8-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                Date of Report (Date of earliest event reported)
                          July 14, 2003 (July 10, 2003)

                           HEMISPHERX BIOPHARMA, INC.
             (Exact name of registrant as specified in its charter)

        Delaware                    0-27072                   52-0845822
 (state or other juris-           (Commission              (I.R.S. Employer
diction of incorporation)         File Number)           (Identification No.)

         1617 JFK Boulevard, Philadelphia, Pennsylvania             19103
        (Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (215) 988-0080

          -------------------------------------------------------------
          (Former name or former address, if changed since last report)




ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE

      On July 10, 2003, the Company closed a private placement to two
institutional investors of 6% senior secured convertible debentures due July 31,
2005 in the aggregate principal amount of $5,426,000 (the "Debentures") and
Warrants to purchase an amount of shares of Common Stock equal to 20% of the
shares issuable upon conversion of the Debentures. The terms of the Debentures
are substantially similar to those issued to these two investors in March 2003.

      Funding to the Company from the Debentures will be in stages. It is
anticipated that initial funding will occur on July 15,2003.

      For a complete description of this transaction, see the Securities
Purchase Agreement, Form of Convertible Debenture, Form of Warrant and
Registration Rights Agreement filed as Exhibits 10.1, 10.2, 10.3 and 10.4 to
this Report and incorporated herein by reference.

To assure that there are adequate shares available to be reserved for issuance
pursuant to conversion of the Debentures, as payment of interest on the
Debentures and upon exercise of the Warrants related thereto, Dr. William A.
Carter, the Company's Chairman, President and Chief Executive Officer, has
agreed to waive his right to exercise an aggregate of 3,006,650 Company options
and warrants (collectively, hereinafter referred to as "Options") held by him
unless and until the Company's authorized shares are increased. One of the
proposals for the Company's Annual Meeting of Stockholders to be held in
September 2003 is an amendment to the Company's certificate of incorporation to
increase the authorized shares of common stock from 50,000,000 to 100,000,000
(the "Proposal").

For this waiver of a right to exercise the Options prior to approval of the
Proposal and for the possible diminution in value of these Options that could
result in the event that the Proposal is not approved, the Company plans to
compensate Dr. Carter. Although the specific amounts have not been determined,
the method of determining such compensation and potential loss is anticipated to
be as follows: The Company's Board of Directors will form a committee (the
"Committee") consisting of the three independent directors. The Committee will
engage an independent valuation firm to value the Options as of July 10, 2003
and again as of the date prior to the vote on the Proposal. The Committee, with
the assistance of the independent valuation firm, will determine the monetary
value of the waiver during this period and that amount will be paid to Dr.
Carter. In the event that the Proposal does not pass, the Committee, with the
assistance of the independent valuation firm, will determine the monetary value
of the Options. The Committee will then give Dr. Carter the choice of turning in
his Options for an amount equal to this determined value (the "Value Payment")
or to continue to hold his Options. If Dr. Carter elects to continue to hold his
Options, the Committee, again with the assistance of the independent valuation
firm, will determine a formula pursuant to which Dr. Carter would receive cash
("Stock Appreciation Payments") rather than shares of common stock should he
exercise any of the Options prior to the time, if ever, adequate authorized but
unissued and unreserved shares become available for issuance upon exercise of
his Options. In addition, if the Proposal does not pass, the Company will agree
to pledge some of its intellectual property as collateral for the Value Payment
or the Stock Appreciation Payments. The specific intellectual property to be
used as collateral, the valuation of such collateral and the method of sale or
license of such intellectual property in the event that sale of the collateral
is required, would be determined by the Committee, with the assistance of the
independent valuation firm.




ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.

      (c) Exhibits. The following exhibits are filed herewith:

      10.1  Securities Purchase Agreement, dated July 10, 2003, by and among the
            Company and the Buyers named therein.

      10.2  Form of 6% Convertible Debenture of the Company.

      10.3  Form of Warrant for Common Stock of the Company.

      10.4  Registration Rights Agreement, dated July 10, 2003, by and among the
            Company and the Buyers named therein.




                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                                 HEMISPHERX BIOPHARMA, INC.

July 11, 2003                      By:  /s/ William A. Carter
                                        ----------------------------------
                                        William A. Carter, M.D., President

EX-10.1

                                                                    Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

      SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July 10,
2003, by and among Hemispherx Biopharma, Inc., a Delaware corporation, with
headquarters located at One Penn Center, 1617 JFK Boulevard, Suite 660,
Philadelphia, Pennsylvania 19103 (the "Company"), and the investors listed on
the Schedule of Buyers attached hereto (individually, a "Buyer" and
collectively, the "Buyers").

                                    WHEREAS:

      A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act").

      B. The Company has authorized the issuance of $5,426,000 principal amount
of its 6% Senior Secured Convertible Debentures due July 31, 2005 (collectively,
the "Debentures"), which shall be convertible into shares of the Company's
common stock, par value $0.001 per share (the "Common Stock") (as converted, the
"Conversion Shares"), in accordance with the terms of the Debentures.

      C. The Buyers severally wish to purchase, upon the terms and conditions
stated in this Agreement, (i) the Debentures on the Closing Date (as defined
below), such Debentures to be in the form attached hereto as Exhibit A, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers for the purchase price opposite such Buyer's name on the Schedule of
Buyers and (ii) warrants (the "Warrants") to purchase shares of Common Stock (as
exercised collectively, the "Warrant Shares"), such Warrants to be substantially
in the form attached hereto as Exhibit B, in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers.

      D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide the Buyers with
the benefit of certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws, on the
terms and subject to the conditions set forth therein.

      E. The location of defined terms in this Agreement is set forth on the
Index of Terms attached hereto.

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

      1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

            a. Purchase of Debentures and Warrants. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to




each Buyer, and each Buyer severally agrees to purchase from the Company, the
respective principal amount of Debentures, together with the related Warrants,
for the purchase price set forth opposite such Buyer's name on the Schedule of
Buyers (the "Closing").

            b. The Closing. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m., New York City time, on the date hereof (or such
later date as is mutually agreed to by the Company and the applicable Buyer or
Buyers) subject to the satisfaction (or waiver) of the conditions set forth in
Sections 6 and 7. The Closing shall occur on the Closing Date at the offices of
Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. "Business
Day" means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.

            c. Delivery and Payment. (i) On the Closing Date, the Company shall
deliver to each Buyer Debentures (in the denominations as such Buyer shall
reasonably request) representing the principal amount of Debentures which such
Buyer is purchasing hereunder, along, with warrants representing the related
Warrants, duly executed on behalf of the Company and registered in the name of
such Buyer.

            (ii) On the Closing Date, each Buyer shall set aside in a separate
segregated account (the "Segregated Account") an amount equal to such Buyer's
total purchase price for such Buyer's portion of Debentures and Warrants as set
forth on the Schedule of Buyers (such "Buyer's Purchase Price").

            (iii) Payment of such Buyer's Purchase Price shall be made by wire
transfer of immediately available funds from such Buyer's Segregated Account in
accordance with the Company's written wire instructions, less any amount
withheld at the Closing for expenses pursuant to Section 4(k) in the following
manner:

                        (A) On the Closing Date, each Buyer shall pay the amount
            set forth opposite such Buyer's name on the Schedule of Buyers under
            the heading "First Payment Amount."

                        (B) Provided that no Default or Event of Default (each
            as defined in the Debentures), or event that with notice or lapse of
            time would constitute a Default or Event of Default, has occurred
            and is continuing on the third Business Day after satisfaction of
            the covenant set forth in Section 4(t) below, each Buyer shall pay
            the amount set forth opposite such Buyer's name on the Schedule of
            Buyer's under the heading "Second Payment Amount."

            The dates of the payments pursuant to the foregoing clauses (A) and
(B) are referred to herein as a "Payment Date".

            2. BUYER'S REPRESENTATIONS AND WARRANTIES.

            Each Buyer represents and warrants with respect to only itself that:

                  a. Investment Purpose. Such Buyer (i) is acquiring the
Debentures and the Warrants, (ii) upon conversion of the Debentures owned by it,
will acquire the Conversion


                                       2


Shares then issuable, (iii) upon issuance, will acquire the Interest Shares and
Repayment Shares, if any (each as defined in the Debentures), and (iv) upon
exercise of the Warrants held by it, will acquire the Warrant Shares issuable
upon exercise thereof (the Debentures, the Conversion Shares, the Interest
Shares, the Repayment Shares, the Warrants and the Warrant Shares collectively
are referred to herein as the "Securities") for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by making the representations
herein, such Buyer does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of the Securities at
any time, provided further, however, that such disposition shall be in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.

                  b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D under the
1933 Act and was not organized for the specific purpose of acquiring the
Securities.

                  c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein and in the
applicable Debenture or Warrant in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Securities.

                  d. Information. Such Buyer (i) has been furnished with or has
had full access to all of the information that it considers necessary or
appropriate to make an informed investment decision with respect to the
Debentures, the Warrants, the Conversion Shares and the Warrant Shares and that
it has requested from the Company, (ii) has had an opportunity to discuss with
management of the Company the business and financial affairs of the Company and
to obtain information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to it or to which it had access, (iii) can bear the
economic risk of a total loss of its investment in the Debentures and the
Warrants and (iv) has such knowledge and experience in business and financial
matters so as to enable it to understand the risks of and form an investment
decision with respect to its investment in the Debentures, the Warrants, the
Conversion Shares and the Warrant Shares and to protect its interest in
connection with such investment. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in this Agreement.

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


                                       3


                  f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, or (B) such Buyer shall have delivered to
the Company an opinion of counsel in a form reasonably satisfactory to the
Company, to the effect that such Securities to be sold, assigned or transferred
may be sold, assigned or transferred pursuant to an exemption from such
registration, (ii) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144") may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder. The
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the Securities and such pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities and no Investor effecting
a pledge of Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document, including, without limitation, this Section
2(f); provided that in order to make any sale, transfer or assignment of
Securities, such Investor and its pledgee makes such disposition in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.

                  g. Legends. Such Buyer understands that the Debentures and
Warrants, except as set forth below, shall bear a restrictive legend and that
the Debentures shall bear a tax legend in substantially the following forms (and
a stop-transfer order may be placed against transfer of such Debentures and
Warrants):

                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
                  STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
                  SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN
                  EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
                  SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
                  SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, REASONABLY
                  SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
                  UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. THE
                  SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
                  MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.


                                       4


                  THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF
                  APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT
                  ("OID") RULES TO THIS DEBENTURE. THIS DEBENTURE HAS AN ISSUE
                  PRICE OF $4,547,530.60, AN AGGREGATE AMOUNT OF OID OF
                  $878,469.40, AN ISSUE DATE OF JULY 10, 2003 AND A YIELD TO
                  MATURITY OF 16.19%.

            Such Buyer further understands that until such time as the
Conversion Shares, the Interest Shares, the Repayment Shares and the Warrant
Shares have been sold pursuant to the registration statement contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares, the Interest Shares, the Repayment Shares and the Warrant
Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

                  THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY
                  MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE
                  OR OTHERWISE UNLESS (I) A REGISTRATION STATEMENT FOR THE
                  SECURITIES UNDER THE ACT IS IN EFFECT OR (II) THE COMPANY HAS
                  RECEIVED AN OPINION OF COUNSEL, WHICH IS SATISFACTORY TO THE
                  COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED
                  UNDER THE ACT. THE SECURITIES MAY BE PLEDGED IN CONNECTION
                  WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE
                  SECURITIES.

The legends set forth above, other than the tax legend, shall be removed and the
Company shall issue the relevant securities without such legend to the holder of
the Securities upon which it is stamped, if, (i) such Securities are registered
for resale under the 1933 Act and are transferred or sold pursuant to such
registration or (ii) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, reasonably satisfactory to the Company,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act.

                  h. Authorization; Enforcement; Validity. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Buyer and are valid and binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.


                                       5


                  i. Residency. Such Buyer is a resident of that country or
state specified in its address on the Schedule of Buyers.

                  j. No Conflicts The execution and performance of this
Agreement and the Registration Rights Agreement do not conflict with any
agreement to which such Buyer is a party or is bound thereby, any court order or
judgment addressed to such Buyer, or the constituent documents of such Buyer.

            3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

            The Company represents and warrants to each of the Buyers that as of
the date hereof, except as expressly set forth on the Schedule of Exceptions
attached hereto:

                  a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns 30% or more of the capital stock or
other equity or similar interests or owns capital stock or holds an equity or
similar interest which ownership entitles the Company to elect 30% or more of
the board of directors or similar governing body of such entity) are
corporations, partnerships or limited liability companies duly organized and
validly existing in good standing (to the extent such concepts are applicable)
under the laws of the jurisdiction in which they are incorporated or organized,
and have the requisite corporate, limited liability company or partnership power
and authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation, partnership or limited liability company to do business and
is in good standing (to the extent such concepts are applicable) in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, "Material Adverse Effect"means any
material adverse effect on the business, properties, assets, operations, results
of operations, prospects or condition (financial or otherwise) of the Company
and its Subsidiaries, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). A complete list
of Subsidiaries is set forth on Schedule 3(a).

                  b. Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Debentures, the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions, the Security
Agreement, the Collateral Agency Agreement, dated as of the date hereof, among
the Buyers and acknowledged by the Company, the Account Control Agreement, the
Mortgages, each deposit account control agreement and security account control
agreement entered into among, or amended among, the Company, the Agent (as
defined) and the depositary bank named therein (collectively, the "Bank
Agreements") and each of the other agreements entered into by the parties hereto
in connection with the transactions contemplated by this Agreement
(collectively, the "Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby,


                                       6


including, without limitation, the issuance of the Debentures, the reservation
for issuance and the issuance of the Conversion Shares issuable upon conversion
thereof, the reservation for issuance and the issuance of Interest Shares and
Repayment Shares in accordance with the terms of the Debentures, the issuance of
the Warrants and the reservation for issuance and the issuance of the Warrant
Shares issuable upon exercise of the Warrants, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
of the Company's Board of Directors or stockholders (except to the extent that
stockholder approval may be required pursuant to the rules of the AMEX for the
issuance of a number of Conversion Shares, Interest Shares, Repayment Shares and
Warrant Shares greater in the aggregate than 19.99% of the number of shares of
Common Stock outstanding immediately prior to the Closing Date (the "19.99%
Rule")). The Transaction Documents executed on the date hereof have been and the
other Transaction Documents when executed by the Company in accordance with
their terms will be duly executed and delivered by the Company and constitute
and will constitute the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.

                  c. Capitalization. As of July 10, 2003, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, of which as
of such date, 35,757,288 shares are issued and outstanding and 270,387 shares
are reserved for issuance pursuant to the Company's stock option and purchase
plans (including pursuant to options outstanding as of such date as well as
options granted thereafter). All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c) or in the section titled "Capitalization" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002, (A)
no shares of the Company's capital stock are subject to preemptive rights or any
other similar rights (arising under Delaware law, the Company's Certificate of
Incorporation or By-laws or any agreement or instrument to which the Company is
a party) or any liens or encumbrances granted or created by the Company; (B)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries (other than
any such options, warrants, scrip, rights, calls, commitments, securities,
understandings and arrangement outstanding under plans disclosed in the SEC
Documents); (C) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing indebtedness of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (D) there are no
amounts outstanding under, and there will be no amounts due upon termination of,
any credit agreement or credit facility; (E) there are no financing statements
securing obligations in any amounts greater than $100,000, singly, or $250,000
in the aggregate, filed in connection with the Company or any of its
Subsidiaries; (F) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(G) there are no


                                       7


outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (H) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; (I) the Company does not have any
stock appreciation rights or "phantom" stock plans or agreements or any similar
plan or agreement; (J) to the Company's knowledge, (i) no current or former
officer or director who individually owns 1% or more of the Company's
outstanding capital stock or (ii) other beneficial owner of 5% or more of the
Company's outstanding capital stock, has pledged shares of the Company's capital
stock in connection with a margin account or other loan secured by such capital
stock; and (K) the Company and its Subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents (as defined herein)
but not so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its Subsidiaries' respective businesses and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole. The Company
has made available to each Buyer that has requested it true and correct copies
of the Company's Certificate of Incorporation, as amended and as in effect on
the date hereof (the "Certificate of Incorporation"), and the Company's By-laws,
as amended and as in effect on the date hereof (the "By-laws"), and the terms of
all securities convertible into or exercisable or exchangeable for Common Stock
and the material rights of the holders thereof in respect thereto except for
stock options granted under any benefit plan or stock option plan of the Company
approved by the Board of Directors of the Company.

                  d. Issuance of Securities. The Securities are duly authorized
and, upon issuance in accordance with the terms of the applicable Transaction
Documents, shall be (i) validly issued, fully paid and non-assessable and (ii)
free from all taxes, liens and charges with respect to the issuance thereof
(other than any such taxes, liens and charges created by any Buyer or assignee
or transferee), and, except as set forth in Schedule 3(c), shall not be subject
to pre-emptive rights or other similar rights of shareholders of the Company. As
of the Closing, at least 4,552,935 shares of Common Stock (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(f) below) will have
been duly authorized and reserved for issuance upon conversion of the
Debentures, exercise of the Warrants and the issuance of the Interest Shares and
the Repayment Shares issuable over the full term of the Debentures (assuming the
Company paid the maximum amount of interest permitted to be paid in Interest
Shares over the full term of the Debentures). Upon conversion or issuance in
accordance with the Debentures or the Warrants, as applicable, the Conversion
Shares, the Interest Shares, the Repayment Shares and the Warrant Shares, as the
case may be, will be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof (other than any
such taxes, liens and charges created by any Buyer or any assignee or
transferee), with the holders being entitled to all rights accorded to a holder
of Common Stock. Based, in part, on reliance on the representations and
warranties of each of the Buyers in the Transaction Documents, the issuance by
the Company of the Securities is exempt from registration under the 1933 Act.

                  e. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without limitation,
the reservation for


                                       8


issuance and issuance of the Conversion Shares, the Interest Shares, the
Repayment Shares and the Warrant Shares) will not (i) result in a violation of
the Certificate of Incorporation or the By-laws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party (except
for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect); or (iii) result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, By-laws or their organizational charter or
by-laws, respectively. Neither the Company nor any of its Subsidiaries is in
violation of any term of or in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except where
such violations and defaults would not result, either individually or in the
aggregate, in a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
Except as specifically contemplated by this Agreement, as required under the
1933 Act, as required by Blue Sky filings or as required by the 19.99% Rule, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are currently unaware of any
facts or circumstances which might give rise to any of the foregoing events set
forth in this paragraph. The Company is not in violation of the listing
requirements of the Principal Market, and has no actual knowledge of any facts
which would reasonably lead to delisting or suspension of the Common Stock by
the Principal Market in the foreseeable future.

                  f. SEC Documents; Financial Statements. Since January 1, 2001,
other than a Form 8-K/A with respect to the transactions contemplated by the
Interferon Asset Agreement, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to or on the date hereof and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). As of the date of filing of such SEC Documents, each such SEC
Document, as it may have been subsequently amended by filings made by the
Company with the SEC prior to the date hereof, complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Document. None of the SEC
Documents, as of the date filed and as they may have been subsequently amended
by filings made by the Company with the SEC prior to the date hereof, contained
any untrue


                                       9


statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). The Company is not
aware of any fact or circumstance that would result or reasonably be likely to
result in the Company receiving a "going concern" opinion or qualification from
its independent auditor's with respect to the Company's financial position for
the year ended December 31, 2002. To the best of the Company's knowledge, no
other written information provided by or on behalf of the Company to the Buyers
which is not included in the SEC Documents, including, without limitation,
information referred to in Section 2(d), contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries nor
any of their officers, directors, employees or agents have provided the Buyers
with any material, nonpublic information. As of the date hereof, other than the
need to file updated financial statements in the Company's Annual Report on Form
10-K for the year ended December 31, 2002, the Company meets the requirements
for use of Form S-1 for registration of the resale of Registrable Securities (as
defined in the Registration Rights Agreement) and does not have any knowledge or
reason to believe that it does not meet such requirements or any actual
knowledge of any fact which would reasonably result in its not meeting such
requirements. As of the date hereof, the Company does not meet the requirements
for use of Form S-3 for registration of the resale of Registrable Securities
other than pursuant to the S-3 registration statement filed with the SEC in
January 2003, which registration statement the Company believes, but cannot
assure, will be eligible for registration of the resale of the Registrable
Securities. The Company is not required to file and will not be required to file
any agreement, note, lease, mortgage, deed or other instrument entered into
prior to the date hereof and to which the Company is a party or by which the
Company is bound which has not been previously filed as an exhibit to its
reports filed with the SEC under the 1934 Act. Except for the issuance of the
Debentures and the Warrants contemplated by this Agreement and the transactions
contemplated therein, no event, liability, development or circumstance has
occurred or exists, or is currently contemplated to occur, with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws and which has not been publicly disclosed.

                  g. Absence of Certain Changes. Except as disclosed in the SEC
Documents available on the EDGAR system, there has been no change or development
that has had or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. The Company has not taken any steps,
and does not currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company or any of its


                                       10


Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so. Except as disclosed in the
SEC Documents available on the EDGAR system, since December 31, 2000, (i) the
Company has not declared or paid any dividends, and (ii) as of the date hereof,
has not sold any assets, individually or in the aggregate, in excess of $100,000
outside of the ordinary course of business or had capital expenditures,
individually or in the aggregate, in excess of $200,000.

                  h. Absence of Litigation. Except as disclosed in the section
titled "Legal Proceedings" in (i) the Company's Annual Report on Form 10-K for
the year ended December 31, 2002 or (ii) any of the Company's SEC Documents
filed since the filing of such Form 10-K, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened in writing against the Company or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, that would
reasonably be expected to result in judgments against the Company or any of its
Subsidiaries in an amount, individually or in the aggregate, in excess of
$250,000.

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

                  j. Employment Matters; ERISA Matters. (i) Neither the Company
nor any of its Subsidiaries is involved in any material union labor dispute nor,
to the knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. None of the Company's or its Subsidiaries' U.S. employees is a
member of a union which relates to such employee's relationship with the
Company. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. No executive officer (as defined in Rule 501(f)
of the 1933 Act) has notified the Company in writing that such officer intends
to leave the Company or otherwise terminate such officer's employment with the
Company.

                        (ii) The Company and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

                  k. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use (i) all
trademarks, trade names, trade dress, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions,


                                       11


technology licenses, approvals, governmental authorizations, trade secrets, and
other intellectual property rights (collectively, "Intellectual Property")
necessary to conduct their respective businesses as now conducted and as
currently contemplated to be conducted other than businesses that the Company
has not as of the date hereof launched, except where the failure to own, possess
or protect such rights would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. None of the
Company's or its Subsidiaries' Intellectual Property rights have expired or
terminated, or are expected to expire or terminate within two years from the
date of this Agreement, except where such expiration or termination would not,
either individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. Except as would not reasonably be expected to result in
a Material Adverse Effect, the Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property rights of others, or of any development of similar or identical trade
secrets or technical information by others and except as would not reasonably be
expected to result in a Material Adverse Effect, there is no claim, action or
proceeding being made by or brought against, or to the knowledge of the Company,
currently threatened in writing by or against, the Company or its Subsidiaries
regarding the Intellectual Property rights of or the use of any Intellectual
Property by the Company or its Subsidiaries or any third party. The Company and
its Subsidiaries have taken all reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property.

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

                  m. Environmental Laws. The Company and its Subsidiaries (A)
are in compliance with any and all Environmental Laws, (B) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, and (C) are in
compliance with all terms and conditions of any such permit, license or
approval, except in each case where the failure of the Company and its
Subsidiaries would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. The term "Environmental Laws"
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,


                                       12


injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

                  n. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Except as set forth on Schedule 3(n), neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.

                  o. Regulatory Permits. Except for Permits (as defined below)
the absence of which would not, either individually or in the aggregate, result
in a Material Adverse Effect, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as currently conducted (the "Permits"), and neither the Company nor
any such Subsidiary has received any written notice of proceedings relating to
the revocation or modification of any such Permit.

                  p. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is currently expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is a party to any contract or agreement which in the judgment of the Company's
officers has or is currently expected to have a Material Adverse Effect.

                  q. Tax Status. Except as could not reasonably be expected to
have a Material Adverse Effect, the Company and each of its Subsidiaries (i) has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges due with respect
to the periods covered by such returns, reports and declarations, except those
being contested in good faith and for which the Company has made appropriate
reserves on its books, and (iii) has paid or set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations (referred to in clause
(i) above) apply. There are no unpaid taxes that are individually or in the
aggregate material in amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.

                  r. Transactions With Affiliates. Except as set forth on
Schedule 3(r) and in the SEC Documents, and other than the grant of stock
options described on Schedule 3(c), none of the officers, directors, employees
of the Company is presently a party to any transaction with the Company or any
of its Subsidiaries (other than in connection with the provision of services as
employees, officers and directors, payment of ordinary course business expenses
for employees, and other expenditures on behalf of employees in an aggregate
amount for all employees not in excess of $500,000), including any contract,
agreement or other arrangement


                                       13


providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

                  s. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation, the laws of the
state of its incorporation or the laws of any other state which is or could
become applicable to the Buyers as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyers' ownership of the Securities.

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

            4. COVENANTS.

                  a. Best Efforts. Each party shall use its reasonable best
efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.

                  b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Buyers at each of the Closings pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to the Buyers on or prior to
each of the Closing Dates (to the extent such action is required by applicable
law). The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following each Closing Date.

                  c. Reporting Status. Other than pursuant to a Change of
Control (as defined in the Debentures), until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares, the
Interest Shares, the Repayment Shares and the Warrant Shares


                                       14


without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) and (ii) the date on which (A) the Investors shall have sold
all the Conversion Shares, the Interest Shares, the Repayment Shares and the
Warrant Shares and (B) none of the Debentures or Warrants is outstanding (the
"Reporting Period"), the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would otherwise permit such
termination.

                  d. Use of Proceeds. The Company will use the proceeds from the
sale of the Debentures and the Warrants to fund the acquisition of certain
assets of Seller (as defined Section 4(t)(i) below) and for general corporate
purposes.

                  e. Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period: (i) within ten (10) days
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments thereto filed
pursuant to the 1933 Act, provided that if any such report is filed with the SEC
through EDGAR and is available to the Buyers via EDGAR then no such deliveries
shall be required; (ii) using its reasonable efforts, on the same day as the
release thereof, facsimile copies of all press releases issued by the Company
relating to the Company's quarterly operating results and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.

                  f. Reservation of Shares. Prior to the date on which payments
have been made pursuant to Section 25 of the Debentures in an amount equal to
the entire Outstanding Principal Amount (as defined in the Debentures), together
with accrued and unpaid interest on all Debentures outstanding the Company shall
take all action necessary to at all times have authorized, and reserved for the
purpose of issuance, no less than 135% of the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares upon conversion of
all of the Debentures, the Warrant Shares upon exercise of all of the Warrants
(without regard to any limitations on conversions or exercise) and the maximum
number of Interest Shares issuable over the full term of the Debentures
(assuming the Company paid the maximum amount of interest permitted to be paid
in Interest Shares over the full term of the Debentures), and after such time
100% of the number of shares of Common Stock needed to provide for the issuance
of the Conversion Shares upon conversion of all of the Debentures and of the
Warrant Shares upon exercise of all of the Warrants (without regard to any
limitations on conversions or exercise).

                  g. Listing. The Company timely shall satisfy the condition set
forth in clause (2) of Section 7(a)(ii) and also shall promptly secure the
listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and, shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. So long as
any Securities are outstanding, the Company shall maintain the Common Stock's
authorization for quotation on listing on The New York Stock Exchange, Inc. (the
"NYSE"), the American Stock Exchange,


                                       15


Inc. ("AMEX") or The Nasdaq Stock Market, Inc. ("NASDAQ") (as applicable, the
"Principal Market"). The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(g).

                  h. Filing of Form 8-K. At or before 8:30 a.m., New York City
time, on the Business Day following the Closing Date, the Company shall file a
Current Report on Form 8-K with the SEC describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement, the form of Debenture,. the form of
Warrants and the Registration Rights Agreement in the form required by the 1934
Act (with such exhibits, a "Form 8-K")). At or before 8:30 a.m., New York City
time, on the Business Day following each Payment Date, if any, the Company shall
file a Form 8-K with the SEC describing the transaction consummated on such
Payment Date. From and after the initial filing of the Form 8-K with the SEC,
unless required pursuant to Section 3(h) of the Registration Rights Agreement,
no Buyer shall be in possession of any material, nonpublic information received
from the Company or any of its officers, directors, employees or agents, that is
not disclosed in the Form 8-K. Unless required pursuant to Section 3(h) of the
Registration Rights Agreement, the Company shall not, and shall cause each of
its officers, directors, employees and agents, not to, provide any Buyer with
any material nonpublic information regarding the Company from and after the
filing of the Form 8-K with the SEC without the express written consent of such
Buyer. In the event of a breach of the foregoing covenant by the Company or any
of its or its officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Buyer shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material nonpublic information without the
prior approval by the Company or any of its officers, directors, employees or
agents. No Buyer shall have any liability to the Company or any of its officers,
directors, employees, stockholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Buyer shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby, other than as set forth in Section 9(j) hereof.

                  i. Proxy Statement. If the Company at any time determines that
in connection with the issuance of the Securities, Stockholder Approval is
required by the Principal Market in connection with the 19.99% Rule, the Company
shall provide each stockholder entitled to vote at the next meeting of
stockholders of the Company, which meeting shall occur on or before ninety days
from the date of such determination (the "Stockholder Meeting Deadline"), a
proxy statement, which has been previously reviewed by the Buyers and a counsel
of their choice, soliciting each such stockholder's affirmative vote at such
stockholder meeting for approval of the Company's issuance of all of the
Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market (such
affirmative approval being referred to herein as the "Stockholder Approval"),
and the Company shall use its reasonable best efforts to solicit its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal.

                  j. Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged in compliance with applicable securities laws
by an Investor in connection with a bona fide margin agreement or other loan
secured by the Securities. The


                                       16


pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) of this Agreement;
provided that in order to make any sale, transfer or assignment of Securities,
such Investor and its pledgee makes such disposition in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act. The
Company hereby agrees to execute and deliver such reasonable documentation as a
pledgee of the Securities may reasonably request in connection with a pledge of
the Securities to such pledgee by an Investor.

                  k. Expenses. Subject to Section 9(l) below, at the Closing,
the Company shall reimburse the Buyers for the Buyers' reasonable, documented
fees and expenses (including legal expenses) incurred in connection with the
consummation of the transactions contemplated by this Agreement, up to a maximum
of $15,000 (in addition to any other expense amounts previously paid to the
Buyers), which reasonable, documented amount shall be withheld by the Buyers
from its purchase price to be paid at the Closing. In addition, Portside Growth
& Opportunity Fund shall withhold from the amounts set forth opposite its name
on the Schedule of Buyers $210,000 from the First Payment Amount and $105,000
from the Second Payment Amount, in each case to pay the fees of the placement
agent engaged by the Company in connection with the transactions contemplated
hereby.

                  l. Additional Debentures. For so long as any Buyer
beneficially owns any Debentures, the Company shall not issue any other
securities that would cause a breach or default under the Debentures.

                  m. Tax Matters.



                        (i) For United States Federal income tax purposes, the
            Company and each Buyer agree (A) to treat the Debentures as
            indebtedness, (B) that $165,009.86 of the aggregate purchase price
            for the securities issued by the Company to the Buyers hereunder is
            attributable to the purchase of the Warrants, and (C) to treat the
            Debentures as having been issued for an aggregate purchase price of
            $5,260,990.14.

                        (ii) The Company shall be permitted to withhold from any
            amounts payable to a Buyer, a Debenture holder, a Warrant holder or
            a holder of Common Stock any taxes required by law to be withheld
            from such amount. If the Company shall be required to withhold or
            deduct any tax, levy or other governmental charge, excluding (A) net
            income taxes, franchise taxes, or taxes imposed on or measured by
            net income (or overall gross receipts, to the extent such tax is
            imposed in lieu of a tax on net income by a jurisdiction that does
            not impose any tax based on or measured by net income) on any Buyer
            or Debenture holder by the jurisdiction in which such Buyer or
            Debenture holder is organized or any other jurisdiction in which
            such Buyer or Debenture holder would be subject to tax without
            regard to the transactions contemplated hereby, and (B) U.S. Federal
            withholding taxes (unless such U.S. Federal withholding taxes would
            not be imposed but for a change in or amendment to the Internal
            Revenue Code of 1986, as amended (the "Code"), the Treasury
            Regulations or any other administrative authority thereunder or any
            tax treaty or the release or promulgation of any judicial


                                       17


            decision relating thereto, in each case, on or after the later of
            (x) the date of this Agreement or (y) the date such Debenture holder
            becomes a party hereto (each, a "Change in Law")) (all such
            non-excluded taxes, levies or other governmental charges, "Taxes")
            from any payment of interest, or any accrual of original issue
            discount, for U.S. Federal income tax purposes made hereunder or
            under any Debenture to or for the benefit of any Buyer or any
            Debenture holder, then (A) the amount payable shall be increased by
            the amount necessary so that after making all required deductions
            and withholdings (including deductions and withholdings with respect
            to additional amounts payable under this Section 4(m)) such Buyer or
            such Debenture holder shall receive an amount equal to the amount it
            would have received if no such deduction or withholding of Taxes had
            been required, (B) the Company shall make such deduction or
            withholding and (C) the Company shall pay the full amount deducted
            to the appropriate governmental authority in accordance with
            applicable law. If any Buyer or any Debenture holder is organized
            under the laws of a jurisdiction other than the United States, any
            State thereof or the District of Columbia (each a "Non-U.S.
            Debenture Holder"), it shall deliver to the Company two copies of
            either (A) U.S. Internal Revenue Service Form W-8BEN (claiming
            complete exemption from U.S. Federal withholding tax under an income
            tax treaty), or any successor form; (B) U.S. Internal Revenue
            Service Form W-8ECI (claiming complete exemption from U.S. Federal
            withholding tax because the income is effectively connected with a
            U.S. trade or business), or any successor form; (C) in the case of a
            Non-U.S. Debenture Holder claiming exemption from U.S. Federal
            withholding tax under Section 871(h) or 881(c) of the Code, with
            respect to payments of "portfolio interest," U.S. Internal Revenue
            Service Form W-8BEN (certifying as to beneficial ownership), or any
            successor form, and a certificate in form and substance reasonably
            acceptable to the Company representing that such Non-U.S. Debenture
            Holder is not a "bank" for purposes of Section 881(c) of the Code,
            is not a 10-percent shareholder (within the meaning of Section
            871(h)(3)(B) of the Code) of the Company and is not a "controlled
            foreign corporation" related to the Company (within the meaning of
            Section 864(d)(4) of the Code); or (D) other applicable form,
            certificate or document prescribed by the U.S. Internal Revenue
            Service certifying as to such Non-U.S. Debenture Holder's
            entitlement to a complete exemption from U.S. Federal withholding
            tax, as applicable, in all cases such forms and other documents
            being properly completed and duly executed by such Non-U.S.
            Debenture Holder claiming complete exemption from U.S. Federal
            withholding tax on payments of interest (or of original issue
            discount) for U.S. Federal income tax purposes by the Company under
            the Debentures. Each Buyer, each Warrant holder and each holder of
            common stock that is organized under the laws of a jurisdiction
            other than the United States, any State thereof or the District of
            Columbia (each a "Non-U.S. Equity Holder") also shall deliver to the
            Company, to the extent legally able to do so, with respect to
            payments of dividends for U.S. Federal income tax purposes by the
            Company, if applicable, two copies of either (A) U.S. Internal
            Revenue Service Form W-8BEN (claiming a reduction of U.S. Federal
            withholding tax under an applicable income tax treaty, if any), or
            any successor form, (B) U.S. Internal Revenue Service Form W-8ECI
            (claiming complete exemption from U.S. Federal withholding tax
            because the income is effectively connected with a U.S. trade or
            business), or any successor form, or (C) other applicable form,
            certificate or document prescribed by the U.S. Internal Revenue
            Service certifying as to such Non-U.S. Equity Holder's entitlement
            to an


                                       18


            exemption from, or a reduction of, U.S. Federal withholding tax on
            payments of dividends for U.S. Federal income tax purposes by the
            Company, as applicable, in all cases such forms and other documents
            being properly completed and duly executed by such Non-U.S. Equity
            Holder. In addition, each Buyer, each Debenture holder, each Warrant
            holder, and each holder of Common Stock that is not otherwise exempt
            from "back-up withholding" shall deliver to the Company two properly
            completed and duly executed copies of either (A) U.S. Internal
            Revenue Service Form W-8BEN, or any successor form, (B) U.S.
            Internal Revenue Service Form W-8ECI, or any successor form, (C)
            U.S. Internal Revenue Service Form W-9, or any successor form, or
            (D) other applicable form, certificate or document prescribed by the
            U.S. Internal Revenue Service, as applicable, in each case
            indicating that such Buyer, Debenture holder, Warrant holder, or
            holder of Common Stock is not subject to "back-up withholding" for
            U.S. Federal income tax purposes. The forms and other documents
            required to be delivered pursuant to this Section 4(m)(ii) shall be
            delivered (A) on or prior to the Closing Date and (B) from time to
            time thereafter if within ten (10) Business Days after receipt of a
            written request therefor by the Company. In addition, each Buyer,
            each Debenture holder, each Warrant holder and each holder of Common
            Stock shall promptly notify the Company at any time it determines
            that it is no longer in a position to provide any previously
            delivered (or requested) form, document or certificate to the
            Company, including as a result in whole or in part from a Change in
            Law; provided, however, that the failure to provide such notice
            shall not affect any Buyer's or Debenture holder's right to any
            additional amounts hereunder.

                        (iii) Notwithstanding anything to the contrary in
            Section 4(m)(ii) above, the Company shall not be required to pay any
            additional amount to any Buyer or any Debenture holder pursuant to
            the preceding paragraph to the extent the Tax in respect of which
            such additional amount would otherwise be payable would not have
            been imposed but for the failure of such Buyer or Debenture holder
            to comply with its obligations under such paragraph; provided,
            however, that the failure to provide the applicable form, document
            or certificate pursuant to the preceding paragraph as provided in
            the notice required by the preceding paragraph resulting in whole or
            in part from a Change in Law shall not affect such Buyer's or
            Debenture holder's right to any additional amounts hereunder.

                  n. Violations of Law. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

                  o. Corporate Existence. So long as a Buyer beneficially owns
any Securities, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the Transaction Documents and (ii)
such surviving or successor entity or its parent into whose stock the Debentures
and Warrants will be convertible or exercisable is a publicly traded corporation
whose common stock is listed for trading on or quoted on AMEX, NYSE or NASDAQ.


                                       19


                  p. Short Positions. Each Buyer agrees that on any Business Day
prior to the time such Buyer no longer holds any Debentures, such Buyer shall
not maintain a Net Short Position. For purposes hereof, "Net Short Position"
shall mean that the aggregate number of shares of Common Stock held in a short
position by such Buyer exceeds the sum of (1) the number of Conversion Shares,
Warrant Shares and Interest Shares then issuable (without regard to any
limitations on conversions or exercise) to such Buyer, (2) the number of
conversion shares, warrant shares and interest shares then issuable (without
regard to any limitations on conversions or exercise) to such Buyer in
connection with the securities issued to such Buyer pursuant to the Securities
Purchase Agreement, dated as of March 12, 2003, between the Company and such
Buyer (the "March Securities"), and (3) the number of warrant shares then
issuable (without regard to any limitations on exercise) to such Buyer pursuant
to that certain Warrant To Purchase Common Stock issued by the Company to such
Buyer on June 25, 2003.

                  q. Letter of Credit. Pursuant to this subsection, the Company
shall cause to be issued and delivered to Portside Growth & Opportunity Fund, as
collateral agent for the Buyers (in such capacity, together with any successor
in such capacity, the "Agent"), four (4) irrevocable standby letters of credit
in the stated amount of $250,000 each ($1,000,000 in the aggregate),
substantially in the form of Exhibit D hereto and otherwise reasonably
satisfactory to the Buyers (together with any letter of credit issued in
exchange therefor or in replacement thereof, each a "Letter of Credit"), naming
the Agent as beneficiary and issued by a bank with a Minimum Rating and
otherwise acceptable to the Agent in its reasonable discretion; provided,
however, that prior identical letters of credit in the stated amount of
$1,000,000 in the aggregate issued to the Agent may be used instead subject to
such amendments as the Agent may reasonably require. As used herein, "Minimum
Rating" shall mean one of the two highest long-term debt ratings, without regard
to qualification by symbols, such as "+" and "-", or by numerical notations,
such as "1", "2" and "3" (or if no long-term debt rating is available, one of
the two highest long-term deposit ratings) obtainable from either Standard &
Poor's Ratings Services ("S&P") or Moody's Investors Service, Inc. ("Moody's")
(or if at any time neither S&P nor Moody's shall issue such ratings, then from
another nationally recognized rating service). The Buyers agree to pay at the
Closing for all reasonable and customary fees in connection with the Letter of
Credit provided, that such fees do not exceed $20,000. Each Letter of Credit
shall be delivered within seven (7) days following the Closing. The Company
shall have the right, at any time and from time to time, to cause to be issued
and delivered to the Agent a replacement for any Letter of Credit previously
issued and delivered, provided, that such replacement is substantially in the
form of the Letter of Credit being exchanged or replaced therefor and is
otherwise acceptable to the Agent in its sole discretion. Upon delivery of a
replacement Letter of Credit, the Agent shall immediately deliver the original
Letter of Credit being exchanged therefor. The Letters of Credit shall not be
drawn upon by the Buyers unless the obligations of the Company pursuant to the
Transaction Documents are not otherwise satisfied pursuant to the terms of the
Transaction Documents.

                  r. Cash Collateral Account. Simultaneously with the Closing
hereunder, the Company shall establish with a bank acceptable to the Agent (the
"Cash Collateral Bank") a deposit account (together with all monies on deposit
in such deposit account and all certificates and instruments, if any,
representing or evidencing such deposit account, the "Cash Collateral Account"),
and shall cause the Cash Collateral Bank to enter into an Account Control
Agreement with the Agent, substantially in the form of Exhibit E (as amended
from time to time, the


                                       20


"Account Control Agreement"); provided, however, that prior account control
agreements entered into by the Company for the benefit of the Agent may be used
instead subject to such amendments as the Agent may reasonably require. The Cash
Collateral Account shall at all times be under the dominion and control of the
Agent. The Company shall deliver to the Agent (for the benefit of the Buyers)
any opinion that the Agent may reasonably request in connection with the Account
Control Agreement.

                  s. Perfected First Security Interest- Personal Property. The
Company shall execute and deliver to the Agent the Security Agreement at
Closing, substantially in the form of Exhibit F hereto (as amended and/or
restated from time to time, the "Security Agreement"), pursuant to which the
Company shall grant to the Agent, for the benefit of the Buyers, a perfected,
first priority security interest in all of its now owned and hereafter acquired
personal property other than intellectual property (the "Personal Property
Collateral"); provided, however, that a prior security agreement entered into by
the Company for the benefit of the Agent may be used instead subject to such
amendments as the Agent may reasonably require. The Company shall also shall
take such other action and execute, acknowledge and deliver such other
agreements, instruments or other documents as the Agent may require from time to
time in order (i) to carry out more effectively the purposes of the Security
Agreement, (ii) to subject to valid and perfected first priority liens any of
the Personal Property Collateral, (iii) to establish and maintain the validity
and effectiveness of the Security Agreement or such other agreements,
instruments or other documents and the validity, perfection and priority of the
liens intended to be created thereby, and (iv) to better assure, convey, grant,
assign, transfer and confirm unto each of the Agent and the Buyers the rights
now or hereafter intended to be granted to it under the Security Agreement
(including, without limitation, by (w) executing any amendment to the Security
Agreement as may be reasonably requested by the Buyers, (x) by causing insurance
certificates satisfactory to the Buyers naming the Buyers as "loss payee" or
"additional insured" on all of the Company's property and liability insurance to
be issued, (y) by using its reasonable commercial efforts to obtain landlord
waivers reasonably satisfactory to the Buyers in connection with the Company's
leasehold premises where Personal Property Collateral is located and (z) by
cooperating with the Buyers to finalize and execute a perfection certificate to
include, among other things, information relating to the acquisition of certain
Interferon assets.). In furtherance of the foregoing, to the maximum extent
permitted by applicable law, the Company (i) authorizes the Agent to execute any
such agreements, instruments or other documents in the Company's name and to
file such agreements, instruments or other documents in any appropriate filing
office, (ii) authorizes the Agent to file any financing statement required
hereunder or under the Security Agreement, and any continuation statement or
amendment with respect thereto, in any appropriate filing office without the
signature of the Company, and (iii) ratifies the filing of any financing
statement, and any continuation statement or amendment with respect thereto,
filed without the signature of the Company prior to the date hereof.

                  t. Perfected First Security Interest - Real Property. Within
90 days of the Closing Date, the Company shall:

                        (i) execute and deliver to the Agent a mortgage, deed of
            trust or deed to secure debt for each real property location (the
            "Properties") acquired by the Company from the Interferon Sciences,
            Inc. (the "Seller"), each in recordable form and containing such
            terms, covenants and provisions and in all other respects reasonably


                                       21


            acceptable to the Agent in its sole discretion (as amended from time
            to time, each a "Mortgage" and collectively, the "Mortgages"),
            pursuant to which the Company shall grant to the Agent, for the
            benefit of the Buyers, a perfected first priority security interest
            and mortgage lien in the Properties and all improvements located
            thereon (the "Real Property Collateral"; together with the Personal
            Property Collateral, collectively, the "Collateral");

                        (ii) furnish to the Agent the following, each in form
            and substance reasonably satisfactory to the Agent:

                                    (A) evidence of the recording of each
                  Mortgage referred to in clause (i) above in such office or
                  offices as may be necessary or, in the reasonable opinion of
                  the Agent, desirable to create and perfect a valid and
                  enforceable first priority lien on the property purported to
                  be covered thereby or to otherwise protect the rights of the
                  Agent and the Buyers thereunder;

                                    (B) an ALTA form of mortgage loan title
                  insurance policy, in form and substance reasonably
                  satisfactory to the Agent, issued by or on behalf of a title
                  insurance company reasonably satisfactory to the Agent,
                  insuring the mortgage lien created by each Mortgage for an
                  amount not less than $1,500,000, subject only to such
                  exceptions to title as the Agent may reasonably accept and
                  approve and with such endorsements and affirmative insurance
                  as the Agent may reasonably require, and otherwise on terms
                  satisfactory to the Agent (a "Title Insurance Policy");

                                    (C) an ALTA survey of each Property,
                  certified to the Agent and to the issuer of the applicable
                  Title Insurance Policy by a licensed land surveyor reasonably
                  satisfactory to the Agent (a "Survey");

                                    (D) a satisfactory ASTM 1527-00 Phase I
                  Environmental Site Assessment ("Phase I ESA") for each
                  Property (and, if reasonably requested by the Agent based upon
                  the results of such Phase I ESA, an ASTM 1527-00 Phase II
                  Environmental Site Assessment ("Phase II ESA") for such
                  Property), each in form and substance and by an independent
                  firm satisfactory to the Agent;

                                    (E) an opinion of counsel for the Company as
                  to such matters regarding each Mortgage (including the due
                  authorization, execution and delivery of the Mortgage, the
                  validity and enforceability of the Mortgage and its compliance
                  with the law of the jurisdiction in which the relevant
                  Property is located) as the Agent may reasonably require; and

                                    (F) such other instruments and documents,
                  including estoppel certificates, permits, licenses, approvals,
                  violation reports, plans and engineering studies, regarding
                  each such Property as the Agent may require; and

                        (iii) take such other action and execute, acknowledge
            and deliver such other agreements, instruments or other documents as
            the Agent may


                                       22


            reasonably require from time to time in order to (A) carry out more
            effectively the purposes of each Mortgage, (B) subject to valid and
            perfected first priority liens any of the Real Property Collateral,
            (C) establish and maintain the validity and effectiveness of each
            Mortgage or such other agreements, instruments or other documents
            and the validity, perfection and priority of the liens intended to
            be created thereby, and (D) better assure, convey, grant, assign,
            transfer and confirm unto each of the Agent and the Buyers the
            rights intended to be granted to it under each Mortgage. In
            furtherance of the foregoing, to the maximum extent permitted by
            applicable law, the Company (x) authorizes the Agent to execute any
            such agreements, instruments or other documents in the Company's
            name and to file or record such agreements, instruments or other
            documents in any appropriate filing or recording office, (y)
            authorizes the Agent to file any financing statement required
            hereunder or under any Mortgage, and any continuation statement or
            amendment with respect thereto, in any appropriate filing office
            without the signature of the Company, and (z) ratifies the filing of
            any financing statement, and any continuation statement or amendment
            with respect thereto, filed without the signature of the Company
            prior to the date hereof.

                  u. Acquisition of Interferon Sciences, Inc. The Company shall
acquire certain assets of the Seller pursuant to certain valid and binding
purchase and sale agreements, executed copies (together with all exhibits and
schedules thereto) of which are attached hereto as Exhibit G-1 (the "Interferon
Inventory and License Agreement") and Exhibit G-2 (the "Interferon Asset
Agreement" and together with the Interferon Inventory and License Agreement, the
"Interferon Agreements"), within ninety (90) days of the Closing. The Company
shall not make or permit to be made any amendment or modification to either
Interferon Agreement or the transactions contemplated thereby without Buyers'
prior written consent. All of the consideration (including, without limitation,
all shares of Common Stock (whether issued or issuable to Seller or otherwise as
set forth in the Interferon Agreements), the satisfaction of certain
obligations, royalties, fees for employees and for services, the assumption of
payables) to be paid by the Company in connection with the Interferon Agreements
is as set forth on Schedule 4(u) hereof.

                  v. Certain Accounts. The Company represents and warrants to
each Buyer that Schedule 4(v) hereto sets forth a full and complete list of
every bank and other financial institution at which the Company presently has an
account (each, an "Existing Account"). The Company represents and warrants to
each Buyer that (1) the Company has deposited or otherwise transferred any and
all funds, including (without any limitation) those funds released from any
Existing Account that does not become a Permitted Account (as defined) pursuant
hereto, to the First Union National Bank Account Nos. 20000009652305,
2100043128724 and/or 4166-9926 (the "First Union Accounts"), and (2) the Company
has caused each Existing Account denoted with an asterisk on Schedule 4(v) to be
a Permitted Account, and the Company shall use its best commercial efforts to
obtain the signature of each depository institution reasonably requested by any
Buyer to sign a Bank Agreement in connection with such Existing Account becoming
a Permitted Account and shall deliver to the Agent (for the benefit of the
Buyers) any opinion that the Agent may reasonably request in connection with the
applicable Bank Agreement. In addition, the Company shall take the following
actions with respect to the Existing Accounts:


                                       23


                        (i) The Company shall immediately deposit any funds
            released from time to time from the First Union/Wachovia Investments
            Account No. 4167-7452 into an account for which the Agent has
            executed a Bank Agreement reasonably satisfactory to the Buyers (any
            such account being a "Permitted Account");

                        (ii) The Company shall not deposit or otherwise transfer
            any funds into any foreign account without the prior written consent
            of the Buyers; provided, however, that the Company may make such
            deposits or transfers to such foreign accounts in connection with
            ordinary course business expenses to the extent that the aggregate
            balance in all such foreign accounts does not exceed $25,000; and

                        (iii) The Company shall not deposit or otherwise
            transfer any funds to any account that is not a Permitted Account;
            provided, however, that the Company may make such deposits or
            transfers to an Existing Account that is not a Permitted Account to
            the extent that the balance in any such Existing Account does not
            exceed $5,000.

            Immediately upon the occurrence of a default or Event of Default or
event that with notice or lapse of time would constitute a Default or Event of
default, the company agrees that the Agent under the Account Control Agreement
or any Bank Agreement shall be authorized to send one or more "notices of
exclusive control" (as defined in the Account Control Agreement or relevant Bank
Agreement) (or an analogous notice described in the Account Control Agreement or
relevant Bank Agreement) to the depositary bank(s) party thereto prohibiting
such bank(s) from accepting any further instructions from the Company in
connection with any property held in any account therein.

      5. TRANSFER AGENT INSTRUCTIONS.

            The Company shall issue irrevocable instructions to its transfer
agents, and any subsequent transfer agent, to issue certificates or credit
shares to the applicable balance accounts at DTC, registered in the name of each
Buyer or its respective nominee(s), for the Conversion Shares and Warrant Shares
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants, as applicable and in
accordance with their respective terms (the "Irrevocable Transfer Agent
Instructions"), a form of which is attached as Exhibit H hereto. Prior to
transfer or sale pursuant to a registration statement or Rule 144 under the 1933
Act of the Conversion Shares and the Warrant Shares, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction inconsistent with the Irrevocable Transfer
Agent Instructions referred to in this Section 5 and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares, the
Warrant Shares the Interest Shares and the Repayment Shares, prior to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement, the Debentures, the Warrants and the
Registration Rights Agreement. If a Buyer provides the Company with an opinion
of counsel, in generally acceptable form, to the effect that a public sale,
assignment or transfer of Securities may be made without registration under the
1933 Act or that the Securities can be sold pursuant to Rule 144


                                       24


without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares, the Warrant Shares, the
Interest Shares and the Repayment Shares, promptly instruct its transfer agent
to issue one or more certificates, or credit shares to one or more balance
accounts at DTC, in such name and in such denominations as specified by such
Buyer and without any restrictive legend. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.

      6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

            a. The obligation of the Company to issue and sell the Debentures
and the Warrants to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

            (i) Such Buyer shall have executed each of the Transaction Documents
      to which it is a party and delivered the same to the Company.

            (ii) Such Buyer shall have delivered to the Company the purchase
      price (less any amounts withheld pursuant to Section 4(k)) for the
      Debentures and the Warrants being purchased by such Buyer at the Closing,
      by wire transfer of immediately available funds pursuant to the wire
      instructions provided by the Company.

            (iii) The representations and warranties of such Buyer shall be true
      and correct in all material respects (except to the extent that any of
      such representations and warranties is already qualified as to materiality
      in Section 2 above, in which case such representations and warranties
      shall be true and correct without further qualification) as of the date
      when made and as of the Closing Date as though made at that time (except
      for representations and warranties that speak as of a specific date (which
      shall be true and correct as of such date)), and such Buyer shall have
      performed, satisfied and complied with in all material respects the
      covenants, agreements and conditions required by the Transaction Documents
      to be performed, satisfied or complied with by such Buyer at or prior to
      the Closing Date.

      7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

            a. The obligation of each Buyer hereunder to purchase the Debentures
and the Warrants from the Company at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for each


                                       25


Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:

            (i) The Company shall have executed each of the Transaction
      Documents and delivered the same to such Buyer.

            (ii) (1) The Common Stock (x) shall be designated for quotation or
      listed on the Principal Market and (y) shall not have been suspended by
      the SEC or the Principal Market from trading on the Principal Market nor
      shall suspension by the SEC or the Principal Market have been threatened
      either (A) in writing by the SEC or the Principal Market or (B) by falling
      below the minimum listing maintenance requirements of the Principal
      Market; and (2) not later than 10 days following the Closing Date, the
      Conversion Shares issuable upon conversion of the Debentures (without
      regard to any limitations on conversions), the Warrant Shares issuable
      upon exercise of the Warrants (without regard to any limitations on
      exercises) shall be listed (subject to official notice of issuance) on the
      Principal Market and the maximum number of Interest Shares and Repayment
      Shares issuable over the full term of the Debentures (assuming the Company
      paid the maximum amount of interest permitted to be paid in Interest
      Shares over the full term of the Debentures) shall be approved for listing
      on the Principal Market.

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

            (iv) The Company shall have delivered to such Buyer the opinion of
      Ransom W. Etheridge, Esq. counsel to the Company, dated as of the Closing
      Date, in the form of Exhibit I attached hereto.

            (v) The Company shall have executed and delivered to such Buyer the
      Debentures and the Warrants (in such denominations as such Buyer shall
      reasonably request) being purchased by such Buyer at the Closing.

            (vi) As of the Closing Date, the Company shall have reserved out of
      its authorized and unissued Common Stock, solely for the purpose of
      effecting the conversion of the Debentures, the exercise of the Warrants,
      and the payment of interest in the form of Interest Shares (assuming the
      Company paid the maximum amount of interest permitted to be paid in
      Interest Shares over the full term of the Debentures) 4,552,935 shares of
      its Common Stock.


                                       26


            (vii) The Company shall have delivered the Irrevocable Transfer
      Agent Instructions, in the form of Exhibit H attached hereto, to the
      Company's transfer agent.

            (viii) The Company shall have delivered to such Buyer a secretary's
      certificate, dated as of the Closing Date, certifying as to (A) adoption
      of the form of resolutions of the Board of Directors of the Company
      consistent with Section 3(b) above (the "Resolutions"), (B) the
      Certificate of Incorporation and (C) the By-laws, each as in effect at the
      Closing.

            (ix) The Company shall have made all filings under all applicable
      federal and state securities laws necessary to consummate the issuance of
      the Securities pursuant to this Agreement in compliance with such laws.

            (x) The Bank Agreement(s) relating to the First Union Accounts (the
      "First Union Bank Agreements") shall have been executed and delivered to
      the Agent (for the benefit of the Buyers); provided, however, that a prior
      bank agreement entered into by First Union and the Company for the benefit
      of the Agent may be used instead subject to such amendments as the Agent
      may reasonably require.

            (xi) The Company shall have provided evidence satisfactory to such
      Buyer that (1) 3,000,000 of the shares reserved for issuance upon exercise
      of warrants and options held by Dr. William A. Carter and (2) 200,000 of
      the shares reserved for issuance upon exercise of certain warrants held by
      Cardinal Capital, in each case have been released and reserved instead in
      connection with the issuance of the Conversion Shares and Warrant Shares
      pursuant to the Transaction Documents.

      8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer, each holder of Debentures and Warrants and each affiliate of any Buyer
holding Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements, but
excluding amounts covered by Section 4(m)(ii) hereof (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or (b) any breach of
any covenant, agreement or obligation of the Company contained in the
Transaction Documents, (c) the exercise or enforcement of any of the rights of
the Buyers under the Pledge and Security Agreement or the foreclosure, sale,
liquidation or other disposition of, or realization upon, the Collateral
including, without limitation, the transfer of the Collateral to the Buyers, or
(d) any cause of action, suit or claim brought or made against such Indemnitee
(other than a


                                       27


cause of action, suit or claim which is (x) brought or made by the Company and
(y) is not a shareholder derivative suit) and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (ii) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities or
(iii) the status of such Buyer, such holder of Debentures and Warrants and any
such affiliate of any Buyer holding Securities as an investor in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 8 shall
be the same as those set forth in Sections 6(a) and (d) of the Registration
Rights Agreement, including, without limitation, those procedures with respect
to the settlement of claims and the Company's rights to assume the defense of
claims.

      9. MISCELLANEOUS.

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

            b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.


                                       28


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

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

            e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended or waived other than by an instrument in writing signed
by the Company and the holders of at least 60% of the outstanding principal
amount of the Debentures or Conversion Shares, as applicable. No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the Debentures then outstanding. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration also is offered
to all of the parties to the Transaction Documents or holders of the Conversion
Shares, as the case may be.

            f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

                  If to the Company:

                           Hemispherx Biopharma, Inc.
                           One Penn Center
                           1617 JFK Boulevard, Suite 660
                           Philadelphia, Pennsylvania 19103
                           Telephone:       (215) 988-0080
                           Facsimile:       (215) 988-1739
                           Attention:       Chief Executive Officer

                  With copies to:

                           Ransom W. Etheridge, Esq.
                           2610 Potters Road
                           Suite 200
                           Virginia Beach, VA  23452


                                       29


                           Telephone:       (757) 486-0599
                           Facsimile:       (757) 486-0792

                  If to the Transfer Agent:

                           Continental Stock Transfer & Trust Company
                           2 Broadway
                           New York, NY 10004
                           Telephone:       (212) 509-4000
                           Facsimile:       (212) 509-5150

      If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttal evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

            g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities; provided, however, that such
successor or assignee shall deliver the forms specified in Section 4(m)(ii) as
if it were a "Buyer." The Company shall not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the holders of at
least 60% of the outstanding principal amount of the Debentures, including by
merger or consolidation. A Buyer may assign some or all of its rights and
obligations hereunder without the consent of the Company; provided, however,
that the transferee has agreed in writing to be bound by the applicable
provisions of this Agreement and provided, further, that such assignment shall
be in connection with a transfer of all or a portion of the Debentures and
Warrants held by such Buyer and subject to the terms and conditions of the
Warrants and Debentures, as applicable. Any such assignment shall only be
effective upon the Company's receipt of written notice thereof. Any Buyer shall
be entitled to pledge the Securities in connection with a bona fide margin
account or other loan secured by the Securities and the pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, Section 2(f) of this Agreement; provided that in
order to make any sale, transfer or assignment of Securities, such Investor and
its pledgee makes such disposition in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.


                                       30


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

            i. Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive until
such time as no Debentures remain outstanding. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.

            j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to (i) file
a Form 8-K, substantially in the form attached hereto as Exhibit J, after the
Closing, (ii) make any press release or other public disclosure of information
that previously has been publicly disclosed (other than pursuant to a breach of
this paragraph), and (iii) make any press release or other public disclosure
with respect to such transactions in the form as is required by applicable law
and regulations.

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

            l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse any
nonbreaching Buyer for the expenses described in Section 4(k) above.

            m. Placement Agent. The Company acknowledges that it has engaged one
or more placement agents in connection with the sale of the Debentures and the
Warrants and that the total amount of compensation of each such agent has been
disclosed in writing to each Buyer. Other than fees paid by Buyers, the Company
shall be responsible for the payment of any placement agent's fees, financial
advisory fees, or brokers' commissions (other than for persons engaged by any
Buyer or its investment advisor) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim.


                                       31


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

            o. Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under this Agreement, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security. The Company also
acknowledges that the Buyers can keep as security for the Company's obligations
under the Securities all funds advanced by the Company as defeasance payments
under the March Securities.

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

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

                            [signature page follows]


                                       32


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

COMPANY:

HEMISPHERX BIOPHARMA, INC.


By:  /s/ William A. Carter
     ---------------------
Name:
Title:

                            BUYERS:

                            PORTSIDE GROWTH & OPPORTUNITY FUND

                            By:        /s/ Marran Ogilvie
                                       -----------------------------------------
                            Name:      Marran Ogilvie
                                       -----------------------------------------
                            Title:     General Counsel
                                       -----------------------------------------

                            LEONARDO, L.P. By: Leonardo Capital Management, Inc.

                            By:        /s/ Fred Berger
                                       -----------------------------------------
                            Name:      Fred Berger
                                       -----------------------------------------
                            Title:     Director
                                       -----------------------------------------




                               SCHEDULE OF BUYERS

Debentures and Warrants:



                                                                            Aggregate
                                                              Principal      Purchase
                                                               Amount        Price of                    First       Second
                                     Investor Address            of       Debentures and   Number of    Payment     Payment
Investor Name                      and Facsimile Number      Debentures      Warrants       Warrants    Amount       Amount
- -------------                      --------------------      ----------      --------       --------    ------       ------
                                                                                                     
Portside                 c/o Ramius Capital Group, L.L.C.    $2,713,000     $2,325,000      253,551   $1,550,000    $775,000
Growth &                 666 Third Avenue, 26th Floor
Opportunity              New York, NY 10017
Fund                     Attention:  Jeffrey Smith
                                     Andrew Strober
                         Telephone:  (212) 845-7955
                         Facsimile:  (212) 845-7999
                         Residence:  Cayman Islands

Leonardo L.P.            c/o Angelo Gordon, LP
                         245 Park Avenue                     $2,713,000     $2,325,000      253,551   $1,550,000    $775,000
                         New York, NY 10167
                         Attention:  Fred Berger
                                     Gary Wolf
                         Telephone:  (212) 692-2000
                         Facsimile:  (212) 867-6449
                         Residence:  Cayman Islands



                             Investor's Representatives'
                                       Address
Investor Name                   and Facsimile Number
- -------------                   --------------------
                      
Portside                 Schulte Roth & Zabel LLP
Growth &                 919 Third Avenue
Opportunity              New York, NY  10022
Fund                     Attn:  Eleazer Klein, Esq.
                         Telephone:  (212) 756-2000
                         Facsimile:  (212) 593-5955

Leonardo L.P.            Paul, Weiss, Rifkind, Wharton &
                         Garrison LLP
                         1285 Avenue of the Americas
                         New York, NY 10019
                         Attention: Jaideep P. Reddy, Esq.
                         Telephone:  (212) 373-3000
                         Facsimile:  (212) 757-3990





                                TABLE OF CONTENTS

                                                                            Page

1.    PURCHASE AND SALE OF DEBENTURES AND WARRANTS............................ 1

2.    BUYER'S REPRESENTATIONS AND WARRANTIES.................................. 2

3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 6

4.    COVENANTS.............................................................. 14

6.    CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL......................... 25

7.    CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE...................... 25

8.    INDEMNIFICATION........................................................ 27

9.    MISCELLANEOUS.......................................................... 28

Schedule 3(a)   -   Subsidiaries
Schedule 3(c)   -   Capitalization
Schedule 3(e)   -   Conflicts
Schedule 3(l)   -   Title
Schedule 3(n)   -   Insurance
Schedule 3(r)   -   Transactions with Affiliates
Schedule 4(u)   -   Consideration pursuant to Interferon Agreements
Schedule 4(v)   -   Certain Accounts

                                    EXHIBITS
                                    --------

Exhibit A     -   Form of Debentures
Exhibit B     -   Form of Warrant
Exhibit C     -   Form of Registration Rights Agreement
Exhibit D     -   Form of Letter of Credit
Exhibit E     -   Form of Account Control Agreement
Exhibit F     -   Form of Security Agreement
Exhibit G-1   -   Interferon Inventory and License Agreement
Exhibit G-2   -   Interferon Asset Agreement
Exhibit H     -   Form of Irrevocable Transfer Agent Instructions
Exhibit I     -   Form of Legal Opinion
Exhibit J     -   Form of Current Report on 8-K




                             INDEX OF DEFINED TERMS

19.99% Rule....................................................................7
1933 Act.......................................................................1
1934 Act......................................................................10
Account Control Agreement.....................................................20
Agent.........................................................................20
Agreement......................................................................1
AMEX..........................................................................16
Business Day...................................................................2
Buyer..........................................................................1
Buyer's Purchase Price.........................................................2
Bylaws.........................................................................8
Cash Collateral Account.......................................................20
Cash Collateral Bank..........................................................20
Certificate of Incorporation...................................................8
Change in Law.................................................................18
Closing........................................................................2
Closing Date...................................................................2
Code..........................................................................17
Collateral....................................................................21
Common Stock...................................................................1
Company........................................................................1
Conversion Shares..............................................................1
Debentures.....................................................................1
Environmental Laws............................................................12
Form 8-K......................................................................16
Hazardous Materials...........................................................13
Indemnified Liabilities.......................................................27
Indemnitees...................................................................27
Intellectual Property.........................................................12
Interferon Agreements.........................................................23
Interferon Asset Agreement....................................................23
Interferon Inventory and License Agreement....................................23
Irrevocable Transfer Agent Instructions.......................................24
Letter of Credit..............................................................20
Material Adverse Effect........................................................6
Minimum Rating................................................................20
Moody's.......................................................................20
Mortgage......................................................................21
Mortgages.....................................................................21
NASDAQ........................................................................16
Non-U.S. Debenture Holder.....................................................18
Non-U.S. Equity Holder........................................................18
NYSE..........................................................................16
Payment Date...................................................................3
Permits.......................................................................13




Personal Property Collateral..................................................21
Phase I ESA...................................................................22
Phase II ESA..................................................................22
Principal Market..............................................................16
Properties....................................................................21
Real Property Collateral......................................................21
Registration Rights Agreement..................................................1
Regulation D...................................................................1
Reporting Period..............................................................15
Resolutions...................................................................26
S&P...........................................................................20
SEC............................................................................1
SEC Documents.................................................................10
Securities.....................................................................3
Security Agreement............................................................20
Segregated Account.............................................................2
Seller........................................................................21
Stockholder Approval..........................................................16
Stockholder Meeting Deadline..................................................16
Subsidiaries...................................................................6
Survey........................................................................22
Taxes.........................................................................18
Title Insurance Policy........................................................22
Transaction Documents..........................................................7
Warrant Shares.................................................................1
Warrants.......................................................................1




                          SECURITIES PURCHASE AGREEMENT

                                  by and among

                           HEMISPHERX BIOPHARMA, INC.

                                       and

                           THE INVESTORS LISTED HEREIN

                                   Dated as of

                                  July 10, 2003

EX-10.2

                                                                    Exhibit 10.2

THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN
EFFECTIVE  REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933,  AS AMENDED,  OR  APPLICABLE  STATE  SECURITIES  LAWS OR (B) AN OPINION OF
COUNSEL,  REASONABLY  SATISFACTORY  TO THE  COMPANY,  THAT  REGISTRATION  IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE  STATE SECURITIES LAWS. THE SECURITIES MAY
BE PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN  ACCOUNT OR OTHER LOAN SECURED
BY THE SECURITIES.

THE FOLLOWING  INFORMATION IS PROVIDED  SOLELY FOR PURPOSES OF APPLYING THE U.S.
FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS DEBENTURE. THIS
DEBENTURE  HAS AN ISSUE PRICE OF  $4,547,530.60,  AN AGGREGATE  AMOUNT OF OID OF
$878,469.40, AN ISSUE DATE OF JULY 10, 2003 AND A YIELD TO MATURITY OF 16.19%.

No. __                                                                $________

                           HEMISPHERX BIOPHARMA, INC.

           6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JULY 31, 2005

      THIS DEBENTURE (this  "Debenture")  is one of a duly  authorized  issue of
Debentures  of HEMISPHERX  BIOPHARMA,  INC., a  corporation  duly  organized and
existing under the laws of the State of Delaware (the "Company"),  designated as
its 6% Senior Secured Convertible  Debentures Due July 31, 2005, in an aggregate
principal  amount of up to Five Million,  Four Hundred and  Twenty-Six  Thousand
U.S. Dollars (U.S. $5,426,000) (the "Debentures").

      FOR VALUE RECEIVED,  the Company promises to pay to ________________,  the
holder hereof,  or its registered  assigns (the "Holder"),  the principal sum of
_____  Million  Dollars  ($_________)  on July 31, 2005 (subject to extension as
provided herein, the "Maturity Date") and to pay interest ("Interest  Payments")
on the Outstanding  Principal  Amount at the rate of 6% per annum which shall be
cumulative,  accrue,  but not compound,  daily from the date of issuance of this
Debenture  and be due and payable in arrears on the first day of each  Quarterly
Period  commencing with the Quarterly Period  immediately  following the date of
issuance of this Debenture (each, an "Interest  Payment Date").  If the Maturity
Date is not a Business  Day,  then the  Maturity  Date shall be deemed to be the
Business Day immediately following such date. If an Interest Payment Date is not
a  Business  Day,  then the  Interest  Payment  shall be due and  payable on the
Business Day immediately  following such Interest  Payment Date.  Subject to the
limitations in Sections 11 and 26,  interest shall be payable by the issuance of
shares of Common  Stock  ("Interest  Shares") to the Holder or, at the option of
the Company, in cash (the "Cash Interest Payment");  provided, however, that the
Company may not make Cash  Interest  Payments  and  interest  payments  shall be
payable in Interest  Shares unless the Company  provides  written notice to each
holder  of  Debentures  at least  five  Business  Days  prior to the  applicable
Interest





Payment Date that such Interest Payments shall be made in cash.  Interest Shares
shall be paid in a number of fully paid and nonassessable  shares (rounded up or
down to the nearest  whole  share) of Common  Stock equal to the quotient of (1)
the amount of the Interest  Payment due on the applicable  Interest Payment Date
divided  by (2)  ninety-five  percent  (95%) of the  arithmetic  average  of the
Closing Sale Price of the Common  Stock on the five  consecutive  Business  Days
ending on and  including  the  third  Business  Day  immediately  preceding  the
applicable  Interest  Payment  Date  (the  "Interest  Share  Conversion  Rate");
provided, further; that in no event may the Company issue more than an aggregate
of 40,000 shares of Common Stock (as equitably  adjusted for any stock dividend,
stock  split or other  similar  transaction),  pro rata  among  all  holders  of
Debentures,  in respect of any single Interest Payment (it being understood that
the balance of each such  Interest  Payment  shall be paid in the form of a Cash
Interest Payment).  Notwithstanding the foregoing, the Company shall be required
to make a Cash  Interest  Payment on any Interest  Payment Date if (a) any event
constituting  an Event of Default or an event that with the  passage of time and
without being cured would  constitute  an Event of Default,  has occurred and is
continuing on the Interest  Payment Date or any date which is within 10 Business
Days prior to the  Interest  Payment  Date,  unless  otherwise  consented  to in
writing by the holder of the Debenture entitled to receive such Interest Payment
or (b) from and after the time that any  Registration  Statement  (as defined in
the Registration Rights Agreement, the "Registration  Statement") is required to
be effective,  such  Registration  Statement is not then effective and available
for  the  resale  of  all of  the  Registrable  Securities  (as  defined  in the
Registration  Rights  Agreement) on the Interest Payment Date or each date which
is within 10 Business Days prior to the Interest  Payment Date.  Any accrued and
unpaid  interest which is not paid within five (5) Business Days of the Interest
Payment Date on which such  payment of interest  was due shall bear  interest at
the rate of 14.0% per annum from such  Interest  Payment  Date until the same is
paid in full  (or,  if  less,  the  maximum  interest  rate  then  permitted  by
applicable law) (the "Default Interest").

      Interest  Payments  and  payments  of  principal  will be paid only to the
person in whose name this Debenture (or one or more  predecessor  Debentures) is
registered on the records of the Company regarding registration and transfers of
the Debentures (the "Debenture Register").

      This Debenture is subject to the following additional provisions:

      1.  Exchange.  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 charged to the Holder
for such registration transfer or exchange.

      2.  Transfers.  This  Debenture  has been  issued  subject  to  investment
representations  of the  original  purchaser  hereof and 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. 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 and
all other  purposes,  whether or not this Debenture is overdue,  and the Company
shall not be affected by notice to the contrary.


                                       2


      3.  Definitions.  For purposes of this Debenture,  the location of defined
terms in this Debenture is set forth on the Index of Terms  attached  hereto and
the following terms shall have the following meanings:

            "Account Control  Agreement" shall have the meaning ascribed thereto
in the Securities Purchase Agreement.

            "Agent"  shall  mean  Portside  Growth &  Opportunity  Fund,  in its
capacity as collateral agent for the holders of Debentures, and any successor in
such capacity.

            "Approved  Stock Plan shall mean any employee  benefit  plan,  stock
incentive plan or other similar plan or  arrangement  which has been approved by
the Board of  Directors  of the  Company or any  authorized  committee  thereof,
pursuant  to which the  Company's  securities  may be  issued  to any  employee,
officer, consultant or director for services provided to the Company.

            "ASE" shall mean The American Stock Exchange.

            "Bloomberg"  shall  mean  Bloomberg  Financial  Markets or any other
similar financial  reporting service as may be selected from time to time by the
Company and the holders of not less than 60% of the then  Outstanding  Principal
Amount of Debentures issued on the Original Issuance Date.

            "Business Day" shall mean any day other than Saturday, Sunday or any
other day on which  commercial  banks in The City of New York are  authorized or
required by law to remain closed.

            "Cash Collateral  Account" shall mean the account  maintained by the
Company at the Cash  Collateral  Account Bank, and subject to the control of the
Agent  pursuant to the Account  Control  Agreement,  together with any successor
account designated by the Agent.

            "Cash Collateral Account Bank" shall mean the financial  institution
designated  as the Cash  Collateral  Account  Bank  under  the  Account  Control
Agreement.

            "Cash  Transaction" shall mean any Organic Change with a third party
on an arm's length  basis  pursuant to which the holders of the Common Stock are
to receive consideration consisting solely of cash.

            "Closing  Sale Price"  shall mean,  for any security as of any date,
the last  closing  trade  price for such  security  on the  Principal  Market as
reported  by  Bloomberg,  or if the  Principal  Market  begins to  operate on an
extended hours basis,  and does not designate the closing trade price,  then the
last trade price at 4:00 p.m., New York City Time, as reported by Bloomberg,  or
if the foregoing do not apply,  the last closing trade price of such security in
the  over-the-counter  market on the electronic bulletin board for such security
as reported by  Bloomberg,  or, if no last  closing  trade price is reported for
such  security by  Bloomberg,  the last  closing  ask price of such  security as
reported by  Bloomberg,  or, if no last  closing ask price is reported  for such
security by  Bloomberg,  the average of the highest bid price and the lowest ask
price of any market makers for such security as reported in the "pink sheets" by
the  National  Quotation  Bureau,  Inc.  If the  Closing  Sale  Price  cannot be
calculated  for such  security on such


                                       3


date on any of the foregoing  bases,  the Closing Sale Price of such security on
such date shall be the fair market value as mutually  determined  by the Company
and the holders of no less than 60% of the Outstanding  Principal  Amount of the
Debentures issued on the Original Issuance Date then outstanding. If the Company
and the holders of the Debentures are unable to agree upon the fair market value
of the Common  Stock,  then such dispute  shall be resolved  pursuant to Section
4(e)(iii) below. All such determinations shall be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.

            "Collateral"  shall mean all of the property and assets,  other than
Intellectual  Property, and all interests therein and proceeds thereof now owned
or hereafter  acquired by the  Company,  any of its  Subsidiaries  and any other
Person upon which a Lien is granted or purported to be granted by such Person as
security  for all or any  part  of the  obligations  of the  Company  under  the
Debentures.

            "Common  Stock"  shall mean the Common  Stock,  par value $0.001 per
share, of the Company.

            "Common Stock Deemed Outstanding" shall mean, at any given time, the
number of shares of Common Stock  actually  outstanding  at such time,  plus the
number of shares of Common Stock deemed to be  outstanding  pursuant to Sections
6(a)(i) and 6(a)(ii)  hereof  regardless  of whether the Options or  Convertible
Securities  are actually  exercisable  at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable upon
conversion of the Debentures or exercise of the Warrants.

            "Conversion  Failure"  shall mean that for any reason the Holder has
not  received  all of the shares of Common Stock to which the Holder is entitled
prior to the tenth  (10th)  Business  Day after  the  Share  Delivery  Date with
respect to a conversion of this Debenture.

            "Conversion  Price"  shall mean as of any  Conversion  Date or other
date of  determination  $2.14,  subject to  adjustment as provided in Section 6,
Anti-dilution Adjustments to Conversion Price.

            "Convertible  Securities"  shall mean any stock or securities (other
than  Options)  directly  or  indirectly  convertible  into or  exchangeable  or
exercisable for Common Stock.

            "Default   Conversion  Price"  shall  mean  the  lower  of  (a)  the
Conversion  Price then in effect and (b) 95% of the  lowest  Closing  Sale Price
during the three (3) trading days ending on and including the Conversion Date or
other date of determination.

            "Intellectual  Property"  means all trademarks,  trade names,  trade
dress, service marks, service mark registrations, service names, patents, patent
rights, copyrights,  inventions,  technology licenses,  approvals,  governmental
authorizations, trade secrets and other intellectual property rights.

            "Interferon  Acquisition"  shall  mean the  acquisition  of  certain
assets and technology of Interferon Sciences,  Inc.  ("Interferon")  pursuant to
asset purchase  agreements,  dated as of March 11, 2003, between the Company and
Interferon,  a true and complete copy of


                                       4


which has been  delivered by the Company to each initial holder of Debentures in
accordance with the Securities Purchase Agreement.

            "Letters of Credit" shall mean the  irrevocable  standby  letters of
credit in the aggregate  stated amount of $1,000,000  issued by banks acceptable
to the Agent and  naming  the Agent as  beneficiary,  and any  letters of credit
issued in substitution or replacement thereof, in accordance with the Securities
Purchase Agreement.

            "Mortgage" shall mean each mortgage, deed of trust or deed to secure
debt,  made by the Company in favor of the Agent and recorded  against each real
property  location  acquired  by the  Company  from  Interferon  pursuant to the
Interferon Acquisition.

            "NASDAQ" shall mean The Nasdaq National Market, The Nasdaq Small Cap
Market or the ASE.

            "NYSE" shall mean The New York Stock Exchange, Inc.

            "Options"  shall mean any rights,  warrants or options to  subscribe
for or purchase Common Stock or Convertible Securities.

            "Original  Issuance  Date"  shall  mean the first  date on which any
Debentures have been issued pursuant to the Securities Purchase Agreement.

            "Outstanding   Principal   Amount"  shall  mean  the  principal  sum
outstanding from time to time under this Debenture.

            "Person" shall mean an individual,  a limited liability  company,  a
partnership,  a  joint  venture,  a  corporation,  a  trust,  an  unincorporated
organization and a government or any department or agency thereof.

            "Principal Market" shall mean the ASE, or if the Common Stock is not
traded on the ASE, then the principal  securities exchange or trading market for
the Common Stock.

            "Quarterly  Period"  shall mean each of the following  periods:  the
period  beginning on and including  January 1 and ending on and including  March
31; the period  beginning on and  including  April 1 and ending on and including
June  30,  the  period  beginning  on and  including  July 1 and  ending  on and
including  September 30; and the period beginning on and including October 1 and
ending on and including December 31.

            "Registration Rights Agreement" shall mean that certain registration
rights  agreement  between the Company and the initial holders of the Debentures
relating to the filing of a  registration  statement  covering the resale of the
shares of Common Stock  issuable upon  conversion of the Debentures and exercise
of the Warrants,  as such agreement may be amended from time to time as provided
in such agreement.

            "SEC"  shall  mean  the  United  States   Securities   and  Exchange
Commission.


                                       5


            "Securities  Purchase  Agreement" shall mean that certain securities
purchase   agreement  between  the  Company  and  the  initial  holders  of  the
Debentures,  as such  agreement  may be amended from time to time as provided in
such agreement.

            "Security  Agreement"  shall mean that certain  amended and restated
security  agreement made by the Company in favor of the Agent for the benefit of
all holders of the  Debentures,  as such  agreement  may be amended from time to
time as provided in such agreement.

            "Strategic  Financing"  shall mean the  issuance of Common  Stock or
Options in connection with any acquisition by the Company, by whatever means, of
any business,  assets or  technologies,  or to any strategic  investor,  vendor,
customer,  lease or similar arrangement,  the primary purpose of which is not to
raise equity  capital;  provided that the  aggregate  number of shares of Common
Stock which the Company may issue pursuant to this  definition  shall not exceed
(i)  25% of the  total  outstanding  equity  on the  Original  Issuance  Date in
connection  with  any one or more  related  issuances  to  strategic  investors,
vendors,  customers,  lessors  or  similar  parties  or  (ii)  40% of the  total
outstanding  equity  on the  Original  Issuance  Date  in  connection  with  all
issuances to strategic investors, vendors, customers, lessors or similar parties
(in each case,  subject to adjustment for stock splits,  stock dividends,  stock
combinations and similar transactions).

            "Subsidiary"  shall mean, as to any Person, any entity in which such
Person,  directly or indirectly,  owns 30% or more of the capital stock or other
equity or similar  interests or owns capital stock or holds an equity or similar
interest which ownership  entitles such Person to elect 30% or more of the board
of directors or similar governing body of such entity.

            "Transaction  Documents"  shall have the meaning ascribed thereto in
the Securities Purchase Agreement.

            "Warrants"  shall mean the  warrants  to  purchase  shares of Common
Stock issued by the Company pursuant to the Securities Purchase Agreement.

            "Weighted  Average  Price"  shall mean,  for any  security as of any
date,  the dollar  volume-weighted  average price per share for such security on
the  Principal  Market during the period  beginning at 9:30 a.m.,  New York City
Time,  and ending at 4:00 p.m.,  New York City Time,  as reported  by  Bloomberg
through its "Volume at Price" function or, if the foregoing does not apply,  the
dollar  volume-weighted  average  price  per  share  of  such  security  in  the
over-the-counter  market on the  electronic  bulletin  board  for such  security
during the period beginning at 9:30 a.m., New York City Time, and ending at 4:00
p.m.,  New  York  City  Time,  as  reported  by  Bloomberg,  or,  if  no  dollar
volume-weighted  average  price is reported for such  security by Bloomberg  for
such hours,  the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the "pink
sheets" by the National  Quotation  Bureau,  Inc. If the Weighted  Average Price
cannot be  calculated  for such  security  on such date on any of the  foregoing
bases,  the Weighted  Average  Price of such  security on such date shall be the
fair market  value as mutually  determined  by the Company and the holders of no
less than 60% of the Outstanding  Principal  Amount of the Debentures  issued on
the Original Issuance Date then  outstanding.  If the Company and the holders of
the  Debentures  are


                                       6



unable  to agree  upon the fair  market  value of the  Common  Stock,  then such
dispute shall be resolved  pursuant to Section 4(e)(iii) with the term "Weighted
Average  Price" being  substituted  for the term  "Closing Sale Price." All such
determinations  shall be  appropriately  adjusted for any stock dividend,  stock
split or other similar transaction during such period.

      4.  Conversion.  The Holder of this  Debenture  shall  have the  following
conversion rights:

            (a) Holder's Right to Convert. Subject to Sections 11 and 26, at any
time or times until 5:00 p.m.,  New York City Time, on the Business Day prior to
the Maturity  Date this  Debenture is  convertible,  at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common Stock
in accordance with Section 4(d) at the Conversion  Rate (as defined below).  The
Holder hereof may convert a portion of the Outstanding  Principal Amount of this
Debenture if such portion is an integral  multiple of $1,000.  If this Debenture
remains  outstanding on the Maturity Date, then this Debenture shall be redeemed
by the Company in accordance with Section 5(a).  Notwithstanding anything herein
to the contrary,  concurrent with each delivery of Conversion Shares to a holder
pursuant to this Debenture,  the Company shall pay (in Interest Shares,  only if
all terms,  conditions and requirements  set forth in this Debenture  concerning
payment of  interest in the form of Interest  Shares are  satisfied,  or cash as
determined by the Company) to such holder all accrued and unpaid interest on the
Outstanding  Principal  Amount then being  converted from the last date on which
interest  had  been  paid on  such  Outstanding  Principal  Amount  through  the
Conversion Date.

            (b) Company's Right to Mandatory Conversion.  Subject to Sections 11
and 26  hereof,  if at any time from and after the  Original  Issuance  Date the
Weighted  Average Price of the Common Stock shall exceed 175% of the  Conversion
Price for any 25 consecutive trading days (the "Mandatory  Conversion  Measuring
Period"),  the Company may deliver on or before the second  (2nd)  Business  Day
following the end of the Mandatory  Conversion Measuring Period a written notice
to all, but not less than all, of the Holders and the Transfer Agent (as defined
in Section  4(e)(i)) (the "Mandatory  Conversion  Notice"),  indicating that the
Company is  requiring  each  Holder to convert  the then  Outstanding  Principal
Amount of such Holder's  Debenture plus accrued and unpaid  interest  thereon to
the date fixed for conversion into fully paid,  validly issued and nonassessable
shares of Common Stock in accordance  with Section 4(d) hereof at the Conversion
Rate as of the Mandatory Conversion Date (as defined below); provided,  however,
that the  Company  may not require  such  conversion  if (i) an Event of Default
shall have occurred at any time on or prior to the Mandatory Conversion Date and
shall have not been cured to the reasonable  satisfaction  of the holder of this
Debenture, (ii) an event shall have occurred and be continuing at any time on or
prior to the  Mandatory  Conversion  Date which with the passage of time and the
failure  to cure  would  result in an Event of  Default,  (iii)  either  (A) any
Registration  Statement is not  effective and available for the sale of at least
all of the  Registrable  Securities  (as  defined  in  the  Registration  Rights
Agreement)  required to be included in such Registration  Statement or (B) there
has been any Grace  Period,  in either case on any trading day during the period
beginning  on the first day of the  Mandatory  Conversion  Measuring  Period and
ending  on the  Mandatory  Conversion  Date  or (iv)  there  has  been a  public
announcement of a pending,  proposed or intended Change of Control,  unless such
pending,  proposed or intended Change of Control has been terminated,  abandoned
or  consummated  and  the  Company  has  publicly  announced  such  termination,
abandonment   or   consummation   of  such  Change  of  Control  (a   "Mandatory
Conversion").  The  Company  shall  send  the  Mandatory  Conversion  Notice  by


                                       7


facsimile and overnight  courier to each Holder and shall  indicate (X) the date
fixed for  conversion,  which shall be not less than  fifteen (15) days nor more
than thirty (30) days after each Holder's  receipt of the  Mandatory  Conversion
Notice (the "Mandatory  Conversion  Date"), (Y) the Conversion Price and (Z) the
number of shares of Common Stock to be issued to such Holder as of the Mandatory
Conversion  Date.  If the  Company  has  elected  a  Mandatory  Conversion,  the
mechanics of  conversion  set forth in Section  4(e) shall apply,  to the extent
applicable,  as if the Company and the  Transfer  Agent had  received  from each
Holder on the Mandatory  Conversion Date a Conversion  Notice (as defined below)
with respect to the entire Outstanding Principal Amount of the Debenture and the
interest  accrued  and  unpaid  thereon  as of the  Mandatory  Conversion  Date.
Promptly following the Mandatory Conversion Date, the Holder shall surrender its
Debenture to the Company or the Transfer Agent.

            (c) Partial Conversion of Debenture.  If this Debenture is converted
in part, the remaining  portion of this Debenture not so converted  shall remain
entitled to the conversion rights provided herein.

            (d) Conversion  Price for Holder Converted  Shares.  The Outstanding
Principal Amount of this Debenture that is converted into shares of Common Stock
shall be  convertible  into the number of shares of Common  Stock which  results
from application of the following formula:

                                        P
                      ------------------------------------
                                Conversion Price

      P    =    Outstanding Principal Amount of this  Debenture  submitted  for
                conversion

            The  number of shares of Common  Stock  into  which  this  Debenture
hereto may be converted  pursuant to the foregoing formula is hereafter referred
to as the "Conversion Rate."

            (e) Mechanics of Conversion.  The conversion of this Debenture shall
be conducted in the following manner:

                  (i) Holder's Delivery Requirements.  To convert this Debenture
(in whole or in part) into full shares of Common  Stock on any date,  the Holder
shall (A) transmit by facsimile (or otherwise physically  deliver),  for receipt
on or prior to 5:00 p.m., New York City Time, on such date, a copy of a properly
completed  notice of  conversion  executed  by the  Holder in the form  attached
hereto as Exhibit I (the  "Conversion  Notice") to the Company and the Company's
designated  transfer  agent  (the  "Transfer  Agent")  and  (B)  surrender  this
Debenture to a common carrier for delivery to the Company as soon as practicable
following such date.

                  (ii) Company's Response. Upon receipt by the Company of a copy
of a Conversion Notice, the Company shall (A) as soon as practicable, but in any
event within two (2) Business  Days,  send, via  facsimile,  a  confirmation  of
receipt of such Conversion  Notice to such holder and the Transfer Agent,  which
confirmation  shall  constitute an  instruction to the Transfer Agent to process
such  Conversion  Notice in accordance with the terms herein and (B) then, on or
before  the  second  (2nd)  Business  Day  following  the date of receipt by the
Company of such  Conversion  Notice (the "Share Delivery  Date"),  (x) issue and
deliver to the address as


                                       8


specified in the Conversion Notice, a certificate, registered in the name of the
Holder or its  designee,  for the number of shares of Common  Stock to which the
Holder  shall  be  entitled,  or (y) in the  case  of a  public  resale  of such
Conversion Shares in accordance with the provisions of the Irrevocable  Transfer
Agent  Instructions,  provided  the  Transfer  Agent  is  participating  in  The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and,
if required by DTC,  the holder  provides a customary  representation  letter to
DTC, upon the request of the holder,  credit such aggregate  number of shares of
Common Stock to which the holder  shall be entitled to the  holder's  designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system.
If the specified principal amount submitted for conversion is less than the then
Outstanding Principal Amount of this Debenture,  then the Company shall, as soon
as practicable  using  reasonable best efforts,  and in no event later than five
Business Days after receipt of the Debenture (the "Debenture Delivery Date") and
at its own expense, issue and deliver to the holder a new Debenture representing
the Outstanding Principal Amount not converted. The effective date of conversion
(the  "Conversion  Date")  shall be deemed  to be the date on which the  Company
receives 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.

                  (iii) Dispute  Resolution.  In the case of a dispute as to the
determination  of the Closing  Sale  Price,  the  Weighted  Average  Price,  the
Conversion  Price or the  arithmetic  calculation  of the  Conversion  Rate, the
Company shall  instruct the Transfer  Agent to issue to the Holder the number of
shares of Common Stock that is not disputed and shall transmit an explanation of
the  disputed  determinations  or  arithmetic  calculations  to the  Holder  via
facsimile  within two (2) Business  Days of receipt of the  Holder's  Conversion
Notice or other date of determination.  If the Holder and the Company are unable
to agree upon the  determination of the Closing Sale Price, the Weighted Average
Price,  the Conversion  Price or arithmetic  calculation of the Conversion  Rate
within  two (2)  Business  Days of such  disputed  determination  or  arithmetic
calculation being  transmitted to the Holder,  then the Company shall within two
(2) Business  Days submit via facsimile  (A) the disputed  determination  of the
Closing Sale Price,  the Weighted  Average  Price or the  Conversion  Price,  as
applicable, to an independent, reputable investment bank selected by the Company
and approved by the holders of at least 60% of the Outstanding  Principal Amount
of the Debentures  issued on the Original  Issuance Date then outstanding or (B)
the disputed  determination of the Conversion  Price, the Weighted Average Price
or the Conversion Price, as applicable,  or the disputed arithmetic  calculation
of the Conversion Rate to the Company's  independent,  outside  accountant.  The
Company shall cause the investment bank or the  accountant,  as the case may be,
to perform the  determinations  or  calculations  and notify the Company and the
holders of the  results no later  than ten (10)  Business  Days from the time it
receives the disputed determinations or calculations.  Such investment bank's or
accountant's determination or calculation,  as the case may be, shall be binding
upon all parties absent manifest error.

                  (iv) Company's Failure to Timely Convert.

                        (A) If (x)  within  five (5)  Business  Days  after  the
Company's  receipt of the facsimile copy of a Conversion  Notice the Company has
failed to issue and  deliver a  certificate  to a Holder or credit the  Holder's
designee's  balance account with DTC, in


                                       9


accordance  with Section 4(e) hereof for the number of shares of Common Stock to
which the Holder is entitled upon the Holder's  conversion of this  Debenture or
(y) within five (5) Business Days of the Company's receipt of this Debenture the
Company has failed to issue and deliver a Debenture  representing  the principal
amount  of this  Debenture  not so  converted,  then in  addition  to all  other
available  remedies  which  such  holder  may  pursue  hereunder  and  under the
Securities Purchase Agreement (including  indemnification  pursuant to Section 8
thereof),  the Company shall pay additional  damages to such holder for each day
after the Share Delivery Date that such conversion is not timely effected and/or
each day after the Debenture  Delivery Date that this Debenture is not delivered
in an  amount  equal to 0.05% of the  product  of (I) the sum of the  number  of
shares  of  Common  Stock  not  issued  to the  holder  on or prior to the Share
Delivery  Date  and to  which  such  holder  is  entitled  as set  forth  in the
applicable Conversion Notice and, in the event the Company has failed to deliver
a Debenture to the holder on or prior to the Debenture Delivery Date, the number
of shares of Common Stock  issuable upon  conversion of this Debenture as of the
Debenture  Delivery  Date and (II) the Closing Sale Price of the Common Stock on
the Share Delivery Date, in the case of the failure to deliver Common Stock,  or
the Debenture Delivery Date, in the case of failure to deliver a Debenture.  The
foregoing notwithstanding,  the damages set forth in this Section 4(e)(iv) shall
be stayed with  respect to the number of shares of Common  Stock for which there
is a good faith dispute being resolved  pursuant to Section  4(e)(iii),  pending
the resolution of such dispute.

                        (B) If for any reason a holder has not  received  all of
the shares of Common  Stock to which such holder is entitled  prior to the tenth
(10th)  Business Day after the Share  Delivery Date with respect to a conversion
of this Debenture,  then the Holder, upon written notice to the Company,  with a
copy to the Transfer Agent,  may void its Conversion  Notice;  provided that the
voiding  of the  Holder's  Conversion  Notice  shall not  affect  the  Company's
obligations  to make any payments  which have accrued  prior to the date of such
notice pursuant to Section 4(e)(iv)(A) or otherwise.

            (f) No Fractional  Shares.  The Company shall not issue any fraction
of a share of Common Stock upon any conversion.  If the issuance would result in
the issuance of a fraction of a share of Common  Stock,  the Company shall round
such fraction of a share of Common Stock up or down to the nearest whole share.

            (g)  Release  of  Funds  from  Segregated  Account.  Notwithstanding
anything  herein  to the  contrary,  if at any time and from  time to time,  the
balance of the funds  remaining in the  Segregated  Accounted (as defined in the
Securities  Purchase  Agreement),  if any,  that were  paid into the  Segregated
Account by the initial holder of this Debenture, as set forth on the Schedule of
Buyers  attached  to  the  Securities  Purchase  Agreement,   exceeds  the  then
Outstanding  Principal Amount of this Debenture,  together with accrued interest
thereon and so long as no Event of  Default,  or event that with notice or lapse
of time would  constitute an Event of Default,  has occurred and is  continuing,
the holder agrees, by its acceptance of this Debenture,  to distribute  promptly
to the  Company  an  amount in cash  equal to such  excess  from the  Segregated
Account  established by the initial holder of this Debenture,  or, if advised in
writing by the Company,  to use such excess to remit payment for any  obligation
under  this  Debenture  to the holder of this  Debenture.  If for any reason any
portion of the funds held in the Segregated  Account  established by the initial
holder of this  Debenture  are not paid to the  Company in  accordance  with the
terms of the Securities Purchase Agreement and the Outstanding  Principal Amount
on this Debenture,


                                       10


together  with  accrued  and unpaid  interest  thereon,  becomes due and payable
either at maturity or upon acceleration or demand upon an Event of Default,  the
Company and the holder,  by its  acceptance  of this  Debenture,  agree that the
funds held in the  Segregated  Account  shall be  released to the holder of this
Debenture and shall be deemed to constitute a partial payment of the Outstanding
Principal  Amount of this Debenture  together with accrued interest thereon then
due in an amount equal to the funds in the Segregated Account. All such payments
from the Segregated Account shall be deemed to be payments of (i) first, accrued
and unpaid  interest on the Outstanding  Principal  Amount of this Debenture and
(ii) second, Outstanding Principal Amount of this Debenture.

      5. Redemption.

            (a) Mandatory  Redemption  at Maturity.  If this  Debenture  remains
outstanding  on the Maturity  Date,  the Company shall redeem (a "Maturity  Date
Mandatory  Redemption") the Outstanding  Principal Amount of this Debenture that
is not subject to a Conversion  Notice for an amount in cash (the "Maturity Date
Redemption  Price") equal to the Outstanding  Principal  Amount of the Debenture
not converted into shares of Common Stock pursuant to a Conversion Notice,  plus
accrued and unpaid interest thereon. The Maturity Date Redemption Price shall be
paid  on the  Maturity  Date  to the  Holder  by wire  transfer  of  immediately
available  funds to an account  designated  in writing by such Holder.  Promptly
following  payment of the  Maturity  Date  Redemption  Price,  the Holder  shall
surrender this Debenture to the Company.

            (b) Payment  Failures If the Company  fails to make any payment of a
Maturity Date  Redemption  Price,  then in addition to any remedy the Holder may
have  under  this  Debenture,   the  Securities   Purchase   Agreement  and  the
Registration Rights Agreement,  until the Maturity Date Redemption Price is paid
in full,  (x) the  Maturity  Date  Redemption  Price  payable in respect of such
unpaid  Maturity Date  Redemption  Price shall bear interest at the rate of 1.5%
per month, prorated for partial months, and (y) the Holder shall have the option
to require the Company to convert any or all of the Outstanding Principal Amount
of this  Debenture  subject  to  redemption  and for  which  the  Maturity  Date
Redemption  Price (together with any interest  thereon) has not been paid into a
number of shares of Common  Stock  equal to the  quotient of the  Maturity  Date
Redemption  Price  (together with any interest  thereon)  divided by the Default
Conversion Price.

      6.  Anti-dilution  Adjustments to Conversion  Price.  The Conversion Price
will be subject to adjustment from time to time as provided in this Section 6 at
all times prior to, but not after,  the date on which cash  collateral  payments
have  been  made  pursuant  to  Section  25 in an  amount  equal  to the  entire
Outstanding  Principal Amount,  together with accrued and unpaid interest on all
Debentures outstanding:

            (a)  Anti-dilution  Adjustment of Conversion  Price upon Issuance of
Common Stock.  If and whenever on or after the Original  Issuance Date and prior
to the twelve (12) month  anniversary of the Original Issuance Date, the Company
issues or sells,  or in  accordance  with  this  Section  6(a) is deemed to have
issued or sold,  any  shares of Common  Stock  (but  excluding  shares of Common
Stock:  (v)  deemed to have been  issued by the  Company in  connection  with an
Approved  Stock  Plan;  (w)  deemed to have been  issued  upon  issuance  of the
Debentures  or the  Warrants,  or issued upon  conversion  of the  Debentures or
exercise of the  Warrants;  (x) issued


                                       11


upon exercise of Options or Convertible  Securities which are outstanding on the
date  immediately  preceding  the Original  Issuance  Date,  provided  that such
issuance of shares of Common Stock upon exercise of such Options or  Convertible
Securities  is made  pursuant  to the  terms  of  such  Options  or  Convertible
Securities in effect on the date  immediately  preceding  the Original  Issuance
Date,  such Options or  Convertible  Securities  are not amended  after the date
immediately  preceding  the  Original  Issuance  Date other than with respect to
Options originally issued pursuant to an Approved Stock Plan and the purchase or
exercise price provided for in any such Options,  the additional  consideration,
if any,  payable  upon the issue,  conversion,  exchange or exercise of any such
Convertible  Securities,  or the rate at which any  Convertible  Securities  are
convertible into or exchangeable or exercisable for Common Stock does not change
at any time after the Original  Issuance Date; (y) issued to the public pursuant
to an underwritten  offering  registered  pursuant to the Securities Act (but in
all events excluding  offerings pursuant to "equity lines" or similar products);
and (z) issued pursuant to a Strategic  Financing ((v) through (z)  collectively
"Excluded  Issuances"))  for a  consideration  per share  (the  "New  Securities
Issuance Price") less than the Conversion Price in effect  immediately  prior to
such time (each such sale or issuance, a "Dilutive  Issuance"),  then concurrent
with such  Dilutive  Issuance,  the  Conversion  Price  then in effect  shall be
reduced to an amount equal to the New Securities Issuance Price. If and whenever
on or after the twelve (12) month  anniversary of the Original Issuance Date and
prior to the Maturity Date, the Company issues or sells,  or in accordance  with
this Section  6(a) is deemed to have issued or sold,  any shares of Common Stock
(but  excluding  shares of  Common  Stock  issued or deemed to have been  issued
pursuant to any Excluded Issuance) in a Dilutive Issuance,  then concurrent with
such Dilutive Issuance,  the Conversion Price then in effect shall be reduced to
a price (rounded to the nearest cent) equal to the product of (A) the Conversion
Price in effect immediately prior to such Dilutive Issuance and (B) the quotient
determined by dividing (1) the sum of (I) the product derived by multiplying the
Conversion Price in effect  immediately  prior to such Dilutive Issuance and the
number of shares of Common Stock Deemed  Outstanding  immediately  prior to such
Dilutive Issuance plus (II) the  consideration,  if any, received by the Company
upon such Dilutive  Issuance,  by (2) the product derived by multiplying (I) the
Conversion Price in effect  immediately  prior to such Dilutive Issuance by (II)
the number of shares of Common Stock Deemed  Outstanding  immediately after such
Dilutive  Issuance.  For purposes of determining the adjusted  Conversion  Price
under this Section 6(a), the following shall be applicable:

                  (i) Issuance of Options.  If the Company in any manner  grants
or sells  any  Options  and the  lowest  price  per share for which one share of
Common  Stock  is  issuable  upon  the  exercise  of any  such  Option  or  upon
conversion,  exchange or exercise of any  Convertible  Securities  issuable upon
exercise of such Option is less than the Conversion Price in effect  immediately
prior to such Dilutive Issuance, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the  granting or sale of such Option for such price per share.  For  purposes of
this Section 6(a)(i),  the "lowest price per share for which one share of Common
Stock is  issuable  upon the  exercise  of any such  Option or upon  conversion,
exchange or exercise of any  Convertible  Securities  issuable  upon exercise of
such Option"  shall be equal to the sum of the lowest  amounts of  consideration
(if any)  received or receivable by the Company with respect to any one share of
Common Stock upon  granting or sale of the Option,  upon  exercise of the Option
and upon conversion,  exchange or exercise of any Convertible  Security issuable
upon  exercise of such Option.  No further  adjustment of the  Conversion  Price
shall  be made  upon  the  actual  issuance  of  such  Common


                                       12


Stock or of such  Convertible  Securities  upon the  exercise of such Options or
upon the actual  issuance  of such  Common  Stock upon  conversion,  exchange or
exercise of such Convertible Securities.

                  (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such  conversion,  exchange
or  exercise  thereof is less than the  Conversion  Price in effect  immediately
prior to such Dilutive Issuance, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance of sale of such  Convertible  Securities  for such price per share.
For the purposes of this Section 6(a)(ii), the "lowest price per share for which
one  share of  Common  Stock is  issuable  upon  such  conversion,  exchange  or
exercise" shall be equal to the sum of the lowest amounts of  consideration  (if
any)  received or  receivable  by the Company  with  respect to any one share of
Common Stock upon the issuance or sale of the Convertible  Security and upon the
conversion,  exchange  or  exercise  of such  Convertible  Security.  No further
adjustment  of the  Conversion  Price shall be made upon the actual  issuance of
such Common  Stock upon  conversion,  exchange  or exercise of such  Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which  adjustment of the  Conversion  Price had
been or are to be made  pursuant to other  provisions  of this Section  6(a), no
further adjustment of the Conversion Price shall be made by reason of such issue
or sale.

                  (iii)  Change in Option  Price or Rate of  Conversion.  If the
purchase  or  exercise  price  provided  for  in  any  Options,  the  additional
consideration,  if any, payable upon the issue, conversion, exchange or exercise
of any Convertible  Securities,  or the rate at which any Convertible Securities
are convertible  into or exchangeable or exercisable for Common Stock changes at
any time,  the  Conversion  Price in effect at the time of such change  shall be
adjusted  to the  Conversion  Price which would have been in effect at such time
had such Options or Convertible  Securities  provided for such changed  purchase
price, additional  consideration or changed conversion rate, as the case may be,
at the time  initially  granted,  issued or sold.  For  purposes of this Section
6(a)(iii),  if  the  terms  of any  Option  or  Convertible  Security  that  was
outstanding  as of the date of  issuance  of the  Debentures  are changed in the
manner  described in the  immediately  preceding  sentence,  then such Option or
Convertible  Security  and the  Common  Stock  deemed  issuable  upon  exercise,
conversion  or  exchange  thereof  shall be deemed to have been issued as of the
date of such change. No adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.

                  (iv) Calculation of Consideration Received. In case any Option
is  issued  in  connection  with the  issue or sale of other  securities  of the
Company,  together  comprising one  integrated  transaction in which no specific
consideration is allocated to such Options by the parties  thereto,  then solely
for  purposes of this  Section 6, the Options will be deemed to have been issued
for a  consideration  of $0.01.  If any Common  Stock,  Options  or  Convertible
Securities  are  issued or sold or deemed to have been  issued or sold for cash,
the  consideration  received  therefor  will be deemed  to be the  gross  amount
received by the Company  therefor.  If any Common Stock,  Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such  consideration,  except where such consideration  consists


                                       13


of marketable securities,  in which case the amount of consideration received by
the Company  will be the  arithmetic  average of the Closing Sale Prices of such
securities  during the ten (10)  consecutive  trading days ending on the date of
receipt of such securities.  The fair value of any consideration other than cash
or securities  will be  determined  jointly by the Company and the holders of at
least 60% of the Outstanding  Principal  Amount of the Debentures  issued on the
Original  Issuance  Date then  outstanding.  If such parties are unable to reach
agreement  within  ten (10) days  after  the  occurrence  of an event  requiring
valuation (the "Valuation Event"),  the fair value of such consideration will be
determined  within five  Business  Days after the tenth (10th) day following the
Valuation Event by an independent,  reputable  appraiser selected by the Company
and the  holders  of at least  60% of the  Outstanding  Principal  Amount of the
Debentures  issued  on  the  Original   Issuance  Date  then  outstanding.   The
determination  of such appraiser shall be deemed binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be borne by the
Company.

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

            (b) Adjustment of Conversion  Price upon  Subdivision or Combination
of Common  Stock.  If the Company at any time  subdivides  (by any stock  split,
stock dividend,  recapitalization or otherwise) its outstanding shares of Common
Stock  into  a  greater  number  of  shares,  the  Conversion  Price  in  effect
immediately prior to such subdivision will be  proportionately  reduced.  If the
Company at any time combines (by combination,  reverse stock split or otherwise)
its  outstanding  shares of Common Stock into a smaller number of shares and the
Conversion  Price  in  effect  immediately  prior  to such  combination  will be
proportionately increased.

            (c)  Holder's  Right  of  Alternative   Conversion  Price  Following
Issuance of Convertible  Securities.  If the Company issues or sells any Options
or Convertible  Securities after the Original Issuance Date that are convertible
into or  exchangeable or exercisable for Common Stock at a price which varies or
may vary with the market price of the Common  Stock,  including by way of one or
more reset(s) to a fixed price (each of the formulations for such variable price
being herein  referred to as, the "Variable  Price"),  the Company shall provide
written  notice  thereof via facsimile and overnight  courier to the Holder (the
"Variable  Notice") on the date of issuance of such  Convertible  Securities  or
Options.  From and  after  the  date the  Company  issues  any such  Convertible
Securities  or  Options  with a  Variable  Price,  but  only for so long as such
Convertible  Securities  or Options are  outstanding,  the Holder shall have the
right, but not the obligation, in its sole discretion to substitute the Variable
Price for the Conversion  Price upon  conversion of any Debentures held by it by
designating  in  the  Conversion   Notice  delivered  upon  conversion  of  such
Debentures  that solely for purposes of such conversion the Holder is relying on
the Variable Price rather than the Conversion Price then in effect. The Holder's
election to rely on a Variable  Price for a particular  conversion of Debentures
shall not  obligate  the  Holder  to rely on a  Variable  Price  for any  future
conversions of Debentures.


                                       14


            (d) Other Events.  If any event occurs of the type  contemplated  by
the provisions of this Section 6 in a private  transaction  (the primary purpose
of which is to raise  equity  capital)  but not  expressly  provided for by such
provisions  (including,  without limitation,  the granting of stock appreciation
rights,  phantom  stock rights or other rights with equity  features  other than
pursuant to an Excluded  Issuance),  then the Company's  Board of Directors will
make an  appropriate  adjustment  in the  Conversion  Price so as to protect the
rights of the holders of the  Debentures;  provided that no such adjustment will
increase the Conversion Price as otherwise  determined  pursuant to this Section
6.

            (e) Notices.

                  (i) Promptly  following any adjustment of the Conversion Price
pursuant to this Section 6, the Company will give written  notice thereof to the
Holder,  setting forth in reasonable detail, and certifying,  the calculation of
such  adjustment.  In the  case of a  dispute  as to the  determination  of such
adjustment,  then  such  dispute  shall  be  resolved  in  accordance  with  the
procedures set forth in Section 4(e)(iii).

                  (ii) The  Company  will give  written  notice to the Holder at
least ten (10) Business  Days prior to the date on which the Company  closes its
books or takes a record (A) with  respect to any dividend or  distribution  upon
the Common Stock, (B) with respect to any pro rata subscription offer to holders
of  Common  Stock or (C) for  determining  rights to vote  with  respect  to any
Organic  Change (as  defined  in  Section  7(a)),  dissolution  or  liquidation,
provided  that the Company need not in any case provide such notice prior to the
time such information is made known to the public.

                  (iii) The Company will also give written  notice to the Holder
at least ten (10) Business  Days prior to the date on which any Organic  Change,
dissolution or liquidation  will take place,  provided that the Company need not
in any case provide such notice prior to the time such information is made known
to the public.

      7. Other Rights.

            (a) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization,  reorganization, reclassification,  consolidation, merger,
sale of all or  substantially  all of the Company's  assets to another Person or
other  transaction  which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent  liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic  Change." Prior to the consummation of any (i) sale of all
or  substantially  all of the  Company's  assets to an acquiring  Person or (ii)
other Organic Change following which the Company is not a surviving entity,  the
Company will secure from the Person purchasing such assets or the successor, or,
if applicable,  the parent of the successor,  resulting from such Organic Change
(in each case,  the "Acquiring  Entity") a written  agreement to deliver to each
holder of  Outstanding  Principal  Amount of the Debentures in exchange for such
securities, a security of the Acquiring Entity evidenced by a written instrument
substantially  similar in form and substance to the  Debentures,  and reasonably
satisfactory to the holders of at least 60% of the Outstanding  Principal Amount
of the  Debentures  issued  on the  Original  Issuance  Date  then  outstanding;
provided that the new security of the Acquiring  Entity shall not


                                       15


be required to be of rank equal to the  Debenture  if the issuance of a security
of such rank is not  permitted  by, or is  inconsistent  with,  any agreement or
instrument  to which  the  Acquiring  Entity is a party or any  security  of the
Acquiring  Entity  that is  outstanding,  upon the  consummation  of the Organic
Change. Prior to the consummation of any other Organic Change, the Company shall
make appropriate  provision to insure that each of the holders of the Debentures
will  thereafter have the right to acquire and receive in lieu of or in addition
to (as the case may be) the  shares  of  Common  Stock  immediately  theretofore
acquirable and receivable  upon the conversion of such holder's  Debentures such
shares of stock,  securities or assets that would have been issued or payable in
such  Organic  Change with respect to or in exchange for the number of shares of
Common Stock which would have been acquirable and receivable upon the conversion
of such  holder's  Debentures  as of the date of such  Organic  Change  (without
taking into account any limitations or restrictions on the convertibility of the
Debentures).

            (b) Optional Redemption at Holder's Election Upon Change of Control.
In addition to the rights of the holders of Debentures under this Debenture, the
Securities  Purchase  Agreement and the Registration  Rights  Agreement,  upon a
Change of Control (as defined  below) of the Company  each holder of  Debentures
shall have the right, at such holder's option,  to require the Company to redeem
all or a portion of such  holder's  Debentures  at a price  equal to 100% of the
Outstanding Principal Amount of such Debentures plus the product of (1) 1.75 and
(2) the dollar amount of all Interest  Payments  scheduled to be paid  following
the  consummation  of the Change of Control and on or prior to the Maturity Date
on the  total  Outstanding  Principal  Amount of the  Debentures  on the date of
consummation of the Change of Control ("Change of Control Redemption Price"). No
sooner  than 20  Business  Days nor later  than 10  Business  Days  prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control,  the Company shall deliver  written  notice  thereof via
facsimile and overnight courier (a "Notice of Change of Control") to each holder
of Debentures. At any time during the period beginning after receipt of a Notice
of Change of  Control  (or,  in the event a Notice of Change of  Control  is not
delivered at least 10 Business Days prior to a Change of Control, at any time on
or after the date which is 10 Business  Days prior to a Change of  Control)  and
ending on the date one (1)  Business  Day prior to such Change of  Control,  any
holder of the Debentures then  outstanding may require the Company to redeem all
or a portion of the holder's  Debentures then outstanding by delivering  written
notice thereof via facsimile and overnight courier (a "Notice of Redemption Upon
Change of Control") to the Company,  which Notice of  Redemption  Upon Change of
Control shall  indicate (i) the  principal  amount of the  Debentures  that such
holder is submitting for redemption,  and (ii) the applicable  Change of Control
Redemption  Price,  as  calculated  pursuant  to this  Section  7(b).  Upon  the
Company's  receipt of a Notice(s) of Redemption  Upon Change of Control from any
holder of Debentures, the Company shall promptly, but in no event later than two
(2) Business Days  following  such receipt,  notify each holder of Debentures by
facsimile of the Company's  receipt of such Notice(s) of Redemption  Upon Change
of Control.  The Company shall  deliver to the holder of each  Debenture who has
delivered a Notice of Redemption upon Change of Control,  the applicable  Change
of Control Redemption Price  simultaneously  with the consummation of the Change
of Control  provided that a holder's  Debentures shall have been so delivered to
the Company.  For purposes of this Section 7(b),  "Change of Control" shall mean
(i) the consolidation,  merger or other business combination of the Company with
or into another Person (other than (A) a consolidation, merger or other business
combination in which holders of the Company's voting power  immediately prior to
the transaction  continue after the transaction to hold, directly or


                                       16


indirectly,  the voting power of the surviving  entity or entities  necessary to
elect a majority of the members of the board of directors  (or their  equivalent
if other than a  corporation)  of such entity or entities,  or (B) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company), (ii) the sale or transfer of all or substantially
all of the  Company's  assets,  or (iii) a tender or exchange  offer made to and
accepted by the holders of more than 50% of the  aggregate  voting  power of the
outstanding Common Stock.

            (c)  Optional   Redemption  At  the  Company's  Election  Upon  Cash
Transaction.  At any time or times on or  after  the date the  Company  publicly
discloses a pending,  proposed or intended Cash  Transaction,  the Company shall
have the right, in its sole  discretion,  to require that all, but not less than
all, of the  Outstanding  Principal  Amount of this Debenture be redeemed ("Cash
Transaction  Redemption  Election") at a price equal to 100% of the  Outstanding
Principal  Amount of this  Debenture  plus the  product  of (1) 1.75 and (2) the
dollar  amount of all  Interest  Payments  scheduled  to be paid  following  the
consummation of the Cash Transaction and on or prior to the Maturity Date on the
total  Outstanding  Principal  Amount of the Debentures  redeemed on the date of
consummation of the Cash Transaction (the "Cash Transaction  Redemption Price").
The  Company  shall  exercise  its right to make a Cash  Transaction  Redemption
Election by providing each holder of Debentures  written notice ("Notice of Cash
Transaction  Redemption")  by facsimile or overnight  courier,  after the public
disclosure of a proposed,  pending or intended Cash Transaction and at least ten
(10) Business  Days prior to the date of  consummation  of the Cash  Transaction
("Cash Transaction  Election Redemption Date"),  which Cash Transaction Election
Redemption Date shall be the date of the  consummation of the Cash  Transaction.
The Notice of Cash  Transaction  Redemption  shall indicate the anticipated Cash
Transaction  Election Redemption Date. If the Company has exercised its right of
Cash Transaction  Redemption  Election then the Outstanding  Principal Amount of
the Debenture at the time of the consummation of the Cash  Transaction  shall be
redeemed on the Cash  Transaction  Election  Redemption Date by payment by or on
behalf of the  Company  to each  holder of  Debentures  of the  applicable  Cash
Transaction   Redemption   Price   concurrent  with  the  closing  of  the  Cash
Transaction.  All holders of Debentures shall thereupon, if the Cash Transaction
Redemption Price has been paid,  except as specifically set forth herein, in the
Securities Purchase Agreement or in the Registration Rights Agreement,  cease to
have any rights with respect to the  Debentures and within two (2) Business Days
after the Cash Transaction Election Redemption Date, or such earlier date as the
Company and holders of no less then 60% of the Outstanding  Principal  Amount of
the  Debentures  issued on the Original  Issuance  Date  mutually  agree,  shall
surrender all Debentures to the Company.

            (d) Right to Convert  on an  Organic  Change or Change of Control or
Agreement  of  the  Parties.  In  addition  to  the  foregoing,   following  the
announcement  of any Change of Control or other Organic Change  following  which
the Company is not the surviving  entity or otherwise upon the mutual  agreement
of the Company and holders of at least 60% of the Outstanding  Principal  Amount
of all  Debentures  issued on the  Original  Issuance  Date,  the  Holder  shall
continue  pursuant  to  Section  4(a)  hereof to have the right to  convert  the
Outstanding Principal Amount of this Debenture at the then prevailing Conversion
Rate until the  Debenture  is redeemed or otherwise  converted  pursuant to this
Section 7.

      8.  Reservation of Stock Issuable Upon  Conversion.  The Company shall, so
long as any of the  Debentures  are  outstanding,  take all action  necessary to
reserve and keep  available  out of


                                       17


its  authorized and unissued  Common Stock,  solely for the purpose of effecting
the  conversions  of the  Debentures,  such number of shares of Common  Stock as
shall from time to time be  sufficient  to effect the  conversion  of all of the
Debentures then outstanding;  provided that the number of shares of Common Stock
so reserved shall at no time prior to the date on which cash collateral payments
have  been  made  pursuant  to  Section  25 in an  amount  equal  to the  entire
Outstanding  Principal Amount,  together with accrued and unpaid interest on all
Debentures outstanding be less than 135% of the number of shares of Common Stock
needed to provide for the issuance of the shares of Common Stock upon conversion
of all of the Debentures  (without  regard to any limitations on conversion) and
the  maximum  number  of  Interest  Shares  issuable  over the full  term of the
Debentures  (assuming the Company paid the maximum amount of interest  permitted
to be paid in Interest  Shares over the full term of the  Debentures)  and after
such time 100% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon  conversion of all of the Debentures
(without regard to any limitations on conversion).

      9. No Reissuance of Debentures.  No Debentures  acquired by the Company by
reason of redemption,  purchase,  conversion or otherwise shall be reissued, and
all such Debentures shall be retired.  No additional  Debentures (other than the
Debentures  issued  pursuant  to the  Securities  Purchase  Agreement)  shall be
authorized  or issued  without the consent of the holders of at least 60% of the
Outstanding  Principal Amount of the Debentures  issued on the Original Issuance
Date.

      10. 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.

      11. Limitation on Beneficial  Ownership.  The Company shall not effect and
shall have no obligation to effect any conversion of  Debentures,  and no holder
of Debentures shall have the right to convert any Debentures, to the extent that
after giving  effect to such  conversion,  the  beneficial  owner of such shares
(together with such Person's affiliates) would have acquired, through conversion
of Debentures or otherwise, beneficial ownership of a number of shares of Common
Stock that  exceeds  4.99% of the number of shares of Common  Stock  outstanding
immediately  after  giving  effect  to  such  conversion.  For  purposes  of the
foregoing sentence, the number of shares of Common Stock beneficially owned by a
Person and its  affiliates  shall  include the number of shares of Common  Stock
issuable  upon   conversion  of  the  Debentures   with  respect  to  which  the
determination  of such  sentence is being made,  but shall exclude the number of
shares of Common  Stock  which  would be  issuable  upon (A)  conversion  of the
remaining,  nonconverted  Debentures beneficially owned by such Person or any of
its affiliates and (B) exercise or conversion of the  unexercised or unconverted
portion of any other securities of the Company  (including,  without limitation,
any warrants) subject to a limitation on conversion or exercise analogous to the
limitation  contained  herein  beneficially  owned by such  Person or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes of this
Section 11, beneficial  ownership shall be calculated in accordance with Section
13(d) of the Securities  Exchange Act of 1934, as amended.  For purposes of this
Section 11, in determining  the number of outstanding  shares of Common Stock, a
holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the  Company's  most recent Form 10-Q,  Form 10-K or other public  filing
with the SEC, as the case may be, (2) a more recent public  announcement  by the
Company,  or (3) any other notice by the Company or its transfer  agent  setting
forth the number


                                       18


of shares of Common Stock  outstanding.  Upon the written request of the Holder,
the Company  shall  promptly,  but in no event later than two (2) Business  Days
following  the  receipt  of such  notice,  confirm  in writing to the Holder the
number of shares of Common Stock then  outstanding.  In any case,  the number of
outstanding  shares of Common Stock shall be  determined  after giving effect to
conversions of Debentures by the Holder and its affiliates  since the date as of
which such number of outstanding shares of Common Stock was reported.

      12.  Obligations  Absolute.  No provision of this Debenture shall alter or
impair the obligation of the Company,  which is absolute and  unconditional,  to
pay the  principal  of, and interest on, this  Debenture at the time,  place and
rate, and in the manner, herein prescribed.

      13. Waivers of Demand,  Etc. The Company hereby  expressly  waives (to the
extent  permitted by applicable law) 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.

      14.  Replacement  Debentures.  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  by the  Company  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(s).

      14A.  Payment  of  Expenses.  The  Company  agrees  to pay all  reasonable
expenses,  including  reasonable  attorneys'  fees, which may be incurred by the
Holder  in  successfully  enforcing  the  provisions  of this  Debenture  and/or
successfully  collecting  any amount due under this  Debenture,  the  Securities
Purchase Agreement,  the Security  Agreement,  the Account Control Agreement (as
defined in the Securities Purchase  Agreement),  the Warrants,  the Registration
Rights Agreement or any other Transaction Document.

      15. Defaults. The following shall constitute "Events of Default":

            (a) Any Event of Default under any other Debenture; or

            (b) The suspension from trading or failure of the Common Stock to be
listed on  NASDAQ,  the ASE or the NYSE for more than an  aggregate  of ten (10)
trading days in any 365-day period; or

            (c) Any money judgment (including any arbitration award, but only if
reduced to a judgment),  writ or warrant of  attachment,  or similar  process in
excess of Two Hundred and Fifty  Thousand  Dollars  ($250,000) in the aggregate,
net of any applicable insurance coverage,  shall be entered or filed against the
Company,  its  Subsidiaries or any of their properties or other assets and which
shall  remain  unpaid,  unvacated,   unbonded  and  unstayed  for  a  period  of
seventy-five (75) days; or


                                       19


            (d)  The  Company  shall  default  in the  payment  when  due of (i)
interest on this  Debenture,  and such  default  shall  continue for thirty (30)
calendar  days after the due date  thereof,  or (ii) the  Outstanding  Principal
Amount of this Debenture; or

            (e) Any of the  representations  or  warranties  made by the Company
herein  (including  any Cash  Collateral  Certificate  delivered  under  Section
25(g)(iii)),  in the Securities Purchase Agreement,  the Warrants,  the Security
Agreement,  the Account Control Agreement, any Mortgage, the Registration Rights
Agreement  or any other  Transaction  Document  shall be untrue in any  material
respect  at the time made and such  condition  (to the  extent  capable of being
cured)  shall  continue  uncured  for a period of ten (10)  Business  Days after
notice from the Holder of such condition; and such breach of representations and
warranties,  singly or in the aggregate, would have a Material Adverse Effect or
materially  impair  the  ability  of the  Company  to  perform  or  satisfy  its
obligations to the Holder pursuant to the Transaction Documents; or

            (f) The  Company  shall fail to  perform or observe in any  material
respect any material covenant or agreement in the Securities Purchase Agreement,
the  Security  Agreement,  the  Warrants,  any  Mortgage,  the  Account  Control
Agreement,  the  Registration  Rights  Agreement,  this  Debenture  or any other
Transaction Document,  including,  without limitation,  (i) the failure to honor
any Conversion  Notice and deliver  shares  pursuant  thereto,  and such failure
shall continue  uncured for a period of ten (10) Business Days after notice from
the Holder of such failure or (ii) the failure by the Company to comply with its
obligations under Section 25(g) hereof, including,  without limitation,  (A) the
obligation to disclose  sufficient and timely  information in its public filings
with  the SEC for the  holder  to  verify  and  reconcile  Company  Consolidated
Revenues for the relevant periods,  as required by Section 25(g)(iv) hereof, (B)
the  obligation to make payments  timely as and when due and in the form of cash
and/or Repayment Shares as provided  thereunder,  (C) the failure of the Company
to deliver timely a completed Cash Collateral Certificate in the manner required
by Section  25(g)(v)  hereof and (D) the delivery by or on behalf of the Company
of any Cash  Collateral  Certificate  to any holder of  Debentures  without  the
express prior written consent of such holder; or

            (g) The Company  shall (i) become  insolvent;  (ii) admit in writing
its  inability  to pay  its  debts  generally  as  they  mature;  (iii)  make an
assignment  for  the  benefit  of  creditors  or  commence  proceedings  for its
dissolution;  or (iv)  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

            (h) 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  sixty  (60)  days  after  such
appointment; or

            (i) 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 sixty (60) days thereafter; or

            (j) The  Company  shall fail to pay any debt for  borrowed  money or
other similar obligation or liability  ("Indebtedness")  (excluding Indebtedness
evidenced  by  the  Debentures,   Subordinated   Indebtedness   and  Pari  Passu
Indebtedness)  of the  Company,  or any  interest or


                                       20


premium thereon,  when due (whether by scheduled maturity,  required prepayment,
acceleration,  demand or otherwise), in an outstanding principal amount equal to
or in excess of One Million Dollars ($1,000,000), singly or in the aggregate and
such failure shall continue after the applicable grace period, if any, specified
in the  agreement  or  instrument  relating  to such  Indebtedness,  or any such
Indebtedness of the Company shall be declared to be due and payable, or required
to be prepaid (other than by a regularly scheduled required  prepayment),  prior
to the stated maturity thereof; or

            (k) The  Company  shall  fail to make any  payment of  principal  in
respect of Subordinated  Indebtedness or Pari Passu Indebtedness or any interest
or  premium  thereon,   when  due  (whether  by  scheduled  maturity,   required
prepayment,  acceleration, demand or otherwise), and such failure shall continue
after the  applicable  grace  period,  if any,  specified  in the  agreement  or
instrument   relating   to  such   Subordinated   Indebtedness   or  Pari  Passu
Indebtedness,  or any such Subordinated  Indebtedness or Pari Passu Indebtedness
shall be declared to be due and payable,  or required to be prepaid  (other than
by a regularly  scheduled  required  prepayment),  prior to the stated  maturity
thereof; or

            (l)   Bankruptcy,   reorganization,    insolvency   or   liquidation
proceedings or other similar proceedings,  or relief under any bankruptcy law or
any  similar  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
sixty (60) 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

            (m) Unless the Company shall have made cash  collateral  payments in
an amount equal to the entire  Outstanding  Principal  Amount of all Debentures,
together with accrued and unpaid  interest  thereon,  in accordance with Section
25(g),  the  Registration  Statement  (as  defined  in the  Registration  Rights
Agreement) is not declared effective by the SEC and available for the sale of at
least all of the Registrable  Securities (as defined in the Registration  Rights
Agreement)  required to be included in such Registration  Statement on or before
January 10, 2004; or

            (n)  the  Security  Agreement,  any  Mortgage  (as  defined  in  the
Securities  Purchase  Agreement) or any other security document,  after delivery
thereof pursuant to the Securities Purchase Agreement, shall for any reason fail
or cease to create a valid and perfected and, except to the extent  permitted by
the terms hereof or thereof,  first  priority lien in favor of the agent for the
benefit of the holders of Debentures on any  collateral  purported to be covered
thereby; or

            (o) the Cash  Collateral  Account Bank shall fail to comply with any
of the terms of the Account Control Agreement;

            (p) at any time  required  to be in full force and effect  under the
Securities Purchase Agreement,  the Letters of Credit shall for any reason cease
to be in full force and effect other than in accordance with their express terms
or any issuer of any of the  Letters of Credit  shall fail to maintain a Minimum
Rating (as defined in the Securities  Purchase Agreement) or fail to perform its
obligations  thereunder  or shall,  in writing,  repudiate  the Letter of Credit
issued by it or deny that its  obligations  thereunder  are valid,  binding  and
enforceable,  and such failure  shall  continue  uncured for a period of fifteen
(15) days after notice from the Holder of such failure;


                                       21


            (q)  the  report  of  the   Company's   auditors  on  the  Company's
consolidated  audited financial  statements for the year ended December 31, 2002
shall have contained any going concern qualification; or

            (r) any material  damage to, or loss,  theft or destruction  of, any
Collateral,  whether or not  insured,  or any strike,  lockout,  labor  dispute,
embargo,  condemnation,  act of God or public  enemy,  or other  casualty  which
causes,   for  more  than  fifteen  (15)  consecutive  days,  the  cessation  or
substantial curtailment of revenue producing activities at any material facility
of the Company or any of its Subsidiaries.

Unless an 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),
upon the  occurrence  of an Event of  Default,  and for so long as such Event of
Default shall be continuing, at the option of and on notice by the Holder to the
Company in writing and in the Holder's sole discretion,  the Holder may consider
this Debenture immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived, anything herein
or in any other  instruments  contained to the contrary  notwithstanding  to the
extent permitted by applicable law (provided,  however, that upon the occurrence
of any Event of Default  described in subsection (g), (h) or (l) above,  without
any notice to the Company or any act by the Holder or the Agent,  this Debenture
shall become due and payable automatically and immediately, without presentment,
demand,  protest or notice of any kind, all of which are expressly waived by the
Company,  anything herein or in any other  instrument  contained to the contrary
notwithstanding  to the extent  permitted by applicable law), and the Holder may
immediately,  and without expiration of any further period of grace, enforce any
and all of the  Holder's  rights  and  remedies  provided  herein,  or under the
Security Agreement, the Mortgages, the Account Control Agreement and the Letters
of Credit or any other  rights or  remedies  afforded by law. In such event this
Debenture  shall  be  redeemed  at a  redemption  price  equal  to  100%  of the
Outstanding Principal Amount of the Debenture,  plus accrued and unpaid interest
on this Debenture.  In addition to the foregoing,  upon an Event of Default, the
rate of interest on this Debenture,  shall, to the maximum extent of the law, be
permanently  increased by two percent  (2%) per annum  (i.e.,  from 6% to 8% per
annum)  commencing  on the  first day of the  thirty  (30) day  period  (or part
thereof) following the Event of Default;  and, solely in the case of an Event of
Default  triggered by a Conversion  Failure,  an additional two percent (2%) per
annum  commencing  on the first day of each of the second and third such  thirty
(30) day periods (or part  thereof);  and an additional  one percent (1%) on the
first  day of  each  consecutive  thirty  (30)  day  period  (or  part  thereof)
thereafter  until this  Debenture has been duly  converted or redeemed as herein
provided;  provided that in no event shall the rate of interest exceed the lower
of 20% or the highest rate permitted by applicable law. The Company shall within
one (1) Business Day notify each Holder of Debentures upon becoming aware of the
occurrence of any Event of Default (whether or not waived by any other Holder of
Debentures)  or of any action taken by any Holder of Debentures  with respect to
the occurrence of any Event of Default.

      16. 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.


                                       22


      17. 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.

      18.  Assignment,  Etc.  The Holder  may,  subject to  compliance  with the
Securities  Purchase  Agreement and to applicable  federal and state  securities
laws,  transfer or assign this Debenture or any portion  thereof and may pledge,
encumber or transfer its rights or interest in and to this Debenture or any part
hereof,  provided,  that such transfer or assignment of this  Debenture does not
result in more than ten (10) holders of the total  Outstanding  Principal Amount
of all Debentures and any such part or portion of this Debenture  constitutes at
least 10% of the  Outstanding  Principal  Amount or such  lesser  amount if such
transfer  involves  the entire  Outstanding  Principal  Amount then held by such
transferor.  Any such  transfer or assignment  shall only be effective  upon the
Company's receipt of written notice thereof. Each such assignee,  transferee and
pledgee  shall have all of the rights of the Holder  under this  Debenture.  The
Company  agrees  that,  subject  to  compliance  with  the  Securities  Purchase
Agreement, after receipt by the Company of written notice of assignment from the
Holder and 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,  transferee or pledgee at the place of payment designated in such
notice.  This Debenture shall be binding upon the Company and its successors and
shall  inure to the  benefit  of the Holder and its  successors  and  registered
assigns.

      19. 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.

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


                                       23


                  If to the Company:

                        Hemispherx Biopharma, Inc.
                        1617 JFK Boulevard
                        Suite 660
                        Philadelphia, PA 19103
                        Telephone: (215) 998-8000
                        Facsimile: (215) 998-1739
                        Attention: Chief Executive Officer

                  With a copy to:

                        Ransom W. Etheridge, Esq.
                        2610 Potters Road
                        Suite 200
                        Virginia Beach, VA  23452
                        Telephone: (757-486-0599
                        Facsimile: (757) 486-0792


            If to a holder, to its address and facsimile number set forth on the
Schedule of Buyers attached to the Securities Purchase Agreement, with copies to
such holder's representatives as set forth on the Schedule of Buyers, or to such
other  address  and/or  facsimile  number  and/or to the attention of such other
person as the  recipient  party has  specified  by written  notice given to each
other party five (5) days prior to the  effectiveness  of such  change.  Written
confirmation  of receipt (A) given by the  recipient  of such  notice,  consent,
waiver or other communication,  (B) mechanically or electronically  generated by
the sender's  facsimile machine containing the time, date,  recipient  facsimile
number and an image of the first page of such  transmission or (C) provided by a
courier or overnight  courier  service shall be rebuttable  evidence of personal
service,  receipt by facsimile or receipt from a nationally recognized overnight
delivery   service  in  accordance   with  clause  (i),  (ii)  or  (iii)  above,
respectively.

      21. Miscellaneous. 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.

      22. Choice of Law and Venue; Waiver of Jury Trial. THIS DEBENTURE SHALL BE
CONSTRUED  UNDER THE LAWS OF THE STATE OF NEW YORK WITHOUT  REGARD TO PRINCIPLES
OF CONFLICTS OF LAW OR CHOICE OF LAW (OTHER THAN SECTION  5-1401 OF THE NEW YORK
GENERAL  OBLIGATIONS  LAW).  The parties hereto hereby agree that all actions or
proceedings  arising  directly or  indirectly  from or in  connection  with this
Debenture  shall be litigated only in the Supreme Court of the State of New York
or the  United  States  District  Court for the


                                       24


Southern District of New York located in New York County,  New York. The parties
hereto consent to the jurisdiction and venue of the foregoing courts and consent
that any  process  or notice of  motion or other  application  to either of said
courts or a judge  thereof may be served inside or outside the State of New York
or the  Southern  District  of New  York  by  registered  mail,  return  receipt
requested,  directed  as  provided  in Section 20 (and  service so made shall be
deemed complete five (5) days after the same has been posted as aforesaid) or by
personal  service or in such other manner as may be permissible  under the rules
of said  courts.  The parties  hereto  hereby waive any right to a jury trial in
connection with any litigation pursuant to this Debenture.

      23. Rule 144.  With a view to making  available to the Holder the benefits
of Rule 144  promulgated  under  the Act  ("Rule  144")  and any  other  rule or
regulation  of the SEC  that  may at any  time  permit  the  Holder  to sell the
underlying  stock of the Company  issuable  upon  conversion  or exercise of the
Debentures  and the  Warrants to the public  without  registration,  the Company
agrees to use its reasonable best efforts to:

            (a) make and keep public information  available,  as those terms are
understood and defined in Rule 144, at all times;

            (b) file  with the SEC in a timely  manner  all  reports  and  other
documents required of the Company under the Act and the Securities  Exchange Act
of 1934, as amended (the "Exchange Act"); and

            (c)  furnish  to  any  Holder,  promptly  upon  request,  a  written
statement by the Company  (provided  true at the time) that it has complied with
the  applicable  reporting and filing  requirements  of the Act and the Exchange
Act, a copy of the most recent  annual or quarterly  report of the Company,  and
copies of such other  reports and  documents (if any) so filed by the Company as
may be reasonably  requested to permit any such Holder to take  advantage of any
rule or  regulation  of the SEC  permitting  the selling of any such  securities
without registration.

      24. Reserved.

      25. Rank; Covenants; Cash Collateral.

            (a)  Definitions.  For  purposes of this  Section 25, the  following
terms shall have the following meanings:

                  (i)  "Acquisition  Buildings"  shall mean the buildings  being
purchased  by the Company in  connection  with the  Interferon  Acquisition  and
located at 783 Jersey  Avenue,  5 Jules Lane,  New Brunswick  Middlesex Co., New
Jersey.

                  (ii)  "Acquisition  Indebtedness"  shall mean any Indebtedness
incurred,  assumed or  guaranteed by the Company or any of its  Subsidiaries  in
respect of the purchase  price for, or in  connection  with the purchase of, any
assets,  business or securities (an "Acquired Business") acquired by the Company
or any  of its  Subsidiaries,  other  than  Indebtedness  incurred,  assumed  or
guaranteed in connection with the Interferon Acquisition.

                  (iii)  "Acquisition  Multiple"  shall  mean,  subject  in  all
respects to the final sentence of Section 25(b)(i) hereof,  (i) in the event the
Acquired Business is not a Qualified  Competitor,  three times the EBITDA of the
Acquired  Business  or (ii) in the event the  Acquired  Business  is a Qualified
Competitor,  four times the EBITDA of the Acquired Business;  provided,


                                       25


however,  that if  prior  to the  closing  of the  acquisition  of any  Acquired
Business under  subsections (i) or (ii) of this definition,  the Company has not
been  furnished with  financial  statements of such Acquired  Business that have
been audited by a nationally  recognized auditing firm, the Acquisition Multiple
shall be two and one half (2 1/2) times the EBITDA of the Acquired Business.

                  (iv) "Biweekly  Revenue Cash  Collateral  Date" shall mean the
15th and last  calendar  day of each month  during the Initial  Cash  Collateral
Period. If any Biweekly Revenue Cash Collateral Date is not a Business Day, then
the Biweekly  Revenue Cash Collateral Date shall be the Business Day immediately
following such Biweekly Revenue Cash Collateral Date.

                  (v) "Cash  Collateral  Date" shall mean each Biweekly  Revenue
Cash Collateral  Date,  Monthly Revenue Cash Collateral  Date, the First Revenue
Milestone Cash  Collateral  Date, the Second Revenue  Milestone Cash  Collateral
Date, the Third Revenue Milestone Cash Collateral Date, the Qualified  Inventory
Financing Date and the Qualified Mortgage Financing Date.

                  (vi) "Company Consolidated  Revenues" shall mean the aggregate
amount of all cash  collected  by the Company and its  Subsidiaries,  including,
without limitation,  cash proceeds from the sales of inventory, cash collections
of accounts  receivable,  cash collections of licensing fees, cash proceeds from
the issuance of all  Indebtedness  (excluding  cash received for the purchase of
the Debentures), but excluding cash received from (a) the issuance of any equity
or equity linked securities of the Company, (b) the Qualified Mortgage Financing
and (c) the Qualified Inventory Financing.

                  (vii)  "EBITDA" shall mean (1) the earnings  before  interest,
income taxes,  depreciation  and  amortization of the Acquired  Business for the
twelve (12) full months immediately preceding the closing date in respect of the
purchase  of the  Acquired  Business  less (2) any capital  expenditures  of the
Acquired Business during such period.

                  (viii) "First Revenue  Milestone Cash  Collateral  Date" shall
mean March 31, 2004.

                  (ix) "First Revenue Milestone Measuring Period" shall mean the
period  commencing on January 1, 2004 and ending on the First Revenue  Milestone
Cash Collateral Date.

                  (x) "First Revenue Milestone Target" shall mean $800,000.00.

                  (xi)  "Initial Cash  Collateral  Period" shall mean the period
commencing on and including April 15, 2004 and ending on and including April 29,
2005.

                  (xii) "Inventory" shall mean, with respect to any Person,  all
goods and merchandise of such Person,  including,  without  limitation,  all raw
materials, work-in-process, packaging, supplies, materials and finished goods of
every  nature  used  or  usable  in  connection  with  the  shipping,   storing,
advertising  or sale  of such  goods  and  merchandise,  whether  now  owned  or
hereafter acquired, and all such other property the sale or other disposition of
which


                                       26


would give rise to an account receivable,  including, without limitation, all of
the items listed on Exhibit B to this Debenture.

                  (xiii) "Lien" shall mean any mortgage,  deed of trust, pledge,
lien (statutory or otherwise), security interest, charge or other encumbrance or
security  or  preferential  arrangement  of  any  nature,   including,   without
limitation, any conditional sale or title retention arrangement, any capitalized
lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security.

                  (xiv) "Monthly  Revenue Cash  Collateral  Date" shall mean the
30th  calendar day of each month during the  Secondary  Cash  Collateral  Period
(except for the month of January  2005,  which shall be the 31st calendar day of
such month and the month of  February,  which shall be the 28th  calendar day of
such month).  If any Monthly Revenue Cash Collateral Date is not a Business Day,
then  the  Monthly  Revenue  Cash  Collateral  Date  shall be the  Business  Day
immediately following such Monthly Revenue Cash Collateral Date.

                  (xv) "Pari Passu Indebtedness" shall mean Indebtedness that is
made  expressly  "pari  passu" in right of  payment  with the  Debentures  in an
aggregate  of  (i)  up  to  an  aggregate  principal  amount  of  $5,000,000  of
Indebtedness,  (ii) up to an additional aggregate principal amount of $5,000,000
of Indebtedness  incurred at any time after the eighteen (18) month  anniversary
of the Original  Issuance  Date,  provided that in order to incur any Pari Passu
Indebtedness pursuant to this clause (ii) the arithmetic average of the Weighted
Average  Price of the  Common  Stock  on each  trading  day  during  the  twenty
consecutive  trading day period prior to the  incurrence  of any such Pari Passu
Indebtedness  under this clause (ii) must equal or exceed 150% of the Conversion
Price then in effect,  (iii) up to an additional  aggregate  principal amount of
$4,000,000 of  Indebtedness  incurred any time after the  Outstanding  Principal
Amount of all  Debentures is less than  $1,000,000;  provided,  that in order to
incur any Pari Passu Indebtedness under this clause (iii) the arithmetic average
of the Weighted Average Price of the Common Stock on each trading day during the
twenty  consecutive  trading day period prior to the incurrence of any such Pari
Passu  Indebtedness  under this  clause  (iii) must equal or exceed  150% of the
Conversion Price then in effect (iv) Acquisition Indebtedness, and (v) any other
indebtedness  of the Company  which the Company and the holders of more than 60%
of the  then  Outstanding  Principal  Amount  of the  Debentures  issued  on the
Original   Issuance  Date  may  hereafter   from  time  to  time  expressly  and
specifically agree in writing shall constitute Pari Passu Indebtedness.

                  (xvi) "Permitted Liens" shall mean:

                        (A) Liens securing all obligations  under the Debentures
and the agreements and instruments entered into in connection therewith;

                        (B) the Qualified Mortgage;

                        (C) the Qualified Inventory Liens;

                        (D) Liens on any Intellectual Property of the Company or
any of its Subsidiaries; and


                                       27



                        (E) Liens securing all  obligations  under the Company's
6% Senior Secured Convertible Debentures Due January 31, 2005 and the agreements
and instruments entered into in connection therewith.

                  (xvii) "Qualified  Competitor" shall mean an Acquired Business
that is competitive with and in the same business with a business of the Company
or any of its Subsidiaries,  where the Company's Board of Directors  determines,
in its reasonable  judgment,  that  substantially  all overhead  expenses of the
Acquired  Business during the trailing twelve months  immediately  preceding the
acquisition of such Acquired  Business are duplicative with overhead expenses of
the Company or any of such  Subsidiaries and such  duplicative  expenses will be
eliminated  within six (6) months  immediately  following  the  purchase  of the
Acquired Business.

                  (xviii)  "Qualified   Indebtedness"   shall  mean  Pari  Passu
Indebtedness that is not evidenced by any certificate, instrument, note or other
agreement that, directly or indirectly, permits or requires such Indebtedness to
be convertible  into or exercisable or exchangeable for Common Stock (other than
Options that may be issued by the Company to the holder(s) of such Indebtedness,
the value of which does not exceed 10% of the principal  amount of  Indebtedness
so incurred, as determined using the Black-Scholes valuation methodology).

                  (xix)  "Qualified  Inventory  Financing"  shall  mean a single
financing  arrangement  pursuant  to which the Company  and/or its  Subsidiaries
obtains  financing  solely through the granting of Liens on Inventory that yield
total net unrestricted  cash proceeds to the Company at the time of the creation
of such Liens of not less than $2,000,000.00.

                  (xx) "Qualified  Inventory Financing Date" shall mean the date
on which the Qualified Inventory Financing is consummated.

                  (xxi)   "Qualified   Inventory  Liens"  shall  mean  Liens  on
Inventory  that are  created or imposed  solely in  connection  with a Qualified
Inventory Financing.

                  (xxii)  "Qualified  Mortgage"  shall  mean a  mortgage  on the
Acquisition  Buildings  that is created or imposed  solely in connection  with a
Qualified Mortgage Financing.

                  (xxiii)  "Qualified  Mortgage  Financing"  shall mean a single
financing arrangement pursuant to which the Company either (i) obtains financing
solely through the granting of Liens on the Acquisition  Buildings or (ii) sells
the Acquisition  Building,  in each case in a transaction  that yields total net
unrestricted  cash  proceeds to the Company at the time of the  creation of such
Liens  or  at  the  time  of  such  sale,  as  applicable,   of  not  less  than
$1,500,000.00.

                  (xxiv) "Qualified Mortgage Financing Date" shall mean the date
on which the Qualified Mortgage Financing is consummated.

                  (xxv) "Secondary Cash Collateral Period" shall mean the period
commencing  on and  including  April 30,  2005 and ending on and  including  the
Maturity Date.

                  (xxvi) "Second Revenue  Milestone Cash Collateral  Date" shall
mean June 30, 2004;  provided  that if such day is not a Business  Day, then the
Second  Revenue  Milestone


                                       28


Cash Collateral Date shall be the Business Day immediately  following the Second
Revenue Milestone Cash Collateral Date.

                  (xxvii) "Second Revenue Milestone Measuring Period" shall mean
the period  commencing  on  January  1, 2004 and  ending on the  Second  Revenue
Milestone Cash Collateral Date.

                  (xxviii)   "Second  Revenue   Milestone   Target"  shall  mean
$1,500,000.00.

                  (xxix) "Third Revenue  Milestone Cash  Collateral  Date" shall
mean December 31 2004; provided that if such day is not a Business Day, then the
Third  Revenue  Milestone  Cash  Collateral  Date  shall  be  the  Business  Day
immediately following the Third Revenue Milestone Cash Collateral Date.

                  (xxx) "Third Revenue  Milestone  Measuring  Period" shall mean
the  period  commencing  on  January  1, 2004 and  ending  on the Third  Revenue
Milestone Cash Collateral Date.

                  (xxxi)   "Third   Revenue   Milestone   Target"   shall   mean
$3,000,000.00.

            (b) Incurrence of Indebtedness.

                  (i) So long as any of the Debentures are  outstanding and cash
collateral  payments  have  not  been  made in an  amount  equal  to the  entire
Outstanding  Principal  Amount and accrued and unpaid interest on all Debentures
pursuant to Section  25(g),  the Company  shall not,  and the Company  shall not
permit any of its Subsidiaries  to, directly or indirectly,  incur or guarantee,
assume  or suffer to exist any  Indebtedness,  other  than (A) the  Indebtedness
evidenced  by the  Debentures  which shall rank  ratably  and equally  with each
other,  (B) Pari  Passu  Indebtedness  that is not  secured by any assets of the
Company or any of its Subsidiaries and that does not provide at any time for the
payment of any principal  thereon until at least 91 days after the Maturity Date
of the Debentures (except for the payment of principal on Qualified Indebtedness
to the extent permitted under Section 25(e)(ii)),  (C) Indebtedness  represented
by trade  payables  incurred by the Company in the ordinary  course of business,
(D) Indebtedness  incurred in connection with a Qualified  Inventory  Financing,
provided that the proceeds of such Qualified  Inventory Financing are applied to
make cash  collateral  payments  on the  Debentures  in the manner  provided  in
Section  25(g)(i)(F)  hereof,  (E)  Indebtedness  incurred in connection  with a
Qualified  Mortgage  Financing,  provided  that the  proceeds of such  Qualified
Mortgage  Financing  are  applied  to  make  cash  collateral  payments  on  the
Debentures  in  the  manner  provided  in  Section   25(g)(i)(G)   hereof,   (F)
Indebtedness that is not secured by any assets or property of the Company or any
of its  Subsidiaries,  is made expressly  subordinate in right of payment to the
Debentures  and  that  does not  provide  at any  time  for the  payment  of any
principal  thereon  until  at  least  91 days  after  the  Maturity  Date of the
Debentures  ("Subordinated  Indebtedness") pursuant to a subordination agreement
containing the provisions attached hereto as Exhibit A executed and delivered by
the  Company  and any  holder of  Subordinated  Indebtedness  to each  holder of
Debentures  as  a  condition  to  the  incurrence  of  such  Indebtedness,   (G)
Indebtedness  incurred,  assumed or guaranteed in connection with the Interferon
Acquisition,  and (H)  Indebtedness  relating to the Company's 6% Senior Secured
Convertible Debentures Due


                                       29


January 31, 2005.  Notwithstanding anything herein to the contrary, no Qualified
Indebtedness may be incurred (but excluding Acquisition  Indebtedness) unless as
a condition to the incurrence of such Indebtedness,  the Company shall have made
cash collateral payments in an aggregate amount of Outstanding  Principal Amount
of all  Debentures as of the date of the  incurrence of such  Indebtedness  (pro
rata among all holders of  Debentures)  in  accordance  with  Section  25(g)(ii)
hereof equal to fifty percent (50%) of the principal  amount of the Indebtedness
so incurred or an amount as  otherwise  required by this  Section 25 (or if such
amount exceeds the remaining  Outstanding  Principal  Amount on all  outstanding
Debentures together with the accrued and unpaid interest thereon, then an amount
equal  to  the  remaining   Outstanding  Principal  Amount  on  all  outstanding
Debentures  together with the accrued and unpaid interest thereon).  The Company
shall file with the SEC on Form 8-K true and  complete  copies of the  financial
statements  of an  Acquired  Business  for which the  purchase  price is paid or
payable in cash and/or cash equivalents and/or Indebtedness  indicating thereon,
among other things, the items comprising the EBITDA of the Acquired Business and
contemporaneously  therewith,  but in no event  prior to the filing of such Form
8-K,  deliver a copy of such financial  statements to each holder of Debentures;
provided, however, that, notwithstanding anything herein to the contrary, if the
Company does not file with the SEC financial statements of any Acquired Business
for which the purchase price is paid or payable in cash and/or cash  equivalents
and/or Indebtedness in the time and manner provided herein, then the Acquisition
Multiple with respect to such Acquired Business shall be deemed zero (0) and the
Company  shall not be entitled to acquire  such  Acquired  Business  unless as a
condition thereto, the Company shall have  contemporaneously with the closing of
the acquisition of such Acquired Business made a cash collateral  payment on the
Outstanding  Principal Amount of the Debentures then outstanding (pro rata among
all holders of  Debentures)  in an amount equal to 100% of the  aggregate  cash,
cash  equivalents and Acquisition  Indebtedness  incurred in connection with the
acquisition  of such  Acquired  Business in  accordance  with Section  25(g)(ii)
hereunder (or if such amount exceeds the remaining  Outstanding Principal Amount
on all  outstanding  Debentures  together  with the accrued and unpaid  interest
thereon,  then an amount equal to the remaining  Outstanding Principal Amount on
all  outstanding  Debentures  together  with the  accrued  and  unpaid  interest
thereon).

                  (ii)  Notwithstanding  the  foregoing,  so  long as any of the
Debentures are outstanding and cash collateral payments have not been made in an
amount equal to the entire  Outstanding  Principal Amount and accrued and unpaid
interest on all Debentures pursuant to Section 25(g), no Pari Passu Indebtedness
or Subordinated  Indebtedness  may be incurred,  directly or indirectly,  by the
Company or any of its Subsidiaries if during the period  commencing on the tenth
(10th)  Business  Day (or in the case of clause (ii) of the  definition  of Pari
Passu Indebtedness, the twentieth (20th) Business Day) immediately preceding the
incurrence of any such Pari Passu Indebtedness or Subordinated  Indebtedness and
ending on and  including the date on which any such Pari Passu  Indebtedness  or
Subordinated  Indebtedness  is incurred  (A) an event  constituting  an Event of
Default or an event that with the passage of time and without  being cured would
constitute  an  Event  of  Default,  has  occurred  and is  continuing,  (B) any
Registration  Statement  that  is  required  to be  effective  pursuant  to  the
Registration  Rights Agreement is not effective and available for the sale of at
least all of the Registrable  Securities (as defined in the Registration  Rights
Agreement)  required to be included in such Registration  Statement or (C) there
has been any Grace  Period (as such term is defined in the  Registration  Rights
Agreement).


                                       30


                  (iii)  If  at  any  time  when  any  of  the   Debentures  are
outstanding and cash  collateral  payments shall not have been made in an amount
equal to the entire  Outstanding  Principal  Amount of the Debentures,  together
with accrued interest thereon, in accordance with Section 25(g)(ii), the Company
shall  purchase  any  Acquired   Business,   whether  in  one  or  a  series  of
transactions,  for an amount of aggregate  consideration  (whenever  paid in the
form of cash,  cash  equivalents or Acquisition  Indebtedness)  that exceeds the
Acquisition  Multiple  for such  Acquired  Business,  (such excess  amount,  the
"Excess Permitted  Aggregate  Consideration"),  the Company shall,  simultaneous
with the closing of the purchase of the Acquired Business,  make cash collateral
payments  in  respect  of an  aggregate  Outstanding  Principal  Amount  of  the
Debentures (pro rata among all holders of Debentures) in accordance with Section
25(g)(ii)  hereof equal to one hundred  percent  (100%) of the Excess  Permitted
Aggregate  Consideration  (or if such amount  exceeds the remaining  Outstanding
Principal  Amount on all  outstanding  Debentures  together with the accrued and
unpaid  interest  thereon,  then an amount  equal to the  remaining  Outstanding
Principal  Amount on all  outstanding  Debentures  together with the accrued and
unpaid interest thereon).

            (c)  Restricted  Payments.  Notwithstanding  anything  herein to the
contrary,  so long as any of the Debentures are  outstanding and cash collateral
payments  have not  been  made in an  amount  equal  to the  entire  Outstanding
Principal  Amount and accrued and unpaid interest on all Debentures  pursuant to
Section  25(g),  the Company  shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly redeem, defease,  repurchase,  repay
or make any  payments  in  respect  of,  by the  payment  of cash or  marketable
securities,  including,  without limitation,  Common Stock (in whole or in part,
whether by way of open market purchases,  tender offers, private transactions or
otherwise),  all or  any  portion  of any  Pari  Passu  Indebtedness,  Qualified
Mortgage Financing,  Qualified Inventory Financing or Subordinated  Indebtedness
of the Company or any of its Subsidiaries,  whether by way of payment in respect
of  principal  of  (or  premium,  if  any)  or  interest  on,  such  Pari  Passu
Indebtedness,  Qualified Mortgage  Financing,  Qualified  Inventory Financing or
Subordinated Indebtedness or otherwise;  provided,  however, that, so long as no
event  constituting,  or that with the passage of time and  without  being cured
would  constitute,  an Event of Default has occurred and is  continuing,  on the
date any of the  following  payments is due or is otherwise  made and subject to
the  terms  and  conditions  of any  subordination  agreement  entered  into  in
connection  with the  issuance  of any  Subordinated  Indebtedness  as  provided
herein, the Company may, without regard to the foregoing limitation:  (i) pay in
cash scheduled  interest  payments,  in each case in the manner set forth in the
original  documentation  governing  such  Pari  Passu  Indebtedness,   Qualified
Mortgage Financing,  Qualified Inventory Financing or Subordinated Indebtedness,
at an annual  rate not to exceed (A) 10% per  annum,  if such  interest  rate is
fixed,  or (B) the prime rate plus two percent  (2%),  if such  interest rate is
floating,  of  such  Pari  Passu  Indebtedness,  Qualified  Mortgage  Financing,
Qualified  Inventory Financing or Subordinated  Indebtedness,  and (ii) make any
principal  payments when due on any Qualified  Indebtedness at any time prior to
the two-year anniversary of the Original Issuance Date; provided,  however, that
the Company may not make any such  principal  payments  unless as a condition to
each time any such Qualified  Indebtedness is incurred,  other than  Acquisition
Indebtedness,  (including each time any Qualified Indebtedness is incurred under
a revolving  credit  facility or  otherwise),  the Company  shall have made cash
collateral  payments in an aggregate  amount of Outstanding  Principal Amount of
all Debentures  then  outstanding at the time such  Qualified  Indebtedness  was
incurred (pro rata among all holders of Debentures)  in accordance  with Section
25(g)(ii)  hereof equal to fifty


                                       31


percent (50%) of the principal amount of the Qualified Indebtedness so incurred,
it being  understood and agreed that, for the avoidance of doubt, if the Company
has  not  satisfied  its  cash  collateral  payment  obligations  under  Section
25(g)(ii) in connection with the incurrence of any such Qualified  Indebtedness,
the Company may not make any of the principal payments otherwise permitted under
this subsection (ii).

            (d)  Restrictions  on Liens.  So long as any of the  Debentures  are
outstanding and cash  collateral  payments have not been made in an amount equal
to the entire  Outstanding  Principal  Amount and accrued and unpaid interest on
all Debentures  pursuant to Section 25(g), the Company shall not create,  incur,
assume or suffer to exist, or permit any of its  Subsidiaries to create,  incur,
assume or suffer to exist, any Lien upon or with respect to any of its assets or
properties,  whether now owned or  hereafter  acquired;  file or suffer to exist
under  the  Uniform  Commercial  Code  or  any  similar  law or  statute  of any
jurisdiction, a financing statement (or the equivalent thereof) that names it or
any of its  Subsidiaries  as  debtor;  sign or  suffer  to  exist  any  security
agreement  authorizing  any  secured  party  thereunder  to file such  financing
statement  (or the  equivalent  thereof);  sell any of its  property  or  assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets  (including sales of accounts  receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer,  or permit any
of its Subsidiaries to assign or otherwise transfer,  any account or other right
to receive income; other than, as to all of the above, Permitted Liens;

            (e) Restricted Investments.

                  (i)  Except as  provided  in  Section  4(v) of the  Securities
Purchase  Agreement and except for cash held by the Company's Belgian Subsidiary
in connection  with the Belgian  Contribution,  so long as any of the Debentures
are  outstanding  and cash  collateral  payments have not been made in an amount
equal to the entire Outstanding Principal Amount and accrued and unpaid interest
on all Debentures pursuant to Section 25(g), the Company shall not and shall not
permit any of its Subsidiaries  to, directly or indirectly,  deposit or hold any
cash,  securities,  certificates of deposit,  investments or other funds or cash
equivalent  in any  account  for which the Agent  has not  executed  an  account
control  agreement and obtained a perfected  first  priority  security  interest
thereover.

                  (ii) So long as any of the Debentures are outstanding and cash
collateral  payments  have  not  been  made in an  amount  equal  to the  entire
Outstanding  Principal  Amount and accrued and unpaid interest on all Debentures
pursuant to Section 25(g), the Company shall not,  directly or indirectly,  make
or commit or agree to make any loan,  advance,  guarantee of obligations,  other
extension of credit or capital  contributions to, or hold or invest in or commit
or agree to hold or invest in, or  purchase  or  otherwise  acquire or commit or
agree to purchase or otherwise  acquire any shares of the capital stock,  bonds,
notes, debentures or other securities of, or make or commit or agree to make any
other  investment  in,  any  other  Person  (including,  without  limitation,  a
Subsidiary),  or purchase or own any futures contract or otherwise become liable
for the  purchase or sale of currency or other  commodities  at a future date in
the nature of a futures contract,  or otherwise  transfer any cash,  property or
other assets to any Subsidiary,  or permit any of its  Subsidiaries to do any of
the foregoing,  other than in connection  with (i) the  Interferon  Acquisition,
(ii) an  acquisition  of, or  investment  in, the assets or capital stock of any
other  Person  by the  Company  or any of  its  Subsidiaries  for  consideration


                                       32


consisting  solely  of  shares  of  Common  Stock  that are not  subject  to any
repurchase,  retirement  or  redemption  obligation of the Company or any of its
Subsidiaries (a "Stock  Acquisition")  and (iii) the contribution by the Company
to its Belgian  Subsidiary  of not more than  $25,000 in the  aggregate  for the
payment of ordinary course business expenses (the "Belgian Contribution").

            (f) Restrictions on Asset Sales and Purchases. So long as any of the
Debentures are outstanding and cash collateral payments have not been made in an
amount equal to the entire  Outstanding  Principal Amount and accrued and unpaid
interest on all Debentures  pursuant to Section 25(g), the Company shall not and
shall not permit any of its  Subsidiaries  to convey,  sell,  lease or sublease,
transfer or  otherwise  dispose of,  whether in one  transaction  or a series of
related  transactions,  all or any part of its  business,  property  or  assets,
whether now owned or hereafter  acquired (or agree to do any of the  foregoing),
other  than,  so long as no event  constituting  an Event of Default or an event
that with the passage of time and without being cured would  constitute an Event
of Default,  has occurred and is continuing at the time of such sale,  (i) sales
of  Intellectual  Property,  (ii) sales of Inventory  in the ordinary  course of
business (iii) or as otherwise expressly permitted under this Debenture. So long
as any of the Debentures are outstanding  and cash collateral  payments have not
been made in an amount  equal to the  entire  Outstanding  Principal  Amount and
accrued and unpaid  interest on all Debentures  pursuant to Section  25(g),  the
Company  shall not and shall not permit any of its  Subsidiaries  to purchase or
otherwise   acquire,   whether  in  one  transaction  or  a  series  of  related
transactions,  all or  substantially  all of the  assets of any  Person  (or any
division thereof), other than in connection with (A) the Interferon Acquisition,
(B)  the  incurrence  of  Acquisition   Indebtedness  to  the  extent  permitted
hereunder,  (C)  a  Qualified  Inventory  Financing,  (D) a  Qualified  Mortgage
Financing or (E) a Stock Acquisition.

            (g) Cash Collateral.

                  (i) Unless and until such time as the Company  shall have made
cash collateral  payments in respect of the entire Outstanding  Principal Amount
of this  Debenture,  together  with  accrued and unpaid  interest  thereon,  the
Company  shall make cash  collateral  payments in  accordance  with this Section
25(g) in  respect  of a  portion  of the  Outstanding  Principal  Amount of this
Debenture,  together with accrued and unpaid  interest  thereon,  in cash and/or
Common Stock (as provided in Section 25(g)(ii) and (iii)) as follows:

                        (A) on each Biweekly  Revenue Cash Collateral  Date, the
Company  shall make cash  collateral  payments  in  respect  of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount equal to the product derived by multiplying (i) .5 by (ii) the Company
Consolidated  Revenues for the period  commencing on the date of the immediately
preceding  Biweekly Revenue Cash Collateral Date (or the Original Issuance Date,
in the case of the first  Biweekly  Revenue Cash  Collateral  Date)  through the
Business  Day  immediately   preceding  the  applicable  Biweekly  Revenue  Cash
Collateral Date;

                        (B) on each Monthly  Revenue Cash  Collateral  Date, the
Company  shall make cash  collateral  payments  in  respect  of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount equal to the greater of (i) the product  derived by multiplying (a) .1
by (b) the portion of the  Outstanding  Principal  Amount of all  Debentures and
accrued and unpaid interest thereon for which cash collateral  payments have


                                       33


not been made  under  Section  25(g) as of March 31,  2004 and (ii) the  product
derived by multiplying (a) .5 by (b) the Company  Consolidated  Revenues for the
period commencing on the date of the immediately  preceding Monthly Revenue Cash
Collateral Date (or April 1, 2004, in the case of the first Monthly Revenue Cash
Collateral  Date) through the Business Day immediately  preceding the applicable
Monthly Revenue Cash Collateral Date;

                        (C) on the First Revenue Milestone Cash Collateral Date,
the Company shall make cash  collateral  payments in respect of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount  equal to the sum of (i)  $400,000  and (ii) the  product  derived  by
multiplying (X) .8 by (Y) the amount, if any, by which the Company  Consolidated
Revenues during the First Revenue  Milestone  Measuring Period exceeds the First
Revenue Milestone Target;

                        (D) on the  Second  Revenue  Milestone  Cash  Collateral
Date,  the  Company  shall  make cash  collateral  payments  in  respect  of the
Outstanding  Principal Amount of all Debentures,  together with accrued interest
thereon,  in an  amount  equal  to the  excess,  if  any,  of (i) the sum of (a)
$750,000 and (b) the product derived by multiplying (X) .8 by (Y) the amount, if
any,  by which the  Company  Consolidated  Revenues  during the  Second  Revenue
Milestone  Measuring Period exceeds the Second Revenue  Milestone  Target,  over
(ii) the cumulative  amount of cash  collateral  payments  (including the dollar
value  attributed to any such  payments made in the form of Repayment  Shares in
accordance with the provisions of Section 25(g)(iii)) that have been made by the
Company prior to the Second Revenue  Milestone Cash  Collateral Date pursuant to
Sections 25(g)(i)(A) and 25(g)(i)(C) hereof;

                        (E) on the Third Revenue Milestone Cash Collateral Date,
the Company shall make cash  collateral  payments in respect of the  Outstanding
Principal Amount of all Debentures,  together with accrued interest thereon,  in
an amount equal to the excess,  if any, of (i) the sum of (a) $1,500,000 and (b)
the product  derived by multiplying  (X) .8 by (Y) the amount,  if any, by which
the Company  Consolidated  Revenues during the Third Revenue Milestone Measuring
Period  exceeds the Third Revenue  Milestone  Target,  over (ii) the  cumulative
amount of cash collateral payments (including the dollar value attributed to any
such  payments  made in the form of  Repayment  Shares  in  accordance  with the
provisions  of Section  25(g)(iii))  that have been made by the Company prior to
the  Third  Revenue   Milestone  Cash   Collateral  Date  pursuant  to  Sections
25(g)(i)(A), 25(g)(i)(C) and 25(g)(i)(D) hereof;

                        (F) on the Qualified  Inventory  Financing Date, subject
to Section 28(d), the Company shall make cash collateral  payments in respect of
the  Outstanding  Principal  Amount of all  Debentures,  together  with  accrued
interest thereon, in an amount an amount equal to $2,000,000.00; and

                        (G) on the Qualified Mortgage Financing Date, subject to
Section 28(c), the Company shall make cash collateral payments in respect of the
Outstanding  Principal Amount of all Debentures,  together with accrued interest
thereon, in an amount equal to $1,500,000.00.

                  (ii) On each  Cash  Collateral  Date (and any date for which a
cash  collateral  payment is required  under this Section 25), the Company shall
irrevocably  deposit,  or


                                       34


cause to be irrevocably  deposited into the Cash Collateral Account, the portion
of the total  Outstanding  Principal  Amount of all  Debentures  and accrued and
unpaid interest  thereon for which cash  collateral  payments are required to be
made in accordance  with Section  25(g)(i) (or any other provision of Section 25
requiring cash collateral payments),  subject to Section 25(g)(iii),  in cash in
U.S. Dollars to secure payment of the principal of, premium,  if any, penalties,
if any, and interest due on the outstanding Debentures,  pursuant to the Account
Control  Agreement  and such other  written  agreements  and other  arrangements
satisfactory  to the holders of 60% of the Outstanding  Principal  Amount of all
Debentures issued on the Original  Issuance Date then outstanding,  which shall,
among other  things,  confirm that the funds  deposited  in the Cash  Collateral
Account and the  proceeds of any letter of credit  issued  shall be subject to a
perfected first priority security interest in favor of the Agent for the benefit
of the holders of Debentures.

                  (iii)  Notwithstanding  anything in Section  25(g)(ii) hereof,
but  subject to  Sections  11 and 26 hereof,  (A) on each Cash  Collateral  Date
relating to a cash  collateral  payment under Section  25(g)(i)(A),  the Company
shall make a payment by way of delivery of 25,000  fully paid and  nonassessable
shares of Common  Stock (as  equitably  adjusted for any stock  dividend,  stock
split or other similar transaction and pro rata among all holders of Debentures)
and (B) on each Cash Collateral Date relating to a cash collateral payment under
Section  25(g)(i)(B),  the  Company  shall make a payment by way of  delivery of
50,000  fully  paid and  nonassessable  shares  of Common  Stock  (as  equitably
adjusted for any stock  dividend,  stock split or other similar  transaction and
pro rata among all holders of Debentures),  in each case delivered to the holder
in lieu of cash for such  amount (it being  understood  and agreed  that (x) the
remaining balance of such payments,  if any, shall be paid in cash in accordance
with Section  25(g)(ii)  above and (y)  irrespective of whether the value of the
shares  of  Common  Stock  payable  under  clauses  (A) or (B) of  this  Section
25(g)(iii) exceeds the amount otherwise due under Section 25(g)(i)(A) or Section
25(g)(i)(B),  as  applicable,  the  Company  shall  issue the full amount of the
25,000 or 50,000 shares of Common Stock,  as applicable,  on the applicable Cash
Collateral Date and the value of the additional  shares of Common Stock, if any,
delivered  to the holder  that  exceed the amount  required to be paid under the
applicable  subsection  of this Section  25(g) shall be deemed to be a permitted
prepayment of this  Debenture as provided in the final  sentence of this Section
25(g)(iii))  represented by duly executed stock  certificates  registered in the
name of the holder or its designee (the "Repayment  Shares") (or, in the case of
a public resale of such  Repayment  Shares in accordance  with the provisions of
the  Irrevocable  Transfer  Agent  Instructions,  provided the Transfer Agent is
participating  in The DTC Fast  Automated  Securities  Transfer  Program and, if
required by DTC, the holder provides a customary  representation  letter to DTC,
upon the request of the holder, credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's  designee's  balance
account with DTC through its Deposit  Withdrawal Agent  Commission  system) with
each  Repayment  Share  being  ascribed a valued for  purposes  of this  Section
25(g)(iii)  equal to the  product  derived  by  multiplying  (A) .825 by (B) the
arithmetic  average of Weighted  Average  Prices of the Common Stock on the five
consecutive  Business Days ending on and including the Business Day  immediately
preceding the applicable Cash Collateral Date (the "Equity Collateral Conversion
Rate") provided,  however,  that (x) in no event may the Company pay any portion
of a cash collateral  payment  obligation in Repayment  Shares if a Registration
Statement  is not then  effective  and  available  for the  resale of all of the
Repayment  Shares on the applicable  Cash  Collateral Date or each date which is
within 10 Business  Days prior to such Cash  Collateral


                                       35


Date,  in which case the full amount of such  payments  shall instead be made in
cash in accordance with Section  25(g)(ii) and (y) in the event the Company does
not have a sufficient  number of Repayment  Shares  reserved and  available  for
issuance  pursuant  to this  Section  25(g)(iii),  the  Company  shall issue the
maximum  number of Repayment  Shares that are available  for issuance,  pro rata
among all holders of  Debentures,  and the balance of such payment shall instead
be made in cash in accordance  with Section  25(g)(ii)  hereof.  Cash collateral
payments  validly  made in the  form of  Repayment  Shares  under  this  Section
25(g)(iii) shall be deemed prepayments of (i) first, accrued and unpaid interest
on  the  Outstanding  Principal  Amount  of  this  Debenture  and  (ii)  second,
Outstanding Principal Amount of this Debenture.

                  (iv) The Company  covenants  and agrees that it shall make all
calculations,   including,  without  limitation,  all  calculations  of  Company
Consolidated  Revenues,  necessary to determine the amounts to be paid from time
to time under this  Section  25(g) in strict  accordance  with the terms of this
Agreement.  The Company  further  covenants and agrees that it shall prepare and
publish its  quarterly  and annual  earnings  releases and  quarterly and annual
reports  filed  with the SEC with  sufficient  detail so that the holder of this
Debenture  shall be able to  determine  and verify  solely from the  information
contained therein the amount of Company Consolidated  Revenues used to calculate
amounts to be paid from time to time under this  Section  25(g) and to reconcile
the amount of Company Consolidated Revenues with the amounts actually paid under
this Section 25(g).  If any holder of Debentures  disputes any  calculations  of
Company Consolidated Revenues set forth in or omitted from any public release or
SEC filing that covers any period relevant for the determinations required under
this Section  25(g),  such holder shall  deliver  written  notice to the Company
within ten  Business  Days of the  publication  of such  release or SEC  filing,
describing  in  reasonable  detail the basis for such  dispute  (and the Company
shall promptly deliver such notice to all other holders). If the Company and the
disputing  holder(s) of Debentures are unable to resolve any such dispute within
two Business Days of the Company's receipt of notice thereof,  the Company shall
within two (2)  Business  Days  submit  the  disputed  matters to the  Company's
independent,  outside  accountant.  The Company  shall cause the  accountant  to
perform  the  determinations  or  calculations  and notify the  Company  and the
holders of the  results no later  than ten (10)  Business  Days from the time it
receives  the  disputed   determinations  or  calculations.   Such  accountant's
determination,  as the case may be,  shall be binding  upon all  parties  absent
manifest  error.  The  Company  shall bear all costs,  fees and  expenses of the
accountant in rendering any such determinations.

                  (v) On each Cash  Collateral  Date, the Company  covenants and
agrees to execute and deliver a completed Cash Collateral Accounting Certificate
in the form attached hereto as Exhibit C (the "Cash Collateral  Certificate") by
facsimile  and first  class  mail to the Person  designated  on the form of Cash
Collateral  Certificate  (or such other  Person or Persons as the holders of not
less  than  60% of the then  Outstanding  Principal  Amount  of  Debentures  may
designate in writing to the Company), which shall be certified to each holder of
Debentures as true and correct by the Chief Executive Officer or Chief Financial
Officer of the  Company.  THE COMPANY  ACKNOWLEDGES  AND AGREES THAT IN NO EVENT
SHALL IT OR ANY  PERSON ON THE  COMPANY'S  BEHALF  DELIVER  ANY CASH  COLLATERAL
CERTIFICATE  TO ANY HOLDER OF  DEBENTURES  WITHOUT  THE  EXPRESS  PRIOR  WRITTEN
CONSENT OF SUCH HOLDER.


                                       36


                  (vi) All  payments  by the Company  pursuant  to this  Section
25(g),  whether in the form of cash or Repayment Shares,  shall be made pro rata
among all Debentures.

            (h) Conflicts.  In the event there is any conflict among  provisions
of this Section 25 as to the amount of any cash collateral  payment  required to
be paid by the Company into the Cash Collateral Account, the provision requiring
the Company to pay the greater amount shall in all instances control.

      26. Limitation on Number of Conversion  Shares.  The Company (1) shall not
be obligated to issue Conversion  Shares upon conversion of this Debenture,  (2)
shall not be permitted  to issue  Interest  Shares (but instead  shall make Cash
Interest Payments) and (3) shall not be permitted to issue Repayment Shares (but
instead  shall make cash  collateral  payments  in cash) to the extent  that the
issuance of such  shares of Common  Stock would cause the Company to exceed that
number of shares  of  Common  Stock  which  the  Company  may issue  under  this
Debenture (the "Exchange Cap") without breaching the Company's obligations under
the rules or regulations of the Principal  Market,  except that such  limitation
shall  not apply in the event  that the  Company  obtains  the  approval  of its
stockholders  as  required by the  Principal  Market (or any  successor  rule or
regulation)  for issuances of Common Stock in excess of such amount.  Until such
approval is obtained,  the holder of this  Debenture  shall not be issued,  upon
conversion of this  Debenture,  Conversion  Shares in an amount greater than the
difference  between (i) the product of (x) the Exchange Cap amount multiplied by
(y) a fraction,  the  numerator of which is the  aggregate  principal  amount of
Debentures issued to such Holder pursuant to the Securities  Purchase  Agreement
and the  denominator  of  which is the  aggregate  principal  amount  of all the
Debentures issued to all Debenture  holders pursuant to the Securities  Purchase
Agreement  and (ii) the sum of (A) the aggregate  number of Interest  Shares and
Repayment  Shares issued to the holder of this  Debenture  (and all  predecessor
holders)  as of the date of such  conversion  plus (B) the  aggregate  number of
shares  of  Common  Stock  issued  to the  holder  of this  Debenture  (and  all
predecessor  holders) upon the exercise of any Warrants held by such holder (and
all predecessor holders) as of the date of such conversion (such difference, the
"Cap  Allocation  Amount").  If at any time  when the  Holder  shall  deliver  a
Conversion  Notice  pursuant to Section 4 hereof the Company shall be prohibited
pursuant to the provisions of this Section 26 from issuing all or any portion of
the Conversion  Shares  issuable  pursuant to such Conversion  Notice,  then the
Company shall pay in immediately available funds to the holder of this Debenture
within two (2) Business Days of the date of delivery of such Conversion  Notice,
an amount in cash  equal to the  product  of (X) the  number of shares of Common
Stock which could not be issued by virtue of the  limitations  contained in this
Section 26  multiplied  by (Y) the  average of the  Closing  Sale  Prices of the
Common  Stock on each of the five (5) trading  days ending on the third  trading
day  immediately  preceding  the date the date of  delivery  of such  Conversion
Notice.  The Outstanding  Principal Amount of this Debenture shall be reduced by
an amount equal to the Outstanding Principal Amount of this Debenture designated
in  the  Conversion  Notice  that  could  not  be  converted  by  virtue  of the
limitations  set forth in this  Section  26 and for which the  Company  has made
payment pursuant to the immediately preceding sentence.

      27. Taxes.

            (a) The Company shall pay any and all documentary,  stamp,  transfer
(but only in respect


                                       37


of the  registered  holder  thereof) and other similar taxes that may be payable
with respect to the issuance and delivery of Common Stock upon the conversion of
Debentures; provided, however, that the Company shall not be required to pay any
tax that may be  payable in respect  of any  transfer  involved  in the issue or
delivery of Common  Stock or other  securities  or property in a name other than
that of the registered  holder of this Debenture to be converted and such holder
shall pay such amount, if any, to cover any applicable transfer or similar tax.

            (b) The Company  shall be  permitted  to  withhold  from any amounts
payable to a Debenture  holder or a holder of Common Stock any taxes required by
law to be  withheld  from such  amount.  If the  Company  shall be  required  to
withhold or deduct any tax, levy or other governmental charge, excluding (A) net
income taxes, franchise taxes, or taxes imposed on or measured by net income (or
overall  gross  receipts,  to the extent such tax is imposed in lieu of a tax on
net income by a  jurisdiction  that does not impose any tax based on or measured
by net  income)  on any  Debenture  holder  by the  jurisdiction  in which  such
Debenture holder is organized or any other  jurisdiction in which such Debenture
holder would be subject to tax without regard to the  transactions  contemplated
hereby  and (B)  U.S.  Federal  withholding  taxes  (unless  such  U.S.  Federal
withholding  taxes would not be imposed but for a change in or  amendment to the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
or any  other  administrative  authority  thereunder  or any tax  treaty  or the
release or promulgation of any judicial decision relating thereto, in each case,
on or after the date such Debenture holder acquires a Debenture (each, a "Change
in Law")) (all such non-excluded  taxes,  levies or other governmental  charges,
"Taxes")  from any  payment  of  interest,  or any  accrual  of  original  issue
discount,  for U.S.  Federal  income tax  purposes  made  hereunder or under any
Debenture  to or for the benefit of any  Debenture  holder,  then (A) the amount
payable  shall be  increased  by the amount  necessary  so that after making all
required deductions and withholdings (including deductions and withholdings with
respect to additional  amounts  payable under this Section 27(b)) such Debenture
holder shall  receive an amount equal to the amount it would have received if no
such deduction or withholding of Taxes had been required,  (B) the Company shall
make such deduction or withholding and (C) the Company shall pay the full amount
deducted to the appropriate governmental authority in accordance with applicable
law. If any Debenture holder is organized under the laws of a jurisdiction other
than the United  States,  any State thereof or the District of Columbia  (each a
"Non-U.S.  Debenture  Holder"),  it shall  deliver to the  Company two copies of
either  (A)  U.S.  Internal  Revenue  Service  Form  W-8BEN  (claiming  complete
exemption from U.S. Federal  withholding tax under an income tax treaty), or any
successor form; (B) U.S. Internal Revenue Service Form W-8ECI (claiming complete
exemption from U.S.  Federal  withholding  tax because the income is effectively
connected with a U.S. trade or business), or any successor form; (C) in the case
of a Non-U.S.  Debenture Holder claiming exemption from U.S. Federal withholding
tax under  Section  871(h) or 881(c) of the Code,  with  respect to  payments of
"portfolio  interest," U.S. Internal Revenue Service Form W-8BEN  (certifying as
to beneficial  ownership),  or any successor form, and a certificate in form and
substance  reasonably  acceptable to the Company representing that such Non-U.S.
Debenture  Holder is not a "bank" for purposes of Section 881(c) of the Code, is
not a 10-percent  shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Company and is not a "controlled  foreign  corporation"  related to
the Company (within the meaning of Section  864(d)(4) of the Code); or (D) other
applicable form, certificate or document prescribed by the U.S. Internal Revenue
Service  certifying  as to such Non-U.S.  Debenture  Holder's  entitlement  to a
complete  exemption from U.S.  Federal  withholding  tax, as applicable,  in all
cases such forms and other documents being properly  completed and duly executed
by such Non-U.S.  Debenture


                                       38


Holder claiming complete exemption from U.S. Federal withholding tax on payments
of interest (or of original issue discount) for U.S. Federal income tax purposes
by the Company under the  Debentures.  Each Debenture  holder and each holder of
common stock that is organized  under the laws of a jurisdiction  other than the
United  States,  any State thereof or the District of Columbia (each a "Non-U.S.
Equity Holder") also shall deliver to the Company, to the extent legally able to
do so,  with  respect to  payments  of  dividends  for U.S.  Federal  income tax
purposes by the Company,  if applicable,  two copies of either (A) U.S. Internal
Revenue Service Form W-8BEN  (claiming a reduction of U.S.  Federal  withholding
tax under an applicable  income tax treaty,  if any), or any successor form, (B)
U.S. Internal Revenue Service Form W-8ECI (claiming complete exemption from U.S.
Federal withholding tax because the income is effectively  connected with a U.S.
trade or  business),  or any  successor  form,  or (C)  other  applicable  form,
certificate  or  document  prescribed  by  the  U.S.  Internal  Revenue  Service
certifying as to such Non-U.S. Equity Holder's entitlement to an exemption from,
or a reduction  of, U.S.  Federal  withholding  tax on payments of dividends for
U.S.  Federal income tax purposes by the Company,  as  applicable,  in all cases
such forms and other  documents  being  properly  completed and duly executed by
such Non-U.S.  Equity Holder. In addition, each Debenture holder and each holder
of Common Stock that is not otherwise  exempt from "back-up  withholding"  shall
deliver to the Company two properly completed and duly executed copies of either
(A) U.S.  Internal Revenue Service Form W-8BEN,  or any successor form, (B) U.S.
Internal Revenue Service Form W-8ECI,  or any successor form, (C) U.S.  Internal
Revenue Service Form W-9, or any successor form, or (D) other  applicable  form,
certificate or document  prescribed by the U.S.  Internal  Revenue  Service,  as
applicable,  in each case  indicating  that such  Debenture  holder or holder of
Common Stock is not subject to "back-up withholding" for U.S. Federal income tax
purposes.  The forms and other  documents  required to be delivered  pursuant to
this Section 27(b) shall be delivered  (A) on or prior to the Original  Issuance
Date and (B) from time to time thereafter if within ten (10) Business Days after
receipt  of a  written  request  therefor  by the  Company.  In  addition,  each
Debenture  holder and each  holder of Common  Stock  shall  promptly  notify the
Company at any time it determines  that it is no longer in a position to provide
any  previously  delivered (or requested)  form,  document or certificate to the
Company,  including  as a  result  in whole  or in part  from a  Change  in Law;
provided,  however, that the failure to provide such notice shall not affect any
Debenture holder's right to any additional amounts hereunder.

            (c) Notwithstanding anything to the contrary in Section 27(b) above,
the Company shall not be required to pay any additional  amount to any Debenture
holder  pursuant to the preceding  paragraph to the extent the Tax in respect of
which such  additional  amount would  otherwise  be payable  would not have been
imposed  but for the  failure  of such  Debenture  holder  to  comply  with  its
obligations under such paragraph; provided, however, that the failure to provide
the applicable form, document or certificate pursuant to the preceding paragraph
as provided in the notice required by the preceding paragraph resulting in whole
or in part from a Change in Law shall not affect such  Debenture  holder's right
to any additional amounts hereunder.

      28. Security.

            (a) The Debentures  shall be secured to the extent and in the manner
provided in the Security Agreement.


                                       39


            (b) The Company  acknowledges and agrees that all amounts  deposited
in  the  Cash  Collateral  Account  (a)  shall  constitute  Collateral  for  all
obligations of the Company under the Debentures (the "Obligations"). At any time
during the  continuance  of an Event of Default,  the Agent may require the Cash
Collateral  Account  Bank to transfer  all amounts  held in the Cash  Collateral
Account to the Agent for application to the Obligations pursuant to the terms of
the Debentures.

            (c) In the  event  that  the  Company  desires  to  enter  into  the
Qualified Mortgage  Financing,  the holder, by its acceptance of this Debenture,
agrees  to cause  the  Agent  to  enter  into a  written  agreement,  reasonably
satisfactory  to  the  Agent,  providing  that,  upon  the  consummation  of the
Qualified  Mortgage  Financing and the Company  making the deposit into the Cash
Collateral  Account  of not less  than  $1,500,000  in cash in  accordance  with
Sections  25(g)(i)(G)  and  25(g)(ii),  the Agent shall  release its Lien on the
Acquisition  Buildings  and shall  execute  and deliver to the Company or to the
provider of such  financing or the purchaser of the  Acquisition  Buildings such
release  or  reconveyance  instruments  and  such  other  documents  as shall be
reasonably  necessary  to  release  the  Lien of the  Agent  on the  Acquisition
Buildings  pursuant to the Mortgages,  in each case at the sole cost and expense
of the Company and without any  warranty or  representation  by, or recourse to,
the Agent or the holder of this Debenture.

            (d) In the  event  that  the  Company  desires  to  enter  into  the
Qualified Inventory Financing,  the holder, by its acceptance of this Debenture,
agrees  to cause  the  Agent  to  enter  into a  written  agreement,  reasonably
satisfactory  to  the  Agent,  providing  that,  upon  the  consummation  of the
Qualified  Inventory  Financing and the deposit into the Cash Collateral Account
of not less than $2,000,000 in cash in accordance with Sections  25(g)(i)(F) and
25(g)(ii),  the Agent shall  release its Lien on the Inventory and shall execute
and  deliver  to the  Company or to the  provider  of such  financing  such UCC3
Amendments  (or  authorizations  to file the same) and such other  documents  as
shall be reasonably  necessary to release the Lien of the Agent on the Inventory
pursuant to the Security Agreement, in each case at the sole cost and expense of
the Company and without any warranty or  representation  by, or recourse to, the
Agent or the holder of this Debenture.

            (e) If at any time the Company  shall have  deposited  into the Cash
Collateral  Account an amount equal to the entire  Outstanding  Principal Amount
and accrued and unpaid interest on all Debentures pursuant to Section 25(g), the
holder,  by its acceptance of this  Debenture,  agrees to release,  or cause the
Agent to release,  its Lien on all  Collateral,  other than the Cash  Collateral
Account,  and shall  execute  and  deliver to the Company (or cause the Agent to
execute and deliver to the Company) such release or reconveyance instruments and
such other  documents as shall be  reasonably  necessary to release the Liens on
the Collateral (other than the Cash Collateral Account) in each case at the sole
cost and expense of the Company and without any warranty or  representation  by,
or recourse to, the Agent or the holder of this Debenture.


                                       40


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

Dated:  July 10, 2003

                                                HEMISPHERX BIOPHARMA, INC.

                                                By:  /s/ William A. Carter
                                                     ---------------------------
                                                      Name:
                                                      Title:
                                                Print Address:
                                                Telephone:
                                                Facsimile:

ATTEST

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


                                       41


                                    EXHIBIT I

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

                                CONVERSION NOTICE
                                       FOR
            6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JULY 31, 2005

      The undersigned,  as Holder of the 6% Senior Secured Convertible Debenture
Due July 31, 2005 of HEMISPHERX BIOPHARMA,  INC. (the "Company"),  No. _, in the
outstanding  principal  amount of $_______ (the  "Debenture"),  hereby elects to
convert  $_______ of the outstanding  principal amount of the Debenture (as well
as accrued and unpaid  interest)  into shares of Common Stock,  par value $0.001
per share (the "Common  Stock"),  of the Company  according to the conditions of
the Debenture, as of the date written below.

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

      Principal Amount of Debentures to be converted:
                                                     ---------------------------

      Accrued Interest to be converted:
                                       -----------------------------------------

      Tax ID Number (If applicable):
                                     -------------------------------------------

Please confirm the following information:
                                         ---------------------------------------

      Conversion Price:
                       ---------------------------------------------------------

      Number of shares of Common Stock to be issued:
                                                    ----------------------------

      Is the  Variable  Price being  relied on  pursuant to Section  6(c) of the
Debenture? (check one) YES ____ No ____




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

            Issue to:
                     -----------------------------------------------------------

            Address:
                    ------------------------------------------------------------

            Telephone Number:
                             ---------------------------------------------------

            Facsimile Number:
                             ---------------------------------------------------

            Authorization:
                          ------------------------------------------------------

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

            Title:
                  --------------------------------------------------------------

            Dated:
            Account Number (if electronic book entry transfer):
                                                               -----------------

            Transaction Code Number (if electronic book entry transfer):
                                                                        --------

[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]




                                 ACKNOWLEDGMENT

      The Company hereby  acknowledges this Conversion Notice and hereby directs
[Transfer  Agent] to issue the above indicated  number of shares of Common Stock
in accordance with the Irrevocable  Transfer Agent  Instructions  dated July 10,
2003 from the Company and acknowledged and agreed to by [Transfer Agent].

                                                HEMISPHERX BIOPHARMA, INC.


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




Account Control Agreement......................................................3
Acquiring Entity..............................................................16
Act............................................................................2
Agent..........................................................................3
Approved Stock Plan............................................................3
ASE............................................................................3
Bloomberg......................................................................3
Business Day...................................................................3
Cap Allocation Amount.........................................................38
Cash Collateral Account........................................................3
Cash Collateral Account Bank...................................................3
Cash Collateral Certificate...................................................37
Cash Interest Payment..........................................................1
Cash Transaction.......................................................3, 17, 18
Change of Control.............................................................17
Change of Control Redemption Price............................................16
Closing Sale Price..........................................................3, 7
Collateral.....................................................................4
Common Stock...............................................................4, 43
Common Stock Deemed Outstanding................................................4
Company................................................................1, 43, 51
Conversion Date................................................................9
Conversion Failure.............................................................4
Conversion Notice..............................................................9
Conversion Price...............................................................4
Conversion Rate................................................................8
Convertible Securities.........................................................4
Debenture..................................................................1, 43
Debenture Delivery Date........................................................9
Debenture Register.............................................................2
Debentures.....................................................................1




Default Conversion Price.......................................................4
Default Interest...............................................................2
Dilutive Issuance.............................................................12
DTC............................................................................9
Events of Default.............................................................20
Exchange Act..................................................................25
Exchange Cap..................................................................37
Holder.........................................................................1
Indebtedness..................................................................21
Intellectual Property..........................................................4
Interest Payment Date..........................................................1
Interest Payments..............................................................1
Interferon Acquisition.........................................................5
Letters of Credit..............................................................5
Mandatory Conversion...........................................................8
Mandatory Conversion Date......................................................8
Mandatory Conversion Measuring Period..........................................7
Mandatory Conversion Notice....................................................7
Maturity Date..................................................................1
Maturity Date Mandatory Redemption............................................11
Maturity Date Redemption Price................................................11
Mortgage.......................................................................5
NASDAQ.........................................................................5
New Securities Issuance Price.................................................12
Notice of Change of Control...................................................16
Notice of Redemption Upon Change of Control...................................17
NYSE...........................................................................5
Options........................................................................5
Organic Change................................................................16
Original Issuance Date.........................................................5
Outstanding Principal Amount...................................................5
Person.........................................................................5
Principal Market...............................................................5
Quarterly Period...............................................................5
Registration Rights Agreement..................................................5
Rule 144......................................................................25
SEC............................................................................6
Securities Agreement...........................................................6
Securities Purchase Agreement..................................................6
Share Delivery Date............................................................9
Strategic Financing............................................................6
Transaction Documents..........................................................6
Transfer Agent.................................................................9
Valuation Event...............................................................14
Warrants.......................................................................6
Weighted Average Price......................................................6, 7




EXHIBIT A

                            Subordination Provisions

      Section 1. Definitions. As used herein, the following terms shall have the
following meanings:

            "Borrower"   shall  mean   [Hemispherx][applicable   Subsidiary   of
Hemispherx].

            "Hemispherx"  shall mean Hemispherx  Biopharma,  Inc., a corporation
duly organized and existing under the laws of the State of Delaware.

            "Loan  Documents"  shall mean any  agreement  executed in connection
with the issuance of the Senior Debt, in each case as amended,  supplemented  or
otherwise modified from time to time.

            "Obligations"  shall mean the  obligations  of the  Borrower  now or
hereafter  existing  in favor of the  holders of the Senior  Debt,  whether  for
principal, interest (including interest accruing subsequent to the filing of any
petition initiating any bankruptcy, insolvency,  arrangement,  reorganization or
receivership proceedings relating to the Borrower), fees, expenses or otherwise.

            "Senior  Debt"  shall  mean  the   Borrower's   6%  Senior   Secured
Convertible Debentures due July 31, 2005.

            "Subordinated Creditor" shall mean _______________.

            "Subordinated  Debt" shall mean all indebtedness of the Borrower now
or hereafter  existing in favor of the  Subordinated  Creditor,  whether created
directly or acquired by assignment or  otherwise,  all interest  thereon and all
fees, premiums and other amounts payable in respect thereof.

            "Subordinated   Loan  Documents"  shall  mean  the  instruments  and
agreements  to which the  Borrower  is a party  evidencing  or  relating  to any
Subordinated Debt.

      Section 2. Agreement to Subordinate.  Each of the  Subordinated  Creditor,
Hemispherx and the Borrower  agrees that the  Subordinated  Debt is and shall be
subordinate,  to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of the Obligations.

      Section 3. Restrictions on Payment of the Subordinated Debt.

      (a) The  Subordinated  Creditor  may  receive,  and the  Borrower may pay,
interest on the Subordinated  Debt evidenced by the Subordinated Loan Documents,
in the stated amounts and on the stated dates of payment thereof as set forth in
the Subordinated Loan Documents,  provided, however, that no such




payments  shall be received or made at any time during which an Event of Default
(as defined in the Senior  Debt) shall have  occurred and be  continuing  on any
Senior Debt.

      (b) In the event of any dissolution, winding up, liquidation,  arrangement
or  reorganization  relating to Hemispherx or the Borrower,  in any  bankruptcy,
insolvency,  arrangement,  reorganization or receivership proceedings or upon an
assignment  for the benefit of creditors or any other  marshalling of the assets
and  liabilities of Hemispherx or the Borrower,  any payment or  distribution of
any kind (whether in cash,  securities or other  property) which otherwise would
be payable or deliverable upon or with respect to the Subordinated Debt shall be
paid or delivered directly to the holders of the Senior Debt for application (in
the case of cash)  to,  or as  collateral  (in the case of  securities  or other
non-cash  property) for, the payment or prepayment of the Obligations  until the
Obligations shall have been paid in full.

      (c) All payments or distributions upon or with respect to the Subordinated
Debt  which  are  received  by  the  Subordinated  Creditor  contrary  to  these
subordination  provisions  shall be  received  in trust for the  benefit  of the
holders of the Senior Debt for the  ratable  benefit of such  holders,  shall be
segregated from other funds and property held by the  Subordinated  Creditor and
shall be  forthwith  paid over to the holders of the Senior Debt for the ratable
benefit of such  holders  in the same form as so  received  (with any  necessary
endorsement)  to be applied (in the case of cash) to or held as  collateral  (in
the case of securities or other non-cash property) for the payment or prepayment
of the Obligations until the Obligations shall have been paid in full.

      Section 4. Obligations Unconditional.

      (a) All rights and interests of the holders of the Senior Debt  hereunder,
and all agreements and obligations of the Subordinated Creditor,  Hemispherx and
the Borrower  hereunder,  shall remain in full force and effect irrespective of:
(i) any lack of validity  or  enforceability  of any Loan  Document or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of  payment  of, or in any other  term in  respect  of,  all or any of the
Obligations,  or any other  amendment  or waiver of or any consent to  departure
from any Loan Document,  (iii) any exchange or release of, or  non-perfection of
any lien on or security interest in, any collateral, or any release or amendment
or waiver of or consent to departure  from any  guaranty,  for all or any of the
Obligations,  or (iv) any other circumstance which might otherwise  constitute a
defense  available to, or a discharge of,  Hemispherx or the Borrower in respect
of the Obligations or the Subordinated  Creditor,  Hemispherx or the Borrower in
respect of these subordination provisions.

      (b) These subordination provisions shall continue to be effective or shall
be  reinstated,  as the case may be,  if at any time any  payment  of any of the
Obligations  is  rescinded  or must  otherwise be returned by the holders of the
Senior Debt upon the insolvency,  bankruptcy or  reorganization of Hemispherx or
the Borrower or otherwise, all as though such payment had not been made.

      Section 5. Waivers. Each of the Subordinated Creditor,  Hemispherx and the
Borrower  waives (i)  promptness  and  diligence,  (ii) notice of acceptance and
notice of the incurrence of any Obligation by Hemispherx or the Borrower,  (iii)
notice of any actions taken by




the  holders of the  Senior  Debt,  Hemispherx  or the  Borrower  under any Loan
Document or any other agreement or instrument  relating thereto,  (iv) all other
notices,  demands  and  protests,  and all other  formalities  of every  kind in
connection  with the enforcement of the Obligations or of the obligations of the
Subordinated  Creditor,  Hemispherx and the Borrower  under these  subordination
provisions,  the omission of or delay in which,  but for the  provisions of this
Section 5, might  constitute  grounds for relieving the  Subordinated  Creditor,
Hemispherx  or  the  Borrower  of  its  obligations  under  these  subordination
provisions and (v) any requirement  that the holders of the Senior Debt protect,
secure,  perfect or insure any  security  interest or other lien or any property
subject  thereto or exhaust any right to take any action  against  Hemispherx or
the Borrower or any other person.

      Section 6.  Subrogation.  No payment or distribution to the holders of the
Senior  Debt  pursuant  to these  subordination  provisions  shall  entitle  the
Subordinated  Creditor to exercise any rights of subrogation in respect  thereof
until the Obligations shall have been satisfied in full.

      Section 7. Miscellaneous.

      (a) Each of the Subordinated  Creditor,  Hemispherx and the Borrower will,
at its  expense  and at any time and from  time to time,  promptly  execute  and
deliver all further instruments and other documents, and take all further action
that the holders of the Senior Debt may  reasonably  request in order to reflect
the subordination provisions set forth herein.

      (b) These  subordination  provisions shall be governed by and construed in
accordance with the law of the State of New York.




                                    EXHIBIT B

                                    Inventory




                                   EXHIBIT C

                      FORM OF CASH COLLATERAL CERTIFICATE

IN NO EVENT SHALL THIS  CERTIFICATE  BE DELIVERED BY OR ON BEHALF OF THE COMPANY
TO ANY HOLDER OF DEBENTURES  WITHOUT THE EXPRESS  PRIOR WRITTEN  CONSENT OF SUCH
HOLDER.

CERTIFICATE TO BE DELIVERED ONLY TO THE RECIPIENT DESIGNATED BELOW.

To:

Eleazer Klein, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY  10022
Telephone:  (212) 756-2000
Facsimile:   (212) 593-5955

      The undersigned, the duly elected [Chief Executive Officer/Chief Financial
Officer] of HEMISPHERX BIOPHARMA, INC. (the "Company"),  hereby certifies to the
holders of the 6% Senior Secured Convertible Debentures Due July 31, 2005 of the
Company (the "Debentures") pursuant to Section 25(g)(v) of the Debentures,  that
the following information is true and correct in all respects (capitalized terms
used in this certificate and not defined herein shall have the meanings ascribed
to them in the Debentures):

      Cash Collateral Date:___________________________________________________.

      Qualified Inventory Financing Date (if applicable): ____________________.

      Qualified Mortgage Financing Date (if applicable): _____________________.

      Amount of Cash Collateral Payment: $____________________________________.

      Amount of Cash Collateral Payment Made in Cash: $_______________________.

      Aggregate Dollar Value of Cash Collateral Payments Made in Repayment
      Shares (if applicable): $_______________________________________________.

      Aggregate Number of Repayment Shares Issued (if applicable): ___________.

      Equity Collateral Conversion Rate (if applicable):______________________.

      Company Consolidated Revenues for the relevant period
      (if applicable): $______________________________________________________.

      Aggregate Amount of Cash Collateral Payments Made Prior to this Cash
      Collateral Date:$_______________________________________________________.




      IN WITNESS  WHEREOF,  the undersigned has executed this  certificate as of
this _____ day of _________________, 200_.

EX-10.3

                                                                    Exhibit 10.3

                               [FORM OF WARRANT]

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B)
AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY THE SECURITIES.

                           HEMISPHERX BIOPHARMA, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:  [        ]                              Number of Shares:  253,551
Date of Issuance: July 10, 2003                      (subject to adjustment)

      HEMISPHERX BIOPHARMA, INC., a Delaware corporation (the "Company"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________, the registered holder hereof or its permitted
assigns, is entitled, subject to the terms and conditions set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M., New York City Time, on
the Expiration Date (as defined herein) 253,551 fully paid nonassessable shares
of Common Stock (as defined herein) of the Company at the Warrant Exercise Price
per share provided in Section 1(b) below. This Warrant shall be exercisable for
a number of Warrant Shares equal to: (i) prior to the Second Payment Date (as
defined in the Securities Purchase Agreement), 66.67% of the maximum number of
Warrant Shares issuable upon exercise of this Warrant; and (ii) after the Second
Payment Date, 100% of the maximum number of Warrant Shares issuable upon
exercise of this Warrant. Notwithstanding the foregoing, the Company shall not
effect the exercise of this Warrant and no holder of this Warrant shall have the
right to exercise this Warrant to the extent that after giving effect to such
exercise, such Person (together with such Person's affiliates), would have
acquired, through exercise of this Warrant or otherwise, beneficial ownership of
a number of shares of Common Stock that, when added to the number of shares of
Common Stock beneficially owned by such Person (together with such Person's
affiliates), exceeds 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by
such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining,




unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such Person
and its affiliates (including, without limitation, any convertible notes,
debentures or preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. Upon the written request of any holder, the Company shall
promptly, but in no event later than two (2) Business Days following the receipt
of such notice, confirm in writing to any such holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the exercise of Warrants
(as defined below) by such holder and its affiliates since the date as of which
such number of outstanding shares of Common Stock was last reported.

      Section 1.

      a. SECURITIES PURCHASE AGREEMENT. This Warrant (as defined herein) is one
of a series of Warrants issued pursuant to Section 1 of that certain Securities
Purchase Agreement dated as of July 10, 2003, among the Company and the Persons
referred to therein, as such agreement may be amended from time to time as
provided in such agreement (the "Securities Purchase Agreement").

      b. DEFINITIONS. The location of definitions used in this Warrant is set
forth on the Index of Terms attached hereto and the following words and terms as
used in this Warrant shall have the following meanings:

            (i) "Approved Stock Plan" means any employee benefit plan, stock
incentive plan or other similar plan or arrangement which has been approved by
the Board of Directors of the Company or a duly authorized committee thereof,
pursuant to which the Company's securities may be issued to any employee,
consultant, officer or director for services provided to the Company.

            (ii) "Bloomberg" means Bloomberg Financial Markets or any other
similar financial reporting service as may be selected from time to time by the
Company and the holders of the Warrants representing not less than 60% of the
shares of Common Stock issuable upon exercise of all Warrants issued on the
Original Issuance Date then outstanding.

            (iii) "Business Day" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

            (iv) "Closing Sale Price" means, for any security as of any date,
the last closing trade price for such security on the Principal Market as
reported by Bloomberg, or if the Principal Market begins to operate on an
extended hours basis, and does not designate the closing trade price, then the
last trade price at 4:00 p.m., New York City Time, as reported by Bloomberg, or
if the foregoing do not apply, the last closing trade price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no last closing trade price is reported for
such security by Bloomberg, the last closing ask price of such security as
reported by


                                       2


Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the highest bid price and the lowest ask price of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Sale Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of the Warrants representing at least 60% of the
shares of Common Stock obtainable upon exercise of all Warrants issued on the
Original Issuance Date then outstanding. If the Company and the holders of the
Warrants are unable to agree upon the fair market value of the Common Stock,
then such dispute shall be resolved pursuant to Section 2(a) below. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period. All fees and expenses of
such determinations shall be borne solely by the Company.

            (v) "Common Stock" means (i) the Company's common stock, par value
$0.001 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of such
Common Stock.

            (vi) "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
8(b)(i) and 8(b)(ii) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable upon
conversion of the Convertible Debentures or exercise of the Warrants.

            (vii) "Convertible Debentures" means all of the Company's 6% Senior
Secured Convertible Debentures Due July 31, 2005 issued pursuant to the
Securities Purchase Agreement.

            (viii) "Convertible Securities" means any stock or securities (other
than Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Stock.

            (ix) "Expiration Date" means July 31, 2008 or, if such date does not
fall on a Business Day or on a day on which trading takes place on the Principal
Market, then the next Business Day.

            (x) "Initial Warrant Exercise Price" shall be equal to $2.46,
subject to further adjustment as provided in Section 8, Adjustment of Warrant
Exercise Price and Number of Shares.

            (xi) "Option" means any rights, warrants or options to subscribe for
or purchase or otherwise acquire Common Stock or Convertible Securities.

            (xii) "Original Issuance Date" means the first date on which any
Warrants have been issued pursuant to the Securities Purchase Agreement.


                                       3


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

            (xiv) "Principal Market" means The American Stock Exchange ("Amex")
or if the Common Stock is not traded on Amex then the principal securities
exchange or trading market for the Common Stock.

            (xv) "Registration Rights Agreement" means that registration rights
agreement dated July 10, 2003 by and among the Company and the Persons referred
to therein, as such agreement may be amended from time to time as provided in
such agreement.

            (xvi) "Reset Warrant Exercise Price" shall mean the greater of (x)
the arithmetic average of the Weighted Average Price of the Common Stock for
each trading date beginning on the first trading date immediately following the
Original Issuance Date and ending on the final trading date immediately prior to
the one-year anniversary of the Original Issuance Date (which Weighted Average
Price on each such trading date during such period shall be appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period) and (y) 70% of the Initial Warrant Exercise Price (appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period).

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

            (xviii) "Strategic Financing" shall mean the issuance of Common
Stock or Options in connection with any acquisition by the Company, by whatever
means, of any business, assets or technologies, or to any strategic investor,
vendor, customer, lease or similar arrangement, the primary purpose of which is
not to raise equity capital, provided that the aggregate number of shares of
Common Stock which the Company may issue pursuant to this definition shall not
exceed (i) 25% of the total outstanding equity on the Closing Date (as defined
in the Securities Purchase Agreement) in connection with any one or more related
issuances to strategic investors, vendors, customers, lessors or similar parties
or (ii) 40% of the total outstanding equity on the Closing Date (as defined in
the Securities Purchase Agreement) in connection with all issuances to strategic
investors, vendors, customers, lessors or similar parties (in each case, subject
to adjustment for stock splits, stock dividends, stock combination and similar
transactions).

            (xix) "Warrant" means the warrants to purchase shares of Common
Stock issued pursuant to the Securities Purchase Agreement and all warrants
issued in exchange, transfer or replacement thereof.

            (xx) "Warrant Exercise Price" shall be equal to: (i) from the
Original Issuance Date until the date immediately prior to the one-year
anniversary of the Original Issuance Date, the Initial Warrant Exercise Price,
and (ii) from and after such one-year anniversary, the lesser of (x) the Initial
Warrant Exercise Price and (y) the Reset Warrant Exercise Price, in each case
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period. The Warrant Exercise Price shall be subject to
further


                                       4


adjustment as provided in Section 8, Adjustment of Warrant Exercise Price and
Number of Shares.

            (xxi) "Warrant Shares" means all shares of Common Stock issuable
upon exercise of the Warrants.

            (xxii) "Weighted Average Price" shall mean, for any security as of
any date, the dollar volume-weighted average price per share for such security
on the Principal Market during the period beginning at 9:30 a.m., New York City
Time, and ending at 4:00 p.m., New York City Time, as reported by Bloomberg
through its "Volume at Price" function or, if the foregoing does not apply, the
dollar volume-weighted average price per share of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30 a.m., New York City Time, and ending at 4:00
p.m., New York City Time, as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for
such hours, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Weighted Average Price of such security on such date shall be the
fair market value as mutually determined by the Company and the holders of the
Warrants representing at least 60% of the shares of Common Stock obtainable upon
exercise of the Warrants issued on the Original Issuance Date then outstanding.
If the Company and the holders of the Warrants are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved pursuant
to Section 2(a) below with the term "Weighted Average Price" being substituted
for the term "Closing Sale Price." All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period. All fees and expenses of such determinations
shall be borne solely by the Company.

            Section 2. EXERCISE OF WARRANT.

      a. Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 5:00 P.M., New York City Time, on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as EXHIBIT A hereto or a reasonable facsimile
thereof (the "Exercise Notice"), to the Company and the Company's designated
transfer agent (the "Transfer Agent"), of such holder's election to exercise
this Warrant, which notice shall specify the number of Warrant Shares to be
purchased, (ii)(A) payment to the Company of an amount equal to the Warrant
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the "Aggregate Exercise Price") in cash or delivery
of a certified check or bank draft payable to the order of the Company or wire
transfer of immediately available funds or (B) by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 2(e)), and (iii) the surrender of this Warrant or a copy of this Warrant
(provided it is accompanied by an indemnification undertaking with respect to
this Warrant in the case of its loss, theft or destruction) to a common carrier
for overnight delivery to the Company or by delivery of a facsimile copy of this
Warrant to the Company as soon as practicable following such date; provided,
that if such Warrant Shares are to be issued in


                                       5


any name other than that of the registered holder of this Warrant, such issuance
shall be deemed a transfer and the provisions of Section 7 shall be applicable.
In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2(a), the Company shall on the second (2nd)
Business Day (the "Warrant Share Delivery Date") following the date of its
receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of
Cashless Exercise) and the original or a copy of this Warrant (provided it is
accompanied by an indemnification undertaking or other form of security
reasonably satisfactory to the Company with respect to this Warrant in the case
of its loss, theft or destruction) (collectively, the "Exercise Delivery
Documents"), (A) in the case of a public resale of such Warrant Shares in
accordance with the provisions of the Irrevocable Transfer Agent Instructions,
provided the Transfer Agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer Program and, if required by DTC, the
holder provides a customary representation letter to DTC, at the holder's
request, credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system or (B) issue and
deliver to the address as specified in the Exercise Notice, a certificate or
certificates in such denominations as may be requested by the holder in the
Exercise Notice, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled upon such
exercise. Upon delivery of the Exercise Delivery Documents, the holder of this
Warrant shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of this Warrant as required by
clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price, the
Closing Sale Price of a security or the arithmetic calculation of the number of
Warrant Shares, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within two
(2) Business Days of receipt of the holder's Exercise Notice. If the holder and
the Company are unable to agree upon the determination of the Warrant Exercise
Price, the Closing Sale Price or arithmetic calculation of the number of Warrant
Shares within one (1) Business Day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall immediately
submit via facsimile (i) the disputed determination of the Warrant Exercise
Price or the Closing Sale Price to an independent, reputable investment banking
firm selected jointly by the Company and the holder or (ii) the disputed
arithmetic calculation of the number of Warrant Shares to its independent,
outside accountant. The Company shall cause the investment banking firm or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than ten (10)
Business Days from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.

      b. Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised (without regard to any limitation on exercise
hereunder), the Company shall, as soon as practicable using reasonable best
efforts and in no event later than five (5) Business Days after its receipt of
the Exercise Delivery Documents (the "Warrant Delivery Date") and at its own
expense, issue a new Warrant identical in all respects to this Warrant exercised
except it shall represent rights to purchase the number of Warrant Shares
purchasable (without regard to


                                       6


any limitation on exercise hereunder) immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to which such
Warrant is exercised.

      c. No fractional shares of Common Stock are to be issued upon the exercise
of this Warrant, but rather the number of shares of Common Stock issued upon
exercise of this Warrant shall be rounded up or down to the nearest whole
number.

      d. If the Company shall fail for any reason or for no reason to issue to
the holder within five (5) Business Days of receipt of the Exercise Delivery
Documents, a certificate for the number of shares of Common Stock to which the
holder is entitled or to credit the holder's designee's balance account with
DTC, in accordance with Section 2 hereof, for such number of shares of Common
Stock to which the holder is entitled upon the holder's exercise of this
Warrant, the Company shall, in addition to any other remedies under this Warrant
or the Securities Purchase Agreement or otherwise available to such holder,
including any indemnification under Section 8 of the Securities Purchase
Agreement, pay as additional damages in cash to such holder on each day after
the Warrant Share Delivery Date such exercise is not timely effected in an
amount equal to 0.05% multiplied by the product of (I) the sum of the number of
shares of Common Stock not issued to the holder on or prior to the Warrant Share
Delivery Date and to which such holder is entitled under the holder's Exercise
Notice and (II) the excess of the Closing Sale Price of the Common Stock on the
Warrant Share Delivery Date over the Warrant Exercise Price then in effect. The
foregoing notwithstanding, the damages set forth in this Section 2(d) shall be
stayed with respect to the number of shares of Common Stock for which there is a
good faith dispute being resolved pursuant to, and within the time periods
provided for in, Section 2(a), pending the resolution of such dispute.

      e. Notwithstanding anything contained herein to the contrary, if at any
time during the two (2) Business Day period immediately preceding the holder's
delivery of an Exercise Notice, a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "Unavailable Warrant Shares") is not available for
the resale of such Unavailable Warrant Shares, the holder of this Warrant may,
at its election exercised in its sole discretion, exercise this Warrant as to
any or all of such Unavailable Warrant Shares and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):

                  Net Number = (A x B) - (A x C)
                               -----------------
                                       B

                  For purposes of the foregoing formula:

                        A = the total number of shares with respect to which
                        this Warrant is then being exercised.

                        B = the Closing Sale Price of the Common Stock on the
                        trading day immediately preceding the date of the
                        Exercise Notice.


                                       7


                        C = the Warrant Exercise Price then in effect for the
                        applicable Warrant Shares at the time of such
                        exercise.

      Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and
agrees as follows:

      a. This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.

      b. All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance and payment hereof in accordance
with the terms hereof, be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges created by or through the Company with respect
to the issue thereof.

      c. During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized and reserved at
least 135% of the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant (without regard to any
limitation on exercise hereunder)and the par value of said shares will at all
times be less than or equal to the applicable Warrant Exercise Price.

      d. The Company shall promptly secure the listing of the shares of Common
Stock issuable upon exercise of this Warrant (without regard to any limitation
on exercise hereunder) upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant (without regard to any limitation on exercise
hereunder); and the Company shall so list on each national securities exchange
or automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant (without regard to any limitation on exercise
hereunder) if and so long as any shares of the same class shall be listed on
such national securities exchange or automated quotation system.

      e. The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder. Without limiting the generality of the
foregoing, the Company (i) will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant and (iii) will not take any action which results in any adjustment of
the Warrant Exercise Price if the total number of shares of Common Stock
issuable after the action upon the exercise of all of the Warrants would exceed
the total number of shares of Common Stock then authorized by the Company's
Articles of Incorporation and available for the purpose of issue upon such
exercise.


                                       8


      f. This Warrant will be binding upon any entity succeeding to the Company
by merger, consolidation or acquisition of all or substantially all of the
Company's assets.

      Section 4. TAXES. a. The Company shall pay any and all documentary, stamp,
transfer and other similar taxes which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant; provided,
however, that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issue or delivery of Common
Stock or other securities or property in a name other than that of the
registered holder of this Warrant to be exercised and such holder shall pay such
amount, if any, to cover any applicable transfer or similar tax.

      b. The Company and the Company's transfer agent shall be permitted to
withhold from any amounts payable to a registered holder of this Warrant or any
holder of Warrant Shares any taxes required by law to be withheld from such
amounts.

      c. Notwithstanding any other provision of this Agreement or any other
Transaction Document, any assignee or transferee shall agree that the Company
and the Company's transfer agent shall be permitted to withhold from any amounts
payable to such assignee or transferee any taxes required by law to be withheld
from such amounts. Unless exempt from the obligation to do so, each assignee or
transferee shall execute and deliver to the Company or the Company's transfer
agent, as applicable, two properly completed and duly executed copies of either
(i) U.S. Internal Revenue Service Form W-8BEN, or any successor form, (ii) U.S.
Internal Revenue Service Form W-8ECI, or any successor form, (iii) U.S. Internal
Revenue Service Form W-9, or any successor form, or (iv) other applicable form,
certificate or document prescribed by the U.S. Internal Revenue Service, as
applicable, in each case, indicating that such assignee or transferee is not
subject to "back-up withholding" for U.S. Federal income tax purposes. Each
assignee or transferee that does not deliver such forms pursuant to the
preceding sentence shall have the burden of proving to the Company's reasonable
satisfaction that it is exempt from such requirement or the Company and the
Company's transfer agent shall be entitled to withhold as provided in the first
sentence hereof. In addition, each assignee or transferee that is organized
under the laws of a jurisdiction other than the United States, any State thereof
or the District of Columbia (each, a "Non-U.S. Assignee or Transferee") shall
deliver to the Company and the Company's transfer agent, to the extent legally
able to do so, with respect to payments of dividends by the Company for U.S.
Federal income tax purposes, if applicable, two properly completed and duly
executed copies of either (i) U.S. Internal Revenue Service Form W-8BEN
(claiming a reduction of U.S. Federal withholding tax under an applicable income
tax treaty, if any), or any successor form, (ii) U.S. Internal Revenue Service
Form W-8ECI (claiming complete exemption from U.S. Federal withholding tax
because the income is effectively connected with a U.S. trade or business), or
any successor form, or (iii) other applicable form, certificate or document
prescribed by the U.S. Internal Revenue Service certifying as to such assignee's
or transferee's entitlement to an exemption from, or a reduction of, U.S.
Federal withholding tax on payments of dividends by the Company for U.S. Federal
income tax purposes. Each Non-U.S. Assignee or Transferee that does not deliver
a form or other document claiming a complete exemption from U.S. Federal
withholding tax shall have the burden of proving to the Company's reasonable
satisfaction that it is completely exempt from such tax or the Company and the
Company's transfer agent shall be entitled to withhold as provided in the second
sentence of this Section 4(c). The forms and other documents required to


                                       9


be delivered pursuant to this Section 4 shall be properly completed and duly
executed and shall be delivered on or prior to the date of such assignment or
transfer, and from time to time thereafter if requested by the Company or the
Company's transfer agent. In addition, each assignee and transferee shall
deliver such forms and other documents promptly upon the obsolescence or
invalidity of any form or documents previously delivered by such assignee or
transferee. Each assignee and transferee shall promptly notify the Company and
the Company's transfer agent at any time it determines that it is no longer in a
position to provide any previously delivered form, document or certificate to
the Company and the Company's transfer agent (or any form of certification
adopted by the U.S. taxing authorities for such purpose).

      Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he, she, or
it is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on such holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.

      Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the
acceptance hereof, represents and warrants that it is acquiring this Warrant,
and the Warrant Shares for its own account for investment only and not with a
view towards, or for sale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of
the Warrant Shares for any minimum or other specific term and reserves the right
to dispose of this Warrant and the Warrant Shares at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act. The holder of this Warrant further represents, by acceptance hereof, that,
as of this date, such holder is an "accredited investor" as such term is defined
in Rule 501(a) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "Accredited Investor").

      Section 7. OWNERSHIP AND TRANSFER.

      a. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.


                                       10


      b. This Warrant and all rights hereunder shall be assignable and
transferable by the holder hereof without the consent of the Company upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit B hereto) at the principal executive offices of the Company (or such
other office or agency of the Company as it may designate in writing to the
holder hereof); provided, that (x) either (i) the Warrant shall have been
registered under the Securities Act or (ii) the Company first shall have been
furnished with an opinion of counsel, in a form reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act and (y) such transfer or
assignment of this Warrant does not result in more than ten (10) holders of all
outstanding Warrants and any such part or portion of this Warrant constitutes at
least 10% of the number of Warrant Shares issuable upon exercise of all
outstanding Warrants (subject to appropriate adjustment for stock splits, stock
dividends, combinations, recapitalizations and other similar transactions) or
such lesser number if such transfer involves all of the Warrant Shares
represented by the Warrants then held by such transferor.

      c. The Company is obligated to register the Warrant Shares for resale
under the Securities Act pursuant to the Registration Rights Agreement. The
shares of Common Stock issuable upon exercise of this Warrant shall constitute
Registrable Securities (as such term is defined in the Registration Rights
Agreement). Each holder of this Warrant shall be entitled to all of the benefits
afforded to a holder of any such Registrable Securities under the Registration
Rights Agreement and such holder, by its acceptance of this Warrant, agrees and
shall agree to be bound by and to comply with the terms and conditions of the
Registration Rights Agreement applicable to such holder as a holder of such
Registrable Securities.

      Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:

      a. ADJUSTMENT OF WARRANT EXERCISE PRICE. If and whenever on or after the
Warrant Date and prior to the twelve (12) month anniversary of the Warrant Date,
the Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
(i) issued or deemed to have been issued by the Company in connection with an
Approved Stock Plan, (ii) issued or deemed to have been issued upon exercise of
the Warrants or issued upon the issuance or conversion of the Convertible
Debentures; (iii) issued upon exercise of Options or Convertible Securities
which are outstanding on the date immediately preceding the Warrant Date,
provided that such issuance of shares of Common Stock upon exercise of such
Options or Convertible Securities is made pursuant to the terms of such Options
or Convertible Securities in effect on the date immediately preceding the
Warrant Date and such Options or Convertible Securities are not amended after
the date immediately preceding the Warrant Date other than with respect to
Options originally issued pursuant to an Approved Stock Plan, (iv) issued
pursuant to a Strategic Financing; or (v) issued to the public pursuant to an
underwritten offering registered pursuant to the Securities Act (but in all
events excluding offerings pursuant to "equity lines" or similar products) ((i)
through (v) collectively, "Excluded Issuances")) for a consideration per share
(the "New Issuance Price") less than the Warrant Exercise Price in effect
immediately prior to such issuance or sale (each such sale or issuance, a
"Dilutive Issuance"), then concurrent with such issue or sale, the Warrant


                                       11


Exercise Price then in effect shall be reduced to a price (subject to Section
8(f)) equal to the New Issuance Price. If and whenever on or after the twelve
(12) month anniversary of the Warrant Date and prior to the Expiration Date, the
Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
issued or deemed to be issued pursuant to any Excluded Issuance) in a Dilutive
Issuance, then concurrent with such issue or sale, the Warrant Exercise Price
then in effect shall be reduced to a price (rounded to the nearest cent) equal
to the product of (x) the Warrant Exercise Price in effect immediately prior to
such issuance or sale and (y) the quotient determined by dividing (1) the sum of
(I) the product derived by multiplying the Warrant Exercise Price in effect
immediately prior to such Dilutive Issuance by the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale, plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying the (I) the Warrant Exercise Price in
effect immediately prior to such Dilutive Issuance by (II) the number of shares
of Common Stock Deemed Outstanding immediately after such Dilutive Issuance.

      b. EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:

            (i) ISSUANCE OF OPTIONS. If the Company in any manner grants any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exchange or
exercise of any Convertible Securities issuable upon exercise of any such Option
is less than the Warrant Exercise Price in effect immediately prior to such
Dilutive Issuance, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of any such Option or upon conversion, exchange or
exercise of any Convertible Securities issuable upon exercise of any such
Option" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of such
Convertible Securities.

            (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion, exchange
or exercise thereof is less than the Warrant Exercise Price in effect
immediately prior to such Dilutive Issuance, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 8(b)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon such
conversion, exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the


                                       12


Company with respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exchange or exercise of such
Convertible Security. No further adjustment of the Warrant Exercise Price shall
be made upon the actual issuance of such Common Stock upon conversion, exchange
or exercise of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustment of the Warrant Exercise Price had been or are to be made pursuant to
other provisions of this Section 8(b), no further adjustment of the Warrant
Exercise Price shall be made by reason of such issue or sale.

            (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase
or exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the Warrant
Exercise Price in effect at the time of such change shall be adjusted to the
Warrant Exercise Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon conversion, exchange or
exercise thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.

      c. HOLDER'S RIGHT OF ALTERNATIVE WARRANT EXERCISE PRICE FOLLOWING ISSUANCE
OF CONVERTIBLE SECURITIES. If the Company issues or sells any Options or
Convertible Securities after the Closing Date that are convertible into or
exchangeable or exercisable for Common Stock at a price which varies or may vary
with the market price of the Common Stock, including by way of one or more
reset(s) to a fixed price (each of the formulations for such variable price
being herein referred to as, the "Variable Price"), the Company shall provide
written notice thereof via facsimile and overnight courier to the holder of this
Warrant (the "Variable Notice") on the date of issuance of such Convertible
Securities or Options. From and after the date the Company issues any such
Convertible Securities or Options with a Variable Price, but only for so long as
such Convertible Securities or Options are outstanding, the holder shall have
the right, but not the obligation, in its sole discretion to substitute the
Variable Price for the Warrant Exercise Price upon exercise of this Warrant by
designating in the Exercise Notice delivered upon exercise of this Warrant that
solely for purposes of such exercise the holder is relying on the Variable Price
rather than the Warrant Exercise Price then in effect. The holder's election to
rely on a Variable Price for a particular exercise of this Warrant shall not
obligate the holder to rely on a Variable Price for any future exercises of this
Warrant.

      d. EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:


                                       13


            (i) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, then, solely
for the purposes of this Section 8, the Options will be deemed to have been
issued for a consideration of $0.01. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the gross amount
received by the Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the Closing Sale Price of such securities on the date of receipt of such
securities. If any Common Stock, Options or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined by the Company and the holders
of Warrants representing at least 60% of the shares of Common Stock obtainable
upon exercise of all Warrants issued on the Original Issuance Date then
outstanding. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of the
Warrants representing at least 60% of the shares of Common Stock obtainable upon
exercise of all Warrants issued on the Original Issuance Date then outstanding.
The determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.

            (ii) RECORD DATE. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be. If after the occurrence of such record date the transaction or event for
which such record date was set is abandoned or terminated, then any adjustments
resulting from this Section 8(d)(ii) as it relates to such terminated or
abandoned transaction or event shall be reversed as if such record date had
never occurred.

      e. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time after the
date of issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common


                                       14


Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately decreased. Any adjustment
under this Section 8(e) shall become effective at the close of business on the
date the subdivision or combination becomes effective.

      f. CERTAIN EVENTS. If any event occurs of the type contemplated by the
provisions of this Section 8 in a private transaction (the primary purpose of
which is to raise equity capital) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features other than
pursuant to an Excluded Issuance), then the Company's Board of Directors will
make an appropriate adjustment in the Warrant Exercise Price and the number of
shares of Common Stock obtainable upon exercise of this Warrant so as to protect
the rights of the holders of the Warrants; provided that no such adjustment will
increase the Warrant Exercise Price or decrease the number of shares of Common
Stock obtainable as otherwise determined pursuant to this Section 8.

      g. NOTICES.

            (i) Promptly following any adjustment of the Warrant Exercise Price,
the Company will give written notice thereof to the holder of this Warrant,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment. The Company (at the Company's expense), if there shall be a
disagreement among the Company and holders of Warrants representing at least 60%
of the shares of Common Stock obtainable upon exercise of all Warrants issued on
the Original Issuance Date then outstanding, shall retain independent public
accountants of recognized national standing selected by the Board of Directors
of the Company to make any computation required in connection with adjustments
under this Warrant, and a certificate signed by such firm absent manifest error
shall be conclusive evidence of the correctness of such adjustment, which shall
be binding on the holder and the Company.

            (ii) The Company will give written notice to the holder of this
Warrant at least ten (10) Business Days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that the Company need not in any case provide such notice
prior to the time such information is made known to the public.

            (iii) The Company will also give written notice to the holder of
this Warrant at least ten (10) Business Days prior to the date on which any
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any consolidation or merger involving the
Company and any other Person, any transaction or series of transactions in which
more than 50% of the voting securities of the Company are transferred to another
Person, or any transfer, sale or other disposition of all or substantially all
the assets of


                                       15


the Company to any other Person (each, an "Organic Change"), dissolution or
liquidation will take place, provided that the Company need not in any case
provide such notice prior to the time such information is made known to the
public.

      h. ADJUSTMENT. No adjustment in the Warrant Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least $.01 in such price; provided, however, that any adjustments which by
reason of this sentence are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.

      Section 9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt
of an indemnification undertaking or other form of security reasonably
acceptable to the Company (or in the case of a mutilated Warrant, the Warrant),
issue a new Warrant of like denomination and tenor as this Warrant so lost,
stolen, mutilated or destroyed. Notwithstanding the foregoing, if this Warrant
is lost by, stolen from or destroyed by the original holder hereof, the
affidavit of such original holder setting forth the circumstances of such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnification bond or other security shall be required by the Company as a
condition to the execution and delivery by the Company of a new Warrant to such
original holder other than such original holder's unsecured written agreement to
indemnify the Company solely for losses actually incurred by the Company as a
direct consequence of the loss, theft or destruction of the Warrant.

      Section 10. NOTICE. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. If notice is to be sent to the
Company, the holder shall use its reasonable best efforts to provide additional
copies to the individuals listed below; provided, however, that the failure of
such holder to send such additional copies shall in no way limit the
effectiveness of any notice sent to the Company to the attention of Chief
Executive Officer as provided for below. The addresses and facsimile numbers for
such communications shall be:

                  If to the Company:

                        Hemispherx Biopharma, Inc.
                        One Penn Center
                        1617 JFK Boulevard, Suite 660
                        Philadelphia, PA  19103
                        Telephone:
                        Facsimile:
                        Attention: Chief Executive Officer


                                       16


                  With a copy to:

                        Ransom W. Etheridge, Esq.
                        2610 Potters Road
                        Suite 200
                        Virginia Beach, VA  23452
                        Telephone: 757-486-0599
                        Facsimile: 757-486-0792

      If to the Transfer Agent:

                  Continental Stock Transfer & Trust Company

                        2 Broadway
                        New York, NY 10004
                        Telephone: (212) 509-4000
                        Facsimile: (212) 509-5150

      If to a holder of this Warrant, to it at the address and facsimile number
set forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

      Section 11. AMENDMENTS. This Warrant and any term hereof may be amended,
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such
amendment, change, waiver, discharge or termination is sought and shall be
binding on such party's or holder's assignees and transferees; provided,
however, that any such amendment, change, waiver, discharge or termination that
adversely impacts the holders of any of the Warrants other than this Warrant may
be made only if the Company has obtained the written consent of the holders of
Warrants representing at least 60% of the shares of Common Stock issuable upon
exercise of all of the Warrants issued on the Original Issuance Date then
outstanding; provided, further, that no such action may increase the Warrant
Exercise Price or decrease the number of shares or class of stock issuable upon
exercise of any Warrants without the written consent of the holder of such
Warrant. No waivers of any term, condition or provision of this Warrant in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such term, condition or provision.

      Section 12. DATE. The date of this Warrant is July 10, 2003 (the "Warrant
Date"). This Warrant, in all events, shall be wholly void and of no effect after
the close of


                                       17


business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7(c) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.

      Section 13. LIMITATION ON NUMBER OF WARRANT SHARES. The Company shall not
be obligated to issue Warrant Shares upon exercise of this Warrant to the extent
that the issuance of such shares of Common Stock would cause the Company to
exceed that number of shares of Common Stock which the Company may issue upon
exercise of this Warrant (the "Exchange Cap") without breaching the Company's
obligations under the rules or regulations of the Principal Market, except that
such limitation shall not apply in the event that the Company obtains the
approval of its stockholders as required by the Principal Market (or any
successor rule or regulation) for issuances of Common Stock in excess of such
amount. Until such approval is obtained, the holder of this Warrant shall not be
issued, upon exercise of this Warrant, Warrant Shares in an amount, which if
added to the aggregate number of Defeasance Shares, Interest Shares and
Conversion Shares issued to the holder of this Warrant (and all predecessor
holders) under the Convertible Debentures held by the holder (and all
predecessor holders) as of the date of such exercise would exceed such holder's
Cap Allocation Amount (as such term is defined in the Convertible Debenture). If
at any time when the holder delivers an Exercise Notice pursuant to Section 2
hereof the Company shall be prohibited pursuant to the provisions of this
Section 13 from issuing any Warrant Shares, then the Company shall pay in
immediately available funds to the holder of this Warrant within two (2)
Business Days of the date of delivery of such Exercise Notice, an amount in cash
equal to the product of (X) the number of shares of Common Stock which could not
be issued by virtue of the limitations contained in this Section 13 multiplied
by (Y) the excess of (1) the average of the Closing Sale Prices of the Common
Stock on each of the five (5) trading days ending on the third trading day
immediately preceding the date such prohibition arises over (2) the Warrant
Exercise Price then in effect. The number of shares issuable upon exercise of
this Warrant shall be reduced for each share for which the Company makes a cash
payment pursuant to the preceding sentence.

      Section 14. Judicial Proceedings. Any legal action, suit or proceeding
brought against the Company with respect to this Warrant may be brought in any
federal court of the Southern District of New York or any state court located in
New York County, State of New York, and by execution and delivery of this
Warrant, the Company hereby irrevocably and unconditionally waives any claim (by
way of motion, as a defense or otherwise) of improper venue, that it is not
subject personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company hereby irrevocably and unconditionally
consents to the service of process of any of the aforementioned courts in any
such action, suit or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, at its address set forth or provided for in
Section 10, such service to become effective 10 days after such mailing. Nothing
herein contained shall be deemed to affect the right of any party to serve
process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. The Company irrevocably submits to the exclusive jurisdiction of the
aforementioned courts in such action, suit or proceeding


                                       18


      Section 15. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of New York shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York.

                                    [* * * *]


                                       19



      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by as
of the 10th day of July, 2003.

                                                HEMISPHERX BIOPHARMA, INC.


                                                By:        /s/ William A. Carter
                                                           ---------------------
                                                Name:
                                                           ---------------------
                                                Title:
                                                           ---------------------


                                       20


                              EXHIBIT A TO WARRANT

                                 EXERCISE NOTICE
        TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
                           HEMISPHERX BIOPHARMA, INC.

The undersigned holder hereby exercises the right to purchase ______________ of
the shares of Common Stock ("Warrant Shares") of HEMISPHERX BIOPHARMA, INC., a
Delaware corporation (the "Company"), evidenced by the attached Warrant (the
"Warrant"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.

      1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:

            ______ "Cash Exercise" with respect to ________ Warrant Shares;
                   and/or

            ______ "Cashless Exercise" with respect to ______ Warrant Shares (to
                   the extent permitted by the terms of the Warrant).

      2. Variable Price. Is the Variable Price being relied on pursuant to
Section 8(c) of the Warrant? (check one) YES ____ No ____


      3. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.

      4. Delivery of Warrant Shares. The holder of this warrant has sold or will
sell the shares of common stock issuable pursuant to this Notice pursuant to a
registration statement or an exemption from registration under the Securities
Act of 1933, as amended.

      5. Private Placement Representations. The holder of this Warrant confirms
the continuing validity of, and reaffirms as of the date hereof, its
representations and warranties set forth in Section 6 of the Warrant.

Date: _______________ __, ____



- ----------------------------                    -------------------------------
Name of Registered Holder                       Tax ID of Registered Holder
                                                      (if applicable)

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


                                       21


                                 ACKNOWLEDGMENT

      The Company hereby acknowledges this Exercise Notice and hereby directs
Continental Stock Transfer & Trust Company to issue the above indicated number
of shares of Common Stock in accordance with the Irrevocable Transfer Agent
Instructions dated July 10, 2003 from the Company and acknowledged and agreed to
by Continental Stock Transfer & Trust Company.

                                                HEMISPHERX BIOPHARMA, INC.



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


                                       22


                              EXHIBIT B TO WARRANT

                               FORM OF ASSIGNMENT

      FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of HEMISPHERX BIOPHARMA, INC., a
Delaware corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.

Dated:  _________, 200_


                                             ----------------------------------
                                             By:
                                                -------------------------------
                                             Its:
                                                 ------------------------------

EX-10.4

                                                                    Exhibit 10.4

                          REGISTRATION RIGHTS AGREEMENT

      REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 10,
2003, by and among Hemispherx Biopharma, Inc., a Delaware corporation, with
headquarters located at One Penn Center, 1617 JFK Boulevard, Suite 660,
Philadelphia, PA 19103 (the "Company"), and the undersigned buyers (each, a
"Buyer" and collectively, the "Buyers").

      WHEREAS:

      A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers (i) an aggregate
of $5,426,000 of the Company's 6% Senior Secured Convertible Debentures due July
31, 2005 (such Senior Secured Convertible Debentures, as the same may be
amended, modified or supplemented from time to time in accordance with the terms
thereof, the "Convertible Debentures"), which will be convertible into shares of
the Company's common stock, par value $0.001 per share (the "Common Stock") (as
converted, the "Conversion Shares"), and (ii) warrants (the "Warrants") to
purchase shares of Common Stock (as exercised collectively, the "Warrant
Shares");

      B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights to the
Buyers under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws; and

      C. The location of defined terms in this Agreement is set forth on the
Index of Terms attached hereto.

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the Buyers
hereby agree as follows:

      1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:

            a. "Business Day" means any day other than Saturday, Sunday or any
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

            b. "Investor" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.




            c. "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and governmental or any department or agency thereof.

            d. "register" "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

            e. "Registrable Securities" means (i) the Warrant Shares issued or
issuable upon exercise of all of the Warrants, (ii) the Conversion Shares issued
or issuable upon conversion of all of the Convertible Debentures, (iii) the
Interest Shares and the Repayment Shares (each, as defined in the Convertible
Debentures) issued or issuable on the Convertible Debentures and (iv) any shares
of capital stock issued or issuable with respect to the Warrant Shares, the
Conversion Shares, the Convertible Debentures, the Interest Shares, or the
Repayment Shares as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of Convertible Debentures or the exercise of the
Warrants; provided, however, that shares of Common Stock which are Registrable
Securities shall cease to be Registrable Securities (A) upon any sale pursuant
to a Registration Statement, Rule 144 under the 1933 Act or upon any sale in any
manner to a person or entity which, by virtue of Section 9 of this Agreement, is
not entitled to the rights provided in this Agreement or (B) at such time as all
such shares may be sold under Rule 144(k).

            f. "Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Registrable Securities.

      Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement.

      2. Registration.

            a. Mandatory Registration. The Company shall prepare and, as soon as
practicable but in no event later than August 7, 2003 (the "Filing Deadline"),
file with the SEC the Registration Statement on Form S-3 covering the resale of
all of the Registrable Securities. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2(d), in which case
the "Filing Deadline" shall be sixty (60) days after the Closing Date. The
Registration Statement prepared pursuant hereto shall register for resale at
least 4,552,935 shares of Common Stock, subject to adjustment as provided in
Section 2(e). The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than the date which is seventy-five (75) days after the Closing Date.
Until such time as the Registration Statement is declared effective by the SEC,
the Company shall not file with the SEC any other registration statement under
the 1933 Act with respect to the resale or initial issuance of any Company
securities.


                                       2


            b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. Subject to Section 9, in the event that an Investor sells or otherwise
transfers any of such Investor's Registrable Securities, each transferee shall
be allocated the portion of the then remaining number of Registrable Securities
included in such Registration Statement allocable to the transferor. The Company
shall not include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of Buyers holding at
least 60% of Registrable Securities.

            c. Legal Counsel. Subject to Section 5 hereof, the Buyers holding at
least 60% of the Registrable Securities shall have the right to select one legal
counsel to review and comment upon any registration pursuant to this Section 2
("Legal Counsel"), which shall be Schulte Roth & Zabel LLP or such other counsel
as thereafter designated in writing by the holders of at least 60% of the
Registrable Securities.

            d. Ineligibility for Form S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the holders of
at least 60% of the Registrable Securities and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.

            e. Sufficient Number of Shares Registered. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable Securities pursuant to Section 2(b), the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover at least 135% of the
number of such Registrable Securities as of the trading day immediately
preceding the date of the filing of such amendment or new Registration
Statement, in each case, as soon as practicable, but in any event not later than
fifteen (15) days after the necessity therefor arises. The Company shall use its
best efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. The calculation
of the number of shares sufficient to cover all of the Registrable Securities
shall be made without regard to any limitations on the conversion of the
Convertible Debentures or the exercise of the Warrants, and such calculation
shall assume that the Convertible Debentures and the Warrants are then
convertible into shares of Common Stock and the maximum number of Interest
Shares and Repayment Shares under the Convertible Debentures, assuming the
initial outstanding principal amount of the Convertible Debentures remains
outstanding through the scheduled maturity date and assuming no conversions or
redemptions of the Convertible Debentures prior to the scheduled maturity date,
are issuable at the then prevailing Conversion Rate (as defined in the
Convertible Debentures), Warrant Exercise Price (as defined in the Warrants),
Interest Share


                                       3


Conversion Rate (as defined in the Convertible Debentures), or Equity Collateral
conversion Rate (as defined in the Convertible Debentures), as applicable.

            f. Effect of Failure to File and Obtain and Maintain Effectiveness
of Registration Statement. If (i) a Registration Statement covering all the
Registrable Securities required to be covered thereby and required to be filed
by the Company pursuant to this Agreement is (A) not filed with the SEC on or
before the Filing Deadline, or (B) not declared effective by the SEC on or
before the date that is ninety (90) days after the Closing Date (the
"Effectiveness Deadline") or (ii) on any day after such Registration Statement
has been declared effective by the SEC sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(p)) pursuant to
such Registration Statement (including, without limitation, because of a failure
to keep such Registration Statement effective, to disclose such information as
is necessary for sales to be made pursuant to such Registration Statement or to
register sufficient shares of Common Stock), then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Convertible Debentures relating to such Registration
Statement an amount in cash equal to the product of (i) the outstanding
principal amount of such Investor's Convertible Debentures to which the
Registration Statement relates multiplied by (ii) the product of (I) .00067
multiplied by (II) the sum of (x) the number of days after the applicable Filing
Deadline that the Registration Statement is not filed with the SEC, plus (y) the
number of days after the applicable Effectiveness Deadline that the Registration
Statement is not declared effective by the SEC, plus (z) the number of days, in
each instance, after the Registration Statement has been declared effective by
the SEC that such Registration Statement is not available (other than during an
Allowable Grace Period) for the sale of all the Registrable Securities required
to be included on such Registration Statement. The payments to which a holder
shall be entitled pursuant to this Section 2(f) are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration
Delay Payments are incurred and (II) the third Business Day after the event or
failure giving rise to the Registration Delay Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full.

      3. Related Obligations.

      At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will use its
best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

            a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (but in no
event later than the applicable Filing Deadline) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities
required to be covered thereby to become effective as soon as practicable after
such filing (but in no event later than the date which is ninety (90) days after
the


                                       4


Closing Date). The Company shall, subject to the terms of this Agreement, keep
each Registration Statement effective pursuant to Rule 415 at all times until
the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the
1933 Act or (ii) the date on which the Investors shall have sold all the
Registrable Securities covered by such Registration Statement (the "Registration
Period"), which Registration Statement, as of its filing date, (including any
amendments or supplements thereto and prospectuses contained therein, as of
their respective filing dates) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. The term "best efforts" shall mean, among other
things, that the Company shall submit to the SEC, within five (5) Business Days
after the Company learns that no review of a particular Registration Statement
will be made by the staff of the SEC or that the staff has no further comments
on the Registration Statement, as the case may be, and the approval of Legal
Counsel pursuant to Section 3(c), a request for acceleration of effectiveness of
such Registration Statement to a time and date not later than 48 hours after the
submission of such request.

            b. Subject to Section 3(p), the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
the Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act applicable to the
Company with respect to the disposition of all Registrable Securities covered by
such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company filing a
report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company shall
have incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement for
the Company to amend or supplement such Registration Statement.

            c. The Company shall permit Legal Counsel to review and comment upon
(i) a Registration Statement at least three (3) Business Days prior to its
filing with the SEC and (ii) all other Registration Statements and all
amendments and supplements thereto (except for Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any similar
or successor reports or other documents incorporated by reference therein)
within a reasonable number of days prior to their filing with the SEC. The
Company shall furnish to Legal Counsel, without charge, (i) copies of any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, (ii) promptly after the
same is prepared and filed with the SEC, one copy of any Registration Statement
and any amendment(s) thereto, including financial statements (but excluding all
schedules, all documents incorporated therein by reference, and all exhibits,
unless requested in writing by Legal Counsel) and (iii) upon the effectiveness
of any Registration Statement, one


                                       5


copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto. The Company agrees that it will, and it will
cause its counsel to, consider in good faith any comments or objections from
Legal Counsel as to the form or content of any Registration Statement or
amendments or supplements thereto or any request for acceleration of the
effectiveness of any Registration Statement or any amendment or supplement
thereto.

            d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements (but excluding all schedules, all documents incorporated therein by
reference and all exhibits, unless requested in writing by Legal Counsel) and
each preliminary prospectus, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii) such other documents,
including copies of any preliminary or final prospectus, as such Investor may
reasonably request from time to time in order to facilitate the disposition of
the Registrable Securities owned by such Investor.

            e. Subject to Section 3(p), the Company shall use its best efforts
to (i) register and qualify, unless an exemption from registration and
qualification applies, the resale by Investors of the Registrable Securities
covered by the Registration Statement under such other securities or "blue sky"
laws of all applicable jurisdictions in the United States as any holder of
Registrable Shares reasonably requests in writing, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

            f. Notwithstanding anything to the contrary set forth herein, as
promptly as practicable after becoming aware of such event, the Company shall
notify Legal Counsel and each Investor in writing of the happening of any event,
of which the Company has knowledge, as a result of which the prospectus included
in a Registration Statement, as then in effect, includes an untrue statement of
a material fact or omission to state a 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 (provided that in no
event shall such notice contain any material, nonpublic information), and,
subject to Section 3(p), promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and


                                       6


deliver ten (10) copies of such supplement or amendment to Legal Counsel and
each Investor (or such other number of copies as Legal Counsel or such Investor
may reasonably request). The Company shall also promptly notify Legal Counsel
and each Investor in writing (i) when a prospectus or any prospectus supplement
or post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
on the same day of such effectiveness and by overnight mail), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.

            g. Subject to Section 3(p), the Company shall use its best efforts
to (i) prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
and, (ii) if such an order or suspension is issued, to obtain the withdrawal of
such order or suspension at the earliest practicable moment and to notify Legal
Counsel and each Investor who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.

            h. Notwithstanding the provisions of Section 4(h) of the Securities
Purchase Agreement, the Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors at the Investors' expense (collectively, the
"Inspectors"), at the offices where normally kept and during reasonable business
hours, all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall agree in
writing to hold in strict confidence and shall not make any disclosure (except
to an Investor) or use of any Record or other information that the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner that is otherwise consistent with
applicable laws and regulations and the terms and provisions of this Agreement.

            i. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such


                                       7


information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

            j. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by a
Registration Statement on The American Stock Exchange or The Nasdaq National
Market, or (iii) if, despite the Company's best efforts to satisfy the preceding
clause (i) or (ii), the Company is unsuccessful in satisfying the preceding
clause (i) or (ii), to secure the inclusion for quotation on the The Nasdaq
SmallCap Market for such Registrable Securities and, without limiting the
generality of the foregoing, to use its best efforts to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. ("NASD") as such with respect to such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(j).

            k. In connection with any sale or transfer of Registrable Securities
pursuant to a Registration Statement, the Company shall cooperate with the
Investors who hold Registrable Securities being offered and, to the extent
applicable, facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legend) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such certificates to be
in such denominations or amounts, as the case may be, as the Investors may
reasonably request and, subject to compliance with applicable securities laws,
registered in such names as the Investors may request and if such certificates
are to be issued in the name of a Person other than the registered holder of
such Registrable Securities, then the Investor shall give the Company notice at
least two Business Days prior to any sale of the Registrable Securities.

            l. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
to the Registration Statement such information as an Investor reasonably
requests to be included therein relating to the sale and distribution of
Registrable Securities to which the Company does not reasonably object,
including, without limitation, information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering; (ii) as soon as practicable make all required filings of
such prospectus supplement or post-effective amendment after being notified of
the matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as practicable, supplement or make amendments to
any


                                       8


Registration Statement if reasonably requested by an Investor holding any
Registrable Securities and to which the Company does not reasonably object.

            m. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of Rule 158 under the 1933
Act) covering a twelve-month period beginning not later than the first day of
the Company's fiscal quarter next following the effective date of a Registration
Statement.

            n. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.

            o. Within two (2) Business Days after a Registration Statement which
covers Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

            p. Notwithstanding anything to the contrary herein, at any time
after the Registration Statement has been declared effective by the SEC, the
Company may delay the disclosure of material non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
judgment of the Board of Directors of the Company, in the best interest of the
Company (a "Grace Period"); provided, that the Company shall promptly (i) notify
the Investors in writing of the existence of material non-public information
giving rise to a Grace Period (provided that in each notice the Company will not
disclose the content of such material non-public information to the Investors)
and the date on which the Grace Period will begin, and (ii) notify the Investors
in writing of the date on which the Grace Period ends; and, provided further,
that no Grace Period shall exceed twenty (20) days and during any three hundred
sixty five (365) day period such Grace Periods shall not exceed an aggregate of
forty-five (45) days and the first day of any Grace Period must be at least two
(2) Business Days after the last day of any prior Grace Period (an "Allowable
Grace Period"). For purposes of determining the length of a Grace Period above,
the Grace Period shall begin on and include the date the Investors receive the
notice referred to in clause (i) and shall end on and include the later of the
date the Investors receive the notice referred to in clause (ii) and the date
referred to in such notice. The provisions of Section 3(g) hereof shall not be
applicable during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of
Section 3(f).

      4. Obligations Of The Investors.

            a. At least seven (7) Business Days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such


                                       9


Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
effectiveness of the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. Each Investor shall promptly notify the Company of any
material change with respect to such information previously provided to the
Company by such Investor.

            b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.

            c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g),
Section 3(p) or the first sentence of 3(f), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
3(g) or the first sentence of 3(f) or receipt of notice that no supplement or
amendment is required and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies (other than a single
file copy, which such Investor may keep) in such Investor's possession of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice. Notwithstanding anything to the contrary, subject to compliance
with applicable securities laws, the Company shall cause its transfer agent to
deliver unlegended shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Securities Purchase Agreement, the Convertible
Debenture and/or the Warrant, as applicable, in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale prior to the Investor's receipt of a notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f) and for which the Investor has not yet settled.

      5. Expenses Of Registration.

      All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $10,000
for the Registration Statement.

      6. Indemnification.

      In the event any Registrable Securities are included in a Registration
Statement under this Agreement:


                                       10


            a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "Claims") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations"). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation that occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d); (iii) shall not be available to the extent such Claim
is based on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, including a corrected prospectus, if
such prospectus or corrected prospectus was timely made available by the Company
pursuant to Section 3(d) and, in connection with a corrected prospectus, the


                                       11


Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a violation and such Indemnified
Person, notwithstanding such advice, used it or failed to deliver the correct
prospectus as required by the 1933 Act and such correct prospectus was timely
made available pursuant to Section 3(d); and (iv) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably withheld
or delayed. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.

            b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, the directors, officers,
members, partners, employees, agents, representatives of and each Person, if
any, who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each, an "Indemnified Party"), against any Claim or Indemnified Damages to
which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim or Indemnified Damages arise out of or are
based upon any Violation, in each case to the extent, and only to the extent,
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Investor expressly
for use in connection with such Registration Statement; and, subject to Section
6(c), such Investor will reimburse any legal or other expenses reasonably
incurred by an Indemnified Party in connection with investigating or defending
any such Claim; provided, however, that the indemnity agreement contained in
this Section 6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld or delayed; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

            c. Promptly after an Indemnified Person or Indemnified Party under
this Section 6 has knowledge of any Claim as to which such Indemnified Person
reasonably believes indemnity may be sought or promptly after such Indemnified
Person or Indemnified Party receives notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of such Claim, 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 control of the defense thereof


                                       12


with counsel selected by the indemnifying party and subject to the reasonable
approval of the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more than
one counsel for such Indemnified Person or Indemnified Party to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. In the case of an Indemnified Person, legal counsel referred to in
the immediately preceding sentence shall be selected by the Investors holding at
least 60% in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The Indemnified Party or Indemnified
Person shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person that relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party as provided herein shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in its
ability to defend such action.

            d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

            e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

      7. Contribution.

      To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under


                                       13


circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (ii) no person involved in the
sale of Registrable Securities which person is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
connection with such sale shall be entitled to contribution from any person
involved in such sale of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.

      8. Reports Under The 1934 Act.

      With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to use its
best efforts to:

            a. make and keep public information available, as those terms are
understood and defined in Rule 144;

            b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

            c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company, if true, that it has complied with the applicable reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most
recent annual or quarterly report of the Company and copies of such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.

      9. Assignment of Registration Rights.

      The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; (v) such transfer
shall have been made in accordance with the applicable


                                       14


requirements of the Securities Purchase Agreement, the Convertible Debentures
and the Warrants; (vi) such transfer shall have been conducted in accordance
with all applicable federal and state securities laws; and (vii) such transfer
or assignment does not result in more than ten (10) holders of Registrable
Securities and, after giving effect to such transfer or assignment, such
assignee or transferee holds at least 10% of the Registrable Securities (subject
to appropriate adjustment for stock splits, stock dividends, combinations,
recapitalizations and other similar transactions) or such lesser number if such
transfer involves all of the Registrable Securities then held by such
transferor.

      10. Amendment of Registration Rights.

      Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Investors
who then hold at least 60% of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the Registrable Securities.
No consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.

      11. Miscellaneous.

            a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from such record owner of such Registrable Securities.

            b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:

             If to the Company:

                      Hemispherx Biopharma, Inc.
                      One Penn Center
                      1617 JFK Boulevard, Suite 660
                      Philadelphia, PA  19103
                      Telephone:
                      Facsimile:
                      Attention:       Chief Executive Officer


                                       15


             With a copy to:

                      Ransom W. Etheridge, Esq.
                      2610 Potters Road

                      Suite 200        Virginia Beach, VA  23452
                      Telephone:  757-486-0599
                      Facsimile:  757-486-0792

             If to Legal Counsel:

                      Schulte Roth & Zabel LLP
                      919 Third Avenue
                      New York, New York 10022
                      Telephone:       (212) 756-2000
                      Facsimile        (212) 593-5955
                      Attention:       Eleazer Klein, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

            c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

            d. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and


                                       16


sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

            e. This Agreement, the Securities Purchase Agreement, the Warrants,
the Convertible Debentures, the Security Agreement, and the documents referenced
herein and therein constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Securities Purchase Agreement, the
Warrants, the Security Agreement, and the Convertible Debentures supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

            f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

            g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

            h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other parties hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

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

            j. All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding at least 60% of the Registrable
Securities, determined as if all of the Convertible Debentures held by Investors
then outstanding have been converted into Registrable Securities and all
Warrants then outstanding have been exercised for Registrable Securities without
regard to any limitations on conversion of the Convertible Debentures or on
exercise of the Warrants.


                                       17


            k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.

            l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

                                   * * * * * *


                                       18


      IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.

COMPANY:

HEMISPHERX BIOPHARMA, INC.

By:    /s/ William A. Carter
       -------------------------------------
       Name:
       Its:

                    [Signatures of Buyers on Following Page]


                                       19


                [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

                            BUYERS:

                            PORTSIDE GROWTH & OPPORTUNITY FUND

                            By:        /s/ Marran Ogilvie
                                       -----------------------------------------
                            Name:      Marran Ogilvie
                                       -----------------------------------------
                            Title:     General Counsel
                                       -----------------------------------------

                            LEONARDO, L.P. By: Leonardo Capital Management, Inc.

                            By:        /s/ Fred Berger
                                       -----------------------------------------
                            Name:      Fred Berger
                                       -----------------------------------------
                            Title:     Director
                                       -----------------------------------------


                                       20


                               SCHEDULE OF BUYERS


                                                           Investor's Representative's
                                  Investor Address                   Address
Investor                        and Facsimile Number           and Facsimile Number
- --------                        --------------------       ---------------------------
                                                  
Portside Growth &     c/o Ramius Capital Group, LLC     Schulte Roth & Zabel LLP
Opportunity Fund      666 Third Avenue, 26th Floor      919 Third Avenue
                      New York, NY 10017                New York, NY 10022
                      Attention:  Jeffrey Smith         Attn:  Eleazer Klein
                                  Andrew Strober        Telephone:  212-756-2000
                      Telephone:  (212) 845-7955        Facsimile:  (212) 593-5955
                      Facsimile:  (212) 845-7999


Leonardo, L.P.        c/o Angelo Gordon, LP             Paul, Weiss, Rifkind, Wharton &
                      245 Park Avenue                   Garrison LLP
                      New York, NY 10167                1285 Avenue of the Americas
                      Attention:  Fred Berger           New York, NY 10019
                                  Gary Wolf             Attention:  Jaideep P. Reddy, Esq.
                      Telephone:  (212) 692-2000        Telephone: (212) 373-3000
                      Facsimile:  (212) 867-6449        Facsimile: (212) 757-3990





                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[Transfer Agent]
[Address]

      Re: Hemispherx Biopharma, Inc.

Ladies and Gentlemen:

      We are counsel to Hemispherx Biopharma, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders its 6% Senior Secured
Debentures, (the "Convertible Debentures") convertible into shares of the
Company's Common Stock, par value $0.001 per share (the "Common Stock") and
warrants exercisable for shares of its Common Stock (the "Warrants"). Pursuant
to the Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant
to which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Convertible Debentures
and exercise of the Warrants under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on ____________ ___, 2003, the Company filed a Registration
Statement on Form S-3 (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities, which names each of the Holders as a selling
stockholder thereunder.

      In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

                                        Very truly yours,

                                        [ISSUER'S COUNSEL]

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

CC: [LIST NAMES OF HOLDERS]