Document:

EXHIBIT 4.11

 

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

 

Reference
is made to (a) the Indenture dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the “Indenture”),
among the Issuer, Uniplast Industries Co., a Nova Scotia company (“Uniplast”),
the Guarantors and Wilmington Trust Company, as trustee (the “Trustee”),
and (b) the Purchase Agreement dated as of February 6, 2004 (the “Purchase
Agreement”), among the Issuer, Uniplast, the Guarantors and J.P. Morgan
Securities Inc., Credit Suisse First Boston LLC and Deutsche Bank Securities
Inc. (the “Initial Purchasers”). 
Pursuant to the terms, conditions and provisions of the Indenture and
the Purchase Agreement, the Issuer is issuing $306,000,000 aggregate principal
amount at maturity of 111/8% Senior Secured Discount
Notes due 2009 and may issue, from time to time, additional notes in accordance
with the provisions of the Indenture (collectively, the “Notes”), which
will be guaranteed on a senior secured basis by each of the Guarantors and
Uniplast.

 

The
Issuer, Deutsche Bank Trust Company Americas (as collateral agent under the
credit agreement dated as of the date hereof (the “Credit Agreement”),
among the Issuer, Uniplast Industries Co., the domestic subsidiary borrowers
party thereto, the lenders party thereto, Credit Suisse First Boston, acting
through its Cayman Islands Branch, as administrative agent and documentation
agent, Deutsche Bank Trust Company Americas, as collateral agent, General
Electric Capital Corporation, as co-collateral agent, and JPMorgan Chase Bank,
as syndication agent), and the Collateral Agent, in its capacity as agent with
respect to the Notes and in its capacity as agent with respect to the Issuer’s
111/8% Senior Secured Notes due 2009 (the “Existing
Senior Secured Notes”), have entered into the Amended and Restated
Intercreditor Agreement dated as of the date hereof (the “Intercreditor
Agreement”), which addresses the relative priority of the security
interests in the Collateral of (a) the Secured Parties, (b) the secured parties
under the Security Documents (as defined in the Credit Agreement) and (c) the
holders of the Existing Senior Secured Notes.

 

The
obligations of the Initial Purchasers to purchase the Notes are conditioned
upon, among other things, the execution and delivery by the Issuer and the
Guarantors of this Agreement to secure the Obligations.  The Guarantors will derive substantial
benefits from the issuance of the Notes by the Issuer pursuant to the Indenture
and are willing to execute and deliver this Agreement in order to induce the
Initial Purchasers to purchase the Notes.

 

 

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 Indenture 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.

 

“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.

 

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

 

“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
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.

 

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

 

“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.

 

“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.

 

“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.

 

“Existing
Senior Secured Notes” shall have the meaning assigned to such term in the
preliminary statement of this Agreement.

 

“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

 

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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
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.

 

“Indemnitee”
shall mean the Secured Parties and each of their Affiliates.

 

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

 

“Information”
shall have the meaning assigned to such term in Section 4.04.

 

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

 

“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.

 

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

 

“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 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.

 

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“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.

 

“Notes”
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 Issuer.

 

“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 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

 

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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.

 

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

 

“Representatives”
shall have the meaning assigned to such term in Section 4.04.

 

“Secured
Parties” shall mean, at any time, the Trustee, the Collateral Agent, the
Holders and each other holder of, or obligee in respect of, any Obligations
outstanding at such time.

 

“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.

 

“Swap
Agreement” shall mean any agreement with respect to any swap, spot,
forward, future or derivative transaction or option or similar agreement
involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial
or pricing indices or measures of economic, financial or pricing risk or value
or any similar transaction or any combination of these transactions; provided
that no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or
consultants of the Issuer or the Subsidiaries shall be a Swap Agreement.

 

6

 

“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.

 

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

 

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 Capitalized 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 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.

 

8

 

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 (as
defined in the Purchase Agreement).

 

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

 

9

 

continuation statements and
such filings, recordings and registrations as may be necessary to perfect the
Security Interest as a result of any change (i) in any Grantor’s corporate name
or in any trade name used to identify it in the conduct of its business or in
the ownership of its properties, (ii) in the location of any Grantor’s chief
executive office, its principal place of business, any office in which it
maintains books or records relating to Collateral owned by it or any office or
facility at which Collateral owned by it having an aggregate fair value in
excess of $100,000 is located (including the establishment of any such new
office or facility), (iii) in any Grantor’s identity or corporate structure,
(iv) in any Grantor’s Federal Taxpayer Identification Number or other
organizational identification number (or, with respect to each Foreign
Subsidiary, any comparable identification numbers issued by any governmental
authority) or (v) in any Grantor’s jurisdiction of incorporation or
organization.

 

(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.

 

10

 

§ 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 the Indenture.

 

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 the
Indenture.  No Grantor has filed or
consented to the filing of (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 the Indenture.

 

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 the Indenture.

 

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

 

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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 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.  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
agrees to maintain the confidentiality of the Information (as defined below)
obtained by it from such inspection or verification, except that such
Information may be disclosed (a) to its and its Affiliates’ investment
advisors, directors, officers, employees and agents, including accountants, legal
counsel and other advisors (the “Representatives”), (b) to the extent
requested or demanded by any governmental authority or any self-regulatory
organization (including the National Association of Insurance Commissioners or
other similar organization), (c) to the extent required by applicable laws or
regulations or by any subpoena, order or similar legal process; provided,
to the extent reasonably practicable and not prohibited by applicable laws or
regulations or by any judicial or administrative order, such Person will
provide the Issuer with prior notice of such disclosure, (d)  to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or any other Indenture Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of, or any prospective assignee of, any of its rights or obligations under
this Agreement, (g) with the consent of the Issuer or (h) to the extent such
Information (x) becomes publicly available other than as a result of a breach
of this Section or

 

12

 

(y) becomes available to the
Collateral Agent on a nonconfidential basis from a source other than the
Issuer, any Subsidiary of the Issuer or any of their Representatives that is
not known to such Person to be subject to any obligation of confidentiality to
the Issuer or any Subsidiary of the Issuer. 
For the purposes of this Section, “Information” means all information
received from the Issuer, any Subsidiary of the Issuer or any of their
Representatives relating to the Issuer, the Subsidiaries of the Issuer or their
businesses, other than any such information that is available to the Collateral
Agent on a nonconfidential basis prior to disclosure by the Issuer or any
Subsidiary of the Issuer. 
Notwithstanding the foregoing, the Collateral Agent shall have the
absolute right to share any information it gains from such inspection or
verification with any Secured Party that agrees to be bound by an agreement
containing provisions substantially the same as those of this Section.

 

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 the Indenture, and may pay for the
maintenance and preservation of the Collateral to the extent any Grantor fails
to do so as required by the Indenture 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 Indenture 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 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
the Indenture.  Unless and (in
accordance with, and to the extent consistent with, the

 

13

 

terms of the Intercreditor
Agreement) until the Collateral Agent shall notify the Grantors (which notice
may be given by telephone if promptly confirmed in writing) 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, the Grantors may use and
dispose of the Collateral in any lawful manner not inconsistent with the
provisions of this Agreement, the Indenture or any other Indenture 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 prior
written consent of the Credit Agent (or, if the Discharge of Senior Lender
Claims (as defined in the Intercreditor Agreement) has occurred, the Collateral
Agent, 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 with financially sound and reputable insurers and against such risks
as are customarily insured against by Persons engaged in the same or similar
business, and of such types and in such amounts as are customarily carried
under similar circumstances by such other Persons.  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 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

 

14

 

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 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

 

15

 

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.

 

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 and, prior to the Discharge of Senior Lender Claims, the
Credit Agent or the administrative agent under the Senior Credit Agreement (as
defined in the Intercreditor Agreement)) with which it maintains any deposit
accounts and thereafter shall cause all cash held by such Grantor (other than
(x) cash held by such Grantor in a Notes Collateral Account in accordance with
the terms of the Indenture (as in effect on the date hereof) and, prior to the
First Lien Transition Date (as defined in the Intercreditor Agreement),

 

16

 

any other cash held by such
Grantor in any Notes Collateral Account in accordance with the terms of the
2003 Indenture (as defined in the Intercreditor Agreement) and (y) prior to the
Discharge of the Senior Lender Claims, cash held by such Grantor in an account
maintained by or with the Credit Agent or the administrative agent under the
Senior Credit Agreement) 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 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.

 

17

 

SECTION 4.17.  Compliance with the TIA.  To the extent applicable, the Issuer will
comply with TIA § 314(b), relating to opinions of counsel regarding the
Liens and Security Interests created pursuant to this Agreement and the other
Indenture Documents.

 

ARTICLE V

 

[Intentionally
Omitted]

 

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
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

 

18

 

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 Indenture 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
Indenture 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 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,

 

19

 

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
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

 

20

 

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
Collateral Agent (in its capacity as such hereunder or under any other
Indenture 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
Indenture 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 Indenture 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) in the manner provided in the Indenture; 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

 

21

 

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 12.02 of the Indenture  All
communications and notices hereunder to any Guarantor shall be given to it in
care of the Issuer.

 

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 any Indenture 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 any Indenture 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 issuance of the Notes, regardless of any investigation
made by the Secured Parties or on their behalf, and shall continue in full
force and effect until this Agreement shall terminate.

 

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

 

22

 

herein or in the Collateral
(and any such assignment or transfer shall be void) except as expressly
contemplated by this Agreement or the Indenture.  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 Indenture 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 Indenture
Document, the consummation of the transactions contemplated hereby, the
repayment of any of the Obligations, the invalidity or unenforceability of any
term or provision of this Agreement or any other Indenture Document, or any
investigation made by or on behalf of the Collateral Agent or any Secured
Party.  All amounts due under this
Section 8.06 shall be payable on written demand therefor.

 

23

 

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 or any Secured Party under the
other Indenture 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 Indenture
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) in accordance with the
Indenture and 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 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 INDENTURE 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 INDENTURE 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

 

24

 

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 Indenture 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 or any other Secured Party may otherwise have to bring any action or
proceeding relating to this Agreement or the other Indenture 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 Indenture Documents in any New York State court or Federal court of
the United States of America sitting in New York City.  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 or Release.  This Agreement and the Security Interest created
hereby shall terminate when all the Obligations have been

 

25

 

indefeasibly paid in full
pursuant to the terms of the Indenture. 
Collateral shall be released as and to the extent provided in
Article X of the Indenture.

 

SECTION 8.15.  Additional Grantors.  Pursuant to Section 4.11 of the
Indenture, each domestic Restricted Subsidiary that is formed or acquired after
the date of the Indenture and each Foreign Subsidiary that guarantees
Indebtedness of the Issuer or any domestic Subsidiary is required to enter in
this agreement as a Guarantor. Upon execution and delivery by the Collateral
Agent and a Subsidiary 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.  Credit Agreement.  The Collateral Agent acknowledges and
agrees, on behalf of itself and the Secured Parties, that, any provision of
this Agreement to the contrary notwithstanding, the Grantors shall not be
required to act or refrain from acting with respect to any Senior Lender First
Lien Collateral (as defined in the Intercreditor Agreement) on which the Credit
Agent (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 Credit Agreement.

 

26

 

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

 

 

	
   

  	
  PLIANT
  CORPORATION,

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EACH
  OF THE GUARANTORS LISTED

  ON SCHEDULE I HERETO,

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  	
  Authorized
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WILMINGTON
  TRUST COMPANY, as

  Collateral Agent,

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  James
  McGinley

  
	
   

  	
   

  	
  Title:

  	
  Authorized
  Signer

  

 

27

 

Schedule I to the

Security Agreement

 

 

GUARANTORS

 

 

Pliant
Corporation International

 

Pliant
Film Products of Mexico, Inc.

 

Pliant
Solutions Corporation

 

Pliant
Packaging of Canada, LLC

 

Uniplast
Holdings Inc.

 

Uniplast
U.S., Inc.

 

Pierson Industries, Inc.

 

Turex, Inc.

 

Uniplast
Midwest, Inc.

 

 

Schedule II to the

Security Agreement

 

COPYRIGHTS

 

 

Schedule III to the

Security Agreement

 

LICENSES

 

 

Schedule IV to the

Security Agreement

 

PATENTS

 

 

Schedule V to the

Security Agreement

 

TRADEMARKS

 

 

COMMERCIAL TORT CLAIMS

 

 

Annex I

To the 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, Uniplast Industries Co., a Nova
Scotia corporation, the domestic subsidiary borrowers party thereto, the
lenders from time to time party thereto (the “Lenders”), Credit Suisse
First Boston, acting through its Cayman Islands Branch, as administrative agent
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
Domestic Security Agreement referred to therein, as applicable.

 

The
undersigned, a Financial Officer and a Legal Officer, respectively, of the
Parent Borrower, hereby certify 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 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
[     ] day of February, 2004.

 

	
   

  	
  PLIANT
  CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:   [Financial Officer]

  

 

6

 

Annex 2 to the

Security Agreement

 

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

 

A.  Reference is made to (a) the Indenture dated
as of February 17, 2004 (as amended, supplemented or otherwise modified
from time to time, the “Indenture”), among the Issuer, the Guarantors
and Wilmington Trust Company, as trustee (the “Trustee”), (b) the Pledge
Agreement dated as of February 17, 2004 (the “Pledge Agreement”),
among the Issuer, the subsidiary pledgors party thereto and the Collateral
Agent, and (c) the Amended and Restated Intercreditor Agreement dated as of
February 17, 2004 (the “Intercreditor Agreement”), among the
Issuer, the Collateral Agent, the collateral agent for the Existing Senior
Secured Notes and Deutsche Bank Trust Company Americas, as Credit Agent (as
defined therein).

 

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

 

C.
 The Grantors have entered into the
Security Agreement in satisfaction of a condition of the Initial Purchasers to
purchase the Notes.  Section 8.15
of the Security Agreement provides that additional Subsidiaries of the Issuer
may become Grantors under the 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 Indenture to become a
Grantor under the Security Agreement.

 

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

 

SECTION 1.  In accordance with Section 8.15 of the
Security Agreement, the New Grantor by its signature below becomes a Grantor
under the 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 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, 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
Security Agreement) of the New Grantor. 
Each reference to a “Grantor” in the Security Agreement shall be

 

 

deemed
to include the New Grantor. The 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
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 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.

 

SECTION 8.  All communications and notices hereunder
shall be in writing and given as provided in Section 12.02 of the
Indenture. All communications and notices hereunder to the New Grantor shall be
given to it in care of the Issuer.

 

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.

 

2

 

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

 

	
   

  	
  [Name
  Of New Grantor],

  
	
   

  	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  Organizational
  I.D.:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WILMINGTON
  TRUST COMPANY, as

  Collateral Agent,

  
	
   

  	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

3

 

SCHEDULE I

to Supplement No.     to the

Security Agreement

 

LOCATION OF COLLATERAL

 

 

	
  Description

  	
   

  	
  LocationEXHIBIT 4.12

 

CANADIAN SECURITY AGREEMENT dated as of
February 17, 2004, among UNIPLAST INDUSTRIES CO., a Nova Scotia company (“Uniplast”),
each other subsidiary of Pliant Corporation, a Utah corporation (the “Issuer”),
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 Uniplast are
referred to collectively herein as the “Grantors”) and WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as collateral agent (in such capacity,
the “Collateral Agent”) for the Secured Parties (as defined herein).

 

Reference is made to (a) the Indenture dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time, the “Indenture”),
among the Issuer, the note guarantors party thereto (the “Note Guarantors”)
and Wilmington Trust Company, as trustee (the “Trustee”), and (b) the
Purchase Agreement dated as of February 6, 2004 (the “Purchase
Agreement”), among the Issuer, the Note Guarantors and J.P. Morgan
Securities Inc., Credit Suisse First Boston LLC and Deutsche Bank Securities
Inc. (the “Initial Purchasers”). 
Pursuant to the terms, conditions and provisions of the Indenture and
the Purchase Agreement, the Issuer is issuing $306,000,000 aggregate principal
amount at maturity of 111/8% Senior Secured Discount
Notes due 2009 and may issue, from time to time, additional notes in accordance
with the provisions of the Indenture (collectively, the “Notes”), which
will be guaranteed on a senior secured basis by, inter alia, each of the
Grantors.

 

The Issuer, Deutsche Bank Trust Company Americas (as collateral agent
under the credit agreement dated as of the date hereof (the “Credit
Agreement”), among the Issuer, Uniplast, the domestic subsidiary borrowers
party thereto, the lenders party thereto, Credit Suisse First Boston, acting
through its Cayman Islands Branch, as administrative agent and documentation
agent, Deutsche Bank Trust Company Americas, as collateral agent, General
Electric Capital Corporation, as co-collateral agent, and JPMorgan Chase Bank,
as syndication agent), and the Collateral Agent, in its capacity as agent with
respect to the Notes and in its capacity as agent with respect to the Issuer’s
111/8% Senior Secured Notes due 2009 (the “Existing
Senior Secured Notes”), have entered into the Amended and Restated
Intercreditor Agreement dated as of the date hereof (the “Intercreditor
Agreement”), which addresses the relative priority of the security interests
in the Collateral of (a) the Secured Parties, (b) the secured parties under the
Security Documents (as defined in the Credit Agreement) and (c) the holders of
the Existing Senior Secured Notes.

 

The obligations of the Initial Purchasers to purchase the Notes are
conditioned upon, among other things, the execution and delivery by the
Grantors of this Agreement to secure the Obligations.  The Grantors will derive substantial benefits from the issuance
of the Notes by the Issuer pursuant to the Indenture and are willing to execute
and deliver this Agreement in order to induce the Initial Purchasers to
purchase the Notes.

 

 

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 Indenture.

 

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 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.

 

“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;

 

2

 

all Equipment;

 

all fixtures;

 

all General Intangibles;

 

all Instruments;

 

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.

 

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

 

“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.

 

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

 

3

 

“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.

 

“Existing Senior Secured Notes” shall have the meaning assigned
to such term in the preliminary statement of this Agreement.

 

“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 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.

 

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

 

“Indemnitee” shall mean the Secured Parties and each of their
Affiliates.

 

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

 

“Information” shall have the meaning assigned to such term in
Section 4.04.

 

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

 

“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,

 

4

 

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.

 

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

 

“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.

 

“Notes” 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 and Trademark Office or the Canadian Intellectual Property
Office, including those listed

 

5

 

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 Issuer.

 

“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.

 

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

 

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

 

“Representatives” shall have the meaning assigned to such term
in Section 4.04.

 

“Secured Parties” shall mean at any time, the Trustee, the
Collateral Agent, the Holders and each other holder of, or obligee in respect
of, any Obligations outstanding at such time.

 

“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 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,

 

6

 

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.

 

“Swap Agreement” shall mean any agreement with respect to any
swap, spot, forward, future or derivative transaction or option or similar
agreement involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial
or pricing indices or measures of economic, financial or pricing risk or value
or any similar transaction or any combination of these transactions; provided
that no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or
consultants of the Issuer or the Subsidiaries shall be a Swap 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 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.

 

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

 

7

 

“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.

 

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 Capitalized 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.

 

8

 

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 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 (as defined in the Purchase Agreement).

 

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

 

9

 

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 may be necessary to perfect the Security Interest as a result
of any change (i) in any Grantor’s corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its properties,
(ii) in the location of any Grantor’s chief executive office, its principal
place of business, any office in which it maintains books or records relating
to Collateral owned by it or any office or facility at which Collateral owned
by it having an aggregate fair value in excess of $100,000 is located
(including the establishment of any such new office or facility), (iii) in
any Grantor’s identity or corporate structure, (iv) in any Grantor’s
Federal Taxpayer Identification Number or other organizational identification
number (or, with respect to each Foreign Subsidiary, any comparable
identification numbers issued by any governmental authority) or (v) in any
Grantor’s jurisdiction of incorporation or organization.

 

(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

 

10

 

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 the Indenture.

 

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

 

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 the Indenture.

 

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

 

11

 

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 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.  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
agrees to maintain the confidentiality of the Information (as defined below)
obtained by it from such inspection or verification, except that such
Information may be disclosed (a) to its and its Affiliates’ investment
advisors, directors, officers, employees and agents, including accountants,
legal counsel and other advisors (the “Representatives”), (b) to
the extent requested or demanded by any governmental authority or any
self-regulatory organization (including the National Association of Insurance
Commissioners or other similar organization), (c) to the extent required
by applicable laws or regulations or by any subpoena, order or similar legal
process; provided, to the extent reasonably practicable and not prohibited by
applicable laws and regulations or by any judicial or administrative order,
such Person shall provide the Issuer with prior notice of such disclosure,
(d) to any other party to this Agreement, (e) in connection with the
exercise of any remedies hereunder or any suit, action or proceeding relating
to this Agreement or any other Indenture Document or the enforcement of rights
hereunder or thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of, or any
prospective assignee of, any of its rights or obligations under this Agreement,
(g) with the consent of the Issuer or (h) to the extent such
Information

 

12

 

(x) becomes
publicly available other than as a result of a breach of this Section or
(y) becomes available to the Collateral Agent on a nonconfidential basis
from a source other than the Issuer, any Subsidiary of the Issuer or any of
their Representatives that is not known to such Person to be subject to any
obligation of confidentiality to the Issuer or any Subsidiary of the
Issuer.  For the purposes of this
Section, “Information” means all information received from the Issuer, any
Subsidiary of the Issuer or any of their Representatives relating to the
Issuer, the Subsidiaries of the Issuer or their businesses, other than any such
information that is available to the Collateral Agent on a nonconfidential
basis prior to disclosure by the Issuer or any Subsidiary of the Issuer.  Notwithstanding the foregoing, the
Collateral Agent shall have the absolute right to share any information it
gains from such inspection or verification with any Secured Party that agrees
to be bound by an agreement containing provisions substantially the same as
those of this Section.

 

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 the Indenture,
and may pay for the maintenance and preservation of the Collateral to the
extent any Grantor fails to do so as required by the Indenture 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 Indenture 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 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

 

13

 

the
Indenture.  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 (which notice
may be given by telephone if promptly confirmed in writing) 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, the Grantors may use and
dispose of the Collateral in any lawful manner not inconsistent with the
provisions of this Agreement, the Indenture or any other Indenture
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 prior written consent of the Credit Agent
(or, if the Discharge of Senior Lender Claims (as defined in the Intercreditor
Agreement) has occurred), the Collateral Agent, 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 with financially sound and reputable insurers
and against such risks as are customarily insured against by Persons engaged in
the same or similar business, and of such types and in such amounts as are
customarily carried under similar circumstances by such other Persons.  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 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

 

14

 

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.

 

(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

 

15

 

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 and, prior to the Discharge of Senior
Lender Claims, the Credit Agent or the administrative agent under the Senior
Credit Agreement (as defined in the Intercreditor Agreement)) with which it
maintains any deposit accounts and thereafter shall cause all cash held by such
Grantor (other than (x) cash held by such Grantor in a Notes Collateral Account
in accordance with the terms of the Indenture (as in effect on the date hereof)

 

16

 

and, prior to
the First Lien Transition Date (as defined in the Intercreditor Agreement), any
other cash held by such Grantor in any Notes Collateral Account in accordance
with the terms of the 2003 Indenture (as defined in the Intercreditor
Agreement) and (y) prior to the Discharge of the Senior Lender Claims, cash
held by such Grantor in an account maintained by or with the Credit Agent or
the administrative agent under the Senior Credit Agreement) 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

 

[Intentionally Omitted]

 

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 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

 

17

 

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 Indenture
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 Indenture 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

 

18

 

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 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

 

19

 

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
Collateral Agent (in its capacity as such hereunder or under any other
Indenture 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
Indenture 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 Indenture 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) in the manner provided in the Indenture; 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

 

20

 

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 12.02 of the Indenture.  All communications and notices hereunder to any Guarantor shall
be given to it in care of the Issuer.

 

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 any Indenture 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 any Indenture 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

 

21

 

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 issuance of the Notes, regardless of
any investigation made by the Secured Parties or on their behalf, and shall
continue in full force and effect until this Agreement shall terminate.

 

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 Indenture.  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 Indenture 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

 

22

 

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
Indenture Document, the consummation of the transactions contemplated hereby,
the repayment of any of the Obligations, the invalidity or unenforceability of
any term or provision of this Agreement or any other Indenture Document, or any
investigation made by or on behalf of the Collateral Agent or any Secured
Party.  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 or any Secured
Party under the other Indenture 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 Indenture 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) in
accordance with the Indenture and 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
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

 

23

 

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 INDENTURE 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 INDENTURE
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 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 the other
Indenture 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 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 or any Secured Party may otherwise have to bring any

 

24

 

action or
proceeding relating to this Agreement or the other Indenture 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 Indenture Documents 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
or Release.  This Agreement and the
Security Interest created hereby shall terminate when all the Obligations have
been indefeasibly paid in full pursuant to the terms of the Indenture.  The Collateral shall be released as and to
the extent provided in Article X of the Indenture.

 

SECTION 8.15.  Additional
Grantors. Pursuant to Section 4.11 of the Indenture, each Foreign
Subsidiary organized under the laws of Canada or any province thereof (a “Canadian
Subsidiary”) that is formed or acquired after the date of the Indenture and
each Canadian Subsidiary that guarantees Indebtedness of the Issuer or any
domestic Subsidiary is required to enter in this agreement as a Guarantor.  Upon execution and delivery by the
Collateral Agent and a Canadian Subsidiary of an instrument in the form of
Annex 2, such Canadian 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.  Credit
Agreement.  The Collateral Agent
acknowledges and agrees, on behalf of itself and the Secured Parties, that, any
provision of this Agreement to the contrary notwithstanding, the Grantors shall
not be required to act or refrain from acting with respect to any Senior Lender
First Lien Collateral (as defined in the Intercreditor Agreement) on which the
Credit Agent (as defined in the Intercreditor Agreement) has a Lien superior in
priority to the Collateral Agent’s Lien thereon in any

 

25

 

manner that
would result in a default under the terms and provisions of the Credit
Agreement.

 

26

 

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:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WILMINGTON TRUST COMPANY, as

  Collateral Agent,

  
	
   

  	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

27

 

Schedule I to the

Canadian Security Agreement

 

GUARANTORS

 

 

	
  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

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

(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:

 

2

 

	
  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 (“Uniplast”),
each other subsidiary of Pliant Corporation, a Utah corporation (the “Issuer”),
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 Uniplast are
referred to collectively herein as the “Grantors”) WILMINGTON TRUST
COMPANY, a Delaware 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
Indenture dated as of February 17, 2004 (as amended, supplemented or
otherwise modified from time to time, the “Indenture”), among the
Issuer, the note guarantors party thereto and Wilmington Trust Company, as
trustee (the “Trustee”), (b) the Canadian Pledge Agreement dated as of
February 17, 2004 (the “Canadian Pledge Agreement”), among the
Issuer, the pledgors party thereto and the Collateral Agent, and (c) the
Amended and Restated Intercreditor Agreement dated as of February 17, 2004
(the “Intercreditor Agreement”), among the Issuer, the Collateral Agent,
the collateral agent for the Existing Senior Secured Notes and Deutsche Bank
Trust Company Americas, as Credit Agent (as defined therein).

 

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

 

C.  The Grantors have entered
into the Canadian Security Agreement in satisfaction of a condition of the
Initial Purchasers to purchase the Notes. 
Section 8.15 of the Canadian Security Agreement provides that
additional Canadian Subsidiaries of the Issuer may become Grantors under the
Canadian Security Agreement by execution and delivery of an instrument in the form
of this Supplement.  The undersigned
Canadian Subsidiary (the “New Grantor”) is executing this Supplement in
accordance with the requirements of the Indenture to become a Grantor under the
Canadian Security Agreement.

 

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, 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 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 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 12.02 of the Indenture. 
All communications and notices hereunder to the New Grantor shall be given
to it in care of the Issuer.

 

2

 

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:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WILMINGTON TRUST COMPANY, 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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