f10qsb0307ex10m.htm


    SECURITY
      AGREEMENT

     

    SECURITY
      AGREEMENT (this “Agreement”), dated
      as
      of November 6, 2007, by and among Midnight Holdings Group, Inc., a Delaware
      corporation (“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 property 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.

     

    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.  Certain
      Definitions.  As used in this Agreement, the following terms
      shall have the meanings set forth in this Section 1.  Terms used but
      not otherwise defined in this Agreement that are defined in Article 9 of the
      UCC
      (such as “general
      intangibles” and “proceeds”)
      shall have
      the respective meanings given such terms in Article 9 of the UCC.

     

    (a)  “Collateral”
means
      the
      collateral in which the Secured Party is granted a security interest by this
      Agreement and which shall include the following, whether presently owned or
      existing or hereafter acquired or coming into existence, and all additions
      and
      accessions thereto and all substitutions and replacements thereof, and all
      proceeds, products and accounts thereof, including, without limitation, all
      proceeds from the sale or transfer of the Collateral and of insurance covering
      the same and of any tort claims in connection therewith:

     

    (i)  All
      Goods
      of the Company, including, without limitations, all machinery, equipment,
      computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture,
      special and general tools, fixtures, test and quality control devices and other
      equipment of every kind and nature and wherever situated, together with all
      documents of title and documents representing the same, all additions and
      accessions thereto, replacements therefor, all parts therefor, and all
      substitutes for any of the foregoing and all other items used and useful in
      connection with the Company’s businesses and all improvements thereto
      (collectively, the “Equipment”);
      and

     

    (ii)  All
      Inventory of the Company; and

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii)  All
      of
      the Company’s contract rights and general intangibles, including, without
      limitation, all partnership interests, stock or other securities, licenses,
      distribution and other agreements, computer software development rights, leases,
      franchises, customer lists, quality control procedures, grants and rights,
      goodwill, trademarks, service marks, trade styles, trade names, patents, patent
      applications, copyrights, deposit accounts, and income tax refunds
      (collectively, the “General
      Intangibles”); and

     

    (iv)  All
      Receivables of the Company including all insurance proceeds, and rights to
      refunds or indemnification whatsoever owing, together with all instruments,
      all
      documents of title representing any of the foregoing, all rights in any
      merchandising, goods, equipment, motor vehicles and trucks which any of the
      same
      may represent, and all right, title, security and guaranties with respect to
      each Receivable, including any right of stoppage in transit; and

     

    (v)  All
      of
      the Company’s documents, instruments and chattel paper, files, records, books of
      account, business papers, computer programs and the products and proceeds of
      all
      of the foregoing Collateral set forth in clauses (i)-(iv) above.

     

    (b)  “Company”
shall
      mean,
      collectively, Company and all of the subsidiaries of Company, a list of which
      is
      contained in Schedule
      A, attached hereto.

     

    (c)  “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.

     

    (d)  “UCC”
means
      the
      Uniform Commercial Code, as currently in effect in the State of New
      York.

     

    2.  Grant
      of Security
      Interest.  As an inducement for the Secured Party to purchase
      the Notes and 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
      Collateral (the “Security
      Interest”).

     

     

    
      
        
        

      

      
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    3.  Representations,
      Warranties,
      Covenants and Agreements of the Company.  The Company
      represents and warrants to, 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
      Collateral is stored or located, except as has been disclosed to the Secured
      Party;

     

    (c)  Except
      as
      set forth on Schedule
      3(c), the Company is the sole owner or lessor (as the case may be) of the
      Collateral (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 Collateral.  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  Collateral.  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).

     

    (d)  No
      part
      of the Collateral has been judged invalid or unenforceable.  No
      written claim has been received that any Collateral or the Company’s use of any
      Collateral violates the rights of any third party. There has been no adverse
      decision to the Company’s claim of ownership rights in or exclusive rights to
      use the Collateral in any jurisdiction or to the Company’s right to keep and
      maintain such Collateral in full force and effect, and there is no proceeding
      involving said rights pending or, to the best knowledge of the Company,
      threatened before any court, judicial body, administrative or regulatory agency,
      arbitrator or other governmental authority.

     

    (e)  The
      Company shall at all times maintain its books of account and records relating
      to
      the Collateral at its principal place of business and may not relocate such
      books of account and records or tangible Collateral 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 appropriate financing statements and other
      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 Collateral.

     

     

    
      
        
        

      

      
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    (f)  This
      Agreement creates in favor of the Secured Party a valid security interest in
      the
      Collateral securing the payment and performance of the Obligations and, upon
      making the filings described in the immediately following sentence, a perfected
      first priority security interest in such Collateral.  Except for the
      filing of financing statements on Form-1 under the UCC in the proper
      jurisdiction, no authorization or approval of or filing with or notice to any
      governmental authority or regulatory body is required either (i) for the
      grant by the Company of, or the effectiveness of, the Security Interest granted
      hereby or for the execution, delivery and performance of this Agreement by
      the
      Company or (ii) for the perfection of or exercise by the Secured Party of
      its rights and remedies hereunder.

     

    (g)  On
      the
      date of execution of this Agreement, the Company will deliver to the Secured
      Party one or more executed UCC financing statements on Form-1 with respect
      to
      the Security Interest for filing in the proper jurisdiction, attached hereto
      and
      in such other jurisdictions as may be requested by the Secured
      Party.

     

    (h)  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.

     

    (i)  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 Collateral
      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 Collateral for the account of the Secured
      Party.  At the request of the Secured Party, the Company will sign and
      deliver to the Secured Party at any time or from time to time one or more
      financing statements pursuant to the UCC (or any other applicable statute)
      in
      form reasonably satisfactory to the Secured Party and will pay the cost of
      filing the same in all public offices wherever filing is, or is deemed by the
      Secured Party to be, necessary or desirable to effect the rights and obligations
      provided for herein. Without limiting the generality of the foregoing, the
      Company shall pay all fees, taxes and other amounts necessary to maintain the
      Collateral 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.

     

    (j)  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 Collateral without the prior
      written consent of the Secured Party.

     

     

    
      
        
        

      

      
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    (k)  The
      Company shall keep and preserve its Equipment, Inventory and other tangible
      Collateral in good condition, repair and order and shall not operate or locate
      any such Collateral (or cause to be operated or located) in any area excluded
      from insurance coverage.

     

    (l)  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
      Collateral, and of the occurrence of any event which would have a material
      adverse effect on the value of the Collateral or on the Secured Party’s security
      interest therein.

     

    (m)  The
      Company shall promptly execute and deliver to the Secured Party such further
      deeds, mortgages, assignments, security agreements, financing statements or
      other instruments, documents, certificates and assurances and take such further
      action as the Secured Party may from time to time request and may in its sole
      discretion deem necessary to perfect, protect or enforce its security interest
      in the Collateral including, without limitation, the execution and delivery
      of a
      separate security agreement with respect to the Company’s intellectual property
      (“Intellectual
      Property Security Agreement”) in which the Secured Party has been granted
      a security interest hereunder, substantially in a form acceptable to the Secured
      Party, which Intellectual Property Security Agreement, other than as stated
      therein, shall be subject to all of the terms and conditions
      hereof.

     

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

     

    (o)  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 Collateral.

     

    (p)  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 Collateral and of any other information received by the
      Company that may materially affect the value of the Collateral, the Security
      Interest or the rights and remedies of the Secured Party hereunder.

     

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

     

    (r)  Schedule
      3(a) to the
      Purchase Agreement contains a list of all of the wholly-owned subsidiaries
      of
      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;

     

     

    
      
        
        

      

      
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    (b)  Any
      representation or warranty of the Company in this Agreement or in the
      Intellectual Property 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 Intellectual Property 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 Collateral 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 Collateral and,
      for
      that purpose, enter, with the aid and assistance of any person, any premises
      where the Collateral, or any part thereof, is or may be placed and remove the
      same, and the Company shall assemble the Collateral 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
      Collateral in saleable or disposable form.

     

    (b)  The
      Secured Party shall have the right to operate the business of the Company using
      the Collateral and shall have the right to assign, sell, lease or otherwise
      dispose of and deliver all or any part of the Collateral, 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 Collateral, the Secured Party may, unless
      prohibited by applicable law which cannot be waived, purchase all or any part
      of
      the Collateral being sold, free from and discharged of all trusts, claims,
      right
      of redemption and equities of the Company, which are hereby waived and
      released.

     

     

    
      
        
        

      

      
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    7.  Applications
      of
      Proceeds.  The proceeds of any such sale, lease or other
      disposition of the Collateral 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 Collateral, 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
      Collateral, 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 Collateral, 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 Collateral, 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 Collateral 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 Collateral, 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.  Responsibility
      for
      Collateral.  The Company assumes all liabilities and
      responsibility in connection with all Collateral, 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 Collateral 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 Collateral, or any release or amendment or waiver of or consent to departure
      from any other collateral 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 Collateral; or 

     

     

    
      
        
        

      

      
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      (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
        Collateral 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 Collateral 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.

     

    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 Collateral 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 Collateral; (iii) to pay or discharge taxes,
      liens, security interests or other encumbrances at any time levied or placed
      on
      or threatened against the Collateral; (iv) to demand, collect, receipt for,
      compromise, settle and sue for monies due in respect of the Collateral; 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
      Collateral 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.

     

     

    
      
        
        

      

      
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    (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
      Collateral.

     

    (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
      Collateral 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:

     

    
      	
                  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
              a
              copy 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

            


    

     

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
 

    
      	    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
                a
                copy to:	
                Ballard
                  Spahr Andrews & Ingersoll, LLP

              


        	
                 

              	
                1735
                  Market Street, 51st
                  Floor

              


      

      
        	
                 

              	
                Philadelphia,
                  Pennsylvania  19103

              


      

      
        	
                 

              	
                Attention:  Gerald
                  J. Guarcini, Esq.

              


      

      
        	
                 

              	
              


      

      
        	
                 

              	
                Facsimile:  215-864-8999

              


      

       

    

    14.  Other
      Security.  To the extent that the Obligations are now or
      hereafter secured by property other than the Collateral 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.

     

    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 Collateral,
      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 constitutes 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.  

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

       

      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 Collateral which are governed
      by
      a jurisdiction other than the State of New York in which case such law shall
      govern.  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. 

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

       

      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]

     

     

     

     

     

    
 

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Security 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

                


        

      

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

       

      
        
          	
                  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

                


        

      

       

       

       

    

     

     

     

    
 

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    


     

    SCHEDULE
      A

     

    Principal
      Place of Business
      of the Company:

     

    22600
      Hall Road, Suite 205 Clinton
      Township, MI  48036

     

    


    


    


    Locations
      Where Collateral
      is Located or Stored:

     

    3872
      Rochester Road, Troy, MI
      48083

    989
      S. Eola Road, Aurora,
      IL  60504

    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.

    


     

    


    15