ANNEX I
TO SECURITIES PURCHASE AGREEMENT
FORM OF DEBENTURE
THESE SECURITIES INCLUDING ANY UNDERLYING SECURITIES (THE "SECURITIES")
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 99- US $
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ADVANCED VIRAL RESEARCH CORP.
7% CONVERTIBLE DEBENTURE DUE December 31, 2004
THIS DEBENTURE is one of a duly authorized issue of up to $2,000,000 in
Debentures of ADVANCED VIRAL RESEARCH CORP., a corporation organized and
existing under the laws of the State of Delaware (the "Company") designated as
its 7% Convertible Debentures. Such Debentures may be issued in series, each of
which may have a different maturity date, but which otherwise have substantially
similar terms.
FOR VALUE RECEIVED, the Company promises to pay to ENDEAVOUR CAPITAL
FUND S.A., the registered holder hereof (the "Holder"), the principal sum of and
00/100 Dollars (US $ ) on December 31, 2004 (the "Maturity Date") and to pay
interest on the principal sum outstanding from time to time in arrears (i) prior
to the Maturity Date, upon conversion as provided herein or (ii) on the Maturity
Date, at the rate of 7% per annum accruing from December 28, 1999, the date of
initial issuance of this Debenture. Accrual of interest shall commence on the
first such business day to occur after the date hereof and shall continue to
accrue on a daily basis until payment in full of the principal sum has been made
or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws and the terms of the Securities
Purchase Agreement (defined below). In the event of any proposed transfer of
this Debenture, the Company may require, prior to issuance of a new Debenture in
the name of such other person, that it receive reasonable transfer documentation
including legal opinions from counsel reasonably acceptable to the Company in
form and substance reasonably acceptable to the Company that the issuance of the
Debenture in such other name does not and will not cause a violation of the Act
or any applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert this Debenture at any
time into shares of Common Stock of the Company at a conversion price for each
share of Common Stock ("Conversion Rate") equal to the lower of (i) seventy-two
percent (72.0%) of the Market Price (as defined below) on the Conversion Date
(as defined below) or (ii) forty-three and three quarters cents ($0.4375; the
"Fixed Price," which amount is subject to adjustment as provided herein).
B. Conversion shall be effectuated by faxing a Notice of
Conversion (as defined below) to the Company as provided in this paragraph. The
Notice of Conversion shall be executed by the Holder of this Debenture and shall
evidence such Holder's intention to convert this Debenture or a specified
portion hereof in the form annexed hereto as Exhibit A. Interest accrued or
accruing from the date of issuance to the date of conversion or to the Maturity
Date, as the case may be, shall be paid in Common Stock at the Conversion Rate
then applicable as of the Conversion Date or the Maturity Date, as the case may
be. No fractional shares of Common Stock or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. The date on which notice of conversion is
given (the "Conversion Date") shall be deemed to be the date on which the Holder
faxes or otherwise delivers the conversion notice ("Notice of Conversion") to
the Company so that it is received by the Company on or before such specified
date, provided that, if such conversion would convert the entire remaining
principal of this Debenture, the Holder shall deliver to the Company the
original Debentures being converted no later than five (5) business days
thereafter. Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (000) 000-0000; Attn: President. Certificates
representing Common Stock upon conversion will be delivered to the Holder at the
address specified in the Notice of Conversion (which may be the Buyer's address
for notices as contemplated by the Securities Purchase Agreement or a different
address), via express courier, by electronic transfer or otherwise, within three
(3) business days if the address for delivery is in the United States and within
five (5) business days if the address for delivery is outside the United States
(such third business day
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or fifth business day, as the case may be, the "Delivery Date") after the date
on which the Notice of Conversion is delivered to the Company as contemplated in
this paragraph B or the Maturity Date.
C. For purposes of this Debenture, the term "Market Price"
means the average closing bid price of the Common Stock for the three (3)
trading days (which need not be consecutive) during the period of the ten (10)
trading days ending on the trading day immediately before the date indicated in
the relevant provision hereof (unless a different relevant period is specified
in the relevant provision) for which the closing bid price of the Common Stock
(as reported by Bloomberg, LP or, if not so reported, as reported on the
over-the-counter market) were the lowest.
D. Any principal amount of this Debenture not previously
converted or redeemed as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind (including, but not
necessarily limited to, the giving of a Notice of Conversion) by the Holder, as
of the Maturity Date at the Conversion Rate applicable on the Maturity Date
("Mandatory Conversion").
E. Notwithstanding any other provision hereof, of the Warrants
or of any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures or a
conversion pursuant to a Redemption Notice Conversion [as defined below], (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to convert any
Debenture, or shall the Company have the obligation to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture in stock), to the extent that, after such conversion
or issuance of stock in payment of interest, the sum of (1) the number of shares
of Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debentures or unexercised portion of
the Warrants), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder and
its affiliates of more than 9.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Holder upon such
conversion). For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), except as
otherwise provided in clause (1) of such sentence. The Holder, by its acceptance
of this Debenture, further agrees that if the Holder transfers or assigns any of
the Debentures to a party who or which would not be considered such an
affiliate, such assignment shall be made subject to the transferee's or
assignee's specific agreement to be bound by the provisions of this Section 4(E)
as if such transferee or assignee were the original Holder hereof. Nothing
herein shall preclude the Holder from disposing of a sufficient number of other
shares of Common Stock beneficially owned by the Holder so as to thereafter
permit the continued conversion of this Debenture.
F. Anything herein to the contrary notwithstanding, in the
event the Company breaches the provisions of Section 4(g) of the Securities
Purchase Agreement, the Conversion Rate shall be amended to be equal to (i)
ninety percent (90%) of (ii) the Conversion Rate determined in
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accordance with the other provisions of this Debenture without regard to this
Section 4(F), and the Holder may require the Company to immediately redeem all
or any part of the outstanding portion of this Debenture for an amount equal to
the Redemption Amount (defined below).
5. A. Notwithstanding any other provision hereof to the contrary, at
any time prior to the Conversion Date, the Company shall have the right to
redeem all or any portion of the then outstanding principal amount of the
Debentures then held by the Holder in cash for an amount (the "Redemption
Amount") equal to the sum of (a) one hundred forty percent (140%) of the
outstanding principal of such Debentures plus (b) all accrued but unpaid
interest thereon through the date the Redemption Amount is paid to the Holder
(the "Redemption Payment Date").
B. The Company shall give at least ten (10) business days' written
notice of such redemption to the Holder (the "Notice of Redemption"). The date
so specified in such Notice of Redemption shall be the Redemption Payment Date.
Anything in the preceding provisions of this Section 5 to the contrary
notwithstanding, the Redemption Amount shall, unless otherwise agreed to in
writing by the Holder after receiving the Notice of Redemption, be paid to the
Holder in good funds at least five (5) but not more than ten (10) business days
from the date of the Notice of Redemption, except that, with respect to any
Debentures for which a Notice of Redemption is given, the Holder shall have the
right, exercisable by giving a Notice of Conversion is submitted to the Company
within five (5) business days of the Holder's receipt of the Company's Notice of
Redemption, to convert any or all of the Debentures sought to be redeemed (a
"Redemption Notice Conversion") and the Redemption Notice Conversion shall take
precedence over the redemption contemplated by the Notice of Redemption. Such
Debentures shall be converted in accordance with the terms hereof.
C. In the event such Redemption Amount is not timely made, any
rights of the Company to redeem outstanding Debentures shall terminate, and the
Notice of Redemption shall be null and void.
D. Any redemption contemplated by this Debenture shall be made only
in cash by the payment of immediately available good funds to the Holder.
6. The Holder recognizes that, if applicable to the Company, the
Company may be limited in the number of shares of Common Stock it may issue by
virtue of (a) the number of authorized shares, or (b) the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the
"Cap Regulations"). Without limiting the other provisions hereof, (w) the
Company will take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
Regulations and (x) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Issuance Regulations,
the Holder of this Debenture (to the extent the same can not be converted in
compliance with the Issuance Regulations (an "Unconverted Debenture"), shall
have the option, exercisable in such Holder's sole and absolute discretion, to
elect either of the following remedies:
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(i) if permitted by the Cap Regulations, require the Company to
issue shares of Common Stock in accordance with such holder's notice of
conversion at a conversion purchase price equal to the average of the
closing price per share of Common Stock for any five (5) consecutive
trading days (subject to certain equitable adjustments for certain events
occurring during such period) during the sixty (60) trading days
immediately preceding the date of notice of conversion; or
(ii) require the Company to redeem each Unconverted Debenture for an
amount equal to the Redemption Amount, based on the date of redemption (the
"Cap Redemption Date") specified in the notice from the Holder electing
this remedy.
The notice of exercise of this provision by the Holder shall specify the Cap
Redemption Date, which shall be at least five (5) business days after the dater
of such notice; provided, however, that the Company shall have the right to
accelerate the Cap Redemption Date. The Holder of an Unconverted Debenture may
elect one of the above remedies with respect to a portion of such Unconverted
Debenture and the other remedy with respect to other portions of the Unconverted
Debenture.
7. Subject to the terms of the Securities Purchase Agreement, dated
December 28, 1999 (the "Securities Purchase Agreement"), between the Company and
the Holder (or the Holder's predecessor in interest), no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
8. A. No recourse shall be had for the payment of the principal of, or
the interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
B. All payments contemplated hereby to be made "in cash" shall be
made in immediately available good funds in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder at the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder from time to time; except that the Holder
can designate, by notice to the Company, a different delivery address for any
one or more specific payments or deliveries.
9. If, for as long as this Debenture remains outstanding, the Company
enters into a merger (other than where the Company is the surviving entity) or
consolidation with another corporation or other entity or a sale or transfer of
all or substantially all of the assets of the Company to another person
(collectively, a "Sale"), the Company will require, in the agreements reflecting
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such transaction, that the surviving entity expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into
a Sale and the holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common Stock, then as a
condition of such Sale, the Company and any such successor, purchaser or
transferee will agree that the Debenture may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any such proposed Sale, (i)
the Holder hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice of such
Sale from the Company, except that Section 4(E) shall not apply to such
conversion.
10. The Company agrees that for as long as this Debenture remains
outstanding, the Company will not, without the consent of the Holder, spin off
or otherwise divest itself of a part of its business or operations or dispose
all or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive just compensation for such business, operations or
assets, but causes securities of another entity (the "Spin Off Securities") to
be issued to security holders of the Company. If, for any reason, prior to the
Conversion Date or the Redemption Payment Date, the Company, with the consent of
the Holder, consummates a Spin Off, then the Company shall cause (i) to be
reserved Spin Off Securities equal to the number thereof which would have been
issued to the Holder had all of the Holder's Debentures outstanding on the
record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Company (the "Outstanding
Debentures") been converted as of the close of business on the trading day
immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to
be issued to the Holder on the conversion of all or any of the Outstanding
Debentures, such amount of the Reserved Spin Off Shares equal to (x) the
Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the
numerator is the principal amount of the Outstanding Debentures then being
converted, and (II) the denominator is the principal amount of the Outstanding
Debentures.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Fixed Price shall be equitably adjusted to reflect such
action. By way of illustration, and not in limitation, of the foregoing (i) if
the Company effectuates a 2:1 split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such split, the Fixed Price shall be deemed to be one-half of
what it had been calculated to be immediately prior to such split; (ii) if the
Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such reverse split, the Fixed Price shall be deemed to be ten
times what it had been calculated to be immediately prior to such split; and
(iii) if the Company declares a stock dividend of one share of Common Stock for
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues the shares after the record date of such dividend, the
Fixed Price shall be deemed to be the amount of such Fixed Price calculated
immediately prior to such record date multiplied by a fraction, of which the
numerator is the number of shares (10) for which a dividend share will be issued
and the denominator is such number of shares plus the dividend share(s) issuable
or issued thereon (11).
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12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
14. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and same shall continue
for a period of five (5) business days; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement,
the Registration Rights Agreement (as defined in the
Securities Purchase Agreement) or in any certificate
or financial or other written statements heretofore
or hereafter furnished by the Company in connection
with the execution and delivery of this Debenture or
the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made;
or
c. Subject to the terms of the Securities Purchase
Agreement, the Company fails to authorize or to cause
its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights
of the Holder in accordance with the terms of this
Debenture, fails to transfer or to cause its Transfer
Agent to transfer any certificate for shares of
Common Stock issued to the Holder upon conversion of
this Debenture and when required by this Debenture or
the Registration Rights Agreement, and such transfer
is otherwise lawful, or fails to remove any
restrictive legend on any certificate or fails to
cause its Transfer Agent to remove such restricted
legend, in each case where such removal is lawful, as
and when required by this Debenture, the Agreement or
the Registration Rights Agreement, and any such
failure shall continue uncured for ten (10) business
days; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of any
Debenture in this series and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure;
or
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e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision,
condition, agreement or obligation of the Company
under the Securities Purchase Agreement or the
Registration Rights Agreement and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure
(other than a failure to use the Company's best
efforts to cause the Registration Statement to become
effective, as provided in the Registration Rights
Agreement, as to which the cure period shall be five
(5) days after written notice from the Holder of such
failure); or
f. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within ninety (90) days after such
appointment; or
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within ninety (90) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within ninety (90) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange or over-the-counter market
from trading for in excess of fifteen (15) trading
days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any
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subsequent default) at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Debenture immediately due and payable,
without presentment, demand, protest or notice of any kinds, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by law.
15. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
16. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section 16
or otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 16 shall control every other
provision of this Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: December 28, 1999
ADVANCED VIRAL RESEARCH CORP.
By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------------------
Xxxxxx X. Xxxxxxxxx
President and Chief Executive Officer
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