ex10_2.htm


    Exhibit
10.2

    Security
Agreement

    


    


    SECURITY
AGREEMENT

    


                SECURITY AGREEMENT, dated as
of March 5, 2008 (this “Agreement”), among Viral Genetics, Inc., a Delaware
corporation (the “Company”) and all of the Subsidiaries of the Company, (such
subsidiaries, the “Guarantors”) (the
Company and Guarantors are
collectively referred to as the “Debtors”) and Best Investments, Inc., a
California corporation, their endorsees, transferees and assigns (the “Secured
Party”).

    


    W
I T N E S S E T H:

    


                WHEREAS, pursuant to a Secured
Revolving Credit Note between the parties of even date herewith, the Secured
Party has agreed to extend, amend and restate the obligations to the Company
evidenced by the Secured Revolving Credit Note;

    


                WHEREAS, pursuant to a certain
Subsidiary Guarantee dated as of the date hereof (the “Guaranty”), the Guarantors have jointly and severally agreed to
guaranty and act as surety for payment of such loans; and

    


                WHEREAS, in order to induce
the Secured Party to extend the loans evidenced by the Secured Revolving Credit
Note, as well as extend additional loans in the future pursuant to the terms and
conditions thereto, Debtor has agreed to execute and deliver to the Secured
Party this Agreement and to grant the Secured Party, a perfected security
interest in certain property of such Debtor to secure the prompt payment,
performance and discharge in full of all of the Company’s obligations under the
Secured Revolving Credit Note and the other Debtor’s obligations under the
Guaranty.

    


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

     

    1.              Certain Definitions. As used
in this Agreement, the following terms shall have the meanings set forth in this
Section 1.  Terms used but not otherwise defined in this Agreement
that are defined in Article 9 of the UCC (such as “account”, “chattel paper”,
“commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”,
“general intangibles”, “goods”, “instruments”, “inventory”, “investment
property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”)
shall have the respective meanings given such terms in Article 9 of the
UCC.

    


    (a)           “Collateral”
means the collateral in which the Secured Party is granted a security interest
by this Agreement and which shall include the following personal property of the
Debtors, whether presently owned or existing or hereafter acquired or coming
into existence, wherever situated, and all additions and accessions thereto and
all substitutions
and replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in
connection therewith, and all dividends, interest,
cash, notes, securities, equity interest or other property at any time and from
time to time acquired, receivable or
otherwise distributed in respect of, or in exchange for, any or all of the
Pledged Securities (as defined below):


    
      
         


      

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

    


    (ii)           
All contract rights and other general intangibles, including, without
limitation, all partnership interests, membership interests, stock or other
securities, rights under any of the Organizational
Documents, agreements related to the Pledged Securities, licenses,
distribution and other agreements, computer software (whether “off-the-shelf”,
licensed from any third party or developed by any Debtor), computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, trade secrets, formulas,
processes, copyrights, and income tax refunds;

     

    (iii)           All
accounts, together with all instruments, all documents of title representing any
of the foregoing, all rights in any merchandising, goods, equipment, motor
vehicles and trucks which any of the same may represent, and all right, title,
security and guaranties with respect to each account, including any right of
stoppage in transit;

    


    (iv)           All
documents, letter-of-credit rights, instruments and chattel paper;

    


    (v)           
All commercial tort claims;

    


    (vi)          
All deposit accounts and all cash (whether or not deposited in such deposit
accounts);

    


    (vii)          All
investment property;

    


    (viii)        
All supporting obligations; and

    


    (ix)           
All files, records, books of account, business papers, and computer programs;
and


    
      
         


      

      
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    (x)           Intellectual
Property

    


    (xi)           the
products and proceeds of all of the foregoing Collateral set forth in clauses
(i)-(x) above.

    


    Without limiting
the generality of the foregoing, the “Collateral” shall
include all investment property and general intangibles respecting ownership
and/or other equity interests in each Guarantor, including, without limitation,
the shares of capital stock and the other equity interests
listed on Schedule H hereto (as the same may be modified from time to time
pursuant to the terms hereof), and any other shares of capital stock and/or
other equity interests of any other direct or indirect subsidiary of any Debtor
obtained in the future, and, in each case, all certificates
representing such shares and/or equity interests and, in each case, all rights,
options, warrants, stock, other securities and/or equity interests that may
hereafter be received, receivable or distributed in respect of,
or exchanged for, any of the foregoing (all of the foregoing being referred to
herein as the “Pledged
Securities”) and all rights arising under
or in connection with the Pledged Securities, including, but not limited to, all
dividends, interest and cash.

     

    Notwithstanding
the foregoing, nothing herein shall be deemed to constitute an assignment of any
asset which, in the event of an assignment, becomes void by operation of
applicable law or the assignment of which is otherwise prohibited by applicable
law (in each case to the extent that such applicable law is not overridden by
Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law);
provided, however, that to the extent permitted by applicable law, this
Agreement shall create a valid security interest in such asset and, to the
extent permitted by applicable law, this Agreement shall create a valid security
interest in the proceeds of such asset.

    


    (b)           “Intellectual
Property” means the collective reference to all rights, priorities and
privileges relating to intellectual property, in existence or under development
now or in the future, whether arising under United States, multinational or
foreign laws or otherwise, including, without limitation, (i) all copyrights
arising under the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether published or
unpublished, all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, all registrations,
recordings and applications in the United States Copyright Office, (ii) all
letters patent of the United States, any other country or any political
subdivision thereof, all reissues and extensions thereof, and all
applications for letters patent of the United States or any other country and
all divisions, continuations and continuations-in-part thereof, (iii) all
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade dress, service marks, logos, domain names and
other source or business identifiers, and all goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common
law rights related thereto, (iv) all trade secrets arising under the laws of the
United States, any other country or any political subdivision thereof, (v) all
rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all
licenses for any of the foregoing, and (vii) all causes of action for
infringement of the foregoing.


    
      
         


      

      
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    (c)           “Liens”
means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
capitalized lease, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the filing of any financing
statement under the UCC or comparable law of any jurisdiction in respect of any
of the foregoing).

     

    (d)           “Majority in
Interest” shall mean, at any time of determination, the majority
in interest (based on then-outstanding principal amounts of Secured Revolving
Credit Note at the time of such determination) of the Secured
Party.

     

    (e)           “Necessary
Endorsement” shall mean undated
stock powers endorsed in blank or other
proper instruments of assignment duly executed and such other instruments or
documents as the Secured Party (as that term is defined below) may reasonably
request.

    


    (f)           “Obligations”
means all obligations under this Agreement, the Secured Revolving Credit Note,
the Guaranty and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether now
or hereafter existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Secured Party as a
preference, fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to
time.  Without limiting the generality of the foregoing, the term
“Obligations” shall include, without limitation: (i) principal of, and interest
on the Secured Revolving Credit Note and the loans extended pursuant thereto;
(ii) any and all other fees, indemnities, costs, obligations and liabilities of
the Debtors from time to time under or in connection with this Agreement, the
Secured Revolving Credit Note, the Guaranty and any other instruments,
agreements or other documents executed and/or delivered in connection herewith
or therewith; and (iii) all amounts (including but not limited to post-petition
interest) in respect of the foregoing that would be payable but for the fact
that the obligations to pay such amounts are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding involving
any Debtor.

    


    (g)           “Organizational
Documents” means with respect to any Debtor, the documents by which such Debtor
was organized (such as a certificate of incorporation, certificate of limited
partnership or articles of organization, and including, without limitation, any
certificates of designation for preferred stock or other forms of preferred
equity) and which relate to the internal governance of such Debtor (such as
bylaws, a partnership agreement or an operating, limited liability or members
agreement).


    
      
         


      

      
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    (h)           “Permitted
Liens” means: Liens set forth on Schedule I attached hereto; Liens registered by
Holders of Senior Secured Convertible Debenture issued by the Company; Liens in
favor of the Secured Party; Liens for taxes, fees, assessments or other
government charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
to such taxes, fees, assessments or other government charges or levies which are
being contested are maintained on the books of the Debtors, in conformity with
GAAP; Liens for construction or improvements to real property and construction
or building supplies, either not delinquent or being contested in good faith by
appropriate proceedings, provided that adequate reserves with respect to such
expenses that are being contested are maintained on the books of the Debtors, in
conformity with GAAP; pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation;
landlord Liens arising from any real property leased by Debtors; capitalized
lease or purchase money Liens (i) on assets acquired or held by Debtors incurred
for financing the acquisition of such asset, or (ii) existing on such asset when
acquired, provided that such Lien is confined to the property and improvements
and the proceeds of such assets; and Liens incurred in the extension, renewal or
refinancing of the indebtedness secured by Liens described in any of the
foregoing, provided that any such extension, renewal or replacement Lien be
limited to the property encumbered by the existing Lien and the principal amount
of the indebtedness may not increase.

    


     (i)           “UCC”
means the Uniform Commercial Code of the State of Delaware and or any other
applicable law of any state or states which has jurisdiction with respect to
all, or any portion of, the Collateral or this Agreement, from time to
time.  It is the intent of the parties that defined terms in the UCC
should be construed in their broadest sense so that the term “Collateral” will
be construed in its broadest sense.  Accordingly if there are, from
time to time, changes to defined terms in the UCC that broaden the
definitions, they are incorporated herein and if existing definitions in the UCC
are broader than the amended definitions, the existing ones shall be
controlling.

     

    2.              Grant of Perfected First Priority
Security
Interest. As an inducement for the Secured Party to extend the loans as
evidenced by the Secured Revolving Credit Note and to secure the complete and
timely payment, performance and discharge in full, as the case may be, of all of
the Obligations, and subject to the Permitted Liens, each Debtor hereby
unconditionally and irrevocably pledges, grants and hypothecates to the Secured
Party a continuing and perfected security interest in and to, a lien upon and a
right of set-off against all of their respective right, title and interest of
whatsoever kind and nature in and to, the Collateral (the “Security
Interest”).  Notwithstanding the foregoing, the Security Interest is
junior to and Subordinated to the security interest granted pursuant to that
certain Securities Purchase Agreement dated March 29, 2006.

     

    3.              Delivery of Certain
Collateral.  Contemporaneously or
prior to the execution of this Agreement, each Debtor shall deliver or cause to
be delivered to the Secured Party, subject to the senior security interest set forth in Section 2 hereof, (a) any and all
certificates and other instruments representing or evidencing the Pledged
Securities, and (b) any and all certificates and other instruments or documents
representing any of the other Collateral, in each case, together with all Necessary
Endorsements.  The Debtors are, contemporaneously with the execution
hereof, delivering to Secured Party, or have previously delivered to Secured
Party, a true and correct copy of each Organizational Document
governing any of the Pledged Securities, and shall, upon
discharge of the security interest set forth in Section 2 hereof, deliver or
cause to be delivered to the Secured Party any pledged securities previously
delivered to any third party as of the date
hereof..


    
      
         


      

      
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    4.              Representations, Warranties,
Covenants and Agreements of the Debtors. Each Debtor represents and
warrants to, and covenants and agrees with, the Secured Party as
follows:

    


    (a)           Each
Debtor has the requisite corporate, partnership, limited liability company or
other power and authority to enter into this Agreement and otherwise to carry
out its obligations hereunder. The execution, delivery and performance by each
Debtor of this Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of such Debtor and no further
action is required by such Debtor.  This Agreement has been duly
executed by each Debtor.  This Agreement constitutes the legal, valid
and binding obligation of each Debtor, enforceable against each Debtor in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors and by
general principles of equity.

    


     (b)           The
Debtors have no place of business or offices where their respective books of
account and records are kept (other than temporarily at the offices of its
attorneys or accountants) or places where Collateral is stored or located,
except as set forth on Schedule A attached hereto.  Except as
specifically set forth on Schedule A, each Debtor holds a valid lease-hold
estate in the real property where such Collateral is located,.  Except
as disclosed on Schedule A, none of such Collateral is in the possession of any
consignee, bailee, warehouseman, agent or processor.

    


    (c)           Except
as set forth on Schedule B attached hereto, the Debtors are the sole owner of
the Collateral (except for licenses granted by any Debtor in the ordinary course
of business and Permitted Liens), free and clear of any liens, security
interests, encumbrances, rights or claims, and are fully authorized to grant the
Security Interest.  There is not on file in any governmental or
regulatory authority, agency or recording office an effective financing
statement, security agreement, license or transfer or any notice of any of the
foregoing (other than Permitted Liens and those that will be filed in favor of
the Secured Party pursuant to this Agreement) covering or affecting any of the
Collateral.  So long as this Agreement shall be in effect, the Debtors
shall not execute and shall not knowingly permit to be on file in any such
office or agency any such financing statement or other document or instrument
(except for Permitted Liens and to the extent filed or recorded in favor of the
Secured Party pursuant to the terms of this Agreement).


    
      
         


      

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

    


    (e)           Each
Debtor shall at all times maintain its books of account and records relating to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule A attached hereto and may not relocate such
books of account and records or tangible Collateral unless it delivers to the
Secured Party at least 30 days prior to such relocation (i) written notice of
such relocation and the new location thereof (which must be within the United
States) and (ii) evidence that appropriate financing statements under the UCC
and other necessary documents have been filed and recorded and other steps have
been taken to perfect the Security Interest to create in favor of the Secured
Party a valid, perfected and continuing perfected first priority lien in the
Collateral.

    


    (f)           This
Agreement creates in favor of the Secured Party a valid, security interest in
the Collateral, subject only to Permitted Liens securing the payment and
performance of the Obligations.  Upon making the filings described in
the immediately following paragraph, all security interests created hereunder in
any Collateral which may be perfected by filing Uniform Commercial Code
financing statements shall have been duly perfected.  Except for the
filing of the Uniform Commercial Code financing statements referred to in the
immediately following paragraph, the execution and delivery of deposit account
control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC
with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in
Section 3, no action is necessary to create, perfect or protect the
security interests created hereunder.  Without limiting the generality
of the foregoing, except for the filing of said financing statements and
delivery of said deposit account control agreements, no consent of any third
parties and no authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for (i)
the execution, delivery and performance of this Agreement, (ii) the creation or
perfection of the Security Interests created hereunder in the Collateral or
(iii) the enforcement of the rights of the Secured Party hereunder.

    


     (g)           Each
Debtor hereby authorizes the Secured Party, or any of them, to file one or more
financing statements under the UCC, with respect to the Security Interest with
the proper filing and recording agencies in any jurisdiction deemed proper by
them.

    


     (h)           The
execution, delivery and performance of this Agreement by the Debtors does not
(i) violate any of the provisions of any Organizational Documents of any Debtor
or any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Debtor or
(ii) conflict with, or constitute a default (or an event that 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 (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing any
Debtor's debt or otherwise) or other understanding to which any Debtor is a
party or by which any property or asset of any Debtor is bound or affected. No
consent (including, without limitation, from stockholders or creditors of any
Debtor) is required for any Debtor to enter into and perform its obligations
hereunder.


    
      
         


      

      
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     (i)            The capital stock and other equity interests listed on
Schedule H hereto represent all of the
capital stock and other equity interests of the Guarantors, and represent all
capital stock and other equity interests owned, directly or indirectly, by the
Company.  All of the Pledged Securities are validly issued, fully paid
and nonassessable, and the Company is the legal and beneficial
owner of the Pledged Securities, free and clear of any lien, security interest
or other encumbrance except for the security interests created by this Agreement
and other Permitted Liens (as defined in the Secured
Revolving Credit Note).  

    


    (j)           
The ownership and other equity interests in
partnerships and limited liability companies (if any) included in the Collateral (the “Pledged
Interests”) by their express terms do not
provide that they are securities governed
by Article 8 of the UCC and are not held in a securities account or by any
financial intermediary.

    


    (k)           Each
Debtor shall at all times maintain the liens and Security Interest provided for
hereunder as valid and perfected first priority liens and security interests in
the Collateral in favor of the Secured Party until this Agreement and the
Security Interest hereunder shall be terminated pursuant to Section 11 hereof,
except to the extent any of the Collateral is subject to Permitted
Liens.  Each Debtor hereby agrees to defend the same against the
claims of any and all persons and entities, except holders of Permitted Liens.
Each Debtor shall safeguard and protect all Collateral for the account of the
Secured Party.   At the request of the Secured Party, each Debtor
will sign and deliver to the Secured Party at any time or from time to time one
or more financing statements pursuant to the UCC in form reasonably satisfactory
to the Secured Party and will pay the cost of filing the same in all public
offices wherever filing is, or is deemed by the Secured Party to be, necessary
or desirable to effect the rights and obligations provided for herein. Without
limiting the generality of the foregoing, each Debtor shall pay all fees, taxes
and other amounts necessary to maintain the Collateral and the Security Interest
hereunder, and each Debtor shall obtain and furnish to the Secured Party from
time to time, upon demand, such releases and/or subordinations of claims and
liens which may be required to maintain the priority of the Security Interest
hereunder.

    


    (l)           
No Debtor will transfer, pledge, hypothecate, encumber, license, sell or
otherwise dispose of any of the Collateral (except for Permitted Liens and
licenses granted by a Debtor in its ordinary course of business and sales of
inventory by a Debtor in its ordinary course of business) without the prior
written consent of a Majority in
Interest.


    
      
         


      

      
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    (m)          Each
Debtor shall keep and preserve its equipment, inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate
any such Collateral (or cause to be operated or located) in any area excluded
from insurance coverage.

    


    (n)           Each Debtor shall maintain with financially sound and
reputable insurers, insurance with respect
to the Collateral against loss or damage of the kinds and in the amounts
customarily insured against by entities of established reputation having similar
properties similarly situated and in such amounts as are customarily carried
under similar circumstances by other such entities and otherwise as is
prudent for entities engaged in similar businesses but in any event sufficient
to cover the full replacement cost thereof.  Each Debtor shall cause
each insurance policy issued in connection herewith to provide, and the
insurer issuing such policy to certify to the Secured Party that
(a) the Secured Party will be named as lender loss payee and additional
insured under each such insurance policy; (b) if such insurance be proposed to
be cancelled or materially changed for any
reason whatsoever, such insurer will promptly notify the Secured Party and
such cancellation or change shall not be effective as to the Secured Party for
at least thirty (30) days after receipt by the Secured Party of
such notice, unless the effect of such
change is to extend or increase coverage under the policy; and (c) the
Secured Party will have the right (but no obligation) at its election
to remedy any default in the payment of premiums within thirty (30) days of
notice from the insurer of such
default.  If no Event of Default (as defined in the Secured Revolving
Credit Note) exists, loss payments in each instance will be applied by the
applicable Debtor to the repair and/or replacement of property with respect to
which the loss was incurred to the extent reasonably feasible, and any
loss payments or the balance thereof remaining, to the extent not so applied,
shall be payable to the applicable Debtor, provided, however, that payments
received by any Debtor after an Event of Default occurs and is
continuing shall be paid to the Secured
Party and, if received by such Debtor,
shall be held in trust for and immediately paid over to the Secured Party
unless otherwise directed in writing by the Secured Party.   Copies of such policies or
the related certificates, in each case,
naming the Secured Party as lender loss payee and additional insured shall be
delivered to the Secured Party at least annually and at the time any new policy of
insurance is issued.

    


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

     

    (p)           Each
Debtor shall promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as the Secured Party may from time to time request and may in its sole
discretion deem necessary to perfect, protect or enforce its security interest
in the Collateral.

    

      
        
           


        

        
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    (q)           Each
Debtor shall permit the Secured Party and their representatives and agents to
inspect the Collateral at any time, and to make copies of records pertaining to
the Collateral as may be requested by a Secured Party from time to
time.

    


    (r)           
Each Debtor shall take all steps reasonably necessary to diligently pursue and
seek to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral.

    


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

    


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

    


    (u)           The
Debtors shall at all times preserve and keep in full force and effect their
respective valid existence and good standing and any rights and franchises
material to its business.

    


    (v)           No
Debtor will change its name, type of organization, jurisdiction of organization,
organizational identification number (if it has one), legal or corporate
structure, or identity, or add any new fictitious name unless it provides at
least 30 days prior written notice to the Secured Party of such change and, at
the time of such written notification, such Debtor provides any financing
statements or fixture filings necessary to perfect and continue perfected the
perfected security Interest granted and evidenced by this
Agreement.

    


    (w)           No
Debtor may consign any of its Inventory or sell any of its Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale
without the consent of a Majority in
Interest which shall not be unreasonably withheld, except to the extent
such consignment or sale does not exceed 15% of the total value of all of the
Company’s finished goods in Inventory.

    


    (x)           
No Debtor may relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to the Secured Party and so
long as, at the time of such written notification, such Debtor provides any
financing statements or fixture filings necessary to perfect and continue
perfected the perfected security Interest granted and evidenced by this
Agreement.

     

    (y)           Each
Debtor was organized and remains organized solely under the laws of the state
set forth in its Organizational Documents.  Schedule D attached hereto
sets forth each Debtor’s organizational identification number or, if any Debtor
does not have one, states that one does not exist.


    
      
         


      

      
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    (z)           
(i) The actual name of each Debtor is the name set forth in the preamble above;
(ii) no Debtor has any trade names except as set forth on Schedule E attached
hereto; (iii) no Debtor has used any name other than that stated in the preamble
hereto or as set forth on Schedule E for the preceding five years; and (iv) no
entity has merged into any Debtor or been acquired by any Debtor within the past
five years except as set forth on Schedule E.

    


    (aa)          At
any time and from time to time that any Collateral consists of instruments,
certificated securities or other items that require or permit possession by the
secured party to perfect the security interest created hereby, the applicable
Debtor shall deliver such Collateral to the Secured Party.

     

    (bb)         Each Debtor, in its capacity as issuer, hereby agrees to
comply with any and all orders and instructions of Secured Party
regarding the Pledged Interests consistent with the terms of this Agreement
without the further consent of any Debtor as contemplated by Section 8-106 (or any successor
section) of the UCC.  Further, each Debtor agrees that it shall not
enter into a similar agreement (or one that would confer “control” within the
meaning of Article 8 of the UCC) with any other person or entity.

     

    (cc)          Each
Debtor shall cause all tangible chattel paper constituting Collateral to be
delivered to the Secured Party, or, if such
delivery is not possible, then to cause such tangible chattel paper to contain a
legend noting that it is subject to the security interest created by this
Agreement.  To the extent that any Collateral consists of electronic
chattel paper, the applicable Debtor shall cause the underlying chattel paper to
be “marked” within the meaning of Section 9-105 of the UCC (or successor section
thereto).

    


    (dd)         The
Company’s deposit account included as Collateral can only be perfected by
“control” through an account control agreement, the applicable Debtor shall
cause such an account control agreement, in form and substance in each case
satisfactory to the Secured Party, to be entered into and delivered to the
Secured Party within 45 days from the date of this Agreement.

    


    (ee)          To
the extent that any Collateral consists of letter-of-credit rights, the
applicable Debtor shall cause the issuer of each underlying letter of credit to
consent to an assignment of the proceeds thereof to the Secured
Party.

    


    (ff)          
To the extent that any Collateral is in the possession of any third party, the
applicable Debtor shall join with the Secured Party in notifying such third
party of the Secured Party’ security interest in such Collateral and shall use
its best efforts to obtain an acknowledgement and agreement from such third
party with respect to the Collateral, in form and substance satisfactory to the
Secured Party.

    


    (gg)          If
any Debtor shall at any time hold or acquire a commercial tort claim, such
Debtor shall promptly notify the Secured Party in a writing signed by such
Debtor of the particulars thereof and grant to the Secured Party in such writing
a security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
the Secured Party.


    
      
         


      

      
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    (hh)          Each
Debtor shall immediately provide written notice to the Secured Party of any and
all accounts which arise out of contracts with any governmental authority and,
to the extent necessary to perfect or continue the perfected status of the
Security Interest in such accounts and proceeds thereof, shall execute and
deliver to the Secured Party an assignment of claims for such accounts and
cooperate with the Secured Party in taking any other steps required, in their
judgment, under the Federal Assignment of Claims Act or any similar federal,
state or local statute or rule to perfect or continue the perfected status of
the Security Interest in such accounts and proceeds thereof.

    


     (ii)          
Each Debtor shall cause each subsidiary of
such Debtor to immediately become a party hereto (an “Additional Debtor”), by
executing and delivering an Additional Debtor Joinder in substantially the form
of Annex A attached hereto and comply with the provisions hereof applicable to
the Debtors.  Concurrent therewith, the Additional Debtor shall
deliver replacement schedules for, or supplements to all other Schedules to
(or referred to in) this Agreement, as applicable, which replacement schedules
shall supersede, or supplements shall modify, the Schedules then in
effect.  The Additional Debtor shall also deliver such opinions of
counsel, authorizing resolutions, good standing certificates, incumbency
certificates, organizational documents, financing statements and other
information and documentation as the Secured Party may reasonably
request.  Upon delivery of the foregoing to the Secured Party, the
Additional Debtor shall be and become a party to this Agreement with the same
rights and obligations as the Debtors, for all purposes hereof as fully and to
the same extent as if it were an original signatory hereto and shall be deemed
to have made the representations, warranties and covenants set forth herein as
of the date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the “Debtors” shall be deemed to include each Additional
Debtor.

    


    (jj)          
 Each Debtor shall vote the
Pledged Securities to comply with the
covenants and agreements set forth herein and in the Secured Revolving Credit
Note.

    


    (kk)          Each Debtor shall register the pledge of the applicable
Pledged Securities on the books of such Debtor.  Each Debtor shall
notify each issuer of Pledged Securities to
register the pledge of the applicable Pledged Securities in the name of the
Secured Party on the books of such issuer.  Further, except with
respect to certificated securities delivered to the Secured Party, the
applicable Debtor shall deliver to Secured Party an
acknowledgement of pledge (which, where appropriate, shall comply with the
requirements of the relevant UCC with respect to perfection by registration)
signed by the issuer of the applicable Pledged Securities, which
acknowledgement shall confirm that: (a) it has registered the pledge on its
books and records; and (b) at any time directed by Secured Party during the
continuation of an Event of Default, such issuer will transfer the record
ownership of such Pledged Securities into the name of any designee of Secured
Party, will take such steps as may be necessary to effect the transfer, and will
comply with all other instructions of Secured Party regarding such Pledged
Securities without the further consent of the applicable Debtor.


    
      
         


      

      
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    (ll)           
In the event that, upon an occurrence of an
Event of Default, Secured Party shall sell all or any of the Pledged Securities to
another party or parties (herein called the “Transferee”) or
shall purchase or retain all or any of the
Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to
Secured Party or the Transferee, as the case may be, the articles of
incorporation, bylaws, minute books, stock certificate books, corporate seals,
deeds, leases, indentures, agreements,
evidences of indebtedness, books of account, financial records and all other
Organizational Documents and records of the Debtors and their direct and
indirect subsidiaries; (ii) use its best efforts to obtain resignations of the
persons then serving as officers and directors of the Debtors and their
direct and indirect subsidiaries, if so requested; and (iii) use its best
efforts to obtain any approvals that are required by any governmental or
regulatory body in order to permit the sale of the Pledged Securities
to the Transferee or the purchase or retention of the Pledged Securities by
Secured Party and allow the Transferee or Secured Party to
continue the business of the Debtors and their direct and indirect
subsidiaries.

     

    (mm)        Each
Debtor will from time to time, at the joint and several expense of the Debtors,
promptly execute and deliver all such further instruments and documents, and
take all such further action as may be necessary or desirable, or as the Secured
Party may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Secured
Party to exercise and enforce their rights and remedies hereunder and with
respect to any Collateral or to otherwise carry out the purposes of this
Agreement.

    


    (nn)         Schedule
F attached hereto lists all of the patents, patent applications, trademarks,
trademark applications, registered copyrights, and domain names owned by any of
the Debtors as of the date hereof.  Schedule F lists all material
licenses in favor of any Debtor for the use of any patents, trademarks,
copyrights and domain names as of the date hereof.  All material
patents and trademarks of the Debtors have been duly recorded at the United
States Patent and Trademark Office and all material copyrights of the Debtors
have been duly recorded at the United States Copyright Office.

    


    (oo)         Except
as set forth on Schedule G attached hereto, none of the account debtors or other
persons or entities obligated on any of the Collateral is a governmental
authority covered by the Federal Assignment of Claims Act or any similar
federal, state or local statute or rule in respect of such
Collateral.

    


    5.              Effect of Pledge on Certain
Rights. If any of the Collateral subject to this Agreement
consists of nonvoting equity or ownership
interests (regardless of class, designation, preference or rights) that may be
converted into voting equity or ownership interests upon the occurrence of
certain events (including, without limitation, upon the transfer of all or any of
the other stock or assets of the issuer), it is agreed that the pledge of such
equity or ownership interests pursuant to this Agreement or the enforcement of
any of Secured Party’s rights hereunder shall not be deemed to be the type of
event
which would trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is subject or to
which any Debtor is party.


    
      
         


      

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

    


    (a)   A
Majority in Interest notifies the Company of the occurrence of an Event of
Default (as defined in the Secured Revolving Credit Note) under the Secured
Revolving Credit Note; and

    


    (b)   If
any provision of this Agreement shall at any time for any reason be declared to
be null and void, or the validity or enforceability thereof shall be contested
by any Debtor, or a proceeding shall be commenced by any Debtor, or by any
governmental authority having jurisdiction over any Debtor, seeking to establish
the invalidity or unenforceability thereof, or any Debtor shall deny that any
Debtor has any liability or obligation purported to be created under this
Agreement.

    


    7.              Duty To Hold In
Trust.

    


    (a)           Upon
the occurrence of any Event of Default and at any time thereafter, each Debtor
shall, upon receipt of any revenue, income,
dividend, interest or other sums subject to the Security Interest,
whether payable pursuant to the Secured Revolving Credit Note or otherwise, or
of any check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for the Secured Party and
shall forthwith endorse and transfer any such sums or instruments, or both, to
the Secured Party, pro-rata in proportion to their initial purchases of Secured
Revolving Credit Note for application to the satisfaction of the Obligations
(and if any Secured Revolving Credit Note is not outstanding, pro-rata in
proportion to the initial purchases of the remaining Secured Revolving Credit
Note).

    


    (b)           If any Debtor shall become entitled to receive or shall
receive any securities or other property (including, without limitation, shares
of Pledged Securities or instruments representing Pledged Securities acquired
after the date hereof, or any options,
warrants, rights or other similar property or certificates representing a
dividend, or any distribution in connection with any recapitalization,
reclassification or increase or reduction of capital, or issued in connection
with any reorganization of such Debtor or any of its direct or
indirect subsidiaries) in respect of the Pledged Securities (whether as an
addition to, in substitution of, or in exchange for, such Pledged Securities or
otherwise), such Debtor agrees to (i) accept the same as the agent
of the Secured Party; (ii) hold the same in trust on behalf of and for the
benefit of the Secured Party; and (iii) to deliver any and all certificates or
instruments evidencing the same to Secured Party on or before the close of
business on the fifth business day following the receipt thereof
by such Debtor, in the exact form received together with the Necessary
Endorsements, to be held by Secured Party subject to the terms of this Agreement
as Collateral.

    


    8.              Rights and Remedies Upon
Default.


    
      
         


      

      
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      (a)           Upon
the occurrence of any Event of Default and at any time thereafter, the Secured
Party, acting through any agent appointed by them for such purpose, shall have
the right to exercise all of the remedies conferred hereunder and under the
Secured Revolving Credit Note, and the Secured Party shall have all the rights
and remedies of a secured party under the UCC.  Without limitation,
the Secured Party shall have the following rights and powers:

    

    


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

    


    (ii)      Upon notice to the Debtors by Secured Party, all rights
of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to
exercise and all rights of each Debtor to receive the dividends and interest
which it would otherwise be authorized to receive and retain, shall
cease.  Upon such notice, Secured Party shall have the
right to receive any interest, cash dividends or other
payments on the Collateral and, at the option of Secured Party, to exercise in
such Secured Party’s discretion all voting rights pertaining
thereto.  Without limiting the generality of the foregoing,
Secured Party shall have the right (but not the obligation) to
exercise all rights with respect to the Collateral as it were the sole and
absolute owners thereof, including, without limitation, to vote and/or to
exchange, at its sole discretion, any or all of the Collateral in
connection with a merger, reorganization, consolidation, recapitalization or
other readjustment concerning or involving the Collateral or any Debtor or any
of its direct or indirect subsidiaries.

    


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


    
      
         


      

      
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    (iv)      The
Secured Party shall have the right (but not the obligation) to notify any
account debtors and any obligors under instruments or accounts to make payments
directly to the Secured Party and to enforce the Debtors’ rights against such
account debtors and obligors.

    


    (v)       The
Secured Party may (but are not obligated to) direct any financial intermediary
or any other person or entity holding any investment property to transfer the
same to the Secured Party or their designee.

    


    (vi)      The
Secured Party may (but are not obligated to) transfer any or all Intellectual
Property registered in the name of any Debtor at the United States Patent and
Trademark Office and/or Copyright Office into the name of the Secured Party or
any designee or any purchaser of any Collateral.

     

    
      
        (b)           The Secured
Party may comply with any applicable law in
connection with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.  The Secured Party may
sell the Collateral without giving any warranties and may specifically disclaim
such warranties.  If the Secured
Party sells any of the Collateral on
credit, the Debtors will only be credited with payments actually made
by the purchaser.  In addition,
each Debtor waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Secured Party’s rights and
remedies hereunder, including, without limitation, its right following an
Event of Default to take immediate
possession of the Collateral and to exercise its rights and remedies with
respect thereto.

      

    

     

    (c)           For the purpose of enabling the Secured Party to further
exercise rights and remedies under this Section 8 or elsewhere provided
by agreement or applicable law, each Debtor
hereby grants to the Secured Party, for the benefit of the Secured Party and the
Secured Party, an irrevocable, nonexclusive license (exercisable without payment
of royalty or other compensation to such Debtor) to use, license or
sublicense following an Event of Default, any Intellectual Property now owned or
hereafter acquired by such Debtor, and wherever the same may be located, and
including in such license access to all media in which any of the licensed
items may be recorded or stored and to all computer software
and programs used for the compilation or printout thereof.

    


    9.              Applications of Proceeds. The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder shall be applied first, to the expenses of retaking, holding, storing,
processing and preparing for sale, selling, and the like (including, without
limitation, any taxes, fees and other costs incurred in connection therewith) of
the Collateral, to the reasonable attorneys’ fees and expenses incurred by the
Secured Party in enforcing their rights hereunder and in connection with
collecting, storing and disposing of the Collateral, and then to satisfaction of
the Obligations pro rata among the Secured Party (based on then-outstanding
principal amounts of Secured Revolving Credit Note at the time of any such
determination), and to the payment of any other amounts required by applicable
law, after which the Secured Party shall pay to the applicable Debtor any
surplus proceeds. If, upon the sale, license or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
the Secured Party are legally entitled, the Debtors will be liable for the
deficiency, together with interest thereon,
at the rate of 10% per annum or the lesser amount permitted by applicable law
(the “Default Rate”), and the reasonable fees of any attorneys employed by the
Secured Party to collect such deficiency.  To the extent permitted by
applicable law, each Debtor waives all claims, damages and demands against the
Secured Party arising out of the repossession, removal, retention or sale of the
Collateral, unless due solely to the gross negligence or willful misconduct of
the Secured Party as determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction.


    
      
         


      

      
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    10.            Securities Law Provision.  Each Debtor recognizes that Secured Party may
be limited in its ability to effect a sale to the public of all or part of the
Pledged Securities by reason of certain
prohibitions in the Securities Act of 1933, as amended, or other federal or
state securities laws (collectively, the “Securities Laws”),
and may be compelled to resort to one or more sales to a restricted group of
purchasers who may be required to agree to acquire the Pledged Securities for
their own account, for investment and not with a view to the distribution or
resale thereof.  Each Debtor agrees that sales so made may be at
prices and on terms less favorable than if the Pledged Securities were sold
to the public, and that the Secured
Party has no obligation to delay the sale
of any Pledged Securities for the period of time necessary to register the
Pledged Securities for sale to the public under the Securities
Laws.  Each Debtor shall
cooperate with Secured Party in its attempt to satisfy any requirements under the
Securities Laws (including, without limitation, registration thereunder if
requested by Secured Party) applicable to the sale of the Pledged Securities by
Secured Party.

     

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

     

    12.            Responsibility for Collateral.
The Debtors assume all liabilities and responsibility in connection with all
Collateral, and the Obligations shall in no way be affected or diminished by
reason of the loss, destruction, damage or theft of any of the Collateral or its
unavailability for any reason.  Without limiting the generality of the
foregoing, (a) no Secured Party (i) has any duty (either before or after an
Event of Default) to collect any amounts in respect of the Collateral or to
preserve any rights relating to the Collateral, or (ii) has any obligation to
clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall
remain obligated and liable under each contract or agreement included in the
Collateral to be observed or performed by such Debtor thereunder.  No
Secured Party shall have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the
receipt by any Secured Party of any payment relating to any of the Collateral,
nor shall any Secured Party be obligated in any manner to perform any of the
obligations of any Debtor under or pursuant to any such contract or agreement,
to make inquiry as to the nature or sufficiency of any payment received by any
Secured Party in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Secured Party or to which any Secured Party may
be entitled at any time or times.


    
      
         


      

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

     

    14.            Term of Agreement. This
Agreement and the Security Interest shall terminate on the date on which all
payments under the Secured Revolving Credit Note have been indefeasibly paid in
full and all other Obligations have been paid or discharged; provided, however,
that all indemnities of the Debtors contained in this Agreement (including,
without limitation, Annex B hereto) shall survive and remain operative and in
full force and effect regardless of the termination of this
Agreement.


    
      
         


      

      
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    15.            Power of Attorney; Further
Assurances.

    


     (a)           Each
Debtor authorizes the Secured Party, and does hereby make, constitute and
appoint the Secured Party and their respective officers, agents, successors or
assigns with full power of substitution, as such Debtor’s true and lawful
attorney-in-fact, with power, in the name of the various Secured Party or such
Debtor, to, after the occurrence and during the continuance of an Event of
Default, (i) endorse any note, checks, drafts, money orders or other instruments
of payment (including payments payable under or in respect of any policy of
insurance) in respect of the Collateral that may come into possession of the
Secured Party; (ii) to sign and endorse any financing statement pursuant to the
UCC or any invoice, freight or express bill, bill of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with accounts, and other documents relating to the
Collateral; (iii) to pay or discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on or threatened against the
Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for
monies due in respect of the Collateral; (v) to transfer any Intellectual
Property or provide licenses respecting any Intellectual Property; and (vi)
generally, at the option of the Secured Party, and at the expense of the
Debtors, at any time, or from time to time, to execute and deliver any and all
documents and instruments and to do all acts and things which the Secured Party
deem necessary to protect, preserve and realize upon the Collateral and the
Security Interest granted therein in order to effect the intent of this
Agreement and the Secured Revolving Credit Note all as fully and effectually as
the Debtors might or could do; and each Debtor hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof.  This
power of attorney is coupled with an interest and shall be irrevocable for the
term of this Agreement and thereafter as long as any of the Obligations shall be
outstanding.  The designation set forth
herein shall be deemed to amend and supersede any inconsistent provision in the
Organizational Documents or other documents
or agreements to which any Debtor is subject or to which any Debtor is a
party.  Without limiting the generality of the foregoing, after
the occurrence and during the continuance of an Event of Default, each Secured
Party is specifically authorized to execute and file any applications for or
instruments of transfer and assignment of any patents, trademarks, copyrights or
other Intellectual Property with the United States Patent and Trademark Office
and the United States Copyright Office.

    


     (b)           On
a continuing basis, each Debtor will make, execute, acknowledge, deliver, file
and record, as the case may be, with the proper filing and recording agencies in
any jurisdiction, including, without limitation, the jurisdictions indicated on
Schedule C attached hereto, all such instruments, and take all such action as
may reasonably be deemed necessary or advisable, or as reasonably requested by
the Secured Party, to perfect the Security Interest granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Secured Party the grant or perfection of a
perfected security interest in all the Collateral under the UCC.

    

      
        
           


        

        
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    (c)           Each
Debtor hereby irrevocably appoints the Secured Party as such Debtor’s
attorney-in-fact, with full authority in the place and instead of such Debtor
and in the
name of such Debtor, from time to time in the Secured Party’ discretion, to take
any action and to execute any instrument which the Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement, including
the filing, in its sole discretion, of one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral without the
signature of such Debtor where permitted by law, and ratifies all such actions
taken by the Secured Party.  This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.

    


    16.            Notices. All notices,
requests, demands and other communications hereunder shall be subject to the
notice provision of the Purchase Agreement (as such term is defined in the
Secured Revolving Credit Note).

    


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

     

    18.            Miscellaneous.

    


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

    


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

    


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

     

    
      
         


      

      
        20

        
          

        

      

      
         


      

    

    


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

    


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

    


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

    


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

    


    (h)          
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.  Each Debtor agrees that
all proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and the Secured Revolving Credit
Note (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, partners, members, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the City of
Los Angeles. Each Debtor hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Los Angeles
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such
proceeding is improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If any party shall commence a proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
proceeding shall be reimbursed by the other party for its reasonable attorney’s
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such proceeding.


    
      
         


      

      
        21

        
          

        

      

      
         


      

    

    


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

    


    (j)           
All Debtors shall jointly and severally be liable for the obligations of each
Debtor to the Secured Party hereunder.

    


    (k)          
Each Debtor shall indemnify, reimburse and hold harmless the Secured Party and
their respective partners, members, shareholders, officers, directors, employees
and agents (collectively, “Indemnitees”) from and against any and all losses,
claims, liabilities, damages, penalties, suits, costs and expenses, of any kind
or nature, (including fees relating to the cost of investigating and defending
any of the foregoing) imposed on, incurred by or asserted against
such Indemnitee in any way related to or arising from or alleged to arise
from this Agreement or the Collateral, except any such losses, claims,
liabilities, damages, penalties, suits, costs and expenses which result from the
gross negligence or willful misconduct of the Indemnitee as determined by a
final, nonappealable decision of a court of competent
jurisdiction.  This indemnification provision is in addition to, and
not in limitation of, any other indemnification provision in the Secured
Revolving Credit Note, the Purchase Agreement (as such term is defined in the
Secured Revolving Credit Note) or any other agreement, instrument or other
document executed or delivered in connection herewith or therewith.

    


    (l)          
 Nothing in this Agreement shall be
construed to subject any Secured Party to
liability as a partner in any Debtor or any if its direct or indirect
subsidiaries that is a partnership or as a member in any Debtor or any of its
direct or indirect subsidiaries that is a limited liability company, nor shall
any
Secured Party be deemed to have assumed any obligations under any partnership
agreement or limited liability company agreement, as applicable, of any such
Debtor or any if its direct or indirect subsidiaries or otherwise, unless and
until any such Secured Party exercises its right to be substituted for such
Debtor as a partner or member, as applicable, pursuant
hereto.

    


    (m)          To the extent that the grant of the security interest in
the Collateral and the enforcement of the terms hereof require the
consent, approval or action of any partner
or member, as applicable, of any Debtor or any direct or indirect subsidiary of
any Debtor or compliance with any provisions of any of the Organizational
Documents, the Debtors hereby grant such consent and approval and waive any such
noncompliance with the terms of said documents.

    


    [SIGNATURE
PAGES FOLLOW]

    


    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    


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

    


    


    
      	
              VIRAL
      GENETICS, INC.

              A
      Delaware Corporation

            
	 
	By: 	 
	 	
              Name:
      Haig Keledjian    

            
	 	Title:
      President
	 
      
	
              VIRAL
      GENETICS, INC.

              A
      California Corporation and Subsidiary

            
	 
	 
	By:	
               

            
	 	Name:
      Haig Keledjian
	 	Title:
      President


    

     

    
 

    LENDER

    


    
      


      
        	
                
                  BEST
      INVESTMENTS, INC.

                  A
      California Corporation

                

              
	 
	 
	By: 	 
	 	
                Name:
      Haig Keledjian

              
	 	Title:
      President


      

       

       

    

    
      
         


      

      
        23

        
          

        

      

      
         


      

    


    SCHEDULE
A

    


    Principal
Place of Business of Debtors:

    


    1321
Mountain view Circle

    Azusa, CA
91702

    


    


    Locations
Where Collateral is Located or Stored:

    


    1321
Mountain view Circle

    Azusa, CA
91702

    


    


     

    


    



    
      
         


      

      
        24

        
          

        

      

      
         


      

    


    SCHEDULE
B

    


    Exception
to ownership of collateral:

    


    


    
      


      


      
 

    


    
      
         


      

      
        25

        
          

        

      

      
         


      

    


    SCHEDULE
C

    


    California

    


    
      


      


      
 

    


    
      
         


      

      
        26

        
          

        

      

      
         


      

    


    SCHEDULE
D

    


    Organizational
Identification Numbers

    


    Viral
Genetics, Inc., a Delaware corporation – 33-0814123

    Viral
Genetics, Inc., a California corporation _____________

    


    
      


      


      

        
          
             


          

          
            27

            
              

            

          

          
             


          

        

      

       

    

    SCHEDULE
E

    


    Names;
Mergers and Acquisitions

    
      


      
        


        


         

         

      

      
 

    

    
      
         


      

      
        28

        
          

        

      

      
         


      

    


    SCHEDULE
F

    


    Intellectual
Property

    


    Patents
–

    Patent
Applications

    Trademarks

    Trademark
Applications

    Registered
copyrights

    Domain
Names

    Licenses
to third parties

     

     

     

    
      
         


      

      
        29

        
          

        

      

      
         


      

    


    SCHEDULE
G

    


    Account
Debtors

    
      


      
        


        


         

         

      

      


    

    
      
         


      

      
        30

        
          

        

      

      
         


      

    


    SCHEDULE H

    


    Pledged Securities

    
      


      
        


        


         

         

      

      


        
          
             


          

          
            31

            
              

            

          

          
             


          

        



    

    SCHEDULE
I

    


    Permitted
Liens

    


    10%
Secured Convertible Debt

    


    
      


      


      

        
          
             


          

          
            32

            
              

            

          

          
             


          

        

      

    

    ANNEX
A

    to

    SECURITY

    AGREEMENT

     

    
      FORM
OF ADDITIONAL DEBTOR JOINDER

    

    
    

    


    Security
Agreement dated as of March _, 2008 made by

    Viral
Genetics, Inc.

    and its
subsidiaries party thereto from time to time, as Debtors

    to and in
favor of

    the
Secured Party identified therein (the “Security Agreement”)

    


               Reference
is made to the Security Agreement as defined above; capitalized terms used
herein and not otherwise defined herein shall have the meanings given to such
terms in, or by reference in, the Security Agreement.

    


               The
undersigned hereby agrees that upon delivery of this Additional Debtor Joinder
to the Secured Party referred to above, the undersigned shall (a) be an
Additional Debtor under the Security Agreement, (b) have all the rights and
obligations of the Debtors under the Security Agreement as fully and to the
same extent as if the undersigned was an original signatory thereto and (c) be
deemed to have made the representations and warranties set forth in Section ___
therein as of the date of execution and delivery of this Additional Debtor
Joinder.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTY A SECURITY INTEREST IN THE
COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES
AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH
THEREIN.

    


               Attached
hereto are supplemental and/or replacement Schedules to the Security Agreement,
as applicable.

    


               An
executed copy of this Joinder shall be delivered to the Secured Party, and the
Secured Party may rely on the matters set forth herein on or after the date
hereof.  This Joinder shall not be modified, amended or terminated
without the prior written consent of the Secured Party.

    


    
    

    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


               IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the
name and on behalf of the undersigned.

     

    
      
        	 	
                VIRAL
      GENETICS, INC.

              	 
	 	 	 	 
	 	
                By:

              	 	 
	 	 	 
	 	
                Name:

              	 
	 	
                Title:   President

              	 


      

    

    
    

    


    
      	 	Address:	
            
	 	 	 
	 	 	 


    

    
    

    
    

     

    


    


    


    
      Dated:  March  __,
2008