CLASS A SENIOR SECURED CONVERTIBLE DEBENTURE

THE SECURITIES  OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE  REGISTRATION  REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE  TRANSFERRED  OR RESOLD  EXCEPT AS  PERMITTED  UNDER  SUCH LAWS  PURSUANT  TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES  AND EXCHANGE  COMMISSION OR ANY OTHER  REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS  OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING  MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

ISSUANCE DATE                                             September __, 2003
CONVERTIBLE DEBENTURE DUE                                 December 31, 2006
AMOUNT                                                    Up to $1,500,000.00


     FOR VALUE RECEIVED,  Material  Technologies,  Inc., a Delaware  corporation
(the  "Company"),  hereby promises to pay Palisades  Capital,  LLC or registered
assigns (the "Holder") on December 31, 2006 (the "Maturity  Date"),  a principal
amount equal to the amount set forth on the Schedule of Advances attached hereto
and signed by the Company,  and to pay interest on the principal  amount hereof,
in such amounts, at such times and on such terms and conditions as are specified
herein.

Article 1. Interest
-------------------

     The Company shall pay interest on the unpaid  principal  amount and accrued
but unpaid  interest of this Class A Senior Secured  Convertible  Debenture (the
"Debenture") in monthly payments of accrued  interest,  payable on the first day
of each month,  at the rate of Ten Percent (10%) per annum,  payable in arrears,
in  cash,  until  the  principal  amount  hereof  is paid  in  full or has  been
converted.  Interest  shall  accrue from the date of each  advance,  on the full
amount of such advance.  Notwithstanding  the foregoing,  the Company shall have
the right to defer payment of interest  until the Maturity  Date,  provided that
the  Company  shall not defer any  interest  payments  to the extent of positive
Earnings Before  Interest,  Taxes,  Depreciation  and  Amortization  ("EBITDA").
Therefore, at the election of the Company, interest may be paid out of, and only
to the extent of, EBITDA.

Article 2. Method of Payment
----------------------------

     The  Company  may draw a check for the  payment of interest to the order of
the Holder of this Debenture and mail it to the Holder's address as shown on the
Register  (as defined in Section 7.2 below).  Alternatively,  the Company  shall
have the right at any time to pay  accrued  but unpaid  interest  in  restricted
shares of the Company's Class A Common Stock ("Common Stock"),  based on a price
equal to fifty percent  (50%) of the average  closing price of such Common Stock
for the ten trading  days prior to issuance of such Common  Stock to the Holder,



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so long as such  shares  are  actually  delivered  to the  Holder  within  seven
business  days of issuance.  In the event the Company  elects to pay any accrued
interest by issuance of Common  Stock,  then the Company shall notify the Holder
in writing  not less than seven  business  days  prior to the  issuance  of such
shares,  and the  Holder  shall  have the right at any time  before  receipt  of
delivery  of such  shares to notify the  Company of the  Holder's  desire not to
accept  payment of interest  in the form of Common  Stock.  In such  event,  the
Company  shall not have the  right to pay any  accrued  interest  in the form of
Common  Stock.  In such event the  Company  shall have the right to  continue to
accrue such interest until the Maturity Date.

     The  Company  shall have the right at any time to prepay the  Debenture  in
whole or in part,  upon not less than ten (10) days prior written  notice to the
Holders (a "Prepayment Notice"). Other than with respect to a prepayment arising
under Section 3.1(b), during the ten (10) days following the Holder's receipt of
such  Prepayment  Notice,  the  Holder  shall  have the  right to  convert  this
Debenture at the then applicable  Conversion Price,  notwithstanding  any notice
provision or conversion  limitation set forth in Section 3.1(a),  which shall in
such event not apply and be waived.

Article 3. Conversion
---------------------

     Section 3.1. Conversion Privilege
     ---------------------------------

     (a)  The Holder of this Debenture shall have the right,  at its option,  to
convert this Debenture  into shares of Common Stock at any time following  March
30, 2004, and then only after not less than  seventy-five (75) days prior notice
to the  Company.  The  number  of  shares  of  Common  Stock  issuable  upon the
conversion of this Debenture is determined  pursuant to Section 3.2 and rounding
the result to the nearest whole share.  At any time after  delivery by Holder to
the  Company of a Notice of Intent to Convert,  the  Company  shall not have the
right to pre-pay the balance due on the Debenture,  and the Holder shall convert
the  Debenture  according  to the  terms  herein on the 75th day  following  the
mailing or  transmission of such notice of intent (the "Notice of Intent Date").
In the event such  notice of intent is mailed or  transmitted  within 75 days of
the Maturity  Date,  the Holder shall have the right to extend the Maturity Date
so as to allow  conversion  of the  Debenture 75 days after the Notice of Intent
Date.

     (b)  In the event the Holder of the Debenture  elects to convert all or any
portion of the Debenture into Common Stock at any time, and the then  applicable
Conversion  Price is less than $0.10 per share,  then the Company shall have the
right,  at any time during the 75 days following the date of the Holder's Notice
of  Conversion,  to prepay  all or any  portion of the  Debenture  that has been
requested to be  converted,  and the Company will  therefore  not be required to
issue shares of Common Stock upon  conversion so long as such  Debenture is paid
with good,  cleared funds prior to the date the Company is required to issue the
Common Stock. This provision shall be waived in the event the Holder at any time
elects to convert the Debenture at a Conversion Price equal to $0.10.

     (c)  Less  than  all of the  principal  amount  of  this  Debenture  may be
converted  into  Common  Stock if the  portion  converted  is  $1,000 or a whole
multiple  of $1,000  and the  provisions  of this  Article  3 that  apply to the
conversion  of all of the  Debenture  shall  also apply to the  conversion  of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.



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     Section 3.2. Conversion Procedure.
     ----------------------------------

     (a)  Debentures.  Subject to Section 3.1,  after  having  received not less
          ----------
than  seventy-five  (75) days prior notice of Holder's intent to purchase (which
notice shall not in any event obligate the Holder to convert any portion of this
Debenture),  upon the  Company's  receipt of a facsimile or original of Holder's
duly  completed  and signed  Notice of  Conversion  (a copy of which is attached
hereto as Exhibit A), the Company shall instruct its transfer agent to issue one
or more  Certificates  representing  that number of shares of Common  Stock into
which the Debentures are convertible in accordance with the provisions regarding
conversion.  The Company's transfer agent or attorney shall act as Registrar and
shall maintain an appropriate  ledger containing the necessary  information with
respect to each Debenture.

     (b)  Conversion Date.  Such conversion shall be effectuated by surrendering
          ---------------
to the Company, or its attorney, the Debentures (or a copy thereof if the Holder
certifies that the original has been lost or destroyed) to be converted together
with a facsimile  or original of the signed  Notice of  Conversion.  The date on
which the Notice of Conversion is effective  ("Conversion Date") shall be deemed
to be the date on which the Holder has  delivered  to the Company a facsimile or
original of the signed Notice of Conversion, and so long as the time limitations
set forth in Section  3.1(a) have been  satisfied.  The Company shall deliver to
the Holder, or per the Holder's instructions,  the shares of Common Stock within
seven (7) business days of receipt of the Debentures to be converted.

     (c)  Common Stock to be Issued.  Subject to the time  limitations set forth
          -------------------------
in Section 3.2(a) above,  upon the conversion of any Debentures and upon receipt
by the Company or its  attorney of a  facsimile  or original of Holder's  signed
Notice of Conversion,  Company shall instruct  Company's transfer agent to issue
Stock  Certificates  in the  name  of  Holder  (or  its  nominee)  and  in  such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable.

     (d)  Conversion Rate.  Subject to the time limitations set forth in Section
          ---------------
3.1(a),  Holder is entitled to convert this  Debenture,  plus accrued  interest,
into Common  Stock of the Company at the lesser of (i) 50% of the  averaged  ten
closing  prices for the  Company's  Common  Stock for the ten (10)  trading days
immediately  preceding the Conversion  Date or (ii) $0.10 (the lesser of the two
being  referred to as the  "Conversion  Price").  No fractional  shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares  issuable shall be rounded up or down, as the case may be, to the nearest
whole share.

     (e)  Nothing  contained in this  Debenture  shall be deemed to establish or
require the payment of interest to the Holder at a rate in excess of the maximum
rate permitted by governing law. In the event that the rate of interest required
to be paid  exceeds the maximum rate  permitted  by  governing  law, the rate of
interest  required to be paid thereunder shall be  automatically  reduced to the
maximum rate permitted under the governing law and such excess shall be returned
with reasonable promptness by the Holder to the Company.




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<PAGE>






     (f)  It shall be the Company's responsibility to take all necessary actions
and to bear  all  such  costs  to issue  certificates  for the  Common  Stock as
provided  herein,  including  the  responsibility  and cost for  delivery  of an
opinion letter to the transfer agent,  if so required.  The person in whose name
the  certificate  of Common  Stock is to be  registered  shall be  treated  as a
shareholder  of record on and after the conversion  date.  Upon surrender of any
Debentures  that are to be  converted  in part,  the Company  shall issue to the
Holder new Debentures  representing the unconverted  amount,  if so requested by
Holder.

     (g)  Payment of Taxes.  The Company shall pay all documentary  stamp taxes,
          ----------------
if any,  attributable  to the initial  issuance of the Common  Stock;  provided,
however,  that the  Company  shall not be required to pay any tax or taxes which
may be payable,  (i) with respect to any secondary transfer of the Debentures or
the  Common  Stock  issuable  upon  exercise  hereof  or (ii) as a result of the
issuance  of the Common  Stock to any  person  other  than the  Holder,  and the
Company shall not be required to issue or deliver any certificate for any Common
Stock unless and until the person  requesting  the issuance  thereof  shall have
paid to the Company the amount of such tax or shall have produced  evidence that
such tax has been paid to the appropriate taxing authority.

     (h)  Conversion  Default.  If,  at any time  Holder  submits  a  Notice  of
          -------------------
Conversion  and the Company  does not have  sufficient  authorized  but unissued
shares of Common  Stock  available  to  effect,  in full,  a  conversion  of the
Debentures (a "Conversion Default"), the Company shall promptly issue so many of
its authorized  shares as are then  available,  and then use its best efforts to
take such action as may be required to  increase  the  authorized  shares of the
Company  in order to  provide  for the  issuance  of all  required  shares  upon
Conversion.

     Section 3.3. Company to Reserve Stock. The Company shall reserve the number
     -------------------------------------
of shares of Common Stock  required  pursuant to and upon the terms set forth in
the  Subscription  Agreement,  to permit the conversion of this  Debenture.  All
shares of Common Stock which may be issued upon the conversion hereof shall upon
issuance  be  validly  issued,  fully paid and  nonassessable  and free from all
taxes, liens and charges with respect to the issuance thereof.

     Section  3.4.  Restrictions  on  Transfer.  This  Debenture  has  not  been
     -----------------------------------------
registered  under the  Securities  Act of 1933,  as amended,  (the "Act") and is
being  issued  under  Section  4(2) of the  Act and  Rule  506 of  Regulation  D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an exemption  from the Act. In the event the Company  shall file a  registration
statement with the Securities and Exchange Commission,  on any form other than a
Form S-8, then the Company shall register the shares issuable upon conversion of
this  Debenture,  as well as any other shares  requested to be registered by the
Holder.

     Section  3.5.  Mergers, Etc.  If the Company  merges or  consolidates  with
     ---------------------------
another corporation or sells or transfers all or substantially all of its assets
to another  person and the holders of the Common  Stock are  entitled to receive
stock,  securities  or property in respect of or in exchange  for Common  Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such  successor,  purchaser or transferee  shall amend this Debenture to
provide  that it may  thereafter  be  converted  on the terms and subject to the
conditions  set forth  above  into the kind and amount of stock,  securities  or
property  receivable  upon such  merger,  consolidation,  sale or  transfer by a



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<PAGE>






holder of the number of shares of Common Stock into which this  Debenture  might
have been  converted  immediately  before such  merger,  consolidation,  sale or
transfer,  subject to adjustments  which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.

Article 4. Mergers
------------------

     The  Company  shall not  consolidate  or merge  into,  or  transfer  all or
substantially  all of its assets  to,  any  person,  without  the prior  written
consent of the  Holders  of a  majority  of the  outstanding  Debentures,  which
consent may be withheld  in each  Holder's  sole and  absolute  discretion.  Any
reference  herein to the Company  shall refer to such  surviving  or  transferee
corporation and the obligations of the Company shall terminate upon such written
assumption.

Article 5. Reports
------------------

     The Company  will mail to the Holder  hereof at its address as shown on the
Register a copy of any annual, quarterly or other report or proxy statement that
it gives to its  shareholders  generally at the time such report or statement is
sent to shareholders,  unless such report is timely filed with the United States
Securities and Exchange Commission.

Article 6. Defaults and Remedies
--------------------------------

     Section  6.1.  Events of Default.  An "Event of Default"  occurs if (a) the
     --------------------------------
Company does not make the payment of the  principal of this  Debenture  when the
same becomes due and payable at maturity, upon redemption or otherwise,  (b) the
Company does not make a payment, other than a payment of principal, for a period
of five  (5)  business  days  after  its  due  date,  (c)  any of the  Company's
representations  or  warranties  contained  in this  Debenture or in the related
Security  Agreement  dated the date  hereof  were false when made or the Company
fails to  comply  with any of its other  agreements  in this  Debenture  or such
Security  Agreement  and such  failure  continues  for the  period and after the
notice specified below, (d) the Company shall default under that certain License
Agreement between the Company and the Trustees of the University of Pennsylvania
(as  amended),  (e) the  Company  shall  violate or breach any of the  covenants
contained  in this  Agreement,  or (f) the  Company  pursuant  to or within  the
meaning  of any  Bankruptcy  Law  (as  hereinafter  defined):  (i)  commences  a
voluntary  petition under Bankruptcy Law; (ii) consents to the entry of an order
for relief against it in an involuntary  bankruptcy petition;  (iii) consents to
the  appointment  of a Custodian  (as  hereinafter  defined) of it or for all or
substantially  all of its  property or (iv) makes a general  assignment  for the
benefit of its  creditors  or (v) a court of  competent  jurisdiction  enters an
order or decree under any  Bankruptcy  Law that:  (A) is for relief  against the
Company in an involuntary  bankruptcy petition;  (B) appoints a Custodian of the
Company  or for all or  substantially  all of its  property  or (C)  orders  the
liquidation  of the  Company,  and the order or decree  remains  unstayed and in
effect for 60 days. As used in this Section 6.1, the term "Bankruptcy Law" means
Title 11 of the United  States Code or any similar  federal or state law for the
relief of debtors. The term "Custodian" means any receiver,  trustee,  assignee,
liquidator or similar official under any Bankruptcy Law.






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<PAGE>






     Section 6.2. Acceleration. If an Event of Default occurs and is continuing,
     -------------------------
the Holder hereof by notice to the Company,  may declare the remaining principal
amount of this  Debenture,  together  with all accrued  interest,  to be due and
payable. Upon such declaration,  the remaining principal amount shall be due and
payable immediately.

     Section 6.3.  Covenants.  The Company  hereby agrees to comply with each of
     -----------------------
the  following  covenants,  the breach or  violation of which shall be deemed an
Event of Default hereunder.  Without the prior written consent of the Holders of
at least a majority of the outstanding Debentures:

     a.   The Company  shall not  authorize  or issue any  additional  shares of
          preferred  stock,  or any  shares of Common  Stock  other than Class A
          Common Stock;

     b.   The Company shall not effect a split of its Common  Stock,  or pay any
          dividends on its Common Stock, without the consent of the Holders of a
          majority of the outstanding Debentures;

     c.   The Company  shall not issue any  additional  Debentures  to any party
          (this shall not prevent the Company from issuing  other  debentures or
          debt obligations);

     d.   The Company shall not increase the compensation paid or payable to any
          of its officers or directors by more than five percent (5%) in any one
          calendar year;

     e.   The  Company  shall  at all  times  comply  in all  respects  with the
          reporting  requirements of the Securities and Exchange Act of 1934, as
          amended  (the  "Exchange  Act"),  and  shall  take  such  action as is
          required from time to time to continue and maintain the eligibility of
          the Company's stockholders to transfer securities without registration
          under the exemption provided by Rule 144 promulgated under the Act.

     f.   The Company  shall not use any of the  proceeds of the issuance of the
          Debentures to pay any accrued salaries or past due accounts,  payables
          or debts,  without  the prior  written  consent  of the  Holders  of a
          majority of the Debentures.

     g.   The  Company  shall not waive or modify any of the  provisions  of the
          Shareholder  Agreement in  connection  with the  44,000,000  shares of
          Class A Common Stock issued to Robert Bernstein,  or any transferee of
          such shares, and shall not permit any of such shares to be transferred
          without  legend at any time  prior to  expiration  of the term of such
          agreement.

Article 7. Record Ownership
---------------------------

     Section 7.1. Record Ownership. The Company, or its attorney, shall maintain
     -----------------------------
a register of the holders of the Debentures (the "Register") showing their names
and addresses and the serial numbers and principal  amounts of Debentures issued
to or  transferred  of record by them from  time to time.  The  Register  may be
maintained in electronic,  magnetic or other  computerized form. The Company may
treat the person  named as the Holder of this  Debenture  in the Register as the


                                        6
<PAGE>






sole  owner of this  Debenture.  The  Holder  of this  Debenture  is the  person
exclusively entitled to receive payments of interest on this Debenture,  receive
notifications  with respect to this Debenture,  convert it into Common Stock and
otherwise exercise all of the rights and powers as the absolute owner hereof.

     Section 7.2.  Registration of Transfer.  Transfers of this Debenture may be
     --------------------------------------
registered on the books of the Company  maintained for such purpose  pursuant to
Section 7.2 above (i.e., the Register).  Transfers shall be registered when this
Debenture  is  presented  to the Company with a request to register the transfer
hereof and the Debenture is duly endorsed by the appropriate person,  reasonable
assurances are given that the  endorsements  are genuine and effective,  and the
Company has received evidence  satisfactory to it that such transfer is rightful
and in compliance  with all  applicable  laws,  including tax laws and state and
federal  securities laws. When this Debenture is presented for transfer and duly
transferred hereunder, it shall be canceled and a new Debenture showing the name
of the  transferee as the record holder  thereof shall be issued in lieu hereof.
When this  Debenture is  presented  to the Company with a reasonable  request to
exchange it for an equal principal amount of Debentures of other  denominations,
the Company shall make such  exchange and shall cancel this  Debenture and issue
in lieu  thereof  Debentures  having  a total  principal  amount  equal  to this
Debenture in such denominations as agreed to by the Company and Holder.

     Section  7.3.  Lost  Debentures.  If  this  Debenture  becomes  defaced  or
     -------------------------------
mutilated but is still substantially intact and recognizable, the Company or its
agent may issue a new  Debenture  in lieu hereof upon its  surrender.  Where the
Holder of this Debenture  claims that the Debenture has been lost,  destroyed or
wrongfully  taken,  the  Company  shall  issue a new  Debenture  in place of the
original  Debenture  if the Holder so requests by written  notice to the Company
actually  received by the Company  before it is notified  that the Debenture has
been  acquired  by a bona fide  purchaser  and the Holder has  delivered  to the
Company  an  indemnity  bond in such  amount  and  issued by such  surety as the
Company  deems  satisfactory  together  with an affidavit of the Holder  setting
forth the facts  concerning  such loss,  destruction or wrongful taking and such
other  information in such form with such proof or  verification  as the Company
may request.

     Sectin  7.4.  Indemnification  for  Transfers.  In  the  event  any  Holder
     ---------------------------------------------
transfers  all or any  portion  of the  Debenture,  the  Holder  hereby  assumes
liability for, and hereby agree to pay, protect,  defend (at trial and appellate
levels and with  attorneys,  consultants  and experts  reasonably  acceptable to
Company),  and save  Company  harmless  from and against,  and hereby  indemnify
Company  from  and  against  any and all  liens,  damages,  (including,  without
limitation,  punitive or exemplary  damages) losses,  liabilities,  obligations,
settlement  payments,  penalties,  fines,  assessments,  citations,  directives,
claims, litigation,  demands, defenses,  judgments,  suits, proceedings,  costs,
disbursements and expenses of any kind or of any nature  whatsoever  (including,
without limitation,  reasonable  attorneys',  consultants' and experts' fees and
disbursements  actually  incurred  in  investigating,   defending,  settling  or
prosecuting any claim,  litigation or proceeding)  (collectively  "Costs") which
may at any time be imposed  upon,  incurred by or  asserted  or awarded  against
Company,  and  arising  and  proximately  caused  directly  from  or  out of the
subsequent transfer,  conveyance or other disposition of the any warrant, Common
Stock or debenture of the Company  which results in a violation of, or otherwise
disqualifies  the  issuance  of the such  security  from any  federal  and state
exemptions  from  registration  which the Company  relied on in issuing the such
security.


                                        7
<PAGE>






Article 8. Dilution.
--------------------

     The  number of  shares of Common  Stock  issuable  upon  conversion  of the
Debentures  shall be dilutive.  The Company's  executive  officers and directors
have studied and fully understand the nature of the transactions contemplated by
this  Debenture  and recognize  that the  Debenture,  if excercised  will have a
dilutive effect on existing shareholders.  The board of directors of the Company
has concluded, in its good faith business judgment, that such issuance is in the
best interests of the Company.  The Company  specifically  acknowledges that its
obligation  to issue  additional  shares of  Common  Stock is  binding  upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.

Article 9. Notices
------------------

     Any  notice  which  is  required  or  convenient  under  the  terms of this
Debenture  shall be duly given if it is in writing  and  delivered  in person or
mailed by first class mail,  postage  prepaid and  directed to the Holder of the
Debenture  at its address as it appears on the  Register or if to the Company to
its principal executive offices.  The time when such notice is sent shall be the
time of the giving of the notice.

Article 10. Time
----------------

     Where this  Debenture  authorizes  or requires  the payment of money or the
performance  of a condition  or  obligation  on a Saturday or Sunday or a public
holiday,  or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday,  such payment may be made or condition or  obligation  performed on the
next  succeeding  business day, and if the period ends at a specified hour, such
payment may be made or condition  performed,  at or before the same hour of such
next  succeeding  business  day,  with the same  force and  effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in  California  are not  required or allowed to be
closed.

Article 11. Waivers
-------------------

     The holders of a majority in principal amount of the Debentures may waive a
default or rescind the  declaration of an Event of Default and its  consequences
except for a default in the  payment of  principal  or  conversion  into  Common
Stock.

Article 12. Rules of Construction
---------------------------------

     In this  Debenture,  unless the context  otherwise  requires,  words in the
singular number include the plural, and in the plural include the singular,  and
words of the masculine gender include the feminine and the neuter,  and when the
sense so  indicates,  words of the neuter  gender may refer to any  gender.  The
numbers and titles of sections  contained  in the  Debenture  are  inserted  for
convenience  of reference  only,  and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof.  Wherever,



                                        8
<PAGE>






in this Debenture,  a determination of the Company is required or allowed,  such
determination  shall be made by a  majority  of the  Board of  Directors  of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.

Article 13. Governing Law
-------------------------

     The validity, terms, performance and enforcement of this Debenture shall be
governed and construed by the provisions  hereof and in accordance with the laws
of the  State of  California  applicable  to  agreements  that  are  negotiated,
executed,  delivered  and  performed  solely  in the  State of  California.  The
prevailing  party in any dispute arising  hereunder shall be entitled to recover
all of its  reasonable  attorney's  fees and costs of  defense,  prosecution  or
litigation.

Article 14. Litigation
----------------------

     (a)  Forum  Selection and Consent to  Jurisdiction.  Any  litigation  based
          ---------------------------------------------
thereon,  or arising out of, under, or in connection with, this agreement or any
course of conduct,  course of dealing,  statements  (whether oral or written) or
actions of the Company or Holder shall be brought and maintained  exclusively in
the state or federal courts of the State of California, city of Los Angeles. The
Company hereby  expressly and  irrevocably  submits to the  jurisdiction  of the
state and federal  courts of the State of California,  city of Los Angeles,  for
the purpose of any such litigation as set forth above and irrevocably  agrees to
be  bound by any  final  judgment  rendered  thereby  in  connection  with  such
litigation.  The Company further irrevocably  consents to the service of process
by registered mail,  postage  prepaid,  or by personal service within or without
the State of California. The Company hereby expressly and irrevocably waives, to
the  fullest  extent  permitted  by law,  any  objection  which  it may  have or
hereafter may have to the laying of venue of any such litigation  brought in any
such court  referred  to above and any claim that any such  litigation  has been
brought  in any  inconvenient  forum.  To the  extent  that the  Company  has or
hereafter  may acquire any immunity from  jurisdiction  of any court or from any
legal process (whether through service or notice,  attachment prior to judgment,
attachment  in aid of  execution  or  otherwise)  with  respect to itself or its
property,  the Company hereby irrevocably waives such immunity in respect of its
obligations under this agreement and the other loan documents.

     (b)  Waiver of Jury  Trial.  The Holder and the Company  hereby  knowingly,
          ---------------------
voluntarily and intentionally  waive any rights they may have to a trial by jury
in respect of any  litigation  based  hereon,  or arising out of,  under,  or in
connection  with, this agreement,  or any course of conduct,  course of dealing,
statements  (whether  oral or written) or actions of the Holder or the  Company.
The Company  acknowledges  and agrees that it has received  full and  sufficient
consideration  for  this  provision  and  that  this  provision  is  a  material
inducement for the Holder entering into this agreement.

     (c)  Submission  To  Jurisdiction.   Any  legal  action  or  proceeding  in
          ----------------------------
connection with this Debenture or the performance  hereof must be brought in the
federal  courts  located  in the  State of  California  and the  parties  hereby
irrevocably submit to the exclusive  jurisdiction of such courts for the purpose
of any such action or proceeding.




                                        9
<PAGE>






         IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.

MATERIAL TECHNOLOGIES, INC.                   PALISADES CAPITAL, LLC
a Delaware corporation                        a Nevada limited liability company

By:                                           By:
   -----------------------------                 -----------------------------
Robert Bernstein                              Jean Turner, Secretary
Chairman and CEO


            [Signature Page to Senior Secured Convertible Debenture]








































                                       10
<PAGE>






                                    Exhibit A
                                    ---------

                              NOTICE OF CONVERSION
                              --------------------


           (To be Executed by the Registered Holder upon Conversion.)

     The undersigned  hereby irrevocably  elects, as of                , 200  to
                                                         --------------     -
convert  $                   of the Debentures  into Shares of Common Stock (the
          -----------------
"Shares")  of  Material   Technologies,   Inc.,  a  Delaware   corporation  (the
"Company").


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

Applicable Conversion Price
                           ---------------------------------

Number of Shares Issuable upon this conversion
                                              --------------

Signature
         ---------------------------------------------------
                           [Name]
Address
       -----------------------------------------------------

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

Phone                         Fax
     ----------------------      ---------------------------




























                                       11
<PAGE>






                             Assignment of Debenture
                             -----------------------

The undersigned hereby sell(s) and assign(s) and transfer(s) unto



                   (name, address and SSN or EIN of assignee)

                                                  Dollars ($                )
                                                  ------------------------------
     (principal amount of Debenture, $1,000 or integral multiples of $1,000)

of  principal  amount of this  Debenture  together  with all  accrued and unpaid
interest hereon.

Date:                       Signed:
     ----------------------        ---------------------------------------------
                                         (Signature must conform in all
                                        respects to name of Holder shown
                                               of face of Debenture)




































                                       12
<PAGE>






                              Schedule of Advances
                              --------------------


   Date             Amount                 Balance           Company Signature
----------  ----------------------  ---------------------  ---------------------


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                                       13