SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated this day of December 9, 2003 ("Security
Agreement") is by and among Citadel Media, Inc., a Washington corporation
("Media"), TheInsiders.com, LLC, a Washington limited liability company and
Citadel Publishing, LLC, both wholly owned subsidiaries of Media (collectively
"Subsidiaries"), and Orion Acquisition Corp. II, a Delaware corporation
("Lender").
Recitals
Whereas, pursuant to the terms of the Note of even date herewith in the
amount of $500,000 issued by Media, Lender has loaned money to Media for the
consolidated business operations of Media and the Subsidiaries; and;
Whereas, Media and each of the Subsidiaries have entered into this Security
Agreement to secure the repayment of the obligations under the Note, among other
obligations, and for that purpose each of Media and each of the Subsidiaries
have agreed to grant security interests in the Collateral specified herein.
Agreement
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Security Interest.
1.1. Grant. To secure prompt payment and performance of the
Obligations, Media and each of the Subsidiaries each hereby grants to Lender a
security interest in and to the Collateral. This Security Agreement shall remain
in full force and effect and shall apply with respect to the Collateral until
such time as all of outstanding Obligations hereunder, including those pursuant
to the Note, shall have been paid or otherwise satisfied in full.
1.2. Financing Statement. Contemporaneously herewith, Media and the
Subsidiaries shall each properly file a Form UCC-1 financing statement
("Financing Statement") describing the Collateral. At any time, upon demand of
the Lender, each of Media and the Subsidiaries shall execute, file, and record
any notice, financing statement, or other instrument necessary to create,
continue, or perfect the lien and security interest granted by this Security
Agreement or to enable Lender to exercise or enforce their rights under this
Security Agreement. Notwithstanding the foregoing, each of Media and the
Subsidiaries hereby authorizes Lender to file Financing Statements describing
the Collateral, and any continuation statements, amendments, termination
statements, applications for registration and like documents as Lender may
request, without the signatures of Media or the Subsidiaries.
2. Representations, Warranties and Covenants. Each of Media and each of the
Subsidiaries warrants and represents, jointly and severally, during the term of
this Security Agreement as following:
1
2.1. Media's Chief Executive Office is located in the State of
Washington.
2.2. Media's state of incorporation is in the State of Washington.
2.3. Media's exact legal name is set forth on the signature pageto
this Security Agreement.
2.4. Each of the Subsidiaries' exact legal names are as set forth in
the definition of Subsidiary.
2.5. The Chief Executive Office of each of the Subsidiary is located
in the State of Washington.
2.6. The state of formation of the each of the Subsidiaries is in the
State of Washington.
2.7. Media and each of the Subsidiaries have full power and authority
to enter into this Security Agreement and to perform the Obligations, and in the
case of Media, to enter into and perform under the terms of the Note. Media and
each of the Subsidiaries has taken all actions necessary to be authorized to
enter into and perform this Security Agreement, and in the case of Media, to
enter into and perform under the terms of the Note. This Security Agreement and
the Obligations described herein are valid and legally binding on Media and each
of the Subsidiaries, and in the case of Media the Note is the valid and legally
binding obligation of Media.
2.8. No charter or bylaw provisions of the Media or any of
Subsidiaries prevent any of them from entering into or performing under this
Security Agreement, or in the case of Media entering into or performing under
the Note. No provisions of any existing mortgage, indenture, or other agreement
prevent the Media or the Subsidiaries from entering into or performing under
this Security Agreement or in the case of Media from entering into and
performing under the Note. Each of Media or the Subsidiary will not enter any
agreements that would conflict with or otherwise prevent any of them from
performing under this Security Agreement or the Obligations.
2.9. Media and each of the Subsidiaries shall, from time to time, do
and perform all such other and further acts and execute and deliver any and all
such further instruments as may be required by law (or reasonably requested by
Lender) to establish, maintain, protect, and perfect Lender's security interest
and lien in any of the Collateral, as provided in this Security Agreement.
2.10. Each of Media and the Subsidiaries is the owner of its
Collateral, free and clear of all liens, claims, and encumbrances of whatever
kind or nature. Subject to the Media loan to the Subsidiaries, Each of Media and
the Subsidiaries represent and warrant that there is no other security interest
in any of the Collateral, and upon the execution of this Security Agreement and
completion of the filing of Financing Statements contemporaneously herewith,
Lender will obtain a first priority security interest in the Collateral, subject
to the Permitted Encumbrances.
3. Negative Covenants. Until all of the Obligations are paid in full or
otherwise satisfied, Media and each of the Subsidiaries covenants and warrants,
jointly and severally, that it shall not:
3.1. Change its state of incorporation without providing Lender 30
days prior written notice;
2
3.2. Change its corporate name without providing Lender with 30 days
prior written notice;
3.3. Change its Chief Executive Officer without providing Lender with
30 days prior written notice;
3.4. Allow, authorize or permit any of its personal property to become
affixed to any real property in any manner that would change its nature from
that of personal property to real property or to a fixture;
3.5. Sell, transfer, or other dispose of the Collateral, or any
material asset thereof, other than in the ordinary course of business, or
pursuant to disposition, the material proceeds of which are use to pay the Note;
3.6. Allow, authorize or permit any person, other than Lender, to file
a Financing Statement or like documents, without the express written consent of
Lender; or
3.7. Establish any other affiliate or subsidiary for the purpose of
conducting any business or holding any assets, unless such Subsidiary becomes a
party to this Security Agreement and a Financing Statement is filed therewith on
Collateral.
4. Definitions.
4.1. "Collateral" shall consist of all of the goods and other personal
property of Media and each of the Subsidiaries, tangible or intangible, and
wherever located and now owned or hereafter acquired, including, but limited to
the following, which shall have the meanings as assigned to them by the UCC:
(a). Inventory;
(b). Equipment;
(c). Accounts;
(d). Chattel Paper;
(e). Electronic Chattel Paper;
(f). Tangible Chattel Paper;
(g). Documents;
(h). Instruments (including Promissory Notes);
(i). General Intangibles (including Payment Intangibles);
(j). Deposit Accounts;
(k). Investment Property;
(l). Letter of Credit Rights;
(m). Letters of Credit;
(n). Commercial Tort Claims;
(o). Investment Property;
(p). Software;
(q). Customer Lists of Media and each of the Subsidiaries;
(r). Records; and
(s). To the extent not listed above as original collateral,
proceeds and non-cash proceeds and products of the foregoing.
3
4.2. "Default" means, at the sole option of Lender, the occurrence of
any of the following:
(a). Media fails to pay interest or principal payments when due
and payable under any of the Note, or any other event of default occurs under
the terms of the Note;
(b). Media or Subsidiaries fails to comply with any of the
Obligations, or fails to perform or observe any term, condition or covenant in
this Security Agreement; or
(c). Media or Subsidiaries breaches any of the representations
and warranties in this Security Agreement or violates any covenants in this
Security Agreement.
4.3. "Note" means the Promissory Note between Media and the Lender of
even date issued by Media in the principal amount of $500,000.
4.4. "Obligations" means any and all of the debts, financial
obligations, and other duties owed by Media and each of the Subsidiaries under
(i) this Security Agreement; and (ii) the Note; and (ii) any and all of Media
and each of the Subsidiaries Media other present and future financial or other
obligations to Lender.
4.5. "Permitted Encumbrances" means (i) the security interest granted
to First Down Publications, Inc. on the assets acquired therefrom, (ii) the loan
from Media to the Subsidiaries, or (iii) purchase money security interests, or
security interest granted on assets hereafter acquired by Media or the
Subsidiaries. 4.6. "Security Agreement" means this security agreement.
4.7. "Subsidiary" means TheInsiders.com, LLC, a Washington limited
liability company, Citadel Publishing, LLC, a Washington limited liability
company, and any future wholly-owned subsidiary of Media.
4.8. "UCC" means, unless otherwise specified by the state, the Uniform
Commercial Code of Washington and, where so specified, the Uniform Commercial
Code in that state. Any term used in the UCC and not defined in this Security
Agreement has the meaning given to the term in the UCC.
5. Remedies. Upon the occurrence of any event of Default, Lender shall
have, in addition to all of the rights and remedies at law or in equity, the
remedies of a Lender under the UCC. In the event of Default, regardless of where
any Collateral and books and records are located, Lender may require Media and
or any of the Subsidiaries to assemble all Collateral and the books and records
in one or more locations and make such Collateral and the books and records
available to Lender..
6. Care of Collateral. Media and each of the Subsidiaries each will keep in
effect all licenses, permits and franchises required by law or contract relating
to their respective business (if applicable), property, or the Collateral;
maintain insurance on the Collateral; keep the Collateral in good repair and be
responsible for any loss or damage to it; at all times warrant and defend their
ownership and possession of the Collateral; keep the Collateral free from all
liens, claims, encumbrances and security interests; pay when due all taxes,
license fees, and other charges upon the Collateral or upon Media and each of
4
the Subsidiaries business, property or the income therefrom; and not misuse,
conceal or in any way use or dispose of the Collateral unlawfully or contrary to
the provisions of this Security Agreement or of any insurance coverage. Loss of,
damage to, or uncollectability of the Collateral or any part thereof will not
release Media or the Subsidiaries from any of their obligations hereunder.
6.1. Costs. Media and each of the Subsidiaries, jointly and severally
promise to pay, upon Lender's demand therefore, all costs and expenses,
including attorneys' fees, incurred in the collection and enforcement of this
Security Agreement, including, without limitation, fees incurred in bankruptcy
proceedings. If any party hereto shall bring any suit, arbitration or other
action against another for relief, declaratory or otherwise, arising out of this
Security Agreement, the prevailing party shall have and recover against the
other party, in addition to all costs, expert witness fees and other
disbursements, such sum as the court or arbiter may determine to be a reasonable
attorneys' fee, and such recovery may include reasonable fees and costs incurred
in connection with the matter but prior to the commencement of the action.
7. Amendments and Waivers. Any term of this Agreement may be amended or
waived with the written consent of the Company and the Lender.
8. Arbitration. Any dispute, controversy, or claim arising between the
parties out of or in relation to this Security Agreement shall be settled by
binding arbitration in accordance with the American Arbitration Rules in effect
as of the effective date of this Agreement. The appointing authority shall be
the American Arbitration Association office located in Seattle, Washington, and
the case shall be administered by the same authority in accordance with its
procedures for cases under the Commercial Arbitration Rules. The place of
arbitration shall be Seattle, Washington, or such other location as the parties
may agree. The number of arbitrators shall be one, unless the parties cannot
agree on a single arbitrator. In such event, the parties shall each choose one
arbitrator, and these two arbitrators shall choose a third arbitrator who shall
preside over the proceedings. The awards rendered by the arbitrators shall be
final and binding upon both parties concerned, and judgment upon the award may
be entered in any court having jurisdiction thereof. The allocation of the
expenses of the arbitration shall be effected by the arbitration decision.
9. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of the respective parties, and their legal representatives, successors,
assigns and heirs. This Security Agreement will not be assignable by Media or
its Subsidiaries without the written consent of Lender, which may be withheld
for any reason. The paragraph headings are for convenience only and in no way
define, limit, extend or interpret any particular provision hereof. This
Agreement has been reviewed and approved by each party, and in the event it
should be determined that any provision herein is uncertain or ambiguous, the
language in all parts of this Agreement shall be in all cases construed as a
whole according to its fair meaning and not strictly construed for nor against
any party. If any provision hereof shall be unenforceable, the validity of the
other terms hereof shall not in any way be affected thereby. This Agreement may
be signed in counterparts, any one of which shall be deemed to be an original.
This Agreement shall be governed by the laws of the State of Washington
10. Notices. All notices, demands, requests, consents, approvals and other
instruments required or permitted to be given pursuant to the terms of this
Security Agreement shall be in writing and shall be deemed sufficient upon
delivery, when delivered personally or by a nationally-recognized delivery
5
service, or forty-eight (48) hours after being deposited in the U.S. Mail, as
certified or registered mail, with postage prepaid, addressed to the party to be
notified at such party's address as set forth below or as subsequently modified
by written notice.
IN WITNESS WHEREOF, the parties have signed this agreement as of the date
first above written.
MEDIA:
CITADEL MEDIA, INC.
2125 Western Avenue, Suite 200
Seattle, WA 98121
- -------------------------------------------------
By: James C. Heckman
Title: Chief Executive Officer
CITADEL PUBLISHING, LLC
2125 Western Avenue, Suite 200
Seattle, WA 98121
- -------------------------------------------------
By: James C. Heckman
Title: Chief Executive Officer
THEINSIDERS.COM, LLC:
2125 Western Avenue, Suite 200
Seattle, WA 98121
- -------------------------------------------------
By: James C. Heckman
Title: Chief Executive Officer
ORION ACQUISITION CORP. II:
Suite 1020
401 Wilshire Boulevard
Santa Monica, California 90401
- -------------------------------------------------
By:
Title:
6