Exhibit 10.17

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Security Agreement”) is made and entered into as
of February 17, 2006 by SONIC AUTOMOTIVE, INC., a Delaware corporation (the
“Company” and a “Grantor”), EACH OF THE UNDERSIGNED SUBSIDIARIES OF THE COMPANY
AND EACH OTHER PERSON WHO SHALL BECOME A PARTY HERETO BY EXECUTION OF A JOINDER
AGREEMENT (each a “Guarantor” and a “Grantor”, and collectively with the
Company, the “Grantors”), and BANK OF AMERICA, N.A., a national banking
association, as Administrative Agent (the “Administrative Agent”) for each of
the Lenders now or hereafter party to the Credit Agreement (as defined below)
(collectively with the Administrative Agent, and certain other Persons parties
to Related Swap Contracts as more particularly described in Section 21 hereof,
the “Secured Parties”) now or hereafter party to the Credit Agreement (as
defined below). All capitalized terms used but not otherwise defined herein or
pursuant to Section 1 hereof shall have the respective meanings assigned thereto
in the Credit Agreement (as defined below).

W I T N E S S E T H:

WHEREAS, the Secured Parties have agreed to provide to the Company and certain
Subsidiaries of the Company (the “New Vehicle Borrowers” and collectively with
the Company, the “Borrowers”) certain credit facilities, including, a revolving
credit facility with a letter of credit sublimit and a swing line sublimit, a
new vehicle floorplan facility with a swing line sublimit, and a used vehicle
floorplan facility with a swing line sublimit, pursuant to the terms of that
certain Credit Agreement dated as of the date hereof by and among the Borrowers,
the Administrative Agent and the Lenders party thereto (as from time to time
amended, restated, supplemented or otherwise modified, the “Credit Agreement”);
and

WHEREAS, as collateral security for payment and performance of the Obligations
and the obligations and liabilities of any Loan Party now existing or hereafter
arising under Related Swap Contracts, each Borrower is willing to grant to the
Administrative Agent for the benefit of the Secured Parties a security interest
in certain of its personal property and assets pursuant to the terms of this
Security Agreement; and

WHEREAS, as collateral security for payment and performance of the Obligations
(other than Obligations in respect of the New Vehicle Facility) and the
obligations and liabilities of any Loan Party now existing or hereafter arising
under Related Swap Contracts, each of the Persons set forth on Schedule 1
(collectively the “Silo Subsidiaries”, and each individually, a “Silo
Subsidiary”) is willing to grant to the Administrative Agent for the benefit of
the Secured Parties a security interest in certain of its personal property and
assets pursuant to the terms of this Security Agreement; and

WHEREAS, each Borrower will materially benefit from the Loans to be made, and
the Letters of Credit to be issued, under the Credit Agreement and each Borrower
is a party (as signatory or by joinder) to a Guaranty pursuant to which such
Borrower guarantees the Obligations of the other Borrowers; and

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WHEREAS, each Silo Subsidiary will materially benefit from the Loans to be made,
and the Letters of Credit to be issued, under the Credit Agreement and each Silo
Subsidiary is a party (as signatory or by joinder) to a Guaranty pursuant to
which such Guarantor guarantees the Obligations (other than Obligations in
respect of the New Vehicle Facility) of the Borrowers; and

WHEREAS, as collateral security for payment and performance by each Guarantor of
its Guarantor’s Obligations (as defined in the Guaranty to which such Guarantor
is a party), and the payment and performance of its obligations and liabilities
(whether now existing or hereafter arising) hereunder or under any of the other
Loan Documents to which it is now or hereafter becomes a party, each Guarantor
is willing to grant to the Administrative Agent for the benefit of the Secured
Parties a security interest in certain of its personal property and assets
pursuant to the terms of this Security Agreement; and

WHEREAS, the Secured Parties are unwilling to enter into the Loan Documents
unless the Borrowers and the Guarantors enter into this Security Agreement;

NOW, THEREFORE, in order to induce the Secured Parties to enter into the Loan
Documents and to make Loans and issue Letters of Credit, and in further
consideration of the premises and the mutual covenants contained herein, the
parties hereto agree as follows:

1. Certain Definitions. Terms used in this Security Agreement, not otherwise
expressly defined herein or in the Credit Agreement, and for which meanings are
provided in the Uniform Commercial Code of the State of North Carolina (the
“UCC”), shall have such meanings. The term “Qualifying Control Agreement” shall
have the meaning set forth on Schedule 2 hereto.

2. Grant of Security Interest. Each Borrower hereby grants as collateral
security for the payment, performance and satisfaction of all of its Obligations
and the obligations and liabilities of any Loan Party now existing or hereafter
arising under Related Swap Contracts, and each Silo Subsidiary hereby grants as
collateral security for the payment, performance and satisfaction of all of its
Guarantor’s Obligations (as defined in its Guaranty) and the payment and
performance of its obligations and liabilities (whether now existing or
hereafter arising) hereunder or under any of the other Loan Documents to which
it is now or hereafter becomes a party (such obligations and liabilities of the
Borrowers and the Silo Subsidiaries referred to collectively as the “Secured
Obligations”), to the Administrative Agent for the benefit of the Secured
Parties a continuing first priority security interest in and to, and
collaterally assigns to the Administrative Agent for the benefit of the Secured
Parties, all of the assets of such Grantor or in which such Grantor has or may
have or acquire an interest or the power to transfer rights therein, whether now
owned or existing or hereafter created, acquired or arising and wheresoever
located, including the following:

(a) All accounts, and including accounts receivable, contracts, bills,
acceptances, choses in action, and other forms of monetary obligations at any
time owing to such Grantor arising out of property sold, leased, licensed,
assigned or otherwise disposed of or for services rendered or to be rendered by
such Grantor, and all of such Grantor’s rights with respect to any property
represented thereby, whether or not delivered, property returned by customers
and all rights as an unpaid vendor or lienor,

 

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including rights of stoppage in transit and of recovering possession by
proceedings including replevin and reclamation (collectively referred to
hereinafter as “Accounts”);

(b) All new and used vehicle inventory (including all inventory consisting of
new or used automobiles or trucks with a gross vehicle weight of less than
16,000 pounds) in which such Grantor now or at any time hereafter may have an
interest, whether or not the same is in transit or in the constructive, actual
or exclusive occupancy or possession of such Grantor or is held by such Grantor
or by others for such Grantor’s account (all of the foregoing, collectively
referred to hereinafter as “Vehicle Inventory”);

(c) All other inventory, including all goods manufactured or acquired for sale
or lease, and any piece goods, raw materials, work in process and finished
merchandise, component materials, and all supplies, goods, incidentals, office
supplies, packaging materials and any and all items used or consumed in the
operation of the business of such Grantor or which may contribute to the
finished product or to the sale, promotion and shipment thereof, in which such
Grantor now or at any time hereafter may have an interest, whether or not the
same is in transit or in the constructive, actual or exclusive occupancy or
possession of such Grantor or is held by such Grantor or by others for such
Grantor’s account, (together with the Vehicle Inventory, collectively referred
to hereinafter as “Inventory”);

(d) All goods, including all machinery, equipment, motor vehicles, parts,
supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints,
fittings, furniture, furnishings, fixtures and articles of tangible personal
property of every description, and all computer programs embedded in any of the
foregoing and all supporting information relating to such computer programs
(collectively referred to hereinafter as “Equipment”);

(e) Any right of such Grantor in (i) contracts in transit relating to any
Vehicle Inventory (including any Vehicle Inventory that has been sold, leased or
otherwise disposed of by such Grantor), (ii) any written or oral agreement of
any finance company or other Person to provide financing for, or to pay all or
any portion of the purchase price of any Vehicle Inventory (including any
Vehicle Inventory that has been sold, leased or otherwise disposed of by such
Grantor) or (iii) any amount to be received under such contracts or agreements
(collectively referred to hereinafter as “Contracts In Transit”);

(f) All other general intangibles, including all rights now or hereafter
accruing to such Grantor under contracts, leases, agreements or other
instruments, including all contracts or contract rights to perform or receive
services, to purchase or sell goods (including the Vehicle Inventory) or to hold
or use land or facilities, and to enforce all rights thereunder, all causes of
action, corporate or business records, inventions, patents and patent rights,
rights in mask works, designs, trade names and trademarks and all goodwill
associated therewith, trade secrets, trade processes, copyrights, licenses,
permits, franchises, customer lists, computer programs and software, all
internet domain names and registration rights thereto, all internet websites and
the content thereof, all payment intangibles, all claims under guaranties, tax
refund claims, all rights and claims against carriers and shippers, leases, all
claims under insurance policies, all interests in general and limited
partnerships, limited liability companies, and other Persons not constituting
Investment Property (as defined below), all rights to indemnification and all

 

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other intangible personal property and intellectual property of every kind and
nature, (together with the Contracts-In-Transit, collectively referred to
hereinafter as “General Intangibles”);

(g) All deposit accounts, including demand, time, savings, passbook, or other
similar accounts maintained with any bank by or for the benefit of such Grantor
(collectively referred to hereinafter as “Deposit Accounts”);

(h) All chattel paper, including tangible chattel paper, electronic chattel
paper, or any hybrid thereof (collectively referred to hereinafter as “Chattel
Paper”);

(i) All investment property, including all securities, security entitlements,
securities accounts, commodity contracts and commodity accounts of or maintained
for the benefit of such Grantor, but excluding Pledged Interests subject to any
Pledge Agreement and the other property excluded by the proviso at the end of
this Section 2 (collectively referred to hereinafter as “Investment Property”);

(j) All instruments, including all promissory notes (collectively referred to
hereinafter as “Instruments”);

(k) All documents, including manufacturer statements of origin, certificates or
origin, and certificates of title or ownership relating to any Vehicle
Inventory, warehouse receipts, bills of lading and other documents of title
(collectively referred to hereinafter as “Documents”);

(l) All rights to payment or performance under letters of credit including
rights to proceeds of letters of credit (“Letter-of-Credit Rights”), and all
guaranties, endorsements, Liens, other Guarantee obligations or supporting
obligations of any Person securing or supporting the payment, performance, value
or liquidation of any of the foregoing (collectively, with Letter-of-Credit
Rights, referred to hereinafter as “Supporting Obligations”);

(m) The commercial tort claims identified on Schedule 9(i) hereto, as such
Schedule may be supplemented from time to time in accordance with the terms
hereof (collectively referred to hereinafter as “Commercial Tort Claims”);

(n) All books and records relating to any of the forgoing (including customer
data, credit files, ledgers, computer programs, printouts, and other computer
materials and records (and all media on which such data, files, programs,
materials and records are or may be stored)); and

(o) All proceeds, products and replacements of, accessions to, and substitutions
for, any of the foregoing, including without limitation (i) proceeds of
insurance policies insuring any of the foregoing;

All of the property and interests in property described in subsections
(a) through (o) are herein collectively referred to as the “Collateral.”
Notwithstanding the foregoing, the grant of a security interest and collateral
assignment under this Section 2 shall not extend to (A) any

 

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Franchise Agreement, Framework Agreement or similar manufacturer agreement to
the extent that any such Franchise Agreement, Framework Agreement or similar
manufacturer agreement is not assignable or capable of being encumbered as a
matter of law or by the terms applicable thereto (unless any such restriction on
assignment or encumbrance is ineffective under the UCC or other applicable law),
without the consent of the applicable party thereto or (B) the “Restricted
Eqiuty Interests” as such term is defined in that certain Escrow and Security
Agreement dated as of even date among the Administrative Agent, the Company and
the other Grantors from time to time party thereto to the extent that applicable
law or terms of the applicable Franchise Agreement, Framework Agreement or
similar manufacturer agreement would prohibit the pledge or encumbrance thereof
(unless any such restriction on assignment or encumbrance is ineffective under
the UCC or other applicable law), without the consent of the applicable party
thereto .

3. Perfection. As of the date of execution of this Security Agreement or Joinder
Agreement by each Grantor, as applicable (with respect to each Grantor, its
“Applicable Date”), such Grantor shall have:

(a) furnished the Administrative Agent with duly authorized financing statements
in form, number and substance suitable for filing, sufficient under applicable
law, and satisfactory to the Administrative Agent in order that upon the filing
of the same the Administrative Agent, for the benefit of the Secured Parties,
shall have a duly perfected security interest in all Collateral in which a
security interest can be perfected by the filing of financing statements;

(b) to the extent the Administrative Agent may request, made commercially
reasonable efforts to obtain and deliver to the Administrative Agent with
properly executed Qualifying Control Agreements, issuer acknowledgments of the
Administrative Agent’s interest in Letter-of-Credit Rights, and, to the extent
expressly required by the Credit Agreement, evidence of the placement of a
restrictive legend on tangible chattel paper (and the tangible components of
electronic Chattel Paper), and, to the extent expressly required by the Credit
Agreement, taken appropriate action acceptable to the Administrative Agent
sufficient to establish the Administrative Agent’s control of electronic Chattel
Paper (and the electronic components of hybrid Chattel Paper), as appropriate,
with respect to Collateral in which either (i) a security interest can be
perfected only by control or such restrictive legending, or (ii) a security
interest perfected by control or accompanied by such restrictive legending shall
have priority as against a lien creditor, a purchaser of such Collateral from
the applicable Grantor, or a security interest perfected by Persons not having
control or not accompanied by such restrictive legending, in each case in form
and substance acceptable to the Administrative Agent and sufficient under
applicable law so that the Administrative Agent, for the benefit of the Secured
Parties, shall have a security interest in all such Collateral perfected by
control; and

(c) to the extent the Administrative Agent may request, made commercially
reasonable efforts to deliver to the Administrative Agent or, if the
Administrative Agent shall specifically consent in each instance, an agent or
bailee of the Administrative Agent who has acknowledged such status in a
properly executed Qualifying Control Agreement possession of all Collateral with
respect to which either a security interest can be perfected only by possession
or a security interest perfected by possession shall have

 

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priority as against Persons not having possession, and including in the case of
Instruments, Documents, and Investment Property in the form of certificated
securities, duly executed endorsements or stock powers in blank, as the case may
be, affixed thereto in form and substance acceptable to the Administrative Agent
and sufficient under applicable law so that the Administrative Agent, for the
benefit of the Secured Parties, shall have a security interest in all such
Collateral perfected by possession;

with the effect that the Liens conferred in favor of the Administrative Agent
shall be and remain duly perfected and of first priority subject only, to the
extent applicable, to Liens allowed to exist and have priority under Section 7.1
of the Credit Agreement (“Permitted Liens”). All financing statements (including
all amendments thereto and continuations thereof), control agreements,
certificates, acknowledgments, stock powers and other documents, electronic
identification, restrictive legends, and instruments furnished in connection
with the creation, enforcement, protection, perfection or priority of the
Administrative Agent’s security interest in Collateral, including such items as
are described above in this Section 3, are sometimes referred to herein as
“Perfection Documents”. The delivery of possession of items of or evidencing
Collateral, causing other Persons to execute and deliver Perfection Documents as
appropriate, the filing or recordation of Perfection Documents, the
establishment of control over items of Collateral, and the taking of such other
actions as may be necessary or advisable in the determination of the
Administrative Agent to create, enforce, protect, perfect, or establish or
maintain the priority of, the security interest of the Administrative Agent for
the benefit of the Secured Parties in the Collateral is sometimes referred to
herein as “Perfection Action”.

4. Maintenance of Security Interest; Further Assurances.

(a) Each Grantor will from time to time at its own expense, deliver specific
assignments of Collateral or such other Perfection Documents, and take such
other or additional Perfection Action, as may be required by the terms of the
Loan Documents or as the Administrative Agent may reasonably request in
connection with the administration or enforcement of this Security Agreement or
related to the Collateral or any part thereof in order to carry out the terms of
this Security Agreement, to perfect, protect, maintain the priority of or
enforce the Administrative Agent’s security interest in the Collateral, subject
only to Permitted Liens, or otherwise to better assure and confirm unto the
Administrative Agent its rights, powers and remedies for the benefit of the
Secured Parties hereunder. Without limiting the foregoing, each Grantor hereby
irrevocably authorizes the Administrative Agent to file (with, or to the extent
permitted by applicable law, without the signature of the Grantor appearing
thereon) financing statements (including amendments thereto and initial
financing statements in lieu of continuation statements) or other Perfection
Documents (including copies thereof) showing such Grantor as “debtor” at such
time or times and in all filing offices as the Administrative Agent may from
time to time determine to be necessary or advisable to perfect or protect the
rights of the Administrative Agent and the Secured Parties hereunder, or
otherwise to give effect to the transactions herein contemplated, any of which
Perfection Documents may describe the Collateral as or including all assets of
the Grantor. Each Grantor hereby irrevocably ratifies and acknowledges the
Administrative Agent’s authority to have effected filings of Perfection
Documents made by the Administrative Agent prior to its Applicable Date.

 

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(b) With respect to any and all Collateral, each Grantor agrees to do and cause
to be done all things necessary to perfect, maintain the priority of and keep in
full force the security interest granted in favor of the Administrative Agent
for the benefit of the Secured Parties, including, but not limited to, the
prompt payment upon demand therefor by the Administrative Agent of all fees and
expenses (including documentary stamp, excise or intangibles taxes) incurred in
connection with the preparation, delivery, or filing of any Perfection Document
or the taking of any Perfection Action to perfect, protect or enforce a security
interest in Collateral in favor of the Administrative Agent for the benefit of
the Secured Parties, subject only to Permitted Liens. All amounts not so paid
when due shall constitute additional Secured Obligations and (in addition to
other rights and remedies resulting from such nonpayment) shall bear interest
from the date of demand until paid in full at the Default Rate.

(c) Each Grantor agrees to maintain among its books and records appropriate
notations or evidence of, and to make or cause to be made appropriate disclosure
upon its financial statements of, the security interest granted hereunder to the
Administrative Agent for the benefit of the Secured Parties.

(d) Each Grantor agrees that, in the event any proceeds (other than goods) of
Collateral shall be or become commingled with other property not constituting
Collateral, then such proceeds may, to the extent permitted by law, be
identified by application of the lowest intermediate balance rule to such
commingled property.

5. Receipt of Payment. In the event an Event of Default shall occur and be
continuing and a Grantor (or any of its Affiliates, subsidiaries, stockholders,
directors, officers, employees or agents) shall receive any proceeds of
Collateral, including without limitation monies, checks, notes, drafts or any
other items of payment, each Grantor shall hold all such items of payment in
trust for the Administrative Agent for the benefit of the Secured Parties, and
as the property of the Administrative Agent for the benefit of the Secured
Parties, separate from the funds and other property of such Grantor, and no
later than the first Business Day following the receipt thereof, at the election
of the Administrative Agent, such Grantor shall cause such Collateral to be
forwarded to the Administrative Agent for its custody, possession and
disposition on behalf of the Secured Parties in accordance with the terms hereof
and of the other Loan Documents.

6. Preservation and Protection of Collateral.

(a) The Administrative Agent shall be under no duty or liability with respect to
the collection, protection or preservation of the Collateral, or otherwise. Each
Grantor shall be responsible for the safekeeping of its Collateral, and in no
event shall the Administrative Agent have any responsibility for (i) any loss or
damage thereto or destruction thereof occurring or arising in any manner or
fashion from any cause, (ii) any diminution in the value thereof, or (iii) any
act or default of any carrier, warehouseman, bailee or forwarding agency thereof
or other Person in any way dealing with or handling such Collateral.

(b) Each Grantor shall keep and maintain its tangible personal property
Collateral in good operating condition and repair, ordinary wear and tear
excepted. No

 

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Grantor shall permit any such items having an aggregate value in excess of
$1,000,000 to become a fixture to real property (unless such Grantor has granted
the Administrative Agent for the benefit of the Secured Parties a Lien on such
real property having a priority acceptable to the Administrative Agent or the
Grantor has excluded such fixtures from the Revolving Borrowing Base) or
accessions to other personal property.

(c) Each Grantor agrees (i) to pay prior to delinquency all taxes, charges and
assessments against the Collateral in which it has any interest, unless being
contested in good faith by appropriate proceedings diligently conducted and
against which adequate reserves have been established in accordance with GAAP
applied on a basis consistent with the application of GAAP in the Audited
Financial Statements and evidenced to the satisfaction of the Administrative
Agent and provided that all enforcement proceedings in the nature of levy or
foreclosure are effectively stayed, and (ii) to cause to be terminated and
released all Liens (other than Permitted Liens) on the Collateral. Upon the
failure of any Grantor to so pay or contest such taxes, charges, or assessments,
or cause such Liens to be terminated, the Administrative Agent at its option may
pay or contest any of them or amounts relating thereto (the Administrative Agent
having the sole right to determine the legality or validity and the amount
necessary to discharge such taxes, charges, Liens or assessments) but shall not
have any obligation to make any such payment or contest. All sums so disbursed
by the Administrative Agent, including fees, charges and disbursements of
counsel (“Attorney Costs”), court costs, expenses and other charges related
thereto, shall be payable on demand by the applicable Grantor to the
Administrative Agent and shall be additional Secured Obligations secured by the
Collateral, and any amounts not so paid on demand (in addition to other rights
and remedies resulting from such nonpayment) shall bear interest from the date
of demand until paid in full at the Default Rate.

7. Status of Grantors and Collateral Generally. Each Grantor represents and
warrants to, and covenants with, the Administrative Agent for the benefit of the
Secured Parties, with respect to itself and the Collateral as to which it has or
acquires any interest, that:

(a) It is at its Applicable Date (or as to Collateral acquired after its
Applicable Date will be upon the acquisition of the same) and, except as
permitted by the Credit Agreement and subsection (b) of this Section 7, will
continue to be, the owner of the Collateral, free and clear of all Liens, other
than the security interest hereunder in favor of the Administrative Agent for
the benefit of the Secured Parties and Permitted Liens, and that it will at its
own cost and expense defend such Collateral and any products and proceeds
thereof against all claims and demands of all Persons (other than holders of
Permitted Liens) to the extent of their claims permitted under the Credit
Agreement at any time claiming the same or any interest therein adverse to the
Secured Parties. Upon the failure of any Grantor to so defend, the
Administrative Agent may do so at its option but shall not have any obligation
to do so. All sums so disbursed by the Administrative Agent, including
reasonable Attorney Costs, court costs, expenses and other charges related
thereto, shall be payable on demand by the applicable Grantor to the
Administrative Agent and shall be additional Secured Obligations secured by the
Collateral, and any amounts not so paid on demand (in addition to other rights
and remedies resulting from such nonpayment) shall bear interest from the date
of demand until paid in full at the Default Rate.

 

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(b) It shall not (i) sell, assign, transfer, lease, license or otherwise dispose
of any of, or grant any option with respect to, the Collateral, except for
Dispositions permitted under the Credit Agreement, (ii) create or suffer to
exist any Lien upon or with respect to any of the Collateral except for the
security interests created by this Security Agreement and Permitted Liens, or
(iii) take any other action in connection with any of the Collateral that would
materially impair the value of the interest or rights of such Grantor in the
Collateral taken as a whole or that would materially impair the interest or
rights of the Administrative Agent for the benefit of the Secured Parties.

(c) It has full power, legal right and lawful authority to enter into this
Security Agreement (and any Joinder Agreement applicable to it) and to perform
its terms, including the grant of the security interests in the Collateral
herein provided for.

(d) No authorization, consent, approval or other action by, and no notice to or
filing with, any Governmental Authority or any other Person which has not been
given or obtained, as the case may be, is required either (i) for the grant by
such Grantor of the security interests granted hereby or for the execution,
delivery or performance of this Security Agreement (or any Joinder Agreement) by
such Grantor, or (ii) for the perfection of or the exercise by the
Administrative Agent, on behalf of the Secured Parties, of its rights and
remedies hereunder, except for action required by the Uniform Commercial Code to
perfect and exercise remedies with respect to the security interest conferred
hereunder.

(e) No effective financing statement or other Perfection Document similar in
effect, nor any other Perfection Action, covering all or any part of the
Collateral purported to be granted or taken by or on behalf of such Grantor (or
by or on behalf of any other Person and which remains effective as against all
or any part of the Collateral) has been filed in any recording office, delivered
to another Person for filing (whether upon the occurrence of a contingency or
otherwise), or otherwise taken, as the case may be, except such as pertain to
Permitted Liens and such as may have been filed for the benefit of, delivered
to, or taken in favor of, the Administrative Agent for the benefit of the
Secured Parties in connection with the security interests conferred hereunder.

(f) Schedule 7(f) attached hereto contains true and complete information as to
each of the following: (i) the exact legal name of each Grantor as it appears in
its Organization Documents as of its Applicable Date and at any time during the
five (5) year period ending as of its Applicable Date (the “Covered Period”),
(ii) the jurisdiction of formation and form of organization of each Grantor, and
the identification number of such Grantor in its jurisdiction of formation (if
any), (iii) each address of the chief executive office of each Grantor as of its
Applicable Date and at any time during the Covered Period, (iv) all trade names
or trade styles used by such Grantor as of its Applicable Date and at any time
during the Covered Period, (v) the address of each location of such Grantor at
which any tangible personal property Collateral (including Account Records and
Account Documents) is located at its Applicable Date or has been located at any
time during the Covered Period, (vi) with respect to each location described in
clause (v) that is not owned beneficially and of record by such Grantor, the
name and address of the owner thereof; and (vii) the name of each Person other
than such Grantor and the address of such Person at which any tangible personal
property Collateral

 

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of such Grantor is held under any warehouse, consignment, bailment or other
arrangement as of its Applicable Date. No Grantor shall change its name, change
its jurisdiction of formation (whether by reincorporation, merger or otherwise),
change the location of its chief executive office, or utilize any additional
location where tangible personal property Collateral (including Account Records
and Account Documents) may be located, except in each case upon giving not less
than thirty (30) days’ prior written notice to the Administrative Agent and
taking or causing to be taken at such Grantor’s expense all such Perfection
Action, including the delivery of such Perfection Documents, as may be
reasonably requested by the Administrative Agent to perfect or protect, or
maintain the perfection and priority of, the Lien of the Administrative Agent
for the benefit of the Secured Parties in Collateral contemplated hereunder.

(g) No Grantor shall engage in any consignment transaction in respect of any of
the Collateral, whether as consignee or consignor.

(h) No Grantor shall cause, suffer or permit any of the tangible personal
property Collateral (i) to be evidenced by any document of title (except for
shipping documents as necessary or customary to effect the receipt of such
Collateral or the delivery of such Collateral to such Grantor or to customers,
in each case in the ordinary course of business, and motor vehicle certificates
of title) or (ii) to be in the possession, custody or control of any
warehouseman or other bailee (except pursuant to Section 6.13 of the Credit
Agreement) unless (x) such location and Person are set forth on Schedule 7(f) or
the Administrative Agent shall have received not less than thirty (30) days’
prior written notice of each such transaction, (y) the Administrative Agent
shall have received, upon its request, a duly executed Qualifying Control
Agreement from such warehouseman or bailee, and (z) the Grantor shall have
caused at its expense to be prepared and executed such additional Perfection
Documents and to be taken such other Perfection Action as the Administrative
Agent may deem necessary or advisable to carry out the transactions contemplated
by this Security Agreement.

(i) No tangible personal property Collateral is or shall be located at any
location that is leased by such Grantor from any other Person, unless (x) such
location and lessor is set forth on Schedule 6.13 of the Credit Agreement (as
such Schedule may be revised from time to time in accordance with the Credit
Agreement), (y) at the request of the Administrative Agent, such Grantor uses
commercially reasonable efforts (and provides evidence of such efforts) to cause
such lessor within 90 days of the Applicable Date to acknowledge the Lien in
favor of the Administrative Agent for the benefit of the Secured Parties
conferred hereunder and waives its statutory and consensual liens and rights
with respect to such Collateral in form and substance acceptable to the
Administrative Agent and delivered in writing to the Administrative Agent prior
to any Collateral being located at any such location, and (z) the Grantor shall
have caused at its expense to be prepared and executed such additional
Perfection Documents and to be taken such other Perfection Action as the
Administrative Agent may deem necessary or advisable to carry out the
transactions contemplated by this Security Agreement.

8. Inspection. The Administrative Agent (by any of its officers, employees and
agents), on behalf of the Secured Parties, shall have the right upon prior
notice to an executive officer of any Grantor, and at any reasonable times
during such Grantor’s usual business hours,

 

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to inspect the Collateral (including inspecting Vehicles and conducting random
samples of the Net Book Value of the Used Vehicles), all records related thereto
(and to make extracts or copies from such records), and the premises upon which
any of the Collateral is located, to discuss such Grantor’s affairs and finances
with any Person (other than Persons obligated on any Accounts (“Account
Debtors”) except as expressly otherwise permitted in the Loan Documents) and to
verify with any Person other than (except as expressly otherwise permitted in
the Loan Documents) Account Debtors the amount, quality, quantity, value and
condition of, or any other matter relating to, the Collateral and, if an Event
of Default has occurred and is continuing, to discuss such Grantor’s affairs and
finances with such Grantor’s Account Debtors and to verify the amount, quality,
value and condition of, or any other matter relating to, the Collateral with
such Account Debtors. Upon or after the occurrence and during the continuation
of an Event of Default, the Administrative Agent may at any time and from time
to time employ and maintain on such Grantor’s premises a custodian selected by
the Administrative Agent who shall have full authority to do all acts necessary
to protect the Administrative Agent’s (for the benefit of the Secured Parties)
interest. All expenses incurred by the Administrative Agent, on behalf of the
Secured Parties, by reason of the employment of such custodian shall be paid by
such Grantor on demand from time to time and shall be added to the Secured
Obligations secured by the Collateral, and any amounts not so paid on demand (in
addition to other rights and remedies resulting from such nonpayment) shall bear
interest from the date of demand until paid in full at the Default Rate.

9. Specific Collateral.

(a) Accounts. With respect to its Accounts whether now existing or hereafter
created or acquired and wheresoever located, each Grantor represents, warrants
and covenants to the Administrative Agent for the benefit of the Secured Parties
that:

(i) Such Grantor shall keep accurate and complete records of its Accounts
(“Account Records”) and from time to time, at the Administrative Agent’s
request, the Company shall provide the Administrative Agent with a schedule of
Accounts in excess of $1,000,000 in form and substance acceptable to the
Administrative Agent describing all Accounts created or acquired by all Grantors
(“Schedule of Accounts”); provided, however, that the Company’s failure to
execute and deliver any such Schedule of Accounts shall not affect or limit the
Administrative Agent’s security interest or other rights in and to any Accounts
for the benefit of the Secured Parties. If requested by the Administrative
Agent, each Grantor shall furnish the Administrative Agent with copies of proof
of delivery and other documents relating to the Accounts so scheduled, including
without limitation repayment histories and present status reports (collectively,
“Account Documents”) and such other matter and information relating to the
status of then existing Accounts as the Administrative Agent shall request.

(ii) All Account Records and Account Documents are and shall at all times be
located only at such Grantor’s current chief executive office as set forth on
Schedule 7(f) attached hereto, such other locations as are specifically
identified on Schedule 7(f) attached hereto as an “Account Documents location,”
or as to which the Grantor has complied with Section 7(f) hereof.

 

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(iii) The Accounts are genuine, are in all respects what they purport to be, are
not evidenced by an instrument or document or, if evidenced by an instrument or
document, are only evidenced by one original instrument or document.

(iv) The Accounts cover bona fide sales and deliveries of Inventory or sales,
leases, licenses or other dispositions of property usually dealt in by such
Grantor, or the rendition by such Grantor of services, to an Account Debtor in
the ordinary course of business.

(v) The amounts of the face value of any Account shown or reflected on any
Schedule of Accounts, invoice statement, or certificate delivered to the
Administrative Agent, are actually owing to the applicable Grantor and are not
contingent for any reason; and there are no setoffs, discounts, allowances,
claims, counterclaims or disputes of any kind or description in an amount
greater than $1,000,000 in the aggregate for all the Grantors, or greater than
$250,000 per Account, existing or asserted with respect thereto and such Grantor
has not made any agreement with any Account Debtor thereunder for any deduction
therefrom, except as may be stated in the Schedule of Accounts and reflected in
the calculation of the face value of each respective invoice related thereto.

(vi) Except for conditions generally applicable to such Grantor’s industry and
markets, there are no facts, events, or occurrences known to such Grantor
pertaining particularly to any Accounts which are reasonably expected to
materially impair in any way the validity, collectibility or enforcement of
Accounts that would reasonably be likely, in the aggregate, to be of material
economic value, or in the aggregate materially reduce the amount payable
thereunder from the amount of the invoice face value shown on any Schedule of
Accounts, or on any certificate, contract, invoice or statement delivered to the
Administrative Agent with respect thereto.

(vii) The property or services giving rise thereto are not, and were not at the
time of the sale or performance thereof, subject to any Lien, claim, encumbrance
or security interest, except those of the Administrative Agent for the benefit
of Secured Parties and Permitted Liens.

(viii) In the event any amounts due and owing in excess of $1,000,000 in the
aggregate, are in dispute between any Account Debtor and a Grantor (which shall
include without limitation any dispute in which an offset claim or counterclaim
may result), such Grantor shall provide the Administrative Agent with written
notice thereof as soon as practicable, explaining in detail the reason for the
dispute, all claims related thereto and the amount in controversy.

 

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(b) Inventory. With respect to its Inventory whether now existing or hereafter
created or acquired and wheresoever located, each Grantor represents, warrants
and covenants to the Administrative Agent for the benefit of the Secured Parties
that:

(i) Such Grantor shall (A) keep accurate and complete records itemizing and
describing (1) with respect to its Vehicle Inventory, each new and used vehicle,
including the year, make, model, cost, price, location and Vehicle
Identification Number, (2) with respect to all Inventory, the kind, type,
location and quantity of such Inventory, its cost therefor and the selling price
of Inventory held for sale, and the daily withdrawals therefrom and additions
thereto, and (B) furnish to the Administrative Agent from time to time, at the
Administrative Agent’s request, a current schedule of Inventory (including
Vehicle Inventory) based upon its most recent physical inventory and its daily
inventory records. Each Grantor shall conduct a physical inventory no less
frequently than annually, and shall furnish to the Administrative Agent such
other documents and reports thereof as the Administrative Agent shall reasonably
request with respect to the Inventory.

(ii) All Inventory (other than Vehicle Inventory) is and shall at all times be
located only at such Grantor’s locations as set forth on Schedule 7(f) attached
hereto, or at such other locations as to which such Grantor has complied with
Section 7(f) hereof. No Grantor shall, other than in the ordinary course of
business in connection with its sale, lease, license or other permitted
Disposition, remove any Inventory from such locations.

(iii) All Vehicle Inventory is and shall (except as set forth in Section 6.13 of
the Credit Agreement) at all times be located only at such Grantor’s locations
as set forth on Schedule 6.13 of the Credit Agreement (as such Schedule may be
revised from time to time in accordance with the terms of the Credit Agreement).
No Grantor shall, other than in the ordinary course of business in connection
with its sale, lease, license or other permitted Disposition, or as set forth in
Section 6.13 of the Credit Agreement, remove any Vehicle Inventory from such
locations.

(iv) If any Account Debtor returns any Inventory to a Grantor after shipment
thereof, and such return generates a credit in excess of $1,000,000 in the
aggregate on any Accounts of such Account Debtor, such Grantor shall notify the
Administrative Agent in writing of the same as soon as practicable.

(c) Equipment. With respect to its Equipment whether now existing or hereafter
created or acquired and wheresoever located, each Grantor represents, warrants
and covenants to the Administrative Agent for the benefit of the Secured Parties
that:

(i) Such Grantor, as soon as practicable following a request therefor by the
Administrative Agent during the continuance of an Event of Default, shall
deliver to the Administrative Agent any and all evidence of ownership of any of
the Equipment (including without limitation certificates of title and
applications for title).

(ii) Such Grantor shall maintain accurate, itemized records describing the kind,
type, quality, quantity and value of its Equipment and shall furnish the

 

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Administrative Agent upon request during the continuance of an Event of Default
with a current schedule containing the foregoing information, but, other than
during the continuance of an Event of Default, not more often than once per
fiscal quarter.

(iii) All Equipment is and shall at all times be located only at such Grantor’s
locations as set forth on Schedule 7(f) attached hereto or at such other
locations as to which such Grantor has complied with Section 7(f) hereof. No
Grantor shall, other than as expressly permitted under the Credit Agreement,
sell, lease, transfer, dispose of or, other than for repairs in the ordinary
course of such Grantor’s business, remove any Equipment from such locations.

(d) Supporting Obligations. With respect to its Supporting Obligations whether
now existing or hereafter created or acquired and wheresoever located, each
Grantor represents, warrants and covenants to the Administrative Agent for the
benefit of the Secured Parties that:

(i) Such Grantor shall (i) furnish to the Administrative Agent from time to time
at the Administrative Agent’s request, a current list identifying in reasonable
detail each Supporting Obligation relating to any Collateral from a single
obligor in excess of $1,000,000, and (ii) upon the request of the Administrative
Agent from time to time following the occurrence and during the continuance of
any Default or Event of Default, deliver to the Administrative Agent the
originals of all documents evidencing or constituting Supporting Obligations,
together with such other documentation (executed as appropriate by the Grantor)
and information as may be necessary to enable the Administrative Agent to
realize upon the Supporting Obligations in accordance with their respective
terms or transfer the Supporting Obligations as may be permitted under the Loan
Documents or by applicable law.

(ii) With respect to each letter of credit giving rise to Letter-of-Credit
Rights that has an aggregate stated amount available to be drawn in excess of
$500,000, such Grantor shall, at the request of the Administrative Agent cause
the issuer thereof to execute and deliver to the Administrative Agent a
Qualifying Control Agreement.

(iii) With respect to each transferable letter of credit giving rise to
Letter-of-Credit Rights that has an aggregate stated amount available to be
drawn in excess of $500,000, such Grantor shall, at the Administrative Agent’s
request upon and during the continuance of any Default or Event of Default,
deliver to the Administrative Agent a duly executed, undated transfer form in
blank sufficient in form and substance under the terms of the related letter of
credit to effect, upon completion and delivery to the letter of credit issuer
together with any required fee, the transfer of such letter of credit to the
transferee identified in such form. Each Grantor hereby expressly authorizes the
Administrative Agent following the occurrence and during the continuance of any
Event of Default to complete and tender each such transfer form as transferor in
its own name or in the name, place and stead of the Grantor in order to effect
any such transfer, either to the

 

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Administrative Agent or to another transferee, as the case may be, in connection
with any sale or other disposition of Collateral or for any other purpose
permitted under the Loan Documents or by applicable law.

(e) Investment Property. With respect to its Investment Property whether now
existing or hereafter created or acquired and wheresoever located, each Grantor
represents, warrants and covenants to the Administrative Agent for the benefit
of the Secured Parties that:

(i) Schedule 9(e) attached hereto contains a true and complete description of
(x) the name and address of each securities intermediary with which such Grantor
maintains a securities account in which Investment Property is or may at any
time be credited or maintained, and (y) all other Investment Property of such
Grantor other than interests in Subsidiaries in which such Grantor has granted a
Lien to the Administrative Agent for the benefit of the Secured Parties pursuant
to a Pledge Agreement.

(ii) Except with the express prior written consent of the Administrative Agent
in each instance, all Investment Property other than interests in Subsidiaries
in which such Grantor has granted a Lien to the Administrative Agent for the
benefit of the Secured Parties pursuant to a Pledge Agreement shall be
maintained at all times in the form of (a) certificated securities, which
certificates shall have been delivered to the Administrative Agent together with
duly executed undated stock powers endorsed in blank pertaining thereto, or
(b) security entitlements credited to one or more securities accounts as to each
of which the Administrative Agent has received (1) copies of the account
agreement between the applicable securities intermediary and the Grantor and the
most recent statement of account pertaining to such securities account (each
certified to be true and correct by an officer of the Grantor) and (2) upon the
request of the Administrative Agent, a Qualifying Control Agreement from the
applicable securities intermediary which remains in full force and effect and as
to which the Administrative Agent has not received any notice of termination.
Without limiting the generality of the foregoing, no Grantor shall cause, suffer
or permit any Investment Property to be credited to or maintained in any
securities account not listed on Schedule 9(e) attached hereto except in each
case upon giving not less than thirty (30) days’ prior written notice to the
Administrative Agent and taking or causing to be taken at such Grantor’s expense
all such Perfection Action, including the delivery of such Perfection Documents,
as may be reasonably requested by the Administrative Agent to perfect or
protect, or maintain the perfection and priority of, the Lien of the
Administrative Agent for the benefit of the Secured Parties in Collateral
contemplated hereunder.

(iii) All dividends and other distributions with respect to any of the
Investment Property shall be subject to the security interest conferred
hereunder, provided, however, that cash dividends paid to a Grantor as record
owner of the Investment Property may be disbursed to and retained by such
Grantor so long as no Default or Event of Default shall have occurred and be
continuing, free from any Lien hereunder.

 

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(iv) So long as no Default or Event of Default shall have occurred and be
continuing, the registration of Investment Property in the name of a Grantor as
record and beneficial owner shall not be changed and such Grantor shall be
entitled to exercise all voting and other rights and powers pertaining to
Investment Property for all purposes not inconsistent with the terms hereof or
of any Qualifying Control Agreement relating thereto.

(v) Upon the occurrence and during the continuance of any Default or Event of
Default, at the option of the Administrative Agent, all rights of the Grantors
to exercise the voting or consensual rights and powers which it is authorized to
exercise pursuant to clause (iv) immediately above shall cease and the
Administrative Agent may thereupon (but shall not be obligated to), at its
request, cause such Collateral to be registered in the name of the
Administrative Agent or its nominee or agent for the benefit of the Secured
Parties and/or exercise such voting or consensual rights and powers as appertain
to ownership of such Collateral, and to that end each Grantor hereby appoints
the Administrative Agent as its proxy, with full power of substitution, to vote
and exercise all other rights as a shareholder with respect to such Investment
Property upon the occurrence and during the continuance of any Default or Event
of Default, which proxy is coupled with an interest and is irrevocable until the
Facility Termination Date, and each Grantor hereby agrees to provide such
further proxies as the Administrative Agent may request; provided, however, that
the Administrative Agent in its discretion may from time to time refrain from
exercising, and shall not be obligated to exercise, any such voting or
consensual rights or such proxy.

(vi) Upon the occurrence and during the continuance of any Default or Event of
Default, all rights of the Grantors to receive and retain cash dividends and
other distributions upon or in respect to Investment Property pursuant to clause
(iii) above shall cease and shall thereupon be vested in the Administrative
Agent for the benefit of the Secured Parties, and each Grantor shall, or shall
cause, all such cash dividends and other distributions with respect to the
Investment Property to be promptly delivered to the Administrative Agent
(together, if the Administrative Agent shall request, with any documents related
thereto) to be held, released or disposed of by it hereunder or, at the option
of the Administrative Agent, to be applied to the Secured Obligations.

(f) Deposit Accounts. With respect to its Deposit Accounts whether now existing
or hereafter created or acquired and wheresoever located, each Grantor
represents, warrants and covenants to the Administrative Agent for the benefit
of the Secured Parties that:

(i) Schedule 9(f) attached hereto contains a true and complete description of
(x) the name and address of each depositary institution with which such Grantor
maintains a Deposit Account in which collected balances or deposits in excess of
$500,000 are or are reasonably expected by the Company at any time to be
credited or maintained.

 

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(ii) In the discretion and upon the request of the Administrative Agent, all
Deposit Accounts in which collected balances or deposits in excess of $500,000
are or are reasonably expected by the Company at any time to be credited or
maintained shall be maintained at all times with depositary institutions as to
which the Administrative Agent shall have received a Qualifying Control
Agreement. Without limiting the generality of the foregoing, no Grantor shall
cause, suffer or permit (x) any deposit in excess of $500,000 to be evidenced by
a certificate of deposit unless such certificate of deposit is a negotiable
instrument and immediately upon receipt thereof such certificate shall have been
delivered to the Administrative Agent, together with a duly executed undated
assignment in blank affixed thereto, or (y) any Deposit Account not listed on
Schedule 9(f) attached hereto in which collected balances or deposits in excess
of $500,000 are or are reasonably expected by the Company at any time to be
credited or maintained to be opened or maintained except in each case upon
giving not less than thirty (30) days’ prior written notice to the
Administrative Agent and taking or causing to be taken at such Grantor’s expense
all such Perfection Action, including the delivery of such Perfection Documents,
as may be reasonably requested by the Administrative Agent to perfect or
protect, or maintain the perfection and priority of, the Lien of the
Administrative Agent for the benefit of the Secured Parties in Collateral
contemplated hereunder.

(g) Chattel Paper. With respect to its Chattel Paper whether now existing or
hereafter created or acquired and wheresoever located, each Grantor represents,
warrants and covenants to the Administrative Agent for the benefit of the
Secured Parties that to the extent so expressly required by the Credit
Agreement:

(i) Such Grantor shall at all times retain sole physical possession of the
originals of all Chattel Paper (other than electronic Chattel Paper and the
electronic components of hybrid Chattel Paper); provided, however, that (x) upon
the request of the Administrative Agent upon the occurrence and during the
continuance of any Default or Event of Default, such Grantor shall immediately
deliver physical possession of such Chattel Paper to the Administrative Agent or
its designee, and (y) in the event that there shall be created more than one
original counterpart of any physical document that alone or in conjunction with
any other physical or electronic document constitutes Chattel Paper, then such
counterparts shall be numbered consecutively starting with “1” and such Grantor
shall retain the counterpart numbered “1”.

(ii) At the request of the Administrative Agent or upon the occurrence and
during the continuance of an Event of Default, such Grantor shall promptly and
conspicuously legend all counterparts of all tangible Chattel Paper as follows:
“A FIRST PRIORITY SECURITY INTEREST IN THIS CHATTEL PAPER HAS BEEN GRANTED TO
BANK OF AMERICA, N.A., FOR ITSELF AND AS ADMINISTRATIVE AGENT FOR CERTAIN
LENDERS PURSUANT TO A SECURITY AGREEMENT DATED AS OF FEBRUARY 17, 2006, AS
AMENDED FROM TIME TO TIME. NO SECURITY INTEREST OR OTHER INTEREST IN FAVOR OF
ANY OTHER PERSON MAY BE CREATED BY THE TRANSFER OF PHYSICAL POSSESSION OF THIS
CHATTEL PAPER

 

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OR OF ANY COUNTERPART HEREOF EXCEPT BY OR WITH THE CONSENT OF THE AFORESAID
ADMINISTRATIVE AGENT AS PROVIDED IN SUCH SECURITY AGREEMENT.” Upon the
occurrence or during the continuance of an Event of Default, such Grantor shall
not create or acquire any electronic Chattel Paper (including the electronic
components of hybrid Chattel Paper), unless, prior to such acquisition or
creation, it shall have taken such Perfection Action as the Administrative Agent
may require to perfect by control the security interest of the Administrative
Agent for the benefit of the Secured Parties in such Collateral.

(iii) Other than in the ordinary course of business and in keeping with
reasonable and customary practice, no Grantor shall amend, modify, waive or
terminate any provision of, or fail to exercise promptly and diligently each
material right or remedy conferred under or in connection with, any Chattel
Paper, in any case in such a manner as could reasonably be expected to
materially adversely affect the value of affected Chattel Paper as collateral.

(h) Instruments. With respect to its Instruments whether now existing or
hereafter created or acquired and wheresoever located, each Grantor represents,
warrants and covenants to the Administrative Agent for the benefit of the
Secured Parties that:

(i) Such Grantor shall (A) maintain at all times, and, upon request of the
Administrative Agent, furnish to the Administrative Agent a current list
identifying in reasonable detail Instruments of which such Grantor is the payee
or holder and having a face amount payable in excess of $1,000,000 in the
aggregate from any single Person, and (B) upon the request of the Administrative
Agent from time to time, deliver to the Administrative Agent the originals of
all such Instruments, together with duly executed undated endorsements in blank
affixed thereto and such other documentation and information as may be necessary
to enable the Administrative Agent to realize upon the Instruments in accordance
with their respective terms or transfer the Instruments as may be permitted
under the Loan Documents or by applicable law.

(ii) Other than in the ordinary course of business and in keeping with
reasonable and customary practice, no Grantor shall amend, modify, waive or
terminate any provision of, or fail to exercise promptly and diligently each
material right or remedy conferred under or in connection with, any Instrument,
in any case in such a manner as could reasonably be expected to materially
adversely affect the value of affected Instrument as collateral.

(i) Commercial Tort Claims. With respect to its Commercial Tort Claims whether
now existing or hereafter created or acquired and wheresoever located, each
Grantor represents, warrants and covenants to the Administrative Agent for the
benefit of the Secured Parties that:

(i) Schedule 9(i) attached hereto contains a true and complete list of all
Commercial Tort Claims in which any Grantor has an interest and which have been
identified by a Grantor as of its Applicable Date, and as to which the Grantor

 

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believes in good faith there exists the possibility of recovery (including by
way of settlement) of monetary relief in excess of $1,000,000 (“Grantor
Claims”). Each Grantor shall furnish to the Administrative Agent from time to
time upon its request a certificate of an officer of such Grantor referring to
this Section 9(i) and (x) identifying all Grantor Claims that are not then
described on Schedule 9(i) attached hereto and stating that each of such
additional Grantor Claims shall be deemed added to such Schedule 9(i) and shall
constitute a Commercial Tort Claim, a Grantor Claim, and additional Collateral
hereunder, and (y) summarizing the status or disposition of any Grantor Claims
that have been settled, or have been made the subject of any binding mediation,
judicial or arbitral proceeding, or any judicial or arbitral order on the
merits, or that have been abandoned. With respect to each such additional
Grantor Claim, such Grantor Claim shall be and become part of the Collateral
hereunder from the date such claim is identified to the Administrative Agent as
provided above without further action, and (ii) the Administrative Agent is
hereby authorized at the expense of the applicable Grantor to execute and file
such additional financing statements or amendments to previously filed financing
statements, and take such other action as it may deem necessary or advisable, to
perfect the Lien on such additional Grantor Claims conferred hereunder, and the
Grantor shall, if required by applicable law or otherwise at the request of the
Administrative Agent, execute and deliver such Perfection Documents and take
such other Perfection Action as the Administrative Agent may determine to be
necessary or advisable to perfect or protect the Lien of the Administrative
Agent for the benefit of the Secured Parties in such additional Grantor Claims
conferred hereunder.

10. Casualty and Liability Insurance Required.

(a) Each Grantor will keep the Collateral continuously insured against such
risks as are customarily insured against by businesses of like size and type
engaged in the same or similar operations including:

(i) property insurance on the Inventory and the Equipment in an amount not less
than the full insurable value thereof, against loss or damage by theft, fire,
lightning, hail, wind, flooding and other hazards ordinarily included under
uniform broad form standard extended coverage policies, limited only as may be
provided in the standard broad form of extended coverage endorsement at the time
in use in the states in which the Collateral is located, in each case as are
customarily maintained by Persons engaged in the same or similar business,
owning similar properties in locations where such Grantor operates and otherwise
similarly situated to such Grantor;

(ii) false pretense insurance in amounts as are customary for Persons engaged in
the same or similar business, owning similar properties in locations where such
Grantor operates and otherwise similarly situated to such Grantor;

(iii) garage liability and comprehensive general liability insurance against
claims for bodily injury, death or property damage occurring with or about such
Collateral (such coverage to include provisions waiving subrogation against

 

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the Secured Parties), with the Administrative Agent and the Lenders as
additional insureds thereunder, in amounts as are customary for Persons engaged
in the same or similar business, owning similar properties in locations where
such Grantor operates and otherwise similarly situated to such Grantor;

(iv) liability insurance with respect to the operation of its facilities under
the workers’ compensation laws of the states in which such Collateral is located
as are customarily maintained by Persons engaged in the same or similar
business, owning similar properties in locations where such Grantor operates and
otherwise similarly situated to such Grantor, but in no event less than the
amount required by the states where such Collateral is located; and

(v) business interruption insurance in amounts as are customarily maintained by
Persons engaged in the same or similar business, owning similar properties in
locations where such Grantor operates and otherwise similarly situated to such
Grantor.

(b) Each insurance policy obtained in satisfaction of the requirements of
Section 10(a):

(i) may be provided by blanket policies now or hereafter maintained by each or
any Grantor or by the Borrower;

(ii) shall be issued by such insurer (or insurers) as shall be financially
responsible, of recognized standing and reasonably acceptable to the
Administrative Agent;

(iii) shall be in such form and have such provisions (including without
limitation the loss payable clause, the waiver of subrogation clause, the
deductible amount, if any, and the standard mortgagee endorsement clause) as are
generally considered standard provisions for the type of insurance involved and
are reasonably acceptable in all respects to the Administrative Agent;

(iv) shall prohibit cancellation or substantial modification, termination or
lapse in coverage by the insurer without at least thirty (30) days’ prior
written notice to the Administrative Agent, except for non-payment of premium,
as to which such policies shall provide for at least ten (10) days’ prior
written notice to the Administrative Agent;

(v) without limiting the generality of the foregoing, all insurance policies
where applicable under Section 10(a)(i) carried on the Collateral shall name the
Administrative Agent, for the benefit of the Secured Parties, as loss payee and
the Administrative Agent and Lenders as parties insured thereunder in respect of
any claim for payment.

(c) Prior to expiration of any such policy, such Grantor shall furnish the
Administrative Agent with evidence satisfactory to the Administrative Agent that
the

 

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policy or certificate has been renewed or replaced or is no longer required by
this Security Agreement.

(d) Each Grantor hereby makes, constitutes and appoints the Administrative Agent
(and all officers, employees or agents designated by the Administrative Agent),
for the benefit of the Secured Parties, as such Grantor’s true and lawful
attorney (and agent-in-fact) for the purpose of making, settling and adjusting
claims under such policies of insurance, endorsing the name of such Grantor on
any check, draft, instrument or other item or payment for the proceeds of such
policies of insurance and for making all determinations and decisions with
respect to such policies of insurance, which appointment is coupled with an
interest and is irrevocable; provided, however, that the powers pursuant to such
appointment shall be exercisable only upon the occurrence and during the
continuation of an Event of Default.

(e) In the event such Grantor shall fail to maintain, or fail to cause to be
maintained, the full insurance coverage required hereunder or shall fail to keep
any of its Collateral in good repair and good operating condition, the
Administrative Agent may (but shall be under no obligation to), without waiving
or releasing any Secured Obligation or Default or Event of Default by such
Grantor hereunder, contract for the required policies of insurance and pay the
premiums on the same or make any required repairs, renewals and replacements;
and all sums so disbursed by Administrative Agent, including reasonable
Attorneys’ Costs, court costs, expenses and other charges related thereto, shall
be payable on demand by such Grantor to the Administrative Agent, shall be
additional Secured Obligations secured by the Collateral, and (in addition to
other rights and remedies resulting from such nonpayment) shall bear interest
from the date of demand until paid in full at the Default Rate.

(f) Each Grantor agrees that to the extent that it shall fail to maintain, or
fail to cause to be maintained, the full insurance coverage required by
Section 10(a), it shall in the event of any loss or casualty pay promptly to the
Administrative Agent, for the benefit of the Secured Parties, to be held in a
separate account for application in accordance with the provisions of Sections
10(h), such amount as would have been received as Net Proceeds (as hereinafter
defined) by the Administrative Agent, for the benefit of the Secured Parties,
under the provisions of Section 10(h) had such insurance been carried to the
extent required.

(g) The Net Proceeds of the insurance carried pursuant to the provisions of
Sections 10(a)(ii) and 10(a)(iii) shall be applied by such Grantor toward
satisfaction of the claim or liability with respect to which such insurance
proceeds may be paid.

(h) The Net Proceeds of the insurance carried with respect to the Collateral
pursuant to the provisions of Section 10(a)(i) hereof shall be paid to such
Grantor and held by such Grantor in a separate account and applied, as long as
no Event of Default shall have occurred and be continuing, as follows: after any
loss under any such insurance and payment of the proceeds of such insurance,
each Grantor shall have a period of thirty (30) days after payment of the
insurance proceeds with respect to such loss to elect to either (x) repair or
replace, or such repair or replacement cannot reasonably be completed in such
thirty (30) day period, commence the repair or

 

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replacement and diligently prosecute the same to completion, the Collateral so
damaged, (y) deliver such Net Proceeds to the Administrative Agent, for the
benefit of the Secured Parties, as additional Collateral or (z) apply such Net
Proceeds to the acquisition of tangible assets constituting Collateral used or
useful in the conduct of the business of such Grantor, subject to the provisions
of this Security Agreement. If such Grantor elects to repair or replace the
Collateral so damaged, such Grantor agrees the Collateral shall be repaired to a
condition substantially similar to or of better quality or higher value than its
condition prior to damage or replaced with Collateral in a condition
substantially similar to or of better quality or higher value than the condition
of the Collateral so replaced prior to damage. At all times during which an
Event of Default shall have occurred and be continuing, the Administrative Agent
shall be entitled to receive direct and immediate payment of the proceeds of
such insurance and such Grantor shall take all action as the Administrative
Agent may reasonably request to accomplish such payment. Notwithstanding the
foregoing, in the event such Grantor shall receive any such proceeds, such
Grantor shall immediately deliver such proceeds to such Administrative Agent for
the benefit of the Secured Parties as additional Collateral, and pending such
delivery shall hold such proceeds in trust for the benefit of the Secured
Parties and keep the same segregated from its other funds.

(i) “Net Proceeds” when used with respect to any insurance proceeds shall mean
the gross proceeds from such proceeds, award or other amount, less all taxes,
fees and expenses (including Attorney Costs) incurred in the realization
thereof.

(j) In case of any material damage to, destruction or loss of, or claim or
proceeding against, all or any material part of the Collateral pledged hereunder
by a Grantor, such Grantor shall give prompt notice thereof to the
Administrative Agent. Each such notice shall describe generally the nature and
extent of such damage, destruction, loss, claim or proceeding. Subject to
Section 10(d), each Grantor is hereby authorized and empowered to adjust or
compromise any loss under any such insurance other than losses relating to
claims made directly against any Secured Party as to which the insurance
described in Section 10(a)(ii) or (iii) is applicable.

(k) The provisions contained in this Security Agreement pertaining to insurance
shall be cumulative with any additional provisions imposing additional insurance
requirements with respect to the Collateral or any other property on which a
Lien is conferred under any Security Instrument.

11. Rights and Remedies Upon Event of Default. Upon the occurrence and during
the continuance of an Event of Default, the Administrative Agent shall have the
following rights and remedies on behalf of the Secured Parties in addition to
any rights and remedies set forth elsewhere in this Security Agreement or the
other Loan Documents, all of which may be exercised with or, if allowed by law,
without notice to a Grantor:

(a) All of the rights and remedies of a secured party under the UCC or under
other applicable law, all of which rights and remedies shall be cumulative, and
none of which shall be exclusive, to the extent permitted by law, in addition to
any other rights and remedies contained in this Security Agreement or any other
Loan Document;

 

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(b) The right to foreclose the Liens and security interests created under this
Security Agreement by any available judicial procedure or without judicial
process;

(c) The right to (i) enter upon the premises of a Grantor through self-help and
without judicial process, without first obtaining a final judgment or giving
such Grantor notice or opportunity for a hearing on the validity of the
Administrative Agent’s claim and without any obligation to pay rent to such
Grantor, or any other place or places where any Collateral is located and kept,
and remove the Collateral therefrom to the premises of the Administrative Agent
or any agent of the Administrative Agent, for such time as the Administrative
Agent may desire, in order effectively to collect or liquidate the Collateral,
(ii) require such Grantor or any bailee or other agent of such Grantor to
assemble the Collateral and make it available to the Administrative Agent at a
place to be designated by the Administrative Agent that is reasonably convenient
to both parties, and (iii) notify any or all Persons party to a Qualifying
Control Agreement or who otherwise have possession of or control over any
Collateral of the occurrence of an Event of Default and other appropriate
circumstances, and exercise control over and take possession or custody of any
or all Collateral in the possession, custody or control of such other Persons;

(d) The right to (i) exercise all of a Grantor’s rights and remedies with
respect to the collection of Accounts, Chattel Paper, Instruments, Supporting
Obligations and General Intangibles (collectively, “Payment Collateral”),
including the right to demand payment thereof and enforce payment, by legal
proceedings or otherwise; (ii) settle, adjust, compromise, extend or renew all
or any Payment Collateral or any legal proceedings pertaining thereto;
(iii) discharge and release all or any Payment Collateral; (iv) take control, in
any manner, of any item of payment or proceeds referred to in Section 5 above;
(v) prepare, file and sign a Grantor’s name on any Proof of Claim in bankruptcy,
notice of Lien, assignment or satisfaction of Lien or similar document in any
action or proceeding adverse to any obligor under any Payment Collateral or
otherwise in connection with any Payment Collateral; (vi) endorse the name of a
Grantor upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document or agreement relating to any Collateral;
(vii) use the information recorded on or contained on a Grantor’s internet
website or otherwise in any data processing equipment and computer hardware and
software relating to any Collateral to which a Grantor has access; (viii) open
such Grantor’s mail and collect any and all amounts due to such Grantor from any
Account Debtors or other obligor in respect of Payment Collateral; (ix) take
over such Grantor’s post office boxes or make other arrangements as the
Administrative Agent, on behalf of the Secured Parties, deems necessary to
receive such Grantor’s mail, including notifying the post office authorities to
change the address for delivery of such Grantor’s mail to such address as the
Administrative Agent, on behalf of the Secured Parties, may designate;
(x) notify any or all Account Debtors or other obligor on any Payment Collateral
that such Payment Collateral has been assigned to the Administrative Agent for
the benefit of the Secured Parties and that Administrative Agent has a security
interest therein for the benefit of the Secured Parties (provided that the
Administrative Agent may at any time give such notice to an Account Debtor that
is a department, agency or authority of the United States government); each
Grantor hereby agrees that any such notice, in the Administrative Agent’s sole
discretion, may (but need not) be sent on such Grantor’s stationery, in which
event such Grantor shall co-sign such

 

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notice with the Administrative Agent if requested to do so by the Administrative
Agent; and (xi) do all acts and things and execute all documents necessary, in
Administrative Agent’s sole discretion, to collect the Payment Collateral; and

(e) The right to sell all or any Collateral in its then existing condition, or
after any further manufacturing or processing thereof, at such time or times, at
public or private sale or sales, with such notice as may be required by law, in
lots or in bulk, for cash or on credit, with or without representations and
warranties, all as the Administrative Agent, in its sole discretion, may deem
advisable. The Administrative Agent shall have the right to conduct such sales
on a Grantor’s premises or elsewhere and shall have the right to use a Grantor’s
premises without charge for such sales for such time or times as the
Administrative Agent may see fit. The Administrative Agent may, if it deems it
reasonable, postpone or adjourn any sale of the Collateral from time to time by
an announcement at the time and place of such postponed or adjourned sale, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. Each Grantor agrees that the Administrative Agent has no
obligation to preserve rights to the Collateral against prior parties or to
marshal any Collateral for the benefit of any Person. The Administrative Agent
for the benefit of the Secured Parties is hereby granted an irrevocable fully
paid license or other right (including each Grantor’s rights under any license
or any franchise agreement), each of which shall remain in full force and effect
until the Facility Termination Date, to use, without charge, each of the labels,
patents, copyrights, names, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature owned or licensed by any
Grantor, as it pertains to the Collateral, in completing production of,
advertising for sale and selling any Collateral. If any of the Collateral shall
require repairs, maintenance, preparation or the like, or is in process or other
unfinished state, the Administrative Agent shall have the right, but shall not
be obligated, to perform such repairs, maintenance, preparation, processing or
completion of manufacturing for the purpose of putting the same in such saleable
form as the Administrative Agent shall deem appropriate, but the Administrative
Agent shall have the right to sell or dispose of the Collateral without such
processing and no Grantor shall have any claim against the Administrative Agent
for the value that may have been added to such Collateral with such processing.
In addition, each Grantor agrees that in the event notice is necessary under
applicable law, written notice mailed to such Grantor in the manner specified
herein ten (10) days prior to the date of public sale of any of the Collateral
or prior to the date after which any private sale or other disposition of the
Collateral will be made shall constitute commercially reasonable notice to such
Grantor. All notice is hereby waived with respect to any of the Collateral which
threatens to decline speedily in value or is of a type customarily sold on a
recognized market. The Administrative Agent may purchase all or any part of the
Collateral at public or, if permitted by law, private sale, free from any right
of redemption which is hereby expressly waived by such Grantor and, in lieu of
actual payment of such purchase price, may set off the amount of such price
against the Secured Obligations. Each Grantor recognizes that the Administrative
Agent may be unable to effect a public sale of certain of the Collateral by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the “Securities Act”), and applicable state law, and may be otherwise
delayed or adversely affected in effecting any sale by reason of present or
future restrictions thereon imposed by governmental authorities (“Affected
Collateral”), and that as a consequence of such prohibitions and restrictions
the Administrative Agent

 

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may be compelled (i) to resort to one or more private sales to a restricted
group of purchasers who will be obliged to agree, among other things, to acquire
Affected Collateral for their own account, for investment and not with a view to
the distribution or resale thereof, or (ii) to seek regulatory approval of any
proposed sale or sales, or (iii) to limit the amount of Affected Collateral sold
to any Person or group. Each Grantor agrees and acknowledges that private sales
so made may be at prices and upon terms less favorable to such Grantor than if
such Affected Collateral was sold either at public sales or at private sales not
subject to other regulatory restrictions, and that the Administrative Agent has
no obligation to delay the sale of any Affected Collateral for the period of
time necessary to permit the Grantor or any other Person to register or
otherwise qualify them under or exempt them from any applicable restriction,
even if such Grantor or other Person would agree to register or otherwise
qualify or exempt such Affected Collateral so as to permit a public sale under
the Securities Act or applicable state law. Each Grantor further agrees, to the
extent permitted by applicable law, that the use of private sales made under the
foregoing circumstances to dispose of Affected Collateral shall be deemed to be
dispositions in a commercially reasonable manner. Each Grantor hereby
acknowledges that a ready market may not exist for Affected Collateral that is
not traded on a national securities exchange or quoted on an automated quotation
system.

The net cash proceeds resulting from the collection, liquidation, sale, or other
disposition of the Collateral shall be applied first to the expenses (including
all Attorneys’ Costs) of retaking, holding, storing, processing and preparing
for sale, selling, collecting, liquidating and the like, and then to the
satisfaction of all Secured Obligations in accordance with the terms of
Section 8.06 of the Credit Agreement. Each Grantor shall be liable to the
Administrative Agent, for the benefit of the Secured Parties, and shall pay to
the Administrative Agent, for the benefit of the Secured Parties, on demand any
deficiency which may remain after such sale, disposition, collection or
liquidation of the Collateral.

12. Attorney-in-Fact. Each Grantor hereby appoints the Administrative Agent as
the Grantor’s attorney-in-fact for the purposes of carrying out the provisions
of this Security Agreement and taking any action and executing any instrument
which the Administrative Agent may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest;
provided, that the Administrative Agent shall have and may exercise rights under
this power of attorney only upon the occurrence and during the continuance of an
Event of Default. Without limiting the generality of the foregoing, upon the
occurrence and during the continuance of an Event of Default, the Administrative
Agent shall have the right and power:

(a) to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral;

(b) to receive, endorse and collect any drafts or other instruments, documents
and chattel paper in connection with clause (a) above;

(c) to endorse such Grantor’s name on any checks, notes, drafts or any other
payment relating to or constituting proceeds of the Collateral which comes into
the Administrative Agent’s possession or the Administrative Agent’s control, and
deposit the

 

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same to the account of the Administrative Agent, for the benefit of the Secured
Parties, on account and for payment of the Secured Obligations.

(d) to file any claims or take any action or institute any proceedings that the
Administrative Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Administrative
Agent, for the benefit of the Secured Parties, with respect to any of the
Collateral; and

(e) to execute, in connection with any sale or other disposition of Collateral
provided for herein, any endorsement, assignments, or other instruments of
conveyance or transfer with respect thereto.

13. Reinstatement. The granting of a security interest in the Collateral and the
other provisions hereof shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Secured Obligations is
rescinded or must otherwise be returned by any Secured Party or is repaid by any
Secured Party in whole or in part in good faith settlement of a pending or
threatened avoidance claim, whether upon the insolvency, bankruptcy or
reorganization of any Grantor or any other Loan Party or otherwise, all as
though such payment had not been made. The provisions of this Section 13 shall
survive repayment of all of the Secured Obligations and the termination or
expiration of this Security Agreement in any manner, including but not limited
to termination upon occurrence of the Facility Termination Date.

14. Certain Waivers by the Grantors. Each Grantor waives to the extent permitted
by applicable law (a) any right to require any Secured Party or any other
obligee of the Secured Obligations to (x) proceed against any Person or entity,
including without limitation any Loan Party, (y) proceed against or exhaust any
Collateral or other collateral for the Secured Obligations, or (z) pursue any
other remedy in its power; (b) any defense arising by reason of any disability
or other defense of any other Person, or by reason of the cessation from any
cause whatsoever of the liability of any other Person or entity, (c) any right
of subrogation, and (d) any right to enforce any remedy which any Secured Party
or any other obligee of the Secured Obligations now has or may hereafter have
against any other Person and any benefit of and any right to participate in any
collateral or security whatsoever now or hereafter held by the Administrative
Agent for the benefit of the Secured Parties. Each Grantor authorizes each
Secured Party and each other obligee of the Secured Obligations without notice
(except notice required by applicable law) or demand and without affecting its
liability hereunder or under the Loan Documents from time to time to: (i) take
and hold security, other than the Collateral herein described, for the payment
of such Secured Obligations or any part thereof, and exchange, enforce, waive
and release the Collateral herein described or any part thereof or any such
other security; and (ii) apply such Collateral or other security and direct the
order or manner of sale thereof as such Secured Party or obligee in its
discretion may determine.

The Administrative Agent may at any time deliver (without representation,
recourse or warranty) the Collateral or any part thereof to a Grantor and the
receipt thereof by such Grantor shall be a complete and full acquittance for the
Collateral so delivered, and the Administrative Agent shall thereafter be
discharged from any liability or responsibility therefor.

15. Continued Powers. Until the Facility Termination Date shall have occurred,
the power of sale and other rights, powers and remedies granted to the
Administrative Agent for the

 

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benefit of the Secured Parties hereunder shall continue to exist and may, after
the occurrence and during the continuance of an Event of Default, be exercised
by the Administrative Agent at any time and from time to time irrespective of
the fact that any of the Secured Obligations or any part thereof may have become
barred by any statute of limitations or that any part of the liability of any
Grantor may have ceased.

16. Other Rights. The rights, powers and remedies given to the Administrative
Agent for the benefit of the Secured Parties by this Security Agreement shall be
in addition to all rights, powers and remedies given to the Administrative Agent
or any Secured Party under any other Loan Document or by virtue of any statute
or rule of law. Any forbearance or failure or delay by the Administrative Agent
in exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of the Secured Parties shall continue
in full force and effect until such right, power or remedy is specifically
waived in accordance with the terms of the Credit Agreement.

17. Anti-Marshaling Provisions. The right is hereby given by each Grantor to the
Administrative Agent, for the benefit of the Secured Parties, to make releases
(whether in whole or in part) of all or any part of the Collateral agreeable to
the Administrative Agent without notice to, or the consent, approval or
agreement of other parties and interests, including junior lienors, which
releases shall not impair in any manner the validity of or priority of the Liens
and security interests in the remaining Collateral conferred hereunder, nor
release any Grantor from personal liability for the Secured Obligations.
Notwithstanding the existence of any other security interest in the Collateral
held by the Administrative Agent, for the benefit of the Secured Parties, the
Administrative Agent shall have the right to determine the order in which any or
all of the Collateral shall be subjected to the remedies provided in this
Security Agreement. Each Grantor hereby waives any and all right to require the
marshaling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided herein or in any other Loan Document.

18. Entire Agreement. This Security Agreement and each Joinder Agreement,
together with the Credit Agreement and other Loan Documents, constitutes and
expresses the entire understanding between the parties hereto with respect to
the subject matter hereof, and supersedes all prior negotiations, agreements and
understandings, inducements, commitments or conditions, express or implied, oral
or written, except as contained in the Loan Documents. The express terms hereof
and of the Joinder Agreements control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof or thereof. Neither
this Security Agreement nor any Joinder Agreement nor any portion or provision
hereof or thereof may be changed, altered, modified, supplemented, discharged,
canceled, terminated, or amended orally or in any manner other than as provided
in the Credit Agreement.

19. Third Party Reliance. Each Grantor hereby consents and agrees that all
issuers of or obligors in respect of any Collateral, and all securities
intermediaries, warehousemen, bailees, public officials and other Persons having
any interest in, possession of, control over or right, privilege, duty or
discretion in respect of, any Collateral shall be entitled to accept the
provisions hereof and of the Joinder Agreements as conclusive evidence of the
right of the Administrative Agent, on behalf of the Secured Parties, to exercise
its rights hereunder or

 

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thereunder with respect to the Collateral, notwithstanding any other notice or
direction to the contrary heretofore or hereafter given by any Grantor or any
other Person to any of such Persons.

20. Binding Agreement; Assignment. This Security Agreement and each Joinder
Agreement, and the terms, covenants and conditions hereof and thereof, shall be
binding upon and inure to the benefit of the parties hereto, and to their
respective successors and assigns, except that no Grantor shall be permitted to
assign this Security Agreement, any Joinder Agreement or any interest herein or
therein or, except as expressly permitted herein or in the Credit Agreement, in
the Collateral or any part thereof or interest therein. Without limiting the
generality of the foregoing sentence of this Section 20, any Lender may assign
to one or more Persons, or grant to one or more Persons participations in or to,
all or any part of its rights and obligations under the Credit Agreement (to the
extent permitted by the Credit Agreement); and to the extent of any such
permitted assignment or participation such other Person shall, to the fullest
extent permitted by law, thereupon become vested with all the benefits in
respect thereof granted to such Lender herein or otherwise, subject however, to
the provisions of the Credit Agreement, including Article IX thereof (concerning
the Administrative Agent) and Section 10.06 thereof (concerning assignments and
participations). All references herein to the Administrative Agent and to the
Secured Parties shall include any successor thereof or permitted assignee, and
any other obligees from time to time of the Secured Obligations.

21. Related Swap Contracts. All obligations of each Grantor under or in respect
of Related Swap Contracts to which any Lender or its Affiliates is a party shall
be deemed to be Secured Obligations secured hereby, and each Lender or Affiliate
of a Lender party to any such Related Swap Contract shall be deemed to be a
Secured Party hereunder with respect to such Secured Obligations; provided,
however, that such obligations shall cease to be Secured Obligations at such
time, prior to the Facility Termination Date, as such Person (or Affiliate of
such Person) shall cease to be a “Lender” under the Credit Agreement.

No Person who obtains the benefit of any Lien by virtue of the provisions of
this Section shall have any right to notice of any action or to consent to,
direct or object to any action hereunder or under any other Loan Document or
otherwise in respect of the Collateral (including the release or impairment of
any Collateral) other than in its capacity as a Lender and only to the extent
expressly provided in the Loan Documents. Each Secured Party not a party to the
Credit Agreement who obtains the benefit of this Security Agreement by virtue of
the provisions of this Section shall be deemed to have acknowledged and accepted
the appointment of the Administrative Agent pursuant to the terms of the Credit
Agreement, and that with respect to the actions and omissions of the
Administrative Agent hereunder or otherwise relating hereto that do or may
affect such Secured Party, the Administrative Agent and each of its Related
Parties shall be entitled to all the rights, benefits and immunities conferred
under Article IX of the Credit Agreement.

22. Severability. The provisions of this Security Agreement are independent of
and separable from each other. If any provision hereof shall for any reason be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision hereof, but this
Security Agreement shall be construed as if such invalid or unenforceable
provision had never been contained herein.

 

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23. Counterparts. This Security Agreement may be executed in any number of
counterparts each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Security
Agreement to produce or account for more than one such counterpart executed by
the Grantor against whom enforcement is sought. Without limiting the foregoing
provisions of this Section 23, the provisions of Section 10.10 of the Credit
Agreement shall be applicable to this Security Agreement.

24. Termination. Subject to the provisions of Section 13, this Security
Agreement and each Joinder Agreement, and all obligations of the Grantors
hereunder (excluding those obligations and liabilities that expressly survive
such termination) shall terminate without delivery of any instrument or
performance of any act by any party on the Facility Termination Date. Upon such
termination of this Security Agreement, the Administrative Agent shall, at the
request and sole expense of the Grantors, promptly deliver to the Grantors such
termination statements and take such further actions as the Grantors may
reasonably request to terminate of record, or otherwise to give appropriate
notice of the termination of, any Lien conferred hereunder.

25. Notices. Any notice required or permitted hereunder shall be given (a) with
respect to any Grantor, at the address then in effect for the giving of notices
to the Company under the Credit Agreement, and (c) with respect to the
Administrative Agent or a Lender, at the Administrative Agent’s address
indicated in Schedule 10.02 of the Credit Agreement. All such addresses may be
modified, and all such notices shall be given and shall be effective, as
provided in Schedule 10.02 of the Credit Agreement for the giving and
effectiveness of notices and modifications of addresses thereunder.

26. Joinder. Each Person who shall at any time execute and deliver to the
Administrative Agent a Joinder Agreement shall thereupon irrevocably, absolutely
and unconditionally become a party hereto and obligated hereunder as a Grantor
and shall have thereupon pursuant to Section 2 hereof granted a security
interest in and collaterally assigned to the Administrative Agent for the
benefit of the Secured Parties all Collateral in which it has at its Applicable
Date or thereafter acquires any interest or the power to transfer, and all
references herein and in the other Loan Documents to the Grantors or to the
parties to this Security Agreement shall be deemed to include such Person as a
Grantor hereunder. Each Joinder Agreement shall be accompanied by the
Supplemental Schedules referred to therein, appropriately completed with
information relating to the Grantor executing such Joinder Agreement and its
property. Each of the applicable Schedules attached hereto shall be deemed
amended and supplemented without further action by such information reflected on
the Supplemental Schedules attached to each Joinder Agreement.

27. Rules of Interpretation. The rules of interpretation contained in Sections
1.02 and 1.05 of the Credit Agreement shall be applicable to this Security
Agreement and each Joinder Agreement and are hereby incorporated by reference.
All representations and warranties contained herein shall survive the delivery
of documents and any Credit Extensions referred to herein or secured hereby.

 

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28. Governing Law; Waivers.

(a) THIS SECURITY AGREEMENT AND EACH JOINDER AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE
TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE; PROVIDED THAT
(i) WITH RESPECT TO THOSE INSTANCES IN WHICH THE APPLICABLE CHOICE OF LAWS RULES
OF SUCH STATE, INCLUDING SECTION 9-301 OF THE UCC, REQUIRE THAT THE MANNER OF
CREATION OF A SECURITY INTEREST IN SPECIFIC COLLATERAL OR THE MANNER OR EFFECT
OF PERFECTION OR NONPERFECTION OR THE RULES GOVERNING PRIORITY OF SECURITY
INTERESTS ARE TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION, THEN THE LAWS
OF SUCH OTHER JURISDICTION SHALL GOVERN SUCH MATTERS, (ii) EACH CONTROL
AGREEMENT (INCLUDING EACH QUALIFYING CONTROL AGREEMENT) APPLICABLE TO ANY
SECURITIES ACCOUNT OR DEPOSIT ACCOUNT SHALL BE GOVERNED BY THE LAWS OF THE
JURISDICTION SPECIFIED IN SUCH CONTROL AGREEMENT, OR OTHERWISE BY THE LAWS OF
THE JURISDICTION THAT GOVERN THE SECURITIES ACCOUNT OR DEPOSIT ACCOUNT TO WHICH
SUCH CONTROL AGREEMENT RELATES, AND (iii) IN THOSE INSTANCES IN WHICH THE LAWS
OF THE JURISDICTION IN WHICH COLLATERAL IS LOCATED GOVERN MATTERS PERTAINING TO
THE METHODS AND EFFECT OF REALIZING ON COLLATERAL, SUCH LAWS SHALL BE GIVEN
EFFECT WITH RESPECT TO SUCH MATTERS.

(b) EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT
OR ANY JOINDER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN MAY
BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN MECKLENBURG COUNTY, STATE
OF NORTH CAROLINA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY
OF THIS SECURITY AGREEMENT OR A JOINDER AGREEMENT, EXPRESSLY WAIVES ANY
OBJECTION THAT IT MAY HAVE NOW OR HEREAFTER TO THE LAYING OF THE VENUE OR TO THE
JURISDICTION OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND IRREVOCABLY SUBMITS
GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING.

(c) EACH GRANTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE
OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO
THE ADDRESS OF SUCH PARTY PROVIDED IN SECTION 25 OR BY ANY OTHER METHOD OF
SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NORTH
CAROLINA.

 

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(d) NOTHING CONTAINED IN SUBSECTIONS (b) OR (c) HEREOF SHALL PRECLUDE THE
ADMINISTRATIVE AGENT FROM BRINGING ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS SECURITY AGREEMENT OR ANY JOINDER AGREEMENT OR THE OTHER
LOAN DOCUMENTS IN THE COURTS OF ANY PLACE WHERE ANY OTHER PARTY OR ANY OF SUCH
PARTY’S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY
THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, EACH GRANTOR HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT
OF ANY SUCH SUIT, ACTION OR PROCEEDING, THE JURISDICTION OF ANY OTHER COURT OR
COURTS WHICH NOW OR HEREAFTER, BY REASON OF ITS PRESENT OR FUTURE DOMICILE, OR
OTHERWISE, MAY BE AVAILABLE UNDER APPLICABLE LAW.

(e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES
UNDER OR RELATED TO THIS SECURITY AGREEMENT OR ANY JOINDER AGREEMENT OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE
BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY EXPRESSLY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY
JURY IN ANY SUCH ACTION, SUIT OR PROCEEDING.

(f) EACH GRANTOR HEREBY EXPRESSLY WAIVES ANY OBJECTION IT MAY HAVE THAT ANY
COURT TO WHOSE JURISDICTION IT HAS SUBMITTED PURSUANT TO THE TERMS HEREOF IS AN
INCONVENIENT FORUM.

[Signature pages follow]

 

31

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IN WITNESS WHEREOF, the parties have duly executed this Security Agreement on
the day and year first written above.

 

COMPANY: SONIC AUTOMOTIVE, INC. By:   /s/ Greg Young Name:   Greg Young Title:  
Vice President/Chief Accounting Officer OTHER GRANTORS:

ARNGAR, INC.

AUTOBAHN, INC.

AVALON FORD, INC.

CAPITOL CHEVROLET AND IMPORTS, INC.

COBB PONTIAC-CADILLAC, INC.

CORNERSTONE ACCEPTANCE CORPORATION

FAA AUTO FACTORY, INC.

FAA BEVERLY HILLS, INC.

FAA CAPITOL F, INC.

FAA CAPITOL N, INC.

FAA CONCORD H, INC.

FAA CONCORD T, INC.

FAA DUBLIN N, INC.

FAA DUBLIN VWD, INC.

FAA HOLDING CORP.

FAA LAS VEGAS H, INC.

FAA POWAY G, INC.

FAA POWAY H, INC.

FAA POWAY T, INC.

FAA SAN BRUNO, INC.

FAA SANTA MONICA V, INC.

FAA SERRAMONTE, INC.

FAA SERRAMONTE H, INC.

FAA SERRAMONTE L, INC.

FAA STEVENS CREEK, INC.

FAA TORRANCE CPJ, INC.

FIRSTAMERICA AUTOMOTIVE, INC.

By:   /s/ Joseph O’Connor Name:   Joseph O’Connor Title:   Assistant Treasurer

SECURITY AGREEMENT

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FORT MILL FORD, INC.

FORT MYERS COLLISION CENTER, LLC

FRANCISCAN MOTORS, INC.

FREEDOM FORD, INC.

FRONTIER OLDSMOBILE – CADILLAC, INC.

KRAMER MOTORS INCORPORATED

L DEALERSHIP GROUP, INC.

MARCUS DAVID CORPORATION

MASSEY CADILLAC, INC., a Tennessee corporation

MOUNTAIN STATES MOTORS CO., INC.

ONTARIO L, LLC

PHILPOTT MOTORS, LTD.

RIVERSIDE NISSAN, INC.

ROYAL MOTOR COMPANY, INC.

SANTA CLARA IMPORTED CARS, INC.

SONIC AUTOMOTIVE – BONDESEN, INC.

SONIC AUTOMOTIVE – CLEARWATER, INC.

SONIC AUTOMOTIVE F&I, LLC

SONIC AUTOMOTIVE OF CHATTANOOGA, LLC

SONIC AUTOMOTIVE OF GEORGIA, INC.

SONIC AUTOMOTIVE OF NASHVILLE, LLC

SONIC AUTOMOTIVE OF NEVADA, INC.

SONIC AUTOMOTIVE OF TENNESSEE, INC.

SONIC AUTOMOTIVE OF TEXAS, L.P.

SONIC AUTOMOTIVE SERVICING COMPANY, LLC

SONIC AUTOMOTIVE SUPPORT, LLC

SONIC AUTOMOTIVE WEST, LLC

SONIC AUTOMOTIVE – 1400 AUTOMALL DRIVE, COLUMBUS, INC.

SONIC AUTOMOTIVE – 1455 AUTOMALL DRIVE, COLUMBUS, INC.

SONIC AUTOMOTIVE – 1500 AUTOMALL DRIVE, COLUMBUS, INC.

SONIC AUTOMOTIVE – 1720 MASON AVE., DB, INC.

SONIC AUTOMOTIVE – 1720 MASON AVE., DB, LLC

SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC.

SONIC AUTOMOTIVE – 3401 N. MAIN, TX, L.P.

By:   /s/ Joseph O’Connor Name:   Joseph O’Connor Title:   Assistant Treasurer

SECURITY AGREEMENT

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SONIC AUTOMOTIVE – 3700 WEST BROAD STREET, COLUMBUS, INC.

SONIC AUTOMOTIVE – 4000 WEST BROAD STREET, COLUMBUS, INC.

SONIC AUTOMOTIVE – 4701 I-10 EAST, TX, L.P.

SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC

SONIC AUTOMOTIVE – 6008 N. DALE MABRY, FL, INC.

SONIC AUTOMOTIVE – 9103 E. INDEPENDENCE, NC, LLC

SONIC ADVANTAGE PA, L.P.

SONIC AGENCY, INC.

SONIC – ANN ARBOR IMPORTS, INC.

SONIC – BETHANY H, INC.

SONIC – BUENA PARK H, INC.

SONIC – CADILLAC D, L.P.

SONIC – CALABASAS A, INC.

SONIC – CALABASAS V, INC.

SONIC – CAMP FORD, L.P.

SONIC – CAPITOL CADILLAC, INC.

SONIC – CAPITOL IMPORTS, INC.

SONIC – CARROLLTON V, L.P.

SONIC – CARSON F, INC.

SONIC – CARSON LM, INC.

SONIC – CLEAR LAKE VOLKSWAGEN, L.P.

SONIC – COAST CADILLAC, INC.

SONIC – CREST CADILLAC, LLC

SONIC – CREST H, LLC

SONIC – DENVER T, INC.

SONIC DEVELOPMENT, LLC

SONIC DIVISIONAL OPERATIONS, LLC

SONIC – DOWNEY CADILLAC, INC.

SONIC – ENGLEWOOD M, INC.

SONIC – FM AUTOMOTIVE, LLC

SONIC – FM, INC.

SONIC – FM VW, INC.

SONIC – FORT MILL DODGE, INC.

SONIC – FORT WORTH T, L.P.

SONIC – FRANK PARRA AUTOPLEX, L.P.

SONIC – FREELAND, INC.

By:   /s/ Joseph O’Connor Name:   Joseph O’Connor Title:   Assistant Treasurer

SECURITY AGREEMENT

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SONIC – GLOBAL IMPORTS, L.P.

SONIC – HARBOR CITY H, INC.

SONIC HOUSTON LR, L.P.

SONIC – HOUSTON V, L.P.

SONIC – JERSEY VILLAGE VOLKSWAGEN, L.P.

SONIC – LS, LLC

SONIC – LS CHEVROLET, L.P.

SONIC – LAKE NORMAN DODGE, LLC

SONIC – LAS VEGAS C EAST, LLC

SONIC – LAS VEGAS C WEST, LLC

SONIC – LLOYD NISSAN, INC.

SONIC – LLOYD PONTIAC – CADILLAC, INC.

SONIC – LONE TREE CADILLAC, INC.

SONIC – LUTE RILEY, L.P.

SONIC – MANHATTAN FAIRFAX, INC.

SONIC – MASSEY CHEVROLET, INC.

SONIC – MASSEY PONTIAC BUICK GMC, INC.

SONIC – MESQUITE HYUNDAI, L.P.

SONIC MOMENTUM B, L.P.

SONIC MOMENTUM JVP, L.P.

SONIC MOMENTUM VWA, L.P.

SONIC MONTGOMERY B, INC.

SONIC MONTGOMERY FLM, INC.

SONIC NASHVILLE M, LLC

SONIC – NEWSOME CHEVROLET WORLD, INC.

SONIC – NEWSOME OF FLORENCE, INC.

SONIC – NORTH CADILLAC, INC.

SONIC – NORTH CHARLESTON, INC.

SONIC – NORTH CHARLESTON DODGE, INC.

SONIC OF TEXAS, INC.

SONIC – OKLAHOMA T, INC.

SONIC PEACHTREE INDUSTRIAL BLVD., L.P.

SONIC – PLYMOUTH CADILLAC, INC.

SONIC – READING, L.P.

SONIC RESOURCES, INC.

SONIC – RICHARDSON F, L.P.

SONIC – RIVERSIDE, INC.

SONIC – ROCKVILLE IMPORTS, INC.

SONIC – ROCKVILLE MOTORS, INC.

SONIC – SANFORD CADILLAC, INC.

SONIC SANTA MONICA M, INC.

SONIC – SATURN OF SILICON VALLEY, INC.

By:   /s/ Joseph O’Connor Name:   Joseph O’Connor Title:   Assistant Treasurer

SECURITY AGREEMENT

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SONIC – SERRAMONTE I, INC.

SONIC – SHOTTENKIRK, INC.

SONIC – STEVENS CREEK B, INC.

SONIC – STONE MOUNTAIN CHEVROLET, L.P.

SONIC – STONE MOUNTAIN T, L.P.

SONIC – UNIVERSITY PARK A, L.P.

SONIC – VOLVO LV, LLC

SONIC WALNUT CREEK M, INC.

SONIC – WEST COVINA T, INC.

SONIC – WEST RENO CHEVROLET, INC.

SONIC – WILLIAMS BUICK, INC.

SONIC – WILLIAMS CADILLAC, INC.

SONIC – WILLIAMS IMPORTS, INC.

SONIC – WILLIAMS MOTORS, LLC

SONIC – 2185 CHAPMAN RD., CHATTANOOGA, LLC

SPEEDWAY CHEVROLET, INC.

STEVENS CREEK CADILLAC, INC.

TOWN AND COUNTRY FORD, INCORPORATED

VILLAGE IMPORTED CARS, INC.

WINDWARD, INC.

WRANGLER INVESTMENTS, INC.

Z MANAGEMENT, INC.

SRE HOLDING, LLC

SRE ALABAMA – 5, LLC

SRE SOUTH CAROLINA – 3, LLC

SREALESTATE ARIZONA – 2, LLC

SREALESTATE ARIZONA – 3, LLC

SRE CALIFORNIA – 2, LLC

SRE FLORIDA – 1, LLC

SRE FLORIDA – 2, LLC

SRE NORTH CAROLINA – 2, LLC

SRE OKLAHOMA – 1, LLC

SRE OKLAHOMA – 5, LLC

SRE TEXAS – 1, L.P.

SRE TEXAS – 2, L.P.

SRE TEXAS – 3, L.P.

SRE TEXAS – 4, L.P.

SRE TEXAS – 6, L.P.

SRE TEXAS – 8, L.P.

By:   /s/ Joseph O’Connor Name:   Joseph O’Connor Title:   Assistant Treasurer

SECURITY AGREEMENT

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ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A., as Administrative Agent

By:

 

/s/ Anne M. Zeschke

Name:

 

Anne M. Zeschke

Title:

 

Assistant Vice President

SECURITY AGREEMENT

Signature Page