SECURITY AGREEMENT
Exhibit 10.5
Execution Copy
THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as of
December 31, 2006, by and between ADVANCED VIRAL RESEARCH CORP., a Delaware corporation with its
principal place of business located at 000 Xxxxxxxxx Xxxxxxxxx Xxxxx, Xxxxxxx, Xxx Xxxx 00000 (the
“Parent”), and the each subsidiary of the Parent listed on Schedule I attached hereto (each
a “Subsidiary,” and collectively and together with the Parent, the “Company”), in
favor of the BUYER(S) (the “Secured Party”) listed on Schedule I attached to the Securities
Purchase Agreement (the “Securities Purchase Agreement”) dated the date hereof between the
Company and the Secured Party.
WHEREAS, The Parent shall issue and sell to the Secured Party, as provided in the Securities
Purchase Agreement, and the Secured Party shall purchase, up to One Million Five Hundred Thousand
Dollars ($1,500,000) of secured convertible debentures (the “Convertible Debentures”),
which shall be convertible into shares of the Parent’s common stock, par value $0.00001, in the
respective amounts set forth opposite each Buyer(s) name on Schedule I attached to the Securities
Purchase Agreement;
WHEREAS, to induce the Secured Party to enter into the transaction contemplated by the
Securities Purchase Agreement, the Convertible Debentures, the Investor Registration Rights
Agreement of even date herewith between the Parent and the Secured Party (the “Investor
Registration Rights Agreement”), and the Irrevocable Transfer Agent Instructions among the
Parent, the Secured Party, the Parent’s transfer agent, and Xxxxx Xxxxxxxx, Esq. (the “Transfer
Agent Instructions”) (collectively referred to as the “Transaction Documents”), each
Company hereby grants to the Secured Party a security interest in and to the property of each
Company existing on the date hereof and identified on Exhibit A hereto (collectively
referred to as the “Pledged Property”) to secure all of the Obligations (as defined below)
from the date hereof until the earlier to occur of: (i) five hundred thousand dollars ($500,000) or
less principal amount of the Convertible Debentures remains outstanding; (ii) the Company receives,
after the date of this Agreement, Three Million Dollars ($3,000,000) of capital, in any form other
than through the issuance of free-trading shares of the Company’s common stock, from sources other
than the Secured Party, which is utilized to either repay the Convertible Debentures in full, or
reduce the outstanding principal amount of the Convertible Debentures to five hundred thousand
dollars ($500,000); or (iii) satisfaction of the Obligations, as defined herein below, ((i), (ii),
and (iii) are sometimes hereinafter individually referred to as an “Expiration Event”).
NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained,
and for other good and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in their entirety, by
this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to confer upon any
person other than the Secured Party any right, remedy or claim under or by reason hereof.
Section 1.3. Obligations Secured.
From the date hereof until an Expiration Event, the security interest created hereby in the
Pledged Property constitutes continuing collateral security for all of the obligations of the
Parent now existing or hereinafter incurred to the Buyers, whether oral or written and whether
arising before, on or after the date hereof including, without limitation following obligations
(collectively, the “Obligations”):
(a) the payment by the Parent, as and when due and payable (by scheduled maturity,
acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the
Securities Purchase Agreement, the Convertible Debentures and the other Transaction Documents; and
(b) the due performance and observance by the Parent of all of its other obligations from
time to time existing in respect of any of the Transaction Documents, including without limitation,
the Parent’s obligations with respect to any conversion or redemption rights of the Secured Party
under the Convertible Debentures.
ARTICLE 2.
PLEDGED PROPERTY; EVENT OF DEFAULT
Section 2.1. Pledged Property.
(a) As collateral security for all of the Obligations, the Company hereby pledges to the
Secured Party, and creates in the Secured Party for its benefit, a security interest, from the date
hereof through an Expiration Event, in and to all of the Pledged Property whether now owned or
hereafter acquired.
(b) Simultaneously with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably
requested by the Secured Party to perfect its security interest in the Pledged Property.
Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute,
acknowledge and deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, affidavits and
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forms as may, in the Secured Party’s reasonable judgment, be necessary to effectuate, complete
or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged
Property, and the Secured Party shall hold such documents and instruments as secured party, subject
to the terms and conditions contained herein.
Section 2.2. Event of Default; Rights; Interests; Etc.
(a) Provided an Expiration Event has not occurred, an “Event of Default” shall be
deemed to have occurred under this Agreement upon an Event of Default under and as defined in the
Convertible Debentures.
(b) So long as no Event of Default shall have occurred and be continuing; (i) the Company
shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part
thereof for any purpose not inconsistent with the terms hereof; and (ii) the Company shall be
entitled to receive and retain any and all payments paid or made in respect to the Pledged
Property.
Section 2.3 Termination of Security Interest.
(a) Notwithstanding any provision to the contrary contained herein, the rights of the Secured
Party under this Agreement, including, but not limited to, Secured Party’s security interest in the
Pledged Property, shall automatically terminate upon the occurrence of an Expiration Event.
(b) Upon the occurrence of an Expiration Event, the Secured Party shall make, execute,
acknowledge, file, record and deliver to the company any documents reasonably requested by the
Company to terminate the Secured Party’s security interest in the Pledged Property and the Pledged
Collateral. Upon the occurrence of an Expiration Event, the Secured Party shall make, execute,
acknowledge and deliver to the Company such documents and instruments, including, without
limitation, financing statements, certificates, affidavits, and forms as may, in the Company’s
reasonable judgment, be necessary to eliminate and terminate the security interest of the Secured
Party in the Pledged Property and the Pledged Collateral, and the Company is authorized to file
such documents as necessary to terminate Secured Party’s security interest in the Pledged Property.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence and during the continuance of an Event of Default: (a) the Company hereby
appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of
the Company and in the name of the Company or otherwise, from time to time in the Secured Party’s
discretion to take any action and to execute any instrument which the Secured Party may reasonably
deem necessary to accomplish the purposes of this Agreement, including, without limitation, to
receive and collect all instruments made payable to the Company representing any payments in
respect of the Pledged Property or any part thereof and to give full
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discharge for the same; (b) the Secured Party may demand, collect, receipt for, settle,
compromise, adjust, xxx for, foreclose, or realize on the Pledged Property as and when the Secured
Party may determine, and (c) to facilitate collection, the Secured Party may notify account debtors
and obligors on any Pledged Property to make payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the Secured Party, at its
option, may itself perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be included in the Obligations secured hereby
and payable by the Company under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken all action necessary to
authorize the execution, delivery and performance of this Agreement and the transactions
contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and
binding obligation of the respective party, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights or by the principles
governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
The Company represents and warrants that it is the legal and beneficial owner of the Pledged
Property free and clear of any lien, security interest, option or other charge or encumbrance
(each, a “Lien”) except for the security interest created by this Agreement and other Permitted
Liens. For purposes of this Agreement, “Permitted Liens” means: (1) the security interest created
by this Agreement, (2) existing Liens disclosed by the Company to the Secured Party; (3) inchoate
Liens for taxes, assessments or governmental charges or levies not yet due, as to which the grace
period, if any, related thereto has not yet expired, or being contested in good faith and by
appropriate proceedings for which adequate reserves have been established in accordance with GAAP;
(4) Liens of carriers, materialmen, warehousemen, mechanics and landlords and other similar Liens
which secure amounts which are not yet overdue by more than 60 days or which are being contested in
good faith by appropriate proceedings; (5) licenses, sublicenses, leases or subleases granted to
other Persons not materially interfering with the conduct of the business of the Company; (6) Liens
securing capitalized lease obligations and purchase money indebtedness incurred solely for the
purpose of financing an acquisition or lease; (7) easements, rights-of-way, restrictions,
encroachments, municipal zoning ordinances and other similar charges or encumbrances, and minor
title deficiencies, in each case not securing debt and not materially interfering with the conduct
of the business of the Company and not materially detracting from the value of the property subject
thereto; (8) Liens arising out of the existence of judgments or awards which judgments or awards do
not constitute an Event of Default; (9) Liens incurred in the ordinary course of business in
connection with workers
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compensation claims, unemployment insurance, pension liabilities and social security benefits
and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of
business, statutory obligations, surety bonds, performance bonds and other obligations of a like
nature (other than appeal bonds) incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money); (10) Liens in favor of a banking
institution arising by operation of law encumbering deposits (including the right of set-off) and
contractual set-off rights held by such banking institution and which are within the general
parameters customary in the banking industry and only burdening deposit accounts or other funds
maintained with a creditor depository institution; (11) usual and customary set-off rights in
leases and other contracts; and (12) escrows in connection with acquisitions and dispositions.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1 Method of Realizing Upon the Pledged Property: Other Remedies.
If any Event of Default shall have occurred and be continuing:
(a) The Secured Party may exercise in respect of the Pledged Property, in addition to any
other rights and remedies provided for herein or otherwise available to it, all of the rights and
remedies of a secured party upon default under the Uniform Commercial Code (whether or not the
Uniform Commercial Code applies to the affected Pledged Property), and also may (i) take absolute
control of the Pledged Property, including, without limitation, transfer into the Secured Party’s
name or into the name of its nominee or nominees (to the extent the Secured Party has not
theretofore done so) and thereafter receive, for the benefit of the Secured Party, all payments
made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act
with respect thereto as though it were the outright owner thereof, (ii) require the Company to
assemble all or part of the Pledged Property as directed by the Secured Party and make it available
to the Secured Party at a place or places to be designated by the Secured Party that is reasonably
convenient to both parties, and the Secured Party may enter into and occupy any premises owned or
leased by the Company where the Pledged Property or any part thereof is located or assembled for a
reasonable period in order to effectuate the Secured Party’s rights and remedies hereunder or under
law, without obligation to the Company in respect of such occupation, and (iii) without notice
except as specified below and without any obligation to prepare or process the Pledged Property for
sale, (A) sell the Pledged Property or any part thereof in one or more parcels at public or private
sale, at any of the Secured Party’s offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Secured Party may deem
commercially reasonable and/or (B) lease, license or dispose of the Pledged Property or any part
thereof upon such terms as the Secured Party may deem commercially reasonable. The Company agrees
that, to the extent notice of sale or any other disposition of the Pledged Property shall be
required by law, at least ten (10) days’ notice to the Company of the time and place of any public
sale or the time after which any private sale or other disposition of the Pledged Property is to be
made shall constitute reasonable notification. The Secured Party shall not be obligated to make
any sale or other disposition of any Pledged Property regardless of notice of sale having been
given. The Secured Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so
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adjourned. The Company hereby waives any claims against the Secured Party arising by reason
of the fact that the price at which the Pledged Property may have been sold at a private sale was
less than the price which might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Secured Party accepts the first offer received and does not
offer such Pledged Property to more than one offeree, and waives all rights that the Company may
have to require that all or any part of such Pledged Property be marshaled upon any sale (public or
private) thereof. The Company hereby acknowledges that (i) any such sale of the Pledged Property
by the Secured Party may be made without warranty, (ii) the Secured Party may specifically disclaim
any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth
in clauses (i) and (ii) above shall not adversely affect the commercial reasonableness of any such
sale of Pledged Property.
(b) Any cash held by the Secured Party as Pledged Property and all cash proceeds received by
the Secured Party in respect of any sale of or collection from, or other realization upon, all or
any part of the Pledged Property shall be applied (after payment of any amounts payable to the
Secured Party pursuant to Section 8.3 hereof) by the Secured Party against, all or any part of the
Obligations in such order as the Secured Party shall elect, consistent with the provisions of the
Securities Purchase Agreement. Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after the indefeasible payment in full in cash of all of the Obligations shall be
paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent
jurisdiction shall direct.
(c) In the event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Secured Party is legally entitled, the Company shall
be liable for the deficiency, together with interest thereon at the rate specified in the
Convertible Debentures for interest on overdue principal thereof or such other rate as shall be
fixed by applicable law, together with the costs of collection and the reasonable fees, costs,
expenses and other client charges of any attorneys employed by the Secured Party to collect such
deficiency.
(d) The Company hereby acknowledges that if the Secured Party complies with any applicable
state, provincial, or federal law requirements in connection with a disposition of the Pledged
Property, such compliance will not adversely affect the commercial reasonableness of any sale or
other disposition of the Pledged Property.
(e) The Secured Party shall not be required to marshal any present or future collateral
security (including, but not limited to, this Agreement and the Pledged Property) for, or other
assurances of payment of, the Obligations or any of them or to resort to such collateral security
or other assurances of payment in any particular order, and all of the Secured Party’s rights
hereunder and in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To the extent that
the Company lawfully may, the Company hereby agrees that it will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the enforcement of the Secured
Party’s rights under this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the
Company hereby irrevocably waives the benefits of all such laws.
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Section 5.2 Duties Regarding Pledged Property.
The Secured Party shall have no duty as to the collection or protection of the Pledged
Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond
the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party’s
possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the Obligations have
been fully paid and satisfied or the Convertible Debentures have been fully converted, unless the
Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or proceed with due diligence with
any actions or courses of action, that may be reasonably necessary (i) to maintain Company’s due
organization, valid existence and good standing under the laws of its state of incorporation, and
(ii) to preserve and keep in full force and effect all qualifications, licenses and registrations
in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as
defined below); and (b) the Company shall not do, or cause to be done, any act impairing the
Company’s corporate power or authority (i) to carry on the Company’s business as now conducted, and
(ii) to execute or deliver this Agreement or any other document delivered in connection herewith,
including, without limitation, any UCC-1 Financing Statements required by the Secured Party (which
other loan instruments collectively shall be referred to as the “Loan Instruments”) to
which it is or will be a party, or perform any of its obligations hereunder or thereunder. For
purpose of this Agreement, the term “Material Adverse Effect” shall mean any material and
adverse affect as determined by Secured Party in its reasonable discretion, whether individually or
in the aggregate, upon (a) the Company’s assets, business, operations, properties or condition,
financial or otherwise; (b) the Company’s ability to make payment as and when due of all or any
part of the Obligations; or (c) the Pledged Property.
Section 6.2. Financial Statements and Reports.
The Company shall furnish to the Secured Party within a reasonable time such financial data as
the Secured Party may reasonably request.
Section 6.3. Accounts and Reports.
The Company shall maintain a standard system of accounting in accordance with generally
accepted accounting principles consistently applied (“GAAP”) and provide, at its sole expense, to
the Secured Party the following:
(a) as soon as available, a copy of any notice or other communication alleging any nonpayment
or other material breach or default, or any foreclosure or other action respecting any material
portion of its assets and properties, received respecting any of the indebtedness of
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the Company in excess of $500,000 (other than the Obligations), or any demand or other request
for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $500,000; and
(b) within fifteen (15) days after the making of each submission or filing, a copy of any
report, financial statement, notice or other document, whether periodic or otherwise, submitted to
the shareholders of the Company, or submitted to or filed by the Company with any governmental
authority involving or affecting (i) the Company that could reasonably be expected to have a
Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Property; or (iv) any
of the transactions contemplated in this Agreement or the Loan Instruments (except, in each case,
to the extent any such submission, filing, report, financial statement, notice or other document is
posted on XXXXX Online).
Section 6.4. Maintenance of Books and Records; Inspection.
The Company shall maintain its books, accounts and records in accordance with GAAP, and permit
the Secured Party, its officers and employees and any professionals designated by the Secured Party
in writing, at any time during normal business hours and upon reasonable notice to visit and
inspect any of its properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and
to discuss its accounts, affairs and finances with any employee, officer or director thereof (it
being agreed that, unless an Event of Default shall have occurred and be continuing, there shall be
no more than two (2) such visits and inspections in any Fiscal Year).
Section 6.5. Maintenance and Insurance.
(a) The Company shall maintain or cause to be maintained, at its own expense, all of its
material assets and properties in good working order and condition, ordinary wear and tear
excepted, making all necessary repairs thereto and renewals and replacements thereof.
(b) The Company shall maintain or cause to be maintained, at its own expense, insurance in
form, substance and amounts (including deductibles), which the Company deems reasonably necessary
to the Company’s business, (i) adequate to insure all assets and properties of the Company of a
character usually insured by persons engaged in the same or similar business against loss or damage
resulting from fire or other risks included in an extended coverage policy; (ii) against public
liability and other tort claims that may be incurred by the Company; (iii) as may be required by
the Transaction Documents and/or applicable law and (iv) as may be reasonably requested by Secured
Party, all with financially sound and reputable insurers.
Section 6.6. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to each instrument,
receivable, contract and other intangible included in the Pledged Property to which the Company is
now or hereafter will be party on a timely basis and in the manner therein required, including,
without limitation, this Agreement, except to the extent the failure to so perform such obligations
would not reasonably be expected to have a Material Adverse Effect.
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Section 6.7. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and to any part of: (a)
the Pledged Property; and (b) if not included within the Pledged Property, those assets and
properties whose loss would reasonably be expected to have a Material Adverse Effect, each against
all manner of claims and demands on a timely basis to the full extent permitted by applicable law
(other than any such claims and demands by holders of Permitted Liens).
Section 6.8. Taxes and Assessments.
The Company shall (a) file all material tax returns and appropriate schedules thereto that are
required to be filed under applicable law, prior to the date of delinquency (taking into account
any extensions of the original due date), (b) pay and discharge all material taxes, assessments and
governmental charges or levies imposed upon the Company, upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all
material taxes, assessments and governmental charges or levies that, if unpaid, might become a lien
or charge upon any of its properties; provided, however, that the Company in good faith may contest
any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and
(c) so long as appropriate reserves are maintained with respect thereto if and to the extent
required by GAAP.
Section 6.9. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned or used in connection
therewith in compliance with (a) all applicable federal, state and local laws, regulations and
ordinances governing such business operations and the use and ownership of such property, and (b)
all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or
by which the Company or any of its properties is bound, except where the failure to so comply would
not reasonably be expected to have a Material Adverse Effect.
Section 6.10. Notice of Default.
The Company shall give written notice to the Secured Party of the occurrence of any Event of
Default.
Section 6.11. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or
proceedings wherein the amount at issue is in excess of $250,000, instituted by any persons against
the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved
within fifteen (15) days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be expected to have a
Material Adverse Effect on the business operations or financial condition of the Company.
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Section 6.13. Future Subsidiaries.
If the Company shall hereafter create or acquire any subsidiary, simultaneously with the
creation or acquisition of such subsidiary, the Company shall cause such subsidiary to grant to the
Secured Party a security interest of the same tenor as created under this Agreement.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the Obligations have been
fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise
in writing:
Section 7.1. Liens and Encumbrances.
Directly or indirectly make, create, incur, assume or permit to exist any Lien in, to or
against any part of the Pledged Property other than Permitted Liens.
Section 7.2. Restriction on Redemption and Cash Dividends
Directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution
on its capital stock without the prior express written consent of the Secured Party.
Section 7.3. Incurrence of Indebtedness.
Directly or indirectly, incur or guarantee, assume or suffer to exist any indebtedness, other
than the indebtedness evidenced by the Convertible Debentures and other Permitted Indebtedness.
“Permitted Indebtedness” means: (i) indebtedness evidenced by Convertible Debentures; (ii)
indebtedness described on the Disclosure Schedule to the Securities Purchase Agreement; (iii)
indebtedness incurred solely for the purpose of financing the acquisition or lease of any equipment
by the Company, including capital lease obligations with no recourse other than to such equipment;
(iv) indebtedness (A) the repayment of which has been subordinated to the payment of the
Convertible Debentures on terms and conditions acceptable to the Secured Party, including with
regard to interest payments and repayment of principal, (B) which does not mature or otherwise
require or permit redemption or repayment prior to or on the 91st day after the maturity
date of any Convertible Debentures then outstanding; and (C) which is not secured by any assets of
the Company; (v) indebtedness solely between the Company and/or one of its domestic subsidiaries,
on the one hand, and the Company and/or one of its domestic subsidiaries, on the other which
indebtedness is not secured by any assets of the Company or any of its subsidiaries, provided that
(x) in each case a majority of the equity of any such domestic subsidiary is directly or indirectly
owned by the Company, such domestic subsidiary is controlled by the Company and such domestic
subsidiary has executed a security agreement in the form of this Agreement and (y) any such loan
shall be evidenced by an intercompany note that is pledged by the Company or its subsidiary, as
applicable, as collateral pursuant to this Agreement; (vi) reimbursement obligations in respect of
letters of credit issued for the account of the Company or any of its subsidiaries for the purpose
of securing performance obligations of the Company or its subsidiaries incurred in the ordinary
course of business so long as the aggregate
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face amount of all such letters of credit does not exceed $500,000 at any one time; and (vii)
renewals, extensions and refinancing of any indebtedness described in clauses (i) or (iii) of this
subsection.
Section 7.4. Places of Business.
Change the location of its chief place of business, chief executive office or any place of
business disclosed to the Secured Party, unless such change in location is to a different location
within the United States and the Company provides notice to the Secured Party of new location
within 10 days’ of such change in location.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given pursuant to this
Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery,
if delivered in person or by nationally recognized overnight delivery service or (b) five (5) days
after mailing if mailed from within the continental United States by certified mail, return receipt
requested to the party entitled to receive the same:
If to the Secured Party:
|
Cornell Capital Partners, LP | |
| 000 Xxxxxx Xxxxxx-Xxxxx 0000 | ||
| Xxxxxx Xxxx, Xxx Xxxxxx 00000 | ||
| Attention: Xxxx Xxxxxx | ||
Portfolio
Manager |
||
| Telephone: (000) 000-0000 | ||
| Facsimile: (000) 000-0000 | ||
With a copy to:
|
Xxxxx Xxxxxxxx, Esq. | |
| 000 Xxxxxx Xxxxxx, Xxxxx 0000 | ||
| Xxxxxx Xxxx, XX 00000 | ||
| Telephone: (000) 000-0000 | ||
| Facsimile: (000) 000-0000 |
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And if to the Company:
|
Advanced Viral Research Corp. | |
| 000 Xxxxxxxxx Xxxxxxxxx Xxxxx | ||
| Xxxxxxx, Xxx Xxxx 00000 | ||
| Attention: Xxxxxxx Xxxxxxxx | ||
| Telephone: (000) 000-0000 | ||
| Facsimile: (000) 000-0000 | ||
With a copy to:
|
Xxxxxx Xxxxxxx Xxxxx and Xxxxxxx, P.C. | |
| 29th Floor- Bank of America Tower at International Place | ||
| 000 X.X. Xxxxxx Xxxxxx | ||
| Xxxxx, Xxxxxxx 00000 | ||
| Attention: Xxxxxxx X. Xxxxxxx | ||
| Telephone: (000) 000-0000 | ||
| Facsimile: (000) 000-0000 |
Any party may change its address by giving notice to the other party stating its new address.
Commencing on the tenth (10th) day after the giving of such notice, such newly
designated address shall be such party’s address for the purpose of all notices or other
communications required or permitted to be given pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall not in any manner affect or render
invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall
be carried out as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured Party the amount of
any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its
counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of,
or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the
exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by
the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party’s delay or failure at any time or times hereafter to require strict
performance by Company of any undertakings, agreements or covenants shall not waive, affect, or
diminish any right of the Secured Party under this Agreement to demand strict compliance and
performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or
affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and
whether of the same or a different type. None of the undertakings, agreements and covenants of the
Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived
by the Secured Party, nor may this Agreement be amended,
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changed or modified, unless such waiver, amendment, change or modification is evidenced by an
instrument in writing specifying such waiver, amendment, change or modification and signed by the
Secured Party in the case of any such waiver, and signed by the Secured Party and the Company in
the case of any such amendment, change or modification.
Section 8.5. Continuing Security Interest.
(a) This Agreement shall create a continuing security interest in the Pledged Property and
shall: (i) remain in full force and effect until the occurrence of an Expiration Event; and (ii)
be binding upon the Company and its successors and heirs; and (iii) inure to the benefit of the
Secured Party and its successors and assigns. Upon the occurrence of an Expiration Event, the
Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall
not have been sold in accordance with Section 5.1 hereof or otherwise applied pursuant to the terms
hereof.
(b) Effective upon the closing of a disposition of any Pledged Property, provided the Secured
Party consents in writing prior to such disposition or such disposition is made in the ordinary
course of business, the security interest granted hereunder in the Pledged Property so disposed of
shall terminate and the Secured Party shall deliver such documents as the Company shall reasonably
request to evidence such termination; provided, however, the security interest granted hereunder in
all remaining Pledged Property shall remain in full force and effect.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had the opportunity to
receive independent legal counsel of its own choice and that it has been sufficiently apprised of
its rights and responsibilities with regard to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with the laws of the State
of Delaware without regard to the principles of conflict of laws. The parties further agree that
any action between them shall be heard in Xxxxxx County, New Jersey, and expressly consent to the
jurisdiction and venue of the Superior Court of New Jersey, sitting in Xxxxxx County and the United
States District Court for the District of New Jersey sitting in Newark, New Jersey for the
adjudication of any civil action asserted pursuant to this Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE
FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS
RELATED TO THIS TRANSACTION.
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Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and supersedes any prior
agreement or understanding among them with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date
first above written.
| COMPANY: | |||
| ADVANCED VIRAL RESEARCH CORP. | |||
| By: | /s/ Xxxxxxx Xxxxxxxx | ||
| Name: Xxxxxxx Xxxxxxxx | |||
| Title: Chief Executive Officer | |||
| SUBSIDIARY 1: | |||
| ADVANCE VIRAL RESEARCH, LTD. | |||
| By: | /s/ Xxxxxxx Xxxxxxxx | ||
| Name: Xxxxxxx Xxxxxxxx | |||
| Title: President | |||
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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date
first above written.
| SECURED PARTY: | |||
| CORNELL CAPITAL PARTNERS, LP | |||
| By: Yorkville Advisors, LLC | |||
| Its: General Partner | |||
| By: | /s/ Xxxx Xxxxxx | ||
| Name: Xxxx Xxxxxx | |||
| Title: Portfolio Manager | |||
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SCHEDULE I
LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OF ORGANIZATION
| State of | ||||||||||
| Company’s Name | Organization | Employer ID | Organizational ID | |||||||
| Delaware | ||||||||||
Advance Viral Research, Ltd. |
Bahamas | |||||||||
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EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by the Company of all
of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party
a continuing security interest in and to, and lien upon, the following property of the Company
existing as of the date hereof (collectively, the “Pledged Property”):
(a) all goods of the Company, including, without limitation, machinery, equipment, furniture,
furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and
description, now or hereafter owned by the Company or in which the Company may have or may
hereafter acquire any interest, and all replacements, additions, accessions, substitutions and
proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds
of insurance and of any tort claims involving any of the foregoing;
(b) all inventory of the Company, including, but not limited to, all goods, wares,
merchandise, parts, supplies, finished products, other tangible personal property, including such
inventory as is temporarily out of Company’s custody or possession and including any returns upon
any accounts or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing;
(c) all contract rights and general intangibles of the Company, including, without limitation,
goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture
interests, patents and patent applications, copyrights, deposit accounts whether now owned or
hereafter created;
(d) all documents, warehouse receipts, instruments and chattel paper of the Company whether
now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms of obligations and rights
to payment of the Company (herein collectively referred to as “Accounts”), together with
the proceeds thereof, all goods represented by such Accounts and all such goods that may be
returned by the Company’s customers, and all proceeds of any insurance thereon, and all guarantees,
securities and liens which the Company may hold for the payment of any such Accounts including,
without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid
vendor and/or lienor;
(f) to the extent assignable, all of the Company’s rights under all present and future
authorizations, permits, licenses and franchises issued or granted in connection with the
operations of any of its facilities;
(g) all equity interests, securities or other instruments in other companies, including,
without limitation, any subsidiaries, investments or other entities (whether or not controlled);
and
(h) all products and proceeds (including, without limitation, insurance proceeds) from the
above-described Pledged Property.
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