Document:

EXHIBIT 10.25
                                                                  CONFORMED COPY

                             NOTE PURCHASE AGREEMENT

                                                                    July 6, 1999

To the Purchasers
listed on attached
Schedule I

Dear Sirs:

     CELGENE  CORPORATION (the "Company") wishes to confirm its arrangement with
the  Purchasers  named on Schedule I to this  Agreement  (the  "Purchasers"  and
singly each  "Purchaser")  in  connection  with the issuance to the  Purchasers,
against payment in immediately  available funds of the purchase price of 100% of
the principal  amount thereof,  of one or more senior  convertible  notes in the
form attached hereto as Exhibit A (collectively  the "Convertible  Notes") in an
aggregate principal amount of $15,000,000 and convertible initially into 789,474
fully paid and  non-assessable  shares (each a "Share") of the Company's  Common
Stock, par value $.01 per share (the "Common  Stock"),  subject to adjustment as
set forth in the Convertible Notes.

     Simultaneously  with the issuance of the Convertible Notes pursuant to this
Agreement,  the Company and the  Purchasers  have  entered  into a  Registration
Rights  Agreement,   dated  as  of  the  date  hereof(the  "Registration  Rights
Agreement"),  pursuant to which the  Company  has agreed to register  the Shares
under certain circumstances.  Any capitalized term not defined herein shall have
the meaning ascribed to such term in the Convertible Notes.

     1. AGREEMENT TO ISSUE AND ACCEPT. On the basis of the  representations  and
warranties  made by the  Company  to  induce  the  Purchasers  to  purchase  the
Convertible Notes and subject to the terms and conditions set forth herein,  the
Company will issue to each  Purchaser,  and each  Purchaser will accept from the
Company,  the Convertible Notes in the principal amount specified  opposite such
Purchaser's  name on Schedule I attached hereto at the purchase price of 100% of
the principal  amount thereof  against payment of the  above-specified  purchase
price  therefor.  The closing (the  "Closing") of the issuance and acceptance of
the Convertible  Notes against such payment shall take place on the date hereof,
at which time the Company shall deliver to each Purchaser the Convertible Notes,
against  delivery by each  Purchaser of a wire transfer of the purchase price to
the Company's account at PNC Bank New Jersey Trust, ABA No.  031000053,  benefit
Account  No.  8511074024,  for  further  credit to Account  No.  42432012020943,
Celgene Corporation, Attn: Lisa Goldhammer,  Telephone No. (732) 220-3112. If at
the  Closing  the  Company  shall fail to tender the  Convertible  Notes to each
Purchaser  as provided in this Section 1 or any of the  conditions  specified in
Section

<PAGE>

     2.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes
the  representations  and  warranties  set  forth  on  Annex  II  hereto  to the
Purchasers.

     3.  AGREEMENTS OF PURCHASER.  Each Purchaser  covenants and agrees with the
Company that:

     (a) Such Purchaser will not offer, sell,  assign,  hypothecate or otherwise
transfer the Convertible Notes except (i) pursuant to an effective  registration
statement  under the  Securities  Act of 1933 (the "Act"),  (ii) to a person you
reasonably believe to be an "accredited investor" within the meaning of Rule 501
under the Act,  pursuant  to an  available  exemption  under the Act or (iii) in
offshore  transactions  within the meaning and meeting the  requirements of Rule
903 under the Act.

     (b) Such Purchaser will not offer, sell,  assign,  hypothecate or otherwise
transfer any Shares issued upon conversion of the  Convertible  Notes except (i)
pursuant to an effective  registration statement under the Act; (ii) to a person
you reasonably believe to be an "accredited investor" within the meaning of Rule
501 under the Act, pursuant to an available  exemption under the Act or (iii) in
an offshore  transaction within the meaning and meeting the requirements of Rule
903 under the Act.

     (c) Such Purchaser is an "accredited  investor"  within the meaning of Rule
501 under the Act.

     (d)  During the  period  that the  Company  is  prohibited  from  making an
optional  redemption  under  Section  1 of the  Convertible  Note,  so long as a
Purchaser holds a Convertible  Note, such Purchaser shall not undertake any form
of short sale,  derivative or other transaction which has the effect of taking a
"short  position" in the Common  Stock of the Company to hedge such  Purchaser's
investment in the Company, provided, however, that no affiliate of any Purchaser
shall be  subject  to the  provisions  of this  subsection  3(d).  The  covenant
contained in this Section 3(d) shall be,  subject to the  limitations  contained
herein, binding on any holder of a Convertible Note.

     (e) Each Purchaser represents that at least one of the following statements
is an accurate representation as to each source of funds (a "Source") to be used
by such  Purchaser  to pay the  purchase  price of the  Convertible  Notes to be
purchased by it hereunder:

     (i) the Source is an "insurance company general account" within the meaning
of Department of Labor Prohibited  Transaction  Exemption  ("PTE") 95-60 (issued
July 12, 1995) and there is no employee benefit plan,  treating as a single plan
all plans,  maintained by the same employer (or affiliate  thereof as defined in
Section  V(a)(1) of PTE 95-60) or employee  organization,  with respect to which
the amount of the general  account  reserves and  liabilities  for all contracts
held by or on  behalf  of such  plan  exceeds  ten  percent  (10%) of the  total
reserves and liabilities of such general account  (exclusive of separate account
liabilities) plus surplus,  as set forth in the NAIC Annual Statement filed with
such Purchaser's state of domicile; or

                                       2
<PAGE>

     (ii) the Source is either (a) an insurance company pooled separate account,
within the meaning of  Prohibited  Transaction  Exemption  CPTE")  90-1  (issued
January 29, 1990), or (b) a bank collective  investment fund, within the meaning
of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the
Company in writing  pursuant to this paragraph (ii), no employee benefit plan or
group  of  plans  maintained  by the  same  employer  or  employee  organization
beneficially  owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or

     (iii) the Source  constitutes  assets of an  "investment  fund" (within the
meaning of Part V of the QPAM  Exemption)  managed by a "qualified  professional
asset manager" or "QPAM" (within the meaning of Part V of the QPAM  'Exemption),
no employee  benefit  plan's assets that are included in such  investment  fund,
when combined with the assets of all other employee benefit plans established or
maintained  by the same  employer  or by an  affiliate  (within  the  meaning of
Section  V(c)(1) of the QPAM Exemption) of such employer or by the same employee
organization  and managed by such QPAM,  exceed 20% of the total  client  assets
managed by such QPAM,  the conditions of Part I(c) and (g) of the QPAM Exemption
are  satisfied,  neither the QPAM nor a person  controlling or controlled by the
QPAM  (applying  the  definition  of  "control"  in  Section  V(e)  of the  QPAM
Exemption)  owns a 5 % or more  interest in the Company and (a) the  identity of
such QPAM and (b) the names of all  employee  benefit  plans  whose  assets  are
included in such  investment  fund have been disclosed to the Company in writing
pursuant to this paragraph (iii); or

     (iv) the Source is a governmental plan; or

     (v) the Source is one or more employee benefit plans, or a separate account
or trust fund comprised of one or more employee benefit plans, each of which has
been identified to the Company in writing pursuant to this paragraph (e); or

     (vi) the Source does not include assets of any employee benefit plan, other
than a plan exempt from the coverage of ERISA.

As used in this Section 3(e), the terms "employee  benefit plan",  "governmental
plan",  "party in interest" and  "separate  account"  shall have the  respective
meanings assigned to such terms in Section 3 of ERISA.

Prior to any holder of this Security  transferring this Security,  the holder of
this  Security  shall  provide  a  certificate  from  such  proposed  subsequent
transferee   wherein  such  proposed   subsequent   transferee  shall  make  the
representations made in this Section 3(e) and shall  simultaneously  deliver any
disclosure letter required under Section 3(e)(iii). Such subsequent transferee's
failure to deliver such a certificate  shall not relieve the Company from any of
the terms, covenants or conditions of this Security.

                                       3
<PAGE>

     4.  AGREEMENTS OF THE COMPANY.  From and after the date of this  Agreement,
and thereafter so long as any of the Convertible Notes remain  outstanding,  the
Company  will duly  perform and  observe,  for the benefit of the holders of the
Convertible Notes, each and all of the covenants and agreements  hereinafter set
forth:

     (a) The Company shall deliver to each holder of a Convertible Note:

     i.  Quarterly  Statements -- upon the earlier of (x) when the Company files
its Form 10-Q with the  Securities  and Exchange  Commission for a fiscal period
and (y) 50 days after the end of each  quarterly  fiscal  period in each  fiscal
year of the Company  (other than the last  quarterly  fiscal period of each such
fiscal year), duplicate copies of,

     (1) a consolidated  balance sheet of the Company and its Subsidiaries as at
the end of such quarter, and

     (2) consolidated  statements of income, changes in shareholders' equity and
cash flows of the Company  and its  Subsidiaries,  for such  quarter and (in the
case of the second and third quarters) for the portion of the fiscal year ending
with such quarter,

setting forth in each case in comparative form the figures for the corresponding
periods in the  previous  fiscal year,  all in  reasonable  detail,  prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial  Officer as fairly  presenting,  in all material
respects,  the financial  position of the companies  being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments,  provided that delivery  within the time period  specified above of
copies of the  Company's  Quarterly  Report on Form 10-Q  prepared in compliance
with the  requirements  therefor  and filed  with the  Securities  and  Exchange
Commission shall be deemed to satisfy the requirements of this Section 4(a)(i);

     ii. Annual  Statements -- upon the earlier of(x) when the Company files its
Form 10-K with the  Securities  and Exchange  Commission for a fiscal period and
(y) 105 days after the end of each fiscal year of the Company,  duplicate copies
of,

     (1) a consolidated balance sheet of the Company and its Subsidiaries, as at
the end of such year, and

     (2) consolidated  statements of income, changes in shareholders' equity and
cash flows of the Company and its Subsidiaries, for such year,

setting  forth in each case in  comparative  form the figures  for the  previous
fiscal year,  all in reasonable  detail,  prepared in accordance  with GAAP, and
accompanied

                                       4
<PAGE>

     (A) by an opinion thereon of independent  certified  public  accountants of
recognized  national  standing,  which  opinion  shall state that  suchfinancial
statements present fairly, in all material  respects,  the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants  in  connection  with  such  financial  statements  has been made in
accordance  with  generally  accepted  auditing  standards,  and that such audit
provides a reasonable basis for such opinion in the circumstances, and

     (B) a certificate of such accountants  stating that they have reviewed this
Agreement and stating further whether,  in making their audit,  they have become
aware of any  condition or event that then  constitutes a Default or an Event of
Default,  and, if they are aware that any such  condition  or event then exists,
specifying the nature and period of the existence  thereof (it being  understood
that such  accountants  shall not be liable,  directly  or  indirectly,  for any
failure to obtain  knowledge  of any  Default or Event of  Default  unless  such
accountants  should  have  obtained  knowledge  thereof  in  making  an audit in
accordance with generally  accepted  auditing  standards or did not make such an
audit),

provided  that the  delivery  within  the  time  period  specified  above of the
Company's  Annual  Report on Form 10-K for such fiscal year  (together  with the
Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance  with the  requirements  therefor
and  filed  with the  Securities  and  Exchange  Commission,  together  with the
accountant's  certificate  described  in clause  (B)  above,  shall be deemed to
satisfy the requirements of this Section 4(a)(ii);

     iii. SEC and Other Reports -- promptly upon their becoming  available,  one
copy of (i) each financial statement,  report, notice or proxy statement sent by
the Company or any Subsidiary to public securities holders  generally,  and (ii)
each regular or periodic  report,  each  registration  statement that shall have
become  effective  (without  exhibits  except  as  expressly  requested  by such
holder),  and each prospectus and all amendments thereto filed by the Company or
any  Subsidiary  with the  Securities  and Exchange  Commission and of all press
releases and statements in the nature  thereof made  available  generally by the
Company  or any  Subsidiary  to the  public  concerning  developments  that  are
Material;

     iv.  Notice of Default or Event of  Default --  promptly,  and in any event
within five days after a Responsible  Officer becoming aware of the existence of
any Default or Event of Default or that any Person has given any notice or taken
any action with respect to a claimed default under any of the Convertible  Notes
or that any Person has given any  notice or taken any action  with  respect to a
claimed default of the type referred to in Section

                                       5
<PAGE>

4(a)(7) of the  Convertible  Notes, a written  notice  specifying the nature and
period of existence thereof and what action the Company is taking or proposes to
take with respect thereto;

     v. ERISA  Matters --  promptly,  and in any event  within five days after a
Responsible  Officer  becoming aware of any of the  following,  a written notice
setting forth the nature thereof and the action,  if any, that the Company or an
ERISA Affiliate proposes to take with respect thereto:

     (1) with respect to any Plan, any reportable  event,  as defined in section
4043(c) of ERISA and the  regulations  thereunder,  for which notice thereof has
not been waived pursuant to such regulations as in effect on the date hereof; or

     (2) the taking by the PBGC of steps to institute, or the threatening by the
PBGC of the  institution  of,  proceedings  under  section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,  any Plan, or the
receipt by the Company or any ERISA  Affiliate of a notice from a  Multiemployer
Plan  that  such  action  has  been  taken  by the  PBGC  with  respect  to such
Multiemployer Plan; or

     (3) any event, transaction or condition that could result in the incurrence
of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV
of ERISA or the  penalty  or  excise  tax  provisions  of the Code  relating  to
employee  benefit plans,  or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA  Affiliate  pursuant to Title I
or IV of ERISA or such penalty or excise tax  provisions,  if such  liability or
Lien,  taken  together with any other such  liabilities  or Liens then existing,
could reasonably be expected to have a Material Adverse Effect;

     vi.  Notices from  Governmental  Authority  --  promptly,  and in any event
within  thirty days of receipt  thereof,  copies of any notice to the Company or
any Subsidiary from any Federal or state Governmental  Authority relating to any
order,  ruling,  statute or other law or  regulation  that could  reasonably  be
expected to have a Material Adverse Effect; and

     vii. Requested Information -- with reasonable  promptness,  such other data
and  information  relating  to  the  business,  operations,  affairs,  financial
condition,  assets or  properties of the Company or any of its  Subsidiaries  or
relating to the ability of the Company to perform its obligations  hereunder and
under the Convertible Notes as from time to time may be reasonably  requested by
any such holder of Convertible Notes.

     (b) The  Company  shall  permit  the  representatives  of each.  holder  of
Convertible
Notes:

                                       6
<PAGE>

     i. No Default -- if no Default  or Event of  Default  then  exists,  at the
expense of such holder and upon reasonable prior notice to the Company, to visit
the principal executive office of the Company, to discuss the affairs,  finances
and accounts of the Company and its  Subsidiaries  with the Company's  officers,
and (with the consent of the Company,  which  consent  will not be  unreasonably
withheld)  its  independent  public  accountants,  and (with the  consent of the
Company,  which  consent will not be  unreasonably  withheld) to visit the other
offices  and  properties  of the  Company  and  each  Subsidiary,  all  at  such
reasonable times and as often as may be reasonably requested in writing; and

     ii. Default -- if a Default or Event of Default then exists, at the expense
of the  Company to visit and inspect  any of the  offices or  properties  of the
Company or any  Subsidiary,  to examine all their  respective  books of account,
records, reports and other papers, to make copies and extracts therefrom, and to
discuss their  respective  affairs,  finances and accounts with their respective
officers and independent  public  accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts of the
Company  and  its  Subsidiaries),  all at  such  times  and as  often  as may be
requested.

     (c) The Company will and will cause each of its Subsidiaries to comply with
all laws,  ordinances or governmental rules or regulations to which each of them
is subject, including,  without limitation,  Environmental Laws, and will obtain
and maintain in effect all licenses, certificates, permits, franchises and other
governmental  authorizations  necessary  to the  ownership  of their  respective
properties or to the conduct of their respective businesses, in each case to the
extent  necessary to ensure that  non-compliance  with such laws,  ordinances or
governmental  rules or  regulations  or failures to obtain or maintain in effect
such  licenses,   certificates,   permits,  franchises  and  other  governmental
authorizations  could  not,  individually  or in the  aggregate,  reasonably  be
expected to have a Material Adverse Effect.

     (d) The Company will and will cause each of its  Subsidiaries  to maintain,
with financially sound and reputable  insurers,  insurance with respect to their
respective  properties and businesses against such casualties and contingencies,
of  such  types,  on such  terms  and in such  amounts  (including  deductibles,
co-insurance  and  self-insurance,  if adequate  reserves  are  maintained  with
respect  thereto)  as is  customary  in the  case  of  entities  of  established
reputations engaged in the same or a similar business and similarly situated.

     (e) The Company  will and will cause each of its  Subsidiaries  to maintain
and keep, or cause to be maintained  and kept,  their  respective  properties in
good repair, working order and condition (other than ordinary wear and tear), so
that the business carried on in connection  therewith may be properly  conducted
at all times,  provided  that this Section  shall not prevent the Company or any
Subsidiary  from  discontinuing  the operation and the maintenance of any of its
properties  if such  discontinuance  is desirable in the conduct of its business
and the Company has concluded that such discontinuance  could not,  individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

                                       7
<PAGE>

     (f) The Company  will and will cause each of its  Subsidiaries  to file all
tax returns  required to be filed in any  jurisdiction  and to pay and discharge
all taxes  shown to be due and  payable  on such  returns  and all other  taxes,
assessments,  governmental  charges,  or levies  imposed on them or any of their
properties,  assets,  income  or  franchises,  to  the  extent  such  taxes  and
assessments  have become due and payable and before they have become  delinquent
and all  claims for which sums have  become due and  payable  that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary  need pay any such tax or assessment
or claims if (i) the amount,  applicability  or validity thereof is contested by
the  Company  or  such  Subsidiary  on a  timely  basis  in  good  faith  and in
appropriate  proceedings,  and  the  Company  or a  Subsidiary  has  established
adequate  reserves  therefor in accordance with GAAP on the books of the Company
or such  Subsidiary or (ii) the nonpayment of all such taxes and  assessments in
the  aggregate  could not  reasonably  be  expected  to have a Material  Adverse
Effect.

     (g) The  Company  will at all  times  preserve  and keep in full  force and
effect its corporate existence.  The Company will at all times preserve and keep
in full force and effect the  corporate  existence  of each of its  Subsidiaries
(unless  merged into the Company or a Subsidiary)  and all rights and franchises
of the Company and its  Subsidiaries  unless,  in the good faith judgment of the
Company,  the  termination  of or failure to preserve and keep in full force and
effect such corporate existence,  right or franchise could not,  individually or
in the aggregate, have a Material Adverse Effect.

     (h) The Company will  promptly  notify the holders in the event the Company
discovers or determines that any computer  application  (including  those of its
suppliers,  vendors  and  customers)  that  is  Material  to  its  or any of its
Subsidiaries' business and operations will not be Year 2000 compliant, except to
the extent that such failure could not reasonably be expected to have a Material
Adverse Effect.

     (i) The Company will not and will not permit any  Subsidiary  to enter into
directly or indirectly any transaction or Material group of related transactions
(including  without  limitation  the  purchase,   lease,  sale  or  exchange  of
properties  of any kind or the  rendering  of any  service)  with any  Affiliate
(other than the Company or another  Subsidiary),  except in the ordinary  course
and  pursuant  to  the  reasonable   requirements   of  the  Company's  or  such
Subsidiary's  business  and upon  terms  determined  by the  Company's  Board of
Directors,  in its good faith judgment,  to be fair and reasonable  terms and no
less favorable to the Company or such  Subsidiary  than would be obtainable in a
comparable transaction with a Person not an Affiliate.

     5. CONDITIONS. The obligations of the Purchasers under this Agreement shall
be subject to the condition  that all  representations  and warranties and other
statements  of the Company  herein are true and correct at and as of the closing
of the  purchase  and sale of the  Convertible  Notes,  the  condition  that the
Company shall have performed all of its obligations  hereunder theretofore to be
performed, and the following additional conditions:

                                       8
<PAGE>

     (a)  Counsel  for the  Company  specified  in Annex III  hereto  shall have
furnished to you its written  opinion,  dated the date of such closing,  in form
and substance  satisfactory to each Purchaser,  to the effect set forth in Annex
III hereto.

     (b) On the date of such closing,  the Company shall have  furnished to each
Purchaser such appropriate  further  information,  certificates and documents as
such Purchaser may reasonably request.

     (c) The  representations  and  warranties of the Company in this  Agreement
shall be correct when made and at the time of the Closing.

     (d) The Company shall have  performed and complied with all  agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after  giving  effect to the issue and sale
of the Convertible Notes, no Default or Event of Default shall have occurred and
be continuing.

     (e) The  Company  shall  have  delivered  to each  Purchaser  an  Officer's
Certificate,  dated  the date of the  Closing,  certifying  that the  conditions
specified in Sections 5(c), 5(d) and 5(k) have been fulfilled.

     (f) The  Company  shall have  delivered  to each  Purchaser  a  certificate
certifying  as  to  the  resolutions   attached   thereto  and  other  corporate
proceedings  relating  to  the  authorization,  execution  and  delivery  of the
Convertible Notes and the Agreements.

     (g) On the date of the Closing the  purchase of  Convertible  Notes by each
Purchaser   shall  (i)  be  permitted  by  the  laws  and  regulations  of  each
jurisdiction to which such Purchaser is subject,  without recourse to provisions
(such as Section  1405(a)(8) of the New York Insurance Law)  permitting  limited
investments by insurance  companies  without  restriction as to the character of
the  particular  investment,  (ii) not violate any  applicable law or regulation
(including,  without limitation,  Regulation U, T or X of the Board of Governors
of the Federal  Reserve System) and (iii) not Subject such Purchaser to any tax,
penalty or  liability  under or pursuant to any  applicable  law or  regulation,
which law or  regulation  was not in effect on the date hereof.  If requested by
any  Purchaser,  such  Purchaser  shall have  received an Officer's  Certificate
certifying as to such matters of fact as such Purchaser may  reasonably  specify
to enable such Purchaser to determine whether such purchase is so permitted.

     (h) The Company shall sell the entire  principal  amount of the Convertible
Notes scheduled to be sold at the Closing as specified in Schedule I hereto.

     (i) Without limiting the provisions of Section 6(f), the Company shall have
paid on or  before  the  Closing  the fees,  charges  and  disbursements  of the
Purchasers' special counsel.

                                       9
<PAGE>

     (j) A Private  Placement  number  issued by Standard & Poor's CUSIP Service
Bureau (in  cooperation  with the  Securities  Valuation  Office of the National
Association  of  Insurance  Commissioners)  shall  have  been  obtained  for the
Convertible Notes.

     (k) The Company shall not have changed its jurisdiction of incorporation or
been a party to any merger or consolidation  and shall not have succeeded to all
or any  substantial  part of the  liabilities  of any other entity,  at any time
following  the date of the most  recently  filed  Exchange  Act Report  (defined
below).

     (1) All corporate and other proceedings in connection with the transactions
contemplated  by this  Agreement and all documents and  instruments  incident to
such  transactions  shall be  satisfactory  to each  Purchaser  and its  special
counsel, and each Purchaser and its special counsel shall have received all such
counterpart  originals or  certified  or other copies of such  documents as such
Purchaser or it may reasonably request.

     6. MISCELLANEOUS.

     (a) This  Agreement  shall be binding upon, and inure solely to the benefit
of, the  Purchasers  and the Company and the  respective  successors and assigns
thereof,  and no other person shall acquire or have any right under or by virtue
of this Agreement.  No purchaser of the Convertible Notes from a Purchaser shall
be deemed a successor or assign by reason merely of such purchase.

     (b) Any notice or other  communication  required or  permitted  to be given
hereunder shall be deemed effectively given when personally delivered,  telexed,
transmitted by facsimile or mailed by pre-paid  certified  mail,  return receipt
requested,  or by telephone  when  confirmed in writing by one of the  preceding
methods addressed as follows (as applicable):

     If to the Company, to:

     Celgene Corporation
     7 Powder Horn Drive
     Warren, NJ 07059

     Attention: John W. Jackson
     Telephone Number: (732) 271-1001
     Facsimile Transmission Number: (732) 805-3931

     with a copy to:

     Proskauer Rose LLP
     1585 Broadway
     New York, NY 10036

                                       10
<PAGE>

     Attention: Robert A. Cantone, Esq.
     Telephone Number: (212) 969-3000
     Facsimile Transmission Number: (212) 969-2900

     If to Purchaser:
     at the address and to the Person appearing on Schedule I to this Agreement

     with a copy to:

     Choate, Hall & Stewart
     Exchange Place
     53 State Street
     Boston, MA 02109

     Attention: Frank B. Porter, Jr.
     Telephone Number: (617) 248-5000
     Facsimile Transmission Number: (617) 248-4000

or to such other  address or number and to the attention of such other person as
either party may designate by written notice to the other party. Notice shall be
effective upon actual receipt.

     (c) THIS  AGREEMENT  SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH
THE LAWS OF THE STATE OF NEW YORK.

     (d) Time shall be of the essence in the performance of this Agreement.

     (e) This  Agreement may be executed by the parties  hereto in any number of
counterparts,  each of which  shall be  deemed to be an  original,  but all such
respective counterparts shall together constitute one and the same instrument.

     (f) Whether or not the  transactions  contemplated  hereby are consummated,
the Company will pay all costs and  expenses  (including  reasonable  attorneys'
fees of a special counsel) incurred by each Purchaser or holder of a Convertible
Note in connection with such transactions and in connection with any amendments,
waivers or consents  under or in respect of this  Agreement  or the  Convertible
Notes  (whether or not such  amendment,  waiver or consent  becomes  effective),
including,  without limitation: (3) the costs and expenses incurred in enforcing
or  defending  (or  determining  whether or how to enforce or defend) any rights
under this Agreement or the  Convertible  Notes or in responding to any subpoena
or other legal  process or informal  investigative  demand  issued in connection
with this Agreement or the Convertible  Notes, or by reason of being a holder of
any  Convertible  Note,  and (b) the costs  and  expenses,  including  financial
advisors' fees,  incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of
the

                                       11
<PAGE>

transactions  contemplated hereby and by the Convertible Notes. The Company will
pay, and will save each  Purchaser and each other holder of a  Convertible  Note
harmless from,  all claims in respect of any fees,  costs or expenses if any, of
brokers and finders (other than those retained by you).

     (g)  Anything in this  Agreement or the  Convertible  Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any  Convertible  Note that is due on a date other than a Business  Day shall be
made on the next succeeding  Business Day without  including the additional days
elapsed in the  computation  of the  interest  payable  on such next  succeeding
Business Day.

     (h) This  Agreement  and the  Convertible  Notes  may be  amended,  and the
observance of any term hereof or of the Convertible  Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and each of the holders.

     (i) From time to time hereafter,  the Company will execute and deliver,  or
will cause to be executed and delivered,  such additional agreements,  documents
and instruments and will take all such other actions as any holder or holders of
the Convertible Notes may reasonably request

                                  [END OF PAGE]

                                       12
<PAGE>

for the purpose of implementing or effectuating the provisions contained herein,
in the Convertible Notes or in the Registration Rights Agreement.

                                           Very truly yours,

                                           CELGENE CORPORATION

                                           By: /s/Robert J. Hugin
                                              --------------------------------
                                             Name: Robert J. Hugin
                                             Title: Senior Voice President & CFO

Accepted as of the date hereof:

JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:

By:    /s/ Stephen J. Blewitt
  ---------------------------------------
Name:      Stephen J. Blewitt
     ------------------------------------
Title:     Senior Investment Officer
     ------------------------------------

JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By:

By:    /s/ Stephen J. Blewitt
  ---------------------------------------
Name:      Stephen J. Blewitt
     ------------------------------------
Title:     Senior Investment Officer
     ------------------------------------

By:    /s/ Stephen J. Blewitt
  ---------------------------------------
Name:      Stephen J. Blewitt
     ------------------------------------
Title:     Senior Investment Officer
     ------------------------------------

                                       13
<PAGE>

                                   SCHEDULE I

                   JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY

     $3,500,000 GENERAL ACCOUNT
     $6,000,000 GUARANTEED BENEFIT SUB ACCOUNT
     $200,000 SEPARATE ACCOUNT 12

1.   All payments on account of the  Convertible  Notes or other  obligations in
     accordance with the provisions  thereof shall be made by bank wire transfer
     of immediately  available funds for credit,  not later than 12 noon, Boston
     time, to:

     BankBoston
     ABA No. 011000390
     Boston, Massachusetts 02110
     Account of: John Hancock Mutual Life Insurance  Company
                 Private  Placement Collection Account
     Account Number:  541-55417
     On Order of: Celgene Corporation (PPN: 151020 A@3)
     Celgene Corporation 9.00% Senior Convertible Notes due June 30, 2004

2.   Contemporaneous with the above wire transfer, advice setting forth:

     (1)  the full name,  interest  rate and  maturity  date of the  Convertible
          Notes  or  other  obligations;

     (2)  allocation of payment  between  principal and interest and any special
          payment; and

     (3)  name and address of Bank (or  Trustee)  from which wire  transfer  was
          sent shall be delivered or faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Manager
                Investment Accounting Division, B-3
     Fax: 617-572-0628

3.   All notices with respect to  prepayments,  both scheduled and  unscheduled,
     whether  partial or in full,  and notice of maturity  shall be delivered or
     faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Manager

                                     1 of 6

<PAGE>

                       Investment Accounting Division, B-3
     Fax: 617-572-0628

4.   All other  communications  which  shall  include,  but not be  limited  to,
     financial   statements  and   certificates  of  compliance  with  financial
     covenants, shall be delivered or faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Bond and Corporate Finance Group, T-57
     Fax: 617-572-1605

5.   A copy of any  notices  relating  to change in  issuer's  name,  address or
     principal  place of business or  location of  collateral  and a copy of any
     legal opinions shall be delivered or faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Investment Law Division, T-50
     Fax: 617-572-9268

6.   All securities shall be registered in the name of: John Hancock Mutual Life
     Insurance Company

7.   Tax I.D. No. 04-1414660

                                     2 of 6

<PAGE>

                   JOHN HANCOCK VARIABLE HFE INSURANCE COMPANY
                                    $300,000

1.   All payments on account of the  Convertible  Notes or other  obligations in
     accordance with the provisions  thereof shall be made by bank wire transfer
     of immediately  available funds for credit,  not later than 12 noon, Boston
     time, to:

     BankBoston
     ABA No. 011000390
     Boston, Massachusetts 02110
     Account of: John Hancock Mutual Life Insurance Company
                 Private Placement Collection Account
     Account Number: 541-55417
     On Order of: Celgene Corporation (PPN: 151020 A@ 3)
     Celgene Corporation 9.00% Senior Convertible Notes due June 30, 2004

2.   Contemporaneous with the above wire transfer, advice setting forth:

     (1)  the full  name,  interest  rate  and maturity date of the Convertible
          Notes or other obligations;

     (2)  allocation  of  payment  between  principal   and   interest  and  any
          special payment; and

     (3)  name and address of Bank (or Trustee) from  which  wire  transfer  was
          sent shall be delivered or faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Manager
                Investment Accounting Division, B-3
     Fax: 617-572-0628

3.   All notices with respect to  prepayments,  both scheduled and  unscheduled,
     whether  partial or in full,  and notice of maturity  shall be delivered or
     faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Manager
                Investment Accounting Division, B-3
     Fax: 617-572-0628

                                     3 of 6

<PAGE>

4.   All other  communications  which  shall  include,  but not be  limited  to,
     financial   statements  and   certificates  of  compliance  with  financial
     covenants, shall be delivered or faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Bond and Corporate Finance Group, T-57
     Fax: 617-572-1605

5.   A copy of any  notices  relating  to change in  issuer's  name,  address or
     principal  place of business or  location of  collateral  and a copy of any
     legal opinions shall be delivered or faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Investment Law Division, T-50
     Fax: 617-572-9268

6.   All  securities  shall be registered in the name of: John Hancock  Variable
     Life Insurance Company

7.   Tax I.D. No. 04-2664016

                                     4 of 6

<PAGE>

                         HANCOCK MEZZANINE PARTNERS L.P.
                                   $5,000,000

1.   All payments on account of the  Convertible  Notes or other  obligations in
     accordance with the provisions  thereof shall be made by bank wire transfer
     of immediately  available funds for credit,  not later than 12 noon, Boston
     time, to:

          Investors Bank & Trust Company
          Boston, Massachusetts 02110
          ABA No. 011001438
          Account Number: 58215013
          for further credit to Hancock Mezzanine Partners L.P., Account 99274
          On Order of: Celgene Corporation (PPN: 151020 A@ 3)
          Celgene Corporation 9.00% Senior Convertible Notes due June 30, 2004

2.   Contemporaneous with the above wire transfer, advice setting forth:

          (1)  the full  name,  interest  rate  and  maturity  date of the Notes
               or other obligations;

          (2)  allocation  of payment  between  principal  and  interest and any
               special payment; and

          (3)  name and address of bank (or  Trustee)  from which wire  transfer
               was sent shall be delivered or faxed and mailed to:

          John Hancock Mutual Life Insurance Company
          200 Clarendon Street
          Boston, MA 02117
          Attention: Manager Investment Accounting Division, B-3
          Fax: 617-572-0628

3.   All notices with respect to  prepayments,  both scheduled and  unscheduled,
     whether  partial or in full,  and notice of maturity  shall be delivered or
     faxed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Manager
                Investment Accounting Division, B-3
     Fax: 617-572-0628

4.   All other  communications  which  shall  include,  but not be  limited  to,
     financial   statements  and   certificates  of  compliance  with  financial
     covenants, shall be delivered or faxed and mailed to:

                                     5 of 6

<PAGE>

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
     Attention: Bond and Corporate Finance Group, T-57
     Fax: 617-572-1605

5.   A copy of any  notices  relating  to change in  issuer's  name,  address or
     principal  place of business or  location of  collateral  and a copy of any
     legal opinions shall be delivered or fixed and mailed to:

     John Hancock Mutual Life Insurance Company
     200 Clarendon Street
     Boston, MA 02117
          Attention: Investment Law Division, T-50
          Fax: 617-572-9268

6.   Execution documents shall be executed as follows:

          Hancock Mezzanine Partners L.P.
          By: Hancock Mezzanine Investments LLC, its General Partner
          By: John Hancock Mutual Life Insurance Company. as Investment Manager

          By:
             -------------------------------------
               [authorized John Hancock Officer]

7.   All  securities  shall be  registered  in the name  of:  Hancock  Mezzanine
     Partners L.P.

8.   Tax I.D. No. 04-3428544

                                     6 of 6

<PAGE>

                                    EXHIBIT A

     THIS SECURITY AND THE COMMON STOCK  ISSUABLE UPON ITS  CONVERSION  HAVE NOT
BEEN  REGISTERED  UNDER  THE  U.S.  SECURITIES  ACT OF  1933,  AS  AMENDED  (THE
"SECURITIES  ACT"),  AND  MAY  NOT  BE  OFFERED,   SOLD,  PLEDGED  OR  OTHERWISE
TRANSFERRED  EXCEPT PURSUANT TO AN AVAILABLE  EXEMPTION FROM REGISTRATION  UNDER
THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE  SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.

                               CELGENE CORPORATION

                      9.00% SENIOR CONVERTIBLE NOTE DUE JUNE --, 2004

PPN No.:
No. R-                                                             $
                                                                    ----------

     CELGENE  CORPORATION,  a corporation  duly organized and existing under the
laws of Delaware (the "Company") for value  received,  hereby promises to pay to
or registered  assigns, the principal sum of Dollars ($.   )on June, 2004 and to
pay interest thereon, from , 1999, or from the most recent interest payment date
to which interest has been paid or duly provided for, semi-annually on June ----
and December   in each year, commencing December ---,1999,  at the rate of 9.00%
per  annum,  until the  principal  hereof is due,  and at the rate of 11.00% per
annum on any overdue principal and premium, if any, and, to the extent permitted
by law, on any overdue interest. The interest so payable, and punctually paid or
duly  provided  for, on any interest  payment date will be paid to the person in
whose name this Security (or one or more  predecessor  Securities) is registered
at the close of  business on the regular  record date for such  interest,  which
shall be the June 1 or December 1 (whether or not a Business  Day),  as the case
may be, next  preceding  such interest  payment  date.  Payment of the principal
of(and  premium,  if any, on) this Security  shall be made upon the surrender of
this Security to the Company,  at its office at 7 Powder Horn Drive,  Warren, NJ
07059 (or such other office within the United States as shall be notified by the
Company  to the  holder  hereof)  (the  "Designated  Office"),  in such  coin or
currency  of the United  States of  America  as at the time of payment  shall be
legal tender for the payment of public and private debts,  by transfer to a U.S.
dollar  account  maintained  by the payee  with a bank in the  United  States of
America.  Payment of interest on this Security shall be made by wire transfer to
a U.S.  dollar account  maintained by the payee with a bank in the United States
of  America,  provided  that  if  the  holder  shall  not  have  furnished  wire
instructions in writing to the Company no later than the record date relating to
an interest  payment date,  such payment may be made by U.S. dollar check mailed
to the address of the Person entitled thereto as such address shall appear

<PAGE>

     This Security is one of the Company's  9.00% Senior  Convertible  Notes due
June 30, 2004,  limited to $15,000,000.00  aggregate  principal  amount,  issued
pursuant  to that  certain  Note  Purchase  Agreement  dated  July 6, 1999 (such
agreements,  as amended,  modified and supplemented from time to time, the "Note
Purchase  Agreement") between the Company and the Purchasers named therein,  and
the holder  hereof is entitled to the benefits of the Note  Purchase  Agreement,
and may enforce the  agreements  contained  herein and therein and  exercise the
remedies  provided  for hereby and  thereby or  otherwise  available  in respect
hereof and thereof, all in accordance with the terms hereof and thereof.

     1. Optional Redemption With Premium. This Security is subject to redemption
upon not less than 30 nor more than 60 days'  notice by mail,  at any time on or
after July 6, 2001,  as a whole or in part,  (in any amount  that is an integral
multiple of $1000) at the election of the Company, at a redemption price of 103%
the principal  amount thereof,  together with accrued interest to the redemption
date,  but interest  installments  whose stated  maturity is on or prior to such
redemption  date will be payable to the holder of this Security,  or one or more
predecessor  Securities,  of  record at the close of  business  on the  relevant
record dates referred to on the face hereof; provided, however, that the Company
may not redeem  this  Security  on or prior to July 6, 2002  unless the  Closing
Price of the Common Stock exceeds 225% of the Conversion  Price for each Trading
Day in a period of 20 Consecutive  Trading Days commencing not earlier than July
6, 2001.  The term  "Conversion  Price" on any day shall equal $1,000 divided by
the Conversion Rate in effect on each such day.

     2.  Conversion.  (a) The holder of this Security is entitled at any time on
or after July 6, 2000 and before the close of  business on June 30, 2004 (or, in
case this  Security or a portion  hereof is called for  redemption or the holder
hereof  has  exercised  its right to require  the  Company  to  repurchase  this
Security or a portion  hereof,  then in respect of this Security or such portion
hereof,  as the case may be,  until  and  including,  but  (unless  the  Company
defaults in making the payment due upon  redemption or  repurchase,  as the case
may  be)  not  after,  the  close  of  business  on the  redemption  date or the
Repurchase Date, as the case may be) to convert this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000),  into fully
paid and nonassessable  shares  (calculated as to each conversion to the nearest
1/100 of a share) of Common  Stock of the Company at the rate of 52.63 shares of
Common  Stock for each $1,000  principal  amount of Security  (or at the current
adjusted rate if an adjustment has been made as provided below) (the "Conversion
Rate") by surrender of this  Security,  duly endorsed or assigned to the Company
or in blank to the  Company at the  Designated  Office,  accompanied  by written
notice to the Company that the holder hereof elects to convert this Security (or
if less than the entire principal  amount hereof is to be converted,  specifying
the  portion  hereof to be  converted).  Upon  surrender  of this  Security  for
conversion,  the holder will be entitled to receive the interest accruing on the
principal amount of this Security then being converted from the interest payment
date next preceding the date of such  conversion to such date of conversion.  No
payment or adjustment  is to be made on  conversion  for dividends on the Common
Stock issued on conversion  hereof. No fractions of shares or scrip representing
fractions of shares will be issued on conversion,  but instead of any fractional
interest, the Company shall pay a cash adjustment,

                                       2

<PAGE>

computed  on the basis of the Closing  Price of the Common  Stock on the date of
conversion,  or, at its option,  the  Company  shall round up to the next higher
whole share.  This Security shall be deemed to have been  converted  immediately
prior to the close of business on the day of surrender hereof for conversion, in
accordance  with the  foregoing  provisions,  and at such time the rights of the
holder  hereof,  as a holder  hereof,  shall  cease,  and the  Person or Persons
entitled to receive the Common Stock issuable on conversion  shall be treated by
all Persons as the holder or holders of such Common Stock at such time. Upon any
partial conversion of this Security, the Company, at its expense, will forthwith
issue and deliver to, or upon the order of the holder hereof,  a new Convertible
Note or Convertible Notes in principal amount equal to the unconverted principal
amount  of such  surrendered  Convertible  Note,  such new  Convertible  Note or
Convertible  Notes  to be  dated  and to bear  interest  from  the date to which
interest has been paid on such surrendered Convertible Note.

     As promptly as possible after the conversion of this Security,  in whole or
in part, and in any event within ten (10) days thereafter,  the Company,  at its
expense,  will issue and deliver a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion.

     (b) The Conversion  Rate shall be subject to adjustments  from time to time
as follows:

     (1) In case the Company shall pay or make a dividend or other  distribution
on any class of capital stock of the Company  payable in shares of Common Stock,
the  Conversion  Rate in effect at the opening of business on the day  following
the  Determination  Date  for  such  dividend  or  other  distribution  shall be
increased by dividing such  Conversion Rate by a fraction of which the numerator
shall be the  number  of  shares of  Common  Stock  outstanding  at the close of
business on such Determination Date and the denominator shall be the sum of such
number of shares and the total number of shares  constituting  such  dividend or
other  distribution,  such increase to become  effective  immediately  after the
opening of  business  on the day  following  such  Determination  Date.  For the
purposes of this paragraph (1), the number of shares of Common Stock at any time
outstanding  shall not include  shares  held in the  treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions  of shares of Common  Stock.  The Company will not pay any dividend or
make any  distribution  on shares of Common  Stock held in the  treasury  of the
Company.

     (2) Subject to the last  sentence of paragraph (7) of this Section 2(b), in
case the Company shall issue rights, options, warrants or convertible securities
entitling  the holders  thereof to  subscribe  for or purchase  shares of Common
Stock at a price  per  share  less  than the  current  market  price  per  share
(determined  as provided in paragraph  (8) of this  Section  2(b)) of the Common
Stock on the Determination  Date for such  distribution,  the Conversion Rate in
effect at the opening of business on the day following such Determination  Date,
shall be increased by dividing such Conversion Rate by a fraction of

                                       3

<PAGE>

which the numerator shall be the number of shares of Common Stock outstanding at
the close of  business on such  Determination  Date plus the number of shares of
Common  Stock  which the  aggregate  amount  received  by the  Company  upon the
issuance of such rights,  options,  warrants or convertible  securities plus the
aggregate  amount  receivable  by the Company upon the exercise or conversion of
such rights, options,  warrants or convertible securities would purchase at such
current market price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on such  Determination  Date plus the
number of shares of Common Stock so offered for  subscription or purchase,  such
increase to become  effective  immediately  after the opening of business on the
day following such Determination Date provided,  that no such adjustment need to
be made in the case of the  granting by the Company to employees or directors of
the Company or  consultants  to the Company of Common  Stock  and/or  options to
purchase Common Stock and the issuance of Common Stock upon the exercise of such
options.  For the purposes of this paragraph (2), the number of shares of Common
Stock at any time  outstanding  shall not include shares held in the treasury of
the Company but shall include shares  issuable in respect of scrip  certificates
issued in lieu of  fractions  of shares of Common  Stock.  The Company  will not
issue any rights,  options,  warrants or  convertible  securities  in respect of
shares of Common Stock held in the treasury of the Company.

     (3) In case  outstanding  shares of Common  Stock shall each be  subdivided
into a greater number of shares of Common Stock,  the Conversion  Rate in effect
at the  opening  of  business  on the day  following  the day  upon  which  such
subdivision   becomes  effective  shall  be  proportionately   increased,   and,
conversely,  in case  outstanding  shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock,  the Conversion  Rate in effect
at the  opening  of  business  on the day  following  the day  upon  which  such
combination becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after the opening
of  business  on the day  following  the day  upon  which  such  subdivision  or
combination becomes effective.

     (4) Subject to the last  sentence of paragraph (7) of this Section 2(b), in
case the Company shall,  by dividend or otherwise,  distribute  evidences of its
indebtedness, shares of any class of capital stock, or other property (including
securities,  but  excluding  (i) any rights,  options,  warrants or  convertible
security  referred to in paragraph (2) of this Section 2(b) (ii) any dividend or
distribution  paid  exclusively  in cash,  (iii) any  dividend  or  distribution
referred  to in  paragraph  (1) of this  Section  2(b) and (iv)  any  merger  or
consolidation  to which  Section 2(h)  applies),  the  Conversion  Rate shall be
adjusted  so that the same  shall  equal the rate  determined  by  dividing  the
Conversion  Rate in effect  immediately  prior to the close of  business  on the
Determination  Date for such  distribution  by a fraction of which the numerator
shall be the current market price per share (determined as provided in paragraph
(8) of this Section  2(b)) of the Common Stock on such  Determination  Date less
the then  fair  market  value  (as  determined  in good  faith  by the  Board of
Directors of the Company) of the portion of the assets, shares or evidences of

                                        4

<PAGE>

indebtedness  so  distributed  applicable  to one share of Common  Stock and the
denominator  shall be such current  market price per share of the Common  Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following such Determination  Date provided,  that no such adjustment
need be made in the case of an  underwritten  public offering of Common Stock in
which the  shares of  Common  Stock are sold to the  public at a price per share
equal to or in excess of 95% of the market  price per share of the Common  Stock
as of the date of the pricing of such underwritten public offering. If the Board
of Directors  determines the fair market value of any  distribution for purposes
of this  paragraph (4) by reference to the actual or when issued  trading market
for any securities  comprising such  distribution,  it must in doing so consider
the prices in such market over the same  period  used in  computing  the current
market price per share pursuant to paragraph (8) of this Section 2(b).

     (5) In case the  Company  shall,  by  dividend  or  otherwise,  make a Cash
Distribution,  then,  and in each  such  case,  immediately  after  the close of
business on the Determination  Date for such Cash  Distribution,  the Conversion
Rate shall be  adjusted  so that the same  shall  equal the rate  determined  by
dividing  the  Conversion  Rate in  effect  immediately  prior  to the  close of
business on such  Determination  Date by a fraction  (a) the  numerator of which
shall be equal to the current market price per share  (determined as provided in
paragraph  (8) of this Section  2(b)) of the Common Stock on such  Determination
Date  less an  amount  equal to the  quotient  of(l)  the  amount  of such  Cash
Distribution  divided by (2) the number of shares of Common Stock outstanding on
such  Determination  Date and (b) the denominator of which shall be equal to the
current market price per share  (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date.

     (6) In case the  Company or any  Subsidiary  shall make an Excess  Purchase
Payment,  then,  and in each such  case,  immediately  prior to the  opening  of
business  on the day after the tender  offer in  respect  of which  such  Excess
Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so
that the same shall equal the rate determined by dividing the Conversion Rate in
effect  immediately prior to the close of business on the Determination Date for
such tender offer by a fraction (a) the numerator of which shall be equal to the
current market price per share  (determined as provided in paragraph (8) of this
Section  2(b)) of the  Common  Stock on such  Determination  Date less an amount
equal to the  quotient  of (A) the Excess  Purchase  Payment  divided by (B) the
number of shares of Common Stock outstanding  (including any tendered shares) as
of the Determination Date less the number of all shares validly tendered and not
withdrawn as of the Determination Date and (b) the denominator of which shall be
equal to the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock as of such Determination Date.

     (7) The  reclassification of Common Stock into securities other than Common
Stock (other than any  reclassification  upon a consolidation or merger to which
Section 2(h)

                                        5

<PAGE>

applies) shall be deemed to involve (a) a distribution of such securities  other
than Common Stock to all holders of Common Stock (and the effective date of such
reclassification  shall  be  deemed  to be the  Determination  Date),  and (b) a
subdivision  or  combination,  as the case may be,  of the  number  of shares of
Common Stock  outstanding  immediately prior to such  reclassification  into the
number of shares of Common Stock  outstanding  immediately  thereafter  (and the
effective  date of such  reclassification  shall be  deemed  to be "the day upon
which  such  subdivision   becomes  effective"  or  "the  day  upon  which  such
combination becomes effective", as the case may be, and "the day upon which such
subdivision or combination  becomes  effective"  within the meaning of paragraph
(3) of this Section 2(b)). Rights,  options,  warrants or convertible securities
issued by the Company entitling the holders thereof to subscribe for or purchase
shares  of  Common  Stock,  which  rights,  options,   warrants  or  convertible
securities  (i) are deemed to be  transferred  with such shares of Common Stock,
(ii) are not  exercisable  and  (iii)  are also  issued  in  respect  of  future
issuances of Common  Stock,  in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"),  shall for purposes
of this Section 2(b) not be deemed  issued until the  occurrence of the earliest
Trigger Event.

     (8) Except as otherwise  provided in the last  sentence of this  subsection
(8) of Section 2(b) for the purpose of any  computation  under  paragraphs  (2),
(4),  (5) or (6) of this  Section  2(b) the  current  market  price per share of
Common Stock on any date shall be  calculated by the Company and be deemed to be
the average of the daily  Closing  Prices for the five (5)  consecutive  Trading
Days  selected by the Company  commencing  not more than ten (10)  Trading  Days
before,  and ending not later than,  the earlier of the day in question  and the
day before the "ex date" with respect to the issuance or distribution  requiring
such computation.  For purposes of this paragraph, the term "ex date", when used
with respect to any issuance or distribution,  means the first date on which the
Common Stock trades  regular way in the applicable  securities  market or on the
applicable  securities  exchange  without the fight to receive such  issuance or
distribution.  The current market price with respect to any option issued to any
employee or director of the Company or  consultant  to the Company  shall be the
fair market  value on the date of grant  determined  by  reference to the market
price on the day of the grant of such option or to the market price at the close
of business on the Trading Day immediately preceding such grant.

     (9) No  adjustment  in the  Conversion  Rate shall be required  unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(9)) would require an increase or decrease of at least one percent in such rate;
provided,  however,  that any adjustments  which by reason of this paragraph (9)
are not  required to be made shall be carried  forward and taken into account in
any subsequent  adjustment.  All calculations under this Section 2 shall be made
to the nearest cent or to the nearest  one-hundredth of a share, as the case may
be.

     (10) The Company may make such  increases in the  Conversion  Rate, for the
remaining  term of the  Securities  or any  shorter  term,  in addition to those
required by

                                        6

<PAGE>

paragraphs  (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers
to be  advisable  in order to avoid or diminish any income tax to any holders of
shares of Common Stock  resulting from any dividend or  distribution of stock or
issuance of rights,  options,  warrants or convertible securities to purchase or
subscribe for stock or from any event treated as such for income tax purposes.

     (c) Whenever the  Conversion  Rate is adjusted as provided in Section 2(b),
the Company  shall  compute the  adjusted  Conversion  Rate in  accordance  with
Section 2(b) and shall prepare a certificate (the "Conversion Rate Certificate")
signed by the Senior Financial Officer of the Company setting forth the adjusted
Conversion  Rate and  showing  in  reasonable  detail  the facts upon which such
adjustment is based,  and shall promptly  deliver such certificate to the holder
of this Security. If the holders of the Convertible Notes and the Company cannot
agree in writing as to the adjusted  Conversion  Rate in accordance with Section
2(b), the holders of the  Convertible  Notes and the Company shall determine the
adjusted Conversion Rate in accordance with the following procedure. The holders
of the  Convertible  Notes and the Company  shall each  appoint  one  registered
securities broker,  licensed with the Securities and Exchange Commission to sell
securities  to the  public,  which  broker  shall  be a senior  vice  president,
managing  director or equivalent of a major  securities  brokerage  company with
offices in New York, New York.  Each of such brokers shall have no less than ten
(10) years  experience  in such field,  shall be  unaffiliated  with,  and their
employer securities brokerage company shall be unaffiliated with, the holders of
the Convertible Notes and the Company and shall not have previously participated
in any  underwriting  of the  Company's  Common Stock in any public  offering or
provided any Material  investment  banking or corporate advisory services to the
Company.  The holders of the Convertible  Notes and the Company shall make their
appointments  promptly and, in any event,  within thirty (30) days from the date
of the  Conversion  Rate  Certificate.  The two brokers  shall meet and shall be
instructed  to render a  determination  of the adjusted  Conversion  Rate to the
holders of the  Convertible  Notes and the Company within sixty (60) days of the
date of the Conversion Rate  Certificate.  If the two brokers cannot agree, then
each broker  shall render their  independent  determination  and the two brokers
shall simultaneously  therewith provide the name of a third broker acceptable to
the two brokers meeting the criteria set forth above.  The third broker shall be
instructed  to render a  determination  of the adjusted  Conversion  Rate within
thirty (30) days of his or her appointment.  The two closest  determinations  of
the adjusted Conversion Rate shall be averaged mad shall constitute the adjusted
Conversion  Rate.  If the two  brokers  cannot  agree upon a third  broker,  the
selection of a third broker  shaI1 be  submitted to binding  arbitration  in New
York, New York under the rules of the American Arbitration  Association.  In the
event that the  difference  between the  Company's  calculation  of the adjusted
Conversion Rate and the  calculation of the adjusted  Conversion Rate determined
by the  foregoing  process is five  percent  (5%) or greater  then the costs and
expenses  of the  brokers  and  any  arbitration  shall  be  paid  by and be the
obligation  of the  Company and in the event that such  difference  is less than
five percent (5O/o) the holders of the Convertible Notes (as a group) shall each
pay its pro rata share of 50% of such costs and expenses  and the Company  shall
pay 50% of such costs and expenses.

     (d) In case:

                                        7

<PAGE>

     (1) the  Company  shall  declare a dividend  or other  distribution  on its
Common Stock payable (i) otherwise than  exclusively in cash or (ii) exclusively
in cash in an amount that would require any adjustment pursuant to Section 2(b);
or

     (2) the Company  shall  authorize the granting to the holders of its Common
Stock of rights, options, warrants or convertible securities to subscribe for or
purchase any shares of capital stock of any class or of any other rights; or

     (3) of any  reclassification  of the Common Stock of the Company, or of any
consolidation,  merger or share exchange to which the Company is a party and for
which  approval  of any  shareholders  of the  Company  is  required,  or of the
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company; or

     (4) of the voluntary or involuntary dissolution,  liquidation or winding up
of the Company; or

     (5) the Company or any Subsidiary  shall commence a tender offer for all or
a portion of the  Company's  outstanding  shares of Common Stock (or shall amend
any such tender offer);

then the Company shall cause to be delivered to the holder of this Security,  at
least 20 days (or 10 days in any case  specified  in  clause  (1) or (2)  above)
prior  to the  applicable  record,  expiration  or  effective  date  hereinafter
specified,  a notice  stating  (x) the date on which a record is to be taken for
the  purpose  of such  dividend,  distribution,  rights,  options,  warrants  or
convertible  securities or, if a record is not to be taken, the date as of which
the  holders  of  Common  Stock  of  record  to be  entitled  to such  dividend,
distribution,  rights,  options,  warrants or  convertible  securities are to be
determined,  (y) the date on which the right to make  tenders  under such tender
offer  expires  or (z) the date on which such  reclassification,  consolidation,
merger,  share  exchange,   conveyance,   transfer,  sale,  lease,  dissolution,
liquidation  or winding up is expected to become  effective,  and the dale as 0f
which it is expected that holders of Common Stock of record shall be entitled to
exchange  their shares of Common Stock for  securities,  cash or other  property
deliverable upon such reclassification,  consolidation,  merger, share exchange,
conveyance,  transfer,  sale,  lease,  dissolution,  liquidation  or winding up.
Neither the failure to give such notice nor any defect  therein shall affect the
legality or validity of the proceedings  described in clauses (1) through (5) of
this Section 2(d).

     (e) The Company  shall at all times reserve and keep  available,  free from
preemptive  rights,  out of its  authorized but unissued  Common Stock,  for the
purpose of effecting the  conversion of the Security,  the full number of shares
of Common Stock then issuable upon the conversion of this Security.

                                        8

<PAGE>

     (f) Except as provided in the next  sentence,  the Company will pay any and
all taxes and duties  that may be payable in respect of the issue or delivery of
shares of Common Stock on  conversion of this  Security.  The Company shall not,
however,  be  required to pay any tax or duty which may be payable in respect of
any  transfer  involved in the issue and delivery of shares of Common Stock in a
name  other  than that of the  holder  of this  Security,  and no such  issue or
delivery  shall be made  unless and until the Person  requesting  such issue has
paid to the Company the amount of any such tax or duty,  or has  established  to
the satisfaction of the Company that such tax or duty has been paid.

     (g) The  Company  agrees  that all  shares  of  Common  Stock  which may be
delivered upon  conversion of the Security,  upon such delivery,  will have been
duly authorized and validly issued and will be fully paid and nonassessable (and
shall be issued out of the Company's  authorized but unissued Common Stock) and,
except as provided in the second  sentence of Section  2(0, the Company will pay
all taxes, liens and charges with respect to the issue thereof.

     (h) In case of any consolidation of the Company with any other Person,  any
merger of the Company into another  Person or of another Person into the Company
(other than a merger which does not result in any reclassification,  conversion,
exchange or cancellation  of outstanding  shares of Common Stock of the Company)
or any conveyance,  sale,  transfer or lease of all or substantially  all of the
properties and assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such properties and assets,  as the
case may be,  shall  execute  and  deliver  to the  holder  of this  Security  a
supplemental  agreement  providing  that such  holder has the right,  during the
period this  Security  shall be  convertible  as specified in Section  2(a),  to
convert  this  Security  only into the kind and amount of  securities,  cash and
other property receivable upon such  consolidation,  merger,  conveyance,  sale,
transfer or lease  (including  any Common Stock  retainable)  by a holder of the
number of shares of Common Stock of the Company into which this  Security  might
have been converted immediately prior to such consolidation, merger, conveyance,
sale, transfer or lease, assuming such holder of Common Stock of the Company (i)
is not a Person  with which the  Company  consolidated,  into which the  Company
merged or which  merged  into the  Company  or to which such  conveyance,  sale,
transfer or lease was made, as the case may be (a "Constituent  Person"),  or an
Affiliate  of a  Constituent  Person and (ii) failed to  exercise  its fights of
election,  if any,  as to the kind or  amount  of  securities,  cash  and  other
property receivable upon such consolidation,  merger, conveyance, sale, transfer
or lease  (provided  that if the kind or  amount of  securities,  cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer,
or lease is not the same for each  share of  Common  Stock of the  Company  held
immediately prior to such consolidation,  merger, conveyance,  sale, transfer or
lease by others  than a  Constituent  Person or an  Affiliate  of a  Constituent
Person  and in  respect of which  such  fights of  election  shall not have been
exercised  ("Non-electing Share"), then for the purpose of this Section 2(h) the
kind and amount of  securities,  cash and other  property  receivable  upon such
consolidation,  merger,  conveyance,  sale,  transfer or lease by the holders of
each Non-electing  Share shall be deemed to be the kind and amount so receivable
per  share  by a  plurality  of  the  Non-electing  Shares).  Such  supplemental
agreement  shall provide for  adjustments  which,  for events  subsequent to the
effective date of such

                                       9

<PAGE>

supplemental  agreement,  shall be as nearly equivalent as may be practicable to
the  adjustments  provided for in this Section 2. The above  provisions  of this
Section  2(h)  shall  similarly  apply to  successive  consolidations,  mergers,
conveyances,  sales, transfers or leases. In this paragraph,  "securities of the
kind receivable" upon such consolidation,  merger, conveyance, transfer, sale or
lease by a holder of Common Stock means securities that, among other things, are
registered  and freely  transferable  under the  Securities  Act, and listed and
approved  for  quotation  in all  securities  markets,  in each case to the same
extent as such securities so receivable by a holder of Common Stock.

     (i) The  Company  (i) will effect all  registrations  with,  and obtain all
approvals  by, all  governmental  authorities  that may be  necessary  under any
United States Federal or state law  (including the Securities  Act, the Exchange
Act arid  state  securities  and Blue Sky laws) for the  shares of Common  Stock
issuable upon conversion of this Security to be lawfully issued and delivered as
provided  herein,  and  thereafter  publicly  traded (if  permissible  under the
Securities Act) and qualified or listed as contemplated by clause (ii) (it being
understood  that the Company  shall not be required to register the Common Stock
issuable on conversion  hereof under the Securities  Act, except pursuant to the
Registration Rights Agreement between the Company and the initial holder of this
Security);  and (ii) will list the shares of Common Stock  required to be issued
and delivered upon conversion of Securities, prior to such issuance or delivery,
on each national securities exchange on which outstanding Common Stock is listed
or  quoted  at the time of such  delivery,  or if the  Common  Stock is not then
listed On any securities exchange,  to qualify the Common Stock for quotation on
the Nasdaq National Market or such other inter-dealer  quotation system, if any,
on which the Common Stock is then quoted.

     (j) For purposes  hereof:  (references  to Sections  shall mean Sections of
this Security unless otherwise specified)

     "Affiliate"  of any  specified  Person means any other  Person  directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"control",  when used with respect to any specified  Person,  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

     "Business  Day" means any day other than a Saturday,  a Sunday or other day
which shall be in Boston, Massachusetts or New York, New York or a legal holiday
or a day on which  commercial  banks in Boston,  Massachusetts  or New York, New
York are required or authorized to be closed.

     "Cash Distribution" means the distribution by the Company to holders of its
Common Stock of cash,  other than any cash that is distributed  upon a merger or
consolidation  to  which  Section  2(h)  applies  or as part  of a  distribution
referred to in paragraph (4) of Section 2(b).

                                       10

<PAGE>

     "Change of Control" is defined in Section 3(0(2).

     "Closing" is defined in Section 1 of the Note Purchase Agreement.

     "Closing Price" means, with respect to the Common Stock of the Company, for
any day, the reported last sale price per share on the Nasdaq  National  Market,
or, if the Common  Stock is not  admitted  to  trading  on the  Nasdaq  National
Market, on the principal national securities exchange or inter-dealer  quotation
system on which the Common  Stock is listed or admitted  to  trading,  or if not
admitted  to trading on the Nasdaq  National  Market,  or listed or  admitted to
trading on any national  securities  exchange or inter-dealer  quotation system,
the   average  of  the   closing   bid  and  asked   prices  per  share  in  the
over-the-counter  market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.

     "Code"  means the Internal  Revenue  Code of 1986,  as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.

     "Common  Stock" means the Common  Stock,  par value $.01 per share,  of the
Company  authorized  at the  date of this  instrument  as  originally  executed.
Subject to the  provisions  of Section  2(h),  shares  issuable on conversion or
repurchase of this Security  shall include only shares of Common Stock or shares
of any class or classes of common stock resulting from any  reclassification  or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of this
Security shall include  shares of all such classes,  and the shares of each such
class then so issuable shall be  substantially in the proportion which the total
number of shares of such class resulting from all such  reclassifications  bears
to the  total  number  of shares  of all such  classes  resulting  from all such
reclassifications.

     "Convertible  Note(s)"shall  mean one or more of the Company's 9.00% Senior
Convertible Notes due June ---, 2004.

     "Conversion Price" is defined in Section 1.

     "Conversion Rate" is defined in Section 2(a).

     "Default"  means an event or condition the occurrence or existence of which
would,  with the lapse of time or the giving of notice or both,  become an Event
of Default.

     "Designated Office" is defined in the Preamble.

     "Determination   Date"   means,   in  the  case  of  a  dividend  or  other
distribution, including the issuance of rights, options, warrants or convertible
securities, to the date fixed for the determination of those entitled to receive
such dividend or other distribution, and in the case of a tender offer, the last
time that tenders could have been made pursuant to such tender offer.

                                       11

<PAGE>

     "Environmental  Laws" means any and all Federal,  state, local, and foreign
statutes,  laws, regulations,  ordinances,  rules,  judgments,  orders, decrees,
permits,  licenses,  written  agreements  or written  governmental  restrictions
relating to pollution and the  protection of the  environment  or the release of
any materials into the  environment,  including but not limited to those related
to hazardous  substances or wastes,  air  emissions  and  discharges to waste or
public systems.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time, and the rules and regulations  promulgated thereunder
from time to time in effect.

     "ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.

     "Excess Purchase  Payment" means the product of (A) the excess,  if any, of
(i) the amount of cash plus the fair market value (as  determined  in good faith
by the Company's Board of Directors) of any non-cash  consideration  required to
be paid with respect to one share of Common Stock  acquired or to be acquired in
a tender offer made by the Company or any  Subsidiary  of the Company for all or
any portion of the Common Stock over (ii) the current  market price per share as
of the last time that tenders could have been made pursuant to such tender offer
and (B) the  number of  shares  validly  tendered  and not  withdrawn  as of the
Determination Date in respect of such tender offer.

     "Event of Default" is defined in the preamble to Section 4.

     "Exchange Act" shall mean the Securities  Exchange Act of 1934, as amended,
or  any  successor  Federal  statute,  and  the  rules  and  regulations  of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect from time to time.

     "GAAP" means  generally  accepted  accounting  principles as in effect from
time to time in the United States of America.

     "Hazardous  Materials"  means any and all  pollutants,  toxic or  hazardous
wastes or any other substances that might pose a hazard to health or safety, the
remediation of which may be required or the generation,  manufacture,  refining,
production, processing, treatment, storage, handling, transportation,  transfer,
use, disposal, release, discharge,  spillage, seepage, or filtration of which is
restricted,   prohibited  or  penalized  by  any  applicable  Environmental  Law
(including, without limitation,  asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

     "holder"  means,  with  respect to this  Security or any other  Convertible
Note,  the Person in whose name it is registered  in the register  maintained by
the Company pursuant to Section 6(d).

                                       12

<PAGE>

     "Lien"  means,  with respect to any Person,  any  mortgage,  lien,  pledge,
charge, security interest or other encumbrance,  or any interest or title of any
vendor,  lessor,  lender or other  secured  party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease (as defined
by  GAAP),  upon or  with  respect  to any  property  or  asset  of such  Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).

     "Make-Whole Amount" is defined in Section 4(g).

     "Material" means material in relation to the business, operations, affairs,
financial  condition,  assets,  properties,  or prospects of the Company and its
Subsidiaries taken as a whole.

     "Material  Adverse  Effect"  means a  material  adverse  effect  on (a) the
business,  operations,  affairs,  financial  condition,  assets,  properties  or
prospects  of the  Company  and its  Subsidiaries  taken as a whole,  or (b) the
ability of the  Company  to  perform  its  obligations  under the Note  Purchase
Agreement,  the Registration  Rights Agreement and the Convertible Notes, or (c)
the validity or enforceability of this Agreement or the Convertible Notes.

     "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).

     "Note Purchase Agreement" is defined in the Preamble.

     "PBGC"  means the  Pension  Benefit  Guaranty  Corporation  referred to and
defined in ERISA or any successor thereto.

     "Person" means an individual,  partnership,  corporation, limited liability
company,  association,  trust, unincorporated  organization,  or a government or
agency or political subdivision thereof.

     "Plan"  means an  "employee  benefit  plan" (as defined in section  3(3) of
ERISA) that is or,  within the preceding  five years,  has been  established  or
maintained,  or to which  contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA  Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.

     "Purchaser(s)"  JOHN HANCOCK  MUTUAL LIFE INSURANCE  COMPANY;  JOHN HANCOCK
VARIABLE LIFE INSURANCE COMPANY and HANCOCK MEZZANINE PARTNERS

     "Registration  Rights  Agreement" means the  Registration  Rights Agreement
dated as of the date hereof among the Purchasers and the Company.

                                       13

<PAGE>

     "Repurchase Date" is defined in Section 3(a).

     "Repurchase Price" is defined in Section 3(a).

     "Responsible  Officer"  means any Senior  Financial  Officer  and any other
senior officer of the Company with  responsibility for the administration of the
relevant covenants in this Security or in the Note Purchase Agreement.

     "Securities Act" shall mean the Securities Act of 1933, as amended,  or any
successor  Federal statute,  and the rules and regulations of the Securities and
Exchange Commission promulgated  thereunder,  all as the same shall be in effect
from time to time.

     "Senior  Financial  Officer" means the chief financial  officer,  principal
accounting officer, treasurer or comptroller of the Company.

     "Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its  Subsidiaries or such
Person  and one or more of its  Subsidiaries  owns  sufficient  equity or voting
interests  to  enable  it or them (as a group)  ordinarily,  in the  absence  of
contingencies,  to elect a majority  of the  directors  (or  Persons  performing
similar  functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or  more  of its  Subsidiaries  or  such  Person  and  one  or  more  of its
Subsidiaries  (unless  such  partnership  can and  does  ordinarily  take  major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.

     "Trading  Day" means (i) if the Common  Stock is admitted to trading on the
Nasdaq  National  Market  or any  other  system of  automated  dissemination  of
quotations of securities  prices,  a day on which trades may be effected through
such  system;  (ii) if the Common Stock is listed or admitted for trading on the
New York Stock  Exchange or any other  national  securities  exchange,  a day on
which such  exchange is open for  business;  or (iii) if the Common Stock is not
admitted  to trading on the Nasdaq  National  Market or listed or  admitted  for
trading on any  national  securities  exchange or any other  system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.

     3. Right to Require  Repurchase.  (a) In the event that a Change in Control
shall  occur,  then the holder of this  Security  shall have the right,  at such
holder's option, to require the Company to repurchase,  and upon the exercise of
such fight the Company shall  repurchase,  this Security,  or any portion of the
principal  amount  hereof  that is  equal to  $1,000  or any  integral  multiple
thereof,  on the date (the  "Repurchase  Date") that is thirty (30) Trading Days
after the date on which the Company  gives notice  thereof to the holder of this
Security,  at a purchase  price  equal to 100% of the  principal  amount of this
Security to be repurchased plus interest accrued to

                                       14

<PAGE>

the  Repurchase  Date  (the  "Repurchase  Price");   provided,   however,   that
installments  of interest on this Security whose stated  maturity is on or prior
to the Repurchase  Date shall be payable to the holder of this Security,  or one
or more predecessor  Securities,  registered as such on the relevant Record Date
according to their terms. At the option of the Company, the Repurchase Price may
be paid in cash or subject to the  fulfillment  by the Company of the conditions
set forth in each of Section 5 and Section 6 and subject to the  limitations set
forth in each of Section 5 and Section 6, by delivery of shares of Common  Stock
or in common  stock of any Person  which  succeeds  the  Company up to a maximum
amount often  percent (10%) of the then issued and  outstanding  Common Stock or
common stock of such Person following any Change in Control, provided,  however,
the cash plus the fair market  value of such shares  shall equal the  Repurchase
Price.  The  Company  agrees to give the holder of this  Security  notice of any
Change in Control, by facsimile  transmission  confirmed in writing by overnight
courier  service,  promptly  and in any event within two (2) Trading Days of the
occurrence thereof.

     (b) To exercise a repurchase right, the holder shall deliver to the Company
on or before the 10th Trading Day prior to the  Repurchase  Date,  together with
this  Security,  written  notice of the holder's  exercise of such right,  which
notice  shall set forth the name of the  holder,  the number of shares of Common
Stock then owned by such holder and its affiliates, the principal amount of this
Security to be repurchased  (and, if this Security is to be repurchased in part,
the portion of the principal  amount thereof to be  repurchased  and the name of
the  person in which  the  portion  thereof  to remain  outstanding  after  such
repurchase is to be registered) and a statement that an election to exercise the
repurchase  right is being made  thereby  and, in the event that the  Repurchase
Price shall be paid in whole or in part by the  delivery of shares,  as provided
above,  the name or names  (and the  addresses)  in which the  certificates  for
shares shall be issued.  Such written notice shall be  irrevocable,  except that
the fight of the holder to convert  this  Security  (or the portion  hereof with
respect to which the repurchase  right is being  exercised) shall continue until
the close of business on the  Repurchase  Date (or if the Company  elects to pay
the Repurchase Price by delivery of shares as provided above, until the close of
business on the Trading Day  immediately  preceding the first delivery of shares
with respect thereto).

     (c) In the event a repurchase  right shall be exercised in accordance  with
the terms  hereof,  the Company  shall pay or cause to be paid to the holder the
Repurchase Price in cash or shares, as provided above, together with accrued and
unpaid interest to the Repurchase Date; provided,  however, that installments of
interest  that  mature on or prior to the  Repurchase  Date  shall be payable in
cash, to the holders of this Security,  or one or more  predecessor  Securities,
registered as such at the close of business on the relevant regular record date.

     (d) If this Security (or portion thereof) is surrendered for repurchase and
is not so paid on or prior to the Repurchase  Date, the principal amount of this
Security (or such portion  hereof,  as the case may be) shall,  until paid, bear
interest to the extent  permitted by applicable law from the Repurchase  Date at
eleven percent (11%) per annum,  and shall remain  convertible into Common Stock
until the  principal of this Security (or portion  thereof,  as the case may be)
shall have been paid or duly provided for.

                                       15

<PAGE>

     (e) If this  Security  is to be  repurchased  only in  part,  it  shall  be
surrendered  to the Company at the  Designated  Office (with,  if the Company so
requires,  due  endorsement  by, or a written  instrument  of  transfer  in form
satisfactory  to the Company duly executed by, the holder hereof or his attorney
duly  authorized in writing),  and the Company shall execute and make  available
for delivery to the holder without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized denomination in
aggregate  principal  amount  equal  to and in  exchange  for the  unrepurchased
portion of the principal of the Security so surrendered.

     (f) For purposes of this Section 3.

     (1) the term "beneficial owner" shall be determined in accordance with Rule
13d-3  promulgated  by the Securities  and Exchange  Commission  pursuant to the
Exchange Act; and

     (2) a "Change in  Control"  shall be deemed to have  occurred  at the time,
after the original issuance of this Security, of:

     (i) the  acquisition  by any Person of  beneficial  ownership,  directly or
indirectly,  through a  purchase,  merger or other  acquisition  transaction  or
series of transactions, of shares of capital stock of the Company entitling such
Person  to  exercise  50% or more of the  total  voting  power of all  shares of
capital  stock of the Company  entitled  to vote  generally  in the  election of
directors  (any shares of voting  stock of which such  Person is the  beneficial
owner that are not then  outstanding  being deemed  outstanding  for purposes of
calculating such  percentage)  other than any such acquisition by the Company or
any employee benefit plan of the Company; or

     (ii) any  consolidation  or merger of the Company  with or into,  any other
Person,  any  merger  of  another  Person  with  or  into  the  Company,  or any
conveyance,  transfer,  sale, lease or other disposition of all or substantially
all of the  assets of the  Company to another  Person  (other  than (a) any such
transaction  (x)  which  does not  result in any  reclassification,  conversion,
exchange or cancellation of outstanding  shares of Common Stock and (y) pursuant
to which holders of Common Stock  immediately prior to such transaction have the
entitlement to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock  entitled to vote generally in the election
of  directors  of the  continuing  or surviving  Person  immediately  after such
transaction  and  (b)  any  merger  which  is  effected  solely  to  change  the
jurisdiction of incorporation of the Company and results in a  reclassification,
conversion or exchange of outstanding  shares of Common Stock into solely shares
of common stock,

     4. Events of Default.  (a) "Event of Default",  wherever used herein, means
any one of the following  events  (whatever the reason for such Event of Default
and whether it shall be voluntary or  involuntary or be effected by operation of
law or pursuant to any judgment,

                                       16

<PAGE>

decree  or  order  of  any  court  or  any  order,  rule  or  regulation  of any
administrative or governmental body):

     (1) (A) default in the payment of any  principal or premium,  if any,  upon
this Security when the same becomes due and payable, whether at maturity or at a
date fixed for  prepayment or by  declaration or otherwise or (B) default in the
payment of any interest upon this Security when it becomes due and payable,  and
continuance of such default for a period of five (5) days; or

     (2) default by the Company in the performance of its obligations in respect
of any  conversion of this Security (or any portion  hereof) in accordance  with
Section 2; or

     (3)  failure  by the  Company  to give any  notice of a Change  of  Control
required to be delivered in accordance with Section 3(a); or

     (4) default in the  performance,  or breach,  of any  material  covenant or
warranty  of the  Company  herein,  in the Note  Purchase  Agreement,  or in the
Registration  Rights  Agreements (other than a covenant or warranty a default in
the performance or breach of which is specifically  dealt with elsewhere in this
Section 4(a)) and  continuance of such default or breach for a period of 30 days
after the  earlier to occur  of(A) the  Company's  obtaining  knowledge  of such
default or (B) the Company's receiving written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or

     (5) any  representation  or warranty made in writing by or on behalf of the
Company or by any  officer  of the  Company  furnished  in  connection  with the
transactions  contemplated  hereby proves to have been false or incorrect in any
material respect on the date as of which made; or

     (6) a final  judgment or judgments for the payment of money  aggregating in
excess of  $250,000  are  rendered  against  one or more of the  Company and its
Subsidiaries  and which  judgments are not,  within 60 days after entry thereof,
bonded,  discharged or stayed pending  appeal,  or are not discharged  within 60
days after the expiration of such stay; or

     (7) a  default  under  any  bond,  debenture,  note or  other  evidence  of
indebtedness  for  money  borrowed  by the  Company,  or  under  any  agreement,
mortgage,  indenture or  instrument  under which there may be issued or by which
there may be secured or evidenced  any  indebtedness  for money  borrowed by the
Company,  with a principal  amount  then  outstanding  in excess of  $1,000,000,
whether  such  indebtedness  now exists or shall  hereafter  be  created,  which
default shall constitute a failure to pay the principal of such indebtedness (in
whole or in any part greater than $1,000,000) when due and payable or shall have
resulted in such  indebtedness (in whole or in any part greater than $1,000,000)
becoming or being  declared due and payable  prior to the date on which it would
otherwise have become due and payable; or

                                       17

<PAGE>

     (8) if (i) any Plan other than a  Multiemployer  Plan shall fail to satisfy
the  minimum  funding  standards  of ERISA or the Code for any plan year or part
thereof or a waiver of such standards or extension of any amortization period is
sought or  granted  under  section  412 of the Code,  (ii) a notice of intent to
terminate  any Plan  other  than a  Multiemployer  Plan  shall  have  been or is
reasonably  expected to be filed with the PBGC or the PBGC shall have instituted
proceedings  under  ERISA  section  4042 to  terminate  or  appoint a trustee to
administer  any Plan  other  than a  Multiemployer  Plan or the PBGC  shall have
notified  the  Company  or  any  ERISA  Affiliate  that  a  Plan  other  than  a
Multiemployer  Plan may  become a  subject  of any such  proceedings,  (iii) the
aggregate  "amount of  unfunded  benefit  liabilities"  (within  the  meaning of
section  4001(a)(18) of ERISA) under all Plans other than a Multiemployer  Plan,
determined in accordance with Title IV of ERISA, shall exceed $250,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably  expected to
incur any liability  pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee  benefit plans,  (v) the Company
or any  ERISA  Affiliate  withdraws  from any  Multiemployer  Plan,  or (vi) the
Company or any  Subsidiary  establishes or amends any employee  welfare  benefit
plan that  provides  post-employment  welfare  benefits  in a manner  that would
increase the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be expected to
have a Material  Adverse  Effect.  (As used in this Section  4(a)(8),  the terms
"employee  benefit  plan" and  "employee  welfare  benefit  plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.); or

     (9) if, as a result of any Change of Control or any other  consolidation or
merger,  the holding by the Purchasers or any assignees thereof of this Security
or the holding of any Common Stock or common stock of any Person  succeeding the
Company,  issued to the Purchasers or any assignees  thereof after conversion of
this  Security  would  constitute,  with  respect  to  any  Plan  (other  than a
Multiemployer   Plan)  a  prohibited   transaction   which  would   violate  the
prohibitions  of section 406 of ERISA or which would  subject any  "disqualified
person"  (as  defined in section  4975(e)(2)  of the Code) to a tax  pursuant to
section 4975 (c)(1)(A)-(D) of the Code; or

     (10) the entry by a court  having  jurisdiction  in the  premises  of (A) a
decree or order for relief in respect of the Company in an  involuntary  case or
proceeding  under  any  applicable  Federal  or  State  bankruptcy,  insolvency,
reorganization  or other  similar  law or (B) a decree  or order  adjudging  the
Company a bankrupt or  insolvent,  or  approving  as  properly  filed a petition
seeking reorganization,  arrangement, adjustment or composition of or in respect
of the  Company  under any  applicable  Federal or State law,  or  appointing  a
custodian,  receiver,  liquidator,  assignee,  trustee,  sequestrator  or  other
similar official of the Company or of any substantial  part of its property,  or
ordering the winding up or  liquidation of its affairs,  and the  continuance of
any such decree or order for relief or any such other  decree or order  unstayed
and in effect for a period of 60 consecutive days; or

                                       18

<PAGE>

          (11) the commencement by the Company of a voluntary case or proceeding
     under   any   applicable   Federal   or   State   bankruptcy,   insolvency,
     reorganization  or other  similar law or of any other case or proceeding to
     be  adjudicated a bankrupt or insolvent,  or the consent by it to the entry
     of a decree or order for relief in respect of the Company in an involuntary
     case or  proceeding  under  any  applicable  Federal  or State  bankruptcy,
     insolvency,  reorganization  or other similar law or to the commencement of
     any bankruptcy or insolvency  case or proceeding  against it, or the filing
     by it of a petition or answer or consent seeking  reorganization or similar
     relief under any  applicable  Federal or State law, or the consent by it to
     the filing of such petition or to the  appointment of or taking  possession
     by a custodian,  receiver,  liquidator,  assignee, trustee, sequestrator or
     other  similar  official of the Company or of any  substantial  part of its
     property,  or  the  making  by it of  an  assignment  for  the  benefit  of
     creditors,  or not paying its debts as they become due or the  admission by
     it in writing of its  inability  to pay its debts  generally as they become
     due, or the taking of corporate action by the Company in furtherance of any
     such action.

     (b) If an Event of Default  (other  than an Event of Default  specified  in
Section 4(a)(10) or 4(a)(11)) occurs and is continuing,  then in every such case
the holder of this  Security  may  declare  the  principal  hereof to be due and
payable  immediately,  by a notice in writing to the Company,  and upon any such
declaration  such  principal  and  all  accrued  interest  hereon  shall  become
immediately due and payable without presentment, demand, protest or other notice
of any kind,  all of which are hereby  expressly  waived,  and the Company shall
forthwith upon any such  acceleration pay to the holder of this Security (i) the
entire principal of and interest accrued on this Security, and (ii) in addition,
to the extent  permitted  by  applicable  law, an amount equal to the Make Whole
Amount,  as  liquidated  damages  and  not as a  penalty;  and,  in  case of the
occurrence  of an Event of Default of the  character  described in  subdivisions
4(a)(10) or 4(a)(11)  the  principal of and accrued  interest on this  Security,
ipso facto shall become  immediately  due and payable without any declaration or
other act of the  holder  of this  Security  and  without  presentment,  demand,
protest or other notice of any kind, all of which are hereby  expressly  waived,
and the Company shall forthwith upon any such  acceleration pay to the holder of
this Security (x) the entire  principal of and interest accrued on this Security
and (y) in addition,  if such Event of Default is  "Voluntary"  (as  hereinafter
defined),  to the extent  permitted  by  applicable  law, an amount equal to the
Make-Whole Amount, as liquidated damages and not as a penalty.

     For  purposes  of this  section  4(a),  "Voluntary"  shall mean an Event of
Default of the character  described in  subdivisions  4(a)(10) or 4(a)(11) which
shall  have  been  (x)  procured  by  the  Company  or  any  officer,  director,
stockholder or Affiliate of the Company or (y) primarily the result of action or
inaction by the Company or by any officer, director, stockholder or Affiliate of
the Company.

     (c) In case any one or more of the Events of Default  specified  in section
4(a) shall have occurred,  and  irrespective of whether this Security has become
or has been declared  immediately due and payable under section 4(a), the holder
of this Security may proceed to protect and enforce its rights either by suit in
equity or by action at law, or both. The Company stipulates that the remedies at
law of the holder of this  Security  in the event of any  Default or  threatened
Default by the Company in the  performance of or compliance with any covenant or
agreement in

                                       19

<PAGE>

this Security,  the Note Purchase Agreement or the Registration Rights Agreement
are not and will not be adequate and that,  to the fullest  extent  permitted by
law,  such  terms may be  specifically  enforced  by a decree  for the  specific
performance  thereof,  whether by an injunction  against a violation  thereof or
otherwise.

     (d) No remedy  conferred in this Security,  the Note Purchase  Agreement or
the  Registration  Rights  Agreement  is intended to be  exclusive  of any other
remedy,  and each and every  such  remedy  shall be  cumulative  and shall be in
addition to every other remedy given hereunder or thereunder or now or hereafter
existing at law or in equity or by statute or otherwise.

     (e) No course of dealing  between the Company and any of its  Subsidiaries,
on the one hand,  and the holder of this  Security,  on the other  hand,  and no
delay by any such holder in  exercising  any rights  hereunder or under the Note
Purchase  Agreement or the  Registration  Rights  Agreement  shall  operate as a
waiver of any rights of such holder.

     (f) In case any one or more of the Events of Default  specified  in section
4(a) shall have occurred, all amounts to be applied to the prepayment or payment
of this  Security  shall be applied,  after the payment of all related costs and
expenses incurred by the holder of this Security (including, without limitation,
compensation  to  any  and  all  trustees,  liquidators,  receivers  or  similar
officials and reasonable  fees,  expenses and  disbursements of counsel) in such
order of priority as is determined by the holder of this Security.

     (g) The term "Make-Whole  Amount" means, with respect to this Security,  an
amount equal to the excess,  if any, of the  Discounted  Value of the  Remaining
Scheduled  Payments  with respect to the Called  Principal of this Security over
the amount of such Called Principal,  provided that the Make-Whole Amount may in
no event be less than zero.  For the  purposes  of  determining  the  Make-Whole
Amount, the following terms have the following meanings:

     "Called  Principal" means, with respect to this Security,  the principal of
this Security that has become or is declared to be  immediately  due and payable
pursuant to Section 4(b).

     "Discounted  Value"  means,  with  respect to the Called  Principal of this
Security,  the amount obtained by discounting all Remaining  Scheduled  Payments
with respect to such Called Principal from their respective  scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted  financial  practice  and at a  discount  factor  (applied  on the same
periodic  basis as that on which  interest on this Security is payable) equal to
the Reinvestment Yield with respect to such Called Principal.

     "Reinvestment  Yield" means,  with respect to the Called  Principal of this
Security,  150 basis points over the yield to maturity implied by (i) the yields
reported,  as of 10:00  A.M.  (New York City time) on the  second  Business  Day
preceding  the  Settlement  Date with respect to such Called  Principal,  on the
display designated as "PX-I" of the Bloomberg  Financial Markets Services Screen
for actively  traded U.S.  Treasury  securities  having a maturity  equal to the
Remaining Average Life of such Called Principal as of such

                                       20

<PAGE>

Settlement  Date, or (ii) if such yields are not reported as of such time or the
yields  reported as of such time are not  ascertainable,  the Treasury  Constant
Maturity Series Yields  reported,  for the latest day for which such yields have
been so reported as of the second  Business Day  preceding the  Settlement  Date
with respect to such Called Principal, in Federal Reserve Statistical Release H.
15 (519) (or any  comparable  successor  publication)  for actively  traded U.S.
Treasury  securities  having a constant  maturity equal to the Remaining Average
Life of such Called  Principal as of such  Settlement  Date.  Such implied yield
will  be  determined,  if  necessary,  by  (a)  converting  U.S.  Treasury  bill
quotations  to  bond-equivalent  yields in accordance  with  accepted  financial
practice and (b)  interpolating  linearly  between (1) the actively  traded U.S.
Treasury  security  with the duration  closest to and greater than the Remaining
Average  Life  and (2) the  actively  traded  U.S.  Treasury  security  with the
duration closest to and less than the Remaining Average Life.

     "Remaining  Average Life" means, with respect to any Called Principal,  the
number  of years  (calculated  to the  nearest  one-twelfth  year)  obtained  by
dividing (i) such Called Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining Scheduled Payment with
respect to such Called  Principal by (b) the number of years  (calculated to the
nearest  one-twelfth  year) that will elapse  between the  Settlement  Date with
respect to such Called  Principal and the  scheduled due date of such  Remaining
Scheduled Payment.

     "Remaining  Scheduled  Payment" means, with respect to the Called Principal
of this  Security,  all payments of such Called  Principal and interest  thereon
that  would be due  after  the  Settlement  Date  with  respect  to such  Called
Principal  if no  payment  of such  Called  Principal  were  made  prior  to its
scheduled due date, provided that if such Settlement Date is not a date on which
interest payments are due to be made under the terms of this Security,  then the
amount of the next succeeding  scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date.

     "Settlement  Date"  means,  with  respect to the Called  Principal  of this
Security,  the date on which such Called  Principal or has become or is declared
to be immediately due and payable pursuant to Section 4(b).

     5.  Consolidation,  Merger, Etc. (a) The Company shall not consolidate with
or merge into any other Person or,  directly or  indirectly,  convey,  transfer,
sell or lease  all or  substantially  all of its  properties  and  assets to any
Person, and the Company shall not permit any Person to consolidate with or merge
into the Company or, directly or indirectly, convey, transfer, sell or lease all
or substantially all of its properties and assets to the Company, unless:

     (1) in case the Company shall consolidate with or merge into another Person
or convey,  transfer,  sell or lease all or substantially  all of its properties
and assets to any Person,  the Person formed by such consolidation or into which
the Company is merged or the Person which  acquires by  conveyance,  transfer or
sale, or which leases, all or substantially all the properties and assets of the
Company shall be a corporation, limited

                                       21

<PAGE>

liability company, partnership or trust, shall be organized and validly existing
under  the laws of the  United  States of  America,  any  State  thereof  or the
District of Columbia and shall expressly  assume,  by an agreement  supplemental
hereto,  executed  and  delivered  to  the  holder  of  this  Security  in  form
satisfactory to the holder, the due and punctual payment of the principal of(and
premium, if any) and interest on this Security and the performance or observance
of every covenant of this Security on the part of the Company to be performed or
observed,   including  the  conversion   rights  provided  herein  (which  shall
thereafter  relate  to common  stock of such  successor,  on a basis  reasonably
designed to preserve the economic  value to the holder of this  Security of such
conversion rights);

     (2)  immediately  after giving effect to such  transaction and treating any
indebtedness  which  becomes an obligation of the Company or a Subsidiary of the
Company as a result of such  transaction  as having been incurred by the Company
or such Subsidiary of the Company at the time of such  transaction,  no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing;

     (3) the Company has  delivered to the holder of this  Security an officers'
certificate stating that such consolidation,  merger, conveyance, transfer, sale
or lease and, if a  supplemental  agreement is required in connection  with such
transaction,  such supplemental agreement, comply with this Section and that all
conditions  precedent herein provided for relating to such transaction have been
complied with; and

     (4) counsel for the Company has delivered to the holder of this Security an
opinion of such counsel with respect to such consolidation,  merger, conveyance,
transfer,  sale  or  lease,  and if a  supplemental  agreement  is  required  in
connection with such  transaction,  such supplemental  agreement,  which opinion
shall be, in form and  substance,  reasonably  acceptable to such holder and its
counsel.

     (b) Upon any  consolidation  of the Company  with, or merger of the Company
into,  any other  Person or any  conveyance,  transfer,  sale or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 5(a), the successor  Person formed by such  consolidation  or into which
the Company is merged or to which such  conveyance,  transfer,  sale or lease is
made shall succeed to, and be substituted  for, and may exercise every right and
power of,  the  Company  under  this  Security  with the same  effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Security.

     6.  Payment in Stock.  (a) The  Company may elect to pay some or all of the
Repurchase Price by delivery of shares of Common Stock or shares of common stock
in any Person  succeeding  the  Company,  if and only if, each of the  following
conditions shall be satisfied  (without limiting any other conditions  contained
herein):

     (1) Any such payment shall be made in five equal  installments,  on each of
the five consecutive  Trading Days ending on and including the third Trading Day
immediately preceding

                                       22

<PAGE>

the date when any cash payment would  otherwise be due, and the shares of Common
Stock or common  stock of any  Person  succeeding  the  Company  deliverable  in
payment of each such  installment  shall have a fair market value as of the date
of such  installment  of not less  than 20% of the  amount of such  payment  due
hereunder  which is payable in shares of stock.  For purposes of this Section 6,
the fair  market  value of shares of Common  Stock  shall be equal to 95% of the
Closing Price for the immediately preceding Trading Day;

     (2) In the event any shares of Common  Stock or common  stock of any Person
succeeding  the  Company to be issued in  respect  of any  amount due  hereunder
require  registration under any Federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under the
Securities  Act of  1933  upon  issuance,  such  registration  shall  have  been
completed  and shall have become  effective  prior to the date of the first such
installment;

     (3) In the event any shares of Common  Stock or common  stock of any Person
succeeding  the  Company to be issued in  respect  of any  amount due  hereunder
require  registration  with or approval of any governmental  authority under any
State law or any other  Federal law before such shares may be validly  issued or
delivered upon issuance or transferred freely, such registration shall have been
completed or have become  effective and such approval  shall have been obtained,
in each case, prior to the date of the first such installment;

     (4) The shares of Common Stock or common stock of any Person succeeding the
Company  deliverable  in payment of such  amount due  hereunder  shall have been
approved for quotation in the Nasdaq  National Market  immediately  prior to the
date of the first such installment or, if at the time its shares of Common Stock
or shares of common  stock of any Person  succeeding  the  Company are listed or
admitted for trading on any national securities  exchange,  the shares of Common
Stock or common stock in any Person succeeding the Company and deliverable shall
have been so listed or admitted for trading.

     (5) All shares of Common Stock or common stock of any Person succeeding the
Company  deliverable in payment of such amount due hereunder shall,  upon issue,
be duly and  validly  issued and fully paid and  non-assessable  and free of any
preemptive rights;

     (6) In respect of each such payment date,  the Company shall have given the
holder of this  Security not less than 10 nor more than 15 Trading  Days' notice
of its election to effect payment in respect of such payment date by delivery of
shares of Common  Stock;  provided  that any such  notice  shall  accompany  the
Company's notice of a Change of Control relating thereto; and

     (7) The Company shall deliver,  or cause to be delivered a certificate from
the Person succeeding the Company which states,  that after giving effect to any
Change of Control that the holding by the Purchasers or any assignees thereof of
this Security,  or the holding of any Common Stock or common stock of any Person
succeeding the Company after  conversion of this Security would not constitute a
prohibited transaction which would violate the prohibition of

                                       23

<PAGE>

section  406 of ERISA or which  would  subject  any  "disqualified  person"  (as
defined in section  4975(e)(2)  of the Code) to a tax  pursuant to section  4975
(c)(1)(A)-(D) of the Code.

     If all of the  conditions  set forth in this Section 6(a) are not satisfied
in accordance with the terms hereof, any such amount due hereunder shall be paid
by the Company only in cash.

     (b) Any issuance of shares of Common Stock or shares of common stock of any
Person  succeeding  the  Company  in respect of any  installment  due  hereunder
pursuant  to this  Section 6 shall be deemed to have been  effected  immediately
prior to the close of business on the date of delivery of such  installment  and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such  delivery  shall be deemed to
have  become  on such  date the  holder  or  holders  of  record  of the  shares
represented thereby;  provided,  however,  that in case any installment shall be
due on a date when the stock transfer books of the Company shall be closed,  the
person or persons in whose name or names the  certificate  or  certificates  for
such shares are to be issued shall be deemed to have become the record holder or
holders  thereof  for all  purposes  at the  opening  of  business  on the  next
succeeding  day on which  such  stock  transfer  books are open.  No  payment or
adjustment  shall be made for  dividends  or  distributions  on any Common Stock
issued pursuant to this Section 6 declared prior to the relevant  delivery date;
and

     (c) Any issuance and delivery of certificates for shares of common stock or
shares of common  stock of any Person  succeeding  the Company  pursuant to this
Section 6 shall be made without  charge to the holder of this  Security for such
certificates  or for any tax or duty in respect of the  issuance  or delivery of
such certificates or the securities represented thereby.

     7.  Other.  (a) No  provision  of this  Security  shall alter or impair the
obligation  of the  Company,  which is absolute  and  unconditional,  to pay the
principal  of,  premium,  if any, and  interest on this  Security in cash at the
times,  places and rate,  and in the coin or currency,  herein  prescribed or to
convert this Security as herein provided.

     (b) The Company will give prompt  written  notice to the holder of Security
of any change in the location of the Designated Office.

     (c) The transfer of this Security is registrable  on the Security  Register
of the Company upon surrender of this Security for  registration  of transfer at
the Designated Office,  duly endorsed by, or accompanied by a written instrument
of transfer in form  satisfactory  to the Company  duly  executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities,  of authorized  denominations  and for the same aggregate  principal
amount,  will be  issued  to the  designated  transferee  or  transferees.  Such
Securities are issuable only in registered form without coupons in denominations
of $1,000 and any integral multiple thereof. No service charge shall be made for
any such registration of transfer,  but the Company may require payment of a sum
sufficient to recover any tax or other governmental charge payable in connection
therewith.  Prior to due  presentation  of this  Security  for  registration  of
transfer, the Company and any agent of the Company may treat the Person in whose
name this

                                       24

<PAGE>

Security is registered  as the owner  thereof for all  purposes,  whether or not
this  Security be  overdue,  and neither the Company nor any such agent shall be
affected by notice to the contrary.

     (d) The  Company  shall keep at the  Designated  Office a register  for the
registration  and  registration of transfers of Convertible  Notes. The name and
address of each holder of one or more Convertible  Notes,  each transfer thereof
and the name and address of each  transferee  of one or more  Convertible  Notes
shall be registered in such register.  Prior to due presentment for registration
of transfer,  the Person in whose name any Convertible  Note shall be registered
shall be deemed and  treated as the owner and holder  thereof  for all  purposes
hereof,  and the Company shall not be affected by any notice or knowledge to the
contrary.  The Company shall give to any holder of a  Convertible  Note promptly
upon request therefor, a complete and correct copy of the names and addresses of
all registered holders of Convertible Notes.

     (e) Upon surrender of any  Convertible  Note at the  Designated  Office for
registration  of  transfer  or  exchange  (and in the  case of a  surrender  for
registration of transfer,  duly endorsed or accompanied by a written  instrument
of transfer duly executed by the registered  holder of such  Convertible Note or
his  attorney  duly  authorized  in writing and  accompanied  by the address for
notices  of each  transferee  of such  Convertible  Note or part  thereof),  the
Company shall execute and deliver,  at the Company's expense (except as provided
below),  one or more new Convertible  Notes (as requested by the holder thereof)
in exchange  therefor,  in an  aggregate  principal  amount  equal to the unpaid
principal amount of the surrendered  Convertible Note. Each such new Convertible
Note shall be payable to such  Person as such  holder may  request  and shall be
substantially in the form of this Security. Each such new Convertible Note shall
be dated and bear interest from the date to which  interest shall have been paid
on the  surrendered  Convertible  Note or  dated  the  date  of the  surrendered
Convertible  Note if no interest  shall have been paid thereon.  The Company may
require  payment  of a sum  sufficient  to cover any  stamp tax or  governmental
charge  imposed in respect of any such  transfer of this  Security.  Convertible
Notes shall not be transferred in denominations of less than $100,000,  provided
that if  necessary  to enable the  registration  of  transfer by a holder of its
entire  holding  of  Convertible  Notes,  one  Convertible  Note  may  be  in  a
denomination  of less than  $100,000.  Any  transferee,  by its  acceptance of a
Convertible  Note registered in its name (or the name of its nominee),  shall be
deemed  to have  made the  representation  set  forth in  Section  3 of the Note
Purchase Agreement.

     (f) Upon receipt by the Company of evidence  reasonably  satisfactory to it
of the  ownership of and the loss,  theft,  destruction  or  mutilation  of this
Security  (which evidence shall be notice from such holder of such ownership and
such loss, theft, destruction or mutilation), and

     (i) in the case of loss,  theft or  destruction,  of  indemnity  reasonably
satisfactory  to it  (provided  that if the holder of this  Security is, or is a
nominee for, an original holder or another institutional investor holder of this
Security,  such Person's own unsecured agreement of indemnity shall be deemed to
be satisfactory), or

     (ii) in the case of mutilation, upon surrender and cancellation thereof,

                                       25

<PAGE>

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Convertible  Note.  dated and bearing  interest from the date to which  interest
shall have been paid on such lost,  stolen.  destroyed or mutilated  Convertible
Note or dated the date of such lost, stolen,  destroyed or mutilated Convertible
Note if no interest shall have been paid thereon.

     (G) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.

     (h) So long as you or your  nominee  shall be holder of this  Security  and
notwithstanding  anything in this Security to the contrary, the Company will pay
all sums becoming due hereunder for principal,  Make-Whole  Amount,  if any, and
interest by the method and at the address  specified for such purpose below your
name in  Schedule I of the Note  Purchase  Agreement,  or by such  other  method
provided in the Preamble or at such other address as you shall have from time to
time  specified  to the  Company  in  writing  for  such  purpose,  without  the
presentation  or  surrender  of this  Security,  or the  making of any  notation
hereon,  except that upon written request of the Company made  concurrently with
or  reasonably  promptly  after  payment  in full of this  Security,  you  shall
surrender  this Security for  cancellation,  reasonably  promptly after any such
request to the  Company  at its  principal  executive  office or at the place of
payment most  recently  designated  by the  Company.  Prior to any sale or other
disposition of this Security you will, at your election,  either endorse thereon
the amount of  principal  paid  thereon and the last date to which  interest has
been paid  thereon or surrender  this  Security to the Company in exchange for a
new Convertible  Note pursuant to the terms hereof.  The Company will afford the
benefits of this  Section to any  institutional  investor  that is the direct or
indirect transferee of this Security.

                     [END OF PAGE - SIGNATURE PAGE FOLLOWS]

                                       26

<PAGE>

     1N WITNESS  WHEREOF,  the  Company  has  caused  this  Security  to be duly
executed under its corporate seal.

Dated:          ,1999
                                                     CELGENE CORPORATION

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

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

                                       27EXHIBIT 10.26

     THIS SECURITY AND THE COMMON STOCK  ISSUABLE UPON ITS  CONVERSION  HAVE NOT
BEEN  REGISTERED  UNDER  THE  U.S.  SECURITIES  ACT OF  1933,  AS  AMENDED  (THE
"SECURITIES  ACT"),  AND  MAY  NOT  BE  OFFERED,   SOLD,  PLEDGED  OR  OTHERWISE
TRANSFERRED  EXCEPT PURSUANT TO AN AVAILABLE  EXEMPTION FROM REGISTRATION  UNDER
THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE  SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.

                               CELGENE CORPORATION

                 9.00% SENIOR CONVERTIBLE NOTE DUE JUNE 30, 2004

PPN No.: 151020 A@ 3                                                  $3,500,000
No. R-1                                                             July 6, 1999

     CELGENE  CORPORATION,  a corporation  duly organized and existing under the
laws of Delaware (the "Company") for value  received,  hereby promises to pay to
John Hancock Mutual Life Insurance Company, or registered assigns, the principal
sum of Three Million Five Hundred Thousand Dollars ($3,500,000) on June 30, 2004
and to pay interest thereon, from July 6, 1999, or from the most recent interest
payment date to which interest has been paid or duly provided for, semi-annually
on June 30 and December 31 in each year,  commencing  December 31, 1999,  at the
rate of 9.00% per annum,  until the principal  hereof is due, and at the rate of
11.00% per annum on any  overdue  principal  and  premium,  if any,  and, to the
extent permitted by law, on any overdue interest.  The interest so payable,  and
punctually paid or duly provided for, on any interest  payment date will be paid
to  the  person  in  whose  name  this  Security  (or  one or  more  predecessor
Securities)  is registered  at the close of business on the regular  record date
for such  interest,  which  shall be the June 1 or  December 1 (whether or not a
Business Day), as the case may be, next  preceding  such interest  payment date.
Payment of the  principal of (and premium,  if any, on) this  Security  shall be
made upon the  surrender  of this  Security to the  Company,  at its office at 7
Powder  Horn Drive,  Warren,  NJ 07059 (or such other  office  within the United
States  as  shall  be  notified  by the  Company  to  the  holder  hereof)  (the
"Designated  Office"),  in such coin or currency of the United States of America
as at the time of payment  shall be legal  tender for the  payment of public and
private debts, by transfer to a U.S. dollar account maintained by the payee with
a bank in the United  States of America.  Payment of  interest on this  Security
shall be made by wire transfer to a U.S. dollar account  maintained by the payee
with a bank in the United  States of America,  provided that if the holder shall
not have furnished wire instructions in writing to the Company no later than the
record date relating to an interest  payment  date,  such payment may be made by
U.S. dollar check mailed to the address of the Person  entitled  thereto as such
address shall appear in the Company security  register.  This Security will rank
pari passu with all existing and future senior debt of the Company.

<PAGE>

     This Security is one of the Company's  9.00% Senior  Convertible  Notes due
June 30, 2004,  limited to $15,000,000.00  aggregate  principal  amount,  issued
pursuant  to that  certain  Note  Purchase  Agreement  dated  July 6, 1999 (such
agreements,  as amended,  modified and supplemented from time to time, the "Note
Purchase  Agreement") between the Company and the Purchasers named therein,  and
the holder  hereof is entitled to the benefits of the Note  Purchase  Agreement,
and may enforce the  agreements  contained  herein and therein and  exercise the
remedies  provided  for hereby and  thereby or  otherwise  available  in respect
hereof and thereof, all in accordance with the terms hereof and thereof.

     1. Optional Redemption With Premium. This Security is subject to redemption
upon not less than 30 nor more than 60 days'  notice by mail,  at any time on or
after July 6, 2001,  as a whole or in part,  (in any amount  that is an integral
multiple of $1000) at the election of the Company, at a redemption price of 103%
the principal  amount thereof,  together with accrued interest to the redemption
date,  but interest  installments  whose stated  maturity is on or prior to such
redemption  date will be payable to the holder of this Security,  or one or more
predecessor  Securities,  of  record at the close of  business  on the  relevant
record dates referred to on the face hereof; provided, however, that the Company
may not redeem  this  Security  on or prior to July 6, 2002  unless the  Closing
Price of the Common Stock exceeds 225% of the Conversion  Price for each Trading
Day in a period of 20 Consecutive  Trading Days commencing not earlier than July
6, 2001.  The term  "Conversion  Price" on any day shall equal $1,000 divided by
the Conversion Rate in effect on each such day.

     2.  Conversion.  (a) The holder of this Security is entitled at any time on
or after July 6, 2000 and before the close of  business on June 30, 2004 (or, in
case this  Security or a portion  hereof is called for  redemption or the holder
hereof  has  exercised  its fight to require  the  Company  to  repurchase  this
Security or a portion  hereof,  then in respect of this Security or such portion
hereof,  as the case may be,  until  and  including,  but  (unless  the  Company
defaults in making the payment due upon  redemption or  repurchase,  as the case
may  be)  not  after,  the  close  of  business  on the  redemption  date or the
Repurchase Date, as the case may be) to convert this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000),  into fully
paid and nonassessable  shares  (calculated as to each conversion to the nearest
1/100 of a share) of Common  Stock of the Company at the rate of 52.63 shares of
Common  Stock for each $1,000  principal  amount of Security  (or at the current
adjusted rate if an adjustment has been made as provided below) (the "Conversion
Rate") by surrender of this  Security,  duly endorsed or assigned to the Company
or in blank to the  Company at the  Designated  Office,  accompanied  by written
notice to the Company that the holder hereof elects to convert this Security (or
if less than the entire principal  amount hereof is to be converted,  specifying
the  portion  hereof to be  converted).  Upon  surrender  of this  Security  for
conversion,  the holder will be entitled to receive the interest accruing on the
principal amount of this Security then being converted from the interest payment
date next preceding the date of such  conversion to such date of conversion.  No
payment or adjustment  is to be made on  conversion  for dividends on the Common
Stock issued on conversion  hereof. No fractions of shares or scrip representing
fractions of shares will be issued on conversion,  but instead of any fractional
interest, the Company shall pay a cash adjustment,

                                        2

<PAGE>

computed  on the basis of the Closing  Price of the Common  Stock on the date of
conversion,  or, at its option,  the  Company  shall round up to the next higher
whole share.  This Security shall be deemed to have been  converted  immediately
prior to the close of business on the day of surrender hereof for conversion, in
accordance  with the  foregoing  provisions,  and at such time the rights of the
holder  hereof,  as a holder  hereof,  shall  cease,  and the  Person or Persons
entitled to receive the Common Stock issuable on conversion  shall be treated by
all Persons as the holder or holders of such Common Stock at such time. Upon any
partial conversion of this Security, the Company, at its expense, will forthwith
issue and deliver to, or upon the order of the holder hereof,  a new Convertible
Note or Convertible Notes in principal amount equal to the unconverted principal
amount  of such  surrendered  Convertible  Note,  such new  Convertible  Note or
Convertible  Notes  to be  dated  and to bear  interest  from  the date to which
interest has been paid on such surrendered Convertible Note.

     As promptly as possible after the conversion of this Security,  in whole or
in part, and in any event within ten (10) days thereafter,  the Company,  at its
expense,  will issue and deliver a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion.

     (b) The Conversion  Rate shall be subject to adjustments  from time to time
as follows:

     (1) In case the Company shall pay or make a dividend or other  distribution
on any class of capital stock of the Company  payable in shares of Common Stock,
the  Conversion  Rate in effect at the opening of business on the day  following
the  Determination  Date  for  such  dividend  or  other  distribution  shall be
increased by dividing such  Conversion Rate by a fraction of which the numerator
shall be the  number  of  shares of  Common  Stock  outstanding  at the close of
business on such Determination Date and the denominator shall be the sum of such
number of shares and the total number of shares  constituting  such  dividend or
other  distribution,  such increase to become  effective  immediately  after the
opening of  business  on the day  following  such  Determination  Date.  For the
purposes of this paragraph (1), the number of shares of Common Stock at any time
outstanding  shall not include  shares  held in the  treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions  of shares of Common  Stock.  The Company will not pay any dividend or
make any  distribution  on shares of Common  Stock held in the  treasury  of the
Company.

     (2) Subject to the last  sentence of paragraph (7) of this Section 2(b), in
case the Company shall issue rights, options, warrants or convertible securities
entitling  the holders  thereof to  subscribe  for or purchase  shares of Common
Stock at a price  per  share  less  than the  current  market  price  per  share
(determined  as provided in paragraph  (8) of this  Section  2(o)) of the Common
Stock on the Determination  Date for such  distribution,  the Conversion Rate in
effect at the opening of business on the day following such Determination  Date,
shall be increased by dividing such Conversion Rate by a fraction of

                                        3

<PAGE>

which the numerator shall be the number of shares of Common Stock outstanding at
the close of  business on such  Determination  Date plus the number of shares of
Common  Stock  which the  aggregate  amount  received  by the  Company  upon the
issuance of such rights,  options,  warrants or convertible  securities plus the
aggregate  amount  receivable  by the Company upon the exercise or conversion of
such rights, options,  warrants or convertible securities would purchase at such
current market price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on such  Determination  Date plus the
number of shares of Common Stock so offered for  subscription or purchase,  such
increase to become  effective  immediately  after the opening of business on the
day following such Determination Date provided,  that no such adjustment need to
be made in the case of the  granting by the Company to employees or directors of
the Company or  consultants  to the Company of Common  Stock  and/or  options to
purchase Common Stock and the issuance of Common Stock upon the exercise of such
options.  For the purposes of this paragraph (2), the number of shares of Common
Stock at any time  outstanding  shall not include shares held in the treasury of
the Company but shall include shares  issuable in respect of scrip  certificates
issued in lieu of  fractions  of shares of Common  Stock.  The Company  will not
issue any rights,  options,  warrants or  convertible  securities  in respect of
shares of Common Stock held in the treasury of the Company.

     (3) In case  outstanding  shares of Common  Stock shall each be  subdivided
into a greater number of shares of Common Stock,  the Conversion  Rate in effect
at the  opening  of  business  on the day  following  the day  upon  which  such
subdivision   becomes  effective  shall  be  proportionately   increased,   and,
conversely,  in case  outstanding  shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock,  the Conversion  Rate in effect
at the  opening  of  business  on the day  following  the day  upon  which  such
combination becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after the opening
of  business  on the day  following  the day  upon  which  such  subdivision  or
combination becomes effective.

     (4) Subject to the last  sentence of paragraph (7) of this Section 2(b), in
case the Company shall,  by dividend or otherwise,  distribute  evidences of its
indebtedness, shares of any class of capital stock, or other property (including
securities,  but  excluding  (i) any rights,  options,  warrants or  convertible
security  referred to in paragraph (2) of this Section 2(b) (ii) any dividend or
distribution  paid  exclusively  in cash,  (iii) any  dividend  or  distribution
referred  to in  paragraph  (1) of this  Section  2(b) and (iv)  any  merger  or
consolidation  to which  Section 2(h)  applies),  the  Conversion  Rate shall be
adjusted  so that the same  shall  equal the rate  determined  by  dividing  the
Conversion  Rate in effect  immediately  prior to the close of  business  on the
Determination  Date for such  distribution  by a fraction of which the numerator
shall be the current market price per share (determined as provided in paragraph
(8) of this Section  2(b)) of the Common Stock on such  Determination  Date less
the then  fair  market  value  (as  determined  in good  faith  by the  Board of
Directors of the Company) of the portion of the assets, shares or evidences of

                                        4

<PAGE>

indebtedness  so  distributed  applicable  to one share of Common  Stock and the
denominator  shall be such current  market price per share of the Common  Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following such Determination  Date provided,  that no such adjustment
need be made in the case of an  underwritten  public offering of Common Stock in
which the  shares of  Common  Stock are sold to the  public at a price per share
equal to or in excess of 95% of the market  price per share of the Common  Stock
as of the date of the pricing of such underwritten public offering. If the Board
of Directors  determines the fair market value of any  distribution for purposes
of this  paragraph (4) by reference to the actual or when issued  trading market
for any securities  comprising such  distribution,  it must in doing so consider
the prices in such market over the same  period  used in  computing  the current
market price per share pursuant to paragraph (8) of this Section 2(b).

     (5) In case the  Company  shall,  by  dividend  or  otherwise,  make a Cash
Distribution,  then,  and in each  such  case,  immediately  after  the close of
business on the Determination  Date for such Cash  Distribution,  the Conversion
Rate shall be  adjusted  so that the same  shall  equal the rate  determined  by
dividing  the  Conversion  Rate in  effect  immediately  prior  to the  close of
business on such  Determination  Date by a fraction  (a) the  numerator of which
shall be equal to the current market price per share  (determined as provided in
paragraph  (8) of this Section  2(b)) of the Common Stock on such  Determination
Date  less an  amount  equal to the  quotient  of(l)  the  amount  of such  Cash
Distribution  divided by (2) the number of shares of Common Stock outstanding on
such  Determination  Date and (b) the denominator of which shall be equal to the
current market price per share  (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date.

     (6) In case the  Company or any  Subsidiary  shall make an Excess  Purchase
Payment,  then,  and in each such  case,  immediately  prior to the  opening  of
business  on the day after the tender  offer in  respect  of which  such  Excess
Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so
that the same shall equal the rate determined by dividing the Conversion Rate in
effect  immediately prior to the close of business on the Determination Date for
such tender offer by a fraction (a) the numerator of which shall be equal to the
current market price per share  (determined as provided in paragraph (8) of this
Section  2(b)) of the  Common  Stock on such  Determination  Date less an amount
equal to the  quotient  of (A) the Excess  Purchase  Payment  divided by (B) the
number of shares of Common Stock outstanding  (including any tendered shares) as
of the Determination Date less the number of all shares validly tendered and not
withdrawn as of the Determination  Date and (b)the denominator of which shall be
equal to the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock as of such Determination Date.

     (7) The  reclassification of Common Stock into securities other than Common
Stock (other than any  reclassification  upon a consolidation or merger to which
Section 2(h)

                                        5

<PAGE>

applies) shall be deemed to involve (a) a distribution of such securities  other
than Common Stock to all holders of Common Stock (and the effective date of such
reclassification  shall  be  deemed  to be the  Determination  Date),  and (b) a
subdivision  or  combination,  as the case may be,  of the  number  of shares of
Common Stock  outstanding  immediately prior to such  reclassification  into the
number of shares of Common Stock  outstanding  immediately  thereafter  (and the
effective  date of such  reclassification  shall be  deemed  to be "the day upon
which  such  subdivision   becomes  effective"  or  "the  day  upon  which  such
combination becomes effective", as the case may be, and "the day upon which such
subdivision or combination  becomes  effective"  within the meaning of paragraph
(3) of this Section 2(b)). Rights,  options,  warrants or convertible securities
issued by the Company entitling the holders thereof to subscribe for or purchase
shares  of  Common  Stock,  which  rights,  options,   warrants  or  convertible
securities  (i) are deemed to be  transferred  with such shares of Common Stock,
(ii) are not  exercisable  and  (iii)  are also  issued  in  respect  of  future
issuances of Common  Stock,  in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"),  shall for purposes
of this Section 2(b) not be deemed  issued until the  occurrence of the earliest
Trigger Event.

     (8) Except as otherwise  provided in the last  sentence of this  subsection
(8) of Section 2(0) for the purpose of any  computation  under  paragraphs  (2),
(4),  (5) or (6) of this  Section  2(b) the  current  market  price per share of
Common Stock on any date shall be  calculated by the Company and be deemed to be
the average of the daily  Closing  Prices for the five (5)  consecutive  Trading
Days  selected by the Company  commencing  not more than ten (10)  Trading  Days
before,  and ending not later than,  the earlier of the day in question  and the
day before the "ex date" with respect to the issuance or distribution  requiring
such computation.  For purposes of this paragraph, the term "ex date", when used
with respect to any issuance or distribution,  means the first date on which the
Common Stock trades  regular way in the applicable  securities  market or on the
applicable  securities  exchange  without the fight to receive such  issuance or
distribution.  The current market price with respect to any option issued to any
employee or director of the Company or  consultant  to the Company  shall be the
fair market  value on the date of grant  determined  by  reference to the market
price on the day of the grant of such option or to the market price at the close
of business on the Trading Day immediately preceding such grant.

     (9) No  adjustment  in the  Conversion  Rate shall be required  unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(9)) would require an increase or decrease of at least one percent in such rate;
provided,  however,  that any adjustments  which by reason of this paragraph (9)
are not  required to be made shall be carried  forward and taken into account in
any subsequent  adjustment.  All calculations under this Section 2 shall be made
to the nearest cent or to the nearest  one-hundredth of a share, as the case may
be.

     (10) The Company may make such  increases in the  Conversion  Rate, for the
remaining  term of the  Securities  or any  shorter  term,  in addition to those
required by

<PAGE>

     paragraphs  (1),  (2),  (3),  (4),  (5) and (6) of this  Section 2(b) as it
     considers  to be  advisable in order to avoid or diminish any income tax to
     any  holders  of shares of Common  Stock  resulting  from any  dividend  or
     distribution  of  stock  or  issuance  of  rights,  options,   warrants  or
     convertible securities to purchase or subscribe for stock or from any event
     treated as such for income tax purposes.

     (c) Whenever the  Conversion  Rate is adjusted as provided in Section 2(b),
the Company  shall  compute the  adjusted  Conversion  Rate in  accordance  with
Section 2(b) and shall prepare a certificate (the "Conversion Rate Certificate")
signed by the Senior Financial Officer of the Company setting forth the adjusted
Conversion  Rate and  showing  in  reasonable  detail  the facts upon which such
adjustment is based,  and shall promptly  deliver such certificate to the holder
of this Security. If the holders of the Convertible Notes and the Company cannot
agree in writing as to the adjusted  Conversion  Rate in accordance with Section
2(b), the holders of the  Convertible  Notes and the Company shall determine the
adjusted Conversion Rate in accordance with the following procedure. The holders
of the  Convertible  Notes and the Company  shall each  appoint  one  registered
securities broker,  licensed with the Securities and Exchange Commission to sell
securities  to the  public,  which  broker  shall  be a senior  vice  president,
managing  director or equivalent of a major  securities  brokerage  company with
offices in New York, New York.  Each of such brokers shall have no less than ten
(10) years  experience  in such field,  shall be  unaffiliated  with,  and their
employer securities brokerage company shall be unaffiliated with, the holders of
the Convertible Notes and the Company and shall not have previously participated
in any  underwriting  of the  Company's  Common Stock in any public  offering or
provided any Material  investment  banking or corporate advisory services to the
Company.  The holders of the Convertible  Notes and the Company shall make their
appointments  promptly and, in any event,  within thirty (30) days from the date
of the  Conversion  Rate  Certificate.  The two brokers  shall meet and shall be
instructed  to render a  determination  of the adjusted  Conversion  Rate to the
holders of the  Convertible  Notes and the Company within sixty (60) days of the
date of the Conversion Rate  Certificate.  If the two brokers cannot agree, then
each broker  shall render their  independent  determination  and the two brokers
shall simultaneously  therewith provide the name of a third broker acceptable to
the two brokers meeting the criteria set forth above.  The third broker shall be
instructed  to render a  determination  of the adjusted  Conversion  Rate within
thirty (30) days of his or her appointment.  The two closest  determinations  of
the adjusted Conversion Rate shall be averaged and shall constitute the adjusted
Conversion  Rate.  If the two  brokers  cannot  agree upon a third  broker,  the
selection of a third broker  shall be  submitted to binding  arbitration  in New
York, New York under the rules of the American Arbitration  Association.  In the
event that the  difference  between the  Company's  calculation  of the adjusted
Conversion Rate and the  calculation of the adjusted  Conversion Rate determined
by the  foregoing  process is five  percent  (5%) or greater  then the costs and
expenses  of the  brokers  and  any  arbitration  shall  be  paid  by and be the
obligation  of the  Company and in the event that such  difference  is less than
five percent (5%) the holders of the  Convertible  Notes (as a group) shall each
pay its pro rata share of 50% of such costs and expenses  and the Company  shall
pay 50% of such costs and expenses.

     (d) In case:

                                       7

<PAGE>

     (1) the  Company  shall  declare a dividend  or other  distribution  on its
Common Stock payable (i) otherwise than  exclusively in cash or (ii) exclusively
in cash in an amount that would require any adjustment pursuant to Section 2(b);
or

     (2) the Company  shall  authorize the granting to the holders of its Common
Stock of rights, options, warrants or convertible securities to subscribe for or
purchase any shares of capital stock of any class or of any other rights; or

     (3) of any  reclassification  of the Common Stock of the Company, or of any
consolidation,  merger or share exchange to which the Company is a party and for
which  approval  of any  shareholders  of the  Company  is  required,  or of the
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company; or

     (4) of the voluntary or involuntary dissolution,  liquidation or winding up
of the Company; or

     (5) the Company or any Subsidiary  shall commence a tender offer for all or
a portion of the  Company's  outstanding  shares of Common Stock (or shall amend
any such tender offer);

then the Company shall cause to be delivered to the holder of this Security,  at
least 20 days (or 10 days in any case  specified  in  clause  (1) or (2)  above)
prior  to the  applicable  record,  expiration  or  effective  date  hereinafter
specified,  a notice  stating  (x) the date on which a record is to be taken for
the  purpose  of such  dividend,  distribution,  rights,  options,  warrants  or
convertible  securities or, if a record is not to be taken, the date as of which
the  holders  of  Common  Stock  of  record  to be  entitled  to such  dividend,
distribution,  rights,  options,  warrants or  convertible  securities are to be
determined,  (y) the date on which the right to make  tenders  under such tender
offer  expires  or (z) the date on which such  reclassification,  consolidation,
merger,  share  exchange,   conveyance,   transfer,  sale,  lease,  dissolution,
liquidation  or winding up is expected to become  effective,  and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange  their shares of Common Stock for  securities,  cash or other  property
deliverable upon such reclassification,  consolidation,  merger, share exchange,
conveyance,  transfer,  sale,  lease,  dissolution,  liquidation  or winding up.
Neither the failure to give such notice nor any defect  therein shall affect the
legality or validity of the proceedings  described in clauses (1) through (5) of
this Section 2(d).

     (e) The Company  shall at all times reserve and keep  available,  free from
preemptive  rights,  out of its  authorized but unissued  Common Stock,  for the
purpose of effecting the  conversion of the Security,  the full number of shares
of Common Stock then issuable upon the conversion of this Security.

                                       8

<PAGE>

     (f) Except as provided in the next  sentence,  the Company will pay any and
all taxes and duties  that may be payable in respect of the issue or delivery of
shares of Common Stock on  conversion of this  Security.  The Company shall not,
however,  be  required to pay any tax or duty which may be payable in respect of
any  transfer  involved in the issue and delivery of shares of Common Stock in a
name  other  than that of the  holder  of this  Security,  and no such  issue or
delivery  shall be made  unless and until the Person  requesting  such issue has
paid to the Company the amount of any such tax or duty,  or has  established  to
the satisfaction of the Company that such tax or duty has been paid.

     (g) The  Company  agrees  that all  shares  of  Common  Stock  which may be
delivered upon  conversion of the Security,  upon such delivery,  will have been
duly authorized and validly issued and will be fully paid and nonassessable (and
shall be issued out of the Company's  authorized but unissued Common Stock) and,
except as provided in the second  sentence of Section 2(f), the Company will pay
all taxes, liens and charges with respect to the issue thereof.

     (h) In case of any consolidation of the Company with any other Person,  any
merger of the Company into another  Person or of another Person into the Company
(other than a merger which does not result in any reclassification,  conversion,
exchange or cancellation  of outstanding  shares of Common Stock of the Company)
or any conveyance,  sale,  transfer or lease of all or substantially  all of the
properties and assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such properties and assets,  as the
case may be,  shall  execute  and  deliver  to the  holder  of this  Security  a
supplemental  agreement  providing  that such  holder has the right,  during the
period this  Security  shall be  convertible  as specified in Section  2(a),  to
convert  this  Security  only into the kind and amount of  securities,  cash and
other property receivable upon such  consolidation,  merger,  conveyance,  sale,
transfer or lease  (including  any Common Stock  retainable)  by a holder of the
number of shares of Common Stock of the Company into which this  Security  might
have been converted immediately prior to such consolidation, merger, conveyance,
sale, transfer or lease, assuming such holder of Common Stock of the Company (i)
is not a Person  with which the  Company  consolidated,  into which the  Company
merged or which  merged  into the  Company  or to which such  conveyance,  sale,
transfer or lease was made, as the case may be (a "Constituent  Person"),  or an
Affiliate  of a  Constituent  Person and (ii) failed to  exercise  its rights of
election,  if any,  as to the kind or  amount  of  securities,  cash  and  other
property receivable upon such consolidation,  merger, conveyance, sale, transfer
or lease  (provided  that if the kind or  amount of  securities,  cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer,
or lease is not the same for each  share of  Common  Stock of the  Company  held
immediately prior to such consolidation,  merger, conveyance,  sale, transfer or
lease by others  than a  Constituent  Person or an  Affiliate  of a  Constituent
Person  and in  respect of which  such  rights of  election  shall not have been
exercised  ("Non-electing Share"), then for the purpose of this Section 2(h) the
kind and amount of  securities,  cash and other  property  receivable  upon such
consolidation,  merger,  conveyance,  sale,  transfer or lease by the holders of
each Non-electing  Share shall be deemed to be the kind and amount so receivable
per  share  by a  plurality  of  the  Non-electing  Shares).  Such  supplemental
agreement  shall provide for  adjustments  which,  for events  subsequent to the
effective date of such

                                       9

<PAGE>

supplemental  agreement,  shall be as nearly equivalent as may be practicable to
the  adjustments  provided for in this Section 2. The above  provisions  of this
Section  2(h)  shall  similarly  apply to  successive  consolidations,  mergers,
conveyances,  sales, transfers or leases. In this paragraph,  "securities of the
kind receivable" upon such consolidation,  merger, conveyance, transfer, sale or
lease by a holder of Common Stock means securities that, among other things, are
registered  and freely  transferable  under the  Securities  Act, and listed and
approved  for  quotation  in all  securities  markets,  in each case to the same
extent as such securities so receivable by a holder of Common Stock.

     (i) The  Company  (i) will effect all  registrations  with,  and obtain all
approvals  by, all  governmental  authorities  that may be  necessary  under any
United States Federal or state law  (including the Securities  Act, the Exchange
Act and  state  securities  and Blue Sky laws)  for the  shares of Common  Stock
issuable upon conversion of this Security to be lawfully issued and delivered as
provided  herein,  and  thereafter  publicly  traded (if  permissible  under the
Securities Act) and qualified or listed as contemplated by clause (ii) (it being
understood  that the Company  shall not be required to register the Common Stock
issuable on conversion  hereof under the Securities  Act, except pursuant to the
Registration Rights Agreement between the Company and the initial holder of this
Security);  and (ii) will list the shares of Common Stock  required to be issued
and delivered upon conversion of Securities, prior to such issuance or delivery,
on each national securities exchange on which outstanding Common Stock is listed
or  quoted  at the time of such  delivery,  or if the  Common  Stock is not then
listed on any securities exchange,  to qualify the Common Stock for quotation on
the Nasdaq National Market or such other inter-dealer  quotation system, if any,
on which the Common Stock is then quoted.

     (j) For purposes  hereof:  (references  to Sections  shall mean Sections of
this Security unless otherwise specified)

     "Affiliate"  of any  specified  Person means any other  Person  directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"control",  when used with respect to any specified  Person,  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

     "Business  Day" means any day other than a Saturday,  a Sunday or other day
which shall be in Boston, Massachusetts or New York, New York or a legal holiday
or a day on which  commercial  banks in Boston,  Massachusetts  or New York, New
York are required or authorized to be closed.

     "Cash Distribution" means the distribution by the Company to holders of its
Common Stock of cash,  other than any cash that is distributed  upon a merger or
consolidation  to  which  Section  2(h)  applies  or as part  of a  distribution
referred to in paragraph (4) of Section 2(b).

                                       10

<PAGE>

     "Change of Control" is defined in Section 3(f)(2).

     "Closing" is defined in Section 1 of the Note Purchase Agreement.

     "Closing Price" means, with respect to the Common Stock of the Company, for
any day, the reported last sale price per share on the Nasdaq  National  Market,
or, if the Common  Stock is not  admitted  to  trading  on the  Nasdaq  National
Market, on the principal national securities exchange or inter-dealer  quotation
system on which the Common  Stock is listed or admitted  to  trading,  or if not
admitted  to trading on the Nasdaq  National  Market,  or listed or  admitted to
trading on any national  securities  exchange or inter-dealer  quotation system,
the   average  of  the   closing   bid  and  asked   prices  per  share  in  the
over-the-counter  market as furnished by any New York Stock Exchange member from
selected from time to time by the Company for that purpose.

     "Code"  means the Internal  Revenue  Code of 1986,  as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.

     "Common  Stock" means the Common  Stock,  par value $.01 per share,  of the
Company  authorized  at the  date of this  instrument  as  originally  executed.
Subject to the  provisions  of Section  20a),  shares  issuable on conversion or
repurchase of this Security  shall include only shares of Common Stock or shares
of any class or classes of common stock resulting from any  reclassification  or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of this
Security shall include  shares of all such classes,  and the shares of each such
class then so issuable shall be  substantially in the proportion which the total
number of shares of such class resulting from all such  reclassifications  bears
to the  total  number  of shares  of all such  classes  resulting  from all such
reclassifications.

     "Convertible  Note(s)"shall  mean one or more of the Company's 9.00% Senior
Convertible Notes due June 30, 2004.

     "Conversion Price" is defined in Section 1.

     "Conversion Rate" is defined in Section 2(a).

     "Default"  means an event or condition the occurrence or existence of which
would,  with the lapse of time or the giving of notice or both,  become an Event
of Default.

     "Designated Office" is defined in the Preamble.

     "Determination   Date"   means,   in  the  case  of  a  dividend  or  other
distribution, including the issuance of rights, options, warrants or convertible
securities, to the date fixed for the determination of those entitled to receive
such dividend or other distribution, and in the case of a tender offer, the last
time that tenders could have been made pursuant to such tender offer.

                                       11

<PAGE>

     "Environmental  Laws" means any and all Federal,  state, local, and foreign
statutes,  laws, regulations,  ordinances,  rules,  judgments,  orders, decrees,
permits,  licenses,  written  agreements  or written  governmental  restrictions
relating to pollution and the  protection of the  environment  or the release of
any materials into the  environment,  including but not limited to those related
to hazardous  substances or wastes,  air  emissions  and  discharges to waste or
public systems.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time, and the rules and regulations  promulgated thereunder
from time to time in effect.

     "ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.

     "Excess Purchase Payment" means the product of(A) the excess, if any, of(i)
the amount of cash plus the fair market  value (as  determined  in good faith by
the Company's Board of Directors) of any non-cash  consideration  required to be
paid with respect to one share of Common  Stock  acquired or to be acquired in a
tender offer made by the Company or any Subsidiary of the Company for all or any
portion of the Common  Stock over (ii) the current  market price per share as of
the last time that  tenders  could have been made  pursuant to such tender offer
and (B) the  number of  shares  validly  tendered  and not  withdrawn  as of the
Determination Date in respect of such tender offer.

     "Event of Default" is defined in the preamble to Section 4.

     "Exchange Act" shall mean the Securities  Exchange Act of 1934, as amended,
or  any  successor  Federal  statute,  and  the  rules  and  regulations  of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect from time to time.

     "GAAP" means  generally  accepted  accounting  principles as in effect from
time to time in the United States of America.

     "Hazardous  Materials"  means any and all  pollutants,  toxic or  hazardous
wastes or any other substances that might pose a hazard to health or safety, the
remediate, on of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation,  transfer,
use, disposal, release, discharge,  spillage, seepage, or filtration of which is
restricted,   prohibited  or  penalized  by  any  applicable  Environmental  Law
(including, without limitation,  asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

     "holder"  means,  with  respect to this  Security or any other  Convertible
Note,  the Person in whose name it is registered  in the register  maintained by
the Company pursuant to Section 6(d).

                                       12

<PAGE>

     "Lien"  means,  with respect to any Person,  any  mortgage,  lien,  pledge,
charge, security interest or other encumbrance,  or any interest or title of any
vendor,  lessor,  lender or other  secured  party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease (as defined
by  GAAP),  upon or  with  respect  to any  property  or  asset  of such  Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).

     "Make-Whole Amount" is defined in Section 4(g).

     "Material" means material in relation to the business, operations, affairs,
financial  condition,  assets,  properties,  or prospects of the Company and its
Subsidiaries taken as a whole.

     "Material  Adverse  Effect"  means a  material  adverse  effect  on (a) the
business,  operations,  affairs,  financial  condition,  assets,  properties  or
prospects  of the  Company  and its  Subsidiaries  taken as a whole,  or (b) the
ability of the  Company  to  perform  its  obligations  under the Note  Purchase
Agreement,  the Registration  Rights Agreement and the Convertible Notes, or (c)
the validity or enforceability of this Agreement or the Convertible Notes.

     "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).

     "Note Purchase Agreement" is defined in the Preamble.

     "PBGC"  means the  Pension  Benefit  Guaranty  Corporation  referred to and
defined in ERISA or any successor thereto.

     "Person" means an individual,  partnership,  corporation, limited liability
company,  association,  trust, unincorporated  organization,  or a government or
agency or political subdivision thereof.

     "Plan"  means an  "employee  benefit  plan" (as defined in section  3(3) of
ERISA) that is or,  within the preceding  five years,  has been  established  or
maintained,  or to which  contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA  Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.

     "Purchaser(s)"  JOHN HANCOCK  MUTUAL LIFE INSURANCE  COMPANY;  JOHN HANCOCK
VARIABLE LIFE INSURANCE COMPANY and HANCOCK MEZZANINE PARTNERS

     "Registration  Rights  Agreement" means the  Registration  Rights Agreement
dated as of the date hereof among the Purchasers and the Company.

                                       13

<PAGE>

     "Repurchase Date" is defined in Section 3(a).

     "Repurchase Price" is defined in Section 3(a).

     "Responsible  Officer"  means any Senior  Financial  Officer  and any other
senior officer of the Company with  responsibility for the administration of the
relevant covenants in this Security or in the Note Purchase Agreement.

     "Securities Act" shall mean the Securities Act of 1933, as amended,  or any
successor  Federal statute,  and the rules and regulations of the Securities and
Exchange Commission promulgated  thereunder,  all as the same shall be in effect
from time to time.

     "Senior  Financial  Officer" means the chief financial  officer,  principal
accounting officer, treasurer or comptroller of the Company.

     "Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its  Subsidiaries or such
Person  and one or more of its  Subsidiaries  owns  sufficient  equity or voting
interests  to  enable  it or them (as a group)  ordinarily,  in the  absence  of
contingencies,  to elect a majority  of the  directors  (or  Persons  performing
similar  functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or  more  of its  Subsidiaries  or  such  Person  and  one  or  more  of its
Subsidiaries  (unless  such  partnership  can and  does  ordinarily  take  major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.

     "Trading  Day" means (i) if the Common  Stock is admitted to trading on the
Nasdaq  National  Market  or any  other  system of  automated  dissemination  of
quotations of securities  prices,  a day on which trades may be effected through
such  system;  (ii) if the Common Stock is listed or admitted for trading on the
New York Stock  Exchange or any other  national  securities  exchange,  a day on
which such  exchange is open for  business;  or (iii) if the Common Stock is not
admitted  to trading on the Nasdaq  National  Market or listed or  admitted  for
trading on any  national  securities  exchange or any other  system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.

     3. Right to Require  Repurchase.  (a) In the event that a Change in Control
shall  occur,  then the holder of this  Security  shall have the right,  at such
holder's option, to require the Company to repurchase,  and upon the exercise of
such right the Company shall  repurchase,  this Security,  or any portion of the
principal  amount  hereof  that is  equal to  $1,000  or any  integral  multiple
thereof,  on the date (the  "Repurchase  Date") that is thirty (30) Trading Days
after the date on which the Company  gives notice  thereof to the holder of this
Security,  at a purchase  price  equal to 100% of the  principal  amount of this
Security to be repurchased plus interest accrued to

                                       14

<PAGE>

the  Repurchase  Date  (the  "Repurchase  Price");   provided,   however,   that
installments  of interest on this Security whose stated  maturity is on or prior
to the Repurchase  Date shall be payable to the holder of this Security,  or one
or more predecessor  Securities,  registered as such on the relevant Record Date
according to their terms. At the option of the Company, the Repurchase Price may
be paid in cash or subject to the  fulfillment  by the Company of the conditions
set forth in each of Section 5 and Section 6 and subject to the  limitations set
forth in each of Section 5 and Section 6, by delivery of shares of Common  Stock
or in common  stock of any Person  which  succeeds  the  Company up to a maximum
amount often  percent (10%) of the then issued and  outstanding  Common Stock or
common stock of such Person following any Change in Control, provided,  however,
the cash plus the fair market  value of such shares  shall equal the  Repurchase
Price.  The  Company  agrees to give the holder of this  Security  notice of any
Change in Control, by facsimile  transmission  confirmed in writing by overnight
courier  service,  promptly  and in any event within two (2) Trading Days of the
occurrence thereof.

     (b) To exercise a repurchase right, the holder shall deliver to the Company
on or before the 10th Trading Day prior to the  Repurchase  Date,  together with
this  Security,  written  notice of the holder's  exercise of such right,  which
notice  shall set forth the name of the  holder,  the number of shares of Common
Stock then owned by such holder and its affiliates, the principal amount of this
Security to be repurchased  (and, if this Security is to be repurchased in part,
the portion of the principal  amount thereof to be  repurchased  and the name of
the  person in which  the  portion  thereof  to remain  outstanding  after  such
repurchase is to be registered) and a statement that an election to exercise the
repurchase  right is being made  thereby  and, in the event that the  Repurchase
Price shall be paid in whole or in pan by the  delivery  of shares,  as provided
above,  the name or names  (and the  addresses)  in which the  certificates  for
shares shall be issued.  Such written notice shall be  irrevocable,  except that
the right of the holder to convert  this  Security  (or the portion  hereof with
respect to which the repurchase  fight is being  exercised) shall continue until
the close of business on the  Repurchase  Date (or if the Company  elects to pay
the Repurchase Price by delivery of shares as provided above, until the close of
business on the Trading Day  immediately  preceding the first delivery of shares
with respect thereto).

     (c) In the event a repurchase  right shall be exercised in accordance  with
the terms  hereof,  the Company  shall pay or cause to be paid to the holder the
Repurchase Price in cash or shares, as provided above, together with accrued and
unpaid interest to the Repurchase Date; provided,  however, that installments of
interest  that  mature on or prior to the  Repurchase  Date  shall be payable in
cash, to the holders of this Security,  or one or more  predecessor  Securities,
registered as such at the close of business on the relevant regular record date.

     (d) If this Security (or portion thereof) is surrendered for repurchase and
is not so paid on or prior to the Repurchase  Date, the principal amount of this
Security (or such portion  hereof,  as the case may be) shall,  until paid, bear
interest to the extent  permitted by applicable law from the Repurchase  Date at
eleven percent (11%) per annum,  and shall remain  convertible into Common Stock
until the  principal of this Security (or portion  thereof,  as the case may be)
shall have been paid or duly provided for.

                                       15

<PAGE>

     (e) If this  Security  is to be  repurchased  only in  part,  it  shall  be
surrendered  to the Company at the  Designated  Office (with,  if the Company so
requires,  due  endorsement  by, or a written  instrument  of  transfer  in form
satisfactory  to the Company duly executed by, the holder hereof or his attorney
duly  authorized in writing),  and the Company shall execute and make  available
for delivery to the holder without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized denomination in
aggregate  principal  amount  equal  to and in  exchange  for the  unrepurchased
portion of the principal of the Security so surrendered.

     (f) For purposes of this Section 3.

     (1) the term "beneficial owner" shall be determined in accordance with Rule
13d-3  promulgated  by the Securities  and Exchange  Commission  pursuant to the
Exchange Act; and

     (2) a "Change in  Control"  shall be deemed to have  occurred  at the time,
after the original issuance of this Security, of:

     (i) the  acquisition  by any Person of  beneficial  ownership,  directly or
indirectly,  through a  purchase,  merger or other  acquisition  transaction  or
series of transactions, of shares of capital stock of the Company entitling such
Person  to  exercise  50% or more of the  total  voting  power of all  shares of
capital  stock of the Company  entitled  to vote  generally  in the  election of
directors  (any shares of voting  stock of which such  Person is the  beneficial
owner that are not then  outstanding  being deemed  outstanding  for purposes of
calculating such  percentage)  other than any such acquisition by the Company or
any employee benefit plan of the Company; or

     (ii) any  consolidation  or merger of the Company  with or into,  any other
Person,  any  merger  of  another  Person  with  or  into  the  Company,  or any
conveyance,  transfer,  sale, lease or other disposition of all or substantially
all of the  assets of the  Company to another  Person  (other  than (a) any such
transaction  (x)  which  does not  result in any  reclassification,  conversion,
exchange or cancellation of outstanding  shares of Common Stock and (y) pursuant
to which holders of Common Stock  immediately prior to such transaction have the
entitlement to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock  entitled to vote generally in the election
of  directors  of the  continuing  or surviving  Person  immediately  after such
transaction  and  (b)  any  merger  which  is  effected  solely  to  change  the
jurisdiction of incorporation of the Company and results in a  reclassification,
conversion or exchange of outstanding  shares of Common Stock into solely shares
of common stock,

     4. Events of Default.  (a) "Event of Default",  wherever used herein, means
any one of the following  events  (whatever the reason for such Event of Default
and whether it shall be voluntary or  involuntary or be effected by operation of
law or pursuant to any judgment,

                                       16

<PAGE>

decree  or  order  of  any  court  or  any  order,  rule  or  regulation  of any
administrative or governmental body):

     (1) (A) default in the payment of any  principal or premium,  if any,  upon
this Security when the same becomes due and payable, whether at maturity or at a
date fixed for  prepayment or by  declaration or otherwise or (B) default in the
payment of any interest upon this Security when it becomes due and payable,  and
continuance of such default for a period of five (5) days; or

     (2) default by the Company in the performance of its obligations in respect
of any  conversion of this Security (or any portion  hereof) in accordance  with
Section 2; or

     (3)  failure  by the  Company  to give any  notice of a Change  of  Control
required to be delivered in accordance with Section 3(a); or

     (4) default in the  performance,  or breach,  of any  material  covenant or
warranty  of the  Company  herein,  in the Note  Purchase  Agreement,  or in the
Registration  Rights  Agreements (other than a covenant or warranty a default in
the performance or breach of which is specifically  dealt with elsewhere in this
Section 4(a)) and  continuance of such default or breach for a period of 30 days
after the  earlier to occur  of(A) the  Company's  obtaining  knowledge  of such
default or (B) the Company's receiving written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or

     (5) any  representation  or warranty made in writing by or on behalf of the
Company or by any  officer  of the  Company  furnished  in  connection  with the
transactions  contemplated  hereby proves to have been false or incorrect in any
material respect on the date as of which made; or

     (6) a final  judgment or judgments for the payment of money  aggregating in
excess of  $250,000  are  rendered  against  one or more of the  Company and its
Subsidiaries  and which  judgments are not,  within 60 days after entry thereof,
bonded,  discharged or stayed pending  appeal,  or are not discharged  within 60
days after the expiration of such stay; or

     (7) a  default  under  any  bond,  debenture,  note or  other  evidence  of
indebtedness  for  money  borrowed  by the  Company,  or  under  any  agreement,
mortgage,  indenture or  instrument  under which there may be issued or by which
there may be secured or evidenced  any  indebtedness  for money  borrowed by the
Company,  with a principal  amount  then  outstanding  in excess of  $1,000,000,
whether  such  indebtedness  now exists or shall  hereafter  be  created,  which
default shall constitute a failure to pay the principal of such indebtedness (in
whole or in any pan greater than  $1,000,000) when due and payable or shall have
resulted in such  indebtedness (in whole or in any part greater than $1,000,000)
becoming or being  declared due and payable  prior to the date on which it would
otherwise have become due and payable; or

                                       17

<PAGE>

         (8)  if(i) any Plan  other  than a  Multiemployer  Plan  shall  fail to
satisfy the minimum funding  standards of ERISA or the Code for any plan year or
part thereof or a waiver of such  standards  or  extension  of any  amortization
period is sought or  granted  under  section  412 of the Code,  (ii) a notice of
intent to terminate any Plan other than a Multiemployer  Plan shall have been or
is  reasonably  expected  to be  filed  with the  PBGC or the  PBGC  shall  have
instituted  proceedings  under  ERISA  section  4042 to  terminate  or appoint a
trustee to administer any Plan other than a Multiemployer Plan or the PBGC shall
have  notified  the  Company  or any ERISA  Affiliate  that a Plan  other than a
Multiemployer  Plan may  become a  subject  of any such  proceedings,  (iii) the
aggregate  "amount of  unfunded  benefit  liabilities"  (within  the  meaning of
section  4001(a)(18) of ERISA) under all Plans other than a Multiemployer  Plan,
determined in accordance with Title IV of ERISA, shall exceed $250,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably  expected to
incur any liability  pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee  benefit plans,  (v) the Company
or any  ERISA  Affiliate  withdraws  from any  Multiemployer  Plan,  or (vi) the
Company or any  Subsidiary  establishes or amends any employee  welfare  benefit
plan that  provides  post-employment  welfare  benefits  in a manner  that would
increase the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be expected to
have a Material  Adverse  Effect.  (As used in this Section  4(a)(8),  the terms
"employee  benefit  plan" and  "employee  welfare  benefit  plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.); or

         (9) if, as a result of any Change of Control or any other consolidation
or  merger,  the  holding by the  Purchasers  or any  assignees  thereof of this
Security  or the  holding  of any  Common  Stock or common  stock of any  Person
succeeding the Company,  issued to the Purchasers or any assignees thereof after
conversion of this Security  would  constitute,  with respect to any Plan (other
than a  Multiemployer  Plan) a prohibited  transaction  which would  violate the
prohibitions  of section 406 of ERISA or which would  subject any  "disqualified
person"  (as  defined in section  4975(e)(2)  of the Code) to a tax  pursuant to
section 4975(c)(1)(A)-(D) of the Code; or

         (10) the entry by a court having  jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an  involuntary  case or
proceeding  under  any  applicable  Federal  or  State  bankruptcy,  insolvency,
reorganization  or other  similar  law or (B) a decree  or order  adjudging  the
Company a bankrupt or  insolvent,  or  approving  as  properly  filed a petition
seeking reorganization,  arrangement, adjustment or composition of or in respect
of the  Company  under any  applicable  Federal or State law,  or  appointing  a
custodian,  receiver,  liquidator,  assignee,  trustee,  sequestrator  or  other
similar official of the Company or of any substantial  part of its property,  or
ordering the winding up or  liquidation of its affairs,  and the  continuance of
any such decree or order for relief or any such other  decree or order  unstayed
and in effect for a period of 60 consecutive days; or

                                       18

<PAGE>

     (11) the  commencement  by the  Company of a voluntary  case or  proceeding
under any applicable Federal or State bankruptcy, insolvency,  reorganization or
other  similar  law or of any  other  case or  proceeding  to be  adjudicated  a
bankrupt  or  insolvent,  or the consent by it to the entry of a decree or order
for relief in respect of the Company in an involuntary  case or proceeding under
any applicable Federal or State bankruptcy, insolvency,  reorganization or other
similar law or to the  commencement  of any  bankruptcy  or  insolvency  case or
proceeding  against  it, or the filing by it of a petition  or answer or consent
seeking  reorganization or similar relief under any applicable  Federal or State
law, or the consent by it to the filing of such  petition or to the  appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial part
of its  property,  or the  making  by it of an  assignment  for the  benefit  of
creditors,  or not paying its debts as they become due or the admission by it in
writing of its  inability to pay its debts  generally as they become due, or the
taking of corporate action by the Company in furtherance of any such action.

     b) If an Event of  Default  (other  than an Event of Default  specified  in
Section 4(a)(10) or 4(a)(11)) occurs and is continuing,  then in every such case
the holder of this  Security  may  declare  the  principal  hereof to be due and
payable  immediately,  by a notice in writing to the Company,  and upon any such
declaration  such  principal  and  all  accrued  interest  hereon  shall  become
immediately due and payable without presentment, demand, protest or other notice
of any kind,  all of which are hereby  expressly  waived,  and the Company shall
forthwith upon any such  acceleration pay to the holder of this Security (i) the
entire principal of and interest accrued on this Security, and (ii) in addition,
to the extent  permitted  by  applicable  law, an amount equal to the Make Whole
Amount,  as  liquidated  damages  and  not as a  penalty;  and,  in  case of the
occurrence  of an Event of Default of the  character  described in  subdivisions
4(a)(10) or 4(a)(11)  the  principal of and accrued  interest on this  Security,
ipso facto shall become  immediately  due and payable without any declaration or
other act of the  holder  of this  Security  and  without  presentment,  demand,
protest or other notice of any kind, all of which are hereby  expressly  waived,
and the Company shall forthwith upon any such  acceleration pay to the holder of
this Security (x) the entire  principal of and interest accrued on this Security
and (y) in addition,  if such Event of Default is  "Voluntary"  (as  hereinafter
defined),  to the extent  permitted  by  applicable  law, an amount equal to the
Make-Whole Amount, as liquidated damages and not as a penalty.

     For  purposes  of this  section  4(a),  "Voluntary"  shall mean an Event of
Default of the character  described in  subdivisions  4(a)(10) or 4(a)(11) which
shall  have  been  (X)  procured  by  the  Company  or  any  officer,  director,
stockholder or Affiliate of the Company or (y) primarily the result of action or
inaction by the Company or by any officer, director, stockholder or Affiliate of
the Company.

     (c) In case any one or more of the Events of Default  specified  in section
4(a) shall have occurred,  and  irrespective of whether this Security has become
or has been declared  immediately due and payable under section 4(a), the holder
of this Security may proceed to protect and enforce its rights either by suit in
equity or by action at law, or both. The Company stipulates that the remedies at
law of the holder of this  Security  in the event of any  Default or  threatened
Default by the Company in the  performance of or compliance with any covenant or
agreement in

                                       19

<PAGE>

this Security,  the Note Purchase Agreement or the Registration Rights Agreement
are not and will not be adequate and that,  to the fullest  extent  permitted by
law,  such  terms may be  specifically  enforced  by a decree  for the  specific
performance  thereof,  whether by an injunction  against a violation  thereof or
otherwise.

     (d) No remedy  conferred in this Security,  the Note Purchase  Agreement or
the  Registration  Rights  Agreement  is intended to be  exclusive  of any other
remedy,  and each and every  such  remedy  shall be  cumulative  and shall be in
addition to every other remedy given hereunder or thereunder or now or hereafter
existing at law or in equity or by statute or otherwise.

     (e) No course of dealing  between the Company and any of its  Subsidiaries,
on the one hand,  and the holder of this  Security,  on the other  hand,  and no
delay by any such holder in  exercising  any rights  hereunder or under the Note
Purchase  Agreement or the  Registration  Rights  Agreement  shall  operate as a
waiver of any rights of such holder.

     (f) In case any one or more of the Events of Default  specified  in section
4(a) shall have occurred, all amounts to be applied to the prepayment or payment
of this  Security  shall be applied,  after the payment of all related costs and
expenses incurred by the holder of this Security (including, without limitation,
compensation  to  any  and  all  trustees,  liquidators,  receivers  or  similar
officials and reasonable  fees,  expenses and  disbursements of counsel) in such
order of priority as is determined by the holder of this Security.

     (g) The term "Make-Whole  Amount" means, with respect to this Security,  an
amount equal to the excess,  if any, of the  Discounted  Value of the  Remaining
Scheduled  Payments  with respect to the Called  Principal of this Security over
the amount of such Called Principal,  provided that the Make-Whole Amount may in
no event be less than zero.  For the  purposes  of  determining  the  Make-Whole
Amount, the following terms have the following meanings:

     "Called  Principal" means, with respect to this Security,  the principal of
this Security that has become or is declared to be  immediately  due and payable
pursuant to Section 4(b).

     "Discounted  Value"  means,  with  respect to the Called  Principal of this
Security,  the amount obtained by discounting all Remaining  Scheduled  Payments
with respect to such Called Principal from their respective  scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted  financial  practice  and at a  discount  factor  (applied  on the same
periodic  basis as that on which  interest on this Security is payable) equal to
the Reinvestment Yield with respect to such Called Principal.

     "Reinvestment  Yield" means,  with respect to the Called  Principal of this
Security,  150 basis points over the yield to maturity implied by (i) the yields
reported,  as of 10:00  A.M.  (New York City time) on the  second  Business  Day
preceding  the  Settlement  Date with respect to such Called  Principal,  on the
display designated as "PX-I" of the Bloomberg  Financial Markets Services Screen
for actively  traded U.S.  Treasury  securities  having a maturity  equal to the
Remaining Average Life of such Called Principal as of such

                                       20

<PAGE>

Settlement  Date, or (ii) if such yields are not reported as of such time or the
yields  reported as of such time are not  ascertainable,  the Treasury  Constant
Maturity Series Yields  reported,  for the latest day for which such yields have
been so reported as of the second  Business Day  preceding the  Settlement  Date
with respect to such Called Principal, in Federal Reserve Statistical Release H.
15 (519) (or any  comparable  successor  publication)  for actively  traded U.S.
Treasury  securities  having a constant  maturity equal to the Remaining Average
Life of such Called  Principal as of such  Settlement  Date.  Such implied yield
will  be  determined,  if  necessary,  by  (a)  converting  U.S.  Treasury  bill
quotations  to  bond-equivalent  yields in accordance  with  accepted  financial
practice and (b)  interpolating  linearly  between (1) the actively  traded U.S.
Treasury  security  with the duration  closest to and greater than the Remaining
Average  Life  and (2) the  actively  traded  U.S.  Treasury  security  with the
duration closest to and less than the Remaining Average Life.

"Remaining Average Life" means, with respect to any Called Principal, the number
of years  (calculated to the nearest  one-twelfth year) obtained by dividing (i)
such Called Principal into (ii) the sum of the products  obtained by multiplying
(a) the principal  component of each Remaining Scheduled Payment with respect to
such  Called  Principal  by (b) the number of years  (calculated  to the nearest
one-twelfth  year) that will elapse between the Settlement  Date with respect to
such Called  Principal and the scheduled  due date of such  Remaining  Scheduled
Payment.

"Remaining  Scheduled  Payment" means,  with respect to the Called  Principal of
this Security,  all payments of such Called  Principal and interest thereon that
would be due after the Settlement Date with respect to such Called  Principal if
no payment of such Called  Principal  were made prior to its scheduled due date,
provided that if such Settlement  Date is not a date on which interest  payments
are due to be made under the terms of this Security, then the amount of the next
succeeding  scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date.

     "Settlement  Date"  means,  with  respect to the Called  Principal  of this
Security,  the date on which such Called  Principal or has become or is declared
to be immediately due and payable pursuant to Section 4(b).

     5.  Consolidation,  Merger, Etc. (a) The Company shall not consolidate with
or merge into any other Person or,  directly or  indirectly,  convey,  transfer,
sell or lease  all or  substantially  all of its  properties  and  assets to any
Person, and the Company shall not permit any Person to consolidate with or merge
into the Company or, directly or indirectly, convey, transfer, sell or lease all
or substantially all of its properties and assets to the Company, unless:

     (1) in case the Company shall consolidate with or merge into another Person
or convey,  transfer,  sell or lease all or substantially  all of its properties
and assets to any Person,  the Person formed by such consolidation or into which
the Company is merged or the Person which  acquires by  conveyance,  transfer or
sale, or which leases, all or substantially all the properties and assets of the
Company shall be a corporation, limited

                                       21

<PAGE>

liability company, partnership or trust, shall be organized and validly existing
under  the laws of the  United  States of  America,  any  State  thereof  or the
District of Columbia and shall expressly  assume,  by an agreement  supplemental
hereto,  executed  and  delivered  to  the  holder  of  this  Security  in  form
satisfactory  to the holder,  the due and punctual  payment of the  principal of
(and  premium,  if any) and  interest on this  Security and the  performance  or
observance  of every  covenant of this Security on the part of the Company to be
performed or observed,  including the conversion  rights  provided herein (which
shall thereafter relate to common stock of such successor, on a basis reasonably
designed to preserve the economic  value to the holder of this  Security of such
conversion rights);

     (2)  immediately  after giving effect to such  transaction and treating any
indebtedness  which  becomes an obligation of the Company or a Subsidiary of the
Company as a result of such  transaction  as having been incurred by the Company
or such Subsidiary of the Company at the time of such  transaction,  no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing;

     (3) the Company has  delivered to the holder of this  Security an officers'
certificate stating that such consolidation,  merger, conveyance, transfer, sale
or lease and, if a  supplemental  agreement is required in connection  with such
transaction,  such supplemental agreement, comply with this Section and that all
conditions  precedent herein provided for relating to such transaction have been
complied with; and

     (4) counsel for the Company has delivered to the holder of this Security an
opinion of such counsel with respect to such consolidation,  merger, conveyance,
transfer,  sale  or  lease,  and if a  supplemental  agreement  is  required  in
connection with such  transaction,  such supplemental  agreement,  which opinion
shall be, in form and  substance,  reasonably  acceptable to such holder and its
counsel.

     (b) Upon any  consolidation  of the Company  with, or merger of the Company
into,  any other  Person or any  conveyance,  transfer,  sale or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 5(a), the successor  Person formed by such  consolidation  or into which
the Company is merged or to which such  conveyance,  transfer,  sale or lease is
made shall succeed to, and be substituted  for, and may exercise every right and
power of,  the  Company  under  this  Security  with the same  effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Security.

     6.  payment in Stock.  (a) The  Company may elect to pay some or all of the
Repurchase Price by delivery of shares of Common Stock or shares of common stock
in any Person  succeeding  the  Company,  if and only if, each of the  following
conditions shall be satisfied  (without limiting any other conditions  contained
herein):

     (1) Any such payment shall be made in five equal  installments,  on each of
the five consecutive  Trading Days ending on and including the third Trading Day
immediately preceding

                                       22

<PAGE>

the date when any cash payment would  otherwise be due, and the shares of Common
Stock or common  stock of any  Person  succeeding  the  Company  deliverable  in
payment of each such  installment  shall have a fair market value as of the date
of such  installment  of not less  than 20% of the  amount of such  payment  due
hereunder  which is payable in shares of stock.  For purposes of this Section 6,
the fair  market  value of shares of Common  Stock  shall be equal to 95% of the
Closing Price for the immediately preceding Trading Day;

     (2) In the event any shares of Common  Stock or common  stock of any Person
succeeding  the  Company to be issued in  respect  of any  amount due  hereunder
require  registration under any Federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under the
Securities  Act of  1933  upon  issuance,  such  registration  shall  have  been
completed  and shall have become  effective  prior to the date of the first such
installment;

     (3) In the event any shares of Common  Stock or common  stock of any Person
succeeding  the  Company to be issued in  respect  of any  amount due  hereunder
require  registration  with or approval of any governmental  authority under any
State law or any other  Federal law before such shares may be validly  issued or
delivered upon issuance or transferred freely, such registration shall have been
completed or have become  effective and such approval  shall have been obtained,
in each case, prior to the date of the first such installment;

     (4) The shares of Common Stock or common stock of any Person succeeding the
Company  deliverable  in payment of such  amount due  hereunder  shall have been
approved for quotation in the Nasdaq  National Market  immediately  prior to the
date of the first such installment or, if at the time its shares of Common Stock
or shares of common  stock of any Person  succeeding  the  Company are listed or
admitted for trading on any national securities  exchange,  the shares of Common
Stock or common stock in any Person succeeding the Company and deliverable shall
have been so listed or admitted for trading.

     (5) All shares of Common Stock or common stock of any Person succeeding the
Company  deliverable in payment of such amount due hereunder shall,  upon issue,
be duly and  validly  issued and fully paid and  non-assessable  and free of any
preemptive rights;

     (6) In respect of each such payment date,  the Company shall have given the
holder of this  Security not less than 10 nor more than 15 Trading  Days' notice
of its election to effect payment in respect of such payment date by delivery of
shares of Common  Stock;  provided  that any such  notice  shall  accompany  the
Company's notice of a Change of Control relating thereto; and

     (7) The Company shall deliver,  or cause to be delivered a certificate from
the Person succeeding the Company which states,  that after giving effect to any
Change of Control that the holding by the Purchasers or any assignees thereof of
this Security,  or the holding of any Common Stock or common stock of any Person
succeeding the Company after  conversion of this Security would not constitute a
prohibited transaction which would violate the prohibition of

                                       23

<PAGE>

section  406 of ERISA or which  would  subject  any  "disqualified  person"  (as
defined in section  4975(e)(2)  of the Code) to a tax  pursuant to section  4975
(c)(1)(A)-(D) of the Code.

     If all of the  conditions  set forth in this Section 6(a) are not satisfied
in accordance with the terms hereof, any such amount due hereunder shall be paid
by the Company only in cash.

     (b) Any issuance of shares of Common Stock or shares of common stock of any
Person  succeeding  the  Company  in respect of any  installment  due  hereunder
pursuant  to this  Section 6 shall be deemed to have been  effected  immediately
prior to the close of business on the date of delivery of such  installment  and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such  delivery  shall be deemed to
have  become  on such  date the  holder  or  holders  of  record  of the  shares
represented thereby;  provided,  however,  that in case any installment shall be
due on a date when the stock transfer books of the Company shall be closed,  the
person or persons in whose name or names the  certificate  or  certificates  for
such shares are to be issued shall be deemed to have become the record holder or
holders  thereof  for all  purposes  at the  opening  of  business  on the  next
succeeding  day on which  such  stock  transfer  books are open.  No  payment or
adjustment  shall be made for  dividends  or  distributions  on any Common Stock
issued pursuant to this Section 6 declared prior to the relevant  delivery date;
and

     (c) Any issuance and delivery of certificates for shares of common stock or
shares of common  stock of any Person  succeeding  the Company  pursuant to this
Section 6 shall be made without  charge to the holder of this  Security for such
certificates  or for any tax or duty in respect of the  issuance  or delivery of
such certificates or the securities represented thereby.

     7.  Other.  (a) No  provision  of this  Security  shall alter or impair the
obligation  of the  Company,  which is absolute  and  unconditional,  to pay the
principal  of,  premium,  if any, and  interest on this  Security in cash at the
times,  places and rate,  and in the coin or currency,  herein  prescribed or to
convert this Security as herein provided.

     (b) The Company will give prompt  written  notice to the holder of Security
of any change in the location of the Designated Office.

     (c) The transfer of this Security is registrable  on the Security  Register
of the Company upon surrender of this Security for  registration  of transfer at
the Designated Office,  duly endorsed by, or accompanied by a written instrument
of transfer in form  satisfactory  to the Company  duly  executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities,  of authorized  denominations  and for the same aggregate  principal
amount,  will be  issued  to the  designated  transferee  or  transferees.  Such
Securities are issuable only in registered form without coupons in denominations
of $1,000 and any integral multiple thereof. No service Charge shall be made for
any such registration of transfer,  but the Company may require payment of a sum
sufficient to recover any tax or other governmental charge payable in connection
therewith.  Prior to due  presentation  of this  Security  for  registration  of
transfer, the Company and any agent of the Company may treat the Person in whose
name this

                                       24

<PAGE>

Security is registered  as the owner  thereof for all  purposes,  whether or not
this  Security be  overdue,  and neither the Company nor any such agent shall be
affected by notice to the contrary.

     (d) The  Company  shall keep at the  Designated  Office a register  for the
registration  and  registration of transfers of Convertible  Notes. The name and
address of each holder of one or more Convertible  Notes,  each transfer thereof
and the name and address of each  transferee  of one or more  Convertible  Notes
shall be registered in such register.  Prior to due presentment for registration
of transfer,  the Person in whose name any Convertible  Note shall be registered
shall be deemed and  treated as the owner and holder  thereof  for all  purposes
hereof,  and the Company Shall not be affected by any notice or knowledge to the
contrary.  The Company shall give to any holder of a  Convertible  Note promptly
upon request therefor, a complete and correct copy of the names and addresses of
all registered holders of Convertible Notes.

     (e) Upon surrender of any  Convertible  Note at the  Designated  Office for
registration  of  transfer  or  exchange  (and in the  case of a  surrender  for
registration of transfer,  duly endorsed or accompanied by a written  instrument
of transfer duly executed by the registered  holder of such  Convertible Note or
his  attorney  duly  authorized  in writing and  accompanied  by the address for
notices  of each  transferee  of such  Convertible  Note or part  thereof),  the
Company shall execute and deliver,  at the Company's expense (except as provided
below),  one or more new Convertible  Notes (as requested by the holder thereof)
in exchange  therefor,  in an  aggregate  principal  amount  equal to the unpaid
principal amount of the surrendered  Convertible Note. Each such new Convertible
Note shall be payable to such  Person as such  holder may  request  and shall be
substantially in the form of this Security. Each such new Convertible Note shall
be dated and bear interest from the date to which  interest shall have been paid
on the  surrendered  Convertible  Note or  dated  the  date  of the  surrendered
Convertible  Note if no interest  shall have been paid thereon.  The Company may
require  payment  of a sum  sufficient  to cover any  stamp tax or  governmental
charge  imposed in respect of any such  transfer of this  Security.  Convertible
Notes shall not be transferred in denominations of less than $100,000,  provided
that if  necessary  to enable the  registration  of  transfer by a holder of its
entire  holding  of  Convertible  Notes,  one  Convertible  Note  may  be  in  a
denomination  of less than  $100,000.  Any  transferee,  by its  acceptance of a
Convertible  Note registered in its name (or the name of its nominee),  shall be
deemed  to have  made the  representation  set  forth in  Section  3 of the Note
Purchase Agreement.

     (f) Upon receipt by the Company of evidence  reasonably  satisfactory to it
of the  ownership of and the loss,  theft,  destruction  or  mutilation  of this
Security  (which evidence shall be notice from such holder of such ownership and
such loss, theft, destruction or mutilation), and

     (i) in the case of loss,  theft or  destruction,  of  indemnity  reasonably
satisfactory  to it  (provided  that if the holder of this  Security is, or is a
nominee for, an original holder or another institutional investor holder of this
Security,  such Person's own unsecured agreement of indemnity shall be deemed to
be satisfactory), or

     (ii) in the case of mutilation, upon surrender and cancellation thereof,

                                       25

<PAGE>

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Convertible  Note,  dated and bearing  interest from the date to which  interest
shall have been paid on such lost,  stolen,  destroyed or mutilated  Convertible
Note or dated the date of such lost, stolen,  destroyed or mutilated Convertible
Note if no interest shall have been paid thereon.

     (G) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.

     (h) So long as you or your  nominee  shall be holder of this  Security  and
notwithstanding  anything in this Security to the contrary, the Company will pay
all sums becoming due hereunder for principal,  Make-Whole  Amount,  if any, and
interest by the method and at the address  specified for such purpose below your
name in  Schedule I of the Note  Purchase  Agreement,  or by such  other  method
provided in the Preamble or at such other address as you shall have from time to
time  specified  to the  Company  in  writing  for  such  purpose,  without  the
presentation  or  surrender  of this  Security,  or the  making of any  notation
hereon,  except that upon written request of the Company made  concurrently with
or  reasonably  promptly  after  payment  in full of this  Security,  you  shall
surrender  this Security for  cancellation,  reasonably  promptly after any such
request to the  Company  at its  principal  executive  office or at the place of
payment most  recently  designated  by the  Company.  Prior to any sale or other
disposition of this Security you will, at your election,  either endorse thereon
the amount of  principal  paid  thereon and the last date to which  interest has
been paid  thereon or surrender  this  Security to the Company in exchange for a
new Convertible  Note pursuant to the terms hereof.  The Company will afford the
benefits of this  Section to any  institutional  investor  that is the direct or
indirect transferee of this Security.

                     [END OF PAGE - SIGNATURE PAGE FOLLOWS]

                                       26

<PAGE>

     IN WITNESS  WHEREOF.  the  Company  has  caused  this  Security  to be duly
executed under its corporate seal.

Dated:   July 6,            ,1999
      ---------------------

                                            CELGENE CORPORATION

                                            By:
                                               --------------------------
                                               Name:  Robert J. Hugin
                                               Title: Senior Vice President CFO
Attest

------------------------------
Name:  Sanford Kaston
Title: Treasurer; CIO

                                       27

<PAGE>

                    ELECTION OF HOLDER TO REQUIRE REPURCHASE

     1. Pursuant to Section 3(a) of this Security, the undersigned hereby elects
to have all or a portion of this Security repurchased by the Company.

     2. The undersigned hereby directs the Company to pay [choose one] (a) it or
(b) Name: ; address: ; Social Security or Other Taxpayer  Identification Number,
if any:  , an  amount  in cash or equal to 100% of the  principal  amount  to be
repurchased (as set forth below),  plus interest accrued to the Repurchase Date,
as provided herein.

<PAGE>

                                CONVERSION NOTICE

     The undersigned  holder of this Security hereby  irrevocably  exercises the
option to convert this Security,  or any portion of the principal  amount hereof
(which is an  integral  multiple  of $1,000)  below  designated,  into shares of
Common Stock  (subject to the  limitation  set forth in the second  paragraph of
Section 2(a) of the Security) in accordance with the terms of this Security, and
directs that such shares,  together  with a check in payment for any  fractional
share and any Security  representing any unconverted principal amount hereof, be
delivered to and be registered in the name of the undersigned unless a different
name has been indicated below. If shares of Common Stock or Securities are to be
registered in the name of a Person other than the  undersigned,  the undersigned
will pay all transfer taxes payable with respect thereto. Any amount required to
be paid by the undersigned on account of interest accompanies this Security.

Dated:
      ---------------------------                    -------------------------
                                                      Signature

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