Exhibit 10.3

SECURITY AGREEMENT
 
THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as
of August 8, 2008, by and between IR BIOSCIENCES HOLDINGS, INC., a Delaware
corporation with its principal place of business located at 8767 E. Via De
Ventura, Suite 190, Scottsdale, AZ 85258 (the “Company”), and the undersigned
subsidiaries of the Company (each a “Guarantor,” and collectively together with
the Company, the “Grantors”), in favor of Brencourt Advisors, LLC as agent (the
“Secured Party”) for the holders of the Convertible Debentures referred to in
the following paragraph (the “Holders”). The Secured Party shall have the rights
and authority described in Annex A hereto.
 
WHEREAS, in connection with the Securities Purchase Agreement by and among the
Company and the Holders of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue to the Holders (i) an
aggregate original principal amount of up to $5,000,000 of senior secured
convertible debentures (the “Convertible Debentures”), which shall be
convertible into shares of the Company’s Common Stock (the “Conversion Shares”);
and (ii) warrants (the “Warrants”) to be exercisable to acquire additional
shares of Common Stock (the “Warrants Shares”) initially in that number of
shares of Common Stock set forth in the Securities Purchase Agreement;
 
WHEREAS, each of the Guarantors (other than the Company) has executed and
delivered a Guaranty dated the date hereof (the “Guaranty”) in favor of the
Secured Party, with respect to the Company’s obligations under the Securities
Purchase Agreement, the Convertible Debentures, and the Transaction Documents
(as defined below); and
 
WHEREAS, each of the Guarantors shall receive a direct benefit from the Holders
entering into the Securities Purchase Agreement, the Convertible Debentures, and
the Transaction; and
 
WHEREAS, it is a condition precedent to each Holder’s purchasing the Convertible
Debentures and Warrants pursuant to the Securities Purchase Agreement that the
Grantors shall have executed and delivered to the Secured Party this Agreement
providing for the grant to the Secured Party of a security interest in all
personal property of each Grantor to secure all of the Company's obligations
under the “Transaction Documents” (as defined in the Securities Purchase
Agreement) (the “Transaction Documents”) and the Guarantors’ obligations under
the Guaranty;
 
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.                                Definitions.                                Reference
is hereby made to the Securities Purchase Agreement and the Convertible
Debentures for a statement of the terms thereof.  All capitalized terms used in
this Agreement and the recitals hereto and not defined herein shall have the
meanings set forth in the Securities Purchase Agreement, the Convertible
Debentures, or in Articles 8 or 9 of the Uniform Commercial Code as in effect
from time to time in the State of New Jersey (the "Code").
 
Section 1.4.                                Other Definitions.  As used in this
Agreement, the following terms shall have the respective meanings indicated
below, such meanings to be applicable equally to both the singular and plural
forms of such terms:
 
“Event of Default” shall be deemed to have occurred under this Agreement upon an
Event of Default under and as defined in the Convertible Debentures.
 
 
 

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ARTICLE 2.
 
PLEDGED PROPERTY
 
Section 2.1.
Grant of Security Interest.

 
(a)           As collateral security for all of the Obligations (as defined in
Section 2.2 hereof), each Grantor hereby pledges and assigns to the Secured
Party, and grants to the Secured Party for its benefit, a continuing security
interest in and to all personal property of each Grantor, wherever located and
whether now or hereinafter existing and whether now owned or hereafter acquired,
of every kind and description, tangible or intangible, including without
limitation, all Goods, Inventory, Equipment, Fixtures, Instruments (including
promissory notes), Documents, Accounts (including health-care-insurance
receivables, and license fees), Contracts, Contract Rights, Chattel Paper
(whether tangible or electronic), Deposit Accounts (and in and to any deposits
or other sums at any time credited to each such Deposit Account), Money, Letters
of Credit and Letter-of-Credit Rights (whether or not the letter of credit is
evidenced by a writing), Commercial Tort Claims, Securities and all other
Investment Property, General Intangibles (including payment intangibles and
software), Farm Products, all books and records relating to any of the
foregoing, and all supporting obligations, and any and all proceeds and products
of any thereof, including proceeds of insurance covering any or all of the
foregoing, wherever located, whether now owned, or now due, in which a Grantor
has an interest or the power to transfer rights, or hereafter acquired, arising,
or to become due, or in which a Grantor obtains an interest, or the power to
transfer rights, and as more particularly described on Exhibit A attached hereto
(collectively, the “Pledged Property”).
 
(b)           Simultaneously with the execution and delivery of this Agreement,
each Grantor shall make, execute, acknowledge, file, record and deliver to the
Secured Party such documents, instruments, and agreements, 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.
 
Section 2.2                            Security for Obligations.  The security
interest created hereby in the Pledged Property constitutes continuing
collateral security for all of the following obligations, whether now existing
or hereinafter incurred (collectively, the “Obligations”):
 
(a)  (i) the payment by the Company, as and when due and payable (by scheduled
maturity, acceleration, demand or otherwise), of all amounts from time to time
owing by it in respect of the Convertible Debentures, the other Transaction
Documents, or any other amounts owing by it to the Secured Party, whether or not
now in existence or hereinafter incurred, or (ii) in the case of any Guarantor,
the payment by such Guarantor, as and when due and payable of all “Guaranteed
Obligations” under (and as defined in) the Guaranty; and
 
(b)  the due performance and observance by the each Grantor of all of its other
obligations from time to time existing in respect of any of the Transaction
Documents, including without limitation, with respect to any conversion or
redemption rights of the Secured Party under the Convertible Debentures.
 
ARTICLE 3.
 
ATTORNEY-IN-FACT; PERFORMANCE
 
Section 3.1.
Secured Party Appointed Attorney-In-Fact.

 
Subject only to prior rights previously granted to YA Global Investments, L.P.,
the Grantors hereby appoint the Secured Party as its attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, exercisable after and during the continuance of an Event of
Default, 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 (a) receive and collect all instruments made payable to the
Grantor representing any payments in respect of the Pledged Property or any part
thereof and to give full discharge for the same; (b) demand, collect, receipt
for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged
Property as and when the Secured Party may determine, and (c) to facilitate
collection, the Secured Party may notify account debtors and obligors on any
Pledged Property to make payments directly to the Secured Party.  The foregoing
power of attorney is a power coupled with an interest and shall be irrevocable
until all Obligations are paid and performed in full.  The Grantors agree that
the powers conferred on the Secured Party hereunder are solely to protect the
Secured Party’s interests in the Pledged Property and shall not impose any duty
upon the Secured Party to exercise any such powers.
 
Section 3.2.
Secured Party May Perform.

 
If a Grantor 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 such Grantor under
Section 8.3.
 
 
 

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ARTICLE 4.
 
REPRESENTATIONS AND WARRANTIES
 
Section 4.1.
Authorization; Enforceability.

 
Each of the parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby; and upon execution and delivery, this
Agreement shall constitute a valid and binding obligation of the respective
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors’ rights or by the principles governing the
availability of equitable remedies.
 
Section 4.2.
Ownership of Pledged Property.

 
Each Grantor represents and warrants 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 (each, a “Lien”) except for the security interest
created by this Agreement and other Permitted Liens.  For purposes of this
Agreement, “Permitted Liens” means: (1) the security interest created by this
Agreement, (2) existing Liens which have been disclosed by the Company to the
Secured Party on Schedule 4.2 attached hereto, including, without limitation,
the lien on all Pledged Property granted to YA Global Investments, L.P.; (3)
inchoate Liens for taxes, assessments or governmental charges or levies not yet
due, as to which the grace period, if any, related thereto has not yet expired,
or being contested in good faith and by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP; (4) Liens of
carriers, materialmen, warehousemen, mechanics and landlords and other similar
Liens which secure amounts which are not yet overdue or which are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP; (5) licenses, sublicenses, leases
or subleases granted to other Persons not materially interfering with the
conduct of the business of the Company; (6) Liens securing capitalized lease
obligations and purchase money indebtedness incurred solely for the purpose of
financing an acquisition or lease; (7) easements, rights-of-way, restrictions,
encroachments, municipal zoning ordinances and other similar charges or
encumbrances, and minor title deficiencies, in each case not securing debt and
not materially interfering with the conduct of the business of the Company and
not materially detracting from the value of the property subject thereto; (8)
Liens arising out of the existence of judgments or awards which judgments or
awards do not constitute an Event of Default; (9) Liens incurred in the ordinary
course of business in connection with workers compensation claims, unemployment
insurance, pension liabilities and social security benefits and Liens securing
the performance of bids, tenders, leases and contracts in the ordinary course of
business, statutory obligations, surety bonds, performance bonds and other
obligations of a like nature (other than appeal bonds) incurred in the ordinary
course of business (exclusive of obligations in respect of the payment for
borrowed money); (10) Liens in favor of a banking institution arising by
operation of law encumbering deposits (including the right of set-off) and
contractual set-off rights held by such banking institution and which are within
the general parameters customary in the banking industry and only burdening
deposit accounts or other funds maintained with a creditor depository
institution; (11) usual and customary set-off rights in leases and other
contracts; and (12) escrows in connection with acquisitions and dispositions.
 
Section 4.3             Location of Pledged Property.
 
The Pledged Property is or will be kept at the address(es) of each Grantor set
forth on the signature pages hereof, or such other locations as the Grantors
have given the Secured Party written notice prior to the date hereof, and,
unless otherwise provided herein, the Grantors will not remove any Pledged
Property from such locations without the prior written consent of the Secured
Party which consent shall not be unreasonably withheld.
 
Section 4.4             Location, State of Incorporation and Name of Grantors.
 
Each Grantor’s principal place of business, state of organization, organization
identification number, and exact legal name is as set forth on each such
Grantor’s signature page to this Agreement.
 
Section 4.5             Priority of Security Interest.
 
The security interest granted to the Secured Party hereunder shall be a second
priority security interest subject to no other Liens other than the prior lien
of YA Global Investments, L.P.  Except for the Permitted Liens, no financing
statement covering any of the Pledged Property or any proceeds thereof is on
file in any public office.
 
 
 

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ARTICLE 5.
 
DEFAULT; REMEDIES
 
Section 5.1
Method of Realizing Upon the Pledged Property: Other Remedies.

 
If any Event of Default shall have occurred and be continuing:
 
(a)           The Secured Party may exercise in respect of the Pledged Property,
in addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under the Code (whether or not the Code applies to the affected Pledged
Property), and also may (i) take absolute control of the Pledged Property,
including, without limitation, transfer into the Secured Party's name or into
the name of its nominee or nominees (to the extent the Secured Party has not
theretofore done so) and thereafter receive, for the benefit of the Secured
Party, all payments made thereon, give all consents, waivers and ratifications
in respect thereof and otherwise act with respect thereto as though it were the
outright owner thereof, (ii) require each Grantor to assemble all or part of the
Pledged Property as directed by the Secured Party and make it available to the
Secured Party at a place or places to be designated by the Secured Party that is
reasonably convenient to both parties, and the Secured Party may enter into and
occupy any premises owned or leased by a Grantor where the Pledged Property or
any part thereof is located or assembled for a reasonable period in order to
effectuate the Secured Party's rights and remedies hereunder or under law,
without obligation to the Grantor in respect of such occupation, and
(iii) without notice except as specified below and without any obligation to
prepare or process the Pledged Property for sale, (A) sell the Pledged Property
or any part thereof in one or more parcels at public or private sale, at any of
the Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Secured
Party may deem commercially reasonable and/or (B) lease, license or dispose of
the Pledged Property or any part thereof upon such terms as the Secured Party
may deem commercially reasonable.  Each Grantor agrees that, to the extent
notice of sale or any other disposition of the Pledged Property shall be
required by law, at least ten (10) days' notice to the Grantor of the time and
place of any public sale or the time after which any private sale or other
disposition of the Pledged Property is to be made shall constitute reasonable
notification.  The Secured Party shall not be obligated to make any sale or
other disposition of any Pledged Property regardless of notice of sale having
been given.  The Secured Party may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.  Each Grantor hereby waives any claims against the Secured Party
arising by reason of the fact that the price at which the Pledged Property may
have been sold at a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Secured Party accepts the first offer received and does
not offer such Pledged Property to more than one offeree, and waives all rights
that the Grantor may have to require that all or any part of such Pledged
Property be marshaled upon any sale (public or private) thereof.  Each Grantor
hereby acknowledges that (i) any such sale of the Pledged Property by the
Secured Party may be made without warranty, (ii) the Secured Party may
specifically disclaim any warranties of title, possession, quiet enjoyment or
the like, and (iii) such actions set forth in clauses (i) and (ii) above shall
not adversely affect the commercial reasonableness of any such sale of Pledged
Property.  
 
(b)           Any cash held by the Secured Party as Pledged Property and all
cash proceeds received by the Secured Party in respect of any sale of or
collection from, or other realization upon, all or any part of the Pledged
Property shall be applied (after payment of any amounts payable to the Secured
Party pursuant to Section 8.3 hereof) by the Secured Party against, all or any
part of the Obligations in such order as the Secured Party shall elect,
consistent with the provisions of the Securities Purchase Agreement and the
Debentures.  Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after the indefeasible payment in full in cash of all of the
Obligations shall be paid over to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.
 
(c)           In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Secured Party is
legally entitled, each Grantor shall be liable for the deficiency, together with
interest thereon at the rate specified in the Convertible Debentures for
interest on overdue principal thereof or such other rate as shall be fixed by
applicable law, together with the costs of collection and the reasonable fees,
costs, expenses and other client charges of any attorneys employed by the
Secured Party to collect such deficiency.
 
(d)           Each Grantor hereby acknowledges that if the Secured Party
complies with any applicable state, provincial, or federal law requirements in
connection with a disposition of the Pledged Property, such compliance will not
adversely affect the commercial reasonableness of any sale or other disposition
of the Pledged Property.
 
(e)           The Secured Party shall not be required to marshal any present or
future collateral security (including, but not limited to, this Agreement and
the Pledged Property) for, or other assurances of payment of, the Obligations or
any of them or to resort to such collateral security or other assurances of
payment in any particular order, and all of the Secured Party's rights hereunder
and in respect of such collateral security and other assurances of payment shall
be cumulative and in addition to all other rights, however existing or
arising.  To the extent that the Grantor lawfully may, each Grantor hereby
agrees that it will not invoke any law relating to the marshaling of collateral
which might cause delay in or impede the enforcement of the Secured Party's
rights under this Agreement or under any other instrument creating or evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or payment thereof is otherwise
assured, and, to the extent that it lawfully may, the Company hereby irrevocably
waives the benefits of all such laws.
 
Section 5.2
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.
 
 
 

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ARTICLE 6.
 
AFFIRMATIVE COVENANTS
 
So long as any of the Obligations shall remain outstanding, unless the Secured
Party shall otherwise consent in writing:
 
Section 6.1.
Existence, Properties, Etc.

 
(a)           Each Grantor 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 Grantor’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) each Grantor shall not do, or cause to be
done, any act impairing the Grantor’s corporate power or authority (i) to carry
on the Grantor’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 (which other loan instruments collectively shall be referred to as the
“Loan Instruments”) 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 reasonable discretion, whether individually
or in the aggregate, upon (a) the Grantor’s assets, business, operations,
properties or condition, financial or otherwise; (b) the Grantor’s ability to
make payment as and when due of all or any part of the Obligations; or (c) the
Pledged Property.
 
Section 6.2.
Financial Statements and Reports.

 
Each Grantor shall furnish to the Secured Party within a reasonable time such
financial data as the Secured Party may reasonably request.
 
Section 6.3.
Accounts and Reports.

 
Each Grantor shall maintain a standard system of accounting in accordance with
generally accepted accounting principles consistently applied (“GAAP”) and
provide, at its sole expense, to the Secured Party 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 Grantor in excess of $500,000 (other than the Obligations)
 
Section 6.4.
Maintenance of Books and Records; Inspection.

 
Each Grantor shall maintain its books, accounts and records in accordance with
GAAP, and permit the Secured Party, its officers and employees and any
professionals designated by the Secured Party in writing, at any time during
normal business hours and upon reasonable notice 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 (it being agreed that, unless an Event of
Default shall have occurred and be continuing, there shall be no more than two
(2) such visits and inspections in any Fiscal Year).
 
Section 6.5.
Maintenance and Insurance.

 
(a)           Each Grantor shall maintain or cause to be maintained, at its own
expense, all of its material assets and properties in good working order and
condition, ordinary wear and tear excepted, making all necessary repairs thereto
and renewals and replacements thereof.
 
(b)           Each Grantor shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Grantor deems reasonably necessary to the Company’s business, (i) adequate
to insure all assets and properties of the Grantor 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 Grantor; (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 financially sound and reputable insurers.
 
Section 6.6.
Contracts and Other Collateral.

 
Each Grantor 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 Grantor is now or hereafter will be party on a timely
basis and in the manner therein required, including, without limitation, this
Agreement, except to the extent the failure to so perform such obligations would
not reasonably be expected to have a Material Adverse Effect.
 
 
 

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Section 6.7.
Defense of Collateral, Etc.

 
Each Grantor 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 would reasonably be
expected to have a Material Adverse Effect, each against all manner of claims
and demands on a timely basis to the full extent permitted by applicable law
(other than any such claims and demands by holders of Permitted Liens).
 
Section 6.8.
Taxes and Assessments.

 
Each Grantor shall (a) file all material tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency (taking into account any extensions of the original due date),
(b) pay and discharge all material taxes, assessments and governmental charges
or levies imposed upon the Grantor, 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 material 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 Grantor 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 if
and to the extent required by GAAP.
 
Section 6.9.
Compliance with Law and Other Agreements.

 
Each Grantor 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 Grantor is a party or by which
the Grantor or any of its properties is bound, except where the failure to so
comply would not reasonably be expected to have a Material Adverse Effect.
 
Section 6.10.
Notice of Default.

 
The Grantors will immediately notify the Secured Party of any event causing a
substantial loss or diminution in the value of all or any material part of the
Pledged Property and the amount or an estimate of the amount of such loss or
diminution. The Grantors shall promptly notify the Secured Party of any
condition or event which constitutes, or would constitute with the passage of
time or giving of notice or both, an Event of Default, and promptly inform the
Secured Party of any events or changes in the financial condition of any Grantor
occurring since the date of the last financial statement of such Grantor
delivered to the Secured Party, which individually or cumulatively when viewed
in light of prior financial statements, which might reasonably be expected to
have a Material Adverse Effect on the business operations or financial condition
of the Grantor.
 
Section 6.11.
Notice of Litigation.

 
Each Grantor 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
$250,000, instituted by any persons against the Grantor, 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 Grantor 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 Grantor.
 
Section 6.13.                         Future Subsidiaries.
 
If any Grantor shall hereafter create or acquire any subsidiary, simultaneously
with the creation or acquisition of such subsidiary, such Grantor shall cause
such subsidiary to become a party to this Agreement as an additional "Grantor"
hereunder, and to duly execute and deliver a guaranty of the Obligations in
favor of the Secured Party in form and substance reasonably acceptable to the
Secured Party, and to duly execute and/or deliver such opinions of counsel and
other documents, in form and substance reasonably acceptable to the Secured
Party, as the Secured Party shall reasonably request with respect thereto.
 
Section 6.14.                         Changes to Identity.
 
Each Grantor will (a) give the Secured Party at least 30 days' prior written
notice of any change in such Grantor's name, identity or organizational
structure, (b) maintain its jurisdiction of incorporation, organization or
formation as set forth on its respective signature page attached hereto, (C)
immediately notify the Secured Party upon obtaining an organizational
identification number, if on the date hereof such Grantor did not have such
identification number.
 
Section 6.15.                         Establishment of Deposit Account, Dominion
Account Agreements; Control. 
 
Within ten (10) days of request therefor by the Secured Party, each Grantor, the
Secured Party, and each applicable bank or other depository institution shall
enter into a deposit account agreement (“Deposit Account Agreement”) in the form
of Exhibit B with respect to each of the Grantor’s Deposit Accounts, including,
without limitation, all savings, passbook, money market or other depository
accounts, and all certificates of deposit, maintained by each Company with any
bank, savings and loan association, credit union or other depository institution
maintained or used by each Grantor providing dominion and control over such
accounts to the Secured Party such that upon notice by the Secured Party to such
bank or other depository institution of the occurrence of an Event of Default
all actions under such account shall be taken solely at the Secured Party’s
direction.  Each Grantor’s current Deposit Accounts are set forth on Schedule
6.14 attached hereto.
 
 
 

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Each Grantor shall cause all cash, all collections and proceeds from accounts
receivable, all receipts from credit card payments, and all proceeds from the
sale of any Pledged Property to be deposited only into its Deposit Accounts in
the ordinary course of business and consistent with past practices.
 
Each Grantor shall have valid and effective Deposit Account Agreements in place
at all times with respect to all of its Deposit Accounts.  No Deposit Account
shall be established, used or maintained by the Company unless it first enters
into a Deposit Account Agreement.
 
With respect to each Deposit Account, from an after the occurrence of an Event
of Default, the Secured Party shall have the right, at any time and from time to
time, to exercise its rights under such Deposit Account Agreement, including,
for the avoidance of any doubt, the exclusive right to give instructions to the
financial institution at which such Deposit Account is maintained as to the
disposition of funds or other property on deposit therein or credited
thereto.  The Secured Party hereby covenants and agrees that it will not send
any such notice to a financial institution at which any such Deposit Account is
maintained directing the disposition of funds or other property therein unless
and until the occurrence of an Event of Default.
 
In connection with the foregoing, each Grantor hereby authorizes and directs
each bank or other depository institution which maintains any Deposit Account to
pay or deliver to the Secured Party upon the Secured Party’s written demand
thereof made at any time after the occurrence of an Event of Default has
occurred all balances in each Deposit Account with such depository for
application to the Obligations then outstanding.
 
Section 6.16                      Perfection of Security Interests.
 
(a)           Financing Statements.   The Grantors hereby irrevocably authorize
the Secured Party, at the sole cost and expense of the Grantors, at any time and
from time to time to file in any filing office in any jurisdiction any initial
financing statements and amendments thereto that (a) indicate the Pledged
Property (i) as all assets of Grantors or words of similar effect, regardless of
whether any particular asset comprised in the Pledged Property falls within the
scope of Article 9 of the Code of such jurisdiction, or (ii) as being of an
equal or lesser scope or with greater detail, and (b) contain any other
information required by Part 5 of Article 9 of the Code for the sufficiency or
filing office acceptance of any financing statement or amendment, including (i)
whether such Grantor is an organization, the type of organization and any
organization identification number issued to such Grantor, and (ii) in the case
of a financing statement filed as a fixture filing, a sufficient description of
real property to which the Pledged Property relates.  Grantors agree to furnish
any such information to the Secured Party promptly upon request.  Grantors also
ratify their authorization for the Secured Party to have filed in any
jurisdiction any initial financing statements or amendments thereto if filed
prior to the date hereof. The Grantors acknowledge that they are not authorized
to file any financing statement or amendment or termination statement with
respect to any financing statement without the prior written consent of the
Secured Party and agree that they will not do so without the prior written
consent of the Secured Party.  The Grantors acknowledge and agree that this
Agreement constitutes an authenticated record.
 
(b)           Possession.  The Grantors (i) shall have possession of the Pledged
Property, except where expressly otherwise provided in this Agreement or where
the Secured Party chooses to perfect its security interest by possession in
addition to the filing of a financing statement; and (ii) will, where Pledged
Property is in the possession of a third party, join with the Secured Party in
notifying the third party of the Secured Party’s security interest and obtaining
an acknowledgment from the third party that it is holding the Pledged Property
for the benefit of the Secured Party.
 
(c)           Control.  In addition to the provisions set forth in Section 6.15
above, the Grantors will cooperate with the Secured Party in obtaining control
with respect to the Pledged Property consisting of (i) Investment Property, (ii)
Letters of Credit and Letter-of-Credit Rights and (iii) electronic Chattel
Paper.
 
(d)           Chattel Paper.  Marking of Chattel Paper. The Grantors will not
create any Chattel Paper without placing a legend on the Chattel Paper
acceptable to the Secured Party indicating that the Secured Party has a security
interest in the Chattel Paper.
 
Section 6.17          Notice of Commercial Tort Claims. If any Grantor shall at
any time acquire a Commercial Tort Claim, such Grantor shall immediately notify
the Secured Party in a writing signed by such Grantor which shall (a) provide
brief details of said claim and (b) grant to the Secured Party a security
interest in said claim and in the proceeds thereof, all upon the terms of this
Agreement, in such form and substance satisfactory to the Secured Party.
 
 
 

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ARTICLE 7.
 
NEGATIVE COVENANTS
 
So long as any of the Obligations shall remain outstanding, unless the Secured
Party shall otherwise consent in writing each Grantor covenants and agrees that
it shall not:
 
Section 7.1.            Transfers, Liens and Encumbrances.
 
(a)           Sell, assign (by operation of law or otherwise), lease, license,
exchange or otherwise transfer or dispose of any of the Pledged Property, except
Grantor may (i) sell or dispose of Inventory in the ordinary course of business,
and (ii) sell or dispose of assets the Grantor  has determined, in good faith,
not to be useful in the conduct of its business, and (iii) sell or dispose of
accounts in the course of collection in the ordinary course of business
consistent with past practice.
 
(b)           Directly or indirectly make, create, incur, assume or permit to
exist any Lien in, to or against any part of the Pledged Property other than
Permitted Liens.
 
Section 7.2.            Restriction on Redemption and Cash Dividends
 
Directly or indirectly, redeem, repurchase or declare or pay any cash dividend
or distribution on its capital stock without the prior express written consent
of the Secured Party.
 
Section 7.3.            Incurrence of Indebtedness.
 
Directly or indirectly, incur or guarantee, assume or suffer to exist any
indebtedness, other than the indebtedness evidenced by the Convertible
Debentures and other Permitted Indebtedness.  “Permitted Indebtedness” means:
(i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness
described on the Disclosure Schedule to the Securities Purchase Agreement; (iii)
indebtedness incurred solely for the purpose of financing the acquisition or
lease of any equipment by the Company, including capital lease obligations with
no recourse other than to such equipment; (iv) indebtedness (A) the repayment of
which has been subordinated to the payment of the Convertible Debentures on
terms and conditions acceptable to the Secured Party, including with regard to
interest payments and repayment of principal, (B) which does not mature or
otherwise require or permit redemption or repayment prior to or on the 91st day
after the maturity date of any Convertible Debentures then outstanding; and (C)
which is not secured by any assets of the Company; (v) indebtedness solely
between the Grantor and/or one of its domestic subsidiaries, on the one hand,
and the Grantor and/or one of its domestic subsidiaries, on the other which
indebtedness is not secured by any assets of the Grantor or any of its
subsidiaries, provided that (x) in each case a majority of the equity of any
such domestic subsidiary is directly or indirectly owned by the Grantor, such
domestic subsidiary is controlled by the Grantor and such domestic subsidiary
has executed a security agreement in the form of this Agreement and (y) any such
loan shall be evidenced by an intercompany note that is pledged by the Grantor
or its subsidiary, as applicable, as collateral pursuant to this Agreement; (vi)
reimbursement obligations in respect of letters of credit issued for the account
of the Grantor or any of its subsidiaries for the purpose of securing
performance obligations of the Grantor or its subsidiaries incurred in the
ordinary course of business so long as the aggregate face amount of all such
letters of credit does not exceed $500,000 at any one time; (vii) provided there
is not an Event of Default when incurred, additional indebtedness incurred that
at any one time does not exceed $1,500,000 individually or in the aggregate; and
(viii) renewals, extensions and refinancing of any indebtedness described in
clauses (i) or (iii) of this subsection.
 
Section 7.4.            Places of Business.
 
Change the location of its chief place of business, chief executive office or
any place of business disclosed to the Secured Party, unless such change in
location is to a different location within the United States and the Grantor
provides notice to the Secured Party of new location within 10 days’ of such
change in location.
 
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 or 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:
 
 
 
 

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If to the Secured Party:
Brencourt Advisors, LLC
 
600 Lexington Avenue, 8th Floor
 
New York, NY 10022
 
Attention:              Jeffrey Sledge
 
Senior Vice President
 
Telephone:            (212) 313-9738
 
Facsimile:               (212) 313-
   
If to the Company:
IR Biosciences Holdings, Inc.
 
8767 E. Via De Ventura, Suite 190
 
Scottsdale, AZ 85258
 
Attention:                Chief Executive Officer
 
Telephone:               (480) 922-4781
 
Facsimile:                  (602) 684-2677
   
With a copy to:
K&L Gates LLP
 
10100 Santa Monica Blvd., 7th Floor
 
Los Angeles, CA 90067
 
Attention:                 Thomas J. Poletti
 
Telephone:                (310) 552-5045
 
Facsimile:                   (310) 552-5001
   
If to any other Grantor
To the address listed on the respective signature pages attached hereto

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 out-of-pocket 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 Grantor 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 Grantor of any undertakings, agreements or covenants shall
not waive, 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 Grantor 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 in the case of any such waiver, and signed by the Secured Party
and the Grantor in the case of any such amendment, change or
modification.  Further, no such document, instrument, and/or agreement purported
to be executed on behalf of the Secured Party shall be binding upon the Secured
Party unless executed by a duly authorized representative of the Secured Party.
 
 
 
 

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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 so long as any of the
Obligations shall remain outstanding; (ii) be binding upon each Grantor and its
successors and assigns; 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, this Agreement and the security interest created hereby shall
terminate, and, in connection therewith, each Grantor 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 and the Secured Party shall deliver to the Grantor such documents
as the Grantor shall reasonably request to evidence such termination.
 
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
Hudson County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Hudson 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, provided, however, that nothing herein shall prevent the Secured
Party from enforcing its rights and remedies (including, without limitation, by
filing a civil action) with respect to the Pledged Property and/or the Grantors
in any other jurisdiction in which the Pledged Property and/or the Grantors may
be located.
 
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                             Right of Set Off.
 
The Grantors each hereby grant to the Secured Party, a lien, security interest
and right of setoff as security for all liabilities and obligations to the
Secured Party, whether now existing or hereafter arising, upon and against all
deposits, credits, collateral and property, now or hereafter in the possession,
custody, safekeeping or control of the Secured Party or any of its affiliates,
or any entity under the control of the Secured Party, or in transit to any of
them. At any time, without demand or notice, the Secured Party may set off the
same or any part thereof and apply the same to any liability or obligation of
the Grantors even though unmatured and regardless of the adequacy of any other
collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE THE SECURED
PARTY TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE GRANTORS, ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
 
Section 8.10
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.
 

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

 
COMPANY:
 
IR BIOSCIENCES HOLDINGS, INC.
     
By:      /s/ Michael Wilhelm                    
 
Name: Michael Wilhelm
 
Title:   CEO
     
 
 
 
 
 
Jurisdiction of Incorporation, Organization or Formation:
 
 
Organizational ID:

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

 
GUARANTOR:
 
ImmuneRegen BioSciences, Inc.
     
By:      /s/ Michael Wilhelm                  
 
Name: Michael Wilhelm
 
Title:   CEO
         
Address For Notices:
8767 E. Via de Ventura
Suite 190
Scottsdale, AZ 85258
 
Jurisdiction of Incorporation, Organization or Formation:
 
 
Organizational ID:

 
 
 
 

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

     
SECURED PARTY:
 
Brencourt Multi-Strategy Master Ltd.
     
By:  Brencourt Advisors ,LLC
     
By:      /s/ Michael Palmer                                              
 
Name: Michael Palmer
 
Title:   Chief Financial Officer

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

 
SECURED PARTY:
 
Man Mac Schreckhorn 14B Limited
     
By:  Brencourt Advisors ,LLC
     
By:      /s/ Michael Palmer                                                
 
Name: Michael Palmer
 
Title:   Chief Financial Officer
   

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

 
SECURED PARTY:
 
Brencourt Multi-Strategy Enhanced Dedicated Fund, L.P.
     
By:  Brencourt Advisors ,LLC
     
By:      /s/ Michael Palmer                                                     
 
Name: Michael Palmer
 
Title:   Chief Financial Officer
   

 
 

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EXHIBIT A
 
 
DEFINITION OF PLEDGED PROPERTY
 
 
For the purpose of securing prompt and complete payment and performance by the
Grantor of all of the Obligations, the Grantors each unconditionally and
irrevocably hereby grant to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of each Grantor (all
capitalized terms used herein shall have the respective meanings ascribed
thereto in the Code):
 
All personal property of each Grantor, wherever located and whether now or
hereinafter existing and whether now owned or hereafter acquired, of every kind
and description, tangible or intangible, including without limitation, all:
 
1.           Goods;
 
2.           Inventory, including, without limitation, all goods, merchandise
and other personal property now owned or hereafter acquired by the Grantor which
are held for sale or lease, or are furnished or to be furnished under any
contract of service or are raw materials, work-in-process, supplies or materials
used or consumed in the Grantor’s business, and all products thereof, and all
substitutions. replacements, additions or accessions therefor and thereto; and
any cash or non-cash Proceeds of all of the foregoing;
 
3.           Equipment, including, without limitation, all machinery, equipment,
furniture, parts, tools and dies, of every kind and description, of the Grantor
(including automotive equipment and motor vehicles), now owned or hereafter
acquired by the Grantor, and used or acquired for use in the business of the
Grantor, together with all accessions thereto and all substitutions and
replacements thereof and parts therefor and all cash or non-cash Proceeds of the
foregoing;
 
4.           Fixtures, including, without limitation, all goods which are so
related to particular real estate that an interest in them arises under real
estate law and all accessions thereto, replacements thereof and substitutions
therefor, including, but not limited to, plumbing, heating and lighting
apparatus, mantels, floor coverings, furniture, furnishings, draperies, screens,
storm windows and doors, awnings, shrubbery, plants, boilers, tanks, machinery,
stoves, gas and electric ranges, wall cabinets, appliances, furnaces, dynamos,
motors, elevators and elevator machinery, radiators, blinds and all laundry,
refrigerating, gas, electric, ventilating, air-refrigerating, air-conditioning,
incinerating and sprinkling and other fire prevention or extinguishing equipment
of whatsoever kind and nature and any replacements, accessions and additions
thereto, Proceeds thereof and substitutions therefor;
 
5.           Instruments (including promissory notes);
 
6.           Documents;
 
7.           Accounts, including, without limitation, all Contract Rights and
accounts receivable, health-care-insurance receivables, and license fees; any
other obligations or indebtedness owed to the Grantor from whatever source
arising; all rights of Grantor to receive any payments in money or kind; all
guarantees of Accounts and security therefor; all cash or non-cash Proceeds of
all of the foregoing; all of the right, title and interest of Grantor in and
with respect to the goods, services or other property which gave rise to or
which secure any of the accounts and insurance policies and proceeds relating
thereto, and all of the rights of the Grantor as an unpaid seller of goods or
services, including, without limitation the rights of stoppage in transit,
replevin, reclamation and resale and all of the foregoing, whether now existing
or hereafter created or acquired;
 
8.           Contracts and Contract Rights, including, to the extent not
included in the definition of Accounts, all rights to payment or performance
under a contract not yet earned by performance and not evidenced by an
Instrument or Chattel Paper;
 
9.           Chattel Paper (whether tangible or electronic);
 
10.           Deposit Accounts (and in and to any deposits or other sums at any
time credited to each such Deposit Account);
 
11.           Money, cash and cash equivalents;
 
12.           Letters of Credit and Letter-of-Credit Rights (whether or not the
Letter of Credit is evidenced by a writing);
 
 
 
 

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13.           Commercial Tort Claims;
 
14.           Securities Accounts, Security Entitlements, Securities, Financial
Assets and all other Investment Property, including, without limitation, all
ownership or membership interests in any subsidiaries or affiliates (whether or
not controlled by the Grantor);
 
15.           General Intangibles, including, without limitation, all payment
intangibles, tax refunds and other claims of the Grantor against any
governmental authority, and all choses in action, insurance proceeds, goodwill,
patents, copyrights, trademarks, tradenames, customer lists, formulae, trade
secrets, licenses, permits, franchises, designs, computer software, research and
literary rights now owned or hereafter acquired;
 
16.           Farm Products;
 
17.           All books and records (including all ledger sheets, files,
computer programs, tapes and related data processing software) evidencing an
interest in or relating to any of the foregoing;
 
18.           To the extent not already included above, all supporting
obligations, and any and all cash and non-cash Proceeds, products, accessions,
and/or replacements of any of the foregoing, including proceeds of insurance
covering any or all of the foregoing.
 
 
 
 

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ANNEX A
to
SECURITY
AGREEMENT

THE SECURED PARTY

                      1.  Appointment.  Each holder of Convertible Debentures
shall be deemed irrevocably to authorize the Secured Party, as its agent, to
take such action on its behalf under the provisions of the Agreement and any
other Transaction Document (as such term is defined in the Purchase Agreement)
and to exercise such powers and to perform such duties hereunder and thereunder
as are specifically delegated to or required of the Secured Party by the terms
hereof and thereof and such other powers as are reasonably incidental
thereto.  The Secured Party may perform any of its duties hereunder by or
through its agents or employees.

                      2. Nature of Duties.  The Secured Party shall have no
duties or responsibilities except those expressly set forth in the
Agreement.  Neither the Secured Party nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be liable for any
action taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of any
oversight or error of judgment or answerable for any loss, unless caused solely
by its or their gross negligence or willful misconduct as determined by a final
judgment (not subject to further appeal) of a court of competent
jurisdiction.  The duties of the Secured Party shall be mechanical and
administrative in nature; the Secured Party shall not have by reason of the
Agreement or any other Transaction Document a fiduciary relationship in respect
of any Debtor or any holder; and nothing in the Agreement or any other
Transaction Document, expressed or implied, is intended to or shall be so
construed as to impose upon the Secured Party any obligations in respect of the
Agreement or any other Transaction Document except as expressly set forth herein
and therein.

                      3. Lack of Reliance on the Secured Party.  Independently
and without reliance upon the Secured Party, each holder, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Company and its
subsidiaries in connection with such holder’s investment in the Debtors, the
creation and continuance of the Obligations, the transactions contemplated by
the Transaction Documents, and the taking or not taking of any action in
connection therewith, and (ii) its own appraisal of the creditworthiness of the
Company and its subsidiaries, and of the value of the Collateral from time to
time, and the Secured Party shall have no duty or responsibility, either
initially or on a continuing basis, to provide any holder with any credit,
market or other information with respect thereto, whether coming into its
possession before any Obligations are incurred or at any time or times
thereafter.  The Secured Party shall not be responsible to the Debtors or any
holder for any recitals, statements, information, representations or warranties
herein or in any document, certificate or other writing delivered in connection
herewith, or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of the
Agreement or any other Transaction Document, or for the financial condition of
the Debtors or the value of any of the Collateral, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of the Agreement or any other Transaction Document, or
the financial condition of the Debtors, or the value of any of the Collateral,
or the existence or possible existence of any default or Event of Default under
the Agreement, the Debentures or any of the other Transaction Documents.

                      4. Certain Rights of the Secured Party.  The Secured Party
shall have the right to take any action with respect to the Collateral, on
behalf of all of the holders.  To the extent practical, the Secured Party shall
request instructions from the holders with respect to any material act or action
(including failure to act) in connection with the Agreement or any other
Transaction Document, and shall be entitled to act or refrain from acting in
accordance with the instructions of a majority in interest of the holders (based
on then outstanding principal amounts of Convertible Debentures); if such
instructions are not provided despite the Secured Party’s request therefor, the
Secured Party shall be entitled to refrain from such act or taking such action,
and if such action is taken, shall be entitled to appropriate indemnification
from the holders in respect of actions to be taken by the Secured Party; and the
Secured Party shall not incur liability to any person or entity by reason of so
refraining.  Without limiting the foregoing, (a) no holder shall have any right
of action whatsoever against the Secured Party as a result of the Secured Party
acting or refraining from acting hereunder in accordance with the terms of the
Agreement or any other Transaction Document, and the Debtors shall have no right
to question or challenge the authority of, or the instructions given to, the
Secured Party pursuant to the foregoing and (b) the Secured Party shall not be
required to take any action which the Secured Party believes (i) could
reasonably be expected to expose it to personal liability or (ii) is contrary to
this Agreement, the Transaction Documents or applicable law.

                      5.  Reliance.  The Secured Party shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, statement, certificate, or telecopier message, order or other document
or telephone message signed, sent or made by the proper person or entity, and,
with respect to all legal matters pertaining to the Agreement and the other
Transaction Documents and its duties thereunder, upon advice of counsel selected
by it and upon all other matters pertaining to this Agreement and the other
Transaction Documents and its duties thereunder, upon advice of other experts
selected by it. Anything to the contrary notwithstanding, the Secured Party
shall have no obligation whatsoever to any holder to assure that the Collateral
exists or is owned by the Debtors or is cared for, protected or insured or that
the liens granted pursuant to the Agreement have been properly or sufficiently
or lawfully created, perfected, or enforced or are entitled to any particular
priority.

 
 

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                      6.  Indemnification.  To the extent that the Secured Party
is not reimbursed and indemnified by the Debtors, the holders will jointly and
severally reimburse and indemnify the Secured Party, in proportion to their
initially purchased respective principal amounts of Convertible Debentures, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Secured Party in performing its duties hereunder or under the Agreement or any
other Transaction Document, or in any way relating to or arising out of the
Agreement or any other Transaction Document except for those determined by a
final judgment (not subject to further appeal) of a court of competent
jurisdiction to have resulted solely from the Secured Party's own gross
negligence or willful misconduct.  Prior to taking any action hereunder as
Secured Party, the Secured Party may require each holder to deposit with it
sufficient sums as it determines in good faith is necessary to protect the
Secured Party for costs and expenses associated with taking such action.

                      7.  Resignation by the Secured Party.

(a)  The Secured Party may resign from the performance of all its functions and
duties under the Agreement and the other Transaction Documents at any time by
giving 30 days' prior written notice (as provided in the Agreement) to the
Debtors and the holders.  Such resignation shall take effect upon the
appointment of a successor Secured Party pursuant to clauses (b) and (c) below.

(b)  Upon any such notice of resignation, the holders, acting by a majority in
interest, shall appoint a successor Secured Party hereunder.
 

(c) If a successor Secured Party shall not have been so appointed within said
30-day period, the Secured Party shall then appoint a successor Secured Party
who shall serve as Secured Party until such time, if any, as the holders appoint
a successor Secured Party as provided above.  If a successor Secured Party has
not been appointed within such 30-day period, the Secured Party may petition any
court of competent jurisdiction or may interplead the Debtors and the holders in
a proceeding for the appointment of a successor Secured Party, and all fees,
including, but not limited to, extraordinary fees associated with the filing of
interpleader and expenses associated therewith, shall be payable by the Debtors
on demand.

                      8.  Rights with respect to Collateral.  Each holders
agrees with all other holders and the Secured Party (i) that it shall not, and
shall not attempt to, exercise any rights with respect to its security interest
in the Collateral, whether pursuant to any other agreement or otherwise (other
than pursuant to this Agreement), or take or institute any action against the
Secured Party or any of the other holders in respect of the Collateral or its
rights hereunder (other than any such action arising from the breach of this
Agreement) and (ii) that such holder has no other rights with respect to the
Collateral other than as set forth in this Agreement and the other Transaction
Documents.  Upon the acceptance of any appointment as Secured Party hereunder by
a successor Secured Party, such successor Secured Party shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Secured Party and the retiring Secured Party shall be discharged from
its duties and obligations under the Agreement.  After any retiring Secured
Party’s resignation or removal hereunder as Secured Party, the provisions of the
Agreement including this Annex A shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Secured Party.