SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made effective as of March __, 2005, by
and between AMERICANA PUBLISHING, INC., (the "Company"), and XXXXXXXXXX EQUITY PARTNERS, LTD. (the "Secured
Party").
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company shall issue to
the Secured Party a secured promissory note in the principal amount of Eight Hundred Twenty Thousand Dollars
($820,000) (the "Note");
WHEREAS, to induce the Secured Party to enter into the Note, the Company hereby grants to the Secured
Party a security interest in and to the pledged property identified on Exhibit A hereto until the satisfaction of
the Obligations, as defined herein below.
NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained, and for
other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties
hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in their entirety, by this
reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to confer upon any person other
than the Secured Party any right, remedy or claim under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the Company now existing or hereinafter
incurred to the Secured Party, whether oral or written and whether arising before, on or after the date hereof
including, without limitation, those obligations of the Company to the Secured Party under this Agreement, the
Note, or the Pledge and Escrow Agreement of even date herewith by and among the Company, the Pledgor, the Secured
Party and Xxxxx Xxxxxxxx, Esq. (the "Pledge Agreement") and any other amounts now or hereafter owed to the
Secured Party by the Company thereunder or hereunder (collectively, the "Obligations"). This Agreement, the
Note, and the Pledge Agreement are collectively referred to herein as the "Transaction Documents".
ARTICLE 2.
Pledged Property, administration of collateral
AND TERMINATION OF SECURITY INTEREST
Section 2.1. Pledged Property.
(a) Company hereby pledges to the Secured Party, and creates in the Secured Party for its
benefit, a security interest in and to all of the property of the Company as set forth in Exhibit A attached
hereto and the products thereof and the proceeds of all such items (collectively, the "Pledged Property") for
such time until the Obligations are paid in full.
(b) Simultaneously with the execution and delivery of this Agreement, the Company shall
make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by
the Secured Party to perfect its security interest in the Pledged Property. Simultaneously with the execution
and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party
such documents and instruments, including, without limitation, financing statements, certificates, affidavits and
forms as may, in the Secured Party's reasonable judgment, be necessary to effectuate, complete or perfect, or to
continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party
shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein.
Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter defined) shall have occurred and be
continuing:
(i) the Company shall be entitled to exercise any and all rights pertaining to the
Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and retain any and all payments paid
or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of the Company to exercise the rights which it would otherwise be
entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would otherwise be
authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such
rights and to receive and hold as Pledged Property such payments; provided, however, that if the Secured Party
shall become entitled and shall elect to exercise its right to realize on the Pledged Property pursuant to
Article 5 hereof, then all cash sums received by the Secured Party, or held by Company for the benefit of the
Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outstanding
Obligations; and
(ii) All interest, dividends, income and other payments and distributions which are
received by the Company contrary to the provisions of Section 2.2(b)(i) hereof shall be received in trust for the
benefit of the Secured Party, shall be segregated from other property of the Company and shall be forthwith paid
over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be authorized to sell any or
all of the Pledged Property at public or private sale in order to recoup all of the outstanding principal plus
accrued interest owed pursuant to the Note as described herein
(iv) Each Event of Default as such term is defined in Section 10 of the Note shall
be an Event of Default under this Agreement.
ARTICLE 3.
attorney-in-fact; performance
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, the Company hereby appoints the Secured Party as its
attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or
otherwise, from time to time in the Secured Party's discretion to take any action and to execute any instrument
which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including,
without limitation, to receive and collect all instruments made payable to the Company representing any payments
in respect of the Pledged Property or any part thereof and to give full discharge for the same. The Secured
Party may demand, collect, receipt for, settle, compromise, adjust, xxx for, foreclose, or realize on the Pledged
Property as and when the Secured Party may determine. To facilitate collection, the Secured Party may notify
account debtors and obligors on any Pledged Property to make payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may
itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in
connection therewith shall be included in the Obligations secured hereby and payable by the Company under
Section 8.3.
ARTICLE 4.
representations and warranties
The Company represents and warrants to the Secured Party that the following representations and
warranties are true and correct as of the date hereof. The Company acknowledges that the Secured Party is
relying on the representations and warranties made by the Company hereunder and that such representations and
warranties are a material inducement to the Secured Party funding the Note. The Company further acknowledges
that without such representations and warranties of the Company made hereunder, the Secured Party would not
enter into the Transaction Documents.
Section 4.1. Organization and Qualification
The Company and its subsidiaries are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own
their properties and to carry on their business as now being conducted. Each of the Company and its subsidiaries
is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification necessary, except to the extent that the
failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
Section 4.2. Authorization, Enforcement, Compliance with Other Instruments
The Company has the requisite corporate power and authority to enter into and perform the Transaction
Documents and any related agreements in accordance with the terms hereof and thereof, (ii) the execution and
delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated
hereby and thereby, including, without limitation, the issuance of the Note has been duly authorized by the
Company's Board of Directors and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) the Transaction Documents have been duly executed and delivered by the
Company, (iv) the Transaction Documents constitute the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. The authorized
officer of the Company executing the Transaction Documents knows of no reason why the Company cannot perform the
Company's obligations under the Transaction Documents.
Section 4.3. Capitalization.
The authorized capital stock of the Company consists of 500,000,000 shares of stock, all of which are
designated as Common Stock, $0.001 par value per share, of which 480,851,590 are outstanding. All of such
outstanding shares have been validly issued and are fully paid and nonassessable. No shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by
the Company. As of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no
outstanding debt securities and (iii) there are no agreements or arrangements under which the Company or any of
its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except
pursuant to the Registration Rights Agreement between the Company and the Secured Party dated the date hereof)
and (iv) there are no outstanding registration statements and there are no outstanding comment letters from the
SEC or any other regulatory agency. There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Note as described in this Agreement. The Company has
furnished to the Secured Party true and correct copies of the Company's Certificate of Incorporation, as amended
and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in effect
on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common
Stock and the material rights of the holders thereof in respect thereto other than stock options issued to
employees and consultants.
Section 4.4. No Conflicts
The execution, delivery and performance of the Transaction Documents by the Company and the consummation
by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of The National Association of Securities
Dealers Inc.'s OTC Bulletin Board on which the Common Stock is quoted) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected.
Neither the Company nor its subsidiaries is in violation of any term of or in default under its Certificate of
Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is
not being conducted, and shall not be conducted in violation of any law, ordinance, or regulation of any
governmental entity which would have a material adverse effect on the Company. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws,
the Company is not required to obtain any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its
subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.
Section 4.5. Financial Statements
As of their respective dates, the financial statements of the Company (the "Financial Statements") for
the two most recently completed fiscal years and any subsequent interim period complied as to form in all
material respects with applicable accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such
Financial Statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material
respects the financial position of the Company as of the dates thereof and the results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to the Buyer, including, without
limitation, information referred to in this Agreement, contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Section 4.6. Absence of Litigation
There is no action, suit, proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending against or affecting the Company, the Common
Stock or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a
material adverse effect on the transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or
any of the documents contemplated herein, or (iii) have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its subsidiaries taken as a whole.
Section 4.7. Acknowledgment Regarding Secured Party's Acceptance of the Note
The Company acknowledges and agrees that the Secured Party is acting solely in the capacity of an arm's
length lender with respect to this Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Secured Party is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by
the Secured Party or any of their respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Secured Party's acceptance of the Note. The
Company further represents to the Secured Party that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its representatives.
Section 4.8. Intellectual Property Rights
The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade
names, service marks, service xxxx registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any infringement by
the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret or other similar rights of
others, and, to the knowledge of the Company there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks,
service xxxx registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing.
Section 4.9. Environmental Laws
The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received
all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval.
Section 4.10. Title.
Any real property and facilities held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.
Section 4.11. Insurance.
The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.
Section 4.12. Regulatory Permits
The Company and its subsidiaries possess all material certificates, authorizations and permits issued by
the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization or permit.
Section 4.13. Internal Accounting Controls
The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to maintain asset accountability, and
(iii) the recorded amounts for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Section 4.14. No Material Adverse Breaches, etc
Neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers
has or is expected in the future to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its subsidiaries. Neither the Company
nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the
Company's officers, has or is expected to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its subsidiaries.
Section 4.15. Employee Relations.
Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge
of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations
with their employees are good.
Section 4.16. Certain Transactions
Except for arm's length transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from third parties and none of the
officers, directors, or employees of the Company is presently a party to any transaction with the Company (other
than for services as employees, officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner.
Section 4.17. Ownership of Pledged Property.
The Company warrants and represents that it is the legal and beneficial owner of the Pledged Property
free and clear of any lien, security interest, option or other charge or encumbrance except for the security
interest created by this Agreement.
ARTICLE 5.
default; remedies
Section 5.1. Default and Remedies.
(a) If an Event of Default described in Section 2.2(c)(i) and (ii) occurs, then in each
such case the Secured Party may declare the Obligations to be due and payable immediately, by a notice in writing
to the Company, and upon any such declaration, the Obligations shall become immediately due and payable and the
Secured Party can immediately exercise any of its rights and remedies pursuant to the Transaction Documents or
under any applicable law. If an Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is
continuing for the period set forth therein, then the Obligations shall automatically become immediately due and
payable without declaration or other act on the part of the Secured Party and the Secured Party can immediately
exercise any of its rights and remedies pursuant to the Transaction Documents and under any applicable law.
(b) Upon the occurrence of an Event of Default, the Secured Party shall: (i) be entitled
to receive all distributions with respect to the Pledged Property, (ii) to cause the Pledged Property to be
transferred into the name of the Secured Party or its nominee, (iii) to dispose of the Pledged Property, (iv) to
realize upon any and all rights in the Pledged Property then held by the Secured Party, and (v) exercise any of
its rights and remedies pursuant to the Transaction Documents and any applicable law.
Section 5.2. Method of Realizing Upon the Pledged Property: Other Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and remedies available at law or
in equity, the following provisions shall govern the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other value in any number of
lots at brokers board, public auction or private sale and may be sold without demand, advertisement or notice
(except that the Secured Party shall give the Company ten (10) days' prior written notice of the time and place
or of the time after which a private sale may be made (the "Sale Notice")), which notice period is hereby agreed
to be commercially reasonable. At any sale or sales of the Pledged Property, the Company may bid for and
purchase the whole or any part of the Pledged Property and, upon compliance with the terms of such sale, may
hold, exploit and dispose of the same without further accountability to the Secured Party. The Company will
execute and deliver, or cause to be executed and delivered, such instruments, documents, assignments, waivers,
certificates, and affidavits and supply or cause to be supplied such further information and take such further
action as the Secured Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged Property and all cash proceeds
received by the Secured Party in respect of, sale of, collection from, or other realization upon all or any part
of the Pledged Property shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for the expenses
reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled thereto, including,
without limitation, the Company.
(c) In addition to all of the rights and remedies which the Secured Party may have
pursuant to this Agreement, the Secured Party shall have all of the rights and remedies provided by law,
including, without limitation, those under the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the occurrence of an Event
of Default which is continuing, then the Secured Party may institute a judicial proceeding for the collection of
the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same
against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of
the property of Company, wherever situated.
(ii) The Company agrees that it shall be liable for any reasonable fees, expenses
and costs incurred by the Secured Party in connection with enforcement, collection and preservation of the
Transaction Documents, including, without limitation, reasonable legal fees and expenses, and such amounts shall
be deemed included as Obligations secured hereby and payable as set forth in Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or the
property of the Company or of such other obligor or its creditors, the Secured Party (irrespective of whether the
Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of
whether the Secured Party shall have made any demand on the Company for the payment of the Obligations), subject
to the rights of Previous Security Holders, shall be entitled and empowered, by intervention in such proceeding
or otherwise:
(i) to file and prove a claim for the whole amount of the Obligations and to file
such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party
(including any claim for the reasonable legal fees and expenses and other expenses paid or incurred by the
Secured Party permitted hereunder and of the Secured Party allowed in such judicial proceeding), and
(ii) to collect and receive any monies or other property payable or deliverable on
any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby authorized by the Secured Party
to make such payments to the Secured Party and, in the event that the Secured Party shall consent to the making
of such payments directed to the Secured Party, to pay to the Secured Party any amounts for expenses due it
hereunder.
Section 5.4. Duties Regarding Pledged Property.
The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any
income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable
care of any of the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the Obligations have been fully
paid and satisfied, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4
hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or proceed with due diligence
with any actions or courses of action, that may be reasonably necessary (i) to maintain Company's due
organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to
preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions
in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall
not do, or cause to be done, any act impairing the Company's corporate power or authority (i) to carry on the
Company's business as now conducted, and (ii) to execute or deliver this Agreement or any other document
delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the
Secured Party to which it is or will be a party, or perform any of its obligations hereunder or thereunder. For
purpose of this Agreement, the term "Material Adverse Effect" shall mean any material and adverse affect as
determined by Secured Party in its sole discretion, whether individually or in the aggregate, upon (a) the
Company's assets, business, operations, properties or condition, financial or otherwise; (b) the Company's to make
payment as and when due of all or any part of the Obligations; or (c) the Pledged Property.
Section 6.2. Accounts and Reports.
The Company shall maintain a standard system of accounting in accordance with generally accepted
accounting principles consistently applied and provide, at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other communication alleging any
nonpayment or other material breach or default, or any foreclosure or other action respecting any material
portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of
$15,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption,
purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in
excess of $15,000, including any received from any person acting on behalf of the Secured Party or beneficiary
thereof; and
(b) within fifteen (15) days after the making of each submission or filing, a copy of any
report, financial statement, notice or other document, whether periodic or otherwise, submitted to the
shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving or
affecting (i) the Company that could have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the
Pledged Property; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments.
Section 6.3. Maintenance of Books and Records; Inspection.
The Company shall maintain its books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and permit the Secured Party, its officers and employees and any
professionals designated by the Secured Party in writing, at any time to visit and inspect any of its properties
(including but not limited to the collateral security described in the Transaction Documents and/or the Loan
Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof.
Section 6.4. Maintenance and Insurance.
(a) The Company shall maintain or cause to be maintained, at its own expense, all of its
assets and properties in good working order and condition, making all necessary repairs thereto and renewals and
replacements thereof.
(b) The Company shall maintain or cause to be maintained, at its own expense, insurance in
form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the
Company's business, (i) adequate to insure all assets and properties of the Company, which assets and properties
are of a character usually insured by persons engaged in the same or similar business against loss or damage
resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and
other tort claims that may be incurred by the Company; (iii) as may be required by the Transaction Documents
and/or applicable law and (iv) as may be reasonably requested by Secured Party, all with adequate, financially
sound and reputable insurers.
Section 6.5. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to each instrument, receivable,
contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be
party on a timely basis and in the manner therein required, including, without limitation, this Agreement.
Section 6.6. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and to any part of: (a) the
Pledged Property; and (b) if not included within the Pledged Property, those assets and properties whose loss
could have a Material Adverse Effect, the Company shall defend the Secured Party's right, title and interest in
and to each and every part of the Pledged Property, each against all manner of claims and demands on a timely
basis to the full extent permitted by applicable law.
Section 6.7. Payment of Debts, Taxes, Etc.
The Company shall pay, or cause to be paid, all of its indebtedness and other liabilities and perform,
or cause to be performed, all of its obligations in accordance with the respective terms thereof, and pay and
discharge, or cause to be paid or discharged, all taxes, assessments and other governmental charges and levies
imposed upon it, upon any of its assets and properties on or before the last day on which the same may be paid
without penalty, as well as pay all other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due
Section 6.8. Taxes and Assessments; Tax Indemnity.
The Company shall (a) file all tax returns and appropriate schedules thereto that are required to be
filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and
governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Company in good faith may contest any such tax, assessment, governmental charge or
levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect
thereto.
Section 6.9. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned or used in connection therewith in
compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such
business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises,
indentures and mortgages to which the Company is a party or by which the Company or any of its properties is
bound. Without limiting the foregoing, the Company shall pay all of its indebtedness promptly in accordance with
the terms thereof.
Section 6.10. Notice of Default.
The Company shall give written notice to the Secured Party of the occurrence of any default or Event of
Default under this Agreement, the Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.
Section 6.11. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings
wherein the amount at issue is in excess of $50,000, instituted by any persons against the Company, or affecting
any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement
thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which
might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition
of the Company.
Section 6.12. Reporting Status
Until the date on which the entire outstanding principal and interest of the Note has been satisfied,
the Company shall file in a timely manner all reports required to be filed with the SEC pursuant to the Exchange
Act and the regulations of the SEC thereunder, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder
would otherwise permit such termination.
Section 6.13. Costs and Expenses
The costs and expenses of the Secured Party and the structuring fee of Yorkville Advisors Management,
LLC of Ten Thousand Dollars ($10,000) shall be paid by the Company from the proceeds of the First Closing (as
such term is defined in the Note).
Section 6.15. Corporate Existence
So long as any portion of the Note is outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split consolidation, sale of all or
substantially all of the Company's assets or any similar transaction or related transactions (each such
transaction, an "Organizational Change") unless, prior to the consummation an Organizational Change, the Company
obtains the written consent of the Secured Party. In any such case, the Company will make appropriate provision
with respect to such holders' rights and interests to insure that the provisions of this Section 6.15 will
thereafter be applicable to the Note.
Section 6.14. Transactions With Affiliates
So long as any portion of the Note is outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any subsidiary to enter into, amend,
modify or supplement any agreement, transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock, or Affiliates (as defined below)
or with any individual related by blood, marriage, or adoption to any such individual or with any entity in which
any such entity or individual owns a five percent (5%) or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on reasonable terms, (b) any investment in
an Affiliate of the Company, (c) any agreement, transaction, commitment, or arrangement on an arms-length basis
on terms no less favorable than terms which would have been obtainable from a person other than such Related
Party, (d) any agreement transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is also an officer of the Company
or any subsidiary of the Company shall not be a disinterested director with respect to any such agreement,
transaction, commitment, or arrangement. "Affiliate" for purposes hereof means, with respect to any person or
entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.
"Control" or "controls" for purposes hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
Section 6.15. Restriction on Issuance of the Capital Stock
So long as any portion of the Note is outstanding, the Company shall not, without the prior written
consent of the Secured Party, (i) issue or sell shares of Common Stock or Preferred Stock without consideration
or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its
issuance, (ii) issue any warrant, option, right, contract, call, or other security instrument granting the holder
thereof, the right to acquire Common Stock without consideration or for a consideration less than such Common
Stock's Bid Price value determined immediately prior to it's issuance, (iii) enter into any security instrument
granting the holder a security interest in any and all assets of the Company, or (iv) file any registration
statement on Form S-8. Bid Price shall mean, on any date, the closing bid price (as reported by Bloomberg L.P.)
of the Common Stock on the Principal Market or if the Common Stock is not traded on a Principal Market, the
highest reported bid price for the Common Stock, as furnished by the National Association of Securities Dealers,
Inc. Principal Market shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock
Exchange, the OTC Bulletin Board or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 6.16. Transfer Agent
In the event that the Company's agency relationship with the transfer agent is terminated for any reason
prior to a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new
transfer agent.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid
and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing:
Section 7.1. Liens and Encumbrances.
The Company shall not directly or indirectly make, create, incur, assume or permit to exist any
assignment, transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or
against any part of the Pledged Property or of the Company's capital stock, or offer or agree to do so, or own or
acquire or agree to acquire any asset or property of any character subject to any of the foregoing encumbrances
(including any conditional sale contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber its right to receive any income or other distribution or proceeds from any part of the
Pledged Property or the Company's capital stock; or enter into any sale-leaseback financing respecting any part
of the Pledged Property as lessee, or cause or assist the inception or continuation of any of the foregoing.
Section 7.2. Certificate of Incorporation, By-Laws, Mergers, Consolidations, Acquisitions and Sales.
Without the prior express written consent of the Secured Party, the Company shall not: (a) Amend its
Certificate of Incorporation or By-Laws; (b) issue or sell its stock, stock options, bonds, notes or other
corporate securities or obligations; (c) be a party to any merger, consolidation or corporate reorganization,
(d) purchase or otherwise acquire all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, (e) sell, transfer, convey, grant a security interest in
or lease all or any substantial part of its assets, nor (f) create any subsidiaries nor convey any of its assets
to any subsidiary.
Section 7.3. Management, Ownership.
The Company shall not materially change its ownership, executive staff or management without the prior
written consent of the Secured Party. The ownership, executive staff and management of the Company are material
factors in the Secured Party's willingness to institute and maintain a lending relationship with the Company.
Section 7.4. Dividends, Etc.
The Company shall not declare or pay any dividend of any kind, in cash or in property, on any class of
its capital stock, nor purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make
any distribution of any kind in respect thereof, nor make any return of capital to shareholders, nor make any
payments in respect of any pension, profit sharing, retirement, stock option, stock bonus, incentive compensation
or similar plan (except as required or permitted hereunder), without the prior written consent of the Secured
Party.
Section 7.5. Guaranties; Loans.
The Company shall not guarantee nor be liable in any manner, whether directly or indirectly, or become
contingently liable after the date of this Agreement in connection with the obligations or indebtedness of any
person or persons, except for (i) the indebtedness currently secured by the liens identified on the Pledged
Property identified on Exhibit A hereto and (ii) the endorsement of negotiable instruments payable to the Company
for deposit or collection in the ordinary course of business. The Company shall not make any loan, advance or
extension of credit to any person other than in the normal course of its business.
Section 7.6. Debt.
The Company shall not create, incur, assume or suffer to exist any additional indebtedness of any
description whatsoever in an aggregate amount in excess of $25,000 (excluding any indebtedness of the Company to
the Secured Party, trade accounts payable and accrued expenses incurred in the ordinary course of business and
the endorsement of negotiable instruments payable to the Company, respectively for deposit or collection in the
ordinary course of business).
Section 7.7. Conduct of Business.
The Company will continue to engage, in an efficient and economical manner, in a business of the same
general type as conducted by it on the date of this Agreement.
Section 7.8. Places of Business.
The location of the Company's chief place of business is 000 Xxx Xxxxx XX, Xxxxx 000X, Xxxxxxxxxxx, XX
00000. The Company shall not change the location of its chief place of business, chief executive office or any
place of business disclosed to the Secured Party or move any of the Pledged Property from its current location
without thirty (30) days' prior written notice to the Secured Party in each instance.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given pursuant to this Agreement shall
be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person, by
nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the
continental United States by certified mail, return receipt requested to the party entitled to receive the same:
If to the Secured Party: Xxxxxxxxxx Equity Partners, Ltd.
000 Xxxxxx Xxxxxx-Xxxxx 0000
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxx Xxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
And if to the Company: Americana Publishing, Inc.
000 Xxx Xxxxx XX - Xxxxx 000X
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx, Xx.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
Xxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Any party may change its address by giving notice to the other party stating its new address.
Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such
party's address for the purpose of all notices or other communications required or permitted to be given pursuant
to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur
in connection with: (i) the custody or preservation of, or the sale, collection from, or other realization upon,
any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder
or (iii) the failure by the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to require strict performance by
Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the
Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the
Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of
Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to
have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such
waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver,
amendment, change or modification and signed by the Secured Party.
Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain
in full force and effect until payment in full of the Obligations; and (ii) be binding upon the Company and its
successors and heirs and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon
the payment or satisfaction in full of the Obligations, the Company shall be entitled to the return, at its
expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive
independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and
responsibilities with regard to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with the laws of the State of New
Jersey without regard to the principles of conflict of laws. The parties further agree that any action between
them shall be heard in Xxxxxx County, New Jersey, and expressly consent to the jurisdiction and venue of the
Superior Court of New Jersey, sitting in Xxxxxx County and the United States District Court for the District of
New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL
ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or
understanding among them with respect to the subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date first above
written.
AMERICANA PUBLISHING, INC.
By:
Name: Xxxxxx Xxxxxx, Xx.
Title: CEO
SECURED PARTY:
XXXXXXXXXX EQUITY PARTNERS, LTD.
By:
Name: Xxxx Xxxxxx
Title: Portfolio Manager
A-2
A-1
exhibit A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by the Company of all of the
Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security
interest in and to, and lien upon, the following Pledged Property of the Company:
(a) all goods of the Company, including, without limitation, machinery, equipment,
furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and
description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any
interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale
or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
(b) all inventory of the Company, including, but not limited to, all goods, wares,
merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is
temporarily out of Company's custody or possession and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of the foregoing;
(c) all contract rights and general intangibles of the Company, including, without
limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture
interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created;
(d) all documents, warehouse receipts, instruments and chattel paper of the Company
whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms of obligations and
rights to payment of the Company (herein collectively referred to as "Accounts"), together with the proceeds
thereof, all goods represented by such Accounts and all such goods that may be returned by the Company's
customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company
may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit,
replevin and reclamation and as an unpaid vendor and/or lienor, all of which the Company represents and warrants
will be bona fide and existing obligations of its respective customers, arising out of the sale of goods by the
Company in the ordinary course of business;
(f) to the extent assignable, all of the Company's rights under all present and future
authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of
its facilities;
(g) all products and proceeds (including, without limitation, insurance proceeds) from the
above-described Pledged Property.
