Exhibit 10.2

 

AMENDED AND RESTATED SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED SECURITY AGREEMENT (this “Security Agreement”) is
entered into as of December 14, 2005 among RED ROBIN INTERNATIONAL, INC., a
Nevada corporation (the “Borrower”), RED ROBIN GOURMET BURGERS, INC., a Delaware
corporation (the “Parent”), those Domestic Subsidiaries of the Borrower as may
from time to time become parties hereto (together with the Parent, individually
a “Guarantor” and collectively the “Guarantors”; the Guarantors and the
Borrower, individually an “Obligor” and collectively the “Obligors”) and
WACHOVIA BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent (in
such capacity, the “Administrative Agent”) for the lenders from time to time
party to the Credit Agreement described below (the “Lenders”).

 

RECITALS

 

WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as
of May 20, 2003 (as amended or modified, the “Existing Credit Agreement”), among
the Borrower, the Guarantors, the lenders party thereto, and the Administrative
Agent, the Lenders agreed to make loans and issue or participate in letters of
credit upon the terms and subject to the conditions set forth therein;

 

WHEREAS, pursuant to that certain Amended and Restated Credit Agreement dated as
of the date hereof (as amended, modified, extended, renewed, restated or
replaced from time to time, the “Credit Agreement”), among the Borrower, the
Guarantors, the Lenders party thereto, and the Administrative Agent, the Lenders
have agreed to refinance the Existing Credit Agreement and make Loans and issue
or participate in 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 May 20, 2003 (as amended or modified, the “Existing Security
Agreement”); and

 

WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue or participate in 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 Lenders.

 

NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are 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

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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 Intermediary, Security Entitlement, Software, Supporting
Obligations and Tangible Chattel Paper. For purposes of this Security Agreement,
the term “Lender” shall include any Hedging Agreement Provider.

 

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

 

“Material”: shall mean, with respect to any item of Collateral (or amount
payable thereunder or in connection therewith with respect to Accounts or
similar obligations) qualified by the term “Material” in this Security
Agreement, that such item of Collateral (or such amount), when aggregated with
all other items of Collateral excluded because such items are qualified by the
term “Material,” has a fair market value in excess of $500,000 in the aggregate.

 

“Secured Obligations”: the collective reference to the following:

 

(a) all Credit Party Obligations (including obligations under Secured Hedging
Agreements), howsoever evidenced, created, incurred or acquired, whether
primary, secondary, direct, contingent, or joint and several; and

 

(b) all reasonable expenses and charges, legal and otherwise, incurred by the
Administrative Agent and/or the Lenders and/or the Hedging Agreement Providers
in collecting or enforcing any Credit Party Obligation or in realizing on or
protecting any security therefor, including without limitation, the security
granted hereunder.

 

“Vehicles”: shall mean all cars, trucks, vans, trailers, construction and earth
moving equipment and other vehicles covered by a certificate of title law of any
state, including, without limitation, all tires and other appurtenances to any
of the foregoing.

 

2. Grant of Security Interest in the Collateral. 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
Lenders, a continuing security interest in, and a 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”):

 

(a) all Accounts;

 

(b) all cash and Cash Equivalents;

 

(c) all Chattel Paper (including Electronic Chattel Paper);

 

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

 

(e) all Copyright Licenses;

 

(f) all Copyrights;

 

(g) all Deposit Accounts;

 

(h) all Documents;

 

(i) all Equipment;

 

(j) all Fixtures;

 

(k) all General Intangibles;

 

(l) all Goods;

 

(m) all Instruments;

 

(n) all Inventory;

 

(o) all Investment Property;

 

(p) all Letter-of-Credit Rights;

 

(q) 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, (i) all rights of an Obligor to receive moneys due and to
become due under or pursuant to the Assigned Agreements, (ii) all rights of an
Obligor to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to the Assigned Agreements, (iii) claims of an Obligor for damages
arising out of or for breach of or default under the Assigned Agreements and
(iv) the right of an Obligor to terminate the Assigned Agreements, to perform
thereunder and to compel performance and otherwise exercise all remedies
thereunder;

 

(r) all Payment Intangibles;

 

(s) all Patent Licenses;

 

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(t) all Patents;

 

(u) all Software;

 

(v) all Supporting Obligations;

 

(w) all Trademark Licenses;

 

(x) all Trademarks;

 

(y) 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;

 

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

 

(aa) all other assets of such Obligor.

 

Notwithstanding the foregoing, “Collateral” shall not include (i) Deposit
Accounts that consist of, contain or include money deposited by franchisees to
the extent the Credit Parties do not have money deposited in such accounts
exceeding $500,000 in the aggregate, (ii) shares of Capital Stock of any Foreign
Subsidiary in excess of 65% of the total shares of outstanding Capital Stock of
such Foreign Subsidiary to the extent that a pledge of, or lien on, such shares
would result in adverse tax consequences for any Obligor, or (iii) any “Excluded
Property” (as defined below) until such time, if any, as the prohibitions
causing such property to be Excluded Property have terminated (howsoever
occurring). Upon such termination, the Administrative Agent will be deemed to
have and at all times from and after the date hereof to have had, a security
interest in such Excluded Property and the relevant Obligor shall take all
actions necessary in the reasonable judgment of the Administrative Agent to
perfect such security interest. The term “Excluded Property” means (a) any
permit, lease, license, agreement, contract or other General Intangible of any
Obligor that validly prohibits the creation by such Obligor of a security
interest therein which was entered into prior to the date hereof (to the extent
such prohibition is not invalidated under the UCC) and (b) any permit, lease,
license, agreement, contract or other General Intangible of such Obligor to the
extent that any Requirement of Law applicable thereto prohibits the creation by
such Obligor of a security interest therein, in each case other than (i) the
right to receive any payment of money due in respect of such permit, lease,
license, agreement, contract or other General Intangible and (ii) any
Accessions, Proceeds or products of any such permit, lease, license, agreement,
contract or other General Intangible (unless such Accessions, Proceeds or
products would itself constitute Excluded Property).

 

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The Obligors and the Administrative Agent, on behalf of the Lenders, 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.

 

The term “Collateral” shall include any Secured Hedging Agreement and any rights
of the Obligors thereunder only for purposes of this Section 2.

 

3. Provisions Relating to Accounts, Material Contracts and Assigned Agreements.

 

(a) Anything herein to the contrary notwithstanding, each of the Obligors shall
remain liable under each of its Accounts, Material Contracts and Assigned
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 Material
Contracts and Assigned Agreements. Neither the Administrative Agent nor any
Lender shall have any obligation or liability under any Account (or any
agreement giving rise thereto), Material Contract or Assigned Agreement by
reason of or arising out of this Security Agreement or the receipt by the
Administrative Agent or any Lender of any payment relating to such Account,
Material Contract or Assigned Agreement pursuant hereto, nor shall the
Administrative Agent or any Lender 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), Material Contract or Assigned 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), Material Contract or
Assigned 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) At any time and from time to time, 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. At any
time upon the occurrence and during the continuation of a Default or Event of
Default upon 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. 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 Lenders, that so long as any
of the Secured Obligations remain outstanding (other than contingent indemnity
obligations which by the terms

 

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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 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 prior to the date hereof has been)
located at the locations set forth on Schedule 3.19(c) to the Credit Agreement
(as updated from time to time), and as of the Closing Date each Obligor 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
formation is (and for the prior four months prior to the date hereof has been)
the location set forth on Schedule 3.12 to the Credit Agreement. No Obligor has
in the past four months prior to the date hereof 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 (as updated from time to time in
accordance with Section 5(d)).

 

(b) Location of Collateral. As of the Closing Date, the tangible Collateral
owned by each Obligor is located solely at the locations set forth on Schedule
3.19(b) to the Credit Agreement (other than immaterial portions of Inventory
and/or Equipment in transit or held in warehouses, provided that such Inventory
and/or Equipment has a fair market value not in excess of $500,000 in the
aggregate).

 

(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 except to the
extent that any pledge, sale, assignment or transfer of such Collateral is
prohibited or limited by applicable law, regulations or administrative
guidelines or by any contract entered into prior to the date hereof.

 

(d) Security Interest/Priority. This Security Agreement creates a valid security
interest in favor of the Administrative Agent, for the benefit of the Lenders,
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 the Collateral with respect
to which the security interest is to be perfected, to the extent such security
interest can be perfected by filing 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
under the UCC (i) for the grant by such Obligor of the

 

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security interest in the Collateral granted hereby or for the execution,
delivery or performance of this Security Agreement by such Obligor or (ii) 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 such term is used in the UCC).

 

(g) Accounts. With respect to the Accounts of the Obligors: (i) 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; (ii) each Account arises
out of a bona fide transaction for 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 and was or will be performed substantially in accordance with the terms
of any documents pertaining thereto; (iii) no Account of an Obligor is evidenced
by any Instrument or Chattel Paper unless such Instrument or Chattel Paper has
been theretofore delivered to, or submitted to the Control of, the
Administrative Agent; provided that this subsection (iii) is not intended to
(A) require the endorsement or delivery of ordinary course records and payment
instructions or (B) require the endorsement or delivery of any individual
Instrument or Chattel Paper in an amount of less than $500,000; (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 payable to the applicable Obligor and no material
portion of the Accounts are contingent; (v) no Account is evidenced by a
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 a discount or
allowance for prompt payment allowed by the applicable Obligor and other
discounts or allowances made in the ordinary course of its business; (vi) there
are no facts, events or occurrences which in any material respect impair the
validity or enforcement of any Material Account or could reasonably be expected
to materially 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; (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, to the extent the assignment of
any such right to payment is prohibited or limited by applicable law,
regulations, administrative guidelines or contract; and (viii) the goods sold
and/or services furnished giving rise to each Account are not subject to any
security interest or Lien except the security interest granted the
Administrative Agent herein and except for Permitted Liens.

 

(h) Inventory. No Inventory of an Obligor is held by a third party (other than
an Obligor) pursuant to consignment, sale or return, sale on approval or similar
arrangement.

 

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(i) Intellectual Property.

 

(i) Schedule 3.16 to the Credit Agreement includes all Intellectual Property
owned by the Obligors in their own names, or that the Obligors have the right to
use, as of the Closing Date.

 

(ii) Each Material Copyright, Material Patent and Material Trademark owned by
such Obligor is valid, subsisting, unexpired, and to such Obligor’s knowledge,
enforceable and has not been abandoned, and such Obligor is legally entitled to
use each of its tradenames.

 

(iii) Except as set forth in Schedule 3.16 to the Credit Agreement, none of the
Material Copyrights, Material Patents and Material Trademarks is the subject of
any licensing or franchise agreement other than for the benefit of any
franchisee.

 

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

 

(v) No action or proceeding is pending seeking to limit, cancel or question the
validity of any Material Intellectual Property, or which, if adversely
determined, would have a material adverse effect on the value of any Material
Intellectual Property.

 

(vi) All applications pertaining to the Material Copyrights, Material Patents
and Material Trademarks of each Obligor have been duly and properly filed, and
all registrations or letters pertaining to such Copyrights, Patents and
Trademarks have been duly and properly filed and issued, and all of such
Copyrights, Patents and Trademarks are valid and enforceable.

 

(vii) No Obligor has made any assignment or agreement in conflict with the
security interest of the Administrative Agent in the Material 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 in all material respects, valid and genuine.

 

(k) Equipment. With respect to each Obligor’s Equipment that is material to its
business: (i) such Obligor has good and marketable title thereto or a valid
leasehold interest therein; and (ii) all such Equipment is in normal operating
condition and repair, ordinary wear and tear and obsolescence alone excepted
(subject to casualty events), and is suitable for the uses to which it is
customarily put in the conduct of such Obligor’s business.

 

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(l) Restrictions on Security Interest. None of the Obligors is party to any
material license (other than certain liquor licenses) or any material personal
property lease that contains legally enforceable restrictions on the granting of
a security interest therein.

 

(m) Collateral Requiring Control to Perfect. Set forth on Schedule 4(m) is a
description of all Deposit Accounts, Electronic Chattel Paper, Letter of Credit
Rights, Securities Accounts and uncertificated Investment Property of the
Obligors, including the name and address of (i) in the case of a Deposit
Account, the depository institution, (ii) in the case of Electronic Chattel
Paper, the account debtor, (iii) in the case of Letter of Credit Rights, the
issuer or nominated person, as applicable, and (iv) in the case of a Securities
Account or other uncertificated Investment Property, the Securities Intermediary
or issuer, as applicable.

 

5. Covenants. Each Obligor covenants that, so long as any of the Secured
Obligations remain outstanding (other than contingent indemnity 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 been terminated, such Obligor shall:

 

(a) Other Liens. Defend its interests in the Collateral against the claims and
demands of all other parties claiming an interest therein and keep the
Collateral free from all Liens, except, in each case, for Permitted Liens, and
not sell, exchange, transfer, assign, lease or otherwise dispose of the
Collateral or any interest therein and, except as permitted under the Credit
Agreement and the other Credit Documents.

 

(b) Preservation of Collateral. Keep all Material Collateral useful and
necessary in its business in good order, condition and repair, ordinary wear and
tear and obsolescence 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 except for violations that could not reasonably be expected to have a
Material Adverse Effect; and not, without the prior written consent of the
Administrative Agent, alter or remove any identifying symbol or number on any
Material item of Equipment.

 

(c) Possession or Control of Certain Collateral. If (i) any amount payable under
or in connection with any of the Collateral in excess of $500,000 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 in excess of $500,000 shall consist of
Investment Property in the form of certificated securities (other than Cash
Equivalents held in accordance with the Credit Agreement), promptly notify the
Administrative Agent of the existence of such Collateral and, at the reasonable
request of the Administrative Agent, deliver such Instrument, Chattel Paper,
Supporting Obligation, Document or Investment Property to the Administrative
Agent to be held as Collateral pursuant to this Security Agreement. If any
Collateral shall consist of Material Deposit Accounts, Material Electronic
Chattel Paper, Material Letter-of-Credit Rights or

 

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Material uncertificated Investment Property, promptly execute and deliver (and,
with respect to any Collateral consisting of uncertificated Investment Property,
cause the issuer or Securities Intermediary 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.

 

(d) Changes in Corporate Structure or Location. Not, without providing 30 days
prior written notice to the Administrative Agent and without filing (or
confirming that the Administrative Agent has filed) such 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, or sell all or
substantially all of its assets, except as permitted by the Credit Agreement,
(ii) change its state of incorporation or formation or (iii) change its
registered corporate name.

 

(e) Inspection. Allow the Administrative Agent or its representatives to visit
and inspect the Collateral as set forth in Section 5.6 of the Credit Agreement.

 

(f) Perfection of Security Interest. 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 on
the Collateral hereunder except with respect to perfection only, for Collateral
that is subject to a Permitted Lien under subsections (xi) and (xii) of the
definition of Permitted Lien in accordance with the UCC. 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 in accordance with the UCC,
including, without limitation, (A) any financing statement that describes the
Collateral as “all personal property” or “all assets” or in some other manner as
the Administrative Agent deems necessary or advisable, (B) 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),
(C) 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, (D) with regard to registered Material 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, (E) with regard to
Material Patents, a Notice of Grant of Security Interest in Patents for filing
with the United States Patent and Trademark Office in the form of

 

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Schedule 5(f)(ii) attached hereto and (F) with regard to Material Trademarks, a
Notice of Grant of Security Interest in Trademarks for filing with the United
States Patent and 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 such notices or 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
other than, with respect to perfection only, in Vehicles and Collateral that is
subject to a Permitted Lien under subsections (xi) and (xii) of the definition
of Permitted Lien, such power, being coupled with an interest, being and
remaining irrevocable so long as the Credit Agreement is in effect or any
amounts payable thereunder, under any other Credit Document or any Secured
Hedging Agreement shall remain outstanding (other than contingent indemnity
obligations which by the terms thereof are stated to survive termination of the
Credit Documents, and until all of the Commitments thereunder 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 reasonably deems necessary or appropriate to preserve,
protect and enforce the security interests of the Administrative Agent under the
law of such other jurisdiction other than, with respect to perfection only, in
Vehicles and Collateral that is subject to a Permitted Lien under subsections
(xi) and (xii) of the definition of Permitted Lien (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). Each
Obligor agrees to mark its books and records to reflect the security interest of
the Administrative Agent in the Collateral.

 

(g) Collateral Held by Warehouseman, Bailee, etc. If any Collateral exceeding an
aggregate value of $500,000 is at any time in the possession or control of a
warehouseman, bailee or any agent or processor of such Obligor (except if under
repair or refurbishment), notify the Administrative Agent of such possession
and, upon the Administrative Agent’s reasonable request, notify such Person of
the Administrative Agent’s security interest for the benefit of the Lenders in
such Collateral and instruct such Person to hold all such Collateral for the
Administrative Agent’s account subject to the Administrative Agent’s
instructions, and obtain from such Person a written acknowledgement of the
Administrative Agent’s security interest therein, in form and substance
reasonably satisfactory to the Administrative Agent.

 

(h) Treatment of Accounts. Unless and until an Event of Default occurs and is
continuing, each Obligor may settle and adjust disputes and claims with its
franchisees, customers and account debtors, handle returns and recoveries and
grant discounts, credit

 

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and allowances in the ordinary course of its business as presently conducted and
otherwise for amounts and on terms which such Obligor in good faith considers
advisable. However, upon the occurrence of any Event of Default and during the
continuation thereof, if so instructed by the Administrative Agent, such Obligor
shall settle and adjust disputes and claims as directed by the Administrative
Agent, and no discount, credit or allowance other than on normal trade terms in
the ordinary course of business shall be granted to any customer or account
debtor and no returns of merchandise shall be accepted by such Obligor without
the Administrative Agent’s consent. The Administrative Agent may (but shall not
be required to) at all times upon the occurrence of any Event of Default and
during the continuance thereof, settle or adjust disputes and claims directly
with customers or account debtors for amounts and upon terms which the
Administrative Agent considers reasonable.

 

(i) Covenants Relating to Inventory.

 

(i) Maintain, keep and preserve all Material Inventory in accordance with
standard operating procedures.

 

(ii) If any Inventory exceeding an aggregate value of $500,000 is at any time
evidenced by a document of title, deliver such document of title to the
Administrative Agent.

 

(j) Covenants Relating to Copyrights.

 

(i) Employ the Copyrights for each 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 Material
Copyright may become invalidated and (A) not do any act, or knowingly omit to do
any act, whereby any Material Copyright may become injected into the public
domain; (B) notify the Administrative Agent immediately if it knows, or has
reason to know, that any Material Copyright 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 Material Copyright owned by an Obligor
including, without limitation, filing of applications for renewal where
necessary; and (D) promptly notify the Administrative Agent of any material
infringement of any Material Copyright of an Obligor of which it becomes aware
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,

 

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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.

 

(k) Covenants Relating to Patents and Trademarks.

 

(i) (A) Continue to use each Material Trademark in full force free from any
claim of abandonment for non-use, unless such Material Trademark is abandoned or
no longer used in the ordinary course of business, (B) maintain as in the past
the quality of products and services offered under such Material Trademark,
(C) employ such Material Trademark with the appropriate notice of registration,
(D) not adopt or use any mark which is confusingly similar or a colorable
imitation of such Material Trademark unless the Administrative Agent, for the
ratable benefit of the Lenders, 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 Material Trademark may become invalidated.

 

(ii) Not do any act, or omit to do any act, whereby any Material Patent may
become abandoned or dedicated.

 

(iii) Notify the Administrative Agent immediately if it knows, or has reason to
know, that any application or registration relating to any Material Patent or
Material Trademark 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 and maintain 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 Lenders’ security interest in any Patent or Trademark and the goodwill and
General Intangibles of an Obligor relating thereto or represented thereby.

 

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(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 application, to obtain the relevant
registration and to maintain each registration of all Material Patents and
Material Trademarks, unless such Material Patents and Material Trademarks have
been abandoned or are no longer used in the ordinary course of business,
including, without limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.

 

(vi) Promptly notify the Administrative Agent and the Lenders after it learns
that any Material Patent or Material Trademark included in the Collateral is
infringed, misappropriated or diluted by a third party and 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 each Obligor hereunder.

 

(l) New Patents, Copyrights and Trademarks. Promptly provide the Administrative
Agent (i) with respect to Material Copyrights, a duly executed Notice of Grant
of Security Interest in Copyrights, (ii) with respect to Material Patents, a
duly executed Notice of Grant of Security Interest in Patents, (iii) with
respect to Material Trademarks, a duly executed Notice of Grant of Security
Interest in Trademarks or (iv) such other duly executed documents as the
Administrative Agent may reasonably request in a form acceptable to counsel for
the Administrative Agent and suitable for recording to evidence the security
interest of the Administrative Agent on behalf of the Lenders in the Copyright,
Patent or Trademark which is the subject of such new application.

 

(m) Commercial Tort Claims; Notice of Litigation. (i) Promptly forward to the
Administrative Agent written notification of any and all Commercial Tort Claims,
including, but not limited to, any and all actions, suits, and proceedings
before any court or Governmental Authority by 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 reasonably 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.

 

(n) Insurance. Insure, repair and replace the Collateral of such Obligor as set
forth in Section 5.5 of the Credit Agreement. All proceeds derived from
insurance on the Collateral shall be subject to the security interest of the
Administrative Agent hereunder.

 

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(o) Fixtures. At all times maintain the Collateral existing as of the Closing
Date as personal property and not affix any of such Collateral to any real
property (except real property in which the Administrative Agent has a valid,
perfected and first priority security interest or that is subject to a Permitted
Lien to the extent such Collateral may be encumbered by a Permitted Lien) in a
manner which would change its nature from personal property to real property or
a Fixture.

 

6. Performance of Obligations; Advances by Administrative Agent. On failure of
any Obligor to perform any of the covenants and agreements contained herein, the
Administrative Agent may, at its sole option and in its sole discretion, perform
or cause to be performed the same and in so doing may expend such sums as the
Administrative Agent may reasonably deem advisable in the performance thereof,
including, without limitation, the payment of any insurance premiums, the
payment of any taxes, a payment to obtain a release of a Lien or potential Lien
(other than a Permitted Lien), expenditures made in defending against any
adverse claim (other than a Permitted Lien) 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 such 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 ABR Default Rate. No such performance of any
covenant or agreement 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.

 

7. 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”).

 

8. Remedies.

 

(a) General Remedies. Upon the occurrence of an Event of Default and during
continuation thereof, the Administrative Agent and the Lenders 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),

 

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and further, the Administrative Agent may, with or without judicial process or
the aid and assistance of others, to the extent permitted by law, (i) 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) 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 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 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 Lenders with respect to the Secured Obligations,
the Obligors shall pay the Administrative Agent and each of the Lenders all
reasonable documented costs and expenses incurred by the Administrative Agent or
any such Lender, 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 Lenders 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
applicable Obligor in accordance with the notice provisions of Section 9.2 of
the Credit Agreement at least 10 days before the time of sale or other event
giving rise to the requirement of such notice. The Administrative Agent and the
Lenders 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
law, any Lender 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 Lenders 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 Lenders 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, each Obligor will
promptly upon

 

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request of the Administrative Agent instruct all account debtors to remit all
payments in respect of Accounts to a mailing location selected by the
Administrative Agent. In addition, upon the occurrence of an Event of Default
and during the continuation thereof, the Administrative Agent or its designee
may notify any Obligor’s customers and account debtors that the Accounts of such
Obligor have been assigned to the Administrative Agent or of the Administrative
Agent’s security interest therein, and may (either in its own name or in the
name of an Obligor or both) demand, collect (including, without limitation, by
way of a lockbox arrangement), receive, take receipt for, sell, sue for,
compound, settle, compromise and give acquittance for any and all amounts due or
to become due on any Account, and, in the Administrative Agent’s discretion,
file any claim or take any other action or proceeding to protect and realize
upon the security interest of the Administrative Agent in the Accounts. Each
Obligor acknowledges and agrees that the Proceeds of its Accounts remitted to or
on behalf of the Administrative Agent for the benefit of the Lenders in
accordance with the provisions hereof shall be applied to the Secured
Obligations in the order set forth in Section 2.11(b) of the Credit 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. The
Administrative Agent and the Lenders 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 Lenders and their respective officers, directors,
employees, partners, members, counsel, agents, representatives, advisors and
affiliates 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 Lenders (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 which case such
Indemnified Party shall not be entitled to the indemnification provisions
hereunder. 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
Administrative Agent shall have the right to enter and remain upon the various
premises of the Obligors without cost or charge to the Administrative Agent, and
use 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. 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

 

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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
Lenders 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 Lenders 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
Lenders shall only be granted as provided herein. To the extent permitted by
law, neither the Administrative Agent, the Lenders, nor any party acting as
attorney for the Administrative Agent or the Lenders, 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 Agents and the Lenders under this Security
Agreement shall be cumulative and not exclusive of any other right or remedy
which the Administrative Agent or the Lenders may have.

 

(e) Retention of Collateral. In addition to the rights and remedies hereunder,
upon the occurrence of any Event of Default and during the continuation thereof,
the Administrative Agent may retain all or a portion of the Collateral in
satisfaction of the Secured Obligations but only 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) and otherwise complying with the requirements of
applicable law of the relevant jurisdiction. Unless and until the Administrative
Agent shall have provided such notices and complied with all applicable legal
requirements, 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 Lenders are legally entitled, the Obligors shall be jointly and
severally liable for the deficiency, together with interest thereon at the ABR
Default Rate, together with the 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 and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the

 

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occurrence of any Event of Default, and the Administrative Agent and the Lenders
have the right, in their sole discretion, to determine which rights, security,
liens, security interests or remedies the Administrative Agent and the Lenders
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 Lenders’ rights or the Secured Obligations under
this Security Agreement, under any other of the Credit Documents or under any
Secured Hedging Agreement.

 

9. 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
of the Lenders, 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;

 

(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;

 

(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, endorse, 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 thereto;

 

(vii) to execute and deliver and/or file 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

 

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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; and

 

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

 

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 obligations which by the terms thereof are
stated to survive termination of the Credit Documents), any Credit Document or
any 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 its rights and obligations hereunder as permitted under the
Credit Agreement 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 8 hereof, the Administrative
Agent shall have no obligation to clean-up, repair or otherwise prepare the
Collateral for sale.

 

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10. Application of Proceeds. Upon the occurrence and during the continuation of
an Event of Default, any payments in respect of the Secured Obligations and any
proceeds of the Collateral, when received by the Administrative Agent or any of
the Lenders in cash or its equivalent, will be applied in reduction of the
Secured Obligations in the order set forth in Section 2.11(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 order set forth in
Section 2.11(b) of the Credit Agreement, notwithstanding any entry to the
contrary upon any of its books and records.

 

11. 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.

 

12. 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 obligations which by the terms
thereof are stated to survive termination of the Credit Documents) or any Credit
Document or any Secured Hedging Agreement is in effect, and until all of the
Commitments thereunder shall have terminated. Upon such payment and termination,
this Security Agreement shall be automatically terminated without delivery of
any instrument or performance of any act by any Person and the Administrative
Agent and the Lenders shall, upon the request and at the expense of the
Obligors, forthwith release all liens and security interests granted hereunder
and shall execute and deliver all UCC termination statements and/or other
documents reasonably requested by the Obligors evidencing such termination.
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 Lender 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

 

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without limitation any reasonable legal fees and disbursements) incurred by the
Administrative Agent or any Lender in defending and enforcing such reinstatement
shall be deemed to be included as a part of the Secured Obligations.

 

13. 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.

 

14. Successors in Interest. 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 Lenders hereunder, to the benefit of the
Administrative Agent and the Lenders 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 Lender or the
Required Lenders, as required by the Credit Agreement. To the fullest extent
permitted by law, each Obligor hereby releases the Administrative Agent and each
Lender, each of their respective officers, employees and agents, and each of
their 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 such Person.

 

15. 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.

 

16. 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. Delivery of executed counterparts of
the Security Agreement by telecopy shall be effective as an original and shall
constitute a representation that an original shall be delivered upon the request
of the Administrative Agent.

 

17. 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.

 

18. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial; Venue. 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. The terms of Sections 9.14 and 9.18 of the Credit
Agreement are incorporated herein by reference, mutatis mutandis, and the
parties hereto agree to such terms.

 

19. Severability. If any provision of any of the Security Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining

 

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provisions shall remain in full force and effect and shall be construed without
giving effect to the illegal, invalid or unenforceable provisions.

 

20. 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
this Security Agreement, the other Credit Documents, the Secured Hedging
Agreements or the transactions contemplated herein and therein.

 

21. 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.

 

22. Joint and Several Obligations of Obligors.

 

(a) Each of the Obligors is accepting joint and several liability hereunder in
consideration of the financial accommodation to be provided by the Lenders under
the Credit Agreement, for the mutual benefit, directly and indirectly, of each
of the Obligors and in consideration of the undertakings of each of the Obligors
to accept joint and several liability for the obligations of each of them.

 

(b) Each of the Obligors jointly and severally hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor, joint
and several liability with the other Obligors with respect to the payment and
performance of all of the Secured Obligations arising under this Security
Agreement, the other Credit Documents and the Secured Hedging Agreements, it
being the intention of the parties hereto that all the Secured Obligations shall
be the joint and several obligations of each of the Obligors without preferences
or distinction among them.

 

(c) Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents, 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).

 

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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:        

BORROWER:

     

RED ROBIN INTERNATIONAL, INC.,

a Nevada corporation

           

By:

 

/s/ Katherine L. Scherping

           

Name:

 

Ms. Katherine L. Scherping

           

Title:

 

Chief Financial Officer

             

GUARANTORS:

     

RED ROBIN GOURMET BURGERS, INC.,

a Delaware corporation

RED ROBIN WEST, INC.,

a Nevada corporation

RED ROBIN DISTRIBUTING COMPANY, INC.,

a Colorado corporation

WESTERN FRANCHISE DEVELOPMENT, INC.,

a California corporation

           

By:

 

/s/ Katherine L. Scherping

           

Name:

 

Ms. Katherine L. Scherping

           

Title:

 

Chief Financial Officer of each of the foregoing Guarantors

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ADMINISTRATIVE AGENT:

     

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Administrative Agent

           

By:

 

/s/ Richard E. Anglin

           

Name:

 

Richard E. Anglin

           

Title:

 

Vice President

 

SECURITY AGREEMENT