Document:

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                                                                  EXHIBIT 10.58

                         SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "Agreement") is dated as of
January 31, 2003, among Viragen, Inc., a Delaware corporation (the "Company"),
and the purchasers identified on the signature pages hereto (each, including
its successors and assigns, a "Purchaser" and collectively the "Purchasers").

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") and Rule 506 promulgated thereunder, the Company
desires to issue and sell to the Purchasers, and the Purchasers, severally and
not jointly, desire to purchase from the Company, securities of the Company as
more fully described in this Agreement.

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:

                                   ARTICLE I
                                  DEFINITIONS

         1.1      Definitions. In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Debenture (as defined herein), and
(b) the following terms have the meanings indicated in this Section 1.1:

                  "Actual Minimum" means, as of any date, the maximum aggregate
         number of shares of Common Stock then issued or potentially issuable
         in the future pursuant to the Transaction Documents, including any
         Underlying Shares issuable upon exercise or conversion in full of all
         Warrants and Debentures, ignoring any conversion or exercise limits
         set forth therein, and assuming that: (a) any previously unconverted
         Debentures are held until the second anniversary of the Closing Date
         or, if earlier, until maturity, and all interest thereon is accreted
         to the principal amount of Debentures, and (b) the Closing Bid Price
         at all times on and after the date of determination equals 100% of the
         actual Closing Bid Price on the Trading Day immediately prior to the
         date of determination.

                  "Affiliate" means any Person that, directly or indirectly
         through one or more intermediaries, controls or is controlled by or is
         under common control with a Person, as such terms are used in and
         construed under Rule 144 under the Securities Act.

                  "Capital Shares" shall mean the Common Stock and any shares
         of any other class of common stock whether now or hereafter
         authorized, having the right to participate in the distribution of
         earnings and assets of the Company.

                  "Capital Shares Equivalents" shall mean any securities,
         rights, or obligations that

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         are convertible into or exchangeable for or give any right to
         subscribe for or purchase, directly or indirectly, any Capital Shares
         of the Company or any warrants, options or other rights to subscribe
         for or purchase, directly or indirectly, Capital Shares or any such
         convertible or exchangeable securities.

                  "Closing" means the Closing of the purchase and sale of the
         Securities pursuant to Section 2.1.

                  "Closing Bid Price" means on any particular date (a) the
         closing bid price per share of Common Stock on such date on the
         Principal Market or the OTC Bulletin Board (as reported by Bloomberg
         L.P. at 4:15 PM (New York time), or (b) if there is no such price on
         such date, then the closing bid price on the Principal Market or the
         OTC Bulletin Board on the date nearest preceding such date (as
         reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
         bid price for regular session trading on such day), or (c) if the
         shares of Common Stock are not then reported on the Principal Market
         or the OTC Bulletin Board, then the average of the "Pink Sheet" quotes
         for the relevant conversion period, as determined in good faith by the
         Purchasers, or (c) 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 Purchasers of a majority
         in interest of the principal amount of Debentures then outstanding.

                  "Closing Date" means the date of the Closing.

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the common stock of the Company, par
         value $0.01 per share, and any securities into which such common stock
         may hereinafter been reclassified into.

                  "Company Counsel" means Adorno and Yoss P.A., outside counsel
         to the Company.

                  "Debentures" means the Secured Convertible Debentures due 2
         years from their date of issuance, unless otherwise set forth therein,
         issued by the Company to the Purchasers hereunder, in the form of
         Exhibit A.

                  "Disclosure Schedules" shall have the meaning ascribed to
         such term in Section 3.1.

                  "Effective Date" means the date that the Registration
         Statement is first declared effective by the Commission.

                  "Escrow Agent" shall have the meaning set forth in the Escrow
         Agreement.

                  "Escrow Agreement" shall mean the Escrow Agreement in
         substantially the form of Exhibit F hereto executed and delivered
         contemporaneously with this Agreement.

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

                  "GAAP" shall have the meaning ascribed to such term in
         Section 3.1(h).

                  "Liens" shall have the meaning ascribed to such term in
         Section 3.1(a).

                  "Losses" means any and all losses, claims, damages,
         liabilities, settlement costs and expenses, including without
         limitation costs of preparation and reasonable attorneys' fees.

                  "Material Adverse Effect" shall have the meaning assigned to
         such term in Section 3.1(b).

                  "Person" means an individual or corporation, partnership,
         trust, incorporated or unincorporated association, joint venture,
         limited liability company, joint stock company,

                  "Principal Market" shall initially mean the American Stock
         Exchange, and shall include the New York Stock Exchange, the NASDAQ
         National Market, the OTC Bulletin Board or the NASDAQ Small-Cap
         Market, whichever is at the time the principal trading exchange or
         market for the Common Stock, based upon share volume.

                  "Proceeding" means an action, claim, suit, investigation or
         proceeding (including, without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

                  "Purchasers' Counsel" means Feldman Weinstein LLP with
         offices at 420 Lexington Avenue, New York, New York 10170.

                  "Registration Rights Agreement" means the Registration Rights
         Agreement, dated the Closing Date, among the Company and the
         Purchasers, in the form of Exhibit B.

                  "Required Approvals" shall have the meaning ascribed to such
         term in Section 3.1(e).

                  "Required Minimum" means, as of any date, the maximum
         aggregate number of shares of Common Stock then issued or potentially
         issuable in the future pursuant to the Transaction Documents,
         including any Underlying Shares issuable upon exercise or conversion
         in full of all Warrants and Debentures, ignoring any conversion or
         exercise limits set forth therein, and assuming that (a) any
         previously unconverted Debentures are held until the second
         anniversary of the Closing Date or, if earlier, until maturity, and
         all interest thereon is accreted to principal, and (b) the Closing Bid
         Price at all times on and after the date of determination equals 75%
         of the actual Closing Bid Price on the Trading Day immediately prior
         to the date of determination.

                  "Rule 144" means Rule 144 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or

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         regulation hereafter adopted by the Commission having substantially
         the same effect as such Rule.

                  "SEC Reports" shall have the meaning ascribed to such term in
         Section 3.1(h).

                  "Securities" means the Debentures, the Warrants, the
         Underlying Shares and the shares of Common Stock issuable at the
         Closing to the Purchasers pursuant to Section 2.2(a)(viii).

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

                  "Security Agreement" shall mean the Bond and Floating Charge
         and all documents to be delivered in connection therewith pursuant to
         Section 2.2(a)(v).

                  "Standard Liquidated Damages" shall have the meaning set
         forth in Section 4.15.

                  "Subscription Amount" shall mean, as to each Purchaser, the
         amount to be paid for Debentures purchased hereunder as specified
         below such Purchaser's name on the signature page of this Agreement,
         in United States Dollars.

                  "Subsidiary" means any subsidiary of the Company that is
         required to be listed in Schedule 3.1(a).

                  "Trading Day" shall mean any day during which the Principal
         Market shall be open for business.

                  "Transaction Documents" means this Agreement, the Debentures,
         the Warrants, the Escrow Agreement, the Security Agreement, the
         Registration Rights Agreement, the Instructions to Transfer Agent, the
         Subsidiary Guarantee required by Section 2.2(a)(vii) and any other
         documents or agreements executed in connection with the transactions
         contemplated hereunder.

                  "Underlying Shares" means the shares of Common Stock issuable
         upon conversion of the Debentures and upon exercise of the Warrants.

                  "Underlying Shares Registration Statement" or "Registration
         Statement" means a registration statement meeting the requirements set
         forth in the Registration Rights Agreement and covering the resale of
         the Underlying Shares and shares issuable at the Closing by the
         Purchasers.

                  "Warrants" means collectively the Common Stock purchase
         warrants, in the form of Exhibit C delivered to the Purchasers at the
         Closing, the terms of each Warrant which are set forth in Section
         2.2(a)(ii).

                                   ARTICLE II
                               PURCHASE AND SALE

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         2.1      Closing. Within 5 Trading Days of the date hereof, upon the
terms and subject to the conditions set forth herein, the Company agrees to
sell, and the Purchasers agree to purchase, severally and not jointly, the
Debentures. Each Purchaser shall deliver to the Escrow Agent via wire transfer
or a certified check immediately available funds equal to their Subscription
Amount (except as provided for below in the case of Palisades Equity Fund L.P.)
and the Company shall deliver to the Escrow Agent the Debentures evidencing a
principal amount equal to 115% of such Purchaser's Subscription Amount and the
other items set forth in Section 2.2 issuable at the Closing. Upon satisfaction
of the conditions set forth in Section 2.2, the Closing shall occur at the
offices of the Escrow Agent, or such other location as the parties shall
mutually agree.

         2.2      Conditions to Closing.

                  (a)      At or prior to the Closing, the Company shall
         deliver or cause to be delivered to the Escrow Agent the following:

                           (i)      Debentures with a principal amount equal to
                  115% of the Subscription Amount, registered in the name of
                  such Purchaser;

                           (ii)     a Warrant registered in the name of each
                  Purchaser to purchase up to 4 shares of Common Stock for each
                  $1 of principal amount of Debenture issued hereunder to such
                  Purchaser, with a term of 3 years and an exercise price of
                  $0.0625 per Warrant Share, subject to adjustment therein;

                           (iii)    the legal opinion of Company Counsel, in
                  the form of Exhibit D attached hereto, addressed to the
                  Purchasers;

                           (iv)     the Escrow Agreement duly executed by the
                  Company;

                           (v)      the Bond and Floating Charge in the form
                  annexed hereto as Exhibit G duly executed by Viragen
                  (Scotland) Ltd. which is to be a second ranking charge and
                  all other documents and instruments required to grant a
                  floating charge with no competing or adverse entries against
                  Viragen (Scotland) Ltd., other than the Bond and Floating
                  Charge granting a first ranking charge to Palisades Equity
                  Fund L.P., Bristol Investment Fund, Ltd. and Alpha Capital
                  AG, in Scottish form to the Purchasers;

                           (vi)     the Registration Rights Agreement duly
                  executed by the Company;

                           (vii)    the Subsidiary Guarantee duly executed by
                  the Subsidiaries in the form annexed hereto as Exhibit H;

                           (viii)   as additional consideration to the
                  Purchasers to induce the Purchasers to purchase the
                  Debentures and Warrants, a certificate representing 2 shares
                  of Common Stock for each $1 of principal amount of Debenture
                  issued hereunder to such Purchaser;

                           (ix)     the Transfer Agent Instructions executed by
                  the Company and

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                  delivered to and acknowledged by the Company's transfer agent
                  in the form annexed hereto as Exhibit E; and

                           (x)      duly executed agreements of each director
                  and officer of the Company that holds shares of Common Stock
                  in the form of Exhibit I attached hereto.

                  (b)      At or prior to the Closing, each Purchaser shall
         deliver or cause to be delivered to the Escrow Agent the following:

                           (i)      the Subscription Amount indicated below
                  such Purchaser's name on the signature page of this
                  Agreement, in United States dollars and in immediately
                  available funds, by wire transfer (except with respect to
                  Palisades Equity Fund L.P. which shall tender payment by
                  surrendering the principal amount of a promissory note made
                  by the Company in lieu of an equal amount of cash
                  consideration);

                           (ii)     the Escrow Agreement duly executed by such
                  Purchaser;

                           (iii)    an Intercreditor Agreement, duly executed
                  by each Purchaser, in form and substance reasonably
                  acceptable to all the Purchaser; and

                           (iv)     the Registration Rights Agreement duly
                  executed by such Purchaser.

                  (c)      All representations and warranties of the other
         party contained herein shall remain true and correct as of the Closing
         Date.

                  (d)      There shall have been no Material Adverse Effect (as
         defined in Section 3.1(b)) with respect to the Company since the date
         hereof.

                  (e)      From the date hereof to the Closing Date, trading in
         the Common Stock shall not have been suspended by the Commission
         (except for any suspension of trading of limited duration agreed to by
         the Company, which suspension shall be terminated prior to the
         Closing), and, at any time prior to the Closing Date, trading in
         securities generally as reported by Bloomberg Financial Markets shall
         not have been suspended or limited, or minimum prices shall not have
         been established on securities whose trades are reported by such
         service, or on the Principal Market, nor shall a banking moratorium
         have been declared either by the United States or New York State
         authorities, nor shall there have occurred any material outbreak or
         escalation of hostilities or other national or international calamity
         of such magnitude in its effect on, or any material adverse change in,
         any financial market which, in each case, in the reasonable judgment
         of the Purchasers, makes it impracticable or inadvisable to purchase
         the Debentures at the Closing.

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                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         3.1      Representations and Warranties of the Company. Except as set
forth under the corresponding section of the disclosure schedules attached
hereto (the "Disclosure Schedules"), the Company hereby makes the following
representations and warranties to the Purchasers:

                  (a)      Subsidiaries. The Company has no direct or indirect
         subsidiaries. The Company owns, directly or indirectly, all of the
         capital stock or other equity interests of each Subsidiary free and
         clear of any lien, charge, security interest, encumbrance, right of
         first refusal or other restriction (collectively, "Liens"), and all
         the issued and outstanding shares of capital stock of each Subsidiary
         are validly issued and are fully paid, non-assessable and free of
         preemptive and similar rights.

                  (b)      Organization and Qualification. Each of the Company
         and the Subsidiaries is an entity duly incorporated or otherwise
         organized, validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable),
         with the requisite power and authority to own and use its properties
         and assets and to carry on its business as currently conducted.
         Neither the Company nor any Subsidiary is in violation of any of the
         provisions of its respective certificate or articles of incorporation,
         bylaws or other organizational or charter documents. Each of the
         Company and the Subsidiaries is duly qualified to do business and is
         in good standing as a foreign corporation or other entity in each
         jurisdiction in which the nature of the business conducted or property
         owned by it makes such qualification necessary, except where the
         failure to be so qualified or in good standing, as the case may be,
         could not, individually or in the aggregate: (i) adversely affect the
         legality, validity or enforceability of any Transaction Document, (ii)
         have or result in or be reasonably likely to have or result in a
         material adverse effect on the results of operations, assets,
         prospects, business or condition (financial or otherwise) of the
         Company and the Subsidiaries, taken as a whole, or (iii) adversely
         impair the Company's ability to perform fully on a timely basis its
         obligations under any of the Transaction Documents (any of (i), (ii)
         or (iii), a "Material Adverse Effect").

                  (c)      Authorization; Enforcement. The Company has the
         requisite corporate power and authority to enter into and to
         consummate the transactions contemplated by each of the Transaction
         Documents and otherwise to carry out its obligations hereunder or
         thereunder. The execution and delivery of each of the Transaction
         Documents by the Company and the consummation by it of the
         transactions contemplated hereby or thereby have been duly authorized
         by all necessary action on the part of the Company and no further
         consent or action is required by the Company. Each of the Transaction
         Documents has been (or upon delivery will be) duly executed by the
         Company and, when delivered in accordance with the terms hereof, will
         constitute the valid and binding obligation of the Company enforceable
         against the Company in accordance with its terms, subject to
         applicable bankruptcy, insolvency, fraudulent conveyance,
         reorganization, moratorium and similar laws affecting creditors'
         rights and remedies generally and general principles of equity.
         Neither the Company nor any Subsidiary is in

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         violation of any of the provisions of its respective certificate or
         articles of incorporation, by-laws or other organizational or charter
         documents.

                  (d)      No Conflicts. The execution, delivery and
         performance of the Transaction Documents by the Company and the
         consummation by the Company of the transactions contemplated thereby
         do not and will not: (i) conflict with or violate any provision of the
         Company's or any Subsidiary's certificate or articles of
         incorporation, bylaws or other organizational or charter documents, or
         (ii) subject to obtaining the Required Approvals (as defined below),
         conflict with, or constitute a default (or an event that with notice
         or lapse of time or both would become a default) under, or give to
         others any rights of termination, amendment, acceleration or
         cancellation (with or without notice, lapse of time or both) of, any
         agreement, credit facility, debt or other instrument (evidencing a
         Company or Subsidiary debt or otherwise) or other understanding to
         which the Company or any Subsidiary is a party or by which any
         property or asset of the Company or any Subsidiary is bound or
         affected, or (iii) result in a violation of any law, rule, regulation,
         order, judgment, injunction, decree or other restriction of any court
         or governmental authority to which the Company or a Subsidiary is
         subject (including federal and state securities laws and regulations),
         or by which any property or asset of the Company or a Subsidiary is
         bound or affected; except in the case of each of clauses (ii) and
         (iii), such as could not, individually or in the aggregate, have or
         result in a Material Adverse Effect.

                  (e)      Filings, Consents and Approvals. Neither the Company
         nor any Subsidiary is required to obtain any consent, waiver,
         authorization or order of, give any notice to, or make any filing or
         registration with, any court or other federal, state, local or other
         governmental authority or other Person in connection with the
         execution, delivery and performance by the Company of the Transaction
         Documents, other than (i) the filings required under Section 4.8, (ii)
         the filing with the Commission of the Underlying Shares Registration
         Statement, (iii) the application(s) to each applicable Principal
         Market for the listing of the Underlying Shares and shares issuable at
         the Closing for trading thereon in the time and manner required
         thereby, and (iv) applicable Blue Sky filings (collectively, the
         "Required Approvals").

                  (f)      Issuance of the Securities. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         applicable Transaction Documents, will be duly and validly issued,
         fully paid and non assessable, free and clear of all Liens. The
         Company has reserved from its duly authorized capital stock a number
         of shares of Common Stock for issuance of the Underlying Shares and
         shares of Common Stock issuable at the Closing at least equal to the
         Required Minimum on the date hereof. The Company acknowledges and
         agrees that the Purchasers are acquiring the Debentures for an
         original issue discount to the principal amount of the Debentures.

                  (g)      Capitalization. The number of shares and type of all
         authorized, issued and outstanding capital stock of the Company is set
         forth in the Disclosure Schedules attached hereto. No securities of
         the Company are entitled to preemptive or similar rights, and no
         Person has any right of first refusal, preemptive right, right of
         participation, or any similar right to participate in the transactions
         contemplated by the Transaction

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         Documents. Except as a result of the purchase and sale of the
         Securities, there are no outstanding options, warrants, script rights
         to subscribe to, calls or commitments of any character whatsoever
         relating to, or securities, rights or obligations convertible into or
         exchangeable for, or giving any Person any right to subscribe for or
         acquire, any shares of Common Stock, or contracts, commitments,
         understandings or arrangements by which the Company or any Subsidiary
         is or may become bound to issue additional shares of Common Stock, or
         securities or rights convertible or exchangeable into shares of Common
         Stock. The issuance and sale of the Securities will not obligate the
         Company to issue shares of Common Stock or other securities to any
         Person (other than the Purchasers) and will not result in a right of
         any holder of Company securities to adjust the exercise, conversion,
         exchange or reset price under such securities.

                  (h)      SEC Reports; Financial Statements. The Company has
         filed all reports required to be filed by it under the Securities Act
         and the Exchange Act, including pursuant to Section 13(a) or 15(d)
         thereof, for the two years preceding the date hereof (or such shorter
         period as the Company was required by law to file such material) (the
         foregoing materials being collectively referred to herein as the "SEC
         Reports") on a timely basis or has received a valid extension of such
         time of filing and has filed any such SEC Reports prior to the
         expiration of any such extension. The Company has delivered to the
         Purchasers a copy of all SEC Reports filed within the 10 days
         preceding the date hereof. As of their respective dates, the SEC
         Reports complied in all material respects with the requirements of the
         Securities Act and the Exchange Act and the rules and regulations of
         the Commission promulgated thereunder, and none of the SEC Reports,
         when filed, contained any untrue statement of a material fact or
         omitted to state a material fact required to be stated therein or
         necessary in order to make the statements therein, in light of the
         circumstances under which they were made, not misleading. The
         financial statements of the Company included in the SEC Reports comply
         in all material respects with applicable accounting requirements and
         the rules and regulations of the Commission with respect thereto as in
         effect at the time of filing. Such financial statements have been
         prepared in accordance with generally accepted accounting principles
         applied on a consistent basis during the periods involved ("GAAP"),
         except as may be otherwise specified in such financial statements or
         the notes thereto, and fairly present in all material respects the
         financial position of the Company and its consolidated subsidiaries as
         of and for the dates thereof and the results of operations and cash
         flows for the periods then ended, subject, in the case of unaudited
         statements, to normal, immaterial, year-end audit adjustments.

                  (i)      Material Changes. Since the date of the latest
         audited financial statements included within the SEC Reports, except
         as specifically disclosed in the SEC Reports: (i) there has been no
         event, occurrence or development that has had or that could result in
         a Material Adverse Effect, (ii) the Company has not incurred any
         liabilities (contingent or otherwise) other than (A) trade payables
         and accrued expenses incurred in the ordinary course of business
         consistent with past practice and (B) liabilities not required to be
         reflected in the Company's financial statements pursuant to GAAP or
         required to be disclosed in filings made with the Commission, (iii)
         the Company has not altered its method of accounting or the identity
         of its auditors, (iv) the Company has not declared or

                                      -9-
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         made any dividend or distribution of cash or other property to its
         stockholders or purchased, redeemed or made any agreements to purchase
         or redeem any shares of its capital stock, and (v) the Company has not
         issued any equity securities to any officer, director or Affiliate,
         except pursuant to existing Company stock option or similar plans.

                  (j)      Litigation. There is no action, suit, inquiry,
         notice of violation, proceeding or investigation pending or, to the
         knowledge of the Company, threatened against or affecting the Company,
         any Subsidiary or any of their respective properties before or by any
         court, arbitrator, governmental or administrative agency or regulatory
         authority (federal, state, county, local or foreign) (collectively, an
         "Action") which: (i) adversely affects or challenges the legality,
         validity or enforceability of any of the Transaction Documents or the
         Securities or (ii) could, if there were an unfavorable decision,
         individually or in the aggregate, have or reasonably be expected to
         result in a Material Adverse Effect. Neither the Company nor any
         Subsidiary, nor any director or officer thereof, is or has been the
         subject of any Action involving a claim of violation of or liability
         under federal or state securities laws or a claim of breach of
         fiduciary duty. The Company does not have pending before the
         Commission any request for confidential treatment of information.
         There has not been, and to the knowledge of the Company, there is not
         pending or contemplated, any investigation by the Commission involving
         the Company or any current or former director or officer of the
         Company. The Commission has not issued any stop order or other order
         suspending the effectiveness of any registration statement filed by
         the Company or any Subsidiary under the Exchange Act or the Securities
         Act.

                  (k)      Compliance. Neither the Company nor any Subsidiary:
         (i) is in default under or in violation of (and no event has occurred
         that has not been waived that, with notice or lapse of time or both,
         would result in a default by the Company or any Subsidiary under), nor
         has the Company or any Subsidiary received notice of a claim that it
         is in default under or that it is in violation of, any indenture, loan
         or credit agreement or any other agreement or instrument to which it
         is a party or by which it or any of its properties is bound (whether
         or not such default or violation has been waived), (ii) is in
         violation of any order of any court, arbitrator or governmental body,
         or (iii) is or has been in violation of any statute, rule or
         regulation of any governmental authority, except in each case as could
         not, individually or in the aggregate, have or result in a Material
         Adverse Effect.

                  (l)      Labor Relations. No material labor dispute exists
         or, to the knowledge of the Company, is imminent with respect to any
         of the employees of the Company.

                  (m)      Regulatory Permits. The Company and the Subsidiaries
         possess all certificates, authorizations and permits issued by the
         appropriate federal, state, local or foreign regulatory authorities
         necessary to conduct their respective businesses as described in the
         SEC Reports, except where the failure to possess such permits could
         not, individually or in the aggregate, have or reasonably be expected
         to result in a Material Adverse Effect ("Material Permits"), and
         neither the Company nor any Subsidiary has

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         received any notice of proceedings relating to the revocation or
         modification of any Material Permit.

                  (n)      Title to Assets. The Company and the Subsidiaries
         have good and marketable title in fee simple to all real property
         owned by them that is material to the business of the Company and the
         Subsidiaries and good and marketable title in all personal property
         owned by them that is material to the business of the Company and the
         Subsidiaries, in each case free and clear of all Liens, except for
         Liens as do not materially affect the value of such property and do
         not materially interfere with the use made and proposed to be made of
         such property by the Company and the Subsidiaries. Any real property
         and facilities held under lease by the Company and the Subsidiaries
         are held by them under valid, subsisting and enforceable leases of
         which the Company and the Subsidiaries are in compliance.

                  (o)      Patents and Trademarks. The Company and the
         Subsidiaries have, or have rights to use, all patents, patent
         applications, trademarks, trademark applications, service marks, trade
         names, copyrights, licenses and other similar rights that are
         necessary or material for use in connection with their respective
         businesses as described in the SEC Reports and which the failure to so
         have could have a Material Adverse Effect (collectively, the
         "Intellectual Property Rights"). Neither the Company nor any
         Subsidiary has received a written notice that the Intellectual
         Property Rights used by the Company or any Subsidiary violates or
         infringes upon the rights of any Person. To the knowledge of the
         Company, all such Intellectual Property Rights are enforceable and
         there is no existing infringement by another Person of any of the
         Intellectual Property Rights.

                  (p)      Insurance. The Company and the Subsidiaries are
         insured by insurers of recognized financial responsibility against
         such losses and risks and in such amounts as are prudent and customary
         in the businesses in which the Company and the Subsidiaries are
         engaged. A list of the Company's insurance contracts and policies are
         set forth on the Disclosure Schedules. The Company has delivered to
         the Purchasers, prior to the Closing, such contracts and policies. To
         the best of Company's knowledge, such insurance contracts and policies
         are accurate and complete. Neither the Company nor any Subsidiary has
         any reason to believe that it will not be able to renew its existing
         insurance coverage as and when such coverage expires or to obtain
         similar coverage from similar insurers as may be necessary to continue
         its business without a significant increase in cost.

                  (q)      Transactions With Affiliates and Employees. None of
         the officers or directors of the Company and, to the knowledge of the
         Company, none of the employees of the Company is presently a party to
         any transaction with the Company or any Subsidiary (other than for
         services as employees, officers and directors), including any
         contract, agreement or other arrangement providing for the furnishing
         of services to or by, providing for rental of real or personal
         property to or from, or otherwise requiring payments to or from any
         officer, director or such employee or, to the knowledge of the

                                     -11-
<PAGE>

         Company, any entity in which any officer, director, or any such
         employee has a substantial interest or is an officer, director,
         trustee or partner.

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

                  (s)      Solvency/Indebtedness. Based on the financial
         condition of the Company as of the Closing Date: (i) the Company's
         fair saleable value of its assets exceeds the amount that will be
         required to be paid on or in respect of the Company's existing debts
         and other liabilities (including known contingent liabilities) as they
         mature; (ii) the Company's assets do not constitute unreasonably small
         capital to carry on its business for the current fiscal year as now
         conducted and as proposed to be conducted including its capital needs
         taking into account the particular capital requirements of the
         business conducted by the Company, and projected capital requirements
         and capital availability thereof; and (iii) the current cash flow of
         the Company, together with the proceeds the Company would receive,
         were it to liquidate all of its assets, after taking into account all
         anticipated uses of the cash, would be sufficient to pay all amounts
         on or in respect of its debt when such amounts are required to be
         paid. The Company does not intend to incur debts beyond its ability to
         pay such debts as they mature (taking into account the timing and
         amounts of cash to be payable on or in respect of its debt). The
         Company has no knowledge of any facts or circumstances which lead it
         to believe that it will file for reorganization or liquidation under
         the bankruptcy or reorganization laws of any jurisdiction within one
         year from the Closing Date. The SEC Documents and Schedule 3.1(s)
         attached hereto set forth as of the date hereof all outstanding
         secured and unsecured Indebtedness of the Company or any Subsidiary,
         or for which the Company or any Subsidiary has commitments. For the
         purposes of this Agreement, "Indebtedness" shall mean (a) any
         liabilities for borrowed money or amounts owed in excess of $25,000
         (other than trade accounts payable incurred in the ordinary course of
         business), (b) all guaranties, endorsements and other contingent
         obligations in respect of Indebtedness of others, whether or not the
         same are or should be reflected in the Company's balance sheet (or the
         notes thereto), except guaranties by endorsement of negotiable
         instruments for deposit or collection or similar transactions in the
         ordinary course of business; and (c) the present value of any lease
         payments in excess of $25,000 due under leases required to be
         capitalized in accordance with GAAP. Neither the Company nor any
         Subsidiary is in default with respect to any Indebtedness.

                  (t)      Certain Fees. No brokerage or finder's fees or
         commissions are or will be payable by the Company to any broker,
         financial advisor or consultant, finder, placement agent, investment
         banker, bank or other Person with respect to the transactions

                                     -12-
<PAGE>

         contemplated by this Agreement, and the Company has not taken any
         action that would cause any Purchaser to be liable for any such fees
         or commissions. The Company agrees that the Purchasers shall have no
         obligation with respect to any fees or with respect to any claims made
         by or on behalf of any Person for fees of the type contemplated by
         this Section with the transactions contemplated by this Agreement.

                  (u)      Private Placement. Assuming the accuracy of the
         representations and warranties of the Purchasers set forth in Sections
         3.2(b)-(f), the offer, issuance and sale of the Securities to the
         Purchasers as contemplated hereby are exempt from the registration
         requirements of the Securities Act. The issuance and sale of the
         Securities hereunder does not contravene the rules and regulations of
         the Principal Market and no shareholder approval is required for the
         Company to fulfill its obligations under the Transaction Documents.

                  (v)      Listing and Maintenance Requirements. The Company
         has not, in the 12 months preceding the date hereof, received notice
         from any Principal Market on which the Common Stock is or has been
         listed or quoted to the effect that the Company is not in compliance
         with the listing or maintenance requirements of such Principal Market.
         The Company is, and has no reason to believe that it will not in the
         foreseeable future continue to be, in compliance with all such listing
         and maintenance requirements.

                  (w)      Registration Rights. The Company has not granted or
         agreed to grant to any Person any rights (including "piggy-back"
         registration rights) to have any securities of the Company registered
         with the Commission or any other governmental authority that have not
         been satisfied.

                  (x)      Application of Takeover Protections. The Company and
         its Board of Directors have taken all necessary action, if any, in
         order to render inapplicable any control share acquisition, business
         combination, poison pill (including any distribution under a rights
         agreement) or other similar anti-takeover provision under the
         Company's Certificate of Incorporation (or similar charter documents)
         or the laws of its state of incorporation that is or could become
         applicable to the Purchasers as a result of the Purchasers and the
         Company fulfilling their obligations or exercising their rights under
         the Transaction Documents, including without limitation as a result of
         the Company's issuance of the Securities and the Purchasers' ownership
         of the Securities.

                  (y)      Seniority. As of the date of this Agreement, no
         indebtedness of the Company is senior to the Debentures in right of
         payment, whether with respect to interest or upon liquidation or
         dissolution, or otherwise, other than indebtedness secured by purchase
         money security interests (which is senior only as to underlying assets
         covered thereby) and capital lease obligations (which is senior only
         as to the property covered thereby).

                  (z)      Disclosure. The Company confirms that neither it nor
         any other Person acting on its behalf has provided any of the
         Purchasers or their agents or counsel with any information that
         constitutes or might constitute material, nonpublic information. The

                                     -13-
<PAGE>

         Company understands and confirms that the Purchasers will rely on the
         foregoing representations in effecting transactions in securities of
         the Company. All disclosure provided to the Purchasers regarding the
         Company, its business and the transactions contemplated hereby,
         including the Schedules to this Agreement, furnished by or on behalf
         of the Company with respect to the representations and warranties made
         herein are true and correct with respect to such representations and
         warranties and do not contain any untrue statement of a material fact
         or omit to state any material fact necessary in order to make the
         statements made therein, in light of the circumstances under which
         they were made, not misleading. The Company acknowledges and agrees
         that no Purchaser makes or has made any representations or warranties
         with respect to the transactions contemplated hereby.

                  (aa)     Tax Status. The Company and each of its Subsidiaries
         has made or filed all federal, state and foreign income and all other
         tax returns, reports and declarations required by any jurisdiction to
         which it is subject (unless and only to the extent that the Company
         and each of its Subsidiaries has set aside on its books provisions
         reasonably adequate for the payment of all unpaid and unreported
         taxes) and has paid all taxes and other governmental assessments and
         charges that are material in amount, shown or determined to be due on
         such returns, reports and declarations, except those being contested
         in good faith and has set aside on its books provisions reasonably
         adequate for the payment of all taxes for periods subsequent to the
         periods to which such returns, reports or declarations apply. There
         are no unpaid taxes in any material amount claimed to be due by the
         taxing authority of any jurisdiction, and the officers of the Company
         know of no basis for any such claim. The Company has not executed a
         waiver with respect to the statute of limitations relating to the
         assessment or collection of any foreign, federal, statue or local tax.
         None of the Company's tax returns is presently being audited by any
         taxing authority.

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

                  (cc)     No General Solicitation or Advertising in Regard to
         this Transaction. Neither the Company nor, to the knowledge of the
         Company, any of its directors or officers (i) has conducted or will
         conduct any general solicitation (as that term is used in Rule 502(c)
         of Regulation D) or general advertising with respect to the sale of
         the Debentures or the Warrants, or (ii) made any offers or sales of
         any security or solicited

                                     -14-
<PAGE>

         any offers to buy any security under any circumstances that would
         require registration of the Debentures, the Underlying Shares, the
         shares issuable at the Closing or the Warrants under the Securities
         Act or made any "directed selling efforts" as defined in Rule 902 of
         Regulation S.

                  (dd)     No Disagreements with Accountants and Lawyers. There
         are no disagreements of any kind presently existing, or reasonably
         anticipated by the Company to arise, between the accountants and
         lawyers formerly or presently employed by the Company and the Company
         is current with respect to any fees owed to its accountants and
         lawyers.

         3.2      Representations and Warranties of the Purchasers. Each
Purchaser hereby, for itself and for no other Purchaser, represents and
warrants to the Company as follows:

                  (a)      Organization; Authority. Such Purchaser is an entity
         duly organized, validly existing and in good standing under the laws
         of the jurisdiction of its organization with the requisite corporate
         or partnership power and authority to enter into and to consummate the
         transactions contemplated by the Transaction Documents and otherwise
         to carry out its obligations thereunder. The purchase by such
         Purchaser of the Securities hereunder has been duly authorized by all
         necessary action on the part of such Purchaser. Each of this
         Agreement, and the Registration Rights Agreement has been duly
         executed by such Purchaser, and when delivered by such Purchaser in
         accordance with the terms hereof, will constitute the valid and
         legally binding obligation of such Purchaser, enforceable against it
         in accordance with its terms.

                  (b)      Investment Intent. Such Purchaser is acquiring the
         Securities as principal for its own account for investment purposes
         only and not with a view to or for distributing or reselling such
         Securities or any part thereof, without prejudice, however, to such
         Purchaser's right, subject to the provisions of this Agreement, at all
         times to sell or otherwise dispose of all or any part of such
         Securities pursuant to an effective registration statement under the
         Securities Act or under an exemption from such registration and in
         compliance with applicable federal and state securities laws. Nothing
         contained herein shall be deemed a representation or warranty by such
         Purchaser to hold Securities for any period of time. Such Purchaser is
         acquiring the Securities hereunder in the ordinary course of its
         business. Such Purchaser does not have any agreement or understanding,
         directly or indirectly, with any Person to distribute any of the
         Securities.

                  (c)      Purchaser Status. At the time such Purchaser was
         offered the Securities, it was, and at the date hereof it is, and on
         each date on which it exercises any Warrants or converts any
         Debentures, it will be an "accredited investor" as defined in Rule
         501(a) under the Securities Act. Such Purchaser has not been formed
         solely for the purpose of acquiring the Securities. Such Purchaser is
         not a registered broker-dealer under Section 15 of the Exchange Act.

                  (d)      Experience of such Purchaser. Such Purchaser, either
         alone or together with its representatives, has such knowledge,
         sophistication and experience in business

                                     -15-
<PAGE>

         and financial matters so as to be capable of evaluating the merits and
         risks of the prospective investment in the Securities, and has so
         evaluated the merits and risks of such investment. Such Purchaser is
         able to bear the economic risk of an investment in the Securities and,
         at the present time, is able to afford a complete loss of such
         investment.

                  (e)      General Solicitation. Such Purchaser is not
         purchasing the Securities as a result of any advertisement, article,
         notice or other communication regarding the Securities published in
         any newspaper, magazine or similar media or broadcast over television
         or radio or presented at any seminar or any other general solicitation
         or general advertisement.

                  (f)      Reliance. Such Purchaser understands and
         acknowledges that: (i) the Securities are being offered and sold to it
         without registration under the Securities Act in a private placement
         that is exempt from the registration provisions of the Securities Act
         and (ii) the availability of such exemption depends in part on, and
         the Company will rely upon the accuracy and truthfulness of, the
         foregoing representations and such Purchaser hereby consents to such
         reliance.

                                   ARTICLE IV
                        OTHER AGREEMENTS OF THE PARTIES

         4.1      Transfer Restrictions.

                  (a)      The Securities may only be disposed of in compliance
         with state and federal securities laws. In connection with any
         transfer of Securities other than pursuant to an effective
         registration statement, to the Company, to an Affiliate of a
         Purchaser, to an entity managed by a Purchaser or in connection with a
         pledge as contemplated in Section 4.1(b), 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 transferred
         Securities under the Securities Act. As a condition of transfer, any
         such transferee shall agree in writing to be bound by the terms of
         this Agreement and shall have the rights of a Purchaser under this
         Agreement and the Registration Rights Agreement.

                  (b)      The Purchasers agree to the imprinting, so long as
         is required by this Section 4.1(b), of the following legend on any
         certificate evidencing Securities:

         [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
         SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE [NOT] 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

                                     -16-
<PAGE>

         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 AS EVIDENCED BY A LEGAL OPINION OF
         COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
         BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
         SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED
         IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
         SUCH SECURITIES.

                  The Company acknowledges and agrees that a Purchaser may from
         time to time pledge pursuant to a bona fide margin agreement or grant
         a security interest in some or all of the Securities and, if required
         under the terms of such arrangement, such Purchaser may transfer
         pledged or secured Securities to the pledgees or secured parties. Such
         a pledge or transfer would not be subject to approval of the Company
         and no legal opinion of the pledgee, secured party or pledgor shall be
         required in connection therewith. Further, no notice shall be required
         of such pledge. At the appropriate Purchaser's expense, the Company
         will execute and deliver such reasonable documentation as a pledgee or
         secured party of Securities may reasonably request in connection with
         a pledge or transfer of the Securities, including the preparation and
         filing of any required prospectus supplement under Rule 424(b)(3) of
         the Securities Act or other applicable provision of the Securities Act
         to appropriately amend the list of Selling Stockholders thereunder.

                  (c)      Certificates evidencing Underlying Shares and shares
         of Common Stock issuable at the Closing shall not contain any legend
         (including the legend set forth in Section 4.1(b)): (i) while a
         registration statement (including the Underlying Shares Registration
         Statement) covering the resale of such security is effective under the
         Securities Act, or (ii) following any sale of such Underlying Shares
         or shares issuable at the Closing pursuant to Rule 144, or (iii) if
         such Underlying Shares or such shares issuable at the Closing are
         eligible for sale under Rule 144(k), or (iv) if such legend is not
         required under applicable requirements of the Securities Act
         (including judicial interpretations and pronouncements issued by the
         Staff of the Commission). If all or any portion of a Debenture or
         Warrant is converted or exercised (as applicable) at a time when there
         is an effective registration statement to cover the resale of the
         Underlying Shares, or if such Underlying Shares may be sold under Rule
         144(k) or if such legend is not otherwise required under applicable
         requirements of the Securities Act (including judicial interpretations
         thereof) then such Underlying Shares shall be issued free of all
         legends. The Company agrees that following the Effective Date or at
         such time as such legend is no longer required under this Section
         4.1(c), it will, no later than three Trading Days following the
         delivery by a Purchaser to the Company or the Company's transfer agent
         of a certificate representing Underlying Shares or shares issuable at
         the Closing issued with a restrictive legend, deliver or cause to be
         delivered to such Purchaser a certificate representing such shares
         that are free from all restrictive and other legends. The Company may
         not make any notation on its records or give instructions to any

                                     -17-
<PAGE>

         transfer agent of the Company that enlarge the restrictions on
         transfer set forth in this Section.

                  (d)      In addition to such Purchaser's other available
         remedies, the Company shall pay to a Purchaser, in cash, as liquidated
         damages and not as a penalty, for each $1,000 of Underlying Shares or
         shares issuable at the Closing (based on the Closing Bid Price of the
         Common Stock on the date such Securities are submitted to the
         Company's transfer agent) subject to this Section 4.1(c), $20 per
         Trading Day (increasing to $40 per Trading Day 3 Trading Days after
         such damages have begun to accrue) for each Trading Day after such
         third Trading Day until such certificate is delivered.

         4.2      Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities will result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue the
Underlying Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim that the
Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.

         4.3      Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to
such laws, it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.

         4.4      Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.

         4.5      Reservation and Listing of Securities.

                  (a)      At all times after February 1, 2003, the Company
         shall maintain a reserve from its duly authorized shares of Common
         Stock for issuance pursuant to the Transaction

                                     -18-
<PAGE>

         Documents in an amount equal to 150% of the number required to fulfill
         its obligations in full under the Transaction Documents (the "Reserved
         Amount"). In order to ensure that the Company has authorized a
         sufficient amount of shares to meet the Reserved Amount at all times,
         the Company must deliver to the Purchaser at the end of every month a
         list detailing (1) the current amount of shares authorized by the
         Company and reserved for the Purchaser; and (2) amount of shares
         issuable upon conversion of the Debentures and upon exercise of the
         Warrants and as payment of interest accrued on the Debentures for one
         year. If the Company fails to provide such list within five (5)
         business days of the end of each month, the Company shall pay the
         Standard Liquidated Damages Amount in cash.

                  (b)      If, on any date after February 1, 2003, the number
         of authorized but unissued (and otherwise unreserved) shares of Common
         Stock is less than 125% of (i) the Actual Minimum on such date, minus
         (ii) the number of shares of Common Stock previously issued pursuant
         to the Transaction Documents, then the Board of Directors of the
         Company shall use its best efforts to amend the Company's certificate
         or articles of incorporation to increase the number of authorized but
         unissued shares of Common Stock to at least the Required Minimum at
         such time (minus the number of shares of Common Stock previously
         issued pursuant to the Transaction Documents), as soon as possible and
         in any event not later than the 60th day after such date; provided
         that the Company will not be required at any time to authorize a
         number of shares of Common Stock greater than the maximum remaining
         number of shares of Common Stock that could possibly be issued after
         such time pursuant to the Transaction Documents.

                  (c)      The Company shall: (i) in the time and manner
         required by each Principal Market, prepare and file with such
         Principal Market an additional shares listing application covering a
         number of shares of Common Stock at least equal to the greater of (A)
         the Required Minimum on the Closing Date and (B) the Required Minimum
         on the date of such application, (ii) take all steps necessary to
         cause such shares of Common Stock to be approved for listing on each
         Principal Market as soon as possible thereafter, (iii) provide to the
         Purchasers evidence of such listing, and (iv) maintain the listing of
         such Common Stock on each such Principal Market or another Principal
         Market.

                  (d)      If, on any date, the number of shares of Common
         Stock previously listed on a Principal Market is less than 125% of the
         Actual Minimum on such date, then the Company shall take the necessary
         actions to list on such Principal Market, as soon as reasonably
         possible, a number of shares of Common Stock at least equal to the
         Required Minimum on such date; provided that the Company will not be
         required at any time to list a number of shares of Common Stock
         greater than the maximum number of shares of Common Stock that could
         possibly be issued pursuant to the Transaction Documents.

                  (e)      The Company shall not effectuate a reverse split of
         the Common Stock without the prior written consent of the Purchasers.

         4.6      Conversion and Exercise Procedures. The form of Election to
Purchase included in the Warrants and the forms of Conversion Notice included
in the Debentures set forth the

                                     -19-
<PAGE>

totality of the procedures required in order to exercise the Warrants or
convert the Debentures. No additional legal opinion or other information or
instructions shall be necessary to enable the Purchasers to exercise their
Warrants or convert their Debentures. The Company shall honor exercises of the
Warrants and conversions of the Debentures and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents. Attached hereto as Annex A is a list of the shares
available to each Purchaser in light of the limitation on conversion and
exercise set forth in Section 4(a)(iii) (subject to adjustment therein) of the
Debenture prior to Shareholder Approval (as defined in Section 4.16). The
Company agrees and acknowledges that prior to Shareholder Approval and pursuant
to Section 4(a)(iii) of the Debenture, that the aggregate Issuable Maximum (as
defined in the Debenture) is 26,480,467.

         4.7      Future Financings. From the date hereof until after the
Effective Date, other than as contemplated by this Agreement, neither the
Company nor any Subsidiary shall (i) incur, issue, create, guarantee, assume or
otherwise become liable on account of any indebtedness or (ii) increase any
amounts owing or to which such Person is liable under any existing obligations
or (iii) issue or sell any Capital Shares or Capital Shares Equivalents.

         4.8      Securities Laws Disclosure; Publicity. The Company shall,
within 1 Trading Day after the Closing Date, issue a press release or file a
Current Report on Form 8-K reasonably acceptable to the Purchasers disclosing
all material terms of the transactions contemplated hereby. The Company and the
Purchasers shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby. Notwithstanding the foregoing,
other than in any registration statement filed pursuant to the Registration
Rights Agreement and filings related thereto, the Company shall not publicly
disclose the name of any Purchaser or the terms of the Agreement, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Principal Market, without the prior written consent of such
Purchaser, except to the extent such disclosure is required by law or Principal
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure.

         4.9      Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

         4.10     Use of Proceeds. The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes and not for
the satisfaction of any portion of the Company's debt (other than payment of
trade payables, capital lease obligations, and accrued expenses in the ordinary
course of the Company's business and prior practices), to redeem any Company
equity or equity-equivalent securities or to settle any outstanding litigation.

         4.11     Reimbursement. If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company, solely as a result of

                                     -20-
<PAGE>

such Purchaser's acquisition of the Securities under this Agreement and without
causation by any other activity, obligation, condition or liability pertaining
to such Purchaser and not to the transactions contemplated by this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of
or in right of the Company solely as a result of acquiring the Securities under
this Agreement.

         4.12     Indemnification of Purchasers. The Company will indemnify and
hold the Purchasers and their directors, officers, shareholders, partners,
employees and agents (each, a "Purchaser Party") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to: (a) any
misrepresentation, breach or inaccuracy, or any allegation by a third party
that, if true, would constitute a breach or inaccuracy, of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents; or (b) any cause of
action, suit or claim brought or made against such Purchaser Party and arising
solely out of or solely resulting from the execution, delivery, performance or
enforcement of this Agreement or any of the other Transaction Documents and
without causation by any other activity, obligation, condition or liability
pertaining to such Purchaser and not to the transactions contemplated by this
Agreement. The Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation, preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred.

         4.13     Shareholders Rights Plan. In the event that a shareholders
rights plan is adopted by the Company, no claim will be made or enforced by the
Company or any other Person that any Purchaser is an "Acquiring Person" under
the plan or in any way could be deemed to trigger the provisions of such plan
by virtue of receiving Securities under the Transaction Documents.

         4.14     Participation in Future Financing. From the date hereof until
12 months after the Effective Date, the Company shall not effect a financing of
its Capital Shares or Capital Shares Equivalents (a "Subsequent Financing")
unless (i) the Company delivers to each of such Purchasers, at least ten (10)
Trading Days prior to the Closing of such Subsequent Financing, a written
notice (the "Subsequent Financing Notice") of its intention to effect such
Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to

                                     -21-
<PAGE>

which shall be a term sheet or similar document relating thereto and (ii) such
Purchaser shall not have notified the Company by 6:30 p.m. (New York City time)
on the tenth (10th) Trading Day after its receipt of the Subsequent Financing
Notice of its willingness to provide (or to cause its designee to provide),
subject to completion of mutually acceptable documentation, all or part of such
Purchaser's pro-rata portion of such financing to the Company on the same terms
set forth in the Subsequent Financing Notice. If the Purchasers shall fail to
so notify the Company of their willingness to participate in the Subsequent
Financing, the Company may effect the remaining portion of such Subsequent
Financing on the terms and to the Persons set forth in the Subsequent Financing
Notice; provided that the Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the right of
first refusal set forth above in this Section 4.14, if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice
with the Person identified in the Subsequent Financing Notice.

         4.15     Breach of Representations and Warranties and Covenants by the
Company. If the Company breaches any of the representations, warranties or
covenants set forth in Articles III and IV, and in addition to any other
remedies available to the Purchasers pursuant to this Agreement, the Company
shall pay to the Purchasers liquidated damages of three percent (3%) of the
outstanding amount of the Debentures per month plus accrued and unpaid interest
on the Debentures, prorated for partial months, in cash ("Standard Liquidated
Damages Amount"), until such breach is cured.

         4.16     Shareholder Vote. Within 60 days of the Closing Date, the
Company shall use its best efforts to have obtained the vote of shareholders
(the "Shareholder Approval") as may be required by the applicable rules and
regulations of the Principal Market (or any successor entity) to approve the
issuance of shares of Common Stock pursuant to the Transaction Documents in
excess of, in the aggregate, 19.999% of the number of shares of Common Stock
outstanding on the Trading Day immediately preceding the Closing Date.

                                   ARTICLE V
                                 MISCELLANEOUS

         5.1      Termination. This Agreement may be terminated by the Company
or any Purchaser, by written notice to the other parties, if the Closing has
not been consummated by the fifth business day following the date of this
Agreement; provided that no such termination will affect the right of any party
to sue for any breach by the other party (or parties).

         5.2      Fees and Expenses. The Company has agreed to reimburse
$20,000 to the Purchasers as reimbursement for the Purchasers' legal fees and
expenses incurred in connection with the preparation and negotiation of the
Transaction documents. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this

                                     -22-
<PAGE>

Agreement. The Company shall pay all transfer agent fees, stamp taxes and other
taxes and duties levied in connection with the issuance of any Securities.

         5.3      Entire Agreement. The Transaction Documents, together with
the Exhibits and Schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules.

         5.4      Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) three
Trading Days following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party
to whom such notice is required to be given. The addresses for such notices and
communications are those set forth on the signature pages hereof, or such other
address as may be designated in writing hereafter, in the same manner, by such
Person. Set forth on the Disclosure Schedule is a list of names and contact
information for the Company's Board of Directors, executive officers, key
employees (including organization chart of the Company), corporate counsel,
including, if applicable, in-house counsel, the Company's outside counsel
(including securities counsel, if different than corporate counsel), the
Company's accountants and the Company's transfer agent. The Company hereby
represents that it has no present intent to change the information set forth in
such list.

         5.5      Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each of the Purchasers or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.

         5.6      Construction. The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

         5.7      Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchasers. Any Purchaser
may assign its rights under this Agreement and the Registration Rights
Agreement to any Person to whom such Purchaser assigns or transfers any
Securities.

                                     -23-
<PAGE>

         5.8      No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.8.

         5.9      Governing Law; Venue; Waiver of Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party hereby irrevocably submits to the
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 (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of this Agreement,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

         5.10     Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable.

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

         5.12     Severability. If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

                                     -24-
<PAGE>

         5.13     Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights.

         5.14     Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.

         5.15     Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents. The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

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

         5.17     Usury. To the extent it may lawfully do so, the Company
hereby agrees not to insist upon or plead or in any manner whatsoever claim,
and will resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be brought
by any Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any

                                     -25-
<PAGE>

other sums in the nature of interest that the Company may be obligated to pay
under the Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate of interest applicable
to the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to
any Purchaser with respect to indebtedness evidenced by the Transaction
Documents, such excess shall be applied by such Purchaser to the unpaid
principal balance of any such indebtedness or be refunded to the Company, the
manner of handling such excess to be at such Purchaser's election.

         5.18     Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.

         5.19     Liquidated Damages. The Company's obligations to pay any
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such liquidated damages or
other amounts are due and payable shall have been canceled.

                            ***********************

                                     -26-
<PAGE>

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

                                     VIRAGEN, INC.

                                      By: /s/ Dennis W. Healey
                                         --------------------------------
                                      Name: Dennis W. Healey
                                      Title: Exec. VP/CFO

                                      Address for Notice:

                                      865 SW 78th Avenue, Suite 100
                                      Plantation, Florida 33324
                                      Attn: Dennis Healey
                                      Tel: (954) 233-8746
                                      Fax: (954) 233-1412

With a copy to:
(which shall not constitute notice)   James M. Schneider, Esq.
                                      Adorno & Yoss, P.A.
                                      350 E. Las Olas Boulevard, Suite 1700
                                      Fort Lauderdale, FL 33301
                                      (954) 763-1200
                                      (954) 766-7858 (Direct)
                                      (954) 766-7800 (Fax)
                                      jschneider@adorno.com
                                      Secretary (Beverly) bbryan@adorno.com

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGE FOR PURCHASER FOLLOWS]

                                     -27-
<PAGE>

                           PURCHASERS SIGNATURE PAGE

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

PALISADES EQUITY FUND L.P.             Address for Notice:
                                       C/o PEF Advisors, LLC
                                       1215 Hightower Trail
By: /s/ Paul T. Mannion Jr.            Suite B220
   -----------------------------       Atlanta, Georgia 30350
   Name: Paul T. Mannion Jr.           Attn: Fund Manager
   Title: General Partner

Subscription Amount: surrender of $300,000 principal amount of promissory note
and $352,500 cash consideration.

CRESCENT INTERNATIONAL LTD.            Address for Notice:
                                       c/o GreenLight (Switzerland) SA
                                       84, Avenue Louis-Casai
By: /s/ Mel Craw / Maxi Brezzi         CH 1216 Cointrin, Geneva
   -----------------------------       Switzerland
   Name: Mel Craw / Maxi Brezzi        Attention: Mel Craw / Maxi Brezzi
   Title: Authorized Signatories       Tel.: + 41 22 791 7170 / +41 22 791 7256
                                       Fax: +41 22 929 5394

Subscription Amount: $435,000.

ALPHA CAPITAL AG                       Address for Notice:
                                       Lettstrasse 32
                                       Furstentum 9490
By: /s/ Konrad Ackermann               Vaduz, Liechtenstein
   -----------------------------       Fax: 011-423 232 3196
   Name: Konrad Ackermann              Attn: Director
   Title: Director

Subscription Amount: $304,500.

BRIVIS INVESTMENT, LTD.                Address for Notice:
                                       Arawak Chambers
                                       Sea Meadow House
By: /s/ Rima Salam                     Blackburne Highway
   -----------------------------       Road Town, Tortola, BVI
   Name: Rima Salam                    Attn:
   Title: Director                     Fax:

Subscription Amount:  $217,500

                                     -28-
<PAGE>

[PURCHASER SIGNATURE PAGE 2]

CASTLERIGG MASTER INVESTMENTS LTD.    Address for Notice:
                                     C/o Citco Fund Services
                                     Kaya Flamboyan 9
By: /s/ Thomas E. Sandell            P.O. Box 812
   -----------------------------     Curacao, Netherland Antilles
      Name: Thomas E. Sandell        Attn:
      Title: Principal of Sandell    Fax:
             Asset Mgmt. Corp.
             Advisor to Castlerigg
             Master Investment Ltd.

Subscription Amount: $217,500

With a copy to:
(which shall not constitute notice)  Feldman Weinstein LLP
                                     420 Lexington Avenue
                                     New York, New York 10170
                                     Attn: Robert F. Charron
                                     Tel: (212) 869-7000
                                     Fax: (212) 401-4741

                                     -29-
<PAGE>

                                    ANNEX A

Palisades Equity Fund LP
   Principal Amount of Debenture issued: $750,375
   Warrant Shares issuable under Warrant: 3,331,500
   Shares issuable at Closing: 1,500,750
   Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 7,149,726(1)

Crescent International Ltd.
   Principal Amount of Debentures issued: $500,250
   Warrant Shares issuable under Warrant: 2,001,000
   Shares issuable at Closing: 1,000,500
   Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 7,149,726

Alpha Capital AG
   Principal Amount of Debenture issued: $350,175
   Warrant Shares issuable under Warrant: 1,400,700
   Shares issuable at Closing: 700,350
   Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 5,031,289

Brivis Investment, Ltd.
   Principal Amount of Debenture issued: $250,125
   Warrant Shares issuable under Warrant: 1,000,500
   Shares issuable at Closing: 500,250
   Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 3,574,863

Castlerigg Master Investments Ltd.
   Principal Amount of Debenture issued: $250,125
   Warrant Shares issuable under Warrant: 1,000,500
   Shares issuable at Closing: 500,250
   Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 3,574,863

---------------
(1) Palisades waives its right to any additional shares of Common Stock
issuable under the Issuable Maximum that it may otherwise be entitled to by
virtue of it Subscription Amount until after Shareholder Approval.

                                     -30-<PAGE>
                                                                  EXHIBIT 10.59

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

                                             Date of Issuance: January __, 2003

                                                                      $____,000

                         SECURED CONVERTIBLE DEBENTURE
                          DUE _______________ __, 2005

THIS DEBENTURE is one of a series of duly authorized and issued debentures of
Viragen, Inc., a Delaware corporation, having a principal place of business at
865 S.W. 78th Avenue, Suite 100, Plantation, Florida 33324 (the "Company"),
designated as its Secured Convertible Debentures, due _______________ ___, 2005
in the aggregate principal amount of up to [$2,138,842] (the "Debentures").

         FOR VALUE RECEIVED, the Company promises to pay to ___________________
or its registered assigns (the "Holder"), the principal sum of $_____________
on January __, 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 0% per annum until January
__, 2004 and 6% per annum thereafter, payable semi-annually on June 1 and
December 1, beginning on June 1, 2004 and on each Conversion Date (as defined
herein) and on the Maturity Date (each such date, an "Interest Payment Date"),
in cash or shares of Common Stock (as defined in Section 5) at the Interest
Conversion Rate; provided, however, payment in shares of Common Stock may only
occur if: (i) there is an effective Underlying Shares Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus thereunder
to resell all of the

<PAGE>

shares of Common Stock to be issued in lieu of cash (and the Company believes,
in good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (ii) the Common Stock is listed for trading on a Principal
Market (and the Company believes, in good faith, that trading of the Common
Stock on a Principal Market will continue uninterrupted for the foreseeable
future), (iii) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
share issuable pursuant to the Transaction Documents, including the shares to
be issued for interest in lieu of cash and (iv) the Company shall have obtained
Shareholder Approval to exceed the Issuable Maximum. The Company may not prepay
any portion of the principal amount or interest on this Debenture without the
prior written consent of the Holder, other than as provided herein. Subject to
the terms and conditions 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 twenty Trading Days (as defined in Section 5) prior to each
Interest Payment 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 (the Company may indicate in such
notice that the election contained in such notice shall continue for later
periods until revised). Subject to the aforementioned conditions, failure to
timely provide such written notice shall be deemed an election by the Company
to pay the interest on such Conversion Date in cash. Interest shall be
calculated on the basis of a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 5) 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 5) 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 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) ("Late Fee") which will accrue daily, from the date such
interest is due hereunder through and including the date of payment.

         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 such registration of transfer or 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 5) 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 5) 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.

                                       2
<PAGE>

         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)      upon 1 Trading Day's notice from the
                  Holder, any default in the payment of the principal of,
                  interest (including any Late Fees) on or liquidated damages,
                  including but not limited to, the Standard Liquidated Damages
                  Amount due under the Purchase Agreement, 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)     upon 1 Trading Day's notice from the
                  Holder, 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 5) or the Company shall have
                  failed to amend the Company's certificate or articles of
                  incorporation to increase the number of authorized but
                  unissued shares of Common Stock to at least the Required
                  Minimum on or prior to April 1, 2003;

                           (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
                  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;

                                       3
<PAGE>

                           (iv)     the Company shall default in any of its
                  obligations under any other Debenture or 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 $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 shall not be listed for
                  trading on the American Stock Exchange, or Nasdaq SmallCap
                  Market, the New York Stock Exchange, the Nasdaq National
                  Market or the OTC Bulletin Board (each, a "Principal Market")
                  and shall not again be eligible for and quoted or listed for
                  trading thereon within five Trading Days;

                           (vi)     the Company shall be a party to any Change
                  of Control Transaction (as defined in Section 5), shall agree
                  to sell or dispose all or in excess of 33% 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 more than a de minimis number of shares of
                  Common Stock or other equity securities of the Company (other
                  than redemptions of Underlying Shares (as defined in Section
                  5)); provided, however, where the Company is the surviving
                  corporation in a Change of Control Transaction, provided the
                  Holder provides the Company with prior written consent of
                  such transaction, which consent shall not be unreasonably
                  withheld, such a Transaction shall entitle the Holder to the
                  same remedies as if an Event of Default shall have occurred
                  however such an event shall not be deemed an "Event of
                  Default" under this Debenture;

                           (vii)    an Underlying Shares Registration Statement
                  (as defined in Section 5) shall not have been declared
                  effective by the Commission (as defined in Section 5) on or
                  prior to the 150th calendar day after the Original Issue
                  Date;

                           (viii)   if, during the Effectiveness Period (as
                  defined in the Registration Rights Agreement (as defined in
                  Section 5)), 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 10 consecutive Trading Days or 20 non-consecutive
                  Trading Days during any 12 month period;

                                       4
<PAGE>

                           (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 (other than an Event
                  resulting from a failure of an Underlying Shares Registration
                  Statement to be declared effective by the Commission on or
                  prior to the 150th calendar 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 fifth Trading
                  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)     upon 1 Trading Day's notice, the Company
                  shall fail for any reason to deliver the payment in cash
                  pursuant to a Buy-In (as defined herein) within five days
                  after notice thereof is delivered hereunder.

                  (b)      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 at the Holder's election, 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 5) plus (ii) the product of (A) the
         number of Underlying Shares issued in respect of conversions hereunder
         within thirty days of the date of a declaration of an Event of Default
         and then held by the Holder and (B) the Closing Bid Price (as defined
         in Section 5) 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 5th day after such amount
         is due (being the date of an Event of Default) through the date of
         prepayment in full thereof in an amount equal to the Late Fee, 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 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; provided, however, the
         Holder shall have the right to waive any Event of Default which has
         occurred and such waivers shall be retroactive to the date such Event
         of Default occurred. Such declaration may be rescinded and annulled by
         Holder at any time prior to payment hereunder and the Holder shall
         have all rights as a Debenture holder until such time, if any, as the
         full payment under this Section shall have been received by it. No
         such rescission or annulment shall affect any subsequent Event of
         Default or impair any right consequent thereon.

                                       5
<PAGE>

         Section 4.     Conversion.

                  (a)      (i)      At any time after the Closing Date, 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 (subject to the limitations on conversion
                  set forth in Section 4(a)(ii) hereof). The Holder shall
                  effect conversions by delivering to the Company the form of
                  conversion notice attached hereto as Annex A (a "Conversion
                  Notice"), specifying therein the principal amount of
                  Debentures to be converted and the date on which such
                  conversion is to be effected (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 provided hereunder. To effect conversions hereunder, the
                  Holder shall not be required to physically surrender
                  Debentures to the Company unless the entire principal amount
                  of this Debenture has been so converted. Conversions
                  hereunder shall have the effect of lowering the outstanding
                  principal amount of this Debenture plus all accrued and
                  unpaid interest thereon in an amount equal to the applicable
                  conversion. The Holder and the Company shall maintain records
                  showing the principal amount converted and the date of such
                  conversions, in a form substantially similar to Schedule 1
                  attached hereto. In the event of any dispute or discrepancy,
                  the records of the Holder shall be controlling and
                  determinative in the absence of manifest error. The Holder
                  and any assignee, by acceptance of this Debenture,
                  acknowledge and agree that, by reason of the provisions of
                  this paragraph, following conversion of a portion of this
                  Debenture, the unpaid and unconverted principal amount of
                  this Debenture may be less than the amount stated on the face
                  hereof.

                           (ii)     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
                  its affiliates, beneficially owning (as determined in
                  accordance with Section 13(d) of the Exchange Act and the
                  rules promulgated thereunder) in excess of 4.999% 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. To ensure compliance with this restriction, the
                  Holder will be deemed to represent to the Company each time
                  it delivers a Conversion Notice that such Conversion Notice
                  has not violated the restrictions set forth in this
                  paragraph. 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

                                       6
<PAGE>

                  amount to the Holder. In the event of a merger or
                  consolidation of the Company with or into another Person,
                  this paragraph shall not apply with respect to a
                  determination of the number of shares of common stock
                  issuable upon conversion in full of the Debentures if such
                  determination is necessary to establish the Securities or
                  other assets which the holder of Common Stock shall be
                  entitled to receive upon the effectiveness of such merger or
                  consolidation. The provisions of this Section 4(a)(ii) may be
                  waived by the Holder upon, at the election of the Holder, not
                  less than 61 days' prior notice to the Company, and the
                  provisions of this Section 4(a)(iii) shall continue to apply
                  until such 61st day (or such later date, as determined by the
                  Holder, as may be specified in such notice of waiver).

                           (iii)    If the Company has not obtained Shareholder
                  Approval, then the Company may not issue, pursuant to the
                  Transaction Documents, in the aggregate, in excess of 19.999%
                  of the number of shares of Common Stock outstanding on the
                  Original Issue Date (such number of shares, the "Issuable
                  Maximum"). Each Holder shall be entitled to a portion of the
                  Issuable Maximum equal to the quotient obtained by dividing
                  (x) the aggregate principal amount of the Debenture(s) issued
                  and sold to such Holder on the Original Issue Date by (y) the
                  aggregate principal amount of all Debentures issued and sold
                  by the Company on the Original Issue Date. If any Holder
                  shall no longer hold the Debenture(s), then such Holder's
                  remaining portion of the Issuable Maximum shall be allocated
                  pro-rata among the remaining Holders. Within 60 days of the
                  Original Issue Date, the Company shall obtain the vote of
                  shareholders (the "Shareholder Approval") as may be required
                  by the applicable rules and regulations of the Principal
                  Market (or any successor entity) applicable to approve the
                  issuance of shares of Common Stock in excess of the Issuable
                  Maximum pursuant to the Transaction Documents. If the Company
                  shall have not obtained the Shareholder Approval on or before
                  60 days from the Original Issue Date, then the Company shall
                  issue to the Holder, upon conversion of this Debenture, a
                  number of shares of Common Stock equal to such Holder's
                  pro-rata portion (which shall be calculated pursuant to the
                  terms hereof) of the Issuable Maximum and, with respect to
                  the remainder of the aggregate principal amount of the
                  Debentures (including any interest that shall have been added
                  to the principal amount then held by such Holder) for which a
                  conversion in accordance with the applicable conversion price
                  would result in an issuance of shares of Common Stock in
                  excess of such Holder's pro-rata portion (which shall be
                  calculated pursuant to the terms hereof) of the Issuable
                  Maximum (the "Excess Principal"), the Company shall, by the
                  fifth Trading Day following such conversion, pay cash to the
                  converting Holder in an amount equal to the Mandatory
                  Prepayment Amount with respect to such Excess Principal. If
                  the Company fails to pay the Mandatory Prepayment Amount for
                  the Excess Principal in full pursuant to this Section after
                  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 date such payment is due
                  until such amount, plus all such interest

                                       7
<PAGE>

                  thereon, is paid in full. The Company and the Holder
                  understand and agree that shares of Common Stock issued to
                  and then held by the Holder as a result of conversions of
                  Debentures shall not be entitled to cast votes on any
                  resolution to obtain Shareholder Approval pursuant hereto.

                           (iv)     Underlying Shares Issuable Upon Conversion
                  and Pursuant to Interest.

                                    (A)      The number of shares of Common
                           Stock issuable upon a conversion hereunder shall be
                           determined by adding the sum of: (1) the quotient
                           obtained by dividing (x) the outstanding principal
                           amount of this Debenture to be converted by (y) the
                           Set Price, and (2) the amount equal to (x) the
                           product of (I) the outstanding principal amount of
                           this Debenture to be converted and (II) the product
                           of (aa) the quotient obtained by dividing the
                           applicable interest rate on this Debenture by 360
                           and (bb) the number of days for which such principal
                           amount was outstanding, divided by (y) the lesser of
                           the Set Price and the Interest Conversion Rate on
                           the Conversion Date, provided, that if the Company
                           shall have elected to pay the interest due on a
                           Conversion Date in cash pursuant to the terms
                           hereof, subsection (2) 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;

                                             (3)      the Common Stock shall
                                    fail to be listed or quoted for trading on
                                    a Principal Market; or

                                             (4)      the conversion would
                                    otherwise violate Section 4(a)(iii).

                                    then, at the option of the Holder, the
                           Company, in lieu of delivering shares of Common
                           Stock pursuant to this Section 4, shall deliver,
                           within three Trading Days of each applicable
                           Conversion Date, an amount in cash equal to the
                           product of the number of shares of Common Stock
                           otherwise deliverable to the Holder in connection
                           with such Conversion Date and the highest Closing
                           Bid Price during the period commencing on the
                           Conversion Date and ending on the Trading Day prior
                           to the date such payment is made.

                                       8
<PAGE>

                  (b)      (i)      Not later than three Trading Days after any
                  Conversion Date, the Company will deliver to the Holder (A)
                  the number of shares of Common Stock being acquired upon
                  conversion of the Debenture (the "Conversion Shares") in the
                  form of a certificate or certificates which shall be free of
                  restrictive legends and trading restrictions (other than
                  those required by the Purchase Agreement) representing the
                  number of shares of Common Stock being acquired upon the
                  conversion of Debentures and (B) 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).
                  Provided the Registration Statement is then effective, the
                  Company shall, upon request of the Holder, if available,
                  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
                  Conversion Shares 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
                  Conversion Shares, to rescind such conversion, in which event
                  the Company shall, if applicable, immediately return the
                  certificates representing the principal amount of Debentures
                  tendered for conversion.

                  (ii)     If the Company fails for any reason to deliver to
                  the Holder the Conversion Shares 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, for each $5,000 of principal
                  amount being converted, $50 per Trading Day (increasing to
                  $100 per Trading Day after 3 Trading Days and increasing to
                  $200 per Trading Day 6 Trading Days after such damages begin
                  to accrue) for each Trading Day after such third Trading Day
                  until such Conversion Shares are delivered. In the event a
                  Holder of this Debenture shall elect to convert any or all of
                  the outstanding principal amount hereof, the Company may not
                  refuse conversion based on any claim that the Holder or any
                  one associated or affiliated with the Holder of has been
                  engaged in any violation of law, agreement or for any other
                  reason, unless, an injunction from a court, on notice,
                  restraining and or enjoining conversion of all or part of
                  this Debenture shall have been sought and obtained and the
                  Company posts a surety bond for the benefit of the Holder in
                  the amount of 150% of the principal amount of this Debenture
                  outstanding, which is subject to the injunction, which bond
                  shall remain in effect until the completion of
                  arbitration/litigation of the dispute and the proceeds of
                  which shall be payable to such Holder to the extent it
                  obtains judgment. In the absence of an injunction precluding
                  the same, the Company shall issue Conversion Shares or, if
                  applicable, cash, upon a properly noticed conversion. 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 Conversion Shares 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

                                       9
<PAGE>

                  any such rights shall not prohibit the Holders from seeking
                  to enforce damages pursuant to any other Section hereof or
                  under applicable law.

                  (iii)    In addition to any other rights available to the
                  Holder, if the Company fails for any reason to deliver to the
                  Holder such certificate or certificates pursuant to Section
                  4(b)(i) by the fifth 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 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 Conversion Shares 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 Conversion Shares
                  resulting in such Buy-In.

                  (c)      (i)      The conversion  price in effect on any
                  Conversion Date shall be equal to $0.085 (subject to
                  adjustment herein)(the "Set Price").

                  (ii)     If the Company, at any time while the 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 Set Price shall be
                  multiplied by a fraction of which the numerator

                                      10
<PAGE>

                  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 issue rights, options or warrants to all
                  holders of Common Stock (and not to Holders) entitling them
                  to subscribe for or purchase shares of Common Stock at a
                  price per share less than the Closing Bid Price at the record
                  date mentioned below, then the Set Price shall be multiplied
                  by a fraction, of which the denominator shall be the number
                  of shares of the Common Stock (excluding treasury shares, if
                  any) outstanding on the date of issuance of such rights or
                  warrants plus the number of additional shares of Common Stock
                  offered for subscription or purchase, and of which the
                  numerator shall be the number of shares of the Common Stock
                  (excluding treasury shares, if any) outstanding on the date
                  of issuance of such rights or warrants plus the number of
                  shares which the aggregate offering price of the total number
                  of shares so offered would purchase at such Closing Bid
                  Price. Such adjustment shall be made whenever such rights or
                  warrants are issued, and shall become effective immediately
                  after the record date for the determination of stockholders
                  entitled to receive such rights, options or warrants.

                  (iv)     If the Company or any subsidiary thereof, as
                  applicable, at any time while Debentures are outstanding,
                  shall offer, sell, grant any option to purchase or offer,
                  sell or grant any right to reprice its securities, or
                  otherwise dispose of or issue (or announce any offer, sale,
                  grant or any option to purchase or other disposition) any
                  Common Stock or any equity or equity equivalent securities
                  (including any equity, debt or other instrument that is at
                  any time over the life thereof convertible into or
                  exchangeable for Common Stock) (collectively, "Common Stock
                  Equivalents") entitling any Person to acquire shares of
                  Common Stock, at a price per share less than the Set Price
                  (if the holder of the Common Stock or Common Stock Equivalent
                  so issued shall at any time, whether by operation of purchase
                  price adjustments, reset provisions, floating conversion,
                  exercise or exchange prices or otherwise, or due to warrants,
                  options or rights per share which is issued in connection
                  with such issuance, be entitled to receive shares of Common
                  Stock at a price per share which is less than the Set Price,
                  such issuance shall be deemed to have occurred for less than
                  the Set Price), then, the Set Price shall be adjusted for
                  such conversions as Holders shall indicate in its Conversion
                  Notices to equal the conversion, exchange or purchase price
                  for such Common Stock or Common Stock Equivalents (including
                  any reset provisions thereof) at issue. Such adjustment shall
                  be made whenever such Common Stock or Common Stock
                  Equivalents are issued. The Company shall notify

                                      11
<PAGE>

                  the Holder in writing, no later than the business day
                  following the issuance of any Common Stock or Common Stock
                  Equivalent subject to this section, indicating therein the
                  applicable issuance price, or of applicable reset price,
                  exchange price, conversion price and other pricing terms.

                  (v)      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, then in each such case the Set Price shall be
                  determined by multiplying such 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 Closing Bid
                  Price determined as of the record date mentioned above, and
                  of which the numerator shall be such Closing Bid 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 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.

                  (vi)     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 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.

                  (vii)    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.

                                      12
<PAGE>

                  (viii)   Whenever the Set Price is adjusted pursuant to any
                  of Section 4(c)(ii) - (v), the Company shall promptly mail to
                  each Holder a notice setting forth the Set Price after such
                  adjustment and setting forth a brief statement of the facts
                  requiring such adjustment.

                  (ix)     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 to convert Debentures
                  during the 20-day period commencing the date of such notice
                  to the effective date of the event triggering such notice.

                  (x)      If, at any time while this Debenture is outstanding,
                  (A) the Company effects any merger or consolidation of the
                  Company with or into another Person, (B) the Company effects
                  any sale of all or substantially all of its assets in one or
                  a series of related transactions, (C) any tender offer or
                  exchange offer (whether by the Company or another Person) is
                  completed pursuant to which holders of Common Stock are
                  permitted to tender or exchange their shares for other
                  securities, cash or property, or (D) the Company effects any
                  reclassification of the Common Stock or any

                                      13
<PAGE>

                  compulsory share exchange pursuant to which the Common Stock
                  is effectively converted into or exchanged for other
                  securities, cash or property (in any such case, a
                  "Fundamental Transaction"), then upon any subsequent
                  conversion of this Debenture, the Holder shall have the right
                  to receive, for each Underlying Share that would have been
                  issuable upon such conversion absent such Fundamental
                  Transaction, the same kind and amount of securities, cash or
                  property as it would have been entitled to receive upon the
                  occurrence of such Fundamental Transaction if it had been,
                  immediately prior to such Fundamental Transaction, the holder
                  of one share of Common Stock (the "Alternate Consideration").
                  For purposes of any such conversion, the determination of the
                  Set Price shall be appropriately adjusted to apply to such
                  Alternate Consideration based on the amount of Alternate
                  Consideration issuable in respect of one share of Common
                  Stock in such Fundamental Transaction, and the Company shall
                  apportion the Set Price among the Alternate Consideration in
                  a reasonable manner reflecting the relative value of any
                  different components of the Alternate Consideration. If
                  holders of Common Stock are given any choice as to the
                  securities, cash or property to be received in a Fundamental
                  Transaction, then the Holder shall be given the same choice
                  as to the Alternate Consideration it receives upon any
                  conversion of this Debenture following such Fundamental
                  Transaction. To the extent necessary to effectuate the
                  foregoing provisions, any successor to the Company or
                  surviving entity in such Fundamental Transaction shall issue
                  to the Holder a new debenture consistent with the foregoing
                  provisions and evidencing the Holder's right to convert such
                  debenture into Alternate Consideration. The terms of any
                  agreement pursuant to which a Fundamental Transaction is
                  effected shall include terms requiring any such successor or
                  surviving entity to comply with the provisions of this
                  paragraph (c) and insuring that this Debenture (or any such
                  replacement security) will be similarly adjusted upon any
                  subsequent transaction analogous to a Fundamental
                  Transaction. If any Fundamental Transaction constitutes or
                  results in a Change of Control Transaction, then at the
                  request of the Holder delivered before the 90th day after
                  such Fundamental Transaction, the Company (or any such
                  successor or surviving entity) will purchase the Debenture
                  from the Holder for a purchase price, payable in cash within
                  five Trading Days after such request (or, if later, on the
                  effective date of the Fundamental Transaction), equal to the
                  Black-Scholes value of the remaining unconverted portion of
                  this Debenture on the date of such request, which value shall
                  in no event exceed 150% of the principal amount outstanding
                  of this Debenture.

                  (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

                                      14
<PAGE>

         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
         Closing Bid Price 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 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 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 the address set forth above,
         facsimile number (954) 233-1412, Attn: Dennis Healey 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. 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 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 5:30 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 5:30 p.m. (New York City
         time) on any

                                      15
<PAGE>

         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.        Definitions. Capitalized terms not defined in this
Section 5 or elsewhere in this Debenture shall have the meanings ascribed to
them in the Purchase Agreement. For the purposes hereof, the following terms
shall have the following meanings:

                  "Business Day" means any day except Saturday, Sunday and any
         day which shall be a federal legal holiday in the United States 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.

                  "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 of the Company with or into another entity that is
         not wholly-owned by the Company, consolidation 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, $0.01 par value per
         share, of the Company and stock of any other class into which such
         shares may hereafter have been reclassified or changed.

                  "Conversion Date" shall have the meaning set forth in Section
         4(a)(i).

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

                  "Interest Conversion Rate" means 90% of the lesser of (i) the
         average of the 5 Closing Bid Prices immediately prior to the
         applicable Interest Payment Date and (ii) the average of the 5 Closing
         Bid Prices immediately prior to the date the applicable interest
         payment shares are issued and delivered if after the Interest Payment
         Date.

                                      16
<PAGE>

                  "Issuable Maximum" shall have the meaning set forth in
         Section 4(a)(iii).

                  "Mandatory Prepayment Amount" for any Debentures shall equal
         the sum of (i) the greater of: (A) 135% of the principal amount of
         Debentures to be prepaid, plus all accrued and unpaid interest
         thereon, plus all other accrued and unpaid amounts due hereunder, and
         (B) the principal amount of Debentures to be prepaid, plus all accrued
         and unpaid interest thereon, plus all other accrued and unpaid amounts
         due hereunder, divided by the Set 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 Closing Bid 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 greater, and
         (ii) all other amounts, costs, expenses 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.

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

                  "Purchase Agreement" means the Securities 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, and the rules and regulations promulgated thereunder.

                  "Set Price" shall have the meaning set forth in Section
         4(c)(i).

                  "Shareholder Approval" shall have the meaning set forth in
         Section 4(a)(iii).

                  "Trading Day" means (a) a day on which the shares of Common
         Stock are traded on a Principal Market on which the shares of Common
         Stock are then listed or quoted, or (b) if the shares of Common Stock
         are not quoted on a Principal Market, 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, that in the event that the shares of Common Stock

                                      17
<PAGE>

         are not listed or quoted as set forth in (a), (b) and (c) hereof, then
         Trading Day shall mean a Business Day.

                  "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 6.        Redemption.

                  (a)      Optional Redemption by the Company. The Company
         shall have the right, at any time after the Effective Date, upon 20
         Trading Days' prior written notice to the Holder (an "Optional
         Redemption Notice" and the date such notice is received by the Holder,
         the "Notice Date"), to redeem no less than the entire principal amount
         of this Debenture then held by the Holder, at a cash price equal to
         the 125% of the principal amount outstanding plus interest and any
         fees owing thereon (the "Optional Redemption Price"). The Company may
         only effect an Optional Redemption Notice if each of the following
         shall be true: (i) the Company shall have duly honored all conversions
         occurring by virtue of one or more Conversion Notices prior to the
         Optional Redemption Notice, (ii) there is an effective Underlying
         Shares Registration Statement pursuant to which the Holder is
         permitted to utilize the prospectus thereunder to resell all of the
         Underlying Shares issued to the Holder and all of the Underlying
         Shares as are issuable to the Holder upon conversion in full of this
         Debenture subject to the Optional Redemption Notice (and the Company
         believes, in good faith, that such effectiveness will continue
         uninterrupted for the foreseeable future), (iii) the Common Stock is
         listed for trading on a Principal Market (and the Company believes, in
         good faith, that trading of the Common Stock on a Principal Market
         will continue uninterrupted for the foreseeable future), (iv) all
         liquidated damages and other amounts owing in respect of the
         Debentures and Underlying Shares shall have been paid or will,
         concurrently with the issuance of the Underlying Shares, be paid in
         cash; (v) there is a sufficient number of authorized but unissued and
         otherwise unreserved shares of Common Stock for the issuance of all
         the Underlying Shares as are issuable to the Holder upon conversion in
         full of the Debentures subject to the Optional Redemption Notice; (vi)
         no Event of Default nor any event that with the passage of time would
         constitute an Event of Default has occurred and is continuing; (vii)
         no public announcement of a pending or proposed Change of Control
         Transaction or Fundamental Transaction has occurred that has not been
         consummated and (viii) the Company shall have obtained Shareholder
         Approval to exceed the Issuable Maximum. If any of the foregoing
         conditions shall cease to be in effect

                                      18
<PAGE>

         during the period between the Notice Date and the date the Optional
         Redemption Price is paid in full, then the Holders subject to such
         redemption may elect, by written notice to the Company given at any
         time after any of the foregoing conditions shall cease to be in
         effect, to invalidate ab initio such redemption, notwithstanding
         anything herein contained to the contrary. In any case, the Holders
         may convert any portion of the outstanding principal amount of the
         Debentures subject to an Optional Redemption Notice prior to the date
         that the Optional Redemption Price is due and paid in full.

                  (b)      Conditional Redemption at Election of Holder. On any
         Conversion Date after the earlier of the Effective Date or the 90th
         day after the Closing Date, if the Closing Bid Price for the 20
         consecutive Trading Day period prior to such date is less than 120% of
         the Set Price then in effect, the Holder shall have the right to cause
         the Company to, at the election of the Company, either (i) redeem the
         portion of this Debenture then subject to the Conversion Notice
         applicable to such Conversion Date based on a redemption price equal
         to 125% of the principal amount of such principal amount (the
         "Conditional Redemption Price") or (ii) in lieu of a cash redemption
         payment, issue Conversion Shares based on a conversion price equal to
         75% of the average of the last 5 Closing Bid Prices during such 20 day
         period; provided, however, if, on the applicable Conversion Date,
         there is an effective Registration Statement pursuant to which the
         prospectus thereunder is available to resell Conversion Shares issued
         to the Holder, the Company must first issue shares registered pursuant
         to such Registration Statement. Notwithstanding anything to the
         contrary herein, the Company acknowledges and agrees that, to the
         extent the Company exceeds the Issuable Maximum, it must pay any
         Conditional Redemption Price in cash until Shareholder Approval is
         obtained. The Company must notify the Holder of its election to pay
         the Conditional Redemption Price in cash or shares of Common Stock
         within 24 hours after notification from the Holder that the Holder
         elects to exercise its right to a redemption hereunder. All
         conversions hereunder shall be made as if pursuant to Section 4 and
         the other sub-sections relating thereto, including but not limited to,
         liquidated damages and fees for late delivery of Conversion Shares.
         Nothing herein shall preclude the Holder from converting this
         Debenture to the extent this Debenture remains unpaid and unconverted
         after the Mandatory Redemption Date.

                  (c)      Redemption Procedure. The Optional Redemption Price
         is due on the 10th Trading Day following the Notice Date and the
         Conditional Redemption Price is due on the 10th Trading Day following
         the Conversion Date unless otherwise paid in shares of Common Stock.
         If any portion of the Optional Redemption Price or Conditional
         Redemption Price shall not be paid by the Company by expiration of
         such 10th Trading Day, interest shall accrue thereon at the rate of
         18% per annum (or the maximum rate permitted by applicable law,
         whichever is less) until such redemption price plus all such interest
         is paid in full. In addition, if any portion of the Optional
         Redemption Price or Conditional Redemption Price remains unpaid after
         such date, the Holders subject to such redemption may elect, by
         written notice to the Company given at any time thereafter, to
         invalidate ab initio such redemption, notwithstanding anything herein
         contained to the contrary. If a Holder elects to invalidate

                                      19
<PAGE>

         such redemption the Company shall promptly, and, in any event, not
         later than 3 Trading Days from receipt of such Holder's notice of such
         election, return to such Holder all of the Debentures for which the
         Optional Redemption Price or Conditional Redemption Price shall not
         have been paid in full.

         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 and is secured by a floating charge in all of the assets of Viragen
(Scotland) Ltd. as set forth in that certain Bond and Floating Charge, dated as
of the date of the Purchase Agreement. 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, (a) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holders; (b) 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 (c) enter into any
agreement with respect to any of the foregoing.

         Section 8. 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 9. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior in any respect to the Company's
obligations under the Debentures.

         Section 10. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York, Borough of
Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to

                                      20
<PAGE>

assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

         Section 11. 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 12. 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.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law
which would prohibit or forgive the Company from paying all or any portion of
the principal of or interest on the Debentures as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

         Section 13. 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.

                             *********************

                                      21
<PAGE>

         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.

                                    VIRAGEN, INC.

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

<PAGE>

                                    ANNEX A

                              NOTICE OF CONVERSION

The undersigned hereby elects to convert principal and, if specified, interest
under the Convertible Debenture of Viragen, Inc., (the "Company") due on
_______________ __, 2004, into shares of common stock, $0.01 par value per
share (the "Common Stock"), of 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 the 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.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Common Stock does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.

Conversion calculations:

                         Date to Effect Conversion:

                         Principal Amount of Debentures to be Converted

                         Payment of Interest in Kind [ ] Yes     [ ] No
                              If yes, $_______ of Interest Accrued on Account of
                              Conversion at Issue

                         Number of shares of Common Stock to be Issued:

                         Applicable Set Price:

                         Applicable Interest Conversion Rate:

                         Signature:

                         Name:

                         Address:

<PAGE>

                                   SCHEDULE 1

                              CONVERSION SCHEDULE

Convertible Secured Debentures due on _______________ __, 2004, in the
aggregate principal amount of $____________ issued by Viragen, Inc. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.

                                       Dated:

<TABLE>
<CAPTION>
================================================================================================================
                                                    Aggregate
                                                    Principal
                                                      Amount
                                                    Remaining
     Date of                                       Subsequent to
    Conversion                                      Conversion
   (or for first                                    (or original
   entry, Original             Amount of             Principal
     Issue Date)              Conversion               Amount)             Company Attest
----------------------------------------------------------------------------------------------------------------
   <S>                        <C>                  <C>                     <C>

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

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

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

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

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

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

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

================================================================================================================
</TABLE>

                                      24

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