Document:

SECURITIES PURCHASE AGREEMENT

     SECURITIES  PURCHASE  AGREEMENT  (the  "Agreement"),  dated as of March 31,
2003, by and among Aphton Corporation, a Delaware corporation, with headquarters
located at 80 SW Eight Street,  Miami,  Florida 33130 (the  "Company"),  and the
investors  listed on the Schedule of Buyers  attached  hereto  (individually,  a
"Buyer" and collectively, the "Buyers").

     WHEREAS:

     A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption  from  securities  registration  afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act;

     B. The Company has authorized a new series of senior  convertible  notes of
the Company in the form attached  hereto as Exhibit A (together  with any senior
convertible  notes issued in  replacement  thereof in accordance  with the terms
thereof,  the "Initial  Notes"),  which Initial Notes shall be convertible  into
shares of the  Company's  Common  Stock,  par value $.001 per share (the "Common
Stock") (as converted,  the "Initial Conversion Shares"), in accordance with the
terms of the Initial Notes;

     C. The Company has authorized a new series of senior  convertible  notes of
the Company in the form attached  hereto as Exhibit B (together  with any senior
convertible  notes issued in  replacement  thereof in accordance  with the terms
thereof,  the "Additional  Notes"),  which Additional Notes shall be convertible
into  shares of the  Common  Stock (as  converted,  the  "Additional  Conversion
Shares" and collectively  with the Initial  Conversion  Shares,  the "Conversion
Shares") in accordance with the terms of the Additional Notes;

     D. The Initial Notes and the Additional Notes  collectively are referred to
in this Agreement as the "Notes";

     E. The Notes bear interest,  which at the option of the Company, subject to
certain conditions, may be paid in shares of Common Stock ("Interest Shares");

     F. Each Buyer wishes to purchase,  and the Company wishes to sell, upon the
terms and conditions  stated in this  Agreement,  (i) that  aggregate  principal
amount of Initial  Notes set forth  opposite  such Buyer's name in column (3) on
the Schedule of Buyers (which aggregate principal amount for all Buyers together
shall be  $15,000,000)  and (ii) warrants,  in  substantially  the form attached
hereto as Exhibit C (the "Initial  Warrants"),  to acquire that number of shares
of Common Stock for each $1,000 of principal  amount of Initial Notes  purchased
(as exercised, collectively, the "Initial Warrant Shares") equal to the quotient
of (i) $180 divided by (ii) $2.50 (the "Valuation Price");

     G. Subject to the terms and conditions set forth in this Agreement, certain
of the Buyers shall be required to purchase,  and the Company  shall be required
to sell, (i) $5,000,000

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principal   amount  of  Additional   Notes;  and  (ii)  related   warrants,   in
substantially  the form attached hereto as Exhibit C (the "Additional  Warrants"
and,  collectively with the Initial Warrants,  the "Warrants"),  to acquire that
number  of  shares  of Common  Stock  for each  $1,000  of  principal  amount of
Additional Notes purchased (as exercised,  collectively, the "Additional Warrant
Shares" and, collectively with the Initial Warrant Shares, the "Warrant Shares")
equal to the  quotient  of (i) $180  divided  by (ii) the  Valuation  Price  (as
appropriately adjusted for any stock splits, stock dividends, stock combinations
and other similar transactions of the Common Stock which occur after the date of
this  Agreement  and,  on the terms of Section 2 of the  Additional  Warrants in
proportion  to  adjustments  that would be made to the  initial  Exercise  Price
thereunder,  for any issuances or deemed  issuances of securities by the Company
which occur after the date of this Agreement);

     H. Contemporaneously with the execution and delivery of this Agreement, the
parties  hereto are executing and delivering a  Registration  Rights  Agreement,
substantially in the form attached hereto as Exhibit D (the "Registration Rights
Agreement"),  pursuant  to which  the  Company  has  agreed to  provide  certain
registration  rights with respect to the Conversion  Shares,  the Warrant Shares
and the  Interest  Shares  under  the 1933  Act and the  rules  and  regulations
promulgated thereunder, and applicable state securities laws.

     I. The Notes, the Conversion  Shares, the Interest Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the "Securities".

     NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

     1.   PURCHASE AND SALE OF NOTES AND WARRANTS.

          (a)  Purchase of Notes and Warrants.

               (i)  Initial   Notes  and  Initial   Warrants.   Subject  to  the
satisfaction  (or waiver) of the conditions set forth in Sections 1(b), 6(a) and
7(a)  below,  the Company  shall  issue and sell to each  Buyer,  and each Buyer
severally,  but not jointly,  agrees to purchase from the Company on the Initial
Closing Date (as defined below),  a principal amount of Initial Notes, as is set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers,  along
with Initial  Warrants to acquire that number of Initial Warrant Shares for each
$1,000  principal amount of Initial Notes purchased equal to the quotient of (A)
$180 divided by (B) the Valuation Price (the "Initial Closing").

               (ii)  Additional  Notes and Additional  Warrants.  Subject to the
satisfaction  (or waiver) of the conditions set forth in Sections 1(c), 6(b) and
7(b) below,  the Company  shall issue and sell to certain of the Buyers and such
Buyers  shall  purchase  from the  Company on the  Additional  Closing  Date (as
defined below), a principal amount of Additional Notes, as is set forth opposite
such Buyer's name in column (4) on the Schedule of Buyers, along with Additional
Warrants to acquire  that number of  Additional  Warrant  Shares for each $1,000
principal amount of Additional Notes purchased equal to the quotient of (A) $180
divided by (B) the  Valuation  Price (as  appropriately  adjusted  for any stock
splits,  stock dividends,  stock combinations and other similar  transactions of
the Common Stock which occur after the date of this  Agreement and, on the terms
of Section 2 of the Additional  Warrants in proportion to

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adjustments that would be made to the initial Exercise Price thereunder, for any
issuances or deemed issuances of securities by the Company which occur after the
date of this Agreement) (the "Additional Closing").

               (iv) Closings.  The Initial  Closing and the  Additional  Closing
collectively  are referred to in this Agreement as the "Closings".  Each Closing
shall occur on the  applicable  Closing  Date at the  offices of Schulte  Roth &
Zabel LLP, 919 Third Avenue, New York, New York 10022.

               (v)  Purchase  Price.  The  purchase  price for each  Buyer  (the
"Purchase Price") of the Notes and related Warrants to be purchased by each such
Buyer at each Closing shall be equal to $1.00 for each $1.00 of principal amount
of Notes being purchased by such Buyer at such Closing.

          (b) Initial  Closing  Date.  The date and time of the Initial  Closing
(the  "Initial  Closing  Date") shall be 10:00 a.m.,  New York City Time, on the
date  hereof,  subject  to  notification  of  satisfaction  (or  waiver)  of the
conditions to the Initial  Closing set forth in Sections 6(a) and 7(a) below (or
such later date as is mutually agreed to by the Company and each Buyer).

          (c) Additional Closing Date. Subject to timely delivery by the Company
to the Buyers of the  Additional  Note Notice (as defined  below),  the date and
time of the Additional  Closing (the  "Additional  Closing Date") shall be 10:00
a.m., New York City Time, on the date  specified in the Additional  Note Notice,
subject to satisfaction (or waiver) of the conditions to the Additional  Closing
set forth in Sections 6(b) and 7(b) and the conditions set forth in this Section
1(c) (or  such  later  date as is  mutually  agreed  to by the  Company  and the
Buyers).  Subject  to the  requirements  of  Sections  6(b)  and  7(b)  and  the
conditions  contained in this Section 1(c),  the Company shall issue and sell to
such Buyer on one occasion  $5,000,000  principal  amount of Additional Notes on
the Additional  Closing Date, which date shall be 3 Business Days after delivery
by the Company of written  notice to such Buyer (the  "Additional  Note Notice")
setting forth the  satisfaction  (or waiver) of the conditions to the Additional
Closing set forth in Sections 6(b) and 7(b) and the conditions set forth in this
Section 1(c). The Additional  Note Notice shall be delivered by the Company (the
date of delivery,  the  "Additional  Note Notice  Date")  within 3 Business Days
after  satisfaction  (or waiver) of such  conditions.  If the  Company  fails to
deliver  such  notice,  or at any time  that the  applicable  Buyer  waives  any
remaining  conditions  set  forth  in this  Section  1(c),  in  Section  7(b) or
otherwise,  such Buyer  shall be entitled  to compel the  Additional  Closing by
delivering a notice to the Company to such effect.  Notwithstanding  anything in
this Agreement to the contrary, the Company shall not be entitled to require the
purchase of the  Additional  Notes unless,  in addition to the  requirements  of
Sections  6(b) and 7(b),  all of the  following  conditions  are  satisfied  (or
waived):  (i) on each day during the  period  beginning  on the first day of the
Measuring  Period (as defined below) and ending on the Additional  Closing Date,
the  Initial  Registration  Statement  (as  defined in the  Registration  Rights
Agreement)  covering  the  Initial  Registrable  Securities  (as  defined in the
Registration  Rights Agreement) shall be effective and available for the sale of
at least all of the Initial  Registrable  Securities  required to be included in
such  Initial  Registration  Statement  and there  shall not have been any Grace
Periods  (as defined in the  Registration  Rights  Agreement);  (ii) on each day
during  the period  beginning  on the date  hereof and ending on the  Additional
Closing  Date,  the

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Common Stock is designated  for quotation on The NASDAQ  National  Market (or in
the event that the Company is no longer listed with The NASDAQ National  Market,
the market or  exchange  on which the Common  Stock is then  listed and  traded,
which only may be The New York Stock Exchange, Inc., the American Stock Exchange
or The NASDAQ  SmallCap  Market) (any such market being the "Principal  Market")
and shall not have been  suspended  from  trading  on such  market  (other  than
suspensions of not more than one day and occurring prior to the first day of the
Measuring  Period  due to  business  announcements  by the  Company)  nor  shall
delisting or  suspension  by such market been  threatened or pending in a manner
that shall cause the Common  Stock to no longer be listed on a Principal  Market
either (A) in writing by such market or (B) by falling below the minimum listing
maintenance  requirements of such market;  (iii) during the period  beginning on
the date hereof and ending on and including the Additional  Closing Date,  there
shall  not have  occurred  (A) an event  constituting  an Event of  Default  (as
defined in the  Notes),  (B) an event that with the  passage of time and without
being cured would constitute an Event of Default, or (C) the public announcement
of a pending,  proposed or intended Change of Control (as defined in the Notes),
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 prior to the
beginning of the Measuring Period;  (iv) during the period beginning on the date
hereof and ending on and  including the  Additional  Closing Date, to the extent
that any Buyer  elects to convert the Initial  Notes or to exercise  the Initial
Warrants,  the Company shall have  delivered the applicable  Initial  Conversion
Shares upon  conversion  of the Initial  Notes and Initial  Warrant  Shares upon
exercise of the Initial  Warrants on a timely  basis as set forth in the Initial
Notes and the Initial  Warrants,  respectively;  (v) the Company  shall not have
failed to timely make any payments  within five (5)  Business  Days of when such
payment is due, whether as interest or penalty payments,  pursuant to any of the
Transaction  Documents  (as  defined  below);  (vi) the  Closing  Sale Price (as
defined in the Additional Note) of the Common Stock exceeds $3.00 on each of the
10 Trading Days (as defined in the Notes)  (each,  a  "Qualifying  Trading Day")
immediately  prior (I) to the Additional  Closing Date (the "Measuring  Period")
and (II) the Additional Note Notice Date; and (vii) on or before the delivery of
the  Additional  Note Notice,  the Company shall have  received the  Stockholder
Approval  (as defined in Section 4(n) below).  As used  herein,  "Business  Day"
means any day other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain closed.

          (d) Form of Payment.  On each Closing  Date,  (i) each Buyer shall pay
its  Purchase  Price to the Company for the Notes and  Warrants to be issued and
sold to such Buyer at the  applicable  Closing,  by wire transfer of immediately
available funds in accordance with the Company's written wire instructions,  and
(ii) the  Company  shall  deliver  to each  Buyer,  the Notes (in the  principal
amounts as such Buyer shall request) which such Buyer is then  purchasing  along
with the  Warrants  (in the amounts as such Buyer shall  request)  such Buyer is
purchasing, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.

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<PAGE>
     2.   BUYER'S REPRESENTATIONS AND WARRANTIES.

          Each Buyer represents and warrants with respect to only itself that:

          (a) No Public Sale or  Distribution;  Prior  Sales.  Such Buyer is (i)
acquiring  the Notes and the Warrants and (ii) upon  conversion of the Notes and
exercise of the Warrants (other than pursuant to a Cashless Exercise (as defined
in the  Warrants))  will acquire the  Conversion  Shares and the Warrant  Shares
issuable upon conversion or exercise thereof, for its own account and not with a
view towards,  or for resale in connection with, the public sale or distribution
thereof,  except  pursuant to sales  registered or exempted  under the 1933 Act;
provided,  however,  that by making the representations  herein, such Buyer does
not agree to hold any of the  Securities  for any minimum or other specific term
and reserves the right to dispose of the  Securities  at any time in  accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
From  September  27, 2002 through the date hereof,  such Buyer has not sold (for
purposes  of Section 16 of the 1934 Act (as defined in the  Registration  Rights
Agreement) and the rules and regulations  promulgated  thereunder) any shares of
Common Stock.

          (b) Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in clauses (1),  (2),  (3), (7) or (8) of Rule 501(a) of
Regulation D.

          (c) Reliance on Exemptions. Such Buyer understands that the Securities
are being  offered and sold to it in reliance  on specific  exemptions  from the
registration requirements of United States federal and state securities laws and
that the  Company is relying  in part upon the truth and  accuracy  of, and such
Buyer's   compliance   with,  the   representations,   warranties,   agreements,
acknowledgments  and  understandings  of such Buyer set forth herein in order to
determine the  availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

          (d)  Information.  Such  Buyer  and its  advisors,  if any,  have been
furnished with all materials relating to the business,  finances,  prospects and
operations  of the Company and  materials  relating to the offer and sale of the
Securities which have been requested by such Buyer. Such Buyer and its advisors,
if any,  have been  afforded the  opportunity  to ask  questions of the Company.
Neither such inquiries nor any other due diligence  investigations  conducted by
such Buyer or its advisors,  if any, or its representatives  shall modify, amend
or  affect  such  Buyer's  right to rely on the  Company's  representations  and
warranties  contained herein.  Such Buyer understands that its investment in the
Securities  involves a high degree of risk and is able to afford a complete loss
of such investment. Such Buyer has sought such accounting,  legal and tax advice
as it has  considered  necessary to make an informed  investment  decision  with
respect to its acquisition of the Securities.

          (e) No  Governmental  Review.  Such Buyer  understands  that no United
States federal or state agency or any other  government or  governmental  agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness  or  suitability  of the  investment  in the  Securities  nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Securities.

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          (f) Transfer or Resale. Such Buyer understands that except as provided
in the Registration  Rights Agreement:  (i) the Securities have not been and are
not being  registered  under the 1933 Act or any state  securities laws, and may
not be offered for sale, sold,  assigned or transferred  unless (A) subsequently
registered  thereunder,  (B) such Buyer shall have  delivered  to the Company an
opinion of counsel,  in a  generally  acceptable  form,  to the effect that such
Securities  to be  sold,  assigned  or  transferred  may be  sold,  assigned  or
transferred  pursuant to an exemption from such registration,  or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred  pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively,  "Rule 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance  with  the  terms  of  Rule  144  and  further,  if  Rule  144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section  3(r))  through whom the sale is made) may
be deemed to be an  underwriter  (as that term is  defined  in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC  thereunder;  and (iii) neither the Company nor any other
Person is under any obligation to register the Securities  under the 1933 Act or
any state  securities  laws or to comply  with the terms and  conditions  of any
exemption  thereunder.  The Securities may be pledged in connection  with a bona
fide margin  account or other loan secured by the  Securities and such pledge of
Securities  shall not be  deemed to be a  transfer,  sale or  assignment  of the
Securities  hereunder,  and no Buyer  effecting a pledge of Securities  shall be
required to provide the Company with any notice  thereof or  otherwise  make any
delivery to the  Company  pursuant to this  Agreement  or any other  Transaction
Document,  including,  without limitation,  this Section 2(f); provided, that in
order to make any sale, transfer or assignment of Securities, such Buyer and its
pledgee makes such  disposition in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.

          (g) Legends.  Such Buyer  understands  that the  certificates or other
instruments  representing the Notes and the Warrants and, until such time as the
resale of the Conversion  Shares the Warrant Shares have been  registered  under
the 1933 Act as contemplated by the  Registration  Rights  Agreement,  the stock
certificates  representing the Conversion  Shares the Warrant Shares,  except as
set forth below, shall bear any legend as required by the "blue sky" laws of any
state  and a  restrictive  legend in  substantially  the  following  form (and a
stop-transfer order may be placed against transfer of such stock certificates):

     [NEITHER THE ISSUANCE AND SALE OF THE  SECURITIES  REPRESENTED BY THIS
     CERTIFICATE  NOR  THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE
     [CONVERTIBLE][EXERCISABLE]  HAVE BEEN][THE  SECURITIES  REPRESENTED BY
     THIS CERTIFICATE 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 (I) 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,  IN A

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     GENERALLY  ACCEPTABLE  FORM,  THAT  REGISTRATION IS NOT REQUIRED UNDER
     SAID ACT OR  APPLICABLE  STATE  SECURITIES  LAWS OR (II)  UNLESS  SOLD
     PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE
     FOREGOING,  THE  SECURITIES  MAY BE PLEDGED IN CONNECTION  WITH A BONA
     FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING  ARRANGEMENT SECURED BY
     THE SECURITIES.

The legend  set forth  above  shall be removed  and the  Company  shall  issue a
certificate without such legend to the holder of the Securities upon which it is
stamped,  if,  unless  otherwise  required by state  securities  laws,  (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale,  assignment or other  transfer,  such holder  provides the Company with an
opinion of counsel,  in a  generally  acceptable  form,  to the effect that such
sale,  assignment or transfer of the Securities may be made without registration
under the 1933 Act and that such  legend is no longer  required,  or (iii)  such
holder provides the Company with reasonable assurance that the Securities can be
sold, assigned or transferred pursuant to Rule 144.

          (h) Validity;  Enforcement. This Agreement and the Registration Rights
Agreement  have been duly and validly  authorized,  executed  and  delivered  on
behalf  of such  Buyer  and  shall  constitute  the  legal,  valid  and  binding
obligations  of such Buyer  enforceable  against such Buyer in  accordance  with
their respective terms,  except as such enforceability may be limited by general
principles of equity or to applicable  bankruptcy,  insolvency,  reorganization,
moratorium,  liquidation  and other  similar  laws  relating  to,  or  affecting
generally, the enforcement of applicable creditors' rights and remedies.

          (i) Residency. Such Buyer is a resident of, has its principal place of
business  in,  or is  incorporated  in, as  applicable,  that  country  or state
specified below its address on the Schedule of Buyers.

     3.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

          The Company represents and warrants to each of the Buyers that:

          (a)  Organization  and  Qualification.  Each  of the  Company  and its
Subsidiary are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated,  and have the
requisite corporate power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its Subsidiary
is  duly  qualified  as a  foreign  corporation  to do  business  and is in good
standing in every  jurisdiction in which its ownership of property or the nature
of the business  conducted by it makes such qualification  necessary,  except to
the extent that the failure to be so qualified or be in good standing  would not
have a Material  Adverse Effect.  As used in this Agreement,  "Material  Adverse
Effect" means any material adverse effect on the business,  properties,  assets,
operations,  results  of  operations,  condition  (financial  or  otherwise)  or
prospects  of the  Company  and its  Subsidiary,  taken  as a  whole,  or on the
transactions  contemplated  hereby or by the  agreements  and  instruments to be
entered  into in  connection  herewith,  or on the  authority  or ability of the
Company to perform its obligations  under the

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Transaction  Documents  (as defined  below).  For  purposes  of this  Agreement,
"Subsidiary"   means  Aphton  (BVI)   Corporation,   a  British  Virgin  Islands
corporation  ("Aphton  BVI"),  which is the only  entity in which  the  Company,
directly  or  indirectly,  owns  capital  stock or holds an  equity  or  similar
interest. The Company has no Subsidiaries other than Aphton BVI. Aphton BVI is a
shell  entity,  which is inactive  and does not conduct any business or hold any
assets.

          (b)  Authorization;   Enforcement;   Validity.  The  Company  has  the
requisite   corporate  power  and  authority  to  enter  into  and  perform  its
obligations under this Agreement,  the Notes, the Registration Rights Agreement,
the Voting Agreement, by and between the Company and certain stockholders of the
Company of even date herewith (the "Voting Agreement"), the Irrevocable Transfer
Agent  Instructions  (as defined in Section 5(b)),  the Warrants and each of the
other  agreements  entered  into by the parties  hereto in  connection  with the
transactions  contemplated  by this Agreement  (collectively,  the  "Transaction
Documents") and, subject to Stockholder Approval (as defined below) with respect
to (x) issuing  Securities  in excess of the Company's  authorized  and unissued
share  capital as of the date hereof and (y) issuing  shares of Common  Stock in
excess of the  Exchange  Cap (as  defined in the Notes) in  compliance  with the
rules  and  regulations  of the  Principal  Market  (clauses  (x) and (y)  being
collectively  the  "Qualifications")  to issue the Securities in accordance with
the terms hereof and thereof.  The Voting  Agreement  has been duly executed and
delivered by the Company and holders of Common Stock  representing not less than
38.2% of the Company's  outstanding  Common Stock approving the  Qualifications.
The execution and delivery of the  Transaction  Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including,  without  limitation,  the issuance of the Notes and the Warrants and
the reservation  for issuance and the issuance of the Conversion  Shares and the
Warrant Shares issuable upon conversion or exercise thereof, as the case may be,
have been duly  authorized  by the  Company's  Board of Directors and no further
consent or authorization  is required by the Company,  its Board of Directors or
its  stockholders  (other  than the  Stockholder  Approval  with  respect to the
Qualifications). This Agreement and the other Transaction Documents of even date
herewith have been duly executed and  delivered by the Company,  and  constitute
the legal, valid and binding  obligations of the Company enforceable against the
Company  in  accordance  with  their  respective  terms,   except  (i)  as  such
enforceability  may be  limited by general  principles  of equity or  applicable
bankruptcy, insolvency, reorganization,  moratorium, liquidation or similar laws
relating to, or affecting  generally,  the enforcement of applicable  creditors'
rights  and  remedies,  or (ii)  as any  rights  to  indemnity  or  contribution
hereunder may be limited by federal and state  securities laws and public policy
consideration.  As of each Closing,  the  Transaction  Documents dated after the
date hereof and  required to have been  executed and  delivered  with respect to
such Closing  shall have been duly  executed and  delivered by the Company,  and
shall  constitute  the  legal,  valid and  binding  obligations  of the  Company
enforceable  against  the Company in  accordance  with their  respective  terms,
except (i) as such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally,  the enforcement of applicable
creditor's   rights  and  remedies  or  (ii)  as  any  rights  to  indemnity  or
contribution  hereunder may be limited by federal and state  securities laws and
public policy consideration.

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          (c) Issuance of Securities. The Notes and Warrants are duly authorized
and, upon issuance in accordance  with the terms hereof,  shall be free from all
taxes,  liens  and  charges  with  respect  to the  issue  thereof.  Immediately
following the Stockholder Approval, the Company shall duly authorize and reserve
for  issuance a number of shares of Common Stock which equals 150% of the sum of
the number of shares of Common Stock issuable upon conversion of, and as payment
for  interest  on, the  Initial  Notes and the number of shares of Common  Stock
issuable upon exercise of the Initial Warrants.  As of the Additional Closing, a
number of shares of Common  Stock shall have been duly  authorized  and reserved
for  issuance  which  equals  150% of the sum of the  number of shares of Common
Stock issuable upon conversion of, and as payment for interest on, the Notes and
the number of shares of Common Stock  issuable  upon  exercise of the  Warrants.
Thereafter, the Company shall, so long as any of the Notes are outstanding, take
all action  necessary to reserve and keep  available out of its  authorized  and
unissued  Capital  Stock,  solely for the purpose of effecting the conversion of
the Notes, 130% of the sum of the number of shares of Common Stock issuable upon
conversion  of,  and as  payment  for  interest  on, the Notes and the number of
shares of Common Stock issuable upon exercise of the Warrants.  Upon  conversion
or exercise in accordance  with the Notes or the  Warrants,  as the case may be,
and upon issuance of Interest  Shares as interest on the Notes,  the  Conversion
Shares,  the  Warrant  Shares and the  Interest  Shares,  respectively,  will be
validly issued,  fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue  thereof,  with the holders being  entitled to
all rights  accorded to a holder of Common Stock.  Assuming the accuracy of each
of the  representations  and  warranties  set forth in  Section  2  hereof,  the
issuance by the Company of the Securities is exempt from registration  under the
1933 Act.

          (d) No  Conflicts.  The  execution,  delivery and  performance  of the
Transaction  Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and Warrants and  reservation for issuance and issuance of
the Conversion  Shares, the Interest Shares and the Warrant Shares) will not (i)
result in a violation of the  certificate of  incorporation,  any certificate of
designations,  preferences  and rights of any  outstanding  series of  preferred
stock or Bylaws of the  Company or its  Subsidiary  or (ii)  conflict  with,  or
constitute  a default  (or an event  which with  notice or lapse of time or both
would  become a default)  under,  or give to others  any rights of  termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or its Subsidiary is a party, or (iii) result in
a violation of any law, rule,  regulation,  order, judgment or decree (including
federal and state  securities laws and regulations and the rules and regulations
of the Principal Market) applicable to the Company or its Subsidiary or by which
any  property or asset of the Company or its  Subsidiary  is bound or  affected,
except (x) for the Stockholder  Approval with respect to the  Qualifications and
(y) in the case of clauses  (ii) and (iii),  for such  breaches  or  defaults as
would not be reasonably expected to have a Material Adverse Effect.

          (e) Consents.  Except for the Stockholder Approval with respect to the
Qualifications, the Company is not required to obtain any consent, authorization
or order of, or make any filing or  registration  with, any court,  governmental
agency or any regulatory or self-regulatory  agency or any other Person in order
for  it to  execute,  deliver  or  perform  any  of  its  obligations  under  or
contemplated by the Transaction  Documents,  in each case in accordance

                                       9
<PAGE>
with the terms hereof or thereof. All consents, authorizations,  orders, filings
and  registrations  which the  Company is  required  to obtain  pursuant  to the
preceding  sentence have been obtained or effected on or prior to the applicable
Closing  Date.  The  Company  and its  Subsidiary  are  unaware  of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the foregoing. Except for the fact that the market price of the Company's Common
Stock is less than  $3.00 per share,  the  Company  is not in  violation  of the
listing  requirements of the Principal  Market and has no knowledge of any facts
which would  reasonably  lead to delisting or  suspension of the Common Stock in
the foreseeable future.

          (f)  Acknowledgment  Regarding  Buyer's  Purchase of  Securities.  The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm's length  purchaser  with respect to the  Transaction  Documents  and the
transactions  contemplated hereby and thereby.  The Company further acknowledges
that no Buyer is acting as a financial  advisor or  fiduciary of the Company (or
in any similar  capacity)  with  respect to the  Transaction  Documents  and the
transactions contemplated hereby and thereby, and any advice given by a Buyer or
any  of its  representatives  or  agents  in  connection  with  the  Transaction
Documents  and the  transactions  contemplated  hereby  and  thereby  is  merely
incidental  to such  Buyer's  purchase of the  Securities.  The Company  further
represents  to each  Buyer  that  the  Company's  decision  to  enter  into  the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

          (g) No General  Solicitation;  Placement  Agent's  Fees.  Neither  the
Company,  nor any of its  affiliates,  nor any  Person  acting  on its or  their
behalf, has engaged in any form of general  solicitation or general  advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be  responsible  for the payment of any placement
agent's fees,  financial advisory fees, or brokers'  commissions (other than for
persons engaged by any Buyer or its investment  advisor)  relating to or arising
out of the  transactions  contemplated  hereby.  The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including,  without
limitation,  attorney's fees and  out-of-pocket  expenses) arising in connection
with any such claim.

          (h) No Integrated Offering.  None of the Company, its Subsidiary,  any
of their  affiliates,  and any Person  acting on their  behalf has,  directly or
indirectly,  made any offers or sales of any security or solicited any offers to
buy any security,  under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated  with prior  offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions,  including,  without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiary,  their affiliates and any Person acting on their behalf
will take any action or steps  referred to in the preceding  sentence that would
require  registration  of any of the Securities  under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.

          (i) Dilutive Effect. The Company understands and acknowledges that the
number  of  Conversion  Shares  issuable  upon  conversion  of the Notes and the
Warrant  Shares  issuable upon exercise of the Warrants will increase in certain
circumstances.  The Company

                                       10
<PAGE>
further  acknowledges  that its  obligation  to  issue  Conversion  Shares  upon
conversion of the Notes in accordance  with this Agreement and the Notes and its
obligation  to issue  the  Warrant  Shares  upon  exercise  of the  Warrants  in
accordance  with this Agreement and the Warrants is, in each case,  absolute and
unconditional  regardless of the dilutive  effect that such issuance may have on
the ownership interests of other stockholders of the Company.

          (j) Application of Takeover Protections; Rights Agreement. The Company
and its board of directors have taken all necessary  action, if any, in order to
render inapplicable any control share acquisition,  business combination, poison
pill  (including  any  distribution  under a rights  agreement) or other similar
anti-takeover  provision under the Certificate of  Incorporation  (as defined in
Section  3(q)) or the laws of the state of its  incorporation  which is or could
become  applicable to any Buyer as a result of the transactions  contemplated by
this  Agreement,  or any prior  transaction  between  the Company and any Buyer,
including,  without limitation, the Company's issuance of the Securities and any
Buyer's  ownership of the Securities.  The Company has not adopted a stockholder
rights plan or similar  arrangement  relating  to  accumulations  of  beneficial
ownership of Common Stock or a change in control of the Company.

          (k) SEC Documents;  Financial Statements. Since December 31, 2000, the
Company has timely filed all reports,  schedules,  forms,  statements  and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements  of the  1934  Act (all of the  foregoing  filed  prior to the date
hereof, or in connection with any Closing  subsequent to the date hereof,  filed
prior  to the  date of such  Closing,  and all  exhibits  included  therein  and
financial  statements  and  schedules  thereto  and  documents  incorporated  by
reference  therein being hereinafter  referred to as the "SEC  Documents").  The
Company has delivered to the Buyers or their  respective  representatives  true,
correct and  complete  copies of the SEC  Documents  not  available on the EDGAR
system. As of their respective dates, the SEC Documents complied in all material
respects with the  requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents,  and none of the
SEC  Documents,  at the time they were filed with the SEC,  contained any untrue
statement of a material  fact or omitted to state a material fact required to be
stated  therein or necessary  in order to make the  statements  therein,  in the
light of the  circumstances  under which they were made, not  misleading.  As of
their respective dates, the financial  statements of the Company included in the
SEC  Documents  complied as to form in all  material  respects  with  applicable
accounting  requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally  accepted  accounting  principles,  consistently  applied,  during the
periods  involved  (except (i) as may be otherwise  indicated in such  financial
statements  or the  notes  thereto,  or (ii) in the  case of  unaudited  interim
statements,  to the extent they may exclude  footnotes  or may be  condensed  or
summary  statements)  and fairly present in all material  respects the financial
position  of  the  Company  as of the  dates  thereof  and  the  results  of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited statements, to normal year-end audit adjustments). After giving effect
to the 8-K Filing (as defined  below),  no other  information  provided by or on
behalf of the Company to the Buyers which is not included in the SEC  Documents,
including,  without limitation,  information referred to in Section 2(d) of this
Agreement,  contains any untrue  statement of a material  fact or omits to state
any material  fact  necessary in order to make the  statements  therein,  in the
light of the circumstance under which they are or were made, not misleading.

                                       11
<PAGE>
          (l) Absence of Certain Changes.  Except as disclosed in Schedule 3(l),
since  December  31,  2001,  there has been no  material  adverse  change and no
material adverse development in the business, properties,  operations, condition
(financial or  otherwise),  results of operations or prospects of the Company or
its  Subsidiary.  Since  December 31, 2001,  the Company has not (i) declared or
paid any dividends,  (ii) sold any assets,  individually or in the aggregate, in
excess of  $100,000  outside of the  ordinary  course of  business  or (iii) had
capital expenditures,  individually or in the aggregate,  in excess of $500,000.
The  Company  has not  taken  any  steps  to  seek  protection  pursuant  to any
bankruptcy law nor does the Company have any knowledge or reason to believe that
its  creditors  intend to initiate  involuntary  bankruptcy  proceedings  or any
actual  knowledge of any fact which would  reasonably  lead a creditor to do so.
The Company,  after giving  effect to the  transactions  contemplated  hereby to
occur at each Closing, will not be Insolvent (as defined below). For purposes of
this Section 3(l),  "Insolvent" means (i) the present fair saleable value of the
Company's  assets is less than the amount  required to pay the  Company's  total
indebtedness,  contingent  or  otherwise,  (ii) the Company is unable to pay its
debts and liabilities,  subordinated, contingent or otherwise, as such debts and
liabilities  become absolute and matured,  (iii) the Company intends to incur or
believes  that it will incur  debts  that would be beyond its  ability to pay as
such debts mature or (iv) the Company has unreasonably  small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

          (m) No Undisclosed Events, Liabilities, Developments or Circumstances.
No event,  liability,  development or circumstance has occurred or exists, or is
contemplated  to occur,  with respect to the Company or its  Subsidiary or their
respective business, properties,  prospects,  operations or financial condition,
that  would  be  required  to be  disclosed  by  the  Company  under  applicable
securities  laws on a  registration  statement  on Form S-1  filed  with the SEC
relating  to an issuance  and sale by the Company of its Common  Stock and which
has not been publicly  announced  except with respect to the  Company's  ongoing
negotiations with Aventis Pharmaceuticals Inc..

          (n) Conduct of Business;  Regulatory Permits.  Neither the Company nor
its  Subsidiary  is  in  violation  of  any  term  of or in  default  under  its
Certificate of Incorporation,  any Certificate of Designations,  Preferences and
Rights of any outstanding  series of preferred stock of the Company or Bylaws or
their organizational  charter or bylaws,  respectively.  Neither the Company nor
its Subsidiary is in violation of any judgment,  decree or order or any statute,
ordinance,  rule or regulation applicable to the Company or its Subsidiary,  and
neither the Company nor its Subsidiary will conduct its business in violation of
any  of  the  foregoing,   except  for  possible  violations  which  would  not,
individually  or in the  aggregate,  have a  Material  Adverse  Effect.  Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules,  regulations or requirements  of the Principal  Market and, except
for the fact that the market  price of the  Company's  Common Stock is less than
$3.00 per share,  has no  knowledge  of any facts or  circumstances  which would
reasonably  lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Except as disclosed in the Company's Quarterly
Report on Form 10-Q filed on November 14, 2002 under the caption  "Liquidity and
Capital  Resources",  since  December  31,  2001,  (i) the Common Stock

                                       12
<PAGE>
has been  designated  for  quotation  or listed on the  Principal  Market,  (ii)
trading in the Common Stock has not been  suspended by the SEC or the  Principal
Market and (iii) the Company has  received  no  communication,  written or oral,
from the SEC or the Principal  Market  regarding the  suspension or delisting of
the Common  Stock from the  Principal  Market.  The Company  and its  Subsidiary
possess all certificates,  authorizations  and permits issued by the appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  except where the failure to possess such  certificates,
authorizations  or permits would not have,  individually or in the aggregate,  a
Material Adverse Effect, and neither the Company nor its Subsidiary has received
any notice of  proceedings  relating to the  revocation or  modification  of its
certificate, authorization or permit.

          (o)  Foreign  Corrupt   Practices.   Neither  the  Company,   nor  its
Subsidiary, nor any director, officer, agent, employee or other Person acting on
behalf of the Company or its  Subsidiary  has, in the course of its actions for,
or on behalf of,  the  Company  (i) used any  corporate  funds for any  unlawful
contribution,  gift,  entertainment  or  other  unlawful  expenses  relating  to
political  activity;  (ii) made any direct or indirect  unlawful  payment to any
foreign or domestic  government official or employee from corporate funds; (iii)
violated  or is in  violation  of any  provision  of the  U.S.  Foreign  Corrupt
Practices  Act of 1977,  as amended;  or (iv) made any unlawful  bribe,  rebate,
payoff, influence payment,  kickback or other unlawful payment to any foreign or
domestic government official or employee.

          (p) Transactions With Affiliates. Except as set forth in the Company's
Annual  Report on Form 10-K for the year ended  December 31,  2001,  none of the
officers,  directors  or  employees  of the Company is  presently a party to any
transaction  with the Company or its Subsidiary  (other than for ordinary course
services as employees, officers or directors), including any contract, agreement
or  other  arrangement  providing  for  the  furnishing  of  services  to or by,
providing  for rental of real or  personal  property  to or from,  or  otherwise
requiring payments to or from any such officer,  director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer,  director,  or employee has a substantial interest or is
an officer, director, trustee or partner.

          (q)  Equity  Capitalization.  As of the date  hereof,  the  authorized
capital stock of the Company consists of (x) 30,000,000  shares of Common Stock,
of which as of the date hereof,  24,701,639  shares are issued and  outstanding,
3,364,940  shares are reserved for issuance  pursuant to the Company's  employee
incentive plan and other warrants  outstanding and 1,650,000 shares are reserved
for  issuance  pursuant to  securities  (other than the Notes and the  Warrants)
exercisable or exchangeable  for, or convertible  into,  shares of Common Stock,
and (y)  2,000,000  shares of preferred  stock,  of which as of the date hereof,
none are issued and outstanding.  All of such  outstanding  shares have been, or
upon  issuance  will be,  validly  issued and are fully paid and  nonassessable.
Except as disclosed in the Company's  Prospectus  Supplement  dated February 21,
2003:  (i) no shares of the  Company's  capital  stock are subject to preemptive
rights or any other  similar  rights or any liens or  encumbrances  suffered  or
permitted  by the  Company;  (ii) there are no  outstanding  options,  warrants,
scrip, rights to subscribe to, calls or commitments of any character  whatsoever
relating  to, or  securities  or rights  convertible  into,  or  exercisable  or
exchangeable  for, any shares of capital stock of the Company or its Subsidiary,
or contracts,  commitments,  understandings or arrangements by which the Company

                                       13
<PAGE>
or its Subsidiary is or may become bound to issue  additional  shares of capital
stock of the Company or its Subsidiary or options,  warrants,  scrip,  rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities or rights  convertible  into, or exercisable or exchangeable for, any
shares of capital  stock of the  Company or its  Subsidiary;  (iii) there are no
outstanding debt securities,  notes,  credit  agreements,  credit  facilities or
other agreements,  documents or instruments evidencing  Indebtedness (as defined
in Section 3(r)) of the Company or its Subsidiary or by which the Company or its
Subsidiary  is or may  become  bound;  (iv)  there are no  financing  statements
securing obligations in any material amounts, either singly or in the aggregate,
filed  in  connection  with  the  Company;   (v)  there  are  no  agreements  or
arrangements  under which the Company or its Subsidiary is obligated to register
the sale of their securities under the 1933 Act (except the Registration  Rights
Agreement);  (vi) there are no  outstanding  securities  or  instruments  of the
Company or its Subsidiary  which contain any  redemption or similar  provisions,
and there are no contracts, commitments, understandings or arrangements by which
the Company or its Subsidiary is or may become bound to redeem a security of the
Company  or its  Subsidiary;  (vii)  there  are  no  securities  or  instruments
containing  anti-dilution  or similar  provisions  that will be triggered by the
issuance  of the  Securities;  (viii)  the  Company  does  not  have  any  stock
appreciation  rights or "phantom  stock" plans or agreements or any similar plan
or agreement;  and (ix) the Company and its  Subsidiary  have no  liabilities or
obligations  required to be disclosed in the SEC Documents  (as defined  herein)
but not so  disclosed  in the SEC  Documents,  other than those  incurred in the
ordinary course of the Company's or its Subsidiary's  respective  businesses and
which,  individually  or in the  aggregate,  do not or would not have a Material
Adverse  Effect.  The  Company  has  furnished  to the Buyer  true,  correct and
complete copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date  hereof  (the  "Certificate  of  Incorporation"),  and the
Company's Bylaws, as amended and as in effect on the date hereof (the "Bylaws"),
and the terms of all securities convertible into, or exercisable or exchangeable
for,  Common  Stock and the  material  rights of the holders  thereof in respect
thereto.

          (r) Indebtedness and Other Contracts.  Except as disclosed in Schedule
3(r)(i),  neither  the  Company  nor its  Subsidiary  (i)  has  any  outstanding
Indebtedness (as defined below),  (ii) is a party to any contract,  agreement or
instrument,  the  violation  of which,  or  default  under  which,  by the other
party(ies) to such contract,  agreement or instrument would result in a Material
Adverse  Effect,  (iii) is in violation  of any term of or in default  under any
contract,  agreement or instrument  relating to any  Indebtedness,  except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect,  or (iv) is a party to any contract,  agreement or
instrument  relating  to any  Indebtedness,  the  performance  of which,  in the
judgment  of the  Company's  officers,  has or is  expected  to have a  Material
Adverse Effect. The Company's Current Report on Form 8-K dated December 20, 2002
provides a detailed  description of the material  terms of any such  outstanding
Indebtedness.  As of the date hereof the Company has no Indebtedness  that ranks
senior to or, except with respect to the Aventis  Debentures (as defined below),
pari passu with, the Notes. No Indebtedness,  including the Aventis  Debentures,
are  secured.  Schedule  3(r)(ii)  sets  forth each of the  Company's  "material
contracts,"  as such term is used in Item 601 of Regulation  S-K  promulgated by
the SEC. For purposes of this Agreement: (x) "Indebtedness" of any Person means,
without duplication (A) all indebtedness for borrowed money, (B) all obligations
issued,  undertaken  or assumed as the  deferred  purchase  price of property or
services  (other than trade  payables  entered  into in the  ordinary  course of
business),  (C) all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments, (D) all

                                       14
<PAGE>
obligations  evidenced  by notes,  bonds,  debentures  or  similar  instruments,
including  obligations so evidenced  incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any  conditional  sale or  other  title  retention  agreement,  or  incurred  as
financing,  in either case with respect to any property or assets  acquired with
the  proceeds of such  indebtedness  (even though the rights and remedies of the
seller or bank  under such  agreement  in the event of  default  are  limited to
repossession or sale of such property),  (F) all monetary  obligations under any
leasing or similar  arrangement  which,  in connection  with generally  accepted
accounting principles,  consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all  indebtedness  referred to in clauses (A)
through (F) above secured by (or for which the holder of such  Indebtedness  has
an existing  right,  contingent  or  otherwise,  to be secured by) any mortgage,
lien,  pledge,  change,  security  interest or other  encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person  which owns such  assets or  property  has not assumed or
become  liable for the  payment  of such  indebtedness,  and (H) all  Contingent
Obligations  in respect of  indebtedness  or  obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) "Contingent Obligation" means,
as to any Person, any direct or indirect liability,  contingent or otherwise, of
that  Person  with  respect  to  any  indebtedness,  lease,  dividend  or  other
obligation  of  another  Person if the  primary  purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any  agreements  relating  thereto  will be complied  with,  or that the
holders of such  liability  will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person" means an individual,  a limited liability
company,  a  partnership,   a  joint  venture,   a  corporation,   a  trust,  an
unincorporated  organization  and a  government  or  any  department  or  agency
thereof.

          (s)  Absence  of  Litigation.  There is no action,  suit,  proceeding,
inquiry or investigation  before or by the Principal Market,  any court,  public
board,  government agency,  self-regulatory  organization or body pending or, to
the knowledge of the Company,  threatened against or affecting the Company,  the
Common  Stock or the  Subsidiary  or any of the  Company's  or the  Subsidiary's
officers or directors in their capacities as such.

          (t) Insurance.  The Company and its Subsidiary are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses  in which the Company and its  Subsidiary  are  engaged.  Neither the
Company nor its  Subsidiary  has been refused any insurance  coverage  sought or
applied for and neither the Company nor its Subsidiary has any reason to believe
that it will not be able to renew its  existing  insurance  coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be  necessary  to continue its business at a cost that would not have a Material
Adverse Effect.

          (u) Employee Relations.  (i) Neither the Company nor its Subsidiary is
a party to any collective bargaining agreement or employs any member of a union.
The Company and its Subsidiary believe that their relations with their employees
are good. No executive  officer of the Company (as defined in Rule 501(f) of the
1933 Act) has  notified  the  Company  that such  officer  intends  to leave the
Company or otherwise  terminate such officer's  employment with the Company.  No
executive officer of the Company, to the knowledge of the Company, is, or is

                                       15
<PAGE>
now  expected  to be,  in  violation  of any  material  term  of any  employment
contract,  confidentiality,  disclosure or  proprietary  information  agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant,  and the continued  employment of each such executive officer does not
subject the Company or its  Subsidiary to any  liability  with respect to any of
the foregoing matters.

               (ii) The Company and its  Subsidiary  are in compliance  with all
federal, state, local and foreign laws and regulations respecting employment and
employment  practices,  terms and  conditions of employment and wages and hours,
except where failure to be in compliance  would not,  either  individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.

          (v) Title.  The Company and its  Subsidiary  have good and  marketable
title to all personal  property  owned by them which is material to the business
of the  Company  and its  Subsidiary,  in each case free and clear of all liens,
encumbrances  and defects or such as do not materially  affect the value of such
property and do not interfere  with the use made and proposed to be made of such
property  by the  Company  and  its  Subsidiary.  Neither  the  Company  nor its
Subsidiary  owns any real property.  Any real property and facilities held under
lease by the Company and its Subsidiary are held by them under valid, subsisting
and  enforceable  leases with such  exceptions  as are not  material  and do not
interfere  with  the use  made  and  proposed  to be made of such  property  and
buildings by the Company and its Subsidiary.

          (w) Intellectual  Property Rights.  The Company and its Subsidiary own
or possess  adequate  rights or licenses  to use all  trademarks,  trade  names,
service  marks,  service mark  registrations,  service  names,  patents,  patent
rights,    copyrights,    inventions,    licenses,    approvals,    governmental
authorizations,   trade   secrets  and  other   intellectual   property   rights
("Intellectual   Property   Rights")   necessary  to  conduct  their  respective
businesses as now conducted.  Except as set forth in Schedule 3(w),  none of the
Company's  issued patents that are assigned to it or any  Intellectual  Property
Rights  that are  material  to the  business  of the  Company  have  expired  or
terminated,  or are expected to expire or terminate  within three years from the
date of  this  Agreement.  The  Company  does  not  have  any  knowledge  of any
infringement by the Company or its Subsidiary of Intellectual Property Rights of
others  except  where  such  infringement  would  not,  individually  or in  the
aggregate,  have a Material  Adverse  Effect on the Company.  There is no claim,
action or proceeding being made or brought,  or to the knowledge of the Company,
being  threatened,   against  the  Company  or  its  Subsidiary   regarding  its
Intellectual  Property Rights which could have a Material  Adverse  Effect.  The
Company is unaware of any facts or circumstances which might give rise to any of
the foregoing  infringements or claims, actions or proceedings.  The Company and
its Subsidiary have taken reasonable  security  measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.

          (x)  Environmental  Laws.  The Company and its  Subsidiary  (i) are in
compliance with any and all Environmental  Laws (as hereinafter  defined),  (ii)
have received all permits,  licenses or other  approvals  required of them under
applicable  Environmental Laws to conduct their respective  businesses and (iii)
are in compliance  with all terms and conditions of any such permit,  license or
approval  where,  in each of the  foregoing  clauses  (i),  (ii) and (iii),  the

                                       16
<PAGE>
failure to so comply could be reasonably  expected to have,  individually  or in
the aggregate,  a Material Adverse Effect. The term  "Environmental  Laws" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment  (including,  without  limitation,  ambient air,
surface  water,  groundwater,  land surface or  subsurface  strata),  including,
without  limitation,  laws  relating  to  emissions,   discharges,  releases  or
threatened  releases  of  chemicals,  pollutants,   contaminants,  or  toxic  or
hazardous substances or wastes  (collectively,  "Hazardous  Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all  authorizations,  codes,  decrees,  demands  or  demand  letters,
injunctions,  judgments,  licenses,  notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

          (y) Subsidiary Rights. The Company has the unrestricted right to vote,
and (subject to limitations  imposed by applicable law) to receive dividends and
distributions  on, all  capital  securities  of its  Subsidiary  as owned by the
Company.

          (z) Tax Status.  The Company and its  Subsidiary (i) has made or filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such  returns,  reports and  declarations,  except those
being  contested  in good  faith and (iii) has set aside on its books  provision
reasonably  adequate for the payment of all taxes for periods  subsequent to the
periods  to which such  returns,  reports or  declarations  apply.  There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction,  and the officers of the Company know of no basis for any such
claim.

          (aa)  Internal  Accounting  Controls.  The Company and its  Subsidiary
maintain  a  system  of  internal  accounting  controls  sufficient  to  provide
reasonable  assurance  that (i)  transactions  are executed in  accordance  with
management's general or specific authorizations,  (ii) transactions are recorded
as necessary to permit  preparation of financial  statements in conformity  with
generally  accepted  accounting  principles  and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management's general or specific  authorization and (iv)
the recorded  accountability  for assets and  liabilities  is compared  with the
existing assets and liabilities at reasonable  intervals and appropriate  action
is  taken  with  respect  to  any  difference.  In  addition,  the  Company  has
established and maintains  disclosure controls and procedures as defined in Rule
13a-14 under the 1934 Act and in compliance with Rule 13a-15 under the 1934 Act.

          (bb)  Disclosure.  The Company  confirms that neither it nor any other
Person  acting on its behalf has provided any of the Buyers or their  respective
agents or counsel with any  information  that  constitutes  or might  constitute
material, nonpublic information. The Borrower understands and confirms that each
of  the  Buyers  will  rely  on  the  foregoing   representations  in  effecting
transactions in securities of the Company. All disclosure provided to the Buyers
regarding the Company,  its business and the transactions  contemplated  hereby,
including  the  Schedules  to this  Agreement,  furnished by or on behalf of the
Company  are true and  correct  and do not  contain  any untrue  statement  of a
material fact or omit to state any material fact  necessary

                                       17
<PAGE>
in order to make the  statements  made  therein,  in light of the  circumstances
under  which  they were  made,  not  misleading.  No event or  circumstance  has
occurred or information  exists with respect to the Company or its Subsidiary or
either  of  its  respective  business,  properties,   prospects,  operations  or
financial conditions, which, under applicable law, rule or regulation,  requires
public  disclosure  or  announcement  by the  Company  but which has not been so
publicly  announced or disclosed  (assuming  for this purpose that the Company's
reports filed under the Exchange Act of 1934, as amended, are being incorporated
into an effective  registration  statement  filed by the Company  under the 1933
Act).  The Company  acknowledges  and agrees that no Buyer makes or has made any
representations  or  warranties  with respect to the  transactions  contemplated
hereby other than those specifically set forth in Section 2.

          (cc) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable  requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC  thereunder  that are  effective as of the date hereof,  except where
such noncompliance would not have a Material Adverse Effect.

          (dd)  FDA  Compliance.  The  Company  and  its  Subsidiaries,  and the
manufacture,  marketing and sales of the Company's  products,  complies with any
and all applicable  requirements  of the Federal Food, Drug and Cosmetic Act, 21
U.S.C.  ss.301,  et  seq.,  any  rules  and  regulations  of the  Food  and Drug
Administration  promugulated  thereunder,  and any similar  laws  outside of the
United States to which the company is subject,  except where such  noncompliance
would not have a Material Adverse Effect.

     4.   COVENANTS.

          (a) Best  Efforts.  Each party  shall use its best  efforts  timely to
satisfy each of the  conditions  to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

          (b) Form D and Blue  Sky.  The  Company  agrees  to file a Form D with
respect to the Securities as required  under  Regulation D and to provide a copy
thereof to each Buyer  promptly  after such  filing.  The Company  shall,  on or
before  each of the  Closing  Dates,  take  such  action  as the  Company  shall
reasonably  determine is  necessary  in order to obtain an  exemption  for or to
qualify the Securities  for sale to the Buyers at each of the Closings  pursuant
to this Agreement under  applicable  securities or "Blue Sky" laws of the states
of the United States (or to obtain an exemption  from such  qualification),  and
shall provide  evidence of any such action so taken to the Buyers on or prior to
the  Closing  Dates.  The Company  shall make all  filings  and reports  that it
reasonably  determines  are  necessary  relating  to the  offer  and sale of the
Securities required under applicable securities or "Blue Sky" laws of the states
of the United States  following  each of the Closing Dates;  provided,  however,
that the Company shall not for any such purpose be required to qualify generally
to transact  business as a foreign  corporation in any jurisdiction  where it is
not so  qualified  or to  consent  to  general  service  of  process in any such
jurisdiction.

          (c)  Reporting  Status.  Until  the date on which  the  Investors  (as
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares,  Interest Shares and

                                       18
<PAGE>
Warrant Shares and none of the Notes or Warrants is outstanding  (the "Reporting
Period"),  the Company  shall timely file all reports  required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would otherwise permit such termination.

          (d) Use of Proceeds.  The Company will use the proceeds  from the sale
of the Securities for working capital  purposes and not for the repayment of any
outstanding Indebtedness of the Company or any Subsidiary.

          (e) Financial Information. The Company agrees to send the following to
each  Investor  during the  Reporting  Period (i) unless the following are filed
with the SEC through  EDGAR and are  available  to the public  through the EDGAR
system,  within one (1)  Business  Day after the filing  thereof with the SEC, a
copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K and any registration  statements (other than on Form
S-8) or amendments  filed  pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any  Subsidiary,  and (iii)  copies of any  notices and other  information  made
available   or   given   to  the   stockholders   of  the   Company   generally,
contemporaneously   with  the  making   available  or  giving   thereof  to  the
stockholders.

          (f) Listing.  The Company shall promptly  secure the listing of all of
the Registrable  Securities (as defined in the  Registration  Rights  Agreement)
upon each national  securities  exchange and automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain,  so long as any other shares of Common Stock shall
be so listed,  such  listing  of all  Registrable  Securities  from time to time
issuable under the terms of the Transaction Documents. The Company shall use its
best efforts to maintain the Common Stock's  authorization  for quotation on the
Principal  Market.  Neither the Company nor any Subsidiary shall take any action
which would be  reasonably  expected to result in the delisting or suspension of
the Common Stock on the  Principal  Market.  The Company  shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).

          (g) Fees.  The Company  shall  reimburse  each Buyer for such  Buyer's
reasonable  expenses incurred in connection with the preparation,  execution and
performance  of this  Agreement  and the  transactions  contemplated  hereunder,
including all fees and expenses of such Buyer's agents, representatives, counsel
and  accountants.  The  Company  shall be  responsible  for the  payment  of any
placement agent's fees or broker's commissions relating to or arising out of the
transactions  contemplated  hereby.  Except  as  otherwise  set  forth  in  this
Agreement or in the Registration Rights Agreement,  each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers.

          (h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration  Rights
Agreement)  in  connection  with a bona fide margin  agreement  or other loan or
financing  arrangement  that  is  secured  by  the  Securities.  The  pledge  of
Securities  shall not be  deemed to be a  transfer,  sale or

                                       19
<PAGE>
assignment of the Securities  hereunder,  and no Investor  effecting a pledge of
Securities  shall be required to provide the Company with any notice  thereof or
otherwise  make any  delivery to the Company  pursuant to this  Agreement or any
other Transaction Document, including, without limitation,  Section 2(f) of this
Agreement; provided that an Investor and its pledgee shall be required to comply
with the  provisions of Section 2(f) hereof in order to effect a sale,  transfer
or  assignment  of  Securities  to such  pledgee.  The Company  hereby agrees to
execute  and  deliver  such  documentation  as a pledgee of the  Securities  may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.

          (i) Disclosure of Transactions and Other Material  Information.  On or
before 8:30 a.m.,  New York City Time,  on the first  Trading Day  following the
Initial  Closing  Date,  the  Company  shall  file a Current  Report on Form 8-K
describing  the  terms  of the  transactions  contemplated  by  the  Transaction
Documents  in the form  required by the 1934 Act,  and  attaching  the  material
Transaction  Documents (including,  without limitation,  this Agreement (and all
schedules to this Agreement), the form of each of the Notes, the form of Warrant
and the Registration Rights Agreement) as exhibits to such filing (including all
attachments,  the "8-K Filing").  On or before 8:30 a.m., New York City Time, on
the first Trading Day following the  Additional  Closing Date, the Company shall
file a  Current  Report  on Form  8-K with the SEC  describing  the  transaction
consummated  or  proposed  on such  date.  From and after the  filing of the 8-K
Filing with the SEC, no Buyer shall be in possession of any material,  nonpublic
information  received from the Company,  any Subsidiary or any of its respective
officers,  directors,  employees  or agents,  that is not  disclosed  in the 8-K
Filing.  The Company shall not, and shall cause each  Subsidiary and each of its
respective officers, directors,  employees and agents, not to, provide any Buyer
with any material nonpublic  information regarding the Company or any Subsidiary
from and after the filing of the 8-K Filing  with the SEC  without  the  express
written  consent  of such  Buyer.  In the  event  of a breach  of the  foregoing
covenant by the Company,  any  Subsidiary,  or its each of respective  officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Buyer shall have the right to demand that the
Company make a public  disclosure,  and if the Company fails to do so within two
Business  Days the  Buyer may make a public  disclosure,  in the form of a press
release,   public  advertisement  or  otherwise,   of  such  material  nonpublic
information without the prior approval by the Company, each Subsidiary,  or each
of its respective officers, directors,  employees or agents. No Buyer shall have
any liability to the Company, any Subsidiary,  or any of its or their respective
officers, directors,  employees,  shareholders or agents for any such disclosure
unless such Buyer acts with gross negligence or willful  misconduct.  Subject to
the foregoing,  neither the Company nor any Buyer shall issue any press releases
or any other public  statements  with respect to the  transactions  contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such  transactions (i) in substantial  conformity with the 8-K Filing
and  contemporaneously  therewith and (ii) as is required by applicable  law and
regulations,  including the  applicable  rules and  regulations of the Principal
Market (provided that in the case of clause (i) each Buyer shall be consulted by
the Company in connection with any such press release or other public disclosure
prior to its release).

          (j) Restriction on Redemption and Cash Dividends. So long as any Notes
are  outstanding,  the Company shall not,  directly or  indirectly,  repurchase,
redeem, or declare or pay

                                       20
<PAGE>
any cash dividend or distribution on, the Common Stock without the prior express
written consent of the holders of Notes representing not less than two-thirds of
the aggregate principal amount of the then outstanding Notes.

          (k) Additional Securities.  For so long as any Buyer beneficially owns
any Notes or  Warrants,  the Company  will not issue any Notes other than to the
Buyers  as  contemplated  hereby  and the  Company  shall  not  issue  any other
securities that would cause a breach or default under the Notes or Warrants.

          (l)  Conduct  of  Business.  The  business  of the  Company  and  each
Subsidiary  shall  not be  conducted  in  violation  of any  law,  ordinance  or
regulation of any  governmental  entity,  except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

          (m) Variable  Securities.  The Company shall not, in any manner, issue
or sell any rights,  warrants  or options to  subscribe  for or purchase  Common
Stock or directly or indirectly  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 any fixed price
unless the conversion, exchange or exercise price of any such security cannot be
less than the then applicable  Conversion  Price (as defined in the Notes) under
any Note.

          (n) Proxy  Statement.  The  Company  shall  provide  each  stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
not be later than May 31, 2003 (the  "Stockholder  Meeting  Deadline"),  a proxy
statement,  which has been  previously  reviewed by the Buyers and a counsel for
one of the Buyers,  soliciting each such stockholder's  affirmative vote at such
stockholder  meeting for approval of (x) the increase in the  authorized  Common
Stock  to 60  million  shares  and  (y)  the  Company's  issuance  of all of the
Securities  as described in the  Transaction  Documents in  accordance  with the
Company's  Certificate  of  Incorporation  and Bylaws and applicable law and the
rules and regulations of the Principal Market (such  affirmative  approval being
referred to herein as the "Stockholder Approval"), and the Company shall use its
best  efforts to solicit  its  stockholders'  approval  of such  increase in the
authorized  Common  Stock and the  issuance of the  Securities  and to cause the
Board of Directors of the Company to  recommend  to the  stockholders  that they
approve  such  proposals.  From and  after  the  date  hereof  and  prior to the
Stockholder  Approval,  the Company shall not issue any  securities  (other than
pursuant to contractual  arrangements under which the Company is obligated as of
the date hereof or convertible or exchangeable  securities outstanding as of the
date  hereof,  in each  case in  accordance  with the terms in place on the date
hereof) or take any other action that would reduce the  percentage  of shares of
Common Stock held by the Company's stockholders that executed, delivered and are
bound by the Voting Agreement.

          (o) Corporate  Existence.  So long as any Buyer  beneficially owns any
Notes or Warrants or has the right to purchase any Additional Notes, the Company
shall maintain its corporate  existence and shall not sell all or  substantially
all of the Company's assets, except in the event of a merger or consolidation or
sale of all or substantially all of the Company's assets, where the surviving or
successor  entity in such  transaction  (i)  assumes the  Company's

                                       21
<PAGE>
obligations  hereunder and under the agreements and instruments  entered into in
connection herewith and (ii) is a publicly traded corporation whose common stock
is quoted on or listed for trading on a Principal Market.

          (p) Reservation of Shares. The Company shall take all action necessary
to at all times have authorized,  and reserved for the purpose of issuance, from
and after each Closing  Date, a number of shares of Common Stock  issuable  upon
conversion  of, and as payment for  interest  on, the Notes being issued at such
Closing and the number of shares of Common Stock  issuable  upon exercise of the
Warrants being issued at such Closing in conformity with Section 3(c).

          (q) Incurrence of Indebtedness.  For a period of three (3) years after
the date hereof,  so long as any Notes are  outstanding,  the Company  shall not
incur or suffer to exist any Indebtedness other than Permitted  Indebtedness and
indebtedness  permitted by the holders of Notes representing at least two-thirds
of the aggregate  principal amount of the Notes then  outstanding.  For purposes
hereof,  "Permitted  Indebtedness"  means the Indebtedness  existing on the date
hereof as set forth on Schedule  3(r) and  indebtedness  incurred in  connection
with trade payables incurred in the ordinary course of business  consistent with
past practice.

          (r) Right of First  Refusal.  (i) For a period of 18 months  following
the Additional Closing Date (or the Stockholder  Meeting Deadline,  if there has
been no Additional Closing Date), the Company shall not issue, sell or exchange,
agree or obligate itself to issue,  sell or exchange or reserve or set aside for
issuance, sale or exchange, (A) any shares of Common Stock, (B) any other equity
security of the Company, including without limitation shares of preferred stock,
(C) any debt security of the Company  (other than debt with no equity  feature),
including without limitation any debt security which by its terms is convertible
into or exchangeable for any equity security of the Company, (D) any security of
the Company that is a combination of debt and equity, or (E) any option, warrant
or other right to subscribe for,  purchase or otherwise  acquire any such equity
security  or any such  debt  security  of the  Company,  unless in each case the
Company  shall  have  first  offered  to  sell  such  securities  (the  "Offered
Securities")  to the Buyers as follows:  The Company shall offer to sell to each
Buyer (1) that  portion  of the  Offered  Securities  as the number of shares of
Common Stock (including all shares of capital stock or debt securing convertible
into Common Stock on an as-converted basis) then held by such Buyer and acquired
pursuant to the terms of the Transaction Documents, bears to the total number of
shares of Common Stock  (including all shares of capital stock  convertible into
Common  Stock on an  as-converted  basis)  held on such date by all  Buyers  and
acquired  pursuant  to  the  terms  of the  Transaction  Documents  (the  "Basic
Amount"),  and (2) such  additional  portion of the Offered  Securities  as such
buyer shall indicate it will purchase should the other Buyers subscribe for less
than their Basic  Amounts (the  "Undersubscription  Amount"),  at a price and on
such  other  terms as shall  have  been  specified  by the  Company  in  writing
delivered  to such Buyer (the  "Offer"),  which Offer by its terms shall  remain
open and irrevocable for a period of twenty (20) days from receipt of the Offer.

               (ii) Notice of each Buyer's  intention to accept,  in whole or in
part, any Offer made pursuant to Section 4(r)(i) shall be evidenced by a writing
signed by such Buyer and delivered to the Company prior to the end of the 20-day
period of such offer,  setting  forth such

                                       22
<PAGE>
of the Buyer's  Basic Amount as such Buyer elects to purchase and, if such Buyer
shall elect to purchase all of its Basic Amount, the Undersubcription  Amount as
such Buyer shall elect to purchase  (the "Notice of  Acceptance").  If the Basic
Amounts  subscribed for by all Buyers are less than the total Offered Securities
then each  Buyer who has set forth  Undersubscription  Amounts  in its Notice of
Acceptance  shall be entitled to purchase  all  Undersubcription  Amounts it has
subscribed for; provided,  however,  that should the  Undersubscription  Amounts
subscribed  for exceed the  difference  between the Offered  Securities  and the
Basic Amounts  subscribed for (the "Available  Undersubcription  Amount"),  each
Buyer who has  subscribed  for any  Undersubcripton  Amount shall be entitled to
purchase  only that  portion  of the  Available  Undersubcription  Amount as the
Undersubcription  Amount  subscribed  for by  such  Buyer  bears  to  the  total
Undersubcription  Amounts  subscribed for by all Buyers,  subject to rounding by
the Board of Directors to the extent it deems reasonably necessary.

               (iii)  Permitted Sales of Refused  Securities.  In the event that
Notices of  Acceptance  are not given by the Buyer in respect of all the Offered
Securities,  the Company  shall have sixty (60) days from the  expiration of the
period set forth in Section 4(r)(i) to close the sale of all or any part of such
Offered  Securities as to which a Notice of Acceptance has not been given by the
Buyer (the  "Refused  Securities")  to the person or  persons  specified  in the
Offer,  but  only  for  cash  and  otherwise  in all  respects  upon  terms  and
conditions,  including, without limitation, unit price and interest rates, which
are no more favorable, in the aggregate, to such other person or persons or less
favorable to the Company than those set forth in the Offer.

               (iv) Reduction in Amount of Offered Securities.  In the event the
Company  shall  propose to sell less than all the Refused  Securities  (any such
sale to be in the manner and on the terms specified in Section 4(r)(iii) above),
then each Buyer may, at its sole option and in its sole  discretion,  reduce the
number or other  units of the  Offered  Securities  specified  in its  Notice of
Acceptance  to an amount  which shall be not less than the amount of the Offered
Securities  which such Buyer  elected to purchase  pursuant to Section  4(r)(ii)
multiplied  by a  fraction,  (A) the  numerator  of which shall be the amount of
Offered  Securities  which the Company  actually  proposes to sell,  and (B) the
denominator of which shall be the amount of all Offered Securities. In the event
that any Buyer so elects to reduce the  number or amount of  Offered  Securities
specified  in its Notice of  Acceptance,  the Company may not sell or  otherwise
dispose of more than the  reduced  amount of the Offered  Securities  until such
securities have been offered to the Buyers in accordance with Section 4(r).

               (v) Closing.  Upon each closing  under this Section  4(r),  which
shall  include full payment to the Company,  the Buyer shall  purchase  from the
Company,  and the  Company  shall  sell  to the  Buyer  the  number  of  Offered
Securities  specified  in the  Notices of  Acceptance,  as reduced  pursuant  to
Section  4(r)(iv) if the Buyers have so elected,  upon the terms and  conditions
specified in the Offer. The purchase by the Buyers of any Offered  Securities is
subject in all cases to the  preparation,  execution and delivery by the Company
and the Buyers of a  purchase  agreement  relating  to such  Offered  Securities
reasonably satisfactory in form and substance to the Buyers and their respective
counsel.

               (vi)  Further  Sale.  In each case,  any Offered  Securities  not
purchased by the Buyers or other Person or Persons in accordance  with Section 4
may not be sold or

                                       23
<PAGE>
otherwise  disposed  of until they are again  offered  to the  Buyers  under the
procedures specified in Section 4(r).

               (vii) Exception. The rights of the Buyers under this Section 4(r)
shall not apply to: (A) Common  Stock  issued as a stock  dividend to holders of
Common Stock or upon any  subdivision  or combination of shares of Common Stock,
(B) Common Stock issued as interest  payments to holders of Notes, (C) shares of
Common Stock  issued upon  conversion  of the Notes,  (D) shares of Common Stock
issued upon exercise of the Warrants and (E) Common Stock issued pursuant to the
transactions  contemplated in the Company's  Debenture  Purchase Agreement dated
December 19, 2002 with  Aventis  Pharmaceuticals  Inc.  (the  debentures  issued
thereunder being the "Aventis Debentures").

     5.   REGISTER; TRANSFER AGENT INSTRUCTIONS.

          (a) Register.  The Company shall  maintain at its principal  executive
offices (or such other  office or agency of the Company as it may  designate  by
notice to each holder of Notes or  Warrants),  a register  for the Notes and the
Warrants,  in which the Company  shall record the name and address of the Person
in whose name the Notes and the Warrants  have been issued  (including  the name
and  address of each  transferee),  the  principal  amount of Notes held by such
Person and the number of Warrant  Shares  issuable upon exercise of the Warrants
held by such Person.  The Company  shall keep the register open and available at
all  times  during  business  hours  for  inspection  of any  Buyer or its legal
representatives.

          (b) Transfer Agent  Instructions.  The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent  transfer agent, to issue
certificates  or  credit  shares  to the  applicable  balance  accounts  at DTC,
registered  in the name of each  Buyer  or its  respective  nominee(s),  for the
Conversion  Shares,  the Interest Shares, if any, and the Warrant Shares in such
amounts  as  specified  from  time to time by each  Buyer  to the  Company  upon
conversion  of the Notes or  exercise  of the  Warrants in the form of Exhibit E
attached hereto (the  "Irrevocable  Transfer Agent  Instructions").  The Company
warrants  that  no  instruction  other  than  the  Irrevocable   Transfer  Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(f) hereof, will be given by the Company to its transfer
agent,  and that the Securities  shall  otherwise be freely  transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction  Documents.  If a Buyer effects a sale,  assignment or
transfer of the  Securities in accordance  with Section 2(f),  the Company shall
permit the transfer and shall promptly  instruct its transfer agent to issue one
or more certificates or credit shares to the applicable  balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale,  transfer  or  assignment.  In the event  that such  sale,  assignment  or
transfer  involves  Conversion  Shares,  Interest Shares or Warrant Shares sold,
assigned or  transferred  pursuant to an  effective  registration  statement  or
pursuant to Rule 144,  the  transfer  agent shall issue such  Securities  to the
Buyer,  assignee or  transferee,  as the case may be,  without  any  restrictive
legend.  The  Company  acknowledges  that  a  breach  by it of  its  obligations
hereunder  will cause  irreparable  harm to a Buyer.  Accordingly,  the  Company
acknowledges  that the remedy at law for a breach of its obligations  under this
Section  5(b)  will be  inadequate  and  agrees,  in the  event of a  breach  or
threatened  breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be

                                       24
<PAGE>
entitled,  in  addition  to all other  available  remedies,  to an order  and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the  necessity  of showing  economic  loss and without any bond or other
security being required.

     6.   CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

          (a) Initial  Closing Date. The obligation of the Company  hereunder to
issue and sell the Initial Notes and the related Initial  Warrants to each Buyer
at the Initial Closing is subject to the satisfaction,  at or before the Initial
Closing  Date,  of  each  of  the  following  conditions,  provided  that  these
conditions  are for the Company's  sole benefit and may be waived by the Company
at any time in its sole  discretion  by providing  each Buyer with prior written
notice thereof:

               (i)  Such  Buyer  shall  have  executed  each of the  Transaction
Documents to which it is a party and delivered the same to the Company.

               (ii) Such Buyer shall have  delivered to the Company the Purchase
Price  (less,  the amounts  withheld  pursuant to Section  4(g)) for the Initial
Notes and the related  Initial  Warrants  being  purchased  by such Buyer at the
Initial Closing by wire transfer of immediately  available funds pursuant to the
wire instructions provided by the Company.

               (iii) The  representations  and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Initial Closing Date as though made at that time (except for representations and
warranties  that  speak as of a  specific  date),  and  such  Buyer  shall  have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by such Buyer at or prior to the Initial Closing Date.

          (b) Additional  Closing Date. The obligation of the Company  hereunder
to issue and sell the Additional  Notes and the related  Additional  Warrants to
each Buyer at the  Additional  Closing is  subject  to the  satisfaction,  at or
before  such  Additional  Closing  Date,  of each of the  following  conditions,
provided that these  conditions  are for the  Company's  sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:

               (i) Such Buyer shall have  delivered  to the Company the Purchase
Price  for the  Additional  Notes  and the  related  Additional  Warrants  being
purchased  by  such  Buyer  at  the  Additional  Closing  by  wire  transfer  of
immediately  available funds pursuant to the wire  instructions  provided by the
Company.

               (ii) The  representations  and  warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Additional Closing Date as though made at that time (except for  representations
and  warranties  that speak as of a specific  date),  and such Buyer  shall have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by such Buyer at or prior to the Additional Closing Date.

                                       25
<PAGE>
     7.   CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

          (a) Initial  Closing Date. The  obligation of each Buyer  hereunder to
purchase  the  Initial  Notes and the  related  Initial  Warrants at the Initial
Closing is subject to the  satisfaction,  at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for each
Buyer's  sole  benefit  and may be waived by such  Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:

               (i) The Company  shall have  executed and delivered to such Buyer
(i)  each of the  Transaction  Documents  and (ii) the  Initial  Notes  (in such
principal  amounts as such Buyer shall request) and the related Initial Warrants
(in such amounts as such Buyer shall request)  being  purchased by such Buyer at
the Initial Closing pursuant to this Agreement.

               (ii) Such Buyer shall have  received the opinion of White & Case,
the Company's counsel,  dated as of the Initial Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
Exhibit F attached hereto.

               (iii) The Company  shall have  delivered  to such Buyer a copy of
the Irrevocable  Transfer Agent Instructions,  in the form of Exhibit E attached
hereto,  which  instructions  shall have been delivered to and  acknowledged  in
writing by the Company's transfer agent.

               (iv) The Company shall have delivered to such Buyer a certificate
evidencing  the  incorporation  and good standing of the Company in its state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within 10 days of the Initial Closing Date.

               (v) The Company shall have  delivered to such Buyer a certificate
evidencing  the  Company's  qualification  as a  foreign  corporation  and  good
standing  issued by the  Secretary of State of the State of Florida as of a date
within 10 days of the Initial Closing Date.

               (vi) The Company  shall have  delivered to such Buyer a certified
copy of the Certificate of  Incorporation as certified by the Secretary of State
of the State of Delaware within 10 days of the Initial Closing Date.

               (vii)  The  Company   shall  have   delivered  to  such  Buyer  a
certificate,  executed  by the  Secretary  of the  Company  and  dated as of the
Initial Closing Date, as to (i) the resolutions  consistent with Section 3(b) as
adopted by the Company's Board of Directors in a form  reasonably  acceptable to
such Buyer (the "Resolutions"),  (ii) the Certificate of Incorporation and (iii)
the  Bylaws,  each as in effect at the  Initial  Closing,  in the form  attached
hereto as Exhibit G.

               (viii) The representations and warranties of the Company shall be
true and  correct in all  material  respects  (except  for  representations  and
warranties that are qualified by materiality, which shall be true and correct in
all  respects)  as of the date when made and as of the Initial  Closing  Date as
though made at that time (except for  representations  and warranties that speak
as of a specific  date) and the  Company  shall have  performed,  satisfied  and
complied

                                       26
<PAGE>
in all material  respects (except for covenants,  agreements and conditions that
are qualified by materiality, which shall be complied with in all respects) with
the covenants,  agreements and conditions required by the Transaction  Documents
to be  performed,  satisfied or complied  with by the Company at or prior to the
Initial Closing Date. Such Buyer shall have received a certificate,  executed by
the Chief  Executive  Officer of the  Company,  dated as of the Initial  Closing
Date, to the foregoing  effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit H.

               (ix) The Company shall have delivered to such Buyer a letter from
the Company's  transfer  agent  certifying  the number of shares of Common Stock
outstanding as of a date within five days of the Initial Closing Date.

               (x) The Company shall have obtained all governmental,  regulatory
or third party  consents and  approvals,  if any,  necessary for the sale of the
Initial Notes and the Initial Warrants other than the Stockholders Approval.

               (xi) The  Company and holders of Common  Stock  representing  not
less than 38.2% of the  Company's  outstanding  Common Stock shall have executed
and delivered a Voting Agreement in the form attached hereto as Exhibit I.

               (xii) The  Company  shall have  received  at least $15 million in
aggregate  proceeds  hereunder  (less  any  amounts  permitted  to  be  withheld
hereunder).

               (xiii) The Company shall have  delivered to such Buyer such other
documents  relating to the  transactions  contemplated by this Agreement as such
Buyer or its counsel may reasonably request.

          (b) Additional  Closing Date.  The obligation of any applicable  Buyer
hereunder to purchase the Additional Notes and the related  Additional  Warrants
at the  Additional  Closing  is subject  to the  satisfaction,  at or before the
Additional  Closing  Date, of each of the  following  conditions,  provided that
these  conditions  are for such  Buyer's  sole benefit and may be waived by such
Buyer's at any time in its sole  discretion  by providing the Company with prior
written notice thereof:

               (i) The Company  shall have  executed and delivered to such Buyer
the Additional Notes (in such principal amounts as such Buyer shall request) and
related  Additional  Warrants  (in such  principal  amounts as such Buyer  shall
request)  being  purchased by such Buyer at the Additional  Closing  pursuant to
this Agreement.

               (ii) Such  Buyer  shall  have  received  the  opinion  of counsel
reasonably  acceptable to the Buyer, dated as of the Additional Closing Date, in
form,  scope  and  substance  reasonably  satisfactory  to  such  Buyer  and  in
substantially the form of Exhibit F attached hereto.

               (iii) The Irrevocable Transfer Agent Instructions shall remain in
effect  as of the  Additional  Closing  Date and the  Company  shall  cause  its
transfer agent to deliver a letter to such Buyer to that effect.

                                       27
<PAGE>
               (iv) The Company shall have delivered to such Buyer a certificate
evidencing  the  incorporation  and good standing of the Company in its state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within 10 days of the Additional Closing Date.

               (v) The Company shall have  delivered to such Buyer a certificate
evidencing  the  Company's  qualification  as a  foreign  corporation  and  good
standing  issued by the  Secretary of State of the State of Florida as of a date
within 10 days of the Additional Closing Date.

               (vi) The Company  shall have  delivered to such Buyer a certified
copy of the Certificate of  Incorporation as certified by the Secretary of State
of the State of Delaware within 10 days of the Additional Closing Date.

               (vii)  The  Company   shall  have   delivered  to  such  Buyer  a
certificate, executed by the Secretary of the Company dated as of the Additional
Closing Date, as to (i) the  Resolutions,  (ii) the Certificate of Incorporation
and (iii) the Bylaws,  each as in effect at the Additional  Closing, in the form
attached hereto as Exhibit G.

               (viii) The representations and warranties of the Company shall be
true and  correct in all  material  respects  (except  for  representations  and
warranties that are qualified by materiality, which shall be true and correct in
all respect) as of the date when made and as of the  Additional  Closing Date as
though made at that time (except for  representations  and warranties that speak
as of a specific  date) and the  Company  shall have  performed,  satisfied  and
complied  in  all  material  respects  (except  for  covenants,  agreements  and
conditions  that are qualified by  materiality,  which shall be complied with in
all respect)  with the  covenants,  agreements  and  conditions  required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the  Additional  Closing  Date.  Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the  Additional  Closing  Date,  to the  foregoing  effect  and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto
as Exhibit H.

               (ix) The Company shall have delivered to such Buyer a letter from
the Company's  transfer  agent  certifying  the number of shares of Common Stock
outstanding as of a date within five days of the Additional Closing Date.

               (x) The Company shall have obtained all governmental,  regulatory
or third party  consents and  approvals,  if any,  necessary for the sale of the
Additional  Notes and the Additional  Warrants being purchased at the Additional
Closing.

               (xi) During the period  beginning on the Initial Closing Date and
ending on and including the Additional Closing Date, neither the Company nor its
Subsidiary shall have been in material default under any mortgage,  indenture or
instrument  under  which there may be issued or by which there may be secured or
evidenced any  Indebtedness  of the Company or its  Subsidiary,  nor shall there
exist as of the  Additional  Closing Date an event that with the passage of time
or giving  notice,  and  assuming  it were not cured,  would  constitute  such a
default.

                                       28
<PAGE>
               (xii) The Company  shall have  delivered to such Buyer such other
documents  relating to the  transactions  contemplated by this Agreement as such
Buyer or its counsel may reasonably request.

     8.  TERMINATION.  In the  event  that the  Initial  Closing  shall not have
occurred with respect to a Buyer on or before forty-five (45) days from the date
hereof due to the  Company's or such Buyer's  failure to satisfy the  conditions
set forth in  Sections 6 and 7 above (and the  nonbreaching  party's  failure to
waive such  unsatisfied  condition(s)),  the  nonbreaching  party shall have the
option to terminate this  Agreement with respect to such breaching  party at the
close of  business  on such  date  without  liability  of any party to any other
party; provided,  however, that if this Agreement is terminated pursuant to this
Section 8, the Company  shall remain  obligated to reimburse  the Buyers for the
expenses described in Section 4(g) above.

     9.   MISCELLANEOUS.

          (a) Governing Law; Jurisdiction;  Jury Trial. All questions concerning
the  construction,  validity,  enforcement and  interpretation of this Agreement
shall be governed by the internal laws of the State of New York,  without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other  jurisdictions)  that would cause the application
of the laws of any  jurisdictions  other than the State of New York.  Each party
(other than Heartland Group, Inc.  ("Heartland"))  hereby irrevocably submits to
the  non-exclusive  jurisdiction  of the state and federal courts sitting in The
City of New York,  Borough of Manhattan and the state and federal courts sitting
in  Milwaukee,  Wisconsin,  and  Heartland  hereby  irrevocably  submits  to the
non-exclusive jurisdiction of the state and federal courts sitting in Milwaukee,
Wisconsin,  in each case for the  adjudication  of any dispute  hereunder  or in
connection  herewith or with any  transaction  contemplated  hereby or discussed
herein,  and hereby  irrevocably  waives,  and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court,  that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each party hereby  irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve  process in any manner  permitted by law.
EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE,  AND AGREES NOT TO
REQUEST,  A JURY  TRIAL FOR THE  ADJUDICATION  OF ANY  DISPUTE  HEREUNDER  OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

          (b)  Counterparts.  This  Agreement  may be  executed  in two or  more
identical  counterparts,  all of  which  shall  be  considered  one and the same
agreement and shall become effective when  counterparts have been signed by each
party and  delivered to the other  party;  provided  that a facsimile  signature
shall be  considered  due  execution  and shall be  binding  upon the  signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

                                       29
<PAGE>
          (c) Headings.  The headings of this  Agreement are for  convenience of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

          (d) Severability.  If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction,  such invalidity or unenforceability shall
not affect the validity or  enforceability of the remainder of this Agreement in
that  jurisdiction  or the validity or  enforceability  of any provision of this
Agreement in any other jurisdiction.

          (e) Entire Agreement;  Amendments. This Agreement supersedes all other
prior  oral or  written  agreements  between  the  Buyers,  the  Company,  their
affiliates  and  Persons  acting on their  behalf  with  respect to the  matters
discussed  herein,  and this  Agreement and the  instruments  referenced  herein
contain  the entire  understanding  of the parties  with  respect to the matters
covered  herein and therein  and,  except as  specifically  set forth  herein or
therein,  neither the Company nor any Buyer makes any representation,  warranty,
covenant or  undertaking  with  respect to such  matters.  No  provision of this
Agreement may be amended  other than by an  instrument in writing  signed by the
Company  and the  holders  of  Notes  representing  at least  two-thirds  of the
aggregate  principal  amount of the Initial  Notes,  or, if prior to the Initial
Closing Date, the Buyers listed on the Schedule of Buyers as being  obligated to
purchase at least  two-thirds of the aggregate  principal  amount of the Initial
Notes. No provision  hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought.  No such amendment shall
be  effective  to the extent  that it applies to less than all of the holders of
the Notes then  outstanding.  No  consideration  shall be offered or paid to any
Person to amend or consent to a waiver or  modification  of any provision of any
of the Transaction  Documents unless the same  consideration  also is offered to
all of the parties to the Transaction Documents,  holders of Notes or holders of
the Warrants,  as the case may be. The Company has not,  directly or indirectly,
made any agreements  with any Buyers  relating to the terms or conditions of the
transactions  contemplated by the Transaction  Documents  except as set forth in
the Transaction Documents.

          (f) Notices.  Any notices,  consents,  waivers or other communications
required or permitted to be given under the terms of this  Agreement  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 Business Day after deposit with
an overnight  courier 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:

          Aphton Corporation
          80 SW Eighth Street
          Miami, Florida  33130
          Telephone:     (305) 374-7338
          Facsimile:     (305) 374-7615
          Attention:     Philip C. Gevas

                                       30
<PAGE>

     with a copy to:

          White & Case LLP
          1155 Avenue of the Americas
          New York, New York  10036
          Telephone:     (212) 819-8200
          Facsimile:     (212) 354-8113
          Attention:     Jonathan Kahn, Esq.

     If to the Transfer Agent:

          U.S. Stock Transfer Corporation
          1745 Gardena Avenue
          Glendale, CA  91204-2991
          Telephone:     (818) 502-1404
          Facsimile:     (818) 502-0674
          Attention:     William Garza

If to a Buyer, to its address and facsimile  number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,  or to such  other  address  and/or  facsimile  number  and/or to the
attention of such other Person as the  recipient  party has specified by written
notice  given to each other  party five (5) days prior to the  effectiveness  of
such change.  Written confirmation of receipt (A) given by the recipient of such
notice,   consent,   waiver  or  other   communication,   (B)   mechanically  or
electronically  generated by the sender's facsimile machine containing the time,
date,  recipient  facsimile  number  and an  image  of the  first  page  of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service,  receipt by facsimile or receipt from an overnight
courier   service  in   accordance   with  clause  (i),  (ii)  or  (iii)  above,
respectively.

          (g) Successors and Assigns.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any  purchasers  of the Notes or the  Warrants.  The Company shall not
assign this Agreement or any rights or obligations  hereunder  without the prior
written consent of the holders of Notes  representing at least two-thirds of the
aggregate principal amount of the Notes then outstanding, including by merger or
consolidation,  except  pursuant to a Change of Control (as defined in Section 5
of the Notes) with respect to which the Company is in compliance  with Section 5
of the Notes and Section 4(b) of the Warrants. A Buyer may assign some or all of
its rights  hereunder  without the consent of the  Company,  in which event such
assignee  shall be deemed to be a Buyer  hereunder with respect to such assigned
rights.

          (h) No Third Party  Beneficiaries.  This Agreement is intended for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

          (i) Survival. Unless this Agreement is terminated under Section 8, the
representations  and  warranties  of the  Company  and the Buyers  contained  in
Sections 2 and 3, the  agreements and covenants set forth in Sections 4, 5 and 9
shall survive each  Closing.  Each

                                       31
<PAGE>
Buyer  shall  be  responsible  only  for  its own  representations,  warranties,
agreements and covenants hereunder.

          (j) Further  Assurances.  Each party shall do and perform, or cause to
be done and performed,  all such further acts and things,  and shall execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

          (k)  Indemnification.  In consideration of each Buyer's  execution and
delivery of the  Transaction  Documents and acquiring the Securities  thereunder
and in addition to all of the Company's other  obligations under the Transaction
Documents,  the Company shall defend, protect,  indemnify and hold harmless each
Buyer and each other  holder of the  Securities  and all of their  stockholders,
partners,  members,  officers,  directors,  employees  and  direct  or  indirect
investors  and any of the  foregoing  Persons'  agents or other  representatives
(including,   without   limitation,   those  retained  in  connection  with  the
transactions contemplated by this Agreement)  (collectively,  the "Indemnitees")
from and against any and all actions,  causes of action, suits, claims,  losses,
costs,  penalties,  fees,  liabilities  and damages,  and expenses in connection
therewith  (irrespective of whether any such Indemnitee is a party to the action
for  which  indemnification  hereunder  is  sought),  and  including  reasonable
attorneys' fees and disbursements (the "Indemnified  Liabilities"),  incurred by
any  Indemnitee  as a result  of,  or  arising  out of, or  relating  to (a) any
misrepresentation  or  breach  of any  representation  or  warranty  made by the
Company in the  Transaction  Documents or any other  certificate,  instrument or
document  contemplated  hereby  or  thereby,  (b) any  breach  of any  covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate,  instrument or document contemplated hereby or thereby or
(c) any cause of action,  suit or claim brought or made against such  Indemnitee
by a third party  (including for these  purposes a derivative  action brought on
behalf of the Company) and arising out of or resulting  from (i) the  execution,
delivery,  performance or enforcement of the Transaction  Documents or any other
certificate,  instrument or document  contemplated  hereby or thereby,  (ii) any
transaction  financed  or to be  financed  in  whole  or in  part,  directly  or
indirectly,  with the  proceeds  of the  issuance of the  Securities,  (iii) any
disclosure  made by such Buyer  pursuant to Section  4(i), or (iv) the status of
such Buyer or holder of the  Securities  as an investor in the  Company.  To the
extent that the foregoing  undertaking by the Company may be  unenforceable  for
any reason,  the Company shall make the maximum  contribution to the payment and
satisfaction of each of the Indemnified  Liabilities  which is permissible under
applicable  law.  Except  as  otherwise  set forth  herein,  the  mechanics  and
procedures  with respect to the rights and  obligations  under this Section 9(k)
shall be the same as those set forth in  Section  6 of the  Registration  Rights
Agreement.

          (l) No Strict  Construction.  The language used in this Agreement will
be deemed to be the  language  chosen by the  parties  to express  their  mutual
intent, and no rules of strict construction will be applied against any party.

          (m) Remedies.  Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the  Transaction  Documents  and all rights
and  remedies  which such  holders have been granted at any time under any other
agreement  or contract and all of the

                                       32
<PAGE>
rights which such holders have under any law. Any Person having any rights under
any  provision  of this  Agreement  shall be  entitled  to enforce  such  rights
specifically  (without posting a bond or other security),  to recover damages by
reason of any breach of any  provision  of this  Agreement  and to exercise  all
other rights granted by law.  Furthermore,  the Company  recognizes  that in the
event  that  it  fails  to  perform,  observe,  or  discharge  any or all of its
obligations  under this Agreement,  any remedy at law may prove to be inadequate
relief to the Buyers.  The  Company  therefore  agrees that the Buyers  shall be
entitled to seek  temporary  and  permanent  injunctive  relief in any such case
without the necessity of proving  actual  damages and without  posting a bond or
other security.

          (n) Payment Set Aside.  To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other  Transaction
Documents  or  the  Buyers  enforce  or  exercise  their  rights   hereunder  or
thereunder,  and such payment or payments or the proceeds of such enforcement or
exercise  or any part  thereof  are  subsequently  invalidated,  declared  to be
fraudulent  or  preferential,  set aside,  recovered  from,  disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including,  without limitation,  any
bankruptcy  law, state or federal law, common law or equitable cause of action),
then to the  extent  of any such  restoration  the  obligation  or part  thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such  payment had not been made or such  enforcement  or setoff
had not occurred.

          (o)  Independent  Nature  of  Buyers'   Obligations  and  Rights.  The
obligations  of each Buyer under any  Transaction  Document  are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the  performance of the  obligations of any other Buyer under any
Transaction  Document.  Nothing  contained  herein or in any  other  Transaction
Document,  and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to  constitute  the  Buyers as a  partnership,  an  association,  a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such  obligations  or
the transactions  contemplated by the Transaction Documents. Each Buyer confirms
that it has  independently  participated  in the  negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors.  Each Buyer
shall be entitled to  independently  protect and enforce its rights,  including,
without  limitations,  the rights  arising out of this  Agreement  or out of any
other Transaction  Documents,  and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.

          (p)  Heartland  Value Fund.  The Company  understands  and agrees that
Heartland is entering into this  Agreement  solely on behalf of Heartland  Value
Fund and that any claims that the Company may have against Heartland Group, Inc.
under  this   Agreement  or  otherwise  in  connection   wit  the   transactions
contemplated hereby shall only be made against the assets of the Heartland Value
Fund.

                            [Signature Page Follows]

                                       33
<PAGE>
     IN WITNESS WHEREOF,  each Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

COMPANY:                                  BUYERS:
APHTON CORPORATION                        SF CAPITAL PARTNERS LTD.

By: /s/ Philip Gevas                      By: /s/ Brian H. Davidson
   ----------------------------------        ----------------------------------
     Name:    Philip Gevas                   Name:  Brian H. Davidson
     Title:   Chief Executive Officer        Title: Authorized Signatory

                                          HEARTLAND GROUP, INC. solely on behalf
                                          of the Heartland Value Fund

                                          By: /s/ Paul T. Beste
                                             ----------------------------------
                                             Name:  Paul T. Beste
                                             Title: Vice President and
                                                      Secretary

                                          SMITH BARNEY FUNDAMENTAL VALUE
                                          FUND INC.
                                          (NOMINEE NAME:  HORIZON WAVES & CO.)

                                          By: /s/ John G. Goode
                                             ----------------------------------
                                             Name:  John G. Goode
                                             Title: Managing Director
<PAGE>
                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
          (1)                         (2)                   (3)         (4)                     (5)

                                                         Aggregate   Aggregate
                                                            Principal - Principal
                                                            Amount of   Amount of
                                                             Initial    Additional           Legal Representative's
         Buyer           Address and Facsimile Number         Notes       Notes           Address and Facsimile Number

<S>                     <C>                               <C>          <C>              <C>
SF Capital Partners     c/o Staro Asset Management LLC     $5,000,000   $5,000,000        Schulte Roth & Zabel LLP
Ltd.                    3600 South Lake Drive                                             919 Third Avenue
                        St. Francis, Wisconsin 53235                                      New York, New York 10022
                        Attention: Brian Davidson                                         Attention: Eleazer Klein, Esq.
                                    Dan McNally, Esq.                                     Facsimile: (212) 593-5955
                        Facsimile: (414) 294-7700                                         Telephone:  (212) 756-2376
                        Telephone: (414) 294-7000
                        Residence:  BVI

Heartland Group, Inc.   Heartland Group, Inc.              $5,000,000       $0            Quarles & Brady LLP
                        789 North Water Street                                            411 East Wisconsin Avenue
                        Milwaukee, Wisconsin 53202                                        Milwaukee, Wisconsin  53202
                        Attention:  Connie Wick                                           Attention: Charles M. Weber, Esq.
                        Facsimile:  (414) 347-0346                                        Facsimile:  (414) 978-8708
                        Telephone:  (414) 977-8727                                        Telephone:  (414) 277-5107
                        Principal Place of Business: WI
                        Incorporation:  MD

Smith Barney            c/o Davis Skaggs Investment        $5,000,000       $0            Citigroup Asset Management
Fundamental Value Fund  Management                                                        Mutual Funds Legal Department
Inc.                    1 Sansome Street, 36th Floor                                      300 First Stamford Place, 4th Floor
                        San Francisco, CA  94104                                          Stamford, CT  06902
                        Attention:  John G. Goode                                         Attention:  Gordon E. Swartz, Esq.
                        Facsimile:  (415) 984-6606                                        Facsimile:  (203) 890-7068
                        Telephone:  (415) 984-6513                                        Telephone:  (203) 890-7045
</TABLE>

<PAGE>
                                    EXHIBITS

Exhibit A         Form of Initial Notes
Exhibit B         Form of Additional Notes
Exhibit C         Form of Warrants
Exhibit D         Form of Registration Rights Agreement
Exhibit E         Form of Irrevocable Transfer Agent Instructions
Exhibit F         Form of Company Counsel Opinion
Exhibit G         Form of Secretary's Certificate
Exhibit H         Form of Officer's Certificate
Exhibit I         Form of Voting Agreement

                                    SCHEDULES

Schedule 3(l)              Absence of Certain Changes
Schedule 3(r)(i)           Indebtedness and Other Contracts
Schedule 3(r)(ii)          Material Contracts
Schedule 3(w)              Intellectual PropertyREGISTRATION RIGHTS AGREEMENT

          REGISTRATION  RIGHTS AGREEMENT (this  "Agreement"),  dated as of March
31,  2003,  by and  among  Aphton  Corporation,  a  Delaware  corporation,  with
headquarters  located  at  80  SW  Eight  Street,   Miami,  Florida  33130  (the
"Company"),  and the undersigned  buyers (each, a "Buyer" and collectively,  the
"Buyers").

          WHEREAS:

          A. In connection with the Securities  Purchase  Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase  Agreement"),
the  Company has agreed,  upon the terms and  subject to the  conditions  of the
Securities Purchase  Agreement,  to issue and sell to each Buyer (i) convertible
notes of the Company  (the  "Initial  Notes"),  which will be  convertible  into
shares of the Company's  common  stock,  par value $0.001 per share (the "Common
Stock") (as converted,  the "Initial  Conversion Shares") in accordance with the
terms of the Initial  Notes,  and (ii) warrants (the "Initial  Warrants")  which
will  be  exercisable   to  purchase   shares  of  Common  Stock  (as  exercised
collectively, the "Initial Warrant Shares");

          B. In connection with the Securities Purchase Agreement, a Buyer shall
be  required to  purchase  and the Company  shall be required to issue and sell,
upon  the  terms  and  subject  to the  conditions  of the  Securities  Purchase
Agreement,   (i)  additional  convertible  notes  (the  "Additional  Notes"  and
collectively  with the Initial  Notes,  the "Notes"),  which will be convertible
into shares of Common Stock (as converted,  the "Additional  Conversion  Shares"
and collectively with the Initial Conversion Shares, the "Conversion Shares") in
accordance with the terms of the Additional  Notes and (ii) additional  warrants
(the  "Additional  Warrants" and  collectively  with the Initial  Warrants,  the
"Warrants"),  which will be exercisable  to purchase  shares of Common Stock (as
exercised  collectively,  the "Additional  Warrant Shares" and collectively with
the Initial Warrant Shares, the "Warrant Shares"); and

          C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement,  the Company has agreed to provide certain  registration rights under
the  Securities  Act  of  1933,  as  amended,  and  the  rules  and  regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.

          NOW,  THEREFORE,  in  consideration  of the  premises  and the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  the Company and each
of the Buyers hereby agree as follows:

          1. Definitions.

          As used  in  this  Agreement,  the  following  terms  shall  have  the
following meanings:

<PAGE>

               a. "Additional  Registrable  Securities" means (i) the Additional
Conversion  Shares issued or issuable upon  conversion of the Additional  Notes,
(ii) the  Interest  Shares  (as  defined  in the Notes)  issued or  issuable  in
connection with the Additional Notes, (iii) the Additional Warrant Shares issued
or issuable  upon  exercise of the  Additional  Warrants  and (iv) any shares of
capital  stock  issued or issuable  with  respect to the  Additional  Conversion
Shares, the Interest Shares, the Additional Notes, the Additional Warrant Shares
or the  Additional  Warrants  as a result of any stock  split,  stock  dividend,
recapitalization,  exchange or similar event or otherwise, without regard to any
limitations  on  conversions  of Additional  Notes or exercise of the Additional
Warrants.

               b.  "Additional  Registration  Statement"  means  a  registration
statement or  registration  statements  of the Company  filed under the 1933 Act
covering any Additional Registrable Securities.

               c. "Business  Day" means 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.

               d.  "Effectiveness  Deadline"  means  the  Initial  Effectiveness
Deadline  (as  defined  below) and the  Additional  Effectiveness  Deadline  (as
defined below), as applicable.

               e.  "Filing  Deadline"  means the  Initial  Filing  Deadline  (as
defined  below) and the  Additional  Filing  Deadline  (as  defined  below),  as
applicable.

               f. "Investor"  means a Buyer,  any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this  Agreement in accordance  with Section 9 and any
transferee  or assignee  thereof to whom a  transferee  or assignee  assigns its
rights under this  Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

               g.  "Initial  Registrable   Securities"  means  (i)  the  Initial
Conversion  Shares issued or issuable upon conversion of the Initial Notes, (ii)
the  Initial  Warrant  Shares  issued or issuable  upon  exercise of the Initial
Warrants,  (iii) the Interest  Shares issued or issuable in connection  with the
Initial  Notes and (iv) any  shares of capital  stock  issued or  issuable  with
respect to the Initial  Conversion  Shares,  the  Initial  Notes,  the  Interest
Shares,  the Initial  Warrant Shares or the Initial  Warrants as a result of any
stock split,  stock  dividend,  recapitalization,  exchange or similar  event or
otherwise, without regard to any limitations on conversions of the Initial Notes
or exercises of the Initial Warrants.

               h.  "Initial   Registration   Statement"   means  a  registration
statement or  registration  statements  of the Company  filed under the 1933 Act
covering the Initial Registrable Securities.

                                      -2-
<PAGE>

               i. "Person" means an individual,  a limited liability  company, a
partnership,  a  joint  venture,  a  corporation,  a  trust,  an  unincorporated
organization and governmental authority or any department or agency thereof.

               j.  "register,"  "registered,"  and  "registration"  refer  to  a
registration   effected  by  preparing  and  filing  one  or  more  Registration
Statements  (as defined  below) in compliance  with the 1933 Act and pursuant to
Rule 415  under  the 1933  Act or any  successor  rule  providing  for  offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

               k.  "Registrable   Securities"  means  the  Initial   Registrable
Securities and the Additional Registrable Securities.

               l.  "Registration   Statement"  means  the  Initial  Registration
Statement and the Additional Registration Statement(s).

          Capitalized  terms used herein and not otherwise  defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.

          2. Registration.

               a. Initial Mandatory Registration. The Company shall prepare,
and, as soon as practicable but in no event later than June 5, 2003 (the
"Initial Filing Deadline"), file with the SEC the Registration Statement on Form
S-3 covering the resale of all of the Initial Registrable Securities. In the
event that Form S-3 is unavailable for such a registration, the Company shall
use such other form as is available for such a registration, subject to the
provisions of Section 2(e). The Initial Registration Statement prepared pursuant
hereto shall register for resale at least 13,650,000 shares of Common Stock. The
Initial Registration Statement shall contain (except as otherwise directed by
the Holders) the "Plan of Distribution" attached hereto as Exhibit B. The
Company shall use its best efforts to have the Initial Registration Statement
declared effective by the

                                      -3-
<PAGE>

SEC as soon as  practicable,  but in no event  later  than  August  1, 2003 (the
"Initial Effectiveness Deadline").

               b. Additional Mandatory Registration.  The Company shall prepare,
and,  as soon as  practicable  but in no  event  later  than 15 days  after  the
Additional Closing Date (the "Additional Filing Deadline"), file with the SEC an
Additional  Registration Statement on Form S-3 covering the resale of all of the
Additional Registrable Securities. In the event that Form S-3 is unavailable for
such a  registration,  the Company shall use such other form as is available for
such a  registration,  subject to the provisions of Section 2(e). The Additional
Registration  Statement  prepared  pursuant  hereto shall register for resale at
least  the  product  of (i) 1.5 and (ii) the  number of  Additional  Registrable
Securities as of the trading day  immediately  preceding the date the Additional
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 2(f). The Additional  Registration  Statement  shall contain
(except  as  otherwise  directed  by the  Holders)  the  "Plan of  Distribution"
attached hereto as Exhibit B. The Company shall use its best efforts to have the
Additional  Registration  Statement  declared  effective  by the  SEC as soon as
practicable,  but in no event  later  than the date  which is 90 days  after the
Additional Closing Date (the "Additional Effectiveness Deadline").

               c.  Allocation of Registrable  Securities.  The initial number of
Registrable  Securities included in any Registration Statement and each increase
in the number of Registrable  Securities included therein shall be allocated pro
rata among the Investors  based on the number of Registrable  Securities held by
each  Investor at the time the  Registration  Statement  covering  such  initial
number of Registrable  Securities or increase  thereof is declared  effective by
the SEC. In the event that an Investor sells or otherwise  transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable  Securities included in such
Registration Statement for such transferor.  Any shares of Common Stock included
in a  Registration  Statement  and which  remain  allocated  to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining  Investors,  pro rata based on the number of
Registrable  Securities  then held by such  Investors  which are covered by such
Registration  Statement.  In no event shall the Company  include any  securities
other than  Registrable  Securities on any  Registration  Statement  without the
prior written  consent of Buyers holding at least  two-thirds of the Registrable
Securities   other  than   securities   held  on  the  date  hereof  by  Aventis
Pharmaceuticals, Inc. and Mainfield Enterprises Inc.

               d. Legal Counsel.  Subject to Section 5 hereof, legal counsel for
one of the Buyers  shall have the right to review and oversee  any  registration
pursuant to this  Section 2 ("Legal  Counsel"),  which  shall be Schulte  Roth &
Zabel LLP. The Company and Legal Counsel shall  reasonably  cooperate  with each
other in performing the Company's obligations under this Agreement.

               e. Ineligibility for Form S-3. The Company  represents,  warrants
and  covenants  that it  meets  the  requirements  for  the use of Form  S-3 for
registration of the sale by the Buyers and any other Investor of the Registrable
Securities  and the Company has filed and shall file all reports  required to be
filed by the  Company  with  the SEC in a  timely  manner  so as to  obtain  and
maintain such eligibility for the use of Form S-3. In the event that Form S-3 is
not  available  for the  registration  of the resale of  Registrable  Securities
hereunder,  the  Company  shall  (i)  register  the  resale  of the  Registrable
Securities on another  appropriate form reasonably  acceptable to the holders of
at least two-thirds of the Registrable Securities and (ii) undertake to register
the  Registrable  Securities  on Form  S-3 as soon  as such  form is  available,
provided that the Company shall maintain the  effectiveness  of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.

               f.  Sufficient  Number  of  Shares  Registered.  In the event the
number of shares  available  under a  Registration  Statement  filed pursuant to
Section 2(a) or 2(b) is insufficient to cover all of the Registrable  Securities
required to be covered by such Registration Statement or an Investor's allocated
portion of the  Registrable  Securities  pursuant to Section  2(c),  the Company
shall amend the applicable  Registration  Statement,  or file a new Registration
Statement (on the short form available therefor, if applicable),  or both, so as
to cover at least 150% of the number of such  Registrable  Securities  as of the
trading day  immediately  preceding the date of the filing of such  amendment or
new Registration Statement, in each case, as soon as

                                      -4-
<PAGE>

practicable,  but in any event  not  later  than  fifteen  (15)  days  after the
necessity  therefor arises. The Company shall use its best efforts to cause such
amendment  and/or new  Registration  Statement  to become  effective  as soon as
practicable  following  the  filing  thereof.  For  purposes  of  the  foregoing
provision,  the number of shares available under a Registration  Statement shall
be deemed  "insufficient  to cover all of the Registrable  Securities" if at any
time the number of Registrable  Securities issued or issuable upon conversion of
the  Notes  and  upon  exercise  of  the  Warrants,  if  any,  covered  by  such
Registration  Statement is less than the product  determined by multiplying  (i)
the number of Registrable Securities covered by such Registration  Statement, by
(ii) 1.3. The  calculation  set forth in the  foregoing  sentence  shall be made
without regard to any limitations on the conversion of the Notes or the exercise
of the  Warrants  and such  calculation  shall  assume  that the  Notes  and the
Warrants are then convertible into and exercisable for, as applicable, shares of
Common Stock and the maximum  number of Interest  Shares under the Notes will be
issued,  assuming the initial outstanding  principal amount of the Notes remains
outstanding  through the scheduled  maturity date and assuming no conversions or
redemptions  of the Notes  prior to the  scheduled  maturity  date,  at the then
prevailing Interest Conversion Price (as defined in the Notes),  Conversion Rate
(as  defined  in the  Notes)  or  Warrant  Exercise  Price  (as  defined  in the
Warrants), as applicable.

               g.   Effect  of  Failure   to  File  and   Obtain  and   Maintain
Effectiveness  of  Registration  Statement.  If  (i)  a  Registration  Statement
covering  all the  Registrable  Securities  required  to be covered  thereby and
required to be filed by the Company  pursuant to this Agreement is (A) not filed
with the SEC on or before the  respective  Filing  Deadline or (B) not  declared
effective by the SEC on or before the respective  Effectiveness Deadline or (ii)
on any day after such Registration  Statement has been declared effective by the
SEC,  sales of all the  Registrable  Securities  required to be included on such
Registration  Statement  cannot be made (other than  during an  Allowable  Grace
Period (as  defined in Section  3(q))  pursuant to such  Registration  Statement
(including,  without limitation,  because of a failure to keep such Registration
Statement  effective,  to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient shares
of Common Stock)  (collectively  the  "Registration  Delays"),  then, as partial
relief for the  damages to any holder by reason of any such  Registration  Delay
(which remedy shall not be exclusive of any other  remedies  available at law or
in  equity),  the  Company  shall pay to each  holder of Notes  relating to such
Registration  Statement  an  amount  in cash  equal  to the  product  of (i) the
aggregate  Principal  (as such term is defined in the  Notes)  convertible  into
Conversion  Shares  included in such  Registration  Statement of such Investor's
Notes  multiplied  by (ii) the  product  of (I) .00033 for the first 30 days and
..00067 for all  subsequent  days  multiplied by (II) the number of days, in each
instance,  after the Registration  Statement has been declared  effective by the
SEC that such  Registration  Statement  is not  available  (other than during an
Allowable Grace Period) for the sale of all the Registrable  Securities required
to be included on such  Registration  Statement.  The payments to which a holder
shall be  entitled  pursuant  to this  Section  2(g) are  referred  to herein as
"Registration Delay Payments."  Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration
Delay  Payments are incurred and (II) the third  Business Day after the event or
failure giving rise to the  Registration  Delay Payments is cured.  In the event
the Company fails to make Registration  Delay Payments in a timely manner,  such
Registration  Delay  Payments  shall bear interest at the rate of 1.5% per month
(prorated  for partial  months)  until paid in full.  If,  after the cure of all
Registration Delays then in effect, there is a subsequent  Registration Delay, a
rate of .00033 will be used to compute the Registration

                                      -5-
<PAGE>

Delay Payment for the first 30 days of the Registration Delay, regardless of the
rate in effect with respect to any prior  Registration Delay at the time of cure
of such Registration Delay.

          3. Related Obligations.

          At such  time  as the  Company  is  obligated  to file a  Registration
Statement with the SEC pursuant to Section 2(a), 2(b), 2(e) or 2(f), the Company
will  use its  best  efforts  to  effect  the  registration  of the  Registrable
Securities in accordance  with the intended  method of disposition  thereof and,
pursuant thereto, the Company shall have the following obligations:

               a. The Company  shall submit to the SEC,  within two (2) Business
Days  after the  Company  learns  that no review  of a  particular  Registration
Statement  will be made by the staff of the SEC or that the staff has no further
comments on a particular  Registration  Statement, as the case may be, a request
for acceleration of effectiveness of such  Registration  Statement to a time and
date not later than 48 hours after the  submission of such request.  The Company
shall keep each  Registration  Statement  effective  pursuant to Rule 415 at all
times until the earlier of (i) the date as of which the  Investors  may sell all
of the Registrable  Securities  covered by such  Registration  Statement without
restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the
1933 Act or (ii)  the  date on  which  the  Investors  shall  have  sold all the
Registrable Securities covered by such Registration Statement (the "Registration
Period").  The Company shall ensure that each Registration  Statement (including
any amendments or supplements thereto and prospectuses  contained therein) shall
not contain any untrue  statement of a material fact or omit to state a material
fact required to be stated therein,  or necessary to make the statements therein
(in the case of  prospectuses,  in the light of the  circumstances in which they
were made) not misleading.

               b.  The  Company  shall  prepare  and  file  with  the  SEC  such
amendments   (including   post-effective   amendments)   and  supplements  to  a
Registration   Statement  and  the  prospectus  used  in  connection  with  such
Registration  Statement,  which  prospectus is to be filed  pursuant to Rule 424
promulgated  under the 1933 Act, as may be necessary  to keep such  Registration
Statement  effective at all times during the  Registration  Period,  and, during
such  period,  comply with the  provisions  of the 1933 Act with  respect to the
disposition  of all  Registrable  Securities  of the  Company  covered  by  such
Registration  Statement  until such time as all of such  Registrable  Securities
shall  have  been  disposed  of in  accordance  with  the  intended  methods  of
disposition by the seller or sellers  thereof as set forth in such  Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company  filing a report on Form 10-K,  Form
10-Q or Form 8-K or any analogous  report under the  Securities  Exchange Act of
1934,  as amended (the "1934 Act"),  the Company  shall have  incorporated  such
report by reference into such Registration  Statement,  if applicable,  or shall
file such  amendments or  supplements  with the SEC on the same day on which the
1934 Act report is filed which created the  requirement for the Company to amend
or supplement such Registration Statement.

               c. The  Company  shall (A)  permit  Legal  Counsel  to review and
comment upon (i) a Registration  Statement at least five (5) Business Days prior
to its  filing  with the SEC and  (ii) all  amendments  and  supplements  to all
Registration  Statements  (except  for

                                      -6-
<PAGE>

Annual Reports on Form 10-K,  Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K and any similar or successor  reports) within a reasonable number of
days  prior to their  filing  with  the SEC,  and (B) not file any  Registration
Statement or amendment or  supplement  thereto in a form to which Legal  Counsel
reasonably  objects.  The Company shall not submit a request for acceleration of
the  effectiveness  of a  Registration  Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel,  which consent shall not be
unreasonably  withheld.  The Company  shall  furnish to Legal  Counsel,  without
charge, (i) copies of any correspondence from the SEC or the staff of the SEC to
the Company or its representatives relating to any Registration Statement,  (ii)
promptly  after the same is  prepared  and filed  with the SEC,  one copy of any
Registration  Statement  and  any  amendment(s)  thereto,   including  financial
statements and schedules,  all documents  incorporated therein by reference,  if
requested by an Investor,  and all exhibits and (iii) upon the  effectiveness of
any  Registration  Statement,  one  copy  of the  prospectus  included  in  such
Registration  Statement and all amendments and supplements  thereto. The Company
shall  reasonably  cooperate  with Legal  Counsel in  performing  the  Company's
obligations pursuant to this Section 3.

               d. The Company shall furnish to each Investor  whose  Registrable
Securities  are included in any  Registration  Statement,  without  charge,  (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration  Statement and any amendment(s)  thereto,  including financial
statements and schedules,  all documents  incorporated therein by reference,  if
requested by an Investor,  all exhibits and each  preliminary  prospectus,  (ii)
upon the  effectiveness  of any Registration  Statement,  ten (10) copies of the
prospectus  included  in such  Registration  Statement  and all  amendments  and
supplements  thereto  (or such  other  number  of copies  as such  Investor  may
reasonably  request)  and (iii) such other  documents,  including  copies of any
preliminary or final  prospectus,  as such Investor may reasonably  request from
time  to  time  in  order  to  facilitate  the  disposition  of the  Registrable
Securities owned by such Investor.

               e. The Company  shall use its best  efforts to (i)  register  and
qualify,  unless an exemption from registration and qualification  applies,  the
resale by  Investors of the  Registrable  Securities  covered by a  Registration
Statement  under such  other  securities  or "blue  sky" laws of all  applicable
jurisdictions   in  the  United   States,   (ii)   prepare  and  file  in  those
jurisdictions,   such  amendments  (including  post-effective   amendments)  and
supplements  to such  registrations  and  qualifications  as may be necessary to
maintain the effectiveness  thereof during the Registration  Period,  (iii) take
such other  actions as may be  necessary  to  maintain  such  registrations  and
qualifications in effect at all times during the Registration  Period,  and (iv)
take all  other  actions  reasonably  necessary  or  advisable  to  qualify  the
Registrable Securities for sale in such jurisdictions;  provided,  however, that
the  Company  shall not be required in  connection  therewith  or as a condition
thereto to (x)  qualify to do business  in any  jurisdiction  where it would not
otherwise be required to qualify but for this Section 3(e),  (y) subject  itself
to general taxation in any such  jurisdiction,  or (z) file a general consent to
service of process in any such  jurisdiction.  The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable  Securities of the receipt
by the  Company  of any  notification  with  respect  to the  suspension  of the
registration  or  qualification  of any of the  Registrable  Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its  receipt  of  actual  notice  of the  initiation  or  threatening  of any
proceeding for such purpose.

                                      -7-
<PAGE>

               f. The Company  shall notify Legal  Counsel and each  Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware  of such  event,  as a  result  of  which  the  prospectus  included  in a
Registration  Statement,  as then in effect,  includes an untrue  statement of a
material fact or omission to state a 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  (provided  that in no event  shall such
notice contain any material,  nonpublic  information),  and,  subject to Section
3(q), promptly prepare a supplement or amendment to such Registration  Statement
to correct such untrue  statement  or  omission,  and deliver ten (10) copies of
such  supplement  or amendment to Legal Counsel and each Investor (or such other
number of copies as Legal Counsel or such Investor may reasonably request).  The
Company  shall also  promptly  notify Legal Counsel and each Investor in writing
(i) when a prospectus or any prospectus  supplement or post-effective  amendment
has  been  filed,  and  when a  Registration  Statement  or  any  post-effective
amendment has become  effective  (notification  of such  effectiveness  shall be
delivered  to Legal  Counsel and each  Investor by  facsimile on the same day of
such  effectiveness  and by overnight mail),  (ii) of any request by the SEC for
amendments or supplements to a Registration  Statement or related  prospectus or
related information,  and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

               g. The Company shall use its best efforts to prevent the issuance
of any  stop  order or  other  suspension  of  effectiveness  of a  Registration
Statement,  or the  suspension of the  qualification  of any of the  Registrable
Securities for sale in any  jurisdiction  and, if such an order or suspension is
issued,  to obtain the  withdrawal  of such order or  suspension at the earliest
possible  moment  and to  notify  Legal  Counsel  and each  Investor  who  holds
Registrable  Securities  being  sold  of the  issuance  of  such  order  and the
resolution  thereof or its receipt of actual notice of the  initiation or threat
of any proceeding for such purpose.

               h. The Company shall make available for inspection  during normal
business  hours and upon 2 Business  Days prior notice by (i) any Investor  (ii)
Legal Counsel and (iii) one firm of accountants or other agents  retained by the
Investors  (collectively,  the "Inspectors"),  all pertinent financial and other
records,  and  pertinent  corporate  documents  and  properties  of the  Company
(collectively,  the "Records"),  as shall be reasonably deemed necessary by each
Inspector,  and cause the Company's officers,  directors and employees to supply
all information which any Inspector may reasonably request;  provided,  however,
that each Inspector shall agree to hold in strict  confidence and shall not make
any disclosure (except to an Investor) or use of any Record or other information
which the  Company  determines  in good faith to be  confidential,  and of which
determination the Inspectors are so notified,  unless (a) the disclosure of such
Records is  necessary  to avoid or correct a  misstatement  or  omission  in any
Registration  Statement  or is  otherwise  required  under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final,  non-appealable subpoena
or order from a court or government body of competent  jurisdiction,  or (c) the
information  in such  Records has been made  generally  available  to the public
other than by  disclosure  in violation of this or any other  agreement of which
the Inspector has knowledge.  Each Investor agrees that it shall,  upon learning
that disclosure of such Records is sought in or by a court or governmental  body
of competent  jurisdiction or through other means, give prompt written notice to
the Company and allow the  Company,  at its expense,  to  undertake  appropriate
action to  prevent  disclosure  of, or to obtain a  protective  order  for,  the
Records deemed  confidential.  Nothing  herein (or in any other

                                      -8-
<PAGE>

confidentiality  agreement between the Company and any Investor) shall be deemed
to limit the Investors' ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.

               i.  The  Company  shall  hold  in  confidence  and not  make  any
disclosure of information  concerning an Investor provided to the Company unless
(i) disclosure of such  information is necessary to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant to a subpoena or other final,
non-appealable   order  from  a  court  or   governmental   body  of   competent
jurisdiction,  or (iv) such information has been made generally available to the
public other than by  disclosure  in  violation  of this  Agreement or any other
agreement.  The Company agrees that it shall,  upon learning that  disclosure of
such  information  concerning  an  Investor  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
written  notice to such  Investor  and allow such  Investor,  at the  Investor's
expense, to undertake  appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

               j. The Company shall use its best efforts either to (i) cause all
the Registrable  Securities covered by a Registration  Statement to be listed on
each securities  exchange on which securities of the same class or series issued
by the Company  are then  listed,  if any,  if the  listing of such  Registrable
Securities is then permitted  under the rules of such  exchange,  or (ii) secure
designation  and  quotation  of all  the  Registrable  Securities  covered  by a
Registration  Statement on The NASDAQ National Market,  or (iii) if, despite the
Company's best efforts to satisfy the preceding  clause (i) or (ii), the Company
is  unsuccessful  in satisfying the preceding  clause (i) or (ii), to secure the
inclusion  for  quotation  on The NASDAQ  SmallCap  Market for such  Registrable
Securities.  The  Company  shall pay all fees and  expenses in  connection  with
satisfying its obligation under this Section 3(j).

               k.  The  Company  shall  cooperate  with the  Investors  who hold
Registrable  Securities being offered and, to the extent applicable,  facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend)  representing  the  Registrable  Securities to be offered  pursuant to a
Registration  Statement and enable such certificates to be in such denominations
or amounts,  as the case may be, as the  Investors  may  reasonably  request and
registered in such names as the Investors may request.

               l. If requested by an Investor,  the Company shall (i) as soon as
practicable  incorporate in a prospectus supplement or post-effective  amendment
such  information  as an Investor  reasonably  requests  to be included  therein
relating to the sale and  distribution  of  Registrable  Securities,  including,
without  limitation,  information  with  respect  to the  number of  Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the  offering of the  Registrable  Securities  to be sold in such
offering;  (ii)  as  soon as  practicable  make  all  required  filings  of such
prospectus  supplement or  post-effective  amendment after being notified of the
matters to be  incorporated  in such  prospectus  supplement  or  post-effective
amendment;  and (iii) as soon as  practicable,  supplement or make amendments to
any  Registration  Statement if reasonably  requested by an Investor holding any
Registrable Securities.

                                      -9-
<PAGE>

               m.  The  Company   shall  use  its  best  efforts  to  cause  the
Registrable Securities covered by a Registration Statement to be registered with
or  approved  by such  other  governmental  agencies  or  authorities  as may be
necessary to consummate the disposition of such Registrable Securities.

               n. The Company  shall make  generally  available  to its security
holders as soon as  practicable,  but not later than  ninety (90) days after the
close of the period covered  thereby,  an earnings  statement (in form complying
with,  and in the manner  provided by, the provisions of Rule 158 under the 1933
Act) covering a  twelve-month  period  beginning not later than the first day of
the Company's fiscal quarter next following the effective date of a Registration
Statement.

               o. The Company  shall  otherwise  use its best  efforts to comply
with all  applicable  rules and  regulations  of the SEC in connection  with any
registration hereunder.

               p. Within two (2) Business  Days after a  Registration  Statement
which covers Registrable Securities is ordered effective by the SEC, the Company
shall deliver,  and shall cause legal counsel for the Company to deliver, to the
transfer  agent for such  Registrable  Securities  (with copies to the Investors
whose  Registrable  Securities  are  included  in such  Registration  Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

               q.  Notwithstanding  anything to the contrary herein, at any time
after the  Registration  Statement has been  declared  effective by the SEC, the
Company may delay the disclosure of material non-public  information  concerning
the  Company  the  disclosure  of which at the  time is not,  in the good  faith
opinion of the Board of Directors of the  Company,  in the best  interest of the
Company and otherwise  required (a "Grace Period");  provided,  that the Company
shall  promptly (i) notify the Investors in writing of the existence of material
non-public  information  giving rise to a Grace  Period  (provided  that in each
notice the Company  will not disclose  the content of such  material  non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the  Investors  in writing of the date on which the Grace Period
ends;  and,  provided  further,  that no Grace Period  shall exceed  twenty (20)
consecutive  days and during any three  hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of sixty (60) days and the first day
of any Grace Period must be at least two (2) Business Days after the last day of
any prior Grace Period (each,  an  "Allowable  Grace  Period").  For purposes of
determining the length of a Grace Period above,  the Grace Period shall begin on
and include the date the Investors  receive the notice referred to in clause (i)
and shall end on and  include  the later of the date the  Investors  receive the
notice  referred to in clause (ii) and the date referred to in such notice.  The
provisions of Section 3(f) hereof shall not be  applicable  during the period of
any Allowable  Grace Period.  Upon  expiration of the Grace Period,  the Company
shall again be bound by the first  sentence of Section  3(f) with respect to the
information giving rise thereto unless such material  non-public  information is
no longer  applicable.  Notwithstanding  anything to the  contrary,  the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee  of an  Investor  in  accordance  with the  terms  of the  Securities
Purchase  Agreement in connection  with any sale of Registrable  Securities with
respect to which an Investor has entered into a contract for sale, and delivered
a

                                      -10-
<PAGE>

copy  of  the  prospectus  included  as  part  of  the  applicable  Registration
Statement,  prior to the Investor's  receipt of the notice of a Grace Period and
for which the Investor has not yet settled.

          4. Obligations Of The Investors.

               a.  At  least  seven  (7)  Business   Days  prior  to  the  first
anticipated  filing date of a Registration  Statement,  the Company shall notify
each Investor in writing of the information the Company  requires from each such
Investor  unless  such  Investor  elects  not to  have  any of  such  Investor's
Registrable  Securities included in such Registration  Statement.  It shall be a
condition   precedent  to  the  obligations  of  the  Company  to  complete  the
registration  pursuant  to  this  Agreement  with  respect  to  the  Registrable
Securities  of a particular  Investor  that such  Investor  shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable  Securities held by it
as shall be reasonably  required to effect the effectiveness of the registration
of such  Registrable  Securities  and shall execute such documents in connection
with such registration as the Company may reasonably request.

               b.  Each  Investor,   by  such   Investor's   acceptance  of  the
Registrable  Securities,  agrees to  cooperate  with the  Company as  reasonably
requested by the Company in connection  with the  preparation  and filing of any
Registration Statement hereunder,  unless such Investor has notified the Company
in  writing  of such  Investor's  election  to  exclude  all of such  Investor's
Registrable Securities from such Registration Statement.

               c. Each Investor agrees that, upon receipt of any notice from the
Company of the  happening of any event of the kind  described in Section 3(g) or
the first sentence of Section 3(f), such Investor will  immediately  discontinue
disposition of Registrable Securities pursuant to any Registration  Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the  supplemented or amended  prospectus  contemplated by Section 3(g) or the
first  sentence  of  Section  3(f) or receipt of notice  that no  supplement  or
amendment is required.  Notwithstanding  anything to the  contrary,  the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee  of an  Investor  in  accordance  with the  terms  of the  Securities
Purchase  Agreement in connection  with any sale of Registrable  Securities with
respect to which an Investor  has entered  into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(g) or the first sentence of Section 3(f) and for
which the Investor has not yet settled.

          5. Expenses Of Registration.

          All  reasonable  expenses,   other  than  underwriting  discounts  and
commissions,   incurred   in   connection   with   registrations,   filings   or
qualifications pursuant to Sections 2 and 3, including,  without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and  disbursements of counsel for the Company shall be paid by the Company.
The Company  shall also  reimburse the  Investors  for the  reasonable  fees and
disbursements  of Legal  Counsel  in  connection  with  registration,  filing or
qualification  pursuant to Sections 2 and 3 of this Agreement which amount shall
be limited to $10,000 for the Initial Registration Statement and $5,000 for each
Additional Registration Statement.

                                      -11-
<PAGE>

          6. Indemnification.

          In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

               a. To the fullest extent  permitted by law, the Company will, and
hereby does, indemnify,  hold harmless and defend each Investor,  the directors,
officers, partners,  employees, agents,  representatives of, and each Person, if
any, who controls any Investor  within the meaning of Section 15 of the 1933 Act
or Section 20(a) of the 1934 Act (each,  an "Indemnified  Person"),  against any
losses, claims, damages,  liabilities,  judgments,  fines,  penalties,  charges,
costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint
or several,  (collectively,  "Claims")  incurred in investigating,  preparing or
defending any action, claim, suit, inquiry, proceeding,  investigation or appeal
taken from the foregoing by or before any court or governmental,  administrative
or other  regulatory  agency,  body or the SEC,  whether  pending or threatened,
whether or not an indemnified  party is or may be a party thereto  ("Indemnified
Damages"),  to which any of them may become  subject  insofar as such Claims (or
actions or proceedings,  whether  commenced or threatened,  in respect  thereof)
arise out of or are based  upon:  (i) any untrue  statement  or  alleged  untrue
statement of a material fact in a Registration  Statement or any  post-effective
amendment  thereto or in any filing made in connection with the qualification of
the offering under the  securities or other "blue sky" laws of any  jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the omission
or alleged  omission to state a material fact  required to be stated  therein or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements  therein were made,  not  misleading,  (iii) any violation or alleged
violation  by the  Company  of the  1933  Act,  the 1934  Act,  any  other  law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  pursuant to a Registration  Statement or (iv) any material violation
of this Agreement (the matters in the foregoing  clauses (i) through (iv) being,
collectively, "Violations").  Notwithstanding anything to the contrary contained
herein, the indemnification  agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an  Indemnified  Person  arising  out of or based upon a
Violation  which  occurs in reliance  upon and in  conformity  with  information
furnished  in  writing  to the  Company  by such  Indemnified  Person  for  such
Indemnified  Person  expressly for use in connection with the preparation of the
Registration  Statement or any such amendment thereof or supplement  thereto, if
such  prospectus  was timely made  available by the Company  pursuant to Section
3(d);  (ii) with respect to any preliminary  prospectus,  shall not inure to the
benefit  of any such  person  from  whom the  person  asserting  any such  Claim
purchased the  Registrable  Securities  that are the subject  thereof (or to the
benefit of any person  controlling  such  person)  if the  untrue  statement  or
omission of material fact contained in the preliminary  prospectus was corrected
in the  prospectus,  as then amended or  supplemented,  if such  prospectus  was
timely  made  available  by the  Company  pursuant  to  Section  3(d),  and  the
Indemnified  Person was  promptly  advised in writing  not to use the  incorrect
prospectus  prior to the use giving  rise to a  violation  and such  Indemnified
Person,  notwithstanding  such advice,  used it or failed to deliver

                                      -12-
<PAGE>

the correct  prospectus as required by the 1933 Act and such correct  prospectus
was timely made available pursuant to Section 3(d); (iii) shall not be available
to the extent such Claim is based on a failure of the  Investor to deliver or to
cause to be delivered the prospectus made available by the Company,  including a
corrected prospectus, if such prospectus or corrected prospectus was timely made
available by the Company  pursuant to Section 3(d);  and (iv) shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  the  Company,   which  consent  shall  not  be
unreasonably  withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any  investigation  made by or on behalf of the Indemnified
Person and shall  survive the  transfer  of the  Registrable  Securities  by the
Investors pursuant to Section 9.

               b. In  connection  with any  Registration  Statement  in which an
Investor  is  participating,  each such  Investor  agrees to  severally  and not
jointly indemnify,  hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the  Registration  Statement and each Person,  if any,
who  controls  the  Company  within the meaning of Section 15 of the 1933 Act or
Section 20(a) of the 1934 Act (each, an "Indemnified Party"),  against any Claim
or Indemnified  Damages to which any of them may become subject,  under the 1933
Act, the 1934 Act or  otherwise,  insofar as such Claim or  Indemnified  Damages
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 to the Company by such Investor
expressly for use in  connection  with such  Registration  Statement or any such
amendment  thereof or supplement  thereto;  and,  subject to Section 6(c),  such
Investor will promptly reimburse any legal or other expenses reasonably incurred
by an Indemnified  Party in connection with  investigating or defending any such
Claim; provided, however, that the indemnity agreement contained in this Section
6(b) and the agreement with respect to contribution contained in Section 7 shall
not apply to  amounts  paid in  settlement  of any Claim if such  settlement  is
effected without the prior written consent of such Investor, which consent shall
not be unreasonably withheld or delayed;  provided,  further,  however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such Investor as a
result  of the sale of  Registrable  Securities  pursuant  to such  Registration
Statement.  Such indemnity  shall remain in full force and effect  regardless of
any  investigation  made by or on  behalf  of such  Indemnified  Party and shall
survive the transfer of the Registrable  Securities by the Investors pursuant to
Section 9.  Notwithstanding  anything  to the  contrary  contained  herein,  the
indemnification  agreement  contained  in this  Section 6(b) with respect to any
preliminary  prospectus shall not inure to the benefit of any Indemnified  Party
if  the  untrue  statement  or  omission  of  material  fact  contained  in  the
preliminary  prospectus  was corrected on a timely basis in the  prospectus,  as
then amended or supplemented.

               c. Promptly after receipt by an Indemnified Person or Indemnified
Party  under  this  Section  6 of notice of the  commencement  of any  action or
proceeding  (including any governmental action or proceeding) involving a Claim,
such  Indemnified  Person or  Indemnified  Party  shall,  if a Claim in  respect
thereof is to be made  against  any  indemnifying  party  under this  Section 6,
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

                                      -13-
<PAGE>

noticed,  to  assume  control  of the  defense  thereof  with  counsel  mutually
satisfactory  to the  indemnifying  party  and  the  Indemnified  Person  or the
Indemnified  Party, as the case may be; provided,  however,  that an Indemnified
Person or Indemnified  Party shall have the right to retain its own counsel with
the fees and expenses of not more than one counsel for such  Indemnified  Person
or Indemnified Party to be paid by the indemnifying party, if, in the reasonable
opinion of the Indemnified  Person or Indemnifying  Party, the representation by
such counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be  inappropriate  due to actual or  potential  differing  interests
between  such  Indemnified  Person or  Indemnified  Party  and any  other  party
represented  by such counsel in such  proceeding.  In the case of an Indemnified
Person, legal counsel referred to in the immediately preceding sentence shall be
selected  by the  Investors  holding  at least  two-thirds  in  interest  of the
Registrable Securities included in the Registration Statement to which the Claim
relates.  The Indemnified Party or Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying  party and shall furnish to the indemnifying
party  all  information   reasonably  available  to  the  Indemnified  Party  or
Indemnified Person which relates to such action or Claim. The indemnifying party
shall keep the  Indemnified  Party or  Indemnified  Person fully apprised at all
times as to the  status  of the  defense  or any  settlement  negotiations  with
respect thereto. No indemnifying party shall be liable for any settlement of any
action,  claim  or  proceeding  effected  without  its  prior  written  consent,
provided,  however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent.  No indemnifying party shall,  without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other  compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified  Person of a release from all liability
in respect to such Claim or litigation.  Following  indemnification  as provided
for hereunder,  the indemnifying  party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations  relating to the matter for which indemnification has been made.
The  failure  to  deliver  written  notice to the  indemnifying  party  within a
reasonable  time of the  commencement  of any such action shall not relieve such
indemnifying  party of any liability to the  Indemnified  Person or  Indemnified
Party under this Section 6, except to the extent that the indemnifying  party is
prejudiced in its ability to defend such action.

               d. The  indemnification  required by this Section 6 shall be made
by  periodic   payments  of  the  amount   thereof  during  the  course  of  the
investigation or defense,  as and when bills are received or Indemnified Damages
are incurred.

               e. The indemnity agreements contained herein shall be in addition
to (i) any  cause  of  action  or  similar  right  of the  Indemnified  Party or
Indemnified  Person  against  the  indemnifying  party or  others,  and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

          7. Contribution.  To the extent any indemnification by an indemnifying
party is prohibited or limited by law, then each indemnifying  party, in lieu of
indemnifying such Indemnified  Person or Indemnified  Party, shall contribute to
the amount paid or payable by such Indemnified  Person or Indemnified Party as a
result of such  Losses,  in such  proportion  as is  appropriate  to reflect the
relative  fault  of  the

                                      -14-
<PAGE>

indemnifying party and the Indemnified Person or Indemnified Party in connection
with the  actions,  statements  or  omissions  that  resulted  in such  Claim or
Indemnified Damages as well as any other relevant equitable considerations.  The
relative  fault of such  indemnifying  party  and  such  Indemnified  Person  or
Indemnified  Party shall be  determined  by reference  to,  among other  things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged  omission of a material fact, has been
taken or made by, or relates to information supplied by, such indemnifying party
or such  Indemnified  Person or  Indemnified  Party,  and the parties'  relative
intent,  knowledge,  access to information and opportunity to correct or prevent
such action,  statement or omission.  The amount paid or payable by a party as a
result of any Claim or  Indemnified  Damages  shall be  deemed  to  include  any
reasonable  attorneys'  or other  reasonable  fees or expenses  incurred by such
party in  connection  with any Claim to the extent  such  party  would have been
indemnified  for such fees or expenses if the  indemnification  provided  for in
this Section was available to such party in accordance with its terms.

          The parties  hereto  agree that it would not be just and  equitable if
contribution  pursuant to this Section 7 were  determined by pro rata allocation
or by any  other  method of  allocation  that  does not take  into  account  the
equitable  considerations  referred to in the immediately  preceding  paragraph.
Notwithstanding  the provisions of this Section 7, contribution by any seller of
Registrable  Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such  Registration  Statement.  No person  involved  in the sale of  Registrable
Securities  which person is guilty of fraudulent  misrepresentation  (within the
meaning of Section 11(f) of the 1933 Act) in connection  with such sale shall be
entitled to  contribution  from any person  involved in such sale of Registrable
Securities who was not guilty of fraudulent misrepresentation.

          8. Reports Under The 1934 Act.

          With a view to making  available to the Investors the benefits of Rule
144  promulgated  under the 1933 Act or any other  similar rule or regulation of
the SEC that may at any time  permit the  Investors  to sell  securities  of the
Company to the public without registration ("Rule 144"), the Company agrees to:

               a. make and keep public information available, as those terms are
understood and defined in Rule 144;

               b. file with the SEC in a timely  manner  all  reports  and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company  remains  subject to such  requirements  (it being  understood  that
nothing herein shall limit the Company's  obligations  under Section 4(c) of the
Securities  Purchase  Agreement)  and the  filing  of  such  reports  and  other
documents is required for the applicable provisions of Rule 144; and

               c.  furnish  to each  Investor  so long  as  such  Investor  owns
Registrable  Securities,  promptly upon request,  (i) a written statement by the
Company,  if true, that it has complied with the reporting  requirements of Rule
144,  the 1933 Act and the 1934 Act,  (ii) a copy of the most  recent  annual or
quarterly report of the Company and such other reports and

                                      -15-
<PAGE>

documents so filed by the Company,  and (iii) such other  information  as may be
reasonably requested to permit the Investors to sell such securities pursuant to
Rule 144 without registration.

          9. Assignment of Registration Rights.

          The rights under this Agreement shall be  automatically  assignable by
the  Investors  to any  transferee  of all or any  portion  of  such  Investor's
Registrable  Securities  if:  (i)  the  Investor  agrees  in  writing  with  the
transferee  or assignee to assign such rights,  and a copy of such  agreement is
furnished to the Company within a reasonable  time after such  assignment;  (ii)
the Company is,  within a  reasonable  time after such  transfer or  assignment,
furnished with written notice of (a) the name and address of such  transferee or
assignee,  and (b) the securities with respect to which such registration rights
are being transferred or assigned;  (iii) immediately following such transfer or
assignment  the further  disposition  of such  securities  by the  transferee or
assignee is restricted  under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice  contemplated
by clause (ii) of this  sentence the  transferee  or assignee  agrees in writing
with the Company to be bound by all of the provisions  contained herein; and (v)
such  transfer   shall  have  been  made  in  accordance   with  the  applicable
requirements of the Securities Purchase Agreement.

          10. Amendment of Registration Rights.

          Provisions of this Agreement may be amended and the observance thereof
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively  or  prospectively),  only with the written consent of the Company
and Investors who then hold at least  two-thirds of the Registrable  Securities.
Any  amendment or waiver  effected in  accordance  with this Section 10 shall be
binding upon each Investor and the Company. No such amendment shall be effective
to the extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend, or
consent to a waiver or modification  of, any provision of this Agreement  unless
the same consideration also is offered to all of the parties to this Agreement.

          11. Miscellaneous.

               a. A Person is deemed  to be a holder of  Registrable  Securities
whenever  such  Person  owns or is  deemed  to own of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or  more  Persons  with  respect  to the  same  Registrable
Securities,  the  Company  shall act upon the basis of  instructions,  notice or
election received from the such record owner of such Registrable Securities.

               b.  Any  notices,   consents,  waivers  or  other  communications
required or permitted to be given under the terms of this  Agreement  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 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:

                                      -16-
<PAGE>

                 Aphton Corporation
                 80 SW Eighth Street
                 Miami, Florida 33130
                 Telephone:     (305) 374-7338
                 Facsimile:     (305) 374-7615
                 Attention:     Philip Gevas

               With a copy to:

                 White & Case LLP
                 1155 Avenue of the Americas
                 New York, New York  10036
                 Telephone:     (212) 819-8200
                 Facsimile:     (212) 354-8113
                 Attention:     Jonathan Kahn, Esq.

               If to Legal Counsel:

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

If to a Buyer, to its address and facsimile  number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers,  or to such other  address  and/or  facsimile  number
and/or  to the  attention  of such  other  person  as the  recipient  party  has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written  confirmation of receipt (A) given by the
recipient  of  such  notice,  consent,   waiver  or  other  communication,   (B)
mechanically  or  electronically  generated  by the sender's  facsimile  machine
containing the time, date,  recipient facsimile number and an image of the first
page of such  transmission  or (C)  provided by a courier or  overnight  courier
service shall be rebuttable  evidence of personal service,  receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

          c.  Failure of any party to  exercise  any right or remedy  under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

          d. All questions  concerning the construction,  validity,  enforcement
and  interpretation  of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law  provision  or  rule  (whether  of the  State  of  New  York  or  any  other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. Each party (other than Heartland  Group,  Inc.

                                      -17-
<PAGE>

("Heartland")) hereby irrevocably submits to the non- exclusive  jurisdiction of
the state and federal courts sitting The City of New York,  Borough of Manhattan
and the state and federal courts sitting in Milwaukee,  Wisconsin, and Heartland
hereby  irrevocably  submits to the non-exclusive  jurisdiction of the state and
federal  courts  sitting  in  Milwaukee,   Wisconsin,   in  each  case  for  the
adjudication  of any dispute  hereunder  or in  connection  herewith or with any
transaction  contemplated  hereby or discussed  herein,  and hereby  irrevocably
waives,  and agrees not to assert in any suit,  action or proceeding,  any claim
that it is not personally  subject to the  jurisdiction of any such court,  that
such suit, action or proceeding is brought in an inconvenient  forum or that the
venue of such  suit,  action  or  proceeding  is  improper.  Each  party  hereby
irrevocably  waives  personal  service of process and consents to process  being
served in any such suit,  action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient  service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve  process in any  manner  permitted  by law.  If any  provision  of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or  unenforceability  shall not affect the  validity  or  enforceability  of the
remainder  of  this   Agreement  in  that   jurisdiction   or  the  validity  or
enforceability  of any  provision of this  Agreement in any other  jurisdiction.
EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE,  AND AGREES NOT TO
REQUEST,  A JURY  TRIAL FOR THE  ADJUDICATION  OF ANY  DISPUTE  HEREUNDER  OR IN
CONNECTION  HEREWITH  OR  ARISING  OUT OF  THIS  AGREEMENT  OR  ANY  TRANSACTION
CONTEMPLATED HEREBY.

               e.  This  Agreement,   the  Securities  Purchase  Agreement,  the
Warrants, the Notes and the instruments referenced herein and therein constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof  and  thereof.  There  are  no  restrictions,   promises,  warranties  or
undertakings, other than those set forth or referred to herein and therein. This
Agreement,  the Securities  Purchase Agreement,  the Warrant,  the Notes and the
instruments  referenced  herein and therein  supersede all prior  agreements and
understandings  among the  parties  hereto with  respect to the  subject  matter
hereof and thereof.

               f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

               g.  The  headings  in  this  Agreement  are  for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.

               h. This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall  constitute  one and
the same agreement.  This Agreement,  once executed by a party, may be delivered
to the other party hereto by facsimile  transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

               i.  Each  party  shall  do and  perform,  or cause to be done and
performed,  all such further acts and things,  and shall execute and deliver all
such other  agreements,  certificates,  instruments and documents,  as the other
party may reasonably request

                                      -18-
<PAGE>

in order to carry out the intent and  accomplish  the purposes of this Agreement
and the consummation of the transactions contemplated hereby.

               j. All consents and other  determinations  required to be made by
the  Investors  pursuant  to this  Agreement  shall  be made,  unless  otherwise
specified in this  Agreement,  by Investors  holding at least  two-thirds of the
Registrable Securities, determined as if all of the Notes held by Investors then
outstanding  have been  converted into  Registrable  Securities and all Warrants
then outstanding have been exercised for Registrable  Securities  without regard
to any limitations on conversion of the Notes or on exercises of the Warrants.

               k. The language used in this  Agreement  will be deemed to be the
language  chosen by the parties to express  their mutual  intent and no rules of
strict construction will be applied against any party.

               l. This  Agreement  is  intended  for the  benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

               m. Heartland Value Fund. The Company  understands and agrees that
Heartland  Group,  Inc.  is  entering  into this  Agreement  solely on behalf of
Heartland  Value  Fund and that any claims  that the  Company  may have  against
Heartland  Group,  Inc. under this Agreement or otherwise in connection with the
transactions  contemplated  hereby  shall only be made against the assets of the
Heartland Value Fund.

                                   * * * * * *

                                      -19-
<PAGE>

     IN WITNESS  WHEREOF,  the  parties  have caused  this  Registration  Rights
Agreement to be duly executed as of day and year first above written.

COMPANY:                                     BUYERS:

APHTON CORPORATION                           SF CAPITAL PARTNERS LTD.

By: /s/ Philip Gevas                         By: /s/ Brian H. Davidson
   ------------------------------               --------------------------------
   Name:   Philip Gevas                         Name:  Brian H. Davidson
   Title:  Chief Executive Officer              Title: Authorized Signatory

                                             HEARTLAND GROUP, INC., solely on
                                             behalf of the Heartland Value Fund

                                             By: /s/ Paul T. Beste
                                                --------------------------------
                                                Name:  Paul T. Beste
                                                Title: Vice President and
                                                          Secretary

                                             SMITH BARNEY FUNDAMENTAL VALUE
                                             FUND INC.
                                             (NOMINEE NAME: HORIZON WAVES & CO.)

                                             By: /s/ John G. Goode
                                                --------------------------------
                                                 Name:  John G. Goode
                                                 Title: Managing Director

                                      -20-
<PAGE>

                                          SCHEDULE OF BUYERS
<TABLE>
<Caption>
Buyer                                                                              Buyer's Legal
                                          Buyer Address                      Representative's Address
                                       and Facsimile Numb                       and Facsimile Number
<S>                                   <C>                                         <C>
SF Capital Partners Ltd.             c/o Staro Asset Management LLC               Schulte Roth & Zabel LLP
                                     3600 South Lake Drive                        919 Third Avenue
                                     St. Francis, Wisconsin 53235                 New York, NY 10022
                                     Attention: Brian Davidson                    Attn: Eleazer Klein, Esq.
                                                Dan McNally, Esq.                 Facsimile:  (212) 593-5955
                                     Facsimile:  (414) 294-7700                   Telephone:  (212) 756-2000
                                     Telephone: (414) 294-7000

Heartland Group, Inc.                Heartland Group, Inc.                        Quarles & Brady LLP
                                     789 North Water Street                       411 East Wisconsin Avenue
                                     Milwaukee, Wisconsin 53202                   Milwaukee, Wisconsin 53202
                                     Attention:  Connie Wick                      Attention:  Charles M. Weber, Esq.
                                     Facsimile:  (414) 347-0346                   Facsimile:  (414) 978-8708
                                     Telephone:  (414) 977-8727                   Telephone:  (414) 277-5107

Smith Barney                         c/o Davis Skaggs Investment                  Citigroup Asset Management
Fundamental Value Fund Inc.          Management                                   Mutual Funds Legal Department
(Nominee Name: Horizon Waves         1 Sansome Street, 36th Floor                 300 First Stamford Place, 4th Floor
 & Co.)                              San Francisco, CA  94104                     Stamford, CT  06902
                                     Attention:  John G. Goode                    Attention:  Gordon E. Swartz, Esq.
                                     Facsimile:  (415) 984-6606                   Facsimile:  (203) 890-7068
                                     Telephone:  (415) 984-6513                   Telephone:  (203) 890-7045
</TABLE>

<PAGE>

                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA  91204-2991
Attn:  William Garza

         Re:  Aphton Corporation
              ------------------

Ladies and Gentlemen:

          We are  counsel to Aphton  Corporation,  a Delaware  corporation  (the
"Company"),  and have  represented  the Company in connection  with that certain
Securities  Purchase  Agreement,  dated  as of March  31,  2003  (the  "Purchase
Agreement"),  entered into by and among the Company and the buyers named therein
(collectively,  the  "Holders")  pursuant  to which  the  Company  issued to the
Holders its  convertible  notes (the  "Notes"),  convertible  into shares of the
Company's  Common  Stock,  par value $0.001 per share (the  "Common  Stock") and
warrants  exercisable for shares of its Common Stock (the "Warrants").  Pursuant
to the Purchase  Agreement,  the Company  also has entered  into a  Registration
Rights   Agreement  with  the  Holders,   dated  as  of  March  31,  2003  (the
"Registration  Rights Agreement"),  pursuant to which the Company agreed,  among
other  things,  to  register  the  Registrable  Securities  (as  defined  in the
Registration  Rights  Agreement),  including the shares of Common Stock issuable
upon  conversion  of the  Notes  and upon  exercise  of the  Warrants  under the
Securities  Act of 1933,  as amended (the "1933 Act").  In  connection  with the
Company's  obligations under the Registration Rights Agreement,  on ____________
___,  2003,  the Company  filed a  Registration  Statement on Form S-3 (File No.
333-_____________)  (the  "Registration  Statement")  with  the  Securities  and
Exchange  Commission  (the "SEC")  relating to the  Registrable  Securities  (as
defined in the Registration Rights Agreement) which names each of the Holders as
a selling stockholder thereunder.

          In connection  with the foregoing,  we advise you that a member of the
SEC's  staff has  advised  us by  telephone  that the SEC has  entered  an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF  EFFECTIVENESS]  on [ENTER DATE OF  EFFECTIVENESS]  and we have no knowledge,
after  telephonic  inquiry of a member of the SEC's  staff,  that any stop order
suspending its  effectiveness  has been issued or that any  proceedings for that
purpose  are  pending  before,  or  threatened  by, the SEC and the  Registrable
Securities  are  available  for  resale  under  the  1933  Act  pursuant  to the
Registration Statement.

                                                    Very truly yours,

                                                    [ISSUER'S COUNSEL]

                                                    By:_____________________

<PAGE>

CC:      [LIST NAMES OF HOLDERS]

<PAGE>
                                                                       EXHIBIT B

                              PLAN OF DISTRIBUTION

     We are  registering  the shares of common stock issuable upon conversion or
redemption of the convertible notes, as interest shares on the convertible notes
and upon exercise of the warrants to permit the resale of these shares of common
stock by the holders of the convertible notes and the warrants from time to time
after the date of this prospectus.  We will not receive any of the proceeds from
the sale by any selling  stockholder of the shares of common stock. We will bear
all fees and  expenses  incident to our  obligation  to  register  the shares of
common  stock;  provided,  however,  that a  selling  stockholder  will  pay all
applicable underwriting discounts and selling commissions, if any.

     Any  selling  stockholder  may sell all or a portion  of the  common  stock
beneficially  owned by it and  offered  hereby  from  time to time  directly  or
through one or more underwriters,  broker-dealers or agents. If the common stock
is sold through underwriters or broker-dealers,  the selling stockholder will be
responsible for  underwriting  discounts or commissions or agent's  commissions.
The common stock may be sold in one or more  transactions  at fixed  prices,  at
prevailing  market prices at the time of the sale, at varying prices  determined
at the time of sale,  or at  negotiated  prices.  These sales may be effected in
transactions, which may involve crosses or block transactions,

     (1) on any national  securities  exchange or quotation service on which the
securities may be listed or quoted at the time of sale,

     (2) in the over-the-counter market,

     (3) in transactions  otherwise than on these exchanges or systems or in the
over-the-counter market,

     (4) through  the  writing of options,  whether the options are listed on an
options exchange or otherwise,

     (5) through the settlement of short sales;

     (6) through a combination of such methods of sale; or

     (7) through any other method permitted pursuant to applicable law.

     If a selling  stockholder  effects such  transactions  by selling shares of
common  stock  to  or  through  underwriters,  broker-dealers  or  agents,  such
underwriters,  broker-dealers  or agents may receive  commissions in the form of
discounts,   concessions  or  commissions   from  the  selling   stockholder  or
commissions  from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts,  concessions or
commissions as to particular  underwriters,  broker-dealers  or agents may be in
excess of those customary in the types of transactions  involved). In connection
with sales of the common stock or  otherwise,  a selling  stockholder  may enter
into hedging transactions with broker-dealers, which may in turn engage in short
sales of the common stock in the course of hedging in positions  they assume.  A
selling  stockholder  may also sell  shares of common

<PAGE>
stock short and deliver  shares of common stock  covered by this  prospectus  to
close out short  positions.  Each  selling  stockholder  may also loan or pledge
shares of common stock to broker-dealers that in turn may sell such shares.

     Each selling stockholder may pledge or grant a security interest in some or
all of the  convertible  notes,  warrants or shares of common  stock owned by it
and, if it defaults in the performance of its secured obligations,  the pledgees
or secured  parties  may offer and sell the shares of common  stock from time to
time pursuant to this prospectus or any amendment to this prospectus  under Rule
424(b)(3)  or other  applicable  provision  of the  Securities  Act of 1933,  as
amended, amending, if necessary, the list of selling stockholders to include the
pledgee,  transferee  or other  successors-in-interest  as selling  stockholders
under this prospectus. Each selling stockholder also may transfer and donate the
shares of common  stock in other  circumstances  in which case the  transferees,
donees, pledgees or other  successors-in-interest will be the selling beneficial
owners for purposes of this prospectus.

     Each  selling  stockholder  and  any  broker-dealer  participating  in  the
distribution  of the shares of common  stock may be deemed to be  "underwriters"
within the  meaning of the  Securities  Act,  and any  commission  paid,  or any
discounts or concessions  allowed, to any such broker-dealer may be deemed to be
underwriting  commissions or discounts  under the Securities  Act. At the time a
particular  offering  of the  shares  of  common  stock  is made,  a  prospectus
supplement,  if required, will be distributed which will set forth the aggregate
amount of shares of common  stock being  offered and the terms of the  offering,
including  the name or names of any  broker-dealers  or agents,  any  discounts,
commissions  and  other  terms  constituting   compensation  from  each  selling
stockholder and any discounts,  commissions or concessions  allowed or reallowed
or paid to broker-dealers.

     Under the securities laws of some states, the shares of common stock may be
sold in such states only through  registered or licensed brokers or dealers.  In
addition,  in some states the shares of common  stock may not be sold unless the
shares have been  registered  or qualified for sale in the state or an exemption
from registration or qualification is available and is complied with.

     There can be no assurance that any selling stockholder will sell any or all
of the shares of common  stock  registered  pursuant  to the shelf  registration
statement, of which this prospectus forms a part.

     Each  selling  stockholder  and  any  other  person  participating  in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended,  and the rules and regulations  thereunder,  including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of  purchases  and sales of any of the  shares of  common  stock by the  selling
stockholders and any other participating person.  Regulation M may also restrict
the ability of any person  engaged in the  distribution  of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the  ability  of any  person  or  entity  to  engage in  market-making
activities with respect to the shares of common stock.

     We will pay all expenses of the  registration of the shares of common stock
pursuant to the registration  rights  agreement,  estimated to be $[ ] in total,
including,  without  limitation,

<PAGE>
Securities and Exchange  Commission  filing fees and expenses of compliance with
state  securities  or  "blue  sky"  laws;  provided,  however,  that  a  selling
stockholder  will  pay  all  applicable   underwriting   discounts  and  selling
commissions,  if  any.  We  will  indemnify  the  selling  stockholders  against
liabilities,  including some liabilities under the Securities Act, in accordance
with the registration  rights  agreement,  or the selling  stockholders  will be
entitled to contribution. We may be indemnified by a selling stockholder against
civil  liabilities,  including  liabilities  under the Securities  Act, that may
arise from any written  information  furnished to us by the selling  stockholder
specifically  for use in this  prospectus,  in accordance with the  registration
rights agreement, or we may be entitled to contribution.

     Once sold under the shelf registration  statement, of which this prospectus
forms a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00050-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00050-of-00352.parquet"}]]