Document:

Exhibit 10.6

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.

                           HEMISPHERX BIOPHARMA, INC.

                           ADDITIONAL INVESTMENT RIGHT

Additional Investment Right No. [  ]                 Dated:  _____________, 2004

      Hemispherx Biopharma, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received,  [Name of Holder] or its registered  assigns
(the  "Holder"),  is  entitled  to  purchase  from the  Company up to a total of
$2,000,000 in principal amount of 6% senior secured  convertible  debentures due
January 31, 2006 of the Company in the form  attached as Exhibit A hereto  (each
such  debenture,  an  "Additional  Debenture"  and  all  such  debentures,   the
"Additional  Debentures"),  at any time or from time to time from and after July
26, 2004 (the "Trigger Date") and through and including the later of (i) 90 days
following the date on which the Registration Statement is declared effective and
(ii) 90 days following the Trigger Date (the "Expiration  Date"), and subject to
the following  terms and  conditions.  This  Additional  Investment  Right (this
"Additional  Investment  Right")  is  one  of a  series  of  similar  additional
investment rights issued pursuant to that certain Securities Purchase Agreement,
dated as of the  date  hereof,  by and  among  the  Company  and the  Purchasers
identified therein (the "Securities  Purchase  Agreement").  All such additional
investment  rights are  referred  to herein,  collectively,  as the  "Additional
Investment Rights."

      1.  Definitions.  In  addition  to the  terms  defined  elsewhere  in this
Additional  Investment  Right,  capitalized terms that are not otherwise defined
herein  have  the  meanings  given  to such  terms  in the  Securities  Purchase
Agreement.

      2. Registration of Additional Investment Right. The Company shall register
this Additional  Investment  Right, upon records to be maintained by the Company
for that purpose (the "Additional  Investment Right  Register"),  in the name of
the record Holder  hereof from time to time.  The Company may deem and treat the
registered  Holder of this  Additional  Investment  Right as the absolute  owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
<PAGE>

      3.  Registration  of Transfers.  The Company shall register the assignment
and  transfer  of  any  portion  of  this  Additional  Investment  Right  in the
Additional  Investment  Right  Register,   upon  surrender  of  this  Additional
Investment Right, with the Form of Assignment attached hereto duly completed and
signed,  to  the  Company  at  its  address  specified  herein.  Upon  any  such
registration  or  transfer,  a  new  additional  investment  right  to  purchase
Additional  Debentures,  in substantially the form of this Additional Investment
Right (any such new additional  investment  right, a "New Additional  Investment
Right"),   evidencing  the  portion  of  this  Additional  Investment  Right  so
transferred  shall be issued to the transferee  and a New Additional  Investment
Right evidencing the remaining  portion of this Additional  Investment Right not
so  transferred,  if any,  shall  be  issued  to the  transferring  Holder.  The
acceptance of the New  Additional  Investment  Right by the  transferee  thereof
shall be deemed  the  acceptance  by such  transferee  of all of the  rights and
obligations of a holder of an Additional Investment Right.

      4. Exercise and Duration of Additional Investment Right.

            (a) This  Additional  Investment  Right shall be  exercisable by the
registered  Holder at any time or from time to time on or after the Trigger Date
to and including the Expiration  Date;  provided,  however,  that the Expiration
Date shall be extended for each day after the Effectiveness Deadline (as defined
in the Registration  Rights  Agreement) that the  Registration  Statement is not
effective.  At 6:30 P.M., New York City time on the Expiration Date, the portion
of this  Additional  Investment  Right not exercised prior thereto shall be void
and of no  further  force and  effect.  Notwithstanding  anything  herein to the
contrary,  following the Trigger Date, the Company shall have the right,  in its
sole discretion,  to accelerate the Expiration Date (the "Company's Acceleration
Election");  provided that the Conditions to the Company's Acceleration Election
(as set forth below) are satisfied as of the Company's  Exercise Election Notice
Date or are  waived by the  Holder.  The  Company  shall  exercise  its right to
Company's  Acceleration  Election by providing  written notice to each holder of
the Additional  Investment  Rights  ("Company's  Exercise  Election  Notice") by
facsimile and overnight  courier.  The date on which each of such holders of the
Additional  Investment Rights actually receives the Company's  Exercise Election
Notice is referred to herein as the "Company's  Exercise  Election Notice Date."
Subject to the  satisfaction  of all the conditions of this Section 4(a), on the
third trading day following the Company's  Exercise Election Notice Date, unless
the Holder has delivered an Exercise  Notice,  this Additional  Investment Right
shall be void and of no  further  force and  effect.  "Conditions  to  Company's
Acceleration  Election"  means the following  conditions:  (i) during the period
beginning on the Closing Date and ending on and including the Company's Exercise
Election  Notice Date, the Company shall have  delivered  shares of Common Stock
upon any  conversion  of  Conversion  Amounts on a timely  basis as set forth in
Section  4(e)(ii) of the Debentures,  and shall have delivered  shares of Common
Stock upon  exercise of any  Warrants on a timely  basis as set forth in Section
2(a) of the  Warrants;  (ii) on each day  during  the  period  beginning  on the
Closing Date and ending on and including the Company's  Exercise Election Notice
Date, the Common Stock shall be listed on the Principal  Market and delisting or
suspension  of the Common  Stock by such market or exchange  shall not have been
threatened  either (A) in writing by such  market or  exchange or (B) by falling
below the minimum  listing  maintenance  requirements of such market or exchange
for the Common Stock;  (iii) during the period beginning on the Closing Date and
ending on and including the Company's Exercise Election Notice Date, there shall
not have occurred either (x) the public  announcement of a pending,  proposed or
intended  Change  of  Control  which  has  not  been  abandoned,  terminated
<PAGE>

or consummated or (y) an Event of Default;  (iv) during the period  beginning on
the date which is the Closing  Date and ending on and  including  the  Company's
Exercise  Election Notice Date, there shall not have occurred an event that with
the passage of time or giving of notice,  and assuming it were not cured,  would
constitute an Event of Default;  (v) on each day of the period  beginning on the
date of  delivery  of a  Company's  Exercise  Election  Notice and ending on the
Company's Exercise Election Notice Date either (x) the Registration Statement or
Registration  Statements  required pursuant to the Registration Rights Agreement
shall be  effective  and  available  for the  resale  of all of the  Registrable
Securities in accordance with the terms of the Registration  Rights Agreement or
(y) all shares of Common Stock  issuable upon  conversion of the  Debentures and
shares of Common Stock  issuable upon exercise of the Warrants shall be eligible
for  sale  without   restriction  (other  than  any  restriction  arising  under
applicable  federal or state  securities  laws as a result of the holder of such
securities  being  an  Affiliate  of the  Company)  and  without  the  need  for
registration  under any applicable  federal or state  securities  laws; (vi) the
Company otherwise shall have been in material compliance with and shall not have
breached,  in any material respect, any provision,  covenant,  representation or
warranty of the Securities Purchase Agreement,  any of the Warrants,  any of the
Debentures or any of the other Transaction Documents; (vii) the Company shall be
unaware of any facts or circumstances  that might reasonably give rise to any of
the foregoing  events set forth in this paragraph  being untrue;  and (viii) the
Closing  Sale Price of the Common  Stock shall equal or exceed 200% of the Fixed
Conversion Price then in effect for the 20 consecutive  trading days immediately
prior to the date of delivery of the Company's Exercise Election Notice.

            (b) The Holder may  exercise  this  Additional  Investment  Right by
delivering to the Company (i) an exercise  notice,  in the form attached  hereto
(the  "Exercise  Notice"),  appropriately  completed  and duly  signed  and (ii)
payment of the principal  amount of the  Additional  Debentures as to which this
Additional  Investment Right is being exercised (the "Exercise Price"),  and the
date such items are delivered to the Company (as  determined in accordance  with
the notice  provisions  hereof) is an  "Exercise  Date." The Holder shall not be
required to deliver the original Additional  Investment Right in order to effect
an exercise hereunder.  Execution and delivery of the Exercise Notice shall have
the same effect as cancellation of the original Additional  Investment Right and
issuance of a New Additional  Investment  Right evidencing the right to purchase
the remaining number of Additional Debentures.

            (c)  Limitations  on  Exercise.  The  Company  shall not  effect any
exercise of this Additional  Investment Right, and the Holder of this Additional
Investment  Right  shall  not have the right to  exercise  any  portion  of this
Additional  Investment  Right,  to the extent that after  giving  effect to such
exercise,  the Holder (together with the Holder's affiliates) would beneficially
own in excess of 4.99% of the  number  of  shares  of Common  Stock  outstanding
immediately after giving effect to such exercise.  For purposes of the foregoing
sentence,  the number of shares of Common Stock beneficially owned by the Holder
and its  affiliates  shall include the number of shares of Common Stock issuable
upon  conversion of this Additional  Investment  Right 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, nonconverted portion of this Additional Investment Right beneficially
owned by the Holder or any of its  affiliates  and (B) exercise or conversion of
the unexercised or nonconverted  portion of any other  securities of the Company
subject to a

<PAGE>

limitation  on  conversion  or exercise  analogous to the  limitation  contained
herein beneficially owned by the Holder or any of its affiliates.  Except as set
forth  in  the  preceding  sentence,  for  purposes  of  this  Section  3(d)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities  Exchange  Act of 1934,  as amended.  For  purposes  of this  Section
3(d)(i),  in determining the number of outstanding  shares of Common Stock,  the
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y)
a more recent public  announcement by the Company or (z) any other notice by the
Company or the  Company's  transfer  agent setting forth the number of shares of
Common Stock  outstanding.  For any reason at any time, upon the written or oral
request of the Holder, the Company shall within two Business Days confirm orally
and in  writing  to the  Holder  the  number  of shares  of  Common  Stock  then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company,  including this Additional  Investment  Right, by the Holder or its
affiliates  since  the date as of which  such  number of  outstanding  shares of
Common Stock was reported.

      5. Delivery of Additional Debentures.

            (a) Upon exercise of this Additional  Investment  Right, the Company
shall promptly (but in no event later than three trading days after the Exercise
Date)  issue or cause to be  issued  and  cause to be  delivered  to or upon the
written  order  of the  Holder  and in such  name or  names  as the  Holder  may
designate,  (i) a certificate for the Additional  Debentures  issuable upon such
exercise,  free of restrictive legends unless a registration  statement covering
the  resale of the  Additional  Debentures  and  naming  the Holder as a selling
stockholder  thereunder is not then effective and the Additional  Debentures are
not freely transferable  without volume restrictions  pursuant to Rule 144 under
the Securities Act, (ii) the legal opinions of Company Counsel, substantially in
the form of Exhibit E to the  Securities  Purchase  Agreement,  executed by such
counsel and delivered to the Holders relating to the Additional Debentures,  and
(iv)  a   certificate   from  an  officer  of  the  Company  that  each  of  the
representations  and  warranties  of the  Company  set forth in Section 3 of the
Securities  Purchase Agreement are true and correct as of the date when made and
as of the Exercise  Date as though made on and as of such date,  and each of the
covenants, agreements and conditions required by the Transaction Documents to be
performed,  satisfied  or  complied  with by the  Company  at or  prior  to such
Exercise Date. The Holder,  or any Person so designated by the Holder to receive
Additional  Debentures,  shall be deemed to have become holder of record of such
Additional Debentures as of the Exercise Date.

            (b) This Additional  Investment Right is exercisable,  either in its
entirety  or,  from time to time,  for a  portion  of the  number of  Additional
Debentures.  Upon surrender of this Additional Investment Right following one or
more partial  exercises,  the Company shall issue or cause to be issued,  at its
expense, a New Additional  Investment Right evidencing the right to purchase the
remaining number of Additional Debentures.

            (c) In addition to any other rights  available  to a Holder,  if the
Company  fails to deliver to the Holder a  certificate  representing  Additional
Debentures  or the  shares of  Common  Stock  issuable  upon  conversion  of the
Additional  Debentures  on the date on which  delivery  of such  certificate  is
required by this Additional  Investment  Right or Additional  Debenture,  and if
after  such  date  the  Holder  purchases  (in an  open  market  transaction  or

<PAGE>

otherwise)  shares of Common Stock to deliver in  satisfaction  of a sale by the
Holder of the  Common  Stock  that the  Holder  anticipated  receiving  from the
Company (a "Buy-In"),  then the Company  shall,  within three Trading Days after
the Holder's request and in the Holder's discretion,  either (i) pay cash to the
Holder  in an amount  equal to the  Holder's  total  purchase  price  (including
brokerage commissions,  if any) for the shares of Common Stock so purchased (the
"Buy-In  Price"),  at which  point the  Company's  obligation  to  deliver  such
certificate (and to issue such Common Stock) shall  terminate,  or (ii) promptly
honor its  obligation  to deliver to the Holder a  certificate  or  certificates
representing  such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In  Price over the  product of (A) such number of
shares of Common  Stock,  times (B) the  Closing  Price on the date of the event
giving rise to the Company's obligation to deliver such certificate.

            (d) The  Company's  obligations  to  issue  and  deliver  Additional
Debentures in accordance  with the terms hereof are absolute and  unconditional,
irrespective  of any action or inaction  by the Holder to enforce the same,  any
waiver or consent  with  respect to any  provision  hereof,  the recovery of any
judgment  against any Person or any action to enforce  the same,  or any setoff,
counterclaim,  recoupment,  limitation or termination,  or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation  or alleged  violation of law by the Holder or any other  Person,  and
irrespective  of  any  other  circumstance  which  might  otherwise  limit  such
obligation  of the  Company to the Holder in  connection  with the  issuance  of
Additional Debentures. Nothing herein shall limit a Holder's right to pursue any
other remedies available to it hereunder, at law or in equity including, without
limitation,  a decree of  specific  performance  and/or  injunctive  relief with
respect to the Company's  failure to timely  deliver  certificates  representing
Additional  Debentures  upon  exercise  of the  Additional  Investment  Right as
required pursuant to the terms hereof.

      6. Charges, Taxes and Expenses.  Issuance and delivery of certificates for
Additional Debentures upon exercise of this Additional Investment Right shall be
made  without  charge to the Holder for any issue or transfer  tax,  withholding
tax,  transfer  agent fee or other  incidental  tax or expense in respect of the
issuance of such certificates,  all of which taxes and expenses shall be paid by
the Company.  The Holder shall be  responsible  for all other tax liability that
may arise as a result of  holding or  transferring  this  Additional  Investment
Right or receiving Additional Debentures upon exercise hereof.

      7.  Replacement  of  Additional   Investment  Right.  If  this  Additional
Investment  Right is mutilated,  lost,  stolen or  destroyed,  the Company shall
issue  or  cause  to be  issued  in  exchange  and  substitution  for  and  upon
cancellation  hereof,  or in  lieu  of  and  substitution  for  this  Additional
Investment  Right, a New Additional  Investment  Right, but only upon receipt of
evidence  reasonably  satisfactory  to  the  Company  of  such  loss,  theft  or
destruction and customary and reasonable indemnity, if requested.

      8. Reservation of Common Stock. The Company  covenants that it will at all
times  reserve  and  keep  available  out of its  authorized  but  unissued  and
otherwise  unreserved  Common  Stock,  solely for the  purpose of enabling it to
issue Common Stock issuable upon conversion of Additional  Debentures as therein
provided.  The Company covenants that all Additional  Debentures so issuable and
deliverable  shall,  upon  issuance and the payment of the  applicable  Exercise
Price in  accordance  with the terms  hereof,  be duly and  validly  authorized,
issued and

<PAGE>

fully paid and  nonassessable.  The Company  will take all such action as may be
necessary to assure that any shares of Common Stock issuable upon  conversion of
the Additional Debentures may be issued as provided therein without violation of
any  applicable  law or  regulation,  or of any  requirements  of any securities
exchange  or  automated  quotation  system  upon which the  Common  Stock may be
listed.

      9.  Certain  Adjustments.  The  conversion  price and  other  terms of the
Additional Debentures issuable upon exercise of this Additional Investment Right
shall be subject  to  adjustment  from time to time as set forth in the  initial
Debentures  issued by the Company on the date hereof  pursuant to the Securities
Purchase  Agreement as if this  Additional  Investment  Right and the Additional
Debentures were issued and outstanding on the date of issuance of the Debentures
issued  on  January  26,  2004.  At  least 30 days  prior  to any such  event or
transaction involving an Organic Change (as defined in the Additional Debenture)
or otherwise  potentially  giving rise to an adjustment or  modification  of the
terms and  provisions  of the  Additional  Debenture,  the Company will give the
Holder notice thereof of the date of the  transaction  and the effect thereof on
the  terms of the  Additional  Debentures.  The  Company  will  take  all  steps
reasonably  necessary in order to insure that the Holder is given the  practical
opportunity to exercise this  Additional  Investment  Right prior to the time of
such event or  transaction  so as to participate in or vote with respect to such
event or transaction.

      10. Payment of Exercise Price.  The Holder shall pay the Exercise Price in
immediately  available  funds to the  Company  in the  manner  specified  by the
Company in the Securities Purchase Agreement.

      11.  Notices.  Any  notices,  consents,  waivers  or other  communications
required or permitted to be given under the terms of this Additional  Investment
Right must be in  writing  and will be deemed to have been  delivered:  (i) upon
receipt,  when delivered  personally;  (ii) upon receipt, when sent by facsimile
(provided   confirmation  of  transmission  is  mechanically  or  electronically
generated and kept on file by the sending party);  or (iii) one (1) 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 as  set  forth  in  the
Securities Purchase Agreement.

      12. Miscellaneous.

            (a) Subject to the  restrictions  on transfer set forth on the first
page hereof,  and provided that any  transferee is an  "accredited  investor" as
that term is defined in Rule  501(a)(3) of Regulation D under the Securities Act
of 1933,  as  amended,  and (i)  agrees  to all of the terms  herein  and in the
Additional Debenture and (ii) provides investment purposes  representations with
respect  to this  Additional  Investment  Right  and the  Additional  Debentures
comparable  to  those  set  forth in  Section  2(a) of the  Securities  Purchase
Agreement,  this Additional Investment Right may be assigned by the Holder. This
Additional  Investment  Right may not be  assigned  by the  Company  except to a
successor  in the event of an  Organic  Change  (as  defined  in the  Additional
Debenture).  This Additional  Investment  Right shall be binding on and inure to
the benefit of the parties hereto and their  respective  successors and assigns.
Subject to the preceding sentence,  nothing in this Additional  Investment Right
shall be  construed  to give to any Person other than the Company and the Holder
any legal or equitable  right,  remedy or cause of action

<PAGE>

under this Additional  Investment Right. This Additional Investment Right may be
amended only in writing signed by the Company and the Holder,  their  respective
successors or permitted assigns.

            (b) The Company will not, by amendment of its governing documents or
through  any  reorganization,   transfer  of  assets,   consolidation,   merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek  to  avoid  the  observance  or  performance  of any of the  terms  of this
Additional  Investment  Right, but will at all times in good faith assist in the
carrying  out of all such terms and in the  taking of all such  action as may be
necessary or  appropriate  in order to protect the rights of the Holder  against
impairment.

            (C)  GOVERNING  LAW;  VENUE;  WAIVER OF JURY  TRIAL.  ALL  QUESTIONS
CONCERNING THE CONSTRUCTION,  VALIDITY,  ENFORCEMENT AND  INTERPRETATION OF THIS
ADDITIONAL  INVESTMENT  RIGHT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN,  FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION  CONTEMPLATED HEREBY
OR DISCUSSED  HEREIN  (INCLUDING  WITH RESPECT TO THE  ENFORCEMENT OF ANY OF THE
TRANSACTION DOCUMENTS),  AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT
IN ANY SUIT, ACTION OR PROCEEDING,  ANY CLAIM THAT IT IS NOT PERSONALLY  SUBJECT
TO THE JURISDICTION OF ANY SUCH COURT,  THAT SUCH SUIT,  ACTION OR PROCEEDING IS
IMPROPER.  EACH PARTY HEREBY  IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS  TO PROCESS  BEING  SERVED IN ANY SUCH SUIT,  ACTION OR  PROCEEDING  BY
MAILING A COPY THEREOF VIA  REGISTERED OR CERTIFIED  MAIL OR OVERNIGHT  DELIVERY
(WITH  EVIDENCE OF  DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS  AGREEMENT AND AGREES THAT SUCH SERVICE SHALL  CONSTITUTE  GOOD
AND SUFFICIENT  SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN
SHALL BE  DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE  PROCESS  IN ANY  MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

            (d) The headings herein are for convenience  only, do not constitute
a part of this Additional  Investment  Right and shall not be deemed to limit or
affect any of the provisions hereof.

            (e) In case  any one or more of the  provisions  of this  Additional
Investment Right shall be invalid or unenforceable in any respect,  the validity
and  enforceability  of the remaining  terms and  provisions of this  Additional
Investment  Right shall not in any way be  affected or impaired  thereby and the
parties  will  attempt  in good  faith to  agree  upon a valid  and  enforceable
provision which shall be a commercially reasonable substitute therefor, and upon
so agreeing,  shall  incorporate  such  substitute  provision in this Additional
Investment Right.
<PAGE>

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                             SIGNATURE PAGE FOLLOWS]
<PAGE>

      IN WITNESS  WHEREOF,  the Company has caused  this  Additional  Investment
Right  to be duly  executed  by its  authorized  officer  as of the  date  first
indicated above.

                                     HEMISPHERX BIOPHARMA, INC.

                                     By:
                                           -------------------------------------
                                     Name:
                                           -------------------------------------
                                     Title:
                                           -------------------------------------
<PAGE>

                             FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to purchase  $______________
principal  amount  of  Additional  Debentures  under  the  foregoing  Additional
Investment Right)

To: Hemispherx Biopharma, Inc.

The  undersigned is the Holder of Additional  Investment  Right No. _______ (the
"Additional Investment Right") issued by Hemispherx Biopharma,  Inc., a Delaware
corporation  (the  "Company").  Capitalized  terms used herein and not otherwise
defined  have the  respective  meanings set forth in the  Additional  Investment
Right.

1.    The  Additional  Investment  Right is currently  exercisable to purchase a
      total of $______________ principal amount of Additional Debentures.

2.    The   undersigned   Holder   hereby   exercises   its  right  to  purchase
      _________________   $______________   principal   amount   of   Additional
      Debentures pursuant to the Additional Investment Right.

3.    The Holder shall pay the sum of $____________ to the Company in accordance
      with the terms of the Additional Investment Right.

4.    Pursuant  to this  exercise,  the  Company  shall  deliver  to the  Holder
      $______________  principal  amount of Additional  Debentures in accordance
      with the terms of the Additional Investment Right.

5.    Following  this  exercise,   the  Additional  Investment  Right  shall  be
      exercisable  to purchase a total of  $______________  principal  amount of
      Additional Debentures.

6.    The undersigned is still an "Accredited  Investor" as that term is defined
      in Rule 501 of Regulation D under the Securities Act of 1933, as amended.

Dated: __________________, ______            Name of Holder:

                                             (Print)
                                                   -----------------------------

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

                                             (Signature   must  conform  in  all
                                             respects   to  name  of  holder  as
                                             specified   on  the   face  of  the
                                             Additional Investment Right)
<PAGE>

                               FORM OF ASSIGNMENT

      [To be completed and signed only upon  transfer of  Additional  Investment
Right]

      FOR VALUE RECEIVED,  the undersigned  hereby sells,  assigns and transfers
unto  ________________________________  the  right  represented  by  the  within
Additional  Investment  Right to purchase  $______________  principal  amount of
Additional  Debentures  of  Hemispherx  Biopharma,  Inc.  to  which  the  within
Additional  Investment Right relates and appoints  ________________  attorney to
transfer said right on the books of Hemispherx  Biopharma,  Inc. with full power
of substitution in the premises.

Dated: ___________________, _____

                                             -----------------------------------
                                             (Signature   must  conform  in  all
                                             respects   to  name  of  holder  as
                                             specified   on  the   face  of  the
                                             Additional Investment Right)

                                             -----------------------------------
                                             Address of Transferee

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

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

In the presence of:

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

                                       11
<PAGE>

                                                                       EXHIBIT A

                          FORM OF ADDITIONAL DEBENTURE

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.

No. __                                                                 $________

                           HEMISPHERX BIOPHARMA, INC.

          6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JANUARY 31, 2006

      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,  2006,  in an
aggregate  principal amount of up to Two Million U.S. Dollars (U.S.  $2,000,000)
(the "Debentures").

FOR VALUE RECEIVED, the Company promises to pay to ________________,  the holder
hereof,  or  its  registered  assigns  (the  "Holder"),  the  principal  sum  of
__________ Dollars ($________) when due, whether on January 31, 2006 (subject to
extension as provided  herein,  the "Maturity  Date") or on any Installment Date
with respect to the Installment  Amount due on such  Installment  Date (each, as
defined herein),  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. 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

                                       12
<PAGE>

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.

      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:

                                       13
<PAGE>

"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 Pink
Sheets LLC. 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

                                       14
<PAGE>

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 (A) as of any  Conversion  Date or other date of
determination   (other  than  with  respect  to  an  Installment  Amount  on  an
Installment  Date  pursuant  to a Company  Conversion  (as defined in Section 24
(a)), the Fixed Conversion Price, and (B) with respect to any Installment Amount
on an Installment  Date pursuant to a Company  Conversion,  at the option of the
Holder,  either the Fixed Conversion  Price or the Company  Conversion Price (as
defined  in  Section  24(d)),  each in  effect as of such  date and  subject  to
adjustment as provided herein.

"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.

"Fixed  Conversion  Price" shall mean as of any Conversion Date or other date of
determination   $2.58,   subject  to   adjustment  as  provided  in  Section  6,
Anti-dilution Adjustments to Conversion Price.

"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,  dated as of March  11,  2003,  between  the  Company  and
Interferon,  a true and complete copy of which has been delivered by

                                       15
<PAGE>

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.

                                       16
<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 third amended and restated 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 Pink
Sheets LLC. 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 resolved
pursuant to Section  4(e)(iii)  with the term  "Weighted  Average  Price"  being
substituted for the term "Closing

                                       17
<PAGE>

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
facsimile and overnight  courier to each Holder and shall  indicate (X) the date
fixed for

                                       18
<PAGE>

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 of such  Conversion  Notice
      (the  "Share

                                       19
<PAGE>

      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.

                                       20
<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 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

                                       21
<PAGE>

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.

            (h) Application of Conversion Amounts. Subject to the final sentence
of Section  24(b),  any  portion  of this  Debenture  that the Holder  elects to
convert in  accordance  with this Section 4 shall be deducted,  at the option of
the Holder (as set forth in the applicable  Conversion Notice),  either (x) from
the  Installment  Amount  relating to the latest  Installment  Date  (i.e.,  the
Installment Date nearest to the Maturity Date) with respect to which Installment
Amounts remain  outstanding or (y) from the  Installment  Amount relating to the
nearest Installment Date (i.e., nearest to the Installment Date that has not yet
occurred).

      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

                                       22
<PAGE>

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  January 26, 2004 and prior to the
twelve (12) month  anniversary of Original  Issuance 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: (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  and the  debentures
issued on January 26, 2004, pursuant to the Securities Purchase Agreement or the
Warrants,  or issued upon conversion of the Debentures and the debentures issued
on January 26, 2004,  pursuant to the Securities  Purchase Agreement or exercise
of the Warrants;  (x) issued upon exercise of Options or Convertible  Securities
which are  outstanding  on the date  immediately  preceding  January  26,  2004,
provided  that  (except  with  regard to the  Previously-Issued  Securities  (as
defined in the Securities Purchase Agreement)) 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 January 26, 2004, such Options or Convertible  Securities
are not amended after the date  immediately  preceding  January 26, 2004,  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  January 26, 2004;  (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 (or the initial  Conversion Price in case such Dilutive  Issuance
occurs  prior to the issuance of this  Debenture)  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 (or the initial  Conversion Price
in case such Dilutive  Issuance  occurs prior to the issuance of this Debenture)
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:

                                       23
<PAGE>

                  (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 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

                                       24
<PAGE>

      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
      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 (or the initial  Conversion Price in case
such Dilutive  Issuance  occurs prior to the issuance of this Debenture)

                                       25
<PAGE>

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 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.

      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).

      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.

                                       26
<PAGE>

      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 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

                                       27
<PAGE>

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 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

                                       28
<PAGE>

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.

            (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.

                                       29
<PAGE>

      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,  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

                                       30
<PAGE>

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":

            (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  (including,
without  limitation,  the Company's  failure to pay any  redemption  payments or
amounts  hereunder)  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

                                       31
<PAGE>

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

            (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

                                       32
<PAGE>

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 pursuant to the terms of the Registration  Rights Agreement)  required
to be included in such Registration Statement on or before July 26, 2004; 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 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, 2003
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

                                       33
<PAGE>

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 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

                                       34
<PAGE>

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  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

                                       35
<PAGE>

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 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

                                       36
<PAGE>

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. Company Installment Conversion or Redemption.

            (a) General. On each Installment Date (unless waived by the Holder),
the Company  shall pay to the Holder of this Note the  Installment  Amount as of
such Installment Date by the combination of any of the following, but subject to
and in  accordance  with  the  terms  of this  Section  24,  (i)  requiring  the
conversion of a portion of the  applicable  Installment  Amount,  in whole or in
part, in accordance with this Section 24 but subject to the  satisfaction of the
Conditions to Company  Conversion (as defined  below) (a "Company  Conversion"),
and/or (ii) redeeming the applicable Installment Amount, in whole or in part, in
accordance with this Section 24 (a "Company  Redemption");  provided that all of
the outstanding  applicable  Installment Amount as of each such Installment Date
must be converted  and/or redeemed by the Company on the applicable  Installment
Date,  subject to the  provisions  of this  Section  24. On or prior to the date
which is at least 2 Trading Days prior to each Installment Measuring Period, the
Company shall deliver written notice to the Holder (each, a "Company Installment
Notice"),  which Company Installment Notice shall state (i) the portion, if any,
of the  applicable  Installment  Amount  which the  Company  elects  to  convert
pursuant  to a  Company  Conversion,  which  amount  when  added to the  Company
Redemption  Amount must equal the  applicable  Installment  Amount (the "Company
Conversion  Amount"),  (ii) the portion,  if any, of the applicable  Installment
Amount which the Company elects to redeem pursuant to a Company  Redemption (the
"Company Redemption Amount"),  which amount when added to the Company Conversion
Amount must equal the applicable  Installment  Amount,  and (iii) if the Company
has  elected,  in whole or in  part,  a  Company  Conversion,  then the  Company
Installment  Notice shall certify that the Conditions to Company  Conversion are
satisfied as of the date of the Company  Installment Notice. If the Company does
not deliver a Company  Installment Notice in accordance with this Section 24(a),
then the "Company  Redemption  Amount" and the "Company  Conversion Amount" with
respect to such Installment Date shall be in such amounts and proportions as the
Holder shall  designate in writing to the Company in its sole discretion and the
Company shall be deemed to have delivered a Company  Installment  Notice setting
forth such amounts. Each Company Installment Notice shall be irrevocable. Except
as  expressly  provided in this  Section  24(a),  the Company  shall  redeem and
convert the applicable  Installment  Amount of this  Debenture  pursuant to this
Section 24 and the  corresponding  Installment  Amounts of the other  Debentures
pursuant to the  corresponding  provisions  of the other  Debentures in the same
ratio of the  Installment  Amount being  redeemed and converted  hereunder.  The
Company  Redemption Amount (whether set forth in the Company  Installment Notice
or by operation of this Section 24) shall be redeemed in accordance with Section
24(b), and the Company  Conversion  Amount shall be converted in accordance with
Section 24(c).

            (b) Mechanics of Company  Redemption.  If the Company elects,  or is
deemed to have elected,  a Company  Redemption in accordance with Section 24(a),
then the Company Redemption Amount, if any, which is to be paid to the Holder on
the  applicable  Installment  Date  shall be  redeemed  by the  Company  on such
Installment  Date,  and the Company shall pay to the Holder on such  Installment
Date, by wire transfer of immediately  available  funds,  an amount in cash (the
"Company Installment  Redemption Price") equal to the sum of 100% of the Company
Redemption  Amount.  Notwithstanding  anything to the  contrary in this

                                       37
<PAGE>

Section 24(b), but subject to Sections 11 and 26, until the Company  Installment
Redemption  Price  (together  with any  interest  thereon) is paid in full,  the
Company   Redemption  Amount  (together  with  any  interest  thereon  permitted
hereunder to be paid by the Company in Common Stock) may be converted,  in whole
or in part, by the Holder into Common Stock pursuant to Section 4.

            (c) Mechanics of Company  Conversion.  Subject to Sections 11 and 26
and Section  24(e),  if the Company  delivers a Company  Installment  Notice and
elects or is deemed to have elected,  in whole or in part, a Company  Conversion
in accordance with Section 24(a), then the applicable Company Conversion Amount,
if any,  which  remains  outstanding  shall be  converted  as of the  applicable
Installment Date by converting on such Installment Date such Company  Conversion
Amount as if the Holder had delivered a Conversion  Notice pursuant to Section 4
with  respect to such Company  Conversion  Amount on such  Installment  Date but
without the Holder being required to actually  deliver such  Conversion  Notice;
provided that the  Conditions to Company  Conversion are satisfied (or waived in
writing by the Holder) on such  Installment  Date. If the  Conditions to Company
Conversion  are not  satisfied  (or  waived in  writing  by the  Holder) on such
Installment  Date, then at the option of the Holder designated in writing to the
Company,  the  Holder  may  require  the  Company  to do any  one or more of the
following: (i) the Company shall redeem all or any part designated by the Holder
of the unconverted Company Conversion Amount (such designated amount is referred
to as the "First  Redemption  Amount") on such  Installment Date and the Company
shall  pay to  the  Holder  on  such  Installment  Date,  by  wire  transfer  of
immediately  available  funds, an amount in cash equal to such First  Redemption
Amount,  or (ii) the Company  Conversion  shall be null and void with respect to
all or any part designated by the Holder of the unconverted  Company  Conversion
Amount and the Holder  shall be  entitled  to all the rights of a holder of this
Note with  respect  to such  amount of the  Company  Conversion  Amount.  If the
Company  fails  to  redeem  any  First  Redemption   Amount  on  the  applicable
Installment Date by payment of such amount on the applicable  Installment  Date,
then the Holder  shall  have the  rights  set forth in  Section  24(b) as if the
Company  failed to pay the  applicable  Company  Redemption  Price and all other
rights under this Note (including, without limitation, such failure constituting
an Event of  Default  described  in  Section  15(d)).  In the event  the  Holder
delivers a Conversion  Notice to the Company after the earlier of the date which
is 10 days prior to the applicable  Installment Date and the Holder's receipt of
the Company  Installment Notice in respect of such Installment Date in which the
Company elects or is deemed to have elected a Company Redemption,  the Principal
amount specified in such Conversion Notice shall be deducted (1) first, from the
Principal  represented by the Company  Redemption Amount and then (2) second, in
accordance with Section 4(e)(h).

            (d) Conditions to Company  Conversion.  For purposes of this Section
24, "Conditions to Company  Conversion" means (i) during the period beginning on
the  Original   Issuance  Date  and  ending  on  and  including  the  applicable
Installment  Date, the Company shall have delivered  shares of Common Stock upon
any  conversion of Conversion  Amounts on a timely basis as set forth in Section
4(e)(ii) and analogous  provisions  under the other  Debentures,  and shall have
delivered shares of Common Stock upon exercise of any Warrants on a timely basis
as set forth in Section 2(a) of the Warrants; (ii) on each day during the period
beginning  on the  Original  Issuance  Date  and  ending  on and  including  the
applicable  Installment  Date, the Common Stock shall be listed on the Principal
Market  and  delisting  or

                                       38
<PAGE>

suspension  of the Common  Stock by such market or exchange  shall not have been
threatened  either (A) in writing by such  market or  exchange or (B) by falling
below the minimum  listing  maintenance  requirements of such market or exchange
for the Common Stock; (iii) during the period beginning on the Original Issuance
Date and ending on and including the applicable  Installment  Date,  there shall
not have occurred either (x) the public  announcement of a pending,  proposed or
intended  Change  of  Control  which  has  not  been  abandoned,  terminated  or
consummated or (y) an Event of Default;  (iv) during the period beginning on the
date  which is the  Original  Issuance  Date and  ending  on and  including  the
applicable  Installment  Date,  there shall not have occurred an event that with
the passage of time or giving of notice,  and assuming it were not cured,  would
constitute an Event of Default;  (v) on each day of the period  beginning on the
date of delivery of a Company  Installment Notice with respect to an Installment
Date and ending on the applicable  Installment  Date either (x) the Registration
Statement  or  Registration  Statements  required  pursuant to the  Registration
Rights  Agreement  shall be effective and available for the resale of all of the
Registrable  Securities  in  accordance  with and to the extent  required by the
terms of the  Registration  Rights  Agreement  or (y) all shares of Common Stock
issuable upon  conversion of the  Debentures and shares of Common Stock issuable
upon  exercise of the Warrants  shall be eligible  for sale without  restriction
(other than any restriction arising under applicable federal or state securities
laws as a result of the  holder of such  securities  being an  Affiliate  of the
Company) and without the need for registration  under any applicable  federal or
state  securities  laws;  (vi)  on  each  day of  the  period  beginning  on the
applicable Installment Date and ending thirty Trading Days thereafter either (x)
the  Registration  Statements  required  pursuant  to  the  Registration  Rights
Agreement  shall be expected to be effective  and available for the resale of at
least all of the  Registrable  Securities in  accordance  with and to the extent
required by the terms of the Registration  Rights Agreement or (y) all shares of
Common Stock  issuable upon  conversion of the  Debentures  and shares of Common
Stock  issuable upon exercise of the Warrants shall be eligible for sale without
restriction  (other than any  restriction  arising under  applicable  federal or
state securities laws as a result of the holder of such securities  states as an
Affiliate  of the  Company)  and  without  the need for  registration  under any
applicable  federal or state  securities  laws; and (vii) the Company  otherwise
shall have been in material compliance with and shall not have breached,  in any
material  respect,  any provision,  covenant,  representation or warranty of the
Securities Purchase Agreement, any of the Warrants, any of the Debentures or any
of the other Transaction Documents.

            (e)  Certain  Definitions.  For  purposes  of this  Section  24, the
following capitalized terms shall have the following meanings:

                  (i)  "Company  Conversion  Price"  means,  with respect to any
Company Conversion,  that price which shall be computed as 95% of the arithmetic
average of the Weighted Average Price of the Common Stock on each trading day in
the Installment Measuring Period.

                  (ii)   "Installment   Amount"  means,   with  respect  to  any
Installment  Date, the Outstanding  Principal Amount of this Debenture as of the
Installment  Date divided by the number of full months  between the  Installment
Date and  January  31,  2006.  In the event the Holder  shall sell or  otherwise
transfer any portion of this Debenture,  the transferee shall be allocated a pro
rata portion of the Installment Amount.

                                       39
<PAGE>

                  (iii) "Installment Date" means each monthly anniversary of the
Original Issuance Date, commencing on July 26, 2005.

                  (iv) "Installment  Measuring Period" means, with respect to an
Installment  Date, the 10-day trading day period commencing on and including the
eleventh  trading day immediately  preceding such Installment Date and ending on
and including the trading day immediately preceding such Installment Date.

      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 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.

                                       40
<PAGE>

                  (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, 2004.

                  (ix) "First Revenue Milestone Measuring Period" shall mean the
      period  commencing  on  January  1, 2004 and  ending on the First  Revenue
      Milestone Cash Collateral Date.

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

                  (xi)  "Initial Cash  Collateral  Period" shall mean the period
      commencing  on and  including  April 15, 2004 and ending on and  including
      April 29, 2005.

                  (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.

                                       41
<PAGE>

                  (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:

      (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;

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

      (E) Liens securing all  obligations  under the Company's 6% Senior Secured
Convertible  Debentures  Due July  31,  2005  (the  "July  Debentures")  and the
agreements and instruments entered into in connection therewith; and

      (F) Liens securing all  obligations  under the Company's 6% Senior Secured
Convertible  Debentures Due October 31, 2005 (the "October  Debentures") and the
agreements and instruments entered into in connection therewith.

                  (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.

                                       42
<PAGE>

                  (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.

                  (xxv) "Secondary Cash Collateral Period" shall mean the period
      commencing on and including April 30, 2005 and ending on and including the
      Maturity Date.

                  (xxvi) "Second Revenue  Milestone Cash Collateral  Date" shall
      mean June 30, 2004;  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, 2004 and ending on the Second Revenue
      Milestone Cash Collateral Date.

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

                                       43
<PAGE>

                  (xxix) "Third Revenue  Milestone Cash  Collateral  Date" shall
      mean  December 31 2004;  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, 2004 and ending on 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  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,   (G)  Indebtedness  incurred,   assumed  or  guaranteed  in
      connection with the Interferon  Acquisition,  (H) Indebtedness relating to
      the  Company's  July  Debentures,  and (I)  Indebtedness  relating  to the
      Company's  October  Debentures.  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

                                       44
<PAGE>

      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 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  pursuant to the terms of the Registration
      Rights  Agreement  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

                                       45
<PAGE>

      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 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

                                       46
<PAGE>

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.

                  (iv)  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.

                  (v) 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 (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

                                       47
<PAGE>

      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;

      (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

                                       48
<PAGE>

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

                                       49
<PAGE>

                  (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 Stock on the five consecutive Business Days ending on
      and including the

                                       50
<PAGE>

      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

                                       51
<PAGE>

      Principal  Amount of Debentures  may designate in writing to the Company),
      which shall be certified to each holder of  Debentures as 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.

                  (vii)  Notwithstanding  anything  herein to the contrary,  the
Company shall not be obligated to make any collateral  payments,  or deliver any
Cash Collateral Certificates, pursuant to this Section 25(g) (whether in cash or
in shares of Common Stock) on any Biweekly Revenue Cash Collateral Date, Monthly
Revenue Cash Collateral Date, the First Revenue  Milestone Cash Collateral Date,
the  Second  Revenue  Milestone  Cash  Collateral  Date,  or the  Third  Revenue
Milestone  Cash  Collateral  Date to the  extent  that the  balance  in the Cash
Collateral Account (as defined in the Securities Purchase Agreement) is not less
than $1,300,000.

            (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),  (3) shall not be permitted to issue Repayment  Shares (but
instead shall make cash collateral payments in cash), (4) shall not be permitted
to make a Company Conversion, and (5) shall not be permitted to issue conversion
shares, interest shares,  repayment shares, or warrant shares in connection with
the  Previously-Issued   Securities  (as  defined  in  the  Securities  Purchase
Agreement),  in each case 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 or redemption  of, or as
interest under, this Debenture, shares of Common Stock 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  and shares  issued in  connection  with a Company  Conversion
issued to the holder of this Debenture (and all  predecessor  holders) as of the
date of such conversion plus (B)

                                       52
<PAGE>

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
plus (C) the aggregate  number of shares of Common Stock issued to the holder of
this Debenture (and all predecessor  holders) pursuant to the  Previously-Issued
Securities (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 Weighted  Average  Price 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
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
(if  applicable),  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

                                       53
<PAGE>

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
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,  if
applicable)  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.

                                       54
<PAGE>

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 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

                                       55
<PAGE>

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.

                                       56
<PAGE>

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

Dated: January 26, 2004

                                          HEMISPHERX BIOPHARMA, INC.

                                          By:
                                             -----------------------------------
                                             Name:
                                             Title:
                                          Print Address:
                                          Telephone:
                                          Facsimile:

ATTEST

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

                                       57
<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, 2006

The undersigned,  as Holder of the 6% Senior Secured  Convertible  Debenture Due
January 31, 2006 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 (as well
as accrued and unpaid  interest)  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:________________________

         Accrued Interest to be converted:______________________________________

         Installment Date to which the amount to be converted relates:__________

         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 ____
<PAGE>

         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>

                                 ACKNOWLEDGMENT

      The Company hereby  acknowledges this Conversion Notice and hereby directs
[Transfer  Agent] to issue the above indicated  number of shares of Common Stock
in accordance with the  Irrevocable  Transfer Agent  Instructions  dated January
[___], 2004 from the Company and acknowledged and agreed to by [Transfer Agent].

                                        HEMISPHERX BIOPHARMA, INC.

                                        By:
                                           -------------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------
<PAGE>

Account Control Agreement...................................................13
Acquiring Entity............................................................27
Act.........................................................................13
Agent.......................................................................13
Approved Stock Plan.........................................................13
ASE.........................................................................13
Bloomberg...................................................................13
Business Day................................................................14
Cap Allocation Amount.......................................................53
Cash Collateral Account.....................................................14
Cash Collateral Account Bank................................................14
Cash Collateral Certificate.................................................51
Cash Interest Payment.......................................................12
Cash Transaction........................................................14, 28
Change of Control...........................................................28
Change of Control Redemption Price..........................................27
Closing Sale Price......................................................14, 17
Collateral..................................................................14
Common Stock............................................................14, 58
Common Stock Deemed Outstanding.............................................14
Company.............................................................12, 58, 67
Conversion Date.............................................................20
Conversion Failure..........................................................15
Conversion Notice...........................................................19
Conversion Price............................................................15
Conversion Rate.............................................................19
Convertible Securities......................................................15
Debenture...............................................................12, 58
Debenture Delivery Date.....................................................19
Debenture Register..........................................................13
Debentures..................................................................12
Default Conversion Price....................................................15
Default Interest............................................................13
Dilutive Issuance...........................................................23
DTC.........................................................................19
Events of Default...........................................................30
Exchange Act................................................................36
Exchange Cap................................................................52
Fixed Conversion Price......................................................15
Holder......................................................................12
Indebtedness................................................................32
Intellectual Property.......................................................15
Interest Payment Date.......................................................12
Interest Payments...........................................................12
Interferon Acquisition......................................................15
<PAGE>

Letters of Credit...........................................................15
Mandatory Conversion........................................................18
Mandatory Conversion Date...................................................18
Mandatory Conversion Measuring Period.......................................18
Mandatory Conversion Notice.................................................18
Maturity Date...............................................................12
Maturity Date Mandatory Redemption..........................................22
Maturity Date Redemption Price..............................................22
Mortgage....................................................................15
NASDAQ......................................................................15
New Securities Issuance Price...............................................23
Notice of Change of Control.................................................27
Notice of Redemption Upon Change of Control.............................27, 28
NYSE........................................................................16
Options.....................................................................16
Organic Change..............................................................27
Original Issuance Date......................................................16
Outstanding Principal Amount................................................16
Person......................................................................16
Principal Market............................................................16
Quarterly Period............................................................16
Registration Rights Agreement...............................................16
Rule 144....................................................................36
SEC.........................................................................16
Securities Agreement........................................................16
Securities Purchase Agreement...............................................16
Share Delivery Date.........................................................19
Strategic Financing.........................................................16
Transaction Documents.......................................................17
Transfer Agent..............................................................19
Valuation Event.............................................................25
Warrants....................................................................17
Weighted Average Price......................................................17
<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, 2006.

            "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, 2006 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: $____________.
<PAGE>

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

                                    ------------------------------<PAGE>

                                                                     Exhibit 4.2

                           CYTOKINETICS, INCORPORATED

             FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

         This Fourth Amended and Restated Investors' Rights Agreement (the
"Agreement") is made as of the 21st day of March, 2003 by and among
Cytokinetics, Incorporated, a Delaware corporation (the "Company") and the
investors listed on Exhibit A hereto, each of which is herein referred to as an
"Investor."

                                    RECITALS

         WHEREAS, certain of the Investors (the "Prior Parties") hold shares of
the Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and/or shares of Common Stock issued
upon conversion thereof (the "Prior Shares") and possess, registration rights,
information rights, rights of first refusal, and other rights pursuant to that
certain Third Amended and Restated Investor Rights Agreement dated as July 26,
2001 between the Company and such Prior Parties (the "Prior Agreement"); and

         WHEREAS, the Prior Parties desire to amend and restate in its entirety
the Prior Agreement and to accept the rights created pursuant hereto in lieu of
the rights granted to them under the Prior Agreement; and

         WHEREAS, certain Investors are parties to the Series E Preferred Stock
Purchase Agreement, dated as of March 21, 2003, between the Company and such
Investors (the "Purchase Agreement"), such Investors' obligations under which
are conditioned upon the execution and delivery of this Agreement by such
Investors, the Company and the execution of this Agreement or a written consent
to amend and restate the Prior Agreement by the Prior Parties holding in excess
of sixty percent (60%), on an as converted basis, of the Prior Shares:

         NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties to the Prior Agreement hereby and pursuant to
written consent agree that the Prior Agreement shall be superseded, amended and
restated in its entirety by this Agreement, and the parties hereto further agree
as follows:

                                    AGREEMENT

         The parties hereby agree as follows:

         1.       REGISTRATION RIGHTS. The Company and the Investors covenant
                  and agree as follows:

                  1.1      DEFINITIONS. For purposes of this Section 1:

                           (a)      The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), the declaration or ordering of
effectiveness of such registration statement or document and the continuation in
effect of

<PAGE>

such registration statement, not subject to any stop order issued by the
Securities and Exchange Commission ("SEC"), for the period set forth in Section
1.5(a) hereof;

                           (b)      The term "Registrable Securities" means (i)
the shares of Common Stock issuable or issued upon conversion of the Series A
Preferred Stock ("Series A Stock"), Series B Preferred Stock ("Series B Stock"),
Series C Preferred Stock ("Series C Stock") Series D Preferred Stock (the
"Series D Stock"), and the Series E Preferred Stock ("Series E Stock", together
with the Series A Stock, Series B Stock, Series C Stock and Series D Stock,
collectively, the "Preferred Stock") and (ii) any other shares of Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares listed in this Section 1.1(b)(i); provided, however, that the foregoing
definition shall exclude in all cases any Registrable Securities sold by a
person in a transaction in which his or her rights under this Agreement are not
assigned. Notwithstanding the foregoing, Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(l) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale; and provided further, that any reference in this
agreement to a specific number of Registrable Securities shall be subject to
adjustment for any stock splits, reverse stock splits, stock dividends,
combinations, recapitalizations and similar transactions;

                           (c)      The number of shares of "Registrable
Securities then outstanding" shall be determined by the number of shares of
Common Stock outstanding which are, and the number of shares of Common Stock
issuable pursuant to then exercisable or convertible securities which are,
Registrable Securities;

                           (d)      The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 of this Agreement;

                           (e)      The term "Form S-3" means such form under
the Securities Act as in effect on the date hereof or any successor form under
the Securities Act;

                           (f)      The term "SEC" means the Securities and
Exchange Commission; and

                           (g)      The term "Qualified IPO" means a firm
commitment underwritten public offering by the Company of shares of its Common
Stock pursuant to a registration statement on Form S-1 under the Securities Act,
in which the aggregate cash proceeds to the Company are not less than
$40,000,000 (net of underwriting discounts and commissions).

                  1.2      REQUEST FOR REGISTRATION.

                           (a)      Demand Rights.

                                                                             -2-

<PAGE>

                                    (i)      If the Company shall receive at any
time after the earlier of (A) December 31, 2003 or (B) six (6) months after the
effective date of the first registration statement for a public offering of
securities of the Company (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or an SEC Rule 145 transaction), a
written request from the Holders of (x) at least fifty-one percent (51%) of the
Registrable Securities then outstanding in the case of the first such request,
or (y) at least twenty-five percent (25%) of the Registrable Securities then
outstanding in the case of the second such request, that the Company file a
registration statement under the Securities Act covering the sale of at least
twenty percent (20%) of the Registrable Securities held by the Holders
requesting such registration, then the Company shall, within ten (10) days of
the receipt thereof, give written notice of such request in accordance with
Section 3.3 hereof to all Holders and shall, subject to the limitations of
subsection 1.2(b), use its best commercially reasonable efforts to effect as
soon as practicable, and in any event within 90 days of the receipt of such
request, the registration under the Securities Act of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the
mailing of such notice by the Company.

                                    (ii)     If the Company shall receive at any
time after twelve (12) months from the effective date of the first registration
statement for a public offering of securities of the Company (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or an SEC
Rule 145 transaction), a written request from the holders of at least thirty
percent (30%) of the aggregate number of shares of Common Stock heretofore
issued upon conversion of the Series C Stock and shares of Common Stock issuable
upon conversion of the Series C Stock then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least thirty percent (30%) of the aggregate number of shares of Common Stock
heretofore issued upon conversion of the Series C Stock and shares of Common
Stock issuable upon conversion of Series C Stock then outstanding the Company
shall, within ten (10) days of the receipt thereof, give written notice in
accordance with Section 3.3 of such request to all holders of Common Stock
issued or issuable upon conversion of Series C Stock and shall, subject to the
limitations of subsection 1.2(b), use its best commercially reasonable efforts
to effect as soon as practicable, and in any event within 90 days of the receipt
of such request, the registration under the Securities Act of all Common Stock
issued or issuable upon conversion of the Series C Stock which the holders of
such Common Stock request to be registered within twenty (20) days of the
mailing of such notice by the Company, provided that any registration carried
out pursuant to this Section 1.2 (a)(ii) shall be on Form S-3 if such form is
available for such offering.

                           (b)      If the Holders initiating the registration
request hereunder (collectively, the "Initiating Holders") intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter will be selected by a
majority in interest of the Initiating Holders and shall be reasonably
acceptable to the Company. In such event, the right of any Holder to include
their Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their

                                                                             -3-

<PAGE>

securities through such underwriting shall (together with the Company as
provided in subsection 1.5(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting,
provided, however, that (A) no Holder shall be required to make any
representations or warranties to, or agreements with, the Company or any
underwriter other than representations, warranties or agreements regarding the
identity of such Holder, the title to the Registrable Securities being sold by
such Holder, the power and authority of such Holder to enter into the
underwriting agreement, the amount and ownership of the securities of the
Company held by such Holder, such Holder's intended method of distribution and
any other customary representations and warranties concerning the Holder and its
Registrable Securities reasonably requested by the Company or the underwriters
and (B) no Holder shall be required to make any representations or warranties
concerning the Company or its business, properties, prospects, financial
condition or related matters. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities, other than shares
sold by the Company which are included in such underwriting with the consent of
a majority in interest of the Initiating Holders, are first entirely excluded
from the underwriting.

                           (c)      Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting a registration statement pursuant to
this Section 1.2, a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
of the Initiating Holders; provided, however, that the Company may not utilize
this right more than once in any twelve-month period.

                           (d)      In addition, the Company shall not be
obligated to effect, or to take any action to effect, any registration pursuant
to this Section 1.2:

                                    (i)      For purposes of registrations
requested pursuant to Section 1.2 (a)(i), (A) after the Company has effected two
(2) such registrations pursuant to Section 1.2(a)(i) and such registrations have
been declared or ordered effective and remained in effect, not subject to any
stop order issued by the SEC, in accordance with the provisions of Section
1.5(a) hereof or (B) within six (6) months of the effective date of another
registration;

                                    (ii)     For purposes of registrations
requested pursuant to Section 1.2 (a)(ii), (A) after the Company has effected
two (2) such registrations pursuant to Section 1.2(a)(ii) and such registrations
have been declared or ordered effective and remained in effect, not subject to
any stop order issued by the SEC, in accordance with the provisions of Section
1.5(a) hereof or (B) within six (6) months of the effective date of another
registration;

                                                                             -4-

<PAGE>

                                    (iii)    During the period starting with the
date ninety (90) days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1.3 hereof; provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or

                                    (iv)     If the Initiating Holders propose
to dispose of shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below.

                  1.3      COMPANY REGISTRATION. If (but without any obligation
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its stock under the Securities Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration in accordance with Section 3.3. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company, the Company shall, subject to the provisions of Section
1.8, cause to be registered under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered.

                  1.4      FORM S-3 REGISTRATION. In case the Company shall
receive from Holders of the Registrable Securities then outstanding a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:

                           (a)      promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and

                           (b)      as soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within 15 days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 1.4: (i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$500,000; (iii) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the

                                                                             -5-

<PAGE>

Company and its stockholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than 90 days
after receipt of the request of the Holder or Holders under this Section 1.4;
provided, however, that the Company shall not utilize this right more than once
in any twelve month period; (iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 1.4 or within
six (6) months of the effective date of another registration; (v) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance; or (vi) during the period ending one
hundred eighty (180) days after the effective date of a registration statement
subject to Section 1.2 or Section 1.3.

                           (c)      Subject to the foregoing, the Company shall
file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.

                           (d)      All Holders proposing to distribute their
securities through an underwriting under this Section 1.4 shall (together with
the Company as provided in subsection 1.5(e)) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting, provided, however, that (A) no Holder shall be required to
make any representations or warranties to, or agreements with, the Company or
any underwriter other than representations, warranties or agreements regarding
the identity of such Holder, the title to the Registrable Securities being sold
by such Holder, the power and authority of such Holder to enter into the
underwriting agreement, the amount and ownership of the securities of the
Company held by such Holder, such Holder's intended method of distribution and
any other customary representations and warranties concerning the Holder and its
Registrable Securities reasonably requested by the Company or the underwriters
and (B) no Holder shall be required to make any representations or warranties
concerning the Company or its business, properties, prospects, financial
condition or related matters.

                  1.5      OBLIGATIONS OF THE COMPANY. Whenever required under
this Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:

                           (a)      Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use commercially
reasonable efforts to cause such registration statement to become effective,
and, upon the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to one
hundred twenty (120) days.

                           (b)      Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement for up to one hundred
twenty (120) days.

                                                                             -6-

<PAGE>

                           (c)      Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

                           (d)      Use its best commercially reasonable efforts
to register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.

                           (e)      In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement, provided, however, that
with respect to registrations pursuant to Sections 1.2 and 1.4 (A) no Holder
shall be required to make any representations or warranties to, or agreements
with, the Company or any underwriter other than representations, warranties or
agreements regarding the identity of such Holder, the title to the Registrable
Securities being sold by such Holder, the power and authority of such Holder to
enter into the underwriting agreement, the amount and ownership of the
securities of the Company held by such Holder, such Holder's intended method of
distribution and any other customary representations and warranties concerning
the Holder and its Registrable Securities reasonably requested by the Company or
the underwriters and (B) no Holder shall be required to make any representations
or warranties concerning the Company or its business, properties, prospects,
financial condition or related matters, and, provided further, that with respect
to registrations pursuant to Section 1.3 no Holder shall be required to make any
representations or warranties to, or agreements with, the Company or any
underwriter other than the representations set forth in Part (A) of this
paragraph, above, and, if the Holders are required by the underwriters, the same
representations and warranties required by the underwriters on the part of the
Company concerning the Company or its business, properties, prospects, financial
condition or related matters provided that such representations will be
qualified as to the knowledge of such selling Holder.

                           (f)      Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days. In such
case, the Company shall promptly prepare a supplement or amendment to such
prospectus and furnish to each seller of Registrable Securities a reasonable
number of copies of such supplement to or an amendment of such prospectus as may
be necessary so that, after delivery to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The number of days during which the
Company is preparing such supplement or amendment shall be added to the period
set forth in Section 1.5(a) hereof.

                                                                             -7-

<PAGE>

                           (g)      Cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.

                           (h)      Provide a transfer agent and registrar for
all Registrable Securities registered pursuant hereunder and a CUSIP number for
all such Registrable Securities, in each case not later than the effective date
of such registration.

                           (i)      Use its best commercially reasonable efforts
to furnish, at the request of any Holder requesting registration of Registrable
Securities pursuant to this Section 1, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Section 1, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.

                           (j)      In the event of any underwritten public
offering, cooperate with the Holders requesting registration, the underwriter
participating in the offering and their counsel in any due diligence
investigation reasonably requested by the Holders or the underwriters in
connection therewith, and participate, to the extent reasonably requested by the
underwriter for the offering (including, without limitation, participating in
"roadshow" meetings with prospective investors) and that would be customary for
underwritten primary offerings of a comparable amount of equity securities by
the Company.

                  1.6      FURNISH INFORMATION. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
such Holder's Registrable Securities. The Company shall have no obligation with
respect to any registration requested pursuant to Section 1.2 or Section 1.4 of
this Agreement if, as a result of the application of the preceding sentence, the
number of shares or the anticipated aggregate offering price of the Registrable
Securities to be included in the registration does not equal or exceed the
number of shares or the anticipated aggregate offering price required to
originally trigger the Company's obligation to initiate such registration as
specified in subsection 1.2(a) or subsection 1.4(b), whichever is applicable;
provided, however, that such registration shall not be deemed a registration for
purposes of Section 1.2(d).

                                                                             -8-

<PAGE>

                  1.7      EXPENSES OF REGISTRATION.

                           (a)      DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them (collectively "Registration Expenses") shall be borne by the
Company; provided, however, that if the Holders bear the Registration Expenses
for any registration proceeding begun pursuant to Section 1.2 and subsequently
withdrawn by the Holders registering shares therein, such registration
proceeding shall not be counted as a requested registration pursuant to Section
1.2 hereof, except in the event that such withdrawal is based upon material
adverse information relating to the Company that is different from the
information known or available (upon request from the Company or otherwise) to
the Holders requesting registration at the time of their request for
registration under Section 1.2, in which event such registration shall not be
treated as a counted registration for purposes of Section 1.2 hereof, even
though the Holders do not bear the Registration Expenses for such registration.

                           (b)      COMPANY REGISTRATION. All expenses other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
Section 1.3 for each Holder, including (without limitation) all registration,
filing, and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holder or Holders selected by them
shall be borne by the Company.

                           (c)      REGISTRATION ON FORM S-3. All expenses other
than underwriting discounts and commissions incurred in connection with a
registration requested pursuant to Section 1.4, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders selected by them shall be borne by the Company.

                  1.8      UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their good faith will not jeopardize
the success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by stockholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their good faith is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their good faith will not jeopardize the
success of the offering. The Company will include in such registration (i)
first, the securities the Company proposes to sell for its own account; (ii)
second, to the extent that the number of securities the Company proposes to sell
is less than the number of securities which the Company has been advised can be
sold in such offering that is compatible with the success of the

                                                                             -9-

<PAGE>

offering, such number of Registrable Securities which the Holders have requested
to be included in such registration pursuant to Section 1.3 hereof; provided,
however, in no event shall such number of Registrable Securities which the
Holders have requested to be included in such registration be reduced below
twenty-five percent (25%) of the total amount of securities included in such
registration, unless such offering is the Qualified IPO and such registration
does not include shares of any other selling stockholders, in which event any or
all of the Registrable Securities of the Holders may be excluded in accordance
with the immediately preceding sentence; and (iii) third, to the extent that the
number of securities which are to be included in such registration pursuant to
clauses (i) and (ii) is, in the aggregate, less than the number of securities
which the Company has been advised can be sold in such offering that is
compatible with the success of the offering, such number of other securities
requested to be included in the offering for the account of any holders not
contractually entitled to registration which, in the opinion of the
underwriters, is compatible with the success of the offering. In no event will
shares of any other selling stockholder be included in such registration which
would reduce the number of shares which have been requested to be included by
Holders without the written consent of Holders of not less than sixty six and
two thirds percent (66 2/3%) of the Registrable Securities proposed to be sold
in the offering. The number of Registrable Securities included in such
registration statement shall be allocated pro rata among the Holders based on
the number of Registrable Securities held by each Holder or in such other
proportions as shall mutually be agreed to by such selling Holders, but in no
event shall any shares being sold by a Holder exercising a demand registration
right similar to that granted in Section 1.2 be excluded from such offering. For
purposes of this Section 1.8 concerning apportionment, for any selling
stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder" and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.

                  1.9      DELAY OF REGISTRATION. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.

                  1.10     INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under this Section 1:

                           (a)      To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, its legal counsel, its
accountants, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or

                                                                            -10-

<PAGE>

supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to any Holder,
underwriter or controlling person for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.

                           (b)      To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, its legal
counsel, its accountants, any underwriter, any other Holder selling securities
in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that
in no event shall any indemnity under this subsection 1.10(b) exceed the net
proceeds from the offering received by such Holder, except in the case of
willful fraud by such Holder.

                           (c)      Promptly after receipt by an indemnified
party under this Section 1.10 of notice of the commencement of any action
(including any governmental action), such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party under this Section
1.10, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing

                                                                            -11-

<PAGE>

interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to so notify the indemnifying party
shall not relieve the indemnifying party of any liability (i) that it may have
to the indemnified party hereunder (except to the extent the indemnifying party
forfeits rights or defenses by reason of such failure), or (ii) that it may have
to any indemnified party other than under this 1.10.

                           (d)      If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense as well as any other relevant
equitable considerations; provided, that in no event shall any contribution by a
Holder under this Subsection 1.10(d) exceed the net proceeds from the offering
received by such Holder, except in the case of willful fraud by such Holder. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

                           (e)      Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.

                           (f)      The obligations of the Company and Holders
under this Section 1.10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.

                  1.11     REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the SEC that may at
any time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:

                           (a)      make and keep public information available,
as those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public so
long as the Company remains subject to the periodic reporting requirements under
Sections 13 or 15(d) of the Exchange Act;

                           (b)      take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable

                                                                            -12-

<PAGE>

after the end of the fiscal year in which the first registration statement filed
by the Company for the offering of its securities to the general public is
declared effective;

                           (c)      file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and

                           (d)      furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.

                  1.12     ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to (i) a
transferee or assignee of at least 400,000 shares of such securities, (ii) a
transferee or assignee of all of such Registrable Securities held by such
transferring Holder, if less than 400,000 shares, or (iii) a general partner,
limited partner, retired partner, member or retired member, affiliate, parent or
majority-owned subsidiary of the transferee or Holder, provided that prior to
such transfer or assignment the Company is furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned and with an agreement to be
bound to the rights and obligations under Sections 1 and 3 of this Agreement as
a Holder hereunder executed by such transferee or assignee; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act; and, provided further, that
such transferee or assignee is not a competitor of the Company as determined in
good faith by the Company's Board of Directors. For the purposes of determining
the number of shares of Registrable Securities held by a transferee or assignee,
the holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.

                  1.13     LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of

                                                                            -13-

<PAGE>

the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective date
of any registration effected pursuant to Section 1.2, provided, however, that
with respect to the inclusion by such holder or prospective holder of securities
in any registration under Section 1.2(a)(ii) of this Agreement, the consent
required under this Section 1.13 shall also include the prior written consent of
the holders of a majority of the shares of Series C Preferred Shares.

                  1.14     "MARKET STAND-OFF" AGREEMENT. Each Holder hereby
agrees that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:

                           (a)      such agreement shall be applicable only to
the first such registration statement of the Company which covers Common Stock
(or other securities) to be sold on its behalf to the public in an underwritten
offering; and

                           (b)      all officers, directors, and key employees
of the Company, all five-percent security holders, and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.

         In order to enforce the foregoing covenant and until the end of such
stand-off period (i) each certificate representing Registrable Securities shall
have a legend imprinted thereon that such Registrable Securities are subject to
a market stand-off agreement restricting the transfer thereof for a period of
180 days following the initial public offering of the Company's securities and
(ii) the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the shares or securities of every
other person subject to the foregoing restriction). Each Holder agrees that, if
so requested, such Holder will execute an agreement in the form provided by the
underwriter containing terms which are essentially consistent with the
provisions of this Section 1.14.

         Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.

                  1.15     TERMINATION OF REGISTRATION RIGHTS. No Holder shall
be entitled to exercise any right provided for in this Section 1 after the
earlier of (i) five (5) years following the consummation of a Qualified IPO, or
(ii) such time as Rule 144 or another similar exemption under the Securities Act
is available for the sale of all of such Holder's shares during a three
(3)-month period without registration.

                                                                            -14-

<PAGE>

         2.       COVENANTS OF THE COMPANY.

                  2.1      DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to each Holder of at least 400,000 shares of Registrable Securities:

                           (a)      as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company and
statement of stockholder's equity as of the end of such year, and a statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"), and audited and certified by an independent public accounting firm of
nationally recognized standing selected by the Company;

                           (b)      as soon as practicable, but in any event
within thirty (30) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, a
statement of cash flows for such fiscal quarter and an unaudited balance sheet
as of the end of such fiscal quarter;

                           (c)      within thirty (30) days of the end of each
month, an unaudited income statement and a statement of cash flows and balance
sheet for and as of the end of such month, in reasonable detail;

                           (d)      as soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a budget and business
plan for the next fiscal year, prepared on a monthly basis, and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and

                           (e)      with respect to the financial statements
called for in subsections (b) and (c) of this Section 2.1, an instrument
executed by the Chief Financial Officer or President of the Company and
certifying that such financials were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with the exception
of footnotes that may be required by GAAP) and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment, provided that the foregoing shall not
restrict the right of the Company to change its accounting principles consistent
with GAAP, if the Board of Directors determines that it is in the best interest
of the Company to do so.

                  2.2      INSPECTION. The Company shall permit each Holder of
at least 400,000 shares of Registrable Securities, at such Holder's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information (i) which it reasonably
considers to be a trade secret or similar confidential information unless such
holder executes a nondisclosure agreement reasonably acceptable to the Company
or (ii) to any Holder that is a competitor to the Company or acting on behalf of
a competitor to the Company as determined in good faith by the Board of
Directors.

                  2.3      RIGHT OF FIRST OFFER. Subject to the terms and
conditions specified in this Section 2.3, the Company hereby grants to each
Holder a right of first offer with respect to future

                                                                            -15-

<PAGE>

sales by the Company of its Shares (as hereinafter defined). A Holder who
chooses to exercise the right of first offer may designate as purchasers under
such right, in accordance with the provisions of Section 2.3(e), itself or its
partners or affiliates in such proportions as it deems appropriate.

         Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Holder in accordance with the following provisions:

                           (a)      The Company shall deliver a notice by
certified mail ("Notice") to the Holders stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and material terms, if any, upon which it proposes to offer such Shares.

                           (b)      Within 15 calendar days after delivery of
the Notice, the Holder may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Holder bears to the total number of shares of
Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). After such 15-day period, the Company
will provide notice to all Holders as to whether or not the right of first offer
has been or will be exercised by all Holders. If any Holders do not exercise
their right of first offer, the Shares that would otherwise be allocated to such
non-exercising Holders shall be available for allocation to each exercising
Holder on a pro-rata basis (based upon the number of shares of Common Stock
issued and held, or issuable upon conversion and exercise of all convertible or
exercisable securities then held by such Holder relative to the total number of
such shares held by all exercising Holders), provided that the additional right
of first offer must be exercised, if at all, within five days after the
exercising Holder has received notice from the Company that the original right
of first offer was not exercised by all Holders.

                           (c)      The Company may, during the 45-day period
following the expiration of the period provided in subsection 2.3(b) hereof,
offer the remaining unsubscribed portion of the Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Holders in accordance herewith.

                           (d)      The right of first offer in this paragraph
2.3 shall not be applicable (i) to the issuance or sale of Common Stock (or
options therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors for the primary purpose of
soliciting or retaining their services, (ii) to the sale of shares in connection
with a firm commitment underwritten public offering, (iii) to the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) to the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise or in connection with a
corporate partnering agreement approved by the Board of Directors, (v) to the
issuance of securities to financial institutions or lessors in connection with
commercial credit arrangements, equipment

                                                                            -16-

<PAGE>

financing, or similar transactions approved by the Board of Directors, (vi) to
the issuance or sale of the Series E Preferred Stock, (vii) to the issuance of
dividends or distributions on shares of Preferred Stock, or (viii) warrants
which are currently outstanding for the purchase of shares of the Company's
Common Stock or Preferred Stock.

                           (e)      The right of first offer set forth in this
Section 2.3 may be assigned by a Holder to (i) a transferee or assignee of at
least 400,000 shares of such securities, (ii) a transferee or assignee of all of
such Registrable Securities held by such Transferring Holder, if less than
400,000 shares, or (iii) a partner, affiliate or majority-owned subsidiary of
the transferee, provided that such transferee or assignee is not a competitor of
the Company as determined in good faith by the Company's Board of Directors.

                  2.4      QUALIFIED SMALL BUSINESS. The Company will use
reasonable efforts to comply with the reporting and record keeping requirements
of Section 1202 of the Code, any regulations promulgated thereunder and any
similar state laws and regulations, and agrees not to repurchase any stock of
the Company if such repurchase would cause the Stock not to so qualify as
"Qualified Small Business Stock," so long as the Company's Board of Directors
determines that it is in the best interests of and not unduly burdensome to the
Company to comply with the provisions of Section 1202 of the Code. The Company
further covenants to submit to its stockholders and to state and federal
taxation authorities such forms and filings as may be required to document such
compliance, including the California Franchise Tax Board Form 3565, Small
Business Stock Questionnaire, with its franchise or income tax return for the
current income year.

                  2.5      ADDITIONAL COVENANTS.

                           (a)      For so long as an Investor of Series C Stock
holds 1,000,000 or more shares of Series C Stock, or the shares of Common Stock
issued on conversion thereof equivalent to 1,000,000 shares of Series C Stock (a
"Major Investor") the Company shall:

                                    (i)      Deliver to such Major Investor all
reports and information required by Section 2.1,

                                    (ii)     Permit such Major Investor
reasonable access, during regular business hours, to contact the Company's
senior management,

                                    (iii)    Provide to such Major Investor
other non-scientific information reasonably requested by such Major Investor,
provided that the Company consents to the provision of such information (which
consent shall not be unreasonably withheld), and, provided further, that such
Major Investor delivers to the Company a confidentiality agreement, in a form
reasonably satisfactory to the Company, which states, among other things and
without limitation, that such Major Investor shall not use such information for
any purpose other than for evaluation and monitoring its investment in the
Company, and

                                    (iv)     Provide to such Major Investor, on
a timely basis, management reports in form and substance mutually agreed to by
the Company and such Major Investor.

                                                                            -17-

<PAGE>

                           (b)      For so long as an Investor, who was at any
time a Major Investor, holds any Registrable Securities of the Company, the
Company shall provide to such Investor any and all information that the Company
provides to non-affiliate holders of Common Stock holding a number of shares of
Common Stock equal to or less than the number of shares of Common Stock such
Investor holds or may be deemed to hold upon conversion of any Registrable
Securities held by such Investor at such time.

                           (c)      Any Major Investor requesting disclosure,
reports or information from the Company pursuant to any provision of this
Section 2, shall work with and assist the Company to prevent the compilation and
delivery of any such requested material or information from placing an undue
burden on the Company or the Company's senior management.

                           (d)      The Company's obligation under Section 2.5
(a)(iii) shall terminate as to any Major Investor upon the occurrence of both of
the following events:

                                    (i)      The Company undergoes (A) an
initial public offering of its Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or (B) a merger, consolidation or sale of
all or substantially all of its assets; and

                                    (ii)     After the occurrence of a
transaction listed in (i) above, such Major Investor no longer maintains a
representative director on the Board of Directors of the Company.

                  2.6      TERMINATION OF COVENANTS.

                           (a)      The covenants set forth in Sections 2.1
through Section 2.3 shall terminate as to each Holder and be of no further force
or effect immediately prior to the consummation of a Qualified IPO.

                           (b)      The covenants set forth in Sections 2.1 and
2.2 shall terminate as to each Holder and be of no further force or effect when
the Company first becomes subject to the periodic reporting requirements of
Sections 13 or 15(d) of the Exchange Act, if this occurs earlier than the events
described in Section 2.6(a) above; provided, however, that the Company covenants
and agrees to enter into an agreement including such covenants if the Company
ceases to be subject to such periodic reporting requirements.

         3.       MISCELLANEOUS.

                  3.1      SUCCESSORS AND ASSIGNS. Except as otherwise provided
in this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties (including transferees of any of the Preferred Stock or any
Common Stock issued upon conversion thereof). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

                                                                            -18-

<PAGE>

                  3.2      AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended or waived only with the written consent of the Company and the
holders of at least sixty percent (60%) of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company, provided that, this Agreement shall not be changed in any way that
would adversely affect the rights and privileges of any Holder holding Series A
Preferred Stock, Series B Preferred Stock, Series C Stock, Series D Stock and/or
Series E Stock in a manner different from the Holders of the other series of
Preferred Stock without the written consent of the holders of a majority of the
adversely affected series of Preferred Stock. Notwithstanding anything herein to
the contrary, any Additional Purchaser who purchases Stock at the Second Closing
or the Third Closing, as the case may be, as such terms are defined in the
Purchase Agreement, in accordance with Section 1.2 of the Purchase Agreement
shall become a party to this Agreement as an Investor without any amendment of
this Agreement pursuant to this Section 3.2 or any consent or approval of any
other Investor. Exhibit A hereto shall be supplemented to reflect the addition
of any Additional Purchasers in the Second Closing.

                  3.3      NOTICES. Unless otherwise provided, any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier or
sent by telegram or fax, or seventy-two (72) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address or fax number as set forth
on the signature page or Exhibit A hereto or as subsequently modified by written
notice.

                  3.4      SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (a) such provision shall be excluded from this Agreement, (b)
the balance of the Agreement shall be interpreted as if such provision were so
excluded and (c) the balance of the Agreement shall be enforceable in accordance
with its terms.

                  3.5      GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto shall be governed, construed and interpreted in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of laws.

                  3.6      COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. 3.7 TITLES AND
SUBTITLES. The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.

                  3.8      AGGREGATION OF STOCK. All shares of the Preferred
Stock held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.

                                                                            -19-

<PAGE>

                            [Signature Page Follows]

                                                                            -20-

<PAGE>

         The parties have executed this Investors' Rights Agreement as of the
date first above written.

                                     COMPANY:

                                     CYTOKINETICS, INCORPORATED

                                     By:________________________________________

                                     Print Name: James Sabry

                                     Title: President & CEO

                                     Address: 280 E. Grand Avenue
                                              So. San Francisco, CA  94080

                                     INVESTORS:

                                     [Investor Signature Pages To Follow]

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                     LIFE SCIENCE VENTURE FUND

                                     By:  ReqMed Company, Ltd.
                                          Its General Partner

                                     By:________________________________________

                                     Name:______________________________________

                                     Title:_____________________________________

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                     SEVIN ROSEN FUND VII L.P.

                                     By:  SRB Associates VII L.P.,
                                          Its General Partner

                                     By:________________________________________

                                     Name:  John V. Jaggers

                                     Title: General Partner

                                     SEVIN ROSEN VII AFFILIATES FUND L.P.

                                     By:  SRB Associates VII L.P.,
                                          Its General Partner

                                     By:________________________________________

                                     Name:  John V. Jaggers

                                     Title: General Partner

                                     SEVIN ROSEN FUND VIII L.P.

                                     By:  SRB Associates VIII L.P.,
                                          Its General Partner

                                     By:________________________________________

                                     Name:  John V. Jaggers

                                     Title: General Partner

                                     SEVIN ROSEN VIII AFFILIATES FUND L.P.

                                     By:  SRB Associates VIII L.P.,
                                          Its General Partner

                                     By:________________________________________

                                     Name:  John V. Jaggers

                                     Title: General Partner

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                     MAYFIELD IX,
                                     A DELAWARE LIMITED PARTNERSHIP

                                     By:  Mayfield IX Management, L.L.C.
                                     Its: General Partner

                                     By:________________________________________

                                     Name:______________________________________

                                     Title: Managing Director

                                     MAYFIELD ASSOCIATES FUND IV,
                                     A DELAWARE LIMITED PARTNERSHIP

                                     By:  Mayfield IX Management, L.L.C.
                                     Its: General Partner

                                     By:________________________________________

                                     Name:______________________________________

                                     Title: Managing Director

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                     CELL TRUST II

                                     By:________________________________________

                                     Name:______________________________________

                                     Title: Administrative Trustee

    SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                   AGREEMENT
<PAGE>

                                          THE A. GRANT III & JEANETTE YVONNE
                                          HEIDRICH COMMUNITY PROPERTY TRUST

                                          By: __________________________________

                                          Name: ________________________________

                                          Title: _______________________________

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          BIOMEDICINE, L.P.

                                          By:  International BM Biomedicine
                                               Holdings
                                               (Cayman) Ltd.
                                          Its: General Partner

                                          By: __________________________________

                                          Name: Dr. Gaudenz I. Staehelin

                                          Title: Chairman

                                          By: __________________________________

                                          Name: Philip J. Sutcliffe

                                          Title: Director

                                          By: __________________________________

                                          Name: Julie Arnall

                                          Title: Director

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          MIZUHO CAPITAL CO., LTD.

                                          By: __________________________________

                                          Name: Osamu Kita

                                          Title: President
                                          Address: Mizuho Capital Co., Ltd.
                                                   Attn: Kazumasa Aoe,
                                                   Chief Investment Officer
                                                   4-3 Nihombashi-kabutocho,
                                                   Chuo-ku,
                                                   Tokyo 103-0026
                                                   Fax: +81-3-3664-3449

                                          MHCC NO. 3 LIMITED LIABILITY FUND

                                          By:  Mizuho Capital Co., Ltd.
                                          Its:  General Partner

                                          By: __________________________________

                                          Name: Osamu Kita

                                          Title: President
                                          Address: Mizuho Capital Co., Ltd.
                                                   Attn: Kazumasa Aoe,
                                                   Chief Investment Officer
                                                   4-3 Nihombashi-kabutocho,
                                                   Chuo-ku,
                                                   Tokyo 103-0026
                                                   Fax: +81-3-3664-3449

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          THE BOARD OF TRUSTEES OF THE LELAND
                                          STANFORD JUNIOR UNIVERSITY (SEVF2)

                                          By: __________________________________

                                          Name: Tyler Edelstein

                                          Title: Managing Director, Separate
                                                 Investments
                                          Address: Stanford Management Company
                                                   Attn: Victoria von Schell
                                                   2770 Sand Hill Road
                                                   Menlo Park, CA 94025

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          GENERAL AMERICAN INVESTORS COMPANY,
                                          INC.

                                          By: __________________________________

                                          Name:  Eugene L. DeStaebler, Jr.

                                          Title: Vice-President, Administration

     SIGNATURE PAGE - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS AGREEMENT

<PAGE>

                                          SCHWEIZERHALL INVESTMENT LTD

                                          By: __________________________________

                                          Name: ________________________________

                                          Title: _______________________________

     SIGNATURE PAGE - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS AGREEMENT

<PAGE>

                                          CREDIT SUISSE FIRST BOSTON EQUITY
                                          PARTNERS, L.P.

                                          By:  Hemisphere Private Equity
                                               Partners, Ltd., Its General
                                               Partner

                                          By: __________________________________

                                          Name: ________________________________

                                          Title: _______________________________
                                          Address: c/o CSFB Advisory Partners,
                                                   L.L.C.
                                                   11 Madison Avenue
                                                   New York, NY 10010
                                                   Attn: Ron Millard
                                                   Fax:  (646) 935-7498

                                          CREDIT SUISSE FIRST BOSTON EQUITY
                                          PARTNERS (BERMUDA), L.P.

                                          By:  Hemisphere Private Equity
                                               Partners, Ltd., Its General
                                               Partner

                                          By: __________________________________

                                          Name: ________________________________

                                          Title: _______________________________
                                          Address: c/o CSFB Advisory Partners,
                                                   L.L.C.
                                                   11 Madison Avenue
                                                   New York, NY 10010
                                                   Attn: Ron Millard
                                                   Fax:  (646) 935-7498

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          CREDIT SUISSE FIRST BOSTON U.S.
                                          EXECUTIVE ADVISORS, L.P.

                                          By:  Hemisphere Private Equity
                                               Partners, Ltd., Its General
                                               Partner

                                          By: __________________________________

                                          Name: ________________________________

                                          Title: _______________________________
                                          Address: c/o CSFB Advisory Partners,
                                                   L.L.C.
                                                   11 Madison Avenue
                                                   New York, NY 10010
                                                   Attn: Ron Millard
                                                   Fax:  (646) 935-7498

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          ALTA BIOPHARMA PARTNERS II, L.P.

                                          By:  Alta BioPharma Management
                                               Partners II, LLC

                                          By: __________________________________

                                          Name: ________________________________

                                          Title: Managing Director
                                          Address: Alta Partners
                                                   One Embarcadero Center
                                                   Suite 4050
                                                   San Francisco, CA 94111
                                                   Attn: Elaine Walker Penny
                                                   Fax: (415) 362-6178

                                          ALTA EMBARCADERO BIOPHARMA PARTNERS
                                          II, LLC

                                          By: __________________________________

                                          Name: ________________________________

                                          Title: V.P. of Finance & Admin.
                                          Address: Alta Partners
                                                   One Embarcadero Center
                                                   Suite 4050
                                                   San Francisco, CA 94111
                                                   Attn: Elaine Walker Penny
                                                   Fax: (415) 362-6178

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          MVI MEDICAL VENTURE INVESTMENTS
                                          LIMITED

                                          By: __________________________________

                                          Name: John Arnold

                                          Title: Director

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          GLAXO GROUP LIMITED

                                          By: __________________________________

                                          Name: Donald F. Parman

                                          Title: Attorney-In-Fact

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                          VULCAN VENTURES INC.

                                          By: __________________________________

                                          Name: William D. Savoy

                                          Title: Vice President

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

<PAGE>

                                        AEOLUS TECHNOLOGY CORPORATION

                                        By: __________________________________

                                        Name: ________________________________

                                        Title: _______________________________
                                        Address: TrustNet (British Virgin
                                                 Islands) Limited
                                                 TrustNet Chambers
                                                 P.O. Box 3444
                                                 RoadTown, Tortola
                                                 British Virgin Islands

     SIGNATURE PAGE - SERIES E - FOURTH AMENDED & RESTATED INVESTORS' RIGHTS
                                    AGREEMENT

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