Exhibit 10.2

 

[FORM OF SENIOR EXCHANGEABLE CONVERTIBLE NOTE]

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR
RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii), 4(c)(iii)
AND 21(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION OR EXCHANGE HEREOF MAY BE
LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTIONS
3(c)(iii) AND 4(c)(iii) OF THIS NOTE.

 

SENIOR EXCHANGEABLE CONVERTIBLE NOTE

 

Issuance Date: February 26, 2003

 

Principal: U.S. $                      

 

FOR VALUE RECEIVED, SUPERGEN, INC., a Delaware corporation (the “Company”),
hereby promises to pay to the order of                               or its
registered assigns (“Holder”) the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion,
exchange or otherwise, the “Principal”) when due, whether upon the Maturity
Date, on any Installment Date with respect to the Installment Amount due on such
Installment Date (each, as defined herein), acceleration, redemption or
otherwise (in each case, in accordance with the terms hereof) and to pay
interest (“Interest”) on any outstanding Principal at the rate of 4.00% per
annum, subject to periodic adjustment pursuant to Section 2 (the “Interest
Rate”), from the date set out above as the Issuance Date (the “Issuance Date”)
until the same becomes due and payable, whether upon an Interest Date, any
Installment Date or the Maturity Date (each, as defined herein), acceleration,
conversion, exchange, redemption or otherwise (in each case in accordance with
the terms hereof).  For avoidance of doubt, (i) any Principal that comprises a
portion of the Conversion Amount pursuant to Section 3(b) in connection with any
conversion of this Note pursuant to Section 3(a) (a “Principal Conversion
Amount”) and any Principal that comprises a portion of the Exchange Amount
pursuant to Section 4(b) in connection with any exchange of this Note pursuant
to Section 4(a) (a “Principal Exchange Amount”) shall reduce the outstanding
Principal of this Note, (ii) any

 

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Principal that is included as part of a Principal Conversion Amount shall not be
included also as part of a Principal Exchange Amount and (iii) any Principal
that is included as part of a Principal Exchange Amount shall not be included
also as part of a Principal Conversion Amount.  This Senior Exchangeable
Convertible Note (including all Senior Exchangeable Convertible Notes issued in
exchange, transfer or replacement hereof, this “Note”) is one of an issue of
Senior Exchangeable Convertible Notes issued on the Issuance Date pursuant to
the Securities Purchase Agreement (as defined below) (collectively, the “Notes”
and such other Notes, the “Other Notes”).  Certain capitalized terms used herein
are defined in Section 31.

 

(1)           PAYMENTS OF PRINCIPAL.  On each Installment Date, the Company
shall pay to the Holder an amount equal to the Installment Amount due on such
Installment Date (each, as defined in Section 10(h)) in accordance with Section
12.  If any Principal remains outstanding on the Maturity Date (as defined
herein), then the Holder shall surrender this Note to the Company and the
Company shall pay to the Holder in cash an amount equal to any outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges, if
any.  The “Maturity Date” shall be August 26, 2004, as extended at the option of
the Holder (i) in the event that, and for so long as, an Event of Default (as
defined in Section 5(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (ii) through the date
that is ten days after a the consummation of a Change of Control (as defined in
Section 6(a)) in the event that a Change of Control is publicly announced or a
Change of Control Notice (as defined in Section 6(a)) is delivered prior to the
Maturity Date.

 

(2)           INTEREST; INTEREST RATE.  Interest on this Note shall commence
accruing on the Issuance Date and shall be computed on the basis of a 365-day
year and actual days elapsed and shall be payable during the period beginning on
the Issuance Date and ending on, and including, the Maturity Date, on May 26,
2003, August 26, 2003, November 26, 2003, February 26, 2004, May 26, 2004,
August 26, 2004 and the Maturity Date (each, an “Interest Date”).  Interest
shall be payable on each Interest Date, to the record holder of this Note on the
fifth Business Day prior to the applicable Interest Date, in cash or, at the
option of the Company, in shares of Company Common Stock (“Interest Shares”)
provided that the Interest which accrued during any period shall be payable in
Interest Shares if, and only if, the Company delivers written notice of such
election (“Interest Election Notice”) to each holder of the Notes at least 10
Company Trading Days prior to the Interest Date (each, an “Interest Election
Date”).  Interest to be paid on an Interest Date in Interest Shares shall be
paid in a number of fully paid and nonassessable shares (rounded to the nearest
whole share in accordance with Section 3(a)) of Company Common Stock equal to
the quotient of (a) the amount of Interest payable on such Interest Date and (b)
the Interest Conversion Price in effect on the applicable Interest Date.  If any
Interest Shares are to be paid on an Interest Date, then the Company shall (X)
issue and deliver on the applicable Interest Date, to such address as specified
by the Holder in writing to the Company at least two Business Days prior to the
applicable Interest Date, a certificate, registered in the name of the Holder or
its designee, for the number of Interest Shares to which

 

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the Holder shall be entitled, or (Y) provided that the Company’s transfer agent
(the “Transfer Agent”) is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program and such Interest Shares do not
require the placement of any legends restricting transfer of such Interest
Shares, upon the request of the Holder, credit such aggregate number of Interest
Shares to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission
system.  Notwithstanding the foregoing, the Company shall not be entitled to pay
Interest in Interest Shares and shall be required to pay such Interest in cash
on the applicable Interest Date if (w) any event constituting an Event of
Default or an event that with the passage of time and assuming it were not cured
would constitute an Event of Default has occurred and is continuing on the
applicable Interest Election Date or the Interest Date, unless consented to in
writing by the Holder, (x) on each day during the period beginning on the
applicable Interest Election Date and ending on and including the applicable
Interest Date, the Company Common Stock is not listed on the Principal Market or
The New York Stock Exchange, Inc. (the “NYSE”), and delisting or suspension of
the Company Common Stock by such market or exchange shall have been threatened
either (A) in writing by such market or exchange or (B) by falling below the
minimum listing maintenance requirements of such market or exchange for the
Company Common Stock, (y) the Registration Statement (as defined in the
Registration Rights Agreement) covering the Interest Shares is not effective and
available for the resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement) relating to this Note on the Interest Election
Date or on the Interest Date or (z) the Company has not obtained the Stockholder
Approval (as defined in the Securities Purchase Agreement) prior to the Interest
Election Date.  Prior to the payment of Interest on an Interest Date, Interest
on this Note shall accrue at the Interest Rate and be payable by way of
inclusion of the Interest in the Conversion Amount (as defined below) in
accordance with Section 3(b)(i) and by way of inclusion of the Interest in the
Exchange Amount (as defined below) in accordance with Section 4(b)(i).  From and
after the occurrence of an Event of Default, the Interest Rate shall be
increased to 12%.  In the event that such Event of Default is subsequently
cured, the adjustment referred to in the preceding sentence shall cease to be
effective as of the date of such cure; provided that the Interest as calculated
at such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default.  The Company shall pay any and all taxes that may be payable with
respect to the issuance and delivery of Interest Shares; provided that the
Company shall not be required to pay any tax that may be payable in respect of
any issuance of Interest Shares to any Person other than the Holder or with
respect to any income tax due by the Holder with respect to such Interest
Shares.

 

(3)           CONVERSION OF NOTES.  This Note shall be convertible into shares
of the Company’s common stock, par value $.001 per share (the “Company Common
Stock”), on the terms and conditions set forth in this Section 3.

 

(a)           Conversion Right.  Subject to the provisions of Section 3(d), at
any

 

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time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount  into fully
paid and nonassessable shares of Company Common Stock in accordance with Section
3(c), at the Conversion Rate (as defined below) then in effect.  The Company
shall not issue any fraction of a share of Company Common Stock upon any
conversion.  If the issuance would result in the issuance of a fraction of a
share of Company Common Stock, the Company shall round such fraction of a share
of Company Common Stock up to the nearest whole share.  The Company shall pay
any and all taxes that may be payable with respect to the issuance and delivery
of Company Common Stock upon conversion of any Conversion Amount; provided that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issue and delivery of Company Common Stock to
any Person other than the Holder or with respect to any income tax due by the
Holder with respect to such Company Common Stock issued upon conversion.

 

(b)           Conversion Rate.  The number of shares of Company Common Stock
issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(as defined below) (the “Conversion Rate”).

 

(i)            “Conversion Amount” means the sum of (A) the portion of the
outstanding Principal to be converted, redeemed or otherwise with respect to
which this determination is being made (provided that such portion of the
Principal shall be equal to $1,000 or an integral multiple of $1,000 in excess
thereof), (B) accrued and unpaid Interest with respect to such Principal and (C)
accrued and unpaid Late Charges with respect to such Principal and Interest.

 

(ii)           “Conversion Price” means (A) as of any Conversion Date (as
defined below) or other date of determination (other than with respect to an
Installment Amount on an Installment Date pursuant to a Company Conversion (as
defined in Section 10(a)) during the period beginning on the Issuance Date and
ending on and including the Maturity Date, the Fixed Conversion Price, and (B)
with respect to any Installment Amount on an Installment Date pursuant to a
Company Conversion, at the option of the Holder, either the Fixed Conversion
Price or the Company Conversion Price, each in effect as of such date and
subject to adjustment as provided herein.

 

(iii)          “Fixed Conversion Price” means $4.25, subject to adjustment as
provided herein.

 

(c)           Mechanics of Conversion.

 

(i)            Optional Conversion.  To convert any Conversion Amount into
shares of Company Common Stock on any date (a “Conversion Date”), the Holder
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m.,

 

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New York City Time, on such date, a copy of an executed notice of conversion in
the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company,
(B) if required by Section 3(c)(iii), surrender this Note to a common carrier
for delivery to the Company as soon as practicable on or following such date (or
an indemnification undertaking reasonably satisfactory to the Company with
respect to this Note in the case of its loss, theft or destruction) and (C) pay
any transfer taxes or other applicable taxes or duties, if any, required in
connection with the issuance of shares of Company Common Stock to a Person other
than the Holder.  On or before the first Business Day following the date of
receipt by the Company of a Conversion Notice, the Company shall transmit by
facsimile a confirmation of receipt of such Conversion Notice to the Holder and
the Transfer Agent.  On or before the third Business Day following the date of
receipt by the Company of a Conversion Notice (the “Share Delivery Date”), the
Company shall (X) issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Company Common Stock to which the Holder
shall be entitled, or (Y) provided that the Transfer Agent is participating in
DTC Fast Automated Securities Transfer Program and such shares of Company Common
Stock do not require the placement of any legends restricting transfer of such
shares of Company Common Stock, upon the request of the Holder, credit such
aggregate number of shares of Company Common Stock to which the Holder shall be
entitled to the Holder’s or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system.  If this Note is physically
surrendered for conversion as required by Section 3(c)(iii) and the outstanding
Principal of this Note is greater than the Principal portion of the Conversion
Amount being converted, then the Company shall as soon as practicable and in no
event later than three Business Days after receipt of this Note (the “Note
Delivery Date”) and at its own expense, issue and deliver to the holder a new
Note (in accordance with Section 21(d)) representing the outstanding Principal
not converted.  The Person or Persons entitled to receive the shares of Company
Common Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Company Common Stock
on the Conversion Date.

 

(ii)           Company’s Failure to Timely Convert.  If the Company shall fail
to issue a certificate to the Holder or credit the Holder’s balance account with
DTC for the number of shares of Company Common Stock to which the Holder is
entitled upon conversion of any Conversion Amount on or prior to the date which
is five Business Days after the Conversion Date (a “Conversion Failure”), then
(A) the Company shall pay damages to the Holder for each date of such Conversion
Failure in an amount equal to 1.0% of the product of (I) the number of shares of
Company Common Stock not issued to the Holder on or prior to the Share Delivery
Date and to which the Holder is entitled, and (II) the Closing Sale Price of the
Company Common Stock on the Share Delivery Date and (B) the Holder, upon written
notice to the Company, may void its Conversion Notice with respect to, and
retain or have returned, as the case may be, any portion of this Note that

 

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has not been converted pursuant to such Conversion Notice; provided that the
voiding of a Conversion Notice shall not affect the Company’s obligations to
make any payments which have accrued prior to the date of such notice pursuant
to this Section 3(c)(ii) or otherwise.

 

(iii)          Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting physical
surrender and reissue of this Note.  The Company shall maintain records showing
the Principal, Interest and Late Charges converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder, so as not to require physical surrender of this Note upon conversion.

 

(iv)          Pro Rata Conversion; Disputes.  In the event that the Company
receives a Conversion Notice from more than one holder of Notes for the same
Conversion Date and the Company can convert some, but not all, of such portions
of the Notes submitted for conversion, the Company, subject to Section 3(d),
shall convert from each holder of Notes electing to have Notes converted on such
date a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date.  In the event of a dispute as to the
number of shares of Company Common Stock issuable to the Holder in connection
with a conversion of this Note, the Company shall issue to the Holder the number
of shares of Company Common Stock not in dispute and resolve such dispute in
accordance with Section 26.

 

(v)           Application of Conversion Amounts.  Subject to Section 10(b), any
Conversion Amount which the Holder elects to convert in accordance with this
Section 3 (other than pursuant to Company Conversions) shall be deducted first
from the Installment Amount relating to the latest Installment Date (i.e.,
nearest to the Maturity Date) with respect to which Installment Amounts remain
outstanding and then sequentially from the Installment Amounts relating to the
immediately preceding Installment Dates.

 

(vi)          Holder Status.  Except as specifically provided in this Note, the
Holder shall not be entitled to any rights relating to the Company Common Stock
issuable upon conversion of the Notes until the Holder has converted this Note
into Company Common Stock.

 

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(d)           Limitations on Conversions.

 

(i)            Beneficial Ownership.  The Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have the right to
convert any portion of this Note, pursuant to Section 3(a), Section 10 or
otherwise, to the extent that after giving effect to such conversion, the Holder
(together with the Holder’s affiliates), as set forth on the applicable
Conversion Notice, would beneficially own in excess of 4.99% of the number of
shares of Company Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the foregoing sentence, the number of shares
of Company Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Company Common Stock issuable upon
conversion of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Company Common Stock
which would be issuable upon (A) conversion of the remaining, nonconverted
portion of this Note beneficially owned by the Holder or any of its affiliates
and (B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other Notes
or warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934
Act”).  For purposes of this Section 3(d)(i), in determining the number of
outstanding shares of Company Common Stock, the Holder may rely on the number of
outstanding shares of Company Common Stock as reflected in (x) the Company’s
most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Company Common Stock
outstanding.  Upon the written or oral request of the Holder, the Company shall
within two Business Days confirm orally and in writing to the Holder the number
of shares of Company Common Stock then outstanding.  In any case, the number of
outstanding shares of Company Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Company Common Stock was reported.

 

(ii)           Principal Market Regulation.  The Company shall not be obligated
to issue any shares of Company Common Stock upon conversion of this Note,
whether pursuant to this Section 3, Section 10 or otherwise, if the issuance of
such shares of Company Common Stock would exceed that number of shares of
Company Common Stock which the Company may issue upon conversion of the Notes
and exercises of the Warrants without breaching the Company’s obligations under
the rules or regulations of the Principal Market (the “Principal Market Cap”),
except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the applicable rules of
the Principal Market for issuances of Company

 

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Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of the Notes representing a
majority of the aggregate principal amount of the Notes then outstanding.  Until
such approval or written opinion is obtained, no purchaser of the Notes pursuant
to the Securities Purchase Agreement (the “Purchasers”) shall be issued, upon
conversion of Notes or exercise of any Warrants held by such Purchaser, shares
of Company Common Stock in an amount greater than the product of the Principal
Market Cap multiplied by a fraction, the numerator of which is the principal
amount of Notes issued to such Purchaser pursuant to the Securities Purchase
Agreement on the Issuance Date and the denominator of which is the aggregate
principal amount of all Notes issued to the Purchasers pursuant to the
Securities Purchase Agreement on the Issuance Date (with respect to each
Purchaser, the “Principal Market Cap Allocation”).  In the event that any
Purchaser shall sell or otherwise transfer any of such Purchaser’s Notes or
Warrants, the transferee shall be allocated a pro rata portion of such
Purchaser’s Principal Market Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Principal Market Cap Allocation allocated to such transferee.  In the event that
any holder of Notes shall convert all of such holder’s Notes and exercise all of
such holder’s Warrants into a number of shares of Company Common Stock which, in
the aggregate, is less than such holder’s Principal Market Cap Allocation, then
the difference between such holder’s Principal Market Cap Allocation and the
number of shares of Company Common Stock actually issued to such holder shall be
allocated to the respective Principal Market Cap Allocations of the remaining
holders of Notes on a pro rata basis in proportion to the aggregate principal
amount of the Notes then held by each such holder.

 

(4)           EXCHANGE OF NOTES.  In addition to the rights of the Holder under
Section 3 hereof, this Note shall be exchangeable into shares of common stock,
par value $.0001 per share (the “AVII Common Stock”) of AVI BioPharma, Inc.
(“AVII”), on the terms and conditions set forth in this Section 4.

 

(a)           Exchange Right.  Subject to the provisions of Section 4(d), at any
time or times on or after the six-month anniversary of the Issuance Date, the
Holder shall be entitled to exchange any portion of the outstanding and unpaid
Exchange Amount (as defined below) into fully paid and nonassessable shares of
AVII Common Stock in accordance with Section 4(c), at the Exchange Rate (as
defined below).  The Company shall not deliver any fraction of a share of AVII
Common Stock upon any exchange.  If the delivery would result in the transfer of
a fraction of a share of AVII Common Stock, the Company shall round such
fraction of a share of AVII Common Stock up to the nearest whole share.  The
Company shall pay any and all taxes that may be payable with respect to the
transfer and delivery of AVII Common Stock upon exchange of any Exchange Amount
for AVII Common Stock; provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the issue and
delivery of AVII Common Stock to any Person other than the

 

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Holder or with respect to any income tax due by the Holder with respect to such
AVII Common Stock issued upon exchange.

 

(b)           Exchange Rate.  The number of shares of AVII Common Stock
transferable upon exchange of any Exchange Amount pursuant to Section 4(a) shall
be determined by dividing (x) such Exchange Amount by (y) the Exchange Price (as
defined below) (the “Exchange Rate”).

 

(i)            “Exchange Amount” means the sum of (A) the portion of the
outstanding Principal to be exchanged with respect to which this determination
is being made (provided that such portion of the Principal shall be equal to
$1,000 or an integral multiple of $1,000 in excess thereof), (B) accrued and
unpaid Interest with respect to such Principal and (C) accrued and unpaid Late
Charges with respect to such Principal and Interest.

 

(ii)           “Exchange Price” means (A) as of any Exchange Date (as defined
below) or other date of determination (other than with respect to an Installment
Amount on an Installment Date pursuant to a Company Exchange (as defined in
Section 10(a)) during the period beginning on the six month anniversary of the 
Issuance Date and ending on and including the Maturity Date, the Fixed Exchange
Price, and (B) with respect to any Installment Amount on an Installment Date
pursuant to a Company Exchange, at the option of the Holder, either the Fixed
Exchange Price or the AVII Exchange Price, each in effect as of such date and
subject to adjustment as provided herein.

 

(iii)          “Fixed Exchange Price” means $5.00, subject to adjustment as
provided herein.

 

(c)           Mechanics of Exchange.

 

(i)            Optional Exchange.  To exchange any Exchange Amount into shares
of AVII Common Stock on any date (an “Exchange Date”), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m.,  New York City Time, on such date, a copy of an executed notice of
exchange in the form attached hereto as Exhibit II (the “Exchange Notice”) to
the Company, and (B) if required by Section 4(c)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect to this Note
reasonably satisfactory to the Company in the case of its loss, theft or
destruction).  On or before the first Business Day following the date of receipt
by the Company of an Exchange Notice, the Company shall transmit by facsimile a
confirmation of receipt of such Exchange Notice to the Holder and the transfer
agent for AVII (the “AVII Transfer Agent”).  On or before the third Business Day
following the date of receipt by the Company of an Exchange Notice (the “AVII
Share Delivery Date”), the Company shall use its reasonable best efforts to
cause AVII or the AVII

 

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Transfer Agent to (X) transfer and deliver to the address as specified in the
Exchange Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of AVII Common Stock to which the Holder
shall be entitled, or (Y) provided that the AVII Transfer Agent is participating
in DTC Fast Automated Securities Transfer Program and such shares of AVII Common
Stock do not require the placement of any legends restricting transfer of such
shares of AVII Common Stock, upon the request of the Holder, credit such
aggregate number of shares of AVII Common Stock to which the Holder shall be
entitled to the Holder’s or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system.  Upon any such transfer of any AVII
Common Stock to the Holder, the Holder shall have good and marketable title to
such shares, free and clear of any liens, encumbrances, restrictions, rights of
first refusal or rights of any other Person and such shares of AVII Common Stock
shall be unrestricted and freely tradable on the Principal Market without any
delivery or other requirements whatsoever and without the need for registration
under the Securities Act or any state securities laws.  If this Note is
physically surrendered for exchange as required by Section 4(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Exchange Amount being exchanged, then the Company shall as soon as practicable
and in no event later than the Note Delivery Date and at its own expense, issue
and deliver to the holder a new Note (in accordance with Section 21(d))
representing the outstanding Principal not exchanged.  The Company shall use its
reasonable best efforts to cause AVII and the AVII Transfer Agent to treat for
all purposes the Person or Persons entitled to receive the shares of AVII Common
Stock issuable upon an exchange of this Note s as the transferee or transferees
of such shares of AVII Common Stock on the Exchange Date.  Notwithstanding the
provisions of this Section 4(c)(i), the Company shall not be required to deliver
shares of AVII Common Stock if (i) the transfer of AVII Common Stock cannot be
made pursuant to Rule 144 (as defined in the Securities Purchase Agreement) and
the registration statement covering the resale by the Company to the Holder of
the AVII Common Stock subject to such Exchange Notice (each such registration
statement, an “AVII Registration Statement”) is not effective and available for
resales by the Company, (ii) the Company has previously delivered notice to the
Holder that the use of such Registration Statement has been suspended in
accordance with the terms of the registration rights agreement between the
Company and AVII governing such AVII Registration Statement (each such
registration rights agreement, an “AVII Registration Rights Agreement”) and
(iii) the Company is using its reasonable best efforts to have the effectiveness
of such AVII Registration Statement reinstated and otherwise is promptly
pursuing its rights and remedies under such AVII Registration Rights Agreement. 
If the Company does not deliver AVII Common Stock pursuant to the terms of the
immediately preceding sentence, then the Company promptly shall deliver such
shares of AVII Common Stock, unrestricted and freely tradable on the Principal
Market without any delivery or other requirements whatsoever and without the
need for registration under the Securities Act or any state securities laws,
either immediately after such AVII Registration Statement once

 

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again becomes effective and available for use by the Company or as soon as
possible pursuant to Rule 144.

 

(ii)           Company’s Failure to Timely Exchange.  If the Company shall fail
to transfer and deliver to the Holder or have credited to the Holder’s balance
account with DTC the number of shares of AVII Common Stock to which the Holder
is entitled upon exchange of any Exchange Amount on or prior to the date which
is five Business Days after the Exchange Date (an “Exchange Failure”), then (A)
the Company shall pay damages to the Holder for each date of such Exchange
Failure in an amount equal to 1.0% of the product of (I) the sum of the number
of shares of AVII Common Stock not transferred and delivered to the Holder on or
prior to the AVII Share Delivery Date and to which the Holder is entitled and
(II) the Closing Sale Price of the AVII Common Stock on the AVII Share Delivery
Date and (B) the Holder, upon written notice to the Company, may void its
Exchange Notice with respect to, and retain or have returned, as the case may
be, any portion of this Note surrendered by the Holder to the AVII Transfer
Agent that has not been exchanged pursuant to such Exchange Notice; provided
that the voiding of an Exchange Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 4(c)(ii) or otherwise.

 

(iii)          Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon exchange of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being exchanged or (B) the Holder has provided the Company with prior written
notice (which notice may be included in an Exchange Notice) requesting physical
surrender and reissue of this Note.  The Company shall maintain records showing
the Principal, Interest and Late Charges exchanged and the dates of such
exchanges or shall use such other method, reasonably satisfactory to the Holder,
so as not to require physical surrender of this Note upon exchange.

 

(iv)          Pro Rata Exchange; Disputes.  In the event that the Company
receives an Exchange Notice from more than one holder of Notes for the same
Exchange Date and the Company can exchange some, but not all, of such portions
of the Notes submitted for exchange, the Company, subject to Section 4(d), shall
exchange from each holder of Notes electing to have Notes exchanged on such date
a pro rata amount of such holder’s portion of its Notes submitted for exchange
based on the principal amount of Notes submitted for exchange on such date by
such holder relative to the aggregate principal amount of all Notes submitted
for exchange on such date.  In the event of a dispute as to the number of shares
of AVII Common Stock transferable to the Holder in connection with an exchange
of this Note, the Company shall transfer and deliver to the Holder the number of
shares of AVII Common Stock not in dispute and resolve such dispute in
accordance with Section 26.

 

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(v)           Application of Exchange Amounts. Subject to Section 10(b), any
Exchange Amount which the Holder elects to exchange in accordance with this
Section 4 (other than pursuant to Company Exchanges) shall be deducted first
from the Installment Amount relating to the latest Installment Date (i.e.,
nearest to the Maturity Date) with respect to which Installment Amounts remain
outstanding and then sequentially from the Installment Amounts relating to the
immediately preceding Installment Dates.

 

(d)           Limitations on Exchanges.

 

(i)            Beneficial Ownership.  The Company shall not effect any exchange
of this Note, and the Holder of this Note shall not have the right to exchange
any portion of this Note, pursuant to Section 4(a), Section 10 or otherwise, to
the extent that after giving effect to such exchange, the Holder (together with
the Holder’s affiliates), as set forth on the applicable Exchange Notice, would
beneficially own in excess of 4.99% of the number of shares of AVII Common Stock
outstanding immediately after giving effect to such exchange.  For purposes of
the foregoing sentence, the number of shares of AVII Common Stock beneficially
owned by the Holder and its affiliates shall include the maximum number of
shares of AVII Common Stock deliverable upon exchange of this Note with respect
to which the determination of such sentence is being made, but shall exclude the
number of shares of AVII Common Stock which would be deliverable upon (A)
exchange of the remaining, nonexchanged portion of this Note beneficially owned
by the Holder or any of its affiliates and (B) exercise, conversion or exchange
of the unexercised, unconverted or nonexchanged portion of any other securities
(including, without limitation, any Other Notes or warrants) subject to a
limitation on exchange, conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its affiliates. 
Except as set forth in the preceding sentence, for purposes of this Section
4(d)(i), beneficial ownership shall be calculated in accordance with Section
13(d) of the 1934 Act.  For purposes of this Section 4(d)(i), in determining the
number of outstanding shares of AVII Common Stock, the Company and the Holder
may rely on the number of outstanding shares of AVII Common Stock as reflected
in (x) the most recent Form 10-Q or Form 10-K of AVII, as the case may be, or
(y) a more recent public announcement by AVII.  In any case, the number of
outstanding shares of AVII Common Stock shall be determined after giving effect
to the conversion, exchange or exercise of securities of AVII, including this
Note, by the Holder or its affiliates since the date as of which such number of
outstanding shares of AVII Common Stock was reported and to the extent that such
securities of AVII include securities other than this Note, the Holder shall
inform the Company of any such conversions, exchanges or exercises.

 

(ii)           Maximum AVII Shares.  The Company shall not be obligated to
deliver any shares of AVII Common Stock upon exchange of this Note, whether
pursuant to this Section 4, Section 10 or otherwise, if the delivery of such
shares of AVII Common Stock

 

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would require the delivery of more than 2,634,211 shares of AVII Common Stock in
the aggregate upon exchange of all the Notes (as adjusted for any stock
dividend, stock split, stock combination or other similar transaction that
proportionately decreases or increases the AVII Common Stock after the Issuance
Date) (the “AVII Exchange Cap”).  No Purchaser shall have delivered to it, upon
exchange of Notes, a number of shares of AVII Common Stock in an amount greater
than the product of the AVII Exchange Cap multiplied by a fraction, the
numerator of which is the principal amount of Notes issued to such Purchaser
pursuant to the Securities Purchase Agreement on the Issuance Date and the
denominator of which is the aggregate principal amount of all Notes issued to
the Purchasers pursuant to the Securities Purchase Agreement on the Issuance
Date (with respect to each Purchaser, the “AVII Exchange Cap Allocation”).  In
the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser’s Notes, the transferee shall be allocated a pro rata portion of such
Purchaser’s AVII Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the AVII
Exchange Cap Allocation allocated to such transferee.  In the event that any
such holder shall have converted and exchanged such holder’s Notes in their
entirety (such that such holder no longer has any Notes) and such holder shall
have received a number of shares of AVII Common Stock which, in the aggregate,
is less than such holder’s AVII Exchange Cap Allocation, then the difference
between such holder’s AVII Exchange Cap Allocation and the number of shares of
AVII Common Stock actually delivered to such holder shall be allocated to the
respective AVII Exchange Cap Allocations of the remaining holders of Notes on a
pro rata basis in proportion to the aggregate principal amount of the Notes then
held by each such holder.

 

(5)           RIGHTS UPON EVENT OF DEFAULT.

 

(a)           Event of Default.  Each of the following events shall constitute
an “Event of Default”:

 

(i)            the failure of any Registration Statement required to be filed
pursuant to the Registration Rights Agreement to be declared effective by the
SEC on or prior to the date that is 60 days after the applicable Effectiveness
Deadline (as defined in the Registration Rights Agreement), or, while the
applicable Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
the applicable Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to any holder of the
Notes for sale of all of such holder’s Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of 10
consecutive days or for more than an aggregate of 30 days in any 365-day period
(other than days during an Allowable Grace Period (as defined in the
Registration Rights Agreement));

 

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(ii)           the suspension from trading or failure of the Company Common
Stock to be listed on the Principal Market or the NYSE for a period of five
consecutive days or for more than an aggregate of 10 days in any 365-day period;

 

(iii)          the Company’s (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Company Common Stock within 10
Business Days after the applicable Conversion Date or (B) notice, written or
oral, to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a
permitted request for conversion of any Notes into shares of Company Common
Stock that are tendered for conversion in accordance with the provisions of the
Notes (other than notice delivered by the Company in good faith in connection
with a dispute that is being resolved in accordance with Section 26 as to the
appropriate number of shares of Company Common Stock to be delivered upon
conversion of the Notes);

 

(iv)          the Company’s (A) failure to cure an Exchange Failure by delivery
of the required number of shares of AVII Common Stock within 10 Business Days
after the applicable Exchange Date or (B) notice, written or oral, to any holder
of the Notes, including by way of public announcement or through any of its
agents, at any time, of its intention not to comply with a request for exchange
of any Notes into shares of AVII Common Stock that are tendered for exchange in
accordance with the provisions of the Notes (other than notice delivered by the
Company in good faith in connection with a dispute that is being resolved in
accordance with Section 26 as to the appropriate number of shares of AVII Common
Stock to be delivered upon exchange of the Notes);

 

(v)           at any time following the tenth consecutive Business Day that the
Holder’s Authorized Share Allocation is less than the number of shares of
Company Common Stock that the Holder would be entitled to receive upon a
conversion of the full Conversion Amount of this Note (without regard to any
limitations on conversion set forth in Section 3(d) or otherwise);

 

(vi)          the Company’s failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Note (including, without limitation, the Company’s failure to pay any redemption
payments or amounts hereunder), or any other Transaction Document or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated hereby and thereby to which the Holder is a
party, except, in the case of a failure to pay Interest and Late Charges when
and as due, in which case only if such failure continues for a period of at
least five Business Days;

 

(vii)         any default under, redemption of or acceleration prior to maturity
of any Indebtedness (as defined in Section 3(r) of the Securities Purchase
Agreement) in excess

 

14

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of $500,000 in the aggregate of the Company or any of its Subsidiaries (as
defined in Section 3(a) of the Securities Purchase Agreement);

 

(viii)        the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of Title 11, U.S. Code, or any similar Federal or state law
for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a
voluntary case, (B) consents to the entry of an order for relief against it in
an involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “Custodian”), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing that it is
generally unable to pay its debts as they become due;

 

(ix)           a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its Significant Subsidiaries or (C) orders the liquidation of
the Company or any of its Significant Subsidiaries;

 

(x)            a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against the Company or any of
its Subsidiaries and which judgments are not, within 60 days after the entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay; provided, however, that any
judgment which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $1,000,000 amount set forth above
so long as the Company provides the Holder a written statement from such insurer
or indemnity provider (which written statement shall be reasonably satisfactory
to the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within 60 days of the issuance of such judgment;

 

(xi)           the Company breaches any representation, warranty, covenant or
other term or condition of this Note or any Other Note, any other Transaction
Document or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby and hereby to
which the Holder is a party, except, other than in connection with a breach of
Section 33 hereof, (A) to the extent that such breach would not have a Material
Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement)
and (B) in the case of a breach of a covenant which is curable, only if such
breach continues for a period of at least five consecutive Business Days;

 

(xii)          any breach or failure in any material respect to comply with
either of Sections 10 or 17 of this Note;

 

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(xiii)         any Event of Default (as defined in any Other Note) occurs with
respect to any Other Note; or

 

(xiv)        the Company shall, directly or indirectly, repay, prepay, redeem,
defease or otherwise make any payment on any Indebtedness existing on the
Issuance Date (other than Purchase Money Indebtedness and other than regularly
scheduled interest payments on Permitted Indebtedness at a rate that is not in
excess of 7% per annum) in cash or cash equivalents.

 

(b)           Redemption Right.  Promptly after the occurrence of an Event of
Default with respect to this Note or any Other Note, the Company shall deliver
written notice thereof via facsimile and overnight courier (an “Event of Default
Notice”) to the Holder.  At any time after the earlier of the Holder’s receipt
of an Event of Default Notice and the Holder becoming aware of an Event of
Default, the Holder may require the Company to redeem all or any portion of this
Note by delivering written notice thereof (the “Event of Default Redemption
Notice”) to the Company, which Event of Default Redemption Notice shall indicate
the portion of this Note that the Holder is electing to redeem.  Each portion of
this Note subject to redemption by the Company pursuant to this Section 5(b)
shall be redeemed by the Company at a price equal to the greater of (i) the
product of (x) the Conversion Amount to be redeemed and (y) the Redemption
Premium and (ii) the product of (A) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the Holder delivers an Event of
Default Redemption Notice and (B) the Closing Sale Price of the Company Common
Stock on the date immediately preceding such Event of Default (the “Event of
Default Redemption Price”).  Redemptions required by this Section 5(b) shall be
made in accordance with the provisions of Section 14.

 

(6)           RIGHTS UPON CHANGE OF CONTROL.

 

(a)           Change of Control.  Each of the following events shall constitute
a “Change of Control”:

 

(i)            the consolidation, merger or other business combination
(including, without limitation, a reorganization or recapitalization) of the
Company with or into another Person (other than (A) a consolidation, merger or
other business combination (including, without limitation, reorganization or
recapitalization) in which holders of the Company’s voting power immediately
prior to the transaction continue after the transaction to hold, directly or
indirectly, the voting power of the surviving entity or entities necessary to
elect a majority of the members of the board of directors (or their equivalent
if other than a corporation) of such entity or entities, or (B) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company);

 

(ii)           the sale or transfer of all or substantially all of the Company’s
assets; or

 

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(iii)          a purchase, tender or exchange consummated pursuant to an offer
made to and accepted by a sufficient number of holders of the outstanding shares
of Company Common Stock such that after consummation of such purchase, tender or
exchange, the Person or group of Persons proposing such purchase, tender or
exchange beneficially own 50% or more of the outstanding Company Common Stock.

 

No sooner than 15 days nor later than 10 days prior to the consummation of a
Change of Control, but not prior to the public announcement of such Change of
Control, the Company shall deliver written notice thereof via facsimile and
overnight courier to the Holder (a “Change of Control Notice”).

 

(b)           Assumption.  Prior to the consummation of any Change of Control,
the Company will secure from any Person purchasing the Company’s assets or
Company Common Stock or any successor resulting from such Change of Control (in
each case, an “Acquiring Entity”) a written agreement (in form and substance
satisfactory to the holders of Notes representing at least a majority of the
aggregate principal amount of the Notes then outstanding) to deliver to each
holder of Notes in exchange for such Notes, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Notes, including, without limitation, having a principal amount and interest
rate equal to the principal amounts and the interest rates of the Notes held by
such holder, and satisfactory to the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then outstanding.

 

(c)           Holder Redemption Right.  At any time during the period beginning
after the Holder’s receipt of a Change of Control Notice and ending on the date
of the consummation of such Change of Control (or, in the event a Change of
Control Notice is not delivered at least 10 days prior to a Change of Control,
at any time on or after the date which is 10 days prior to a Change of Control
and ending 10 days after the consummation of such Change of Control), the Holder
may require the Company to redeem all or any portion of this Note by delivering
written notice thereof (“Change of Control Redemption Notice”) to the Company,
which Change of Control Redemption Notice shall indicate the Conversion Amount
the Holder is electing to redeem.  The portion of this Note subject to
redemption pursuant to this Section 6(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount being
redeemed and (y) the quotient determined by dividing (A) the Closing Sale Price
of the Company Common Stock on the Company Trading Day immediately preceding
consummation of such Change of Control by (B) the Conversion Price and (ii) 120%
of the Conversion Amount being redeemed (the “Change of Control Redemption
Price”).  Redemptions required by this Section 6(c) shall be made in accordance
with the provisions of Section 14 and, to the extent permitted by applicable
law, shall have priority to payments by the Company or the Acquiring Entity, as
applicable, to the stockholders of the Company in connection with a Change of
Control.  Notwithstanding anything to the contrary in this Section 6,

 

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but subject to Section 3(d) and Section 4(d), until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 6(c) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Company Common Stock pursuant to Section 3 or may be exchanged, in whole or
in part, by the Holder into AVII Common Stock pursuant to Section 4.

 

(d)           Company Redemption Right.  At any time from and after the delivery
of a Change of Control Notice but not later than the day immediately preceding
the consummation of such Change of Control, the Company at its option may
deliver a written notice via facsimile and overnight courier to the Holder
indicating that if the Company shall not receive from the Holder a Change of
Control Redemption Notice in accordance with Section 6(c), then the Company is
electing to redeem all or any portion of the Principal of this Note and all
Other Notes (an “Company Change of Control Redemption Notice”).  The Company
Change of Control Redemption Notice shall be irrevocable.  If the Company shall
not receive from the Holder a Change of Control Redemption Notice in accordance
with Section 6(c) and if the Conditions to Company Change of Control Redemption
(as set forth below) are satisfied or waived in writing by the Holder, then the
Company shall have the right to require the Holder to submit for redemption all
or any such portion of the Principal of this Note designated in the Company
Change of Control Redemption Notice in exchange for (i) an amount in cash,
payable by wire transfer of immediately available funds, equal to the sum of (A)
120% of the Principal of this Note being redeemed pursuant to this Section 6(d),
plus (B) accrued and unpaid Interest with respect to such Principal plus (C)
accrued and unpaid Late Charges with respect to such Principal and (ii) delivery
of the Change of Control Warrants to the Holder, duly executed and authorized by
the Acquiring Entity (the “Company Change of Control Redemption Price”). 
“Conditions to Company Change of Control Redemption” means the following
conditions: (i) on each day during the period beginning on the date of delivery
of the Company Change of Control Redemption Notice to each holder of the Notes
and ending on and including the date immediately preceding the Company Change of
Control Redemption Date, no Grace Period (as defined in the Registration Rights
Agreement) shall be in effect and either (x) the Registration Statement or
Registration Statements required pursuant to the Registration Rights Agreement
shall be effective and available for the resale of all of the Registrable
Securities in accordance with the terms of the Registration Rights Agreement or
(y) all shares of Company Common Stock issuable upon conversion of the Notes and
shares of Company Common Stock issuable upon exercise of the Warrants shall be
eligible for sale without restriction pursuant to Rule 144(k) and the state
securities laws; (ii) the Company shall have no knowledge of any fact that would
cause (x) the Registration Statements required pursuant to the Registration
Rights Agreement not to be effective and available for the resale of at least
all of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Company Common Stock issuable
upon conversion or redemption of the Notes and shares of Company Common Stock
issuable upon exercise of the Warrants not to be eligible for sale without
restriction pursuant to Rule 144(k) and any applicable state securities laws;
(iii) on each day during the period beginning on the date of delivery of the
Company Change of Control

 

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Redemption Notice and ending on and including the date immediately preceding the
Company Change of Control Redemption Date, the Company Common Stock is
designated for quotation on the Principal Market or the NYSE and shall not have
been suspended from trading on such exchange or market nor shall delisting or
suspension by such market or exchange been threatened or pending either (A) in
writing by such market or exchange or (B) by falling below the minimum listing
maintenance requirements of such market or exchange; (iv) during the period
beginning on the Issuance Date and ending on and including the date immediately
preceding the Company Change of Control Redemption Date, the Company shall have
delivered shares of Company Common Stock upon any conversion of Conversion
Amounts on a timely basis as set forth in Section 3(c)(i) of this Note (and
analogous provisions under the Other Notes) and delivered shares of Company
Common Stock upon exercise of any Warrants on a timely basis as set forth in
Section 1(a) of the Warrants; (v) during the period beginning on the Issuance
Date and ending on and including the date immediately preceding the Company
Change of Control Redemption Date, the Company shall have delivered shares of
AVII Common Stock upon any exchange of Exchange Amounts on a timely basis as set
forth in Section 4(c)(i) of this Note (and analogous provisions under the Other
Notes); and (vi) the Company otherwise shall have been in material compliance
with and shall not have breached, in any material respect, any provision,
covenant, representation or warranty of this Note or any of the Other Notes or
any other Transaction Document.

 

(e)           Pro Rata Company Change of Control Redemption Requirement. If the
Company elects to cause a redemption of all or any portion of the Principal of
this Note pursuant to Section 6(d), then it must simultaneously take the same
action with respect to all Other Notes.  If the Company elects to cause the
redemption of this Note pursuant to Section 6(d) (or analogous provisions under
all Other Notes) with respect to less than the aggregate Principal of the Notes
then outstanding, then the Company shall require redemption of Principal from
each of the holders of the Notes equal to the product of (i) the aggregate
Principal amount of Notes which the Company has elected to cause to be converted
pursuant to Section 6(d), multiplied by (ii) the fraction, the numerator of
which is the sum of the aggregate Principal amount of the Notes initially
purchased by such holder on the Issuance Date and the denominator of which is
the sum of the aggregate Principal amount of the Notes purchased by all holders
on the Issuance Date (such fraction with respect to each holder is referred to
as its “Change of Control Allocation Percentage,” and such amount with respect
to each holder is referred to as its “Pro Rata Change of Control Redemption
Amount”).  In the event that the initial holder of any Notes shall sell or
otherwise transfer any of such holder’s Notes, the transferee shall be allocated
a pro rata portion of such holder’s Change of Control Allocation Percentage. 
The Company Change of Control Redemption Notice shall state (i) the date
selected for the redemption in accordance with Section 6(d), which date shall be
the date of consummation of the Change of Control, (ii) the aggregate principal
amount of the Notes which the Company has elected to redeem from all of the
holders of the Notes pursuant to this Section 6(d) (and analogous provisions
under all Other Notes) and (iii) each holder’s Pro Rata Change of Control
Redemption Amount of the aggregate Principal amount of the Notes that the
Company has

 

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elected to redeem pursuant to Section 6(d) (and analogous provisions under all
Other Notes).  All Principal of this Note redeemed by the Company pursuant to
Section 6(d) shall be deducted first from the Installment Amount relating to the
latest Installment Date (i.e., nearest to the Maturity Date) with respect to
which Installment Amounts remain outstanding and then sequentially from the
Installment Amounts relating to the immediately preceding Installment Dates. 
Redemptions under Section 6(d) shall be made in accordance with the provisions
of Section 14.  Notwithstanding anything to the contrary in this Section 6, but
subject to Section 3(d) and Section 4(d), until the Company Change of Control
Redemption Price (together with any interest thereon) is paid in full, the Pro
Rata Change of Control Redemption Amount (together with any interest thereon)
may be converted, in whole or in part, by the Holder into Company Common Stock
pursuant to Section 3 or may be exchanged, in whole or in part, by the Holder
into AVII Common Stock pursuant to Section 4.

 

(7)           RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE
EVENTS.

 

(a)           Purchase Rights.

 

(i)  Company Purchase Rights.  If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Company Common Stock (the “Company Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Company Purchase Rights,
the aggregate Company Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Company Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Company Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Company Common Stock are to be determined for the grant, issue or sale of
such Company Purchase Rights.

 

(ii)  AVII Purchase Rights.  If at any time AVII grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of AVII
Common Stock (the “AVII Purchase Rights”), then the Company shall use its
reasonable best efforts to cause the Holder to acquire, upon the terms
applicable to such AVII Purchase Rights, the aggregate AVII Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of AVII Common Stock acquirable upon complete exchange of this Note (without
taking into account any limitations or restrictions on the exchangeability of
this Note (other than Section 4(d)(ii)) immediately before the date on which a
record is taken for the grant, issuance or sale of such AVII Purchase Rights,
or, if no such record is taken, the date as of which the record holders of AVII
Common Stock are to be determined for the grant, issue or sale of such AVII
Purchase Rights.

 

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(b)           Other Corporate Events. Prior to the consummation of any
recapitalization, reorganization, consolidation, merger, spin-off or other
business combination (other than a Change of Control) pursuant to which holders
of Company Common Stock are entitled to receive securities or other assets with
respect to or in exchange for Company Common Stock (a “Corporate Event”), the
Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon a conversion of this Note, (i) in
addition to the shares of Company Common Stock receivable upon such conversion,
such securities or other assets to which the Holder would have been entitled
with respect to such shares of Company Common Stock had such shares of Company
Common Stock been held by the Holder upon the consummation of such Corporate
Event or (ii) in lieu of the shares of Company Common Stock otherwise receivable
upon such conversion, such securities or other assets received by the holders of
Company Common Stock in connection with the consummation of such Corporate Event
in such amounts as the Holder would have been entitled to receive had this Note
initially been issued with conversion rights for the form of such consideration
(as opposed to shares of Company Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate.  Provision made pursuant to
the preceding sentence shall be in a form and substance satisfactory to the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding.

 

(8)           ADJUSTMENT OF FIXED CONVERSION PRICE.

 

(a)           Adjustment of Fixed Conversion Price upon Subdivision or
Combination of Company Common Stock.  If the Company at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Company Common Stock into a greater number
of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced.  If the Company at any time
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Company Common Stock into a smaller number of
shares, the Fixed Conversion Price in effect immediately prior to such
combination will be proportionately increased.

 

(b)           Other Considerations.  All calculations under this Section 8 shall
be made by the Company in good faith.

 

(9)           ADJUSTMENT OF FIXED EXCHANGE PRICE.

 

(a)           Adjustment of Fixed Exchange Price upon Subdivision or Combination
of AVII Common Stock.  If AVII at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of AVII Common Stock into a greater number of shares, the Fixed Exchange
Price in effect immediately prior to such subdivision will be proportionately
reduced.  If AVII at any time combines (by

 

21

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combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of AVII Common Stock into a smaller number of shares, the
Fixed Exchange Price in effect immediately prior to such combination will be
proportionately increased.

 

(b)           Other Considerations.  All calculations under this Section 9 shall
be made by the Company in good faith as soon as practicable after the Company
has knowledge of any such adjustment or the basis for any such adjustment.

 

(10)         COMPANY INSTALLMENT CONVERSION, EXCHANGE OR REDEMPTION.

 

(a)           General.  On each Installment Date, the Company shall pay to the
Holder of this Note the Installment Amount as of such Installment Date by the
combination of any of the following, but subject to and in accordance with the
terms of this Section 10, (i) requiring the conversion of a portion of the
applicable Installment Amount, in whole or in part, in accordance with this
Section 10 but subject to the satisfaction of the Conditions to Company
Conversion (as defined below) (a “Company Conversion”), (ii) requiring the
exchange of a portion of the applicable Installment Amount, in whole or in part,
in accordance with this Section 10 but subject to the satisfaction of the
Conditions to Company Exchange (as defined below) (a “Company Exchange”), and/or
(iii) redeeming the applicable Installment Amount, in whole or in part, in
accordance with this Section 10 (a “Company Redemption”); provided that all of
the outstanding applicable Installment Amount as of each such Installment Date
must be converted, exchanged and/or redeemed by the Company on the applicable
Installment Date, subject to the provisions of this Section 10; provided further
that, subject to the satisfaction (or waiver in writing by the Holder) of the
Conditions to Company Exchange in respect of the payment of any Installment
Amount due on any Installment Date and the availability of a sufficient number
of shares of AVII Common Stock to be delivered to the Holder pursuant to the
Pledge Agreement and the Securities Account Control Agreement on such
Installment Date, at least 35% (or such lesser percentage as shall be agreed to
in writing by the Holder) (the “Required Company Exchange Percentage”) of each
payment of an Installment Amount shall be paid through the delivery of AVII
Common Stock and the remainder shall be paid, at the option of the Company, by
way of a Company Conversion, subject to the satisfaction (or waiver in writing
by the Holder) of the Conditions to Company Conversion, or a Company Redemption
in such amounts as shall be designated by the Company in the applicable Company
Installment Notice (as defined below).  On or prior to the date which is at
least 21 Company Trading Days prior to each Installment Date, the Company shall
deliver written notice to the Holder (each, a “Company Installment Notice”),
which Company Installment Notice shall state (i) the portion, if any, of the
applicable Installment Amount which the Company elects to convert pursuant to a
Company Conversion, which amount when added to the Company Redemption Amount and
the Company Exchange Amount must equal the applicable Installment Amount (the
“Company Conversion Amount”), (ii) the portion of the applicable Installment
Amount which the Company elects to exchange pursuant to a Company Exchange (the
“Company Exchange Amount”), which, unless the

 

22

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Conditions to Company Exchange have not been satisfied (or have not been waived
in writing by the Holder), shall be not less than the Required Company Exchange
Percentage of the total Installment Amount due (subject to the limitations set
forth in Section 4(d)), and which amount when added to the Company Conversion
Amount and the Company Redemption Amount must equal the applicable Installment
Amount, (iii) the portion, if any, of the applicable Installment Amount which
the Company elects to redeem pursuant to a Company Redemption (the “Company
Redemption Amount”), which amount when added to the Company Conversion Amount
and the Company Exchange Amount must equal the applicable Installment Amount and
(iv) if the Company has elected, in whole or in part, a Company Conversion or a
Company Exchange, then the Company Installment Notice shall certify that the
Conditions to Company Conversion and/or the Conditions to Company Exchange are
satisfied as of the date of the Company Installment Notice.  If the Company does
not deliver a Company Installment Notice in accordance with this Section 10(a),
then the “Company Exchange Amount,” the “Company Redemption Amount” and the
“Company Conversion Amount” with respect to such Installment Date shall be in
such amounts and proportions as the Holder shall designate in writing to the
Company in its sole discretion and the Company shall be deemed to have delivered
a Company Installment Notice setting forth such amounts.  Each Company
Installment Notice shall be irrevocable.  Except as expressly provided in this
Section 10(a), the Company shall redeem, exchange and convert the applicable
Installment Amount of this Note pursuant to this Section 10 and the
corresponding Installment Amounts of the Other Notes pursuant to the
corresponding provisions of the Other Notes in the same ratio of the Installment
Amount being redeemed, converted and exchanged hereunder.  The Company
Redemption Amount (whether set forth in the Company Installment Notice or by
operation of this Section 10) shall be redeemed in accordance with Section
10(b), the Company Conversion Amount shall be converted in accordance with
Section 10(c) and the Company Exchange Amount shall be exchanged in accordance
with Section 10(d).

 

(b)           Mechanics of Company Redemption.  If the Company elects, or is
deemed to have elected, a Company Redemption in accordance with Section 10(a),
then the Company Redemption Amount, if any, which is to be paid to the Holder on
the applicable Installment Date shall be redeemed by the Company on such
Installment Date, and the Company shall pay to the Holder on such Installment
Date, by wire transfer of immediately available funds (provided that the Holder
has provided the Company with written wire transfer instructions not later than
the second Business Day immediately preceding the Installment Date), an amount
in cash (the “Company Installment Redemption Price”) equal to the sum of 100% of
the Company Redemption Amount.  Notwithstanding anything to the contrary in this
Section 10(b), but subject to Section 3(d) and Section 4(d), until the Company
Installment Redemption Price (together with any interest thereon) is paid in
full, the Company Redemption Amount (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Company Common Stock pursuant
to Section 3, or may be exchanged, in whole or in part, by the Holder into AVII
Common Stock pursuant to Section 4.

 

23

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(c)           Mechanics of Company Conversion.  Subject to Sections 3(d) and
10(e), if the Company delivers a Company Installment Notice and elects or is
deemed to have elected, in whole or in part, a Company Conversion in accordance
with Section 10(a), then the applicable Company Conversion Amount, if any, which
remains outstanding shall be converted as of the applicable Installment Date by
converting on such Installment Date such Company Conversion Amount as if the
Holder had delivered a Conversion Notice pursuant to Section 3 with respect to
such Company Conversion Amount on such Installment Date but without the Holder
being required to actually deliver such Conversion Notice; provided that the
Conditions to Company Conversion are satisfied (or waived in writing by the
Holder) on such Installment Date.  If the Conditions to Company Conversion are
not satisfied (or waived in writing by the Holder) on such Installment Date,
then at the option of the Holder designated in writing to the Company, the
Holder may require the Company to do any one or more of the following: (i) the
Company shall redeem all or any part designated by the Holder of the unconverted
Company Conversion Amount (such designated amount is referred to as the “First
Redemption Amount”) on such Installment Date and the Company shall pay to the
Holder on such Installment Date, by wire transfer of immediately available funds
(provided that the Holder has provided the Company with written wire transfer
instructions not later than the second Business Day immediately preceding the
Installment Date), an amount in cash equal to such First Redemption Amount, (ii)
the Company shall exchange all or any part designated by the Holder of the
unconverted Company Conversion Amount into shares of AVII Common Stock (such
designated amount is referred to as the “First Exchange Amount”) on such
Installment Date and the Company shall deliver to the Holder on such Installment
Date a number of shares of AVII Common Stock as if the Company had designated
such First Exchange Amount as a Company Exchange Amount in accordance with
Section 10(d) hereof, or (iii) the Company Conversion shall be null and void
with respect to all or any part designated by the Holder of the unconverted
Company Conversion Amount and the Holder shall be entitled to all the rights of
a holder of this Note with respect to such amount of the Company Conversion
Amount.  If the Company fails to redeem any First Redemption Amount on the
applicable Installment Date by payment of such amount on the applicable
Installment Date, then the Holder shall have the rights set forth in Section
10(b) as if the Company failed to pay the applicable Company Redemption Price
and all other rights under this Note (including, without limitation, such
failure constituting an Event of Default described in Section 5(a)(xiii)).  If
the Company fails to exchange any First Exchange Amount on the applicable
Installment Date by delivery of shares of AVII Common Stock, then the Holder
shall have the rights set forth in Section 10(d) as if the Conditions to Company
Exchange had not been satisfied and all other rights under this Note (including,
without limitation, such failure constituting an Event of Default described in
Section 5(a)(xiii)).  Notwithstanding anything to the contrary in this Section
10(c), but subject to Sections 3(d) and 4(d), until the applicable portion of
the Company Conversion Amount is converted in accordance with this Section
10(c), the Company Conversion Amount may be exchanged by the Holder into AVII
Common Stock pursuant to Section 4.  In the event the Holder delivers a
Conversion Notice to the Company after the earlier of the date which is 10 days
prior to the applicable Installment Date and the Holder’s receipt of the Company
Installment Notice in respect of such

 

24

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Installment Date in which the Company elects or is deemed to have elected a
Company Redemption, the Principal amount specified in such Conversion Notice
shall be deducted (1) first, from the Principal represented by the Company
Redemption Amount and then (2) second, in accordance with Section 3(c)(v).

 

(d)           Mechanics of Company Exchange.  Subject to Sections 4(d) and
10(f), if the Company delivers a Company Installment Notice and elects or is
deemed to have elected, in whole or in part, a Company Exchange in accordance
with Section 10(a), then the applicable Company Exchange Amount, if any, which
remains outstanding shall be exchanged as of the applicable Installment Date by
exchanging on such Installment Date such Company Exchange Amount, as if the
Holder had delivered an Exchange Notice pursuant to Section 4 with respect to
such Company Exchange Amount on such Installment Date but without the Holder
being required to actually deliver such Exchange Notice; provided that the
Company will inform the AVII Transfer Agent of such Company Exchange Amount
immediately prior to such Installment Date; provided further that the Conditions
to Company Exchange are satisfied (or waived in writing by the Holder) on such
Installment Date.  If the Conditions to Company Exchange are not satisfied (or
waived in writing by the Holder) on such Installment Date, then at the option of
the Holder designated in writing to the Company, the Holder may require the
Company to do any one or more of the following: (i) the Company shall redeem all
or any part designated by the Holder of the unexchanged Company Exchange Amount
(such designated amount is referred to as the “Second Redemption Amount”) on
such Installment Date and the Company shall pay to the Holder on such
Installment Date, by wire transfer of immediately available funds (provided that
the Holder has provided the Company with written wire transfer instructions not
later than the second Business Day immediately preceding the Installment Date),
an amount in cash equal to such Second Redemption Amount, (ii) the Company shall
convert all or any part designated by the Holder of the unconverted Company
Exchange Amount into shares of Company Common Stock (such designated amount is
referred to as the “First Conversion Amount”) on such Installment Date and the
Company shall deliver to the Holder on such Installment Date a number of shares
of Company Common Stock as if the Company had designated such First Conversion
Amount as a Company Conversion Amount in accordance with Section 10(c) hereof,
or (iii) the Company Exchange shall be null and void with respect to all or any
part designated by the Holder of the unexchanged Company Exchange Amount and the
Holder shall be entitled to all the rights of a holder of this Note with respect
to such amount of the Company Exchange Amount.  If the Company fails to redeem
any Second Redemption Amount on the applicable Installment Date by payment of
such amount on the applicable Installment Date, then the Holder shall have the
rights set forth in Section 10(b) as if the Company failed to pay the applicable
Company Redemption Price and all other rights under this Note (including,
without limitation, such failure

 

25

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constituting an Event of Default described in Section 5(a)(xiii)).  If the
Company fails to convert any First Conversion Amount on the applicable
Installment Date by delivery of shares of Company Common Stock, then the Holder
shall have the rights set forth in Section 10(c) as if the Conditions to Company
Conversion had not been satisfied and all other rights under this Note
(including, without limitation, such failure constituting an Event of Default
described in Section 5(a)(xiii)).  Notwithstanding anything to the contrary in
this Section 10(d), but subject to Section 3(d), until the applicable portion of
the Company Exchange Amount is exchanged in accordance with this Section 10(d),
the Company Exchange Amount may be converted by the Holder into Company Common
Stock pursuant to Section 3.  In the event the Holder delivers an Exchange
Notice to the Company after the earlier of the date which is 10 days prior to
the applicable Installment Date and the Holder’s receipt of the Company
Installment Notice in respect of such Installment Date in which the Company
elects or is deemed to have elected a Company Redemption, the Principal amount
specified in such Exchange Notice shall be deducted (1) first, from the
Principal represented by the Company Redemption Amount and then (2) second, in
accordance with Section 4(c)(v).

 

(e)           Conditions to Company Conversion.  For purposes of this Section
10, “Conditions to Company Conversion” means (i) during the period beginning on
the Issuance Date and ending on and including the applicable Installment Date,
the Company shall have delivered shares of Company Common Stock upon any
conversion of Conversion Amounts on a timely basis as set forth in Section
3(c)(i), shares of AVII Common Stock upon any exchange of Exchange Amounts on a
timely basis as set forth in Section 4(c)(i), and delivered shares of Company
Common Stock upon exercise of any Warrants on a timely basis as set forth in
Section 1(a) of the Warrants; (ii) on each day during the period beginning on
the first Company Trading Day of the Company Total Dollar Trading Volume
Measuring Period in respect of any Installment Date and ending on and including
the applicable Installment Date, the Company Common Stock shall be listed on the
Principal Market or the NYSE and delisting or suspension of the Company Common
Stock by such market or exchange shall not have been threatened either (A) in
writing by such market or exchange or (B) by falling below the minimum listing
maintenance requirements of such market or exchange for the Company Common
Stock; (iii) during the period beginning on the Issuance Date and ending on and
including the applicable Installment Date, there shall not have occurred either
(x) the public announcement of a pending, proposed or intended Change of Control
which has not been abandoned, terminated or consummated or (y) an Event of
Default; (iv) during the period beginning on the date which is the first Company
Trading Day of the Company Total Dollar Trading Volume Measuring Period and
ending on and including the applicable Installment Date, there shall not have
occurred an event that with the passage of time or giving of notice, and
assuming it were not cured, would constitute an Event of Default; (v) on each
day of the period beginning on the date of delivery of an Installment Notice
with respect to an Installment Date and ending on the applicable Installment
Date either (x) the Registration Statement or Registration Statements required
pursuant to the Registration Rights Agreement shall be effective and available
for the resale of all of the Registrable Securities in accordance with the terms
of the Registration Rights Agreement or (y) all shares of Company Common Stock
issuable upon conversion of the Notes and shares of Company Common Stock
issuable upon exercise of the Warrants shall be eligible for sale without
restriction (other than any restriction arising under applicable federal or
state securities laws as a result of the holder of such securities states as an
Affiliate of the Company) and without the need for registration under any
applicable

 

26

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federal or state securities laws; (vi) on each day of the period beginning on
the applicable Installment Date and ending thirty Company Trading Days
thereafter either (x) the Registration Statements required pursuant to the
Registration Rights Agreement shall be expected to be effective and available
for the resale of at least all of the Registrable Securities in accordance with
the terms of the Registration Rights Agreement or (y) all shares of Company
Common Stock issuable upon conversion of the Notes and shares of Company Common
Stock issuable upon exercise of the Warrants shall be eligible for sale without
restriction (other than any restriction arising under applicable federal or
state securities laws as a result of the holder of such securities states as an
Affiliate of the Company) and without the need for registration under any
applicable federal or state securities laws; (vii) the Company shall have
obtained the Stockholder Approval prior to the date of delivery of the Company
Installment Notice; and (viii) the Company otherwise shall have been in material
compliance with and shall not have breached, in any material respect, any
provision, covenant, representation or warranty of the Securities Purchase
Agreement, any of the Warrants, the Pledge Agreement, the Securities Account
Control Agreement or any of the Notes.

 

(f)            Conditions to Company Exchange.  For purposes of this Section 10,
“Conditions to Company Exchange” means (i) during the period beginning on the
Issuance Date and ending on and including the applicable Installment Date, the
Company shall have delivered shares of Company Common Stock upon any conversion
of Conversion Amounts on a timely basis as set forth in Section 3(c)(i), shares
of AVII Common Stock upon any exchange of Exchange Amounts on a timely basis as
set forth in Section 4(c)(i), and delivered shares of Company Common Stock upon
exercise of any Warrants on a timely basis as set forth in Section 1(a) of the
Warrants; (ii) on each day during the period beginning on the 31st AVII Trading
Day preceding delivery of the applicable Company Installment Notice and ending
on and including the applicable Installment Date, the AVII Common Stock shall be
listed on the Principal Market or the NYSE and delisting or suspension of the
AVII Common Stock by such market or exchange shall not have been threatened
either (A) in writing by such market or exchange or (B) by falling below the
minimum listing maintenance requirements of such market or exchange for the AVII
Common Stock; (iii) during the period beginning on the Issuance Date and ending
on and including the applicable Installment Date, there shall not have occurred
either (x) the public announcement of a pending, proposed or intended Change of
Control which has not been abandoned, terminated or consummated or (y) an Event
of Default; (iv) during the period beginning on the 31st AVII Trading Day
preceding delivery of the applicable Company Installment Notice, there shall not
have occurred an event that with the passage of time or giving of notice, and
assuming it were not cured, would constitute an Event of Default; (v) on each
day of the period beginning on the date of delivery of an Installment Notice
with respect to an Installment Date and ending on the applicable Installment
Date all shares of AVII Common Stock issuable upon exchange of the Notes shall
be eligible for sale by the Holder without restriction (other than any
restriction arising under applicable federal or state securities laws as a
result of the holder of such securities states as an Affiliate of AVII) and
without the need for registration under any applicable federal or state
securities laws; and (vi) on each day of the

 

27

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period beginning on the applicable Installment Date and ending thirty AVII
Trading Days thereafter all shares of AVII Common Stock issuable upon exchange
of the Notes shall be eligible for sale by the Holder without restriction and
without the need for registration under any applicable federal or state
securities laws.

 

(g)           Limitation on Company Conversion Amounts.  Notwithstanding
anything herein to the contrary, in no event shall the Company be required to
remit by way of a Company Conversion the portion of any Installment Amount
elected to be paid by Company Conversion that exceeds the Company Total Dollar
Trading Volume during the Company Total Dollar Trading Volume Measuring Period
applicable to such Installment Date; provided, however, that, the Company may,
by so designating in the applicable Company Installment Notice, elect to extend
the Company Total Dollar Trading Volume Measuring Period until the Conversion
Amount may be paid to the Holder without violating this Section 10(g), but in no
event may such period be extended past the Company Trading Day immediately
preceding the applicable Installment Date.  In the event the Company does not
remit any portion of the Installment Amount in the form of a Company Conversion
by virtue of this Section 10(g), such amounts shall be paid in cash in
accordance with Section 10(b).

 

(h)           Certain Definitions.  For purposes of this Section 10, the
following capitalized terms shall have the following meanings:

 

(i)            “AVII Exchange Price” means, as of any date of determination,
that price which shall be computed as 90% of the arithmetic average of the
Weighted Average Price of the AVII Common Stock on any fifteen AVII Trading Days
designated by the Holder of this Note to the Company during the period
commencing on the twentieth (20th) AVII Trading Day immediately preceding such
date and ending on the AVII Trading Day immediately preceding such date.  All
such determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction that proportionately
decreases or increases the AVII Common Stock during such period.

 

(ii)           “Company Conversion Price” means, as of any date of
determination, that price which shall be computed as 90% of the arithmetic
average of the Weighted Average Price of the Company Common Stock on any fifteen
Company Trading Days designated by the Holder of this Note to the Company during
the period commencing on the twentieth (20th) Company Trading Day immediately
preceding such date and ending on the Company Trading Day immediately preceding
such date.  All such determinations to be appropriately adjusted for any stock
split, stock dividend, stock combination or other similar transaction that
proportionately decreases or increases the Company Common Stock during such
period.

 

(iii)          “Company Total Dollar Trading Volume” means, with respect to an
Installment Date, the product derived by multiplying (A) the aggregate dollar

 

28

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amount of the trading volume of shares of Company Common Stock, as reported by
Bloomberg, during all Company Trading Days during the Company Total Dollar
Trading Volume Measuring Period by (B) .15.

 

(iv)          “Company Total Dollar Trading Volume Measuring Period” means, with
respect to an Installment Date, the period commencing on and including the
thirty-first (31st) Company Trading Day immediately preceding the date of
delivery of the Company Installment Notice in respect of such Installment Date
and ending on and including the Company Trading Day immediately preceding the
date of delivery of the Company Installment Notice in respect of such
Installment Date.

 

(v)           “Installment Amount” means, with respect to any Installment Date,
the lesser of (A) the quotient of (x) the original Principal amount of this Note
on the Issuance Date divided by (y) 4, and (B) the Principal amount under this
Note as of the Installment Date.  In the event the Holder shall sell or
otherwise transfer any portion of this Note, the transferee shall be allocated a
pro rata portion of the Installment Amount.

 

(vi)          “Installment Date” means each of November 26, 2003, February 26,
2004, May 26, 2004 and August 26, 2004.

 

(11)         COMPANY’S RIGHT OF OPTIONAL REDEMPTION.  (a) Optional Redemption. 
At any time from and after the first anniversary of the date on which a
Registration Statement (as defined in the Registration Rights Agreement)
covering all Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the Registration Rights Agreement has been
declared effective by the SEC, and if the Conditions to Optional Redemption (as
set forth in Section 11(c)) are satisfied or waived in writing by the Holder,
the Company shall have the right to require the Holder to submit for redemption
all or any such portion of the Principal of this Note designated in the Optional
Redemption Notice for an amount in cash equal to the sum of (i) 120% of the
Principal of this Note being redeemed pursuant to this Section 11, plus (ii)
accrued and unpaid Interest with respect to such Principal being redeemed plus
(iii) accrued and unpaid Late Charges with respect to such Principal being
redeemed (the “Optional Redemption Price”).  The Company may exercise its right
to require redemption under this Section 11(a) by delivering on the twentieth
Trading Date prior to the date on which the Optional Redemption will be effected
(the “Optional Redemption Date”; with the twenty Company Trading Day period
between delivery of the Optional Redemption Notice (as defined below) and the
Optional Redemption Date being referred to as the “Optional Redemption Measuring
Period”) a written notice thereof by facsimile and overnight courier to all, but
not less than all, of the holders of Notes (the “Optional Redemption Notice” and
the date all of the holders received such notice is referred to as the “Optional
Redemption Notice Date”).  The Optional Redemption Notice shall be irrevocable.

 

(b)           Pro Rata Redemption Requirement.  If the Company elects to

 

29

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cause a redemption of all or any portion of the Principal of this Note pursuant
to Section 11(a), then it must simultaneously take the same action with respect
to all Other Notes.  If the Company elects to cause the redemption of this Note
pursuant to Section 11(a) (or analogous provisions under all Other Notes) with
respect to less than the aggregate principal amount of the Notes then
outstanding (ignoring for such purposes all principal amounts that are part of
Installment Amounts with respect to which the Company has delivered a Company
Installment Notice prior to the Optional Redemption Notice Date or the analogous
provisions under the Other Notes), then the Company shall require redemption of
a principal amount from each of the holders of the Notes equal to the product of
(i) the aggregate principal amount of Notes which the Company has elected to
cause to be converted pursuant to Section 11(a), multiplied by (ii) the
fraction, the numerator of which is the sum of the aggregate principal amount of
the Notes initially purchased by such holder on the Issuance Date and the
denominator of which is the sum of the aggregate principal amount of the Notes
purchased by all holders on the Issuance Date (such fraction with respect to
each holder is referred to as its “Allocation Percentage,” and such amount with
respect to each holder is referred to as its “Pro Rata Redemption Amount”).  In
the event that the initial holder of any Notes shall sell or otherwise transfer
any of such holder’s Notes, the transferee shall be allocated a pro rata portion
of such holder’s Allocation Percentage.  The Optional Redemption Notice shall
state (A) the date selected for the optional redemption in accordance with
Section 11(a), which date shall be the twentieth (20th) Business Day following
the Optional Redemption Notice Date, (B) the aggregate principal amount of the
Notes which the Company has elected to redeem from all of the holders of the
Notes pursuant to this Section 11 (and analogous provisions under all Other
Notes) and (C) each holder’s Pro Rata Redemption Amount of the aggregate
principal amount of the Notes that the Company has elected to redeem pursuant to
this Section 11 (and analogous provisions under all Other Notes).  All Principal
of this Note redeemed by the Company pursuant to this Section 11 shall be
deducted first from the Installment Amount relating to the latest Installment
Date (i.e., nearest to the Maturity Date) with respect to which Installment
Amounts remain outstanding and then sequentially from the Installment Amounts
relating to the immediately preceding Installment Dates.  Redemptions under this
Section 11(a) shall be made in accordance with the provisions of Section 14. 
Notwithstanding anything to the contrary in this Section 11, but subject to
Section 3(d) and Section 4(d), until the Optional Redemption Price (together
with any interest thereon) is paid in full, the Pro Rata Redemption Amount
(together with any interest thereon) may be converted, in whole or in part, by
the Holder into Company Common Stock pursuant to Section 3 or may be exchanged,
in whole or in part, by the Holder into AVII Common Stock pursuant to Section 4.

 

(c)           Conditions to Optional Redemption.  For purposes of this Section
11, “Conditions to Optional Redemption” means the following conditions: (i)
during the period beginning on the Issuance Date and ending on and including the
Optional Redemption Date, the Company shall have delivered shares of Company
Common Stock upon any conversion of Conversion Amounts on a timely basis as set
forth in Section 3(c)(i), shares of AVII Common Stock upon any exchange of
Exchange Amounts on a timely basis as set forth in Section 4(c)(i) and shares of
Company Common Stock upon exercise of any Warrants on a

 

30

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timely basis as set forth in Section 1(a) of the Warrants; (ii) on each day
during the period beginning on the first Company Trading Day of the Optional
Redemption Measuring Period and ending on and including the Optional Redemption
Date, the Company Common Stock shall be listed on the Principal Market or the
NYSE and delisting or suspension by such market or exchange shall not have been
threatened either (A) in writing by such market or exchange or (B) by falling
below the minimum listing maintenance requirements of such market or exchange;
(iii) during the period beginning on the Issuance Date and ending on and
including the Optional Redemption Date, there shall not have occurred either (x)
the public announcement of a pending, proposed or intended Change of Control
which has not been abandoned, terminated or consummated or (y) an Event of
Default; (iv) during the period beginning on the date which is the first Company
Trading Day of the Optional Redemption Measuring Period and ending on and
including the Optional Redemption Date, there shall not have occurred an event
that with the passage of time or giving of notice, and assuming it were not
cured, would constitute an Event of Default; (v) on each day of the period
beginning on the date of delivery of the Optional Redemption Notice and ending
on the Optional Redemption Date either (x) the Registration Statement or
Registration Statements required pursuant to the Registration Rights Agreement
shall be effective and available for the resale of all of the Registrable
Securities in accordance with the terms of the Registration Rights Agreement or
(y) all shares of Company Common Stock issuable upon conversion of the Notes and
shares of Company Common Stock issuable upon exercise of the Warrants shall be
eligible for sale without restriction and without the need for registration
under any applicable federal or state securities laws, (vi) if less than all of
the principal amounts under this Note and all Other Notes is being redeemed by
the Company pursuant to this Section 11(a), on each day of the period beginning
on the Optional Redemption Date and ending thirty Company Trading Days
thereafter either (x) the Registration Statements required pursuant to the
Registration Rights Agreement shall be expected to be effective and available
for the resale of at least all of the Registrable Securities in accordance with
the terms of the Registration Rights Agreement or (y) all shares of Company
Common Stock issuable upon conversion of the Notes and shares of Company Common
Stock issuable upon exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws, (vii) the Company shall have obtained the Stockholder
Approval prior to the Optional Redemption Notice Date and (viii) the Company
otherwise shall have been in material compliance with and shall not have
breached, in any material respect, any provision, covenant, representation or
warranty of this Note or any of the Other Notes or any other Transaction
Document.

 

(12)         NONCIRCUMVENTION.  The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Note, and will
at all times in good faith carry out all of the provisions of this Note.

 

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(13)         RESERVATION OF AUTHORIZED SHARES.

 

(a)           Reservation.  The Company shall initially reserve out of its
authorized and unissued Company Common Stock a number of shares of Company
Common Stock for each of the Notes equal to 130% of the Conversion Rate with
respect to the Conversion Amount of each such Note as of the Issuance Date. 
Thereafter, the Company shall, so long as any of the Notes are outstanding, take
all action necessary to reserve and keep available out of its authorized and
unissued Company Common Stock, solely for the purpose of effecting the
conversion of the Notes, 110% of the number of shares of Company Common Stock as
shall from time to time be necessary to effect the conversion of all of the
Notes then outstanding; provided that at no time shall the number of shares of
Company Common Stock so reserved be less than the number of shares required to
be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”).  The initial number of shares of
Company Common Stock reserved for conversions of the Notes and each increase in
the number of shares so reserved shall be allocated pro rata among the holders
of the Notes based on the principal amount of the Notes held by each holder on
the Issuance Date or increase in the number of reserved shares, as the case may
be (the “Authorized Share Allocation”).  In the event that a holder shall sell
or otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share Allocation.  Any
shares of Company Common Stock reserved and allocated to any Person which ceases
to hold any Notes shall be allocated to the remaining holders of Notes, pro rata
based on the principal amount of the Notes then held by such holders.

 

(b)           Insufficient Authorized Shares.  If at any time while any of the
Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Company Common Stock to satisfy its
obligation to reserve for issuance upon conversion of the Notes at least a
number of shares of Company Common Stock equal to the Required Reserve Amount
(an “Authorized Share Failure”), then the Company shall immediately take all
action necessary to increase the Company’s authorized shares of Company Common
Stock to an amount sufficient to allow the Company to reserve the Required
Reserve Amount for the Notes then outstanding.  Without limiting the generality
of the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than 75 days
after the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Company Common Stock.  In connection with such meeting, the
Company shall provide each stockholder with a proxy statement and shall use its
reasonable best efforts to solicit its stockholders’ approval of such increase
in authorized shares of Company Common Stock.

 

(14)         HOLDER’S REDEMPTIONS.

 

(a)           Mechanics.  In the event that the Holder has sent a Redemption
Notice to the Company pursuant to Section 5(b) or Section 6(c) or the Company
has sent a

 

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Redemption Notice to the Holder pursuant to Section 6(d) or Section 11, the
Holder shall promptly submit this Note to the Company in accordance with this
Section 14.  The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within five Business Days after the Company’s
receipt of the Holder’s Event of Default Redemption Notice and thereafter the
Holder shall promptly deliver this Note to the Company.  If the Holder has
submitted a Change of Control Redemption Notice in accordance with Section 6(c)
or the Company has submitted a Company Change of Control Redemption Notice, the
Company shall deliver to the Holder the Change of Control Redemption Price or
Company Change of Control Redemption Price, as applicable, concurrently with the
consummation of such Change of Control if such Change of Control Redemption
Notice is received by the Company prior to the consummation of such Change of
Control (or such Company Change of Control Redemption Notice is delivered by the
Company in accordance with Section 6(d)) and within five Business Days after the
Company’s receipt of such Change of Control Redemption Notice otherwise (the
“Company Change of Control Redemption Date”).  The Company shall deliver the
applicable Optional Redemption Price to the Holder on the Optional Redemption
Date and thereafter the Holder shall promptly deliver this Note to the Company. 
In the event of a redemption of less than all of the Conversion Amount of this
Note, the Company shall promptly cause to be issued and delivered to the Holder
a new Note (in accordance with Section 21(d)) representing the outstanding
Principal which has not been redeemed.  In the event that the Company does not
pay the applicable Redemption Price to the Holder within the time period
required, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option to, in lieu of
redemption, require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid.  Upon the Company’s receipt of such notice,
(w) the Redemption Notice shall be null and void with respect to such Conversion
Amount, (x) the Company shall immediately return this Note, or issue a new Note
(in accordance with Section 21(d)) to the Holder representing such Conversion
Amount, (y) the Fixed Conversion Price of this Note or such new Notes shall be
adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the
date on which the Redemption Notice is voided and (B) the lowest Closing Bid
Price of the Company Common Stock during the period beginning on and including
the date on which the Redemption Notice is delivered to the Company and ending
on and including the date on which the Redemption Notice is voided and (z) the
Fixed Exchange Price of this Note or such new Notes shall be adjusted to the
lesser of (A) the Fixed Exchange Price as in effect on the date on which the
Redemption Notice is voided and (B) the lowest Closing Bid Price of the AVII
Common Stock during the period beginning on and including the date on which the
Redemption Notice is delivered to the Company and ending on and including the
date on which the Redemption Notice is voided.  The Holder’s delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company’s obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

 

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(b)           Redemption by Other Holders.  Upon the Company’s receipt of notice
from any of the holders of Other Notes for redemption or repayment as a result
of an event or occurrence substantially similar to the events or occurrences
described in Section 5(b) or Section 6(c) (each, an “Other Redemption Notice”),
the Company shall immediately forward to the Holder by facsimile a copy of such
notice.  If the Company receives a Redemption Notice and one or more Other
Redemption Notices during the seven Business Day period beginning on and
including the date which is three Business Days prior to the Company’s receipt
of the Holder’s Redemption Notice and ending on and including the date which is
three Business Days after the Company’s receipt of the Holder’s Redemption
Notice and the Company is unable to redeem all principal, interest and other
amounts designated in such Redemption Notice and such Other Redemption Notices
received during such seven Business Day period, then the Company shall redeem a
pro rata amount from each holder of the Notes (including the Holder) based on
the principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.

 

(15)         RESTRICTION ON REDEMPTION AND CASH DIVIDENDS.  Until all of the
Notes have been converted, redeemed, exchanged or otherwise satisfied in
accordance with their terms, the Company shall not, directly or indirectly,
redeem, repurchase or declare or pay any cash dividend or distribution on its
capital stock without the prior express written consent of the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding; provided that the foregoing shall not prevent the Company from
repurchasing Company Common Stock with an aggregate value not to exceed $1
million (valued at the actual purchase price of the Company Common Stock on the
Principal Market) in transactions on the Principal Market pursuant to employee
benefit plans and employment agreements in existence on the Issuance Date.

 

(16)         VOTING RIGHTS.  The Holder shall have no voting rights as the
holder of this Note, except as required by law, including, but not limited to,
the General Corporation Law of the State of Delaware, and as expressly provided
in this Note.

 

(17)         RANK; ADDITIONAL INDEBTEDNESS; LIENS.

 

(a)           Rank.  Payments of Principal and Interest and other payments due
under this Note (a) shall rank pari passu with all Other Notes and (b) shall be
senior to all other Indebtedness (as defined in Section 3(r) of the Securities
Purchase Agreement) of the Company and its Subsidiaries (as defined in the
Securities Purchase Agreement), other than Purchase Money Indebtedness (as
defined below).

 

(b)           Incurrence of Indebtedness.  So long as this Note is outstanding,
the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the

 

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Indebtedness evidenced by this Note and the Other Notes, (ii) Purchase Money
Indebtedness and (iii) Permitted Indebtedness.

 

(c)           Existence of Liens.  So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries other than (i) pursuant to the Pledge Agreement and (ii) Permitted
Liens.

 

(18)         PARTICIPATION.  The Holder, as the holder of this Note, shall be
entitled to receive such dividends paid and distributions made to the holders of
Company Common Stock to the same extent as if the Holder had converted this Note
into Company Common Stock (without regard to any limitations on conversion
herein or elsewhere) and had held such shares of Company Common Stock on the
record date for such dividends and distributions.  Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the
holders of Company Common Stock.  The Holder, as the holder of this Note, shall
be entitled to receive such dividends paid and distributions made to the holders
of AVII Common Stock to the same extent as if the Holder had exchanged this Note
into AVII Common Stock (without regard to any limitations on exchange herein or
elsewhere (other than Section 4(d)(ii) hereof) and had held such shares of AVII
Common Stock on the record date for such dividends and distributions.  Payments
under the preceding sentence shall be made upon receipt by the Company of the
dividend or distribution from AVII.

 

(19)         VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  The affirmative vote
at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of Notes representing not less than two-thirds of the
aggregate principal amount of the then outstanding Notes, shall be required for
any change or amendment to this Note or the Other Notes; provided that the
Holder of this Note may waive any term or provision of this Note without such
vote or written consent.

 

(20)         TRANSFER.  This Note and any shares of Company Common Stock issued
upon conversion of this Note may be offered, sold, assigned or transferred by
the Holder without the consent of the Company, subject only to the provisions of
Sections 2(i) and 2(j) of the Securities Purchase Agreement.

 

(21)         REISSUANCE OF THIS NOTE.

 

(a)           Transfer.  If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
21(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and,

 

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if less then the entire outstanding Principal is being transferred, a new Note
(in accordance with Section 21(d)) to the Holder representing the outstanding
Principal not being transferred.  The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and Section 4(c)(iii), following conversion, exchange or redemption of
any portion of this Note, the outstanding Principal represented by this Note may
be less than the Principal stated on the face of this Note.

 

(b)           Lost, Stolen or Mutilated Note.  Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of loss, theft or destruction, of
an indemnification undertaking by the Holder to the Company, which undertaking
shall be reasonably satisfactory to the Company, and, in the case of mutilation,
upon surrender and cancellation of this Note, the Company shall execute and
deliver to the Holder a new Note (in accordance with Section 21(d)) representing
the outstanding Principal.

 

(c)           Note Exchangeable for Different Denominations.  This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 21(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

 

(d)           Issuance of New Notes.  Whenever the Company is required to issue
a new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 21(a) or Section 21(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
the proportionate amount of accrued Interest and Late Charges on the Principal
and Interest of this Note that correspond to the Principal of the new Notes,
from the Issuance Date.

 

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(22)         REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF.  The remedies provided in this Note shall be cumulative and
in addition to all other remedies available under this Note and any of the other
Transaction Documents, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder’s right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note.  Amounts set forth or provided
for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder and shall
not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof).  The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Holder and that the remedy at law for any such breach may be inadequate.  The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

 

(23)         PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note, then the Company shall pay the reasonable
costs incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, attorneys’ fees and disbursements.

 

(24)         CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as the drafter hereof.  The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

 

(25)         FAILURE OR INDULGENCE NOT WAIVER.  No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

 

(26)         DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price, the Weighted
Average Price, the Redemption Price or the arithmetic calculation of the
Conversion Rate, the Exchange Rate or the Redemption Price, the Company shall
submit the disputed determinations or arithmetic calculations via facsimile
within one Business Day of receipt of the Conversion Notice, the Exchange Notice
or the Redemption Notice giving rise to such dispute, as the case may be, to the
Holder.  If the

 

37

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Holder and the Company are unable to agree upon such determination or
calculation of the Redemption Price, the Conversion Rate or the Exchange Rate,
as applicable, within one Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within one Business Day submit via facsimile (a) the disputed determination of
the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to
an independent, reputable investment bank selected by the Company and approved
by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate,
the Exchange Rate or the Redemption Price to the Company’s independent, outside
accountant.  The Company, at the Company’s expense, shall use its reasonable
best efforts to cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than five Business Days from the time it receives
the disputed determinations or calculations.  Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

 

(27)         NOTICES; PAYMENTS.

 

(a)           Notices.  Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement.  The Company shall provide
the Holder with prompt written notice of all actions taken pursuant to this
Note, including in reasonable detail a description of such action and the reason
therefore.  Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Fixed Conversion Price or the Fixed Exchange Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least ten
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Company Common Stock,
(B) with respect to any pro rata subscription offer to holders of Company Common
Stock or (C) for determining rights to vote with respect to any Change of
Control, dissolution or liquidation, provided in each case that such information
shall be made known to the public prior to or in conjunction with such notice
being provided to the Holder, and (iii) immediately upon obtaining knowledge (A)
with respect to any dividend or distribution upon the AVII Common Stock or (B)
with respect to any pro rata subscription offer to holders of AVII Common Stock,
provided in each case that such information has been made known to the public
prior to or in conjunction with such notice being provided to the Holder. 
Notwithstanding the foregoing, Section 4(i) of the Securities Purchase Agreement
shall apply to all notices given pursuant to this Note.

 

(b)           Payments.  Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers (as defined in Section 3(d)(ii)),

 

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shall initially be as set forth on the Schedule of Buyers attached to the
Securities Purchase Agreement); provided that the Holder may elect to receive a
payment of cash via wire transfer of immediately available funds by providing
the Company with prior written notice setting out such request and the Holder’s
wire transfer instructions.  Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a Business Day, the same shall
instead be due on the next succeeding day which is a Business Day and, in the
case of any Interest Date which is not the date on which this Note is paid in
full, the extension of the due date thereof shall not be taken into account for
purposes of determining the amount of Interest due on such date.  Any amount of
Interest, Principal or other amount due under the Transaction Documents (as
defined in the Securities Purchase Agreement) which is not paid when due shall
result in a late charge being incurred and payable by the Company in an amount
equal to interest on such amount at the rate of 18% per annum from the date such
amount was due until the same is paid in full (“Late Charge”).

 

(28)         CANCELLATION.  After all Principal, accrued Interest and other
amounts at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

 

(29)         WAIVER OF NOTICE.  To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Securities Purchase Agreement.

 

(30)         GOVERNING LAW.  This Note shall be construed and enforced in
accor­dance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.

 

(31)         CERTAIN DEFINITIONS.  For purposes of this Note, the following
terms shall have the following meanings:

 

(a)           “Affiliate” of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person.  For the purposes of this definition,
“control”, when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms “controlling” and “controlled” have meanings correlative to the
foregoing.

 

(b)           “AVII Trading Day” means any day on which AVII Common

 

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Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for AVII Common Stock, then on the principal securities
exchange or securities market on which AVII Common Stock is then traded;
provided that “AVII Trading Day” shall not include any day on which AVII Common
Stock is scheduled to trade on such exchange or market for less than 4.5 hours
or any day that AVII Common Stock is suspended from trading during the final
hour of trading on such exchange or market (or if such exchange or market does
not designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00 p.m., New York City Time).

 

(c)           “Bloomberg” means Bloomberg Financial Markets.

 

(d)           “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

 

(e)           “Change of Control Warrants” means (I) a warrant exercisable for
the consideration that would be received at the time of consummation of the
Change of Control by holders of Company Common Stock (such consideration for
each share of Company Common Stock, a “Unit of Consideration”) in substantially
the form of the Warrant attached as Exhibit C to the Securities Purchase
Agreement, except that (i) the warrant shall be exercisable for a number of
Units of Consideration determined by dividing (A) the Conversion Amount being
redeemed pursuant to Section 6(d) by (B) the Fixed Conversion Price in effect on
the date of the Change of Control (rounded upward in the case of fractional
shares), (ii) the exercise price for each Unit of Consideration shall be equal
to the Fixed Conversion Price in effect on the date of the Change of Control and
(iii) the expiration date of the warrant shall be the weighted average remaining
term of the portion of this Note and the Other Notes that are outstanding
immediately prior to the date of the Change of Control (without giving effect to
any redemption thereof pursuant to Section 6), and (II) a warrant to purchase
AVII Common Stock in substantially the form of the Warrant attached as Exhibit C
to the Securities Purchase Agreement, except that (i) the warrant shall be
exercisable for AVII Common Stock and not Company Common Stock, (ii) the
exercise price shall be equal to the Fixed Exchange Price in effect on the date
of the Change of Control, (iii) the expiration date of the warrant shall be the
weighted average remaining term of the portion of this Note and the Other Notes
that are outstanding immediately prior to the date of the Change of Control
(without giving effect to any redemption thereof pursuant to Section 6) and (iv)
the number of shares of AVII Common Stock into which such warrant shall be
exercisable shall be determined by multiplying (x) the difference between the
AVII Exchange Cap and the number of shares of AVII Common Stock previously
delivered upon exchange of this Note and the Other Notes by (y) the quotient
determined by dividing (A) the Conversion Amount of this Note being redeemed
pursuant to Section 6(d) by (B) the Conversion Amount of all Notes being
redeemed pursuant to Section 6(d).

 

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(f)            “Closing Bid Price” and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York City Time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price or last trade
price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder.  If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 26.  All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction that
proportionately decreases or increases the Company Common Stock during the
applicable calculation period.

 

(g)           “Company Board of Directors” means the board of directors of the
Company or any authorized committee of the board of directors.

 

(h)           “Company Trading Day” means any day on which the Company Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Company Common Stock, then on the principal
securities exchange or securities market on which the Company Common Stock is
then traded; provided that “Company Trading Day” shall not include any day on
which the Company Common Stock is scheduled to trade on such exchange or market
for less than 4.5 hours or any day that the Company Common Stock is suspended
from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00 p.m.,
New York City Time).

 

(i)            “Convertible Securities” means with respect to any issuer, any
stock or securities (other than Options) directly or indirectly convertible into
or exercisable or exchangeable for such issuer’s common stock.

 

(j)            “Issuance Date” means February 26, 2003.

 

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(k)           “Interest Conversion Price” means, with respect to any Interest
Date, that price which shall be computed as 95% of the arithmetic average of the
Weighted Average Price of the Company Common Stock on each of the five
consecutive Company Trading Days ending on the second Company Trading Day
immediately preceding such Interest Date.  All such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction during such period.

 

(l)            “Options” means with respect to any issuer, any rights, warrants
or options to subscribe for or purchase such issuer’s common stock or such
issuer’s Convertible Securities.

 

(m)          “Permitted Indebtedness” means Indebtedness that is unsecured, that
is subordinate in right of payment to this Note and the Other Notes, that shall
not have require principal repayments prior to the Maturity Date and that
provides for an interest that is no greater than market rate interests; provided
that the amount of Permitted Indebtedness shall not exceed the sum of $1,000,000
in the aggregate.

 

(n)           “Permitted Liens” means (i) any lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with generally acceptable
accounting principles in the United States applied on a consistent basis, (ii)
any statutory lien arising in the ordinary course of business by operation of
law with respect to a liability that is not yet due or delinquent, (iii) any
lien created by operation of law, such as materialmen’s liens, mechanics’ liens
and other similar liens, arising in the ordinary course of business with respect
to a liability that is not yet due or delinquent, (iv) deposits, pledges or
liens (other than liens arising under ERISA) securing (A) obligations incurred
in respect of workers’ compensation, unemployment insurance or other forms of
governmental insurance or benefits, (B) the performance of bids, tenders,
leases, contracts (other than for the payment of money) and statutory
obligations or (C) obligations on surety or appeal bonds, but only to the extent
such deposits, pledges or liens are incurred or otherwise arise in the ordinary
course of business and secure obligations not past due or delinquent, (v)
restrictions on the use of real property and minor irregularities in the title
thereto which do not (A) secure obligations for the payment of money or (B)
materially impair the value of such property or its use in the ordinary course
of business, and (vi) any minor imperfection of title or similar lien which
individually or in the aggregate with other such liens would not reasonably be
expected to have a Material Adverse Effect.

 

(o)           “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

 

(p)           “Principal Market” means the NASDAQ National Market.

 

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(q)           “Purchase Money Indebtedness” means Indebtedness of the Company or
any Subsidiary incurred solely for the purpose of financing all or any part of
the purchase price, or the cost of construction or improvement of any property
in an aggregate principal amount outstanding at any one time not in excess of
$500,000; provided, however, that the aggregate principal amount of any such
Indebtedness does not exceed the lesser of the fair market value of such
property, as determined in the good faith judgment of the Company Board of
Directors, or such purchase price or cost, including any refinancing of such
Indebtedness that does not increase the aggregate principal amount (or accreted
amount, if less) thereof as of the date of refinancing.

 

(r)            “Redemption Notice” means any of an Event of Default Redemption
Notice, Change of Control Redemption Notice, Company Change of Control
Redemption Notice, Company Installment Notice or Optional Redemption Notice.

 

(s)           “Redemption Price” means any of an Event of Default Redemption
Price, Change of Control Redemption Price, Company Change of Control Redemption
Price, Company Installment Redemption Price or Optional Redemption Price.

 

(t)            “Redemption Premium” means (i) in the case of the Events of
Default described in Section 5(a)(i) – (vii) and (xi) - (xiv), 120% or (ii) in
the case of the Events of Default described in Section 5(a) (viii) - (x), 100%.

 

(u)           “Registration Rights Agreement” means that certain registration
rights agreement between the Company and the initial holders of the Notes
relating, among other things, to the registration of the resale of the shares of
Company Common Stock issuable upon conversion of the Notes.

 

(v)           “SEC” means the United States Securities and Exchange Commission.

 

(w)          “Securities Purchase Agreement” means that certain securities
purchase agreement between the Company and the initial holders of the Notes
pursuant to which the Company issued the Notes.

 

(x)            “Significant Subsidiary” has the meaning assigned to it under
Rule 1–02(w) of Regulation S–X promulgated by the Commission.

 

(y)           “Warrants” has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all warrants issued in exchange therefore
or replacement thereof.

 

(z)            “Weighted Average Price” means, for any security as of any

 

43

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date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York City Time
(or such other time as the Principal Market publicly announces is the official
open of trading), and ending at 4:00:00 p.m., New York City Time (or such other
time as the Principal Market publicly announces is the official close of
trading) as reported by Bloomberg through its “Volume at Price” functions, or,
if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board
for such security during the period beginning at 9:30:01 a.m., New York City
Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York City Time (or
such other time as the Principal Market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the “pink sheets” by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted Average
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Weighted Average Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder. 
If the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 26.  All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

 

(32)         SECURITY.  The Notes shall be secured by and to the extent provided
in the Pledge Agreement.

 

(33)         NIPENT.  In the event that the Company or any of it subsidiaries
sells, assigns, pledges, transfers or otherwise disposes its rights to, into or
with respect to, grants a participation interest in, or enters into a joint
venture relating to, the drug Nipent, or any derivative thereof (any of the
foregoing, a “Nipent Event”), then the Company shall be required to establish an
escrow account (the “Nipent Escrow”) and deposit or cause to be deposited in the
Nipent Escrow the consideration or proceeds from any such Nipent Event
concurrently with the consummation of any such Nipent Event (the “Nipent Event
Proceeds”).  The Nipent Escrow shall be established with an independent,
third-party escrow agent reasonably satisfactory to the Company and the holders
of the Notes representing a majority of the aggregate principal amount of the
Notes then outstanding.  The Company, the holders of the Notes and such escrow
agent shall enter into an escrow agreement in a form that is reasonably
acceptable to the Company and to the holders of the Notes representing a
majority of the aggregate principal amount of the Notes then outstanding.  The
Company shall be required to maintain in the Nipent Escrow a balance (the
“Required Nipent Escrow Balance”) at all times equal to the lesser of (x) the
Nipent Event Proceeds and (y) the sum of (A) the outstanding Principal of all
Notes, (B) accrued and unpaid Interest with respect to such Principal and (C)
accrued and unpaid Late Charges with respect to such Principal and Interest.  If
the consideration or proceeds from any Nipent Event is in a form other than
cash, the amount of the consideration other than cash

 

44

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received by the Company will be the fair value of such consideration as
reasonably determined in good faith by the Company Board of Directors, except
where such consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company will be the Closing Sale
Price of such securities on the date of determination.  If the consideration or
proceeds from any Nipent Event is in a form that is partly cash and partly other
than cash, then the Company shall first deposit all cash in the Nipent Escrow
and then the required value of any non-cash consideration or proceeds.  The
Company shall be allowed to withdraw from the Nipent Escrow any such Nipent
Proceeds that exceed the Required Nipent Escrow Balance and if the balance of
the Nipent Escrow consists of cash and non-cash proceeds or consideration, then
any such withdrawal shall first be from the non-cash portion.  The obligation of
the Company to maintain the Required Nipent Escrow Balance in the Nipent Escrow
Account pursuant to this Section 33 shall be inapplicable to and shall terminate
upon a Change of Control provided that such Change of Control is in conformity
with the provisions of the Transaction Documents.

 

[Signature Page Follows]

 

45

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 

 

SUPERGEN, INC.

 

 

 

 

 

 

By:

/s/ JOSEPH RUBINFELD

 

Name:

Joseph Rubinfeld

 

Title:

President / Chief Executive Officer

 

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EXHIBIT I

SUPERGEN, INC.

CONVERSION NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO CONVERT THIS NOTE INTO COMMON STOCK

 

Reference is made to the Senior Exchangeable Convertible Note (the “Note”)
issued to the undersigned by SuperGen, Inc. (the “Company”).  In accordance with
and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Company Common Stock, par value $.001 per share (the “Company Common
Stock”), of the Company as of the date specified below.

 

Date of Conversion:

 

 

Aggregate Conversion Amount to be converted:

 

 

Please confirm the following information:

 

Conversion Price:

 

 

Number of shares of Company Common Stock to be issued:

 

 

Notwithstanding anything to the contrary contained herein, this Conversion
Notice shall constitute a representation by the holder of the Note submitting
this Conversion Notice that, after giving effect to the conversion provided for
in this Conversion Notice, such holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person’s affiliates) of a number of shares of Company Common Stock which exceeds
4.99% of the total outstanding shares of Company Common Stock, all as determined
pursuant to the provisions of Section 3(d)(i) of the Note.

 

Please issue the Company Common Stock into which the Note is being converted in
the following name and to the following address:

 

Issue to:

 

 

 

 

 

 

 

 

Facsimile Number:

 

 

Authorization:

 

 

--------------------------------------------------------------------------------

 

By:

 

 

 

Title:

 

 

 

Dated:

 

 

 

 

Account Number:

 

 

  (if electronic book entry transfer)

 

 

 

Transaction Code Number:

 

 

  (if electronic book entry transfer)

 

--------------------------------------------------------------------------------

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs Mellon
Investor Services LLC to issue the above indicated number of shares of Company
Common Stock in accordance with the Transfer Agent Instructions dated February
26, 2003 from the Company and acknowledged and agreed to by Mellon Investor
Services LLC.

 

 

SUPERGEN, INC.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

EXHIBIT II

SUPERGEN, INC.

EXCHANGE NOTICE

 

Reference is made to the Senior Exchangeable Convertible Note (the “Note”)
issued to the undersigned by SuperGen, Inc. (the “Company”).  In accordance with
and pursuant to the Note, the undersigned hereby elects to exchange the Exchange
Amount (as defined in the Note) of the Note indicated below into shares of
Common Stock, par value $.001 per share (the “AVII Common Stock”), of AVI as of
the date specified below.

 

Date of Exchange:

 

 

Aggregate Exchange Amount to be exchanged:

 

 

Please confirm the following information:

 

Exchange Price:

 

 

Number of shares of AVII Common Stock to be delivered:

 

 

Notwithstanding anything to the contrary contained herein, this Exchange Notice
shall constitute a representation by the holder of the Note submitting this
Exchange Notice that, after giving effect to the exchange provided for in this
Exchange Notice, such holder (together with its affiliates) will not have
beneficial ownership (together with the beneficial ownership of such Person’s
affiliates) of a number of shares of AVII Common Stock which exceeds 4.99% of
the total outstanding shares of AVII Common Stock, all as determined pursuant to
the provisions of Section 4(d)(i) of the Note.

 

Please issue the AVII Common Stock into which the Note is being exchanged in the
following name and to the following address:

 

Deliver to:

 

 

 

 

 

 

 

 

 

 

Facsimile Number:

 

 

Authorization:

 

 

By:

 

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

 

 

Dated:

 

 

 

 

Account Number:

 

 

  (if electronic book entry transfer)

 

 

 

Transaction Code Number:

 

 

  (if electronic book entry transfer)

 

--------------------------------------------------------------------------------

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exchange Notice and hereby directs Mellon
Investor Services LLC to issue the above indicated number of shares of AVII
Common Stock.

 

 

SUPERGEN, INC.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

determination

 

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