Document:

Exhibit 4.1

                     5% SUBORDINATED CONVERTIBLE DEBENTURES

          THE DEBENTURE REPRESENTED HEREBY HAS NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.

          PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS DEBENTURE
AND THE EXERCISE OF REMEDIES HEREUNDER ARE SUBORDINATED TO SENIOR INDEBTEDNESS
AS PROVIDED HEREIN.

No. __                                                            $_______

                          ALLIANCE PHARMACEUTICAL CORP.

                  5% CONVERTIBLE DEBENTURES DUE AUGUST 22, 2004

          Alliance Pharmaceutical Corp., a New York corporation (the "COMPANY"),
for value received hereby promises to pay to ________________ or its registered
assigns ("HOLDER") the principal sum of Seven Million Dollars at the Company's
office or agency for said purpose in New York, New York on August 22, 2004 in
such coin or currency (or, as provided herein, at the Holder's option in Common
Stock) of the United States of America as at the time of payment shall be legal
tender for the payment of public and private debts at the last address of the
Holder (as defined herein) last appearing on the Register (as defined herein).

          This Debenture is one of a duly authorized issue of 5% Convertible
Debentures, due August 22, 2004 of the Company (the "DEBENTURE") referred to in
the Securities Purchase Agreement (the "PURCHASE AGREEMENT"), dated as of August
22, 2000, by and among the Company and the Purchasers listed on Schedule I
thereto. The Debentures are subject to the terms and conditions of the Purchase
Agreement. The Company agrees to issue from time to time replacement Debentures
in the form hereof to facilitate any transfers and assignments. In addition,
after delivery of an indemnity in form and substance reasonably satisfactory to
the Company, receipt of evidence of destruction in accordance with Section 2.2
hereof, and, in the case of mutilated Debentures, the delivery to the Company of
such Debentures, the Company also agrees to issue replacement Debentures for
securities which have been lost, stolen, mutilated or destroyed.

          The Company shall keep at its principal office a register (the
"REGISTER") in which shall be entered the names and addresses of the registered
holders of the Debentures and particulars of the respective Debentures held by
them and of all transfers of such Debentures. References to the "HOLDER" or
"HOLDERS" shall mean the Person listed in the Register as the payee of any
Debenture unless the payee shall have presented such Debenture to the Company
for transfer and the transferee shall have been entered in the Register as a
subsequent holder, in which case the term shall mean such subsequent holder. The
ownership of the Debentures shall be proven by the Register, absent manifest
error. For the purpose of paying interest and principal on the Debentures, the
Company shall be entitled to rely on the names and addresses in the Register.

          No provision of this Debenture shall alter or impair the obligations
of the Company, which are absolute and unconditional, to pay the principal of
and interest on this Debenture at the place, times, rate, and in the currency,
herein prescribed.

          The Company will pay interest in arrears from and including the
Original Issue Date on the unpaid principal balance of this Debenture at the
rate of 5% per annum (the "Interest Rate") in an amount equal to $_______
semi-annually on February 22 and August 22 of each year (an "Interest Payment
Date"), commencing on August 22, 2000 to the Holder hereof until the principal
amount is paid or made available for payment, provided that the amount of such
semi-annual interest payment shall be reduced to reflect any reduction in such
unpaid principal balance. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will be paid in cash, or, at the
option of the Company (as provided herein), an equivalent value of the Company's
Common Stock calculated based upon the Conversion Price (as defined herein),
subject to certain conditions contained herein, to the Holder of the Debenture
at the close of business on the Business Day immediately preceding the Interest
Payment Date for the interest payable on such Interest Payment Date.

          Any amounts that have become due and payable hereunder and remain
unpaid by the Company shall accrue interest thereafter until payment in full of
such amount at the rate of twenty percent (20%) (the "DEFAULT RATE") per annum
and shall be payable upon demand by the Holder.

          Interest, whether at the Interest Rate or the Default Rate, will be
computed on the basis of a fraction, the denominator of which is 365 (or 366 for
any leap year) and the numerator of which is the actual number of days elapsed
from the date such interest begins to accrue, in the case of the Interest Rate,
or becomes due and payable, in the case of the Default Rate.

          Each of the Interest Rate and the Default Rate (if otherwise
applicable under the terms hereof) shall be effective both before and after any
judgment may be rendered in a court of competent jurisdiction, PROVIDED,
HOWEVER, that if either the Interest Rate or Default Rate is deemed to be in
excess of the amount permitted to be charged by the Company under applicable
laws, the Holder shall be entitled to collect an Interest Rate or Default Rate,
as the case may be, only at the highest rate permitted by law, and any interest
collected by the Holder in excess of such lawful amount shall be deemed a
payment in reduction of the principal amount then outstanding under this
Debenture and shall be so applied.

          The principal of, and any interest paid in cash on, this Debenture are
payable in coin or currency of the United States of America as at the time of
payment is legal tender for payment of public or private debts, at the last
address of the Holder last appearing on the Register, except that interest due
on the principal amount, if any (but not interest overdue for more than five (5)
days), may, at the Company's option be paid in shares of Common Stock calculated
based upon the Conversion Price on the date such interest was due. It shall be
assumed that the Company shall elect to make all payments of interest in cash,
unless the Company shall have given written notice to each Holder not less than
one (1) calendar month prior to the applicable Interest Payment Date of its
intention to pay such interest in Common Stock. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
payment of the interest on principal if: (i) the number of shares of Common
Stock at the time authorized, unissued and unreserved for all other purposes is
insufficient to pay interest hereunder in shares of Common Stock or there is an
insufficient number of authorized shares of Common Stock reserved (pursuant to
Section 3.6(b) of the Purchase Agreement) for issue for full conversion of all
of the Debentures issued pursuant to the Purchase Agreement; (ii) such shares
are not either registered for resale pursuant to the Registration Statement (as
defined in the Registration Rights Agreement (as defined herein)) or freely
transferable pursuant to Rule 144 promulgated under the Act, as determined by
counsel to the Company pursuant to a written opinion letter addressed and in
form and substance acceptable to the Holder and the transfer agent for such
shares, subject to receipt, if necessary for such opinion, from the Holder of a
representation from such Holder that it is not an Affiliate (as defined herein)
of the Company; (iii) such shares are not listed or quoted on the Nasdaq (as
defined herein) or a Subsequent Market (as defined herein); (iv) the issuance of
such shares would result in the recipient thereof beneficially owning more than
4.99% of the issued and outstanding shares of Common Stock as determined in
accordance with Section 4.7 hereof; (v) an Event of Default has occurred and is
continuing or an event that, with the passage of time or giving of notice or
both would constitute an Event of Default, has occurred and is continuing; or
(vi) the Company has issued the Issuable Maximum (as defined herein) upon
conversion of or pursuant to the Debentures issued pursuant to the Purchase
Agreement and the Shareholder Approval has not been obtained.

          The Holder may from time to time convert the principal amount of this
Debenture, or any portion thereof, with any accrued but unpaid interest, into
Common Stock, as more particularly set forth in Section 4.2.

                                    ARTICLE I

                                   DEFINITIONS

          1.1 CERTAIN TERMS DEFINED. The following terms for all purposes of
this Debenture shall have the respective meanings specified below. All
accounting terms used herein and not expressly defined shall have the meanings
given to them in accordance with generally accepted accounting principles (as
defined herein). Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Purchase Agreement. The terms defined in this
Section 1.1 include the plural as well as the singular.

          "ACCELERATION NOTICE" has the meaning set forth in Section 3.1.

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

          "APPRAISER" shall mean a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing.

          "AUTHORIZATION DATE" has the meaning set forth in Section 4.9.

          "AVERAGE PRICE" on any date means (x) the sum of the Per Share Market
Value for the ten (10) Trading Days immediately preceding such date minus (y)
the highest and lowest Per Share Market Value during the ten (10) Trading Days
immediately preceding such date, divided by (z) eight (8).

          "BOARD OF DIRECTORS" means either the Board of Directors of the
Company or any committee of such Board duly authorized to act hereunder.

          "BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.

          "CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the Original
Issue Date, including, without limitation, all Common Stock and all Preferred
Stock.

          "CHANGE OF CONTROL" means the occurrence of any of (i) an acquisition
after the date hereof by an individual or legal entity or "group" (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act), other than the
Purchasers or any of their Affiliates, of in excess of 33% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's Board of Directors that is not approved by those
individuals who are members of the Board of Directors on the date hereof, or
successors on a continuing Board of Directors, in one or a series of related
transactions, (iii) the merger of the Company with or into another entity where
the shareholders of the Company own less than 50% of the outstanding voting
power of the surviving corporation, (iv) the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii), (iii) or (iv).

          "CLOSING DATE" has the meaning set forth in the Purchase Agreement.

          "COMMON STOCK" means the common stock, par value $0.01 per share, of
the Company, or the common stock of any successor to the Company following a
Change in Control in which the Company's Common Stock is converted into the
Common Stock of the successor corporation.

          "COMPANY" has the meaning set forth in the first paragraph hereof.

          "CONVERTIBLE SECURITIES" has the meaning set forth in Section
4.5(e)(i)(A).

          "CONVERSION DATE" has the meaning set forth in Section 4.4(a).

          "CONVERSION DEFAULT" has the meaning set forth in Section 4.9.

          "CONVERSION DEFAULT PAYMENTS" has the meaning set forth in Section
4.9.

          "CONVERSION NOTICE" has the meaning set forth in Section 6.1.

          "CONVERSION NOTICE DATE" has the meaning set forth in Section 6.2.

          "CONVERSION PRICE" has the meaning set forth in Section 4.2(a).

          "CONVERSION TRIGGER PRICE" has the meaning set forth in Section 6.1.

          "DEBT" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person in respect of letters of credit or bankers'
acceptance or other similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, (v) all obligations of such Person as
lessee under capitalized leases, (vi) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such Person,
provided that for purposes of determining the amount of any Debt of the type
described in this clause, if recourse with respect to such Debt is limited to
such asset, the amount of such Debt shall be limited to the fair market value of
such asset, (vii) all Debt of others guaranteed by such Person, and (viii) all
redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends.

          "DEBENTURE" or "DEBENTURES" has the meaning set forth in the second
paragraph hereof.

          "DEBENTURE SHARES" means the shares of Common Stock underlying the
Debentures or shares issued upon conversion of the Debentures.

          "DEFAULT RATE" has the meaning set forth in the sixth paragraph
hereof.

          "DETERMINATION DATE" has the meaning set forth in Section 4.6.

          "DTC" means the Depositary Trust Corporation.

          "EVENT OF DEFAULT" has the meaning set forth in Section 3.1.

          "EXCESS AMOUNT" has the meaning set forth in Section 4.9.

          "EXCESS PRINCIPAL" has the meaning set forth in Section 4.6.

          "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.

          "FAST" has the meaning set forth in Section 4.4(c).

          "GAAP" or "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally
accepted accounting principles in the United States.

          "HOLDER", "HOLDER OF DEBENTURES", "DEBENTUREHOLDER" or other similar
terms means the registered holder of any DEBENTURE.

          "INCURRENCE" means the incurrence, creation, assumption or in any
other manner becoming liable with respect to, or the extension of the maturity
of or becoming responsible for the payment of, any Debt. "INCUR" shall have a
comparable meaning.

          "INTEREST PAYMENT DATE" has the meaning set forth in the fifth
paragraph hereof.

          "INTEREST RATE" has the meaning set forth in the fifth paragraph
hereof.

          "ISSUABLE MAXIMUM" has the meaning set forth in Section 4.6.

          "MANDATORY PREPAYMENT AMOUNT" for any DEBENTURE means the greater of
(i) the sum of (x) 120% of the principal amount of the DEBENTURE to be prepaid
and (y) all other amounts, costs, interest, expenses and liquidated damages due
in respect of such principal amount and (ii) the sum of (x) at the option of the
Holder, either (I) the principal amount of the DEBENTURE to be repaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on the date
the Mandatory Prepayment Amount is demanded or otherwise due, multiplied by the
Per Share Market Value on the date the Mandatory Prepayment Amount is demanded
or otherwise due or (II) the principal amount of the DEBENTURE to be prepaid,
plus all accrued and unpaid interest thereon, divided by the lower of either the
Conversion Price or the Average Price on the Trading Day immediately prior to
the date the Mandatory Prepayment Amount is paid in full, multiplied by the Per
Share Market Value on the Trading Day immediately prior to the date the
Mandatory Prepayment Amount is paid in full, and (y) all other amounts, costs,
interest, expenses and liquidated damages due in respect of such principal
amount.

          "MATURITY DATE" means the date on which the principal of a DEBENTURE
becomes due and payable as herein provided, whether on the Stated Maturity Date
or pursuant to acceleration upon an Event of Default.

          "NASDAQ" means the Nasdaq National Market.

          "NOTICE OF CONVERSION" has the meaning set forth in Section 4.2.

          "OPTIONAL CONVERSION" has the meaning set forth in Section 6.1.

          "OPTIONAL CONVERSION DATE" has the meaning set forth in Section 6.2.

          "OPTIONS" has the meaning set forth in Section 4.5(e)(i)(A).

          "ORIGINAL ISSUE DATE" of any Debenture (or portion thereof) means the
earlier of (i) the date of such Debenture and (ii) the date of any Debenture (or
portion thereof) for which such security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.

          "PAYMENT BLOCKAGE NOTICE" has the meaning set forth in Section 7.2(b).

          "PER SHARE MARKET VALUE" means (i) on any particular Trading Day the
closing bid price per share of the Common Stock on such date (as reported by
Bloomberg Information Services, Inc., or any successor reporting service) on
Nasdaq or, if the Common Stock is not then quoted on Nasdaq, any Subsequent
Market on which the Common Stock is then listed or if there is no such price on
such date, then the closing bid price on such exchange or quotation system on
the date nearest preceding such date (excluding bids posted by the Company, a
Holder or an Affiliate of any such person), or (ii) if the Common Stock is not
listed then on Nasdaq or any Subsequent Market, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date (excluding bids posted by a Holder or an Affiliate of a Holder), or
(iii) if the Common Stock is not then publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser selected in good faith by
the holder of this Debenture; PROVIDED, HOWEVER, that the Company, after receipt
of the determination by such Appraiser, shall have the right to select in good
faith an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser; and PROVIDED,
FURTHER that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.

          "PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.

          "PREFERRED STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or issued
after the date of this Debenture, and includes, without limitation, all classes
and series of preferred or preference stock.

          "PROPERTY" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under generally accepted
accounting principles.

          "PURCHASE AGREEMENT" means that Securities Purchase Agreement dated as
of August 22, 2000 by and among the Company and the Purchasers.

          "PURCHASE PRICE" means, with respect to any Debenture, the purchase
price paid to the Company upon issuance of such Debenture.

          "PURCHASERS" has the meaning ascribed thereto in the Purchase
Agreement.

          "REGISTER" has the meaning set forth in the third paragraph hereof.

          "REGISTRATION RIGHTS AGREEMENT" means that Registration Rights
Agreement dated as of August 22, 2000 by and among the Company and the
Purchasers.

          "RESERVED AMOUNT" has the meaning set forth in Section 4.9.

          "REVERSE STOCK SPLIT" has the meaning set forth in Section 4.5(a).

          "SENIOR INDEBTEDNESS" shall have the meaning set forth in Section 7.1.

          "SHAREHOLDER APPROVAL" has the meaning set forth in Section 4.6.

          "STATED MATURITY DATE" means August 22, 2004.

          "STOCK OPTION PLAN" means any contract, plan or agreement which has
been approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant.

          "STRATEGIC PARTNER" means any established biotechnology or
pharmaceutical company, with a minimum market capitalization of one billion
dollars, with whom the Company executes a written agreement providing that the
Company and such entity will be "partnered" in the development or distribution
of one or more of the Company's chemical compounds.

          "SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of the Capital Stock or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions are at the time directly
or indirectly owned or controlled by such Person. A Person shall not be deemed
to directly or indirectly own a majority of the Capital Stock of another Person
solely because of ownership of an unexercised warrant to acquire Capital Stock
of such other Person if the warrant does not provide for voting control of the
warrant shares prior to its exercise.

          "SUBSEQUENT MARKET" means the New York Stock Exchange, American Stock
Exchange, Nasdaq Small Cap Market, London Stock Exchange or Tokyo Stock
Exchange.

          "TRADING DAY" means (a) a day on which the Common Stock is traded on
Nasdaq or, if the Common Stock is not then designated on Nasdaq, on such
Subsequent Market on which the Common Stock is then listed or quoted or (b) if
the Common Stock is not listed on Nasdaq or a Subsequent Market, a day on which
the Common Stock is traded in the over-the-counter Market, as reported by the
OTC Bulletin Board, or (c) if the Stock is not quoted on the OTC Bulletin Board,
a day on which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions or reporting prices) provided,
however that in any event that the Common Stock is not listed or quoted as set
forth in (a), (b), or (c) hereof, then a Trading Day shall mean any Business
Day.

                                   ARTICLE II

                             PAYMENT; THE SECURITIES

          2.1 PAYMENT OF PRINCIPAL AND INTEREST. The Company covenants and
agrees that it will duly and punctually pay or cause to be paid the principal,
plus all accrued interest thereon, with respect to each of the Debentures at the
place or places, at the respective times and in the manner provided in the
Debentures.

          2.2 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN DEBENTURES. In case
any temporary or definitive Debenture shall become mutilated, defaced or be
apparently destroyed, lost or stolen, the Company shall execute and deliver a
new Debenture, bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated or defaced Debenture. In every case the
applicant for a substitute Debenture shall furnish to the Company such security
or indemnity as it may reasonably require to indemnify and defend and to save it
harmless and, in every case of destruction, loss or theft evidence to the
Company's satisfaction of the apparent destruction, loss or theft of such
Debenture and of the ownership thereof.

          Upon the issuance of any substitute Debenture, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses connected
therewith. In case any Debenture which has matured or is about to mature, or has
been called for conversion in full, or is being surrendered for conversion in
full shall become mutilated or defaced or be apparently destroyed, lost or
stolen, the Company may, instead of issuing a substitute Debenture, with the
holder's consent, pay or authorize the payment or conversion of the same
(without surrender thereof except in the case of a mutilated or defaced
Debenture), if the applicant for such payment shall furnish to the Company such
security or indemnity as it may reasonably require to save it harmless from all
risks, however remote, and, in every case of apparent destruction, loss or
theft, the applicant shall also furnish to the Company evidence to the Company's
reasonable satisfaction of the apparent destruction, loss or theft of such
Debenture and of the ownership thereof, and in the case of mutilated Debentures,
the applicant shall deliver to the Company such Debentures.

          Every substitute Debenture issued pursuant to the provisions of this
Section by virtue of the fact that any Debenture is apparently destroyed, lost,
stolen or mutilated shall constitute an additional contractual obligation of the
Company, whether or not the apparently destroyed, lost, stolen or mutilated
Debenture shall be at any time enforceable by anyone and shall be entitled to
all the benefits of (but shall be subject to all the limitations of rights set
forth in) this Debenture equally and proportionately with any and all other
Debentures duly authenticated and delivered hereunder. All Debentures shall be
held and owned upon the express condition that, to the extent permitted by law,
the foregoing provisions are exclusive with respect to the replacement or
payment or conversion of mutilated, defaced, or apparently destroyed, lost,
stolen or mutilated Debentures and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment of negotiable instruments or
other securities without their surrender.

          2.3 CANCELLATION OF DEBENTURES; DESTRUCTION THEREOF. All Debentures
surrendered for payment, conversion, registration of transfer or exchange shall
be delivered to the Company for cancellation, and no Debentures shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Debenture. The Company shall destroy canceled Debentures held by it and deliver
a certificate of destruction to the Holder, unless otherwise required. If the
Company shall acquire any of the Debentures, such acquisition alone shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Debentures unless and until such indebtedness is satisfied.

                                   ARTICLE III

                                    DEFAULTS

          3.1 EVENT OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER OF
DEFAULT. In case one or more of the following events ("EVENTS OF DEFAULT")
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:

          a. default in the payment in cash (or in Common Stock, as permitted
herein), for a period of more than three (3) Business Days, of all or any part
of the principal of and the entire accrued interest on any of the Debentures as
and when the same shall become due and payable either at maturity, upon any
conversion, by declaration or otherwise; or

          b. failure on the part of the Company to duly and materially observe
or perform any covenants or agreements on the part of the Company (or the making
by the Company of any announcement, statement or threat that it does not intend
to honor the obligations described in this paragraph) contained in this
Debenture (including the failure to issue Common Stock upon conversion of this
Debenture in accordance with the terms hereof) or the Purchase Agreement or the
Registration Rights Agreement for a period of five (5) Business Days (other than
with respect to an announcement, statement or threat) in the case of a failure
due to circumstances within the Company's control, or thirty (30) Business Days
in the case of a failure due to circumstances not within the Company's control,
after the earlier of (x) the date on which any executive officer of the Company
shall have obtained actual knowledge of such failure (or such announcement,
statement or threat) or (y) the date on which written notice thereof has been
given to the Company by the Holder; or

          c. there shall have occurred with respect to any particular issue of
Debt of the Company and/or one or more Subsidiaries having an outstanding
principal amount of $1,000,000 or more in the aggregate for all such issues of
all such Persons, whether such Debt now exists or shall hereafter be created, an
event of default which has entitled the holder thereof to declare such Debt to
be due and payable in full prior to its stated maturity, and such Debt has not
been discharged in full or such acceleration has not been stayed, rescinded or
annulled within ten (10) Business Days of such acceleration; or

          d. a judgment or order (not covered by insurance) for the payment of
money shall be rendered against the Company or any Subsidiary of the Company in
excess of $500,000 in the aggregate for all such judgments or orders against all
such Persons (treating any deductibles, self insurance or retention as not so
covered) that shall not be discharged, and all such judgments and orders remain
outstanding, and there shall be any period of thirty (30) consecutive days
following entry of the judgment or order in excess of $500,000 or the judgment
or order which causes the aggregate amount described above to exceed $500,000
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or

          e. a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company or any of its subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or any of
its Subsidiaries or for any substantial part of the property of the Company or
any of its Subsidiaries or ordering the winding up or liquidation of the affairs
of the Company or any of its Subsidiaries, and such decree or order shall remain
unstayed and in effect for a period of thirty (30) consecutive days; or

          f. the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Company or for any substantial part of the property of the Company, or the
Company shall make any general assignment for the benefit of creditors; or

          g. any representation, warranty or certification made by the Company
in the Purchase Agreement or in any certificate, financial statement shall prove
to have been incorrect in any material respect when made; or

          h. the Common Stock shall be delisted from Nasdaq or shall be
suspended from trading on Nasdaq without resuming trading and/or being relisted
thereon or on a Subsequent Market or having such suspension lifted, as the case
may be, within five (5) Business Days (twenty (20) Business Days if the Company
is in good faith contesting such delisting or suspension); or

          i. a Registration Statement (as defined in the Registration Rights
Agreement) for the Debenture Shares shall not have been declared effective by
the Securities and Exchange Commission on or prior to the 30th day after the
Effectiveness Date (as defined in the Registration Rights Agreement) or after
its initial effectiveness and prior to the expiration of the Company's
obligation to keep the Registration Statement effective as required under the
Registration Rights Agreement, such Registration Statement lapses in effect or
sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) otherwise cannot be made thereunder (whether by reason of the
Company's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement or otherwise) for more than
fifteen (15) consecutive days or thirty (30) days in any twelve (12) month
period; or

          j. the Company shall fail to issue shares of Common Stock, in
accordance with the Purchase Agreement and this Debenture, within three (3)
Trading Days after the Holder delivers a Notice of Conversion pursuant to
Section 4.2 hereof; or

          k. an Event of Default has occurred and is continuing under any of the
other Debentures issued pursuant to the Purchase Agreement; or

          l. Failure on the part of the Company to comply with its obligations
to close the Second Closing (as defined in the Purchase Agreement) when
requested by the Holders.

          then, in each and every such case (other than an Event of Default
specified in Section 3.1(e) or 3.1(f) hereof), unless the principal shall have
already become due and payable, by notice in writing to the Company (the
"ACCELERATION NOTICE"), the Holders of at least a majority of the then
outstanding principal amount of the Debentures may declare the entire principal
of and the entire accrued interest on the Debentures owned by such Holders to be
due and payable immediately, and upon any such declaration the same shall become
immediately due and payable. If an Event of Default specified in Section 3.1(e)
or 3.1(f) occurs, the principal of and any accrued interest on the Debentures
(and the aggregate amounts described below) shall become and be immediately due
and payable without any declaration or other act on the part of any Debenture
Holder. In the event that the Company shall not have promptly, but in any event
within five (5) Business Days after receipt of an Acceleration Notice, shall
have paid a Holder the amount specified below (if applicable, as so specified)
the Conversion Price of such Holder's Debenture shall automatically be adjusted
to equal the average Per Share Market Value of the Common Stock during the
preceding thirty (30) consecutive Trading Days immediately preceding the date of
the Acceleration Notice, if such Per Share Market Value is lower than the
Conversion Price.

          The aggregate amount payable upon an Event of Default described in
Section 3.1(a), (e), (f) and (i) to a Holder in respect of such Holder's
Debenture shall be equal to the sum of (i) the Mandatory Prepayment Amount
applicable to such Debenture plus (ii) at the option of the Holder, the
Mandatory Prepayment Amount for the principal amount of the Debentures (the
"CONVERTED DEBENTURES") that would then be held by such Holder had the principal
amount of Debentures converted into Debenture Shares that are then held by the
Holder not been so converted; PROVIDED, that the Holder shall not be entitled to
a Mandatory Prepayment Amount with respect to Converted Debentures if both the
following have occurred: (i) prior to the occurrence of an Event of Default, the
Debenture Shares into which the Converted Debentures were converted had been
held by the Holder for more than thirty (30) days and (ii) prior to the
occurrence of the Event of Default and after receipt by the Holder of the
Debenture Shares that are held by the Holder at the time of the occurrence of
the Event of Default, the Registration Statement with respect to such Debenture
Shares had been continuously effective, and the Common Stock has been quoted on
Nasdaq, for more than thirty (30) days.

          The aggregate principal amount payable on each Event of Default other
than as described in Section 3.1(a), (e), (f) and (i) shall be equal to the sum
of (i) the Mandatory Prepayment Amount plus (ii) at the option of the Holder,
the Mandatory Prepayment Amount for the Converted Debentures that would then be
held by such Holder had the principal amount of Debentures converted into
Debenture Shares (as defined herein) that are then held by the Holder not been
so converted; PROVIDED, that the Holder shall not be entitled to a Mandatory
Prepayment Amount with respect to Converted Debentures if prior to the
occurrence of an Event of Default, the Debenture Shares into which the Converted
Debentures were converted had been held by the Holder for more than three (3)
Trading Days.

          For purposes of this Section 3.1, the principal amount of the
Debentures is outstanding until such date as the Holder shall have been issued
Debenture Shares upon a conversion (or attempted conversion) thereof. Interest
shall accrue on the Mandatory Prepayment Amount hereunder from the day after
such amount is due (being the date of an Event of Default) through the date of
payment in full thereof at the rate of 20.0% per annum, accruing daily from the
date of conversion until such amount, plus an interest thereon, if any, is paid
in full. Payment of the Mandatory Prepayment Amount pursuant to this Section 3.1
shall be in addition to any other amounts that may be due to the Holder pursuant
to this Debenture. Within five (5) Business Days of receipt by the Holder of
payments of amounts due to the Holder, (i) the Holder shall return the
Debentures to the Company and (ii) in the event the Mandatory Prepayment Amount
relates to the Converted Debentures, the Holder shall return the Debenture
Shares into which such Converted Debentures were converted. In the event of the
occurrence of an Event of Default, the Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Any demand for payment may be rescinded
and annulled by a Holder at any time prior to payment hereunder. If a majority
of the Holders rescind and annul any such demand, then the remaining Holders
shall be deemed to rescind and annul any such demand. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.

          Upon delivery of any Acceleration Notice to the Company, the Company
shall provide a copy of such notice to the other Holders, if any, within one (1)
Business Day of the Company's receipt thereof. Failure to deliver such notice
shall not affect the validity of the notice delivered by the Holders in
accordance with the provisions referred to above.

          3.2 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF
DEFAULT. No right or remedy herein conferred upon or reserved to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

          No delay or omission of the Holders to exercise any right or power
accruing upon any Event of Default occurring and continuing as aforesaid shall
impair any such right or power or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein; and every power and remedy given by
the Debentures or by law may be exercised from time to time, and as often as
shall be deemed expedient, by the Holders.

                                   ARTICLE IV

                              EXCHANGE; CONVERSION

          4.1 RIGHT OF DEBENTUREHOLDERS TO EXCHANGE DEBENTURES. Subject to and
upon compliance with the provisions of this Section, this Debenture is
exchangeable for an equal principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.

          4.2 RIGHT OF DEBENTUREHOLDERS TO CONVERT DEBENTURES INTO COMMON STOCK.

          a. CONVERSION PRICE. Subject to and upon compliance with the
provisions of this Section, the Holder of any Debenture shall have the right, at
the Holder's option, at any time prior to the close of business on the Maturity
Date to convert the principal amount of this Debenture, or any portion thereof
(and any accrued but unpaid interest thereon) into duly authorized, validly
issued, fully-paid and nonassessable shares of Common Stock at the conversion
price of $13.32 per share subject to adjustment under the provisions of this
Article IV (the "Conversion Price").

          b. NOTICE OF CONVERSION. If an adjustment in the Conversion Price and,
if applicable, a change in the securities or other property issuable upon
conversion has taken place hereunder, then the conversion described in Section
4.2(a) shall be at the applicable Conversion Price and into such securities or
other property as so adjusted. The Purchaser desiring to make a conversion shall
deliver to the Company during usual business hours of the Company's office, or,
at the Purchaser's option, to the transfer agent of the Company during usual
business hours of the transfer agent, a written notice of election to convert,
as provided in the form attached hereto as EXHIBIT A (a "NOTICE OF CONVERSION"),
accompanied, if required, by the Debenture or Debentures, representing at least
the principal amount to be converted.

          4.3 ADJUSTMENT FOR DIVIDENDS; INTEREST PAYMENT AFTER CONVERSION. No
payment or adjustment will be made for dividends on any Common Stock except as
provided herein. On conversion of a Debenture, that portion of interest accrued
and unpaid attributable to the period from the Original Issue Date to the
Conversion Date with respect to the converted Debenture shall not be canceled,
extinguished or forfeited, but rather shall be paid in full to the Holder
thereof by the payment of cash; PROVIDED, HOWEVER, that the Company may elect to
pay such amount in shares of Common Stock valued at the Conversion Price if it
provides the Holder with not less than ten (10) days prior written notice of
such intention. If the Holder converts more than one Debenture at the same time,
the number of shares of Common Stock issuable upon the conversion shall be based
on the total principal amount of the Debentures converted.

          4.4 ISSUANCE OF SHARES UPON CONVERSION.

          a. As promptly as practicable, but in any event no later than two (2)
Trading Days after delivery of a Notice of Conversion and, if required, the
surrender, as herein provided, of any Debenture or Debentures for conversion,
the Company shall deliver or cause to be delivered to the Holder of the
Debenture or Debentures delivering such Notice of Conversion, or such Holder's
designee, a certificate or certificates representing the number of duly
authorized, validly issued, fully-paid and nonassessable shares of Common Stock,
into which such Debenture or Debentures may be converted in accordance with the
provisions of this Article IV. Such conversion shall be deemed to have been made
at the close of business on the date the Notice of Conversion is delivered to
the Company, as long as, if required, the Debenture or Debentures being
converted are promptly delivered to the Company and the rights of the Holder of
such Debenture or Debentures as a Holder (subject to the Company's satisfaction
of its obligations hereunder with respect to such conversion) shall cease at
such time with respect to the Converted Debentures, the Person or Persons
entitled to receive the shares of Common Stock, upon conversion of such
Debenture or Debentures, shall be treated for all purposes as having become the
record holder or holders of such shares of Common Stock at such time, and such
conversion shall be at the Conversion Price in effect at such time (the
"CONVERSION DATE"). Subject to paragraph 4.4(b), if any Debenture is converted
in part only, upon such conversion the Company shall execute and deliver to the
Holder thereof, as requested by such Holder, a new Debenture or Debentures of
authorized denominations in aggregate principal amount equal to the unconverted
portion of such Debenture. Without in any way limiting the Holder's right to
pursue other remedies, including actual damages and/or equitable relief, the
parties hereto agree that if the Company fails to deliver the shares of Common
Stock required to be issued upon the conversion of such Debenture or Debentures
under this Section 4.4 within the two (2) Trading Day period referred above, the
Company shall pay to the Holder upon demand an amount of cash (at the Holder's
option) equal to: (i) the commissions, discounts and similar expenses charged to
the Holder in purchasing a number of shares of Common Stock no greater than the
number of shares of Common Stock required to be issued upon the conversion of
the Debenture or Debentures, or (ii) the product of (w) the number of shares of
Common Stock required to be issued upon the conversion of the Debenture or
Debentures, (x) the Per Share Market Value of such shares on the Conversion
Date, (y) the number of days after such two (2) day period that such shares are
not delivered to the Holder, and (z) 0.005.

          b. Notwithstanding anything to the contrary set forth herein, upon
conversion of a Debenture in accordance with the terms thereof, the Holder shall
not be required to physically surrender the Debenture to the Company unless the
entire unpaid principal amount of the Debenture is so converted. The Holder and
the Company shall maintain records showing the principal amount already
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of the Debenture upon each such conversion. In the event of
any dispute or discrepancy, such records of the Company shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any portion of the Debenture is converted, the Holder may not transfer the
Debenture unless the Holder first physically surrenders the Debenture to the
Company, whereupon the Company shall promptly issue and deliver upon the order
of the Holder a new Debenture of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes) may request,
representing in the aggregate the remaining unpaid principal amount of the
Debenture. The Holder and any assignee, by acceptance of the Debenture,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of a Debenture, the unpaid and unconverted
principal amount of such Debenture represented by such Debenture may be less
than the amount stated on the face thereof.

          c. In lieu of delivering physical certificates representing the
Debenture Shares, provided the shares of Common Stock issuable upon conversion
of a Debenture may be sold pursuant to Rule 144(k) under the Act or under an
effective Registration Statement and the Company's transfer agent is
participating in the Depository Trust Company Fast Automated Securities Transfer
("FAST") program, upon request of the Holder and in compliance with the
provisions of Sections 4.1, 4.2 and 4.4, the Company shall use its best efforts
to cause its transfer agent to electronically transmit the shares of Common
Stock issuable upon conversion of the Debenture to the Holder by crediting the
account of the Holder's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. The time period for delivery described in the
immediately preceding paragraph shall apply to the electronic transmittals
described herein.

          d. In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4.4(a), including for purposes hereof, any shares of Common Stock to
be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, by the second (2nd) Trading Day after the Conversion Date, and if
after such second (2nd) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Debenture Shares which the Holder was entitled to receive
upon such conversion (a "BUY-IN"), then the Company shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder was
entitled to receive from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either return the Debentures for
which such conversion was not honored or deliver to such Holder the number of
shares of Common Stock that would have been issued had the Company timely
complied with its conversion and delivery obligations under Section 4.4(a). For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of Debentures
with respect to which the market price of the Debenture Shares on the date of
conversion totaled $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.

          4.5 ADJUSTMENT OF CONVERSION PRICE. In addition to any adjustment to
the Conversion Price provided elsewhere in this Debenture, the Conversion Price
in effect at any time shall be subject to adjustment from time to time upon the
happening of certain events, as follows:

          a. COMMON STOCK DIVIDENDS; COMMON STOCK SPLITS; REVERSE COMMON STOCK
SPLITS. If the Company, at any time while this Debenture is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of Capital Stock of the
Company, the Conversion Price shall be multiplied by a fraction the numerator of
which shall be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding before such event and the denominator of which shall be the
number of shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this paragraph 4.5(a) shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
Notwithstanding the foregoing, if the Company shall combine outstanding shares
of Common Stock into a smaller number of shares (a "REVERSE STOCK SPLIT") at any
time prior to the Maturity Date, then the Conversion Price in effect immediately
prior to such reverse stock split shall not be adjusted and shall remain in
effect after giving effect to such reverse stock split.

          b. RIGHTS; OPTIONS; WARRANTS OR OTHER SECURITIES. If the Company, at
any time while this Debenture is outstanding, shall fix a record date for the
issuance of rights, options, warrants or other securities to all of the holders
of Common Stock entitling them to subscribe for or purchase, convert to,
exchange for or otherwise acquire shares of Common Stock for no consideration or
at a price per share less than the Conversion Price, the Conversion Price shall
be multiplied by a fraction, the denominator of which shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights, options, warrants or other securities plus the
number of additional shares of Common Stock offered for subscription or
purchase, and the numerator of which shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights, options, warrants or other securities plus the number of shares
which the aggregate offering price of the total number of shares so offered
would purchase at the Conversion Price. Such adjustment shall be made whenever
such rights, options, warrants or other securities are issued, and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants.

          c. SUBSCRIPTION RIGHTS. If the Company, at any time while this
Debenture is outstanding, shall fix a record date for the distribution to all of
the holders of Common Stock evidence of its indebtedness or assets or rights,
options, warrants or other securities entitling them to subscribe for, purchase,
convert to, exchange for or to otherwise acquire any security (excluding those
referred to in Sections 4.5(a) and (b) above), then in each such case the
Conversion Price at which the Debenture shall thereafter be exercisable shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of shareholders entitled to receive such
distribution by a fraction, the denominator of which shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and the numerator of which shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
in good faith; PROVIDED, HOWEVER, that in the event of a distribution exceeding
twenty percent (20%) of the net assets of the Company, such fair market value
shall be determined by an Appraiser selected in good faith by the Holder; and
PROVIDED, FURTHER, that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser meeting the
same qualifications, in good faith, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.

          d. OTHER EVENTS. In case of (A) any reclassification of the Common
Stock into other securities of the Company or (B) any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash or
property (each of (A) or (B), an "EXTRAORDINARY EVENT"), the Holder shall have
the right thereafter to convert the Debenture for shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such Extraordinary Event, that the Holder would have been
entitled to receive had it converted the Debenture immediately prior to such
Extraordinary Event (without taking into account any limitations or restrictions
on the convertibility of the Debentures) would have been entitled. In the case
of an Extraordinary Event, the terms of any such Extraordinary Event shall
include such terms so as to continue to give to the Holder the right to receive
the securities, cash or property set forth in this Section 4.5(d) upon any
conversion following such Extraordinary Event. This provision shall similarly
apply to successive Extraordinary Events.

          e. ADJUSTMENT TO CONVERSION PRICE FOR DILUTIVE ISSUANCES. If the
Company, at any time while this Debenture is outstanding, takes any of the
actions described in this Section 4.5(e), then, in order to prevent dilution of
the rights granted under this Debenture, at any time prior to the Maturity Date,
the Conversion Price will be subject to adjustment from time to time as provided
in this Section 4.5(e).

               (i) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK.
     If at any time while this Debenture is outstanding the Company issues or
     sells, or is deemed to have issued or sold, any shares of Common Stock for
     a consideration per share less than the Conversion Price in effect
     immediately prior to such issuance or sale, then immediately after such
     issuance or sale the Conversion Price then in effect shall be reduced to an
     amount equal to the consideration per share of Common Stock in such
     issuance or sale. For the purpose of determining the adjusted Conversion
     Price under this Section 4.5(e), the following shall be applicable:

                    (A) ISSUANCE OF OPTIONS. If at any time while this Debenture
          is outstanding the Company in any manner grants, issues or sells any
          rights, options, warrants, or options to subscribe for or to purchase
          Common Stock or any stock or other securities convertible into or
          exchangeable for Common Stock (such rights, warrants or options,
          "OPTIONS," and such convertible or exchangeable stock or securities,
          "CONVERTIBLE SECURITIES") and the price per share for which Common
          Stock is issuable upon the exercise of such Options or upon conversion
          or exchange of such Convertible Securities is less than the Conversion
          Price in effect immediately prior to such grant or issuance, then the
          Conversion Price then in effect shall be reduced to equal the price
          per share for which Common Stock is issuable upon the exercise of such
          Options or upon the conversion or exchange of such Convertible
          Securities. No adjustment of the Conversion Price shall be made upon
          the actual issuance of such Common Stock upon conversion or exchange
          of such Options.

                    (B) ISSUANCE OF CONVERTIBLE SECURITIES. If at any time while
          this Debenture is outstanding the Company in any manner issues or
          sells any Convertible Securities and the price per share for which
          Common Stock is issuable upon such conversion or exchange is less than
          the Conversion Price in effect immediately prior to issuance or sale,
          then the Conversion Price then in effect shall be reduced to an amount
          equal to the price per share for which the Common Stock is issuable
          upon the conversion or exchange of such Convertible Securities. No
          adjustment of the Conversion Price shall be made upon the actual
          issuance of such Common Stock upon conversion or exchange of such
          Convertible Securities.

                    (C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. In the
          event that there is a change at any time in (i) the exercise price
          provided for in any Options, (ii) the additional consideration, if
          any, payable upon the issue, conversion or exchange of any Convertible
          Securities or (iii) the rate at which any Convertible Securities are
          convertible into or exchangeable for Common Stock, other than a change
          which results from events set for in Sections 4.5(a), (b) and (c)
          which also cause a relative change in the Conversion Price, then
          immediately after such change in option price, additional
          consideration or rate of conversion the Conversion Price in effect at
          the time of such change shall be readjusted to the Conversion Price
          which would have been in effect at such time had such Options or
          Convertible Securities still outstanding provided for such changed
          exercise price, additional consideration or changed conversion rate,
          as the case may be, at the time initially granted, issued or sold;
          provided that no adjustment shall be made if such adjustment would
          result in an increase of the Conversion Price in effect prior to such
          adjustments.

                    (D) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For
          purposes of determining the adjusted Conversion Price under this
          Section 4.5(e)(i), the following shall be applicable:

                            (I)    CALCULATION OF CONSIDERATION RECEIVED. If any
                                   Common Stock, Options or Convertible
                                   Securities are issued or sold or deemed to
                                   have been issued or sold for cash, the
                                   consideration received therefor will be
                                   deemed to be the net amount received by the
                                   Company therefor. In case any Common Stock,
                                   Options or Convertible Securities are issued
                                   or sold for a consideration other than cash,
                                   the amount of the consideration other than
                                   cash received by the Company will be the fair
                                   value of such consideration, except where
                                   such consideration consists of securities, in
                                   which case the amount of consideration
                                   received by the Company will be the Average
                                   Price on the Trading Day immediately
                                   preceding the date of receipt. In case any
                                   Common Stock, Options or Convertible
                                   Securities are issued to the owners of the
                                   non-surviving entity in connection with any
                                   merger in which the Company is the surviving
                                   entity the amount of consideration therefor
                                   will be deemed to be the fair value of such
                                   portion of the net assets and business of the
                                   non-surviving entity as is attributable to
                                   such Common Stock, Options or Convertible
                                   Securities, as the case may be. The fair
                                   value of any consideration other than cash or
                                   securities will be determined in good faith
                                   by the Board of Directors of the Company.

                            (II)   INTEGRATED TRANSACTIONS. In case any Option
                                   is issued in connection with the issue or
                                   sale of other securities of the Company,
                                   together comprising one integrated
                                   transaction in which no specific
                                   consideration is allocated to such Options by
                                   the parties thereto, the Options will be
                                   deemed to have been issued for an aggregate
                                   consideration of $0.01.

                            (III)  TREASURY SHARES. The number of shares of
                                   Common Stock outstanding at any given time
                                   does not include shares owned or held by or
                                   for the account of the Company, and the
                                   disposition of any shares so owned or held
                                   will be considered an issue or sale of Common
                                   Stock.

                            (IV)   RECORD DATE. If the Company establishes a
                                   record of the holders of Common Stock for the
                                   purpose of entitling them (1) to receive a
                                   dividend or other distribution payable in
                                   Common Stock, Options or in Convertible
                                   Securities or (2) to subscribe for or
                                   purchase Common Stock, Options or Convertible
                                   Securities, then such record date will be
                                   deemed to be the date of the issue or sale of
                                   the shares of Common Stock deemed to have
                                   been issued or sold upon the declaration of
                                   such dividend or the making of such other
                                   distribution or the date of the granting of
                                   such right of subscription or purchase, as
                                   the case may be.

                    (E) CERTAIN EVENTS. If any event occurs of the type
          contemplated by the provisions of this Section 4.5(e) (subject to the
          exceptions stated therein) but not expressly provided for by such
          provisions (including, without limitation, the granting of stock
          appreciation rights, phantom stock rights or other rights with equity
          features), then the Company's Board of Directors will make an
          appropriate adjustment in the Conversion Price so as to protect the
          rights of the Holder, or assigns, of this Debenture; provided,
          however, that no such adjustment will increase the Conversion Price as
          otherwise determined pursuant to this Section 4.5(e).

          Notwithstanding anything to the contrary contained in this Section
4.5(e) no adjustment shall be made to the Conversion Price in connection with
the issuance, sale or grant of any of the following securities, whether or not
at a price that is less than the Conversion Price:

          (i) shares of Common Stock issuable upon the exercise of any options
or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the
Purchase Agreement;

          (ii) shares of Common Stock or options to acquire Common Stock issued
or deemed to have been issued by the Company in connection with a stock option
plan, 401(k) plan or employee stock purchase plan; and

          (iii) shares of Common Stock underlying the Debentures or shares
issued upon the conversion of the Debentures.

          f. ROUNDING. All calculations under this Section 4.5 shall be made to
the nearest cent or the nearest l/l00th of a share, as the case may be.

          g. NOTICE OF ADJUSTMENT. The Company shall give the Holder written
notice of the occurrence of any of the events specified in Sections 4.5(a), (b),
(c), (d) or (e) as soon as practicable, but in no event later than three (3)
Business Days after such event, provided further, that if such notice contains
material non-public information, the Company shall (i) publicly disclose such
information prior to or concurrently with the giving of such notice or (ii) only
disclose such information to the extent that the Holder shall not be in
possession of material non-public information. Such notice shall contain at
least: (A) a description of the event, (B) the adjusted Conversion Price with a
reference to the applicable paragraph in Section 4.5 hereof, if calculable at
the time, and (C) the date on which the adjusted Conversion Price is effective.

          4.6 NASDAQ LIMITATION. If on any date (the "DETERMINATION DATE") (a)
the Common Stock is listed for trading on Nasdaq, (b) the Conversion Price then
in effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of the then outstanding principal
amount of the Debentures as if all such Debentures were converted on such
Determination Date (without regard to any limitations on conversions) and as
payment of interest thereon, would equal or exceed 20% of the number of shares
of the Common Stock outstanding immediately prior to the "CLOSING DATE" (the
"ISSUABLE MAXIMUM"), and (c) the Company shall not have previously obtained the
vote of the shareholders of the Company (the "SHAREHOLDER APPROVAL"), if any, as
may be required by the applicable rules and regulations of Nasdaq (or any
successor entity) to approve the issuance of shares of Common Stock in excess of
the Issuable Maximum in a private placement whereby shares of Common Stock are
deemed to have been issued at a price that is less than the greater of book
value or fair market value of the Common Stock, then with respect to the
aggregate principal amount of the Debentures then held by the Holders for which
a conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of such Holder's pro rata allocation (as
described below) of the Issuable Maximum (the "EXCESS PRINCIPAL") the Company
may elect to prepay cash to the Holders in an amount equal to the Mandatory
Prepayment Amount. Any such election by the Company must be made in writing to
the Holders within two (2) Trading Days after the first such Determination Date
and the payment of such Mandatory Prepayment Amount applicable to such
prepayment must be made in full to the Holders with ten (10) Business Days after
the date such notice is delivered. If the Company does not deliver timely a
notice of its election to prepay under this Section or shall, if it shall have
delivered such a notice, fail to pay the prepayment amount hereunder within ten
(10) Business Days thereafter, then each Holder shall have the option by written
notice to the Company, to, if applicable, declare any such notice given by the
Company, if given, to be null and void and require the Company to either: (i)
use its best efforts to obtain the Shareholder Approval applicable to such
issuance as soon as is possible, but in any event not later than the 60th day
after such request unless the Company has previously used its best efforts to,
but has failed to, obtain such approval (provided, that if the Company shall
fail to obtain the Shareholder Approval during such 60-day period, the Holder
may demand the cash payment set forth in Section 4.6(ii) herein) or (ii) pay
cash to such Holder, within five (5) Business Days of such Holder's notice, in
an amount equal to the Mandatory Prepayment Amount for such Holder's portion of
the Excess Principal. The payment of the Mandatory Prepayment Amount to each
Holder pursuant to this Section shall be determined on a pro rata basis upon the
principal amount of the Debentures held by such Holder on the Determination Date
which is in excess of the pro rata allocation of the Issuable Maximum. If the
Company fails to pay the Mandatory Prepayment Amount in full pursuant to this
Section within five (5) Business Days after the date payable, the Company will
pay interest thereon at a rate of 20% per annum to the converting Holder,
accruing interest daily from the date of conversion until such amount, plus all
such interest thereon, if any, is paid in full. Until the Company has received
the Shareholder Approval no Holder of the Debentures shall be issued, upon
conversion of Debentures, shares of Common Stock in an amount greater than such
Holder's allocated portion of the Issuable Maximum pursuant to Section 4.14.

          4.7 RESTRICTION ON CONVERSION BY EITHER THE HOLDER OR THE COMPANY.
Notwithstanding anything herein to the contrary, in no event shall any Holder or
the Company have the right or be required to convert any or all of the aggregate
principal amount and interest accrued thereon of this Debenture if as a result
of such conversion the aggregate number of shares of Common Stock beneficially
owned by such Holder and its Affiliates would exceed 4.99% of the outstanding
shares of the Common Stock following such conversion. For purposes of this
Section 4.7, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. The provisions of this
Section 4.7 may be waived by a Holder as to itself (and solely as to itself)
upon not less than 65 days prior written notice to the Company, and the
provisions of this Section 4.7 shall continue to apply until such 65th day (or
later, if stated in the notice of waiver).

          4.8 OFFICER'S CERTIFICATE. Whenever the number of shares purchasable
upon conversion shall be adjusted as required by the provisions of Section 4.5,
the Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company and by the secretary or any assistant secretary of the Company. Each
such officer's certificate shall be made available at all reasonable times for
inspection by any holder of the Debentures and the Company shall, forthwith
after each such adjustment, deliver a copy of such certificate to the each of
the Holders.

          4.9 RESERVATION OF SHARES. The Company covenants that it will at all
times reserve and keep available out of its authorized shares of Common Stock,
free from preemptive rights, solely for the purpose of issue upon conversion of
the Debentures as herein provided, such number of shares of the Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures into
Common Stock in accordance with Section 3.6(b) of the Purchase Agreement (the
"RESERVED AMOUNT"). The Company covenants that all shares of the Common Stock
issued upon conversion of the Debenture which shall be so issuable shall, when
issued, be duly and validly issued and fully paid and non-assessable.

          If, at any time a Holder of this Debenture submits a Conversion
Notice, and the Company does not have sufficient authorized but unissued shares
of Common Stock available to effect such conversion in accordance with the
provisions of this Article IV (a "CONVERSION DEFAULT"), subject to Section 4.14,
the Company shall issue to the Holder all of the shares of Common Stock which
are then available to effect such conversion. The portion of this Debenture
which the Holder included in its Conversion Notice and which exceeds the amount
which is then convertible into available shares of Common Stock (the "EXCESS
AMOUNT") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date additional shares of Common
Stock are authorized by the Company to permit such conversion at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Per Share
Market Value on the Conversion Default Date (as defined below) and (ii) the Per
Share Market Value on the Conversion Date thereafter elected by the Holder in
respect thereof. In addition, the Company shall pay to the Holder payments
("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount of (x)
the sum of (1) the then outstanding principal amount of this Debenture plus (2)
accrued and unpaid interest on the unpaid principal amount of this Debenture
through the Authorization Date (as defined below) plus (3) Default Interest, if
any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
 .24, multiplied by (z) (N/365), where N equals the number of days from the day
the holder submits a Notice of Conversion giving rise to a Conversion Default
(the "CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the
Company authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Debenture. The
Company shall use its best efforts to authorize a sufficient number of shares of
Common Stock as soon as practicable following the earlier of (i) such time that
the Holder notifies the Company or that the Company otherwise becomes aware that
there are or likely will be insufficient authorized and unissued shares to allow
full conversion thereof and (ii) a Conversion Default. The Company shall send
notice to the Holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock following the Authorization
Date) at the applicable Conversion Price, at the Holder's option, as follows:

          (a) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth (5th) Business Day of the month
following the month in which it has accrued; and

          (b) In the event Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the lesser of
the Conversion Price (as in effect at the time of conversion) and the Per Share
Market Value (on the fifth day of the month referred to below) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article IV (so long as there is then a
sufficient number of authorized shares of Common Stock).

          The Holder's election shall be made in writing to the Company at any
time prior to 8:00 p.m., New York City Time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the conversion Default Payments) for the Company's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
Holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

          4.10 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants
that if any shares of Common Stock required to be reserved for purposes of
conversion of Debentures hereunder require registration with or approval of any
governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon conversion, the
Company will use its best efforts to cause such shares to be duly registered or
approved, as the case may be.

          4.11 FRACTIONAL SHARES. Upon a conversion hereunder, the Company shall
not be required to issue stock certificates representing fractions of shares of
the Common Stock, but may if otherwise permitted, make a cash payment in respect
of any final fraction of a share based on the Per Share Market Value at such
time. If the Company elects not, or is unable, to make such a cash payment, the
holder shall be entitled to receive, in lieu of the final fraction of a share,
one whole share of Common Stock.

          4.12 PAYMENT OF TAX UPON ISSUE OR TRANSFER. The issuance of
certificates for shares of the Common Stock on conversion of the Debentures
shall be made without charge to the Holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the Holder
of such Debentures so converted and the Company shall not be required to issue
or deliver such certificates unless or until the Person or Persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.

          4.13 NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if received by
8:00 p.m. EST where such notice is to be received), or the first Business Day
following such delivery (if received after 8:00 p.m. EST where such notice is to
be received) or (b) on the second Business Day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications are (i) if to the Company to Alliance Pharmaceutical Corp.,
6175 Lusk Boulevard, San Diego, California 92121, Attention: President,
facsimile number: (858) 410-5343 with a copy to Stroock & Stroock & Lavan LLP,
180 Maiden Lane, New York, New York 10038, Attention: Melvin Epstein, facsimile
number: (212) 806-6006 and (ii) if to any Holder to the address set forth on
Schedule II to the Purchase Agreement with copies to Akin, Gump, Strauss, Hauer
& Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, Attention: James
Kaye, fax no. (212) 872-1002, or such other address as may be designated in
writing hereafter, in the same manner, by such Person.

          4.14 ALLOCATIONS OF ISSUABLE MAXIMUM AND RESERVED AMOUNT. The Issuable
Maximum and Reserved Amount shall be allocated pro rata among the Holders based
on the principal amount of Debentures issued to each Holder. Each increase to
the Issuable Maximum and Reserved Amount shall be allocated pro rata among the
Holders based on the principal amount of Debentures held by each Holder at the
time of the increase in the Issuable Maximum or Reserved Amount. In the event a
Holder shall sell or otherwise transfer any of such Holder's Debentures, each
transferee shall be allocated a pro rata portion of such transferor's Issuable
Maximum and Reserved Amount. Any portion of the Issuable Maximum or Reserved
Amount which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders, pro rata, based on the
principal amount of such Debentures then held by such Holders.

                                    ARTICLE V

                    CONSOLIDATION, MERGER OR SALE OF COMPANY

          5.1 CONSOLIDATION, MERGER OR SALE ONLY ON CERTAIN TERMS. The Company
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
the Company shall not permit any Person to consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:

          a. in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership or trust whose Common Stock is
traded on the Nasdaq or a Subsequent Market, and shall expressly assume, by a
Debenture supplemental hereto, executed and delivered to the Holders, in form
satisfactory to the Holders of a majority of the then outstanding principal
amount of the Debentures, the due and punctual payment of the principal of and
interest on all the Debentures and the performance or observance of every
covenant of this Debenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Section 5.3; and

          b. immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default shall have
happened and be continuing.

          5.2 SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company with,
or merger of the Company into, any other Person or any conveyance, transfer or
lease of the properties and assets of the Company substantially as an entirety
in accordance with Section 5.1, the successor person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Debenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Debenture.

          5.3 CONVERSION RIGHTS. In case of any consolidation of the Company
with, or merger of the Company into, any other Person, any merger of another
Person into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company) or any sale or transfer of all or substantially all
of the assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
shall in the supplemental Debenture provided pursuant to Section 5.1(a) provide
that the Holder of each Debenture then outstanding shall have the right
thereafter, during the period such Debenture shall be convertible as specified
in Article IV, to convert such Debenture only into the kind and amount of
securities, cash or other assets receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock of the
Company into which such Debenture might have been converted immediately prior to
such consolidation, merger, sale or transfer. The supplemental Debenture also
shall provide that if in connection with such consolidation, merger, sale or
transfer, each holder of Common Stock is entitled to elect to receive either
securities, cash or other assets receivable upon such consolidation, merger,
sale or transfer, the Company or the surviving or transferee corporation shall
provide each holder of securities with the right to elect to receive the
securities, cash or other assets into which the Debentures held by such Holder
shall be convertible after completion of such consolidation, merger, sale or
transfer on the same terms and subject to the same conditions applicable to
holders of Common Stock (including, without limitation, notice of the right to
elect, limitations on the period in which such election shall be made and the
effect of failing to exercise the election). Such supplemental Debenture shall
provide for adjustments which, for events subsequent to the effective date of
such supplemental Debenture, shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Article. The above provisions of this
Section shall similarly apply to successive consolidations, mergers, sales or
transfers.

                                   ARTICLE VI

                               OPTIONAL CONVERSION

          6.1 OPTIONAL CONVERSION.

          a. The Debentures issued at the First Closing are convertible in whole
at the option of the Company, from time to time, subject to the following
condition, and subject also to the other conditions set forth in this Article VI
(the "Optional Conversion"):

               (i) If, after nine (9) months following the Effectiveness Date
          (as defined in the Registration Rights Agreement), the Per Share
          Market Value has been greater than Twenty Six Dollars and Sixty Four
          Cents ($26.64) subject to adjustment in the same manner in which the
          Conversion Price is adjusted as provided in Sections 4.5(a), (b), (c)
          and (d) (the "CONVERSION TRIGGER PRICE") for at least twenty five (25)
          out of thirty (30) consecutive Trading Days.

          b. Subject to the condition set forth in Section 5.1(a), so long as
(i) no Event of Default (or any event that with the passage of time or giving of
notice or both would constitute an Event of Default) shall have occurred and be
continuing, (ii) any Registration Statement required to be filed and be
effective pursuant to the Registration Rights Agreement is then in effect and
has been in effect and sales of all of the Registrable Securities can be made
thereunder for at least twenty (20) days prior to the Conversion Notice Date (as
defined below) and (iii) the Company has a sufficient number of authorized
shares of Common Stock reserved for issuance upon full conversion of the
Debentures, upon ten (10) Business Days prior written notice to the Holder (a
"CONVERSION NOTICE"), the entire principal amount of the Debenture may be
converted by the Company, in whole into shares of Common Stock at the Conversion
Price, and accrued interest may be converted into shares of Common Stock at the
Conversion Price on the Business Day prior to conversion.

          6.2 MECHANICS OF CONVERSION. The Company must exercise its right to
cause an Optional Conversion hereunder by delivering Conversion Notice by
facsimile and overnight courier to each Holder, no later than three (3) Business
Days after the occurrence of a condition set forth in Section 6.1(a)(i) (such
deadline the "CONVERSION NOTICE DATE"). Such Conversion Notice shall indicate
(a) the Conversion Price, (b) the number of shares of Common Stock that each
Holder shall receive as a result of the Optional Conversion and (c) a
confirmation of the date that the Company shall effect the Optional Conversion
and issue shares of Common Stock to the Holders (the "OPTIONAL CONVERSION
DATE"), on the Optional Conversion Date, unless there is a disagreement as
described below. The Company shall issue the Common Stock on the Optional
Conversion Date unless the Holder notifies the Company within three (3) Business
Days after receipt of the Conversion Notice from the Company that the Holder
disagrees with the occurrence of the Optional Conversion or any other matter
contained in the Conversion Notice. If the Holder and the Company fail to agree
upon the occurrence of the Optional Conversion or any other matter contained in
the Conversion Notice within one (1) Business Day after the Holder has given
such notice, the matter shall be determined promptly by a securities firm (the
fees and expenses of which shall be paid by the Company) acceptable to both the
Holder and the Company, and such computation shall be final and binding. The
Optional Conversion shall be subject to the provisions set forth in Section 4.4,
mutatis mutandis.

          If the Company does not deliver the Conversion Notice by the
Conversion Notice Date, then the Company shall not have the right to effect an
Optional Conversion until a condition set forth in Section 6.1(a)(i) occurs
again after such Conversion Notice Date. An example of how the Optional
Conversion right operates is as follows: Thirty (30) consecutive Trading Days
occur during which the Per Share Market Value of the Common Stock is greater
than the Conversion Trigger Price. The Conversion Notice Date is two (2)
Business Days after the end of the thirty (30) day trading period. If the
Company delivers the Conversion Notice by the Conversion Notice Date, it has
properly exercised its Optional Conversion right and subject to this Section
6.2, the Debentures will be converted as provided herein. If the Company fails
to deliver the Conversion Notice on or prior to the Conversion Notice Date, then
there must again occur a thirty (30) consecutive day trading period in which the
Per Share Market Value is in excess of the Conversion Trigger Price before the
Company may again exercise its Optional Conversion right.

                                   ARTICLE VII

                           SUBORDINATION OF DEBENTURES

          7.1 DEBENTURES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company
covenants and agrees, and each Holder of a Debenture, by his acceptance thereof,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth in this Article, the payment of the principal of (and premium, if any)
and interest on each and all of the Debentures are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness. "SENIOR INDEBTEDNESS" shall mean any indebtedness,
liabilities and other obligations of the Company (whether as primary obligor or
as guarantor) to any Person (each a "SENIOR LENDER"), now existing or incurred
hereafter, with respect to a Twenty Five Million dollar ($25,000,000) basket of
senior corporate debt from a traditional lender and debt incurred as a result of
a transaction with a corporate Strategic Partner.

          7.2 NO PAYMENT ON DEBENTURES IN CERTAIN CIRCUMSTANCES.

          a. No payment or distribution of cash or property (other than Common
Stock of the Company or other securities of the Company that are subordinated to
Senior Indebtedness to at least the same extent as the Debentures) of the
Company will be made on account of principal of or interest on the Debentures,
or to defease or acquire any of the Debentures, or on account of the conversion
provisions of the Debentures and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution (i) upon the maturity of
any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and
until all Senior Indebtedness shall first be paid in full in cash, or such
payment duly made in a manner satisfactory to the holders of such Senior
Indebtedness or (ii) in the event that the Company defaults in the payment of
any principal of, premium, if any, or interest on or any other amounts payable
on or due in connection with any Senior Indebtedness when it becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
or otherwise, unless and until such default has been waived in writing by the
holders of the Senior Indebtedness. Payments on the Debentures may and shall be
resumed in the case of a payment default only upon the date on which such
default is waived in writing by the holders of the Senior Indebtedness or their
agent.

          b. If any default OTHER THAN a default contemplated by Section
7.2(a)(ii) above shall have occurred and be continuing that would permit the
holders of the Senior Indebtedness to accelerate the maturity of Senior
Indebtedness, upon written notice (a "PAYMENT BLOCKAGE NOTICE") of the default
given to the Company and the Holders by the holders of, or an agent, trustee or
other representative for, such Senior Indebtedness, then, unless and until such
default has been waived in writing, no payment or distribution of cash or
property (other than Common Stock of the Company or other securities of the
Company that are subordinated to Senior Indebtedness to at least the same extent
as the Debentures) shall be made by the Company with respect to the principal of
or interest on the Debentures or on account of conversion of the Debentures or
to acquire or repurchase any of the Debentures for cash or property other than
Common Stock of the Company, and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution. If such Senior
Indebtedness is not declared due and payable within 180 days after written
notice of the event of default is given, promptly after the end of the 180-day
period the Company will pay all sums due in respect of the Debentures and not
paid during the 180-day period. During any 360-day consecutive period, only one
such period during which payment with respect to the Debentures may not be made
as the result of a Payment Blockage Notice may commence and the duration of such
period may not exceed 180 days. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Holders
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been waived for a period of not less than 90 days.

          c. If any payment or distribution of assets of the Company is received
by any Holder in respect of the Debentures at a time when that payment or
distribution should not have been made because of paragraph (a) or (b) of this
Section 7.2, and provided that prior to the Company's disbursement of such
distribution or payment, the Holders shall have received a written notice from
the Company or from an agent or representative for one or more holders of Senior
Indebtedness, such payment or distribution will be received and held and will be
paid over to the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts of Senior Indebtedness held by
them) until all such Senior Indebtedness has been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.

          7.3 DEBENTURES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION. Upon any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency,
receivership or similar proceedings relating to the Company or its property or
upon an assignment for the benefit of creditors or any marshalling of the
Company's assets or liabilities or otherwise):

          a. the holders of all Senior Indebtedness will first be entitled to
receive payment in full of the principal of and interest due on Senior
Indebtedness (including interest accruing after the commencement of a bankruptcy
or insolvency) at the rate specified in the applicable Senior Indebtedness
documents and including, without limitation, in respect of premiums, indemnities
or otherwise, before the Holders are entitled to receive any payment or
distribution on account of the principal of or interest on the Debentures;

          b. any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (except that Holders may
receive securities that are subordinated at least to the same extent as the
Debentures to Senior Indebtedness and any securities issued in exchange for
Senior Indebtedness), to which Holders would be entitled except for the
provisions of this Section 7.3 will be paid by the liquidating trustee or agent
or other persons legally empowered to make such a payment or distribution
directly to the holders of Senior Indebtedness (pro rata to such holders on the
basis of the respective amounts of Senior Indebtedness held by such holders) or
their representatives to the extent necessary to make or provide for payment in
full in cash of all Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness or provision for that payment or distribution; and

          c. if, notwithstanding the foregoing, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities (except that Holders may receive securities that are subordinated at
least to the same extent as the Debentures to Senior Indebtedness and any
securities issued in exchange for Senior indebtedness) is received by the
Holders on account of the principal of or interest on the Debentures before all
Senior Indebtedness is paid in full, such payment or distribution will be
received and held in trust for and will be forthwith paid over to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representatives for application (in the cash of cash) to, or as collateral (in
the case of non-cash property or securities) for the payment of such Senior
Indebtedness until all such Senior Indebtedness has been paid in full, after
giving effect to any concurrent payment or distribution or provision therefor to
the holders of such Senior Indebtedness.

          The Company will give prompt written notice to the Holders of any
dissolution, winding up, liquidation or reorganization of it or any assignment
for the benefit of its creditors.

          7.4 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject
to the payment in full of all Senior Indebtedness, the Holders shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until all amounts owing on the Debentures
shall be paid in full; and, for the purposes of such subrogation:

          a. no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders would be
entitled except for the provisions of this Article VII and no payment pursuant
to the provisions of this Article VII to the holders of Senior Indebtedness by
the Holders shall, as between the Company, its creditors (other than holders of
Senior Indebtedness) and the Holders, be deemed to be a payment by the Company
to or on account of the Senior Indebtedness; and

          b. no payment or distributions of cash, property or securities to or
for the benefit of the Holders pursuant to the subrogation provision of this
Article VII, which would otherwise have been paid to the holders of Senior
Indebtedness, shall be deemed to be a payment by the Company to or for the
account of the Debentures.

          7.5 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of
this Article are and are intended solely for the purpose of defining the
relative rights of the Holders on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Article or elsewhere
in this Debenture or in the Debentures is intended to or shall (a) impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the Holders of the Debentures, the obligation of the Company, which is absolute
and unconditional to pay to the Holders of the Debentures the principal of (any
premium, if any) and interest on the Debentures as and when the same shall
become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company of the Holders of the Debentures and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Holder of any Debenture from exercising all remedies otherwise
permitted by applicable law upon default under this Debentures, subject to the
rights, if any, under this Article VII of the holders of Senior Indebtedness to
receive cash, property and securities otherwise payable or deliverable to the
Holder upon the exercise of any such remedy.

          7.6 RIGHT TO FILE PROOF OF CLAIM. In the event of any dissolution,
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon any
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of the Company, with respect to the
filing of a claim for the unpaid balance of any Holder's Debentures in the form
required in those proceedings, if the Holder does not file a proper claim or
proof of debt in the form required in such proceeding at least thirty (30) days
before the expiration of the time to file such claim or claims, then the holders
of Senior Indebtedness and their agents, trustees, or other representatives are
hereby authorized to have the right to file, and are hereby authorized to file,
an appropriate claim for and on behalf of each such Holder.

          7.7 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Debenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.

          Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Holders of the Debentures, without
incurring responsibility to the Holders of the Debentures and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Debentures to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.

          7.8 NOTICE TO HOLDERS. The Company shall give prompt written notice to
the Holders of any fact known to the Company which would prohibit the making of
any payment to or by the Holders in respect of the Debentures. Notwithstanding
the provisions of this Article or any other provision of this Debenture, the
Holders shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to the Holders in respect of the
Debentures, unless and until the Holders shall have received written notice
thereof from the Company or a holder of Senior Indebtedness; and, prior to the
receipt of any such written notice, the Holders shall be entitled in all
respects to assume that no such facts exist; PROVIDED, HOWEVER, that if the
Holders shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of, and premium, if any, or interest on any Debenture), then,
anything herein contained to the contrary notwithstanding, the Holders shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two Business Days
prior to such date.

          The Holders shall be entitled to rely on the delivery to them of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a representative thereof) to establish that such notice has
been given by a holder of Senior Indebtedness (or representative thereof). In
the event that the Holders determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness (or a representative thereof) to participate in any payment or
distribution pursuant to this Article, the Holders may request such Person to
furnish evidence to the reasonable satisfaction of the Holders as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Holders may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.

          7.9 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon the payment or distribution of assets of the Company referred to in this
Article, the Holders of the Debentures shall be entitled to rely upon any order
or decree entered by any court of competent jurisdiction in which such
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of the creditors, agent
or other Person making such payment or distribution, delivered to the Holders of
Debentures, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article VII.

          7.10 NO ADVERSE MODIFICATION TO DEBENTURE. Neither the Holders nor the
Company shall enter into any modification of the Debentures which is in any way
adverse to the holders of the Senior Indebtedness.

          7.11 NOTICE TO HOLDERS OF SENIOR INDEBTEDNESS. The Company will
furnish to the holders of Senior Indebtedness at the time Senior Indebtedness is
initially incurred, when there is a change in the Holders thereof, or at any
time upon request therefor, a true and correct copy of the then most current
register setting forth the names and addresses of the Holders as of such date.

          7.12 SUBORDINATION AGREEMENT. The Holder by its acceptance hereof
agrees to execute and deliver to any Senior Lender such subordination agreement
as may be reasonably requested by such Senior Lender, which may deviate in
certain minor respects from the subordination provisions contained herein but
which is commercially reasonable and customary, and to execute, acknowledge,
deliver, file, notarize and register all such further agreements, instruments,
certificates, documents and assurances, and perform such acts as such Senior
Lender shall deem necessary or appropriate to effectuate the purposes of the
subordination provisions contained herein.

                                  ARTICLE VIII

                               OPTIONAL REDEMPTION

          8.1 OPTIONAL REDEMPTION. In the case of a Change of Control then, each
Holder shall have the right, for a period of thirty (30) Business Days following
such Change of Control, unless the principal shall have already become due and
payable, by giving the Company an Acceleration Notice, to require the Company to
immediately redeem the Debenture owned by such Holder at the Mandatory
Prepayment Amount.

In the event that the Company shall not have promptly, but in any event within
five (5) Business Days after receipt of an Acceleration Notice, shall have paid
a Holder the amount specified above the Conversion Price of such Holder's
Debenture shall automatically be adjusted to equal the average Per Share Market
Value of the Common Stock during the preceding thirty (30) consecutive Trading
Days immediately preceding the date of the Acceleration Notice, if such Per
Share Market Value is lower than the Conversion Price.

          The aggregate principal amount payable in the event of an Optional
Redemption shall be equal to the sum of (i) the Mandatory Prepayment Amount plus
(ii) at the option of the Holder, the Mandatory Prepayment Amount for the
Converted Debentures that would then be held by such Holder had the principal
amount of Debentures converted into Debenture Shares (as defined herein) that
are then held by the Holder not been so converted; PROVIDED, that the Holder has
not physically received the Debenture Shares.

          For purposes of this Section 8.1, the principal amount of the
Debentures is outstanding until such date as the Holder shall have been issued
Debenture Shares upon a conversion (or attempted conversion) thereof. Interest
shall accrue on the Mandatory Prepayment Amount hereunder from the day after
such amount is due (being the date of a Change of Control) through the date of
payment in full thereof at the rate of 20.0% per annum, accruing daily from the
date of conversion until such amount, plus an interest thereon, if any, is paid
in full. Payment of the Mandatory Prepayment Amount pursuant to this Section 3.1
shall be in addition to any other amounts that may be due to the Holder pursuant
to this Debenture. Within five (5) Business Days of receipt by the Holder of
payments of amounts due to the Holder, (i) the Holder shall return the
Debentures to the Company and (ii) in the event the Mandatory Prepayment Amount
relates to the Converted Debentures, the Holder shall return the Debenture
Shares into which such Converted Debentures were converted. Any demand for
redemption may be rescinded and annulled by a Holder at any time prior to
payment hereunder. No such rescission or annulment shall affect any subsequent
Redemption or impair any right consequent thereon.

Upon delivery of any Acceleration Notice to the Company, the Company shall
provide a copy of such notice to the other Holders, if any, within one (1)
Business Day of the Company's receipt thereof. Failure to deliver such notice
shall not affect the validity of the notice delivered by the Holders in
accordance with the provisions referred to above.

                                   ARTICLE IX

                                  MISCELLANEOUS

          9.1 MODIFICATION OF DEBENTURES. This Debenture may be modified without
prior notice to any Holder upon the written consent of the Company and the
Holders of more than 75% of the principal amount of the Debentures then
outstanding. The Holders of more than 75% of the principal amount of the
Debentures then outstanding may waive compliance by the Company with any
provision of this Debenture without prior notice to any Holder. However, without
the consent of each Holder affected, an amendment, supplement or waiver may not
(1) reduce the amount of Debentures whose Holders must consent to an amendment,
supplement or waiver, (2) reduce the principal amount of or extend the fixed
maturity of any Debenture or (3) make any Debenture payable in money or property
other than as stated in the Debentures.

          9.2 MISCELLANEOUS. This Debenture shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Except as specifically provided
herein, the parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Debenture, and assent to extensions of the time of payment, or forbearance or
other indulgence without notice. The Holder of this Debenture by acceptance of
this Debenture agrees to be bound by the provisions of this Debenture which are
expressly binding on such Holder.

          9.3 RANK AND SUBORDINATION. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency (or, as provided herein, in Common Stock), herein
prescribed. This Debenture is a direct obligation of the Company and ranks
senior/pari passu with all Debt other than Senior Indebtedness, and is
subordinate to such Senior Indebtedness. Except as otherwise provided herein,
the Company may not voluntarily prepay the outstanding principal amount of the
Debenture.

          9.4 DEBENTURES OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining
whether the Holders of the requisite aggregate principal amount of Debentures
have concurred in any direction, consent or waiver under this Debenture,
Debentures which are owned by the Company or any other obligor on the Debentures
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any other obligor on the
Debentures shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that any Debentures owned by the Purchasers
shall be deemed outstanding for purposes of making such a determination.
Debentures so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Company the
pledgee's right so to act with respect to such Debentures and that the pledgee
is not the Company or any other obligor upon the Debentures or any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Debentures.

          9.5 NOTICE TO DEBENTUREHOLDERS PRIOR TO TAKING CERTAIN TYPES OF
ACTION. In case:

          a. the Company shall authorize the issuance, at any time from and
after the Original Issue Date, to all holders of any class or series of its
Capital Stock, of rights or warrants to subscribe for or purchase shares of its
capital stock or of any other right;

          b. the Company shall authorize, at any time from and after the
Original Issue Date, the distribution to all holders of any class or series of
its Capital Stock, of evidences of its indebtedness or assets;

          c. the Company shall declare a dividend (or other distribution) on its
Common Stock or the Company shall declare a special nonrecurring dividend on or
a redemption of its Common Stock;

          d. of any subdivision, combination or reclassification of any class or
series of Capital Stock of the Company at any time from and after the Original
Issue Date or of any consolidation or merger to which the Company is a party and
for which approval by the shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or

          e. of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; then the Company shall cause to be mailed to the Holders of
this Debenture, at their last addresses as they shall appear upon the
registration books of the Company, at such time as the Company so notifies its
stockholders, a notice stating (i) the date as of which the holders of record of
such class or series of Capital Stock are to be entitled to receive any such
rights, warrants or distribution are to be determined, or (ii) the date on which
any such subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up or other action is expected
to become effective, and the date as of which it is expected that holders of
record of such class or series of Capital Stock record shall be entitled to
exchange their stock for securities or other property, if any, deliverable upon
such subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up or other action.

The failure to give the notice required by this Section 9.5 or any defect
therein shall not affect the legality or validity of any distribution, right,
warrant, subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up or other action, or the
vote upon any of the foregoing.

          9.6 EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.

          9.7 NO RIGHTS AS STOCKHOLDER. This Debenture shall not entitle the
Holder to any rights as a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.

          9.8 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of the Holder 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 privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
as of August __, 2000.

                                    ALLIANCE PHARMACEUTICAL CORP.

                                    By _________________________________
                                       Name:
                                       Title:

<PAGE>

                                                                  EXHIBIT A

                          ALLIANCE PHARMACEUTICAL CORP.
                                CONVERSION NOTICE

Reference is made to the Debenture issued by Alliance Pharmaceutical Corp. (the
"DEBENTURE"). In accordance with and pursuant to the Debenture, the undersigned
hereby irrevocably elects to convert the principal amount of the Debenture,
indicated below into shares of Common Stock, par value $.01 per share (the
"COMMON STOCK"), of the Company, by tendering the Debenture specified below as
of the date specified below.

Date of Conversion:____________________________________________________________

Aggregate Principal Amount to be
converted:____________________________________________

Debenture no(s). of Debenture to be
converted:____________________________________________

Please confirm the following information:

Conversion Price:______________________________________________________________

Number of shares of Common Stock to be
issued:_______________________________________________

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

Issue to:______________________________________________________________________
Facsimile Number:______________________________________________________________
Authorization:
By:_______________________________________
Title:____________________________________

Dated:____________________________________

Account Number (if electronic book entry
transfer):________________________________
Transaction Code Number (if electronic book
entry transfer):__________________________Exhibit 4.2

===============================================================================

                          SECURITIES PURCHASE AGREEMENT

                                      Among

                          ALLIANCE PHARMACEUTICAL CORP.

                                       and

                       THE PURCHASERS LISTED ON SCHEDULE I

                           Dated as of August 22, 2000

===============================================================================

<PAGE>
                                TABLE OF CONTENTS

                                                                           PAGE

ARTICLE I

PURCHASE AND SALE

   1.1  Purchase and Sale.....................................................1
   1.2  Closings..............................................................2

ARTICLE II

REPRESENTATIONS AND WARRANTIES

   2.1   Representations, Warranties and Agreements of the Company............5
   2.2   Representations and Warranties of the Purchasers....................14

ARTICLE III

OTHER AGREEMENTS

   3.1   Transfer Restrictions...............................................15
   3.2   Stop Transfer Instruction...........................................17
   3.3   Furnishing of Information...........................................17
   3.4   Blue Sky Laws.......................................................17
   3.5   Integration.........................................................18
   3.6   Listing and Reservation of Debenture Shares.........................18
   3.7   Notice of Breaches..................................................19
   3.8   Form D..............................................................20
   3.9   Use of Proceeds.....................................................20
   3.10  Transactions with Affiliates........................................20
   3.11  Transfer Agent Instructions.........................................20
   3.12  Press Release; Filing of Form 8-K...................................21
   3.13  Ordinary Course Brokerage and Trading...............................21
   3.14  Best Efforts........................................................21
   3.15  Corporate Existence.................................................21
   3.16  No Violation of Applicable Law......................................21
   3.17  Subsequent Registrations............................................22
   3.18  Trading Restrictions................................................22

ARTICLE IV

CONDITIONS

  4.1    First Closing Conditions............................................22
  4.2    Second Closing......................................................26

ARTICLE V

INDEMNIFICATION

  5.1    Indemnification.....................................................29

ARTICLE VI

MISCELLANEOUS

   6.1    Entire Agreement...................................................31
   6.2    Notices............................................................31
   6.3    Amendments; Waivers................................................32
   6.4    Headings...........................................................33
   6.5    Successors and Assigns.............................................33
   6.6    No Third-Party Beneficiaries.......................................33
   6.7    Governing Law......................................................33
   6.8    Survival...........................................................33
   6.9    Counterparts.......................................................34
   6.10   Publicity..........................................................34
   6.11   Severability.......................................................34
   6.12   Remedies...........................................................34
   6.13   Independent Nature of Purchasers' Obligations and Rights...........35
   6.14   Payment Set Aside..................................................35
   6.15   Further Assurances.................................................35
   6.16   Fees and Expenses..................................................35

<PAGE>

                          SECURITIES PURCHASE AGREEMENT

          THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is dated as of
August 22, 2000 among Alliance Pharmaceutical Corp., a New York corporation (the
"COMPANY"), and the various purchasers identified and listed on Schedule I
hereto (each referred to herein as a "PURCHASER" and, collectively, the
"PURCHASERS").

          WHEREAS, the Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D as promulgated by the United States
Securities and Exchange Commission (the "COMMISSION") under Section 4(2) of the
Securities Act of 1933, as amended (the "SECURITIES ACT");

          WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, an aggregate of $10,000,000
principal amount of the Company's 5% convertible debentures due 2004, and under
certain conditions a second tranche of 5% convertible debentures due four years
after issuance (collectively, the "DEBENTURES," each of which a "DEBENTURE"), in
the form of EXHIBIT A annexed hereto, convertible into shares of the Company's
common stock, par value $0.01 per share (the "COMMON STOCK"); and

          WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form of EXHIBIT B attached hereto (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

          NOW THEREFORE, in consideration of the promises and mutual covenants
and agreements hereinafter, the Company and the Purchasers hereby agree as
follows:

                                    ARTICLE I

                                PURCHASE AND SALE

     1.1. PURCHASE AND SALE.

          a. On the First Closing Date (as defined below), subject to the terms
and conditions set forth herein, the Company shall issue and sell to each
Purchaser and each Purchaser, severally and not jointly, shall purchase from the
Company the principal amount of Debentures as set forth on Schedule I. The
aggregate principal amount of Debentures purchased by the Purchasers shall be
$10,000,000.

          b. On Second Closing Date (as defined below), subject to the terms and
conditions set forth herein, the Company shall issue and sell to the Purchasers
an additional $10,000,000 principal amount of the Debentures.

     1.2. CLOSINGS.

          a. THE FIRST CLOSING. The closing of the purchase and sale of the
initial $10,000,000 aggregate principal amount of Debentures (the "FIRST
CLOSING") shall take place at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 590 Madison Avenue, New York, New York 10022, or by transmission by
facsimile and overnight courier, immediately following the execution hereof or
such later date or different location as the parties shall agree, but not prior
to the date that the conditions set forth in Section 4.1 have been satisfied or
waived by the appropriate party (the "FIRST CLOSING DATE"). At the First
Closing:

               (i) Each Purchaser shall deliver, as directed by the Company, its
     portion of the purchase price as set forth next to its name on SCHEDULE I
     in United States dollars in immediately available funds to an account or
     accounts designated in writing by the Company;

               (ii) The Company shall deliver to each Purchaser a Debenture, in
     the form of EXHIBIT A hereto, representing the principal amount purchased
     by such Purchaser as set forth on SCHEDULE I hereto;

               (iii) The parties shall execute (except for the opinion referred
     to in Section 4.1(c)(i)) and deliver each of the documents referred to in
     Section 4.1 hereof.

          b. PURCHASERS CALL OPTION. Subject to the terms and conditions set
forth in Section 4.2 and elsewhere in this Agreement, each Purchaser shall have
the right (the "PURCHASERS CALL Option") at any time within a four-year period
commencing on the First Closing Date to deliver a written notice to the Company
(a "PURCHASERS CALL OPTION NOTICE") requiring the Company to issue and sell (in
which event such Purchaser shall purchase) up to its pro rata portion of an
additional $10,000,000 principal amount of a four (4) year Debenture at a
conversion price of $16.00 per share, provided that the Company shall not be
required to issue and sell debentures in an aggregate amount of less than
$5,000,000. The closing of the purchase and sale of the additional Debentures
(such closing or the closing under the Company Put Option Notice (defined
below), the "SECOND CLOSING") under the Purchasers Call Option Notice shall take
place in the same manner as the First Closing, on such date indicated on the
Purchasers Call Option Notice but no earlier than ten (10) Business Days and no
later than twenty (20) Business Days after the date of delivery of the
Purchasers Call Option Notice (such date or the date of the Second Closing under
the Company Put Option Notice, the "SECOND CLOSING DATE"); provided that in no
case shall the Second Closing take place unless and until the conditions listed
in Section 4.2 have been satisfied or waived by the appropriate party. Upon the
occurrence of any Change of Control, the Company shall take appropriate action
to ensure that the Purchasers shall have the right to exercise the Purchasers
Call Option after the Change of Control. At the Second Closing:

               (i) Each Purchaser shall deliver, as directed by the Company, its
     portion of the purchase price as set forth next to its name on a schedule
     similar to SCHEDULE I (the "SECOND CLOSING SCHEDULE"), to be attached to
     the Purchasers Call Option Notice, in United States dollars in immediately
     available funds to an account or accounts designated in writing by the
     Company;

               (ii) The Company shall deliver to each Purchaser a Debenture, in
     the form of EXHIBIT A hereto (which shall mature four (4) years from the
     date it is issued and in which the conversion price shall be $16.00 per
     share (such price, as may be adjusted pursuant to the terms of the
     Debenture)), representing the principal amount purchased by such Purchaser
     as set forth on the Second Closing Schedule.

               (iii) The parties shall execute and deliver each of the documents
     referred to in Section 4.2 hereof.

          c. COMPANY PUT OPTION. Subject to the terms and conditions in Section
4.2 and elsewhere in this Agreement, after the Optional Conversion Date of the
Optional Conversion of the Debentures (as defined in Article VI of the
Debentures), the Company shall have the one time right (the "COMPANY PUT
OPTION") at any time subsequent to the First Closing to deliver a written notice
to the Purchasers (a "COMPANY PUT OPTION NOTICE") requiring the Purchasers to
exercise in full the Purchasers Call Option, provided that for at least twenty
five (25) out of thirty (30) consecutive Trading Days (as defined in the
Debentures) prior to the exercise of the Company Put Option the Per Share Market
Value (as defined in the Debentures) was more than $26.64 dollars (such price,
as may be adjusted pursuant to the terms of the Debentures), the "PUT TRIGGER
PRICE," and the occurrence of thirty (30) consecutive Trading Days at such
price, a "PUT TRIGGER"). The Company must exercise its Company Put Option by
delivering the Company Put Option Notice to each Holder within ten (10) Business
Days of the occurrence of a Put Trigger (such deadline, the "PUT NOTICE DATE").
If the Company does not deliver the Company Put Option Notice by the Put Notice
Date, then the Company shall not have the right to effect a Company Put Option
until a Put Trigger occurs again after such Put Notice Date. An example of how
the Company Put Option operates is as follows: Thirty (30) consecutive Trading
Days occur during which the Per Share Market Value of the Common Stock is
greater than the Put Trigger Price. The Put Notice Date is ten (10) Business
Days after the end of the thirty (30) day trading period. If the Company
delivers the Company Put Option Notice by the Put Notice Date, it has properly
exercised its Company Put Option. If the Company fails to deliver the Put Option
Notice by the Put Notice Date, then there must again occur a consecutive thirty
(30) day trading period in which the Per Share Market Value is in excess of the
Put Trigger Price before the Company may again exercise its Company Put Option.
The Second Closing under this Company Put Option Notice shall take place on such
date indicated in the Company Put Option Notice but no earlier than ten (10)
Business Days after the Purchasers' receipt of the Company Put Option Notice;
PROVIDED THAT in no case shall the Second Closing take place unless and until
the conditions listed in Section 4.2 have been satisfied or waived by the
appropriate party. Five (5) Business Days after receipt of the Company Put
Option Notice, the Purchasers shall deliver to the Company a Second Closing
Schedule, indicating the principal amount of Debentures that each Purchaser
shall purchase for an aggregate total of $10,000,000. At the Second Closing
under the Company Put Option Notice:

               (i) Each Purchaser shall deliver, as directed by the Company, its
     portion of the purchase price as set forth next to its name on the Second
     Closing Schedule, in United States dollars in immediately available funds
     to an account or accounts designated in writing by the Company;

               (ii) The Company shall deliver to each Purchaser a Debenture, in
     the form of EXHIBIT A hereto, representing the principal amount purchased
     by such Purchaser as set forth on the Second Closing Schedule;

               (iii) The parties shall execute and deliver each of the documents
     referred to in Section 4.2 hereof.

          d. LIQUIDATED DAMAGES. In addition to any other rights available to
the Purchasers, if the Company defaults in its obligation to deliver to each
Purchaser the Debenture required to be delivered to it at the Second Closing,
the Company shall pay such Purchaser, upon the Purchaser's demand, as liquidated
damages by cash or wire transfer in immediately available funds to the account
of such Purchaser, or as otherwise directed by such Purchaser, the difference
between the Per Share Market Value (as defined in the Debentures) on the Second
Closing Date and the Conversion Price (as defined in the Debentures) multiplied
by the number of shares of Common Stock into which the Debentures that should
have been delivered at the Second Closing could have been converted.

          e. ADJUSTMENT OF PUT TRIGGER PRICE. The Put Trigger Price shall be
adjusted from time to time in the same manner and for the same reasons that
Conversion Price is subject to adjustment pursuant to Section 4.5(a), (b) and
(c) of the Debenture, including without limitation, for stock splits, reverse
stock splits, stock dividends and the like. The adjustment shall automatically
be effected on the record date established for purposes of determining the event
that causes the adjustment to the Put Trigger Price, and will reset if such
event does not transpire. Notice of adjustment to the Put Trigger Price need not
be given when such adjustment occurs, but must be stated in the Notice of
Company Put Option Notice.

          f. REGISTRATION. The shares of Common Stock underlying the Debentures
issued pursuant to either the Purchasers Call Option or the Company Put Option
shall be deemed Registrable Securities (as defined in the Registration Rights
Agreement) and the Registration Rights Agreement shall apply to such Registrable
Securities mutatis mutandis, PROVIDED, HOWEVER, that with regard to Debentures
issuable pursuant to the Company Put Option, the Debenture Shares shall have
been registered prior to the issuance of any such Debenture (see Section
4.2(b)(v)(B)), PROVIDED FURTHER, that with specific regard to Debentures
issuable pursuant to the Purchasers Call Option, in subsection (i) of the
definition of "Effectiveness Period" in the Registration Rights Agreement, the
90th day shall be changed to the 60th day.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

     2.1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties as of the date
hereof to each of the Purchasers:

          a. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New York, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Except as set forth on Schedule 2.1(a), the Company has no subsidiaries
(collectively, the "SUBSIDIARIES"). A "Subsidiary" for purposes of this
Agreement means any entity in which the Company, directly or indirectly, owns
the majority of such entity's capital stock or holds an equivalent equity or
similar interest, but does not include an entity in which the Company holds a
warrant or similar right to acquire controlling equity in the entity and does
not otherwise have a controlling equity interest in the entity. Each of the
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not, individually or in
the aggregate, (x) materially adversely affect the legality, validity or
enforceability of any of this Agreement or the Transaction Documents (as defined
in Section 2.1(b)) or any of the transactions contemplated hereby or thereby,
(y) have or result in a material adverse effect on the results of operations,
assets, prospects, or financial condition of the Company and its Subsidiaries,
taken as a whole or (z) materially impair the Company's ability to perform fully
on a timely basis its obligations under any Transaction Document (any of (x),
(y) or (z), being a "Material Adverse Effect"). The Company has furnished to
each of the Purchasers, as requested, 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 Bylaws, as in effect on
the date hereof (the "BYLAWS").

          b. AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement, the Debenture and the Registration Rights
Agreement (collectively, the "TRANSACTION DOCUMENTS"), and otherwise to carry
out its obligations hereunder and thereunder. The execution and delivery of each
of this Agreement and the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further action is
required by the Company, its Board of Directors or its stockholders. Each of
this Agreement and the Transaction Documents has been duly executed by the
Company and when delivered in accordance with the terms hereof will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application and
except that rights to indemnification and contribution may be limited by Federal
or state securities laws or public policy relating thereto. Neither the Company
nor any Subsidiary is in any material violation of any of the provisions of its
respective certificate of incorporation, bylaws or other charter documents such
that any right of a holder of the Debentures would be affected.

          c. CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company is as set forth in Schedule 2.1(c). All of such outstanding
shares of capital stock have been, or upon issuance will be, validly authorized
and issued, fully paid and nonassessable and were issued in accordance with the
registration provisions of the Securities Act, or pursuant to valid exemptions
therefrom. Except as disclosed in Schedule 2.1(c) or the SEC Documents (as
defined in Section 2.1(k) hereof), (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, nor is any holder of the
Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any Transaction
Document, (ii) there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, or giving any Person
(as defined below) any right to subscribe for or acquire, 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, (iii) there are no outstanding debt
securities 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 Securities
Act (except the Registration Rights Agreement), (v) there are no outstanding
securities 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 will be triggered by the issuance of
the shares of Common Stock as described in this Agreement, (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement and (viii) except as specifically
disclosed in the SEC Documents, no Person (as defined below) or group of related
Persons, to the knowledge of the Company, beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")) or has the right to acquire by agreement with or
by obligation binding upon the Company beneficial ownership of in excess of 5%
of the Common Stock. "PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.

          d. AUTHORIZATION AND VALIDITY; ISSUANCE OF SHARES. The shares of
Common Stock issuable upon conversion of the Debentures (the "DEBENTURE SHARES")
are and will at all times hereafter continue to be duly authorized and reserved
for issuance and the Debenture Shares will be validly issued, fully paid and
non-assessable, free and clear of all liens, encumbrances and Company rights of
first refusal, other than liens and encumbrances created by the Purchasers
(collectively, "LIENS") and will not be subject to any preemptive or similar
rights. The issuance by the Company of the Debentures and the Debenture Shares
is exempt from registration under the Securities Act, assuming the accuracy of
the Purchasers' representations and warranties herein.

          e. NO CONFLICTS. The execution, delivery and performance of this
Agreement and each of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including the issuance of the Debenture Shares) do not and will not (i)
conflict with or violate any provision of the Certificate of Incorporation,
Bylaws or other organizational documents of the Company or any of the
Subsidiaries, (ii) subject to obtaining the consents referred to in Section
2.1(f), 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, patent, patent license or instrument (evidencing a Company
or Subsidiary debt or otherwise) to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or any Subsidiary is subject
(including Federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its Subsidiaries, or by
which any material property or asset of the Company or any Subsidiary is bound
or affected.

          f. CONSENTS AND APPROVALS. Except as specifically set forth on
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority, regulatory or self regulatory agency, or other Person in
connection with the execution, delivery and performance by the Company of this
Agreement or the Transaction Documents, other than (i) the filing of a
registration statement with the Commission (ii) the application(s) or any
letter(s) acceptable to the Nasdaq National Market ("NASDAQ") for the listing of
the Debenture Shares with Nasdaq (and with any other national securities
exchange or market on which the Common Stock is then listed) and (iii) any
filings, notices or registrations under applicable state securities laws
(together with the consents, waivers, authorizations, orders, notices and
filings referred to on Schedule 2.1(f), the "REQUIRED APPROVALS").

          g. LITIGATION; PROCEEDINGS. Except as specifically set forth on
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties or assets before or by any
court, governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of this Agreement or the Transaction
Documents or (ii) could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.

          h. NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary (i)
is in default under or in violation of any indenture, loan or other credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties or assets is bound and which is required to be
included as an exhibit to any SEC Document or will be required to be included as
an exhibit to the Company's next filing under either the Securities Act or
Exchange Act, (ii) is in violation of any order of any court, arbitrator or
governmental body applicable to it, (iii) is in violation of any statute, rule
or regulation of any governmental authority to which it is subject, (iv) is in
default under or in violation of its Certificate of Incorporation, Bylaws or
other organizational documents, respectively, or (v) is in default under or in
violation of any of the listing requirements of Nasdaq as in effect on the date
hereof and is not aware of any facts which would reasonably lead to delisting or
suspension of the Common Stock by Nasdaq in the foreseeable future, except in
each case referred to in the preceding clauses (i) through (iv) where such
violations have not resulted or would not reasonably be expected to result,
individually or in the aggregate, in a Material Adverse Effect. The business of
the Company and its Subsidiaries is not being conducted in violation of any law,
ordinance, rule or regulation of any governmental entity, except where such
violations have not resulted or would not reasonably be expected to result,
individually or in the aggregate, in a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is in breach of any agreement where such
breach, individually or in the aggregate, would have a Material Adverse Effect.

          i. DISCLOSURE; ABSENCE OF CERTAIN CHANGES. This Agreement, the
Schedules to this Agreement, the Transaction Documents, the SEC Documents and
any other written or formally presented information, report, financial
statement, exhibit, schedule or document furnished by or on behalf of the
Company in connection with the negotiation of the transactions contemplated
hereby have not contained, do not contain, and will not contain at the time it
was or is so furnished any untrue statement of a material fact or omitted, omits
or will omit at such time to state any material fact necessary in order to make
the statements made herein and therein, in light of the circumstances under
which they were made, not misleading. Except as disclosed on Schedule 2.1(i) or
in SEC Documents filed on EDGAR at least five Business Days prior to the date
hereof, since June 30, 2000, there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, liabilities or results of operations or, insofar as can reasonably be
foreseen, prospects of the Company or the 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. Except as disclosed on Schedule
2.1(i), no event, liability, development or circumstance has occurred or exists,
or is contemplated to occur, with respect to the Company or its Subsidiaries or
their respective businesses, properties, operations or financial condition or,
insofar as can reasonably be foreseen, prospects, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement (including by way of incorporation by reference) filed with the
Commission, on the date this representation is made or deemed to be made,
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly disclosed.

          j. PRIVATE OFFERING. Subject to the accuracy and completeness of the
representations and warranties of the respective Purchasers contained in Section
2.2 hereof, the Company and all Persons acting on its behalf have not made,
directly or indirectly, and will not make, offers or sales of any securities or
solicited any offers to buy any security under circumstances that would require
registration of the Debentures or the Debenture Shares or the issuance of such
securities under the Securities Act. The offer, sale and issuance of the
Debentures and the Debenture Shares to the Purchasers will not be integrated
with any other offer, sale and issuance of the Company's securities (past,
current, or future) under the Securities Act or any regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated or for purposes of any stockholder approval provision
applicable to the Company or its securities. Subject to the accuracy and
completeness of the representations and warranties of the respective Purchasers
contained in Section 2.2 hereof, the offer, sale and issuance by the Company to
the Purchasers of the Debentures and the Debenture Shares are exempt from the
registration requirements of the Securities Act.

          k. SEC DOCUMENTS; FINANCIAL STATEMENTS. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act. The
Company, during the last twelve (12) months, has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Commission pursuant to the reporting requirements of the Exchange Act, including
pursuant to Section 13, 14 or 15(d) thereof (the foregoing materials and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein being collectively referred to herein as the "SEC DOCUMENTS"), on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, 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. All agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject and which are required to be filed as exhibits to the SEC
Documents have been filed as exhibits to the SEC Documents as required and
neither the Company nor any Subsidiary nor to the Company's knowledge, any other
party is in material breach of any such agreement. As of their respective dates,
the financial statements of the Company included in the SEC Documents complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial year-end
audit adjustments. Neither the Company nor any of its Subsidiaries or any of
their officers, directors, employees or agents have provided the Purchasers with
any material, nonpublic information. The Company acknowledges that the
Purchasers will be trading in the securities of the Company in reliance on the
foregoing representation and warranty.

          l. INVESTMENT COMPANY. The Company is not, and is not controlled by or
under common control with an affiliate (an "AFFILIATE") of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

          m. BROKER'S FEES. No fees or commissions or similar payments with
respect to the transactions contemplated by this Agreement or the Transaction
Documents have been paid or will be payable by the Company to any broker,
financial advisor, finder, investment banker, or bank, other than as set forth
in Schedule 2.1(m). The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons
introduced or retained by the Company for fees of a type contemplated in this
Section 2.1(m) that may be due in connection with the transactions contemplated
by this Agreement and the Transaction Documents.

          n. FORM S-3 ELIGIBILITY. The Company is, and at the Closing Date will
be, eligible to register securities (including the Debenture Shares) for resale
with the Commission under Form S-3 (or any successor form) promulgated under the
Securities Act.

          o. LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The principal
markets on which the Common Stock is currently traded is Nasdaq. The Company has
not in the three years preceding the date hereof received notice (written or
oral) from Nasdaq (or any stock exchange, market or trading facility on which
the Common Stock is or has been listed (or on which it has been quoted)) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such market or exchange. The Company is not aware of any facts
that would reasonably lead to delisting or suspension of the Common Stock by
Nasdaq. After giving effect to the transactions contemplated by this Agreement
and the Transaction Documents, the Company is and will be in compliance with all
such maintenance requirements.

          p. INTELLECTUAL PROPERTY RIGHTS. The Company and each of its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trademark applications, trade names and service marks, whether or not
registered, and all patents, patent applications, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and intellectual
property rights (collectively, "INTELLECTUAL PROPERTY RIGHTS") which are
necessary for use in connection with their respective businesses as now
conducted and as described in the SEC Documents.

          q. EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. Since June 30, 2000, no executive officer (as defined in Rule 501(f) under
the Securities Act) has notified the Company that such officer intends to leave
the Company or otherwise terminate such officer's employment with the Company.

          r. REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as described
on Schedule 2.1(r) hereto, (i) the Company has not granted or agreed to grant to
any Person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority which has not been satisfied and (ii) no Person,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any Transaction Document.

          s. TITLE. Except as disclosed on Schedule 2.1(s), the Company and each
of its Subsidiaries have good and marketable title in fee simple to all real
property and 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,
except for liens that 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 the Subsidiaries. Any real property and facilities held under lease
by the Company and the Subsidiaries are held by them under valid, subsisting
and, to the Company's best knowledge, 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 the Subsidiaries.

          t. PERMITS. The Company and each of its Subsidiaries possess all
certificates, authorizations, licenses, easements, consents, approvals, orders
and permits necessary to own, lease and operate their respective properties and
to conduct their respective businesses as currently conducted except where the
failure to possess such permits would not, individually or in the aggregate,
have a Material Adverse Effect ("MATERIAL PERMITS"), and there is no proceeding
pending, or, to the knowledge of the Company, threatened relating to the
revocation, modification, suspension or cancellation of any Material Permit.
Neither the Company nor any of the Subsidiaries is in any material respect, in
conflict with or default or violation of any Material Permit.

          u. 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.

          v. INTERNAL ACCOUNTING CONTROLS. The Company and each of the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with United States generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

          w. TAX STATUS; FIRPTA. The Company and each of its Subsidiaries has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (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, in accordance with standard accounting
practices, provisions 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. The Company is not a "United States real property
holding corporation" within the meaning of Section 847(c)(2) of the Internal
Revenue Code of 1986, as amended.

          x. TRANSACTIONS WITH AFFILIATES. The Company has reported, in
accordance with law, any transactions with officers, directors or employees of
the Company who are parties 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 entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

          y. APPLICATION TO TAKEOVER PROTECTION. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Certificate of Incorporation, Bylaws
or the laws of the state of incorporation which is or could become applicable to
the Purchasers or the Transaction Documents as a result of the transactions
contemplated by this Agreement or the Transaction Documents. None of the
transactions contemplated by this Agreement or the Transaction Documents,
including the conversion of the Debentures, will trigger any poison pill
provisions of any of the Company's stockholders' rights or similar agreements.

          z. 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 permits, licenses or other approvals except where the
failure of any of the foregoing would not result in a Material Adverse Effect.

          aa. 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 form 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.

          bb. SOLICITATION MATERIALS. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Debentures,
other than the SEC Documents, the Schedules to this Agreement, any amendments
and supplements thereto and the materials listed on Schedule 2.1(bb), or (ii)
solicited any offer to buy or sell the Debentures by means of any form of
general solicitation or advertising. 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 Securities Act) in connection with the offer or sale of
the Debentures.

          cc. ACKNOWLEDGEMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Debenture Shares upon conversion of the Debentures. The Company
further acknowledges that its obligation to issue Debenture Shares upon
conversion of the Debentures in accordance with this Agreement and the
Debentures is absolute and unconditional (but subject to the terms and
conditions of the Debentures and this Agreement) regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.

          dd. ACKNOWLEDGEMENT REGARDING PURCHASERS' PURCHASE OF DEBENTURES. The
Company acknowledges and agrees that the Purchasers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Purchasers' purchase of the securities. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.

          ee. SENIORITY; EXCLUSIVITY. No class of equity securities of the
Company will be senior to the Debentures in right of payment, whether upon
liquidation, dissolution or otherwise. So long as any Debenture issued hereunder
remains outstanding, the Company shall not exchange, redeem or convert any of
the Company's capital stock for indebtedness, including convertible debt, of the
Company. Except as expressly permitted in this Agreement, the Company shall not
issue and sell any Debentures, other than to the Purchasers pursuant to this
Agreement, without the prior written consent of each of the Purchasers.

     2.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:

          a. ORGANIZATION; AUTHORITY. Such Purchaser is a corporation or a
limited duration company or a limited liability company or limited partnership
duly formed, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation with the requisite power and
authority, corporate or otherwise, to enter into and to consummate the
transactions contemplated hereby and by the Transaction Documents and otherwise
to carry out its obligations hereunder and thereunder. The purchase by such
Purchaser of the Debentures hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by such
Purchaser and constitutes the valid and legally binding obligation of such
Purchaser, enforceable against such Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity.

          b. INVESTMENT INTENT. Such Purchaser is acquiring the Debentures for
its own account and not with a present view to or for distributing or reselling
the Debentures the Debenture Shares or any part thereof or interest therein in
violation of the Securities Act; provided, however, that by making the
representations herein, such Purchaser does not agree to hold any of the
Debentures or the Debenture Shares for any minimum or other specific term and
reserves the right to dispose of the Debentures at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act.

          c. PURCHASER STATUS. At the time such Purchaser was offered the
Debentures, and at the Closing Date, (i) it was and will be an "accredited
investor" as defined in Rule 501 under the Securities Act and (ii) such
Purchaser, either alone or together with its representatives, had and will have
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in the Debentures.

          d. RELIANCE. Such Purchaser understands and acknowledges that (i) the
Debentures are being offered and sold to such Purchaser without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder and (ii) the availability
of such exemptions depend in part on, and the Company will rely upon the
accuracy and truthfulness of, the representations set forth in this Section 2.2
and such Purchaser hereby consents to such reliance.

          e. INFORMATION. Such Purchaser and its advisors, if any, have 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 Debentures
which have been requested by such Purchaser or its advisors. Such Purchaser and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or any of its advisors or representatives shall modify,
amend or affect Purchaser's right to rely on the Company's representations and
warranties contained in Section 2.1 above or representations and warranties of
the Company contained in any other Transaction Document. Such Purchaser
understands that its investment in the Debentures involves a significant degree
of risk.

          f. GOVERNMENTAL REVIEW. Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Debentures.

          g. RESIDENCY. Such Purchaser is a resident of the jurisdiction set
forth immediately below such Purchaser's name on Schedule II hereto.

          The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2. The Company
further acknowledges that, to the best of its knowledge, the Purchasers,
collectively, are not acting as a group pursuant to Rule 13d of the Exchange
Act.

                                   ARTICLE III

                                OTHER AGREEMENTS

     3.1. TRANSFER RESTRICTIONS.

          a. If any Purchaser should decide to dispose of the Debentures or the
Debenture Shares held by it, such Purchaser understands and agrees that it may
do so only pursuant to an effective registration statement under the Securities
Act, to the Company or pursuant to an available exemption from the registration
requirements of the Securities Act or Rule 144 promulgated under the Securities
Act ("RULE 144"). The Company shall announce any material non-public information
that it legally is required to announce on or prior to the Effectiveness Date
(as defined in the Registration Rights Agreement) of the registration statement
filed pursuant to the Registration Rights Agreement and shall not enter into any
subsequent non-disclosure agreements that would prevent it from announcing any
such information that otherwise legally is required to be announced on or prior
to the Effectiveness Date, unless confidential treatment for such information is
granted by the Commission. In connection with any transfer of any Debentures or
Debenture Shares other than pursuant to an effective registration statement,
Rule 144 or to the Company, the Company may require the transferor thereof to
provide to the Company a written opinion of counsel experienced in the area of
United States securities laws selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
customary for opinions of counsel in comparable transactions, to the effect that
such transfer does not require registration of such transferred securities under
the Securities Act; provided, however, that if the Debentures or Debenture
Shares may be sold pursuant to Rule 144(k), no written opinion of counsel shall
be required from the Purchaser if such Purchaser provides reasonable assurances
that such security can be sold pursuant to Rule 144(k). Notwithstanding the
foregoing, the Company hereby consents to and agrees to register any transfer by
any Purchaser to an Affiliate of such Purchaser, provided that the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act. Any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Transaction Documents. If a Purchaser provides the
Company with an opinion of counsel, the form and substance of which opinion
shall be customary for opinions of counsel in comparable transactions, to the
effect that a public sale, assignment or transfer of the Debentures and the
Debenture Shares may be made without registration under the Securities Act or
the Purchaser provides the Company with reasonable assurances that the
Debentures and the Debenture Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Debenture Shares, promptly instruct its transfer agent to issue one
or more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. Notwithstanding the foregoing or
anything else contained herein to the contrary, the securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement.

          b. Each Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Debentures and the Debenture
Shares:

               THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
          THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION
          FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
          "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
          PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
          ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
          NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

          Neither the Debentures nor the Debenture Shares shall contain the
legend set forth above (or any other legend) (i) if in the written opinion of
counsel to the Company experienced in the area of United States securities laws
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) or (ii) if such Debentures or Debenture Shares may be sold
pursuant to Rule 144(k). The Company agrees that it will provide each Purchaser,
upon request, with a certificate or certificates representing Debentures or
Debenture Shares, free from such legend at such time as such legend is no longer
required hereunder. If such certificate or certificates had previously been
issued with such a legend or any other legend, the Company shall, upon request
and delivery of such certificate or certificates to the Company for such
Purchaser, reissue to such Purchaser such certificate or certificates free of
any legend.

     3.2. STOP TRANSFER INSTRUCTION. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company which
enlarge the restrictions on transfer set forth in Section 3.1.

     3.3. FURNISHING OF INFORMATION. As long as any Purchaser owns the
Debentures or the Debenture Shares, the Company will cause the Common Stock to
continue at all times to be registered under Section 12(g) of the Exchange Act,
will timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to Section 13, 14 or 15(d) of the Exchange Act and,
unless filed by EDGAR, promptly furnish, but in no event later than two (2)
Business Days after the filing thereof with the Commission, such Purchaser with
true and complete copies of all such filings, and will not take any action or
file any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such reporting and filing obligations. As
long as any Purchaser owns the Debentures or the Debenture Shares, if the
Company is not required to file reports pursuant to Section 13(a) or 15(d) of
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
also agrees to send the following to each Purchaser prior to and during the
Effectiveness Period (as defined in the Registration Rights Agreement): (i) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries and (ii) copies of any notices
and other information sent to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders. The Company further covenants that it will take such further
action as any holder of the Debentures or the Debenture Shares may reasonably
request, all to the extent required from time to time to enable such Person to
sell the Debentures or the Debenture Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in Section 3.1(b). Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.

     3.4. BLUE SKY LAWS. In accordance with the Registration Rights Agreement,
the Company shall if required under applicable law (i) qualify the Debenture
Shares under the securities or "blue sky" laws of such jurisdictions as the
Purchasers may request (or obtain an exemption from such qualification), (ii)
shall provide evidence of any such action so taken to each Purchaser on or prior
to the Closing Date and (iii) shall continue such qualification at all times
through the resale of all Debenture Shares, but in any event not past the fourth
anniversary of the Closing Date.

     3.5. INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Debentures or the Debenture Shares in a manner that would require the
registration under the Securities Act of the sale of the Debentures or the
Debenture Shares to any Purchaser or cause the offering of such securities to be
integrated with any other offering of securities by the Company for the purpose
of any stockholder approval provision applicable to the Company or its
securities.

     3.6. LISTING AND RESERVATION OF DEBENTURE SHARES.

          a. The Company shall (i) not later than the time the Company filed the
registration statement on Form S-3 to register the Debenture Shares for resale,
prepare and file with Nasdaq (as well as any other national securities exchange
or market on which the Common Stock is then listed) additional shares listing
applications or letters acceptable to Nasdaq covering and listing a number of
shares of Common Stock which is at least equal to the maximum number of
Debenture Shares then issuable, assuming that the payment of all interest
payments on the Debentures for a period of one year and all future dividends on
such shares then outstanding were made in shares of Common Stock, (ii) take all
steps necessary to cause the Debenture Shares to be approved for listing on
Nasdaq (as well as on any other national securities exchange or market on which
the Common Stock is then listed) as soon as possible thereafter, (iii) maintain,
so long as any other shares of Common Stock shall be so listed, such listing of
all such Debenture Shares, and (iv) provide to the Purchasers evidence of such
listing. Neither the Company nor any of its Subsidiaries shall take any action
that would result in the delisting or suspension of the Common Stock on Nasdaq.
The Company shall promptly provide to each Purchaser copies of any notices it
receives from Nasdaq regarding the continued eligibility of the Common Stock for
listing on such automated quotation system, so long as such notice does not
include material, nonpublic information. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section
3.6(a).

          b. The number of shares of Common Stock initially included in the
Initial Registration Statement (as defined in the Registration Rights Agreement)
shall be determined pursuant to Section 2(a) of the Registration Rights
Agreement.

          c. The Company at all times shall reserve a sufficient number of
shares of its authorized but unissued Common Stock to provide for the full
conversion of the outstanding Debentures (including the payment of all interest
thereon for a one year period). Shares of Common Stock reserved for issuance
upon conversion of the Debentures shall be allocated pro rata to each of the
Purchasers in accordance with the amount of Debentures issued and delivered to
such Purchaser at the Closing. If at any time the number of shares of Common
Stock authorized and reserved for issuance is insufficient to cover the number
of Debenture Shares issued and issuable upon conversion of the Debentures (based
on the Conversion Price (as defined in the Debenture) in effect from time to
time without regard to any limitation on conversions or exercises and the number
of shares of Common Stock issuable upon the payment of interest on the principal
amount of the Debentures then outstanding for a one year period, the Company
will promptly take all corporate action necessary to authorize and reserve such
number of shares of Common Stock of such shares, including, without limitation,
calling a special meeting of stockholders to authorize additional shares to meet
the Company's obligations under this Section 3.6(c), in the case of an
insufficient number of authorized shares, and using its best efforts to obtain
stockholder approval of an increase in such authorized number of shares. In
addition, if on the actual date of an adjustment of the Conversion Price
pursuant to Section 4.5 of the Debenture, the registration statements are
insufficient to register such number of shares of Common Stock, the Company
shall immediately, but in no more than five (5) Business Days thereafter, file a
registration statement sufficient to register such additional shares of Common
Stock. All calculations of the above amount shall be made without regard to any
limitation on conversions of Debentures.

     3.7. NOTICE OF BREACHES.

          a. The Company and each Purchaser shall give prompt written notice to
the other of any breach by it of any representation, warranty or other agreement
contained in this Agreement or in the Transaction Documents, as well as any
events or occurrences arising after the date hereof and prior to the Closing
Date, which would reasonably be likely to cause any representation or warranty
or other agreement of such party, as the case may be, contained herein to be
incorrect or breached as of the Closing Date, provided such notice will not
constitute material non-public information unless, after being told by the
Company that the notice would constitute material non-public information, the
Purchaser agrees to receive such notice. However, no disclosure by either party
pursuant to this Section 3.7 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Transaction Documents.

          b. Notwithstanding the generality of Section 3.7(a), the Company shall
promptly notify, provided such notification will not constitute material
non-public information, each Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company or any Subsidiary to the effect
that the consummation of the transactions contemplated hereby and by the
Transaction Documents violates or would violate any written agreement or
understanding between such lender and the Company or any Subsidiary, and the
Company shall promptly furnish by facsimile to the Purchasers a copy of any
written statement in support of or relating to such claim or notice.

          c. The default by any Purchaser of any of its obligations,
representations or warranties under this Agreement or the Transaction Documents
shall not be imputed to, and shall have no effect upon, any other Purchaser or
affect the Company's obligations under this Agreement or any Transaction
Document to any non-defaulting Purchaser.

     3.8. FORM D. a. The Company agrees to file a Form D with respect to the
Debentures as required by Rule 506 under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing.

     3.9. USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Debentures for working capital, including ongoing Company obligations in
clinical trials.

     3.10. TRANSACTIONS WITH AFFILIATES. So long as any Debentures are
outstanding, the Company shall not, and shall cause each of its Subsidiaries not
to, enter into, amend, modify or supplement, or permit any Subsidiary to enter
into, amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiary's officers, directors or persons
who were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or Affiliates
or any individual related by blood, marriage or adoption to any such individual
or with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
Person other than such Related Party, or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes of this section only means,
with respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity, (ii)
has 5% or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"CONTROL" or "CONTROLS" for purposes of this section means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.

     3.11. TRANSFER AGENT INSTRUCTIONS. At each Closing the Company shall issue
irrevocable instructions to its transfer agent (and shall issue to any
subsequent transfer agent as required), to issue certificates, registered in the
name of each such Purchaser or its respective nominee(s), for the Debenture
Shares in such amounts, in accordance with the terms of the Debentures, as
specified from time to time by each Purchaser to the Company in a form
acceptable to such Purchasers (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS").
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 3.11, and stop transfer
instructions to give effect to Section 3.1 hereof (in the case of the Debenture
Shares, prior to registration of the Debenture Shares under the Securities Act)
will be given by the Company to its transfer agent and that the Debentures and
the Debenture 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
Transaction Documents. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Purchasers by violating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.11 will be inadequate and agrees, in the event of a beach
or threatened breach by the Company of the provisions of this Section 3.11, that
the Purchasers, shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.

     3.12. PRESS RELEASE; FILING OF FORM 8-K. Subject to the provisions of
Section 6.10 hereof, on or before the fifth (5th) Business Day following the
Closing Date, the Company shall (i) file a press release in form and substance
reasonably acceptable to the Purchasers (except as otherwise required by law)
and (ii) file a Form 8-K with the Commission describing the terms of the
transaction contemplated by this Agreement and the Transaction Documents in the
form required by the Exchange Act.

     3.13. ORDINARY COURSE BROKERAGE AND TRADING. Subject to compliance with all
applicable securities laws and Nasdaq regulations, no Purchaser shall be
prohibited from engaging in its ordinary course brokerage and trading activities
in respect of the Company's Common Stock; PROVIDED that the personnel engaged in
such activities have not been involved with the transactions contemplated hereby
and have not been provided with confidential information with respect to the
Company.

     3.14. BEST EFFORTS. Each of the parties hereto shall use its best efforts
to satisfy each of the conditions to be satisfied by it as provided in Article
IV of this Agreement.

     3.15. CORPORATE EXISTENCE. Until such time, while the Debentures are
outstanding, as all of the Purchasers provide the Company with written notice
that they do not beneficially own any Debentures, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose common stock is listed for trading
on the Nasdaq or any subsequent Market (as defined in the Debentures).

     3.16. NO VIOLATION OF APPLICABLE LAW. Notwithstanding any provision of this
Agreement to the contrary, if the redemption of Debentures or Debenture Shares
otherwise required under this Agreement or the Registration Rights Agreement
would be prohibited by the relevant provisions of the Business Corporation Law
of the State of New York, such redemption shall be effected as soon as it is
permitted under such law; provided, however, that from the fifth (5th) day after
such redemption notice until such redemption price is paid in full, interest on
any such unpaid amount shall accrue and be payable at the rate of 15% per annum
in accordance with the Debentures.

     3.17. SUBSEQUENT REGISTRATIONS. Other than Debenture Shares and other
Registrable Securities (as defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, the Company
shall not, for a period of not less than 90 Trading Days after the date that the
Registration Statement is declared effective by the Commission, without the
prior written consent of Purchasers holding a majority of the principal amount
of the Debentures, (i) except for securities issuable in connection with the
transactions identified on Schedule 3.17 hereto, issue or sell any of its or any
of its Affiliates' equity or equity-equivalent securities unless such issuance
or sale is equal to or at a premium to the Per Share Market Value (as defined in
the Debenture) on the date of such issuance or sale, (ii) except in connection
with the transactions identified on Schedule 3.17 hereto, register for resale
any securities of the Company if the Per Share Market Value is twelve dollars
($12.00) or less or (iii) except in connection with the transactions identified
on Schedule 3.17 hereto, have a registration statement declared effective
covering an issuance by the Company of any of its securities if the Per Share
Market Value is twelve dollars ($12.00) or less. Any days that any Purchaser is
unable to sell Debenture Shares under an effective Registration Statement shall
be added to such 90 Trading Day period for the purposes of (i), (ii) and (iii)
above.

     3.18. TRADING RESTRICTIONS. Each Purchaser represents and agrees: (i) that
it has not and will not maintain a short position within twenty (20) days of the
First Closing, (ii) that all short positions taken in the Company's Common
Stock, by such Purchaser, will be covered within thirty (30) Trading Days, (iii)
that if such Purchaser exercises the Purchasers Call Option, then within twenty
(20) days of the Second Closing Date, such Purchaser will not short the
Company's Common Stock at a price below the applicable Conversion Price (as set
forth in the Debenture) and (iv) upon notice from the Company that the Company,
in its good faith belief, is planning to consummate a transaction pursuant to
which there will be a reset event pursuant to Section 4.5(e) of the Debenture,
the Purchasers shall not hold a short position below the applicable Conversion
Price for the lesser of twenty (20) days and the closing of such transaction.

                                  ARTICLE IV

                                   CONDITIONS

     4.1. FIRST CLOSING CONDITIONS.

          a. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE
DEBENTURES. The obligation of the Company to sell the Debentures is subject to
the satisfaction or waiver (with prior written notice to each Purchaser) by the
Company, at or before the First Closing Date of each of the following
conditions:

               (i) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND WARRANTIES.
     The representations and warranties of each Purchaser in this Agreement
     shall be true and correct in all material respects as of the date when made
     as though made at that time (except for representations and warranties that
     speak as of a specific date) and as of the First Closing;

               (ii) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
     performed, satisfied and complied in all material respects with all
     covenants, agreements and conditions required by this Agreement to be
     performed, satisfied or complied with by such Purchaser at or before the
     First Closing; and

               (iii) NO INJUNCTION. No statute, rule, regulation, executive
     order, decree, ruling or injunction shall have been enacted, entered,
     promulgated or endorsed by any court or governmental authority of competent
     jurisdiction which prohibits the consummation of any of the transactions
     contemplated by this Agreement or the Transaction Documents.

          b. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE THE DEBENTURES AT THE FIRST CLOSING. The obligation of each Purchaser
hereunder to acquire and pay for the Debentures at the First Closing is subject
to the satisfaction or waiver (with prior written notice to the Company and each
other Purchaser) by such Purchaser, at or before the First Closing Date, of each
of the following conditions:

               (i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
     representations and warranties of the Company set forth in this Agreement
     and in the Registration Rights Agreement shall be true and correct in all
     material respects as of the date when made as though made at that time
     (except for representations and warranties that speak as of a specific
     date) and as of the First Closing Date;

               (ii) PERFORMANCE BY THE COMPANY. The Company shall have
     performed, satisfied and complied in all material respects with all
     covenants, agreements and conditions required by this Agreement to be
     performed, satisfied or complied with by the Company at or before the First
     Closing Date;

               (iii) NO INJUNCTION. No statute, rule, regulation, executive
     order, decree, ruling or injunction shall have been enacted, entered,
     promulgated or endorsed by any court or governmental authority of competent
     jurisdiction which prohibits the consummation of any of the transactions
     contemplated by this Agreement and the Transaction Documents;

               (iv) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in
     the Common Stock shall not have been suspended by the Commission, on Nasdaq
     (except for any suspension of trading of limited duration solely to permit
     dissemination of material information regarding the Company);

               (v) LISTING OF COMMON STOCK. The Common Stock shall have been at
     all times since the date of this Agreement and on the Closing Date listed
     for trading on the Nasdaq;

               (vi) REQUIRED APPROVALS. All Required Approvals, other than those
     relating solely to Closing Dates other than the First Closing Date, shall
     have been obtained and copies thereof delivered to the Purchasers other
     than those relating solely to Closing Dates other than the First Closing
     Date;

               (vii) SHARES OF COMMON STOCK. The Company shall have duly
     reserved the number of Debenture Shares required by this Agreement and the
     Transaction Documents to be reserved upon the conversion of the Debentures
     acquired by the Purchaser on the First Closing Date;

               (viii) ADVERSE CHANGES. Since the date of the financial
     statements included in the Company's Quarterly Report on Form 10-Q or
     Annual Report on Form 10-K, whichever is more recent, last filed prior to
     the date of this Agreement, no event which had a Material Adverse Effect
     shall have occurred which is not disclosed on any Schedule hereto (for
     purposes hereof, changes in the market price of the Common Stock may be
     considered in determining whether there has occurred an event which has had
     a Material Adverse Effect);

               (ix) LITIGATION. No litigation shall have been instituted or
     threatened against the Company which could reasonably be expected to,
     individually or in the aggregate, have had a Material Adverse Effect;

               (x) CHANGE OF CONTROL. No Change of Control shall have occurred
     between the date hereof and the First Closing Date. "Change of Control"
     means the occurrence of any of (i) an acquisition after the date hereof by
     an individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
     promulgated under the Exchange Act), other than the Purchasers or any of
     their Affiliates, of in excess of 33% of the voting securities of the
     Company, (ii) a replacement of more than one-half of the members of the
     Company's Board of Directors that is not approved by those individuals who
     are members of the Board of Directors on the date hereof, or successors on
     a continuing Board of Directors, in one or a series of related
     transactions, (iii) the merger of the Company with or into another entity
     where the shareholders of the Company own less than 50% of the outstanding
     voting power of the surviving corporation, (iv) the consolidation or sale
     of all or substantially all of the assets of the Company in one or a series
     of related transactions, or (v) the execution by the Company of an
     agreement to which the Company is a party or by which it is bound,
     providing for any of the events set forth above in (i), (ii), (iii) or
     (iv); and

               (xi) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
     Instructions, in a form reasonably acceptable to the Purchasers, shall have
     been delivered to and acknowledged in writing by the Company's transfer
     agent with a copy forwarded to each Purchaser.

               (xii) RESOLUTIONS. The Board of Directors of the Company shall
     have adopted resolutions consistent with Section 2.1(b) and in a form
     reasonably acceptable to each Purchaser (the "Resolutions").

          c. DOCUMENTS AND CERTIFICATES. At the First Closing, the Company shall
have delivered to the Purchasers, the following in form and substance reasonably
satisfactory to the Purchasers:

               (i) OPINION. An opinion of the Company's legal counsel in the
     form attached hereto as Exhibit C dated as of the First Closing Date;

               (ii) DEBENTURE. A Debenture(s) representing the principal amount
     of Debentures purchased by such Purchaser as set forth next to such
     Purchaser's name on Schedule I, registered in the name of such Purchaser,
     each in form satisfactory to the Purchaser;

               (iii) REGISTRATION RIGHTS. The Company shall have executed and
     delivered the Registration Rights Agreement;

               (iv) OFFICER'S CERTIFICATE. An Officer's Certificate dated the
     First Closing Date and signed by an executive officer of the Company
     confirming the accuracy of the Company's representations, warranties and
     covenants as of such First Closing Date and confirming the compliance by
     the Company with the conditions precedent set forth in this Section 4.1 as
     of the First Closing Date;

               (v) SECRETARY'S CERTIFICATE. A Secretary's Certificate dated the
     First Closing Date and signed by the Secretary or Assistant Secretary of
     the Company certifying (A) that attached thereto is a true and complete
     copy of the Certificate of Incorporation of the Company, as in effect on
     the First Closing Date, (B) that attached thereto is a true and complete
     copy of the by-laws of the Company, as in effect on the First Closing Date
     and (C) that attached thereto is a true and complete copy of the
     Resolutions duly adopted by the Board of Directors of the Company
     authorizing the execution, delivery and performance of this Agreement and
     of the Transaction Documents, and that such Resolutions have not been
     modified, rescinded or revoked;

               (vi) CERTIFICATE OF INCORPORATION. The Company shall have
     delivered to each of the Purchasers a copy of a certificate evidencing the
     incorporation and good standing of the Company, in such corporation's state
     of incorporation issued by the Secretary of State of such state of
     incorporation as of a date within ten days of the First Closing Date;

               (vii) TRANSFER AGENT LETTER. The Company shall have delivered to
     each Purchaser a letter from the Company's transfer agent certifying the
     number of shares of Common Stock outstanding as of a date within five days
     of the First Closing Date;

     4.2. SECOND CLOSING.

          a. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE
DEBENTURES. The obligation of the Company to sell the Debentures is subject to
the satisfaction or waiver (with prior written notice to each Purchaser) by the
Company, at or before the Second Closing Date of each of the following
conditions:

               (i) FIRST CLOSING. The First Closing shall have occurred for an
     aggregate amount of $10,000,000.

               (ii) MINIMUM ISSUANCE. An aggregate amount of at least five
     million dollars ($5,000,000) in Debentures has been requested to be issued
     in the Second Closing.

               (iii) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND WARRANTIES.
     The representations and warranties of each Purchaser in this Agreement
     shall be true and correct in all material respects as of the date when made
     as though made at that time (except for representations and warranties that
     speak as of a specific date) and as of the Second Closing;

               (iv) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
     performed, satisfied and complied in all material respects with all
     covenants, agreements and conditions required by this Agreement to be
     performed, satisfied or complied with by such Purchaser at or before the
     Second Closing; and

               (v) NO INJUNCTION. No statute, rule, regulation, executive order,
     decree, ruling or injunction shall have been enacted, entered, promulgated
     or endorsed by any court or governmental authority of competent
     jurisdiction which prohibits the consummation of any of the transactions
     contemplated by this Agreement or the Transaction Documents.

          b. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE. The obligation of each Purchaser hereunder to acquire and pay for the
Debentures at the Second Closing is subject to the satisfaction or waiver (with
prior written notice to the Company and each other Purchaser) by such Purchaser,
at or before the Second Closing Date, of each of the following conditions:

               (i) FIRST CLOSING. The First Closing shall have occurred;

               (ii) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
     The representations and warranties of the Company set forth in this
     Agreement and the Registration Rights Agreement shall be true and correct
     in all respects as of the date when made and as of the Second Closing Date
     as though made at that time, except for changes made to the Schedules to
     update them since the First Closing and except for other exceptions to the
     representations and warranties necessary to update then since the First
     Closing (in either case with information about matters that do not have a
     Material Adverse Effect);

               (iii) PERFORMANCE BY THE COMPANY. The Company shall have
     performed, satisfied and complied in all material respects with all
     covenants, agreements and conditions required by this Agreement and the
     Transaction Documents to be performed, satisfied or complied with by the
     Company at or before to the Second Closing;

               (iv) NO INJUNCTION. No statute, rule, regulation, executive
     order, decree, ruling or injunction shall have been enacted, entered,
     promulgated or endorsed by any court or governmental authority of competent
     jurisdiction which prohibits the consummation of any of the transactions
     contemplated by this Agreement and the Transaction Documents;

               (v) REGISTRATION STATEMENTS FOR DEBENTURES AND WARRANTIES OF
     FIRST CLOSING. (A) The Registration Statement with respect to the Debenture
     Shares with respect to the Debenture(s) sold at the First Closing shall
     have been declared effective under the Securities Act by the SEC; (B) a
     Registration Statement with respect to the Debenture Shares with respect to
     the Debenture(s) to be sold at the Second Closing shall have been declared
     effective under the Securities Act; and (C) on the Second Closing Date such
     Registration Statements shall be effective, not subject to any stop order
     and not be subject to any suspension of the Registration Rights Agreement,
     and shall have been effective and shall not have been subject to any stop
     order for the thirty (30) Business Days prior to the Second Closing Date
     and no stop order shall be pending or threatened at the Second Closing
     Date.

               (vi) ADVERSE CHANGES. Since the date of the financial statements
     included in the Company's Quarterly Report on Form 10-Q or Annual Report on
     Form 10-K, whichever is more recent, last filed prior to the date of this
     Agreement, no event which had a Material Adverse Effect shall have occurred
     which is not disclosed on any Schedule hereto or otherwise in writing to
     each of the Purchasers;

               (vii) LITIGATION. No litigation shall have been instituted or
     threatened against the Company which could reasonably be expected to,
     individually or in the aggregate, have a Material Adverse Effect;

               (viii) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in
     the Common Stock shall not have been suspended by the Commission, on Nasdaq
     during the sixty (60) days prior to the Second Closing (except for any
     suspension of trading of limited duration solely to permit dissemination of
     material information regarding the Company);

               (ix) LISTING OF COMMON STOCK. The Debenture Shares shall on the
     Second Closing Date be, listed for trading on Nasdaq, or other exchange
     acceptable to Purchasers;

               (x) REQUIRED APPROVALS. All Required Approvals shall have been
     obtained and copies thereof delivered to the Purchasers.

               (xi) SHARES OF COMMON STOCK. The Company shall have duly reserved
     the number of Debenture Shares required by this Agreement to be reserved
     for issuance upon the conversion of the Debentures purchased on the First
     Closing Date and on the Second Closing Date.

               (xii) PERFORMANCE OF CONVERSION/EXERCISE OBLIGATIONS. The Company
     shall have delivered Debenture Shares upon any demand for conversion of any
     of the Debentures and otherwise performed its obligations in accordance
     with the terms, conditions and timing requirements of the Transaction
     Documents.

               (xiii) CHANGE OF CONTROL. Subject to Section 4.2(c), no Change of
     Control in the Company shall have occurred;

               (xiv) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
     Instructions, in a form reasonably acceptable to the Purchasers, shall have
     been delivered to and acknowledged by the Company's transfer agent with a
     copy forwarded to each Purchaser;

               (xv) MINIMUM PER SHARE MARKET VALUE. On the date of the Company
     Put Option Notice, the Per Share Market Value was more than fifteen dollars
     ($15.00); and

               (xvi) OPTIONAL CONVERSION. The Company shall have exercised the
     Optional Conversion (as defined in the Debentures).

     c. DOCUMENTS AND CERTIFICATES. On the Second Closing Date, the Company
shall have delivered to the Purchasers, the following in form and substance
reasonably satisfactory to the Purchasers:

               (i) OPINION. An opinion of the Company's legal counsel, in
     substantially the form attached hereto as Exhibit C dated as of the Second
     Closing Date;

               (ii) DEBENTURE(S). A Debenture(s) representing the Debenture(s)
     purchased by such Purchaser as set forth next to such Purchaser's name on
     the Second Closing Schedule registered in the name of such Purchaser, each
     in form satisfactory to the Purchaser;

               (iii) OFFICER'S CERTIFICATE. The Company shall deliver to the
     Purchasers an Officer's Certificate dated the Second Closing Date and
     signed by an executive officer of the Company confirming the accuracy of
     the Company's representations, warranties and covenants as of such Second
     Closing Date and confirming the compliance by the Company with the
     conditions precedent set forth in this Section 4.2(b) as of the Second
     Closing Date;

               (iv) SECRETARY'S CERTIFICATE. A Secretary's Certificate dated the
     Second Call Option Closing Date and signed by the Secretary or Assistant
     Secretary of the Company certifying (A) that attached thereto is a true and
     complete copy of the Certificate of Incorporation of the Company, as in
     effect on the Second Closing Date, (B) that attached thereto is a true and
     complete copy of the bylaws of the Company, as in effect on the Second
     Closing Date and (C) that attached thereto is a true and complete copy of
     the resolutions duly adopted by the Board of Directors of the Company
     authorizing the execution, delivery and performance of the Agreement and
     the Transaction Documents and that such resolutions have not been modified,
     rescinded or revoked;

               (v) CERTIFICATE OF INCORPORATION. The Company shall have
     delivered to each of the Purchasers a copy of a certificate evidencing the
     incorporation and good standing of the Company, in such corporation's state
     of incorporation issued by the Secretary of State of such state of
     incorporation as of a date within ten days of the Second Closing Date;

               (vi) TRANSFER AGENT LETTER. The Company shall have delivered to
     each Purchaser a letter from the Company's transfer agent certifying the
     number of shares of Common Stock outstanding as of a date within five days
     of the Second Closing Date; and

               (vii) OTHER DOCUMENTS. The Company shall have delivered to each
     Purchaser such other documents relating to the transactions contemplated by
     the Transaction Documents as the Purchasers or its counsel may reasonably
     request.

                                    ARTICLE V

                                 INDEMNIFICATION

     5.1. INDEMNIFICATION.

          a. Except to the extent that matters which could be covered by this
Section 5 are covered by Section 5 of the Registration Rights Agreement, in
consideration of the Purchasers, execution and delivery of this Agreement and
the Transaction Documents and acquiring the Debentures and Debenture Shares
thereunder and in addition to all of the Company's other obligations under this
Agreement and the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Purchaser, its past and present Affiliates and
their successors and assigns (in accordance with the provisions of Section 6.5
hereof), each other holder of the Debenture Shares and all of their
stockholders, 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,
proceedings, costs (as incurred), penalties, fees (including legal fees and
expenses), 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 interest, penalties and
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 this Agreement or 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 this
Agreement or 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, other than by the Company, against such Indemnitee and
arising out of or resulting from (i) any wrongful action or inaction by the
Company in connection with the execution, delivery, performance or enforcement
of this Agreement or the Transaction Documents, assuming that the Purchaser
seeking indemnification has not committed a material breach of its
representations, warranties or obligation under this Agreement or the
Transaction Documents, which breach is the cause of the Company's wrongful
action or inaction, (ii) any transaction financed or to be financed in whole or
in part, directly or indirectly, with the proceeds of the issuance of the
Debentures or (iii) solely the status of such Purchasers or holders of the
Debentures or the Debenture Shares as an investor in the Company. The
indemnification obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliate of the Purchasers and
partners, directors, agents, employees and controlling Persons (if any), as the
case may be, of the Purchasers and any such affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling Persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
this Agreement or any of the Transaction Documents except to the extent that any
losses, claims, damages, liabilities or expenses incurred by the Company result
from the breach of representations, warranties or obligation or the gross
negligence or willful misconduct of such Purchaser or entity in connection with
the transactions contemplated by this Agreement or the Transaction Documents. 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.

          b. All fees and expenses (including reasonable fees and expenses to
the extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) of the Indemnitees
shall be paid to the Indemnities as incurred, within ten (10) Business Days of
written notice thereof to the Company, which notice shall be delivered no more
frequently than on a monthly basis (regardless of whether it is ultimately
determined that an Indemnitee is not entitled to indemnification hereunder;
PROVIDED, that the Company may require such Indemnitee to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnitee is not entitled to indemnification hereunder), PROVIDED,
HOWEVER, that the Company shall only be required to pay the legal fees of one
legal counsel, which counsel shall be Akin, Gump, Strauss, Hauer & Feld, L.L.P.

                                   ARTICLE VI

                                  MISCELLANEOUS

          6.1. ENTIRE AGREEMENT. This Agreement, together with the Exhibits and
Schedules hereto and the Transaction Documents contain the entire understanding
of the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.

          6.2. 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 (if received by 8:00 p.m. EST where such
notice is received) or the first business day following such delivery (if
received after 8:00 p.m. EST where such notice is received); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

                  If to the Company:

                           Alliance Pharmaceutical Corp.
                           6175 Lusk Boulevard
                           San Diego, California 92121
                           Telephone: (858) 410-5107
                           Facsimile:  (858) 410-5343
                           Attention:  President

                  With a copy to:

                           Stroock & Stroock & Lavan LLP
                           180 Maiden Lane
                           New York, New York 10038
                           Telephone: (212) 806-5400
                           Facsimile:  (212) 806-6006
                           Attention:  Melvin Epstein

                  If to the Transfer Agent:

                           American Stock Transfer & Trust Company
                           40 Wall Street, 46th Floor
                           New York, New York 10005
                           Telephone: (718) 921-8275
                           Facsimile:  (718) 921-8331
                           Attention:  Paula Caroppoli

                  If to _____________________:

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

                  With a copy to:

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

          Each party shall provide written notice to the other party of any
change in address or facsimile number in accordance with the provisions hereof.

     6.3. AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and each of the Purchasers or, in the case of a waiver, by the
Company (if a waiver of the Company' rights) or Purchasers holding a majority of
the then outstanding principal amount of Debentures or who will be purchasing
the majority of the principal amount of the Debentures (if a waiver of the
Purchasers' rights). No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. Notwithstanding the foregoing, no such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Debentures outstanding without the consent of the Company and those Holders who
might be adversely affected by such an amendment. The Company shall not offer or
pay any consideration to a Purchaser for consenting to such an amendment or
waiver unless the same consideration is offered to each Purchaser and the same
consideration is paid to each Purchaser which consents to such amendment or
waiver.

     6.4. HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

     6.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers, except pursuant to
a merger by operation of law. The Purchasers may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Company, provided, that any assignees must make the representations and
warranties set forth in Section 2.2 and otherwise comply with the terms of this
Agreement otherwise applicable to its assignor. This provision shall not limit a
Purchaser's right to transfer securities in accordance with all of the terms of
this Agreement or the Transaction Documents.

     6.6. 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.

     6.7. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof 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.

     6.8. SURVIVAL. The representations and warranties of the Company and the
Purchasers contained in Sections 2.1 and 2.2, the agreements and covenants set
forth in Section 3, and the indemnification provisions set forth in Section 5,
shall survive the Closing and any conversion of the Debentures regardless of any
investigation made by or on behalf of the such Purchaser or by or on behalf of
the Company, except that, in the case of representations and warranties such
survival shall be limited to the period of four (4) years following the Closing
Date on which they were made or deemed to have been made (other than with
respect to any claim by a third party against the party to this Agreement who
seeks to assert a claim based on such representations and warranties). This
section shall have no effect on the survival of the indemnification provisions
of the Registration Rights Agreement.

     6.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

     6.10. PUBLICITY. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without such Purchaser's prior written consent. The Purchasers and their
affiliated companies shall, without further cost, have the reasonable right to
use in its advertising, marketing or other similar materials the Company's logo
and trademarks and all or parts of the Company's press releases that focus on
the transaction forming the subject matter of this Agreement or which make
reference to the transaction. The Purchasers understand that this grant by the
Company only waives objections that the Company might have to the use of such
materials by the Purchasers and in no way constitutes a representation by the
Company that references in such materials to the activities of third-parties
have been cleared or constitute a fair use.

     6.11. SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.

     6.12. REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
this Agreement or the Transaction Documents without the showing of economic loss
and without any bond or other security being required. Each of the Company and
the Purchasers (severally and not jointly) agree that monetary damages would not
be adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.

     6.13. INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder are several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.

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

     6.15. 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.

     6.16. FEES AND EXPENSES. Except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement; PROVIDED, HOWEVER, that the Company shall pay the
Purchasers an aggregate fee of $50,000 at the First Closing. The Company shall
pay all stamp and other taxes and duties levied in connection with the issuance
of the Debenture Shares pursuant hereto.

                  [Remainder of page intentionally left blank]

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.

                                        ALLIANCE PHARMACEUTICAL CORP.

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

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

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

<PAGE>

                                   SCHEDULE I

                          PRINCIPAL AMOUNT OF             NUMBER OF SHARES
NAME OF PURCHASER         DEBENTURES AT CLOSING DATE      UNDERLYING DEBENTURES
-----------------         --------------------------      ---------------------

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

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

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

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

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

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

<PAGE>

                                   SCHEDULE II

NAME OF PURCHASER                         ADDRESS
-----------------                         -------

<PAGE>

                                    Exhibit A

                          Form of Convertible Debenture
                                   (attached)

<PAGE>

                                    Exhibit B

                      Form of Registration Rights Agreement
                                   (attached)

<PAGE>

                                    Exhibit C

                             Company's Legal Opinion
                                   (attached)

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