Document:

ex10-4.htm

Exhibit 10.4

 

SUBORDINATION AND INTERCREDITOR AGREEMENT

 

SUBORDINATION AND INTERCREDITOR AGREEMENT (this “Agreement”), dated as of September 18, 2013, among JPMorgan Chase Bank, N.A. (together with its successors and assigns, the “Bank”) (also referred to herein as the “Senior Secured Party”), SMXE Lending, LLC, a Delaware limited liability company (the “Subordinated Secured Party”), and SkyMall, LLC (the “Borrower”).

 

R E C I T A L S

 

	
A.  

	
Bank, Borrower and certain affiliates of Borrower entered into the following agreements, each dated as of May 10, 2013:

 

	
1.  

	
Credit Agreement, between Bank and Borrower (the “Chase Credit Agreement”) (also referred to herein as the “Senior Secured Party Credit Agreement”) (references to such agreement include all amendments in effect from time to time, including any replacement agreement therefor).

 

	
2.  

	
Line of Credit Note, payable by Borrower to Bank in the initial principal amount of $7,650,000.

 

	
3.  

	
Assignment of Deposit Account, between Innovative Brands, LLC, a Delaware limited liability company (“Innovative Brands”), and Bank.

 

	
4.  

	
Guaranty, in favor of Bank by Innovative Brands, LLC.

 

	
5.  

	
Guaranty, in favor of Bank by SHC Parent Corp.

 

	
6.  

	
Guaranty, in favor of Bank by SkyMall Interests, LLC, a Delaware limited liability company.

 

	
7.  

	
Guaranty, in favor of Bank by SkyMall Ventures, LLC.

 

	
8.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by SkyMall, LLC (the “SkyMall Security Agreement”).

 

	
9.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by SkyMall Interests, LLC (the “SkyMall Interests Security Agreement”).

 

	
10.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by SkyMall Ventures, LLC (the “SkyMall Ventures Security Agreement”).

 

	
11.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by SHC Parent Corp. (the “SHC Parent Security Agreement”).

 

	
B.  

	
Bank, Borrower and certain affiliates of Borrower entered into the following agreements, each dated as of May 14, 2013:

 

	
1.  

	
Consent and Limited Waiver, between Bank and Borrower relating to the Chase Credit Agreement.

 

	
2.  

	
Continuing Guaranty, in favor of Bank by Xhibit Corp, a Nevada corporation.

 

	
3.  

	
Continuing Guaranty, in favor of Bank by Xhibit Interactive, LLC, a Nevada limited liability company.

 

	
4.  

	
Continuing Guaranty, in favor of Bank by FlyReply Corp, a Nevada corporation.

 

  

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5.  

	
Continuing Guaranty, in favor of Bank by SpyFire Interactive, LLC, a Nevada limited liability company.

 

	
6.  

	
Continuing Guaranty, in favor of Bank by Stacked Digital, LLC, a Nevada limited liability company.

 

	
7.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by Xhibit Corp, a Nevada corporation (the “Xhibit Security Agreement”).

 

	
8.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by Xhibit Interactive, LLC, a Nevada limited liability company (the “Xhibit Interactive Security Agreement”).

 

	
9.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by FlyReply Corp, a Nevada corporation (the “FlyReply Security Agreement”).

 

	
10.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by SpyFire Interactive, LLC, a Nevada limited liability company (the “SpyFire Security Agreement”).

 

	
11.  

	
Continuing Security Agreement, granting a security interest in certain collateral to Bank by Stacked Digital, LLC, a Washington limited liability company (the “Stacked Security Agreement”).

 

The SkyMall Security Agreement, SkyMall Ventures Security Agreement, SHC Parent Security Agreement, Xhibit Security Agreement, Xhibit Interactive Security Agreement, FlyReply Security Agreement, SpyFire Security Agreement and Stacked Security Agreement shall be referred to collectively as the “Borrower Parties Security Agreements” and the collateral described therein shall be referred to collectively as the “Borrower Parties Collateral.”

 

	
C.  

	
Pursuant to the Senior Secured Party Credit Agreement, the Senior Secured Party made a loan to the Borrower secured by, among other things, the Borrower Parties Security Agreements, which prohibits liens on the Borrower Parties Collateral described therein in favor of anyone except Senior Secured Party.

 

	
D.  

	
The Subordinated Secured Party wishes to make a loan to the Borrower pursuant to a credit agreement dated as of September 18, 2013 (as amended and in effect from time to time, the “Subordinated Credit Agreement”), between the Subordinated Secured Party and the Borrower, evidenced by one or more promissory notes (collectively, the “Subordinated Note”), secured by a second lien in the Borrower Parties Collateral.

 

	
E.  

	
In order to induce the Senior Secured Party to consent to a junior lien in the Borrower Parties Collateral pursuant to the Subordinated Credit Agreement and to grant to Subordinated Secured Party a right to purchase the indebtedness under the Senior Secured Party Credit Agreement and the first lien on the Borrower Parties Collateral, as reflected in the Waiver and Limited Consent Agreement dated September 18, 2013 between Borrower and Senior Secured Party (the “Consent”), the Borrower and the Subordinated Secured Party have agreed to enter into this Agreement with the Senior Secured Party.

 

NOW, THEREFORE, in consideration of the foregoing, the mutual agreements herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

  

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1. Definitions.  All terms defined in the Uniform Commercial Code of Arizona and used herein shall have the same definitions as specified therein.  However, if a term is defined in Article 9 of the Uniform Commercial Code of Arizona differently than in another Article of the Uniform Commercial Code of Arizona, the term has the meaning specified in Article 9.  The term “control,” as used in Section 4, has the meaning specified in Section 9-104, 9-105, 9-106 or 9-107, as applicable, of the Uniform Commercial Code of Arizona.  In addition, all capitalized terms used but not otherwise defined herein have the meanings given to them in the Senior Credit Agreement (as amended and in effect from time to time), and the following terms shall have the following meanings in this Agreement:

 

1.1 “Bankruptcy Code” shall mean Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder.

 

1.2 “Business Day” shall mean any day that is not a Saturday, a Sunday, or a day on which banks are required or permitted to be closed in the State of Arizona.

 

1.3 “Distribution” shall mean, with respect to any indebtedness, obligation or security, (a) any payment or distribution by any Person of cash, securities or other property, by set-off or otherwise, on account of such indebtedness, obligation or security, (b) any redemption, purchase or other acquisition of such indebtedness, obligation or security by any Person or (c) the granting of any lien or security interest to or for the benefit of the holders of such indebtedness, obligation or security in or upon any property of any Person.

 

1.4 “Enforcement Action” shall mean (a) to take from or for the account of the Borrower or any guarantor of the Subordinated Secured Party Debt, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by the Borrower or any such guarantor with respect to the Subordinated Secured Party Debt, (b) to sue for payment of, or to initiate or participate with others in any suit, action or proceeding against the Borrower or any such guarantor to (i) enforce payment of or to collect the whole or any part of the Subordinated Secured Party Debt or (ii) commence judicial enforcement of any of the rights and remedies under the Subordinated Secured Party Documents or applicable law with respect to the Subordinated Secured Party Debt, (c) to accelerate the Subordinated Secured Party Debt or (d) to exercise any put option or to cause the Borrower or any such guarantor to honor any redemption or mandatory prepayment obligation under any Subordinated Secured Party Documents.

 

1.5 “Intercreditor Termination Date” shall mean the earliest to occur of: (a) payment in full in cash of the Senior Secured Party Debt (which payment shall be final and not avoidable) and expiration, termination or reduction of all commitments under the Senior Secured Party Credit Agreement to zero and the termination of all obligations of Senior Secured Party under the Senior Secured Party Documents, (b) the total liquidation and collection of the Joint Collateral and application of the net proceeds thereof to the Senior Secured Party Debt and any surplus therefrom to the Subordinated Secured Party Debt, and (c) the release by the Senior Secured Party of its Liens in all of the Joint Collateral.

 

1.6 “Joint Collateral” shall mean all assets of the Borrower in which the Borrower has at the time of reference granted a Lien (a) to the Senior Secured Party to secure the Senior Secured Party Debt, and (b) to the Subordinated Secured Party to secure the Subordinated Secured Party Debt. The term includes, in each case, any and all proceeds and products of the collateral subject to such Lien.

 

1.7 “Lien” shall mean any consensual mortgage, security deed, deed of trust, pledge, lien, security interest or other voluntary lien, whether now existing or hereafter created, acquired or arising.  The term does not include any real property not within the scope of Article 9 of the Uniform Commercial Code of the state in which the real property is located.

 

1.8 "Permitted Subordinated Secured Party Debt Payments" shall mean (a) scheduled payments of interest on the Subordinated Secured Party Debt, and (b) a single payment of the outstanding principal amount of the Subordinated Note on or after September 18, 2014 provided that, in each case, only if each of the following conditions are satisfied both prior to and after giving effect to any such payment: (i) no Senior Default exists, and (ii) each of the payments set forth in clauses (a) and (b) are paid on a non-accelerated basis in accordance with the terms of the Subordinated Secured Party Documents as in effect on the date hereof or as modified in accordance with the terms of this Agreement

 

  

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1.9 “Person” shall mean any individual, partnership, limited liability company, corporation, trust, joint venture, joint stock company, association, unincorporated organization, government or agency or political subdivision thereof, or other entity.

 

1.10 “Proceeding” shall mean any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person.

 

1.11 “Senior Default” shall mean any “Event of Default” under the Senior Secured Party Documents, or any condition or event that, after notice or lapse of time or both, would constitute such an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period set forth therein.

 

1.12 “Senior Secured Party Debt” shall mean (a) all principal, interest, fees, costs, enforcement expenses (including legal fees and disbursements), collateral protection expenses and other reimbursement or indemnity obligations created or evidenced by the Senior Secured Party Credit Agreement or any of the other Senior Secured Party Documents or any prior, concurrent, or subsequent notes, instruments or agreements of indebtedness, liabilities, claims or obligations of any type or form whatsoever relating thereto in favor of the Senior Secured Party, including any of the foregoing resulting in or from any refinancing of any liabilities or obligations under the Senior Secured Party Documents, any amendments, restatements, modifications, renewals or extensions thereof to the extent not prohibited by the terms of this Agreement, and (b) any interest accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim.

 

1.13 “Senior Secured Party Documents” shall mean collectively, the Senior Secured Party Credit Agreement, any promissory notes executed in connection therewith and any and all guaranties and Liens directly or indirectly guarantying or securing any of the Senior Secured Party Debt, and any and all other documents or instruments evidencing or further guarantying or securing directly or indirectly any of the Senior Secured Party Debt, whether now existing or hereafter created, including any financing documentation which replaces the Senior Secured Party Documents and pursuant to which the Senior Secured Party Debt under the Senior Secured Party Documents is refinanced, as such financing documentation may be amended, restated, supplemented or otherwise modified from time to time in compliance with this Agreement.

 

1.14 “Subordinated Secured Party Debt” shall mean all principal, interest, fees, costs, enforcement expenses (including, without limitation, legal fees and disbursements), collateral protection expenses and other reimbursement and indemnity obligations created or evidenced by the Subordinated Credit Agreement or any of the other Subordinated Secured Party Documents or any prior, concurrent or subsequent notes, instruments or agreements of indebtedness, liabilities, claims or obligations of any type or form whatsoever relating thereto in favor of the Subordinated Secured Party including any amendments, restatements, modifications, renewals or extensions thereof to the extent not prohibited by the terms of this Agreement.

 

1.15 “Subordinated Secured Party Documents” shall mean collectively, the Subordinated Credit Agreement, any promissory notes executed in connection therewith and any and all security agreements, guaranties and Liens directly or indirectly guarantying or securing any of the Subordinated Secured Party Debt, and any and all other documents or instruments evidencing or further guarantying or securing directly or indirectly any of the Subordinated Secured Party Debt, whether now existing or hereafter created.

 

  

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2. Conditions to Effectiveness.  This Agreement shall not be effective unless and until all conditions set forth in Section 1 of the Consent are satisfied in the sole discretion of Senior Secured Party’s and all representations and warranties set forth therein are true and correct.

 

3. Subordination of Debt.

 

3.1 Subordination of Subordinated Secured Party Debt to Senior Secured Party Debt. The Subordinated Secured Party covenants and agrees, notwithstanding anything to the contrary contained in any of the Subordinated Secured Party Documents, that the payment of any and all of the Subordinated Secured Party Debt shall be subordinate and subject in right and time of payment, to the extent and in the manner hereinafter set forth, to the prior indefeasible payment in full in cash of all Senior Secured Party Debt. Each holder of Senior Secured Party Debt, whether such Senior Secured Party Debt is now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Secured Party Debt in reliance upon the provisions contained in this Agreement.

 

3.2 Liquidation, Dissolution, Bankruptcy. In the event of any Proceeding involving the Subordinated Borrower:

 

(a)           Until a date that is after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents shall have been terminated, no Distribution shall be made to the Subordinated Secured Party on account of any Subordinated Secured Party Debt.

 

(b)           Any Distribution which would otherwise, but for the terms hereof, be payable or deliverable in respect of the Subordinated Secured Party Debt shall be paid or delivered directly to the Borrower (to be held and/or applied by the Borrower in accordance with the terms of the Senior Secured Party Documents) until a date that is after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents shall have been terminated. The Subordinated Secured Party irrevocably authorizes, empowers and directs any debtor, debtor in possession, receiver, trustee, liquidator, custodian, conservator or other Person having authority, to pay or otherwise deliver all such Distributions to the Borrower. The Subordinated Secured Party also irrevocably authorizes and empowers the Borrower, in the name of the Subordinated Secured Party, to demand, sue for, collect and receive any and all such Distributions.

 

(c)           The Subordinated Secured Party agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Senior Secured Party Debt, this Agreement, or any liens and security interests securing the Senior Secured Party Debt.

 

(d)           The Subordinated Secured Party agrees to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Secured Party Debt requested by the Borrower in connection with any such Proceeding and hereby irrevocably authorizes, empowers and appoints the Borrower its agent and attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim upon the failure of the Subordinated Secured Party promptly to do so prior to thirty (30) days before the expiration of the time to file any such proof of claim and (ii) vote such claim in any such Proceeding upon the failure of the Subordinated Secured Party to do so prior to fifteen (15) days before the expiration of the time to vote any such claim; provided the Borrower shall have no obligation to execute, verify, deliver, file and/or vote any such proof of claim. In the event that the Borrower votes any claim in accordance with the authority granted hereby, the Subordinated Secured Party shall not be entitled to change or withdraw such vote.

 

(e)           The Senior Secured Party Debt shall continue to be treated as Senior Secured Party Debt and the provisions of this Agreement shall continue to govern the relative rights and priorities of the Senior Secured Party and the Subordinated Secured Party even if all or part of the Senior Secured Party Debt or the security interests securing the Senior Secured Party Debt are subordinated, set aside, avoided, invalidated or disallowed in connection with any such Proceeding, and this Agreement shall be reinstated if at any time any payment of any of the Senior Secured Party Debt is rescinded or must otherwise be returned by any holder of Senior Secured Party Debt or any representative of such holder.

 

  

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3.3 Subordinated Secured Party Debt Payment Restrictions.  Notwithstanding the terms of the Subordinated Secured Party Documents, the Borrower hereby agrees that it may not make, and the Subordinated Secured Party hereby agrees that it will not accept, any Distribution with respect to the Subordinated Secured Party Debt until after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents have terminated; provided, however, that the Borrower may make, and the Subordinated Secured Party may accept, Permitted Subordinated Secured Party Debt Payments if the conditions precedent set forth in the definition of “Permitted Subordinated Secured Party Debt Payments” have been satisfied; and provided, further, that interest may accrue on the Subordinated Secured Party Debt in the form of payment in kind notes, or by the capitalization of interest as principal on the Subordinated Secured Party Debt, in each case in accordance with the terms of the Subordinated Secured Party Documents as in effect on the date hereof or as modified in accordance with the terms of this Agreement.  Except as expressly set forth in the preceding sentence, no Distribution may be made with respect to the Subordinated Secured Party Debt in cash until after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents have terminated.  No Senior Default shall be deemed to have been waived for purposes of this Section 3.3 unless and until the Subordinated Secured Party has received a written waiver from the Borrower and the Senior Secured Party.  For the avoidance of doubt, the Subordinated Secured Party hereby agrees that if the Borrower is not permitted to repay the outstanding principal amount of the Subordinated Note on September 18, 2014 in accordance with the Senior Secured Party Credit Agreement and this Agreement, then the Borrower may not repay any principal amount of the Subordinated Note until a date that is after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents have terminated.

 

3.4 Subordinated Secured Party Debt Standstill Provisions.  Until a date that is after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents are terminated, the Subordinated Secured Party shall not, without the prior written consent of the Borrower and the Senior Secured Party, take any Enforcement Action with respect to the Subordinated Secured Party Debt. Notwithstanding the foregoing, the Subordinated Secured Party may file proofs of claim against the Borrower in any Proceeding involving the Borrower.  Any Distributions or other proceeds of any Enforcement Action obtained by the Subordinated Secured Party in violation of the foregoing prohibition shall be held in trust by it for the benefit of the Senior Secured Party and promptly paid or delivered to the Borrower in the form received until a date that is after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents shall have been terminated.

 

3.5 Incorrect Payments. If any Distribution on account of the Subordinated Secured Party Debt not permitted to be made by the Borrower or accepted by the Subordinated Secured Party under this Agreement is made and received by the Subordinated Secured Party, such Distribution shall not be commingled with any of the assets of the Subordinated Secured Party, shall be held in trust by the Subordinated Secured Party for the benefit of the Senior Creditors and shall be promptly paid over to the Borrower for application (in accordance with the Senior Secured Party Documents ) to the payment of the Senior Secured Party Debt then remaining unpaid, until a date that is after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents shall have been terminated.

 

3.6 Sale, Transfer or other Disposition of Subordinated Secured Party Debt.

 

(a)           The Subordinated Secured Party shall not sell, assign, pledge, dispose of or otherwise transfer all or any portion of the Subordinated Secured Party Debt or any Subordinated Secured Party Document.

 

(b)           Notwithstanding the foregoing, the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Subordinated Secured Party Debt in violation of the foregoing prohibition, and the terms of this Agreement shall be binding upon the successors and assigns of the Subordinated Secured Party, as provided in Sections 8 and 20 hereof.

 

  

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3.7 Legends. Until the termination of this Agreement in accordance with Section 18 hereof, the Subordinated Secured Party will cause to be clearly, conspicuously and prominently inserted on the face of each Subordinated Note and any other Subordinated Secured Party Document, as well as any renewals or replacements thereof, the following legend:

 

“This instrument and the rights and obligations evidenced hereby (the “Subordinated Indebtedness”) are subordinate in the manner and to the extent set forth in that certain Subordination and Intercreditor Agreement (the “Subordination Agreement”) dated as of September 18, 2013 among SMXE Lending, LLC, a Delaware limited liability company (the “Subordinated Secured Party”); Skymall, LLC, a Delaware limited liability company (the “Borrower”) and JP Morgan Chase Bank, N.A. (the “Senior Secured Party”), to the indebtedness (including interest) owed by the Borrower and its subsidiaries (the “Senior Indebtedness”) pursuant to that certain Credit Agreement dated as of May 10, 2013 among the Borrower and Senior Secured Party, as such Credit Agreement has been and hereafter may be amended, supplemented or otherwise modified from time to time and to indebtedness refinancing the indebtedness under that agreement as contemplated by the Subordination Agreement; and each holder of this instrument, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement.”

 

3.8 Modifications to Senior Secured Party Documents. The Senior Secured Party may at any time and from time to time without the consent of the Subordinated Secured Party, without incurring liability to the Subordinated Secured Party and without impairing or releasing the obligations of the Subordinated Secured Party under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any of the terms of the Senior Secured Party Debt, or amend in any manner any Secured Party Document. The Senior Secured Party agrees to give notice to the Subordinated Secured Party of any amendment to any Senior Secured Party Document or any change in the terms of the Senior Secured Party Debt within 10 Business Days after such amendment or change.

 

3.9 Modifications to Subordinated Secured Party Documents. Until a date that is after the Senior Secured Party Debt is indefeasibly paid in full in cash and all commitments to lend under the Senior Secured Party Documents shall have been terminated, and notwithstanding anything to the contrary contained in the Subordinated Secured Party Documents, the Subordinated Secured Party shall not, without the prior written consent of the Senior Secured Party, agree to any amendment, modification or supplement to the Subordinated Secured Party Documents.

 

4. Subordination of Liens.  It is the intent of the parties hereto that, except as provided in Section 3.3, the Senior Secured Party Debt shall be paid in full in cash and that the commitments represented by the Senior Secured Party Credit Agreement shall have expired or been reduced to zero or terminated before any of the Subordinated Secured Party Debt is paid from the Joint Collateral.  Regardless of the time or order of attachment or the time, order or manner of perfection or the time or order of filing financing statements, mortgages or other security agreements or documents, or anything in the Subordinated Credit Agreement or any of the other Subordinated Secured Party Documents to the contrary, the Liens in the Joint Collateral in favor of the Senior Secured Party pursuant to the Senior Secured Party Credit Agreement and the other Senior Secured Party Documents shall in all respects be first and senior Liens to secure payment of the Senior Secured Party Debt and shall be superior to any Liens in the Joint Collateral in favor of the Subordinated Secured Party.  The Subordinated Secured Party hereby agrees, upon request of the Senior Secured Party at any time and from time to time, to execute such other documents or instruments as may be requested by the Senior Secured Party further to evidence of public record or otherwise the senior priority of the Liens over the Joint Collateral and securing the Senior Secured Party Debt as contemplated hereby.

 

4.1 Enforcement of Liens.  Notwithstanding anything in any other agreement or document to the contrary, the Subordinated Secured Party shall not, prior to the occurrence of the Intercreditor Termination Date, assert or attempt to enforce or avail itself of any Liens or any other pre-judgment or post-judgment liens or assert any rights in or claims against the Joint Collateral or otherwise foreclose or realize upon the Joint Collateral or any part thereof.

 

  

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4.2 Appointment of Senior Secured Party as Agent.  The Subordinated Secured Party hereby appoints the Senior Secured Party as its agent to perfect by possession or control its Lien in any of the Joint Collateral (a) which Lien is capable of being perfected by possession or control and (b) that is, at any time, delivered to and in the possession, or is under the control, of the Senior Secured Party, subject always to the rights of the Senior Secured Party as prior Lien holder.  The Senior Secured Party acknowledges that it holds such Joint Collateral for the benefit of the Subordinated Secured Party upon and subject to the terms contained in this Agreement.

 

4.3 Senior Secured Party's Actions Concerning Senior Secured Party Debt.  The Senior Secured Party may, at its option, take or omit to take any action or assert any claim with respect to the Senior Secured Party Debt or any person or entity primarily or secondarily liable thereunder or to foreclose or realize upon or enforce any of its rights with respect to the Joint Collateral without any consent or approval by the Subordinated Secured Party.  However, as a condition to the exercise of any Senior Secured Party’s rights pursuant to Section 7.2(d) and Section 7.2(e) of the Senior Secured Credit Agreement, Senior Secured Party shall provide notice of default to Borrower, to Subordinated Secured Party and to Innovative Brands, LLC ten (10) Business Days prior to such exercise.  The Senior Secured Party hereby acknowledges that the provisions of this Agreement nevertheless constitute notice from the Subordinated Secured Party of its junior security interest in the Joint Collateral for purposes of the provisions of Sections 9-608(a)(1)(C), 9-615(a)(3)(A), and 9-621(a)(1) of the Uniform Commercial Code of the State of Arizona.

 

4.4 Proceeds of Joint Collateral.  Any and all cash amounts constituting proceeds of or otherwise constituting Joint Collateral, including, without limitation, any net proceeds received by the Senior Secured Party or the Subordinated Secured Party in connection with any sale, exchange, destruction, condemnation, foreclosure or other disposition of any of the Joint Collateral, and, if applicable, any sum received pursuant to Section 507(b) of the Bankruptcy Code in any case in which the Borrower is a debtor, shall, except as provided in Section 3.3, be applied first, to satisfy the Senior Secured Party Debt in full, and second, to satisfy the Subordinated Secured Party Debt, with the Borrower, the Senior Secured Party and the Subordinated Secured Party hereby agreeing to make such transfers between themselves with respect to such cash amounts so as to effectuate such application.  In the event of any casualty or other insured loss with respect to any part of the Joint Collateral which is covered by casualty insurance, the Borrower, the Senior Secured Party and the Subordinated Secured Party agree that, prior to the Intercreditor Termination Date, the Senior Secured Party shall, to the extent not prohibited by the Senior Secured Party Documents, have the exclusive right to adjust, compromise, or settle any such loss with the applicable casualty insurer, to collect and receive the proceeds of such casualty insurance with respect to such loss, and to apply such proceeds in accordance with the priorities set forth herein.  Any non-cash Distributions or proceeds in respect of the Joint Collateral shall constitute Joint Collateral upon the terms of this Agreement, the Senior Secured Party Documents and the Subordinated Secured Party Documents until converted to cash and distributed in accordance with this Section 4.4.

 

4.5 Actions of Senior Secured Party at Intercreditor Termination Date.  Upon the occurrence of the Intercreditor Termination Date, and, to the extent permitted by applicable law, to the extent the Subordinated Secured Party retains a Lien in such Joint Collateral and to the extent that such Joint Collateral has not been applied to satisfy the Senior Secured Party Debt secured thereby, the Senior Secured Party shall deliver to the Subordinated Secured Party any certificated securities, instruments or chattel paper comprising Joint Collateral then in the Senior Secured Party's possession.  The Senior Secured Party shall have no obligation to transfer to the Subordinated Secured Party any other Joint Collateral under the Senior Secured Party’s control.

 

  

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5. Defense to Enforcement, etc.  If the Subordinated Secured Party, in contravention of the terms of this Agreement, shall commence, prosecute or participate in any suit, action or proceeding against the Borrower or initiate any foreclosure sale or proceeding or any other action to enforce its Lien on any of the Joint Collateral, then the Borrower may interpose as a defense or plea the making of this Agreement, and the Senior Secured Party may intervene and interpose such defense or plea in its name or in the name of the Borrower.  If the Subordinated Secured Party, in contravention of the terms of this Agreement, shall attempt to enforce any remedies prohibited by this Agreement, then the Senior Secured Party or the Borrower may, by virtue of this Agreement, restrain the enforcement thereof in the name of the Senior Secured Party or in the name of the Borrower.  If the Subordinated Secured Party, in contravention of the terms of this Agreement, obtains any assets of the Borrower constituting Joint Collateral, or proceeds therefrom, as a result of any administrative, legal or equitable actions, or otherwise, the Subordinated Secured Party agrees forthwith to pay, deliver and assign to the Senior Secured Party, with appropriate endorsements, any such assets or proceeds thereof as collateral for the Senior Secured Party Debt.  Until such time as the provisions of the immediately preceding sentence have been complied with, the Subordinated Secured Party shall be deemed to hold such Joint Collateral and proceeds in trust for the Senior Secured Party.

 

6. Release of Joint Collateral.  Without limiting any of the rights of the Senior Secured Party under the Senior Secured Party Credit Agreement, the other Senior Secured Party Documents or applicable law, in the event that the Senior Secured Party releases or discharges any Liens upon any Joint Collateral in connection with the sale or other disposition of such Joint Collateral by the Borrower, such Joint Collateral shall thereupon be deemed to have been released from all such Liens in favor of the Subordinated Secured Party, and the Borrower shall take such actions as are required by the Subordinated Credit Agreement to cause and/or permit the release of any Liens of the Subordinated Secured Party upon such Joint Collateral.  The Subordinated Secured Party hereby authorizes the Senior Secured Party to file any amendments to any Uniform Commercial Code financing statements filed by the Subordinated Secured Party against the Borrower and, without limitation on such authorization, the Subordinated Secured Party agrees that, within ten (10) days following the Senior Secured Party's written request therefor, the Subordinated Secured Party will execute, deliver and file any and all such mortgage discharges, lien releases and other agreements and instruments as the Senior Secured Party reasonably deems necessary or appropriate, in each case in order to give effect to the preceding sentence.  The Subordinated Secured Party hereby irrevocably authorizes the Senior Secured Party to make, and appoints the Senior Secured Party, and its successors and assigns, and their respective officers, with full power of substitution, the true and lawful attorney(s) of the Subordinated Secured Party for the purpose of effecting, any such executions, deliveries and filings if and to the extent that the Subordinated Secured Party shall have failed to perform such obligations pursuant to the foregoing provisions of this Section 6 within such ten (10) day period.  The provisions of this Section 6 shall be applicable to and binding upon the Subordinated Secured Party notwithstanding any provisions or requirements to the contrary in any agreement between the Subordinated Secured Party and the Borrower.

 

7. Senior Secured Party’s Freedom of Dealing.  The Subordinated Secured Party agrees, with respect to the Senior Secured Party Debt and any and all Joint Collateral therefor or guaranties thereof, that the Borrower and the Senior Secured Party may agree to increase the amount of the Senior Secured Party Debt or otherwise modify the terms of any of the Senior Secured Party Debt, and the Senior Secured Party may grant extensions of the time of payment or performance to and make compromises, including releases of collateral or guaranties, and settlements with the Borrower and all other persons, in each case without notice to or the consent of the Subordinated Secured Party and without affecting the agreements of the Subordinated Secured Party contained in this Agreement, the Subordinated Secured Party hereby generally waiving any and all suretyship defenses that might otherwise be applicable.  The Subordinated Secured Party further waives any and all rights to require the Senior Secured Party to marshal any assets or otherwise to take any actions with respect to marshaling.

 

8. Sale of the Subordinated Secured Party Debt.  The Subordinated Secured Party will not, at any time while this Agreement is in effect, sell, transfer, pledge, assign, hypothecate or otherwise dispose of any or all of the Subordinated Secured Party Debt to any person or entity other than a person or entity who or which agrees in a writing, satisfactory in form and substance to the Senior Secured Party, to become a party hereto and to succeed to the rights and to be bound by all of the obligations of the Subordinated Secured Party hereunder.  In the case of any such disposition by the Subordinated Secured Party, the Subordinated Secured Party will notify the Senior Secured Party at least (10) ten days prior to the date of any of such intended disposition.

 

  

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9. Borrower's Obligations Absolute.  The provisions of this Agreement set forth the relative rights and obligations of the Senior Secured Party and the Subordinated Secured Party with respect to the Joint Collateral.  Nothing contained in this Agreement shall impair, as between the Borrower and the Subordinated Secured Party, the obligation of the Borrower to pay to the Subordinated Secured Party all amounts payable in respect of the Subordinated Secured Party Debt as and when the same shall become due and payable in accordance with the terms thereof, or prevent the Subordinated Secured Party (except as expressly otherwise provided in this Agreement) from exercising all rights, powers and remedies otherwise permitted by Subordinated Secured Party Documents and by applicable law upon a default in the payment of the Subordinated Secured Party Debt or under any Subordinated Secured Party Document.

 

10. Representations and Warranties.  Each of the Senior Secured Party, the Subordinated Secured Party and the Borrower represents and warrants to the other parties hereto that:

 

(a) the execution, delivery and performance of this Agreement (i) have been duly authorized by all requisite corporate action on its part, and (ii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which it is subject or any judgment, order, writ, injunction, license or permit applicable to it and will not conflict with any provision of its corporate charter or by laws or any agreement or other instrument binding upon it except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by equitable principles; and

 

(b) this Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms.

 

11. Modification.  Subject to Section 3, any modification or waiver of any provision of this Agreement, or any consent to any departure by any party from the terms hereof, shall not be effective in any event unless the same is in writing and signed by the Borrower, the Subordinated Secured Party, and the Senior Secured Party and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given; provided that to the extent any such modification, waiver or consent increases the obligations of the Borrower and/or its subsidiaries hereunder, the same shall not be effective in any event unless it is in writing and signed by the Borrower (and then shall be effective only in the specific instance and for the specific purpose given).  Any notice to or demand on any party hereto in any event not specifically required hereunder shall not entitle the party receiving such notice or demand to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.

 

12. Conflict. In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Subordinated Secured Party Documents, the provisions of this Agreement shall control and govern.

 

13. Severability. In the event that any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement.

 

14. Further Assurances.  Each of the Senior Secured Party, the Subordinated Secured Party and the Borrower agrees to execute and deliver such other documents and instruments, and shall take such other action, at the sole cost and expense of the Borrower, to effectuate and carry out the provisions of this Agreement.

 

  

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15. Termination of Subordination.  This Agreement shall continue in full force and effect until the occurrence of the Intercreditor Termination Date.  The occurrence of the Intercreditor Termination Date shall not affect any then unsatisfied right or unperformed obligation of the Senior Secured Party or the Subordinated Secured Party arising before the Intercreditor Termination Date.  In addition, if at any time any payment made or value received with respect to any Senior Secured Party Debt is rescinded or must otherwise be returned by the Senior Secured Party upon the insolvency, bankruptcy, or reorganization of the Borrower, then (a) to the extent necessary to repay in full in cash the Senior Secured Party Debt, the Subordinated Secured Party will deliver to the Senior Secured Party any amounts previously received and held by the Subordinated Secured Party on account of or in any way relating to the Joint Collateral, and (b) to the extent previously terminated, the Senior Secured Party’s Liens in the Joint Collateral created by the Senior Secured Party Senior Secured Party Documents and the right of the Senior Secured Party to receive amounts pursuant to this Agreement and the other rights and priorities of the Senior Secured Party hereunder shall be reinstated.

 

16. Notices.  All notices and other communications which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient and effective in all respects if given in writing, delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, as follows:

 

If to the Senior Secured Party:

 

201 N. Central Ave., 21st Floor, AZ1-1178

Phoenix, Arizona  85004

Attention:  Mike Pickerd

 

If to the Subordinated Secured Party:

 

SMXE Lending, LLC

2525 East Camelback Road

Suite 850

Phoenix, Arizona 85016

 

	
  

	
Attention:  Tina Rhodes-Hall

	 

 

If to the Borrower:

 

1520 E. Pima Street

Phoenix, Arizona 85034-4639

	
  

	
Attention:

 

or such other address or addresses as any party hereto shall have designated by written notice to the other parties hereto.  Notices shall be deemed given and effective upon the earlier to occur of (a) the third day following deposit thereof in the U.S. mail or (b) receipt or refusal by the party to whom such notice is directed.

 

17. Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA AND SHALL BE A SEALED INSTRUMENT UNDER SUCH LAWS.

 

18. Waiver of Jury Trial.  EACH PARTY HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.

  

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19. Miscellaneous.  This Agreement may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument.  In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against which enforcement is sought.  The Senior Secured Party may, in its sole and absolute discretion, waive any provisions of this Agreement benefiting the Senior Secured Party; provided, however, that such waiver shall be effective only if in writing and signed by the Senior Secured Party and shall be limited to the specific provision or provisions expressly so waived.  This Agreement shall be binding upon the successors and assigns of the Subordinated Secured Party and the Borrower and shall inure to the benefit of the Senior Secured Party, the Senior Secured Party's successors and assigns, any lender or lenders refunding or refinancing any of the Senior Secured Party Debt and their respective successors and assigns, but shall not otherwise create any rights or benefits for any third party.  In the event that any lender or lenders refund or refinance any of the Senior Secured Party Debt, the terms “Senior Secured Party Credit Agreement,” “Senior Secured Party Documents,” “Event of Default” and the like shall refer mutatis mutandis to the agreements and instruments in favor of such lender or lenders and to the related definitions contained therein.

 

[SIGNATURES APPEAR ON NEXT PAGE]

 

  

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

SENIOR SECURED PARTY:

 

JP Morgan Chase Bank, N.A.

 

	
  

	
By: /s/ Jeffrey M. Hoyt

       Name:  Jeffrey M. Hoyt

	
  

	
       Title:  SVP

 

SUBORDINATED SECURED PARTY:

 

SMXE Lending, LLC

 

	
  

	
By: SMXE Lending Holdings, LLC, its sole Member

 

	
  

	
By:  /s/ Tina Rhodes-Hall

        Name: Tina Rhodes-Hall

        Title: Authorized Officer

                  

BORROWER:

 

SkyMall, LLC

 

 

	
  

	
By: /s/ Scott Wiley

       Name: Scott Wiley

	
  

	
       Title: CFOex10-5.htm

Exhibit 10.5

 

Form of Continuing Security Agreement

 

Dated as of September 18, 2013

 

Grant of Security Interest. _____________ (whether one or more, the “Debtor”, individually and collectively if more than one) grants to SMXE Lending, LLC, a Delaware limited liability company, whose address is 2525 E. Camelback Road, Suite 850, Phoenix, AZ 85016 (together with its successors and assigns, the “Lender”) a continuing security interest in, pledges and assigns to the Lender all of the Collateral (as hereinafter defined) owned by the Debtor, all of the collateral in which the Debtor has rights or power to transfer rights and all Collateral in which the Debtor later acquires ownership, other rights or rights or power to transfer rights to secure the payment and performance of the Liabilities.

 

THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT (THE “SUBORDINATION AGREEMENT”) DATED AS OF SEPTEMBER 18, 2013, AMONG THE BORROWER, THE LENDER AND JPMORGAN CHASE BANK, N.A. (THE “SENIOR SECURED PARTY”), TO THE INDEBTEDNESS (INCLUDING INTEREST) OWED BY THE BORROWER AND ITS SUBSIDIARIES PURSUANT TO THAT CERTAIN CREDIT AGREEMENT DATED AS OF MAY 10, 2013, BETWEEN THE BORROWER AND SENIOR SECURED PARTY, AS SUCH CREDIT AGREEMENT HAS BEEN AND HEREAFTER MAY BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, AND TO INDEBTEDNESS REFINANCING THE INDEBTEDNESS UNDER THAT AGREEMENT AS CONTEMPLATED BY THE SUBORDINATION AGREEMENT, AND EACH HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

 

Borrower. “Borrower” means SkyMall, LLC.

 

“Liabilities” means all obligations, indebtedness and liabilities of the Borrower whether individual, joint and several, absolute or contingent, direct or indirect, liquidated or unliquidated, now or hereafter existing in favor of the Lender, including without limitation, all liabilities, all interest, costs and fees arising under or from any note, open account, overdraft, endorsement, surety agreement, guaranty, lease or acceptance, payable to the Lender, any monetary obligations (including interest) incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceedings, regardless of whether allowed or allowable in such proceeding, and all renewals, extensions, modifications, consolidations, rearrangements, restatements, replacements or substitutions of any of the foregoing.

 

The term “Collateral” means all of the Debtor’s “accounts”; “chattel paper”; “deposit accounts” and other payment obligations of financial institutions; “documents”; “equipment”, including any documents and certificates of title issued with respect to any of the equipment; “general intangibles” and any right to a refund of taxes paid at any time to any governmental entity; “instruments”; “inventory”, including any documents and certificates of title issued with respect to any of the inventory; “investment property”; “financial assets”; “letter of credit rights”; all as defined in the UCC, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located. In addition, the term “Collateral” includes all “proceeds”, “products” and “supporting obligations” (as such terms are defined in the UCC) of the Collateral, including but not limited to all stock rights, subscription rights, dividends, stock dividends, stock splits, or liquidating dividends, and all cash, accounts, chattel paper, “instruments,” “investment property,” “financial assets,” and “general intangibles” (as such terms are defined in the UCC) arising from the sale, rent, lease, casualty loss or other disposition of the Collateral, and any Collateral returned to, repossessed by or stopped in transit by the Debtor, and all insurance claims relating to any of the Collateral. The term “Collateral” further includes all of the Debtor’s right, title and interest in and to all books, records and data relating to the Collateral, regardless of the form of media containing such information or data, and all software necessary or desirable to use any of the Collateral or to access, retrieve, or process any of such information or data.  Where the Collateral is in the possession of the Lender or the Lender’s agent, the Debtor agrees to deliver to the Lender any property that represents an increase in the Collateral or profits or proceeds of the Collateral.

 

  

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The term “UCC” means the Uniform Commercial Code of Arizona, as in effect from time to time.

 

Representations, Warranties and Covenants. The Debtor represents, warrants, and covenants to the Lender that each of the following is true and will remain true until termination of this agreement and payment in full of all Liabilities and agrees with the Lender that:

 

	
1.  

	
At its own expense, it shall maintain comprehensive casualty insurance on the Collateral against such risks, in such amounts, with such deductibles and with such companies as may be satisfactory to the Lender. Each insurance policy on the Collateral shall contain a lender’s loss payable endorsement satisfactory to the Lender and a prohibition against cancellation or amendment of the policy or removal of the Lender as loss payee without at least thirty (30) days’ prior written notice to the Lender. In all events, the amounts of such insurance coverages on the Collateral shall be in such minimum amounts that the Debtor will not be deemed a co-insurer. The policies on the Collateral, or certificates evidencing them, shall, if the Lender so requests, be deposited with the Lender.

 

	
2.  

	
It shall permit the Lender, at the Debtor’s expense, to inspect and examine the Collateral and to check and test the same as to quality, quantity, value, and condition, and will provide any information that the Lender may reasonably request and will permit the Lender or the Lender’s agents to inspect and copy its books, records and data, at any time during normal business hours.

 

	
3.  

	
It shall maintain the Collateral in good repair; pay promptly when due all taxes and assessments upon the Collateral or for the use or operation of the Collateral; use the Collateral in accordance with law and in compliance with any policy of insurance thereon; and exhibit the Collateral to the Lender on demand.

 

	
4.  

	
Until the Lender gives notice to the Debtor to the contrary or until the Debtor is in default, it may use the funds collected in its business. Upon notice from the Lender or upon default, the Debtor agrees that all sums of money it receives on account of or in payment or settlement of the accounts, chattel paper, certificated securities, negotiable certificates of deposit, documents, general intangibles and instruments shall be held by it as trustee for the Lender without commingling with any of the Debtor’s other funds, and shall immediately be delivered to the Lender with endorsement to the Lender’s order of any check or similar instrument. It is agreed that, at any time the Lender so elects, the Lender shall be entitled, in its own name or in the name of the Debtor or otherwise, but at the expense and cost of the Debtor, to collect, demand, receive, sue for or compromise any and all accounts, chattel paper, certificated securities, negotiable certificates of deposit, documents, general intangibles, and instruments, and to give good and sufficient releases, to endorse any checks, drafts or other orders for the payment of money payable to the Debtor and, in the Lender’s discretion, to file any claims or take any action or proceeding which the Lender may deem necessary or advisable. It is expressly understood and agreed, however, that the Lender shall not be required or obligated in any manner to make any demand or to make any inquiry as to the nature or sufficiency of any payment received by it or to present or file any claim or take any other action to collect or enforce the payment of any amounts which may have been assigned to the Lender or to which the Lender may be entitled at any time or times. All notices required in this paragraph will be immediately effective when sent. Such notices need not be given prior to the Lender’s taking action. The Debtor irrevocably appoints the Lender or the Lender’s designee as the Debtor’s attorney-in-fact to do all things with reference to the Collateral as provided for in this agreement including without limitation (1) to sign the Debtor’s name on any invoice or bill of lading relating to any Collateral, on assignments and verifications of account and on notices to the Debtor’s customers, and (2) to do all things necessary to carry out this agreement or to perform any of the Debtor’s obligations under this agreement, (3) to notify the post office authorities to change the Debtor’s mailing address to one designated by the Lender, and (4) to receive, open and dispose of mail addressed to the Debtor. The Debtor ratifies and approves all acts of the Lender as attorney-in-fact. This power of attorney appointment is irrevocable, coupled with an interest, and shall survive the death or disability of Debtor. The Lender shall not be liable for any act or omission, nor any error of judgment or mistake of fact or law, but only for its gross negligence or willful misconduct. This power being coupled with an interest is irrevocable until all of the Liabilities have been fully satisfied. Immediately upon its receipt of any Collateral evidenced by an agreement, “instrument,” “chattel paper,” certificated “security” or “document” (as such terms are defined in the UCC) (collectively, “Special Collateral”), it shall mark the Special Collateral to show that it is subject to the Lender’s security interest, pledge and assignment and shall deliver the original to the Lender together with appropriate endorsements and other specific evidence of assignment or transfer in form and substance satisfactory to the Lender.

 

  

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5.  

	
It will not, sell, lease, license or offer to sell, lease, license, grant as security to anyone other than the Lender, or otherwise transfer the Collateral or any rights in or to the Collateral, without the written consent of the Lender, except for the sale of inventory in the ordinary course of business; or change the location of the Collateral from the locations of the Collateral disclosed to the Lender, without providing at least ten (10) days’ prior written notice to the Lender.

 

	
6.  

	
Except for any financing statement in favor of Senior Secured Party, no financing statement or similar record covering all or any part of the Collateral or any proceeds is on file in any public office, unless the Lender has approved that filing.

 

	
7.  

	
Without notice or demand and without affecting the Debtor’s obligations hereunder, from time to time, the Lender is authorized to: (a) renew, modify, compromise, rearrange, restate, consolidate, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Liabilities or any part thereof, including increasing or decreasing the rate of interest thereon; (b) release, either in whole or in part, the Borrower, and release, either in whole or in part, substitute or add any one or more sureties, endorsers, or guarantors; (c) take and hold other collateral for the payment of the Liabilities, and enforce, exchange, substitute, subordinate, impair, waive or release any such collateral; (d) proceed against the Collateral or any other collateral for the Liabilities and direct the order or manner of sale as the Lender in its discretion may determine; (e) take any action against the Borrower, the Collateral or any other collateral for the Liabilities, or any other person liable for any of the Liabilities, and (f) apply any and all moneys received by the Lender, or recoveries from the Collateral or any other collateral for the Liabilities, in such order or manner as the Lender in its discretion may determine, including but not limited to applying them against obligations, indebtedness or liabilities which are not secured by this agreement.

 

	
8.  

	
Its obligations hereunder shall not be released, diminished or affected by (a) any act or omission of the Lender, (b) the voluntary or involuntary liquidation, sale or other disposition of all or substantially all of the assets of the Borrower, or any receivership, insolvency, bankruptcy, reorganization, or other similar proceedings affecting the Borrower or any of its assets or any other obligor on the Liabilities or that obligor’s assets, (c) any change in the composition or structure of the Borrower or any other obligor on the Liabilities, including a merger or consolidation with any other person or entity, or (d) any payments made upon the Liabilities.

 

	
9.  

	
It expressly consents to any impairment of the Collateral or any other collateral for the Liabilities, including, but not limited to, failure to perfect a security interest in such collateral and any release, either in whole or in part, of the Collateral or any other collateral for the Liabilities. Any such impairment or release shall not affect the Debtor’s obligations hereunder.

 

	
10.  

	
It waives (a) to the extent not prohibited by applicable law, all rights and benefits under any laws or statutes regarding sureties, as may be amended, (b) any right the Debtor may have to receive notice of the following matters before the Lender enforces any of its rights: (i) the Lender’s acceptance of this agreement, (ii) incurrence or acquisition or material alteration of any Liabilities, any credit that the Lender extends to the Borrower, (iii) the Borrower’s default, (iv) any demand, diligence, presentment, dishonor and protest, (v) any action that the Lender takes regarding the Borrower, anyone else, any other collateral for the Liabilities, or any of the Liabilities, which it might be entitled to by law or under any other agreement, (vi) any adverse facts that would affect the Debtor’s risk (c) any right it may have to require the Lender to proceed against the Borrower, any guarantor or other obligor on the Liabilities, the Collateral or any other collateral for the Liabilities, or pursue any remedy in the Lender’s power to pursue, or to exercise any right of setoff, (d) any defense based on any claim that the Debtor’s obligations exceed or are more burdensome than those of the Borrower, (e) the benefit of any statute of limitations affecting the Debtor’s obligations hereunder or the enforcement hereof, (f) any defense arising by reason of any disability or other defense of the Borrower or by reason of the cessation from any cause whatsoever (other than payment in full) of the obligation of the Borrower for the Liabilities, (g) any defense based on or arising out of any defense that the Borrower may have to the payment or performance of the Liabilities or any portion thereof, (h) any defense based on or arising out of the Lender’s negligent administration of the Liabilities, and (i) and agrees not to enforce any rights of subrogation, contribution, reimbursement, exoneration or indemnification that it may have against the Borrower, any person or entity liable on the Liabilities, or the Collateral, until the Borrower and the Debtor have fully performed all of their obligations to the Lender, even if those obligations are not covered by this agreement. The Lender may waive or delay enforcing any of its rights without losing them. Any waiver affects only the specific terms and time period stated in the waiver.

 

  

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11.  

	
The Debtor has (a) without reliance on the Lender or any information received from the Lender and based upon the records and information the Debtor deems appropriate, made an independent investigation of the Borrower, the Borrower’s business, assets, operations, prospects and condition, financial or otherwise, and any circumstances that may bear upon those transactions, the Borrower or the obligations, liabilities and risks undertaken pursuant to this agreement; (b) adequate means to obtain from the Borrower on a continuing basis information concerning the Borrower and the Lender has no duty to provide any information concerning the Borrower or other obligor on the Liabilities to the Debtor (c) full and complete access to the Borrower and any and all records relating to any Liabilities now or in the future owing by the Borrower; (d) not relied and will not rely upon any representations or warranties of the Lender not embodied in this agreement or any acts taken by the Lender prior to or after the execution or other authentication and delivery of this agreement (including but not limited to any review by the Lender of the business, assets, operations, prospects and condition, financial or otherwise, of the Borrower); and (e) determined that the Debtor will receive benefit, directly or indirectly, and has or will receive fair and reasonably equivalent value, for the execution and delivery of this agreement and the rights provided to the Lender. By entering into this agreement, the Debtor does not intend: (i) to incur or believe that the Debtor will incur debts that would be beyond the Debtor’s ability to pay as those debts mature; or (ii) to hinder, delay or defraud any creditor of the Debtor. The Debtor is neither engaged in nor about to engage in any business or transaction for which the remaining assets of the Debtor are unreasonably small in relation to the business or transaction, and any property remaining with the Debtor after the execution or other authentication of this agreement is not unreasonably small capital.

 

	
12.  

	
The Debtor agrees to fully cooperate with the Lender and not to delay, impede or otherwise interfere with the efforts of the Lender to secure payment from the assets which secure the Liabilities including actions, proceedings, motions, orders, agreements or other matters relating to relief from automatic stay, abandonment of property, use of cash collateral and sale of the Lender’s collateral free and clear of all liens.

 

	
13.  

	
Its principal residence or chief executive office is at the address shown above.

 

	
14.  

	
Its name as it appears in this agreement is its exact name as it appears in its organizational documents, as amended, including any trust documents; and it will not without the Lender’s prior written consent, change its name, its business organization, the jurisdiction under which it is formed or organized, or its chief executive office, or any additional places of business.

 

	
15.  

	
The execution and delivery of this agreement and the performance of the obligations it imposes do not violate any law, do not conflict with any agreement by which it is bound, and do not require the consent or approval of any governmental authority or any third party.

 

	
16.  

	
This agreement is a valid and binding agreement, enforceable according to its terms.

 

	
17.  

	
It is duly organized, validly existing and in good standing under the laws of the state where it is organized and in good standing in each state where it is doing business; and the execution and delivery of this agreement and the performance of the obligations it imposes (i) are within its powers and have been duly authorized by all necessary action of its governing body; and (ii) do not contravene the terms of its articles of incorporation or organization, its by-laws, or any agreement or document governing its affairs.

 

	
18.  

	
When the Collateral is located at, used in or attached to a facility leased by the Debtor, the Debtor will, at the request of the Lender, obtain from the lessor a consent to the granting of this security interest and a release or subordination of the lessor’s interest in any of the Collateral, in form and substance satisfactory to the Lender.

 

	
19.  

	
Without limiting any foregoing waiver, consent or agreement, the Debtor further waives any and all benefits under Arizona Revised Statutes Section 12-1641 through 12-1646, inclusive, and Rule 17(f) of the Arizona Rules of Civil Procedure, including any revision or replacement of such statutes or rules hereafter enacted.

 

  

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Reinstatement. The Debtor agrees that to the extent any payment or transfer is received by the Lender in connection with the Liabilities, and all or any part of such payment or transfer is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be transferred or repaid by the Lender or paid over to a trustee, receiver or any other person or entity, whether under any bankruptcy act or otherwise (any of those payments or transfers is hereinafter referred to as a “Preferential Payment”), then this agreement shall continue to be effective or shall be reinstated, as the case may be, even if all Liabilities have been paid in full, and whether or not the Lender is in possession of this agreement or whether agreement has been marked paid, cancelled, released or returned to the Borrower or the Debtor, and, to the extent of the payment or repayment or other transfer by the Lender, the Liabilities or part intended to be satisfied by the Preferential Payment shall be revived and continued in full force and effect as if the Preferential Payment had not been made. If this agreement must be reinstated, the Debtor agrees to execute and deliver to the Lender any new security agreements and financing statements, if necessary or if requested by the Lender, in form and substance acceptable to the Lender, covering the Collateral. The obligations of the Debtor under this section shall survive the termination of this agreement.

 

Remedies Regarding Collateral. The Lender shall have the right to require the Debtor to assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties, the right to take possession of the Collateral with or without demand and with or without process of law, and the right to sell and dispose of it and distribute the proceeds according to law. The Debtor agrees that upon default the Lender may dispose of any of the Collateral in its then present condition, that the Lender has no duty to repair or clean the Collateral prior to sale, and that the disposal of the Collateral in its present condition or without repair or clean-up shall not affect the commercial reasonableness of such sale or disposition. The Lender’s compliance with any applicable state or federal law requirements in connection with the disposition of the Collateral will not adversely affect the commercial reasonableness of any sale of the Collateral. The Lender may disclaim warranties of title, possession, quiet enjoyment, and the like, and the Debtor agrees that any such action shall not affect the commercial reasonableness of the sale. In connection with the right of the Lender to take possession of the Collateral, the Lender may take possession of any other items of property in or on the Collateral at the time of taking possession, and hold them for the Debtor without liability on the part of the Lender. The Debtor expressly agrees that the Lender may enter upon the premises where the Collateral is believed to be located without any obligation of payment to the Debtor, and that the Lender may, without cost, use any and all of the Debtor’s “equipment” (as defined in the UCC) in the manufacturing or processing of any “inventory” (as defined in the UCC) or in growing, raising, cultivating, caring for, harvesting, loading and transporting of any of the Collateral that constitutes “farm products” (as defined in the UCC). If there is any statutory requirement for notice, that requirement shall be met if the Lender sends notice to the Debtor at least ten (10) days prior to the date of sale, disposition or other event giving rise to the required notice, and such notice shall be deemed commercially reasonable. Without limiting any other remedy, the Debtor is liable for any deficiency remaining after disposition of the Collateral. The Lender is authorized to cause all or any part of the Collateral to be transferred to or registered in its name or in the name of any other person or business entity, with or without designating the capacity of that nominee. At its option the Lender may, but shall be under no duty or obligation to, discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral, pay for insurance on the Collateral, and pay for the maintenance and preservation of the Collateral, and the Debtor agrees to reimburse the Lender on demand for any such payment made or expense incurred by the Lender with interest at the highest rate at which interest may accrue under any of the instruments evidencing the Liabilities. The Debtor authorizes the Lender to endorse on the Debtor’s behalf and to negotiate drafts reflecting proceeds of insurance of the Collateral, provided that the Lender shall remit to the Debtor such surplus, if any, as remains after the proceeds have been applied, at the Lender’s option, to the satisfaction of all of the Liabilities (in such order of application as the Lender may elect) or to the establishment of a cash collateral account for the Liabilities. The Lender shall have the right now, and at any time in the future in its sole and absolute discretion, without notice to the Debtor to (a) prepare, file and sign the Debtor’s name on any proof of claim in bankruptcy or similar document against any owner of the Collateral and (b) prepare, file and sign the Debtor’s name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Collateral.

 

  

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Miscellaneous. A carbon, photographic or other reproduction of this agreement is sufficient as, and can be filed as, a financing statement or similar record. The Debtor authorizes the Lender to file one or more financing statements or similar records covering the Collateral or such lesser amount of assets as the Lender may determine, or the Lender may, at its option, file financing statements or similar records containing any collateral description which reasonably describes the Collateral, and the Debtor will pay the cost of filing them in all public offices where filing is deemed by the Lender to be necessary or desirable. In addition, the Debtor shall execute and deliver, or cause to be executed and delivered, such other documents as the Lender may from time to time request to perfect or to further evidence the pledge, security interest and assignment created in the Collateral by this agreement. If any provision of this agreement cannot be enforced, the remaining portions of this agreement shall continue in effect. No delay on the part of the Lender in the exercise of any right or remedy waives that right or remedy, no single or partial exercise by the Lender of any right or remedy precludes any other exercise of it or the exercise of any other right or remedy, and no waiver or indulgence by the Lender of any default is effective unless it is in writing and signed by the Lender, nor does a waiver on one occasion waive that right on any future occasion. All obligations of the Debtor set forth in this agreement shall bind the Debtor’s heirs, executors, administrators, successors and assigns. The provisions of this agreement are severable, and if any one or more of the provisions of this agreement are held to be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired; and the invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of such provision(s) in any other jurisdiction. Time is of the essence under this agreement and in the performance of every term, covenant and obligation contained herein.

 

Indemnification. The Debtor agrees to indemnify, defend and hold the Lender, its parent companies, subsidiaries, affiliates, their respective successors and assigns and each of their respective shareholders, directors, officers, employees and agents (collectively the “Indemnified Persons”) harmless from and against any and all loss, liability, obligation, damage, penalty, judgment, claim, deficiency, expense, interest, penalties, attorneys’ fees (including the fees and expenses of attorneys engaged by the Indemnified Person at the Indemnified Person’s reasonable discretion) and amounts paid in settlement (“Claims”) to which any Indemnified Person may become subject arising out of or relating to this agreement or the Collateral, except to the limited extent that the Claims are proximately caused by the Indemnified Person’s gross negligence or willful misconduct. The indemnification provided for in this paragraph shall survive the termination of this agreement and shall not be affected by the presence, absence or amount of or the payment or nonpayment of any claim under, any insurance.

 

Governing Law and Venue. This agreement shall be governed by and construed in accordance with the laws of the State of Arizona (without giving effect to its laws of conflicts), and to the extent applicable, federal law, except to the extent that the laws regarding the perfection and priority of security interests of the state(s) in which either the Debtor or any property securing the Liabilities is located, are applicable. The Debtor agrees that any legal action or proceeding with respect to any of its obligations under this agreement may be brought by the Lender in any state or federal court located in the State of Arizona, as the Lender in its sole discretion may elect. By the execution and delivery of this agreement, the Debtor submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Debtor waives any claim that the State of Arizona is not a convenient forum or the proper venue for any such suit, action or proceeding.

 

WAIVER OF SPECIAL DAMAGES. THE DEBTOR WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.

 

JURY WAIVER. TO THE MAXIMUM EXTENT NOT PROHIBITED BY APPLICABLE LAW, THE DEBTOR AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN OR AMONG THE DEBTOR AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN.

 

Debtor:

_____________________

By:                                                                

Printed Name Title

Date Signed:

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