Document:

EX-10.4 Registration Rights Agreement

 

Exhibit 10.4

Execution Copy

REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of December 31, 2006,
by and among ADVANCED VIRAL RESEARCH CORP., a Delaware corporation (the “Company”), and the
undersigned Buyers listed on Schedule I attached hereto (each, a “Buyer” and collectively,
the “Buyers”).

     WHEREAS:

     A. In connection with the Securities Purchase Agreement by and among the parties hereto of
even date herewith (the “Securities Purchase Agreement”), the Company has agreed, upon the
terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the
Buyers secured convertible debentures (the “Convertible Debentures”) which shall be
convertible into that number of shares of the Company’s common stock, par value $0.00001 per share
(the “Common Stock”), pursuant to the terms of the Securities Purchase Agreement for an
aggregate purchase price of up to One Million Five Hundred Thousand Dollars ($1,500,000).
Capitalized terms not defined herein shall have the meaning ascribed to them in the Securities
Purchase Agreement.

     B. To induce the Buyers 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”), and applicable state securities laws.

     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 Buyers hereby agree as follows:

     1. DEFINITIONS.

     As used in this Agreement, the following terms shall have the following meanings:

          (a) “Person” means a corporation, a limited liability company, an association, a
partnership, an organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.

          (b) “Register,” “registered,” and “registration” refer to a
registration effected by preparing and filing one or more Registration Statements (as defined
below) 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 or delayed basis (“Rule
415”), and the declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the “SEC”).

 

 

          (c) “Registrable Securities” means the shares of Common Stock issuable to the Buyers
upon conversion of the Convertible Debentures pursuant to the Securities Purchase Agreement and the
Warrant Shares, as this term is defined in the Securities Purchase Agreement.

          (d) “Registration Statement” means a registration statement under the Securities Act
which covers the Registrable Securities.

     2. REGISTRATION.

          (a) Subject to the terms and conditions of this Agreement, the Company shall prepare and file,
no later than sixty (60) days from the date hereof (the “Scheduled Filing Deadline”), with
the SEC a registration statement on Form S-1 or SB-2 (or, if the Company is then eligible, on Form
S-3) under the Securities Act (the “Initial Registration Statement”) for the resale by the
Buyers of the Registrable Securities, which includes at least 120,192,308 shares of Common Stock to
be issued upon conversion of the Convertible Debentures and exercise of the Warrants. The Company
shall cause the Registration Statement to remain effective until all of the Registrable Securities
have been sold. Prior to the filing of the Registration Statement with the SEC, the Company shall
furnish a copy of the Initial Registration Statement to the Buyers for their review and comment.
The Buyers shall furnish comments on the Initial Registration Statement to the Company within
twenty-four (24) hours of the receipt thereof from the Company.

          (b) Effectiveness of the Initial Registration Statement. The Company shall use its
best efforts (i) to have the Initial Registration Statement declared effective by the SEC no later
May 1, 2007 (the “Scheduled Effective Deadline”) and (ii) to insure that the Initial
Registration Statement and any subsequent Registration Statement remains in effect until all of the
Registrable Securities have been sold, subject to the terms and conditions of this Agreement.

          (c) Failure to File or Obtain Effectiveness of the Registration Statement. In the
event the Registration Statement is not filed by the Scheduled Filing Deadline or is not declared
effective by the SEC on or before the Scheduled Effective Date, or if after the Registration
Statement has been declared effective by the SEC, sales cannot be made pursuant to the Registration
Statement (whether because of a failure to keep the Registration Statement effective, failure to
disclose such information as is necessary for sales to be made pursuant to the Registration
Statement, failure to register sufficient shares of Common Stock or otherwise) then as partial
relief for the damages to any holder of Registrable Securities by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies at law or in equity), the Company will pay as liquidated damages
(the “Liquidated Damages”) to the holder, at the holder’s option, either a cash amount or
shares of the Company’s Common Stock within three (3) business days, after demand therefore, equal
to two percent (2%) of the liquidated value of the Convertible Debentures outstanding as Liquidated
Damages for each thirty (30) day period after the Scheduled Filing Deadline or the Scheduled
Effective Date as the case may be. Notwithstanding anything herein to the contrary, in no event
shall Liquidated Damages exceed twenty percent (20%) of the aggregate Purchase Price for all
Buyers.

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          (d) Liquidated Damages. The Company and the Buyer hereto acknowledge and agree that
the sums payable under subsection 2(c) above shall constitute liquidated damages and not penalties
and are in addition to all other rights of the Buyer, including the right to call a default. The
parties further acknowledge that (i) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (ii) the amounts specified in such subsections
bear a reasonable relationship to, and are not plainly or grossly disproportionate to, the probable
loss likely to be incurred in connection with any failure by the Company to obtain or maintain the
effectiveness of a Registration Statement, (iii) one of the reasons for the Company and the Buyer
reaching an agreement as to such amounts was the uncertainty and cost of litigation regarding the
question of actual damages, and (iv) the Company and the Buyer are sophisticated business parties
and have been represented by sophisticated and able legal counsel and negotiated this Agreement at
arm’s length.

     3. RELATED OBLIGATIONS.

          (a) The Company shall keep the Registration Statement effective pursuant to Rule 415 at all
times until the date on which the Buyer shall have sold all the Registrable Securities covered by
such Registration Statement (the “Registration Period”), 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) The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used in connection with
such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under
the Securities Act, as may be necessary to keep such Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable Securities shall have
been disposed of in accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in such Registration Statement. In the case of amendments and supplements to
a Registration Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company’s filing a report on Form 10-KSB, Form
10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), the Company shall incorporate such report by reference into the
Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on
the same day on which the Exchange Act report is filed which created the requirement for the
Company to amend or supplement the Registration Statement.

          (c) The Company shall furnish to each Buyer whose Registrable Securities are included in any
Registration Statement, without charge, (i) at least one (1) copy of such Registration Statement as
declared effective by the SEC and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference, all exhibits and each preliminary
prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement
and all amendments and supplements thereto (or such other number

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of copies as such Buyer may reasonably request) and (iii) such other documents as such Buyer
may reasonably request from time to time in order to facilitate the disposition of the Registrable
Securities owned by such Buyer.

          (d) The Company shall use its best efforts to (i) register and qualify the Registrable
Securities covered by a Registration Statement under such other securities or “blue sky” laws of
such jurisdictions in the United States as any Buyer reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (w) make any change to its articles of incorporation or
by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction. The Company shall
promptly notify each Buyer who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the
United States or its receipt of actual notice of the initiation or threat of any proceeding for
such purpose.

          (e) As promptly as practicable after becoming aware of such event or development, the Company
shall notify each Buyer in writing of the happening of any event as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an untrue statement of
a material fact or omission 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 (provided that in no event shall such notice contain any material, nonpublic
information), and promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such supplement or
amendment to each Buyer. The Company shall also promptly notify each Buyer in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to each Buyer by facsimile on the same day of such effectiveness),
(ii) of any request by the SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

          (f) The Company shall use its best efforts to prevent the issuance of any stop order or other
suspension of effectiveness of a Registration Statement, or the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction within the United States of America
and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension
at the earliest possible moment and to notify each Buyer who holds Registrable Securities being
sold of the issuance of such order and the resolution thereof or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.

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          (g) At the reasonable request of any Buyer, the Company shall furnish to such Buyer, on the
date of the effectiveness of the Registration Statement and thereafter from time to time on such
dates as a Buyer may reasonably request (i) a letter, dated such date, from the Company’s
independent certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten public offering, and
(ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in an underwritten
public offering, addressed to the Buyers.

          (h) The Company shall make available for inspection by (i) any Buyer and (ii) one (1) firm of
accountants or other agents retained by the Buyers (collectively, the “Inspectors”) all
pertinent financial and other records, and pertinent corporate documents and properties of the
Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees to supply all information
which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and
each Buyer hereby agrees, to hold in strict confidence and shall not make any disclosure (except to
a Buyer) or use any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the Securities Act, (b) the release of such Records is
ordered pursuant to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made generally available to
the public other than by disclosure in violation of this or any other agreement of which the
Inspector and the Buyer has knowledge. Each Buyer agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.

          (i) The Company shall hold in confidence and not make any disclosure of information concerning
a Buyer provided to the Company unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final, non-appealable order from a
court or governmental body of competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation of this Agreement or any
other agreement. The Company agrees that it shall, upon learning that disclosure of such
information concerning a Buyer is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to such Buyer and allow such Buyer,
at the Buyer’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, such information.

          (j) The Company shall use its best efforts either to cause all the Registrable Securities
covered by a Registration Statement (i) to be listed on each securities exchange on which
securities of the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such exchange or

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(ii) the inclusion for quotation on the National Association of Securities Dealers, Inc. OTC
Bulletin Board for such Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(j).

          (k) The Company shall cooperate with each Buyer who holds Registrable Securities being offered
and, to the extent applicable, to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant
to a Registration Statement and enable such certificates to be in such denominations or amounts, as
the case may be, as the Buyers may reasonably request and registered in such names as the Buyers
may request.

          (l) The Company shall use its best efforts to cause the Registrable Securities covered by the
applicable Registration Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to consummate the disposition of such Registrable
Securities.

          (m) The Company shall make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a
twelve (12) month period beginning not later than the first day of the Company’s fiscal quarter
next following the effective date of the Registration Statement.

          (n) The Company shall otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration hereunder.

          (o) Within two (2) business days after a Registration Statement which covers Registrable
Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Buyer whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.

          (p) The Company shall take all other reasonable actions necessary to expedite and facilitate
disposition by each Buyer of Registrable Securities pursuant to a Registration Statement.

     4. OBLIGATIONS OF THE BUYERS.

     Each Buyer agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(f) or the first sentence of 3(e), such Buyer will
immediately discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Buyer’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall
cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a
transferee of a Buyer in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which a Buyer has entered into a
contract for sale prior to the Buyer’s receipt of a notice from the Company of the happening of

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any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which
the Buyer has not yet settled.

     5. EXPENSES OF REGISTRATION.

     All expenses incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees,
printers, legal and accounting fees shall be paid by the Company.

     6. INDEMNIFICATION.

     With respect to Registrable Securities which are included in a Registration Statement under
this Agreement:

          (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold
harmless and defend each Buyer, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Buyer within the meaning of the
Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’
fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”)
incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether
or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which
any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of the offering under
the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are
offered (“Blue Sky Filing”), or the omission or alleged omission to state 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 any 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 other law, including, without limitation, any state securities law, or
any rule or regulation there under relating to the offer or sale of the Registrable Securities
pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being,
collectively, “Violations”). The Company shall reimburse the Buyers and each such
controlling person promptly as such expenses are incurred and are due and payable, for any legal
fees or disbursements 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): (x) shall not apply to a
Claim by an Indemnified Person 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 such Indemnified
Person expressly for use in connection with the preparation of the Registration

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Statement or any such amendment thereof or supplement thereto; (y) shall not be available to
the extent such Claim is based on a failure of the Buyer to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made available by the
Company pursuant to Section 3(c); and (z) shall not 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. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Buyers pursuant to Section 9 hereof.

          (b) In connection with a Registration Statement, each Buyer agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers, employees,
representatives, or agents and each Person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act (each an “Indemnified Party”), against any Claim or
Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange
Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any
Violation, in each case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the Company by such Buyer
expressly for use in connection with such Registration Statement; and, subject to Section 6(d),
such Buyer will reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Buyer, which consent shall not be unreasonably withheld;
provided, further, however, that the Buyer shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Buyer as a
result of the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by
the Buyers pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not
inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact
contained in the prospectus was corrected and such new prospectus was delivered to each Buyer prior
to such Buyer’s use of the prospectus to which the Claim relates.

          (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, 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; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the fees and expenses of not more than
one (1) counsel for such Indemnified Person or Indemnified

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Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained
by the indemnifying party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation or defense of any
such action or claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or Indemnified Person which relates to
such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any settlement negotiations
with respect thereto. No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its prior written consent; provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its consent. No
indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other compromise which
does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third
parties, firms or corporations relating to the matter for which indemnification has been made. 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.

          (d) 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 and when bills are received or
Indemnified Damages are incurred.

          (e) The indemnity agreements contained herein shall be in addition to (i) any cause of action
or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

     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: (i) 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 Securities who was not guilty of fraudulent
misrepresentation; and (ii) 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.

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     8. REPORTS UNDER THE EXCHANGE ACT.

     With a view to making available to the Buyers the benefits of Rule 144 promulgated under the
Securities Act or any similar rule or regulation of the SEC that may at any time permit the Buyers
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 so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the Company’s obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144; and

          (c) furnish to each Buyer so long as such Buyer 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 Buyers to
sell such securities pursuant to Rule 144 without registration.

     9. AMENDMENT OF REGISTRATION RIGHTS.

     Provisions 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 Buyers who then hold at least two-thirds (2/3) of the
Registrable Securities. Any amendment or waiver effected in accordance with this Section 9 shall
be binding upon each Buyer and the Company. No such amendment shall be effective to the extent
that it applies to fewer than all of the holders of the Registrable Securities. No consideration
shall be offered or paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered to all of the
parties to this Agreement.

     10. MISCELLANEOUS.

          (a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or
is deemed to own of record such Registrable Securities or owns the right to receive the Registrable
Securities. If the Company receives conflicting instructions, notices or elections from two (2) or
more Persons 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) 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 receipt, when sent

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by facsimile (provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) business 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 Copy to:

	 	Berman Rennert Vogal and Mandler, P.C.
	 

	 	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 an Buyer, to its address and facsimile number on the Schedule of Buyers attached hereto, with
copies to such Buyer’s representatives as set forth on the Schedule of Buyers or to such other
address and/or facsimile number and/or to the attention of such other person as the recipient party
has specified by written notice given to each other party five (5) days prior to the effectiveness
of such change. Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically generated by the
sender’s facsimile machine containing the time, date, recipient facsimile number and an image of
the first page of such transmission or (C) provided by a courier or overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.

          (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) The laws of the State of New Jersey shall govern all issues concerning the relative rights
of the Company and the Buyers as its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New Jersey or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of New Jersey. Each
party hereby irrevocably submits to the non-exclusive jurisdiction of the Superior Courts of the
State of New Jersey, sitting in Hudson County, New Jersey and federal courts for the District of
New Jersey sitting Newark, New Jersey, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or

11

 

discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or proceeding by mailing a
copy thereof to such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. 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. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

          (e) This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase
Agreement and related documents including the Convertible Debenture and the Security Agreement
dated the date hereof (the “Security Agreement”) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to herein and therein.
This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and
related documents including the Convertible Debenture, and the Security Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the subject matter
hereof and thereof.

          (f) This Agreement shall inure to the benefit of and be binding upon the permitted successors
and assigns of each of the parties hereto.

          (g) The headings in this Agreement are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.

          (h) This Agreement may be executed in identical 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 facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this Agreement.

          (i) 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.

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.

12

 

          (j) 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.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

13

 

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

	 	 	 	 
	 

	COMPANY:	
	 

	ADVANCED VIRAL RESEARCH CORP.	
	 
	 	 	
	 

	By: 	/s/ Stephen Elliston	
	 

	 	 	
	 

	Name: Stephen Elliston	
	 

	Title: Chief Executive Officer	

14

 

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

	 	 	 	 
	 

	BUYER:	
	 

	CORNELL CAPITAL PARTNERS, LP	
	 
	 	 	
	 

	By: Yorkville Advisors, LLC	
	 

	Its: General Partner	
	 
	 	 	
	 

	By:	/s/ Mark Angelo	
	 

	 	 	
	 

	Name: Mark Angelo	
	 

	Title: Portfolio Manager	

15

 

SCHEDULE I

SCHEDULE OF BUYERS

	 	 	 	 	 
	 	 	Address/Facsimile	 	Address/Facsimile
	Buyer	 	Number of Buyer	 	Number of Buyer’s Representative
	Cornell Capital Partners, LP

	 	101 Hudson Street – Suite 3700
	 	101 Hudson Street – Suite 3700
	 

	 	Jersey City, NJ 07303
	 	Jersey City, NJ 07303
	 

	 	Facsimile: (201) 985-8266
	 	Facsimile: (201) 985-8266
	 

	 	 	 	Attention: David Gonzalez, Esq.EX-10.5 Security Agreement

 

Exhibit 10.5

Execution Copy

SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as of
December 31, 2006, by and between ADVANCED VIRAL RESEARCH CORP., a Delaware corporation with its
principal place of business located at 200 Corporate Boulevard South, Yonkers, New York 10701 (the
“Parent”), and the each subsidiary of the Parent listed on Schedule I attached hereto (each
a “Subsidiary,” and collectively and together with the Parent, the “Company”), in
favor of the BUYER(S) (the “Secured Party”) listed on Schedule I attached to the Securities
Purchase Agreement (the “Securities Purchase Agreement”) dated the date hereof between the
Company and the Secured Party.

     WHEREAS, The Parent shall issue and sell to the Secured Party, as provided in the Securities
Purchase Agreement, and the Secured Party shall purchase, up to One Million Five Hundred Thousand
Dollars ($1,500,000) of secured convertible debentures (the “Convertible Debentures”),
which shall be convertible into shares of the Parent’s common stock, par value $0.00001, in the
respective amounts set forth opposite each Buyer(s) name on Schedule I attached to the Securities
Purchase Agreement;

     WHEREAS, to induce the Secured Party to enter into the transaction contemplated by the
Securities Purchase Agreement, the Convertible Debentures, the Investor Registration Rights
Agreement of even date herewith between the Parent and the Secured Party (the “Investor
Registration Rights Agreement”), and the Irrevocable Transfer Agent Instructions among the
Parent, the Secured Party, the Parent’s transfer agent, and David Gonzalez, Esq. (the “Transfer
Agent Instructions”) (collectively referred to as the “Transaction Documents”), each
Company hereby grants to the Secured Party a security interest in and to the property of each
Company existing on the date hereof and identified on Exhibit A hereto (collectively
referred to as the “Pledged Property”) to secure all of the Obligations (as defined below)
from the date hereof until the earlier to occur of: (i) five hundred thousand dollars ($500,000) or
less principal amount of the Convertible Debentures remains outstanding; (ii) the Company receives,
after the date of this Agreement, Three Million Dollars ($3,000,000) of capital, in any form other
than through the issuance of free-trading shares of the Company’s common stock, from sources other
than the Secured Party, which is utilized to either repay the Convertible Debentures in full, or
reduce the outstanding principal amount of the Convertible Debentures to five hundred thousand
dollars ($500,000); or (iii) satisfaction of the Obligations, as defined herein below, ((i), (ii),
and (iii) are sometimes hereinafter individually referred to as an “Expiration Event”).

     NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained,
and for other good and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

 

ARTICLE 1.

DEFINITIONS AND INTERPRETATIONS

     Section 1.1. Recitals.

     The above recitals are true and correct and are incorporated herein, in their entirety, by
this reference.

     Section 1.2. Interpretations.

     Nothing herein expressed or implied is intended or shall be construed to confer upon any
person other than the Secured Party any right, remedy or claim under or by reason hereof.

     Section 1.3. Obligations Secured.

     From the date hereof until an Expiration Event, the security interest created hereby in the
Pledged Property constitutes continuing collateral security for all of the obligations of the
Parent now existing or hereinafter incurred to the Buyers, whether oral or written and whether
arising before, on or after the date hereof including, without limitation following obligations
(collectively, the “Obligations”):

     (a) the payment by the Parent, as and when due and payable (by scheduled maturity,
acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the
Securities Purchase Agreement, the Convertible Debentures and the other Transaction Documents; and

     (b) the due performance and observance by the Parent of all of its other obligations from
time to time existing in respect of any of the Transaction Documents, including without limitation,
the Parent’s obligations with respect to any conversion or redemption rights of the Secured Party
under the Convertible Debentures.

ARTICLE 2.

PLEDGED PROPERTY; EVENT OF DEFAULT

     Section 2.1. Pledged Property.

          (a) As collateral security for all of the Obligations, the Company hereby pledges to the
Secured Party, and creates in the Secured Party for its benefit, a security interest, from the date
hereof through an Expiration Event, in and to all of the Pledged Property whether now owned or
hereafter acquired.

          (b) Simultaneously with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably
requested by the Secured Party to perfect its security interest in the Pledged Property.
Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute,
acknowledge and deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, affidavits and

2

 

forms as may, in the Secured Party’s reasonable judgment, be necessary to effectuate, complete
or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged
Property, and the Secured Party shall hold such documents and instruments as secured party, subject
to the terms and conditions contained herein.

     Section 2.2. Event of Default; Rights; Interests; Etc.

          (a) Provided an Expiration Event has not occurred, an “Event of Default” shall be
deemed to have occurred under this Agreement upon an Event of Default under and as defined in the
Convertible Debentures.

          (b) So long as no Event of Default shall have occurred and be continuing; (i) the Company
shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part
thereof for any purpose not inconsistent with the terms hereof; and (ii) the Company shall be
entitled to receive and retain any and all payments paid or made in respect to the Pledged
Property.

     Section 2.3 Termination of Security Interest.

          (a) Notwithstanding any provision to the contrary contained herein, the rights of the Secured
Party under this Agreement, including, but not limited to, Secured Party’s security interest in the
Pledged Property, shall automatically terminate upon the occurrence of an Expiration Event.

          (b) Upon the occurrence of an Expiration Event, the Secured Party shall make, execute,
acknowledge, file, record and deliver to the company any documents reasonably requested by the
Company to terminate the Secured Party’s security interest in the Pledged Property and the Pledged
Collateral. Upon the occurrence of an Expiration Event, the Secured Party shall make, execute,
acknowledge and deliver to the Company such documents and instruments, including, without
limitation, financing statements, certificates, affidavits, and forms as may, in the Company’s
reasonable judgment, be necessary to eliminate and terminate the security interest of the Secured
Party in the Pledged Property and the Pledged Collateral, and the Company is authorized to file
such documents as necessary to terminate Secured Party’s security interest in the Pledged Property.

ARTICLE 3.

ATTORNEY-IN-FACT; PERFORMANCE

     Section 3.1. Secured Party Appointed Attorney-In-Fact.

     Upon the occurrence and during the continuance of an Event of Default: (a) the Company hereby
appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of
the Company and in the name of the Company or otherwise, from time to time in the Secured Party’s
discretion to take any action and to execute any instrument which the Secured Party may reasonably
deem necessary to accomplish the purposes of this Agreement, including, without limitation, to
receive and collect all instruments made payable to the Company representing any payments in
respect of the Pledged Property or any part thereof and to give full

3

 

discharge for the same; (b) the Secured Party may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured
Party may determine, and (c) to facilitate collection, the Secured Party may notify account debtors
and obligors on any Pledged Property to make payments directly to the Secured Party.

     Section 3.2. Secured Party May Perform.

     If the Company fails to perform any agreement contained herein, the Secured Party, at its
option, may itself perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be included in the Obligations secured hereby
and payable by the Company under Section 8.3.

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES

     Section 4.1. Authorization; Enforceability.

     Each of the parties hereto represents and warrants that it has taken all action necessary to
authorize the execution, delivery and performance of this Agreement and the transactions
contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and
binding obligation of the respective party, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights or by the principles
governing the availability of equitable remedies.

     Section 4.2. Ownership of Pledged Property.

     The Company represents and warrants that it is the legal and beneficial owner of the Pledged
Property free and clear of any lien, security interest, option or other charge or encumbrance
(each, a “Lien”) except for the security interest created by this Agreement and other Permitted
Liens. For purposes of this Agreement, “Permitted Liens” means: (1) the security interest created
by this Agreement, (2) existing Liens disclosed by the Company to the Secured Party; (3) inchoate
Liens for taxes, assessments or governmental charges or levies not yet due, as to which the grace
period, if any, related thereto has not yet expired, or being contested in good faith and by
appropriate proceedings for which adequate reserves have been established in accordance with GAAP;
(4) Liens of carriers, materialmen, warehousemen, mechanics and landlords and other similar Liens
which secure amounts which are not yet overdue by more than 60 days or which are being contested in
good faith by appropriate proceedings; (5) licenses, sublicenses, leases or subleases granted to
other Persons not materially interfering with the conduct of the business of the Company; (6) Liens
securing capitalized lease obligations and purchase money indebtedness incurred solely for the
purpose of financing an acquisition or lease; (7) easements, rights-of-way, restrictions,
encroachments, municipal zoning ordinances and other similar charges or encumbrances, and minor
title deficiencies, in each case not securing debt and not materially interfering with the conduct
of the business of the Company and not materially detracting from the value of the property subject
thereto; (8) Liens arising out of the existence of judgments or awards which judgments or awards do
not constitute an Event of Default; (9) Liens incurred in the ordinary course of business in
connection with workers

4

 

compensation claims, unemployment insurance, pension liabilities and social security benefits
and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of
business, statutory obligations, surety bonds, performance bonds and other obligations of a like
nature (other than appeal bonds) incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money); (10) Liens in favor of a banking
institution arising by operation of law encumbering deposits (including the right of set-off) and
contractual set-off rights held by such banking institution and which are within the general
parameters customary in the banking industry and only burdening deposit accounts or other funds
maintained with a creditor depository institution; (11) usual and customary set-off rights in
leases and other contracts; and (12) escrows in connection with acquisitions and dispositions.

ARTICLE 5.

DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

     Section 5.1 Method of Realizing Upon the Pledged Property: Other Remedies.

     If any Event of Default shall have occurred and be continuing:

     (a) The Secured Party may exercise in respect of the Pledged Property, in addition to any
other rights and remedies provided for herein or otherwise available to it, all of the rights and
remedies of a secured party upon default under the Uniform Commercial Code (whether or not the
Uniform Commercial Code applies to the affected Pledged Property), and also may (i) take absolute
control of the Pledged Property, including, without limitation, transfer into the Secured Party’s
name or into the name of its nominee or nominees (to the extent the Secured Party has not
theretofore done so) and thereafter receive, for the benefit of the Secured Party, all payments
made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act
with respect thereto as though it were the outright owner thereof, (ii) require the Company to
assemble all or part of the Pledged Property as directed by the Secured Party and make it available
to the Secured Party at a place or places to be designated by the Secured Party that is reasonably
convenient to both parties, and the Secured Party may enter into and occupy any premises owned or
leased by the Company where the Pledged Property or any part thereof is located or assembled for a
reasonable period in order to effectuate the Secured Party’s rights and remedies hereunder or under
law, without obligation to the Company in respect of such occupation, and (iii) without notice
except as specified below and without any obligation to prepare or process the Pledged Property for
sale, (A) sell the Pledged Property or any part thereof in one or more parcels at public or private
sale, at any of the Secured Party’s offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Secured Party may deem
commercially reasonable and/or (B) lease, license or dispose of the Pledged Property or any part
thereof upon such terms as the Secured Party may deem commercially reasonable. The Company agrees
that, to the extent notice of sale or any other disposition of the Pledged Property shall be
required by law, at least ten (10) days’ notice to the Company of the time and place of any public
sale or the time after which any private sale or other disposition of the Pledged Property is to be
made shall constitute reasonable notification. The Secured Party shall not be obligated to make
any sale or other disposition of any Pledged Property regardless of notice of sale having been
given. The Secured Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so

5

 

adjourned. The Company hereby waives any claims against the Secured Party arising by reason
of the fact that the price at which the Pledged Property may have been sold at a private sale was
less than the price which might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Secured Party accepts the first offer received and does not
offer such Pledged Property to more than one offeree, and waives all rights that the Company may
have to require that all or any part of such Pledged Property be marshaled upon any sale (public or
private) thereof. The Company hereby acknowledges that (i) any such sale of the Pledged Property
by the Secured Party may be made without warranty, (ii) the Secured Party may specifically disclaim
any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth
in clauses (i) and (ii) above shall not adversely affect the commercial reasonableness of any such
sale of Pledged Property.

     (b) Any cash held by the Secured Party as Pledged Property and all cash proceeds received by
the Secured Party in respect of any sale of or collection from, or other realization upon, all or
any part of the Pledged Property shall be applied (after payment of any amounts payable to the
Secured Party pursuant to Section 8.3 hereof) by the Secured Party against, all or any part of the
Obligations in such order as the Secured Party shall elect, consistent with the provisions of the
Securities Purchase Agreement. Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after the indefeasible payment in full in cash of all of the Obligations shall be
paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent
jurisdiction shall direct.

     (c) In the event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Secured Party is legally entitled, the Company shall
be liable for the deficiency, together with interest thereon at the rate specified in the
Convertible Debentures for interest on overdue principal thereof or such other rate as shall be
fixed by applicable law, together with the costs of collection and the reasonable fees, costs,
expenses and other client charges of any attorneys employed by the Secured Party to collect such
deficiency.

     (d) The Company hereby acknowledges that if the Secured Party complies with any applicable
state, provincial, or federal law requirements in connection with a disposition of the Pledged
Property, such compliance will not adversely affect the commercial reasonableness of any sale or
other disposition of the Pledged Property.

     (e) The Secured Party shall not be required to marshal any present or future collateral
security (including, but not limited to, this Agreement and the Pledged Property) for, or other
assurances of payment of, the Obligations or any of them or to resort to such collateral security
or other assurances of payment in any particular order, and all of the Secured Party’s rights
hereunder and in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To the extent that
the Company lawfully may, the Company hereby agrees that it will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the enforcement of the Secured
Party’s rights under this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the
Company hereby irrevocably waives the benefits of all such laws.

6

 

     Section 5.2 Duties Regarding Pledged Property.

     The Secured Party shall have no duty as to the collection or protection of the Pledged
Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond
the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party’s
possession.

ARTICLE 6.

AFFIRMATIVE COVENANTS

     The Company covenants and agrees that, from the date hereof and until the Obligations have
been fully paid and satisfied or the Convertible Debentures have been fully converted, unless the
Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof):

     Section 6.1. Existence, Properties, Etc.

          (a) The Company shall do, or cause to be done, all things, or proceed with due diligence with
any actions or courses of action, that may be reasonably necessary (i) to maintain Company’s due
organization, valid existence and good standing under the laws of its state of incorporation, and
(ii) to preserve and keep in full force and effect all qualifications, licenses and registrations
in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as
defined below); and (b) the Company shall not do, or cause to be done, any act impairing the
Company’s corporate power or authority (i) to carry on the Company’s business as now conducted, and
(ii) to execute or deliver this Agreement or any other document delivered in connection herewith,
including, without limitation, any UCC-1 Financing Statements required by the Secured Party (which
other loan instruments collectively shall be referred to as the “Loan Instruments”) to
which it is or will be a party, or perform any of its obligations hereunder or thereunder. For
purpose of this Agreement, the term “Material Adverse Effect” shall mean any material and
adverse affect as determined by Secured Party in its reasonable discretion, whether individually or
in the aggregate, upon (a) the Company’s assets, business, operations, properties or condition,
financial or otherwise; (b) the Company’s ability to make payment as and when due of all or any
part of the Obligations; or (c) the Pledged Property.

     Section 6.2. Financial Statements and Reports.

     The Company shall furnish to the Secured Party within a reasonable time such financial data as
the Secured Party may reasonably request.

     Section 6.3. Accounts and Reports.

     The Company shall maintain a standard system of accounting in accordance with generally
accepted accounting principles consistently applied (“GAAP”) and provide, at its sole expense, to
the Secured Party the following:

          (a) as soon as available, a copy of any notice or other communication alleging any nonpayment
or other material breach or default, or any foreclosure or other action respecting any material
portion of its assets and properties, received respecting any of the indebtedness of

7

 

the Company in excess of $500,000 (other than the Obligations), or any demand or other request
for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $500,000; and

          (b) within fifteen (15) days after the making of each submission or filing, a copy of any
report, financial statement, notice or other document, whether periodic or otherwise, submitted to
the shareholders of the Company, or submitted to or filed by the Company with any governmental
authority involving or affecting (i) the Company that could reasonably be expected to have a
Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Property; or (iv) any
of the transactions contemplated in this Agreement or the Loan Instruments (except, in each case,
to the extent any such submission, filing, report, financial statement, notice or other document is
posted on EDGAR Online).

     Section 6.4. Maintenance of Books and Records; Inspection.

     The Company shall maintain its books, accounts and records in accordance with GAAP, and permit
the Secured Party, its officers and employees and any professionals designated by the Secured Party
in writing, at any time during normal business hours and upon reasonable notice to visit and
inspect any of its properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and
to discuss its accounts, affairs and finances with any employee, officer or director thereof (it
being agreed that, unless an Event of Default shall have occurred and be continuing, there shall be
no more than two (2) such visits and inspections in any Fiscal Year).

     Section 6.5. Maintenance and Insurance.

          (a) The Company shall maintain or cause to be maintained, at its own expense, all of its
material assets and properties in good working order and condition, ordinary wear and tear
excepted, making all necessary repairs thereto and renewals and replacements thereof.

          (b) The Company shall maintain or cause to be maintained, at its own expense, insurance in
form, substance and amounts (including deductibles), which the Company deems reasonably necessary
to the Company’s business, (i) adequate to insure all assets and properties of the Company of a
character usually insured by persons engaged in the same or similar business against loss or damage
resulting from fire or other risks included in an extended coverage policy; (ii) against public
liability and other tort claims that may be incurred by the Company; (iii) as may be required by
the Transaction Documents and/or applicable law and (iv) as may be reasonably requested by Secured
Party, all with financially sound and reputable insurers.

     Section 6.6. Contracts and Other Collateral.

     The Company shall perform all of its obligations under or with respect to each instrument,
receivable, contract and other intangible included in the Pledged Property to which the Company is
now or hereafter will be party on a timely basis and in the manner therein required, including,
without limitation, this Agreement, except to the extent the failure to so perform such obligations
would not reasonably be expected to have a Material Adverse Effect.

8

 

     Section 6.7. Defense of Collateral, Etc.

     The Company shall defend and enforce its right, title and interest in and to any part of: (a)
the Pledged Property; and (b) if not included within the Pledged Property, those assets and
properties whose loss would reasonably be expected to have a Material Adverse Effect, each against
all manner of claims and demands on a timely basis to the full extent permitted by applicable law
(other than any such claims and demands by holders of Permitted Liens).

     Section 6.8. Taxes and Assessments.

     The Company shall (a) file all material tax returns and appropriate schedules thereto that are
required to be filed under applicable law, prior to the date of delinquency (taking into account
any extensions of the original due date), (b) pay and discharge all material taxes, assessments and
governmental charges or levies imposed upon the Company, upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all
material taxes, assessments and governmental charges or levies that, if unpaid, might become a lien
or charge upon any of its properties; provided, however, that the Company in good faith may contest
any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and
(c) so long as appropriate reserves are maintained with respect thereto if and to the extent
required by GAAP.

     Section 6.9. Compliance with Law and Other Agreements.

     The Company shall maintain its business operations and property owned or used in connection
therewith in compliance with (a) all applicable federal, state and local laws, regulations and
ordinances governing such business operations and the use and ownership of such property, and (b)
all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or
by which the Company or any of its properties is bound, except where the failure to so comply would
not reasonably be expected to have a Material Adverse Effect.

     Section 6.10. Notice of Default.

     The Company shall give written notice to the Secured Party of the occurrence of any Event of
Default.

     Section 6.11. Notice of Litigation.

     The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or
proceedings wherein the amount at issue is in excess of $250,000, instituted by any persons against
the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved
within fifteen (15) days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be expected to have a
Material Adverse Effect on the business operations or financial condition of the Company.

9

 

     Section 6.13. Future Subsidiaries.

     If the Company shall hereafter create or acquire any subsidiary, simultaneously with the
creation or acquisition of such subsidiary, the Company shall cause such subsidiary to grant to the
Secured Party a security interest of the same tenor as created under this Agreement.

ARTICLE 7.

NEGATIVE COVENANTS

     The Company covenants and agrees that, from the date hereof until the Obligations have been
fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise
in writing:

     Section 7.1. Liens and Encumbrances.

     Directly or indirectly make, create, incur, assume or permit to exist any Lien in, to or
against any part of the Pledged Property other than Permitted Liens.

     Section 7.2. Restriction on Redemption and Cash Dividends

     Directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution
on its capital stock without the prior express written consent of the Secured Party.

     Section 7.3. Incurrence of Indebtedness.

     Directly or indirectly, incur or guarantee, assume or suffer to exist any indebtedness, other
than the indebtedness evidenced by the Convertible Debentures and other Permitted Indebtedness.
“Permitted Indebtedness” means: (i) indebtedness evidenced by Convertible Debentures; (ii)
indebtedness described on the Disclosure Schedule to the Securities Purchase Agreement; (iii)
indebtedness incurred solely for the purpose of financing the acquisition or lease of any equipment
by the Company, including capital lease obligations with no recourse other than to such equipment;
(iv) indebtedness (A) the repayment of which has been subordinated to the payment of the
Convertible Debentures on terms and conditions acceptable to the Secured Party, including with
regard to interest payments and repayment of principal, (B) which does not mature or otherwise
require or permit redemption or repayment prior to or on the 91st day after the maturity
date of any Convertible Debentures then outstanding; and (C) which is not secured by any assets of
the Company; (v) indebtedness solely between the Company and/or one of its domestic subsidiaries,
on the one hand, and the Company and/or one of its domestic subsidiaries, on the other which
indebtedness is not secured by any assets of the Company or any of its subsidiaries, provided that
(x) in each case a majority of the equity of any such domestic subsidiary is directly or indirectly
owned by the Company, such domestic subsidiary is controlled by the Company and such domestic
subsidiary has executed a security agreement in the form of this Agreement and (y) any such loan
shall be evidenced by an intercompany note that is pledged by the Company or its subsidiary, as
applicable, as collateral pursuant to this Agreement; (vi) reimbursement obligations in respect of
letters of credit issued for the account of the Company or any of its subsidiaries for the purpose
of securing performance obligations of the Company or its subsidiaries incurred in the ordinary
course of business so long as the aggregate

10

 

face amount of all such letters of credit does not exceed $500,000 at any one time; and (vii)
renewals, extensions and refinancing of any indebtedness described in clauses (i) or (iii) of this
subsection.

     Section 7.4. Places of Business.

     Change the location of its chief place of business, chief executive office or any place of
business disclosed to the Secured Party, unless such change in location is to a different location
within the United States and the Company provides notice to the Secured Party of new location
within 10 days’ of such change in location.

ARTICLE 8.

MISCELLANEOUS

     Section 8.1. Notices.

     All notices or other communications required or permitted to be given pursuant to this
Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery,
if delivered in person or by nationally recognized overnight delivery service or (b) five (5) days
after mailing if mailed from within the continental United States by certified mail, return receipt
requested to the party entitled to receive the same:

	 	 	 
	If to the Secured Party:

	 	Cornell Capital Partners, LP
	 

	 	101 Hudson Street-Suite 3700
	 

	 	Jersey City, New Jersey 07302
	 

	 	Attention: Mark Angelo
	 

	 	Portfolio
Manager

	 

	 	Telephone: (201) 986-8300
	 

	 	Facsimile: (201) 985-8266
	 
	 	 
	With a copy to:

	 	David Gonzalez, Esq.
	 

	 	101 Hudson Street, Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266

11

 

	 	 	 
	And if to the Company:

	 	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.C.
	 

	 	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

     Any party may change its address by giving notice to the other party stating its new address.
Commencing on the tenth (10th) day after the giving of such notice, such newly
designated address shall be such party’s address for the purpose of all notices or other
communications required or permitted to be given pursuant to this Agreement.

     Section 8.2. Severability.

     If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall not in any manner affect or render
invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall
be carried out as if any such invalid or unenforceable provision were not contained herein.

     Section 8.3. Expenses.

     In the event of an Event of Default, the Company will pay to the Secured Party the amount of
any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its
counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of,
or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the
exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by
the Company to perform or observe any of the provisions hereof.

     Section 8.4. Waivers, Amendments, Etc.

     The Secured Party’s delay or failure at any time or times hereafter to require strict
performance by Company of any undertakings, agreements or covenants shall not waive, affect, or
diminish any right of the Secured Party under this Agreement to demand strict compliance and
performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or
affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and
whether of the same or a different type. None of the undertakings, agreements and covenants of the
Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived
by the Secured Party, nor may this Agreement be amended,

12

 

changed or modified, unless such waiver, amendment, change or modification is evidenced by an
instrument in writing specifying such waiver, amendment, change or modification and signed by the
Secured Party in the case of any such waiver, and signed by the Secured Party and the Company in
the case of any such amendment, change or modification.

     Section 8.5. Continuing Security Interest.

     (a) This Agreement shall create a continuing security interest in the Pledged Property and
shall: (i) remain in full force and effect until the occurrence of an Expiration Event; and (ii)
be binding upon the Company and its successors and heirs; and (iii) inure to the benefit of the
Secured Party and its successors and assigns. Upon the occurrence of an Expiration Event, the
Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall
not have been sold in accordance with Section 5.1 hereof or otherwise applied pursuant to the terms
hereof.

     (b) Effective upon the closing of a disposition of any Pledged Property, provided the Secured
Party consents in writing prior to such disposition or such disposition is made in the ordinary
course of business, the security interest granted hereunder in the Pledged Property so disposed of
shall terminate and the Secured Party shall deliver such documents as the Company shall reasonably
request to evidence such termination; provided, however, the security interest granted hereunder in
all remaining Pledged Property shall remain in full force and effect.

     Section 8.6. Independent Representation.

     Each party hereto acknowledges and agrees that it has received or has had the opportunity to
receive independent legal counsel of its own choice and that it has been sufficiently apprised of
its rights and responsibilities with regard to the substance of this Agreement.

     Section 8.7. Applicable Law: Jurisdiction.

     This Agreement shall be governed by and interpreted in accordance with the laws of the State
of Delaware without regard to the principles of conflict of laws. The parties further agree that
any action between them shall be heard in 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.

     Section 8.8. Waiver of Jury Trial.

     AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE
FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS
RELATED TO THIS TRANSACTION.

13

 

     Section 8.9. Entire Agreement.

     This Agreement constitutes the entire agreement among the parties and supersedes any prior
agreement or understanding among them with respect to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

14

 

     IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date
first above written.

	 	 	 	 
	 

	COMPANY:	
	 

	ADVANCED VIRAL RESEARCH CORP.	
	 
	 	 	
	 

	By:	/s/ Stephen Elliston	
	 

	 	 	
	 

	Name: Stephen Elliston	
	 

	Title: Chief Executive Officer	
	 
	 	 	
	 

	SUBSIDIARY 1:	
	 

	ADVANCE VIRAL RESEARCH, LTD.	
	 
	 	 	
	 

	By:	/s/ Stephen Elliston	
	 

	 	 	
	 

	Name: Stephen Elliston	
	 

	Title: President	

15

 

     IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date
first above written.

	 	 	 	 
	 

	SECURED PARTY:	
	 

	CORNELL CAPITAL PARTNERS, LP	
	 
	 	 	
	 

	By: Yorkville Advisors, LLC	
	 

	Its: General Partner	
	 
	 	 	
	 

	By: 	/s/ Mark Angelo	
	 

	 	 	
	 

	Name: Mark Angelo	
	 

	Title: Portfolio Manager	

16

 

SCHEDULE I

LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OF ORGANIZATION

	 	 	 	 	 	 	 	 	 	 	 
	 	 	State of	 	 	 	 	 	 
	Company’s Name	 	Organization	 	Employer ID	 	 	Organizational ID	 
	Advanced Viral Research Corp.
	 	Delaware	 	 	 	 	 	 	 	 
	Advance Viral Research, Ltd.
	 	Bahamas	 	 	 	 	 	 	 	 

17

 

EXHIBIT A

DEFINITION OF PLEDGED PROPERTY

     For the purpose of securing prompt and complete payment and performance by the Company of all
of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party
a continuing security interest in and to, and lien upon, the following property of the Company
existing as of the date hereof (collectively, the “Pledged Property”):

          (a) all goods of the Company, including, without limitation, machinery, equipment, furniture,
furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and
description, now or hereafter owned by the Company or in which the Company may have or may
hereafter acquire any interest, and all replacements, additions, accessions, substitutions and
proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds
of insurance and of any tort claims involving any of the foregoing;

          (b) all inventory of the Company, including, but not limited to, all goods, wares,
merchandise, parts, supplies, finished products, other tangible personal property, including such
inventory as is temporarily out of Company’s custody or possession and including any returns upon
any accounts or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing;

          (c) all contract rights and general intangibles of the Company, including, without limitation,
goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture
interests, patents and patent applications, copyrights, deposit accounts whether now owned or
hereafter created;

          (d) all documents, warehouse receipts, instruments and chattel paper of the Company whether
now owned or hereafter created;

          (e) all accounts and other receivables, instruments or other forms of obligations and rights
to payment of the Company (herein collectively referred to as “Accounts”), together with
the proceeds thereof, all goods represented by such Accounts and all such goods that may be
returned by the Company’s customers, and all proceeds of any insurance thereon, and all guarantees,
securities and liens which the Company may hold for the payment of any such Accounts including,
without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid
vendor and/or lienor;

          (f) to the extent assignable, all of the Company’s rights under all present and future
authorizations, permits, licenses and franchises issued or granted in connection with the
operations of any of its facilities;

          (g) all equity interests, securities or other instruments in other companies, including,
without limitation, any subsidiaries, investments or other entities (whether or not controlled);
and

          (h) all products and proceeds (including, without limitation, insurance proceeds) from the
above-described Pledged Property.

18

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