SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and entered
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into as of August 24, 2005 by CARMAX AUTO SUPERSTORES, INC., a Virginia
corporation (the "Revolving Borrower" and a "Grantor"), CARMAX, INC., a Virginia
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corporation (the "Company" and a "Grantor"), EACH OF THE UNDERSIGNED
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SUBSIDIARIES OF THE COMPANY AND EACH OTHER PERSON WHO SHALL BECOME A PARTY
HERETO BY EXECUTION OF A JOINDER AGREEMENT (each a "Grantor" and collectively
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with the Company and the Revolving Borrower, the "Grantors"), and BANK OF
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AMERICA, N.A., a national banking association, as Administrative Agent (the
"Administrative Agent") for each of the Lenders now or hereafter party to the
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Credit Agreement defined below (collectively with the Administrative Agent and
the L/C Issuer, the "Secured Parties"). All capitalized terms used but not
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otherwise defined herein or pursuant to Section 1 hereof shall have the
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respective meanings assigned thereto in the Credit Agreement (as defined below).
W I T N E S S E T H:
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WHEREAS, the Secured Parties have agreed to provide to the Revolving
Borrower and certain Subsidiaries of the Company (the "Designated Borrowers" and
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collectively with the Revolving Borrower, the "Borrowers" and each individually
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a "Borrower") a certain revolving credit facility including specific sublimits
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for standby letters of credit, swing line loans and new vehicle swing line loans
pursuant to the Credit Agreement dated as of even date herewith among the
Borrowers, the Company, the Administrative Agent, the L/C Issuer and the Lenders
(as amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement");
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WHEREAS, each Grantor will materially benefit from the Loans to be made,
and the Letters of Credit to be issued, under the Credit Agreement, and each
Grantor (other than the Revolving Borrower) is a party (as signatory or by
joinder) to either the Company Guaranty Agreement or the Subsidiary Guaranty
Agreement (each a "Guaranty") pursuant to which such Grantor (in such capacity,
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a "Guarantor") guarantees the Obligations of each Borrower;
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WHEREAS, as collateral security for payment and performance of the
Obligations and as collateral security for payment and performance by each
Guarantor of its Guarantor's Obligations (as defined in the Guaranty to which
such Guarantor is a party), and the payment and performance of its obligations
and liabilities (whether now existing or hereafter arising) hereunder or under
any of the other Loan Documents to which it is now or hereafter becomes a party,
each Grantor is willing to grant to the Administrative Agent for the benefit of
the Secured Parties a security interest in certain of its personal property and
assets pursuant to the terms of this Security Agreement; and
WHEREAS, the Secured Parties are unwilling to enter into the Loan Documents
unless the Grantors enter into this Security Agreement;
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NOW, THEREFORE, in order to induce the Secured Parties to enter into the
Loan Documents and to make Loans and issue Letters of Credit, and in further
consideration of the premises and the mutual covenants contained herein, the
parties hereto agree as follows:
1. Certain Definitions. Terms used in this Security Agreement, not
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otherwise expressly defined herein or in the Credit Agreement, and for which
meanings are provided in the Uniform Commercial Code of the State of New York
(the "UCC"), shall have such meanings. The term "Qualifying Control Agreement"
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shall have the meaning set forth on Schedule 1 hereto.
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2. Grant of Security Interest. Each Grantor hereby grants as collateral
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security for the payment and performance of all of its Obligations (including
all of its Guarantor's Obligations (as defined in its Guaranty)) and the payment
and performance of its obligations and liabilities (whether now existing or
hereafter arising) hereunder or under any of the Loan Documents to which it is
now or hereafter becomes a party (such obligations and liabilities of such
Grantor and the other Grantors referred to collectively as the "Secured
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Obligations"), to the Administrative Agent for the benefit of the Secured
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Parties a continuing first priority security interest in, and collaterally
assigns to the Administrative Agent for the benefit of the Secured Parties, all
of the following property of such Grantor or in which such Grantor has or may
have or acquire an interest or the power to transfer rights therein, whether now
owned or existing or hereafter created, acquired or arising and wheresoever
located:
(a) All new and used vehicle inventory (including all inventory
consisting of new or used automobiles or trucks with a gross vehicle weight
of less than 16,000 pounds) in which such Grantor now or at any time
hereafter may have an interest, whether or not the same is in transit or in
the constructive, actual or exclusive occupancy or possession of such
Grantor or is held by such Grantor or by others for such Grantor's account
(collectively referred to hereinafter as "Vehicle Inventory");
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(b) To the extent arising out of the sale, lease or other disposition
of Vehicle Inventory:
(i) all accounts, including accounts receivable, and all
contracts, bills, acceptances, choses in action, and other forms of
monetary obligations at any time owing to such Grantor, and all of
such Grantor's rights with respect to any property represented
thereby, whether or not delivered, property returned by customers and
all rights as an unpaid vendor or lienor, including rights of stoppage
in transit and of recovering possession by proceedings including
replevin and reclamation, other than Chattel Paper, Instruments and
General Intangibles (collectively referred to hereinafter as
"Accounts");
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(ii) all chattel paper, including tangible chattel paper,
electronic chattel paper, or any hybrid thereof (collectively referred
to hereinafter as "Chattel Paper");
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(iii) all instruments, including all promissory notes
(collectively referred to hereinafter as "Instruments"); and
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(iv) all general intangibles, including all rights now or
hereafter accruing to such Grantor under contracts, leases, agreements
or other instruments, including all contracts or contract rights to
perform or receive services, to purchase or sell Vehicle Inventory,
and to enforce all rights thereunder, all causes of action, corporate
or business records, computer programs and software, all payment
intangibles, all claims under guaranties, all rights and claims
against carriers and shippers, all claims under insurance policies,
all rights to indemnification and all other intangible personal
property of every kind and nature (collectively referred to
hereinafter as "General Intangibles");
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(c) Any right of such Grantor in (i) contracts in transit relating to
any Vehicle Inventory (including any Vehicle Inventory that has been sold,
leased or otherwise disposed of by such Grantor), (ii) any written or oral
agreement of any finance company or other Person to provide financing for,
or to pay all or any portion of the purchase price of any Vehicle Inventory
(including any Vehicle Inventory that has been sold, leased or otherwise
disposed of by such Grantor) or (iii) any amount to be received under such
contracts or agreements (collectively referred to hereinafter as "Contracts
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In Transit");
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(d) All documents relating to any of the foregoing, including
warehouse receipts, bills of lading or other documents of title
(collectively referred to hereinafter as "Documents");
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(e) All manufacturer statements of origin, certificates of origin, and
certificates of title or ownership relating to any Vehicle Inventory
(collectively referred to hereinafter as "Title Documents");
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(f) All books and records relating to any of the foregoing (including
customer data, credit files, ledgers, computer programs, printouts, and
other computer materials and records (and all media on which such data,
files, programs, materials and records are or may be stored)); and
(g) All proceeds, products and replacements of, accessions to, and
substitutions for, any of the foregoing, including without limitation
proceeds of insurance policies insuring any of the foregoing.
provided, however, that the property in which a security interest is granted or
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which is collaterally assigned pursuant to this Section 2 shall not include or
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continue into retail installment contracts and Related Property transferred by
any Grantor in connection with a Permitted Sale Facility (collectively the
"Excluded Property") but shall include and continue into the proceeds of any
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such transfer (other than any such proceeds held temporarily by a Subsidiary
which arise in connection with a contemporaneous transfer of such Excluded
Property from one Permitted Sale Facility to another Permitted Sale Facility).
All of the property and interests in property described in subsections (a)
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through (g) (other than the property and interests in property excluded by the
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foregoing proviso) are herein collectively referred to as the "Collateral".
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3. Perfection. As of the date of execution of this Security Agreement or a
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Joinder Agreement by each Grantor, as applicable (with respect to each Grantor,
its "Applicable Date"), such Grantor shall have:
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(a) furnished the Administrative Agent with duly authorized financing
statements in form, number and substance suitable for filing, sufficient
under applicable law and satisfactory to the Administrative Agent in order
that upon the filing of the same the Administrative Agent, for the benefit
of the Secured Parties, shall have a duly perfected security interest in
all Collateral in which a security interest can be perfected by the filing
of financing statements;
(b) to the extent requested by the Administrative Agent, furnished the
Administrative Agent with evidence of the placement of a restrictive legend
on tangible Chattel Paper (and the tangible components of electronic
Chattel Paper), and taken appropriate action acceptable to the
Administrative Agent sufficient to establish the Administrative Agent's
control of electronic Chattel Paper (and the electronic components of
hybrid Chattel Paper), as appropriate, with respect to Collateral in which
either (i) a security interest can be perfected only by control or such
restrictive legending, or (ii) a security interest perfected by control or
accompanied by such restrictive legending shall have priority as against a
lien creditor, a purchaser of such Collateral from the applicable Grantor,
or a security interest perfected by Persons not having control or not
accompanied by such restrictive legending, in each case in form and
substance acceptable to the Administrative Agent and sufficient under
applicable law so that the Administrative Agent, for the benefit of the
Secured Parties, shall have a security interest in all such Collateral
perfected by control; and
(c) to the extent requested by the Administrative Agent, delivered to
the Administrative Agent or, if the Administrative Agent shall specifically
consent in each instance, an agent or bailee of the Administrative Agent
who has acknowledged such status in a properly executed Qualifying Control
Agreement possession of all Collateral with respect to which either a
security interest can be perfected only by possession or a security
interest perfected by possession shall have priority as against Persons not
having possession, and including in the case of Instruments and Documents,
duly executed endorsements affixed thereto in form and substance acceptable
to the Administrative Agent and sufficient under applicable law so that the
Administrative Agent, for the benefit of the Secured Parties, shall have a
security interest in all such Collateral perfected by possession;
with the effect that the Liens conferred in favor of the Administrative Agent
shall be and remain duly perfected and of first priority subject only, to the
extent applicable, to Liens allowed to exist under Section 7.01 of the Credit
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Agreement ("Permitted Liens"). All financing statements (including all
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amendments thereto and continuations thereof), control agreements, certificates,
acknowledgments, and other documents, electronic identification, restrictive
legends, and instruments furnished in connection with the creation, enforcement,
protection, perfection or priority of the Administrative Agent's security
interest in Collateral, including such items as are described above in this
Section 3, are sometimes referred to herein as "Perfection Documents". The
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delivery of possession of items of or evidencing Collateral, causing other
Persons to execute and deliver Perfection Documents as appropriate, the filing
or recordation of Perfection Documents, the establishment of control over items
of Collateral, and the taking of such other actions as may be necessary or
advisable in the reasonable determination of the Administrative Agent to create,
enforce, protect, perfect, or establish or maintain the priority of, the
security interest of the Administrative Agent for the benefit of the Secured
Parties in the Collateral is sometimes referred to herein as "Perfection
Action".
4. Maintenance of Security Interest; Further Assurances.
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(a) Each Grantor will from time to time at its own expense, deliver
specific assignments of Collateral or such other Perfection Documents, and
take such other or additional Perfection Action, as may be required by the
terms of the Loan Documents or as the Administrative Agent may reasonably
request in connection with the administration or enforcement of this
Security Agreement or related to the Collateral or any part thereof in
order to carry out the terms of this Security Agreement, to perfect,
protect, maintain the priority of or enforce the Administrative Agent's
security interest in the Collateral, subject only to Permitted Liens, or
otherwise to better assure and confirm unto the Administrative Agent its
rights, powers and remedies for the benefit of the Secured Parties
hereunder. Without limiting the foregoing, each Grantor hereby irrevocably
authorizes the Administrative Agent to file (with, or to the extent
permitted by applicable law, without the signature of the Grantor appearing
thereon) financing statements (including amendments thereto and initial
financing statements in lieu of continuation statements) or other
Perfection Documents (including copies thereof) showing such Grantor as
"debtor" at such time or times and in all filing offices as the
Administrative Agent may from time to time reasonably determine to be
necessary or advisable to perfect or protect the rights of the
Administrative Agent and the Secured Parties hereunder, or otherwise to
give effect to the transactions herein contemplated. Each Grantor hereby
irrevocably acknowledges the Administrative Agent's authority to file
Perfection Documents prior to such Grantor's Applicable Date and hereby
irrevocably ratifies all such filings.
(b) With respect to any and all Collateral, each Grantor agrees to do
and cause to be done all things necessary to perfect, maintain the priority
of and keep in full force the security interest granted in favor of the
Administrative Agent for the benefit of the Secured Parties, including, but
not limited to, the prompt payment upon demand therefor by the
Administrative Agent of all fees and expenses (including documentary stamp,
excise or intangibles taxes) incurred in connection with the preparation,
delivery, or filing of any Perfection Document or the taking of any
Perfection Action to perfect, protect or enforce a security interest in
Collateral in favor of the Administrative Agent for the benefit of the
Secured Parties, subject only to Permitted Liens. All amounts not so paid
when due shall constitute additional Secured Obligations and (in addition
to other rights and remedies resulting from such nonpayment) shall bear
interest from the date of demand until paid in full at the Default Rate.
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(c) Each Grantor agrees to maintain among its books and records
appropriate notations or evidence of, and to make or cause to be made
appropriate disclosure upon its financial statements of, the security
interest granted hereunder to the Administrative Agent for the benefit of
the Secured Parties.
(d) Each Grantor agrees that, in the event any Collateral constituting
proceeds (other than goods or proceeds on deposit in the Collection
Account) shall be or become commingled with other property not constituting
Collateral, then such proceeds may, to the extent permitted by law, be
identified by application of the lowest intermediate balance rule to such
commingled property.
5. Receipt of Payment. In the event an Event of Default shall occur and be
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continuing and a Grantor (or any of its Affiliates, subsidiaries, stockholders,
directors, officers, employees or agents) shall receive any Collateral
consisting of items of payment, including without limitation monies, checks,
notes, drafts or any other items of payment, such Grantor shall hold all such
items of payment in trust for the Administrative Agent for the benefit of the
Secured Parties, and as the property of the Administrative Agent for the benefit
of the Secured Parties, separate from the funds and other property of such
Grantor, and such Grantor shall, forthwith at the request of the Administrative
Agent, cause such items of payment to be forwarded to the Administrative Agent
for its custody, possession and disposition on behalf of the Secured Parties in
accordance with the terms hereof and of the other Loan Documents.
6. Preservation and Protection of Collateral.
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(a) The Administrative Agent shall be under no duty or liability with
respect to the collection, protection or preservation of the Collateral,
except that the Administrative Agent shall exercise reasonable care in the
custody and preservation of any Collateral in its possession or control (it
being understood that following reasonable banking practices shall be
deemed to be an exercise of reasonable care). Each Grantor shall be
responsible for the safekeeping of its Collateral, and, except as set forth
in the preceding sentence, in no event shall the Administrative Agent have
any responsibility for (i) any loss or damage thereto or destruction
thereof occurring or arising in any manner or fashion from any cause, (ii)
any diminution in the value thereof, or (iii) any act or default of any
carrier, warehouseman, bailee or forwarding agency thereof or of any other
Person in any way dealing with or handling such Collateral.
(b) Each Grantor shall keep and maintain its tangible personal
property Collateral in good operating condition and repair, ordinary wear
and tear excepted.
(c) Each Grantor agrees (i) to pay when due all taxes, charges and
assessments against the Collateral in which it has any interest, unless
being contested in good faith by appropriate proceedings diligently
conducted and against which adequate reserves have been established in
accordance with GAAP and provided that all enforcement proceedings in the
nature of levy or foreclosure are effectively stayed, and (ii) to cause to
be terminated and released all Liens (other than Permitted Liens) on the
Collateral. Upon the failure of any Grantor to so pay or contest such
taxes, charges, or assessments, or cause such Liens to be terminated, the
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Administrative Agent at its option may pay or contest any of them or
amounts relating thereto (the Administrative Agent having the sole right to
determine the legality or validity and the amount necessary to discharge
such taxes, charges, Liens or assessments) but shall not have any
obligation to make any such payment or contest. All sums so disbursed by
the Administrative Agent, including reasonable fees, charges and
disbursements of counsel ("Attorney Costs"), court costs, expenses and
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other charges related thereto, shall be payable on demand by the applicable
Grantor to the Administrative Agent and shall be additional Secured
Obligations secured by the Collateral, and any amounts not so paid on
demand (in addition to other rights and remedies resulting from such
nonpayment) shall bear interest from the date of demand until paid in full
at the Default Rate.
7. Status of Grantors and Collateral Generally. Each Grantor represents and
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warrants to, and covenants with, the Administrative Agent for the benefit of the
Secured Parties, with respect to itself and the Collateral as to which it has or
acquires any interest, that:
(a) It is at its Applicable Date (or as to Collateral acquired after
its Applicable Date will be upon the acquisition of the same) and, except
as permitted by the Credit Agreement and subsection (b) of this Section 7,
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will continue to be, the owner of the Collateral, free and clear of all
Liens, other than the security interest hereunder in favor of the
Administrative Agent for the benefit of the Secured Parties and Permitted
Liens, and that it will at its own cost and expense defend such Collateral
against all claims and demands of all Persons (other than holders of
Permitted Liens to the extent of their claims permitted under the Credit
Agreement) at any time claiming the same or any interest therein adverse to
the Secured Parties. Upon the failure of any Grantor to so defend, the
Administrative Agent may do so at its option but shall not have any
obligation to do so. All sums so disbursed by the Administrative Agent,
including reasonable Attorney Costs, court costs, expenses and other
charges related thereto, shall be payable on demand by the applicable
Grantor to the Administrative Agent and shall be additional Secured
Obligations secured by the Collateral, and any amounts not so paid on
demand (in addition to other rights and remedies resulting from such
nonpayment) shall bear interest from the date of demand until paid in full
at the Default Rate.
(b) It shall not (i) sell, assign, transfer, lease, license or
otherwise dispose of any of, or grant any option with respect to, the
Collateral, except for Dispositions permitted under Section 7.04 of the
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Credit Agreement, (ii) create or suffer to exist any Lien upon or with
respect to any of the Collateral except for the security interests created
by this Security Agreement and Permitted Liens, or (iii) take any other
action in connection with any of the Collateral that would materially
impair the value of the interest or rights of such Grantor in the
Collateral taken as a whole or that would materially impair the interest or
rights of the Administrative Agent for the benefit of the Secured Parties.
(c) It has full power, legal right and lawful authority to enter into
this Security Agreement (and any Joinder Agreement applicable to it) and to
perform its terms, including the grant of the security interests in the
Collateral herein provided for.
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(d) No authorization, consent, approval or other action by, and no
notice to or filing with, any Governmental Authority or any other Person
which has not been given or obtained, as the case may be, is required
either (i) for the grant by such Grantor of the security interests granted
hereby or for the execution, delivery or performance of this Security
Agreement (or any Joinder Agreement) by such Grantor, or (ii) for the
perfection of or the exercise by the Administrative Agent, on behalf of the
Secured Parties, of its rights and remedies hereunder, except for action
required by the Uniform Commercial Code to perfect and exercise remedies
with respect to the security interest conferred hereunder.
(e) No effective financing statement or other Perfection Document
similar in effect, nor any other Perfection Action, covering all or any
part of the Collateral purported to be granted or taken by or on behalf of
such Grantor (or by or on behalf of any other Person and which remains
effective as against all or any part of the Collateral) has been filed in
any recording office, delivered to another Person for filing (whether upon
the occurrence of a contingency or otherwise), or otherwise taken, as the
case may be, except such as pertain to Permitted Liens and such as may have
been filed for the benefit of, delivered to, or taken in favor of, the
Administrative Agent for the benefit of the Secured Parties in connection
with the security interests conferred hereunder.
(f) Schedule 7(f) attached hereto contains true and complete
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information as to each of the following: (i) the exact legal name of each
Grantor as it appears in its Organization Documents as of its Applicable
Date and at any time during the five (5) year period ending as of its
Applicable Date (the "Covered Period"), (ii) the jurisdiction of formation
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and form of organization of each Grantor, and the identification number of
such Grantor in its jurisdiction of formation (if any), (iii) each address
of the chief executive office of each Grantor as of its Applicable Date and
at any time during the Covered Period, (iv) all trade names or trade styles
used by such Grantor as of its Applicable Date and at any time during the
Covered Period, (v) the address of each location of such Grantor at which
any tangible personal property Collateral (including Account Records and
Account Documents) is located at its Applicable Date or has been located at
any time during the Covered Period, (vi) with respect to each location
described in clause (v) that is not owned beneficially and of record by
such Grantor, the name and address of the owner thereof; and (vii) the name
and address of each Person other than such Grantor at which any tangible
personal property Collateral of such Grantor is held under any warehouse,
consignment, bailment or other arrangement as of its Applicable Date. No
Grantor shall change its name, change its jurisdiction of formation
(whether by reincorporation, merger or otherwise), change the location of
its chief executive office, or utilize any additional location where
tangible personal property Collateral (including Account Records and
Account Documents may be located, except in each case upon giving not less
than thirty (30) days' prior written notice to the Administrative Agent and
taking or causing to be taken at such Grantor's expense all such Perfection
Action, including the delivery of such Perfection Documents, as may be
reasonably requested by the Administrative Agent to perfect or protect, or
maintain the perfection and priority of, the Lien of the Administrative
Agent for the benefit of the Secured Parties in Collateral contemplated
hereunder.
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(g) Such Grantor shall not engage in any consignment transaction in
respect of any of the Collateral, whether as consignee or consignor,
without the prior written consent of the Administrative Agent in each
instance.
(h) Such Grantor shall not cause, suffer or permit any of the tangible
personal property Collateral (i) to be evidenced by any document of title
(except for shipping documents as necessary or customary to effect the
receipt of such Collateral or the delivery of such Collateral to such
Grantor or to customers, in each case in the ordinary course of business,
and motor vehicle certificates of title) or (ii) to be in the possession,
custody or control of any warehouseman or other bailee (except as set forth
in Section 6.14 of the Credit Agreement).
(i) No tangible personal property Collateral is or shall be located at
any location that is leased by such Grantor from any other Person, unless
(x) such location and lessor is set forth on Schedule 6.14 attached to the
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Credit Agreement (as such Schedule may be revised from time to time in
accordance with the terms of the Credit Agreement), (y) upon request of the
Administrative Agent, such Grantor uses reasonable efforts to cause such
lessor to acknowledge the Lien in favor of the Administrative Agent for the
benefit of the Secured Parties conferred hereunder and waives its statutory
and consensual liens and rights with respect to such Collateral in form and
substance acceptable to the Administrative Agent and delivered in writing
to the Administrative Agent prior to any Collateral being located at any
such location, and (z) the Grantor shall have caused at its expense to be
prepared and executed such additional Perfection Documents and to be taken
such other Perfection Action as the Administrative Agent may deem necessary
or advisable to carry out the transactions contemplated by this Security
Agreement.
8. Inspection. The Administrative Agent (by any of its officers, employees
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and agents), on behalf of the Secured Parties, or any Lender, shall have the
right upon prior notice to an executive officer of any Grantor, and at any
reasonable times during such Grantor's usual business hours, in each case
(unless an Event of Default has occurred and is continuing) at the expense of
the Administrative Agent or such Lender, as applicable, to inspect the
Collateral (including inspecting Vehicles and conducting random samples of the
Net Book Value of the Vehicles), all records related thereto (and to make
extracts or copies from such records), and the premises upon which any of the
Collateral is located, to discuss such Grantor's affairs and finances with any
Person (other than Persons obligated on any Accounts ("Account Debtors")) and to
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verify with any Person other than Account Debtors the amount, quality, quantity,
value and condition of, or any other matter relating to, the Collateral and, if
an Event of Default has occurred and is continuing, to discuss such Grantor's
affairs and finances with such Grantor's Account Debtors and to verify the
amount, quality, value and condition of, or any other matter relating to, the
Collateral with such Account Debtors; provided, however, that, unless an Event
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of Default has occurred and is continuing, the Administrative Agent and the
Lenders shall be limited to two such inspections during any period of 12
consecutive months. Upon the occurrence and during the continuation of an Event
of Default, the Administrative Agent may at any time and from time to time
employ and maintain on such Grantor's premises a custodian selected by the
Administrative Agent who shall have full authority to do all acts necessary to
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protect the Administrative Agent's (for the benefit of the Secured Parties)
interest. All expenses incurred by the Administrative Agent, on behalf of the
Secured Parties, by reason of the employment of such custodian shall be paid by
such Grantor on demand from time to time and shall be added to the Secured
Obligations secured by the Collateral, and any amounts not so paid on demand (in
addition to other rights and remedies resulting from such nonpayment) shall bear
interest from the date of demand until paid in full at the Default Rate.
9. Specific Collateral.
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(a) Accounts. With respect to its Accounts whether now existing or
hereafter created or acquired and wheresoever located, each Grantor
represents, warrants and covenants to the Administrative Agent for the
benefit of the Secured Parties that:
(i) Each Grantor shall keep accurate and complete records of its
Accounts ("Account Records") and from time to time, at the
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Administrative Agent's request, such Grantor shall provide the
Administrative Agent with a schedule of Accounts in excess of
$1,000,000 in form and substance reasonably acceptable to the
Administrative Agent describing all Accounts created or acquired by
such Grantor ("Schedule of Accounts"); provided, however, that such
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Grantor's failure to execute and deliver any such Schedule of Accounts
shall not affect or limit the Administrative Agent's security interest
or other rights in and to any Accounts for the benefit of the Secured
Parties, and provided further that, unless an Event of Default has
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occurred and is continuing, the Administrative Agent shall be limited
to two requests for Schedules of Accounts during any period of 12
consecutive months. If reasonably requested by the Administrative
Agent, or at any time requested by the Administrative Agent upon and
during the continuance of an Event of Default, each Grantor shall
furnish the Administrative Agent with copies of proof of delivery and
other documents relating to the Accounts so scheduled, including
without limitation repayment histories and present status reports
(collectively, "Account Documents") and such other matter and
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information relating to the status of then existing Accounts as the
Administrative Agent shall reasonably request.
(ii) All Account Records and Account Documents are and shall at
all times be located only at such Grantor's current chief executive
office as set forth on Schedule 7(f) attached hereto, such other
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locations as are specifically identified on Schedule 7(f) attached
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hereto as an "Account Documents location," or as to which the Grantor
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has complied with Section 7(f) hereof.
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(iii) The Accounts are genuine, are in all respects what they
purport to be, are not evidenced by an instrument or document or, if
evidenced by an instrument or document, are only evidenced by one
original instrument or document.
(iv) The Accounts cover bona fide sales, leases, or other
dispositions of Vehicle Inventory to an Account Debtor in the ordinary
course of business.
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(v) The amounts of the face value of any Account shown or
reflected on any Schedule of Accounts, invoice statement, or
certificate delivered to the Administrative Agent, are actually owing
to such Grantor and are not contingent for any reason; and there are
no setoffs, discounts, allowances, claims, counterclaims or disputes
of any kind or description in an amount greater than $500,000 in the
aggregate, or greater than $250,000 individually, existing or asserted
with respect thereto and such Grantor has not made any agreement with
any Account Debtor thereunder for any deduction therefrom, except as
may be stated in the Schedule of Accounts and reflected in the
calculation of the face value of each respective invoice related
thereto.
(vi) Except for conditions generally applicable to such Grantor's
industry and markets, there are no facts, events, or occurrences known
to such Grantor pertaining particularly to any Accounts which are
reasonably expected to materially impair in any way the validity,
collectibility or enforcement of Accounts that would reasonably be
likely, in the aggregate, to be of material economic value, or in the
aggregate materially reduce the amount payable thereunder from the
amount of the invoice face value shown on any Schedule of Accounts, or
on any certificate, contract, invoice or statement delivered to the
Administrative Agent with respect thereto.
(vii) The property or services giving rise thereto are not, and
were not at the time of the sale or performance thereof, subject to
any Lien, except those of the Administrative Agent for the benefit of
Secured Parties and Permitted Liens.
(viii) In the event any amounts due and owing in excess of
$1,000,000 in the aggregate are in dispute between any Account Debtor
and a Grantor (which shall include without limitation any dispute in
which an offset claim or counterclaim may result), such Grantor shall
provide the Administrative Agent with written notice thereof as soon
as practicable, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy.
(b) Vehicle Inventory. With respect to its Vehicle Inventory whether
------------------
now existing or hereafter created or acquired and wheresoever located, each
Grantor represents, warrants and covenants to the Administrative Agent for
the benefit of the Secured Parties that:
(i) Such Grantor shall keep accurate and complete records
itemizing and describing each new and used vehicle, including the
year, make, model, cost, price, location and Vehicle Identification
Number, and the daily withdrawals therefrom and additions thereto, and
shall furnish to the Administrative Agent from time to time as set
forth in the Credit Agreement, a current schedule of Vehicle Inventory
("Schedule of Vehicle Inventory") based upon its most recent physical
------------------------------
inventory and its daily inventory records. Such Grantor shall conduct
a physical inventory no less frequently than annually, and shall
furnish to the Administrative Agent such other documents and reports
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thereof as the Administrative Agent shall reasonably request with
respect to the Vehicle Inventory.
(ii) All Vehicle Inventory is and shall, except as set forth in
Section 6.14 of the Credit Agreement, at all times be located only at
------------
such Grantor's locations as set forth on Schedule 6.14 attached to the
-------------
Credit Agreement (as such Schedule may be revised from time to time in
accordance with the terms of the Credit Agreement). Such Grantor shall
not, other than in the ordinary course of business in connection with
its sale, lease, license or other permitted Disposition or as set
forth in Section 6.14 of the Credit Agreement, remove any Vehicle
-------------
Inventory from such locations.
(iii) If any Account Debtor returns any Vehicle Inventory to such
Grantor after shipment thereof, and such return generates a credit in
excess of $1,000,000 in the aggregate on any Accounts of such Account
Debtor, such Grantor shall notify the Administrative Agent in writing
of the same as soon as practicable.
(c) Chattel Paper. With respect to its Chattel Paper that constitutes
-------------
Collateral, whether now existing or hereafter created or acquired and
wheresoever located, each Grantor represents, warrants and covenants to the
Administrative Agent for the benefit of the Secured Parties that:
(i) Such Grantor shall at all times retain sole physical
possession of the originals of all Chattel Paper (other than
electronic Chattel Paper and the electronic components of hybrid
Chattel Paper); provided, however, that (x) upon the request of the
-------- -------
Administrative Agent upon the occurrence and during the continuance of
an Event of Default, such Grantor shall immediately deliver physical
possession of such Chattel Paper to the Administrative Agent or its
designee, and (y) in the event that there shall be created more than
one original counterpart of any physical document that alone or in
conjunction with any other physical or electronic document constitutes
Chattel Paper, then such counterparts shall be numbered consecutively
starting with "1" and such Grantor shall retain the counterpart
numbered "1".
(ii) At the request of the Administrative Agent upon the
occurrence and during the continuance of an Event of Default, such
Grantor shall promptly and conspicuously legend all counterparts of
all tangible Chattel Paper as follows: "A FIRST PRIORITY SECURITY
INTEREST IN THIS CHATTEL PAPER HAS BEEN GRANTED TO BANK OF AMERICA,
N.A., FOR ITSELF AND AS ADMINISTRATIVE AGENT FOR CERTAIN LENDERS
PURSUANT TO A SECURITY AGREEMENT DATED AS OF _____________, 2005 AS
AMENDED FROM TIME TO TIME. NO SECURITY INTEREST OR OTHER INTEREST IN
FAVOR OF ANY OTHER PERSON MAY BE CREATED BY THE TRANSFER OF PHYSICAL
POSSESSION OF THIS CHATTEL PAPER OR OF ANY COUNTERPART HEREOF EXCEPT
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BY OR WITH THE CONSENT OF THE AFORESAID ADMINISTRATIVE AGENT AS
PROVIDED IN SUCH SECURITY AGREEMENT." Upon the occurrence or during
the continuance of an Event of Default, such Grantor shall not create
or acquire any electronic Chattel Paper (including the electronic
components of hybrid Chattel Paper), unless, prior to such creation or
acquisition, it shall have taken such Perfection Action as the
Administrative Agent may require to perfect by control the security
interest of the Administrative Agent for the benefit of the Secured
Parties in such Collateral.
(iii) Other than in the ordinary course of business and in
keeping with reasonable and customary practice, such Grantor shall not
amend, modify, waive or terminate any provision of, or fail to
exercise promptly and diligently each material right or remedy
conferred under or in connection with, any Chattel Paper, in any case
in such a manner as could reasonably be expected to materially
adversely affect the value of such Chattel Paper as collateral.
(d) Instruments. With respect to its Instruments that constitute
-----------
Collateral, whether now existing or hereafter created or acquired and
wheresoever located, each Grantor represents, warrants and covenants to the
Administrative Agent for the benefit of the Secured Parties that:
(i) Such Grantor shall (A) maintain at all times, and, upon
request of the Administrative Agent, furnish to the Administrative
Agent, a current list identifying in reasonable detail Instruments of
which such Grantor is the payee or holder and having a face amount
payable in excess of $1,000,000 in the aggregate from any single
Person, provided that, unless an Event of Default has occurred and is
continuing, the Administrative Agent shall be limited to two such
requests during any period of 12 consecutive months, and (B) at the
request of the Administrative Agent from time to time, deliver to the
Administrative Agent the originals of all such Instruments, together
with duly executed undated endorsements in blank affixed thereto and
such other documentation and information as may be necessary to enable
the Administrative Agent to realize upon the Instruments in accordance
with their respective terms or transfer the Instruments as may be
permitted under the Loan Documents or by applicable law.
(ii) Other than in the ordinary course of business and in keeping
with reasonable and customary practice, such Grantor shall not amend,
modify, waive or terminate any provision of, or fail to exercise
promptly and diligently each material right or remedy conferred under
or in connection with, any Instrument, in any case in such a manner as
could reasonably be expected to materially adversely affect the value
of such Instrument as collateral.
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10. Property and Liability Insurance Required.
-----------------------------------------
(a) Each Grantor will keep the Collateral continuously insured against
such risks as are customarily insured against by businesses of like size
and type engaged in the same or similar operations including:
(i) property insurance on the Vehicle Inventory, against loss or
damage by theft, fire, lightning, hail, wind, flooding and other
hazards ordinarily included under all risk/special form or equivalent
form insurance policies as are customarily maintained by Persons
engaged in the same or similar business, owning similar properties in
locations where such Grantor operates and otherwise similarly situated
to such Grantor;
(ii) garage liability or comprehensive general liability
insurance against claims for bodily injury, death or property damage
occurring with or about such Collateral (such coverage to include
provisions waiving subrogation against the Secured Parties), with the
Administrative Agent, the L/C Issuer and the Lenders as additional
insureds thereunder, in amounts as are customary for Persons engaged
in the same or similar business, owning similar properties in
locations where such Grantor operates and otherwise similarly situated
to such Grantor;
(iii) workers' compensation in accordance with the laws of the
states in which such Collateral is located as are customarily
maintained by Persons engaged in the same or similar business, owning
similar properties in locations where such Grantor operates and
otherwise similarly situated to such Grantor, but in no event less
than the amount required by the states where such Collateral is
located; and
(iv) business interruption insurance in amounts as are
customarily maintained by Persons engaged in the same or similar
business, owning similar properties in locations where such Grantor
operates and otherwise similarly situated to such Grantor.
(b) Each insurance policy obtained in satisfaction of the requirements
of Section 10(a):
-------------
(i) may be provided by blanket policies now or hereafter
maintained by the Company or each or any Grantor;
(ii) shall be issued by such insurer (or insurers) as shall be
financially responsible, of recognized standing and having an A.M.
Best rating of not less than A- on the later of (i) the Closing Date
and (ii) the latest date such policy is issued, renewed or extended;
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(iii) shall be in such form and have such provisions (including
without limitation the loss payable clause, the waiver of subrogation
clause, the deductible amount, if any, and the standard mortgagee
endorsement clause) as are generally considered standard provisions
for the type of insurance involved and are customary for Persons
engaged in the same or similar business, owning similar properties in
locations where such Grantor operates and otherwise similarly situated
to such Grantor;
(iv) shall require not less than thirty (30) days' prior written
notice to the Administrative Agent before any cancellation of such
policy (except that not less than ten (10) days' prior written notice
shall be required before any cancellation based on the non-payment of
premiums);
(v) without limiting the generality of the foregoing, all
insurance policies where applicable under Section 10(a)(i) carried on
----------------
the Collateral shall name the Administrative Agent, for the benefit of
the Secured Parties, as loss payee.
(c) Prior to expiration of any such policy, such Grantor shall furnish
the Administrative Agent with a certificate of insurance evidencing that
such policy has been renewed or replaced or other evidence that such policy
is no longer required by this Security Agreement.
(d) Each Grantor hereby makes, constitutes and appoints the
Administrative Agent (and all officers, employees or agents designated by
the Administrative Agent), for the benefit of the Secured Parties, as such
Grantor's true and lawful attorney (and agent-in-fact) for the purpose of
making, settling and adjusting claims under the policies of insurance
described in Section 10(a)(i) and endorsing the name of such Grantor on any
check, draft, instrument or other item or payment for the proceeds of such
policies of insurance, which appointment is coupled with an interest and is
irrevocable; provided, however, that the powers pursuant to such
-------- -------
appointment shall be exercisable only upon the occurrence and during the
continuation of an Event of Default.
(e) In the event such Grantor shall fail to maintain, or fail to cause
to be maintained, the full insurance coverage required hereunder or shall
fail to keep any of its Collateral in good repair and good operating
condition, ordinary wear and tear excepted, the Administrative Agent may
(but shall be under no obligation to), without waiving or releasing any
Secured Obligation or Default by such Grantor hereunder, contract for the
required policies of insurance and pay the premiums on the same or make any
required repairs, renewals and replacements; and all sums so disbursed by
the Administrative Agent, including reasonable Attorney Costs, court costs,
expenses and other charges related thereto, shall be payable on demand by
such Grantor to the Administrative Agent, shall be additional Secured
Obligations secured by the Collateral, and (in addition to other rights and
remedies resulting from such nonpayment) shall bear interest from the date
of demand until paid in full at the Default Rate.
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(f) Each Grantor agrees that to the extent that it shall fail to
maintain, or fail to cause to be maintained, the full insurance coverage
required by Section 10(a), it shall in the event of any loss or casualty
--------------
pay promptly to the Administrative Agent, for the benefit of the Secured
Parties, to be held in a separate account for application in accordance
with the provisions of Sections 10(h), such amount as would have been
---------------
received as Net Proceeds (as hereinafter defined) by the Administrative
Agent, for the benefit of the Secured Parties, under the provisions of
Section 10(h) had such insurance been carried to the extent required;
--------------
provided, however, that this Section 10(f) shall only apply to the extent
-------------
that, after giving effect to such loss or casualty, the Total Outstandings
exceed the Borrowing Base then in effect.
(g) The Net Proceeds of the insurance carried pursuant to the
provisions of Sections 10(a)(ii) and 10(a)(iii) shall be applied by such
------------------- ----------
Grantor, or paid by the applicable insurance carrier, toward satisfaction
of the claim or liability with respect to which such insurance proceeds may
be paid.
(h) The Net Proceeds of the insurance carried with respect to the
Collateral pursuant to the provisions of Section 10(a)(i) hereof shall be
-----------------
paid to such Grantor and held by such Grantor in a separate account and
applied, as long as no Event of Default shall have occurred and be
continuing, as follows: after any loss under any such insurance and payment
of the proceeds of such insurance, each Grantor shall have a period of
thirty (30) days after payment of the insurance proceeds with respect to
such loss to elect to either (x) repair or replace the Collateral so
damaged, (y) deliver such Net Proceeds to the Administrative Agent, for the
benefit of the Secured Parties, as additional Collateral or to pay
Obligations, or (z) apply such Net Proceeds to the acquisition of tangible
assets constituting Collateral used or useful in the conduct of the
business of such Grantor, subject to the provisions of this Security
Agreement; provided, however, that this sentence shall only apply to the
-------- -------
extent that, after giving effect to such loss, the Total Outstandings
exceed the Borrowing Base then in effect. If such Grantor elects to repair
or replace the Collateral so damaged, such Grantor agrees the Collateral
shall be repaired to a condition substantially similar to or of better
quality or higher value than its condition prior to damage or replaced with
Collateral in a condition substantially similar to or of better quality or
higher value than the condition of the Collateral so replaced prior to
damage. At all times during which an Event of Default shall have occurred
and be continuing, the Administrative Agent (as its interest appears in the
Loan Documents) shall be entitled to receive direct and prompt payment of
the proceeds of such insurance and such Grantor shall take all action as
the Administrative Agent may reasonably request to accomplish such payment.
Notwithstanding the foregoing, in the event such Grantor shall receive any
such proceeds at any time during which an Event of Default shall have
occurred and be continuing, such Grantor shall immediately deliver such
proceeds to the Administrative Agent for the benefit of the Secured Parties
to prepay any Loans or other Obligations and to Cash Collateralize the then
Outstanding Amount of L/C Obligations, and pending such delivery shall hold
such proceeds in trust for the benefit of the Secured Parties and keep the
same segregated from its other funds.
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(i) "Net Proceeds" when used with respect to any insurance proceeds
-------------
shall mean the gross proceeds from such proceeds, award or other amount,
less all taxes, fees and expenses (including Attorney Costs) incurred in
the realization thereof.
(j) In case of any material damage to, destruction or loss of, or
claim or proceeding against, all or any material part of the Collateral
pledged hereunder by a Grantor, such Grantor shall give prompt notice
thereof to the Administrative Agent. Each such notice shall describe
generally the nature and extent of such damage, destruction, loss, claim or
proceeding.
(k) The provisions contained in this Security Agreement pertaining to
insurance shall be cumulative with any additional provisions imposing
additional insurance requirements with respect to the Collateral or any
other property on which a Lien is conferred under any Security Instrument.
11. Rights and Remedies Upon Event of Default. Upon and during the
----------------------------------------------
continuance of an Event of Default, the Administrative Agent shall have the
following rights and remedies on behalf of the Secured Parties in addition to
any rights and remedies set forth elsewhere in this Security Agreement or the
other Loan Documents, all of which may be exercised with or, if allowed by law,
without notice to a Grantor:
(a) All of the rights and remedies of a secured party under the UCC or
under other applicable law, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, to the extent permitted
by law, in addition to any other rights and remedies contained in this
Security Agreement or any other Loan Document;
(b) The right to foreclose the Liens and security interests created
under this Security Agreement by any available judicial procedure or
without judicial process;
(c) The right to (i) enter upon the premises of a Grantor through
self-help and without judicial process, without first obtaining a final
judgment or giving such Grantor notice or opportunity for a hearing on the
validity of the Administrative Agent's claim and without any obligation to
pay rent to such Grantor, or any other place or places where any Collateral
is located and kept, and remove the Collateral therefrom to the premises of
the Administrative Agent or any agent of the Administrative Agent, for such
time as the Administrative Agent may desire, in order effectively to
collect or liquidate such Collateral, (ii) require such Grantor or any
bailee or other agent of such Grantor to assemble the Collateral and make
it available to the Administrative Agent at a place to be designated by the
Administrative Agent that is reasonably convenient to both parties, and
(iii) notify any or all Persons party to a Qualifying Control Agreement or
who otherwise have possession of or control over any Collateral of the
occurrence of an Event of Default and other appropriate circumstances, and
exercise control over and take possession or custody of any or all
Collateral in the possession, custody or control of such other Persons;
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(d) The right to (i) exercise all of a Grantor's rights and remedies
with respect to the collection of Accounts, Chattel Paper, Instruments and
General Intangibles that constitute Collateral (collectively, "Payment
-------
Collateral"), including the right to demand payment thereof and enforce
----------
payment, by legal proceedings or otherwise; (ii) settle, adjust,
compromise, extend or renew all or any Payment Collateral or any legal
proceedings pertaining thereto; (iii) discharge and release all or any
Payment Collateral; (iv) take control, in any manner, of any item of
payment referred to in Section 5 above; (v) prepare, file and sign a
----------
Grantor's name on any Proof of Claim in bankruptcy, notice of Lien,
assignment or satisfaction of Lien or similar document in any action or
proceeding adverse to any obligor under any Payment Collateral or otherwise
in connection with any Payment Collateral; (vi) endorse the name of a
Grantor upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to any
Collateral; (vii) use the information recorded on or contained on a
Grantor's internet website or otherwise in any data processing equipment
and computer hardware and software relating to any Collateral to which a
Grantor has access; (viii) open such Grantor's mail and collect any and all
amounts due to such Grantor from any Account Debtors or other obligor in
respect of Payment Collateral; (ix) take over such Grantor's post office
boxes or make other arrangements as the Administrative Agent, on behalf of
the Secured Parties, deems necessary to receive such Grantor's mail,
including notifying the post office authorities to change the address for
delivery of such Grantor's mail to such address as the Administrative
Agent, on behalf of the Secured Parties, may designate; (x) notify any or
all Account Debtors or other obligor on any Payment Collateral that such
Payment Collateral has been assigned to the Administrative Agent for the
benefit of the Secured Parties and that the Administrative Agent has a
security interest therein for the benefit of the Secured Parties but, to
the extent such direction to a Grantor is not otherwise prohibited under
applicable law, only if any Grantor shall have failed to send such notice
within one Business Day after having been directed to do so by the
Administrative Agent (provided that the Administrative Agent may at any
time give such notice to an Account Debtor that is a department, agency or
authority of the United States government); each Grantor hereby agrees that
any such notice sent by the Administrative Agent, may (but need not), in
the Administrative Agent's sole discretion, be sent on such Grantor's
stationery, in which event such Grantor shall co-sign such notice with the
Administrative Agent if requested to do so by the Administrative Agent; and
(xi) do all acts and things and execute all documents necessary, in
Administrative Agent's judgment, to collect the Payment Collateral; and
(e) The right to sell all or any Collateral in its then existing
condition, or after any further manufacturing or processing thereof, at
such time or times, at public or private sale or sales, with such notice as
may be required by law, in lots or in bulk, for cash or on credit, with or
without representations and warranties, all as the Administrative Agent, in
its sole discretion, may deem advisable. The Administrative Agent shall
have the right to conduct such sales on a Grantor's premises or elsewhere
and shall have the right to use a Grantor's premises without charge for
such sales for such time or times as the Administrative Agent may see fit.
The Administrative Agent may, if it deems it reasonable, postpone or
adjourn any sale of the Collateral from time to time by an announcement at
the time and place of such postponed or adjourned sale, and such sale may,
18
C723647
without further notice, be made at the time and place to which it was so
adjourned. Each Grantor agrees that the Administrative Agent has no
obligation to preserve rights to the Collateral against prior parties or to
marshal any Collateral for the benefit of any Person. The Administrative
Agent for the benefit of the Secured Parties is hereby granted an
irrevocable fully paid license or other right (including each Grantor's
rights under any license or any franchise agreement), each of which shall
remain in full force and effect until the Facility Termination Date, to
use, without charge, each of the labels, patents, copyrights, names, trade
secrets, trade names, trademarks and advertising matter, or any property of
a similar nature owned or licensed by any Grantor, as it pertains to the
Collateral, in completing production of, advertising for sale and selling
any Collateral. If any of the Collateral shall require repairs,
maintenance, preparation or the like, or is in process or other unfinished
state, the Administrative Agent shall have the right, but shall not be
obligated, to perform such repairs, maintenance, preparation, processing or
completion of manufacturing for the purpose of putting the same in such
saleable form as the Administrative Agent shall deem appropriate, but the
Administrative Agent shall have the right to sell or dispose of the
Collateral without such processing and no Grantor shall have any claim
against the Administrative Agent for the value that may have been added to
such Collateral with such processing. In addition, each Grantor agrees that
in the event notice is necessary under applicable law, written notice
mailed to such Grantor in the manner specified herein ten (10) days prior
to the date of public sale of any of the Collateral or prior to the date
after which any private sale or other disposition of the Collateral will be
made shall constitute commercially reasonable notice to such Grantor. All
notice is hereby waived with respect to any of the Collateral which
threatens to decline speedily in value or is of a type customarily sold on
a recognized market. The Administrative Agent may purchase all or any part
of the Collateral at public or, if permitted by law, private sale, free
from any right of redemption which is hereby expressly waived by such
Grantor and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Secured Obligations. Each Grantor
recognizes that the Administrative Agent may be unable to effect a public
sale of certain of the Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities Act"),
--------------
and applicable state law, and may be otherwise delayed or adversely
affected in effecting any sale by reason of present or future restrictions
thereon imposed by governmental authorities ("Affected Collateral"), and
--------------------
that as a consequence of such prohibitions and restrictions the
Administrative Agent may be compelled (i) to resort to one or more private
sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire Affected Collateral for their own account,
for investment and not with a view to the distribution or resale thereof,
or (ii) to seek regulatory approval of any proposed sale or sales, or (iii)
to limit the amount of Affected Collateral sold to any Person or group.
Each Grantor agrees and acknowledges that private sales so made may be at
prices and upon terms less favorable to such Grantor than if such Affected
Collateral was sold either at public sales or at private sales not subject
to other regulatory restrictions, and that the Administrative Agent has no
obligation to delay the sale of any Affected Collateral for the period of
time necessary to permit the Grantor or any other Person to register or
otherwise qualify them under or exempt them from any applicable
restriction, even if such Grantor or other Person would agree to register
19
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or otherwise qualify or exempt such Affected Collateral so as to permit a
public sale under the Securities Act or applicable state law. Each Grantor
further agrees, to the extent permitted by applicable law, that the use of
private sales made under the foregoing circumstances to dispose of Affected
Collateral shall be deemed to be dispositions in a commercially reasonable
manner. Each Grantor hereby acknowledges that a ready market may not exist
for Affected Collateral that is not traded on a national securities
exchange or quoted on an automated quotation system.
The net cash proceeds resulting from the collection, liquidation, sale, or
other disposition of the Collateral shall be applied first to the expenses
(including all Attorney Costs) of retaking, holding, storing, processing and
preparing for sale, selling, collecting, liquidating and the like, and then to
the satisfaction of all Secured Obligations in accordance with the terms of
Section 8.03 of the Credit Agreement. Each Grantor shall be liable to the
- -------------
Administrative Agent, for the benefit of the Secured Parties, and shall pay to
the Administrative Agent, for the benefit of the Secured Parties, on demand any
deficiency which may remain after such sale, disposition, collection or
liquidation of the Collateral.
For purposes of this Security Agreement, "Facility Termination Date" means
-------------------------
the date as of which all of the following shall have occurred: (a) the Borrowers
shall have permanently terminated the credit facilities under the Loan Documents
by final payment in full of all Outstanding Amounts, together with all accrued
and unpaid interest and fees thereon, other than (i) the undrawn portion of
Letters of Credit and (ii) all letter of credit fees relating thereto accruing
after such date (which fees shall be computed (based on interest rates and the
Applicable Rate then in effect) on such undrawn amounts to the respective expiry
dates of the Letters of Credit), in each case as have been fully Cash
Collateralized or as to which other arrangements with respect thereto
satisfactory to the Administrative Agent and the L/C Issuer shall have been
made; (b) all Commitments shall have terminated or expired; and (c) the
Borrowers and each other Loan Party shall have fully, finally and irrevocably
paid and satisfied in full all other Obligations (except for obligations
consisting of continuing indemnities and other contingent Obligations of any
Borrower or any Loan Party that may be owing to the Administrative Agent and
each of its Related Parties or any Lender pursuant to the Loan Documents and
expressly survive termination of the Credit Agreement or any other Loan
Document).
12. Attorney-in-Fact. Each Grantor hereby appoints the Administrative Agent
----------------
as the Grantor's attorney-in-fact for the purposes of carrying out the
provisions of this Security Agreement and taking any action and executing any
instrument which the Administrative Agent may deem necessary or advisable to
accomplish the purposes hereof, which appointment is irrevocable and coupled
with an interest; provided, however, that the Administrative Agent shall have
-------- -------
and may exercise rights under this power of attorney only upon the occurrence
and during the continuance of an Event of Default. Without limiting the
generality of the foregoing, upon the occurrence and during the continuance of
an Event of Default, the Administrative Agent shall have the right and power:
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(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above;
(c) to endorse such Grantor's name on any checks, notes, drafts or any
other payment constituting Collateral which comes into the Administrative
Agent's possession or the Administrative Agent's control, and deposit the
same to the account of the Administrative Agent, for the benefit of the
Secured Parties, on account and for payment of the Secured Obligations;
(d) to file any claims or take any action or institute any proceedings
that the Administrative Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Administrative Agent, for the benefit of the Secured Parties, with
respect to any of the Collateral; and
(e) to execute, in connection with any sale or other disposition of
Collateral provided for herein, any endorsement, assignments, or other
instruments of conveyance or transfer with respect thereto.
13. Reinstatement. The granting of a security interest in the Collateral
-------------
and the other provisions hereof shall continue to be effective or be reinstated,
as the case may be, if at any time any payment of any of the Secured Obligations
is rescinded or must otherwise be returned by any Secured Party or is repaid by
any Secured Party in whole or in part in good faith settlement of a pending or
threatened avoidance claim, whether upon the insolvency, bankruptcy or
reorganization of any Grantor or any other Loan Party or otherwise, all as
though such payment had not been made. The provisions of this Section 13 shall
----------
survive repayment of all of the Secured Obligations and the termination or
expiration of this Security Agreement in any manner, including but not limited
to termination upon occurrence of the Facility Termination Date.
14. Certain Waivers by the Grantors. Each Grantor waives to the extent
---------------------------------
permitted by applicable law (a) any right to require any Secured Party or any
other obligee of the Secured Obligations to (x) proceed against any Person or
entity, including without limitation any Loan Party, (y) proceed against or
exhaust any Collateral or other collateral for the Secured Obligations, or (z)
pursue any other remedy in its power; (b) any defense arising by reason of any
disability or other defense of any other Person, or by reason of the cessation
from any cause whatsoever of the liability of any other Person or entity, (c)
any right of subrogation, and (d) any right to enforce any remedy which any
Secured Party or any other obligee of the Secured Obligations now has or may
hereafter have against any other Person and any benefit of and any right to
participate in any collateral or security whatsoever now or hereafter held by
the Administrative Agent for the benefit of the Secured Parties. Each Grantor
authorizes each Secured Party and each other obligee of the Secured Obligations
without notice (except notice required by applicable law) or demand and without
affecting its liability hereunder or under the Loan Documents from time to time
to: (i) take and hold security, other than the Collateral herein described, for
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the payment of such Secured Obligations or any part thereof, and exchange,
enforce, waive and release the Collateral herein described or any part thereof
or any such other security; and (ii) apply such Collateral or other security and
direct the order or manner of sale thereof as such Secured Party or obligee in
its discretion may determine.
The Administrative Agent may at any time deliver (without representation,
recourse or warranty) the Collateral or any part thereof to a Grantor and the
receipt thereof by such Grantor shall be a complete and full acquittance for the
Collateral so delivered, and the Administrative Agent shall thereafter be
discharged from any liability or responsibility therefor.
15. Continued Powers. Until the Facility Termination Date shall have
-----------------
occurred, the power of sale and other rights, powers and remedies granted to the
Administrative Agent for the benefit of the Secured Parties hereunder shall
continue to exist and may be exercised by the Administrative Agent at any time
and from time to time irrespective of the fact that any of the Secured
Obligations or any part thereof may have become barred by any statute of
limitations or that any part of the liability of any Grantor may have ceased.
16. Other Rights. The rights, powers and remedies given to the
-------------
Administrative Agent for the benefit of the Secured Parties by this Security
Agreement shall be in addition to all rights, powers and remedies given to the
Administrative Agent or any Secured Party under any other Loan Document or by
virtue of any statute or rule of law. Any forbearance or failure or delay by the
Administrative Agent in exercising any right, power or remedy hereunder shall
not be deemed to be a waiver of such right, power or remedy, and any single or
partial exercise of any right, power or remedy hereunder shall not preclude the
further exercise thereof; and every right, power and remedy of the Secured
Parties shall continue in full force and effect until such right, power or
remedy is specifically waived in accordance with the terms of the Credit
Agreement.
17. Anti-Marshaling Provisions. The right is hereby given by each Grantor
---------------------------
to the Administrative Agent, for the benefit of the Secured Parties, to make
releases (whether in whole or in part) of all or any part of the Collateral
agreeable to the Administrative Agent without notice to, or the consent,
approval or agreement of other parties and interests, including junior lienors,
which releases shall not impair in any manner the validity of or priority of the
Liens and security interests in the remaining Collateral conferred hereunder,
nor release any Grantor from personal liability for the Secured Obligations.
Notwithstanding the existence of any other security interest in the Collateral
held by the Administrative Agent, for the benefit of the Secured Parties, the
Administrative Agent shall have the right to determine the order in which any or
all of the Collateral shall be subjected to the remedies provided in this
Security Agreement. Each Grantor hereby waives any and all right to require the
marshaling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided herein or in any other Loan Document.
18. Entire Agreement. This Security Agreement and each Joinder Agreement,
----------------
together with the Credit Agreement and other Loan Documents, constitutes and
expresses the entire understanding between the parties hereto with respect to
the subject matter hereof, and supersedes all prior negotiations, agreements and
understandings, inducements, commitments or conditions, express or implied, oral
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or written, except as contained in the Loan Documents. The express terms hereof
and of the Joinder Agreements control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof or thereof. Neither
this Security Agreement nor any Joinder Agreement nor any portion or provision
hereof or thereof may be changed, altered, modified, supplemented, discharged,
canceled, terminated, or amended orally or in any manner other than as provided
in the Credit Agreement.
19. Third Party Reliance. Each Grantor hereby consents and agrees that all
--------------------
issuers of or obligors in respect of any Collateral, and all securities
intermediaries, warehousemen, bailees, public officials and other Persons having
any interest in, possession of, control over or right, privilege, duty or
discretion in respect of, any Collateral shall be entitled to accept the
provisions hereof and of the Joinder Agreements as conclusive evidence of the
right of the Administrative Agent, on behalf of the Secured Parties, to exercise
its rights hereunder or thereunder with respect to the Collateral,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by any Grantor or any other Person to any of such Persons.
20. Binding Agreement; Assignment. This Security Agreement and each Joinder
-----------------------------
Agreement, and the terms, covenants and conditions hereof and thereof, shall be
binding upon and inure to the benefit of the parties hereto, and to their
respective successors and assigns, except that no Grantor shall be permitted to
assign this Security Agreement, any Joinder Agreement or any interest herein or
therein or, except as expressly permitted herein or in the Credit Agreement, in
the Collateral or any part thereof or interest therein. Without limiting the
generality of the foregoing sentence of this Section 20, any Lender or the L/C
----------
Issuer may assign to one or more Persons, or grant to one or more Persons
participations in or to, all or any part of its rights and obligations under the
Credit Agreement (to the extent permitted by the Credit Agreement); and to the
extent of any such assignment or participation such other Person shall, to the
fullest extent permitted by law, thereupon become vested with all the benefits
in respect thereof granted to such Lender or the L/C Issuer herein or otherwise,
subject, however, to the provisions of the Credit Agreement, including Article
-------
IX thereof (concerning the Administrative Agent) and Section 10.06 thereof
- -- --------------
(concerning assignments and participations). All references herein to the
Administrative Agent and to the Secured Parties shall include any successor
thereof or permitted assignee, and any other obligees from time to time of the
Secured Obligations.
21. Severability. The provisions of this Security Agreement are independent
------------
of and separable from each other. If any provision hereof shall for any reason
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision hereof, but this
Security Agreement shall be construed as if such invalid or unenforceable
provision had never been contained herein.
22. Counterparts. This Security Agreement may be executed in any number of
------------
counterparts each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Security
Agreement to produce or account for more than one such counterpart executed by
the Grantor against whom enforcement is sought. Without limiting the foregoing
provisions of this Section 22, the provisions of Section 10.02(b) of the Credit
---------- -----------------
Agreement shall be applicable to this Security Agreement.
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23. Termination. Subject to the provisions of Section 13, this Security
----------- ----------
Agreement and each Joinder Agreement, and all obligations of the Grantors
hereunder (excluding those obligations and liabilities that expressly survive
such termination) shall terminate without delivery of any instrument or
performance of any act by any party on the Facility Termination Date. Upon such
termination of this Security Agreement, the Administrative Agent shall, at the
request and sole expense of the Grantors, promptly deliver to the Grantors such
termination statements and take such further actions as the Grantors may
reasonably request to terminate of record, or otherwise to give appropriate
notice of the termination of, any Lien conferred hereunder.
24. Notices. Any notice required or permitted hereunder shall be given (a)
-------
with respect to any Grantor, at the address then in effect for the giving of
notices to such Grantor under the Credit Agreement and (b) with respect to the
Administrative Agent or other Secured Party, at the Administrative Agent's
address indicated in Schedule 10.02 of the Credit Agreement. All such addresses
--------------
may be modified, and all such notices shall be given and shall be effective, as
provided in Section 10.02 of the Credit Agreement for the giving and
--------------
effectiveness of notices and modifications of addresses thereunder.
25. Joinder. Each Person who shall at any time execute and deliver to the
-------
Administrative Agent a Joinder Agreement shall thereupon irrevocably, absolutely
and unconditionally become a party hereto and obligated hereunder as a Grantor
and shall have thereupon pursuant to Section 2 hereof granted a security
---------
interest in and collaterally assigned to the Administrative Agent for the
benefit of the Secured Parties all Collateral in which it has at its Applicable
Date or thereafter acquires any interest or the power to transfer, and all
references herein and in the other Loan Documents to the Grantors or to the
parties to this Security Agreement shall be deemed to include such Person as a
Grantor hereunder. Each Joinder Agreement shall be accompanied by the
Supplemental Schedules referred to therein, appropriately completed with
information relating to the Grantor executing such Joinder Agreement and its
property. Each of the applicable Schedules attached hereto shall be deemed
amended and supplemented by such information reflected on the Supplemental
Schedules attached to each Joinder Agreement without further action.
26. Rules of Interpretation. The rules of interpretation contained in
------------------------
Sections 1.02 and 1.05 of the Credit Agreement shall be applicable to this
- -------------- ----
Security Agreement and each Joinder Agreement and are hereby incorporated by
reference. All representations and warranties contained herein shall survive the
delivery of documents and any Credit Extensions referred to herein or secured
hereby.
27. Governing Law; Waivers.
----------------------
(a) THIS SECURITY AGREEMENT AND EACH JOINDER AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH
STATE; PROVIDED THAT (i) WITH RESPECT TO THOSE INSTANCES IN WHICH THE
APPLICABLE CHOICE OF LAWS RULES OF SUCH STATE, INCLUDING SECTION 9-301 OF
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THE UCC, REQUIRE THAT THE MANNER OF CREATION OF A SECURITY INTEREST IN
SPECIFIC COLLATERAL OR THE MANNER OR EFFECT OF PERFECTION OR NONPERFECTION
OR THE RULES GOVERNING PRIORITY OF SECURITY INTERESTS ARE TO BE GOVERNED BY
THE LAWS OF ANOTHER JURISDICTION, THEN THE LAWS OF SUCH OTHER JURISDICTION
SHALL GOVERN SUCH MATTERS, AND (ii) IN THOSE INSTANCES IN WHICH THE LAWS OF
THE JURISDICTION IN WHICH COLLATERAL IS LOCATED GOVERN MATTERS PERTAINING
TO THE METHODS AND EFFECT OF REALIZING ON COLLATERAL, SUCH LAWS SHALL BE
GIVEN EFFECT WITH RESPECT TO SUCH MATTERS.
(b) EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS
THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT OR ANY JOINDER AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN MAY BE INSTITUTED IN ANY STATE COURT SITTING
IN NEW YORK COUNTY, STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY THE EXECUTION AND DELIVERY OF
THIS SECURITY AGREEMENT OR A JOINDER AGREEMENT, EXPRESSLY WAIVES ANY
OBJECTION THAT IT MAY HAVE NOW OR HEREAFTER TO THE LAYING OF THE VENUE OR
TO THE JURISDICTION OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND IRREVOCABLY
SUBMITS GENERALLY AND UNCONDITIONALLY TO THE NONEXCLUSIVE JURISDICTION OF
ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING.
(c) EACH PARTY HERETO AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF,
EACH OTHER SECURED PARTY, IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE
MANNER PROVIDED FOR NOTICES IN SECTION 24. NOTHING IN THIS SECURITY
-----------
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW.
(d) NOTHING CONTAINED IN SUBSECTIONS (b) OR (c) HEREOF SHALL PRECLUDE
--------------- ---
THE ADMINISTRATIVE AGENT FROM BRINGING ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY JOINDER
AGREEMENT OR ANY OTHER LOAN DOCUMENT IN THE COURTS OF JURISDICTION WHERE
ANY OTHER PARTY OR ANY OF SUCH PARTY'S PROPERTY OR ASSETS MAY BE FOUND OR
LOCATED. TO THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH
JURISDICTION, EACH GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION
OR PROCEEDING, OBJECTION TO THE EXERCISE OF JURISDICTION OVER IT AND ITS
PROPERTY BY ANY OTHER COURT OR COURTS WHICH NOW OR HEREAFTER, BY REASON OF
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ITS PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE UNDER
APPLICABLE LAW.
(e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER OR RELATED TO THIS SECURITY AGREEMENT OR ANY JOINDER
AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR
THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH
PARTY HEREBY AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY AND HEREBY EXPRESSLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION,
SUIT OR PROCEEDING.
(f) EACH PARTY HERETO AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF,
EACH OTHER SECURED PARTY, HEREBY EXPRESSLY WAIVES ANY OBJECTION IT MAY HAVE
THAT ANY COURT TO WHOSE JURISDICTION ANY GRANTOR HAS SUBMITTED PURSUANT TO
THE TERMS HEREOF IS AN INCONVENIENT FORUM.
[Signature pages follow]
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IN WITNESS WHEREOF, the parties have duly executed this Security
Agreement on the day and year first written above.
GRANTORS:
CARMAX, INC.
CARMAX AUTO SUPERSTORES, INC.
CARMAX BUSINESS SERVICES, LLC
CARMAX TEXAS GENERAL PARTNER, LLC
CARMAX AUTO SUPERSTORES TEXAS, LP
CARMAX AUTO SUPERSTORES SERVICES, INC.
By: /s/ Keith D. Browning
-----------------------------------------
Name: Keith D. Browning
---------------------------------------
Title: Executive Vice President
--------------------------------------
CARMAX OF LAUREL, LLC
CARMAX AUTO MALL, LLC
CARMAX AUTO SUPERSTORES CALIFORNIA, LLC
CARMAX AUTO SUPERSTORES WEST COAST, INC.
CARMAX PROPERTIES, LLC
By: /s/ Keith D. Browning
-----------------------------------------
Name: Keith D. Browning
---------------------------------------
Title: President
--------------------------------------
SECURITY AGREEMENT
Signature Page
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ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A.,
as Administrative Agent
By: /s/ Anne M. Zeschke
-----------------------------------------
Name: Anne M. Zeschke
---------------------------------------
Title: Assistant Vice President
--------------------------------------
SECURITY AGREEMENT
Signature Page
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SCHEDULE 1
For purposes of this Security Agreement, a "Qualifying Control Agreement"
----------------------------
shall mean an acknowledgment and agreement executed by any warehouseman or other
bailee who has possession, custody or control of tangible personal property
Collateral (each, a "Custodian") and the applicable Grantor, in form and
---------
substance acceptable to the Administrative Agent and in which the Custodian (i)
acknowledges the Lien created hereunder (and that such Custodian holds such
Collateral for the Administrative Agent for the benefit of the Secured Parties),
(ii) agrees to discontinue accepting requests or demands from or on behalf of
the applicable Grantor for access to or possession of any Collateral of which it
is Custodian upon receipt of notice from the Administrative Agent that an Event
of Default has occurred and is continuing (a "Default Notice"), until such time
--------------
as the Administrative Agent may furnish it with a subsequent notice that such
Event of Default has been cured or waived, (iii) agrees that it will comply with
instructions from the Administrative Agent directing the disposition of the
Collateral of which it is Custodian, without requiring further consent from the
Grantor, following receipt of any Default Notice from the Administrative Agent,
(iv) agrees that it will not consent to or acknowledge any Lien on Collateral of
which it is Custodian in favor of any other Person until it receives notice from
the Administrative Agent that all Liens on such Collateral in favor of the
Secured Parties have been released or terminated, (v) agrees to waive or
subordinate to the Lien conferred hereunder, on terms acceptable to the
Administrative Agent, any lien, claim, or right of setoff or recoupment (whether
statutory or consensual) in favor of the Custodian on any of the Collateral, and
(vi) agrees to deliver (and accompanies such agreement with any then existing)
warehouse receipts or other Documents pertaining to such Collateral.
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SCHEDULE 7(f)
Grantor Information
-------------------
- ------- ----------------- ------------------ -------------- --------------- ------------------------ ------------------------
I. II. III. IV. V. VI. VII.
- ------- ----------------- ------------------ -------------- --------------- ------------------------ ------------------------
Jurisdiction of Trade Names, Name and address Relationship of
Formation/ Trade Styles, Collateral of Owner of Persons listed in VI to
Form of Fictitious Locations
Equity/I.D. Address of Chief Names and (and Type Collateral Location Grantor (e.g., lessor,
Name Number Executive Office "d/b/a" Names of Collateral) (If other than Grantor) warehousemen)
---- ------ ---------------- ------------ -------------- ---------------------- -------------
- ------- ----------------- ------------------ -------------- --------------- ------------------------ ------------------------
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