Document:

ex10_1.htm

    Exhibit
10.1

     

    Debt
Restructuring Agreement

     

     

    DEBT
RESTRUCTURING AGREEMENT

     

    THIS AGREEMENT, dated this
fifth day of March 2008 (the “Agreement”), is made by and among VIRAL GENETICS, INC., a
Delaware corporation (the “Borrower”) and BEST INVESTMENTS, INC., a
California corporation (the “Lender”) for the purpose of amending and continuing
the obligations represented by the Notes referenced below.

    

    W
I T N E S S E T H:

    

    WHEREAS, pursuant to certain
promissory notes, (collectively the “Notes”) Borrower is indebted to Lender as
of March 5, 2008 in the amount of $__________ representing the principal and
accrued interest on the Notes as of such date (the “Loan
Obligation”);

     

    WHEREAS, the Notes are due on
March 31, 2008;

     

    WHEREAS, Borrower and Lender
desire to amend and exchange the Notes to extend the maturity date, make the
Borrower responsible for payment, allow Lender the option of exchanging the
resulting debt obligation for equity securities of the Borrower, and permit the
loan of additional funds by Lender from time to time;

     

    NOW, THEREFORE, in
consideration of the premises and the agreements, provisions and covenants
herein contained, the parties hereto agree as follows:

     

     

    ARTICLE
I

     

     

    The
Revolving Loan

     

    1.1.           Restructuring of
Debt.  The Notes are hereby tendered in exchange for and the
Loan Obligation is hereby restated as the “Secured Revolving Credit Note” and is
exchanged with Borrower effective March 5, 2008 as represented by the “Secured
Revolving Credit Note” in the form attached hereto as Exhibit A.  Upon
execution of this Agreement, Lender is delivering to Borrower the
Notes.

     

    1.2.           Manner of
Payment.

     

    (a)           Payment
of principal, interest, and any other amount required to be paid to the Lender
with respect to the Secured Revolving Credit Note, shall be made to the Lender
in U.S. dollars and in immediately available funds on the date such payment is
due.

    
       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    (b)           The
Secured Revolving Credit Note may be prepaid in whole or in part by Borrower at
any time without penalty upon not less than 30 days nor more than 60 days
advance
written notice from Borrower to Lender specifying the date of prepayment (the
“Prepayment Date”).  Prior to the Prepayment Date the Lender may, at
its option, give written notice of exchange of the Secured Revolving Credit Note
for securities of the Borrower as provided in Section 1.3, below, in which event
payment shall be made by exchange pursuant to Section 1.3.

     

    (c)           In
the event that any payment hereunder or under the Secured Revolving Credit Note
becomes due and payable on a day other than a business day, then such due date
shall be extended to the next succeeding business day; provided that interest
shall continue to accrue during the period of any such
extension.  “Business day” means any day which is not a Saturday,
Sunday or a day on which banks in the state of California are authorized or
obligated by law, executive order or governmental decree to be
closed.

     

    1.3.           Exchange of Loan
Obligation.  All or any portion of the then outstanding
principal and accrued interest of the Secured Revolving Credit Note (“Exchanged
Amount”), may be exchanged for Units at the election of the Lender at any time
prior to the Maturity Date, as defined in the Secured Revolving Credit Note, by
Lender giving written notice to Borrower specifying the date of exchange (the
“Exchange Date”) not less than 30 days nor more than 60 days prior to Exchange
Date. In exchange for each $1 of the Exchanged Amount so exchanged, Lender shall
receive a number of Units equal to the Exchanged Amount divided by the Exchange
Price. The Exchange Price shall be equal to the volume-weighted average closing
price of the Borrower’s common stock for the 20 trading days immediately prior
to the Exchange Date as reported on the NASD OTCBB, Pinksheets, or other market
where Borrower’s common stock is then quoted for trading, provided that in the
event no such quoted market exists, the Exchange Price shall be determined
according to an independent appraisal ratified by the disinterested members of
the Borrower’s board of directors. Each Unit is composed of one share of
Borrower’s common stock and one warrant to purchase one share of Borrower’s
voting common stock in the form attached hereto as Exhibit B (“Warrant”). The
Warrant Price, as defined in the Warrant, shall be equal to the Exchange Price
multiplied by 1.5.  An election made by the Lender to exchange the
Loan Obligation for Units cannot be revoked by Lender without the written
consent of Borrower.

     

    (a)           On
an Exchange Date the Lender shall deliver to the Borrower the Notice of
Conversion in the form attached hereto as Annex A and the Borrower shall issue
and deliver to the Lender the Units. Should such Notice of Conversion represent
all of the remaining Loan Obligations, Lender shall deliver to Borrower the
Secured Revolving Credit Note and all other instruments evidencing the Loan
Obligation to the Borrower marked “paid in full.”

     

     

    ARTICLE
II

     

     

    Representations
and Warranties of Borrower

     

    The
Borrower represents and warrants that:

     

    2.1.           Organization and
Authority.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (a)           The
Borrower is a corporation duly organized and validly existing under the laws of
the jurisdiction of its formation;

     

    (b)           The
Borrower has the power and authority to execute, deliver and perform this
Agreement, the Secured Revolving Credit Note, the Security Agreement, and all
other associated documents; and

     

    (c)           Each
of this Agreement, the Security Agreement and Secured Revolving Credit Note is
and shall be the legal, valid and binding obligation or agreement of the
Borrower enforceable against the Borrower in accordance with its terms, subject
to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the enforceability of creditors’
rights generally and to the effect of general principles of equity (whether
considered in a proceeding at law or in equity).

     

    2.2.           Loan
Documents.  The execution, delivery, (or, as the case may be,
reaffirmation) and performance by the Borrower of this Agreement, the Security
Agreement, and the Secured Revolving Credit Note:

     

    (a)           has
been duly authorized by the disinterested members of the Board of Directors of
the Borrower, and all other requisite corporate action of the Borrower required
for the lawful execution, delivery, reaffirmation and performance
thereof;

     

    (b)           do
not violate any provisions of (i) applicable law, rule or regulation, (ii) any
judgment, writ, order, determination, decree or arbitral award of any
governmental authority or arbitral authority binding on the Borrower or its
properties, or (iii) the certificate of incorporation or bylaws of the
Borrower;

     

    (c)           does
not and will not be in conflict with, result in a breach of or constitute an
event of default, or an event which, with notice or lapse of time or both, would
constitute an event of default, under any contract, indenture, agreement or
other instrument or document to which the Borrower is a party, or by which the
properties or assets of the Borrower are bound and such conflict, breach or
event of default could reasonably be expected to result in a material adverse
effect on the business, properties or financial condition of the Borrower;
and

     

    (d)           will
result in the creation or imposition of a lien upon substantially all of the
properties and assets of the Borrower.

     

    2.3.           Reports/ Untrue
Statement.  Borrower has delivered to Lender a copy of
Borrower’s annual report on Form 10-KSB for the year ended December 31, 2006,
quarterly report on Form 10-QSB for the quarter ended September 30, 2007, and
all reports of Form 8-K filed in the 12 months up to and including the date
affixed hereof (collectively the “Reports”).  Neither this Agreement
nor any of the Reports contains any misrepresentation or untrue statement of
material fact or omits to state a material fact necessary, in light of the
circumstances under which it was made, in order to make any such warranty,
representation or statement contained therein not misleading.

     

    
      
         

      

      
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    ARTICLE
III

     

     

    Representations
and Warranties of Lender

     

    The
Lender represents and warrants that:

     

    3.1.           Authority.

     

    (a)           The
Lender has the power and authority to execute, deliver and perform this
Agreement; and

     

    (b)           This
Agreement is and shall be the legal, valid and binding obligation or agreement
of the Lender enforceable against the Lender in accordance with its terms,
subject to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the enforceability of creditors’
rights generally and to the effect of general principles of equity (whether
considered in a proceeding at law or in equity).

     

    3.2.           Loan
Documents.  The execution, delivery, (or, as the case may be,
reaffirmation) and performance by the Lender of this Agreement:

     

    (a)           does
not violate any provisions of (i) applicable law, rule or regulation, or (ii)
any judgment, writ, order, determination, decree or arbitral award of any
governmental authority or arbitral authority binding on the Lender or its
properties; and

     

    (b)           does
not and will not be in conflict with, result in a breach of or constitute an
event of default, or an event which, with notice or lapse of time or both, would
constitute an event of default, under any contract, indenture, agreement or
other instrument or document to which the Lender is a party, or by which the
properties or assets of the Lender are bound and such conflict, breach or event
of default could reasonably be expected to result in a material adverse effect
on the business, properties or financial condition of the Lender.

     

    3.3.           Accredited
Investor.  Lender is an “accredited investor” as that term is
defined in Rule 501 of regulation D promulgated under the Securities Act of
1933.

     

     

    ARTICLE
IV

     

     

    Events
of Default and Acceleration

     

    4.1.           Events of
Default.  If any one or more of the following events (herein
called “Events of Default”) shall occur for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any governmental
authority), that is to say:

     

    
      
         

      

      
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      (a)           if
default shall be made in the due and punctual payment of the principal or
interest of the Secured Revolving Credit Note, when and as the same shall be due
and payable at maturity, by acceleration or otherwise; or

    

     

    (b)           if
a default shall be made in the performance or observance of, or shall occur
under, any covenant, agreement or provision contained in this Agreement (other
than as described in clause (a) above) or any Borrower debt or obligation in
excess of $100,000 and such default shall continue for 30 or more days after the
earlier of receipt of notice of such default by the Borrower from the Lender;
or

     

    (c)           if
any representation, warranty or other statement of fact contained in this
Agreement or in any writing, certificate, report or statement at any time
furnished to the Lender by or on behalf of the Borrower shall be false or
misleading in any material respect when given; or

     

    (d)           if
the Borrower shall be unable to pay its debts generally as they become due,
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any insolvency statute, make an assignment
for the benefit of its creditors, commence a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of itself or of the whole or any
substantial part of its property, or file a petition or answer seeking
liquidation, reorganization or arrangement or similar relief under the federal
bankruptcy laws or any other applicable law or statute; or

     

    (e)           if
a court of competent jurisdiction shall enter an order, judgment or decree
appointing a custodian, receiver, trustee, liquidator or conservator of the
Borrower or of the whole or any substantial part of its properties and such
order, judgment or decree continues unstayed and in effect for a period of sixty
(60) days, or approve a petition filed against the Borrower seeking liquidation,
reorganization or arrangement or similar relief under the federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state, which petition is not dismissed within sixty (60) days; or if, under
the provisions of any other law for the relief or aid of debtors, a court of
competent jurisdiction shall assume custody or control of the Borrower or of the
whole or any substantial part of its properties, which control is not
relinquished within sixty (60) days; or if there is commenced against the
Borrower any proceeding or petition seeking reorganization, arrangement or
similar relief under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state which proceeding or
petition remains undismissed for a period of sixty (60) days; or if the Borrower
takes any action to indicate its consent to or approval of any such proceeding
or petition; or

     

    (f)           if
(i) one or more judgments or orders where the amount not covered by insurance
(or the amount as to which the insurer denies liability) is in an aggregate
amount in excess of $1,000,000 is rendered against the Borrower, or (ii) there
is any attachment, injunction or execution against the Borrower’s properties for
any amount in excess of $1,000,000 in the aggregate; and such judgment,
attachment, injunction or execution remains unpaid, unstayed, undischarged,
unbonded or undismissed for a period of thirty (30) days; or

     

    
      
         

      

      
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    (g)           if
any “person” or “group” (each as used in Sections 13(d)(3) and 14(d)(2) of the
Securities Exchange Act of 1934), either (A) becomes the “beneficial owner” (as
defined in Rule 13d-3 of the Securities Exchange Act or 1934), directly or
indirectly, of voting stock of the Borrower (or securities convertible into or
exchangeable for such voting stock) representing 50% or more of the combined
voting power of all voting stock of the Borrower (on a fully diluted basis), or
(B) otherwise has the ability, directly or indirectly, to elect a majority of
the board of directors of the Borrower;

     

    then, and
in any such event and at any time thereafter, if such Event of Default or any
other Event of Default shall have not been waived,

     

    (x)           the
Lender, at its option, declare by notice to the Borrower the Secured Revolving
Credit Note to be immediately due and payable, and the same, including all
interest accrued thereon and all other obligations of the Borrower to the
Lender, shall forthwith become immediately due and payable without presentment,
demand, protest, notice or other formality of any kind, all of which are hereby
expressly waived, anything contained herein or in any instrument evidencing the
Secured Revolving Credit Note to the contrary notwithstanding; provided, however, that
notwithstanding the above, if there shall occur an Event of Default under clause
(d) or (e) above, then the Secured Revolving Credit Note shall be immediately
due and payable without the necessity of any action by the Lender;
and

     

    (y)           The
Lender shall have all of the rights and remedies available under this Agreement,
the Secured Revolving Credit Note or under any applicable law.

     

    4.2.           Cumulative
Rights.  No right or remedy herein conferred upon the Lender is
intended to be exclusive of any other rights or remedies contained herein, in
the Secured Revolving Credit Note or the Security Agreement, and every such
right or remedy shall be cumulative and shall be in addition to every other such
right or remedy contained herein and therein or now or hereafter existing at law
or in equity or by statute, or otherwise.

     

    4.3.           No
Waiver.  No course of dealing between the Borrower and any
Lender, or any failure or delay on the part of the Lender in exercising any
rights or remedies under this Agreement, the Security Agreement, the Secured
Revolving Credit Note or otherwise available to it shall operate as a waiver of
any rights or remedies and no single or partial exercise of any rights or
remedies shall operate as a waiver or preclude the exercise of any other rights
or remedies hereunder or of the same right or remedy on a future
occasion.

     

    ARTICLE
V

     

    Miscellaneous

     

    5.1.           Assignment.  The
Lender may assign to one or more persons all or a portion of its rights,
obligations or rights and obligations under this Agreement (including, without
limitation, all or a portion of its Secured Revolving Credit
Note).  Upon execution, delivery, and acceptance of such assignment,
the assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of the Lender hereunder
and the assigning Lender shall, to the extent of such assignment, relinquish its
rights and be released from its obligations under this
Agreement.  Upon the consummation of any assignment pursuant to this
Section, the assignor and the Borrower shall make appropriate arrangements so
that, if required, new notes are issued to the assignor and the
assignee.  If the assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall deliver to the Borrower
and the Agent certification as to exemption from deduction or withholding of
taxes that may be required by the Internal Revenue Code of 1986.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    5.2.           Notices.  Any
notice shall be conclusively deemed to have been received by any party hereto
and be effective (i) on the day on which delivered (including hand delivery by
commercial courier service) to such party (against receipt therefor), (ii) on
the date of delivery to such telefacsimile number for such party, and the
receipt of such message is verified by the sender’s telefacsimile machine, or
(iii) on the fifth business day after the day on which mailed, if sent prepaid
by certified or registered mail, return receipt requested, in each case
delivered, transmitted or mailed, as the case may be, to the address or
telefacsimile number, as appropriate, set forth below or such other address or
number as such party shall specify by notice hereunder:

     

    
      	 	(a) 	if to the
      Borrower: 	 	Viral Genetics,
      Inc.
	 	 	 	 	1321 Mountain View
      Circle
	 	 	 	 	Azusa, California
      91702
	 	 	 	 	Telephone: 	(626)
    334-5310
	 	 	 	 	Fax:	(626)
    334-5324
	 	 	 	 	 	 
	 	(b)	if to the
      Lender: 	 	Best Investments,
      Inc.
	 	 	 	 	1321 Mountain View
      Circle
	 	 	 	 	Azusa, California
      91702
	 	 	 	 	Telephone: 	(626)
    334-5310
	 	 	 	 	Fax: 	(626)
    334-5324

    

     

    5.3.           Survival.  All
covenants, agreements, representations and warranties made herein shall survive
the making by the Lender of the Secured Revolving Credit Note and the execution
and delivery to the Lender of this Agreement and the Secured Revolving Credit
Note and shall continue in full force and effect so long as the Secured
Revolving Credit Note remain outstanding.

     

    5.4.           Amendments.  No
amendment, modification or waiver of any provision of this Agreement or the
Secured Revolving Credit Note and no consent by the Lender to any departure
there from by the Borrower shall be effective unless such amendment,
modification or waiver shall be in writing and signed by the Lender, and the
same shall then be effective only for the period and on the conditions and for
the specific instances and purposes specified in such writing.

     

    5.5.           Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such fully-executed counterpart.

     

    
      
         

      

      
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    5.6.           Termination.  The
termination of this Agreement shall not affect any rights of the Borrower or
Lender, or any obligation of the Borrower or Lender arising prior to the
effective date of such termination, and the provisions hereof shall continue to
be fully operative until all transactions entered into or rights created or
obligations incurred prior to such termination have been fully disposed of,
concluded or liquidated and the obligations arising prior to or after such
termination have been irrevocably paid in full.

     

    5.7.           Severability.  If
any provision of this Agreement or the Secured Revolving Credit Note shall be
determined to be illegal or invalid as to one or more of the parties hereto,
then such provision shall remain in effect with respect to all parties, if any,
as to whom such provision is neither illegal nor invalid, and in any event all
other provisions hereof shall remain effective and binding on the parties
hereto.

     

    5.8.           Entire
Agreement.  This Agreement, together with the exhibits hereto,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all previous proposals, negotiations,
representations, commitments and other communications between or among the
parties, both oral and written, with respect thereto.

     

    5.9.           Governing Law; Waiver of
Jury Trial.

     

    (a)           THIS
AGREEMENT, THE SECURITY AGREEMENT, AND THE SECURED REVOLVING CREDIT NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH
STATE NOTWITHSTANDING ITS EXECUTION AND DELIVERY OUTSIDE SUCH
STATE.

     

    (b)           THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT
SITTING IN THE STATE OF CALIFORNIA, UNITED STATES OF AMERICA AND, BY THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE
EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING, AND HEREBY IRREVOCABLY SUBMITS GENERALLY AND
UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION
OR PROCEEDING.

     

    (c)           THE
BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A
COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO
THE ADDRESS OF THE BORROWER PROVIDED IN SECTION 5.2 HEREIN,
OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER
THE APPLICABLE LAWS IN EFFECT IN THE STATE OF CALIFORNIA.

     

    
      
         

      

      
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    (D)           IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR
RELATED TO THIS AGREEMENT OR THE SECURED REVOLVING CREDIT NOTE OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE
DELIVERED IN CONNECTION WITH THE FOREGOING, THE BORROWER AND THE LENDER HEREBY
AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY WAIVE,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO
TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING.

    

    5.10.         Third Party
Beneficiaries.  No Person other than the parties hereto shall
be entitled to claim any right or benefit under this Agreement, including,
without limitation, the status of third-party beneficiary of this Agreement and
nothing in this Agreement, express or implied, is intended to confer upon any
other Person any rights or remedies of any nature whatsoever under or by reason
of this Agreement

     

    5.11.        
Rules of
Interpretation.

     

    (a)           The
headings and subheadings used herein are solely for convenience of reference and
shall not constitute a part of any such document or affect the meaning,
construction or effect of any provision thereof.

     

    (b)           Except
as otherwise expressly provided, references herein to articles, sections,
paragraphs, clauses, annexes, appendices, exhibits and schedules are references
to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and
schedules in or to this Agreement.

     

    (c)           All
definitions set forth herein shall apply to the singular as well as the plural
form of such defined term, and all references to the masculine gender shall
include reference to the feminine or neuter gender, and vice versa, as the
context may require.

     

    (d)           When
used herein, words such as “hereunder”, “hereto”, “hereof” and “herein” and
other words of like import shall, unless the context clearly indicates to the
contrary, refer to the whole of this Agreement and not to any particular
article, section, subsection, paragraph or clause thereof.

     

    (e)           References
to “including” means including without limiting the generality of any
description preceding such term.

     

    [signature
page follows]

     

    
      
        
        

      

      
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    [signature
page to Debt Restructuring Agreement dated March 5, 2008]

     

    IN
WITNESS WHEREOF, the parties hereto have caused this instrument, made as of the
date affixed hereof, to be executed and delivered by a duly authorized
officer.

     

     

    
      
        	 	VIRAL
      GENETICS, INC.
	 	 	 
	 	 	 
	 	 	 
	 	By:	 
	 	 	Duly
      Authorized Officer

      

       

       

      
         

        
          
            	 	BEST
      INVESTMENTS, INC.
	 	 	 
	 	 	 
	 	 	 
	 	 
	 	 Haig
      Keledjian

          

           

          

            
              
                 

              

              
                10

                
                  

                

              

              
                 

              

            

        

      

    

    ANNEX
A

    

    NOTICE
OF CONVERSION

    

    

    The undersigned hereby elects to
convert principal of the Secured Revolving Credit Note pursuant to Section 1.3
of the Debt Restructuring Agreement to which this into shares and warrants to
acquire shares of common stock, par value $0.001 per share (the “Common Stock”), of
Viral Genetics, Inc., a Delaware corporation,  according to the
conditions hereof, as of the date written below.  If shares and
warrants are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith.  No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.

    

    Conversion
calculations:

    

    Date to
Effect Conversion:

    

    Principal
Amount of Note to be Converted:

    

    Number of
shares of Common Stock to be issued:

    

    Number of
warrants to acquire shares of Common Stock to be issued:

    

    

    Signature:

    

    Name:

    

    Address:

     

    
      
         

      

      
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    EXHIBIT
A

    

    SECURED
REVOLVING CREDIT NOTE

     

    FOR VALUE
RECEIVED, Viral Genetics, Inc., (“Borrower”), whose address is
1321 Mountain View Circle, Azusa, California, 91702, promises to pay to the
order of Best Investments, Inc. (“Lender”), and its successors
and assigns, whose address is c/o 1321 Mountain View Circle, Azusa, California,
91702, in lawful money of the United States of America, the principal sum of ---
DOLLARS ($_____) (the “Initial Principal”), together with (a) such additional
amounts as are added to the Initial Principal from the date hereof as provided
under Section 1(b) herein plus (b) interest at the Interest Rate as provided
herein and less (c) any payments of principal and accrued interest made as
provided herein prior to the Maturity Date including amounts exchanged for Units
under the terms of the Debt Restructuring Agreement to which this Secured
Revolving Credit Note is attached.  This Secured Revolving Credit Note
is issued in replacement of the Notes in favor of the Lender referred to in the
Debt Restructuring Agreement (the “Agreement”) between the parties of even date
herewith and does not constitute a novation of the indebtedness evidenced
thereby. This Secured Revolving Credit Note is issued pursuant to and entitled
to the benefits and security of the Agreement to which reference is hereby made
for a more complete statement of the terms and conditions upon which the Loan
Obligation evidenced hereby is made and is to be repaid.

     

    

    1.            
Payment and Advance
Terms.

     

    (a)           Borrower
shall pay to Lender the entire principal balance under this Secured Revolving
Credit Note and all interest accrued thereon on or before June 30, 2013 (the
“Maturity Date”), which may be amended as described herein.  Borrower
shall pay all amounts due under this Secured Revolving Credit Note in lawful
money of the United States of America and without set-off, deduction, demand or
notice.

     

    (b)           On
or before the Maturity Date, from time to time Lender may offer, and Borrower
may accept, additional advances in cash, in kind, via tender of other debts of
Borrower held by Lender, or other form. Any additional advances shall be added
to the then outstanding principal hereunder and interest shall accrue on such
advances from the date they are received by Borrower.

     

    2.            
Interest.  All
unpaid principle balances under this Secured Revolving Credit
Note  shall bear interest (the “Interest Rate”) at a rate
equal to five percent (5%) per annum.  Interest shall be computed on
the actual number of days elapsed (including the first day but excluding the
last day) on the basis of a three hundred sixty-five (365) day
year.  Interest shall be payable on the Maturity Date.

     

    3.            
Application of
Payments.  Payments will be applied first to any costs and
expenses (including reasonable attorneys' fees) incurred by Lender in connection
with the collection of amounts owing pursuant to this Secured Revolving Credit
Note , next to payment of accrued interest, and then to reduction of
principal.  All payments shall be made to Lender at the
above-specified address until receipt of notice from Lender to the
contrary.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    4.            
Default
Rate.  Upon the occurrence of an Event of Default, Lender shall
be entitled to receive, and Borrower shall pay to Lender, interest on the
outstanding principal balance and any other advances or charges advanced by
Lender at a per annum rate equal to the lesser of (a) twelve percent (12%), or
(b) the maximum interest rate which Borrower may by law pay (the “Default Rate”).  The
Default Rate shall be computed from the occurrence of the Event of Default until
the earlier of the date upon which the Event of Default is cured or the date
upon which due an owing under this Secured Revolving Credit Note  are
paid in full.  Interest calculated at the Default Rate shall be
secured by the other Loan Documents (defined below).  The preceding
sentence, however, shall not be construed as an agreement or privilege to extend
the date of the any payment due hereunder, or as a waiver of any other right or
remedy accruing to Lender by reason of the occurrence of any Event of
Default.

     

    5.            
Prepayment.  Borrower
shall have the right to prepay this Secured Revolving Credit Note  in
whole or in part without the prior written consent of Lender at any time by
providing notice as provided for in the Debt Restructuring Agreement to which
this Secured Revolving Credit Note  is attached.

     

    6.            
Security
Interest.  This Secured Revolving Credit Note is secured by,
among other things, that certain Security Agreement of even date herewith
(“Security Agreement”)
encumbering all of the assets of Borrower.  Lender acknowledges that
their security interest is and shall be subordinate to the security interest
associated with Secured Convertible Debentures held by certain creditors of
Borrower until such obligations are satisfied by Borrower or liens are released
by such creditors. Except as otherwise provided herein, capitalized terms used
in this Secured Revolving Credit Note  shall have the same meanings as
are assigned to such terms in the Security Agreement.  This Secured
Revolving Credit Note, the Security Agreement and all other documents related
hereto are referred to herein sometimes collectively as the “Loan Documents.”

     

    7.            
Default.  Any
one of the following occurrences shall constitute an “Event of Default” under this
Secured Revolving Credit Note :

     

    (a)           The
failure of Borrower to repay all outstanding principal or accrued interest on or
before the Maturity Date;

     

    (b)           The
failure of Borrower to promptly perform any obligation of Borrower under or the
existence of an Event of Default as defined in any of the Loan Documents within
thirty (30) days of notice from Lender; or

     

    (c)           Borrower
becomes insolvent, bankrupt or generally fails to pay its debts as such debts
become due; is adjudicated insolvent or bankrupt; admits in writing its
inability to pay its debts; or shall suffer a custodian, receiver or trustee for
it or substantially all of its property to be appointed and if appointed without
its consent, not be discharged within sixty (60) consecutive days; makes an
assignment for the benefit of creditors; or suffers proceedings under any law
related to bankruptcy, insolvency, liquidation or the reorganization,
readjustment or the release
of debtors to be instituted against it and if contested by it not dismissed or
stayed within sixty (60) consecutive days; if proceedings under any law related
to bankruptcy, insolvency, liquidation, or the reorganization, readjustment or
the release of debtors is instituted or commenced by or against Borrower; if any
order for relief is entered relating to any of the foregoing proceedings; if
Borrower shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or if Borrower shall by any act or
failure to act indicate its consent to, approval of or acquiescence in any of
the foregoing.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    8.            
Remedies.  Upon the
happening and during the continuation of any Event of Default, (i) Lender may,
at its sole option, declare the entire principal and any unpaid accrued interest
immediately due and payable in full; (ii) interest shall accrue on all amounts
due hereunder at the Default Rate until paid in full or such Event of Default is
cured; and (iii) Lender shall have and may exercise any and all rights and
remedies available hereunder, at law and in equity, together with any and all
rights and remedies provided in any Loan Document.  The acceptance of
any installment or payment after the occurrence of an Event of Default or event
giving rise to the right of acceleration provided for herein shall not
constitute a waiver of such right of acceleration with respect to such Event of
Default or event or any subsequent Event of Default.  The remedies of
Lender, as provided herein or in any Loan Document, shall be cumulative and
concurrent, and may be pursued singularly, successively or together, at the sole
discretion of Lender, and may be exercised as often as occasion therefore shall
arise.  Any act, omission or commission of Lender, including,
specifically, any failure to exercise any right, remedy or recourse, shall be
released and be effected only through a written document executed by Lender and
then only to the extent specifically recited therein.  A waiver or
release with reference to any one event shall not be construed as continuing, as
a bar to, or as a waiver or release of, any subsequent right, remedy or recourse
as to a subsequent event.

     

    9.            
Collection
Costs.  If one or more Events of Default (or any event which
with notice or passage of time or both would constitute an Event of Default)
hereunder shall occur and continues, Borrower promises to pay all collection
costs, including but not limited to all reasonable attorneys' fees, court costs,
and expenses of every kind, incurred by Lender in connection with such
collection or the protection or enforcement of any or all of the security for
this Secured Revolving Credit Note , whether or not any lawsuit is filed with
respect thereto (including costs and reasonable attorneys’ fees on any appeals
or in any bankruptcy proceedings).

     

    10.           Miscellaneous.

     

    (a)           Successors and
Assigns.  This Secured Revolving Credit Note  inures
to the benefit of Lender and its successors or assigns, and binds Borrower, and
its respective permitted successors and assigns, and the words “Lender” and
“Borrower” whenever occurring herein shall be deemed and construed to include
such respective successors and assigns.

     

    (b)           Severability.  Any
term or provision of this Secured Revolving Credit Note  that is held
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable in any situation or in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions or the validity
or enforceability of the invalid, void or unenforceable term or provision in any
other situation or in any other jurisdiction.  If the final judgment
of a court of competent jurisdiction or other authority declares that any term
or provision of this Secured Revolving Credit Note  is invalid, void
or unenforceable, the parties agree that the court making such determination
shall have the power to and shall, subject to the discretion of such court,
reduce the scope, duration, area or applicability of the term or provision, to
delete specific words or phrases, or to replace any invalid, void or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    (c)           Waiver.  To the
fullest extent permitted by law, Borrower hereby waives all valuation and
appraisement privileges, presentment and demand for payment, protest, notice of
protest and nonpayment, dishonor and notice of dishonor, bringing of suit, lack
of diligence or delays in collection or enforcement of this Secured Revolving
Credit Note  and notice of the intention to accelerate, the release of
any liable party, the release of any security for the indebtedness evidenced
hereby, and any other indulgence or forbearance, and is and shall be directly
and primarily liable for the amount of all sums owing and to be owed hereon, and
agrees that this Secured Revolving Credit Note  and any or all
payments coming due hereunder may be extended or renewed from time to time
without in any way affecting or diminishing Borrower's liability
hereunder.

     

    (d)           Notices.  All
notices required to be given to any of the parties hereunder shall be in writing
and shall be delivered (a) by personal delivery, with receipt acknowledged; (b)
by telecopier or electronic mail (with original copy to follow as set forth
herein); (c) by reputable overnight commercial courier service; or (d) by United
States registered or certified mail, return receipt requested, postage prepaid,
to the parties at the addresses as set forth at the first of this Secured
Revolving Credit Note  (subject to the right of a party to designate a
different address for itself by notice similarly given).  Any notice
so given by United States mail shall be deemed to have been given on the second
business day after the same is deposited in the United States mail as registered
or certified mail, addressed as above provided, with postage thereon fully
prepaid.  Any notice given personally, by telecopier or e-mail, or by
reputable overnight commercial courier service, shall be deemed to be given upon
receipt of the same by the party to whom the same is to be
given.  Whenever the giving of notice is required, the giving of such
notice may be waived in writing by the party entitled to receive such
notice.

     

    (e)           Entire
Agreement.  This Secured Revolving Credit
Note  (together with the Loan Documents) contains the entire agreement
between the parties with respect to the subject matter hereof and
thereof.

     

    (f)           
Modification of
Agreement.  This Secured Revolving Credit Note  may
not be modified, altered or amended, except by an agreement in writing signed by
both Borrower and Lender.

     

    (g)           Releases by
Borrower.  Borrower hereby releases Lender from all technical
and procedural errors, defects and imperfections whatsoever in enforcing the
remedies available to Lender upon a default by Borrower hereunder.

     

    (h)           Remedies Not
Exclusive.  No remedy herein conferred upon or reserved to
Lender is intended to be exclusive of any other remedy or remedies available to
Lender under this Secured Revolving Credit Note , at law, in equity or by
statute, and each and every such remedy shall be cumulative and in addition to
every other remedy given hereunder or now or hereafter existing at law, in
equity or by statute.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    (i)           
Governing
Law.  This Secured Revolving Credit Note  shall be
governed by and construed under the laws of the State of California without
giving effect to the choice of law provisions thereof.

     

    (j)           
Consent to
Jurisdiction.  Borrower hereby consents that any action or
proceeding against it may be commenced and maintained in any Federal or state
court sitting in Los Angeles County, California, and that such courts shall have
jurisdiction with respect to the subject matter hereof and the person of
Borrower and the collateral securing Borrower’s obligations
hereunder.

     

    (k)           Time of
Essence.  Time is of the essence of this Secured Revolving
Credit Note  and all of the obligations hereunder.

     

    (l)            
Headings.  The
headings of the sections of this Secured Revolving Credit Note  are
inserted for convenience only and do not constitute a part of this Secured
Revolving Credit Note .

     

    (m)           Waiver of Jury
Trial.  BORROWER AND LENDER, TO THE FULL EXTENT PERMITTED BY
LAW, EACH HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES, RELINQUISHES
AND FOREVER FORGOES HEREBY THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY EITHER OF
THEM AGAINST THE OTHER BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO OR
IN CONNECTION WITH THIS SECURED REVOLVING CREDIT NOTE , OR ANY COURSE OF
CONDUCT, ACT, OMISSION, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PERSON (INCLUDING, WITHOUT LIMITATION, SUCH PERSON’S
DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY
OTHER PERSONS AFFILIATED WITH SUCH PERSON), IN CONNECTION WITH THIS SECURED
REVOLVING CREDIT NOTE , INCLUDING, WITHOUT LIMITATION, IN ANY COUNTERCLAIM WHICH
BORROWER MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY LENDER
OR ITS AGENTS AGAINST BORROWER, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.  THIS WAIVER BY BORROWER OF ITS RIGHT TO A JURY TRIAL IS A
MATERIAL INDUCEMENT FOR LENDER UNDER THIS SECURED REVOLVING CREDIT NOTE
..

     

    (n)           Secured Revolving Credit
Note  for Business or Commercial Purpose.  BORROWER
EXPRESSLY WARRANTS AND REPRESENTS TO LENDER THAT THIS SECURED REVOLVING CREDIT
NOTE  IS INTENDED FOR AND WILL BE USED FOR A BUSINESS OR COMMERCIAL
PURPOSE AND THAT THIS SECURED REVOLVING CREDIT NOTE  IS NOT INTENDED
FOR A CONSUMER, PERSONAL, FAMILY OR HOUSEHOLD PURPOSE.

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

    (o)           Authority.  Borrower
(and the undersigned representative of Borrower, if any) represents and warrants
that it has full power and authority to execute and deliver this Secured
Revolving Credit Note , and the execution and delivery of this Secured Revolving
Credit Note  has been duly authorized and does not conflict with or
constitute a default under any law, judicial order or other agreement affecting
Borrower.

     

    IN
WITNESS WHEREOF, Borrower has executed and delivered this Secured Revolving
Credit Note  effective as of the date first above
written.

     

    
       

      
        
          	 	BORROWER:
	 	 
	 	VIRAL GENETICS,
      INC.
	 	 	 
	 	 	 
	 	 	 
	 	By	 
	 	 	Haig
      Keledjian, President and CEO

        

         

      

    

          

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    EXHIBIT
B

     

    Form of
Warrant

     

    VIRAL
GENETICS, INC.

    

    Warrant
for the Purchase of

    Shares
of Common Stock

     

    2
Par Value $0.0001

    

    WARRANT
AGREEMENT

    

    THE
HOLDER OF THIS WARRANT, BY ACCEPTANCE HEREOF, BOTH WITH RESPECT TO THE WARRANT
AND COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT, AGREES AND ACKNOWLEDGES
THAT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER
THE SECURITIES LAWS OF ANY STATE.  THESE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A “NO ACTION” OR INTERPRETIVE LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE
STATUTES.

    

    This is to certify that, for value
received, Best Investments, Inc. (the “Holder”) is entitled to purchase from
VIRAL GENETICS, INC., a
Delaware corporation (the “Company”), on the
terms and conditions hereinafter set forth, all or any part of [insert number of
Units] shares (“Warrant Shares”) of the Company’s common stock, par value
$0.0001 (the “Common Stock”), at a purchase price of [insert Exchange Price
multiplied by 1.5] per share (“Warrant Price”).  Upon exercise of this
warrant in whole or in part, a certificate for the Warrant Shares so purchased
shall be issued and delivered to the Holder.  If less than the total
warrant is exercised, a new warrant of similar tenor shall be issued for the
unexercised portion of this warrant.  By acceptance hereof, the Holder
agrees to be bound by the terms and conditions of this warrant.

    

    This warrant is granted subject to the
following further terms and conditions:

    

    1.           
This warrant shall vest and be exercisable immediately, and shall expire at 5:00
pm Pacific Time on the date that is five years from the date this warrant is
signed.  In order to exercise this warrant with respect to all or any
part of the Warrant Shares for which this warrant is at the time exercisable,
Holder must take the following actions:

    

    (a)           Deliver
to the Corporate Secretary of the Corporation an executed notice of exercise
in substantially the form of notice attached to this Agreement (the “Exercise
Notice”) in which there is specified the number of Warrant Shares that are to be
purchased under the exercised warrant.

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

    (b)           Pay
the aggregate Warrant Price for the purchased shares through one or more of the
following alternatives:

    

    
      	
               
      

            	
              (i)

            	
              full
      payment in cash or by check made payable to the Corporation’s
      order;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              full
      payment in shares of Common Stock valued at Fair Market Value on the
      Exercise Date (as such term is defined
below);

            

    

    

    
      	
               
      

            	
              (iii)

            	
              full
      payment through a combination of shares of Common Stock valued at Fair
      Market Value on the Exercise Date and cash or check payable to the
      Company’s order; or

            

    

    

    
      	
               
      

            	
              (iv)

            	
              full
      payment effected through a broker-dealer sale and remittance procedure
      pursuant to which Holder shall provide concurrent irrevocable written
      instructions (i) to a brokerage firm to effect the immediate sale of the
      purchased shares and remit to the Company, out of the sale proceeds
      available on the settlement date, sufficient funds to cover the aggregate
      Warrant Price payable for the purchased shares and (ii) to the Company to
      deliver the certificates for the purchased shares directly to such
      brokerage firm in order to complete the sale
  transaction.

            

    

    

    (c)           Furnish
to the Corporation appropriate documentation that the person or persons
exercising the warrant (if other than Holder) have the right to exercise this
warrant.

    

    (d)           For
purposes of this Agreement, the Exercise Date shall be the date on which the
executed Exercise Notice shall have been delivered to the
Company.  Except to the extent the sale and remittance procedure
specified above is utilized in connection with the warrant exercise, payment of
the Warrant Price for the purchased shares must accompany such Exercise
Notice.

    

    (e)           For
all valuation purposes under this Agreement, the Fair Market Value per share of
Common Stock on any relevant date shall be determined in accordance with the
following provisions:

    

    
      	
               
      

            	
              (i)

            	
              If
      the Common Stock is not at the time listed or admitted to trading on any
      national securities exchange but is traded on the Nasdaq National Market,
      the Fair Market Value shall be the mean between the highest "bid" and
      lowest "offered" quotations of a share of Common Stock on such date (or if
      none, on the most recent date on which there were bid and offered
      quotations of a share of Common Stock), as reported by the Nasdaq National
      Market or any successor system.

            

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (ii)

            	
              If
      the Common Stock is at the time listed or admitted to trading on any
      national securities exchange, then the Fair Market Value shall be the
      closing selling price per share on the date in question on the securities
      exchange, as such price is officially quoted in the composite tape of
      transactions on such exchange.  If there is no reported sale of
      Common Stock on such exchange on the date in question, then the Fair
      Market Value shall be the closing selling price on the exchange on the
      last preceding date for which such quotation
  exists.

            

    

    

    
      	
               
      

            	
              (iii)

            	
              If
      the Common Stock is not listed on such date on any national securities
      exchange nor included in the Nasdaq National Market, but is traded in the
      over-the-counter market, the highest "bid" quotation of a share of Common
      Stock on such date (or if none, on the most recent date on which there
      were bid quotations of a share of Common Stock), as reported on the Nasdaq
      Smallcap Market or the NASD OTC Bulletin Board, as
    applicable.

            

    

    

    (f)           Upon
such exercise, the Company shall issue and cause to be delivered with all
reasonable dispatch (and in any event within three business days of such
exercise) to or upon the written order of the Holder at its address, and in the
name of the Holder, a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise together with such other property (including
cash) and securities as may then be deliverable upon such
exercise.  Such certificate or certificates shall be deemed to have
been issued and the Holder shall be deemed to have become a holder of record of
such Warrant Shares as of the Exercise Date.

    

    2.           
The Warrant Shares have not and may not be registered as of the date of exercise
of this warrant under the Securities Act or the securities laws of any
state.  This warrant and the Warrant Shares issuable on exercise of
the warrant, when and if issued, are and may be “restricted securities” as
defined in Rule 144 promulgated by the Securities and Exchange Commission and
must be held indefinitely unless subsequently registered under the Securities
Act and any other applicable state registration requirements, or an exemption
from such registration requirements for resale is available.  The
Company is under no obligation to register the securities under the Securities
Act or under applicable state statutes.  In the absence of such a
registration or an available exemption from registration, sale of the Warrant
Shares will be prohibited.  The Holder shall confirm to the Company
the representations set forth above in connection with the exercise of all or
any portion of this warrant.

    

    3.           
The Company, during the term of this Agreement, will obtain from the appropriate
regulatory agencies any requisite authorization in order to issue and sell such
number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Agreement.

    

    4.           
The number of Warrant Shares purchasable upon the exercise of this warrant and
the Warrant Price per share shall be subject to adjustment from time to time
subject to the following terms.  If the outstanding shares of Common
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, the Company or its successors and assigns shall make an appropriate and
proportionate adjustment in the number or kind of shares, and the per-share
Warrant Price thereof, which may be issued to the Holder under this Agreement
upon exercise of the warrants granted under this Agreement.  The
purchase rights represented by this warrant shall not be exercisable with
respect to a
fraction of a share of Common Stock.  Any fractional shares of Common
Stock arising from the dilution or other adjustment in the number of shares
subject to this warrant shall be rounded up to the nearest whole
share.

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    

    5.           
The Company covenants and agrees that all Warrant Shares which may be delivered
upon the exercise of this warrant will, upon delivery, be free from all taxes,
liens, and charges with respect to the purchase thereof; provided, that the
Company shall have no obligation with respect to any income tax liability of the
Holder.

    

    6.           
The Company agrees at all times to reserve or hold available a sufficient number
of shares of Common Stock to cover the number of Warrant Shares issuable upon
the exercise of this and all other warrants of like tenor and other convertible
securities then outstanding.

    

    7.           
This warrant shall not entitle the Holder hereof to any voting rights or other
rights as a shareholder of the Company, or to any other rights whatsoever,
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this warrant or the interest represented hereby or the Warrant
Shares purchasable hereunder until or unless, and except to the extent that,
this warrant shall be exercised.

    

    8.           
The Company may deem and treat the registered owner of this warrant as the
absolute owner hereof for all purposes and shall not be affected by any notice
to the contrary.

    

    9.            In
the event that any provision of this Agreement is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision were not contained herein.

    

    10.           This
Agreement shall be governed by and construed in accordance with the internal
laws of the state of Delaware, without regard to the principles of conflicts of
law thereof.

    

    11.           In
case this warrant shall be mutilated, lost, stolen, or destroyed, the Company
may at its discretion issue and deliver in exchange and substitution for and on
cancellation of the mutilated warrant, or in lieu of and substitution for the
warrant lost, stolen, or destroyed, a new warrant of like tenor and representing
an equivalent right or interest; but only on receipt of evidence satisfactory to
the Company of such loss, theft, or destruction of this warrant and indemnity
satisfactory to the Company.  The Holder shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.

     

    12.           This
Agreement shall be binding on and inure to the benefit of the Company and the
person to whom a warrant is granted hereunder, and such person’s heirs,
executors, administrators, legatees, personal representatives, assignees, and
transferees.

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the Company has caused this warrant to be executed by the
signature of its duly authorized officer, effective this _____ day of
_______________________ 200__.

     

    
      
        
          	 	 	VIRAL
      GENETICS, INC.
	 	 	 	 
	 	 	 	 
	 	 	 	 
	
                   By  
      

                	 	 	 
	 	 	 	Duly
      Authorized Officer

        

        

          
            
               

            

            
              22

              
                

              

            

            
               

            

          

        

         

      

    

    Exercise
Notice

    (to
be signed only upon exercise of warrant)

    

    TO:         VIRAL GENETICS,
INC.

    

    The Holder of the attached warrant
hereby irrevocable elects to exercise the purchase rights represented by the
warrant for, and to purchase thereunder, ________________________________ shares
of common stock of Viral Genetics, Inc., and herewith makes payment therefor,
and requests that the certificate(s) for such shares be delivered to the Holder
at:

    

    __________________________________________________________________________________________________________________

     

    
      __________________________________________________________________________________________________________________

       

      
        __________________________________________________________________________________________________________________

      

    

    

    
    

    If acquired without registration under
the Securities Act of 1933, as amended (“Securities Act”), the Holder represents
that the Common Stock is being acquired without a view to, or for, resale in
connection with any distribution thereof without registration or other
compliance under the Securities Act and applicable state statutes, and that the
Holder has no direct or indirect participation in any such undertaking or in the
underwriting of such an undertaking.  The Holder understands that the
Common Stock has not been registered, but is being acquired by reason of a
specific exemption under the Securities Act as well as under certain state
statutes for transactions by an issuer not involving any public offering and
that any disposition of the Common Stock may, under certain circumstances, be
inconsistent with these exemptions. The Holder acknowledges that the Common
Stock must be held and may not be sold, transferred, or otherwise disposed of
for value unless subsequently registered under the Securities Act or an
exemption from such registration is available.  The Company is under
no obligation to register the Common Stock under the Securities Act, except as
provided in the Agreement for the warrant.  The certificates
representing the Common Stock will bear a legend restricting transfer, except in
compliance with applicable federal and state securities statutes.

    

    The Holder agrees and acknowledges that
this purported exercise of the warrant is conditioned on, and subject to, any
compliance with requirements of applicable federal and state securities laws
deemed necessary by the Company.

    

    DATED this ________ day of
________________________________, __________.

    

    

    

    _______________________________________

    Signature

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    Transfer
Form

    

    FOR VALUE RECEIVED,
_________________________________________________ hereby sell, assign, and
transfer  unto

    

    _____________________________________________________________________________________________________

    

    _____________________________________________________________________________________________________

    

    ____________________________________________________________________________________________________,

    

    warrants
to purchase shares of the Common Stock of Viral Genetics, Inc., represented by
the within instrument, and do hereby irrevocably constitute and
appoint:

    

    _____________________________________________________________________________________________________

    

    to
transfer said warrants stock on the books of the within named Corporation with
full power of substitution in the premises.

    

    Dated
__________________________________________________,
_______________.

    

    

    ________________________________________

    

    In
presence of

    

    _________________________________________

    
 

     

    24ex10_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):

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

    (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

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (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.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
 

    (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).

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (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..

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    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).

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (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.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

     (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.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (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.

    

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

     

    (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.

    

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

    

     

    (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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}]]