Document:

<PAGE>   1
                                                                   EXHIBIT 10.78

                          BORROWER SECURITY AGREEMENT

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

                              W I T N E S S E T H :

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

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

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

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

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

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

<PAGE>   2

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

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

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

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

                                       2
<PAGE>   3

credit, security agreements, leases and other contracts being hereinafter
referred to collectively as the "Related Contracts");

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

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

        (vi) (A) all copyrights, including, without limitation, all original
works of authorship fixed in any tangible medium of expression, acquired or used
by the Grantor (including, without limitation, all copyrights described in
Schedule IV hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Copyright Office or in any similar office or agency of the
United

                                       3
<PAGE>   4

States or any other country or any political subdivision thereof), and all
reversions, restorations, continuations, continuations in part and extensions or
renewals thereof (hereinafter referred to collectively as the "Copyrights"), and
(B) all licenses, contracts or other agreements, whether written or oral, naming
the Grantor as licensee or licensor and providing for the grant of any right to
use or sell any works covered by any copyright (hereinafter referred to
collectively as the "Copyright Licenses" and together with the Trademark
Licenses and the Patent Licenses, the "Licenses") (including, without
limitation, all Copyright Licenses set forth in Schedule IV hereto);

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

        (viii) the books and records of the Grantor relating to any of the
foregoing Collateral, including, without limitation, all customer contracts,
sale orders, minute books, ledgers, records, computer programs, software,
printouts and other computer materials, customer lists, credit files,
correspondence and advertising materials, in each case indicating, summarizing
or evidencing any of the Collateral;

                                       4
<PAGE>   5

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

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

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

        (b) As collateral security for all of the Term Loan Obligations, the
Grantor hereby pledges and assigns to the Collateral Agent, and grants to the
Collateral Agent for the benefit of the Lenders a continuing security interest
in, all of the Collateral, provided that, notwithstanding anything herein to the
contrary, the Collateral securing the Term Loan C Obligations shall be limited
to Inventory, Receivables and the Mortgaged Property (as defined in the
Mortgages for the real property located at 1 Mill Street, Fort Edward, New
York).

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

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

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

        (b) the due performance and observance by the Grantor of all of its
other obligations from time to time existing in respect of the Financing
Agreement, the Notes and all other Loan Documents.

                                       5
<PAGE>   6

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

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

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

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

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

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

                                       6
<PAGE>   7

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

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

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

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

                                       7
<PAGE>   8

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

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

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

                                       8
<PAGE>   9

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

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

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

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

        (e) Insurance.

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

                                       9
<PAGE>   10

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

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

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

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

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

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

                                       10
<PAGE>   11

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

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

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

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

                                       11
<PAGE>   12

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

        (g) Transfers and Other Liens.

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

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

        (h) Trademarks, Patents and Copyrights.

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

                                       12
<PAGE>   13

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

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

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

                                       13
<PAGE>   14

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

        SECTION 6. Additional Provisions Concerning the Collateral.

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

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

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

                                       14
<PAGE>   15

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

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

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

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

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

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

                                       15
<PAGE>   16

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

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

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

                                       16
<PAGE>   17

        SECTION 8. Indemnity and Expenses.

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

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

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

        SECTION 10. Miscellaneous.

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

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

                                       17
<PAGE>   18

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

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

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

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

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

                                       18
<PAGE>   19

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

                                            DECORA, INCORPORATED

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

<PAGE>   20

                        SCHEDULE I TO SECURITY AGREEMENT

                                RELATED CONTRACTS

None.

<PAGE>   21

                        SCHEDULE II TO SECURITY AGREEMENT

                                   TRADEMARKS
                                       AND
                               TRADEMARK LICENSES

See attached lists.

<PAGE>   22

                       SCHEDULE III TO SECURITY AGREEMENT

                           PATENTS AND PATENT LICENSES

See attached lists.

<PAGE>   23

                        SCHEDULE IV TO SECURITY AGREEMENT

                      COPYRIGHTS AND COPYRIGHT APPLICATIONS

See attached list.

<PAGE>   24

                        SCHEDULE V TO SECURITY AGREEMENT

I.      Locations of Equipment and Inventory

<TABLE>
<S>                                          <C>
1 Mill Street                                 33468 Liberty Parkway
Fort Edward, NY 12828                         North Ridgeville, OH 44039

125 Lena Drive                                4350 International Parkway
Aurora, OH 44202                              Hazeville, GA 30354

9000 Ninth Street                             22 Hudson Falls Road
Rancho Cucamonga, CA 91730                    S. Glen Falls, NY 12803

33 Cody Hill Blvd.                            955 Charles Street
Saratoga Springs, NY 12866                    Longwood, FL 32750

770 Spruce Street                             210 N. Main Street
Wooster, OH 44691                             Mechanicsville, NY 12198
</TABLE>

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

        Grantor's chief place of business and chief executive office is located
at 33468 Liberty Parkway, North Ridgeville, Ohio 44039. Grantor may also have
books and records located at 1 Mill Street, Fort Edward, New York.

<PAGE>   25

                        SCHEDULE VI TO SECURITY AGREEMENT

                                   TRADE NAMES

EtchArt, Inc.

<PAGE>   26

                       SCHEDULE VII TO SECURITY AGREEMENT

                           UCC-1 FINANCING STATEMENTS

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

                                 California

                                 Florida

                                                                Fulton County, GA

                                 Ohio                           Lorain County, OH
                                                                Portage County, OH
                                                                Wayne County, OH

DECORA MANUFACTURING, A          New York                       Saratoga County, NY
TRADENAME OF DECORA,                                            Washington County, NY
INCORPORATED

CON-TACT, A TRADENAME OF         New York                       Saratoga County, NY
DECORA, INCORPORATED                                            Washington County, NY

ETCHART, INC., A TRADENAME OF    New York                       Saratoga County, NY
DECORA, INCORPORATED                                            Washington County, NY

                                 Florida
</TABLE>

<PAGE>   27

                                                                       EXHIBIT A

                       COLLATERAL ASSIGNMENT FOR SECURITY

                                  (TRADEMARKS)

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

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

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

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

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

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

                                            DECORA, INCORPORATED

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

<PAGE>   28

STATE OF NEW YORK
                             ss.:
COUNTY OF NEW YORK

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

                                                ____________________________

<PAGE>   29

                SCHEDULE 1A TO COLLATERAL ASSIGNMENT FOR SECURITY

                     (TRADEMARKS AND TRADEMARK APPLICATIONS)

<PAGE>   30

                                                                       EXHIBIT B

                       COLLATERAL ASSIGNMENT FOR SECURITY

                                    (PATENTS)

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

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

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

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

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

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

                                            DECORA, INCORPORATED

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

<PAGE>   31

STATE OF NEW YORK
                      ss.:
COUNTY OF NEW YORK

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

                                            _____________________________

<PAGE>   32

                SCHEDULE 1A TO COLLATERAL ASSIGNMENT FOR SECURITY

                        (PATENTS AND PATENT APPLICATIONS)

<PAGE>   33

                                                                       EXHIBIT C

                       COLLATERAL ASSIGNMENT FOR SECURITY

                                  (COPYRIGHTS)

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

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

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

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

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

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

                                            DECORA, INCORPORATED

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

<PAGE>   34

STATE OF NEW YORK
                        ss.:
COUNTY OF NEW YORK

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

                                       _____________________________

<PAGE>   35

                SCHEDULE 1A TO COLLATERAL ASSIGNMENT FOR SECURITY

                     (COPYRIGHTS AND COPYRIGHT APPLICATIONS)<PAGE>   1
                                                                 EXHIBIT 10.79

                           BORROWER PLEDGE AGREEMENT

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

                              W I T N E S S E T H:

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

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

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

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

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

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

               SECTION 2. Pledge and Grant of Security Interest. (a) As
collateral security for all of the Other Obligations, the Pledgor hereby pledges
and assigns to the Collateral Agent, and

<PAGE>   2

grants to the Collateral Agent for the benefit of the Lenders a continuing
security interest in, the following (the "Pledged Collateral"):

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

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

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

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

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

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

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

                                       2

<PAGE>   3

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

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

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

               (b) the due performance and observance by the Pledgor of all of
its other obligations from time to time existing in respect of the Financing
Agreement, the Notes and all other Loan Documents.

               SECTION 4. Delivery of the Pledged Collateral.

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

               (b) If the Pledgor shall receive, by virtue of its being or
having been an owner of any Pledged Collateral, any (i) stock certificate
(including, without limitation, any certificate

                                       3
<PAGE>   4

representing a stock dividend or distribution in connection with any increase or
reduction of capital, reclassification, merger, consolidation, sale of assets,
combination of shares, stock split, spin-off or split-off), promissory note or
other instrument, (ii) option or right, whether as an addition to, substitution
for, or in exchange for, any Pledged Collateral, or otherwise, (iii) dividends
payable in cash (except such dividends permitted to be retained by the Pledgor
pursuant to Section 7 hereof) or in securities or other property or (iv)
dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, the Pledgor shall receive such stock certificate,
promissory note, instrument, option, right, payment or distribution in trust for
the benefit of the Collateral Agent, shall segregate it from the Pledgor's other
property and shall deliver it forthwith to the Collateral Agent in the exact
form received, with any necessary indorsement and/or appropriate stock powers
duly executed in blank, to be held by the Collateral Agent as Pledged Collateral
and as further collateral security for the Obligations.

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

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

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

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

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

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

                                       4

<PAGE>   5

hereunder, except as may be required in connection with any sale of any Pledged
Collateral by laws affecting the offering and sale of securities generally.

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

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

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

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

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

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

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

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

                                       5
<PAGE>   6

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

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

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

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

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

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

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

                                       6

<PAGE>   7

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

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

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

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

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

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

                                       7
<PAGE>   8

               SECTION 8. Additional Provisions Concerning the Pledged
Collateral.

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

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

               (c) If the Pledgor fails to perform any agreement or obligation
contained herein, the Collateral Agent itself may perform, or cause performance
of, such agreement or obligation, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by the Pledgor pursuant to
Section 10 hereof.

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

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

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

               (a) The Collateral Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the Code then in effect in the State of

                                       8

<PAGE>   9

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

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

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

                                       9

<PAGE>   10

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

               SECTION 10. Indemnity and Expenses.

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

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

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

               SECTION 12. Consent to Jurisdiction, Etc.

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

                                       10

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

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

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

               SECTION 14. Miscellaneous.

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

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

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

               (d) This Agreement shall create a continuing security interest in
the Pledged Collateral and shall (i) remain in full force and effect until the
payment in full or release of the Obligations after the Total Commitment has
been terminated and all Letters of Credit have been canceled or cash
collateralized and (ii) be binding on the Pledgor and by its acceptance hereof,
the Collateral Agent, and their respective successors and assigns and shall
inure, together with all rights and remedies of the Agents and the Lenders
hereunder, to the benefit of the Pledgor, the

                                       11

<PAGE>   12

Agents and the Lenders and their respective successors, transferees and assigns.
Without limiting the generality of clause (ii) of the immediately preceding
sentence, the Collateral Agent may assign or otherwise transfer its rights and
obligations under this Agreement to any other Person pursuant to the terms of
the Financing Agreement, and such other Person shall thereupon become vested
with all of the benefits in respect thereof granted to the Collateral Agent
herein or otherwise. Upon any such assignment or transfer, all references in
this Agreement to the Collateral Agent shall mean the assignee of the Collateral
Agent. None of the rights or obligations of the Pledgor hereunder may be
assigned or otherwise transferred without the prior written consent of the
Collateral Agent.

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

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

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       12

<PAGE>   13

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

                                            DECORA, INCORPORATED

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

ACCEPTED AND AGREED:

ABLECO FINANCE LLC,
as Collateral Agent

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

<PAGE>   14

                   SCHEDULE I TO PLEDGE AND SECURITY AGREEMENT

                                  Pledged Debt

<TABLE>
<CAPTION>
                                                                          Original
         Name of Maker                     Description                Principal Amount
         ------------                      -----------                ----------------
<S>                                        <C>                        <C>
    Decora Industries, Inc.           Promissory note, dated            $15,207,000
                                       September 30, 1997.

</TABLE>

<PAGE>   15

                  SCHEDULE II TO PLEDGE AND SECURITY AGREEMENT

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

        None.

</TABLE>

<PAGE>   16

                                  SCHEDULE III

                                       TO

                          PLEDGE AND SECURITY AGREEMENT

                                PLEDGE AMENDMENT

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

                                  Pledged Debt

<TABLE>
<CAPTION>

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

</TABLE>

                                 Pledged Shares

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

                                                   DECORA, INCORPORATED

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00012-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00012-of-00352.parquet"}]]