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WWW.EXFILE.COM -- 13328 -- MATRITECH, INC. -- EXHIBIT 4.4

EXHIBIT
4.4

NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE
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 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 OF THIS SECURITY MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

 

COMMON
STOCK PURCHASE WARRANT

To
Purchase __________ Shares of Common Stock of

 

Matritech,
Inc.

 

THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”)
CERTIFIES that, for value received, _____________ (the “Holder”), is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the six month and one
day anniversary of March 4, 2005 (the “Initial
Exercise Date”) and on
or prior to the close of business on the fifth anniversary of the First Closing
Date (the “Termination
Date”) but
not thereafter, to subscribe for and purchase from Matritech, Inc., a
corporation incorporated in the State of Delaware (the “Company”), up to
____________ shares (the “Warrant
Shares”) of
Common Stock, par value $0.01 per share, of the Company (the “Common
Stock”). The
purchase price of one share of Common Stock (the “Exercise
Price”) under
this Warrant shall be $1.47, subject to adjustment hereunder. The Exercise Price
and the number of Warrant Shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Purchase Agreement (the “Purchase
Agreement”),
dated March 4, 2005, among the Company and the purchasers signatory
thereto.

 

1

1.  Title
to Warrant. Prior
to the Termination Date and subject to compliance with applicable laws and
Section 7 of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
Holder in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed; provided,
however, during
any 12 month period and except for transfers to an Affiliate of the Holder, the
Holder, collectively with successor Holders, may not transfer this Warrant in
more than two transactions to more than four assignees per transaction. The
transferee shall sign an investment letter in form and substance reasonably
satisfactory to the Company.

 

2.  Authorization
of Shares. The
Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant and in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof imposed
by the Company other than restrictions on transfer provided for in the
Transaction Documents.

 

3.  Exercise
of Warrant.

 

(a)
Except as provided in Section 4 herein, exercise of the purchase rights
represented by this Warrant may be made at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by the surrender of
this Warrant and the Notice of Exercise Form annexed hereto duly executed, at
the office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased by wire transfer or cashier’s
check drawn on a United States bank or by means of a cashless exercise pursuant
to Section 3(d), the Holder shall be entitled to receive a certificate for the
number of Warrant Shares so purchased. Certificates for shares purchased
hereunder shall be delivered to the Holder within five (5) trading days after
the date on which this Warrant shall have been exercised as aforesaid. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes required
to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of
such shares, have been paid. If the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to this
Section 3(a) by the fifth trading day after the date of exercise, then the
Holder will have the right to rescind such exercise. In addition to any other
rights available to the Holder, if the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to an
exercise by the fifth trading day after the date of exercise and the Holder has
not rescinded such exercise pursuant to this Section 3(a), and if after such
fifth trading day the Holder is required by its broker to purchase (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of 

 

 

2

 

the
Warrant Shares which the Holder anticipated receiving upon such exercise (a
"Buy-In"), then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
exercise of this Warrant as required pursuant to the terms hereof.

(b)  If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant. 

 

(c)  The
Company shall not effect any exercise of this Warrant, and the Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section 3(a)
or otherwise, to the extent that after giving effect to such issuance after
exercise, the Holder (together with the Holder’s affiliates), as set forth on
the applicable Notice of Exercise, would beneficially own in excess of 9.99% of
the number of shares of the Common Stock outstanding immediately after giving
effect to such issuance.  For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining, nonexercised portion
of this Warrant beneficially owned by the Holder or any of its affiliates and
(B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section 3(c), beneficial ownership shall be calculated in accordance with
Section 13(d) of the 1934 Act. To the extent that the limitation contained in
this Section 

 

 

4

 

3(c)
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and of which a portion of this Warrant
is exercisable shall be in the sole discretion of such Holder, and the
submission of a Notice of Exercise shall be deemed to be such Holder’s
determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder) and of which portion of this Warrant is
exercisable, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 3(c), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of the Holder, the Company
shall within two trading days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding.  In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this Section
3(c) may be waived by the Holder upon, at the election of the Holder, not less
than 61 days’ prior notice to the Company, and the provisions of this Section
3(c) shall continue to apply until such 61st day (or
such later date, as determined by the Holder, as may be specified in such notice
of waiver).

 

(d) If at
any time after one year from the date of issuance of this Warrant there is no
effective Registration Statement registering the resale of the Warrant Shares by
the Holder, this Warrant may also be exercised at such time by means of a
“cashless exercise” in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:

 

(A) = the
daily volume weighted average price of the Common Stock on the trading day
immediately preceding the date of such election;

(B) = the
Exercise Price of this Warrant, as adjusted; and 

(X) = the
number of Warrant Shares issuable upon exercise of this Warrant in accordance
with the terms of this Warrant by means of a cash exercise rather than a
cashless exercise.

4.  No
Fractional Shares or Scrip. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.

 

5.  Charges,
Taxes and Expenses.
Issuance of certificates for Warrant Shares shall be made without charge to the
Holder for any issue or transfer tax or other incidental 

 

 

5

 

expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the Holder;
provided,
however, that in
the event certificates for Warrant Shares are to be issued in a name other than
the name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder;
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

 

6.  Closing
of Books. The
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.

 

7.  Transfer,
Division and Combination.

 

(a)  Subject
to compliance with any applicable securities laws and the conditions set forth
in Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the
Purchase Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney and
funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned, may be exercised by a new holder for
the purchase of Warrant Shares without having a new Warrant issued.

 

(b)  This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.

(c)  The
Company shall prepare, issue and deliver at its own expense (other than transfer
taxes) the new Warrant or Warrants under this Section 7.

(d)  The
Company agrees to maintain, at its aforesaid office, books for the registration
and the registration of transfer of the Warrants.

 

(e)  If, at the
time of
the surrender of this Warrant in connection with any transfer of this Warrant,
the transfer of this Warrant shall not be registered pursuant to an effective
registration
statement under the 1933 Act and
under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company 

 

 

5

 

a written
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
such transfer may be made without
registration under
the 1933
Act and under applicable state securities or blue sky laws, (ii) that the holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or
(a)(8) promulgated under the 1933 Act or a
qualified institutional buyer as defined in Rule 144A(a) under the 1933
Act.

 

8.  No
Rights as Shareholder until Exercise. This
Warrant does not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise pursuant to Section 3(d) hereof), the Warrant Shares so
purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such
surrender or payment. 

 

9.  Loss,
Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which, in the case of the Warrant, shall not include the posting of any bond),
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

 

10.  Saturdays,
Sundays, Holidays, etc. If the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall be a Saturday, Sunday or a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday, Sunday or legal holiday.

 

11.  Adjustments
of Exercise Price and Number of Warrant Shares.

 

(a) If the
Corporation shall issue or sell, or is, in accordance with subsections (b)(i)
through (viii) below, deemed to have issued or sold, any additional shares of
Common Stock, other than Excluded Stock (the “New
Issuance Shares”),
without consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the time of such issue or sale (the lowest
price at which such shares of Common Stock are issued or deemed to be issued
hereunder is hereinafter referred to as the “New
Issuance Price”), then
and in each such case (a “Trigger
Issuance”) the
then-existing Exercise Price, shall be reduced, as of the close of business on
the effective date of the Trigger Issuance, to a price determined in accordance
with the immediately succeeding paragraphs.

Prior to
stockholder approval of the Proposal, the Exercise Price shall be reduced to the
higher of (i) the New Issuance Price or (ii) $1.34 (appropriately adjusted for
any stock split, reverse stock split, stock dividend or other reclassification
or combination of the Common Stock occurring after the date hereof) (the
“Full-Ratchet
Floor Price”).

 

 

6

 

From and
after the date of stockholder approval of the Proposal, if any, the Exercise
Price shall be reduced to the New Issuance Price; provided, however, that in the
event that such New Issuance Price shall be less than the Full-Ratchet Floor
Price; the Exercise Price shall first be lowered to the Full-Ratchet Floor Price
(to the extent it has not already been so lowered) and shall then be further
adjusted as follows:

Adjusted
Exercise Price = (A x
B) + D

A+C

where

“A”
equals the number of shares of Common Stock outstanding immediately preceding
such Trigger Issuance, (including shares of Common Stock issuable upon the
conversion of (i) the Convertible Debentures and (ii) the outstanding Series A
Preferred Stock);

“B”
equals the lesser of (i) the Full-Ratchet Floor Price or (ii) Exercise Price in
effect immediately preceding such Trigger Issuance;

“C”
equals the number of New Issuance Shares issued or deemed issued hereunder as a
result of the Trigger Issuance (but excluding any additional shares of Common
Stock issuable hereunder as a result of adjustments made pursuant to this
Section 11); and

“D”
equals the aggregate consideration, if any, received or deemed to be received by
the Corporation upon such Trigger Issuance;

provided,
however, that in no event shall the Exercise Price after giving effect to such
Trigger Issuance be greater than the Exercise Price in effect prior to such
Trigger Issuance.

For
purposes of this subsection (a), “Excluded Stock” means (A) capital stock,
Options (as defined in Section 11(b)(i)) or Convertible Securities (as defined
in Section 11(b)(i)) issued to employees, consultants, officers or directors of
the Corporation pursuant to any stock or option plan duly adopted by a majority
of the non-employee members of the Board of Directors of the Corporation or a
majority of the members of a committee of non-employee directors established for
such purpose, (B) shares of Common Stock issued upon the conversion or exercise
of Options or Convertible Securities issued prior to the date hereof, provided
that such securities have not been amended since the date hereof to increase the
number of shares of Common Stock issuable thereunder or to lower the exercise or
conversion price thereof, (C) securities issued pursuant to the Purchase
Agreement and securities issued upon the exercise or conversion of those
securities, (D) capital stock or Convertible Securities issued in a joint
venture, strategic partnership or licensing arrangement, the primary purpose of
which is not the raising of capital and (E) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Exercise Price pursuant to the provisions
herein). 

 

 

7

 

Additionally,
for purposes of this subsection (a), the following subsections (b)(i) to (viii)
shall also be applicable:

(b)
 (i)
Issuance
of Rights or Options. In case
at any time the Corporation shall in any manner grant (directly and not by
assumption in a merger or otherwise) any warrants or other rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called “Options” and such convertible or
exchangeable stock or securities being called “Convertible Securities”) whether
or not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the sum
(which sum shall constitute the applicable consideration) of (x) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting of such Options, plus (y) the aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such Options,
plus (z), in the case of such Options which relate to Convertible Securities,
the aggregate amount of additional consideration, if any, payable upon the issue
or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Exercise Price in effect immediately prior to the time of the granting
of such Options, then the total number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total amount
of such Convertible Securities issuable upon the exercise of such Options shall
be deemed to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding for purposes of adjusting the
Exercise Price. Except as otherwise provided in subsection (b)(iii) of this
Section 11, no adjustment of the Exercise Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon exercise of
such Options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.

(ii)
Issuance
of Convertible Securities. In case
the Corporation shall in any manner issue (directly and not by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the sum (which sum shall
constitute the applicable consideration) of (x) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus (y) the aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Exercise Price in effect immediately prior to the time of such
issue or sale, then the total maximum number of shares of Common 

 

 

8

 

Stock
issuable upon conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of the issue
or sale of such Convertible Securities and thereafter shall be deemed to be
outstanding for purposes of adjusting the Exercise Price, provided that (a)
except as otherwise provided in subsection (b)(iii) of this Section 11, no
adjustment of the Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
no further adjustment of the Exercise Price shall be made by reason of the issue
or sale of Convertible Securities upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Exercise Price have
been made pursuant to the other provisions of Section 11.

 

(iii)
Change
in Option Price or Conversion Rate. Upon
the happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subsection (b)(i) hereof, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsections (b)(i) or (b)(ii), or the rate
at which Convertible Securities referred to in subsections (b)(i) or (b)(ii) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such event shall forthwith be readjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. On the termination of any Option for which any
adjustment was made pursuant to subsections (a) and (b) hereof or any right to
convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection (b) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Corporation), the Exercise Price then in effect hereunder shall forthwith be
changed to the Exercise Price which would have been in effect at the time of
such termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been
issued.

(iv)
Stock
Dividends. Subject
to the provisions of subsections (a) and (b) hereof, in case the Corporation
shall declare a dividend or make any other distribution upon any stock of the
Corporation (other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.

(v)
Subdivision
or Combination of Stock. In case
the Corporation shall at any time subdivide its outstanding shares of Common
Stock into a greater number of shares or shall declare or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased.

 

 

9

 

(vi)
Consideration
for Stock. In case
any shares of Common Stock, Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for nominal
consideration. If Common Stock, Options or Convertible Securities shall be
issued or sold by the Corporation and, in connection therewith, other Options or
Convertible Securities (the “Additional Rights”) are issued without any specific
consideration allocated to such Additional Rights, then the consideration
received or deemed to be received by the Corporation for such Additional Rights
shall be deemed to be nominal.

(vii)
Record
Date. In case
the Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.

(viii)
Treasury
Shares. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Corporation or any of its
wholly-owned subsidiaries, and the disposition of any such shares (other than
the cancellation or retirement thereof) shall be considered an issue or sale of
Common Stock for the purpose of this Section 11.

(c) Stock
Splits and Dividends. If the
Corporation shall, at any time or from time to time while Warrants are
outstanding, pay a dividend or make a distribution on its Common Stock in shares
of Common Stock, subdivide its outstanding shares of Common Stock into a greater
number of shares or combine its outstanding shares of Common Stock into a
smaller number of shares or issue by reclassification of its outstanding shares
of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation), then the Exercise Price in effect
immediately prior to the date upon which such change shall become effective
shall be adjusted by the Corporation so that the Holder shall be entitled to
receive the number of shares of Common Stock or other capital stock which such
Holder would have received had this Warrant been exercised immediately prior to
such event. Such adjustments shall be made successively whenever any event
listed above shall occur.

 

 

10

 

(d). Reorganization
or Reclassification. If any
capital reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way (including, without limitation, by
way of consolidation or merger) that holders of Common Stock but not holders of
Company Warrants shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock then, as a condition of such
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to receive, upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock of the Corporation immediately theretofore receivable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of such stock immediately
theretofore so receivable had such reorganization or reclassification not taken
place and in any such case appropriate provision shall be made with respect to
the rights and interests of such Holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
rights (including an immediate adjustment, by reason of such reorganization or
reclassification, of the Exercise Price to the value for the Common Stock
reflected by the terms of such reorganization or reclassification if the value
so reflected is less than the Exercise Price in effect immediately prior to such
reorganization or reclassification). In the event of a merger or consolidation
of the Corporation as a result of which a greater or lesser number of shares of
common stock of the surviving corporation are issuable to holders of the Common
Stock of the Corporation outstanding immediately prior to such merger or
consolidation, the Exercise Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Corporation.

(e). Distributions. In case
the Corporation shall fix a payment date for the making of a distribution to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Corporation is the continuing
corporation) of evidences of indebtedness or assets (other than cash dividends
or cash distributions payable out of consolidated earnings or earned surplus or
dividends or distributions referred to in subsection (c) of this Section 11), or
subscription rights or warrants, the Exercise Price to be in effect after such
payment date shall be determined by multiplying the Exercise Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the
Corporation’s Board of Directors in good faith) of said assets or evidences of
indebtedness so distributed, or of such subscription rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such Market Price per share of Common Stock
immediately prior to such payment date. “Market Price” as of a particular date
(the “Valuation Date”) shall mean the following: (a) if the Common Stock is then
listed on a national stock exchange, the closing sale price of one share of
Common Stock on such exchange on the last trading 

 

 

11

 

day prior
to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq
Stock Market, Inc. (“Nasdaq”), the National Association of Securities Dealers,
Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar exchange or
association, the closing sale price of one share of Common Stock on Nasdaq, the
Bulletin Board or such other exchange or association on the last trading day
prior to the Valuation Date or, if no such closing sale price is available, the
average of the high bid and the low asked price quoted thereon on the last
trading day prior to the Valuation Date; or (c) if the Common Stock is not then
listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or
such other exchange or association, the fair market value of one share of Common
Stock as of the Valuation Date, shall be determined in good faith by the Board
of Directors of the Corporation. If the Common Stock is not then listed on a
national securities exchange, the Bulletin Board or such other exchange or
association, the Board of Directors of the Corporation shall respond promptly,
in writing, to an inquiry by the Holder prior to the exercise hereunder as to
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Corporation. In the event that the Board of Directors of the
Corporation and the holders of Company Warrants (as defined in Section 14
hereof) representing at least 75% of the number of shares of Common Stock then
subject to all outstanding Company Warrants (the “Majority
Holders”) are
unable to agree upon the fair market value in respect of subsection (c) hereof,
the Corporation and the Majority Holders shall jointly select an appraiser, who
is experienced in such matters. The decision of such appraiser shall be final
and conclusive, and the cost of such appraiser shall be borne equally by the
Corporation and such holders. Such adjustment shall be made successively
whenever such a payment date is fixed.

(f). Effective
Date of Adjustment. An
adjustment to the Exercise Price shall become effective immediately after the
payment date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an
adjustment.

(g). Subsequent
Adjustments. In the
event that, as a result of an adjustment made pursuant to this Section 11, the
Holder shall become entitled to receive any shares of capital stock of the
Corporation other than shares of Common Stock, the number of such other shares
so receivable upon the exercise of this Warrant shall be subject thereafter to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained herein.

12.  Voluntary
Adjustment by the Company. The
Company may at any time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.

 

13.  Notice
of Adjustment.
Whenever the number of Warrant Shares or number or kind of securities or other
property purchasable upon the exercise of this Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall give notice thereof to the
Holder, which notice shall state the number of Warrant Shares (and other
securities or property) purchasable upon the exercise of this Warrant and the
Exercise Price for such Warrant Shares (and other securities or property) after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made.

 

 

12

 

14.  Call
Provision.
Notwithstanding any other provision contained herein to the contrary, in the
event that the closing bid price of a share of Common Stock as traded on the
American Stock Exchange, Inc. (or such other exchange or stock market on which
the Common Stock may then be listed or quoted) equals or exceeds $2.64
(appropriately adjusted for any stock split, reverse stock split, stock dividend
or other reclassification or combination of the Common Stock occurring after the
date hereof) for twenty (20) consecutive trading days commencing after the
Registration Statement (as defined in the Registration Rights Agreement) has
been declared effective, the Company, upon thirty (30) days prior written notice
(the “Notice
Period”) given
to the Holder within one business day immediately following the end of such
twenty (20) trading day period, may call this Warrant, in whole or in part, at a
redemption price equal to $1.47 per share of Common Stock then purchasable
pursuant to this Warrant; provided that (i) all of Warrant Shares issuable upon
the exercise of this Warrant either (A) are registered pursuant to an effective
Registration Statement (as defined in the Registration Rights Agreement) which
has not been suspended and for which no stop order is in effect, and pursuant to
which the Holder is able to sell such shares of Common Stock at all times during
the Notice Period or (B) no longer constitute Registrable Securities (as defined
in the Registration Rights Agreement): (ii) the number of shares of Common Stock
issuable upon the exercise of Warrants included in such notice of redemption
does not exceed the cumulative trading volume of the Common Stock on any stock
exchange or market on which the Common Stock may then be traded for the thirty
(30) consecutive trading days prior to the first day of the Notice Period; (iii)
the Company has not issued a warrant redemption notice on any other series of
warrants within 60 days of the first day of the Notice Period; and (iv) the
first day of such Notice Period is not within 365 days of the First Closing Date
or within 90 days of the Termination Date. In the event that less than all of
the Company Warrants (as defined below) are called pursuant to this Section 14,
any call of less than all the Company Warrants shall be on a pro rata basis for
each holder of Company Warrants. Notwithstanding any such notice by the Company,
the Holder shall have the right to exercise this Warrant prior to the end of the
Notice Period. The term “Company Warrants” means a series of Warrants of like
tenor issued by the Company pursuant to the Purchase Agreement and initially
covering an aggregate of 4,991,434 shares of Common Stock.

 

15.  Notice
of Corporate Action. If at
any time:

 

(a) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of stock
of any class or any other securities or property, or to receive any other right,
or

(b) there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to, another
corporation or,

(c) there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

 

 

13

 

then, in
any one or more of such cases, the Company shall give to Holder (i) at least 10
days’ prior written notice of the date on which a record date shall be selected
for such dividend, distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, liquidation or winding up, and (ii) in the case of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days’
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their Warrant Shares
for securities or other property deliverable upon such disposition, dissolution,
liquidation or winding up. Each such written notice shall be sufficiently given
if addressed to Holder at the last address of Holder appearing on the books of
the Company and delivered in accordance with Section 17(d).

 

16.  Authorized
Shares. The
Company covenants that during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be listed.

 

Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (b)
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares upon the exercise of this Warrant, and (c) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.

 

 

14

 

17.  Miscellaneous.

 

(a)  Jurisdiction. This
Warrant shall constitute a contract under the laws of New York, without regard
to its conflict of law, principles or rules.

 

(b)  Restrictions. The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.

 

(c)  Nonwaiver
and Expenses. No
course of dealing or any delay or failure to exercise any right hereunder on the
part of Holder shall operate as a waiver of such right or otherwise prejudice
Holder’s rights, powers or remedies, notwithstanding all rights hereunder
terminate on the Termination Date. If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

 

(d)
Notices. Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

 

(e)  Limitation
of Liability. No
provision hereof, in the absence of any affirmative action by Holder to exercise
this Warrant or purchase Warrant Shares, and no enumeration herein of the rights
or privileges of Holder, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the
Company.

 

(f)  Remedies. Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.

 

(g)  Successors
and Assigns. Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder.
The provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by any such Holder or
holder of Warrant Shares.

 

(h)  Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

 

(i)  Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision 

 

 

15

 

shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

 

(j)  Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

 

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

16

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

 

 

	 	 	 
	 	
      MATRITECH,
      INC.

	 
 	 
 	 
 
	Dated: March 4,
    2005 	By:  	/s/ 
	 	
      

      Name:
	 	Title: 

 

17

NOTICE
OF EXERCISE

To: Matritech,
Inc.

(1)  The
undersigned hereby elects to purchase ________ Warrant Shares of Matritech, Inc.
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

 

(2)  Payment
shall take the form of (check applicable box):

 

[_] in
lawful money of the United States; or

 

[_] the
cancellation of such number of Warrant Shares as is necessary, in accordance
with the formula set forth in subsection 3(d), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise provision set forth in subsection 3(d).

 

(3)  Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

 

_______________________________

The
Warrant Shares shall be delivered to the following:

_______________________________

_______________________________

_______________________________

(4)
Accredited
Investor/Qualified Institutional Buyer. The
undersigned is 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 of 1933, as
amended (the “Securities Act”) or (ii) a qualified institutional buyer as
defined in Rule 144(A)(a) under the Securities Act. 

[PURCHASER]

By:
______________________________

Name:

Title:

Dated:
________________________

 

ASSIGNMENT
FORM

(To
assign the foregoing warrant, execute

this form
and supply required information. 

Do not
use this form to exercise the warrant.)

FOR VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

 

_______________________________________________
whose address is

_______________________________________________________________.

_______________________________________________________________

Dated:
______________, _______

Holder's
Signature: _____________________________

Holder's
Address: _____________________________

 

 _____________________________

Signature
Guaranteed: ___________________________________________

NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing
Warrant.

LIBC/2280700.3WWW.EXFILE.COM -- 13328 -- MATRITECH, INC. -- EXHIBIT 4.5

 

EXHIBIT
4.5

 

NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE
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 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 OF THIS SECURITY MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

 

COMMON
STOCK PURCHASE WARRANT

To
Purchase 656,920 Shares of Common Stock of

 

Matritech,
Inc.

 

THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”)
CERTIFIES that, for value received, Musket Research Associates, Inc. (the
“Holder”), is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the six month and one
day anniversary of March 4, 2005 (the “Initial
Exercise Date”) and on
or prior to the close of business on March 4, 2010 (the “Termination
Date”) but
not thereafter, to subscribe for and purchase from Matritech, Inc., a
corporation incorporated in the State of Delaware (the “Company”), up to
656,920 shares (the “Warrant
Shares”) of
Common Stock, par value $0.01 per share, of the Company (the “Common
Stock”). The
purchase price of one share of Common Stock (the “Exercise
Price”) under
this Warrant shall be $1.471, subject
to adjustment hereunder. The Exercise Price and the number of Warrant Shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Purchase Agreement (the “Purchase
Agreement”),
dated March 4, 2005, among the Company and the purchasers signatory
thereto.

 

1
110% of the closing bid price on the trading day immediately prior to the date
of the Purchase Agreement.

 

1

1.  Title
to Warrant. Prior
to the Termination Date and subject to compliance with applicable laws and
Section 7 of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
Holder in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed; provided,
however, during
any 12 month period and except for transfers to an Affiliate of the Holder, the
Holder, collectively with successor Holders, may not transfer this Warrant in
more than two transactions to more than four assignees per transaction. The
transferee shall sign an investment letter in form and substance reasonably
satisfactory to the Company.

 

2.  Authorization
of Shares. The
Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant and in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof imposed
by the Company other than restrictions on transfer provided for in the
Transaction Documents.

 

3.  Exercise
of Warrant.

 

(a)
Except as provided in Section 4 herein, exercise of the purchase rights
represented by this Warrant may be made at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by the surrender of
this Warrant and the Notice of Exercise Form annexed hereto duly executed, at
the office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased by wire transfer or cashier’s
check drawn on a United States bank or by means of a cashless exercise pursuant
to Section 3(d), the Holder shall be entitled to receive a certificate for the
number of Warrant Shares so purchased. Certificates for shares purchased
hereunder shall be delivered to the Holder within five (5) trading days after
the date on which this Warrant shall have been exercised as aforesaid. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes required
to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of
such shares, have been paid. If the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to this
Section 3(a) by the fifth trading day after the date of exercise, then the
Holder will have the right to rescind such exercise. In addition to any other
rights available to the Holder, if the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to an
exercise by the fifth trading day after the date of exercise and the Holder has
not rescinded such exercise pursuant to this Section 3(a), and if after such
fifth trading day the Holder is required by its broker to purchase (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of 

 

 

2

 

the
Warrant Shares which the Holder anticipated receiving upon such exercise (a
"Buy-In"), then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
exercise of this Warrant as required pursuant to the terms hereof.

(b)  If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant. 

 

(c)  The
Company shall not effect any exercise of this Warrant, and the Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section 3(a)
or otherwise, to the extent that after giving effect to such issuance after
exercise, the Holder (together with the Holder’s affiliates), as set forth on
the applicable Notice of Exercise, would beneficially own in excess of 9.99% of
the number of shares of the Common Stock outstanding immediately after giving
effect to such issuance.  For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining, nonexercised portion
of this Warrant beneficially owned by the Holder or any of its affiliates and
(B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section 3(c), beneficial ownership shall be calculated in accordance with
Section 13(d) of the 1934 Act. To the extent that the limitation contained in
this Section 

 

 

3

 

3(c)
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and of which a portion of this Warrant
is exercisable shall be in the sole discretion of such Holder, and the
submission of a Notice of Exercise shall be deemed to be such Holder’s
determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder) and of which portion of this Warrant is
exercisable, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 3(c), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of the Holder, the Company
shall within two trading days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding.  In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this Section
3(c) may be waived by the Holder upon, at the election of the Holder, not less
than 61 days’ prior notice to the Company, and the provisions of this Section
3(c) shall continue to apply until such 61st day (or
such later date, as determined by the Holder, as may be specified in such notice
of waiver).

 

(d) This
Warrant may be exercised by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:

 

(A) = the
daily volume weighted average price of the Common Stock on the trading day
immediately preceding the date of such election;

(B) = the
Exercise Price of this Warrant, as adjusted; and 

(X) = the
number of Warrant Shares issuable upon exercise of this Warrant in accordance
with the terms of this Warrant by means of a cash exercise rather than a
cashless exercise.

4.  No
Fractional Shares or Scrip. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.

 

5.  Charges,
Taxes and Expenses.
Issuance of certificates for Warrant Shares shall be made without charge to the
Holder for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificate, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued in the name of the Holder
or in such 

 

 

4

 

name or
names as may be directed by the Holder; provided,
however, that in
the event certificates for Warrant Shares are to be issued in a name other than
the name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder;
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

 

6.  Closing
of Books. The
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.

 

7.  Transfer,
Division and Combination.

 

(a)  Subject
to compliance with any applicable securities laws and the conditions set forth
in Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the
Purchase Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney and
funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned, may be exercised by a new holder for
the purchase of Warrant Shares without having a new Warrant issued.

 

(b)  This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.

(c)  The
Company shall prepare, issue and deliver at its own expense (other than transfer
taxes) the new Warrant or Warrants under this Section 7.

(d)  The
Company agrees to maintain, at its aforesaid office, books for the registration
and the registration of transfer of the Warrants.

 

(e)  If, at the
time of
the surrender of this Warrant in connection with any transfer of this Warrant,
the transfer of this Warrant shall not be registered pursuant to an effective
registration
statement under the 1933 Act and
under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such 

 

 

5

 

transfer
may be made without
registration under
the 1933
Act and under applicable state securities or blue sky laws, (ii) that the holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or
(a)(8) promulgated under the 1933 Act or a
qualified institutional buyer as defined in Rule 144A(a) under the 1933
Act.

 

8.  No
Rights as Shareholder until Exercise. This
Warrant does not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise pursuant to Section 3(d) hereof), the Warrant Shares so
purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such
surrender or payment. 

 

9.  Loss,
Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which, in the case of the Warrant, shall not include the posting of any bond),
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

 

10.  Saturdays,
Sundays, Holidays, etc. If the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall be a Saturday, Sunday or a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday, Sunday or legal holiday.

 

11.  Adjustments
of Exercise Price and Number of Warrant Shares.

 

(a) If the
Corporation shall issue or sell, or is, in accordance with subsections (b)(i)
through (viii) below, deemed to have issued or sold, any additional shares of
Common Stock, other than Excluded Stock (the “New
Issuance Shares”),
without consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the time of such issue or sale (the lowest
price at which such shares of Common Stock are issued or deemed to be issued
hereunder is hereinafter referred to as the “New
Issuance Price”), then
and in each such case (a “Trigger
Issuance”) the
then-existing Exercise Price, shall be reduced, as of the close of business on
the effective date of the Trigger Issuance, to a price determined in accordance
with the immediately succeeding paragraphs.

Prior to
stockholder approval of the Proposal, the Exercise Price shall be reduced to the
higher of (i) the New Issuance Price or (ii) $1.34 (appropriately adjusted for
any stock split, reverse stock split, stock dividend or other reclassification
or combination of the Common Stock occurring after the date hereof) (the
“Full-Ratchet
Floor Price”). From
and after the date of stockholder approval of the Proposal, if any, the Exercise
Price shall be reduced to the New Issuance Price; provided, however, that in the
event that such 

 

 

6

 

New
Issuance Price shall be less than the Full-Ratchet Floor Price; the Exercise
Price shall first be lowered to the Full-Ratchet Floor Price (to the extent it
has not already been so lowered) and shall then be further adjusted as
follows:

Adjusted
Exercise Price = (A x
B) + D

A+C

where

“A”
equals the number of shares of Common Stock outstanding immediately preceding
such Trigger Issuance, (including shares of Common Stock issuable upon the
conversion of (i) the Convertible Debentures and (ii) the outstanding Series A
Preferred Stock);

“B”
equals the lesser of (i) the Full-Ratchet Floor Price or (ii) Exercise Price in
effect immediately preceding such Trigger Issuance;

“C”
equals the number of New Issuance Shares issued or deemed issued hereunder as a
result of the Trigger Issuance (but excluding any additional shares of Common
Stock issuable hereunder as a result of adjustments made pursuant to this
Section 11); and

“D”
equals the aggregate consideration, if any, received or deemed to be received by
the Corporation upon such Trigger Issuance;

provided,
however, that in no event shall the Exercise Price after giving effect to such
Trigger Issuance be greater than the Exercise Price in effect prior to such
Trigger Issuance.

For
purposes of this subsection (a), “Excluded Stock” means (A) capital stock,
Options (as defined in Section 11(b)(i)) or Convertible Securities (as defined
in Section 11(b)(i)) issued to employees, consultants, officers or directors of
the Corporation pursuant to any stock or option plan duly adopted by a majority
of the non-employee members of the Board of Directors of the Corporation or a
majority of the members of a committee of non-employee directors established for
such purpose, (B) shares of Common Stock issued upon the conversion or exercise
of Options or Convertible Securities issued prior to the date hereof, provided
that such securities have not been amended since the date hereof to increase the
number of shares of Common Stock issuable thereunder or to lower the exercise or
conversion price thereof, (C) securities issued pursuant to the Purchase
Agreement and securities issued upon the exercise or conversion of those
securities, (D) capital stock or Convertible Securities issued in a joint
venture, strategic partnership or licensing arrangement, the primary purpose of
which is not the raising of capital and (E) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Exercise Price pursuant to the provisions
herein). 

 

 

7

 

Additionally,
for purposes of this subsection (a), the following subsections (b)(i) to (viii)
shall also be applicable:

(b)
 (i)
Issuance
of Rights or Options. In case
at any time the Corporation shall in any manner grant (directly and not by
assumption in a merger or otherwise) any warrants or other rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called “Options” and such convertible or
exchangeable stock or securities being called “Convertible Securities”) whether
or not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the sum
(which sum shall constitute the applicable consideration) of (x) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting of such Options, plus (y) the aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such Options,
plus (z), in the case of such Options which relate to Convertible Securities,
the aggregate amount of additional consideration, if any, payable upon the issue
or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Exercise Price in effect immediately prior to the time of the granting
of such Options, then the total number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total amount
of such Convertible Securities issuable upon the exercise of such Options shall
be deemed to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding for purposes of adjusting the
Exercise Price. Except as otherwise provided in subsection (b)(iii) of this
Section 11, no adjustment of the Exercise Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon exercise of
such Options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.

(ii)
Issuance
of Convertible Securities. In case
the Corporation shall in any manner issue (directly and not by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the sum (which sum shall
constitute the applicable consideration) of (x) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus (y) the aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Exercise Price in effect immediately prior to the time of such
issue or sale, then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall be

 

 

8

 

deemed to
have been issued for such price per share as of the date of the issue or sale of
such Convertible Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Exercise Price, provided that (a) except as otherwise
provided in subsection (b)(iii) of this Section 11, no adjustment of the
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further
adjustment of the Exercise Price shall be made by reason of the issue or sale of
Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Exercise Price have been
made pursuant to the other provisions of Section 11.

 

(iii)
Change
in Option Price or Conversion Rate. Upon
the happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subsection (b)(i) hereof, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsections (b)(i) or (b)(ii), or the rate
at which Convertible Securities referred to in subsections (b)(i) or (b)(ii) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such event shall forthwith be readjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. On the termination of any Option for which any
adjustment was made pursuant to subsections (a) and (b) hereof or any right to
convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection (b) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Corporation), the Exercise Price then in effect hereunder shall forthwith be
changed to the Exercise Price which would have been in effect at the time of
such termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been
issued.

(iv)
Stock
Dividends. Subject
to the provisions of subsections (a) and (b) hereof, in case the Corporation
shall declare a dividend or make any other distribution upon any stock of the
Corporation (other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.

(v)
Subdivision
or Combination of Stock. In case
the Corporation shall at any time subdivide its outstanding shares of Common
Stock into a greater number of shares or shall declare or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased.

 

 

9

 

(vi)
Consideration
for Stock. In case
any shares of Common Stock, Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for nominal
consideration. If Common Stock, Options or Convertible Securities shall be
issued or sold by the Corporation and, in connection therewith, other Options or
Convertible Securities (the “Additional Rights”) are issued without any specific
consideration allocated to such Additional Rights, then the consideration
received or deemed to be received by the Corporation for such Additional Rights
shall be deemed to be nominal.

(vii)
Record
Date. In case
the Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.

(viii)
Treasury
Shares. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Corporation or any of its
wholly-owned subsidiaries, and the disposition of any such shares (other than
the cancellation or retirement thereof) shall be considered an issue or sale of
Common Stock for the purpose of this Section 11.

(c) Stock
Splits and Dividends. If the
Corporation shall, at any time or from time to time while Warrants are
outstanding, pay a dividend or make a distribution on its Common Stock in shares
of Common Stock, subdivide its outstanding shares of Common Stock into a greater
number of shares or combine its outstanding shares of Common Stock into a
smaller number of shares or issue by reclassification of its outstanding shares
of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation), then the Exercise Price in effect
immediately prior to the date upon which such change shall become effective
shall be adjusted by the Corporation so that the Holder shall be entitled to
receive the number of shares of Common Stock or other capital stock which such
Holder would have received had this Warrant been exercised immediately prior to
such event. Such adjustments shall be made successively whenever any event
listed above shall occur.

 

 

10

 

(d). Reorganization
or Reclassification. If any
capital reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way (including, without limitation, by
way of consolidation or merger) that holders of Common Stock but not holders of
Company Warrants shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock then, as a condition of such
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to receive, upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock of the Corporation immediately theretofore receivable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of such stock immediately
theretofore so receivable had such reorganization or reclassification not taken
place and in any such case appropriate provision shall be made with respect to
the rights and interests of such Holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
rights (including an immediate adjustment, by reason of such reorganization or
reclassification, of the Exercise Price to the value for the Common Stock
reflected by the terms of such reorganization or reclassification if the value
so reflected is less than the Exercise Price in effect immediately prior to such
reorganization or reclassification). In the event of a merger or consolidation
of the Corporation as a result of which a greater or lesser number of shares of
common stock of the surviving corporation are issuable to holders of the Common
Stock of the Corporation outstanding immediately prior to such merger or
consolidation, the Exercise Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Corporation.

(e). Distributions. In case
the Corporation shall fix a payment date for the making of a distribution to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Corporation is the continuing
corporation) of evidences of indebtedness or assets (other than cash dividends
or cash distributions payable out of consolidated earnings or earned surplus or
dividends or distributions referred to in subsection (c) of this Section 11), or
subscription rights or warrants, the Exercise Price to be in effect after such
payment date shall be determined by multiplying the Exercise Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the
Corporation’s Board of Directors in good faith) of said assets or evidences of
indebtedness so distributed, or of such subscription rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such Market Price per share of Common Stock
immediately prior to such payment date. “Market Price” as of a particular date
(the “Valuation Date”) shall mean the following: (a) if the Common Stock is then
listed on a national stock exchange, the closing sale price of one share of
Common Stock on such exchange on the last trading 

 

 

11

 

day prior
to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq
Stock Market, Inc. (“Nasdaq”), the National Association of Securities Dealers,
Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar exchange or
association, the closing sale price of one share of Common Stock on Nasdaq, the
Bulletin Board or such other exchange or association on the last trading day
prior to the Valuation Date or, if no such closing sale price is available, the
average of the high bid and the low asked price quoted thereon on the last
trading day prior to the Valuation Date; or (c) if the Common Stock is not then
listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or
such other exchange or association, the fair market value of one share of Common
Stock as of the Valuation Date, shall be determined in good faith by the Board
of Directors of the Corporation. If the Common Stock is not then listed on a
national securities exchange, the Bulletin Board or such other exchange or
association, the Board of Directors of the Corporation shall respond promptly,
in writing, to an inquiry by the Holder prior to the exercise hereunder as to
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Corporation. In the event that the Board of Directors of the
Corporation and the holders of Company Warrants (as defined in Section 14
hereof) representing at least 75% of the number of shares of Common Stock then
subject to all outstanding Company Warrants (the “Majority
Holders”) are
unable to agree upon the fair market value in respect of subsection (c) hereof,
the Corporation and the Majority Holders shall jointly select an appraiser, who
is experienced in such matters. The decision of such appraiser shall be final
and conclusive, and the cost of such appraiser shall be borne equally by the
Corporation and such holders. Such adjustment shall be made successively
whenever such a payment date is fixed.

(f). Effective
Date of Adjustment. An
adjustment to the Exercise Price shall become effective immediately after the
payment date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an
adjustment.

(g). Subsequent
Adjustments. In the
event that, as a result of an adjustment made pursuant to this Section 11, the
Holder shall become entitled to receive any shares of capital stock of the
Corporation other than shares of Common Stock, the number of such other shares
so receivable upon the exercise of this Warrant shall be subject thereafter to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained herein.

12.  Voluntary
Adjustment by the Company. The
Company may at any time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.

 

13.  Notice
of Adjustment.
Whenever the number of Warrant Shares or number or kind of securities or other
property purchasable upon the exercise of this Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall give notice thereof to the
Holder, which notice shall state the number of Warrant Shares (and other
securities or property) purchasable upon the exercise of this Warrant and the
Exercise Price for such Warrant Shares (and other securities or property) after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made.

 

 

12

 

14.  Call
Provision.
Notwithstanding any other provision contained herein to the contrary, in the
event that the closing bid price of a share of Common Stock as traded on the
American Stock Exchange, Inc. (or such other exchange or stock market on which
the Common Stock may then be listed or quoted) equals or exceeds $2.64
(appropriately adjusted for any stock split, reverse stock split, stock dividend
or other reclassification or combination of the Common Stock occurring after the
date hereof) for twenty (20) consecutive trading days commencing after the
Registration Statement (as defined in the Registration Rights Agreement) has
been declared effective, the Company, upon thirty (30) days prior written notice
(the “Notice
Period”) given
to the Holder within one business day immediately following the end of such
twenty (20) trading day period, may call this Warrant, in whole or in part, at a
redemption price equal to $1.47 per share of Common Stock then purchasable
pursuant to this Warrant; provided that (i) all of Warrant Shares issuable upon
the exercise of this Warrant either (A) are registered pursuant to an effective
Registration Statement (as defined in the Registration Rights Agreement) which
has not been suspended and for which no stop order is in effect, and pursuant to
which the Holder is able to sell such shares of Common Stock at all times during
the Notice Period or (B) no longer constitute Registrable Securities (as defined
in the Registration Rights Agreement): (ii) the number of shares of Common Stock
issuable upon the exercise of Warrants included in such notice of redemption
does not exceed the cumulative trading volume of the Common Stock on any stock
exchange or market on which the Common Stock may then be traded for the thirty
(30) consecutive trading days prior to the first day of the Notice Period; (iii)
the Company has not issued a warrant redemption notice on any other series of
warrants within 60 days of the first day of the Notice Period; and (iv) the
first day of such Notice Period is not within 365 days of the First Closing Date
or within 90 days of the Termination Date. In the event that less than all of
the Company Warrants (as defined below) are called pursuant to this Section 14,
any call of less than all the Company Warrants shall be on a pro rata basis for
each holder of Company Warrants. Notwithstanding any such notice by the Company,
the Holder shall have the right to exercise this Warrant prior to the end of the
Notice Period. The term “Company Warrants” means a series of Warrants of like
tenor issued by the Company pursuant to the Purchase Agreement and initially
covering an aggregate of 4,991,434 shares of Common Stock.

 

15.  Notice
of Corporate Action. If at
any time:

 

(a) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of stock
of any class or any other securities or property, or to receive any other right,
or

(b) there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to, another
corporation or,

(c) there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

 

 

13

 

then, in
any one or more of such cases, the Company shall give to Holder (i) at least 10
days’ prior written notice of the date on which a record date shall be selected
for such dividend, distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, liquidation or winding up, and (ii) in the case of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days’
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their Warrant Shares
for securities or other property deliverable upon such disposition, dissolution,
liquidation or winding up. Each such written notice shall be sufficiently given
if addressed to Holder at the last address of Holder appearing on the books of
the Company and delivered in accordance with Section 17(d).

 

16.  Authorized
Shares. The
Company covenants that during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be listed.

 

Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (b)
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares upon the exercise of this Warrant, and (c) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.

 

 

14

 

17.  Miscellaneous.

 

(a)  Jurisdiction. This
Warrant shall constitute a contract under the laws of New York, without regard
to its conflict of law, principles or rules.

 

(b)  Restrictions. The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.

 

(c)  Nonwaiver
and Expenses. No
course of dealing or any delay or failure to exercise any right hereunder on the
part of Holder shall operate as a waiver of such right or otherwise prejudice
Holder’s rights, powers or remedies, notwithstanding all rights hereunder
terminate on the Termination Date. If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

 

(d)  Notices. Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

 

(e)  Limitation
of Liability. No
provision hereof, in the absence of any affirmative action by Holder to exercise
this Warrant or purchase Warrant Shares, and no enumeration herein of the rights
or privileges of Holder, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the
Company.

 

(f)  Remedies. Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.

 

(g)  Successors
and Assigns. Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder.
The provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by any such Holder or
holder of Warrant Shares.

 

(h)  Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

 

(i)  Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision 

 

15

 

shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

 

(j)  Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

 

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

 

 

 

 

 

 

 

16

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

 

 

	 	 	 
	 	
      MATRITECH,
      INC.

	 
 	 
 	 
 
	Dated: March 4, 2005	By:  	/s/ Stephen D.
  Chubb
	 	
      

      Name: Stephen D. Chubb
	 	
      Title:
      Chief Executive Officer

 

17

NOTICE
OF EXERCISE

To: Matritech,
Inc.

(1)  The
undersigned hereby elects to purchase ________ Warrant Shares of Matritech, Inc.
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

 

(2)  Payment
shall take the form of (check applicable box):

 

[_] in
lawful money of the United States; or

 

[_] the
cancellation of such number of Warrant Shares as is necessary, in accordance
with the formula set forth in subsection 3(d), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise provision set forth in subsection 3(d).

 

(3)  Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

 

_______________________________

The
Warrant Shares shall be delivered to the following:

_______________________________

_______________________________

_______________________________

(4)
Accredited
Investor/Qualified Institutional Buyer. The
undersigned is 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 of 1933, as
amended (the “Securities Act”) or (ii) a qualified institutional buyer as
defined in Rule 144(A)(a) under the Securities Act. 

By:
______________________________

Name:

Title:

Dated:
________________________

 

ASSIGNMENT
FORM

(To
assign the foregoing warrant, execute

this form
and supply required information. 

Do not
use this form to exercise the warrant.)

FOR VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

 

_______________________________________________
whose address is

_______________________________________________________________.

_______________________________________________________________

Dated:
______________, _______

Holder's
Signature: _____________________________

Holder's
Address: _____________________________

 _____________________________

Signature
Guaranteed: ___________________________________________

NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing
Warrant.

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