EX-10.5 Amended & Restated Convertible Debenture



 





EXHIBIT 10.5




Date: December 3, 2007




NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.
THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.



ADVANCED VIRAL RESEARCH CORP.




Amended & Restated Secured Convertible Debenture





			
	Original Issuance Date: January 1, 2007
	 	Original Principal Amount: $1,000,000
	No. ADVR-1-1	 	 






     FOR VALUE RECEIVED, ADVANCED VIRAL RESEARCH CORP., a Delaware corporation (the
“Company”), hereby promises to pay to the order of YA GLOBAL INVESTMENTS, L.P. (F/K/A
CORNELL CAPITAL PARTNERS, L.P.) or registered assigns (the “Holder”) the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity
Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the
terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the
applicable Interest Rate from the date set out above as the Original Issuance Date (the
“Issuance Date”) until the same becomes due and payable, whether upon an Interest Date (as
defined below), any Conversion Date or the Maturity Date or acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). This Secured Convertible Debenture
(including all Secured Convertible Debentures issued in exchange, transfer or replacement hereof,
this “Debenture”) is one of an issue of Secured Convertible Debentures issued pursuant to
the Securities Purchase Agreement (collectively, the “Debentures” and such other Senior
Convertible Debentures, the “Other Debentures”). Certain capitalized terms used herein are
defined in Section 16.



 









 





     (1) GENERAL TERMS




          (a) Payment of Principal. On the Maturity Date, the Company shall pay to the Holder
an amount in cash representing all outstanding Principal, accrued and unpaid Interest or convert
all outstanding Principal, accrued and unpaid Interest into Common Stock at the Conversion Price
(as defined herein). The “Maturity Date” shall be January 1, 2010, as may be extended at
the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined
below) shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to
this Section 1) or any event shall have occurred and be continuing on the Maturity Date (as may be
extended pursuant to this Section 1) that with the passage of time and the failure to cure would
result in an Event of Default. Other than as specifically permitted by this Debenture, the Company
may not prepay or redeem any portion of the outstanding Principal without the prior written consent
of the Holder.



          (b) Interest. Interest shall accrue on the outstanding principal balance hereof at an
annual rate equal to nine percent (9%) (“Interest Rate”). Interest shall be calculated on
the basis of a 365-day year and the actual number of days elapsed, to the extent permitted by
applicable law. Interest hereunder shall be paid on each Conversion Date (or sooner as provided
herein) to the Holder or its assignee in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures in cash or at the option of the
Company provided that the Equity Conditions are then satisfied converted into Common Stock at the
Conversion Price on the Trading Day immediately prior to the date paid.



          (c) Security. The Debenture is secured by (i) a security interest in all of the
assets of the Company and of each of the Company’s subsidiaries pursuant to the Security Agreement
dated January 1, 2007 as amended on December 3, 2007 (the “Security Agreement”) and the
corresponding financing statement on Form UCC-1 Filing No. 2007 0063452 filed with the Delaware
Department of State UCC Filing Section on January 5, 2007, and (ii) a first security interest in
all of the patents and trademarks of the Company and of each of the Company’s subsidiaries as
evidenced by the Patent and Trademark Security Agreement dated as of December 3, 2007 (the
“Patent and Trademark Security Agreement”). The Patent and Trademark Security Agreement
together with the Security Agreement are collectively referred to as the “Security
Documents”.



     (2) EVENTS OF DEFAULT. 



          (a) An “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):



               (i) the Company’s failure to pay to the Holder any amount of Principal, Interest, or other
amounts when and as due under this Debenture (including, without limitation, the Company’s failure
to pay any redemption payments or amounts hereunder) or any other Transaction Document;



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               (ii) The Company or any subsidiary of the Company shall commence, or there shall be commenced
against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of
the Company commences any other proceeding under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Company or any subsidiary of the Company or
there is commenced against the Company or any subsidiary of the Company any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period of 61 days; or the Company or
any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company or any subsidiary of the
Company suffers any appointment of any custodian, private or court appointed receiver or the like
for it or any substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company makes a general
assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail
to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as
they become due; or the Company or any subsidiary of the Company shall call a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the
Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action
is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the
foregoing;



               (iii) The Company or any subsidiary of the Company shall default in any of its obligations
under any other debenture or any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money due under any long term leasing
or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding
$100,000, whether such indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to the date on which
it would otherwise become due and payable;



               (iv) The Common Stock shall cease to be quoted for trading or listing for trading on any of
(a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq National Market, (d)
the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (“OTC”) (each, a “Primary Market”)
and shall not again be quoted or listed for trading on any Primary Market within five (5) Trading
Days of such delisting;



               (v) The Company or any subsidiary of the Company shall be a party to any Change of Control
Transaction (as defined in Section 6) unless in connection with such Change of Control Transaction
this Debenture is retired;



               (vi) The Company shall fail to file the Underlying Shares Registration Statement with the
Commission, or the Underlying Shares Registration Statement shall not have been declared effective
by the Commission, in each case within thirty (30) days of the periods set forth in the
Registration Rights Agreement (“Registration Rights Agreement”)



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dated January 1, 2007 among the Company and each Buyer listed on Schedule I attached thereto,
or, while the Underlying Shares Registration Statement is required to be maintained effective
pursuant to the terms of the Investor Registration Rights Agreement, the effectiveness of the
Underlying Shares Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the Holder for sale of all of the Holder’s
Registrable Securities (as defined in the Investor Registration Rights Agreement) in accordance
with the terms of the Investor Registration Rights Agreement, and such lapse or unavailability
continues for a period of more than twenty (20) consecutive Trading Days or for more than an
aggregate of forty-five (45) days in any 365-day period (which need not be consecutive);



               (vii) the Company’s (A) failure to cure a Conversion Failure by delivery of the required
number of shares of Common Stock within five (5) Business Days after the applicable Conversion
Failure or (B) notice, written or oral, to any holder of the Debentures, including by way of public
announcement, at any time, of its intention not to comply with a request for conversion of any
Debentures into shares of Common Stock that is tendered in accordance with the provisions of the
Debentures, other than pursuant to Section 4(c);



               (viii) The Company shall fail for any reason to deliver the payment in cash pursuant to a
Buy-In (as defined herein) within three (3) Business Days after such payment is due;



               (ix) The Company shall fail to observe or perform any other covenant, agreement or warranty
contained in, or otherwise commit any breach or default of any provision of this Debenture (except
as may be covered by Section 2(a)(i) through 2(a)(vii) hereof) or any Transaction Document (as
defined in Section 16) which is not cured within the time prescribed.



               (x) any Event of Default (as defined in the Other Debentures) occurs with respect to any Other
Debentures.



          (b) During the time that any portion of this Debenture is outstanding, if any Event of Default
has occurred, the full principal amount of this Debenture, together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become at the Holder’s election,
immediately due and payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Company. Furthermore, in
addition to any other remedies, the Holder shall have the right (but not the obligation) to convert
this Debenture at any time after (x) an Event of Default or (y) the Maturity Date at the Conversion
Price. The Holder need not provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, (other than required notice of conversion) and the Holder may
immediately and without expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable law. Such declaration
may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission
or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.



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     (3) COMPANY REDEMPTION.



          (a) Company’s Cash Redemption. The Company at its option shall have the right to
redeem (“Optional Redemption”) a portion or all amounts outstanding under this Debenture
prior to the Maturity Date provided that as of the date of the Holder’s receipt of a Redemption
Notice (as defined herein) (i) the Closing Bid Price is less than the Fixed Conversion Price, (ii)
the Underlying Shares Registration Statement is effective, and (iii) no Event of Default has
occurred. The Company shall pay an amount equal to the principal amount being redeemed plus a
redemption premium (“Redemption Premium”) equal to fifteen percent (15%) of the Principal
amount being redeemed, and accrued Interest, (collectively referred to as the “Redemption
Amount”). In order to make a redemption pursuant to this Section, the Company shall first
provide written notice to the Holder of its intention to make a redemption (the “Redemption
Notice”) setting forth the amount of principal it desires to redeem. After receipt of the
Redemption Notice the Holder shall have three (3) business days to elect to convert all or any
portion of this Debenture, subject to the limitations set forth in Section 4(b). On the fourth
(4th) business day after the Redemption Notice, the Company shall deliver to the Holder the
Redemption Amount with respect to the principal amount redeemed after giving effect to conversions
effected during the three (3) business day period



     (4) CONVERSION OF DEBENTURE. This Debenture shall be convertible into shares of the
Company’s Common Stock, on the terms and conditions set forth in this Section 4.



          (a) Conversion Right. Subject to the provisions of Section 4(c), at any 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 (as defined below) into fully paid and nonassessable
shares of Common Stock in accordance with Section 4(b), at the Conversion Rate (as defined below).
The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to
this Section 4(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion
Price (the “Conversion Rate”). The Company shall not issue any fraction of a share of
Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp and similar taxes that may
be payable with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.



               (i) “Conversion Amount” means the portion of the Principal to be converted, redeemed
or otherwise with respect to which this determination is being made.



               (ii) “Conversion Price” means, as of any Conversion Date (as defined below) or other
date of determination, the lower of (a) the Fixed Conversion Price or (b) the “Market
Conversion Price”), subject to adjustment as provided herein.



          (b) Mechanics of Conversion.



               (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock
on any date (a “Conversion Date”), the Holder shall (A) transmit



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by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York 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 and (B) if required by Section 4(b)(iv),
surrender this Debenture to a nationally recognized overnight delivery service for delivery to the
Company (or an indemnification undertaking reasonably satisfactory to the Company with respect to
this Debenture in the case of its loss, theft or destruction). On or before the third Business Day
following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the
Company shall (X) if legends are not required to be placed on certificates of Common Stock pursuant
to the Securities Purchase Agreement and provided that the Transfer Agent is participating in the
Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program, credit such
aggregate number of shares of 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 or
(Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer
Program, 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 Common Stock to
which the Holder shall be entitled which certificates shall not bear any restrictive legends unless
required pursuant to Section 2(g) of the Securities Purchase Agreement. If this Debenture is
physically surrendered for conversion and the outstanding Principal of this Debenture 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 (3) Business Days after receipt of this Debenture
and at its own expense, issue and deliver to the holder a new Debenture representing the
outstanding Principal not converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the
record holder or holders of such shares of Common Stock upon the transmission of a Conversion
Notice.



               (ii) Company’s Failure to Timely Convert. If within three (3) Trading Days after the
Company’s receipt of the facsimile copy of a Conversion Notice the Company shall fail to issue and
deliver a certificate to the Holder or credit the Holder’s balance account with DTC for the number
of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any
Conversion Amount (a “Conversion Failure”), and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated
receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Business
Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder
in an amount equal to the Holder’s total purchase price (including brokerage commissions and other
out of pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such certificate (and to issue such
Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the Holder in an amount
equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) the Closing Bid Price on the Conversion Date.



               (iii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon
conversion of any portion of this Debenture in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Debenture to the Company



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unless (A) the full Conversion Amount represented by this Debenture 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 reissuance of this Debenture upon physical surrender of this
Debenture. The Holder and the Company shall maintain records showing the Principal and Interest
converted and the dates of such conversions or shall use such other method, reasonably satisfactory
to the Holder and the Company, so as not to require physical surrender of this Debenture upon
conversion.



          (c) Limitations on Conversions.



               (i) Beneficial Ownership. The Company shall not effect any conversions of this
Debenture and the Holder shall not have the right to convert any portion of this Debenture or
receive shares of Common Stock as payment of interest hereunder to the extent that after giving
effect to such conversion or receipt of such interest payment, the Holder, together with any
affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of
Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as
payment of interest. Since the Holder will not be obligated to report to the Company the number
of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion
at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then
outstanding shares of Common Stock without regard to any other shares which may be beneficially
owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of the principal amount of this Debenture is
convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered
a Conversion Notice for a principal amount of this Debenture that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be converted on such
Conversion Date in accordance with Section 4(a) and, any principal amount tendered for conversion
in excess of the permitted amount hereunder shall remain outstanding under this Debenture. The
provisions of this Section may be waived by a Holder (but only as to itself and not to any other
Holder) upon not less than 65 days prior notice to the Company. Other Holders shall be unaffected
by any such waiver.



          (d) Other Provisions.



               (i) The Company shall at all times reserve and keep available out of its authorized Common
Stock the full number of shares of Common Stock issuable upon conversion of all outstanding amounts
under this Debenture; and within three (3) Business Days following the receipt by the Company of a
Holder’s notice that such minimum number of Underlying Shares is not so reserved, the Company shall
promptly reserve a sufficient number of shares of Common Stock to comply with such requirement.



               (ii) All calculations under this Section 4 shall be rounded to the nearest $0.0001 or whole
share.



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               (iii) The Company covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion
of this Debenture and payment of interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any additional
requirements of the Company as to reservation of such shares set forth in this Debenture or in the
Transaction Documents) be issuable (taking into account the adjustments and restrictions set forth
herein) upon the conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the
Underlying Shares Registration Statement has been declared effective under the Securities Act,
registered for public sale in accordance with such Underlying Shares Registration Statement.



               (iv) Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event
of Default pursuant to Section 2 herein for the Company ‘s failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified herein and such
Holder shall have the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief, in each case without
the need to post a bond or provide other security. The exercise of any such rights shall not
prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.



     (5) Adjustments to Conversion Price




          (a) Adjustment of Conversion Price upon Issuance of Common Stock. If the Company, at
any time while this Debenture is outstanding, issues or sells, or in accordance with this Section
5(a) is deemed to have issued or sold, any shares of Common Stock, excluding shares of Common Stock
deemed to have been issued or sold by the Company in connection with any Excluded Securities, for a
consideration per share (the “New Issuance Price”) less than a price equal to the
Conversion Price in effect immediately prior to such issue or sale (such price the “Applicable
Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance the Conversion Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Conversion Price under this Section 5(a),
the following shall be applicable:



               (i) Issuance of Options. If the Company in any manner grants or sells any Options and
the lowest price per share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this Section, the
“lowest price per share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon
exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common Stock upon granting
or sale of the Option, upon



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exercise of the Option and upon conversion or exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made
upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon conversion or
exchange or exercise of such Convertible Securities.



               (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share of Common Stock is
issuable upon such conversion or exchange or exercise thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section, the “lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or exercise” shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the Company with respect to
any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such share of Common Stock upon
conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of this Section, no
further adjustment of the Conversion Price shall be made by reason of such issue or sale.



               (iii) Change in Option Price or Rate of Conversion. If the purchase price provided
for in any Options, the additional consideration, if any, payable upon the issue, conversion,
exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible Securities provided
for such changed purchase price, additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold. For purposes of this Section, if the terms
of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in
the manner described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in effect.



               (iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such Options by the
parties thereto, the Options will be deemed to have been issued for the difference of (x) the
aggregate fair market value of such Options and other securities issued or sold in such integrated
transaction, less (y) the fair market value of the securities other than such Option, issued or
sold in such transaction and the other securities issued or sold in such integrated transaction
will be deemed to have been issued or sold for the balance of the consideration received by the
Company. If any Common Stock, Options or Convertible Securities are issued



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or sold or deemed to have been issued or sold for cash, the consideration received therefor
will be deemed to be the gross amount raised by the Company; provided, however, that such gross
amount is not greater than 110% of the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the Closing Bid Price of such securities on
the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is attributable to such
Common Stock, Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of
an event requiring valuation (the “Valuation Event”), the fair value of such consideration
will be determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the
Holder. The determination of such appraiser shall be deemed binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be borne by the Company.



               (v) Record Date. If the Company takes a record of the holders of Common Stock for the
purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of the issue or sale of
the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.



          (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock.
If the Company, at any time while this Debenture is outstanding, shall (a) pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common Stock or any other equity or
equity equivalent securities payable in shares of Common Stock, (b) subdivide outstanding shares of
Common Stock into a larger number of shares, (c) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of the Common Stock any shares of capital stock of the Company, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case of a subdivision,
combination or re-classification.



          (c) 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 Common Stock (the “Purchase Rights”),



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then the Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held
the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without
taking into account any limitations or restrictions on the convertibility of this Debenture)
immediately before the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.



          (d) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 4 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Debenture; provided that no
such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section
5.



          (e) Other Corporate Events. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of 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 Debenture, at the Holder’s option, (i) in addition to the shares of 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 Common Stock had such shares of Common Stock been held
by the Holder upon the consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Debenture) or (ii) in lieu of the shares
of Common Stock otherwise receivable upon such conversion, such securities or other assets received
by the holders of shares of 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 Debenture
initially been issued with conversion rights for the form of such consideration (as opposed to
shares of 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 Required Holders. The provisions of this Section shall apply
similarly and equally to successive Corporate Events and shall be applied without regard to any
limitations on the conversion or redemption of this Debenture.



          (f) Whenever the Conversion Price is adjusted pursuant to Section 5 hereof, the Company shall
promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.



          (g) In case of any (1) merger or consolidation of the Company or any subsidiary of the Company
with or into another Person, or (2) sale by the Company or any subsidiary of the Company of more
than one-half of the assets of the Company in one or a series of related transactions, a Holder
shall have the right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of



11









 





stock and other securities, cash and property receivable upon or deemed to be held by holders
of Common Stock following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of securities, cash and property
as the shares of Common Stock into which such aggregate principal amount of this Debenture could
have been converted immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving entity to issue to
the Holder a convertible Debenture with a principal amount equal to the aggregate principal amount
of this Debenture then held by such Holder, plus all accrued and unpaid interest and other amounts
owing thereon, which such newly issued convertible Debenture shall have terms identical (including
with respect to conversion) to the terms of this Debenture, and shall be entitled to all of the
rights and privileges of the Holder of this Debenture set forth herein and the agreements pursuant
to which this Debentures were issued. In the case of clause (C), the conversion price applicable
for the newly issued shares of convertible preferred stock or convertible Debentures shall be based
upon the amount of securities, cash and property that each share of Common Stock would receive in
such transaction and the Conversion Price in effect immediately prior to the effectiveness or
closing date for such transaction. The terms of any such merger, sale or consolidation shall
include such terms so as to continue to give the Holder the right to receive the securities, cash
and property set forth in this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.



     (6) REISSUANCE OF THIS DEBENTURE.



          (a) Transfer. If this Debenture is to be transferred, the Holder shall surrender this
Debenture to the Company, whereupon the Company will, subject to the satisfaction of the transfer
provisions of the Securities Purchase Agreement, forthwith issue and deliver upon the order of the
Holder a new Debenture (in accordance with Section 5(d)), registered in the name of the registered
transferee or assignee, representing the outstanding Principal being transferred by the Holder and,
if less then the entire outstanding Principal is being transferred, a new Debenture (in accordance
with Section 5(d)) to the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of
the provisions of Section 4(b)(iii) following conversion or redemption of any portion of this
Debenture, the outstanding Principal represented by this Debenture may be less than the Principal
stated on the face of this Debenture.



          (b) Lost, Stolen or Mutilated Debenture. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Debenture, and, in the case of loss, theft or destruction, of any indemnification undertaking by
the Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Debenture, the Company shall execute and deliver to the Holder a new Debenture
(in accordance with Section 5(d)) representing the outstanding Principal.



          (c) Debenture Exchangeable for Different Denominations. This Debenture is
exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a
new Debenture or Debentures (in accordance with Section 5(d)) representing in the aggregate the
outstanding Principal of this Debenture, and each such new Debenture will



12









 





represent such portion of such outstanding Principal as is designated by the Holder at the
time of such surrender.



          (d) Issuance of New Debentures. Whenever the Company is required to issue a new
Debenture pursuant to the terms of this Debenture, such new Debenture (i) shall be of like tenor
with this Debenture, (ii) shall represent, as indicated on the face of such new Debenture, the
Principal remaining outstanding (or in the case of a new Debenture being issued pursuant to Section
5(a) or Section 5(c), the Principal designated by the Holder which, when added to the principal
represented by the other new Debentures issued in connection with such issuance, does not exceed
the Principal remaining outstanding under this Debenture immediately prior to such issuance of new
Debentures), (iii) shall have an issuance date, as indicated on the face of such new Debenture,
which is the same as the Issuance Date of this Debenture, (iv) shall have the same rights and
conditions as this Debenture, and (v) shall represent accrued and unpaid Interest from the Issuance
Date.



     (7) NOTICES. Any notices, consents, waivers or other communications required or
permitted to be given under the terms hereof must be in writing and will be deemed to have been
delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically generated and kept on file
by the sending party); or (iii) one (1) Trading Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:



	 	 	 
	If to the Company, to:

	 	Advanced Viral Research Corp.
	 

	 	200 Corporate Boulevard South
	 

	 	Yonkers, New York 10701
	 

	 	Attention: Stephen Elliston
	 

	 	Telephone: (914) 376-7383
	 

	 	Facsimile: (914) 845-8720
	 
	 	 
	With a copy to:

	 	Berman Rennert Vogel and Mandler, P.C.
	 

	 	29th Floor- Bank of America Tower at International Place
	 

	 	100 S.E. Second Street
	 

	 	Miami, Florida 33131
	 

	 	Attention: Charles J. Rennert
	 

	 	Telephone: (305) 577-4171
	 

	 	Facsimile: (305) 373-6036
	 
	 	 
	If to the Holder:

	 	YA Global Investments, L.P.
	 

	 	(f/k/a Cornell Capital Partners, L.P.)
	 

	 	101 Hudson Street, Suite 3700
	 

	 	Jersey City, NJ 07303
	 

	 	Attention: Mark Angelo
	 

	 	Telephone: (201) 985-8300






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	With a copy to:

	 	David Gonzalez, Esq.
	 

	 	101 Hudson Street — Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266






or at such other address and/or facsimile number and/or to the attention of such other person
as the recipient party has specified by written notice given to each other party three (3) business
days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the
recipient of such notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender’s facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (iii) provided by a
nationally recognized overnight delivery service, shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.



     (8) Except as expressly provided herein, no provision of this Debenture shall alter or impair
the obligations of the Company, which are absolute and unconditional, to pay the principal of,
interest and other charges (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of the Company. As long
as this Debenture is outstanding, the Company shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the Holder; (ii) repay, repurchase or
offer to repay, repurchase or otherwise acquire shares of its Common Stock or other equity
securities other than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (iii) enter into any agreement with respect to any of the foregoing.



     (9) This Debenture shall not entitle the Holder to any of the rights of a stockholder of the
Company, including without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.



     (10) No indebtedness of the Company is senior to this Debenture in right of payment, whether
with respect to interest, damages or upon liquidation or dissolution or otherwise. Without the
Holder’s consent, the Company will not and will not permit any of their subsidiaries to, directly
or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind,
on or with respect to any of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits there from that is senior in any respect to the obligations of the
Company under this Debenture.



     (11) This Debenture shall be governed by and construed in accordance with the laws of the
State of New Jersey, without giving effect to conflicts of laws thereof. Each of the parties
consents to the jurisdiction of the Superior Courts of the State of New Jersey sitting in



14









 





Hudson County, New Jersey and the U.S. District Court for the District of New Jersey sitting
in Newark, New Jersey in connection with any dispute arising under this Debenture and hereby
waives, to the maximum extent permitted by law, any objection, including any objection based on
forum non conveniens to the bringing of any such proceeding in such jurisdictions.



     (12) If the Company fails to strictly comply with the terms of this Debenture, then the
Company shall reimburse the Holder promptly for all fees, costs and expenses, including, without
limitation, attorneys’ fees and expenses incurred by the Holder in any action in connection with
this Debenture, including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the Holder’s rights,
remedies and obligations, (ii) collecting any sums which become due to the Holder, (iii) defending
or prosecuting any proceeding or any counterclaim to any proceeding or appeal; or (iv) the
protection, preservation or enforcement of any rights or remedies of the Holder.



     (13) Any waiver by the Holder of a breach of any provision of this Debenture shall not operate
as or be construed to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Holder to insist upon strict adherence to any
term of this Debenture on one or more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.



     (14) If any provision of this Debenture is invalid, illegal or unenforceable, the balance of
this Debenture shall remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder shall automatically
be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law
which would prohibit or forgive the Company from paying all or any portion of the principal of or
interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this indenture, and the Company
(to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the
execution of any power herein granted to the Holder, but will suffer and permit the execution of
every such as though no such law has been enacted.



     (15) Whenever any payment or other obligation hereunder shall be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day.



     (16) THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION



15









 





DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF
THIS AGREEMENT.



     (17) CERTAIN DEFINITIONS For purposes of this Debenture, the following terms shall
have the following meanings:



          (a) “Approved Stock Plan” means a stock option plan that has been approved by the
Board of Directors of the Company, pursuant to which the Company’s securities may be issued only to
any employee, officer, consultants or director for services provided to the Company.



          (b) “Bloomberg” means Bloomberg Financial Markets.



          (c) “Business Day” means any day except Saturday, Sunday and any day which shall be a
federal legal holiday in the United States or a day on which banking institutions are authorized or
required by law or other government action to close.



          (d) “Change of Control Transaction” means the occurrence of (a) an acquisition after
the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Company (except that the acquisition of voting securities by
the Holder or any other current holder of convertible securities of the Company shall not
constitute a Change of Control Transaction for purposes hereof), (b) a replacement at one time or
over time of more than one-half of the members of the board of directors of the Company which is
not approved by a majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of the members of the
board of directors who are members on the date hereof), (c) the merger, consolidation or sale of
fifty percent (50%) or more of the assets of the Company or any subsidiary of the Company in one or
a series of related transactions with or into another entity, or (d) the execution by the Company
of an agreement to which the Company is a party or by which it is bound, providing for any of the
events set forth above in (a), (b) or (c).



          (e) “Closing Bid Price” means the price per share in the last reported trade of the
Common Stock on a Primary Market or on the exchange which the Common Stock is then listed as
quoted by Bloomberg.



          (f) “Convertible Securities” means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for Common Stock.



          (g) “Commission” means the Securities and Exchange Commission.



16









 





          (h) “Common Stock” means the common stock, par value $.00001, of the Company and stock
of any other class into which such shares may hereafter be changed or reclassified.



          (i) “Equity Conditions” means that each of the following conditions is satisfied: (i)
on each day during the period beginning two (2) weeks prior to the applicable date of determination
and ending on and including the applicable date of determination (the “Equity Conditions Measuring
Period”), either (x) the Underlying Shares Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale of all applicable
shares of Common Stock to be issued in connection with the event requiring determination or (y) all
applicable shares of Common Stock to be issued in connection with the event requiring determination
shall be eligible for sale without restriction and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the Equity Conditions
Measuring Period, the Common Stock is designated for quotation on the Principal Market and shall
not have been suspended from trading on such exchange or market nor shall delisting or suspension
by such exchange or market been threatened or pending either (A) in writing by such exchange or
market or (B) by falling below the then effective minimum listing maintenance requirements of such
exchange or market; (iii) during the Equity Conditions Measuring Period, the Company shall have
delivered Conversion Shares upon conversion of the Debentures to the Holder on a timely basis as
set forth in Section 4(b)(ii) hereof; (iv) any applicable shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without violating Section
4(c) hereof and the rules or regulations of the Principal Market; (v) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) an Event of Default or (B) an event that
with the passage of time or giving of notice would constitute an Event of Default; and (vii) 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 all applicable shares of Common Stock to be issued in connection with the event requiring
determination or (y) any applicable shares of Common Stock to be issued in connection with the
event requiring determination not to be eligible for sale without restriction and without the need
for registration under any applicable federal or state securities laws.



          (j) “Equity Conditions Failure” means that on any applicable date the Equity
Conditions have not been satisfied (or waived in writing by the Holder).



          (k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.



          (l) “Excluded Securities” means, (a) shares issued or deemed to have been issued by
the Company pursuant to an Approved Stock Plan (b) shares of Common Stock issued or deemed to be
issued by the Company upon the conversion, exchange or exercise of any right, option, obligation or
security outstanding on the date prior to date of the Securities Purchase Agreement, provided that
the terms of such right, option, obligation or security are not amended or otherwise modified on or
after the date of the Securities Purchase Agreement, and provided that the conversion price,
exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise
modified and the number of shares of Common Stock issued or issuable is not increased (whether by
operation of, or in accordance with, the relevant governing



17









 





documents or otherwise) on or after the date of the Securities Purchase Agreement, (c) shares
issued in connection with any acquisition by the Company, whether through an acquisition of stock
or a merger of any business, assets or technologies, leasing arrangement or any other transaction
the primary purpose of which is not to raise equity capital, and (d) the shares of Common Stock
issued or deemed to be issued by the Company upon conversion of this Debenture.



          (m) “Fixed Conversion Price” means $0.0312, subject to adjustment as provided herein.



          (n) “Market Conversion Price” means that price which shall be computed as ninety five
percent (95%) of the lowest Volume Weighted Average Price of the Common Stock during the thirty
(30) consecutive Trading Days immediately preceding the applicable Conversion Date. All such
determinations to be appropriately adjusted for any stock split, stock dividend, stock combination
or other similar transaction.



          (o) “Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.



          (p) “Original Issue Date” means the date of the first issuance of this Debenture
regardless of the number of transfers and regardless of the number of instruments, which may be
issued to evidence such Debenture.



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



          (r) “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.



          (s) “Securities Purchase Agreement” means the Securities Purchase Agreement dated
January 1, 2007 by and among the Company and the Buyers listed on Schedule I attached thereto.



          (t) “Trading Day” means a day on which the shares of Common Stock are quoted on the
OTC or quoted or traded on such Primary Market on which the shares of Common Stock are then quoted
or listed; provided, that in the event that the shares of Common Stock are not listed or quoted,
then Trading Day shall mean a Business Day.



          (u) “Transaction Documents” means the Securities Purchase Agreement or any other
agreement delivered in connection with the Securities Purchase Agreement, including, without
limitation, the Security Documents, the Irrevocable Transfer Agent Instructions, and the
Registration Rights Agreement.



          (v) “Underlying Shares” means the shares of Common Stock issuable upon conversion of
this Debenture or as payment of interest in accordance with the terms hereof.



18









 





          (w) “Underlying Shares Registration Statement” means a registration statement meeting
the requirements set forth in the Registration Rights Agreement, covering among other things the
resale of the Underlying Shares and naming the Holder as a “selling stockholder” thereunder.



          (x) “Volume Weighted Average Price” means, for any security as of any date, the daily
dollar volume-weighted average price for such security on the Principal Market as reported by
Bloomberg through its “Volume at Price” functions, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg, 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.



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



[Signature Page Follows]





19









 








     IN WITNESS WHEREOF, the Company has caused this Amended & Restated Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set forth above.



	 	 	 	 	 
	 	COMPANY: 

ADVANCED VIRAL RESEARCH CORP. 

 	 
	 	By:  	/s/ Martin Bookman
 	 
	 	 	Name:  	Martin Bookman                                                                   	 
	 	 	Title:  	Chief Financial Officer 	 



20









 






	 	 	 	 	 



EXHIBIT I

CONVERSION NOTICE




(To be executed by the Holder in order to Convert the Debenture)




TO:





     The undersigned hereby irrevocably elects to convert $                          of the principal amount of
Debenture No.ADVR-1-1 into Shares of Common Stock of ADVANCED VIRAL RESEARCH CORP., according to
the conditions stated therein, as of the Conversion Date written below.



	 	 	 
	Conversion Date:
	 	 
	 
	 	 

	 
	 	 
	Conversion Amount to be converted:
	 	$ 
	 
	 	 

	 
	 	 
	Conversion Price:
	 	$ 
	 
	 	 

	 
	 	 
	Number of shares of Common Stock to be issued:
	 	 
	 
	 	 

	 
	 	 
	Amount of Debenture Unconverted:
	 	$ 






Please issue the shares of Common Stock in the following name and to the following address:




Issue to:




 




 




 




 




	 	 	 
	Authorized Signature:
	 	 
	 

	 	 
	 
	 	 
	Name:
	 	 
	 

	 	 
	 
	 	 
	Title:
	 	 
	 

	 	 
	 
	 	 
	Broker DTC Participant Code:
	 	 
	 
	 	 
	Account Number:
	 	 







21