Document:

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                                                                    Exhibit 10.2

                Statement of Designations, Rights and Preferences
                                     of the
     Series A 6% Adjustable Cumulative Convertible Voting Preferred Stock
                                       of
                                 Orthovita, Inc.

          The undersigned, being the Chief Executive Officer of Orthovita, Inc.,
a Pennsylvania corporation (the "Corporation"), does hereby certify, in his
capacity as such, that the following resolution has been duly adopted by the
board of directors of the Corporation:

                    Resolved, that pursuant to the authority expressly granted
          to and vested in the board of directors of the Corporation (the
          "Board") pursuant to Section 1522(b) of the Pennsylvania Business
          Corporation Law of 1988, as amended, and by the provisions of Article
          5 of the Corporation's Amended and Restated Articles of Incorporation,
          as amended to date (the "Articles of Incorporation"), the Board hereby
          creates a series of preferred stock of the Corporation, par value
          $0.01 per share, consisting of 2,000 shares, which shall be designated
          as the "Series A 6% Adjustable Cumulative Convertible Voting Preferred
          Stock" (hereinafter, the "Convertible Preferred Stock" or the
          "Preferred Stock"), which series shall have the following powers,
          designations, preferences and relative participating, optional, voting
          or other rights, and the following qualifications, limitations or
          restrictions:

          1.        Dividends. The holders of the Convertible Preferred Stock
shall be entitled to receive, when, if and as declared by the Corporation's
Board of Directors, out of funds legally available therefor, cumulative
dividends payable as set forth in this Section 1.

                    a. Dividends on the Convertible Preferred Stock shall accrue
and shall be cumulative from the date of issuance of the shares of Convertible
Preferred Stock (the "Date of Original Issue"), whether or not earned or
declared by the Board of Directors of the Corporation. Until paid, the right to
receive dividends on the Convertible Preferred Stock shall accumulate, and shall
be payable at the Corporation's option (subject to the Issuance Cap Amount set
forth in Section 5(k)) in either cash or in kind in shares of the Corporation's
Common Stock (the "Common Stock"), as set forth below, in arrears, on March 31,
June 30, September 30 and December 31 of each year (a "Dividend Payment Date"),
commencing on September 30, 2002 (the "Initial Dividend Payment Date") except
that if such Dividend Payment Date is not a business day, then the Dividend
Payment Date will be the immediately preceding business day. If the Corporation
elects to pay the dividend in shares of Common Stock, the Corporation shall set
aside a sufficient mber of shares of Common Stock for the payment of such
declared dividends and shall deliver certificates representing such shares of
Common Stock to the holders of shares of Convertible Preferred Stock as of the
record date for

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such dividend in payment of such declared dividends within two business days
after such Dividend Payment Date. Each such dividend declared by the Board of
Directors on the Convertible Preferred Stock shall be paid to the holders of
record of shares of the Convertible Preferred Stock as they appear on the stock
register of the Corporation on the record date which shall be the business day
next preceding a Dividend Payment Date. Dividends in arrears for any past
dividend period may be declared by the Board of Directors of the Corporation and
paid on shares of the Convertible Preferred Stock on any date fixed by the Board
of Directors of the Corporation, whether or not a regular Dividend Payment Date,
to holders of record of shares of the Convertible Preferred Stock as they appear
on the Corporation's stock register on the record date. The record date, which
shall not be greater than 5 days before such Dividend Payment Date, shall be
fixed by the Board of Directors of the Corporation. Any dividend payment made on
shares of the Convertible Preferred Stock shall first be credited against the
dividends accumulated with respect to the earliest dividend period for which
dividends have not been paid.

                    b. The dividend rate (the "Dividend Rate") on each share of
Convertible Preferred Stock shall be 6% per share per annum on $10,000 (the
Liquidation Preference (as hereinafter defined) of each such share) for the
period from the Date of Original Issue until the Initial Dividend Payment Date
and, for each dividend period thereafter, which shall commence on the last day
of the preceding dividend period and shall end on the next Dividend Payment
Date, shall be at the Dividend Rate (as adjusted from time to time as
hereinafter provided) on such Liquidation Preference and no more. Commencing
twenty-one (21) months after the Initial Dividend Payment Date, the Dividend
Rate shall be increased by two percentage points per share per annum, and each
three months thereafter, the Dividend Rate shall increase by an additional two
percentage points per share per annum, up to a maximum Dividend Rate of 14% per
share per annum. The amount of dividends per share of the Convertible Preferred
Stock payable for each dividend period or part thereof (the "Dividend Value")
shall be computed by multiplying the Dividend Rate for such dividend period by a
fraction the numerator of which shall be the number of days in the dividend
period or part thereof (calculated by counting the first day thereof but
excluding the last day thereof) on which such share was outstanding and the
denominator of which shall be 365 and multiplying the result by the Liquidation
Preference. In addition, in the event that the Convertible Preferred Stock is
converted pursuant to Section 5(b)(iv) prior to July 1, 2005, the Corporation
shall, within five business days following such mandatory conversion event, pay
an additional dividend amount equal to the difference between (x) $2,000 per
share of Convertible Preferred Stock to be so converted and (y) the sum of all
dividends that have been paid and all accrued but unpaid dividends, with respect
to each such share (the "Additional Dividend"). Except as provided otherwise in
this paragraph, any such dividend declared shall be payable in either cash or in
kind in shares of Common Stock, at the option of the Corporation, subject to the
Issuance Cap Amount set forth in Section 5(k). If a dividend is to be paid in
kind in Common Stock, the Common Stock shall be valued at the Current Market
Price (as hereinafter defined) as of the record date for such Dividend Payment
Date. In furtherance thereof, the Corporation shall reserve out of the
authorized but unissued shares of Common Stock, solely for issuance in respect
of the payment of dividends as herein described, a sufficient number of shares
of Common Stock to pay

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such dividends, when, if and as declared by the Board of Directors of the
Corporation. The Additional Dividend shall be payable in cash unless the
shareholders approve the Company's ability to pay the Additional Dividend in
cash or in kind in shares of Common Stock.

                    c. Except as hereinafter provided, no dividends shall be
declared or paid or set apart for payment on the shares of Common Stock or any
other class or series of capital stock of the Corporation for any dividend
period unless full cumulative dividends have been or contemporaneously are
declared and paid on the Convertible Preferred Stock through the most recent
Dividend Payment Date. If full cumulative dividends have not been paid on shares
of the Convertible Preferred Stock, all dividends declared on shares of the
Convertible Preferred Stock shall be paid pro rata to the holders of outstanding
shares of the Convertible Preferred Stock.

                    d. Convertible Preferred dividends may be paid even if,
after giving effect thereto, the Corporation's total assets would be less than
the sum of its total liabilities, plus the amount that would be needed, if the
Corporation were to be dissolved at the time of such distribution, to satisfy
the preferential rights upon dissolution of shareholders, if any, whose
preferential rights are superior to those receiving the distribution.

                    e. The holders of the Convertible Preferred Stock shall each
be entitled to receive dividends, on a pari passu basis with the holders of
shares of Common Stock, out of any assets legally available therefor, with the
amount of such dividends to be distributed to the holders of Convertible
Preferred Stock computed on the basis of the number of shares of Common Stock
which would be held by such holder if, immediately prior to the declaration of
the dividend, all of the shares of Convertible Preferred Stock had been
converted into shares of Common Stock at the then current Conversion Value (as
hereinafter defined).

          2. Voting Rights. Except as otherwise provided herein or by law, the
holders of the Convertible Preferred Stock shall have full voting rights and
powers, subject to the Beneficial Ownership Cap and the Issuance Cap Amount as
defined in Section 5(k), equal to the voting rights and powers of holders of
Common Stock and shall be entitled to notice of any shareholders meeting in
accordance with the Bylaws of the Corporation, and shall be entitled to vote,
with respect to any question upon which holders of Common Stock have the right
to vote (other than to approve the issuance of securities in excess of the
Issuance Cap Amount and an amendment to the Corporation's Bylaws providing for
rights of the holders of Preferred Stock to nominate or approve the nomination
of members of the Corporation's Board of Directors), including, without
limitation, the right to vote for the election of directors, voting together
with the holders of Common Stock as one class. Each holder of shares of
Convertible Preferred Stock shall be entitled to the number of votes equal to
the number of shares of Common Stock into which such shares of Convertible
Preferred Stock could be converted on the record date for the taking of a vote
at the initial Conversion Value on the Date of Original Issue, subject to the
Beneficial Ownership Cap and the Issuance Cap Amount limitations set forth in
Section

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5(k), or, if no record date is established, at the day prior to the date such
vote is taken or any written consent of shareholders is first executed;
provided, however, that solely for the purposes of calculating the number of
shares of Common Stock into which the Convertible Preferred Stock could be
converted to determine the number of votes to which a holder of Convertible
Preferred Stock is entitled, the initial Conversion Value shall not be subject
to adjustment as provided in Section 5 (other than pursuant to Section 5(f)).
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Convertible Preferred Stock held by each holder could be converted)
shall be rounded to the nearest whole number (with one-half being rounded
upward).

         3.    Rights on Liquidation.

               a. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation"), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of Common Stock, the
holders of Convertible Preferred Stock shall be entitled to receive payment out
of such assets of the Corporation in an amount equal to the greater of (i) (A)
in the event of a deemed Liquidation pursuant to Section 3(c) below, an amount
equal to the difference between $12,000 per share of Convertible Preferred Stock
and all dividends that have been paid, or are accumulated and unpaid, with
respect to one share of Convertible Preferred Stock or (B) in all other cases,
$10,000 per share of Convertible Preferred Stock (such applicable amount being
referred to as the "Liquidation Preference" for the Convertible Preferred
Stock), plus any accumulated and unpaid dividends thereon (whether or not earned
or declared) on the Convertible Preferred Stock, or (ii) the cash or other
property distributable upon such Liquidation with respect to the shares of
Common Stock into which such shares of Convertible Preferred Stock (plus all
accrued and unpaid dividends) could have been converted immediately prior to
such payment. If the assets of the Corporation available for distribution to the
holders of Convertible Preferred Stock shall not be sufficient to make in full
the payment herein required, such assets shall be distributed pro-rata among the
holders of Convertible Preferred Stock based on the aggregate Liquidation
Preferences of the shares of Convertible Preferred Stock held by each such
holder.

               b. If the assets of the Corporation available for distribution to
shareholders exceed the aggregate amount of the Liquidation Preferences payable
with respect to all shares of Convertible Preferred Stock then outstanding,
then, after the payment required by paragraph 3(a) above shall have been made or
irrevocably set aside, the holders of Common Stock shall be entitled to receive
with respect to each share of Common Stock payment of a pro rata portion of such
assets based on the aggregate number of shares of Common Stock held by each such
holder. If not being made pursuant to a Liquidation described in Section 3(c)
below, then the holders of the Convertible Preferred Stock shall participate in
such a distribution on a pro-rata basis with the holders of the Common Stock,
with the amount distributable to the holders of Convertible Preferred Stock to
be computed on the basis of the number of shares of Common Stock which would be
held by them if immediately prior to the Liquidation all of the

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outstanding shares of Convertible Preferred Stock had been converted into shares
of Common Stock at the then current Conversion Value.

               c. The acquisition of the Corporation by another entity by means
of any transaction or series of transactions (including, without limitation, any
reorganization, merger or consolidation) that results in the transfer of over
fifty percent (50%) of the outstanding voting power of this Corporation, or the
sale of all or substantially all of the assets or capital stock of the
Corporation, shall be deemed a Liquidation, unless (i) in connection with such
transaction, the holders of the Convertible Preferred Stock receive preferred
stock having terms and conditions which are no less favorable than the terms and
conditions of the Convertible Preferred Stock contained herein; or (ii) the
Convertible Preferred Stock is subject to redemption pursuant to Section 13(c).

        4.     Actions Requiring the Consent of Holders of Preferred Stock. As
long as any shares of Convertible Preferred Stock are outstanding and constitute
more than 15% of all the outstanding Common Stock on an as converted basis, the
consent of the holders of at least a majority of the shares of Convertible
Preferred Stock at the time outstanding, given in person or by proxy, either in
writing without a meeting or by vote at a meeting called for the purpose, shall
be necessary for effecting or validating any of the following transactions or
acts:

               a. Any amendment, alteration or repeal of any of the provisions
of the Articles of Incorporation of the Corporation (other than an amendment
effectuated in order to designate the rights and preferences of the Approved
Securities (as such term is defined below);

               b. The authorization or creation by the Corporation of, or the
increase in the number of authorized shares of, any stock of any class, or any
security convertible into stock of any class, or the authorization or creation
of any new class of preferred stock (or any action which would result in another
series of preferred stock), other than the authorization or issuance of
preferred stock with substantially the same terms as the Convertible Preferred
Stock and having no more favorable terms than the Preferred Stock and having no
preferences senior to the rights of the Preferred Stock in an amount not to
exceed the amount by which $20,000,000 exceeds the total purchase price of the
Convertible Preferred Stock (the "Approved Securities"), provided that such
Approved Securities are issued only after the Corporation's shareholders have
voted against the issuance of up to $20,000,000 of Convertible Preferred Stock;

               c. The redemption, purchase or other acquisition, directly or
indirectly, of any shares of capital stock of the Corporation or any of its
Subsidiaries or any option, warrant or other right to purchase or acquire any
such shares, other than the: (i) redemption of Preferred Stock pursuant to the
terms hereof, (ii) redemption of the warrants to purchase shares of Common Stock
that are issued or issuable (the "Warrants") under that certain Preferred Stock
and Warrant Purchase Agreement entered into among the Corporation and the
purchasers of the Preferred Stock on the Date of Original Issue (the "Preferred
Stock Purchase Agreement"), pursuant to the redemption

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terms of the Warrants, or (iii) redemption of any Approved Securities pursuant
to the terms thereof, or the repayment or prepayment of any indebtedness
outstanding as of the date hereof other than in the ordinary course of business;

               d. The declaration or payment of any dividend or other
distribution (whether in cash, stock or other property) with respect to the
capital stock of the Corporation or any Subsidiary, other than a dividend or
other distribution pursuant to the terms of the Preferred Stock or the Approved
Securities.

        5.     Conversion.

               a. Right to Convert. Subject to the limitation set forth in
Section 5(k) hereof, the holder of any share or shares of Convertible Preferred
Stock shall have the right at any time, at such holder's option, to convert all
or any lesser portion of such shares of Convertible Preferred Stock into such
number of fully paid and non-assessable shares of Common Stock as is determined
by dividing (i) the aggregate Liquidation Preference of the shares of
Convertible Preferred Stock to be converted by (ii) the Conversion Value (as
hereinafter defined) then in effect for such Convertible Preferred Stock. No
fractional shares or scrip representing fractional shares shall be issued upon
the conversion of any Convertible Preferred Stock. With respect to any fraction
of a share of Common Stock called for upon any conversion, the Corporation shall
pay to the holder an amount in cash equal to such fraction multiplied by the
Current Market Price (as hereinafter defined) per share of the Common Stock.

               b. Mandatory Conversion. Subject to the limitation set forth in
Section 5(k) hereof, all the outstanding Convertible Preferred Stock shall be
automatically converted upon the occurrence of any one or more of the following
events (each a "Conversion Triggering Event"), as of the effective time of such
event, into such number of fully paid and non-assessable shares of Common Stock
as is determined by dividing (i) the aggregate Liquidation Preference of the
shares of Convertible Preferred Stock to be converted by (ii) the Conversion
Value (as hereinafter defined) then in effect for such Convertible Preferred
Stock:

                  i.   The Registration Statement (as hereinafter defined)
    covering all of the shares of Common Stock into which the Preferred Stock is
    convertible is effective (or all of the shares of Common Stock into which
    the Preferred Stock is convertible may be sold without restriction pursuant
    to Rule 144(k) promulgated by the Securities and Exchange Commission under
    the Securities Act of 1933, as amended (the "Securities Act")) and the
    Current Market Price (as hereinafter defined) of the Common Stock is greater
    than 200% of the Conversion Value;

                  ii.  Upon closing of a sale of Common Stock in a
    firm-commitment underwriting in which:

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                       1) the offering price (before deduction of underwriting
discounts, commissions or other selling or other expenses of the offering) of
the Common Stock is greater than 200% of the Conversion Value;

                       2) the aggregate gross proceeds of the offering are
greater than $20,000,000 (without giving effect to the possible conversion or
exercise or any warrant, convertible security or other derivative security
included in such offering); and

                       3) the Registration Statement covering all of the shares
of Common Stock into which the Preferred Stock is convertible is then effective
or all of the shares of Common Stock into which the Preferred Stock is
convertible may be sold without restriction pursuant to Rule 144(k) promulgated
by the Securities and Exchange Commission under the Securities Act;

                  iii. Subject to the provisions of Section 13(c) (Redemption at
    the Corporation's Election), upon the closing of a sale of the majority of
    the capital stock of the Corporation or a merger or consolidation of the
    Corporation in which the Corporation is not the surviving entity, and the
    per share consideration (the "Transaction Consideration") received by the
    holders of the Common Stock is an amount of not less than 110% of the
    Conversion Value plus accrued but unpaid dividends thereon, provided that
    upon consummation of such transaction the holders of the Common Stock
    issuable upon such conversion shall be entitled to receive the same per
    share consideration as the Transaction Consideration.

                  iv.  Upon notice by the Corporation that it has filed with the
    Securities and Exchange Commission of a Form 10-Q or Form 10-K, as
    applicable, that reports, for the immediately preceding fiscal quarter (or,
    in the case of a Form 10-K, for the fourth quarter of the prior fiscal
    year), revenues from sales of the Corporation's VITOSS(TM), CORTOSS(TM),
    RHAKOSS(TM), IMBIBE(TM) and ALIQUOT(TM) products, and any combination
    product thereof, equal to or in excess of either (x) $6,250,000 or (y) if
    after the Date of Original Issue, the Corporation acquires an entity with a
    capitalization in excess of $10 million that has products being sold,
    $5,000,000 (the "Revenue Target").

                  v.   Subject to the provisions of Section 13(c) (Redemption at
    the Corporation's Election), at any time upon written notice sent by any of
    OrbiMed Advisors LLC, OrbiMed Associates LLC, PW Juniper Crossover Fund LLC,
    Caduceus Private Investment L.P., or any of their respective successors or
    assigns ("OrbiMed") to the Corporation and the holders of Preferred Stock;
    provided, however that if OrbiMed forces conversion pursuant to this
    Subsection 5(b)(v) upon the closing of a sale of the majority of the capital
    stock of the Corporation or a merger or consolidation of the Corporation in
    which the Corporation is not the surviving entity, (i) holders of at least a
    majority of the shares of Convertible Preferred Stock then outstanding must
    consent to such conversion and such consenting holders cannot have an
    ownership interest of 10% or more in the aggregate in any other entity party

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    to such transaction (other than subsidiaries of the Corporation), and (ii)
    the consideration to be received by holders of Convertible Preferred Stock
    upon consummation of the merger or consolidation is no less than an amount
    equal to the difference between $12,000 per share of Convertible Preferred
    Stock and all dividends that have been paid, or are accumulated and unpaid,
    with respect to one share of Convertible Preferred Stock.

       "Registration Statement" shall have the meaning established in the
Investor Rights Agreement of even date herewith by and among the Corporation and
the other parties signatory thereto

          c.      Mechanics of Conversion.

                  i.  Such right of conversion (other than mandatory conversion)
    shall be exercised by the holder of shares of Convertible Preferred Stock by
    delivering to the Corporation a conversion notice in the form attached
    hereto as Exhibit A (the "Conversion Notice"), appropriately completed and
    duly signed and specifying the number of shares of Convertible Preferred
    Stock that the holder elects to convert (the "Converting Shares") into
    shares of Common Stock on the date specified in the Conversion Notice (which
    date shall not be earlier than the date on which the Conversion Notice is
    delivered to the Corporation), and by surrender of the certificate or
    certificates representing such Converting Shares. The Conversion Notice
    shall also contain a statement of the name or names (with addresses and tax
    identification or social security numbers) in which the certificate or
    certificates for Common Stock shall be issued, if other than the name in
    which the Converting Shares are registered. Promptly after the receipt of
    the Conversion Notice and surrender of the Converting Shares, the
    Corporation shall issue and deliver, or cause to be delivered, to the holder
    of the Converting Shares or such holder's nominee, a certificate or
    certificates for the number of shares of Common Stock issuable upon the
    conversion of such Converting Shares. Such conversion shall be deemed to
    have been effected as of the close of business on the date specified in the
    Conversion Notice in accordance with the terms hereof (the "Conversion
    Date"), and the person or persons entitled to receive the shares of Common
    Stock issuable upon conversion shall be treated for all purposes as the
    holder or holders of record of such shares of Common Stock as of the close
    of business on the Conversion Date.

                  ii. Subject to the provisions of Section 5(k), in the event
    that a Conversion Triggering Event has occurred, all the shares of Preferred
    Stock shall be converted as if the holders thereof had delivered a
    Conversion Notice with respect to such shares on such day. Promptly
    thereafter, the holders of the Convertible Preferred Stock shall deliver
    their certificates evidencing the Convertible Preferred Stock to the
    Corporation or its duly authorized transfer agent, and upon receipt thereof,
    the Corporation shall issue or cause its transfer agent to issue
    certificates evidencing the Common Stock into which the Convertible
    Preferred Shares have been converted.

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            d. Beneficial Ownership Cap. To the extent that any shares of
Convertible Preferred Stock are not automatically converted upon the occurrence
of a Conversion Triggering Event on account of the application of Section 5(k),
such shares of Convertible Preferred Stock shall be deemed converted
automatically under this Section 5 at the first moment thereafter when Section
5(k) would not prevent such conversion. Notwithstanding the preceding sentence,
upon the occurrence of the Conversion Triggering Event, the right to: (a) accrue
dividends on Preferred Stock (other than dividends pursuant to Section 1(e)
hereof); (b) the liquidation preference of the Preferred Stock, including,
without limitation, the right to be treated as holders of Preferred Stock in the
event of a merger or consolidation; (c) the veto rights described in Section 4
hereof; and (d) the antidilution protection as provided in Sections 5(h)(i) and
5(h)(ii) hereof, and (e) the redemption rights under in Section 13 hereof would
cease immediately.

            d. Common Stock Reserved. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock, solely for
issuance upon the conversion of shares of Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Convertible Preferred Stock at
the time outstanding.

            e. Conversion Value. The initial conversion value for the
Convertible Preferred Stock shall be $1.706 per share of Common Stock, such
value to be subject to adjustment in accordance with the provisions of this
Section 5. Such conversion value in effect from time to time, as adjusted
pursuant to this Section 5, is referred to herein as a "Conversion Value." All
of the remaining provisions of this Section 5 shall apply separately to each
Conversion Value in effect from time to time with respect to Convertible
Preferred Stock.

            f. Stock Dividends, Subdivisions and Combinations. If at any time
while the Preferred Stock is outstanding, the Corporation shall:

               i.   cause the holders of its Common Stock to be entitled to
receive a dividend payable in, or other distribution of, additional shares of
Common Stock,

               ii.  subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or

               iii. combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,

then in each such case the Conversion Value shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become

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effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that a Conversion Value is calculated hereunder, then the
calculation of such Conversion Value shall be adjusted appropriately to reflect
such event.

            g.    Certain Other Distributions. If at any time while the
Preferred Stock is outstanding the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive any
dividend or other distribution of:

                  i.    cash (other than a cash dividend payable out of earnings
or earned surplus legally available for the payment of dividends under the laws
of the jurisdiction of incorporation of the Corporation),

                  ii.   any evidences of its indebtedness, any shares of stock
of any class or any other securities or property of any nature whatsoever (other
than cash, convertible securities or additional shares of Common Stock), or

                  iii.  any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any class or
any other securities or property of any nature whatsoever (other than cash,
convertible securities or additional shares of Common Stock) (in each case set
forth in subparagraphs 5(g)(i), 5(g)(ii) and 5(g)(iii) hereof, the "Distributed
Property"),

then upon any conversion of Preferred Stock that occurs after such record date,
the holder of Preferred Stock shall be entitled to receive, in addition to the
Conversion Shares otherwise issuable upon such conversion, the Distributed
Property that such holder would have been entitled to receive in respect of such
number of Conversion Shares had the holder been the record holder of such
Conversion Shares as of such record date. Such adjustment shall be made whenever
any such distribution is made. In the event that the Distributed Property
consists of property other than cash, then the fair value of such Distributed
Property shall be as determined in good faith by the Board of Directors of the
Corporation and set forth in reasonable detail in a written valuation report
(the "Valuation Report") prepared by the Board of Directors. The Corporation
shall give written notice of such determination and a copy of the Valuation
Report to all holders of Preferred Stock, and if the holders of a majority of
the outstanding Preferred Stock object to such determination within twenty (20)
business days following the date such notice is given to all of the holders of
Preferred Stock, the Corporation shall submit such valuation to an investment
banking firm of recognized national standing selected by not less than a
majority of the holders of the Preferred Stock and acceptable to the Company in
its reasonable discretion, whose opinion shall be binding upon the Corporation
and the Preferred Stockholders. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Corporation to the holders of its
Common Stock of such shares of such other class of

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stock within the meaning of this Section 5(g) and, if the outstanding shares of
Common Stock shall be changed into a larger or smaller number of shares of
Common Stock as a part of such reclassification, such change shall be deemed a
subdivision or combination, as the case may be, of the outstanding shares of
Common Stock within the meaning of Section 5(f).

            h.    Issuance of Additional Shares of Common Stock.

                  i.      If, at any time prior to the close of business on the
fourth anniversary of the Date of Original Issue while the Preferred Stock is
outstanding, the Corporation shall issue or sell any additional shares of Common
Stock in exchange for consideration in an amount per additional share of Common
Stock less than the current Conversion Value at the time the additional shares
of Common Stock are issued or sold, then the Conversion Value shall be adjusted
to equal such amount.

                  ii.     If, at any time after the fourth anniversary of the
Date of Original Issue while the Preferred Stock is outstanding, the Corporation
shall issue or sell any additional shares of Common Stock in exchange for
consideration in an amount per additional share of Common Stock less than the
current Conversion Value at the time the additional shares of Common Stock are
issued or sold, then the Conversion Value shall be reduced, concurrently upon
such issuance, to a price determined by dividing an amount equal to the sum of:

                     (A)

                          (1)   the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing current
Conversion Value, plus

                          (2)   the consideration, if any, received by the
Corporation upon such issue or sale, by

                     (B)  the total number of shares of Common Stock
outstanding immediately after such issue or sale.

                     iii. "Current Market Price" means, in respect of any share
of Common Stock on any date herein specified:

                                       11

<PAGE>

                          (1)   if there shall not then be a public market for
the Common Stock, the higher of (a) the book value per share of Common Stock at
such date, and (b) the Appraised Value (as hereinafter defined) per share of
Common Stock at such date, or

                          (2)   if there shall then be a public market for the
Common Stock, the higher of (x) the book value per share of Common Stock at such
date, and (y) the average of the daily market prices for the 20 consecutive
trading days immediately before such date. The daily market price for each such
trading day shall be (i) the last sale price on such day on the principal stock
exchange (including NASDAQ) on which such Common Stock is then listed or
admitted to trading, or quoted, as applicable, (ii) if no sale takes place on
such day on any such exchange, the average of the last reported closing bid and
asked prices on such day as officially quoted on any such exchange (including
NASDAQ), (iii) if the Common Stock is not then listed or admitted to trading on
any stock exchange, the average of the last reported closing bid and asked
prices on such day in the over-the-counter market, as furnished by the National
Association of Securities Dealers Automatic Quotation System or the National
Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged
in the business of reporting such prices, as furnished by any similar firm then
engaged in such business, or (v) if there is no such firm, as furnished by any
member of the NASD selected mutually by the holder of the Convertible Preferred
Stock and the Corporation or, if they cannot agree upon such selection, as
selected by two such members of the NASD, one of which shall be selected by
holder of the Convertible Preferred Stock and one of which shall be selected by
the Corporation.

                    iv.   "Appraised Value" means, in respect of any share of
Common Stock on any date herein specified, the fair saleable value of such share
of Common Stock (determined without giving effect to the discount for (i) a
minority interest or (ii) any lack of liquidity of the Common Stock or to the
fact that the Corporation may have no class of equity registered under the
Exchange Act of 1934, as amended (the "Exchange Act")) as of the last day of the
most recent fiscal month end prior to such date specified, based on the value of
the Corporation (assuming the conversion and exercise of all of the
Corporation's authorized and issued capital stock), as determined by a
nationally recognized investment banking firm selected by the Corporation's
Board of Directors and having no prior relationship with the Corporation, and
reasonably acceptable to not less than a majority of the holders of the
Preferred Stock then outstanding.

                    v.    The provisions of paragraphs 5(h)(i) and 5(h)(ii)
shall not apply to any issuance of additional shares of Common Stock for which
an adjustment is provided under Section 5(f) or 5(g). No adjustment of the
number of shares of Common Stock for which the Convertible Preferred Stock shall
be convertible into shall be made under paragraph 5(h)(i) or 5(h)(ii) upon the
issuance of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any

                                       12

<PAGE>

convertible securities, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights or upon the issuance of such
convertible securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 5(i).

                    vi.   Notwithstanding anything to the contrary contained
herein, the provisions are this Section 5 are subject to the terms of Section
13(d) regarding the Corporation's right to redeem the Preferred Stock.

               i.   Issuance of Common Stock Equivalents. If at any time while
the Preferred Stock is outstanding the Corporation shall issue or sell any
warrants or other rights to subscribe for or purchase any additional shares of
Common Stock or any securities convertible, directly or indirectly, into shares
of Common Stock (collectively, "Common Stock Equivalents"), whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
effective price per share for which Common Stock is issuable upon the exercise,
exchange or conversion of such Common Stock Equivalents shall be less than the
current Conversion Value in effect immediately prior to the time of such issue
or sale, then the current Conversion Value shall be adjusted as provided in
Section 5(h) on the basis that the maximum number of additional shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued and outstanding and the Corporation shall have received all of
the consideration payable therefor, if any, as of the date of the actual
issuance of such Common Stock Equivalents. No further adjustments to the current
Conversion Value shall be made under this Section 5(i) upon the actual issue of
such Common Stock upon the exercise, conversion or exchange of such Common Stock
Equivalents.

               j.    Superseding Adjustment.

                     i.   If, at any time after any adjustment to the current
Conversion Value shall have been made pursuant to Section 5(i) as the result of
any issuance of Common Stock Equivalents, (x) the right to exercise, exchange or
convert all or a portion of the Common Stock Equivalents shall expire
unexercised, or (y) the conversion rate or consideration per share for which
shares of Common Stock are issuable pursuant to such Common Stock Equivalents
shall be increased solely by virtue of provisions therein contained for an
automatic increase in such conversion rate or consideration per share, as the
case may be, upon the occurrence of a specified date or event, then any such
previous adjustments to the Conversion Value shall be rescinded and annulled and
the additional shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation.

                     ii.  Upon the occurrence of an event set forth in Section
5(j)(i) above, there shall be a recomputation made of the effect of such Common
Stock Equivalents on the basis of: (i) treating the number of additional shares
of Common Stock or other property, if any, theretofore actually issued or
issuable pursuant to the previous

                                       13

<PAGE>

exercise, exchange or conversion of any such Common Stock Equivalents, as having
been issued on the date or dates of any such exercise, exchange or conversion
and for the consideration actually received and receivable therefor, and (ii)
treating any such Common Stock Equivalents which then remain outstanding as
having been granted or issued immediately after the time of such increase of the
conversion rate or consideration per share for which shares of Common Stock or
other property are issuable under such Common Stock Equivalents; whereupon a new
adjustment to the current Conversion Value shall be made, which new adjustment
shall supersede the previous adjustment so rescinded and annulled.

               k.     Blocking Provisions.

                      i.   Except as provided otherwise in this Section 5(k)(i),
other than with respect to OrbiMed the number of Conversion Shares that may be
acquired by any holder , and the number of shares of Convertible Preferred Stock
that shall be entitled to voting rights under Section 2 hereof shall be limited
to the extent necessary to insure that, following such conversion, the number of
shares of Common Stock then beneficially owned by such holder and its Affiliates
and any other persons or entities whose beneficial ownership of Common Stock
would be aggregated with the holder's for purposes of Section 13(d) of the
Exchange Act (including shares held by any "group" of which the holder is a
member) does not exceed 4.95% of the total number of shares of Common Stock of
the Corporation then issued and outstanding (the "Beneficial Ownership Cap").
For purposes hereof, "group" has the meaning set forth in Section 13(d) of the
Exchange Act and applicable regulations of the Securities and Exchange
Commission, and the percentage held by the holder shall be determined in a
manner consistent with the provisions of Section 13(d) of the Exchange Act. As
used herein, the term "Affiliate" means any person or entity that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with a person or entity, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a holder of
Preferred Stock, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such holder will be deemed
to be an Affiliate of such holder. Each delivery of a Conversion Notice by a
holder of Preferred Stock will constitute a representation by such Holder that
it has evaluated the limitation set forth in this paragraph and determined,
subject to the accuracy of information filed under the Securities Act and the
Exchange Act by the Corporation with respect to the outstanding Common Stock of
the Company, that the issuance of the full number of shares of Common Stock
requested in such Conversion Notice is permitted under this paragraph. This
paragraph shall be construed and administered in such manner as shall be
consistent with the intent of the first sentence of this paragraph. Any
provision hereof which would require a result that is not consistent with such
intent shall be deemed severed herefrom and of no force or effect with respect
to the conversion contemplated by a particular Conversion Notice. The provisions
of this Section 5(k)(i) shall not apply if OrbiMed forces conversion of the
Preferred Stock pursuant to Section 5(b)(v).

                                       14

<PAGE>

                      ii.   Notwithstanding any contrary or inconsistent
provision hereof, if the Corporation is prohibited by Rule 4350(i) of the
National Association of Securities Dealers, Inc. (the "NASD"), or any successor
or similar rule, or the rules or regulations of any other securities exchange on
which the Common Stock is then listed or traded, from issuing a number of shares
of Common Stock upon conversion of the Convertible Preferred Stock or as payment
of any dividends thereon (together with any shares of Common Stock, or
securities convertible into or exercisable for Common Stock, issued or issuable
pursuant to the Preferred Stock Purchase Agreement or other agreements entered
into in connection therewith) in excess of a prescribed amount (the "Issuance
Cap Amount"), then the Corporation shall not issue shares upon conversion of the
Convertible Preferred Stock or as payment of any dividend thereon in excess of
the Issuance Cap Amount. Assuming solely for purposes of this paragraph (k)(ii)
that such Rule 4350(i) or similar rule is applicable, the Issuance Cap Amount
shall be [4,003,904] shares.

                            In the event the Corporation is prohibited from
issuing shares of Common Stock as a result of the operation of this subparagraph
(k)(ii), the Corporation shall seek the approval of its shareholders to
authorize the issuance of the full number of shares of Common Stock which would
be issuable upon the conversion of the then outstanding shares of Convertible
Preferred Stock but for the Issuance Cap Amount to eliminate any prohibitions
under applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Corporation or any of its securities on the Corporation's
ability to issue shares of Common Stock in excess of the Issuance Cap Amount.

                l.    Exception for Existing Obligations. No adjustment to the
Conversion Value shall be made under Section 5(h) or 5(i) on account of the
issuance of any securities of the Corporation pursuant to (A) the conversion of
the Convertible Preferred Stock, the exercise of the Warrants, or the issuance
of shares of Common Stock as payment of dividends to holders of Preferred Stock,
(B) the conversion of the Approved Securities or the issuance of shares of
Common Stock as payment of dividends to holders of Approved Securities, or the
issuance or exercise of warrants granted in connection with the Approved
Securities, (C) the exercise of any warrants or options (collectively, the
"Existing Warrants") outstanding on the date this Statement of Designation is
filed with the Pennsylvania Department of State (the "Filing Date"), (D) shares
of Common Stock, options or warrants issuable pursuant to the anti-dilution
provisions contained in Existing Warrants; (E) the issuance of Common Stock,
stock awards or options under, or the exercise of any options granted pursuant
to, any currently authorized plan for the issuance of options or capital stock
of the Corporation including, without limitation, stock purchase plans, or (F)
the issuance of shares pursuant to a stock split, combination, subdivision,
dividend or other distribution on outstanding shares of Common Stock.

                                       15

<PAGE>

     6.     Other Provisions Applicable to Adjustments. The following provisions
shall be applicable to the making of adjustments of the number of shares of
Common Stock into which the Convertible Preferred Stock is convertible and the
current Conversion Value provided for in Section 5:

            a.    Computation of Consideration. To the extent that any
additional shares of Common Stock or any convertible securities or any warrants
or other rights to subscribe for or purchase any additional shares of Common
Stock or any convertible securities shall be issued for cash consideration, the
consideration received by the Corporation therefor shall be the amount of the
cash received by the Corporation therefor, or, if such additional shares of
Common Stock or convertible securities are offered by the Corporation for
subscription, the subscription price, or, if such additional shares of Common
Stock or convertible securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price (in
any such case subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation, discounts or
expenses paid or incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Corporation. In case
any additional shares of Common Stock or any convertible securities or any
warrants or other rights to subscribe for or purchase such additional shares of
Common Stock or convertible securities shall be issued in connection with any
merger in which the Corporation issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as determined in
good faith by the Board of Directors of the Corporation, of such portion of the
assets and business of the nonsurviving corporation as such Board in good faith
shall determine to be attributable to such additional shares of Common Stock,
convertible securities, warrants or other rights, as the case may be. The
consideration for any additional shares of Common Stock issuable pursuant to any
warrants or other rights to subscribe for or purchase the same shall be the
consideration received by the Corporation for issuing such warrants or other
rights plus the additional consideration payable to the Corporation upon
exercise of such warrants or other rights. The consideration for any additional
shares of Common Stock issuable pursuant to the terms of any convertible
securities shall be the consideration received by the Corporation for issuing
warrants or other rights to subscribe for or purchase such convertible
securities, plus the consideration paid or payable to the Corporation in respect
of the subscription for or purchase of such convertible securities, plus the
additional consideration, if any, payable to the Corporation upon the exercise
of the right of conversion or exchange in such convertible securities. In case
of the issuance at any time of any additional shares of Common Stock or
convertible securities in payment or satisfaction of any dividends upon any
class of stock other than Common Stock, the Corporation shall be deemed to have
received for such additional shares of Common Stock or convertible securities a
consideration equal to the amount of such dividend so paid or satisfied.
Whenever the Board of Directors of the Corporation shall be required to make a
determination in good faith of the fair value of any consideration, such

                                       16

<PAGE>

determination shall, if requested by holders of a majority of the Convertible
Preferred Stock then outstanding be supported by a nationally recognized
investment banking firm selected by such holders, which firm shall have no prior
relationship with the Corporation.

            b.    When Adjustments to Be Made. The adjustments required by
Section 5 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment to the Conversion Value
that would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for in
Section 5(f)) up to, but not beyond the Conversion Date if such adjustment
either by itself or with other adjustments not previously made adds or subtracts
less than 1% of the shares of Common Stock into which the Convertible Preferred
Stock is convertible immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by Section 5 and not
previously made, would result in a minimum adjustment or on the Conversion Date.
For the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.

            c.    Fractional Interests. In computing adjustments under Section
5, fractional interests in Common Stock shall be taken into account to the
nearest 1/100th of a share.

            d.    When Adjustment Not Required. If the Corporation undertakes a
transaction contemplated under Sections 5(g), 5(h), 5(i) or 5(j) and as a result
takes a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights or
other benefits contemplated under Sections 5(g), 5(h), 5(i) or 5(j) and shall,
thereafter and before the distribution to shareholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights or other benefits contemplated under Sections 5(g), 5(h), 5(i) or 5(j),
then thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.

            e.    Escrow of Stock. If after any property becomes distributable
pursuant to Section 5 by reason of the taking of any record of the holders of
Common Stock, but prior to the occurrence of the event for which such record is
taken, a holder of the Convertible Preferred Stock either converts the
Convertible Preferred Stock or there is a mandatory conversion during such
period, such holder of Convertible Preferred Stock shall continue to be entitled
to receive any shares of Common Stock issuable upon conversion under Section 5
by reason of such adjustment and such shares or other property shall be held in
escrow for the holder of the Convertible Preferred Stock by the Corporation to
be issued to holder of the Convertible Preferred Stock upon and to the extent
that the event actually takes place. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or
is

                                       17

<PAGE>

rescinded, then such escrowed shares shall be canceled by the Corporation and
escrowed property returned to the Corporation.

     7.     Merger, Consolidation or Disposition of Assets.

            a.     If, after the Filing Date and while the Preferred Stock is
outstanding, there occurs: (i) an acquisition by an individual or legal entity
or group (as defined in Rule 13-d of the Exchange Act) of more than one-half of
the voting rights or equity interests in the Corporation; or (ii) a merger or
consolidation of the Corporation or a sale, transfer or other disposition of all
or substantially all the Corporation's property, assets or business to another
corporation where the holders of the Corporation's voting securities prior to
such transaction fail to continue to hold at least 50% of the voting power of
the Corporation (a "Change of Control"), and, pursuant to the terms of such
Change of Control, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Corporation and the successor or acquiring
corporation (if other than the Corporation) does not assume the Preferred Stock
pursuant to Section 7(b) below, then the holder of the Convertible Preferred
Stock shall have the right thereafter to receive, at the holder's election,
which election which must be delivered by the holder to the Corporation within
10 days after receiving notice from the Corporation of the right to make such
election:

                   i.    upon the conversion of the Convertible Preferred Stock,
   the number of shares of common stock of the successor or acquiring
   corporation or of the Corporation, if it is the surviving corporation, and
   Other Property receivable upon or as a result of such Change of Control by a
   holder of the number of shares of Common Stock into which the Convertible
   Preferred Stock is convertible immediately prior to such event, or

                   ii.   at the effective time of such Change of Control, the
   Liquidation Preference that would have been payable immediately prior to the
   effective time of such Change of Control.

If a timely election is not made pursuant to this Section 7(a), the holder shall
receive the benefit of Section 7(a)(i) and shall not be entitled to the benefit
of Section 7(a)(ii).

            b.     In case of any such Change of Control,  the successor or
acquiring corporation (if other than the Corporation) shall have the right to
expressly assume the due and punctual observance and performance of each and
every covenant and condition of contained in this Statement of Designation to be
performed and observed by the Corporation and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of the
Corporation) in order to provide for adjustments of shares of the Common Stock
into which the Convertible Preferred Stock is convertible which shall be as
nearly equivalent as practicable to the adjustments provided for in Section 5.
For

                                       18

<PAGE>

purposes of Section 5, common stock of the successor or acquiring corporation
shall include stock of such corporation of any class which is not preferred as
to dividends or assets on liquidation over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 7 shall similarly apply to successive
Change of Control transactions.

            c.     The provisions of this Section 7 shall be inapplicable in the
event that the Preferred Stock is subject to mandatory conversion under Section
5 or redemption under Section 13.

     8.     Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action in respect of its Common
Stock, other than the payment of dividends permitted by Section 5 or any other
action described in Section 5, then, unless such action will not have a
materially adverse effect upon the rights of the holder of Convertible Preferred
Stock, the number of shares of Common Stock or other stock into which the
Convertible Preferred Stock is convertible exercisable and/or the purchase price
thereof shall be adjusted in such manner as may be equitable in the
circumstances.

     9.     Certain Limitations. Notwithstanding anything herein to the
contrary, the Corporation agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the current Conversion Value to
be less than the par value per share of Common Stock.

     10.    Stock Transfer Taxes. The issue of stock certificates upon
conversion of the Convertible Preferred Stock shall be made without charge to
the converting holder for any tax in respect of such issue; provided, however,
that the Corporation shall be entitled to withhold any applicable withholding
taxes with respect to such issue, if any. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares in any name other than that of the holder of
any of the Convertible Preferred Stock converted, and the Corporation shall not
be required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.

     11.    Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Value, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Convertible
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Convertible Preferred Stock, furnish or cause to be furnished to

                                       19

<PAGE>

such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Value at the time in effect for the
Convertible Preferred Stock and (iii) the number of shares of Common Stock and
the amount, if any, or other property which at the time would be received upon
the conversion of Convertible Preferred Stock owned by such holder.

     12.    Notices of Record Date. In the event of any fixing by the
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of
Common Stock or other securities, or any right to subscribe for, purchase or
otherwise acquire, or any option for the purchase of, any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Convertible Preferred Stock at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or rights, and the amount and character of such dividend,
distribution or right.

     13.    Redemption.

            a.    Redemption at the Holders' Elections. If a Redemption
Triggering Event (as defined below) has occurred, and a holder has so elected,
the Corporation shall redeem the Convertible Preferred Stock of any holder who
gives a Demand for Redemption (as defined below). The Corporation shall,
promptly thereafter, redeem the shares of Convertible Preferred Stock as set
forth in the Demand for Redemption. The Corporation shall effect such redemption
by paying in cash for each such share to be redeemed an amount equal to the
Redemption Price (as defined below) on the Redemption Date. A "Redemption
Triggering Event" is any one of the following:

                  i.   The Corporation's failure or refusal to convert any
   shares of Convertible Preferred Stock in accordance with the terms hereof, or
   the Corporation's material breach of any other term or provision of the terms
   of the Convertible Preferred Stock and which breach, if reasonably capable of
   being cured within ten (10) days, has not been cured within ten (10) days
   after notice of such breach has been given by the holders of Preferred Stock
   to the Corporation, provided, however, that the Corporation shall not be so
   entitled to any right to cure for the more than one failure or refusal to
   convert shares of Convertible Preferred Stock in accordance with the terms
   hereof.

                  ii.  Any breach of any warranty or representation of the
   Corporation as of the date made in the Preferred Stock Purchase Agreement
   that is reasonably likely to have a material adverse effect on the
   Corporation and which breach, if reasonably capable of being cured, has not
   been cured within twenty (20) days after notice of such breach has been given
   by the holders of Preferred Stock to the Corporation (the "Breach Cure
   Period").

                  iii. Any breach by the Corporation of any covenant or other
   provision of the Preferred Stock Purchase Agreement that is reasonably likely
   to have

                                       20

<PAGE>

   a material adverse effect on the Corporation and which breach, if reasonably
   capable of being cured, has not been cured within the Breach Cure Period.

            b.    Demand for Redemption. A holder desiring to elect a redemption
as herein provided shall deliver a notice (the "Demand for Redemption") to the
Corporation while such Redemption Triggering Event continues specifying the
following:

                  i.   The approximate date and nature of the Redemption
   Triggering Event;

                  ii.  The number of shares of Convertible Preferred Stock to be
   redeemed; and

                  iii. The address to which the payment of the Redemption Price
   shall be delivered, or, at the election of the holder, wire instructions with
   respect to the account to which payment of the Redemption Price shall be
   required.

A holder may deliver the certificates evidencing the Convertible Preferred Stock
to be redeemed with the Demand for Redemption or under separate cover. Payment
of the Redemption Price shall be made not later than two (2) business days after
the date on which each of the following conditions has been satisfied: (i) a
holder has delivered a Demand for Redemption and the certificates evidencing the
shares of Convertible Preferred Stock to be redeemed; and (ii) the Breach Cure
Period has expired.

            c.    Redemption at the Corporation's Election. The Corporation may,
at the option of the Board of Directors, (x) at any time after the second
anniversary of the Original Issuance Date, (y) at any time in lieu of effecting
an adjustment under Section 5(h) hereof, or (z) on or prior to the second
anniversary of the Original Issuance Date in connection with the acquisition of
the Corporation by another entity by means of any transaction or series of
transactions (including, without limitation, any reorganization, merger or
consolidation) that results in the transfer of over fifty percent (50%) of the
outstanding voting power of this Corporation, or the sale of all or
substantially all of the assets or capital stock of the Corporation, elect to
redeem in whole or in part the shares of Convertible Preferred Stock by giving
notice of such election pursuant to Section 13(d)(iii) hereof to all holders of
Convertible Preferred Stock. The amount payable in redemption of each share of
Convertible Preferred Stock (the "Redemption Price") shall be cash equal (i) all
accrued but unpaid dividends as of the Redemption Date (as defined below) with
respect to each share to be redeemed, plus (ii) 110% of the Liquidation
Preference of each share of Convertible Preferred Stock to be redeemed, plus
(iii) only if the Corporation elects to redeem the Convertible Preferred Stock
pursuant to subparagraph (y) or (z) of this Section 13(c), dividends on each
share of Convertible Preferred Stock to be redeemed that would have accrued on
such shares from the Redemption Date to the second anniversary of the Date of
Original Issue. The redemption shall be effected in the manner specified in
paragraph (d) below.

                                       21

<PAGE>

            d.    Redemption Mechanics. The Corporation shall effect a
redemption made at the election of the Corporation as follows:

                  i.   The number of shares subject to redemption shall be
   allocated pro rata among the holders of outstanding shares of Convertible
   Preferred Stock based upon the number of such shares held by each such
   holder.

                  ii.  The Corporation shall pay the Redemption Price in cash
   for each such share to be redeemed.

                  iii. At least 15 but no more than 60 days prior to the date
   fixed for any redemption of Convertible Preferred Stock (the "Redemption
   Date"), written notice shall be given to each holder of record of Convertible
   Preferred Stock to be redeemed, notifying such holder of the redemption to be
   effected, specifying the Redemption Date, the Redemption Price, the place at
   which payment may be obtained and calling upon such holder to surrender to
   the Corporation, in the manner and at the place designated, its certificate
   or certificates representing the shares to be redeemed (the "Redemption
   Notice"). Except as provided in Section 13(d)(v), on or after the Redemption
   Date, each holder of Convertible Preferred Stock to be redeemed shall
   surrender to the Corporation the certificate or certificates representing
   such shares, in the manner and at the place designated in the Redemption
   Notice, and thereupon the Redemption Price of such shares shall be paid to
   the person whose name appears on such certificate or certificates as the
   owner thereof, and upon such payment, each surrendered certificate shall be
   canceled. In the event less than all the shares represented by any such
   certificate are redeemed, a new certificate shall be issued representing the
   unredeemed shares.

                  iv.  From and after the close of business on the Redemption
   Date, unless there shall have been a default in payment of the Redemption
   Price, all rights of the holders of the shares of Convertible Preferred Stock
   designated for redemption as holders of Convertible Preferred Stock (except
   the right to receive the Redemption Price without interest upon surrender of
   their certificate or certificates) shall cease with respect to such shares,
   and such shares shall not thereafter be transferred on the books of the
   Corporation or be deemed to be outstanding for any purpose whatsoever.

                  v.   Three days prior to the Redemption Date, the Corporation
   shall deposit the Redemption Price of all outstanding shares of Convertible
   Preferred Stock designated for redemption in the Redemption Notice, and not
   yet redeemed, with a bank or trust company having aggregate capital and
   surplus in excess of $50,000,000 as a trust fund for the benefit of the
   respective holders of the shares designated for redemption and not yet
   redeemed. Simultaneously, the Corporation shall deposit irrevocable
   instructions and authorize such bank or trust company to pay, on and after
   the date fixed for redemption or prior thereto, the Redemption Price of the
   Convertible Preferred Stock to the holders thereof upon surrender of their
   certificates. The balance of any monies deposited by the Corporation pursuant
   to this paragraph remaining unclaimed at the expiration of two years
   following the

                                       22

<PAGE>

   Redemption Date shall thereafter be returned to the Corporation, provided
   that the shareholder to which such monies would be payable hereunder shall be
   entitled, upon proof of its ownership of the Convertible Preferred Stock and
   payment of any bond requested by the Corporation, to receive such monies but
   without interest from the Redemption Date.

            e.    Status of Redeemed or Purchased Shares. Any shares of the
Convertible Preferred Stock at any time purchased, redeemed or otherwise
acquired by the Corporation shall not be reissued and shall be retired.

     14.    Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a business
day, (b) the next business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a business day or later than 5:00 p.m. (New
York City time) on any business day, or (c) the business day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service such
as Federal Express. The address for such notices and communications shall be as
follows: (i) if to the Corporation, to 45 Great Valley Parkway, Malvern,
Pennsylvania 19355, facsimile: 610.640-2603, Attention: Joseph M. Paiva, Chief
Financial Officer, or (ii) if to a holder of Preferred Stock, to the address or
facsimile number appearing on the Corporation's shareholder records or, in
either case, to such other address or facsimile number as the Corporation or a
holder of Preferred Stock may provide to the other in accordance with this
Section

     In Witness Whereof, the undersigned has executed this statement on behalf
of the Corporation this 19th day of July 2002.

                                           /s/ Antony Koblish
                                           ------------------
                                           Antony Koblish,
                                           President and Chief Executive Officer

                                       23

<PAGE>

                                                                       EXHIBIT A

FORM OF CONVERSION NOTICE

(To be executed by the registered Holder in order to convert shares of Preferred
Stock)

The undersigned hereby irrevocably elects to convert the number of shares of
Series A 6% Adjustable Cumulative Convertible Voting Preferred Stock (the
"Preferred Stock") indicated below into shares of common stock, par value $.01
per share (the "Common Stock"), of Orthovita, Inc., a Pennsylvania corporation
(the "Company"), according to the Statement of Designations of the Preferred
Stock and the conditions hereof, as of the date written below. The undersigned
hereby requests that certificates for the shares of Common Stock to be issued to
the undersigned pursuant to this Conversion Notice be issued in the name of, and
delivered to, the undersigned or its designee as indicated below. If the shares
of Common Stock are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. A copy of the certificate representing the Preferred Stock being
converted is attached hereto.

________________________________________________________________________________
Date to Effect Conversion

________________________________________________________________________________
Number of shares of Preferred Stock owned prior to Conversion

________________________________________________________________________________
Number of shares of Preferred Stock to be Converted

________________________________________________________________________________
Stated Value of Preferred Stock to be Converted

________________________________________________________________________________
Amount of accumulated and unpaid dividends on shares of Preferred Stock to be
Converted

________________________________________________________________________________
Number of shares of Common Stock to be Issued (including conversion of accrued
but unpaid dividends on shares of Preferred Stock to be Converted)

________________________________________________________________________________
Applicable Conversion Value

________________________________________________________________________________
Number of shares of Preferred Stock owned subsequent to Conversion

i

<PAGE>

Conversion Information:    [NAME OF HOLDER]

                           By:________________________________
                                 Name:
                                 Title:

                           Address of Holder:

                           ___________________________________

                           ___________________________________

                           Issue Common Stock to (if different than above):

                           Name:_______________________________

                           Address:____________________________

                                   ____________________________

The undersigned represents, subject to the accuracy of information filed under
the Securities Act and the Exchange Act by the Corporation with respect to the
outstanding Common Stock of the Company, as of the date hereof that, after
giving effect to the conversion of Preferred Shares pursuant to this Conversion
Notice, the undersigned will not exceed the "Beneficial Ownership Cap" contained
in Section 5(k) of the Statement of Designations of the Preferred Stock.

The undersigned hereby covenants and agrees that the undersigned (i) will not
sell or otherwise dispose of the shares of Common Stock to be delivered pursuant
to this Conversion Notice (the "Shares") except in compliance with the
Securities Act of 1933, as amended (the "Act"), (ii) if selling under a
Registration Statement under the Act, will sell the Shares only in accordance
with the Plan of Distribution set forth in the prospectus forming a part of the
Registration Statement (the "Prospectus"), (iii) will comply with the
requirements of the Act when selling or otherwise disposing of the Shares,
including, but not limited to, the prospectus delivery requirements of the Act,
(iv) will not sell or otherwise dispose of, and will return immediately to the
Company for the purpose of placing a restrictive legend thereon, the Shares (and
any certificates representing the Shares, if applicable) upon notice from the
Company that the Prospectus may not be used for the sale of the Shares, and (v)
will indemnify and hold harmless the Company, its directors, officers, agents
and employees, each person who controls the Company (within the meaning of
Section 15 of the Act and Section 20 of the Securities Exchange Act of

ii

<PAGE>

1934, as amended), and the directors, officers, agents or employees of such
controlling persons, to the fullest extent permitted by applicable law, from and
against all Losses (as defined in the Investor Rights Agreement dated as of July
19, 2002 by and among the Company and the investors signatory thereto) arising
out of or based upon any breach by the undersigned of any of the covenants
contained herein.

                                ________________________________________________

Name of Holder

                                By:_____________________________________________
                                Name:___________________________________________
                                Title:__________________________________________

iii<PAGE>

                                                                    Exhibit 10.3

                            INVESTOR RIGHTS AGREEMENT

                  This Investor Rights Agreement (this "Agreement") is made and
entered into as of July 19, 2002 among Orthovita, Inc., a Pennsylvania
corporation (the "Company"), and each of the purchasers executing this Agreement
and listed on Schedule 1 attached hereto (collectively, the "Purchasers").

                  This Agreement is being entered into pursuant to the Preferred
Stock and Warrant Purchase Agreement, dated as of the date hereof, by and among
the Company and the Purchasers (the "Purchase Agreement").

                  The Company and the Purchasers hereby agree as follows:

         1.       Definitions.

                  Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:

                  "Advice" shall have the meaning set forth in Section 3(m).

                  "Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.

                  "Blackout Period" shall have the meaning set forth in Section
3(n).

                  "Board" shall have the meaning set forth in Section 3(n).

                  "Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
Commonwealth of Pennsylvania generally are authorized or required by law or
other government actions to close.

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the Company's Common Stock, par value
$0.01 per share.

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

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<PAGE>

                  "Event" shall have the meaning set forth in Section 8(e).

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

                  "Filing Date" means the 75/th/ day following the First Closing
Date.

                  "Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities, including without
limitation the Purchasers, the Placement Agent and their assignees.

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

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

                  "Losses" shall have the meaning set forth in Section 5(a).

                  "NASDAQ" shall mean the National Association of Securities
Dealers Automatic Quotation System.

                  "OrbiMed" shall mean any of the following Purchasers: OrbiMed
Advisors LLC, OrbiMed Associates LLC, PW Juniper Crossover Fund LLC, Caduceus
Private Investment L.P., or any of their respective successors and assigns.

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

                  "Placement Agent" shall mean SmallCaps Online Group, LLC.

                  "Placement Agent Warrant Shares" means the shares of Common
Stock issuable upon the exercise of the warrants granted to the Placement Agent
in connection with the offering consummated under the Purchase Agreement.

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

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

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<PAGE>

                  "Registrable Securities" means (i) the Conversion Shares, the
Warrant Shares and the Placement Agent Warrant Shares, and any shares issued
upon any stock split, stock dividend, recapitalization or similar event with
respect to such Conversion Shares, Warrant Shares or Placement Agent Warrant
Shares and (ii) any other dividend or other distribution with respect to,
conversion or exchange of, or in replacement of, Registrable Securities;
provided, however, that such securities shall cease to be Registrable Securities
when such securities have been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction.
Notwithstanding anything herein contained to the contrary, such registered
shares of Common Stock shall be allocated among the Holders pro rata based on
the total number of Registrable Securities issued or issuable as of each date
that a Registration Statement, as amended, relating to the resale of the
Registrable Securities is declared effective by the Commission.

                  "Registration Statement" means the registration statements and
any additional registration statements contemplated by Section 2, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.

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

                  "Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

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

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

                  "Special Counsel" means one special counsel to the Holders.

         2.       Registration. On or prior to the Filing Date, the Company
shall prepare and file with the Commission a "shelf" Registration Statement
covering all Registrable Securities for a secondary or resale offering to be
made on a continuous basis pursuant to Rule 415. The Registration Statement
shall be on Form S-3 (or on another form appropriate for such registration in
accordance herewith). The Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act
(including filing with the Commission a request for acceleration of
effectiveness in accordance with Rule 12dl-2 promulgated under the Exchange Act
within five (5) Business Days of the date that the Company is notified (orally
or in writing, whichever is earlier) by the Commission that a Registration
Statement will not be "reviewed," or not be subject to further

3

<PAGE>

review and to keep such Registration Statement continuously effective under the
Securities Act until such date as is the earlier of (x) the date when all
Registrable Securities covered by such Registration Statement have been sold or
(y) the date on which the Registrable Securities may be sold without any
restriction pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter, addressed to the Company's transfer agent
to such effect (the "Effectiveness Period"). Upon the initial filing thereof,
the Registration Statement shall cover at least 112% of the shares of Common
Stock for issuance upon the conversion of the Preferred Stock and the exercise
of the Initial Warrants and the Placement Agent Warrants. The Company may
include Common Stock other than the Registrable Securities in the Registration
Statement, provided that such additional securities shall not exceed 250,000
shares of Common Stock.

         3.       Registration Procedures.

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

                  (a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or on another form
appropriate for such registration in accordance herewith) (which shall include a
Plan of Distribution substantially in the form of Exhibit A attached hereto),
and cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than three (3) Business Days
prior to the filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the
Holders and the Special Counsel, copies of all such documents proposed to be
filed, which documents (other than those incorporated by reference) will be
subject to the review of such Holders and such Special Counsel, and (ii) at the
request of any Holder cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of counsel to such Holders, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities or the Special Counsel shall reasonably object in writing within
three (3) Business Days after their receipt thereof.

                  (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible, and in no event later
than 13 business days, to any comments received from the Commission with respect
to the Registration Statement or any amendment thereto and as promptly as
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to the

4

<PAGE>

Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.

                  (c) Notify the Holders of Registrable Securities to be sold
and the Special Counsel as promptly as possible (A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed (but in no event in the case of this subparagraph (A),
less than three (3) Business Days prior to date of such filing); (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement; and (C) with respect to the Registration Statement or
any post-effective amendment, when the same has become effective: (i) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iii) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) if the financial statements included in the Registration
Statement become ineligible for inclusion therein or of the occurrence of any
event that makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

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

                  (e) If requested by the Holders of a majority in interest of
the Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be required to take any
action pursuant to this Section 3(e) that would, in the written opinion of
counsel for the Company (addressed to the Holder's Special Counsel), violate

5

<PAGE>

applicable law.

               (f)   Furnish to each Holder and the Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

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

               (h)   Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify or cooperate with the selling Holders
and the Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any jurisdiction where it is
not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.

               (i)   Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall be free,
to the extent permitted by applicable law and the Purchase Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any Holder may request at least
two (2) Business Days prior to any sale of Registrable Securities. In connection
therewith, the Company shall promptly after the effectiveness of the
Registration Statement cause an opinion of counsel to be delivered to and
maintained with its transfer agent, together with any other authorizations,
certificates and directions required by the transfer agent, which authorize and
direct the transfer agent to issue such Registrable Securities without legend
upon sale by the Holder of such shares of Registrable Securities under the
Registration Statement.

               (j)   Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as

6

<PAGE>

thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

               (k)   Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on NASDAQ and any other
United States securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which similar securities issued by the Company are
then listed as and when required pursuant to the Purchase Agreement.

               (l)   Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 3-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.

               (m)   Request each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law or the Commission to be disclosed in the
Registration Statement, and the Company may exclude from such registration the
Registrable Securities of any such Holder who fails to furnish such information
within a reasonable time prior to the filing of each Registration Statement,
supplemented Prospectus and/or amended Registration Statement.

               If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.

               Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(i), 3(c)(ii), 3(c)(iii),
3(c)(iv) or 3(c)(v), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.

               (n)   If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is

7

<PAGE>

a significant business opportunity (including, but not limited to, the
acquisition or disposition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other similar
transaction) available to the Company which the Board reasonably determines not
to be in the Company's best interest to disclose and which the Company would be
required to disclose under the Registration Statement, then the Company may
postpone or suspend filing or effectiveness of a registration statement for a
period not to exceed 30 consecutive days, provided that the Company may not
postpone or suspend its obligation under this Section 3(n) for more than 45 days
in the aggregate during any 12 month period (each, a "Blackout Period");
provided, however, that no such postponement or suspension shall be permitted
for consecutive 45 day periods, arising out of the same set of facts,
circumstances or transactions.

          4.   Registration Expenses

               All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with NASDAQ and each other securities exchange, quotation system, market or
over-the-counter bulletin board on which Registrable Securities are required
hereunder to be listed, (B) with respect to filings required to be made with the
Commission, (C) with respect to filings required to be made under NASDAQ and any
other securities exchange, quotation system, market or over-the-counter bulletin
board and (C) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is requested by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) Securities
Act liability insurance, if the Company so desires such insurance, and (v) fees
and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Company's independent public accountants (including the
expenses of any comfort letters or costs associated with the delivery by
independent public accountants of a comfort letter or comfort letters) and legal
counsel. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.

          5.   Indemnification

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<PAGE>

               (a)  Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained or incorporated by
reference in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
amendment or supplement thereto, in the light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that (i) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, which information was reasonably relied on by the
Company for use therein or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto; or (ii) in the case of an
occurrence of an event of the type described in Section 3(c)(ii), 3(c)(iii),
3(c)(iv) or 3(c)(v), the use by a Holder of an outdated or defective Prospectus
after the delivery to the Holder of written notice from the Company that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section 3(m). The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of an Indemnified Party (as defined in
Section 5(c) to this Agreement) and shall survive the transfer of the
Registrable Securities by the Holders.

               (b)  Indemnification by Holders. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents and employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or in any amendment or supplement thereto, or arising solely
out of or based solely upon any omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that (i) such untrue statement or omission is contained in
or omitted from any information so furnished in writing by such Holder to the
Company specifically for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably

9

<PAGE>

relied upon by the Company for use in the Registration Statement, such
Prospectus, or in any amendment or supplement thereto, or to the extent that
such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus, or such form of prospectus or in any amendment or supplement thereto
or (ii) in the case of an occurrence of an event of the type described in
Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v), the use by a Holder of an
outdated or defective Prospectus after the delivery to the Holder of written
notice from the Company that the Prospectus is outdated or defective and prior
to the receipt by such Holder of the Advice contemplated in Section 3(m);
provided, however, that the indemnity agreement contained in this Section 5(b)
shall not apply to amounts paid in settlement of any Losses if such settlement
is effected without the prior written consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable under this Section 5(b) for only that amount
as does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.

               (c)   Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party) in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all reasonable fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it shall be
finally determined by a court of competent jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have
proximately and materially adversely prejudiced the Indemnifying Party.

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

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<PAGE>

claims that are the subject matter of such Proceeding and does not impose any
monetary or other obligation or restriction on the Indemnified Party.

                  All reasonable fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in connection
with investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party, which notice shall be delivered no more frequently than on a
monthly basis (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).

                  (d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying, Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms. Notwithstanding anything to the contrary contained
herein, the Holder shall be required to contribute under this Section 5(d) for
only that amount as does not exceed the net proceeds to such Holder as a result
of the sale of Registrable Securities pursuant to such Registration Statement.

                  The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.

                  The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties. The indemnity and contribution agreements herein are
in addition to and not in diminution or limitation of any

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<PAGE>

indemnification provisions under the Purchase Agreement.

         6.       Rule 144.

                  As long as any Holder owns Preferred Stock, Conversion Shares,
Warrants or Warrant Shares, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder
owns Preferred Stock, Conversion Shares, Warrants or Warrant Shares, if the
Company is not required to file reports pursuant to Section 13(a) or 15(d) of
the Exchange Act, it will prepare and furnish to the Holders and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act, as well as any other
information required thereby, in the time period that such filings would have
been required to have been made under the Exchange Act. The Company further
covenants that it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Person to
sell Conversion Shares and Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including compliance with the provisions
of the Purchase Agreement relating to the transfer of the Conversion Shares and
Warrant Shares. Upon the request of any Holder, the Company shall deliver to
such Holder a written certification of a duly authorized officer as to whether
it has complied with such requirements.

         7.       Agreement to Vote Securities.

                  (a) Until such time as all of the Preferred Stock has been
converted or redeemed and all of the Warrants have been exercised or have
expired unexercised, at every meeting of shareholders of the Company called with
respect to any of the following, and at every adjournment thereof, and on every
action or approval by written consent of shareholders of the Company with
respect to any of the following, each of the Purchasers shall cause the
Preferred Stock, the Conversion Shares, the Warrant Shares and the shares of
Common Stock issued as payment of dividends on the Preferred Stock and all
securities of the Company owned by it prior to and after the date hereof
(collectively, the "Voting Securities") to be voted and shall otherwise consent:
(i) in favor of approval of the issuance of securities by the Company upon the
conversion of the Preferred Stock, payment of dividends on the Preferred Stock
and exercise of the Warrants, without regard to the Issuance Cap Amount (as such
term is defined in the Statement of Designation); and (ii) against
approval of any proposal made in opposition to, or in competition with,
conversion of the Preferred Stock, payment of dividends on the Preferred Stock
and exercise of the Warrants, without regard to the Issuance Cap Amount.
Concurrently with the execution of this Agreement, each of the Purchasers agrees
to deliver to the Company a proxy in the form attached hereto as Exhibit C (the
"Proxy") with respect to the Voting Securities voting on the matters described
in this subparagraph, which shall be irrevocable to the fullest extent permitted
by applicable law.

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<PAGE>

         8.       Miscellaneous.

                  (a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.

                  (b) No Inconsistent Agreements. Except as otherwise disclosed
in the Purchase Agreement, neither the Company nor any of its subsidiaries is a
party to an agreement currently in effect, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Without limiting the generality of the foregoing, without the written consent of
the Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict with the provisions
of this Agreement.

                  (c) Market Standoff. Each Holder hereby agrees that it shall
not, to the extent requested by the Company or an underwriter of securities of
the Company, directly or indirectly sell, contract to sell, make any short sale,
pledge or otherwise transfer or dispose of, or enter into any hedging
transaction that is likely to result in a transfer (collectively, a "transfer")
of, any shares of the Company's Common Stock, options to acquire shares of the
Company's Common Stock or securities exchangeable for or convertible into shares
of the Company's Common Stock which he, she or it may then own, for a period
commencing on or about the date that the Company enters into an underwriting
agreement in connection with a public offering of the Company's securities and
ending on the date which is ninety (90) days after the date of the final
prospectus in connection with any such offering; provided, however, that the
Holder may transfer shares of Common Stock as a bona fide gift for estate
planning purposes provided that the transferee agrees in writing to be bound by
the terms of this paragraph. Each Holder agrees that the provisions of this
paragraph shall binding upon its heirs, legal representatives, successors and
assigns. In addition, each Holder agrees to execute an agreement, in the lead
underwriter's standard form, reflecting the foregoing at the time of the
underwritten offering. The Company may impose stop-transfer instructions with
respect to the Registrable Shares or other securities subject to the foregoing
restriction until the end of the standoff period.

                  (d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering all of the Conversion Shares and
Warrant Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for

13

<PAGE>

its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or its then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each Holder of Registrable Securities
written notice of such determination and, if within seven (7) Business Days
after receipt of such notice, any such holder shall so request in writing (which
request shall specify the Registrable Securities intended to be disposed of by
the Holders), the Company will cause the registration under the Securities Act
of all Registrable Securities which the Company has been so requested to
register by the Holder, to the extent required to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 8(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 8(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).

                  (e)      Failure to File Registration Statement and Other
Events. The Company and the Holders agree that the Holders will suffer damages
if the Registration Statement is not filed on or prior to the Filing Date and
maintained in the manner contemplated herein during the Effectiveness Period.
The Company and the Holders further agree that it would not be feasible to
ascertain the

14

<PAGE>

extent of such damages with precision. Accordingly, if (i) the Registration
Statement is not filed on or prior to the Filing Date, or (ii) the Company fails
to file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Exchange Act within five (5) Business Days of the
date that the Company is notified (orally or in writing, whichever is earlier)
by the Commission that a Registration Statement will not be "reviewed," or not
subject to further review, or (iii) the Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective as to
all Registrable Securities at any time prior to the expiration of the
Effectiveness Period, without being succeeded immediately by a subsequent
Registration Statement filed with the Commission, except as otherwise permitted
by this Agreement, including pursuant to Section 3(n), or (iv) trading in the
Common Stock shall be suspended or if the Common Stock is delisted from NASDAQ
or any other securities exchange, quotation system, market or over-the-counter
bulletin board on which Registrable Securities are required hereunder to be
listed for any reason for more than three (3) Business Days in the aggregate,
other than pursuant to Section 3(n), or (v) the conversion rights of the Holders
are suspended for any reason without the consent of the particular Holder other
than as set forth in the Statement of Designation, or (vi) the Company has
breached Section 3(n) of this Agreement (any such failure or breach being
referred to as an "Event"), the Company shall pay in cash as liquidated damages
for such failure and not as a penalty to each Holder an amount equal to two
percent (2%) of such Holder's pro rata share of the purchase price paid by all
Holders for Preferred Stock purchased and then outstanding pursuant to the
Purchase Agreement for the initial thirty (30) day period until the applicable
Event has been cured or until the Preferred Stock has been redeemed (whichever
is earlier), which shall be pro rated for such periods less than thirty (30)
days and two percent (2%) of such Holder's pro rata share of the purchase price
paid by all Holders for Preferred Stock purchased and then outstanding pursuant
to the Purchase Agreement for each subsequent thirty (30) day period until the
applicable Event has been cured which shall be pro rated for such periods less
than thirty days (the "Periodic Amount"). Payments to be made pursuant to this
Section 8(e) shall be due and payable immediately upon demand in immediately
available cash funds. The parties agree that the Periodic Amount represents a
reasonable estimate on the part of the parties, as of the date of this
Agreement, of the amount of damages that may be incurred by the Holders if the
Registration Statement is not filed on or prior to the Filing Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if any other Event as described herein has occurred.

                  (f)      Specific Enforcement, Consent to Jurisdiction.

                           (i)   The Company and the Holders acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement or the Purchase Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement or
the Purchase Agreement and to enforce specifically the terms and provisions
hereof or thereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.

                           (ii)  Each of the Company and the Holders (i) hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts located in New York City, New York for the

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<PAGE>

purposes of any suit, action or proceeding arising out of or relating to this
Agreement or the Purchase Agreement and (ii) hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Holders consents
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 8(f) shall affect
or limit any right to serve process in any other manner permitted by law.

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

                  (h) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., New York
City time, on a Business Day, (ii) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Business Day
or later than 5:00 p.m., New York City time, on any date and earlier than 11:59
p.m., New York City time, on such date, (iii) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service such
as Federal Express or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to each Holder at its address set forth under its name on Schedule 1
attached hereto, or with respect to the Company, addressed to:

                  Orthovita, Inc.
                  45 Great Valley Parkway
                  Malvern, Pennsylvania 19355
                  Attention: Joseph M. Paiva, Chief Financial Officer
                  Facsimile No.:  610-640-2603

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Company shall be sent to Morgan, Lewis
& Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania 19103, Att'n:
Christine J. Arasin, Esq., Facsimile No. (215) 963-5299. Copies of notices to
any Holder shall be sent to the addresses listed on Schedule 1 attached hereto.
Copies of

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<PAGE>

notices to OrbiMed shall be sent to Wollmuth Maher & Deutsch LLP, 500 Fifth
Avenue, New York, New York 10110, Attention: Ellen H. Clark, Esq., Facsimile No.
(212) 382-0050_ and copies of notices to any Holder other than OrbiMed shall be
sent to Kane Kessler, P.C., 1350 Avenue of the Americas, New York, New York
10019, Attention: Robert L. Lawrence, Esq., Facsimile No.: (212) 245-3009.

                  (i) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of each Holder. Each
Holder may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.

                  (j) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any transferee of such Holder of all
or a portion of the Preferred Stock, the Warrants or the Registrable Securities
if: (i) the Holder agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section 8(j),
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions of this Agreement and delivers the Proxy to the Company, and
(v) such transfer shall have been made in accordance with the applicable
requirements of the Purchase Agreement. The rights to assignment shall apply to
the Holders (and to subsequent) successors and assigns.

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

                  (l) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law thereof.

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

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<PAGE>

                  (n) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable in any respect, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

                  (o) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.

                  (p) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.

                  (q) Notice of Effectiveness. Within two (2) Business Days
after the Registration Statement which includes the Registrable Securities is
ordered effective by the Commission, the Company shall deliver, and shall cause
legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities (with copies to the Holders whose Registrable Securities
are included in such Registration Statement) confirmation that the Registration
Statement has been declared effective by the Commission in the form attached
hereto as Exhibit B.

                            [Signature Page Follows]

18

<PAGE>

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

                                    COMPANY:

ORBIMED ASSOCIATES LLC              ORTHOVITA, INC.

By: /s/ Jonathan Silverstein        By: /s/ Antony Koblish
    ------------------------            ------------------
    Name:  Jonathan Silverstein         Antony Koblish, Chief Executive Officer
    Title: Director

PW JUNIPER CROSSOVER FUND LLC

By: /s/ Jonathan Silverstein
    ------------------------
    Name:  Jonathan Silverstein
    Title: Director

CADUCEUS PRIVATE INVESTMENTS,
L.P.

By: /s/ Jonathan Silverstein
    ------------------------
    Name:  Jonathan Silverstein
    Title: Director

SDS MERCHANT FUND, L.P.
by its Managing Member,
SDS Capital Partners, L.L.C.

19

<PAGE>

By: /s/ Scott E. Derby
    ------------------
    Name:  Scott E. Derby
    Title: General Counsel

DMG LEGACY FUND LLC
by its Managing Member,
DMG Advisors LLC

By: /s/ Andrew Wilder
    -----------------
    Name:  Andrew Wilder
    Title: Chief Financial Officer

DMG LEGACY INSTITUTIONAL FUND LLC
by its Managing Member,
DMG Advisors LLC

By: /s/ Andrew Wilder
    -----------------
    Name:  Andrew Wilder
    Title: Chief Financial Officer

DMG LEGACY INTERNATIONAL FUND LTD.
by its Investment Advisor
DMG Advisors LLC

By: /s/ Andrew Wilder
    -----------------
    Name:  Andrew Wilder
    Title: Chief Financial Officer

PROMED PARTNERS, L.P.

By: /s/ Barry Kurokawa
    ------------------
    Name:  Barry Kurokawa
    Title: Managing Member and Portfolio
         Manager

20

<PAGE>

PROMED OFFSHORE FUND, LTD.

By: /s/ Barry Kurokawa
    ------------------
    Name:  Barry Kurokawa
    Title: Managing Member and Portfolio
           Manager

XMARK FUND, L.P.

By: /s/ Mitchell D. Kaye
    --------------------
    Name: Mitchell D. Kaye
    Title: CIO

XMARK FUND, LTD.

By: /s/ Mitchell D. Kaye
    --------------------
    Name: Mitchell D. Kaye
    Title: CIO

SCO CAPITAL PARTNERS LLC

By: /s/ illegible
    -------------
    Name:
    Title:

By: /s/ Paul Scharfer
    -----------------
    Paul Scharfer

21

<PAGE>

                                   SCHEDULE 1

                                   PURCHASERS

         OrbiMed Associates LLC
         PW Juniper Crossover Fund LLC
         Caduceus Private Investment L.P.
         SDS Merchant Fund, L.P.
         DMG Legacy Fund LLC
         DMG Legacy Institutional Fund LLC
         DMG Legacy International Fund Ltd.
         ProMed Partners, L.P.
         ProMed Offshore Fund, Ltd.
         Xmark Fund, L.P.
         Xmark Fund, Ltd.
         SCO Capital Partners LLC
         Paul Scharfer

22

<PAGE>

EXHIBIT A

                              PLAN OF DISTRIBUTION

     We are registering the shares of common stock on behalf of the selling
security holders. Sales of shares may be made by selling security holders,
including their respective donees, transferees, pledgees or other
successors-in-interest directly to purchasers or to or through underwriters,
broker-dealers or through agents. Sales may be made from time to time on the
Nasdaq National Market, any other exchange upon which our shares may trade in
the future, in the over-the-counter market or otherwise, at market prices
prevailing at the time of sale, at prices related to market prices, or at
negotiated or fixed prices. The shares may be sold by one or more of, or a
combination of, the following:

     -    a block trade in which the broker-dealer so engaged will attempt to
          sell the shares as agent but may position and resell a portion of the
          block as principal to facilitate the transaction [(including crosses
          in which the same broker acts as agent for both sides of the
          transaction)];
     -    purchases by a broker-dealer as principal and resale by such
          broker-dealer, including resales for its account, pursuant to this
          prospectus;
     -    ordinary brokerage transactions and transactions in which the broker
          solicits purchases;
     -    through options, swaps or derivatives;
     -    in privately negotiated transactions;
     -    in making short sales or in transactions to cover short sales; and
     -    put or call option transactions relating to the shares.
     The selling security holders may effect these transactions by selling
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. These broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling security holders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
selling security holders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities.

     The selling security holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with those
transactions, the broker-dealers or other financial institutions may engage in
short sales of the shares or of securities convertible into or exchangeable for
the shares in the course of hedging positions they assume with the selling
security holders. The selling security holders may also enter into options or
other transactions with broker-dealers or other financial institutions which
require the delivery of shares offered by this prospectus to those
broker-dealers or other financial institutions. The broker-dealer or other
financial institution may then resell the shares pursuant to this prospectus (as
amended or supplemented, if required by applicable law, to reflect those
transactions).

<PAGE>

         The selling security holders and any broker-dealers that act in
connection with the sale of shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, and any commissions
received by broker-dealers or any profit on the resale of the shares sold by
them while acting as principals may be deemed to be underwriting discounts or
commissions under the Securities Act. The selling security holders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares against liabilities, including liabilities arising
under the Securities Act. Orthovita has agreed to indemnify each of the selling
security holders and each selling security holder has agreed, severally and not
jointly, to indemnify Orthovita against some liabilities in connection with the
offering of the shares, including liabilities arising under the Securities Act.

         The selling security holders will be subject to the prospectus delivery
requirements of the Securities Act. We have informed the selling security
holders that the anti-manipulative provisions of Regulation M promulgated under
the Securities Exchange Act of 1934 may apply to their sales in the market.

         Selling security holders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of Rule 144.

         Upon being notified by a selling security holder that a material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, we
will file a supplement to this prospectus, if required pursuant to Rule 424(b)
under the Securities Act, disclosing:

     -   the name of each such selling security holder and of the participating
         broker-dealer(s);
     -   the number of shares involved;
     -   the initial price at which the shares were sold;
     -   the commissions paid or discounts or concessions allowed to the
         broker-dealer(s), where applicable;
     -   that such broker-dealer(s) did not conduct any investigation to verify
         the information set out or incorporated by reference in this
         prospectus; and
     -   other facts material to the transactions.

     In addition, we will file a supplement to this prospectus when a selling
security holder notifies us that a donee or pledgee intends to sell more than
500 shares of common stock.

         Expenses Associated with Registration. We are paying all expenses and
fees in connection with the registration of the shares. The selling security
holders will bear all brokerage or underwriting discounts or commissions paid to
broker-dealers in connection with the sale of the shares.

<PAGE>

EXHIBIT B

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[Name and Address of Transfer Agent]

                  Re:   Orthovita, Inc.

Dear [______]:

         We are counsel to Orthovita, Inc., a Pennsylvania corporation (the
"Company"), and have represented the Company in connection with that certain
Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement") dated
as of July 19, 2002 by and among the Company and the buyers named therein
(collectively, the "Holders") pursuant to which the Company issued to the
Holders its Series A 6% Cumulative Convertible Voting Preferred Stock, Stated
Value $10,000 per share, par value $0.01 per share, (the "Preferred Stock")
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), and warrants to purchase shares of the Common Stock (the
"Warrants"). Pursuant to the Purchase Agreement, the Company has also entered
into an Investor Rights Agreement with the Holders (the "Investor Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the shares of Common Stock issuable upon conversion of the Preferred
Stock and exercise of the Warrants, under the Securities Act of 1933, as amended
(the "1933 Act"). In connection with the Company's obligations under the
Investor Rights Agreement, on ____________ ___, 2002, the Company filed a
Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling securityholder thereunder.

         In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

                                  Very truly yours,

                                  By:__________________________________

cc:  [LIST NAMES OF HOLDERS]

<PAGE>

EXHIBIT C

                                IRREVOCABLE PROXY

All capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Preferred Stock and Warrant Purchase Agreement (the
"Purchase Agreement") of even date herewith among Orthovita, Inc., a
Pennsylvania corporation ("Company"), the undersigned purchaser (the
"Securityholder") of Company's Series A 6% Adjustable Cumulative Convertible
Voting Preferred Stock and Warrants to purchase shares of the Company's Common
Stock, and the other purchasers named therein.

Securityholder hereby irrevocably appoints the directors of the Board of
Directors of the Company and each of them, as the sole and exclusive attorneys
and proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
the voting of the Voting Securities and the New Securities (as such term is
defined below) on the matters described below (and on no other matter), until
such date and time when (i) all of the Preferred Stock has been redeemed or
converted and (ii) all of the Warrants have been exercised or have expired
unexercised. Upon the execution hereof, all prior proxies given by the
undersigned with respect to the Voting Securities and the New Securities and any
and all other securities issued or issuable in respect thereof on or after the
date hereof are hereby revoked and no subsequent proxies will be given.

This proxy is irrevocable (to the fullest extent permitted by law and subject to
the termination of the Proxy as set forth in Section 7(a) of the Investor Rights
Agreement of even date herewith among the Company, the undersigned and the other
parties thereto (the "Investor Rights Agreement")), is granted pursuant to the
Purchase Agreement and the Investor Rights Agreement, is granted in
consideration of the Company entering into the Purchase Agreement and the
Investor Rights Agreement and is coupled with an interest. The attorneys and
proxies named above will be empowered at any time prior to such date and time
when (i) all of the Preferred Stock has been redeemed or converted and (ii) all
of the Warrants have been exercised or have expired unexercised, to exercise all
voting rights (including, without limitation, the power to execute and deliver
written consents with respect to the Voting Securities and the New Securities)
of the undersigned at every annual, special or adjourned meeting of the
Company's shareholders, and in every written consent in lieu of such a meeting,
or otherwise, to vote the Voting Securities and the New Securities in favor of
and shall otherwise consent: (i) in favor of approval of the issuance of
securities by the Company upon the conversion of the Preferred Stock, payment of
dividends on the Preferred Stock and exercise of the Warrants, without regard to
the Issuance Cap Amount (as such term is defined in the Statement of
Designation); and (ii) against approval of any proposal made in opposition to,
or in competition with, conversion of the Preferred Stock, payment of dividends
on the Preferred Stock and exercise of the Warrants, without regard to the
Issuance Cap Amount.

<PAGE>

The attorneys and proxies named above may only exercise this proxy to vote the
Voting Securities and the New Securities subject hereto in the manner described
above at any time prior to such date and time when (i) all of the Preferred
Stock has been redeemed or converted and (ii) all of the Warrants have been
exercised or have expired unexercised as of such date, at every annual, special
or adjourned meeting of the shareholders of the Company and in every written
consent in lieu of such meeting. The undersigned Securityholder may vote the
Voting Securities and the New Securities on all other matters.

Securityholder agrees that any securities of the Company that Securityholder
purchases or with respect to which Securityholder otherwise acquires beneficial
ownership after the date hereof ("New Securities") shall be subject to the terms
and conditions of this proxy to the same extent as if they constituted Voting
Securities.

Any obligation of the undersigned hereunder shall be binding upon the successors
and assigns of the undersigned.

[Name of Securityholder]

By: __________________________
   Name:
   Title:

Dated:    , 2002

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