Document:

Exhibit 4.3

     THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE TRANSFERRED, ASSIGNED, SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE  STATE  SECURITIES LAW OR AN OPINION OF COUNSEL,  IN
FORM AND SUBSTANCE  REASONABLY  ACCEPTABLE TO THE COMPANY,  THAT REGISTRATION IS
NOT  REQUIRED  BECAUSE  OF  AN  APPLICABLE   EXEMPTION  FROM  SUCH  REGISTRATION
REQUIREMENTS.

     No. ____                                                         $_________

     Dated: September 1, 2000 (as amended December 31, 2001)

                               PHARMOS CORPORATION

                   6% CONVERTIBLE DEBENTURE DUE JUNE 30, 2003

     THIS  DEBENTURE  ("Debenture")  is  one  of  a  duly  authorized  issue  of
Debentures of PHARMOS CORPORATION (the "Company"),  a corporation duly organized
and existing under the laws of the state of Nevada,  designated as the Company's
6%  Convertible  Debentures  Originally  Due February  28,  2002,  in an initial
aggregate principal amount of Eight Million U.S. Dollars (U.S.  $8,000,000) (the
"Debentures").  This  Debenture  has been  amended  pursuant to the terms of the
Amendment Agreement,  by and among the Company and the Purchasers named therein,
dated December 31, 2001.

     FOR VALUE  RECEIVED,  the Company  promises to pay to [HOLDER]  the initial
holder hereof,  or its order (including  successors-in-interest,  the "Holder"),
the principal sum of [THREE MILLION NINETY THOUSAND  DOLLARS (U.S.  $3,090,000)]
on June 30, 2003 (the "Maturity  Date") and to pay interest on the principal sum
outstanding under this Debenture  ("Outstanding  Principal Amount"), at the rate
of 6% per annum, compounded  semi-annually,  payable in arrears on the first day
of March and  September of each year and on the Maturity Date (each an "Interest
Payment  Date"),  with the first such  payment  due on March 1,  2002.  Interest
payable  on March 1, 2002  shall be deemed to have  accrued  on the  outstanding
principal  with effect from  September  1, 2001.  Interest  shall  accrue  daily
commencing  on the date hereof and shall  continue  until payment in full of all
amounts due under this  Debenture.  The  interest so payable will be paid to the
person in whose name this  Debenture is registered on the records of the Company
regarding   registration   and  transfers  of  the  Debenture  (the   "Debenture
Register").  Capitalized  terms used herein and not otherwise defined shall have
the meanings set forth in the Purchase  Agreement  dated as of September 1, 2000
between  the  Company  and  the  Holder  (the   "Purchase   Agreement")  or  the
Registration  Rights Agreement dated as of September 1, 2000 between the Company
and the Holder (the "Registration Rights Agreement").

     The interest on this Debenture is payable, at the Company's option:

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     (a) in such coin or currency of the United States as of the time of payment
is legal  tender for payment of public and private  debts,  at the address  last
appearing on the  Debenture  Register of the Company as designated in writing by
the Holder hereof from time to time;

     (b) by adding the amount thereof to the  Outstanding  Principal  Amount due
under this Debenture ("PIK Interest"). For example, if the Outstanding Principal
Amount were $1,000 and the interest  payment were $30, then the new  Outstanding
Principal Amount after the Interest Payment Date would be $1,030.

     Except as herein  provided for  interest,  all amounts  payable  under this
Debenture shall be paid as provided in clause (a) above.

     The  Company  shall   exercise  its  option   hereunder  by  delivering  an
irrevocable  statement  in the form of  Exhibit 1 hereto  ("Payment  Statement")
delivered  at least  ten (10)  Trading  Days  prior to the  applicable  Interest
Payment Date and applicable for such Interest  Payment Date only. If the Payment
Statement is not timely delivered to the Holder as provided herein,  the payment
with  respect to such  Interest  Payment Date shall be in PIK  Interest.  If the
Company selects cash interest in the Payment Statement and fails to deliver such
cash on or before the Interest  Payment Date, the Holder shall have the right to
require the Company to pay PIK Interest in lieu  thereof.  Any PIK Interest when
so added to the Outstanding Principal Amount due under this Debenture shall, for
all  purposes  of  this  Debenture,  be  deemed  to be  part  of  the  principal
indebtedness  evidenced by this Debenture  including,  without  limitation,  for
purposes of determining interest payable hereunder after the applicable Interest
Payment  Date for which such PIK Interest is paid and amounts  convertible  into
Common Shares  hereunder  after the applicable  Interest  Payment Date for which
such PIK Interest is paid.

     The Company will pay any principal due and all accrued and unpaid  interest
due upon this  Debenture  to the person that is the Holder of this  Debenture on
the  records  of the  Company as of the  applicable  Interest  Payment  Date and
addressed  to  such  Holder  at the  last  address  appearing  on the  Debenture
Register.

     The  Outstanding  Principal  Amount and interest due  hereunder  shall bear
interest,  from and  after the day  following  the  occurrence  and  during  the
continuance of an Event of Default hereunder, at the per annum rate equal to the
lower of the Citibank  Prime Rate per annum plus six (6%) percent or the highest
rate permitted by law. The Holder shall have the option to receive such interest
as cash interest or PIK Interest and shall  exercise its option by delivering to
the Company a statement in a form substantially similar to the Payment Statement
which shall be effective  until the Holder  delivers an additional  statement to
the contrary.  If the Holder elects to receive the interest in cash, it shall be
payable on demand.

     Additional cash payments  (referred to as "delay payments") may be required
pursuant to the  Registration  Rights  Agreement if there occurs an "Interfering
Event" (as defined  therein),  or pursuant to the Purchase  Agreement  under the
terms set forth in Section 3.14  therein.  Such delay  payments,  if not paid in
cash when due,  may be  treated by the  Holder in its sole  discretion  as being
added to the Outstanding Principal Amount due under this Debenture.

                                       2
<PAGE>

     Subject to applicable law, any interest  otherwise payable that is not paid
for any applicable  period because it would exceed the highest rate permitted by
law shall become  payable  whenever  the payment  thereof,  together  with other
interest due for any such subsequent period, would not exceed such highest legal
rate.

     The Holder of this  Debenture  is entitled to certain  rights and  remedies
pursuant to the Purchase Agreement and Registration Rights Agreement,  including
without limitation  provisions  requiring mandatory redemption of the Debenture.
This Debenture does not provide voting rights to the Holder.

     This Debenture is subject to the following additional provisions:

     1. Exchange.

     (a) The Debentures are exchangeable for an equal aggregate principal amount
of   Debentures  of  different   denominations,   as  requested  by  the  Holder
surrendering  the same. No service charge will be made for such  registration or
transfer or exchange.

     (b) The Debentures are also exchangeable for Debentures  identical to those
exchanged except that the new Debentures  shall set forth the actual  Conversion
Price, which shall be determined promptly after the close of business on the 7th
Trading Day following  Closing  Date, in accordance  herewith by the Company and
the  Investors.  In the event that the Company and the Investors do not agree on
the actual  Conversion Price, an accountant  mutually  designated by the Company
and the Holder(s) shall make such determination.  No service charge will be made
for such registration or transfer or exchange.

     2. Transfers.  This Debenture may be transferred or exchanged in the United
States only in  compliance  with the  Securities  Act of 1933,  as amended  (the
"Act") and applicable state securities laws, or applicable exemptions therefrom.
Prior to due presentment  for transfer of this Debenture,  the Company may treat
the person in whose name this  Debenture  is duly  registered  on the  Company's
Debenture  Register as the owner hereof for the purpose of receiving  payment as
herein provided, whether or not this Debenture is overdue.

     3. Definitions. For purposes hereof the following definitions shall apply:

     "Act" shall have the meaning set forth in Section 2.

     "Adjustment Date" shall have the meaning set forth in Section 7(b)(i).

     "Affected  Conversion  Price"  shall have the  meaning set forth in Section
7(a).

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<PAGE>

     "Call Amount" shall have the meaning set forth in Section 6(a).

     "Change  in Control  Consideration"  shall  have the  meaning  set forth in
Section 4 hereof.

     "Change in Control  Conversion  Price"  shall have the meaning set forth in
Section 4 hereof.

     "Change in Control  Transaction" shall mean (i) any consolidation or merger
of the  Company  with or into any other  corporation  or other  entity or person
(whether or not the Company is the surviving  corporation)  occurs, or any other
corporate  reorganization  or transaction or series of related  transactions  in
which in excess of 50% of the Company's  voting power is  transferred  through a
merger,  consolidation,  tender offer or similar transaction occurs; or (ii) any
person (as defined in Section 13(d) of the  Securities  Exchange Act of 1934, as
amended (the "Exchange  Act")),  together with its affiliates and associates (as
such  terms are  defined  in Rule 405 under  the Act),  beneficially  owns or is
deemed to  beneficially  own (as  described in Rule 13d-3 under the Exchange Act
without regard to the 60-day exercise  period) in excess of 50% of the Company's
voting power;  (iii) there is a replacement of more than one-half of the members
of the Company's Board of Directors  which is not approved by those  individuals
who are members of the Company's Board of Directors on the date thereof; or (iv)
in one or a series of related transactions there is a sale or transfer of all or
substantially  all of the assets of the Company,  determined  on a  consolidated
basis.

     "Closing  Date"  shall  mean  the  date of the  original  issuance  of this
Debenture.

     "Common  Stock"  shall  mean the  common  stock,  par value  $0.03,  of the
Company.

     "Company" shall have the meaning set forth in the Preamble.

     "Conversion Notice" shall have the meaning set forth in Section 5(d).

     "Convertible  Securities  " shall  have the  meaning  set forth in  Section
7(b)(ii).

     "Conversion Price" shall have the meaning set forth in Section 5(c).

     "Conversion Rate" shall have the meaning set forth in Section 5(b).

     "Debenture" shall have the meaning set forth in the Preamble.

     "Debentures" shall have the meaning set forth in the Preamble.

     "Debenture Register" shall have the meaning set forth in the Preamble.

     "Delay payments" shall have the meaning set forth in the Preamble.

                                       4
<PAGE>

     "DTC" shall have the meaning set forth in Section 5(d).

     "DWAC" shall have the meaning set forth in Section 5(d).

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

     "FAST" shall have the meaning set forth in Section 5(d).

     "Holder Conversion Date" shall have the meaning set forth in Section 5(d).

     "Interest Payment Date" shall have the meaning set forth in the Preamble.

     "Maturity Date" shall have the meaning set forth in the Preamble.

     "Market Price for Shares of Common Stock" shall mean the price of one share
of Common Stock determined as follows:

          (i) If the Common Stock is approved for trading on the NASDAQ National
     Market System or the Nasdaq Small-Cap Market, the last reported "bid" price
     thereon on the date of valuation;

          (ii) If (i) does not apply and the  Common  Stock is listed on NYSE or
     the American Stock Exchange,  the closing bid price on such exchange on the
     date of valuation;

          (iii) If neither (i) nor (ii) apply but the Common  Stock is quoted in
     the  over-the-counter  market,  another  recognized  exchange,  on the pink
     sheets or bulletin board, (A) the last sales price on the date of valuation
     or, if there is no such sales price, (B) the mean between the last reported
     "bid" and "asked" prices thereof on the date of valuation; and

          (iv) If neither  clause (i), (ii) or (iii) above  applies,  the market
     value as determined by a nationally  recognized  investment banking firm or
     other nationally  recognized  financial advisor retained by the Company for
     such purpose, taking into consideration,  among other factors, the earnings
     history,  book value and prospects for the Company, and the prices at which
     shares of Common Stock recently have been traded.  Such determination shall
     be conclusive and binding on all persons.

     "NYSE" shall mean the New York Stock Exchange.

     "Outstanding  Principal  Amount"  shall have the  meaning  set forth in the
Preamble.

     "Payment Statement" shall have the meaning set forth in the Preamble.

     "PIK Interest" shall have the meaning set forth in the Preamble.

                                       5
<PAGE>

     "Pricing Period" shall have the meaning set forth in Section 5(c).

     "Public  Announcement" shall mean any public filing with the Securities and
Exchange Commission, any press release by either the Company or a third party or
any other public  statement,  that announces a proposed  transaction  which,  if
consummated, would constitute a Change in Control Transaction.

     "Purchase Agreement" shall have the meaning set forth in the Preamble.

     "Redemption Date" shall have the meaning set forth in Section 6(a).

     "Redemption Notice" shall have the meaning set forth in Section 6(a).

     "Redemption Occurrence" shall have the meaning set forth in Section 6(a).

     "Redemption Price" shall have the meaning set forth in Section 4(a).

     "Registration   Statement"   shall  have  the  meaning  set  forth  in  the
Registration Rights Agreement.

     "Registration Rights Agreement" shall have the meaning set forth in

     "Restricted  Ownership  Percentage"  shall  have the  meaning  set forth in
Section 12.

     "Trading  Day" shall mean a day on which the Common  Stock is traded on the
NASDAQ Small-Cap Market or principal exchange on which the Common Stock has been
listed  (or any  similar  organization  or  agency  succeeding  such  market  or
exchange's functions of reporting prices).

     4. Change in Control, Etc.

     (a) If at any time there occurs any Change in Control  Transaction,  Holder
shall be entitled, at its sole option, to have the Company redeem this Debenture
in  whole or in part at a  Redemption  Price  equal  to 115% of the  Outstanding
Principal  Amount of this  Debenture  plus all accrued but unpaid  interest  and
delay payments on this Debenture (the "Redemption Price").  Such Holder shall be
entitled to make such  election at any time a Public  Announcement  of a pending
and up to 10 days after the effective date of the Change in Control Transaction.

     (b) If at any time there occurs a Public  Announcement  of a pending Change
in Control  Transaction in which the public  shareholders  of the Company are to
receive  consideration,  a portion  of which is  capital  stock or any  security
convertible  into  capital  stock of another  entity in  exchange  for shares of
Common Stock ("Change in Control Consideration"), then prompt provision shall be
made in a manner reasonably  acceptable to the Holders so that each Holder shall
have the right (in addition to its other rights under this Debenture):

                                       6
<PAGE>

          (i)  following the closing of the  transaction  covered by such Public
     Announcement,  to  convert  its  Debentures  into  the  Change  in  Control
     Consideration  that such  Holder  would have been or would be  entitled  to
     receive  had  it  converted  all  of  its  Debentures   into  Common  Stock
     (notwithstanding  any restrictions imposed upon the Holder pursuant to this
     Debenture  or the Purchase  Agreement in its ability to do so)  immediately
     prior to the  Change  in  Control  Transaction  at the  Change  in  Control
     Conversion  Price (as defined  below),  and  acquired the Change in Control
     Consideration as a shareholder of the Company; or

          (ii) following such Public  Announcement,  convert its Debentures into
     Common Stock at the Change in Control Conversion Price (as defined below).

          The "Change in Control  Conversion Price" shall mean a price,  subject
     to adjustments  in the same manner as adjustments to the Conversion  Price,
     equal to the lesser of: (i) the then existing  Conversion Price (as defined
     in Section 5(c) below);  (ii) 100% of the lowest Market Price for Shares of
     Common  Stock for any of the four Trading Days  immediately  preceding  the
     Public Announcement of the Change in Control Transaction;  and (iii) 85% of
     the lowest  Market  Price for Shares of Common  Stock on the three  Trading
     Days immediately  following the Public  Announcement.  The Market Price for
     Shares of Common Stock shall be  appropriately  adjusted for stock  splits,
     reverse splits, stock dividends and other dilutive events,  including those
     events occurring in connection with the Change in Control Transaction, that
     occur during the Trading Days referred to above.

     5.  Conversion  at the Option of the Holder.  The Holder of this  Debenture
shall have the following conversion rights:

     (a)  Holder's  Right to  Convert.  Upon the  earlier  to occur of:  (i) the
effectiveness  of the  Registration  Statement  under  the Act;  or (ii) 90 days
following the Closing Date,  up to 50% of the initial  principal  amount of this
Debenture  may be  converted  at the  option  of the  Holder  during  any 30 day
calendar period,  into fully paid, validly issued and  non-assessable  shares of
Common Stock;  provided that this Debenture shall be immediately  convertible in
whole in the event of:  (i)  delivery  by the  Company  of a  Redemption  Notice
pursuant to Section 6; (ii) in the event that there is a Public  Announcement or
this  Debenture  shall  become  redeemable  at the Holder's  option  pursuant to
Section 4; (iii) any material default or breach of the Purchase  Agreement,  the
Escrow  Agreement,  the  Registration  Rights  Agreement,  any  Warrant  or this
Debenture;  or (iv) any Event of Default or any event which,  with the giving of
notice or the passage of time or both, would constitute an Event of Default.  If
this Debenture is converted in part, the remaining portion or this Debenture not
so converted shall remain entitled to the conversion rights provided herein.

     (b) Conversion  Rate. The  Outstanding  Principal  Amount of this Debenture
that is converted  into shares of Common Stock at the option of the Holder shall
be  convertible  into the number of shares of Common  Stock which  results  from
application of the following formula:

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<PAGE>

                                    P + I + D
                         ------------------------------
                                Conversion Price

     P =  Outstanding   Principal   Amount  of  this  Debenture   submitted  for
          conversion as of the Holder Conversion Date

     I =  accrued but unpaid interest (not  previously  added to principal) on P
          as of the Holder Conversion Date

     D =  delay  payments  (not  previously  added to  principal) on P as of the
          Holder Conversion Date

     The  number of shares of Common  Stock into  which  each  $1,000  principal
amount of this  Debenture  hereto may be  converted  pursuant to this  paragraph
hereof is hereafter referred to as the "Conversion Rate."

     (c) Conversion Price.  Subject to adjustments pursuant to Sections 4 and 7,
this Debenture will have a conversion  price (the  "Conversion  Price") equal to
$2.63.

     (d) Mechanics of  Conversion.  In order to convert this Debenture (in whole
or in part) into full shares of Common Stock,  the Holder (i) shall give written
notice in the form of Exhibit 2 hereto (the "Conversion Notice") by facsimile to
the  Company at such  office  that the Holder  elects to convert  the  principal
amount (plus accrued but unpaid interest and delay payments)  specified therein,
which such  notice and  election  shall be  revocable  by the Holder at any time
prior to its receipt of the Common Stock upon conversion, and (ii) if the entire
Outstanding  Principal Amount is being converted,  as soon as practicable  after
such notice, shall surrender this Debenture,  duly endorsed, by either overnight
courier or 2-day  courier,  to the  principal  office of the Company;  provided,
however,  that  the  Company  shall  not  be  obligated  to  issue  certificates
evidencing the shares of the Common Stock issuable upon such  conversion  (where
the entire  Outstanding  Principal Amount is being converted)  unless either the
Debenture  evidencing  the  principal  amount is  delivered  to the  Company  as
provided above, or the Holder notifies the Company that such  Debenture(s)  have
been lost,  stolen or destroyed  and promptly  executes an agreement  reasonably
satisfactory  to the Company to indemnify  the Company from any loss incurred by
it in connection with such lost, stolen or destroyed Debentures.

     The Holder shall not be required to physically  surrender this Debenture to
the Company unless the full  Outstanding  Principal  Amount  represented by this
Debenture is being converted.  The Holder and the Company shall maintain records
showing the  Outstanding  Principal  Amount so  converted  and the dates of such
conversions  or shall use such  other  method,  reasonably  satisfactory  to the
Holder  and  the  Company,  so as not to  require  physical  surrender  of  this
Debenture upon each such conversion. In the event of any dispute or discrepancy,
such  records of the  Company  shall be  controlling  and  determinative  in the
absence of manifest error.  Notwithstanding the foregoing,  if this Debenture is
converted as aforesaid,  the Holder may not transfer this  Debenture  unless the
Holder first physically surrenders this Debenture to the Company,  whereupon the
Company  will  forthwith  issue and  deliver  upon the order of the Holder a new

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<PAGE>

Debenture of like tenor,  registered as the Holder may request,  representing in
the aggregate the remaining  Outstanding  Principal  Amount  represented by this
Debenture. The Holder and any assignee, by acceptance of this Debenture or a new
Debenture,  acknowledge  and agree  that,  by reason of the  provisions  of this
paragraph,   following  conversion  of  any  portion  of  this  Debenture,   the
Outstanding  Principal Amount represented by this Debenture may be less than the
Outstanding  Principal  Amount and the  accrued  interest  set forth on the face
hereof.

     The Company  shall  issue and  deliver  within  three  Trading  Days of the
delivery  to  the  Company  of  such  Conversion   Notice,  to  such  Holder  of
Debenture(s) at the address of the Holder, or to its designee,  a certificate or
certificates  for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid, together with a calculation of the Conversion Rate and
a Debenture or Debentures  for the principal  amount of Debentures not submitted
for  conversion.  The date on which the Conversion  Notice is given (the "Holder
Conversion  Date")  shall  be  deemed  to be the date the  Company  received  by
facsimile the Conversion  Notice,  and the person or persons entitled to receive
the shares of Common Stock  issuable upon such  conversion  shall be treated for
all  purposes as the record  holder or holders of such shares of Common Stock on
such date.  In the event that such Holder or its designee has not received  such
certificate  or  certificates  within ten (10)  calendar  days of the  Company's
receipt of the  Conversion  Notice,  the Holder  may,  in  addition to any other
rights or remedies it may have, revoke its Conversion Notice.

     In lieu of delivering physical certificates  representing the Common Shares
issuable upon  conversion of Debentures or the Warrant Shares (as defined in the
Purchase  Agreement)  deliverable  upon  exercise of Warrants (as defined in the
Purchase  Agreement),  provided the Company's transfer agent is participating in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program,  upon request of the holder,  the Company shall use its best efforts to
cause its  transfer  agent to  electronically  transmit  the  Common  Shares and
Warrant Shares issuable upon conversion or exercise to the Holder,  by crediting
the account of  Holder's  prime  broker with DTC through its Deposit  Withdrawal
Agent Commission  ("DWAC") system. The time periods for delivery described above
shall apply to the electronic  transmittals through the DWAC system. The parties
agree to  coordinate  with DTC to accomplish  this  objective.  The  conversions
pursuant  to Sections 5 shall be deemed to have been made  immediately  prior to
the close of  business  on the  Holder  Conversion  Date.  The person or persons
entitled to receive the Common  Shares  issuable upon such  conversion  shall be
treated for all purposes as the record  holder or holders of such Common  Shares
at the close of business on the Holder Conversion Date.

     6. Company Option to Redeem.

     (a) In the event  that,  during the one year period  following  the Closing
Date, the Market Price for Shares of Common Stock exceeds 200% of the Conversion
Price for 20  consecutive  Trading Days (a  "Redemption  Occurrence"),  then the
Company may state its  intention  to redeem  all,  but not less than all, of the
Debentures  (all or none) for a cash price  equal to the  Outstanding  Principal
Amount of the Debentures plus all accrued but unpaid interest and delay payments
thereon (the "Call  Amount") by providing an  irrevocable,  written  notice (the
"Redemption  Notice") to the Holder;  provided that such Redemption Notice shall

                                       9
<PAGE>

be sent within 20 days of a Redemption  Occurrence and must be sent concurrently
to the holders of all Debentures.  The Redemption Notice shall indicate that the
Company  seeks to redeem the  Debenture and shall set the date for the Company's
redemption of the Debenture  (the  "Redemption  Date"),  which date shall be not
less than 10 Trading  Days,  [nor more than 20  Trading  Days] from the date the
Redemption Notice is delivered (the "Post-Notice Period").

     (b) Notwithstanding the foregoing,  the Company may not effect a redemption
of the Notes pursuant to Section 6(a) above unless:

          (i)  Effective  Registration  (as defined in the  Purchase  Agreement)
     existed at all times  during  the  Redemption  Occurrence  and at all times
     thereafter up to and including the Redemption Date;

          (ii) No  material  default or breach  exists,  and no event shall have
     occurred which  constitutes (or would constitute with notice or the passage
     of time or both) a material  default or breach of the  Purchase  Agreement,
     the Escrow Agreement,  the Registration  Rights  Agreement,  any Warrant or
     this Debenture;

          (iii)  Conversion by the Holder on the Redemption Date will not exceed
     the limits on a Holder's right to convert under Section 12 below.  However,
     at the option of the Holder,  (i) the portion of the Outstanding  Principal
     Amount that may not be converted by reason of such Section 12 shall be paid
     to the Holder in cash,  if any,  in an amount  equal to the  greater of the
     Call Amount and the Conversion Value (as defined in the Registration Rights
     Agreement)  or  (ii)  the  redemption  of the  portion  of the  Outstanding
     Principal  Amount that may not be  converted  by reason of such  Section 12
     shall be deferred until such time as the conversion hereof shall not exceed
     such limits.

     (c) The  redemption  shall occur on the  Redemption  Date at the offices of
Holder's  counsel.  If the  Company  fails to pay the Call Amount in full on the
Redemption Date in immediately  available  funds, (i) the Company shall lose its
right to redeem any  Debenture  in  accordance  with this  Section 6 and (ii) in
addition to any other rights or remedies it may have,  the Holder shall have the
right to require  the  Company to  repurchase  this  Debenture  (or any  portion
thereof,  as selected  by the  Holder) at a price equal to 110% of the  purchase
price  pursuant to Section  6(b)(iii)  above pursuant to a written notice to the
Company.

     (d) Nothing in this  Debenture  shall limit the  Holder's  right to convert
after a Redemption Notice has been received but before actual redemption.

                                       10
<PAGE>

     7. Stock Splits; Dividends; Adjustments; Reorganizations.

     (a) If the Company, at any time while the Debentures are outstanding, shall
(i) pay a stock dividend or otherwise make a distribution  or  distributions  on
any equity securities (including  investments or securities  convertible into or
exchangeable  for such  equity  securities)  in  shares of  Common  Stock,  (ii)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(iii)  combine  outstanding  shares of  Common  Stock  into a smaller  number of
shares,  then  each  Affected  Conversion  Price  (as  defined  below)  shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock 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 7(a) shall become effective immediately
after the record date for the determination of shareholders  entitled to receive
such dividend or distribution and shall become effective  immediately  after the
effective date in the case of an issuance, a subdivision or a combination.

     As  used  herein,  the  Affected   Conversion  Prices  (each  an  "Affected
Conversion Price") shall refer to the Conversion Price.

In the event that the  Company  issues or sells any Common  Stock or  securities
which are convertible into or exchangeable for its Common Stock, or any warrants
or other rights to subscribe  for or to purchase or any options for the purchase
of its Common  Stock at a per share of Common  Stock  selling  price ("Per Share
Selling Price") which is less than the Conversion  Price on the Trading Day next
preceding  such  issue or sale or, in the case of  issuances  to  holders of its
Common Stock, the date fixed for the  determination of stockholders  entitled to
receive such  warrants,  rights or options  (the  "Adjustment  Date"),  then the
Conversion  Price per share shall be  adjusted  downward to equal such lower Per
Share Selling Price effective concurrently with such issue or sale.

     Notwithstanding the foregoing,  this provision shall not apply to shares or
options issued or which may be issued  pursuant to (i) the Company's  current or
future employee,  director or bona fide consultant option plans or shares issued
upon  exercise of options,  warrants  or rights  outstanding  on the date of the
Agreement and listed in the Company's  most recent  periodic  report filed under
the Exchange Act, (ii) strategic corporate alliances not undertaken  principally
for financing purposes,  (iii) arrangements with the Holder or (iv) acquisitions
of other entities by the Company.

     For the purposes of the foregoing  adjustment,  in the case of the issuance
of any convertible  securities,  warrants,  options or other rights to subscribe
for or to  purchase  or  exchange  for,  shares  of Common  Stock  ("Convertible
Securities"),  the  maximum  number  of shares of  Common  Stock  issuable  upon
exercise,  exchange or conversion of such Convertible Securities shall be deemed
to be issued and  outstanding  based upon a Per Share Selling Price equal to the
lowest price at which Common Stock can be acquired  pursuant to the  Convertible
Securities,  provided that no further  adjustment  shall be made upon the actual
issuance  of  Common  Stock  upon  exercise,  exchange  or  conversion  of  such
Convertible Securities.

                                       11
<PAGE>

     (b) If the Company, at any time while the Debentures are outstanding, shall
distribute  to  all  holders  of  shares  of  Common  Stock   evidences  of  its
indebtedness  or assets or rights or warrants to  subscribe  for or purchase any
security  (excluding  those referred to in Section 7(b) above),  then the prices
referred to in (ii) of the  definition  of the  Affected  Conversion  Prices set
forth in Section  7(a) above  shall be  reduced to equal the  relevant  Affected
Conversion Price multiplied by a fraction (i) the numerator of which is equal to
(A) the  Market  Price for  Shares of Common  Stock on the  record  date for the
distribution  minus (B) the price  allocable to one share of Common Stock of the
value (as  jointly  determined  in good faith by the board of  directors  of the
Company and the Holder) of any and all such evidences of indebtedness, shares of
capital  stock,  other  securities  or  property,  so  distributed  and (ii) the
denominator  of which is equal to the Market Price for Shares of Common Stock on
the record date for the distribution.

     (c) In the event  that at any time or from time to time  after the  Closing
Date, the Common Stock issuable upon the conversion of the Debentures is changed
into the same or a different  number of shares of any class or classes of stock,
whether  by  merger,   consolidation,   recapitalization,   reclassification  or
otherwise  (other than a subdivision  or combination of shares or stock dividend
or  reorganization  provided  for  elsewhere  in this  Section 7), then and as a
condition  to each such  event  provision  shall be made in a manner  reasonably
acceptable to the Holders of Debentures so that each Holder of Debentures  shall
have the right  thereafter  to  convert  such  Debenture  into the kind of stock
receivable  upon  such  recapitalization,  reclassification  or other  change by
holders of shares of Common Stock, all subject to further adjustment as provided
herein.  In such  event,  the  formulae  set forth  herein  for  conversion  and
redemption  shall be  equitably  adjusted  to reflect  such  change in number of
shares or, if shares of a new class of stock are  issued,  to reflect the market
price of the  class or  classes  of stock  (applying  the same  factors  used in
determining the Conversion  Price) issued in connection with the above described
transaction.

     (d) Whenever any element of the  Conversion  Price is adjusted  pursuant to
Section 7, the Company shall promptly mail to each Holder of the  Debentures,  a
notice  setting forth the  Conversion  Price after such  adjustment  and setting
forth a brief statement of the facts requiring such adjustment.

     (e) In the  event of any  taking  by the  Company  of a record  date of the
holders of any class of securities  for the purpose of  determining  the holders
thereof  who are  entitled to receive any  dividend or other  distribution,  any
security or right  convertible  or  exchangeable  into or  entitling  the holder
thereof to receive  additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall deliver
to each  Holder  of  Debentures  at  least 20 days  prior to the date  specified
therein,  a notice  specifying  the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.

     (f) If the Company, at any time while the Debentures are outstanding, shall
distribute  to  all  holders  of  Shares  of  Common  Stock   evidences  of  its
indebtedness  or assets or rights or warrants to  subscribe  for or purchase any
security  (excluding  those  referred to in Section  7(b) above) then the Holder

                                       12
<PAGE>

shall  participate in such  distribution on a pro rata basis with the holders of
shares  of  Common  Stock  entitled  to  receive  such  dividend,  distribution,
issuance, subdivision or combination as if the Holder held that number of shares
of Common  Stock that the Holder would have been  entitled to receive  hereunder
upon  conversion of the  Debenture  (without  regard to Section 12)  immediately
prior to the record date fixed for  determination  of  shareholders  entitled to
receive such dividend, at the Conversion Price then in existence.

     8.  Fractional  Shares.  No  fractional  shares  of  Common  Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.  The
number of shares of Common Stock that are issuable upon any conversion  shall be
rounded up to the nearest whole share.

     9. Reservation of Stock Issuable Upon Conversion.

     (a)  Reservation  Requirement.  The Company  covenants  that it will at all
times reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon  conversion of the  Debentures as herein
provided,  free  from  preemptive  rights  or any other  present  or  contingent
purchase rights of persons other than the Holders of the Debentures, 160% of the
maximum  number  of shares of Common  Stock as shall be  issuable  (taking  into
account the  adjustments  and  restrictions of Sections 5 and 7 hereof) upon the
conversion of all of the Debentures  pursuant hereto. 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 and nonassessable.  Without in any
way limiting the foregoing,  so long as any Debentures  remain  outstanding  the
Company agrees to reserve and at all times keep available solely for purposes of
conversion of Debentures such number of authorized but unissued shares of Common
Stock that is set forth in the Purchase Agreement.

     (b) Deficiency.  If the Company does not have a sufficient number of shares
of Common Stock  available to satisfy the Company's  obligations  to a Holder of
Debentures upon receipt of a Conversion  Notice or is otherwise  unable to issue
such shares of Common Stock in accordance  with the terms of this Agreement such
Holder  shall  be  entitled  to  the  rights  and  remedies  set  forth  in  the
Registration Rights Agreement.

     10. No Reissuance of the Debenture.  No Debentures  acquired by the Company
by reason of redemption,  purchase, exchange or otherwise shall be reissued, and
all such Debentures shall be retired.

     11. No  Impairment.  The Company  shall not  intentionally  take any action
which would impair the rights and  privileges of the Debentures set forth herein
or the Holders thereof.

     12. Limitations on Holder's Right to Convert.

     (a)  Notwithstanding  anything to the contrary contained herein, the number
of shares of Common Stock that may be acquired by the Holder upon  conversion of
this Debenture pursuant to the terms hereof shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially owned by
such Holder  (other than by virtue of the  ownership of  securities or rights to

                                       13
<PAGE>

acquire  securities  that have  limitations  on the  holder's  right to convert,
exercise or purchase similar to the limitation set forth herein),  together with
all shares of Common  Stock deemed  beneficially  owned (other than by virtue of
the  ownership  of  securities  or  rights  to  acquire   securities  that  have
limitations  on the  right to  convert,  exercise  or  purchase  similar  to the
limitation  set forth herein) by the Holder's  "affiliates"  (as defined in Rule
144 of the Act) ("Aggregation Parties") that would be aggregated for purposes of
determining  whether a group under Section 13(d) of the Securities  Exchange Act
of 1934  as  amended,  exists,  would  exceed  9.99%  of the  total  issued  and
outstanding shares of the Common Stock (the "Restricted Ownership  Percentage").
Each Holder shall have the right (i) at any time and from time to time to reduce
its Restricted Ownership  Percentage  immediately upon notice to the Company and
(ii)  (subject  to waiver) at any time and from time to time,  to  increase  its
Restricted Ownership Percentage  immediately in the event of the announcement as
pending or planned, of a Change of Control Transaction.

     (b) The  Holder  covenants  at all times on each day  (each  such day being
referred to as a "Covenant Day") as follows: During the balance of such Covenant
Day and the succeeding sixty-one (61) days (the balance of such Covenant Day and
the succeeding 61 days being  referred to as the "Covenant  Period") such Holder
will not acquire  shares of Common Stock  pursuant to any right  existing at the
commencement  of the  Covenant  Period  to the  extent  the  number of shares so
acquired by such Holder and its Aggregation  Parties (ignoring all dispositions)
would exceed:

               (x) the  Restricted  Ownership  Percentage of the total number of
               shares of Common Stock  outstanding  at the  commencement  of the
               Covenant Period,

               minus

               (y) the number of shares of Common Stock owned by such Holder and
               its  Aggregation  Parties  at the  commencement  of the  Covenant
               Period.

     A new and independent  covenant will be deemed to be given by the Holder as
of each moment of each  Covenant Day. No covenant  will  terminate,  diminish or
modify any other covenant.  The Holder agrees to comply with each such covenant.
This Section 12 controls in the case of any conflict with any other provision of
any other agreement to which the Company and the Holder may be parties.

     (c) The  Company's  obligation  to issue shares of Common Stock which would
exceed such  limits  referred to in this  Section 12 shall be  suspended  to the
extent  necessary  until such  time,  if any,  as shares of Common  Stock may be
issued in compliance with such restrictions.

     13.  Obligations  Absolute.  No provision of this  Debenture,  the Purchase
Agreement  or the  Registration  Rights  Agreement  shall  alter or  impair  the
obligation  of the  Company,  which is absolute  and  unconditional,  to pay the
principal  of, and  interest and delay  payments on, this  Debenture or to issue
shares of Common Stock in response to a Conversion Notice at the time, place and
rate, and in the manner, herein prescribed.

                                       14
<PAGE>

     14. Waivers of Demand,  Etc. The Company hereby  expressly and  irrevocably
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor,  notice of acceleration or intent to accelerate,
bringing of suit and  diligence in taking any action to collect  amounts  called
for hereunder  and will be directly and primarily  liable for the payment of all
sums  owing  and to be owing  hereon,  regardless  of and  without  any  notice,
diligence,  act or omission as or with respect to the  collection  of any amount
called for hereunder.

     15.  Replacement  Debenture.  In the event  that any  Holder  notifies  the
Company that its Debenture(s) have been lost,  stolen or destroyed,  replacement
Debenture(s)  identical in all respects to the original Debenture(s) (except for
registration  number and Outstanding  Principal  Amount,  if different than that
shown on the  original  Debenture(s)),  shall be issued to the Holder,  provided
that the Holder  executes and  delivers to the Company an  agreement  reasonably
satisfactory  to the Company to indemnify  the Company from any loss incurred by
it in connection with such Debenture.

     16. Payment of Expenses;  Issue Taxes.  The Company agrees to pay all debts
and expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing  the  provisions of this  Debenture  and/or  collecting  any
amount due under this Debenture,  the Escrow Agreement,  the Purchase Agreement,
any Warrant or the Registration Rights Agreement.  The Company shall pay any and
all issue and other taxes  (excluding  any income,  franchise or similar  taxes)
that maybe payable in respect of any issue or delivery of shares of Common Stock
on conversion of any Debenture pursuant hereto.

     17. Defaults. If one or more of the following described "Events of Default"
shall occur with respect to any of the Debentures:

     (a)  the  Company  shall  default in the  payment of (i)  interest  on this
          Debenture  or any other  Debenture  issued  pursuant  to the  Purchase
          Agreement  (subject to the Company's option to pay PIK Interest),  and
          such  default  shall  continue  for five (5) days  after  the due date
          thereof,  or  (ii)  the  principal  of  this  Debenture  or any  other
          Debenture issued pursuant to the Purchase Agreement; or

     (b)  any of the representations or warranties made by the Company in any of
          the Debentures,  in the Purchase Agreement,  the Escrow Agreement, the
          Registration  Rights  Agreement,  any Warrant or in any certificate or
          financial or other statements  heretofore or hereafter furnished by or
          on behalf of the Company in connection with the execution and delivery
          of this Debenture or such other documents shall be false or misleading
          at the time made; or

                                       15
<PAGE>

     (c)  the Company shall fail to  materially  perform or observe any covenant
          or agreement  in the Purchase  Agreement,  the Escrow  Agreement,  any
          Warrant or the Registration  Rights Agreement,  or any other covenant,
          term,  provision,  condition,  agreement or  obligation of the Company
          under any of the Debentures  and such failure shall  continue  uncured
          for a period of ten (10) days after notice of such failure; or

     (d)  the  Company  shall (1) become  insolvent;  (2) admit in  writing  its
          inability  to pay its  debts  generally  as they  mature;  (3) make an
          assignment  for the benefit of creditors or commence  proceedings  for
          its  dissolution;  or (4) apply for or consent to the appointment of a
          trustee,  liquidator or receiver for it or for a  substantial  part of
          its property or business; or

     (e)  a trustee,  liquidator or receiver  shall be appointed for the Company
          or for a  substantial  part of its  property or  business  without its
          consent and shall not be discharged  within forty-five (45) days after
          such appointment; or

     (f)  any governmental agency or any court of competent  jurisdiction at the
          instance of any governmental agency shall assume custody or control of
          the whole or any  substantial  portion of the  properties or assets of
          the Company and shall not be  dismissed  within  forty-five  (45) days
          thereafter; or

     (g)  the  Company  shall,  in one or a  series  of  transactions,  sell  or
          otherwise transfer all or substantially all of its assets; or

     (h)  bankruptcy,  reorganization,  insolvency or liquidation proceedings or
          other  proceedings,  or relief under any bankruptcy law or any law for
          the relief of debt shall be  instituted by or against the Company and,
          if  instituted  against  the  Company  shall not be  dismissed  within
          forty-five (45) days after such  institution,  or the Company shall by
          any action or answer  approve of, consent to, or acquiesce in any such
          proceedings  or admit to any  material  allegations  of, or default in
          answering a petition filed in any such proceeding; or

     (i)  the  Company  shall be in  default  of any  other of its  indebtedness
          exceeding  $500,000,  or any other event shall have occurred such that
          as a result  thereof the holders  thereof  shall have  accelerated  or
          shall have the right (upon the giving of notice,  the passage of time,
          or both) to accelerate such indebtedness; or

     (j)  a "going private" transaction under Rule 13e-3 promulgated pursuant to
          the Exchange Act shall have been announced; or

                                       16
<PAGE>

     (k)  a tender offer by the Company under Rule 13e-4 promulgated pursuant to
          the Exchange Act shall have been announced;

     then, or at any time  thereafter,  in the case of Events of Default arising
from the events  described in  paragraphs  (a),  (b), (c), (g) (i), (j) and (k),
unless  such  Event of Default  shall have been  waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any  subsequent  default) at
the option of the Holder and in the  Holder's  sole  discretion,  the Holder may
declare  the  Debenture  immediately  due and payable  and  concurrently  demand
payment thereof,  and the Holder may immediately,  and without expiration of any
period  of  grace,  enforce  any and all of the  Holder's  rights  and  remedies
provided herein or any other rights or remedies afforded by law. In the event of
Events of Default arising from the events  described in paragraphs (d), (e), (f)
or (h) above,  this Debenture  shall become  immediately due and payable without
further  action or notice.  In the event that the  Debenture  is due and payable
pursuant  to this  provision,  the  Debenture  shall be  redeemed at the Premium
Redemption Price (as defined in the Registration Rights Agreement).

     18.  Savings  Clause.  In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent  possible,  and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired  thereby,  and such provision shall remain  effective in
all other jurisdictions.

     19. Entire Agreement. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement between the
Company  and the  Holder  with  respect  to the  subject  hereof.  Neither  this
Debenture nor any term hereof may be amended,  waived,  discharged or terminated
other than by a written instrument signed by the Company and the Holder.

     20. Assignment,  Etc. Subject to Section 7.8 of the Purchase Agreement, the
Holder  (but not the  Company)  may  without  notice,  transfer  or assign  this
Debenture or any interest  herein and may mortgage,  encumber or transfer any of
its rights or interest in and to this Debenture or any part hereof and,  without
limitation,  each  assignee,  transferee  and  mortgagee  (which may include any
affiliate  of the  Holder)  shall  have the  right to  transfer  or  assign  its
interest.  Each such assignee,  transferee  and mortgagee  shall have all of the
rights of the Holder under this Debenture.  The Company agrees that,  subject to
compliance with the Purchase Agreement,  after receipt by the Company of written
notice  of  assignment  from the  Holder  or from  the  Holder's  assignee,  all
principal,  interest and other amounts which are then and thereafter  become due
under  this  Debenture  shall be paid to such  assignee  at the place of payment
designated in such notice.  This Debenture shall be binding upon the Company and
its  successors  and affiliates and shall inure to the benefit of the Holder and
its successors and assigns.

     21. No Waiver.  No failure  on the part of the Holder to  exercise,  and no
delay in  exercising  any right,  remedy or power  hereunder  shall operate as a
waiver  thereof,  nor shall any single or partial  exercise by the Holder of any
right,  remedy or power  hereunder  preclude any other or future exercise of any
other  right,  remedy or power.  Each and every  right,  remedy or power  hereby
granted  to the  Holder  or  allowed  it by  law or  other  agreement  shall  be
cumulative  and not  exclusive of any other,  and may be exercised by the Holder
from time to time.

                                       17
<PAGE>

     22. Certificate. The Company shall, upon the written request at any time of
any Holder of  Debentures,  furnish or cause to be  furnished  to such  Holder a
certificate prepared by the chief financial officer of Company setting forth any
adjustments or  readjustments of the Conversion Price pursuant to this Debenture
and any right of the Holder to receive  additional shares of Common Stock or any
other equity or debt security pursuant to Section 7.

     23.  Notices.  The Company  shall  distribute  to the Holders of Debentures
copies  of  all  notices,   materials,   annual  and  quarterly  reports,  proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common  Stock of the  Company,  at such times and by
such method as such  documents  are  distributed  to such holders of such Common
Stock,  but  shall  not  directly  or  indirectly  provide  material  non-public
information to the Holder without such Holder's prior written consent.

     24. Specific Enforcement.  The Company agrees that irreparable damage would
occur  in the  event  that  any of the  provisions  of this  Debenture  were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly  agreed that the Holders of Debentures shall be entitled to swift
specific  performance,  injunctive relief or other equitable remedies to prevent
or cure breaches of the provisions of this Debenture and to enforce specifically
the terms and provisions  hereof,  this being in addition to any other remedy to
which any of them may be entitled under agreement, at law or in equity.

     25.  Miscellaneous.  Unless otherwise  provided herein, any notice or other
communication to a party hereunder shall be sufficiently given if in writing and
personally  delivered,  facsimiled  or mailed to said party by  certified  mail,
return receipt requested,  at its address set forth herein or such other address
as  either  may   designate   for  itself  in  such  notice  to  the  other  and
communications  shall be deemed to have been received when delivered  personally
or, if sent by mail or facsimile,  then when  actually  received by the party to
whom it is addressed.  Whenever the sense of this Debenture  requires,  words in
the singular shall be deemed to include the plural and words in the plural shall
be deemed to include the singular.  Paragraph  headings are for convenience only
and shall not affect the meaning of this document.

     26.  GOVERNING  LAW;  CONSENT  TO  JURISDICTION.  THIS  DEBENTURE  SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS TO BE EXECUTED AND PERFORMED ENTIRELY WITHIN
SUCH  STATE.  THE  COMPANY  (I)  HEREBY  IRREVOCABLY  SUBMITS  TO THE  EXCLUSIVE
JURISDICTION  OF THE STATE AND FEDERAL  COURTS  LOCATED IN NEW YORK COUNTY,  NEW
YORK FOR THE  PURPOSES  OF ANY SUIT,  ACTION  OR  PROCEEDING  ARISING  OUT OF OR
RELATED TO THIS  DEBENTURE AND (II) HEREBY  WAIVES,  AND AGREES NOT TO ASSERT IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE  JURISDICTION  OF SUCH  COURT,  THAT THE SUIT,  ACTION OR  PROCEEDING  IS
BROUGHT  IN AN  INCONVENIENT  FORUM OR THAT THE  VENUE OF THE  SUIT,  ACTION  OR

                                       18
<PAGE>

PROCEEDING IS IMPROPER. THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT,  ACTION OR  PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AS PROVIDED
HEREIN AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE
OF PROCESS AND NOTICE  THEREOF.  NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT
ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

                             Signature Page Follows

                                       19
<PAGE>

     IN WITNESS  WHEREOF,  the  Company has caused  this  instrument  to be duly
executed by an officer thereunto duly authorized.

                                        PHARMOS CORPORATION

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

     Signature page to 6% Convertible Debenture of PHARMOS CORPORATION

                                       20
<PAGE>

                                    EXHIBIT 1

                                PAYMENT STATEMENT

Date:______________

To: [Name of Holder of Debenture] ("Holder")

Re:  6%  Convertible  Debenture  Due  June 30,  2003  ("Debenture")  of  PHARMOS
CORPORATION (the "Company"), in the Outstanding Principal Amount of US$________.

     The Company hereby irrevocably elects to pay interest on the Debenture, for
the Interest  Payment Date indicated below, in the following manner (the Company
should check its selection):

     ____ cash interest; or

     ____ PIK Interest.

     Interest Payment Date: _________________________

     If the  selection  above is PIK  Interest,  the Company  should fill in the
following:

     Outstanding Principal Amount prior
     to issuance of this Payment Statement:              US$_____________

     PIK Interest:                                       US$_____________

     Outstanding Principal Amount after
     issuance of this Payment Statement:                 US$_____________

     The Company hereby certifies to the Holder, its successors and assigns that
the Outstanding  Principal Amount due under the Debenture after delivery of this
Payment  Statement equals the amount indicated below.  Capitalized terms used in
this Payment Statement and not otherwise defined shall have the meaning ascribed
thereto in the Debenture.

                                       21
<PAGE>

     IN WITNESS  WHEREOF,  this  Payment  Statement  has been duly  executed and
delivered on the date first written above.

                                            PHARMOS CORPORATION

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

                                       22
<PAGE>

                                    EXHIBIT 2

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

                                CONVERSION NOTICE
                                       FOR
                   6% CONVERTIBLE DEBENTURE DUE JUNE 30, 2003

     The  undersigned,  as Holder of the 6%  Convertible  Debenture Due June 30,
2003 of PHARMOS CORPORATION (the "Company"), in the outstanding principal amount
of U.S. $_____________ (the "Debenture"),  hereby elects to convert that portion
of the outstanding principal amount of the Debenture shown on the next page into
shares of Common Stock,  $0.03 par value per share (the "Common Stock"),  of the
Company  according to the  conditions of the  Debenture,  as of the date written
below.  The undersigned  hereby requests that share  certificates for the Common
Stock to be issued to the  undersigned  pursuant  to this  Conversion  Notice be
issued in the name of, and  delivered  to, the  undersigned  or its  designee as
indicated  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. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any.

Conversion Information:      NAME OF HOLDER:
                                            -----------------------------------

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

                             Print Address of Holder:

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

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

                             Issue Common Stock to:
                                                   -----------------------------
                             at:
                                ------------------------------------------------

                             Electronically transmit and credit Common Stock to:
                                               at:
                             ------------------   ------------------------------

                             ---------------------------------------------------
                             Date of Conversion

                             ---------------------------------------------------
                             Applicable Conversion Rate

                THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
                  BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE

<PAGE>

              Page 2 to Conversion Notice for:
                                              --------------------------------
                                                     (Name of Holder)

              COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED

A.  Outstanding Principal Amount converted:                              $______

B.  Accrued, unpaid interest on Outstanding Principal Amount converted:  $______

C.  Delay payments due Holder on Outstanding Principal Amount converted: $______

Total dollar amount converted (total of A + B + C)                       $______

Exchange Price                                                           $______

Number of Shares of Common Stock = Total dollar amount converted =       $______
                                   -----------------------------
                                         Conversion Price                $

Number of shares of Common Stock = _____________________________

If the  conversion is not being  settled by DTC,  please issue and deliver _____
certificate(s) for shares of Common Stock in the following amount(s):

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

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

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

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

Please issue and deliver _____ new Debenture(s) in the following amounts:

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

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

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

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

                                       2<PAGE>
                                                                  EXHIBIT 4.1

                                                                  EXECUTION COPY

                       REGISTRATION AND LOCK-UP AGREEMENT

      This Registration and Lock-up Agreement (this "Agreement") is made and
entered into as of December 28, 2001, by and among VerticalNet, Inc., a
corporation organized under the laws of the Commonwealth of Pennsylvania (the
"Company"), and each party listed on the signature page to this Agreement and
any other party who joins this Agreement after the date hereof (individually, a
"Stockholder" and collectively, the "Stockholders").

                                  INTRODUCTION

      The Company, Everest Acquisition Co., a corporation organized under the
laws of the State of Delaware ("Everest"), and Atlas Commerce, Inc., a
corporation organized under the laws of the State of Delaware ("Atlas"), are
parties to the Agreement of Merger, of even date herewith (the "Merger
Agreement"), pursuant to which the Everest shall merge with and into Atlas (the
"Merger") and the Company will issue to the Stockholders, who, prior to the
Effective Time of the Merger, are holders of Target Capital Stock and securities
of Target convertible into Target Capital Stock, shares of Common Stock, $.01
par value per share ("Common Stock"), of the Company. Pursuant to the Merger
Agreement, the Stockholders shall have certain rights with respect to the
registration of such shares of Common Stock for sale under the Securities Act,
and there shall be certain restrictions on the transfer by the Stockholders of
such shares of Common Stock.

                                    AGREEMENT

      In consideration of the mutual covenants and promises contained in the
Merger Agreement and in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Stockholders agree as follows:

      1. Certain Definitions.  As used in this Section 1 and elsewhere in this
Agreement, the following terms shall have the following respective meanings:

            "Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.

            "Effective Period" has the meaning set forth in Section 3(a).

            "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

            "Merger Shares" means (a) the shares of Common Stock issuable to the
Stockholders pursuant to the Merger Agreement as set forth opposite the
Stockholders' names on Schedule I hereto and (b) any other shares of Common
Stock of the Company issued in respect of such shares (because of stock splits,
stock dividends, reclassifications, recapitalizations or similar events);
provided, however, that shares of
<PAGE>
Common Stock held by a Stockholder which are Merger Shares shall cease to be
Merger Shares upon any sale by such Stockholders pursuant to the Resale
Registration Statement or pursuant to the provisions of Rule 144.

            "Registration Expenses" means the expenses described in Section 4.

            "Registration Statement" means a registration statement filed by the
Company with the Commission under the Act for a public offering and sale of
securities of the Company.

            "Rule 144" means Rule 144 of the Commission promulgated under the
Securities Act.

            "Safeguard Stockholder" means Safeguard 2000 Capital, L.P.,
Safeguard 2001 Capital, L.P. and any affiliate of Safeguard Scientifics, Inc.
holding Merger Shares.

            "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

      Other terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Merger Agreement.

      2. Resale Registration Statement. On or prior to January 4, 2002 the
Company shall file a Registration Statement on Form S-3 (the "Resale
Registration Statement") registering the offering and sale by each Stockholder
of the Merger Shares and shall use its best efforts to cause the Resale
Registration Statement to become effective promptly following the filing thereof
and to remain effective during the Effective Period.

      3. Registration Procedures. In connection with the registration of the
Merger Shares under the Securities Act, the Company shall as expeditiously as
possible:

            (a) prepare and file with the Commission any amendments and
supplements to the Resale Registration Statement and the prospectus included
therein as may be necessary to keep the Resale Registration Statement effective
for a period ending on the earliest of (i) the second anniversary of the Closing
Date, (ii) the date on which all Merger Shares registered under such Resale
Registration Statement have been sold and (iii) the date all Merger Shares may
be sold under Rule 144 within 90 days (the "Effective Period");

            (b) furnish to each Stockholder who so requests such reasonable
numbers of copies of the prospectus in conformity with the requirements of the
Securities Act, and such other documents as such Stockholder may reasonably
request in order to facilitate the public sale or other disposition of the
Merger Shares owned by such Stockholder;

            (c) use its best efforts to register or qualify the Merger Shares
covered by the Resale Registration Statement under the securities or Blue Sky
Laws of such states as a Stockholder shall reasonably request, and do any and
all other acts and things that may reasonably be necessary or desirable to
enable the Stockholder to consummate the public

                                       2
<PAGE>
sale or other disposition in such states of the Merger Shares owned by such
Stockholder; provided, however, that the Company shall not be required in
connection with this paragraph (c) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction; and

            (d) upon the occurrence of any event of the kind described in
Section 6(c)(i)-(iv) below, use its best efforts to promptly rectify, or take
such reasonable action with respect to, such event so that each Stockholder is
entitled to resume the disposition of such Stockholder's Merger Shares in
accordance with the terms of this Agreement.

      4. Blackout Periods; Revised Prospectus.

            (a) The Company may by written notice require that each Stockholder
who has requested a prospectus to immediately cease sales of shares pursuant to
the Resale Registration Statement (a "Black Out Requirement") at any time that
the Company becomes engaged in a business activity or negotiation which is not
disclosed in the prospectus included in the Resale Registration Statement which
the Company reasonably believes must be disclosed therein under applicable Law
and which the Company desires to keep confidential for business purposes, the
disclosure of which at such time the Company believes could have an adverse
effect on the Company or its business or prospects or on the successful
completion of such business activity or negotiation or on the market price of
the Company's stock. The Black Out Requirement shall not exceed 90 days in any
twelve month period, and the time period of any one Black Out Requirement shall
not exceed 45 days. The Company shall not be required to disclose to such
Stockholders the reasons for requiring a suspension of sales under the Resale
Registration Statement, and such Stockholders shall not disclose to any third
party (other than financial advisors or other experts consulted by such
Stockholders with respect to any such sales of shares who agree to keep the
information confidential) the existence of any such suspension. The Company will
promptly notify all such Stockholders as soon as the Company determines that the
Blackout Requirement is no longer necessary.

            (b) If the Company has delivered a prospectus to a Stockholder and
after having done so the prospectus is amended to comply with the requirements
of the Securities Act, the Company shall promptly notify such Stockholder and,
if requested, such Stockholder shall immediately cease making offers of Merger
Shares and return all undistributed prospectuses to the Company. The Company
shall promptly provide such Stockholder with a revised prospectus and, following
receipt of the revised prospectus, the Stockholders shall be free to resume
making offers of the Merger Shares held by such Stockholders.

      5. Allocation of Expenses. The Company will pay all Registration Expenses
relating to the Resale Registration Statement. For purposes of this Section 5,
the term "Registration Expenses" shall mean all reasonable expenses incurred by
the Company in complying with this Agreement, including all registration and
filing fees, listing fees, printing expenses, fees and disbursements of counsel
for the Company, and any state Blue Sky fees and expenses; provided, however,
that except as expressly set forth herein,

                                       3
<PAGE>
in no event shall Registration Expenses include any underwriting fees,
discounts, commissions or fees attributable to the sale of the Merger Shares or
any counsel, accounting or other Persons retained by a Stockholder in connection
with the consummation of the transactions contemplated by this Agreement.

      6. Stockholder Covenants.  Each Stockholder hereby covenants and agrees
that:

            (a) it will not sell any Merger Shares under the Resale Registration
Statement until it has requested and received a prospectus from the Company and
received notice from the Company that the Resale Registration Statement has
become effective;

            (b) it will comply with the prospectus delivery requirements of the
Securities Act as applicable to such Stockholder in connection with sales of
Merger Shares pursuant to the Resale Registration Statement;

            (c) upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 6(c)(i) - (iv) below, such
Stockholder shall forthwith discontinue disposition of such Merger Shares under
the Resale Registration Statement until such Stockholder receives copies of the
supplemented prospectus and/or amended Resale Registration Statement or until
the Stockholder is advised in writing by the Company that the use of the
applicable prospectus may be resumed:

                  (i)   any request by the Commission or any other
Governmental Body for amendments or supplements to the Resale Registration
Statement or prospectus or for additional information;

                  (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Resale Registration Statement or the
initiation of any proceedings for that purpose;

                  (iii) the receipt by the Company of any written notification
with respect to the suspension of the qualification or exemption from
qualification of the Merger Shares for sale in any jurisdiction, or the
initiation or threatening in writing of any proceeding, for such purpose; or

                  (iv) the occurrence of any event that makes any statement made
in the Resale Registration Statement or prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to the Resale Registration Statement, prospectus
or other documents so that, in the case of the Resale Registration Statement or
the prospectus, as the case may be, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

            (d) each Stockholder shall furnish to the Company information
regarding such Stockholder and the distribution of the Merger Shares as is
required by Law to be disclosed in the Resale Registration Statement and is
different from the information

                                       4
<PAGE>
concerning such Stockholder and the plan distribution contained in the Resale
Registration Statement.

      7. Indemnification.

            (a)   In connection with the Resale Registration Statement, to the
extent permitted by Law:

                  (i) the Company will indemnify and hold harmless each
Stockholder, any underwriter (as defined in the Act) for such Stockholder and
each Person, if any, who controls such Stockholder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state Law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations: (A) any untrue statement or alleged untrue statement of
a material fact contained in the Resale Registration Statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
contained in the Resale Registration Statement not misleading or (C) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities Law; and the Company will pay to each such
Stockholder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 7(a)(i) shall not
apply to: (w) amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), (x) any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon information contained in the Resale Registration Statement in
reliance upon and in conformity with written information furnished expressly for
use in connection with the Resale Registration Statement by any such
Stockholder, underwriter or controlling person, (y) any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
such Stockholder's or underwriter's failure to deliver a copy of a prospectus
included in the Resale Registration Statement or any amendments or supplements
thereto or (z) any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon, in whole or part, such Stockholder's or
underwriter's violation or alleged violation of the Securities Act, the Exchange
Act or any state securities Law; and

                  (ii) each selling Stockholder will indemnify and hold harmless
the Company, each of its directors, each of its officers who has signed the
Resale Registration Statement, each Person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter, any other Stockholder
selling securities in such registration statement and any controlling person of
any such underwriter or other Stockholder, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Securities Act, the Exchange

                                       5
<PAGE>
Act or other federal or state Law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon
information contained in the Resale Registration Statement in conformity with
written information furnished by such Stockholder expressly for use in
connection with the Resale Registration Statement; and each such Stockholder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 7(a)(ii), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 7(a)(ii) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Stockholder, which consent shall not be unreasonably
withheld. In no event shall the liability of any Stockholder under this
subsection 7(a) exceed the sales proceeds, net of any commissions, received by
such Stockholder upon the sale of the Merger Shares pursuant to the Resale
Registration Statement.

            (b) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.

            (c) If the indemnification provided for in this Section 7 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the

                                       6
<PAGE>
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. In no event shall any contribution by a Stockholder under
this subsection 7(c) exceed the sales proceeds, net of any commissions, received
by such Stockholder upon the sale of the Merger Shares pursuant to the Resale
Registration Statement. In no event shall a person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) be entitled to contribution from any person or entity who was
not guilty of fraudulent misrepresentation.

            (d) The obligations of the Company and the Stockholders under this
Section 7 shall survive the completion of the offering of Merger Shares under
the Resale Registration Statement.

      8. Restrictions on Transfer.

            (a) Except as otherwise set forth in Section 2.06(k) of the Merger
Agreement, no Stockholder, other than a Safeguard Stockholder, shall, during the
period commencing on the Closing Date and ending on the first anniversary
thereof, directly or indirectly, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer, assign or
dispose of any of the Merger Shares, enter into any hedging transactions with
brokers or dealers, which may in turn engage in short sales in the course of
hedging the positions such brokers or dealers may assume, with respect to any of
the Merger Shares or enter into any transaction to sell Company common stock
short whereby such Stockholder could deliver any of the Merger Shares to close
out such short positions (in each case a "Transfer") held by such Stockholder.
Notwithstanding anything to the contrary in this Section 8(a), (i) if a holder
of In-the-Money Options ceases to be employed by the Company or any subsidiary
of the Company, then the provisions of this Section 8(a) shall no longer apply
to any Merger Shares that such holder acquires upon the exercise of such
In-the-Money Options and (ii) EquiSource, LLC shall be permitted to distribute
the Merger Shares to its members, provided that prior to such distribution each
such member executes and delivers to the Company counterparts to the
Securityholder's Certificate in a form reasonably satisfactory to the Company or
such other instruments of joinder as the Company deems reasonably necessary to
join any such member to the Escrow Agreement and this Agreement and a release of
the Company substantially similar to that set forth in the Securityholder's
Certificate.

            (b) The Safeguard Stockholder shall not, during the period
commencing on the Closing Date and ending on the first anniversary thereof,
Transfer any of the Merger Shares received by Safeguard (the "Safeguard
Shares"), except that the Safeguard Stockholder, may:

                  (i) transfer any or all of the Safeguard Shares to an
Affiliate of the Safeguard Stockholders or to Internet Capital Group, Inc.
("ICG"), provided that, in any such case, it shall be a condition to such
Transfer that the transferee execute and deliver to the Company a joinder, in a
form satisfactory to the Company, stating that such

                                       7
<PAGE>
transferee acknowledges and agrees that such Affiliate is receiving and holding
the Safeguard Shares subject to the provisions of this Agreement;

                  (ii) together with the other Safeguard Stockholders, make
Transfers of up to an aggregate amount of 2,500,000 of the Safeguard Shares
during any 50-day period;

                  (iii) sell any of the Safeguard Shares held under the Escrow
Agreement in amounts that do not exceed the amounts specified in Rule 144(e)(1)
under the Securities Act; and

                  (iv) make Transfers of up to an aggregate of 5,000,000 of the
Safeguard Shares in one or more block trades; for purposes of this provision the
term "block trade" shall mean any sale as a single unit of at least 100,000
Safeguard Shares that is pre-arranged through any of the top five market makers
for the Common Stock for the preceding three calendar months (as reported by
Bloomberg L.P.) or an Affiliate of an investment banking firm that is a member
of the New York Stock Exchange and ranked among the top ten managers of U.S.
equity offerings for 2001 (based on dollar value) as published by Bloomberg
L.P.; and provided, that the price at which the trade is executed is not less
than $1.10 per share.

            (c) Notwithstanding anything contained herein to the contrary, any
sale of Safeguard Shares by Safeguard pursuant to Section 8(b)(ii) or (iii) may
not be executed at a price per share that results in a sale price of less than
$1.00; provided, however, that if, after the date hereof and prior to any
proposed transfer of Safeguard Shares by an Safeguard Stockholder, ICG or any
Person who is an executive officer of the Company (collectively, "Company
Affiliate Sellers") executes a sale of Common Stock at a per share price of less
than $1.00, then an Safeguard Stockholder shall be entitled to sell a number of
Safeguard Shares equal to the aggregate number of shares so sold by any Company
Affiliate Seller without regard to the price limitation set forth in this
paragraph; and provided further, however, that if ICG sold such shares of Common
Stock pursuant to a Company registration statement, then Safeguard Stockholder
shall be entitled to sell shares of Common Stock at a price per share of less
than $1.00 without regard to the limitations regarding numbers of shares set
forth in Section 8(b)(ii).

            (d) Except for the Safeguard Shares, in order to enforce the
restrictions contained in this Section 8, the Company may place a legend on the
certificates for the Merger Shares and impose stop-transfer instructions with
respect to the Merger Shares until after the first anniversary of the Closing
Date.

            (e) The provisions of this Section 8 shall terminate upon the
earliest of: (i) the closing of a sale, transfer or other disposition to any
Person of more than 80% of the shares of the capital stock then outstanding of
the Company; (ii) the closing of a sale, transfer or other disposition of all or
substantially all of the assets of the Company; or (iii) the merger or
consolidation of the Company with or into another corporation, other than a
merger or consolidation of the Company in which the holders of shares of the
Company's voting capital stock outstanding immediately before such merger or
consolidation hold

                                       8
<PAGE>
greater than fifty percent (50%) of the surviving entity's voting capital stock
after such consolidation or merger.

      9. Transfers Pursuant to Rule 144 or Resale Registration Statement. Upon a
Stockholder's compliance with this Agreement and the applicable provisions of
Rule 144 or prospectus delivery requirements under the Securities Act, as the
case may be, the Company will take such action as may be required (including,
soliciting an appropriate opinion from legal counsel to issue an appropriate
opinion) to cause its transfer agent to effectuate any transfer of Merger Shares
properly requested by such Stockholder, in accordance with the terms and
conditions of Rule 144 or any sale under the Resale Registration Statement.

      10. Compliance with Company Insider Trading Policies. All sales of Merger
Shares held by a Stockholder who is an employee of the Company or any subsidiary
shall be made in accordance with the Company's policies against insider trading
and the misuse of material non-public information, including any blackout
periods set forth therein.

      11.   No Assignment.  The rights granted pursuant to this Agreement may
not be transferred or assigned by any Stockholder.

      12. Amendments and Waivers. The provisions of this Agreement may be
modified or amended at any time and from time to time only by an agreement or
consent in writing executed by either (i) the Company and the Safeguard
Stockholder where such modification or amendment would affect the rights and
obligations hereunder of the Safeguard Stockholder, or (ii) the Company and the
Holders' Representative where such modification or amendment would affect the
rights and obligations hereunder of the Holders, as the case may be. No
provision of this Agreement may be waived except in a written instrument signed
by the party against whom enforcement of 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 other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.

      13. Notices. All notices, requests, consents and other communications
required to be given pursuant to this Agreement shall be in writing and shall be
given by personal delivery, facsimile with confirmation of receipt or by
certified or registered mail, postage prepaid, return receipt requested. Notices
shall be deemed effective when personally delivered or so received by facsimile
or three days after being so mailed, as the case may be, to the parties at the
following respective addresses or at such other address of which either party
shall notify the other in accordance with this Section 13:

                                       9
<PAGE>
            The Company:           VerticalNet, Inc.
                                   700 Dresher Road
                                   Horsham, PA  19044
                                   Attention:  James W. McKenzie, Jr.
                                   Vice President and General Counsel
                                   (facsimile:  215.658.1872)

            With a required copy   Morgan, Lewis & Bockius LLP
            to:                    1701 Market Street
                                   Philadelphia, PA 19103-2921
                                   Attn:  Michael L. Pillion, Esq.

            Any Stockholder:       To the address set forth on the
                                   records of the Company or such
                                   other address as may be
                                   forwarded by a Stockholder in
                                   writing

      14. Entire Agreement; Governing Law. This Agreement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the
Commonwealth of Pennsylvania, without giving effect to any of the conflicts of
laws provisions thereof that would require the application of the substantive
laws of any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF. This Agreement, together with the Transaction Documents,
embodies the entire agreement and understanding between the parties, and
supersedes all prior agreements and understandings relating to the subject
matter hereof.

      15. Remedies. In the event of a breach by the Company or by a Stockholder,
of any of their respective obligations under this Agreement, each Stockholder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Stockholder agrees that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate. Each of the Parties shall be
entitled to seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity. In any action at law or suit in equity to
enforce this Agreement or the rights of any of the parties hereunder, the
prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit, if in such action or

                                       10
<PAGE>
suit the principal claim or defense of the non-prevailing party is held to be
without merit because it was not reasonably supported by Laws or material and
relevant facts.

      16. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the portion of such provision that is
found to be unenforceable shall be excluded from this Agreement and the balance
of the Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.

      17.   Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      18. Interpretation. Unless the context of this Agreement clearly requires
otherwise, (a) references to the plural include the singular, the singular the
plural, the part the whole, (b) references to any gender include all genders,
(c) "including" has the inclusive meaning frequently identified with the phrase
"but not limited to" and (d) references to "hereunder" or "herein" relate to
this Agreement. The section and other headings contained in this Agreement are
for reference purposes only and shall not control or affect the construction of
this Agreement or the interpretation thereof in any respect. Section references
are to this Agreement unless otherwise specified.

                                       11
<PAGE>
      IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.

                                    VERTICALNET, INC.

                                    By:
                                           -------------------------------------
                                    Name:  Michael J. Hagan
                                    Title: President and Chief Executive
                                           Officer

                                    STOCKHOLDERS SIGNING AS OF THE CLOSING
                                      DATE:

                                    --------------------------------------------
                                    Robert F. Bernstock
                                    316 Rosemary Lane
                                    Penn Valley, PA  19072

                                    SAFEGUARD 2000 CAPITAL L.P.

                                    By:   Safeguard Delaware, Inc.
                                          Its General Partner

                                    By:
                                           -------------------------------------
                                    Name:  N. Jeffrey Klauder
                                    Title: Vice President

                                    SAFEGUARD 2001 CAPITAL L.P.

                                    By:   Safeguard Delaware, Inc.
                                          Its General Partner

                                    By:
                                           -------------------------------------
                                    Name:  N. Jeffrey Klauder
                                    Title: Vice President

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