EXHIBIT 10.3
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT dated as of July 3, 2002 is entered
into by and between ADVANCED VIRAL RESEARCH CORPORATION., a Delaware
corporation, with headquarters located at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇ (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, INTER ALIA, by Rule 506 under Regulation
D ("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, the Company's 5% Convertible
Debenture in the principal amount of $1,000,000 (the "Debenture") of the Company
which will be convertible into shares of Common Stock, $.00001 par value per
share of the Company (the "Common Stock"), upon the terms and subject to the
conditions of such Debenture and subject to acceptance of this Agreement by the
Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE; CERTAIN DEFINITIONS.
(i) The undersigned hereby agrees to purchase the Debenture
having the terms and conditions and being in the form attached hereto as ANNEX
I.
(ii) Subject to the terms and conditions of this Agreement and
the other Transaction Agreements, the Buyer will purchase the Debenture on the
Closing Date (as defined below).
(iii) The purchase price to be paid by the Purchaser for the
Debenture shall be equal to $1,000,000 and shall be payable in United States
Dollars.
B. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
(i) "Closing Date" means the date of the closing of the
purchase and sale of the Debenture, as provided herein.
(ii) "Conversion Date" shall have the meaning ascribed to it
in the Debenture.
(iii) "Converted Shares" means the shares of Common Stock
issuable upon conversion of the Debenture.
(iv) "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as those terms are
defined in the Registration Rights Agreement defined below).
(v) "Market Price of the Common Stock," as used herein, means
the average closing bid price of the Common Stock for the five (5) trading days
ending on the trading day immediately before the Conversion Date (as reported by
Bloomberg, LP or, if not so reported, as reported on the over-the-counter
market).
(vi) "Purchase Price" means the purchase price for the
Debenture.
(vii) "Securities" means the Debenture and the Common Stock
issuable upon conversion of the Debenture.
(viii) "Shares" means the shares of Common Stock representing
any or all of the Converted Shares.
C. FORM OF PAYMENT; DELIVERY OF DEBENTURE.
(i) The Buyer shall pay the Purchase Price for the Debenture
by delivering immediately available good funds in United States Dollars to the
Company.
(ii) No later than the Closing Date, but in any event promptly
following payment by the Buyer of the Purchase Price, the Company shall deliver
the Debenture to the Buyer, duly executed on behalf of the Company and issued in
the name of the Buyer.
D. METHOD OF PAYMENT. Payment of the Purchase Price shall be
made by wire transfer of funds to an account designated by the Company.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
A. The Buyer is purchasing the Debenture and will be acquiring the
Shares for its own account for investment only and not with a view towards the
public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof.
B. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
C. All subsequent offers and sales of the Debenture and the Shares by
the Buyer shall be made pursuant to registration of the Shares under the 1933
Act or pursuant to an exemption from registration.
D. The Buyer understands that the Debenture is being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
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upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debenture.
E. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debenture and the offer of the
Shares which have been requested by the Buyer, including without limitation all
periodic and other reports filed by the Company under the Securities Exchange
Act of 1934. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Buyer has also had the opportunity to obtain and to review
the Company's filings with the SEC (collectively, the "Company's SEC
Documents").
F. The Buyer understands that its investment in the Securities involves
a high degree of risk.
G. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
H. The Buyer has the requisite corporate power and authority to enter
into this Agreement and the other Transaction Agreements. This Agreement and the
other Transaction Agreements to which the Buyer is a party have been duly and
validly authorized, executed and delivered on behalf of the Buyer and are valid
and binding agreements of the Buyer enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
I. Brokers, Finders. The Buyer has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby. The Company shall have no obligation with respect to such
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section 2(i) that may be due in connection
with the transactions contemplated hereby. The Buyer shall indemnify and hold
harmless each of the Company, its employees, officers, directors, agents, and
partners, and their respective affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as and when
incurred.
J. Legal Representation. The Buyer has had the opportunity to be
represented in this transaction by counsel of its own choice and has been so
advised by counsel for the Company.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer as of the date hereof
and as of the Closing Date that:
A. CONCERNING THE DEBENTURE AND THE SHARES. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Debenture or
the Shares.
B. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
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foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or financial condition or results of operation of the Company and its
subsidiaries taken as a whole.. The Company is obligated to file reports
pursuant to Section 15(d) of the 1934 Act. The Common Stock is listed and traded
on Over The Counter Bulletin Board Market. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such listing, and the Company has maintained all requirements for the
continuation of such listing.
C. AUTHORIZED SHARES. The authorized capital stock of the Company
consists of 1 billion shares of Common Stock, $.00001 par value per share, of
which approximately 430,783,353 shares had been issued as of the date hereof.
All issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to effect the
issuance of the Shares. The Shares have been duly authorized and, when issued
upon conversion of, or as interest on, the Debenture, each in accordance with
its respective terms, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder.
D. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND
STOCK. This Agreement and the Registration Rights Agreement, the form of which
is attached hereto as ANNEX II (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Debenture and the Registration Rights Agreement, when
executed and delivered by the Company, will be, valid and binding agreements of
the Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Debenture do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under (i) the
certificate of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material agreement
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the Common
Stock except as herein set forth, or (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, except such conflict, breach or default which would
not have a material adverse effect on the business, operations, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries, taken as a whole, or on the transactions contemplated herein.
F. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
G. SEC FILINGS. None of the Company's SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since January 1, 2001 timely filed all
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requisite forms, reports and exhibits thereto with the SEC. The financial
statements included in the Company's SEC Documents filed since January 1, 2001
fairly present the financial condition of the Company as of the respective dates
of such financial statements and the results of the Company's operations for the
respective periods then ended.
H. ABSENCE OF CERTAIN CHANGES. Since December 31, 2001, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 2001, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
I. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Documents) that has not been disclosed in writing to the Buyer
that (i) would reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole , (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to materially
and adversely affect the value of the rights granted to the Buyer in the
Transaction Agreements.
J. ABSENCE OF LITIGATION. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, operations, condition (financial or otherwise), or results
of operation of the Company and its subsidiaries taken as a whole or the
transactions contemplated by any of the Transaction Agreements or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements.
K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the business,
operations, condition (financial or otherwise), or results of operations of the
Company and its subsidiaries, taken as a whole.
L. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any convertible securities.
M. NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no liabilities
or obligations other than those disclosed in the Company's SEC Documents or
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those incurred in the ordinary course of the Company's business since December
31, 2001, and which individually or in the aggregate, do not or would not have a
material adverse effect on the properties, business, operations, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries, taken as a whole. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
N. NO DEFAULT. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound.
O. DILUTION. The number of Shares issuable upon conversion of the
Debenture may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines prior to the conversion of the Debenture. The Company's
executive officers and directors have studied and fully understand the nature of
the Securities being sold hereby and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded, in its
good faith business judgment that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
Shares upon conversion of the Debenture is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company, and the Company will honor every
Notice of Conversion (as defined in the Debenture) relating to the conversion of
the Debenture unless the Company is subject to an injunction (which injunction
was not sought by the Company) prohibiting the Company from doing so (in which
event Buyer will be entitled to pursue appropriate remedies for default by the
Company).
P. BROKERS, FINDERS. The Company has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by Buyer relating to this Agreement or the transactions
contemplated hereby. Buyer shall have no obligation with respect to such fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section 3(p) that may be due in connection with the
transactions contemplated hereby. The Company shall indemnify and hold harmless
each of Buyer, its employees, officers, directors, agents, and partners, and
their respective affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as and when incurred.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges the following:
(1) the Debenture is not transferable;
(2) the Shares issuable upon conversion of the Debenture
shall not be sold or otherwise transferred for a
period of one (1) year from the applicable Vesting
Date (as defined in the Debenture) (the "Lock-Up
Period");
(3) Buyer hereby acknowledges that Buyer is aware, and
that Buyer will advise his representatives, that the
United States securities laws prohibit any person who
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has received material, non-public information
concerning the Company from (i) purchasing or selling
securities of the Company, or (ii) communicating such
information to any other person under circumstances
in which it is reasonably foreseeable that such
person is likely to purchase or sell securities of
the Company;
(4) the Debenture has not been and are not being
registered under the provisions of the 1933 Act and,
except as provided in the Registration Rights
Agreement, the Shares have not been and are not being
registered under the 1933 Act, and may not be
transferred subsequent to the Lock-Up Period unless
(A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion
of counsel, reasonably satisfactory in form, scope
and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such
registration;
(5) any sale of the Securities made in reliance on Rule
144 promulgated under the 1933 Act may be made only
in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale
of such Securities under circumstances in which the
seller, or the person through whom the sale is made,
may be deemed to be an underwriter, as that term is
used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules
and regulations of the SEC thereunder; and
(6) neither the Company nor any other person is under any
obligation to register the Securities (other than
pursuant to the Registration Rights Agreement) under
the 1933 Act or to comply with the terms and
conditions of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Debenture and, until such time as the Common Stock has been registered under the
1933 Act as contemplated by the Registration Rights Agreement and sold in
accordance with an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES INCLUDING ANY UNDERLYING SECURITIES (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
D. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Buyer under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
E. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
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terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company will take all reasonable action under its control to
obtain and to continue the listing and trading of its Common Stock (including,
without limitation, all Registrable Securities) on the Over The Counter Bulletin
Board Market and will comply in all material respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the
National Association of Securities Dealers, Inc. ("NASD") or the Over The
Counter Bulletin Board Market.
F. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Debenture (excluding amounts paid by the Company for legal fees, finder's
fees and escrow fees in connection with the sale of the Debenture) for internal
working capital purposes, and, unless specifically consented to in advance in
each instance by the Buyer, the Company shall not, directly or indirectly, use
such proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person or for the repayment of any outstanding
loan by the Company to any other party.
G. AVAILABLE SHARES. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the aggregate of one hundred twenty percent (120%) of the
number of shares of Common Stock issuable at conversion as may be required to
satisfy the conversion rights of the Buyer pursuant to the terms and conditions
of the Debenture.
H. LIMITATION ON ISSUANCE OF SHARES. If applicable to the Company, the
Company may be limited in the number of shares of Common Stock it may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded (collectively, the "Cap Regulations"). Without limiting the
other provisions thereof, the Debenture shall provide that (i) the Company will
take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debenture without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
holder of a Debenture which can not be converted as result of the Cap
Regulations (each such Debenture, an "Unconverted Debenture") shall have the
option, exercisable in such holder's sole and absolute discretion, to elect
either of the following remedies:
(x) if permitted by the Cap Regulations, require the Company
to issue shares of Common Stock in accordance with such holder's notice
of conversion at a conversion purchase price equal to the average of
the closing price per share of Common Stock for any five (5)
consecutive trading days (subject to certain equitable adjustments for
certain events occurring during such period) during the sixty (60)
trading days immediately preceding the date of notice of conversion; or
(y) require the Company to redeem each Unconverted Debenture
for an amount (the "Cap Redemption Amount"), payable in cash, equal to
(i) one hundred ten percent (110.0%) of the principal of the
Unconverted Debenture, plus (ii) all accrued but unpaid interest on the
Debenture through the date of redemption (the "Cap Redemption Date")
specified in the notice from the holder electing this remedy.
A holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture. The Debenture shall
contain provisions substantially consistent with the above terms, with such
additional provisions as may be consented to by the Buyer. The provisions of
this paragraph are not intended to limit the scope of the provisions otherwise
included in the Debenture.
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5. TRANSFER AGENT INSTRUCTIONS.
A. The Company warrants that, with respect to the Securities, other
than the stop transfer instructions to give effect to Section 4(a) hereof, it
will give its transfer agent no instructions inconsistent with instructions to
issue Common Stock from time to time upon conversion of the Debenture in such
amounts as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Debenture. Except as so provided, the
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the 1933 Act, the Company
shall (except as provided in clause (2) of Section 4(a) of this Agreement)
permit the transfer of the Securities and, in the case of the Converted Shares,
promptly instruct the Company's transfer agent to issue one or more certificates
for Common Stock without legend in such name and in such denominations as
specified by the Buyer.
B. Subject to the provisions of this Agreement, the Company will permit
the Buyer to exercise its right to convert the Debenture in the manner
contemplated by the Debenture.
C. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
upon the request of the Buyer or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to the Buyer in connection with a Notice of Conversion, or
(ii) the number of outstanding shares of Common Stock of all stockholders as of
a current or other specified date. The Company will provide the Buyer with a
copy of the authorization so given to the transfer agent. While the Company will
use its best efforts to effectuate the transfer agent's compliance with such
authorization, the Company will not be responsible for the transfer agent's
failure to do so.
6. CLOSING DATE.
A. The Closing Date shall occur on the date which is the first NYSE
trading day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.
B. The closing of the purchase and issuance of Debenture shall occur on
the Closing Date at the offices of the Company and shall take place no later
than 3:00 P.M., New York time, on such day or such other time as is mutually
agreed upon by the Company and the Buyer.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Debenture to the Buyer pursuant to this Agreement on the Closing Date is
conditioned upon:
A. The execution and delivery of this Agreement by the Buyer;
B. Delivery by the Buyer to the Company of good funds as payment in
full of an amount equal to the Purchase Price for the Debenture in accordance
with this Agreement;
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C. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date;
D. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained; and
E. From and after the date hereof to and including the Closing Date,
the trading of the Common Stock shall not have been suspended by the SEC or the
NASD and trading in securities generally on the NYSE or the Over the Counter
Bulletin Board Market shall not have been suspended or limited, nor shall
minimum prices been established for securities traded on the Over the Counter
Bulletin Board Market, nor shall there be any outbreak or escalation of
hostilities involving the United States or any material adverse change in any
financial market that in either case in the reasonable judgment of the Company
makes it impracticable or inadvisable to sell the Debenture.
10
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Debenture on the Closing Date is conditioned upon:
A. The execution and delivery of this Agreement and the Registration
Rights Agreement by the Company;
B. Delivery by the Company to the Buyer of the Debenture in accordance
with this Agreement;
C. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
D. On the Closing Date, the Registration Rights Agreement shall be in
full force and effect and the Company shall not be in default thereunder;
E. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained; and
F. From and after the date hereof to and including the Closing Date,
the trading of the Common Stock shall not have been suspended by the SEC or the
NASD and trading in securities generally on the NYSE or the Over the Counter
Bulletin Board Market shall not have been suspended or limited, nor shall
minimum prices been established for securities traded on the Over the Counter
Bulletin Board Market, nor shall there be any outbreak or escalation of
hostilities involving the United States or any material adverse change in any
financial market that in either case in the reasonable judgment of the Buyer
makes it impracticable or inadvisable to purchase the Debenture.
9. MISCELLANEOUS.
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions.
B. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
C. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
D. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
E. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
11
F. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
G. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
H. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
I. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
J. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
K. The Company's and the Buyer's representations and warranties herein
shall survive the execution and delivery of this Agreement and the delivery of
the Certificates and the payment of the Purchase Price, and shall inure to the
benefit of the Buyer and the Company and their respective successors and
assigns.
L. Notices. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of:
(i) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile transmission,
(ii) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified mail, or
(iii) the third business day after mailing by domestic or
international express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: Advanced Viral Research Corp.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A.
▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
BUYER: At the address set forth on the signature page of
this Agreement.
12
THE PARTIES TO THIS AGREEMENT HAVE READ THIS AGREEMENT, HAVE HAD THE
OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL OF THEIR OWN CHOICE, AND
UNDERSTAND EACH OF THE PROVISIONS OF THIS AGREEMENT.
IN WITNESS WHEREOF, the undersigned represent that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf as of the date first written above.
BUYER: ADVANCED VIRAL RESEARCH CORP.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇ By: /s/ SHALOM Z. HIRCHMAN, M.D.
--------------------------- --------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇ Name: Shalom Z. Hirchman, M.D.
Title: President
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Tel No.: ▇▇▇-▇▇▇-▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
13
ANNEX I
FORM OF DEBENTURE
THESE SECURITIES INCLUDING ANY UNDERLYING SECURITIES (THE "SECURITIES")
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
NO. 1 US $1,000,000
ADVANCED VIRAL RESEARCH CORP.
5% CONVERTIBLE DEBENTURE DUE JULY 3, 2004
THIS DEBENTURE is issued by ADVANCED VIRAL RESEARCH CORP., a corporation
organized and existing under the laws of the State of Delaware (the "Company")
and is designated as its 5% Convertible Debenture, pursuant to a Securities
Purchase Agreement dated as of July 3, 2002 by and between the Company and the
Purchasers identified therein (the "Securities Purchase Agreement"). Capitalized
terms used but not defined herein shall have the meanings set forth in the
Securities Purchase Agreement.
1. AGREEMENT TO SUBSCRIBE AND PURCHASE PRICE.
FOR VALUE RECEIVED, the Company promises to pay to ▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇,
the registered holder hereof (the "Holder"), the principal sum of One Million
and 00/100 Dollars (US $1,000,000) on July 3, 2004 (the "Maturity Date") and to
pay interest on the principal sum outstanding in arrears (i) prior to the
Maturity Date, upon conversion as provided herein or (ii) on the Maturity Date,
at the rate of 5% per annum accruing from July 3, 2002, the date of initial
issuance of this Debenture. Accrual of interest shall commence on the first such
business day to occur after the date hereof and shall continue to accrue on a
daily basis until payment in full of the principal sum has been made or duly
provided for. The payment of accrued and unpaid interest shall be made in shares
of Common Stock at the Conversion Rate (as defined below) as of the Conversion
Date or the Maturity Date, as the case may be. No fractional shares of Common
Stock or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded to the nearest whole share.
2. TERMS OF CONVERSION OF DEBENTURE
(a) TERMS OF CONVERSION. The principal balance of this Debenture shall
be convertible by the Holder into shares of Common Stock as follows: 20%
commencing on the original issuance date of this Debenture, and an additional
20% commencing every six months thereafter. For purposes of this Debenture and
the Securities Purchase Agreement, the date upon which each such 20% of the
principal balance of the Debenture becomes convertible shall be referred to as a
"Vesting Date."
1
(b) CONVERSION RATE. The Holder of this Debenture is entitled, at its
option, subject to the following provisions of this Section, to convert this
Debenture into shares of Common Stock of the Company at a conversion price for
each share of Common Stock ("Conversion Rate") equal to:
(i) for the first 20% of the principal balance of this
Debenture, $0.1539 per share; and
(ii) for each additional 20% of the principal balance of
this Debenture, the higher of (A) ninety percent
(90%) of the Market Price (as defined below) on the
Conversion Date (as defined below) or (B) ten cents
($0.10) which amount is subject to adjustment as
provided herein.
For purposes of this Debenture, the term "Market Price" means the average
closing bid price of the Common Stock during the five (5) trading days ending on
the trading day immediately before the Conversion Date (as reported by
Bloomberg, LP or, if not so reported, as reported on the over-the-counter
market).
(c) MANNER OF CONVERSION. Conversion shall be effectuated by faxing a
Notice of Conversion to the Company in the form annexed hereto as EXHIBIT A (the
"Notice of Conversion"). The Notice of Conversion shall be executed by the
Holder of this Debenture and shall evidence such Holder's intention to convert
this Debenture or a specified portion hereof. Interest accrued or accruing from
the date of issuance to the date of conversion or to the Maturity Date, as the
case may be, shall be paid in shares of Common Stock at the Conversion Rate then
applicable as of the Conversion Date or the Maturity Date, as the case may be.
No fractional shares of Common Stock or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share. The date on which notice of conversion is given (the
"Conversion Date") shall be deemed to be the date on which the Holder faxes or
otherwise delivers the Notice of Conversion to the Company so that it is
received by the Company on or before such specified date, provided that, if such
conversion would convert the entire remaining principal of this Debenture, the
Holder shall deliver to the Company the original Debenture being converted no
later than five (5) business days thereafter. Facsimile delivery of the Notice
of Conversion shall be accepted by the Company at facsimile number (914)
376-7368; Attn: President. Certificates representing Common Stock upon
conversion will be delivered to the Holder at the address specified in the
Notice of Conversion (which may be the Buyer's address for notices as
contemplated by the Securities Purchase Agreement or a different address), via
express courier, by electronic transfer or otherwise, within three (3) business
days if the address for delivery is in the United States and within five (5)
business days if the address for delivery is outside the United States (such
third business day or fifth business day, as the case may be, the "Delivery
Date") after the date on which the Notice of Conversion is delivered to the
Company.
(d) AUTOMATIC CONVERSION. Any principal amount of this Debenture not
previously converted or redeemed as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind (including, but not
necessarily limited to, the giving of a Notice of Conversion) by the Holder, as
of the Maturity Date at the Conversion Rate applicable on the Maturity Date
("Mandatory Conversion").
(e) TAXES WITHHELD. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts required
to be withheld under the applicable provisions of the United States income tax
laws or other applicable laws at the time of such payments, and Holder shall
execute and deliver all required documentation in connection therewith.
2
(f) COMPLIANCE WITH SECURITIES ACT OF 1933. This Debenture has been
issued subject to investment representations of the original purchaser hereof
and may be transferred or exchanged only in compliance with the Securities Act
of 1933, as amended (the "Act"), other applicable state and foreign securities
laws and the terms of the Securities Purchase Agreement. In the event of any
proposed transfer of this Debenture, the Company may require, prior to issuance
of a new Debenture in the name of such other person, that it receive reasonable
transfer documentation including legal opinions from counsel reasonably
acceptable to the Company in form and substance reasonably acceptable to the
Company that the issuance of this Debenture in such other name does not and will
not cause a violation of the Act or any applicable state or foreign securities
laws. Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture is
duly registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
3. REDEMPTION OF DEBENTURE.
(a) RIGHT TO REDEEM. Notwithstanding any other provision hereof to the
contrary, at any time prior to the Conversion Date, the Company shall have the
right to redeem all or any portion of the then outstanding principal amount of
this Debenture then held by the Holder in shares of Common Stock at the
Conversion Rate as of the date of the Notice of Redemption (as defined below),
for an amount (the "Redemption Amount") equal to the sum of (a) one hundred ten
percent (110%) of the outstanding principal of such Debenture plus (b) all
accrued but unpaid interest thereon through the date the Redemption Amount is
paid to the Holder (the "Redemption Payment Date").
(b) NOTICE OF REDEMPTION. The Company shall give at least five (5)
business days' written notice of such redemption to the Holder (the "Notice of
Redemption"). The date so specified in such Notice of Redemption shall be the
Redemption Payment Date. Anything in the preceding provisions of this Section to
the contrary notwithstanding, the Redemption Amount shall, unless otherwise
agreed to in writing by the Holder after receiving the Notice of Redemption, be
paid to the Holder in good funds at least five (5) but not more than ten (10)
business days from the date of the Notice of Redemption, except that the Holder
shall have the right, exercisable by giving a Notice of Conversion is submitted
to the Company within five (5) business days of the Holder's receipt of the
Company's Notice of Redemption, to convert all or any portion of this Debenture
(a "Redemption Notice Conversion") and the Redemption Notice Conversion shall
take precedence over the redemption contemplated by the Notice of Redemption.
This Debenture shall be converted in accordance with the terms hereof.
4. LIMITATIONS ON ISSUANCE; CAP REGULATIONS.
(a) CAP REGULATIONS. The Holder recognizes that, if applicable to the
Company, the Company may be limited in the number of shares of Common Stock it
may issue by virtue of (a) the number of authorized shares, or (b) the
applicable rules and regulations of the principal securities market on which the
Common Stock is listed or traded (collectively, the "Cap Regulations"). Without
limiting the other provisions hereof, (w) the Company will take all steps
reasonably necessary to be in a position to issue shares of Common Stock on
conversion of this Debenture without violating the Cap Regulations and (x) if,
despite taking such steps, the Company still can not issue such shares of Common
Stock without violating the Issuance Regulations, the Holder of this Debenture
(to the extent the same can not be converted in compliance with the Issuance
Regulations (an "Unconverted Debenture"), shall have the option, exercisable in
such Holder's sole and absolute discretion, to elect either of the following
remedies:
3
(i) if permitted by the Cap Regulations, require the Company
to issue shares of Common Stock in accordance with such holder's notice
of conversion at a conversion purchase price equal to the average of
the closing price per share of Common Stock for any five (5)
consecutive trading days (subject to certain equitable adjustments for
certain events occurring during such period) during the sixty (60)
trading days immediately preceding the date of notice of conversion; or
(ii) require the Company to redeem each Unconverted Debenture
for an amount equal to the Redemption Amount, based on the date of
redemption (the "Cap Redemption Date") specified in the notice from the
Holder electing this remedy.
(b) NOTICE. The notice of exercise of this provision by the Holder
shall specify the Cap Redemption Date, which shall be at least five (5) business
days after the date of such notice; provided, however, that the Company shall
have the right to accelerate the Cap Redemption Date. The Holder of an
Unconverted Debenture may elect one of the above remedies with respect to a
portion of such Unconverted Debenture and the other remedy with respect to other
portions of the Unconverted Debenture.
5. EVENTS OF DEFAULT. The following shall constitute an "Event of
Default":
(a) The Company shall default in the payment of principal or interest
on this Debenture upon the terms hereof and same shall continue for a period of
five (5) business days; or
(b) Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights Agreement
or in any certificate or financial or other written statements heretofore or
hereafter furnished by the Company in connection with the execution and delivery
of this Debenture or the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made; or
(c) Subject to the terms of the Securities Purchase Agreement, the
Company fails to authorize or to cause its Transfer Agent to issue shares of
Common Stock upon exercise by the Holder of the conversion rights of the Holder
in accordance with the terms of this Debenture, fails to transfer or to cause
its Transfer Agent to transfer any certificate for shares of Common Stock issued
to the Holder upon conversion of this Debenture and when required by this
Debenture or the Registration Rights Agreement, and such transfer is otherwise
lawful, or fails to remove any restrictive legend on any certificate or fails to
cause its Transfer Agent to remove such restricted legend, in each case where
such removal is lawful, as and when required by this Debenture, the Agreement or
the Registration Rights Agreement, and any such failure shall continue uncured
for ten (10) business days; or
(d) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or obligation
of any Debenture in this series and such failure shall continue uncured for a
period of thirty (30) days after written notice from the Holder of such failure;
or
(e) The Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement or obligation of
the Company under the Securities Purchase Agreement or the Registration Rights
Agreement and such failure shall continue uncured for a period of thirty (30)
days after written notice from the Holder of such failure (other than a failure
to use the Company's best efforts to cause the Registration Statement to become
effective, as provided in the Registration Rights Agreement, as to which the
cure period shall be five (5) days after written notice from the Holder of such
failure); or
4
(f) The Company shall make an assignment for the benefit of creditors
or commence proceedings for its dissolution; or apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a substantial
part of its property or business; or
(g) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within ninety (90) days after such
appointment; or
(h) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within ninety (90) days thereafter; or
(i) Any money judgment, writ or warrant of attachment, or similar
process in excess of One Million Dollars ($1,000,000) in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(j) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within ninety (90) days
after such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding;
or
(k) The Company shall have its Common Stock suspended or delisted from
an exchange or over-the-counter market from trading for in excess of fifteen
(15) trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable in shares of Common Stock at the
Conversion Rate then applicable, without presentment, demand, protest or notice
of any kinds, all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law.
6. NO USURY.
In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
5
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section shall control every other provision
of this Debenture.
7. MISCELLANEOUS.
(a) NO RECOURSE. No recourse shall be had for the payment of the
principal of, or the interest on, this Debenture, or for any claim based hereon,
or otherwise in respect hereof, against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
(b) METHOD OF PAYMENTS OF COMMON STOCK. Each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder at the address last appearing on this Debenture Register of the Company
as designated in writing by the Holder from time to time; except that the Holder
can designate, by notice to the Company, a different delivery address for any
one or more specific payments or deliveries.
(c) CHANGE OF CONTROL. If, for as long as this Debenture remains
outstanding, the Company enters into a merger (other than where the Company is
the surviving entity) or consolidation with another corporation or other entity
or a sale or transfer of all or substantially all of the assets of the Company
to another person (collectively, a "Sale"), the Company will require, in the
agreements reflecting such transaction, that the surviving entity expressly
assume the obligations of the Company hereunder. Notwithstanding the foregoing,
if the Company enters into a Sale and the holders of the Common Stock are
entitled to receive stock, securities or property in respect of or in exchange
for Common Stock, then as a condition of such Sale, the Company and any such
successor, purchaser or transferee will agree that this Debenture may thereafter
be converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any such proposed
Sale, (i) the Holder hereof shall have the right to convert by delivering a
Notice of Conversion to the Company within fifteen (15) days of receipt of
notice of such Sale from the Company, except that Section 2(e) shall not apply
to such conversion.
(d) STOCK SPLITS. If, at any time while any portion of this Debenture
remains outstanding, the Company effectuates a stock split or reverse stock
split of its Common Stock or issues a dividend on its Common Stock consisting of
shares of Common Stock, the Conversion Rate shall be equitably adjusted to
reflect such action. By way of illustration, and not in limitation, of the
foregoing (i) if the Company effectuates a 2:1 split of its Common Stock,
thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such split, the Conversion Rate shall be deemed
to be one-half of what it had been calculated to be immediately prior to such
split; (ii) if the Company effectuates a 1:10 reverse split of its Common Stock,
thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such reverse split, the Conversion Rate shall be
deemed to be ten times what it had been calculated to be immediately prior to
6
such split; and (iii) if the Company declares a stock dividend of one share of
Common Stock for every 10 shares outstanding, thereafter, with respect to any
conversion for which the Company issues the shares after the record date of such
dividend, the Conversion Rate shall be deemed to be the amount of such
Conversion Rate calculated immediately prior to such record date multiplied by a
fraction, of which the numerator is the number of shares (10) for which a
dividend share will be issued and the denominator is such number of shares plus
the dividend share(s) issuable or issued thereon (11).
(e) REPRESENTATIONS OF HOLDER. The Holder of this Debenture, by
acceptance hereof, agrees that this Debenture is being acquired for investment
and that such Holder will not offer, sell or otherwise dispose of this Debenture
or the Shares of Common Stock issuable upon conversion thereof except under
circumstances which will not result in a violation of the Act or any applicable
state Blue Sky or foreign laws or similar laws relating to the sale of
securities.
(f) NO RIGHT TO VOTE OR TO RECEIVE DIVIDENDS. Nothing contained in this
Debenture shall be construed as conferring upon the Holder the right to vote or
to receive dividends or to consent or receive notice as a shareholder in respect
of any meeting of shareholders or any rights whatsoever as a shareholder of the
Company, unless and to the extent converted in accordance with the terms hereof.
(g) GOVERNING LAW. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on FORUM NON COVENIENS, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: July 3, 2002
ADVANCED VIRAL RESEARCH CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
Title: President
7
EXHIBIT A
NOTICE OF CONVERSION
OF
5% CONVERTIBLE DEBENTURE DUE JULY 3, 2004
(To be Executed by the Registered Holder in order to Convert this Debenture)
The undersigned hereby irrevocably elects to convert $____________ of
the principal amount of the above Debenture No. ___________ into Shares of
Common Stock of ADVANCED VIRAL RESEARCH CORP. (the "Company") according to the
conditions thereof, as of the date written below.
Conversion Date*: _____________
Applicable Conversion Rate: $__________
Holders Signature: ___________________________
Print Name: ___________________________
Address: ___________________________
___________________________
___________________________
* If this Notice of Conversion represents conversion of the outstanding
principal balance of this Debenture, the original Debenture must be received by
the Company or its transfer agent by the fifth business day following the
Conversion Date.
ANNEX II
REGISTRATION RIGHTS AGREEMENT
ANNEX II
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 3, 2002
(this "Agreement"), is made by and between ADVANCED VIRAL RESEARCH CORP., a
Delaware corporation, with headquarters located at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇ (the
"Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of July 3, 2002, between the Investor and the
Company (the "Securities Purchase Agreement"; capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Securities
Purchase Agreement), the Company has agreed to issue and sell to the Investor
its 5% Convertible Debenture in the principal amount of $1,000,000 (the
"Debenture"); and
WHEREAS, the Debenture is convertible into shares of Common Stock (the
"Conversion Shares"; which term, for purposes of this Agreement, shall include
shares of Common Stock of the Company issuable in lieu of accrued interest on
conversion as contemplated by the Debenture) upon the terms and subject to the
conditions contained in the Debenture; and
WHEREAS, to induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a registration statement
at such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
1
statement would be materially misleading absent the inclusion of such
information.
(b) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(c) "Registrable Securities" means the Conversion Shares.
(d) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. REGISTRATION.
(a) The Company shall use its best efforts to prepare and file
with the SEC as soon as possible after the Closing Date either a Registration
Statement on Form S-1or an amendment to an existing Registration Statement, in
either event registering for resale by the Investor a sufficient number of
shares of Common Stock for the Investor to sell the Registrable Securities (or
such lesser number as may be required by the SEC, but in no event less than the
aggregate number of shares equal to (A) one hundred twenty percent (120%) of the
number of shares into which the principal of the Debenture would be convertible
at the time of filing of such Registration Statement (assuming for such purposes
that the Debenture had been eligible to be converted, and had been converted
into Conversion Shares in accordance with their terms, whether or not such
issuance, eligibility or conversion had in fact occurred as of such date). The
Registration Statement shall state that, in accordance with Rule 416 and 457
under the Securities Act, it also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Debenture
to prevent dilution resulting from stock splits, or stock dividends.
(b) If at any time (an "Increased Registered Shares Date"),
the number of shares of Common Stock represented by the Registrable Shares,
issued or to be issued as contemplated by the Transaction Agreements, exceeds
the aggregate number of shares of Common Stock then registered, the Company
shall, within ten (10) business days after receipt of a written notice from any
Investor, either
(X) amend the Registration Statement filed by the
Company pursuant to the preceding provisions of this Section
2, if such Registration Statement has not been declared
effective by the SEC at that time, to register, in the
aggregate, at least the number of shares (the "Increased
Shares Amount") equal to (A) the number of shares theretofore
issued on conversion of the Debenture (including any interest
paid on conversion by the issuance of Conversion Shares), plus
(B) the sum of (I) __________ one hundred twenty (120___%) of
the number of shares into which the then unconverted Debenture
would be convertible at the time of relevant filing with the
SEC or as of the Increased Registered Shares Date, whichever
is higher computed as contemplated by the immediately
preceding subparagraph (a), or
(Y) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an
additional Registration Statement on Form S-1 or other
appropriate registration statement form (an "Additional
Registration Statement") to register the number of shares
2
equal to the excess of the Increased Shares Amount over the
aggregate number of shares of Common Stock already registered.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC a Registration
Statement with respect to not less than the number of Registrable Securities
provided in Section 2 above, and thereafter use its reasonable best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective and keep the Registration Statement effective at all times during the
period (the "Registration Period") continuing until the earliest of (i) the date
that is four (4) years after the last day of the calendar month following the
month in which the Effective Date occurs, (ii) the date when the Investor may
sell all Registrable Securities under Rule 144 without volume or other
restrictions or limits or (iii) the date the Investor no longer owns any of the
Registrable Securities, which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Permit a single firm of counsel designated by the Investor
to review the Registration Statement and all amendments and supplements thereto
a reasonable period of time (but not less than three (3) business days) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects;
(d) Notify Investor, such Investor's legal counsel identified
to the Company and which has requested by written notice to the Company that it
receive such notification (which, until further notice, shall be deemed to be
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇, ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, which firm has requested to receive such notification ("Investor's
Counsel"); and any managing underwriters immediately (and, in the case of (i)(A)
below, not less than two (2) business days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) business day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) whenever the SEC notifies the Company whether there will be a
"review" of such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
3
comments from the SEC in respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investor); and (D) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investor with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) business day in advance of the
filing of such responses with the SEC so that the Investor shall have the
opportunity to comment thereon;
(e) Furnish to Investor and Investor's Counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement thereto,
and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(f) As promptly as practicable after becoming aware thereof,
notify Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to Investor as Investor may reasonably request;
(g) As promptly as practicable after becoming aware thereof,
notify Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investor in writing of the existence of a Potential
Material Event, the Investor shall not offer or sell any Registrable Securities,
or engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; PROVIDED, HOWEVER, that the
Company may not so suspend the right to such holders of Registrable Securities
during the periods the Registration Statement is required to be in effect other
4
than during a Permitted Suspension Period. The term "Permitted Suspension
Period" means up to two suspension periods during any consecutive 12-month
period, each of which suspension period shall not either (i) be for more than
thirty (30) days or (ii) begin less than ten (10) business days after the last
day of the preceding suspension (whether or not such last day was during or
after a Permitted Suspension Period); provided further that the Company shall,
if lawful to do so, provide the Investor with at least two (2) business days'
notice of the existence (but not the substance of) a Potential Material Event;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "Over the Counter Bulletin Board Market" of the National
Association of Securities Dealers Automated Quotations System within the meaning
of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the quotation of the Registrable Securities on The
Over the Counter Bulletin Board Market; and, without limiting the generality of
the foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities;
(j) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(k) Cooperate with the Investor who holds Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investor may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investor whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(l) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTOR. In connection with the registration of
the Registrable Securities, the Investor shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least ten (10) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify Investor of the information the
Company requires from each such Investor (the "Requested Information") if such
Investor elects to have any of such Investor's Registrable Securities included
in the Registration Statement. If at least two (2) business days prior to the
filing date the Company has not received the Requested Information from an
Investor (a "Non-Responsive Investor"), then the Company may file the
Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
5
(c) Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless Investor who holds such Registrable Securities, the directors,
if any, of such Investor, the officers, if any, of such Investor, each person,
if any, who controls any Investor within the meaning of the Securities Act or
the Securities Exchange Act of 1934, as amended (the "Exchange Act")Exchange Act
(each, an "Indemnified Person" or "Indemnified Party"), against any losses,
claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investor, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto,
after such prospectus was made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on a failure of the
6
Investor to deliver or cause to be delivered the prospectus made available by
the Company or the amendment or supplement thereto made available by the
Company; (III) be available to the extent such Claim is based on the delivery of
a prospectus by the Investor after receiving notice from the Company under
Section 3(e), (f) or (g) hereof (other than a notice regarding the effectiveness
of the Registration Statement or any amendment or supplement thereto), or (IV)
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Investor will indemnify the Company and its
officers, directors and agents (each, an "Indemnified Person" or "Indemnified
Party") against any claims arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information furnished in writing to the
Company, by or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement or the amendment or supplement
thereto, subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company to this Section 6. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party provided such
counsel is of the opinion that all defenses available to the Indemnified Party
can be maintained without prejudicing the rights of the indemnifying party. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; PROVIDED,
HOWEVER, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
7
Securities who was not guilty of such fraudulent misrepresentation; and (c)
except where the seller has committed fraud (other than a fraud by reason of the
information included or omitted from the Registration Statement as to which the
Company has not given notice as contemplated under Section 3 hereof) or
intentional misconduct, contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. SEC REPORTS. With a view to making available to the Investor the
benefits of Rule 144 promulgated under the Securities Act or any other similar
rule or regulation of the SEC that may at any time permit the Investor to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to Investor so long as Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investor to sell such securities pursuant to Rule 144 without registration.
9. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investor. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon the Investor and the
Company.
10. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Agreement, (i) if to the Company or
to the Investor, to their respective address contemplated by the Agreement, and
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 10(b).
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
8
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on FORUM NON COVENIENS, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Buyer for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under this
Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investor, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
ADVANCED VIRAL RESEARCH CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
Title: President
INVESTOR:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ III
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