Document:

WWW.EXFILE.COM, INC. -- 14090 -- MATRITECH, INC. -- EXHIBIT 4.2 TO FORM 8-K

    EXHIBIT
      4.2

    

    THIS
      NOTE AND THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
      LAWS
      OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER JURISDICTION. THE SECURITIES
      REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF
      AN
      EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
      LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION
      FROM
      THE REGISTRATION REQUIREMENTS OF THOSE LAWS. 

    

    

    15%
      SECURED CONVERTIBLE PROMISSORY NOTE

     

     

    
      	Issuance Date: January 13,
              2006 	
              Principal:
                $_________

            

    

    

    

    FOR
      VALUE RECEIVED,
      MATRITECH, INC., a corporation organized under the laws of Delaware (the
“Borrower”),
      hereby
      promises to pay to the order of ____________________, a ____________________,
      or
      its registered assigns (individually, the “Holder,”
and,
      collectively with the holders of the Other Notes (as defined below), the
“Holders”),
      the
      amount set out above as the Principal (as reduced pursuant to the terms hereof
      pursuant to redemption, conversion or otherwise, the “Principal”)
      when
      due, whether upon the Scheduled Maturity Date, on any Monthly Installment Date
      with respect to the Principal Installment Amount due on such Monthly Installment
      Date (each, as defined herein), acceleration, conversion, redemption or
      otherwise (in each case in accordance with the terms hereof) and to pay interest
      (“Interest”)
      on any
      outstanding Principal at the rate of fifteen percent (15.0%) per annum (except
      as otherwise provided herein) (the “Interest
      Rate”),
      from
      the date set out above as the Issuance Date (the “Issuance
      Date”)
      until
      the same becomes due and payable, whether upon the Scheduled Maturity Date,
      on
      any Quarterly Installment Date with respect to the Interest Installment Amount
      due on such Quarterly Installment Date (each, as defined herein), acceleration,
      conversion, redemption or otherwise (in each case, in accordance with the terms
      hereof).

    

    The
      term
“Note”
and
      all
      references thereto, as used throughout this instrument, shall mean this
      instrument as originally executed, or if later amended or supplemented, then
      as
      so amended or supplemented. This Note is being issued by the Borrower along
      with
      similar secured convertible promissory notes designated as 15% Secured
      Convertible Promissory Notes (the “Other
      Notes”
and,
      together with this Note, the “Notes”)
      pursuant to that certain Securities Purchase Agreement, dated as of January
      13,
      2006, between the Borrower and the signatories thereto (the “Securities
      Purchase Agreement”).
      The
      obligations under the Notes are secured as provided in a Security Agreement,
      dated as of the date hereof, by the Borrower in favor of the Collateral Agent
      (as defined in the Securities Purchase Agreement) for the benefit of the Holders
      of the Notes (the “Security
      Agreement”).
      The
      Notes, the Securities Purchase Agreement, the 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Security
      Agreement, the Warrants issued pursuant to the Securities Purchase Agreement
      (the “Warrants”),
      the
      Contingent License Agreement (the “Contingent
      License Agreement”),
      dated
      as of the date hereof, between the Borrower and the Collateral Agent (as defined
      in the Securities Purchase Agreement) for the benefit of the Holders of the
      Notes and the Registration Rights Agreement, dated as of the date hereof,
      between the Borrower and the initial Holders of the Notes (the “Registration
      Rights Agreement”)
      are
      collectively referred to herein as the “Transaction
      Documents.”
All
      capitalized terms used but not otherwise defined herein shall have the
      respective meanings assigned to such terms in the Securities Purchase
      Agreement.

    

    ARTICLE
      I

     

    PAYMENT
      OF PRINCIPAL AND INTEREST

     

    A.  Payment
      of Principal.
      On each
      Monthly Installment Date, commencing on January 13, 2007, the Borrower shall
      pay
      to the Holder an amount equal to the Principal Installment Amount due on such
      Monthly Installment Date in cash or, provided there has been no Stock Payment
      Conditions Failure, in shares of Common Stock (or any combination of the
      foregoing), in accordance with the provisions of Article III. On the Scheduled
      Maturity Date, the Holder shall surrender the Note to the Borrower and the
      Borrower shall pay to the Holder, an amount in cash, representing all
      outstanding Principal and the accrued and unpaid Interest thereon.

     

    B.  Payment
      of Interest.
      Interest
      shall accrue on the unpaid principal balance hereof from the Issuance Date
      until
      the same is paid, whether at maturity, or upon prepayment, repayment, conversion
      or otherwise. Interest shall be calculated based on a 365 day year and shall
      be
      payable quarterly in arrears on each Quarterly Installment Date, commencing
      on
      January 13, 2007, except that first payment shall be in respect of the first
      full year of interest, and on the Scheduled Maturity Date (each an “Interest
      Payment Date”).
      On
      each Quarterly Installment Date, the Borrower shall pay to the Holder an amount
      equal to the Interest Installment Amount due on such Quarterly Installment
      Date
      in cash or, provided there has been no Stock Payment Conditions Failure, in
      shares of Common Stock (or any combination of the foregoing), in accordance
      with
      the provisions of Article III. On the Scheduled Maturity Date, the Holder shall
      surrender the Note to the Borrower and the Borrower shall pay to the Holder,
      an
      amount in cash, representing all outstanding Principal and the accrued and
      unpaid Interest thereon. Prior to the payment of Interest on an Interest Payment
      Date, Interest on this Note shall accrue at the Interest Rate. Upon the
      occurrence and during the continuance of an Event of Default, the Interest
      Rate
      shall be increased to twenty-four percent (24.0%) (the “Default
      Rate”).
      In the
      event that such Event of Default is subsequently cured, the adjustment referred
      to in the preceding sentence shall cease to be effective as of the date of
      such
      cure; provided that the Interest as calculated at such increased rate during
      the
      continuance of such Event of Default shall continue to apply to the extent
      relating to the days after the occurrence of such Event of Default through
      and
      including the date of cure of such Event of Default. Interest on overdue
      interest shall accrue at the same rate compounded quarterly.

     

    C.  Prepayment.
      The
      Borrower may at any time and from time to time upon thirty (30) calendar days’
prior written notice to the Holder prepay the outstanding principal amount
      

     

    
      
        
        

      

      
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    of
      this
      Note in cash in whole or in part, without premium or penalty, except as provided
      in the next sentence. Any such prepayment shall be accompanied by payment in
      cash of a premium equal to fifteen percent (15.0%) of the principal amount
      of
      such prepayment plus all accrued and unpaid interest thereon. The Borrower
      shall
      prepay the outstanding Notes of each Holder pro
      rata,
      based on
      the total amounts due on the Notes at the time of prepayment, and any such
      prepayment among all outstanding Notes shall be in a minimum amount equal to
      $500,000 and in incremental amounts equal to $100,000 in excess of such minimum
      amount. If Borrower, after giving notice of prepayment, fails to effect the
      prepayment in accordance with the terms of the notice (or within three (3)
      trading days after the date for prepayment), then Holder shall be entitled
      to
      exercise all remedies of Holder and the Borrower shall thereafter be prohibited
      from making any prepayment of the Note under this Article I.C. 

     

    D.  Manner
      of Payments.
      All cash
      payments of principal and interest shall be made in, and all references herein
      to monetary denominations shall refer to, lawful money of the United States
      of
      America. All cash payments shall be made at such address as the Holder shall
      have given or shall hereafter give to the Borrower by written notice made in
      accordance with the provisions of this Note. All payments of this Note in shares
      of Common Stock shall be made in accordance with the provisions of Article
      III.
      If any payment to be made hereunder shall be due on a day other than a business
      day, such payment shall be made on the next succeeding business day and such
      extension of time shall be included in computing interest in connection with
      such payment.

     

    ARTICLE
      II

     

    CONVERSION

     

    A.  Conversion
      at the Option of the Holder.
      Subject
      to the limitations on conversions contained in Article IX, the Holder may,
      at
      any time and from time to time (including without limitation after receipt
      of
      notice of prepayment from Borrower under Article I.C hereof), convert (an
“Optional
      Conversion”)
      all or
      any portion of the unpaid principal amount hereof and, to the extent requested
      in writing by the Holder, any accrued interest thereon into such number of
      fully
      paid and non-assessable shares of Common Stock as is equal to the quotient
      obtained by dividing (x) the amount of principal and interest, if any, being
      so
      converted by (y) the Conversion Price then in effect (the “Optional
      Conversion Shares”);
      provided that the Conversion Price may not be below the Closing Sales Price
      of
      the Common Stock on the last trading day before the Closing Date until after
      the
      Borrower’s stockholders have approved the stockholder proposal referred to in
      clause (i) of the last sentence of Section 4(g) of the Securities Purchase
      Agreement. 

     

    B.  Mechanics
      of Conversion.
      In order
      to effect an Optional Conversion, the Holder shall: (x) fax (or otherwise
      deliver) a copy of the fully executed Notice of Optional Conversion to the
      Borrower (Attention: Secretary) and (y) surrender or cause to be surrendered
      this Note, duly endorsed, along with a copy of the Notice of Optional Conversion
      as soon as practicable thereafter to the Borrower. Upon receipt by the Borrower
      of a facsimile copy of a Notice of Optional Conversion and the original Note,
      duly endorsed (or if this Note has been lost, stolen or destroyed the
      documentation required by Article XII.B hereof) from the Holder, the Borrower
      shall promptly send, via facsimile, a confirmation to the Holder stating that
      the Notice 

     

    
      
        
        

      

      
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    of
      Optional Conversion has been received, the date upon which the Borrower expects
      to deliver the Common Stock issuable upon such conversion and the name and
      telephone number of a contact person at the Borrower regarding the conversion.
      

     

    (i)  Delivery
      of Common Stock Upon Conversion.
      Upon the
      surrender of this Note (or if this Note has been lost, stolen or destroyed
      the
      documentation required by Article XII.B hereof) accompanied by a Notice of
      Optional Conversion, the Borrower (itself, or through its transfer agent) shall,
      no later than the third business day following such surrender (the “Delivery
      Period”),
      issue
      and deliver (i.e., deposit with a nationally recognized overnight courier
      service postage prepaid) to the Holder or its nominee stock certificates
      evidencing (x) that number of shares of Common Stock issuable upon conversion
      of
      that portion of this Note being converted and (y) a new Note representing the
      principal balance of this Note not being converted, if any. Notwithstanding
      the
      foregoing, if the Borrower’s transfer agent is participating in the Depository
      Trust Company (“DTC”)
      Fast
      Automated Securities Transfer program, and so long as the certificates therefor
      do not bear a legend (pursuant to the terms of the Securities Purchase
      Agreement) and the holder thereof is not then required to return such
      certificate for the placement of a legend thereon (pursuant to the terms of
      the
      Securities Purchase Agreement), the Borrower shall cause its transfer agent
      to
      promptly electronically transmit the Common Stock issuable upon conversion
      to
      the Holder by crediting the account of the Holder or its nominee with DTC
      through its Deposit Withdrawal Agent Commission system (“DTC
      Transfer”).
      If the
      aforementioned conditions to a DTC Transfer are not satisfied, the Borrower
      shall deliver as provided above to the Holder physical certificates representing
      the Common Stock issuable upon conversion. Further, the Holder may instruct
      the
      Borrower to deliver to the Holder physical certificates representing the Common
      Stock issuable upon conversion in lieu of delivering such shares by way of
      DTC
      Transfer.

     

    (ii)  Taxes.
      The
      Borrower shall pay any and all taxes that may be imposed upon it with respect
      to
      the issuance and delivery of the shares of Common Stock upon the conversion
      of
      this Note.

     

    (iii)  No
      Fractional Shares.
      If any
      conversion of this Note would result in the issuance of a fractional share
      of
      Common Stock (aggregating the entire amount of principal and interest being
      converted pursuant to a given Notice of Optional Conversion), such fractional
      share shall be payable in cash based upon the Closing Sales Price of the Common
      Stock at such time, and the number of shares of Common Stock issuable upon
      conversion of this Note shall be the next lower whole number of shares. If
      the
      Borrower elects not to, or is unable to, make such a cash payment, the Holder
      shall be entitled to receive, in lieu of the final fraction of a share, one
      whole share of Common Stock.

     

    (iv)  Conversion
      Disputes.
      In the
      case of any dispute with respect to a conversion, the Borrower shall promptly
      issue such number of shares of Common Stock as are not disputed in accordance
      with subparagraph (i) above. If such dispute involves the calculation of the
      Conversion Price, and such dispute is not promptly resolved by discussion
      between the Holders and the Borrower, the Borrower shall submit the disputed
      calculations to an independent outside accountant (which accountant shall be
      subject to the reasonable approval of the Majority Holders) via facsimile within
      three business days of receipt of the Notice of Optional 

     

    
      
        
        

      

      
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    Conversion.
      The accountant, at the Borrower’s sole expense, shall promptly audit the
      calculations and notify the Borrower and the Holders of the results no later
      than three business days from the date it receives the disputed calculations.
      The accountant’s calculation shall be deemed conclusive, absent manifest error.
      The Borrower shall then issue the appropriate number of shares of Common Stock
      in accordance with subparagraph (i) above.

     

    (v)  Payment
      of Accrued Amounts.
      Upon
      conversion of any unpaid principal amount of this Note, if the Holder has not
      elected to convert all of the accrued interest thereon, then all accrued but
      unconverted interest on such amount through and including the Conversion Date
      shall be paid on the Conversion Date in cash by the Borrower.

     

    C.  Optional
      Conversion Make-Whole.
      If, in
      connection with any Optional Conversion, the Borrower is unable to issue at
      the
      applicable Conversion Price all the applicable Optional Conversion Shares that
      the Borrower is required to issue, then (A) the Borrower shall deliver to the
      Holder the maximum number of Optional Conversion Shares available on the
      applicable Conversion Date in accordance with Article II and (B) the Borrower
      shall pay to the Holder in cash, on the applicable Conversion Date, an amount
      equal to the product of (1) the number of Optional Conversion Shares that the
      Borrower is prohibited from issuing on the applicable Conversion Date and (2)
      the greater of (x) the applicable Conversion Price and (y) the Closing Sales
      Price on the trading day immediately preceding the applicable Conversion Date
      (the “Optional
      Conversion Make-Whole”).

     

    ARTICLE
      III

    INSTALLMENT
      CONVERSION OR REDEMPTION

     

    A.  General.
      Subject
      to and in accordance with the terms of this Article III, on each applicable
      Installment Date, the Borrower shall pay to the Holder of this Note the
      Installment Amount as of such Installment Date by the combination of any of
      the
      following, (i) provided that there has been no Stock Payment Conditions Failure,
      requiring the conversion of all or any portion of the applicable Installment
      Amount into shares of Common Stock in accordance with the provisions of this
      Article III (a “Borrower
      Conversion”),
      and/or
      (ii) redeeming for cash all or any portion of the applicable Installment Amount
      in accordance with the provisions of this Article III (a “Borrower
      Redemption”);
      provided that all of the outstanding applicable Installment Amount as of each
      such Installment Date must be converted or redeemed by the Borrower on the
      applicable Installment Date, subject to the provisions of this Article III.
      Unless the Borrower Installment Notice (as defined below) indicates otherwise
      or
      if there is a Stock Payment Conditions Failure, the entire Installment Amount
      to
      be paid on such Installment Date shall be paid through a Borrower Conversion;
      provided that in no event may a Borrower Conversion be made at a Conversion
      Price below the Closing Sales Price of the Common Stock on the last trading
      day
      before the Closing Date until after the Borrower’s stockholders have approved
      the stockholder proposal referred to in clause (i) of the last sentence of
      Section 4(g) of the Securities Purchase Agreement. On or prior to the date
      which
      is the twentieth (20th) trading day prior to each Installment Date (each, an
      “Installment
      Notice Due Date”),
      the
      Borrower shall deliver written notice (each, a “Borrower
      Installment Notice”),
      to the
      Holder which Borrower Installment Notice shall state (i) the portion, if any,
      of
      the applicable Installment 

     

    
      
        
        

      

      
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    Amount
      to
      be converted pursuant to a Borrower Conversion (the “Borrower
      Conversion Amount”),
      (ii)
      the portion, if any, of the applicable Installment Amount which the Borrower
      elects to redeem pursuant to a Borrower Redemption (the “Borrower
      Redemption Amount”)
      and
      (iii) unless the Borrower has elected to pay the applicable Installment Amount
      entirely through a Borrower Redemption, the Borrower Installment Notice shall
      certify that the Stock Payment Conditions have been satisfied as of the date
      of
      the Borrower Installment Notice. Each Borrower Installment Notice whether
      actually given or deemed given shall be irrevocable, except as otherwise
      provided herein. The Borrower may give a Borrower Installment Notice that is
      effective with respect to all subsequent Installment Dates, unless and until
      modified by a subsequent Borrower Installment Notice given in accordance with
      this Article III.A, provided however, that such standing notice shall not become
      an irrevocable Borrower Installment Notice with respect to any Installment
      Amount until twenty (20) trading day prior to the applicable Installment Date.
      Except as expressly provided in this Article III.A, the Borrower shall redeem
      and convert the applicable Installment Amount of this Note pursuant to this
      Article III and the corresponding Installment Amounts of the Other Notes
      pursuant to the corresponding provisions of the Other Notes in the same ratio
      of
      the Installment Amount being redeemed and converted hereunder. The Borrower
      Redemption Amount (whether set forth in the Borrower Installment Notice or
      by
      operation of this Article III) shall be redeemed in accordance with Article
      III.B and the Borrower Conversion Amount shall be converted in accordance with
      Article III.C.

     

    B.  Mechanics
      of Borrower Redemption.
      If the
      Borrower elects, or is deemed to have elected, a Borrower Redemption in
      accordance with Article III.A, then the Borrower Redemption Amount, if any,
      which is to be paid to the Holder on the applicable Installment Date shall
      be
      redeemed by the Borrower on such Installment Date upon payment by the Borrower
      to the Holder on such Installment Date, by wire transfer of immediately
      available funds, an amount in cash (the “Borrower
      Installment Redemption Price”)
      equal
      to 100% of the Borrower Redemption Amount. If the Borrower fails to redeem
      the
      Borrower Redemption Amount on the applicable Installment Date by payment of
      the
      Borrower Installment Redemption Price on such date, then at the option of the
      Holder designated in writing to the Borrower (any such designation, a
“Conversion
      Notice”
for
      purposes of this Note), the Holder may require the Borrower to convert all
      or
      any part of the Borrower Redemption Amount at the Effective Conversion Price.
      Conversions required by this Article III.B shall be made in accordance with
      the
      provisions of Article II.B. Notwithstanding anything to the contrary in this
      Article III.B, but subject to Article IX, until the Borrower Installment
      Redemption Price (together with any interest thereon) is paid in full, the
      Borrower Redemption Amount (together with any interest thereon) may be
      converted, in whole or in part, by the Holder into shares of Common Stock
      pursuant to Article II. In the event the Holder elects to convert all or any
      portion of the Borrower Redemption Amount prior to the applicable Installment
      Date as set forth in the immediately preceding sentence, the Borrower Redemption
      Amount so converted shall be deducted from the Installment Amounts relating
      to
      the Installment Dates as set forth in the applicable Conversion
      Notice.

     

    C.  Mechanics
      of Borrower Conversion.
      

     

    (i)  If
      the
      Borrower pays any part of an Installment Amount pursuant to a Borrower
      Conversion in accordance with Article III.A, then on the Installment Date the
      

     

    
      
        
        

      

      
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    Borrower
      shall issue and deliver (i.e., deposit with a nationally recognized overnight
      courier service postage prepaid) to the Holder or its nominee stock certificates
      evidencing a number of shares of Common Stock equal to the quotient of (x)
      the
      Borrower Conversion Amount divided by (y) the Effective Conversion Price (the
      “Installment
      Conversion Shares”),
      rounded to the nearest whole share of Common Stock, with cash in lieu of
      fractional shares (if any) payable to the Holder in accordance with Article
      II.B(iii). Notwithstanding the foregoing, if the Borrower’s transfer agent is
      participating in the DTC Fast Automated Securities Transfer program, and so
      long
      as the certificates therefor do not bear a legend (pursuant to the terms of
      the
      Securities Purchase Agreement) and the holder thereof is not then required
      to
      return such certificate for the placement of a legend thereon (pursuant to
      the
      terms of the Securities Purchase Agreement), the Borrower shall deliver such
      shares by way of DTC Transfer. If the aforementioned conditions to a DTC
      Transfer are not satisfied, the Borrower shall deliver as provided above to
      the
      Holder physical certificates representing the Common Stock issuable upon
      conversion. Further, the Holder may instruct the Borrower to deliver to the
      Holder physical certificates representing the Common Stock issuable upon
      conversion in lieu of delivering such shares by way of DTC
      Transfer.

     

    (ii)  If
      there
      is a Stock Payment Conditions Failure with respect to any Borrower Conversion,
      which failure occurs after the Borrower Installment Notice with respect to
      such
      Borrower Conversion has become irrevocable, then the Borrower upon written
      notice to the Holder not less than five (5) trading days prior to the applicable
      Conversion Date shall be entitled to satisfy the payment of the relevant
      Installment Amount by wire transfer of immediately available funds, in an amount
      in cash equal to one hundred percent (100%) of the unconverted Borrower
      Conversion Amount on such Installment Date (plus accrued and unpaid interest
      thereon). If there is a Stock Payment Conditions Failure with respect to any
      Borrower Conversion and the Borrower does not timely notify the Holder of its
      election to make cash payment in accordance with the preceding sentence, then
      at
      the option of the Holder designated in writing to the Borrower, the Holder
      may
      require the Borrower to satisfy the payment of the relevant Installment Amount
      in one of the following ways or any combination thereof: (x) the Borrower shall
      redeem all or any part designated by the Holder of the unconverted Borrower
      Conversion Amount (such designated amount is referred to as the “First
      Redemption Amount”)
      on such
      Installment Date, by paying to the Holder on such Installment Date (or such
      later date not more than two trading days after the Holder delivers its election
      under this clause (ii)), by wire transfer of immediately available funds, an
      amount in cash equal to one hundred percent (100)% of such First Redemption
      Amount (plus accrued and unpaid interest thereon), (y) the Borrower Conversion
      shall be null and void with respect to all or any part designated by the Holder
      of the unconverted Borrower Conversion Amount (other than any amount redeemed
      under clause (x) of this Article III.C(ii)) and the Holder shall be entitled
      to
      all the rights of a Holder with respect to such amount of the Borrower
      Conversion Amount, or (z) the Borrower shall deliver the Installment Conversion
      Shares on the next scheduled Installment Date or any other mutually agreed
      upon
      date if the Holder so elects pursuant to clauses (iv) or (v) of Article XI.T;
      for the avoidance of doubt, the Borrower’s failure to issue shares of Common
      Stock on an Installment Date with respect to any Borrower Conversion Amount
      due
      to a Stock Payment Conditions Failure shall not be deemed an Event of Default
      hereunder so long as the Borrower otherwise promptly complies with the Holder’s
      written designation with respect to such Borrower Conversion Amount. If the
      Borrower fails to redeem any First Redemption Amount 

     

    
      
        
        

      

      
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    on
      or
      before the applicable Installment Date, by payment of such amount on the
      applicable Installment Date, then the Holder shall have the rights set forth
      in
      Article VI as if the Borrower failed to pay the applicable Borrower Redemption
      Amount and all other rights under this Note. Notwithstanding anything to the
      contrary in this Article III.C, but subject to Article IX, until the Borrower
      delivers shares of Common Stock representing the Borrower Conversion Amount
      to
      the Holder, the Borrower Conversion Amount may be converted by the Holder into
      shares of Common Stock pursuant to Article II. In the event the Holder elects
      to
      convert the Borrower Conversion Amount prior to the applicable Installment
      Date
      as set forth in the immediately preceding sentence, the Borrower Conversion
      Amount so converted shall be deducted from the Installment Amounts relating
      to
      the Installment Dates as set forth in the applicable Conversion
      Notice.

     

    D.  Borrower
      Conversion Make-Whole.
      If, in
      connection with any Borrower Conversion, the Borrower is unable to issue at
      the
      applicable Effective Conversion Price all the shares of Common Stock that the
      Borrower would have been required to issue, then the Borrower shall pay to
      the
      Holder in cash, on the applicable Installment Date, an amount equal to the
      product of (1) the number of Installment Conversion Shares that the Borrower
      is
      prohibited from issuing on the applicable Installment Date and (2) the greater
      of (x) the applicable Effective Conversion Price and (y) the Closing Sales
      Price
      on the trading day immediately preceding the applicable Installment Date (the
      “Borrower
      Conversion Make-Whole”).

     

    E.  Increase
      in Interest Applicable to Installment Amounts.
      In the
      event that (i) the Borrower shall have held a stockholder meeting and the
      stockholders shall have failed to approve the Stockholder Proposal providing
      for
      the issuance of any shares in payment of the Notes at a price below the Floor
      Price, as defined in the Securities Purchase Agreement, and (ii) the Borrower
      makes a Borrower Redemption in payment of any Installment Amounts at a time
      when
      the Effective Conversion Price shall be below the Conversion Price then in
      effect; then the Borrower shall, at the time it makes its next quarterly
      interest payment in accordance with Article I.B, pay interest on each
      installment paid by the Borrower as a Borrower Redemption under circumstances
      (i) and (ii) at the rate of 17% rather than 15%.

     

    ARTICLE
      IV

     

    RESERVATION
      OF SHARES OF COMMON STOCK

     

    A.  Reserved
      Amount.
      On or
      prior to the Issuance Date, and at all times thereafter until the date of
      stockholder approval of the Shareholder Proposals, the Borrower shall reserve
      such number of shares of its authorized but unissued shares of Common Stock
      for
      issuance of Optional Conversion Shares and Installment Conversion Shares
      pursuant to Articles II and III, respectively, of the Notes as is sufficient
      to
      provide for the full conversion of all of the Notes outstanding at the then
      current Conversion Price thereof (without giving effect to the limitations
      contained in Article IX). On the date of stockholder approval of the Shareholder
      Proposals and at all times thereafter, the Borrower shall reserve such number
      of
      shares of its authorized but unissued shares of Common Stock for issuance of
      Optional Conversion Shares and Installment Conversion Shares pursuant to
      Articles II and III, respectively, of the Notes as is sufficient to

     

    
      
        
        

      

      
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    provide
      for the issuance of all such Optional Conversion Shares and Installment
      Conversion Shares (without giving effect to the limitations contained in Article
      IX). The amount of shares of the Borrower’s authorized but unissued shares of
      Common Stock reserved pursuant to this Article IV.A shall be referred to herein
      as the “Reserved
      Amount.”
The
      Reserved Amount shall be allocated among the Holders as provided in Article
      XII.C.

     

    B.  Increases
      to Reserved Amount.
      If the
      Reserved Amount for any three consecutive trading days (the last of such three
      trading days being the “Authorization
      Trigger Date”)
      shall
      be less than one hundred percent (100%) of the number of shares of Common Stock
      issuable upon full conversion of all then outstanding Notes (without giving
      effect to the limitations contained in Article IX), the Borrower shall
      immediately notify the Holders of such occurrence and shall take immediate
      action (including, if necessary, seeking stockholder approval to authorize
      the
      issuance of additional shares of Common Stock) to increase the Reserved Amount
      to one hundred percent (100%) of the number of shares of Common Stock then
      issuable upon full conversion of all then outstanding Notes at the then current
      Conversion Price (without giving effect to the limitations contained in Article
      IX). In the event the Borrower fails to so increase the Reserved Amount within
      90 days after an Authorization Trigger Date, the Holder shall thereafter have
      the option, exercisable in whole or in part at any time and from time to time,
      by delivery of a Default Notice to the Borrower, to require the Borrower to
      prepay in cash, for an amount equal to the Default Amount (as defined in Article
      VI.B), that portion of the unpaid principal amount hereof and accrued interest
      thereon such that, after giving effect to such prepayment, the then unissued
      portion of the Holder’s Reserved Amount is at least equal to one hundred percent
      (100%) of the total number of shares of Common Stock issuable upon conversion
      of
      this Note by the Holder. If the Borrower fails to prepay any portion of this
      Note as required hereby within five business days after its receipt of such
      Default Notice, then the Holder shall be entitled to the remedies provided
      in
      Article VI.C.

     

    ARTICLE
      V

     

    FAILURE
      TO SATISFY CONVERSIONS

     

    A.  Conversion
      Defaults.
      If, at
      any time, (i) the Holder submits a Notice of Optional Conversion and the
      Borrower fails for any reason (other than because such issuance would exceed
      the
      Holder’s allocated portion of the Reserved Amount, for which failures the
      Holders shall have the remedies set forth in Article IV) to deliver, on or
      prior
      to the fifth business day following the expiration of the Delivery Period for
      such conversion, such number of shares of Common Stock registered for resale
      to
      which the Holder is entitled upon such conversion, or (ii) the Borrower provides
      written notice to the Holders (or makes a public announcement via press release)
      at any time of its intention not to issue shares of Common Stock registered
      for
      resale upon exercise by the Holders of their conversion rights in accordance
      with the terms of the Notes (other than because such issuance would exceed
      a
      Holder’s allocated portion of the Reserved Amount) (each of (i) and (ii) being a
“Conversion
      Default”),
      then
      the Holder may elect, at any time and from time to time prior to the Default
      Cure Date for such Conversion Default, by delivery of a Default Notice to the
      Borrower, to have all or any portion of the unpaid principal amount hereof
      and
      accrued interest thereto prepaid by the Borrower in cash, for an amount equal
      to
      the Default Amount (as defined in Article VI.B). If the Borrower fails to prepay
      any portion 

     

    
      
        
        

      

      
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    of
      this
      Note as required hereby within five business days after its receipt of such
      Default Notice, then the Holder shall be entitled to the remedies provided
      in
      Article VI.C.

     

    B.  Buy-In
      Cure.
      Unless
      the Borrower has notified the Holder in writing prior to the delivery by the
      Holder of a Notice of Optional Conversion that the Borrower is unable to honor
      conversions, if (i) (a) the Borrower fails to promptly deliver during the
      Delivery Period shares of Common Stock to the Holder upon a conversion of all
      or
      any portion of this Note or (b) there shall occur a Legend Removal Failure
      (as
      defined in Article VI.A(iv) below) and (ii) thereafter, the Holder purchases
      (in
      an open market transaction or otherwise) shares of Common Stock to make delivery
      in satisfaction of a sale by the Holder of the unlegended shares of Common
      Stock
      (the “Sold
      Shares”)
      which
      the Holder anticipated receiving upon such conversion (a “Buy-In”),
      the
      Borrower shall pay the Holder, in addition to any other remedies available
      to
      the Holder, the amount by which (x) the Holder’s total purchase price (including
      brokerage commissions, if any) for the unlegended shares of Common Stock so
      purchased exceeds (y) the net proceeds received by the Holder from the sale
      of
      the Sold Shares. For example, if the Holder purchases unlegended shares of
      Common Stock having a total purchase price of $11,000 to cover a Buy-In with
      respect to shares of Common Stock it sold for $10,000, the Borrower will be
      required to pay the Holder $1,000. The Holder shall provide the Borrower written
      notification and supporting documentation indicating any amounts payable to
      the
      Holder pursuant to this Article V.B.

     

    ARTICLE
      VI

     

    EVENTS
      OF DEFAULT

     

    A.  Events
      of Default.
      In the
      event (each of the events described in clauses (i)-(ix) below after expiration
      of the applicable cure period (if any) being an “Event
      of Default”):

     

    (i)  the
      Borrower fails to pay any amount of Principal (including, without limitation,
      the Borrower’s failure to pay any redemption or make-whole payments), Interest
      or other amounts owing under this Note or any other Transaction Document (as
      defined in the Securities Purchase Agreement), within three (3) business days
      after the applicable due date, whether on any applicable Installment Date,
      at
      maturity, upon acceleration or otherwise;

     

    (ii)  the
      Common
      Stock (including any of the shares of Common Stock issuable upon conversion
      of
      this Note) is suspended from trading on any of, or is not listed (and
      authorized) for trading on at least one of, the New York Stock Exchange, the
      American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
      Market for an aggregate of ten or more trading days in any twelve month
      period;

     

    (iii)  
      (a) the
      registration statement required to be filed by the Borrower pursuant to Section
      2(a) of the Registration Rights Agreement, has not been declared effective
      by
      the one hundred eightieth (180th) day following the Issuance Date or, in the
      case of any Additional Registration Statement (as defined in Section 3(b) of
      the
      Registration Rights Agreement), has not been declared effective by the sixtieth
      (60th)
      day
      after the event giving rise to the obligation to file the Additional
      Registration Statement (such as stockholder approval of 

     

    
      
        
        

      

      
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    the
      Stockholder Proposals), (b) any such registration statement (including any
      such
      Additional Registration Statement), after being declared effective, cannot
      be
      utilized by the Holders for the resale of all of their Registrable Securities
      (as defined in the Registration Rights Agreement) covered thereby for an
      aggregate of more than 60 days, or (c) any Additional Registration Statement
      is
      not filed on or before the later of (1) in the case of the filing of an
      Additional Registration Statement being triggered by approval by the Borrower’s
      stockholders of the Stockholders Proposals (as defined in the Securities
      Purchase Agreement), five (5) trading days, or in the case of the filing of
      an
      Additional Registration Statement being triggered by some other event, fifteen
      (15) trading days, or (2) 3 trading days after receipt of all information from
      the holders of Registrable Securities required to be included in such Additional
      Registration Statement; 

     

    (iv)  the
      Borrower fails to remove any restrictive legend on any certificate or any shares
      of Common Stock issued to the Holder upon conversion of this Note as and when
      required by the terms hereof and of the Securities Purchase Agreement or the
      Registration Rights Agreement (a “Legend
      Removal Failure”),
      and
      any such failure continues uncured for five (5) business days after the Borrower
      has been notified thereof in writing by the Holder;

     

    (v)  the
      Borrower provides written notice (or otherwise indicates) to the Holder, or
      states by way of public announcement distributed via a press release, at any
      time, of its intention not to issue, or otherwise refuses to issue, shares
      of
      Common Stock to the Holder upon conversion in accordance with the terms of
      this
      Note (other than because such issuance would exceed the Holder’s allocated
      portion of the Reserved Amount, for which failures the Holder shall have the
      remedies set forth Article IV);

     

    (vi)  the
      Borrower or any subsidiary of the Borrower shall make an assignment for the
      benefit of creditors, or apply for or consent to the appointment of a receiver
      or trustee for it or for a substantial part of its property or business, or
      such
      a receiver or trustee shall otherwise be appointed;

     

    (vii)  bankruptcy,
      insolvency, reorganization or liquidation proceedings or other proceedings
      for
      the relief of debtors shall be instituted by or against the Borrower or any
      subsidiary of the Borrower and if instituted against the Borrower or any
      subsidiary of the Borrower by a third party, shall not be dismissed within
      60
      days of their initiation;

     

    (viii)  the
      Borrower shall:

     

    (a)  sell,
      convey, transfer or dispose of all or substantially all of its assets (the
      presentation of any such transaction for stockholder approval being conclusive
      evidence that such transaction involves the sale of all or substantially all
      of
      the assets of the Borrower);

     

    (b)  merge
      or
      consolidate with or into any person or entity, which results in either (i)
      the
      holders of the voting securities of the Borrower immediately prior to such
      transaction holding or having the right to direct the voting of fifty percent
      (50%) or less of the total outstanding voting securities of the Borrower or
      such
      other surviving or acquiring person or 

     

    
      
        
        

      

      
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    entity
      immediately following such transaction or (ii) the members of the board of
      directors or other governing body of the Borrower comprising fifty percent
      (50%)
      or less of the members of the board of directors or other governing body of
      the
      Borrower or such other surviving or acquiring person or entity immediately
      following such transaction;

     

    (c)  either
      (i)
      fail to repay in full all amounts due under the Borrower’s 7.5% Convertible
      Debentures on the maturity date thereof, (ii) fail to pay, when due, or within
      any applicable grace period, any payment with respect to any indebtedness of
      the
      Borrower in excess of $250,000 due to any third party, other than payments
      contested by the Borrower in good faith, or otherwise be in breach or violation
      of any agreement for monies owed or owing in an amount in excess of $250,000
      which breach or violation permits the other party thereto to declare a default
      or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any
      other default or event of default under any agreement binding the Borrower
      which
      default or event of default would or is likely to have a material adverse effect
      on the business, operations, properties, prospects or financial condition of
      the
      Borrower;

     

    (d)  have
      thirty-five percent (35%) or more of the voting power of its capital stock
      owned
      beneficially by one person, entity or “group” (as such term is used under
      Section 13(d) of the Securities Exchange Act of 1934, as amended);
      or

     

    (ix)  except
      with respect to matters covered by subparagraph (i) - (viii) above, as to which
      such applicable subparagraphs shall apply, the Borrower otherwise shall breach
      any material term hereunder or under the other Transaction Documents, including,
      without limitation, the representations and warranties contained therein (i.e.,
      in the event of a material breach as of the date such representation and
      warranty was made) and/or the covenants contained therein, and if such breach
      is
      curable, shall fail to cure such breach within ten business days after the
      Borrower has been notified thereof in writing by the Holder;

     

    then,
      upon
      the occurrence of any such Event of Default, at the option of the Holder,
      exercisable in whole or in part at any time and from time to time by delivery
      of
      a written notice to such effect (a “Default
      Notice”)
      to the
      Borrower while such Event of Default continues, the Borrower shall prepay,
      in
      satisfaction of its obligation to pay the outstanding principal amount of this
      Note and accrued and unpaid interest thereon, an amount equal to the Default
      Amount (as defined in Article VI.B below); provided,
      however,
      that (a)
      in the case of an Event of Default described in clauses (vi) and (vii) of this
      Article VI.A, the Borrower’s prepayment obligation hereunder shall be automatic
      and shall not require the delivery of a Default Notice by the Holder, and (b)
      in
      the case of an Event of Default resulting from a Legend Removal Failure, the
      Borrower’s prepayment obligation hereunder shall only apply to that portion of
      the Note affected by such Legend Removal Failure. Such Default Amount, together
      with all other ancillary amounts payable hereunder, shall immediately become
      due
      and payable, all without demand, presentment or notice, all of which are hereby
      expressly waived, together with all costs, including, without limitation, legal
      fees and expenses of collection, and the Holder shall be entitled to exercise
      all other rights and remedies available at law or in equity. For the avoidance
      of doubt, the occurrence of any event described in clauses (i), (ii), (iii),
      (vi), (vii) and (viii) above shall immediately constitute an Event of Default
      and there shall be no cure period. Upon the Borrower’s receipt of any Default
      Notice hereunder, the Borrower shall immediately (and in any 

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    event
      within one business day following such receipt) deliver a written notice (a
      “Default
      Announcement”)
      to all
      Holders of the Notes stating the date upon which the Borrower received such
      Default Notice and the amount of the Notes covered thereby. Following the
      delivery of a Default Announcement hereunder, at any time and from time to
      time,
      the Holder may request (either orally or in writing) information from the
      Borrower with respect to the instant default (including, but not limited to,
      the
      aggregate principal amount outstanding of Notes covered by Default Notices
      received by the Borrower) and the Borrower shall furnish (either orally or
      in
      writing) as soon as practicable such requested information to the
      Holder.

    

    B.  Definition
      of Default Amount.
      The
“Default
      Amount”
with
      respect to this Note means an amount equal to the greater of:

     

    (i)  V x M

    CP

    

    and         
      (ii) V
      x R

    

    where:

    

    “V”
means
      the aggregate principal amount outstanding of the Notes required to be prepaid
      plus all accrued and unpaid interest thereon through the date of payment of
      the
      Default Amount hereunder;

    

    “CP”
means
      the lesser of the Conversion Price and the Effective Conversion Price in effect
      on the date on which the Borrower receives the Default Notice;

    

    “M”
means
      (i) with respect to all Events of Default other than Events of Default described
      in subparagraph (a) or (b) of Article VI.A(viii) hereof, the highest Closing
      Sales Price of the Borrower’s Common Stock during the period beginning on the
      date on which the Borrower receives the Default Notice and ending on the date
      immediately preceding the date of payment of the Default Amount hereunder,
      and
      (ii) with respect to an Event of Default described in subparagraph (a) or (b)
      of
      Article VI.A(viii) hereof, the greater of (a) the amount determined pursuant
      to
      clause (i) of this definition or (b) the fair market value, as of the date
      on
      which the Borrower receives the Default Notice, of the consideration payable
      to
      the holder of a share of Common Stock pursuant to the transaction which triggers
      the Event of Default. For purposes of this definition, “fair market value” shall
      be determined by the mutual agreement of the Borrower and the Majority Holders,
      or if such agreement cannot be reached within five business days prior to the
      date of the Event of Default, by an investment banking firm selected by the
      Borrower and reasonably acceptable to the Majority Holders, with the costs
      of
      such appraisal to be borne by the Borrower; and

    

    “R”
means
      120%.

    

    C.  Failure
      to Pay Default Amounts.
      If the
      Borrower fails to pay the Holder the Default Amount with respect to any Note
      within five business days after its receipt of a Default 

     

    
      
        
        

      

      
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    Notice
      (the “Prepayment
      Date”),
      then
      the Holder shall be entitled to interest on the Default Amount at a per annum
      rate equal to the lower of twenty-four percent (24.0%) and the highest interest
      rate permitted by applicable law from the date on which the Borrower receives
      the Default Notice until the date of payment of the Default Amount hereunder.
      In
      the event the Borrower is not able to prepay all of the outstanding Notes
      required to be prepaid on the Prepayment Date (including for such purpose all
      Notes subject to Default Notices delivered prior to the Prepayment Date), the
      Borrower shall prepay the outstanding Notes from each Holder pro rata, based
      on
      the total amounts due on the Notes at the time of prepayment and required to
      be
      prepaid on the Prepayment Date relative to the total amounts due under the
      Notes
      on the Prepayment Date.

     

    ARTICLE
      VII

     

    ADJUSTMENTS
      TO THE CONVERSION PRICE

     

    The
      Conversion Price shall be subject to adjustment from time to time as
      follows:

    

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

    

    Prior
      to
      stockholder approval of the Stockholder Proposals, the Conversion Price shall
      be
      reduced to the higher of (i) the New Issuance Price or (ii) $0.61(appropriately
      adjusted for any stock split, reverse stock split, stock dividend or other
      reclassification or combination of the Common Stock occurring after the date
      hereof) (the “Full-Ratchet Floor Price”). 

    

    From
      and
      after the date of stockholder approval of the Stockholder Proposals, if any,
      the
      Conversion Price shall be reduced to the New Issuance Price. In the event that
      in the time period prior to such stockholder approval a Dilutive Issuance is
      made and the Conversion Price is adjusted to the Full-Ratchet Floor Price
      instead of the New Issuance Price, then immediately following such stockholder
      approval, the Conversion Price shall be adjusted to such New Issuance Price
      if
      such New Issuance Price is lower than the then current Conversion
      Price.

    

    For
      purposes of this subsection A, “Excluded
      Stock”
means
      (1) shares of Common Stock issued pursuant to the terms thereof upon the
      exercise or conversion of the Borrower’s options, warrants or convertible
      securities outstanding as of the Closing Date in accordance with the terms
      of
      such options, warrants or other securities as in effect on the Closing Date
      and
      provided that such securities have not been amended since the Closing Date
      to
      increase the number of 

     

    
      
        
        

      

      
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    shares
      of
      Common Stock issuable thereunder or to lower the exercise or conversion price
      thereof; (2) stock, stock options or other stock rights issued pursuant to
      any
      stock or option plan duly adopted by a majority of the non-employee members
      of
      the Board of Directors of the Borrower or a majority of the members of a
      committee of non-employee directors established for such purpose; (3) securities
      issued pursuant to a bona fide underwritten public offering with gross proceeds
      of at least $25,000,000; (4) the Notes, the Warrants, and the shares of Common
      Stock issuable pursuant to the terms thereof; (5) securities issued in a bona
      fide business acquisition, the primary purpose of which, as determined in good
      faith by a majority of the members of the Board of Directors of the Borrower,
      is
      not the raising of capital; (6) capital stock or convertible securities issued
      in a joint venture, strategic partnership or licensing arrangement, the primary
      purpose of which, as determined in good faith by a majority of the members
      of
      the Board of Directors of the Borrower, is not the raising of capital; and
      (7)
      shares of common stock issued or issuable by reason of a dividend, stock split
      or other distribution on shares of common stock (but only to the extent that
      such a dividend, split or distribution results in an adjustment in the
      Conversion Price pursuant to the other provisions herein).

    

    B.  Effect
      on Conversion Price of Certain Events.
      For
      purposes of subsection A above, the following subsections B(i) to (viii) shall
      also be applicable:

     

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

    

    
      
        
        

      

      
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    (ii)  Issuance
      of Convertible Securities.
      In case
      the Borrower shall in any manner issue (directly and not by assumption in a
      merger or otherwise) or sell any Convertible Securities, whether or not the
      rights to exchange or convert any such Convertible Securities are immediately
      exercisable, and the price per share for which Common Stock is issuable upon
      such conversion or exchange (determined by dividing (i) the sum (which sum
      shall
      constitute the applicable consideration) of (x) the total amount received or
      receivable by the Borrower as consideration for the issue or sale of such
      Convertible Securities, plus (y) the aggregate amount of additional
      consideration, if any, payable to the Borrower upon the conversion or exchange
      thereof, by (ii) the total number of shares of Common Stock issuable upon the
      conversion or exchange of all such Convertible Securities) shall be less than
      the Conversion Price in effect immediately prior to the time of such issue
      or
      sale, then the total maximum number of shares of Common Stock issuable upon
      conversion or exchange of all such Convertible Securities shall be deemed to
      have been issued for such price per share as of the date of the issue or sale
      of
      such Convertible Securities and thereafter shall be deemed to be outstanding
      for
      purposes of adjusting the Conversion Price, provided that (a) except as
      otherwise provided in subsection B(iii) of this Article VII, no adjustment
      of
      the Conversion Price shall be made upon the actual issuance of such Common
      Stock
      upon conversion or exchange of such Convertible Securities and (b) no further
      adjustment of the Conversion Price shall be made by reason of the issue or
      sale
      of Convertible Securities upon exercise of any Options to purchase any such
      Convertible Securities for which adjustments of the Conversion Price have been
      made pursuant to the other provisions of Article VII.

    

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

    

    (iv)  Stock
      Dividends.
      In case
      the Borrower shall declare a dividend or make any other distribution upon any
      stock of the Borrower (other than the Common Stock) payable in Common Stock,
      Options or Convertible Securities, then any Common Stock, Options or

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

    Convertible
      Securities, as the case may be, issuable in payment of such dividend or
      distribution shall be deemed to have been issued or sold without
      consideration.

    

    (v)  Consideration
      for Stock.
      In case
      any shares of Common Stock, Options or Convertible Securities shall be issued
      or
      sold for cash, the consideration received therefor shall be deemed to be the
      amount received by the Borrower therefor. In case any shares of Common Stock,
      Options or Convertible Securities shall be issued or sold for a consideration
      other than cash, the amount of the consideration other than cash received by
      the
      Borrower shall be deemed to be the fair value of such consideration as
      determined in good faith by the Board of Directors of the Borrower using
      standard commercial valuation methods appropriate for valuing such assets;
      provided,
      however,
      that if
      the Majority Holders do not agree to such fair value calculation within three
      business days after receipt thereof from the Borrower, then such fair value
      shall be determined in good faith by an investment banker or other appropriate
      expert of national reputation selected by the Borrower and reasonably acceptable
      to the Majority Holders, with the costs of such appraisal to be borne 50% by
      the
      Borrower and 50% by the Holders (ratably on the basis of the respective
      principal amounts of the Notes then outstanding). In case any Options shall
      be
      issued in connection with the issue and sale of other securities of the
      Borrower, together comprising one integral transaction in which no specific
      consideration is allocated to such Options by the parties thereto, such Options
      shall be deemed to have been issued for nominal consideration. If Common Stock,
      Options or Convertible Securities shall be issued or sold by the Borrower and,
      in connection therewith, other Options or Convertible Securities (the
“Additional Rights”) are issued without any specific consideration allocated to
      such Additional Rights, then the consideration received or deemed to be received
      by the Borrower for such Additional Rights shall be deemed to be nominal.

    

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

    

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

    

    C.  Stock
      Splits and Dividends.
      If the
      Borrower shall, at any time or from time to time while Notes are outstanding,
      pay a dividend or make a distribution on its Common Stock in shares of Common
      Stock, subdivide its outstanding shares of Common Stock into a greater number
      of
      shares or combine its outstanding shares of Common Stock into a smaller number
      of shares or issue by reclassification of its outstanding shares of Common
      Stock
      any shares of its capital stock (including any such reclassification in
      connection with a consolidation or merger in 

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    which
      the
      Borrower is the continuing corporation), then the Conversion Price in effect
      immediately prior to the date upon which such change shall become effective
      shall be adjusted by the Borrower so that the Holder shall be entitled to
      receive the number of shares of Common Stock or other capital stock which such
      Holder would have received immediately following such event had this Note been
      exercised immediately prior to such event. Such adjustments shall be made
      successively whenever any event listed above shall occur.

    

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

    

    E.  Distributions.
      In case
      the Borrower shall fix a payment date for the making of a distribution to all
      holders of Common Stock (including any such distribution made in connection
      with
      a consolidation or merger in which the Borrower is the continuing corporation)
      of evidences of indebtedness or assets (other than cash dividends or cash
      distributions payable out of consolidated earnings or earned surplus or
      dividends or distributions referred to in subsection C of this Article VII),
      or
      subscription rights or warrants, the Conversion Price to be in effect after
      such
      payment date shall be determined by multiplying the Conversion Price in effect
      immediately prior to such payment date by a fraction, the numerator of which
      shall be the total number of shares of Common Stock outstanding multiplied
      by
      the Market Price (as defined below) per share of Common Stock immediately prior
      to such payment date, less the fair market value (as determined by the
      Borrower’s Board of Directors in good faith) of said assets or evidences of
      indebtedness so distributed, or of such subscription rights or warrants, and
      the

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    denominator
      of which shall be the total number of shares of Common Stock outstanding
      multiplied by such Market Price per share of Common Stock immediately prior
      to
      such payment date. Such adjustment shall be made successively whenever such
      a
      payment date is fixed.

    

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

    

    G.  Subsequent
      Adjustments.
      In the
      event that, as a result of an adjustment made pursuant to this Article VII,
      the
      Holder shall become entitled to receive any shares of capital stock of the
      Borrower other than shares of Common Stock, the number of such other shares
      so
      receivable upon the conversion of this Note shall be subject thereafter to
      adjustment from time to time in a manner and on terms as nearly equivalent
      as
      practicable to the provisions contained herein.

    

    H.  Voluntary
      Adjustment by the Borrower.
      The
      Borrower may at any time during the term of this Note reduce the then current
      Conversion Price to any amount and for any period of time deemed appropriate
      by
      the Board of Directors of the Borrower provided that such reduction shall apply
      to all of the Notes.

    

    I.  Other
      Action Affecting Conversion Price.
      If, at
      any time after the Issuance Date, the Borrower takes any action affecting the
      Common Stock that would be covered by Article VII.A through E, but for the
      manner in which such action is taken or structured, which would in any way
      diminish the value of the Notes, then the Conversion Price shall be adjusted
      in
      such manner as the Board of Directors of the Borrower shall in good faith
      determine to be equitable under the circumstances.

     

    J.  Notice
      of Adjustments.
      Upon the
      occurrence of each adjustment or readjustment of the Conversion Price pursuant
      to this Article VII amounting to a more than one percent (1%) change in such
      Conversion Price, or any change in the number or type of stock, securities
      and/or other property issuable upon conversion of the Notes, the Borrower,
      at
      its expense, shall promptly compute such adjustment or readjustment or change
      and prepare and furnish to the Holder a certificate setting forth such
      adjustment or readjustment or change and showing in detail the facts upon which
      such adjustment or readjustment or change is based. The Borrower shall, upon
      the
      written request at any time of the Holder, furnish to the Holder a like
      certificate setting forth (i) such adjustment or readjustment or change, (ii)
      the Conversion Price at the time in effect and (iii) the number of shares of
      Common Stock and the amount, if any, of other securities or property which
      at
      the time would be received upon conversion of the Notes.

     

    ARTICLE
      VIII

     

    RANK;
      SECURITY; CONSENT RIGHTS; NOTICE OF CERTAIN ACTIONS

     

    A.  Rank.
      The
      Notes shall rank senior to any indebtedness outstanding as of the Issuance
      Date
      as to repayment other than (i) the Borrower’s 7.5% Convertible Debentures issued
      on or about March 31, 2003, with an outstanding principal amount of not more
      than $600,000, 

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    (ii)
      equipment purchase and lease financing provided by General Electric Capital
      Corporation to the Borrower, with an outstanding principal amount of not more
      than $6,000, and (iii) a bank loan provided by Sparkasse Freiburg to the
      Borrower’s German subsidiary, Matritech Gmbh, with an outstanding principal
      amount of not more than $20,000.

     

    B.  Security.
      This
      Note is one of the “Notes” referred to in the Security Agreement. Reference is
      hereby made to such agreement for a description of the properties and assets
      in
      which a security interest has been granted, the nature and extent of the
      security and the rights of the Holder in respect thereof.

     

    C.  Consent
      Rights.
      So long
      as any Notes are outstanding, the Borrower shall not take any of the following
      corporate actions (whether by merger, consolidation or otherwise) without first
      obtaining the approval (by vote or written consent) of the Majority Holders:
      

     

    (i)  alter
      or
      change the rights, preferences or privileges of the Notes;

     

    (ii)  issue
      any
      additional Notes; 

     

    (iii)  redeem,
      repurchase or otherwise acquire, or declare or pay any cash dividend or
      distribution on, any securities of the Borrower, except pursuant to any equity
      compensation plan approved by the Borrower’s Board of Directors;

     

    (iv)  extend
      the
      maturity date of the Borrower’s 7.5% Convertible Debentures issued on or about
      March 31, 2003 beyond March 31, 2006;

     

    (v)  issue
      any
      debt securities or incur any indebtedness (except (a) any such indebtedness
      incurred to finance receivables in an amount at any time not to exceed 80%
      of
      the outstanding receivables owed to the Borrower at such time and (b) equipment
      purchase and lease financing in an amount at any time not to exceed $200,000),
      or redeem, repurchase, prepay or otherwise acquire any outstanding debt
      securities or indebtedness of the Borrower, except as expressly required by
      the
      terms of such securities or indebtedness;

     

    (vi)  enter
      into
      any agreement, commitment, understanding or other arrangement to take any of
      the
      foregoing actions; or

     

    (vii)  cause
      or
      authorize any subsidiary of the Borrower to engage in any of the foregoing
      actions.

     

    Notwithstanding
      the foregoing, no
      change
      pursuant to this Article VIII shall be effective to the extent that, by its
      terms, it applies to less than all of the Holders of the Notes then
      outstanding.

    

    D.  Notice
      Rights.
      In
      addition to the foregoing consent rights, the Borrower shall provide the Holder
      with prior notification of any meeting of the stockholders (at the same time
      and
      with copies of proxy materials and other information sent to stockholders).
      If
      the Borrower takes a record of its stockholders for the purpose of determining
      stockholders entitled to (i) receive payment of any dividend or other
      distribution, any right to subscribe for, purchase or otherwise acquire
      (including by way of merger, consolidation or recapitalization) any share of
      

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    any
      class
      or any other securities or property, or to receive any other right, or (ii)
      to
      vote in connection with any proposed sale, lease or conveyance of all or
      substantially all of the assets of the Borrower, or any proposed merger,
      consolidation, liquidation, dissolution or winding up of the Borrower, the
      Borrower shall mail a notice to the Holder, at least 15 days prior to the record
      date specified therein (or 45 days prior to the consummation of the transaction
      or event, whichever is earlier, but in no event earlier than public announcement
      of such proposed transaction), of the date on which any such record is to be
      taken for the purpose of such vote, dividend, distribution, right or other
      event, and a brief statement regarding the amount and character of such vote,
      dividend, distribution, right or other event to the extent known at such
      time.

     

    ARTICLE
      IX

     

    LIMITATIONS
      ON CERTAIN CONVERSIONS, REDEMPTIONS AND TRANSFERS

     

    The
      conversion of the Notes pursuant to Article II, the issuance of Installment
      Conversion Shares as repayment of the Notes pursuant to Article III and
      transfers of Notes shall be subject to the following limitation:

    

    A.  Restriction
      on Conversion, Redemption or Transfer.
      In no
      event shall the Borrower issue Common Stock to the Holder in connection with
      the
      repayment of this Note pursuant to Article III.C, and in no event shall the
      Holder have the right to effect an Optional Conversion of this Note into shares
      of Common Stock or to dispose of this Note to the extent that such repayment,
      conversion or right to effect such conversion or disposition would result in
      the
      Holder and its affiliates together beneficially owning more than 9.99% of the
      outstanding shares of Common Stock. For purposes of this Article IX, beneficial
      ownership shall be determined in accordance with Section 13(d) of the Securities
      Exchange Act of 1934, as amended, and Regulation 13D-G thereunder. Any Holder
      (other than SDS Capital Partners SPC, LTD. or its affiliates) may waive, for
      itself only, the restriction in this Article IX upon sixty-five (65) days prior
      written notice to the Borrower. Other than as expressly set forth in this
      Article IX with respect to Holder waivers, the restriction contained in this
      Article IX may not be altered, amended, deleted or changed in any manner
      whatsoever unless the holders of a majority of the outstanding shares of Common
      Stock and the Holder shall approve, in writing, such alteration, amendment,
      deletion or change.

     

    ARTICLE
      X

     

    EXCHANGE
      RIGHT IN FUTURE FINANCINGS

     

    Subject
      to
      the terms and conditions specified in this Article X and Section 4(q) of the
      Securities Purchase Agreement, until the third anniversary of the Issuance
      Date
      (or such later date to which the maturity date of this Note is extended), if
      and
      when the Borrower completes an offering of (i) equity or equity-linked
      securities, or (ii) debt that is convertible into equity or in which there
      is an
      equity component (“Additional
      Securities”),
      the
      Borrower shall offer a number of such Additional Securities to the Holder in
      accordance with the following provisions:

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

    

    A.  At
      least
      ten (10) trading days prior to the closing of the offering of Additional
      Securities, the Borrower shall deliver to the Holder then holding $250,000
      or
      more of aggregate principal face amount of the Notes (a “Qualified
      Holder”)
      a
      written notice of its intention to effect such offering (“Pre-Notice”),
      which
      Pre-Notice shall ask the Qualified Holder if it wants to review the details
      of
      such financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Qualified Holder, and only upon a request by a Qualified
      Holder, for a Subsequent Financing Notice, the Borrower shall promptly, but
      no
      later than five (5) trading days after such request, deliver a Subsequent
      Financing Notice to the Qualified Holder. The Subsequent Financing Notice shall
      describe in reasonable detail the proposed terms of such Subsequent Financing,
      the amount of proceeds intended to be raised thereunder, the Person(s) with
      whom
      such Subsequent Financing is proposed to be effected (provided that the name
      of
      such Person(s) is available), and attached to which shall be a term sheet or
      similar document relating thereto.

     

    B.  By
      written
      notification received by the Borrower by 6:30 p.m. (New York City time) on
      the
      fifth (5th)
      trading
      day after its receipt of the Subsequent Financing Notice, the Qualified Holder
      may elect to purchase or obtain, at the price and on the terms specified in
      the
      Notice, up to that portion of such Additional Securities that have a total
      purchase price equal to fifty percent (50%) of the principal amount of this
      Note, subject to mutually acceptable documentation; provided,
      however,
      that the Borrower shall accept the surrender of the principal balance of this
      Note being exchanged as payment in full for such Additional Securities, and
      provided
      further, that
      such
      rights are subject, until December 20, 2006, to the prior rights of the holders
      of the Borrower’s Series A Preferred Stock, and further
      provided, that
      any
      Holder who has a participation right with respect to the purchase of the
      Borrower’s Series A Preferred Stock may not exercise its exchange rights
      hereunder if it has exercised its rights under the transaction documents related
      to its purchase of the Borrower’s Series A Preferred Stock. Upon the surrender
      of this Note (or if this Note has been lost, stolen or destroyed the
      documentation required by Article XII.B hereof) as provided in this Article
      X.B
      and the closing of the subsequent financing transaction, the Borrower (itself,
      or through its transfer agent) shall, no later than the third business day
      following such closing, issue and deliver (i.e., deposit with a nationally
      recognized overnight courier service postage prepaid) to the Holder or its
      nominee (x) certificates or other instruments evidencing the Additional
      Securities purchased by the Holder and (y) a new Note representing the principal
      balance of this Note not being exchanged. For the avoidance of doubt, the
      exchange right set forth in this Article X shall not entitle the Holder to
      acquire more Additional Securities than the Holder would otherwise be entitled
      to acquire pursuant to Section 4(q) of the Securities Purchase Agreement;
provided
      that in
      no event shall this provision limit the amount of Additional Securities that
      can
      be purchased by a Holder to less than 50% of the principal face amount of this
      Note.

     

    C.  Notwithstanding
      the foregoing, the rights set forth in this Article X shall not be applicable
      to
      the issuance of Excluded Stock. 

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XI

     

    CERTAIN
      DEFINITIONS

     

    For
      purposes of this Note, in addition to the other terms defined herein, the
      following terms shall have the following meanings:

    

    A.  “AMEX”
means
      the American Stock Exchange.

     

    B.  “business
      day” means
      any
      day, other than a Saturday or Sunday or a day on which banking institutions
      in
      the State of New York are authorized or obligated by law, regulation or
      executive order to close.

     

    C.  “Closing
      Date”
shall
      have the meaning set forth in the Securities Purchase Agreement, which date
      is
      the date the Borrower initially issued Notes pursuant to the terms of the
      Securities Purchase Agreement.

     

    D.  “Closing
      Sales Price”
means,
      for any security as of any date, the last sales price of such security on the
      principal trading market where such security is listed or traded as reported
      by
      Bloomberg Financial Markets (or a comparable reporting service of national
      reputation selected by the Borrower and reasonably acceptable to the Majority
      Holders if Bloomberg Financial Markets is not then reporting closing bid prices
      of such security) (in any case, “Bloomberg”),
      or if
      the foregoing does not apply, the last reported sales price of such security
      on
      a national exchange or in the over-the-counter market on the electronic bulletin
      board for such security as reported by Bloomberg, or, if no such price is
      reported for such security by Bloomberg, the average of the bid prices of all
      market makers for such security as reported in the “pink sheets” by Pink Sheets
      LLC (formerly the National Quotation Bureau, Inc.), in each case for such date
      or, if such date was not a trading day for such security, on the next preceding
      date which was a trading day. If the Closing Sales Price cannot be calculated
      for such security as of either of such dates on any of the foregoing bases,
      the
      Closing Sales Price of such security on such date shall be the fair market
      value
      as reasonably determined by an investment banking firm selected by the Borrower
      and reasonably acceptable to the Majority Holders, with the costs of such
      appraisal to be borne by the Borrower.

     

    E.  “Common
      Stock”
means
      the common stock of the Borrower, par value $0.01 per share.

     

    F.  “Conversion
      Date”
means,
      for any Optional Conversion (as defined in Article II.A), the date on which
      the
      last of the following has been delivered to the Borrower: (i) the completed
      form
      attached hereto (the “Notice
      of Optional Conversion”),
      and
      (ii) this Note, duly endorsed (the original hard copy, unless if this Note
      has
      been lost, stolen or destroyed the Holder shall deliver original hard copies
      of
      the documentation required by Article XII.B hereof).

     

    G.  “Conversion
      Price”
means
      $0.65, and shall be subject to adjustment as provided herein.

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    H.  “Default
      Cure Date”
means,
      as applicable, (i) with respect to a Conversion Default described in clause
      (i)
      of Article V.A, the date the Borrower effects the conversion of the full amount
      of this Note being converted, (ii) with respect to a Conversion Default
      described in clause (ii) of Article V.A, the date the Borrower issues freely
      tradable shares of Common Stock in satisfaction of the conversion of the full
      amount of this Note being converted in accordance with Article II, or (iii)
      with
      respect to either type of a Conversion Default, the date on which the Borrower
      prepays this Note pursuant to Article V.A.

     

    I.  “Effective
      Conversion Price”
means,
      as of any date of determination, that price which shall be the lower of (i)
      the
      then current Conversion Price and (ii) the price computed as 85% of the Weighted
      Average Price of the shares of Common Stock for the ten (10) consecutive trading
      day period ending on the second trading day immediately prior to the applicable
      Installment Date (such price referred to in this clause (ii) being referred
      to
      as the “10-Day
      VWAP”).

     

    J.  “Installment
      Amount”
means,
      as to any Installment Date, an amount equal to the sum of (i) the amount of
      the
      Principal Installment Amount with respect to such Installment Date and (ii)
      if
      such Installment Date is a Quarterly Installment Date, the amount of the
      Interest Installment Amount with respect to such Installment Date.

     

    K.  “Installment
      Date”
means,
      as applicable, a Monthly Installment Date and/or a Quarterly Installment
      Date.

     

    L.  “Interest
      Installment Amount”
means,
      as to any Quarterly Installment Date, an amount equal to the accrued and unpaid
      interest on the outstanding Principal on such Quarterly Installment
      Date.

     

    M.  “Majority
      Holders”
means
      the Holders of a majority of the aggregate principal amount and accrued interest
      represented by the then outstanding Notes.

     

    N.  “Monthly
      Installment Date”
means,
      initially, January 13, 2007 and, thereafter, the 13th day of each calendar
      month
      prior to the Scheduled Maturity Date.

     

    O.  “NASDAQ”
means
      whichever, if either, of the Nasdaq National Market or the Nasdaq SmallCap
      Market on which the shares of Common Stock are traded.

     

    P.  “Principal
      Installment Amount”
means,
      as to any Monthly Installment Date, an amount equal to
      $[__________].1

     

    Q.  “Quarterly
      Installment Date”
means,
      initially, January 13, 2007 and, thereafter, the 13th day of each January,
      April, July, and October prior to the Scheduled Maturity Date.

     

    R.  “Scheduled
      Maturity Date”
means
      January 13, 2009.

     

      
        

      

    

    
      1  Insert
        an
        amount equal to 1/24th
        of the
        original principal amount of this Note.

    

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

     

    S.  “Stockholder
      Approval”
means
      stockholder approval of the transactions contemplated by Section 7(h) of the
      Securities Purchase Agreement.

     

    T.  “Stock
      Payment Conditions”
      means
      that each of the following conditions is satisfied: (i) one or more registration
      statements filed pursuant to the Registration Rights Agreement shall be
      effective and available for the resale of at least such number of shares of
      Registrable Securities as may be required by the terms of the Registration
      Rights Agreement; (ii) the shares of Common Stock are designated for quotation
      or listed on either the NASDAQ or AMEX and shall not have been suspended from
      trading on either of such exchanges or markets nor shall any written notice
      of
      delisting by either of such exchanges or markets have been received and not
      resolved; (iii) any applicable shares of Common Stock to be issued in connection
      with the event requiring determination may be issued in full without violating
      Article IX.A hereof; (iv) the number of Installment Conversion Shares to be
      paid
      in the aggregate to all Holders in respect of any Installment Amount shall
      not
      exceed ten percent (10%) of the trading volume (as reported by Bloomberg) of
      the
      Common Stock for the period of twenty (20) consecutive trading days ending
      on
      the trading day immediately prior to such payment without the prior written
      consent within five (5) days of such payment of the Holder to receive its
      portion of the Installment amount in stock (it being acknowledged and agreed
      that if the Holder does not so consent to receiving such payment in Installment
      Conversion Shares, that payment may be deferred by the Holder, at its option,
      until the next scheduled Installment Date or any other mutually agreed upon
      date), provided, however, that the amount of deferred shares shall not be
      included in the calculation of the number of Installment Conversion Shares
      to be
      paid in respect of the subsequent Installment Amount for the purposes of this
      clause (iv); (v) if the Common Stock is selling at a price below $0.50 per
      share, no payment of Installment Conversion Shares may be made to the Holder
      pursuant to Article VIII.C without the Holder’s prior written consent within
      five (5) days of such payment (it being acknowledged and agreed that if the
      Holder does not so consent to receiving such payment in Installment Conversion
      Shares, that payment may be deferred by the Holder, at its option, until the
      next scheduled Installment Date or any other mutually agreed upon date),
      provided, however that the amount of deferred shares shall not be included
      in
      the calculation of the number of Installment Conversion Shares to be paid in
      respect of the subsequent Installment Amount for the purposes of clause (iv)
      above; (vi) prior to receipt of the stockholder approval referred to in clause
      (i) of the last sentence of Section 4(g) of the Securities Purchase Agreement,
      no payments of Installment Conversion Shares may be made by the Borrower if
      the
      10-Day VWAP is less than the then-effective Conversion Price (unless waived
      by
      the Holder on its own behalf; (vii) the Borrower has not issued any notice
      relating to the redemption of any warrant(s) during the thirty (30) day period
      ending on and including the applicable date of determination; and (viii) any
      issuances of Installment Conversion Shares will not result in the Holder’s
      aggregate ownership interest of the Common Stock to rise above 9.99% unless
      waived by such Holder under Article IX. 

     

    U.  “Stock
      Payment Conditions Failure”
      means
      that during any period commencing with the delivery of the Borrower Installment
      Notice through the applicable Installment Date, the Stock Payment Conditions
      have not been satisfied (or waived in writing by the Majority
      Holders).

     

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

     

    V.  “trading
      day”
means
      any day on which the principal United States securities exchange or trading
      market where the Common Stock is then listed or traded, is open for
      trading.

     

    W.  “Weighted
      Average Price”
means,
      for any security for any period of trading days, the dollar volume-weighted
      average price for such security on AMEX during the period beginning at 9:30:01
      a.m., New York Time (or such other time as AMEX publicly announces is the
      official open of trading) on the applicable day at the commencement of the
      period, and ending at 4:00:00 p.m., New York Time (or such other time as AMEX
      publicly announces is the official close of trading) on the applicable day
      at
      the end of the period, as reported by Bloomberg through its “Volume at Price”
functions, or, if the foregoing does not apply, the dollar volume-weighted
      average price of such security on NASDAQ or another principal market for such
      security during the period beginning at 9:30:01 a.m., New York Time (or such
      other time as such principal market publicly announces is the official open
      of
      trading) on the applicable day at the commencement of the period, and ending
      at
      4:00:00 p.m., New York Time (or such other time as such principal market
      publicly announces is the official close of trading) on the applicable day
      at
      the end of the period, as reported by Bloomberg, or, if the foregoing does
      not
      apply, the dollar volume-weighted average price of such security in the
      over-the-counter market on the electronic bulletin board for such security
      during the period beginning at 9:30:01 a.m., New York Time (or such other time
      as such principal market publicly announces is the official open of trading)
      on
      the applicable day at the commencement of the period, and ending at 4:00:00
      p.m., New York Time (or such other time as such market publicly announces is
      the
      official close of trading) on the applicable day at the end of the period,
      as
      reported by Bloomberg, if no dollar volume-weighted average price is reported
      for such security by Bloomberg for such hours, the average of the highest
      closing bid price and the lowest closing ask price of any of the market makers
      for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
      the National Quotation Bureau, Inc.). If the Weighted Average Price cannot
      be
      calculated for a security for a period of days on any of the foregoing bases,
      the Weighted Average Price of such security for such period shall be the fair
      market value as mutually determined by the Borrower and the Majority Holders.
      If
      the Borrower and the Majority Holders are unable to agree upon the fair market
      value of such security, then such dispute shall be resolved pursuant to Article
      II.B(iv). All such determinations shall be appropriately adjusted for any share
      dividend, share split, share combination or other similar transaction during
      the
      applicable calculation period.

     

    ARTICLE
      XII

     

    MISCELLANEOUS

     

    A.  Failure
      or Indulgency Not Waiver.
      No
      failure or delay on the part of any Holder in the exercise of any power, right
      or privilege hereunder shall operate as a waiver thereof, nor shall any single
      or partial exercise of any such power, right or privilege preclude other or
      further exercise thereof or of any other right, power or privilege.

     

    B.  Lost
      or
      Stolen Notes.
      Upon
      receipt by the Borrower of (i) evidence of the loss, theft, destruction or
      mutilation of any Note and (ii) (y) in the case of loss, theft or destruction,
      of 

     

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

     

    indemnity
      (without any bond or other security) reasonably satisfactory to the Borrower,
      or
      (z) in the case of mutilation, the Note (surrendered for cancellation), the
      Borrower shall execute and deliver a new Note of like tenor and date. However,
      the Borrower shall not be obligated to reissue such lost, stolen, destroyed
      or
      mutilated Note if the Holder contemporaneously requests the Borrower to convert
      such Note.

     

    C.  Allocation
      of Reserved Amount.
      The
      initial Reserved Amount shall be allocated pro rata among the Holders of the
      Notes based on the principal amount of Notes issued to each Holder. Each
      increase to the Reserved Amount shall be allocated pro rata among the Holders
      of
      the Notes based on the principal amount of Notes held by each Holder at the
      time
      of the increase in the Reserved Amount. In the event a Holder shall sell or
      otherwise transfer any of such Holder’s Notes, each transferee shall be
      allocated a pro rata portion of such transferor’s Reserved Amount. Any portion
      of the Reserved Amount which remains allocated to any person or entity which
      does not hold any Notes shall be allocated to the remaining Holders of the
      Notes, pro rata based on the principal balance of Notes then held by such
      Holders.

     

    D.  Quarterly
      Statements of Available Shares.
      For each
      calendar quarter beginning in the quarter in which the initial registration
      statement required to be filed pursuant to Section 2(a) of the Registration
      Rights Agreement is declared effective and thereafter for so long as any Notes
      are outstanding, the Borrower shall deliver (or cause its transfer agent to
      deliver) to the Holder a written report notifying the Holder of any occurrence
      that prohibits the Borrower from issuing Common Stock upon any conversion.
      The
      report shall also specify (i) the total principal amount of Notes outstanding
      as
      of the end of such quarter, (ii) the total number of shares of Common Stock
      issued upon all conversions of Notes prior to the end of such quarter, (iii)
      the
      total number of shares of Common Stock which are reserved for issuance upon
      conversion of the Notes as of the end of such quarter and (iv) the total number
      of shares of Common Stock which may thereafter be issued by the Borrower upon
      conversion of the Notes before the Borrower would exceed the Reserved Amount.
      The Borrower (or its transfer agent) shall use its best efforts to deliver
      the
      report for each quarter to the Holder prior to the tenth day of the calendar
      month following the quarter to which such report relates. In addition, the
      Borrower (or its transfer agent) shall provide, as promptly as practicable
      following delivery to the Borrower of a written request by the Holder, any
      of
      the information enumerated in clauses (i) - (iv) of this Paragraph D as of
      the date of such request. 

     

    E.  Status
      as Stockholder.
      Upon the
      Conversion Date for any conversion under this Note, (i) the shares covered
      thereby (other than the shares, if any, which cannot be issued because their
      issuance would exceed the Holder’s allocated portion of the Reserved Amount)
      shall be deemed converted into shares of Common Stock and (ii) the Holder’s
      rights as a Holder of such converted Note shall cease and terminate, excepting
      only the right to receive certificates for such shares of Common Stock and
      to
      any remedies provided herein or otherwise available at law or in equity to
      the
      Holder because of a failure by the Borrower to comply with the terms of this
      Note. Notwithstanding the foregoing, if the Holder has not received certificates
      for all shares of Common Stock prior to the sixth business day after the
      expiration of the Delivery Period with respect to a conversion of this Note
      for
      any reason, then (unless the Holder otherwise elects to retain its status as
      a
      holder of Common Stock by so notifying the Borrower within five business days
      after the expiration of such six business day period after expiration of

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

     

    the
      Delivery Period) the Holder shall regain the rights of a Holder of this Note
      and
      the Borrower shall, as soon as practicable, return such unconverted Note to
      the
      Holder. In all cases, the Holder shall retain all of its rights and remedies
      for
      the Borrower’s failure to convert this Note.

     

    F.  Remedies
      Cumulative.
      The
      remedies provided in this Note shall be cumulative and in addition to all other
      remedies available under this Note, at law or in equity (including a decree
      of
      specific performance and/or other injunctive relief), and nothing herein shall
      limit the Holder’s right to pursue actual damages for any failure by the
      Borrower to comply with the terms of this Note. The Borrower acknowledges that
      a
      breach by it of its obligations hereunder will cause irreparable harm to the
      Holder and that the remedy at law for any such breach may be inadequate. The
      Borrower therefore agrees, in the event of any such breach or threatened breach,
      that the Holder shall be entitled, in addition to all other available remedies,
      to seek an injunction restraining any breach, without the necessity of showing
      economic loss and without any bond or other security being
      required.

     

    G.  Waiver.
      Notwithstanding any provision in this Note to the contrary, any provision
      contained herein and any right of the Holder granted hereunder may be waived
      as
      to all Notes (and the Holders thereof) upon the written consent of the Majority
      Holders, unless a higher percentage is required by applicable law, in which
      case
      the written consent of the Holders of not less than such higher percentage
      of
      Notes shall be required.

     

    H.  Notices.
      Any
      notices required or permitted to be given under the terms hereof shall be sent
      by certified or registered mail (return receipt requested) or delivered
      personally, by responsible overnight carrier or by confirmed facsimile, and
      shall be effective five days after being placed in the mail, if mailed, or
      upon
      receipt or refusal of receipt, if delivered personally or by responsible
      overnight carrier or confirmed facsimile, in each case addressed to a party.
      The
      addresses for such communications are:

     

    (i)  if
      to the
      Borrower, to:

     

    Matritech,
      Inc.

    330
      Nevada
      Street

    Newton,
      MA
      02460

    Telephone:
      (617) 928-0820

    Facsimile:
      (617) 928-0821

    Attention:
      Chief Executive Officer

    

    (ii)  if
      to the
      Holder, to the address set forth under the Holder’s name on the execution page
      to the Securities Purchase Agreement, or such other address as may be designated
      in writing hereafter, in the same manner, by such person.

     

    I.  Amendment
      Provision.
      This
      Note and any provision hereof may be amended only by an instrument in writing
      signed by the Borrower and the Majority Holders; provided, however, that no
      such
      amendment, as applied to any of the Notes held by any particular Holder of
      Notes, shall, without the written consent of that particular Holder, (i) reduce
      the Interest Rate, extend the time for payment of Interest or change the manner
      or rate of accrual of Interest on the 

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

     

    Notes,
      (ii) reduce the amount of Principal, or extend the Scheduled Maturity Date,
      of
      the Notes, (iii) make any change that impairs or adversely affects the
      conversion rights of the Notes, (iv) impair the right of any Holder to receive
      payment of Principal or Interest or other payments due under the Notes, if
      any,
      on or after the due dates therefor; or (v) modify any of the provisions of,
      or
      impair the right of any Holder under, this Article XII.I.

     

    J.  Assignability.
      This
      Note shall be binding upon the Borrower and its successors and assigns and
      shall
      inure to the benefit of the Holder and its successors and assigns.
      Notwithstanding anything to the contrary contained in this Note or the
      Transaction Documents, this Note may be pledged and all rights of the Holder
      under this Note may be assigned to any affiliate or to any other person or
      entity without the consent of the Borrower.

     

    K.  Cost
      of
      Collection.
      If an
      Event of Default occurs hereunder, the Borrower shall pay the Holder hereof
      costs of collection, including reasonable attorneys’ fees.

     

    L.  Governing
      Law; Jurisdiction.
      This
      Note shall be governed by and construed in accordance with the laws of the
      State
      of Delaware applicable to contracts made and to be performed in the State of
      Delaware. The Borrower and the Holder irrevocably consent to the exclusive
      jurisdiction of the United States federal courts and the state courts located
      in
      the County of New Castle, State of Delaware, in any suit or proceeding based
      on
      or arising under this Note and irrevocably agree that all claims between the
      parties in respect of such suit or proceeding may be determined in such courts.
      The Borrower and the Holder irrevocably waive the defense of an inconvenient
      forum to the maintenance of such suit or proceeding in such forum. The Borrower
      and the Holder further agree that service of process upon the Borrower or the
      Holder, as applicable, mailed by first class mail shall be deemed in every
      respect effective service of process upon such party in any such suit or
      proceeding. Nothing herein shall affect the right of the Borrower or the Holder
      to serve process in any other manner permitted by law. The Borrower and the
      Holder agree that a final non-appealable judgment in any such suit or proceeding
      shall be conclusive and may be enforced in other jurisdictions by suit on such
      judgment or in any other lawful manner.

     

    M.  Denominations.
      At the
      request of the Holder, upon surrender of this Note, the Borrower shall promptly
      issue new Notes in the aggregate outstanding principal amount hereof, in the
      form hereof, in such denominations of at least $25,000 as the Holder shall
      request.

     

    N.  Certain
      Waivers.
      The
      Borrower and each endorser hereby waive presentment, notice of nonpayment or
      dishonor, protest, notice of protest and all other notices in connection with
      the delivery, acceptance, performance, default or enforcement of payment of
      this
      Note, and hereby waive all notice or right of approval of any extensions,
      renewals, modifications or forbearances which may be allowed.

     

    O.  Severability.
      If any
      provision of this Note shall be invalid or unenforceable in any jurisdiction,
      such invalidity or unenforceability shall not affect the validity or
      enforceability of the remainder of this Note or the validity or enforceability
      of this Note in any other jurisdiction.

     

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

     

    P.  Maximum
      Interest Rate.
      If the
      effective interest rate on this Note would otherwise violate any applicable
      usury law, then the interest rate shall be reduced to the maximum permissible
      rate and any payment received by the Holder in excess of the maximum permissible
      rate shall be treated as a prepayment of the principal of this
      Note.

     

    

    [REMAINDER
      OF PAGE LEFT BLANK INTENTIONALLY]

     

     

     

     

     

     

    
      
        
        

      

      
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    IN
      WITNESS WHEREOF,
      the
      Borrower has caused this Note to be executed by its duly authorized officer
      as
      of the date first written above.

    

    
      	 	 	 
	 	MATRITECH,
              INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name: 
	 	Title:  

    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    

 

    
      
        
        

      

      
        -31-

        
          

        

      

      
        
        

      

    

     

    Exhibit
      A

    NOTICE
      OF OPTIONAL CONVERSION

    

    
      	To: 	Matritech,
              Inc.
              330
                Nevada Street

              Newton,
                MA 02460

              Facsimile:

              Attention:

            

    

    
    

    The
      undersigned hereby irrevocably elects to convert $____________ of the
      outstanding principal balance of, and accrued interest on, the Note (the
“Conversion”),
      into
      shares of common stock (“Common
      Stock”)
      of
      Matritech, Inc. (the “Borrower”)
      according to the conditions of the 15% Secured Convertible Promissory Note
      dated
      __________ ___, 2006 (the “Note”),
      as of
      the date written below. If securities 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. No fee will be charged to the holder of the Note for
      any
      conversion, except for transfer taxes, if any. A copy of the Note is attached
      hereto (or evidence of loss, theft or destruction thereof).

    

    Except
      as
      may be provided below, the Borrower shall electronically transmit the Common
      Stock issuable pursuant to this Notice of Optional Conversion to the account
      of
      the undersigned or its nominee (which is ________________) with DTC through
      its
      Deposit Withdrawal Agent Commission System (“DTC
      Transfer”). 

    

    In
      the
      event of partial exercise, please reissue an appropriate Note(s) for the
      principal balance which shall not have been converted.

    

    The
      undersigned acknowledges and agrees that all offers and sales by the undersigned
      of the securities issuable to the undersigned upon conversion of the Note have
      been or will be made only pursuant to an effective registration of the transfer
      of the Common Stock under the Securities Act of 1933, as amended (the
“Act”),
      or
      pursuant to an exemption from registration under the Act.

    

    Check
      Box
      if Applicable:

    

    
      	
              o

            	
              In
                lieu of receiving the shares of Common Stock issuable pursuant to
                this
                Notice of Optional Conversion by way of DTC Transfer, the undersigned
                hereby requests that the Borrower issue and deliver to the undersigned
                or
                its nominee (if applicable) physical certificates representing such
                shares
                of Common Stock.

            

    

    

    Date
      of
      Conversion: _________________________________________________

    

    Applicable
      Conversion Price: __________________________________________

    

    Number
      of
      Shares of

    Common
      Stock to be Issued: __________________________________________

    

    Signature:
      __________________________________________________________

    

    Name:_____________________________________________________________

    

    Address:___________________________________________________________WWW.EXFILE.COM, INC. -- 14090 -- MATRITECH, INC. -- EXHIBIT 4.3 TO FORM 8-K

    EXHIBIT
      4.3

    REGISTRATION
      RIGHTS AGREEMENT

     

    This
      REGISTRATION RIGHTS AGREEMENT (this “Agreement”),
      dated
      as of January 13, 2006, is made by and among Matritech, Inc., a corporation
      organized under the laws of the State of Delaware (the “Company”),
      and
      the undersigned (together with their affiliates, the “Initial
      Investors”). 

    

    BACKGROUND

    

    A.  In
      connection with that certain Securities Purchase Agreement dated as of
      January 13, 2006 by and among the Company and the Initial Investors (the
“Securities
      Purchase Agreement”),
      the
      Company has agreed, upon the terms and subject to the conditions contained
      therein, to issue and sell to the Initial Investors (i) senior secured
      convertible promissory notes (the “Notes”)
      that
      are convertible into shares of the Company’s common stock, par value $0.01 per
      share (the “Common
      Stock”),
      upon
      the terms and subject to the limitations and conditions set forth in the Notes,
      and (ii) warrants (the “Warrants”)
      to
      acquire shares of Common Stock. The shares of Common Stock issuable upon
      conversion or amortization of the Notes, or otherwise pursuant to the Notes,
      are
      referred to herein as the “Conversion
      Shares”
and
      the
      shares of Common Stock issuable upon exercise of or otherwise pursuant to the
      Warrants are referred to herein as the “Warrant
      Shares.”

    

    B.  To
      induce
      the Initial Investors to execute and deliver the Securities Purchase Agreement,
      and to consummate the transactions contemplated thereby, the Company has agreed
      to provide certain registration rights under the Securities Act of 1933, as
      amended, and the rules and regulations thereunder, or any similar successor
      statute (collectively, the “Securities
      Act”),
      and
      applicable state securities laws.

    

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants contained
      herein and other good and valuable consideration, the receipt and sufficiency
      of
      which are hereby acknowledged, the Company and the Initial Investors, intending
      to be legally bound, hereby agree as follows:

    

    1.  DEFINITIONS.

     

    (a)  As
      used in
      this Agreement, the following terms shall have the following
      meanings:

     

    (i)  “Initial
      Registrable Shares”
means
      the number of Registrable Shares equal to the sum of (a) the number of
      Conversion Shares issuable upon conversion of the Notes based upon the
      Conversion Price (as defined in the Notes) as of the Closing Date (without
      giving effect to any limitations on conversion contained in Article IX of the
      Notes) and (b) the number of Warrant Shares issuable upon exercise of the
      Warrants (without giving effect to any limitations on exercise contained in
      Section 3(c) of the Warrants).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (ii)  “Investor”
means
      the Initial Investors and any transferees or assignees who agree to become
      bound
      by the provisions of this Agreement in accordance with Section 10
      hereof.

     

    (iii)  “register,”
      “registered,”
and
      “registration”
refer
      to
      a registration effected by preparing and filing a Registration Statement or
      Statements in compliance with the Securities Act and pursuant to Rule 415 under
      the Securities Act or any successor rule providing for offering securities
      on a
      continuous basis (“Rule
      415”),
      and
      the declaration or ordering of effectiveness of such Registration Statement
      by
      the United States Securities and Exchange Commission (the “SEC”).

     

    (iv)  “Registrable
      Securities”
means
      (a) the Conversion Shares, (b) the Warrant Shares, and (c) any shares of capital
      stock issued or issuable, from time to time, as interest on or in exchange
      for,
      as payment for, or otherwise with respect to any of the foregoing (including
      the
      Notes and the Warrants), whether as default payments, on account of
      anti-dilution or other adjustments or otherwise, provided, that, a security
      shall cease to be a Registrable Security upon (A) sale pursuant to a
      Registration Statement or Rule 144 under the Securities Act, or (B) such
      security becoming eligible for sale by the Investors pursuant to Rule
      144(k).

     

    (v)  “Registration
      Statement”
means
      a
      registration statement of the Company under the Securities Act.

     

    (b)  Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings set forth in the Securities Purchase Agreement.

     

    2.  REGISTRATION.

     

    (a)  Mandatory
      Registration.
      The
      Company shall prepare promptly and file with the SEC as soon as practicable,
      but
      in no event later than the forty-fifth (45th)
      day
      following the date hereof (the “Filing
      Date”),
      a
      Registration Statement on Form S-3 (or, if Form S-3 is not then available,
      on
      such form of Registration Statement as is then available to effect a
      registration of all of the Initial Registrable Securities, subject to the
      consent of the Initial Investors) covering the resale of the Initial Registrable
      Securities. The Registration Statement filed hereunder, to the extent allowable
      under the Securities Act and the Rules promulgated thereunder (including Rule
      416), shall state that such Registration Statement also covers such
      indeterminate number of additional shares of Common Stock as may become issuable
      upon conversion of the Notes and exercise of the Warrants to prevent dilution
      resulting from stock splits, stock dividends or similar transactions. The
      Registrable Securities included on the Registration Statement shall be allocated
      among the Investors as set forth in Section 11(k) hereof. The Registration
      Statement (and each amendment or supplement thereto, and each request for
      acceleration of effectiveness thereof) shall be provided to (and subject to
      the
      approval of) the Required Holders (as defined in the Securities Purchase
      Agreement) prior to its filing or other submission. For purposes of all
      provisions of this Agreement, any document publicly available on the SEC’s EDGAR
      system shall be considered to have been validly “furnished,” “delivered” or
“provided” to the Required Holders.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (b)  Payments
      by the Company.
      The
      Company shall use its best efforts to cause the Registration Statement required
      to be filed pursuant to Section 2(a) hereof to become effective as soon as
      practicable, but in no event later than (i) the one hundred twentieth
      (120th)
      day
      following the date hereof in the event that there is no SEC review of the
      Registration Statement, or (ii) the one hundred fiftieth (150th)
      day
      following the date hereof in the event that the SEC reviews the Registration
      Statement (such date, the “Registration
      Deadline”).
      At the
      time of effectiveness, the Company shall ensure that such Registration Statement
      covers the Initial Registrable Securities, including, if necessary, by filing
      an
      amendment prior to the effective date of the Registration Statement to increase
      the number of Registrable Securities covered thereby. If (i) (A) the
      Registration Statement required to be filed pursuant to Section 2(a) hereof
      is
      not filed with the SEC prior to the Filing Date or declared effective by the
      SEC
      on or before the Registration Deadline or (B) any Registration Statement
      required to be filed pursuant to Section 3(b) hereof is not declared effective
      by the SEC on or before the sixtieth (60th)
      day
      following the applicable Registration Trigger Date (as defined in Section 3(b)
      below), or (ii) if, after any such Registration Statement has been declared
      effective by the SEC, sales of any of the Registrable Securities required to
      be
      covered by such Registration Statement (including any Registrable Securities
      required to be registered pursuant to Section 3(b) hereof, (but specifically
      excluding Warrant Shares) cannot be made pursuant to such Registration Statement
      (by reason of a stop order or the Company’s failure to update the Registration
      Statement or for any other reason outside the control of the Investors) and
      such
      failure is not cured by the Company within two (2) trading days after notice
      thereof) or (iii) the Common Stock is not listed or included for quotation
      on
      the Nasdaq Capital Market (the “SmallCap
      Market”),
      the
      Nasdaq National Market (the “National
      Market”),
      the
      New York Stock Exchange (the “NYSE”)
      or the
      American Stock Exchange (the “AMEX”)
      at any
      time after the Registration Deadline hereunder, then the Company will make
      payments to each Investor in such amounts and at such times as shall be
      determined pursuant to this Section 2(b) as partial relief for the damages
      to
      the Investors by reason of any such delay in or reduction of their ability
      to
      sell the Registrable Securities (which remedy shall not be exclusive of any
      other remedies available at law or in equity). In the event that any payment
      becomes due from the Company under the preceding sentence, the Company shall
      pay
      to each Investor cash in the amount of (x) the aggregate principal balance
      of
      the Notes owned by such Investor then outstanding (including, for this purpose,
      any principal balance of any Notes that have been converted into Conversion
      Shares then held by such Investor as if such Notes had not been so converted),
      multiplied by (y) fifteen thousandths (.015), for each 30 day period (or portion
      thereof), (A) after the Filing Date and prior to the date the Registration
      Statement is filed with the SEC pursuant to Section 2(a), (B) after the
      Registration Deadline and prior to the date the Registration Statement filed
      pursuant to Section 2(a) is declared effective by the SEC, (C) after the
      sixtieth (60th)
      day
      following a Registration Trigger Date and prior to the date the Additional
      Registration Statement (as hereinafter defined) or the Registration Statement
      filed pursuant to Section 3(b) hereof is declared effective by the SEC, and
      (D)
      during which sales of any Registrable Securities (excluding the Warrant Shares)
      cannot be made pursuant to any such Registration Statement after the
      Registration Statement has been declared effective or the Common Stock is not
      listed or included for quotation on the SmallCap Market, the National Market,
      NYSE or AMEX; provided,
      however,
      that,
      for purpose of calculating the payment amount owed to any given Investor, there
      shall be excluded from each such period any delays which are solely attributable
      to changes required by such Investor in the Additional Registration

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    Statement
      or the Registration Statement with respect to information relating to such
      Investor, including, without limitation, changes to the Plan of Distribution
      (as
      defined below), other than any corrections of Company mistakes with respect
      to
      information previously provided by such Investor. In the event that, after
      a
      Registration Statement covering the resale of the Warrant Shares has become
      effective, such Registration Statement is no longer effective or the Common
      Stock is not listed or included for quotation on the SmallCap Market, the
      National Market, the NYSE or the AMEX, then (a) the Holder shall be entitled
      to
      use the cashless exercise provisions of the Warrants to exercise its Warrants
      in
      whole or in part, (b) no monetary penalty shall be payable pursuant to this
      Section 2(b) with respect to the Warrants or the Warrant Shares, and (c) upon
      a
      Default Event (as defined in Section 11(i) of the Warrants) the Holder shall
      have the rights set forth in Section 11(i) of the Warrants. Except for the
      Additional Warrant Shares issuable to a Holder as set forth in Section 11(i)
      of
      the Warrants, all amounts required to be paid in cash hereunder shall be paid
      within five days after the end of each period that gives rise to such
      obligation, provided that, if any such period extends for more than thirty
      (30)
      days, interim payments shall be made for each such 30 day period. 

     

    (c)  Eligibility
      for Form S-3.
      The
      Company represents and warrants that it meets the requirements for the use
      of
      Form S-3 for registration of the resale by the Initial Investors and any other
      Investor of the Registrable Securities and the Company shall file all reports
      and statements required to be filed by the Company with the SEC in a timely
      manner so as to thereafter maintain such eligibility for the use of Form
      S-3.

     

    3.  OBLIGATIONS
      OF THE COMPANY.

     

    In
      connection with the registration of the Registrable Securities, the Company
      shall have the following obligations:

     

    (a)  The
      Company shall respond promptly to any and all comments made by the staff of
      the
      SEC to any Registration Statement required to be filed hereunder, and shall
      submit to the SEC, before the close of business on the business day immediately
      following the business day on which the Company learns (either by telephone
      or
      in writing) that no review of such Registration Statement will be made by the
      SEC or that the staff of the SEC has no further comments on such Registration
      Statement, as the case may be, a request for acceleration of the effectiveness
      of such Registration Statement to a time and date as soon as practicable. The
      Company shall keep such Registration Statement effective pursuant to Rule 415
      at
      all times until such date as is the earlier of (i) the date on which all of
      the
      Registrable Securities have been sold and (ii) the date on which all of the
      Registrable Securities may be immediately sold to the public without
      registration or restriction pursuant to Rule 144(k) (assuming for this purpose
      that the Warrants have been exercised pursuant to Section 3(d) (“cashless
      exercise”) thereof ) under the Securities Act or any successor provision (the
“Registration
      Period”),
      which
      Registration Statement (including any amendments or supplements thereto and
      prospectuses contained therein and all documents incorporated by reference
      therein) (A) shall comply in all material respects with the requirements of
      the
      Securities Act and the rules and regulations of the SEC promulgated thereunder
      and (B) shall not contain any 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 not misleading. The financial statements of the Company
      included in any such Registration Statement or incorporated by 

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    reference
      therein (x) shall comply as to form in all material respects with the applicable
      accounting requirements and the published rules and regulations of the SEC
      applicable with respect thereto, (y) shall be prepared in accordance with U.S.
      generally accepted accounting principles, consistently applied during the
      periods involved (except as may be otherwise indicated in such financial
      statements or the notes thereto or, in the case of unaudited interim statements,
      to the extent they may not include footnotes or may be condensed on summary
      statements) and (z) fairly present in all material respects the consolidated
      financial position of the Company and its consolidated subsidiaries as of the
      dates thereof and the consolidated results of their operations and cash flows
      for the periods then ended (subject, in the case of unaudited statements, to
      immaterial year-end adjustments).

     

    (b)  The
      Company shall (i) prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to any Registration Statement
      required to be filed hereunder and the prospectus used in connection with any
      such Registration Statement as may be necessary to keep such Registration
      Statement effective at all times during the Registration Period, (ii) file
      such
      additional registration statements (the "Additional
      Registration Statements")
      as may
      be necessary to cover any Registrable Securities not included as Initial
      Registrable Securities, and (iii) during the Registration Period, comply with
      the provisions of the Securities Act with respect to the disposition of all
      Registrable Securities of the Company covered by any such Registration Statement
      until such time as all of such Registrable Securities have been disposed of
      in
      accordance with the intended methods of disposition by the seller or sellers
      thereof as set forth in such Registration Statement. Unless the context
      otherwise requires, the term "Registration Statement" shall also be deemed
      to
      include "Additional Registration Statement". In the event that (i) the
      Additional Registration Statements are not filed on or before the later of
      (A)
      in the case of the filing of an Additional Registration Statement being
      triggered by approval by the Borrower’s stockholders of the Stockholders
      Proposals (as defined in the Securities Purchase Agreement), five (5) trading
      days or in the case of the filing of an Additional Registration Statement being
      triggered by some other event, fifteen (15) trading days, or (B) 3 trading
      days
      after receipt of all information from the holders of Registrable Securities
      required to be included in such Registration Statement or (ii) the number of
      shares available under a Registration Statement filed pursuant to this Agreement
      is, for any five (5) consecutive trading days (the last day of each of such
      five
      (5) trading days periods being the “Registration
      Trigger Date”),
      insufficient to cover the Registrable Securities then issued or issuable upon
      conversion of the Notes (without giving effect to any limitations on conversion
      contained in Article IX of the Notes) and exercise of the Warrants (without
      giving effect to any limitations on exercise contained in Section 3(c) of the
      Warrants), the Company shall provide each Investor written notice of such
      Registration Trigger Date within three business days thereafter and shall amend
      the Registration Statement, or file a new Registration Statement (on the short
      form available therefor, if applicable), or both, so as to cover the Registrable
      Securities issued or issuable upon conversion of the Notes (without giving
      effect to any limitations on conversion contained in Article IX of the Notes)
      or
      exercise of the Warrants (without giving effect to any limitations on exercise
      contained in Section 3(c) of the Warrants) as of the Registration Trigger Date,
      in each case, as soon as practicable, but in any event within 15 days after
      the
      Registration Trigger Date, (or within five (5) trading days in the event the
      Registration Trigger Date results from approval by the Borrower’s stockholders
      of the Stockholder Proposals) or if later, within 3 trading days after receipt
      of all information from the holders of Registrable Securities required to be
      included 

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    in
      such
      Registration Statement. The Company shall cause such amendment(s) and/or new
      Registration Statement(s) to become effective as soon as practicable following
      the filing thereof. In the event the Company fails to obtain the effectiveness
      of any such Registration Statement within 60 days after a Registration Trigger
      Date, each Investor shall thereafter have the option, exercisable in whole
      or in
      part at any time and from time to time by delivery
      of a written notice to the Company (a “Mandatory
      Repayment Notice”),
      to
      require the Company to repay in cash such portion of the principal balance,
      plus
      accrued interest, of such Investor’s Notes at a 15% premium over the portion of
      the principal balance, plus accrued interest, being so repaid such that,
      following such repayment, the total number of Registrable Securities included
      on
      the Registration Statement for resale by such Investor is at least equal to
      the
      Registrable Securities issued or issuable upon conversion of such Investor’s
      Notes (without giving effect to any limitations on conversion contained in
      the
      Notes) and exercise of such Investor’s Warrants (without giving effect to any
      limitation on exercise contained in the Warrants). If the Company fails to
      repay
      any of such Notes within five business days after its receipt of a Mandatory
      Repayment Notice, then such Investor shall be entitled to the remedies provided
      for an Event of Default in Article IV of the Notes.

     

    (c)  The
      Company shall furnish to each Required Holder whose Registrable Securities
      are
      included in a Registration Statement and such Required Holder's legal counsel,
      if identified to the Company as such (i) promptly after the same is prepared
      and
      publicly distributed, filed with the SEC or received by the Company, as
      applicable, one copy of the Registration Statement and any amendment thereto,
      each preliminary prospectus and prospectus and each amendment or supplement
      thereto, and, in the case of the Registration Statement required to be filed
      pursuant to Section 2(a), each letter written by or on behalf of the Company
      to
      the SEC or the staff of the SEC (including, without limitation, any request
      to
      accelerate the effectiveness of the Registration Statement or amendment
      thereto), and each item of correspondence from the SEC or the staff of the
      SEC,
      in each case relating to the Registration Statement (other than any portion
      thereof that contains information for which the Company has sought confidential
      treatment), (ii) to each Investor whose Registrable Securities are included
      in a
      Registration Statement promptly after the date of effectiveness of the
      Registration Statement or any amendment thereto, a notice stating that the
      Registration Statement or amendment has been declared effective, and (iii)
      to
      each Investor whose Registrable Securities are included in a Registration
      Statement such number of copies of a prospectus, including a preliminary
      prospectus, all amendments and supplements thereto and all such other documents
      as such Investor may reasonably request in order to facilitate the disposition
      of the Registrable Securities owned by such Investor.

     

    (d)  The
      Company shall use its best efforts to (i) register and qualify the Registrable
      Securities covered by any Registration Statement under such other securities
      or
“blue sky” laws of such jurisdictions in the United States as each Investor who
      holds Registrable Securities being offered reasonably requests, (ii) prepare
      and
      file in those jurisdictions such amendments (including post-effective
      amendments) and supplements to such registrations and qualifications as may
      be
      necessary to maintain the effectiveness thereof during the Registration Period,
      (iii) take such other actions as may be necessary to maintain such registrations
      and qualifications in effect at all times during the Registration Period, and
      (iv) take all other actions reasonably necessary or advisable to qualify the
      Registrable Securities for sale in such jurisdictions; provided,
      however,
      that the
      Company shall not be required in connection therewith or as a 

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    condition
      thereto to (A) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify but for this Section 3(d), (B) subject itself
      to general taxation in any such jurisdiction, (C) file a general consent to
      service of process in any such jurisdiction, (D) provide any undertakings that
      cause the Company undue expense or burden, or (E) make any change in its
      Certificate of Incorporation or Bylaws, which in each case the Board of
      Directors of the Company determines to be contrary to the best interests of
      the
      Company and its stockholders.

     

    (e)  As
      promptly as practicable after becoming aware of such event, the Company shall
      (i) notify each Investor by telephone and facsimile of the happening of any
      event, as a result of which the prospectus included in any Registration
      Statement that includes Registrable Securities held by such Investor, as then
      in
      effect, includes an untrue statement of a material fact or omits to state a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading, and (ii) promptly prepare a supplement or amendment
      to
      such Registration Statement to correct such untrue statement or omission, and
      deliver such number of copies of such supplement or amendment to each Investor
      as such Investor may reasonably request.

     

    (f)  The
      Company shall use its best efforts (i) to prevent the issuance of any stop
      order
      or other suspension of effectiveness of any Registration Statement that includes
      Registrable Securities, and, if such an order is issued, to obtain the
      withdrawal of such order at the earliest practicable moment (including in each
      case by amending or supplementing such Registration Statement), and (ii) to
      notify each Investor who holds Registrable Securities being sold of the issuance
      of such order and the resolution thereof (and if such Registration Statement
      is
      supplemented or amended, deliver such number of copies of such supplement or
      amendment to each Investor as such Investor may reasonably
      request). 

     

    (g)  The
      Company shall permit a single firm of counsel designated by the Initial
      Investors to review any Registration Statement required to be filed hereunder
      and all amendments and supplements thereto a reasonable period of time prior
      to
      its filing with the SEC, and not file any document in a form to which such
      counsel reasonably objects.

     

    (h)  The
      Company shall make generally available to its security holders as soon as
      practicable, but in no event later than 90 days after the close of the period
      covered thereby, an earnings statement (in form complying with the provisions
      of
      Rule 158 under the Securities Act) covering a twelve-month period beginning
      not
      later than the first day of the Company’s fiscal quarter next following the
      effective date of the Registration Statement. The Company will be deemed to
      have
      complied with its obligations under this Section 3(h) upon the Company’s filing,
      on an appropriate form, the appropriate report of the Company as required by
      the
      Securities Exchange Act of 1934, as amended, and the rules and regulations
      thereunder, or any similar successor statute (collectively, the “Exchange
      Act”).

     

    (i)  The
      Company shall hold in confidence and not make any disclosure of information
      concerning an Investor provided to the Company unless (i) disclosure of such
      information is necessary to comply with federal or state securities laws and
      stock market rules, including formal or informal investigations or requests
      from
      regulators, (ii) the disclosure of such information is necessary to avoid or
      correct a misstatement or omission in any Registration 

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    Statement
      that includes such Investor’s Registrable Securities, (iii) the release of such
      information is ordered pursuant to a subpoena or other order from a court or
      governmental body of competent jurisdiction, (iv) such information has been
      made
      generally available to the public other than by disclosure in violation of
      this
      or any other agreement, or (v) such Investor consents to the form and content
      of
      any such disclosure. The Company shall, upon learning that disclosure of any
      information concerning an Investor is sought in or by a court or governmental
      body of competent jurisdiction (other than the SEC, AMEX or other
      self-regulatory body) or through other means, give prompt notice to such
      Investor prior to making such disclosure, and cooperate with the Investor,
      at
      the Investor’s expense, in taking appropriate action to prevent disclosure of,
      or to obtain a protective order for, such information.

     

    (j)  The
      Company shall use its best efforts to promptly cause all of the Registrable
      Securities covered by any Registration Statement to be listed or designated
      for
      quotation on the SmallCap Market, the National Market, the NYSE, the AMEX or
      any
      other national securities exchange or automated quotation system and on each
      additional national securities exchange or automated quotation system on which
      securities of the same class or series issued by the Company are then listed
      or
      quoted, if any, if the listing or quotation of such Registrable Securities
      is
      then permitted under the rules of such exchange or automated quotation
      system.

     

    (k)  The
      Company shall provide a transfer agent and registrar, which may be a single
      entity, for the Registrable Securities not later than the effective date of
      the
      Registration Statement required to be filed pursuant to Section 2(a)
      hereof.

     

    (l)  The
      Company shall cooperate with any Investor who holds Registrable Securities
      being
      offered to facilitate the timely preparation and delivery of certificates (not
      bearing any restrictive legends) representing Registrable Securities to be
      offered pursuant to any Registration Statement and enable such certificates
      to
      be in such denominations or amounts, as the case may be, and registered in
      such
      names, as such Investor may reasonably request. Without limiting the generality
      of the foregoing, within three business days after any Registration Statement
      that includes Registrable Securities is declared effective by the SEC, the
      Company shall cause any shares sold pursuant to such Registration Statement
      to
      be covered by a legal opinion to the transfer agent for the Registrable
      Securities to the effect that when sold pursuant to, and in accordance with
      the
      plan of distribution set forth on Exhibit
      A
      hereto,
      any certificate representing such shares may be issued by the transfer agent
      to
      the purchaser without a federal securities law restrictive legend.

     

    (m)  At
      the
      request of any Investor, the Company shall prepare and file with the SEC such
      amendments (including post-effective amendments) and supplements to any
      Registration Statement required to be filed hereunder and the prospectus used
      in
      connection with such Registration Statement as may be necessary in order to
      change the plan of distribution set forth in such Registration
      Statement.

     

    (n)  The
      Company shall comply with all applicable laws related to a Registration
      Statement and offering and sale of securities and all applicable rules and
      regulations of governmental authorities in connection therewith (including,
      without limitation, the Securities Act and the Exchange Act and the rules and
      regulations thereunder promulgated by the SEC.)

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (o)  From
      and
      after the date of this Agreement, the Company shall not, and shall not agree
      to,
      allow the holders of any securities of the Company to include any of their
      securities which are not Registrable Securities in the Registration Statement
      required to be filed pursuant to Section 2(a) or 3(b) hereof without the consent
      of the holders of a majority in interest of the Registrable Securities;
      provided, however, that up to an additional 1,350,000 shares of Common Stock
      issued to holders of the Company's securities previously identified by the
      Company to the Required Holders may be included only in the Registration
      Statement filed with respect to the Initial Registrable Securities.

     

    (p)  The
      Company shall make available for inspection by (i) each Investor and (ii) one
      firm of attorneys and one firm of accountants or other agents retained by the
      Investors (collectively, the “Inspectors”)
      all
      pertinent financial and other records, and pertinent corporate documents and
      properties of the Company (collectively, the “Records”),
      as
      shall be reasonably deemed necessary by each Inspector to enable such Inspector
      to exercise its due diligence responsibility, and cause the Company’s officers,
      directors and employees to supply all information which any Inspector may
      reasonably request for purposes of such due diligence; provided,
      however,
      that
      each Inspector shall hold in confidence and shall not make any disclosure
      (except to an Investor) of any Record or other information which the Company
      determines in good faith to be confidential, and of which determination the
      Inspectors are so notified, unless (A) the disclosure of such Records is
      necessary to avoid or correct a misstatement or omission in any Registration
      Statement, (B) the release of such Records is ordered pursuant to a subpoena
      or
      other order from a court or government body of competent jurisdiction, or (C)
      the information in such Records has been made generally available to the public
      other than by disclosure in violation of this or any other agreement. Nothing
      herein shall be deemed to limit any Investor’s ability to sell Registrable
      Securities in a manner that is otherwise consistent with applicable laws and
      regulations.

     

    4.  OBLIGATIONS
      OF THE INVESTORS.

     

    In
      connection with the registration of the Registrable Securities, each Investor
      shall have the following obligations:

     

    (a)  It
      shall
      be a condition precedent to the obligations of the Company to effect the
      registration pursuant to this Agreement with respect to the Registrable
      Securities of a particular Investor that such Investor shall furnish to the
      Company such information regarding itself, the Registrable Securities held
      by it
      and the intended method of disposition of the Registrable Securities held by
      it
      as shall be reasonably required to effect the registration of such Registrable
      Securities and shall execute such documents in connection with such registration
      as the Company may reasonably request. At least seven (7) trading days prior
      to
      the first anticipated filing date of the Registration Statement, the Company
      shall notify each Investor of the information the Company requires from each
      such Investor. The Company hereby agrees to use the plan of distribution
      (the “Plan
      of Distribution”)
      set
      forth on Exhibit
      A
      hereto as
      the plan of distribution to be used in the Registration Statement.

     

    (b)  Each
      Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
      cooperate with the Company as reasonably requested by the Company in connection
      with the preparation and filing of any Registration Statement required to be
      filed hereunder, unless such 

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    Investor
      has notified the Company in writing of such Investor’s election to exclude all
      of such Investor’s Registrable Securities from such Registration
      Statement.

     

    (c)  Upon
      receipt of any notice from the Company of the happening of any event of the
      kind
      described in Section 3(e) or 3(f) with respect to any Registration Statement
      including Registrable Securities, each Investor shall immediately discontinue
      disposition of Registrable Securities pursuant to such Registration Statement
      until such Investor’s receipt of the copies of the supplemented or amended
      prospectus contemplated by Sections 3(e) or 3(f), as applicable, and, if so
      directed by the Company, such Investor shall deliver to the Company (at the
      expense of the Company) or destroy (and deliver to the Company a certificate
      of
      destruction) all copies in such Investor’s possession of the prospectus covering
      such Registrable Securities current at the time of receipt of such notice.
      Notwithstanding the foregoing or anything to the contrary in this Agreement,
      but
      subject to compliance with applicable laws, the Company shall cause the transfer
      agent for the Registrable Securities to deliver unlegended shares of Common
      Stock to a transferee of an Investor in accordance with the terms of the Notes
      and Warrants, the Securities Purchase Agreement and this Agreement in connection
      with any sale of Registrable Securities with respect to which any such Investor
      has entered into a contract for sale prior to receipt of such notice and for
      which any such Investor has not yet settled. 

     

    5.  EXPENSES
      OF REGISTRATION.

     

    All
      expenses incurred by the Company or the Investors in connection with
      registrations, filings or qualifications pursuant to Sections 2 and 3 above
      (including, without limitation, all registration, listing and qualification
      fees, printers and accounting fees, the fees and disbursements of counsel for
      the Company and the fees and disbursements of one counsel selected by the
      Investors (which counsel shall be Drinker Biddle & Reath LLP)) shall be
      borne by the Company; provided,
      however,
      that all
      such expenses shall be limited to $5,000. In addition, the Company shall pay
      each Investor’s costs and expenses (including legal fees) incurred in connection
      with the enforcement of the rights of such Investor hereunder.

     

    6.  INDEMNIFICATION.

     

    In
      the
      event any Registrable Securities are included in a Registration Statement under
      this Agreement:

     

    (a)  To
      the
      extent permitted by law, the Company shall indemnify, hold harmless and defend
      (i) each Investor who holds such Registrable Securities, and (ii) the
      directors, officers, partners, members, employees and agents (including, without
      limitation, legal counsel) of each such Investor and each person, if any, who
      controls each such Investor within the meaning of Section 15 of the Securities
      Act or Section 20 of the Exchange Act (each, an “Investor
      Indemnified Person”),
      against any joint or several losses, claims, damages, liabilities or expenses
      (collectively, together with actions, proceedings or inquiries by any regulatory
      or self-regulatory organization, whether commenced or threatened, in respect
      thereof, “Claims”)
      to
      which any of them may become subject insofar as such Claims arise out of or
      are
      based upon: (A) any untrue statement or alleged untrue statement of a material
      fact in a Registration Statement or the omission or alleged omission to state
      therein a material fact required to be stated 

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    or
      necessary to make the statements therein not misleading, (B) any untrue
      statement or alleged untrue statement of a material fact contained in any
      preliminary prospectus if used prior to the effective date of such Registration
      Statement, or contained in the final prospectus (as amended or supplemented,
      if
      the Company files any amendment thereof or supplement thereto with the SEC)
      or
      the omission or alleged omission to state therein any material fact necessary
      to
      make the statements made therein, in light of the circumstances under which
      the
      statements therein were made, not misleading, or (C) any violation or alleged
      violation by the Company of the Securities Act, the Exchange Act or any other
      law (including, without limitation, any state securities law), rule or
      regulation relating to the offer or sale of the Registrable Securities (the
      matters in the foregoing clauses (A) through (C), collectively, “Violations”).
      Subject to the restrictions set forth in Section 6(c) with respect to the number
      of legal counsel, the Company shall reimburse each Investor and each other
      Investor Indemnified Person, promptly as such expenses are incurred and are
      due
      and payable, for any reasonable legal fees or other reasonable expenses incurred
      by them in connection with investigating or defending any such Claim.
      Notwithstanding anything to the contrary contained herein, the indemnification
      agreement contained in this Section 6(a): (x) shall not apply to a Claim arising
      out of or based upon a Violation which occurs in reliance upon and in conformity
      with information furnished in writing to the Company by such Investor
      Indemnified Person expressly for use in the Registration Statement or any such
      amendment thereof or supplement thereto; (y) shall not apply to amounts paid
      in
      settlement of any Claim if such settlement is effected without the prior written
      consent of the Company, which consent shall not be unreasonably withheld; and
      (z) with respect to any preliminary prospectus, shall not inure to the benefit
      of any Investor Indemnified Person if the untrue statement or omission of
      material fact contained in the preliminary prospectus was corrected on a timely
      basis in the prospectus, as then amended or supplemented, if such corrected
      prospectus was timely made available by the Company pursuant to Section 3(c)
      hereof, and the Investor Indemnified Person was promptly advised in writing
      not
      to use the incorrect prospectus prior to the use giving rise to a Violation
      and
      such Investor Indemnified Person, notwithstanding such advice, used it. Such
      indemnity shall remain in full force and effect regardless of any investigation
      made by or on behalf of the Investor Indemnified Person and shall survive the
      transfer of the Registrable Securities by the Investors pursuant to Section
      9
      hereof.

     

    (b)  In
      connection with any Registration Statement in which an Investor is
      participating, (i) each such Investor shall, severally and not jointly,
      indemnify, hold harmless and defend, to the same extent and in the same manner
      set forth in Section 6(a), the Company, each of its directors, each of its
      officers who signs the Registration Statement, its employees and each person,
      if
      any, who controls the Company within the meaning of Section 15 of the Securities
      Act or Section 20 of the Exchange Act, and any other stockholder selling
      securities pursuant to the Registration Statement or any of its directors or
      officers or any person who controls such stockholder within the meaning of
      the
      Securities Act or the Exchange Act (each, a “Company
      Indemnified Person”),
      against any Claims to which any of them may become subject insofar as such
      Claims arise out of or are based upon any Violation, in each case to the extent
      (and only to the extent) that such Violation occurs in reliance upon and in
      conformity with written information furnished to the Company by such Investor
      expressly for use in connection with such Registration Statement; and (ii)
      subject to the restrictions set forth in Section 6(c), such Investor shall
      reimburse the Company Indemnified Persons, promptly as such expenses are
      incurred and are due and payable, for any legal fees or other reasonable
      expenses incurred by 

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    them
      in
      connection with investigating or defending any such Claim; provided,
      however,
      that the
      indemnification obligations contained in this Section 6(b) shall not apply
      to
      amounts paid in settlement of any Claim if such settlement is effected without
      the prior written consent of such Investor, which consent shall not be
      unreasonably withheld; and provided,
      further,
      that the
      Investor shall be liable under this Agreement (including this Section 6(b)
      and
      Section 7) for only that amount as does not exceed the net proceeds actually
      received by such Investor as a result of the sale of Registrable Securities
      pursuant to such Registration Statement. Such indemnity shall remain in full
      force and effect regardless of any investigation made by or on behalf of such
      Company Indemnified Person and shall survive the transfer of the Registrable
      Securities by the Investor pursuant to Section 9 hereof. Notwithstanding
      anything to the contrary contained herein, the indemnification obligations
      contained in this Section 6(b) with respect to any preliminary prospectus shall
      not inure to the benefit of any Company Indemnified Person if the untrue
      statement or omission of material fact contained in the preliminary prospectus
      was corrected on a timely basis in the prospectus, as then amended or
      supplemented.

     

    (c)  Promptly
      after receipt by any party entitled to indemnification under this Section 6
      of
      notice of the commencement of any action (including any governmental action),
      such indemnified party shall, if a Claim in respect thereof is to made against
      any indemnifying party under this Section 6, deliver to the indemnifying party
      a
      written notice of the commencement thereof, and the indemnifying party shall
      have the right to participate in, and, to the extent the indemnifying party
      so
      desires, jointly with any other indemnifying party similarly noticed, to assume
      control of the defense thereof with counsel mutually satisfactory to the
      indemnifying party and the indemnified party; provided,
      however,
      that
      such indemnifying party shall not be entitled to assume such defense and an
      indemnified party shall have the right to retain its own counsel with the fees
      and expenses to be paid by the indemnifying party, if, in the reasonable opinion
      of counsel retained by the indemnifying party, the representation by such
      counsel of the indemnified party and the indemnifying party would be
      inappropriate due to actual or potential conflicts of interest between such
      indemnified party and any other party represented by such counsel in such
      proceeding or the actual or potential defendants in, or targets of, any such
      action include both the indemnified party and the indemnifying party and any
      such indemnified party reasonably determines that there may be legal defenses
      available to such indemnified party that are in conflict with those available
      to
      such indemnifying party. The indemnifying party shall pay for only one separate
      legal counsel for the indemnified parties, and such legal counsel shall be
      selected by Investors holding a majority in interest of the Registrable
      Securities included in the Registration Statement to which the Claim relates
      (if
      the parties entitled to indemnification hereunder are Investor Indemnified
      Persons) or by the Company (if the parties entitled to indemnification hereunder
      are Company Indemnified Persons). The failure to deliver written notice to
      the
      indemnifying party within a reasonable time of the commencement of any such
      action shall not relieve such indemnifying party of any liability to the
      indemnified party under this Section 6, except to the extent that the
      indemnifying party is actually prejudiced in its ability to defend such action.
      The indemnification required by this Section 6 shall be made by periodic
      payments of the amount thereof during the course of the investigation or
      defense, as such expense, loss, damage or liability is incurred and is due
      and
      payable.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    7.  CONTRIBUTION.

     

    To
      the
      extent any indemnification by an indemnifying party is prohibited or limited
      by
      law, the indemnifying party shall make the maximum contribution with respect
      to
      any amounts for which it would otherwise be liable under Section 6 to the
      fullest extent permitted by law as is appropriate to reflect the relative fault
      of the indemnifying party, on the one hand, and the indemnified party, on the
      other hand, with respect to the Violation giving rise to the applicable Claim;
      provided,
      however,
      that (a)
      no contribution shall be made under circumstances where the maker would not
      have
      been liable for indemnification under the fault standards set forth in Section
      6, (b) no person guilty of fraudulent misrepresentation (within the meaning
      of
      Section 11(f) of the Securities Act) shall be entitled to contribution from
      any
      seller of Registrable Securities who was not guilty of such fraudulent
      misrepresentation, and (c) contribution (together with any indemnification
      or
      other obligations under this Agreement) by any seller of Registrable Securities
      shall be limited in amount to the net amount of proceeds received by such seller
      from the sale of such Registrable Securities.

     

    8.  REPORTS
      UNDER THE EXCHANGE ACT.

     

    With
      a
      view to making available to the Investors the benefits of Rule 144 promulgated
      under the Securities Act or any other similar rule or regulation of the SEC
      that
      may at any time permit the Investors to sell securities of the Company to the
      public without registration (“Rule
      144”),
      the
      Company agrees to:

     

    (a)  file
      with
      the SEC in a timely manner and make and keep available all reports and other
      documents required of the Company under the Securities Act and the Exchange
      Act
      so long as the Company remains subject to such requirements and the filing
      and
      availability of such reports and other documents is required for the applicable
      provisions of Rule 144; and

     

    (b)  furnish
      to
      each Investor so long as such Investor holds Notes, Warrants or Registrable
      Securities, promptly upon request, (i) a written statement by the Company that
      it has complied with the reporting requirements of Rule 144, the Securities
      Act
      and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
      of the Company and such other reports and documents so filed by the Company,
      and
      (iii) such other information as may be reasonably requested to permit such
      Investor to sell such securities under Rule 144 without
      registration.

     

    9.  ASSIGNMENT
      OF REGISTRATION RIGHTS.

     

    The
      rights
      of the Investors hereunder, including the right to have the Company register
      Registrable Securities pursuant to this Agreement, shall be automatically
      assignable by each Investor to any transferee of all or any portion of the
      Notes, the Warrants or the Registrable Securities if: (a) the Investor agrees
      in
      writing with the transferee or assignee to assign such rights, and a copy of
      such agreement is furnished to the Company after such assignment, (b) the
      Company is furnished with written notice of (i) the name and address of such
      transferee or assignee, and (ii) the securities with respect to which such
      registration rights are being transferred or assigned, (c) following such
      transfer or assignment, the further disposition of such securities by the
      transferee or assignee is restricted under the Securities Act and applicable
      state 

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    securities
      laws, (d) the transferee or assignee agrees in writing for the benefit of the
      Company to be bound by all of the provisions contained herein, and (e) such
      transfer shall have been made in accordance with the applicable requirements
      of
      the Securities Purchase Agreement, the Notes and the Warrants, as applicable.
      In
      addition, and notwithstanding anything to the contrary contained in this
      Agreement, the Securities Purchase Agreement, the Notes or the Warrants, the
      Securities (as defined in the Securities Purchase Agreement) may be pledged,
      and
      all rights of the Investor under this Agreement or any other agreement or
      document related to the transactions contemplated hereby may be assigned,
      without further consent of the Company, to a bona fide pledgee in connection
      with an Investor’s margin or brokerage account.

     

    10.  AMENDMENT
      OF REGISTRATION RIGHTS.

     

    Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only with written consent of the Company and the Investor(s)
      who
      hold a majority in interest of the Registrable Securities or, in the case of
      a
      waiver, with the written consent of the party charged with the enforcement
      of
      any such provision; provided,
      however,
      that (a)
      no consideration shall be paid to an Investor by the Company in connection
      with
      an amendment hereto unless each Investor similarly affected by such amendment
      receives a pro rata amount of consideration from the Company; and (b) unless
      an
      Investor otherwise agrees, each amendment hereto must similarly affect each
      Investor. Any amendment or waiver effected in accordance with this Section
      10
      shall be binding upon each Investor and the Company.

     

    11.  MISCELLANEOUS.

     

    (a)  A
      person
      or entity is deemed to be a holder of Registrable Securities whenever such
      person or entity owns of record such Registrable Securities. If the Company
      receives conflicting instructions, notices or elections from two or more persons
      or entities with respect to the same Registrable Securities, the Company shall
      act upon the basis of instructions, notice or election received from the
      registered owner of such Registrable Securities.

     

    (b)  Any
      notices required or permitted to be given under the terms of this Agreement
      shall be in writing and sent by certified or registered mail (return receipt
      requested) or delivered personally, by nationally recognized overnight carrier
      or by confirmed facsimile transmission, and shall be effective five days after
      being placed in the mail, if mailed, or upon receipt or refusal of receipt,
      if
      delivered personally or by nationally recognized overnight carrier or confirmed
      facsimile transmission, in each case addressed to a party as provided herein.
      The initial addresses for such communications shall be as follows, and each
      party shall provide notice to the other parties of any change in such party’s
      address:

     

    (i)  If
      to the
      Company:

     

    Matritech,
      Inc.

    330
      Nevada
      Street

    Newton,
      Massachusetts 02460

    Telephone:
      (617) 928-0820

    Facsimile:
      (617) 928-0821

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    Attention:
      Chief Executive Officer

     

    with
      a
      copy simultaneously transmitted by like means (which transmittal 

    shall
      not
      constitute notice hereunder) to:

     

    Goodwin
      Procter LLP

    Exchange
      Place

    53
      State
      Street

    Boston,
      Massachusetts 02109

    Telephone:
      (617) 570-1000

    Facsimile:
      (617) 523-1231

    Attention:
      Rufus C. King

    

    (ii)  If
      to any
      Investor, to such address as such Investor shall have provided in writing to
      the
      Company.

     

    (c)  Failure
      of
      any party to exercise any right or remedy under this Agreement or otherwise,
      or
      delay by a party in exercising such right or remedy, shall not operate as a
      waiver thereof.

     

    (d)  This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Delaware applicable to contracts made and to be performed in the State
      of Delaware. The Company and each Investor irrevocably consent to the exclusive
      jurisdiction of the United States federal courts and the state courts located
      in
      the County of New Castle, State of Delaware, in any suit or proceeding based
      on
      or arising under this Agreement or the transactions contemplated hereby and
      irrevocably agree that all claims between the parties in respect of such suit
      or
      proceeding may be determined in such courts. The Company and each Investor
      irrevocably waive the defense of an inconvenient forum to the maintenance of
      such suit or proceeding in such forum. The Company and each Investor further
      agree that service of process upon the Company or any Investor mailed by first
      class mail shall be deemed in every respect effective service of process upon
      the Company or such Investor, as the case may be, in any such suit or
      proceeding. Nothing herein shall affect the right of the Company or any Investor
      to serve process in any other manner permitted by law. The Company and each
      Investor agree that a final non-appealable judgment in any such suit or
      proceeding shall be conclusive and may be enforced in other jurisdictions by
      suit on such judgment or in any other lawful manner.

     

    (e)  This
      Agreement and the other Transaction Documents (including any schedules and
      exhibits hereto and thereto) constitute the entire agreement among the parties
      hereto with respect to the subject matter hereof and thereof. There are no
      restrictions, promises, warranties or undertakings, other than those set forth
      or referred to herein and therein. This Agreement and the other Transaction
      Documents supersede all prior agreements and understandings among the parties
      hereto with respect to the subject matter hereof and thereof.

     

    (f)  Subject
      to
      the requirements of Section 9 hereof, this Agreement shall inure to the benefit
      of and be binding upon the successors and assigns of each of the parties
      hereto.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

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

     

    (h)  This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original but all of which shall constitute one and the same agreement.
      This Agreement, once executed by a party, may be delivered to the other party
      hereto by facsimile transmission of a copy of this Agreement bearing the
      signature of the party so delivering this Agreement.

     

    (i)  Each
      party
      shall do and perform, or cause to be done and performed, all such further acts
      and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    (j)  Unless
      other expressly provided herein, all consents, approvals and other
      determinations to be made by the Investors pursuant to this Agreement shall
      be
      made by the Investors holding a majority in interest of the Registrable
      Securities (determined as if all Notes and Warrants then outstanding had been
      converted into or exercised for Registrable Securities) held by all
      Investors.

     

    (k)  The
      initial number of Registrable Securities included on any Registration Statement
      filed pursuant to Section 2(a) or 3(b), and each increase to the number of
      Registrable Securities included thereon, shall be allocated pro rata among
      the
      Investors based on the number of Registrable Securities held by each Investor
      at
      the time of such establishment or increase, as the case may be. In the event
      an
      Investor shall sell or otherwise transfer any of such holder’s Registrable
      Securities, each transferee shall be allocated a pro rata portion of the number
      of Registrable Securities included on a Registration Statement for such
      transferor. Any shares of Common Stock included on a Registration Statement
      and
      which remain allocated to any person or entity which does not hold any
      Registrable Securities shall be allocated to the remaining Investors, pro rata
      based on the number of shares of Registrable Securities then held by such
      Investors. For the avoidance of doubt, the number of Registrable Securities
      held
      by any Investor shall be determined as if all Notes and Warrants then
      outstanding were converted into or exercised for Registrable
      Securities.

     

    (l)  Each
      party
      to this Agreement has participated in the negotiation and drafting of this
      Agreement. As such, the language used herein shall be deemed to be the language
      chosen by the parties hereto to express their mutual intent, and no rule of
      strict construction will be applied against any party to this
      Agreement.

     

    (m)  For
      purposes of this Agreement, the term “business day” means any day other than a
      Saturday or Sunday or a day on which banking institutions in the State of New
      York are authorized or obligated by law, regulation or executive order to close,
      and the term “trading day” means any day on which the AMEX or, if the Common
      Stock is not then traded on the AMEX, the principal national securities
      exchange, automated quotation system or other trading market where the Common
      Stock is then listed, quoted or traded, is open for trading. 

     

    [REMAINDER
      OF PAGE LEFT BLANK INTENTIONALLY]

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    IN
      WITNESS
      WHEREOF, the undersigned Initial Investor and the Company have caused this
      Agreement to be duly executed as of the date first above written.

    

    MATRITECH,
      INC.

    

    

    By:____________________________

    Name:

    Title:

    

    

    INITIAL
      INVESTOR:

    

     

      
        

      

    

    (Print
      or
      Type Name of Investor)

    

    

    By:____________________________

    Name: 

    Title:

    

 

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    EXHIBIT
      A

    

    

    

    PLAN
      OF DISTRIBUTION

    

    The
      Selling Stockholders and any of their pledgees, assignees, transferees, donees
      and successors-in-interest may, from time to time, sell any or all of their
      Shares on any stock exchange, market or trading facility on which the Common
      Stock is traded or in private transactions. These sales may be at fixed or
      negotiated prices. Each Selling Stockholder will act independently in making
      decisions with respect to the timing, manner and size of each sale of the Shares
      covered in this Prospectus. The Selling Stockholders may use any one or more
      of
      the following methods when selling Shares:

    

    - ordinary
      brokerage transactions and transactions in which the broker-dealer solicits
      purchasers, which may include long sales and short sales effected after the
      effective date of the Registration Statement;

    

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

    

    - purchases
      by a broker-dealer as principal and resale by the broker-dealer for its account
      pursuant to this Prospectus;

    

    - “at
      the
      market” to or through market makers or into an existing market for the
      Shares;

    

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

    

    - in
      other
      ways not involving market makers or established trading markets, including
      direct sales to purchasers, sales effected through agents or other privately
      negotiated transactions;

    

    - settlement
      of short sales;

    

    - broker-dealers
      may agree with the Selling Stockholders to sell a specified number of Shares
      at
      a stipulated price per share;

    

    - through
      transactions in options, swaps or other derivative securities (whether
      exchange-listed or otherwise);

    

    - a
      combination of any the foregoing methods of sale; and

    

    - any
      other
      method permitted by applicable law.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other broker-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be
      negotiated.

    

    The
      Selling Stockholders and any broker-dealers or agents that are involved in
      selling the Shares may be deemed to be “underwriters” within the meaning of the
      Securities Act in connection with such sales. In such event, any commissions
      received by such broker-dealers or agents and any profit on the resale of the
      shares purchased by them may be deemed to be underwriting commissions or
      discounts under the Securities Act.

    

    We
      are
      required to pay all fees and expenses incident to the registration of the
      Shares, including certain fees and disbursements of counsel to the Selling
      Stockholders. We have agreed to indemnify the Selling Stockholders against
      certain losses, claims, damages and liabilities, including liabilities under
      the
      Securities Act.

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
         

      

      
        -2-

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