EX-10.1 Securities Purchase Agreement



 





EXHIBIT 10.1




SECURITIES PURCHASE AGREEMENT




     THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of July 24, 2007, by
and among ADVANCED VIRAL RESEARCH CORP., a Delaware corporation (the “Company”), and the
Buyer listed on Schedule I attached hereto (individually, a “Buyer”).



WITNESSETH




     WHEREAS, the Company and the Buyer is executing and delivering this Agreement in reliance upon
an exemption from securities registration pursuant to Section 4(2) and/or Rule 506 of Regulation D
(“Regulation D”) as promulgated by the U.S. Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”);



     WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Buyer, as provided herein, and the Buyer shall
purchase up to Seven Hundred Fifty Thousand Dollars ($750,000) of series A secured convertible
debentures in the form attached hereto as Exhibit A-1 (the “Series A Convertible
Debentures”) and Two Million Dollars ($2,000,000) of series B secured convertible debentures in
the form attached hereto as Exhibit A-2 (the “Series B Convertible Debentures” and
collectively along with the Series A Convertible Debentures, the “Convertible Debentures”),
each which shall be convertible into shares of the Company’s common stock, par value $0.00001 (the
“Common Stock”) (as converted, the “Conversion Shares”) of which Seven Hundred
Fifty Thousand Dollars ($750,000) of Series A Convertible Debentures and Seven Hundred Fifty
Thousand Dollars ($750,000) of Series B Convertible Debentures shall be purchased within two (2)
business days following the date hereof (the “First Closing”), Six Hundred Twenty Five
Thousand Dollars ($625,000) of Series B Convertible Debentures shall be purchased on the date the
registration statement (the “Registration Statement”) is filed, pursuant to the
Registration Rights Agreement dated the date hereof, with the United States Securities and Exchange
Commission (the “SEC”) (the “Second Closing”) and Six Hundred Twenty Five Thousand
Dollars ($625,000) of Series B Convertible Debentures shall be purchased on the date the
Registration Statement is declared effective by the SEC (the “Third Closing”)
(individually referred to as a “Closing” collectively referred to as the
“Closings”), for a total purchase price of Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000), (the “Purchase Price”) in the respective amounts set forth opposite each
Buyer(s) name on Schedule I (the “Subscription Amount”); and



     WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement (the “Registration Rights
Agreement”) pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated there under, and applicable
state securities laws; and



     WHEREAS, the Convertible Debentures are secured by a security interest in all of the assets of
the Company and of each of the Company’s subsidiaries as pursuant to the Security Agreement dated
January 1, 2007 (the “Security Agreement”) and the corresponding financing statement on
Form UCC-1 Filing No. 2007 0063452 filed with the Delaware Department of State UCC Filing Section
on January 5, 2007; and



 









 





     WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering Irrevocable Transfer Agent Instructions (the “Irrevocable
Transfer Agent Instructions”).



     NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in
this Agreement the Company and the Buyer(s) hereby agree as follows:



          1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.




               (a) Purchase of Convertible Debentures. Subject to the satisfaction (or waiver) of
the terms and conditions of this Agreement, the Buyer agrees to purchase at each Closing and the
Company agrees to sell and issue to the Buyer at each Closing, Convertible Debentures as set forth
opposite the Buyer’s name on Schedule I hereto.




               (b) Closing Date. The First Closing of the purchase and sale of the Convertible
Debentures shall take place at 10:00 a.m. Eastern Standard Time on the second (2nd)
business day following the date hereof, subject to notification of satisfaction of the conditions
to the First Closing set forth herein and in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyer) (the “First Closing Date”), the Second
Closing of the purchase and sale of the Convertible Debentures shall take place at 4:00 p.m.
Eastern Standard Time on the date the Registration Statement is filed with the SEC, subject to
notification of satisfaction of the conditions to the Second Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyer)
(the “Second Closing Date”), and the Third Closing of the purchase and sale of the
Convertible Debentures shall take place at 4:00 p.m. Eastern Standard Time on the date the
Registration Statement is declared effective by the SEC, subject to notification of satisfaction of
the conditions to the Third Closing set forth herein and in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and the Buyer) (the “Third Closing Date”)
(collectively referred to a the “Closing Dates”). The Closing shall occur on the
respective Closing Dates at the offices of Yorkville Advisors, LLC, 3700 Hudson Street, Suite 3700,
Jersey City, New Jersey 07302 (or such other place as is mutually agreed to by the Company and the
Buyer).




               (c) Form of Payment. Subject to the satisfaction of the terms and conditions of this
Agreement, on the Closing Dates, (i) the Buyers shall deliver to the Company such aggregate
proceeds for the Convertible Debentures to be issued and sold to such Buyer(s), minus the fees to
be paid directly from the proceeds of the Closings as set forth herein, and (ii) the Company shall
deliver to each Buyer, Convertible Debentures which such Buyer(s) is purchasing in amounts
indicated opposite such Buyer’s name on Schedule I, duly executed on behalf of the Company.




          2. BUYER’S REPRESENTATIONS AND WARRANTIES.




     Buyer represents and warrants that:



               (a) Investment Purpose. Buyer is acquiring the Convertible Debentures and, upon
conversion of Convertible Debentures, the Buyer will acquire the Conversion Shares then issuable,
for its own account for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales registered or exempted
under the Securities Act; provided, however, that by making the representations herein, the Buyer
reserves the right to dispose of the Conversion Shares at any time in accordance with or pursuant
to an effective registration statement covering such Conversion Shares or an available exemption
under the Securities Act.




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               (b) Accredited Investor Status. Buyer is an “Accredited Investor” as that term is
defined in Rule 501(a)(3) of Regulation D.




               (c) Reliance on Exemptions. Buyer understands that the Convertible Debentures are
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 in part upon the
truth and accuracy of, and Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in order to determine the availability
of such exemptions and the eligibility of Buyer to acquire such securities.




               (d) Information. Buyer and its advisors (and his or, its counsel), if any, have been
furnished with all materials relating to the business, finances and operations of the Company and
information he deemed material to making an informed investment decision regarding his purchase of
the Convertible Debentures and the Conversion Shares, which have been requested by Buyer. Buyer
and its advisors, if any, have been afforded the opportunity to ask questions of the Company and
its management. Neither such inquiries nor any other due diligence investigations conducted by
Buyer or its advisors, if any, or its representatives shall modify, amend or affect Buyer’s right
to rely on the Company’s representations and warranties contained in Section 3 below. Buyer
understands that its investment in the Convertible Debentures and the Conversion Shares involves a
high degree of risk. Buyer is in a position regarding the Company, which, based upon economic
bargaining power, enabled and enables Buyer to obtain information from the Company in order to
evaluate the merits and risks of this investment. Buyer has sought such accounting, legal and tax
advice, as it has considered necessary to make an informed investment decision with respect to its
acquisition of the Convertible Debentures and the Conversion Shares.




               (e) No Governmental Review. 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 Convertible Debentures or the Conversion Shares, or the fairness or suitability
of the investment in the Convertible Debentures or the Conversion Shares, nor have such authorities
passed upon or endorsed the merits of the offering of the Convertible Debentures or the Conversion
Shares.




               (f) Transfer or Resale. Buyer understands that except as provided in the Registration
Rights Agreement: (i) the Convertible Debentures have not been and are not being registered under
the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect that such securities
to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption
from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144
under the Securities Act (or a successor rule thereto) (“Rule 144”) may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 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 defined in the Securities Act) may
require compliance with some other exemption under the Securities Act or the rules and regulations
of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation
to register such securities under the Securities Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder. The Company reserves the right to place stop
transfer instructions against the shares and certificates for the Conversion Shares.




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               (g) Legends. Buyer understands that the certificates or other instruments
representing the Convertible Debentures and or the Conversion Shares shall bear a restrictive
legend in
substantially the following form (and a stop transfer order may be placed against transfer of
such stock certificates):





     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.


The legend set forth above shall be removed and the Company within four (4) business days shall
issue a certificate without such legend to the holder of the Conversion Shares upon which it is
stamped, if, unless otherwise required by state securities laws, (i) in connection with a sale
transaction, provided the Conversion Shares are registered under the Securities Act or (ii) in
connection with a sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale, assignment or transfer of the Conversion
Shares may be made without registration under the Securities Act.




               (h) Authorization, Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding agreement of Buyer
enforceable in accordance with its terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.




               (i) Receipt of Documents. Buyer and his or its counsel has received and read in their
entirety: (i) this Agreement and each representation, warranty and covenant set forth herein and
the Transaction Documents (as defined herein); (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations, warranties and
covenants; (iii) the Company’s Form 10-K for the fiscal year ended December 31, 2006; (iv) the
Company’s Form 10-Q for the fiscal quarter ended March 31, 2007 and (v) answers to all questions
Buyer submitted to the Company regarding an investment in the Company; and Buyer has relied on the
information contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.




               (j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a corporation,
trust, partnership or other entity that is not an individual person, it has been formed and validly
exists and has not been organized for the specific purpose of purchasing the Convertible Debentures
and is not prohibited from doing so.




               (k) No Legal Advice From the Company. Buyer acknowledges, that it had the opportunity
to review this Agreement and the transactions contemplated by this Agreement with his or its own
legal counsel and investment and tax advisors. Buyer is relying solely on such counsel and
advisors and not on any statements or representations of the Company or any of its representatives
or
agents for legal, tax or investment advice with respect to this investment, the transactions
contemplated by this Agreement or the securities laws of any jurisdiction.





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               (l) Buyer represents and warrants that at no time prior to the date of this Agreement has any
of the Buyer, its agents, representatives or affiliates engaged in or effected, in any manner
whatsoever, directly or indirectly, any (i) “short sale” (as such term is defined in Section
242.200 of Regulation SHO of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) of
the Common Stock of the Company; or (ii) hedging transaction, which establishes a net short
position with respect to the Common Stock of the Company.




          3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.




     The Company represents and warrants as of the date hereof to the Buyer that, except as set
forth in the SEC Documents (as defined herein) or in the Disclosure Schedule attached hereto (the
“Disclosure Schedule”):



               (a) Organization and Qualification. The Company and its subsidiaries are corporations
duly organized and validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power to own their properties and to carry
on their business as now being conducted. Each of the Company and its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole.




               (b) Authorization, Enforcement, Compliance with Other Instruments. (i) The Company
has the requisite corporate power and authority to enter into and perform this Agreement, the
Security Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent Agreement,
and any related agreements (collectively the “Transaction Documents”) and to issue the Convertible
Debentures and the Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debentures the Conversion Shares and the reservation for issuance and the issuance
of the Conversion Shares issuable upon conversion or exercise thereof, have been duly authorized by
the Company’s Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders, (iii) the Transaction Documents have been duly
executed and delivered by the Company, (iv) the Transaction Documents constitute the valid and
binding obligations of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies. The authorized officer of
the Company executing the Transaction Documents knows of no reason why the Company cannot file the
registration statement as required under the Registration Rights Agreement or perform any of the
Company’s other obligations under such documents.




               (c) Capitalization. The authorized capital stock of the Company consists of two
billion (2,000,000,000) shares of Common Stock, of which seven hundred thirty-nine million seven
hundred five thousand one hundred fifty-eight (739,705,158) shares of Common Stock are issued and
outstanding. The Company is considering requesting its stockholders to approve an amendment to its
Certificate of Incorporation authorizing additional shares of capital stock and/or a reverse stock
split of its outstanding shares of capital stock. All of such outstanding shares have been validly
issued and are fully


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paid and nonassessable. No shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the Company. As of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock of the Company or
any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities under the Securities Act
(except pursuant to the Registration Rights Agreement) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from the SEC or any other
regulatory agency. There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Convertible Debentures as described in
this Agreement. The Company has furnished to the Buyer true and correct copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or exercisable for Common
Stock and the material rights of the holders thereof in respect thereto other than stock options
issued to employees and consultants and as disclosed in the attached Disclosure Schedule 3(c).




               (d) Issuance of Securities. The Convertible Debentures are duly authorized and, upon
issuance in accordance with the terms hereof, shall be duly issued, fully paid and nonassessable,
are free from all taxes, liens and charges with respect to the issue thereof. The Conversion
Shares issuable upon conversion of the Convertible Debentures have been duly authorized and
reserved for issuance. Upon conversion or exercise in accordance with the Convertible Debentures
the Conversion Shares will be duly issued, fully paid and nonassessable.




               (e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with or constitute a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the rules and regulations
of The National Association of Securities Dealers Inc.’s OTC Bulletin Board on which the Common
Stock is quoted) applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected. Neither the Company nor its
subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or
By-laws or their organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries. The business of the Company and
its subsidiaries is not being conducted, and shall not be conducted in violation of any material
law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the Securities Act and any applicable state securities laws,
the Company is not required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement
in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or
prior to the date hereof. The Company and its subsidiaries are unaware of any facts or
circumstance, which might give rise to any of the foregoing.




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               (f) SEC Documents: Financial Statements. Since January 1, 2003, the Company has filed
all reports, schedules, forms, statements and other documents required to be filed by it with the
SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the
foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to as the “SEC Documents”). The Company has delivered
to the Buyers or their representatives, or made available through the SEC’s website at
http://www.sec.gov., true and complete copies of the SEC Documents. As of their respective dates,
the financial statements of the Company disclosed in the SEC Documents (the “Financial
Statements”) complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may be otherwise
indicated in such Financial Statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed or summary
statements) and, fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not included in the SEC
Documents, including, without limitation, information referred to in this Agreement, contains any
untrue statement of a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were made, not
misleading.




               (g) 10(b)-5. The SEC Documents do not include any untrue statements of material fact,
nor do they omit to state any material fact required to be stated therein necessary to make the
statements made, in light of the circumstances under which they were made, not misleading.




               (h) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the Company’s
subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse
effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability
of, or the authority or ability of the Company to perform its obligations under, this Agreement or
any of the documents contemplated herein, or (iii) have a material adverse effect on the business,
operations, properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.




               (i) Acknowledgment Regarding Buyer’s Purchase of the Convertible Debentures. The
Company acknowledges and agrees that the Buyer(s) is acting solely in the capacity of an arm’s
length purchaser with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Buyer(s) or any of their respective representatives
or agents in connection with this Agreement and the transactions contemplated hereby is merely
incidental to such Buyer’s purchase of the Convertible Debentures or the Conversion Shares. The
Company further represents to the Buyer that the Company’s decision to enter into this Agreement
has been based solely on the independent evaluation by the Company and its representatives.




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               (j) No General Solicitation. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of the Convertible Debentures or the Conversion Shares.




               (k) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that would require
registration of the Convertible Debentures or the Conversion Shares under the Securities Act or
cause this offering of the Convertible Debentures or the Conversion Shares to be integrated with
prior offerings by the Company for purposes of the Securities Act.




               (l) Employee Relations. Neither the Company nor any of its subsidiaries is involved
in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such
dispute threatened. None of the Company’s or its subsidiaries’ employees is a member of a union
and the Company and its subsidiaries believe that their relations with their employees are good.




               (m) Intellectual Property Rights. The Company and its subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service mark registrations,
trade secret or other similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company’s knowledge, being
threatened against, the Company or its subsidiaries regarding trademark, trade name, patents,
patent rights, invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing.




               (n) Environmental Laws. The Company and its subsidiaries are (i) in compliance with
any and all applicable foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval.




               (o) Title. Any real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.




               (p) Insurance. The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue
its business at a cost that would not materially and adversely affect the condition, financial
or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as
a whole.




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               (q) Regulatory Permits. The Company and its subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and neither the Company
nor any such subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.




               (r) Internal Accounting Controls. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset accountability, and (iii) the
recorded amounts for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.




               (s) No Material Adverse Breaches, etc. Neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company’s officers has or is
expected in the future to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its subsidiaries.
Neither the Company nor any of its subsidiaries is in breach of any contract or agreement which
breach, in the judgment of the Company’s officers, has or is expected to have a material adverse
effect on the business, properties, operations, financial condition, results of operations or
prospects of the Company or its subsidiaries.




               (t) Tax Status. The Company and each of its subsidiaries has made and filed all
federal and state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the Company and each of
its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due
by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for
any such claim.




               (u) Certain Transactions. Except for arm’s length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less favorable than the
Company could obtain from third parties and other than the grant of stock options disclosed in the
SEC Documents, none of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner.




               (v) Fees and Rights of First Refusal. The Company is not obligated to offer the
securities offered hereunder on a right of first refusal basis or otherwise to any third parties
including,
but not limited to, current or former shareholders of the Company, underwriters, brokers,
agents or other third parties.




9









 








          4. COVENANTS.




               (a) Best Efforts. Each party shall use its best efforts to timely satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.




               (b) Form D. The Company agrees to file a Form D with respect to the Conversion Shares
as required under Regulation D and to provide a copy thereof to Buyer within five (5) days of
closing. The Company shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States, specifically those of New York
and New Jersey, and shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date.




               (c) Reporting Status. Until the earlier of (i) the date as of which the Buyer(s) may
sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the
Securities Act (or successor thereto), or (ii) the date on which (A) the Buyer(s) shall have sold
all the Conversion Shares and (B) none of the Convertible Debentures are outstanding (the
“Registration Period”), the Company shall file in a timely manner all reports required to
be filed with the SEC pursuant to the Exchange Act and the regulations of the SEC thereunder, and
the Company shall not terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such
termination.




               (d) Use of Proceeds. The Company will use the proceeds from the sale of the
Convertible Debentures for general corporate and working capital purposes.




               (e) Reservation of Shares. On the date hereof, the Company shall reserve for issuance
to the Buyers 190,000,000 shares for issuance upon conversions of the Convertible Debentures and
upon exercise of the Warrants (collectively, the “Share Reserve”). The Company represents
that it has sufficient authorized and unissued shares of Common Stock available to create the Share
Reserve after considering all other commitments that may require the issuance of Common Stock. The
Company shall take all action reasonably necessary to at all times have authorized, and reserved
for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect
the full conversion of the Convertible Debentures and the full exercise of the Warrants. If at any
time the Share Reserve is insufficient to effect the full conversion of the Convertible Debentures
or the full exercise of the Warrants, the Company shall increase the Share Reserve accordingly. If
the Company does not have sufficient authorized and unissued shares of Common Stock available to
increase the Share Reserve, the Company shall call and hold a special meeting of the shareholders
within thirty (30) days of such occurrence, for the sole purpose of increasing the number of shares
authorized. The Company’s management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall also vote all of its
shares in favor of increasing the number of authorized shares of Common Stock.




               (f) Listings or Quotation. The Company’s Common Stock shall be listed or quoted for
trading on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq
Global Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (“OTC”) (each, a
“Primary Market”) and the Company shall promptly secure the listing or quotation of the
Conversion Shares and Warrant Shares for trading on the same Primary Market upon which the
shares of Common Stock are then listed or quoted.




10









 








               (g) Fees and Expenses.




                    (i) Each of the Company and the Buyer(s) shall pay all costs and expenses incurred by such
party in connection with the negotiation, investigation, preparation, execution and delivery of the
Transaction Documents. The Company shall pay Yorkville Advisors, LLC a fee equal to ten percent
(10%) of the Purchase Price which shall be paid pro rata directly from the gross proceeds of each
Closing.




                    (ii) The Company shall pay a structuring fee to Yorkville Advisors, LLC of Fifteen Thousand
Dollars ($15,000), which shall be paid directly from the proceeds of the First Closing.




                    (iii) The Company shall pay Yorkville Advisors, LLC a non-refundable due diligence fee of Five
Thousand Dollars ($5,000) which shall be paid directly from the proceeds of the First Closing.




                    (iv) On the date hereof, the Company shall issue to the Buyer a warrant to purchase 24,038,462
shares of the Company’s Common Stock for a period of five (5) years at an exercise price of $0.0312
per share and a warrant to purchase 76,335,878 shares of the Company’s Common Stock for a period of
five (5) years at an exercise price of $0.0262 per share (individually referred to as the
“Warrant” collectively referred to as the “Warrants”). The shares of Common Stock
issuable under the Warrants shall collectively be referred to as the “Warrant Shares”.




               (h) Corporate Existence. So long as any of the Convertible Debentures remain
outstanding, the Company shall not directly or indirectly consummate any merger, reorganization,
restructuring, reverse stock split consolidation, sale of all or substantially all of the Company’s
assets or any similar transaction or related transactions (each such transaction, an
“Organizational Change”) unless, prior to the consummation an Organizational Change, the Company
obtains the written consent of each Buyer. In any such case, the Company will make appropriate
provision with respect to such holders’ rights and interests to insure that the provisions of this
Section 4(h) will thereafter be applicable to the Convertible Debentures.




               (i) Transactions With Affiliates. So long as any Convertible Debentures are
outstanding, the Company shall not, and shall cause each of its subsidiaries not to, enter into,
amend, modify or supplement, or permit any subsidiary to enter into, amend, modify or supplement
any agreement, transaction, commitment, or arrangement with any of its or any subsidiary’s
officers, directors, person who were officers or directors at any time during the previous two (2)
years, stockholders who beneficially own five percent (5%) or more of the Common Stock, or
Affiliates (as defined below) or with any individual related by blood, marriage, or adoption to any
such individual or with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a “Related Party”), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement, transaction, commitment, or arrangement which is approved by a
majority of the disinterested directors of the Company; for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a disinterested
director with respect to any such agreement, transaction, commitment, or arrangement. “Affiliate”
for purposes hereof means, with respect to any person or entity,


11









 







another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more
equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with
that person or entity, (iii) controls that person or entity, or (iv) shares common control with
that person or entity. “Control” or “controls” for purposes hereof means that a person or entity
has the power, direct or indirect, to conduct or govern the policies of another person or entity.




               (j) Transfer Agent. The Company covenants and agrees that, in the event that the
Company’s agency relationship with the transfer agent should be terminated for any reason prior to
a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new
transfer agent and shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).




               (k) Restriction on Issuance of the Capital Stock. So long as any Convertible
Debentures are outstanding, the Company shall not, without the prior written consent of the
Buyer(s), (i) issue or sell shares of Common Stock or Preferred Stock without consideration or for
a consideration per share less than the Fixed Price, as defined in the Convertible Debentures, (ii)
issue any preferred stock, warrant, option, right, contract, call, or other security or instrument
granting the holder thereof the right to acquire Common Stock without consideration or for a
consideration less than the Fixed Price, as defined in the Convertible Debentures,, (iii) enter
into any security instrument granting the holder a security interest in any and all assets of the
Company, or (iv) file any registration statement on Form S-8.




               (l) No Short Sales. Neither the Buyer(s) nor any of its affiliates have an open short
position in the Common Stock of the Company, and the Buyer agrees that beginning on the date of
this Agreement and ending on the later to occur of Buyer or Buyer’s affiliates no longer having
any beneficial ownership of any of the securities sold hereunder, including shares issuable upon
exercise or conversion of the securities sold, it shall not, and that it will cause its affiliates
not to, in any manner whatsoever, effect, directly or indirectly, any (i) “short sale” (as such
term is defined in Section 242.200 of Regulation SHO of the 1934 Act) of the Common Stock, or (ii)
hedging transaction, which enables a net short position with respect to the Common Stock.




               (m) Lock Up Agreements. On the date hereof, the Company shall obtain from each
officer and director a lock up agreement in the form attached hereto as Exhibit B.




               (n) Rights of First Refusal. For a period of twelve (12) months from the date
hereof, if the Company intends to raise additional capital by the issuance or sale of capital stock
of the Company, including without limitation shares of any class of common stock, any class of
preferred stock, options, warrants or any other securities convertible or exercisable into shares
of common stock (whether the offering is conducted by the Company, underwriter, placement agent or
any third party) the Company shall be obligated to offer to the Buyer such issuance or sale of
capital stock, by providing in writing the principal amount of capital it intends to raise and
outline of the material terms of such capital raise, prior to the offering such issuance or sale of
capital stock to any third parties including, but not limited to, current or former officers or
directors, current or former shareholders and/or investors of the obligor, underwriters, brokers,
agents or other third parties. The Buyer shall have five (5) business days from receipt of such
notice of the sale or issuance of capital stock to accept or reject all or a portion of such
capital raising offer. If the Buyer does not respond within the five (5) business days of its
receipt of the notice provided for herein, or rejects the capital raising offer, the Company shall
be free to proceed with such capital raise notwithstanding this Section 4(n).




               (o) Review of Public Disclosures. All SEC filings (including, without limitation, all
filings required under the Exchange Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K,
etc) and other public disclosures made by the Company, including, without limitation, all


12









 







press releases, investor relations materials, and scripts of analysts meetings and calls,
shall be reviewed and approved for release by the Company’s attorneys and, if containing financial
information, the Company’s independent certified public accountants.




          5. TRANSFER AGENT INSTRUCTIONS.




               (a) The Company shall issue the Irrevocable Transfer Agent Instructions to its transfer agent
irrevocably appointing David Gonzalez, Esq. as the Company’s agent for purpose of having
certificates issued, registered in the name of the Buyer(s) or its respective nominee(s), for the
Conversion Shares representing such amounts of Convertible Debentures as specified from time to
time by the Buyer(s) to the Company upon conversion of the Convertible Debentures, for interest
owed pursuant to the Convertible Debenture, and for any and all Liquidated Damages (as this term is
defined in the Registration Rights Agreement). David Gonzalez, Esq. shall be paid a cash fee of
Fifty Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer Agent
Instructions. The Company shall not change its transfer agent without the express written consent
of the Buyer(s), which may be withheld by the Buyer(s) in its sole discretion. Prior to
registration of the Conversion Shares under the Securities Act, all such certificates shall bear
the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion
Shares prior to registration of such shares under the Securities Act) will be given by the Company
to its transfer agent and that the Conversion Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall affect in any way the Buyer’s
obligations and agreement to comply with all applicable securities laws upon resale of Conversion
Shares. If the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance customary for opinions of counsel in comparable transactions to the effect that
registration of a resale by the Buyer(s) of any of the Conversion Shares is not required under the
Securities Act, the Company shall within two (2) business days instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified by the Buyer. The
Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm
to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under
this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and without any bond or other
security being required.




          6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.




     The obligation of the Company hereunder to issue and sell the Convertible Debentures to the
Buyer(s) at the Closings is subject to the satisfaction, at or before the Closing Dates, of each of
the following conditions, provided that these conditions are for the Company’s sole benefit and may
be waived by the Company at any time in its sole discretion:



               (a) Each Buyer shall have executed the Transaction Documents and delivered them to the
Company.




               (b) The Buyer(s) shall have delivered to the Company the Purchase Price for Convertible
Debentures in respective amounts as set forth next to each Buyer as outlined on Schedule I attached
hereto, minus any fees to be paid directly from the proceeds the Closings as set forth herein, by
wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the
Company.




13









 








               (c) The representations and warranties of the Buyer(s) shall be true and correct in all
material respects as of the date when made and as of the Closing Dates as though made at that time
(except for representations and warranties that speak as of a specific date), and the Buyer(s)
shall have performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied or complied with by
the Buyer(s) at or prior to the Closing Dates.




          7. CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.




               (a) The obligation of the Buyer(s) hereunder to purchase the Convertible Debentures at the
First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the
following conditions:




                    (i) The Company shall have executed the Transaction Documents and delivered the same to the
Buyer(s).




                    (ii) The Common Stock (I) shall be designated for quotation or listed on the Principal Market
and (II) shall not have been suspended, as of the First Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the First Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing maintenance requirements of the
Principal Market.




                    (iii) The representations and warranties of the Company shall be true and correct in all
material respects (except to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3 above, in which case, such representations and warranties
shall be true and correct without further qualification) as of the date when made and as of the
First Closing Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the First Closing Date




                    (iv) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures
in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.




                    (v) The Company shall have delivered to the Buyer(s) a certificate evidencing the formation
and good standing of the Company and each of its subsidiaries in such entity’s jurisdiction of
formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a
date within 10 days of the Closing Date.




                    (vi) The Company shall have delivered to the Buyer(s) a certified copy of the Certificate of
Incorporation as certified by the Secretary of State of the State (or comparable office) of the
Company’s jurisdiction of formation.




                    (vii) The Company shall have delivered to the Buyer(s) a certificate, executed by the
secretary of the Company and dated as of the Closing Date, as to the resolutions consistent with
Section 3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such
Buyer.




14









 








                    (viii) The Buyer(s) shall have received an opinion of counsel from counsel to the Company in a
form satisfactory to the Buyer(s).




                    (ix) In accordance with the terms of the Security Agreement, the Company and its subsidiaries
shall have delivered to the Buyer(s) appropriate amendments to the financing statements on Form
UCC-1 filed in connection therewith, or such other documents to be duly filed in such office or
offices as may be necessary or, if the Buyer deems it desirable to perfect the security interests
purported to be created by each Security Agreement.




                    (x) The Company shall have provided to the Buyer an acknowledgement, to the satisfaction of
the Buyer, from the Company’s independent certified public accountants as to its ability to provide
all consents required in order to file a registration statement in connection with this
transaction.




                    (xi) The Company shall have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Convertible Debentures, shares of Common Stock
to effect the conversion of all of the Conversion Shares then outstanding.




                    (xii) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the
Buyer, shall have been delivered to and acknowledged in writing by the Company’s transfer agent.




               (b) The obligation of the Buyer(s) hereunder to accept the Convertible Debentures at the
Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the
following conditions:




                    (i) The Common Stock (I) shall be designated for quotation or listed on the Principal Market
and (II) shall not have been suspended, as of the Second Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the Second Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing maintenance requirements of the
Principal Market.




                    (ii) The representations and warranties of the Company shall be true and correct in all
material respects (except to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3 above, in which case, such representations and warranties
shall be true and correct without further qualification) as of the date when made and as of the
Second Closing Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Second Closing Date.




                    (iii) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures
in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.




                    (iv) The Company have filed the registration statement with the SEC in compliance with the
rules and regulations promulgated by the SEC for filing thereof.




15









 








                    (v) The Company shall have certified, in a certificate executed by two officers of the Company
and dated as of the Second Closing Date, that all conditions to the Second Closing have been
satisfied.




          (c) The obligation of the Buyer(s) hereunder to accept the Convertible Debentures at the Third
Closing is subject to the satisfaction, at or before the Third Closing Date, of each of the
following conditions:




                    (i) The Common Stock (I) shall be designated for quotation or listed on the Principal Market
and (II) shall not have been suspended, as of the Second Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the Second Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing maintenance requirements of the
Principal Market.




                    (ii) The representations and warranties of the Company shall be true and correct in all
material respects (except to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3 above, in which case, such representations and warranties
shall be true and correct without further qualification) as of the date when made and as of the
Third Closing Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Third Closing Date.




                    (iii) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures
in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.




                    (iv) The Registration Statement shall have been declared effective by the SEC in compliance
with the rules and regulations promulgated by the SEC for the effectiveness thereof.




                    (v) The Company shall have certified, in a certificate executed by two officers of the Company
and dated as of the Third Closing Date, that all conditions to the Third Closing have been
satisfied.




     8. INDEMNIFICATION.



               (a) In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the
Convertible Debentures and the Conversion Shares hereunder, and in addition to all of the Company’s
other obligations under this Agreement, the Company shall defend, protect, indemnify and hold
harmless the Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Buyer Indemnitees”) from and against any and all actions, causes of action, suits, claims,
losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by the Buyer Indemnitees or any of them as a result of,
or arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in this Agreement, the Convertible Debentures or the Transaction
Documents or any other certificate, instrument or document contemplated


16









 







hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company
contained in this Agreement, or the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made
against such Indemnitee and arising out of or resulting from the execution, delivery, performance
or enforcement of this Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the parties hereto, any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the issuance of the Convertible Debentures or
the status of the Buyer or holder of the Convertible Debentures the Conversion Shares, as a Buyer
of Convertible Debentures in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.




               (b) In consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Buyer’s other obligations under this Agreement, the Buyer shall defend,
protect, indemnify and hold harmless the Company and all of its officers, directors, employees and
agents (including, without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and
all Indemnified Liabilities incurred by the Indemnitees or any of them as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any representation or warranty made
by the Buyer(s) in this Agreement, instrument or document contemplated hereby or thereby executed
by the Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer(s) contained in
this Agreement, the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of action, suit or claim
brought or made against such Company Indemnitee based on material misrepresentations or due to a
material breach and arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement, the Transaction Documents or any other instrument, document or
agreement executed pursuant hereto by any of the parties hereto. To the extent that the foregoing
undertaking by each Buyer may be unenforceable for any reason, each Buyer shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.




     9. GOVERNING LAW: MISCELLANEOUS.



               (a) Governing Law. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New Jersey without regard to the principles of conflict of laws. The
parties further agree that any action between them shall be heard in Hudson County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Hudson County and the United States District Court for the District of New Jersey sitting in
Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.




               (b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to be physically
delivered to the other party within five (5) days of the execution and delivery hereof.




               (c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.




               (d) Severability. 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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.





17









 








               (e) Entire Agreement, Amendments. This Agreement supersedes all other prior oral or
written agreements between the Buyer(s), the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than by an instrument
in writing signed by the party to be charged with enforcement.




               (f) Notices. Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) upon confirmation of receipt,
when sent by facsimile; (iii) three (3) days after being sent by U.S. certified mail, return
receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:




	 	 	 	 	 
	If to the Company, to:	 	Advanced Viral Research Corp.
	 	 	200 Corporate Boulevard South
	 	 	Yonkers, New York 10701
	 	 	Attention: Stephen Elliston
	 

	 	Telephone:
	 	(914) 376-7383
	 

	 	Facsimile:
	 	(914) 845-8720
	 
	 	 	 	 
	With a copy to:	 	Berman Rennert Vogel and Mandler, P.A.
	 	 	29th Floor — Bank of America Tower at International Place
	 	 	100 S.E. Second Street
	 	 	Miami, Florida 33131
	 	 	Attention: Charles J. Rennert
	 

	 	Telephone:
	 	(305) 577-4171
	 

	 	Facsimile:
	 	(305) 373-6036






     If to the Buyer(s), to its address and facsimile number on Schedule I, with copies to the
Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5) days’ prior written
notice to the other party of any change in address or facsimile number.



               (g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns. Neither the Company nor any
Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written
consent of the other party hereto.




               (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other person.





18









 








               (i) Survival. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
agreements and covenants set forth in Sections 4, 5 and 9, and the indemnification provisions
set forth in Section 8, shall survive the Closing for a period of two (2) years following the date
on which the Convertible Debentures are converted in full. The Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.




               (j) Publicity. The Company and the Buyer(s) shall have the right to approve, before
issuance any press release or any other public statement with respect to the transactions
contemplated hereby made by any party; provided, however, that the Company shall be entitled,
without the prior approval of the Buyer(s), to issue any press release or other public disclosure
with respect to such transactions required under applicable securities or other laws or regulations
(the Company shall use its best efforts to consult the Buyer(s) in connection with any such press
release or other public disclosure prior to its release and Buyer(s) shall be provided with a copy
thereof upon release thereof).




               (k) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.




               (l) Termination. In the event that the First Closing shall not have occurred with
respect to the Buyers on or before two (2) business days from the date hereof due to the Company’s
or the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the
non-breaching party’s failure to waive such unsatisfied condition(s)), the non-breaching party
shall have the option to terminate this Agreement with respect to such breaching party at the close
of business on such date without liability of any party to any other party.




               (m) Brokerage. The Company represents that no broker, agent, finder or other party
has been retained by it in connection with the transactions contemplated hereby and that no other
fee or commission has been agreed by the Company to be paid for or on account of the transactions
contemplated hereby.




               (n) No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.




[REMAINDER PAGE INTENTIONALLY LEFT BLANK]




19









 








     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.



	 	 	 	 	 
	 	COMPANY:

ADVANCED VIRAL RESEARCH CORP.

 	 
	 	By:  	/s/ Stephen Elliston
 	 
	 	 	Name:  	Stephen Elliston 	 
	 	 	Title:  	Chief Executive Officer 	 
	 



20









 







     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.



	 	 	 	 	 
	 	BUYERS:

CORNELL CAPITAL PARTNERS, L.P.

 	 
	 	By:  	Yorkville Advisors, LLC
 	 
	 	Its:  	Investment Manager 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	 	 
	 	By:  	/s/ Mark Angelo
 	 
	 	 	Name:  	Mark Angelo 	 
	 	 	Its: Portfolio Manager and President 	 
	 




 









 








SCHEDULE I




SCHEDULE OF BUYERS




	 	 	 	 	 	 	 	 	 	 	 	 	 
	(1)	 	(2)	 	(3)	 	(4)	 	(5)	 	(6)
	Buyer	 	 	 	 	 	 	 	 	 	 	 	Legal Representative’s
	Cornell Capital	 	 	 	Subscription Amount	 	 	 	 	 	Address and Facsimile
	Partners, L.P.	 	First Closing	 	Second Closing	 	Third Closing	 	Total	 	Number
	101 Hudson Street, Suite 3700

Jersey City, NJ 07302

Tel: (201) 985-8300

Fax: (201) 985-8266

Residence: Cayman Islands

	 	$750,000 of Series
A Convertible
Debentures and
$750,000 of Series
B Convertible
Debentures
	 	$625,000 of Series
B Convertible
Debentures
	 	$625,000 of Series
B Convertible
Debentures
	 	$	2,750,000	 	 	David Gonzalez, Esq.

101 Hudson Street,

Suite 3700

Jersey City, NJ 07302

Telephone: (201) 985-8300

Facsimile: (201) 985-8266






 









 





EXHIBIT A




FORM OF CONVERTIBLE DEBENTURES




 









 








EXHIBIT B




LOCK UP AGREEMENT




     The undersigned hereby agrees that for a period commencing on July ___, 2007 and expiring on
the date thirty (30) days after the date that all amounts owed to Cornell Capital Partners, L.P.
(the “Buyer”), under the Secured Convertible Debentures issued to the Buyer pursuant to the
Securities Purchase Agreement between Advanced Viral Research Corp. (the “Company”) and the
Buyer dated July ___, 2007 have been paid (the “Lock-up Period”), he, she or it will not,
directly or indirectly, without the prior written consent of the Buyer, issue, offer, agree or
offer to sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of any securities of the Company,
including common stock or options, rights, warrants or other securities underlying, convertible
into, exchangeable or exercisable for or evidencing any right to purchase or subscribe for any



     common stock (whether or not beneficially owned by the undersigned), or any beneficial interest
therein (collectively, the “Securities”) except in accordance with the volume limitations
set forth in Rule 144(e) of the General Rules and Regulations under the Securities Act of 1933, as
amended.



     In order to enable the aforesaid covenants to be enforced, the undersigned hereby consents to
the placing of legends and/or stop-transfer orders with the transfer agent of the Company’s
securities with respect to any of the Securities registered in the name of the undersigned or
beneficially owned by the undersigned, and the undersigned hereby confirms the undersigned’s
investment in the Company.



Dated: _______________, 2007




	 	 	 	 	 
	 	Signature

 	 
	 	Name:
 	 
	 	Address: 	 
	 	
City, State, Zip Code: 	 
	 



	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Print Social Security Number 	 
	 	or Taxpayer I.D. Number 	 
	 




2