Document:

Exhibit 10.1

 

EXECUTION VERSION

 

NOTE SECURITY AGREEMENT

 

among

 

CELLU TISSUE HOLDINGS, INC.

 

and certain of its Subsidiaries,

 

and

 

THE BANK OF NEW YORK MELLON TRUST COMPANY,
N.A.,

 

as Collateral Agent

 

Dated as of June 3, 2009

 

 

TABLE OF
CONTENTS

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  SECTION 1.   DEFINED TERMS

  	
  1

  
	
  1.1   Definitions

  	
  1

  
	
  1.2   Other Definitional Provisions

  	
  8

  
	
   

  	
   

  
	
  SECTION 2.   APPOINTMENT OF
  COLLATERAL AGENT

  	
  9

  
	
   

  	
   

  
	
  SECTION 3.   GRANT OF SECURITY
  INTEREST

  	
  9

  
	
  3.1   Grant of First Priority Interest

  	
  9

  
	
  3.2   Grant of Second Priority Interest

  	
  9

  
	
  3.3   Right of Setoff

  	
  9

  
	
  3.4   Excluded Property

  	
  9

  
	
   

  	
   

  
	
  SECTION 4.   REPRESENTATIONS AND
  WARRANTIES

  	
  10

  
	
  4.1   Title; No Other Liens

  	
  10

  
	
  4.2   Perfected First Priority Liens

  	
  11

  
	
  4.3   Perfected Second Priority Liens

  	
  11

  
	
  4.4   Jurisdiction of Organization; Chief
  Executive Office

  	
  11

  
	
  4.5   Equipment

  	
  11

  
	
  4.6   Farm Products

  	
  11

  
	
  4.7   Investment Property

  	
  12

  
	
  4.8   Intellectual Property

  	
  12

  
	
  4.9   Receivables

  	
  13

  
	
  4.10   Deposit Accounts and Securities
  Accounts

  	
  13

  
	
  4.11   Excluded Property

  	
  13

  
	
  4.12   Existing IRB Lien

  	
  13

  
	
   

  	
   

  
	
  SECTION 5.   COVENANTS

  	
  13

  
	
  5.1   Delivery of Instruments,
  Certificated Securities and Chattel Paper

  	
  13

  
	
  5.2   Maintenance of Insurance

  	
  13

  
	
  5.3   Maintenance of Perfected Security
  Interest; Further Documentation

  	
  14

  
	
  5.4   Changes in Locations, Name, etc.

  	
  15

  
	
  5.5   Notices

  	
  15

  
	
  5.6   Investment Property

  	
  16

  
	
  5.7   Intellectual Property

  	
  16

  
	
  5.8   Receivables

  	
  18

  
	
  5.9   Securities Accounts and Deposit
  Account

  	
  18

  
	
  5.10   Payment of Obligations

  	
  18

  
	
  5.11   Reserved

  	
  18

  
	
  5.12   Terminations; Amendments Not
  Authorized

  	
  18

  
	
   

  	
   

  
	
  SECTION 6.   REMEDIAL PROVISIONS

  	
  19

  
	
  6.1   Certain Matters Relating to
  Receivables

  	
  19

  
	
  6.2   Communications with Grantors;
  Grantors Remain Liable

  	
  19

  

 

i

 

	
  6.3   Pledged Stock

  	
  20

  
	
  6.4   Application of Proceeds

  	
  20

  
	
  6.5   Code and Other Remedies

  	
  21

  
	
  6.6   Registration Rights

  	
  22

  
	
  6.7   Deficiency

  	
  23

  
	
  6.8   Proceeds to be Turned Over To
  Collateral Agent

  	
  23

  
	
   

  	
   

  
	
  SECTION 7.   ACTIONS AFTER EVENT OF
  DEFAULT

  	
  23

  
	
  7.1   General Authority of the Collateral
  Agent over the Collateral

  	
  23

  
	
  7.2   Judicial Proceedings and Insolvency
  Events

  	
  23

  
	
  7.3   Right to Appoint a Receiver

  	
  23

  
	
  7.4   Remedies Not Exclusive

  	
  24

  
	
  7.5   Waiver and Estoppel

  	
  24

  
	
  7.6   Limitation on Collateral Agent’s
  Duty in Respect of Collateral

  	
  25

  
	
   

  	
   

  
	
  SECTION 8.   COLLATERAL ACCOUNT;
  DISTRIBUTIONS

  	
  25

  
	
  8.1   The Collateral Account

  	
  25

  
	
  8.2   Control of Collateral Account

  	
  25

  
	
  8.3   Investment of Funds Deposited in
  Collateral Account

  	
  25

  
	
  8.4   Withdrawals by the Grantors

  	
  26

  
	
  8.5   Application of Moneys

  	
  26

  
	
  8.6   Collateral Agent’s Calculations

  	
  26

  
	
  8.7   Excess Payments

  	
  26

  
	
   

  	
   

  
	
  SECTION 9.   AGREEMENTS WITH THE
  COLLATERAL AGENT

  	
  26

  
	
  9.1   Delivery of Secured Debt Documents

  	
  26

  
	
  9.2   Compensation and Expenses

  	
  26

  
	
  9.3   Stamp and Other Similar Taxes

  	
  27

  
	
  9.4   Filing Fees, Excise Taxes, Etc.

  	
  27

  
	
  9.5   Indemnification

  	
  27

  
	
  9.6   Collateral Agent’s Lien

  	
  27

  
	
   

  	
   

  
	
  SECTION 10.   THE COLLATERAL AGENT

  	
  28

  
	
  10.1   Collateral Agent’s Appointment as
  Attorney-in-Fact, etc.

  	
  28

  
	
  10.2   Duty of Collateral Agent

  	
  29

  
	
  10.3   Filing of Financing Statements

  	
  30

  
	
  10.4   Authority of Collateral Agent

  	
  30

  
	
  10.5   Exculpatory Provisions

  	
  30

  
	
  10.6   Delegation of Duties

  	
  31

  
	
  10.7   Reliance by Collateral Agent

  	
  31

  
	
  10.8   Limitations on Duties of Collateral
  Agent

  	
  32

  
	
  10.9   Moneys to be Held in Trust

  	
  33

  
	
  10.10   Resignation and Removal of the
  Collateral Agent

  	
  33

  
	
  10.11   Status of Successor Collateral
  Agent

  	
  34

  
	
  10.12   Merger of the Collateral Agent

  	
  34

  
	
  10.13   Co-Collateral Agent; Separate
  Collateral Agent

  	
  34

  

 

ii

 

	
  10.14   Treatment of Payee or Indorsee by
  Collateral Agent; Representatives of Secured Parties

  	
  35

  
	
   

  	
   

  
	
  SECTION 11.   MISCELLANEOUS

  	
  36

  
	
  11.1   Notices

  	
  36

  
	
  11.2   Amendments in Writing

  	
  36

  
	
  11.3   No Waiver by Course of Conduct;
  Cumulative Remedies

  	
  37

  
	
  11.4   Enforcement Expenses

  	
  37

  
	
  11.5   Successors and Assigns

  	
  37

  
	
  11.6   Counterparts

  	
  37

  
	
  11.7   Severability

  	
  37

  
	
  11.8   Section Headings

  	
  37

  
	
  11.9   Integration

  	
  38

  
	
  11.10   GOVERNING LAW

  	
  38

  
	
  11.11   Submission To Jurisdiction;
  Waivers

  	
  38

  
	
  11.12   Acknowledgements

  	
  38

  
	
  11.13   Additional Grantors

  	
  39

  
	
  11.14   Releases; Termination of Security
  Interests

  	
  39

  
	
  11.15   Reinstatement

  	
  39

  
	
  11.16   WAIVER OF JURY TRIAL

  	
  39

  
	
  11.17   Force Majeure

  	
  39

  
	
  11.18   No Liability for Clean-up of Hazardous
  Materials

  	
  40

  

 

	
  SCHEDULES

  	
   

  
	
   

  	
   

  
	
  Schedule 1

  	
  Notice Addresses

  
	
  Schedule 2

  	
  Investment Property

  
	
  Schedule 3

  	
  Perfection Matters

  
	
  Schedule 4

  	
  Jurisdictions of
  Organization and Chief Executive Offices

  
	
  Schedule 5

  	
  Inventory and Equipment
  Locations

  
	
  Schedule 6

  	
  Intellectual Property

  
	
  Schedule 7

  	
  Deposit Accounts

  
	
  Schedule 8

  	
  Section 3.4 Existing
  Exclusions

  
	
   

  	
   

  
	
  ANNEXES

  	
   

  
	
   

  	
   

  
	
  Annex 1

  	
  Form of Assumption
  Agreement

  
	
  Annex 2

  	
  Form of Issuer’s
  Acknowledgement and Consent

  

 

iii

 

NOTE SECURITY AGREEMENT

 

NOTE SECURITY AGREEMENT, dated as of June 3,
2009, made by CELLU TISSUE HOLDINGS, INC. (the “Company”) and each of
its subsidiaries signatories hereto (the Company and such subsidiaries,
together with any other entity that may become a party hereto as provided
herein, the “Grantors”) in favor of THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Collateral Agent (in such capacity, the “Collateral Agent”)
for the holders of the notes (the “Holders”) issued pursuant to the
Indenture, dated as of June 3, 2009 (as amended, supplemented or otherwise
modified from time to time, the “Indenture”), among the Company, the
subsidiary guarantors parties thereto (the “Subsidiary Guarantors”) and
The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).

 

W  I  T  N  E  S
S  E  T  H:

 

WHEREAS, pursuant to the Indenture, dated as of March 12,
2004 (as supplemented by the First Supplemental Indenture dated as of June 2,
2006, the Second Supplemental Indenture dated as of March 21, 2007, the
Third Supplemental Indenture dated as of July 2, 2008 and the Fourth
Supplemental Indenture dated as of April 8, 2009, the “Prior Indenture”),
the Company has issued 93⁄4% Senior Secured Notes due 2010 (the “Prior Notes”)
issued by the Company to the holders of the Prior Notes;

 

WHEREAS, the Company is entering into the Indenture
for the purpose of refinancing and replacing the Prior Notes;

 

WHEREAS, pursuant to the Indenture, the Company has
issued to the Holders its 111⁄2% Senior Secured Notes due 2014, and may issue
from time to time additional notes in connection with the provisions of the
Indenture (as the same may be amended, restated, replaced, supplemented,
substituted or otherwise modified from time to time, collectively, the “Notes”);

 

WHEREAS, pursuant to the Indenture, each Subsidiary
Guarantor has guaranteed the obligations of the Company with respect to the
Notes and the Indenture; and

 

WHEREAS, it is a condition precedent to the purchase
by the Holders of the Notes that the Grantors shall have executed and delivered
this Agreement to the Collateral Agent for the ratable benefit of the Holders
and the Trustee for the purpose of providing security for the Company
Obligations and the Guarantor Obligations;

 

NOW, THEREFORE, in consideration of the premises, to
induce the Holders to purchase the Notes and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Grantor hereby agrees with the Collateral Agent, for the ratable benefit
of the Holders and the Collateral Agent, as follows:

 

SECTION 1.  DEFINED TERMS

 

1.1  Definitions.  (a)  Unless otherwise defined
herein, the following terms are used herein as defined in the New York UCC:
Accessions, Account Debtor, Accounts, Certificate of Title, Certificated
Security, Chattel Paper, Documents, Commercial Tort Claims, Equipment, Farm
Products, Fixtures, General Intangibles, Instruments, Inventory,
Letter-of-Credit Rights, Securities Accounts and Supporting Obligations.

 

 

(b)  The following terms have the
following meanings:

 

“Additional Interest”: any additional
interest payable on the Notes pursuant to Section 2(d) of the
Registration Rights Agreement.

 

“Affiliate”: as to any specified Person means
any other Person, directly or indirectly, controlling or controlled by or under
direct or indirect common control with such specified Person. For the purposes
of this definition, “control” when used with respect to any Person means the
power to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms “controlling” and “controlled” have meanings correlative to the
foregoing; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control.

 

“Agreement”: this Note Security Agreement, as
the same may be amended, supplemented or otherwise modified from time to time.

 

“Asset Disposition”: as defined in the
Indenture.

 

“Asset Swap”: as defined in the Indenture.

 

“Bank Administrative Agent”: the collective
reference to JPMorgan Chase Bank, N.A., as U.S. administrative agent for the
U.S. lenders and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian
administrative agent for the Canadian lenders, under the Pledge and Security
Agreement and the General Security Agreement related to the Working Capital
Facility.

 

“Bank Documents”: the collective reference to
the Working Capital Facility and any other documents entered in connection
therewith.

 

“Business Day”: a day other than a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
or required by law to close.

 

“Capital Stock”: of any Person means any and
all shares, interests, rights to purchase, warrants, options, participation or
other equivalents of or interests in (however designated) equity of such
Person, including any Preferred Stock, but excluding any debt securities
convertible into such equity.

 

“Cash Equivalents”: as defined in the
Indenture.

 

“Collateral”: the First-Priority Collateral
and the Second-Priority Collateral.

 

“Collateral Accounts”: the First-Priority
Collateral Account and the Second-Priority Collateral Account.

 

“Collateral Agent Fees”: all fees, costs and
expenses of the Collateral Agent of the types described in Sections 9.2, 9.3,
9.4 and 9.5.

 

“Collateral Documents”: the collective
reference to this Agreement, the Mortgages and each other document or agreement
pursuant to which the Collateral Agent is granted a Lien in any or all of the
Collateral for the benefit of the Secured Parties or is entitled to exercise,
or restricted from exercising, any rights or remedies with respect to any or
all of the Collateral and any other 

 

2

 

agreement, document or
instrument delivered by or on behalf of any Grantor pursuant to or in
connection with any of the foregoing.

 

“Company Obligations”: the collective
reference to the unpaid principal of and interest (including Additional
Interest) on the Notes and all other obligations and liabilities of the Company
to the Collateral Agent or any Secured Party, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, this Agreement,
the other Note Documents or any other document made, delivered or given in
connection with any of the foregoing, in each case whether on account of
principal, interest (including Additional Interest), reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Collateral Agent or to the Secured
Parties that are required to be paid by the Company pursuant to the terms of
any of the foregoing agreements).

 

“Copyright Licenses”: any written agreement
naming any Grantor as licensor or licensee (including, without limitation,
those listed in Schedule 6), granting any right under any Copyright,
including, without limitation, the grant of rights to manufacture, distribute,
exploit and sell materials derived from any Copyright.

 

“Copyrights”: (i) all copyrights arising
under the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether published
or unpublished (including, without limitation, those listed in Schedule 6),
all registrations and recordings thereof and all applications in connection
therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, and (ii) the right to
obtain all renewals thereof.

 

“Deposit Account”: as defined in the Uniform
Commercial Code of any applicable jurisdiction and, in any event, including,
without limitation, any demand, time, savings, passbook or like account
maintained with a depositary institution.

 

“Dollars” and “$”: lawful currency of
the United States.

 

“Event of Default”: as defined in the
Indenture.

 

“Exchange Act”: the Securities Exchange Act
of 1934, as amended.

 

“First-Priority Collateral”: with respect to
each Grantor, the following property now owned or hereafter acquired by such
Grantor or in which such Grantor has now or at any time in the future may
acquire any right, title or interest: all Chattel Paper, Deposit Accounts
(except to the extent that such Deposit Accounts or funds or other amounts
credit thereto constitute Second-Priority Collateral), Documents (other than
title documents with respect to Vehicles), Equipment, General Intangibles,
Instruments, Intellectual Property, Investment Property, Letter-of-Credit
Rights and all other property not described above, all books and records
pertaining to the foregoing and, to the extent not otherwise included in the
foregoing, all Proceeds, all Supporting Obligations and all products of any and
all of the foregoing and all collateral security and guarantees given by any
Person with respect to any of the foregoing; but, excluding, however, all
Second-Priority Collateral and the property described in Section 3.4; provided,
however, that any Collateral, regardless of type, received in connection
with an Asset Disposition or Asset Swap of First-Priority Collateral or
otherwise in exchange for First-Priority Collateral, or any additional issuance
of Notes, pursuant to 

 

3

 

the terms of the Indenture
shall be treated as First-Priority Collateral under this Agreement and the
Intercreditor Agreement; provided, further, that any Collateral
of the type that constitutes First-Priority Collateral, if received in
connection with an Asset Disposition or Asset Swap of Second-Priority
Collateral or otherwise in exchange for Second-Priority Collateral pursuant to
the terms of the Indenture, shall be treated as Second-Priority Collateral
under this Agreement and the Intercreditor Agreement.

 

“First-Priority Collateral Account”: the “Cellu
Tissue First-Priority Collateral Account” established by the Collateral Agent
as provided in Section 8.1.

 

“First Priority Interest”: as defined in Section 3.1.

 

“Foreign Subsidiary”: any Subsidiary
organized under the laws of any jurisdiction outside the United States of
America.

 

“Foreign Subsidiary Voting Stock”: Voting
Stock of any Restricted Subsidiary that is not organized under the laws of the
United States of America or any state thereof or the District of Columbia and
any Subsidiary of such Restricted Subsidiary.

 

“GAAP”: generally accepted accounting
principles in the United States of America as in effect as of the date of the
Indenture, including those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession.

 

“Governmental Authority”: any nation or
government, any state or other political subdivision thereof, any agency,
authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory,
supervisory or administrative functions or of pertaining to government, any
securities exchange and any self-regulatory organization (including the
National Association of Insurance Commissioners).

 

“Guarantor Obligations”: with respect to any
Subsidiary Guarantor, the collective reference to all obligations and
liabilities of such Guarantor which may arise under or in connection with any
Subsidiary Guarantee or any other document related thereto to which such
Subsidiary Guarantor is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise.

 

“Intellectual Property”: the collective
reference to all rights, priorities and privileges relating to intellectual
property owned, held or used, whether arising under United States,
multinational or foreign laws or otherwise, including, without limitation, the
Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the
Trademarks, the Trademark Licenses, technology, know how and processes, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.

 

“Intercompany Note”: any promissory note
evidencing loans made by any Grantor to the Company or any of its Subsidiaries.

 

4

 

“Intercreditor Agreement”: the Second Amended
and Restated Intercreditor Agreement, dated as of June 3, 2009, among the
Company, the Subsidiary Guarantors, the Collateral Agent and the Bank
Administrative Agent.

 

“Investment Property”: the collective
reference to (i) all “investment property” as such term is defined in Section 9-102(a)(49)
of the New York UCC (other than any Foreign Subsidiary Voting Stock or other
Capital Stock excluded from the definition of “Pledged Stock”) and (ii) whether
or not constituting “investment property” as so defined, all Pledged Notes and
all Pledged Stock.

 

“IRB Deposit Accounts”: the accounts of Cellu
Tissue-Cityforest LLC at Associated Bank, National Association and Pioneer Bank
listed on Schedule 7 hereto.

 

“Issuers”: the collective reference to each
issuer of any Investment Property.

 

“License”: any Copyright License, Patent
License, Trademark License or other license of rights or interests now held or
hereafter acquired by any Grantor.

 

“Liens”: any mortgage, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).

 

“Mortgages”: each of the mortgages, deeds to
secure debt and deeds of trust now or hereafter made by any Grantor with
respect to property owned in fee by such Grantor in favor of, or for the
benefit of, the Collateral Agent for the benefit of the Secured Parties,
substantially in the form attached to the Indenture.

 

“New York UCC”: the Uniform Commercial Code
as from time to time in effect in the State of New York.

 

“Note Documents”: the collective reference to
the Indenture, the Collateral Documents, the Intercreditor Agreement, the
Registration Rights Agreement and any other documents entered in connection
therewith.

 

“Obligations”: the Company Obligations and
the Guarantor Obligations.

 

“Opinion of Counsel”: a written opinion
reasonably satisfactory to the Collateral Agent signed by legal counsel.  Such counsel may be an employee of or counsel
to the Company or the Collateral Agent.

 

“Patent License”: all agreements, whether
written or oral, providing for the grant by or to any Grantor of any right to
manufacture, license, disclose, use or sell any invention covered in whole or
in part by a Patent, including, without limitation, any of the foregoing
referred to in Schedule 6.

 

“Patents”: (i) all letters patent of the
United States, any other country or any political subdivision thereof, all
reissues and extensions thereof and all goodwill associated therewith,
including, without limitation, any of the foregoing referred to in Schedule
6, (ii) all applications for letters patent of the United States or
any other country and all divisions, continuations and continuations-in-part
thereof, including, without limitation, any of the foregoing referred to in Schedule
6, and (iii) all rights to obtain any reissues or extensions of the
foregoing.

 

5

 

“Person”: any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, limited liability company, government or any
agency or political subdivision hereof or any other entity.

 

“Pledged Notes”: all promissory notes listed
on Schedule 2, all Intercompany Notes at any time issued to any Grantor
and all other promissory notes issued to or held by any Grantor (other than
promissory notes issued in connection with extensions of trade credit by any
Grantor in the ordinary course of business).

 

“Pledged Stock”: the shares of Capital Stock
listed on Schedule 2, together with any other shares, stock
certificates, options, interests or rights of any nature whatsoever in respect
of the Capital Stock of any Person, whether certificated or uncertificated,
that may be issued or granted to, or held by, any Grantor while this Agreement
is in effect; provided, that in no event shall more than 65% of the
total outstanding Foreign Subsidiary Voting Stock of any Foreign Subsidiary
(other than Interlake Acquisition Corporation Limited or any Foreign Subsidiary
that becomes a Subsidiary Guarantor under the Indenture) be required to be
pledged hereunder, unless a greater percentage is pledged to secure any other
Indebtedness of any Grantor, in which case such greater percentage shall be
required to be pledged hereunder; provided, further, that,
subject to Section 3.4(b), to the extent that the pledge of any Capital
Stock results in the Company being required to file separate financial
statements of any Subsidiary of the Company with the Securities and Exchange
Commission pursuant to Rule 3-10 or Rule 3-16 of Regulation S-X under
the Securities Act (or another rule, regulation or law), such Capital Stock
shall automatically be deemed not to be part of the Collateral, but only to the
extent necessary for the Company not to be subject to such filing requirement.

 

“Preferred Stock”: as applied to the Capital
Stock of any corporation, means Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital Stock of any other
class of such corporation.

 

“Proceeds”: all “proceeds” as such term is
defined in Section 9-102(a)(64) of the New York UCC and, in any event,
shall include, without limitation, all dividends or other income from the
Investment Property, collections thereon or distributions or payments with
respect thereto.

 

“Receivable”: any right to payment for goods
sold or leased or for services rendered, whether or not such right is evidenced
by an Instrument or Chattel Paper and whether or not it has been earned by
performance (including, without limitation, any Account).

 

“Registration Rights Agreement”: the
Registration Rights Agreement, dated as of June 3, 2009, among the
Company, the Subsidiary Guarantors and J.P. Morgan Securities Inc., on behalf
of itself and the other initial purchasers.

 

“Requirement of Law”: as to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.

 

6

 

“Responsible Officer”: the chief executive
officer, president or chief financial officer of the Company, but in any event,
with respect to financial matters, the chief financial officer of the Company.

 

“Restricted Subsidiary”: any Subsidiary of
the Company other than an Unrestricted Subsidiary.

 

“SEC”: 
the Securities and Exchange Commission or any agency that is the
successor thereof.

 

“Second-Priority Collateral”: with respect to
each Grantor, all such Grantor’s now existing or hereinafter arising (i) Inventory,
(ii) Receivables, (iii) Instruments, Chattel Paper and other
contracts, in each case evidencing or substituted for any Receivable, (iv) guarantees,
Supporting Obligations, Letter-of-Credit Rights, security and other credit
enhancements for the Receivables, (v) documents of title for any Inventory,
(vi) claims and causes of action in any way relating to any of the
Receivables or Inventory, (vii) Deposit Accounts into which any proceeds
of Receivables or Inventory are initially deposited (including all cash and
other funds on deposit therein) but only with respect to and including such
Proceeds of Receivables or Inventory, (viii) all books and records
pertaining to any of the foregoing, and all substitutions, replacements,
Accessions, products or Proceeds (including, without limitation, insurance proceeds)
of any of the foregoing; but, excluding, however, all First-Priority Collateral
and the property described in Section 3.4; provided, however,
that any Collateral, regardless of type, received in connection with an Asset
Disposition or Asset Swap of Second-Priority Collateral or otherwise in
exchange for Second-Priority Collateral pursuant to the terms of the Indenture
shall be treated as Second-Priority Collateral under this Agreement and the
Intercreditor Agreement; provided, further, that any Collateral
of the type that constitutes Second-Priority Collateral, if received in
connection with an Asset Disposition or Asset Swap of First-Priority Collateral
or otherwise in exchange for First-Priority Collateral pursuant to the terms of
the Indenture, shall be treated as First-Priority Collateral under this
Agreement and the Intercreditor Agreement.

 

“Second-Priority Collateral Account”: the “Cellu
Tissue Second-Priority Collateral Account” established by the Collateral Agent
as provided in Section 8.1.

 

“Second Priority Interest”: as defined in Section 3.2.

 

“Secured Debt Documents”: the collective
reference to the Note Documents and the Bank Documents.

 

“Secured Parties”: the collective reference
to the Trustee and the Holders.

 

“Securities Act”: the Securities Act of 1933,
as amended.

 

“Subsidiary”: as to any Person means (a) any
corporation, association or other business entity (other than a partnership,
joint venture, limited liability company or similar entity) of which more than
50% of the total ordinary voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof (or persons performing similar
functions) or (b) any partnership, joint venture limited liability company
or similar entity of which more than 50% of the capital accounts, distribution
rights, total equity and voting interests or general or limited partnership
interests, as applicable, is, in the case of 

 

7

 

clauses (a) and (b), at
the time owned or controlled, directly or indirectly, by (1) such Person, (2) such
Person and one or more Subsidiaries of such Person or (3) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary will refer to a Subsidiary of the Company.

 

“Subsidiary Guarantee”: the guarantee by the
Subsidiaries of the Company of the Notes under the Indenture, as amended from
time to time.

 

“Trademark License”: any agreement, whether
written or oral, providing for the grant by or to any Grantor of any right to
use any Trademark, including, without limitation, any of the foregoing referred
to in Schedule 6.

 

“Trademarks”: (i) all trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers, and all goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether 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, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the
right to obtain all renewals thereof.

 

“Unrestricted Subsidiary”: (1) any
Subsidiary of the Company that at the time of determination shall be designated
an Unrestricted Subsidiary by the Board of Directors of the Company in the
manner provided in the Indenture; and (2) any Subsidiary of an
Unrestricted Subsidiary.

 

“Vehicles”: all cars, trucks, trailers,
construction and earth moving equipment and other vehicles covered by a
certificate of title law of any state and all tires and other appurtenances to
any of the foregoing.

 

“Voting Stock”: as to a corporation, all
classes of Capital Stock of such corporation then outstanding and normally
entitled to vote in the election of directors.

 

“Working Capital Facility”: the Credit
Agreement, dated as of June 12, 2006, among the Company, as U.S. borrower,
Interlake Acquisition Corporation Limited, a subsidiary of the Company, as
Canadian borrower, the loan guarantors party thereto, JPMorgan Chase Bank,
N.A., as U.S. administrative agent, JPMorgan Chase Bank, N.A. Toronto Branch,
as Canadian administrative agent, and the lenders party thereto, as the same
may be amended, supplemented, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time (and whether or not with the
original agent and lenders or another agent or agents or other lenders).

 

1.2  Other
Definitional Provisions.  (a)  The
words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Section and Schedule
references are to this Agreement unless otherwise specified.

 

(b)  The meanings given to terms
defined herein shall be equally applicable to both the singular and plural
forms of such terms.

 

8

 

(c)  Where the context requires,
terms relating to the Collateral or any part thereof, when used in relation to
a Grantor, shall refer to such Grantor’s Collateral or the relevant part
thereof.

 

(d)  Subject to Section 11.15,
the phrases “satisfied in full” or “payment in full” (or phrases of similar
import) when used in this Agreement with respect to any of the Obligations (or
the Liens securing such obligations), as the case may be, shall mean
satisfaction or payment in full of such applicable obligations other than
contingent indemnification obligations which are not then due and payable (or
reasonably expected to become due and payable in the then foreseeable future).

 

SECTION 2. 
APPOINTMENT OF COLLATERAL AGENT

 

The Secured Parties hereby appoint and authorize The
Bank of New York Mellon Trust Company, N.A. to act as Collateral Agent
hereunder and under each other Collateral Document and the Intercreditor
Agreement with such powers as are expressly delegated to the Collateral Agent
by the terms of this Agreement, the other Collateral Documents or the
Intercreditor Agreement, together with such other powers as are reasonably
incidental thereto. The Collateral Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement, the
Collateral Documents and the Intercreditor Agreement.  The Bank of New York Mellon Trust Company,
N.A. hereby agrees to and accepts such appointment.

 

SECTION 3.  GRANT OF SECURITY INTEREST

 

3.1  Grant of
First Priority Interest.  Each
Grantor hereby collaterally assigns and transfers to the Collateral Agent, and
hereby grants to the Collateral Agent, for the benefit of the Secured Parties,
a first priority security interest (the “First Priority Interest”) in
all right, title and interest of such Grantor in the First-Priority Collateral,
as collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, at redemption, by acceleration or
otherwise) of such Grantor’s Obligations.

 

3.2  Grant of
Second Priority Interest.  Each
Grantor hereby collaterally assigns and transfers to the Collateral Agent, and
hereby grants to the Collateral Agent, for the benefit of the Secured Parties,
a second priority security interest (the “Second Priority Interest”) in
all right, title and interest of such Grantor in the Second-Priority
Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, at redemption, by
acceleration or otherwise) of such Grantor’s Obligations.

 

3.3  Right of
Setoff.  To secure the prompt and
complete payment, performance and observance of the Obligations, and in order
to induce the Collateral Agent and the Secured Parties as aforesaid, each
Grantor hereby grants to the Collateral Agent, for itself and the benefit of
the Secured Parties, a right of setoff against the Collateral of such Grantor
held by the Collateral Agent or any Secured Party now or hereafter in the
possession or custody of, or in transit to, the Collateral Agent or any Secured
Party, for any purpose, including safekeeping, collection or pledge, for the
account of such Grantor, or as to which such Grantor may have any right or
power.

 

3.4  Excluded
Property.  (a)  Notwithstanding anything to the
contrary contained in the definition of Collateral, Sections 3.1 and 3.2 or any
other provisions of this Agreement or any Mortgage, neither this Agreement nor
any Mortgage shall constitute a grant of a security interest in:

 

9

 

(1)           any property to the extent that, and
for so long as, such grant of a security interest: (A) is prohibited by
any Requirements of Law of a Governmental Authority, (B) requires a
consent not obtained of any Governmental Authority pursuant to such Requirement
of Law or (C) is prohibited by, or constitutes a breach or default under
or results in the termination of, or requires any consent not obtained under,
any permit, contract, license, agreement, instrument or other document
evidencing or giving rise to such property or, in the case of any Investment
Property, Pledged Stock or Pledged Note, any applicable shareholder or similar
agreement, except to the extent that such Requirement of Law or the term in
such contract, license, agreement, instrument or other document or shareholder
or similar agreement providing for such prohibition, breach, default or
termination or requiring such consent is ineffective under applicable law; and

 

(2)           any
property securing Indebtedness incurred after the date hereof under Section 3.2(b)(6) of
the Indenture with a Lien in reliance on clause (10) of the definition of
Permitted Liens contained in the Indenture, but solely to the extent the
documentation relating thereto prohibits such assets from being Collateral and
no Lien on those assets secures any other Indebtedness of any Grantor; provided that only such property whose price of acquisition,
construction or improvement is financed by means of the Indebtedness described
in this clause (2) shall be excluded from the Collateral pursuant to this
clause (2), and no security interest on any property granted pursuant to this
Agreement or any Mortgage and existing prior to the incurrence of such
Indebtedness shall be released from the Collateral pursuant to this clause (2).

 

(b)  In addition, in the event that
Rule 3-16 or Rule 3-10 of Regulation S-X under the Securities Act
requires or is amended, modified or interpreted by the SEC to require (or is
replaced with another rule or regulation, or any other law, rule or
regulation is adopted, which would require) the filing with the SEC (or any other
governmental agency) of separate financial statements of any Subsidiary of the
Company due to the fact that such Subsidiary’s Capital Stock constitutes
Pledged Stock, then the Capital Stock of such Subsidiary shall automatically be
deemed not to be part of the Collateral but only to the extent necessary to not
be subject to such requirement.  In such
event, the Collateral Documents may be amended or modified, without the consent
of any holder of Notes, to the extent necessary to release the security interests
in favor of the Collateral Agent on the shares of Capital Stock that are so
deemed to no longer constitute part of the Collateral. In the event that Rule 3-16
and Rule 3-10 of Regulation S-X under the Securities Act are amended,
modified or interpreted by the SEC to permit (or are replaced with another rule or
regulation, or any other law, rule or regulation is adopted, which would
permit) such Subsidiary’s Capital Stock to secure the Notes in excess of the
amount then pledged without the filing with the SEC (or any other governmental
agency) of separate financial statements of such Subsidiary, then the Capital
Stock of such Subsidiary shall automatically be deemed to be Pledged Stock
under this Agreement but only to the extent necessary to not be subject to any
such financial statement requirement.

 

SECTION
4.  REPRESENTATIONS AND WARRANTIES

 

To induce each of the Holders to purchase the Notes,
each Grantor hereby represents and warrants to the Collateral Agent and each
Secured Party that:

 

4.1  Title; No
Other Liens.  Except for the security
interests granted to the Collateral Agent for the benefit of the Secured
Parties pursuant to this Agreement and the Mortgages and the other Liens
permitted to exist on the Collateral by all of the Secured Debt Documents, such
Grantor 

 

10

 

owns and has good title to
each item of the Collateral free and clear of any and all Liens, options in
favor of or claims of any other Person. No effective security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as have
been filed in favor of the Collateral Agent, for the benefit of the Secured
Parties, pursuant to this Agreement or the Mortgages or as are permitted by all
of the Secured Debt Documents.

 

4.2  Perfected
First Priority Liens.  The First
Priority Interests granted pursuant to this Agreement (a) upon completion
of the filings and other actions specified on Schedule 3 (which, in the
case of all filings and other documents referred to on said Schedule, have been
delivered to the Collateral Agent in completed and, if applicable, duly
executed form) will constitute valid perfected security interests in all of the
First-Priority Collateral in favor of the Collateral Agent, for the ratable
benefit of the Secured Parties, as collateral security for such Grantor’s
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any
First-Priority Collateral from such Grantor and (b) are prior to all other
Liens on the First-Priority Collateral in existence on the date hereof except
as set forth in Section 4.12 and except for Liens permitted by all of the
Secured Debt Documents that have priority over the Liens on the First-Priority
Collateral granted hereby by operation of law.

 

4.3  Perfected
Second Priority Liens.  The Second
Priority Interests granted pursuant to this Agreement (a) upon completion
of the filings and other actions specified on Schedule 3 (which, in the
case of all filings and other documents referred to on said Schedule, have been
delivered to the Collateral Agent in completed and, if applicable, duly
executed form) will constitute valid perfected security interests in all of the
Second-Priority Collateral other than the IRB Deposit Accounts in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, as collateral
security for such Grantor’s Obligations, enforceable in accordance with the
terms hereof against all creditors of such Grantor and any Persons purporting
to purchase any Second-Priority Collateral from such Grantor and (b) are
prior to all other Liens on the Second-Priority Collateral in existence on the
date hereof except for the Liens permitted by all of the Secured Debt Documents
that have priority over the Liens on the Second-Priority Collateral granted
hereby by operation of law.

 

4.4  Jurisdiction
of Organization; Chief Executive Office. 
On the date hereof, such Grantor’s jurisdiction of organization, name as
it appears in and identification number, if any, from the official filings in
its jurisdiction of organization (if any), and the location of such Grantor’s
chief executive office are specified on Schedule 4. Such Grantor’s
jurisdiction of organization is the only jurisdiction in which such Grantor is
a “registered organization” (as such term is used in Section 9-307 of the
New York UCC). Such Grantor has furnished to the Collateral Agent a certified
charter, certificate of incorporation or other organization document and
long-form good standing certificate as of a date that is recent to the date
hereof. Except as disclosed in Schedule 4, during the five years ending
on the date hereof, such Grantor has not changed its name, location, chief
executive office, type of organization, jurisdiction of organization or
organizational identification number from the information set forth on Schedule
4.

 

4.5  Equipment.  On the date hereof, the Inventory and
Equipment is kept at the locations listed on Schedule 5.

 

4.6  Farm
Products.  None of the Collateral
constitutes, or is the Proceeds of, Farm Products.

 

11

 

4.7  Investment
Property.  (a)  The shares
of Pledged Stock pledged by such Grantor hereunder constitute all the issued
and outstanding shares or interests of all classes of the Capital Stock of each
Issuer owned by such Grantor or, in the case of Foreign Subsidiary Voting Stock
(other than Interlake Acquisition Corporation Limited), if less, 65% of the
outstanding Foreign Subsidiary Voting Stock of each relevant Issuer.

 

(b)  All the shares of the Pledged
Stock have been duly and validly issued and are fully paid and nonassessable.

 

(c)  Each of the Pledged Notes
constitutes the legal, valid and binding obligation of the obligor with respect
thereto, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors’ rights generally,
general equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing. The Pledged
Notes listed on Schedule 2 hereto constitute all of the Pledged Notes
held by such Grantor on the date hereof.

 

(d)  Schedule 2 lists all
Instruments, Letter-of-Credit Rights, Chattel Paper and Securities Accounts of
each Grantor that is included in the Collateral on the date hereof. All action
by each Grantor necessary or desirable to protect and perfect the Lien of the
Collateral Agent on each item set forth on Schedule 2 (including
delivery of originals thereof to the Collateral Agent or, if required under the
Intercreditor Agreement, to the Bank Administrative Agent, and the actions
referred to in Sections 5.1 and 5.3) has been duly taken.

 

4.8  Intellectual
Property.  (a)  Schedule
6 lists all Intellectual Property owned by such Grantor in its own name on
the date hereof.

 

(b)  On the date hereof, all
material Intellectual Property is valid, subsisting, unexpired and enforceable,
has not been abandoned and does not infringe the intellectual property rights
of any other Person.

 

(c)  Except as set forth in Schedule
6, on the date hereof, none of the Intellectual Property is the subject of
any licensing or franchise agreement pursuant to which such Grantor is the
licensor or franchisor. Schedule 6 lists all Intellectual Property,
which, on the date hereof, is the subject of a license agreement pursuant to
which such Grantor is a licensee thereof. Each such license agreement is valid
and binding and in full force and effect with respect to such Grantor and such
Grantor has not received any notice of termination or cancellation or received
any notice of a breach or default under such agreement. To the extent that Section 9-408
of the New York UCC is applicable thereto or such agreement permits the
assignment of such Grantor’s rights thereunder, such license agreement will not
cease to be valid and binding and in full force and effect (other than such
terms as are deemed ineffective pursuant to Section 9-408 of the New York
UCC) with respect to such Grantor on terms identical to those currently in
effect as a result of the rights and interest granted herein, nor will the
grant of such rights and interest constitute a material breach or default under
such agreement or otherwise give any party thereto a right to terminate such
agreement.

 

(d)  No holding, decision or
judgment has been rendered by any Governmental Authority which would limit,
cancel or question the validity of, or such Grantor’s rights in, any
Intellectual Property in any material respect.

 

12

 

(e)  No action or proceeding is
pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking
to limit, cancel or question the validity of any Intellectual Property or such
Grantor’s ownership interest or rights therein, or (ii) which, if
adversely determined, would have a material adverse effect on the value of any
Intellectual Property.

 

4.9  Receivables.  None of the obligors on any Receivable is a
Governmental Authority.

 

4.10  Deposit
Accounts and Securities Accounts. 
All of the Deposit Accounts and Securities Accounts maintained by such
Grantor on the date hereof are listed on Schedule 7 and Schedule 2,
respectively.

 

4.11  Excluded
Property.  No property or assets are
excluded from the security interests granted to the Secured Parties hereunder
in reliance on Section 3.4 except as set forth on Schedule 8.

 

4.12  Existing
IRB Lien.  The assets of Cellu Tissue—CityForest LLC (“CityForest”)
have been pledged to Associated Bank, National Association (“Associated Bank”)
pursuant to the Security Agreement, dated June 29, 2005, between
CityForest Corporation and Associated Bank, as amended by the Assignment of
Security Agreement and Amendment, dated March 21, 2007, between Cellu
Tissue-CityForest LLC and Associated Bank (the “IRB Security Agreement”),
to secure the obligations of CityForest under the Amended and Restated
Reimbursement Agreement, dated March 21, 2007 (the “Reimbursement
Agreement”), in connection with the Variable Rate Demand Solid Waste
Disposal Facility Revenue Bonds, Series 1998, of the City of Ladysmith,
Wisconsin.  The Lien on such CityForest
assets granted pursuant to this Agreement is and will be permitted under the
Reimbursement Agreement and will be prior (except to the extent that any such
assets constitute Second-Priority Collateral) to all other Liens on such assets
in existence on the date hereof except for the Lien granted pursuant to the IRB
Security Agreement.

 

SECTION 5.  COVENANTS

 

Each Grantor covenants and agrees with the
Collateral Agent for the benefit of the Secured Parties that, from and after
the date of this Agreement until the Obligations shall have been paid in full:

 

5.1  Delivery
of Instruments, Certificated Securities and Chattel Paper.  If any amount payable under or in connection
with any of the First-Priority Collateral shall be or become evidenced by any
Instrument, Certificated Security or Chattel Paper, such Instrument,
Certificated Security or Chattel Paper shall be immediately delivered to the
Collateral Agent, duly indorsed in a manner reasonably satisfactory to the
Collateral Agent, to be held as First-Priority Collateral pursuant to this
Agreement. If any amount payable in excess of $250,000 under or in connection
with any of the Second-Priority Collateral shall be or become evidenced by any
Instrument, Certificated Security or Chattel Paper, such Instrument,
Certificated Security or Chattel Paper shall be immediately delivered to the
Bank Administrative Agent, duly indorsed in a manner reasonably satisfactory to
the Bank Administrative Agent, to be held as Second-Priority Collateral
pursuant to the Intercreditor Agreement.

 

5.2  Maintenance
of Insurance.  (a)  Such
Grantor will maintain, with financially sound and reputable companies,
insurance policies (i) insuring the Collateral against loss by fire,
explosion, theft and such other casualties as is customary for companies of the
same industry and geographic region and (ii) insuring such Grantor, the
Collateral Agent and the Secured Parties against liability 

 

13

 

for personal injury and
property damage relating to the Collateral, such policies to be with Travelers
Property Casualty Company of America, American Home Assurance Co., Travelers
Indemnity Co. of America, Ohio Casualty Group, Factory Mutual Insurance Company
and Liberty Mutual Fire Insurance Company or such insurance companies of
nationally recognized standing and in such form and amounts and having such
coverage as is customary for companies of the same industry and geographic
region. Such Grantor will not use or permit the Collateral to be used in any
manner that would violate the terms of any insurance policy covering such
Collateral.

 

(b)  All such insurance shall (i) provide
that no cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after receipt by the
Collateral Agent of written notice thereof, (ii) with respect to liability
insurance, name the Collateral Agent as an additional insured as its interest
may appear and, with respect to casualty insurance, name the Collateral Agent
as insured party and loss payee on a lender loss payable endorsement and (iii) include
a breach of warranty clause.

 

(c)  The Company shall deliver to
the Collateral Agent a report of a reputable insurance broker with respect to
such insurance substantially concurrently with each delivery of the Company’s
annual reports to the Secured Parties pursuant to Section 3.11 of the
Indenture, describing in reasonable detail the casualty and liability insurance
then carried and maintained by each Grantor and stating that such insurance
complies with this Section 5.2.

 

5.3  Maintenance
of Perfected Security Interest; Further Documentation.  (a)  Such Grantor shall maintain
each security interest created by this Agreement as a perfected security
interest having at least the priority described in Sections 3.1 and 3.2 and
shall defend such security interest against the claims and demands of all
Persons whomsoever, subject to the rights of such Grantor under the Secured
Debt Documents to dispose of the Collateral; provided
that notwithstanding anything to the contrary in this Agreement, no Grantor
shall be required to perfect the security interest created by this Agreement in
any vehicle or other asset subject to a Certificates of Title.  Such Grantor shall maintain the Collateral in
good, safe and insurable operating order, condition and repair and do all other
acts as may be reasonably necessary or appropriate to maintain and preserve the
value of the Collateral except as otherwise permitted by the Indenture.

 

(b)  Such Grantor will furnish to
the Collateral Agent upon its request from time to time statements and
schedules further identifying and describing the assets and property of such
Grantor and such other reports in connection therewith, all in reasonable
detail.

 

(c)  At any time and from time to
time, at the sole expense of such Grantor, such Grantor will promptly and duly
execute and deliver, and have recorded, any and all such further instruments
and documents and take such further actions as necessary to perfect and protect
any pledge or security interest purported to be granted by such Grantor
hereunder or under the Mortgages and obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted, including,
without limitation, (i) using its reasonable best efforts to secure all
consents and approvals necessary or appropriate for the assignment to or for
the benefit of the Collateral Agent of any License held by such Grantor and to
enforce the security interests granted hereunder, (ii) filing any
financing or continuation statements under the Uniform Commercial Code (or
other similar laws) in effect in any jurisdiction with respect to the security
interests created hereby, (iii) in the case of Chattel Paper (including
electronic chattel paper), Investment Property (including Securities Accounts),
Deposit Accounts, Letter-of-Credit Rights and any other relevant Collateral,
taking any actions necessary to enable the Collateral Agent to obtain “control”
(within the meaning of the 

 

14

 

applicable Uniform Commercial Code) with respect thereto or possession
thereof. Each Grantor also hereby authorizes the Collateral Agent to sign and
file any such financing or continuation statements without the signature of
such Grantor to the extent permitted by applicable law. Notwithstanding the
foregoing, in no event shall the Collateral Agent have any obligation to
monitor the perfection, continuation of perfection or the sufficiency or
validity of any security interest in or related to the Collateral or to prepare
or file any Uniform Commercial Code financing statement or continuation
statement.

 

(d)  Such Grantor shall take all
steps necessary to grant the Collateral Agent control of all electronic chattel
paper in accordance with the Uniform Commercial Code and all “transferable
records” as defined in each of the Uniform Electronic Transactions Act and the
Electronic Signatures in Global and National Commerce Act.

 

(e)  If such Grantor is or becomes
the beneficiary of a letter of credit with respect to any Receivable in excess
of $250,000, Grantor shall promptly, and in any event within two Business Days
after becoming a beneficiary, notify the Collateral Agent and Bank
Administrative Agent thereof and enter into an agreement with the Collateral
Agent, the Bank Administrative Agent and the issuer and/or confirmation bank
with respect to such Letter-of-Credit Rights assigning such Letter-of-Credit
Rights to the Collateral Agent, in the event such Letter-of-Credit Right
constitutes First-Priority Collateral, or to the Bank Administrative Agent, in
the event such Letter-of-Credit Right constitutes Second-Priority Collateral,
and directing all payments thereunder to the collateral account specified
pursuant to the Secured Debt Documents, all in form and substance reasonably
satisfactory to the Collateral Agent or the Bank Administrative Agent, as the
case may be.

 

(f)  Such Grantor shall promptly,
and in any event within two Business Days after the same is acquired by it,
notify the Collateral Agent of any Commercial Tort Claim for an amount in
excess of $250,000 acquired by it and shall enter into a supplement to this
Agreement, granting to the Collateral Agent a Lien in such Commercial Tort
Claim on behalf of the Secured Parties.

 

5.4  Changes in
Locations, Name, etc.  Such Grantor
will not, except after not less than 15 days’ prior written notice to the
Collateral Agent and delivery to the Collateral Agent of (a) all additional
authenticated financing statements and other documents necessary to maintain
the validity, perfection and priority of the security interests provided for
herein and (b) if applicable, a written supplement to Schedule 5
showing any additional location at which Inventory and Equipment shall be kept:

 

(i)                                    change its
jurisdiction of organization or the location of its chief executive office
from, or take any action to become a “registered organization” (as used in Section 9-307
of the New York UCC) in any jurisdiction other than, that referred to on Schedule
4; or

 

(ii)                                 change its name.

 

5.5  Notices.  Such Grantor will advise the Collateral Agent
promptly, in reasonable detail, of (a) any Lien (other than security
interests created hereby or by any Mortgage or Liens permitted under any
Secured Debt Document) on any of the Collateral; and (b) of the occurrence
of any other event that could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral or on the security interests
created hereby or by any Mortgage.

 

15

 

5.6  Investment
Property.  (a)  If such
Grantor shall become entitled to receive or shall receive any certificate
(including, without limitation, any certificate representing a dividend or a
distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization),
option or rights in respect of the Capital Stock of any Issuer, whether in
addition to, in substitution of, as a conversion of, or in exchange for, any
shares of the Pledged Stock, or otherwise in respect thereof, such Grantor
shall accept the same as the agent of the Collateral Agent, hold the same in
trust for the Collateral Agent and deliver the same forthwith to the Collateral
Agent in the exact form received, duly indorsed by such Grantor to the
Collateral Agent, if required, together with an undated stock power covering
such certificate duly executed in blank by such Grantor and, if the Collateral
Agent so requests, signature guaranteed, to be held by the Collateral Agent,
subject to the terms hereof, as additional collateral security for the
Obligations. Any sums paid upon or in respect of the Investment Property upon
the liquidation or dissolution of any Issuer shall be paid over to the
Collateral Agent to be held by it hereunder as additional collateral security
for the Obligations, and in case any distribution of capital shall be made on
or in respect of the Investment Property or any property shall be distributed
upon or with respect to the Investment Property pursuant to the
recapitalization or reclassification of the capital of any Issuer or pursuant
to the reorganization thereof, the property so distributed shall, unless
otherwise subject to a perfected security interest in favor of the Collateral
Agent, be delivered to the Collateral Agent to be held by it hereunder as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Investment Property shall be
received by such Grantor, such Grantor shall, until such money or property is
paid or delivered to the Collateral Agent, hold such money or property in trust
for the Collateral Agent, segregated from other funds of such Grantor, as
additional collateral security for the Obligations.

 

(b)  Such Grantor will not (i) vote
to enable, or take any other action to permit, any Issuer to issue any Capital
Stock of any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any Capital Stock of any nature
of any Issuer (except as expressly permitted by each of the Note Documents), (ii) sell,
assign, transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Investment Property or Proceeds thereof (except pursuant to a
transaction expressly permitted by each of the Note Documents), (iii) create,
incur or permit to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Investment Property or Proceeds thereof, or
any interest therein, except for the security interests created by this
Agreement (except as expressly permitted by each of the Note Documents) or (iv) enter
into any agreement or undertaking restricting the right or ability of such
Grantor or the Collateral Agent to sell, assign or transfer any of the
Investment Property or Proceeds thereof (except as expressly permitted by each
of the Note Documents).

 

(c)  In the case of each Grantor
that is an Issuer, such Issuer agrees that (i) it will be bound by the
terms of this Agreement relating to the Investment Property issued by it and
will comply with such terms insofar as such terms are applicable to it, (ii) it
will notify the Collateral Agent promptly in writing of the occurrence of any
of the events described in Section 5.6(a) with respect to the
Investment Property issued by it and (iii) the terms of Sections 6.3(c) and
6.6 shall apply to it, mutatis  mutandis, with respect to all
actions that may be required of it pursuant to Section 6.3(c) or 6.6
with respect to the Investment Property issued by it. Upon execution hereof,
the Grantors shall cause each Issuer that is not a party to this Agreement to
execute and deliver to the Collateral Agent an Acknowledgement and Consent in
the form attached hereto as Annex 2.

 

5.7  Intellectual
Property.  (a)  Such
Grantor (either itself or through licensees) will (i) continue to use each
material Trademark on each and every trademark class of goods applicable to its

 

16

 

current line as reflected in
its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii) maintain
as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of
registration and all other notices and legends required by applicable
Requirements of Law, (iv) not adopt or use any mark which is confusingly
similar or a colorable imitation of such Trademark unless the Collateral Agent
shall be provided with a perfected security interest in such mark pursuant to
this Agreement, and (v) not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby such Trademark
may become invalidated or impaired in any way.

 

(b)  Such Grantor (either itself or
through licensees) will not do any act, or omit to do any act, whereby any
material Patent may become forfeited, abandoned or dedicated to the public.

 

(c)  Such Grantor (either itself or
through licensees) (i) will employ each material Copyright and (ii) will
not (and will not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any material portion of the Copyrights may
become invalidated or otherwise impaired. Such Grantor will not (either itself
or through licensees) do any act whereby any material portion of the Copyrights
may fall into the public domain.

 

(d)  Such Grantor (either itself or
through licensees) will not do any act that knowingly uses any material
Intellectual Property to infringe the intellectual property rights of any other
Person.

 

(e)  Such Grantor will notify the
Collateral Agent promptly if it knows, or has reason to know, that any
application or registration relating to any material Intellectual Property may
become forfeited, abandoned or dedicated to the public, or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office or any
court or tribunal in any country) regarding such Grantor’s ownership of, or the
validity of, any material Intellectual Property or such Grantor’s right to
register the same or to own and maintain the same.

 

(f)  Whenever such Grantor, either
by itself or through any agent, employee, licensee or designee, shall file an
application for the registration of any Intellectual Property with the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof, such Grantor shall report such filing to the Collateral Agent within
five Business Days after the last day of the fiscal quarter in which such
filing occurs. Such Grantor shall execute and deliver, and have recorded, any
and all agreements, instruments, documents, and papers necessary to evidence
the Collateral Agent’s security interest in any Copyright, Patent or Trademark
and the goodwill and general intangibles of such Grantor relating thereto or
represented thereby.

 

(g)  Such Grantor will take all
reasonable and necessary steps, including, without limitation, in any
proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the material
Intellectual Property, including, without limitation, filing of applications
for renewal, affidavits of use and affidavits of incontestability.

 

17

 

(h)  In the event that any material
Intellectual Property is infringed, misappropriated or diluted by a third
party, such Grantor shall (i) take such actions as such Grantor shall
reasonably deem appropriate under the circumstances to protect such
Intellectual Property and (ii) if such Intellectual Property is of
material economic value, promptly notify the Collateral Agent after it learns
thereof and sue for infringement, misappropriation or dilution, seek injunctive
relief where appropriate and recover any and all damages for such infringement,
misappropriation or dilution.

 

5.8  Receivables.  (a)            Other
than in the ordinary course of business consistent with its past practice, such
Grantor will not (i) grant any extension of the time of payment of any
Receivable, (ii) compromise or settle any Receivable for less than the
full amount thereof, (iii) release, wholly or partially, any Person liable
for the payment of any Receivable, (iv) allow any credit or discount
whatsoever on any Receivable or (v) amend, supplement or modify any
Receivable in any manner that could materially adversely affect the value
thereof.

 

(b)  Such Grantor will deliver to
the Collateral Agent a copy of each material demand, notice or document
received by it that questions or calls into doubt the validity or
enforceability of any of the then outstanding Receivables.

 

5.9  Securities
Accounts and Deposit Account.  No
Grantor shall maintain or establish any Deposit Account or any Securities
Account included in the Collateral with any financial institution unless such
Grantor, the Collateral Agent, in the case of First-Priority Collateral, the
Bank Administrative Agent, in the case of Second-Priority Collateral, and such
financial institution shall have entered into a control agreement in form and
substance reasonably satisfactory to the Collateral Agent, in the case of
First-Priority Collateral, or the Bank Administrative Agent, in the case of
Second-Priority Collateral, with respect to such Deposit Account or Securities
Account included in the Collateral or the Collateral Agent, in the case of
First-Priority Collateral, or the Bank Administrative Agent, in the case of
Second-Priority Collateral, otherwise has “control” (within the meaning of the
Uniform Commercial Code of any applicable jurisdiction) of such Deposit Account
or Securities Account included in the Collateral.

 

5.10  Payment
of Obligations.  Such Grantor will
pay and discharge or otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, all taxes, assessments and government
charges or levies imposed upon the Collateral or in respect of income or
profits therefrom, as well as all claims of any kind (including, without
limitation, claims for labor, material and supplies) against or with respect to
the Collateral, except that no such charge need be paid if the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings, reserves in conformity with GAAP with respect thereto have been
provided on the books of such Grantor and such proceedings could not reasonably
be expected to result in the sale, forfeiture or loss of any material portion
of the Collateral or any interest therein.

 

5.11  Reserved.

 

5.12  Terminations;
Amendments Not Authorized.  Other
than for the purposes of perfection and protection of any pledge or security
interest granted or to be granted by such Grantor to the Collateral Agent for
the benefit of the Secured Parties, such Grantor acknowledges that it is not
authorized to file any financing statement with respect to the Collateral or
amendment or termination statement with respect to any financing statement
covering the Collateral and agrees that it will not do so, subject to such
Grantor’s rights under Section 9-509(d)(2) of the New York UCC.

 

18

 

SECTION 6.  REMEDIAL PROVISIONS

 

6.1  Certain
Matters Relating to Receivables.  (a)  At
any time after an Event of Default, the Collateral Agent shall have the right
to make test verifications of the Receivables in any manner and through any
medium that it reasonably considers advisable, and each Grantor shall furnish
all such assistance and information required in connection with such test
verifications; and at any time and from time to time, upon the Collateral Agent’s
request and at the expense of the relevant Grantor, such Grantor shall cause a
nationally recognized firm of independent accountants to furnish to the
Collateral Agent reports showing reconciliations, aging and test verifications
of, and trial balances for, the Receivables.

 

(b)  The Collateral Agent shall
authorize each Grantor to collect such Grantor’s Receivables, subject to the
Collateral Agent’s direction and control, and the Collateral Agent may curtail
or terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Collateral Agent at any
time after the occurrence and during the continuance of an Event of Default,
any payments of Receivables, when collected by any Grantor, (i) shall be
forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the
Collateral Agent if required, in the Second-Priority Collateral Account
maintained under the sole dominion and control of the Collateral Agent, subject
to withdrawal by the Collateral Agent only as provided in Section 8.5 and
the rights of the Bank Administrative Agent pursuant to the Intercreditor
Agreement, and (ii) until so turned over, shall be held by such Grantor in
trust for the Collateral Agent, segregated from other funds of such Grantor;
and each such deposit of Proceeds of Receivables shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.

 

(c)  At the Collateral Agent’s
request, each Grantor shall deliver to the Collateral Agent all original and
other documents evidencing, and relating to, the agreements and transactions
which gave rise to the Receivables, including, without limitation, all original
orders, invoices and shipping receipts.

 

6.2  Communications
with Grantors; Grantors Remain Liable. 
(a)    The Collateral
Agent in its own name or in the name of others may at any time after the
occurrence and during the continuance of an Event of Default communicate with
obligors under the Receivables to verify with them to the Collateral Agent’s
satisfaction the existence, amount and terms of any Receivable.

 

(b)  Without limiting or affecting
any other right or remedy of the Collateral Agent hereunder, upon the request
of the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, each Grantor shall notify obligors on the
Receivables that the Receivables have been assigned to the Collateral Agent and
that any payments owing to such Grantor in respect thereof shall be made
directly to the Collateral Agent.

 

(c)  Anything herein to the
contrary notwithstanding, each Grantor shall remain liable under each of the
Receivables to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of
any agreement giving rise thereto. The Collateral Agent shall not have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Collateral Agent of any payment relating thereto, nor shall the Collateral
Agent be obligated in any manner to perform any of the obligations of any
Grantor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the 

 

19

 

sufficiency of any payment received by it or as to the sufficiency of
any performance by any party thereunder, to present or file any claim, to take
any action to enforce any performance or to collect the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.

 

6.3  Pledged
Stock.  (a)  Unless an
Event of Default shall have occurred and be continuing and the Collateral Agent
shall have given notice to the relevant Grantor of the Collateral Agent’s
intent to exercise its corresponding rights pursuant to Section 6.3(b),
each Grantor shall be permitted to receive all cash dividends paid in respect
of the Pledged Stock and all payments made in respect of the Pledged Notes, in
each case paid in the normal course of business of the relevant Issuer and
consistent with past practice, to the extent permitted in the Note Documents,
and to exercise all voting and corporate or other organizational rights with
respect to the Investment Property; provided, however, that no
vote shall be cast or corporate or other organizational right exercised or
other action taken which would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of this Agreement
or any Note Document.

 

(b)  If an Event of Default shall
occur and be continuing and the Collateral Agent shall give notice of its
intent to exercise such rights to the relevant Grantor or Grantors, subject to
the Intercreditor Agreement, (i) the Collateral Agent shall have the right
to receive any and all cash dividends, payments, additional Capital Stock or
property or other Proceeds paid in respect of the Investment Property and make
application thereof to the Obligations in such order as the Collateral Agent
may determine, and (ii) any or all of the Investment Property shall be
registered in the name of the Collateral Agent or its nominee, and the
Collateral Agent or its nominee may thereafter exercise (x) all voting,
corporate and other rights pertaining to such Investment Property at any
meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any
and all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to such Investment Property as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Investment Property upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate or other organizational structure of any Issuer, or upon the
exercise by any Grantor or the Collateral Agent of any right, privilege or
option pertaining to such Investment Property, and in connection therewith, the
right to deposit and deliver any and all of the Investment Property with any
committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as the Collateral Agent may determine), all
without liability except to account for property actually received by it, but
the Collateral Agent shall have no duty to any Grantor or any Secured Party to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.

 

(c)  Each Grantor hereby authorizes
and instructs each Issuer of any Investment Property pledged by such Grantor
hereunder to (i) comply with any instruction received by it from the
Collateral Agent in writing that (x) states that an Event of Default has
occurred and is continuing and (y) is otherwise in accordance with the
terms of this Agreement, without any other or further instructions from such
Grantor, and each Grantor agrees that each Issuer shall be fully protected in
so complying, and (ii) unless otherwise expressly permitted hereby, pay
any dividends or other payments with respect to the Investment Property
directly to the Collateral Agent.

 

6.4  Application
of Proceeds.  The Collateral Agent
may apply, subject to the terms of the Intercreditor Agreement, all or any part
of Proceeds constituting Collateral, whether or not held in a Collateral
Account, in accordance with the provisions of the Indenture. Any balance of
such 

 

20

 

Proceeds remaining after the
Obligations shall have been paid in full shall be paid over to the Grantors or
to whomsoever may be lawfully entitled to receive the same.

 

6.5  Code and
Other Remedies.  If an Event of
Default shall occur and be continuing, the Collateral Agent may, subject to the
terms of the Intercreditor Agreement, exercise, in addition to all other rights
and remedies granted to them in this Agreement, in the Mortgages and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Collateral Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may, subject to the terms of the Intercreditor Agreement, in such
circumstances forthwith (i) collect, receive, appropriate and realize upon
the Collateral, or any part thereof, (ii) transfer all or any part of the
Collateral into the Collateral Agent’s name or the name of its nominee or
nominees, (iii) vote all or any part of the Pledged Stock (whether or not
transferred into the name of the Collateral Agent) and give all consents,
waivers and ratification in respect of the Pledged Stock and otherwise act with
respect thereto as though it were the outright owner thereof (each Grantor
hereby irrevocably constituting and appointing the Collateral Agent the proxy
and attorney-in-fact of such Grantor, with full power of substitution to do so)
and to exercise any and all of the rights or power of such Grantor in its
capacity as shareholder of any relevant Issuer, and/or (iv) forthwith
sell, lease, assign, give option or options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Collateral Agent or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Collateral Agent shall have the right, subject to the
terms of the Intercreditor Agreement, upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in any Grantor, which right or equity is hereby waived and
released. If an Event of Default shall have occurred and shall be continuing,
each Grantor further agrees, at the Collateral Agent’s request, to assemble the
Collateral and, subject to the terms of the Intercreditor Agreement, make it
available to the Collateral Agent at places which the Collateral Agent shall
reasonably select, whether at such Grantor’s premises or elsewhere, and
promptly to execute and deliver to the Collateral Agent such instruments or
other documents as may be necessary or advisable to enable the Collateral Agent
or its agent or representative to obtain, subject to the terms of the
Intercreditor Agreement, possession of all or any part of the Collateral the
possession of which the Collateral Agent shall at the time be entitled to
hereunder. The Collateral Agent shall, subject to the terms of the
Intercreditor Agreement, also be entitled, so long as an Event of Default shall
have occurred and be continuing, to occupy any premises owned or leased by any
Grantor where the Collateral or any part thereof is assembled or located for a
reasonable period to effectuate its rights and remedies hereunder or under law,
without obligation to such Grantor for such occupation and to otherwise
exercise, subject to the terms of the Intercreditor Agreement, any and all
rights and remedies of any Grantor under or in connection with the Collateral,
or otherwise in respect of the Collateral. The Collateral Agent shall apply the
net proceeds of any action taken by it pursuant to this Section 6.5, after
deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Collateral Agent hereunder, including, without limitation, reasonable attorneys’
fees and disbursements, in the manner required by Section 8.5, and only
after such application and after the payment by the Collateral Agent of any
other amount 

 

21

 

required by any provision of
law, including, without limitation, Section 9-615(a)(3) of the New
York UCC, need the Collateral Agent account for the surplus, if any, to any
Grantor. To the extent permitted by applicable law, each Grantor waives all
claims, damages and demands it may acquire against the Collateral Agent arising
out of the exercise by the Collateral Agent of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition.

 

6.6  Registration
Rights.  (a)                     If the Collateral Agent shall, subject to the
terms of the Intercreditor Agreement, determine to exercise its right to sell
any or all of the Pledged Stock pursuant to Section 6.5, and if it is
necessary or advisable to have the Pledged Stock, or that portion thereof to be
sold, registered under the provisions of the Securities Act, the relevant
Grantor will cause the Issuer thereof to (i) execute and deliver, and
cause the directors and officers of such Issuer to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts
as may be necessary or advisable to register the Pledged Stock, or that portion
thereof to be sold, under the provisions of the Securities Act, (ii) use
its best efforts to cause the registration statement relating thereto to become
effective and to remain effective for a period of one year from the date of the
first public offering of the Pledged Stock, or that portion thereof to be sold,
and (iii) make all amendments thereto and/or to the related prospectus
which are reasonably necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Each Grantor agrees to
cause such Issuer to comply with the provisions of the securities or “Blue Sky”
laws of any and all applicable jurisdictions and to make available to its
security holders, as soon as practicable, an earnings statement (which need not
be audited) which will satisfy the provisions of Section 11(a) of the
Securities Act.

 

(b)  Each Grantor recognizes that
the Collateral Agent may be unable to effect a public sale of any or all the
Pledged Stock, by reason of certain prohibitions contained in the Securities
Act and applicable state securities laws or otherwise, and may be compelled to
resort to one or more private sales thereof to a restricted group of purchasers
which will be obliged 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. Each Grantor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Collateral Agent shall be under no obligation to delay a sale of
any of the Pledged Stock for the period of time necessary to permit the Issuer
thereof to register such securities for public sale under the Securities Act,
or under applicable state securities laws, even if such Issuer would agree to
do so.

 

(c)  Each Grantor agrees to use its
best efforts to do or cause to be done all such other acts as may be necessary
to make such sale or sales of all or any portion of the Pledged Stock pursuant
to this Section 6.6 valid and binding and in compliance with any and all
other applicable Requirements of Law. Each Grantor further agrees that a breach
of any of the covenants contained in this Section 6.6 will cause
irreparable injury to the Collateral Agent and the Secured Parties, that the
Collateral Agent and the Secured Parties have no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant
contained in this Section 6.6 shall be specifically enforceable against
such Grantor, and such Grantor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred and is continuing.

 

22

 

6.7  Deficiency.  Each Grantor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay its Obligations and the fees and disbursements of any
attorneys employed by the Collateral Agent to collect such deficiency.

 

6.8  Proceeds
to be Turned Over To Collateral Agent. 
In addition to the rights of the Collateral Agent specified in Section 6.1
with respect to payments of Receivables, if an Event of Default shall occur and
be continuing, all Proceeds with respect to Second-Priority Collateral received
by any Grantor consisting of cash, checks and other near-cash items shall be
held by such Grantor in trust for the Collateral Agent and the Secured Parties,
segregated from other funds of such Grantor, and shall, forthwith upon receipt
by such Grantor, be turned over to the Collateral Agent in the exact form
received by such Grantor (duly indorsed by such Grantor to the Collateral
Agent, if required). All Proceeds with respect to Second-Priority Collateral
received by the Collateral Agent hereunder shall be held by the Collateral
Agent in the Second-Priority Collateral Account maintained under its sole
dominion and control; provided, that the security interest and lien of
the Bank Administrative Agent pursuant to the Bank Documents shall have been
satisfied and discharged in full with respect to such Proceeds and the
Collateral Agent is not required under the Intercreditor Agreement to deliver
such Proceeds to the Bank Administrative Agent. All Proceeds with respect to Second-Priority
Collateral while held by the Collateral Agent in the Second-Priority Collateral
Account (or by such Grantor in trust for the Collateral Agent and the Secured
Parties) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
by the Indenture.

 

SECTION 7.  ACTIONS AFTER EVENT OF DEFAULT

 

7.1  General
Authority of the Collateral Agent over the Collateral.  Each Grantor and, by its acceptance of the
benefits hereof, each Secured Party, hereby irrevocably constitutes and
appoints the Collateral Agent and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full power and
authority in its or his own name, from time to time in the Collateral Agent’s
discretion so long as an Event of Default has occurred and is continuing, to
take any and all actions and to execute any and all documents and instruments
which may be necessary or desirable to carry out the terms of this Agreement
and accomplish the purposes hereof.

 

7.2  Judicial
Proceedings and Insolvency Events. 
If an Event of Default has occurred and is continuing, the Collateral
Agent (i) shall have the right and power to institute, maintain, defend
and participate in such suits and proceedings as it may deem appropriate to
protect and enforce the rights vested in it by this Agreement and the interests
of the Secured Parties, (ii) may, either after entry, or without entry,
proceed by suit or suits at law or in equity to enforce such rights and to
foreclose upon the Collateral and to sell all or, from time to time, any of the
Collateral under the judgment or decree of a court of competent jurisdiction
and (iii) may, on behalf of the Secured Parties, file claims concerning,
stipulate or consent to, any matter concerning, and otherwise represent the
interests of the Secured Parties concerning, the Collateral.

 

7.3  Right to
Appoint a Receiver. If an Event of Default has occurred and is continuing,
upon the filing of a bill in equity or other commencement of judicial
proceedings to enforce the rights of the Collateral Agent under this Agreement,
the Collateral Agent shall, to the extent permitted by law, with notice to the
Company but without notice to any party claiming through the Grantors, without
regard to the solvency or insolvency at the time of any Person then liable for
the payment of any of the Obligations, without regard to the then value of the
Collateral, and without requiring any bond from any complainant in such proceedings,
be entitled as a matter of right to the appointment of 

 

23

 

a receiver or receivers of
the Collateral, or any part thereof, and of the rents, issues, tolls, profits,
royalties, revenues and other income thereof, pending such proceedings, with
such powers as the court making such appointment shall confer, and to the entry
of an order directing that the rents, issues, tolls, profits, royalties,
revenues and other income of the property constituting the whole or any part of
the Collateral be segregated, sequestered and impounded for the benefit of the
Collateral Agent and the Secured Parties, and each Grantor irrevocably consents
to the appointments of such receiver or receivers and to the entry of such
order; provided that, notwithstanding the appointment of any receiver,
the Collateral Agent shall be entitled to retain possession and control of all
cash and Cash Equivalents held by or deposited with it pursuant to this
Agreement.

 

7.4  Remedies
Not Exclusive.  (a)  No
remedy conferred upon or reserved to the Collateral Agent herein is intended to
be exclusive of any other remedy or remedies, but every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or now
or hereafter existing at law or in equity or by statute.

 

(b)  No delay or omission by the
Collateral Agent to exercise any right, remedy or power hereunder or under any
other Collateral Document shall impair any such right, remedy or power or shall
be construed to be a waiver thereof, and every right, power and remedy given by
this Agreement to the Collateral Agent may be exercised from time to time and
as often as may be deemed expedient by the Collateral Agent.

 

(c)  If the Collateral Agent shall
have proceeded to enforce any right, remedy or power under this Agreement and
the proceeding for the enforcement thereof shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the
Collateral Agent, then the Grantors, the Collateral Agent and the Secured
Parties shall, subject to any determination in such proceeding, severally and
respectively be restored to their former positions and rights hereunder or
thereunder with respect to the Collateral and in all other respects, and
thereafter all rights, remedies and powers of the Collateral Agent shall
continue as though no such proceeding had been taken.

 

(d)  All rights of action and of
asserting claims upon or under this Agreement may be enforced by the Collateral
Agent without the possession of any Note Document or instrument evidencing any
Obligation or the production thereof at any trial or other proceeding relative
thereto, and any suit or proceeding instituted by the Collateral Agent shall
be, subject to Section 10, brought in its name as Collateral Agent and any
recovery of judgment shall be held as part of the Collateral.

 

7.5  Waiver and
Estoppel.  (a)  Each
Grantor agrees, to the extent it may lawfully do so, that it will not at any
time in any manner whatsoever claim, or take the benefit or advantage of, any
appraisement, valuation, stay, extension, moratorium, turnover or redemption
law, or any law permitting it to direct the order in which the Collateral shall
be sold, now or at any time hereafter in force, which may delay, prevent or
otherwise affect the performance or enforcement of this Agreement or any other
Collateral Document and hereby waives all benefit or advantage of all such laws
and covenants that it will not hinder, delay or impede the execution of any
power granted to the Collateral Agent in this Agreement or in any other
Collateral Document but will suffer and permit the execution of every such
power as though no such law were in force.

 

(b)  Each Grantor, to the extent it
may lawfully do so, on behalf of itself and all who may claim through or under
it, including without limitation any and all subsequent creditors, vendees,
assignees and lienors, waives and releases all rights to demand or to have any
marshaling of 

 

24

 

the Collateral upon any sale, whether made under any power of sale
granted herein or pursuant to judicial proceedings or upon any foreclosure or
any enforcement of this Agreement or any other Collateral Document and consents
and agrees that all the Collateral may at any such sale be offered and sold as
an entirety.

 

(c)  Each Grantor waives, to the
extent permitted by applicable law, presentment, demand, protest and any notice
of any kind (except notices explicitly required hereunder or under any Note
Document) in connection with this Agreement and any other Collateral Document
and any action taken by the Collateral Agent with respect to the Collateral.

 

7.6  Limitation
on Collateral Agent’s Duty in Respect of Collateral. Beyond its duties as
to the custody thereof expressly provided in Section 10.2 herein and to
account to the Secured Parties and the Grantors for moneys and other property
received by it hereunder, the Collateral Agent shall not have any duty to the
Grantors or to the Secured Parties as to any Collateral in its possession or
control or in the possession or control of any of its agents or nominees, or
any income thereon or as to the preservation of rights against prior parties or
any other rights pertaining thereto.

 

SECTION 8.  COLLATERAL ACCOUNT; DISTRIBUTIONS

 

8.1  The
Collateral Account.  On the date
hereof, there shall be established and, at all times thereafter until the Liens
created by this Agreement and by each other Collateral Document shall have
terminated, there shall be maintained with the Collateral Agent at the office
of the Collateral Agent’s corporate trust administration, an account which
shall be entitled the “Cellu Tissue First Priority Collateral Account” (the “First-Priority
Collateral Account”) and an account which shall be entitled the “Cellu
Tissue Second-Priority Collateral Account” (the “Second-Priority Collateral
Account”). All moneys which are required by the Indenture, this Agreement
or by any Mortgage to be delivered to the Collateral Agent while an Event of
Default has occurred and is continuing or which are received by the Collateral
Agent or any agent or nominee of the Collateral Agent in respect of the
Collateral or otherwise in accordance with the terms of the Indenture, whether
in connection with the exercise of the remedies provided in this Agreement or
in any other Collateral Document or otherwise, shall be deposited (as directed
pursuant to an Officers’ Certificate as defined under the Indenture) (a) in
the First-Priority Collateral Account, to the extent that such moneys
constitute Proceeds of First-Priority Collateral or constitute First-Priority
Collateral under the terms of the Indenture and (b) in the Second-Priority
Collateral Account, to the extent that such moneys constitute Proceeds of
Second-Priority Collateral or constitute Second-Priority Collateral under the
terms of the Indenture and are not otherwise required under the Intercreditor
Agreement to be delivered to the Bank Administrative Agent. Moneys in the
First-Priority Collateral Account and the Second-Priority Collateral Account
shall be held by the Collateral Agent as part of the Collateral and applied in
accordance with the terms of this Agreement.

 

8.2  Control of
Collateral Account.  All right, title
and interest in and to the Collateral Accounts shall vest in the Collateral
Agent, and funds on deposit in the Collateral Accounts shall constitute part of
the Collateral. The Collateral Accounts shall be subject to the exclusive
dominion and control of the Collateral Agent, and no Grantor shall have any
right of withdrawal from the Collateral Accounts without the Collateral Agent’s
consent.

 

8.3  Investment
of Funds Deposited in Collateral Account. The Collateral Agent shall invest
and reinvest moneys on deposit in the Collateral Accounts at any time in Cash
Equivalents as directed in writing by the relevant Grantor. In the absence of
such directions, moneys shall remain

 

25

 

uninvested. All such
investments and the interest and income received thereon and the net proceeds
realized on the sale or redemption thereof shall be held in the Collateral
Accounts as part of the Collateral. The Collateral Agent shall not be
responsible for any diminution in funds resulting from such investments or any
liquidation prior to maturity.

 

8.4  Withdrawals
by the Grantors.  The Grantors shall
be permitted to make withdrawals from the Collateral Accounts pursuant to the
provisions of the Indenture.

 

8.5  Application
of Moneys.  The Collateral Agent
shall hold and apply moneys in the Collateral Accounts in accordance with the
provisions of the Indenture.

 

8.6  Collateral
Agent’s Calculations.  All
distributions made by the Collateral Agent pursuant to Section 8.5 shall
be final (absent manifest error), and the Collateral Agent shall have no duty
to inquire as to the application of any amounts distributed by it.

 

8.7  Excess
Payments.  If at any time when an
Event of Default shall have occurred and be continuing, any Secured Party (a “Receiving
Party”) shall receive any payment or distribution on account of the
Obligations owed to such Receiving Party (whether voluntary, involuntary,
through the exercise of any rights of set-off, or otherwise, and whether in
cash, property or securities) representing proceeds of any of the Collateral
and which is in excess of the payments or distributions such Receiving Party
would have received through the operation of Section 8.5 and after giving
effect to the circumstances described in Section 11.15 (such payments or
distributions, “Excess Payments”), then such Receiving Party shall hold
such Excess Payments in trust for the benefit of all Secured Parties and shall
promptly pay over such Excess Payments in the form received (duly endorsed, if
necessary, to the Collateral Agent) to the Collateral Agent, for distribution
by the Collateral Agent pursuant to Section 8.5.

 

SECTION 9.  AGREEMENTS WITH THE COLLATERAL AGENT

 

9.1  Delivery
of Secured Debt Documents.  On the date
hereof, the Company shall deliver to the Collateral Agent true and complete
copies of each Secured Debt Document as in effect on the date hereof. The
Company shall deliver to the Collateral Agent, promptly upon the execution
thereof, (i) a true and complete copy of all amendments, modifications or
supplements to any Secured Debt Document entered into after the date hereof,
and (ii) a true and complete copy of any new Secured Debt Document entered
into after the date hereof.

 

9.2  Compensation
and Expenses.  Each Grantor, jointly
and severally, agrees to pay to the Collateral Agent, from time to time upon
demand, (i) compensation (which shall not be limited by any provision of
law in regard to compensation of fiduciaries or of a Collateral Agent of an express
trust) for its services hereunder and for administering the Collateral and (ii) all
of the fees, costs and expenses of the Collateral Agent (including, without
limitation, the reasonable fees and disbursements of its counsel, advisors and
agents) (A) arising in connection with the preparation, execution,
delivery, modification, termination and administration of this Agreement, each
other Note Document or the enforcement of any of the provisions hereof or
thereof, (B) incurred or required to be advanced in connection with the
administration of the Collateral, the sale or other disposition of Collateral
and the preservation, protection or defense of the Collateral Agent’s rights
under this Agreement, each other Note Document and in and to the Collateral, (C)
incurred by the Collateral Agent in connection with the removal of the
Collateral Agent pursuant to Section 10.10 or (D) the failure by any
Grantor to perform or observe any of the provisions of this Agreement or any
other 

 

26

 

Note Document. Such fees,
costs and expenses are intended to constitute expenses of administration under
any other bankruptcy law relating to creditors’ rights generally. The
obligations of the Grantors under this Section 9.2 shall survive the
termination of the other provisions of this Agreement and the other Note
Documents and the resignation or removal of the Collateral Agent hereunder.

 

9.3  Stamp and
Other Similar Taxes.  Each Grantor,
jointly and severally, agrees to indemnify and hold harmless the Collateral
Agent and each Secured Party from any present or future claim for liability for
any stamp or any other similar tax, and any penalties or interest with respect
thereto, which may be assessed, levied or collected by any jurisdiction in
connection with this Agreement, any other Note Document or any Collateral. The
obligations of the Grantors under this Section 9.3 shall survive the
termination of the other provisions of this Agreement and the other Note
Documents and the resignation or removal of the Collateral Agent hereunder.

 

9.4  Filing
Fees, Excise Taxes, Etc.  Each
Grantor, jointly and severally, agrees to pay or to reimburse the Collateral
Agent for any and all payments made by the Collateral Agent in respect of all
search, filing, recording and registration fees, taxes, excise taxes and other
similar imposts which may be payable or determined to be payable in respect of
the execution and delivery of this Agreement and the other Note Documents. The
obligations of the Grantors under this Section 9.4 shall survive the
termination of the other provisions of this Agreement and the other Note
Documents and the resignation or removal of the Collateral Agent hereunder.

 

9.5  Indemnification.  Each Grantor, jointly and severally, agrees
to pay, indemnify, and hold the Collateral Agent and each Secured Party (and
their respective directors, officers, agents and employees) harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including, without limitation, the
reasonable fees and expenses of counsel, advisors and agents) or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, and each other
Note Document including, without limitation in connection with any action taken
with respect to the Collateral and any contract, agreement, interest or
obligation constituting part of the Collateral, unless determined to have been
caused by from the gross negligence or willful misconduct of the indemnified
party, including for taxes in any jurisdiction in which the Collateral Agent is
subject to tax by reason of actions hereunder, unless such taxes are imposed on
or measured by compensation paid to the Collateral Agent under Section 9.2.
In any suit, proceeding or action brought by the Collateral Agent under or with
respect to any contract, agreement, interest or obligation constituting part of
the Collateral for any sum owing thereunder, or to enforce any provisions
thereof, each Grantor, jointly and severally, will save, indemnify and keep the
Collateral Agent and each Secured Party harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever of the obligor thereunder,
arising out of a breach by any Grantor of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing to or in
favor of such obligor or its successors from any Grantor, and all such
obligations of any Grantor shall be and remain enforceable against and only
against the Grantors and shall not be enforceable against the Collateral Agent
or any Secured Party. The agreements in this Section 9.5 shall survive the
termination of the other provisions of this Agreement and the other Note
Documents and the resignation or removal of the Collateral Agent hereunder.

 

9.6  Collateral
Agent’s Lien.  Notwithstanding
anything to the contrary in this Agreement or in any other Note Document, as
security for the payment of the Collateral Agent Fees (i) the Collateral
Agent is hereby granted a lien upon all Collateral and (ii) the Collateral
Agent shall have 

 

27

 

the right to use and apply
any of the funds held by the Collateral Agent in the Collateral Accounts to
cover such Collateral Agent Fees.

 

SECTION 10.  THE COLLATERAL AGENT

 

10.1  Collateral
Agent’s Appointment as Attorney-in-Fact, etc.  (a)  Each Grantor hereby
irrevocably constitutes and appoints the Collateral Agent and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Grantor and in the name of such Grantor or in its own name, for
the purpose of carrying out the terms of this Agreement and the other
Collateral Documents, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and the other Collateral Documents,
and, without limiting the generality of the foregoing, each Grantor hereby
gives the Collateral Agent the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do any or all of the following:

 

(i)                                     in the name of
such Grantor or its own name, or otherwise, take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any Receivable or with respect to any other
Collateral and file any claim or take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Collateral Agent
for the purpose of collecting any and all such moneys due with respect to the
Collateral whenever payable;

 

(ii)                                  in the case of
any Intellectual Property, execute and deliver, and have recorded, any and all
agreements, instruments, documents and papers as necessary to evidence the
Collateral Agent’s and the Secured Parties’ security interest in such
Intellectual Property and the goodwill and general intangibles of such Grantor
relating thereto or represented thereby;

 

(iii)                               pay or
discharge taxes and Liens levied or placed on or threatened against the
Collateral, effect any repairs or any insurance called for by the terms of this
Agreement or any Mortgage and pay all or any part of the premiums therefor and
the costs thereof;

 

(iv)                              execute, in
connection with any sale provided for in Section 6.5 or 6.6, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral; and

 

(v)                                 (1) direct
any party liable for any payment under any of the Collateral to make payment of
any and all moneys due or to become due thereunder directly to the Collateral
Agent or as the Collateral Agent shall direct; (2) ask or demand for,
collect, and receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral; (3) sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (4) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding 

 

28

 

brought
against such Grantor with respect to any Collateral; (6) settle,
compromise or adjust any such suit, action or proceeding and, in connection
therewith, give such discharges or releases as the Collateral Agent may deem
appropriate; (7) assign any Copyright, Patent or Trademark (along with the
goodwill of the business to which any such Copyright, Patent or Trademark
pertains), throughout the world for such term or terms, on such conditions, and
in such manner, as the Collateral Agent may in its sole discretion determine;
and (8) generally, sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though the Collateral Agent were the absolute owner thereof for all
purposes, and do, at the Collateral Agent’s option and such Grantor’s expense,
at any time, or from time to time, all acts and things which the Collateral
Agent deems necessary to protect, preserve or realize upon the Collateral and
the Collateral Agent’s and the Secured Parties’ security interests therein and
to effect the intent of this Agreement and the other Collateral Documents, all
as fully and effectively as such Grantor might do.

 

Anything in this Section 10.1(a) to
the contrary notwithstanding, the Collateral Agent agrees that it will not
exercise any rights under the power of attorney provided for in this Section 10.1(a) unless
an Event of Default shall have occurred and be continuing.

 

(b)  If any Grantor fails to
perform or comply with any of its agreements contained herein, the Collateral
Agent, at its option, but without any obligation so to do, may perform or
comply, or otherwise cause performance or compliance, with such agreement.

 

(c)  The expenses of the Collateral
Agent incurred in connection with actions undertaken as provided in this Section 10.1,
together with interest thereon at a rate per annum equal to the highest rate
per annum at which interest would be payable on any category of past due
payments under the Indenture, from the date of payment by the Collateral Agent
to the date reimbursed by the relevant Grantor, shall be payable by such
Grantor to the Collateral Agent on demand.

 

(d)  Each Grantor hereby ratifies
all that said attorneys shall lawfully do or cause to be done by virtue hereof.
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement and each other Note Document
is terminated and the security interests created hereby and thereby are
released.

 

10.2  Duty of
Collateral Agent.  The Collateral
Agent’s sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of
the New York UCC or otherwise, shall be to deal with it in the same manner as
the Collateral Agent deals with similar property for its own account. Neither
the Collateral Agent, any Secured Party nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Collateral Agent and the Secured Parties hereunder are solely
to protect the Collateral Agent’s and the Secured Parties’ interests in the
Collateral and shall not impose any duty upon the Collateral Agent or any
Secured Party to exercise any such powers. The Collateral Agent and the Secured
Parties shall be accountable only for amounts that they actually receive as a
result of the exercise of such powers, and neither they nor any of their
officers, directors, employees 

 

29

 

or agents shall be
responsible to any Grantor or any Secured Party for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct.

 

10.3  Filing of
Financing Statements.  Pursuant to
any applicable law, each Grantor authorizes the Collateral Agent to file or
record financing statements and other filing or recording documents or
instruments with respect to the Collateral without the signature of such
Grantor in such form and in such offices as necessary to perfect the security
interests of the Collateral Agent under this Agreement and under each other
Collateral Document. Each Grantor authorizes the Collateral Agent to use the
collateral description “all personal property” in any such appropriate
financing statements. Each Grantor hereby ratifies and authorizes the filing by
the Collateral Agent of any financing statement with respect to the Collateral
made prior to the date hereof. Notwithstanding the foregoing, in no event shall
the Collateral Agent have any obligation to monitor the perfection,
continuation of perfection or the sufficiency or validity of any security
interest in or related to the Collateral or to prepare or file any Uniform
Commercial Code financing statement or continuation statement.

 

10.4  Authority
of Collateral Agent.  Each Grantor
acknowledges that the rights and responsibilities of the Collateral Agent under
this Agreement and the other Collateral Documents with respect to any action
taken by the Collateral Agent or the exercise or non-exercise by the Collateral
Agent of any option, voting right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Agreement or any other
Collateral Document shall, as between the Collateral Agent and the Secured
Parties, be governed by the Note Documents and by such other agreements with
respect thereto as may exist from time to time among the Collateral Agent and
the Secured Parties, but, as between the Collateral Agent and the Grantors, the
Collateral Agent shall be conclusively presumed to be acting as agent for the
Secured Parties with full and valid authority so to act or refrain from acting,
and no Grantor shall be under any obligation, or entitlement, to make any
inquiry respecting such authority.

 

10.5  Exculpatory
Provisions.  (a)  The
Collateral Agent shall not be responsible in any manner whatsoever for the
correctness of any recitals, statements, representations or warranties in any
Note Document, all of which are made solely by the Grantors. The Collateral
Agent makes no representations as to, nor shall it be responsible for, the
existence, genuineness, value or condition of any of the Collateral or any part
thereof, the title of the Grantors thereto or the security afforded or intended
to be afforded by this Agreement and the other Collateral Documents, or the
validity, execution (except its execution), enforceability, legality or
sufficiency of this Agreement, the other Collateral Documents or the
Intercreditor Agreement or the Obligations or the validity, perfection,
priority or enforceability of the liens or security interests in any of the
Collateral created or intended to be created by this Agreement or the other
Collateral Documents, or the validity or sufficiency of the Collateral, or
insuring the Collateral or the payment of taxes, charges, assessments or liens
upon the Collateral or otherwise as to the maintenance of the Collateral, and
the Collateral Agent shall incur no liability or responsibility in respect of
any such matters. The Collateral Agent shall have no responsibility for
preparing, recording, filing, re-recording or refiling any financing statement,
continuation statement or other instrument in any public office at any time.

 

(b)  The Collateral Agent shall not
be required to ascertain or inquire as to the performance by the Grantors of
any of the covenants or agreements contained herein, in the other Collateral
Documents or in any Secured Debt Document. Whenever it is necessary, or in the
opinion of the Collateral Agent advisable, for the Collateral Agent to
ascertain the amount of Obligations then held by Secured Parties, the Collateral
Agent may rely on a certificate of the Trustee.

 

30

 

(c)  The Collateral Agent shall be
under no obligation or duty to take any action under this Agreement or any
other Note Document or otherwise if taking such action (i) would subject
the Collateral Agent to a tax in any jurisdiction where it is not then subject
to a tax or (ii) would require the Collateral Agent to qualify to do
business in any jurisdiction where it is not then so qualified, unless the Collateral
Agent shall receive security or indemnity reasonably satisfactory to it against
such tax (or equivalent liability), or any liability resulting from such
qualification, in each case as results from the taking of such action under
this Agreement or any other Note Document.

 

(d)  The Collateral Agent shall
have the same rights with respect to any Obligation held by it as any other
Secured Party and may exercise such rights as though it were not the Collateral
Agent hereunder, and it and its Affiliates may accept deposits from, lend money
to, provide services to and generally engage in any kind of banking or trust
business with, any of the Grantors as if it were not the Collateral Agent.

 

(e)  The Collateral Agent shall not
be liable for any action taken or omitted to be taken in accordance with this
Agreement or any other Collateral Document except for its own negligence or
willful misconduct.

 

(f)  The permissive right of the
Collateral Agent to take any action under this Agreement or any other Collateral
Document shall not be construed as a duty to so act.

 

(g)  The Collateral Agent shall not
be liable for any action taken, suffered or omitted to be taken by it in good
faith and reasonably believed by it to be authorized or within the discretion
or rights or powers conferred upon it by the Indenture and this Agreement,
unless its conduct constitutes willful misconduct or negligence.

 

(h)  In no event shall the
Collateral Agent be responsible or liable for special, indirect or
consequential loss or damage of any kind whatsoever (including, but not limited
to, loss of profit), irrespective of whether the Collateral Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.

 

(i)  The Collateral Agent shall be
deemed to have exercised reasonable care in the custody of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which it accords its own property and in accordance with Section 9-207
of the New York UCC  and shall not be liable or responsible for
any loss or diminution in the value of any of the Collateral by reason of the
act or omission of any carrier, forwarding agency or other agent or bailee
selected by the Collateral Agent in good faith.

 

10.6  Delegation
of Duties.  The Collateral Agent may
execute any of the trusts or powers hereof and perform any duty hereunder or
under any other Note Document either directly or by or through agents or
attorneys-in-fact. The Collateral Agent shall be entitled to advice of counsel
concerning all matters pertaining to such trusts, powers and duties, and the
advice of such counsel or an Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon. The Collateral
Agent shall not be responsible for the negligence or misconduct of any agents
or attorneys-in-fact selected by it without gross negligence or willful
misconduct.

 

10.7  Reliance
by Collateral Agent.  (a)  Whenever
in the administration of this Agreement, or any other Collateral Document the
Collateral Agent shall deem it necessary or 

 

31

 

desirable that a factual
matter be proved or established in connection with the Collateral Agent taking,
suffering or omitting any action hereunder or thereunder, such matter (unless
other evidence in respect thereof is herein specifically prescribed) may be
deemed to be conclusively proved or established by a certificate of a
Responsible Officer delivered to the Collateral Agent, and such certificate
shall be full warrant to the Collateral Agent for any action taken, suffered or
omitted in reliance thereon.

 

(b)  The Collateral Agent may, at
the expense of the Grantors, consult with counsel, and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered by it hereunder in accordance therewith. The
Collateral Agent shall have the right at any time to seek instructions
concerning the administration of this Agreement or any other Note Document from
any court of competent jurisdiction. Any Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate of a Responsible
Officer or representations made by a Responsible Officer in a writing delivered
to the Collateral Agent.

 

(c)  The Collateral Agent may
conclusively rely upon, and shall be fully protected in acting upon or failing
to act as a consequence of, any resolution, statement, certificate, instrument,
opinion, report, notice, request, consent, order, bond or other paper or
document which it believes in good faith is genuine and has been signed or
presented by the proper party or parties or, in the case of telecopies, to have
been sent by the proper party or parties. In the absence of its own gross
negligence or willful misconduct, the Collateral Agent may conclusively rely,
as to the truth of the statements and the correctness of the opinions expressed
therein, upon any such certificates, opinions or other information and need not
investigate any fact or matter stated therein.

 

(d)  The Collateral Agent shall not
be under any obligation to exercise any of the rights or powers vested in the
Collateral Agent by this Agreement or by any other Note Document, unless the
Collateral Agent shall have been provided security and indemnity reasonably
satisfactory to it against the costs, expenses and liabilities which may be
incurred by the Collateral Agent, its agents and its counsel in the exercise of
any such right or power or in compliance with such request or direction,
including such reasonable advances as may be requested by the Collateral Agent.

 

(e)  Upon any application or demand
by any of the Grantors to the Collateral Agent to take or permit any action
under any of the provisions of this Agreement or any other Note Document, the
Company shall furnish to the Collateral Agent a certificate of a Responsible
Officer stating that all conditions precedent, if any, provided for in this
Agreement or in any Note Document relating to the proposed action have been
complied with, and in the case of any such application or demand as to which
the furnishing of any document is specifically required by any provision of
this Agreement or any Note Document relating to such particular application or
demand, such additional document shall also be furnished.

 

10.8  Limitations
on Duties of Collateral Agent.  (a)  The
Collateral Agent shall be obligated to perform such duties and only such duties
as are specifically set forth in this Agreement, or any other Note Document,
and no implied covenants or obligations shall be read into this Agreement or
any other Note Document against the Collateral Agent. If and so long as an
Event of Default has occurred and is continuing, the Collateral Agent may
exercise the rights and powers vested in the Collateral Agent by this Agreement
or any other Note Document. The Collateral Agent shall not be liable with
respect to any action taken or omitted to be taken.

 

32

 

(b)  Except as herein otherwise
expressly provided, the Collateral Agent shall not be under any obligation to
take any action that is discretionary under the provisions of this Agreement or
of any other Note Document, except upon the written request of the Trustee or
the other Secured Parties pursuant to the terms of the Indenture.

 

(c)  No provision of this
Agreement, or any other Note Document shall be deemed to impose any duty or
obligation on the Collateral Agent to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Collateral Agent
shall be unqualified or incompetent, to perform any such act or acts or to
exercise any such right, power, duty or obligation or if such performance or
exercise would constitute doing business by the Collateral Agent in such
jurisdiction or impose a tax on the Collateral Agent by reason thereof or to
expend or risk its own funds or otherwise incur any financial liability in the
performance of its duties hereunder.

 

10.9  Moneys to
be Held in Trust.  All moneys
received by the Collateral Agent under or pursuant to any provision of this
Agreement, or any other Note Document (except Collateral Agent Fees) shall be
held in trust for the purposes for which they were paid or are held. The
Collateral Agent shall not be liable for interest on any money or assets
received by it except as the Collateral Agent may agree in writing. Assets held
in trust by the Collateral Agent need not be segregated from other assets
except to the extent required by law.

 

10.10  Resignation
and Removal of the Collateral Agent. 
(a)  The Collateral Agent may at any time, by giving written
notice to the Company, resign and be discharged of the responsibilities hereby
created, such resignation to become effective upon (i) the appointment of a
successor Collateral Agent and (ii) the acceptance of such appointment by
such successor Collateral Agent. If no successor Collateral Agent shall be
appointed and shall have accepted such appointment within 60 days after the
Collateral Agent gives the aforesaid notice of resignation, the Collateral
Agent, the Company or any Secured Party may apply to any court of competent jurisdiction
at the expense of the Grantors to appoint a successor Collateral Agent to act
until such time, if any, as a successor Collateral Agent shall have been
appointed as provided in this Section 10.10. Any successor so appointed by
such court shall immediately and without further act be superseded by any
successor Collateral Agent appointed by the Trustee or its successor as
provided in Section 10.10(b). The Collateral Agent shall be entitled to
the Collateral Agent Fees to the extent incurred or arising, or relating to
events occurring, before such resignation or removal or in connection with
actions taken in accordance with Section 10.10(b).

 

(b)  If at any time the Collateral
Agent shall resign or be removed or otherwise become incapable of acting, or if
at any time a vacancy shall occur in the office of the Collateral Agent for any
other cause, a successor Collateral Agent may be appointed by the Company,
which consent shall not be unreasonably withheld. The powers, duties, authority
and title of the predecessor Collateral Agent shall be terminated and canceled
without procuring the resignation of such predecessor and without any other
formality (except as may be required by applicable law) than appointment and
designation of a successor in writing duly acknowledged and delivered to the
predecessor and the Company. Such appointment and designation shall be full
evidence of the right and authority to make the same and of all the facts
therein recited, and this Agreement shall vest in such successor, without any
further act, deed or conveyance, all the estates, properties, rights, powers,
trusts, duties, authority and title of its predecessor; but such predecessor
shall, nevertheless, on the written request of the Company or the successor,
execute and deliver an instrument transferring to such successor all the
estates, properties, rights, powers, trusts, duties, authority and 

 

33

 

title of such predecessor hereunder and shall deliver all Collateral
held by it or its agents to such successor. Should any deed, conveyance or
other instrument in writing from any Grantor be required by any successor
Collateral Agent for more fully and certainly vesting in such successor the
estates, properties, rights, powers, trusts, duties, authority and title vested
or intended to be vested in the predecessor Collateral Agent, any and all such
deeds, conveyances and other instruments in writing shall, on request of such
successor, be executed, acknowledged and delivered by such Grantor. If such
Grantor shall not have executed and delivered any such deed, conveyance or
other instrument within 10 days after it received a written request from the
successor Collateral Agent to do so, or if an Event of Default has occurred and
is continuing, the predecessor Collateral Agent may execute the same on behalf
of such Grantor. Such Grantor hereby appoints any predecessor Collateral Agent
as its agent and attorney to act for it as provided in the next preceding
sentence.

 

10.11  Status
of Successor Collateral Agent.  Every
successor Collateral Agent appointed pursuant to Section 10.10(b) shall be
a bank or trust company in good standing and having power to act as Collateral
Agent hereunder, incorporated under the laws of the United States of America or
any State thereof or the District of Columbia and having its principal
corporate trust office within the 48 contiguous States and shall also have
capital, surplus and undivided profits of not less than $100,000,000, if there
be such an institution with such capital, surplus and undivided profits
willing, qualified and able to accept the trust hereunder upon reasonable or
customary terms.

 

10.12  Merger
of the Collateral Agent.  Any
corporation into which the Collateral Agent may be merged, or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Collateral Agent shall be a party, shall be Collateral Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of the parties hereto.

 

10.13  Co-Collateral
Agent; Separate Collateral Agent.  (a)  If
at any time or times it shall be necessary or prudent in order to conform to
any law of any jurisdiction in which any of the Collateral shall be located, or
to avoid any violation of law or imposition on the Collateral Agent of taxes by
such jurisdiction not otherwise imposed on the Collateral Agent, or the
Collateral Agent shall be advised by Opinion of Counsel that it is necessary or
prudent in the interest of the Secured Parties or the Collateral Agent shall
deem it desirable for its own protection in the performance of its duties
hereunder, the Collateral Agent and each of the Grantors shall execute and
deliver all instruments and agreements necessary or proper to constitute
another bank or trust company, or one or more persons approved by the
Collateral Agent and the Grantors, either to act as Collateral Agent or
co-Collateral Agents of all or any of the Collateral under this Agreement,
jointly with the Collateral Agent originally named herein or therein or any
successor Collateral Agent, or to act as separate Collateral Agent or
Collateral Agents of any of the Collateral. If any of the Grantors shall not
have joined in the execution of such instruments and agreements within 10 days
after it receives a written request from the Collateral Agent to do so, or if
an Event of Default has occurred and is continuing, the Collateral Agent may
act under the foregoing provisions of this Section 10.13(a) without
the concurrence of such Grantors and execute and deliver such instruments and
agreements on behalf of such Grantors. Each of the Grantors hereby appoints the
Collateral Agent as its agent and attorney to act for it under the foregoing
provisions of this Section 10.13(a) in either of such contingencies.

 

(b)  Every separate Collateral
Agent and every co-Collateral Agent, other than any successor Collateral Agent
appointed pursuant to Section 10.10(b), shall, to the extent permitted by
law, be appointed and act and be such, subject to the following provisions and
conditions:

 

34

 

(i)                                     all rights,
powers, duties and obligations conferred upon the Collateral Agent in respect
of the custody, control and management of moneys, papers or securities shall be
exercised solely by the Collateral Agent or any agent appointed by the
Collateral Agent;

 

(ii)                                  all rights,
powers, duties and obligations conferred or imposed upon the Collateral Agent
hereunder shall be conferred or imposed and exercised or performed by the
Collateral Agent and such separate Collateral Agent or separate Collateral
Agents or co-Collateral Agent or co-Collateral Agents, jointly, as shall be
provided in the instrument appointing such separate Collateral Agent or separate
Collateral Agents or co-Collateral Agent or co-Collateral Agents, except to the
extent that under any law of any jurisdiction in which any particular act or
acts are to be performed the Collateral Agent shall be incompetent or
unqualified to perform such act or acts, or unless the performance of such act
or acts would result in the imposition of any tax on the Collateral Agent which
would not be imposed absent such joint act or acts, in which event such rights,
powers, duties and obligations shall be exercised and performed by such
separate Collateral Agent or separate Collateral Agents or co-Collateral Agent
or co-Collateral Agents;

 

(iii)                               no power given
hereby to, or which it is provided herein or therein may be exercised by, any
such co-Collateral Agent or co-Collateral Agents or separate Collateral Agent
or separate Collateral Agents shall be exercised hereunder or thereunder by
such co-Collateral Agent or co-Collateral Agents or separate Collateral Agent
or separate Collateral Agents except jointly with, or with the consent in
writing of, the Collateral Agent, anything contained herein to the contrary
notwithstanding;

 

(iv)                              no Collateral
Agent hereunder shall be personally liable by reason of any act or omission of
any other Collateral Agent hereunder; and

 

(v)                                 the Company and
the Collateral Agent, at any time by an instrument in writing executed by them
jointly, may accept the resignation of or remove (for any reason or no reason
at all) any such separate Collateral Agent or co-Collateral Agent and, in that
case by an instrument in writing executed by them jointly, may appoint a
successor to such separate Collateral Agent or co-Collateral Agent, as the case
may be, anything contained herein to the contrary notwithstanding. If the
Company shall not have joined in the execution of any such instrument within 10
days after it receives a written request from the Collateral Agent to do so, or
if an Event of Default has occurred and is continuing, the Collateral Agent
shall have the power to accept the resignation of or remove any such separate
Collateral Agent or co-Collateral Agent and to appoint a successor without the
concurrence of the Company, the Company hereby appointing the Collateral Agent
its agent and attorney to act for it in such connection in such contingency. If
the Collateral Agent shall have appointed a separate Collateral Agent or
separate Collateral Agents or co-Collateral Agent or co-Collateral Agents as
above provided, the Collateral Agent may at any time, by an instrument in
writing, accept the resignation of or remove any such separate Collateral Agent
or co-Collateral Agent and the successor to any such separate Collateral Agent
or co-Collateral Agent shall be appointed by the Company and the Collateral
Agent, or by the Collateral Agent alone pursuant to this Section 10.13(b).

 

10.14  Treatment
of Payee or Indorsee by Collateral Agent; 
Representatives of Secured Parties. 
(a)  The Collateral Agent may treat the registered holder or,
if none, the payee or indorsee of any promissory note or debenture evidencing
an Obligation as the absolute owner thereof

 

35

 

for all purposes and shall
not be affected by any notice to the contrary, whether such promissory note or
debenture shall be past due or not.

 

(b)  Any Person that shall be
designated as the duly authorized representative of one or more Secured Parties
to act as such in connection with any matters pertaining to this Agreement, any
other Note Document or the Collateral shall present to the Collateral Agent
such documents, including, without limitation, Opinions of Counsel, as the
Collateral Agent may reasonably require, in order to demonstrate to the
Collateral Agent the authority of such Person to act as the representative of
such Secured Parties.

 

SECTION 11.  MISCELLANEOUS

 

11.1  Notices.  Unless otherwise specified herein, all
notices, requests, demands or other communications given to any of the Grantors
or the Collateral Agent shall be given in writing or by facsimile transmission
and shall be deemed to have been duly given when personally delivered or when
duly deposited in the mails, registered or certified mail postage prepaid, or
when transmitted by facsimile transmission, addressed to such party at its
address specified on Schedule 1 hereof, in the case of the Grantors, or on the
signature pages thereof, in the case of the Collateral Agent, or any other
address which such party shall have specified as its address for the purpose of
communications hereunder, by notice given in accordance with this Section 11.1
to the party sending such communication; provided that any notice,
request or demand to the Collateral Agent shall not be effective until received
by the Collateral Agent in writing or by facsimile transmission in the
corporate trust administration at the office designated by it pursuant to this Section 11.1.

 

11.2  Amendments
in Writing.  (a)  The
Collateral Agent and the Grantors may, from time to time, enter into written
agreements supplemental hereto for the purpose of amending, modifying or adding
to, or waiving any provisions of, this Agreement or changing in any manner the
rights of the Collateral Agent, the Secured Parties or the Grantors hereunder
in accordance with and subject to the terms set forth in Article IX of the
Indenture. Notwithstanding the foregoing, such supplemental agreements shall
not amend, modify or waive any provision of Section 9 or 10 or alter the
duties, rights or obligations of the Collateral Agent hereunder without the
written consent of the Collateral Agent.

 

(b)  Without the consent of any
Secured Party, the Collateral Agent and any of the Grantors, at any time and
from time to time, may in accordance with Section 9.1 of the Indenture
enter into one or more agreements supplemental hereto, in form satisfactory to
the Collateral Agent, (i) to add to the covenants of such Grantor for the
benefit of the Secured Parties or to surrender any right or power herein
conferred upon such Grantor; (ii) to mortgage or pledge to the Collateral
Agent, or grant a security interest in favor of the Collateral Agent in, any
types or items of property or assets that constitute types or items of property
or assets included in the definition of Collateral as additional security for
the Obligations; (iii) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein or therein, or to make any other provision with respect to
matters or questions arising hereunder which shall not be inconsistent with any
provision hereof; provided that any such action contemplated by this
clause (iii) shall not adversely affect the interests of the Secured
Parties; or (iv) to the extent that the pledge of any Capital Stock
results in the Company being required to file separate financial statements of
any Subsidiary of the Company with the Securities and Exchange Commission
pursuant to Rule 3-10 or Rule 3-16 of Regulation S-X under the
Securities Act, to release such Capital Stock from the 

 

36

 

Collateral but only to the extent necessary for the Company not to be
subject to such filing requirement.

 

(c)  The Collateral Agent may, but
shall not be obligated to, enter into any supplemental agreement pursuant to
this Section 11.2 that would adversely affect its interests hereunder.

 

11.3  No Waiver
by Course of Conduct; Cumulative Remedies. 
Neither the Collateral Agent nor any Secured Party shall by any act
(except by a written instrument pursuant to Section 11.2), delay,
indulgence, and omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any default or event of default under
the Note Documents. No failure to exercise, nor any delay in exercising, on the
part of the Collateral Agent or any Secured Party, any right, power or
privilege hereunder or under any other Note Document shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder or under any other Note Document shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Collateral Agent or any Secured Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Collateral Agent or such Secured Party would otherwise have on
any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.

 

11.4  Enforcement
Expenses.  (a)  Each
Grantor agrees to pay or reimburse each Secured Party and the Collateral Agent
for all its costs and expenses incurred in enforcing or preserving any rights
under this Agreement, the other Note Documents and the Secured Debt Documents
to which such Grantor is a party, including, without limitation, the fees and
disbursements of counsel to each Secured Party and of counsel to the Collateral
Agent.

 

(b)  The agreements in this Section 11.4
shall survive repayment of the Obligations and all other amounts payable under
the Note Documents.

 

11.5  Successors
and Assigns.  This Agreement shall be
binding upon the successors and assigns of each Grantor and shall inure to the
benefit of the Collateral Agent and the Secured Parties and their successors
and assigns; provided that no Grantor may assign, transfer or delegate
any of its rights or obligations under this Agreement without the prior written
consent of the Collateral Agent.

 

11.6  Counterparts.  This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

 

11.7  Severability.  Any provision of this Agreement that 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 provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

11.8  Section Headings.  The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.

 

37

 

11.9  Integration.  This Agreement, the Mortgages, the Note
Documents and the Intercreditor Agreement represent the agreement of the
Grantors, the Collateral Agent and the Secured Parties with respect to the
subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent or any Secured Party
related to the subject matter hereof and thereof not expressly set forth or
referred to herein or in the Note Documents, the Mortgages and the
Intercreditor Agreement.

 

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

 

11.11  Submission
To Jurisdiction; Waivers.  Each
Grantor hereby irrevocably and unconditionally:

 

(i)                                     submits for
itself and its property in any legal action or proceeding relating to this
Agreement and the Note Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof;

 

(ii)                                  consents that
any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same;

 

(iii)                               agrees that
service of process in any such action or proceeding may be effected by mailing
a copy thereof by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to such Grantor at its address referred to in Section 11.1
or at such other address of which the Collateral Agent shall have been notified
pursuant thereto;

 

(iv)                              agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any other
jurisdiction; and

 

(v)                                 waives, to the
maximum extent not prohibited by law, any right it may have to claim or recover
in any legal action or proceeding referred to in this Section any special,
exemplary, punitive or consequential damages.

 

11.12  Acknowledgements.  Each Grantor hereby acknowledges that:

 

(i)                                     it has been
advised by counsel in the negotiation, execution and delivery of this
Agreement, the other Note Documents and the other Secured Debt Documents to
which it is a party;

 

(ii)                                  neither the
Collateral Agent nor any Secured Party has any fiduciary relationship with or
duty to any Grantor arising out of or in connection with this Agreement, any of
the other Note Documents or any of the Secured Debt Documents, and the
relationship between the Grantors, on the one hand, and the Collateral Agent
and Secured Parties, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and

 

38

 

(iii)                               no joint venture
is created hereby or by the Note Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Secured Parties or among the
Grantors and the Secured Parties.

 

11.13  Additional
Grantors.  Each Subsidiary of the
Company that is required to become a party to this Agreement pursuant to any
Note Document shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex 1 hereto.

 

11.14  Releases;
Termination of Security Interests.  (a)  The
Liens on the Collateral shall be released at the times, and to the extent,
provided under Section 11.6 of the Indenture; provided, that the
provisions of Sections 9.2, 9.3, 9.4 and 9.5 shall not be affected by any such
termination. At the request and sole expense of any Grantor following any such
termination, the Collateral Agent shall deliver to such Grantor any Collateral
held by the Collateral Agent hereunder, and execute and deliver to such Grantor
such documents as such Grantor shall reasonably request to evidence such
termination.

 

(b)  By acceptance of the benefits
hereof, each Secured Party acknowledges and consents to the provisions of this Section 11.14,
agrees that the Collateral Agent shall incur no liability whatsoever to any
Secured Party for any release effected by the Collateral Agent in accordance
with this Section 11.14.

 

11.15  Reinstatement.  Each Grantor agrees that if any payment made
by a Grantor or other Person and applied to the Obligations is at any time
annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent
or preferential or otherwise required to be refunded or repaid, or is required
to be paid to the Collateral Agent or any other Secured Party pursuant to the
terms hereof, for application in accordance with the priorities set forth
herein, or the proceeds of Collateral are required to be returned by any
Secured Party to such Grantor, its estate, trustee, receiver or any other
Person under any Requirement of Law of any Governmental Authority, then to the
extent of such payment or repayment, any Lien or other Collateral securing such
Obligation shall be and remain in full force and effect as fully as if such
payment had never been made or, if prior thereto the Lien granted hereby or by
any other Collateral Document or other Collateral securing such Obligation
hereunder shall have been released or terminated by virtue of such cancellation
or surrender, such Lien or other Collateral shall be reinstated in full force
and effect, and such prior cancellation or surrender shall not diminish,
release, discharge, impair or otherwise affect any Lien or other Collateral
securing the Obligations of any Grantor in respect of the amount of such
payment.

 

11.16  WAIVER OF
JURY TRIAL.  EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY
SECURED DEBT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

11.17  Force
Majeure.  In no event shall the Collateral
Agent be responsible or liable for any failure or delay in the performance of
its obligations hereunder arising out of or caused by, directly or indirectly,
forces beyond its control, including, without limitation, strikes, work
stoppages, accidents, acts of war or terrorism, civil or military disturbances,
nuclear or natural catastrophes or acts of God, and interruptions, loss or
malfunctions of utilities, communications or computer (software and hardware)
services, it being understood that the Collateral Agent shall use 

 

39

 

reasonable best efforts
which are consistent with accepted practices in the banking industry to resume
performance as soon as practicable under the circumstances.

 

11.18  No
Liability for Clean-up of Hazardous Materials.  In the event that Collateral Agent is
required to acquire title to an asset for any reason, or take any managerial
action of any kind in regard thereto, in order to carry out any fiduciary or
trust obligation for the benefit of another, which in Collateral Agent’s sole
discretion may cause Collateral Agent to be considered an “owner or operator”
under the provisions of the Comprehensive Environmental Response, Compensation
and Liability Act (“CERCLA”), 42 U.S.C. §9601, et seq., or otherwise cause
Collateral Agent to incur liability under CERCLA or any other federal, state or
local law, Collateral Agent reserves the right, instead of taking such action,
to either resign as Collateral Agent or arrange for the transfer of the title
or control of the asset to a court-appointed receiver.  Collateral Agent shall not be liable to
Grantors, Holders or any other Person for any environmental claims or
contribution actions under any federal, state or local law, rule or
regulation by reason of Collateral Agent’s actions and conduct as authorized,
empowered and directed hereunder or relating to the discharge, release or
threatened release of hazardous materials into the environment.  If at any time it is necessary or advisable
for the Facility to be possessed, owned, operated or managed by any Person
(including Collateral Agent) other than Grantors, a Majority in Interest of
Holders shall direct Collateral Agent to appoint an appropriately qualified
Person (excluding Collateral Agent) who they shall designate to possess, own,
operate or manage, as the case may be, the Facility.

 

40

 

IN WITNESS WHEREOF, each of the undersigned has
caused this Note Security Agreement to be duly executed and delivered as of the
date first above written.

 

	
   

  	
   

  	
  CELLU TISSUE HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU TISSUE–CITYFOREST LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU TISSUE CORPORATION – NATURAL DAM

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU TISSUE CORPORATION - NEENAH

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU TISSUE – LONG ISLAND, LLC

  
	
   

  	
   

  	
  By: 

  	
  Cellu Tissue Corporation – Natural Dam, individually
  and as a member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU TISSUE – THOMASTON, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CELLU TISSUE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  

 

 

	
   

  	
   

  	
  COASTAL PAPER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  Van Paper Company, its managing partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INTERLAKE ACQUISITION CORPORATION LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MENOMINEE ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  VAN PAPER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  VAN TIMBER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Office

  
	
   

  	
   

  	
   

  	
   

  
	
  Acknowledged and Agreed to
  as of the date first above written:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  THE BANK OF NEW YORK MELLON
  TRUST COMPANY, N.A., as Collateral Agent

  
	
   

  	
   

  
	
  By:

  	
  /s/ Vaneta Bernard

  	
   

  
	
   

  	
  Name: Vaneta Bernard

  	
   

  
	
   

  	
  Title: Vice President

  	
   

  
	
   

  	
   

  
	
  Address for Notices:

  	
   

  
	
   

  	
   

  
	
  222 Berkeley Street, 2nd
  Floor

  	
   

  
	
  Boston, MA 02116

  	
   

  
	
  Facsimile:  (617) 351-2401

  	
   

  
	
  Attention:  Peter M. Murphy, Vice President

  	
   

  
						

 

 

Annex 1 to

Note Security Agreement

 

ASSUMPTION AGREEMENT, dated as of
                      ,
200 , made by
                                                
(the “Additional Grantor”), in favor of THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as collateral agent (in such capacity, the “Collateral Agent”)
for the Secured Parties. All capitalized terms not defined herein shall have
the meaning ascribed to them in the Note Security Agreement referred to below.

 

W I T N E S S E T H:

 

WHEREAS, Cellu Tissue Holdings, Inc. (the “Company”),
certain of its subsidiaries and the Collateral Agent have entered into a Note
Security Agreement, dated as of
                    ,
2009 (as amended, supplemented or otherwise modified from time to time, the “Security
Agreement”);

 

WHEREAS, the Security Agreement requires the
Additional Grantor to become a party to the Security Agreement; and

 

WHEREAS, the Additional Grantor has agreed to
execute and deliver this Assumption Agreement in order to become a party to the
Security Agreement;

 

NOW, THEREFORE, IT IS AGREED:

 

1.                                       Security
Agreement.  By
executing and delivering this Assumption Agreement, the Additional Grantor, as
provided in Section 11.13 of the Security Agreement, hereby becomes a
party to the Security Agreement as a Grantor thereunder with the same force and
effect as if originally named therein as a Grantor and, without limiting the
generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in the Schedules to the
Security Agreement. The Additional Grantor hereby represents and warrants that
each of the representations and warranties contained in Section 4 of the
Security Agreement is true and correct on and as the date hereof (after giving
effect to this Assumption Agreement) as if made on and as of such date.

 

2.                                       Governing
Law.  THIS ASSUMPTION AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.

 

IN WITNESS WHEREOF, the undersigned has caused this
Assumption Agreement to be duly executed and delivered as of the date first
above written.

 

	
   

  	
  [ADDITIONAL
  GRANTOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Annex 1-A to

Assumption Agreement

 

Supplement to Schedule 1

 

Supplement to Schedule 2

 

Supplement to Schedule 3

 

Supplement to Schedule 4

 

Supplement to Schedule 5

 

Supplement to Schedule 6

 

Supplement to Schedule 7

 

 

Annex 2 to

Note Security Agreement

 

ACKNOWLEDGEMENT AND CONSENT

 

The undersigned hereby acknowledges receipt
of a copy of the Note Security Agreement dated as of June 3, 2009 (the “Agreement”),
among the Grantors parties thereto, the Secured Parties named therein and The
Bank of New York Mellon Trust Company, N.A., as Collateral Agent. The
undersigned agrees for the benefit of the Collateral Agent and the Secured
Parties as follows:

 

1.                                       The undersigned
will be bound by the terms of the Agreement and will comply with such terms
insofar as such terms are applicable to the undersigned.

 

2.                                       The undersigned
will notify the Collateral Agent promptly in writing of the occurrence of any
of the events described in Section 5.6(a) of the Agreement.

 

3.                                       The terms of
Sections 6.3(c) and 6.6 of the Agreement shall apply to it, mutatis
mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(c) or 6.6 of the Agreement.

 

	
   

  	
   

  	
  [NAME
  OF ISSUER]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address
  for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  

 

 

The
following schedules have been deleted herefrom, but are available to the
Commission upon request:

 

	
  Schedule 1

  	
   

  	
  Notice Addresses

  
	
  Schedule 2

  	
   

  	
  Investment Property

  
	
  Schedule 3

  	
   

  	
  Perfection Matters

  
	
  Schedule 4

  	
   

  	
  Jurisdictions of
  Organization and Chief Executive Offices

  
	
  Schedule 5

  	
   

  	
  Inventory and Equipment
  Locations

  
	
  Schedule 6

  	
   

  	
  Intellectual Property

  
	
  Schedule 7

  	
   

  	
  Deposit Accounts

  
	
  Schedule 8

  	
   

  	
  Section 3.4 Existing
  ExclusionsExhibit 10.2

 

EXECUTION VERSION

 

 

SECOND AMENDED AND RESTATED INTERCREDITOR
AGREEMENT

 

among

 

CELLU TISSUE HOLDINGS, INC.

 

and certain of its Subsidiaries,

 

THE BANK OF NEW YORK MELLON TRUST COMPANY,
N.A.,

 

as Note Collateral Agent,

 

JPMORGAN CHASE BANK, N.A.,

 

as U.S. 
Administrative Agent,

 

JP MORGAN CHASE BANK, N.A., TORONTO BRANCH,

 

as Canadian Administrative Agent,

 

and

 

THE BANK OF NEW YORK TRUST MELLON COMPANY,
N.A.,

 

as Prior Agent

 

Dated as of June 3, 2009

 

 

 

SECOND AMENDED AND RESTATED INTERCREDITOR AGREEMENT,
dated as of June 3, 2009, among:

 

(1)                                  CELLU TISSUE HOLDINGS,
INC.  (the “Company”), and certain
of the subsidiaries of the Company specified on the signature pages hereof
or each other subsidiary that becomes a party hereto;

 

(2)                                  THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A., as collateral agent (in such capacity, together with its
successors and assigns in such capacity, the “Note Collateral Agent”),
under the Note Security Agreement, dated as of June 3, 2009 (as amended,
supplemented or otherwise modified from time to time, the “Note Security
Agreement”), among the Company, certain of its subsidiaries parties thereto
and the Note Collateral Agent for the benefit of the secured parties named
therein;

 

(3)                                  JPMORGAN CHASE BANK, N.A.,
as U.S. administrative agent (in such capacity, together with its successors
and assigns in such capacity, the “Bank Agent”) under the Pledge and
Security Agreement, dated as of June 12, 2006 (as amended, supplemented or
otherwise modified from time to time, the “Bank US Security Agreement”),
among the Company, Cellu Paper Holdings, Inc. (the “Parent”), the other
Bank Guarantors (as defined herein) and the Bank Agent for the benefit of the
secured parties named therein;

 

(4)                                  JPMORGAN CHASE BANK, N.A.,
TORONTO BRANCH, as Canadian administrative agent (in such capacity, together
with its successors and assigns in such capacity, the “Bank Canadian Agent”;
and together with the Bank Agent, collectively, the “Bank Administrative
Agent”) under the General Security Agreement, dated as of June 12,
2006 (as amended, supplemented or otherwise modified from time to time, the “Bank
Canadian Security Agreement”; and together with the Bank US Security
Agreement, collectively, the “Bank Security Agreements”), between the
Canadian Borrower (as defined herein) and the Bank Canadian Agent for the
benefit of the secured parties named therein; and

 

(5)                                  THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A., as collateral agent (in such capacity the “Prior Agent”),
under the Amended and Restated Security Agreement, dated as of June 12,
2006 (as amended, supplemented or otherwise modified from time to time, the “Prior
Note Security Agreement”), among the Company, certain of its subsidiaries
parties thereto and the Prior Agent for the benefit of the secured parties
named therein.

 

W I T N E S S E T H:

 

WHEREAS, pursuant to the Credit Agreement, dated as
of June 12, 2006 (as amended by the First Amendment dated as of March 21,
2007, the Second Amendment dated as of July 2, 2008, the Third Amendment dated
as of September 26, 2008 and the Fourth Amendment dated as of May 19,
2009, and as further amended, supplemented or otherwise modified from time to
time, the “Bank Financing Agreement”), among the Company (as “U.S.
Borrower”), the Parent, Interlake Acquisition Corporation Limited (as “Canadian
Borrower”; and

 

 

together with the Company
and any other Person that becomes a borrower under the Bank Financing
Agreement, collectively, the “Borrowers”), the other loan party
guarantors party thereto (together with the Company and any other Person that
becomes a guarantor of the Bank Financing Agreement, collectively, the “Bank
Guarantors”), each other financial institution from time to time party
thereto as a lender (the “Bank Lenders”), the Bank Agent, as U.S.
administrative agent, and the Bank Canadian Agent, as Canadian administrative
agent, the Bank Lenders have severally agreed to make extensions of credit and
other financial accommodations from time to time to the Borrowers upon the
terms and subject to the conditions set forth therein and herein;

 

WHEREAS, in connection with the extensions of credit
to the Borrowers under the Bank Financing Agreement and the 93⁄4% Senior Secured
Notes due 2010 (the “Prior Notes”) issued by the Company pursuant to the
Indenture, dated as of March 12, 2004 (as supplemented by the First
Supplemental Indenture dated as of June 2, 2006, the Second Supplemental
Indenture dated as of March 21, 2007, the Third Supplemental Indenture
dated as of July 2, 2008 and the Fourth Supplemental Indenture dated as of
April 8, 2009, the “Prior Note Indenture”), the Company entered
into an Amended and Restated Intercreditor Agreement, dated as of June 12,
2006, among the Company, certain of its subsidiaries, the Parent, The Bank of
New York, as note collateral agent, JPMorgan Chase Bank, N.A., as U.S.
administrative agent, JP Morgan Chase Bank, N.A., Toronto Branch, as Canadian
administrative agent and The CIT Group/Business Credit, Inc., as agent to
the prior bank lenders (the “Original Intercreditor Agreement”) for the
purpose of setting forth the relative priority of the liens created by the
Prior Note Security Agreement and the Bank Security Agreement;

 

WHEREAS, for the purpose of refinancing and
replacing the Prior Notes as permitted under the Bank Financing Agreement, the
Company is entering into an Indenture, dated as of June 3, 2009 (as
amended, supplemented or otherwise modified from time to time, the “Note
Indenture”), among the Company, its subsidiaries party thereto and The Bank
of New York Mellon Trust Company, N.A., as trustee, the Company has agreed to
issue to the holders (the “Holders”) its 111⁄2% Senior Secured Notes due
2014 (the “Notes”), and may issue from time to time additional notes,
upon the terms and subject to the conditions set forth therein and herein;

 

WHEREAS, the Note Collateral Agent, Bank
Administrative Agent, the Company and its subsidiaries party to the Note
Indenture desire to enter into this Agreement to amend and restate the Original
Intercreditor Agreement for the purpose of removing the Prior Agent as a party,
adding the Note Collateral Agent as a party and setting forth the relative
priority of the liens created by the Note Security Agreement and the Bank
Security Agreements and the respective rights of the Note Collateral Agent and
the Bank Administrative Agent in respect of the exercise of the rights and
remedies in respect of the Collateral (as defined herein) and the application
of the proceeds thereof;

 

NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree to amend and restate
the Prior Intercreditor Agreement in its entirety as follows:

 

3

 

SECTION 1.    DEFINED TERMS

 

1.1                                 Definitions.  (a)  Unless otherwise defined herein,
the following terms are used herein as defined in the New York UCC:  Accessions, Account Debtor, Accounts,
Certificated Security, Chattel Paper, Commercial Tort Claims, Documents,
Electronic Chattel Paper, Equipment, Farm Products, Financial Assets, Fixtures,
General Intangibles, Goods, Instruments, Inventory, Letter-of-Credit Rights,
Securities Accounts and Supporting Obligations.

 

(b)                                 The following
terms have the following meanings:

 

“Additional Amounts”: as defined in the Note
Indenture.

 

“Additional Interest”: any additional
interest payable on the Notes pursuant to Section 2(d) of the
Registration Rights Agreement, dated as of June 3, 2009, among the Company,
the Note Guarantors and J.P. Morgan Securities Inc., on behalf of itself and
the other initial purchasers.

 

“Agreement”: this Second Amended and Restated
Intercreditor Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.

 

“Asset Disposition”: as defined in the Note
Indenture.

 

“Asset Swap”: as defined in the Note
Indenture.

 

“Bank Borrower Obligations”: the collective
reference to the unpaid principal of and interest on the loans under the Bank
Financing Agreement, all amounts owing pursuant to Sections 2.16, 2.17 or 2.18
of the Bank Financing Agreement (collectively, the “Increased Costs”)
and all other obligations and liabilities of the Borrowers (including, without
limitation, interest accruing at the then applicable rate provided in the Bank
Financing Agreement after the maturity of the Bank Financing Agreement loans
and interest accruing at the then applicable rate provided in the Bank
Financing Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Parent, the Borrowers or the other Bank Guarantors, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding) to the
Bank Administrative Agent or to any Bank Secured Party, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, the Bank Financing Agreement, any other Bank Document or any other
document made, delivered or given in connection with any of the foregoing and
any renewal, replacement, or refinancing thereof, in each case whether on
account of principal, premium, if any, the Increased Costs, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Bank Administrative Agent or to any Bank Secured Party that are required to be
paid by any of Parent, the Borrowers or the other Bank Guarantors pursuant to
the terms of any of the foregoing agreements).

 

“Bank Collateral Account”: shall have the
same meaning as the term “Collateral Account” under the Bank Security
Agreements.

 

4

 

“Bank Documents”: the collective reference to
the Bank Financing Agreement, the Bank Security Agreements, each Bank
Guarantee, the Mortgages in favor of the Bank Administrative Agent for the
benefit of the Bank Secured Parties and each other document or agreement
pursuant to which the Bank Administrative Agent is granted a Lien in any or all
of the Collateral for the benefit of the Bank Secured Parties or is entitled to
exercise, or restricted from exercising, any rights or remedies with respect to
any or all of the Collateral and any other agreement, document or instrument
delivered by or on behalf of any Grantor pursuant to or in connection with any
of the foregoing.

 

“Bank First Priority Lien”: the reference to “First
Priority Interest” and “First Priority Security Interest” as defined in and
granted or purported to be granted pursuant to the Bank US Security Agreement
and Bank Canadian Security Agreement, respectively.

 

“Bank Guarantee”: a guarantee to be executed
and delivered by each Bank Guarantor pursuant to the Bank Financing Agreement.

 

“Bank Guarantor Obligations”: with respect to
each Bank Guarantor, the collective reference to all obligations and
liabilities of such Bank Guarantor which may arise under or in connection with
any Bank Guarantee or any other document related thereto to which such Bank
Guarantor is a party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise in
respect of Bank Obligations (including, without limitation, all fees, charges
and disbursements of counsel to the Bank Administrative Agent or to any other
Bank Secured Party that are required to be paid by such Bank Guarantor pursuant
to the terms of this Agreement, the Bank Financing Agreement or any other
document related hereto to which such Bank Guarantor is a party).

 

“Bank Obligations”: the collective reference
to the Bank Borrower Obligations and the Bank Guarantor Obligations.

 

“Bank Priority Collateral”: with respect to
each Grantor, all such Grantor’s now existing or hereinafter arising (i) Inventory,
(ii) Receivables, (iii) any and all Instruments, Documents, Chattel
Paper (including Electronic Chattel Paper) and other contracts, in each case
evidencing or substituted for any Receivable, (iv) guarantees, Supporting
Obligations, Letter-of-Credit Rights, security and other credit enhancements
for the Receivables, (v) documents of title for any Inventory, (vi) claims
and causes of action in any way relating to any of the Receivables or
Inventory, (vii) Deposit Accounts, including lockbox and securities
accounts, into which any proceeds of Receivables or Inventory are deposited
(including all cash, cash equivalents, Financial Assets and other funds on
deposit therein or credited thereto) but only with respect to and including
such Proceeds of Bank Priority Collateral, (viii) rights to any Goods
represented by any of the foregoing, including rights to returned, reclaimed or
repossessed Goods, (ix) reserves and credit balances arising in connection
with or pursuant thereto, (x) unpaid seller’s or lessor’s rights
(including rescission, replevin, reclamation, repossession and stoppage in
transit) relating to the foregoing or arising therefrom; (xi) insurance
policies or rights relating to any of the foregoing, (xii) General Intangibles
pertaining to any and all of the foregoing (including all rights to payment,
including those arising in connection with bank and non-bank credit cards),
(xiii) promissory notes, deposits or property of Account Debtors securing the
obligations of any such Account Debtors to the Bank Secured Parties or any one
of them and (xiv) all books and 

 

5

 

records (and any electronic
media and software related thereto) pertaining to any of the foregoing, and all
substitutions, replacements, Accessions, products or Proceeds (including,
without limitation, insurance proceeds, cash and cash equivalents) of any of
the foregoing; provided, however, that any Collateral, regardless
of type, received in connection with an Asset Disposition or Asset Swap of Bank
Priority Collateral or otherwise in exchange for Bank Priority Collateral
pursuant to the terms of the Note Indenture shall be treated as Bank Priority
Collateral under this Agreement, the Note Security Agreement and the Bank
Security Agreements; provided, further, that any Collateral of
the type that constitutes Bank Priority Collateral, if received in connection
with an Asset Disposition or Asset Swap of Note Priority Collateral or
otherwise in exchange for Note Priority Collateral pursuant to the terms of the
Note Indenture, shall be treated as Note Priority Collateral under this
Agreement, the Note Security Agreement and the Bank Security Agreements; provided,
further, that the Bank Priority Collateral shall not include any
Excluded Property (as defined in the Bank Security Agreements) unless such
property is subject to a Lien securing the Notes or any Permitted Refinancing
Indebtedness (as defined in the Bank Financing Agreement).

 

“Bank Second Priority Lien”: the reference to
“Second Priority Interest” and “Second Priority Security Interest” as defined
in and granted or purported to be granted pursuant to the Bank US Security
Agreement and Bank Canadian Security Agreement, respectively.

 

“Bank Secured Parties”: the secured parties
under the Bank Security Agreements.

 

“Borrowing Base”: as of the date of
determination, an amount equal to the sum, without duplication of 85% of the
net book value of the Company’s and its Restricted Subsidiaries’ (as defined in
the Note Indenture) accounts receivable at such date and (2) 65% of the
net book value of the Company’s and its Restricted Subsidiaries’ inventories at
such date.  Net book value shall be
determined in accordance with GAAP and shall be calculated using amounts
reflected on the most recent available balance sheet (it being understood that
the accounts receivable and inventories of an acquired business may be included
if such acquisition has been completed on or prior to the date of
determination).

 

“Business Day”: a day other than a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
or required by law to close.

 

“Collateral”: 
the Note Priority Collateral and the Bank Priority Collateral.

 

“Deposit Account”:  as defined in the Uniform Commercial Code (or
equivalent foreign law, as applicable) of any applicable jurisdiction and, in
any event, including, without limitation; any demand, time, savings, passbook
or like account maintained with a depositary institution.

 

“Governmental Authority”: any nation or
government, any state or other political subdivision thereof, any agency,
authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory,
supervisory or administrative powers or functions or of pertaining to
government, any securities exchange and any self-regulatory organization
(including the National Association of Insurance Commissioners).

 

6

 

“Grantor”: any of the Company, Cellu Tissue—CityForest
LLC, Cellu Tissue Corporation — Natural Dam, Cellu Tissue Corporation — Neenah,
Cellu Tissue — Long Island, LLC, Cellu Tissue — Thomaston, LLC, Cellu Tissue
LLC, Coastal Paper Company, Interlake Acquisition Corporation Limited,
Menominee Acquisition Corporation, Van Paper Company, Van Timber Company, and
any other subsidiary of the Company that becomes a Bank Guarantor or a Note
Guarantor.

 

“Insolvency Proceeding”: the occurrence of
any of the following: (i) any Grantor shall commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent entity, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or any
Grantor shall make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against any Grantor any case, proceeding or other action of
a nature referred to in clause (i) above that (A) results in the entry of
an order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii) there
shall be commenced against any Grantor any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets that results in the
entry of an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) any Grantor shall take any action indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) any Grantor shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due.

 

“Investment Property”: the collective
reference to (i) all “investment property” as such term is defined in Section 9-102(a)(49)
of the New York UCC (other than, in the case of the Bank Security Agreements,
any Voting Stock of any Non-U.S. Person excluded from the definition of “Pledged
Stock” in the Bank Security Agreements and, in the case of the Note Security
Agreement, any Foreign Subsidiary Voting Stock or other Capital Stock excluded
from the definition of “Pledged Stock” in the Note Security Agreement) and (ii) whether
or not constituting “investment property” as so defined, all Pledged Notes and
all Pledged Stock (each as defined in the Bank Security Agreements and the Note
Security Agreement).

 

“Liens”: any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any conditional
sale or other title retention agreement or lease in the nature thereof).

 

“Mortgages”: each of the mortgages and deeds
of trust now or hereafter made by any Grantor in favor of, or for the benefit
of, the Note Collateral Agent for the benefit of the Note Secured Parties or
the Bank Administrative Agent for the benefit of the Bank Secured Parties.

 

“New York UCC”: the Uniform Commercial Code
as from time to time in effect in the State of New York; provided that,
with respect to any Grantor not organized or formed 

 

7

 

under the laws of the United
States of America, any State of the United States or the District of Columbia, “New
York UCC” shall mean the equivalent foreign law to the Uniform Commercial Code
as from time to time in effect in the applicable jurisdiction.

 

“Note Collateral Account”: shall have the
same meaning as the term “Collateral Accounts” under the Note Security
Agreement.

 

“Note Company Obligations”: the collective
reference to the unpaid principal of, premium, if any, Additional Amounts and
interest (including Additional Interest) on the Notes and all other obligations
and liabilities of the Company to the Note Collateral Agent or to any Note
Secured Party, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, the Note Indenture, the Note
Security Agreement, any other Note Documents or any other document made,
delivered or given in connection with any of the foregoing, in each case
whether on account of principal, premium, if any, Additional Amounts, interest
(including Additional Interest), reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Note Collateral Agent or to the Note Secured
Parties that are required to be paid by any of the Company or the Note Guarantors
pursuant to the terms of any of the foregoing agreements).

 

“Note Documents”: the collective reference to
the Note Indenture, the Note Security Agreement, each Note Guarantee, the
Registration Rights Agreement, the Mortgages and each other document or
agreement pursuant to which the Note Collateral Agent is granted a Lien in any
or all of the Collateral for the benefit of the Note Secured Parties or is
entitled to exercise, or restricted from exercising, any rights or remedies
with respect to any or all of the Collateral and any other agreement, document
or instrument delivered by or on behalf of any Grantor pursuant to or in
connection with any of the foregoing.

 

“Note First Priority Lien”: the reference to “First
Priority Interest” as defined in and granted or purported to be granted
pursuant to the Note Security Agreement.

 

“Note Guarantee”: a guarantee to be executed
and delivered by a Note Guarantor pursuant to the Note Indenture.

 

“Note Guarantors” the collective reference to
each Grantor other than the Company.

 

“Note Guarantor Obligations”: with respect to
any Note Guarantor, the collective reference to all obligations and liabilities
of such Note Guarantor which may arise under or in connection with any Note
Guarantee or any other document related thereto to which such Note Guarantor is
a party; in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise in
respect of Note Obligations (including, without limitation, all fees, charges
and disbursements of counsel to the Note Collateral Agent or to any other Note
Secured Party that are required to be paid by such Note Guarantor pursuant to
the terms of this Agreement, the Note Indenture or any other document related
hereto to which such Note Guarantor is a party).

 

8

 

“Note Obligations”: the collective reference
to the Note Company Obligations and the Note Guarantor Obligations.

 

“Note Priority Collateral”: with respect to
each Grantor, any and all property secured by the Mortgages in favor of the
Note Collateral Agent for the benefit of the Note Secured Parties and the
following property now owned or hereafter acquired by such Grantor or in which
such Grantor has now or at any time in the future may acquire any right, title
or interest: all Chattel Paper, Deposit Accounts (except to the extent that
such Deposit Accounts or funds or other amounts credited thereto constitute
Bank Priority Collateral), Documents (other than title documents with respect
to Vehicles), Equipment, General Intangibles, Instruments, Intellectual
Property, Investment Property, Letter-of-Credit Rights, Commercial Tort Claims
and all other property not described above, all books and records pertaining to
the foregoing and, to the extent not otherwise included in the foregoing, all
Proceeds, all Supporting Obligations and all products of any and all of the
foregoing and all collateral security and guarantees given by any Person with
respect to any of the foregoing; but, excluding, however, all Bank Priority
Collateral; provided, however, that any Collateral, regardless of
type, received in connection with an Asset Disposition or Asset Swap of Note
Priority Collateral or otherwise in exchange for Note Priority Collateral, or
any additional issuance of Notes, pursuant to the terms of the Note Indenture
shall be treated as Note Priority Collateral under this Agreement, the Note
Security Agreement and the Bank Security Agreements; provided, further,
that any Collateral of the type that constitutes Note Priority Collateral, if
received in connection with an Asset Disposition or Asset Swap of Bank Priority
Collateral or otherwise in exchange for Bank Priority Collateral pursuant to
the terms of the Note Indenture, shall be treated as Bank Priority Collateral
under this Agreement, the Note Security Agreement and the Bank Security
Agreements.

 

“Note Second Priority Lien”: the reference to
“Second Priority Interest” as defined in and granted or purported to be granted
pursuant to the Note Security Agreement.

 

“Note Secured Parties”: the secured parties
under the Note Security Agreement.

 

“Obligations”: any or all of the Bank
Borrower Obligations, the Bank Guarantor Obligations, the Note Company
Obligations and the Note Guarantor Obligations.

 

“Person”: any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, limited liability company, government or any
agency or political subdivision hereof or any other entity.

 

“Proceeds”: all “proceeds” as such term is
defined in Section 9-102(a)(64) of the New York UCC and, in any event,
shall include, without limitation, all dividends or other income from the
Investment Property, collections thereon or distributions or payments with
respect thereto.

 

“Receivables”: all accounts (as defined in
the New York UCC) and any and all other receivables and any other right to
payment for goods sold or leased or for services rendered, including, without
limitation, all accounts created by, or arising from, all of each of the
Grantor’s sales, leases, rentals of goods or renditions of services to their
customers, in each case (i) including, but not limited to, those accounts
arising under any of the Grantors’ trade names or 

 

9

 

styles, or through any of
the Grantors’ divisions, and (ii) whether or not (x) such right is evidenced by
an Instrument or Chattel Paper, (y) such right has been earned by performance
(including, without limitation, any account) or (z) specifically listed on
schedules furnished to the Bank Administrative Agent.

 

“Requirement of Law”: as to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.

 

“Secured Debt Documents”: the collective
reference to the Note Documents and the Bank Documents.

 

“Secured Parties”: the collective reference
to the Note Secured Parties and the Bank Secured Parties.

 

1.2                                 Other
Definitional Provisions.   (a) 
The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section and
Schedule references are to this Agreement unless otherwise specified.

 

(b)                                 The meanings
given to terms defined herein shall be equally applicable to both the singular
and plural forms of such terms.

 

(c)                                  Where the
context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to such Grantor’s Collateral or the
relevant part thereof.

 

(d)                                 Subject to
Sections 2.2(j) and 2.3(j), the phrases “satisfied in full” or “payment in
full” (or phrases of similar import) when used in this Agreement with respect
to any of the Note Obligations, or the Bank Obligations (or the Liens securing
such obligations), as the case may be, shall mean satisfaction or payment in
full of such applicable obligations other than contingent indemnification
obligations which are not then due and payable (or reasonably expected to
become due and payable in the then foreseeable future).

 

SECTION 2.   RANKING OF SECURITY INTERESTS;
REMEDIES

 

2.1                                 Ranking.  Notwithstanding (i) anything to the
contrary contained in any other document, filing or agreement related to the
creation, attachment, perfection or existence of the security interests granted
in the Note Security Agreement or the Bank Security Agreements, (ii) the time,
place, order or method of attachment or perfection of such security interests, (iii)
the time or order of filing or recording of financing statements or other
documents filed or recorded to perfect such security interests and (iv) the rules for
determining priority under any law governing the relative priorities of secured
creditors, (a) the security interests created or purported to be created by the
Note Security Agreement with respect to the Bank Priority Collateral are
subordinated, and junior in priority to, the security interests created or
purported to be created by the Bank Security Agreements with respect to the
Bank Priority Collateral and (b)

 

10

 

the
security interests created or purported to be created by the Bank Security
Agreements with respect to the Note Priority Collateral are subordinated, and
junior in priority to, the security interests created or purported to be
created by the Note Security Agreement with respect to the Note Priority
Collateral.

 

2.2                                 Remedies with
Respect to Note Priority Collateral. (a)  The Bank
Administrative Agent acknowledges and agrees that, until all of the Note
Obligations have been paid in full, the exercise of rights and remedies in
respect of the Note Priority Collateral by the Bank Administrative Agent shall
be limited to the extent set forth in, and shall be governed by, this
Agreement.

 

(b)                                 Until the Note
Obligations shall have been satisfied in full, other than to the extent
expressly provided in this Agreement, no Bank Secured Party shall exercise any
rights or remedies in respect of the Note Priority Collateral, whether under a
Secured Debt Document, applicable law or otherwise, including, without limitation,
any action to institute any judicial or nonjudicial or similar action or
proceeding in respect of its Lien or to seek relief from the automatic stay
pursuant to Section 362 of the Bankruptcy Code in respect of its Lien; provided,
however, that nothing contained herein shall be construed as preventing
the Bank Administrative Agent or any Bank Secured Party from taking any action
which is reasonably desirable or necessary to perfect and protect the Bank
Second Priority Lien, which action is not adverse to the Note Secured Parties
or the Note First Priority Lien, including, without limitation, the filing of
financing statements under the Uniform Commercial Code in any applicable
jurisdiction, the execution and delivery of account control agreements or similar
agreements entered into for the purpose of obtaining “control” (within the
meaning of the applicable Uniform Commercial Code) of any applicable Note
Priority Collateral (to the extent that it is possible for both the Note
Collateral Agent and the Bank Administrative Agent to have joint “control” of
such item of Note Priority Collateral) and the filing of a claim or statement
of interest in an Insolvency Proceeding in respect of the Bank Second Priority
Lien or any Obligations secured thereby. 
Until the Note Obligations shall have been satisfied in full, the Note
Collateral Agent shall have the exclusive right to exercise rights and remedies
in respect of the Note Priority Collateral and, to enforce the provisions of
and exercise remedies under this Agreement and the Note Documents and under
applicable law (or refrain from enforcing any such rights and exercising any
such remedies), all in such order and in such manner as it may determine in its
discretion.  For the avoidance of doubt,
the parties hereto acknowledge and agree that, notwithstanding the occurrence
and continuation of an event of default as defined under the Bank Financing
Agreement, the Note Collateral Agent shall not have any obligation or duty to
exercise remedies against the Note Priority Collateral.

 

(c)                                  Each Bank
Secured Party hereby consents to and authorizes the sale of all or any part of
the Note Priority Collateral by the Note Collateral Agent in accordance with
the terms of the Note Security Agreement and the other Note Documents and agrees
that when all or any part of the Note Priority Collateral is sold pursuant to
the Note Security Agreement or the applicable Note Document, and otherwise in
accordance with this Agreement, following such sale, such Note Priority
Collateral (but not the Proceeds thereof) shall be free of all of the Bank
Second Priority Liens. The Bank Administrative Agent hereby appoints the Note
Collateral Agent as its attorney-in-fact to execute and deliver in its stead
any releases, termination 

 

11

 

statements or other documentation reasonably
necessary or requested to evidence the foregoing release of liens on the Note
Priority Collateral.

 

(d)                                 No Bank Secured
Party, by itself or through or with any other Person, shall (i) contest,
protest, object to, interfere with, seek to enjoin or invoke or utilize any
provision of any document, law or equitable principle, or otherwise take any
other action whatsoever which might prevent, delay or impede, any exercise of
rights or remedies by the Note Collateral Agent under the Note Security
Agreement or applicable law in respect of the Note Priority Collateral or (ii) contest
the validity or enforceability of any of the Obligations or the validity,
perfection, priority or enforceability of any of the Liens created hereunder
(it being understood and agreed that the terms of this Agreement shall govern
even if part or all of the Note First Priority Lien or the Bank Second Priority
Lien is avoided, disallowed, set aside or otherwise invalidated in any judicial
proceeding or otherwise).  The Bank
Administrative Agent and the Bank Secured Parties agree that the Note Priority
Collateral may be repossessed or removed by the Note Collateral Agent, subject
to the terms of this Agreement.

 

(e)                                  Notwithstanding
any other provision of this Agreement, the right of each Bank Secured Party to
receive payment of the Obligations held by such Bank Secured Party when due
(whether at the stated maturity thereof, by acceleration or otherwise) as
expressed in the related Secured Debt Document or other instrument evidencing
or agreement governing an Obligation or to institute suit for the enforcement
of such payment on or after such due date, and the obligation of the Grantors
to pay such Obligation when due, shall not be impaired or affected without the
consent of such Bank Secured Party given in the manner prescribed by the
Secured Debt Document under which such Obligation is outstanding.

 

(f)                                    The Note
Secured Parties shall have the right, exercisable in their sole discretion,
without notice or demand and without affecting or impairing the agreements and
obligations of the Bank Secured Parties, from time to time (i) to modify,
extend, amend, restate, compromise, supplement, waive or release the Note Obligations
from time to time, and the aggregate amount of the Note Obligations may be
renewed, replaced or refinanced, all without notice to or consent by the Bank
Administrative Agent or the Bank Secured Parties; provided, however,
that the principal amount of the Note Obligations may only be renewed, replaced
or refinanced in an amount not to exceed the aggregate principal amount of the
Notes (including any additional Notes issued pursuant to the Note Indenture)
and (ii) to exercise or refrain from exercising any powers or rights
conferred on the Note Secured Parties under the Note Documents.  Each of the Bank Secured Parties waives, to
the fullest extent permitted by law, any requirement that the Note Secured
Parties or the Note Collateral Agent protect, secure, perfect or insure the
Note First Priority Lien or exhaust any right or take any action against the
Company or the Note Guarantors.

 

(g)                                 To the fullest
extent permitted by applicable law, each Bank Secured Party waives any claim it
might have against the Note Collateral Agent and any Note Secured Party or
their respective directors, officers, employees or agents with respect to, or
arising out of, any action or failure to act or any error of judgment,
negligence, or mistake or oversight whatsoever, except for claims arising out
of gross negligence or willful misconduct on the part of the Note Collateral
Agent or the Note Secured Parties or their respective directors, officers,
employees or agents with respect to any exercise of rights or remedies hereunder
or under any Note Document 

 

12

 

or any transaction relating to the Note
Priority Collateral.  None of the Note
Secured Parties or the Note Collateral Agent or their respective directors,
officers, employees or agents shall be liable for failure to collect or realize
upon any of the Note Priority Collateral or for any delay in doing so or shall
be under any obligation to sell or otherwise dispose of any Note Priority
Collateral or to take any other action whatsoever with regard to the Note
Priority Collateral or any part thereof.

 

(h)                                 If, through the
operation of any bankruptcy, reorganization, insolvency or other laws or
otherwise, the Note First Priority Lien is enforced with respect to less than
all of the Note Obligations then outstanding and secured by the Note Security
Agreement (such unenforced portion of the Note Obligations, the “Avoided
Note Obligations”), the Bank Administrative Agent shall apply the Proceeds
of the Note Priority Collateral so that the Note Secured Parties receive an
amount with respect to the Avoided Note Obligations equal to the amount the
Note Secured Parties would have received with respect thereto (as general
unsecured creditors) had the Obligations secured by the Bank Second Priority
Lien not been secured by the Bank Security Agreements.  To the extent that Proceeds collected with
respect to the Obligations held by any of the Bank Secured Parties are
distributed to the Note Secured Parties in accordance with the preceding sentence
and the Liens of such Bank Secured Parties in the Note Priority Collateral are
discharged in whole or in part on the basis that the Obligations held by the
Bank Secured Parties have been satisfied under applicable law, then, to the
extent of the amount of such distribution made by such Bank Secured Parties,
any collections by the Note Secured Parties in respect of its Liens on the Bank
Priority Collateral pursuant to the Note Security Agreement shall, after
discharge in full of the Liens of such Bank Secured Parties (to the extent that
such Liens are senior to Liens of the Note Secured Parties on the Bank Priority
Collateral in accordance with the terms of the applicable Secured Debt
Documents) on the basis that the Obligations secured thereby have been satisfied
under applicable law, be distributed to the Bank Secured Parties upon receipt
thereof by the Note Secured Parties.

 

(i)                                     If at any time
after an event of default under the Note Documents shall have occurred and be
continuing any Bank Secured Party (a “Receiving Party”) shall receive
any payment or distribution on account of the Obligations owed to such
Receiving Party (whether voluntary, involuntary, through the exercise of any
rights of set-off or otherwise, and whether in cash, property or securities)
representing proceeds of any of the Note Priority Collateral and which is in
excess of the payments or distributions such Receiving Party would have
received through the operation of this Agreement and the Bank Security
Agreements and after giving effect to the circumstances described in paragraphs
(h) above and (j) below (such payments or distributions, “Excess
Payments”), then such Receiving Party shall hold such Excess Payments in
trust for the benefit of the Note Secured Parties, shall not commingle such
Excess Payments with any other property of such Receiving Party and shall
promptly pay over such Excess Payments in the form received (duly endorsed, if
necessary, to the Note Collateral Agent) to the Note Collateral Agent, for
distribution by the Note Collateral Agent in accordance with the provisions of
this Agreement and the Note Security Agreement.

 

(j)                                     The Bank
Administrative Agent and the Bank Secured Parties acknowledge that if any
payment made by a Grantor or other Person and applied to the Note Obligations
is at any time annulled, avoided, set aside, rescinded, invalidated, declared
to be fraudulent or preferential or otherwise required to be refunded or
repaid, or the Proceeds of Note 

 

13

 

Priority Collateral are required to be
returned by any Note Secured Party to such Grantor, its estate, trustee,
receiver or any other Person under any Requirement of Law of any Governmental
Authority, then to the extent of such payment or repayment, any Lien or other
Note Priority Collateral securing such Note Obligation shall be and remain in
full force and effect as fully as if such payment had never been made or, if
prior thereto the Lien granted hereby or by any other Note Priority Collateral
securing such Obligation hereunder shall have been released or terminated by
virtue of such cancellation or surrender, such Lien or other Note Priority
Collateral shall be reinstated in full force and effect, and such prior
cancellation or surrender shall not diminish, release, discharge, impair or
otherwise affect any Lien or other Note Priority Collateral securing the
Obligations of any Grantor in respect of the amount of such payment.

 

(k)                                  In the event
that the Note Collateral Agent has “control” (within the meaning of the Uniform
Commercial Code of any applicable jurisdiction) of any Investment Property,
Letter-of-Credit Rights, Deposit Accounts or Electronic Chattel Paper included
in the Note Priority Collateral or any other Note Priority Collateral for which
a security interest is perfected by possession of such collateral, the Note
Collateral Agent shall control such Note Priority Collateral for the benefit of
the Note Secured Parties and the Bank Administrative Agent and the Bank Secured
Parties.  Subject to Section 4.6(b),
promptly following the Stated Maturity (as defined in the Note Indenture) of
the Notes, the Note Collateral Agent shall deliver or assign control of the
remainder of the Collateral, if any, in its possession or under its control to
the Bank Administrative Agent unless the Bank Obligations shall have been paid
in full or except as may otherwise be required by applicable law or court
order.

 

2.3                                 Remedies with
Respect to the Bank Priority Collateral.  (a)  The Note Collateral Agent
acknowledges and agrees that, until all of the Bank Obligations have been paid
in full, the exercise of rights and remedies in respect of the Bank Priority
Collateral by the Note Collateral Agent shall be limited to the extent set
forth in, and shall be governed by, this Agreement.

 

(b)                                 Until the Bank
Obligations shall have been satisfied in full, other than to the extent
expressly provided in this Agreement, no Note Secured Party shall exercise any
rights or remedies in respect of the Bank Collateral, whether under a Secured
Debt Document, applicable law or otherwise, including, without limitation, any
action to institute any judicial or nonjudicial or similar action or proceeding
in respect of its Lien or to seek relief from the automatic stay pursuant to Section 362
of the Bankruptcy Code in respect of its Lien; provided, however,
that nothing contained herein shall be construed as preventing the Note
Collateral Agent or any Note Secured Party from taking any action which is
reasonably desirable or necessary to perfect and protect the Note Second
Priority Lien, which action is not adverse to the Bank Secured Parties or the
Bank First Priority Lien, including, without limitation, the filing of
financing statements under the Uniform Commercial Code in any applicable
jurisdiction, the execution and delivery of account control agreements or
similar agreements entered into for the purpose of obtaining “control” (within
the meaning of the applicable Uniform Commercial Code) of any applicable Bank
Priority Collateral (to the extent that it is possible for both the Bank
Administrative Agent and the Note Collateral Agent to have joint “control” of
such item of Bank Collateral) and the filing of a claim or statement of
interest in an Insolvency Proceeding in respect of the Note Second Priority
Lien or any Obligations secured thereby. 
Until the Bank Obligations shall have been satisfied in full, the Bank
Administrative Agent shall have the 

 

14

 

exclusive right to exercise rights and remedies
in respect of the Bank Priority Collateral and to enforce the provisions of and
exercise remedies under this Agreement and the Bank Documents and under
applicable law (or refrain from enforcing any such rights and exercising any
such remedies), all in such order and in such manner as it may determine in its
discretion.  For the avoidance of doubt,
the parties hereto acknowledge and agree that, notwithstanding the occurrence
and continuation of an event of default as defined under the Note Indenture,
the Bank Administrative Agent shall not have any obligation or duty to exercise
remedies against the Bank Priority Collateral.

 

(c)                                  Each Note
Secured Party hereby consents to and authorizes the sale of all or any part of
the Bank Priority Collateral by the Bank Administrative Agent or any other Bank
Secured Party in accordance with the terms of the Bank Security Agreements and
the other Bank Documents and agrees that when all or any part of the Bank
Priority Collateral is sold pursuant to the Bank Security Agreements or the
applicable Bank Document and otherwise in accordance with this Agreement,
following such sale, such Bank Priority Collateral (but not the Proceeds
thereof) shall be free of the Note Second Priority Lien.  The Note Collateral Agent hereby appoints the
Bank Administrative Agent as its attorney-in-fact to execute and deliver in its
stead any releases, termination statements or other documentation reasonably
necessary or requested to evidence the foregoing release of liens on the Bank
Priority Collateral.

 

(d)                                 No Note Secured
Party, by itself or through or with any other Person, shall (i) contest,
protest, object to, interfere with, seek to enjoin or invoke or utilize any
provision of any document, law or equitable principle, or otherwise take any
other action whatsoever which might prevent, delay or impede, any exercise of
rights or remedies by the Bank Administrative Agent or the other Bank Secured
Parties under the Bank Security Agreements or applicable law in respect of the
Bank Priority Collateral or (ii) contest the validity or enforceability of any
of the Obligations or the validity, perfection, priority or enforceability of
any of the Liens created hereunder (it being understood and agreed that the
terms of this Agreement shall govern even if part or all of the Bank First
Priority Lien or the Note Second Priority Lien is avoided, disallowed, set
aside or otherwise invalidated in any judicial proceeding or otherwise).  The Note Collateral Agent and the Note
Secured Parties agree that the Bank Priority Collateral may be repossessed or
removed by the Bank Administrative Agent or any Bank Secured Parties, subject
to the terms of this Agreement, and, to the extent that such Bank Priority
Collateral is located on property that constitutes Note Priority Collateral,
the Note Collateral Agent and the Note Secured Parties will provide access to
the Bank Administrative Agent and the Bank Secured Parties accordingly.  In addition, the Note Collateral Agent and
the Note Secured Parties agree to permit the Bank Administrative Agent and/or
the Bank Secured Parties to access and use all or any part of the Note Priority
Collateral as may be reasonably necessary to enable the Bank Administrative
Agent and/or the Bank Secured Parties during normal business hours to convert
the Grantors’ raw materials and work-in-process Inventory into saleable
finished goods product, subject to the rights of the Note Collateral Agent and
the Note Secured Parties to repossess and remove the Note Priority Collateral
as provided in Section 2.2(d) above.

 

(e)                                  Notwithstanding
any other provision of this Agreement, the right of each Note Secured Party to
receive payment of the Obligations held by such Note Secured Party when due
(whether at the stated maturity thereof, by acceleration or otherwise) as
expressed in the related Secured Debt Document or other instrument evidencing
or agreement governing an 

 

15

 

Obligation or to institute suit for the
enforcement of such payment on or after such due date, and the obligation of
the Grantors to pay such Obligation when due, shall not be impaired or affected
without the consent of such Note Secured Party given in the manner prescribed
by the Secured Debt Document under which such Obligation is outstanding.

 

(f)                                    The Bank
Secured Parties shall have the right, exercisable in their sole discretion,
without notice or demand without affecting or impairing the agreements and
obligations of the Note Secured Parties, from time to time (i) to modify,
extend, amend, restate, compromise, supplement, waive or release the Bank
Obligations from time to time, and the aggregate amount of the Bank Obligations
may be renewed, replaced or refinanced, all without notice to or consent by the
Note Collateral Agent or the Note Secured Parties; provided, however,
that the principal amount of the Bank Obligations may only be renewed, replaced
or refinanced in an amount not to exceed the greater of (x) the Borrowing
Base and (y) $60.0 million and (ii) to exercise or refrain from
exercising any powers or rights conferred on the Bank Secured Parties under the
Bank Documents.  Each of the Note Secured
Parties waives, to the fullest extent permitted by law, any requirement that
the Bank Secured Parties or the Bank Administrative Agent protect, secure,
perfect or insure the Bank First Priority Lien or exhaust any right or take any
action against the Borrowers or the Bank Guarantors.

 

(g)                                 To the fullest
extent permitted by applicable law, each Note Secured Party waives any claim it
might have against the Bank Administrative Agent and any Bank Secured Party or
their respective directors, officers, employees or agents with respect to, or
arising out of, any action or failure to act or any error of judgment,
negligence, or mistake or oversight whatsoever, except for claims arising out
of gross negligence or willful misconduct on the part of the Bank
Administrative Agent or the Bank Secured Parties or their respective directors,
officers, employees or agents with respect to any exercise of rights or
remedies hereunder or under any Bank Document or any transaction relating to
the Bank Collateral.  None of the Bank
Secured Parties or the Bank Administrative Agent or their respective directors,
officers, employees or agents shall be liable for failure to collect or realize
upon any of the Bank Priority Collateral or for any delay in doing so or shall
be under any obligation to sell or otherwise dispose of any Bank Priority
Collateral or to take any other action whatsoever with regard to the Bank Priority
Collateral or any part thereof.

 

(h)                                 If, through the
operation of any bankruptcy, reorganization, insolvency or other laws or
otherwise, the Bank First Priority Lien is enforced with respect to less than
all of the Bank Obligations then outstanding and secured by each Bank Security
Agreement (such unenforced portion of the Bank Obligations, the “Avoided
Bank Obligations”), the Note Collateral Agent shall apply the Proceeds of
the Bank Priority Collateral so that the Bank Secured Parties receive an amount
with respect to the Avoided Bank Obligations equal to the amount the Bank
Secured Parties would have received with respect thereto (as general unsecured
creditors) had the Obligations secured by the Note Second Priority Lien not
been secured by the Note Security Agreement. 
To the extent that Proceeds collected with respect to the Obligations
held by any of the Note Secured Parties are distributed to the Bank Secured
Parties in accordance with the preceding sentence and the Liens of such Note
Secured Parties in the Bank Priority Collateral are discharged in whole or in
part on the basis that the Obligations held by the Note Secured Parties have
been satisfied under applicable law, then, to the extent of the amount of such
distribution made by such Note Secured Parties, any collections by the Bank
Secured 

 

16

 

Parties in respect of its Liens on the Note
Priority Collateral pursuant to the Bank Security Agreements shall, after
discharge in full of the Liens of such Note Secured Parties (to the extent that
such Liens are senior to Liens of the Bank Secured Parties on the Note Priority
Collateral in accordance with the terms of the applicable Secured Debt
Documents) on the basis that the Obligations secured thereby have been
satisfied under applicable law, be distributed to the Note Secured Parties upon
receipt thereof by the Bank Secured Parties.

 

(i)                                     If at any time
after an event of default under the Bank Documents shall have occurred and be
continuing any Note Secured Party (a “Receiving Party”) shall receive
any payment or distribution on account of the Obligations owed to such
Receiving Party (whether voluntary, involuntary, through the exercise of any
rights of set-off or otherwise, and whether in cash, property or securities)
representing proceeds of any of the Bank Priority Collateral and which is in
excess of the payments or distributions such Receiving Party would have
received through the operation of this Agreement and the Note Security
Agreement and after giving effect to the circumstances described in paragraphs (h) above
and (j) below (such payments or distributions, “Excess Payments”),
then such Receiving Party shall hold such Excess Payments in trust for the
benefit of the Bank Secured Parties, shall not commingle such Excess Payments
with any other property of such Receiving Party and shall promptly pay over
such Excess Payments in the form received (duly endorsed, if necessary, to the
Bank Administrative Agent) to the Bank Administrative Agent, for distribution
by the Bank Administrative Agent in accordance with the provisions of this
Agreement and the Bank Security Agreements.

 

(j)                                     The Note
Collateral Agent and the Note Secured Parties acknowledge that if any payment
made by a Grantor or other Person and applied to the Bank Obligations is at any
time annulled, avoided, set aside, rescinded, invalidated, declared to be
fraudulent or preferential or otherwise required to be refunded or repaid, or
the Proceeds of Bank Priority Collateral are required to be returned by any
Bank Secured Party to such Grantor, its estate, trustee, receiver or any other
Person under any Requirement of Law of any Governmental Authority, then to the
extent of such payment or repayment, any Lien or other Bank Priority Collateral
securing such Bank Obligation shall be and remain in full force and effect as
fully as if such payment had never been made or, if prior thereto the Lien
granted hereby or by any other Bank Priority Collateral securing such
Obligation hereunder shall have been released or terminated by virtue of such
cancellation or surrender, such Lien or other Bank Priority Collateral shall be
reinstated in full force and effect, and such prior cancellation or surrender
shall not diminish, release, discharge, impair or otherwise affect any Lien or
other Bank Priority Collateral securing the Obligations of any Grantor in
respect of the amount of such payment.

 

(k)                                  In the event
that the Bank Administrative Agent has “control” (within the meaning of the
Uniform Commercial Code of any applicable jurisdiction) of any Investment
Property, Letter-of-Credit Rights, Deposit Accounts or Electronic Chattel Paper
included in the Bank Priority Collateral or any other Bank Priority Collateral
for which a security interest is perfected by possession of such collateral,
the Bank Administrative Agent shall control such Bank Priority Collateral for
the benefit of the Bank Secured Parties and the Note Collateral Agent and the
Note Secured Parties.  Subject to Section 4.6(b),
promptly following the payment in full of the Bank Obligations, each of the
Bank Administrative Agent and the Bank Secured Parties shall deliver or assign
control of the remainder of the Collateral, if any, in its possession or under
its control to the Note Collateral Agent unless the Stated Maturity (as defined
in the 

 

17

 

Note Indenture) of the Notes shall have
occurred or except as may otherwise be required by applicable law or court
order.

 

2.4                                 Relative Rights
of Parties.  This
Agreement is intended solely for the purpose of defining the relative rights of
the Note Collateral Agent and the Note Secured Parties, on the one hand, and
the Bank Administrative Agent and the Bank Secured Parties, on the other hand,
in respect of (i) the subordination of the Bank Second Priority Lien to
the Note First Priority Lien and (ii) the subordination of the Note Second
Priority Lien to the Bank First Priority Lien. 
No other Person or entity shall have any right, benefit or other interest
under this Agreement.  Nothing contained
in this Agreement is intended to affect or limit, in any way whatsoever, the
Liens and other rights that the Note Secured Parties and the Bank Secured
Parties have under the Note Security Agreement, the Bank Security Agreements
and the other Secured Debt Documents to which they are a party insofar as the
rights of the Company, any other Grantor or any other Person or entity are
involved.

 

SECTION 3.   COLLATERAL ACCOUNT

 

3.1                                 Note
Obligations Satisfied. 
Subject to Section 4.6(b), the Note Collateral Agent shall pay over
to the Bank Administrative Agent all remaining moneys and other property held
by the Note Collateral Agent in the Note Collateral Account or received by the
Note Collateral Agent with respect to the Note Priority Collateral on or prior
to the first Business Day falling after the Note Obligations have been
satisfied in full.  Subject to Section 4.6(b),
the Note Collateral Agent further covenants and agrees that after payment in
full of the Note Obligations, the Note Collateral Agent shall take all actions
and do all things reasonably requested by the Bank Administrative Agent to
promptly transfer or assign any Note Priority Collateral (or interest therein)
to the Bank Administrative Agent for the purpose of perfecting and protecting
the Bank Second Priority Lien.  Without
limiting the generality of the foregoing, the Note Collateral Agent shall (i) notify
the Bank Administrative Agent that the Note First Priority Lien has been
released or terminated and that the Bank Administrative Agent is authorized to
instruct such Person regarding the control, maintenance or disposition of the
Note Priority Collateral, (ii) in the case of Instruments, Certificated
Securities, Chattel Paper (including Electronic Chattel Paper), Deposit
Accounts, Letter-of-Credit Rights and any other relevant Collateral, take any
actions reasonably requested to assign or transfer “control” (within the
meaning of the applicable Uniform Commercial Code) or possession of such Note
Priority Collateral to the Bank Administrative Agent and (iii) authorize
the filing of termination statements under the Uniform Commercial Code (or
other similar laws) in effect in any jurisdiction with respect to the
termination of the Note First Priority Lien. 
With respect to the Note Priority Collateral identified in clause (ii) above,
the Note Collateral Agent shall not transfer to any other Person or return or
reassign to the Grantors possession or control of any such Note Priority
Collateral unless the Bank Administrative Agent shall have consented thereto.

 

3.2                                 Bank
Obligations Satisfied. 
Subject to Section 4.6(b), the Bank Administrative Agent shall pay
over to the Note Collateral Agent all remaining moneys and other property held
by the Bank Administrative Agent in the Bank Collateral Account or received by
the Bank Administrative Agent with respect to the Bank Priority Collateral on
or prior to the first Business Day falling after the Bank Obligations have been
satisfied in full.  Subject to Section 4.6(b),
the Bank Administrative Agent further covenants and agrees that after 

 

18

 

payment
in full of the Bank Obligations, the Bank Administrative Agent shall take all
actions and do all things reasonably requested by the Note Collateral Agent to
promptly transfer or assign any Bank Priority Collateral (or interest therein)
to the Note Collateral Agent for the purpose of perfecting and protecting the
Note Second Priority Lien.  Without
limiting the generality of the foregoing, the Bank Administrative Agent shall (i) notify
applicable third parties with an interest in the Bank Priority Collateral that
the Bank First Priority Lien has been released or terminated and that the Note
Collateral Agent is authorized to instruct such Person regarding the control,
maintenance or disposition of the Bank Collateral, (ii) in the case of
Instruments, Certificated Securities, Chattel Paper (including Electronic
Chattel Paper), Deposit Accounts, Letter-of-Credit Rights and any other
relevant Collateral, take any actions reasonably requested to assign or
transfer “control” (within the meaning of the applicable Uniform Commercial
Code) or possession of such Bank Priority Collateral to the Note Collateral
Agent and (iii) authorize the filing of termination statements under the
Uniform Commercial Code (or other similar laws) in effect in any jurisdiction
with respect to the termination of the Bank First Priority Lien.  With respect to the Bank Priority Collateral
identified in clause (ii) above, the Bank Administrative Agent shall not
transfer to any other Person or return or reassign to the Grantors possession
or control of any such Bank Priority Collateral unless the Note Collateral
Agent shall have consented thereto.

 

SECTION 4.   MISCELLANEOUS

 

4.1                                 Notices.  Unless otherwise specified herein, all
notices, requests, demands or other communications given to any party hereto
shall be given in writing or by facsimile transmission and shall be deemed to
have been duly given when personally delivered or when duly deposited in the
mails, registered or certified mail postage prepaid, or when transmitted by
facsimile transmission, addressed to such party at its address specified on
Schedule I hereof or any other address which such party shall have specified as
its address for the purpose of communications hereunder, by notice given in
accordance with this Section 4.1 to the party sending such communication.

 

4.2                                 Amendments in
Writing.  (a)  The parties hereto
may, from time to time, enter into written agreements supplemental hereto for
the purpose of amending, modifying or adding to, or waiving any provisions of
this Agreement.

 

(b)                                 Without the
consent of any Secured Party, the parties hereto, at any time and from time to
time, may enter into one or more agreements supplemental to cure any ambiguity,
to correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein or therein, or to make any other
provision with respect to matters or questions arising hereunder which shall
not be inconsistent with any provision hereof; provided that any such
action contemplated by this paragraph (b) shall not adversely affect the
interests of Secured Parties.

 

4.3                                 No Waiver by
Course of Conduct; Cumulative Remedies.  None of the Note Collateral Agent, the Bank
Administrative Agent nor any Secured Party shall by any act (except by a
written instrument pursuant to Section 4.2), delay, indulgence, and
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default or event of default under the Secured Debt
Documents.  No failure to exercise, nor
any 

 

19

 

delay
in exercising, on the part of the Note Collateral Agent or the Bank
Administrative Agent or any Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. 
No single or partial exercise of any right, power or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.  A
waiver by the Note Collateral Agent, the Bank Administrative Agent or any
Secured Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy that the Note Collateral Agent, the
Bank Administrative Agent or such Secured Party would otherwise have on any
future occasion.  The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.

 

4.4                                 Enforcement
Expenses; Indemnification.  (a) 
Each of the Grantors agrees to pay or reimburse each Secured Party, the Note
Collateral Agent and the Bank Administrative Agent for all of their respective
costs and expenses incurred in the preparation and administration of, or the
enforcing or preserving any rights under, this Agreement, including, without
limitation, the fees and disbursements of counsel to each Secured Party
(including, without limitation, counsel to each of the Note Collateral Agent
and the Bank Administrative Agent).

 

(b)                                 Without
limiting the indemnity obligations of each of the Grantors under the Note
Security Agreement, the Bank Security Agreements or any of the other Secured
Debt Documents, each of the Grantors agrees to pay, indemnify, and hold the
Note Collateral Agent, the Bank Administrative Agent and each Secured Party
(and their respective directors, officers, agents and employees) harmless from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including, without limitation, the
reasonable fees and expenses of counsel, advisors and agents) or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, unless arising
from the gross negligence or willful misconduct of the indemnified party,
including for taxes in any jurisdiction in which the Note Collateral Agent or
the Bank Administrative Agent is subject to tax by reason of actions hereunder,
unless such taxes are imposed on or measured by compensation paid to the Note
Collateral Agent or the Bank Administrative Agent under the Note Security
Agreement or the Bank Security Agreements, respectively.

 

(c)                                  The agreements
in this Section 4.4 shall survive repayment of the Obligations and all
other amounts payable under the Secured Debt Agreements.

 

4.5                                 Further
Assurances.  (a) 
With respect to the Note Priority Collateral, each of the Grantors and the Bank
Administrative Agent, at the Company’s expense and at any time from time to
time, upon the reasonable request of the Note Collateral Agent, will promptly
and duly execute and deliver such further instruments and documents (including
amendments to their financing statements filed against each Grantor stating
that the rights of the Bank Administrative Agent are subject to the terms
hereof) and take such further actions as the Note Collateral Agent may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted.

 

(b)                                 With respect to
the Bank Priority Collateral, each of the Grantors and the Note Collateral
Agent, at the Company’s expense and at any time from time to time, upon the

 

20

 

reasonable request of the Bank
Administrative Agent, will promptly and duly execute and deliver such further
instruments and documents (including amendments to their financing statements
filed against each Grantor stating that the rights of the Note Collateral Agent
are subject to the terms hereof) and take such further actions as the Bank
Administrative Agent may reasonably request for the purposes of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted.

 

4.6           Successors and Assigns.  (a)  This Agreement shall be binding
upon the successors and assigns of each party; provided that each
Grantor may not assign, transfer or delegate any of its rights or obligations
under this Agreement without the prior written consent of the Note Collateral
Agent and the Bank Administrative Agent.

 

(b)           In connection with any redemption,
repurchase, refunding or other refinancing of the indebtedness evidenced by the
Bank Financing Agreement or the Note Indenture, each other party hereto agrees
to execute and deliver an agreement identical to this Agreement (subject to
changing names of parties, documents and addresses, as appropriate) in favor of
any Person who succeeds to, or redeems, repurchases, refunds or otherwise
refinances such indebtedness, and irrespective of whether any such new
financing occurs by transfer, assignment, repayment, refunding, substitution,
amendment and restatement or otherwise.

 

4.7           Insolvency.  This Agreement shall be applicable both
before and after the filing of any petition by or against any of the Grantors
under the U.S. Bankruptcy Code or comparable foreign laws and all converted or
succeeding cases in respect thereof, and all references herein to the Company
or any of its subsidiaries (including any reference to any Borrower) shall be
deemed to apply to the trustee for the Company or such subsidiaries and the
Company or such subsidiaries as debtor-in-possession.  The relative rights of (a) the Bank
Administrative Agent and the other Bank Secured Parties and (b) the Note
Collateral Agent and the other Note Secured Parties in or to any distributions
from or in respect of any Collateral or Proceeds of Collateral, shall continue
after the filing thereof on the same basis as prior to the date of the petition,
subject to any court order approving the financing of, or use of cash
collateral by, the Company or such subsidiaries as debtor-in-possession.

 

4.8           Disclosures; Non-Reliance.  Each of the Secured Parties has the means to
be, and shall in the future remain, fully informed as to the financial
condition and other affairs of the Grantors and their subsidiaries and no
Secured Party shall have any obligation or duty hereunder to disclose any such
information to any other Secured Party. 
Except as expressly set forth in this Agreement, the Secured Parties
have not otherwise made to one another nor do they hereby make to one another
any warranties, express or implied, nor do they assume any liability to one
another, with respect to (a) the enforceability, validity, value or
collectability of any of the Bank Obligations or the Note Obligations or any
guarantee or security which may have been granted to any of them in connection
therewith, (b) any Grantor’s title to or right to transfer any of the
Collateral or (c) any other matter except as expressly set forth in this
Agreement.

 

4.9           Counterparts.  This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

 

21

 

4.10         Severability.  Any provision of this Agreement that 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 provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

4.11         Section Headings.  The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.

 

4.12         Integration.  This Agreement, the Note Documents, the Bank
Documents and the other Secured Debt Documents represent the agreement of the
Grantors, the Note Collateral Agent, the Bank Administrative Agent and the
Secured Parties with respect to the subject matter hereof and thereof, and
there are no promises, undertakings, representations or warranties by the Note
Collateral Agent, the Bank Administrative Agent or any Secured Party related to
the subject matter hereof and thereof not expressly set forth or referred to
herein or in the Secured Debt Documents.

 

4.13         Termination.  (a)  After the Note Obligations shall
have been satisfied in full, the Note Collateral Agent shall promptly deliver
written notice thereof to the Bank Administrative Agent, and thereafter, any
express or implied limitation set forth herein on the Bank Administrative Agent’s
or the Bank Secured Parties’ exercise of any of their rights and remedies in
respect of the Note Priority Collateral whether under the Bank Security
Agreements or otherwise shall no longer apply or have any force or effect,
subject to Section 2.2(j).

 

(b)           After the Bank Obligations shall have
been satisfied in full, the Bank Administrative Agent shall promptly deliver
written notice thereof to the Note Collateral Agent, and thereafter, any
express or implied limitation set forth herein on the Note Collateral Agent’s
or the Note Secured Parties’ exercise of any of their rights and remedies in
respect of the Bank Priority Collateral whether under the Note Security Agreement
or otherwise shall no longer apply or have any force or effect, subject to Section 2.3(j).

 

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

 

4.15         Submission To Jurisdiction; Waivers.  Each party hereby irrevocably and
unconditionally:

 

(i)            submits
for itself and its property in any legal action or proceeding relating to this
Agreement, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State
of New York, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;

 

(ii)           consents
that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such 

 

22

 

action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or
claim the same;

 

(iii)          agrees
that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to such Grantor at its address referred
to in Section 4.1 or at such other address of which the Note Collateral
Agent and the Bank Administrative Agent shall have been notified pursuant
thereto;

 

(iv)          agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction; and

 

(v)           waives,
to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.

 

4.16         WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT.

 

4.17         Incorporation by Reference.  In connection with its appointment and acting
hereunder, the Note Collateral Agent is entitled to all rights, privileges,
protections, immunities and indemnities provided to it as Collateral Agent
under the Note Security Agreement.

 

23

 

IN WITNESS WHEREOF, each of the undersigned
has caused this Intercreditor Agreement to be duly executed and delivered as of
the date first above written.

 

	
   

  	
  CELLU TISSUE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE—CITYFOREST LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION - NATURAL DAM

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION - NEENAH

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE — LONG ISLAND, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  

 

[Intercreditor
Agreement Signature Page]

 

 

	
   

  	
  CELLU TISSUE — THOMASTON, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  COASTAL PAPER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Van Paper Company, its managing partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INTERLAKE ACQUISITION CORPORATION LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MENOMINEE ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  

 

[Intercreditor
Agreement Signature Page]

 

 

	
   

  	
  VAN PAPER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  VAN TIMBER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris

  
	
   

  	
   

  	
  Title:    Chief Financial
  Officer

  

 

[Intercreditor
Agreement Signature Page]

 

 

	
   

  	
  THE BANK OF NEW YORK MELLON TRUST

  COMPANY, N.A., as Note Collateral Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Vaneta Bernard

  
	
   

  	
   

  	
  Name:  Vaneta Bernard

  
	
   

  	
   

  	
  Title:  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., as Bank Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas B. Williams

  
	
   

  	
   

  	
  Name:  Thomas B. Williams

  
	
   

  	
   

  	
  Title:  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., TORONTO

  BRANCH, as Bank Canadian Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dan Howat

  
	
   

  	
   

  	
  Name:  Dan Howat

  
	
   

  	
   

  	
  Title:  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK MELLON TRUST

  COMPANY, N.A., as Prior Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Vaneta Bernard

  
	
   

  	
   

  	
  Name:  Vaneta Bernard

  
	
   

  	
   

  	
  Title:  Vice President

  

 

[Intercreditor
Agreement Signature Page]

 

 

Schedule I

 

	
  Entity

  	
   

  	
  Address

  
	
   

  	
   

  	
   

  
	
  Cellu Tissue
  Holdings, Inc.

  	
   

  	
  c/o Cellu
  Tissue Holdings, Inc.

  1855
  Lockeway Drive, Suite 501

  Alpharetta,
  Georgia 30004

  Telephone:
  (678) 393-2146

  Telecopy:
  (678) 393-2657

  
	
  Cellu
  Tissue—CityForest LLC

  	
   

  	
  1215 East
  Worden Avenue

  Ladysmith,
  WI 54848

  
	
  Cellu Tissue
  Corporation — Natural Dam

  	
   

  	
  4921 Route
  58 North

  Gouverneur,
  NY 13642

  
	
  Cellu Tissue
  Corporation — Neenah

  	
   

  	
  249 North
  Lake Street

  Neenah, WI
  54956

  
	
  Cellu Tissue
  — Long Island, LLC

  	
   

  	
  1855
  Lockeway Drive, Suite 501

  Alpharetta,
  GA 30004

  
	
  Cellu Tissue
  — Thomaston, LLC

  	
   

  	
  1855
  Lockeway Drive, Suite 501

  Alpharetta,
  GA 30004

  
	
  Cellu Tissue
  LLC

  	
   

  	
  2 Forbes
  Street

  East Hartford,
  CT 06108

  
	
  Coastal
  Paper Company

  	
   

  	
  1321 South
  Magnolia Drive

  Wiggins, MS
  39577

  
	
  Interlake
  Acquisition Corporation Limited 

  	
   

  	
  45 Merritt
  Street

  St.
  Catharines, Canada L2T 1J4

  
	
  Menominee
  Acquisition Corporation

  	
   

  	
  144 First
  Street

  Menominee,
  MI 49858

  
	
  Van Paper
  Company

  	
   

  	
  1321 South
  Magnolia Drive

  Wiggins, MS
  39577

  
	
  Van Timber
  Company

  	
   

  	
  1321 South
  Magnolia Drive

  Wiggins, MS
  39577

  
	
   

  	
   

  	
   

  
	
  The Bank of
  New York Mellon Trust Company, N.A., as Note Collateral Agent

  	
   

  	
  222 Berkeley
  Street, 2nd Floor

  Boston, MA
  02116

  Facsimile:
  617-351-2401

  Attention:
  Peter M. Murphy, Vice President

  
	
   

  	
   

  	
   

  
	
  JPMorgan
  Chase Bank, N.A., as Bank Agent

  	
   

  	
  1111 Fannin,
  10th Floor

  Houston,
  Texas 77002

  Facsimile:

  Attention: 

  
	
   

  	
   

  	
   

  
	
  JPMorgan
  Chase Bank, N.A., Toronto Branch, as Bank Canadian Agent

  	
   

  	
  20 Bay
  Street, Suite 1800

  Toronto,
  Ontario M5J 2J2

  Facsimile:
  416-981-9174

  Attention:
  Funding Office

  

 

[Intercreditor
Agreement Signature Page]

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