Document:

EXHIBIT 10.11

EXHIBIT 10.11

SECURITY AGREEMENT

				
	Borrowers:

	AirPatrol Corporation

9861 Broken Land Parkway

Suite 204

Columbia, MD 21046

	Lender:

	SYSOREX GLOBAL HOLDINGS CORP.

3375 Scott Blvd. Suite 440

Santa Clara, CA 95054

This SECURITY AGREEMENT, dated as of August 30, 2013, is made and entered into between SYSOREX GLOBAL HOLDINGS CORP., a Nevada corporation (“Lender”), and AIRPATROL CORPORATION, a Nevada corporation (“Borrower”), with reference to the following facts:

Borrower and Lender are concurrently herewith entering into that certain Loan Agreement, and Secured Promissory Note, each dated as of even date herewith (as the same may be amended or restated from time to time, collectively the “Loan Agreement”), pursuant to which Lender is providing financial accommodations to Borrower upon the terms and conditions set forth therein.  All undefined capitalized terms in this Agreement shall have the same definitions as set forth in the Loan Agreement.

To induce Lender to enter into the Loan Agreement and provide such financial accommodations to Borrower, and in consideration thereof, Borrower is executing and delivering this Security Agreement to secure the prompt payment and performance of all of Borrower’s obligations owing to Lender under the Loan Agreement, as more particularly set forth herein.

1.

SECURITY INTEREST.  To secure the prompt payment and performance to Lender of all of the Obligations, Borrower hereby grants to Lender a continuing security interest in the Collateral.  Borrower is not authorized to sell, assign, transfer or otherwise convey any Collateral without Lender’s prior written consent, except for the sale of finished inventory in Borrower’s usual course of business and except as otherwise provided in the Loan Agreement.  Borrower agrees to sign any instruments and documents reasonably requested by Lender to evidence, perfect, or protect the interests of Lender in the Collateral.  Borrower agrees to deliver to Lender, upon reasonable request of Lender, the originals of all instruments, chattel paper and documents evidencing or related to the Collateral.  Borrower shall not grant or permit any lien or security in the Collateral or any interest therein other than Permitted Encumbrances.

2.

POWER OF ATTORNEY.  Borrower irrevocably appoints Lender and its successors and as true and lawful attorney in fact, and authorizes Lender to, upon the occurrence and continuance of an Event of Default, (i) demand, collect, receive, sue, and give releases to any Account Debtor for the monies due or which may become due upon or with respect to the Loan and to compromise, prosecute, or defend any action, claim, case or proceeding relating to the Loan, including the filing of a claim or the voting of such claims in any bankruptcy case, all in Lender’s name or Borrower’s name, as Lender may choose; (ii) prepare, file and sign Borrower’s name on any notice, claim, assignment, demand, draft, or notice of or satisfaction of lien or mechanics’ lien or similar document; (iii) notify all Account Debtors with respect to the Loan to pay Lender directly; (iv) receive and open all mail addressed to Borrower for the purpose of collecting the Loan; (v) endorse Borrower’s name on any checks or other forms of payment on the Loan; (vi) execute on behalf of Borrower any and all instruments, documents, financing statements and the like to perfect Lender’s interests in the Collateral; (vii) debit any Borrower’s deposit accounts maintained with Lender for any and all Obligations due under this Agreement;  and (viii) do all acts and things necessary or expedient, in furtherance of any such purposes.  Upon the occurrence and continuation of an Event of Default, all of the power of attorney rights granted by Borrower to Lender hereunder shall be applicable with respect to all Collateral.

3.

REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to Lender as of the date hereof:

3.1

No representation, warranty or other statement of Borrower in any certificate or written statement given to Lender contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained in the certificates or statement not misleading.

3.2

Borrower is duly existing and in good standing in its state of formation and is licensed to do business in Maryland, the state in which the conduct of its business or its ownership of property requires that it be qualified.

3.3

The execution, delivery and performance of this Agreement has been duly authorized, and does not conflict with Borrower’s organizational documents, nor constitute an Event of Default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound except as would not reasonably be expected to have a material adverse effect on the assets or business of the Borrower.

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3.4

Borrower has good title to the Collateral and all inventory is in all material respects of good and marketable quality, free from material defects.

3.5

Borrower’s name, form of organization and the location of its chief executive office  are set forth at the beginning of this Agreement, the records concerning all Collateral are kept in Burnaby, British Columbia and at the address set forth at the beginning of this Agreement, and Borrower is located at its address for notices set forth in this Agreement.

3.6

If Borrower owns any registered copyrights, patents or trademarks, and licenses of any of the foregoing, or applications therefor, such ownership has been specifically disclosed and identified to Lender in writing.

4.

MISCELLANEOUS PROVISIONS.  Borrower shall:

4.1

Maintain its corporate existence and good standing in its jurisdictions of incorporation and, except as would not reasonably be expected to have a material adverse effect on the assets or business of the Borrower, maintain its qualification to do business in each jurisdiction necessary to Borrower’s business or operations.

4.2

Give Lender at least 30 days prior written notice of changes to its name, organization, chief executive office or location of records.

4.3

Except as otherwise provided in the Loan Agreement, pay all its taxes including gross payroll, withholding and sales taxes when due and will deliver satisfactory evidence of payment to Lender if requested.

4.4

Execute any further instruments and take further action as Lender reasonably requests to perfect or continue Lender’s security interest in the Collateral or to affect the purposes of this Agreement.

4.5

No later than thirty (30) days after the acquisition thereof, notify Lender if Borrower hereafter obtains any interest in any registered copyrights, patents or trademarks or applications therefor that are significant in value or are material to the conduct of its business.

(a)

No later than 30 days after the end of each fiscal month (including the last period in each fiscal year), monthly financial statements of Borrower, certified and dated by an authorized financial officer.  The statements shall be prepared on a consolidating and consolidated basis.

(b)

No later than 30 days after the end of each fiscal month, a detailed aging of Borrower's receivables by invoice or a summary aging by account debtor, together with payable aging, inventory analysis, deferred revenue report, and such other matters as Lender may reasonably request.

4.6

Promptly upon Lender’s request, such other books, records, statements, lists of property and accounts, budgets, forecasts or reports as to Borrower as Lender may reasonably request.

4.7

Promptly provide to Lender such additional information and documents regarding the finances, properties, business or books and records of Borrower or any other obligor as Lender may reasonably request.

5.

DEFAULT AND REMEDIES.

5.1

Events of Default.  The occurrence of any Event of Default under the Loan Agreement shall constitute an Event of Default hereunder.

5.2

Remedies. Upon the occurrence of an Event of Default, (1) all or a portion of the Obligations shall be, at the option of and upon demand by Lender, or with respect to an Event of Default described in clause (f), (g), (h) or (i) of Section 4.1 of the Loan Agreement, automatically and without notice or demand, due and payable in full; and (2) Lender shall have and may exercise all the rights and remedies under this Agreement and under applicable law, including the rights and remedies of a secured party under the UCC, all the power of attorney rights described in Section 2 with respect to all Collateral, and the right to collect, dispose of, sell, lease, use, and realize upon all Financed Loan and all Collateral in any commercially reasonable manner.

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6.

FEES, COSTS AND EXPENSES; INDEMNIFICATION. Borrower shall pay to Lender upon demand all reasonable and documented out-of-pocket fees, costs and expenses (including fees of attorneys and professionals and their costs and expenses) that Lender incurs or may from time to time impose in connection with any of the following: (a) preparing, negotiating, administering, and enforcing this Agreement or any other agreement executed in connection herewith, including any amendments, waivers or consents in connection with any of the foregoing, (b) any litigation or dispute (whether instituted by Lender, Borrower or any other person) in any way relating to the Collateral, this Agreement or any other agreement executed in connection herewith or therewith, (c) enforcing any rights against Borrower, (d) protecting or enforcing its interest in the Collateral, (e) collecting the Obligations, or (f) the representation of Lender in connection with any bankruptcy case or insolvency proceeding involving the Collateral.  Borrower shall indemnify and hold Lender harmless from and against any and all claims, actions, damages, costs, expenses, and liabilities of any nature whatsoever arising in connection with any of the foregoing, in each case except to the extent arising from Lender’s gross negligence or willful misconduct.

7.

INTEGRATION, SEVERABILITY WAIVER, AND CHOICE OF LAW FORUM AND VENUE.

7.1

This Agreement, the Loan Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between Lender and Borrower concerning this credit; (b) replace any prior oral or written agreements between Lender and Borrower concerning this credit; and (c) are intended by Lender and Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. In the event of any conflict between this Agreement and the Loan Agreement, the Loan Agreement will prevail.  If any provision of this Agreement is deemed invalid by reason of law, this Agreement will be construed as not containing such provision and the remainder of the Agreement shall remain in full force and effect. Lender retains all of its rights, even if it makes an Advance after a default. If Lender waives a default, it may enforce a later default. Any consent or waiver under, or amendment of, this Agreement must be in writing, and no such consent, waiver, or amendment shall imply any obligation by Lender to make any subsequent consent, waiver, or amendment.

7.2

THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.  THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER RELATED DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA CLARA, CALIFORNIA.  EACH PARTY HERETO WAIVES ANY RIGHT TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION AND STIPULATES THAT THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA CLARA, CALIFORNIA SHALL HAVE IN PERSONAM JURISDICTION AND VENUE OVER EACH SUCH PARTY FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE, CONTROVERSY, OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT, OR ANY OTHER RELATED DOCUMENTS.  SERVICE OF PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST BORROWER MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS SPECIFIED FOR NOTICES PURSUANT TO SECTION 8.

8.

NOTICES; TELEPHONIC AND TELEFAX AUTHORIZATIONS.  All notices shall be given to Lender and Borrower at the addresses or faxes (or e-mail, if applicable) set forth on the signature page of this agreement and shall be deemed to have been delivered when actually received at the designated address.  Lender may honor telephone, fax, e-mail or telefax instructions for Advances or repayments given, or purported to be given, by any one of the Authorized Persons.  Borrower shall indemnify and hold Lender harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions Lender reasonably believes are made by any Authorized Person.  This paragraph will survive this Agreement's termination, and will benefit Lender and its officers, employees, and agents.

9.

DEFINITIONS AND CONSTRUCTION.

9.1

Definitions.

(a)

All initially capitalized terms used but not defined in this Agreement have the meanings given to such terms in the Loan Agreement.

(b)

In addition, as used in this Agreement:

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“Agreement” means this Security Agreement.

“Authorized Person” means any one of the individuals authorized to sign on behalf of Guarantor.

“Borrower” has the meaning set forth in the introductory paragraph to this Agreement.

“Collateral” means all of Borrower’s rights and interest in any and all personal property, whether now existing or hereafter acquired or created and wherever located, and all products and proceeds thereof and accessions thereto, including but not limited to the following (collectively, the “Collateral”):  (a) all accounts (including health care insurance receivables), chattel paper (including tangible and electronic chattel paper), inventory (including all goods held for sale or lease or to be furnished under a contract for service, and including returns and repossessions), equipment (including all accessions and additions thereto), instruments (including promissory notes), investment property (including securities and securities entitlements), documents (including negotiable documents), deposit accounts, letter of credit rights, money, any commercial tort claim of Borrower which is now or hereafter identified by Borrower or Lender, general intangibles (including payment intangibles and software), goods (including fixtures) and all of Borrower’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and (b) any and all cash proceeds and/or noncash proceeds thereof, including without limitation, insurance proceeds, and all supporting obligations and the security therefore or for any right to payment.

“Event of Default” has the meaning set forth in Section 5.1.

“Lender” means Sysorex Global Holdings Corp. and its successors and permitted assigns.

“Loan” means Borrower’s rights to payment arising in the ordinary course of Borrower’s business, including accounts, chattel paper, instruments, contract rights, documents, general intangibles, letters of credit, drafts, and bankers acceptances.

“Loan Agreement” is defined in the Recitals to this Agreement.

“Obligations” means all liabilities and obligations of Borrower to Lender of any kind or nature, present or future, arising under or in connection with this Agreement or under any other Loan Document, whether arising on account or by overdraft, whether direct or indirect (including those acquired by assignment) absolute or contingent, primary or secondary, due or to become due, now owing or hereafter arising, and however acquired; including, without limitation, all fees, interest and reasonable and documented out-of-pocket expenses, professional fees and attorneys’ fees.

“UCC” means the California Uniform Commercial Code, as amended or supplemented from time to time.

9.2

Construction:

(a)

In this Agreement: (i) references to the plural include the singular and to the singular include the plural; (ii) references to any gender include any other gender; (iii) the terms “include” and “including” are not limiting; (iv) the term “or” has the inclusive meaning represented by the phrase “and/or”; (v) unless otherwise specified, section and subsection references are to this Agreement; and (vi) any reference to any statute, law, or regulation shall include all amendments thereto and revisions thereof.

(b)

Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved using any presumption against either Borrower or Lender, whether under any rule of construction or otherwise.  On the contrary, this Agreement has been reviewed by each party hereto and their respective counsel.  In case of any ambiguity or uncertainty, this Agreement shall be construed and interpreted according to the ordinary meaning of the words used to accomplish fairly the purposes and intentions of all parties hereto.

(c)

Titles and section headings used in this Agreement are for convenience only and shall not be used in interpreting this Agreement.

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10.

JURY TRIAL WAIVER.  THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES.  TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.

11.

JUDICIAL REFERENCE PROVISION.

11.1

In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.

11.2

Any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the “Loan Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the “Court”).

11.3

If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration.  The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time.  The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.

11.4

THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY.  AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

[The remainder of this page intentionally left blank]

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IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement on the day and year above written.

				
	BORROWER:

	LENDER:

	 
	 

	AIRPATROL CORPORATION

	SYSOREX GLOBAL HOLDINGS CORP.,

a Nevada corporation

	 
	 

	 
	 

	 
	 

	 
	 

	By:

	/s/ Cleve Adams

	By:

	/s/ Nadir Ali

	Name:

	Cleve Adams

	Name:

	Nadir Ali

	Title:

	CEO

	Title:

	CEO

	 
	 

	Address for Notices

9861 Broken Land Parkway

Suite 204

Columba, MD 21046

	Address for Notices:

3375 Scott Blvd. Suite 440

Santa Clara, CA 95054

Fax: 650-649-1940

[Signature page to Security Agreement]EXHIBIT 10.12

EXHIBIT 10.12

SUBORDINATION AGREEMENT

THIS SUBORDINATION AGREEMENT (this “Agreement”), is entered into as of August 30, 2013, (the “Effective Date”), by and between SYSOREX GLOBAL HOLDINGS CORP, a Nevada corporation (“Senior Creditor” or the “Senior Lender”), and each of the holders of the Notes (collectively, the “Purchasers” or the “Junior Lenders”).  Capitalized terms used but not otherwise defined herein shall have the meanings given them in Section 1 below.

RECITALS

A.

AirPatrol Corporation, a Nevada corporation (“Borrower”), is indebted to Senior Creditor pursuant to (i) that certain Loan Agreement dated as of the date hereof and (ii) that certain Secured Promissory Note dated as of the date hereof (such Loan Agreement and Secured Promissory Note, as each may be amended, modified, restated, replaced or supplemented from time to time in accordance with the terms hereof, collectively, the “Senior Creditor Agreement”), by and between Borrower and Senior Creditor.  The funds advanced to or owed by Borrower under the Senior Creditor Agreement shall be referred to collectively herein as the “Senior Loans.”  To secure the Senior Loans, Borrower granted to Senior Creditor a security interest in all of its personal property assets (the “Collateral”).

B.

Borrower has entered into certain Note Purchase Documents with Purchasers which are secured by the Collateral (as hereinafter defined).

C.

Purchasers and Senior Creditor desire to agree to and to set forth their respective rights, priorities and interests governing their respective relationships with Borrower and the collateral for the loans granted pursuant to the Note Purchase Documents and the Senior Loan Documents at all times on and after the Effective Date.

AGREEMENT

NOW, THEREFORE, in consideration of Senior Creditor entering into the Senior Loan Documents with Borrower, Purchasers and Senior Creditor hereby agree as follows:

1.

DEFINITIONS

As used herein, the following terms shall have the following meanings:

“Note Purchase Documents” means each of the notes described on Schedule 1 hereto (collectively, the “Notes”), and any other agreement, document, promissory note, financing statement, or instrument executed by Borrower in favor of Purchasers pursuant to or in connection with the Subordinated Debt, in each case, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced in accordance with the terms hereof.

“Person” means any natural person, corporation, general or limited partnership, limited liability company, firm, trust, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity.

“Reorganization Subordinated Securities” means any debt or equity securities of Borrower or any other Person that are distributed to Junior Lender in respect of the Subordinated Debt pursuant to a confirmed plan of reorganization or adjustment and that (a) are subordinated to the Senior Debt (or any debt or equity securities issued in substitution of all or any portion of the Senior Debt) at least to the same extent as the Subordinated Debt is subordinated to the Senior Debt under this Agreement, (b) do not have the benefit of any obligation of any Person (whether as issuer, guarantor or otherwise) unless the Senior Debt has at least the same benefit of the obligation of such Person, and the obligation of such Person owing to Junior Lender is subordinated to such obligation owing to Senior Creditor at least to the same extent as the Subordinated Debt is subordinated to the Senior Debt under this Agreement, and (c) have all principal payments and maturities, and all mandatory redemptions and other mandatory dividends or other distributions, due on a date after the final maturity of the Senior Debt, and do not have any terms, and are not subject to or entitled to the benefit of any agreement or instrument that has terms, that are more burdensome to the issuer of or other obligor on such debt or equity securities than are the terms of the Senior Debt otherwise applicable to such issuer or other obligor.

“Senior Debt” means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Senior Creditor under the Senior Loan Documents including but not limited to such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower.

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“Senior Loan Documents” means the Senior Creditor Agreement and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of Senior Creditor pursuant to the Senior Creditor Agreement, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced in accordance with the terms hereof.

“Subordinated Debt” means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Purchasers under the Note Purchase Documents, including but not limited to such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower.

Unless otherwise specified, all references in this Agreement to a “Section” shall refer to the corresponding Section in or to this Agreement.  The capitalized term “Collateral” as used in this Agreement has the meaning ascribed to such term in the Senior Creditor Agreement.  Other capitalized terms used herein and not otherwise defined herein shall have the meaning given such terms in the Uniform Commercial Code as in effect in the State of California, as in effect from time to time (“UCC”).

2.

SUBORDINATION

(a)

On the terms and conditions set forth below, all liens and security interests securing the Subordinated Debt are hereby subordinated to all liens and security interests securing the Senior Debt.

(b)

Purchasers shall not create, maintain or perfect any security interest in or lien on any property of Borrower, other than the security interests and liens previously granted in favor of Purchasers in the Collateral.  If, notwithstanding the foregoing, any other such lien shall be created or shall arise, whether by operation of law or otherwise, and may from time to time exist in favor of Purchasers in or on any Collateral to secure all or any portion of the Subordinated Debt, then any liens granted by Borrower in favor of Senior Creditor to secure the Senior Debt shall in all respects be first and senior liens, superior to any liens in favor of Purchasers securing the Subordinated Debt, notwithstanding (i) the date, manner or order of perfection of the security interests and liens granted in favor of Senior Creditor, (ii) the provisions of the UCC or any other applicable laws or decisions, (iii) the provisions of any contract in effect between Senior Creditor, on the one hand, and Borrower or any affiliate thereof, on the other, and (iv) whether Senior Creditor or any agent or bailee thereof holds possession of any part or all of the Collateral.  In the event Purchasers have or obtain possession of any such property or foreclose upon or enforce the lien upon any such property, whether by judicial action or otherwise, then all such property shall be immediately delivered in kind to Senior Creditor or, if not deliverable in kind, all cash or non-cash proceeds and profits of such property shall be held in trust for the benefit of Senior Creditor and paid over to Senior Creditor, without any deduction or offset, unless and until all of the Senior Debt shall have been paid in cash in full and all commitments to extend credit under the Senior Creditor Agreement shall have been terminated.

(c)

The subordination contained in this Agreement is intended to define the rights and duties of Purchasers and Senior Creditor; it is not intended that any third party (including any bankruptcy trustee, receiver, or debtor-in-possession) shall benefit from it.  If the effect of the subordination contained in this Agreement would be to give any third party a priority status to which that party would not otherwise be entitled, then that provision shall, to the extent necessary to avoid that priority, be given no effect and the rights and priorities of Senior Creditor and Purchasers shall be determined in accordance with applicable law and this Agreement.

(d)

Notwithstanding anything in this Agreement to the contrary, nothing herein shall be deemed to subordinate, waive or restrict (i) the conversion of the Subordinated Debt into equity in accordance with the Note Purchase Documents, and (ii) the contractual rights of Purchasers under any warrants or capital stock that the Borrower may issue to Purchasers from time to time, nor shall anything herein restrict the performance of Borrower’s obligations under such warrants or with respect to such capital stock, its conversion or otherwise.

(e)

In the event of the occurrence of an Insolvency Event (as hereinafter defined), (i) this Agreement shall remain in full force and effect in accordance with Section 510(a) of the United States Bankruptcy Code, and (ii) the Collateral shall include, without limitation, all Collateral arising during or after any such Insolvency Event.

3.

SENIOR CREDITOR’S PRIORITY

In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the property of Borrower or the proceeds thereof to the creditors of Borrower, or the readjustment of the Senior Debt and the Subordinated Debt of Borrower, whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding involving the readjustment of all or any part of the Senior Debt or the Subordinated Debt, or the application of the property of Borrower to the payment or liquidation thereof, or upon the dissolution, liquidation, reorganization, or other winding up of Borrower’s business, or upon the sale of all or any substantial part of 

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Borrower’s property (any of the foregoing being hereinafter referred to as an “Insolvency Event”), then, and in any such event, Senior Creditor shall be entitled to receive the payment in cash in full of the Senior Debt before Purchasers shall be entitled to receive any payment on account of the Subordinated Debt, and to that end and in furtherance thereof:

(a)

All payments and distributions of any kind or character, whether in cash, property, or securities, in respect of the Subordinated Debt to which Purchasers would be entitled if the Subordinated Debt were not subordinated pursuant to this Agreement, shall be paid to Senior Creditor and applied in payment of the Senior Debt;

(b)

Purchasers shall file a claim or claims, on the form required in such proceedings, on or before ten (10) days prior to the last date such claims or proofs of claim may be filed pursuant to law or the order of any court exercising jurisdiction over such proceeding;

(c)

Notwithstanding the foregoing, if any payment or distribution of any kind or character, whether in cash, properties or securities, other than Reorganization Subordinated Securities, shall be received by Purchasers on account of the Subordinated Debt before all of the Senior Debt has been paid, then such payment or distribution shall be received by Purchasers in trust for and shall be promptly paid over to Senior Creditor for application to the payments of amounts due on the Senior Debt until the Senior Debt shall have been paid in cash in full;

(d)

Until the Senior Debt is fully paid in cash, each Purchaser irrevocably appoints Senior Lender as Purchaser’s attorney-in-fact, and grants to Senior Lender a power of attorney with full power of substitution, in the name of Purchaser or in the name of Senior Lender, for the use and benefit of Senior Lender, without notice to Purchaser, to perform at Senior Lender’s option the following acts in any bankruptcy, insolvency or similar proceeding involving Borrower: (i) to file the appropriate claim or claims in respect of the Subordinated Debt on behalf of Purchaser if Borrower does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Senior Lender elects, in its sole discretion, to file such claim or claims; and (ii) to accept or reject any plan of reorganization or arrangement on behalf of Purchaser and to otherwise vote Purchaser’s claims in respect of any Subordinated Debt in any manner that Lender deems appropriate for the enforcement of its rights hereunder; and

(e)

Each Purchaser shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement. 

4.

GRANT OF AUTHORITY; AGREEMENTS OF PURCHASERS AND SENIOR CREDITOR

(a)

Until the Senior Debt has been fully paid in cash and Senior Creditor’s agreements to lend any funds to Borrower have been terminated, Purchasers shall not commence or join in any involuntary bankruptcy petition or similar judicial proceeding against Borrower; and

(b)

if an Insolvency Event occurs:  (i) Purchasers shall not assert, without the prior written consent of Senior Creditor, any claim, motion, objection or argument in respect of the Collateral in connection with any Insolvency Event which could otherwise be asserted or raised in connection with such Insolvency Event, including, without limitation, any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of the Collateral, (ii) Senior Creditor may consent to the use of cash collateral on such terms and conditions and in such amounts as it shall in good faith determine without seeking or obtaining the consent of Purchasers as (if applicable) holder of an interest in the Collateral, (iii) if use of cash collateral by Borrower is consented to by Senior Creditor, Purchasers shall not oppose such use of cash collateral on the basis that Purchasers’ interest in the Collateral (if any) is impaired by such use or inadequately protected by such use, or on any other ground, and (iv) Purchasers shall not object to, or oppose, any sale or other disposition of any assets comprising all or part of the Collateral, free and clear of security interests, liens and claims of any party, including Purchasers, under Section 363 of the United States Bankruptcy Code or otherwise, on the basis that the interest of Purchasers in the Collateral (if any) is impaired by such sale or inadequately protected as a result of such sale, or on any other ground (and, if requested by Senior Creditor, Purchasers shall affirmatively and promptly consent to such sale or disposition of such assets), if Senior Creditor has consented to, or supports, such sale or disposition of such assets.

5.

COLLATERAL OR PROCEEDS THEREOF RECEIVED BY PURCHASERS

Should any Collateral or proceeds thereof be received by Purchasers upon or with respect to the Subordinated Debt prior to termination of this Agreement in accordance with Section 7, Purchasers shall receive and hold the same in trust for the benefit of Senior Creditor and shall forthwith deliver the same to Senior Creditor in precisely the form received (except for the endorsement or assignment of Purchasers where necessary) for application to the Senior Debt, and, until so delivered, the same shall be held in trust by Purchasers as the property of Senior Creditor.

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6.

FURTHER ASSURANCES; COOPERATION

Subject to Section 12(b), Purchasers agree to cooperate with Senior Creditor and to take all actions that Senior Creditor may reasonably require to enable Senior Creditor to realize the full benefits of this Agreement.  Subject to Section 12(b), Senior Creditor agrees to cooperate with Purchasers and to take all actions that Purchasers may reasonably require to enable Purchasers to realize the full benefits of this Agreement.

7.

TERMINATION OR AMENDMENT OF AGREEMENT

This Agreement shall be effective upon its execution by each of Senior Creditor and Purchasers.  After the Effective Date, this Agreement shall remain in effect and cannot be revoked or amended, except with the prior written consent of Senior Creditor and Purchasers.  Senior Creditor and Purchasers agree that no amendment hereto shall be binding upon Borrower unless Borrower shall have received notice of such amendment and acknowledged such amendment in writing.  Subject to Section 10, this Agreement shall terminate upon the date on which both (a) the Senior Debt shall have been paid in cash in full, and (b) the Senior Loan Documents shall have been terminated.

8.

SUBROGATION

If cash or other property otherwise payable or deliverable to Purchasers or on account of the Subordinated Debt shall have been applied pursuant to this Agreement to the payment of the Senior Debt, and if the Senior Debt shall have been paid in cash in full and all commitments to extend credit under the Senior Creditor Agreement shall have been terminated, then Purchasers shall be subrogated to any rights of Senior Creditor to receive further payments or distributions applicable to the Senior Debt until the Subordinated Debt shall have been fully paid.  No such payments or distributions received by Purchasers by reason of such subrogation shall, as between Borrower and its creditor other than Senior Creditor, on the one hand, and Purchasers, on the other hand, be deemed to be a payment by Borrower on account of the Subordinated Debt owed to Purchasers.

9.

PURCHASERS’ WAIVERS AND COVENANTS

(a)

Without limiting the generality of any other waiver made by Purchasers in this Agreement, Purchasers hereby expressly waive (i) reliance by Senior Creditor upon the subordination and other agreements herein provided, and (ii) any claim that Purchasers may now or hereafter have against Senior Creditor arising out of any and all actions that Senior Creditor, in good faith, takes or omits to take (A) with respect to the creation, perfection or continuation of liens in or on any Collateral security for the Senior Debt, (B) with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of the Collateral security for the Senior Debt, (C) with respect to the collection of any claim for all or any part of the Senior Debt from any account debtor, guarantor or any other third party and (D) with respect to the valuation, use, protection or release of any collateral security for the Senior Debt.

(b)

Without limiting the generality of any other covenant or agreement made by Purchasers or Senior Creditor in this Agreement, Purchasers and Senior Creditor hereby covenant and agree that (i) neither of them has made any warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of the Senior Creditor Agreement, the Notes or any of the other Senior Loan Documents or Note Purchase Documents, or the collectibility of the Senior Debt or Subordinated Debt; (ii) Purchasers will not interfere with or in any manner oppose a disposition of any Collateral by Senior Creditor; and (iii) neither of them will contest, challenge or dispute the validity, attachment, perfection, priority or enforceability of the other’s security interest in the Collateral or the validity, priority or enforceability of the Senior Debt or Subordinated Debt, as applicable. 

10.

REINSTATEMENT OF SENIOR DEBT

To the extent that Senior Creditor receives payments on or proceeds of any collateral security for the Senior Debt, which payments or proceeds are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law, or equitable cause, then, to the extent of such payments or proceeds invalidated, declared to be fraudulent or preferential, set aside or required to be repaid, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor.

11.

NO WAIVERS

Senior Creditor shall not be prejudiced in its rights under this Agreement by any act or failure to act of Borrower or Purchasers or any noncompliance of Borrower or Purchasers with any agreement or obligation, regardless of any knowledge thereof which Senior Creditor may have, or with which Senior Creditor may be charged; no action permitted hereunder that has been taken by Senior Creditor shall in any way affect or impair the rights or remedies of Senior Creditor in the exercise of any other right or remedy or shall operate as a waiver thereof; no single or partial exercise by Senior Creditor of any right or remedy shall preclude any other or further exercise thereof; and no modification or waiver of any of the provisions of this Agreement shall be binding upon Senior Creditor, in each case except as expressly set forth in a writing duly signed and delivered by Senior Creditor.

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12.

INFORMATION CONCERNING BORROWER; CREDIT ADMINISTRATION

(a)

Each Purchaser hereby assumes responsibility for keeping itself informed of the financial condition of Borrower, any and all endorsers and any and all guarantors of the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt or the Subordinated Debt that diligent inquiry would reveal, and Purchasers hereby agree that Senior Creditor shall not have any duty to advise Purchasers of information known to Senior Creditor regarding such condition.

(b)

Subject to Sections 2(b), 4 and 5, Purchasers may (i) administer and manage credit and other relationships with Borrower in their own best interest, and (ii) amend or extend the agreements with Borrower or enter into additional agreements with Borrower, all without the consent of or notice to Senior Creditor; provided that neither this Section 12(b) nor any amendments or additional agreements referred to herein shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt or the subordination of the security interest or lien that any Purchaser may have in any property of Debtor. By way of example, the Note Purchase Documents shall not be amended to (i) increase the rate of interest with respect to the Subordinated Debt, or (ii) accelerate the payment of the principal or interest or any other portion of the Subordinated Debt.  Subject to Section 4, Senior Creditor may (i) administer and manage credit and other relationships with Borrower in its own best interest, and (ii) amend or extend the agreements with Borrower or enter into additional agreements with Borrower, all without the consent of or notice to Purchasers; provided that neither this Section 12(b) nor any amendments or additional agreements referred to herein shall impair or affect the subordination of the liens securing the Subordinated Debt. 

13.

NOTICES

Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of:  (a) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; (b) the acknowledgement of receipt by the addressee of electronic mail; or (c) the fifth Business Day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:

If to Senior Creditor:

Sysorex Global Holdings Corp.

3375 Scott Blvd., Suite 440

Santa Clara, CA 95054

Attn:  Nadir Ali, CEO

With a copy to:

Davidoff Hutcher & Citron LLP

605 Third Avenue, 34th Floor

New York, NY 10158

Attn:  Elliot Lutzker, Esq.

If to Purchasers:

If to Purchasers James River Capital Corp 401K Plan Kevin M Brandt and Paul Saunders:

Kevin M. Brandt

James River Capital Corp.

58 Broad Street Road

Manakin-Sabot, VA 23103

Fax: 804.784.8533

kbrandt@jrcc.net

With a copy to:

Scott Kulp, Esq.

James River Financial Corp.

58 Broad Street Road

Manakin-Sabot, VA 23103

Fax: 804.784.8533

scott.kulp@jrfcorp.net

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If to Purchaser Kiley Revocable Trust:

Kiley Revocable Trust

c/o Thomas D. Kiley

986 Baileyana Road

Hillsborough, CA 94010

14.

SEVERABILITY

Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

15.

GOVERNING LAW

This Agreement shall be governed by and interpreted in accordance with the laws of the State of California without regard to principles of conflict of laws that would cause the application of laws of any other jurisdiction.

16.

ASSIGNMENT

This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by Senior Creditor and Purchasers and each of their successors and assigns.

17.

CONSENT

Senior Creditor hereby consents to the liens and security interests in the Collateral for the Subordinated Debt and the indebtedness created or to be created under Subordinated Notes and agrees that the grant or existence of such liens and security interests does not and shall not constitute a default or an event of default under or a breach of the Senior Loan Documents or this Agreement.  Purchasers hereby consent to the liens and security interests in the Collateral for the Senior Debt and the indebtedness created or to be created under the Senior Creditor Agreement and agree that the grant or existence of such liens and security interests does not and shall not constitute a default or an event of default under the Note Purchase Documents.

18.

WAIVER AND JUDICIAL REFERENCE

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, PURCHASERS AND SENIOR CREDITOR EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SENIOR LOAN DOCUMENTS, THE NOTE PURCHASE DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY, AND ALL OTHER CLAIMS.  THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive.  The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers.  All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed.  If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings.  The private judge shall oversee discovery and may enforce all discovery rules and order applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a).  Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

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19.

COUNTERPARTS

This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument.

20.

ATTORNEYS’ FEES

In the event of any legal action to enforce the rights of a party under this Agreement, the party prevailing in such action shall be entitled, in addition to such other relief as may be granted, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in such action.

[Signature pages follow]

7

IN WITNESS WHEREOF, Junior Lender and Senior Lender have caused this Agreement to be executed (or acknowledged) as of the date first above written.

			
	 
	SENIOR LENDER:

	 
	 
	 

	 
	SYSOREX GLOBAL HOLDINGS CORP

	 
	 
	 

	 
	By:

	Nadir Ali

	 
	 
	Name: Nadir Ali

	 
	 
	Title: CEO

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	JUNIOR LENDERS:

	 
	 
	 

	 
	PAUL SAUNDERS

	 
	 
	 

	 
	By:

	/s/ Paul Sanders

	 
	 
	 

	 
	 
	 

	 
	KILEY REVOCABLE TRUST

	 
	 
	 

	 
	By:

	/s/ Thomas D. Kiley

	 
	 
	Name: Thomas D. Kiley

	 
	 
	Title: Trustee

	 
	 
	 

	 
	 
	 

	 
	JAMES RIVER CAPITAL CORP 401K PLAN

FBO KEVIN M BRANDT

	 
	 
	 

	 
	By:

	/s/ Kevin M. Brandt

	 
	 
	Name: Kevin M. Brandt

	 
	 
	Title: CEO

		
	ACKNOWLEDGED AND AGREED:

	 
	 

	 
	 

	BORROWER:

	 
	 

	 
	 

	AIRPATROL CORPORATION

	 
	 

	 
	 

	By:

	/s/ Cleve Adams

	 
	Name: Cleve Adams

	 
	Title: CEO

[Signature page to Subordination Agreement]

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