Exhibit 10.2

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT, dated as of October 14, 2004, is entered into by and
among WEST MARINE PRODUCTS, INC., a California corporation (the “Company”), each
other signatory to this Security Agreement (other than the Administrative
Agent), each of the other entities which becomes a party hereto pursuant to
Section 10.15 hereof (each of the foregoing, including the Company, a “Grantor”
and collectively, the “Grantors”), and WELLS FARGO BANK, NATIONAL ASSOCIATION,
as administrative agent (in such capacity, the “Administrative Agent”) for the
financial institutions which are from time to time parties to the Credit
Agreement referred to in Recital A below (collectively, the “Lenders”).

 

RECITALS

 

A Pursuant to that certain Credit Agreement, dated as of even date herewith (as
amended, restated, supplemented or otherwise modified from time to time, the
“Credit Agreement”), among the Company, the Lenders and the Administrative
Agent, the Lenders have agreed to extend loans and other financial
accommodations to the Company upon the terms and subject to the conditions set
forth therein.

 

B. The Lenders’ obligations to extend loans and other financial accommodations
to the Company under the Credit Agreement are subject, among other conditions,
to receipt by the Administrative Agent of this Security Agreement duly executed
by the Grantors.

 

C. Each Grantor (other than Company) is or shall become a party to that certain
Guaranty dated as of even date herewith in connection with the Credit Agreement.
Each Grantor (other than Company) has obtained and will continue to obtain
working capital and loans needed for its operations from Company, and Company
will obtain funds to provide and lend to the Grantors (other than Company) from
the Lenders under the Credit Agreement. In addition, Grantors (other than
Company) expect to realize direct and indirect benefits as the result of the
availability of the aforementioned credit facilities to Company and as the
result of financial or business support which will be provided to the Grantors
(other than Company) by Company.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the above recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each of the Grantors hereby agrees with the Administrative Agent,
for itself and for the ratable benefit of the Administrative Agent and the
Lenders, as follows:

 

SECTION 1. Definitions and Interpretation. When used in this Security Agreement,
the following terms shall have the following respective meanings:

 

“Account Debtor” means any “account debtor,” as such term is defined in Section
9102(a)(3) of the UCC (or any other then applicable provision of the UCC).

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“Account” means any “account,” as such term is defined in Section 9102(a)(2) of
the UCC (or any other then applicable provision of the UCC) and, in any event,
shall include, without limitation, all accounts receivable, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to any Grantor (including, without limitation, under any
trade name, style or division thereof) whether arising out of goods sold or
services rendered by such Grantor or from any other transaction, whether or not
the same involves the sale of goods or services by such Grantor (including,
without limitation, any such obligation which may be characterized as an account
or contract right under the UCC) and all of any Grantor’s rights in, to and
under all purchase orders or receipts now owned or hereafter acquired by it for
goods sold or services rendered by such Grantor, and all of any Grantor’s rights
to any goods represented by any of the foregoing (including, without limitation,
unpaid seller’s rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies
due or to become due to any Grantor under all purchase orders and contracts for
the sale of goods or the performance of services or both by any Grantor (whether
or not yet earned by performance on the part of such Grantor or in connection
with any other transaction), now in existence or hereafter occurring, including,
without limitation, the right to receive the proceeds of said purchase orders
and contracts, and all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.

 

“Chattel Paper” means any “chattel paper,” as such term is defined in Section
9102(a)(11) of the UCC (or any other then applicable provision of the UCC),
including, without limitation, electronic chattel paper and tangible chattel
paper.

 

“Collateral” shall have the meaning assigned to such term in Section 2 of this
Security Agreement.

 

“Commercial Tort Claim” means any “commercial tort claim,” as such term is
defined in Section 9102(a)(13) of the UCC (or any other then applicable
provision of the UCC) set forth on Schedule II (as supplemented by Company on
each Compliance Certificate).

 

“Contracts” means all contracts, undertakings, franchise agreements or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which any Grantor may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.

 

“Deposit Account” means any “deposit account” as such term is defined in Section
9102(a)(29) of the UCC (or any other then applicable provision of the UCC), and
shall include, without limitation, any demand, time, savings passbook or like
account, now or hereafter maintained by or for the benefit of any Grantor, or in
which any Grantor now holds or hereafter acquires any interest, with a bank,
savings and loan association, credit union or like organization (including the
Administrative Agent) and all funds and amounts therein, whether or not
restricted or designated for a particular purpose.

 

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“Documents” means any “documents,” as such term is defined in Section
9102(a)(30) of the UCC (or any other then applicable provision of the UCC).

 

“Equipment” means any “equipment,” as such term is defined in Section
9109(a)(33) of the UCC (or any other then applicable provision of the UCC), now
or hereafter owned or acquired by any Grantor or in which any Grantor now holds
or hereafter acquires any interest and, in any event, shall include, without
limitation, all machinery, equipment, fixtures, furniture, furnishings, trade
fixtures, vehicles, trucks, mainframe, personal and other computers, terminals
and printers and related components and accessories, all copiers, telephonic,
video, electronic data-processing, data storage equipment and other equipment of
any nature whatsoever, and any and all additions, substitutions and replacements
of any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto.

 

“General Intangible” means any “general intangible,” as such term is defined in
Section 9102(a)(42) of the UCC (or any other then applicable provision of the
UCC) and, in any event, shall include, without limitation, all right, title and
interest which any Grantor may now or hereafter have in or under any Contract,
all customer lists, all proprietary or confidential information, inventions
(whether or not patented or patentable), interests in partnerships, joint
ventures and other business associations, permits, books and records, goodwill,
claims in or under insurance policies, including unearned premiums, Payment
Intangibles, Software, cash and other forms of money or currency, rights to
receive tax refunds and other payments and rights of indemnification.

 

“Instruments” means any “instrument,” as such term is defined in Section
9102(a)(47) of the UCC (or any other then applicable provision of the UCC)
including, without limitation, all notes and all other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.

 

“Inventory” means any “inventory,” as such term is defined in Section
9102(a)(48) of the UCC (or any other then applicable provision of the UCC),
wherever located, now or hereafter owned or acquired by any Grantor or in which
any Grantor now holds or hereafter acquires any interest, and, in any event,
shall include, without limitation, all inventory, goods and other personal
property which are held by or on behalf of any Grantor for sale or lease or are
furnished or are to be furnished under a contract of service or which constitute
raw materials, work in process or materials used or consumed or to be used or
consumed in any Grantor’s business, or the processing, packaging, promotion,
delivery or shipping of the same, and all finished goods whether or not such
inventory is listed on any schedules, assignments or reports furnished to the
Administrative Agent from time to time and whether or not the same is in transit
or in the constructive, actual or exclusive occupancy or possession of any
Grantor or is held by any Grantor or by others for any Grantor’s account,
including, without limitation, all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers and all
inventory of any Grantor which may be located on the premises of any Grantor or
of any carriers, forwarding agents, truckers, warehousemen, vendors, selling
agents or other persons.

 

“Investment Property” means any “investment property,” as such term is defined
in Section 9102(a)(49) of the UCC (or any other then applicable provision of the
UCC) and shall

 

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include, without limitation, all certificated securities (including, without
limitation, those listed on Schedule I), uncertificated securities, security
entitlements, Securities Accounts, commodity contracts and commodity accounts as
each such term is defined in the UCC.

 

“Letter-of-Credit Right” means “letter-of-credit right,” as such term is defined
in Section 9102(a)(51) of the UCC (or any other then applicable provision of the
UCC).

 

“Payment Intangible” means “payment intangible,” as such term is defined in
Section 9102(a)(61) of the UCC (or any other then applicable provision of the
UCC).

 

“Pledged Collateral” means, collectively, the notes, stock, partnership
interests, limited liability company interests, and all other Investment
Property of any Grantor, all certificates or other instruments representing any
of the foregoing, all security entitlements of any Grantor in respect of any of
the foregoing, all dividends, interest distributions, cash, warrants, rights,
instruments and other property or Proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the foregoing.

 

“Proceeds” means “proceeds,” as such term is defined in Section 9102(a)(64) of
the UCC (or any other then applicable provision of the UCC), and, in any event,
shall include, without limitation, (a) any and all Accounts, Chattel Paper,
Instruments, cash or other forms of money or currency or other proceeds payable
to any Grantor from time to time in respect of the Collateral, (b) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to any
Grantor from time to time with respect to any of the Collateral, (c) any and all
payments (in any form whatsoever) made or due and payable to any Grantor from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
authority (or any Person acting under color of governmental authority), (d) all
certificates, dividends, cash, Instruments and other property received or
distributed in respect of or in exchange for any Investment Property, and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.

 

“Secured Obligations” shall mean and include (a) in the case of the Company, the
Obligations (as defined in the Credit Agreement) and (b) in the case of each
other Grantor, all liabilities and obligations, howsoever arising, owed by such
Grantor to the Administrative Agent or any Lender of every kind and description
(whether or not evidenced by any note or instrument and whether or not for the
payment of money), direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, under or pursuant to the terms of the
Guaranty or any of the other Loan Documents to which such Grantor is a party,
including without limitation all interest (including interest that accrues after
the commencement of any bankruptcy or other insolvency proceeding by or against
such Grantor), fees, charges, expenses, attorneys’ fees and accountants’ fees
payable by the Grantor hereunder and thereunder.

 

“Securities Account” means “securities account,” as such term is defined in
Section 8501(a) of the UCC (or any other then applicable provision of the UCC).

 

“Security Agreement” means this Security Agreement and all exhibits hereto, as
the same may from time to time be amended, modified, supplemented or restated.

 

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“Software” means “software,” as such term is defined in Section 9102(a)(75) of
the UCC (or any other then applicable provision of the UCC).

 

“Supporting Obligation” means “supporting obligation,” as such term is defined
in Section 9102(a)(77) of the UCC (or any other then applicable provision of the
UCC).

 

“UCC” means the Uniform Commercial Code as the same may, from time to time, be
in effect in the State of California; provided, however, in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of the Administrative Agent’s security interest in any collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term “UCC” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection of priority and for purposes of
definitions related to such provisions.

 

Unless otherwise defined herein, all other capitalized terms used herein and
defined in the Credit Agreement shall have the respective meanings given to
those terms in the Credit Agreement, and all terms defined in the UCC shall have
the respective meanings given to those terms in the UCC. The rules of
interpretation set forth in Article 1 of the Credit Agreement shall, to the
extent not inconsistent with the terms of this Security Agreement, apply to this
Security Agreement and are hereby incorporated by reference.

 

SECTION 2. Grant of Security Interest. As security for the full, prompt,
complete and final payment when due (whether at stated maturity, by acceleration
or otherwise) and prompt performance and observance of all the Secured
Obligations of such Grantor, and in order to induce the Administrative Agent and
the Lenders to enter into the Credit Agreement and to make loans and other
financial accommodations available to and for the benefit of the Company upon
the terms and subject to the conditions thereof, each Grantor hereby assigns,
conveys, mortgages, pledges, grants, hypothecates and transfers to the
Administrative Agent for itself and for the pro rata benefit of the Lenders a
security interest in and to all of such Grantor’s right, title and interest in,
to and under each of the following, whether now owned or hereafter acquired by
such Grantor or in which such Grantor now holds or hereafter acquires any
interest (all of which being hereinafter collectively called the “Collateral”):

 

(a) All Accounts;

 

(b) All Chattel Paper;

 

(c) All Commercial Tort Claims;

 

(d) All Contracts;

 

(e) All Deposit Accounts;

 

(f) All Documents;

 

(g) All Equipment;

 

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(h) All General Intangibles;

 

(i) All Instruments and all Pledged Collateral;

 

(j) All Inventory;

 

(k) All Investment Property;

 

(l) All Letter-of-Credit Rights;

 

(m) All Supporting Obligations;

 

(n) All property of such Grantor held by the Administrative Agent or any Lender,
or any other party for whom the Administrative Agent or any Lender is acting as
agent hereunder, including, without limitation, all property of every
description now or hereafter in the possession or custody of or in transit to
the Administrative Agent, any Lender or such other party, for any purpose,
including, without limitation, safekeeping, collection or pledge, for the
account of such Grantor, or as to which such Grantor may have any right or
power;

 

(o) All other goods and personal property of such Grantor whether tangible or
intangible and whether now or hereafter owned or existing, leased, consigned by
or to, or acquired by, such Grantor and wherever located; and

 

(p) To the extent not otherwise included, all Proceeds of each of the foregoing
and all accessions to, substitutions and replacements for, and rents, profits
and products of each of the foregoing;

 

provided, however, that any intangible Collateral shall be excluded from the
lien and security interest granted by a Grantor hereunder to the extent, but
only to the extent, that, after giving effect to the application of Sections
9406 through 9409 of the UCC, the creation of a lien and security interest
therein would constitute a material breach of the terms of such Collateral, or
would permit any party to any agreement, instrument or other document comprising
such Collateral, or the issuer of any license, permit or authorization
comprising such Collateral, to terminate such agreement, instrument or other
document or license, permit or authorization or would otherwise violate any
applicable law, rule, regulation or policy of any Governmental Agency pursuant
to any effective term or provision of such agreement, instrument, document,
license, permit or authorization.

 

SECTION 3. Rights of the Administrative Agent; Collection of Accounts.

 

(a) Notwithstanding anything contained in this Security Agreement to the
contrary, each Grantor expressly agrees that such Grantor shall not default
under any of its Contracts, it shall observe and perform all the conditions and
obligations to be observed and performed by it thereunder and that it shall
perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract to the extent any
such default or failure to observe and perform could reasonably be expected to
have a Material Adverse Effect; and provided, however, that such Grantor may
suspend performance of its obligations under any such Contract in the event of a
material breach of such Contract by a

 

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third party. The Administrative Agent shall not have any obligation or liability
under any Contract by reason of or arising out of this Security Agreement or the
granting to the Administrative Agent of a security interest therein or the
receipt by the Administrative Agent of any payment relating to any Contract
pursuant hereto, nor shall the Administrative Agent be required or obligated in
any manner to perform or fulfill any of the obligations of any Grantor under or
pursuant to any Contract, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party under any Contract, or to present or file any
claim, or to take any action to collect or enforce any performance or 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) The Administrative Agent authorizes each Grantor to collect the respective
Accounts of such Grantor, provided, that the Administrative Agent may, upon the
occurrence and during the continuation of any Event of Default and without
notice, limit or terminate said authority at any time. If required by the
Administrative Agent at any time during the continuation of any Event of
Default, any Proceeds, when first collected by a Grantor, received in payment of
such Account or in payment for any of its Inventory or on account of any of its
Contracts shall be promptly deposited by such Grantor in precisely the form
received (with all necessary endorsements) in a special bank account maintained
by the Administrative Agent subject to withdrawal by the Administrative Agent
only, as hereinafter provided, and until so turned over shall be deemed to be
held in trust by such Grantor for and as the Administrative Agent’s property,
and shall not be commingled with such Grantor’s other funds or properties. Such
Proceeds, when deposited, shall continue to be collateral security for all of
the Secured Obligations and shall not constitute payment thereof until applied
as hereinafter provided. Upon the occurrence and during the continuation of any
Event of Default, the Administrative Agent may, in its sole discretion, apply
all or a part of the funds on deposit in said special account to the principal
of or interest on or both in respect of any of the Secured Obligations in
accordance with the provisions of Section 7(g), below, and any part of such
funds which the Administrative Agent elects not to so apply and deems not
required as collateral security for the Secured Obligations shall be paid over
from time to time by the Administrative Agent to the Grantors. If an Event of
Default has occurred and is continuing, at the request of the Administrative
Agent, each Grantor shall deliver to the Administrative Agent all original and
other documents evidencing, and relating to, the sale and delivery of such
Inventory and each Grantor shall deliver all original and other documents
evidencing and relating to, the performance of labor or service which created
such Accounts, including, without limitation, all original orders, invoices and
shipping receipts.

 

(c) Upon the occurrence and during the continuation of any Event of Default, the
Administrative Agent may at any time, without notice to or consent from any
Grantor, notify Account Debtors of any Grantor, parties to the Contracts of any
Grantor, obligors in respect of Instruments of any Grantor and obligors in
respect of Chattel Paper of any Grantor that the Accounts and the right, title
and interest of any Grantor in and under such Contracts, Instruments, and
Chattel Paper have been assigned to the Administrative Agent, and that payments
shall be made directly to the Administrative Agent. Upon the request of the
Administrative Agent after the occurrence and during the continuation of an
Event of Default, each Grantor shall so notify such Account Debtors, parties to
such Contracts, obligors in respect of such Instruments and obligors in respect
of such Chattel Paper. Upon the occurrence and

 

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during the continuation of an Event of Default, the Administrative Agent may, in
its name, or in the name of others communicate with such Account Debtors,
parties to such Contracts, obligors in respect of such Instruments and obligors
in respect of such Chattel Paper to verify with such parties, to the
Administrative Agent’s satisfaction, the existence, amount and terms of any such
Accounts, Contracts, Instruments or Chattel Paper.

 

SECTION 4. Representations and Warranties. Each Grantor hereby represents and
warrants to the Administrative Agent and the Lenders that:

 

(a) Such Grantor is the sole legal and equitable owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good title or rights thereto free and clear of any and all Liens, except for the
Permitted Encumbrances.

 

(b) Such Grantor has not filed, authorized or consented to the filing of any
effective security agreement, financing statement, equivalent security or lien
instrument or continuation statement covering all or any part of the Collateral,
except such as may have been filed by such Grantor in favor of the
Administrative Agent pursuant to this Security Agreement or such as relate to
other Permitted Encumbrances.

 

(c) This Security Agreement creates a legal and valid security interest on and
in all of the Collateral in which such Grantor now has rights and in which
security interests are governed by the UCC or other applicable Law, and all
filings and other actions necessary to perfect and protect such security
interest have been duly taken in respect of such Collateral. Accordingly, the
Administrative Agent has a fully perfected first priority security interest in
all of such Collateral in which such Grantor now has rights, subject only to the
Permitted Encumbrances. This Security Agreement will create a legal and valid
and fully perfected first priority security interest in such Collateral in which
such Grantor later acquires rights, when such Grantor acquires those rights,
subject only to the Permitted Encumbrances.

 

(d) As of the date hereof and as of the last day of each Fiscal Quarter, each
Grantor’s exact legal name is set forth on Schedule V attached hereto (as
supplemented by Company on each Compliance Certificate). Each Grantor was formed
under the laws of the jurisdiction of its formation as set forth on Schedule V
attached hereto, subject to changes permitted by Section 6.19 of the Credit
Agreement. As of the date hereof and as of the last day of each Fiscal Quarter,
each Grantor’s chief executive office, principal place of business, and the
place where each Grantor maintains records concerning the Collateral are set
forth on Schedule V attached hereto (as supplemented by Company on each
Compliance Certificate). A material portion of the Collateral, other than
Deposit Accounts and Investment Property held in Securities Accounts, is as of
the date hereof and as of the last day of each Fiscal Quarter located at the
location(s) set forth on Schedule V attached hereto (as supplemented by Company
on each Compliance Certificate) or Schedule 4.22 to the Credit Agreement (as
updated from time to time as set forth in the Credit Agreement) or is being
transported to one of such location(s) and may be located on the premises of
carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or
other persons. Each Grantor (other than Company) shall provide to Company on a
quarterly basis all information necessary to supplement to Schedule V and
Schedule 4.22 to the Credit Agreement as referenced above.

 

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(e) All Collateral with respect to which a security interest may be perfected by
the secured party’s taking possession thereof, including, without limitation,
all Chattel Paper, Instruments and certificated securities (other than goods,
money and Instruments to be promptly deposited for collection) as of the date
hereof and as of the last day of each Fiscal Quarter, is set forth on Schedule I
(as supplemented by Company on each Compliance Certificate) except for items of
Collateral with a value of less than $10,000 in the aggregate. All action
necessary to protect and perfect such security interest in each item set forth
on Schedule I (as supplemented by Company on each Compliance Certificate)
including, without limitation, the delivery of all originals thereof to the
Administrative Agent has been duly taken, or shall have been taken as of the
Closing Date. All Letter-of-Credit Rights and Commercial Tort Claims (involving
aggregate claims in excess of $25,000 with respect to any individual Commercial
Tort Claim and aggregate claims in excess of $100,000 with respect to all
Commercial Tort Claims) of each Grantor as of the date hereof and as of the last
day of each Fiscal Quarter are set forth on Schedule II (as supplemented by
Company on each Compliance Certificate). The security interest of the
Administrative Agent in the Collateral is prior in right and interest to all
other Liens, other than Permitted Encumbrances, and is enforceable as such
against creditors of and purchasers from such Grantor (other than purchasers and
lessees of inventory, in each case, in the ordinary course of business and
non-exclusive licensees of general intangibles in the ordinary course of
business). Each Grantor (other than Company) shall provide to Company all
information necessary to supplement to Schedule I and Schedule II as referenced
above.

 

(f) The names and addresses of all financial institutions at which each Grantor
maintains its Deposit Accounts and the account numbers of such Deposit Accounts
are listed as of the date hereof and as of the last day of each Fiscal Quarter
on Schedule III (as supplemented by Company on each Compliance Certificate).
Each Grantor (other than Company) shall provide to Company all information
necessary to supplement to Schedule III.

 

(g) The names and addresses of all institutions at which each Grantor maintains
its Securities Accounts and the account numbers and account names of such
Securities Accounts are listed as of the date hereof and as of the last day of
each Fiscal Quarter on Schedule IV (as supplemented by Company on each
Compliance Certificate). Each Grantor (other than Company) shall provide to
Company all information necessary to supplement to Schedule IV.

 

(h) Such Grantor is the sole holder of record and the sole beneficial owner of
all certificated securities and uncertificated securities pledged to the
Administrative Agent by such Grantor under Section 2 of this Security Agreement,
assuming that the Administrative Agent does not have notice of any adverse claim
to the security, free and clear of any adverse claim, as defined in Section
8102(a)(1) of the UCC (or any other then applicable provision of the UCC),
except for the Lien created in favor of the Administrative Agent by this
Security Agreement and the other Loan Documents and Permitted Encumbrances
described in paragraph (b) of the definition of that term.

 

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SECTION 5. Covenants. Each Grantor covenants and agrees with the Administrative
Agent that from and after the date of this Security Agreement and until the
non-contingent Secured Obligations have been completely and finally paid in
full:

 

5.1 Further Assurances; Pledge of Instruments. At any time and from time to
time, upon the written request of the Administrative Agent, and at the sole
expense of the Grantors, each Grantor shall promptly and duly execute and
deliver any and all such further instruments and documents and take such further
action as the Administrative Agent may reasonably deem desirable to obtain the
full benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, (a) except as otherwise provided in the
Credit Agreement, using its commercially reasonable efforts to secure all
consents and approvals necessary or appropriate for the grant of a security
interest to the Administrative Agent in any Contract or license held by any
Grantor or in which any Grantor has any rights not heretofore assigned, (b)
filing any financing statements, amendments or continuation statements under the
UCC with respect to the security interests granted hereby, (c) filing or
cooperating with the Administrative Agent in filing any forms or other documents
required to be filed with the United States Patent and Trademark Office, United
States Copyright Office, or any filings in any foreign jurisdiction or under any
international treaty, required to secure or protect the Administrative Agent’s
interest in the Collateral, (d) transferring Collateral (other than Instruments
to be promptly deposited for collection) to the Administrative Agent’s
possession (if a security interest in such Collateral can be perfected and free
from an adverse claim only by possession), (e) obtaining agreements from
landlords, warehousemen and mortgagees as required pursuant to the Credit
Agreement, (f) doing all things necessary to protect any Grantor’s and the
Administrative Agent’s interest in any Inventory sold on consignment, including,
without limitation, the filing of financing statements in applicable
jurisdictions and assigning any such financing statements to the Administrative
Agent, (g) using commercially reasonable efforts to obtain written
acknowledgements from consignees and bailees of the prior lien of the
Administrative Agent in and to the Collateral and that such third party is
holding possession of the Collateral for the benefit of the Administrative
Agent, and (h) assisting the Administrative Agent in obtaining control under the
UCC with respect to any Collateral consisting of Deposit Accounts, Investment
Property, Letter-of-Credit Rights and Electronic Chattel Paper. Each Grantor
also hereby authorizes the Administrative Agent, to the extent not prohibited by
applicable law, to file any such financing statement, amendment or continuation
statement without the signatures of such Grantor. If any amount payable under or
in connection with any of the Collateral is or shall become evidenced by any
Instrument, such Instrument, other than checks and notes received in the
ordinary course of any Grantor’s business, shall be duly endorsed in a manner
satisfactory to the Administrative Agent and delivered to the Administrative
Agent promptly upon any Grantor’s receipt thereof; provided that the inadvertent
failure to so endorse and deliver any Instruments with an aggregate value of
less than $25,000 shall not be a breach of this sentence.

 

5.2 Maintenance of Records. Each Grantor shall keep and maintain at such
Grantor’s own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments received and
all credits granted with respect to the Collateral and all other dealings with
the Collateral. If requested by the Administrative Agent, all Chattel Paper
shall be marked with the following legend: “This writing and the obligations
evidenced or secured hereby are subject to the security interest of Wells Fargo
Bank, National Association, as Administrative Agent, created by that certain
Security Agreement, dated as of October 14, 2004, in favor of Wells Fargo Bank,
National Association, as Administrative Agent, as the same may thereafter from
time to time be amended, modified, supplemented or restated.”

 

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5.3 Indemnification. In any suit, proceeding or action brought by or against the
Administrative Agent or any Lender (each an “Indemnitee”) relating to any
Collateral, including, without limitation, any Account, Chattel Paper, Contract,
General Intangible, Instrument or Document for any sum owing thereunder, or to
enforce any provision of any Collateral, including, without limitation, any
Account, Chattel Paper, Contract, General Intangible, Instrument or Document,
each Grantor shall jointly and severally save, indemnify and keep each
Indemnitee harmless from and against all expense, loss or damage suffered by
reason of any defense, setoff, counterclaim, recoupment or reduction of
liability whatsoever of the obligor thereunder arising out of a breach by any
Grantor of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to, or in favor of, such obligor or
its successors from any Grantor; provided that no Indemnitee shall be entitled
to indemnification under this Section 5.3 for any expense, loss or damage (a) to
the extent arising solely from any claim against such Indemnitee from another
Indemnitee or (b) that are found by a final, non-appealable judgment of a court
of competent jurisdiction to arise from the willful misconduct, or gross
negligence of such Indemnitee or such Indemnitee’s directors, officers,
employees, agents, advisors, attorneys and Affiliates, and all such obligations
of the Grantors shall be and remain enforceable against and only against the
Grantors and shall not be enforceable against the Administrative Agent or the
Lenders.

 

5.4 Compliance With Terms of Accounts, Etc. Each Grantor shall perform and
comply with all obligations in respect of Accounts, Chattel Paper, Contracts,
Documents, Instruments and Licenses and all other agreements to which it is a
party or by which it is bound if failure to conform and comply could reasonably
be expected to have a Material Adverse Effect; provided, however, that such
Grantor may suspend its performance thereunder in the event of a material breach
of any such obligations by third parties.

 

5.5 Limitation on Liens on Collateral. No Grantor shall create, permit or suffer
to exist, and shall defend the Collateral against and take such other action as
is necessary to remove, any lien on the Collateral, except the Permitted
Encumbrances. Each Grantor shall, jointly and severally, further defend the
right, title and interest of the Administrative Agent in and to any of any
Grantor’s rights under the Chattel Paper, Contracts, Documents, General
Intangibles, Instruments and Investment Property and to the Equipment and
Inventory and in and to the Proceeds thereof against the claims and demands of
all Persons whomsoever.

 

5.6 Limitations on Modifications of Accounts, Etc. Upon the occurrence and
during the continuation of any Event of Default, no Grantor shall, without the
Administrative Agent’s prior written consent, grant any extension of the time of
payment of any of the Accounts, Chattel Paper, Instruments or amounts due under
any Contract or Document, compromise, compound or settle the same for less than
the full amount thereof, release, wholly or partly, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon other than
trade discounts and rebates granted in the ordinary course of such Grantor’s
business.

 

5.7 Maintenance of Insurance. Each Grantor shall maintain, with financially
sound and reputable companies, the insurance policies with coverage provisions
as set forth in Section 5.4 of the Credit Agreement.

 

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5.8 Taxes, Assessments, Etc. Each Grantor shall pay promptly when due all
property and other taxes, assessments and government charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Equipment or Inventory, except to the extent the validity or amount
thereof is being contested in good faith, by appropriate proceeding and adequate
reserves, to the extent required by GAAP, are being maintained in connection
therewith.

 

5.9 Limitations on Disposition. Except as described on Schedule 4.26 to the
Credit Agreement, each Grantor shall keep the Collateral separate and
identifiable from other property located on the same premises as the Collateral
and no Grantor shall sell, lease, license outside the ordinary course of its
business, transfer or otherwise dispose of any of the Collateral, or attempt or
contract to do so, except as permitted by Section 6.3 of the Credit Agreement.

 

5.10 Further Identification of Collateral. Each Grantor shall, if so requested
by the Administrative Agent, furnish to the Administrative Agent, as often as
the Administrative Agent shall reasonably request, statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Administrative Agent may reasonably
request, all in reasonable detail.

 

5.11 Notices. Each Grantor shall advise the Administrative Agent promptly, in
reasonable detail, of (a) any material lien, other than Permitted Encumbrances,
attaching to or asserted against any of the Collateral, (b) any material change
in the composition of the Collateral and (c) the occurrence of any other event
which could reasonably be expected to have or result in a Material Adverse
Effect with respect to the Collateral or on the security interest created
hereunder.

 

5.12 Right of Inspection and Audit. Each Grantor shall permit the Administrative
Agent such rights of inspection and audit as provided in the Credit Agreement.

 

5.13 Maintenance of Facilities. Each Grantor shall maintain and protect its
properties, assets and facilities, including, without limitation, its Equipment
(other than Equipment determined by the Grantor in the ordinary course of
business to be obsolete) in good order and working repair and condition (taking
into consideration ordinary wear and tear) and from time to time make or cause
to be made all needful and proper repairs, renewals and replacements thereto and
shall competently manage and care for its property in accordance with prudent
industry practices.

 

5.14 Continuous Perfection. No Grantor shall change its name, identity or
corporate structure in any manner unless such Grantor shall have given the
Administrative Agent at least thirty (30) days’ prior written notice thereof and
shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by the Administrative Agent
to amend such financing statement or continuation statement so that it is not
seriously misleading.

 

5.15 Authorizations with Respect to Financing Statements, etc. Each Grantor
hereby irrevocably authorizes the Administrative Agent at any time and from time
to

 

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time to file in any filing office in any UCC jurisdiction any initial financing
statements and amendments thereto that (i) indicate the Collateral (A) as “all
assets” of such Grantor or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the UCC of such jurisdiction, or (B) as being of an equal or lesser scope or
with greater detail, and (ii) contain any other information required by part 5
of Article 9 of the UCC for the sufficiency or filing office acceptance of any
financing statement or amendment, including (A) whether such Grantor is an
organization, the type of organization and any organization identification
number issued to such Grantor, and (B) in the case of a financing statement
filed as a fixture filing or indicating any Collateral as as-extracted
collateral or timber to be cut, a sufficient description of the real property to
which such Collateral relates. Each Grantor agrees to furnish any such
information to the Administrative Agent promptly upon request. Each Grantor also
ratifies its authorization for the Administrative Agent to have filed in any UCC
jurisdiction any initial financing statements or amendments thereto if filed
prior to the date hereof.

 

5.16 Reincorporation, Etc., Each Grantor shall comply with the requirements of
Section 6.19 of the Credit Agreement.

 

5.17 Terminations and Amendments Not Authorized. Each Grantor acknowledges that
it is not authorized to file any amendment or termination statement with respect
to any financing statement relating to any security interest granted hereunder
without the prior written consent of the Administrative Agent and agrees that it
will not do so without the prior written consent of the Administrative Agent,
subject to such Grantor’s rights under Section 9509(d)(2) of the UCC.

 

5.18 Pledged Collateral.

 

(a) Each Grantor shall deliver to the Administrative Agent, all certificates or
Instruments representing or evidencing any Pledged Collateral (other than
Instruments to be promptly deposited for collection and other Instruments with
an aggregate value of less than $25,000) whether now existing or hereafter
acquired, in suitable form for transfer by delivery or, as applicable,
accompanied by such Grantor’s endorsement, where necessary, or duly executed
instruments of transfer or assignment in blank, all in form and substance
reasonably satisfactory to the Administrative Agent. After the occurrence of an
Event of Default and during its continuance without prior notice to any Grantor,
the Administrative Agent shall have the right, at any time in its discretion, to
transfer to or to register in its name or in the name of its nominees any or all
of the Pledged Collateral. The Administrative Agent shall have the right at any
time to exchange certificates or instruments representing or evidencing any of
the Pledged Collateral for certificates or instruments of smaller or larger
denominations.

 

(b) Except as provided in Section 7, each Grantor shall be entitled to receive
all dividends paid and distributions and other payments made in respect of the
Pledged Collateral. Any sums paid upon or in respect of any of the Pledged
Collateral upon the liquidation or dissolution of any issuer of any of the
Pledged Collateral, any distribution of capital made on or in respect of any of
the Pledged Collateral or any property distributed upon or with respect to any
of the Pledged Collateral pursuant to the recapitalization or reclassification
of the capital of any issuer of Pledged Collateral or pursuant to the
reorganization thereof shall,

 

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unless otherwise subject to a perfected security interest in favor of the
Administrative Agent, be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security for the Secured Obligations of such
Grantor. If any sums of money or property so paid or distributed pursuant to the
immediately preceding sentence in respect of any of the Pledged Collateral shall
be received by such Grantor, such Grantor shall, until such money or property is
paid or delivered to the Administrative Agent, hold such money or property in
trust for the Administrative Agent, segregated from other funds of such Grantor,
as additional security for the Secured Obligations of such Grantor.

 

(c) Except as provided in Section 7, such Grantor will be entitled to exercise
all voting, consent and rights with respect to the Pledged Collateral; provided,
however, that no vote shall be cast, consent given or right exercised or other
action taken by such Grantor which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, this Security Agreement, any
other Loan Document or, without prior notice to the Administrative Agent, to
enable or take any other action to permit any issuer of Pledged Collateral to
issue any stock or other Securities of any nature or to issue any other
securities convertible into or granting the right to purchase or exchange for
any stock or other Securities of any nature of any issuer of Pledged Collateral.

 

(d) No Grantor shall grant control over any Investment Property to any Person
other than the Administrative Agent.

 

(e) In the case of each Grantor which is an issuer of Pledged Collateral, such
Grantor agrees to be bound by the terms of this Security Agreement relating to
the Pledged Collateral issued by it and will comply with such terms insofar as
such terms are applicable to it. In the case of each Grantor which is a partner
in a partnership, such Grantor hereby consents to the extent required by the
applicable partnership agreement to the pledge by each other Grantor, pursuant
to the terms hereof, of the pledged partnership interests in such partnership
and to the transfer of such pledged partnership interests to the Administrative
Agent or its nominee and to the substitution of the Administrative Agent or its
nominee as a substituted partner in such partnership with all the rights, powers
and duties of a general partner or a limited partner, as the case may be. In the
case of each Grantor which is a member of a limited liability company, such
Grantor hereby consents to the extent required by the applicable limited
liability company agreement to the pledge by each other Grantor, pursuant to the
terms hereof, of the pledged limited liability company interests in such limited
liability company and to the transfer of such pledged limited liability company
interests to the Administrative Agent or its nominee and to the substitution of
the Administrative Agent or its nominee as a substituted member of the limited
liability company with all the rights, powers and duties of a member of the
limited liability company in question.

 

(f) No Grantor shall agree to any provision in, or amendment of, a limited
liability company agreement or partnership agreement that adversely affects the
perfection of the security interest of the Administrative Agent in any pledged
partnership interests or pledged limited liability company interests pledged by
such Grantor hereunder, including electing to treat the membership interest or
partnership interest of such Grantor as a security under Section 8-103 of the
UCC.

 

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5.19 Prior Action. Each Grantor hereby agrees and confirms that all stock
certificates, endorsements, stock powers and similar documents that have been
previously delivered to the Administrative Agent are deemed to be delivered in
connection with this Security Agreement and shall continue to be effective with
respect to the Liens granted under this Security Agreement.

 

SECTION 6. The Administrative Agent’s Appointment as Attorney-in-Fact.

 

(a) Subject to Section 6(b) below, each Grantor hereby irrevocably constitutes
and appoints the Administrative Agent, and any officer or agent thereof, with
full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in
the name of such Grantor or in its own name, from time to time at the
Administrative Agent’s discretion, for the purpose of carrying out the terms of
this Security Agreement, to take any and all appropriate action and to execute
and deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives the Administrative Agent
the power and right, on behalf of such Grantor, without notice to or assent by
such Grantor to do the following:

 

(i) to ask, demand, collect, receive and give acquittances and receipts for any
and all monies due or to become due under any Collateral and, in the name of
such Grantor, in its own name or otherwise to take possession of, endorse and
collect any checks, drafts, notes, acceptances or other Instruments for the
payment of monies due under any Collateral and to file any claim or to take or
commence any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Administrative Agent for the purpose of
collecting any and all such monies due under any Collateral whenever payable;

 

(ii) to pay or discharge any Liens, including, without limitation, any tax lien,
levied or placed on or threatened against the Collateral, to effect any repairs
or any insurance called for by the terms of this Security Agreement and to pay
all or any part of the premiums therefor and the costs thereof, which actions
shall be for the benefit of the Administrative Agent and not any Grantor; and

 

(iii) to (1) direct any person liable for any payment under or in respect of any
of the Collateral to make payment of any and all monies due or to become due
thereunder directly to the Administrative Agent or as the Administrative Agent
shall direct, (2) receive payment of any and all monies, claims and other
amounts due or to become due at any time arising out of or in respect of any
Collateral, (3) sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against Grantors, assignments,
verifications and notices in connection with Accounts and other Instruments and
Documents constituting or relating to the Collateral, (4) commence and prosecute
any suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral, (5) defend any suit, action or
proceeding brought against any Grantor with respect to any Collateral, (6)
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, give such discharges or releases as the Administrative
Agent may deem appropriate, (7) sell, transfer, pledge, make any agreement with
respect to or otherwise deal with

 

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any of the Collateral as fully and completely as though the Administrative Agent
were the absolute owner thereof for all purposes, and to do, at the
Administrative Agent’s option and the Grantors’ expense, at any time, or from
time to time, all acts and things which the Administrative Agent may reasonably
deem necessary to protect, preserve or realize upon the Collateral and the
Administrative Agent’s security interest therein in order to effect the intent
of this Security Agreement, all as fully and effectively as Grantors might do.

 

(b) The Administrative Agent agrees that, except upon the occurrence and during
the continuation of an Event of Default, it shall not exercise the power of
attorney or any rights granted to the Administrative Agent pursuant to this
Section 6. Each Grantor hereby ratifies, to the extent not prohibited by law,
all that said attorney shall lawfully do or cause to be done by virtue hereof.
The power of attorney granted pursuant to this Section 6 is a power coupled with
an interest and shall be irrevocable until the Secured Obligations are
completely and paid and performed in full.

 

(c) The powers conferred on the Administrative Agent hereunder are solely to
protect the Administrative Agent’s interests in the Collateral and shall not
impose any duty upon the Administrative Agent to exercise any such powers.
Except to the extent Section 9207 of the UCC imposes a duty or a duty is
otherwise imposed by applicable law, the Administrative Agent shall have no duty
as to any Collateral, including any responsibility for (a) taking any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any Collateral or (b) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Investment Property, whether or not the Administrative Agent has or is deemed to
have knowledge of such matters. Without limiting the generality of the preceding
sentence, the Administrative Agent shall be deemed to have exercised reasonable
care in the custody and preservation of any of the Collateral if it takes such
action for that purpose as any Grantor reasonably requests in writing at times
other than upon the occurrence and during the continuance of any Event of
Default. Failure of the Administrative Agent to comply with any such request at
any time shall not in itself be deemed a failure to exercise reasonable care.
The Administrative Agent shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees, agents or representatives shall be
responsible to the Grantors for any act or failure to act, except for its or
their own gross negligence or willful misconduct.

 

(d) Each Grantor also authorizes the Administrative Agent, at any time and from
time to time upon the occurrence and during the continuation of any Event of
Default, to (i) communicate in its own name with any party to any Contract with
regard to the assignment of the right, title and interest of any Grantor in and
under the Contracts hereunder and other matters relating thereto and (ii)
execute, in connection with the sale of Collateral provided for in Section 7,
below, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.

 

(e) If any Grantor fails to perform or comply with any of its agreements
contained herein and the Administrative Agent, as provided for by the terms of
this Security Agreement, shall perform or comply, or otherwise cause performance
or compliance, with such agreement, the reasonable expenses, including
attorneys’ fees and costs, of the Administrative Agent incurred in connection
with such performance or compliance, together

 

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with interest thereon at a rate of interest equal to the per annum rate of
interest charged on the Advances, shall be payable by the Grantors to the
Administrative Agent within five (5) Banking Days of demand and shall constitute
Secured Obligations secured hereby.

 

SECTION 7. Rights and Remedies Upon Event of Default.

 

(a) If any Event of Default shall occur and be continuing, the Administrative
Agent may exercise, in addition to all other rights and remedies granted to it
under this Security Agreement, the Credit Agreement, the other Loan Documents
and under any other instrument or agreement securing, evidencing or relating to
the Secured Obligations, all rights and remedies of a secured party under
applicable law, including, without limitation, the UCC. Without limiting the
generality of the foregoing, each Grantor expressly agrees that in any such
event the Administrative Agent, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon the Grantors or any other person
(all and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent not prohibited by the UCC and other applicable
law), shall have the right to collect the Proceeds from all Collateral
(including, without limitation, dividends or distributions on Pledged
Collateral) and may (i) reclaim, take possession, recover, store, maintain,
finish, repair, prepare for sale or lease, ship, advertise for sale or lease and
sell or lease (in the manner provided for herein) the Collateral, and in
connection with liquidation of the Collateral and collection of the accounts
receivable pledged as Collateral, use any trademark, trade name, trade style,
copyright, or process used or owned by any Grantor; (ii) forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase or sell
or otherwise dispose of and deliver said Collateral (or contract to do so), or
any part thereof, in one or more parcels at public or private sale or sales, at
any exchange or broker’s board or at any of the Administrative Agent’s offices
or elsewhere at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk and (iii) exercise (A) all
voting, consent, corporate and other rights pertaining to the Pledged Collateral
at any meeting of shareholders, partners or members, as the case may be, of the
relevant issuer or issuers of Pledged Collateral or otherwise and (B) any and
all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to the Pledged Collateral as if it were the
absolute owner thereof (including the right to exchange at its discretion any
and all of the Pledged Collateral upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any issuer of securities pledged hereunder, the right to deposit
and deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall have no duty to any Grantor to exercise any such right, privilege or
option and shall not be responsible for any failure to do so or delay in so
doing. Each Grantor authorizes the Administrative Agent, on the terms set forth
in this Section 7, to enter the premises where the Collateral is located, to
take possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or lien which, in the opinion of
the Administrative Agent, appears to be prior or superior to its security
interest. The Administrative Agent shall have the right upon any such public
sale or sales, and, to the extent not prohibited by law, upon any such private
sale or sales, to purchase the whole or any part of said Collateral so sold,
free of any right or equity of

 

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redemption, which equity of redemption each Grantor hereby releases. The
Administrative Agent may sell the Collateral without giving any warranties as to
the Collateral and may specifically disclaim any warranties of title, which
procedures shall not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral. Subject to applicable law, each
Grantor further agrees, at the Administrative Agent’s request, to assemble the
Collateral and make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at any Grantor’s premises
or elsewhere. The Administrative Agent shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale as provided in
Section 7(g), below, and Grantors shall remain liable for any deficiency
remaining unpaid after such application, and only after so paying over such net
proceeds and after the payment by the Administrative Agent of any other amount
required by any provision of law, including Section 9608(a)(1)(C) of the UCC (or
any other then applicable provision of the UCC), need the Administrative Agent
account for the surplus, if any, to the Grantors. To the maximum extent not
prohibited by applicable law, each Grantor waives all claims, damages, and
demands against the Administrative Agent arising out of the repossession,
retention or sale of the Collateral except such as arise out of the gross
negligence or willful misconduct of the Administrative Agent. Each Grantor
agrees that the Administrative Agent need not give more than ten (10) days’
prior written notice (which notification shall be given in accordance with the
Credit Agreement) of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. Grantors shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all Secured Obligations, and Grantors shall also be liable for the
attorneys’ fees or costs of any attorneys employed by the Administrative Agent
to collect such deficiency.

 

(b) As to any Collateral constituting certificated securities or uncertificated
securities, if, at any time when the Administrative Agent shall determine to
exercise its right to sell the whole or any part of such Collateral hereunder,
such Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under Securities Act of 1933, as amended
(as so amended the “Act”), the Administrative Agent may, in its discretion
(subject only to applicable requirements of law), sell such Collateral or part
thereof by private sale in such manner and under such circumstances as the
Administrative Agent may deem necessary or advisable, but subject to the other
requirements of this Section 7(b), and shall not be required to effect such
registration or cause the same to be effected. Without limiting the generality
of the foregoing, in any such event the Administrative Agent may, in its sole
discretion, (i) in accordance with applicable securities laws, proceed to make
such private sale notwithstanding that a registration statement for the purpose
of registering such Collateral or part thereof could be or shall have been filed
under the Act; (ii) approach and negotiate with a single possible purchaser to
effect such sale; and (iii) restrict such sale to a purchaser who will represent
and agree that such purchaser is purchasing for its own account, for investment,
and not with a view to the distribution or sale of such Collateral or part
thereof. In addition to a private sale as provided above in this Section 7(b),
if any of such Collateral shall not be freely distributable to the public
without registration under the Act at the time of any proposed sale hereunder,
then the Administrative Agent shall not be required to effect such registration
or cause the same to be effected but may, in its sole discretion (subject only
to applicable requirements of law), require that any sale hereunder (including a
sale at auction) be conducted subject to such restrictions as the Administrative
Agent may, in its sole discretion, deem

 

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necessary or appropriate in order that such sale (notwithstanding any failure so
to register) may be effected in compliance with the Bankruptcy Code and other
laws affecting the enforcement of creditors’ rights and the Act and all
applicable state securities laws. In order to permit the Administrative Agent to
exercise the voting and other consensual rights which it may be entitled to
exercise pursuant hereto and to receive all dividends and other distributions
which it may be entitled to receive hereunder, (i) each Grantor shall promptly
execute and deliver (or cause to be executed and delivered) to the
Administrative Agent all such proxies, dividend payment orders and other
instruments as the Administrative Agent may from time to time reasonably request
and (ii) without limiting the effect of clause (i) above, such Grantor hereby
grants to the Administrative Agent an irrevocable proxy to vote all or any part
of the Pledged Collateral and to exercise all other rights, powers, privileges
and remedies to which a holder of the Pledged Collateral would be entitled
(including giving or withholding written consents of shareholders, partners or
members, as the case may be, calling special meetings of shareholders, partners
or members, as the case may be, and voting at such meetings), which proxy shall
be effective, automatically and without the necessity of any action (including
any transfer of any Pledged Collateral on the record books of the issuer
thereof) by any other person (including the issuer of such Pledged Collateral or
any officer or agent thereof) during the continuance of an Event of Default and
which proxy shall terminate upon the earlier of the payment in full of the
Secured Obligations or the cure or waiver of the Event of Default. Each Grantor
hereby expressly authorizes and instructs each issuer of any Pledged Collateral
pledged hereunder by such Grantor to (i) comply with any instruction received by
it from the Administrative Agent in writing that (A) states that an Event of
Default has occurred and is continuing and (B) is otherwise in accordance with
the terms of this Security Agreement, without any other or further instructions
from such Grantor, and each Grantor agrees that such issuer shall be fully
protected in so complying and (ii) unless otherwise expressly permitted hereby,
pay any dividends or other payments with respect to the Pledged Collateral
directly to the Administrative Agent.

 

(c) Each Grantor agrees that in any sale of any of such Collateral, whether at a
foreclosure sale or otherwise, the Administrative Agent is hereby authorized to
comply with any limitation or restriction in connection with such sale as it may
be advised by counsel is necessary in order to avoid any violation of applicable
law (including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications and restrict such prospective bidders and
purchasers to persons who will represent and agree that they are purchasing for
their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchaser by any governmental authority, and each Grantor further
agrees that such compliance shall not result in such sale being considered or
deemed not to have been made in a commercially reasonable manner, nor shall the
Administrative Agent be liable nor accountable to any Grantor for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.

 

(d) Each Grantor also agrees to pay all reasonable fees, costs and expenses of
the Administrative Agent, including, without limitation, attorneys’ fees and
costs, incurred in connection with the enforcement of any of its rights and
remedies hereunder.

 

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(e) Each Grantor hereby waives presentment, demand, protest or any notice (to
the maximum extent not prohibited by applicable law) of any kind in connection
with this Security Agreement or any Collateral.

 

(f) Each Grantor agrees that a breach of any covenants contained in this Section
7 will cause irreparable injury to the Administrative Agent, that in such event
the Administrative Agent would have no adequate remedy at law in respect of such
breach and, as a consequence, agrees that in such event each and every covenant
contained in this Section 7 shall be specifically enforceable against the
Grantors, and each Grantor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that the Secured Obligations are not then due and payable.

 

(g) The proceeds of any sale, disposition or other realization upon all or any
part of the Collateral shall be distributed by the Administrative Agent in the
following order of priorities:

 

First, to the Administrative Agent in an amount sufficient to pay in full the
costs and expenses of the Administrative Agent in connection with such sale,
disposition or other realization, including all fees, costs, expenses,
liabilities and advances incurred or made by the Administrative Agent in
connection therewith, including, without limitation, attorneys’ fees and costs;

 

Second, to the Lenders in an amount equal to accrued interest then due and
payable under this Security Agreement and the other Loan Documents;

 

Third, pari passu and ratably, to (i) the Lenders in an amount equal to the
principal amount of the outstanding Advances and to cash collateralize the
remaining Obligations in connection with Letters of Credit on a pro rata basis
in accordance with the then outstanding principal amount of the Advances and
Obligations in connection with Letters of Credit (with the portion allocated to
the Advances, Swing Line Loans and Obligations in connection with Letters of
Credit to be applied first to repay the Swing Line Loans in full, second to
repay the remaining Advances in full and then to cash collateralize the Secured
Obligations in an amount equal to the then Aggregate Effective Amount of all
Obligations in connection with Letters of Credit) and (ii) to the Lender(s) (as
that Term is defined in the Credit Agreement) or their Affiliates to whom
obligations are owed in connection with any Lender Interest Rate Protection
Agreements to the extent of the associated Termination Value of such Lender
Interest Rate Protection Agreement, and such proceeds will not be applied to the
extent of any excess obligations in connection with any Lender Interest Rate
Protection Agreement, until the Secured Obligations (other than obligations
under this clause (ii)) have been paid in full and the Commitments have been
terminated;

 

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Fourth, to the Lenders (as that term is defined in the Credit Agreement) in an
amount equal to any other Secured Obligations (including obligations of the
Company under Lender Interest Rate Protection Agreements) which are then unpaid;
and

 

Finally, upon payment in full of all of the Secured Obligations, to the Persons
legally entitled thereto.

 

(h) The Administrative Agent agrees (i) not give any instructions pursuant to a
Control Agreement regarding the withdrawal or other disposition of any funds or
investment property in an account that is subject to such Control Agreement
unless an Event of Default has occurred and is continuing and (ii) to rescind or
revoke any such instructions within a reasonable time after the cure or waiver
of such Event of Default so long as no other Event of Default has occurred and
is continuing at such time.

 

SECTION 8. Limitation on the Administrative Agent’s Duty in Respect of
Collateral. The Administrative Agent shall be deemed to have acted reasonably in
the custody, preservation and disposition of any of the Collateral if it
complies with the obligations of a secured party under Section 9207 of the UCC
(or any other then applicable successor provision of the UCC).

 

SECTION 9. Reinstatement. If this Security Agreement terminates pursuant to its
terms or applicable law and if at any time thereafter payment or performance of
the Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a result of any proceedings in
bankruptcy, reorganization, a “voidable preference,” a “fraudulent conveyance,”
or otherwise, then this Security Agreement shall be reinstated and be in full
force and effect all as though such payment or performance had not been made and
each Grantor agrees that it will indemnify the Administrative Agent and each
Lender on demand for all costs and expenses (including fees and expenses of
counsel) incurred by the Administrative Agent or such Lender in connection with
such rescission, restoration or return. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.

 

SECTION 10. Miscellaneous.

 

10.1 Notices. Except as otherwise specified herein, all notices, requests,
demands, consents, instructions or other communications to or upon the Grantors
(care of the Company) or the Administrative Agent under this Security Agreement
shall be given as provided in Section 11.6 of the Credit Agreement.

10.2 Partial Invalidity. If at any time any provision of this Security Agreement
is or becomes illegal, invalid or unenforceable in any respect under the law of
any jurisdiction, neither the legality, validity or enforceability of the
remaining provisions of this Security Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.

 

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10.3 Headings. The section headings and captions appearing in this Security
Agreement are included solely for convenience of reference and are not intended
to affect the interpretation of any provision of this Security Agreement.

 

10.4 No Waiver; Cumulative Remedies.

 

(a) The Administrative Agent shall not by any act, delay, omission or otherwise
be deemed to have waived any of its rights or remedies hereunder or under the
Credit Agreement or the other Loan Documents, nor shall any single or partial
exercise of any right or remedy hereunder or thereunder on any one or more
occasions preclude the further exercise thereof or the exercise of any other
right or remedy under any of the Loan Documents.

 

(b) The rights and remedies hereunder provided or provided under the Credit
Agreement or the other Loan Documents are cumulative and may be exercised singly
or concurrently, and are not exclusive of any rights and remedies provided by
law or by any of the other Loan Documents.

 

(c) None of the terms or provisions of this Security Agreement may be waived,
altered, modified or amended except by an instrument in writing, duly executed
by each Grantor and the Administrative Agent. Unless otherwise specified in any
such waiver or consent, a waiver or consent given hereunder shall be effective
only in the specific instance and for the specific purpose for which given.

 

10.5 Time is of the Essence. Time is of the essence for the performance of each
of the terms and provisions of this Security Agreement.

 

10.6 Termination of this Security Agreement. Subject to Section 9, above, this
Security Agreement shall terminate upon the full, complete and final payment of
the Secured Obligations and the termination of the Commitments under the Credit
Agreement.

 

10.7 Successors and Assigns. This Security Agreement and all obligations of the
Grantors hereunder shall be binding upon and inure to the benefit of the
successors and assigns of the Grantors, and shall, together with the rights and
remedies of the Administrative Agent hereunder, be binding upon and inure to the
benefit of the Administrative Agent, the Lenders and their respective successors
and assigns; except that no Grantor may assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Administrative
Agent and each Lender. Any assignment or transfer in violation of the foregoing
shall be null and void. The Lenders and the Administrative Agent may disclose
this Security Agreement as provided in the Credit Agreement.

 

10.8 Further Indemnification. Without limiting the terms of the Loan Documents,
Company confirms that it is bound by Section 3.11 of the Credit Agreement in
connection with Other Taxes arising with respect to the Collateral, this
Security Agreement or any of the transactions contemplated by this Security
Agreement. Each Grantor (other than Company) agrees to be bound by Section 3.11
of the Credit Agreement to the same extent as Company in connection with Other
Taxes (as defined in the Credit Agreement) arising with respect to the
Collateral, this Security Agreement or any of the transactions contemplated by
this Security Agreement.

 

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10.9 Amendments, Etc. No amendment, modification, supplement, extension,
termination or waiver of any provision of this Security Agreement, no approval
or consent thereunder, and no consent to any departure by any Grantor therefrom,
may in any event be effective unless in writing signed by the Administrative
Agent with the written approval or at the request of the Requisite Lenders, and
then only in the specific instance and for the specific purpose given and any
such amendment, modification, supplement, extension, termination or waiver shall
be binding upon the Administrative Agent, each holder of Secured Obligations and
the Grantors; and, without the approval in writing of all the Lenders, no
amendment, modification, supplement, termination, waiver or consent may be
effective as to the matters set forth in the Credit Agreement.

 

10.10 ENTIRE AGREEMENT. THIS SECURITY AGREEMENT REPRESENTS THE COMPLETE AND
FINAL AGREEMENT AMONG THE GRANTORS AND THE ADMINISTRATIVE AGENT AND SUPERSEDES
ALL PRIOR AGREEMENTS, WRITTEN OR ORAL, ON THE SUBJECT MATTER HEREOF AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR
AMONG THE GRANTORS, THE ADMINISTRATIVE AGENT AND THE LENDERS. THE PARTIES HERETO
ACKNOWLEDGE THAT CONCURRENTLY WITH THE EXECUTION OF THIS SECURITY AGREEMENT, THE
GRANTORS AND THE ADMINISTRATIVE AGENT HAVE ENTERED INTO THAT CERTAIN SECURITY
AGREEMENT (INTELLECTUAL PROPERTY) DATED AS OF EVEN DATE HEREWITH (THE “SECURITY
AGREEMENT (INTELLECTUAL PROPERTY)”). THE PARTIES HERETO AGREE THAT IN THE EVENT
OF ANY CONFLICTS OR INCONSISTENCIES BETWEEN THE TERMS AND PROVISIONS OF THIS
SECURITY AGREEMENT AND THE TERMS AND PROVISIONS OF THE SECURITY AGREEMENT
(INTELLECTUAL PROPERTY) WITH RESPECT TO THE COLLATERAL DESCRIBED IN THE SECURITY
AGREEMENT (INTELLECTUAL PROPERTY), THE TERMS AND PROVISIONS OF THE SECURITY
AGREEMENT (INTELLECTUAL PROPERTY) SHALL APPLY AND CONTROL WITH RESPECT TO THE
COLLATERAL DESCRIBED IN THE SECURITY AGREEMENT (INTELLECTUAL PROPERTY) TO THE
EXTENT OF ANY SUCH CONFLICT OR INCONSISTENCY; PROVIDED THAT NO ASSIGNMENT,
CONVEYANCE, MORTGAGE, PLEDGE, GRANT, HYPOTHECATION OR TRANSFER BY ANY GRANTOR TO
THE ADMINISTRATIVE AGENT FOR ITSELF AND FOR THE PRO RATA BENEFIT OF THE LENDERS
OF ANY SECURITY INTEREST SHALL BE LIMITED, SUPERCEDED OR OTHERWISE AFFECTED BY
THIS SENTENCE OR ANY OTHER PROVISION OF THE LOAN DOCUMENTS.

 

10.11 Governing Law. This Security Agreement shall be governed by, construed and
enforced in accordance with, the internal law of the State of California except
that matters concerning the validity and perfection of a security interest shall
be governed by the conflict of law rules set forth in the UCC. Each Grantor
hereby consents to the application of California civil law to the construction,
interpretation and enforcement of this Security Agreement, and to the
application of California civil law to the procedural aspects of any suit,
action or proceeding relating thereto, including, but not limited to, legal
process, execution of judgments and other legal remedies.

 

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10.12 Counterparts. This Security Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
Transmission by telecopier of an executed counterpart of this Security Agreement
shall be deemed to constitute due and sufficient delivery of such counterpart.

 

10.13 Payments Free of Taxes, Etc. All payments made by the Grantors under this
Security Agreement shall be made by the Grantors free and clear of and without
deduction for any and all present and future taxes, levies, charges, deductions
and withholdings (except as otherwise provided in the Credit Agreement). In
addition, the Grantors shall pay upon demand any stamp or other taxes, levies or
charges of any jurisdiction with respect to the execution, delivery,
registration, performance and enforcement of this Security Agreement. Upon
request by the Administrative Agent, the Grantors shall furnish evidence
reasonably satisfactory to the Administrative Agent that all requisite
authorizations and approvals by, and notices to and filings with, governmental
authorities and regulatory bodies have been obtained and made and that all
requisite taxes, levies and charges have been paid.

 

10.14 The Grantors’ Continuing Liability. Notwithstanding any provision of this
Security Agreement or any other Loan Document or any exercise by the
Administrative Agent of any of its rights hereunder or thereunder (including,
without limitation, any right to collect or enforce any Collateral), (i) each
Grantor shall remain liable to perform its obligations and duties in connection
with the Collateral and (ii) neither the Administrative Agent nor any Lender
shall assume or be considered to have assumed any liability to perform such
obligations and duties or to enforce any of the Grantors’ rights in connection
with the Collateral.

 

10.15 Additional Grantors. If, pursuant to the terms and conditions of the
Credit Agreement, the Company shall be required to cause any Subsidiary of
Parent or Company that is not a Grantor to become a Grantor hereunder, such
Subsidiary shall execute and deliver to the Administrative Agent a Joinder
Agreement in the form of Annex 1 and shall thereafter for all purposes be a
party hereto and have the same rights, benefits and obligations as a Grantor
party hereto on the Closing Date.

 

[This Space Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the Grantors and the Administrative Agent have caused this
Security Agreement to be executed as of the day and year first above written.

 

WEST MARINE PRODUCTS, INC.,

a California corporation

By:

 

/s/ John Edmondson

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

   

Chief Executive Officer

   

[Printed Name & Title]

WEST MARINE, INC.,

a Delaware corporation

By:

 

/s/ John Edmondson

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

   

Chief Executive Officer

   

[Printed Name & Title]

WEST MARINE PUERTO RICO, INC.,

a California corporation

By:

 

/s/ John Edmondson

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

   

Chief Executive Officer

   

[Printed Name & Title]

W MARINE MANAGEMENT COMPANY, INC.,

a California corporation

By:

 

/s/ John Edmondson

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

   

Chief Executive Officer

   

[Printed Name & Title]

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

WEST MARINE LBC, INC.,

a California corporation

By:

 

/s/ John Edmondson

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

   

Chief Executive Officer

   

[Printed Name & Title]

WEST MARINE IHC I, INC.,

a California corporation

By:

 

/s/ John Edmondson

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

   

Chief Executive Officer

   

[Printed Name & Title]

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

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Administrative Agent

By:

 

/s/ Patrick Bishop

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

Name:

 

Patrick Bishop

Title:

 

Vice President

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

The schedules listed below have been omitted. A copy of the omitted schedules
will be furnished to the Securities and Exchange Commission upon their request.

 

Schedules

 

I. Collateral for Perfection by Possession

 

II. Letter-of-Credit Rights and Commercial Tort Claims

 

III. Deposit Accounts

 

IV. Securities Accounts

 

V. Legal name; jurisdiction of formation; books and records; location of
collateral

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

ANNEX 1

 

JOINDER AGREEMENT

 

This JOINDER AGREEMENT, dated as of             ,     , is delivered pursuant to
Section 10.15 of the Security Agreement dated as of October 14, 2004, by West
Marine Products, Inc. (the “Company”), and the Subsidiaries of the Company and
Parent from time to time party thereto as Grantors in favor of Wells Fargo Bank,
National Association, as administrative agent for the Lenders referred to
therein (the “Security Agreement”). Capitalized terms used herein but not
defined herein are used herein with the meaning given them in the Security
Agreement.

 

By executing and delivering this Joinder Agreement, the undersigned, as provided
in Section 10.15 of the Security Agreement, hereby becomes a party to the
Security Agreement as a Grantor thereunder with the same force and effect as if
originally named as a Grantor therein and, without limiting the generality of
the foregoing, as security for the full, prompt, complete and final payment when
due (whether at stated maturity, by acceleration or otherwise) and prompt
performance and observance of all the Secured Obligations of the undersigned,
the undersigned hereby assigns, conveys, mortgages, pledges, grants,
hypothecates and transfers to the Administrative Agent for itself and for the
pro rata benefit of the Lenders, on the terms and subject to the conditions of
the Security Agreement, a security interest in and to all of the undersigned’s
right, title and interest in, to and under the Collateral, whether now owned or
hereafter acquired by the undersigned or in which the undersigned now holds or
hereafter acquires any interest and expressly assumes all obligations and
liabilities of a Grantor thereunder.

 

The information set forth in Annex 1-A is hereby added to the information set
forth in Schedules I through V to the Security Agreement.

 

The undersigned hereby represents and warrants that each of the representations
and warranties contained in the Security Agreement applicable to it is true and
correct in all material respects on and as the date hereof as if made on and as
of such date.

 

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

 

[ADDITIONAL GRANTOR]

By:

 

 

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

Name:

   

Title:

   

 

ACKNOWLEDGED AND AGREED

as of the date of this Joinder Agreement

first above written.

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Administrative Agent

 

By:

 

 

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

Name:

   

Title: