HEMISPHERX BIOPHARMA INC
DEBENTURE
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>e16705ex10_2.txt
<DESCRIPTION>DEBENTURE
<TEXT>
                                                                    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.

No. __                                                                 $________

                           HEMISPHERX BIOPHARMA, INC.

          6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JANUARY 31, 2006

            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  January  31,  2006,  in an
aggregate principal amount of up to Four Million U.S. Dollars (U.S.  $4,000,000)
(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  ($_________)  when due,  whether on January 31, 2006
(subject  to  extension  as  provided  herein,  the  "Maturity  Date") or on any
Installment Date with respect to the Installment  Amount due on such Installment
Date (each, as defined herein), 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


<PAGE>

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.

      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:


                                       2
<PAGE>

            "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 Pink Sheets LLC. 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 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


                                       3
<PAGE>

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 (A) as of any Conversion Date or other
date of  determination  (other than with respect to an Installment  Amount on an
Installment  Date  pursuant  to a Company  Conversion  (as defined in Section 24
(a)), the Fixed Conversion Price, and (B) with respect to any Installment Amount
on an Installment  Date pursuant to a Company  Conversion,  at the option of the
Holder,  either the Fixed Conversion  Price or the Company  Conversion Price (as
defined  in  Section  24(d)),  each in  effect as of such  date and  subject  to
adjustment as provided herein.

            "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.

            "Fixed  Conversion  Price" shall mean as of any  Conversion  Date or
other date of determination  $2.53, subject to adjustment as provided in Section
6, Anti-dilution Adjustments to Conversion Price.

            "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.


                                       4
<PAGE>

            "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 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.


                                       5
<PAGE>

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

            "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  third  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 Pink  Sheets  LLC.  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


                                       6
<PAGE>

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) 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


                                       7
<PAGE>

announced  such  termination,  abandonment  or  consummation  of such  Change of
Control  (a  "Mandatory  Conversion").  The  Company  shall  send the  Mandatory
Conversion  Notice by 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)


                                       8
<PAGE>

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 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.


                                       9
<PAGE>

                        (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 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


                                       10
<PAGE>

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,  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.

            (h) Application of Conversion Amounts. Subject to the final sentence
of Section  24(b),  any  portion  of this  Debenture  that the Holder  elects to
convert in  accordance  with this Section 4 shall be deducted,  at the option of
the Holder (as set forth in the applicable  Conversion Notice),  either (x) from
the  Installment  Amount  relating to the latest  Installment  Date  (i.e.,  the
Installment Date nearest to the Maturity Date) with respect to which Installment
Amounts remain  outstanding or (y) from the  Installment  Amount relating to the
nearest Installment Date (i.e., nearest to the Installment Date that has not yet
occurred).

      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,


                                       11
<PAGE>

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 upon  exercise of Options or  Convertible
Securities which are outstanding on the date immediately  preceding the Original
Issuance  Date,  provided  that  (except  with  regard to the  Previously-Issued
Securities (as defined in the Securities  Purchase  Agreement)) 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


                                       12
<PAGE>

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  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


                                       13
<PAGE>

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 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


                                       14
<PAGE>

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.

            (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.


                                       15
<PAGE>

       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 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


                                       16
<PAGE>

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 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


                                       17
<PAGE>

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 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


                                       18
<PAGE>

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 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


                                       19
<PAGE>

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

            (d) The Company  shall  default in the payment when due  (including,
without  limitation,  the Company's  failure to pay any  redemption  payments or
amounts  hereunder)  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


                                       20
<PAGE>

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 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


                                       21
<PAGE>

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  pursuant to the terms of the Registration
Rights Agreement)  required to be included in such Registration  Statement on or
before July 26, 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;

            (q)  the  report  of  the   Company's   auditors  on  the  Company's
consolidated  audited financial  statements for the year ended December 31, 2003
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


                                       22
<PAGE>

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.

      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.


                                       23
<PAGE>

      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:

                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.


                                       24
<PAGE>

      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  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. Company Installment Conversion or Redemption.

            (a) General. On each Installment Date (unless waived by the Holder),
the Company  shall pay to the Holder of this Note the  Installment  Amount as of
such Installment Date by the combination of any of the following, but subject to
and in  accordance  with  the  terms  of this  Section  24,  (i)  requiring  the
conversion of a portion of the  applicable  Installment  Amount,


                                       25
<PAGE>

in whole or in part,  in  accordance  with this  Section  24 but  subject to the
satisfaction  of the  Conditions  to Company  Conversion  (as defined  below) (a
"Company Conversion"),  and/or (ii) redeeming the applicable Installment Amount,
in  whole  or  in  part,  in  accordance   with  this  Section  24  (a  "Company
Redemption"); provided that all of the outstanding applicable Installment Amount
as of each  such  Installment  Date must be  converted  and/or  redeemed  by the
Company on the applicable  Installment  Date,  subject to the provisions of this
Section  24. On or prior to the date  which is at least 2 Trading  Days prior to
each Installment  Measuring Period,  the Company shall deliver written notice to
the Holder (each, a "Company  Installment  Notice"),  which Company  Installment
Notice shall state (i) the portion, if any, of the applicable Installment Amount
which the  Company  elects to convert  pursuant to a Company  Conversion,  which
amount  when added to the  Company  Redemption  Amount,  if any,  must equal the
applicable  Installment  Amount  (the  "Company  Conversion  Amount"),  (ii) the
portion,  if any, of the applicable  Installment Amount which the Company elects
to redeem pursuant to a Company  Redemption (the "Company  Redemption  Amount"),
which amount when added to the Company Conversion Amount, if any, must equal the
applicable Installment Amount, and (iii) if the Company has elected, in whole or
in part, a Company Conversion, then the Company Installment Notice shall certify
that the  Conditions to Company  Conversion  are satisfied as of the date of the
Company   Installment  Notice.  If  the  Company  does  not  deliver  a  Company
Installment  Notice in  accordance  with this Section  24(a),  then the "Company
Redemption  Amount" and the  "Company  Conversion  Amount"  with respect to such
Installment  Date shall be in such amounts and  proportions  as the Holder shall
designate in writing to the Company in its sole discretion and the Company shall
be deemed to have  delivered a Company  Installment  Notice  setting  forth such
amounts.  Each  Company  Installment  Notice  shall be  irrevocable.  Except  as
expressly  provided in this Section 24(a),  the Company shall redeem and convert
the applicable  Installment Amount of this Debenture pursuant to this Section 24
and the corresponding  Installment  Amounts of the other Debentures  pursuant to
the  corresponding  provisions of the other  Debentures in the same ratio of the
Installment  Amount  being  redeemed  and  converted   hereunder.   The  Company
Redemption  Amount  (whether set forth in the Company  Installment  Notice or by
operation  of this  Section  24) shall be redeemed in  accordance  with  Section
24(b), and the Company  Conversion  Amount shall be converted in accordance with
Section 24(c).

            (b) Mechanics of Company  Redemption.  If the Company elects,  or is
deemed to have elected,  a Company  Redemption in accordance with Section 24(a),
then the Company Redemption Amount, if any, which is to be paid to the Holder on
the  applicable  Installment  Date  shall be  redeemed  by the  Company  on such
Installment  Date,  and the Company shall pay to the Holder on such  Installment
Date, by wire transfer of immediately  available  funds,  an amount in cash (the
"Company Installment  Redemption Price") equal to the sum of 100% of the Company
Redemption  Amount.  Notwithstanding  anything to the  contrary in this  Section
24(b),  but  subject  to  Sections  11 and 26,  until  the  Company  Installment
Redemption  Price  (together  with any  interest  thereon) is paid in full,  the
Company  Redemption  Amount  (together  with any interest  thereon to the extent
permitted in this  Debenture  to be paid by the Company in Common  Stock) may be
converted,  in whole or in part,  by the Holder  into Common  Stock  pursuant to
Section 4.

            (c) Mechanics of Company  Conversion.  Subject to Sections 11 and 26
and Section  24(e),  if the Company  delivers a Company  Installment  Notice and
elects or is


                                       26
<PAGE>

deemed to have elected,  in whole or in part, a Company Conversion in accordance
with Section 24(a), then the applicable Company Conversion Amount, if any, which
remains outstanding shall be converted as of the applicable  Installment Date by
converting on such  Installment  Date such Company  Conversion  Amount as if the
Holder had delivered a Conversion  Notice  pursuant to Section 4 with respect to
such Company  Conversion  Amount on such Installment Date but without the Holder
being required to actually  deliver such  Conversion  Notice;  provided that the
Conditions  to Company  Conversion  are  satisfied  (or waived in writing by the
Holder) on such  Installment  Date. If the Conditions to Company  Conversion are
not  satisfied  (or waived in writing by the Holder) on such  Installment  Date,
then at the option of the Holder  designated  in  writing  to the  Company,  the
Holder may require the Company to do any one or more of the  following:  (i) the
Company shall redeem all or any part designated by the Holder of the unconverted
Company  Conversion  Amount (such designated amount is referred to as the "First
Redemption  Amount") on such  Installment  Date and the Company shall pay to the
Holder on such  Installment  Date,  by wire  transfer of  immediately  available
funds,  an amount in cash equal to such  First  Redemption  Amount,  or (ii) the
Company  Conversion  shall  be null  and void  with  respect  to all or any part
designated by the Holder of the unconverted  Company  Conversion  Amount and the
Holder shall be entitled to all the rights of a holder of this Note with respect
to such amount of the Company  Conversion Amount. If the Company fails to redeem
any First  Redemption  Amount on the applicable  Installment  Date by payment of
such amount on the applicable  Installment  Date, then the Holder shall have the
rights set forth in Section 24(b) as if the Company failed to pay the applicable
Company  Redemption  Price  and all other  rights  under  this Note  (including,
without limitation,  such failure  constituting an Event of Default described in
Section  15(d)).  In the event the Holder  delivers a  Conversion  Notice to the
Company  after the earlier of the date which is 10 days prior to the  applicable
Installment Date and the Holder's receipt of the Company  Installment  Notice in
respect of such  Installment  Date in which the  Company  elects or is deemed to
have  elected a Company  Redemption,  the  Principal  amount  specified  in such
Conversion Notice shall be deducted (1) first, from the Principal represented by
the Company  Redemption  Amount and then (2) second,  in accordance with Section
4(e)(h).

            (d) Conditions to Company  Conversion.  For purposes of this Section
24, "Conditions to Company  Conversion" means (i) during the period beginning on
the  Original   Issuance  Date  and  ending  on  and  including  the  applicable
Installment  Date, the Company shall have delivered  shares of Common Stock upon
any  conversion of Conversion  Amounts on a timely basis as set forth in Section
4(e)(ii) and analogous  provisions  under the other  Debentures,  and shall have
delivered shares of Common Stock upon exercise of any Warrants on a timely basis
as set forth in Section 2(a) of the Warrants; (ii) on each day during the period
beginning  on the  Original  Issuance  Date  and  ending  on and  including  the
applicable  Installment  Date, the Common Stock shall be listed on the Principal
Market  and  delisting  or  suspension  of the  Common  Stock by such  market or
exchange shall not have been threatened  either (A) in writing by such market or
exchange or (B) by falling below the minimum listing maintenance requirements of
such market or exchange for the Common Stock;  (iii) during the period beginning
on the  Original  Issuance  Date and  ending  on and  including  the  applicable
Installment   Date,  there  shall  not  have  occurred  either  (x)  the  public
announcement of a pending,  proposed or intended Change of Control which has not
been  abandoned,  terminated  or  consummated  or (y) an Event of Default;  (iv)
during the period beginning on the date which is the Original  Issuance Date and
ending on and including the applicable  Installment  Date,  there


                                       27
<PAGE>

shall not have  occurred  an event  that with the  passage  of time or giving of
notice,  and assuming it were not cured,  would  constitute an Event of Default;
(v) on each day of the period  beginning  on the date of  delivery  of a Company
Installment  Notice  with  respect  to an  Installment  Date and  ending  on the
applicable   Installment   Date  either  (x)  the   Registration   Statement  or
Registration  Statements  required pursuant to the Registration Rights Agreement
shall be  effective  and  available  for the  resale  of all of the  Registrable
Securities  in  accordance  with and to the extent  required by the terms of the
Registration  Rights  Agreement or (y) all shares of Common Stock  issuable upon
conversion of the  Debentures  and shares of Common Stock issuable upon exercise
of the Warrants shall be eligible for sale without  restriction  (other than any
restriction  arising  under  applicable  federal or state  securities  laws as a
result of the holder of such  securities  being an Affiliate of the Company) and
without  the  need  for  registration  under  any  applicable  federal  or state
securities  laws;  (vi) on each day of the period  beginning  on the  applicable
Installment  Date and  ending  thirty  Trading  Days  thereafter  either (x) the
Registration  Statements  required pursuant to the Registration Rights Agreement
shall be expected to be effective  and  available for the resale of at least all
of the  Registrable  Securities in accordance with and to the extent required by
the terms of the Registration Rights Agreement or (y) all shares of Common Stock
issuable upon  conversion of the  Debentures and shares of Common Stock issuable
upon  exercise of the Warrants  shall be eligible  for sale without  restriction
(other than any restriction arising under applicable federal or state securities
laws as a result of the holder of such securities  states as an Affiliate of the
Company) and without the need for registration  under any applicable  federal or
state  securities  laws;  and (vii) the  Company  otherwise  shall  have been in
material  compliance with and shall not have breached,  in any material respect,
any provision,  covenant,  representation or warranty of the Securities Purchase
Agreement,  any of the  Warrants,  any of  the  Debentures  or any of the  other
Transaction Documents.

            (e)  Certain  Definitions.  For  purposes  of this  Section  24, the
following capitalized terms shall have the following meanings:

                  (i)  "Company  Conversion  Price"  means,  with respect to any
Company Conversion,  that price which shall be computed as 95% of the arithmetic
average of the Weighted Average Price of the Common Stock on each trading day in
the Installment Measuring Period.

                  (ii)   "Installment   Amount"  means,   with  respect  to  any
Installment  Date, the Outstanding  Principal Amount of this Debenture as of the
Installment  Date divided by the number of full months  between the  Installment
Date and  January  31,  2006.  In the event the Holder  shall sell or  otherwise
transfer any portion of this Debenture,  the transferee shall be allocated a pro
rata portion of the Installment Amount.

                  (iii) "Installment Date" means each monthly anniversary of the
Original Issuance Date, commencing on July 26, 2005.

                  (iv) "Installment  Measuring Period" means, with respect to an
Installment  Date, the 10-day trading day period commencing on and including the
eleventh  trading day immediately  preceding such Installment Date and ending on
and including the trading day immediately preceding such Installment Date.


                                       28
<PAGE>

      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, 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


                                       29
<PAGE>

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 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


                                       30
<PAGE>

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;

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

                        (F) Liens securing all  obligations  under the Company's
6% Senior  Secured  Convertible  Debentures  Due October 31, 2005 (the  "October
Debentures")  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.


                                       31
<PAGE>

                  (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  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


                                       32
<PAGE>

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,  (H)  Indebtedness  relating to the
Company's  July  Debentures,  and (I)  Indebtedness  relating  to the  Company's
October  Debentures.   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


                                       33
<PAGE>

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  pursuant to
the terms of the  Registration  Rights Agreement or (C) there has been any Grace
Period (as such term is defined in the Registration Rights Agreement).

                  (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


                                       34
<PAGE>

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 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;


                                       35
<PAGE>

            (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
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


                                       36
<PAGE>

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 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


                                       37
<PAGE>

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  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


                                       38
<PAGE>

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  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


                                       39
<PAGE>

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.

                  (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.

                  (vii)  Notwithstanding  anything  herein to the contrary,  the
Company shall not be obligated to make any collateral  payments,  or deliver any
Cash Collateral Certificates, pursuant to this Section 25(g) (whether in cash or
in shares of Common Stock) on any Biweekly Revenue Cash Collateral Date, Monthly
Revenue Cash Collateral Date, the First Revenue  Milestone Cash Collateral Date,
the  Second  Revenue  Milestone  Cash  Collateral  Date,  or the  Third  Revenue
Milestone  Cash  Collateral  Date to the  extent  that the  balance  in the Cash
Collateral Account (as defined in the Securities Purchase Agreement) is not less
than $1,300,000.

            (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),  (3) shall not be permitted to issue Repayment  Shares (but
instead shall make cash collateral payments in cash), (4) shall not be permitted
to make a Company Conversion, and (5) shall not be permitted to issue conversion
shares, interest shares,  repayment shares, or warrant shares in connection


                                       40
<PAGE>

with the  Previously-Issued  Securities (as defined in the  Securities  Purchase
Agreement),  in each case 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 or redemption  of, or as
interest under, this Debenture, shares of Common Stock 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  and shares  issued in  connection  with a Company  Conversion
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  plus (C) the aggregate  number of shares of Common
Stock  issued to the  holder of this  Debenture  (and all  predecessor  holders)
pursuant  to  the  Previously-Issued   Securities  (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 Weighted  Average  Price 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 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


                                       41
<PAGE>

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
(if  applicable),  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 Holder claiming complete exemption from U.S. Federal
withholding  tax on payments of interest  (or of  original  issue  discount,  if
applicable)  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


                                       42
<PAGE>

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.

            (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.


                                       43
<PAGE>

            (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.


                                       44
<PAGE>

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

Dated:  January 26, 2004
                                         HEMISPHERX BIOPHARMA, INC.

                                         By: ___________________________________
                                               Name:
                                               Title:
                                         Print Address:
                                         Telephone:
                                         Facsimile:

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


                                       45
<PAGE>

                                    EXHIBIT I

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

                                CONVERSION NOTICE
                                       FOR
          6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JANUARY 31, 2006

            The  undersigned,  as Holder of the 6%  Senior  Secured  Convertible
Debenture Due January 31, 2006 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: _____________________________________

         Installment Date to which the amount to be converted relates: _________

         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 ____

<PAGE>

         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]

<PAGE>

                                 ACKNOWLEDGMENT


            The Company hereby  acknowledges  this Conversion  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 January 26, 2004 from the Company and acknowledged and
agreed to by Continental Stock Transfer & Trust Company.


                                              HEMISPHERX BIOPHARMA, INC.


                                              By: ______________________________

                                                  Name: ________________________

                                                  Title: _______________________

<PAGE>

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.........................................................41
Cash Collateral Account........................................................3
Cash Collateral Account Bank...................................................3
Cash Collateral Certificate...................................................40
Cash Interest Payment..........................................................1
Cash Transaction...........................................................3, 17
Change of Control.............................................................17
Change of Control Redemption Price............................................16
Closing Sale Price..........................................................3, 7
Collateral.....................................................................4
Common Stock...............................................................4, 46
Common Stock Deemed Outstanding................................................4
Company................................................................1, 46, 55
Conversion Date................................................................9
Conversion Failure.............................................................4
Conversion Notice..............................................................8
Conversion Price...............................................................4
Conversion Rate................................................................8
Convertible Securities.........................................................4
Debenture..................................................................1, 46
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..................................................................41
Fixed Conversion Price.........................................................4
Holder.........................................................................1
Indebtedness..................................................................21
Intellectual Property..........................................................5
Interest Payment Date..........................................................1
Interest Payments..............................................................1
Interferon Acquisition.........................................................5


<PAGE>

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..................................................6
Rule 144......................................................................25
SEC............................................................................6
Securities Agreement...........................................................6
Securities Purchase Agreement..................................................6
Share Delivery Date............................................................9
Strategic Financing............................................................6
Transaction Documents..........................................................6
Transfer Agent.................................................................8
Valuation Event...............................................................14
Warrants.......................................................................6
Weighted Average Price.......................................................6,7


<PAGE>

                                    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 January 31, 2006.

            "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


<PAGE>

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


<PAGE>

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.

<PAGE>

                                    EXHIBIT B

                                    Inventory

<PAGE>

                                   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 January 31, 2006 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: $_____________________.

<PAGE>

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

                                     ______________________________

</TEXT>
</DOCUMENT>
