Document:

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                                                                     EXHIBIT 4.1

                          SECURITIES PURCHASE AGREEMENT

        This Securities Purchase Agreement (this "Agreement") is dated as of
March 31, 2003, among Matritech, Inc., a Delaware corporation (the "Company"),
and the purchasers identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").

        WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchasers, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

        NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agrees
as follows:

                                    ARTICLE I
                                   DEFINITIONS

        1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:

                "Actual Minimum" means, as of any date, the maximum aggregate
        number of shares of Common Stock then issued or issuable as of such date
        upon exercise or conversion in full of all Warrants and Debentures which
        have been issued to date pursuant to this Agreement.

                "Affiliate" means any Person that, directly or indirectly
        through one or more intermediaries, controls or is controlled by or is
        under common control with a Person, as such terms are used in and
        construed under Rule 144 under the Securities Act.

                "Capital Shares" means the Common Stock and any shares of any
        other class of common stock whether now or hereafter authorized, having
        the right to participate in the distribution of earnings and assets of
        the Company.

                "Capital Shares Equivalents" means any securities, rights, or
        obligations that are convertible into or exchangeable for or give any
        right to subscribe for or purchase, directly or indirectly, any Capital
        Shares of the Company or any warrants, options or other rights to
        subscribe for or purchase, directly or indirectly, Capital Shares or any
        such convertible or exchangeable securities.

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                "Closing" means the closing of the purchase and sale of the
        Securities pursuant to Section 2.1.

                "Closing Bid Price" means on any particular date (a) the closing
        bid price per share of Common Stock on such date on the Principal Market
        or the OTC Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New
        York time), or (b) if there is no such price on such date, then the
        closing bid price on the Principal Market or the OTC Bulletin Board on
        the date nearest preceding such date (as reported by Bloomberg L.P. at
        4:15 PM (New York time) for the closing bid price for regular session
        trading on such day), or (c) if the shares of Common Stock are not then
        reported on the Principal Market or the OTC Bulletin Board, then the
        average of the "Pink Sheet" quotes for the relevant conversion period,
        as determined in good faith by the Purchasers, or (c) if the shares of
        Common Stock are not then publicly traded the fair market value of a
        share of Common Stock as determined by an appraiser selected in good
        faith by the Purchasers of a majority in interest of the principal
        amount of Debentures then outstanding.

                "Closing Price" means the average of the Closing Bid Prices for
        the 5 Trading Days immediately prior to the date in question.

                "Closings" means, collectively, the First Closing and the Second
        Closing.

                "Closing Dates" means the dates of the First Closing and Second
        Closing.

                "Commission" means the Securities and Exchange Commission.

                "Common Stock" means the common stock of the Company, par value
        $0.01 per share, and any securities into which such common stock shall
        hereinafter have been reclassified into.

                "Company Counsel" means Testa, Hurwitz & Thibeault, LLP, outside
        counsel to the Company, with offices at 125 High Street, Boston,
        Massachusetts 02110.

                "Complete SEC Reports" shall mean, collectively, the SEC Reports
        and the Pending 10-K.

                "Debentures" means the 7.5% Convertible Debentures due 36 months
        from their date of issuance, unless otherwise set forth therein, issued
        by the Company to the Purchasers hereunder, in the form of Exhibit A.

                "Disclosure Schedules" shall have the meaning ascribed to such
        term in Section 3.1.

                "Effective Date" means the date that an Underlying Shares
        Registration Statement is first declared effective by the Commission.

                "Exchange Act" means the Securities Exchange Act of 1934, as
        amended.

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                "First Closing" means the closing of the sale of the Securities
        pursuant to Section 2.1(a).

                "First Closing Date" means the date of the First Closing, which
        shall occur within 5 Business Days of the date hereof or such other time
        and date as may be agreed to in writing by the Company and each
        Purchaser.

                "FW" means Feldman Weinstein LLP with offices at 420 Lexington
        Avenue, Suite 2620, New York, New York 10170-0002.

                "GAAP" shall have the meaning ascribed to such term in Section
        3.1(h).

                "Liens" shall have the meaning ascribed to such term in Section
        3.1(a).

                "Losses" means any and all losses, claims, damages, liabilities,
        settlement costs and expenses, including without limitation costs of
        preparation and reasonable attorneys' fees.

                "Material Adverse Effect" shall have the meaning assigned to
        such term in Section 3.1(b).

                "Milestone Date" means the first Trading Day immediately
        following a period of 15 consecutive Trading Days during which the VWAP
        for each such Trading Date is at least $2.75 (as appropriately adjusted
        for any stock splits, stock dividends, stock combinations and other
        similar transactions of the Common Stock that occur after the date of
        this Agreement).

                "Pending 10-K" means the Company's draft Annual Report on Form
        10-K delivered by the Company to the Purchasers on March 28, 2003.

                "Person" means an individual or corporation, partnership, trust,
        incorporated or unincorporated association, joint venture, limited
        liability company, joint stock company, government (or an agency or
        subdivision thereof) or other entity of any kind.

                "Principal Market" means initially the NASDAQ Small-Cap Market
        and shall also include the American Stock Exchange, the New York Stock
        Exchange or the NASDAQ National Market, whichever is at the time the
        principal trading exchange or market for the Common Stock, based upon
        share volume.

                "Proceeding" means an action, claim, suit, investigation or
        proceeding (including, without limitation, an investigation or partial
        proceeding, such as a deposition), whether commenced or threatened.

                "Registration Rights Agreement" means the Registration Rights
        Agreement, dated the First Closing Date, among the Company and the
        Purchasers, in the form of Exhibit B.

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                "Required Approvals" shall have the meaning ascribed to such
        term in Section 3.1(e).

                "Rule 144" means Rule 144 promulgated by the Commission pursuant
        to the Securities Act, as such Rule may be amended from time to time, or
        any similar rule or regulation hereafter adopted by the Commission
        having substantially the same effect as such Rule.

                "SEC Reports" shall have the meaning ascribed to such term in
        Section 3.1(h).

                "Second Closing" shall mean the closing of the sale of the
        Securities pursuant to Section 2.1(b).

                "Second Closing Date" shall mean the date of the Second Closing,
        which shall occur within 5 Trading Days of a Milestone Date.

                "Securities" means the Debentures, the Warrants and the
        Underlying Shares.

                "Securities Act" means the Securities Act of 1933, as amended.

                "Set Price" shall have the meaning ascribed to such term in the
        Debentures.

                "Shareholder Approval" shall have the meaning ascribed to such
        term in the Debenture.

                "Subscription Amount" means, (i) as to each Purchaser and the
        First Closing, the amount set forth below such Purchaser's signature
        block on the signature pages hereto and next to the heading "First
        Closing Subscription" in United States dollars and in immediately
        available funds, and (ii) as to each Purchaser and the Second Closing,
        the amount set forth below such Purchaser's signature block on the
        signature pages hereto and next to the heading "Second Closing
        Subscription" in United States dollars and in immediately available
        funds.

                "Subsidiary" means any subsidiary of the Company that is
        required to be listed in Schedule 3.1(a).

                "Trading Day" means any day during which the Principal Market
        shall be open for business.

                "Transaction Documents" means this Agreement, the Debentures,
        the Warrants, the Registration Rights Agreement and any other documents
        or agreements executed in connection with the transactions contemplated
        hereunder.

                "Underlying Shares" means the shares of Common Stock issuable
        upon conversion of the Debentures and upon exercise of the Warrants and
        issued and issuable in lieu of the cash payment of interest on the
        Debentures.

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                "Underlying Shares Registration Statement" or "Registration
        Statement" means a registration statement meeting the requirements set
        forth in the Registration Rights Agreement and covering the resale of
        the Underlying Shares by each Purchaser as provided for in the
        Registration Rights Agreement.

                "VWAP" means, for any date, the price determined by the first of
        the following clauses that applies: (a) if the Common Stock is then
        listed or quoted on a Principal Market, the daily volume weighted
        average price of the Common Stock for such date (or the nearest
        preceding date) on the Principal Market on which the Common Stock is
        then listed or quoted as reported by Bloomberg Financial L.P. (based on
        a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
        (b) if the Common Stock is not then listed or quoted on a Principal
        Market and if prices for the Common Stock are then quoted on the OTC
        Bulletin Board, the volume weighted average price of the Common Stock
        for such date (or the nearest preceding date) on the OTC Bulletin Board;
        (c) if the Common Stock is not then listed or quoted on the OTC Bulletin
        Board and if prices for the Common Stock are then reported in the "Pink
        Sheets" published by the National Quotation Bureau Incorporated (or a
        similar organization or agency succeeding to its functions of reporting
        prices), the most recent bid price per share of the Common Stock so
        reported; or (d) in all other cases, the fair market value of a share of
        Common Stock as determined by a nationally recognized-independent
        appraiser selected in good faith by Purchasers holding a majority of the
        principal amount of Debentures then outstanding.

                "Warrants" means collectively the Common Stock purchase
        warrants, in the form of Exhibit C delivered to the Purchasers at the
        Closing in accordance with Section 2.2.

                "Warrant Shares" means those shares of Common Stock issuable
        upon exercise of the Warrants.

                                   ARTICLE II
                                PURCHASE AND SALE

        2.1 Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and each Purchaser agrees to purchase, severally and not
jointly, the Debentures as set forth next to the respective Purchaser's name on
the signature pages hereto for an aggregate purchase price of up to
$8,000,000.00 ("Purchase Price") in two Closings as follows:

                (a) First Closing. On the First Closing Date, each Purchaser
        shall purchase, severally and not jointly, the principal amount of
        Debentures equal to each Purchaser's Subscription Amount, amounting in
        the aggregate to $5,000,000 principal amount of Debentures and the
        Company shall sell such principal amount of Debentures to each such
        Purchaser.

                (b) Second Closing. On the Second Closing Date, in the event the
        Company so elects in its sole discretion but subject to Section 2.2,
        each Purchaser shall purchase, severally and not jointly, the principal
        amount of Debentures equal to each Purchaser's Subscription Amount as to
        the Second Closing, amounting in the aggregate to $3,000,000

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        principal amount of Debentures and the Company shall sell such principal
        amount of Debentures to each such Purchaser.

                (c) Each Closing. Each Closing shall take place at the offices
        of FW or at such other location as the parties may agree.

        2.2 Closing Conditions. Upon satisfaction or waiver by the party sought
to be benefited thereby, of the conditions set forth in this Section 2.2, each
Closing shall occur.

                (a) At or prior to each Closing (unless otherwise specified
        below), the Company shall deliver or cause to be delivered to each
        Purchaser the following:

                        (i) a Debenture with a principal amount equal to such
                Purchaser's Subscription Amount as to such Closing, registered
                in the name of such Purchaser;

                        (ii) a Warrant to purchase up to a number of shares of
                Common Stock equal to 35% of such Purchaser's Subscription
                Amount divided by the Set Price as to the Debentures purchased
                by such Purchaser at such Closing with a term of 5 years and an
                exercise price per Warrant Share equal to the Closing Price on
                such Closing Date, subject to adjustment therein;

                        (iii) as to the First Closing only, a legal opinion of
                Company Counsel, in the form of Exhibit D attached hereto,
                addressed to the Purchasers;

                        (iv) as to the Second Closing only, the Company shall
                have delivered to each Purchaser a letter representing that the
                representations and warranties contained herein are true and
                accurate as of the date of such Closing (which representations
                and warranties shall have the same qualifications as the
                representations and warranties contained herein, which
                qualification shall be updated to include the most recent SEC
                Reports), or explaining why such representations and warranties
                are not true and accurate as of the date of such Closing; and

                        (v) as to the First Closing only, the Registration
                Rights Agreement duly executed by the Company.

                (b) At or prior to each Closing, each Purchaser shall deliver or
        cause to be delivered to the Company the following:

                        (i) such Purchaser's Subscription Amount as to such
                Closing by wire transfer to the instructions set forth on Annex
                1 attached hereto; and

                        (ii) as to the First Closing only, the Registration
                Rights Agreement duly executed by such Purchaser.

                (c) as to the First Closing, all representations and warranties
        of the other party

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        contained herein shall remain true and correct as of such Closing Date
        and all covenants of the other party in the Transactions Documents
        required to have been performed by such Closing Date shall have been
        performed as of such Closing Date and as to the Second Closing, all
        representations and warranties of the Purchasers contained herein shall
        remain true and correct as of such Closing Date and all of the covenants
        of the other party in the Transactions Documents required to have been
        performed by such Closing Date shall have been performed as of such
        Closing Date.

                (d) There shall have been no Material Adverse Effect (as defined
        in Section 3.1(b)) with respect to the Company since the date hereof.

                (e) As to the Second Closing only:

                        (i) the Milestone Date shall have occurred within 365
                days of the First Closing Date and the Company shall have
                provided any representations and documents reasonably required
                by any Purchaser evidencing that the Milestone Date has
                occurred;

                        (ii) the Second Closing shall have occurred within 5
                Trading Days of the Milestone Date; and

                        (iii) all liquidated damages and other amounts owing to
                the Purchasers shall have been paid;

                        (iv) there is a sufficient number of authorized but
                unissued and otherwise unreserved shares of Common Stock for an
                issuance of all of the shares of Common Stock then issuable upon
                conversion in full of the Debentures and exercise in full of the
                Warrants to be issued at such Closing;

                        (v) the issuance of all of the Underlying Shares
                relating to the Debentures and Warrants to be issued at such
                Closing would be permitted in full without violating the
                limitations set forth in Section 4(a)(ii)(B) of the Debenture;

                        (vi) no Event of Default nor any event that with the
                passage of time would constitute an Event of Default shall have
                occurred and is continuing with respect to the outstanding
                Debentures;

                        (vii) the Registration Statement relating to the
                Securities issued at the First Closing shall have been declared
                effective and shall be effective on the Second Closing Date; and

                        (viii) no public announcement of a pending or proposed
                Change of Control Transaction or Fundamental Transaction (as
                such terms are defined in the Debenture) has occurred that has
                not been consummated.

                (f) As to the Second Closing only, the Company shall have
        consented thereto.

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                (g) From the date hereof to such Closing Date, trading in the
        Common Stock shall not have been suspended by the Commission (except for
        any suspension of trading of limited duration agreed to by the Company,
        which suspension shall be terminated prior to such Closing), and, at any
        time prior to such Closing Date, trading in securities generally as
        reported by Bloomberg Financial Markets shall not have been suspended or
        limited, or minimum prices shall not have been established on securities
        whose trades are reported by such service, or on the Principal Market,
        nor shall a banking moratorium have been declared either by the United
        States or New York State authorities, nor shall there have occurred any
        material outbreak or escalation of hostilities or other national or
        international calamity of such magnitude in its effect on, or any
        material adverse change in, any financial market which, in each case, in
        the reasonable judgment of the Purchasers, makes it impracticable or
        inadvisable to purchase the Debentures at such Closing.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

        3.1 Representations and Warranties of the Company. Except as set forth
in the disclosure schedules delivered to the Purchasers concurrently herewith
(the "Disclosure Schedules") which Disclosure Schedules shall be deemed a part
hereof, or, other than with respect to Sections 3.1(g), 3.1(u), 3.1(v), 3.1(w),
3.1(z) and 3.1(dd), except as set forth in the Complete SEC Reports, the Company
hereby makes the representations and warranties set forth below to the
Purchasers.

                (a) Subsidiaries. The Company has no direct or indirect
        subsidiaries. The Company owns, directly or indirectly, all of the
        capital stock or other equity interests of each Subsidiary free and
        clear of any lien, charge, security interest, encumbrance, right of
        first refusal or other restriction (collectively, "Liens"), and all the
        issued and outstanding shares of capital stock of each Subsidiary are
        validly issued and are fully paid, non-assessable and free of preemptive
        and similar rights. If the Company has no subsidiaries, then references
        in the Transaction Documents to the Subsidiaries will be disregarded.

                (b) Organization and Qualification. Each of the Company and the
        Subsidiaries is an entity duly incorporated or otherwise organized,
        validly existing and in good standing under the laws of the jurisdiction
        of its incorporation or organization (as applicable), with the requisite
        power and authority to own and use its properties and assets and to
        carry on its business as currently conducted. Neither the Company nor
        any Subsidiary is in violation of any of the provisions of its
        respective certificate or articles of incorporation, bylaws or other
        organizational or charter documents. Each of the Company and the
        Subsidiaries is duly qualified to do business and is in good standing as
        a foreign corporation or other entity in each jurisdiction in which the
        nature of the business conducted or property owned by it makes such
        qualification necessary, except where the failure to be so qualified or
        in good standing, as the case may be, could not, individually or in the
        aggregate: (i) adversely affect the legality, validity or enforceability
        of any Transaction Document, (ii) have or result in or be reasonably
        likely to have or result in a material adverse effect on the results of
        operations, assets, business or

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        condition (financial or otherwise) of the Company and the Subsidiaries,
        taken as a whole, or (iii) adversely impair the Company's ability to
        perform fully on a timely basis its obligations under any of the
        Transaction Documents (any of (i), (ii) or (iii), a "Material Adverse
        Effect").

                (c) Authorization; Enforcement. The Company has the requisite
        corporate power and authority to enter into and to consummate the
        transactions contemplated by each of the Transaction Documents and
        otherwise to carry out its obligations hereunder or thereunder. The
        execution and delivery of each of the Transaction Documents by the
        Company and the consummation by it of the transactions contemplated
        hereby or thereby have been duly authorized by all necessary action on
        the part of the Company and no further consent or action is required by
        the Company other than Required Approvals. Each of the Transaction
        Documents has been (or upon delivery will be) duly executed by the
        Company and, when delivered in accordance with the terms hereof, will
        constitute the valid and binding obligation of the Company enforceable
        against the Company in accordance with its terms, subject to applicable
        bankruptcy, insolvency, fraudulent conveyance, reorganization,
        moratorium and similar laws affecting creditors' rights and remedies
        generally and general principles of equity. Neither the Company nor any
        Subsidiary is in violation of any of the provisions of its respective
        certificate or articles of incorporation, by-laws or other
        organizational or charter documents.

                (d) No Conflicts. The execution, delivery and performance of the
        Transaction Documents by the Company and the consummation by the Company
        of the transactions contemplated thereby do not and will not: (i)
        conflict with or violate any provision of the Company's or any
        Subsidiary's certificate or articles of incorporation, bylaws or other
        organizational or charter documents, or (ii) subject to obtaining the
        Required Approvals (as defined below), conflict with, or constitute a
        default (or an event that with notice or lapse of time or both would
        become a default) under, or give to others any rights of termination,
        amendment, acceleration or cancellation (with or without notice, lapse
        of time or both) of, any agreement, credit facility, debt or other
        instrument (evidencing a Company or Subsidiary debt or otherwise) or
        other understanding to which the Company or any Subsidiary is a party or
        by which any property or asset of the Company or any Subsidiary is bound
        or affected, or (iii) result, in a violation of any law, rule,
        regulation, order, judgment, injunction, decree or other restriction of
        any court or governmental authority to which the Company or a Subsidiary
        is subject (including federal and state securities laws and
        regulations), or by which any property or asset of the Company or a
        Subsidiary is bound or affected; except in the case of each of clauses
        (ii) and (iii), such as could not, individually or in the aggregate,
        have or result in a Material Adverse Effect.

                (e) Filings, Consents and Approvals. Neither the Company nor any
        Subsidiary is required to obtain any consent, waiver, authorization or
        order of, give any notice to, or make any filing or registration with,
        any court or other federal, state, local or other governmental authority
        or other Person in connection with the execution, delivery and
        performance by the Company of the Transaction Documents, other than (i)
        the filings required under Section 4.8, (ii) the filing with the
        Commission of the Underlying Shares Registration Statement, (iii) the
        notice and/or application(s) to each applicable Principal

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        Market for the issuance and sale of the Debentures and Warrants and the
        listing of the Underlying Shares for trading thereon in the time and
        manner required thereby, and (iv) the filing of Form D with the
        Commission and applicable Blue Sky filings and any Shareholder Approval
        (collectively, the "Required Approvals").

                (f) Issuance of the Securities. The Debentures and the Warrants
        are duly authorized and, when issued and paid for in accordance with the
        applicable Transaction Documents, will be duly and validly issued, fully
        paid and non-assessable, free and clear of all Liens imposed by the
        Company other than restrictions on transfer provided for in the
        Transaction Documents. The Underlying Shares, when issued in accordance
        with the terms of the Transaction Documents, will be validly issued,
        fully paid and nonassessable, free and clear of all Liens imposed by the
        Company. The Company has reserved from its duly authorized capital stock
        a number of shares of Common Stock for issuance of the Underlying Shares
        at least equal to the Required Minimum on the date hereof. The Company
        has not, and to the knowledge of the Company, no Affiliate of the
        Company has sold, offered for sale or solicited offers to buy or
        otherwise negotiate in respect of any security (as defined in Section 2
        of the Securities Act) that would be integrated with the offer or sale
        of the Securities in a manner that would require the registration under
        the Securities Act of the sale of the Securities to the Purchasers, or
        that would be integrated with the offer or sale of the Securities for
        purposes of the rules and regulations of any Principal Market.

                (g) Capitalization. The number of shares and type of all
        authorized, issued and outstanding capital stock of the Company is set
        forth in the Pending 10-K. Except as set forth in the Transaction
        Documents, no securities of the Company are entitled to preemptive or
        similar rights, and no Person has any right of first refusal, preemptive
        right, right of participation, or any similar right to participate in
        the transactions contemplated by the Transaction Documents. Except as a
        result of the purchase and sale of the Securities, there are no
        outstanding options, warrants, script rights to subscribe to, calls or
        commitments of any character whatsoever relating to, or securities,
        rights or obligations convertible into or exchangeable for, or giving
        any Person any right to subscribe for or acquire, any shares of Common
        Stock, or contracts, commitments, understandings or arrangements by
        which the Company or any Subsidiary is or may become bound to issue
        additional shares of Common Stock, or securities or rights convertible
        or exchangeable into shares of Common Stock. The issuance and sale of
        the Securities will not obligate the Company to issue shares of Common
        Stock or other securities to any Person (other than the Purchasers and
        David Enzer) and will not result in a right of any holder of Company
        securities to adjust the exercise, conversion, exchange or reset price
        under such securities.

                (h) SEC Reports; Financial Statements. The Company has filed all
        reports required to be filed by it under the Securities Act and the
        Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
        the two years preceding the date hereof (or such shorter period as the
        Company was required by law to file such material) (the foregoing
        materials being collectively referred to herein as the "SEC Reports") on
        a timely basis or has received a valid extension of such time of filing
        and has filed any such

                                      -10-
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        SEC Reports prior to the expiration of any such extension. The Company
        has identified and made available to the Purchasers a copy of all SEC
        Reports filed within the 10 days preceding the date hereof. As of their
        respective dates, the SEC Reports complied in all material respects with
        the requirements of the Securities Act and the Exchange Act and the
        rules and regulations of the Commission promulgated thereunder, and none
        of the SEC Reports, when filed, contained any untrue statement of a
        material fact or omitted to state a material fact required to be stated
        therein or necessary in order to make the statements therein, in light
        of the circumstances under which they were made, not misleading. The
        financial statements of the Company included in the SEC Reports comply
        in all material respects with applicable accounting requirements and the
        rules and regulations of the Commission with respect thereto as in
        effect at the time of filing. Such financial statements have been
        prepared in accordance with generally accepted accounting principles
        applied on a consistent basis during the periods involved ("GAAP"),
        except as may be otherwise specified in such financial statements or the
        notes thereto, and fairly present in all material respects the financial
        position of the Company and its consolidated subsidiaries as of and for
        the dates thereof and the results of operations and cash flows for the
        periods then ended, subject, in the case of unaudited statements, to
        normal, immaterial, year-end audit adjustments and provided that such
        unaudited statements may not include footnotes otherwise required by
        GAAP.

                (i) Material Changes. Since the date of the latest audited
        financial statements included within the Complete SEC Reports, except as
        specifically disclosed in the Complete SEC Reports: (i) there has been
        no event, occurrence or development that has had or that could
        reasonably be expected to have a Material Adverse Effect, (ii) the
        Company has not incurred any liabilities (contingent or otherwise) other
        than (A) trade payables and accrued expenses incurred in the ordinary
        course of business consistent with past practice and (B) liabilities not
        required to be reflected in the Company's financial statements pursuant
        to GAAP or required to be disclosed in filings made with the Commission,
        (iii) the Company has not altered its method of accounting or the
        identity of its auditors, (iv) the Company has not declared or made any
        dividend or distribution of cash or other property to its stockholders
        or purchased, redeemed or made any agreements to purchase or redeem any
        shares of its capital stock (other than as contemplated in the
        Transaction Documents), and (v) the Company has not issued any equity
        securities to any officer, director or Affiliate, except pursuant to
        existing Company stock option or similar plans.

                (j) Litigation. There is no action, suit, proceeding or
        investigation pending or, to the knowledge of the Company, threatened
        against the Company, any Subsidiary affecting any of their respective
        properties before or by any court, arbitrator, governmental or
        administrative agency or regulatory authority (federal, state, county,
        local or foreign) (collectively, an "Action") which: (i) adversely
        affects or challenges the legality, validity or enforceability of any of
        the Transaction Documents or the Securities or (ii) could, if there were
        an unfavorable decision, individually or in the aggregate, have or
        reasonably be expected to result in a Material Adverse Effect. Neither
        the Company nor any Subsidiary, nor, to the Company's knowledge, any
        director or officer thereof, is or has been the subject of any Action
        involving a claim of violation of or liability under

                                      -11-
<PAGE>

        federal or state securities laws or a claim of breach of fiduciary duty.
        There has not been, and to the knowledge of the Company, there is not
        pending or contemplated, any investigation by the Commission involving
        the Company or any current or former director or officer of the Company.
        The Commission has not issued any stop order or other order suspending
        the effectiveness of any registration statement filed by the Company or
        any Subsidiary under the Exchange Act or the Securities Act.

                (k) Compliance. Neither the Company nor any Subsidiary: (i) is
        in default under or in violation of (and no event has occurred that has
        not been waived that, with notice or lapse of time or both, would result
        in a default by the Company or any Subsidiary under), nor has the
        Company or any Subsidiary received notice of a claim that it is in
        default under or that it is in violation of, any indenture, loan or
        credit agreement or any other agreement or instrument to which it is a
        party or by which it or any of its properties is bound (whether or not
        such default or violation has been waived), (ii) is in violation of any
        order of any court, arbitrator or governmental body, or (iii) is or has
        been in violation of any statute, rule or regulation of any governmental
        authority, except in each case as could not, individually or in the
        aggregate, have or result in a Material Adverse Effect.

                (l) Labor Relations. No material labor dispute exists or, to the
        knowledge of the Company, is imminent with respect to any of the
        employees of the Company.

                (m) Regulatory Permits. The Company and the Subsidiaries possess
        all certificates, authorizations and permits issued by the appropriate
        federal, state, local or foreign regulatory authorities necessary to
        conduct their respective businesses as described in the Complete SEC
        Reports, except where the failure to possess such permits could not,
        individually or in the aggregate, reasonably be expected to result in a
        Material Adverse Effect ("Material Permits"), and neither the Company
        nor any Subsidiary has received any notice of proceedings relating to
        the revocation or modification of any Material Permit.

                (n) Title to Assets. The Company and the Subsidiaries have good
        and marketable title in fee simple to all real property owned by them
        that is material to the business of the Company and the Subsidiaries and
        good and marketable title in all personal property owned by them that is
        material to the business of the Company and the Subsidiaries, in each
        case free and clear of all Liens, except for Liens as do not materially
        affect the value of such property and do not materially interfere with
        the use made and proposed to be made of such property by the Company and
        the Subsidiaries. Any real property and facilities held under lease by
        the Company and the Subsidiaries are held by them under valid,
        subsisting and enforceable leases of which the Company and the
        Subsidiaries are in compliance, except where the failure to be in
        compliance would not, individually or in the aggregate, reasonably be
        expected to result in a Material Adverse Effect.

                (o) Patents and Trademarks. The Company and the Subsidiaries
        have, or have rights to use, all patents, patent applications,
        trademarks, trademark applications, service

                                      -12-
<PAGE>

        marks, trade names, copyrights, licenses and other similar rights that
        are necessary or material for use in connection with their respective
        businesses as described in the SEC Reports and which the failure to so
        have could have a Material Adverse Effect (collectively, the
        "Intellectual Property Rights"). Neither the Company nor any Subsidiary
        has received a written notice that the Intellectual Property Rights used
        by the Company or any Subsidiary violates or infringes upon the rights
        of any Person. To the knowledge of the Company, all such Intellectual
        Property Rights are enforceable and there is no existing infringement by
        another Person of any of the Intellectual Property Rights.

                (p) Insurance. The Company and the Subsidiaries are insured by
        insurers of recognized financial responsibility against such losses and
        risks and in such amounts as are prudent and customary in the businesses
        in which the Company and the Subsidiaries are engaged. Neither the
        Company nor any Subsidiary has any reason to believe that it will not be
        able to renew its existing insurance coverage as and when such coverage
        expires or to obtain similar coverage from similar insurers as may be
        necessary to continue its business without a significant increase in
        cost.

                (q) Transactions With Affiliates and Employees. Except as set
        forth in the Complete SEC Reports, none of the officers or directors of
        the Company and, to the knowledge of the Company, none of the employees
        of the Company is presently a party to any transaction with the Company
        or any Subsidiary (other than for services as employees, officers and
        directors), including any contract, agreement or other arrangement
        providing for the furnishing of services to or by, providing for rental
        of real or personal property to or from, or otherwise requiring payments
        to or from any officer, director or such employee or, to the knowledge
        of the Company, any entity in which any officer, director, or any such
        employee has a substantial interest or is an officer, director, trustee
        or partner.

                (r) Internal Accounting Controls. The Company and the
        Subsidiaries maintain a system of internal accounting controls
        sufficient to provide reasonable assurance that (i) transactions are
        executed in accordance with management's general or specific
        authorizations, (ii) transactions are recorded as necessary to permit
        preparation of financial statements in conformity with generally
        accepted accounting principles and to maintain asset accountability,
        (iii) access to assets is permitted only in accordance with management's
        general or specific authorization, and (iv) the recorded accountability
        for assets is compared with the existing assets at reasonable intervals
        and appropriate action is taken with respect to any differences. The
        Company has established disclosure controls and procedures (as defined
        in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed
        such disclosures controls and procedures to ensure that material
        information relating to the Company, including its subsidiaries, is made
        known to the certifying officers by others within those entities,
        particularly during the period in which the Company's Form 10-K or 10-Q,
        as the case may be, is being prepared. The Company's certifying officers
        have evaluated the effectiveness of the Company's controls and
        procedures as of a date within 90 days prior to the filing date of the
        Form 10-Q for the quarter ended September 30, 2002 (such date, the
        "Evaluation Date"). The Company

                                      -13-
<PAGE>

        presented in the Form 10-Q for the quarter ended September 30, 2002 the
        conclusions of the certifying officers about the effectiveness of the
        disclosure controls and procedures based on their evaluations as of the
        Evaluation Date. Since the Evaluation Date, there have been no
        significant changes in the Company's internal controls (as such term is
        defined in Item 307(b) of Regulation S-K under the Exchange Act).

                (s) Solvency/Indebtedness. The Company is not insolvent within
        the meaning of Title 11 of the United States Code. The Company does not
        intend to incur debts beyond its ability to pay such debts as they
        mature (taking into account the timing and amounts of cash to be payable
        on or in respect of its debt). The Complete SEC Reports set forth as of
        the dates thereof all outstanding secured and unsecured Indebtedness of
        the Company or any Subsidiary, or for which the Company or any
        Subsidiary has commitments. For the purposes of this Agreement,
        "Indebtedness" shall mean (a) any liabilities for borrowed money or
        amounts owed in excess of $50,000 (other than trade accounts payable
        incurred in the ordinary course of business), (b) all guaranties,
        endorsements and other contingent obligations, whether or not the same
        are or should be reflected in the Company's balance sheet or the notes
        thereto, except guaranties by endorsement of negotiable instruments for
        deposit or collection in the ordinary course of business, and (c) the
        present value of any lease payments in excess of $50,000 due under
        leases required to be capitalized in accordance with GAAP. Neither the
        Company nor any Subsidiary is in default with respect to any
        Indebtedness.

                (t) Certain Fees. Except for the payment of fees in connection
        with that certain Letter Agreement between the Company and the Century
        Capital, dated December 31, 2002, no brokerage or finder's fees or
        commissions are or will be payable by the Company to any broker,
        financial advisor or consultant, finder, placement agent, investment
        banker, bank or other Person with respect to the transactions
        contemplated by this Agreement, and the Company has not taken any action
        that would cause any Purchaser to be liable for any such fees or
        commissions. The Company agrees that the Purchasers shall have no
        obligation with respect to any fees or with respect to any claims made
        by or on behalf of any Person for fees of the type contemplated by this
        Section with the transactions contemplated by this Agreement.

                (u) Private Placement. Assuming the accuracy of the
        representations and warranties of the Purchasers set forth in Section
        3.2, the offer, issuance and sale of the Securities to the Purchasers in
        accordance with the terms of the Transaction Documents, as contemplated
        hereby are exempt from the registration requirements of the Securities
        Act. The issuance and sale of the Securities hereunder does not
        contravene the rules and regulations of the Principal Market and no
        shareholder approval is required for the Company to fulfill its
        obligations under the Transaction Documents.

                (v) Listing and Maintenance Requirements. The Company has not,
        in the 12 months preceding the date hereof, received notice from any
        Principal Market on which the Common Stock is or has been listed or
        quoted to the effect that the Company is not in compliance with the
        listing or maintenance requirements of such Principal Market. The

                                      -14-
<PAGE>

        Company is, and has no reason to believe that it will not in the
        foreseeable future continue to be, in compliance with all such listing
        and maintenance requirements.

                (w) Registration Rights. The Company has not granted or agreed
        to grant to any Person any rights (including "piggy-back" registration
        rights) to have any securities of the Company registered with the
        Commission or any other governmental authority that have not been
        included on a registration statement filed with the Commission.

                (x) Seniority. As of the date of this Agreement, no indebtedness
        of the Company is senior to the Debentures in right of payment, whether
        with respect to interest or upon liquidation or dissolution, or
        otherwise, other than indebtedness secured by purchase money security
        interests (which is senior only as to underlying assets covered thereby)
        and capital lease obligations (which is senior only as to the property
        covered thereby).

                (y) Disclosure. Other than the Pending 10-K, the Company
        confirms that neither it nor any other Person acting on its behalf has
        provided any of the Purchasers or their agents or counsel with any
        information that constitutes or might constitute material, nonpublic
        information. The Company understands and confirms that the Purchasers
        will rely on the foregoing representations in effecting transactions in
        securities of the Company. All disclosure provided to the Purchasers
        regarding the Company, its business and the transactions contemplated
        hereby, including the Disclosure Schedules to this Agreement, furnished
        by or on behalf of the Company with respect to the representations and
        warranties made herein are true and correct with respect to such
        representations and warranties and do not contain any untrue statement
        of a material fact or omit to state any material fact necessary in order
        to make the statements made therein, in light of the circumstances under
        which they were made, not misleading. The Company acknowledges and
        agrees that, other than with respect to the representations and
        warranties contained in the confidentiality agreement entered into with
        each Purchaser in connection with the review of the Pending 10-K or as
        expressly set forth in the Transaction Documents, no Purchaser makes or
        has made any representations or warranties with respect to the
        transactions contemplated hereby other than those specifically set forth
        in Section 3.2.

                (z) Form S-3 Eligibility. The Company is eligible to register
        the resale of the Underlying Shares for resale by the Purchaser on Form
        S-3 promulgated under the Securities Act.

                (aa) Tax Status. The Company and each of its Subsidiaries has
        made or filed all federal, state and foreign income and all other tax
        returns, reports and declarations required by any jurisdiction to which
        it is subject and which are due (unless and only to the extent that the
        Company and each of its Subsidiaries has set aside on its books
        provisions reasonably adequate for the payment of all unpaid and
        unreported taxes or has obtained an extension of the deadline for such
        filing) and has paid all taxes and other governmental assessments and
        charges that are material in amount, shown or determined to be due on
        such returns, reports and declarations, except those being contested in
        good faith and has set aside on its books provisions reasonably adequate
        for

                                      -15-
<PAGE>

        the payment of all taxes for periods subsequent to the periods to which
        such returns, reports or declarations apply. To the Company's knowledge,
        there are no unpaid taxes in any material amount claimed to be due by
        the taxing authority of any jurisdiction, and the officers of the
        Company know of no basis for any such claim. The Company has not
        executed a waiver with respect to the statute of limitations relating to
        the assessment or collection of any foreign, federal, statue or local
        tax. To the Company's knowledge, none of the Company's tax returns is
        presently being audited by any taxing authority.

                (bb) Acknowledgment Regarding Purchasers' Purchase of
        Securities. The Company acknowledges and agrees that the Purchasers are
        acting solely in the capacity of arm's length purchasers with respect to
        this Agreement and the transactions contemplated hereby. The Company
        further acknowledges that no Purchaser is acting as a financial advisor
        or fiduciary of the Company (or in any similar capacity) with respect to
        this Agreement and the transactions contemplated hereby and any
        statement made by any Purchaser or any of their respective
        representatives or agents in connection with this Agreement and the
        transactions contemplated hereby is not advice or a recommendation and
        is merely incidental to the Purchasers' purchase of the Securities. The
        Company further represents to each Purchaser that the Company's decision
        to enter into this Agreement has been based solely on the independent
        evaluation of the Company and its representatives.

                (cc) No General Solicitation or Advertising in Regard to this
        Transaction. Neither the Company nor, to the knowledge of the Company,
        any of its directors or officers (i) has conducted or will conduct any
        general solicitation (as that term is used in Rule 502(c) of Regulation
        D) or general advertising with respect to the sale of the Debentures or
        the Warrants, or (ii) made any offers or sales of any security or
        solicited any offers to buy any security under any circumstances that
        would require registration of the Debentures, the Underlying Shares or
        the Warrants under the Securities Act or made any "directed selling
        efforts" as defined in Rule 902 of Regulation S.

                (dd) No Disagreements with Accountants and Lawyers. There are no
        disagreements of any kind presently existing, or reasonably anticipated
        by the Company to arise, between the accountants and lawyers formerly or
        presently employed by the Company and the Company is current with
        respect to any fees owed to its accountants.

        3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:

                (a) Organization; Authority. Such Purchaser is an entity duly
        organized, validly existing and in good standing under the laws of the
        jurisdiction of its organization with the requisite corporate or
        partnership power and authority to enter into and to consummate the
        transactions contemplated by the Transaction Documents and otherwise to
        carry out its obligations thereunder. The purchase by such Purchaser of
        the Securities hereunder has been duly authorized by all necessary
        action on the part of such Purchaser. Each of this Agreement, and the
        Registration Rights Agreement has been duly executed by such Purchaser,
        and when delivered by such Purchaser in accordance with the terms

                                      -16-
<PAGE>

        hereof, will constitute the valid and legally binding obligation of such
        Purchaser, enforceable against it in accordance with its terms.

                (b) Investment Intent. Such Purchaser is acquiring the
        Securities as principal for its own account for investment purposes only
        and not with a view to or for distributing or reselling such Securities
        or any part thereof, without prejudice, however, to such Purchaser's
        right, subject to the provisions of this Agreement, at all times to sell
        or otherwise dispose of all or any part of such Securities pursuant to
        an effective registration statement under the Securities Act or under an
        exemption from such registration and in compliance with applicable
        federal and state securities laws. Nothing contained herein shall be
        deemed a representation or warranty by such Purchaser to hold Securities
        for any period of time. Such Purchaser is acquiring the Securities
        hereunder in the ordinary course of its business. Such Purchaser does
        not have any agreement or understanding, directly or indirectly, with
        any Person to distribute any of the Securities.

                (c) Purchaser Status. At the time such Purchaser was offered the
        Securities, it was, and at the date hereof it is, and on each date on
        which it exercises any Warrants or converts any Debentures, it will be
        either: (i) an "accredited investor" as defined in Rule 501(a)(1),
        (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
        "qualified institutional buyer" as defined in Rule 144A(a) under the
        Securities Act. Such Purchaser has not been formed solely for the
        purpose of acquiring the Securities. Such Purchaser is not a registered
        broker-dealer under Section 15 of the Exchange Act.

                (d) Experience of such Purchaser. Such Purchaser, either alone
        or together with its representatives, has such knowledge, sophistication
        and experience in business and financial matters so as to be capable of
        evaluating the merits and risks of the prospective investment in the
        Securities, and has so evaluated the merits and risks of such
        investment. Such Purchaser is able to bear the economic risk of an
        investment in the Securities and, at the present time, is able to afford
        a complete loss of such investment.

                (e) General Solicitation. Such Purchaser is not purchasing the
        Securities as a result of any advertisement, article, notice or other
        communication regarding the Securities published in any newspaper,
        magazine or similar media or broadcast over television or radio or
        presented at any seminar or any other general solicitation or general
        advertisement.

                (i) Residence. If such Purchaser is an individual, then such
        Purchaser resides in the state or province identified in the address of
        such Purchaser set forth on the signature page hereto; if such Purchaser
        is a partnership, corporation, limited liability company or other
        entity, then the office or offices of such Purchaser in which its
        investment decision was made is located at the address or addresses of
        such Purchaser set forth on the signature page hereto.

                (j) Rule 144. Such Purchaser acknowledges and agrees that the
        Securities are "restricted securities" as defined in Rule 144
        promulgated under the Securities Act as in effect from time to time and
        must be held indefinitely unless they are subsequently

                                      -17-
<PAGE>

        registered under the Securities Act or an exemption from such
        registration is available. Such Purchaser has been advised or is aware
        of the provisions of Rule 144, which permits limited resale of shares
        purchased in a private placement subject to the satisfaction of certain
        conditions, including, among other things: the availability of certain
        current public information about the Company, the resale occurring
        following the required holding period under Rule 144 and the number of
        shares being sold during any three-month period not exceeding specified
        limitations.

                (k) Company Information. Such Purchaser has read the Complete
        SEC Reports and has had an opportunity to discuss the Company's
        business, management and financial affairs with directors, officers and
        management of the Company and has had the opportunity to review the
        Company's operations and facilities. Such Purchaser has also had the
        opportunity to ask questions of and receive answers from, the Company
        and its management regarding the terms and conditions of this
        investment.

                (l) Ownership of Common Stock. Such Purchaser, as of the date of
        this Agreement, does not own any shares of Common Stock.

                                   ARTICLE IV
                        OTHER AGREEMENTS OF THE PARTIES

        4.1 Transfer Restrictions.

                (a) The Securities may only be disposed of in compliance with
        state and federal securities laws and subject to the terms of the
        Debentures and Warrants, as applicable. In connection with any transfer
        of Securities other than pursuant to an effective registration
        statement, to the Company or to an Affiliate of a Purchaser, the Company
        may require the transferor thereof to provide to the Company an opinion
        of counsel selected by the transferor, the form and substance of which
        opinion and choice of counsel shall be reasonably satisfactory to the
        Company, to the effect that such transfer does not require registration
        of such transferred Securities under the Securities Act. As a condition
        of transfer, any such transferee shall agree in writing to be bound by
        the terms of this Agreement and shall have the rights of a Purchaser
        under this Agreement and the Registration Rights Agreement.

                (b) The Purchasers agree to the imprinting, so long as is
        required by this Section 4.1(b), of the following legend on any
        certificate evidencing Securities:

        [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
        SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE NOT BEEN REGISTERED
        WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
        OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
        ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN

                                      -18-
<PAGE>

        EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
        AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
        REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
        APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
        COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
        BE REASONABLY ACCEPTABLE TO THE COMPANY. THE SECURITIES ISSUABLE UPON
        EXERCISE OR CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION
        WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
        SECURITIES.

                The Company acknowledges and agrees that a Purchaser may from
        time to time pledge pursuant to a bona fide margin agreement or grant a
        security interest in some or all of the Underlying Shares and, if
        required under the terms of such arrangement, such Purchaser may
        transfer pledged or secured Underlying Shares to the pledgees or secured
        parties. If required by the Company's transfer agent in order to effect
        a pledge, the Company shall cause its counsel, at no cost to the
        Purchasers, to issue an opinion of counsel to the Company's transfer
        agent. Further, no notice shall be required of such pledge. At the
        appropriate Purchaser's expense, the Company will execute and deliver
        such reasonable documentation as a pledgee or secured party of
        Underlying Shares may reasonably request in connection with a pledge or
        transfer of the Underlying Shares, including the preparation and filing
        of any required prospectus supplement under Rule 424(b)(3) of the
        Securities Act or other applicable provision of the Securities Act to
        appropriately amend the list of Selling Stockholders thereunder.

                (c) Certificates evidencing Underlying Shares shall not contain
        any legend (including the legend set forth in Section 4.1(b)): (i) while
        a registration statement (including the Underlying Shares Registration
        Statement) covering the resale of such security is effective under the
        Securities Act, or (ii) following any sale of such Underlying Shares
        pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
        for sale under Rule 144(k), or (iv) if such legend is not required under
        applicable requirements of the Securities Act (including judicial
        interpretations and pronouncements issued by the Staff of the
        Commission); provided, however, in connection with the issuance of the
        Underlying Shares, each Purchaser, severally and not jointly with the
        other Purchasers, hereby agrees to adhere to and abide by all prospectus
        delivery requirements under the Securities Act and Commission
        Regulations. If all or any portion of a Debenture or Warrant is
        converted or exercised (as applicable) at a time when there is an
        effective registration statement to cover the resale of the Underlying
        Shares, or if such Underlying Shares may be sold under Rule 144(k) or if
        such legend is not otherwise required under applicable requirements of
        the Securities Act (including judicial interpretations thereof) then
        such Underlying Shares shall be issued free of all legends. The Company
        agrees that following the Effective Date relating to any Underlying
        Shares or at such time as such legend is no longer required under this
        Section 4.1(c), it will, no later than five Trading Days following the
        delivery by a Purchaser to the Company or the Company's transfer agent
        of a certificate representing such Underlying Securities issued with a
        restrictive legend, deliver or cause to be delivered to such Purchaser a
        certificate representing such shares that is free from all restrictive
        and other legends. The Company

                                      -19-
<PAGE>

        may not make any notation on its records or give instructions to any
        transfer agent of the Company that enlarge the restrictions on transfer
        set forth in this Section.

                (d) In addition to such Purchaser's other available remedies,
        the Company shall pay to a Purchaser, in cash, as liquidated damages and
        not as a penalty, for each $1,000 of Underlying Shares (based on the
        VWAP of the Common Stock on the date such Securities are submitted to
        the Company's transfer agent) delivered for removal of the restrictive
        legend and subject to this Section 4.1(c), $10 per Trading Day
        (increasing to $20 per Trading Day 5 Trading Days after such damages
        have begun to accrue) for each Trading Day after such fifth Trading Day
        until such certificate is delivered without a legend. Notwithstanding
        anything herein to the contrary, amounts payable hereunder for failure
        to remove restrictive legends on Underlying Shares shall be reduced by
        any amounts also payable pursuant to Section 4(a)(iii)(C), Section
        4(b)(ii) and Section 4(b)(iii) of the Debentures for failure to timely
        deliver such Underlying Shares.

        4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim that the Company may
have against any Purchaser and regardless of the dilutive effect that such
issuance may have on the ownership of the other stockholders of the Company.

        4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

        4.4 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.

        4.5 Reservation and Listing of Securities.

                                      -20-
<PAGE>

                (a) The Company shall maintain a reserve from its duly
        authorized shares of Common Stock for issuance pursuant to the
        Transaction Documents in such amount as may be required to fulfill its
        obligations in full under the Transaction Documents.

                (b) If, on any date, the number of authorized but unissued (and
        otherwise unreserved) shares of Common Stock is less than 130% of (i)
        the Actual Minimum on such date, minus (ii) the number of shares of
        Common Stock previously issued pursuant to the Transaction Documents,
        then the Board of Directors of the Company shall use commercially
        reasonable efforts to amend the Company's certificate of incorporation
        to increase the number of authorized but unissued shares of Common Stock
        to at least 130% of the Actual Minimum at such time (minus the number of
        shares of Common Stock previously issued pursuant to the Transaction
        Documents), as soon as possible; provided that the Company will not be
        required at any time to authorize a number of shares of Common Stock
        greater than the maximum remaining number of shares of Common Stock that
        could possibly be issued after such time pursuant to the Transaction
        Documents.

                (c) The Company shall: (i) prepare and file with such Principal
        Market an additional shares listing application covering a number of
        shares of Common Stock at least equal to the Actual Minimum on the date
        of such application, (ii) use its best efforts to take all steps
        necessary to cause such shares of Common Stock to be approved for
        listing on the Principal Market as soon as possible thereafter, (iii)
        notify the Purchasers upon such listing, and (iv) use its best efforts
        to maintain the listing of such Common Stock on such Principal Market or
        another Principal Market. In addition, the Company shall, at its next
        regularly scheduled annual or special meeting of shareholders, but in no
        event later than June 30, 2003, include a proposal for Shareholder
        Approval, with the recommendation of the Company's Board of Directors
        that such proposal be approved, and the Company shall solicit proxies
        from its shareholders in connection therewith in the same manner as all
        other management proposals in such proxy statement and all
        management-appointed proxyholders shall vote their proxies in favor of
        such proposal.

                (d) If, on any date, the number of shares of Common Stock
        previously listed on a Principal Market is less than 130% of the Actual
        Minimum on such date, then the Company shall use its best efforts to
        list on such Principal Market, as soon as reasonably possible, a number
        of shares of Common Stock at least equal to 130% of the Actual Minimum
        on such date; provided that the Company will not be required at any time
        to list a number of shares of Common Stock greater than the maximum
        number of shares of Common Stock that could possibly be issued pursuant
        to the Transaction Documents.

        4.6 Conversion and Exercise Procedures. The form of Election to Purchase
included in the Warrants and the form of Conversion Notice included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver

                                      -21-
<PAGE>

Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

        4.7 Future Financings. From the date hereof until 90 days after the
Effective Date of the initial Registration Statement relating to the Securities
issued at the First Closing and, if applicable, from the Second Closing Date
until 90 days after the Effective Date of the initial Registration Statement
relating to the Securities issued at the Second Closing, other than as
contemplated by this Agreement, neither the Company nor any Subsidiary shall
issue or sell any Capital Shares or Capital Shares Equivalents. Notwithstanding
anything herein to the contrary, the 90 day period set forth in this Section 4.7
shall be extended for the number of Trading Days during such period in which (y)
trading in the Common Stock is suspended by any Principal Market, or (z)
following the Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Underlying Shares. Notwithstanding the
foregoing, this Section 4.7 shall not apply in respect of the issuance of (a)
shares of Common Stock or options to employees, consultants, advisors, officers
or directors of the Company pursuant to any stock or option plan duly adopted by
a majority of the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise of, or in
connection with the payment of interest on or redemption of, the Debentures or
any Debentures of this series or of any other series or security issued by the
Company in connection with the offer and sale of this Company's securities
pursuant to this Agreement, or (c) securities upon the exercise of or conversion
of any convertible securities, options or warrants issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement, (d) securities in connection with acquisitions
or strategic investments (including, without limitation, any licensing or
distribution arrangements), the primary purpose of which is not to raise
capital, (e) securities to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions,
where the principal consideration for such transaction is not the issuance of
such securities, or (f) up to, in the aggregate, $2,000,000 of Capital Shares
(not Capital Shares Equivalents), in a one-time transaction with pre-existing
shareholders, for a per share purchase price of not less than 90% of the average
of the VWAPs during the 5 Trading Days prior to any such transaction ("Market
Price") along with up to 25% warrant coverage with an exercise price not less
than 112% of the then Market Price, which transaction may have registration
rights. For purposes of clarification, an issuance pursuant to clause (f) above
shall be subject to the anti-dilution provisions in the Debentures and Warrants.

        4.8 Securities Laws Disclosure; Publicity. The Company shall, within 1
Trading Day following the date of this Agreement, file a Current Report on Form
8-K disclosing all material terms of the transactions contemplated hereby. The
Company and the Purchasers shall consult with each other in issuing any press
releases, with respect to the transactions contemplated hereby, including the
above-reference Form 8-K. Notwithstanding the foregoing, other than (i) in
connection with the filing of any of the Transaction Documents as exhibits to
such Current Report on Form 8-K or any SEC Report and (ii) in any registration
statement filed pursuant to the Registration Rights Agreement and filings
related thereto, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Principal Market, without the prior
written consent of

                                      -22-
<PAGE>

such Purchaser, except to the extent such disclosure is required by law or
Principal Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure.

        4.9 Non-Public Information. Other than the Pending 10-K, the Company
covenants and agrees that neither it nor any other Person acting on its behalf
will provide any Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

        4.10 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, capital lease obligations, the Debentures, fees to David Enzer and
accrued expenses in the ordinary course of the Company's business and prior
practices), to redeem any Company equity or equity-equivalent securities or to
settle any outstanding litigation. Prior to the receipt of Shareholder Approval,
the Company shall not declare or pay any cash dividend on its shares of Common
Stock while any Debentures remains outstanding.

        4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company

                                      -23-
<PAGE>

will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by an Purchaser Party effected without the Company's prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement or
in the other Transaction Documents.

        4.12 Shareholders Rights Plan. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under the plan
or in any way could be deemed to trigger the provisions of such plan by virtue
of receiving Securities under the Transaction Documents.

        4.13 Participation in Future Financing. From the date hereof until 12
months after the Effective Date of the initial Registration Statement relating
to the Securities issued at the First Closing and, if applicable, from the
Second Closing Date until 12 months after the Effective Date of the initial
Registration Statement relating to the Securities issued at the Second Closing,
if the Company intends to effect a private placement of Capital Shares or
Capital Shares Equivalents (a "Subsequent Financing") the Company shall deliver
to each of such Purchasers a written notice (the "Subsequent Financing Notice")
of its intention to effect such Subsequent Financing, which Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the dollar amount of proceeds intended to be raised thereunder, not
including any amounts that may be provided pursuant to this Section 4.13 by the
Holders ("Subsequent Financing Amount"), the Person with whom such Subsequent
Financing is proposed to be effected, and attached to which shall be a term
sheet or similar document relating thereto. Such Purchaser shall have the right
to participate in such transaction pursuant to the terms set forth herein
provided such Purchaser shall notify the Company by 6:30 p.m. (New York City
time) on the fifth (5th) Trading Day after delivery to the Purchaser of the
Subsequent Financing Notice of its agreement to provide (or to cause its
designee to provide), subject to completion of mutually acceptable documentation
substantially reflecting the terms described in the Subsequent Financing Notice,
all or part of such Purchaser's Pro-Rata Share (as defined below) of the
Participation Amount (defined below) on substantially the terms set forth in the
Subsequent Financing Notice and such term sheet or similar document. For
purposes of the foregoing, "Pro Rata Share" means a fraction, the numerator of
which is the outstanding principal amount of Debentures then owned by such
Purchaser and the denominator of which is the total outstanding principal amount
of Debentures then outstanding. "Participation Amount" means an amount in
addition to the Subsequent Financing Amount and shall equal that amount which is
50% of the Subsequent Financing Amount such that the total-post participation
amount of such Subsequent Financing shall equal up to 150% of the Subsequent
Financing Amount. Five Trading Days after the delivery to the Purchasers of the
Subsequent Financing Notice, the Company may effect such Subsequent Financing on
the terms substantially as set forth in the Subsequent Financing Notice for up
to an aggregate amount equal to the Subsequent Financing Amount plus the
Participation Amount; provided that he Company must provide the Purchasers with
a second Subsequent Financing Notice, and the Purchasers will again have the
right of participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated
for any reason on the terms set forth in such Subsequent Financing Notice within
60 Trading Days after the date of the initial

                                      -24-
<PAGE>

Subsequent Financing Notice. In the event the Company reasonably believes a
Subsequent Financing Notice constitutes material information of the Company,
prior to delivering such notice, the Company may require the Purchaser to
execute a written agreement, in form and substance reasonably satisfactory to
such Purchaser, regarding the confidentiality and use of such information.
Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of
the issuance of (a) shares of Common Stock or options to employees, consultants,
advisors, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of, or in connection with the payment of interest on or redemption of,
the Debentures or any Debentures of this series or of any other series or
security issued by the Company in connection with the offer and sale of this
Company's securities pursuant to this Agreement, or (c) securities upon the
exercise of or conversion of any convertible securities, options or warrants
issued and outstanding on the date of this Agreement, provided that the
securities have not been amended since the date of this Agreement, (d)
securities in connection with acquisitions or strategic investments (including,
without limitation, any licensing or distribution arrangements), the primary
purpose of which is not to raise capital, or (e) securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions, where the principal consideration
for such transaction is not the issuance of such securities.

                                    ARTICLE V
                                  MISCELLANEOUS

        5.1 Termination. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the First Closing has not
been consummated by the tenth Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).

        5.2 Fees and Expenses. The Company has agreed to reimburse $40,000 to
Omicron Master Trust ("Omicron") (of which $15,000 has been received) as
reimbursement for the its legal, administrative and due diligence fees and
expenses incurred to prepare and negotiate the Transaction Documents.
Accordingly, in lieu of the foregoing payments, the Company, on the First
Closing Date, will direct that the aggregate amount that Omicron is to pay for
the Debentures and Warrants at such Closing, be reduced by $25,000 (the
remaining portion of the $40,000 not yet paid). Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of any Securities.

        5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with

                                      -25-
<PAGE>

respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules.

        5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, or (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service. The
addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.

        5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

        5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

        5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.

        5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.12.

        5.9 Governing Law; Venue; Waiver of Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection

                                      -26-
<PAGE>

herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

        5.10 Survival. The representations and warranties contained herein shall
survive the earlier of (a) the second anniversary of the Second Closing Date if
the Second Closing occurs, (b) the second anniversary of the First Closing Date
if the Second Closing does not occur, and (c) the date on which the Debentures
and Warrants are no longer outstanding. The agreements and covenants contained
herein shall survive, as to a Purchaser and unless otherwise set forth in the
Transaction Documents, until such Purchaser no longer holds any Securities.

        5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

        5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefore, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

        5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

                                      -27-
<PAGE>

        5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate. Without limiting the generality of the
foregoing, the Company expressly agrees that its breach of the next-to-last last
sentence of Section 4.7 would cause each Purchaser irreparable harm, and
consents to the granting of injunctive relief by any court having jurisdiction
to preclude any such issuance of securities.

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

        5.16 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.

        5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of

                                      -28-
<PAGE>

any other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under any Transaction
Document. Nothing contained herein or in any Transaction Document, and no action
taken by any Purchaser pursuant thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Document. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser was
introduced to the Company by David Enzer, who has acted solely as agent for the
Company and not for any Purchaser. Each Purchaser has been represented by its
own separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FW. FW
does not represent all of the Purchasers but only Omicron Master Trust. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.

        5.18 Liquidated Damages. The Company's obligations to pay any liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid liquidated
damages and other amounts have been paid notwithstanding the fact that the
instrument or security pursuant to which such liquidated damages or other
amounts are due and payable shall have been canceled.

                             ***********************

                                      -29-
<PAGE>

        IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                                    MATRITECH, INC.

                                    By: /s/ Stephen D. Chubb
                                        ---------------------------------------
                                    Name:  Stephen D. Chubb
                                    Title: Chairman and Chief Executive Officer

                                    Address for Notice:
                                    330 Nevada Street
                                    Newton, Massachusetts, 02460
                                    Attn: Stephen D. Chubb
                                    Tel:  (617) 928-0820
                                    Fax: (617) 928-0821

With a copy to:                     Testa, Hurwitz & Thibeault, LLP
                                    125 High Street
                                    Boston, Massachusetts 02110
                                    Attn: Rufus C. King
                                    Tel: (617) 248-7000
                                    Fax:  (617) 248-7100

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]

                                      -30-
<PAGE>

                            PURCHASERS SIGNATURE PAGE

        IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

OMICRON MASTER TRUST                              Address for Notice:
                                                  ------------------
By:  Omicron Capital L.P., as subadvisor          c/o Omicron Capital L.P.
By:  Omicron Capital Inc., its general partner    810 Seventh Avenue, 39th Floor
                                                  New York, New York 10019
                                                  Attn: Brian Daly
By:  /s/ Bruce Bernstein                          Fax: (212) 803-5269
   -------------------------------------------
              Bruce Bernstein, President

First Closing Subscription:  $3,000,000
Second Closing Subscription:  $1,800,000

                    With a copy to:
                    --------------
                                                  Feldman Weinstein LLP
                                                  420 Lexington Avenue
                                                  New York, New York 10170
                                                  Attn:  Joseph A. Smith
                                                  Tel: (212) 869-7000
                                                  Fax: (212) 401-4741

                                      -31-
<PAGE>

                       PURCHASERS SIGNATURE PAGE (CONT...)

MIDSUMMER INVESTMENT, LTD.                        Address for Notice:
                                                  ------------------
By:  MIDSUMMER CAPITAL, LLC,                      C/o Midsummer Capital, LLC
As investment advisor                             485 Madison Avenue, 23rd Floor
                                                  New York, New York 10022
By  /s/ Scott Kaufman                             Tel: (212) 584-2140
  ----------------------------------------        Fax: (212) 584-2142
       Scott Kaufman, Managing Director           Attn:  Scott Kaufman

First Closing Subscription:  $1,400,000
Second Closing Subscription:  $840,000

                                      -32-
<PAGE>

                      (PURCHASERS SIGNATURE PAGE (CONT...)

ISLANDIA, L.P.                                    Address for Notice:
                                                  ------------------
By: John Lang, Inc., its general partner          C/o John Lang, Inc.
                                                  485 Madison Avenue, 23rd Floor
                                                  New York, New York 10022
By  /s/ Richard Berner                            Tel: (212) 584-2100
  -----------------------------------------       Fax: (212) 584-2199
       Richard Berner,                            Attn:  Fund Manager

First Closing Subscription:  $600,000
Second Closing Subscription:  $360,000

                                      -33-
<PAGE>

                                     ANNEX A

Company Wire Instructions
State Street Bank & Trust, Co.
Boston, Massachusetts
ABA#: 0110 0002 8
ATTN:  Merrill Group
Credit MLIF#: 3218569
For further credit to:  Matritech, Inc.
DDA# 99037582 (for international wires)

                                      -34-
<PAGE>

                              DISCLOSURE SCHEDULES

        These Disclosure Schedules (the "Disclosure Schedules") dated as of
March 31, 2003 are delivered pursuant to the Securities Purchase Agreement dated
as of the date hereof (the "Purchase Agreement") by and between Matritech, Inc.
(the "Company") and the Purchasers named therein and shall be deemed
incorporated by reference into the representations and warranties of the Company
contained in Section 3.1 of the Purchase Agreement. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Purchase
Agreement.

        Nothing in these Disclosure Schedules is intended to broaden the scope
of any representation or warranty of the Company contained in the Purchase
Agreement or to create any covenant on the part of the Company. Inclusion of any
item in the Disclosure Schedules (1) does not represent a determination by the
Company that such item (a) is material, nor shall it be deemed to establish a
standard of materiality, or (b) did not arise in the ordinary course of business
and (2) shall not constitute, or be deemed to be, an admission to any third
party concerning such item by the Company.

        The headings in these Disclosure Schedules are for convenience of
reference only and shall not affect the disclosures contained herein. Whenever
the Disclosure Schedules includes descriptions of certain documents or brief
summaries of certain aspects of the Company, its business, or events related to
the Company, such descriptions and summaries are qualified by reference to the
actual documents or other matters to which they refer.

Schedule 3.1(g) Capitalization

Reserved Shares

   As of December 31, 2002 the following shares of common stock were reserved
and available for future issuance:

<TABLE>
<S>                                                           <C>
                         Stock Option Plans - Awarded.......  2,653,865
                         Stock Option Plans - Available.....  2,642,320
                         2002 Employee Stock Purchase Plan..    221,000
                         Exercise of warrants outstanding...    532,046
                                                              ---------
                                                              6,049,231
                                                              =========
</TABLE>

Stock Option Plans

      We have granted incentive and nonqualified options under our 1988, 1992
and 2002

                                      -35-
<PAGE>

option plans and the 1992 and 2002 Directors' Plans. All option grants, prices
and vesting periods are determined by the Board of Directors. Incentive stock
options must be granted at a price not less than the fair market value on the
date of grant. Options vest at various rates over periods of up to four years
and expire ten years from the date of grant. The exercise price of incentive
options granted to an option holder who owns stock possessing more than 10% of
the voting power of the outstanding capital stock must be at least equal to 110%
of the fair market value of the common stock on the date of grant.

      There are 2,653,865 common shares subject to outstanding stock option
grants as set forth below and 2,642,320 common shares available for future
grants under existing option plans at December 31, 2002. The following table
summarizes stock option activity:

<TABLE>
<CAPTION>
                                                                           WEIGHTED
                                               NUMBER          OPTION      AVERAGE
                                                 OF            PRICE        PRICE
                                              OPTIONS        PER SHARE    PER SHARE
                                            ----------    --------------  ---------
<S>                                          <C>          <C>             <C>
Options outstanding, December 31, 1999 ..    1,433,255      0.84 - 13.13     4.47
     Granted ............................      124,206      1.16 -  7.88     4.54
     Exercised ..........................     (188,204)     1.16 -  7.88     2.42
     Terminated .........................      (97,107)     1.16 - 13.13     7.10
                                            ----------    --------------    -----

Options outstanding, December 31, 2000...    1,272,150      0.84 - 13.13     4.58
     Granted ............................      321,278      1.80 -  4.34     3.09
     Exercised ..........................      (60,494)     1.34 -  2.44     2.38
     Terminated .........................      (94,375)     1.34 -  7.88     1.54
                                            ----------    --------------    -----

Options outstanding, December 31, 2001...    1,438,559      0.84 - 13.13     4.52
     Granted ............................    1,319,780      1.86 -  2.54     2.21
     Exercised ..........................       (6,850)     1.34 -  1.44     1.40
     Terminated .........................     (217,624)     1.16 -  7.88     3.95
                                            ----------    --------------    -----

   Options outstanding, December 31, 2002    2,533,865    $0.84 - $13.13    $3.38
                                             =========    ==============    =====
Options exercisable, December 31, 2002 ..    1,074,243    $0.84 - $13.13    $4.81
                                             =========    ==============    =====
Options exercisable, December 31, 2001 ..      975,016    $0.84 - $13.13    $5.35
                                             =========    ==============    =====
Options exercisable, December 31, 2000 ..      827,348    $0.84 - $13.13    $5.76
                                             =========    ==============    =====
</TABLE>

                                      -36-
<PAGE>

<TABLE>
<CAPTION>
                           OPTIONS OUTSTANDING                 OPTIONS
                           -------------------               EXERCISABLE
                                 WEIGHTED                    -----------
                                 AVERAGE
                                REMAINING   WEIGHTED     WEIGHTED
                               CONTRACTUAL   AVERAGE     AVERAGE
   RANGE OF          NUMBER      LIFE (IN   EXERCISE      NUMBER      EXERCISE
EXERCISE PRICE    OUTSTANDING     YEARS)     PRICE      EXERCISABLE    PRICE
---------------   -----------  -----------  --------    -----------   --------
<C>               <C>          <C>          <C>         <C>           <C>
$ 0.84 - $ 1.16      130,000      6.58      $ 0.91        105,000     $ 0.93
$ 1.34 -   2.00      284,218      7.31      $ 1.76        120,513     $ 1.55
$ 2.03 -   2.85    1,302,996      8.70      $ 2.29        198,425     $ 2.40
$ 3.17 -   4.34      351,263      7.55      $ 3.40        186,317     $ 3.49
$ 5.00 -   6.69       42,325      6.83      $ 6.28         40,925     $ 6.27
$ 7.88 -  10.63      393,063      4.00      $ 7.89        393,063     $ 7.89
$ 13.13               30,000      3.43      $13.13         30,000     $13.13
                   ---------      ----      ------      ---------     ------
    Total......    2,533,865      7.45      $ 3.38      1,074,243     $ 4.81
                   =========      ====      ======      =========     ======
</TABLE>

In addition we issued in the first quarter of 2003 an Incentive Stock Option for
120,000 shares exercisable at a price of $1.745

Stock Purchase Plan

We have reserved and may issue up to an aggregate of 225,000 shares of common
stock under the Employee Stock Purchase Plans. At December 31, 2002, 221,000
shares are available for issuance under the plan.

Warrants

There are three different warrants outstanding at March 28, 2003

"Sunrise Warrants" expiring 7/05 for 200,000 shares exercisable at $2.50 per
share
"Far East Warrants" expiring 12/05 for 222,077 shares exercisable at $2.30 per
share
"Far East Warrants" expiring 12/03 for 109,969 shares exercisable at $2.75 per
share

Schedule 3.1(u) Private Placement

The Company must obtain shareholder approval under Nasdaq Marketplace Rule 4350
in

                                      -37-
<PAGE>

order for the Company to issue in connection with the Debentures and Warrants in
the aggregate in excess of 19.999% of the number of shares of Common Stock
outstanding on the Trading Day immediately preceding the Original Issue Date and
also as a condition to consummation of the Second Closing.

Schedule 3.1(v) Listing and Maintenance Requirements

On November 19, 2002, the Company received written notice from The Nasdaq Stock
Market, Inc. that it did not comply with The NASDAQ National Market Place Rule
4450(a)(3) requiring a minimum of $10 million in stockholder's equity. In
response, the Company applied to list its securities on The NASDAQ SmallCap
Market. The staff approved the request to list on The NASDAQ SmallCap Market on
January 22, 2003 subject to receipt of outstanding fees and shares of the
Company began trading on The NASDAQ SmallCap Market on Monday, January 27, 2003.

                                      -38-<PAGE>
                                                                     EXHIBIT 4.2

                                                                       EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

      This Registration Rights Agreement (this "Agreement") is made and entered
into as of March 31, 2003, among Matritech, Inc., a Delaware corporation (the
"Company"), and the purchasers signatory hereto (each such purchaser is a
"Purchaser" and all such purchasers are, collectively, the "Purchasers").

      This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").

      The Company and the Purchasers hereby agree as follows:

      1. Definitions

      CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN THAT ARE DEFINED
IN THE PURCHASE AGREEMENT SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN THE
PURCHASE AGREEMENT. As used in this Agreement, the following terms shall have
the following meanings:

            "Effectiveness Date" means, with respect to the Registration
      Statement registering for resale the Registrable Securities relating to
      the First Closing, the 90th calendar day (120th calendar day in the event
      of a "full review" by the Commission) following the First Closing Date,
      with respect to the Registration Statement registering for resale the
      Registrable Securities relating to the Second Closing, the 90th calendar
      day (120th calendar day in the event of a "full review" by the Commission)
      following the Second Closing Date and, with respect to any additional
      Registration Statements which may be required pursuant to Section 3(c),
      the 90th calendar day (120th calendar day in the event of a "full review"
      by the Commission) following the date on which the Company first knows
      that such additional Registration Statement is required hereunder;
      provided, however, in the event that the Company is notified by the
      Commission that one of the above Registration Statements will not be
      reviewed or is no longer subject to further review and comments, the
      Effectiveness Date as to such Registration Statement shall be the fifth
      Trading Day following the date on which the Company is so notified if such
      date precedes the dates required above.

            "Effectiveness Period" shall have the meaning set forth in Section
      2(a).

            "Filing Date" means, with respect to the Registration Statement
      registering for resale the Registrable Securities relating to First
      Closing, the 30th day following the First Closing Date, with respect to
      the Registration Statement registering for resale the Registrable
      Securities relating to Second Closing, the

                                       1
<PAGE>

      30th day following the Second Closing Date and, with respect to any
      additional Registration Statements which may be required pursuant to
      Section 3(c), the 15th day following the date on which the Company first
      knows that such additional Registration Statement is required hereunder.

            "Holder" or "Holders" means the holder or holders, as the case may
      be, from time to time of Registrable Securities.

            "Indemnified Party" shall have the meaning set forth in Section
      5(c).

            "Indemnifying Party" shall have the meaning set forth in Section
      5(c).

            "Prospectus" means the prospectus included in a Registration
      Statement (including, without limitation, a prospectus that includes any
      information previously omitted from a prospectus filed as part of an
      effective registration statement in reliance upon Rule 430A promulgated
      under the Securities Act), as amended or supplemented by any prospectus
      supplement, with respect to the terms of the offering of any portion of
      the Registrable Securities covered by a Registration Statement, and all
      other amendments and supplements to the Prospectus, including
      post-effective amendments, and all material incorporated by reference or
      deemed to be incorporated by reference in such Prospectus.

            "Registrable Securities" means all of the shares of Common Stock
      issuable upon conversion in full of the Debentures, assuming for such
      purposes that such Debentures are outstanding for three years and the
      lowest possible conversion price in effect during the period between the
      applicable Closing and the filing date of the Registration Statement
      (assuming the Monthly Conversion Price is then applicable), exercise in
      full of the Warrants, together with any securities issued or issuable upon
      any stock split, dividend or other distribution recapitalization or
      similar event with respect to the foregoing or in connection with any
      anti-dilution provisions in the Debentures and Warrants.

            "Registration Statement" means the registration statements required
      to be filed hereunder and any additional registration statements
      contemplated by Section 3(c), including (in each case) the Prospectus,
      amendments and supplements to such registration statement or Prospectus,
      including pre- and post-effective amendments, all exhibits thereto, and
      all material incorporated by reference or deemed to be incorporated by
      reference in such registration statement.

            "Rule 415" means Rule 415 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same purpose and effect as such Rule.

                                       2
<PAGE>

            "Rule 424" means Rule 424 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same purpose and effect as such Rule.

            "Warrants" shall mean the Common Stock purchase warrants issued to
      the Purchasers pursuant to the Purchase Agreement and the warrants issued
      to David Enzer in connection with this consummation of the Purchase
      Agreement.

      2. Shelf Registration

      (a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering the resale of 130%
of the Registrable Securities relating to such Filing Date (and excluding, for
purposes of this number, any securities which may be issuable upon any stock
split, dividend or other distribution or recapitalization provision in the
Debentures and the Warrants or in connection with any anti-dilution provisions
in the Debentures and Warrants) for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-3 (unless
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith) and shall contain (unless otherwise
directed by the Holders and except to the extent the Company determines that
modifications thereto are required under applicable law) substantially the "Plan
of Distribution" attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the applicable
Effectiveness Date, and shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date which
is two years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period").

      (b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section
3(a), the Company shall not be deemed to have satisfied clause (i)), or (ii) the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 461 promulgated under the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will not
be "reviewed," or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect of
such Registration Statement within 15 Trading Days after the receipt of comments
by or notice from the

                                       3
<PAGE>

Commission that such amendment is required in order for a Registration Statement
to be declared effective, or (iv) a Registration Statement filed or required to
be filed hereunder is not declared effective by the Commission by its
Effectiveness Date, or (v) after the Effectiveness Date, a Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Securities for which it is required to be effective, or the Holders
are not permitted to utilize the Prospectus therein to resell such Registrable
Securities for 5 consecutive Trading Days or in any individual case an aggregate
of 15 Trading Days during any 12 month period (which need not be consecutive
Trading Days) (any such failure or breach being referred to as an "Event", and
for purposes of clause (i) or (iv) the date on which such Event occurs, or for
purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 15 Trading Day
period is exceeded, or for purposes of clause (v) the date on which such 5 or 15
Trading Day period, as applicable, is exceeded being referred to as "Event
Date"), then, on each such Event Date and every monthly anniversary thereof
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as liquidated damages and not as a penalty, equal to 2.0% per
month of (i) the Subscription Amount paid by such Holder pursuant to the
Purchase Agreement for Registrable Securities then held by such Holder and
covered (or to be covered) by such Registration Statement, and (ii) if the
Warrants are "in the money" and then held by the Holder, the value of any
outstanding Warrants (valued at the difference between the average VWAP during
the applicable month and the Exercise Price multiplied by the number of shares
of Common Stock the Warrants are exercisable into). If the Company fails to pay
any liquidated damages pursuant to this Section in full within seven days after
the date payable, the Company will pay interest thereon at a rate of 15% per
annum (or such lesser maximum amount that is permitted to be paid by applicable
law) to the Holder, accruing daily from the date such liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full. The
liquidated damages pursuant to the terms hereof shall apply on a pro-rata basis
for any portion of a month prior to the cure of an Event and shall be in lieu of
any and all of the penalties or liquidated damages that might otherwise arise by
reason of such Event unless such Event constitutes an Event of Default under the
Debentures.

      3. Registration Procedures

      In connection with the Company's registration obligations hereunder, the
Company shall:

      (a) Not less than three Trading Days prior to the filing of each
Registration Statement or any related Prospectus or any amendment or supplement
thereto (excluding any document that would be incorporated or deemed
incorporated therein by reference), the Company shall, (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) will be
subject to the review of such Holders, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall

                                       4
<PAGE>

not file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably and in good faith object, provided, the Company is
notified of such objection in writing no later than 3 Trading Days after the
Holders have been so furnished copies of such documents.

      (b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to a Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep a Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement (subject to the
terms of this Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424; (iii) respond as promptly as reasonably possible, and in any event
within 15 Trading Days, to any comments received from the Commission with
respect to a Registration Statement or any amendment thereto and as promptly as
reasonably possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to a Registration Statement;
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented.

      (c) If during the Effectiveness Period, the number of Registrable
Securities relating to a particular Registration Statement at any time exceeds
85% of the number of shares of Common Stock then registered in such Registration
Statement, then the Company shall file as soon as reasonably practicable but in
any case prior to the applicable Filing Date, an additional Registration
Statement covering the resale by the Holders of not less than 130% of the number
of such Registrable Securities (excluding, for purposes of this number, any
securities which may be issuable upon any stock split, dividend or other
distribution or recapitalization provision in the Debentures and the Warrants or
in connection with any anti-dilution provisions in the Debentures and Warrants).

      (d) Notify the Holders of Registrable Securities to be sold (which notice
shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an
instruction to suspend the use of the Prospectus until the requisite changes
have been made) as promptly as reasonably possible and (if requested by any such
Person) confirm such notice in writing no later than two Trading Days following
the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is filed; (B) when the Commission notifies
the Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement (the
Company shall provide true and complete copies thereof and all written responses
thereto to each of the Holders); and (C) with respect to a

                                       5
<PAGE>

Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration Statement
or Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes the
financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to a
Registration Statement, Prospectus or other documents so that, in the case of a
Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
(vi) the occurrence or existence of any pending corporate development with
respect to the Company that the Company believes may be material and that, in
the determination of the Company, makes it not in the best interests of the
Company to allow continued availability or the Registration Statement or
Prospectus.

      (e) Promptly deliver to each Holder, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

      (f) Use commercially reasonable efforts to register or qualify the resale
of such Registrable Securities as required under applicable securities or Blue
Sky laws of each State within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period; provided, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or subject the Company to any material tax in
any such jurisdiction where it is not then so subject.

      (g) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

                                       6
<PAGE>

      (h) Upon the occurrence of any event contemplated by this Section 3, as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to a Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither a Registration Statement nor such Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. If the
Company notifies the Holders in accordance with clauses (ii) through (vi) of
Section 3(d) above to suspend the use of the use of any Prospectus until the
requisite changes to such Prospectus have been made, or the Company otherwise
notifies the Holders of its election to suspend the availability of a
Registration Statement and Prospectus pursuant to clause (vi) of Section 3(d),
then the Holders shall suspend use of such Prospectus. The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as promptly
as is practicable, except that in the case of suspension of the availability of
a Registration Statement and Prospectus pursuant to clause (vi) of Section 3(d),
the Company shall not be required to take such action until such time as it
shall determine that the continued availability of the Registration Statement
and Prospectus is no longer not in the best interests of the Company. The
Company shall be entitled to exercise its right under this Section 3(h) to
suspend the availability of a Registration Statement and Prospectus, subject to
the payment of liquidated damages pursuant to Section 2(b), for a period not to
exceed 60 consecutive days or for multiple periods not to exceed 90 days in any
12 month period.

      (i) Comply with all applicable rules and regulations of the Commission.

      (j) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

      (k) The Company may require, at any time prior to the third Trading Day
prior to the Filing Date, each Holder to furnish to the Company a statement as
to the number of shares of Common Stock beneficially owned by such Holder and,
if requested by the Commission, the controlling person thereof, within three
Trading days of the Company's request. During any periods that the Company is
unable to meet its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's request, any liquidated
damages that are accruing at such time shall be tolled and any Event of Default
that may otherwise occur solely because of such delay shall be suspended, until
such information is delivered to the Company.

      4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without

                                       7
<PAGE>

limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
Principal Market on which the Common Stock is then listed for trading, and (B)
in compliance with applicable state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities and determination of the eligibility of the Registrable Securities
for investment under the laws of such jurisdictions as requested by the Holders
)), (ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses requested
by the Holders), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, and (v) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit and the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder. In no event shall
the Company be responsible for any broker or similar commissions or any legal
fees or other costs of the Holders.

      5. Indemnification

      (a) Indemnification by the Company. In the event of a registration of the
Registrable Securities pursuant to this Section 2, the Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each seller of such Registrable Securities thereunder and the officers,
directors, agents, brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such seller (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and reasonable attorneys' fees) and expenses (collectively, "Losses"), as
incurred by such seller, person or controlling person, arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in a
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or based upon any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statements therein (in the case of
any Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions or alleged
untrue statements or omissions arise out of or are based upon information
furnished in writing to the Company by or on behalf of any such seller, or any
such controlling person expressly for use therein, or to the extent that such
information relates to such seller or any such controlling person, or

                                       8
<PAGE>

such seller's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by or on behalf of such seller
expressly for use in a Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (2) in the case of an
occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use
by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section 6(e).
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.

      (b) Indemnification by Holders. In the event of a registration of the
Registrable Securities pursuant to Section 2, each seller of such Registrable
Securities thereunder shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses arising out of or based upon (i)
such seller's failure to comply with the material provisions of the prospectus
delivery requirements of the Securities Act, (ii) any untrue statement of a
material fact contained in any Registration Statement, any Prospectus, or any
form of prospectus, or in any amendment or supplement thereto, or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading to the extent, but only
to the extent, that such untrue statement or omission is made in reliance upon
and in conformity with any information so furnished in writing by or on behalf
of such seller to the Company specifically for use therein, or to the extent
that such information relates to such seller or such seller's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by or on behalf of such seller expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (iii) in the case of an occurrence of an event of the type
specified in Section 3(d)(ii)-(vi), the use by such seller of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice contemplated in Section 6(e). In no event shall the liability of
any seller hereunder be greater in amount than the dollar amount of the net
proceeds received by such seller upon the sale of the Registrable Securities
covered by such registration.

      (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this

                                       9
<PAGE>

Agreement, except (and only) to the extent that such failure shall have
prejudiced the Indemnifying Party.

      An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a material conflict of interest is
likely to exist if the same counsel were to represent such Indemnified Party and
the Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the expense of one such counsel for each
Holder shall be at the expense of the Indemnifying Party). The Indemnifying
Party shall not be liable for any settlement of any such Proceeding effected
without its written consent, which consent shall not be unreasonably withheld.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.

      Subject to the terms of this Agreement, all fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).

      (d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or

                                       10
<PAGE>

Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.

      The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

      The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

      6. Miscellaneous

      (a) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and all of
the Holders of the then outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.

      (b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any registration
rights with respect to any of its securities to any Person that have not been
included on a registration statement filed with the Commission.

                                       11
<PAGE>

      (c) No Piggyback on Registrations. Except as and to the extent specified
in Schedule 6(c) hereto, neither the Company nor any of its security holders
(other than the Holders in such capacity pursuant hereto) may include securities
of the Company in the Registration Statement other than the Registrable
Securities, and the Company shall not after the date hereof enter into any
agreement providing any such right to any of its security holders.

      (d) Compliance. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement.

      (e) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Sections 3(d)(ii), (iii) or
(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(h), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph. Any periods during which the Holder is
required to discontinue the disposition of the Registrable Securities hereunder
shall be subject to the provisions of Section 2(c).

      (f) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, that, the Company shall not be
required to register any Registrable Securities pursuant to this Section 6(f)
that are eligible for resale pursuant to Rule 144(k) promulgated under the
Securities Act.

      (g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.

      (h) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to

                                       12
<PAGE>

the benefit of each Holder. The Company may not assign its rights or obligations
hereunder without the prior written consent of all of the Holders of the
then-outstanding Registrable Securities. Each Holder may assign their respective
rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.

      (i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

      (j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of this Agreement, then the
prevailing party in such Proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding.

      (k) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

      (l) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions,

                                       13
<PAGE>

covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.

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

      (n) Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

                              ********************

                                       14
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                 MATRITECH, INC.

                                 By:   /s/ Stephen D. Chubb
                                    -----------------------------------------
                                     Name:  Stephen D. Chubb
                                     Title: Chairman and Chief Executive Officer

                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                       15
<PAGE>

                       [SIGNATURE PAGE OF HOLDERS TO RRA]

                                  OMICRON MASTER TRUST
                                  By:  Omicron Capital L.P., as subadvisor
                                  By:  Omicron Capital Inc., its general partner

                                  By:  /s/ Bruce Bernstein
                                     -------------------------------------------
                                            Bruce Bernstein, President

                                  MIDSUMMER INVESTMENT, LTD.
                                  By:  MIDSUMMER CAPITAL, LLC,
                                  As investment advisor

                                  By:  /s/ Scott Kaufman
                                     -------------------------------------------
                                         Scott Kaufman, Managing Director

                                  ISLANDIA, L.P.

                                  By:  /s/ Edgar Berner
                                     -------------------------------------------
                                         Edgar Berner

                                       16
<PAGE>

                              PLAN OF DISTRIBUTION

      The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:

      -     ordinary brokerage transactions and transactions in which the
            broker-dealer solicits purchasers;

      -     block trades in which the broker-dealer will attempt to sell the
            shares as agent but may position and resell a portion of the block
            as principal to facilitate the transaction;

      -     purchases by a broker-dealer as principal and resale by the
            broker-dealer for its account;

      -     an exchange distribution in accordance with the rules of the
            applicable exchange;

      -     privately negotiated transactions;

      -     settlement of short sales

      -     broker-dealers may agree with the selling stockholders to sell a
            specified number of such shares at a stipulated price per share;

      -     a combination of any such methods of sale; and

      -     any other method permitted pursuant to applicable law.

      The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.

      The selling stockholder may from time to time pledge or grant a security
interest in some or all of the Shares or common stock or Warrant owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling stockholders to

                                       17
<PAGE>

include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus.

      The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.

      The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The selling stockholders have
informed the Company that none of them have any agreement or understanding,
directly or indirectly, with any person to distribute the common stock.

      The Company is required to pay all fees and expenses incurred by the
Company incident to the registration of the shares. The Company has agreed to
indemnify the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

                                       18

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