Document:

EX-10.2 Convertible Debenture

 

Exhibit 10.2

Execution Copy

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.

Secured Convertible Debenture

			
	 	 	 
	Issuance Date: December 31, 2006
	 	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 CORNELL CAPITAL PARTNERS, LP 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 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 December 31, 2009, 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 a security interest in all of the assets of
the Company and of each of the Company’s subsidiaries as evidenced by the security agreement of
even date herewith (the “Security Agreement”).

          (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;

                    (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

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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”) dated December 31, 2006
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);

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                    (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.

          (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

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          (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 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

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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 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

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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.

                    (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

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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 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

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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 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

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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”), 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

10

 

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 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

11

 

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 Debetnure, 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 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

12

 

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:

	 	Cornell Capital Partners, LP
	 

	 	101 Hudson Street, Suite 3700
	 

	 	Jersey City, NJ 07303
	 

	 	Attention: Mark Angelo
	 

	 	Telephone: (201) 985-8300
	 
	 	 
	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

13

 

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 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

 

          (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 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

15

 

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.

               (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

16

 

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 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.

17

 

               (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
December 31, 2006 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 Agreement, 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.

               (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]

18

 

     IN WITNESS WHEREOF, the Company has caused this 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/ Stephen Elliston
	 	 	 

	 	 	Name: Stephen Elliston
	 	 	Title: Chief Executive OfficerEX-10.3 Warrant

 

Exhibit 10.3

WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO
THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.

ADVANCED VIRAL RESEARCH CORP.

Warrant To Purchase Common Stock

	 	 	 	 	 
	Warrant No.: ADVR-1-1

	 	Number of Shares:
	 	 48,076,923
	 

	 	Warrant Exercise Price:
	 	 $0.0312
	 

	 	Expiration Date:
	 	December 31, 2011

Date of Issuance: December 31, 2006

Advanced Viral Research Corp., a Delaware corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Cornell Capital Partners, LP (the “Holder”), the registered holder hereof or
its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not
after 11:59 P.M. Eastern Time on the Expiration Date (as defined herein) 48,076,923fully paid and
nonassessable shares of Common Stock (as defined herein) of the Company (the “Warrant
Shares”) at the exercise price per share provided in Section 1(b) below or as subsequently
adjusted; provided, however, that in no event shall the holder be entitled to exercise this Warrant
for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect
to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise, except within sixty (60) days of the Expiration Date (however, such
restriction may be waived by Holder (but only as to itself and not to any other holder) upon not
less than 65 days prior notice to the Company). For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such proviso is being made, but shall exclude shares of
Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Warrants
beneficially owned by the holder and its affiliates and (ii) exercise or

 

 

conversion of the unexercised or unconverted portion of any other securities of the Company
beneficially owned by the holder and its affiliates (including, without limitation, any convertible
notes or preferred stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the
number of outstanding shares of Common Stock a holder may rely on the number of outstanding shares
of Common Stock as reflected in (1) the Company’s most recent Form 10-Q or Form 10-K, as the case
may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company
or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the
written request of any holder, the Company shall promptly, but in no event later than one (1)
Business Day following the receipt of such notice, confirm in writing to any such holder the number
of shares of Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the exercise of Warrants (as defined below)
by such holder and its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.

     Section 1.

          (a) This Warrant is one of the warrants issued pursuant to Section 4(g) of the Securities
Purchase Agreement (“Securities Purchase Agreement”) dated the date hereof between the
Company and the Buyers listed on Schedule I thereto or issued in exchange or substitution
thereafter or replacement thereof. Each Capitalized term used, and not otherwise defined herein,
shall have the meaning ascribed thereto in the Securities Purchase Agreement.

          (b) Definitions. The following words and terms as used in this Warrant shall have the
following meanings:

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

               (ii) “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.

               (iii) “Closing Bid Price” means the closing bid price of Common Stock as quoted on the
Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”) through its
“Volume at Price” function).

               (iv) “Common Stock” means (i) the Company’s common stock, par value $0.00001 per
share, and (ii) any capital stock into which such Common Stock shall have been changed or any
capital stock resulting from a reclassification of such Common Stock.

               (v) “Event of Default” means an event of default under the Securities Purchase
Agreement or the Convertible Debentures issued in connection therewith.

2

 

               (vi) “Excluded Securities” means, (a) shares issued or deemed to have been issued by
the Company pursuant to an Approved Stock Plan or a stock option granted by the Board of Directors
of the Company disclose in schedule hereto, (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 documents or otherwise) on or after the
date of the Securities Purchase Agreement, and (c) the shares of Common Stock issued or deemed to
be issued by the Company upon conversion of the Convertible Debentures or exercise of the Warrants.

               (vii) “Expiration Date” means December 31, 2011.

               (viii) “Issuance Date” means the date hereof.

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

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

               (xi) “Principal Market” means 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 (“OTCBB”)

               (xii) “Securities Act” means the Securities Act of 1933, as amended.

               (xiii) “Warrant” means this Warrant and all Warrants issued in exchange, transfer or
replacement thereof.

               (xiv) “Warrant Exercise Price” shall be $0.0312 or as subsequently adjusted as
provided in Section 8 hereof.

          (c) Other Definitional Provisions.

               (i) Except as otherwise specified herein, all references herein (A) to the Company shall be
deemed to include the Company’s successors and (B) to any applicable law defined or referred to
herein shall be deemed references to such applicable law as the same may have been or may be
amended or supplemented from time to time.

               (ii) When used in this Warrant, the words “herein”, “hereof”, and
“hereunder” and words of similar import, shall refer to this Warrant as a whole and not to
any provision of this Warrant, and the words “Section”, “Schedule”, and
“Exhibit” shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless
otherwise specified.

3

 

               (iii) Whenever the context so requires, the neuter gender includes the masculine or feminine,
and the singular number includes the plural, and vice versa.

     Section 2. Exercise of Warrant.

          (a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder
hereof then registered on the books of the Company, pro rata as hereinafter provided, at any time
on any Business Day on or after the opening of business on such Business Day, commencing with the
first day after the date hereof, and prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by
delivery of a written notice, in the form of the subscription notice attached as Exhibit A
hereto (the “Exercise Notice”), of such holder’s election to exercise this Warrant, which
notice shall specify the number of Warrant Shares to be purchased, payment to the Company of an
amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares being purchased,
multiplied by the number of Warrant Shares (at the applicable Warrant Exercise Price) as to which
this Warrant is being exercised (plus any applicable issue or transfer taxes) (the “Aggregate
Exercise Price”) in cash or wire transfer of immediately available funds and the surrender of
this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) to a common carrier for overnight delivery to the Company as soon as
practicable following such date (“Cash Basis”) or (ii) if at the time of exercise, the
Warrant Shares are not subject to an effective registration statement or if an Event of Default has
occurred, by delivering an Exercise Notice and in lieu of making payment of the Aggregate Exercise
Price in cash or wire transfer, elect instead to receive upon such exercise the “Net Number” of
shares of Common Stock determined according to the following formula (the “Cashless
Exercise”):

	 	 	 	 	 	 	 
	 

	 	 Net Number =
	 	(A x B) – (A x C)	 	 
	 

	 	 	 	B
	 	 

For purposes of the foregoing formula:

A = the total number of Warrant Shares with respect to which this Warrant is then
being exercised.

B = the Closing Bid Price of the Common Stock on the date of exercise of the
Warrant.

C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at
the time of such exercise.

     In the event of any exercise of the rights represented by this Warrant in compliance with this
Section 2, the Company shall on or before the fifth (5th) Business Day following the date of
receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its loss, theft or
destruction) and the receipt of the representations of the holder specified in Section 6 hereof, if
requested by the Company (the “Exercise Delivery Documents”), and if the Common Stock is
DTC eligible, 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 The Depository Trust

4

 

Company; provided, however, if the holder who submitted the Exercise Notice requested physical
delivery of any or all of the Warrant Shares, or, if the Common Stock is not DTC eligible then the
Company shall, on or before the fifth (5th) Business Day following receipt of the
Exercise Delivery Documents, issue and surrender to a common carrier for overnight delivery to the
address specified in the Exercise Notice, a certificate, registered in the name of the holder, for
the number of shares of Common Stock to which the holder shall be entitled pursuant to such
request. Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause
(i) or (ii) above the holder of this Warrant shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this Warrant has been
exercised. In the case of a dispute as to the determination of the Warrant Exercise Price, the
Closing Bid Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the holder the number of Warrant Shares that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within one (1) Business Day
of receipt of the holder’s Exercise Notice.

          (b) If the holder and the Company are unable to agree upon the determination of the Warrant
Exercise Price or arithmetic calculation of the Warrant Shares within one (1) day of such disputed
determination or arithmetic calculation being submitted to the holder, then the Company shall
immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price or
the Closing Bid Price to an independent, reputable investment banking firm or (ii) the disputed
arithmetic calculation of the Warrant Shares to its independent, outside accountant. The Company
shall cause the investment banking firm 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
forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such
investment banking firm’s or accountant’s determination or calculation, as the case may be, shall
be deemed conclusive absent manifest error.

          (c) Unless the rights represented by this Warrant shall have expired or shall have been fully
exercised, the Company shall, as soon as practicable and in no event later than five (5) Business
Days after any exercise and at its own expense, issue a new Warrant identical in all respects to
this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant exercised, less the number of
Warrant Shares with respect to which such Warrant is exercised.

          (d) No fractional Warrant Shares are to be issued upon any pro rata exercise of this Warrant,
but rather the number of Warrant Shares issued upon such exercise of this Warrant shall be rounded
up or down to the nearest whole number.

          (e) If the Company or its Transfer Agent shall fail for any reason or for no reason to issue
to the holder within ten (10) days of receipt of the Exercise Delivery Documents, a certificate for
the number of Warrant Shares to which the holder is entitled or to credit the holder’s balance
account with The Depository Trust Company for such number of Warrant Shares to which the holder is
entitled upon the holder’s exercise of this Warrant, the Company shall, in addition to any other
remedies under this Warrant or otherwise available to such holder, pay as additional damages in
cash to such holder on each day the issuance of such certificate for Warrant Shares is not timely
effected an amount equal to 0.025% of the product of (A) the sum of the number of Warrant Shares
not issued to the holder on a timely basis and to which the

5

 

holder is entitled, and (B) the Closing Bid Price of the Common Stock for the trading day
immediately preceding the last possible date which the Company could have issued such Common Stock
to the holder without violating this Section 2.

          (f) If within ten (10) days after the Company’s receipt of the Exercise Delivery Documents,
the Company fails to deliver a new Warrant to the holder for the number of Warrant Shares to which
such holder is entitled pursuant to Section 2 hereof, then, in addition to any other available
remedies under this Warrant, or otherwise available to such holder, the Company shall pay as
additional damages in cash to such holder on each day after such tenth (10th) day that
such delivery of such new Warrant is not timely effected in an amount equal to 0.25% of the product
of (A) the number of Warrant Shares represented by the portion of this Warrant which is not being
exercised and (B) the Closing Bid Price of the Common Stock for the trading day immediately
preceding the last possible date which the Company could have issued such Warrant to the holder
without violating this Section 2.

     Section 3. Covenants as to Common Stock. The Company hereby covenants and agrees as
follows:

          (a) This Warrant is, and any Warrants issued in substitution for or replacement of this
Warrant will upon issuance be, duly authorized and validly issued.

          (b) All Warrant Shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof.

          (c) During the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized and reserved at least one hundred percent (100%) of
the number of shares of Common Stock needed to provide for the exercise of the rights then
represented by this Warrant and the par value of said shares will at all times be less than or
equal to the applicable Warrant Exercise Price. If at any time the Company does not have a
sufficient number of shares of Common Stock authorized and available, then the Company shall call
and hold a special meeting of its stockholders within sixty (60) days of that time for the sole
purpose of increasing the number of authorized shares of Common Stock.

          (d) If at any time after the date hereof the Company shall file a registration statement, the
Company shall include the Warrant Shares issuable to the holder, pursuant to the terms of this
Warrant and shall maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Warrant Shares from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated quotation system, as the
case may be, and shall maintain such listing of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation system.

          (e) The Company will not, by amendment of its Articles 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

6

 

any of the terms to be observed or performed by it hereunder, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in the taking of all
such action as may reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant. The Company will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above the Warrant Exercise
Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.

          (f) This Warrant will be binding upon any entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company’s assets.

     Section 4. Taxes. The Company shall pay any and all taxes, except any applicable
withholding, which may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

     Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends
or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of
the rights of a stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or
subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the
Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant.
In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on
such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of
the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant
with copies of the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

     Section 6. Representations of Holder. The holder of this Warrant, by the acceptance
hereof, represents that it is acquiring this Warrant and the Warrant Shares for its own account for
investment only and not with a view towards, or for resale in connection with, the public sale or
distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted
under the Securities Act; provided, however, that by making the representations herein, the holder
does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific
term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in
accordance with or pursuant to a registration statement or an exemption under the Securities Act.
The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such
holder is an “accredited investor” as such term is defined in Rule 501(a)(1) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act (an “Accredited
Investor”). Upon exercise of this Warrant the holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the

7

 

Warrant Shares so purchased are being acquired solely for the holder’s own account and not as
a nominee for any other party, for investment, and not with a view toward distribution or resale
and that such holder is an Accredited Investor. If such holder cannot make such representations
because they would be factually incorrect, it shall be a condition to such holder’s exercise of
this Warrant that the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities upon exercise of
this Warrant shall not violate any United States or state securities laws.

     Section 7. Ownership and Transfer.

          (a) The Company shall maintain at its principal executive offices (or such other office or
agency of the Company as it may designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee. The Company may treat
the person in whose name any Warrant is registered on the register as the owner and holder thereof
for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any
transfers made in accordance with the terms of this Warrant.

     Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant
Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted from time to time as follows:

          (a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common
Stock. If and whenever on or after the Issuance Date of this Warrant, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock (other than Excluded
Securities) for a consideration per share less than a price (the “Applicable Price”) equal
to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then
immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to
an amount equal to such consideration per share. Upon each such adjustment of the Warrant Exercise
Price hereunder, the number of Warrant Shares issuable upon exercise of this Warrant shall be
adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.

          (b) Effect on Warrant Exercise Price of Certain Events. For purposes of determining
the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable:

               (i) Issuance of Options. If after the date hereof, the Company in any manner grants
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 of any convertible securities issuable
upon exercise of any 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
8(b)(i), the lowest price per share for which one share of Common Stock is issuable upon exercise
of such Options or upon conversion or exchange of

8

 

such Convertible Securities 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 granting or sale of the Option, upon exercise of the Option or upon conversion or exchange of
any convertible security issuable upon exercise of such Option. No further adjustment of the
Warrant Exercise Price shall be made upon the actual issuance of such 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 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 the conversion or exchange 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 8(b)(ii), the lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the convertible security and upon conversion or exchange of such
convertible security. No further adjustment of the Warrant Exercise Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange 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 Warrant Exercise Price had been or are to be made pursuant to other
provisions of this Section 8(b), no further adjustment of the Warrant Exercise 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 or
exchange of any convertible securities, or the rate at which any convertible securities are
convertible into or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise 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 and the number of Warrant Shares issuable upon exercise
of this Warrant shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if
the terms of any Option or convertible security that was outstanding as of the Issuance Date of
this Warrant 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
pursuant to this Section 8(b) shall be made if such adjustment would result in an increase of the
Warrant Exercise Price then in effect.

               (iv) Calculation of Consideration Received. If any Common Stock, Options or
convertible securities are issued or sold or deemed to have been issued or sold for cash, the
consideration received therefore will be deemed to be the net amount received by the Company
therefore. If any Common Stock, Options or convertible securities are issued or sold for a
consideration other than cash, the amount of such consideration received by the Company

9

 

will be the fair value of such consideration, except where such consideration consists of
marketable securities, in which case the amount of consideration received by the Company will be
the market price of such securities on the date of receipt of such securities. 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 therefore 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 holders of Warrants representing at
least two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then outstanding.
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
holders of Warrants representing at least two-thirds (b) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding. The determination of such appraiser shall be final and
binding upon all parties and the fees and expenses of such appraiser shall be borne jointly by the
Company and the holders of Warrants.

               (v) Integrated Transactions. 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 a consideration of $.01.

               (vi) Treasury Shares. The number of shares of Common Stock outstanding at any given
time does not include shares owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be considered an issue or sale of Common Stock.

               (vii) Record Date. If the Company takes a record of the holders of Common Stock for
the purpose of entitling them (1) to receive a dividend or other distribution payable in Common
Stock, Options or in convertible securities or (2) 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 shares of 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.

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

10

 

number of Warrant Shares issuable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 8(c) shall become effective at the close of business
on the date the subdivision or combination becomes effective.

          (d) Distribution of Assets. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by
way of return of capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities, property or options by way of a dividend, spin off, reclassification,
corporate rearrangement or other similar transaction) (a “Distribution”), at any time after
the issuance of this Warrant, then, in each such case:

               (i) any Warrant Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Closing Sale Price of the Common Stock on the trading day immediately
preceding such record date minus the value of the Distribution (as determined in good faith by the
Company’s Board of Directors) applicable to one share of Common Stock, and (B) the denominator
shall be the Closing Sale Price of the Common Stock on the trading day immediately preceding such
record date; and

               (ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be
increased to a number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on a national securities
exchange or a national automated quotation system, then the holder of this Warrant shall receive an
additional warrant to purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the assets that would
have been payable to the holder of this Warrant pursuant to the Distribution had the holder
exercised this Warrant immediately prior to such record date and with an exercise price equal to
the amount by which the exercise price of this Warrant was decreased with respect to the
Distribution pursuant to the terms of the immediately preceding clause (i).

          (e) Certain Events. If any event occurs of the type contemplated by the provisions of
this Section 8 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 Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so
as to protect the rights of the holders of the Warrants; provided, except as set forth in section
8(c),that no such adjustment pursuant to this Section 8(e) will increase the Warrant Exercise Price
or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to
this Section 8.

11

 

          (f) Notices.

               (i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give
written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and
certifying, the calculation of such adjustment.

               (ii) The Company will give written notice to the holder of this Warrant at least ten (10) 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 Common Stock, (B) with respect to any pro rata subscription offer
to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change
(as defined below), dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such holder.

               (iii) The Company will also give written notice to the holder of this Warrant at least ten
(10) days prior to the date on which any Organic Change, dissolution or liquidation will take
place, provided that such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.

     Section 9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or
Sale.

          (a) In addition to any adjustments pursuant to Section 8 above, 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”), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could
have acquired if such holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant 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.

          (b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all
or substantially all of the Company’s assets to another Person or other transaction in each case
which is effected in such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange
for Common Stock is referred to herein as an “Organic Change.” Prior to the consummation
of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the Company will secure
from the Person purchasing such assets or the successor resulting from such Organic Change (in each
case, the “Acquiring Entity”) a written agreement (in form and substance satisfactory to
the holders of Warrants representing at least two-thirds (iii) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for
such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant and satisfactory to the holders of the Warrants
(including an adjusted warrant exercise price equal to

12

 

the value for the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon
exercise of the Warrants without regard to any limitations on exercise, if the value so reflected
is less than any Applicable Warrant Exercise Price immediately prior to such consolidation, merger
or sale). Prior to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of Warrants representing a
majority of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to insure
that each of the holders of the Warrants will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the Warrant Shares immediately theretofore issuable
and receivable upon the exercise of such holder’s Warrants (without regard to any limitations on
exercise), such shares of stock, securities or assets that would have been issued or payable in
such Organic Change with respect to or in exchange for the number of Warrant Shares which would
have been issuable and receivable upon the exercise of such holder’s Warrant as of the date of such
Organic Change (without taking into account any limitations or restrictions on the exercisability
of this Warrant).

     Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification
undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

     Section 11. Notice. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Warrant 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 receipt is received by the sending party transmission is
mechanically or electronically generated and kept on file by the sending party); or (iii) one
Business Day after deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile numbers for such
communications shall be:

	 	 	 
	If to Holder:

	 	Cornell Capital Partners, LP
	 

	 	101 Hudson Street – Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Attention: Mark A. Angelo
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266
	 
	 	 
	With Copy to:

	 	David Gonzalez, Esq.
	 

	 	101 Hudson Street – Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266

13

 

	 	 	 
	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 a holder of this Warrant, to it at the address and facsimile number set forth on Exhibit
C hereto, with copies to such holder’s representatives as set forth on Exhibit C, or at
such other address and facsimile as shall be delivered to the Company upon the issuance or transfer
of this Warrant. Each party shall provide five days’ prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt (A) given by the
recipient of such notice, consent, facsimile, waiver or other communication, (or (B) 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.

     Section 12. Date. The date of this Warrant is set forth on page 1 hereof. This
Warrant, in all events, shall be wholly void and of no effect after the close of business on the
Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section
8(b) shall continue in full force and effect after such date as to any Warrant Shares or other
securities issued upon the exercise of this Warrant.

     Section 13. Amendment and Waiver. Except as otherwise provided herein, the provisions
of the Warrants may be amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has obtained the written
consent of the holders of Warrants representing at least two-thirds of the Warrant Shares issuable
upon exercise of the Warrants then outstanding; provided that, except for Section 8(d), no such
action may increase the Warrant Exercise Price or decrease the number of shares or class of stock
obtainable upon exercise of any Warrant without the written consent of the holder of such Warrant.

     Section 14. Descriptive Headings; Governing Law. The descriptive headings of the
several sections and paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All other questions
concerning the construction, validity, enforcement and interpretation of this Agreement shall be
governed by the internal laws of the State of New Jersey, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New Jersey or any other

14

 

jurisdictions) that would cause the application of the laws of any jurisdictions other than
the State of New Jersey. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in Hudson County and the United States District Court for the
District of New Jersey, for the adjudication of any dispute hereunder or in connection herewith or
therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.
Each party hereby irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted by law.

     Section 15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO
ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED
WITH THIS TRANSACTION.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

15

 

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the date first set
forth above.

	 	 	 	 
	 

	ADVANCED VIRAL RESEARCH CORP.	
	 
	 	 	
	 

	By: 	 /s/ Stephen Elliston	
	 

	 	 	
	 

	Name: Stephen Elliston	
	 

	Title: Chief Executive Officer	

16

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