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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-2262-A
ADVANCED VIRAL RESEARCH CORP.
(Name of Small Business Issuer in Its Charter)
DELAWARE 59-2646820
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1250 East Hallandale Beach Blvd., Suite 501
Hallandale, Florida 33009
(954) 458-7636
(Address of Principal Executive Offices, Zip Code; Telephone Number Including
Area Code)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]
Issuer's revenues for its most recent fiscal year: $102,907.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of February 28, 1997 (see definition of affiliate
in Rule 12b-2 of the Exchange Act): 191,020,925 shares at $0.43 per share, or
$82,138,998.
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Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No N/A
--- ----
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of February 28, 1997: 267,081,058.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990). N/A
Transitional Small Business Disclosure Format (check one):
Yes No x
--- ---
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ADVANCED VIRAL RESEARCH CORP.
FORM 10-KSB
FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART I.....................................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS..................................................................1
ITEM 2. DESCRIPTION OF PROPERTY.................................................................37
ITEM 3. LEGAL PROCEEDINGS.......................................................................38
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.....................................39
PART II...................................................................................................40
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................40
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...............................41
ITEM 7. FINANCIAL STATEMENTS....................................................................44
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................................................44
PART III .................................................................................................45
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT..............................45
ITEM 10. EXECUTIVE COMPENSATION..................................................................46
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................50
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................52
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K........................................................52
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Advanced Viral Research Corp. (the "Company") was incorporated under
the laws of the State of Delaware on July 31, 1985, to engage in the production
and marketing, promotion and sale of an anti-viral peptide-nucleic acid complex
preparation with the trade name RETICULOSE. RETICULOSE has not been approved for
sale or use, nor are applications pending for approval for sale or use by the
Food and Drug Administration of the United States Department of Health and Human
Services ("FDA") or anywhere in the world. The Company is in the developmental
stage, and has not as yet commenced any commercial operations. The Company is
dependent on registration and/or approval by applicable regulatory authorities
of RETICULOSE in a developed or developing country, of which there can be no
assurance, in order to commence commercial operations, which shall include the
production, marketing, promotion and sale of RETICULOSE in each jurisdiction
where the product becomes registered.
BACKGROUND OF RETICULOSE
RETICULOSE had been marketed in the United States during the 1940's
through the early 1960's. Under the Federal Food, Drug, and Cosmetic Act, as
amended in 1962 (the "1962 Act"), RETICULOSE, among other drugs, was classified
by the FDA as a "new drug" requiring FDA approval prior to any sale in the
United States. Management of the Company believes that, since the 1962 Act,
RETICULOSE has not been marketed for commercial sale. See "-GOVERNMENT
REGULATION" and "-THE INVESTIGATIONAL NEW DRUG APPLICATION PROCESS." Although
the AIDS Clinical Trial has been the only controlled clinical trial of
RETICULOSE, the published data for the years 1951 through 1962, largely
anecdotal, indicates that RETICULOSE is an anti-viral pharmaceutical product
which is safe and effective in treating a number of interferon related viruses
such as Asian Influenza, Viral Pneumonia, Virus Infectious Hepatitis, Mumps,
Encephalitis, Herpes Simplex and Herpes Zoster.
Open label clinical trials of RETICULOSE on Human Papilloma Virus (HPV)
at two separate hospitals located in Buenos Aires, Argentina (the "HPV Clinical
Trial") indicated clinical improvement in half, and adverse side effects in none
of the 20 patients tested.
Laboratory tests of RETICULOSE (the "Hirschman Study") at the Mount
Sinai School of Medicine, New York, New York under the supervision of Shalom Z.
Hirschman, M.D., then Professor of Medicine and Director of the Division of
Infectious Diseases of the Mount Sinai School of Medicine, currently the
Company's President and Chief Executive Officer, according to information
received from Dr. Hirschman, demonstrate that RETICULOSE stimulates the
production of a unique set of chemokines, including Interleukin 1 (IL-1),
Interleukin 6 (IL-6) and Gamma Interferon, and inhibits the replication of HIV
in cell cultures.
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The first stage of a double-blind, randomized, placebo-controlled
clinical trial using RETICULOSE in the treatment of AIDS was completed in late
November 1996 (the "AIDS Clinical Trial"). The AIDS Clinical Trial is being
conducted at the Queen Elizabeth Hospital, Bridgetown, Barbados.
The Company has received a letter, dated November 26, 1996, from one of
the scientists conducting the AIDS Clinical Trial, which states as follows:
"The first stage of a double-blind, randomized, placebo-controlled
clinical trial using [RETICULOSE] in the treatment of patients with
AIDS, has been completed. The study protocol received ethical approval
from the Chief Medical Officer's committee.
"Forty-three patients, who had never previously received any
anti-retroviral therapy, were enrolled into the study. Twenty-one
patients received [RETICULOSE] and twenty-two patients received
placebo, administered daily, every other week, for a sixty day period.
[P]atients were observed for a further sixty days after the cessation
of therapy.
"Assays for viral load were performed using PCR by LabCorp, and CD4
counts were performed by SmithKline Beecham Clinical Laboratories
[firms unaffiliated with the Company].
"At the end of the sixty day treatment period, the key results of this
first preliminary stage of the clinical trial were:
"1. A 37% increase in the mean CD4-positive T-cell
lymphocytes in the group of patients that received
[RETICULOSE], as compared to a 7% decrease in the
group of patients that received placebo, and
"2. A 21% average decrease in HIV viral load, as measured
by quantitative RNA PCR, in the [RETICULOSE]-treated
group of patients, in contrast to a 33% increase in
HIV viral load in the group of patients that received
placebo.
"At the end of the sixty-day observation period following cessation of
treatment, the mean viral load of the [RETICULOSE]-treated group was
less than half (42%) of the group given placebo.
"Of the patients who received [RETICULOSE], 83% had a rise in blood
hemoglobin and 61% had a rise in hemoglobin equal to, or greater than,
1 (one) gram per deciliter (g/dl). In contrast, 44% of patients who
received placebo had a rise in blood hemoglobin during the study
period, and in only 25% was the increase equal to or greater than 1
g/dl.
"Clinically, 72% of patients who received [RETICULOSE] maintained or
increased their body weight, while this occurred in only 30% of the
placebo-treated patients.
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"There were no (zero) toxic side effects observed by physicians or
reported by patients receiving [RETICULOSE] therapy."
The Company is dependent upon the success of studies and tests of
RETICULOSE, of which there can be no assurance, if it is ever to receive
regulatory approval in the United States or developed or developing countries to
market RETICULOSE and generate material operating revenues. See "-TESTING
AGREEMENTS."
The concept of an anti-viral agent composed of peptones, peptides,
lipoproteins and nucleic acid was an original idea of Vincent M. LaPenta, M.D.
In 1934, Dr. LaPenta produced a product utilizing horse serum albumen, peptones
and ribonucleic acid which had anti-viral properties and evidenced no toxicity.
The product was later modified to substitute bovine serum albumen for horse
serum albumen and was named RETICULOSE. From 1951 through 1962, data was
collected and reported concerning the safety and scope of the use of RETICULOSE.
Much of the data was anecdotal in nature, such as reports by physicians and
pharmacists of results from the use of RETICULOSE, some of which were published
in recognized medical journals. No controlled "double blind" studied were
undertaken during this period. A study of Robert H. Anderson, M.D. and Ralph M.
Thompson, M.D. published in the VIRGINIA MEDICAL MONTHLY in July 1957, reported
as follows regarding RETICULOSE:
"The exact method of action of this pharmaceutical product, on the
virus, is not fully understood. Since its therapeutic response is so
rapid, its action may be considered a direct one. It either alters the
action of the virus or inhibits the host cells to prevent virus
duplication, or it may do both. In addition, the antigenic properties
of the lipo- protein-nucleic acid complex definitely initiates and
promotes antibody formation and phagocytosis."
In the early 1940's, Chemico Laboratories, Inc. ("Chemico"), a Florida
corporation controlled by Biagio E. LaPenta, the son of Vincent M. LaPenta,
M.D., was established to manufacture RETICULOSE. The Company has been advised
that Chemico, directly and through a distributor, distributed the product for
the treatment of viral diseases in the midwest and southern United States until
the early 1960's.
Two reports in recognized medical journals questioned the efficacy of
RETICULOSE, in tests, respectively, in vitro (i.e., eggs) and in mice by
intracerebral and intraperitoneal injection. The two reports are A.C. Kempe,
"Failure to Demonstrate Antiviral Activity of Reticulose," American Journal of
Diseases of Children, Vol. 103, May 1962, and Behbehani, "The Effect of
Reticulose on Viral Infections of Experimental Animals," Southern Medical
Journal, Vol. 55, February 1962.
Under the 1962 Act RETICULOSE, among other drugs, was classified as a
"new drug" requiring FDA approval prior to any sale in the United States. A
forfeiture action was instituted in 1962 by the FDA against RETICULOSE.
The FDA was successful in its litigation and RETICULOSE was withdrawn from
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the United States market. The injunction obtained by the FDA prohibits, among
other things, any shipment of RETICULOSE until a New Drug Application ("NDA")
for RETICULOSE is approved by the FDA.
In August 1965, the rights to manufacture and market RETICULOSE were
sold, under a royalty agreement (the "Chemico Agreement"), by Chemico and Biagio
E. LaPenta to Key Pharmaceuticals Inc. ("Key Inc.") through its subsidiary, Key
Pharmaceuticals Limited ("Key"), which, on June 1, 1968, obtained a license to
produce ethical pharmaceutical products, including RETICULOSE, for export and
sale from the Grand Bahama Port Authority, Limited (the "Port Authority"). Key
Inc. entered into an employment agreement with Biagio E. LaPenta in August 1968.
Key proceeded to construct a manufacturing facility in Freeport, Bahamas, and
produce RETICULOSE strictly for sale in certain foreign markets. An NDA for
RETICULOSE was filed with the FDA by Key in May 1967. After review by the FDA,
the NDA was withdrawn without prejudice when the FDA advised Key that the NDA
would not be approved. Key then filed a Notice of Claimed Investigational
Exemption for a New Drug ("IND") in November 1968 with the FDA, which IND was
pending for more than four years without favorable action by the FDA and was
withdrawn in 1972 without prejudice.
On February 8, 1973, Key Inc. sold all of the shares of Key, its
Bahamian manufacturing facilities, its interest under the Chemico Agreement and
the trademark RETICULOSE, as well as rights to the services of Biagio E.
LaPenta, to Mr. Cepher Chen Yan-Sun. Mr. Chen distributed the existing inventory
of RETICULOSE for a number of years but the product was not manufactured after
Biagio E. LaPenta died in 1976. Mr. Chen was then declared bankrupt.
In 1984, Bernard Friedland and William Bregman purchased from the Hong
Kong Bankruptcy Court Receiver all of the outstanding shares of Key, all rights
to RETICULOSE, including existing inventory of the product, and the license from
the Port Authority. Messrs. Friedland and Bregman then changed the name of Key
to Advance Viral Research Limited ("LTD"), and assigned all the rights which
they had acquired individually to LTD.
In 1985, Messrs. Friedland and Bregman organized the Company for the
purpose of producing RETICULOSE, seeking approvals for marketing it world-wide,
and causing rights to RETICULOSE to be assigned in May 1986 from LTD to the
Company as part of the Exclusive Rights and Production Agreement, dated January
3, 1986, between the Company and LTD. For a discussion of the ownership of
rights of RETICULOSE, see "-EXCLUSIVE RIGHTS OF THE COMPANY TO RETICULOSE AND
PRODUCTION ARRANGEMENTS."
Laboratory analysis of RETICULOSE by the University of Wisconsin
Biotechnology Center, based on peptide study conducted exclusively for the
Company from December 1987 to September 1988 (the "Wisconsin Study"), indicated
that RETICULOSE contains both medium and short chain length amino acid link
peptides. Mr. Friedland was of the following opinion regarding the Wisconsin
Study:
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"The peptide analyses of four [RETICULOSE] samples, two of which were
16 years old and manufactured by [Key], and two of which were one year
old and manufactured by [LTD], indicated that all four product samples
were essentially the same product as demonstrated by reverse phase high
performance liquid chromatography. Additional analyses conducted by gel
cell electrophoresis demonstrated that all four samples were
essentially of the same composition. These analyses validate both
stability and identical structure of the [RETICULOSE] product
represented by aged and new samples."
The IND was submitted to the FDA on September 20, 1984. Under FDA
regulations, the Company is not permitted to engage in or authorize human
studies regarding RETICULOSE if the FDA notifies the Company of "serious
deficiencies that require correction before human studies can begin or that
would require restriction of human studies until correction," until the Company
is notified that the material that it has submitted to correct the deficiencies
is "satisfactory." Since October 9, 1984, the date of receipt by the FDA of
the IND, the FDA has issued four letters of deficiency with regard to the IND.
In a letter dated November 29, 1984, the FDA indicated, among other
deficiencies noted, that the publications submitted with the IND and relating
to the effectiveness of RETICULOSE on virus related diseases will not be
accepted in support of the safety of RETICULOSE unless the Company can
establish that the proposed formulation of RETICULOSE is the same as the
formulation of RETICULOSE referenced in those publications. In addition, the
FDA required, among other things, that an IND application include relevant
information on the chemistry, laboratory and animal controls to assure the
integrity of the dosage from and that safety information be provided for the
initial study proposed to be conducted on humans. The FDA also required that
the information assure the proper identification, quality, purity and strength
of the investigational drug and a description of the drug substance, including
its physical, chemical and microbiological characteristics. On September 11,
1987, the Company received a further deficiency letter from the FDA, stating
that no data had been submitted supporting in vitro (i.e., eggs) anti-HIV
activity or any criterion for a biological response modifier. See "-THE
INVESTIGATIONAL NEW DRUG APPLICATION PROCESS."
In response to these two deficiency letters from the FDA, the Company,
on March 6, 1992, submitted to the FDA additional information, including
findings from independent research laboratories, intending, among other things,
to procure the FDA's approval to conduct human clinical trials for RETICULOSE
(the "March 1992 FDA Submission"). The purpose of the March 1992 FDA Submission
was to obtain FDA approval of the IND to conduct human clinical trials regarding
the effectiveness of RETICULOSE on AIDS. However, no assurance can be given as
to the time required for the completion of such tests or the time required for
FDA approval, if ever, for commencement of human clinical trials.
In response to the March 1992 FDA Submission, the Company received a
third deficiency letter from the FDA, dated July 27, 1992 (the "July 1992
Deficiency Letter"), which provided detailed comments with respect to chemistry,
toxicology, microbiology and clinical areas requiring
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further studies and action on the part of the Company. Following receipt of the
July 1992 Deficiency Letter, the Company has made no further submission or
response to the FDA, nor does the Company have any present intention to respond
to the FDA. BEFORE SEPTEMBER 1995, THE COMPANY RECEIVED FURTHER CORRESPONDENCE
FROM THE FDA, WHICH STATED, AMONG OTHER COMMENTS, THAT THE COMPANY'S PRIOR
SUBMISSIONS TO THE FDA DID NOT PROVIDE AN ADEQUATE RESPONSE TO THE FDA'S EARLIER
REQUEST FOR PRECLINICAL INFORMATION AND ACCORDINGLY THE COMPANY'S IND WAS
"INACTIVATED."
No assurance can be given that any new IND for clinical tests on humans
will be approved by the FDA for human clinical trials on AIDS or other diseases,
or that the results of such human clinical trials will prove that RETICULOSE is
safe or effective in the treatment of AIDS, or other diseases, or that the FDA
would approve the sale of RETICULOSE in the United States if any application
were to be made by the Company. See "-THE INVESTIGATIONAL NEW DRUG APPLICATION
PROCESS."
Because the FDA has not approved human clinical trials for RETICULOSE
in the United States, the Company has not made arrangements for the preparation
of the protocol necessary for conducting such clinical trials in the United
States, or for a principal investigator for the Phase I human clinical trials,
if such trials are approved by the FDA. The Company may be required, in the
absence of grants or other subsidies, to bear the expenses of the Phase I human
clinical trials. The Company does not know what the actual cost of such trials
would be. If the Company needs additional financing to fund such Phase I human
clinical trials, there can be no assurance that additional financing will be
available to the Company.
EXCLUSIVE RIGHTS OF THE COMPANY TO RETICULOSE AND PRODUCTION
ARRANGEMENTS
On January 3, 1986, the Company and LTD entered into the Exclusive
Rights and Production Agreement pursuant to which the Company purchased the
rights to manufacture and market RETICULOSE worldwide, except the right of LTD
to manufacture, produce and sell for its own account to physicians, clinics and
distribution within the Bahamas, effective upon payment to LTD of $50,000. That
payment was made shortly after consummation of the Company's initial public
offering of securities on May 14, 1986.
The agreement further provided that LTD would produce and sell
RETICULOSE to the Company until the Company's purchase of rights was effective.
In addition, pursuant to this agreement, the Company purchased from LTD at $3.00
per ampule, approximately 15,000 ampules of RETICULOSE for $45,000. The Company
has used these 15,000 ampules for testing and promotional inventory. The Company
also was obligated under the agreement to pay LTD $3.00 per ampule of RETICULOSE
for the initial 100,000 ampules (including these 15,000 ampules) purchased the
first year and $2.00 per ampule purchased thereafter.
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LTD (then known as Key) received a license from the Port Authority to
manufacture pharmaceutical products for export and leased the former Key plant
in Freeport, Grand Bahama Island, consisting of an approximately 29,100 square
foot site containing a one-story concrete block building of approximately 7,100
square feet, which facility is equipped for the testing, production, processing
and packaging of chemical products in tablet and ampule form, including
RETICULOSE. The Company's facility in Freeport, Grand Bahama Island is licensed
for the manufacture of pharmaceuticals for export by the Port Authority.
Historically, this plant had a production capacity of 40,000 ampules
per week and management believes such capacity should support the Company's
requirements for the foreseeable future. However, if RETICULOSE should be
approved for sale in the United States or any other market with material demand
for its products, of which there can be no assurance, there can be no assurance
that this facility will be sufficient to produce adequate quantities of
RETICULOSE. If and when the Company's business requires a higher level of
production of RETICULOSE that such level of sales will generate sufficient
revenues to permit construction of another production facility.
LTD's counsel was advised in August 1988, by the Ministry of Health of
the Government of the Bahamas that a license from the Ministry of Health is
required for the manufacture of pharmaceuticals in the Freeport area of Grand
Bahama Island. The Ministry's position was confirmed by correspondence dated
November 30, 1989. No proceedings have been instituted or threatened by the
Ministry of Health. LTD has received an opinion of its counsel in the Bahamas
that its license from the Port Authority is valid for the manufacture, export
and sale of ethical pharmaceutical products in the Freeport area of Grand Bahama
Island. If such proceedings are instituted, LTD intends to defend them
vigorously. However, there can be no assurance that the Company would be
successful in contesting any action by the government of the Bahamas.
The lease on the Grand Bahama facility expired by its terms in July
1987. Prior to such time, the landlord advised LTD that he would sell to LTD the
then 80-year residue of the 99-year land lease by the Port Authority, dated June
10, 1968, of the property in the Bahamas for a purchase price of $250,000.
Management secured an appraisal from a real estate appraiser in the Bahamas
which indicated that the total value (based upon a depreciated replacement cost
approach) of the property (described in that appraisal as a single-story CBS
building on 29,242.20 square feet of land) and the incorporation of LTD and its
licenses and right to manufacture RETICULOSE (separately valued at B$40,000)
was, as at June 17, 1986, US$580,170. Management secured a later appraisal from
another Bahamian Registered Appraiser which stated that, as of July 24, 1987,
the "property," which consists of the land-lease from the Port Authority (which
has a residue of 80 years to run), the 7,300 sq. feet one-story building thereon
and the plant and equipment contained therein was valued at B$450,000 or US$
459,000.
In November 1987, the Company's stockholders approved the acquisition
by the Company of LTD, the purchase by LTD of the Bahamian manufacturing
facility and the advance by the Company to LTD of the $250,000 purchase price
for that facility, and LTD purchased the facility. On December 16, 1987,
management of the Company, through a Declaration of Trust satisfactory
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to the Bahamian Government, completed the acquisition of LTD, as a 99.6% owned
subsidiary of the Company, and paid approximately $29,000 of closing costs. The
acquisition was followed by termination of the Exclusive Rights and Production
Agreement.
Management also ascertained that legal restrictions related to the
purchase of real property interests in the Bahamas by persons not Bahamian
citizens and not owned or controlled by Bahamian citizens. Inasmuch as LTD was a
pre-existing Bahamian corporation, had secured and maintained the appropriate
licenses and had Bahamian citizens owning 0.4% of the outstanding Ordinary
Shares of LTD, and Messrs. Friedland and Bregman, the Company's principals, had
been approved by the Central Bank of the Bahamas, the Company believes that
LTD's purchase of the property was lawful.
The transaction involved an immediate transfer to the Company of
approximately $46,000 in cash, and of all of Messrs. Friedland's, and Bregman's
beneficial interest in all of the 996 shares of the Ordinary Shares, B$1.00 par
value per share, registered in their names, representing 99.6% of all of the
outstanding Ordinary Shares of LTD. Messrs. Friedland and Bregman agreed to make
a contribution to the capital of LTD of approximately $86,000 by forgiveness of
indebtedness of LTD to them. Messrs. Friedland and Bregman also agreed that
payment to them for their shares in LTD would be made from refund of the
security deposit by the landlord of the property, which security deposit was
originally paid by Messrs. Friedland and Bregman.
The Company has not taken further action since August 1988 to seek to
cause the Bahamian Government to approve the formal transfer of the 996 Ordinary
Shares of LTD to the Company. Messrs. Friedland and Bregman have agreed, by
virtue of their execution and delivery of the 996 Ordinary Declaration of Trust,
that they shall, without remuneration, hold their shares "in trust" for the
Company, delineated in such Declaration of Trust as the owner of the beneficial
interest in such shares, and will vote all such shares and transfer the record
ownership thereof as directed by the Company. The Bahamian Government has not
acted to permit the transfer of the shares to the Company.
Management of the Company does not believe that it will be adversely
effected by such lack of formal approval and believes it can operate
indefinitely under its present arrangement. Messrs. Friedland and Bregman
continue to hold the Company's shares of LTD as trustees for the Company and no
royalties or other payments are or shall become due to LTD under this
arrangement.
By letter dated February 13, 1996, LTD was notified that the National
Economic Council of the Bahamas had refused LTD's request for a Free Sales
Certificate for RETICULOSE.
Although two applications for United States patents have been filed on
behalf of the Company and others are contemplated to be filed, there can be no
assurance that other companies, having greater economic resources, will not be
successful in developing a similar product using processes similar to those of
the Company. There can be no assurance that the Company will obtain such a
patent or, if obtained, that it will be enforceable.
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GOVERNMENT REGULATION
The FDA and regulatory agencies in foreign countries impose substantial
requirements upon and conditions precedent to the introduction of therapeutic
drug products through lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time consuming procedures.
There is no assurance that FDA approval for the sale of RETICULOSE in the United
States will be obtained. If human clinical trials of RETICULOSE are successful,
of which there can be no assurance, the Company will endeavor to raise the
required capital for the purpose of furthering the FDA process. There can be no
assurance that the Company will ever have available sufficient funds nor is
there any assurance that the Company could satisfy FDA regulatory protocol to
gain approval for RETICULOSE in the United States.
The effect of government regulation in certain countries may be to
delay marketing of RETICULOSE for a considerable period of time to impose costly
procedures upon the Company's activities and to furnish a competitive advantage
to the larger companies which compete with the Company in the field of
anti-viral drugs. The extent of potentially adverse government regulations which
might arise from future legislation or administrative action cannot be
predicted.
Third World countries have become increasingly more thorough in the
registration and licensing of pharmaceutical products and require new products
to prove their non toxicity, stability, safety, efficacy and to maintain records
concerning same in many of the Third World countries. Accordingly, until
registration is granted, if ever, in the United States or another developed or
developing country, it is not expected that the Company will be able to generate
material sales revenues. See "-MARKETING AND SALES" and "-EXCLUSIVE DISTRIBUTION
AGREEMENTS."
The Company received from the Port Authority a copy of a grant of
authority, issued on October 15, 1992, confirming the right of LTD to
manufacture for export pharmaceutical products. LTD's counsel was advised in
August 1988, by the Ministry of Health of the Government of the Bahamas that a
license from the Ministry of Health is required for the manufacture of
pharmaceuticals in the Freeport area of Grand Bahama Island. No proceedings have
been instituted or threatened by the Ministry of Health. If such proceedings are
instituted, LTD intends to defend them vigorously. See "LITIGATION."
THE INVESTIGATIONAL NEW DRUG APPLICATION PROCESS
The IND process in the United States is governed by regulations
established by the FDA which strictly control the use and distribution of
investigational drugs in the United States. The guidelines require that an
application contain sufficient information to justify administering the drug to
humans, that the application include relevant information on the chemistry,
pharmacology and toxicology of the drug derived from chemical, laboratory and
animal or in vitro testing, and that a protocol be provided for the initial
study of the new drug to be conducted on humans.
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In order to conduct a clinical trial of a new drug in humans, a sponsor
must prepare and submit to the FDA a comprehensive IND. Under FDA regulations,
the Company is not permitted to engage in or authorize human studies regarding
RETICULOSE in the United States if the FDA notifies the Company of "serious
deficiencies that require correction before human studies can begin or that
would require restriction of human studies until correction" until the Company
is notified that the material that it has submitted to correct the deficiencies
is "satisfactory." The Company's understanding is that it is rare for a new drug
sponsor to obtain approval of an IND on the basis of an initial submission, as
the FDA almost always requests additional information. The focal point of the
IND is a description of the overall plan for investigating the drug product and
a comprehensive protocol for each planned study. The plan is carried out in
three phases: Phase I, in which the pharmacological effects and possible
toxicity are evaluated in a small number of volunteers or patients; Phase II,
in which the drug is carefully evaluated in a small population of patients for
the effectiveness of the drug and short-term side effects in controlled
clinical trials; and Phase III, in which greater numbers of patients are
employed and broader information is gathered to provide the basis for the
drug's proper use by physicians. The initial IND may cover only Phase I.
An investigator's brochure must be included in the IND and the IND must
commit the sponsor to obtain initial and continual review and approval of the
clinical investigation. A section describing the composition, manufacture and
control of the drug substance and the drug product is included. Sufficient
information is required to be submitted to assure the proper identification,
quality, purity and strength of the investigational drug. A description of the
drug substance, including its physical, chemical, and biological
characteristics, must also be included in the IND. The general method of
preparation of the drug substance must be included. A list of all components
including inactive ingredients must also be submitted. There must be adequate
information about pharmacological and toxicological studies of the drug
involving laboratory animals or in vitro tests on the basis of which the sponsor
has concluded that it is reasonably safe to conduct the proposed clinical
investigation. Where there has been widespread use of the drug outside of the
United States or otherwise, it is possible in some limited circumstances to use
well documented clinical experience in place of some other pre-clinical work.
After the FDA approves the IND or allows it to become effective, the
investigation is permitted to proceed, during which the sponsor must keep the
FDA informed of new studies, including animal studies, make progress reports on
the study or studies covered by the IND, and also be responsible for alerting
FDA and clinical investigators immediately of unforeseen serious side effects
or injuries.
When the clinical testing has been completed and analyzed, final
manufacturing processes and procedures are in place, and other information
required to be in an NDA is available to the manufacturer, a manufacturer may
submit an NDA to the FDA. An NDA must be approved by the FDA covering the drug
before its manufacturer can commence commercial distribution of the drug. The
NDA contains a section describing the clinical investigations of the drug which
section includes, among other things, the following: a description and analysis
of each clinical pharmacology study of the drug; a description and analysis of
each controlled clinical study pertinent to a proposed use of the drug; a
description of each uncontrolled clinical study including a summary of the
results and a brief statement
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<PAGE> 14
explaining why the study is classified as uncontrolled; and a description and
analysis of any other data or information relevant to an evaluation of the
safety and effectiveness of the drug product obtained or otherwise received by
the applicant from any source foreign or domestic. The NDA also includes an
integrated summary of all available information about the safety of the drug
product including pertinent animal and other laboratory data, demonstrated or
potential adverse effects of the drug, including clinically significant
potential adverse effects of administration of the drug contemporaneously with
the administration of other drugs and other related drugs. A section is
included describing the statistical controlled clinical study and the
documentation and supporting statistical analysis used in evaluating the
controlled clinical studies.
Another section of the NDA describes the human pharmacokinetic data and
human bioavailability data (or information supporting a waiver of the submission
of in vivo bioavailability data). Also included in the NDA is a section
describing the composition, manufacture and specification of the drug substance
including the following: a full description of the drug substance, its physical
and chemical characteristics; its stability; the process controls used during
manufacture and packaging; and such specifications and analytical methods as are
necessary to assure the identity, strength, quality and purity of the drug
substance as well as the bioavailability of the drug products made from the
substance. NDA's contain lists of all components used in the manufacture of the
drug product and a statement of the specifications and analytical methods for
each component. Also included are studies of the toxicological actions of the
drug as they relate to the drug's intended uses.
The data in the NDA must establish that the drug has been shown to be
safe for use under its proposed labeling conditions and that there is
substantial evidence that the drug is effective for its proposed use(s).
Substantial evidence is defined by statute and FDA regulation to mean evidence
consisting of adequate and well-controlled investigations, including clinical
investigations by experts qualified by scientific training and experience, to
evaluate the effectiveness of the drug involved.
It is not known at this time how extensive the Phase II and Phase III
clinical trials will be, if they are conducted. There can be no assurances that
the data generated will show that the drug RETICULOSE is safe and effective as
described above and even if the data shows that RETICULOSE, is safe and
effective, obtaining approval of the NDA could take years and require financing
of amounts not presently available to the Company.
Management of the Company believed that there was sufficient data
available on RETICULOSE to file an IND with the FDA to investigate the possible
effects of the drug for the treatment of patients with AIDS as well as other
interferon related viruses. This belief was based upon the belief of management
of the Company that RETICULOSE was distributed in the United States and used
regionally from the late 1940's through the 1960's, and upon recent studies. See
"--BACKGROUND OF RETICULOSE.".
Nevertheless, the FDA, in a letter dated November 29, 1984 to Bernard
Friedland, as the sponsor of the IND, stated:
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<PAGE> 15
We have completed our review of your application and find that the
information presented is inadequate and does not allow us to conclude that it is
reasonably safe to initiate clinical trials.
The deficiencies are summarized as follows:
"Regarding manufacturing and controls:
"1. You have not provided an acceptable definition of the drug moiety. If
you propose a lipid-protein-nucleic acid complex, then the lipid,
protein and nucleic acid must be characterized and their interactions
defined.
"2. After the moiety has been acceptably defined, its quantitative
composition in the vehicle must be stated.
"3. You should include appropriate chemical, physical and microbiological
controls to assure the integrity of the dosage form as well as data
from stability studies using these controls.
"4. Please provide complete information on the composition, size and
dimensions of the container-closure system to be used.
"5. Please include a complete description of the manufacturing and
packaging procedures and the name and address of the producing
facility. An FDA inspection will be required.
"6. Labeling is inadequate until the drug moiety is characterized and a
quantitative composition is proposed. The drug must be labeled sterile.
"Regarding the clinical and preclinical portions of your submission:
"1. Please provide data that show that your [RETICULOSE] formulation is the
same as the [RETICULOSE] formulation that is the subject of the
articles you have provided. The articles cannot be used in support of
the safety of your product if the formulations are different. If the
formulations are not the same, you must provide complete
pharmacology/toxicology information for your formulation.
"2. Please provide clinical and preclinical data to support the statement
that [RETICULOSE] is either an anti-viral or a biological response
modifier, or both.
"3. We are reserving full comment on your clinical protocol until you have
provided the necessary safety information. However, we have these
preliminary comments.
"a. The study objectives are not stated clearly.
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"b. [Some of the raw materials used in RETICULOSE] are animal
antigens capable of inducing adverse reactions in humans. What
precautions will be taken with regard to this possibility?
"c. You have not submitted a patient consent form."
On March 27, 1987, the Company advised the FDA that the Freeport, Grand
Bahama manufacturing facility for RETICULOSE had been put into "good
manufacturing process" condition and requested an FDA inspection. The Company
advised the FDA that stability data and other requested information would be
forwarded by the Company as a separate submission in conjunction with this
inspection.
On May 22, 1987, the Company submitted to the FDA what the Company
considered to be the requested information for the completion of the submission
of the IND for RETICULOSE.
On September 11, 1987, the FDA responded to the Company's May 22, 1987
submission, stating the FDA finding that "essentially no new information has
been provided," and further that "they were unable to conclude that it is
sufficiently safe to initiate clinical trials."
The deficiencies noted in the September 11, 1987 letter from the FDA
were as follows:
"There is no scientific rationale provided for the use of [RETICULOSE]
in patients with HIV infections. Please submit data which support in vitro
anti-HIV activity. There are no data submitted which support any criterion for a
biological response modifier. Without a scientific rationale and supporting in
vitro data there is no basis for allowing your study to proceed. Once a
rationale for use of the drug has been established, the following should be
addressed:
"1. There are no data provided that show that the product you intend to
manufacture is the same [RETICULOSE] formulation that is the subject of
the articles cited in support of safety. As acknowledged in the
application, the formulation of [RETICULOSE] has changed over the
years. It appears from our records that there have been at least three
formulations. We are unable to determine from the submission exactly
when the formulation changes took place or specifically which
formulation was used in each of the various animal and human studies.
"The assertion that 'the sponsor was trained by the original
manufacturer of RETICULOSE and is utilizing the same formulation with identical
raw materials, in the same facility with the same equipment as was utilized for
the RETICULOSE described in the animal safety studies submitted with this
application, and in the published human clinical data' is not sufficient. Please
provide data that characterize the present formulation and its relationship to
previous formulations. If possible, please submit a letter of authorization from
the original manufacturer to allow us to refer to their data in order to make
the comparison. We may not refer to another manufacturer's data on file with us
on your behalf without specific written authorization.
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"2. We have concerns regarding the allergenic potential of [RETICULOSE].
Please refer to the referenced study reported in 1968 by Kozima et al.
of Nikken Chemicals Co. Ltd. In that study, [RETICULOSE] was
administered intraperitoneally to guinea pigs and the animals were
subsequently rechallenged 3 weeks later. 'Shock symptoms' were observed
in 7 of the 10 animals. These studies should be repeated with the
currently proposed formulation and a detailed report on all animals,
including necropsy findings, should be submitted.
"3. The manufacturing and controls information requested in our November
29, 1984 letter have not been adequately addressed:
"a. Please provide a complete characterization of the raw
materials used for the drug substance.
"b. Provide a complete characterization of the nucleic
acid/lipoprotein complex.
"c. After the above characterizations have been completed, set
specifications for the final drug substance and for stability
profiles.
"d. Provide comparative stability data for all formulations.
"e. Specifications and methods must be submitted for the dosage
form which assure reproducible chemical, physical, and
microbiological attributes.
"f. Complete manufacturing details for the drug substance and
dosage form must be submitted with clear descriptions of
conditions, in-process controls and facilities.
"g. Labeling must define quantities of each ingredient and state
that the product is sterile.
"4. We will not conduct an inspection of the manufacturing facility until
the application is complete in other respects.
"5. Comments on the clinical protocol will not be made until the necessary
safety information has been submitted."
On February 28, 1992, the Company submitted an amendment to the IND,
including the following:
"1. Scientific Rationale for use of RETICULOSE in patients with HIV
infection.
"2. Additional data to support the antiviral activity of [RETICULOSE] with
in vitro and in vivo studies against the Influenza A virus, and the
Hepatitis A and B viruses.
"3. Product [reproductibility] comparison with earlier formula, and
comparative stability.
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<PAGE> 18
"4. Current toxicity/safety data and discussion concerning allergenic
potential plus earlier toxicity studies.
"5. Manufacturing and controls information, including facility description,
the Master Formula and product specifications for release, and clinical
research labeling.
"6. Revised Clinical Protocol and Patient forms.
"7. Clinical Reports from 1988-1989 and prior to 1984."
The March 1992 FDA Submission included, among other things, findings
from certain independent research laboratories. The purpose of the March 1992
FDA Submission was to obtain FDA approval of the IND to conduct human clinical
trials regarding the efficacy of RETICULOSE on AIDS.
On July 31, 1992, the Company received from the FDA the July 1992
Deficiency Letter stating, among other things, that the Company's resubmitted
IND application, dated February 28, 1992, "does not adequately respond to the
concerns listed in [the FDA's] letter of Company dated September 11, 1987." The
July 1992 Deficiency Letter further states that the following deficiencies must
be addressed prior to initiation of clinical studies:
"Chemistry
"1. Please provide the supplier, biological source and method of
preparation for ... either directly or by cross-reference to the
appropriate Drug Master Files(s). Also, please submit a certificate of
analysis and acceptance specifications for each of these substances as
well as for the inactive ingredients.
"2. Please revise the manufacturing process to use one of the USP
-recommended waters. ...
"3. Please submit documentation concerning the controls and verification of
sterility along the entire aseptic processing pathway, including
sampling points. Also, please state the final temperature obtained in
the autoclave during the reaction step of the manufacturing process and
during sterilization of the ampules.
"4. Please describe the chemical tests used to determine the dilution
factor during manufacturing. Also, please provide sample calculations.
"5. Please describe in detail the analytical methods, including sterility
and LAL test, used for drug product release specifications.
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<PAGE> 19
"6. Please submit batch analyses on all available preclinical and clinical
lots of the drug product.
"7. Please establish a complete stability protocol describing test
parameters, testing stations and storage conditions, which include room
temperature, elevated temperature, elevated humidity and light
exposure.
"8. Please revise the labeling on individual ampules and ampule shipping
cartons to be in accordance with FDA Guideline, "Compilation of
Regulatory Labeling Requirements for Human Drug Products," pages 40-44
(copy enclosed). Please include the following information on the label:
a) "Reticulose FOR INJECTION; b) "CAUTION: New Drug. Limited by Federal
law to investigational use" in accordance with 21 CFR 312.6 (copy
enclosed); c) the potency, i.e. mg/ml of the active ingredient(s) in
the drug product; d) an identifying lot or control number from which
the manufacturing history can be determined; e) the name or code number
of the patient; f) the name and address of the investigator; g) the
expiration date of the drug; and h) the study and/or protocol
designation.
"Toxicology
"9. Please perform 4-week repeat dose toxicity studies in two species, one
being a non-rodent, with the proposed investigational article in a
manner consistent with Good Laboratory Practices. Studies should
include hematologic and clinical chemistry measurements and complete
histopathologic evaluation of all animals. Doses selected should
include some clearly toxic doses, if feasible.
"Microbiology
"10. Please perform IN VITRO studies to determine what effect, if any,
[RETICULOSE] has on HIV replication in models of both acute and chronic
(i.e., low persistent) infections. Studies have indicated that agents
which modulate macrophage and T-cell functions such as IL-2 and
TNF-[alpha], may modulate viral expression and/or release of HIV from
infected cells. The potential for drug-associated up-regulation of
virus production is an important consideration in the analysis of
risk/benefit. At a minimum, activation potential should be evaluated in
the following human cell types:
"(a) Freshly isolated peripheral blood mononuclear cells;
"(b) At least one established T-cell line (e.g., H9, MT4, MT2 or
MOLT4); and
"(c) One line representative of the monocyte/macrophage lineage
(e.g., U937, U1 or OM10.1).
"Studies employing a variety of different human cell cultures and HIV
strains are encouraged.
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"Clinical
"11. Please submit the name and address and a statement of the
qualifications (curriculum vitae or other statement of qualifications)
of the principal investigator.
"12. Please define inclusion and exclusion criteria according to current
standard terminology and practice. For example, the confirmatory test
for HIV infection is the Western Blot, not the ELISA test for HIV
antibody.
"13. Please provide an initial proposed dosage based on preclinical safety
information. Please also refer to the comment under 'Toxicology' in
developing preclinical safety data.
"14. Please provide a rationale for the proposed study parameters, for
laboratory monitoring, and for toxicity evaluation. In addition, please
define endpoints which are measurable and can be quantified and which
may be subject to statistical analysis. For example, please specify
what constitutes a "significant and consistent increase" in CD4
lymphocyte count. Please provide safety monitoring which is appropriate
for the preclinical safety data. In particular, please provide
monitoring for the potential for anaphylaxis, as seen in the
preclinical repeat dose study in guinea pigs.
"15. Please revise the informed consent document to reflect the preclinical
safety and effectiveness data.
"16. Please provide a concise rationale for the proposed sample size and
define the proposed statistical methodology. In general, interim
analyses are not appropriate for a 12 week phase 1 study.
"Until you have submitted the above required information for items 1-16, and we
notify you that if it is safe to initiate the studies, you may not proceed with
the proposed study.
"We also have the following advice which we believe would improve your IND:
"Chemistry
"The following chemistry issues must be addressed prior to studies beyond
initial phase [1 and 2] studies:
"17. Please establish the identity(ies) and structure(s) of the active
component(s).
"18. Please identify the impurities contained in the drug substance(s) and
drug product and establish individual limits for the impurities.
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"19. Please incorporate into the drug product specifications and
identification test(s) and an assay for the active ingredient(s) using
properly validated analytical methods.
"20. Please identify the supplier and composition of the ampules.
"Microbiology
"21. Please clarify the following with respect to the data submitted in the
submission:
"(a) Please specify whether the peptide nucleic acid solution and
the [RETICULOSE] preparation used by Dr. Lionel Resnick are
the same or a different preparation.
"(b) Please provide the units of p24 and RT activity and explain
whether the results represent percent inhibition or activity.
In addition, please clarify the discrepancy in the numbers
shown in the submission and in the published report (table 3).
"The following microbiology issues should be addressed concurrent with
phase [1 and 2] studies:
"22. Please use pre-clinical studies in appropriate animal models of
retrovirus infection to define and characterize the activity of
[RETICULOSE].
"23. Please perform studies to investigate whether [RETICULOSE] can induce
an antibody response which might inhibit its activity against HIV.
"24. We encourage you to investigate the mechanism by which [RETICULOSE]
inhibits HIV."
BEFORE SEPTEMBER 1995, THE COMPANY RECEIVED FURTHER DEFICIENCY
CORRESPONDENCE FROM THE FDA, DATED JUNE 1, 1995, WHICH STATED, IN ADDITION TO
THE COMMENTS STATED BELOW, THAT THE COMPANY'S PRIOR SUBMISSIONS TO THE FDA DID
NOT PROVIDE AN ADEQUATE RESPONSE TO THE FDA'S EARLIER REQUEST FOR PRECLINICAL
INFORMATION AND ACCORDINGLY THE COMPANY'S IND WAS "INACTIVATED":
"1. The protocol lacks sufficient description of many basic clinical trial
elements, such as randomization, blinding and a well defined control
group.
"2. A rationale for the proposed sample size of "two to ten" patients is
not provided.
"3. The rationale for the dose, dosing frequency and duration of therapy is
not provided.
"4. The eligible patient population is inadequately defined. In particular,
the CD4 count range for patient eligibility should be specified.
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"5. The primary efficacy assessment of the study (reduction in viral load)
is not consistent with the following statement in section F.O.
Biostatistical Considerations:
'The estimated number of patients eligible
for entry into this trial who will
experience an adverse event as defined as an
opportunistic infection or development of
another neoplasm at 90 days is 2% or less.
We wish to detect such a patient in the
group of up to 5 and provide him/her with
whatever alternative therapy is deemed
advisable.'
"This statement suggests that there is confusion around the objective
of this study and how a sample estimated based on the desired objective.
"6. The statement "Patients experiencing an adverse event within the first
7 days of treatment will be considered evaluable for toxicity but not
for efficacy" is unacceptable because all enrolled patients should be
evaluated for both safety and efficacy.
"7. The protocol indicates (section M.2.1) that "elimination of culturable
virus, based on Viral Load assays" is one of two laboratory parameters
of interest, however, nowhere else are viral cultures discussed.
Similarly, "restoration of immune function by tests of delayed
hypersensitivity and optional functional assays" is mentioned in
section M.3.2.2 as an additional laboratory endpoint, however it is not
further described.
"8. The principle [sic.] investigator is not identified.
"9. An informed consent document is not provided."
No assurances can be given that the Company's IND will ever be approved
by the FDA or that results of any testing will demonstrate that RETICULOSE is
safe or effective in the treatment of disease. The Company has not formally
responded to the July 1992 Deficiency Letter or the 1995 deficiency letter, nor
have any of the studies cited in those letters been undertaken. The Company
currently contemplates that it may file with the FDA an amendment to the IND or
seek to reactivate the IND. There can be no assurances as to the costs or the
timing of the refiling of the IND or whether the Company has the resources to
complete the FDA approval process. The Company may allocate certain funds from
the exercise of Common Stock purchase options for the purpose of filing a new
IND with the FDA. No assurance can be given, however, that any options will be
exercised, that a new IND will be accepted by the FDA or that any tests
previously conducted or to be conducted will satisfy FDA requirements.
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TESTING AGREEMENTS
Testing in the United States of America
On September 20, 1984, the IND was submitted for a Phase I type study
to determine if there was any pharmacological activity in humans against HIV.
See "-THE INVESTIGATIONAL NEW DRUG APPLICATION PROCESS." In response to the FDA
deficiency letters in 1984 and 1987 regarding the IND, the Company undertook the
Wisconsin Study, a series of protein tests for product control and protein
fragment identification which were conducted by the University of Wisconsin's
Biotechnology Center. See "-BACKGROUND OF RETICULOSE." Prior to the completion
phase of the Hirschman Study, the rationale for trial of RETICULOSE in humans
was based upon in vitro studies which the Company believed had demonstrated at
least partial activity against HIV. In October 1989 and December 1989,
respectively, Southern Research Institute, Birmingham, Alabama and Vironc
Laboratories, North Miami Beach, Florida conducted in vitro screenings of
RETICULOSE against the HIV virus in two separately conducted independent
laboratory screenings. In these screenings, RETICULOSE was shown to be either
partially or significantly active against HIV at specific dilutions and was
non-cytotoxic. In addition, a historical search is being conducted and the time
line is being developed to connect the current RETICULOSE product and its
manufacturer with the original product and its manufacturer. This search is
being documented for eventual submission to the FDA to further substantiate the
identity of the current product which is the subject of the IND. In October
1989, International Diagnostics Ltd. Inc., Dania, Florida, an independent
testing laboratory, undertook standard mouse toxicity assays to demonstrate
toxicity of RETICULOSE. Results indicated no apparent signs of toxicity in
RETICULOSE treated animals at specific doses. Management of the Company
originally believed that due to the early safety record and published reports of
human use that the FDA would permit the initial Phase I trials in humans after
approximately six months. If sufficient funds are available from the exercise of
Options or other sources, the Company will consider taking the requisite
scientific steps to satisfy the FDA that the formulation of RETICULOSE is
identical to the formulation reported in the prior anecdotal history and
studies. The time and costs required for IND approval as a result of the FDA not
accepting the prior history of the drug is currently not known to the Company
but could be considerable. Certain of the foregoing studies, excluding the HPV
Clinical Trial, the Hirschman Study and the AIDS Clinical Trial, were submitted
to the FDA as part of the March 1992 FDA Submission, but were not deemed
sufficient by the FDA.
Canadian Contract
The Company, during the period from 1992 to 1995, had been seeking
approval in Canada for controlled distribution of RETICULOSE. It submitted an
application for a limited study on 24 patients with Kaposi's Sarcoma, a
condition associated with AIDS, the approval of which application was pending in
1995. However, due to delay in obtaining the approval for this study and after
receiving deficiency letters from the Health Protection Branch of the Health and
Welfare Department of Canada, the Company had withdrawn the application to have
that study commence.
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Pursuant to an agreement, dated June 5, 1993 with Richard Morisset,
M.D., a Canadian physician (the "Canadian Agreement"), the Company granted Dr.
Morisset up to $90,000 for Dr. Morisset's undertaking a Compassionate Treatment
of ten HIV-positive patients treated with RETICULOSE and ten HIV-positive
persons not treated with RETICULOSE (the "Canadian Compassionate Treatment").
Although the Company advanced $72,000 under this agreement, the Company does not
currently intend to advance any further monies for the Canadian Compassionate
Treatment. Further, due to the delays in obtaining information and guidance from
Dr. Morisset regarding the Canadian Compassionate Treatment, the Company
believes that no further efforts are being employed by Dr. Morisset in
connection with the Canadian Compassionate Treatment. The Company currently
believes that no further work will be performed by Dr. Morisset and anticipates
formally terminating this agreement in the near future.
TRM Management Corp.
Pursuant to an agreement dated August 20, 1991 between the Company and
TRM Management Corp. ("TRM"), a Florida corporation unaffiliated with the
Company (the "TRM Agreement"), TRM performed, at the Company's expense, a
controlled open clinical trial test in Haiti during a period of 30 days, on 53
patients with early onset Hepatitis "A" or Hepatitis "B", approximately one-half
of whom were treated with RETICULOSE and approximately one quarter of whom were
untreated for each of these two diseases, to assess the effectiveness of
RETICULOSE against the Hepatitis "A" virus and Hepatitis "B" virus in accordance
and in compliance with the Hepatitis Open Label Clinical Trial Protocol
developed by TRM, which involved diagnosis otherwise than by the positive method
of liver biopsy (the "Haiti Tests").
In accordance with the TRM Agreement, Matthew Cohen prepared a paper
which describes the methods and results of the Haiti Tests (the "Results
Paper"). The Results Paper was published in the Journal of the Royal Society of
Health, December 1992 issue (the "Journal"). Matthew Cohen is not affiliated
with or related to Leonard Cohen, who acted as a consultant to the Company.
The Results Paper states, among other things, that the Haiti Tests
resulted in certain "positive clinical and laboratory effects" regarding the use
of RETICULOSE against the Hepatitis "A" virus and Hepatitis "B" virus,
especially against Hepatitis "B." The Company believes, however, that the Haiti
Tests may have been limited in terms of its methodology and results. The Company
is considering such factors relative to future testing. In accordance with the
terms of the TRM Agreement, the Company has issued to the stockholders and
certain associated persons of TRM (i) an aggregate amount of 10,000,000 shares
(the "TRM Shares") of the Company's Common Stock, par value $.00001 (the "Common
Stock"), and (ii) an option to acquire, at one time, during a period that
subsequently was extended until March 15, 1997, 10,000,000 shares of the Common
Stock at a purchase price of $.05 per share (the "TRM Options"). Through
December 31, 1996, the Company has received $333,333 pursuant to the issuance of
6,666,666 shares of Common Stock in connection with the exercise of TRM Options
by David Sass, as an assignee of Troy Posner, and by Richard Waldman, two of the
three original TRM stockholders. Pursuant to an amendment, the TRM Options were
exercisable through March 15, 1997 at an exercise price of $.08.
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Plata Partners Limited Partnership
On March 20, 1992, the Company entered into an agreement with Plata
Partners Limited Partnership ("Plata"), a Michigan limited partnership
unaffiliated with the company (the "Plata Agreement"), pursuant to which Plata
agreed at its expense, to perform a demonstration on ten patients of both sexes
from 18 to 45 years of age for 45 days, without control group, at Campus #1
University C.B.E.P., University of Santo Domingo, Santo Domingo, Dominican
Republic in accordance with a certain agreed upon protocol (the "Protocol") to
assess the efficacy of a treatment using RETICULOSE incorporated in the Protocol
against AIDS (the "Demonstration"). The Protocol provides, among other things,
that the treatment consists of RETICULOSE along with vitamin and protein
supplements.
The preliminary and final results of the Demonstration were previously
reported by the Company in its Reports on Form 8-K filed with the Commission on
July 10, 1992 and November 6, 1992.
The Demonstration was conducted on the patients from May 1992 through
July 1992. The Demonstration was supervised by Angelo A. Chinnici, M.D., of New
Jersey, and administered by medical doctors certified to practice in the
Dominican Republic. A videotape has been produced by Plata memorializing the
Demonstration, which videotape was delivered to the Company in August, 1992. In
August 12, 1992 the Company received from Plata a translated written transcript
of a press conference (the "Press Conference") called and conducted by Plata in
Santo Domingo, Dominican Republic on August 7, 1992 (the "Transcript"). The
Press Conference was held by Plata following the completion and the release of
preliminary results of the Demonstration.
The Transcript, a copy of which has been filed with the Company's
Report on Form 8-K with the Commission on August 14, 1992, provides, among other
things, statements from Dr. Joaquin Perez-Mendez, the Director of the Program
for Control of Sexually Transmitted Diseases (Procets) a governmental
organization in the Dominican Republic, who participated in the administration
of the Demonstration, Dr. Charles Dunlop, the Surgeon General of the Dominican
Republic, Dr. Norman de Castro and Dr. Rafael Alcantara, who is associated with
the Center for Sexually Transmitted Diseases in the Dominican Republic.
Generally, the Transcript states that the Doctors expressed "optimism
and hopefulness" and encouraged further testing of the efficacy of RETICULOSE
against AIDS. Further, the Transcript notes that Dr. Dunlop stated that "my job
from the point of view of the government has been to help to register the
medicine. And we are doing all the studies possible with the Public Health
Center and Drug Administration to see that this happens." As of the date hereof,
the Company has not independently verified or otherwise substantiated the
accuracy or completeness of the Transcript or the Press Articles. The
Demonstration conducted by Plata was not a double-blind study. However, as of
the date of this Prospectus, no registration certificate has been granted by the
Dominican Republic, and there can be no assurance that such certificate will be
issued. Further, the Company is currently not pursuing the registration
certificate in the Dominican Republic.
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The Company has also been made aware that newspaper articles appeared
in Spanish language newspapers (published in the Dominican Republic) regarding
the Press Conference (the "Press Articles") and interviews with Drs.
Perez-Mendez and Alcantara. Certain of the Press Articles report that the
preliminary results of the Demonstration were "very encouraging" and that the
"laboratory results subsequent to the treatment, reveal a more than 50 percent
reconversion of the cell immunological system in almost all of the patients
being maintained with relatively little favorable change in the only patient who
did not complete the treatment." According to certain of the Press Articles,
certain of the doctors attending the Demonstration stated: "Although it [(the
Demonstration)] does not have the representativeness which a study of this
caliber requires, precisely due to the small number of patients involved in the
same, and above all due to the fact that it did not rely on a control group
which permits us to make some significant comparisons, basically it is a good
job of research and the results [are] clearly excellent."
The Company received from Plata certain written information, certain
copies of which are incorporated by reference into the Company's Reports on Form
8-K delivered for filing to the Commission on July 10, and July 23, 1992 (the
"Plata Statement"). The Plata Statement reports, among other things, certain
positive preliminary results of the Demonstration (the "Results"). The Plata
Statement advised the Company of preliminary improvement of the patients
participating in the Demonstration. Specifically, according to the Plata
Statement, "all patients showed weight gain, as well as resolution of malaise,
joint pain, and diarrhea and that those patients "initially presented with
herpetic lesions (i.e., shingles) showed clearing and well healed vesicles.
There was a decrease in lymphotenopathy in the majority of patients, and their
oral thrush was greatly improved."
In August 1992, the Company received from Lionel Resnick, M.D.,
F.A.A.D., F.A.C.P., Chief, Retrovirology Laboratories, Departments of
Dermatology and Pathology, Mount Sinai Medical Center of Greater Miami, in
Miami, Florida, written correspondence relating to the Demonstration stating
that, based upon Dr. Resnick's review of the results of the Demonstration, a
"'dramatic' clinical improvement was documented over the forty-five day period
of the study...[and] there were significant changes in laboratory surrogate
markers consistent with beneficial drug effects" although "a high-level of
enthusiasm is tempered by the lack of 1) a homogeneous study population and 2)
defined clinical endpoints."
In October 1992, the Company received from Anthony J. Mangia, M.D.,
certified by Plata to be an expert in the area of AIDS research, further written
correspondence relating to the Demonstration (the "Mangia Correspondence"). As
an independent observer, Dr. Mangia visited the Demonstration site, reviewed
scientific data regarding the in vitro activity of RETICULOSE against various
viruses, interviewed the study physicians, examined some of the patients, and
reviewed the written results of the Demonstration. The Mangia Correspondence
provides, "Review of the data submitted... indicates that RETICULOSE may be an
effective alternative treatment for AIDS patients" and concludes that the
results of the Demonstration appear to indicate that RETICULOSE is "well
tolerated, with no significant adverse reactions to the drug."
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<PAGE> 27
The Mangia Correspondence also indicates that the patients he examined
had experienced an "amelioration in symptoms and a sense of well being" by the
time the Demonstration had concluded. The Mangia Correspondence does, however,
contain several criticisms of the Demonstration, including, among other things,
the brevity of the Demonstration, the lack of stratification according to CD 4
count, the small number of subjects, the inclusion of nutritional supplements
along with the RETICULOSE, and the lack of pre- and post-treatment weights and
performance status evaluation of the subjects. The Mangia Correspondence
concluded that the results of the Demonstration appear to indicate that further
studies in animals and humans appear to be warranted. The Mangia Correspondence
suggested that such further studies need to be better controlled and performed
on a larger scale with more sophisticated methods, including the monitoring of
endogenous interferons, other cytokines and "surrogate markers" for HIV
activity, than the Demonstration.
The Company received from Plata a copy of a report dated September 30,
1992, from Angelo A. Chinnici, M.D. regarding the Demonstration (the "Chinnici
Report"). The Chinnici Report stated the hypothesis, objectives, methodology,
clinical tracking and procedures involved in the Demonstration. The Chinnici
Report comments that the majority of the subjects involved experienced "a
dramatic clinical improvement, i.e., reduction in oral thrush, reduction in
herpetic lesions, and improvement in certain dermatological conditions, such as
seborrheic dermatitis and eczema. The most dramatic change was observed in the
number of CD 4 and CD 8 lymphocytes, as well as in the CD 4 and CD 8 ratio. Nine
of the ten patients experienced an increase in the CD 4 cells, the most dramatic
being that of an initial count of 27 at the initial phase of treatment, which
rose to 193." The Chinnici Report further noted that "the administration of
RETICULOSE [,among other things,] produced no adverse side affects... [nor
caused] significant anemia [nor any] decrease in the [subjects'] white blood
cell count." Further, the Chinnici Report states that RETICULOSE may cause a
halt to viral replication and may produce endogenous interferon, which
ameliorates a patient's condition. The Chinnici Correspondence also indicated,
among other things, however, that the Demonstration was limited in that the
subjects were treated for a short period of time and there was no control group.
The Company has not independently verified any of the statements contained in
either the Mangia Correspondence or the Chinnici Correspondence.
Pursuant to the Plata Agreement, the Company authorized the issuance to
Plata of 5,000,000 shares and options to purchase an additional 5,000,000 shares
at $.08 per option share through July 9, 1994 (the "Plata Options") and
5,000,000 option shares at $.10 per option share through July 9, 1994 (the
"Additional Plata Options"). Pursuant to several amendments, the Plata Options
and the Additional Plata Options were exercisable through April 30, 1996. Under
another amendment, as of December 31, 1996, there were outstanding Plata Options
to acquire 813,000 shares at $.11 per share and Additional Plata Options to
acquire 858,100 shares at $.13 per share. The Company offered and the holders of
the Plata Options and the Additional Plata Options accepted offers to further
extend the exercise date of the Plata Options and the Additional Plata Options
through April 30, 1997 in consideration for an increase in the exercise price to
$.12 per option share as to the Plata Options and $.14 per option share as to
the Additional Plata Options.
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<PAGE> 28
The Company believes the Demonstration will not significantly impact
the FDA's decision to (i) approve the pending IND filed with the FDA or (ii)
approve of the marketing, sales or distribution of RETICULOSE within the United
States. Further, the Company believes the Demonstration will not significantly
impact the Company's ability to obtain approval for the marketing, sales or
distribution of RETICULOSE anywhere in the world.
Argentina Agreements
On December 27, 1993, the Company entered into an agreement with Juan
Carlos Flichman, M.D., Permanent Advisor to the Argentine Association Against
Sexually Transmitted Diseases, whereby Dr. Flichman agreed to conduct a double
blind study of RETICULOSE in Argentina of (i) 40 patients who have been
diagnosed with acute Hepatitis "B" and (ii) 20 patients diagnosed with Hepatitis
"C" (the "Argentina Study"). The treatment of acute Hepatitis "B" patients was
expected to last for approximately 20 days, followed by a 60/90 day observation
period and of Hepatitis "C" patients was expected to last for 180 days, also
followed by a 60/90 day observation period. Dr. Flichman, however, indicated to
the Company that the Argentina Study was delayed because of the Argentina Health
Ministry.
In April, 1996, the Company entered into a new agreement (the "1996
Argentina Agreement") with DCT S.R.L., an Argentine corporation ("DCT"),
pursuant to which DCT and Dr. Flichman each agreed to conduct the HPV Clinical
Trial. In June, 1994, the Company entered into an exclusive distribution
agreement with DCT, whereby the Company granted to DCT, subject to certain
conditions precedent, the exclusive right to market and sell RETICULOSE in
certain South American countries, including Argentina and other MERCOSUR States;
this agreement was superseded by another exclusive distribution agreement as of
April 1, 1996. Pursuant to the 1996 Argentina Agreement, the HPV Clinical Trial
commenced and is being conducted pursuant to a protocol developed by Dr.
Flichman. The purpose of the HPV Clinical Trial is to assess the efficacy of
RETICULOSE on HPV. The protocol calls for, among other things, a study to be
performed with clinical and laboratory follow-up on 20 patients between the ages
of 18 and 50 years of age. The HPV Clinical Trial is not a double-blind study
and will not include a placebo control group or reference to any other
anti-viral drug.
Pursuant to the 1996 Argentina Agreement, the Company paid
approximately $34,000 to DCT to cover out of pocket expenses associated with the
HPV Clinical Trial. The 1996 Argentina Agreement further provides that, at the
conclusion of the HPV Clinical Trial, DCT shall cause Dr. Flichman to prepare
and deliver a written report to the Company regarding the methodology and
results of the HPV Clinical Trial (the "HPV Written Report"). On April 22, 1996,
the Company was informed by DCT that the HPV Clinical Trial had commenced on
April 15, 1996. In September 1996, the Company received from Dr. Flichman the
HPV Written Report. The HPV Written Report stated that, when RETICULOSE was
applied topically to 20 patients (six males and 14 females) diagnosed to be
infected with HPV, two of the 20 patients had total remissions and eight of the
20 patients experienced clinical improvement ranging from a reduction in color
intensity, size and texture. Further, the HPV Written Report provides that no
adverse side effects were observed in any
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<PAGE> 29
of the 20 patients and only one patient experienced redness of the skin that
disappeared spontaneously within 24 hours. Upon delivery of the HPV Written
Report to the Company, the Company delivered to the principals of DCT Common
Stock purchase options to acquire 2,000,000 shares of the Common Stock for a
period of one year from the date of the delivery of the HPV Written Report, at
an exercise price of $.20 per share issuable under those options. As of December
31, 1996, 473,500 shares of Common Stock were issued pursuant to the exercise of
these options for an aggregate exercise price of $94,700. See "-EXCLUSIVE
DISTRIBUTION AGREEMENTS-Agreement with DCT S.R.L."
Hirschman Study
The Company in late 1995 issued a grant of $30,188 to The Mount Sinai
School of Medicine, New York City, New York, for the purpose of studying the
mechanism, if any, by which RETICULOSE inhibits replication of HIV. The study
was conducted by Shalom Z. Hirschman, M.D., then Professor of Medicine and
Director of the Division of Infectious Diseases of The Mount Sinai School of
Medicine. The results of this research were presented by Dr. Hirschman at
Biomedicine '96, the annual meeting (sponsored by Science, a journal of the
American Association for the Advancement of Science) of the Association of
American Physicians, American Society for Clinical Investigation, and American
Federation for Clinical Research (associations of medical honor societies), held
May 4-6, 1996, in Washington, D.C. The manuscript of Drs. Hirschman and Chey Wei
Chen, entitled "Peptide Nucleic Acids Stimulate Gamma Interferon and Inhibit the
Replication of the Human Immunodeficiency Virus," was published in Clinical
Research (the official compendium of the proceedings of the meeting) in the
August 1996 issue of Journal of Investigative Medicine, a publication of the
American Federation for Clinical Research. Dr. Hirschman's report of the result
of the Hirschman Study is set forth under "-BACKGROUND OF RETICULOSE."
AIDS Clinical Trial
The first stage of the AIDS Clinical Trial, conducted at the Queen
Elizabeth Hospital, Bridgetown, Barbados, was completed in late November 1996.
The report of the result of that stage is set forth under "- BACKGROUND OF
RETICULOSE." As of February 28, 1997, the Company had expended approximately
$250,000 to cover the costs of the AIDS Clinical Trial and anticipates that at
least an additional $75,000 will be expended on the AIDS Clinical Trial.
National Cancer Institute Study
In March 1997, the Company entered into a Material Transfer Agreement -
Cooperative Research and Development Agreement (the "NCI Agreement") with
certain governmental agencies (including the FDA) represented by The National
Cancer Institute (collectively, the "Government Agencies"). The purpose of the
NCI Agreement is for Dr. Howard Young, Section Chief, Laboratory of Experimental
Immunology, Division of Basic Sciences, The National Cancer Institute, "to
determine the molecular mechanism by which RETICULOSE may specifically enhance
transcription of the [gamma interferon] gene." The Company intends to supply
RETICULOSE to the Government
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Agencies for the purpose of research by the Government Agencies in accordance
with a research plan attached to the NCI Agreement, subject to the conditions
stated in the NCI Agreement. The NCI Agreement provides for non-disclosure by
the Government Agencies and an understanding that the Company and the Government
Agencies will enter into licenses to one another on terms to be negotiated in
the future, in the event the research produces an invention. Either the Company
or the Government Agencies may terminate the NCI Agreement upon 30 days prior
written notice to the other. The NCI Agreement states that the Government
Agencies "[do] not directly or indirectly endorse any product or service
provided, or to be provided, whether directly or indirectly related to either
this [agreement] or to any patent or other intellectual property license or
agreement which implements this [agreement] by its successors, assignees, or
licensees. The [Company] shall not in any way state or imply that this
[agreement] is an endorsement of any such product or service by the U.S.
Government or any of its organizational units or employees."
MARKETING AND SALES
RETICULOSE is not being sold commercially anywhere in the world. The
Company has entered into Exclusive Distribution Agreements with five separate
entities whereby the Company has granted exclusive rights to distribute
RETICULOSE in the countries of China, Japan, Hong Kong, Macao, Taiwan, Mexico,
Channel Islands, Isle of Man, British West Indies, Jamaica, Haiti, Bermuda,
Belize, Saudi Arabia, Argentina, Bolivia, Paraguay, Uruguay, Brazil and Chile.
Pursuant these agreements, the distributors are obligated to cause RETICULOSE to
be approved for commercial sale in such countries and upon such approval, to
purchase from the Company certain minimum quantities of RETICULOSE to maintain
the exclusive distribution rights. Leonard Cohen, a former consultant to the
Company, has informed the Company that he is an affiliate of two of these
entities. See "-EXCLUSIVE DISTRIBUTION AGREEMENTS." The marketing plans of the
Company for RETICULOSE are still dependent upon registration of RETICULOSE for
sale in the various jurisdictions where its distributors are seeking approvals.
There can be no assurance that the Company or any distributor will ever
secure registration of RETICULOSE and the Company to date has received no
information that would lead it to believe that it will be positioned to sell
RETICULOSE commercially anywhere in the world in the immediate future. The
Company initially targeted its sales and marketing efforts to those countries
where RETICULOSE was previously marketed by its prior owners for a number of
years as an anti-viral agent in the treatment of Asian Influenza, Viral
Pneumonia, Virus Infectious Hepatitis, Mumps, Encephalitis, Herpes Simplex and
Herpes Zoster. Those countries included Singapore, Hong Kong, Malaysia, Taiwan,
the Philippines and Malta. Registration of RETICULOSE will be required in such
countries as well as in the other countries comprising the distributors'
territories before any significant sales may begin. Until RETICULOSE is
registered and approved for sale in the United States, in another developed
country or in the other countries the distributors' territories, there can be no
assurance that the Company will generate significant sales of RETICULOSE. If at
least 25% of the Options are exercised, the Company may file a new IND for
RETICULOSE with the FDA. For the years ended December 31, 1996, 1995 and 1994,
the Company reported no commercial sales except limited sales for testing
purposes($24,111, $27,328 and $22,402, respectively). RETICULOSE is not legally
available for use anywhere in the world, except for testing purposes. See
"-TESTING AGREEMENTS."
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COMPETITION
There are inherent difficulties for any development stage company
seeking to enter an established field, particularly in a field so capital
intensive as the manufacture and sale of pharmaceuticals. The Company, if it is
ever successful in securing FDA and other regulatory approvals, will encounter
intense competition engaged in the development and marketing of drug products,
all of which are substantially larger, possess far greater capital assets, have
substantial operating histories and records of successful operations, greater
financial and other resources, more employees and far more extensive facilities
than the Company now has or will have in the foreseeable future. Accordingly,
such companies are in a far better position to compete than the Company.
Moreover, such companies may succeed in discovering, developing and marketing
anti-viral products that are more effective than RETICULOSE. The Company at
present is not, and there can be no assurances that the Company will become in
the foreseeable future, a significant factor in the field in which it proposes
to engage. Additionally, small "start-up" firms, such as the Company, with very
limited resources, are at a very serious competitive disadvantage against
established companies. The Company hopes to compete, however, based on cost and
the effectiveness of RETICULOSE.
EMPLOYEES
The Company has four full-time employees, including its three executive
officers and an administrative employee. Shalom Z. Hirschman, M.D., President
and Chief Executive Officer and a director of the Company, Bernard Friedland,
Chairman of the Board and a director of the Company, and William Bregman,
Secretary-Treasurer and a director of the Company, each devote all of their
business time to the day-to-day business operations of the Company.
Additionally, the Company may hire, as and when needed, and as
available, such sales and technical support staff and consultants for specific
projects on a contract basis. See Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act.
CONSULTING AGREEMENTS
Leonard Cohen
On September 11, 1992, the Company entered into a consulting agreement
with Leonard Cohen (the "Initial Cohen Agreement") for a one-year term
commencing on that date. Prior to the execution of the Initial Cohen Agreement,
Mr. Cohen had no relationship with the Company other than as a former holder of
the Company's Class C Warrants which had been redeemed. Mr. Leonard Cohen has no
relationship to Matthew Cohen who was one of the principals of TRM. The Initial
Cohen Agreement required that Leonard Cohen provide the Company certain
consulting services including, among others: (i) the identification of
pharmaceutical companies which may have an interest in engaging in joint
ventures or other agreements to advance the testing and study of
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<PAGE> 32
RETICULOSE; (ii) services related to achieving approval of RETICULOSE for
commercial sale in the United States and in foreign countries; (iii) the
location of investment banking firms and venture capital firms, the purpose of
which is to raise capital for the Company through securities offerings and/or
debt financing; (iv) the dissemination of public information about the Company
to persons who may have an interest in RETICULOSE; and (v) making contacts with
persons in the investment and financial communities.
The Initial Cohen Agreement provided that: (i) upon execution, the
Company would issue to Leonard Cohen 500,000 shares of the Common Stock, which
were issued on October 20, 1992; and (ii) upon completion of 50 hours of
services, the Company would issue to Leonard Cohen an additional 500,000 shares
of the Common Stock, which were issued on February 28, 1993. Mr. Cohen provided
the 50 hours of services to the Company during the last quarter of 1992 and the
first quarter of 1993. In addition, upon execution of the Initial Cohen
Agreement, the Company granted to Leonard Cohen the option (the "Cohen Option"),
exercisable commencing as of September 11, 1992, and ending on September 10,
1993 (which date has been extended through April 30, 1977), to acquire 3,000,000
shares of the Common Stock at an exercise price of $.09 per share (which
exercise price has been increased to $.13 per share). The Initial Cohen
Agreement granted to the holders of the Cohen Options a one time piggyback
registration right (that is, the right generally to cause the Company to include
in its registration statement, if permissible, filed by the Company with the
Commission) with respect to the shares of Common Stock issued to Mr. Cohen for
his services and the shares underlying the Cohen Option. As of February 28,
1997, Options to purchase 1,300,000 shares have been exercised for cash
consideration of $156,000.
On February 28, 1993, the Company entered into another consulting
agreement with Leonard Cohen (the "Cohen Agreement") for a three-year term
commencing on March 1, 1993. The Cohen Agreement provides that Leonard Cohen
will provide to the Company financial business consulting services concerning
the operation of the business of the Company and possible strategic
transactions. The Cohen Agreement was entered into because the Company believed
that the Cohen Agreement provided incentive to Mr. Cohen to provide greater
services to the Company and because Mr. Cohen's hourly obligations under the
Initial Cohen Agreement had been satisfied during the last quarter of 1992 and
the first quarter of 1993. On February 28, 1993, pursuant to the Cohen
Agreement, 3,500,000 shares of the Company's Common Stock were issued to Mr.
Cohen and his designees as follows: (i) Leonard Cohen - 2,000,000 shares; and
(ii) persons not affiliated with the Company or any of its officers or directors
- - 1,500,000 shares, which have been sold. The Cohen Agreement also granted to
Mr. Cohen and his designees a one-time piggyback registration right with respect
to those shares. The services provided and to be provided by Mr. Cohen under the
Cohen Agreement were not all inclusive nor was the compensation given to Mr.
Cohen under the Cohen Agreement. As a result, in consideration for the
additional services provided by Mr. Cohen in connection with the introduction
and negotiation of the Exclusive Distribution Agreement with C.U.R.E.
Pharmaceutical Corp. ("C.U.R.E."), a Delaware corporation, which agreement was
terminated because of the failure of C.U.R.E., but was then superseded by an
agreement with another entity with which Leonard Cohen is affiliated, Mr. Cohen
was issued an additional 2,500,000 shares in April 1994. Further, the Company
agreed to issue to Leonard Cohen an additional 300,000 shares
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<PAGE> 33
in 1995, at a time when the shares were valued at $.14 per share, in
consideration for expenditures incurred by Mr. Cohen in connection with securing
for the benefit of the Company and the affiliated distributor, the continued
services of Dr. Chinnici. Such additional 300,000 shares were inadvertently not
issued to Mr. Cohen in 1995, and are accounted for as general and administrative
expense at $.14 per share, the price when the shares were to be issued. See the
discussion below and "-EXCLUSIVE DISTRIBUTION AGREEMENTS."
By letter of September 15, 1993, Leonard Cohen requested registration
of the shares of Common Stock and shares covered by Common Stock purchase
options issued to Mr. Cohen and his designees pursuant to the Initial Cohen
Agreement and the Cohen Agreement. The Company issued the above referenced
additional 2,500,000 shares to Mr. Cohen for services rendered by Mr. Cohen in
connection with the introduction, negotiation and execution of an Exclusive
Distribution Agreement between the Company and C.U.R.E. dated April 25, 1994,
which were in addition to his services under the Cohen Agreement. Such
additional shares were included in the Company's July 1, 1994 and July 27, 1995
Registration Statements under the Securities Act to permit the public sale of
those shares by Mr. Cohen.
Resnick Consulting Agreement
The Company entered in a Medical Advisor Agreement with Lionel Resnick,
M.D., dated as of September 14, 1993, providing for Dr. Resnick's consulting
services and assistance to the Company as reasonably requested by the President
of the Company, but not more than three hours per month without the prior
written consent of the Company, for an initial term of two years commencing on
September 1, 1993, extended for successive one-year periods unless either party
gives the other 60 days prior written notice of its intent not to renew prior to
the expiration of the then current term, at an hourly fee of $200. The Company
has not requested, and Dr. Resnick has not provided, any services pursuant to
the Medical Advisor Agreement. This agreement was formally terminated effective
August 31, 1997 by notice by the Company to Dr. Resnick on March 21, 1997.
C.U.R.E.
The Company's Exclusive Distribution Agreements with C.U.R.E. and its
affiliate were terminated according to their terms on May 31, 1995 because of
C.U.R.E.'s inability to obtain Approvals in a timely manner and its ability to
obtain requisite funding to pursue such Approvals. See "-EXCLUSIVE DISTRIBUTION
AGREEMENTS - Termination of Agreements with C.U.R.E." In connection with the
execution of the Exclusive Distribution Agreement with C.U.R.E. in April 1994,
the Company issued Messrs. Elliot Bauer and Lee Rizzuto a total of 1,250,000
shares and granted options to acquire 10,000,000 shares of Common Stock at $.10
per share (which exercise price has been increased to $.11 per share)
exercisable through May 1, 1996. The shares issued to Messrs. Cohen, Bauer and
Rizzuto have been accounted for as a general and administrative expense at a
price $.055 per share. Mr. Rizzuto sold all of the 625,000 shares and all shares
underlying his options. Mr. Bauer sold 850,000 shares underlying his option
prior to April 30, 1996, and Mr. Bauer
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also transferred 312,500 shares to Mark Montifiore and 312,500 shares to his
minor children and he disclaims any beneficial interest with respect to such
shares. In addition, Mr. Cohen sold 1,300,000 shares underlying his options
prior to April 30, 1996.
Shalom Z. Hirschman, M.D.
The Company entered into a consulting agreement with Shalom Z.
Hirschman, M.D., dated as of May 24, 1995, pursuant to which Dr. Hirschman
agreed to provide services relating to development and location of
pharmacological and biotechnology companies and agreed to assist the Company in
seeking joint ventures with and financing of companies in such industries
through May 1997. As consideration for such services, the Company issued
1,000,000 shares of Common Stock to Dr. Hirschman, which have been accounted for
as a general and administrative expense, at a price of $.11 per share, the
market price on the date of issuance, and granted options to acquire 5,000,000
shares of Common Stock at $.18 per Option Share, exercisable through May 24,
1998. Dr. Hirschman sold the 1,000,000 outstanding shares in 1995 and exercised
part of an option to acquire 900,000 shares at $.18 per share during 1996.
In connection with the Consulting Agreement with Dr. Hirschman, the
Company also issued to Deborah Silver 100,000 shares of Common Stock and granted
to her options to purchase 500,000 shares exercisable for one year at $.18,
which option was fully exercised and all shares issued under which were sold
prior to April 30, 1996. Such options and shares were issued for services to the
Company and were also accounted for as a general administrative expense at $.18
per share.
The Company, as of March 24, 1996, executed an addendum to the
Consulting Agreement with Dr. Hirschman, which addendum did not become effective
until April 1, 1996. Pursuant to the addendum, Dr. Hirschman agreed to provide
additional services to the Company through May 2000. Such additional services
include furthering the Company's financial and investment banking efforts, and
assisting the Company in joint efforts for the purpose of securing manufacturing
and sale approvals for RETICULOSE, as well as efforts to pursue regulatory
approvals and fulfill regulatory protocols regarding RETICULOSE. In
consideration for the increased term and additional services, especially in
assisting the Company in its investment banking efforts, the Company granted to
Dr. Hirschman and his designees options to purchase an aggregate of 15,000,000
shares of Common Stock, exercisable as follows: options to purchase 5,000,000
shares from March 24, 1996 through March 23, 1999 at $.19 per share; options to
purchase 5,000,000 shares from March 24, 1997 through March 23, 1999 at $.27 per
share; and options to purchase 5,000,000 shares from March 24, 1998 through
March 23, 1999 at $.36 per share. The Board of Directors of the Company has
determined that the market price of shares of the Common Stock at the date the
addendum was agreed to was $.18 to $.185 per share. Dr. Hirschman transferred
options to acquire 500,000 shares at an exercise price of $.19 per share
during 1996.
As of October 14, 1996, the Consulting Agreement with Dr. Hirschman was
terminated and an Employment Agreement with Dr. Hirschman became effective. See
Item 10. Executive Compensation-EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS.
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EXCLUSIVE DISTRIBUTION AGREEMENTS
Agreement with DCT S.R.L.
Under an Exclusive Distribution Agreement, dated in June 1994,
superseded by another agreement, dated April 1, 1996, between the Company and
DCT, the Company granted, to DCT subject to certain conditions precedent, the
exclusive right to market and sell RETICULOSE within the territories of
Argentina, Bolivia, Paraguay, Uruguay, Brazil and Chile (the "DCT Agreement").
The term of the DCT Agreement was for a three-year period with additional
three-year renewal terms from the date DCT obtained all approvals, licenses,
permits and registrations (the "Approval") to import and distribute RETICULOSE
in Argentina, subject to DCT's right to extend the DCT Agreement so long as DCT
was diligently pursuing the Approval and meeting certain annual minimum purchase
requirements as set forth in the DCT Agreement, in the event the Approval for
Argentina was obtained. DCT was granted an option to purchase for a period of
one year from the date of Approval, 2,000,000 shares at a purchase price of $.20
per Share (the "DCT Option").
As a result of the 1996 Argentina Agreement, discussed under "-TESTING
AGREEMENTS- Argentina Agreements" and the Health Ministry's approval for and the
commencement of the test of RETICULOSE on the Human Papilloma Virus (HPV) on
patients, the Company agreed that the DCT Option vested.
Termination of Agreements with C.U.R.E.
On April 25, 1994, the Company entered into an Exclusive Distribution
Agreement with C.U.R.E. pursuant to which C.U.R.E. was granted exclusive rights
to distribute RETICULOSE within the countries of China, Japan, Thailand,
Singapore, Hong Kong, Taiwan and Malaysia the ("C.U.R.E. Territory").
The Exclusive Distribution Agreement with C.U.R.E was for an initial
term of five years, subject to certain automatic extensions if C.U.R.E.
satisfied its minimum purchase obligations and obtained Approval for one or more
countries constituting the C.U.R.E. Territory, within one year from the
Agreement. Because of its failure to obtain any Approval, the Company terminated
the rights of C.U.R.E. under this agreement.
As of June 1, 1994, the Company had also entered into an Exclusive
Distribution Agreement with C.U.R.E. Pharmaceutica Central Americas Ltd., a
Delaware corporation and an affiliate of C.U.R.E. ("C.U.R.E. C/A Ltd.").
C.U.R.E. C/A Ltd. was required to purchase a minimum of 20,000 milliliters of
RETICULOSE during the first year following Approval and such Approval had to be
obtained within one year of this agreement. C.U.R.E. was unable to obtain such
Approval and the Company terminated C.U.R.E.'s exclusive distribution rights,
effective May 30, 1995, following acknowledgment by C.U.R.E. and C.U.R.E. C/A
Ltd. that neither had obtained Approvals and both lacked additional financing to
pursue the Approvals.
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Agreements with AVIX and Unistone
As the result of the termination of agreements with C.U.R.E. and
C.U.R.E. C/A Ltd., the Company entered into an agreement, dated as of June 2,
1995, with AVIX International Pharmaceutical Corp., a New York corporation
("AVIX"), pursuant to which AVIX has been granted the exclusive import and
distribution rights during a period of five years from the date that AVIX
obtains Approval for any of the countries formerly within the C.U.R.E. Territory
(the "AVIX Far East Agreement"), and a separate Exclusive Distribution Agreement
with AVIX with respect to Mexico, which rights previously belonged to C.U.R.E.
C/A Ltd. AVIX has informed the Company that it has commenced negotiations with
parties in Mexico and China for the purpose of seeking initial authorization for
testing RETICULOSE, following which Approval for those countries shall be
sought. The Company has been informed by AVIX that certain of the principals of
AVIX (including Leonard Cohen) were formerly principals of C.U.R.E.
On December 28, 1995, the Company entered into a separate agreement
with AVIX and Beijing Unistone Pharmaceutical Co., Ltd. ("Unistone"), a company
organized under the laws of the People's Republic of China, with headquarters in
Beijing, China (the "Unistone-AVIX Agreement"). In connection with the
Unistone-AVIX Agreement, the Company and AVIX agreed to utilize the services of
Unistone for the purposes of securing approval to test RETICULOSE in China, with
the intent of gaining Approval for China. Under the Unistone-AVIX Agreement,
during a period of three years commencing on the date of Approval for China,
Unistone shall be the exclusive distributor and have a limited trademark license
for RETICULOSE in China. Unistone is obligated to purchase not more than 100,000
doses of 0.5 ml each in bulk form or 20,000 ampules of 0.5 ml doses for purposes
of seeking Approval for China, at least 1,000,000 doses by the first anniversary
of Approval for China, at least 3,000,000 doses during the next 12-month period,
and at least 10,000,000 doses during each subsequent 12-month period, all at a
purchase price of U.S. $1.00 per 0.5 ml dose shipped in bulk, or U.S. $1.26 per
dose if ordered in prepackaged, four-dose 2 ml ampules. This purchase price is
to be reduced by an aggregate of $100,000 on account of a fee to Unistone for
trials and testing of RETICULOSE for Approval for China. If these annual minimum
purchase requirements are satisfied, the period of the agreement is
automatically extended through the eighth anniversary of the date of Approval.
In addition, AVIX is obligated to pay Unistone $50,000 for its services in
seeking Approval for China. In fact, as of December 31, 1996, the Company had
given Unistone, for testing purposes, 1,600 ampules of RETICULOSE without
charge. Unistone has not fulfilled its obligation under the agreement to obtain
Approval before April 1996.
Under a separate agreement between the Company and AVIX, AVIX shall
receive a royalty equal to 12.5% of the total sales of RETICULOSE in Asia so
long as the Company owns any right to RETICULOSE. AVIX also is entitled to
certain payments by the Company in the event that the Company sells
manufacturing rights for RETICULOSE.
In July, 1996, the AVIX Far East Agreement was amended to grant AVIX
the additional country of Macao and reflect AVIX's waiver of its rights with
respect to the countries of Singapore, Thailand and Malaysia, as well as AVIX's
penalty rights under the AVIX Far East Agreement that
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would have vested in the event that the Company could not produce sufficient
quantities of RETICULOSE within certain periods of time. The penalty rights were
waived, in part, because AVIX has not yet generated a sufficient demand for
RETICULOSE within its distribution territory.
The period of time during which AVIX must obtain Approval for any of
the countries in its territory under the AVIX Far East Agreement has been
extended to June 1, 1997, subject to AVIX continuing to pay $8,000 per month to
the Company. The Company has not received the $8,000 monthly payment since
November, 1996; the Company has received a total of $40,000 in payments from
AVIX. If AVIX is complying with the AVIX Far East Agreement, including certain
annual minimum purchase requirements set forth in the agreement, the term is
automatically extended for five additional five year terms. The agreements with
AVIX further provide that the results of all studies, research data,
documentation and research publications regarding RETICULOSE in which AVIX has
an interest are owned by the Company.
The separate agreement for Mexico requires Approval within one year and
has minimum annual purchase requirement commencing at 20,000 milliliters. The
Company has extended the period for AVIX to secure Approval from Mexico because
management of the Company believes that AVIX has been diligently seeking
Approval from the Ministry of Health of Mexico.
AVIX shall be required, pursuant to the AVIX Far East Agreement, to
purchase RETICULOSE for $500,000 upon obtaining Approval and after one year
after Approval for China, AVIX is required to purchase RETICULOSE for an
additional $500,000 at $12 per 2 ml ampule.
Agreement with Commonwealth
Under an Exclusive Distribution Agreement, dated October 24, 1994, as
supplemented on November 2, 1995 (the "Commonwealth Agreement") with
Commonwealth Pharmaceuticals, a corporation organized under the laws of Cayman
Islands, British West Indies ("Commonwealth"), the Company has granted to
Commonwealth, subject to certain conditions precedent, the exclusive right to
market and sell the Company's pharmaceutical drug RETICULOSE within the
territories of the Channel Islands, The Isle of Man, the British West Indies,
Jamaica, Haiti, Bermuda and Belize, and the right (not exclusive) to import,
warehouse, market, sell and distribute RETICULOSE within the territory of Saudi
Arabia (collectively, the "Commonwealth Territories"). The term of the
Commonwealth Agreement is for successive three year periods from the date
Commonwealth obtains Approval for any one of the Commonwealth Territories.
Pursuant to the Commonwealth Agreement, Commonwealth purchased from the
Company 1,500 ampules of RETICULOSE at a purchase price of $12.00 per ampule (2
milliliters per ampules) and delivered to the Company $5,000 as a signing
payment (for a total payment of $23,000). Further, pursuant to the Commonwealth
Agreement, in the event Approval for any of the Commonwealth Territories is
obtained, Commonwealth is obligated to purchase from the Company (i) $225,000
worth of RETICULOSE within one year from the date of Approval for any of the
Commonwealth Territories; (ii) $642,000 worth of RETICULOSE during the second
year from the
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date of Approval for any of the Commonwealth Territories; and (iii) $1,026,000
worth of RETICULOSE during the third year from the date of Approval for any of
the Commonwealth Territories. In addition, pursuant to the Commonwealth
Agreement, the Company has granted to Commonwealth the right to acquire
3,000,000 shares of the Common Stock at a purchase price of $.25 per share at
any time and from time to time for a period of one year from the date that
certain tests are conducted and a paper is published with respect to such test
of RETICULOSE. The Company has been informed by Commonwealth that certain of the
affiliates of Commonwealth were formally affiliated with Plata.
Agreement with Dormer Laboratories Inc.
On November 9, 1993, the Company entered into an agreement by which it
granted to Dormer Laboratories Inc., a Canadian corporation ("Dormer"), the
exclusive rights to import, warehouse, market, sell and distribute RETICULOSE
within Canada for a period of five years from the grant of import approval for
Canada, provided that Dormer meets certain RETICULOSE purchase minimums. Because
Approval for Canada was not obtained by November 9, 1995, the Company has the
right to terminate this agreement on 90 days prior written notice to Dormer.
Although Dormer has purchased no RETICULOSE from the Company, the Company has
not exercised its right to terminate the agreement.
GLOSSARY
The following is a glossary of some of the scientific terms used in
this Prospectus. Except as otherwise noted, the information contained in the
glossary has been obtained from Stedman's Medical Dictionary Illustrated (The
Williams & Wilkins Company, Baltimore, 22nd Edition, c.
1972).
AIDS: Acquired Immune Deficiency Syndrome, a disease of no known
etiology in which the body's immunological system is
destroyed. (Source: Webster's II New Riverside Dictionary)
Amino acid: An organic acid in which one of the CH hydrogen atoms
has been replaced by NH2.
Ampule: A hermetically sealed container, usually made of glass,
containing a sterile medicinal solution, or powder to be
made up in solution, to be used for subcutaneous,
intramuscular or intravenous injection.
Antibody: Any body or substance, soluble or cellular, which is evoked
by the stimulus provided by the introduction of antigen and
which reacts specifically with antigen in some demonstrable
way.
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Antigen: Any of various sorts of material that, as a result of coming
in contact with appropriate tissues of an animal body, after
a latent period, usually of from eight to 14 days, induces a
state of sensitivity and/or resistance to infection or toxic
substances, and which will react in a demonstrable way
either with tissues or with serum from the sensitized
subject.
Anti-viral agent: An active force or substance capable of weakening or
abolishing the action of a virus.
Carboxyl: The characteristic chemical group of certain organic acids.
Cell: A minute structure, the living, active basis of all plant
and animal organization, composed of a mass of protoplasm,
enclosed in a delicate membrane and containing a nucleus.
HIV: Human Immunodeficiency Virus.
HPV: Human Papilloma Virus (genital warts).
Immune system
modulator: Substance or substances which stimulate the human body's
immune system to more actively counter the effects of viral
infection and viral invasion.
Interferon: Substances produced in cell cultures or host tissues in
response to infection with active or inactivated virus,
capable of inducing a state of resistance to superinfection
with related or unrelated virus.
Intramuscular: Within the substance of a muscle.
Kaposi's Sarcoma: A multiple, bleeding tumor denoting a disease of unknown
cause, involving primitive tissue in the formation of blood
or lymphatic vessels.
Lipoprotein: Complexes or compounds containing lipid and protein.
Lymphocyte: A type of white blood cell found in the fluid collected from
tissues throughout the body.
Neoplasm: An abnormal tissue that grows by cellular proliferation more
rapidly than normal and continues to grow after the stimuli
that initiated the new growth cease, e.g., a tumor.
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Nucleic acids: Ribonucleic acid (RNA) or deoxyribonucleic (DNA)
protein molecules which determine genetic memory of cells.
These molecules are essential to life.
Papilloma A circumscribed benign epithelial (nipple, or the thin skin
covering the nipple) tumor projecting from the surrounding
surface; more precisely, a benign epithelial neoplasm
consisting of villous or arborescent outgrowths of
fibrovascular strong covered by neoplastic cells.
Peptide: A compound of two or more amino acids in which the carboxyl
group of one is united with the amino group of the other,
with the elimination of a molecule of water, thus forming a
peptide bond.
Peptone: Intermediate polypeptide products generally water soluble,
diffusable and not coagulable by heat.
RETICULOSE An anti-viral peptide-nucleic acid complex preparation,
developed by Vincent M. LaPenta, M.D. specifically to
stimulate the reticulo- endothelial system. (Sources: E.
Podolsky, M.D., "The Reticulo- Endothelial System and Its
Activation by Non-Specific Protein Therapy," The Journal of
Medicine, October 1938; Physicians' Desk Reference to
Pharmaceutical Specialists and Biologicals (Medical
Economics, Inc., Oradell, N.J. c 1961))
Subcutaneous: Beneath the skin; hypodermic.
Virus: A group of microbes which with few exceptions are capable of
passing through fine fibers that retain bacteria and are
incapable of growth or reproduction apart from living cells.
Virus replication: The duplication of a virus by itself within the
body cell by breaking down the RNA or DNA of the host cell
and using it to make a replicate of itself, while killing
the host cell.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own or invest in real estate, interests in real
estate, real estate mortgages or securities of or interests in persons primarily
engaged in real estate activities.
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On February 24, 1997 the Company received an executed lease dated
February 7, 1997 from Robert Martin Company, LLC, as landlord, to the Company,
as tenant, concerning approximately 6,100 square feet of rentable space at 200
Corporate Boulevard South, Yonkers, New York. The term of the lease is five
years at a base rent of $85,400 per annum. The Company intends to use the
demised premises as a general office and as a laboratory for medical research.
The Company currently maintains its executive offices at 1250 East
Hallandale Beach Boulevard, Hallandale, Florida 33009, pursuant to a three year
lease agreement, at approximately $14,000 annually. The Company's telephone
number is (954) 458-7636. The Bahamian manufacturing facility, which was
acquired on December 16, 1987, is located in Freeport, Bahamas and consists of a
29,242 square foot site containing a one-story concrete building of
approximately 7,300 square feet and is equipped for all phases of the testing,
production, and packaging of RETICULOSE. The Bahamian facility is currently
being used to store and produce inventory for testing purposes. In September,
1992, a new roof was placed on the manufacturing facility at a cost to the
Company of approximately $15,000. See Item 1. DESCRIPTION OF BUSINESS--
EXCLUSIVE RIGHTS OF THE COMPANY TO RETICULOSE AND PRODUCTION ARRANGEMENTS.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any material litigation, nor,
to the knowledge of management, is any such litigation currently threatened.
During 1989, the U.S. Securities and Exchange Commission (the
"Commission") conducted an informal inquiry into certain of the Company's prior
disclosure documents, including its original prospectus, press releases and
annual reports. On December 14, 1989, the Commission, as plaintiff, filed a
civil complaint-for permanent injunction and other equitable relief (the
"Complaint") in the United States District Court, Southern District of Florida,
Miami Division, against the Company, its then President, Bernard Friedland, and
its then Secretary-Treasurer, William Bregman. The Complaint, a copy of which is
filed as an exhibit to the Company's current report on Form 8-K dated December
14, 1989 which was filed with the Commission (the "December 1989 Form 8-K"),
alleged violations of Sections 5(b)(2) and 17(a) of the Securities Act, Sections
l0(b) and 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rules l0b-5, 12b-20, 15d-1 and 15d-13 promulgated
thereunder.
The Company, Bernard Friedland and William Bregman each, without
admitting or denying the allegations of the Complaint, consented to the entry of
an injunction. Copies of the consents of the Company, Bernard Friedland and
William Bregman are filed as exhibits to the December 1989 Form 8-K. A permanent
injunction was entered in form and also attached as an exhibit to the December
1989 Form 8-K.
Between May 1, 1987, and May 10, 1988, 6,766,350 of the Company's Class
B Warrants were exercised for the purchase of 6,766,350 shares at a price of
$.05 per share for a total of $338,317.50. The prospectus delivered with the
shares on exercise of the Class B Warrants was not current; accordingly, the
Company was not in compliance with the prospectus delivery provisions
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of the Securities Act. The Company offered a right of rescission to all
exercising Class B Warrant holders. The rescission offer period commenced on
August 16, 1990 and terminated October 25, 1990. The Company was obligated to
pay an aggregate of approximately $2,500 to stockholders who exercised their
rescission right during the rescission offer period.
LTD's counsel was advised in August 1988, by the Ministry of Health of
the Government of the Bahamas that a license from the Ministry of Health is
required for the manufacture of pharmaceuticals in the Freeport area of Grand
Bahama Island. LTD has received an opinion of its counsel in the Bahamas that
its license from the Port Authority is valid for the manufacture, export and
sale of ethical pharmaceutical products in the Freeport area of Grand Bahama
Island. No proceedings have been instituted or threatened by the Ministry of
Health. If such proceedings are instituted, LTD intends to defend them
vigorously. No assurance can be given that LTD would successfully defend such
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
During the fourth quarter of the fiscal year ended December 31, 1996,
no matters were submitted to a vote of security holders of the Company.
[Balance of page intentionally left blank]
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal United States market in which the Common Stock is traded
is the over-the-counter market. The following table shows the range of reported
low bid and high bid quotations for the Common Stock for each full quarterly
period during the Company's two most recent fiscal years ended December 31, 1995
and 1996, and for the portion of the quarter ended February 28, 1997, as
reported on the National Association of Securities Dealers, Inc.'s OTC Bulletin
Board (the "Bulletin Board"). The high and low bid prices for the periods
indicated reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Low Bid(Per share) High Bid(Per share)
-----------------------------------------
<S> <C> <C>
Quarter Ending March 31, 1995 $0.08 0.44
Quarter Ending June 30, 1995 0.08 0.19
Quarter Ending September 30, 1995 0.08 0.305
Quarter Ending December 31, 1995 0.1 0.2875
Quarter Ending March 31, 1996 $0.15 $0.19
Quarter Ending June 30, 1996 0.35 0.8125
Quarter Ending September 30, 1996 0.44 0.75
Quarter Ending December 31, 1996 0.26 0.62
January 1, 1997 through February 28, 1997 0.26 0.47
</TABLE>
The approximate number of holders of record of the Common Stock as of
February 28, 1997 is 2,598 inclusive of those brokerage firms and/or clearing
houses holding shares of Common Stock for their clientele (with each such
brokerage house and/or clearing house being considered as one holder).
The Company has not declared or paid any dividends on its shares of
Common Stock.
On September 4, 1996, the Company issued 50,000 shares of the Common
Stock to Malcolm Santer for his consulting services, which have been valued at
$.50 per share, and on February 26, 1997, the Company issued 50,000 shares of
the Common Stock to Malcom Santer for his consulting services, which have been
valued at $.41 per share. For a description of the Company's sale on February
21, 1997 of the Company's ten-year 7% Convertible Debenture due February 28,
2007 and, in connection with that transaction, the Company's issuance of
warrants to purchase shares of the Common Stock, see Item 6. Management's
Discussion and Analysis or Plan of Operation - CAPITAL RESOURCES."
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of the results of operations and the financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Report.
During the fiscal year ended December 31, 1996, the Company incurred a
loss of $1,154,740 ($.00 per share) compared to $401,884 ($.00 per share) in
1995. The Company's increased losses for the fiscal year ended December 31, 1996
as compared with the fiscal year ended December 31, 1995 were attributable
primarily to the employment of Shalom Z. Hirschman, M.D. as President and Chief
Executive Officer of the Company, increased research and development and the
implementation of Statement of Financial Accounting Standards Board (SFAS) No.
123, "Accounting for Stock-Based Compensation," which accounts for Common Stock
purchase options granted in 1996. Administrative expenses and the lack of sales
revenues also contribute to the Company's losses.
There were $24,111 in sales revenues in 1996 compared to $27,328 in
sales revenues for 1995. All sales revenues resulted from distributors
purchasing RETICULOSE for testing purposes. Interest income was $46,796 in 1996
and $16,155 in 1995. In 1996, the Company collected $40,000 for the sale of
territorial rights compared to $25,000 and $55,000 for the sale of territorial
rights in 1995 and 1994, respectively.
Although there can be no assurance of the levels, if any, the Company
believes that it will generate sales revenue at least with respect to testing of
RETICULOSE pursuant to its agreements with exclusive distributors from initial
testing in their respective territories. However, there will be no likelihood of
significant sales of RETICULOSE unless and until requisite approvals are
obtained in such territories.
LIQUIDITY
As of December 31, 1996, the Company had current liquid assets of
$1,476,047 compared to $575,288 at December 31, 1995. The Company had total
assets of $1,716,800 and $796,241 at December 31, 1996 and 1995, respectively.
The increase in liquid assets and total assets was primarily attributable to the
exercise of options.
Until RETICULOSE is registered for sale in a developed or developing
country or in one or more of its distributors territories, sales of RETICULOSE
are not expected to generate significant revenues. There can be no assurances
that RETICULOSE will be available for sale in any developed or developing
country or, even if available, that it would generate significant revenues. FDA
approval to begin human clinical trials will require significant cash
expenditures, the amount of which is not currently determinable. BEFORE
SEPTEMBER 1995, THE COMPANY RECEIVED CORRESPONDENCE FROM THE FDA, WHICH STATED,
AMONG OTHER COMMENTS, THAT THE COMPANY'S PRIOR SUBMISSIONS TO THE FDA DID NOT
PROVIDE AN ADEQUATE RESPONSE TO THE FDA'S EARLIER
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REQUEST FOR PRECLINICAL INFORMATION AND ACCORDINGLY THE COMPANY'S IND WAS
"INACTIVATED." The Company has taken no action with regard to the July 1992
Deficiency Letter or the 1995 deficiency letter. See Item 1. Description of
Business - THE INVESTIGATIONAL NEW DRUG APPLICATION PROCESS.
In the event the Ministry of Health of the Government of the Bahamas
attempts to prevent the manufacture of RETICULOSE by LTD for export from
Freeport under its license from the Port Authority, LTD may be required to
relocate the manufacturing facility. Should such relocation become necessary,
the Company currently anticipates being able to obtain a suitable site. The cost
of such relocation, depending upon the site of such relocation, will in any
event be material. See Item 3. Legal Proceedings.
The Company's independent accountants' report on the Company's
Consolidated Financial Statements included in this Report includes an
explanatory paragraph in Note 2 to the Consolidated Financial Statements stating
that the Company's ability to continue operations is dependent upon its
continued sale of its securities for funds to meet its cash requirements, WHICH
FACTORS RAISE SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN. Further, the accountant's report does not include any adjustment
that might result from the outcome of this uncertainty. The Company has no
immediate plan to issue any securities.
If the Company does not begin to generate revenues from the sale of
RETICULOSE, and if the Company does not receive significant funds from the
exercise of additional options, it shall be dependent upon additional debt
and/or equity financing, of which there can be no assurance, or it must reduce
expenses or further limit operations.
CAPITAL RESOURCES
The Company in the past has been dependent upon sales of shares of its
Common Stock and upon the exercise of its warrants issued in the Company's
initial public offering in 1986, all of which have expired and, since the
expiration of the warrants, the Company has been dependent upon the proceeds
from the continued exercise of outstanding options for the funds required to
continue operations at present levels and to fund the planned Research and
Development and Clinical Trials and Testing of RETICULOSE.
On February 21, 1997, in order to finance research and development, the
Company sold $1,000,000 principal amount of its ten-year 7% Convertible
Debenture (the "Debenture") due February 28, 2007, to RBB Bank
Aktiengesellschaft ("RBB") in an offshore transaction pursuant to Regulation S
under the Securities Act. Accrued interest under the Debenture is payable
semiannually, computed at the rate of 7% per annum on the unpaid principal
balance from February 21, 1997 until the date of interest payment. (After
default, interest accrues at 10% per annum.) The Debenture may be prepaid by the
Company before maturity, in whole or in part, without premium or penalty, if the
Company gives the holder of the Debenture notice not less than 30 days before
the date fixed for prepayment in that notice (prepayment applied first to pay
interest and then to
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principal then outstanding). The Debenture is convertible, at the option of the
holder, into shares of Common Stock pursuant to the following formula: Upon
receipt by the holder of the Debenture of the Company's notice of prepayment of
the Debenture, in whole or in part, and otherwise in accordance with the
schedule stated in the last sentence of this paragraph, the outstanding
principal amount of the Debenture is convertible into such number of shares of
Common Stock as shall equal the quotient obtained by dividing (x) the principal
amount of the Debenture by (y) the Applicable Conversion Price; provided,
however, that the right to convert outstanding principal of the Debenture
terminates at the close of business on the third calendar day preceding the date
fixed for prepayment of the Debenture in the Company's notice of prepayment,
unless the Company defaults in making such prepayment. For this purpose, the
term "Applicable Conversion Price" means the lesser of (q) $0.3432 and (r) the
product obtained by multiplying the Average Closing Price by 0.70; and the
"Average Closing Price" with respect to any conversion elected to be made by the
holder of the Debenture shall be the average of the daily closing prices for the
five consecutive trading days ended on the trading day immediately preceding the
date on which the holder gives the Company a written notice of the holder's
election to convert outstanding principal of the Debenture. The closing price on
any trading day shall be (a) if the Common Stock is then listed or quoted on
either the Bulletin Board, The Nasdaq SmallCap Market or The Nasdaq National
Market, the reported closing bid price for the Common Stock on such day or (b)
if the Common Stock is listed on either the American Stock Exchange or New York
Stock Exchange, the last reported sales price for the Common Stock on such
exchange on such day. The Debenture is not convertible until April 14, 1997, and
is convertible only to the extent of $333,333 from April 15, 1997 through April
29, 1997, and is convertible only to the extent of $666,667 from April 30, 1997
through May 29, 1997.
In connection with this transaction, the Company issued to RBB three
warrants (the "Warrants") to purchase Common Stock, each such Warrant entitling
the holder to purchase, from February 21, 1997 through February 28, 2007,
178,378 shares of the Common Stock. The exercise prices of the three Warrants
are $0.288, $0.576 and $0.864 per Warrant share, respectively. Each Warrant
provides that the holder may elect to receive a reduced number of shares of
Common Stock on the basis of a cashless exercise; that number of shares bears
the same proportion to the total number shares issuable under that Warrant as
the excess of the market value of shares of Common Stock over the warrant
exercise price bears to that market value. Each Warrant contains anti-dilution
provisions which provide for the adjustment of Warrant price and Warrant shares
as more particularly set forth therein.
Under an agreement approved by the Board of Directors of the Company in
December 1996, the Company retained Interfi Capital Group, Inc. ("Interfi"), a
firm unaffiliated with the Company, to arrange financing for the Company for a
fee. In connection with issuance by the Company of the Debenture, the Company
paid to Interfi the sum of $70,000.
If the FDA or other approvals are obtained, of which there can be no
assurance, funds must to be budgeted by the Company from the exercise of options
and the Warrants, potential grants and/or additional equity, which there is no
assurance will be available.
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The Company is currently expending approximately $105,000 per month,
which expenses include salaries, rent, professional fees, license fees and
taxes, and travel, principally between Company's headquarters and its Bahamian
facility, and anticipates that it can continue operations for at least 14
months with its current liquid assets, if no Common Stock purchase options or
Warrants are exercised. If all of the outstanding options are exercised, the
Company will receive proceeds of approximately $7,002,000. Those proceeds will
contribute to general and administrative and working capital and will permit the
Company to substantially increase its budget for research and development and
clinical trials and testing and to operate at significantly increased levels of
operation, assuming RETICULOSE receives approvals and prospects for sales
increase to justify such increased levels of operation, of which there can be no
assurance. However, there can be no assurance that any additional options will
be exercised. The recent prevailing market price for shares of Common Stock has
been above the exercise prices of some of the outstanding options. However,
there can be no assurance that the recent trading levels will be sustained or
that any additional options will be exercised. Management anticipates that it
may have to limit intentions to expand operations beyond current levels which
involve expenditures of $105,000 per month. In addition, the Company has in the
past sought debt financing, licensing agreements, joint ventures and other
sources of financing, but no such financing except the Debenture is in place or
identified or currently under discussion. There can be no assurance that any of
the Company's distributors will ever obtain regulatory approvals to test, or
market and sell RETICULOSE in any territory. In the event that financing is not
available, in order to continue operations, management anticipates that they
will have to defer their salaries. Management does not believe that, at present,
debt or equity financing will be readily obtainable on favorable terms unless
and until FDA approval for Phase I clinical testing is granted or comparable
approval is obtained from another developed or developing country. Because of
the uncertainties involved in the process of gaining approval for commercial
drug use on humans, no assurance can be given that the Company will be able to
sell RETICULOSE. See Item 1. Description of Business - THE INVESTIGATIONAL NEW
DRUG APPLICATION PROCESS. For a discussion of the risk of relocation of LTD's
manufacturing facility, see "LIQUIDITY."
ITEM 7. FINANCIAL STATEMENTS
The financial statements by Item 310(a) of Regulation S-B are included
in this Report commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
44
<PAGE> 48
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The executive officers of the Company, and further information
concerning them, are as follows:
<TABLE>
<CAPTION>
Name Positions
---- ---------
<S> <C>
Shalom Z. Hirschman, M.D. President and Chief Executive Officer,
director
Bernard Friedland Chairman of the Board, director
William Bregman Secretary-Treasurer, director
Louis J. Silver director
Robert C. Kolodny, M.D. director
William Gedale director
</TABLE>
Shalom Z. Hirschman, M.D. (age 60), President, Chief Executive Officer
and a director of the Company since October 1996, was Director of the Division
of Infectious Diseases and Professor of Medicine at Mount Sinai School of
Medicine, New York, New York, from May 1969 until October 1996.
Bernard Friedland (age 70), Chairman of the Board of the Company since
May 1987, director of the Company since July 1985 and President and Chief
Executive Officer of the Company from September 1985 until October 1996, was
employed by Key, Inc. for 29 years, until March 1, 1986, in the Research and
Development and Quality Assurance Departments in Pharmaceuticals, Pharmacology,
and Canceantimetabolites. Has also has been President, Treasurer and a director
of LTD since August 1984.
William Bregman (age 75), director of the Company since July 1985 and
Secretary-Treasurer of the Company since September 1985, was Vice President of
the Company from September 1985 until May 1987 and Vice President and Secretary
of LTD from August 1984 until July 1989, and has been a director of LTD since
August 1984.
Louis J. Silver (age 68), director of the Company since May 1992, has
been self-employed as a free-lance bookkeeper and auditor since 1985. Mr. Silver
previously served as a member of the Board of Directors of the Company during
the periods from May 1987 to July 1987.
Robert C. Kolodny, M.D. (age 52), a director of the Company since
February 1997, has been Medical Director and Chairman of the Board of Behavioral
Medicine Institute, New Canaan, Connecticut, and a Consultant in the Masters &
Johnson Institute, St. Louis Missouri, since 1983. He is currently Managing
General Partner of seven investment partnerships and a director of
Gabelli-O'Connor Treasurer's Fund, a public company. From 1988 through 1994, Dr.
Kolodny was a director of Lynch Corporation, a public company.
45
<PAGE> 49
William Gedale (age 54), a director of the Company since March 1997,
has been unemployed since June 1996. From July 1995 to June 1996, he was
managing partner of John W. Bristol Company, an investment firm. From March
1989 until June 1995, he was President and Chief Executive Officer of General
American Investors' Company, an investment management firm.
Bernard Friedland and William Bregman may be deemed a "parent" and
"promoter" of the Company as those terms as defined in the rules and regulations
promulgated under the Securities Act of 1933, as amended.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
For the fiscal year ended December 31, 1996, and for the period ended
February 28, 1997, no person who was a director, officer or beneficial owner of
more than 10% of the Common Stock was subject to Section 16 of the Exchange Act
because the Common Stock is and was not registered under Section 12 of the
Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
Director Compensation
The arrangement for director compensation is $150 for each meeting of
the Board of Directors of the Company attended, which has not in fact been paid
within at least the last three years.
Executive Officer Compensation
No officer or director employed by the Company received salary and
bonus exceeding in the aggregate $100,000 in the fiscal year 1996, 1995 or 1994.
The following Summary Compensation Table sets forth the information concerning
compensation for services in all capacities awarded to, earned by or paid to the
three executive officers of the Company, all of whom are also directors of the
Company. No other person employed by the Company earned in excess of $100,000
during the fiscal years ended December 31, 1996, 1995 and 1994.
46
<PAGE> 50
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
-------------------
Name and Principal Position Year Salary($) Bonus($) Other Annual Securities All Other
Compensation Underlying Compensation
($)(1) Options/ ($)
SARs(#)
<S> <C> <C> <C> <C> <C> <C>
Shalom Z. Hirschman, M.D., President 1996 68,750(2) 0 4,825(3) 15,000,000 4,316(4)
and Chief Executive Officer of the
Company since October 1996 and
consultant to the Company from May 24,
1995 until October 1996.
Bernard Friedland, Chairman of the 1996 35,000 0 6,500 0 0
Board of the Company since May 1987;
President and Chief Executive Officer 1995 35,000 0 6,500 0 0
of the Company from 1985 until
October 1996, and President and 1994 35,000 0 6,500 0 0
Treasurer of LTD since August 1984.
William Bregman, Secretary-Treasurer 1996 35,000 0 6,500 0 0
of the Company since 1985
1995 35,000 0 6,500 0 0
1994 35,000 0 6,500 0 0
</TABLE>
- ----------------
(1) Other Annual Compensation represents medical insurance premiums paid by
the Company for executive officers, except as stated in note (3) below.
(2) Under the Employment Agreement described under "-EMPLOYMENT CONTRACTS,
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS," Dr.
Hirschman's annual salary as President and Chief Executive Officer
(among other titles) is $325,000.
(3) Other Annual Compensation for Dr. Hirschman includes $1,350 for medical
insurance premiums paid by the Company for him, and $3,475 aggregate
incremental cost to the Company of Dr. Hirschman's automobile lease,
gas, oil, repairs and maintenance.
(4) The dollar value of insurance premiums paid by, or on behalf of, the
Company with respect to term life insurance for the benefit of Dr.
Hirschman.
The following table sets forth information concerning stock option
grants made during 1996 to the executive officers of the Company, including the
potential realizable value of such grants assuming that the market value of the
Common Stock appreciates from the date of the grant to the expiration of the
option at the annualized rates of 5% and 10%, in each case compounded annually
over the term of the option. These assumed annualized rates of appreciation
have been specified by the Securities and Exchange Commission for illustration
purposes only and are not intended to predict actual future prices of the Common
Stock. Other than the 18,600,000 shares of Common Stock underlying Dr.
Hirschman's options, of which 13,600,000 shares are currently exercisable, the
Company currently has outstanding three Warrants, each to acquire 178,378
shares, at exercise prices of $0.288, $0.576 and $0.864 per
47
<PAGE> 51
Warrant share, respectively, and options to acquire 15,715,733 shares of the
Common Stock, none of which are beneficially owned by directors, officers or
employees of the Company.
<TABLE>
<CAPTION>
OPTION GRANTS TABLE
Percent of
Total Potential Realizable Value at
Number of Options Market Exercise Assumed Annual Rates of Stock
Securities Granted to Price on or Price Appreciation for Option Term
Underlying Employees in Date of Base ----------------------------------
Name Options Granted(1) Fiscal Year Grant(2) Price Expiration Date 5% 10%
- ------------------------- ------------------------------ -------- ----- --------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shalom Z. Hirschman, M.D. 5,000,000 ) 100% $.1775 $0.19 March 23, 1999 $100,000 $250,000
5,000,000 ) .1775 $0.27 March 23, 1999 -- --
5,000,000 ) .1775 $0.36 March 23, 1999 -- --
</TABLE>
- --------------
1) All options are non-qualified options.
2) The average of the high and low bid prices per share of Common Stock as
reported by the Bulletin Board on March 22, 1996, the last trading day
before the date of grant.
The following table provides certain information concerning exercises
of options during 1996 by the executive officers of the Company and the fiscal
year-end value of unexercised options:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND YEAR-END
OPTION VALUES
Number of Securities
Underlying Value of Unexercised In-
Shares Acquired Unexercised Options at the-Money Options at
on Value Fiscal Year-End Fiscal Year-End
Name Exercise(#) Realized(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Shalom Z. Hirschman, M.D. 250,000(3) $155,000 8,600,000/10,000,000 $901,000/$100,000
350,000(3) 252,000
300,000(3) 331,500
</TABLE>
48
<PAGE> 52
- --------------
1) The difference between the average of the high and low bid prices per
share of the Common Stock as reported by the Bulletin Board on the date
of exercise, and the exercise or base price.
2) The difference between the average of the high and low bid prices per
share of the Common Stock as reported by the Bulletin Board on December
31, 1996, $.29, and the exercise or base price.
3) Exercise price of $.18 per share.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-
CONTROL ARRANGEMENTS
Pursuant to an Employment Agreement, dated as of October 14, 1996,
between the Company and Shalom Z. Hirschman, M.D. (the "Hirschman Employment
Agreement"), the Company employs Dr. Hirschman, on a full business time basis as
its President, Chief Executive Officer, Chief Scientific Officer and Chairman of
its Scientific Advisory Board, with duties including supervising day-to-day
operations of the Company, including management of scientific, medical,
financial, regulatory and corporate matters, establishing appropriate
laboratory, executive and other facilities for the Company, and raising
additional capital for the Company. The Hirschman Employment Agreement includes
an agreement by the Company that Dr. Hirschman will be nominated as a director
of the Company for the duration of Dr. Hirschman's employment by the Company
under the Hirschman Employment Agreement, and voting agreements by Bernard
Friedland, William Bregman and Dr. Hirschman. See Item 11. Security Ownership of
Certain Beneficial Owners and Management. The term of Dr. Hirschman's employment
commenced on October 14, 1996 and continues for a period of three years unless
extended by the parties or unless the Hirschman Employment Agreement is
terminated by either party, either "for cause," as defined in and in accordance
with the provisions of the Hirschman Employment Agreement, or on the basis that
the Company does not receive, on or before December 31, 1997, funding from
whatever source of at least $3,000,000, excluding traditional institutional
and/or bank debt financing and excluding the proceeds received by the Company
upon Dr. Hirschman's exercise of stock options or his purchase of any of the
Company's securities. In the event either party terminates the Hirschman
Employment Agreement as a result of the Company not receiving this funding, or
the Company terminates that agreement "for cause," all stock options, benefits
under stock bonus plans and stock appreciation rights ("SARs") (collectively,
"Stock Rights") granted to him after October 14, 1996 may be canceled by the
Company. If Dr. Hirschman terminates his employment otherwise than for cause,
upon not less than 60 days prior written notice, he is entitled to compensation
and other benefits, including the Stock Rights granted to him after October 14,
1996, accrued to the effective date of termination specified in that notice.
Dr. Hirschman's compensation under the Hirschman Employment Agreement
is an annual salary of $325,000, payable in equal monthly installments. The
Hirschman Employment Agreement also entitles Dr. Hirschman to (a) a major
medical insurance policy, disability policy and dental
49
<PAGE> 53
policy insurance to Dr. Hirschman and his dependents that is reasonably
acceptable to the parties, and (b) a term life insurance policy at least in the
amount of $1,000,000, with a beneficiary to be designated by Dr. Hirschman. Dr.
Hirschman agrees to cooperate with the Company in its purchase of a "key man"
life insurance policy on his life for the benefit of the Company. The Company
further agrees to (a) take such action as may be necessary to permit Dr.
Hirschman to be entitled to participate in stock option, stock bonus or similar
plans (including plans for SARs) as are established by the Company, (b) lease or
purchase for Dr. Hirschman, at his discretion, an automobile selected and to be
used by him, having a list price not in excess of $40,000, and pay for all gas,
oil, repairs and maintenance, as well as the lease or purchase payments, as
applicable, in connection with the automobile, (c) reimburse Dr. Hirschman for
all of his proven expenses incurred in and about the course of his employment
that are deductible under the current tax law, including, among other expenses,
his license fees, membership dues in professional organizations, subscriptions
to professional journals, necessary travel, hotel and entertainment expenses
incurred in connection with overnight, out-of-town trips that contribute to the
benefit of the Company in the reasonable determination of Dr. Hirschman, and all
other expenses that may be pre-approved by the Board of Directors of the
Company, and (d) provide not less than four weeks paid vacation annually and
such paid sick or other leave as the Company provides to all of its employees.
The Hirschman Employment Agreement further provides that Dr. Hirschman
is not authorized, without the express written consent of the Board of Directors
and other than in the ordinary course of business, to pledge the credit of the
Company or any of its other employees, to bind the Company, to release or
discharge any debt due the Company unless the Company has received payment in
full, or to dispose (as collateral or otherwise) of all or substantially all of
the Company's assets.
Dr. Hirschman has agreed that he will assign to the Company all patents
developed by Dr. Hirschman or resulting from his knowledge acquired while
performing his duties under the Hirschman Employment Agreement, and that, if his
employment under the Hirschman Employment Agreement is terminated by the Company
"for cause" or by Dr. Hirschman otherwise than "for cause," as specified in that
agreement, he will not, directly or indirectly, compete with the Company for
three years after termination or solicit the Company's employees to leave the
service of the Company for one year after termination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as at February 28, 1997, certain
information regarding the beneficial ownership of the Common Stock by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding voting securities; (ii) each of the Company's directors;
and (iii) all directors and officers of the Company as a group:
50
<PAGE> 54
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Shares of Common Stock
Beneficially Owned Percent Owned
---------------------- -------------
<S> <C> <C>
Shalom Z. Hirschman, M.D. 13,600,000(2)(3) 4.8%
c/o Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Hallandale, FL 33009
Bernard Friedland 39,876,730(3)(4) 14.9%
c/o Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Hallandale, FL 33009
William Bregman 35,682,403(3)(5) 13.4%
c/o Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Hallandale, FL 33009
Louis I. Silver 501,000 *
5110 S.W. 127th Place
Miami, FL 33175
Robert C. Kolodny, M.D. 0 -
Behavioral Medicine Institute
885 Oenoke Ridge Road
New Canaan, CT 06840
William Gedale 0 -
1775 Broadway, Suite 1410
New York, NY 10019
All officers & directors (6 persons) 89,660,133(3)(6) 31.9%
</TABLE>
- -------------------------
* Less than 1%
(1) Assumes no purchases of Common Stock other than by exercise of options
outstanding as of February 28, 1997. For purposes of this table, beneficial
ownership is computed pursuant to Rule 13d-3 under the Exchange Act; the
inclusion of shares as beneficially owned should not be construed as an
admission that such shares are beneficially owned for purposes of the Exchange
Act. Under the rules of the Commission, a person is deemed to be a "beneficial
owner" of a security if he or she has or shares the power to vote or direct the
voting of such security or the power to dispose of or direct the disposition of
such security. Accordingly, more than one person may be deemed to be a
beneficial owner of the same security. Except as otherwise indicated, each
Selling Stockholder named in the table has sole voting and dispositive power
with respect to such Selling Stockholder's shares. Shares of Common Stock
subject to options held by directors and executive officers that are exercisable
within 60 days after February 28, 1997 are deemed beneficially owned by such
person and outstanding for the purpose of computing such director's or executive
officer's percentage beneficial ownership and the percentage beneficial
ownership of all directors and executive officers as a group. According to
American Stock Transfer & Trust Company, the transfer agent for the Common
Stock, 267,081,058 shares of the Common Stock were outstanding as of the close
of business on February 28, 1997.
(2) Consists of shares which may be acquired pursuant to Common Stock purchase
options exercisable within 60 days after February 28, 1997.
(3) The Hirschman Employment Agreement provides that Messrs. Friedland and
Bregman, during the term of Dr. Hirschman's employment under that agreement,
shall vote all shares of the Common Stock owned or voted by them in favor of Dr.
Hirschman as a director of the Company. That agreement, however, does not
restrict or otherwise limit their
51
<PAGE> 55
right to sell their shares to third parties without restriction. The Hirschman
Employment Agreement also provides that Dr. Hirschman, during that term, shall
take no action which shall preclude Messrs. Friedland and Bregman from being
nominees as directors of the Company and that Dr. Hirschman shall vote all
shares of the Common Stock owned or voted by him in favor of Messrs. Friedland
and Bregman as directors of the Company. See Item 10. Executive Compensation -
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
(4) Includes 1,000,000 shares of the Common Stock owned by Mr. Friedland and
Beth Friedland, his daughter, as joint tenants, 20,000,000 shares of the
Common Stock owned by Mr. Friedland and Shirley Friedland, his spouse, as joint
tenants, and 60,000 shares of the Common Stock (as to which Mr. Friedland
disclaims beneficial ownership) owned by Shirley Friedland. On March 4, 1997,
Mr. Friedland transferred 1,000,000 of the shares owned by him to the B&SD
Friedland Foundation, a not-for-profit foundation controlled by him.
(5) Includes 23,435,000 shares of the Common Stock held in a trust for which
Mr. Bregman is the sole trustee and sole beneficiary.
(6) Includes shares which may be acquired pursuant to Common Stock purchase
options held by Dr. Hirschman that are exercisable within 60 days after
February 28, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For the past three fiscal years, there were no material transactions
between the Company and any of its officers or directors which involved $60,000
or more.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
a. Documents filed as a part of this report:
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Consolidated Financial Statements F-1
</TABLE>
2. Notes to Consolidated Financial Statements
Schedules have been omitted either because they
are not applicable or because the required
information is reported in the financial
statements or notes.
52
<PAGE> 56
3. Exhibits
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
EXHIBIT NUMBER DESCRIPTION
<S> <C>
3(a) Articles of Incorporation of Advanced Viral Research Corp.(2)
3(b) Bylaws of Advanced Viral Research Corp., as amended(1)
3(c) Amendment to Articles of Incorporation of Advanced Viral Research
Corp.(2)
4(a) Specimen Certificate of Common Stock(1)
4(b) Specimen Warrant Certificate(1)
4(c) Warrant Agreement between the Company and American Stock Transfer and
Trust Company(1)
4(d) Forms of Common Stock Options and Agreements granted by the Company to
TRM Management Corp.(5)
4(e) Form of Common Stock Option and Agreement granted by the Company to
Plata Partners Limited Partnership(12)
4(f) Consulting Agreement, dated September 11, 1992, and Form of Common
Stock granted by the Company to Leonard Cohen (6)
4(g) Addendum to Agreement granted by the Company to Shalom Z. Hirschman,
M.D. dated March 24, 1996(10)
10(a) Declaration of Trust by Bernard Friedland and William Bregman in favor
of the Company dated November 16, 1987(12)
10(b) Clinical Trials Agreement, dated September 19, 1990, between Clinique
Medical Actuel and the Company(3)
10(c) Letter, dated March 15, 1991 to the Company from Health Protection
Branch(3)
10(d) Agreement dated August 20, 1991 between TRM Management Corp. and the
Company(11)(i)
10(e) Lease dated December 18, 1991 between Bayview Associates, Inc. and the
Company(4)
10(f) Lease Agreement, dated February 16, 1993 between Stortford Brickell
Inc. and the Company(7)
10(g) Consulting Agreement dated February 28, 1993 between Leonard Cohen and
the Company(8)
10(h) Medical Advisor Agreement, dated as of September 14, 1993, between
Lionel Resnick, M.D. and the Company(11)(ii)
10(i) Agreement, dated November 9, 1993, between Dormer Laboratories Inc. and
the Company(12)
10(j) Exclusive Distribution Agreement, dated April 25, 1994, between
C.U.R.E. Pharmaceutical Corp. and the Company(11)(iii)
</TABLE>
53
<PAGE> 57
<TABLE>
<C> <C>
10(k) Exclusive Distribution Agreement, dated as of June 1, 1994, between
C.U.R.E. Pharmaceutica Central Americas Ltd. and the Company. (11)(iv)
10(l) Exclusive Distribution Agreement dated as of June 17, 1994 between DCT
S.R.L. and the Company, as amended(11)(v)
10(m) Contract, dated as of October 25, 1994 between Commonwealth
Pharmaceuticals of the Channel Islands and the Company(11)(vi)
10(n) Agreement dated May 24, 1995 between the Company and Deborah Silver(9)
10(o) Agreement dated May 29, 1995 between the Company and Shalom Z.
Hirschman, M.D.(9)
10(p) Exclusive Distribution Agreement, dated as of June 2, 1995, between
AVIX International Pharmaceuticals Corp. and the Company(12)
10(q) Supplement to Exclusive Distribution Agreement, dated November 2, 1995
with Commonwealth Pharmaceuticals(12)
10(r) Exclusive Distributorship & Limited License Agreement, dated December
28, 1995, between AVIX International Pharmaceutical Corp., Beijing
Unistone Pharmaceutical Co., Ltd. and the Company(11)(vii)
10(s) Modification Agreement, dated December 28, 1995, between AVIX
International Pharmaceutical Corp. and the Company(11)(vii)
10(t) Agreement dated April 1, 1996, between DCT S.R.L. and the
Company(11)(viii)
10(u) Addendum, dated as of March 24, 1996, to Consulting Agreement between
the Company and Shalom Z. Hirschman, M.D.(10)
10(v) Addendum to Agreement, dated July 11, 1996, between AVIX International
Pharmaceutical Corp. and the Company(11)(ix)
10(w) Employment Agreement, dated October 17, 1996, between the Company and
Shalom Z. Hirschman, M.D. (11)(x)
10(x) Lease, dated February 7, 1997 between Robert Martin Company, LLC and
the Company(12)
10(y) Copy of Purchase and Sale Agreement, dated February 21, 1997 between
the Company and Interfi Capital Group(11)(xi)
10(z) Material Transfer Agreement-Cooperative Research And Development
Agreement, dated March 13, 1997, between National Institute of Health,
Food and Drug Administration and the Centers for Disease Control and
Prevention(11)(xii)
21 Subsidiaries of Registrant - Advance Viral Research Limited, a Bahamian
corporation.
27 Financial Data Schedule for the Company as of and for the two years in
period ended December 31, 1996.
</TABLE>
- ----------
(1) Documents incorporated by reference herein to certain exhibits the
Company's Registration Statement on Form S-1, as amended, File No.
33-33895, filed with the Securities and Exchange Commission on March
19, 1990.
(2) Documents incorporated by reference herein to certain exhibits to the
Company's Registration Statement on Form S-18, File No. 33-2262-A,
filed with the Securities and Exchange Commission on February 12, 1989.
(3) Documents incorporated by reference herein to certain exhibits to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1990.
(4) Documents incorporated by reference herein to certain exhibits to the
Company's Annual Report on form 10-K for period ended March 31, 1991.
54
<PAGE> 58
(5) Documents incorporated by reference herein to certain exhibits to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1991.
(6) Documents incorporated by reference herein to certain exhibits to the
Company's report on Form 10-Q for the period ended September 30, 1992.
(7) Documents incorporated by reference herein to certain exhibits to the
Company's Annual Report on Form 10- KSB for the fiscal year ended
December 31, 1992.
(8) Documents incorporated by reference herein to certain exhibits to the
Company's report on Form 10-QSB for the period ended March 31, 1993.
(9) Documents incorporated by reference herein to certain exhibits to the
Company's report onForm 10-QSB for the period ended June 30, 1995.
(10) Documents incorporated by reference herein to certain exhibits to the
Company's report on Form 10-QSB for the period ended March 31, 1996.
(11) Incorporated by reference herein to the Company's Reports on Form 8-K
and Exhibits thereto as follows:
(i) A report on Form 8-K dated January 3, 1992.
(ii) A report on Form 8-K dated September 14, 1993.
(iii) A report on Form 8-K dated April 25, 1994.
(iv) A report on Form 8-K dated June 3, 1994.
(v) A report on Form 8-K dated June 17, 1994.
(vi) A report on Form 8-K dated October 25, 1994.
(vii) A report on Form 8-K dated December 28, 1995.
(viii) A report on Form 8-K dated April 22, 1996.
(ix) A report on Form 8-K dated July 12, 1996.
(x) A report on Form 8-K dated October 17, 1996.
(xi) A report on Form 8-K dated February 21, 1997.
(xii) A report on Form 8-K dated March 25, 1997.
(12) Filed herewith.
b. Reports on Form 8-K during and after the fiscal quarter ended
December 31, 1996:
(1) Report dated October 17, 1996, including Item 5, regarding Employment
Agreement dated October 17, 1996 between Advanced Viral Research Corp.
and Shalom Z. Hirschman, M.D. No financial statements were filed.
(2) Report dated February 21, 1997, including Item 5, regarding:
A. the Convertible Debenture to RBB Bank AG dated February 21,
1997;
B. An executed lease dated February 24, 1997 from Robert
Martin Company, LLC to the Company; and C. Acceptance of the
Company's invitation to Robert C. Kolodney, M.D. to serve
as a member of its Board of Directors as of February 24, 1997
until the next annual meeting of shareholders and until a
successor shall be elected and shall qualify. No financial
statements were filed.
(3) Report dated March 13, 1997, including Item 5, regarding an Agreement
with the National Cancer Institute of the National Institutes of Health
and the Company, dated March 13, 1997. No financial statements were
filed.
55
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 14, 1997 ADVANCED VIRAL RESEARCH CORP.
(Registrant)
By: /s/ Shalom Z. Hirschman, M.D.
---------------------------------------
Shalom Z. Hirschman, M.D., President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 14, 1997 By: /s/ Shalom Z. Hirschman, M.D.
---------------------------------------
Shalom Z. Hirschman, M.D., President
and Chief Executive Officer
and director
Date: April 14, 1997 By: /s/ Bernard Friedland
---------------------------------------
Bernard Friedland, Chairman of the
Board and director
Date: April 14, 1997 By: /s/ William Bregman
---------------------------------------
William Bregman, Secretary -
Treasurer, director, Principal
Financial and Accounting Officer
Date: April 14, 1997 By: /s/ Louis J. Silver
---------------------------------------
Louis J. Silver, director
Date: April 14, 1997 By: /s/ Robert C. Kolodny, M.D.
---------------------------------------
Robert C. Kolodny, M.D., director
Date: April 14, 1997 By: /s/ William Gedale
---------------------------------------
William Gedale, director
56
<PAGE> 60
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
F-1
<PAGE> 61
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-3
Consolidated Financial Statements
Balance Sheet, December 31, 1996.......................... F-4
Statement of Operations for the Years Ended December 31,
1996 and 1995 and from Inception (February 20, 1984) to
December 31, 1996...................................... F-5
Statement of Stockholders' Equity from Inception (February
20, 1984) to December 31, 1996......................... F-6
Statement of Cash Flows for the Years Ended December 31,
1996 and 1995 and from Inception (February 20, 1984) to
December 31, 1996...................................... F-9
Notes to Consolidated Financial Statements................ F-10
</TABLE>
F-2
<PAGE> 62
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Stockholders and Directors
Advanced Viral Research Corp.
(A Development Stage Company)
Hallandale, Florida
We have audited the accompanying consolidated balance sheet of Advanced
Viral Research Corp. (A Development Stage Company) as of December 31, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1996 and for
the period from inception (February 20, 1984) to December 31, 1996. These
financial statements are the responsibility of the management of the Company.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Viral Research Corp. (A Development Stage Company) as of December 31, 1996 and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1996 and for the period from inception
(February 20, 1984) to December 31, 1996 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has suffered recurring
losses from operations and is dependent upon the continued sale of its
securities or obtaining debt financing for funds to meet its cash requirements.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with regard to these matters are described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
RACHLIN COHEN & HOLTZ
Miami, Florida
January 28, 1997
F-3
<PAGE> 63
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 61,396
Investments............................................... 1,378,841
Inventory................................................. 19,729
Other current assets...................................... 16,081
-----------
Total current assets.............................. 1,476,047
Property and Equipment...................................... 207,209
Other Assets................................................ 33,544
-----------
Total assets...................................... $ 1,716,800
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.................. $ 46,674
Customer deposits......................................... 7,800
-----------
Total current liabilities......................... 54,474
-----------
Commitments and Contingencies............................... --
Stockholders' Equity:
Common stock; 1,000,000,000 shares of $.00001 par value
authorized, 267,031,058 shares issued and
outstanding............................................ 2,671
Additional paid-in capital................................ 7,003,351
Subscription receivable................................... (19,000)
Deficit accumulated during the development stage.......... (4,851,537)
Deferred compensation cost................................ (473,159)
-----------
Total stockholders' equity........................ 1,662,326
-----------
Total liabilities and stockholders' equity........ $ 1,716,800
===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 64
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 20,
YEAR ENDED DECEMBER 31, 1984) TO
--------------------------- DECEMBER 31,
1996 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Sales............................................... $ 24,111 $ 27,328 $ 192,041
Interest............................................ 46,796 16,155 345,409
Other income........................................ 32,000 25,000 112,000
------------ ------------ -----------
102,907 68,483 649,450
------------ ------------ -----------
Costs and Expenses:
Research and development............................ 255,660 34,931 1,106,408
General and administrative.......................... 695,915 420,757 3,926,133
Depreciation and amortization....................... 306,072 14,679 466,236
Interest............................................ -- -- 2,210
------------ ------------ -----------
1,257,647 470,367 5,500,987
------------ ------------ -----------
Net Loss.............................................. $ (1,154,740) $ (401,884) $(4,851,537)
============ ============ ===========
Net Loss Per Common Share............................. $ (.00) $ (.00)
------------ ------------
Weighted Average Number of Common Shares
Outstanding......................................... 257,645,815 248,022,608
============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 65
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK DEFICIT
--------------------- ACCUMULATED
AMOUNT ADDITIONAL DURING THE
PER PAID-IN DEVELOPMENT
SHARE SHARES AMOUNT CAPITAL STAGE
------ ------------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, inception (February 20, 1984)
as previously reported................ $ -- $ 1,000 $ -- $ (1,000)
Adjustment for pooling of interests..... -- (1,000) 1,000 --
------------ ------- ---------- -----------
Balance, inception, as restated......... -- -- 1,000 (1,000)
Net loss, period ended December 31,
1984............................... -- -- -- (17,809)
------------ ------- ---------- -----------
Balance, December 31, 1984.............. -- -- 1,000 (18,809)
Issuance of common stock for cash..... .00 113,846,154 1,138 170 --
Net loss, year ended December 31,
1985............................... -- -- -- (25,459)
------------ ------- ---------- -----------
Balance, December 31, 1985.............. 113,846,154 1,138 1,170 (44,268)
Issuance of common stock -- public
offering........................... .01 40,000,000 400 399,600 --
Issuance of underwriter's warrants.... -- -- 100 --
Expenses of public offering........... -- -- (117,923) --
Issuance of common stock, exercise of
"A" warrants....................... .03 819,860 9 24,587 --
Net loss, year ended December 31,
1986............................... -- -- -- (159,674)
------------ ------- ---------- -----------
Balance, December 31, 1986.............. 154,666,014 1,547 307,534 (203,942)
------------ ------- ---------- -----------
Balance, December 31, 1986.............. 154,666,014 1,547 307,534 (203,942)
Issuance of common stock, exercise of
"A" warrants....................... .03 38,622,618 386 1,158,321 --
Expenses of stock issuance............ -- -- (11,357) --
Acquisition of subsidiary for cash.... -- -- (46,000) --
Cancellation of debt due to
stockholders....................... -- -- 86,565 --
Net loss, period ended December 31,
1987............................... -- -- -- (258,663)
------------ ------- ---------- -----------
Balance, December 31, 1987.............. 193,288,632 1,933 1,495,063 (462,605)
Net loss, year ended December 31,
1988............................... -- -- -- (199,690)
------------ ------- ---------- -----------
Balance, December 31, 1988.............. 193,288,632 1,933 1,495,063 (662,295)
Net loss, year ended December 31,
1989............................... -- -- -- (270,753)
------------ ------- ---------- -----------
Balance, December 31, 1989.............. 193,288,632 1,933 1,495,063 (933,048)
Issuance of common stock, expiration
of redemption offer on "B"
warrants........................... .05 6,729,850 67 336,475 --
Issuance of common stock, exercise of
"B" warrants....................... .05 268,500 3 13,422 --
Issuance of common stock, exercise of
"C" warrants....................... .08 12,900 -- 1,032 --
Net loss, year ended December 31,
1990............................... -- -- -- (267,867)
------------ ------- ---------- -----------
Balance, December 31, 1990.............. 200,299,882 2,003 1,845,992 (1,200,915)
------------ ------- ---------- -----------
Issuance of common stock, exercise of
"B" warrants....................... .05 11,400 -- 420 --
Issuance of common stock, exercise of
"C" warrants....................... .08 2,500 -- 200 --
</TABLE>
F-6
<PAGE> 66
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCK DEFICIT
--------------------- ACCUMULATED
AMOUNT ADDITIONAL DURING THE
PER PAID-IN DEVELOPMENT
SHARE SHARES AMOUNT CAPITAL STAGE
------ ------------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock, exercise of
underwriters warrants.............. .012 3,760,000 38 45,083 --
Net loss, year ended December 31,
1991............................... -- -- -- (249,871)
------------ ------- ---------- -----------
Balance, December 31, 1991.............. 204,073,782 2,041 1,891,695 (1,450,786)
Issuance of common stock, for
testing............................ .0405 10,000,000 100 404,900 --
Issuance of common stock, for
consulting services................ .055 500,000 5 27,495 --
Issuance of common stock, exercise of
"B" warrants....................... .05 7,458,989 75 372,875 --
Issuance of common stock, exercise of
"C" warrants....................... .08 5,244,220 52 419,487 --
Expenses of stock issuance............ (7,792)
Net loss, year ended December 31,
1992............................... -- -- -- (839,981)
------------ ------- ---------- -----------
Balance, December 31, 1992.............. 227,276,991 2,273 3,108,660 (2,290,767)
Issuance of common stock, for
consulting services................ .055 500,000 5 27,495 --
Issuance of common stock, for
consulting services................ 3,500,000 35 104,965 --
Issuance of common stock, for
testing............................ .035 5,000,000 50 174,950 --
Net loss, year ended December 31,
1993............................... -- -- -- (563,309)
------------ ------- ---------- -----------
Balance, December 31, 1993.............. $236,276,991 $ 2,363 $3,416,070 $(2,854,076)
============ ======= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 67
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK DEFICIT
-------------------- ACCUMULATED
AMOUNT ADDITIONAL DURING THE DEFERRED
PER PAID-IN SUBSCRIPTION DEVELOPMENT COMPENSATION
SHARE SHARES AMOUNT CAPITAL RECEIVABLE STAGE COST
------ ----------- ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993....... $ 236,276,991 $2,363 $3,416,070 $ -- $(2,854,076) $ --
Issuance of common stock, for
consulting services.......... .05 4,750,000 47 237,453 -- -- --
Issuance of common stock,
exercise of options.......... .08 400,000 4 31,996 -- -- --
Issuance of common stock,
exercise of options.......... .10 190,000 2 18,998 -- -- --
Net loss, year ended December
31, 1994..................... -- -- -- -- (440,837) --
----------- ------ ---------- -------- ----------- ---------
Balance, December 31, 1994....... 241,616,991 2,416 3,704,517 -- (3,294,913) --
Issuance of common stock,
exercise of options.......... .05 3,333,333 33 166,633 -- -- --
Issuance of common stock,
exercise of options.......... .08 2,092,850 21 167,407 -- -- --
Issuance of common stock,
exercise of options.......... .10 2,688,600 27 268,833 -- -- --
Issuance of common stock, for
consulting services.......... .11 1,150,000 12 126,488 -- -- --
Issuance of common stock, for
consulting services.......... .14 300,000 3 41,997 -- -- --
Net loss, year ended December
31, 1995..................... -- -- -- -- (401,884) --
----------- ------ ---------- -------- ----------- ---------
Balance, December 31, 1995....... 251,181,774 2,512 4,475,875 -- (3,696,797) --
----------- ------ ---------- -------- ----------- ---------
Issuance of common stock,
exercise of options.......... .05 3,333,334 33 166,634 -- -- --
Issuance of common stock,
exercise of options.......... .08 1,158,850 12 92,696 -- -- --
Issuance of common stock,
exercise of options.......... .10 7,163,600 72 716,288 -- -- --
Issuance of common stock,
exercise of options.......... .11 170,000 2 18,698 -- -- --
Issuance of common stock,
exercise of options.......... .12 1,300,000 13 155,987 -- -- --
Issuance of common stock,
exercise of options.......... .18 1,400,000 14 251,986 -- -- --
Issuance of common stock,
exercise of options.......... .19 500,000 5 94,995 -- -- --
Issuance of common stock,
exercise of options.......... .20 473,500 5 94,695 -- -- --
Issuance of common stock, for
services rendered............ .50 350,000 3 174,997 -- -- --
Options granted................ -- -- 760,500 -- -- (473,159)
Subscription receivable........ -- -- -- (19,000) -- --
Net loss, year ended December
31, 1996..................... -- -- -- -- (1,154,740) --
----------- ------ ---------- -------- ----------- ---------
Balance, December 31, 1996....... 267,031,058 $2,671 $7,003,351 $(19,000) $(4,851,537) $(473,159)
=========== ====== ========== ======== =========== =========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 68
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 20, 1984)
YEAR ENDED DECEMBER 31, TO
----------------------- DECEMBER 31,
1996 1995 1996
----------- --------- -------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss........................................... $(1,154,740) $(401,884) $(4,851,537)
----------- --------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 18,731 14,679 178,895
Amortization of deferred compensation cost...... 287,341 -- 287,341
Issuance of common stock for services........... 175,000 168,500 1,372,000
Increase in other current assets................ (3,114) (2,804) (16,081)
Increase in inventory........................... (1,638) (18,091) (19,729)
Increase in other assets........................ (27,085) (4,659) (33,544)
Increase (decrease) in accounts payable and
accrued liabilities........................... 39,823 (25,594) 52,874
----------- --------- -----------
Total adjustments............................. 489,058 132,031 1,821,756
----------- --------- -----------
Net cash used in operating activities......... (665,682) (269,853) (3,029,781)
----------- --------- -----------
Cash Flows from Investing Activities:
Purchase of investments............................ (1,247,256) (474,000) (1,726,256)
Proceeds from sale of investments.................. 347,415 -- 347,415
Repayments on loan receivable -- stockholder....... -- 8,762 --
Expenditures for property and equipment............ (11,446) (5,075) (384,504)
----------- --------- -----------
Net cash used in investing activities........... (911,287) (470,313) (1,763,345)
----------- --------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of securities, net of issuance
costs........................................... 1,573,135 602,955 4,854,522
----------- --------- -----------
Net cash provided by financing activities....... 1,573,135 602,955 4,854,522
----------- --------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents........................................ (3,834) (137,211) 61,396
Cash and Cash Equivalents, Beginning................. 65,230 202,441 --
----------- --------- -----------
Cash and Cash Equivalents, Ending.................... $ 61,396 $ 65,230 $ 61,396
=========== ========= ===========
Supplemental Disclosure of Non-Cash Financing
Activities:
Options granted accounted for as deferred
compensation cost............................... $ 760,500
===========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 69
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Advanced Viral Research Corp. (the Company) was incorporated in
Delaware on July 31, 1985. The Company was organized for the
purpose of manufacturing and marketing a pharmaceutical product
named RETICULOSE. While the Company has had limited sales of this
product, primarily for research purposes, the success of the
Company will be dependent upon obtaining certain regulatory
approval for its pharmaceutical product, RETICULOSE, to commence
commercial operations. The Company was in the development stage at
December 31, 1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its 99.6% owned subsidiary, Advance Viral Research
(LTD), a Bahamian Corporation. All significant intercompany
accounts have been eliminated.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments, with
original maturities of three months or less.
INVESTMENTS
Investments consist of certificates of deposit with maturities
greater than three months, carried at cost which is market value,
and U.S. Government discount notes and U.S. Treasury Bills. The
notes and treasury bills are classified as "held to maturity" and
are carried at amortized cost which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using
the straight-line method, over the estimated useful lives of the
assets. Gain or loss on disposition of assets is recognized
currently. Maintenance and repairs are charged to expense as
incurred. Major replacements and betterments are capitalized and
depreciated over the remaining useful lives of the assets.
RECLASSIFICATION
Certain amounts in the 1995 financial statements have been
reclassified to conform to 1996 presentation.
F-10
<PAGE> 70
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Although these
estimates are based on management's knowledge of current events and
actions it may undertake in the future, they may ultimately differ
from actual results.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles which
contemplate the continuance of the Company as a going concern. The
Company has suffered losses from operations during its operating
history. The Company is dependent upon registration of RETICULOSE for
sale before it can begin commercial operations. The Company's cash
position may be inadequate to pay all the costs associated with the
full range of testing and clinical trials required by the FDA.
Management does not anticipate registration or other approval of
RETICULOSE in the near future in the United States. Unless and until
RETICULOSE is approved for sale in the United States or another
industrially developed country, the Company may be dependent upon the
continued sale of its securities for funds to meet its cash
requirements. Management intends to continue to sell the Company's
securities in an attempt to mitigate the effects of its cash position;
however, no assurance can be given that such equity financing, if and
when required, will be available. In the event that such equity
financing is not available, in order to continue operations,
management anticipates that they will have to defer their salaries.
In addition, the Company may seek debt financing, but no agreements
have been entered with regard to such financing. No assurance can be
given that the Company will be able to sustain its operations until
FDA approval is granted or that any approval will ever be granted.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of recorded assets and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
NOTE 3. ACQUISITION
Two of the principal stockholders of the Company acquired LTD, a
Bahamian Corporation with pharmaceutical manufacturing and warehousing
facilities, on February 20, 1984. The acquisition is a combination of
two entities under common control and has been accounted for in a
manner similar to a pooling of interests. In 1986, the Company
acquired from LTD exclusive rights to manufacture and market
RETICULOSE worldwide, except within the Bahamas, for $50,000. The
Company also purchased inventory of RETICULOSE from LTD for $45,000
and was obligated to pay $3 per ampule of RETICULOSE for the initial
100,000 ampules purchased and $2 per ampule for purchases exceeding
100,000 ampules. On December 16, 1987, the Company acquired the
controlling beneficial interest in 99.6% of the common stock of LTD
through an appropriate trust agreement to satisfy the rules of the
Bahamian Government, from two of the principal stockholders of the
Company at a cost of $46,000. Both stockholders concurrently canceled
$86,565 of indebtedness due them from LTD.
F-11
<PAGE> 71
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31, December 31,
(Years) 1996 1995
------- ---- ----
<S> <C> <C> <C>
Land and improvements 15 $ 34,550 $ 34,550
Building and improvements 30 239,434 239,434
Machinery and equipment 5 110,520 99,074
------- --------
384,504 373,058
Less accumulated depreciation 177,295 158,564
------- -------
$207,209 $214,494
======= =======
</TABLE>
The Company maintains certain property and equipment in Freeport,
Bahamas. The property and equipment amounted to $369,358 as of
December 31, 1996 including $17,623 expended in 1987 to purchase a
land lease expiring in 2068. These amounts are included above.
NOTE 5. COMMITMENTS AND CONTINGENCIES
GENERAL
POTENTIAL CLAIM FOR ROYALTIES
The Company may be subject to claims from certain third parties for
royalties due on sale of RETICULOSE in an amount equal to 5% of net
sales in the United States and 4% of net sales in foreign
countries. The Company has not as yet received any notice of claim
from such parties.
POTENTIAL LOSS OF BAHAMIAN RIGHTS
RETICULOSE is manufactured by Advance Viral Research, Limited (LTD)
in facilities located in Freeport, Grand Bahama Island. LTD has a
license to manufacture pharmaceutical products for export from the
Grand Bahama Port Authority. LTD's counsel was advised in August
1988 by the Ministry of Health of the Government of the Bahamas
that a license from the Ministry of Health is required for the
manufacture of pharmaceuticals in the Freeport area of Grand Bahama
Island. LTD has received an opinion of its counsel in the Bahamas
that the license from the Grand Bahama Port Authority is valid for
the manufacture for export by LTD's of ethical pharmaceutical
products in the Freeport area of Grand Bahama Island. No
proceeding to prevent LTD's export of RETICULOSE has been
instituted by the Government of the Bahamas. If such proceedings
are instituted, LTD intends to defend them vigorously. No
assurance can be given that LTD would successfully defend such
claim.
F-12
<PAGE> 72
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS AND CONTINGENCIES
PRODUCT LIABILITY
The Company could be subjected to claims for adverse reactions
resulting from the use of RETICULOSE. Although the Company is
unaware of any such claims or threatened claims since RETICULOSE
was initially marketed in the 1940's, one study noted adverse
reactions from highly concentrated doses in guinea pigs. In the
event any claims for substantial amounts were successful, they
could have a material adverse effect on the Company's financial
condition and on the marketability of RETICULOSE. As of the date
hereof, the Company does not have product liability insurance for
RETICULOSE. There can be no assurance that the Company will be
able to secure such insurance in adequate amounts, at reasonable
premiums. Should the Company be unable to secure such product
liability insurance, the risk of loss to the Company in the event
of claims would be greatly increased.
LACK OF PATENT PROTECTION
The Company does not presently have a patent for RETICULOSE but the
Company is currently applying for patents for RETICULOSE and
certain other diseases. The Company can give no assurance that
other companies, having greater economic resources, will not be
successful in developing a similar product. There can be no
assurance that the Company will obtain such patents or if obtained
that they will be enforceable.
OFFICE LEASE
Management executed a non-cancelable lease for new office space on
January 1, 1996, expiring on December 31, 1998 at approximately
$14,000 annually.
The Company leased an auto on October 26, 1996 for 36 months at
$450 per month. Lease expense for the years ended December 31,
1996 and 1995 totaled $13,315 and $13,832, respectively.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1997 $19,500
1998 19,500
1999 4,500
-------
$43,500
======
</TABLE>
TESTING AGREEMENTS
PLATA PARTNERS LIMITED PARTNERSHIP
On March 20, 1992, the Company entered into an agreement with Plata
Partners Limited Partnership ("Plata") pursuant to which Plata
agreed to perform a demonstration in the Domincan Republic in
accordance with a certain agreed upon protocol (the "Protocol") to
assess the efficacy of a treatment using RETICULOSE incorporated in
the Protocol against AIDS (the "Plata Agreement"). Plata covered
all costs and expenses associated with the demonstration.
F-13
<PAGE> 73
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS AND CONTINGENCIES
TESTING AGREEMENTS
Pursuant to the Plata Agreement, the Company authorized the
issuance to Plata of 5,000,000 shares of common stock and options
to purchase an additional 5,000,000 shares at $.08 per share
through July 9, 1994 (the "Plata Options") and 5,000,000 shares at
$.10 per share through July 9, 1994. Pursuant to several
amendments, the Plata Options and the Additional Plata Options are
exercisable through April 30, 1997 at an exercise price of $.12 and
$.14, respectively. As of December 31, 1996, there are outstanding
Plata Options to acquire 813,000 shares at $.11 per share and
Additional Plata Options to acquire 858,100 shares at $.13 per
share. Through December 31, 1996, the Company has received
approximately $670,000 pursuant to the issuance of approximately
7.7 million shares in connection with the exercise of the Plata
Options and the Additional Plata Options.
TRM MANAGEMENT CORP. ("TRM")
In August 1991, the Company entered into an agreement with TRM,
whereby TRM would perform certain open human clinical trial tests
in Haiti using RETICULOSE (the "TRM Agreement"). According to the
TRM Agreement, the purpose of the Haiti tests was to assess the
effectiveness of RETICULOSE against the Hepatitis "A" virus and
Hepatitis "B" virus in accordance with and in compliance with a
certain Hepatitis Open Label Clinical Trial Protocol developed by
TRM. At the conclusion of the Haiti tests, TRM was required to
prepare a paper describing the methods and results of testing, the
form and substance of which shall be appropriate for publication by
recognized scientific journals ("Results Paper"). The Results
Paper was published in the December 1992 issue of the Journal of
the Royal Society of Health.
On January 3, 1992, TRM delivered to the Company the Results Paper.
In accordance with the terms of the TRM Agreement, the Company has
authorized the issuance to the shareholders and certain associated
persons of TRM (1) an aggregate amount of 10,000,000 shares of the
Company's common stock (the "TRM Shares") and (2) an option to
acquire, at any time, for a period of five years from the date of
issuance of the option, 10,000,000 shares of the Company's common
stock at a purchase price of $.05 per share (the "TRM Options").
As of December 31, 1996, 6,666,666 shares of common stock were
issued pursuant to the exercise of the TRM Options for an aggregate
exercise price of $333,333. Pursuant to an amendment, the TRM
Options are exercisable through March 15, 1997 at an exercise price
of $.08.
F-14
<PAGE> 74
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS AND CONTINGENCIES
ARGENTINE AGREEMENT
In April 1996, the Company entered into an agreement (the
"Argentine Agreement") with DCT SRL, an Argentine corporation
unaffiliated with the Company ("DCT") pursuant to which DCT was to
cause a clinical trial to be conducted in two separate hospitals
located in Buenos Aires, Argentina (the "Clinical Trials").
Pursuant to the Argentine Agreement, the Clinical Trials were to be
conducted pursuant to a protocol developed by Juan Carlos Flichman,
M.D. and the purpose of the Clinical Trials was to assess the
efficacy of the Company's drug RETICULOSE on the Human Papilloma
Virus (HPV). The protocol calls for, among other things, a study
to be performed with clinical and laboratory follow-up on 20 male
and female human patients between the ages of 18 and 50. The
Clinical Trials did not include a placebo control group or
references to any other antiviral drug.
Pursuant to the Argentine Agreement, the Company delivered $34,000
to DCT to cover out-of-pocket expenses associated with the Clinical
Trials. The Argentine Agreement further provides that at the
conclusion of the Clinical Trials, DCT shall cause Dr. Flichman to
prepare and deliver a written report to the Company regarding the
methodology and results of the Clinical Trials (the "Written
Report"). In September 1996, the Written Report was delivered by
Dr. Flichman to the Company. Upon delivery of the Written Report
to the Company, the Company delivered to the principals of DCT
options to acquire 2,000,000 shares of the Company's common stock
for a period of one year from the date of the delivery of the
Written Report, at a purchase price of $.20 per share. As of
December 31, 1996, 473,500 shares of common stock were issued
pursuant to the exercise of these options for an aggregate exercise
price of approximately $95,000.
In June 1994, DCT SRL and the Company entered into an exclusive
distribution agreement whereby the Company granted to DCT SRL the
exclusive right to distribute the Company's drug RETICULOSE in
certain South American countries, including Argentina and the other
MERCOSUR States.
BARBADOS STUDY
A double blind study assessing the efficacy of the Company's drug
RETICULOSE in 43 human patients diagnosed with HIV (AIDS) is being
conducted at the Queen Elizabeth Hospital, Bridgetown, Barbados
(the "Barbados Study"). As of December 31, 1996, the Company has
expended approximately $150,000 to cover the costs of the Barbados
Study. Based on information received from the coordinators of the
Barbados Study, the Company is uncertain as to the costs to be
incurred in connection with the Barbados Study and has not been
informed as to when results from the Barbados Study will be
forthcoming. In December 1996, the Company received from the
coordinators of the Barbados Study, a written summary of
preliminary results of the Barbados Study (the "Written Summary").
F-15
<PAGE> 75
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS AND CONTINGENCIES
HIRSCHMAN AGREEMENT
In May 1995, the Company entered into a consulting agreement with
Shalom Hirschman, M.D., Professor of Medicine of Mt. Sinai School
of Medicine, New York, New York and Director of Mt. Sinai's
Division of Infectious Diseases, whereby Dr. Hirschman was to
provide consulting services to the Company through May 1997. The
consulting services included the development and location of
pharmaceutical and biotechnology joint venture partners and
assisting the Company with regulatory approvals and protocols.
In connection with the consulting agreement, the Company issued to
Dr. Hirschman 1,000,000 shares of the Company's common stock and
the option to acquire 5,000,000 shares of the Company's common
stock for a period of three years as per the vesting schedule as
referred to in the agreement, at a purchase price of $.18 per
share. In addition and in connection with entering into the
consulting agreement with Dr. Hirschman, the Company issued to a
person unaffiliated with the Company, 100,000 shares of the
Company's common stock, and an option to acquire for a period of
one year, from June 1, 1995, an additional 500,000 shares at a
purchase price of $.18 per share. As of December 31, 1996, 900,000
options have been exercised for cash consideration of $162,000
under this Agreement.
In March 1996, the Company entered into an Addendum to Agreement
with Dr. Hirschman whereby Dr. Hirschman agreed to provide
consulting services to the Company through May 2000 (the
"Addendum"). Pursuant to the Addendum, the Company granted to Dr.
Hirschman the option to purchase 15,000,000 shares of the Company's
common stock for a three year period pursuant to the following
vesting schedule: (i) options to purchase 5,000,000 shares
exercisable at any time and from time to time commencing March 24,
1996 and ending March 23, 1999 at an exercise price of $.19 per
share, of which options to acquire 500,000 shares were assigned by
Dr. Hirschman to Richard Rubin, counsel to Dr. Hirschman; (ii)
options to purchase 5,000,000 shares exercisable at any time and
from time to time commencing March 24, 1997 and ending March 23,
1999 at an exercise price of $.27 per share, of which options to
acquire 500,000 shares were assigned by Dr. Hirschman to Richard
Rubin, counsel to Dr. Hirschman; and (iii) options to purchase
5,000,000 shares exercisable at any time and from time to time
commencing March 23, 1998 and ending March 23, 1999 at an exercise
price of $.36 per share, of which options to acquire 500,000 shares
were assigned by Dr. Hirschman to Richard Rubin, counsel to Dr.
Hirschman. In addition, the Company has agreed to cause the shares
underlying these options to be registered so long as there is no
cost to the Company. As of December 31, 1996, 500,000 shares of
common stock were issued pursuant to the exercise of stock options
by Richard Rubin. Mr. Rubin has, from time to time in the past,
advised the Company on matters unrelated to his representation of
Dr. Hirschman.
F-16
<PAGE> 76
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS AND CONTINGENCIES
On October 14, 1996, the Company and Dr. Hirschman entered into an
agreement (the "Employment Agreement") whereby Dr. Hirschman has
agreed to serve as the President and Chief Executive Officer of the
Company for a period of three years, subject to earlier termination
by either party if the Company does not receive on or prior to
December 31, 1997, funding of $3,000,000 from sources other than
traditional institutional/bank debt financing or proceeds from the
purchase by Dr. Hirschman of the Company's securities, including,
without limitation, the exercise of Dr. Hirschman of outstanding
stock options. Pursuant to the Employment Agreement, Dr. Hirschman
is entitled to receive an annual base salary of $325,000,
automobile and health, life, disability and dental insurance
benefits for the term of his employment. The Employment Agreement
further provides that Dr. Hirschman shall be nominated by the
Company to serve as a member of the Company's Board of Directors
for the duration of his employment, and since October 17, 1996, Dr.
Hirschman has served as a member of the Company's Board of
Directors.
CONSULTING AGREEMENTS
COHEN AGREEMENTS
In September 1992, the Company entered into a one year consulting
agreement with Leonard Cohen (the "September 1992 Cohen
Agreement"). The September 1992 Cohen Agreement required that Mr.
Cohen provide certain consulting services to the Company in
exchange for the Company issuing to Mr. Cohen 1,000,000 shares of
common stock (the "September 1992 Cohen Shares"), 500,000 of which
were issuable upon execution of the September 1992 Cohen Agreement
and the remaining 500,000 shares of which were issuable upon Mr.
Cohen completing 50 hours of consulting service to the Company.
The Company issued the first 500,000 shares to Mr. Cohen in October
1992 and the remaining 500,000 shares to Mr. Cohen in February
1993. Further pursuant to the September 1992 Cohen Agreement, the
Company granted to Mr. Cohen the option to acquire, at any time and
from time to time through September 11, 1993 (which date has been
extended through December 31, 1996), the option to acquire
3,000,000 shares of common stock of the Company at an exercise
price of $.09 per share (which exercise price has been increased to
$.12 per share) (the "September 1992 Cohen Options"). As of
December 31, 1996, 1,300,000 of the September 1992 Cohen Options
have been exercised for cash consideration of $156,000. Pursuant
to an amendment, the options were exercisable through April 30,
1997 at a price of $.13.
In February 1993, the Company entered into a second consulting
agreement with Mr. Cohen (the "February 1993 Cohen Agreement").
The February 1993 Cohen Agreement provides that Mr. Cohen provide
financing consulting services concerning the business operations of
the Company in exchange for the Company issuing to Mr. Cohen
3,500,000 shares of common stock (the "February 1993 Cohen
Shares"), 1,000,000 shares of which Mr. Cohen has informed the
Company he has assigned to certain other persons non-affiliated
with the Company.
F-17
<PAGE> 77
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. COMMITMENTS AND CONTINGENCIES
In July 1994, in consideration for services related to the
introduction, negotiation and execution of a distribution agreement
the Company issued: (i) to Mr. Cohen, an additional 2,500,000
shares (the "April 1994 Cohen Shares") and (ii) to each of Elliot
Bauer and Lee Rizzuto, 625,000 shares (the "Bauer and Rizzuto
Shares") as well as options to acquire an additional 5,000,000
shares at $.10 per share exercisable through May 1, 1996 (the
"Bauer and Rizzuto Options"). The April 1994 Cohen Shares, the
Bauer and Rizzuto Shares and the shares of common underlying the
Bauer and Rizzuto Options have been registered. The Company has
been informed that Messrs. Cohen, Bauer and Rizzuto are principals
of a firm which has been granted certain distribution rights.
Through December 31, 1996, 2,855,000 shares were issued pursuant to
the exercise of the Bauer and Rizzuto Options for an aggregate
exercise price of $285,500. During the year ended December 31,
1996, approximately 3,000,000 shares of common stock were issued
for cash consideration of $300,000 pursuant to the exercise of the
Bauer and Rizzuto Options. Pursuant to an amendment, the Rizzuto
options are exercisable through April 30, 1997 at an option price
of $.11. The Company agreed to issue to Cohen an additional
300,000 shares in 1995 at a time when the shares were valued at
$.14 per share, in consideration for expenditures incurred by Mr.
Cohen with securing for the benefit of the Company and the
affiliated distributor, the continued services of a doctor.
The issuance of the September 1992 Cohen Shares, the February 1993
Cohen Shares, the April 1994 Cohen Shares and the Bauer and Rizzuto
Shares have been accounted for as an administrative expense in the
amount of the Company's valuation of such shares as of the issuance
date. During the year ended December 31, 1996, Mr. Cohen was
issued 300,000 shares for services rendered. These shares were
accounted for as an administrative expense in the amount of the
Company's valuation of such shares as of the issuance date.
DISTRIBUTION AGREEMENTS
The Company has entered into separate agreements with five different
entities (the "Entities"), whereby the Company has granted exclusive
rights to distribute RETICULOSE in the countries of China, Japan,
Macao, Hong Kong, Taiwan, Malaysia, Mexico, Saudi Arabia, Argentina,
Bolivia, Paraguay, Uruguay, Brazil, Chile, Channel Islands, The Isle
of Man, British West Indies, Jamaica, Haiti, Bermuda and Belize.
Pursuant to these agreements, distributors are obligated to cause
RETICULOSE to be approved for commercial sale in such countries and
upon such approval, to purchase from the Company certain minimum
quantities of RETICULOSE to maintain the exclusive distribution
rights. Leonard Cohen, a former consultant to the Company, has
informed the Company that he is an affiliate of two of these entities.
CONTINGENCY
The Company is involved in a lawsuit incidental to its operations. In
the opinion of legal counsel and management of the Company, any
liabilities which may arise from this action would not have a material
effect on the financial position or results of operations of the
Company.
F-18
<PAGE> 78
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. STOCKHOLDERS' EQUITY
During 1996, the Company issued 15,849,284 shares of common stock for
an aggregate consideration of $1,748,135. These amounts were
comprised of the issuance of common stock pursuant to the exercise of
stock options of 15,499,284 shares for $1,573,135 and the issuance of
common stock in exchange for consulting services of 350,000 shares for
consideration of $175,000.
NOTE 7. INCOME TAXES
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes. SFAS No. 109 is an asset and liability approach for
computing deferred income taxes.
As of December 31, 1996, the Company had a net operating loss
carryforward for Federal income tax reporting purposes amounting to
approximately $4,300,000, which expires in 2011.
The Company presently has no significant temporary differences between
financial reporting and income tax reporting. The components of the
deferred tax asset as of December 31, 1996 were as follows:
<TABLE>
<S> <C>
Benefit of net operating loss carryforwards $1,462,000
Less valuation allowance 1,462,000
----------
Net deferred tax asset $ -
==========
</TABLE>
As of December 31, 1996, sufficient uncertainty exists regarding the
realizability of these operating loss carryforwards and, accordingly,
a valuation allowance of $1,462,000, which related to the net
operating losses, has been established.
NOTE 8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated
fair value of the Company's financial instruments presented in
accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No. 107. Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information
available to management as of December 31, 1996. Since the reported
fair values of financial instruments are based upon a variety of
factors, they may not represent actual values that could have been
realized as December 31, 1996 or that will be realized in the future.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash, U.S. government obligations and accounts
payable. Fair values were assumed to approximate carrying values for
these financial instruments since they are short-term in nature and
their carrying amounts approximate fair values or they are receivable
or payable on demand.
F-19
<PAGE> 79
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of non-current investments, primarily certificates of
deposit and U.S. government obligations have been estimated using
quoted market prices. At December 31, 1996, the differences between
the estimated fair value and the carrying value of non-current debt
instruments were considered immaterial in relation to the Company's
financial position.
NOTE 9. DEFERRED COMPENSATION COST
As more fully described in Note 5 to these financial statements, the
Company granted stock options in exchange for testing and consulting
services. In accordance with SFAS 123, Accounting for Stock-Based
Compensation (effective for options granted after December 15, 1995),
the Company recognized compensation cost based on the fair value at
the grant dates. The compensation cost is amortized over the life of
the option period. The fair value of the stock options used to
compute deferred compensation cost is the estimated present value at
grant date using the Black-Sholes option pricing model with the
following assumptions for 1996: expected volatility of 20%; a
risk-free interest rate of 6% and an expected holding period ranging
from 1-3 years. The deferred compensation cost is reported as a
component of stockholders' equity.
NOTE 10. SUBSEQUENT EVENTS
During January 1997, the Company entered into a five year
non-cancelable operating lease for certain office and laboratory space
in Yonkers, New York at an annual rental of $85,400 per year.
In February 1997, the Company obtained financing of $1,000,000 in the
form of 7% convertible debentures to finance research and development.
F-20
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C> <C>
4(e) Form of Common Stock Option and Agreement granted by the Company to
Plata Partners Limited Partnership
10(a) Declaration of Trust by Bernard Friedland and William Bregman in favor
of the Company dated November 16, 1987
10(i) Agreement, dated November 9, 1993, between Dormer Laboratories Inc. and
the Company
10(p) Exclusive Distribution Agreement, dated as of June 2, 1995, between
AVIX International Pharmaceutical Corp. and the Company
10(q) Supplement to Exclusive Distribution Agreement, dated November 2, 1995
with Commonwealth
10(x) Lease, dated February 7, 1997 between Robert Martin Company, LLC and
the Company
27 Financial Data Schedule for the Company as of and for the two years in
period ended December 31, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 4(e)
THE COMMON STOCK OPTION REPRESENTED BY THIS AGREEMENT (THE "OPTION") AND THE
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF (THE "OPTION SHARES")
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN ANY MANNER (1) WITHOUT
REGISTRATION UNDER THE ACT AND IN COMPLIANCE WITH THE LAWS OF ANY APPLICABLE
JURISDICTIONS; OR (2) AN OPINION OF COUNSEL (IN FORM AND SUBSTANCE ACCEPTABLE TO
ADVANCED VIRAL RESEARCH CORP.) THAT REGISTRATION IS NOT REQUIRED.
ADVANCED VIRAL RESEARCH CORP.
COMMON STOCK OPTION AND AGREEMENT
THIS COMMON STOCK OPTION (the "Option") for a total of 5,000,000 shares
(the "Option Shares") of common stock, par value $.00001 per share (the "Common
Stock"), of Advanced Viral Research Corp., a Delaware corporation (the
"Company"), is hereby granted by the Company to Plata Partners Limited
Partnership, a Michigan limited partnership (the "Optionee"), pursuant to that
certain Agreement between the Company and Optionee dated March 20, 1992, at the
price and subject to the terms and conditions contained herein.
1. Exercise of Option.
(a) Time and Price. At any time, and from time to time, for a period
of fifteen (15) months, commencing on the date hereof and ending at 4:00 p.m. on
July 19, 1994, Optionee shall be entitled to exercise in whole or in part, the
Option at the exercise price of $.10 for each Option Share.
(i) The Option granted hereunder shall be deemed exercised when
Optionee shall indicate his decision to do so in writing to the Company in
accordance with paragraph 1(b) hereof, and shall at the same time tender to the
Company payment in full for the Option Shares in accordance with paragraph 1(c)
hereof.
(b) Method of Exercise. The Option shall be exercisable by a written
notice which shall:
(i) state the election to exercise the Option, the person in
whose name the stock certificate(s) for such shares of Common Stock is to be
registered, his address and social security number (or if more than one, the
names, addresses and social security numbers of such persons);
(ii) be signed by the person or persons entitled to exercise the
Option and, if the Option is being exercised by any person(s) other than the
Optionee be accompanied by proof, satisfactory to counsel for the Company, of
the right of such person(s) to exercise the Option; and
<PAGE> 2
(iii) be delivered in person or by certified mail to
the Company.
(c) Payment. Payment of the purchase price for the Option
Shares shall be by certified or bank cashier's check.
(d) Restriction on Exercise. Notwithstanding anything
contained herein to the contrary, this Option may not be exercised if the
issuance of the Option Shares would constitute a violation of any applicable
federal or state securities laws or other applicable laws or regulations. As a
condition to the exercise of the Option, the Company may require the person
exercising the Option to make such representations and agree to such covenants
as may be required by any applicable law or regulation.
2. Optionee's or Successor's Rights as Stockholders. Neither the
Optionee nor his successor(s) in interest, as permitted hereunder, shall have
any rights as a stockholder of the Company with respect to any Option Shares
until Optionee or his successors in interest becomes a beneficial holder of the
Option Shares and receives from the Company or its duly authorized agent a certi
ficate or certificates representing the Option Shares. Optionee may not transfer
the Option without the Company's prior written consent.
3. No Registration. Optionee understands that the Option granted hereby
and the Option Shares underlying the Option have not been registered under the
Securities Act of 1933, as amended (the "Act") or any other applicable state's
securities laws in reliance upon applicable exemptions from such registration
and may be transferred only pursuant to such securities laws.
4. Investment Intent. The Option and the Option Shares contemplated to
be acquired pursuant to the exercise of the Option are being and shall be
acquired by Optionee solely for investment purposes and not for the account of
any other person and not for distribution, assignment or resale to others. No
other person has a direct or indirect beneficial interest in the Option or the
Option Shares. Optionee has not subdivided the beneficial ownership of the
Option or the Option Shares with any other person.
5. Transfer to Comply with the Securities Act of 1933. Neither the
Option nor the Option Shares may be offered or sold except in compliance with
the Act, and the laws of any applicable jurisdiction. The Company shall cause a
legend in substantially the form that follows to be set forth on the certificate
representing the Option Shares.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE LAWS OF ANY OTHER JURISDICTION AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
-2-
<PAGE> 3
HYPOTHECATED OR OTHERWISE DISPOSED OF IN ANY MANNER WITHOUT
(1) REGISTRATION UNDER THE ACT AND THE LAWS OF ANY APPLICABLE
JURISDICTION; OR (2) AN OPINION OF COUNSEL (IN FORM AND
SUBSTANCE ACCEPTABLE TO ADVANCED VIRAL RESEARCH CORP.) THAT
REGISTRATION IS NOT REQUIRED.
6. Review and Evaluation of Information Regarding the Company. Optionee
hereby warrants to the Company as follows:
(a) Optionee has, together with his financial advisors, if
any, have had access to any relevant information and documents desired; have had
the opportunity to ask questions of and receive answers from any person
authorized to act on behalf of the Company concerning any aspect of the Company,
including but not limited to, the merits of accepting the Option; are in
receipt of (i) that certain prospectus of the Company dated June 9, 1992; (ii)
the Company's Report on Form 10-K for the fiscal year ended December 31, 1992;
and (iii) all other requested documents and information regarding the Company
(collectively the "Information").
(b) Optionee together with his financial advisors, if any,
represent that they have carefully read, are familiar with and fully understand
the Information including all documents referred to therein, and have consulted
with such other advisors as they have deemed necessary and appropriate in making
the decision to acquire the Option. Optionee fully represents that, after a
careful review of the Information, including all documents referred to therein,
Optionee accepts the Option.
7. Financial Experience. Optionee is sufficiently experienced in
financial and business matters to be capable of evaluating the merits and risks
of his acceptance of the Option, or if Optionee has utilized the services of a
financial advisor, together they are sufficiently experienced in financial and
business matters that they are capable of evaluating the merits and risks of
Optionee's acceptance of the Option.
8. Accredited Investor. Unless this section is crossed out, Optionee is
an "accredited investor" as such term is defined at Rule 501 promulgated under
the Act, a copy of which definition is attached hereto and incorporated by
reference hereby as Exhibit "1."
9. Residency. Optionee is a limited partnership organized under the
laws of the State of Michigan.
10. MISCELLANEOUS.
(a) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the
-3-
<PAGE> 4
subject matter hereof and supersedes all prior negotiations, understandings,
agreements, arrangements and understandings, both oral and written, among the
parties hereto with respect to such subject matter.
(b) Amendment. This Agreement may not be amended or modified
in any respect, except by the mutual written agreement of the parties hereto.
(c) No Third Party Beneficiary. Nothing expressed or implied
in this Agreement is intended, or shall be construed, to confer upon or give any
person, firm, corporation, partnership, association or other entity, other than
the parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
(d) Waivers and Remedies. The waiver by any of the parties
hereto of any other party's prompt and complete performance, or breach or
violation, of any provision of this Agreement shall not operate nor be construed
as a waiver of any subsequent breach or violation, and the waiver by any of the
parties hereto to exercise any right or remedy which it may possess hereunder
shall not operate nor be construed as a bar to the exercise of such right or
remedy by such party upon the occurrence of any subsequent breach or violation.
(e) Severability. The invalidity of any one or more of the
words, phrases, sentences, clauses, sections or subsections contained in this
Agreement shall not affect the enforceability of the remaining portions of this
Agreement or any part hereof, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall be declared invalid by a court of competent jurisdiction, this Agreement
shall be construed as if such invalid word or words, phrase or phrases, sentence
or sentences, clause or clauses, section or sections, or subsection or
subsections had not been inserted.
(f) Descriptive Headings. Descriptive headings contained
herein are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(g) Counterparts. This Agreement may be executed in any
numbers of counterparts and by the separate parties hereto in separate
counterparts, each of which shall be deemed to be one and the same instrument.
(h) Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard hereto shall be in writing and shall be deemed to have been duly given,
when delivered by hand or three (3) days after deposited in the United States
mail, by registered or
-4-
<PAGE> 5
certified mail, return receipt requested, postage prepaid, as follows:
If to the Company: Advanced Viral Research Corp.
848 Brickell Avenue
Suite 415
Miami, Florida 33131
Attention: William Bregman,
Secretary/Treasurer
With a copy to: Charles J. Rennert, Esq.
Hornsby, Sacher, Zelman &
Stanton, P.A.
1110 Brickell Avenue
Penthouse
Miami, Florida 33131
If to Optionee: Plata Partners Limited Partnership
3933 Fort Street
Lincoln Park, Michigan 48146
Attn: Chuck Miller
or to such other address as any party hereto may from time to time designate in
writing delivered in a like manner.
(i) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. None of the parties hereto shall assign any of its
rights or obligations hereunder.
(j) Applicable Law. This Agreement shall be governed by, and
shall be construed, interpreted and enforced in accordance with the laws of the
State of Florida.
(k) Expenses. Each of the parties hereto agrees to pay all of
the respective expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
-5-
<PAGE> 6
(l) Agent. Neither party is hereby constituted an agent or
legal representative of the other party hereto and neither is granted any right
or authority hereunder to assume or create any obligation, express or implied,
or to make any representation, covenant, warranty, or guaranty, except as
expressly granted or made in this Agreement.
DATE OF GRANT: 4/20, 1993
ADVANCED VIRAL RESEARCH CORP.
By: /s/ William Bregman
--------------------------
Authorized Representative
(CORPORATE SEAL)
Attest: /s/ Bernard Friedland
-----------------------
Agreed and Accepted this
20 day of April 1993
- ----------------------------------
PLATA PARTNERS LIMITED PARTNERSHIP
By: /s/ Charles E. Miller
--------------------------
Authorized Representative
-6-
<PAGE> 7
EXHIBIT "1"
ACCREDITED INVESTOR DEFINITION
As defined in Rule 501 promulgated under the Securities Act of 1933, as
amended (the "Act"), "accredited investors" include: (1) any bank as defined in
section 3(a)(2) of the Act, or any savings and loan association or other
institution as defined in section 3(a)(5)(A) of the Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered pursuant to
section 15 of the Securities Exchange Act of 1934; any insurance company as
defined in section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that Act; any Small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of the state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors; (2) any private business development
company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
(3) any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the Common Stock offered, with
total assets in excess of $5,000,000; (4) any director, executive officer, or
general partner of the issuer of the securities being offered or sold, or any
director, executive officer or general partner of a general partner of that
issuer; (5) any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000; (6)
any natural person who had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable expectation of reaching the
same income level in the current year; (7) any trust, with total assets in
excess of $5,000,000, not formed for the specific purpose of acquiring the
Common Stock offered, whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of the Act; and (8) any entity in which all of
the equity owners are accredited investors.
-7-
<PAGE> 1
EXHIBIT 10(a)
COMMONWEALTH OF THE BAHAMAS
GRAND BAHAMA
Dated: day of
A.D., 1987
________________________________________________________________________________
________________________
DECLARATION OF TRUST
________________________
NOTTAGE, MILLER, JOHNSON & CO.,
Chambers
Lucayan Building
Freeport, Grand Bahama
Bahamas
<PAGE> 2
COMMONWEALTH OF THE BAHAMAS
GRAND BAHAMA
Freeport.
I, Barbara _______________- of the City of Freeport in the Island of Grand
Bahama one of the Islands of the Commonwealth of the Bahamas, Secretary make
Oath and say that I was present and saw BERNARD FRIEDLAND of the City of Coral
Gables and WILLIAM BREGMAN of the City of Miami Beach of the State of Florida
one of the United States of America sign seal and as and for their Act and Deed
execute and deliver the annexed DECLARATION OF TRUST dated the 16th day of
November A.D. 1987 for the purposes therein mentioned and that I subscribed my
name as the Witness to the due execution thereof.
SWORN to this 17th day )
----
) /s/
----------------------------------------------
of November A.D. 1987. )
--------
Before me,
/s/
- -------------------------
NOTARY PUBLIC
<PAGE> 3
COMMONWEALTH OF THE BAHAMAS
GRAND BAHAMA
Freeport.
DECLARATION OF TRUST
WE, BERNARD FRIEDLAND, of the City of Coral Gables, and WILLIAM BREGMAN of
the City of Miami Beach, of the State of Florida one of the United States of
America (hereinafter called "the Declarants") DO HEREBY ACKNOWLEDGE AND DECLARE
as herein below set out;
WHEREAS:
A. We are the stated and listed beneficial shareholders of all the 996
shares in a Company called and known as Advance Viral Research Limited
(hereinafter called "the Company") (formerly Key Pharmaceuticals Limited)
a Company incorporated under the laws of the Commonwealth of the Bahamas
and carrying on business therein.
B. A Company known as Advance Viral Research Corporation (hereinafter called
"AVR CORP") a Delaware Corporation has been incorporated under the laws of
the State of Delaware with 1,000,000,000 shares a substantia portion of
which we are the beneficial owners of in common with others.
C. AVR Corp. is desirous of underwriting the cost of acquisition of certain
real estate in the Bahamas namely Lot 1 Block R Civic Industrial Area,
Freeport, known as the "Key Building" and such building shall be vested in
the Company, as part of its permanent asset; to be utilized as the
Company's plant site.
The parties hereto are desirous of reducing to writing their agreements
and understandings with respect to the trust of the stock of AVR LTD and the
purchase of the "Key Building".
NOW, THEREFORE, in consideration of the sum of Ten ($10.00) Dollars and
other good and valuable considerations by each of the parties unto the other in
hand paid, the receipt whereof is hereby acknowledged, as well as in further
consideration of the mutual promises, covenants and agreements hereinafter set
forth, it is mutually agreed as follows:
1. NOW THIS DECLARATION witnesseth that in consideration as set out, we the
Declarants declare that the beneficial interest in and the ownership of
the fully paid up shares of the Company of which we are the registered
holders are exclusively held for Advanced Viral Research Corporation
(hereinafter called "the Owner") and that such shares in any manner
whatsoever is and will at all times be held in our names upon trust for
the Owner and I UNDERTAKE AND DECLARE that we will upon request duly
account for and pay to the Owner all the dividends and other monies or
rights paid or accruing to which we may be entitled by virtue of our
holding of the said share and further undertake and agree that we will
execute a transfer thereof and will seek such other approval of Bahamas
Central Bank as the Owner deems necessary or exercise the voting powers
thereby conferred or otherwise
<PAGE> 4
deal with the said shares in such manner as may from time to time be
directed by the Owner or the Director thereof.
2. This Declaration shall be construed subject to the laws of the
Commonwealth of the Bahamas and the laws of the State of Delaware PROVIDED
any conflict shall be determined according to Bahamian Laws.
IN WITNESS WHEREOF the Declarants have hereunto
set their hands and seals this 16th day of
November A.D., 1987.
/s/ Bernard Friedland
-----------------------------------------------
/s/ William Bregman
-----------------------------------------------
SIGNED SEALED AND DELIVERED by the said BERNARD FRIEDLAND and WILLIAM BREGMAN
in the presence of:
/s/
-----------------------------------------------
<PAGE> 1
EXHIBIT 10(i)
CONTRACT WITH DISTRIBUTOR
THIS AGREEMENT, made in duplicate this Ninth (9th), day of, November
1993, A.D., by and between ADVANCED VIRAL RESEARCH CORP. of Miami, Florida,
U.S.A., incorporated under the laws of the state of Delaware, hereinafter called
Company, and
DORMER LABORATORIES INC., of 91 Kelfield St, #5
Rexdale, Ontario M9W 5A3
Canada
hereinafter called Distributor
WITNESSETH:
1. Company hereby grants to Distributor for $10.00 and other good and just
considerations, the exclusive rights to import warehouse, market, sell,
and distribute the antiviral pharmaceutical product, known as
"RETICULOSE" (PEPTIDE-NUCLEIC ACID) and all improvements thereto within
the territory and country, CANADA, (the "territory").
2. Company assumes no responsibility for any misuse, improper use other
than recommended by the appropriate medical authorities, or illegal use
of the product, RETICULOSE.
3. Distributor hereby accepts the above rights to sell RETICULOSE in said
territory, and agrees to make all sales hereunder in accordance with
this Agreement. Distributor further covenants to use its best efforts
to promote the use and sale of RETICULOSE In the aforementioned
territory, and further covenants that it will not knowingly sell
RETICULOSE outside thereof for resale during the term of this
Agreement.
4. It is agreed that this Agreement does not constitute Distributor the
agent or legal representative of Company for any purpose whatsoever.
Distributor is NOT granted any right or authority to assume or create
any obligation or responsibility, expressed or implied, in behalf of or
in the name of Company or to bind Company in any manner or thing
whatsoever.
5. This Agreement shall continue in force and govern all transactions and
relations between the partes hereto for a period of time of five (5)
years from the time that import approval for RETICULOSE is granted by
the government of the territory and country which is the subject of
this Agreement. The term will be extended by mutual agreement at the
end of each five (5) year period, provided agreed upon performance
figures are maintained. In the event that the Company makes change of
ownership, merges with another company, enters joint venture, or
similar business arrangement, this Agreement will remain in force with
all rights of the Distributor including price adjustments and will be
perpetuated without change until the term of the contract is completed.
<PAGE> 2
CONTRACT WITH DISTRIBUTOR PAGE 2 DATE: 09 November 1993
6. No change, addition or erasure of any portion of this Agreement (except
filling in of blank lines) shall be valid or binding upon either party.
It is declared by both parties that there are no oral or other
agreements or understandings between them affecting this Agreement, or
related to the selling of RETICULOSE. This Agreement supersedes all
previous agreements between the parties.
7. Company agrees that for so long a time as Distributor shall continue to
sell RETICULOSE in a manner and to an extent and quantity satisfactory
to Company, and while this Agreement shall be and remain in effect, no
other or different person, firm or corporation will be granted the
rights of selling RETICULOSE in the aforesaid territory.
In order to be eligible for the exclusive right to import, market and
sell RETICULOSE, Distributor must be willing meet certain purchase minimums
following the registration of RETICULOSE as hereinunder established.
<TABLE>
<S> <C> <C>
Year 1............Minimum Purchase of 1,000 Ampules
Year 2............Minimum Purchase of 2,000 Ampules
Year 3............Minimum Purchase of 5,000 Ampules
Year 4............Minimum Purchase of 10,000 Ampules
Year 5............Minimum Purchase of 20,000 Ampules
</TABLE>
In the event that Distributor fails to meet annual minimum purchase requirements
the first 2 years and 50% of the mutually agreed upon minimum purchase for the
succeeding years, the Company may, at its discretion, declare this Agreement
Null and Void.
8. This Agreement constitutes a personal contract and Distributor shall
not transfer, or assign same or any part thereof without Company's
consent, nor will Company do so without Distributor's consent.
9. Distributor agrees to pay Company for RETICULOSE according to the
attached schedule of prices, which said schedule of prices may b change
from time to time with notice, subject to world market cost changes.
(SEE APPENDIX "A").
ALL PRICES ARE F.O.B. FREEPORT, BAHAMAS
ALL PAYMENT FOR ALL ORDERS WILL BE MADE BY APPROPRIATE INTER-BANK TRANSFER, OF
FUNDS IN U.S. DOLLARS, WITHIN 30 DAYS OF SHIPMENT.
10. Distributor agrees to provide Company with quarterly reports of his
sales of RETICULOSE within his territory and country.
11. In case of the termination of this agreement by either party for any
reason, Company may, at its option, repurchase from Distributor at the
net price paid by Distributor to Company, plus actual freight on
shipments to Distributor, any and all of the RETICULOSE on hand in
<PAGE> 3
CONTRACT WITH DISTRIBUTOR PAGE 3 DATE: 09 November 1993
Distributor's place of business or in the possession of Distributor,
upon demand and the tender by Company of the repurchase price.
Distributor shall be obligated to deliver such goods to Company
forthwith. Company reserves the right, however, to reject any
RETICULOSE which does not meet Company's specifications for quality,
identity, purity and labeling.
12. Notwithstanding anything herein contained to the contrary, Distributor
undertakes and assumes full responsibility to secure and obtain all
necessary and appropriate national, regional and local governmental
approvals, licenses, permits and registrations and any other necessary
documentation required to import and distribute RETICULOSE into and in
the territory. In the event that Distributor is unable to secure and
obtain all necessary and appropriate national, regional and local
governmental approvals, licenses, permits and registrations and any
other necessary documents required to import and distribute RETICULOSE
into the territory, within a reasonable period from the date hereof
(two years), the Company may negotiate option to terminate this
agreement on ninety (90) days written notice effective the date of
sending such notice by registered mail, telegram or TELEFAX.
13. The Trade Name "RETICULOSE" will belong to Advanced Viral Research
Corporation, if registered for Company by Distributor, or any other
agent.
14. If for any valid reason whatsoever Company deems its interests may b
imperiled, or in case of the incapacity, death or insolvency of
Distributor, or in case an application is made to have Distributor
declared bankrupt, then Company may at its option cancel this agreement
without any notice whatsoever to Distributor.
15. The failure of either party at any time to require performance by the
other party of any provision hereof shall in no way effect the full
right to require such performance at any time thereafter. Nor shall the
waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any succeeding breach of such provision or as a
waiver of the provision itself.
16. This Agreement is to be governed by and construed according to the laws
of the State of Florida; and under the jurisdiction of the U.S. Federal
District Court, Miami, Florida, U.S.A. It is understood, however, that
this is a general form of agreement, designed for use in the United
States of America, and in countries wherever Company may desire to sell
RETICULOSE and that any provisions herein which in anywise contravenes
the laws of any state, country or jurisdiction, shall be deemed not to
be a part of this Agreement therein.
17. Company reserves the right to make any design or manufacturing changes
which will improve RETICULOSE'S appearance, quality, or medical
effectiveness, without notice to Distributor. If any such changes are
made, there will be no obligation on Company to make such changes upon
any RETICULOSE previously shipped to Distributor.
<PAGE> 4
CONTRACT WITH DISTRIBUTOR PAGE 4 DATE: 09 November 1993
18. Distributor shall NOT during the term of this agreement sell any
pharmaceutical product of any other manufacturer which shall in any way
compete with the sale of RETICULOSE, as covered by this agreement.
19. Distributor shall pay all excise or sales taxes or any taxes that may
be required to be paid by Distributor or Company by statute or
regulation of any government, outside the U.S. in Distributor's
territory.
20. If during the term of this agreement Distributor shall have reason to
believe it has any claim against Company, in respect of any transaction
growing out of this agreement, Distributor shall in writing notify
Company within thirty (30) days after Distributor knows or has reason
to know the basis of any such claim. Failure to give such notice shall
relieve Company from any and all liability on any claim in respect of
any transaction growing out of this agreement, notice and full details
of which are not given to Company in writing within thirty (30) days
after such termination. The provisions of this paragraph shall survive
the termination of other provisions of this agreement.
21. If RETICULOSE is required for clinical testing purposes of the Canadian
government or for registration purposes, Company will provide these
ampules, at no charge, up to limits set by the Company.
22. All laboratory or clinical studies initiated by the Distributor for
which free RETICULOSE is provided must be first approved by Company.
The results of all studies, all research data and documentation and any
research publications resulting from studies initiated by Distributor
or any of his agents will belong to Company, and will be made use of at
Company's discretion, and such studies are only permitted as part of
this exclusive agreement.
23. This agreement is not valid or binding until and unless executed by the
President or duly authorized officer of Advanced Viral Research
Corporation, and the President or duly authorized officer of the
Distributor, Dormer Laboratories Inc.
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and
seals the day and year first above written.
/S/ Bernard Friedland /S/
- ----------------------------- -------------------------
ADVANCED VIRAL RESEARCH CORP. DORMER LABORATORIES INC.
PRESIDENT DISTRIBUTOR TITLE: President
<PAGE> 5
APPENDIX A TO AN AGREEMENT MADE
THE 9TH DAY OF NOVEMBER 1993
RETICULOSE PRICE SCHEDULE 1993
FOR CANADA
EACH AMPULE CONTAINS 2 mL. FOUR DOSES PER AMPULE
1. Price per ampule shall be U.S. $6.74 provided that such prices shall be
varied from quarter year to quarter year during the term of this Agreement
in accordance with the following volume prices based upon the volume ordered
by the Distributor in the quarter year immediately preceding the date of any
order placed by the Distributor.
SCHEDULE ESTABLISHED ON A PER ANNUM BASIS
1 - 1,250 AMPULES........................... U.S. $6.74 PER AMPULE
1,251 - 5,000 AMPULES....................... U.S. $6.50 PER AMPULE
5,001 - 10,000 AMPULES...................... U.S. $6.30 PER AMPULE
10,001 - 25,000 AMPULES..................... U.S. $6.20 PER AMPULE
25,001 - 50,000 AMPULES..................... U.S. $5.95 PER AMPULE
50,000 - 100,000 AMPULES.................... U.S. $5.60 PER AMPULE
100,001 - 200,000 AMPULES................... U.S. $5.40 PER AMPULE
200,001 - 500,000 AMPULES................... U.S. $5.10 PER AMPULE
500,001 - 1,000,000 AMPULES................. U.S. $4.75 PER AMPULE
Multiples over one million ampules per year, prices will be negotiable.
2. ALL PRICES ARE F.O.B. FREEPORT, BAHAMAS.
3. ALL PAYMENTS FOR ALL ORDERS SHALL BE EFFECTED IN U.S. DOLLARS BY
INTER-BANK TRANSFER OF FUNDS.
4. PRICES APPLY TO UNIT CONSISTING OF AN AMPULE CONTAINING 2 mL REPRESENTING
FOUR DOSES.
5. THE ABOVE PRICING MAY BE INCREASED AFTER DECEMBER 31, 1995 TO RECOVER ANY
COST INCREASES INCURRED BY THE INCREASES IN MANUFACTURING COSTS BY THE
COMPANY OVER THE UNIT COSTS INCURRED IN 1995, PROVIDED THAT THE PRICES
CHARGED THE DISTRIBUTOR SHALL NOT BE GREATER THAN PRICES CHARGED BY THE
COMPANY TO ANY OF ITS DISTRIBUTORS.
<PAGE> 1
Exhibit 10(p)
AGREEMENT
THIS AGREEMENT made this 2 day of June, 1995, by and between ADVANCED VIRAL
RESEARCH CORP. of Miami, Florida, Incorporated under the laws of the State of
Delaware (the "Company"), and AVIX International Pharmaceutical Corp. with
principal offices located at 4255 Route 9, Freehold, New Jersey, organized
under the laws of the State of New York, and with executive offices located at
270 West 38th Street, 17th Floor, New York, N.Y. (the "Distributor").
1 The Company hereby grants to Distributor the exclusive right
to import, warehouse, market, sell, and distribute (the "Rights") the
pharmaceutical product known by the name "RETICULOSE" within the territories
and countries of China, Japan, Thailand, Singapore, Hong Kong, Taiwan, and
Malaysia, and only in such countries (the "Territory").
2. a. The Company assumes no responsibility for any misuse
or illegal use of RETICULOSE.
b. The Company represents that the RETICULOSE sold and
delivered to Distributor shall have shelf life of not less than thirty (30)
months.
3. Distributor hereby accepts the Rights and, in accordance
therewith, shall use Its best efforts to work and develop the Rights.
4. This Agreement shall remain in force and govern all
transactions and relations between the parties hereto for a period of five (5)
years from the time that Distributor obtains the Approval in any country within
the Territory (hereinafter the "Approval") (as defined at Section 10 of this
Agreement); provided, however, in the event the Approval is not granted within
360 days from the date hereof, this Agreement may be terminated by the Company
at the Company's discretion, unless Distributor shall be diligently pursuing
such Approval. If Distributor is diligently seeking Approval but has not
obtained Approval within said 360 day period, in order for Distributor to
maintain its rights for an additional twelve (12) months under this Agreement
it shall make payment to Company of the sum of $8,000.00 per month for each
month Distributor wishes to maintain the Rights during the twelve (12) month
period, which sum shall be credited to Distributor's purchase of RETICULOSE.
If Distributor is complying with the terms of this Agreement, including the
purchase requirements, this Agreement will automatically extend for an
additional five (5) five (5) year terms.
5. The Company agrees that for so long a time as Distributor
shall continue to sell RETICULOSE in a manner and to an extent and quality
satisfactory to the Company, and while this Agreement shall be and remain in
effect, no other or different person, firm or corporation shall be granted the
Rights in the Territory.
6. Upon Distributor obtaining Approval (as defined at Section 10
to this Agreement), Distributor shall pay to the Company the sum of $500,000.00
for volumes in milliliters listed in
-1-
<PAGE> 2
Schedule "A" of RETICULOSE and an additional $500,000.00 for volumes in
milliliters listed in Schedule "A" of RETICULOSE after one (1) year from the
date of Approval [attached]. All other purchases of RETICULOSE shall be
priced in accordance with Schedule B hereto [attached].
7. (a) Distributor shall purchase, at a minimum, from the
Company, during each year of this Agreement, that amount of milliliters of
RETICULOSE as set forth on Schedule "A to this Agreement. All purchases made
by Distributor shall (a) be paid in cash (U.S. dollars only) in advance of the
Company's obligation to ship RETICULOSE; or (b) be the subject of an
Irrevocable letter of credit from a banking institution acceptable to the
Company and with terms and conditions acceptable to the Company (the "Letter of
Credit"). The Company shall ship RETICULOSE within ninety (90) days of receipt
of either payment in full for the accepted purchase order of RETICULOSE or
the establishment of the Letter of Credit. In the event the Company is unable
to ship RETICULOSE within ninety (90) days of (a) payment being received by the
Company therefor; or (b) the establishment of the Letter of Credit, (the "90
Day Period"), the purchase price for the subject RETICULOSE shall be reduced by
a factor of ten percent (10%) for every thirty (30) days which expires
subsequent to the 90 Day Period, in addition to Distributor's rights in (c)
below. The capacity of the Company's production is approximately 4,000,000
milliliters per year, and no orders from Distributor for China shall exceed the
90 day period production capacity for a period of one year.
b. In the event that Distributor fails to meet annual
minimum purchase requirements, as set forth on Schedule "A" to this Agreement,
the Company may, at its discretion, terminate this Agreement.
8. Distributor shall provide the Company with quarterly reports
of Distributor's sales of RETICULOSE and with quarterly reports regarding the
status of the Approval.
9. In the event of the termination of this Agreement by either
party pursuant to the terms of this Agreement, the Company may, at its option,
repurchase RETICULOSE from Distributor at the net price paid by Distributor to
the Company, plus actual freight or shipment charges paid by Distributor. Upon
demand and the tender by the Company of the repurchase price, Distributor shall
be obligated to deliver such goods to the Company forthwith. Company reserves
the right, however, to reject any RETICULOSE which does not meet Company's
specifications for quality, identity, purity and labeling.
10. Notwithstanding anything herein contained to the contrary,
Distributor undertakes and assumes full responsibility to secure and obtain all
necessary and appropriate national, regional and local governmental approvals,
licenses, permits and regulations and any other necessary documents required to
import and distribute RETICULOSE into any country within the Territory (the
"Approval") within 360 calendar days from the date hereof, except as otherwise
provided in this agreement.
-2-
<PAGE> 3
11. The Company reserves the right to make any design or
manufacturing changes which will Improve RETICULOSE appearance, quality, or
medical effectiveness without notice to Distributor, If any such changes are
made, there will be no obligation on the Company to make such changes upon any
RETICULOSE previously shipped to Distributor.
12. Distributor shall NOT during the term of this Agreement sell
any pharmaceutical product of any other manufacturer which shall in any way
compete with the sale of RETICULOSE, as covered by this Agreement.
13. Distributor shall pay all excise or sales taxes or any taxes
that may be required to be paid by Distributor or the Company by statute or
regulation of any government, outside the U.S. in Distributor's territory.
14. If during the term of this Agreement Distributor shall have
reason to believe it has KNOWLEDGE Of any claim against the Company in respect
to transaction growing out of this Agreement, Distributor shall in writing
notify the Company within thirty (30) days after Distributor knows or has
reason to know the basis of any such claim. Failure to give such notice shall
relieve the Company from any and all liability on any claim in respect of any
transaction growing out of this Agreement, notice and full details of which are
not given to the Company in writing within thirty (30) days after such
termination. The provisions of this section shall survive the termination of
other provisions of this Agreement.
15. The results of all studies, all research data and
documentation and any research publications regarding RETICULOSE resulting from
studies initiated by Distributor or any of Distributor's agent and in which
Distributor has an interest, will be made available to the Company and shall be
owned by the Company; and will be made public at the Company's discretion, and
such studies are only permitted as part of this exclusive Agreement. The
Company will similarly provide the Distributor with results of all tests and
studies and other material information, excluding proprietary information
regarding RETICULOSE.
16. Distributor shall be responsible for product liability and
other such insurance, and Distributor shall indemnify the Company against any
claims against the Company arising in the Territory. The Distributor shall not
be liable to nor responsible to indemnify the Company against claims arising in
the Territory solely as a result of the Company's negligence or willful
misconduct. The Company shall indemnify and hold harmless the Distributor
against any and all claims against the Distributor arising in the Territory
resulting from the gross negligence or wilful misconduct of the Company.
Inclusive in any payment due to the other party shall be all reasonable
attorneys fees, costs and expenses incurred by the other party in the
settlement of any suit, claim and or demand. The parties agree that the
instant indemnification and hold harmless provision shall not be dischargeable
in bankruptcy proceeding.
-3-
<PAGE> 4
17. Distributor acknowledges that Company is the owner of the
trade names RETICULOSE and Advanced Viral Research Corp. The Company
acknowledges that DISTRIBUTOR is the owner of the trade name AVIX INTERNATIONAL
PHARMACEUTICAL CORP. Each party acknowledges the validity of said trade names
or registrable trademarks and all statutory and common law rights therein and
that the same are the property of each respective party and not the other.
Each party shall only use such trade names or registrable trademarks of the
other in accordance with such proper usage as may be communicated in writing
from time to time by one party to the other.
18. This Agreement does not constitute either party hereto as the
legal representative or agent of the other party for any purpose, nor authorize
either party to transact any business in the name of or on account of the other
party, not to assume or create any obligation binding upon the other party in
any manner however, without the prior written consent of the other party.
19/ Nothing herein shall be deemed to constitute this a joint
venture or partnership between the parties. Neither party shall have the right
to bind the other except as expressly provided in this Agreement.
20. Miscellaneous.
a. Entire Agreement. This Agreement (including the schedules
hereto) constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior negotiations,
understandings, agreements, arrangements and understandings, both oral and
written, among the parties hereto with respect to such subject matter.
b. Amendment. This Agreement may not be amended or modified in
any respect, except by the mutual written agreement of the parties hereto.
c. No Third Party Beneficiary. Nothing expressed or implied in
this Agreement is Intended, or shall be construed, to confer upon or give any
person, firm, corporation, partnership, association or other entity, other than
the parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
d. Waivers and Remedies. The waiver by any of the parties hereto
of any other party's prompt and complete performance, or breach or violation,
of any provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation, and the waiver by any of the
parties hereto to exercise any right or remedy which it may possess hereunder
shall not operate nor be construed as a bar to the exercise of such right or
remedy by such party upon the occurrence of any subsequent breach or violation.
e. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this
Agreement shall not affect the enforceability of the remaining portions of this
Agreement or an part hereof, all of which are inserted conditionally on
-4-
<PAGE> 5
their being valid in law, and, in the event that any one or more of the words,
phrases, sentences, clauses, emotions or subsections contained in this
Agreement shall be declared invalid by a court of competent jurisdiction, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, section or sections, or
subsection or subsections had not been inserted.
f. Descriptive Headings. Descriptive headings contained
herein are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
g. Counterparts. This Agreement may be executed in any numbers
of counterparts and by the separate parties hereto in separate counterparts,
each of which shall be deemed to be one and the same instrument.
h. Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process In
regard hereto shall be in welting and shall be deemed to have been duly given,
when delivered by hand or three (3) days after deposited in the United States
mail, by registered or certified mail, return receipt requested, postage
prepaid, as follows:
If to the Company:
Advanced Viral Research Corp.
848 Brickell Avenue
Suite 415
Miami, Florida 33131
Attention: William Bregman
If to Distributor,
AVIX International Pharmaceutical Corp.
4255 Route 9
Freehold, NJ 07728
Attention: LEONARD COHEN
or to such other address as any party hereto may from time to time designate in
writing delivered In a like manner.
i. Successors and assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. None of the parties hereto shall assign any of its
rights or obligations hereunder unless the assignee agrees to be bound by the
terms and conditions of this Agreement AND UNLESS THE COMPANY AGREES TO SUCH
ASSIGNMENT.
j. Applicable Law. This Agreement shall be governed by, and
shall be construed,
-5-
<PAGE> 6
interpreted and enforced in accordance with the laws of the State of Florida.
k. Expenses. Each of the parties hereto agrees to pay all of the
respective expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
l. Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover form the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
m. Restrictive Covenant. In the event any restrictive covenant
of this Agreement shall be deemed unenforceable, invalid or over broad in whole
or in part for any reason, then any court of competent jurisdiction is hereby
authorized, requested and instructed to reform such provision(s) to provide for
the maximum competitive restraints upon Distributor's activities (in time,
product, geographic area and customer solicitation) which may then be legal and
valid.
n. Agent. Neither party is hereby constituted an agent or legal
representative of the other party hereto and neither is granted any right or
authority hereunder to assume or create any obligation, express or implied, or
to make any representation, covenant, warranty, or guaranty, except as
expressly granted or made in this Agreement.
o. Force Majeure. No party shall be responsible for any
resulting loss if the fulfillment of any of the terms or provisions of this
Agreement are delayed, substantially compromised or prevented by riot, wars,
acts of enemies, national emergency, strike, floods, fires, acts of God,
statute, edict, any changing of the political status of the United States, or
by any other cause not within the control of the party whose purposes Is
Interfered with, which, by the exercise of reasonable diligence, such party Is
unable to prevent whether of the close of causes enumerated above or not;
provided, however, that if such conditions shall extend beyond six (6) months,
then either party may cause this Agreement to be terminated and the parties
shall take all steps necessary to effect that result.
p. Other Documents. The parties hereto shall cooperate in the
effectuation of the transactions contemplated hereby and shall execute any and
all additional documents and shall take such additional actions as shall be
reasonably necessary or appropriate for such purposes.
q. Applicable Law and Venue. This Agreement shall be construed
in accordance with and be governed by the laws of the State of Florida and the
parties hereto agree that any suit brought hereunder shall be brought only in
the Circuit Court for the Eleventh Judicial Circuit In and for Dade County,
Florida and the United States District Court for the Southern District of
Florida, Miami Division.
-6-
<PAGE> 7
r. Event of Bankruptcy. In the event the Distributor (i) files
with any Bankruptcy Court of competent jurisdiction or is the subject of any
petition under Title 11 of the U.S. Code, as amended, (ii) is the subject of
any order for relief issued under such Title 11 of the U.S. Code as amended,
(iii) files or is the subject of any petition seeking any reorganization
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future federal or state act or law relating to
debtors, (iv) has sought or acquiesces In the appointment of any trustee,
receiver, conservator or liquidator, (v) is the subject of any order, judgment
or decree entered by any court of competent jurisdiction approving a petition
filed against such party, for any reorganization arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future federal or state act or law relating to bankruptcy, insolvency or relief
from debtors, the Distributor will not object to Company's entitlement to
relief from any automatic stay imposed by Section 382 of Title 11 of U.S. Code,
as amended, or Company's exercise of its rights and remedies otherwise
available to it as provided in this Agreement, at law, in equity or otherwise.
s. Public Disclosure. From and after the date hereof,
Distributor shall not issue a press release or any other public announcement
with respect to the transactions contemplated hereby without the prior WRITTEN
consent of the Company, which consent shall not be unreasonably withheld or
delayed. It is understood by Distributor that the Company is required to meet
the requirements of the Security and Exchange Law and regulations.
THE PARTIES TO THIS AGREEMENT HAVE READ THIS AGREEMENT, HAVE
HAD THE OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL OF THEIR OWN CHOICE,
AND UNDERSTAND EACH OF THE PROVISIONS OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hand
and seals the day and year first above written.
AVIX PHARMACEUTICAL CORP.
By: /s/ President
------------------------------------
Authorized Representative
ADVANCED VIRAL RESEARCH CORP.
By: /s/ Bernard Friedland, President
------------------------------------
Authorized Representative
-7-
<PAGE> 8
SCHEDULE A
SCHEDULE FOR CHINA ONLY
BASED UPON NOTES FROM MEETING WITH CHARLES XUE 05-22-95
1. PROPOSED PRICE PER SHOT TO MR XUE == $1.00 PER SHOT of 1/2 mL
2. MINIMUM 60-90 DAY LEAD TIME
3. DISCUSS FOR LATER USE OF BULK 1 LITER CONTAINERS
PURCHASE 1 LITER BOTTLES AND FILL INTO AMPULE IN CHINA
4. IN CHINA FILL INTO 1 ML DISPOSABLE SYRINGES UNDER N2
FOR FUTURE POSSIBILITY.
5. MR. XUE BELIEVES IT WILL TAKE 1 YEAR TO OBTAIN REGISTRATION.
6. INITIAL ORDER MUST BE 1,000,000 DOSES (1/2 ML)
7. COST OF EACH 1/2 ML SHOT TO AVIX FROM AVR SHALL BE $0.875 PROVIDED
MINIMUM ORDER SHALL BE FOR NO LESS THAN 1,000,000 SHOTS
-8-
<PAGE> 9
FOR BALANCE OF COUNTRIES EXCLUDING CHINA
SCHEDULE "B"
RETICULOSE PRICE SCHEDULE
SCHEDULE ESTABLISHED ON A PER ANNUM BASIS
<TABLE>
<S> <C>
1-10,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $6.00 per Milliliter
10,001 - 20,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . . U.S. $5.70 per Milliliter
20,001-50,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $5.40 per Milliliter
50,001-100,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . . . U.S. $5.10 per Milliliter
100,001-200,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . . . U.S. $4.80 per Milliliter
200,001-300,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . . . U.S. $4.50 per Milliliter
300,001-1,000,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . . U.S. $4.20 per Milliliter
1,000,001-2,000,000 Milliliters . . . . . . . . . . . . . . . . . . . . . . U.S. $3.90 per Milliliter
</TABLE>
Multiples over two million milliliters per year, prices will be negotiable.
ALL PRICES ARE F.O.B. FACTORY
ALL PRICES FOR ALL ORDERS WILL BE MADE BY UNCONDITIONAL, IRREVOCABLE LETTER OF
CREDIT, OR ADVANCE PAYMENT BY DIRECT FUNDS TRANSFER TO THE COMPANY'S BANK; ONLY
IN U.S. DOLLARS.
THE ABOVE PRICES ARE BASED UPON 2 MILLILITER AMPULES. AN ADDITIONAL DISCOUNT
OF 15% SHALL BE APPLIED TO ANY PURCHASES IN LITER CONTAINER OR OTHER BULK
SIZING.
THE PRICING PAID BY THE DISTRIBUTOR SHALL BE BASED UPON THE PRIOR YEAR'S
CLOSING PRICE.
-9-
<PAGE> 1
EXHIBIT 10(q)
Commonwealth Pharmaceuticals
P.O. Box 1792
Grand Cayman, British West Indies
Phone: (800) 801-9276 -- Toll Free Numbers -- FAX: (800) 259-0758
CONTRACT WITH DISTRIBUTOR
THIS AGREEMENT, made in duplicate this 2nd day of Nov., 1995, A.D., by and
between ADVANCED VIRAL RESEARCH CORPORATION, 848 Brickell Avenue, Suite 415,
Miami, Florida 33131, incorporated under the laws of Florida, hereinafter
called "Company", and COMMONWEALTH PHARMACEUTICALS, P.O. Box 1792, Grand
Cayman, Cayman Islands, British West Indies, a Caymanian Corporation,
hereinafter called "Distributor" for the territory of Saudi Arabia.
WITNESSETH:
1. Company hereby grants to Distributor the rights to import, warehouse,
market, sell, and distribute the anti-viral pharmaceutical product, known
by the name "RETICULOSE" within the territory and country of Saudi
Arabia, and only in that country (the "territory").
2. Company assumes no responsibility for any misuse, improper use other than
recommended by the appropriate medical authorities, or illegal use of the
product, RETICULOSE.
3. Distributor hereby accepts the above rights to sell RETICULOSE in said
territory, and agrees to make all sales hereunder in accordance with this
agreement. Distributor further agrees to work and develop to the
satisfaction of the Company the aforementioned territory, and not sell
RETICULOSE outside thereof.
4. It is agreed that this agreement does not constitute Distributor the
agent or legal representative of Company for any purpose whatsoever.
Distributor is NOT granted any right or authority to assume or create any
obligation or responsibility, expressed or implied, in behalf of or in
the name of the Company or to bind the Company in any manner or thing
whatsoever.
5. This agreement shall continue in force and govern all transactions and
relations between the parties hereto for a period of time of three (3)
years from the time that import approval for RETICULOSE is granted by the
government of any of the countries comprising the territory and country
which is the subject of this agreement. The term may be extended by
mutual agreement at the end of the three(3) year period.
<PAGE> 2
CONTRACT WITH DISTRIBUTOR Page 2
6. No change, addition, or erasure of any portion of this agreement
(except filling in of blank lines) shall be valid or binding upon either
party. It is declared by both parties that there is no oral or other
agreements or understandings between them affecting this agreement, or
related to the selling of RETICULOSE. This agreement supercedes all
previous agreements between the parties.
7. Company agrees that for so long a time as Distributor shall continue to
sell RETICULOSE in a manner and to an extent and quantity satisfactory to
the Company, and while this agreement shall be and remain in effect, no
other or different person, firm or corporation will be granted the rights
of selling RETICULOSE in the aforesaid territory.
In order to be eligible for the exclusive right to import, market, and sell
RETICULOSE, Distributor must be willing to pay prorated on the first 250,000
ampules sold $250,000.00 (U.S. Dollars) for this exclusivity. In addition, the
following minimum annual purchase of RETICULOSE is hereinunder established.
Year 1..........Minimum Purchase of 20,000 Ampules
Year 2..........Minimum Purchase of 80,000 Ampules
Year 3..........Minimum Purchase of 200,000 Ampules
In the event that Distributor fails to meet annual minimum purchase
requirements, Company may, at its discretion, declare this agreement Null and
Void. The Distributor agrees to incur at his own expense all necessary testing
and administrative costs to register Reticulose and apply for and obtain
approval for Reticulose from the Ministry of Health Saudi Arabia.
8. This agreement constitutes a personal contract, however Distributor may
transfer or assign same or any part thereof with Company's consent.
9. Distributor agrees to pay Company for RETICULOSE according to the
attached schedule of prices, which said schedule of prices may be changed
from time to time without notice (see attached price schedule).
ALL PRICES ARE F.O.B. FREEPORT, BAHAMAS
ALL PAYMENT FOR ALL ORDERS WILL BE MADE BY PAYMENT IN ADVANCE OR WIRE TRANSFER
OF FUNDS IN ADVANCE, IN U.S. DOLLARS.
10. Distributor agrees to provide Company with quarterly reports of his sales
of RETICULOSE within his territory or country.
11. In case of termination of this agreement by either party for any reason,
Company may, at its option, repurchase from distributor at the net price
paid by Distributor to Company, plus actual freight on shipments to
Distributor, any and all RETICULOSE
<PAGE> 3
CONTRACT WITH DISTRIBUTOR Page 3
on hand in Distributor's place of business or in the possession of the
Distributor. Upon demand and the tender by Company of the
repurchase price, Distributor shall be obliged to deliver such goods to
Company forthwith. Company reserves the right, however to reject any
RETICULOSE which does not meet Company's specifications for quality,
identity, purity, and labeling.
12. Notwithstanding anything herein contained to the contrary, Distributor
undertakes and assumes full responsibility to secure and obtain all
necessary and appropriate national, regional, and local government
approvals, licenses, permits, and registrations and any other necessary
documentations required to import and distribute RETICULOSE into and in
the territory. In the event that Distributor is unable to secure and
obtain all necessary and appropriate national, regional, and local
government approvals, licenses, permits, and registrations and other
necessary documents required to import and distribute RETICULOSE into the
territory, within 365 calender days, from the date hereof, the Company
may at it's option, terminate this agreement on ten (10) days written
notice effective the date of sending such notice by registered mail,
telegram, or telex.
13. The trade name "RETICULOSE" will belong to Advanced Viral Research
Corporation, if registered for Company by Distributor, or any other
agent.
14. If for any reason whatsoever Company deems it's interests may be
imperiled, or in the case of incapacity, death or insolvency of
Distributor, or in case an application is made to have Distributor
declared bankrupt, then Company may, at its option, cancel this agreement
without notice whatsoever to Distributor.
15. The failure of either party at any time to require performance by the
other party of any provision hereof shall in no way effect the full right
to require such performance at any time thereafter. Nor shall the waiver
by either party of a breach of any provision hereof be taken or held to
be a waiver of any succeeding breach of such provision or as a waiver of
the provision itself.
16. Settlement of disputes: In the event of any dispute between the parties,
regarding the interpretation or the application of this agreement,
recourse will be handled by an arbitration panel of three arbitrators,
one arbitrator to be chosen by each party, and the third arbitrator to be
appointed by the two arbitrators. The decision of the arbitrators is
final. It is understood, however, that this is a general form of
agreement, designed for use in the United States of America, and in
countries wherever Company may desire to sell RETICULOSE and that any
provision herein which in anyway contravenes the laws of any country or
jurisdiction, shall be deemed not to be a part of this agreement therein.
17. Advanced Viral Research Corporation reserves the right to make any design
or manufacturing changes which will improve RETICULOSE's appearance,
quality, or medical effectiveness, without notice to Company or
Distributor. If any such
<PAGE> 4
CONTRACT WITH DISTRIBUTOR Page 4
changes are made, there will be no obligation on Company to make such
changes upon any RETICULOSE previously shipped to Distributor.
18. Distributor shall NOT during the term of this agreement sell any
pharmaceutical product of any other manufacturer which shall in any way
compete with the sale of RETICULOSE, as covered by this agreement.
19. Distributor shall pay all excise or sales taxes or any taxes that may be
required to be paid by Distributor or Company by statute or regulation of
any government, outside the U.S., in Distributor's territory.
20. If during the term of this agreement Distributor shall have reason to
believe it has a claim against Company, in respect of any transaction
growing out of this agreement, Distributor shall in writing notify
Company within thirty (30) days after Distributor knows or has reason to
know the basis of any such claim. Failure to give such notice shall
relieve the Company from any and all liability on any claim in respect of
any transaction growing out of this agreement, notice and full details of
which are not given to Company in writing within thirty (30) days after
such determination. The provisions of this paragraph shall survive the
termination of other provisions of this agreement.
21. If RETICULOSE is required for clinical testing purposes of the government
of any of the countries in the territories for registration purposes,
Company will provide these ampules up to a maximum of two hundred (200)
ampules.
22. All laboratory or clinical studies initiated by the Distributor for which
RETICULOSE is provided must first be approved by the Company. Th results
of all studies, all research data and documentation and any research
publications resulting from studies initiated by Distributor or any of
his agents will belong to Company, and will be made use of at Company's
discretion, and such studies are only permitted as part of this exclusive
agreement. Said studies, research data, documentation, or publications
to be provided to Company in the English language, in addition to the
language of origin.
23. Distributor shall be responsible for product liability, and other such
insurance to indemnify the company against any claims against the Company
in such territory if available.
<PAGE> 5
CONTRACT WITH DISTRIBUTOR Page 5
24. This agreement is not valid or binding until and unless executed by the
President or duly authorized officer of Advanced Viral Research
Corporation, and the President or duly authorized officer of the
Distributor for the territory of Saudi Arabia.
IN WITNESS WHEREOF the parties hereto have hereunder set their hands and seals
the day and year first above written.
ADVANCED VIRAL RESEARCH CORPORATION
/s/ William Bregman, Secretary Treas.
- -----------------------------------------
DISTRIBUTOR FOR TERRITORY OF SAUDI ARABIA
/s/ Charles E. Miller, President
- -----------------------------------------
Commonwealth Pharmaceuticals
<PAGE> 1
EXHIBIT 10(x)
STANDARD FORM OF MULTI-TENANT
LEASE AND RIDER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
1. Rent.............................................................................. 1
2. Occupancy......................................................................... 1
3. Tenant Alterations................................................................ 1
4. Maintenance and Repairs........................................................... 1
5. Window Cleaning................................................................... 1
6. Requirements of Law, Fire Insurance, Floor Loads.................................. 1
7. Subordination..................................................................... 2
8. Property-Loss, Damage, Reimbursement, Indemnity................................... 2
9. Destruction, Fire and Other Casualty.............................................. 2
10. Eminent Domain.................................................................... 2
11. Assignment, Mortgage, Etc......................................................... 2
12. Electric Current.................................................................. 2
13. Access to Premises................................................................ 2
14. Vault, Vault Space, Etc........................................................... 3
15. Occupancy......................................................................... 3
16. Bankruptcy........................................................................ 3
17. Default........................................................................... 3
18. Remedies of Owner and Waiver of Redemption........................................ 3
19. Fees and Expenses................................................................. 3
20. Building Alterations and Management............................................... 3
21. No Representation by Owner........................................................ 3
22. End of Term....................................................................... 4
23. Quiet Enjoyment................................................................... 4
24. Failure to Give Possession........................................................ 4
25. No Waiver......................................................................... 4
26. Waiver of Trial by Jury........................................................... 4
27. Inability to Perform.............................................................. 4
28. Intentionally Omitted............................................................. 4
29. Water Charges..................................................................... 4
30. Sprinklers........................................................................ 4
31. Elevators, Heat, Cleaning......................................................... 4
32. Security.......................................................................... 5
33. Captions.......................................................................... 5
34. Definitions....................................................................... 5
35. Adjacent Excavation-Shoring....................................................... 5
36. Intentionally Omitted............................................................. 5
37. Glass............................................................................. 5
38. Estoppel Certificate.............................................................. 5
39. Intentionally Omitted............................................................. 5
40. Successors and Assigns............................................................ 5
41. Additional Definitions............................................................ 6
42. Term; Preparation for Occupancy and Possession.................................... 7
43. Rent.............................................................................. 8
44. Parking........................................................................... 9
45. Tax Escalation.................................................................... 10
46. Common Area Maintenance Charge.................................................... 12
47. Cleaning; Trash Removal........................................................... 13
48. Utilities......................................................................... 14
49. Amendments for Financing; Information for Mortgages............................... 14
50. Broker............................................................................ 15
51. Signs............................................................................. 15
52. Holdover.......................................................................... 15
53. Insurance and Indemnity........................................................... 16
54. Exculpation....................................................................... 17
55. Rules and Regulations............................................................. 17
56. Tenant's Alterations and Maintenance.............................................. 18
57. Notice............................................................................ 18
58. Miscellaneous..................................................................... 19
59. Amendments to Printed Form........................................................ 21
60. Construction Guaranty............................................................. 26
Exhibit A - Rules and Regulations
Exhibit B - Work Specifications
Exhibit C - Floor Plan
</TABLE>
<PAGE> 2
AGREEMENT OF LEASE, made as of this 7th day of February 1997, between ROBERT
MARTIN COMPANY, LLC, A New York limited liability company, having an office at
100 Clearbrook Road, Elmsford, New York 10523 party of the first part,
hereinafter referred to as OWNER, and ADVANCED VIRAL RESEARCH CORPORATION, a
Delaware corporation, having an office at 1250 East Hallandale Beach Boulevard,
Hallandale, Florida 33009 WITNESSETH, Owner hereby leases to Tenant and Tenant
hereby hires from Owner the area of the ground floor approximately 6,100 square
feet (the "Rentable Area") in the building known as 200 Corporate Boulevard
South Yonkers, New York, for the term of five (5) years (or until such term
shall sooner cease and expire as hereinafter provided) to commence on the as
set forth in Article 42 both dates inclusive, at an annual rental rate of (the
"Fixed Annual Rent") $85,400.00 per annum which Tenant agrees to pay in lawful
money of the United States which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment, in equal monthly
installments in advance on the first day of each month during said term, at
the office of Owner or such other place as Owner may designate, without any set
off or deduction whatsoever, except that Tenant shall pay the first
monthly installment(s) on the execution hereof (unless this lease be a
renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
OCCUPANCY: 1. Tenant shall pay the rent as above and as
hereinafter provided.
USE: 2. Tenant shall use and occupy demised premises for
general office and laboratory for medical research
ALTERATIONS: 3. Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written
consent. (A) A Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved by Owner. Tenant shall, at its
expense, before making any alterations, additions, installations or
improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly any duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Owner may require. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within thirty
days thereafter, at Tenant's expense, by filing the bond required by law or
otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises
unless Owner, by notice to Tenant no later than twenty days prior to the date
fixed as the termination of this lease, elects to relinquish Owner's right
thereto and to have them removed by Tenant, in which event the same shall be
removed from the demised premises by Tenant prior to the expiration of the
lease, at Tenant's expense. (B) Nothing in this Article shall be construed to
give Owner title to or to prevent Tenant's removal of trade fixtures, moveable
office furniture and equipment, but upon removal of any such from the premises
or upon removal of other installations as may be required by Owner, Tenant
shall immediately and at its expense, repair and restore the premises to the
condition existing prior to installation and repair, any damage to the demised
premises or the building due to such removal. All property permitted or
required to be removed, by Tenant at the end of the term remaining in the
premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or removed from the
premises by Owner, at Tenant's expense.
REPAIRS: 4. Owner shall maintain and repair the exterior of and the
public portions of the building. (C) Tenant shall,
throughout the term of this lease, take good care of the demised premises
including the bathrooms and lavatory facilities and the windows and window
frames and, the fixtures and appurtenances therein and at Tenant's sole cost
and expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture or equipment. All the aforesaid repairs shall be of quality or
class equal to the original work or construction. If Tenant fails, after ten
days notice, to proceed with due diligence to make repairs required to be made
by Tenant, the same may be made by the Owner at the expense of Tenant, and the
expenses thereof incurred by Owner shall be collectible, as additional rent,
after rendition of a bill or statement therefor. If the demised premises be or
become infested with vermin, Tenant shall, at its expense, cause the same to be
exterminated. Tenant shall give Owner prompt notice of any defective condition
in any plumbing, heating system or electrical lines located in the demised
premises and following such notice, Owner shall remedy the condition with due
diligence, but at the expense of Tenant. If repairs are necessitated by damage
or injury attributable to Tenant, Tenant's servants, agents, employees,
invitees or licensees as aforesaid. Except specifically provided in Article 9
or elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason or
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions, or
improvements in or to any portion of the building or the demised premises or in
and to the fixture appurtenances or equipment thereof. The provisions of this
Article 4 with respect to the making of repairs shall not apply in the case of
fire or other casualty with regard to which Article 9 hereof shall apply. (see
ARTICLE 56)
WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be cleaned
from the outside in violation of Section 202 of the New
York State Labor Law or any other applicable law or of any other body having
or asserting jurisdiction.
REQUIREMENTS 6. Prior to the commencement of the lease term Tenant
OF LAW, is then in possession, and at all times thereafter Tenant
FIRE INSURANCE, shall, at Tenant's sole cost and expense, promptly comply
FLOOR LANDS: with all present and future laws, orders, regulation of
all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to law, and all orders, rules and regulations of the New York Board
of Fire Underwriters, or the Insurance Services police, or any similar body
which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, arising out of Tenant's use or manner of use
thereof, or, with respect to the building. If arising out of Tenant's use or
manner of use of the demised premises or the building (including the use
permitted under the lease).
<PAGE> 3
Except as provided in Article 29 hereof, nothing herein shall require Tenant to
make structural repairs or alterations unless Tenant has, by its manner of use
of the demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect therein.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises (1) which is contrary to law, or the Building or any property adjacent
thereto which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other policies of insurance at any time carried
by or for the benefit of Owner. Tenant shall not keep anything in the demised
premises except as now or hereafter permitted by the Fire Department, Board of
Fire Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable in the building nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect. (2) If by reason of failure
to comply with the foregoing the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be, then
Tenant shall reimburse Owner, as additional rent insurance premiums thereafter
paid by Owner which shall have been charged because of such failure by Tenant.
In any action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" or role for the building or demised premises issued by a body making
fire insurance rates applicable in said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rates then applicable to said premises. Tenant shall not place a load
upon any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings sufficient, in Owner's judgement, to
absorb and prevent violation, noise and annoyance. (see Article 59)
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying leases
and to all mortgages which may now or hereafter affect such leases or the real
property or which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any ground or
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Owner may
request. (see Article 59)
PROPERTY--LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees; Owner or its agents shall not be liable for any damage caused by
other tenants or persons in, upon or about said building or caused by
operations in connection of any private, public or quasi public work. If at any
time any windows of the demised premises are temporarily closed, darkened or
bricked up (or permanently closed, darkened or bricked up, if required by law)
for any reason whatsoever including, but not limited to Owner's own acts, Owner
shall not be liable for any damage Tenant may sustain thereby and Tenant shall
not be entitled to any compensation therefor nor abatement or diminution of
rent nor shall the same release Tenant from its obligations hereunder nor
constitute an eviction, Tenant shall indemnify and save harmless Owner against
and from all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Owner shall not be reimbursed by insurance, including
reasonable attorney's fees, paid, suffered or incurred as a result of any
breach by Tenant, Tenant's agents, contractors, employees, invitees, or
licensees, of any covenant or condition of this lease, or the careless ness,
negligence or improper conduct of the Tenant, Tenant's agents, contractors,
employees, invitees or licensees. Tenant's liability under this lease extends
to the acts and omissions of any sub-tenant. In case any action or proceeding
is brought against Owner by reason of any such claim, Tenant, upon written
notice from Owner, will, at Tenant's expense, resist or defend such action or
proceeding by counsel approved by Owner in writing, such approval not to be
unreasonably withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY: 9. (a) If the demised premises or any
part thereof shall be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall continue in full force
and effect except as hereinafter set forth. b) If the demised premises are
partially damaged or rendered partially unusable by fire or other casualty the
damages thereto shall be repaired by and at the expense of Owner and the rent,
until such repair shall be substantially completed, shall be apportioned from
the day following the casualty according to the part of the premises which is
usable. (c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, the damages thereto shall be repaired by and
at the expense of Owner and the rent, until such repair shall be substantially
completed, shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect not to restore
the same as hereinafter provided. (d) If the building shall be so damaged that
Owner shall decided to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given with 90 days after such fire or casualty, specifying a date for the
explanation of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Owner's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall
<PAGE> 4
serve a termination notice as provided herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, each party shall look
first in any insurance in his favor before making any claim against the other
party for recovery for loss or damage resulting from fire or other casualty,
and to the extent that such insurance is in force and collectible and to the
extent permitted by law, Owner and Tenant each hereby releases and waives all
right of recovery against the other or any one claiming through or under each
of them by way of subrogation or otherwise. The foregoing release and waiver
shall be in force only if both releasors' insurance policies contain a clause
providing that such a release or waiver shall not invalidate the insurance.
If, and to the extent, that such waiver can be obtained only by the payment of
additional premiums, then the party benefiting from the waiver shall pay such
premium within ten days after written demand or shall be deemed to have agreed
that the party obtaining insurance coverage shall be free of any further
obligation under the provisions hereof with respect to waiver of subrogation.
Tenant acknowledges that Owner will not be obligated to repair any damages of
Section 227 of the Real Property Law and agrees that the provisions of this
article shall govern and control in lieu thereof.(D)
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceedings and Tenant shall have no claim for
the value of any unexpired term of said lease.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it
shall not assign, mortgage or encumber this agreement, nor underlet, or suffer
or permit the demised premises or any part thereof to be used by others,
without the prior written consent of Owner in each instance. Transfer of the
majority of the stock of a corporate Tenant or the majority partnership
interest of a partnership Tenant shall be deemed an assignment. If this lease
be assigned, or if the demised premises or any part thereof be underlet or
occupied by anybody other than Tenant, Owner may, after default by Tenant,
collect rent from the assignee, under-tenant or occupant, and apply the
net amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this
covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further
assignment or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and
Tenant may not use any electrical equipment which, in Owner's opinion,
reasonably exercised, will overload such installations or interfere with the
use thereof by other tenants of the building. The change at any time of the
character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain. (See Article 48)
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, (E) to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform in
the premises after Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this lease, or for the purpose of
complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes
(3) and conduits in and through the demised premises and to erect new pipes (3)
and conduits therein provided, wherever possible, (4) they are within walls or
otherwise concealed. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason
of loss or interruption of business or otherwise. Throughout the term hereof
Owner shall have the right to enter the demised premises at reasonable hours
for the purpose of showing the same to prospective purchasers or mortgagees of
the building, and during the last six months of the term for the purpose of
showing the same to prospective tenants and may, during said six months period,
place upon the premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the premises, Owner or Owner's agents
may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom, Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations hereunder.
- ------------------------
*Rider to be added if necessary
1. or the Building or any property adjacent thereto
2. as if Tenant were not occupying the Building
3. , ducts
4. whether
<PAGE> 5
VAULT; VAULT SPACE, AREA:
14. No vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Owner makes
no representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility. Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge
of municipal authorities for such vault or area shall be paid by Tenant, if used
by Tenant, whether or not specifically leased hereunder.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts
them as is, subject to the riders annexed hereto with respect to the Owner's
work, if any, in any event, Owner makes no representation as to the condition
of the premises and Tenant agrees to accept the same subject to violations,
whether or not of record. If any governmental license or permit shall be
required for the proper and lawful conduct of Tenant's business, Tenant shall
be responsible for and shall procure and maintain such license or permit.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by sending of a written notice to Tenant within
a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or
any part thereof be re-let by the Owner for the unexpired term of said lease,
or any part thereof, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the amount of rent reserved upon such
reletting shall be deemed to be the fair and reasonable rental value for the
part or the whole of the premises so re-let during the term of the re-letting.
Nothing herein contained shall limit or prejudice the right of the Owner to
prove for and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which such damages are to be
proved, whether or not such amount be greater, equal to, or less than the
amount of the difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease (1) other than the covenants for the payment of rent (2) other than the
covenants for the payment of rent or additional rent; or if this lease be
rejected under Section 235 of Title ll of the U.S. Code (bankruptcy code):" or
if any execution or attachment shall be issued against Tenant or any Tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant; or if Tenant shall have failed, after five (5) days written
notice, to redeposit with Owner any portion of the security deposit hereunder
then in any one or more of such events, upon Owner serving a written (F) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said (F) days, if Tenant shall have failed to comply with or remedy such
default, or if the said default or omission complained of shall be of a nature
that the same cannot be completely cured or remedied within said (F) period, and
if Tenant shall not have diligently commenced (3) such default within such (F)
day period, and shall not thereafter with reasonable diligence and in good
faith, proceed to remedy or cure such default, then Owner may serve a written
three (3) days' notice of cancellation of this lease upon Tenant; and upon the
expiration of said three (3) days this lease and the term thereunder shall end
and expire as fully and completely as if the expiration of such three (3) day
period were the day herein definitely fixed for the end and expiration of this
lease and the term thereof and Tenant shall then quit and surrender the demised
premises to Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein (G) or any item of additional rent herein
mentioned or any part of either or in making any other payment herein
required; then and in any of such events Owner may without notice, re-enter
the demised premises either by force or otherwise, and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises
<PAGE> 6
and remove their effects and hold the premises as if this lease had not been
made, and Tenant hereby waives the service of notice of intention to re-enter or
to institute legal proceedings to that end. If Tenant shall make default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess
by summary proceedings or otherwise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of the Owner or otherwise, for a term or terms,
which may at Owner's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and may grant
concessions or free rent or charge a higher rental than that in this lease, (c)
Tenant or the legal representatives of Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's convenants herein contained, any deficiency between the rent hereby
reserved and or covenanted to be paid and the net amount, if any, of the rents
collected on account of the subsequent lease or leases of the demised premises
for each month of the period which would otherwise have constituted the balance
of the term of this lease. The failure of Owner to re-let the premises or any
part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to
the said deficiency such expenses as Owner may incur in connection with
re-letting, such as legal expenses, attorney's fees, brokerage, advertising
and for keeping the demised premises in good order or for preparing the same
for re-letting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified in this lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the deficiency for any
subsequent month by a similar proceeding. Owner, in putting the demise
premises in good order or preparing the same for re-rental may, at Owner's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises as Owner, in Owner's sole judgement, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making of
such alterations, repairs, replacements, and/or decorations shall not operate
or be construed to release Tenant from liability hereunder as aforesaid.
Owner shall in no event be liable in any way whatsoever for failure to re-let
the demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no
event shall Tenant be entitled to receive any excess, if any, of such net
rents collected over the sums payable by Tenant to Owner hereunder. In the
event of a breach or threatened breach by Tenant of any of the covenants or
provisions hereof, Owner shall have the right of injunction and the right to
invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
FEES AND EXPENSES:
19. If tenant shall default (H) in the observance or performance of any
term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, then,
unless otherwise provided elsewhere in this lease, Owner may immediately or at
any time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with
any default by Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including but
not limited to attorney's fees, in instituting, prosecuting or defending any
action or proceedings, then Tenant will reimburse Owner for such sums so paid
or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant thereof. If Tenant's lease term
shall have expired at the time of making of such expenditures or incurring of
such obligations, such sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting
an eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
(I) There shall be no allowance in Tenant for diminution of rental value and
no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner to other Tenant making any repairs in
the building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's impositions
of any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the demised
premises or the building except as herein expressly set forth and no rights,
easements or licenses are acquired by Tenant by implication or otherwise except
as expressly set forth in the provisions of this lease. Tenant has inspected
the building and the demised premises and is thoroughly acquainted with their
condition and agrees to take the same "as is" on the date possession is
tendered and acknowledges that the taking of possession of the demised premises
by Tenant shall be conclusive evidence that the said premises and the building
of which the same form a part were in good and satisfactory condition at the
time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties herein are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement made shall be
ineffective to
<PAGE> 7
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the charge, modification, discharge or abandonment is
sought.
- ---------------------
3. curing
END OF TERM:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not
required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property from the demised premises. Tenant's obligation
to observe or perform this covenant shall survive the expiration or other
termination of this lease.
QUIET ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and
additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, in the
terms and conditions of this lease including, but not limited to, Article 34
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
24. If owner is unable to give possession of the demised premises on the date
of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or if Owner has not completed any work required to be performed by
Owner, or for any other reason, Owner shall not be subject to any liability for
failure to give possession on said date and the validity of the lease shall not
be impaired under such circumstances, nor shall the same be construed in any
wise to extend the term of this lease, but the rent payable hereinunder shall
be abated (provided Tenant is not responsible for Owners inability to obtain
possession or complete any work required) until after Owner shall have given
Tenant notice that the premises are substantially ready for Tenant's occupancy,
if permission is given to Tenant to enter into the possession of the demised
premises to occupy premises other than the demised premises prior to the
date specified as the commencement of the term of this lease. Tenant covenants
and agrees that such occupancy shall be deemed to be under all the terms,
covenants, conditions and provisions of this lease, except as to the covenant
to pay rent. The provisions of this article are intended to constitute "an
express provision to the contrary" within the meaning of Section 223-a of the
New York Real Property Law.
NO WAIVER
25. The failure of Owner (J) to seek redress for violation of, or to insist upon
the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall
not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no provision of this lease
shall be deemed to have been waived by Owner unless such waiver by in writing
signed by owner. No payment by Tenant or receipt by Owner of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. All check tendered to Owner as and for
the rent of the demised premises shall be deemed payments for the account of
Tenant. Acceptance by Owner of rent from anyone other than Tenant shall not
be deemed to operate as an attornment to Owner by the payor of such rent or as
a consent by Owner to an assignment or subletting by Tenant of the demised
premises to such payor, or as a modification of the provisions of this lease.
No act or thing done by Owner or Owner's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises and no agreements
to accept such surrender shall be valid unless in writing signed by Owner. No
employee of Owner or Owner's agent shall have any power to accept the keys of
said premises prior to the termination of the lease and the delivery of keys to
any such agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
WAIVER OF TRIAL BY JURY
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually
agreed that in the event Owner commences any summary proceeding for possession
of the premises, tenant will not interpose any counterclaim of whatever nature
or description in any such proceeding.(K)
INABILITY TO PERFORM:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired of excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or implied to be supplied or is
unable in make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever beyond Owner's sole control including,
but not limited to, government preemption in connection with a National
Emergency or by reason of any rule, order or regulation
<PAGE> 8
of any department or subdivision thereof of any government agency or by reason
of the conditions of supply and demand which have been or are affected by war
or other emergency.
BILLS AND NOTICES:
28. (See Article 57)
WATER CHARGES:
29. If Tenant requires, uses or consumes water for any purpose in addition to
ordinary purposes (of which fact Tenant constitutes Owner to be the sole judge)
Owner may install a water meter and thereby measure Tenant's water consumption
for all purposes. Tenant shall pay owner for the cost of the meter and the
cost of the installation, thereof and throughout the duration of Tenant's
occupancy Tenant shall keep said meter and installation equipment in good
working order and repair at Tenant's own cost and expense in default of which
Owner may cause such meter and equipment to be replaced or repaired and collect
the cost thereof from Tenant, as additional rent. Tenant agrees to pay for
water consumed, as shown on said meter as and when bills are rendered, and on
default in making such payment Owner may pay such charges and collect the same
from Tenant, as additional rent. Tenant covenants and agrees to pay, as
additional rent, the sewer rent, charge or any other tax, rent, levy or charge
which now or hereafter is assessed, imposed or a lien upon the demised premises
or the realty of which they are part pursuant to law, order or regulation made
or issued in connection with the use, consumption, maintenance or supply of
water, water system or sewage or sewage connection of system. If the building
or the demised premises or any part thereof is supplied with water through a
meter through which water is also supplied to other premises Tenant shall pay
to Owner, as addition rely, on the first day of each month, (1) of the total
meter charges as Tenant's portion. Independently of and in addition to any of
the remedies reserved to Owner hereinabove of an in addition to any of the
remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may
sue for and collect any monies to be paid by Tenant or paid by Owner for any of
the reason or purposes hereinbefore set forth.
SPRINKLERS:
30. Anything elsewhere in this lease to the contrary notwithstanding, if the
New York Board of Fire Underwriters or the New York Fire Insurance Exchange or
any bureau, department or official of the federal, state or city government
recommended or require the installation of a sprinkler system or that any
changes, modifications, alterations, or additional sprinkler heads or other
equipment be made or supplied in an existing sprinkler by reason of Tenant's
business, or the location of partitions, trade fixtures, or other contents of
the demised premises, or for any other reason, or if any such sprinkler,
system installations, modifications, alterations, additional sprinkler heads or
other such equipment, become necessary to prevent the imposition of a penalty
or charge against the full allowance for a sprinkler system in the fire
insurance rate set by any said Exchange or by any fire insurance company, Tenant
shall, at Tenant's expense, promptly make such sprinkler system installations,
changes, modifications, alterations, and supply additional sprinkler heads or
other equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent (2)
of the contract price for sprinkler supervisory service.(3)
ELEVATORS, HEAT, CLEANING:
31. As long as Tenant is not in default under any of the covenants of this
lease owner shall: clean the public halls and public portions of the building
which are used in common by all tenants. Tenant shall, at Tenant's expense keep
the demised premises, including the windows, clean and in order, to the
satisfaction of Owner, and for that purpose shall employ the person or persons,
or corporation approved by Owner. Owner reserves the right to stop service of
the heating, plumbing and electric systems, when necessary, by reason of
accident, or emergency, or for repairs, alterations, replacements or
improvements, in the judgement of Owner desirable or necessary to be made, until
said repairs, alterations, replacements or improvements shall have been
completed.
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Space to be filled in or deleted.
1. Owner's reasonable estimate of Tenant's share
2. 7.26%
3. and alarm service.
<PAGE> 9
Security: 32. Tenant has deposited with Owner the sum of
$12,716.67 as security for the faithful performance
and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect to any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease; including but not limited to, any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. (1) In the event that Tenant shall fully and faithfully comply with all
of the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security, and Tenant agrees to look to
the new Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Captions: 33. The Captions are inserted only as a matter of
convenience and for reference and in no way decline, limit or describe
the scope of this lease nor the intent of any provision thereof.
Definitions: 34. The term "Owner" as used in this lease means on-
ly the owner of the fee or of the leasehold of the building, or
the mortgagee in possession, for the time being of the land and building
(or the owner of a lease of the building or of the land and building)
of which the demised premises form a part, so that in the event of any sale or
sales of said land and building or of said lease, or in the event of a lease of
said building, or of the land and building, the said Owner shall be and hereby
is entirely freed and relieved of all covenants and obligations of Owner
hereunder, and it shall be deemed and construed without further agreement
between the parties of their successors in interest, or between the parties and
the purchaser, at any such sale, or the said lessee of the building, or of
the land and building, that the purchaser or the lessee of the building has
assumed and agreed to carry out any and all covenants and obligations of Owner
hereunder. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. The term "rent" includes the
annual rental rate whether so expressed or expressed in monthly installments,
and "additional rent." "Additional rent" means all sums which shall be due to
new Owner from Tenant under this lease, in addition to the annual rental rate.
The term "business days" as used in this lease, shall exclude Saturdays,
Sundays and all days observed by the State or Federal Government as legal
holidays and those designated as holidays by the applicable building service
union employees service contract or by the applicable Operating Engineers
contract with respect to HVAC service.
Adjacent 35. If an excavation shall be made upon land adjacent
Excavation to the demised premises, or shall be authorized to be
Shoring: made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations
without any claim for damages or indemnity against Owner, or diminution or
abatement of rent.
Rules and 36. (See Article 55)
Regulations:
Glass: 37. Owner shall replace, at the expense of the Tenant,
any and all plate and other glass damaged or broken
from any cause whatsoever in and about the demised premises. Owner may insure,
and keep insured, at Tenant's expense, all plate and other glass in the demised
premises for and in the name of Owner. Hills for the premiums therefor shall
be rendered by Owner to Tenant at such times as Owner may elect, and shall be
due from, and payable by, Tenant when rendered, and the amount thereof shall be
deemed to be, and be paid, as additional rent.
Estoppel 38. Tenant, at any time, and from time to time, upon
Certificate: at least 10 days' prior notice by Owner, shall execute,
acknowledge and deliver to Owner, and/or to any other
person, firm or corporation specified by Owner, a statement certifying that
this Lease is unmodified in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and
stating the modifications), stating the dates in which the rent and additional
rent have been paid, and stating whether or not there exists any default by
Owner under this Lease, and, if so, specifying each such default.(2)
Directory 39. (See Article 51)
Board Listing
Successors 40. The covenants, conditions and agreements con-
and Assigns: tained in this lease shall bind and insure to the benefit of
Owner and Tenant and their respective heirs, distributees,
executors, administrators, successors, and except as otherwise provided in this
lease, their assigns.
- ---------------------
Space to be filled in or deleted
(SEE ATTACHED RIDER)
1. If Owner so uses, applies or retains any part of the security so deposited,
Tenant, upon demand, shall deposit with Owner the amount so used, applied or
retained, so that Owner shall have the full deposit on hand at all times during
the term of this lease.
2. Within ten (10) days after Tenant's request, Owner shall deliver to Tenant
a statement substantially similar to the statement required to be delivered by
Tenant to Owner hereunder.
In Witness Whereof, Owner and Tenant have respectively signed and
sealed this lease as of this day and year first above written.
[CORPPORATE
Witness for Owner: ROBERT MARTIN COMPANY, LLC SEAL]
--------------------------------------
By: [L.S]
- ---------------------------------- --------------------------------------
President
Witness for Tenant: ADVANCED VIRAL RESEARCH CORPORATION
--------------------------------------
By: /s/ Shalom Z. Hirschman [L.S]
- ---------------------------------- --------------------------------------
FEDERAL I.D. #/SOCIAL SECURITY #......
<PAGE> 10
The following shall be inserted in the footnoted letters in the printed portion
of this lease:
A. which approval shall not be unreasonably withheld as to non-
structural alterations and as to structural alterations and connection to
Building utilities outside the demised premises which do not: (a)
adversely affect the structural integrity of the Building or any Building
systems or (b)reduce the value of the Building.
B. Notwithstanding anything contained herein to the contrary, Tenant
shall have no obligation to remove the initial installations which constitute
Owner's Work.
c. ,provided that Owner shall use its reasonable efforts to perform such
repairs in a diligent manner and to minimize interference with Tenant's use of
the demised premises in connection therewith.
D. Notwithstanding the provisions of Article 9, if the demised premises
or a major part thereof shall be totally, or substantially, damaged or destroyed
or rendered completely, or substantially, untenantable on account of fire,
casualty or other cause (other than fire, casualty or other cause relating to
Tenant's act or failure to act where it had a duty to act), the rent and
additional rent shall completely abate as of the date of the damage or
destruction and until Owner shall repair, restore, replace and rebuild the
demised premises (subject to Owner's right to elect not to restore the same);
provided, however, that should Tenant reoccupy a portion of the demised premises
for the purpose of conducting business during the period the restoration work is
taking place and prior to the date that the same is made completely tenantable,
rent and additional rent shall be apportioned and payable by Tenant in
proportion to the part of the demised premises occupied by it. Nevertheless, in
case of any substantial damage or destruction to the demised premises, Tenant,
as its sole remedy, may cancel this lease by written notice to Owner, if (i)
within 30 days from the date of the damage or destruction, Owner does not
deliver to Tenant a written certification to the effect that the restoration can
be completed within six months from the date of the casualty; (ii) within 90
days of the date of damage of destruction Owner does not let a contract which
shall provide for the complete restoration of the demised premises within a
period of six (6) months from the date of the damage or destruction; (iii) work
under such contract or contracts has not commenced within 120 days of the date
of said damage or destruction; or (iv) said work is not prosecuted with
reasonable diligence to its completion within six (6) months of the date of
damage or destruction. The period for the completion of the required repairs and
restoration work shall be extended by the number of days lost in the event such
loss results from unavoidable delays, or any cause beyond the reasonable control
of Owner.
E. upon reasonable notice
F. thirty (30)
G. beyond ten (10) days after notice from Owner to Tenant
H. beyond applicable notice and cure period
I. In performing any such work, Owner shall use its reasonable efforts
to act diligently and to minimize interference with Tenant's use of the demised
premises.
J. or Tenant
K. , except for mandatory or compulsory counterclaims.
<PAGE> 11
MULTI/MAS 88
Striking out or deletion of any portion of this lease (and the insertion of
asterisks at various points) was done as a matter of convenience in preparing
the lease for execution. The language omitted (as well as the use or placement
of such asterisks) is not to be given any effect in construing this lease.
RULES & REGULATIONS - Exhibit A
WORK SPECIFICATIONS - Exhibit B
FLOOR PLAN - Exhibit C
STANDARD FORM OF RIDER TO STANDARD FORM OF LOFT LEASE
Date of Lease: February 7, 1997
Owner: ROBERT MARTIN COMPANY, LLC
Tenant: ADVANCED VIRAL RESEARCH CORPORATION
Building: 200 Corporate Boulevard South, Yonkers, New York
Rentable Area: approximately 6,100 square feet
41. Additional Definitions.
For all purposes of this lease, and all agreements supplemental
hereto, the terms defined in this Article shall have the meanings specified
unless the context otherwise requires:
(a) The term laws and requirements of public authorities shall mean
laws and ordinances of federal, state, city, town, and county governments, and
rules, regulations, orders and directives of departments, subdivisions, bureaus,
agencies or offices thereof, or any other governmental, public or quasi-public
authorities having jurisdiction over the Building, and the directions of any
public officer pursuant to law.
(b) The word invitee shall mean any employee, agent, visitor,
customer, contractor, licensee, or other party claiming under, or in the
Building, or in the Park, if applicable, by permission or sufferance of, Owner
or Tenant.
(c) The term requirements of insurance bodies shall mean rules,
regulations, orders and other requirements of the New York Board of Fire
Underwriters or New York Fire Insurance Rating Organization or any similar body
performing the same or similar functions.
(d) The term unavoidable delays shall mean delays due to strikes or
labor troubles, fire or other casualty, governmental restrictions, enemy action,
civil commotion, war or other emergency, acts of God or nature, or any cause
beyond the reasonable control of either party whether or not similar to any of
the causes stated above, but not the inability of either party to obtain
financing which may be necessary to carry out its obligations.
(e) The term Real Property shall mean the tax lot of which the demised
premises is a part.
(f) The term lease year shall mean the 12 month period commencing with
the Commencement Date (as defined in paragraph (a) of Article 42), and ending
the day preceding the first anniversary of the Commencement Date (except that if
the Commencement Date shall occur on a day other than the first day of a
calendar month, such period shall commence with the Commencement Date and end
with the last day of the 12th full calendar month thereafter) and each 12 month
period thereafter, all of which falls within the term of this lease.
(g) The word rent shall mean the Fixed Annual Rent and such other sums
due Owner pursuant to this lease. All sums due Owner,
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<PAGE> 12
MULTI/MAS 88
other than Fixed Annual Rent, are included in the term additional rent.
(h) The term Hazardous Materials shall mean (i) any chemical, material
or substance defined as or included in the definitions of "hazardous substance",
"hazardous materials", "extremely hazardous waste", "restricted hazardous
waste", "toxic substance" or words of similar import, under any applicable
local, state or federal laws, including but not limited to the Federal Water
Pollution Act (33 U.S.C. Section 1251 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et.seq:), the Resources Conservation
and Recovery Act (42 U.S.C. 6901 et seq, 42 U.S.C. Section 7401 et. seq:) and
CERCLA (42 U.S.C. 9601 et seq:), all as may be amended from time to time; (ii)
petroleum; (iii) asbestos; (iv) polychlorinated biphenyls; (v) radioactive
materials; and (vi) radon gas.
(i) The term business days as used in this lease shall exclude
Saturdays, Sundays and all days observed by the State or Federal Government as
legal holidays and all days designated as holidays by the applicable building
service union employees service contract.
(j) The term Executive Park or Park shall mean South Westchester
Executive Park, located in the City of Yonkers, County of Westchester and
State of New York.
42. Term; Preparation for Occupancy and Possession.
(a) The term of this lease and the estate hereby granted shall
commence on a date (the "Commencement Date") which shall be the earlier of the
day (i) on which the demised premises shall be deemed to be completed as such
term is defined in paragraph (c) of this Article (of which date Tenant shall be
given 5 days notice), or (ii) Tenant (or anyone claiming under or through
Tenant) shall occupy the demised premises. The term shall expire on the last day
of the month five (5) years after the month in which the Commencement Date
occurs (the "Expiration Date") or on such earlier date upon which said term may
expire or be terminated pursuant to any provision of this lease or law. Promptly
following the determination of the Commencement Date, the parties shall enter
into a supplementary written agreement setting forth the Commencement and
Expiration Dates.
(b) The demised premises shall be completed and initially prepared by
Owner in the manner set forth in, and subject to the provisions of, the attached
Work Specifications and Floor Plan ("Owner's Work"). Tenant and its contractors
shall be entitled to access to the demised premises prior to the completion of
Owner's Work, subject to Owner's prior approval, and only so long as they work
in conformity with and do not interfere, in Owner's judgment, with Owner or its
contractors in the completion of Owner's Work, and provided they accept the
administrative supervision of Owner. If Tenant's work interferes with Owner's
work, in Owner's judgment, Owner. may withdraw the license granted to Tenant
pursuant to this paragraph upon 24 hours notice. Tenant's selection of
contractors must be in compliance with the provisions of this lease. Tenant
shall contribute any amount in excess of Owner's $30,500.00 contribution
("Tenant's Contribution") for the work set forth in the Work Specifications and
on the attached floor plan (the "Work"). Tenant ;shall pay Tenant's
Contribution to Owner upon Tenant's execution and delivery of this lease to
Owner. If Owner's price for the Work is less than $30,500.00, Owner shall
contribute the difference between $30,500.00 and Owner's price for the Work
("Owner's Contribution") toward the cost of Tenant's installation of Tenant's
fixtures in the demised
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<PAGE> 13
MULTI/MAS 88
premises. Such fixtures shall not include furniture, equipment or artwork, it
being intended that Owner's Contribution shall be applied toward actual physical
improvements to the demised premises. Owner shall pay Tenant Owner's
Contribution promptly after Owner's receipt of paid invoices evidencing Tenant's
cost of the installation of Tenant's fixtures.*
(c) The demised premises shall be deemed completed on the date on
which Owner's Work in the demised premises has been substantially completed
(notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment or decoration remain to be performed, the non-completion
of which would not materially interfere with Tenant's use of the demised
premises). If completion of the demised premises by Owner is delayed by reason
of:
(i) any act or omission of Tenant or any of its employees, agents or
contractors, including material failure of Tenant to comply with any of its
obligations under the Work Specifications, or*
(ii) Tenant's failure to plan or execute Tenant's work with
reasonable speed and diligence, or
(iii) Tenant's failure to make selections required by the Work
Specifications, or
(iv) Tenant's changes by Tenant in its drawings or specifications
or changes or substitutions requested by Tenant, or
(v) Tenant's failure to submit or approve drawings, plans or
specifications timely, or
(vi) Tenant's failure to deliver to Owner the first month's rent (if
required by the provisions on the first page of this lease), and the
security deposit required by Article 32 (if any),
then the demised premises shall be deemed completed, the Commencement Date shall
be deemed to have occurred (and Tenant shall commence paying rent) on the date
when it would have been completed and rent would have been due and payable but
for such delay, and Tenant shall pay Owner all costs and damages which Owner may
sustain by reason of such delay.
(d) The Floor Plan attached hereto may be revised by Owner in order to
comply with laws and requirements of public authorities and requirements of
insurance bodies. If any of such revisions or changes are due to Tenant's manner
of use of the demised premises, Tenant shall pay for the cost of implementing
same.*
(e) Owner may close or change the arrangement and/or location of
exits, entrances, passageways, doors, doorways, corridors, elevators, stairs,
toilets and other parts of the Building whenever necessary to comply with laws
or requirements of public authorities and requirements of insurance bodies.
Tenant shall pay the cost thereof where the requirement for such change is due
to Tenant's manner of use of the demised premises.*
43. Rent.
(a) Tenant shall commence paying rent on the second month
anniversary of the Commencement Date. If the Commencement Date is other than
the first day of a calendar month, the first monthly
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<PAGE> 14
MULTI/MAS 88
installment of Fixed Annual Rent shall be prorated to the end of said calendar
month.*
(b) All rent shall be paid by currently dated, unendorsed check of
Tenant, payable to the order of Owner or to an agent designated by Owner.*
(c) Tenant shall pay the Fixed Annual Rent without notice or demand.
If no date shall be set forth herein for the payment of any other sum due Owner,
then such sum shall be due and payable within 10 business days after the date
upon which Owner makes written demand for such payment.
(d) If at any time during the term the rent, or any part thereof,
shall not be fully collectible by reason of any laws and requirements of public
authorities, Tenant shall enter into such agreements, reasonably satisfactory
to Tenant and take such actions as Owner may reasonably request to permit Owner
to collect the maximum rents which may, during the continuance of such legal
rent restriction, be legally permissible (but not in excess of the amounts
reserved under this lease). Upon termination of such rent restriction prior to
the Expiration Date (i) the rent shall become and thereafter be payable in
accordance with the amounts reserved in this lease for the period of the term
following such termination, and (ii) Tenant shall pay Owner, if legally
permissible, an amount equal to (y) the rent which would have been paid pursuant
to this lease but for such legal rent restriction less (z) the rents paid by
Tenant for the period during which such rent restriction was in effect.
(e) If any installment of Fixed Annual Rent is not paid within 10 days
after the date due, or if any other moneys owing by Tenant are not paid within
15 days of the date due and payable, Tenant shall pay Owner, in compensation for
Owner's loss of use of such rent, the additional administrative, bookkeeping and
collection expenses incurred by reason of such overdue sum, a sum calculated by
multiplying the late payment by three percentage points above the prime rate
then established by Chemical Bank (but limited to the maximum legal rate),
dividing the product by 365 and multiplying the quotient by the number of days
between the date such payment was due and the date such payment is in fact paid.
Such compensation shall be without prejudice to any of Owner's other rights and
remedies hereunder.*
(f) If any check tendered by Tenant, for any payment due, shall be
dishonored by the payor bank, Tenant shall pay Owner, without prejudice to any
of Owner's other rights and remedies, in compensation for the additional
administrative, bookkeeping and collection expenses incurred by reason of such
dishonored check, the sum of $100. If during any twelve month period during the
term of this lease, two or more checks tendered by Tenant, for any payment due,
shall be dishonored by the payor bank, Owner may at any time thereafter require
that all future payments of rent by Tenant shall be made by certified or
official bank checks.
44. Parking.
(a) Throughout the term, Owner shall make available to Tenant the
following number of parking spaces:*
five (5) spaces for executive cars, which shall be reasonably close to
the front entrance to the demised premises on an exclusive basis.*
ten (10) spaces for employee cars, which shall be not more than 500
yards from an entrance to the demised premises, unless
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MULTI/MAS 88
otherwise provided for herein on a non-exclusive basis.*
If Tenant or its invitees use more than the specified number of spaces
set forth above, then after 5 days notice from Owner, Tenant shall, at the
option of Owner, either (i) pay Owner's then current charge per month for each
additional space used for each month during which such excess use takes place
(even if for less than the full month) (as of the date of this lease, Owner's
current monthly charge is $40.00 per space), or (ii) cease and desist
immediately from using said additional spaces. If Owner selects the first of
such options, Owner may revoke such choice on 30 days notice.
(b) As necessary, Owner shall (between 7:00 a.m. and 10:00 p.m. on
business days), light, clean, remove snow from and otherwise maintain, the
parking area. Tenant shall be responsible for repairing damage to the parking
areas caused by Tenant or its invitees. Owner shall not be obligated to remove
snow unless the accumulation exceeds 3 inches. In no event shall Owner be
obligated to remove snow from areas obstructed by parked vehicles at the time
Owner's equipment is servicing such areas. Notwithstanding anything herein to
the contrary, Tenant shall be responsible for lighting its entrances to the
demised premises and loading areas and for removing snow and ice at its
entrances and other walkways and areas reserved or designated for Tenant's
exclusive use.
(c) Tenant shall require its invitees to park only in areas designated
by Owner, and not to obstruct the parking areas of other tenants. Tenant shall,
upon request, furnish to Owner the license numbers of the automobiles operated
by Tenant, its executives and other employees. Owner may use any lawful means
to enforce the parking regulations established pursuant to Article 55,
including, but not limited to, the towing away of improperly parked or
unauthorized cars and pasting of warning notices on car windows and windshields.
(d) Owner may temporarily close any area not leased to Tenant in order
to make repairs or changes, to prevent the acquisition of public rights, or to
discourage unauthorized parking. Owner may do such other acts in and to such
areas as, in its judgment, may be desirable to improve same.
(e) The parking areas for trucks and delivery vehicles in front of
loading docks or loading areas (if any) adjacent to the demised premises are not
to be used by Tenant or its invitees, as parking spaces, unless otherwise
directed by Owner. Such loading docks or loading areas are provided solely for
the loading and unloading of Tenant's goods and no vehicles may be parked in
such areas longer than necessary, in Owner's reasonable judgment, for the
efficient discharge of such purposes. If the use of any loading dock at the
Building interferes with the use of another loading dock, the tenant occupying
more rentable area in the Building shall have priority in use of the loading
docks. In no event shall access to any loading dock be blocked for more than 15
minutes.
(f) Neither Tenant nor its invitees shall park automobiles, trucks or
other motor vehicles overnight within the park.
45. Tax Escalation.
(i) Definitions. As used in this lease:
(a) "Taxes" shall mean the total amount of real estate taxes and
assessments now or hereafter levied, imposed,
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MULTI/MAS 88
confirmed or assessed against the Real Property, (or, during any period the
Real Property is owned by an industrial development agency, such as would
be levied, imposed, confirmed or assessed as if Owner named herein were the
fee owner), including but not limited to city, county, town, village,
school and transit taxes, water fees and sewer and refuse disposal charges,
or taxes, assessments or charges levied, imposed, confirmed or assessed
against, or a lien on, the Real Property by any taxing authority, whether
general or specific, ordinary or extraordinary, foreseen or unforeseen and
whether for public betterments, improvements or otherwise. If, due to any
change in the method of taxation, any franchise, capital stock, capital,
income, profit, sales, rental, use or occupancy tax or charge shall be
levied, assessed, confirmed or imposed upon Owner in lieu of, or in
addition to, any real estate taxes or assessments upon or .with respect to
the Real Property, such tax shall be included in the term Taxes. Penalties
and interest on Taxes (except to the extent imposed upon timely payments of
assessments that may be, and are in fact, paid in installments) and income,
franchise, transfer, inheritance and capital stock taxes shall be deemed
excluded from Taxes except to the extent provided in the immediately
preceding sentence.
(b) "Base Tax" is the product of the tax rates set forth on tax bills
rendered for each Tax for the Tax Year during which January 1, 1997 occurs,
multiplied by the assessed valuations of the Real Property for the Tax Year
during which January 1, 1997 occurs. "Tax Year" shall mean the fiscal period for
each Tax. Any and all tax abatements shall be for the benefit of Owner.*
(c) "Tenant's Proportionate Share" shall mean 7.26%*
(ii) Tax Payments. (a) If Taxes for any Tax Year during the lease term
("Tax Comparison Year") shall exceed the Base Tax, Tenant shall pay Owner, as
additional rent for each such Tax Comparison Year, Tenant's Proportionate Share
of such excess ("Tax Payment").
(b) Subsequent to Owner's receipt of the tax bills for each Tax
Comparison Year, Owner shall submit to Tenant a statement showing (i) the
Tax Payments due for such Tax Comparison Year, and (ii) the basis of
calculations ("Owner's Tax Statement"). Tenant shall (y) pay Owner the unpaid
portion (if any) of the Tax Payment within 30 days after receipt of Owner's Tax
Statement, and (z) on account of the immediately following Tax Comparison Year,
pay Owner commencing as of the first day of the month during which Owner's Tax
Statement is rendered, and on the first day of each month thereafter until a new
Owner's Tax Statement is rendered, 1/12th of the total payment for the current
Tax Comparison Year. The monthly payments based- on the total payment for the
current Tax Comparison Year shall be adjusted from time to time to reflect
Owner's reasonable estimate of increases in taxes for the immediately following
Tax Comparison Year.
(iii) Reduction of Comparison Year Taxes. If Taxes for a Tax Comparison
Year are reduced, the amount of Owner's costs and expenses of obtaining such
reduction (including reasonable legal, appraisers' and consultants' fees) shall
be added to and deemed part of Taxes for such Tax Comparison Year. If Owner
obtains a refund of Taxes for a Tax Comparison Year for which a Tax Payment has
been made, Owner shall credit against Tenant's next succeeding Tax Payment(s),
Tenant's Proportionate Share of the refund (but not more than the Tax Payment
that was the subject of the refund). If no Tax Payment shall thereafter be due,
Owner shall pay Tenant's Proportionate Share of such refund to Tenant.*
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(iv) Reduction of Base Tax. If Owner obtains a reduction in the Base
Tax, the Base Tax shall be reduced (such reduction to include the expenses
incurred by Owner in obtaining such reduction, including reasonable legal,
appraisers' and consultants' fees), prior Tax Payments (if any) shall be
recalculated and Tenant shall pay Owner, within 30 days after billing, Tenant's
Proportionate Share of the increased amount of Tax Payment for each prior Tax
Comparison Year.*
(v) Tax Protests. While proceedings for reduction in assessed
valuations are pending, the computation and payment of Tax Payments shall be
based upon the original assessments for the years in question. Tenant shall have
no right to institute or participate in any tax proceedings or other proceedings
of a similar nature. The commencement, maintenance, settlement and conduct
thereof shall be in the sole discretion of Owner.
(vi) Assessment With Other Properties. If, at any time, the Real
Property shall include buildings other than the Building, the Taxes shall
include the Building's equitable portion of the Taxes on all such buildings,
based upon an informal apportionment by the tax assessors, or if such
apportionment is not available, as shall be reasonably determined by Owner.
(vii) Tenant's Improvements. In the event an increase in assessed
valuation of the Real Property is caused by Tenant's improvements to the demised
premises, not including the work set forth in the Work Specifications, Tenant
shall pay the entire increase in Taxes attributable to such improvements. If the
assessed valuation for such improvements are not separately stated, Tenant's
obligation under this subparagraph shall be reasonably determined by Owner.
(viii) No Credit. If in a Tax Comparison Year the Taxes are less than the
Base Tax, the Tenant shall not be entitled to receive a credit, by way of a
reduction in Fixed Annual Rent, a refund of all or a portion of prior (or a
credit against future) Tax Payments or otherwise.
(ix) Partial Comparison Year. If the Expiration Date or earlier date
upon which the term may expire or terminate shall be a date other than the last
day of a Tax Comparison Year, Tenant's Tax Payment for such partial Tax
Comparison Year shall be prorated, (based upon Owner's reasonable estimate of
the tax payments for such Tax Comparison Year if same have not been established
as of such date).
46. Common Area Maintenance Charge.
(i) For the purposes of this Article:
(a) "Index" shall mean the Revised Consumer Price Index
for Urban Wage Earners and Clerical Workers for the New York -
Northeastern New Jersey Area, 1967 = 100, published by the United States
Department of Labor, Bureau of Labor Statistics.
(b) "Base Index" shall mean the Index for the first full
calendar month preceding the date of execution of this lease.
(ii) There is included in the Fixed Annual Rent an amount equal to $1.50
per square foot to cover the initial cost to Owner of the expenses of common
area maintenance.
(iii) In the manner and at the times hereinafter set forth, Tenant shall
pay Owner as additional rent, for each lease
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MULTI/MAS 88
year, for common area maintenance, a sum computed by multiplying $1.50 per
square foot (i.e.$9,150.00) by the percentage increase, if any, by which the
Index for the month preceding the last month of such lease year exceeds the Base
Index. In no event shall any such adjustment result in a decrease of the Fixed
Annual Rent as set forth on page 1 of this lease. ~
(iv) Within 135 days after the end of each lease year, Owner
shall deliver to Tenant a statement setting forth the amount (and supporting
calculations) of additional rent due to Owner for such prior lease year in
accordance with the provisions of clause (iii) above ("Owner's Statement").
Tenant shall (x) make payment of any unpaid portion of such additional rent
within 30 days after receipt of Owner's Statement, and (y) pay to Owner on
account of the then current lease year, within 30 days after receipt of Owner's
Statement, an amount equal to the product obtained by multiplying the total
payment required for the preceding lease year by a fraction, the denominator of
which shall be 12 and the numerator of which shall be the number of months of
the current lease year which shall have elapsed prior to the first day of the
month immediately following the rendition of Owner's Statement, and (z) pay
Owner on account of the then current lease year, commencing as of the first day
of the month immediately following the rendition of Owner's Statement and on the
first day of each month thereafter until a new Owner's Statement is rendered,
1/12 of the total payment for the preceding lease year. The monthly payments
based on the total payment for the preceding lease year shall be adjusted from
time to time during a lease year to reflect Owner's reasonable estimate of
increases in the Index. The payments required to be made under clauses (y) and
(z) above shall be subject to adjustment as and when Owner's Statement for such
lease year is rendered by Owner. If the payments required to be made under
clauses (y) and (z) above exceed the amount due for such lease year pursuant to
Owner's Statement, such excess shall be credited against the next required
payments due hereunder. If no such payments shall thereafter be due, Owner shall
pay such excess to Tenant.
(v) If any lease year shall be a period of less than 12 months,
Tenant's liability under this Article shall be prorated.
(vi) If the Index is altered, modified, converted or revised
such that it is no longer comparable to the Base Index then the Index shall be
adjusted to the figure that would have been arrived at had the change in the
manner of computing the Index not been altered. If such Index shall no longer be
published, then any substitute or successor index published by the Bureau of
Labor Statistics or other governmental agency of the United States, and
similarly adjusted as aforesaid, shall be used. If such Index (or a successor or
substitute index similarly adjusted) is not available, a reliable governmental
or other reputable publication selected by Owner shall be used.
47. Cleaning; Trash Removal.
(a) Tenant shall, at Tenant's expense, keep the demised Premises clean
and in good order. to the satisfaction of Owner. Tenant shall, at Tenant's
expense, hire a reputable cleaning contractor to clean the office portion of the
demised premises, if any.
(b) Tenant shall pay the cost of removal of Tenant's refuse and
rubbish from the Building. Tenant shall contract for the removal of such refuse
and rubbish. Owner reserves the right to select a refuse disposal contractor to
serve the Building. The
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financing, Tenant will not withhold, delay or defer its consent thereto,
provided that such modifications neither increase the monetary obligations,
materially increase the nonmonetary obligations of Tenant nor decrease the size
of the demised premises, the number of parking spaces provided for in Article 44
or the service required to be provided by Owner or Tenant's rights hereunder.*
(b) Tenant shall, within a reasonable time after being requested,
submit such financial information as may be reasonably required by Owner's
mortgagee(s).
50. Broker.
Tenant represents that, in the negotiation of this lease, it dealt
with no broker or any other person legally entitled to claim a brokerage
commission or finder's or consultant's fee with respect to this transaction.
Tenant shall indemnify, defend and hold Owner harmless from and against all
losses, costs, damages, expenses, claims and liabilities (including court costs
and attorneys' fees and disbursements) arising out of any inaccuracy or alleged
inaccuracy of this representation.
51. Signs.
(a) Owner shall, upon Tenant's request, list on the Building's
directory ("Directory"), if any, the name of Tenant.
(b) No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by or in behalf of Tenant on any part
of the outside of the demised premises or the Building or on the inside of the
demised premises if the same is visible from the outside of the demised
premises, without the prior written consent of Owner, which consent shall not be
unreasonably withheld. Requests for such signs shall be accompanied by a sketch
of the sign, its size, type and manner of mounting, specifying the manner of
mounting, and the materials and finishes employed in the manufacture of same.
Approval by Owner shall not constitute approval for purposes of complying with
laws and requirements of public authorities. It shall be Tenant's obligation to
secure such approvals at Tenant's expense. In the event of the installation of
any sign by Tenant in violation of the foregoing, Owner may remove same without
liability and may charge the expense incurred by such removal to Tenant.*
(c) Owner shall have the right, from time to time, to designate a name
for the Building and to change the name and/or address of the Building.
52. Holdover.
Tenant acknowledges that possession of the demised premises must be
surrendered at the expiration or sooner termination of the term, time being of
the essence. The parties agree that the damage to Owner resulting from failure
by Tenant to surrender possession of the demised premises timely will be
extremely substantial, will exceed the amount of rent payable hereunder and will
be impossible of accurate measurement. Consequently, Tenant shall pay Owner for
each month and for any portion of a month during which Tenant holds over in the
demised premises after expiration or sooner termination of the term of this
lease, a sum equal to 150% of the rent which was payable under this lease during
the last month of the term. Nothing contained herein shall be deemed to
authorize Tenant to remain in occupancy of the demised premises after the
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MULTI/MAS 88
expiration or sooner termination of the term.*
53. Insurance and Indemnity.
(a) Tenant shall provide, prior to entry upon the demised premises,
and maintain throughout the term of this lease, at its own cost, and with
companies rated not less than B+ Class IX by A.M. Best Company, Inc., or its
successor and authorized to do business in the State of New York (i) public
liability and property damage insurance in an amount not less than $2,000,000
combined single limit for personal injury, death and property damage arising out
of any one occurrence, protecting Owner and Tenant against all claims for
personal injury, death or property damage occurring in, upon or adjacent to the
demised premises and any part thereof, or arising from, related to, or in any
way connected with the conduct and operation of Tenant's use or occupancy of the
demised premises, which insurance shall be written on an occurrence basis and
name Owner (and at Owner's request, Owner's mortgagees) as additional insureds,
and (ii) workers' compensation insurance covering all persons employed by Tenant
or its contractors in connection with work performed by or for Tenant. Tenant's
insurance shall be in a form reasonably satisfactory to Owner and provide that
it shall not be cancelled, terminated or changed except after 20 days' written
notice to Owner. All such policies or certificates (with evidence of payment of
the premium) shall be deposited with Owner not less than 30 days prior to the
day such insurance is required to be in force and upon renewals not less than 30
days prior to the expiration of the term of coverage. Owner shall have the right
from time to time during the term, on not less than 30 days notice, but not more
than once every two years, to require that Tenant increase the amount and/or
types of coverage required to be maintained under this Article to the amounts
and/or types generally required of tenants in comparable buildings in
Westchester County. The minimum limits of liability insurance required pursuant
to clause (i) shall in no way limit or diminish Tenant's liability under
paragraph (d) of this Article.*
(b) Tenant shall not commit or permit anything to be done in, to or
about the demised premises, the Building, the Real Property, the Park, if
applicable, or any adjacent property, contrary to law, or which will invalidate
or be in conflict with the insurance policies carried by Owner or by others for
Owner's benefit, or do or permit anything to be done, or keep, or permit
anything to be kept, in the demised premises, which (i) could result in
termination of any of such policies, (ii) could adversely affect Owner's right
of recovery under any such policies, (iii) could subject Owner to any liability
or responsibility to any person, or (iv) would result in reputable and
independent insurance companies refusing to insure the Building or property of
Owner therein or in the Park, if applicable, in amounts satisfactory to its
mortgagees. If any such action by Tenant, or any failure by Tenant to comply
with the requirements of insurance bodies or to perform Tenant's obligations
hereunder, or any use of the demised premises by Tenant shall result in the
cancellation of any such insurance or an increase in the rate of premiums
payable with respect to such policies, provided that proof reasonably
satisfactory to Tenant that Tenant caused such increase shall be delivered to
Tenant, Tenant shall indemnify, defend and hold Owner harmless against all
losses, including but not limited to any loss which would have been covered by
such insurance and the resulting additional premiums paid by Owner. Tenant shall
make such reimbursement within 30 days after receipt of notice and evidence from
Owner that such additional premiums have been paid, without limiting Owner's
rights otherwise provided in this lease.
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MULTI/MAS 88
(c) Tenant shall procure a clause in, or endorsement on, each of its
policies for fire or extended coverage insurance covering the demised premises
or personal property, fixtures or equipment located therein, pursuant to which
the insurance company waives subrogation or consents to a waiver of right of
recovery against Owner. Tenant agrees not to make claims against, or seek to
recover from, Owner for loss or damage to its property or property of others
covered by such insurance. To the extent Tenant shall be a self-insurer, Tenant
waives the right of recovery, if any, against Owner, its agents and employees,
for loss, damages or destruction of Tenant's property.
(d) Tenant shall defend, indemnify and save harmless Owner, its agents
and employees from and against any and all liabilities, obligations, damages,
penalties, claims, costs, charges and expenses, including reasonable attorneys'
fees, which may be imposed or incurred by or asserted against Owner and/or its
agents or employees by reason of any of the following occurring during the term,
or during any time prior to the Commencement Date that Tenant has access to or
possession of any part of the demised premises: (i) any work or thing done in,
ON OR ABOUT THE DEMISED premises by or at the instance of Tenant, or its
invitees, (ii) any negligence or wrongful act or omission on the part of Tenant
or its invitees, (iii) any accident, injury or damage to any person or property
occurring in, on or about the demised premises, or vault, passageway or space
adjacent thereto caused by the negligence of Tenant or its invitees, and (iv)
any failure by Tenant to perform or comply with any of the COVENANTS, AGREEMENT,
terms, provisions, conditions or limitations in this lease to be performed or
complied with by Tenant. If any action or proceeding is brought against Owner by
reason of any such claim, Tenant shall, upon the request of Owner and at
Tenant's expense, resist or defend such action or proceeding by counsel
reasonably acceptable to Owner. Counsel selected by Tenant's approved insurance
companies shall be deemed acceptable.
54. Exculpation.
Tenant shall look solely to the estate and interest of Owner, its
successors and assigns, in the Building for the collection of any judgment (or
other judicial process) recovered against Owner and based upon breach by Owner
of any of the terms, conditions or covenants of this lease on the part of Owner
to be performed. No other property or assets of Owner shall be subject to levy,
execution or other enforcement procedures for the satisfaction of Tenant's
remedies under or with respect to either this lease, the relationship of
landlord and tenant hereunder, or Tenant's use and occupancy of the demised
premises.
55. Rules and Regulations.
Tenant and Tenant's invitees shall observe and comply with the Rules
and Regulations attached as Exhibit A, and such additional Rules and Regulations
as Owner or Owner's agents may from time to time adopt. Notice of additional
Rules and Regulations shall be given to Tenant. Owner shall have no duty or
obligation to enforce the Rules and Regulations or the terms, covenants or
conditions in any other lease, against any other tenant of the Building or in
the Park, if applicable, and Owner shall not be liable to Tenant for violation
of the same by any other tenant or its invitees. In the event of a conflict
between the Rules and Regulations and the provisions of the lease, the
provisions of the lease shall prevail. Notwithstanding the foregoing, Owner
shall not enforce the Rules and Regulations
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MULTI/MAS 88
against Tenant in a discriminatory manner.*
56. Tenant's Alterations and Maintenance.
(a) Tenant shall not employ contractors in connection with any
services, provisions, alterations or maintenance, unless Owner has consented in
writing to the contractor, it being the intention of Owner to limit the number
of such contractors employed in the Building or Park, if applicable. If such
consent has not been obtained Tenant shall, if requested by Owner, forthwith
cancel such contract. Owner's disapproval of any contractor selected by Tenant
must be accompanied by the designation of one or more contractors acceptable to
Owner, whose prices must be reasonably competitive. If Owner does not approve or
disapprove Tenant's contractor within 7 business days after receipt of written
request therefor, the contractor so selected by Tenant shall be deemed approved
by Owner. Tenant shall not employ persons in connection with any such services,
provisions, alterations or maintenance the employment of whom would cause a
strike, work stoppage or slowdown by employees of contractors of Owner in the
Building or Park, if applicable. Owner does not consent to the reservation of
title by any conditional vendor, or the retention of a security interest by a
secured party, to any property which may be affixed to the realty.
(b) Alterations performed by Tenant in accordance with the provisions
of Article 3 must be performed in a good and workmanlike manner, in accordance
with the plans and specifications prepared by Tenant, at its expense, which
plans and specifications shall be subject to Owner's approval (which approval
shall not be unreasonably withheld) prior to the performance of any such
alteration. If Owner does not approve or disapprove such plans and
specifications within 15 business days after Tenant shall have submitted five
sets thereof to Owner, Owner shall be deemed to have approved same. The quality
standards applicable to such alterations shall in no event be less than Owner's
standards for the Building at the time such work is performed. Upon completion
of the alterations Tenant shall, at its expense, deliver to Owner five sets of
"as-built" drawings with respect thereto.*
(c) If due to Tenant's alterations, changes in the Building's
sprinklers, passages, exits or other common areas or systems, are required,
Tenant shall perform same, pursuant to the provisions of this lease. In no
event, however, shall Tenant perform any work or cause any work to be done which
shall, in Owner's opinion, adversely affect the Building. In no event shall
Tenant make any installation on or through the roof of the Building without the
prior consent of Owner. Owner may, at its sole discretion, make such rules and
regulations as it deems necessary regarding access to or through the roof. Owner
makes no representation as to the load bearing capacity of the roof.
57. Notice.
(a) At the request of the holder(s) of any mortgage encumbering the
Real Property, Tenant shall serve upon such mortgagee(s) a copy of all notices
given by Tenant to Owner pursuant to paragraph (b) below, such service to be by
registered or certified mail addressed to such mortgagee(s) at the address
provided by such mortgagee(s) to Tenant.
(b) Except for rent bills, any notice, approval, consent, bill,
statement or other communication required or permitted to be given, rendered or
made by either party hereto to the other,
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MULTI/MAS 88
pursuant to this lease or pursuant to any applicable law or requirement of
public authority (collectively, "notices"), shall be in writing and shall be
delivered personally or by registered or certified mail, addressed to the other
party at the address hereinabove set forth. All notices given by either party
pursuant to this Article may be given by such party, their agents or attorneys.
Either party may, by notice as aforesaid, designate a different address or
addresses for notices intended for it. All notices given pursuant to this
Article shall be deemed given on the second business day after posting if mailed
in Westchester County, and on the third business day after posting if mailed
outside of Westchester County, or upon delivery if made personally. On and after
the Commencement Date notices directed to Tenant shall be addressed to Tenant at
the Building, with a copy to Lowenthal, Landau, Fischer & Bring, P.C., 250 Park
Avenue, New York, New York 10177, attention: Robert E. Fischer, Esq.*
58. Miscellaneous.
(a) Whenever it is provided that Owner shall not unreasonably withhold
or delay consent or approval or shall exercise its judgment reasonably (such
consent or approval and such exercise of judgment being collectively referred to
as "consent"), if Owner shall delay or refuse such consent, unless such delay or
refusal is in bad faith, Tenant shall not be entitled to make any claim, and
Tenant waives any claim for money damages (nor shall Tenant claim any money
damage by way of setoff, counterclaim or defense) based upon any claim or
assertion that Owner unreasonably withheld or delayed consent. Tenant's sole
remedy shall be an action or proceeding for specific performance, injunction or
declaratory judgment to enforce any such provision, but any such equitable
remedy which can be cured by the expenditure of money may be enforced personally
against Owner only to the extent of interest in the Building. Failure on the
part of Tenant to seek relief within 30 days after the date upon which Owner has
withheld its consent shall be deemed a waiver of any right to dispute the
reasonableness of such withholding of consent.*
(b) Except as otherwise set forth in this lease, except Owner shall
have no liability or responsibility if any service or utility required to be
provided by Owner is interrupted or stopped by reason of unavoidable delays.*
(c) If Tenant shall request the consent or approval of Owner to the
making of any alterations or to any OTHER THING, AND Owner shall seek and pay a
separate fee for the opinion of Owner's counsel, architect, engineer or other
representative or agent as to the form or substance thereof, Tenant shall pay
Owner, as additional rent, within 30 days after demand, all reasonable costs and
expenses of Owner incurred in connection therewith, including, in case of any
alterations, costs and expenses of Owner in reviewing plans and specifications.
(d) This lease is submitted to Tenant for signature with the
understanding that it shall not bind Owner unless and until it has been executed
by Owner and delivered to Tenant or Tenant's attorney.
(e) Whenever reference is made to public halls, elevators, corridors,
etc. and if none such are present on or about the premises demised herein then
such reference shall have no relevance to the terms herein.
(f) In the event of any conflict between the printed provisions of the
lease and the Rider to the lease, the provisions
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MULTI/MAS 88
of this Rider shall prevail.
(g) Owner's failure to prepare and/or deliver any statement or bill
required to be delivered to Tenant, or Owner's failure to make demand for
payment of Fixed Annual Rent or additional rent shall not be a waiver of, or
cause Owner to forfeit or surrender its rights to collect, any rent due.
Tenant's liability for all such payments shall continue unabated during the term
and shall survive the expiration or sooner termination of the term.
(h) Tenant shall repair and replace, as necessary, and maintain in
good working order, Tenant's exclusive heating and air conditioning units and
systems servicing the demised premises. Such maintenance shall include changing
the systems filters not less frequently than four times per year. Tenant shall
enter into contracts for service and maintenance pursuant to Article 56 and
submit to Owner copies of such agreements as well as copies of all invoices
indicating dates of service and work performed.
(i) Tenant shall not substantially vacate the demised premises during
the term of this lease unless it shall give Owner at least 10 days written
notice prior to such vacating. Notwithstanding the above, in the event Tenant
vacates the demised premises prior to the Expiration Date or such earlier date
upon which said term may expire or be terminated, Tenant shall remove all
fixtures, and installations (including but not limited to telephone systems,
communication systems and security systems), unless Owner has otherwise notified
Tenant pursuant to Article 3.
After such vacating, Owner may, but shall not be obligated to,
enter the demised premises, at anytime, to make such repairs, replacements and
improvements as Owner may deem necessary. Notwithstanding the foregoing,
Tenant's obligations under this lease shall remain in full force and effect,
including the obligation to maintain and secure the demised premises.
(j) The Certificate of Occupancy for the Building shall be for a
building of Low Hazard Occupancy as defined by the New York State Building Code.
Owner represents that Tenant's use of the demised premises as set forth in
Article 2 shall be permitted by the Certificate of Occupancy covering the
demised premises as of the Commencement Date.*
(k) Tenant shall not cause (or allow any of its contractors, agents
or other persons or entities over whom or which it exercises any degree of
control to cause) to occur within the demised premises, or the Building or Park,
if applicable, the use, presence, discharge, spillage, disposal, uncontrolled
loss, generation, seepage or filtration of Hazardous Materials. Notwithstanding
the foregoing, Tenant shall be entitled to use and store only those Hazardous
Materials which are necessary for the conduct of Tenant's business, provided
that such usage is in accordance with all laws and requirements of public
authorities and requirements of insurance bodies. Tenant shall, from time to
time and upon Owner's request, submit to Owner a written report with respect to
Hazardous Materials upon the demised premises (and within the Building and
Executive Park) as a result of the activities of Tenant (its contractors, agents
or other persons or entities over whom it exercises any degree of control). Such
report shall be in such form as may be prescribed by Owner and shall be
submitted to Owner within ten (10) days after request by Owner (or immediately
upon receipt of any notice of violation received from any governmental agency).
Owner shall have the right at all times ;during the term of this lease to (i)
inspect the demised premises, subject to the provisions of Article 13 and (ii)
conduct (or cause to be conducted) tests and investigations to determine whether
Tenant is in compliance with the provisions of this Section. The reasonable cost
of all such inspections,
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MULTI/MAS 88
tests and investigations shall be borne by Tenant. Owner's consent to Tenant's
use or maintenance of Hazardous Materials within the demised premises shall in
no way limit Tenant's indemnification obligations as otherwise set forth in this
lease.*
If Tenant obtains knowledge of the actual or suspected release
of Hazardous Materials, then Tenant shall promptly notify Owner of such actual
or suspected release. Tenant shall immediately notify Owner of any inquiry,
test, investigation or enforcement proceeding by or against Tenant involving a
release of which Tenant has notice. If Tenant or its agents, employees or
contractors shall cause or permit a release, Tenant shall promptly notify Owner
of such release and immediately begin investigation and remediation of such
release, as required by all applicable laws and requirements of public
authorities and insurance bodies.*
(l) Anything herein to the contrary notwithstanding, if the first
month's rent or the security deposit shall not have been delivered to Owner upon
execution and delivery of this lease by Tenant to Owner (if required by the
provisions of this lease), then (in addition to such other remedies available to
Owner hereunder, at law or in equity) Owner shall not be obligated to commence
preparation of the demised premises for occupancy (if required by the provisions
of this lease) until such sums shall have been delivered to Owner.
(m) Tenant agrees not to disclose the terms, covenants, conditions or
other facts with respect to this lease, including, but not limited to, the Fixed
Annual Rent, to any person, corporation, partnership, association, newspaper,
periodical or other entity. This non-disclosure and confidentiality agreement
shall be binding upon Tenant without limitation as to time, and a breach of this
paragraph shall constitute a material breach under this lease.
(n) Tenant shall have 24 hours per day, seven days per week access to
the demised premises, except in the case of an emergency.*
59. Amendments to Printed Form.
(a) Article 6 is further amended by adding the following at the end
thereof:
In the event of any increase in the fire insurance rate on the
Building and/or its contents during the TERM OF THIS LEASE, caused by the nature
or conduct of Tenant's use of the demised premises, Tenant shall pay to Owner,
the amount of the increase in the cost of such insurance to Owner and other
tenants of the Building, within ten (10) days after Owner has submitted to
Tenant a statement setting forth the amount due. In determining whether Tenant's
use or occupancy has resulted in an increase in the rate of fire insurance
applicable to the Building or any property located therein, the basis of
comparison shall be the rate which would be in effect were the Tenant not using
the demised premises in such a manner.*
Tenant, at Tenant's sole cost and expense, shall provide, keep and
maintain fir extinguishers and any other nonstructural fire safety equipment
required by laws and requirements of public authorities. At the expiration or
earlier termination of the term of this lease, Tenant may remove from the
demised premises any fire extinguishers provided by Tenant.
(b) Article 7 is amended by adding the following paragraph:
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<PAGE> 26
MULTI/MAS 88
Notwithstanding anything contained herein to the contrary, and
at the election of the holder of any current or future mortgage encumbering all
or a portion of the demised premises, such mortgage shall be subordinate to this
lease with the same force and effect as if this lease had been executed,
delivered and recorded prior to the execution, delivery and recording of the
said mortgage, except however that the said subordination of the mortgage to the
lease shall not affect nor be applicable to and does expressly exclude:
(i) The prior right, claim or lien of the said mortgagee in, to and
upon any award or other compensation heretofore or hereafter to be made for any
taking by eminent domain of any part of the mortgaged premises, and to the right
of disposition thereof in accordance with the provisions of the said mortgage;
(ii) The prior right, claim and lien of the said mortgagee in, to and
upon any proceeds payable under all policies of fire and rent insurance upon the
said mortgaged premises and as to the right of disposition thereof in
(iii) accordance with the terms of the said mortgage; and
(iii) Any lien, right, power or interest, if any, which may have
arisen or intervened in the period between the recording of the said mortgage
and the execution of this lease, or any lien or judgment which may arise at any
time under the terms of this lease.
Although this clause shall be self-operative upon the election of any
such mortgagee, in confirmation hereof, Tenant shall execute promptly any
certificate that Owner or such mortgagee may request.
Owner shall use its reasonable efforts to obtain for Tenant's benefit a
non-disturbance agreement from the holder of any mortgage or ground or
underlying lease which is superior to this lease, in the form then customarily
used by the grantor of said agreement, providing in substance that so long as
Tenant is not in default under this lease beyond any applicable grace period,
then the grantor will not terminate this lease or take any action to recover
possession of the demised premises, notwithstanding any foreclosure of the
mortgage or default under, or terminate of, the ground or underlying lease. Any
fees or costs imposed by the grantor or its attorney, shall be paid by Tenant.*
(c) Article 11 is amended by adding the following paragraph:
(1) Notwithstanding the foregoing provision of this Article,
Tenant may sublet all of the demised premises, but not less than all, to one
subtenant, for occupancy and use as permitted by Article 2, provided however,
that Tenant shall first obtain the consent of Owner, which consent shall not be
unreasonably withheld or delayed. The consent by Owner to such subletting shall
not in any way be considered to relieve Tenant from obtaining the express
consent of Owner to any further subletting.*
(2) If Tenant shall have a bona fide intention to sublet the
demised premises, as stated above, it shall first notify Owner of such fact and
of the terms of Tenant's proposed subrental and other terms of subletting, and:
(i) If Tenant intends to sublet the demised premises, then
and in such event Owner shall have the option,
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<PAGE> 27
MULTI/MAS 88
exercisable by notice within 30 days after the date of Tenant's notice, to
elect to cancel this lease, effective as of 6 months from the last day of
the month in which Owner shall have given such notice. Upon any such
cancellation of this lease by Owner, Tenant shall have no further
obligations to Owner with respect to this lease except for obligations
accrued up to the date of cancellation.
(ii) If Owner shall not have elected to cancel as
aforedescribed, and if within a period of 6 months from the date of
Tenant's notice, Tenant has not requested Owner's consent to a specific
subletting, then the provisions of this Article requiring Tenant to give
notice to Owner of intended subletting, and any Owner's rights to elect,
shall again prevail.
(iii) If Owner shall not exercise the option to cancel this
lease Tenant may actively seek to obtain an appropriate subtenant, and
Tenant shall submit (x) the name and address of such proposed subtenant,
(y) reasonably satisfactory information as to the nature and character of
the business of the proposed subtenant, and as to the proposed nature of
its proposed use of the space, and (z) banking, financial and other
information relating to the proposed subtenant reasonably sufficient to
enable Owner to determine the financial responsibility and character of the
proposed subtenant.
(iv) In determining whether or not to consent to a proposed
subletting, Owner may take into consideration all relevant factors
surrounding the proposed sublease, including the following:
a. The business reputation of the proposed subtenant.
b. The nature of the business and the proposed use of the demised
premises by the proposed subtenant.
c. The financial condition of the proposed subtenant.
d. Restrictions contained in leases of other tenants of the Building
(but said restrictions shall not prohibit the use of the demised
premises specified in Article 2).
(3) If such proposed subletting is effected by Tenant, Tenant shall
pay to Owner a sum equal to 50% of (i) any rent or other considerations paid to
Tenant by any subtenant less expenses of such subleasing (including but not
limited to brokerage commissions and costs of improvements) in excess of the
rent allocable to the demised premises which is then payable by Tenant to Owner
pursuant to the terms hereof, and (ii) any other profit or gain realized by
Tenant from any such subletting. All sums payable hereunder by Tenant shall be
payable to Owner upon receipt thereof by Tenant. Notwithstanding the foregoing,
at the option of the holder of any mortgage encumbering the Building, this
Section shall be inapplicable during any period that such holder is Owner
hereunder.
(4) Tenant shall not advertise its space for subletting at a rental
rate lower than the greater of the then comparable rental rate for such space in
the City of Yonkers or the rental rate under this lease for such space. When
Owner or an affiliate of Owner has other equivalent space available for leasing
by Owner or any affiliate of Owner, Tenant shall not sublet
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<PAGE> 28
MULTI/MAS 88
all or any portion of the demised premises to an occupant of any space in the
Building (or the Park if applicable), or to any party which has negotiated with
Owner or an affiliate of Owner for any space during the 9 months immediately
preceding Tenant's request for Owner's consent.
(5) Tenant may not exercise its rights under this Article
prior to the Commencement Date.
(6) No sublease of the demised premises shall be effective
unless and until Tenant delivers to Owner duplicate originals of the instrument
of sublease (containing the provisions required by Section (7)) and any
accompanying documents. Any such sublease shall be subject and subordinate to
this lease.
(7) All subleases shall (i) be expressly subject to all of
Tenant's obligations hereunder, (ii) provide that the sublease shall not be
assigned, encumbered or otherwise transferred, that the premises thereunder
shall not be further sublet by the sublessee, in whole or in part, and that the
sublease shall neither suffer nor permit any portion of the sublet premises to
be used or occupied by others without the prior consent of Owner in each
instance and (iii) contain substantially the following provision:
"In the event a default under any superior lease of all or
any portion of the premises demised hereby results in the
termination of such superior lease, this lease shall, at the
option of the lessor under any such superior lease, remain in
full force and effect and the tenant hereunder shall attorn
to and recognize such lessor as Owner hereunder and shall
promptly upon such lessor's request, execute and deliver all
instruments necessary or appropriate to confirm such
attornment and recognition. The lessee hereunder hereby
waives all rights under any present or future laws or
otherwise to elect, by reason of the termination of such
superior lease, to terminate this sublease or surrender
possession of the premises demised hereby."
(8) Tenant shall remain fully responsible and liable for all
acts and omissions of any subtenant or anyone claiming under or through any
subtenant which shall be in violation of any of the obligations of Tenant
hereunder and any such violation shall be deemed a violation by Tenant. Tenant
shall pay Owner on demand any reasonable expenses incurred by Owner in acting
upon any request for consent to subletting pursuant to this Article.
(9) Whether or not Owner shall give its consent to any
proposed sublease, Tenant shall indemnify, defend and save harmless Owner
against and from any and all liabilities, obligations, damages, penalties,
claims, costs, charges and expenses (including reasonable attorney's fees)
resulting from any claims that may be made against Owner by the proposed
sublessee, or by any brokers or other persons claiming a commission or similar
compensation in connection with the proposed or final sublease.*
(d) Article 11 is amended by adding the following paragraph:
Anything in this Article or this lease to the contrary
notwithstanding, Owner consents to the assignment of this lease to any entity
controlling, controlled by or under common merged or consolidated, or any person
or entity which is a successor to the business of Tenant, by purchase thereof or
by arrangement effected pursuant to any law or regulatory agency
- 24 -
<PAGE> 29
MULTI/MAS 88
action having or asserting such authority (provided such merger, consolidation
or purchase is for a valid business purpose and not principally for the purpose
of transferring the leasehold estate created hereby), and provided that (i) the
successor to Tenant resulting from the merger, consolidation or purchase is a
bona fide entity, (ii) the successor to Tenant has a net worth, computed in
accordance with generally accepted accounting principles, at least equal to the
greater of the net worth of Tenant (1) immediately prior to such merger,
consolidation or purchase or (2) on the date of this lease, and (iii) proof
satisfactory to Owner of such net worth shall have been delivered to Owner at
least 30 days prior to the effective date of the transaction. No such assignment
of this lease shall be valid or binding upon Owner unless the Tenant shall have
complied with the provisions of this Article and the assignee shall execute,
acknowledge and deliver to Owner an agreement, in recordable form, whereby the
assignee agrees unconditionally to be bound by and perform all the obligations
of Tenant hereunder then accrued and thereafter accruing and further expressly
agrees that notwithstanding such assignment the provisions of this Article shall
continue to be binding upon such assignee with respect to all future
assignments. The failure or refusal of the assignee to execute, acknowledge or
deliver such an agreement shall not release the assignee from its liability for
the performance of the obligations of Tenant hereunder assumed by acceptance of
the assignment of this lease. Owner shall have no right to recapture the demised
premises nor be entitled to any profits in connection with an assignment of this
lease in accordance with this paragraph.*
(e) Article 16 is amended by adding the following paragraph:
Without limiting any of the provisions of Articles 16, 17 or
18, if pursuant to the Bankruptcy Code of 1978, as the same may be amended,
Tenant is permitted to assign this lease in disregard of the restrictions
contained in Article 11, Tenant agrees that adequate assurance of future
performance by the assignee permitted under such Code shall mean the deposit of
cash security with Owner in an amount equal to the sum of one year's Fixed
Annual Rent then reserved hereunder plus an amount equal to all additional rent
payable under this lease for the calendar year preceding the year in which such
assignment is intended to become effective. Such deposit shall be held by Owner,
for the balance of the term of this lease, as security for the full and faithful
performance of all of the obligations under this lease on the part of Tenant yet
to be performed, in the manner set forth in Article 32 (notwithstanding the
possible prior deletion of Article 32 from this lease). If Tenant receives or is
to receive any valuable consideration for such an assignment of this lease, such
consideration, after deducting therefrom (i) the brokerage commissions, if any,
and other expenses reasonably incurred by Tenant for such assignment and (ii)
any portion of such consideration reasonably designated by the assignee as paid
for the purchase of Tenant's property in the demised PREMISES, SHALL be the sole
and exclusive property of Owner and shall be paid over to Owner directly by such
assignee.
(f) Article 18 is amended by adding the following paragraph:
In the event of a default by Tenant in its obligations under this lease,
beyond applicable grace periods, if any, in addition to Owner's other rights and
remedies, there shall be immediately payable by Tenant to Owner, as additional
rent, the amount of all of the following which are incurred, granted or assumed
by Owner in connection with the lease: all rent concessions; free rent; rent
credits, contributions or payments by Owner with respect to
- 25 -
<PAGE> 30
MULTI/MAS 88
work or improvements performed in the demised premises; and/or obligations
expenses and liabilities of Tenant assumed or paid for by Owner in consideration
of Tenant's entering into this lease.
(g) Article 32 is further amended by adding the following:
"The security deposited hereunder shall be placed in an interest
bearing account. Interest earned by Owner on the security deposit shall be
distributed to Tenant annually provided that Tenant shall not be in default
hereunder. Owner shall retain 1% of the security deposit annually as an
administrative fee."*
60. Construction Guaranty.
Tenant shall deliver to Owner, in consideration for Owner's
contribution toward the work set forth on the Work Specifications and the
attached floor plan and as additional security pursuant to Article 32, the sum
of $30,500.00.
Provided that (1) this lease is full force and effect on the 30th month
anniversary of the Commencement Date and Tenant is not in default hereunder and
(2) Tenant has a net worth of at least $4,000,000 on such 30th month anniversary
of the Commencement Date, Owner shall return to Tenant the $30,500.00 upon the
30th month anniversary of the Commencement Date. Prior to Owner's obligation to
return such sum, Tenant shall deliver to Owner documentation, reasonably
satisfactory to Owner, including, but not limited to, audited financial
statements, evidencing Tenant's net worth on the 30th month anniversary of the
Commencement Date.*
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<PAGE> 31
MULTI/MAS 88
Exhibit "A"
Rules and Regulations
1. Tenant shall keep the loading dock areas free of refuse and debris.
2. The sidewalks, entrances, passages, lobbies, elevators, vestibules,
stairways, corridors and halls shall not be obstructed or encumbered by Tenant
or used for any purpose other than ingress and egress to and from the demised
premises. Tenant shall not permit any of its invitees to congregate in any of
said areas. No door mat shall be placed or left in any public hall (or outside
any entry door of the demised premises). No property of Tenant may be kept or
placed outside the demised premises.
3. Tenant and its invitees shall not litter any portion of any public area of
the Building, the Park, if applicable, or the Real Property. Tenant shall
promptly remove snow, litter and debris from such areas.
4. Tenant shall not mark, paint, drill into or in any way deface any part of the
demised premises or the Building, unless it restores the demised premises to the
condition it was in prior to such activity and repairs any damage to the demised
premises resulting therefrom. No boring, cutting or stringing of wires shall be
permitted, except with the prior consent of Owner, and as Owner may direct.*
5. The sashes, sash doors, skylights, windows and doors that reflect or admit
light and air into the halls, passageways and other public places shall not be
covered or obstructed by Tenant. Bottles, parcels and other articles shall not
be placed on window sills by Tenant.
6. No showcases or other articles shall be put in front of or affixed to any
part of the exterior of the Building, nor placed in the halls, corridors or
vestibules by Tenant.
7. Tenant shall not discharge or permit to be discharged any materials, which
may cause damage, into waste lines, vents or flues. The water and wash closets
and other plumbing fixtures shall not be used for any purpose other than those
for which they were designed and constructed, and no sweepings, rubbish, rags,
corrosives, acids or other substances shall be thrown or deposited therein. All
damages resulting from any misuse of such fixtures shall be borne by the tenant
who, or whose invitees, shall have caused the same.
8. No noise (including, but not limited to, music or the playing of musical
instruments, recordings, radio or television) which, in Owner's reasonable
judgment, might disturb other tenants in the Building or the.Park, if
applicable, shall be made or permitted by Tenant. Nothing shall be done or
permitted in the demised premises by Tenant which in Owner's reasonable
judgement would impair or interfere with the use or enjoyment by any other
tenant shall not throw anything out of the doors, windows or skylights or into
the passageways.*
9. No equipment ;which generates noise or vibration may be installed din the
demised premises except with the prior consent of owner, which consent shall not
be unreasonably withheld, and as Owner may reasonably direct. Any condition
which causes transmission of sounds, noise or vibrations outside of the demised
- 27 -
<PAGE> 32
MULTI/MAS 88
premises shall be corrected by Tenant.*
10. Neither Tenant nor its invitees shall bring or keep upon the demised
premises any explosive fluid, chemical or substance, nor any flammable or
combustible objects or materials, except as set forth in Section 58(k).*
11. No awnings or other projections shall be attached to the outside walls of
the Building. No curtains, blinds, shades, or screens shall be attached to or
hung in, or used in connection with, any window or door of the demised premises,
without the prior consent of Owner. Such curtains, blinds, shades or screens
must be of a quality, type, design and color, and attached in the manner,
approved by Owner.
12. No sign, insignia, advertisements, object, notice or other lettering shall
be exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside or inside of the demised premises or the Building without the prior
written consent of Owner. In the event of the violation of the foregoing by
Tenant, Owner may remove the same without any- liability, and may charge the
expense incurred in such removal to Tenant. Interior signs and lettering on
doors and directory tablets shall, if and when approved by Owner, be inscribed,
painted or affixed by Owner at the expense of Tenant, and shall be of a size,
color and style acceptable to Owner.
13. Owner reserves the right to rescind, alter or waive any Rule or Regulation
at any time prescribed for the Building, when, in its reasonable judgment, it
deems it necessary or desirable for the reputation, safety, care or appearance
of the Building, Real Property or the Park, if applicable, or the preservation
of good order therein, or the operation or maintenance of the Building, or the
Park, if applicable, or the equipment thereof, or the comfort of tenants or
others in the Building. No recision, alteration or waiver of any Rule or
Regulation in favor of one tenant shall operate as a rescission, alteration or
waiver in favor of any other tenant. Owner shall notify Tenant of such
recission, alteration or waiver.*
14. Tenant shall, upon the termination of its tenancy, turn over to Owner all
keys of the demised premises and stores, offices and toilet rooms, either
furnished to, or otherwise procured by, Tenant and in the event of the loss of
any keys, Tenant shall pay to Owner the cost of replacing the locks and keys.
15. The demised premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose. Canvassing, soliciting and peddling in the Building
are prohibited and Tenant shall cooperate to prevent the same. Tenant shall not
cause or permit any odors of cooking or other processes or any odors to emanate
from the demised premises which would annoy other tenants or create a public or
private nuisance. No cooking shall be done in the demised premises except as is
expressly permitted in the lease. Tenant shall not use the demised premises for
medical or health care uses or for the treatment of any patients in the demised
premises.
16. Tenant shall keep all windows in the demised premises clean at all times.
However, Tenant shall not be required to clean windows more often than once
every two (2) months.
17. Owner shall not unreasonably withhold or delay from Tenant any
approval provided for in the Rules and Regulations.
- 28 -
<PAGE> 33
MULTI/MAS 88
Exhibit "B"
WORK SPECIFICATIONS
Premises will be delivered in broom clean condition finished substantially "as
is" except as set forth under Additional Work Specifications hereinbelow and the
floor plan attached hereto.
Walls, doors, ceilings and floors shall be as currently installed. All
alterations, additions or deletions called for in the Additional Work
Specifications or in the floor plan attached hereto shall be furnished and
prepared to the standards now existing on the premises.
Convenience wall outlets, lighting switches, and lighting fixtures shall
be as installed. Supplementary or replacement ramping by Tenant. Tenant
shall not overload electric circuits.
Standard duplex convenience outlets, ceiling lighting, lighting switches,
heating and air conditioning equipment, meter and main control panel shall be
wired and operative. Any wiring distribution other than for the above may be
used by Tenant to the extent serviceable but is not warranted by Owner as to
operating condition.
Heating and air conditioning equipment has been installed and will be turned
over to Tenant in good operating condition. Tenant shall be responsible for the
maintenance thereof in accordance with Article 58 (h) of this Lease.
Heating equipment is designed for maintaining 70-degrees F. when outside
temperature is 0-degrees F. and wind velocity is 15 MPH. Air conditioning
equipment is designed to maintain a 15-degrees temperature draw-down when the
outside temperature is 95-degrees F. dry bulb and 75-degrees F. wet bulb. Air
conditioning specifications are designed on the basis of doors and windows being
closed as well as all windows in the air conditioned premises being provided
with venetian blinds, shades or drapes which shall be closed, depending on the
position of the sun. Tenant shall install, repair or supplement such window
coverings as necessary.
Electric Service
The premises shall be equipped with an electric meter and control panel capable
of supplying 300 Amperes, 277/408V, 3 phase 4 wire to the premises.
Floor Load
Tenant shall not impose a floor load greater than 3001bs. per square
foot.
Rest Rooms
Rest rooms are as shown on the attached floor plan.
Additional Work Specifications
Owner, at its sole cost and expense, shall paint the demised premises in a color
to be chosen by Tenant from Owner's standard paint selection chart and
commercially clean the floors throughout the demised premises.
All selections or designations to be made by Tenant are to be made within five
(5) business days after request by Owner. If Tenant has not made such
designations or selections within said period, the Owner shall be authorized to
do so on behalf of Tenant.
- 29 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR EACH OF TWO YEARS IN PERIOD
ENDED DECEMBER 31, 1996 OF ADVANCED VIRAL RESEARCH CORP. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,440,237
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 19,729
<CURRENT-ASSETS> 1,476,047
<PP&E> 384,504
<DEPRECIATION> 177,295
<TOTAL-ASSETS> 1,716,800
<CURRENT-LIABILITIES> 54,474
<BONDS> 0
0
0
<COMMON> 2,671
<OTHER-SE> 1,659,655
<TOTAL-LIABILITY-AND-EQUITY> 1,716,800
<SALES> 24,111
<TOTAL-REVENUES> 102,907
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,257,647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,154,740)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,154,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,154,740)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
