f10qsb0307ex10o.htm


    INTELLECTUAL
      PROPERTY SECURITY
      AGREEMENT

     

    INTELLECTUAL
      PROPERTY SECURITY AGREEMENT (this “Agreement” dated as
      of November 6, 2007, by and among Midnight Holdings Group, Inc., a Delaware
      corporation (the “Company”), and the
      secured parties signatory hereto and their respective endorsees, transferees
      and
      assigns (collectively, the “Secured
      Party”).

     

    W
      I T N E
      S S E T H:

     

    WHEREAS,
      pursuant to a Securities Purchase Agreement, dated the date hereof, between
      Company and the Secured Party (the “Purchase Agreement”),
      Company has agreed to issue to the Secured Party and the Secured Party has
      agreed to purchase from Company certain of Company’s 10% Secured Convertible
      Notes, due three years from the date of issue (the “Notes”), which
      are
      convertible into shares of Company’s Common Stock, par value $.00005 per share
      (the “Common
      Stock”).  In connection therewith, Company shall issue the
      Secured Party certain Common Stock purchase warrants dated as of the date hereof
      to purchase the number of shares of Common Stock indicated below each Secured
      Party’s name on the Purchase Agreement (the “Warrants”);
      and

     

    WHEREAS,
      in order to induce the Secured Party to purchase the Notes, Company has agreed
      to execute and deliver to the Secured Party this Agreement for the benefit
      of
      the Secured Party and to grant to it a first priority security interest in
      certain Intellectual Property (defined below) of Company to secure the prompt
      payment, performance and discharge in full of all of Company’s obligations under
      the Notes and exercise and discharge in full of Company’s obligations under the
      Warrants; and

     

    NOW,
      THEREFORE, in consideration of the agreements herein contained and for other
      good and valuable consideration, the receipt and sufficiency of which is hereby
      acknowledged, the parties hereto hereby agree as follows:

     

    1.  Defined
      Terms.  Unless otherwise defined herein, terms which are
      defined in the Purchase Agreement and used herein are so used as so defined;
      and
      the following terms shall have the following meanings:

     

    “Software
      Intellectual
      Property”  shall mean:

     

    (a)  all
      software programs (including all source code, object code and all related
      applications and data files), whether now owned, upgraded, enhanced, licensed
      or
      leased or hereafter acquired by the Company, above;

     

    (b)  all
      computers and electronic data processing hardware and firmware associated
      therewith;

     

    (c)  all
      documentation (including flow charts, logic diagrams, manuals, guides and
      specifications) with respect to such software, hardware and firmware described
      in the preceding clauses (a) and (b); and

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (d)  all
      rights with respect to all of the foregoing, including, without limitation,
      any
      and all upgrades, modifications, copyrights, licenses, options, warranties,
      service contracts, program services, test rights, maintenance rights, support
      rights, improvement rights, renewal rights and indemnifications and
      substitutions, replacements, additions, or model conversions of any of the
      foregoing.

     

    “Copyrights”
shall
      mean (a) all copyrights, registrations and applications for registration, issued or filed,
      including any reissues, extensions or renewals thereof, by or with the United
      States Copyright Office or any similar office or agency of the United States,
      any state thereof, or any other country or political subdivision thereof, or
      otherwise, including, all rights in and to the material constituting the subject
      matter thereof, including, without limitation, any referred to in Schedule B hereto,
      and (b) any rights in any material which is copyrightable or which is protected
      by common law, United States copyright laws or similar laws or any law of any
      State, including, without limitation, any thereof referred to in Schedule B
      hereto.

     

    “Copyright
      License”
shall mean any agreement, written or oral, providing for a grant by
      the Company
      of any right in any Copyright, including, without limitation, any thereof
      referred to in Schedule B
      hereto.

     

    “Intellectual
      Property” shall means, collectively, the Software Intellectual Property,
      Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks, Trademark
      Licenses and Trade Secrets.

     

    “Obligations”
means
      all of the Company’s obligations under this Agreement and the Notes, in each
      case, whether now or hereafter existing, voluntary or involuntary, direct or
      indirect, absolute or contingent, liquidated or unliquidated, whether or not
      jointly owed with others, and whether or not from time to time decreased or
      extinguished and later decreased, created or incurred, and all or any portion
      of
      such obligations or liabilities that are paid, to the extent all or any part
      of
      such payment is avoided or recovered directly or indirectly from the Secured
      Party as a preference, fraudulent transfer or otherwise as such obligations
      may
      be amended, supplemented, converted, extended or modified from time to
      time.

     

    “Patents”
shall
      mean
      (a) all letters patent of the United States or any other country or any
      political subdivision thereof, and all reissues and extensions thereof,
      including, without limitation, any thereof referred to in Schedule B hereto,
      and (b) all applications for letters patent of the United States and all
      divisions, continuations and continuations-in-part thereof or any other country
      or any political subdivision, including, without limitation, any thereof
      referred to in Schedule B
      hereto.

     

    “Patent
      License” shall
      mean all agreements, whether written or oral, providing for the grant by the
      Company of any right to manufacture, use or sell any invention covered by a
      Patent, including, without limitation, any thereof referred to in Schedule B
      hereto.

     

    “Security
      Agreement”
shall mean the a Security Agreement, dated the date hereof between Company
      and
      the Secured Party.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Trademarks”
shall
      mean (a) all trademarks, trade names, corporate names, company names, business
      names, fictitious business names, trade styles, service marks, logos and other
      source or business identifiers, and the goodwill associated therewith, now
      existing or hereafter adopted or acquired, all registrations and recordings
      thereof, and all applications in connection therewith, whether in the United
      States Patent and Trademark Office or in any similar office or agency of the
      United States, any state thereof or any other country or any political
      subdivision thereof, or otherwise, including, without limitation, any thereof
      referred to in Schedule B hereto,
      and (b) all reissues, extensions or renewals thereof.

     

    “Trademark
      License”
shall mean any agreement, written or oral, providing for the grant by
      the
      Company of any right to use any Trademark, including, without limitation, any
      thereof referred to in Schedule B
      hereto.

     

    “Trade
      Secrets” shall
      mean common law and statutory trade secrets and all other confidential or
      proprietary or useful information and all know-how obtained by or used in or
      contemplated at any time for use in the business of the Company (all of the
      foregoing being collectively called a “Trade Secret”),
      whether or not such Trade Secret has been reduced to a writing or other tangible
      form, including all documents and things embodying, incorporating or referring
      in any way to such Trade Secret, all Trade Secret licenses, including each
      Trade
      Secret license referred to in Schedule B hereto,
      and including the right to sue for and to enjoin and to collect damages for
      the
      actual or threatened misappropriation of any Trade Secret and for the breach
      or
      enforcement of any such Trade Secret license.

     

    2.  Grant
      of Security
      Interest.  In accordance with Section 3(m) of the Security
      Agreement, to secure the complete and timely payment, performance and discharge
      in full, as the case may be, of all of the Obligations, the Company hereby,
      unconditionally and irrevocably, pledges, grants and hypothecates to the Secured
      Party, a continuing security interest in, a continuing first lien upon, an
      unqualified right to possession and disposition of and a right of set-off
      against, in each case to the fullest extent permitted by law, all of the
      Company’s right, title and interest of whatsoever kind and nature in and to the
      Intellectual Property (the “Security
      Interest”).

     

    3.  Representations
      and
      Warranties.  The Company hereby represents and warrants, and
      covenants and agrees with, the Secured Party as follows:

     

    (a)  The
      Company has the requisite corporate power and authority to enter into this
      Agreement and otherwise to carry out its obligations thereunder.  The
      execution, delivery and performance by the Company of this Agreement and the
      filings contemplated therein have been duly authorized by all necessary action
      on the part of the Company and no further action is required by the
      Company.  This Agreement constitutes a legal, valid and binding
      obligation of the Company enforceable in accordance with its terms, except
      as
      enforceability may be limited by bankruptcy, insolvency, reorganization,
      moratorium or similar laws affecting the enforcement of creditor’s rights
      generally.

     

    (b)  The
      Company represents and warrants that it has no place of business or offices
      where its respective books of account and records are kept (other than
      temporarily at the offices of its attorneys or accountants) or places where
      the
      Intellectual Property is stored or located, except as has been disclosed to
      the
      Secured Party;

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (c)  Except
      as
      set forth on Schedule
      3(c), the Company is the sole owner of the Intellectual Property (except
      for non-exclusive licenses granted by the Company in the ordinary course of
      business), free and clear of any liens, security interests, encumbrances, rights
      or claims, and is fully authorized to grant the Security Interest in and to
      pledge the Intellectual Property.  There is not on file in any
      governmental or regulatory authority, agency or recording office an effective
      financing statement, security agreement, license or transfer or any notice
      of
      any of the foregoing (other than those that have been filed in favor of the
      Secured Party pursuant to this Agreement) covering or affecting any of the
      Intellectual Property.  So long as this Agreement shall be in effect,
      the Company shall not execute and shall not knowingly permit to be on file
      in
      any such office or agency any such financing statement or other document or
      instrument (except to the extent filed or recorded in favor of the Secured
      Party
      pursuant to the terms of this Agreement), except for a financing statement
      covering assets acquired by the Company after the date hereof, provided that
      the
      value of the Intellectual Property covered by this Agreement along with the
      Collateral (as defined in the Security Agreement) is equal to at least 150%
      of
      the Obligations.

     

    (d)  The
      Company shall at all times maintain its books of account and records relating
      to
      the Intellectual Property at its principal place of business and may not
      relocate such books of account and records unless it delivers to the Secured
      Party at least 30 days prior to such relocation (i) written notice of such
      relocation and the new location thereof (which must be within the United States)
      and (ii) evidence that the necessary documents have been filed and recorded
      and other steps have been taken to perfect the Security Interest to create
      in
      favor of the Secured Party valid, perfected and continuing first priority liens
      in the Intellectual Property to the extent they can be perfected through such
      filings.

     

    (e)  This
      Agreement creates in favor of the Secured Party a valid security interest in
      the
      Intellectual Property securing the payment and performance of the Obligations
      and, upon making the filings required hereunder, a perfected first priority
      security interest in such Intellectual Property to the extent that it can be
      perfected through such filings.

     

    (f)   Upon
      request of the Secured Party, the Company shall execute and deliver any and
      all
      agreements, instruments, documents, and papers as the Secured Party may request
      to evidence the Secured Party’s security interest in the Intellectual Property
      and the goodwill and general intangibles of the Company relating thereto or
      represented thereby, and the Company hereby appoints the Secured Party its
      attorney-in-fact to execute and file all such writings for the foregoing
      purposes, all acts of such attorney being hereby ratified and confirmed; such
      power being coupled with an interest is irrevocable until the Obligations have
      been fully satisfied and are paid in full.

     

    (g)  The
      execution, delivery and performance of this Agreement does not conflict with
      or
      cause a breach or default, or an event that with or without the passage of
      time
      or notice, shall constitute a breach or default, under any agreement to which
      the Company is a party or by which the Company is bound.  No consent
      (including, without limitation, from stock holders or creditors of the Company)
      is required for the Company to enter into and perform its obligations
      hereunder.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (h)  The
      Company shall at all times maintain the liens and Security Interest provided
      for
      hereunder as valid and perfected liens and security interests in the
      Intellectual Property to the extent they can be perfected by filing in favor
      of
      the Secured Party until this Agreement and the Security Interest hereunder
      shall
      terminate pursuant to Section 11.  The Company hereby agrees to defend
      the same against any and all persons.  The Company shall safeguard and
      protect all Intellectual Property for the account of the Secured
      Party.  Without limiting the generality of the foregoing, the Company
      shall pay all fees, taxes and other amounts necessary to maintain the
      Intellectual Property and the Security Interest hereunder, and the Company
      shall
      obtain and furnish to the Secured Party from time to time, upon demand, such
      releases and/or subordinations of claims and liens which may be required to
      maintain the priority of the Security Interest hereunder.

     

    (i)  The
      Company will not transfer, pledge, hypothecate, encumber, license (except for
      non-exclusive licenses granted by the Company in the ordinary course of
      business), sell or otherwise dispose of any of the Intellectual Property without
      the prior written consent of the Secured Party.

     

    (j)  The
      Company shall, within ten (10) days of obtaining knowledge thereof, advise
      the
      Secured Party promptly, in sufficient detail, of any substantial change in
      the
      Intellectual Property, and of the occurrence of any event which would have
      a
      material adverse effect on the value of the Intellectual Property or on the
      Secured Party’s security interest therein.

     

    (k)  The
      Company shall permit the Secured Party and its representatives and agents to
      inspect the Intellectual Property at any time, and to make copies of records
      pertaining to the Intellectual Property as may be requested by the Secured
      Party
      from time to time.

     

    (l)  The
      Company will take all steps reasonably necessary to diligently pursue and seek
      to preserve, enforce and collect any rights, claims, causes of action and
      accounts receivable in respect of the Intellectual Property.

     

    (m)  The
      Company shall promptly notify the Secured Party in sufficient detail upon
      becoming aware of any attachment, garnishment, execution or other legal process
      levied against any Intellectual Property and of any other information received
      by the Company that may materially affect the value of the Intellectual
      Property, the Security Interest or the rights and remedies of the Secured Party
      hereunder.

     

    (n)  All
      information heretofore, herein or hereafter supplied to the Secured Party by
      or
      on behalf of the Company with respect to the Intellectual Property is accurate
      and complete in all material respects as of the date furnished.

     

    (o)  Schedule
      3(a) to the
      Purchase Agreement contains a list of all of the subsidiaries of
      Company.

     

    (p)  Schedule
      B attached
      hereto includes all Patents and Patent Licenses, if any, owned by the Company
      in
      its own name as of the date hereof.  Schedule B hereto
      includes all Trademarks and Trademark Licenses, if any, owned by the Company
      in
      its own name as of the date hereof.  

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

       

      Schedule
        B hereto
        includes all Copyrights and Copyright Licenses, if any, owned by the Company
        in
        its own name as of the date hereof.  Schedule B hereto
        includes all Trade Secrets and Trade Secret Licenses, if any, owned by the
        Company as of the date hereof.  To the best of the Company’s
        knowledge, each License, Patent, Trademark, Copyright and Trade Secret is
        valid,
        subsisting, unexpired, enforceable and has not been abandoned.  Except
        as set forth in Schedule B, none
        of
        such Licenses, Patents, Trademarks, Copyrights and Trade Secrets is the subject
        of any licensing or franchise agreement.  To the best of the Company’s
        knowledge, no holding, decision or judgment has been rendered by any
        Governmental Body which would limit, cancel or question the validity of any
        License, Patent, Trademark, Copyright and Trade Secrets.  No action or
        proceeding is pending (i) seeking to limit, cancel or question the validity
        of
        any License, Patent, Trademark, Copyright or Trade Secret, or (ii) which,
        if
        adversely determined, would have a material adverse effect on the value of
        any
        License, Patent, Trademark, Copyright or Trade Secret.  The Company
        has used and will continue to use for the duration of this Agreement, proper
        statutory notice in connection with its use of the Patents, Trademarks and
        Copyrights and consistent standards of quality in products leased or sold
        under
        the Patents, Trademarks and Copyrights.

    

     

    (q)  With
      respect to any Intellectual Property:

     

    
      	
              (i)  

            	
              such
                Intellectual Property is subsisting and has not been adjudged invalid
                or
                unenforceable, in whole or in part;

            


    

     

    
      	
              (ii)  

            	
              such
                Intellectual Property is valid and
                enforceable;

            


    

     

    
      	
              (iii)  

            	
              the
                Company has made all necessary filings and recordations to protect
                its
                interest in such Intellectual Property, including, without limitation,
                recordations of all of its interests in the Patents, Patent Licenses,
                Trademarks and Trademark Licenses in the United States Patent and
                Trademark Office and in corresponding offices throughout the world
                and its
                claims to the Copyrights and Copyright Licenses in the United States
                Copyright Office and in corresponding offices throughout the
                world;

            


    

     

    
      	
              (iv)  

            	
              other
                than as set forth in Schedule
                B, the
                Company is the exclusive owner of the entire and unencumbered right,
                title
                and interest in and to such Intellectual Property and no claim has
                been
                made that the use of such Intellectual Property infringes on the
                asserted
                rights of any third party; and

            


    

     

    
      	
              (v)  

            	
              the
                Company has performed and will continue to perform all acts and has
                paid
                all required fees and taxes to maintain each and every item of
                Intellectual Property in full force and effect throughout the world,
                as
                applicable.

            


    

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (r)  Except
      with respect to any Trademark or Copyright that the Company shall reasonably
      determine is of negligible economic value to the Company, the Company
      shall:

     

    (i)  maintain
      each Trademark and Copyright in full force free from any claim of abandonment
      for non-use, maintain as in the past the quality of products and services
      offered under such Trademark or Copyright;  employ such Trademark or
      Copyright with the appropriate notice of registration; not adopt or use any
      mark
      which is confusingly similar or a colorable imitation of such Trademark or
      Copyright unless the Secured Party shall obtain a perfected security interest
      in
      such mark pursuant to this Agreement; and not (and not permit any licensee
      or
      sublicensee thereof to) do any act or knowingly omit to do any act whereby
      any
      Trademark or Copyright may become invalidated;

     

    (ii)  not,
      except with respect to any Patent that it shall reasonably determine is of
      negligible economic value to it, do any act, or omit to do any act, whereby
      any
      Patent may become abandoned or dedicated; and

     

    (iii)  notify
      the Secured Party immediately if it knows, or has reason to know, that any
      application or registration relating to any Patent, Trademark or Copyright
      may
      become abandoned or dedicated, or of any adverse determination or development
      (including, without limitation, the institution of, or any such determination
      or
      development in, any proceeding in the United States Patent and Trademark Office,
      United States Copyright Office or any court or tribunal in any country)
      regarding its ownership of any Patent, Trademark or Copyright or its right
      to
      register the same or to keep and maintain the same.

     

    (s)  Whenever
      the Company, either by itself or through any agent, employee, licensee or
      designee, shall file an application for the registration of any Patent,
      Trademark or Copyright with the United States Patent and Trademark Office,
      United States Copyright Office or any similar office or agency in any other
      country or any political subdivision thereof or acquire rights to any new
      Patent, Trademark or Copyright whether or not registered, report such filing
      to
      the Secured Party within five business days after the last day of the fiscal
      quarter in which such filing occurs.

     

    (t)  The
      Company shall take all reasonable and necessary steps, including, without
      limitation, in any proceeding before the United States Patent and Trademark
      Office, United States Copyright Office or any similar office or agency in any
      other country or any political subdivision thereof, to maintain and pursue
      each
      application (and to obtain the relevant registration) and to maintain each
      registration of the Patents, Trademarks and Copyrights, including, without
      limitation, filing of applications for renewal, affidavits of use and affidavits
      of incontestability.

     

    (u)  In
      the
      event that any Patent, Trademark or Copyright included in the Intellectual
      Property is infringed, misappropriated or diluted by a third party, promptly
      notify the Secured Party after it learns thereof and shall, unless it shall
      reasonably determine that such Patent, Trademark or Copyright is of negligible
      economic value to it, which determination it shall promptly report to the
      Secured Party, promptly sue for infringement, misappropriation or dilution,
      to
      seek injunctive relief where appropriate and to recover any and all damages
      for
      such infringement, misappropriation or dilution, or take such other actions
      as
      it shall reasonably deem appropriate under the circumstances to protect such
      Patent, Trademark or Copyright.  

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

       

      If
        the
        Company lacks the financial resources to comply with this Section 3(t), the
        Company shall so notify the Secured Party and shall cooperate fully with
        any
        enforcement action undertaken by the Secured Party on behalf of the
        Company.

    

     

    4.  Defaults.  The
      following events shall be “Events of
      Default”:

     

    (a)  The
      occurrence of an Event of Default (as defined in the Notes) under the
      Notes;

     

    (b)  Any
      representation or warranty of the Company in this Agreement or in the Security
      Agreement shall prove to have been incorrect in any material respect when
      made;

     

    (c)  The
      failure by the Company to observe or perform any of its obligations hereunder
      or
      in the Security Agreement for ten (10) days after receipt by the Company of
      notice of such failure from the Secured Party; and

     

    (d)  Any
      breach of, or default under, the Warrants.

     

    5.  Duty
      To Hold In
      Trust.  Upon the occurrence of any Event of Default and at any
      time thereafter, the Company shall, upon receipt by it of any revenue, income
      or
      other sums subject to the Security Interest, whether payable pursuant to the
      Notes or otherwise, or of any check, draft, note, trade acceptance or other
      instrument evidencing an obligation to pay any such sum, hold the same in trust
      for the Secured Party and shall forthwith endorse and transfer any such sums
      or
      instruments, or both, to the Secured Party for application to the satisfaction
      of the Obligations.

     

    6.  Rights
      and Remedies Upon
      Default.  Upon occurrence of any Event of Default and at any
      time thereafter, the Secured Party shall have the right to exercise all of
      the
      remedies conferred hereunder and under the Notes, and the Secured Party shall
      have all the rights and remedies of a secured party under the UCC and/or any
      other applicable law (including the Uniform Commercial Code of any jurisdiction
      in which any Intellectual Property is then located).  Without
      limitation, the Secured Party shall have the following rights and
      powers:

     

    (a)  The
      Secured Party shall have the right to take possession of the Intellectual
      Property and, for that purpose, enter, with the aid and assistance of any
      person, any premises where the Intellectual Property, or any part thereof,
      is or
      may be placed and remove the same, and the Company shall assemble the
      Intellectual Property and make it available to the Secured Party at places
      which
      the Secured Party shall reasonably select, whether at the Company’s premises or
      elsewhere, and make available to the Secured Party, without rent, all of the
      Company’s respective premises and facilities for the purpose of the Secured
      Party taking possession of, removing or putting the Intellectual Property in
      saleable or disposable form.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (b)  The
      Secured Party shall have the right to operate the business of the Company using
      the Intellectual Property and shall have the right to assign, sell, lease or
      otherwise dispose of and deliver all or any part of the Intellectual Property,
      at public or private sale or otherwise, either with or without special
      conditions or stipulations, for cash or on credit or for future delivery, in
      such parcel or parcels and at such time or times and at such place or places,
      and upon such terms and conditions as the Secured Party may deem commercially
      reasonable, all without (except as shall be required by applicable statute
      and
      cannot be waived) advertisement or demand upon or notice to the Company or
      right
      of redemption of the Company, which are hereby expressly waived.  Upon
      each such sale, lease, assignment or other transfer of Intellectual Property,
      the Secured Party may, unless prohibited by applicable law which cannot be
      waived, purchase all or any part of the Intellectual Property being sold, free
      from and discharged of all trusts, claims, right of redemption and equities
      of
      the Company, which are hereby waived and released.

     

    7.  Applications
      of
      Proceeds.  The proceeds of any such sale, lease or other
      disposition of the Intellectual Property hereunder shall be applied first,
      to
      the expenses of retaking, holding, storing, processing and preparing for sale,
      selling, and the like (including, without limitation, any taxes, fees and other
      costs incurred in connection therewith) of the Intellectual Property, to the
      reasonable attorneys’ fees and expenses incurred by the Secured Party in
      enforcing its rights hereunder and in connection with collecting, storing and
      disposing of the Intellectual Property, and then to satisfaction of the
      Obligations, and to the payment of any other amounts required by applicable
      law,
      after which the Secured Party shall pay to the Company any surplus
      proceeds.  If, upon the sale, license or other disposition of the
      Intellectual Property, the proceeds thereof are insufficient to pay all amounts
      to which the Secured Party is legally entitled, the Company will be liable
      for
      the deficiency, together with interest thereon, at the rate of 15% per annum
      (the “Default
      Rate”), and the reasonable fees of any attorneys employed by the Secured
      Party to collect such deficiency.  To the extent permitted by
      applicable law, the Company waives all claims, damages and demands against
      the
      Secured Party arising out of the repossession, removal, retention or sale of
      the
      Intellectual Property, unless due to the gross negligence or willful misconduct
      of the Secured Party.

     

    8.  Costs
      and
      Expenses.   The Company agrees to pay all out-of-pocket
      fees, costs and expenses incurred in connection with any filing required
      hereunder, including without limitation, any financing statements, continuation
      statements, partial releases and/or termination statements related thereto
      or
      any expenses of any searches reasonably required by the Secured
      Party.  The Company shall also pay all other claims and charges which
      in the reasonable opinion of the Secured Party might prejudice, imperil or
      otherwise affect the Intellectual Property or the Security Interest
      therein.  The Company will also, upon demand, pay to the Secured Party
      the amount of any and all reasonable expenses, including the reasonable fees
      and
      expenses of its counsel and of any experts and agents, which the Secured Party
      may incur in connection with (i) the enforcement of this Agreement, (ii) the
      custody or preservation of, or the sale of, collection from, or other
      realization upon, any of the Intellectual Property, or (iii) the exercise or
      enforcement of any of the rights of the Secured Party under the Notes. Until
      so
      paid, any fees payable hereunder shall be added to the principal amount of
      the
      Notes and shall bear interest at the Default Rate.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    9.  Responsibility
      for
      Intellectual Property.  The Company assumes all liabilities and
      responsibility in connection with all Intellectual Property, and the obligations
      of the Company hereunder or under the Notes and the Warrants shall in no way
      be
      affected or diminished by reason of the loss, destruction, damage or theft
      of
      any of the Intellectual Property or its unavailability for any
      reason.

     

    10.  Security
      Interest
      Absolute.  All rights of the Secured Party and all Obligations
      of the Company hereunder, shall be absolute and unconditional, irrespective
      of:
      (a) any lack of validity or enforceability of this Agreement, the Notes, the
      Warrants or any agreement entered into in connection with the foregoing, or
      any
      portion hereof or thereof; (b) any change in the time, manner or place of
      payment or performance of, or in any other term of, all or any of the
      Obligations, or any other amendment or waiver of or any consent to any departure
      from the Notes, the Warrants  or any other agreement entered into in
      connection with the foregoing; (c) any exchange, release or nonperfection of
      any
      of the Intellectual Property, or any release or amendment or waiver of or
      consent to departure from any other Intellectual Property for, or any guaranty,
      or any other security, for all or any of the Obligations; (d) any action by
      the
      Secured Party to obtain, adjust, settle and cancel in its sole discretion any
      insurance claims or matters made or arising in connection with the Intellectual
      Property; or (e) any other circumstance which might otherwise constitute any
      legal or equitable defense available to the Company, or a discharge of all
      or
      any part of the Security Interest granted hereby.  Until the
      Obligations shall have been paid and performed in full, the rights of the
      Secured Party shall continue even if the Obligations are barred for any reason,
      including, without limitation, the running of the statute of limitations or
      bankruptcy.  The Company expressly waives presentment, protest, notice
      of protest, demand, notice of nonpayment and demand for performance. In the
      event that at any time any transfer of any Intellectual Property or any payment
      received by the Secured Party hereunder shall be deemed by final order of a
      court of competent jurisdiction to have been a voidable preference or fraudulent
      conveyance under the bankruptcy or insolvency laws of the United States, or
      shall be deemed to be otherwise due to any party other than the Secured Party,
      then, in any such event, the Company’s obligations hereunder shall survive
      cancellation of this Agreement, and shall not be discharged or satisfied by
      any
      prior payment thereof and/or cancellation of this Agreement, but shall remain
      a
      valid and binding obligation enforceable in accordance with the terms and
      provisions hereof.  The Company waives all right to require the
      Secured Party to proceed against any other person or to apply any Intellectual
      Property which the Secured Party may hold at any time, or to marshal assets,
      or
      to pursue any other remedy.  The Company waives any defense arising by
      reason of the application of the statute of limitations to any obligation
      secured hereby.

     

    11.  Term
      of
      Agreement.  This Agreement and the Security Interest shall
      terminate on the date on which all amounts outstanding under the Notes are
      no
      longer outstanding and all other Obligations have been paid or
      discharged.  Upon such termination, the Secured Party, at the request
      and at the expense of the Company, will join in executing any termination
      statement with respect to any financing statement executed and filed pursuant
      to
      this Agreement.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    12.  Power
      of Attorney; Further
      Assurances.

     

    (a)  The
      Company authorizes the Secured Party, and does hereby make, constitute and
      appoint it, and its respective officers, agents, successors or assigns with
      full
      power of substitution, as the Company’s true and lawful attorney-in-fact, with
      power, in its own name or in the name of the Company, to, after the occurrence
      and during the continuance of an Event of Default, (i) endorse any notes,
      checks, drafts, money orders, or other instruments of payment (including
      payments payable under or in respect of any policy of insurance) in respect
      of
      the Intellectual Property that may come into possession of the Secured Party;
      (ii) to sign and endorse any UCC financing statement or any invoice, freight
      or
      express bill, bill of lading, storage or warehouse receipts, drafts against
      debtors, assignments, verifications and notices in connection with accounts,
      and
      other documents relating to the Intellectual Property; (iii) to pay or discharge
      taxes, liens, security interests or other encumbrances at any time levied or
      placed on or threatened against the Intellectual Property; (iv) to demand,
      collect, receipt for, compromise, settle and sue for monies due in respect
      of
      the Intellectual Property; and (v) generally, to do, at the option of the
      Secured Party, and at the Company’s expense, at any time, or from time to time,
      all acts and things which the Secured Party deems necessary to protect, preserve
      and realize upon the Intellectual Property and the Security Interest granted
      therein in order to effect the intent of this Agreement, the Notes and the
      Warrants, all as fully and effectually as the Company might or could do; and
      the
      Company hereby ratifies all that said attorney shall lawfully do or cause to
      be
      done by virtue hereof.  This power of attorney is coupled with an
      interest and shall be irrevocable for the term of this Agreement and thereafter
      as long as any of the Obligations shall be outstanding.

     

    (b)  On
      a
      continuing basis, the Company will make, execute, acknowledge, deliver, file
      and
      record, as the case may be, in the proper filing and recording places in any
      jurisdiction, all such instruments, and take all such action as may reasonably
      be deemed necessary or advisable, or as reasonably requested by the Secured
      Party, to perfect the Security Interest granted hereunder and otherwise to
      carry
      out the intent and purposes of this Agreement, or for assuring and confirming
      to
      the Secured Party the grant or perfection of a security interest in all the
      Intellectual Property.

     

    (c)  The
      Company hereby irrevocably appoints the Secured Party as the Company’s
      attorney-in-fact, with full authority in the place and stead of the Company
      and
      in the name of the Company, from time to time in the Secured Party’s discretion,
      to take any action and to execute any instrument which the Secured Party may
      deem necessary or advisable to accomplish the purposes of this Agreement,
      including the filing, in its sole discretion, of one or more financing or
      continuation statements and amendments thereto, relative to any of the
      Intellectual Property without the signature of the Company where permitted
      by
      law.

     

    13.  Notices.  All
      notices, requests, demands and other communications hereunder shall be in
      writing, with copies to all the other parties hereto, and shall be deemed to
      have been duly given when (i) if delivered by hand, upon receipt, (ii) if sent
      by facsimile, upon receipt of proof of sending thereof, (iii) if sent by
      nationally recognized overnight delivery service (receipt requested), the next
      business day or (iv) if mailed by first-class registered or certified mail,
      return receipt requested, postage prepaid, four days after posting in the U.S.
      mails, in each case if delivered to the following addresses:

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

     

     

    
      	    If
              to
              the Company:	Midnight
              Holdings Group, Inc.


      	
               

            	
              22600
                Hall Road, Suite 205

            


    

    
      	
               

            	
              Clinton
                Township, MI 48036

            


    

    
      	
               

            	
              Attention:
                Chief Executive Officer

            


    

    
      	
               

            	
              Telephone:
                586-468-8741

            


    

    
      	
               

            	
              Facsimile:   586-468-8768

            


    

     

    
      	
                  With
                copies to: 

            	
              Anslow
                & Jaclin, LLP 

            


      	
               

            	
              195
                Route 9 South, Suite 204

            


    

    
      	
               

            	
              Manalapan,
                NJ  07726

            


    

    
      	
               

            	
              Attention:  Gregg
                E. Jaclin, Esq.

            


    

    
      	
               

            	
              Telephone:  732-409-1212

            


    

    
      	
               

            	
              Facsimile:   732-577-1188

            


    

     

    
      	
                  If
                to
                the Secured Party:

            	
              AJW
                Partners, LLC

            


    

    
      	
               

            	
              AJW
                Offshore, Ltd.

            


    

    
      	
               

            	
              AJW
                Qualified Partners, LLC

            


    

    
      	
               

            	
              New
                Millennium Capital Partners II, LLC

            


    

    
      	
               

            	
              1044
                Northern Boulevard

            


    

    
      	
               

            	
              Suite
                302

            


    

    
      	
               

            	
              Roslyn,
                New York  11576

            


    

    
      	
               

            	
              Attention:  Corey
                Ribotsky

            


    

    
      	
               

            	
              Facsimile:  516-739-7115

            


    

     

    
      
        	
                    With
                  copies to:

              	
                Ballard
                  Spahr Andrews & Ingersoll, LLP

              


      

      
        	
                 

              	
                1735
                  Market Street, 51st
                  Floor

              


      

      
        	
                 

              	
                Philadelphia,
                  Pennsylvania  19103

              


      

      
        	
                 

              	
                Attention:  Gerald
                  J. Guarcini, Esquire

              


      

      
        	
                 

              	
                Facsimile:  215-864-8999

              


      

       

    

    14.  Other
      Security.  To the extent that the Obligations are now or
      hereafter secured by property other than the Intellectual Property or by the
      guarantee, endorsement or property of any other person, firm, corporation or
      other entity, then the Secured Party shall have the right, in its sole
      discretion, to pursue, relinquish, subordinate, modify or take any other action
      with respect thereto, without in any way modifying or affecting any of the
      Secured Party’s rights and remedies hereunder.

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    15.  Miscellaneous.

     

    (a)  No
      course
      of dealing between the Company and the Secured Party, nor any failure to
      exercise, nor any delay in exercising, on the part of the Secured Party, any
      right, power or privilege hereunder or under the Notes shall operate as a waiver
      thereof; nor shall any single or partial exercise of any right, power or
      privilege hereunder or thereunder preclude any other or further exercise thereof
      or the exercise of any other right, power or privilege.

     

    (b)  All
      of
      the rights and remedies of the Secured Party with respect to the Intellectual
      Property, whether established hereby or by the Notes or by any other agreements,
      instruments or documents or by law shall be cumulative and may be exercised
      singly or concurrently.

     

    (c)  This
      Agreement and the Security Agreement constitute the entire agreement of the
      parties with respect to the subject matter hereof and is intended to supersede
      all prior negotiations, understandings and agreements with respect
      thereto.  Except as specifically set forth in this Agreement, no
      provision of this Agreement may be modified or amended except by a written
      agreement specifically referring to this Agreement and signed by the parties
      hereto.

     

    (d)  In
      the
      event that any provision of this Agreement is held to be invalid, prohibited
      or
      unenforceable in any jurisdiction for any reason, unless such provision is
      narrowed by judicial construction, this Agreement shall, as to such
      jurisdiction, be construed as if such invalid, prohibited or unenforceable
      provision had been more narrowly drawn so as not to be invalid, prohibited
      or
      unenforceable.  If, notwithstanding the foregoing, any provision of
      this Agreement is held to be invalid, prohibited or unenforceable in any
      jurisdiction, such provision, as to such jurisdiction, shall be ineffective
      to
      the extent of such invalidity, prohibition or unenforceability without
      invalidating the remaining portion of such provision or the other provisions
      of
      this Agreement and without affecting the validity or enforceability of such
      provision or the other provisions of this Agreement in any other
      jurisdiction.

     

    (e)  No
      waiver
      of any breach or default or any right under this Agreement shall be considered
      valid unless in writing and signed by the party giving such waiver, and no
      such
      waiver shall be deemed a waiver of any subsequent breach or default or right,
      whether of the same or similar nature or otherwise.

     

    (f)  This
      Agreement shall be binding upon and inure to the benefit of each party hereto
      and its successors and assigns.

     

    (g)  Each
      party shall take such further action and execute and deliver such further
      documents as may be necessary or appropriate in order to carry out the
      provisions and purposes of this Agreement.

     

    (h)  This
      Agreement shall be construed in accordance with the laws of the State of New
      York, except to the extent the validity, perfection or enforcement of a security
      interest hereunder in respect of any particular Intellectual Property which
      are
      governed by a jurisdiction other than the State of New York in which case such
      law shall govern.  

     

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

       

       

      Each
        of
        the parties hereto irrevocably submit to the exclusive jurisdiction of any
        New
        York State or United States Federal court sitting in Manhattan county over
        any
        action or proceeding arising out of or relating to this Agreement, and the
        parties hereto hereby irrevocably agree that all claims in respect of such
        action or proceeding may be heard and determined in such New York State or
        Federal court.  The parties hereto agree that a final judgment in any
        such action or proceeding shall be conclusive and may be enforced in other
        jurisdictions by suit on the judgment or in any other manner provided by
        law.  The parties hereto further waive any objection to venue in the
        State of New York and any objection to an action or proceeding in the State
        of
        New York on the basis of forum non conveniens.

    

     

    (i)  EACH
      PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRAIL OF
      ANY
      CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
      AGREEMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
      ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE
      TO
      THE SUBJECT MATER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT
      CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
      STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS
      A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP,
      THAT
      EACH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT
      AND
      THAT EACH PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
      DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS
      WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY
      WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING SUCH CONSULTATION.  THIS
      WAIVER IS IRREVOCABLE, MEANING THAT, NOTWITHSTANDING ANYTHING HEREIN TO THE
      CONTRARY, IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
      SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS AND SUPPLEMENTS OR
      MODIFICATIONS TO THIS AGREEMENT.  IN THE EVENT OF A LITIGATION, THIS
      AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
      COURT.

     

    (j)  This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement.  In the event that any
      signature is delivered by facsimile transmission, such signature shall create
      a
      valid binding obligation of the party executing (or on whose behalf such
      signature is executed) the same with the same force and effect as if such
      facsimile signature were the original thereof.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    


     

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    
 

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed on the day and year first above written.

     

     

    
      
        	
                MIDNIGHT
                  HOLDINGS GROUP,
                  INC.

              
	 
	
                By:

              	/s/ 
                Nicholas
                Cocco
	 	
                Nicholas
                  Cocco

              
	 	
                Chief
                  Executive Officer

              
	 
	
                AJW
                  PARTNERS,
                  LLC

                By:  SMS
                  Group, LLC

              
	 	 
	
                By:

              	
                /s/ 
                  Corey S. Ribotsky

              
	 	
                Corey
                  S. Ribotsky

              
	 	
                Manager

              
	 
	
                AJW
                  OFFSHORE,
                  LTD.

                By:  First
                  Street Manager II, LLC

              
	 	 
	
                By:

              	
                /s/ 
                  Corey S. Ribotsky

              
	 	
                Corey
                  S. Ribotsky

              
	 	
                Manager

              
	 
	
                AJW
                  QUALIFIED PARTNERS,
                  LLC

                By:  AJW
                  Manager, LLC

              
	 	 
	
                By:

              	
                
                  /s/ 
                    Corey S. Ribotsky

                

              
	 	
                Corey
                  S. Ribotsky

              
	 	
                Manager

              
	 
	
                NEW
                  MILLENNIUM CAPITAL PARTNERS
                  II, LLC

                By:  First
                  Street Manager II, LLC

              
	 	 
	
                By:

              	
                
                  /s/ 
                    Corey S. Ribotsky

                

              
	 	
                Corey
                  S. Ribotsky

              
	 	
                Manager

              


      

    

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

     

    
      
        	
                Wholly-Owned
                  Subsidiaries
                  of

              
	
                Midnight
                  Holdings Group,
                  Inc.:

              
	 	 
	
                By:

              	/s/ 
                Nicholas Cocco 
	 	
                Nicholas
                  Cocco

                Chief
                  Executive Officer and/or President on behalf of the following
                  entities:

              
	 
	
                MIDNIGHT
                  AUTO HOLDINGS,
                  INC.,

                a
                  Michigan corporation

              
	 
	
                MIDNIGHT
                  AUTO FRANCHISE
                  CORP.,

                a
                  Michigan corporation

              
	 
	
                ALL
                  NIGHT AUTO® STORES,
                  INC.,

                a
                  Michigan corporation

              
	 
	
                ALL
                  NIGHT AUTO
                  INC.,

                a
                  Michigan corporation – business done as All Night Auto of
                  Troy

              
	 
	
                ALL
                  NIGHT AUTO-GROSSE POINTE,
                  INC.,

                a
                  Michigan corporation – business done as All Night Auto of Grosse
                  Pointe

              
	 
	
                ALL
                  NIGHT AUTO OF NORMAL
                  NORTH,

                a
                  Michigan corporation

              
	 
	
                ALL
                  NIGHT AUTO OF
                  AURORA,

                a
                  Michigan corporation

              
	 
	
                ALL
                  NIGHT AUTO OF
                  JOLIET,

                a
                  Michigan corporation

              
	 
	
                ALL
                  NIGHT AUTO OF FORT
                  WAYNE,

                a
                  Michigan corporation

              


      

    

     

     

     

     

     

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

     

     

    SCHEDULE
      A

     

    Principal
      Place of Business
      of the Company:

     

    22600
      Hall Road, Clinton Township,
      MI  48036

     

    


    


    


    Locations
      Where Collateral
      is Located or Stored:

     

    3872
      Rochester Road, Troy, MI
      48083

    989
      S. Eola Road, Aurora,
      IL  60504

    13
      Westport Court, Bloomington, IL
      61704

    9500
      West 179th
      Street, Tinley
      Park, IL  60477

    9502
      West 179th
      Street, Tinley
      Park, IL  60477

    1835
      East Guadalupe, Suite 116, Tempe,
      AZ  85283

    


    


    


    List
      of Subsidiaries of the
      Company:

     

    Midnight
      Auto Holdings,
      Inc.

    Midnight
      Auto Franchise
      Corp.

    All
      Night Auto, Inc.

    All
      Night Auto Grosse Pointe,
      Inc.

    All
      Night Auto Stores,
      Inc.

    All
      Night Auto of Normal North,
      Inc.

    All
      Night Auto of Aurora,
      Inc.

    All
      Night Auto of Joliet,
      Inc.

    All
      Night Auto of Fort Wayne,
      Inc.

    


     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      B

     

    


    
      A.  Licenses,
        Patents and Patent
        Licenses

       

      


      
        	
                Patent

              	
                Application
                  or
                  Registration No.

              	
                Country

              	
                Registration
                  or

                Filing
                  Date

              
	 	 	 	 


      

      


      


      B.  Trademarks
        and Trademark
        Licenses

       

      
        	
                Service
                  Mark

              	
                2,290,780.

              	
                USA

              	
                Registration
                  or

                Nov
                  9
                  1999

              


      

      


      


      


      C.  Copyrights
        and Copyright Licenses

       

      
        	
                Name

              	
                Application
                  or
                  Registration No.

              	
                Country

              	
                Registration
                  or

                Filing
                  Date

              
	 	 	 	 


      

      


       

      


      


      D.  Trade
        Secrets and Trade Secret Licenses

       

      
        	
                Name

              	
                Application
                  or
                  Registration No.

              	
                Country

              	
                Registration
                  or

                Filing
                  Date

              
	 	 	 	 


      

      


       

    

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

     

     

     

     

     

    Schedule
      C

     

    Jurisdictions

     

     

     

     

     

     

     

     

     

     

    
19