payments shall be made
directly to the Cash Concentration Account.

 

 (b)  In the event that a Grantor directly receives any Daily Receipts
during the Cash Collection Period, notwithstanding the arrangements for payment
directly into the Collection Deposit Accounts pursuant to Section 5.02,
such remittances shall be held for the benefit of the Collateral Agent and the
Secured Parties and shall be segregated from other funds of such Grantor,
subject to the Security Interest granted hereby, and such Grantor shall cause
such remittances and payments to be deposited into a Collection Deposit Account
or a Cash Concentration Account, as applicable, as soon as practicable after
such Grantor’s receipt thereof.

 

 (c)  Without the prior written consent of the Collateral Agent, no
Grantor shall, under any circumstances whatsoever, change the general
instructions given to Account Debtors and other Persons obligated to make payments
with respect to the Accounts Receivable or Inventory regarding the deposit of
payments with respect to the Accounts Receivable or Inventory in a Collection
Deposit Account or a Cash Concentration Account, as applicable.  Each Grantor shall, and the Collateral Agent
hereby authorizes each Grantor to, enforce and collect all amounts owing with
respect to the Accounts Receivable or Inventory for the benefit and on behalf
of the Collateral Agent and the other Secured Parties; provided, however,
that such privilege may at the option of the Collateral Agent be terminated
upon the occurrence and during the continuance of an Event of Default.

 

ARTICLE VI

 

Power of
Attorney

 

SECTION 6.01.      Each
Grantor irrevocably makes, constitutes and appoints the Collateral Agent (and
all officers, employees or agents designated by the Collateral Agent) as such
Grantor’s true and lawful agent and attorney-in-fact, and in such capacity the
Collateral Agent shall have the right, with power of substitution for each
Grantor and in each Grantor’s name or otherwise, for the use and benefit of the
Collateral Agent and the Secured Parties, upon the occurrence and during the
continuance of an Event of Default (a) to receive, endorse, assign and/or
deliver any and all notes, acceptances, checks, drafts, money orders or other
evidences of payment relating to the Collateral or any part thereof;
(b) to demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral; (c) to sign the
name of

 

19

 

any Grantor on
any invoice or bill of lading relating to any of the Collateral; (d) to
send verifications of Accounts Receivable to any Account Debtor; (e) to
commence and prosecute any and all suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect or otherwise realize
on all or any of the Collateral or to enforce any rights in respect of any
Collateral; (f) to settle, compromise, compound, adjust or defend any
actions, suits or proceedings relating to all or any of the Collateral;
(g) to notify, or to require any Grantor to notify, Account Debtors to
make payment directly to the Collateral Agent; and (h) to use, sell,
assign, transfer, pledge, make any agreement with respect to or otherwise deal
with all or any of the Collateral, and to do all other acts and things
necessary to carry out the purposes of this Agreement, as fully and completely
as though the Collateral Agent were the absolute owner of the Collateral for
all purposes; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Collateral Agent or any
Secured Party to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become
due in respect thereof or any property covered thereby, and no action taken or
omitted to be taken by the Collateral Agent or any Secured Party with respect
to the Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of any Grantor or (unless such action is the
result of gross negligence or willful misconduct) to any claim or action
against the Collateral Agent or any Secured Party.  It is understood and agreed that the appointment of the
Collateral Agent as the agent and attorney-in-fact of the Grantors for the
purposes set forth above is coupled with an interest and is irrevocable.  The provisions of this Section shall in
no event relieve any Grantor of any of its obligations hereunder or under any
other Loan Document with respect to the Collateral or any part thereof or
impose any obligation on the Collateral Agent or any Secured Party to proceed
in any particular manner with respect to the Collateral or any part thereof, or
in any way limit the exercise by the Collateral Agent or any Secured Party of
any other or further right which it may have on the date of this Agreement or
hereafter, whether hereunder, under any other Loan Document, by law or
otherwise.

 

Notwithstanding anything in this Article VI to the contrary, the
Collateral Agent agrees that it will not exercise any rights under the power of
attorney provided for in this Article VI unless it does so in accordance
with, and to the extent consistent with, the Intercreditor Agreement.

 

ARTICLE VII

 

Remedies

 

SECTION 7.01.  Remedies
upon Default.  In accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement,
upon the occurrence and during the continuance of an Event of Default, each
Grantor agrees to deliver each item of Collateral to the Collateral Agent on
demand, and it is agreed that the Collateral Agent shall have the right to take
any of or all the following actions at the same or different times:  (a) with respect to any Collateral
consisting of Intellectual Property, on demand,

 

20

 

to cause the
Security Interest to become an assignment, transfer and conveyance of any of or
all such Collateral by the applicable Grantors to the Collateral Agent, or to
license or sublicense, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any such Collateral throughout the world on
such terms and conditions and in such manner as the Collateral Agent shall
determine (other than in violation of any then-existing licensing or
contractual arrangements to the extent that waivers cannot be obtained), and
(b) with or without legal process and with or without prior notice or
demand for performance, to take possession of the Collateral and without
liability for trespass to enter any premises where the Collateral may be
located for the purpose of taking possession of or removing the Collateral and,
generally, to exercise any and all rights afforded to a secured party under the
PPSA and any other applicable statute, or otherwise available to the Collateral
Agent at law or in equity.  Without
limiting the generality of the foregoing, in accordance with, and to the extent
consistent with, the terms of the Intercreditor Agreement, each Grantor agrees
that the Collateral Agent shall have the right, subject to the mandatory
requirements of applicable law, to sell or otherwise dispose of all or any part
of the Collateral, 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. 
The Collateral Agent shall be authorized at any such sale (if it deems
it advisable to do so) to restrict the prospective bidders or purchasers to
persons who will represent and agree that they are purchasing the Collateral
for their own account for investment and not with a view to the distribution or
sale thereof, and upon consummation of any such sale the Collateral Agent shall
have the right to assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold.  Each
such purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right on the part of any Grantor, and each Grantor hereby
waives (to the extent permitted by law) all rights of redemption, stay and
appraisal which such Grantor 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 the Grantors such prior written notice
of the Collateral Agent’s intention to make any sale of Collateral as may be
required by the PPSA or other applicable law. 
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 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 (if any) of such sale. 
At any such sale, the 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 Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such 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 Collateral is made on credit or for
future delivery, the Collateral so sold may be retained by the Collateral

 

21

 

Agent until the sale price is paid 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 Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. 
At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part
thereof offered for sale and may make payment on account thereof by using any
claim then due and payable to such Secured Party from any Grantor 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 Grantor therefor. 
For purposes hereof, a written agreement to purchase the Collateral or
any portion thereof shall be treated as a sale thereof; the Collateral Agent
shall be free to carry out such sale pursuant to such agreement and no Grantor
shall be entitled to the return of the 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, in accordance with, and to the extent consistent with, the terms of the
Intercreditor Agreement, the Collateral Agent may (i) proceed by a suit or
suits at law or in equity to foreclose this Agreement and to sell the
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 or (ii) appoint by instrument in writing one or more
Receivers of any Grantor or any or all of the Collateral with such rights,
powers and authority (including any or all of the rights, powers and authority
of the Collateral Agent under this Agreement) as may be provided for in the
instrument of appointment or any supplemental instrument, and remove and
replace any such Receiver from time to time to the extent permitted by
applicable law.  Any Receiver appointed
by the Collateral Agent will (for purposes relating to responsibility for the
Receiver’s acts or omissions) be considered to be the agent of such Grantor and
not of the Collateral Agent.

 

SECTION 7.02.  Application
of Proceeds.  In accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement,
the Collateral Agent shall apply the proceeds of any collection or sale of the
Collateral, as well as any Collateral consisting of cash, as follows:

 

FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such hereunder
or under any other Loan Document) in connection with such collection or sale or
otherwise in connection with this Agreement or any of the Obligations,
including all court costs and the fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Collateral Agent hereunder
or under any other Loan Document on behalf of any Grantor and any other costs
or expenses incurred in connection with the exercise of any right or remedy
hereunder or under any other Loan Document;

 

22

 

SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and

 

THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.

 

The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement.  Upon any sale of the
Collateral by the Collateral Agent (including pursuant to a power of sale
granted by statute or under a judicial proceeding), the receipt of the
Collateral Agent or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.

 

SECTION 7.03.  Grant of
License to Use Intellectual Property. 
In accordance with, and to the extent consistent with, the terms of the
Intercreditor Agreement, for the purpose of enabling the Collateral Agent to
exercise rights and remedies under this Article at such time as the
Collateral Agent shall be lawfully entitled to exercise such rights and
remedies, each Grantor hereby grants to the Collateral Agent an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to the
Grantors) to the extent that such license does not violate any then existing
licensing arrangements (to the extent that waivers cannot be obtained) to use,
license or sub-license any of the Collateral consisting of Intellectual
Property now owned or hereafter acquired by such Grantor, and wherever the same
may be located, and 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
software and programs used for the compilation or printout thereof and
sufficient rights of quality control in favor of Grantor to avoid the
invalidation of the Trademarks subject to the license.  The use of such license by the Collateral
Agent shall be exercised, at the option of the Collateral Agent, upon the
occurrence and during the continuation of an Event of Default; provided
that any license, sub-license or other transaction entered into by the
Collateral Agent in accordance herewith shall be binding upon the Grantors
notwithstanding any subsequent cure of an Event of Default.

 

ARTICLE VIII

 

Miscellaneous

 

SECTION 8.01.  Notices.  All communications and notices hereunder
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 10.01 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 the Parent Borrower.

 

23

 

SECTION 8.02.  Security
Interest Absolute.  All rights of
the Collateral Agent hereunder, the Security Interest and all obligations of
the Grantors hereunder shall be absolute and unconditional irrespective of
(a) any lack of validity or enforceability of the Credit Agreement, any
other Loan Document, any agreement with respect to any of the Obligations or
any other agreement or instrument relating to any of the foregoing, (b) any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Obligations, or any other amendment or waiver of or any consent
to any departure from the Credit Agreement, any other Loan Document or any
other agreement or instrument, (c) any exchange, release or non-perfection
of any Lien on other collateral, or any release or amendment or waiver of or
consent under or departure from any guarantee, securing or guaranteeing all or
any of the Obligations, or (d) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Grantor in respect of
the Obligations or this Agreement.

 

SECTION 8.03.  Survival
of Agreement.  All covenants,
agreements, representations and warranties made by any Grantor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon by
the Secured Parties and shall survive the making by the Lenders of the Loans,
and the execution and delivery to the Lenders of any notes evidencing such
Loans, regardless of any investigation made by the Lenders or on their behalf,
and shall continue in full force and effect until this Agreement shall
terminate.

 

SECTION 8.04.  Binding
Effect; Several Agreement.  This
Agreement shall become effective as to any Grantor when a counterpart hereof
executed on behalf of such Grantor 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 Grantor and the Collateral
Agent and their respective successors and assigns, and shall inure to the
benefit of such Grantor, the Collateral Agent and the other Secured Parties and
their respective successors and assigns, except that no Grantor shall have the
right to assign or transfer its rights or obligations hereunder or any interest
herein or in the Collateral (and any such assignment or transfer shall be void)
except as expressly contemplated by this Agreement or the Credit
Agreement.  This Agreement shall be
construed as a separate agreement with respect to each Grantor and may be
amended, modified, supplemented, waived or released with respect to any Grantor
without the approval of any other Grantor and without affecting the obligations
of any other Grantor hereunder.

 

SECTION 8.05.  Successors
and Assigns.  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 Grantor or the Collateral Agent
that are contained in this Agreement shall bind and inure to the benefit of
their respective successors and assigns.

 

SECTION 8.06.  Collateral
Agent’s Expenses; Indemnification. 
In accordance with, and to the extent consistent with, the terms of the
Intercreditor Agreement,  (a)  each Grantor jointly and severally agrees to
pay upon demand to the

 

24

 

Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or
the sale of, collection from or other realization upon any of the Collateral,
(iii) the exercise, enforcement or protection of any of the rights of the
Collateral Agent hereunder or (iv) the failure of any Grantor to perform
or observe any of the provisions hereof.

 

 (b)  Without limitation of its indemnification obligations under the
other Loan Documents, each Grantor jointly and severally agrees to indemnify
the Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of
counsel, incurred by or asserted against any of them arising out of, in any way
connected with, or as a result of, the execution, delivery or performance of
this Agreement or any claim, litigation, investigation or proceeding relating
hereto or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses have
resulted from the gross negligence or willful misconduct of such Indemnitee.

 

 (c)  Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security Documents.  The provisions of this Section 8.06
shall remain operative and in full force and effect regardless of the
termination of this Agreement or any other Loan Document, the consummation of
the transactions contemplated hereby, the repayment of any of the Loans, the
invalidity or unenforceability of any term or provision of this Agreement or
any other Loan Document, or any investigation made by or on behalf of the
Collateral Agent or any Lender.  All
amounts due under this Section 8.06 shall be payable on written demand
therefor.

 

SECTION 8.07.  GOVERNING LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA
APPLICABLE THEREIN.

 

SECTION 8.08.  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 Collateral Agent, the Issuing
Bank, the Administrative Agent, the other Agents and the Lenders 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 Grantor 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

 

25

 

which
given.  No notice to or demand on any
Grantor in any case shall entitle such Grantor or any other Grantor 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 (i) pursuant to an agreement or agreements in
writing entered into by the Collateral Agent and the Grantor or Grantors with
respect to which such waiver, amendment or modification is to apply, subject to
(A) any consent required in accordance with Section 10.02 of the Credit
Agreement and (B) to the limitations in the Intercreditor Agreement or
(ii) as provided in the Intercreditor Agreement.

 

SECTION 8.09.  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 8.09.

 

SECTION 8.10.  Severability.  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 8.11.  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 but one contract (subject to
Section 8.04), and shall become effective as provided in
Section 8.04.  Delivery of an
executed signature page to this Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.

 

SECTION 8.12.  Headings.  Article and 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.

 

26

 

SECTION 8.13.  Jurisdiction;
Consent to Service of Process.  
(a)  Each Grantor hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any Ontario court or federal court of Canada
sitting in such province, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, 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 Ontario 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 Collateral Agent, the Administrative
Agent, the Issuing Bank or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against any
Grantor or its properties in the courts of any jurisdiction.

 

 (b)  Each Grantor 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 in any Ontario court or federal
court of Canada sitting in such province. 
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 8.01.  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 8.14.  Termination.   (a) 
This Agreement and the Security Interest shall terminate when all the
Obligations have been indefeasibly paid in full, the Lenders have no further
commitment to lend, the LC Exposure has been reduced to zero and the Issuing
Bank has no further commitment to issue Letters of Credit under the Credit
Agreement.

 

 (b)  A Guarantor shall automatically be released from its obligations
hereunder and the Security Interest in the Collateral of such Guarantor shall
be automatically released in the event that all the capital stock of such
Guarantor shall be sold, transferred or otherwise disposed of to a Person that
is not an Affiliate of the Parent Borrower in accordance with the terms of the
Credit Agreement; provided that the Required Lenders shall have
consented to such sale, transfer or other disposition (to the extent required
by the Credit Agreement) and the terms of such consent did not provide
otherwise.

 

 (c)  Upon any sale or other transfer by any Grantor of any Collateral
that is permitted under the Credit Agreement, provided that the Required
Lenders shall have consented to such transaction (to the extent required by the
Credit Agreement) and the terms of such consent did not provide otherwise, or
upon the effectiveness of any written

 

27

 

consent to the
release of the security interest granted hereby in any Collateral pursuant to
Section 10.02 of the Credit Agreement, the security interest in such
Collateral shall be automatically released.

 

 (d)  If any of the 2004 Notes First Lien Collateral (as defined in the
Intercreditor Agreement) shall become subject to the release provisions set
forth in Section 5.1(c) of the Intercreditor Agreement, such Collateral
shall be automatically released from the Security Interest to the extent
provided in Section 5.1(c) of the Intercreditor Agreement.

 

 (e)  In connection with any termination or release pursuant to
paragraph (a), (b), (c) or (d) above, the Collateral Agent shall execute and
deliver to the Grantors, at the Grantors’ expense, all Personal Property Security Act
financing change statements and similar documents which the Grantor shall
reasonably request to evidence such termination or release.  Any execution and delivery of termination
statements or release documents pursuant to this Section 8.14 shall be
without recourse to or warranty by the Collateral Agent.

 

SECTION 8.15.  Additional
Grantors.  Upon execution and
delivery by the Collateral Agent and a Subsidiary organized under the laws of
Canada or any province thereof of an instrument in the form of Annex 2, such
Subsidiary shall become a Grantor hereunder with the same force and effect as
if originally named as a Grantor herein. 
The execution and delivery of any such instrument shall not require the
consent of any Grantor hereunder.  The
rights and obligations of each Grantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Grantor as a party to this
Agreement.

 

SECTION 8.16.  Subject
to Intercreditor Agreement. 
Notwithstanding anything herein to the contrary, the Lien and security
interest granted to the Collateral Agent pursuant to this Agreement and the
exercise of any right or remedy by the Collateral Agent hereunder are subject
to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the
Intercreditor Agreement and this Agreement, the terms of the Intercreditor
Agreement shall govern.

 

SECTION 8.17.  2004
Indenture.  The Collateral Agent
acknowledges and agrees, on behalf of itself and the Secured Parties, that, any
provision of this Agreement to the contrary notwithstanding, until the 2004
Notes First Lien Transition Date (as defined in the Intercreditor Agreement),
the Grantors shall not be required to act or refrain from acting with respect
to any 2004 Notes First Lien Collateral on which the 2004 Trustee (as defined
in the Intercreditor Agreement) has a Lien superior in priority to the
Collateral Agent’s Lien thereon in any manner that would result in a default
under the terms and provisions of the 2004 Indenture (as defined in the
Intercreditor Agreement).

 

28

 

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

 

	
   

  	
  UNIPLAST INDUSTRIES CO.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEUTSCHE BANK TRUST COMPANY

  AMERICAS, as Collateral Agent,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

29

 

Schedule I to the

Canadian Security Agreement

 

 

GRANTORS

 

 

	
  Grantor

  	
   

  	
  Address for Notice

  	
   

  	
  Fascimile

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nil

  	
   

  	
   

  	
   

  	
   

  

 

 

Schedule II to the

Canadian Security Agreement

 

 

COPYRIGHTS

 

 

Schedule III to the

Canadian Security Agreement

 

 

LICENSES

 

 

Schedule IV to the

Canadian Security Agreement

 

 

PATENTS

 

 

Schedule V to the

Canadian Security Agreement

 

 

TRADEMARKS

 

 

Annex I

To the Canadian Security Agreement

 

 

[Form Of] PERFECTION
CERTIFICATE

 

 

Reference is made to the Canadian Security
Agreement dated as of February 17, 2004 (as amended, supplemented or
otherwise modified from time to time, the “Canadian Security Agreement”), among
Uniplast Industries Co. (the “Canadian Subsidiary Borrower”), the other
grantors party thereto and Wilmington Trust Company, as collateral agent (the
“Notes Collateral Agent”) for the Secured Parties (as defined in the Canadian
Security Agreement).  Reference is also
made to the Credit Agreement dated as of February 17, 2004 (as amended,
supplemented or otherwise modified from time to time, the “Credit Agreement”),
among Pliant Corporation (the “Parent Borrower”), the Canadian Subsidiary
Borrower, the subsidiaries of the Parent Borrower party thereto as domestic
subsidiary borrowers, the lenders from time to time party thereto (the
“Lenders”), Credit Suisse First Boston, acting through its Cayman Islands
Branch, as administrative and documentation agent for the Lenders, Deutsche
Bank Trust Company Americas, as collateral agent (the “Collateral Agent”),
General Electric Capital Corporation, as co-collateral agent, and JPMorgan
Chase Bank, as syndication agent. 
Capitalized terms used but not defined herein have the meanings assigned
in the Credit Agreement or the Canadian Security Agreement referred to therein,
as applicable.

 

The undersigned, a Financial Officer of the Parent Borrower, hereby
certifies to (i) the Collateral Agent and each other Secured Party and (ii) the
Notes Collateral Agent and each other Secured Party (as defined in the Canadian
Security Agreement) as follows:

 

SECTION 1. Names. 
(a)  Set forth below is (i) the
exact legal name of each Grantor, as such name appears in its document of
formation, (ii) each other legal name each Grantor has had in the past five
years and (iii) the date of the relevant change:

 

	
  Legal Name

  	
   

  	
  Former Name

  	
   

  	
  Date of Change

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(b)  Except as set forth in
Schedule 1 hereto, no Grantor has changed its identity or corporate
structure in any way within the past five years. Changes in identity or
corporate structure would include mergers, consolidations and acquisitions, as
well as any change in the form, nature or jurisdiction of corporate
organization.  If any such change has
occurred, include in Schedule 1 the information required by Sections 1 and
2 of this certificate as to each acquiree or constituent party to a merger or
consolidation.

 

(c)  Set forth below is a list
of all other names (including trade names or similar appellations) used by each
Grantor or any of its divisions or other business units in connection with the
conduct of its business or the ownership of its properties at any time during
the past five years:

 

	
  Legal Name

  	
   

  	
  Other Name

  
	
   

  	
   

  	
   

  

 

 

(d)  Set forth below is the
organizational identification number, if any, issued by the jurisdiction of
formation of each Grantor that is a registered organization:

 

	
  Legal Name

  	
   

  	
  Organizational No.

  
	
   

  	
   

  	
   

  

 

SECTION 2. Locations.  (a)  Set forth below
opposite the name of each Grantor that is a registered organization is the
jurisdiction of formation of such Grantor:

 

	
  Legal Name

  	
   

  	
  Organizational No.

  
	
   

  	
   

  	
   

  

 

(b)  Set forth below opposite
the name of each Grantor is the address and county or region of the chief
executive office of such Grantor:

 

	
  Legal Name

  	
   

  	
  Address of Chief Executive Office

  	
   

  	
  Region

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(c)  Set forth below opposite
the name of each Grantor is the address and county or region of all locations
where such Grantor maintains any books or records relating to any Accounts
Receivable and/or General Intangibles (with each location at which chattel
paper, if any, is kept being indicated by an “*”):

 

	
  Legal Name

  	
   

  	
  Address of Accounts Receivable

  and/or General Intangibles

  	
   

  	
  Region

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(d)  Set forth below opposite
the name of each Grantor is the address and county of all locations where such
Grantor maintains any Inventory, Equipment and/or other Collateral not
identified above:

 

	
  Legal Name

  	
   

  	
  Address of Inventory,

  Equipment and/or Other Collateral

  	
   

  	
  Postal Code

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

2

 

(e)  Set forth below opposite
the name of each Grantor is the address and county of all the places of
business of such Grantor not identified in paragraph (a), (b), (c) or (d)
above:

 

	
  Legal Name

  	
   

  	
  Other Business Addresses

  	
   

  	
  Postal Code

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(f)  Set forth below opposite
the name of each Grantor are the names, addresses and counties of all Persons
other than such Grantor that have possession of any of the Collateral of such
Grantor (with each such Person that holds such Collateral subject to a Lien
(including, but not limited to, warehousemen’s, mechanics’ and other statutory
liens) indicated by an “*”):

 

	
  Legal Name

  	
   

  	
  Other Collateral Addresses

  	
   

  	
  Postal Code

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

SECTION 3. Unusual Transactions.  All Accounts have been originated by the
Grantors and all Inventory has been acquired by the Grantors in the ordinary
course of business.

 

SECTION 4. File Search Reports. Search reports have
been obtained from each provincial personal property security registry
identified with respect to such Grantor in Section 2 hereof, and such
search reports reflect no liens against any of the Collateral other than those
permitted under the Credit Agreement.

 

SECTION 5.  PPSA Filings.  PPSA financing statements have been filed in
the relevant provincial personal property security registry and, in the case of
fixture filings, the applicable land registration office, in each jurisdiction
identified with respect to such Grantor in Section 2 and Section 10,
as applicable, hereof.

 

SECTION 6.  Schedule of
Filings.  Attached hereto as
Schedule 6 is a true and correct list, with respect to the filings
described in Section 5 above, of each filing and the provincial personal
property security registry or, in the case of fixture filings, the applicable
land registration office, in which such filing was made.

 

SECTION 7.  Stock
Ownership and Other Equity Interests.  Attached hereto as Schedule 7 is a true and correct list of
all the Equity Interests of each Grantor and the record and beneficial owners
of such Equity Interests.  Also set
forth on Schedule 7 is each equity investment of each Grantor that
represents 50% or less of the equity of the entity in which such investment was
made.

 

SECTION 8.  Debt
Instruments.  Attached hereto
as Schedule 8 is a true and correct list of all instruments, including any
promissory notes, and other evidence of indebtedness held by each Grantor that
are required to be pledged under the Canadian Security Agreement, including all
intercompany notes between the Parent Borrower and any Grantor or between any
Grantor and any other Grantor.

 

SECTION 9.  Advances.  Attached hereto as Schedule 9 is (a) a
true and correct list of all advances made by the Canadian Subsidiary Borrower
to any Subsidiary

 

3

 

of the Parent Borrower (other than those
identified on Schedule 8), which advances will be on and after the date
hereof evidenced by one or more intercompany notes pledged to the Collateral
Agent under the Canadian Security Agreement and (b) a true and correct list of
all unpaid intercompany transfers of goods sold and delivered by or to the
Canadian Subsidiary Borrower or any Subsidiary of the Parent Borrower.

 

SECTION 10.  Mortgage
Filings.  Attached hereto as
Schedule 10 is a true and correct list, with respect to each Mortgaged
Property, of (a) the exact name of the Person that owns such property as such
name appears in its certificate of incorporation or other organizational
document, (b) if different from the name identified pursuant to clause (a), the
exact name of the current record owner of such property reflected in the
records of the land registration office for such property identified pursuant
to the following clause and (c) the land registration office in which a
Mortgage with respect to such property must be filed or recorded in order for
the Collateral Agent to obtain a properly recorded mortgage therein.

 

SECTION 11.  Intellectual
Property.  Attached hereto as
Schedule 11(A) in proper form for filing with the Canadian Intellectual
Property Office and the United States Patent and Trademark Office, as
applicable, is a true and correct list of each Grantor’s Patents, Patent
Licenses, Trademarks and Trademark Licenses, including the name of the
registered owner, registration number and expiration date of each Patent,
Patent License, Trademark and Trademark License owned by any Grantor.  Attached hereto as Schedule 11(B) in
proper form for filing with the Canadian Intellectual Property Office and the
United States Copyright Office, as applicable, is a true and correct list of
each Grantor’s Copyrights and Copyright Licenses, including the name of the
registered owner, registration number and expiration date of each Copyright or
Copyright License owned by any Grantor.

 

SECTION 12.  Deposit
Accounts.  Attached hereto as
Schedule 12 is a true and correct list of deposit accounts maintained by
each Grantor, including the name and address of the depositary institution, the
type of account, and the account number.

 

IN WITNESS WHEREOF, the undersigned has duly executed this certificate
on this [    ] day of February, 2004.

 

 

	
   

  	
  PLIANT CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:  [Financial
  Officer]

  

 

4

 

Annex 2 to the

Canadian Security Agreement

 

SUPPLEMENT NO.
     dated as of
                              ,
20       to the Canadian Security Agreement dated
as of February 17, 2004, among Uniplast Industries Co., a Nova Scotia
company (the “Canadian Subsidiary Borrower”), each other subsidiary of
Pliant Corporation, a Utah corporation (the “Parent Borrower”),
organized under the laws of Canada or any province thereof listed on
Schedule I thereto (each such subsidiary individually a “Guarantor”
and collectively, the “Guarantors”; the Guarantors and the Canadian
Subsidiary Borrower are referred to collectively herein as the “Grantors”)
and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation, as
collateral agent (in such capacity, the “Collateral Agent”) for the
Secured Parties (as defined therein).

 

A.           Reference is made to (a) the Credit
Agreement dated as of February 17, 2004 (as amended, supplemented or otherwise
modified from time to time, the “Credit Agreement”), among the Parent
Borrower, the domestic subsidiary borrowers party thereto, the Canadian
Subsidiary Borrower, the lenders from time to time party thereto (the “Lenders”),
the Collateral Agent, Credit Suisse First Boston, acting through its Cayman
Islands Branch, as administrative agent (the “Administrative Agent”),
General Electric Capital Corporation, as co-collateral agent, and JPMorgan
Chase Bank, as syndication agent, and (b) the Guarantee Agreement dated as of
February 17, 2004 (as amended, supplemented or otherwise modified from
time to time, the “Guarantee Agreement”), among, inter alia, the Parent
Borrower, the Canadian Subsidiary Borrower and the Administrative Agent.

 

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

 

C.             The Grantors have entered into the
Canadian Security Agreement in order to induce the Lenders to make Loans and
the Issuing Bank to issue Letters of Credit. 
Section 8.15 of the Canadian Security Agreement provides that
additional Subsidiaries organized under the laws of Canada or any province
thereof may become Grantors under the Canadian Security Agreement by execution
and delivery of an instrument in the form of this Supplement.  The undersigned Subsidiary (the “New
Grantor”) is executing this Supplement in accordance with the requirements
of the Credit Agreement to become a Grantor under the Canadian Security
Agreement in order to induce the Lenders to make additional Loans and the
Issuing Bank to issue additional Letters of Credit and as consideration for
Loans previously made and Letters of Credit previously issued.

 

Accordingly, the Collateral Agent and the New Grantor agree as follows:

 

SECTION 1.  In accordance
with Section 8.15 of the Canadian Security Agreement, the New Grantor by
its signature below becomes a Grantor under the Canadian Security Agreement
with the same force and effect as if originally named

 

 

therein as a Grantor and the New Grantor
hereby (a) agrees to all the terms and provisions of the Canadian Security
Agreement applicable to it as a Grantor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Grantor
thereunder are true and correct on and as of the date hereof.  In furtherance of the foregoing, the New
Grantor, as security for the payment and performance in full of the Obligations
(as defined in the Canadian Security Agreement), does hereby create and grant
to the Collateral Agent, its successors and assigns, for the benefit of the
Secured Parties, their successors and assigns, a security interest in and lien
on all of the New Grantor’s right, title and interest in and to the Collateral
(as defined in the Canadian Security Agreement) of the New Grantor.  Each reference to a “Grantor” in the
Canadian Security Agreement shall be deemed to include the New Grantor. The
Canadian Security Agreement is hereby incorporated herein by reference.

 

SECTION 2.  The New Grantor
represents and warrants to the Collateral Agent and the other Secured Parties
that this Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.

 

SECTION 3.  This Supplement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract. This Supplement shall
become effective when the Collateral Agent shall have received counterparts of
this Supplement that, when taken together, bear the signatures of the New
Grantor and the Collateral Agent. 
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be effective as delivery of a manually signed counterpart of
this Supplement.

 

SECTION 4.  The New Grantor
hereby represents and warrants that (a) set forth on Schedule I
attached hereto is a true and correct schedule of the location of any and
all Collateral of the New Grantor and (b) set forth under or above its
signature hereto, is the true and correct legal name of the New Subsidiary, its
jurisdiction of formation, its organizational identification number (if any)
and the location of the chief executive office of the New Grantor.

 

SECTION 5.  Except as
expressly supplemented hereby, the Canadian Security Agreement shall remain in
full force and effect.

 

SECTION 6.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ONTARIO AND THE
FEDERAL LAWS OF CANADA APPLICABLE THEREIN.

 

SECTION 7.  In case any one
or more of the provisions contained in this Supplement should be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and in the Canadian
Security Agreement shall not in any way be affected or impaired thereby (it
being understood that the invalidity of a particular provision in a particular
jurisdiction

 

2

 

shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto 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 8.  All
communications and notices hereunder shall be in writing and given as provided
in Section 10.01 of the Credit Agreement. All communications and notices
hereunder to the New Grantor shall be given to it at the address set forth
under its signature below.

 

SECTION 9.  The New Grantor
agrees to reimburse the Collateral Agent for its reasonable out-of-pocket
expenses in connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel for the Collateral Agent.

 

IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Canadian Security Agreement as of the day and
year first above written.

 

	
   

  	
  [Name Of New Grantor],

  
	
   

  	
   

  	
  By

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEUTSCHE BANK TRUST COMPANY

  AMERICAS, as Collateral Agent,

  
	
   

  	
   

  
	
   

  	
   

  	
  By

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

3

 

SCHEDULE I

to Supplement No.      to the

Canadian Security Agreement

 

 

LOCATION OF COLLATERAL

 

 

	
  Description

  	
   

  	
  Location

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