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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 G uarantors 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,
THEREF ORE , 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,
receivabl e or otherwise
distributed in respect of, or in exchange for, any or all of
the Pledged Securities (as defined below)
:
(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
(x) Intellectual
Property
(xi) the
products and proceeds of all of the foregoing Collateral set
forth in clauses (i)-(x) above.
Without limitin g 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 othe r 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 obtain
e d 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 distribut e d 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, in t
erest 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.
(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).
(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 Secu rity 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 governi n g 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..
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).
(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 o f 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.
(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 n
o nassessable, 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 i n 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 securit ies 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 .
(
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 ci r
cumstances 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
t o 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 materi
ally 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,
unle ss 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 i
nsurer 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 w a
s 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
Defaul t
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.
(
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 )
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