<PAGE>

                                                                    Exhibit 10.4

THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN
EFFECTIVE  REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933,  AS AMENDED,  OR  APPLICABLE  STATE  SECURITIES  LAWS OR (B) AN OPINION OF
COUNSEL,  REASONABLY  SATISFACTORY  TO THE  COMPANY,  THAT  REGISTRATION  IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE  STATE SECURITIES LAWS. THE SECURITIES MAY
BE PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN  ACCOUNT OR OTHER LOAN SECURED
BY THE SECURITIES.

THE FOLLOWING  INFORMATION IS PROVIDED  SOLELY FOR PURPOSES OF APPLYING THE U.S.
FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS DEBENTURE. THIS
DEBENTURE  HAS AN ISSUE PRICE OF  $4,484,990.14,  AN AGGREGATE  AMOUNT OF OID OF
$941,009.86, AN ISSUE DATE OF MARCH 12, 2003 AND A YIELD TO MATURITY OF 16.9%.

No. __                                                                 $________

                           HEMISPHERX BIOPHARMA, INC.

          6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JANUARY 31, 2005

            THIS DEBENTURE (this  "Debenture") is one of a duly authorized issue
of Debentures of HEMISPHERX  BIOPHARMA,  INC., a corporation  duly organized and
existing under the laws of the State of Delaware (the "Company"),  designated as
its 6% Senior  Secured  Convertible  Debentures  Due  January  31,  2005,  in an
aggregate  principal  amount of up to Five Million,  Four Hundred and Twenty-Six
Thousand U.S. Dollars (U.S. $5,426,000) (the "Debentures").

            FOR VALUE RECEIVED, the Company promises to pay to ________________,
the holder hereof, or its registered  assigns (the "Holder"),  the principal sum
of _____ Million Dollars  ($_________) on January 31, 2005 (subject to extension
as  provided  herein,  the  "Maturity  Date")  and  to pay  interest  ("Interest
Payments") on the Outstanding Principal Amount at the rate of 6% per annum which
shall be cumulative,  accrue, but not compound,  daily from the date of issuance
of this  Debenture  and be due and  payable  in arrears on the first day of each
Quarterly Period commencing with the Quarterly Period immediately  following the
date of issuance of this Debenture  (each, an "Interest  Payment Date").  If the
Maturity  Date is not a Business  Day, then the Maturity Date shall be deemed to
be the Business Day immediately following such date. If an Interest Payment Date
is not a Business Day, then the Interest Payment shall be due and payable on the
Business Day immediately  following such Interest  Payment Date.  Subject to the
limitations in Sections 11 and 26,  interest shall be payable by the issuance of
shares of Common  Stock  ("Interest  Shares") to the Holder or, at the option of
the Company, in cash (the "Cash Interest Payment");  provided, however, that the
Company may not make Cash  Interest  Payments  and  interest  payments  shall be
payable in Interest  Shares unless the Company  provides  written notice to each
holder  of  Debentures  at least  five  Business  Days  prior to the  applicable
Interest Payment Date that such Interest Payments shall be made in cash.


<PAGE>

Interest Shares shall be paid in a number of fully paid and nonassessable shares
(rounded up or down to the  nearest  whole  share) of Common  Stock equal to the
quotient  of (1)  the  amount  of the  Interest  Payment  due on the  applicable
Interest Payment Date divided by (2) ninety-five percent (95%) of the arithmetic
average of the Closing  Sale Price of the Common  Stock on the five  consecutive
Business  Days  ending on and  including  the  third  Business  Day  immediately
preceding the applicable  Interest  Payment Date (the "Interest Share Conversion
Rate");  provided,  further; that in no event may the Company issue more than an
aggregate of 40,000 shares of Common Stock (as equitably  adjusted for any stock
dividend, stock split or other similar transaction),  pro rata among all holders
of Debentures,  in respect of any single Interest  Payment (it being  understood
that the balance of each such  Interest  Payment  shall be paid in the form of a
Cash Interest  Payment).  Notwithstanding  the  foregoing,  the Company shall be
required to make a Cash Interest Payment on any Interest Payment Date if (a) any
event constituting an Event of Default or an event that with the passage of time
and without being cured would  constitute an Event of Default,  has occurred and
is  continuing  on the  Interest  Payment  Date or any date  which is  within 10
Business Days prior to the Interest Payment Date, unless otherwise  consented to
in writing by the holder of the  Debenture  entitled  to receive  such  Interest
Payment  or (b) from and  after  the time that any  Registration  Statement  (as
defined in the Registration Rights Agreement,  the "Registration  Statement") is
required to be effective,  such Registration Statement is not then effective and
available for the resale of all of the Registrable Securities (as defined in the
Registration  Rights  Agreement) on the Interest Payment Date or each date which
is within 10 Business Days prior to the Interest  Payment Date.  Any accrued and
unpaid  interest which is not paid within five (5) Business Days of the Interest
Payment Date on which such  payment of interest  was due shall bear  interest at
the rate of 14.0% per annum from such  Interest  Payment  Date until the same is
paid in full  (or,  if  less,  the  maximum  interest  rate  then  permitted  by
applicable law) (the "Default Interest").

            Interest Payments and payments of principal will be paid only to the
person in whose name this Debenture (or one or more  predecessor  Debentures) is
registered on the records of the Company regarding registration and transfers of
the Debentures (the "Debenture Register").

            This Debenture is subject to the following additional provisions:

      1.  Exchange.  The  Debentures  are  exchangeable  for an equal  aggregate
principal amount of Debentures of different  denominations,  as requested by the
Holder  surrendering  the same. No service  charge will be charged to the Holder
for such registration transfer or exchange.

      2.  Transfers.  This  Debenture  has been  issued  subject  to  investment
representations  of the  original  purchaser  hereof and may be  transferred  or
exchanged in the United States only in  compliance  with the  Securities  Act of
1933, as amended (the "Act"), and applicable state securities laws. Prior to due
presentment for transfer of this Debenture,  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
all other  purposes,  whether or not this Debenture is overdue,  and the Company
shall not be affected by notice to the contrary.


                                       2
<PAGE>

      3.  Definitions.  For purposes of this Debenture,  the location of defined
terms in this Debenture is set forth on the Index of Terms  attached  hereto and
the following terms shall have the following meanings:

            "Account Control  Agreement" shall have the meaning ascribed thereto
in the Securities Purchase Agreement.

            "Agent"  shall  mean  Portside  Growth &  Opportunity  Fund,  in its
capacity as collateral agent for the holders of Debentures, and any successor in
such capacity.

            "Approved  Stock Plan shall mean any employee  benefit  plan,  stock
incentive plan or other similar plan or  arrangement  which has been approved by
the Board of  Directors  of the  Company or any  authorized  committee  thereof,
pursuant  to which the  Company's  securities  may be  issued  to any  employee,
officer, consultant or director for services provided to the Company.

            "ASE" shall mean The American Stock Exchange.

            "Bloomberg"  shall  mean  Bloomberg  Financial  Markets or any other
similar financial  reporting service as may be selected from time to time by the
Company and the holders of not less than 60% of the then  Outstanding  Principal
Amount of Debentures issued on the Original Issuance Date.

            "Business Day" shall mean any day other than Saturday, Sunday or any
other day on which  commercial  banks in The City of New York are  authorized or
required by law to remain closed.

            "Cash Collateral  Account" shall mean the account  maintained by the
Company at the Cash  Collateral  Account Bank, and subject to the control of the
Agent  pursuant to the Account  Control  Agreement,  together with any successor
account designated by the Agent.

            "Cash Collateral Account Bank" shall mean the financial  institution
designated  as the Cash  Collateral  Account  Bank  under  the  Account  Control
Agreement.

            "Cash  Transaction" shall mean any Organic Change with a third party
on an arm's length  basis  pursuant to which the holders of the Common Stock are
to receive consideration consisting solely of cash.

            "Closing  Sale Price"  shall mean,  for any security as of any date,
the last  closing  trade  price for such  security  on the  Principal  Market as
reported  by  Bloomberg,  or if the  Principal  Market  begins to  operate on an
extended hours basis,  and does not designate the closing trade price,  then the
last trade price at 4:00 p.m., New York City Time, as reported by Bloomberg,  or
if the foregoing do not apply,  the last closing trade price of such security in
the  over-the-counter  market on the electronic bulletin board for such security
as reported by  Bloomberg,  or, if no last  closing  trade price is reported for
such  security by  Bloomberg,  the last  closing  ask price of such  security as
reported by  Bloomberg,  or, if no last  closing ask price is reported  for such
security by  Bloomberg,  the average of the highest bid price and the lowest ask
price of any market makers for such security as reported in the "pink sheets" by
the  National


                                       3
<PAGE>

Quotation  Bureau,  Inc.  If the  Closing  Sale  Price  cannot be
calculated  for such  security on such date on any of the foregoing  bases,  the
Closing Sale Price of such  security on such date shall be the fair market value
as mutually determined by the Company and the holders of no less than 60% of the
Outstanding  Principal Amount of the Debentures  issued on the Original Issuance
Date then  outstanding.  If the Company and the  holders of the  Debentures  are
unable  to agree  upon the fair  market  value of the  Common  Stock,  then such
dispute  shall  be  resolved  pursuant  to  Section  4(e)(iii)  below.  All such
determinations  shall be  appropriately  adjusted for any stock dividend,  stock
split or other similar transaction during such period.

            "Collateral"  shall mean all of the property and assets,  other than
Intellectual  Property, and all interests therein and proceeds thereof now owned
or hereafter  acquired by the  Company,  any of its  Subsidiaries  and any other
Person upon which a Lien is granted or purported to be granted by such Person as
security  for all or any  part  of the  obligations  of the  Company  under  the
Debentures.

            "Common  Stock"  shall mean the Common  Stock,  par value $0.001 per
share, of the Company.

            "Common Stock Deemed Outstanding" shall mean, at any given time, the
number of shares of Common Stock  actually  outstanding  at such time,  plus the
number of shares of Common Stock deemed to be  outstanding  pursuant to Sections
6(a)(i) and 6(a)(ii)  hereof  regardless  of whether the Options or  Convertible
Securities  are actually  exercisable  at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable upon
conversion of the Debentures or exercise of the Warrants.

            "Conversion  Failure"  shall mean that for any reason the Holder has
not  received  all of the shares of Common Stock to which the Holder is entitled
prior to the tenth  (10th)  Business  Day after  the  Share  Delivery  Date with
respect to a conversion of this Debenture.

            "Conversion  Price"  shall mean as of any  Conversion  Date or other
date of  determination  $1.46,  subject to  adjustment as provided in Section 6,
Anti-dilution Adjustments to Conversion Price.

            "Convertible  Securities"  shall mean any stock or securities (other
than  Options)  directly  or  indirectly  convertible  into or  exchangeable  or
exercisable for Common Stock.

            "Default   Conversion  Price"  shall  mean  the  lower  of  (a)  the
Conversion  Price then in effect and (b) 95% of the  lowest  Closing  Sale Price
during the three (3) trading days ending on and including the Conversion Date or
other date of determination.

            "Intellectual  Property"  means all trademarks,  trade names,  trade
dress, service marks, service mark registrations, service names, patents, patent
rights, copyrights,  inventions,  technology licenses,  approvals,  governmental
authorizations, trade secrets and other intellectual property rights.

            "Interferon  Acquisition"  shall  mean the  acquisition  of  certain
assets and technology of Interferon Sciences,  Inc.  ("Interferon")  pursuant to
asset purchase  agreements,


                                       4
<PAGE>

dated as of March 11,  2003,  between  the Company  and  Interferon,  a true and
complete copy of which has been  delivered by the Company to each initial holder
of Debentures in accordance with the Securities Purchase Agreement.

            "Letters of Credit" shall mean the  irrevocable  standby  letters of
credit in the aggregate  stated amount of $1,000,000  issued by banks acceptable
to the Agent and  naming  the Agent as  beneficiary,  and any  letters of credit
issued in substitution or replacement thereof, in accordance with the Securities
Purchase Agreement.

            "Mortgage" shall mean each mortgage, deed of trust or deed to secure
debt,  made by the Company in favor of the Agent and recorded  against each real
property  location  acquired  by the  Company  from  Interferon  pursuant to the
Interferon Acquisition.

            "NASDAQ" shall mean The Nasdaq National Market, The Nasdaq Small Cap
Market or the ASE.

            "NYSE" shall mean The New York Stock Exchange, Inc.

            "Options"  shall mean any rights,  warrants or options to  subscribe
for or purchase Common Stock or Convertible Securities.

            "Original  Issuance  Date"  shall  mean the first  date on which any
Debentures have been issued pursuant to the Securities Purchase Agreement.

            "Outstanding   Principal   Amount"  shall  mean  the  principal  sum
outstanding from time to time under this Debenture.

            "Person" shall mean 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.

            "Principal Market" shall mean the ASE, or if the Common Stock is not
traded on the ASE, then the principal  securities exchange or trading market for
the Common Stock.

            "Quarterly  Period"  shall mean each of the following  periods:  the
period  beginning on and including  January 1 and ending on and including  March
31; the period  beginning on and  including  April 1 and ending on and including
June  30,  the  period  beginning  on and  including  July 1 and  ending  on and
including  September 30; and the period beginning on and including October 1 and
ending on and including December 31.

            "Registration Rights Agreement" shall mean that certain registration
rights  agreement  between the Company and the initial holders of the Debentures
relating to the filing of a  registration  statement  covering the resale of the
shares of Common Stock  issuable upon  conversion of the Debentures and exercise
of the Warrants,  as such agreement may be amended from time to time as provided
in such agreement.

            "SEC"  shall  mean  the  United  States   Securities   and  Exchange
Commission.


                                       5
<PAGE>

            "Securities  Purchase  Agreement" shall mean that certain securities
purchase   agreement  between  the  Company  and  the  initial  holders  of  the
Debentures,  as such  agreement  may be amended from time to time as provided in
such agreement.

            "Security Agreement" shall mean that certain security agreement made
by the  Company  in favor of the Agent for the  benefit  of all  holders  of the
Debentures,  as such  agreement  may be amended from time to time as provided in
such agreement.

            "Strategic  Financing"  shall mean the  issuance of Common  Stock or
Options in connection with any acquisition by the Company, by whatever means, of
any business,  assets or  technologies,  or to any strategic  investor,  vendor,
customer,  lease or similar arrangement,  the primary purpose of which is not to
raise equity  capital;  provided that the  aggregate  number of shares of Common
Stock which the Company may issue pursuant to this  definition  shall not exceed
(i)  25% of the  total  outstanding  equity  on the  Original  Issuance  Date in
connection  with  any one or more  related  issuances  to  strategic  investors,
vendors,  customers,  lessors  or  similar  parties  or  (ii)  40% of the  total
outstanding  equity  on the  Original  Issuance  Date  in  connection  with  all
issuances to strategic investors, vendors, customers, lessors or similar parties
(in each case,  subject to adjustment for stock splits,  stock dividends,  stock
combinations and similar transactions).

            "Subsidiary"  shall mean, as to any Person, any entity in which such
Person,  directly or indirectly,  owns 30% or more of the capital stock or other
equity or similar  interests or owns capital stock or holds an equity or similar
interest which ownership  entitles such Person to elect 30% or more of the board
of directors or similar governing body of such entity.

            "Transaction  Documents"  shall have the meaning ascribed thereto in
the Securities Purchase Agreement.

            "Warrants"  shall mean the  warrants  to  purchase  shares of Common
Stock issued by the Company pursuant to the Securities Purchase Agreement.

            "Weighted  Average  Price"  shall mean,  for any  security as of any
date,  the dollar  volume-weighted  average price per share for such security on
the  Principal  Market during the period  beginning at 9:30 a.m.,  New York City
Time,  and ending at 4:00 p.m.,  New York City Time,  as reported  by  Bloomberg
through its "Volume at Price" function or, if the foregoing does not apply,  the
dollar  volume-weighted  average  price  per  share  of  such  security  in  the
over-the-counter  market on the  electronic  bulletin  board  for such  security
during the period beginning at 9:30 a.m., New York City Time, and ending at 4:00
p.m.,  New  York  City  Time,  as  reported  by  Bloomberg,  or,  if  no  dollar
volume-weighted  average  price is reported for such  security by Bloomberg  for
such hours,  the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the "pink
sheets" by the National  Quotation  Bureau,  Inc. If the Weighted  Average Price
cannot be  calculated  for such  security  on such date on any of the  foregoing
bases,  the Weighted  Average  Price of such  security on such date shall be the
fair market  value as mutually  determined  by the Company and the holders of no
less than 60% of the Outstanding  Principal  Amount of the Debentures  issued on
the Original Issuance Date then  outstanding.  If the Company and the holders of
the  Debentures  are  unable to agree upon the fair  market  value of the Common
Stock,  then such dispute shall be


                                       6
<PAGE>

resolved  pursuant to Section  4(e)(iii) with the term "Weighted  Average Price"
being  substituted  for the term "Closing  Sale Price." All such  determinations
shall be  appropriately  adjusted for any stock  dividend,  stock split or other
similar transaction during such period.

      4.  Conversion.  The Holder of this  Debenture  shall  have the  following
conversion rights:

            (a) Holder's Right to Convert. Subject to Sections 11 and 26, at any
time or times until 5:00 p.m.,  New York City Time, on the Business Day prior to
the Maturity  Date this  Debenture is  convertible,  at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common Stock
in accordance with Section 4(d) at the Conversion  Rate (as defined below).  The
Holder hereof may convert a portion of the Outstanding  Principal Amount of this
Debenture if such portion is an integral  multiple of $1,000.  If this Debenture
remains  outstanding on the Maturity Date, then this Debenture shall be redeemed
by the Company in accordance with Section 5(a).  Notwithstanding anything herein
to the contrary,  concurrent with each delivery of Conversion Shares to a holder
pursuant to this Debenture,  the Company shall pay (in Interest Shares,  only if
all terms,  conditions and requirements  set forth in this Debenture  concerning
payment of  interest in the form of Interest  Shares are  satisfied,  or cash as
determined by the Company) to such holder all accrued and unpaid interest on the
Outstanding  Principal  Amount then being  converted from the last date on which
interest  had  been  paid on  such  Outstanding  Principal  Amount  through  the
Conversion Date.

            (b) Company's Right to Mandatory Conversion.  Subject to Sections 11
and 26  hereof,  if at any time from and after the  Original  Issuance  Date the
Weighted  Average Price of the Common Stock shall exceed 175% of the  Conversion
Price for any 25 consecutive trading days (the "Mandatory  Conversion  Measuring
Period"),  the Company may deliver on or before the second  (2nd)  Business  Day
following the end of the Mandatory  Conversion Measuring Period a written notice
to all, but not less than all, of the Holders and the Transfer Agent (as defined
in Section  4(e)(i)) (the "Mandatory  Conversion  Notice"),  indicating that the
Company is  requiring  each  Holder to convert  the then  Outstanding  Principal
Amount of such Holder's  Debenture plus accrued and unpaid  interest  thereon to
the date fixed for conversion into fully paid,  validly issued and nonassessable
shares of Common Stock in accordance  with Section 4(d) hereof at the Conversion
Rate as of the Mandatory Conversion Date (as defined below); provided,  however,
that the  Company  may not require  such  conversion  if (i) an Event of Default
shall have occurred at any time on or prior to the Mandatory Conversion Date and
shall have not been cured to the reasonable  satisfaction  of the holder of this
Debenture, (ii) an event shall have occurred and be continuing at any time on or
prior to the  Mandatory  Conversion  Date which with the passage of time and the
failure  to cure  would  result in an Event of  Default,  (iii)  either  (A) any
Registration  Statement is not  effective and available for the sale of at least
all of the  Registrable  Securities  (as  defined  in  the  Registration  Rights
Agreement)  required to be included in such Registration  Statement or (B) there
has been any Grace  Period,  in either case on any trading day during the period
beginning  on the first day of the  Mandatory  Conversion  Measuring  Period and
ending  on the  Mandatory  Conversion  Date  or (iv)  there  has  been a  public
announcement of a pending,  proposed or intended Change of Control,  unless such
pending,  proposed or intended Change of Control has been terminated,  abandoned
or  consummated  and  the  Company  has  publicly  announced  such  termination,
abandonment   or   consummation   of  such  Change  of  Control  (a   "Mandatory
Conversion").  The  Company  shall  send  the  Mandatory  Conversion  Notice  by


                                       7
<PAGE>

facsimile and overnight  courier to each Holder and shall  indicate (X) the date
fixed for  conversion,  which shall be not less than  fifteen (15) days nor more
than thirty (30) days after each Holder's  receipt of the  Mandatory  Conversion
Notice (the "Mandatory  Conversion  Date"), (Y) the Conversion Price and (Z) the
number of shares of Common Stock to be issued to such Holder as of the Mandatory
Conversion  Date.  If the  Company  has  elected  a  Mandatory  Conversion,  the
mechanics of  conversion  set forth in Section  4(e) shall apply,  to the extent
applicable,  as if the Company and the  Transfer  Agent had  received  from each
Holder on the Mandatory  Conversion Date a Conversion  Notice (as defined below)
with respect to the entire Outstanding Principal Amount of the Debenture and the
interest  accrued  and  unpaid  thereon  as of the  Mandatory  Conversion  Date.
Promptly following the Mandatory Conversion Date, the Holder shall surrender its
Debenture to the Company or the Transfer Agent.

            (c) Partial Conversion of Debenture.  If this Debenture is converted
in part, the remaining  portion of this Debenture not so converted  shall remain
entitled to the conversion rights provided herein.

            (d) Conversion  Price for Holder Converted  Shares.  The Outstanding
Principal Amount of this Debenture that is converted into shares of Common Stock
shall be  convertible  into the number of shares of Common  Stock which  results
from application of the following formula:

                                        P
                        --------------------------------
                                Conversion Price
   P = Outstanding Principal Amount of this Debenture submitted for conversion

            The  number of shares of Common  Stock  into  which  this  Debenture
hereto may be converted  pursuant to the foregoing formula is hereafter referred
to as the "Conversion Rate."

            (e) Mechanics of Conversion.  The conversion of this Debenture shall
be conducted in the following manner:

                  (i) Holder's Delivery Requirements.  To convert this Debenture
(in whole or in part) into full shares of Common  Stock on any date,  the Holder
shall (A) transmit by facsimile (or otherwise physically  deliver),  for receipt
on or prior to 5:00 p.m., New York City Time, on such date, a copy of a properly
completed  notice of  conversion  executed  by the  Holder in the form  attached
hereto as Exhibit I (the  "Conversion  Notice") to the Company and the Company's
designated  transfer  agent  (the  "Transfer  Agent")  and  (B)  surrender  this
Debenture to a common carrier for delivery to the Company as soon as practicable
following such date.

                  (ii) Company's Response. Upon receipt by the Company of a copy
of a Conversion Notice, the Company shall (A) as soon as practicable, but in any
event within two (2) Business  Days,  send, via  facsimile,  a  confirmation  of
receipt of such Conversion  Notice to such holder and the Transfer Agent,  which
confirmation  shall  constitute an  instruction to the Transfer Agent to process
such  Conversion  Notice in accordance with the terms herein and (B) then, on or
before  the  second  (2nd)  Business  Day  following  the date of receipt by the
Company


                                       8
<PAGE>

of such Conversion Notice (the "Share Delivery Date"),  (x) issue and deliver to
the address as specified in the Conversion Notice, a certificate,  registered in
the name of the Holder or its designee, for the number of shares of Common Stock
to which the Holder shall be entitled,  or (y) in the case of a public resale of
such  Conversion  Shares in accordance  with the  provisions of the  Irrevocable
Transfer Agent Instructions, provided the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and,
if required by DTC,  the holder  provides a customary  representation  letter to
DTC, upon the request of the holder,  credit such aggregate  number of shares of
Common Stock to which the holder  shall be entitled to the  holder's  designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system.
If the specified principal amount submitted for conversion is less than the then
Outstanding Principal Amount of this Debenture,  then the Company shall, as soon
as practicable  using  reasonable best efforts,  and in no event later than five
Business Days after receipt of the Debenture (the "Debenture Delivery Date") and
at its own expense, issue and deliver to the holder a new Debenture representing
the Outstanding Principal Amount not converted. The effective date of conversion
(the  "Conversion  Date")  shall be deemed  to be the date on which the  Company
receives by facsimile the Conversion  Notice, and the Person or Persons entitled
to receive the shares of Common Stock  issuable  upon such  conversion  shall be
treated  for all  purposes  as the record  holder or  holders of such  shares of
Common Stock on such date.

                  (iii) Dispute  Resolution.  In the case of a dispute as to the
determination  of the Closing  Sale  Price,  the  Weighted  Average  Price,  the
Conversion  Price or the  arithmetic  calculation  of the  Conversion  Rate, the
Company shall  instruct the Transfer  Agent to issue to the Holder the number of
shares of Common Stock that is not disputed and shall transmit an explanation of
the  disputed  determinations  or  arithmetic  calculations  to the  Holder  via
facsimile  within two (2) Business  Days of receipt of the  Holder's  Conversion
Notice or other date of determination.  If the Holder and the Company are unable
to agree upon the  determination of the Closing Sale Price, the Weighted Average
Price,  the Conversion  Price or arithmetic  calculation of the Conversion  Rate
within  two (2)  Business  Days of such  disputed  determination  or  arithmetic
calculation being  transmitted to the Holder,  then the Company shall within two
(2) Business  Days submit via facsimile  (A) the disputed  determination  of the
Closing Sale Price,  the Weighted  Average  Price or the  Conversion  Price,  as
applicable, to an independent, reputable investment bank selected by the Company
and approved by the holders of at least 60% of the Outstanding  Principal Amount
of the Debentures  issued on the Original  Issuance Date then outstanding or (B)
the disputed  determination of the Conversion  Price, the Weighted Average Price
or the Conversion Price, as applicable,  or the disputed arithmetic  calculation
of the Conversion Rate to the Company's  independent,  outside  accountant.  The
Company shall cause the investment bank or the  accountant,  as the case may be,
to perform the  determinations  or  calculations  and notify the Company and the
holders of the  results no later  than ten (10)  Business  Days from the time it
receives the disputed determinations or calculations.  Such investment bank's or
accountant's determination or calculation,  as the case may be, shall be binding
upon all parties absent manifest error.

                  (iv) Company's Failure to Timely Convert.


                                       9
<PAGE>

                        (A) If (x)  within  five (5)  Business  Days  after  the
Company's  receipt of the facsimile copy of a Conversion  Notice the Company has
failed to issue and  deliver a  certificate  to a Holder or credit the  Holder's
designee's  balance account with DTC, in accordance with Section 4(e) hereof for
the number of shares of Common  Stock to which the Holder is  entitled  upon the
Holder's  conversion  of this  Debenture or (y) within five (5) Business Days of
the  Company's  receipt of this  Debenture  the  Company has failed to issue and
deliver a Debenture  representing  the principal amount of this Debenture not so
converted,  then in addition to all other  available  remedies which such holder
may pursue  hereunder and under the  Securities  Purchase  Agreement  (including
indemnification pursuant to Section 8 thereof), the Company shall pay additional
damages  to such  holder  for each day after the Share  Delivery  Date that such
conversion is not timely effected  and/or each day after the Debenture  Delivery
Date that this  Debenture  is not  delivered  in an amount equal to 0.05% of the
product of (I) the sum of the number of shares of Common Stock not issued to the
holder  on or prior to the  Share  Delivery  Date and to which  such  holder  is
entitled as set forth in the applicable  Conversion Notice and, in the event the
Company  has  failed to  deliver a  Debenture  to the  holder on or prior to the
Debenture  Delivery  Date,  the number of shares of Common Stock  issuable  upon
conversion  of this  Debenture as of the  Debenture  Delivery  Date and (II) the
Closing Sale Price of the Common Stock on the Share  Delivery  Date, in the case
of the failure to deliver Common Stock,  or the Debenture  Delivery Date, in the
case of failure to  deliver a  Debenture.  The  foregoing  notwithstanding,  the
damages set forth in this Section  4(e)(iv)  shall be stayed with respect to the
number of shares of Common Stock for which there is a good faith  dispute  being
resolved pursuant to Section 4(e)(iii), pending the resolution of such dispute.

                        (B) If for any reason a holder has not  received  all of
the shares of Common  Stock to which such holder is entitled  prior to the tenth
(10th)  Business Day after the Share  Delivery Date with respect to a conversion
of this Debenture,  then the Holder, upon written notice to the Company,  with a
copy to the Transfer Agent,  may void its Conversion  Notice;  provided that the
voiding  of the  Holder's  Conversion  Notice  shall not  affect  the  Company's
obligations  to make any payments  which have accrued  prior to the date of such
notice pursuant to Section 4(e)(iv)(A) or otherwise.

                  (f) No  Fractional  Shares.  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 or down to the nearest
whole share.

                  (g) Release of Funds from Segregated Account.  Notwithstanding
anything  herein  to the  contrary,  if at any time and from  time to time,  the
balance of the funds  remaining in the  Segregated  Accounted (as defined in the
Securities  Purchase  Agreement),  if any,  that were  paid into the  Segregated
Account by the initial holder of this Debenture, as set forth on the Schedule of
Buyers  attached  to  the  Securities  Purchase  Agreement,   exceeds  the  then
Outstanding  Principal Amount of this Debenture,  together with accrued interest
thereon and so long as no Event of  Default,  or event that with notice or lapse
of time would  constitute an Event of Default,  has occurred and is  continuing,
the holder agrees, by its acceptance of this Debenture,  to distribute  promptly
to the  Company  an  amount in cash  equal to such  excess  from the  Segregated
Account  established by the initial holder of this Debenture,  or, if advised in
writing by the Company,  to


                                       10
<PAGE>

use such excess to remit payment for any obligation  under this Debenture to the
holder of this Debenture. If for any reason any portion of the funds held in the
Segregated  Account  established by the initial holder of this Debenture are not
paid to the  Company in  accordance  with the terms of the  Securities  Purchase
Agreement and the Outstanding Principal Amount on this Debenture,  together with
accrued and unpaid interest thereon,  becomes due and payable either at maturity
or upon  acceleration  or demand upon an Event of  Default,  the Company and the
holder,  by its acceptance of this  Debenture,  agree that the funds held in the
Segregated  Account shall be released to the holder of this  Debenture and shall
be deemed to constitute a partial payment of the Outstanding Principal Amount of
this  Debenture  together  with accrued  interest  thereon then due in an amount
equal to the  funds  in the  Segregated  Account.  All  such  payments  from the
Segregated  Account  shall be deemed to be  payments  of (i) first,  accrued and
unpaid interest on the Outstanding  Principal  Amount of this Debenture and (ii)
second, Outstanding Principal Amount of this Debenture.

      5. Redemption.

                  (a)  Mandatory  Redemption  at  Maturity.  If  this  Debenture
remains  outstanding on the Maturity Date, the Company shall redeem (a "Maturity
Date Mandatory  Redemption") the Outstanding  Principal Amount of this Debenture
that is not subject to a Conversion  Notice for an amount in cash (the "Maturity
Date  Redemption  Price")  equal  to the  Outstanding  Principal  Amount  of the
Debenture  not  converted  into shares of Common Stock  pursuant to a Conversion
Notice,  plus accrued and unpaid interest thereon.  The Maturity Date Redemption
Price  shall be paid on the  Maturity  Date to the  Holder by wire  transfer  of
immediately  available funds to an account designated in writing by such Holder.
Promptly  following  payment of the Maturity Date Redemption  Price,  the Holder
shall surrender this Debenture to the Company.

                  (b) Payment  Failures If the Company fails to make any payment
of a Maturity Date Redemption  Price,  then in addition to any remedy the Holder
may have  under  this  Debenture,  the  Securities  Purchase  Agreement  and the
Registration Rights Agreement,  until the Maturity Date Redemption Price is paid
in full,  (x) the  Maturity  Date  Redemption  Price  payable in respect of such
unpaid  Maturity Date  Redemption  Price shall bear interest at the rate of 1.5%
per month, prorated for partial months, and (y) the Holder shall have the option
to require the Company to convert any or all of the Outstanding Principal Amount
of this  Debenture  subject  to  redemption  and for  which  the  Maturity  Date
Redemption  Price (together with any interest  thereon) has not been paid into a
number of shares of Common  Stock  equal to the  quotient of the  Maturity  Date
Redemption  Price  (together with any interest  thereon)  divided by the Default
Conversion Price.

      6.  Anti-dilution  Adjustments to Conversion  Price.  The Conversion Price
will be subject to adjustment from time to time as provided in this Section 6 at
all times prior to, but not after,  the date on which cash  collateral  payments
have  been  made  pursuant  to  Section  25 in an  amount  equal  to the  entire
Outstanding  Principal Amount,  together with accrued and unpaid interest on all
Debentures outstanding:

                  (a) Anti-dilution Adjustment of Conversion Price upon Issuance
of Common  Stock.  If and  whenever on or after the Original  Issuance  Date and
prior to the twelve (12) month  anniversary  of the Original  Issuance Date, the
Company  issues or sells,  or in accordance  with


                                       11
<PAGE>

this Section  6(a) is deemed to have issued or sold,  any shares of Common Stock
(but  excluding  shares of Common  Stock:  (v) deemed to have been issued by the
Company in  connection  with an  Approved  Stock  Plan;  (w) deemed to have been
issued  upon  issuance  of  the  Debentures  or the  Warrants,  or  issued  upon
conversion  of the  Debentures  or  exercise  of the  Warrants;  (x) issued upon
exercise of Options or Convertible  Securities which are outstanding on the date
immediately preceding the Original Issuance Date, provided that such issuance of
shares of Common Stock upon exercise of such Options or  Convertible  Securities
is made  pursuant  to the terms of such  Options or  Convertible  Securities  in
effect on the date  immediately  preceding  the  Original  Issuance  Date,  such
Options or  Convertible  Securities  are not amended after the date  immediately
preceding  the  Original  Issuance  Date  other  than with  respect  to  Options
originally  issued  pursuant  to an  Approved  Stock  Plan and the  purchase  or
exercise price provided for in any such Options,  the additional  consideration,
if any,  payable  upon the issue,  conversion,  exchange or exercise of any such
Convertible  Securities,  or the rate at which any  Convertible  Securities  are
convertible into or exchangeable or exercisable for Common Stock does not change
at any time after the Original  Issuance Date; (y) issued to the public pursuant
to an underwritten  offering  registered  pursuant to the Securities Act (but in
all events excluding  offerings pursuant to "equity lines" or similar products);
and (z) issued pursuant to a Strategic  Financing ((v) through (z)  collectively
"Excluded  Issuances"))  for a  consideration  per share  (the  "New  Securities
Issuance Price") less than the Conversion Price in effect  immediately  prior to
such time (each such sale or issuance, a "Dilutive  Issuance"),  then concurrent
with such  Dilutive  Issuance,  the  Conversion  Price  then in effect  shall be
reduced to an amount equal to the New Securities Issuance Price. If and whenever
on or after the twelve (12) month  anniversary of the Original Issuance Date and
prior to the Maturity Date, the Company issues or sells,  or in accordance  with
this Section  6(a) is deemed to have issued or sold,  any shares of Common Stock
(but  excluding  shares of  Common  Stock  issued or deemed to have been  issued
pursuant to any Excluded Issuance) in a Dilutive Issuance,  then concurrent with
such Dilutive Issuance,  the Conversion Price then in effect shall be reduced to
a price (rounded to the nearest cent) equal to the product of (A) the Conversion
Price in effect immediately prior to such Dilutive Issuance and (B) the quotient
determined by dividing (1) the sum of (I) the product derived by multiplying the
Conversion Price in effect  immediately  prior to such Dilutive Issuance and the
number of shares of Common Stock Deemed  Outstanding  immediately  prior to such
Dilutive Issuance plus (II) the  consideration,  if any, received by the Company
upon such Dilutive  Issuance,  by (2) the product derived by multiplying (I) the
Conversion Price in effect  immediately  prior to such Dilutive Issuance by (II)
the number of shares of Common Stock Deemed  Outstanding  immediately after such
Dilutive  Issuance.  For purposes of determining the adjusted  Conversion  Price
under this Section 6(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,  exchange or exercise of any  Convertible  Securities  issuable upon
exercise of such Option is less than the Conversion Price in effect  immediately
prior to such Dilutive Issuance, 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 6(a)(i),  the "lowest price per share for which one share of Common
Stock is  issuable  upon the  exercise  of any such  Option or upon  conversion,
exchange or exercise of any Convertible Securities issuable


                                       12
<PAGE>

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, 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  Common  Stock or of such
Convertible  Securities  upon the  exercise  of such  Options or upon the actual
issuance  of such  Common  Stock upon  conversion,  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,
exchange  or  exercise  thereof  is less  than the  Conversion  Price in  effect
immediately  prior to such  Dilutive  Issuance,  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 of sale of such  Convertible  Securities for
such price per share.  For the  purposes of this Section  6(a)(ii),  the "lowest
price per share for  which  one  share of  Common  Stock is  issuable  upon such
conversion,  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,  exchange  or  exercise of such
Convertible  Security.  No further  adjustment of the Conversion  Price shall be
made upon the actual issuance of such Common Stock upon conversion,  exchange or
exercise of such Convertible  Securities,  and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Conversion  Price had been or are to be made pursuant to other provisions
of this Section 6(a), 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 or exercise  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
6(a)(iii),  if  the  terms  of any  Option  or  Convertible  Security  that  was
outstanding  as of the date of  issuance  of the  Debentures  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,  then solely
for  purposes of this  Section 6, the Options will be


                                       13
<PAGE>

deemed to have been issued for a  consideration  of $0.01.  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  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  marketable  securities,  in which case the amount of
consideration  received by the  Company  will be the  arithmetic  average of the
Closing Sale Prices of such securities  during the ten (10) consecutive  trading
days  ending on the date of  receipt of such  securities.  The fair value of any
consideration  other than cash or securities  will be determined  jointly by the
Company and the holders of at least 60% of the Outstanding  Principal  Amount of
the Debentures issued on the Original  Issuance Date 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  Business  Days after the tenth
(10th) day following the Valuation Event by an independent,  reputable appraiser
selected  by the  Company  and the  holders  of at least 60% of the  Outstanding
Principal  Amount of the  Debentures  issued on the Original  Issuance Date then
outstanding.  The  determination  of such appraiser shall be deemed binding upon
all parties  absent  manifest  error and the fees and expenses of such appraiser
shall be borne by the Company.

                        (v) Record  Date.  If the Company  takes a record of the
holders  of Common  Stock for the  purpose  of  entitling  them (A) to receive a
dividend or other distribution  payable in Common Stock,  Options or 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 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.

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

                  (c) Holder's Right of Alternative  Conversion  Price Following
Issuance of Convertible  Securities.  If the Company issues or sells any Options
or Convertible  Securities after the Original Issuance Date that are convertible
into or  exchangeable or exercisable for Common Stock at a price which varies or
may vary with the market price of the Common  Stock,  including by way of one or
more reset(s) to a fixed price (each of the formulations for such variable price
being herein  referred to as, the "Variable  Price"),  the Company shall provide
written  notice  thereof via facsimile and overnight  courier to the Holder (the
"Variable  Notice") on the date of issuance of such  Convertible  Securities  or
Options.  From and  after  the  date the  Company  issues  any such  Convertible
Securities  or  Options  with a  Variable  Price,  but  only for


                                       14
<PAGE>

so long as such Convertible  Securities or Options are  outstanding,  the Holder
shall  have  the  right,  but not the  obligation,  in its  sole  discretion  to
substitute the Variable Price for the  Conversion  Price upon  conversion of any
Debentures  held by it by designating in the  Conversion  Notice  delivered upon
conversion of such  Debentures  that solely for purposes of such  conversion the
Holder is relying on the Variable Price rather than the Conversion Price then in
effect.  The  Holder's  election  to rely on a Variable  Price for a  particular
conversion  of  Debentures  shall not  obligate the Holder to rely on a Variable
Price for any future conversions of Debentures.

                  (d) Other Events. If any event occurs of the type contemplated
by the  provisions  of this  Section 6 in a  private  transaction  (the  primary
purpose of which is to raise equity  capital) 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
other than  pursuant  to an  Excluded  Issuance),  then the  Company's  Board of
Directors will make an appropriate  adjustment in the Conversion  Price so as to
protect  the rights of the  holders  of the  Debentures;  provided  that no such
adjustment will increase the Conversion Price as otherwise  determined  pursuant
to this Section 6.

                  (e) Notices.

                        (i) Promptly  following any adjustment of the Conversion
Price  pursuant to this Section 6, the Company will give written  notice thereof
to  the  Holder,  setting  forth  in  reasonable  detail,  and  certifying,  the
calculation of such adjustment. In the case of a dispute as to the determination
of such  adjustment,  then such dispute shall be resolved in accordance with the
procedures set forth in Section 4(e)(iii).

                        (ii) The Company will give written  notice to the Holder
at least ten (10)  Business  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 in Section 7(a)),  dissolution  or  liquidation,
provided  that the Company need not in any case provide such notice prior to the
time such information is made known to the public.

                        (iii) The Company will also give  written  notice to the
Holder at least ten (10)  Business  Days prior to the date on which any  Organic
Change,  dissolution or liquidation  will take place,  provided that the Company
need not in any case provide such notice prior to the time such  information  is
made known to the public.

      7. Other Rights.

            (a) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization,  reorganization, reclassification,  consolidation, merger,
sale of all or  substantially  all of the Company's  assets to another Person or
other  transaction  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 "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


                                       15
<PAGE>

following which the Company is not a surviving  entity,  the Company will secure
from the Person purchasing such assets or the successor, or, if applicable,  the
parent of the  successor,  resulting from such Organic Change (in each case, the
"Acquiring Entity") a written agreement to deliver to each holder of Outstanding
Principal Amount of the Debentures in exchange for such  securities,  a security
of the Acquiring Entity evidenced by a written instrument  substantially similar
in form and substance to the  Debentures,  and  reasonably  satisfactory  to the
holders of at least 60% of the  Outstanding  Principal  Amount of the Debentures
issued on the Original  Issuance  Date then  outstanding;  provided that the new
security of the  Acquiring  Entity  shall not be required to be of rank equal to
the Debenture if the issuance of a security of such rank is not permitted by, or
is inconsistent  with, any agreement or instrument to which the Acquiring Entity
is a party or any security of the Acquiring Entity that is outstanding, upon the
consummation  of the  Organic  Change.  Prior to the  consummation  of any other
Organic Change, the Company shall make appropriate provision to insure that each
of the holders of the Debentures  will  thereafter have the right to acquire and
receive in lieu of or in  addition  to (as the case may be) the shares of Common
Stock immediately  theretofore  acquirable and receivable upon the conversion of
such holder's  Debentures 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  shares  of Common  Stock  which  would  have been
acquirable and receivable upon the conversion of such holder's  Debentures as of
the date of such Organic Change  (without taking into account any limitations or
restrictions on the convertibility of the Debentures).

            (b) Optional Redemption at Holder's Election Upon Change of Control.
In addition to the rights of the holders of Debentures under this Debenture, the
Securities  Purchase  Agreement and the Registration  Rights  Agreement,  upon a
Change of Control (as defined  below) of the Company  each holder of  Debentures
shall have the right, at such holder's option,  to require the Company to redeem
all or a portion of such  holder's  Debentures  at a price  equal to 100% of the
Outstanding Principal Amount of such Debentures plus the product of (1) 1.75 and
(2) the dollar amount of all Interest  Payments  scheduled to be paid  following
the  consummation  of the Change of Control and on or prior to the Maturity Date
on the  total  Outstanding  Principal  Amount of the  Debentures  on the date of
consummation of the Change of Control ("Change of Control Redemption Price"). No
sooner  than 20  Business  Days nor later  than 10  Business  Days  prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control,  the Company shall deliver  written  notice  thereof via
facsimile and overnight courier (a "Notice of Change of Control") to each holder
of Debentures. At any time during the period beginning after receipt of a Notice
of Change of  Control  (or,  in the event a Notice of Change of  Control  is not
delivered at least 10 Business Days prior to a Change of Control, at any time on
or after the date which is 10 Business  Days prior to a Change of  Control)  and
ending on the date one (1)  Business  Day prior to such Change of  Control,  any
holder of the Debentures then  outstanding may require the Company to redeem all
or a portion of the holder's  Debentures then outstanding by delivering  written
notice thereof via facsimile and overnight courier (a "Notice of Redemption Upon
Change of Control") to the Company,  which Notice of  Redemption  Upon Change of
Control shall  indicate (i) the  principal  amount of the  Debentures  that such
holder is submitting for redemption,  and (ii) the applicable  Change of Control
Redemption  Price,  as  calculated  pursuant  to this  Section  7(b).  Upon  the
Company's  receipt of a Notice(s) of Redemption  Upon Change of Control from any
holder of Debentures, the Company shall promptly, but in no event later than two
(2) Business Days  following  such receipt,  notify


                                       16
<PAGE>

each  holder  of  Debentures  by  facsimile  of the  Company's  receipt  of such
Notice(s) of Redemption Upon Change of Control. The Company shall deliver to the
holder of each Debenture who has delivered a Notice of Redemption upon Change of
Control,  the applicable Change of Control Redemption Price  simultaneously with
the  consummation of the Change of Control  provided that a holder's  Debentures
shall have been so delivered to the Company.  For purposes of this Section 7(b),
"Change of Control" shall mean (i) the  consolidation,  merger or other business
combination  of the  Company  with or into  another  Person  (other  than  (A) a
consolidation,  merger or other  business  combination  in which  holders of the
Company's voting power immediately  prior to the transaction  continue after the
transaction to hold,  directly or indirectly,  the voting power of the surviving
entity or entities  necessary to elect a majority of the members of the board of
directors (or their  equivalent if other than a  corporation)  of such entity or
entities,  or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company),  (ii) the sale or
transfer of all or substantially  all of the Company's assets, or (iii) a tender
or  exchange  offer made to and  accepted by the holders of more than 50% of the
aggregate voting power of the outstanding Common Stock.

            (c)  Optional   Redemption  At  the  Company's  Election  Upon  Cash
Transaction.  At any time or times on or  after  the date the  Company  publicly
discloses a pending,  proposed or intended Cash  Transaction,  the Company shall
have the right, in its sole  discretion,  to require that all, but not less than
all, of the  Outstanding  Principal  Amount of this Debenture be redeemed ("Cash
Transaction  Redemption  Election") at a price equal to 100% of the  Outstanding
Principal  Amount of this  Debenture  plus the  product  of (1) 1.75 and (2) the
dollar  amount of all  Interest  Payments  scheduled  to be paid  following  the
consummation of the Cash Transaction and on or prior to the Maturity Date on the
total  Outstanding  Principal  Amount of the Debentures  redeemed on the date of
consummation of the Cash Transaction (the "Cash Transaction  Redemption Price").
The  Company  shall  exercise  its right to make a Cash  Transaction  Redemption
Election by providing each holder of Debentures  written notice ("Notice of Cash
Transaction  Redemption")  by facsimile or overnight  courier,  after the public
disclosure of a proposed,  pending or intended Cash Transaction and at least ten
(10) Business  Days prior to the date of  consummation  of the Cash  Transaction
("Cash Transaction  Election Redemption Date"),  which Cash Transaction Election
Redemption Date shall be the date of the  consummation of the Cash  Transaction.
The Notice of Cash  Transaction  Redemption  shall indicate the anticipated Cash
Transaction  Election Redemption Date. If the Company has exercised its right of
Cash Transaction  Redemption  Election then the Outstanding  Principal Amount of
the Debenture at the time of the consummation of the Cash  Transaction  shall be
redeemed on the Cash  Transaction  Election  Redemption Date by payment by or on
behalf of the  Company  to each  holder of  Debentures  of the  applicable  Cash
Transaction   Redemption   Price   concurrent  with  the  closing  of  the  Cash
Transaction.  All holders of Debentures shall thereupon, if the Cash Transaction
Redemption Price has been paid,  except as specifically set forth herein, in the
Securities Purchase Agreement or in the Registration Rights Agreement,  cease to
have any rights with respect to the  Debentures and within two (2) Business Days
after the Cash Transaction Election Redemption Date, or such earlier date as the
Company and holders of no less then 60% of the Outstanding  Principal  Amount of
the  Debentures  issued on the Original  Issuance  Date  mutually  agree,  shall
surrender all Debentures to the Company.


                                       17
<PAGE>

            (d) Right to Convert  on an  Organic  Change or Change of Control or
Agreement  of  the  Parties.  In  addition  to  the  foregoing,   following  the
announcement  of any Change of Control or other Organic Change  following  which
the Company is not the surviving  entity or otherwise upon the mutual  agreement
of the Company and holders of at least 60% of the Outstanding  Principal  Amount
of all  Debentures  issued on the  Original  Issuance  Date,  the  Holder  shall
continue  pursuant  to  Section  4(a)  hereof to have the right to  convert  the
Outstanding Principal Amount of this Debenture at the then prevailing Conversion
Rate until the  Debenture  is redeemed or otherwise  converted  pursuant to this
Section 7.

      8.  Reservation of Stock Issuable Upon  Conversion.  The Company shall, so
long as any of the  Debentures  are  outstanding,  take all action  necessary to
reserve and keep  available  out of its  authorized  and unissued  Common Stock,
solely for the purpose of effecting  the  conversions  of the  Debentures,  such
number of shares of Common  Stock as shall  from time to time be  sufficient  to
effect the conversion of all of the Debentures then  outstanding;  provided that
the number of shares of Common  Stock so reserved  shall at no time prior to the
date on which cash collateral  payments have been made pursuant to Section 25 in
an amount  equal to the  entire  Outstanding  Principal  Amount,  together  with
accrued and unpaid  interest on all Debentures  outstanding be less than 135% of
the number of shares of Common  Stock  needed to provide for the issuance of the
shares of Common Stock upon conversion of all of the Debentures  (without regard
to any  limitations  on conversion)  and the maximum  number of Interest  Shares
issuable  over the full term of the  Debentures  (assuming  the Company paid the
maximum amount of interest permitted to be paid in Interest Shares over the full
term of the  Debentures)  and after  such  time 100% of the  number of shares of
Common  Stock  needed to provide for the  issuance of the shares of Common Stock
upon  conversion of all of the Debentures  (without regard to any limitations on
conversion).

      9. No Reissuance of Debentures.  No Debentures  acquired by the Company by
reason of redemption,  purchase,  conversion or otherwise shall be reissued, and
all such Debentures shall be retired.  No additional  Debentures (other than the
Debentures  issued  pursuant  to the  Securities  Purchase  Agreement)  shall be
authorized  or issued  without the consent of the holders of at least 60% of the
Outstanding  Principal Amount of the Debentures  issued on the Original Issuance
Date.

      10. No  Impairment.  The Company shall not  intentionally  take any action
which would impair the rights and  privileges of the Debentures set forth herein
or the Holders thereof.

      11. Limitation on Beneficial  Ownership.  The Company shall not effect and
shall have no obligation to effect any conversion of  Debentures,  and no holder
of Debentures shall have the right to convert any Debentures, to the extent that
after giving  effect to such  conversion,  the  beneficial  owner of such shares
(together with such Person's affiliates) would have acquired, through conversion
of Debentures or otherwise, beneficial ownership of a number of shares of Common
Stock that  exceeds  4.99% of the number of shares of Common  Stock  outstanding
immediately  after  giving  effect  to  such  conversion.  For  purposes  of the
foregoing sentence, the number of shares of Common Stock beneficially owned by a
Person and its  affiliates  shall  include the number of shares of Common  Stock
issuable  upon   conversion  of  the  Debentures   with  respect  to  which  the
determination  of such  sentence is being made,  but shall exclude the number of
shares of Common  Stock  which  would be  issuable  upon (A)  conversion  of the
remaining,


                                       18
<PAGE>

nonconverted  Debentures  beneficially  owned  by  such  Person  or  any  of its
affiliates  and (B) exercise or conversion  of the  unexercised  or  unconverted
portion of any other securities of the Company  (including,  without limitation,
any warrants) subject to a limitation on conversion or exercise analogous to the
limitation  contained  herein  beneficially  owned by such  Person or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes of this
Section 11, beneficial  ownership shall be calculated in accordance with Section
13(d) of the Securities  Exchange Act of 1934, as amended.  For purposes of this
Section 11, 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,  Form 10-K or other public  filing
with the SEC, 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 the Holder,  the Company shall  promptly,  but in no event later than two (2)
Business Days  following  the receipt of such notice,  confirm in writing to the
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 conversions  of Debentures by the Holder and its affiliates  since the
date as of which such number of outstanding shares of Common Stock was reported.

      12.  Obligations  Absolute.  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 manner, herein prescribed.

      13. Waivers of Demand,  Etc. The Company hereby  expressly  waives (to the
extent  permitted by applicable law) demand and presentment for payment,  notice
of  nonpayment,  protest,  notice  of  protest,  notice of  dishonor,  notice of
acceleration  or intent to accelerate,  bringing of suit and diligence in taking
any action to collect  amounts  called for  hereunder  and will be directly  and
primarily  liable  for the  payment  of all sums  owing and to be owing  hereon,
regardless  of and  without any  notice,  diligence,  act or omission as or with
respect to the collection of any amount called for hereunder.

      14.  Replacement  Debentures.  In the event that any Holder  notifies  the
Company that its Debenture(s) have been lost,  stolen or destroyed,  replacement
Debenture(s)  identical in all respects to the original Debenture(s) (except for
registration  number and Outstanding  Principal  Amount,  if different than that
shown on the  original  Debenture(s))  shall be  issued  by the  Company  to the
Holder,  provided  that the  Holder  executes  and  delivers  to the  Company an
agreement  reasonably  satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such Debenture(s).

      14A.  Payment  of  Expenses.  The  Company  agrees  to pay all  reasonable
expenses,  including  reasonable  attorneys'  fees, which may be incurred by the
Holder  in  successfully  enforcing  the  provisions  of this  Debenture  and/or
successfully  collecting  any amount due under this  Debenture,  the  Securities
Purchase Agreement,  the Security  Agreement,  the Account Control Agreement (as
defined in the Securities Purchase  Agreement),  the Warrants,  the Registration
Rights Agreement or any other Transaction Document.

      15. Defaults. The following shall constitute "Events of Default":


                                       19
<PAGE>

            (a) Any Event of Default under any other Debenture; or

            (b) The suspension from trading or failure of the Common Stock to be
listed on  NASDAQ,  the ASE or the NYSE for more than an  aggregate  of ten (10)
trading days in any 365-day period; or

            (c) Any money judgment (including any arbitration award, but only if
reduced to a judgment),  writ or warrant of  attachment,  or similar  process in
excess of Two Hundred and Fifty  Thousand  Dollars  ($250,000) in the aggregate,
net of any applicable insurance coverage,  shall be entered or filed against the
Company,  its  Subsidiaries or any of their properties or other assets and which
shall  remain  unpaid,  unvacated,   unbonded  and  unstayed  for  a  period  of
seventy-five (75) days; or

            (d)  The  Company  shall  default  in the  payment  when  due of (i)
interest on this  Debenture,  and such  default  shall  continue for thirty (30)
calendar  days after the due date  thereof,  or (ii) the  Outstanding  Principal
Amount of this Debenture; or

            (e) Any of the  representations  or  warranties  made by the Company
herein  (including  any Cash  Collateral  Certificate  delivered  under  Section
25(g)(iii)),  in the Securities Purchase Agreement,  the Warrants,  the Security
Agreement,  the Account Control Agreement, any Mortgage, the Registration Rights
Agreement  or any other  Transaction  Document  shall be untrue in any  material
respect  at the time made and such  condition  (to the  extent  capable of being
cured)  shall  continue  uncured  for a period of ten (10)  Business  Days after
notice from the Holder of such condition; and such breach of representations and
warranties,  singly or in the aggregate, would have a Material Adverse Effect or
materially  impair  the  ability  of the  Company  to  perform  or  satisfy  its
obligations to the Holder pursuant to the Transaction Documents; or

            (f) The  Company  shall fail to  perform or observe in any  material
respect any material covenant or agreement in the Securities Purchase Agreement,
the  Security  Agreement,  the  Warrants,  any  Mortgage,  the  Account  Control
Agreement,  the  Registration  Rights  Agreement,  this  Debenture  or any other
Transaction Document,  including,  without limitation,  (i) the failure to honor
any Conversion  Notice and deliver  shares  pursuant  thereto,  and such failure
shall continue  uncured for a period of ten (10) Business Days after notice from
the Holder of such failure or (ii) the failure by the Company to comply with its
obligations under Section 25(g) hereof, including,  without limitation,  (A) the
obligation to disclose  sufficient and timely  information in its public filings
with  the SEC for the  holder  to  verify  and  reconcile  Company  Consolidated
Revenues for the relevant periods,  as required by Section 25(g)(iv) hereof, (B)
the  obligation to make payments  timely as and when due and in the form of cash
and/or Repayment Shares as provided  thereunder,  (C) the failure of the Company
to deliver timely a completed Cash Collateral Certificate in the manner required
by Section  25(g)(v)  hereof and (D) the delivery by or on behalf of the Company
of any Cash  Collateral  Certificate  to any holder of  Debentures  without  the
express prior written consent of such holder; or

            (g) The Company  shall (i) become  insolvent;  (ii) admit in writing
its  inability  to pay  its  debts  generally  as  they  mature;  (iii)  make an
assignment  for  the  benefit  of  creditors  or  commence  proceedings  for its
dissolution;  or (iv)  apply for or  consent  to the  appointment  of a trustee,
liquidator  or  receiver  for it or for a  substantial  part of its  property or
business; or


                                       20
<PAGE>

            (h) 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  sixty  (60)  days  after  such
appointment; or

            (i) 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 sixty (60) days thereafter; or

            (j) The  Company  shall fail to pay any debt for  borrowed  money or
other similar obligation or liability  ("Indebtedness")  (excluding Indebtedness
evidenced  by  the  Debentures,   Subordinated   Indebtedness   and  Pari  Passu
Indebtedness)  of the  Company,  or any  interest or premium  thereon,  when due
(whether by scheduled maturity,  required  prepayment,  acceleration,  demand or
otherwise),  in an  outstanding  principal  amount  equal to or in excess of One
Million Dollars ($1,000,000),  singly or in the aggregate and such failure shall
continue after the applicable grace period,  if any,  specified in the agreement
or instrument  relating to such  Indebtedness,  or any such  Indebtedness of the
Company  shall be  declared  to be due and  payable,  or  required to be prepaid
(other than by a regularly scheduled required  prepayment),  prior to the stated
maturity thereof; or

            (k) The  Company  shall  fail to make any  payment of  principal  in
respect of Subordinated  Indebtedness or Pari Passu Indebtedness or any interest
or  premium  thereon,   when  due  (whether  by  scheduled  maturity,   required
prepayment,  acceleration, demand or otherwise), and such failure shall continue
after the  applicable  grace  period,  if any,  specified  in the  agreement  or
instrument   relating   to  such   Subordinated   Indebtedness   or  Pari  Passu
Indebtedness,  or any such Subordinated  Indebtedness or Pari Passu Indebtedness
shall be declared to be due and payable,  or required to be prepaid  (other than
by a regularly  scheduled  required  prepayment),  prior to the stated  maturity
thereof; or

            (l)   Bankruptcy,   reorganization,    insolvency   or   liquidation
proceedings or other similar proceedings,  or relief under any bankruptcy law or
any  similar  law for the relief of debt shall be  instituted  by or against the
Company and, if instituted  against the Company,  shall not be dismissed  within
sixty (60) 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 to
any material  allegations  of, or default in  answering a petition  filed in any
such proceeding; or

            (m) Unless the Company shall have made cash  collateral  payments in
an amount equal to the entire  Outstanding  Principal  Amount of all Debentures,
together with accrued and unpaid  interest  thereon,  in accordance with Section
25(g),  the  Registration  Statement  (as  defined  in the  Registration  Rights
Agreement) is not declared effective by the SEC and available for the sale of at
least all of the Registrable  Securities (as defined in the Registration  Rights
Agreement)  required to be included in such Registration  Statement on or before
September 12, 2003; or

            (n)  the  Security  Agreement,  any  Mortgage  (as  defined  in  the
Securities  Purchase  Agreement) or any other security document,  after delivery
thereof pursuant to the Securities Purchase Agreement, shall for any reason fail
or cease to create a valid and perfected and, except


                                       21
<PAGE>

to the extent  permitted by the terms hereof or thereof,  first priority lien in
favor  of the  agent  for  the  benefit  of the  holders  of  Debentures  on any
collateral purported to be covered thereby; or

            (o) the Cash  Collateral  Account Bank shall fail to comply with any
of the terms of the Account Control Agreement;

            (p) at any time  required  to be in full force and effect  under the
Securities Purchase Agreement,  the Letters of Credit shall for any reason cease
to be in full force and effect other than in accordance with their express terms
or any issuer of any of the  Letters of Credit  shall fail to maintain a Minimum
Rating (as defined in the Securities  Purchase Agreement) or fail to perform its
obligations  thereunder  or shall,  in writing,  repudiate  the Letter of Credit
issued by it or deny that its  obligations  thereunder  are valid,  binding  and
enforceable,  and such failure  shall  continue  uncured for a period of fifteen
(15) days after notice from the Holder of such failure;

            (q)  the  report  of  the   Company's   auditors  on  the  Company's
consolidated  audited financial  statements for the year ended December 31, 2002
shall have contained any going concern qualification; or

            (r) any material  damage to, or loss,  theft or destruction  of, any
Collateral,  whether or not  insured,  or any strike,  lockout,  labor  dispute,
embargo,  condemnation,  act of God or public  enemy,  or other  casualty  which
causes,   for  more  than  fifteen  (15)  consecutive  days,  the  cessation  or
substantial curtailment of revenue producing activities at any material facility
of the Company or any of its Subsidiaries.

Unless an Event of  Default  shall  have been  waived in  writing  by the Holder
(which  waiver  shall not be deemed to be a waiver of any  subsequent  default),
upon the  occurrence  of an Event of  Default,  and for so long as such Event of
Default shall be continuing, at the option of and on notice by the Holder to the
Company in writing 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 kind, all of which are hereby expressly waived, anything herein
or in any other  instruments  contained to the contrary  notwithstanding  to the
extent permitted by applicable law (provided,  however, that upon the occurrence
of any Event of Default  described in subsection (g), (h) or (l) above,  without
any notice to the Company or any act by the Holder or the Agent,  this Debenture
shall become due and payable automatically and immediately, without presentment,
demand,  protest or notice of any kind, all of which are expressly waived by the
Company,  anything herein or in any other  instrument  contained to the contrary
notwithstanding  to the extent  permitted by applicable law), and the Holder may
immediately,  and without expiration of any further period of grace, enforce any
and all of the  Holder's  rights  and  remedies  provided  herein,  or under the
Security Agreement, the Mortgages, the Account Control Agreement and the Letters
of Credit or any other  rights or  remedies  afforded by law. In such event this
Debenture  shall  be  redeemed  at a  redemption  price  equal  to  100%  of the
Outstanding Principal Amount of the Debenture,  plus accrued and unpaid interest
on this Debenture.  In addition to the foregoing,  upon an Event of Default, the
rate of interest on this Debenture,  shall, to the maximum extent of the law, be
permanently  increased by two percent  (2%) per annum  (i.e.,  from 6% to 8% per
annum)  commencing  on the  first day of the  thirty  (30) day  period  (or part
thereof) following the Event of Default;  and, solely in the case of an Event of
Default  triggered by a Conversion  Failure,  an additional two percent (2%) per
annum  commencing  on


                                       22
<PAGE>

the first day of each of the second and third such  thirty  (30) day periods (or
part  thereof);  and an  additional  one  percent  (1%) on the first day of each
consecutive  thirty  (30) day period  (or part  thereof)  thereafter  until this
Debenture has been duly converted or redeemed as herein provided;  provided that
in no event  shall the rate of  interest  exceed the lower of 20% or the highest
rate permitted by applicable  law. The Company shall within one (1) Business Day
notify each Holder of Debentures  upon becoming  aware of the  occurrence of any
Event of Default (whether or not waived by any other Holder of Debentures) or of
any action taken by any Holder of Debentures  with respect to the  occurrence of
any Event of Default.

      16. Savings  Clause.  In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent  possible,  and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.

      17. Entire  Agreement.  This Debenture and the  agreements  referred to in
this  Debenture  constitute  the full and  entire  understanding  and  agreement
between the Company and the Holder with respect to the subject  hereof.  Neither
this  Debenture  nor any term  hereof  may be  amended,  waived,  discharged  or
terminated  other than by a written  instrument  signed by the  Company  and the
Holder.

      18.  Assignment,  Etc.  The Holder  may,  subject to  compliance  with the
Securities  Purchase  Agreement and to applicable  federal and state  securities
laws,  transfer or assign this Debenture or any portion  thereof and may pledge,
encumber or transfer its rights or interest in and to this Debenture or any part
hereof,  provided,  that such transfer or assignment of this  Debenture does not
result in more than ten (10) holders of the total  Outstanding  Principal Amount
of all Debentures and any such part or portion of this Debenture  constitutes at
least 10% of the  Outstanding  Principal  Amount or such  lesser  amount if such
transfer  involves  the entire  Outstanding  Principal  Amount then held by such
transferor.  Any such  transfer or assignment  shall only be effective  upon the
Company's receipt of written notice thereof. Each such assignee,  transferee and
pledgee  shall have all of the rights of the Holder  under this  Debenture.  The
Company  agrees  that,  subject  to  compliance  with  the  Securities  Purchase
Agreement, after receipt by the Company of written notice of assignment from the
Holder and the Holder's  assignee,  all  principal,  interest and other  amounts
which are then, and thereafter become, due under this Debenture shall be paid to
such assignee,  transferee or pledgee at the place of payment designated in such
notice.  This Debenture shall be binding upon the Company and its successors and
shall  inure to the  benefit  of the Holder and its  successors  and  registered
assigns.

      19. No Waiver.  No failure on the part of the Holder to  exercise,  and no
delay in exercising,  any right,  remedy or power  hereunder  shall operate as a
waiver  thereof,  nor shall any single or partial  exercise by the Holder of any
right,  remedy or power  hereunder  preclude any other or future exercise of any
other  right,  remedy or power.  Each and every  right,  remedy or power  hereby
granted  to the  Holder  or  allowed  it by  law or  other  agreement  shall  be
cumulative  and not  exclusive of any other,  and may be exercised by the Holder
from time to time.

      20. Notices.  Unless  otherwise  provided herein,  any notices,  consents,
waivers or other  communications  required  or  permitted  to be given under the
terms of this  Debenture  must be in


                                       23
<PAGE>

writing  and will be deemed  to have  been  delivered:  (i) upon  receipt,  when
delivered  personally;  (ii)  upon  receipt,  when sent by  facsimile  (provided
confirmation of transmission  is  mechanically or  electronically  generated and
kept on file by the sending party);  or (iii) one (1) 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 the Company:

                                 Hemispherx Biopharma, Inc.
                                 1617 JFK Boulevard
                                 Suite 660
                                 Philadelphia, PA 19103
                                 Telephone: (215) 998-8000
                                 Facsimile: (215) 998-1739
                                 Attention: Chief Executive Officer

                        With a copy to:

                                 Ransom W. Etheridge, Esq.
                                 2610 Potters Road
                                 Suite 200
                                 Virginia Beach, VA  23452
                                 Telephone: (757-486-0599
                                 Facsimile: (757) 486-0792


            If to a holder, to its address and facsimile number set forth on the
Schedule of Buyers attached to the Securities Purchase Agreement, with copies to
such holder's representatives as set forth on the Schedule of Buyers, or to 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 five (5) days prior to the  effectiveness  of such  change.  Written
confirmation  of receipt (A) given by the  recipient  of such  notice,  consent,
waiver or other communication,  (B) 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 (C) provided by a
courier or overnight  courier  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.

      21. Miscellaneous. Whenever the sense of this Debenture requires, words in
the singular shall be deemed to include the plural and words in the plural shall
be deemed to include the singular.  Paragraph  headings are for convenience only
and shall not affect the meaning of this document.

      22. Choice of Law and Venue; Waiver of Jury Trial. THIS DEBENTURE SHALL BE
CONSTRUED  UNDER THE LAWS OF THE STATE OF NEW YORK WITHOUT  REGARD TO PRINCIPLES
OF CONFLICTS OF LAW OR CHOICE OF LAW (OTHER


                                       24
<PAGE>

THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). The parties hereto
hereby agree that all actions or proceedings arising directly or indirectly from
or in  connection  with this  Debenture  shall be litigated  only in the Supreme
Court of the  State of New York or the  United  States  District  Court  for the
Southern District of New York located in New York County,  New York. The parties
hereto consent to the jurisdiction and venue of the foregoing courts and consent
that any  process  or notice of  motion or other  application  to either of said
courts or a judge  thereof may be served inside or outside the State of New York
or the  Southern  District  of New  York  by  registered  mail,  return  receipt
requested,  directed  as  provided  in Section 20 (and  service so made shall be
deemed complete five (5) days after the same has been posted as aforesaid) or by
personal  service or in such other manner as may be permissible  under the rules
of said  courts.  The parties  hereto  hereby waive any right to a jury trial in
connection with any litigation pursuant to this Debenture.

      23. Rule 144.  With a view to making  available to the Holder the benefits
of Rule 144  promulgated  under  the Act  ("Rule  144")  and any  other  rule or
regulation  of the SEC  that  may at any  time  permit  the  Holder  to sell the
underlying  stock of the Company  issuable  upon  conversion  or exercise of the
Debentures  and the  Warrants to the public  without  registration,  the Company
agrees to use its reasonable best efforts to:

                  (a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;

                  (b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Securities  Exchange Act
of 1934, as amended (the "Exchange Act"); and

                  (c) furnish to any Holder,  promptly upon  request,  a written
statement by the Company  (provided  true at the time) that it has complied with
the  applicable  reporting and filing  requirements  of the Act and the Exchange
Act, a copy of the most recent  annual or quarterly  report of the Company,  and
copies of such other  reports and  documents (if any) so filed by the Company as
may be reasonably  requested to permit any such Holder to take  advantage of any
rule or  regulation  of the SEC  permitting  the selling of any such  securities
without registration.

      24. Reserved.

      25. Rank; Covenants; Cash Collateral.

                  (a)  Definitions.   For  purposes  of  this  Section  25,  the
following terms shall have the following meanings:

                        (i)  "Acquisition  Buildings"  shall mean the  buildings
being purchased by the Company in connection with the Interferon Acquisition and
located at 783 Jersey  Avenue,  5 Jules Lane,  New Brunswick  Middlesex Co., New
Jersey.

                        (ii)   "Acquisition   Indebtedness"   shall   mean   any
Indebtedness  incurred,  assumed  or  guaranteed  by the  Company  or any of its
Subsidiaries  in respect of the purchase  price


                                       25
<PAGE>

for, or in connection  with the purchase of, any assets,  business or securities
(an  "Acquired  Business")  acquired by the Company or any of its  Subsidiaries,
other than Indebtedness  incurred,  assumed or guaranteed in connection with the
Interferon Acquisition.

                        (iii) "Acquisition  Multiple" shall mean, subject in all
respects to the final sentence of Section 25(b)(i) hereof,  (i) in the event the
Acquired Business is not a Qualified  Competitor,  three times the EBITDA of the
Acquired  Business  or (ii) in the event the  Acquired  Business  is a Qualified
Competitor,  four times the EBITDA of the Acquired Business;  provided, however,
that if prior to the closing of the  acquisition of any Acquired  Business under
subsections (i) or (ii) of this  definition,  the Company has not been furnished
with financial  statements of such Acquired Business that have been audited by a
nationally  recognized auditing firm, the Acquisition  Multiple shall be two and
one half (2 1/2) times the EBITDA of the Acquired Business.

                        (iv) "Biweekly  Revenue Cash Collateral Date" shall mean
the 15th and last calendar day of each month during the Initial Cash  Collateral
Period. If any Biweekly Revenue Cash Collateral Date is not a Business Day, then
the Biweekly  Revenue Cash Collateral Date shall be the Business Day immediately
following such Biweekly Revenue Cash Collateral Date.

                        (v) "Cash  Collateral  Date"  shall  mean each  Biweekly
Revenue Cash Collateral  Date,  Monthly Revenue Cash Collateral  Date, the First
Revenue  Milestone  Cash  Collateral  Date,  the Second  Revenue  Milestone Cash
Collateral Date, the Third Revenue Milestone Cash Collateral Date, the Qualified
Inventory Financing Date and the Qualified Mortgage Financing Date.

                        (vi)  "Company  Consolidated  Revenues"  shall  mean the
aggregate  amount of all cash  collected  by the Company  and its  Subsidiaries,
including,  without limitation,  cash proceeds from the sales of inventory, cash
collections of accounts  receivable,  cash  collections of licensing  fees, cash
proceeds from the issuance of all Indebtedness  (excluding cash received for the
purchase of the  Debentures),  but excluding cash received from (a) the issuance
of any equity or equity  linked  securities  of the Company,  (b) the  Qualified
Mortgage Financing and (c) the Qualified Inventory Financing.

                        (vii)  "EBITDA"  shall  mean  (1)  the  earnings  before
interest,  income taxes,  depreciation and amortization of the Acquired Business
for the twelve  (12) full  months  immediately  preceding  the  closing  date in
respect  of  the  purchase  of  the  Acquired  Business  less  (2)  any  capital
expenditures of the Acquired Business during such period.

                        (viii) "First Revenue  Milestone Cash  Collateral  Date"
shall mean March 31, 2003.

                        (ix) "First Revenue  Milestone  Measuring  Period" shall
mean the period  commencing  on January 1, 2003 and ending on the  Business  Day
immediately preceding the First Revenue Milestone Cash Collateral Date.

                        (x)  "First   Revenue   Milestone   Target"  shall  mean
$800,000.00.


                                       26
<PAGE>

                        (xi)  "Initial  Cash  Collateral  Period" shall mean the
period  commencing on and  including  April 15, 2003 and ending on and including
April 29, 2004.

                        (xii)  "Inventory"  shall  mean,  with  respect  to  any
Person, all goods and merchandise of such Person, including, without limitation,
all raw materials, work-in-process,  packaging, supplies, materials and finished
goods of every nature used or usable in connection  with the shipping,  storing,
advertising  or sale  of such  goods  and  merchandise,  whether  now  owned  or
hereafter acquired, and all such other property the sale or other disposition of
which would give rise to an account receivable,  including,  without limitation,
all of the items listed on Exhibit B to this Debenture.

                        (xiii)  "Lien" shall mean any  mortgage,  deed of trust,
pledge,  lien  (statutory  or  otherwise),  security  interest,  charge or other
encumbrance or security or  preferential  arrangement of any nature,  including,
without  limitation,  any conditional sale or title retention  arrangement,  any
capitalized  lease and any  assignment,  deposit  arrangement or financing lease
intended as, or having the effect of, security.

                        (xiv) "Monthly  Revenue Cash Collateral Date" shall mean
the 30th calendar day of each month during the Secondary Cash Collateral  Period
(except for the month of January  2005,  which shall be the 31st calendar day of
such month and the month of  February,  which shall be the 28th  calendar day of
such month).  If any Monthly Revenue Cash Collateral Date is not a Business Day,
then  the  Monthly  Revenue  Cash  Collateral  Date  shall be the  Business  Day
immediately following such Monthly Revenue Cash Collateral Date.

                        (xv) "Pari Passu  Indebtedness"  shall mean Indebtedness
that is made  expressly  "pari passu" in right of payment with the Debentures in
an  aggregate  of (i) up to an  aggregate  principal  amount  of  $5,000,000  of
Indebtedness,  (ii) up to an additional aggregate principal amount of $5,000,000
of Indebtedness  incurred at any time after the eighteen (18) month  anniversary
of the Original  Issuance  Date,  provided that in order to incur any Pari Passu
Indebtedness pursuant to this clause (ii) the arithmetic average of the Weighted
Average  Price of the  Common  Stock  on each  trading  day  during  the  twenty
consecutive  trading day period prior to the  incurrence  of any such Pari Passu
Indebtedness  under this clause (ii) must equal or exceed 150% of the Conversion
Price then in effect,  (iii) up to an additional  aggregate  principal amount of
$4,000,000 of  Indebtedness  incurred any time after the  Outstanding  Principal
Amount of all  Debentures is less than  $1,000,000;  provided,  that in order to
incur any Pari Passu Indebtedness under this clause (iii) the arithmetic average
of the Weighted Average Price of the Common Stock on each trading day during the
twenty  consecutive  trading day period prior to the incurrence of any such Pari
Passu  Indebtedness  under this  clause  (iii) must equal or exceed  150% of the
Conversion Price then in effect (iv) Acquisition Indebtedness, and (v) any other
indebtedness  of the Company  which the Company and the holders of more than 60%
of the  then  Outstanding  Principal  Amount  of the  Debentures  issued  on the
Original   Issuance  Date  may  hereafter   from  time  to  time  expressly  and
specifically agree in writing shall constitute Pari Passu Indebtedness.

                        (xvi) "Permitted Liens" shall mean:


                                       27
<PAGE>

                                (A) Liens  securing  all  obligations  under the
Debentures  and the  agreements  and  instruments  entered  into  in  connection
therewith;

                                (B) the Qualified Mortgage;

                                (C) the Qualified Inventory Liens; and

                                (D) Liens on any  Intellectual  Property  of the
Company or any of its Subsidiaries.

                        (xvii)  "Qualified  Competitor"  shall mean an  Acquired
Business  that is  competitive  with and in the same business with a business of
the Company or any of its  Subsidiaries,  where the Company's Board of Directors
determines, in its reasonable judgment, that substantially all overhead expenses
of the Acquired Business during the trailing twelve months immediately preceding
the acquisition of such Acquired Business are duplicative with overhead expenses
of the Company or any of such Subsidiaries and such duplicative expenses will be
eliminated  within six (6) months  immediately  following  the  purchase  of the
Acquired Business.

                        (xviii) "Qualified  Indebtedness"  shall mean Pari Passu
Indebtedness that is not evidenced by any certificate, instrument, note or other
agreement that, directly or indirectly, permits or requires such Indebtedness to
be convertible  into or exercisable or exchangeable for Common Stock (other than
Options that may be issued by the Company to the holder(s) of such Indebtedness,
the value of which does not exceed 10% of the principal  amount of  Indebtedness
so incurred, as determined using the Black-Scholes valuation methodology).

                        (xix)  "Qualified  Inventory  Financing"  shall  mean  a
single  financing   arrangement   pursuant  to  which  the  Company  and/or  its
Subsidiaries obtains financing solely through the granting of Liens on Inventory
that yield total net  unrestricted  cash  proceeds to the Company at the time of
the creation of such Liens of not less than $2,000,000.00.

                        (xx) "Qualified Inventory Financing Date" shall mean the
date on which the Qualified Inventory Financing is consummated.

                        (xxi)  "Qualified  Inventory  Liens" shall mean Liens on
Inventory  that are  created or imposed  solely in  connection  with a Qualified
Inventory Financing.

                        (xxii) "Qualified Mortgage" shall mean a mortgage on the
Acquisition  Buildings  that is created or imposed  solely in connection  with a
Qualified Mortgage Financing.

                        (xxiii)  "Qualified  Mortgage  Financing"  shall  mean a
single  financing  arrangement  pursuant to which the Company either (i) obtains
financing  solely through the granting of Liens on the Acquisition  Buildings or
(ii) sells the Acquisition  Building,  in each case in a transaction that yields
total net unrestricted  cash proceeds to the Company at the time of the creation
of such  Liens or at the time of such  sale,  as  applicable,  of not less  than
$1,500,000.00.

                        (xxiv)  "Qualified  Mortgage  Financing Date" shall mean
the date on which the Qualified Mortgage Financing is consummated.


                                       28
<PAGE>

                        (xxv) "Secondary Cash Collateral  Period" shall mean the
period  commencing on and  including  April 30, 2004 and ending on and including
the Maturity Date.

                        (xxvi) "Second Revenue  Milestone Cash Collateral  Date"
shall mean June 30, 2003;  provided that if such day is not a Business Day, then
the Second  Revenue  Milestone  Cash  Collateral  Date shall be the Business Day
immediately following the Second Revenue Milestone Cash Collateral Date.

                        (xxvii)  "Second  Revenue  Milestone  Measuring  Period"
shall mean the period  commencing  on January 1, 2003 and ending on the Business
Day immediately preceding the Second Revenue Milestone Cash Collateral Date.

                        (xxviii)  "Second Revenue  Milestone  Target" shall mean
$1,500,000.00.

                        (xxix) "Third Revenue  Milestone Cash  Collateral  Date"
shall mean  December 31, 2003;  provided that if such day is not a Business Day,
then the Third Revenue  Milestone Cash Collateral Date shall be the Business Day
immediately following the Third Revenue Milestone Cash Collateral Date.

                        (xxx) "Third Revenue  Milestone  Measuring Period" shall
mean the period  commencing  on January 1, 2003 and ending on the  Business  Day
immediately preceding the Third Revenue Milestone Cash Collateral Date.

                        (xxxi)  "Third  Revenue  Milestone  Target"  shall  mean
$3,000,000.00.

                  (b) Incurrence of Indebtedness.

                        (i) So long as any of the Debentures are outstanding and
cash  collateral  payments  have not been made in an amount  equal to the entire
Outstanding  Principal  Amount and accrued and unpaid interest on all Debentures
pursuant to Section  25(g),  the Company  shall not,  and the Company  shall not
permit any of its Subsidiaries  to, directly or indirectly,  incur or guarantee,
assume  or suffer to exist any  Indebtedness,  other  than (A) the  Indebtedness
evidenced  by the  Debentures  which shall rank  ratably  and equally  with each
other,  (B) Pari  Passu  Indebtedness  that is not  secured by any assets of the
Company or any of its Subsidiaries and that does not provide at any time for the
payment of any principal  thereon until at least 91 days after the Maturity Date
of the Debentures (except for the payment of principal on Qualified Indebtedness
to the extent permitted under Section 25(e)(ii)),  (C) Indebtedness  represented
by trade  payables  incurred by the Company in the ordinary  course of business,
(D) Indebtedness  incurred in connection with a Qualified  Inventory  Financing,
provided that the proceeds of such Qualified  Inventory Financing are applied to
make cash  collateral  payments  on the  Debentures  in the manner  provided  in
Section  25(g)(i)(F)  hereof,  (E)  Indebtedness  incurred in connection  with a
Qualified  Mortgage  Financing,  provided  that the  proceeds of such  Qualified
Mortgage  Financing  are  applied  to  make  cash  collateral  payments  on  the
Debentures  in  the  manner  provided  in  Section   25(g)(i)(G)   hereof,   (F)
Indebtedness that is not secured by any assets or property of the Company or any
of its  Subsidiaries,  is made expressly  subordinate in right of payment to the
Debentures  and  that  does not  provide  at any  time  for the  payment  of any
principal  thereon  until  at  least  91 days  after  the  Maturity  Date of the
Debentures  ("Subordinated


                                       29
<PAGE>

Indebtedness")  pursuant to a subordination  agreement containing the provisions
attached  hereto as Exhibit A executed  and  delivered  by the  Company  and any
holder of Subordinated  Indebtedness to each holder of Debentures as a condition
to the incurrence of such Indebtedness and (G) Indebtedness incurred, assumed or
guaranteed  in  connection  with  the  Interferon  Acquisition.  Notwithstanding
anything herein to the contrary, no Qualified  Indebtedness may be incurred (but
excluding  Acquisition  Indebtedness) unless as a condition to the incurrence of
such  Indebtedness,  the Company shall have made cash collateral  payments in an
aggregate  amount of  Outstanding  Principal  Amount of all Debentures as of the
date of the  incurrence  of such  Indebtedness  (pro rata  among all  holders of
Debentures) in accordance with Section  25(g)(ii)  hereof equal to fifty percent
(50%) of the principal  amount of the  Indebtedness  so incurred or an amount as
otherwise  required by this Section 25 (or if such amount  exceeds the remaining
Outstanding  Principal  Amount on all outstanding  Debentures  together with the
accrued  and unpaid  interest  thereon,  then an amount  equal to the  remaining
Outstanding  Principal  Amount on all outstanding  Debentures  together with the
accrued and unpaid  interest  thereon).  The Company  shall file with the SEC on
Form 8-K true and complete  copies of the  financial  statements  of an Acquired
Business  for which the  purchase  price is paid or payable in cash  and/or cash
equivalents  and/or  Indebtedness  indicating  thereon,  among other things, the
items  comprising  the EBITDA of the  Acquired  Business  and  contemporaneously
therewith,  but in no event prior to the filing of such Form 8-K, deliver a copy
of such financial  statements to each holder of Debentures;  provided,  however,
that,  notwithstanding  anything herein to the contrary, if the Company does not
file with the SEC financial  statements  of any Acquired  Business for which the
purchase  price  is paid or  payable  in cash  and/or  cash  equivalents  and/or
Indebtedness  in the time  and  manner  provided  herein,  then the  Acquisition
Multiple with respect to such Acquired Business shall be deemed zero (0) and the
Company  shall not be entitled to acquire  such  Acquired  Business  unless as a
condition thereto, the Company shall have  contemporaneously with the closing of
the acquisition of such Acquired Business made a cash collateral  payment on the
Outstanding  Principal Amount of the Debentures then outstanding (pro rata among
all holders of  Debentures)  in an amount equal to 100% of the  aggregate  cash,
cash  equivalents and Acquisition  Indebtedness  incurred in connection with the
acquisition  of such  Acquired  Business in  accordance  with Section  25(g)(ii)
hereunder (or if such amount exceeds the remaining  Outstanding Principal Amount
on all  outstanding  Debentures  together  with the accrued and unpaid  interest
thereon,  then an amount equal to the remaining  Outstanding Principal Amount on
all  outstanding  Debentures  together  with the  accrued  and  unpaid  interest
thereon).

                        (ii)  Notwithstanding  the foregoing,  so long as any of
the Debentures are outstanding  and cash collateral  payments have not been made
in an amount equal to the entire  Outstanding  Principal  Amount and accrued and
unpaid  interest  on all  Debentures  pursuant to Section  25(g),  no Pari Passu
Indebtedness  or  Subordinated   Indebtedness  may  be  incurred,   directly  or
indirectly,  by the  Company  or any of its  Subsidiaries  if during  the period
commencing  on the tenth  (10th)  Business Day (or in the case of clause (ii) of
the definition of Pari Passu  Indebtedness,  the twentieth  (20th) Business Day)
immediately  preceding  the  incurrence of any such Pari Passu  Indebtedness  or
Subordinated Indebtedness and ending on and including the date on which any such
Pari Passu  Indebtedness or  Subordinated  Indebtedness is incurred (A) an event
constituting  an Event of Default or an event that with the  passage of time and
without being cured would  constitute  an Event of Default,  has occurred and is
continuing,  (B) any  Registration  Statement  that is required to be  effective
pursuant to the Registration Rights


                                       30
<PAGE>

Agreement is not  effective  and  available  for the sale of at least all of the
Registrable  Securities  (as  defined  in  the  Registration  Rights  Agreement)
required to be included in such Registration Statement or (C) there has been any
Grace Period (as such term is defined in the Registration Rights Agreement).

                        (iii) If at any  time  when  any of the  Debentures  are
outstanding and cash  collateral  payments shall not have been made in an amount
equal to the entire  Outstanding  Principal  Amount of the Debentures,  together
with accrued interest thereon, in accordance with Section 25(g)(ii), the Company
shall  purchase  any  Acquired   Business,   whether  in  one  or  a  series  of
transactions,  for an amount of aggregate  consideration  (whenever  paid in the
form of cash,  cash  equivalents or Acquisition  Indebtedness)  that exceeds the
Acquisition  Multiple  for such  Acquired  Business,  (such excess  amount,  the
"Excess Permitted  Aggregate  Consideration"),  the Company shall,  simultaneous
with the closing of the purchase of the Acquired Business,  make cash collateral
payments  in  respect  of an  aggregate  Outstanding  Principal  Amount  of  the
Debentures (pro rata among all holders of Debentures) in accordance with Section
25(g)(ii)  hereof equal to one hundred  percent  (100%) of the Excess  Permitted
Aggregate  Consideration  (or if such amount  exceeds the remaining  Outstanding
Principal  Amount on all  outstanding  Debentures  together with the accrued and
unpaid  interest  thereon,  then an amount  equal to the  remaining  Outstanding
Principal  Amount on all  outstanding  Debentures  together with the accrued and
unpaid interest thereon).

                  (c) Restricted  Payments.  Notwithstanding  anything herein to
the  contrary,  so  long  as any of the  Debentures  are  outstanding  and  cash
collateral  payments  have  not  been  made in an  amount  equal  to the  entire
Outstanding  Principal  Amount and accrued and unpaid interest on all Debentures
pursuant to Section  25(g),  the Company  shall not,  and the Company  shall not
permit any of its  Subsidiaries  to,  directly or  indirectly  redeem,  defease,
repurchase,  repay or make any payments in respect of, by the payment of cash or
marketable securities,  including, without limitation, Common Stock (in whole or
in  part,  whether  by way of open  market  purchases,  tender  offers,  private
transactions or otherwise),  all or any portion of any Pari Passu  Indebtedness,
Qualified  Mortgage  Financing,  Qualified  Inventory  Financing or Subordinated
Indebtedness  of the  Company  or any of  its  Subsidiaries,  whether  by way of
payment in respect of  principal  of (or  premium,  if any) or interest on, such
Pari Passu  Indebtedness,  Qualified  Mortgage  Financing,  Qualified  Inventory
Financing or Subordinated Indebtedness or otherwise; provided, however, that, so
long as no event  constituting,  or that with the  passage  of time and  without
being  cured  would  constitute,  an  Event  of  Default  has  occurred  and  is
continuing,  on the date any of the  following  payments is due or is  otherwise
made and  subject to the terms and  conditions  of any  subordination  agreement
entered into in connection with the issuance of any Subordinated Indebtedness as
provided herein,  the Company may,  without regard to the foregoing  limitation:
(i) pay in cash  scheduled  interest  payments,  in each case in the  manner set
forth in the  original  documentation  governing  such Pari Passu  Indebtedness,
Qualified  Mortgage  Financing,  Qualified  Inventory  Financing or Subordinated
Indebtedness,  at an  annual  rate  not to  exceed  (A) 10% per  annum,  if such
interest  rate is fixed,  or (B) the prime rate plus two percent  (2%),  if such
interest rate is floating,  of such Pari Passu Indebtedness,  Qualified Mortgage
Financing,  Qualified Inventory Financing or Subordinated Indebtedness, and (ii)
make any principal  payments when due on any Qualified  Indebtedness at any time
prior to the two-year  anniversary  of the  Original  Issuance  Date;  provided,
however,  that the Company may not make


                                       31
<PAGE>

any  such  principal  payments  unless  as a  condition  to each  time  any such
Qualified  Indebtedness  is  incurred,  other  than  Acquisition   Indebtedness,
(including  each time any Qualified  Indebtedness  is incurred under a revolving
credit  facility  or  otherwise),  the Company  shall have made cash  collateral
payments  in  an  aggregate  amount  of  Outstanding  Principal  Amount  of  all
Debentures then outstanding at the time such Qualified Indebtedness was incurred
(pro rata among all holders of Debentures) in accordance with Section  25(g)(ii)
hereof equal to fifty  percent  (50%) of the  principal  amount of the Qualified
Indebtedness so incurred, it being understood and agreed that, for the avoidance
of  doubt,  if the  Company  has  not  satisfied  its  cash  collateral  payment
obligations  under Section  25(g)(ii) in connection  with the  incurrence of any
such  Qualified  Indebtedness,  the  Company  may not make any of the  principal
payments otherwise permitted under this subsection (ii).

                  (d)  Restrictions  on Liens.  So long as any of the Debentures
are  outstanding  and cash  collateral  payments have not been made in an amount
equal to the entire Outstanding Principal Amount and accrued and unpaid interest
on all  Debentures  pursuant to Section  25(g),  the  Company  shall not create,
incur,  assume or suffer to exist, or permit any of its  Subsidiaries to create,
incur,  assume or suffer to exist,  any Lien upon or with  respect to any of its
assets or properties, whether now owned or hereafter acquired; file or suffer to
exist  under the  Uniform  Commercial  Code or any similar law or statute of any
jurisdiction, a financing statement (or the equivalent thereof) that names it or
any of its  Subsidiaries  as  debtor;  sign or  suffer  to  exist  any  security
agreement  authorizing  any  secured  party  thereunder  to file such  financing
statement  (or the  equivalent  thereof);  sell any of its  property  or  assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets  (including sales of accounts  receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer,  or permit any
of its Subsidiaries to assign or otherwise transfer,  any account or other right
to receive income; other than, as to all of the above, Permitted Liens;

                  (e) Restricted Investments.

                        (i) Except as provided in Section 4(v) of the Securities
Purchase  Agreement and except for cash held by the Company's Belgian Subsidiary
in connection  with the Belgian  Contribution,  so long as any of the Debentures
are  outstanding  and cash  collateral  payments have not been made in an amount
equal to the entire Outstanding Principal Amount and accrued and unpaid interest
on all Debentures pursuant to Section 25(g), the Company shall not and shall not
permit any of its Subsidiaries  to, directly or indirectly,  deposit or hold any
cash,  securities,  certificates of deposit,  investments or other funds or cash
equivalent  in any  account  for which the Agent  has not  executed  an  account
control  agreement and obtained a perfected  first  priority  security  interest
thereover.

                        (ii) So long as any of the  Debentures  are  outstanding
and cash collateral payments have not been made in an amount equal to the entire
Outstanding  Principal  Amount and accrued and unpaid interest on all Debentures
pursuant to Section 25(g), the Company shall not,  directly or indirectly,  make
or commit or agree to make any loan,  advance,  guarantee of obligations,  other
extension of credit or capital  contributions to, or hold or invest in or commit
or agree to hold or invest in, or  purchase  or  otherwise  acquire or commit or
agree to purchase or otherwise  acquire any shares of the capital stock,  bonds,
notes, debentures or other securities of, or make or commit or agree to make any
other  investment  in,  any  other  Person


                                       32
<PAGE>

(including,  without limitation,  a Subsidiary),  or purchase or own any futures
contract  or  otherwise  become  liable for the  purchase or sale of currency or
other  commodities  at a future  date in the  nature of a futures  contract,  or
otherwise  transfer  any cash,  property or other assets to any  Subsidiary,  or
permit  any of its  Subsidiaries  to do any of  the  foregoing,  other  than  in
connection  with (i) the  Interferon  Acquisition,  (ii) an  acquisition  of, or
investment in, the assets or capital stock of any other Person by the Company or
any of its Subsidiaries for consideration  consisting solely of shares of Common
Stock  that  are  not  subject  to  any  repurchase,  retirement  or  redemption
obligation of the Company or any of its Subsidiaries (a "Stock Acquisition") and
(iii) the contribution by the Company to its Belgian Subsidiary of not more than
$25,000 in the aggregate for the payment of ordinary  course  business  expenses
(the "Belgian Contribution").

                  (f) Restrictions on Asset Sales and Purchases.  So long as any
of the Debentures are  outstanding  and cash  collateral  payments have not been
made in an amount equal to the entire  Outstanding  Principal Amount and accrued
and unpaid  interest on all Debentures  pursuant to Section  25(g),  the Company
shall not and shall not permit any of its Subsidiaries to convey, sell, lease or
sublease,  transfer or otherwise  dispose of,  whether in one  transaction  or a
series of related  transactions,  all or any part of its  business,  property or
assets,  whether  now  owned or  hereafter  acquired  (or agree to do any of the
foregoing),  other than, so long as no event constituting an Event of Default or
an event that with the passage of time and without being cured would  constitute
an Event of Default,  has occurred and is  continuing  at the time of such sale,
(i) sales of  Intellectual  Property,  (ii) sales of  Inventory  in the ordinary
course  of  business  (iii)  or as  otherwise  expressly  permitted  under  this
Debenture.  So long as any of the Debentures are outstanding and cash collateral
payments  have not  been  made in an  amount  equal  to the  entire  Outstanding
Principal  Amount and accrued and unpaid interest on all Debentures  pursuant to
Section  25(g),  the  Company  shall  not  and  shall  not  permit  any  of  its
Subsidiaries to purchase or otherwise  acquire,  whether in one transaction or a
series of related  transactions,  all or substantially  all of the assets of any
Person  (or any  division  thereof),  other  than  in  connection  with  (A) the
Interferon  Acquisition,  (B) the incurrence of Acquisition  Indebtedness to the
extent permitted hereunder, (C) a Qualified Inventory Financing, (D) a Qualified
Mortgage Financing or (E) a Stock Acquisition.

                  (g) Cash Collateral.

(i) Unless and until such time as the  Company  shall have made cash  collateral
payments  in  respect  of  the  entire  Outstanding  Principal  Amount  of  this
Debenture,  together with accrued and unpaid interest thereon, the Company shall
make cash  collateral  payments in accordance with this Section 25(g) in respect
of a portion of the Outstanding  Principal  Amount of this  Debenture,  together
with  accrued  and unpaid  interest  thereon,  in cash and/or  Common  Stock (as
provided in Section 25(g)(ii) and (iii)) as follows:

                        (A) on each Biweekly  Revenue Cash Collateral  Date, the
Company  shall make cash  collateral  payments  in  respect  of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount equal to the product derived by multiplying (i) .5 by (ii) the Company
Consolidated  Revenues for the period  commencing on the date of the immediately
preceding  Biweekly Revenue Cash Collateral Date (or the Original Issuance Date,
in the case of the first  Biweekly  Revenue Cash  Collateral  Date)  through the
Business  Day  immediately   preceding  the  applicable  Biweekly  Revenue  Cash
Collateral Date;


                                       33
<PAGE>

                        (B) on each Monthly  Revenue Cash  Collateral  Date, the
Company  shall make cash  collateral  payments  in  respect  of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount equal to the greater of (i) the product  derived by multiplying (a) .1
by (b) the portion of the  Outstanding  Principal  Amount of all  Debentures and
accrued and unpaid interest thereon for which cash collateral  payments have not
been made under Section 25(g) as of March 31, 2004 and (ii) the product  derived
by multiplying  (a) .5 by (b) the Company  Consolidated  Revenues for the period
commencing  on the  date  of the  immediately  preceding  Monthly  Revenue  Cash
Collateral Date (or April 1, 2004, in the case of the first Monthly Revenue Cash
Collateral  Date) through the Business Day immediately  preceding the applicable
Monthly Revenue Cash Collateral Date;

                        (C) on the First Revenue Milestone Cash Collateral Date,
the Company shall make cash  collateral  payments in respect of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount  equal to the sum of (i)  $400,000  and (ii) the  product  derived  by
multiplying (X) .8 by (Y) the amount, if any, by which the Company  Consolidated
Revenues during the First Revenue  Milestone  Measuring Period exceeds the First
Revenue Milestone Target;

                        (D) on the  Second  Revenue  Milestone  Cash  Collateral
Date,  the  Company  shall  make cash  collateral  payments  in  respect  of the
Outstanding  Principal Amount of all Debentures,  together with accrued interest
thereon,  in an  amount  equal  to the  excess,  if  any,  of (i) the sum of (a)
$750,000 and (b) the product derived by multiplying (X) .8 by (Y) the amount, if
any,  by which the  Company  Consolidated  Revenues  during the  Second  Revenue
Milestone  Measuring Period exceeds the Second Revenue  Milestone  Target,  over
(ii) the cumulative  amount of cash  collateral  payments  (including the dollar
value  attributed to any such  payments made in the form of Repayment  Shares in
accordance with the provisions of Section 25(g)(iii)) that have been made by the
Company prior to the Second Revenue  Milestone Cash  Collateral Date pursuant to
Sections 25(g)(i)(A) and 25(g)(i)(C) hereof;

                        (E) on the Third Revenue Milestone Cash Collateral Date,
the Company shall make cash  collateral  payments in respect of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount equal to the excess,  if any, of (i) the sum of (a) $1,500,000 and (b)
the product  derived by multiplying  (X) .8 by (Y) the amount,  if any, by which
the Company  Consolidated  Revenues during the Third Revenue Milestone Measuring
Period  exceeds the Third Revenue  Milestone  Target,  over (ii) the  cumulative
amount of cash collateral payments (including the dollar value attributed to any
such  payments  made in the form of  Repayment  Shares  in  accordance  with the
provisions  of Section  25(g)(iii))  that have been made by the Company prior to
the  Third  Revenue   Milestone  Cash   Collateral  Date  pursuant  to  Sections
25(g)(i)(A), 25(g)(i)(C) and 25(g)(i)(D) hereof;

                        (F) on the Qualified  Inventory  Financing Date, subject
to Section 28(d), the Company shall make cash collateral  payments in respect of
the  Outstanding  Principal  Amount of all  Debentures,  together  with  accrued
interest thereon, in an amount an amount equal to $2,000,000.00; and

                        (G) on the Qualified Mortgage Financing Date, subject to
Section 28(c), the Company shall make cash collateral payments in respect of the
Outstanding


                                       34
<PAGE>

Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount equal to $1,500,000.00.

                  (ii) On each  Cash  Collateral  Date (and any date for which a
cash  collateral  payment is required  under this Section 25), the Company shall
irrevocably  deposit,  or  cause  to be  irrevocably  deposited  into  the  Cash
Collateral Account, the portion of the total Outstanding Principal Amount of all
Debentures  and accrued and unpaid  interest  thereon for which cash  collateral
payments are  required to be made in  accordance  with Section  25(g)(i) (or any
other  provision of Section 25 requiring cash collateral  payments),  subject to
Section  25(g)(iii),  in cash in U.S. Dollars to secure payment of the principal
of,  premium,  if any,  penalties,  if any, and interest due on the  outstanding
Debentures,  pursuant to the Account  Control  Agreement  and such other written
agreements  and other  arrangements  satisfactory  to the  holders of 60% of the
Outstanding  Principal Amount of all Debentures  issued on the Original Issuance
Date then outstanding,  which shall, among other things,  confirm that the funds
deposited  in the Cash  Collateral  Account  and the  proceeds  of any letter of
credit issued shall be subject to a perfected first priority  security  interest
in favor of the Agent for the benefit of the holders of Debentures.

                  (iii)  Notwithstanding  anything in Section  25(g)(ii) hereof,
but  subject to  Sections  11 and 26 hereof,  (A) on each Cash  Collateral  Date
relating to a cash  collateral  payment under Section  25(g)(i)(A),  the Company
shall make a payment by way of delivery of 25,000  fully paid and  nonassessable
shares of Common  Stock (as  equitably  adjusted for any stock  dividend,  stock
split or other similar transaction and pro rata among all holders of Debentures)
and (B) on each Cash Collateral Date relating to a cash collateral payment under
Section  25(g)(i)(B),  the  Company  shall make a payment by way of  delivery of
50,000  fully  paid and  nonassessable  shares  of Common  Stock  (as  equitably
adjusted for any stock  dividend,  stock split or other similar  transaction and
pro rata among all holders of Debentures),  in each case delivered to the holder
in lieu of cash for such  amount (it being  understood  and agreed  that (x) the
remaining balance of such payments,  if any, shall be paid in cash in accordance
with Section  25(g)(ii)  above and (y)  irrespective of whether the value of the
shares  of  Common  Stock  payable  under  clauses  (A) or (B) of  this  Section
25(g)(iii) exceeds the amount otherwise due under Section 25(g)(i)(A) or Section
25(g)(i)(B),  as  applicable,  the  Company  shall  issue the full amount of the
25,000 or 50,000 shares of Common Stock,  as applicable,  on the applicable Cash
Collateral Date and the value of the additional  shares of Common Stock, if any,
delivered  to the holder  that  exceed the amount  required to be paid under the
applicable  subsection  of this Section  25(g) shall be deemed to be a permitted
prepayment of this  Debenture as provided in the final  sentence of this Section
25(g)(iii))  represented by duly executed stock  certificates  registered in the
name of the holder or its designee (the "Repayment  Shares") (or, in the case of
a public resale of such  Repayment  Shares in accordance  with the provisions of
the  Irrevocable  Transfer  Agent  Instructions,  provided the Transfer Agent is
participating  in The DTC Fast  Automated  Securities  Transfer  Program and, if
required by DTC, the holder provides a customary  representation  letter to DTC,
upon the request of the holder, credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's  designee's  balance
account with DTC through its Deposit  Withdrawal Agent  Commission  system) with
each  Repayment  Share  being  ascribed a valued for  purposes  of this  Section
25(g)(iii)  equal to the  product  derived  by  multiplying  (A) .825 by (B) the
arithmetic  average of Weighted  Average  Prices of the Common


                                       35
<PAGE>

Stock on the five consecutive Business Days ending on and including the Business
Day  immediately  preceding the  applicable  Cash  Collateral  Date (the "Equity
Collateral  Conversion  Rate") provided,  however,  that (x) in no event may the
Company pay any portion of a cash  collateral  payment  obligation  in Repayment
Shares if a  Registration  Statement is not then effective and available for the
resale of all of the Repayment  Shares on the applicable Cash Collateral Date or
each date which is within 10 Business Days prior to such Cash  Collateral  Date,
in which case the full amount of such payments  shall instead be made in cash in
accordance with Section 25(g)(ii) and (y) in the event the Company does not have
a sufficient  number of Repayment  Shares  reserved and  available  for issuance
pursuant to this Section 25(g)(iii),  the Company shall issue the maximum number
of Repayment Shares that are available for issuance,  pro rata among all holders
of Debentures,  and the balance of such payment shall instead be made in cash in
accordance with Section 25(g)(ii) hereof.  Cash collateral payments validly made
in the form of Repayment  Shares under this Section  25(g)(iii)  shall be deemed
prepayments  of (i)  first,  accrued  and  unpaid  interest  on the  Outstanding
Principal Amount of this Debenture and (ii) second, Outstanding Principal Amount
of this Debenture.

                  (iv) The Company  covenants  and agrees that it shall make all
calculations,   including,  without  limitation,  all  calculations  of  Company
Consolidated  Revenues,  necessary to determine the amounts to be paid from time
to time under this  Section  25(g) in strict  accordance  with the terms of this
Agreement.  The Company  further  covenants and agrees that it shall prepare and
publish its  quarterly  and annual  earnings  releases and  quarterly and annual
reports  filed  with the SEC with  sufficient  detail so that the holder of this
Debenture  shall be able to  determine  and verify  solely from the  information
contained therein the amount of Company Consolidated  Revenues used to calculate
amounts to be paid from time to time under this  Section  25(g) and to reconcile
the amount of Company Consolidated Revenues with the amounts actually paid under
this Section 25(g).  If any holder of Debentures  disputes any  calculations  of
Company Consolidated Revenues set forth in or omitted from any public release or
SEC filing that covers any period relevant for the determinations required under
this Section  25(g),  such holder shall  deliver  written  notice to the Company
within ten  Business  Days of the  publication  of such  release or SEC  filing,
describing  in  reasonable  detail the basis for such  dispute  (and the Company
shall promptly deliver such notice to all other holders). If the Company and the
disputing  holder(s) of Debentures are unable to resolve any such dispute within
two Business Days of the Company's receipt of notice thereof,  the Company shall
within two (2)  Business  Days  submit  the  disputed  matters to the  Company's
independent,  outside  accountant.  The Company  shall cause the  accountant  to
perform  the  determinations  or  calculations  and notify the  Company  and the
holders of the  results no later  than ten (10)  Business  Days from the time it
receives  the  disputed   determinations  or  calculations.   Such  accountant's
determination,  as the case may be,  shall be binding  upon all  parties  absent
manifest  error.  The  Company  shall bear all costs,  fees and  expenses of the
accountant in rendering any such determinations.

                  (v) On each Cash  Collateral  Date, the Company  covenants and
agrees to execute and deliver a completed Cash Collateral Accounting Certificate
in the form attached hereto as Exhibit C (the "Cash Collateral  Certificate") by
facsimile  and first  class  mail to the Person  designated  on the form of Cash
Collateral  Certificate  (or such other  Person or Persons as the holders of not
less  than  60% of the then  Outstanding  Principal  Amount  of  Debentures  may
designate in writing to the Company), which shall be certified to each holder of
Debentures as


                                       36
<PAGE>

true and correct by the Chief Executive Officer or Chief Financial
Officer of the  Company.  THE COMPANY  ACKNOWLEDGES  AND AGREES THAT IN NO EVENT
SHALL IT OR ANY  PERSON ON THE  COMPANY'S  BEHALF  DELIVER  ANY CASH  COLLATERAL
CERTIFICATE  TO ANY HOLDER OF  DEBENTURES  WITHOUT  THE  EXPRESS  PRIOR  WRITTEN
CONSENT OF SUCH HOLDER.

                  (vi) All  payments  by the Company  pursuant  to this  Section
25(g),  whether in the form of cash or Repayment Shares,  shall be made pro rata
among all Debentures.

            (h) Conflicts.  In the event there is any conflict among  provisions
of this Section 25 as to the amount of any cash collateral  payment  required to
be paid by the Company into the Cash Collateral Account, the provision requiring
the Company to pay the greater amount shall in all instances control.

      26. Limitation on Number of Conversion  Shares.  The Company (1) shall not
be obligated to issue Conversion  Shares upon conversion of this Debenture,  (2)
shall not be permitted  to issue  Interest  Shares (but instead  shall make Cash
Interest Payments) and (3) shall not be permitted to issue Repayment Shares (but
instead  shall make cash  collateral  payments  in cash) to the extent  that the
issuance of such  shares of Common  Stock would cause the Company to exceed that
number of shares  of  Common  Stock  which  the  Company  may issue  under  this
Debenture (the "Exchange Cap") without breaching the Company's obligations under
the rules or regulations of the Principal  Market,  except that such  limitation
shall  not apply in the event  that the  Company  obtains  the  approval  of its
stockholders  as  required by the  Principal  Market (or any  successor  rule or
regulation)  for issuances of Common Stock in excess of such amount.  Until such
approval is obtained,  the holder of this  Debenture  shall not be issued,  upon
conversion of this  Debenture,  Conversion  Shares in an amount greater than the
difference  between (i) the product of (x) the Exchange Cap amount multiplied by
(y) a fraction,  the  numerator of which is the  aggregate  principal  amount of
Debentures issued to such Holder pursuant to the Securities  Purchase  Agreement
and the  denominator  of  which is the  aggregate  principal  amount  of all the
Debentures issued to all Debenture  holders pursuant to the Securities  Purchase
Agreement  and (ii) the sum of (A) the aggregate  number of Interest  Shares and
Repayment  Shares issued to the holder of this  Debenture  (and all  predecessor
holders)  as of the date of such  conversion  plus (B) the  aggregate  number of
shares  of  Common  Stock  issued  to the  holder  of this  Debenture  (and  all
predecessor  holders) upon the exercise of any Warrants held by such holder (and
all predecessor holders) as of the date of such conversion (such difference, the
"Cap  Allocation  Amount").  If at any time  when the  Holder  shall  deliver  a
Conversion  Notice  pursuant to Section 4 hereof the Company shall be prohibited
pursuant to the provisions of this Section 26 from issuing all or any portion of
the Conversion  Shares  issuable  pursuant to such Conversion  Notice,  then the
Company shall pay in immediately available funds to the holder of this Debenture
within two (2) Business Days of the date of delivery of such Conversion  Notice,
an amount in cash  equal to the  product  of (X) the  number of shares of Common
Stock which could not be issued by virtue of the  limitations  contained in this
Section 26  multiplied  by (Y) the  average of the  Closing  Sale  Prices of the
Common  Stock on each of the five (5) trading  days ending on the third  trading
day  immediately  preceding  the date the date of  delivery  of such  Conversion
Notice.  The Outstanding  Principal Amount of this Debenture shall be reduced by
an amount equal to the Outstanding Principal Amount of this Debenture designated
in  the  Conversion  Notice  that  could  not  be


                                       37
<PAGE>

converted  by virtue of the  limitations  set forth in this  Section  26 and for
which  the  Company  has made  payment  pursuant  to the  immediately  preceding
sentence.

      27. Taxes.

            (a) The Company shall pay any and all documentary,  stamp,  transfer
(but only in respect of the registered  holder  thereof) and other similar taxes
that may be payable  with  respect to the  issuance and delivery of Common Stock
upon the conversion of Debentures; provided, however, that the Company shall not
be  required  to pay any tax that may be  payable  in  respect  of any  transfer
involved  in the  issue or  delivery  of  Common  Stock or other  securities  or
property in a name other than that of the registered holder of this Debenture to
be  converted  and such  holder  shall  pay such  amount,  if any,  to cover any
applicable transfer or similar tax.

            (b) The Company  shall be  permitted  to  withhold  from any amounts
payable to a Debenture  holder or a holder of Common Stock any taxes required by
law to be  withheld  from such  amount.  If the  Company  shall be  required  to
withhold or deduct any tax, levy or other governmental charge, excluding (A) net
income taxes, franchise taxes, or taxes imposed on or measured by net income (or
overall  gross  receipts,  to the extent such tax is imposed in lieu of a tax on
net income by a  jurisdiction  that does not impose any tax based on or measured
by net  income)  on any  Debenture  holder  by the  jurisdiction  in which  such
Debenture holder is organized or any other  jurisdiction in which such Debenture
holder would be subject to tax without regard to the  transactions  contemplated
hereby  and (B)  U.S.  Federal  withholding  taxes  (unless  such  U.S.  Federal
withholding  taxes would not be imposed but for a change in or  amendment to the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
or any  other  administrative  authority  thereunder  or any tax  treaty  or the
release or promulgation of any judicial decision relating thereto, in each case,
on or after the date such Debenture holder acquires a Debenture (each, a "Change
in Law")) (all such non-excluded  taxes,  levies or other governmental  charges,
"Taxes")  from any  payment  of  interest,  or any  accrual  of  original  issue
discount,  for U.S.  Federal  income tax  purposes  made  hereunder or under any
Debenture  to or for the benefit of any  Debenture  holder,  then (A) the amount
payable  shall be  increased  by the amount  necessary  so that after making all
required deductions and withholdings (including deductions and withholdings with
respect to additional  amounts  payable under this Section 27(b)) such Debenture
holder shall  receive an amount equal to the amount it would have received if no
such deduction or withholding of Taxes had been required,  (B) the Company shall
make such deduction or withholding and (C) the Company shall pay the full amount
deducted to the appropriate governmental authority in accordance with applicable
law. If any Debenture holder is organized under the laws of a jurisdiction other
than the United  States,  any State thereof or the District of Columbia  (each a
"Non-U.S.  Debenture  Holder"),  it shall  deliver to the  Company two copies of
either  (A)  U.S.  Internal  Revenue  Service  Form  W-8BEN  (claiming  complete
exemption from U.S. Federal  withholding tax under an income tax treaty), or any
successor form; (B) U.S. Internal Revenue Service Form W-8ECI (claiming complete
exemption from U.S.  Federal  withholding  tax because the income is effectively
connected with a U.S. trade or business), or any successor form; (C) in the case
of a Non-U.S.  Debenture Holder claiming exemption from U.S. Federal withholding
tax under  Section  871(h) or 881(c) of the Code,  with  respect to  payments of
"portfolio  interest," U.S. Internal Revenue Service Form W-8BEN  (certifying as
to beneficial  ownership),  or any successor form, and a certificate in form and


                                       38
<PAGE>

substance  reasonably  acceptable to the Company representing that such Non-U.S.
Debenture  Holder is not a "bank" for purposes of Section 881(c) of the Code, is
not a 10-percent  shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Company and is not a "controlled  foreign  corporation"  related to
the Company (within the meaning of Section  864(d)(4) of the Code); or (D) other
applicable form, certificate or document prescribed by the U.S. Internal Revenue
Service  certifying  as to such Non-U.S.  Debenture  Holder's  entitlement  to a
complete  exemption from U.S.  Federal  withholding  tax, as applicable,  in all
cases such forms and other documents being properly  completed and duly executed
by such Non-U.S.  Debenture Holder claiming complete exemption from U.S. Federal
withholding tax on payments of interest (or of original issue discount) for U.S.
Federal income tax purposes by the Company under the Debentures.  Each Debenture
holder and each  holder of common  stock that is  organized  under the laws of a
jurisdiction  other than the United States, any State thereof or the District of
Columbia (each a "Non-U.S. Equity Holder") also shall deliver to the Company, to
the extent legally able to do so, with respect to payments of dividends for U.S.
Federal income tax purposes by the Company, if applicable,  two copies of either
(A) U.S.  Internal  Revenue  Service  Form W-8BEN  (claiming a reduction of U.S.
Federal  withholding tax under an applicable  income tax treaty, if any), or any
successor form, (B) U.S. Internal Revenue Service Form W-8ECI (claiming complete
exemption from U.S.  Federal  withholding  tax because the income is effectively
connected  with a U.S. trade or business),  or any successor  form, or (C) other
applicable form, certificate or document prescribed by the U.S. Internal Revenue
Service  certifying  as to  such  Non-U.S.  Equity  Holder's  entitlement  to an
exemption from, or a reduction of, U.S.  Federal  withholding tax on payments of
dividends for U.S. Federal income tax purposes by the Company, as applicable, in
all cases such  forms and other  documents  being  properly  completed  and duly
executed by such Non-U.S.  Equity Holder. In addition, each Debenture holder and
each  holder  of  Common  Stock  that  is not  otherwise  exempt  from  "back-up
withholding"  shall  deliver to the  Company  two  properly  completed  and duly
executed copies of either (A) U.S.  Internal Revenue Service Form W-8BEN, or any
successor form, (B) U.S.  Internal Revenue Service Form W-8ECI, or any successor
form, (C) U.S.  Internal Revenue Service Form W-9, or any successor form, or (D)
other applicable form,  certificate or document  prescribed by the U.S. Internal
Revenue  Service,  as applicable,  in each case  indicating  that such Debenture
holder or holder of Common  Stock is not  subject to "back-up  withholding"  for
U.S. Federal income tax purposes.  The forms and other documents  required to be
delivered  pursuant to this Section  27(b) shall be delivered (A) on or prior to
the Original  Issuance  Date and (B) from time to time  thereafter if within ten
(10) Business Days after receipt of a written  request  therefor by the Company.
In  addition,  each  Debenture  holder  and each  holder of Common  Stock  shall
promptly  notify the Company at any time it determines that it is no longer in a
position to provide any previously  delivered (or requested)  form,  document or
certificate  to the  Company,  including  as a result in whole or in part from a
Change in Law; provided,  however, that the failure to provide such notice shall
not affect any Debenture holder's right to any additional amounts hereunder.

            (c) Notwithstanding anything to the contrary in Section 27(b) above,
the Company shall not be required to pay any additional  amount to any Debenture
holder  pursuant to the preceding  paragraph to the extent the Tax in respect of
which such  additional  amount would  otherwise  be payable  would not have been
imposed  but for the  failure  of such  Debenture  holder  to  comply  with  its
obligations under such paragraph; provided, however, that the failure to


                                       39
<PAGE>

provide the applicable form,  document or certificate  pursuant to the preceding
paragraph  as  provided  in  the  notice  required  by the  preceding  paragraph
resulting  in whole or in part  from a  Change  in Law  shall  not  affect  such
Debenture holder's right to any additional amounts hereunder.

      28. Security.

            (a) The Debentures  shall be secured to the extent and in the manner
provided in the Security Agreement.

            (b) The Company  acknowledges and agrees that all amounts  deposited
in  the  Cash  Collateral  Account  (a)  shall  constitute  Collateral  for  all
obligations of the Company under the Debentures (the "Obligations"). At any time
during the  continuance  of an Event of Default,  the Agent may require the Cash
Collateral  Account  Bank to transfer  all amounts  held in the Cash  Collateral
Account to the Agent for application to the Obligations pursuant to the terms of
the Debentures.

            (c) In the  event  that  the  Company  desires  to  enter  into  the
Qualified Mortgage  Financing,  the holder, by its acceptance of this Debenture,
agrees  to cause  the  Agent  to  enter  into a  written  agreement,  reasonably
satisfactory  to  the  Agent,  providing  that,  upon  the  consummation  of the
Qualified  Mortgage  Financing and the Company  making the deposit into the Cash
Collateral  Account  of not less  than  $1,500,000  in cash in  accordance  with
Sections  25(g)(i)(G)  and  25(g)(ii),  the Agent shall  release its Lien on the
Acquisition  Buildings  and shall  execute  and deliver to the Company or to the
provider of such  financing or the purchaser of the  Acquisition  Buildings such
release  or  reconveyance  instruments  and  such  other  documents  as shall be
reasonably  necessary  to  release  the  Lien of the  Agent  on the  Acquisition
Buildings  pursuant to the Mortgages,  in each case at the sole cost and expense
of the Company and without any  warranty or  representation  by, or recourse to,
the Agent or the holder of this Debenture.

            (d) In the  event  that  the  Company  desires  to  enter  into  the
Qualified Inventory Financing,  the holder, by its acceptance of this Debenture,
agrees  to cause  the  Agent  to  enter  into a  written  agreement,  reasonably
satisfactory  to  the  Agent,  providing  that,  upon  the  consummation  of the
Qualified  Inventory  Financing and the deposit into the Cash Collateral Account
of not less than $2,000,000 in cash in accordance with Sections  25(g)(i)(F) and
25(g)(ii),  the Agent shall  release its Lien on the Inventory and shall execute
and  deliver  to the  Company or to the  provider  of such  financing  such UCC3
Amendments  (or  authorizations  to file the same) and such other  documents  as
shall be reasonably  necessary to release the Lien of the Agent on the Inventory
pursuant to the Security Agreement, in each case at the sole cost and expense of
the Company and without any warranty or  representation  by, or recourse to, the
Agent or the holder of this Debenture.

            (e) If at any time the Company  shall have  deposited  into the Cash
Collateral  Account an amount equal to the entire  Outstanding  Principal Amount
and accrued and unpaid interest on all Debentures pursuant to Section 25(g), the
holder,  by its acceptance of this  Debenture,  agrees to release,  or cause the
Agent to release,  its Lien on all  Collateral,  other than the Cash  Collateral
Account,  and shall  execute  and  deliver to the Company (or cause the Agent to
execute and deliver to the Company) such release or reconveyance instruments and
such other  documents as shall be  reasonably  necessary to release the Liens on
the Collateral (other than the Cash Collateral Account) in each case at the sole
cost and expense of the Company and without any warranty or  representation  by,
or recourse to, the Agent or the holder of this Debenture.


                                       40
<PAGE>

            IN WITNESS  WHEREOF,  the Company has caused this  instrument  to be
duly executed by an officer thereunto duly authorized.

Dated:  March 12, 2003

                                HEMISPHERX BIOPHARMA, INC.

                                By:
                                   -------------------------------------
                                   Name:
                                   Title:
                                Print Address:

                                Telephone:

                                Facsimile:

ATTEST

------------------------------
Name:
Title:


                                       41
<PAGE>

                                    EXHIBIT I

                      (To be Executed by Registered Holder
                         in order to Convert Debenture)

                                CONVERSION NOTICE
                                       FOR
          6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JANUARY 31, 2005

      The undersigned,  as Holder of the 6% Senior Secured Convertible Debenture
Due January 31, 2005 of HEMISPHERX  BIOPHARMA,  INC. (the "Company"),  No. _, in
the outstanding principal amount of $_______ (the "Debenture"), hereby elects to
convert  $_______ of the  outstanding  principal  amount of the  Debenture  into
shares of Common Stock, par value $0.001 per share (the "Common Stock"),  of the
Company  according to the  conditions of the  Debenture,  as of the date written
below.

      Date of Conversion:
                         ----------------------------------------------------

      Principal Amount of Debentures to be converted:

      Tax ID Number (If applicable):
                                     ----------------------------------------

Please confirm the following information:

      Conversion Price:______________________________________________________

      Number of shares of Common Stock to be issued:

      Is the Variable Price being relied on pursuant to
      Section 6(c) of the Debenture?  (check one)               YES ____ No ____

      Please  issue the  Common  Stock into  which the  Debentures  are being
converted  and, if  applicable,  any check drawn on an account of the Company in
the following name and to the following address:

      Issue to:
               -----------------------------------------------------

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

      Address:
               -----------------------------------------------------

      Telephone Number:
                       ---------------------------------------------

      Facsimile Number:
                       ---------------------------------------------

      Authorization:
                    ------------------------------------------------

      By:
         -----------------------------------------------------------

      Title:
            --------------------------------------------------------

      Dated:
      Account Number (if electronic book entry transfer): ----------------------

      Transaction Code Number (if electronic book entry transfer): -------------

[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]

<PAGE>

Account Control Agreement ............................................         3
Acquiring Entity .....................................................        15
Act ..................................................................         2
Agent ................................................................         3
Approved Stock Plan ..................................................         3
ASE ..................................................................         3
Bloomberg ............................................................         3
Business Day .........................................................         3
Cap Allocation Amount ................................................        36
Cash Collateral Account ..............................................         3
Cash Collateral Account Bank .........................................         3
Cash Interest Payment ................................................         1
Cash Transaction .....................................................     3, 17
Change of Control ....................................................        16
Change of Control Redemption Price ...................................        16
Closing Sale Price ...................................................      3, 7
Collateral ...........................................................         4
Common Stock .........................................................     4, 40
Common Stock Deemed Outstanding ......................................         4
Company ..............................................................     1, 40
Conversion Date ......................................................         9
Conversion Failure ...................................................         4
Conversion Notice ....................................................         8
Conversion Price .....................................................         4
Conversion Rate ......................................................         8
Convertible Securities ...............................................         4
Debenture ............................................................     1, 40
Debenture Delivery Date ..............................................         9
Debenture Register ...................................................         2
Debentures ...........................................................         1
Default Conversion Price .............................................         4
Default Interest .....................................................         2
Dilutive Issuance ....................................................        12
DTC ..................................................................         9
Events of Default ....................................................        19
Exchange Act .........................................................        25
Exchange Cap .........................................................        36
Holder ...............................................................         1
Indebtedness .........................................................        20
Intellectual Property ................................................         5
Interest Payment Date ................................................         1
Interest Payments ....................................................         1
Interferon Acquisition ...............................................         5
Letters of Credit ....................................................         5
Mandatory Conversion .................................................         8


<PAGE>

Mandatory Conversion Date ............................................         8
Mandatory Conversion Measuring Period ................................         7
Mandatory Conversion Notice ..........................................         7
Maturity Date ........................................................         1
Maturity Date Mandatory Redemption ...................................        11
Maturity Date Redemption Price .......................................        11
Mortgage .............................................................         5
NASDAQ ...............................................................         5
New Securities Issuance Price ........................................        12
Notice of Change of Control ..........................................        16
Notice of Redemption Upon Change of Control ..........................        16
NYSE .................................................................         5
Options ..............................................................         5
Organic Change .......................................................        15
Original Issuance Date ...............................................         5
Outstanding Principal Amount .........................................         5
Person ...............................................................         5
Principal Market .....................................................         5
Quarterly Period .....................................................         5
Registration Rights Agreement ........................................         5
Rule 144 .............................................................        24
SEC ..................................................................         6
Securities Agreement .................................................         6
Securities Purchase Agreement ........................................         6
Share Delivery Date ..................................................         9
Strategic Financing ..................................................         6
Transaction Documents ................................................         6
Transfer Agent .......................................................         8
Valuation Event ......................................................        13
Warrants .............................................................         6
Weighted Average Price ...............................................      6, 7


<PAGE>

                                    EXHIBIT A

                            Subordination Provisions

      Section 1. Definitions. As used herein, the following terms shall have the
following meanings:

            "Borrower"   shall  mean   [Hemispherx][applicable   Subsidiary   of
Hemispherx].

            "Hemispherx"  shall mean Hemispherx  Biopharma,  Inc., a corporation
duly organized and existing under the laws of the State of Delaware.

            "Loan  Documents"  shall mean any  agreement  executed in connection
with the issuance of the Senior Debt, in each case as amended,  supplemented  or
otherwise modified from time to time.

            "Obligations"  shall mean the  obligations  of the  Borrower  now or
hereafter  existing  in favor of the  holders of the Senior  Debt,  whether  for
principal, interest (including interest accruing subsequent to the filing of any
petition initiating any bankruptcy, insolvency,  arrangement,  reorganization or
receivership proceedings relating to the Borrower), fees, expenses or otherwise.

            "Senior  Debt"  shall  mean  the   Borrower's   6%  Senior   Secured
Convertible Debentures due January 31, 2005.

            "Subordinated Creditor" shall mean _______________.

            "Subordinated  Debt" shall mean all indebtedness of the Borrower now
or hereafter  existing in favor of the  Subordinated  Creditor,  whether created
directly or acquired by assignment or  otherwise,  all interest  thereon and all
fees, premiums and other amounts payable in respect thereof.

            "Subordinated   Loan  Documents"  shall  mean  the  instruments  and
agreements  to which the  Borrower  is a party  evidencing  or  relating  to any
Subordinated Debt.

      Section 2. Agreement to Subordinate.  Each of the  Subordinated  Creditor,
Hemispherx and the Borrower  agrees that the  Subordinated  Debt is and shall be
subordinate,  to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of the Obligations.

      Section 3. Restrictions on Payment of the Subordinated Debt.

      (a) The  Subordinated  Creditor  may  receive,  and the  Borrower may pay,
interest on the Subordinated  Debt evidenced by the Subordinated Loan Documents,
in the stated amounts and on the stated dates of payment thereof as set forth in
the Subordinated Loan Documents,  provided, however, that no such


<PAGE>

payments  shall be received or made at any time during which an Event of Default
(as defined in the Senior  Debt) shall have  occurred and be  continuing  on any
Senior Debt.

      (b) In the event of any dissolution, winding up, liquidation,  arrangement
or  reorganization  relating to Hemispherx or the Borrower,  in any  bankruptcy,
insolvency,  arrangement,  reorganization or receivership proceedings or upon an
assignment  for the benefit of creditors or any other  marshalling of the assets
and  liabilities of Hemispherx or the Borrower,  any payment or  distribution of
any kind (whether in cash,  securities or other  property) which otherwise would
be payable or deliverable upon or with respect to the Subordinated Debt shall be
paid or delivered directly to the holders of the Senior Debt for application (in
the case of cash)  to,  or as  collateral  (in the case of  securities  or other
non-cash  property) for, the payment or prepayment of the Obligations  until the
Obligations shall have been paid in full.

      (c) All payments or distributions upon or with respect to the Subordinated
Debt  which  are  received  by  the  Subordinated  Creditor  contrary  to  these
subordination  provisions  shall be  received  in trust for the  benefit  of the
holders of the Senior Debt for the  ratable  benefit of such  holders,  shall be
segregated from other funds and property held by the  Subordinated  Creditor and
shall be  forthwith  paid over to the holders of the Senior Debt for the ratable
benefit of such  holders  in the same form as so  received  (with any  necessary
endorsement)  to be applied (in the case of cash) to or held as  collateral  (in
the case of securities or other non-cash property) for the payment or prepayment
of the Obligations until the Obligations shall have been paid in full.

      Section 4. Obligations Unconditional.

      (a) All rights and interests of the holders of the Senior Debt  hereunder,
and all agreements and obligations of the Subordinated Creditor,  Hemispherx and
the Borrower  hereunder,  shall remain in full force and effect irrespective of:
(i) any lack of validity  or  enforceability  of any Loan  Document or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of  payment  of, or in any other  term in  respect  of,  all or any of the
Obligations,  or any other  amendment  or waiver of or any consent to  departure
from any Loan Document,  (iii) any exchange or release of, or  non-perfection of
any lien on or security interest in, any collateral, or any release or amendment
or waiver of or consent to departure  from any  guaranty,  for all or any of the
Obligations,  or (iv) any other circumstance which might otherwise  constitute a
defense  available to, or a discharge of,  Hemispherx or the Borrower in respect
of the Obligations or the Subordinated  Creditor,  Hemispherx or the Borrower in
respect of these subordination provisions.

      (b) These subordination provisions shall continue to be effective or shall
be  reinstated,  as the case may be,  if at any time any  payment  of any of the
Obligations  is  rescinded  or must  otherwise be returned by the holders of the
Senior Debt upon the insolvency,  bankruptcy or  reorganization of Hemispherx or
the Borrower or otherwise, all as though such payment had not been made.

      Section 5. Waivers. Each of the Subordinated Creditor,  Hemispherx and the
Borrower  waives (i)  promptness  and  diligence,  (ii) notice of acceptance and
notice of the incurrence of any Obligation by Hemispherx or the Borrower,  (iii)
notice of any actions taken by


<PAGE>

the  holders of the  Senior  Debt,  Hemispherx  or the  Borrower  under any Loan
Document or any other agreement or instrument  relating thereto,  (iv) all other
notices,  demands  and  protests,  and all other  formalities  of every  kind in
connection  with the enforcement of the Obligations or of the obligations of the
Subordinated  Creditor,  Hemispherx and the Borrower  under these  subordination
provisions,  the omission of or delay in which,  but for the  provisions of this
Section 5, might  constitute  grounds for relieving the  Subordinated  Creditor,
Hemispherx  or  the  Borrower  of  its  obligations  under  these  subordination
provisions and (v) any requirement  that the holders of the Senior Debt protect,
secure,  perfect or insure any  security  interest or other lien or any property
subject  thereto or exhaust any right to take any action  against  Hemispherx or
the Borrower or any other person.

      Section 6.  Subrogation.  No payment or distribution to the holders of the
Senior  Debt  pursuant  to these  subordination  provisions  shall  entitle  the
Subordinated  Creditor to exercise any rights of subrogation in respect  thereof
until the Obligations shall have been satisfied in full.

      Section 7. Miscellaneous.

      (a) Each of the Subordinated  Creditor,  Hemispherx and the Borrower will,
at its  expense  and at any time and from  time to time,  promptly  execute  and
deliver all further instruments and other documents, and take all further action
that the holders of the Senior Debt may  reasonably  request in order to reflect
the subordination provisions set forth herein.

      (b) These  subordination  provisions shall be governed by and construed in
accordance with the law of the State of New York.

<PAGE>

                                    EXHIBIT B

                                    Inventory


<PAGE>

                                    EXHIBIT C

                       FORM OF CASH COLLATERAL CERTIFICATE

IN NO EVENT SHALL THIS CERTIFICATE BE DELIVERED BY OR ON BEHALF OF THE COMPANY
TO ANY HOLDER OF DEBENTURES WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF SUCH
HOLDER.

CERTIFICATE TO BE DELIVERED ONLY TO THE RECIPIENT DESIGNATED BELOW.

To:

Eleazer Klein, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY  10022
Telephone:  (212) 756-2000
Facsimile:   (212) 593-5955

      The undersigned, the duly elected [Chief Executive Officer/Chief Financial
Officer] of HEMISPHERX BIOPHARMA, INC. (the "Company"), hereby certifies to the
holders of the 6% Senior Secured Convertible Debentures Due January 31, 2005 of
the Company (the "Debentures") pursuant to Section 25(g)(v) of the Debentures,
that the following information is true and correct in all respects (capitalized
terms used in this certificate and not defined herein shall have the meanings
ascribed to them in the Debentures):

      Cash Collateral Date:________________________.

      Qualified Inventory Financing Date (if applicable): ________________.

      Qualified Mortgage Financing Date (if applicable): ________________.

      Amount of Cash Collateral Payment: $__________________.

      Amount of Cash Collateral Payment Made in Cash: $______________.

      Aggregate Dollar Value of Cash Collateral Payments Made in Repayment
      Shares (if applicable): $---------------.

      Aggregate Number of Repayment Shares Issued (if applicable):
      _______________.

      Equity Collateral Conversion Rate (if applicable):___________.

      Company Consolidated Revenues for the relevant period (if applicable):
      $____________.

      Aggregate Amount of Cash Collateral Payments Made Prior to this Cash
      Collateral Date:$_____________________.



      IN WITNESS WHEREOF, the undersigned has executed this certificate as of
this _____ day of _________________, 200_.