Exhibit 10.2
PLEDGE AND SECURITY AGREEMENT
     THIS PLEDGE AND SECURITY AGREEMENT is entered into as of July 27,2006 by
and between                                                                 (the
“Debtor”), and JPMORGAN CHASE BANK, N.A., a national banking association, as
Lender under the Credit Agreement referred to below (the “Lender”).
PRELIMINARY STATEMENT
     MOBILITY ELECTRONICS, INC., a Delaware corporation (the “Borrower”) and
Lender have entered into a Credit Agreement dated as of July 24, 2006 (as it may
be amended or modified from time to time, the “Credit Agreement”). The Debtor is
entering into this Pledge and Security Agreement (as it may be amended or
modified from time to time, the “Security Agreement”) in order to induce the
Lender to continue to extend credit to the Borrower under the Credit Agreement.
     ACCORDINGLY, the Debtor and the Lender, hereby agree as follows:
ARTICLE I
DEFINITIONS
     1.1 Terms Defined in Credit Agreement. All capitalized terms used herein
and not otherwise defined shall have the meanings assigned to such terms in the
Credit Agreement.
     1.2 Terms Defined in Arizona Uniform Commercial Code. Terms defined in the
Arizona UCC which are not otherwise defined in this Security Agreement are used
herein as defined in the Arizona UCC.
     1.3 Definitions of Certain Terms Used Herein. As used in this Security
Agreement, in addition to the terms defined in the Preliminary Statement, the
following terms shall have the following meanings:
     “Accounts” shall have the meaning set forth in Article 9 of the Arizona
UCC.
     “Arizona UCC” means the Arizona Uniform Commercial Code as in effect from
time to time.
     “Article” means a numbered article of this Security Agreement, unless
another document is specifically referenced.
     “Chattel Paper” shall have the meaning set forth in Article 9 of the
Arizona UCC.
     “Collateral” means all Accounts, Chattel Paper, Documents, Equipment, Farm
Products, Fixtures, General Intangibles, Instruments, Inventory, Investment
Property, Pledged Deposits, and Other Collateral, wherever located, in which the
Debtor now has or hereafter acquires any

1

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

 

right or interest, and the proceeds (including Stock Rights), insurance proceeds
and products thereof, together with all books and records, customer lists,
credit files, computer files, programs, printouts and other computer materials
and records related thereto.
     “Control” shall have the meaning set forth in Article 8 or, if applicable,
in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the Arizona UCC.
     “Default” means an event described in Section 5.1.
     “Deposit Accounts” shall have the meaning set forth in Article 9 of the
Arizona UCC.
     “Documents” shall have the meaning set forth in Article 9 of the Arizona
UCC.
     “Equipment” shall have the meaning set forth in Article 9 of the Arizona
UCC.
     “Exhibit” refers to a specific exhibit to this Security Agreement, unless
another document is specifically referenced.
     “Farm Products” shall have the meaning set forth in Article 9 of the
Arizona UCC.
     “Fixtures” shall have the meaning set forth in Article 9 of the Arizona
UCC.
     “General Intangibles” shall have the meaning set forth in Article 9 of the
Arizona UCC.
     “Instruments” shall have the meaning set forth in Article 9 of the Arizona
UCC.
     “Inventory” shall have the meaning set forth in Article 9 of the Arizona
UCC.
     “Investment Property” shall have the meaning set forth in Article 9 of the
Arizona UCC.
     “Obligations” means any and all existing and future indebtedness,
obligation and liability of every kind, nature and character, direct or
indirect, absolute or contingent (including all renewals, extensions and
modifications thereof and all fees, costs and expenses incurred by the Lender in
connection with the preparation, administration, collection or enforcement
thereof), of the Borrower to the Lender or any branch, subsidiary or affiliate
thereof, arising under or pursuant to this Security Agreement, the Credit
Agreement and any promissory note or notes now or hereafter issued under the
Credit Agreement.
     “Other Collateral” means any property of the Debtor, other than real
estate, not included within the defined terms Accounts, Chattel Paper,
Documents, Equipment, Farm Products, Fixtures, General Intangibles, Instruments,
Inventory, Investment Property, and Pledged Deposits, including, without
limitation, all cash on hand, letter-of-credit rights, letters of credit, Stock
Rights and Deposit Accounts or other deposits (general or special, time or
demand, provisional or final) with any bank or other financial institution, it
being intended that the Collateral include all property of the Debtor other than
real estate.
     “Pledged Deposits” means all time deposits of money (other than Deposit
Accounts and Instruments), whether or not evidenced by certificates, which the
Debtor may from time to time

2

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

 

designate as pledged to the Lender as security for any Obligation, and all
rights to receive interest on said deposits.
     “Rate Management Transaction” means any transaction (including an agreement
with respect thereto) now existing or hereafter entered into between the Debtor
and the Lender or Affiliate thereof which is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
forward transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar transaction (including any
option with respect to any of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign currencies, commodity
prices, equity prices or other financial measures.
     “Rate Management Obligations” means any and all obligations of the
Borrower, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Management Transactions, and (ii) any and all cancellations, buy backs,
reversals, terminations or assignments of any Rate Management Transactions.
     “Receivables” means the Accounts, Chattel Paper, Documents, Investment
Property, Instruments or Pledged Deposits, and any other rights or claims to
receive money which are General Intangibles or which are otherwise included as
Collateral.
     “Required Secured Parties” means the Lender.
     “Section” means a numbered section of this Security Agreement, unless
another document is specifically referenced.
     “Secured Obligations” means the Obligations and Rate Management Obligations
entered into with one or more of the Lender or their Affiliates.
     “Security” has the meaning set forth in Article 8 of the Arizona UCC.
     “Stock Rights” means any securities, dividends or other distributions and
any other right or property which the Debtor shall receive or shall become
entitled to receive for any reason whatsoever with respect to, in substitution
for or in exchange for any securities or other ownership interests in a
corporation, partnership, joint venture or limited liability company
constituting Collateral and any securities, any right to receive securities and
any right to receive earnings, in which the Debtor now has or hereafter acquires
any right, issued by an issuer of such securities.
     “Unmatured Default” means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
     The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.

3

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

 

ARTICLE II
GRANT OF SECURITY INTEREST
     The Debtor hereby pledges, assigns and grants to the Lender and (to the
extent specifically provided herein) its Affiliates, a security interest in all
of the Debtor’s right, title and interest in and to the Collateral to secure the
prompt and complete payment and performance of the Secured Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
     The Debtor represents and warrants to the Lender that:
     3.1 Title, Authorization, Validity and Enforceability. The Debtor has good
and valid rights in or the power to transfer the Collateral and title to the
Collateral with respect to which it has purported to grant a security interest
hereunder, free and clear of all Liens except for Liens permitted under
Section 4.1.6, and has full power and authority to grant to the Lender the
security interest in such Collateral pursuant hereto. The execution and delivery
by the Debtor of this Security Agreement has been duly authorized by proper
corporate proceedings, and this Security Agreement constitutes a legal, valid
and binding obligation of the Debtor and creates a security interest which is
enforceable against the Debtor in all now owned and hereafter acquired
Collateral.
     3.2 Conflicting Laws and Contracts. Neither the execution and delivery by
the Debtor of this Security Agreement, the creation and perfection of the
security interest in the Collateral granted hereunder, nor compliance with the
terms and provisions hereof will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Debtor or the Debtor’s
articles or certificate of formation or operating agreement the provisions of
any indenture, instrument or agreement to which the Debtor is a party or is
subject, or by which it, or its property, is bound, or conflict with or
constitute a default thereunder, or result in the creation or imposition of any
Lien pursuant to the terms of any such indenture, instrument or agreement (other
than any Lien of the Lender).
     3.3 Type and Jurisdiction of Organization. The Debtor is a corporation
organized under the laws of the State of
                                        .
     3.4 Principal Location. The Debtor’s mailing address and the location of
its place of business (if it has only one) or its chief executive office (if it
has more than one place of business), are disclosed in Exhibit “A”; the Debtor
has no other places of business except those set forth in Exhibit “A”.
     3.5 Property Locations. The Inventory, Equipment and Fixtures are located
solely at the locations described in Exhibit “A”. All of said locations are
owned by the Debtor except for locations (i) which are leased by the Debtor as
lessee and designated in Part B of Exhibit “A” and (ii) at which Inventory is
held in a public warehouse or is otherwise held by a bailee or on consignment as
designated in Part C of Exhibit “A”, with respect to which Inventory the Debtor

4

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

 

has delivered bailment agreements, warehouse receipts, financing statements or
other documents satisfactory to the Lender to protect the Lender’s security
interest in such Inventory.
     3.6 No Other Names. The Debtor does not conduct business under any name
except the name in which it has executed this Security Agreement, which is the
exact name as it appears in the Debtor’s organizational documents, as amended,
as filed with the Debtor’s jurisdiction of organization.
     3.7 No Default. No Default or Unmatured Default exists.
     3.8 Accounts and Chattel Paper. The names of the obligors, amounts owing,
due dates and other information with respect to the Accounts and Chattel Paper
are and will be correctly stated in all records of the Debtor relating thereto
and in all invoices and reports with respect thereto furnished to the Lender by
the Debtor from time to time. As of the time when each Account or each item of
Chattel Paper arises, the Debtor shall be deemed to have represented and
warranted that such Account or Chattel Paper, as the case may be, and all
records relating thereto, are genuine and in all respects what they purport to
be.
     3.9 [Intentionally left blank.]
     3.10 No Financing Statements. No financing statement describing all or any
portion of the Collateral which has not lapsed or been terminated naming the
Debtor as debtor has been filed in any jurisdiction except financing statements
naming the Lender as the secured party.
     3.11 Federal Employer Identification Number. The Debtor’s Federal employer
identification number is                                         .
     3.12 State Organization Number. The Debtor’s State organization number is
                    .
ARTICLE IV
COVENANTS
     From the date of this Security Agreement, and thereafter until this
Security Agreement is terminated:
     4.1 General.
          4.1.1 Inspection. The Debtor will permit the Lender, by its
representatives and Lenders (i) to inspect the Collateral, (ii) to examine and
make copies of the records of the Debtor relating to the Collateral and (iii) to
discuss the Collateral and the related records of the Debtor with, and to be
advised as to the same by, the Debtor’s officers and employees (and, in the case
of any Receivable, with any person or entity which is or may be obligated
thereon), all at such reasonable times and intervals as the Lender may
determine, and all at the Debtor’s expense.

5

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

 

          4.1.2 Taxes. The Debtor will pay when due all taxes, assessments and
governmental charges and levies upon the Collateral, except those which are
being contested in good faith by appropriate proceedings and with respect to
which no Lien exists.
          4.1.3 Records and Reports; Notification of Default. The Debtor will
maintain complete and accurate books and records with respect to the Collateral,
and furnish to the Lender, such reports relating to the Collateral as the Lender
shall from time to time request. The Debtor will give prompt notice in writing
to the Lender of the occurrence of any Default or Unmatured Default and of any
other development, financial or otherwise, which might materially and adversely
affect the Collateral.
          4.1.4 Financing Statements and Other Actions; Defense of Title. The
Debtor hereby authorizes the Lender to file, and if requested will execute and
deliver to the Lender, all financing statements and other documents and take
such other actions as may from time to time be requested by the Lender in order
to maintain a first perfected security interest in and, if applicable, Control
of, the Collateral. The Debtor will take any and all actions necessary to defend
title to the Collateral against all persons and to defend the security interest
of the Lender in the Collateral and the priority thereof against any Lien not
expressly permitted hereunder.
          4.1.5 Disposition of Collateral. The Debtor will not sell, lease or
otherwise dispose of the Collateral except (i) prior to the occurrence of a
Default or Unmatured Default, dispositions specifically permitted pursuant to
the Credit Agreement, (ii) until such time following the occurrence of a Default
as the Debtor receives a notice from the Lender instructing the Debtor to cease
such transactions, sales or leases of Inventory in the ordinary course of
business, and (iii) until such time as the Debtor receives a notice from the
Lender pursuant to Article VII, proceeds of Inventory and Accounts collected in
the ordinary course of business.
          4.1.6 Liens. The Debtor will not create, incur, or suffer to exist any
Lien on the Collateral except (i) the security interest created by this Security
Agreement, (ii) existing Liens described in the Credit Agreement, and
(iii) other Liens permitted pursuant to the Credit Agreement.
          4.1.7 Change in Legal Existence, Type or Jurisdiction of Organization,
Location, Name. The Debtor will:
     (a) preserve its existence as a                      and not, in one
transaction or a series of related transactions, merge into or consolidate with
any other entity, or sell all or substantially all of its assets;
     (b) not change its state of organization;
     (c) not maintain its place of business (if it has only one) or its chief
executive office (if it has more than one place of business) at a location other
than a location specified on Exhibit “A;” and
     (d) not (i) have any Inventory, Equipment or Fixtures or proceeds or
products thereof (other than Inventory and proceeds thereof located outside the
United States or disposed of as permitted by Section 4.1.5) at a location other
than

6

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

 

a location specified in Exhibit “A”, (ii) change its name or taxpayer
identification number or (iii) change its mailing address,
unless the Debtor shall have given the Lender not less than 30 days’ prior
written notice of such event or occurrence and the Lender shall have either
(x) determined that such event or occurrence will not adversely affect the
validity, perfection or priority of the Lender’s security interest in the
Collateral, or (y) taken such steps (with the cooperation of the Debtor to the
extent necessary or advisable) as are necessary or advisable to properly
maintain the validity, perfection and priority of the Lender’s security interest
in the Collateral.
          4.1.8 Other Financing Statements. The Debtor will not sign or
authorize the signing on its behalf or the filing of any financing statement
naming it as debtor covering all or any portion of the Collateral, except as
permitted by Section 4.1.6.
     4.2 Receivables.
          4.2.1 Certain Agreements on Receivables. The Debtor will not make or
agree to make any discount, credit, rebate or other reduction in the original
amount owing on a Receivable or accept in satisfaction of a Receivable less than
the original amount thereof, except that, prior to the occurrence of a Default,
the Debtor may reduce the amount of Accounts arising from the sale of Inventory
in accordance with its present policies and in the ordinary course of business.
          4.2.2 Collection of Receivables. Except as otherwise provided in this
Security Agreement, the Debtor will collect and enforce, at the Debtor’s sole
expense, all amounts due or hereafter due to the Debtor under the Receivables.
          4.2.3 Delivery of Invoices. The Debtor will deliver to the Lender
immediately upon its request after the occurrence of a Default duplicate
invoices with respect to each Account bearing such language of assignment as the
Lender shall specify.
          4.2.4 Disclosure of Counterclaims on Receivables. If (i) any discount,
credit or agreement to make a rebate or to otherwise reduce the amount owing on
a Receivable exists or (ii) if, to the knowledge of the Debtor, any dispute,
setoff, claim, counterclaim or defense exists or has been asserted or threatened
with respect to a Receivable, the Debtor will disclose such fact to the Lender
in writing in connection with the inspection by the Lender of any record of the
Debtor relating to such Receivable and in connection with any invoice or report
furnished by the Debtor to the Lender relating to such Receivable.
     4.3 Inventory and Equipment.
          4.3.1 Maintenance of Goods. The Debtor will do all things necessary to
maintain, preserve, protect and keep the Inventory and the Equipment in good
repair and working and saleable condition.
          4.3.2 Insurance. The Debtor will (i) maintain fire and extended
coverage insurance on the Inventory and Equipment containing a lender’s loss
payable clause in favor of

7

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

 

the Lender, and providing that said insurance will not be terminated except
after at least 30 days’ written notice from the insurance company to the Lender,
(ii) maintain such other insurance on the Collateral for the benefit of the
Lender as the Agent shall from time to time request, (iii) furnish to the Lender
upon the request of the Lender from time to time the originals of all policies
of insurance on the Collateral and certificates with respect to such insurance
and (iv) maintain general liability insurance naming the Lender, as an
additional insured.
          4.3.3 Titled Vehicles. If requested in writing by the Lender, the
Debtor will give the Lender notice of its acquisition of any vehicle covered by
a certificate of title and deliver to the Lender, upon request, the original of
any vehicle title certificate and do all things necessary to have the Lien of
the Lender noted on any such certificate.
     4.4 Instruments, Securities, Chattel Paper, Documents and Pledged Deposits.
The Debtor will (i) deliver to the Lender immediately upon execution of this
Security Agreement the originals of all Chattel Paper, Securities and
Instruments constituting Collateral (if any then exist), (ii) hold in trust for
the Lender upon receipt and immediately thereafter deliver to the Lender any
Chattel Paper, Securities and Instruments constituting Collateral, (iii) upon
the designation of any Pledged Deposits (as set forth in the definition
thereof), deliver to the Lender such Pledged Deposits which are evidenced by
certificates included in the Collateral endorsed in blank, marked with such
legends and assigned as the Lender shall specify, and (iv) upon the Lender’s
request, after the occurrence and during the continuance of a Default, deliver
to the Lender (and thereafter hold in trust for the Lender upon receipt and
immediately deliver to the Lender) any Document evidencing or constituting
Collateral.
     4.5 Uncertificated Securities and Certain Other Investment Property. The
Debtor will permit the Lender from time to time to cause the appropriate issuers
(and, if held with a securities intermediary, such securities intermediary) of
uncertificated securities or other types of Investment Property not represented
by certificates which are Collateral to mark their books and records with the
numbers and face amounts of all such uncertificated securities or other types of
Investment Property not represented by certificates and all rollovers and
replacements therefor to reflect the Lien of the Lender granted pursuant to this
Security Agreement. The Debtor will take any actions necessary to cause (i) the
issuers of uncertificated securities which are Collateral and which are
Securities and (ii) any financial intermediary which is the holder of any
Investment Property, to cause the Lender to have and retain Control over such
Securities or other Investment Property. Without limiting the foregoing, the
Debtor will, with respect to Investment Property held with a financial
intermediary, cause such financial intermediary to enter into a control
agreement with the Lender in form and substance satisfactory to the Lender.
     4.6 Stock and Other Ownership Interests.
          4.6.1 Changes in Capital Structure of Issuers. The Debtor will not
(i) permit or suffer any issuer of privately held company securities or other
ownership interests in a corporation, partnership, joint venture or limited
liability company constituting Collateral to dissolve, liquidate, retire any of
its capital stock or other Instruments or Securities evidencing ownership,
reduce its capital or merge or consolidate with any other entity, or (ii) vote
any of the Instruments, Securities or other Investment Property in favor of any
of the foregoing.

8

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

 

          4.6.2 Issuance of Additional Securities. The Debtor will not permit or
suffer the issuer of privately held company securities or other ownership
interests in a corporation, partnership, joint venture or limited liability
company constituting Collateral to issue any such securities or other ownership
interests, any right to receive the same or any right to receive earnings,
except to the Debtor.
          4.6.3 Registration of Pledged Securities and other Investment
Property. The Debtor will permit any registrable Collateral to be registered in
the name of the Lender or its nominee at any time at the option of the Required
Secured Parties.
          4.6.4 Exercise of Rights in Pledged Securities and other Investment
Property. The Debtor will permit the Lender or its nominee at any time after the
occurrence of a Default, without notice, to exercise all voting and company
rights relating to the Collateral, including, without limitation, exchange,
subscription or any other rights, privileges, or options pertaining to any
company securities or other ownership interests or Investment Property in or of
a corporation, partnership, joint venture or limited liability company
constituting Collateral and the Stock Rights as if it were the absolute owner
thereof.
     4.7 Pledged Deposits. The Debtor will not withdraw all or any portion of
any Pledged Deposit or fail to rollover said Pledged Deposit without the prior
written consent of the Lender.
     4.8 Deposit Accounts. The Debtor will (i) upon the Lender’s request, cause
each bank or other financial institution in which it maintains (a) a Deposit
Account to enter into a control agreement with the Lender, in form and substance
satisfactory to the Lender in order to give the Lender Control of the Deposit
Account or (b) other deposits (general or special, time or demand, provisional
or final) to be notified of the security interest granted to the Lender
hereunder and cause each such bank or other financial institution to acknowledge
such notification in writing and (ii) upon the Lender’s request after the
occurrence and during the continuance of a Default, deliver to each such bank or
other financial institution a letter, in form and substance acceptable to the
Lender, transferring ownership of the Deposit Account to the Lender or
transferring dominion and control over each such other deposit to the Lender
until such time as no Default exists. In the case of deposits maintained with
the Lender, the terms of such letter shall be subject to the provisions of the
Credit Agreement regarding setoffs.
     4.9 Letter-of-Credit Rights. The Debtor will upon the Lender’s request,
cause each issuer of a letter of credit, to consent to the assignment of
proceeds of the letter of credit in order to give the Lender Control of the
letter-of-credit rights to such letter of credit.
     4.10 Federal, State or Municipal Claims. The Debtor will notify the Lender
of any Collateral which constitutes a claim against the United States government
or any state or local government or any instrumentality or agency thereof, the
assignment of which claim is restricted by federal, state or municipal law.

9

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

 

ARTICLE V
DEFAULT
     5.1 The occurrence of any one or more of the following events shall
constitute a Default:
     5.1.1 Any representation or warranty made by or on behalf of the Debtor
under or in connection with this Security Agreement shall be materially false as
of the date on which made.
     5.1.2 The breach by the Debtor of any of the terms or provisions of
Article IV or Article VII.
     5.1.3 The breach by the Debtor (other than a breach which constitutes a
Default under Section 5.1.1 or 5.1.2) of any of the terms or provisions of this
Security Agreement which is not remedied within thirty (30) days after the
giving of written notice to the Debtor by the Lender.
     5.1.4 Any material portion of the Collateral shall be transferred or
otherwise disposed of, either voluntarily or involuntarily, in any manner not
permitted by Section 4.1.5 or 8.7 or shall be lost, stolen, damaged or
destroyed.
     5.1.5 The occurrence of any “Default” under, and as defined in, the Credit
Agreement.
     5.2 Acceleration and Remedies. Upon the acceleration of the obligations
under the Credit Agreement pursuant to Section 8.1 thereof, the Obligations and,
to the extent provided for under the Rate Management Transactions evidencing the
same, the Rate Management Obligations, shall immediately become due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, and the Lender may, with the concurrence or at the
direction of the Required Secured Parties, exercise any or all of the following
rights and remedies:
     5.2.1 Those rights and remedies provided in this Security Agreement, the
Credit Agreement, or any other Credit Document, provided that this Section 5.2.1
shall not be understood to limit any rights or remedies available to the Lender
prior to a Default.
     5.2.2 Those rights and remedies available to a secured party under the
Arizona UCC (whether or not the Arizona UCC applies to the affected Collateral)
or under any other applicable law (including, without limitation, any law
governing the exercise of a bank’s right of setoff or bankers’ lien) when a
debtor is in default under a security agreement.
     5.2.3 Without notice except as specifically provided in Section 8.1 or
elsewhere herein, sell, lease, assign, grant an option or options to purchase or
otherwise dispose of the Collateral or any part thereof in one or more parcels
at

10

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

 

public or private sale, for cash, on credit or for future delivery, and upon
such other terms as the Lender may deem commercially reasonable.
     The Lender may comply with any applicable state or federal law requirements
in connection with a disposition of the Collateral and compliance will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.
     If, after the Credit Agreement has terminated by its terms and all of the
Obligations have been paid in full, there remain Rate Management Obligations
outstanding, the Required Secured Parties may exercise the remedies provided in
this Section 5.2 upon the occurrence of any event which would allow or require
the termination or acceleration of any Rate Management Obligations pursuant to
the terms of the agreement governing any Rate Management Transaction.
     5.3 Debtor’s Obligations Upon Default. Upon the request of the Lender after
the occurrence of a Default, the Debtor will:
     5.3.1 Assembly of Collateral. Assemble and make available to the Lender the
Collateral and all records relating thereto at any place or places specified by
the Lender.
     5.3.2 Secured Party Access. Permit the Lender, by the Lender’s
representatives and Lenders, to enter any premises where all or any part of the
Collateral, or the books and records relating thereto, or both, are located, to
take possession of all or any part of the Collateral and to remove all or any
part of the Collateral.
     5.4 License. The Lender is hereby granted a license or other right to use,
following the occurrence and during the continuance of a Default, without
charge, the Debtor’s labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, customer lists and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral, and, following the occurrence and during the continuance of a
Default, the Debtor’s rights under all licenses and all franchise agreements
shall inure to the Lender’s benefit. In addition, the Debtor hereby irrevocably
agrees that the Lender may, following the occurrence and during the continuance
of a Default, sell any of the Debtor’s Inventory directly to any person,
including without limitation persons who have previously purchased the Debtor’s
Inventory from the Debtor and in connection with any such sale or other
enforcement of the Lender’s rights under this Agreement, may sell Inventory
which bears any trademark owned by or licensed to the Debtor and any Inventory
that is covered by any copyright owned by or licensed to the Debtor and the
Lender may finish any work in process and affix any trademark owned by or
licensed to the Debtor and sell such Inventory as provided herein.

11

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

 

ARTICLE VI
WAIVERS, AMENDMENTS AND REMEDIES
     No delay or omission of the Lender to exercise any right or remedy granted
under this Security Agreement shall impair such right or remedy or be construed
to be a waiver of any Default or an acquiescence therein, and any single or
partial exercise of any such right or remedy shall not preclude any other or
further exercise thereof or the exercise of any other right or remedy. No
waiver, amendment or other variation of the terms, conditions or provisions of
this Security Agreement whatsoever shall be valid unless in writing signed by
the Lender. All rights and remedies contained in this Security Agreement or by
law afforded shall be cumulative and all shall be available to the Lender until
the Secured Obligations have been paid in full.
ARTICLE VII
PROCEEDS; COLLECTION OF RECEIVABLES
     7.1 Lockboxes. Upon request of the Lender after the occurrence of a Default
or Unmatured Default, the Debtor shall execute and deliver to the Lender
irrevocable lockbox agreements in the form provided by or otherwise acceptable
to the Lender, which agreements shall be accompanied by an acknowledgment by the
bank where the lockbox is located of the Lien of the Lender granted hereunder
and of irrevocable instructions to wire all amounts collected therein to a
special collateral account at the Lender.
     7.2 Collection of Receivables. The Lender may at any time after the
occurrence of a Default, by giving the Debtor written notice, elect to require
that the Receivables be paid directly to the Lender. In such event, the Debtor
shall, and shall permit the Lender to, promptly notify the account debtors or
obligors under the Receivables of the Lender’ interest therein and direct such
account debtors or obligors to make payment of all amounts then or thereafter
due under the Receivables directly to the Lender. Upon receipt of any such
notice from the Lender, the Debtor shall thereafter hold in trust for the
Lender, all amounts and proceeds received by it with respect to the Receivables
and Other Collateral and immediately and at all times thereafter deliver to the
Lender all such amounts and proceeds in the same form as so received, whether by
cash, check, draft or otherwise, with any necessary endorsements. The Lender
shall hold and apply funds so received as provided by the terms of Sections 7.3
and 7.4.
     7.3 Special Collateral Account. After the occurrence of a Default, the
Lender may require all cash proceeds of the Collateral to be deposited in a
special non-interest bearing cash collateral account with the Lender and held
there as security for the Secured Obligations. The Debtor shall have no control
whatsoever over said cash collateral account. If no Default has occurred or is
continuing, the Lender shall from time to time deposit the collected balances in
said cash collateral account into the Debtor’s general operating account with
the Lender. If any Default has occurred and is continuing, the Lender may, from
time to time, apply the collected balances in said cash collateral account to
the payment of the Secured Obligations whether or not the Secured Obligations
shall then be due.

12

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

 

     7.4 Application of Proceeds. The proceeds of the Collateral shall be
applied by the Lender to payment of the Secured Obligations in the following
order unless a court of competent jurisdiction shall otherwise direct:
     (a) FIRST, to payment of all costs and expenses of the Lender incurred in
connection with the collection and enforcement of the Secured Obligations or of
the security interest granted to the Lender pursuant to this Security Agreement;
     (b) SECOND, to payment of that portion of the Secured Obligations
constituting accrued and unpaid interest and fees;
     (c) THIRD, to payment of the principal of the Secured Obligations and the
net early termination payments and any other Rate Management Obligations then
due and unpaid from the Debtor to the Lender;
     (d) FOURTH, to payment of any Secured Obligations (other than those listed
above); and
     (e) FIFTH, the balance, if any, after all of the Secured Obligations have
been satisfied, shall be deposited by the Lender into the Debtor’s general
operating account with the Lender.
ARTICLE VIII
GENERAL PROVISIONS
     8.1 Notice of Disposition of Collateral; Condition of Collateral. The
Debtor hereby waives notice of the time and place of any public sale or the time
after which any private sale or other disposition of all or any part of the
Collateral may be made. To the extent such notice may not be waived under
applicable law, any notice made shall be deemed reasonable if sent to the
Debtor, addressed as set forth in Article IX, at least ten days prior to (i) the
date of any such public sale or (ii) the time after which any such private sale
or other disposition may be made. Lender shall have no obligation to clean-up or
otherwise prepare the Collateral for sale.
     8.2 Compromises and Collection of Collateral. The Debtor and the Lender
recognize that setoffs, counterclaims, defenses and other claims may be asserted
by obligors with respect to certain of the Receivables, that certain of the
Receivables may be or become uncollectible in whole or in part and that the
expense and probability of success in litigating a disputed Receivable may
exceed the amount that reasonably may be expected to be recovered with respect
to a Receivable. In view of the foregoing, the Debtor agrees that the Lender may
at any time and from time to time, if a Default has occurred and is continuing,
compromise with the obligor on any Receivable, accept in full payment of any
Receivable such amount as the Lender in its sole discretion shall determine or
abandon any Receivable, and any such action by the Lender shall be commercially
reasonable so long as the Lender acts in good faith based on information known
to it at the time it takes any such action.

13

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

 

     8.3 Secured Party Performance of Debtor Obligations. Without having any
obligation to do so, the Lender may perform or pay any obligation which the
Debtor has agreed to perform or pay in this Security Agreement and the Debtor
shall reimburse the Lender for any amounts paid by the Lender pursuant to this
Section 8.3. The Debtor’s obligation to reimburse the Lender pursuant to the
preceding sentence shall be a Secured Obligation payable on demand.
     8.4 Authorization for Secured Party to Take Certain Action. The Debtor
irrevocably authorizes the Lender at any time and from time to time in the sole
discretion of the Lender and appoints the Lender as its attorney in fact (i) to
execute on behalf of the Debtor as debtor and to file financing statements
necessary or desirable in the Lender’s sole discretion to perfect and to
maintain the perfection and priority of the Lender’s security interest in the
Collateral, (ii) to indorse and collect any cash proceeds of the Collateral,
(iii) to file a carbon, photographic or other reproduction of this Security
Agreement or any financing statement with respect to the Collateral as a
financing statement and to file any other financing statement or amendment of a
financing statement (which does not add new collateral or add a debtor) in such
offices as the Lender in its sole discretion deems necessary or desirable to
perfect and to maintain the perfection and priority of the Lender’s security
interest in the Collateral, (iv) to contact and enter into one or more
agreements with the issuers of uncertificated securities which are Collateral
and which are Securities or with financial intermediaries holding other
Investment Property as may be necessary or advisable to give the Lender Control
over such Securities or other Investment Property, (v) subject to the terms of
Section 4.1.5, to enforce payment of the Receivables in the name of the Lender
or the Debtor, (vi) to apply the proceeds of any Collateral received by the
Lender to the Secured Obligations as provided in Article VII, and (vii) to
discharge past due taxes, assessments, charges, fees or Liens on the Collateral
(except for such Liens as are specifically permitted hereunder), and the Debtor
agrees to reimburse the Lender on demand for any payment made or any expense
incurred by the Lender in connection therewith, provided that this authorization
shall not relieve the Debtor of any of its obligations under this Security
Agreement or under the Credit Agreement.
     8.5 Specific Performance of Certain Covenants. The Debtor acknowledges and
agrees that a breach of any of the covenants contained in Sections 4.1.5, 4.1.6,
4.4, 5.3, or 8.7 or in Article VII will cause irreparable injury to the Lender,
that the Lender has no adequate remedy at law in respect of such breaches and
therefore agrees, without limiting the right of the Lender or the Lender to seek
and obtain specific performance of other obligations of the Debtor contained in
this Security Agreement, that the covenants of the Debtor contained in the
Sections referred to in this Section 8.5 shall be specifically enforceable
against the Debtor.
     8.6 Use and Possession of Certain Premises. Upon the occurrence of a
Default, the Lender shall be entitled to occupy and use any premises owned or
leased by the Debtor where any of the Collateral or any records relating to the
Collateral are located until the Secured Obligations are paid or the Collateral
is removed therefrom, whichever first occurs, without any obligation to pay the
Debtor for such use and occupancy.
     8.7 Dispositions Not Authorized. The Debtor is not authorized to sell or
otherwise dispose of the Collateral except as set forth in Section 4.1.5 and
notwithstanding any course of dealing between the Debtor and the Lender or other
conduct of the Lender, no authorization to

14

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

 

sell or otherwise dispose of the Collateral (except as set forth in
Section 4.1.5) shall be binding upon the Lender unless such authorization is in
writing signed by the Lender.
     8.8 Benefit of Agreement. The terms and provisions of this Security
Agreement shall be binding upon and inure to the benefit of the Debtor and the
Lender and their respective successors and assigns (including all persons who
become bound as a debtor to this Security Agreement), except that the Debtor
shall not have the right to assign its rights or delegate its obligations under
this Security Agreement or any interest herein, without the prior written
consent of the Lender.
     8.9 Survival of Representations. All representations and warranties of the
Debtor contained in this Security Agreement shall survive the execution and
delivery of this Security Agreement.
     8.10 Taxes and Expenses. Any taxes (including income taxes) payable or
ruled payable by Federal or State authority in respect of this Security
Agreement shall be paid by the Debtor, together with interest and penalties, if
any. The Debtor shall reimburse the Lender for any and all out-of-pocket
expenses and internal charges (including reasonable attorneys’, auditors’ and
accountants’ fees and reasonable time charges of attorneys, paralegals, auditors
and accountants who may be employees of the Lender) paid or incurred by the
Lender in connection with the preparation, execution, delivery, administration,
collection and enforcement of this Security Agreement and in the audit,
analysis, administration, collection, preservation or sale of the Collateral
(including the expenses and charges associated with any periodic or special
audit of the Collateral). Any and all costs and expenses incurred by the Debtor
in the performance of actions required pursuant to the terms hereof shall be
borne solely by the Debtor.
     8.11 Headings. The title of and section headings in this Security Agreement
are for convenience of reference only, and shall not govern the interpretation
of any of the terms and provisions of this Security Agreement.
     8.12 Termination. This Security Agreement shall continue in effect
(notwithstanding the fact that from time to time there may be no Secured
Obligations outstanding) until (i) the Credit Agreement has terminated pursuant
to its express terms and (ii) all of the Secured Obligations have been
indefeasibly paid and performed in full and no commitments of the Lender which
would give rise to any Secured Obligations are outstanding.
     8.13 Entire Agreement. This Security Agreement embodies the entire
agreement and understanding between the Debtor and the Lender relating to the
Collateral and supersedes all prior agreements and understandings between the
Debtor and the Lender relating to the Collateral.
     8.14 CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF ARIZONA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS.

15

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

 

     8.15 Non-Borrower Provisions.
     (a) All advances of principal under the Note shall be made to Borrower
subject to and in accordance with the terms thereof. It is not necessary for the
Agent or the Lenders to inquire into the powers of Borrower or the officers,
directors, partners or agents acting or purporting to act on its behalf. Debtor
is and shall continue to be fully informed as to all aspects of the business
affairs of Borrower that it deems relevant to the risks it is assuming and
hereby waives and fully discharges the Agent and the Lenders from any and all
obligations to communicate to Debtor any facts of any nature whatsoever
regarding Borrower and Borrower’s business affairs.
     (b) Debtor authorizes Lender, without notice or demand, without affecting
the obligations of Debtor hereunder or the personal liability of any person for
payment or performance of the Secured Obligations and without affecting the lien
or the priority of the security interest, from time to time, at the request of
any person primarily obligated therefor, to renew, compromise, extend,
accelerate or otherwise change the time for payment or performance of, or
otherwise change the terms of, all or any part of the Secured Obligations,
including increase or decrease any rate of interest thereon. Debtor waives and
agrees not to assert: (i) any right to require the Agent and the Lenders to
proceed against Borrower; (ii) the benefits of any statutory provision limiting
the liability of a surety, including without limitation the benefit of
Section 12-1641, et seq., of the Arizona Revised Statutes; and (iii) any defense
arising by reason of any disability or other defense of Borrower or by reason of
the cessation from any cause whatsoever of the liability of Borrower. Debtor
shall have no right of subrogation and hereby waives any right to enforce any
remedy which the Agent and the Lenders now have, or may hereafter have, against
Borrower.
ARTICLE IX
NOTICES
     9.1 Sending Notices. Any notice required or permitted to be given under
this Security Agreement shall be sent (and deemed received) in the manner and to
the addresses set forth in the Credit Agreement.
     9.2 Change in Address for Notices. Each of the Debtor and the Lender may
change the address for service of notice upon it by a notice in writing to the
other parties.

16

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

 

     IN WITNESS WHEREOF, the Debtor and the Lender have executed this Security
Agreement as of the date first above written.

                                                                              ,
                                                    
 
           
 
  By:        
 
     
 
   
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   
 
           
 
  JPMORGAN CHASE BANK, N.A., a national
banking association    
 
           
 
  By:        
 
     
 
   
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   

17