Document:

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                                                                     EXHIBIT 4.3

NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE 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 AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.

No. 1                                                                 $1,000,000

                              NEOTHERAPEUTICS, INC.

                      5% SUBORDINATED CONVERTIBLE DEBENTURE

                                DUE APRIL 6, 2005

         THIS DEBENTURE is one of a series of duly authorized and issued
debentures of NeoTherapeutics, Inc., a Nevada corporation, having a principal
place of business at 157 Technology Drive, Irvine, CA 92618 (the "Company"),
designated as its 5% Subordinated Convertible Debentures, due April 6, 2005, in
the aggregate principal amount of Ten Million Dollars ($10,000,000) (the
"Debentures").

         FOR VALUE RECEIVED, the Company promises to pay to [ ], or its
registered assigns (the "Holder"), the principal sum of One Million Dollars
($1,000,000), on April 6, 2005 or such earlier date as the Debentures are
required or permitted to be repaid as provided hereunder (the "Maturity Date")
and to pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 5% per annum,
payable on each Conversion Date (as defined in Section 4(a)(i)(C)) with respect
to the principal amount then converted and on the Maturity Date, in cash or
shares of Common Stock (as defined in Section 6). Subject to the terms and
conditions set forth herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the Company. Not
less than ten Trading Days (as defined in Section 6) prior to each Conversion
Date, the Company shall provide the Holder with written notice of its election
to pay interest hereunder either in cash or shares of Common Stock pursuant to
the terms of Section 4(a)(i) (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Conversion Date in shares of
Common Stock pursuant to the terms of Section 4(a)(i). Interest shall be
calculated on the basis

                                                           Convertible Debenture
<PAGE>   2
on a 360-day year and shall accrue daily commencing on the Original Issue Date
(as defined in Section 6) until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of Debentures (the
"Debenture Register"). All overdue accrued and unpaid interest to be paid in
cash hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under applicable law)
to accrue daily, from the date such interest is due hereunder through and
including the date of payment, payable in cash.

         This Debenture is subject to the following additional provisions:

         Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for the registration of such exchange.

         Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 6) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

         Section 3. Events of Default.

                  (a) "Event of Default", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or 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):

                           (i) any default in the payment of the principal of,
         interest on or liquidated damages in respect of, any Debentures, free
         of any claim of subordination, as and when the same shall become due
         and payable (whether on a Conversion Date or the Maturity Date or by
         acceleration or otherwise);

                           (ii) the Company shall fail to observe or perform any
         other covenant, agreement or warranty contained in, or otherwise commit
         any breach of any of the Transaction Documents (as defined in Section
         6), and such failure or breach shall not have been remedied within five
         Business Days (as defined in Section 6) after the date on which written
         notice of such failure or breach shall have been received by the
         Company;

                           (iii) the Company or any of its subsidiaries shall
         commence, or there shall be commenced against the Company or any such
         subsidiary a case under any applicable

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                                                           Convertible Debenture
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         bankruptcy or insolvency laws as now or hereafter in effect or any
         successor thereto, or the Company commences any other proceeding under
         any reorganization, arrangement, adjustment of debt, relief of debtors,
         dissolution, insolvency or liquidation or similar law of any
         jurisdiction whether now or hereafter in effect relating to the Company
         or any subsidiary thereof or there is commenced against the Company or
         any subsidiary thereof any such bankruptcy, insolvency or other
         proceeding which remains undismissed for a period of 60 days; or the
         Company or any subsidiary thereof is adjudicated insolvent or bankrupt;
         or any order of relief or other order approving any such case or
         proceeding is entered; or the Company or any subsidiary thereof suffers
         any appointment of any custodian or the like for it or any substantial
         part of its property which continues undischarged or unstayed for a
         period of 60 days; or the Company or any subsidiary thereof makes a
         general assignment for the benefit of creditors; or the Company shall
         fail to pay, or shall state that it is unable to pay, or shall be
         unable to pay, its debts generally as they become due; or the Company
         or any subsidiary thereof shall call a meeting of its creditors with a
         view to arranging a composition, adjustment or restructuring of its
         debts; or the Company or any subsidiary thereof shall by any act or
         failure to act expressly indicate its consent to, approval of or
         acquiescence in any of the foregoing; or any corporate or other action
         is taken by the Company or any subsidiary thereof for the purpose of
         effecting any of the foregoing;

                           (iv) the Company shall default in any of its
         obligations under any mortgage, credit agreement or other facility,
         indenture agreement, factoring agreement or other instrument under
         which there may be issued, or by which there may be secured or
         evidenced any indebtedness for borrowed money or money due under any
         long term leasing or factoring arrangement of the Company in an amount
         exceeding one hundred thousand dollars ($100,000), whether such
         indebtedness now exists or shall hereafter be created and such default
         shall result in such indebtedness becoming or being declared due and
         payable prior to the date on which it would otherwise become due and
         payable;

                           (v) the Common Stock either be delisted from the
         Nasdaq National Market ("NASDAQ") or suspended from trading on the
         NASDAQ without resuming trading and/or being relisted thereon or listed
         on the New York Stock Exchange, American Stock Exchange or the Nasdaq
         SmallCap Market (each, a "Subsequent Market") or having such suspension
         lifted, in either case, for five consecutive Trading Days or ten
         Trading Days in the aggregate (which need not be consecutive Trading
         Days);

                           (vi) the Company shall be a party to any Change of
         Control Transaction (as defined in Section 6), shall agree to sell or
         dispose all or in excess of 33% of the fair market value of its assets
         in one or more transactions (whether or not such sale would constitute
         a Change of Control Transaction), or shall redeem or repurchase of
         shares of Common Stock or other equity securities of the Company for an
         aggregate of purchase prices in excess of $75,000 (other than
         redemptions of Underlying Shares (as defined in Section 6));

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                                                           Convertible Debenture
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                           (vii) an Underlying Shares Registration Statement (as
         defined in Section 6) shall not have been declared effective by the
         Commission (as defined in Section 6) on or prior to the 180th day after
         the Original Issue Date;

                           (viii) if, during the Effectiveness Period (as
         defined in the Registration Rights Agreement (as defined in Section
         6)), the effectiveness of the Underlying Shares Registration Statement
         lapses for any reason or the Holder shall not be permitted to resell
         Registrable Securities (as defined in the Registration Rights
         Agreement) under the Underlying Shares Registration Statement, in
         either case, for more than five consecutive Trading Days or an
         aggregate of ten Trading Days (which need not be consecutive Trading
         Days);

                           (ix) an Event (as defined in the Registration Rights
         Agreement) shall not have been cured to the satisfaction of the Holder
         prior to the expiration of thirty days from the Event Date (as defined
         in the Registration Rights Agreement) relating thereto unless no
         Registration Delay Payment (as defined in the Registration Rights
         Agreement) is due in respect to such Event, and excluding an Event
         resulting from a failure of an Underlying Shares Registration Statement
         to be declared effective by the Commission on or prior to the 180th day
         after the Original Issue Date, which shall be covered by Section
         3(a)(vii);

                           (x) the Company shall fail for any reason to deliver
         certificates to a Holder prior to the twelfth (12th) day after a
         Conversion Date pursuant to and in accordance with Section 4(b) or the
         Company shall provide notice to the Holder, including by way of public
         announcement, at any time, of its intention not to comply with requests
         for conversions of any Debentures in accordance with the terms hereof;
         or

                           (xi) the Company shall fail for any reason to deliver
         the payment in cash pursuant to a Buy-In (as defined herein) within
         seven (7) days after notice is deemed delivered hereunder.

                  (b) During the time that any portion of this Debenture remains
outstanding, if any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof to the date of acceleration, shall become, immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount (as defined in
Section 6) plus (ii) the product of (A) the number of Underlying Shares issued
in respect of conversions hereunder within thirty (30) days of the date of a
declaration of an Event of Default and then held by the Holder and (B) the Per
Share Market Value (as defined in Section 6) on the date prepayment is due or
the date the full prepayment price is paid, whichever is greater. Interest shall
accrue on the prepayment amount hereunder from the seventh day after such amount
is due (being the date of an Event of Default) through the date of prepayment in
full thereof at the rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law), to accrue daily from the date such
payment is due hereunder through and including the date of payment. All
Debentures and Underlying Shares for which the full prepayment price hereunder
shall have been paid in accordance herewith shall promptly be

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                                                           Convertible Debenture
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surrendered to or as directed by the Company. 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. Such declaration may be rescinded
and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.

         Section 4. Conversion.

                  (a) (i) Conversion at Option of Holder. (A) This Debenture
shall be convertible into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time, after the Original Issue
Date (subject to the limitations on conversion set forth in Section 4(a)(iii)
hereof). The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by adding the sum of (i) the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be converted
by (y) the Conversion Price (as defined herein), and (ii) the amount equal to
(I) the product of (x) the outstanding principal amount of this Debenture to be
converted and (y) the product of (1) the quotient obtained by dividing .05 by
360 and (2) the number of days for which such principal amount was outstanding,
divided by (II) the Conversion Price on the Conversion Date, provided, that if
the Company shall have timely elected to pay the interest due on a Conversion
Date in cash pursuant to the terms hereof, subsection (ii) shall not be used in
the calculation of the number of shares of Common Stock issuable upon a
conversion hereunder.

                           (B) Notwithstanding anything to the contrary
contained herein, if on any Conversion Date:

                           (1) the number of shares of Common Stock at the time
         authorized, unissued and unreserved for all purposes, or held as
         treasury stock, is insufficient to pay interest hereunder in shares of
         Common Stock;

                           (2) after the Interest Effectiveness Date (as defined
         in Section 6) such shares of Common Stock (x) are not registered for
         resale pursuant to an effective Underlying Shares Registration
         Statement and (y) may not be sold without volume restrictions pursuant
         to Rule 144(k) promulgated under the Securities Act (as defined in
         Section 6), as determined by counsel to the Company pursuant to a
         written opinion letter, addressed to the Company's transfer agent in
         the form and substance acceptable to the applicable Holder and such
         transfer agent;

                           (3) the Common Stock is not listed or quoted on the
         NASDAQ or on a Subsequent Market;

                           (4) the Company has failed to timely satisfy its
         conversion obligations hereunder; or

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                                                           Convertible Debenture
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                           (5) the issuance of such shares of Common Stock would
         result in a violation of Sections 4(a)(iii)(A) and (B),

                           then, at the option of the Holder, the Company, in
lieu of delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(ii),
shall deliver, within three Trading Days of the applicable Conversion Date, an
amount in cash equal to the product of (a) the outstanding principal amount of
the Debentures to be converted on such Conversion Date and (b) the product of
(x) the quotient obtained by dividing .05 by 360 and (y) the number of days for
which such principal amount was outstanding.

         If shares of Common Stock are permitted by the Holder to be delivered
under the conditions described in clause (2) prior to the Effectiveness Date (as
defined in the Registration Rights Agreement) and thereafter an Underlying
Shares Registration Statement shall be declared effective by the Commission, the
Company shall, within three (3) Trading Days after the date of such declaration
of effectiveness, exchange such shares for shares of Common Stock that are free
of restrictive legends of any kind.

                           (C) The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted, together
with the form of conversion notice attached hereto as Exhibit A (a "Conversion
Notice") to the Company. Each Conversion Notice shall specify the principal
amount of Debentures to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date such Conversion Notice is
deemed to have been delivered hereunder (a "Conversion Date"). If no Conversion
Date is specified in a Conversion Notice, the Conversion Date shall be the date
that such Conversion Notice is deemed delivered hereunder. Subject to Section
4(b), each Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the Debenture(s)
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 4(b)) a new
Debenture for such principal amount as has not been converted.

                           (ii) Automatic Conversion. Subject to the provisions
in this paragraph, the principal amount of Debentures for which conversion
notices have not previously been received or for which prepayment has not been
made or required hereunder shall be automatically converted on the fifth
anniversary of the Original Issue Date (the "Automatic Conversion Date")
pursuant to Section 4(a)(i), at the Conversion Price on such date. The
conversion contemplated by this paragraph shall not occur if (a) (1) an
Underlying Securities Registration Statement is not then effective that names
the Holder as a selling stockholder thereunder and (2) the Holder is not
permitted to resell Underlying Shares pursuant to Rule 144(k) promulgated under
the Securities Act, without volume restrictions, as evidenced by an opinion
letter of counsel acceptable to the Holder and the transfer agent for the Common
Stock; or (b) there are not sufficient shares of Common Stock authorized and
reserved for issuance upon such conversion. Notwithstanding anything herein to
the contrary, the Automatic Conversion Date shall be extended (on a day-for-day
basis) for any Trading Days after the Effectiveness Date that the Holder is
unable to resell Underlying Shares due to (a) the Common Stock not being listed
for trading on the NASDAQ or any Subsequent Market, (b) the

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                                                           Convertible Debenture
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failure of an Underlying Securities Registration Statement to be declared
effective by the Commission or, if so declared, to remain effective during the
Effectiveness Period as to all Underlying Shares, or (c) the suspension of the
Holder's right to resell Underlying Shares thereunder. Notwithstanding anything
to the contrary contained herein, a conversion pursuant to this Section shall
not be subject to the provisions of Section 4(a)(iii)(A).

                  (iii) Certain Conversion Restrictions.

                        (A) A Holder may not convert Debentures or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 6) and
the rules promulgated thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interest on, the Debentures held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 9.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of
Debentures are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of Debentures that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any principal
amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.

                        (B) If the Common Stock is then listed for trading on
the NASDAQ or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company is precluded from
issuing in excess of 1,907,121 shares of Common Stock (the "Issuable Maximum")
upon conversion of the Debentures and as payment of interest thereon and
exercise of the Class B Warrants (as defined in the Purchase Agreement) in
response to a Call Notice (as defined in the Class B Warrants). The Issuable
Maximum equals 19.999% of the number of shares of Common Stock outstanding
immediately prior to the closing of transactions set forth in the Purchase
Agreement. Accordingly, if on any Conversion Date (A) the Common Stock is listed
for trading on the NASDAQ or the Nasdaq SmallCap Market and (B) the Company
shall not have previously obtained the vote of shareholders (the "Shareholder
Approval"), if any, as may be required by the applicable rules and regulations
of

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                                                           Convertible Debenture
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the Nasdaq Stock Market (or any successor entity) applicable to approve the
issuance of a number of shares of Common Stock in excess of the Issuable Maximum
at a price below the market price of the Common Stock, then the Company shall
issue to the Holder requesting a conversion a number of shares of Common Stock
equal to the lesser of (x) the number of shares of Common Stock issuable upon
such conversion at the Conversion Price and (y) the Issuable Maximum less all
shares of Common Stock previously issued upon conversion of the Debentures and
as payment of interest thereon and all shares of Common Stock previously issued
upon any exercise of the Class B Warrants in response to a Call Notice. With
respect to the principal amount of Debentures tendered for conversion at issue
for which a conversion in accordance with the Conversion Price would, when
aggregated with all shares of Common Stock previously issued on account of
conversions of Debentures and payment of interest thereon and upon exercise of
Class B Warrants in response to a Call Notice (the "Excess Principal"), result
in the issuance of a number of shares of Common Stock in excess of the Issuable
Maximum, the converting Holder shall have the option to require the Company to
either (1) 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, or (2) pay cash to the converting Holder in an amount
equal to the Mandatory Prepayment Amount for the Excess Principal. If the
converting Holder shall have elected the first option pursuant to the
immediately preceding sentence and the Company shall have failed to obtain the
Shareholder Approval on or prior to the 60th day after such request, then within
three days of such 60th day, the Company shall pay cash to the converting Holder
an amount equal to the Mandatory Prepayment Amount for the Excess Principal. If
the Company fails to pay the Mandatory Prepayment Amount in full pursuant to
this Section within seven days of the date payable, the Company will pay
interest thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the converting Holder, accruing
daily from the Conversion Date until such amount, plus all such interest
thereon, is paid in full. In the event there is more than one holder of
Debentures, the Issuable Maximum applicable to each Debenture shall be
determined pro rata by reference to the percentage of the principal amount of
such Debenture and $10,000,000, provided that if one or more Debentures shall
have been redeemed or converted without having been issued its pro rata
allocated portion of the Issuable Maximum such unissued shares shall be
allocated pro rata to the remaining Holders. It is understood and agreed that
shares of Common Stock delivered to and held by the Holder or one of its
affiliates on account of conversion hereunder may not cast votes on the matter
of Shareholder Approval. Shares delivered on account of conversion hereunder and
not held by the Holder or its affiliates may cast votes on the matter of
Shareholder Approval.

                  (b) (i) Not later than three Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of
Debentures (subject to the limitations set forth in Section 4(a)(iii) hereof),
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted, and (iii) a bank check in the amount of accrued and
unpaid interest (if the Company has timely elected or is required to pay accrued
interest in cash) and the Floor Prepayment Price (as defined in Section
4(c)(i)(B)) (if applicable), provided, that the Company shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon
conversion of the principal amount of Debentures until Debentures are delivered
for conversion to the Company, or the Holder notifies the

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                                                           Convertible Debenture
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Company that such Debentures have been lost, stolen or destroyed and provides a
bond (or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. The
Company shall, upon request of the Holder, if available, use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates are not delivered
to or as directed by the applicable Holder by the third Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of
Debentures tendered for conversion.

                      (ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the third Trading Day
after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $5,000 for each Trading Day after such
third Trading Day until such certificates are delivered. Nothing herein shall
limit a Holder's right to pursue actual damages or declare an Event of Default
pursuant to Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the third Trading Day after the Conversion Date, the Holder
may, by notice to the Company, require the Company to issue shares of Common
Stock pursuant to Section 4(c), except that for such purpose the Conversion
Price applicable thereto shall be the lesser of the Conversion Price on the
Conversion Date and the Conversion Price on the date of such Holder demand. Any
such shares will be subject to the provisions of this Section.

                      (iii) 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(b)(i) by the third Trading Day after the
Conversion Date, and if after such third 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 Underlying Shares which the Holder anticipated
receiving 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
anticipated receiving 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 reissue Debentures in
principal amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery requirements under
Section 4(b)(i). 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

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                                                           Convertible Debenture
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Underlying Shares on the date of conversion was a total of $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.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in such Buy-In.

                  (c) (i)(A) The conversion price (the "Conversion Price") in
effect on any Conversion Date occurring on or prior to the 90th day following
the Original Issue Date shall be $20.25 (the "Initial Conversion Price"),
provided, that for any Conversion Date occurring after the 90th day following
the Original Issue Date, the Conversion Price shall be the lesser of (A) the
Initial Conversion Price and (B) 101% of the average of the ten lowest Per Share
Market Values during the thirty Trading Days immediately preceding the
applicable Conversion Date (which may include Trading Days prior to the Original
Issue Date), provided, however, that such thirty Trading Day period shall be
extended for the number of Trading Days during such period in which (A) trading
in the Common Stock is suspended by the NASDAQ or a Subsequent Market on which
the Common Stock is then listed, or (B) after the date declared effective by the
Commission, the Underlying Shares Registration Statement is not effective, or
(C) after the date declared effective by the Commission, the Prospectus included
in the Underlying Shares Registration Statement may not be used by the Holder
for the resale of Underlying Shares.

                      (B) If on any Conversion Date, the Conversion Price shall
be lower than $14.00 (which number shall be subject to equitable adjustments for
stock splits, recombinations and similar events) (such Conversion Price, the
"Floor Price" and a Conversion Date on which such condition is met, a "Record
Date"), then the Company will have the right, exercisable by delivery of a
written notice to the Holders delivered no later than twenty Trading Days prior
to the Record Date (the "Company Notice"), which notice shall remain in effect
until a subsequent such notice is provided by the Company to the Holders, to
elect to honor the conversion at issue by either: (x) issuing the number of
shares of Common Stock issuable at the actual Conversion Price pursuant to
Section 4(c)(i)(A), or (y) issue the number of shares of Common Stock issuable
upon the conversion at issue, as if the conversion price applicable to such
conversion was equal to the Floor Price and pay cash, no later than the third
Trading Day following the applicable Conversion Date, to the Holder, in an
amount equal to the product of (A) the average of the Per Share Market Values
for the five Trading Days preceding the Conversion Date for such conversion and
(B) the number of shares of Common Stock otherwise issuable at the actual
Conversion Price then in effect less the number of shares of Common Stock
issuable upon such conversion at the Floor Price (the "Floor Prepayment Price").
Failure by the Company to timely deliver the Company Notice to the Holder
pursuant to the terms of this Section shall result conclusively be deemed an
election by the Company under subsection (x) hereunder. Failure by the Company
to pay any portion of the Floor Prepayment Price by the third Trading Day
following the applicable Conversion Date shall result in the invalidation ab
initio of the unpaid portion of such optional prepayment. In such event, the
Company shall, at the option of the Holder, either, (i) not later than three
Trading Days from receipt of Holder's request for such election, return to the
Holder all of the principal amount of Debentures for which such Floor

                                      -10-
                                                           Convertible Debenture
<PAGE>   11
Prepayment Price has not been paid in full (the "Unpaid Prepayment Debentures")
or (ii) convert all or any portion of the Unpaid Prepayment Debentures in which
event the applicable Conversion Price shall be the lower of the Per Share Market
Value Conversion Price calculated on the date the Floor Prepayment Price was
originally due and the Per Share Market Value Conversion Price as of the
Holder's written demand for conversion. If the Holder elects option (ii) above,
the Company shall within three Trading Days of its receipt of such election
deliver to the Holder the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Debentures subject to such Holder conversion demand and
otherwise perform its obligations hereunder with respect thereto.

                      (ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 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.

                      (iii) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security other than with respect to rights granted
pursuant to a stockholders rights plan adopted by the Company, then in each such
case the Initial Conversion Price shall be adjusted by multiplying the Initial
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value determined
as of the record date mentioned above, and of which the numerator shall be such
Per Share Market Value 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 the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

                      (iv) In case of any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holders shall have the right
thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following

                                      -11-
                                                           Convertible Debenture
<PAGE>   12
such reclassification or share exchange, and the Holders of the Debentures shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the then
outstanding principal amount, together with all accrued but unpaid interest and
any other amounts then owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification or share exchange
would have been entitled or (B) require the Company to prepay the aggregate of
its outstanding principal amount of Debentures, plus all interest and other
amounts due and payable thereon, at a price determined in accordance with
Section 3(b). The entire prepayment price shall be paid in cash. This provision
shall similarly apply to successive reclassifications or share exchanges.

                      (v) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. No
adjustments in either the Conversion Price or the Initial Conversion Price shall
be required if such adjustment is less than $0.01, provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.

                      (vi) Whenever the Initial Conversion Price is adjusted
pursuant to Section 4(c)(ii) or (iii), the Company shall promptly mail to each
Holder a notice setting forth the Initial Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.

                      (vii) If (A) the Company shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled

                                      -12-
                                                           Convertible Debenture
<PAGE>   13
to convert Debentures during the 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.

                      (viii) In case of the closing of any (1) merger or
consolidation of the Company with or into another Person, or (2) sale by the
Company of more than one-half of the assets of the Company (on a market value
basis) in one or a series of related transactions, a Holder shall have the right
to (A) if permitted under Section 3(b) hereof, exercise its rights of prepayment
under Section 3(b) with respect to such event, or (B) convert its aggregate
principal amount of Debentures then outstanding into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon conversion of the Debentures to receive such
amount of securities, cash and property as the shares of Common Stock into which
such aggregate principal amount of Debentures could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled. The terms of any such merger, sale or consolidation shall include such
terms so as to continue to give the Holders the right to receive the securities,
cash and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
events.

                  (d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.

                  (e) 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.

                  (f) 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

                                      -13-
                                                           Convertible Debenture
<PAGE>   14
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.

                  (g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
157 Technology Drive, Irvine, CA 92618, Facsimile No.: (949) 788-6706, attention
Chief Financial Officer, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section, with a copy to Latham & Watkins, 650 Town Center
Drive, Suite 2000, Costa Mesa, CA 92661-1925 (facsimile number (714) 755-8290),
attention Alan W. Pettis, Esq. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.

         Section 5. Optional Prepayment.

                  (a) During the time that any portion of this Debenture remains
outstanding, the Company shall have the right, exercisable on any Trading Day in
which the Conversion Price shall be less than $14.00 (which number shall be
subject to equitable adjustments for stock splits, recombinations and similar
events), in accordance with the terms hereof and upon three Trading Days' prior
written notice to the Holders to be prepaid (an "Optional Prepayment Notice"),
to prepay all or any portion of the outstanding principal amount of the
Debentures which has not previously been repaid or for which Conversion Notices
have not previously been delivered. The prepayment price applicable to
prepayments under this Section 5(a) shall equal the Optional Prepayment Price
(as defined in Section 6) and shall be paid in cash. Any such prepayment shall
be free of any claim of subordination. The Holders shall have the right to
tender, and the Company shall honor, Conversion Notices delivered on or prior to
the expiration of the third Trading Day after receipt by the Holders of an
Optional Prepayment Notice for such Debentures (the third Trading Day after
receipt by the Holders of an Optional Prepayment Notice is referred to herein as
the "Optional Prepayment Date").

                                      -14-
                                                           Convertible Debenture
<PAGE>   15
                  (b) The Company shall not be entitled to deliver an Optional
Prepayment Notice to the Holder (and, if after delivery thereof and prior to the
Optional Prepayment Date, any of the following conditions shall cease to be met,
such notice, at the option of the Holders, shall be deemed no longer effective)
if: (i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes is insufficient to satisfy the Company's
conversion obligations of the aggregate principal amount of Debentures then
outstanding, or (ii) there is neither an effective Underlying Shares
Registration Statement under which the Holders can resell all of the issued
Underlying Shares and all of the Underlying Shares as are issuable upon
conversion in full of the principal amount of Debentures subject to an Optional
Prepayment Notice nor may all of such issued and issuable Underlying Shares be
sold by the Holders subject to such prepayment without volume restrictions
pursuant to Rule 144 promulgated under the Securities Act, as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holders and
such transfer agent, or (iii) the Common Stock is not then listed for trading on
the NASDAQ or on a Subsequent Market.

                  (c) If any portion of the Optional Prepayment Price shall not
be paid by the Company by the second (2nd) Business Day following the Optional
Prepayment Date, the Optional Prepayment Price shall bear interest at the rate
of 18% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to accrue daily from the date such interest is due hereunder
through and including the date of payment (which amount shall be paid as
liquidated damages and not as a penalty). In addition, if any portion of the
Optional Prepayment Price remains unpaid through the expiration of the Optional
Prepayment Date, the Holder subject to such prepayment may elect by written
notice to the Company to either (x) demand conversion in accordance with the
formula and the time period therefor set forth in Section 4 of any portion of
the principal amount of Debentures for which the Optional Prepayment Price, plus
accrued interest thereon, has not been paid in full (the "Unpaid Prepayment
Principal Amount"), in which event the applicable Per Share Market Value shall
be the lower of the Per Share Market Value calculated on the Optional Prepayment
Date and the Per Share Market Value as of the Holder's written demand for
conversion, or (y) invalidate ab initio such optional prepayment,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (x) above, the Company shall, within three Trading Days after such
election is deemed delivered hereunder, deliver to the Holder the shares of
Common Stock issuable upon conversion of the Unpaid Prepayment Principal Amount
subject to such conversion demand and otherwise perform its obligations
hereunder with respect thereto. If the Holder elects option (y) above, the
Company shall promptly, and in any event not later than three Trading Days from
receipt of notice of such election, return to the Holder new Debentures for the
full Unpaid Prepayment Principal Amount and shall no longer have any prepayment
rights under this Debenture. If, upon an election under option (x) above, the
Company fails to deliver certificates representing the shares of Common Stock
issuable upon conversion of the Unpaid Prepayment Principal Amount within the
time period set forth in this Section, the Company shall pay to the Holder in
cash, as liquidated damages and not as a penalty, $5,000 per day until the
Company delivers such certificates to the Holder.

         Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:

                                      -15-
                                                           Convertible Debenture
<PAGE>   16
                  "Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of California are authorized or required by law
or other government action to close.

                  "Change of Control Transaction" 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) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger or consolidation of the Company
with or into another entity that is not wholly-owned by the Company upon the
completion of which the stockholders of the Company, immediately before such
merger or consolidation, own or control less than 2/3 of the voting securities
of the surviving entity, or sale of 50% or more of the assets of the Company in
one or a series of related transactions, or (iv) 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) or (iii).

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the common stock, $.001 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                  "Interest Effectiveness Date" means the earlier to occur of
(x) the Effectiveness Date (as defined in the Registration Rights Agreement) and
(y) the date that an Underlying Shares Registration Statement is declared
effective by the Commission.

                  "Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the greater of (A) 120% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.

                                      -16-
                                                           Convertible Debenture
<PAGE>   17
                  "Optional Prepayment Price" shall equal the sum of (i) 106% of
the principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such Debentures.

                  "Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.

                  "Per Share Market Value" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the shares of Common Stock are then listed or
quoted, or if there is no such price on such date, then the closing bid price on
the NASDAQ or on such Subsequent Market on the date nearest preceding such date,
or (b) if the shares of Common Stock are not then listed or quoted on the NASDAQ
or a 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, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are 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 Holders
of a majority in interest of the principal amount of Debentures then
outstanding.

                  "Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.

                  "Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.

                  "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Trading Day" means (a) a day on which the shares of Common
Stock are traded on the NASDAQ or on such Subsequent Market on which the shares
of Common Stock are then listed or quoted, or (b) if the shares of Common Stock
are not listed on the NASDAQ or a Subsequent Market, a day on which the shares
of Common Stock are traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the shares of Common Stock are not quoted on the
OTC Bulletin Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the shares of
Common Stock are not listed or quoted as set forth in (a), (b) and (c) hereof,
then Trading

                                      -17-
                                                           Convertible Debenture
<PAGE>   18
Day shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday or a day on which banking institutions in the State of New York
are authorized or required by law or other government action to close.

                  "Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.

                  "Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.

                  "Underlying Shares Registration Statement" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.

         Section 7. 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, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (ii) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (iii) enter into any agreement with respect to any of
the foregoing. The Company may only voluntarily prepay the outstanding principal
amount on the Debentures in accordance with Section 5 hereof.

         Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.

         Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.

         Section 10. This Debenture is subordinate to all bank debt of the
Company outstanding as of the Original Issue Date and set forth in Schedule
2.1(n) to the Purchase Agreement or at any time thereafter.

                                      -18-
                                                           Convertible Debenture
<PAGE>   19
         Section 11. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, 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, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument 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.

         Section 12. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.

         Section 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.

         Section 14. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGE FOLLOWS]

                                      -19-
                                                           Convertible Debenture
<PAGE>   20
                  IN WITNESS WHEREOF, the Company has caused this Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.

                                                     NEOTHERAPEUTICS, INC.

                                                     By:________________________
                                                        Name:
                                                        Title:

Attest:

By:______________________________
  Name:
  Title:

                                                           Convertible Debenture
<PAGE>   21
                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert the Debenture)

The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.001 par value per share (the "Common Stock"), of
NeoTherapeutics, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.

Conversion calculations:

                                  ______________________________________________
                                  Date to Effect Conversion

                                  ______________________________________________
                                  Principal Amount of Debentures to be Converted

                                  ______________________________________________
                                  Number of shares of Common Stock to be Issued

                                  ______________________________________________
                                  Applicable Conversion Price

                                  ______________________________________________
                                  Signature

                                  ______________________________________________
                                  Name

                                  ______________________________________________
                                  Address

                                                           Convertible Debenture<PAGE>   1
                                                                     EXHIBIT 4.4

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER 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 THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

                              NEOTHERAPEUTICS, INC.

                                 CLASS A WARRANT

Warrant No. A-1                                             Dated: April 6, 2000

         NeoTherapeutics, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Montrose Investments Ltd., or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to a total of 157,500 shares of common stock, $.001
par value per share (the "Common Stock"), of the Company (each such share, a
"Warrant Share" and all such shares, the "Warrant Shares") at an exercise price
equal to $19.672 per share (as adjusted from time to time as provided in Section
9, the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including April 6, 2005 (the "Termination Date"),
and subject to the following terms and conditions:

                  1.       Registration of Warrant. The Company shall register
this Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.

                  2.       Registration of Transfers and Exchanges.

                           (a) This Warrant may only be transferred pursuant to
an effective registration statement under the Securities Act, to the Company or
pursuant to an available exemption from or in a transaction not subject to the
registration requirements of the Securities Act. In connection with any transfer
of this Warrant other than pursuant to an effective registration

                                                                 Class A Warrant
<PAGE>   2
statement or to the Company, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
Warrant under the Securities Act. Holder agrees to the imprinting, so long as is
required by this Section 2(a), of a legend substantially similar to that first
above written on any New Warrant (as defined below). Any such transferee shall
agree in writing to be bound by the terms of this Warrant and shall have the
rights of Holder under this Warrant.

                           (b) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof shall be
deemed the acceptance of such transferee of all of the rights and obligations of
a holder of a Warrant.

                           (c) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.

                  3.       Duration, Exercise and Vesting of Warrants.

                           (a) This Warrant shall be exercisable by the
registered Holder on any business day before 8:00 P.M., New York City time, at
any time and from time to time on or after the date hereof to and including the
Termination Date. At 8:00 P.M., New York City time on the Termination Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value. Prior to the Termination Date, the Company may not call or
otherwise redeem this Warrant without the prior written consent of the Holder.

                           (b) Subject to Sections 2(b), 6 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set forth in
Section 13 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in the manner
provided hereunder, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 3 business days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends except (i) either in
the event that a registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder is not then
effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) if this Warrant shall have been
issued pursuant to a written agreement

                                      -2-
                                                                 Class A Warrant
<PAGE>   3
between the original Holder and the Company, as required by such agreement. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.

                           A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.

                           (c)      This Warrant shall be exercisable, either in
its entirety or, from time to time, for a portion of the number of Warrant
Shares which have vested pursuant to Section 3(d). If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.

                           (d)      (i) On the date hereof, 57,500 Warrant
                                    Shares shall vest on the date hereof;

                                    (ii) Upon each exercise by the Holder
                                    pursuant to Section 3(a) of the Class B
                                    Warrant of even date hereof, issued by the
                                    Company in the name of the Holder (the
                                    "Class B Warrant"), this Warrant shall vest
                                    with respect to 1/20th of the Warrant Shares
                                    so exercised under the Class B Warrant,
                                    provided, that no more than 75,000 Warrant
                                    Shares shall be permitted to vest under this
                                    subsection 3(d)(ii);

                                    (iii) If, on or prior to the Expiration Date
                                    (as defined in the Class B Warrant), the
                                    Company has failed to deliver one or more
                                    Call Notices (as defined in the Class B
                                    Warrant) pursuant to Section 3(a) of the
                                    Class B Warrant for a minimum of 500,000
                                    Warrant Shares (as defined in the Class B
                                    Warrant), then on the Expiration Date, this
                                    Warrant shall vest with respect to a number
                                    of Warrant Shares equal to the difference
                                    between (i) 25,000 and (ii) 1/20th of the
                                    number of Warrant Shares called pursuant to
                                    Section 3(a) of the Redeemable Warrant; and

                                    (iv) If the Class B Warrant shall be
                                    canceled pursuant to Section 2(f) of the
                                    Registration Rights Agreement of even date
                                    herewith to which the Company and the
                                    original holder are parties, then, on the
                                    date of such cancellation, this Warrant
                                    shall vest with respect to 25,000 Warrant
                                    Shares.

                                      -3-
                                                                 Class A Warrant
<PAGE>   4
                  4. Piggyback Registration Rights. During the Effectiveness
Period (as defined in the Registration Rights Agreement, of even date herewith,
between the Company and the original Holder), the Company may not file any
registration statement with the Securities and Exchange Commission (other than
registration statements of the Company filed on Form S-8 or Form S-4, each as
promulgated under the Securities Act, pursuant to which the Company is
registering securities pursuant to a Company employee benefit plan or pursuant
to a merger, acquisition or similar transaction including supplements thereto,
but not additionally filed registration statements in respect of such
securities) at any time when there is not an effective registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder, unless the Company provides the Holder with not less
than 20 days notice of its intention to file such registration statement and
provides the Holder the option to include any or all of the applicable Warrant
Shares therein. The piggyback registration rights granted to the Holder pursuant
to this Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon the
expiration of the Effective Period. The Company will pay all registration
expenses in connection therewith.

                  5. [intentionally left blank]

                  6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.

                  7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.

                  8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.

                                      -4-
                                                                 Class A Warrant
<PAGE>   5
                  9. Certain Adjustments.

                  (a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section 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 or combination, and shall apply to successive subdivisions and
combinations.

                  (b) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such exercise to receive such amount of securities or
property equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification or share exchange. The terms of any such reclassification or
share exchange shall include such terms so as to continue to give to the Holder
the right to receive the securities or property set forth in this Section 9(b)
upon any exercise following any such reclassification or share exchange.

                  (c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)) and other than with respect to rights granted
pursuant to a stockholders rights plan adopted by the Company, then in each such
case the Exercise Price shall be determined by multiplying the Exercise Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Exercise Price determined as of the record date
mentioned above, and of which the numerator shall be such Exercise Price 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 Company's independent
certified public accountants that regularly examines the financial statements of
the Company (an "Appraiser").

                                      -5-
                                                                 Class A Warrant
<PAGE>   6
                  (d) In case of the closing of any (1) merger or consolidation
of the Company with or into another Person, or (2) sale by the Company of more
than one-half of the assets of the Company (on a book value basis) in one or a
series of related transactions, or (3) tender or other offer or exchange
(whether by the Company or another Person) pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
stock, cash or property of the Company or another Person; then the Holder shall
have the right thereafter to (A) exercise this Warrant for the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and the
Holder shall be entitled upon exercise of this Warrant to receive such amount of
securities, cash and property as the Common Stock for which this Warrant could
have been exercised immediately prior to such merger, consolidation or sales
would have been entitled, or (B) in the event of an exchange or tender offer or
other transaction contemplated by clause (3) of this Section, tender or exchange
this Warrant for such securities, stock, cash and other property receivable upon
or deemed to be held by holders of Common Stock that have tendered or exchanged
their shares of Common Stock following such tender or exchange, and the Holder
shall be entitled upon such exchange or tender to receive such amount of
securities, cash and property as the shares of Common Stock for which this
Warrant could have been exercised immediately prior to such tender or exchange
would have been entitled as would have been issued. The terms of any such
merger, sale, consolidation, tender or exchange shall include such terms so as
continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.

                  (e) For the purposes of this Section 9, the following clauses
shall also be applicable:

                      (i) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall 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.

                      (ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

                  (f) All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.

                  (g) Whenever the Exercise Price is adjusted pursuant to
Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the

                                      -6-
                                                                 Class A Warrant
<PAGE>   7
adjustment shall be equal to the average of the adjustments recommended by each
of the Appraiser and such appraiser. The Holder shall promptly mail or cause to
be mailed to the Company, a notice setting forth the Exercise Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such adjustment shall become effective immediately after the record
date mentioned above.

         (h)      If:

                  (i)      the Company shall declare a dividend (or any other
                           distribution) on its Common Stock; or

                  (ii)     the Company shall declare a special nonrecurring cash
                           dividend on or a redemption of its Common Stock; or

                  (iii)    the Company shall authorize the granting to all
                           holders of the Common Stock rights or warrants to
                           subscribe for or purchase any shares of capital stock
                           of any class or of any rights; or

                  (iv)     the approval of any stockholders of the Company shall
                           be required in connection with any reclassification
                           of the Common Stock, any consolidation or merger to
                           which the Company is a party, any 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

                  (v)      the Company shall authorize the voluntary
                           dissolution, liquidation or winding up of the affairs
                           of the Company,

then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.

                                      -7-
                                                                 Class A Warrant
<PAGE>   8
                  10. Payment of Exercise Price. The Holder shall pay the
Exercise Price in one of the following manners:

                           (a) Cash Exercise. The Holder may deliver immediately
available funds; or

                           (b) Cashless Exercise. The Holder may surrender this
Warrant to the Company together with a notice of cashless exercise, in which
event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:

                               X = Y [(A-B)/A]
         where:
                               X = the number of Warrant Shares to be issued
         to the Holder.

                               Y = the number of Warrant Shares with
                               respect to which this Warrant is being
                               exercised.

                               A = the average of the closing sale prices
                               of the Common Stock for the five (5) trading
                               days immediately prior to (but not
                               including) the Date of Exercise.

                               B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.

         11. Certain Exercise Restrictions. A Holder may not exercise this
Warrant to the extent such exercise would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended and the rules
promulgated thereunder) in excess of 9.999% of the then issued and outstanding
shares of Common Stock, including shares of Common Stock issuable upon such
exercise and held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Company the number of shares of
Common Stock it may hold at the time of an exercise hereunder, unless the
exercise at issue would result in the issuance of shares of Common Stock in
excess of 9.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular exercise hereunder and to the extent that the Holder determines that
the limitation contained in this Section applies, the determination of which
portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Form of Election to
Purchase for a number of Warrant Shares that, without regard to any other shares
that the Holder or

                                      -8-
                                                                 Class A Warrant
<PAGE>   9
its affiliates may beneficially own, would result in the issuance in excess of
the permitted amount hereunder, the Company shall notify the Holder of this fact
and shall honor the exercise for the maximum portion of this Warrant permitted
to be exercised on such Date of Exercise in accordance with the periods
described herein and, at the option of the Holder, either keep the portion of
the Warrant tendered for exercise in excess of the permitted amount hereunder
for future exercises or return such excess portion of the Warrant to the Holder.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 61 days prior notice to the
Company. Other Holders shall be unaffected by any such waiver.

                  12. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable on the exercise of this Warrant, the Company shall pay an amount in
cash equal to the Exercise Price multiplied by such fraction.

                  13. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) if sent other than by the methods set forth in (i)-(iii) of this
section, upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
157 Technology Drive, Irvine, CA 92618, Attention: Chief Financial Officer, or
to Facsimile No. (949) 788-6706, or (ii) if to the Holder, to the Holder at the
address or facsimile number appearing on the Warrant Register or such other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

                  14. Warrant Agent. The Company shall serve as warrant agent
under this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.

                                      -9-
                                                                 Class A Warrant
<PAGE>   10
                  15.      Miscellaneous.

                           (a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Warrant may be amended only in writing signed by the Company and the Holder and
their successors and assigns.

                           (b) Subject to Section 15(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.

                           (c) The corporate laws of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Warrant 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. The Company
and the Holder hereby irrevocably submit to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, 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, or that
such suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy thereof
sent to the Company at the address in effect for notices to it under this
instrument 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.

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

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

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

                                      -10-
                                                                 Class A Warrant
<PAGE>   11
                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.

                                    NEOTHERAPEUTICS, INC.

                                    By:      /s/Samuel Gulko
                                       -------------------------------
                                       Name:  Samuel Gulko
                                       Title: Chief Financial Officer

                                                                 Class A Warrant
<PAGE>   12
                          FORM OF ELECTION TO PURCHASE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

To NeoTherapeutics, Inc.:

         In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock, $.001 par value per share, of NeoTherapeutics, Inc. (the
"Common Stock") and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

         The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of

                                                PLEASE INSERT SOCIAL SECURITY OR
                                                TAX IDENTIFICATION NUMBER

                                                ________________________________

________________________________________________________________________________
                         (Please print name and address)

         If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:

________________________________________________________________________________
                         (Please print name and address)

Dated:            ,               Name of Holder:
     _____________ _____

                                  (Print)______________________________________

                                  (By:)_______________________________________
                                  (Name:)
                                  (Title:)_____________________________________
                                  (Signature must conform in all respects to
                                  name of holder as specified on the face of the
                                  Warrant)

                                                                 Class A Warrant
<PAGE>   13
                               FORM OF ASSIGNMENT

           [To be completed and signed only upon transfer of Warrant]

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of NeoTherapeutics, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of NeoTherapeutics, Inc. with full power of
substitution in the premises.

Dated:

__________________, ______

                                             ___________________________________
                                            (Signature must conform in all
                                             respects to name of holder as
                                             specified on the face of the
                                             Warrant)

                                             ___________________________________
                                             Address of Transferee
                                             ___________________________________

                                             ___________________________________

                                             ___________________________________

In the presence of:

____________________________

                                                                 Class A Warrant

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