EXHIBIT 10.3

 

SECOND AMENDED AND RESTATED

SECURITY AGREEMENT

 

THIS SECOND AMENDED AND RESTATED SECURITY AGREEMENT (this “Security Agreement”),
is entered into as of December 29, 2005, among THE PANTRY, INC., a Delaware
corporation (the “Borrower”), the Domestic Subsidiaries of the Borrower from
time to time a party hereto (individually a “Guarantor” and collectively the
“Guarantors”; the Guarantors, together with the Borrower, individually an
“Obligor” and collectively the “Obligors”) and WACHOVIA BANK, NATIONAL
ASSOCIATION, in its capacity as Administrative Agent under the Credit Agreement
referred to below (in such capacity, the “Administrative Agent”) for the several
banks and other financial institutions as may from time to time become parties
to such Credit Agreement (individually a “Secured Party” and collectively the
“Secured Parties”).

 

RECITALS

 

WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as
of March 12, 2004 (as amended, modified, extended, renewed or replaced, the
“Existing Credit Agreement”), among the Borrower, the guarantors party thereto,
the lenders party thereto, and the Administrative Agent, the lenders agreed to
make loans and issue letters of credit upon the terms and subject to the
conditions set forth therein;

 

WHEREAS, pursuant to that certain Second Amended and Restated Credit Agreement
dated as of the date hereof (as amended, modified, extended, renewed or replaced
from time to time, the “Credit Agreement”), among the Borrower, the Guarantors,
the Secured Parties party thereto, and the Administrative Agent, the Secured
Parties have agreed to refinance the Existing Credit Agreement and make Loans
and issue Letters of Credit upon the terms and subject to the conditions set
forth therein;

 

WHEREAS, in connection with the Existing Credit Agreement, the Borrower and the
Guarantors entered into that certain Amended and Restated Security Agreement
dated as of March 12, 2004 (as amended, modified, extended, renewed or replaced,
the “Existing Security Agreement”); and

 

WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Secured Parties to make their respective
Loans and to issue Letters of Credit under the Credit Agreement that the
Obligors shall have executed and delivered this Security Agreement (which amends
and restates the Existing Security Agreement) to the Administrative Agent for
the ratable benefit of the Secured Parties.

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NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

 

1. Definitions.

 

(a) Unless otherwise defined herein, capitalized terms used herein shall have
the meanings ascribed to such terms in the Credit Agreement, and the following
terms which are defined in the Uniform Commercial Code from time to time in
effect in the State of North Carolina (the “UCC”) are used herein as so defined:
Accessions, Accounts, As-Extracted Collateral, Chattel Paper, Commercial Tort
Claims, Consumer Goods, Control, Deposit Accounts, Documents, Electronic Chattel
Paper, Equipment, Farm Products, Fixtures, General Intangibles, Goods,
Instruments, Inventory, Investment Property, Letter-of-Credit Rights,
Manufactured Homes, Proceeds, Securities Account, Securities Intermediary,
Security, Security Entitlement, Software, Supporting Obligations and Tangible
Chattel Paper. For purposes of this Security Agreement, the term “Secured Party”
shall include any Hedging Agreement Provider.

 

(b) In addition, the following term shall have the following meaning:

 

“Secured Obligations”: (a) all of the Credit Party Obligations, howsoever
evidenced, created, incurred or acquired, whether primary, secondary, direct,
contingent, or joint and several and (b) all expenses and charges, legal and
otherwise, incurred by the Administrative Agent and/or the Secured Parties in
collecting or enforcing any Credit Party Obligations or in realizing on or
protecting any security therefor, including without limitation the security
granted hereunder.

 

2. Grant of Security Interest in the Collateral.

 

(a) To secure the prompt payment and performance in full when due, whether by
lapse of time, acceleration, mandatory prepayment or otherwise, of the Secured
Obligations, each Obligor hereby grants to the Administrative Agent, for the
ratable benefit of the Secured Parties, a continuing security interest in, and
right to set off against, any and all right, title and interest of such Obligor
in and to the following, whether now owned or existing or owned, acquired, or
arising hereafter (collectively, the “Collateral”):

 

  (i) all Accounts;

 

  (ii) all cash and Cash Equivalents;

 

  (iii) all Chattel Paper;

 

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  (iv) those certain Commercial Tort Claims set forth on Schedule 2(a) attached
hereto (as such Schedule may be updated from time to time by the Obligors);

 

  (v) all Copyright Licenses;

 

  (vi) all Copyrights;

 

  (vii) all Deposit Accounts;

 

  (viii) all Documents;

 

  (ix) all Equipment;

 

  (x) all Fixtures;

 

  (xi) all General Intangibles;

 

  (xii) all Goods;

 

  (xiii) all Instruments;

 

  (xiv) all Inventory;

 

  (xv) all Investment Property;

 

  (xvi) all Letter-of-Credit Rights;

 

  (xvii) all Material Contracts and all such other agreements, contracts,
leases, licenses, tax sharing agreements or hedging arrangements now or
hereafter entered into by an Obligor, as such agreements may be amended or
otherwise modified from time to time (collectively, the “Assigned Agreements”),
including without limitation, (A) all rights of an Obligor to receive moneys due
and to become due under or pursuant to the Assigned Agreements, (B) all rights
of an Obligor to receive proceeds of any insurance, indemnity, warranty or
guaranty with respect to the Assigned Agreements, (C) claims of an Obligor for
damages arising out of or for breach of or default under the Assigned Agreements
and (D) the right of an Obligor to terminate the Assigned Agreements, to perform
thereunder and to compel performance and otherwise exercise all remedies
thereunder;

 

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  (xviii) all Patent Licenses;

 

  (xix) all Patents;

 

  (xx) all Payment Intangibles;

 

  (xxi) all Trademark Licenses;

 

  (xxii) all Trademarks;

 

  (xxiii) all Software;

 

  (xxiv) all Supporting Obligations;

 

  (xxv) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks, and related data processing software (owned by such
Obligor or in which it has an interest) that at any time evidence or contain
information relating to any Collateral or are otherwise necessary or helpful in
the collection thereof or realization thereupon;

 

  (xxvi) all other personal property of any kind or type whatsoever owned by
such Obligor; and

 

  (xxvii) to the extent not otherwise included, all Accessions, Proceeds and
products of any and all of the foregoing.

 

Notwithstanding the foregoing, nothing in this Section 2 or otherwise in this
Security Agreement shall constitute a grant by any Obligor of a security
interest in any contract, document, instrument, general intangible, lease,
license or other right of any kind to the extent such agreement was entered into
prior to the date of this Security Agreement and to the extent such a grant of a
security interest would, after giving effect to the provisions of subsections
9-406, 9-407 and 9-408 of the UCC, constitute a breach or violation of any term
thereof.

 

(b) The Obligors and the Administrative Agent, on behalf of the Secured Parties,
hereby acknowledge and agree that the security interest created hereby in the
Collateral (i) constitutes continuing collateral security for all of the Secured
Obligations, whether now existing or hereafter arising and (ii) is not to be
construed as an assignment of any Intellectual Property.

 

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3. Provisions Relating to Accounts, Contracts and Agreements.

 

(a) Anything herein to the contrary notwithstanding, each of the Obligors shall
remain liable under each of its Accounts, contracts and agreements to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with the terms of any agreement giving rise to
each such Account or the terms of such contract or agreement. Neither the
Administrative Agent nor any Secured Party shall have any obligation or
liability under any Account (or any agreement giving rise thereto), contract or
agreement by reason of or arising out of this Security Agreement or the receipt
by the Administrative Agent or any Secured Party of any payment relating to such
Account, contract or agreement pursuant hereto, nor shall the Administrative
Agent or any Secured Party be obligated in any manner to perform any of the
obligations of an Obligor under or pursuant to any Account (or any agreement
giving rise thereto), contract or agreement, to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as
to the sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto), contract or agreement, to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.

 

(b) Upon the occurrence and during the continuation of an Event of Default, the
Administrative Agent shall have the right, but not the obligation, to make test
verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and the Obligors shall furnish all such
assistance and information as the Administrative Agent may reasonably require in
connection with such test verifications. Upon the occurrence and during the
continuation of an Event of Default, the Administrative Agent’s request and at
the expense of the Obligors, the Obligors shall cause independent public
accountants or others satisfactory to the Administrative Agent to furnish to the
Administrative Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts. Subject to Section 2(a),
the Administrative Agent in its own name or in the name of others may
communicate with account debtors on the Accounts to verify with them to the
Administrative Agent’s satisfaction the existence, amount and terms of any
Accounts.

 

4. Representations and Warranties. Each Obligor hereby represents and warrants
to the Administrative Agent, for the benefit of the Secured Parties, that so
long as any of the Secured Obligations remain outstanding (other than contingent
indemnity or reimbursement obligations) or any Credit Document or Secured
Hedging Agreement is in effect, and until all of the Commitments shall have been
terminated:

 

(a) Chief Executive Office; Books & Records; Legal Name; State of Formation. As
of the Closing Date, each Obligor’s chief executive office and chief place of
business are (and for the prior four months has been) located at the locations
set forth on Schedule 3.5(c) to the Credit Agreement and as of the Closing Date
each Obligor

 

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keeps its books and records at such locations. As of the Closing Date, each
Obligor’s exact legal name is as shown in this Security Agreement and its state
of incorporation or organization is (and for the prior four months has been) the
location set forth on Schedule 3.1-1 to the Credit Agreement. No Obligor has in
the four months preceding the Closing Date changed its name, been party to a
merger, consolidation or other change in structure or used any tradename not
disclosed on Schedule 4(a) attached hereto.

 

(b) Location of Tangible Collateral. The location of all tangible Collateral
owned by each Obligor is set forth in the Perfection Certificate delivered in
accordance with the Credit Agreement.

 

(c) Ownership. Each Obligor is the legal and beneficial owner of its Collateral
and has the right to pledge, sell, assign or transfer the same.

 

(d) Security Interest/Priority. This Security Agreement creates a valid security
interest in favor of the Administrative Agent, for the ratable benefit of the
Secured Parties, in the Collateral of such Obligor and, when properly perfected
by filing, the granting of Control to the Administrative Agent or otherwise,
shall constitute a valid first priority, perfected security interest in such
Collateral, to the extent such security interest can be perfected by filing, the
granting of Control or otherwise under the UCC or by filing an appropriate
notice with the United States Patent and Trademark Office or the United States
Copyright Office, free and clear of all Liens except for Permitted Liens.

 

(e) Consents. Except for (i) the filing or recording of UCC financing
statements, (ii) the filing of appropriate notices with the United States Patent
and Trademark Office and the United States Copyright Office or (iii) obtaining
Control to perfect the Liens created by this Security Agreement, no consent or
authorization of, filing with, or other act by or in respect of, any arbitrator
or Governmental Authority and no consent of any other Person (including, without
limitation, any stockholder, member or creditor of such Obligor), is required
(A) for the grant by such Obligor of the security interest in the Collateral
granted hereby or for the execution, delivery or performance of this Security
Agreement by such Obligor or (B) for the perfection of such security interest or
the exercise by the Administrative Agent of the rights and remedies provided for
in this Security Agreement.

 

(f) Types of Collateral. None of the Collateral consists of, or is the Proceeds
of, As-Extracted Collateral, Consumer Goods, Farm Products, Manufactured Homes
or standing timber (as used in the UCC).

 

(g) Accounts. With respect to the Accounts of the Obligors: (i) to the extent an
Account arises out of goods sold and/or services furnished, (A) the goods sold
and/or services furnished giving rise to each Account, are not subject to any
security interest or Lien except the first priority, perfected security interest
granted to the Administrative Agent herein and Permitted Liens and (B) such
Account arises out of a bona fide transaction for

 

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goods sold and delivered (or in the process of being delivered) by an Obligor or
for services actually rendered by an Obligor, which transaction was conducted in
the ordinary course of the Obligor’s business or otherwise permitted by the
Credit Agreement; (ii) no Account of an Obligor is evidenced by any Instrument
or Chattel Paper unless (x) such Instrument or Chattel Paper represents an
obligation of less than $50,000, or (y) as to any Instrument or Chattel Paper
which represents an obligation of $50,000 or more, notice has been given to the
Administrative Agent, and at the request of the Administrative Agent, the same
has been endorsed over and delivered to, or submitted to the Control of, the
Administrative Agent; (iii) each Account and the papers and documents of the
applicable Obligor relating thereto are genuine and in all material respects
what they purport to be; (iv) the amount of each Account as shown on the
applicable Obligor’s books and records, and on all invoices and statements which
may be delivered to the Administrative Agent with respect thereto, is due and
payable to the applicable Obligor and is not in any way contingent; (v) no
Account is evidenced by judgment, there are no set-offs, counterclaims or
disputes existing or asserted with respect to any Account that in the aggregate
could reasonably be expected to have a Material Adverse Effect, and no Obligor
has made any agreement with any account debtor for any deduction from any
Account except for deductions made in the ordinary course of its business;
(vi) there has been no development or event which individually or in the
aggregate has had or could be reasonably expected to have an adverse effect on
the validity or enforcement of any Account or tend to reduce the amount payable
thereunder as shown on the applicable Obligor’s books and records and all
invoices and statements delivered to the Administrative Agent with respect
thereto, which development or event could reasonably be expected to have a
Material Adverse Effect; and (vii) the right to receive payment under each
Account is assignable except where the account debtor with respect to such
Account is the United States government or any State government or any agency,
department or instrumentality thereof, or any other Governmental Authority, to
the extent the assignment of any such right to payment is prohibited or limited
by applicable law, regulations, administrative guidelines or contract.

 

(h) Inventory. Except as set forth on Schedule 4(a) attached hereto, no
Inventory of an Obligor is held by a third party pursuant to consignment, sale
or return, sale on approval or similar arrangement.

 

(i) Intellectual Property.

 

(i) Schedule 3.21 to the Credit Agreement includes all Intellectual Property
owned by the Obligors as of the date hereof.

 

(ii) All Intellectual Property owned by each Obligor is valid, subsisting,
unexpired, and enforceable and has not been abandoned, and each Obligor is
legally entitled to use each of its tradenames.

 

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(iii) Except as set forth in Schedule 3.21 to the Credit Agreement, none of the
Intellectual Property owned by the Obligors is the subject of any licensing or
franchise agreement.

 

(iv) No holding, decision or judgment has been rendered by any Governmental
Authority which would limit, cancel or question the validity of any Intellectual
Property of the Obligors.

 

(v) To the knowledge by each Obligor no action or proceeding is pending seeking
to limit, cancel or question the validity of any Intellectual Property of the
Obligors, or which, if adversely determined, would have a material adverse
effect on the value of any such Intellectual Property.

 

(vi) All filed applications pertaining to the Intellectual Property of each
Obligor have been duly and properly filed, and all registrations or letters
pertaining to such Intellectual Property have been duly and properly filed and
issued, and all of such Intellectual Property is valid and enforceable.

 

(vii) No Obligor has made any assignment or agreement in conflict with the
security interest of the Administrative Agent in the Intellectual Property of
each Obligor hereunder.

 

(j) Documents, Instruments and Chattel Paper. All Documents, Instruments and
Chattel Paper describing, evidencing or constituting Collateral are, to the
Obligors’ knowledge, complete, valid, and genuine.

 

(k) Equipment. With respect to each Obligor’s Equipment: (i) such Obligor has
good and marketable title thereto; and (ii) all such Equipment is in normal
operating condition and repair, ordinary wear and tear alone excepted, and is
suitable for the uses to which it is customarily put in the conduct of such
Obligor’s business.

 

5. Covenants. Each Obligor covenants that, so long as any of the Secured
Obligations remain outstanding (other than contingent indemnity or reimbursement
obligations) or any Credit Document or Secured Hedging Agreement is in effect,
and until all of the Commitments shall have been terminated, such Obligor shall:

 

(a) Other Liens. Defend the Collateral against the claims and demands of all
other parties claiming an interest therein and keep the Collateral free from all
Liens, except for Permitted Liens. If an Obligor proposes to obtain financing
permitted under Section 6.1(c) of the Credit Agreement with respect to any asset
acquired after the Closing Date (a “Purchase Money Financing”), the
Administrative Agent will either (i) with respect to such asset, subordinate the
Lien and security interest created hereunder to the Lien securing the Purchase
Money Financing by a subordination agreement reasonably acceptable to the
Administrative Agent and the provider thereof or (ii) if the

 

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Obligor has not been able, after reasonable effort, to get the provider of such
Purchase Money Financing to agree to subordination, the Administrative Agent
will release the Lien and security interest granted hereunder in such asset.

 

(b) Sales and Sale and Lease-Backs of Collateral. Neither the Administrative
Agent nor any Secured Party authorizes any Obligor to, and no Obligor shall,
sell, exchange, transfer, assign, lease or otherwise dispose of the Collateral
or any interest therein, except as permitted under the Credit Agreement;
provided that in the event the Obligor makes an asset sale or sale and
lease-back transaction permitted by the Credit Agreement and the assets subject
to such asset sale or sale and lease-back transaction constitute Collateral, the
Administrative Agent shall release the Collateral that is the subject of such
asset sale to the Obligor free and clear of any Lien and security interest under
this Security Agreement or any other Credit Document concurrently with the
consummation of such asset sale or sale and lease-back transaction.

 

(c) Preservation of Collateral. Keep the Collateral in good order, condition and
repair in all material respects, ordinary wear and tear excepted; not use the
Collateral in violation of the provisions of this Security Agreement or any
other agreement relating to the Collateral or any policy insuring the Collateral
or any applicable Requirement of Law; not permit any Collateral to be or become
a fixture to real property or an accession to other personal property unless the
Administrative Agent has a valid, perfected and first priority security interest
for the benefit of the Secured Parties in such real or personal property; and
not, without the prior written consent of the Administrative Agent, alter or
remove any identifying symbol or number on its Equipment.

 

(d) Possession or Control of Certain Collateral. If (i) any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument, Tangible Chattel Paper or Supporting Obligation or (ii) if any
Collateral shall be stored or shipped subject to a Document or (iii) if any
Collateral shall consist of Investment Property in the form of certificated
securities, in the case of either clause (i) or (ii), in an amount of $50,000 or
more, immediately notify the Administrative Agent of the existence of such
Collateral and, upon the request of the Administrative Agent, deliver such
Instrument, Chattel Paper, Supporting Obligation, Document or Investment
Property to the Administrative Agent, duly endorsed in a manner satisfactory to
the Administrative Agent, to be held as Collateral pursuant to this Security
Agreement. If any Collateral shall consist of Deposit Accounts, Electronic
Chattel Paper, Letter-of-Credit Rights or uncertificated Investment Property,
execute and deliver (and, with respect to any Collateral consisting of
uncertificated Security Entitlements or Investment Property, cause the
Securities Intermediary or the issuer, as applicable, with respect to such
Investment Property to execute and deliver) to the Administrative Agent all
control agreements, assignments, instruments or other documents as reasonably
requested by the Administrative Agent for the purposes of obtaining and
maintaining Control of such Collateral.

 

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(e) Changes in Corporate Structure or Location. Not, without providing ten
(10) days prior written notice to the Administrative Agent and without filing
(or confirming that the Administrative Agent has filed) such financing
statements and amendments to any previously filed financing statements as the
Administrative Agent may require, (i) alter its corporate existence or, in one
transaction or a series of transactions, merge into or consolidate with any
other entity, (ii) change its state of incorporation or organization or the
location where it maintains its books and records or (iii) change its registered
corporate name.

 

(f) Inspection. Allow the Administrative Agent or its representatives to visit
and inspect the Collateral as set forth in Section 5.5 of the Credit Agreement.

 

(g) Perfection of Security Interest. Mark its books and records to reflect the
security interest of the Administrative Agent in the Collateral. Each Obligor
hereby authorizes the Administrative Agent to prepare and file such financing
statements (including continuation statements) or amendments thereof or
supplements thereto or other instruments as the Administrative Agent may from
time to time deem necessary or appropriate in order to perfect and maintain the
security interests granted hereunder in accordance with the UCC, including,
without limitation, any financing statement that describes the Collateral as
“all personal property” or “all assets” of such Obligor or that describes the
Collateral in some other manner as the Administrative Agent deems necessary or
advisable. To the extent permitted by applicable law, each Obligor hereby agrees
that a carbon, photographic or other reproduction of this Security Agreement or
any such financing statement is sufficient for filing as a financing statement
by the Administrative Agent without notice thereof to such Obligor wherever the
Administrative Agent may reasonably determine is appropriate. Each Obligor shall
also execute and deliver to the Administrative Agent such agreements,
assignments or instruments (including affidavits, notices, reaffirmations and
amendments and restatements of existing documents, as the Administrative Agent
may reasonably request) and do all such other things as the Administrative Agent
may reasonably deem necessary or appropriate (i) to assure to the Administrative
Agent its security interests hereunder are perfected, including (A) such
financing statements (including continuation statements) or amendments thereof
or supplements thereto or other instruments as the Administrative Agent may from
time to time reasonably request in order to perfect and maintain the security
interests granted hereunder in accordance with the UCC and any other personal
property security legislation in the appropriate state(s) or province(s),
(B) with regard to Investment Property, execute and cause any Securities
Intermediary with respect to such Investment Property to execute a securities
control agreement in form and substance satisfactory to the Administrative
Agent, (C) with regard to Copyrights, a Notice of Grant of Security Interest in
Copyrights for filing with the United States Copyright Office in the form of
Schedule 5(f)(i) attached hereto, (D) with regard to Patents, a Notice of Grant
of Security Interest in Patents for filing with the United States Patent and
Trademark Office in the form of Schedule 5(f)(ii) attached hereto and (E) with
regard to Trademarks, a Notice of Grant of Security Interest in Trademarks for
filing with the United States Patent and

 

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Trademark Office in the form of Schedule 5(f)(iii) attached hereto, (ii) to
consummate the transactions contemplated hereby and (iii) to otherwise protect
and assure the Administrative Agent of its rights and interests hereunder. To
that end, each Obligor hereby irrevocably makes, constitutes and appoints the
Administrative Agent, its nominee or any other person whom the Administrative
Agent may designate, as such Obligor’s attorney-in-fact with full power and for
the limited purpose to sign in the name of such Obligor any notices or any
similar documents which in the Administrative Agent’s reasonable discretion
would be necessary or appropriate in order to perfect and maintain perfection of
the security interests granted hereunder, such power, being coupled with an
interest, being and remaining irrevocable so long as any of the Secured
Obligations remain outstanding (other than any such obligations which by the
terms thereof are stated to survive termination of the Credit Documents) or any
Credit Document or Secured Hedging Agreement is in effect, and until all of the
Commitments shall have terminated. In the event for any reason the law of any
jurisdiction other than North Carolina becomes or is applicable to the
Collateral of any Obligor or any part thereof, or to any of the Secured
Obligations, such Obligor agrees to execute and deliver all such instruments and
to do all such other things as the Administrative Agent in its reasonable
discretion reasonably deems necessary or appropriate to preserve, protect and
enforce the security interests of the Administrative Agent under the law of such
other jurisdiction (and, if an Obligor shall fail to do so promptly upon the
request of the Administrative Agent, then the Administrative Agent may execute
any and all such requested documents on behalf of such Obligor pursuant to the
power of attorney granted hereinabove).

 

(h) Collateral Held by Warehouseman, Bailee, etc. If any Collateral with a book
value of $1,000,000 or more is at any time in the possession or control of a
warehouseman, bailee or any agent or processor of such Obligor, (i) notify the
Administrative Agent of such possession, (ii) notify such Person of the
Administrative Agent’s security interest for the benefit of the Secured Parties
in such Collateral, (iii) instruct such Person to hold all such Collateral for
the Administrative Agent’s account subject to the Administrative Agent’s
instructions and (iv) obtain an acknowledgment from such Person that it is
holding such Collateral for the benefit of the Administrative Agent.

 

(i) Treatment of Accounts. (i) Not grant or extend the time for payment of any
Account, or compromise or settle any Account for less than the full amount
thereof, or release any person or property, in whole or in part, from payment
thereof, or allow any credit or discount thereon, other than as normal and
customary in the ordinary course of an Obligor’s business and (ii) maintain at
its principal place of business a record of Accounts consistent with customary
business practices.

 

(j) Covenants Relating to Inventory.

 

(i) Maintain, keep and preserve its Inventory in good salable condition at its
own cost and expense, subject to policies and procedures relating to obsolete,
defective, damaged, or slow-moving items and items held for return that are
normal and customary in the ordinary course of any Obligor’s business.

 

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(ii) Comply with all reporting requirements set forth in the Credit Agreement
with respect to Inventory.

 

(iii) If any of the Inventory with a book value in excess of $100,000 is at any
time evidenced by a document of title, immediately upon request by the
Administrative Agent, deliver such document of title to the Administrative
Agent.

 

(k) Covenants Relating to Copyrights.

 

(i) Employ the Copyright for each material Work with such notice of copyright as
may be required by law to secure copyright protection.

 

(ii) Not do any act or knowingly omit to do any act whereby any Copyright may
become invalidated and (A) not do any act, or knowingly omit to do any act,
whereby any Copyright material to the conduct of its business may become
injected into the public domain; (B) notify the Administrative Agent immediately
if it knows, or has reason to know, that any Copyright material to the conduct
of its business may become injected into the public domain or of any adverse
determination or development (including, without limitation, the institution of,
or any such determination or development in, any proceeding in any court or
tribunal in the United States or any other country) regarding an Obligor’s
ownership of any such Copyright or its validity; (C) take all necessary steps as
it shall deem appropriate under the circumstances, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain each
registration of each Copyright owned by an Obligor, which any Obligor reasonably
determines are material to the conduct of its business, including, without
limitation, filing of applications for renewal where necessary; and (D) promptly
notify the Administrative Agent of any material infringement of any Copyright of
an Obligor of which it becomes aware (with respect to Copyrights that an Obligor
reasonably determines is material to the conduct of its business) and take such
actions as it shall reasonably deem appropriate under the circumstances to
protect such Copyright, including, where appropriate, the bringing of suit for
infringement, seeking injunctive relief and seeking to recover any and all
damages for such infringement.

 

(iii) Not make any assignment or agreement in conflict with the security
interest in the Copyrights of each Obligor hereunder.

 

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(l) Covenants Relating to Patents and Trademarks.

 

(i) (A) Continue to use each Trademark, which any Obligor reasonably determines
is material to the conduct of its business, in order to maintain such Trademark
in full force free from any claim of abandonment for non-use, (B) maintain as in
the past the quality of products and services offered under such Trademark,
(C) employ such Trademark with the appropriate notice of registration, (D) not
adopt or use any mark which is confusingly similar or a colorable imitation of
such Trademark unless the Administrative Agent, for the ratable benefit of the
Secured Parties, shall obtain a perfected security interest in such mark
pursuant to this Security Agreement, and (E) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
such Trademark may become invalidated.

 

(ii) Not do any act, or omit to do any act, whereby any Patent, which any
Obligor reasonably determines is material to the conduct of its business, may
become abandoned or dedicated.

 

(iii) Promptly notify the Administrative Agent if it knows, or has reason to
know, that any application or registration relating to any Patent or Trademark
material to the conduct of its business may become abandoned or dedicated, 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 or any court or tribunal in any
country) regarding an Obligor’s ownership of any such Patent or Trademark or its
right to register the same or to keep, maintain and use the same.

 

(iv) Whenever an Obligor, either by itself or through an agent, employee,
licensee or designee, shall file an application for the registration of any
Patent or Trademark with the United States Patent and Trademark Office or any
similar office or agency in any other country or any political subdivision
thereof, such Obligor shall report such filing to the Administrative Agent
within five Business Days after the last day of the fiscal quarter in which such
filing occurs. Upon request of the Administrative Agent, an Obligor shall
execute and deliver any and all agreements, instruments, documents and papers as
the Administrative Agent may request to evidence the Administrative Agent’s and
the Secured Parties’ security interest in any Patent or Trademark and the
goodwill and General Intangibles of such Obligor relating thereto or represented
thereby.

 

(v) Take all reasonable and necessary steps, including, without limitation, in
any proceeding before the United States Patent and Trademark Office, or any
similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue each material application, to obtain the
relevant registration and to maintain each registration of the Patents and
Trademarks, which any Obligor reasonably determines is material to the conduct
of its business, including, without limitation, filing of applications for
renewal, affidavits of use and affidavits of incontestability.

 

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(vi) Promptly notify the Administrative Agent and the Secured Parties after it
learns that any Patent or Trademark included in the Collateral, which any
Obligor reasonably determines is material to the conduct of its business, is
infringed, misappropriated or diluted by a third party and, if such Patent or
Trademark is necessary or desirable for the conduct of any Obligor’s business
and if consistent with good business judgment, then promptly sue for
infringement, misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as it shall reasonably
deem appropriate under the circumstances to protect such Patent or Trademark.

 

(vii) Not make any assignment or agreement in conflict with the security
interest in the Patents or Trademarks of any Obligor hereunder.

 

(m) New Patents, Copyrights and Trademarks. Promptly provide the Administrative
Agent with (i) a listing of all applications, if any, for new Copyrights,
Patents or Trademarks (together with a listing of the issuance of registrations
or letters on present applications) which new applications and issued
registrations of letters shall be subject to terms and conditions hereunder, and
(ii) (A) with respect to Copyrights, a duly executed Notice of Grant of Security
Interest in Copyrights, (B) with respect to Patents, a duly executed Notice of
Grant of Security Interest in Patents, (C) with respect to Trademarks, a duly
executed Notice of Grant of Security Interest in Trademarks or (D) such other
duly executed documents as the Administrative Agent may request in a form
acceptable to counsel for the Administrative Agent and suitable for recording to
evidence the security interest in the Copyright, Patent or Trademark which is
the subject of such new application.

 

(n) Commercial Tort Claims; Notice of Litigation. (i) Promptly forward to the
Administrative Agent written notification of any and all Commercial Tort Claims
of any Obligor, including, but not limited to, any and all actions, suits, and
proceedings before any court or Governmental Authority by or affecting such
Obligor or any of its Subsidiaries and (ii) execute and deliver such statements,
documents and notices and do and cause to be done all such things as may be
required by the Administrative Agent, or required by law, including all things
which may from time to time be necessary under the UCC to fully create,
preserve, perfect and protect the priority of the Administrative Agent’s
security interest in any Commercial Tort Claims.

 

(o) Fixtures. At all times maintain the Collateral as personal property and not
affix any of the Collateral to any real property (except real property in which
the Administrative Agent has a valid, perfected and first priority security
interest) in a manner which would change its nature from personal property to
real property or a Fixture.

 

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(p) Insurance. Insure, repair and replace the Collateral of such Obligor as set
forth in the Credit Agreement. Subject to the provisions of the Credit
Agreement, all insurance proceeds shall be subject to the security interest of
the Administrative Agent hereunder.

 

(q) New Licenses and Leases. Use its commercially reasonable best efforts to
ensure that any material license or any material lease obtained or entered into
by such Obligor after the Closing Date does not contain legally enforceable
restrictions on the granting of a security interest therein.

 

6. License of Intellectual Property. The Obligors hereby assign, transfer and
convey to the Administrative Agent, effective upon the occurrence of any Event
of Default, the nonexclusive right and license to use all Intellectual Property
owned by or used by any Obligor that relate to the Collateral and any other
collateral granted by the Obligors as security for the Secured Obligations (to
the extent this license can be granted without violation of the Obligor’s
license thereof), together with any goodwill associated therewith, all to the
extent necessary to enable the Administrative Agent to use, possess and realize
on the Collateral and to enable any successor or assign to enjoy the benefits of
the Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of the Administrative Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without requirement
that any monetary payment whatsoever be made to the Obligors.

 

7. Special Provisions Regarding Inventory. Notwithstanding anything to the
contrary contained in this Security Agreement, each Obligor may, unless and
until an Event of Default occurs and is continuing and the Administrative Agent
instructs such Obligor otherwise, without further consent or approval of the
Administrative Agent, use, consume, sell, lease and exchange its Inventory in
the ordinary course of its business as presently conducted, whereupon, in the
case of such a sale or exchange, the security interest created hereby in the
Inventory so sold or exchanged (but not in any Proceeds arising from such sale
or exchange) shall cease immediately without any further action on the part of
the Administrative Agent.

 

8. Performance of Obligations; Advances by Administrative Agent. The
Administrative Agent may, at its sole option and sole discretion, perform or
cause to be performed any of the following actions on failure of any Obligor to
perform the same and in so doing may expend such sums as the Administrative
Agent may reasonably deem advisable in the performance thereof: the payment of
any insurance premiums, the payment of any taxes, a payment to obtain a release
of a Lien or potential Lien, expenditures made in defending against any adverse
claim and all other expenditures which the Administrative Agent may make for the
protection of the security interest hereof or may be compelled to make by
operation of law. All

 

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such reasonable sums and amounts so expended shall be repayable by the Obligors
on a joint and several basis promptly upon timely notice thereof and demand
therefor, shall constitute additional Secured Obligations and shall bear
interest from the date said amounts are expended at the default rate for
Alternate Base Rate Loans set forth in Section 2.11 of the Credit Agreement. No
such performance of any action by the Administrative Agent on behalf of any
Obligor, and no such advance or expenditure therefor, shall relieve the Obligors
of any default under the terms of this Security Agreement, the other Credit
Documents or any Secured Hedging Agreement. The Administrative Agent may make
any payment hereby authorized in accordance with any bill, statement or estimate
procured from the appropriate public office or holder of the claim to be
discharged without inquiry into the accuracy of such bill, statement or estimate
or into the validity of any tax assessment, sale, forfeiture, tax lien, title or
claim except to the extent such payment is being contested in good faith by an
Obligor in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.

 

9. Events of Default.

 

The occurrence of an event which under the Credit Agreement would constitute an
Event of Default shall be an event of default hereunder (an “Event of Default”).

 

10. Remedies.

 

(a) General Remedies. Upon the occurrence of an Event of Default and during
continuation thereof, the Administrative Agent and the Secured Parties shall
have, in addition to the rights and remedies provided herein, in the Credit
Documents, in any Secured Hedging Agreement or by law (including, but not
limited to, levy of attachment, garnishment and the rights and remedies set
forth in the Uniform Commercial Code of the jurisdiction applicable to the
affected Collateral), the rights and remedies of a secured party under the UCC
(regardless of whether the UCC is the law of the jurisdiction where the rights
and remedies are asserted and regardless of whether the UCC applies to the
affected Collateral), and further, the Administrative Agent may, with or without
judicial process or the aid and assistance of others, (i) to the extent
permitted by applicable law, enter on any premises on which any of the
Collateral may be located and, without resistance or interference by the
Obligors, take possession of the Collateral, (ii) subject to Section 10(c) with
respect to leased properties, dispose of any Collateral on any such premises,
(iii) require the Obligors to assemble and make available to the Administrative
Agent at the expense of the Obligors any Collateral at any place and time
designated by the Administrative Agent which is reasonably convenient to both
parties, (iv) remove any Collateral from any such premises for the purpose of
effecting sale or other disposition thereof, and/or (v) without demand and
without advertisement, notice, hearing or process of law, all of which each of
the Obligors hereby waives to the fullest extent permitted by applicable law, at
any place and time or times, sell and deliver any or all Collateral held by or
for it at public or private sale, by one or more contracts, in one or more
parcels, for cash, upon credit or otherwise, at such prices and upon such terms
as the Administrative Agent deems advisable, in its sole discretion (subject to
any and all mandatory legal

 

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requirements). Neither the Administrative Agent’s compliance with any applicable
state or federal law in the conduct of such sale, nor its disclaimer of any
warranties relating to the Collateral, shall be considered to adversely affect
the commercial reasonableness of such sale. In addition to all other sums due
the Administrative Agent and the Secured Parties with respect to the Secured
Obligations, the Obligors shall pay the Administrative Agent and each of the
Secured Parties all reasonable documented costs and expenses incurred by the
Administrative Agent or any such Secured Party, including, but not limited to,
reasonable attorneys’ fees and court costs, in obtaining or liquidating the
Collateral, in enforcing payment of the Secured Obligations, or in the
prosecution or defense of any action or proceeding by or against the
Administrative Agent or the Secured Parties or the Obligors concerning any
matter arising out of or connected with this Security Agreement, any Collateral
or the Secured Obligations, including, without limitation, any of the foregoing
arising in, arising under or related to a case under the Bankruptcy Code. To the
extent the rights of notice cannot be legally waived hereunder, each Obligor
agrees that any requirement of reasonable notice shall be met if such notice is
personally served on or mailed, postage prepaid, to the Borrower in accordance
with the notice provisions of Section 9.2 of the Credit Agreement at least ten
(10) days before the time of sale or other event giving rise to the requirement
of such notice. The Administrative Agent and the Secured Parties shall not be
obligated to make any sale or other disposition of the Collateral regardless of
notice having been given. To the extent permitted by applicable law, any Secured
Party may be a purchaser at any such sale. To the extent permitted by applicable
law, each of the Obligors hereby waives all of its rights of redemption with
respect to any such sale. Subject to the provisions of applicable law, the
Administrative Agent and the Secured Parties may postpone or cause the
postponement of the sale of all or any portion of the Collateral by announcement
at the time and place of such sale, and such sale may, without further notice,
to the extent permitted by law, be made at the time and place to which the sale
was postponed, or the Administrative Agent and the Secured Parties may further
postpone such sale by announcement made at such time and place.

 

(b) Remedies Relating to Accounts. Upon the occurrence of an Event of Default
and during the continuation thereof, whether or not the Administrative Agent has
exercised any or all of its rights and remedies hereunder, the Administrative
Agent shall have the right, subject to applicable law, to enforce any Obligor’s
rights against any account debtors and obligors on such Obligor’s Accounts. Each
Obligor acknowledges and agrees that the Proceeds of its Accounts remitted to or
on behalf of the Administrative Agent in accordance with the provisions of this
Section shall be solely for the Administrative Agent’s own convenience in
administering the provisions of this Security Agreement and that such Obligor
shall not have any right, title or interest in such Proceeds or in any such
other amounts except as expressly provided herein. To the extent required by the
Administrative Agent, each Obligor agrees to execute any document or instrument,
and to take any action, necessary under applicable law (including the Federal
Assignment of Claims Act) in order for the Administrative Agent to exercise its
rights and remedies (or be able to exercise its rights and remedies at some
future date) with respect to any Accounts of such Obligor where the account
debtor is a Governmental

 

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Authority. The Administrative Agent and the Secured Parties shall have no
liability or responsibility to any Obligor for acceptance of a check, draft or
other order for payment of money bearing the legend “payment in full” or words
of similar import or any other restrictive legend or endorsement or be
responsible for determining the correctness of any remittance. Each Obligor
hereby agrees to indemnify the Administrative Agent and the Secured Parties from
and against all liabilities, damages, losses, actions, claims, judgments, costs,
expenses, charges and reasonable attorneys’ fees suffered or incurred by the
Administrative Agent or the Secured Parties (each, an “Indemnified Party”)
because of the maintenance of the foregoing arrangements except as relating to
or arising out of the gross negligence or willful misconduct of an Indemnified
Party or its officers, employees or agents. In the case of any investigation,
litigation or other proceeding, the foregoing indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by an
Obligor, its directors, shareholders or creditors or an Indemnified Party or any
other Person or any other Indemnified Party is otherwise a party thereto.

 

(c) Access. In addition to the rights and remedies hereunder, upon the
occurrence of an Event of Default and during the continuation thereof, the
Obligors shall provide the Administrative Agent with access to the Collateral,
without cost or charge to the Administrative Agent, and the reasonable use of
the same, together with materials, supplies, books and records of the Obligors
for the purpose of collecting and liquidating the Collateral, or for preparing
for sale and conducting the sale of the Collateral, whether by foreclosure,
auction or otherwise (except to the extent such activities are specifically
restricted by the terms of any lease; provided, if the foregoing activities are
specifically restricted by the terms of any lease, the Obligors shall promptly
take all reasonable steps to move the Collateral at such lease location to a new
location satisfactory to the Administrative Agent). In addition, the
Administrative Agent may remove Collateral, or any part thereof, from such
premises and/or any records with respect thereto, in order to effectively
collect or liquidate such Collateral. If the Administrative Agent exercises its
right to take possession of the Collateral, each Obligor shall also at its
expense perform any and all other steps reasonably requested by the
Administrative Agent to preserve and protect the security interest hereby
granted in the Collateral, such as placing and maintaining signs indicating the
security interest of the Administrative Agent, appointing overseers for the
Collateral and maintaining inventory records.

 

(d) Nonexclusive Nature of Remedies. Failure by the Administrative Agent or the
Secured Parties to exercise any right, remedy or option under this Security
Agreement, any other Credit Document, any Secured Hedging Agreement or as
provided by law, or any delay by the Administrative Agent or the Secured Parties
in exercising the same, shall not operate as a waiver of any such right, remedy
or option. No waiver hereunder shall be effective unless it is in writing,
signed by the party against whom such waiver is sought to be enforced and then
only to the extent specifically stated, which in the case of the Administrative
Agent or the Secured Parties shall only be granted as provided herein. To the
extent permitted by law, neither the Administrative Agent, the

 

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Secured Parties, nor any party acting as attorney for the Administrative Agent
or the Secured Parties, shall be liable hereunder for any acts or omissions or
for any error of judgment or mistake of fact or law other than their gross
negligence or willful misconduct hereunder. The rights and remedies of the
Administrative Agent and the Secured Parties under this Security Agreement shall
be cumulative and not exclusive of any other right or remedy which the
Administrative Agent or the Secured Parties may have.

 

(e) Retention of Collateral. In addition to the rights and remedies hereunder,
upon the occurrence and continuance of an Event of Default, the Administrative
Agent may, after providing the notices required by Sections 9-620 and 9-621 (or
similar provision) of the UCC (or any successor sections of the UCC) or
otherwise complying with the requirements of applicable law of the relevant
jurisdiction, accept or retain the Collateral in satisfaction of the Secured
Obligations. Unless and until the Administrative Agent shall have provided such
notices, however, the Administrative Agent shall not be deemed to have retained
any Collateral in satisfaction of any Secured Obligations for any reason.

 

(f) Deficiency. In the event that the proceeds of any sale, collection or
realization are insufficient to pay all amounts to which the Administrative
Agent or the Secured Parties are legally entitled, the Obligors shall be jointly
and severally liable for the deficiency, together with interest thereon at the
default rate for Alternate Base Rate Loans set forth in Section 2.10 of the
Credit Agreement, together with the reasonable costs of collection and the
reasonable fees of any attorneys employed by the Administrative Agent to collect
such deficiency. Any surplus remaining after the full payment and satisfaction
of the Secured Obligations shall be returned to the Obligors or to whomsoever a
court of competent jurisdiction shall determine to be entitled thereto.

 

(g) Other Security. To the extent that any of the Secured Obligations are now or
hereafter secured by property other than the Collateral (including, without
limitation, real property and securities owned by an Obligor), or by a
guarantee, endorsement or property of any other Person, then the Administrative
Agent shall have the right to proceed against such other property, guarantee or
endorsement upon the occurrence of any Event of Default, and the Administrative
Agent have the right, in its sole discretion, to determine which rights,
security, Liens, security interests or remedies the Administrative Agent shall
at any time pursue, relinquish, subordinate, modify or take with respect
thereto, without in any way modifying or affecting any of them or any of the
Administrative Agent’s and the Secured Parties’ rights or the Secured
Obligations under this Security Agreement, under any other of the Credit
Documents or under any Secured Hedging Agreement.

 

11. Rights of the Administrative Agent.

 

(a) Power of Attorney. In addition to other powers of attorney contained herein,
each Obligor hereby designates and appoints the Administrative Agent, on behalf

 

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of the Secured Parties, and each of its designees or agents, as attorney-in-fact
of such Obligor, irrevocably and with power of substitution, with authority to
take any or all of the following actions upon the occurrence and during the
continuation of an Event of Default:

 

(i) to demand, collect, settle, compromise, adjust, give discharges and
releases, all as the Administrative Agent may reasonably determine with respect
to the Collateral;

 

(ii) to commence and prosecute any actions at any court for the purposes of
collecting any Collateral and enforcing any other right in respect thereof;

 

(iii) to defend, settle, adjust or compromise any action, suit or proceeding
brought and, in connection therewith, give such discharge or release as the
Administrative Agent may deem reasonably appropriate with respect to the
Collateral;

 

(iv) to receive, open and dispose of mail addressed to an Obligor and endorse
checks, notes, drafts, acceptances, money orders, bills of lading, warehouse
receipts or other instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral of such Obligor, or securing
or relating to such Collateral, on behalf of and in the name of such Obligor;

 

(v) to sell, assign, transfer, make any agreement in respect of, or otherwise
deal with or exercise rights in respect of, any Collateral or the goods or
services which have given rise thereto, as fully and completely as though the
Administrative Agent were the absolute owner thereof for all purposes;

 

(vi) to adjust and settle claims under any insurance policy relating to the
Collateral;

 

(vii) to execute and deliver all assignments, conveyances, statements, financing
statements, continuation statements, security agreements, affidavits, notices
and other agreements, instruments and documents that the Administrative Agent
may determine necessary in order to perfect and maintain the security interests
and Liens granted in this Security Agreement and in order to fully consummate
all of the transactions contemplated herein;

 

(viii) to institute any foreclosure proceedings that the Administrative Agent
may deem appropriate;

 

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(ix) to do and perform all such other acts and things as the Administrative
Agent may reasonably deem to be necessary, proper or convenient in connection
with the Collateral; and

 

(x) to execute any document or instrument, and to take any action, necessary
under applicable law (including the Federal Assignment of Claims Act) in order
for the Administrative Agent to exercise its rights and remedies (or to be able
to exercise its rights and remedies at some future date) with respect to any
Account of an Obligor where the account debtor is a Governmental Authority.

 

This power of attorney is a power coupled with an interest and shall be
irrevocable for so long as any of the Secured Obligations remain outstanding
(other than contingent indemnity or reimbursement obligations) or any Credit
Document or Secured Hedging Agreement is in effect, and until all of the
Commitments shall have been terminated. The Administrative Agent shall be under
no duty to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Administrative
Agent in this Security Agreement, and shall not be liable for any failure to do
so or any delay in doing so. The Administrative Agent shall not be liable for
any act or omission or for any error of judgment or any mistake of fact or law
in its individual capacity or its capacity as attorney-in-fact except acts or
omissions resulting from its gross negligence or willful misconduct. This power
of attorney is conferred on the Administrative Agent solely to protect, preserve
and realize upon its security interest in the Collateral.

 

(b) Assignment by the Administrative Agent. The Administrative Agent may from
time to time assign the Secured Obligations and any portion thereof and/or the
Collateral and any portion thereof, and the assignee shall be entitled to all of
the rights and remedies of the Administrative Agent under this Security
Agreement in relation thereto.

 

(c) The Administrative Agent’s Duty of Care. Other than the exercise of
reasonable care to assure the safe custody of the Collateral while being held by
the Administrative Agent hereunder, the Administrative Agent shall have no duty
or liability to preserve rights pertaining thereto, it being understood and
agreed that the Obligors shall be responsible for preservation of all rights in
the Collateral, and the Administrative Agent shall be relieved of all
responsibility for the Collateral upon surrendering it or tendering the
surrender of it to the Obligors. The Administrative Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which the Administrative Agent accords its own property, which shall be no
less than the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Administrative Agent shall not have
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any of the Collateral. In the event of a public or
private sale of Collateral pursuant to Section 9 hereof, the Administrative
Agent shall have no obligation to clean-up, repair or otherwise prepare the
Collateral for sale.

 

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12. Application of Proceeds. After the exercise of remedies (other than the
invocation of default interest pursuant to Section 2.10 of the Credit Agreement)
by the Administrative Agent or the Lenders pursuant to Section 7.2 of the Credit
Agreement (or after the Commitments shall automatically terminate and the Loans
(with accrued interest thereon) and all other amounts under the Credit Documents
(including without limitation the maximum amount of all contingent liabilities
under Letters of Credit) shall automatically become due and payable in
accordance with the terms of such Section 7.2), all amounts collected or
received by the Administrative Agent or any Secured Party on account of the
Secured Obligations and any proceeds of any Collateral will be applied in
reduction of the Secured Obligations in the order set forth in Section 2.13(b)
of the Credit Agreement, and each Obligor irrevocably waives the right to direct
the application of such payments and proceeds and acknowledges and agrees that
the Administrative Agent shall have the continuing and exclusive right to apply
and reapply any and all such payments and proceeds in the Administrative Agent’s
sole discretion (but subject in all events to Section 2.13(b) of the Credit
Agreement), notwithstanding any entry to the contrary upon any of its books and
records.

 

13. Costs of Counsel. If at any time hereafter, whether upon the occurrence of
an Event of Default or not, the Administrative Agent employs counsel to prepare
or consider amendments, waivers or consents with respect to this Security
Agreement, or to take action or make a response in or with respect to any legal
or arbitral proceeding relating to this Security Agreement or relating to the
Collateral, or to protect the Collateral or exercise any rights or remedies
under this Security Agreement or with respect to the Collateral, then the
Obligors agree to promptly pay upon demand any and all such reasonable
documented costs and expenses of the Administrative Agent, all of which costs
and expenses shall constitute Secured Obligations hereunder; provided, that the
Obligors shall be obligated, collectively, to pay reasonable fees and expenses
of only one law firm to act as counsel for the Secured Parties (other than
counsel to the Administrative Agent) in each applicable jurisdiction.

 

14. Continuing Agreement.

 

(a) Upon this Security Agreement becoming effective in accordance with the terms
hereof and of the other Credit Documents, the Existing Security Agreement shall
be deemed amended and restated by this Security Agreement. This Security
Agreement shall be a continuing agreement in every respect and shall remain in
full force and effect so long as any of the Secured Obligations remain
outstanding (other than contingent indemnity or reimbursement obligations) or
any Credit Document or Secured Hedging Agreement is in effect, and until all of
the Loans shall have been paid and the Commitments shall have been terminated.
Upon such payment and termination, this Security Agreement shall be
automatically terminated and the Administrative Agent and the Secured Parties
shall, upon the request and at the expense of the Obligors, forthwith release
all of their Liens and security interests hereunder and shall execute and
deliver all

 

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UCC termination statements and/or other documents reasonably requested by the
Obligors evidencing such termination. Upon any sale or other transfer by any
Obligor of any Collateral that is permitted under the Credit Documents, or upon
the effectiveness of any written consent to the release of the security interest
granted hereby in any Collateral pursuant to Section 9.1 of the Credit
Agreement, that security interest in such Collateral shall be automatically
released and the Administrative Agent and the Secured Parties shall, upon the
request and at the expense of the Obligors, forthwith release all of their Liens
and security interests in such Collateral hereunder and shall execute and
deliver all UCC termination statements and/or other documents reasonably
requested by the Obligors evidencing such release. Notwithstanding the foregoing
all releases and indemnities provided hereunder shall survive termination of
this Security Agreement.

 

(b) This Security Agreement shall continue to be effective or be automatically
reinstated, as the case may be, if at any time payment, in whole or in part, of
any of the Secured Obligations is rescinded or must otherwise be restored or
returned by the Administrative Agent or any Secured Party as a preference,
fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar
law, all as though such payment had not been made; provided that in the event
payment of all or any part of the Secured Obligations is rescinded or must be
restored or returned, all reasonable costs and expenses (including without
limitation any reasonable legal fees and disbursements) incurred by the
Administrative Agent or any Secured Party in defending and enforcing such
reinstatement shall be deemed to be included as a part of the Secured
Obligations.

 

15. Amendments; Waivers; Modifications. This Security Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 9.1 of the Credit Agreement.

 

16. Successors in Interest; Release. This Security Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Obligor, its successors and assigns and shall inure, together with the rights
and remedies of the Administrative Agent and the Secured Parties hereunder, to
the benefit of the Administrative Agent and the Secured Parties and their
successors and permitted assigns; provided, however, that none of the Obligors
may assign its rights or delegate its duties hereunder without the prior written
consent of each Secured Party or the Required Secured Parties, as required by
the Credit Agreement. To the fullest extent permitted by law, each Obligor
hereby releases the Administrative Agent and each Secured Party, each of their
respective officers, employees and agents and each of their respective
successors and assigns, from any liability for any act or omission relating to
this Security Agreement or the Collateral, except for any liability arising from
the gross negligence or willful misconduct of the Administrative Agent or such
Secured Party or their respective officers, employees and agents.

 

17. Notices. All notices required or permitted to be given under this Security
Agreement shall be in conformance with Section 9.2 of the Credit Agreement.

 

23

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18. Counterparts. This Security Agreement may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.

 

19. Headings. The headings of the sections and subsections hereof are provided
for convenience only and shall not in any way affect the meaning, construction
or interpretation of any provision of this Security Agreement.

 

20. Governing Law; Submission to Jurisdiction and Service of Process; Waivers.
THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NORTH CAROLINA (without giving effect to any conflict of laws
rules). Each Obligor agrees not to assert any claim against the Administrative
Agent, any Secured Party (including the Issuing Secured Party), any of their
Affiliates, or any of their respective directors, officers, employees, attorneys
or agents, on any theory of liability, for special, indirect, consequential or
punitive damages arising out of or otherwise relating to any of the transactions
contemplated herein or in any other Credit Document. The terms of Sections 9.14
and 9.17 of the Credit Agreement are incorporated herein by reference, mutatis
mutandis, and the parties hereto agree to such terms.

 

21. Severability. If any provision of this Security Agreement is determined to
be illegal, invalid or unenforceable, such provision shall be fully severable
and the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.

 

22. Entirety. This Security Agreement, the other Credit Documents and the
Secured Hedging Agreements represent the entire agreement of the parties hereto
and thereto, and supersede all prior agreements and understandings, oral or
written, if any, including any commitment letters or correspondence relating to
the Credit Documents, the Secured Hedging Agreements or the transactions
contemplated herein and therein.

 

23. Survival. All representations and warranties of the Obligors hereunder shall
survive the execution and delivery of this Security Agreement, the other Credit
Documents and the Secured Hedging Agreements, the delivery of the Notes and the
making of the Loans and the issuance of the Letters of Credit under the Credit
Agreement.

 

24. Joint and Several Obligations of Obligors.

 

(a) Each of the Guarantors is entering into this Security Agreement in
consideration of the financial accommodation to be provided by the Secured
Parties under the Credit Agreement and under the Secured Hedging Agreements, for
the mutual benefit, directly and indirectly, of each of the Obligors and in
consideration of the joint and several undertakings of each of the Guarantors
under the Guaranty provided pursuant to

 

24

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Article X of the Credit Agreement, and each Guarantor is granting the security
interests in the Collateral of such Guarantor pursuant to this Security
Agreement in support of its obligations under the Guaranty.

 

(b) Notwithstanding any provision to the contrary contained herein, in any other
of the Credit Documents or in any Secured Hedging Agreement, to the extent the
obligations of an Obligor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers), then the
obligations of such Obligor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).

 

[remainder of page intentionally left blank]

 

25

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Each of the parties hereto has caused a counterpart of this Security Agreement
to be duly executed and delivered as of the date first above written.

 

OBLIGORS:  

THE PANTRY, INC.,

a Delaware corporation

        By:  

/s/ Daniel J. Kelly

--------------------------------------------------------------------------------

    Name:   Daniel J. Kelly     Title:   Chief Financial Officer, Vice-President
Finance and Secretary    

R & H MAXXON, INC.,

a South Carolina corporation

        By:  

/s/ Daniel J. Kelly

--------------------------------------------------------------------------------

    Name:   Daniel J. Kelly     Title:   Executive Vice-President and Assistant
Secretary    

KANGAROO, INC.,

a Georgia corporation

        By:  

/s/ Daniel J. Kelly

--------------------------------------------------------------------------------

    Name:   Daniel J. Kelly     Title:   Executive Vice-President and Assistant
Secretary

--------------------------------------------------------------------------------

Accepted and agreed to as of the date first above written.

 

WACHOVIA BANK, NATIONAL ASSOCIATION

as Administrative Agent

By:  

/s/ Michael R. Jordan

--------------------------------------------------------------------------------

Name:   Michael R. Jordan Title:   Managing Director

--------------------------------------------------------------------------------

SCHEDULE 2(a)

 

COMMERCIAL TORT CLAIMS

 

The Borrower is a member of the plaintiff class in the Visa Check/MasterMoney
Antitrust Litigation, a class action lawsuit that was filed in the United States
District Court for the Eastern District of New York in Brooklyn, New York. The
class consists of all businesses and organizations in the United States that
accepted Visa and MasterCard debit and credit cards for payment at any time
during the period October 25, 1992 to June 21, 2003.

--------------------------------------------------------------------------------

SCHEDULE 4(a)

 

NAME CHANGES/CHANGES IN

CORPORATE STRUCTURE/TRADENAMES

 

None.

--------------------------------------------------------------------------------

SCHEDULE 5(f)(i)

 

NOTICE OF

GRANT OF SECURITY INTEREST

IN COPYRIGHTS

 

United States Copyright Office

 

Gentlemen:

 

Please be advised that pursuant to the Second Amended and Restated Security
Agreement dated as of December 29, 2005 (as the same may be amended, modified,
extended or restated from time to time, the “Security Agreement”) by and among
the Obligors thereto (each an “Obligor” and collectively, the “Obligors”) and
Wachovia Bank, National Association, as Administrative Agent (the
“Administrative Agent”) for the lenders referenced therein (the “Secured
Parties”), the undersigned Obligor has granted a continuing security interest in
and continuing Lien upon, the copyrights and copyright applications shown below
to the Administrative Agent for the ratable benefit of the Secured Parties:

 

COPYRIGHTS

 

Copyright No.

--------------------------------------------------------------------------------

 

Description of Copyright

--------------------------------------------------------------------------------

 

Date of Copyright

--------------------------------------------------------------------------------

                             

 

COPYRIGHT APPLICATIONS

 

Copyright Application No.

--------------------------------------------------------------------------------

 

Description of Copyright

Applied For

--------------------------------------------------------------------------------

 

Date of Copyright

Application

--------------------------------------------------------------------------------

                             

--------------------------------------------------------------------------------

The Obligors and the Administrative Agent, on behalf of the Secured Parties,
hereby acknowledge and agree that the security interest in the foregoing
copyrights and copyright applications (i) may only be terminated in accordance
with the terms of the Security Agreement and (ii) is not to be construed as an
assignment of any copyright or copyright application.

 

Very truly yours,

--------------------------------------------------------------------------------

[Obligor]

By:

 

 

--------------------------------------------------------------------------------

Name:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

 

Acknowledged and Accepted:

 

WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent By:  

 

--------------------------------------------------------------------------------

Name:  

 

--------------------------------------------------------------------------------

Title:  

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

SCHEDULE 5(f)(ii)

 

NOTICE OF

GRANT OF SECURITY INTEREST

IN PATENTS

 

United States Patent and Trademark Office

 

Gentlemen:

 

Please be advised that pursuant to the Second Amended and Restated Security
Agreement dated as of December 29, 2005 (as the same may be amended, modified,
extended or restated from time to time, the “Security Agreement”) by and among
the Obligors thereto (each an “Obligor” and collectively, the “Obligors”) and
Wachovia Bank, National Association, as Administrative Agent (the
“Administrative Agent”) for the lenders referenced therein (the “Secured
Parties”), the undersigned Obligor has granted, and hereby confirms the granting
of, a continuing security interest in and continuing Lien upon, the patents and
patent applications shown below to the Administrative Agent for the ratable
benefit of the Secured Parties:

 

PATENTS

 

Patent No.

--------------------------------------------------------------------------------

 

Description of Patent

--------------------------------------------------------------------------------

 

Date of Patent

--------------------------------------------------------------------------------

                             

 

PATENT APPLICATIONS

 

Patent Application No.

--------------------------------------------------------------------------------

 

Description of Patent

Applied For

--------------------------------------------------------------------------------

 

Date of Patent

Application

--------------------------------------------------------------------------------

                             

--------------------------------------------------------------------------------

The Obligors and the Administrative Agent, on behalf of the Secured Parties,
hereby acknowledge and agree that the security interest in the foregoing patents
and patent applications (i) may only be terminated in accordance with the terms
of the Security Agreement and (ii) is not to be construed as an assignment of
any patent or patent application.

 

Very truly yours,

 

--------------------------------------------------------------------------------

[Obligor] By:  

 

--------------------------------------------------------------------------------

Name:  

 

--------------------------------------------------------------------------------

Title:  

 

--------------------------------------------------------------------------------

 

Acknowledged and Accepted:

 

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Administrative Agent

By:  

 

--------------------------------------------------------------------------------

Name:  

 

--------------------------------------------------------------------------------

Title:  

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

SCHEDULE 5(f)(iii)

 

NOTICE OF

GRANT OF SECURITY INTEREST

IN TRADEMARKS

 

United States Patent and Trademark Office

 

Gentlemen:

 

Please be advised that pursuant to the Second Amended and Restated Security
Agreement dated as of December 29, 2005 (as the same may be amended, modified,
extended or restated from time to time, the “Security Agreement”) by and among
the Obligors thereto (each an “Obligor” and collectively, the “Obligors”) and
Wachovia Bank, National Association, as Administrative Agent (the
“Administrative Agent”) for the lenders referenced therein (the “Secured
Parties”), the undersigned Obligor has granted, and hereby confirms the granting
of, a continuing security interest in and continuing Lien upon, the trademarks
and trademark applications shown below to the Administrative Agent for the
ratable benefit of the Secured Parties:

 

TRADEMARKS

 

Trademark No.

--------------------------------------------------------------------------------

 

Description of Trademark

--------------------------------------------------------------------------------

 

Date of Trademark

--------------------------------------------------------------------------------

                             

 

TRADEMARK APPLICATIONS

 

Trademark Application No.

--------------------------------------------------------------------------------

 

Description of Trademark

Applied For

--------------------------------------------------------------------------------

 

Date of Trademark

Application

--------------------------------------------------------------------------------

                             

--------------------------------------------------------------------------------

The Obligors and the Administrative Agent, on behalf of the Secured Parties,
hereby acknowledge and agree that the security interest in the foregoing
trademarks and trademark applications (i) may only be terminated in accordance
with the terms of the Security Agreement and (ii) is not to be construed as an
assignment of any trademark or trademark application.

 

Very truly yours,

--------------------------------------------------------------------------------

[Obligor] By:  

 

--------------------------------------------------------------------------------

Name:  

 

--------------------------------------------------------------------------------

Title:  

 

--------------------------------------------------------------------------------

 

Acknowledged and Accepted:

 

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Administrative Agent

By:  

 

--------------------------------------------------------------------------------

Name:  

 

--------------------------------------------------------------------------------

Title:  

 

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