7% CONVERTIBLE DEBENTURE DUE AUGUST 30, 2007
$3,000,000 September 26, 1997
New York, New York
FOR VALUE RECEIVED, ADVANCED VIRAL RESEARCH CORP., a Delaware
corporation (the "undersigned" or the "Company"), hereby promises to pay to the
order of RBB Bank AG, at its offices located at c/o ABN AMRO Bank N.V., New
York, New York or at such other place as the holder hereof shall designate to
the undersigned in writing, in lawful money of the United States of America or
in New York Clearing House Funds, the principal amount of Three Million Dollars,
and to pay interest (computed on the basis of a 360- day year and the actual
number of days elapsed) on the unpaid principal amount hereof at the rate of
seven (7%) percent per annum. The undersigned promises to pay the said principal
sum and interest as follows:
Until this Debenture is completely retired the undersigned
shall make payments of accrued interest on this Debenture on the first day of
January and July in each year (commencing with January 1, 1998), computed at the
rate of 7% per annum on the unpaid principal balance of this Debenture for the
period from the date of this Debenture until the date of such interest payment.
On August 30, 2007 the undersigned shall pay the holder all unpaid principal and
interest on this Debenture.
Interest on the indebtedness evidenced by this Debenture after
default or maturity accelerated or otherwise shall be due and payable at the
rate of ten (10%) percent per annum, subject to the limitations of applicable
law.
If this Debenture or any installment hereof becomes due and
payable on a Saturday, Sunday or public holiday under the laws of the State of
New York, the due date hereof shall be extended to the next succeeding business
day and interest shall be payable at the rate of seven (7%) percent per annum
during such extension. All payments received by the holder shall be applied
first to the payment of all accrued interest payable hereunder.
Subject to and in compliance with the provisions hereof, the
holder shall have the right to convert all or a portion of the outstanding
principal amount of this Debenture into such number of shares of Common Stock,
par value $.00001 per share, of the Company ("Common Stock") (the shares of
Common Stock issuable upon conversion of this Debenture are hereinafter referred
to as the "Conversion Shares") as shall equal the quotient obtained by dividing
(x) the principal amount of this Debenture to be converted by (y) the Applicable
Conversion Price (as hereinafter defined) and by surrender of this Debenture,
such surrender to be made in the manner provided herein; provided, however, that
the right to convert outstanding principal of this Debenture shall terminate at
the close of business on the third calendar day preceding the date fixed for
prepayment unless the Company shall default in making such prepayment.
For purposes hereof the term "Applicable Conversion Price" shall mean
the lesser of (q) $0.26 and (r) the product obtained by multiplying (i) the
Average Closing Price (as hereinafter defined) by (iii) .70.
For purposes hereof the "Average Closing Price" with respect to any
conversion elected to be made by the holder 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 this
Debenture. The closing price on any trading day shall be (a) if the Common Stock
is then listed or quoted on either the NASD 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.
On the date notice is delivered in order to exercise its conversion
right, the holder shall surrender this Debenture to the Company at its office,
accompanied by written notice to the Company that the holder hereof elects to
convert all or a specified portion of the outstanding principal of this
Debenture (the "Conversion Notice"). Within five (5) business days after receipt
of this Debenture and the Conversion Notice, the Company will pay to the holder
all interest accrued on the principal amount of this Debenture to be converted
to the effective date of conversion or, at the sole option of the Company, issue
to the holder in lieu thereof such additional number of shares of Common Stock
as shall equal the quotient obtained by dividing the total amount of accrued
interest on the principal amount of this Debenture to be converted by the
Applicable Conversion Price. Within five (5) business days after the surrender
of this Debenture as aforesaid, the Company shall cause its transfer agent to
issue and deliver to such holder, or on its written order, a certificate or
certificates without any restrictive legend thereon for the number of shares of
Common Stock issuable upon the conversion hereof in accordance with the
provisions of this Debenture, and any fractional interest in respect of a share
of Common Stock arising upon such conversion shall be settled as hereinafter
provided. If the Company fails to deliver to the holder a certificate or
certificates for shares of Common Stock as aforesaid prior to the expiration of
five (5) business days after receipt of the Conversion Notice and surrender to
the Company of the Debenture, the Company shall pay to the holder a penalty. The
penalty shall be $1,000 if the certificate or certificates are not delivered
until the sixth business day after the delivery of the Conversion Notice and the
penalty shall double every business day until the certificate or certificates
are so delivered, but in no event shall such penalty exceed $100,000. For
example, if the certificates are delivered on the eighth business day after
delivery of the Conversion Notice and surrender of the Debenture the penalty
shall be $4,000.
If the entire outstanding principal amount of this Debenture is not
converted, the Company shall also issue and deliver to such holder a new
Debenture of like tenor in the principal amount equal to the principal which was
not converted and dated the effective date of conversion. Each conversion shall
be deemed to have been effected immediately prior to the close of business on
the date on which this Debenture shall have been surrendered and such notice
received by the Company as aforesaid, and the person or persons in whose name or
names any certificate of certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date.
All shares of Common Stock delivered upon
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conversion of this Debenture will, upon delivery, be duly authorized, validly
issued and fully paid and nonassessable. No fractional shares of Common Stock
shall be issued upon conversion of this Debenture. Instead of any fractional
share of Common Stock which would otherwise be deliverable upon the conversion
of a principal of this Debenture the Company shall pay to the holder an amount
in cash (computed to the nearest cent) equal to the Average Closing Price
multiplied by the fraction of a share of Common Stock represented by such
fractional interest.
Notwithstanding anything to the contrary contained herein, (w) until 60
days after the Closing Date (as defined in the Securities Purchase Agreement
dated September 26, 1997 between the Company and RBB Bank AG (the "Purchase
Agreement")) the holder may not elect to convert any portion of the principal of
this Debenture, (x) until 90 days after the Closing Date the holder may not
elect to convert more than 25% of the original principal amount of this
Debenture, (y) until 120 days after the Closing Date the holder may not elect to
convert more than 50% of the original principal amount of this Debenture and (z)
until 150 days after the Closing Date the holder may not elect to convert more
than 75% of the original principal amount of this Debenture.
The issuance of certificates for shares of Common Stock upon
any conversion of this Debenture shall be made without charge to the payee
hereof for any tax or other expense in respect to the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued only in the name of the registered holder of
this Debenture.
This Debenture has been issued pursuant to and shall be
subject to all of the provisions of the Purchase Agreement. The payee is
entitled to the benefits of the Purchase Agreement, and this Debenture may be
prepaid as provided in the Purchase Agreement. Reference is made to Sections 7.2
and 7.3 of the Purchase Agreement with respect to certain rights of the holder
to convert this Debenture into Common Stock upon receipt of a notice of
prepayment.
Upon the occurrence of any one or more of the events of
default specified or referred to in the Purchase Agreement or in the other
documents or instruments executed in connection therewith, all amounts then
remaining unpaid on this Debenture may be declared to be immediately due and
payable as provided in the Purchase Agreement.
In the event that this Debenture shall be placed in the hands
of an attorney for collection by reason of any event of default hereunder, the
undersigned agrees to pay reasonable attorney's fees and disbursements and other
reasonable expenses incurred by the payee in connection with the collection of
this Debenture.
The rights, powers and remedies given to the payee under this
Debenture shall be in addition to all rights, powers and remedies given to it by
virtue of the Purchase Agreement, any document or instrument executed in
connection therewith, or any statute or rule of law.
Any forbearance, failure or delay by the payee in exercising
any right, power or remedy under this Debenture, the Purchase Agreement, any
documents or instruments executed in connection therewith or otherwise available
to the payee shall not be deemed to be a waiver
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of such right, power or remedy, nor shall any single or partial exercise of any
right, power or remedy preclude the further exercise thereof.
No modification or waiver of any provision of this Debenture,
the Purchase Agreement or any documents or instruments executed in connection
therewith shall be effective unless it shall be in writing and signed by the
payee, and any such modification or waiver shall apply only in the specific
instance for which given.
This Debenture and the rights and obligations of the parties
hereto, shall be governed, construed and interpreted according to the laws of
the State of New York, and the undersigned consents and agrees that the State
and Federal Courts which sit in the State of New York, County of New York shall
have exclusive jurisdiction of all controversies and disputes arising hereunder.
The term "payee" as used herein shall be deemed to include the
payee and its successors, endorsees and assigns.
The undersigned hereby waives presentment, demand for payment,
protest, notice of protest and notice of non-payment hereof.
By:
Shalom Z. Hirschman, M.D., President and
Chief Executive Officer