TABLE OF CONTENTS

 

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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

 

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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

 

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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

 

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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 9¾% 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 11½% 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

 

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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; Oprovided , 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

 

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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.

 

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“ 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.

 

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“ 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.

 

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“ 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

 

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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.

 

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(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:

 

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(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

 

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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.

 

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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.

 

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(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

 

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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

 

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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.

 

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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

 

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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