Document:

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                    PREFERRED SECURITIES GUARANTEE AGREEMENT

                         BEAR STEARNS CAPITAL TRUST III

                            Dated as of May 10, 2001

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                              CROSS-REFERENCE TABLE

   Trust                                                      Preferred
 Indenture                                                    Securities
Act Section                                               Guarantee Section
-----------                                               -----------------

  310 (a)................................................  4.1(a)
      (b)................................................  4.1(c)
      (c)................................................  Not Applicable
  311 (a)................................................  2.2(b)
      (b)................................................  2.2(b)
      (c)................................................  Not Applicable
  312 (a)................................................  2.2(a)
      (b)................................................  2.2(b)
  313 ...................................................  2.3
  314 (a)................................................  2.4
      (b)................................................  Not Applicable
      (c)................................................  2.5
      (d)................................................  Not Applicable
      (f)................................................  Not Applicable
  315 (a)................................................  3.2(a)
      (b)................................................  2.7
      (c)................................................  3.1(c)
      (d)................................................  3.1(d)
  316 (a)................................................  5.4(a), 2.6

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Note:   This Cross-Reference Table shall not, for any purpose, be deemed to be a
        part of this Preferred Securities Guarantee.

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                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----

                                    ARTICLE I

                         DEFINITIONS AND INTERPRETATION

Section 1.1   Definitions and Interpretation.................................1

                                   ARTICLE II

                               TRUST INDENTURE ACT

Section 2.1   Trust Indenture Act; Application...............................4
Section 2.2   Lists of Holders of Securities.................................5
Section 2.3   Reports by the Guarantee Trustee...............................5
Section 2.4   Periodic Reports to Guarantee Trustee..........................5
Section 2.5   Evidence of Compliance with Conditions Precedent...............5
Section 2.6   Events of Default; Waiver......................................5
Section 2.7   Events of Default; Notice......................................5
Section 2.8   Conflicting Interests..........................................6

                                   ARTICLE III

                 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE

Section 3.1   Powers and Duties of the Guarantee Trustee.....................6
Section 3.2   Certain Rights of Guarantee Trustee............................8
Section 3.3   Not Responsible for Recitals or Issuance of Preferred
                Securities Guarantee.........................................9

                                   ARTICLE IV

                                GUARANTEE TRUSTEE

Section 4.1   Guarantee Trustee; Eligibility................................10
Section 4.2   Appointment, Removal and Resignation of Guarantee Trustee.....10

                                    ARTICLE V

                                    GUARANTEE

Section 5.1   Preferred Securities Guarantee................................11

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Section 5.2   Waiver of Notice and Demand...................................11
Section 5.3   Obligations Not Affected......................................11
Section 5.4   Rights of Holders.............................................12
Section 5.5   Guarantee of Payment..........................................13
Section 5.6   Subrogation...................................................13
Section 5.7   Independent Obligations.......................................13
Section 5.8   Consolidation, Merger, Sale of Assets and Other Transactions..13

                                   ARTICLE VI

                                  SUBORDINATION

Section 6.1   Ranking.......................................................14

                                   ARTICLE VII

                                   TERMINATION

Section 7.1   Termination...................................................14

                                  ARTICLE VIII

                                 INDEMNIFICATION

Section 8.1   Exculpation...................................................14
Section 8.2   Indemnification...............................................15
Section 8.3   Compensation; Reimbursement of Expenses.......................15

                                   ARTICLE IX

                                  MISCELLANEOUS

Section 9.1   Successors and Assigns........................................15
Section 9.2   Amendments....................................................16
Section 9.3   Notices.......................................................16
Section 9.4   Benefit.......................................................16
Section 9.5   Governing Law.................................................16

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                    PREFERRED SECURITIES GUARANTEE AGREEMENT

            PREFERRED SECURITIES GUARANTEE AGREEMENT, dated as of May 10, 2001
(the "Preferred Securities Guarantee") is executed and delivered by The Bear
Stearns Companies Inc., a Delaware corporation (the "Guarantor"), and The Chase
Manhattan Bank, a New York State banking corporation, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Preferred Securities (as defined herein) of Bear Stearns Capital Trust
III, a Delaware statutory business trust (the "Issuer").

            WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated
as of May 10, 2001 (the "Trust Agreement"), among the trustees named therein of
the Issuer, the administrators named therein, The Bear Stearns Companies Inc.,
as depositor, and the holders from time to time of undivided beneficial
interests in the assets of the Issuer, the Issuer is issuing on the date hereof
10,500,000 shares ($262,500,000 aggregate Liquidation Amount) of 7.80% Trust
Issued Preferred Securities (the "Preferred Securities");

            WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of Preferred Securities the Guarantee Payments (as defined herein) and
to make certain other payments on the terms and conditions set forth herein; and

            WHEREAS, the Guarantor is also executing and delivering a common
securities guarantee agreement (the "Common Securities Guarantee") in similar
terms to this Preferred Securities Guarantee for the benefit of the holders of
the Common Securities (as defined in the Trust Agreement) of the Issuer, except
that if an Event of Default (as defined in the Trust Agreement), has occurred
and is continuing, the rights of holders of the Common Securities to receive
Guarantee Payments under the Common Securities Guarantee are subordinated to the
rights of Holders of Preferred Securities to receive Guarantee Payments under
this Preferred Securities Guarantee.

            NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

            Section 1.1  Definitions and Interpretation. In this Preferred
Securities Guarantee, unless the context otherwise requires:

            (a)  capitalized terms used in this Preferred Securities Guarantee
but not defined in the preamble above have the respective meanings assigned to
them in this Section 1.1;

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            (b)  a term defined anywhere in this Preferred Securities Guarantee
has the same meaning throughout;

            (c)  all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;

            (d)  all references in this Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;

            (e)  terms defined in the Trust Agreement as at the date of
execution of this Preferred Securities Guarantee or in the Trust Indenture Act
as the case may be, have the same meanings when used in this Preferred
Securities Guarantee, unless otherwise defined in this Preferred Securities
Guarantee or unless the context otherwise requires; and

            (f)  a reference to the singular includes the plural and vice versa.

            "Corporate Trust Office" means the office of the Guarantee Trustee
at which the corporate trust business of the Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Preferred Securities Guarantee is located at 450 West 33rd
Street, New York, New York 10001.

            "Covered Person" means any Holder or beneficial owner of Preferred
Securities.

            "Debentures" means the junior subordinated debentures of The Bear
Stearns Companies Inc. designated the 7.80% Junior Subordinated Deferrable
Interest Debentures due May 15, 2031 held by the Property Trustee (as defined in
the Trust Agreement) of the Issuer.

            "Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.

            "Existing Indenture" means the Indenture, dated as of January 29,
1997, between the Guarantor and The Chase Manhattan Bank, as trustee, as amended
or supplemented from time to time.

            "Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accumulated and unpaid Distributions (as
defined in the Trust Agreement) which are required to be paid on such Preferred
Securities to the extent the Issuer shall have funds available therefor, (ii)
the redemption price, including all accumulated and unpaid Distributions to the
date of redemption (the "Redemption Price") to the extent the Issuer has funds
available therefor, with respect to any Preferred Securities called for
redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Issuer (other than in connection with the
distribution of Debentures to the Holders in exchange for Preferred Securities
as provided in the Trust Agreement), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions on the Preferred
Securities to the date of payment, to the extent the Issuer shall have funds

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available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution").

            "Guarantees" means the Common Securities Guarantee and this
Preferred Securities Guarantee, collectively.

            "Guarantee Trustee" means The Chase Manhattan Bank, a New York State
banking corporation, until a Successor Guarantee Trustee has been appointed and
has accepted such appointment pursuant to the terms of this Preferred Securities
Guarantee and thereafter means each such Successor Guarantee Trustee.

            "Holder" shall mean any holder, as registered on the books and
records of the Issuer, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.

            "Indemnified Person" means the Guarantee Trustee, any Affiliate of
the Guarantee Trustee, or any officers, directors, shareholders, members,
partners, employees, representatives, nominees, custodians or agents of the
Guarantee Trustee.

            "Indenture" means the Indenture dated as of December 16, 1998,
between the Guarantor and The Chase Manhattan Bank, not in its individual
capacity but solely as trustee, and any indenture supplemental thereto pursuant
to which the Debentures are to be issued to the Property Trustee of the Issuer.

            "Liquidation Distribution" has the meaning set forth in the
definition of "Guarantee Payments" herein.

            "Majority in Liquidation Amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, a vote by Holder(s) of Preferred
Securities, voting together as a class, but separately from the holders of
Common Securities, of more than 50% of the aggregate Liquidation Amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accumulated and unpaid Distributions to the date upon which the
voting percentages are determined) of all Preferred Securities then outstanding.

            "Officers' Certificate" means a certificate signed by the Chairman
of the Board or any Vice Chairman of the Board or the President or any Executive
Vice President or Chief Operating Officer or Chief Financial Officer of the
Depositor and by the Treasurer or an Assistant Treasurer or Controller or the
Secretary or an Assistant Secretary of the Depositor and delivered to the
Guarantee Trustee. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Preferred
Securities Guarantee (other than pursuant to Section 2.4) shall include:

            (a)  a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions relating
thereto;

            (b)  a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Officers'
Certificate;

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            (c)  a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and

            (d)  a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.

            "Other Guarantees" means all other guarantees (if any) to be issued
by the Company with respect to capital securities (if any) to be issued by other
trusts to be established by the Company (if any).

            "Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.

            "Responsible Officer" means, with respect to the Guarantee Trustee,
any officer within the Corporate Trust Office of the Guarantee Trustee,
including any vice president, any assistant vice president, any assistant
secretary, the treasurer, any assistant treasurer, any trust officer, any senior
trust officer, or other officer of the Corporate Trust Office of the Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.

            "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.

            "Trust Event of Default" means an "Event of Default" as defined in
the Trust Agreement.

            "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.

            "Trust Securities" means the Common Securities and the Preferred
Securities.

                                   ARTICLE II

                               TRUST INDENTURE ACT

            Section 2.1  Trust Indenture Act; Application. (a) This Preferred
Securities Guarantee is subject to the provisions of the Trust Indenture Act and
shall, to the extent applicable, be governed by such provisions; and

            (b)  if and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.

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            Section 2.2  Lists of Holders of Securities. (a) The Guarantor shall
provide the Guarantee Trustee (i) within five days after each record date for
payment of Distributions, a list, in such form as the Guarantee Trustee may
reasonably require, of the names and addresses of the Holders of the Preferred
Securities ("List of Holders") as of such record date, provided that the
Guarantor shall not be obligated to provide such List of Holders at any time the
List of Holders does not differ from the most recent List of Holders given to
the Guarantee Trustee by the Guarantor, and (ii) at any other time within 30
days of receipt by the Guarantor of a written request for a List of Holders,
which List of Holders shall be as of a date no more than 14 days before such
List of Holders is given to the Guarantee Trustee. The Guarantee Trustee may
destroy any List of Holders previously given to it on receipt of a new List of
Holders.

            (b)  The Guarantee Trustee shall comply with its obligations under
Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.

            Section 2.3  Reports by the Guarantee Trustee. Not later than
January 15 of each year commencing January 15, 2002, the Guarantee Trustee shall
provide to the Holders of the Preferred Securities such reports dated as of the
immediately preceding November 15 as are required by Section 313(a) of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act. The Guarantor will
notify the Guarantee Trustee if and when any Preferred Securities are listed on
any exchange, interdealer quotation system or self-regulatory organization.

            Section 2.4  Periodic Reports to Guarantee Trustee. The Guarantor
shall provide to the Guarantee Trustee, the Securities and Exchange Commission
and the Holders as applicable, such documents, reports and information (if any)
as required by Section 314 and the compliance certificate required by Section
314(a)(4) of the Trust Indenture Act in the form, in the manner and at the times
required by Section 314 of the Trust Indenture Act, such compliance certificate
to be delivered annually on or before February 15 of each year beginning in
2002.

            Section 2.5  Evidence of Compliance with Conditions Precedent. The
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with any conditions precedent provided for in this Preferred Securities
Guarantee that relate to any of the matters set forth in Section 314(c) of the
Trust Indenture Act. Any certificate or opinion required to be given by an
officer pursuant to Section 314(c)(1) of the Trust Indenture Act may be given in
the form of an Officers' Certificate.

            Section 2.6  Events of Default; Waiver. The Holders of a Majority in
Liquidation Amount of the Preferred Securities may, voting or consenting as a
class, on behalf of the Holders of all of the Preferred Securities, waive any
past Event of Default and its consequences. Upon such waiver, any such Event of
Default shall cease to exist, and shall be deemed to have been cured, for every
purpose of this Preferred Securities Guarantee, but no such waiver shall extend
to any subsequent or other default or Event of Default or impair any right
consequent therefrom.

            Section 2.7  Events of Default; Notice. (a) The Guarantee Trustee
shall, within 90 days after the occurrence of an Event of Default, transmit by
mail, first class postage prepaid, to the Holders of the Preferred Securities,

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notices of all Events of Default actually known to a Responsible Officer of the
Guarantee Trustee, unless such defaults have been cured before the giving of
such notice; provided, however, that, except in the case of a default in the
payment of a Guarantee Payment, the Guarantee Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee, or a trust committee of directors and/or responsible officers of the
Guarantee Trustee in good faith determines that the withholding of such notice
is in the interests of the Holders of the Preferred Securities.

            (b)  The Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless the Guarantee Trustee shall have received written
notice thereof from the Guarantor or a Holder, or a Responsible Officer of the
Guarantee Trustee charged with the administration of this Preferred Securities
Guarantee shall have obtained written notice thereof.

            Section 2.8  Conflicting Interests. The Indenture and the securities
issued or to be issued thereunder; the Trust Agreement and the Trust Securities
issued or to be issued thereunder; any Preferred Securities Guarantee Agreement
relating to a Bear Stearns Trust (as defined in the Indenture and the Existing
Indenture) between the Guarantor and The Chase Manhattan Bank, as guarantee
trustee; any Amended and Restated Trust Agreement relating to a Bear Stearns
Trust among the Guarantor, as depositor, The Chase Manhattan Bank, as property
trustee, Chase Manhattan Bank USA, National Association, or its predecessors, as
Delaware trustee, the administrators named therein and the several holders and
the Trust Securities issued and to be issued thereunder; and the Existing
Indenture and the securities issued or to be issued thereunder, shall be deemed
to be specifically described in this Preferred Securities Guarantee for the
purposes of clause (i) of the proviso contained in Section 310(b)(l) of the
Trust Indenture Act.

                                  ARTICLE III

                 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE

            Section 3.1  Powers and Duties of the Guarantee Trustee. (a) This
Preferred Securities Guarantee shall be held by the Guarantee Trustee for the
benefit of the Holders of the Preferred Securities, and the Guarantee Trustee
shall not transfer this Preferred Securities Guarantee to any Person except a
Holder of Preferred Securities exercising his or her rights pursuant to Section
5.4(b) or to a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The
right, title and interest of the Guarantee Trustee shall automatically vest in
any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee
Trustee of its appointment hereunder, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Guarantee Trustee.

            (b) If an Event of Default actually known to a Responsible Officer
of the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee
shall enforce this Preferred Securities Guarantee for the benefit of the Holders
of the Preferred Securities.

            (c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in

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this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Guarantee Trustee. In case an
Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) and is actually known to a Responsible Officer of the Guarantee
Trustee, the Guarantee Trustee shall exercise such of the rights and powers
vested in it by this Preferred Securities Guarantee, and use the same degree of
care and skill in its exercise thereof, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs.

            (d)  No provision of this Preferred Securities Guarantee shall be
construed to relieve the Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

            (i)  prior to the occurrence of any Event of Default and after the
      curing or waiving of all such Events of Default that may have occurred:

                  (A) the duties and obligations of the Guarantee Trustee shall
            be determined solely by the express provisions of this Preferred
            Securities Guarantee, and the Guarantee Trustee shall not be liable
            except for the performance of such duties and obligations as are
            specifically set forth in this Preferred Securities Guarantee, and
            no implied covenants or obligations shall be read into this
            Preferred Securities Guarantee against the Guarantee Trustee; and

                  (B) in the absence of bad faith on the part of the Guarantee
            Trustee, the Guarantee Trustee may conclusively rely, as to the
            truth of the statements and the correctness of the opinions
            expressed therein, upon any certificates or opinions furnished to
            the Guarantee Trustee and conforming to the requirements of this
            Preferred Securities Guarantee; but in the case of any such
            certificates or opinions that by any provision hereof are
            specifically required to be furnished to the Guarantee Trustee, the
            Guarantee Trustee shall be under a duty to examine the same to
            determine whether or not they conform to the requirements of this
            Preferred Securities Guarantee;

            (ii)  the Guarantee Trustee shall not be liable for any error of
      judgment made in good faith by a Responsible Officer of the Guarantee
      Trustee, unless it shall be proved that such Responsible Officer of the
      Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining
      the pertinent facts upon which such judgment was made;

            (iii) the Guarantee Trustee shall not be liable with respect to any
      action taken or omitted to be taken by it in good faith in accordance with
      the direction of the Holders of not less than a Majority in Liquidation
      Amount of the Preferred Securities relating to the time, method and place
      of conducting any proceeding for any remedy available to the Guarantee
      Trustee, or exercising any trust or power conferred upon the Guarantee
      Trustee under this Preferred Securities Guarantee; and

            (iv)  no provision of this Preferred Securities Guarantee shall
      require the Guarantee Trustee to expend or risk its own funds or otherwise
      incur personal financial liability in the performance of any of its duties
      or in the exercise of any of its rights or powers, if the Guarantee

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      Trustee shall have reasonable grounds for believing that the repayment of
      such funds is not reasonably assured to it under the terms of this
      Preferred Securities Guarantee or indemnity, reasonably satisfactory to
      the Guarantee Trustee, against such risk or liability is not reasonably
      assured to it.

      Section 3.2 Certain Rights of Guarantee Trustee. (a) Subject to the
provisions of Section 3.1:

            (i)  The Guarantee Trustee may conclusively rely, and shall be fully
      protected in acting or refraining from acting upon, any resolution,
      certificate, statement, instrument, opinion, report, notice, request,
      direction, consent, order, bond, debenture, note, other evidence of
      indebtedness or other paper or document believed by it to be genuine and
      to have been signed, sent or presented by the proper party or parties.

            (ii)  Any direction or act of the Guarantor contemplated by this
      Preferred Securities Guarantee shall be sufficiently evidenced by an
      Officers' Certificate.

            (iii)  Whenever, in the administration of this Preferred Securities
      Guarantee, the Guarantee Trustee shall deem it desirable that a matter be
      proved or established before taking, suffering or omitting any action
      hereunder, the Guarantee Trustee (unless other evidence is herein
      specifically prescribed) may, in the absence of bad faith on its part,
      request and conclusively rely upon an Officers' Certificate which, upon
      receipt of such request, shall be promptly delivered by the Guarantor.

            (iv)  The Guarantee Trustee shall have no duty to see to any
      recording, filing or registration of any instrument (or any rerecording,
      refiling or registration thereof).

            (v)  The Guarantee Trustee may consult with counsel of its
      selection, and the written advice or opinion of such counsel with respect
      to legal matters shall be full and complete authorization and protection
      in respect of any action taken, suffered or omitted by it hereunder in
      good faith and in accordance with such advice or opinion. Such counsel may
      be counsel to the Guarantor or any of its Affiliates and may include any
      of its employees. The Guarantee Trustee shall have the right at any time
      to seek instructions concerning the administration of this Guarantee from
      any court of competent jurisdiction.

            (vi)  The Guarantee Trustee shall be under no obligation to exercise
      any of the rights or powers vested in it by this Preferred Securities
      Guarantee at the request or direction of any Holder, unless such Holder
      shall have provided to the Guarantee Trustee such security and indemnity,
      reasonably satisfactory to the Guarantee Trustee, against the costs,
      expenses (including attorneys' fees and expenses and the expenses of the
      Guarantee Trustee's agents, nominees or custodians) and liabilities that
      might be incurred by it in complying with such request or direction,
      including such reasonable advances as may be requested by the Guarantee
      Trustee; provided, however, that nothing contained in this Section
      3.2(a)(vi) shall be taken to relieve the Guarantee Trustee, upon the
      occurrence of an Event of Default, of its obligation to exercise the
      rights and powers vested in it by this Preferred Securities Guarantee.

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<PAGE>

            (vii) The Guarantee Trustee shall not be bound to make any
      investigation into the facts or matters stated in any resolution,
      certificate, statement, instrument, opinion, report, notice, request,
      direction, consent, order, bond, debenture, note, other evidence of
      indebtedness or other paper or document, but the Guarantee Trustee, in its
      discretion, may make such further inquiry or investigation into such facts
      or matters as it may see fit.

            (viii) The Guarantee Trustee may execute any of the trusts or powers
      hereunder or perform any duties hereunder either directly or by or through
      agents, nominees, custodians or attorneys, and the Guarantee Trustee shall
      not be responsible for any misconduct or negligence on the part of any
      agent or attorney appointed with due care by it hereunder.

            (ix)  Whenever in the administration of this Preferred Securities
      Guarantee the Guarantee Trustee shall deem it desirable to receive
      instructions with respect to enforcing any remedy or right or taking any
      other action hereunder, the Guarantee Trustee (A) may request instructions
      from the Holders of a Majority in Liquidation Amount of the Preferred
      Securities, (B) may refrain from enforcing such remedy or right or taking
      such other action until such instructions are received, and (C) shall be
      protected in conclusively relying on or acting in accordance with such
      instructions.

            (x)  The Guarantee Trustee shall not be liable for any action taken,
      suffered, or omitted to be taken by it in good faith and reasonably
      believed by it to be authorized or within the discretion or rights or
      powers conferred upon it by this Preferred Securities Guarantee.

      (b) No provision of this Preferred Securities Guarantee shall be deemed to
impose any duty or obligation on the Guarantee Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on
it, in any jurisdiction in which it shall be illegal or in which the Guarantee
Trustee shall be unqualified or incompetent in accordance with applicable law to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty.

      Section 3.3 Not Responsible for Recitals or Issuance of Preferred
Securities Guarantee. The recitals contained in this Preferred Securities
Guarantee shall be taken as the statements of the Guarantor, and the Guarantee
Trustee does not assume any responsibility for their correctness. The Guarantee
Trustee makes no representation as to the validity or sufficiency of this
Preferred Securities Guarantee.

                                   ARTICLE IV

                                GUARANTEE TRUSTEE

      Section 4.1  Guarantee Trustee; Eligibility. (a) There shall at all times
be a Guarantee Trustee which shall:

            (i)  not be an Affiliate of the Guarantor; and

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            (ii) be a corporation organized and doing business under the laws of
      the United States of America or any State or Territory thereof or of the
      District of Columbia, or a corporation or Person permitted by the
      Securities and Exchange Commission to act as an institutional trustee
      under the Trust Indenture Act, authorized under such laws to exercise
      corporate trust powers, having a combined capital and surplus of at least
      fifty million U.S. dollars ($50,000,000), and subject to supervision or
      examination by Federal, State, Territorial or District of Columbia
      authority. If such corporation publishes reports of condition at least
      annually, pursuant to law or to the requirements of the supervising or
      examining authority referred to above, then, for the purposes of this
      Section 4.1(a)(ii), the combined capital and surplus of such corporation
      shall be deemed to be its combined capital and surplus as set forth in its
      most recent report of condition so published.

      (b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c). (c) If the Guarantee
Trustee has or shall acquire any "conflicting interest" within the meaning of
Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor
shall in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act, subject to the penultimate paragraph thereof.

      Section 4.2   Appointment, Removal and Resignation of Guarantee Trustee.

      (a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor except during an Event of
Default.

      (b) The Guarantee Trustee shall not be removed in accordance with Section
4.2(a) until a Successor Guarantee Trustee has been appointed and has accepted
such appointment by written instrument executed by such Successor Guarantee
Trustee and delivered to the Guarantor.

      (c) The Guarantee Trustee appointed to office shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by an instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

      (d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery of an instrument of removal or resignation, the Guarantee Trustee
resigning or being removed may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.

      (e) No Guarantee Trustee shall be liable for the acts or omissions to act
of any Successor Guarantee Trustee.

                                      -10-
<PAGE>

      (f) Upon termination of this Preferred Securities Guarantee or removal or
resignation of the Guarantee Trustee pursuant to this Section 4.2, the Guarantor
shall pay to the Guarantee Trustee all amounts owing to the Guarantee Trustee
under Sections 8.2 and 8.3 accrued to the date of such termination, removal or
resignation.

                                    ARTICLE V

                                    GUARANTEE

      Section 5.1  Preferred Securities Guarantee. The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by the Issuer), as and when
due, regardless of any defense, right of set-off or counterclaim that the Issuer
may have or assert. Such obligations will not be discharged except by payment of
the Guarantee Payments in full. The Guarantor's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Guarantor to the Holders or by causing the Issuer to pay such amounts to the
Holders.

      Section 5.2  Waiver of Notice and Demand. The Guarantor hereby waives
notice of acceptance of this Preferred Securities Guarantee and of any liability
to which it applies or may apply, presentment, demand for payment, any right to
require a proceeding first against the Guarantee Trustee, the Issuer or any
other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.

      Section 5.3  Obligations Not Affected. The obligations, covenants,
agreements and duties of the Guarantor under this Preferred Securities Guarantee
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:

      (a)  the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;

      (b)  the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred Securities or the extension
of time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);

      (c)  any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Issuer granting indulgence or extension of any
kind;

                                      -11-
<PAGE>

      (d)  the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;

      (e)  any invalidity of, or defect or deficiency in, the Preferred
Securities;

      (f)  the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or

      (g)  any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.

      There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.

      Section 5.4 Rights of Holders.  (a) The Holders of a Majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting of any proceeding for any remedy available
to the Guarantee Trustee in respect of this Preferred Securities Guarantee or
exercising any trust or power conferred upon the Guarantee Trustee under this
Preferred Securities Guarantee; provided however, that (subject to Section 3.1)
the Guarantee Trustee shall have the right to decline to follow any such
direction if the Guarantee Trustee shall determine that the actions so directed
would be unjustly prejudicial to the Holders not taking part in such direction
or if the Guarantee Trustee being advised by counsel determines that the action
or proceedings directed may not lawfully be taken or if the Guarantor Trustee in
good faith by its board of directors or trustees, executive committees or a
trust committee of directors or trustees and/or Responsible Officers shall
determine that the action or proceedings so directed would involve the Guarantee
Trustee in personal liability.

      (b) Any Holder of Preferred Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Issuer, the Guarantee Trustee or any other Person. The Guarantor waives any
right or remedy to require that any such action be brought first against the
Issuer or any other Person before so proceeding directly against the Guarantor.

      (c) The Guarantor expressly acknowledges that (i) this Preferred
Securities Guarantee will be deposited with the Guarantee Trustee to be held for
the benefit of the Holders and (ii) the Guarantee Trustee has the right to
enforce this Preferred Securities Guarantee on behalf of the Holders.

      Section 5.5 Guarantee of Payment. This Preferred Securities Guarantee
creates a guarantee of payment and not of collection. This Preferred Securities
Guarantee will not be discharged except by payment of the Guarantee Payments in
full (without duplication of amounts theretofore paid by the Issuer) or upon
distribution of Debentures to Holders as provided in the Trust Agreement.

                                      -12-
<PAGE>

      Section 5.6  Subrogation. The Guarantor shall be subrogated to all (if
any) rights of the Holders of Preferred Securities against the Issuer in respect
of any amounts paid to such Holders by the Guarantor under this Preferred
Securities Guarantee; provided, however, that the Guarantor shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Preferred Securities Guarantee, if, at the time of any such payment, any amounts
are due and unpaid under this Preferred Securities Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.

      Section 5.7  Independent Obligations. The Guarantor acknowledges that its
obligations hereunder are independent of the obligations of the Issuer with
respect to the Preferred Securities and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Preferred Securities Guarantee notwithstanding the occurrence of
any event referred to in subsections (a) through (g), inclusive, of Section 5.3
hereof.

      Section 5.8  Consolidation, Merger, Sale of Assets and Other Transactions.
The Guarantor shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and no Person shall consolidate with or merge into the Guarantor
or convey, transfer or lease its properties and assets substantially as an
entirety to the Guarantor, unless (i) either the Guarantor shall be the
continuing corporation, or the successor shall be a Person organized under the
laws of the United States or any state or the District of Columbia, and such
successor Person expressly assumes the Guarantor's obligations under this
Preferred Securities Guarantee by written instrument in form satisfactory to the
Guarantee Trustee, (ii) immediately after giving effect thereto, no Event of
Default under this Preferred Securities Guarantee, and no event which, after
notice or lapse of time or both, would become an Event of Default under this
Preferred Securities Guarantee, shall have occurred and be continuing, and (iii)
such consolidation, merger, conveyance, transfer or lease shall be permitted
under the Trust Agreement and the Indenture and does not give rise to any breach
or violation of the Trust Agreement or Indenture.

                                   ARTICLE VI

                                  SUBORDINATION

      Section 6.1  Ranking. This Preferred Securities Guarantee will constitute
an unsecured obligation of the Guarantor and will rank subordinate and junior in
right of payment to all present and future Senior Indebtedness of the Company
(as defined in the Indenture). This Preferred Securities Guarantee will rank
pari passu with all Other Guarantees. By their acceptance thereof, each Holder
of Preferred Securities agrees to the foregoing provisions of this Preferred
Securities Guarantee and the other terms set forth herein.

      If a Trust Event of Default has occurred and is continuing, the rights of
holders of the Common Securities of the Issuer to receive payments under the
Common Securities Guarantee are subordinated to the rights of Holders of
Preferred Securities to receive Guarantee Payments.

                                  ARTICLE VII

                                   TERMINATION

      Section 7.1  Termination. This Preferred Securities Guarantee shall
terminate, subject to Sections 8.2 and 8.3, (i) upon full payment of the
Redemption Price of all Preferred Securities, (ii) upon the distribution of the
Debentures to the Holders of all of the Preferred Securities or (iii) upon full
payment of the amounts payable in accordance with the Trust Agreement upon
dissolution of the Issuer. Notwithstanding the foregoing, this Preferred
Securities Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any Holder of Preferred Securities must restore
payment of any sums paid under the Preferred Securities or under this Preferred
Securities Guarantee.

                                  ARTICLE VIII

                                 INDEMNIFICATION

      Section 8.1   Exculpation. (a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Guarantor or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith in
accordance with this Preferred Securities Guarantee and in a manner that such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Preferred Securities Guarantee or
by law, except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's negligence or
willful misconduct with respect to such acts or omissions.

      (b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Issuer or the Guarantor and upon such information,
opinions, reports or statements presented to the Trust or the Guarantor by any
Persons to matters the Indemnified Person reasonably believes are within such
other Person's professional or expert competence and who, if selected by such
Indemnified Person, has been selected with reasonable care by such Indemnified
Person, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Preferred Securities might properly be paid.

      Section 8.2 Indemnification. The Guarantor agrees to indemnify each
Indemnified Person for, and to hold each Indemnified Person harmless against,
any and all loss, liability, damage, claim or expense incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the

                                      -14-
<PAGE>

costs and expenses (including reasonable legal fees and expenses) of defending
itself against, or investigating, any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The Guarantee
Trustee will not claim or exact any lien or charge on any Guarantee Payments as
a result of any amount due to it under this Preferred Securities Guarantee. The
obligation to indemnify as set forth in this Section 8.2 shall survive the
termination of this Preferred Securities Guarantee.

      Section 8.3  Compensation; Reimbursement of Expenses.  The Guarantor
agrees:

      (a) to pay to the Guarantee Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust); and

      (b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by it in accordance with any provision of this
Preferred Securities Guarantee (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith.

      The provisions of this Section 8.3 shall survive the termination of this
Preferred Securities Guarantee.

                                   ARTICLE IX

                                  MISCELLANEOUS

      Section 9.1   Successors and Assigns. All guarantees and agreements
contained in this Preferred Securities Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Guarantor and shall
inure to the benefit of the Holders of the Preferred Securities then
outstanding. Except in connection with any merger or consolidation of the
Guarantor with or into another entity or any sale or conveyance of the
Guarantor's assets to another entity or of another entity's assets to the
Guarantor, in each case, to the extent permitted under Section 5.8 of this
Preferred Securities Guarantee, the Guarantor may not assign its rights or
delegate its obligations under this Preferred Securities Guarantee without the
prior approval of the Holders of at least a Majority in Liquidation Amount of
the Preferred Securities.

      Section 9.2  Amendments. Except with respect to any changes that do not
adversely affect the rights of Holders of Preferred Securities in any material
respect (in which case no consent of Holders will be required), this Preferred
Securities Guarantee may only be amended with the prior approval of the Holders
of a least a Majority in Liquidation Amount of the Preferred Securities.

      The provisions of the Trust Agreement with respect to amendments thereof
apply to the giving of such approval.

                                      -15-
<PAGE>

      Section 9.3  Notices. All notices provided for in this Preferred
Securities Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by first class mail, as
follows:

      (a) If given to the Guarantee Trustee, at the Guarantee Trustee's mailing
address set forth below (or such other address as the Guarantee Trustee may give
notice of to the Holders of the Preferred Securities):

            The Chase Manhattan Bank
            450 West 33rd Street
            New York, NY 10001
            Attention:  Institutional Trust Services

      (b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities and to the Guarantee Trustee):

            The Bear Stearns Companies Inc.
            245 Park Avenue
            New York, NY 10167
            Attention:  Corporate Secretary

      (c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Issuer.

      All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

      Section 9.4  Benefit.  This Preferred Securities Guarantee is solely for
the benefit of the Holders of the Preferred Securities and, subject to Section
3.1(a), is not separately transferable from the Preferred Securities.

      Section 9.5  Governing Law.  THIS PREFERRED SECURITIES GUARANTEE SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.

                           [SIGNATURE PAGE TO FOLLOW]

                                      -16-

<PAGE>

      This Preferred Securities Guarantee is executed as of the day and year
first above written.

                                       THE BEAR STEARNS COMPANIES INC.,
                                          as Guarantor

                                       By: /s/ Samuel L. Molinaro Jr.
                                          --------------------------------------
                                          Name:  Samuel L. Molinaro Jr.
                                          Title: Senior Vice President-Finance
                                                 and Chief Financial Officer

                                       THE CHASE MANHATTAN BANK,
                                          as Guarantee Trustee

                                       By: /s/ Natalia Rodriguez
                                          --------------------------------------
                                          Name:  Natalia Rodriguez
                                          Title: Assistant Vice PresidentEXHIBIT 10.35

                                                                 EXECUTION COPY

                         COMMON STOCK PURCHASE AGREEMENT

     COMMON STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of May 09, 2001
by  and  between  UNIGENE  LABORATORIES,   INC.,  a  Delaware  corporation  (the
"Company"),  and FUSION  CAPITAL FUND II, LLC (the "Buyer").  Capitalized  terms
used herein and not otherwise defined herein are defined in Section 10 hereof.

                                    WHEREAS:

     Subject  to the  terms and  conditions  set  forth in this  Agreement,  the
Company  wishes  to sell to the  Buyer,  and the  Buyer  wishes  to buy from the
Company, up to Twenty One Million Dollars  ($21,000,000) of the Company's common
stock, par value $.01 per share (the "Common Stock"). The shares of Common Stock
to be purchased hereunder are referred to herein as the "Purchase Shares."

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

     1.   PURCHASE OF COMMON STOCK.

     Subject to the terms and conditions set forth in Sections 6, 7 and 9 below,
the Company  hereby agrees to sell to the Buyer,  and the Buyer hereby agrees to
purchase from the Company, shares of Common Stock as follows:

     (a)  Commencement  of Purchases of Common  Stock.  The purchase and sale of
Common Stock  hereunder  shall  commence  (the  "Commencement")  within five (5)
Trading Days following the date of satisfaction (or waiver) of the conditions to
the  Commencement  set  forth  in  Sections  6 and 7  below,  (the  date of such
Commencement, the "Commencement Date").

     (b) Buyer's Purchase Rights and Obligations. Subject to the Company's right
to suspend  purchases under Section  1(d)(ii)  hereof,  the Buyer shall purchase
shares of Common Stock on each  Trading Day during each Monthly  Period equal to
the Daily Base  Amount at the  Purchase  Price.  Within one (1)  Trading  Day of
receipt of Purchase  Shares,  the Buyer shall pay to the Company an amount equal
to the Purchase  Amount with respect to such Purchase Shares as full payment for
the purchase of the Purchase Shares so received. The Company shall not issue any
fraction  of a share of Common  Stock  upon any  purchase.  All shares of Common
Stock  (including  fractions  thereof)  issuable  upon  a  purchase  under  this
Agreement  shall be aggregated for purposes of determining  whether the purchase
would result in the issuance of a fraction of a share of Common Stock. If, after
the aforementioned  aggregation,  the issuance would result in the issuance of a
fraction of a share of Common Stock,  the Company shall round such fraction of a
share of Common Stock up or down to the nearest  whole share.  All payments made
under  this  Agreement  shall be made in lawful  money of the  United  States of
America by wire transfer of immediately  available  funds to such account as the
Company may from time to time designate by written notice in accordance with the
provisions  of this  Agreement.  Whenever any amount  expressed to be due by the
terms of this  Agreement  is due on any day which is not a Trading Day, the same
shall instead be due on the next succeeding day which is a Trading Day.

     (c) Company's Right to Decrease or Increase the Daily Base Amount

         (i)  Company's  Right to Decrease  the Daily Base  Amount.  The Company
shall always have the right at any time to decrease the amount of the Daily Base
Amount by delivering  written notice (a "Daily Base Amount Decrease  Notice") to
the Buyer which  notice  shall  specify the amount of the new Daily Base Amount.
The  decrease in the Daily Base Amount shall  become  effective  one Trading Day
after receipt by the Buyer of the Daily Base Amount  Decrease.  Any purchases by
the Buyer which have a Purchase  Date on or prior to the first (1st) Trading Day
after  receipt  by the Buyer of a Daily  Base  Amount  Decrease  Notice  must be
honored by the Company as otherwise  provided herein.  The decrease in the Daily
Base Amount  shall  remain in effect  until the Company  delivers to the Buyer a
Daily Base Amount Increase Notice (as defined below).

         (ii) Company's  Right to Increase Daily Base Amount.  The Company shall
always have the right at any time to increase amount of the Daily Base Amount up
to the  Original  Daily Base Amount by  delivering  written  notice to the Buyer
stating the new amount of the Daily Base  Amount (a "Daily Base Amount  Increase
Notice").  If the Closing Sale Price of the Common Stock on each of the five (5)
consecutive  Trading  Days  immediately  prior to a Daily Base  Amount  Increase
Notice is at least  $4.00,  the Company  shall have the right to deliver a Daily
Base Amount  Increase Notice which increases the amount of the Daily Base Amount
to any amount above the Original Daily Base Amount. A Daily Base Amount Increase
Notice  shall be  effective  one  Trading Day after  receipt by the Buyer.  Such
increase in the amount of the Daily Base Amount  shall  continue in effect until
the   delivery   to  the  Buyer  of  a  Daily  Base  Amount   Decrease   Notice.
Notwithstanding  anything  to the  contrary,  if the Daily Base  Amount  then in
effect is greater than the Original  Daily Base Amount and the Sale Price of the
Common Stock during any Trading Day is less than $4.00,  the amount of the Daily
Base Amount for such  Trading Day on which the Sale Price of the Common Stock is
less than $4.00 and for each Trading Day thereafter  shall be the Original Daily
Base Amount or such lesser  amount as  specified  by the Company in a Daily Base
Amount Decrease  Notice.  Thereafter,  the Company shall again have the right to
increase  the amount of the Daily Base Amount to any amount  above the  Original
Daily Base Amount only if the Closing Sale Price of the Common Stock is at least
$4.00 on each of five (5) consecutive Trading Days

     (d) Limitations on Purchases.

         (i)  Limitation on Beneficial  Ownership.  The Buyer shall not have the
right to purchase shares of Common Stock under this Agreement to the extent that
after giving  effect to such  purchase the Buyer  together  with its  affiliates
would beneficially own in excess of 4.9% of the outstanding shares of the Common
Stock  following such  purchase.  For purposes  hereof,  the number of shares of
Common Stock  beneficially  owned by the Buyer and its affiliates or acquired by
the Buyer and its  affiliates,  as the case may be, shall  include the number of
shares of Common  Stock  issuable  in  connection  with a  purchase  under  this
Agreement  with  respect to which the  determination  is being  made,  but shall
exclude the number of shares of Common Stock which would be issuable  upon (1) a
purchase of the  remaining  Available  Amount which has not been  submitted  for
purchase,  and (2) exercise or  conversion  of the  unexercised  or  unconverted
portion of any other securities of the Company  (including,  without limitation,
any warrants) subject to a limitation on conversion or exercise analogous to the
limitation  contained herein beneficially owned by the Buyer and its affiliates.
If the 4.9%  limitation  is ever  reached the  Company  shall have the option to
increase  such  limitation  to 9.9% by delivery of written  notice to the Buyer.
Thereafter,  if the 9.9%  limitation  is ever  reached  this shall not effect or
limit the

Buyer's  obligation  to purchase the Daily Base Amount as otherwise  provided in
this  Agreement.  For purposes of this  Section,  in  determining  the number of
outstanding  shares  of  Common  Stock  the  Buyer  may  rely on the  number  of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form  10-Q  or  Form  10-K,  as  the  case  may  be,  (2) a more  recent  public
announcement  by the  Company  or (3) any  other  written  communication  by the
Company or its transfer agent setting forth the number of shares of Common Stock
outstanding.  Upon the  reasonable  written or oral  request  of the Buyer,  the
Company shall promptly  confirm orally and in writing to the Buyer the number of
shares of Common Stock then outstanding.  In any case, the number of outstanding
shares of Common Stock shall be determined  after giving effect to any purchases
under this  Agreement  by the Buyer  since the date as of which  such  number of
outstanding  shares of Common Stock was reported.  Except as otherwise set forth
herein,  for purposes of this Section  1(d)(i),  beneficial  ownership  shall be
determined in accordance  with Section 13(d) of the  Securities  Exchange Act of
1934, as amended.

         (ii) Company's Right to Suspend Purchases.  The Company may at any time
give written  notice (a "Purchase  Suspension  Notice") to the Buyer  suspending
purchases  by the Buyer under this  Agreement.  The Purchase  Suspension  Notice
shall be effective only for purchases  which have a Purchase Date later than one
(1) Trading Day after  receipt of the Purchase  Suspension  Notice by the Buyer.
Any  purchase  by the Buyer  which has a Purchase  Date on or prior to the first
(1st)  Trading  Day  after  receipt  by  the  Buyer  of the  Company's  Purchase
Suspension  Notice must be honored by the Company as otherwise  provided herein.
Such  purchase  suspension  shall  continue in effect  until the  revocation  in
writing by the Company, at its sole discretion. So long as a Purchase Suspension
Notice is in effect,  the Buyer shall not be  obligated to purchase any Purchase
Shares from the Company under Section 1 of this Agreement.

     (e) Records of  Purchases.  The Buyer and the Company  shall each  maintain
records  showing  the  remaining  Available  Amount  and the dates and  Purchase
Amounts  for  each  purchase  or  shall  use  such  other   method,   reasonably
satisfactory to the Buyer and the Company

     (f) Taxes. The Company shall pay any and all taxes that may be payable with
respect to the  issuance and delivery of any shares of Common Stock to the Buyer
made under of this Agreement.

     2. BUYER'S REPRESENTATIONS AND WARRANTIES.

     The Buyer represents and warrants to the Company that:

     (a)  Investment  Purpose.  The Buyer is entering  into this  Agreement  and
acquiring the Securities (as defined in Section 4(f) hereof) for its own account
for  investment  only and not with a view  towards,  or for resale in connection
with, the public sale or distribution  thereof;  provided however, by making the
representations  herein,  the Buyer does not agree to hold any of the Securities
for any minimum or other specific term.

     (b) Accredited  Investor Status.  The Buyer is an "accredited  investor" as
that term is defined in Rule 501(a)(3) of Regulation D.

     (c) Reliance on Exemptions.  The Buyer  understands that the Securities are
being  offered  and  sold to it in  reliance  on  specific  exemptions  from the
registration requirements of United States

<PAGE>

federal and state  securities  laws and that the Company is relying in part upon
the truth and accuracy of, and the Buyer's compliance with, the representations,
warranties,  agreements,  acknowledgments  and  understandings  of the Buyer set
forth herein in order to determine the  availability  of such exemptions and the
eligibility of the Buyer to acquire the Securities.

     (d) Information.  The Buyer has been furnished with all materials  relating
to the business,  finances and operations of the Company and materials  relating
to the offer and sale of the Securities that have been  reasonably  requested by
the Buyer,  including,  without  limitation,  the SEC  Documents  (as defined in
Section  3(f)  hereof).  The  Buyer  understands  that  its  investment  in  the
Securities  involves  a high  degree of risk.  The Buyer (i) is able to bear the
economic risk of an investment in the  Securities  including a total loss,  (ii)
has such knowledge and  experience in financial and business  matters that it is
capable of  evaluating  the merits and risks of the proposed  investment  in the
Securities  and (iii) has had an  opportunity  to ask  questions  of and receive
answers from the officers of the Company concerning the financial  condition and
business of the  Company  and others  matters  related to an  investment  in the
Securities.  Neither such  inquiries nor any other due diligence  investigations
conducted by the Buyer or its representatives  shall modify, amend or affect the
Buyer's right to rely on the Company's  representations and warranties contained
in Section 3 below. The Buyer has sought such  accounting,  legal and tax advice
as it has  considered  necessary to make an informed  investment  decision  with
respect to its acquisition of the Securities.

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

     (f) Transfer or Resale.  The Buyer  understands  that except as provided in
the Registration  Rights Agreement (as defined in Section 6(a) hereof):  (i) the
Securities have not been and are not being  registered under the 1933 Act or any
state  securities  laws,  and may not be offered  for sale,  sold,  assigned  or
transferred  unless (A) subsequently  registered  thereunder or (B) an exemption
exists  permitting such Securities to be sold,  assigned or transferred  without
such registration;  (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance  with the terms of Rule 144 and further,  if Rule
144 is not applicable, any resale of the Securities under circumstances in which
the seller (or the person  through whom the sale is made) may be deemed to be an
underwriter  (as that term is  defined in the 1933 Act) may  require  compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder;  and (iii) neither the Company nor any other person is under any
obligation to register the Securities or the Purchase  Shares under the 1933 Act
or any state  securities  laws or to comply with the terms and conditions of any
exemption thereunder.

     (g)  Validity;  Enforcement.  This  Agreement  has been  duly  and  validly
authorized,  executed  and  delivered  on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable  against the Buyer in accordance with
its terms,  subject as to enforceability to general  principles of equity and to
applicable bankruptcy, insolvency,  reorganization,  moratorium, liquidation and
other  similar laws  relating to, or affecting  generally,  the  enforcement  of
applicable creditors' rights and remedies.

     (h) Residency. The Buyer is a resident of the State of Illinois.

     (i) No Prior  Short  Selling.  The Buyer  represents  and  warrants  to the
Company  that at no time  prior  to the  date of this  Agreement  has any of the
Buyer,  its agents,  associates,  representatives  or  affiliates  engaged in or
effected, in any manner whatsoever, directly or indirectly, any (i) "short sale"
(as

<PAGE>

such term is defined  in Rule 3b-3 of the 1934 Act) of the Common  Stock or (ii)
hedging transaction,  which establishes a net short position with respect to the
Common Stock.

     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to the Buyer that:

     (a)  Organization  and  Qualification.  The Company and its  "Subsidiaries"
(which for  purposes of this  Agreement  means any entity in which the  Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar  equity  interests)  are  corporations  duly organized and validly
existing in good standing under the laws of the  jurisdiction  in which they are
incorporated,  and have the requisite corporate power and authority to own their
properties  and to carry on their business as now being  conducted.  Each of the
Company and its  Subsidiaries  is duly qualified as a foreign  corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business  conducted by it makes such qualification
necessary,  except to the extent  that the failure to be so  qualified  or be in
good  standing  could not  reasonably  be  expected  to have a Material  Adverse
Effect. As used in this Agreement,  "Material Adverse Effect" means any material
adverse  effect on any of: (i) the  business,  properties,  assets,  operations,
results  of   operations   or  financial   condition  of  the  Company  and  its
Subsidiaries,  if any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations  under the Transaction  Documents (as defined
in Section 3(b) hereof).  The Company has no Subsidiaries except as set forth on
Schedule 3(a).

     (b) Authorization;  Enforcement;  Validity. (i) The Company had and has the
requisite   corporate  power  and  authority  to  enter  into  and  perform  its
obligations  under this  Agreement,  the  Warrant  (as  defined in Section  4(f)
hereof),  the Registration  Rights Agreement (as defined in Section 6(a) hereof)
and each of the other  agreements (the forms of which are attached hereto) to be
entered  into  by  the  parties  on the  Commencement  Date  (collectively,  the
"Transaction Documents"), and to issue the Securities and the Purchase Shares in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the  Transaction  Documents  by the  Company and the  consummation  by it of the
transactions contemplated hereby and thereby,  including without limitation, the
issuance of the  Commitment  Shares (as  defined in Section  4(f)  hereof),  and
Warrant and the reservation for issuance and the issuance of the Purchase Shares
issuable under this Agreement and the Warrant Shares (as defined in Section 4(f)
hereof) under the Warrant,  have been duly  authorized by the Company's Board of
Directors and no further  consent or  authorization  is required by the Company,
its Board of Directors or its shareholders, (iii) this Agreement and the Warrant
have  been,  and each  other  Transaction  Document  shall be on or prior to the
Commencement  Date,  duly  executed  and  delivered by the Company and (iv) this
Agreement and the Warrant constitute,  and each other Transaction  Document upon
its execution on behalf of the Company, shall constitute,  the valid and binding
obligations of the Company  enforceable  against the Company in accordance  with
their terms,  except as such enforceability may be limited by general principles
of equity or  applicable  bankruptcy,  insolvency,  reorganization,  moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.

     (c) Capitalization.  As of the date hereof, the authorized capital stock of
the Company  consists of 60,000,000  shares of Common Stock,  of which as of the
date hereof,  46,436,940  shares are issued and  outstanding,  7,290 are held as
treasury  shares,  1,350,000  shares are reserved  for issuance  pursuant to the
Company's stock option plans of which only  approximately  765,000 shares remain
available and 1,598,002  shares are issuable and reserved for issuance  pursuant
to securities  (other than stock options issued  pursuant to the Company's stock
option plans)  exercisable or exchangeable  for, or convertible  into, shares of
Common  Stock.  No other shares or classes of capital  stock of the Company

<PAGE>

have been authorized by the Company.  All of such outstanding  shares have been,
or upon issuance will be, validly  issued and are fully paid and  nonassessable.
Except as disclosed in Schedule  3(c),  (i) no shares of the  Company's  capital
stock are subject to preemptive  rights or any other similar rights or any liens
or  encumbrances  suffered  or  permitted  by the  Company,  (ii)  there  are no
outstanding debt securities,  (iii) there are no outstanding options,  warrants,
scrip, rights to subscribe to, calls or commitments of any character  whatsoever
relating to, or securities  or rights  convertible  into,  any shares of capital
stock of the  Company or any of its  Subsidiaries,  or  contracts,  commitments,
understandings  or arrangements by which the Company or any of its  Subsidiaries
is or may  become  bound to issue  additional  shares  of  capital  stock of the
Company  or any of its  Subsidiaries  or  options,  warrants,  scrip,  rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its  Subsidiaries is obligated to register the
sale of any of their  securities  under the 1933 Act  (except  the  Registration
Rights Agreement), (v) there are no outstanding securities or instruments of the
Company or any of its  Subsidiaries  which  contain  any  redemption  or similar
provisions,  and  there  are  no  contracts,   commitments,   understandings  or
arrangements  by which the Company or any of its  Subsidiaries  is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing  anti-dilution or similar provisions
that were or will be triggered by the issuance of the Securities or the Purchase
Shares as  described in this  Agreement  and (vii) the Company does not have any
stock appreciation  rights or "phantom stock" plans or agreements or any similar
plan or  agreement.  The  Company  has  furnished  to the Buyer true and correct
copies of the  Company's  Certificate  of  Incorporation,  as amended  and as in
effect  on the  date  hereof  (the  "Certificate  of  Incorporation"),  and  the
Company's  By-laws,  as  amended  and as in  effect  on  the  date  hereof  (the
"By-laws"),  and summaries of the terms of all  securities  convertible  into or
exercisable for Common Stock, if any, and copies of any documents containing the
material rights of the holders thereof in respect thereto.

     (d) Issuance of Securities.  The  Commitment  Shares and Warrant have been,
and the Warrant  Shares shall be, upon issuance,  duly  authorized in accordance
with the terms hereof,  validly issued,  fully paid and non-assessable and (free
from all taxes,  liens and charges with respect to the issue thereof.  6,000,000
shares of Common Stock have been duly  authorized and reserved for issuance upon
purchase under this Agreement. Upon issuance and payment therefore in accordance
with the terms and conditions of this  Agreement,  the Purchase  Shares shall be
validly issued,  fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue  thereof,  with the holders being  entitled to
all rights accorded to a holder of Common Stock.

     (e) No  Conflicts.  Except as disclosed in Schedule  3(e),  the  execution,
delivery and  performance  of the  Transaction  Documents by the Company and the
consummation by the Company of the transactions  contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Purchase  Shares)  will not (i)  result in a  violation  of the  Certificate  of
Incorporation,  any Certificate of  Designations,  Preferences and Rights of any
outstanding  series of  preferred  stock of the  Company or the  By-laws or (ii)
conflict  with,  or constitute a default (or an event which with notice or lapse
of time or both would become a default)  under,  or give to others any rights of
termination,   amendment,   acceleration  or  cancellation  of,  any  agreement,
indenture or  instrument  to which the Company or any of its  Subsidiaries  is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree  (including  federal and state  securities  laws and  regulations and the
rules and regulations of the Principal  Market  applicable to the Company or any
of its  Subsidiaries) or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected, except in the case of conflicts, defaults
and  violations  under clause (ii),  which could not  reasonably  be expected to
result in a Material  Adverse  Effect.  Except as  disclosed  in Schedule  3(e),
neither the Company nor its  Subsidiaries

<PAGE>

is in  violation  of  any  term  of or  in  default  under  its  Certificate  of
Incorporation,  any  Certificate of  Designation,  Preferences and Rights of any
outstanding  series  of  preferred  stock of the  Company  or  By-laws  or their
organizational charter or by-laws, respectively. Except as disclosed in Schedule
3(e),  neither the Company nor any of its  Subsidiaries  is in  violation of any
term of or is in  default  under any  material  contract,  agreement,  mortgage,
indebtedness,  indenture,  instrument, judgment, decree or order or any statute,
rule or  regulation  applicable to the Company or its  Subsidiaries,  except for
possible  conflicts,  defaults,  terminations  or  amendments  which  could  not
reasonably be expected to have a Material  Adverse  Effect.  The business of the
Company and its Subsidiaries is not being conducted, and shall not be conducted,
in violation  of any law,  ordinance,  regulation  of any  governmental  entity,
except for possible  violations,  the sanctions for which either individually or
in the aggregate  could not  reasonably  be expected to have a Material  Adverse
Effect.  Except as  specifically  contemplated by this Agreement and as required
under  the 1933  Act,  the  Company  is not  required  to  obtain  any  consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory  agency in order for it
to execute,  deliver or perform any of its obligations  under or contemplated by
the Transaction Documents in accordance with the terms hereof or thereof. Except
as disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
registrations  which the Company is required to obtain pursuant to the preceding
sentence  shall be obtained or  effected on or prior to the  Commencement  Date.
Except as disclosed in Schedule  3(e), the Company is not and has not been since
January 1, 1999,  in  violation  of the listing  requirements  of the  Principal
Market.

     (f) SEC Documents;  Financial  Statements.  Except as disclosed in Schedule
3(f),  since  January  1,  1999,  the  Company  has  timely  filed all  reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing  filed prior to the date
hereof and all exhibits included therein and financial  statements and schedules
thereto and  documents  incorporated  by  reference  therein  being  hereinafter
referred to as the "SEC  Documents").  As of their  respective  dates (except as
they have been correctly  amended),  the SEC Documents  complied in all material
respects with the  requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents,  and none of the
SEC Documents, at the time they were filed with the SEC (except as they may have
been correctly  amended),  contained any untrue  statement of a material fact or
omitted to state a material fact  required to be stated  therein or necessary in
order to make the statements  therein, in light of the circumstances under which
they were made, not  misleading.  As of their  respective  dates (except as they
have been correctly amended),  the financial  statements of the Company included
in the  SEC  Documents  complied  as to  form  in  all  material  respects  with
applicable  accounting  requirements  and the published rules and regulations of
the SEC with respect  thereto.  Such financial  statements have been prepared in
accordance with generally accepted accounting principles,  consistently applied,
during the periods  involved  (except (i) as may be otherwise  indicated in such
financial  statements  or the  notes  thereto  or (ii) in the case of  unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position  of  the  Company  as of the  dates  thereof  and  the  results  of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited statements, to normal year-end audit adjustments).

     (g) Absence of Certain Changes. Except as disclosed in Schedule 3(g), since
September 30, 2000,  there has been no material  adverse change in the business,
properties,  operations,  financial  condition or results of  operations  of the
Company or its  Subsidiaries.  The Company has not taken any steps, and does not
currently  expect  to  take  any  steps,  to  seek  protection  pursuant  to any
bankruptcy  law  nor  does  the  Company  or any of its  Subsidiaries  have  any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.

<PAGE>

     (h) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation  before  or  by  any  court,  public  board,   government  agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its  Subsidiaries,  threatened  against or affecting the Company,  the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, which
could reasonably be expected to have a Material Adverse Effect. A description of
each action, suit, proceeding,  inquiry or investigation before or by any court,
public board, government agency,  self-regulatory organization or body which, as
of the date of this  Agreement,  is pending or threatened in writing  against or
affecting the Company, the Common Stock or any of the Company's  Subsidiaries or
any of the  Company's or the  Company's  Subsidiaries'  officers or directors in
their capacities as such, is set forth in Schedule 3(h).

     (i) Acknowledgment  Regarding Buyer's Status. The Company  acknowledges and
agrees that the Buyer is acting solely in the capacity of arm's length purchaser
with respect to the  Transaction  Documents  and the  transactions  contemplated
hereby and  thereby.  The  Company  further  acknowledges  that the Buyer is not
acting as a  financial  advisor or  fiduciary  of the Company (or in any similar
capacity)  with  respect  to the  Transaction  Documents  and  the  transactions
contemplated  hereby and thereby and any advice given by the Buyer or any of its
representatives  or agents in connection with the Transaction  Documents and the
transactions contemplated hereby and thereby is merely incidental to the Buyer's
purchase of the Purchase  Shares.  The Company  further  represents to the Buyer
that the  Company's  decision to enter into the  Transaction  Documents has been
based   solely  on  the   independent   evaluation   by  the   Company  and  its
representatives and advisors.

     (j)  No  General  Solicitation.   Neither  the  Company,  nor  any  of  its
affiliates,  nor any person  acting on its or their  behalf,  has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of
Regulation  D under  the 1933 Act) in  connection  with the offer or sale of the
Securities  or  the  Purchase  Shares  other  than  the  registration  statement
contemplated in Section 4(a) hereof.

     (k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under  circumstances  that would require  registration  of any of the Securities
under the 1933 Act or cause this offering of the  Securities or Purchase  Shares
to be  integrated  with prior  offerings by the Company for purposes of the 1933
Act  or any  applicable  shareholder  approval  provisions,  including,  without
limitation,  under  the rules  and  regulations  of any  exchange  or  automated
quotation  system on which any of the  securities  of the  Company are listed or
designated,  nor will the Company or any of its Subsidiaries  take any action or
steps that would require  registration  of any of the Securities or the Purchase
Shares  under the 1933 Act or cause the offering of the  Securities  or Purchase
Shares to be integrated with other offerings.

     (l) Dilutive  Effect.  The Company  understands and  acknowledges  that the
number of Purchase  Shares  purchasable  under this  Agreement  will increase in
certain  circumstances.  The Company further acknowledges that its obligation to
issue  Purchase  Shares  under this  Agreement in  accordance  with the term and
conditions  hereof is absolute  and  unconditional  regardless  of the  dilutive
effect  that  such  issuance  may  have  on the  ownership  interests  of  other
shareholders of the Company.

     (m) Intellectual  Property Rights.  The Company and its Subsidiaries own or
possess adequate rights or licenses to use all material trademarks, trade names,
service  marks,  service mark  registrations,  service  names,  patents,  patent
rights,    copyrights,    inventions,    licenses,    approvals,    governmental
authorizations,  trade secrets and rights  necessary to conduct their respective
businesses as now

<PAGE>

conducted.  Except as set forth on Schedule 3(m), none of the Company's material
trademarks,  trade names,  service marks,  service mark  registrations,  service
names, patents,  patent rights,  copyrights,  inventions,  licenses,  approvals,
government  authorizations,  trade secrets or other intellectual property rights
have  expired  or  terminated,  or,  by the terms and  conditions  thereof,  are
scheduled  to  expire  or  terminate  within  two  years  from  the date of this
Agreement.  The Company and its  Subsidiaries  do not have any  knowledge of any
infringement by the Company or its Subsidiaries of any material trademark, trade
name rights, patents, patent rights, copyrights,  inventions,  licenses, service
names, service marks, service mark registrations,  trade secret or other similar
rights of others,  or of any such  development  of similar  or  identical  trade
secrets or technical  information by others and, except as set forth on Schedule
3(m), there is no claim,  action or proceeding being made or brought against, or
to the  Company's  knowledge,  being  threatened  against,  the  Company  or its
Subsidiaries regarding trademark, trade name, patents, patent rights, invention,
copyright,  license,  service names,  service marks, service mark registrations,
trade secret or other infringement, which could reasonably be expected to have a
Material Adverse Effect.

     (n)  Environmental  Laws.  The  Company  and  its  Subsidiaries  (i) are in
compliance with any and all applicable  foreign,  federal,  state and local laws
and  regulations  relating to the  protection  of human  health and safety,  the
environment  or  hazardous  or  toxic   substances  or  wastes,   pollutants  or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable  Environmental Laws to conduct
their  respective  businesses  and  (iii) are in  compliance  with all terms and
conditions of any such permit, license or approval, except where, in each of the
three  foregoing  clauses,  the  failure to so comply  could not  reasonably  be
expected to have, individually or in the aggregate, a Material Adverse Effect.

     (o) Title. The Company and its Subsidiaries  have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property  owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except  such as are  described  in  Schedule  3(o) or such as do not  materially
affect the value of such  property  and do not  interfere  with the use made and
proposed to be made of such property by the Company and any of its Subsidiaries.
Any real property and facilities  held under lease by the Company and any of its
Subsidiaries  are held by them under valid,  subsisting and  enforceable  leases
with such  exceptions as are not material and do not interfere with the use made
and proposed to be made of such  property  and  buildings by the Company and its
Subsidiaries.

     (p)  Insurance.  The  Company and each of its  Subsidiaries  are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such  amounts as  management  of the  Company  believes to be prudent and
customary  in the  businesses  in which the  Company  and its  Subsidiaries  are
engaged.  Neither the Company nor any such  Subsidiary has any reason to believe
that it will not be able to renew its  existing  insurance  coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue  its business at a cost that would not  materially  and
adversely  affect  the  condition,  financial  or  otherwise,  or the  earnings,
business or operations of the Company and its Subsidiaries, taken as a whole.

     (q)  Regulatory  Permits.  The  Company  and its  Subsidiaries  possess all
material  certificates,  authorizations  and permits  issued by the  appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  and neither the  Company  nor any such  Subsidiary  has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

<PAGE>

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

     (s) Transactions With Affiliates.  Except as set forth on Schedule 3(s) and
other than the grant or exercise of stock  options  disclosed on Schedule  3(c),
none of the  officers,  directors,  or  employees  of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as  employees,  officers and  directors),  including  any contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any  officer,  director,  or any such  employee  has an  interest or is an
officer, director, trustee or partner.

     (t)  Application  of  Takeover  Protections.  The  Company and its board of
directors have taken or will take prior to the  Commencement  Date all necessary
action, if any, in order to render  inapplicable any control share  acquisition,
business  combination,  poison pill (including any  distribution  under a rights
agreement) or other similar  anti-takeover  provision  under the  Certificate of
Incorporation  or the laws of the state of its  incorporation  which is or could
become  applicable to the Buyer as a result of the transactions  contemplated by
this Agreement,  including,  without  limitation,  the Company's issuance of the
Securities and the Purchase  Shares and the Buyer's  ownership of the Securities
and the Purchase Shares.

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

     4. COVENANTS.

     (a) Filing of Registration Statement.  The Company shall within thirty (30)
Trading Days from the date hereof file a new registration statement covering the
sale of at least 6,000,000  Purchase Shares and all ofthe Commitment  Shares and
Warrant Shares. The Buyer and its counsel shall have a reasonable opportunity to
review  and  comment  upon such  registration  statement  or  amendment  to such
registration  statement and any related  prospectus prior to its filing with the
SEC. The Company shall use its best efforts to have such registration  statement
or amendment declared effective by the SEC at the earliest possible date.

<PAGE>

     (b) Blue Sky. The Company shall, on or before the  Commencement  Date, take
such action,  if any, as the Company shall reasonably  determine is necessary in
order to obtain an  exemption  for or to qualify the  Commitment  Shares and the
Purchase  Shares  for  sale  to the  Buyer  pursuant  to  this  Agreement  under
securities or "Blue Sky" laws of the states of the United  States  designated by
the Buyer,  and shall provide  evidence of any such action so taken to the Buyer
on or prior to the  Commencement  Date.  The Company  shall make all filings and
reports relating to the offer and sale of the Commitment Shares and the Purchase
Shares required under applicable  securities or "Blue Sky" laws of the states of
the United States following the Commencement Date.

     (c) No Variable Priced Financing.  Other than pursuant to this Agreement or
in  connection  with a  licensing  agreement  with a  pharmaceutical  company or
current licensees of the Company, the primary purpose of which is not to make an
equity investment in the Company,  the Company agrees that beginning on the date
of this  Agreement and ending on the date of  termination  of this Agreement (as
provided  in  Section  11(k)  hereof),  neither  the  Company  nor  any  of  its
Subsidiaries shall, without the prior written consent of the Buyer, contract for
any equity financing  (including any debt financing with an equity component) or
issue any equity  securities  of the  Company or any  Subsidiary  or  securities
convertible or exchangeable  into or for equity securities of the Company or any
Subsidiary  (including debt securities with an equity  component)  which, in any
case (i) are convertible  into or exchangeable  for an  indeterminate  number of
shares of common stock,  (ii) are convertible  into or  exchangeable  for Common
Stock at a price which varies with the market price of the Common  Stock,  (iii)
directly or  indirectly  provide for any "re-set" or  adjustment of the purchase
price,  conversion rate or exercise price after the issuance of the security, or
(iv) contain any "make-whole" provision based upon, directly or indirectly,  the
market  price of the Common Stock after the  issuance of the  security,  in each
case, other than reasonable and customary anti-dilution adjustments for issuance
of shares  of Common  Stock at a price  which is below the  market  price of the
Common Stock.

     (d) Listing.  The Company shall  promptly  secure the listing of all of the
Purchase  Shares,  Commitment  Shares  and  Warrant  Shares  upon each  national
securities exchange and automated quotation system, if any, upon which shares of
Common Stock are then listed  (subject to official notice of issuance) and shall
maintain,  so long as any other shares of Common Stock shall be so listed,  such
listing of all such securities from time to time issuable under the terms of the
Transaction   Documents.   The  Company  shall   maintain  the  Common   Stock's
authorization for quotation on the Principal Market. Neither the Company nor any
of its Subsidiaries  shall take any action that would be reasonably  expected to
result in the  delisting  or  suspension  of the Common  Stock on the  Principal
Market.  The Company  shall  promptly,  and in no event later than the following
Trading  Day,  provide to the Buyer  copies of any notices it receives  from the
Principal  Market  regarding the continued  eligibility  of the Common Stock for
listing on such automated quotation system or securities  exchange.  The Company
shall pay all fees and expenses in connection  with  satisfying its  obligations
under this Section.

     (e)  Limitation on Short Sales and Hedging  Transactions.  The Buyer agrees
that  beginning  on the  date  of  this  Agreement  and  ending  on the  date of
termination of this  Agreement as provided in Section  11(k),  the Buyer and its
agents,  representatives and affiliates shall not in any manner whatsoever enter
into or effect,  directly or  indirectly,  any (i) "short sale" (as such term is
defined  in Rule 3b-3 of the 1934 Act) of the  Common  Stock or (ii)  hedging or
other  transaction  that  establishes  a net short  position with respect to the
Common Stock.

     (f)  Previous  Issuance  of  Securities/Limitation  on Sales of  Commitment
Shares.  The Company has previously  issued to the Buyer (i) 2,000,000 shares of
Common Stock (the  "Commitment  Shares") and (ii) a warrant (the  "Warrant")  to
purchase  1,000,000  shares of Common Stock (the  "Warrant

<PAGE>

Shares"  and  together  with  the  Commitment   Shares  and  the  Warrant,   the
"Securities").  The Buyer  agrees that the Buyer shall not  transfer or sell the
Commitment Shares or Warrant Shares until 480 Trading Days from the date of this
Agreement or until this Agreement has been terminated,  provided,  however, that
such  restrictions  shall not apply: (i) to transfers to or among affiliates (as
defined in the 1934 Act),  (ii) to a pledge in connection  with a bona fide loan
(but not the foreclosure  thereon) or a deposit to a margin account, or (iii) if
an Event of Default has occurred,  or any event which, after notice and/or lapse
of time, would become an Event of Default,  including any failure by the Company
to timely  issue  Purchase  Shares  under this  Agreement.  Notwithstanding  the
forgoing,  the Buyer may transfer Commitment Shares or Warrant Shares to a third
party in order to  settle a sale made by the  Buyer  where the Buyer  reasonably
expects the Company to deliver Purchase Shares to the Buyer under this Agreement
so long as the Buyer maintains ownership of the same overall number of shares of
Common  Stock  by  "replacing"  the  Commitment  Shares  or  Warrant  Shares  so
transferred with Purchase Shares when the Purchase Shares are actually issued by
the Company to the Buyer.

     (h) Due Diligence. The Buyer shall have the right, from time to time as the
Buyer may reasonably deem  appropriate,  to perform  reasonable due diligence on
the Company  during  normal  business  hours.  The Company and its  officers and
employees  shall  reasonably  cooperate  with the Buyer in  connection  with any
reasonable  request by the Buyer  related to the  Buyer's due  diligence  of the
Company.

     5. TRANSFER AGENT INSTRUCTIONS.

     On the Commencement,  the Company shall cause any restrictive legend on the
Commitment  Shares to be  removed  and all of the  Purchase  Shares to be issued
under this  Agreement and Warrant Shares to be issued under the Warrant shall be
issued  without  any  restrictive  legend  and shall be issued by the  Company's
transfer  agent  via The DTC Fast  Automated  Securities  Transfer  Program,  by
crediting  the  appropriate  number of shares of Common Stock to which the Buyer
shall be entitled to the Buyer's  balance  account  with The DTC through The DTC
DWAC system,  or, if the  Transfer  Agent is not  participating  in The DTC Fast
Automated  Securities  Transfer Program and DWAC system,  issue and surrender to
the Buyer, a  certificate,  registered in the name of the Buyer or its designee,
for the number of shares of Common  Stock to which the Buyer shall be  entitled.
The Company shall issue irrevocable  instructions to its transfer agent, and any
subsequent transfer agent, to issue Purchase Shares in the name of the Buyer for
the Purchase Shares (the "Irrevocable Transfer Agent Instructions"). The Company
warrants to the Buyer that no instruction  other than the  Irrevocable  Transfer
Agent  Instructions  referred to in this Section 5, will be given by the Company
to its  transfer  agent  with  respect  to the  Purchase  Shares  and  that  the
Commitment Shares and the Purchase Shares shall otherwise be freely transferable
on the books and  records of the  Company as and to the extent  provided in this
Agreement and the  Registration  Rights  Agreement  subject to the provisions of
Section 4(f) in the case of the Commitment Shares.

     6.  CONDITIONS TO THE COMPANY'S OBLIGATION TO COMMENCE SALES OF
         SHARES OF COMMON STOCK.

     The  obligation of the Company  hereunder to commence sales of the Purchase
Shares is subject to the satisfaction of each of the following  conditions on or
before  the  Commencement  Date  (the  date  that  sales  begin)  and once  such
conditions  have been  satisfied  there shall not be any ongoing  obligation  to
satisfy such conditions after the Commencement has occurred; provided that these
conditions  are for the Company's  sole benefit and may be waived by the Company
at any time in its sole  discretion  by providing  the Buyer with prior  written
notice thereof:

<PAGE>

     (a) The Buyer shall have  executed  each of the  Transaction  Documents  to
which  it is a party  and  delivered  the  same  to the  Company  including  the
Registration Rights Agreement substantially in the form of Exhibit A hereto (the
"Registration Rights Agreement").

     (b) Subject to the Company's  compliance  with Section 4(a), a registration
statement  covering the sale of the Commitment  Shares and Warrant Shares and at
least  6,000,000  Purchase  Shares shall have been declared  effective under the
1933 Act by the SEC and no stop order with respect to the Registration Statement
shall be pending or threatened by the SEC.

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

     7. CONDITIONS TO THE BUYER'S OBLIGATION TO COMMENCE PURCHASES OF
        SHARES OF COMMON STOCK.

     The obligation of the Buyer to commence  purchases of Purchase Shares under
this  Agreement  is  subject  to the  satisfaction,  of  each  of the  following
conditions  on or before the  Commencement  Date (the date that sales begin) and
once  such  conditions  have  been  satified  there  shall  not be  any  ongoing
obligation  to satisfy such  conditions  after the  Commencemennt  has occurred;
provided  that these  conditions  are for the  Buyer's  sole  benefit and may be
waived by the Buyer at any time in its sole  discretion by providing the Company
with prior written notice thereof:

     (a) The Company shall have executed each of the  Transaction  Documents and
delivered the same to the Buyer  including  the  Registration  Rights  Agreement
substantially in the form of Exhibit A hereto.

     (b) The  Company  shall  have  removed  any  restrictive  legend  from  the
Commitment Shares.

     (c) The Common Stock shall be  authorized  for  quotation on the  Principal
Market, trading in the Common Stock shall not have been within the last 365 days
suspended by the SEC or the  Principal  Market and the  Purchase  Shares and the
Commitment Shares shall be approved for listing upon the Principal Market.

     (d) The Buyer  shall have  received  the  opinions of the  Company's  legal
counsel  dated  as of  the  Commencement  Date  covering  customary  matters  in
customary form.

     (e) The  representations  and  warranties  of the Company shall be true and
correct  in all  material  respects  (except  to the  extent  that  any of  such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such  representations  and warranties  shall be true and
correct  without further  qualification)  as of the date when made and as of the
Commencement  Date as though made at that time (except for  representations  and
warranties  that  speak  as of a  specific  date)  and the  Company  shall  have
performed, satisfied and complied with the covenants,  agreements and conditions
required by the  Transaction  Documents to be  performed,  satisfied or complied
with by the Company at or prior to the  Commencement  Date. The Buyer shall have
received a  certificate,  executed

<PAGE>

by the CEO, President or CFO of the Company,  dated as of the Commencement Date,
to the foregoing effect in the form attached hereto as Exhibit B.

     (f) The Board of  Directors of the Company  shall have adopted  resolutions
substantially  in the form  attached  hereto as Exhibit C which shall be in full
force  and  effect  without  any  amendment  or  supplement  thereto  as of  the
Commencement Date.

     (g) As of the Commencement Date, the Company shall have reserved out of its
authorized  and  unissued  Common  Stock,  solely for the  purpose of  effecting
purchases of Purchase  Shares  hereunder,  at least  6,000,000  shares of Common
Stock.

     (h) The Irrevocable Transfer Agent Instructions,  in form acceptable to the
Buyer,  shall have been delivered to and  acknowledged in writing by the Company
and the Company's transfer agent.

     (i) The Company shall have delivered to the Buyer a certificate  evidencing
the  incorporation  and good  standing  of the  Company in the State of Delaware
issued by the  Secretary  of State of the State of  Delaware as of a date within
ten (10) Trading Days of the Commencement Date.

     (j) The Company shall have  delivered to the Buyer a certified  copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware within ten (10) Trading Days of the Commencement Date.

     (k) The Company shall have delivered to the Buyer a secretary's certificate
executed by the Secretary of the Company,  dated as of the Commencement Date, in
the form attached hereto as Exhibit E.

     (l) A  registration  statement  covering the sale of all of the  Commitment
Shares,  the Warrant Shares and at least  6,000,000  Purchase  Shares shall have
been  declared  effective  under the 1933 Act by the SEC and no stop  order with
respect to the registration statement shall be pending or threatened by the SEC.
The  Company  shall have  prepared  and  delivered  to the Buyer a final form of
Prospectus  to be  used  by the  Buyer  in  connection  with  any  sales  of any
Commitment Shares, Warrant Shares or any Purchase Shares. The Company shall have
made all  filings  under  all  applicable  federal  and  state  securities  laws
necessary to consummate the issuance of the  Securities and the Purchase  Shares
pursuant to this Agreement in compliance with such laws.

     (m) No Event of Default has  occurred,  or any event  which,  after  notice
and/or lapse of time, would become an Event of Default has occurred.

     (n) On or  prior to the  Commencement  Date,  the  Company  shall  take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in  order  to  render  inapplicable  any  control  share  acquisition,  business
combination,  shareholder rights plan or poison pill (including any distribution
under a rights  agreement) or other similar  anti-takeover  provision  under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could  become  applicable  to the  Buyer as a result  of the  transactions
contemplated by this Agreement,  including,  without  limitation,  the Company's
issuance of the Securities and the Purchase Shares and the Buyer's  ownership of
the Securities and the Purchase Shares.

     8. INDEMNIFICATION.

<PAGE>

     In consideration  of the Buyer's  execution and delivery of the Transaction
Documents and acquiring the Securities and the Purchase Shares  hereunder and in
addition  to  all of the  Company's  other  obligations  under  the  Transaction
Documents,  the Company shall defend,  protect,  indemnify and hold harmless the
Buyer and all of its affiliates,  shareholders,  officers, directors,  employees
and direct or indirect  investors  and any of the foregoing  person's  agents or
other  representatives  (including,   without  limitation,   those  retained  in
connection with the transactions  contemplated by this Agreement) (collectively,
the  "Indemnitees")  from and  against  any and all  actions,  causes of action,
suits, claims,  losses,  costs,  penalties,  fees,  liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee is
a party to the  action  for which  indemnification  hereunder  is  sought),  and
including  reasonable   attorneys'  fees  and  disbursements  (the  "Indemnified
Liabilities"),  incurred by any Indemnitee as a result of, or arising out of, or
relating  to (a)  any  misrepresentation  or  breach  of any  representation  or
warranty  made  by  the  Company  in the  Transaction  Documents  or  any  other
certificate,  instrument  or document  contemplated  hereby or thereby,  (b) any
breach of any covenant,  agreement or obligation of the Company contained in the
Transaction   Documents  or  any  other  certificate,   instrument  or  document
contemplated  hereby  or  thereby,  or (c) any  cause of  action,  suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution,  delivery, performance or enforcement of the Transaction Documents or
any other certificate,  instrument or document  contemplated  hereby or thereby,
other than with respect to Indemnified  Liabilities which directly and primarily
result from the gross negligence or willful misconduct of the Indemnitee. To the
extent that the foregoing  undertaking by the Company may be  unenforceable  for
any reason,  the Company shall make the maximum  contribution to the payment and
satisfaction of each of the Indemnified  Liabilities  which is permissible under
applicable law.

     9. EVENTS OF DEFAULT.

     An "Event of Default"  shall be deemed to have  occurred at any time as any
of the following events occurs:

     (a) while any registration statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
such  registration   statement  lapses  for  any  reason   (including,   without
limitation,  the  issuance of a stop order) or is  unavailable  to the Buyer for
sale of all of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the  Registration  Rights  Agreement,
and such lapse or unavailability  continues for a period of ten (10) consecutive
Trading  Days or for more than an  aggregate  of thirty (30) Trading Days in any
365-day period;

     (b) the suspension from trading or failure of the Common Stock to be listed
on the Principal Market for a period of ten (10) consecutive Trading Days or for
more than an aggregate of thirty (30) Trading Days in any 365-day period;

     (c) the  failure  of the  Company  or the  Common  Stock to fully  meet the
requirements  for continued  listing on the Principal Market for a period of ten
(10)  consecutive  Trading  Days or for more than an  aggregate  of thirty  (30)
Trading Days in any 365-day period;

     (d) the  failure  for any reason by the  Transfer  Agent to issue  Purchase
Shares to the Buyer within five (5) Trading Days after the  applicable  Purchase
Date which the Buyer is entitled  to receive  under this  Agreement;  or Warrant
Shares to the Buyer within five (5) Trading Days after the applicable notice.

<PAGE>

     (e) intentionally omitted;

     (f) the Company breaches any  representation,  warranty,  covenant or other
term or condition under any Transaction Document if such breach could reasonably
be  expected  to have a Material  Adverse  Effect and  except,  in the case of a
breach of a covenant which is reasonably curable,  only if such breach continues
for a period of at least ten (10) Trading Days;

     (g) except as set forth on Schedule  9(g),  any payment  default  under any
contract  whatsoever  or any  acceleration  prior to maturity  of any  mortgage,
indenture,  contract 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  or for money  borrowed  the  repayment  of which is  guaranteed  by the
Company,  whether such  indebtedness or guarantee now exists or shall be created
hereafter,  which with respect to any such payment default or acceleration prior
to maturity, is in excess of $1,000,000;

     (h) if any Person commences a proceeding against the Company pursuant to or
within the meaning of any Bankruptcy Law;

     (i) if the Company pursuant to or within the meaning of any Bankruptcy Law;
(A) commences a voluntary case, (B) consents to the entry of an order for relief
against  it in an  involuntary  case,  (C)  consents  to  the  appointment  of a
Custodian of it or for all or  substantially  all of its  property,  (D) makes a
general assignment for the benefit of its creditors,  (E) becomes insolvent,  or
(F) is generally unable to pay its debts as the same become due; or

     (j) a court of competent  jurisdiction  enters an order or decree under any
Bankruptcy  Law that;  (A) is for relief  against the Company in an  involuntary
case, (B) appoints a Custodian of the Company or for all or substantially all of
its property, or (C) orders the liquidation of the Company or any Subsidiary.

In addition  to any other  rights and  remedies  under  applicable  law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default  has  occurred  and is  continuing,  or if any event
which, after notice and/or lapse of time, would become an Event of Default,  has
occurred  and is  continuing,  the Buyer shall not be  obligated to purchase any
shares of Common  Stock  under  this  Agreement.  If  pursuant  to or within the
meaning of any  Bankruptcy  Law, the Company  commences a voluntary  case or any
Person commences a proceeding  against the Company, a Custodian is appointed for
the  Company or for all or  substantially  all of its  property,  or the Company
makes a general assignment for the benefit of its creditors, (any of which would
be an Event of Default as described in Sections 9(h), 9(i) and 9(j) hereof) this
Agreement shall automatically  terminate without any liability or payment to the
Company without further action or notice by any Person.  No such  termination of
this Agreement shall affect the Company's or the Buyer's  obligations under this
Agreement with respect to pending  purchases and the Company and the Buyer shall
complete  their  respective  obligations  with respect to any pending  purchases
under this Agreement.

     10. CERTAIN DEFINED TERMS.

     For  purposes  of this  Agreement,  the  following  terms  shall  have  the
following meanings:

     (a) "1933 Act" means the Securities Act of 1933, as amended.

<PAGE>

     (b)  "Available   Amount"  means  initially   Twenty  One  Million  Dollars
$21,000,000  in the  aggregate  which  amount  shall be reduced by the  Purchase
Amount as the Buyer  purchases  shares of Common  Stock  pursuant  to  Section 1
hereof.

     (c)  "Bankruptcy  Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.

     (d) "Closing Sale Price" means,  for any security as of any date,  the last
closing  trade price for such  security on the  Principal  Market as reported by
Bloomberg,  or, if the Principal Market is not the principal securities exchange
or trading  market  for such  security,  the last  closing  trade  price of such
security  on the  principal  securities  exchange or trading  market  where such
security is listed or traded as reported by Bloomberg.

     (e)  "Custodian"  means any  receiver,  trustee,  assignee,  liquidator  or
similar official under any Bankruptcy Law.

     (f) "Daily Base Amount" means  initially Forty Three Thousand Seven Hundred
Fifty  Dollars  ($43,750)  per Trading  Day,  which  amount may be  increased or
decreased from time to time pursuant to Section 1(c) hereof.

     (g)  "Maturity  Date" means the date that is 480  Trading  Days (24 Monthly
Periods) from the Commencement  Date which such date may be extended by up to an
additional  six (6) Month  Periods by the Company,  in its sole  discretion,  by
written notice to the Buyer.

     (h) "Monthly Base Amount" means Eight Hundred Seventy Five Thousand Dollars
($875,000) per Monthly Period.

     (i) "Monthly Period" means each successive 20 Trading Day period commencing
with the Commencement Date.

     (j) "Original  Daily Base Amount" means Forty Three  Thousand Seven Hundred
Fifty Dollars ($43,750) per Trading Day

     (k) "Person" means an individual or entity including any limited  liability
company,  a  partnership,   a  joint  venture,   a  corporation,   a  trust,  an
unincorporated  organization  and a  government  or  any  department  or  agency
thereof.

     (l)  "Principal  Market"  means The  Nasdaq  OTC/  Bulletin  Board  market,
provided,  however,  that (i) in the event the  Company's  Common  Stock is ever
listed for trading on the Nasdaq National Market,  Nasdaq SmallCap Market or the
American  Stock  Exchange,  than the  "Principal  Market"  shall mean such other
market on which the Company's Common Stock is then listed, and (ii) for purposes
of Section 9(c) hereof only,  "Principal  Market" shall mean The Nasdaq SmallCap
Market in respect of the  requirements  for  continued  listing on the Principal
Market.

     (m) "Purchase Amount means the portion of the Available Amount purchased by
the Buyer pursuant to Section 1 hereof.

<PAGE>

     (n) "Purchase Date" means the actual date that the Buyer is to buy Purchase
Shares pursuant to Section 1 hereof.

     (o) "Purchase  Price" means,  as of any Purchase Date, the lower of the (A)
the lowest  Sale Price of the Common  Stock on the  Purchase  Date or such other
date of  determination  and(B)  the  arithmetic  average  of the five (5) lowest
Closing Sale Prices for the Common  Stock  during the fifteen  (15)  consecutive
Trading Days ending on the Trading Day immediately  preceding such Purchase Date
or  other  date  of  determination   (to  be  appropriately   adjusted  for  any
reorganization,  recapitalization,  non-cash  dividend,  stock  split  or  other
similar transaction).

     (p) "Sale Price"  means,  for any security as of any date,  the trade price
for such  security  (other  than in a trade  effected by the Buyer or any of its
affiliates)  on the  Principal  Market  as  reported  by  Bloomberg,  or, if the
Principal Market is not the principal  securities exchange or trading market for
such  security,  the trade price of such  security on the  principal  securities
exchange or trading  market where such  security is listed or traded as reported
by Bloomberg.

     (q) "SEC" means the United States Securities and Exchange Commission.

     (r) "Trading Day" means any day on which the  Principal  Market is open for
customary trading.

     11. MISCELLANEOUS.

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

     (b)  Counterparts.  This Agreement may be executed in two or more identical
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
delivered  to the other  party;  provided  that a facsimile  signature  shall

<PAGE>

be considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original,  not a facsimile
signature.

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

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

     (e)  Entire  Agreement;  Amendments.  Except  for (1)  the  Confidentiality
Agreement  dated  October  13,  2000  between  the  Company  and the Buyer  (the
"Confidentiality  Agreement") and (2) the Letter Agreement dated the date hereof
between the Company and the Buyer (the "Letter  Agreement"),  (i) this Agreement
supersedes  all other prior oral or written  agreements  between the Buyer,  the
Company, their affiliates and persons acting on their behalf with respect to the
matters  discussed herein including that certain  Confidential  Term Sheet dated
November 14, 2000, and (ii) this Agreement,  the other Transaction Documents and
the  instruments  referenced  herein  contain  the entire  understanding  of the
parties  with  respect to the  matters  covered  herein and  therein.  Except as
specifically set forth in the Confidentiality  Agreement,  the Letter Agreement,
this Agreement or the other Transaction Documents and the instruments referenced
herein or therein,  neither the Company nor the Buyer makes any  representation,
warranty,  covenant or undertaking with respect to such matters. No provision of
this  Agreement may be amended other than by an instrument in writing  signed by
the Company and the Buyer,  and no provision  hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement is sought.

     (f)  Notices.  Any  notices,  consents,  waivers  or  other  communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be deemed  to have  been  delivered:  (i) upon  receipt,  when
delivered  personally;  (ii)  upon  receipt,  when sent by  facsimile  (provided
confirmation of transmission  is  mechanically or  electronically  generated and
kept on file by the sending party);  or (iii) one Trading Day after deposit with
a  nationally  recognized  overnight  delivery  service,  in each case  properly
addressed to the party to receive the same. The addresses and facsimile  numbers
for such communications shall be:

         If to the Company:
                  Unigene Laboratories, Inc.
                  110 Little Falls Road
                  Fairfield, New Jersey 07004
                  Telephone:        973-882-0860
                  Facsimile:        973-227-6088
                  Attention:        Dr. Warren Levy

         With a copy to:
                  Covington & Burling
                  1201 Pennsylvania Avenue, N.W.
                  Washington, D.C. 20004
                  Telephone:        202-662-5276
                  Facsimile:         202-778-5276
                  Attention:         D. Michael Lefever

<PAGE>

         If to the Buyer:
                  Fusion Capital Fund II, LLC
                  222 Merchandise Mart Plaza, Suite 9-112
                  Chicago, IL 60654
                  Telephone:        312-644-6644
                  Facsimile:        312-644-6244
                  Attention:        Steven G. Martin

         If to the Transfer Agent:
                  Registrar & Transfer Company
                  10 Commerce Drive
                  Cranford, NJ 07016
                  Telephone:        908-497-2300
                  Facsimile:        908-497-2310
                  Attention: Ms. Florence Bogaenko

or at such other address and/or facsimile number and/or to the attention of such
other person as the  recipient  party has  specified by written  notice given to
each other  party  three (3)  Trading  Days prior to the  effectiveness  of such
change.  Written  confirmation  of receipt  (A) given by the  recipient  of such
notice,   consent,   waiver  or  other   communication,   (B)   mechanically  or
electronically  generated by the sender's facsimile machine containing the time,
date, and recipient facsimile number or (C) provided by a nationally  recognized
overnight  delivery service,  shall be rebuttable  evidence of personal service,
receipt by facsimile or receipt from a nationally  recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.

     (g) Successors and Assigns.  This Agreement shall be binding upon and inure
to the benefit of the parties and their respective  successors and assigns.  The
Company shall not assign this Agreement or any rights or  obligations  hereunder
without  the  prior  written  consent  of the  Buyer,  including  by  merger  or
consolidation.  The Buyer may not assign its  rights or  obligations  under this
Agreement.

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

     (i) Publicity.  The Buyer shall have the right to approve  before  issuance
any press  releases or any other public  disclosure  (including any filings with
the  SEC)  with  respect  to the  transactions  contemplated  hereby;  provided,
however,  that the Company shall be entitled,  without the prior approval of any
Buyer,  to make any press  release or other  public  disclosure  (including  any
filings  with the SEC) with  respect  to such  transactions  as is  required  by
applicable  law and  regulations  (although  the Buyer shall be consulted by the
Company in  connection  with any such press  release or other public  disclosure
prior to its release and shall be provided with a copy thereof).

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

<PAGE>

     (k) Termination. This Agreement may be terminated only as follows:

               (i) By the Buyer any time an Event of Default  exists without any
          liability or payment to the Company. However, if pursuant to or within
          the meaning of any Bankruptcy  Law, the Company  commences a voluntary
          case or any Person  commences  a  proceeding  against the  Company,  a
          Custodian is appointed for the Company or for all or substantially all
          of its  property,  or the Company makes a general  assignment  for the
          benefit of its  creditors,  (any of which would be an Event of Default
          as described in Sections  9(h),  9(i) and 9(j) hereof) this  Agreement
          shall automatically  terminate without any liability or payment to the
          Company  without  further  action  or notice  by any  Person.  No such
          termination of this Agreement under this Section 11(k)(i) shall affect
          the Company's or the Buyer's  obligations  under this  Agreement  with
          respect to  pending  purchases  and the  Company  and the Buyer  shall
          complete  their  respective  obligations  with  respect to any pending
          purchases under this Agreement.

               (ii) In the event that the Commencement  shall not have occurred,
          the Company shall have the option to terminate  this Agreement for any
          reason or for no reason  without  liability  of any party to any other
          party.

               (iii) In the event that the Commencement  shall not have occurred
          on or before May31, 2001, due to the failure to satisfy the conditions
          set forth in Sections 6 and 7 above with  respect to the  Commencement
          (and  the  nonbreaching  party's  failure  to waive  such  unsatisfied
          condition(s)),  the  nonbreaching  party  shall  have  the  option  to
          terminate  this  Agreement  at the close of  business  on such date or
          thereafter without liability of any party to any other party.

               (iv) If by the Maturity Date (including any extension  thereof by
          the Company  pursuant to Section 10(g) hereof),  for any reason or for
          no reason the full Available  Amount under this Agreement has not been
          purchased as provided for in Section 1 of this Agreement, by the Buyer
          without any liability or payment to the Company.

               (v) At any time after the  Commencement  Date,  the  Company  the
          Company  shall have the option to  terminate  this  Agreement  for any
          reason or for no  reason  by  delivering  written  notice (a  "Company
          Termination Notice") to the Buyer electing to terminate this Agreement
          without any liability or payment to the Buyer. The Company Termination
          Notice shall not be effective  until one (1) Trading Days after it has
          been received by the Buyer.

               (vi) This  Agreement  shall  automatically  terminate on the date
          that the  Company  sells and the Buyer  purchases  Twenty One  Million
          Dollars ($21,000,000) of Common Stock as provided herein,  without any
          action or notice on the part of any party.

Except as set forth in Sections 11(k)(i) and 11(k)(vi),  any termination of this
Agreement  pursuant to this  Section  11(k) shall be effected by written  notice
from the Company to the Buyer, or the Buyer to the Company,  as the case may be,
setting forth the basis for the  termination  hereof.  The  representations  and
warranties  of the Company and the Buyer  contained  in Sections 2 and 3 hereof,
the indemnification  provisions set forth in Section 8 hereof and the agreements
and covenants set forth in Section 11, shall  survive the  Commencement  and any
termination of this Agreement. No termination of this Agreement shall effect the
Company's  or the  Buyer's  obligations  under this  Agreement  with  respect to
pending  purchases and the Company and the Buyer shall complete their respective
obligations with respect to any pending purchases under this Agreement.

<PAGE>

     (l) No Financial  Advisor,  Placement Agent,  Broker or Finder. The Company
shall be responsible for the payment of any fees or commissions,  if any, of any
financial advisor,  placement agent, broker or finder relating to or arising out
of the  transactions  contemplated  hereby.  The Company shall pay, and hold the
Buyer harmless  against,  any  liability,  loss or expense  (including,  without
limitation,  attorneys' fees and out of pocket  expenses)  arising in connection
with any such claim.

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

     (n)  Remedies,  Other  Obligations,  Breaches and  Injunctive  Relief.  The
Buyer's remedies  provided in this Agreement shall be cumulative and in addition
to all other remedies available to the Buyer under this Agreement,  at law or in
equity  (including  a decree of specific  performance  and/or  other  injunctive
relief),  no remedy of the Buyer  contained  herein  shall be deemed a waiver of
compliance  with the  provisions  giving rise to such remedy and nothing  herein
shall limit the Buyer's  right to pursue  actual  damages for any failure by the
Company to comply with the terms of this  Agreement.  The  Company  acknowledges
that a breach by it of its obligations  hereunder will cause irreparable harm to
the Buyer and that the remedy at law for any such breach may be inadequate.  The
Company  therefore  agrees that,  in the event of any such breach or  threatened
breach,  the  Buyer  shall be  entitled,  in  addition  to all  other  available
remedies,  to an  injunction  restraining  any breach,  without the necessity of
showing economic loss and without any bond or other security being required.

     (o)  Changes  to the  Terms  of  this  Agreement.  This  Agreement  and any
provision  hereof may only be amended by an instrument in writing  signed by the
Company and the Buyer. The term "Agreement" and all reference  thereto,  as used
throughout this instrument,  shall mean this instrument as originally  executed,
or if later amended or supplemented, then as so amended or supplemented.

     (p) Enforcement Costs. If: (i) this Agreement is placed by the Buyer in the
hands of an attorney  for  enforcement  or is enforced by the Buyer  through any
legal proceeding;  or (ii) an attorney is retained to represent the Buyer in any
bankruptcy,   reorganization,   receivership  or  other  proceedings   affecting
creditors'  rights  and  involving  a claim  under this  Agreement;  or (iii) an
attorney is retained to represent the Buyer in any other proceedings  whatsoever
in connection with this  Agreement,  then the Company shall pay to the Buyer, as
incurred by the Buyer,  all reasonable costs and expenses  including  attorneys'
fees  incurred in  connection  therewith,  in addition to all other  amounts due
hereunder.

     (q) Failure or Indulgence  Not Waiver.  No failure or delay in the exercise
of any power,  right or privilege  hereunder  shall operate as a waiver thereof,
nor shall any single or partial  exercise of any such power,  right or privilege
preclude  other or  further  exercise  thereof or of any other  right,  power or
privilege.

                                    * * * * *

<PAGE>

     IN WITNESS WHEREOF, the Buyer and the Company have caused this Common Stock
Purchase Agreement to be duly executed as of the date first written above.

                                  THE COMPANY:

                                  UNIGENE LABORATORIES, INC.

                                  By:___________________________
                                  Name: Warren Levy
                                  Title: Chief Executive Officer

                                  BUYER:

                                  FUSION CAPITAL FUND II, LLC
                                  BY: FUSION CAPITAL PARTNERS, LLC
                                  BY: SGM HOLDINGS CORP.

                                  By:__________________________
                                  Name: Steven G. Martin
                                  Title: President

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