**EXHIBIT 4.2**

 

**Letter Agreement**

 

August 31, 2007

 

                Spacehab, Incorporated (“***Spacehab***”) agreesthat Plainfield Special Situations Master Fund Limited (“***Investor***”) shall beentitled to participate in up to 25% of all future public or private sales orissuances by Spacehab of its common stock or securities convertible into itscommon stock or debt securities (“***New Securities***”) to the extent necessary tomaintain the percentage of Spacehab common stock (provided the percentage ofcommon stock shall be determined as if any issued and outstanding Series CConvertible Preferred Stock had been converted on the date such percentage isdetermined) held by Investor immediately prior to the proposed issuance of theNew Securities (its “***ProRata Share***”); provided, however, that the number of sharesissuable to Investor shall not exceed the amount which would requireshareholder approval under the principal securities exchange on which theSpacehab common stock is listed. Spacehab will provide Investor with at least 5business days advance written notice of any such proposed private sale orissuance of New Securities (the “***Proposed Issuance***”), which notice shallcontain information pertaining thereto (including the purchase price) and anoffer to Investor to participate in such Proposed Issuance (at a price and uponterms and conditions no less favorable than those provided to the otherofferees or purchasers of New Securities in the Proposed Issuance).

 

                At its sole option, Investormay, by written notice to Spacehab so as to be actually received by Spacehab onor before the fifth day following delivery of notice of such Proposed Issuance,exercise its preemptive right contained herein and elect to purchase its ProRata Share of New Securities at the price and on the same terms and conditionsas the other purchasers of the New Securities. Failure of Investor to deliversuch notice within five business days shall be deemed to be a waiver of such preemptiverights. If the terms of the Proposed Issuance materially change subsequent todelivery of the notice to Investor, Spacehab will provide Investor with a new 5day advance notice period prior to consummating the transaction contemplated bythe Proposed Issuance. Any issuance of New Securities for cash not completedwithin 90 days of the date notice is provided by Spacehab to Investor shall bedeemed to be a new issuance of New Securities, which shall require a new 5 day notice.

 

                This purchase right shallterminate in two years from date of agreement.

 

                This preemptive right shall notapply to: (i) securities of Spacehab issued or sold pursuant to theagreements or convertible notes set forth on Exhibit A; (ii) securitiesissued upon the exchange of the convertible notes that are outstanding on thedate hereof; (iii) the issuance of capital stock or warrants, options orother rights to acquire capital stock currently outstanding or that mayhereafter be granted by Spacehab to any officer, employee, consultant ordirector under any existing or future option plan, incentive plan or otherbenefit plan of Spacehab or under any option, warrant or other right to acquirecapital stock that is or has been approved by the shareholders of Spacehab; (iv) securitiesof Spacehab issued in connection with the acquisition of assets or the equity interestsof any entity owning such assets; or (v) with respect to a merger, plan ofexchange or other combination involving Spacehab that requires the approval ofthe shareholders of Spacehab and with respect to which such approval isobtained. This Agreement shall become effective immediately following the closingof the transactions contemplated under that certain Restructuring and ExchangeAgreement dated August 31, 2007 and executed contemporaneously herewith.

 

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                This Agreement may be executedin any number of counterparts, all of which taken together shall be deemed toconstitute one and the same instrument. This Agreement shall be governed underthe laws of the State of New York.

 
|                                               | Very  truly yours,      |
|----------------------------------------------------|-------------------------|
|                                               |                    |
|                                               | Spacehab,  Incorporated |
|                                               |                    |
|                                               |                    |
|                                               | By:                     | /s/Thomas  B. Pickens, III |
|                                               | Name:                   | Thomas  B. Pickens, III |
|                                               | Title:                  | Chief  Executive Officer |
|                                               |                    |
|                                               |                    |
| Accepted and agreed to as  of the                  |                    |
| date set forth above:                              |                    |
|                                               |                    |
| Plainfield Special  Situations Master Fund Limited |                    |
|                                               |                    |
|                                               |                    |
| By:                                                | /s/Steven Segaloff      |   |
| Name:                                              | Steven Segaloff         |   |
| Title:                                             | Authorized Individual   |   |

 

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EXHIBITA

 

8.0% Convertible Notes due2007

5.5% Senior ConvertibleNotes due 2010

Series B ConvertiblePreferred Stock

Securities Issued under theRestructuring and Exchange Agreement dated even date herewith

1997 Employee Stock PurchasePlan

 

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