Document:

DEED OF HYPOTHEC

                           On the tenth  (10th) day of August,  Two Thousand and
                           Six  (2006)  in the  City of  Montreal,  Province  of
                           Quebec.

                           Before Mtre Diane Rimok,  the  undersigned  Notary of
                           the  Province  of  Quebec,  practising  at  Montreal,
                           Quebec.

APPEARED:                  BUSH ROSS,  P.A., a  corporation,,  having a place of
                           business at 220 S. Franklin Street,  Tampa, FL 33602,
                           herein acting and represented by Benjamin Gross,  its
                           attorney ad hoc,  hereunto  authorized  pursuant to a
                           power of attorney dated July 26, 2006 a copy of which
                           is annexed hereto after having been acknowledged true
                           and signed for the purpose of  identification  by the
                           said   representative   in   the   presence   of  the
                           undersigned Notary.

                                                         PARTY OF THE FIRST PART

AND:                       C-CHIPS  TECHNOLOGIES  CORPORATION (NORTH AMERICA), a
                           legal person being a  corporation  constituted  under
                           the Canada Business Corporations Act, having its head
                           office  at  740  Notre-Dame  Street  East,  Montreal,
                           Quebec, Canada, H3C 3X6 herein acting and represented
                           by Anna Pennino, its representative,  duly authorized
                           pursuant to a  resolution  of the board of  directors
                           dated July 25,  2006,  a  certified  copy of which is
                           annexed  hereto after having been  acknowledged  true
                           and signed for the purpose of  identification by said
                           representative  in the  presence  of the  undersigned
                           Notary.

                                                        PARTY OF THE SECOND PART

                    WHICH  PARTIES  AGREE WITH EACH OTHER AND  DECLARE  UNTO THE
                    UNDERSIGNED NOTARY AS FOLLOWS:

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ARTICLE 1

                                                                  INTERPRETATION

1.1     Definitions. Capitalized terms used herein without definition shall have
        the respective  meanings  ascribed to them in the Purchase  Agreement or
        the Notes, as applicable (as these terms are defined below),  unless the
        context clearly requires  otherwise or unless otherwise  defined herein.
        The following  words and  expressions,  whenever used in this Deed or in
        any deed, document or agreement supplemental or ancillary hereto, unless
        there be something in the subject or the context inconsistent therewith,
        shall have the following meanings:

        1.1.1   "Accessories"  means any interest,  interest on interest,  legal
                fees,  charges,  costs  of  realization,   expenses,   insurance
                premiums,  taxes,  and other sums which may be  expended  by the
                Holder or any  Bondholders  to protect,  preserve or enforce its
                rights under this Deed of Hypothec;

        1.1.2   "Bond"  or  "Bonds"  means  any  bond  or all the  bonds  of the
                Grantor,  as the case may be, issued and certified hereunder and
                entitled to the benefit of the security  hereof and for the time
                being outstanding;

        1.1.3   "Bondholder",  "Bondholders",  "holder of the Bond", or "holders
                of the Bonds" means the Person or several persons holding at any
                time any one of the outstanding Bonds and mentioned as holder in
                the register maintained by the Holder;

        1.1.4   "Bondholders'  Instrument"  shall have the  meaning set forth in
                Article 21.2;

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        1.1.5   "Collateral"  means all accounts  receivable  of the Grantor and
                moveable property of every kind and nature,  including,  without
                limitation, all furniture,  fixtures,  equipment, raw materials,
                inventory,  as extracted collateral,  or other goods,  accounts,
                contract  rights,  rights to the  payment  of  money,  insurance
                refund claims and all other insurance claims and proceeds,  tort
                claims, chattel paper,  documents,  instruments,  securities and
                other investment property,  deposit accounts, rights to proceeds
                of  letters  of credit and all  general  intangibles  including,
                without  limitation,   all  tax  refund  claims,  license  fees,
                patents,  patent  licenses,  patent  applications,   trademarks,
                trademark  licenses,   trademark   applications,   trade  names,
                copyrights,  copyright licenses, copyright applications,  rights
                to sue and recover for past infringement of patents,  trademarks
                and   copyrights,    computer   programs,   computer   software,
                engineering drawings,  service marks, customer lists,  goodwill,
                and all  licenses,  permits,  agreements  of any kind or  nature
                pursuant to which the Grantor  possesses,  uses or has authority
                to possess or use property  (whether  tangible or intangible) of
                others or others  possess,  use or have  authority to possess or
                use property  (whether  tangible or  intangible) of the Grantor,
                and all recorded  data of any kind or nature,  regardless of the
                medium of recording including, without limitation, all books and
                records,   software,   writings,   plans,   specifications   and
                schematics,  whether  now owned or  hereinafter  acquired by the
                Grantor; and all proceeds and products of each of the foregoing.
                Notwithstanding the foregoing,  without consent, the Grantor may
                hereinafter  acquire  assets,   properties,   leases  (including
                corporations,  partnerships,  and  other  entities  holding  the
                foregoing)  for  use  in  its  business,   directly  or  through
                subsidiaries,  which may be secured by the asset  acquired  (the
                "Senior Security  Interest") and financed using cash payments of
                the Grantor and up to  $2,000,000 of secured  non-equity  linked
                commercial debt. Said Senior Security Interest shall rank senior
                to the  Holder's'  Security  Interest  granted  pursuant to this
                Agreement.

        1.1.6   "Deed of Hypothec", "this Deed", "this Deed of Hypothec", "these
                presents",  "herein",  "hereby",  "hereunder"  and other similar
                expressions  refer  collectively  to this Deed of Hypothec,  the
                accompanying  schedules  as well as any and every  deed or other
                instrument  which is  supplementary  or  ancillary  hereto or in
                implementation  hereof,  the  whole  as  same  may  be  amended,
                supplemented or restated at any time and from time to time;

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        1.1.7   "Directors"  means the board of directors of the Grantor for the
                time being,  and  reference,  without  more, to a decision of or
                action by the  Directors  shall mean a  decision  made or action
                taken by the Directors  acting as a board duly constituted or as
                members of a committee duly authorized by the board of directors
                and having the  authority  to make such a decision  or take such
                action;

        1.1.8   "Event of Default" means any of the events or circumstances  set
                out in ARTICLE 9 hereof;

        1.1.9   "Grantor"  means the party of the second part and  includes  any
                successor in title;

        1.1.10  "Holder"  means the party of the first part,  in its capacity as
                fonde de pouvoir for the Bondholders for all purposes of Article
                2692 of the Civil Code of Quebec and includes  any  successor or
                assign thereof in such capacity;

        1.1.11  "Holder's   Indemnification"  means  sufficient  funds,  in  the
                opinion of the Holder,  to commence,  continue and carry out any
                act, action or proceedings and an indemnity  satisfactory to the
                Holder  to  protect  and hold it  harmless  against  all  costs,
                charges,  expenses and liabilities to be incurred as a result of
                any such act,  action or proceedings  and any loss and damage it
                may sustain by reason thereof.

        1.1.12  "Law" means all applicable  provisions of statutes,  ordinances,
                decrees,  orders  in  council,  rules,  regulations,  orders  of
                governmental authorities, treaties and all applicable orders and
                decrees of courts and arbitrators;

        1.1.13  "Lien" means any mortgage,  hypothec,  title retention,  pledge,
                deed of trust, lien, right of set-off, charge, security interest
                or other encumbrance  whatsoever,  whether fixed or floating and
                howsoever created or arising.

        1.1.14  "Notes"  means the  Series B  Subordinated  Secured  Convertible
                Promissory Notes issued from time to time and purchased pursuant
                to the Purchase Agreement;

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        1.1.15  "Parties" means the Grantor and the Holder;

        1.1.16  "Person"  or  "Persons"  means  any   individual,   partnership,
                corporation,  limited  liability  company,  association,  trust,
                unincorporated  organization,  or  a  government  or  agency  or
                political subdivision thereof;

        1.1.17  "Purchase   Agreement"  means  that  certain  Note  and  Warrant
                Purchase  Agreement  by and among  Manaris  Corporation  and the
                Purchasers named therein dated as of August 10, 2006;

        1.1.18  "Rate of  Interest"  means the rate of interest  of  twenty-five
                percent (25%) per annum;

        1.1.19  "Receiver" means any receiver,  manager,  agent,  mandatary,  or
                receiver-manager appointed by the Holder or a court of competent
                jurisdiction  to  possess  and  administer  all  or  any  of the
                Collateral after the security has become enforceable;

        1.1.20  "Secured  Obligations"  means the  payment,  in lawful  money of
                Canada, of all principal of and interest  (including interest on
                amounts in default) and  premiums if any, on the Bonds,  as well
                as the payment of all other sums,  if any, from time to time due
                under  this  Deed  to the  Bondholders  or the  Holder  and  the
                performance  by the  Grantor of all its  obligations  under this
                Deed;

        1.1.21  "Security  Documents"  has the meaning  ascribed  thereto in the
                Purchase Agreement;

1.2     Plural and  Masculine.  Unless  there be something in the subject or the
        context inconsistent therewith,  words importing the singular only shall
        include  the  plural and vice versa and words  importing  the  masculine
        gender  shall  include the  feminine  gender and vice versa,  and unless
        otherwise  stipulated,  any  reference  to dollars  shall mean  Canadian
        dollars, unless otherwise specifically mentioned herein.

1.3     Division in Articles. The division of this Deed into Articles, Sections,
        subsections   and  paragraphs  and  the  insertion  of  titles  are  for
        convenience  of  reference  only and do not  affect  the  meaning or the
        interpretation of the present Deed.

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                                      -6-

                                   ARTICLE 2

                       APPOINTMENT OF THE FONDE DE POUVOIR

1.1     Appointment  of the Fonde de  Pouvoir.  The Grantor  hereby  appoints by
        these presents the Holder to act as fonde de pouvoir of the bondholders,
        as  contemplated  by Article 2692 of the Civil Code of Quebec,  to take,
        receive,  and hold on behalf of,  and for the  benefit  of,  each of the
        Bondholders,  all rights ,  hypothecs  and  security  interests  created
        hereby as continuing  security for the payment of the Bonds from time to
        time  issued and  outstanding  hereunder,  and to  exercise  any and all
        powers and rights and to perform  any and all duties  conferred  upon it
        hereunder or by a Bondholders' Instrument.

2.1     Acceptance of Appointment.  Bush Ross, P.A. as Holder hereby accepts its
        appointment as fonde de pouvoir and agrees to take, receive and hold the
        rights,  hypothecs and security interests created hereby and to exercise
        any and  all  powers  and  rights  and to  perform  any  and all  duties
        conferred upon it hereunder or by a Bondholder's Instrument.

                                   ARTICLE 3

                             FORM AND ISSUE OF BONDS

3.1     Limitation of Issue. The aggregate outstanding principal amount of Bonds
        which may be issued  under and  secured  by this Deed is  limited to the
        aggregate   principal   amount   of  Nine   Million   Canadian   Dollars
        (Cdn$9,000,000.00)  and such Bonds shall be designated as 25% Collateral
        Mortgage Demand Bonds.

3.2     Form of Bonds.  The Bonds and the  Certificate  of the  Holder  shall be
        respectively substantially of the tenor and in the form set forth in the
        Second  Schedule  of this  Deed,  with such  omissions,  insertions  and
        variations as are in this Deed provided or permitted. The Bonds shall be
        issued as fully registered Bonds, may be issued in any denominations and
        shall bear the respective dates given to them by the Grantor.  The Bonds
        shall be  payable on demand  and shall  bear  interest  before and after
        default, with an interest rate of 25% per annum,  calculated half-yearly
        and not in advance,  with interest on all overdue interest calculated at
        the same rate and in the same manner as the principal thereof,  from the
        due date until the date of payment.

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3.3     Exchange of Bonds.  Bonds of any  denomination  may be  exchanged by the
        holder thereof for an equal aggregate  principal  amount of Bonds of the
        same or any other  denomination  in the name of such holder  alone or in
        the name of such holder or such other Person or several  Persons as such
        holder  may  designate  and  bearing  such date as the  Grantor  and the
        Bondholder  requesting such exchange may agree to or, upon failure to so
        agree, bearing the same date as the Bonds which are to be exchanged. All
        Bonds  returned  to the  Grantor  to effect  such an  exchange  shall be
        returned  to the  Holder for  cancellation.  Any Bonds  surrendered  for
        cancellation  but not exchanged shall  thereafter be treated as unissued
        Bonds and additional Bonds may be issued, pledged, hypothecated, sold or
        otherwise  disposed of by the Grantor from time to time,  provided  that
        the aggregate principal amount of all Bonds outstanding hereunder at any
        particular  time does not  exceed  the limit  set forth in  Article  2.1
        hereof.

3.4     Payment in Legal Tender.  Until the security  hereby  constituted  shall
        have become  enforceable  and the Holder shall have determined or become
        bound to enforce the same,  the  principal  of and interest on the Bonds
        shall be  payable  in lawful  money of  Canada at par to the  registered
        holder of the Bonds at the address given to the Holder from time to time
        by the Bondholders.

3.5     Signature of Bonds.  All Bonds issued  hereunder shall be signed for and
        on behalf of and in the name of the Grantor by any of its  directors  or
        officers (or any other duly authorized representative) acting alone.

3.6     Type.  When any of the  Bonds are to be issued  hereunder,  the  Grantor
        shall,  within a reasonable  delay,  cause to be prepared,  executed and
        delivered to the Holder  definitive  Bonds which may be  typewritten  or
        otherwise mechanically reproduced.

3.7     Delivery.  All Bonds may from time to time after the  execution  of this
        Deed be issued by the  Grantor and be  certified  by or on behalf of the
        Holder  and shall be  delivered  by the Holder to or to the order of the
        Grantor  from time to time  upon  receipt  by the  Holder of an order or
        orders in writing  signed by the  Grantor  who shall have same signed by
        any  of  its  directors  or  officers  (or  any  other  duly  authorized
        representative) acting alone.

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3.8     Certification.  No Bond  shall be issued,  or if issued,  shall bind the
        Grantor or shall  entitle the holder to the  benefit of the  security of
        these  presents  until  it has been  certified  by or on  behalf  of the
        Holder.  Such  certification  by the Holder upon any such Bonds shall be
        conclusive  evidence  that the Bonds so certified  have been duly issued
        hereunder and that the holder  thereof is entitled to the benefit of the
        security under these  presents.  The certificate of the Holder signed on
        the Bonds issued hereunder shall not be construed as a representation or
        warranty by the Holder as to the validity or security of this Deed or of
        the  said  Bonds,  and the  Holder  shall in no  respect  be  liable  or
        answerable  for  the use of said  Bonds  or any of them or the  proceeds
        thereof.

3.9     Consideration, Issue and Rank. The Bonds may be issued for such price or
        consideration  as shall  be  determined  by the  Directors,  or,  at the
        discretion of the Directors,  may be  hypothecated  from time to time by
        the  Grantor to provide  security  for the  payment of present or future
        indebtedness or other  obligations,  present or future,  of the Grantor,
        provided  however that any Bonds so hypothecated  shall not be deemed to
        be redeemed by reason of the account of the Grantor  having ceased to be
        indebted while the Bonds remain so  hypothecated.  If any Bond is issued
        to provide  security as aforesaid  and is  subsequently  returned to the
        Grantor after having served such purpose,  the Grantor shall be entitled
        to reissue in the place and stead of the Bonds so returned  other Bonds,
        the whole under reserve of the  provisions of this Deed dealing with the
        aggregate  outstanding  principal  amount  of Bonds  which may be issued
        under the terms  hereof.  Each Bond,  as soon as issued and certified as
        herein  provided,  shall,  subject to the terms  hereof,  be equally and
        rateably  secured  hereby  as if all of the Bonds  had been  issued  and
        certified simultaneously.

3.10    Registration  and  Transfer.  At all times while any of the Bonds issued
        hereunder are  outstanding,  the Holder shall keep, at its office in the
        City of  Montreal,  a register  in which  shall be entered the names and
        addresses  of the holder or  holders of Bonds,  as well as the names and
        addresses of the Person or Persons who have  obtained  from a registered
        holder an  undivided  interest in any such Bonds and of which the Holder
        shall have received  written notice from such registered  holder,  as of
        and from the date of such notice.  Failure of any  registered  holder to
        notify the Holder as aforesaid or failure of the Holder to inscribe such
        undivided  interest in the register shall not, under any  circumstances,
        deprive such  undivided  owner of any of this  rights.  No transfer of a
        Bond  shall be valid  unless  made on such  register  by the  registered
        holder or his executors, administrators, successors or assigns or his or
        their attorney duly  appointed by an instrument in writing,  in form and
        execution  satisfactory  to the Holder,  and upon  compliance  with such
        reasonable  requirements  as the Holder may prescribe.  The ownership of
        the Bonds  shall be proven by such  register.  The  Bondholders  and the
        Grantor may examine this register  during normal  business hours on such
        days as the Holder's office is required by Law to remain open.

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3.11    Rights of Holders.  The registered holder of a Bond shall be entitled to
        receive the principal moneys, premium, if any, and interest evidenced by
        such Bond, free from all rights of set-off, compensation or counterclaim
        between the Grantor and his transferor or any previous holder thereof on
        its behalf  and on behalf of any Person or several  Persons to whom such
        registered holder has granted any undivided interest therein.

3.12    Replacement of Bond. If a Bond becomes mutilated, lost or destroyed, the
        Grantor,  in its discretion,  may issue,  and the Holder shall thereupon
        certify and  deliver,  a new Bond of like date and tenor in  replacement
        and upon  cancellation  of the one  mutilated,  lost or  destroyed.  The
        applicant for a new bond shall in case of loss or destruction furnish to
        the Holder such evidence of ownership and of such loss or destruction as
        shall be satisfactory to the Holder and to the Grantor and shall furnish
        the Holder's Indemnification.

                                   ARTICLE 4

                               CHARGING PROVISIONS

4.1     Hypothec.  As a general and continuing  collateral  security for the due
        and punctual  payment and  performance  of the Secured  Obligations  and
        Accessories,  the Grantor does hereby  hypothecate the Collateral to and
        in favour of the Holder, for the benefit of the Bondholders, for the sum
        of Nine Million dollars  ($9,000,000.00)  in lawful money of Canada with
        interest  thereon  at the  Rate  of  Interest,  calculated  and  payable
        monthly,  not in  advance,  from the date  hereof  and  before and after
        demand, default or judgment.

4.2     No Floating Hypothec. The hypothec granted hereunder does not constitute
        and shall not constitute nor be construed as a floating  hypothec within
        the meaning of Article 2715 of the C.C.Q.

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4.3     Additional Hypothec.  As general and continuing  collateral security for
        the performance by the Grantor of the Secured  Obligations not otherwise
        secured  by the  hypothecs  created  under  the  terms of  Article  4.1,
        including, without limiting the generality of the foregoing, interest on
        all overdue interest,  as well as the costs and expenses incurred by the
        Holder or any  Bondholder in order to preserve or realize upon the Liens
        created and to be created  from time to time under the terms  hereof and
        all other costs and  expenses  related to the Secured  Obligations,  the
        Grantor  hereby  hypothecates  the  Collateral  to and in  favour of the
        Holder,  for  the  benefit  of  the  Bondholders,  to the  extent  of an
        additional sum of One Million Eight Hundred  Thousand  Canadian  Dollars
        (CDN$1,800,000.00)  in lawful money of Canada,  with interest thereon at
        the Rate of Interest.

4.4     Hypothec for Benefit of All Bondholders.  The Holder shall have and hold
        the hypothec created  hereunder and all rights hereby conferred unto the
        Holder for the equal benefit and security of all the Bondholders holding
        Bonds issued and to be issued under this Deed and purchased  without any
        preference or priority of any of said Bonds over any others thereof,  by
        reason  of  priority  at the time of issue or  negotiation  thereof,  or
        otherwise however, and subject to the conditions,  provisions, covenants
        and stipulations herein expressed.

4.5     Continuing Validity.  The full amount of the foregoing hypothec shall be
        and remain continuing  collateral  security in favour of the Holder, for
        the benefit of the  Bondholders,  for the full payment or  fulfilment of
        the Secured Obligations and Accessories,  and such hypothec shall be and
        remain in full  force  and  effect  notwithstanding  the  repayment  and
        reduction or fulfilment at any time and from time to time of the Secured
        Obligations  and Accessories or any part thereof or the fact that at any
        time and from  time to time  there  may be no  Secured  Obligations  and
        Accessories  owing to the  Holder by the  Grantor,  the whole  until all
        Secured  Obligations  and  Accessories at any time and from time to time
        existing shall have been entirely repaid, fulfilled and released (in the
        manner  provided  at Article  22.3  hereof) to the  satisfaction  of the
        Holder,  and such  hypothec  shall  not be  reduced  unless  and until a
        document  evidencing  the  discharge  is  executed  by the Holder and is
        delivered in which it shall be expressly stated that the amounts therein
        referred to are in reduction of the  hypothec  hereby  created and until
        the hypothec  herein  created is released and  discharged  to the extent
        therein stated.

4.6     No  Reduction.  No payment  made by the  Grantor or by any Person on its
        behalf to the Holder shall in any way operate to extinguish the hypothec
        created  herein or as a reduction of said hypothec  hereby  created,  or
        effect novation, save only as and when such payment is expressly applied
        by the Holder in reduction  of the said  hypothec by means of a document
        evidencing the discharge executed by the Holder, pursuant to Article 4.5
        hereof.

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4.7     No Novation. Nothing herein shall affect, novate, terminate or supersede
        any  covenants  and   obligations  of  the  Grantor  under  any  of  the
        Transaction Documents.

4.8     Further  Assurances.  The Grantor  will at its own expense do,  execute,
        acknowledge and deliver or cause to be done, executed,  acknowledged and
        delivered  all such further  acts,  deeds,  assignments,  registrations,
        publications  and  assurances  (including  instruments  supplemental  or
        ancillary  thereto)  as the  Holder  may  from  time to time  reasonably
        request to better  assure and  perfect its  security  on the  Collateral
        including,  without limitation,  specifically hypothecating in favour of
        the Holder, the right, title and interest of the Grantor in all property
        and assets subject to, or intended to be subject to, the charges of this
        Deed which the Grantor will hereafter acquire.

                                   ARTICLE 5

                        PAST, PRESENT OR FUTURE ADVANCES

5.1     The security  hereby  constituted  shall have effect  whether or not the
        Secured  Obligations  thereby secured shall have been incurred before or
        after or upon the date of the execution of this Deed.

                                   ARTICLE 6

                              POSSESSION BY GRANTOR

6.1     Until the security  hereby  constituted  shall become  enforceable,  the
        Grantor shall,  subject always to the provisions of this Deed, peaceably
        and quietly have,  hold, use,  occupy,  possess and enjoy the Collateral
        and manage and operate the same for its own use and benefit.

                                   ARTICLE 7

                              COLLECTION OF CLAIMS

7.1     Authorization  to Collect.  The Holder hereby  authorizes the Grantor to
        collect  when due the capital  falling due of, and any  revenues of, any
        claims   until  the  Holder  shall  have  given  the  Grantor  a  notice
        withdrawing such  authorization,  whereupon the Holder shall immediately
        have the right to collect all of them.

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                                      -12-

        This  notice  of  withdrawal  may be  given  at any  time if an Event of
        Default has occurred and is continuing and may be so given in respect of
        all or any part or parts of the claims.

7.2     Collection  of claims.  Upon notice by the Holder to the Grantor,  which
        may be given at any time if an Event  of  Default  has  occurred  and is
        continuing,  the Holder may require the Grantor to immediately  remit to
        the Holder all or a  specified  part of capital  and  revenues of claims
        received by the Grantor or to deposit the same in one or more designated
        bank  accounts or otherwise  to hold,  deal with or deliver such capital
        and revenues, all on such terms and conditions as the Holder may specify
        in such notice.

7.3     Statements of Claims.  Should the Holder serve a notice  withdrawing the
        authorization  granted to the  Grantor to collect all claims as provided
        herein,  the Grantor hereby agrees that all  statements  provided by the
        Holder to the  Grantor  with  respect to the claims  received  and their
        application by the Holder,  shall be prima facie  conclusive and binding
        unless manifestly wrong or incorrect.

7.4     No  Requirement  to  Enforce.  The Holder  shall have no  obligation  to
        exercise any rights in respect of any claims nor to enforce or to see to
        payment of the same,  whether by legal action or  otherwise.  The Holder
        shall not be liable for any or all losses or damages  resulting from any
        decision on the part of the Holder not to exercise,  to exercise only in
        part or to delay or suspend the  exercise or any failure or delay by the
        Holder in exercising  any or all of its rights under this  Article,  any
        other articles of this Deed or under the Transaction Documents.

7.5     Dealings  by Holder.  The Holder may give  acquittances  for any sums it
        collects  and may,  but shall not be  obligated  to,  realize any of the
        claims, grant extensions, grant releases, accept compositions,  renounce
        and  generally  deal with the  claims  and any  guarantees  or  security
        therefor,  and take any  action to  preserve,  protect  or  secure  such
        claims,  at such times and in such manner as it deems  advisable  in its
        sole  discretion,  without notice to or the consent of the Grantor,  and
        without  incurring any liability  therefor and without any obligation to
        render any account in respect thereof or in respect of moneys collected.

<PAGE>
                                      -13-

7.6     Irregular  Payments.  The Holder shall have no  obligation to inform the
        Grantor of any irregularity in the payment of the claims.

                                   ARTICLE 8

                          NO ASSUMPTION OF OBLIGATIONS

8.1     The Holder does not, in exercising any of its rights and recourses under
        this Deed or at law, in any way personally assume any of the obligations
        of the  Grantor.  The  Grantor  will  remain  liable  under the  Secured
        Obligations to observe and perform all the conditions and obligations to
        be observed and performed by the Grantor thereunder.

                                   ARTICLE 9

            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE GRANTOR

The Grantor hereby  represents and warrants to and covenants and agrees with the
Holder, for the benefit of the Bondholders, that:

9.1     Declarations,  representations,  warranties and covenants in Transaction
        Documents  reiterated.  The Grantor  hereby makes and  reiterates all of
        declarations,  representations,  warranties and covenants of the Grantor
        or relating to the Grantor,  as set forth in the Transaction  Documents,
        mutatis mutandis.

9.2     Grantor. Furthermore, the Grantor hereby declares, represents,  warrants
        and  covenants  that as of the date of this Deed of Hypothec  and at all
        times during which this Deed of Hypothec is in effect:

        9.2.1   the Grantor will pay and perform the  obligations of the Grantor
                under  the  Transaction  Documents  and  hereunder  without  the
                necessity of demand as and when due and payable or on demand, if
                on a demand basis, at the office of the Holder  indicated below,
                or at such other place as may from time to time be designated in
                writing by the Holder;

<PAGE>
                                      -14-

        9.2.2   the Grantor will pay all reasonable  judicial and extra judicial
                fees,  costs and expenses  (whether legal,  notarial or those of
                any other  professional)  relating  to (i) the  preparation  and
                publication of this Deed and all amendments thereto and renewals
                and discharges thereof,  (ii) the preparation and publication of
                notices of address,  (iii) all appraisal of the Collateral after
                default,  (iv) the  enforcement  of any of the  Holder's  rights
                hereunder  or  under  the  Transaction  Documents  and  (v)  the
                recovery  or  conservation  of  the  Collateral  which  include,
                without limitation, the following:

          9.2.2.1   the  usual  charges  of all  independent  managers  for  the
                    maintenance,  operation, administration and/or collection of
                    the Collateral; and

          9.2.2.2   reasonable  compensation  for any  person  or firm  engaged,
                    employed or consulted by or on behalf of the Holder who acts
                    after the  occurrence  of an Event of Default in  connection
                    with    the    maintenance,    operation,    administration,
                    conservation and/or collection of any of the Collateral;

        9.2.3   it has the capacity and the powers  necessary to enter into this
                Deed  and to  bind  itself  as  herein  provided  and  that  the
                execution  of this  Deed,  compliance  with its  provisions  and
                performance  of its covenants  shall not entail or result in any
                violation or default of any other agreement or document to which
                the Grantor is a party or by which it is bound;

        9.2.4   this Deed has been duly authorized by resolution or by any other
                necessary  action under its  constating  documents,  by-laws and
                otherwise, in order to give full effect to this Deed; and

        9.2.5   this Deed has been executed by a duly authorized  representative
                of the Grantor.

<PAGE>
                                      -15-

                                   ARTICLE 10

                                EVENTS OF DEFAULT

The Grantor shall be in default in each and every one of the following events:

10.1    upon the occurrence of an "Event of Default" as defined in the Notes;

10.2    if the  Grantor  fails to pay,  when due,  any  amounts  owing under the
        Bonds; or

10.3    if any or all other obligations  secured under this Deed of Hypothec are
        not paid or performed when due.

                                   ARTICLE 11

                               EFFECTS OF DEFAULT

11.1    Rights Upon Default.  Upon the  occurrence  of an Event of Default,  the
        security hereby  constituted  shall become  enforceable,  and the Holder
        shall, in addition to any of its other rights  hereunder,  and under the
        Transaction Documents,  forthwith be entitled to exercise any and all of
        the  rights  provided  for in this Deed and in Chapter V of Title III of
        Book VI of the C.C.Q.  and in the Code of Civil Procedure of Quebec.  In
        exercising any of the rights and recourses  available  hereunder,  under
        the Transaction Documents,  or at law, the Holder may, at its option, in
        respect of all or any part of the  Collateral,  exercise such rights and
        recourses as are available hereunder,  under the Transaction  Documents,
        or at law, as it chooses to exercise,  without  prejudicing the Holder's
        other  rights and  recourses  available in respect of all or part of the
        other Collateral. Furthermore, the Holder may exercise any of its rights
        and  recourses  in  respect  of  all  or any  part  of  the  Collateral,
        simultaneously or successively.  The Holder shall be entitled to acquire
        all or any part of the Collateral, when permitted by law.

11.2    Performance. The Holder shall be entitled, in its discretion, to perform
        on behalf of the Grantor any of the Grantor's  obligations  hereunder or
        under the  Transaction  Documents,  should  there be an Event of Default
        with respect  thereto.  In addition,  the Holder shall be entitled to do
        such things and make such  expenditures  as it considers  appropriate to
        enforce,  preserve and protect its rights and  interests  hereunder  and
        under the Transaction  Documents and the security constituted hereby and
        thereby.

<PAGE>
                                      -16-

11.3    No Waiver.  Any action taken by or on behalf of the Holder to remedy any
        Event of Default shall not  constitute a waiver of such default,  nor be
        deemed to have relieved the Grantor therefrom.  Failure of the Holder to
        insist  upon strict  performance  of any  covenants  of this Deed or the
        Transaction  Documents or to exercise  any right or option  hereunder or
        under the  Transaction  Documents  shall not be construed as a waiver or
        relinquishment for the future of any such covenant, right or option.

11.4    Rights  Cumulative.  The acceptance by the Holder following any Event of
        Default  of any sum owing to it by the  Grantor or the  exercise  by the
        Holder  of any  right  or  recourse  hereunder,  under  the  Transaction
        Documents,  or under any other  agreement  between  the  Grantor and the
        Holder shall not preclude the Holder from  exercising any other right or
        recourse,  all rights and recourses of the Holder being  cumulative  and
        not alternative.

11.5    Surrender.  If the  Holder  gives  the  Grantor  a prior  notice  of its
        intention to exercise a hypothecary  right, the Grantor shall, and shall
        cause any other  Person in  possession  of  Collateral,  to  immediately
        voluntarily surrender same to the Holder.

                                   ARTICLE 12

                    POSSESSION FOR PURPOSES OF ADMINISTRATION

12.1    Holder's Rights. In addition to the rights available to the Holder under
        the  Transaction  Documents  and  the  rights  and  recourses  upon  the
        occurrence  of an  Event  of  Default,  in the  event  that  the  Holder
        exercises  the  hypothecary  right to take  possession  for  purposes of
        administration,  the Holder  shall  have,  in addition to the rights and
        powers   provided   by  law  as   administrator   entrusted   with  full
        administration  of  the  property  of  others,  the  rights  and  powers
        contained in this Article.

<PAGE>
                                      -17-

12.2    Administration.  The Holder shall have the right, after having fulfilled
        all formalities  provided for at law for the exercise of its hypothecary
        right of taking possession for purposes of administration, to enter into
        and take possession of, through its officers, representatives, Receivers
        or other lawful attorney,  all or any part of the Collateral,  with full
        power of a Person entrusted with full  administration of the property of
        others, including, but without limiting the generality of the foregoing,
        the full  power to  administer  all or any part of the  Collateral,  the
        power  to  purchase  on  credit,  advance  its own  moneys  at a rate of
        interest equal to the Prime Rate of Bank of Nova Scotia in effect at the
        time of such advances,  plus 2%, for the payment of all taxes, wages and
        other charges or hypothecs, costs or expenses ranking in priority to the
        Secured  Obligations or the security hereof and other current  operating
        expenses  incurred  before or after such  taking of  possession,  at the
        discretion  of the Holder;  the moneys so borrowed or advanced  shall be
        repaid by the Grantor on demand and until repaid, shall bear interest at
        said rate and be secured by the hypothecs constituted hereby. The Holder
        shall be entitled to receive  payment of any Claims and the Holder shall
        be entitled to become a party to any  contract of any nature  whatsoever
        with respect to all or any part of the Collateral or any or all of them,
        the Grantor hereby expressly authorizing the Holder to become a party to
        any such contracts for and on behalf of the Grantor.

12.3    Surrender.  If the  Holder  exercises  its  hypothecary  right of taking
        possession for the purpose of  administration,  the Grantor hereby binds
        and  obliges  itself  to  yield  up  possession  of  and  surrender  the
        Collateral  to the Holder on demand and agrees to put no  obstacles  and
        not to hinder the rights and recourses of the Holder,  but to facilitate
        by all legal  means,  the  actions  of the Holder  hereunder  and not to
        interfere with the powers hereby granted to the Holder  pursuant to this
        Deed and at law.

12.4    Documents.  The Grantor shall  forthwith by and through its officers and
        directors  execute such  documents  and transfers as may be necessary to
        place the Holder in legal  possession of any or all of the Collateral in
        order to transfer  the control of the  administration  to the Holder and
        thereupon all the powers,  functions,  rights and privileges of each and
        every of the  directors  and  officers  of the  Grantor  shall cease and
        determine with respect to such Collateral unless specifically  continued
        in writing by the Holder for specific purposes.

12.5    Application of Moneys. The moneys arising from the administration of the
        Holder shall be applied in  accordance  with the  provisions  of Article
        22.2 of this Deed.

12.6    Sale.  The Grantor agrees that with respect to any sale by the Holder of
        all or any part of the Collateral in the exercise of the Holder's rights
        hereunder, under the Transaction Documents or at law upon the occurrence
        of an Event of  Default  which is  continuing,  it will be  commercially
        reasonable to sell all or any part of the Collateral:

<PAGE>
                                      -18-

        12.6.1  together or separately;

        12.6.2  by auction or by call for  tenders by  advertising  such sale or
                call for tenders once in a local daily newspaper of the Holder's
                choice at least  seven  (7) days  prior to such sale or close of
                call for tenders;

        12.6.3  by sale by agreement  after receipt by the Holder of a bona fide
                offer of at least one prospective  purchaser,  who may include a
                Person related to or affiliated  with the Holder or customers of
                the Holder; and

        12.6.4  by any combination of the foregoing;

        and any such sale may be on such terms as to credit or otherwise  and as
        to  upset  price or  reserve  bid or  price  as the  Holder  in its sole
        discretion may deem advantageous,  and the Grantor agrees that the price
        received at any such sale shall  constitute  a  commercially  reasonable
        price.

12.7    Other Sales.  The foregoing  shall not preclude the Holder from agreeing
        to sell,  or making any sale in any other manner not  prohibited  by law
        nor shall it be  interpreted to mean that only a sale made in conformity
        with the  foregoing is  commercially  reasonable  or that only the price
        received  at  a  sale  made  in  conformity  with  the  foregoing  shall
        constitute a commercially reasonable price.

12.8    Timing of Sale. The Holder may at its entire  discretion,  determine the
        appropriate  moment  for  such  sale to be  conducted  and  the  Grantor
        acknowledges  and agrees that such  determination by the Holder will not
        constitute unnecessary delay.

                                   ARTICLE 13

                             APPLICATION NOT PAYMENT

Notwithstanding any law, agreement,  usage or custom to the contrary,  including
Article  2743 of the  C.C.Q.,  receipt by the Holder (or by the Grantor as agent
for the  Holder) of any  claims  shall not  operate  as  payment of any  Secured
Obligations  unless the Holder  expressly  applies  the  amounts so  received in
reduction of such Secured  Obligations  in accordance  with this Deed and to the
extent only of such application.

<PAGE>
                                      -19-

                                   ARTICLE 14

                                POWER OF ATTORNEY

The Grantor hereby  irrevocably  nominates,  constitutes and appoints the Holder
and any Person further designated by the Holder, upon the occurrence of an Event
of Default which is continuing,  to be the lawful attorney-in-fact and mandatary
of the  Grantor  for and in the name and on behalf of the Grantor to execute and
do  any  deeds,  documents,   transfers,  demands,   conveyances,   assignments,
assurances,  consents and things which the Grantor ought to sign,  execute or do
hereunder and to commence,  continue and defend any proceedings authorized to be
taken  hereunder and generally to use the name of the Grantor in the exercise of
all or any of the powers hereby  conferred on the Holder and any agent appointed
hereunder.

                                   ARTICLE 15

                               REMEDIES CUMULATIVE

No remedy,  right or recourse of the Holder  conferred or reserved  hereunder is
intended to be exclusive of any other remedy, right or recourse under this Deed,
under the  Transaction  Documents,  under any other security or at law, but each
and every such  remedy  shall be  cumulative,  and shall be in addition to every
other remedy,  right or recourse given hereunder or now existing or hereafter to
exist by contract, by law or by statute.

                                   ARTICLE 16

                       JUDGMENT FOR AMOUNTS REMAINING DUE

In the case of any judicial or other  proceedings to enforce the security hereby
constituted, and without limiting any right of the Holder to obtain judgment for
any greater  amount,  judgment may be rendered  against the Grantor in favour of
the  Holder for any  amount  which may  remain  due in  respect  of the  Secured
Obligations and Accessories  after the application to the payment thereof of the
proceeds of any sale of all or part of the  Collateral  or any or all of them or
any additional security therefor.

                                   ARTICLE 17

                            PAYMENTS TO THIRD PARTIES

If the  Holder  is at any time or from time to time  required  to make a payment
pursuant to this Deed any such payment or payments,  and all costs of the Holder
(including  legal costs and legal fees) shall be at once  payable by the Grantor
and shall bear  interest  at the Prime Rate of Bank of Nova  Scotia in effect at
the time of such payment, plus 2%, and the repayment thereof to the Holder shall
be secured hereby.

<PAGE>
                                      -20-

ARTICLE 18

                     OTHER PROVISIONS CONCERNING THE HOLDER

18.1    To the full extent  necessary or  desirable,  the Grantor and the Holder
        specifically  acknowledge  and agree  that the Holder is  executing  and
        delivering  this Deed,  and accepting the hypothecs,  rights,  remedies,
        powers and  benefits  conferred  upon the Holder  hereby,  as the person
        holding the power of attorney  ("fonde de pouvoir") of the  Bondholders,
        including  for all purposes of article  2962 of the C.C.Q.  Furthermore,
        notwithstanding  the  provisions of Section 32 of An Act  respecting the
        Special Powers of Legal Persons (Quebec),  the Holder may acquire and be
        the holder of any Bond issued hereunder.

18.2    By way of  supplement  to the  provisions  of any  applicable  laws  and
        without  limiting  any  provisions  of this Deed  dealing  with the same
        subject matters, the Grantor agrees that upon the occurrence of an Event
        of Default which is continuing:

        18.2.1  The Holder and any agent or  Receiver  appointed  by it shall as
                regards all the powers, authorities and discretions vested in it
                have  absolute and  uncontrolled  discretion  as to the exercise
                thereof, whether in relation to the manner or as to the mode and
                time for the exercise thereof;

        18.2.2  The Holder shall not, nor shall any agent or Receiver  appointed
                by it, be  responsible  or liable,  otherwise than for any debts
                contracted by them,  for damages to persons or property,  or for
                salaries  or  non-fulfilment  of  contracts  during  any  period
                wherein  the Holder or such agent or Receiver  shall  manage the
                Collateral  or any part  thereof  upon or after  entry as herein
                provided and, except as otherwise agreed in writing,  the Holder
                shall not be bound to do,  observe  or  perform or to see to the
                observance  or   performance  by  the  Grantor  of  any  of  the
                obligations  herein  imposed upon the Grantor,  nor in any other
                way to supervise  or  intervene in the conduct of the  Grantor's
                operation of any of the  Collateral  (or any portion  thereof or
                any asset or right comprised therein);

<PAGE>
                                      -21-

        18.2.3  In the event of any sale in  accordance  with the  provisions of
                this Deed or the Transaction  Documents,  whether by the Holder,
                by any agent or  Receiver  or under  judicial  proceedings,  the
                Grantor shall execute and deliver to the purchaser on demand any
                instrument or assurance  reasonably  necessary to confirm to the
                purchaser the title of the property so sold, and, in the case of
                any such sale,  the Holder is hereby  irrevocably  authorized by
                the  Grantor to  execute  on its  behalf  any such  confirmatory
                instrument or assurance;

        18.2.4  No Person  dealing with the Holder or its agents or any Receiver
                shall be  concerned  to inquire  whether  the  powers  which the
                Holder or such agents or  Receiver  are  purporting  to exercise
                have become exercisable, or whether any money remains due on the
                security of this Deed or under the Transaction Documents,  or as
                to  the  necessity  or  expediency  of  the   stipulations   and
                conditions subject to which any sale shall be made, or otherwise
                as to the  propriety or  regularity  of any sale or of any other
                dealing  by the  Holder  or such  agents  or  Receiver  with the
                Collateral or to see to the application of any money paid to the
                Holder or such  agents or  Receiver.  In the absence of fraud on
                the part of such Person, such dealings shall be deemed,  insofar
                as regards  the  safety and  protection  of such  Person,  to be
                within the powers hereby conferred and to be valid and effectual
                accordingly;

        18.2.5  Subject to  applicable  laws, no delay or omission of the Holder
                to exercise any right or power  accruing  upon any default shall
                impair such right or power, or shall be construed to be a waiver
                of any such default or an  acquiescence  therein and every power
                and remedy  given  hereby to the Holder may be  exercised  by it
                from time to time and as often as may be deemed expedient by it;

        18.2.6  The Holder may invest any Person  with the powers  vested in the
                Holder pursuant to this Deed or at law, or appoint any Person to
                perform  the powers  vested in the Holder  pursuant to this Deed
                and at law for and on behalf of the  Grantor,  in which case the
                following provisions shall apply:

<PAGE>
                                      -22-

          18.2.6.1  every such Person shall be the irrevocable  mandatary of the
                    Grantor  for  the  collection  of all  sums  falling  due in
                    respect of all or any part of each of the Collateral, or any
                    or all of them;

          18.2.6.2  every  such  Person  shall  have  the  power to carry on the
                    enterprise of the Grantor, in whole or in part, with respect
                    to all or any part of the  Collateral or any or all of them,
                    and may, in the discretion of the Holder, be vested with all
                    or any of the powers and discretion of the Holder hereunder;

          18.2.6.3  the Holder may from time to time  determine  the  reasonable
                    remuneration  of every such  Person who shall be entitled to
                    deduct  the  same out of the  receipts  from any part of the
                    Collateral or any or all of them or the proceeds therefrom;

          18.2.6.4  every such Person shall, as concerns the  responsibility for
                    his acts or  omissions,  be deemed the agent or attorney of,
                    or  employed  or engaged by the  Grantor  and in no event an
                    agent or employee of the Holder;

          18.2.6.5  the  engagement or  appointment  of every such Person by the
                    Holder  shall not  create any  liability  on the part of the
                    Holder to such Person in any  respect  and such  engagement,
                    appointment  or delegation or anything  which may be done by
                    any  such  Person  or  the  removal  of  any  Person  or the
                    termination of any such  appointment or engagement shall not
                    have the  effect of  creating  any  liability  of any nature
                    whatsoever of any such Person towards the Holder;

          18.2.6.6  every such Person  shall from time to time have the power to
                    operate, in accordance with normal practice, all or any part
                    of  the  Collateral  or  any or  all  of  them,  cancel  any
                    contracts  and  renew  from  time to time  any or all of the
                    contracts,  for such term and subject to such  provisions as
                    such  Person  may  deem  advisable  or  expedient  including
                    exercising all rights and recourses available to the Grantor
                    and in so doing every such Person  shall act as the attorney
                    or agent of the  Grantor  and shall  have the  authority  to
                    execute, whether or not under seal, any contract in the name
                    of and on behalf of the Grantor  and the Grantor  undertakes
                    to and does  hereby  ratify and  confirm  whatever  any such
                    Person may do; and

<PAGE>
                                      -23-

          18.2.6.7  every such Person shall have full power to manage,  operate,
                    repair, alter, complete, preserve, maintain or extend all or
                    any part of the Collateral or any or all of them in the name
                    of the Grantor  for the  purpose of securing  the payment of
                    the Secured  Obligations  including taking all such steps as
                    the Holder  may  consider  necessary  or  desirable  for the
                    purposes of completing  all or any part of the Collateral or
                    any or all of them, or any improvements or additions thereto
                    as the Holder may  determine  and for such purposes to enter
                    into all such  contracts and undertake all such  obligations
                    as the Holder may determine,  and obtain  security  therefor
                    upon the  Collateral;  provided that the Holder shall not be
                    under  any  obligation  to  complete  the  Buildings  or any
                    additions or improvements thereto.

                                   ARTICLE 19

                            POWER TO INSTITUTE SUITS

The Holder shall have power to institute and maintain such suits and proceedings
as it may be advised  shall be necessary or expedient to prevent any  impairment
of the security hereunder by any acts of the Grantor, or of others, in violation
of this Deed or unlawful,  or as the Holder may be advised shall be necessary or
expedient to preserve and to protect its interests in respect of all or any part
of the Collateral.

                                   ARTICLE 20

                            APPOINTMENT OF NEW HOLDER

The Holder may at any time  resign  from being the person  holding  the power of
attorney of the Bondholders and the holder of all security created in its favour
for the benefit of the  Bondholders  under this Deed and  thereby be  discharged
from all further duties and liabilities under this Deed by giving to the Grantor
and the  Bondholders  thirty (30) days' notice in writing or such shorter notice
as the Bondholders and the Grantor may be willing to accept, and the Bondholders
may, at any time by a Bondholders' Instrument, appoint a new Holder in the place
of any Holder so resigning;  and the Bondholders  shall also have the power by a
Bondholders'  Instrument  to remove  the Holder at any time and to appoint a new
Holder as the Person  holding the power of attorney for the  Bondholders  and as
the  holder  of all  security  created  in its  favour  for the  benefit  of the
Bondholders  under this Deed. Any such new Holder,  without  further  formality,
shall be vested  with and have all the  property,  right,  powers and  authority
granted to the Holder  hereunder  and be subject in all  respects  to the terms,
conditions and provisions of this Deed.

<PAGE>
                                      -24-

                                   ARTICLE 21

                              POWERS OF BONDHOLDERS

21.1    Powers of Bondholders.  The Bondholders  shall have the following powers
        exercisable from time to time by a Bondholders' Instrument:

        21.1.1  Modification of Rights of Bondholders or Holder.  Power to agree
                to  any  modification,  abrogation,  alteration,  compromise  or
                arrangement of the rights of the  Bondholders  and/or the Holder
                against  the Grantor or against its  undertaking,  property  and
                assets or any part thereof, whether such rights arise under this
                Deed or the Bonds or otherwise;

        21.1.2  To Direct  Holder.  Power to direct or  authorize  the Holder to
                exercise any power,  right,  remedy or authority  given to it by
                this  Deed  in  any  manner   specified  in  such   Bondholders'
                Instrument or to refrain from exercising any such power,  right,
                remedy or authority;

        21.1.3  Waiver of Default. Power to waive and direct the Holder to waive
                any  default on the part of the  Grantor in  complying  with any
                provision  of this Deed or the Bonds either  unconditionally  or
                upon any conditions  specified in such Bondholders'  Instrument,
                whether or not the  security  under this Deed shall have  become
                enforceable by reason of such default;

<PAGE>
                                      -25-

        21.1.4  Alienation  of Property.  Power to authorize the Grantor to sell
                or otherwise dispose of its undertakings,  property or assets or
                any part of parts  thereof and to instruct the Holder to release
                the same free from the Liens created  under this Deed,  all upon
                such  terms  and   conditions   as  may  be  specified  in  such
                Bondholders' Instrument.

21.2    Definition   of   Bondholders'   Instrument.   The  term   "Bondholders'
        Instrument"  means a document signed in one or more  counterparts by the
        holder or holders of not less than  sixty-six and two thirds percent (66
        2/3%) of the  principal  amount  of the Bonds  outstanding  at any time,
        setting out the exercise of any of the powers granted to the Bondholders
        by this  Article or  requesting  the  Holder to take or to refrain  from
        taking some act, action or proceeding  specified therein, or setting out
        any other  authorization or direction,  which by the terms hereof may be
        given by a Bondholders' Instrument.  Any Bondholder may execute any such
        instrument in person or by agent or attorney duly authorized in writing.

21.3    Binding  Effect of  Bondholders'  Instrument.  Any power  exercised by a
        Bondholders'  Instrument  as provided in this  Article  shall be binding
        upon the  Bondholders  and each of them, and the Holder  (subject to the
        provisions of its  indemnity  herein  contained)  shall be bound to give
        effect thereto accordingly.

                                   ARTICLE 22

                                  MISCELLANEOUS

22.1    Separate  Security.  The present Deed and the Liens created herein,  are
        and  shall be in  addition  to and not in  substitution  for,  any other
        security held by the Holder,  the Bondholders or any one thereof for the
        fulfilment  of the Secured  Obligations  and shall thus not operate as a
        novation of any of the Secured  Obligations  of the Grantor  towards the
        Holder, the Bondholders or any one thereof.

22.2    Application of Payments.  Any insurance indemnity,  as well as any other
        amount or other  property  received by the Holder in the exercise of the
        rights  conferred  upon it by this Deed or by Law or in any other manner
        with respect to any of the Collateral,  may be retained by the Holder as
        Collateral or applied to the payment of the Secured Obligations, whether
        or not they are due,  or to other debts of the  Grantor,  whether or not
        they are secured. Notwithstanding the provisions of Article 1572 and the
        second  paragraph  of Article 2743 of the Civil Code of Quebec and every
        other legal rule  concerning  the  imputation  of  payments,  any amount
        collected by the Holder, even on account of the voluntary performance of
        the Secured  Obligations,  shall be applied at the Holder's  discretion,
        and the Holder may vary such  application from time to time, in whole or
        in part, as it sees fit.

<PAGE>
                                      -26-

22.3       Discharge.  After the Secured  Obligations and the  Accessories  have
           been  paid in full,  the  Holder  shall at the  written  request  and
           expense of the Grantor  cancel and discharge the charges of this Deed
           relating  to the  Collateral,  and execute and deliver to the Grantor
           such deeds or other  instruments  as shall be requisite to effect the
           cancellation of the publication hereof.

                The  registrar  of  any  registration   division  in  which  any
                properties affected by this Deed are situate shall discharge and
                cancel the publication of any hypothec  constituted  hereby upon
                the  publication  of  any   acquittance,   discharge,   release,
                mainlevee  or  document  to that  effect  signed by the  Holder,
                without being obliged to see that any of the  conditions of this
                Deed or the Security Documents have been fulfilled.

22.4    Reinstatement.  Notwithstanding  the provisions of Article 21.1.3 to the
        contrary and  notwithstanding  anything  else to the contrary  contained
        herein,  this Deed shall continue to be effective or be  reinstated,  as
        the case may be, if at any time any amount received by the Holder or the
        Bondholders in respect of the  Collateral or the Secured  Obligations is
        rescinded,  or must  otherwise  be restored or returned by the Holder or
        the   Bondholders   upon  the   insolvency,   bankruptcy,   dissolution,
        liquidation or reorganization of the Grantor or any of its Affiliates or
        any guarantor of all or any part of the Secured Obligations, or upon the
        appointment of any intervenor, receiver or conservator of, or Holder, or
        agent or similar  official  for,  the Grantor or any such  Affiliate  or
        guarantor,  or any substantial  part of their  respective  properties or
        assets, or otherwise, all as though such payment had not been made.

22.5    Bankruptcy,  etc. To the extent permitted by law, the obligations of the
        Grantor  under this Deed shall  remain in full force and effect  without
        regard to, and shall not be impaired by (i) any bankruptcy,  insolvency,
        reorganization,  arrangement, readjustment,  composition, liquidation or
        the like of the Grantor,  or of any other  Person;  (ii) any exercise or
        nonexercise,  or any waiver,  by the Holder or the  Bondholders,  of any
        right,  remedy,  power or  privilege  under or in  respect of any of the
        Secured  Obligations  or any of the  Collateral  or any  other  security
        therefor;  (iii) any amendment to or modification of this Deed or any of
        the other Operative Documents; or (iv) the taking of additional security
        for or any guarantee of any of the Secured Obligations or the release or
        discharge or  termination  of any  security or guarantee  for any of the
        Secured Obligations; and whether or not the Grantor shall have notice or
        knowledge of any of the foregoing.

<PAGE>
                                      -27-

22.6    Consents,  Approvals,  etc.  Upon  the  exercise  by the  Holder  or the
        Bondholders of any power,  right,  privilege or remedy  pursuant to this
        Deed or any of the other Operative Documents which requires any consent,
        approval,   registration,   qualification   or   authorization   of,  or
        declaration  or filing  with,  or other  action  by,  any other  Person,
        including,   without   limitation,   any   governmental   authority   or
        instrumentality, the Grantor will execute and deliver, or will cause the
        execution and delivery of, all such agreements, documents, applications,
        certificates,  instruments and other documents and papers and will take,
        or will cause to be taken,  such other  action  that may be  required to
        obtain  such   consent,   approval,   registration,   qualification   or
        authorization of or other action by such other Person and/or that may be
        reasonably requested by the Holder in connection therewith.

22.7    Benefit  of Deed.  The rights  hereby  conferred  upon the Holder  shall
        benefit all of its respective successors, including any entity resulting
        from its amalgamation with any other Person or Persons.

22.8    Notice of Default.  The mere expiry of the time limit for performing any
        of the  Secured  Obligations  shall serve to put the Grantor in default,
        without any notice or demand being required for that purpose.

22.9    Waivers. The Grantor may not claim that an act or omission by the Holder
        constitutes  or  implies a waiver of their  right to invoke a default by
        the Grantor or to assert a right arising out of such default, unless the
        Holder has expressly so stated after the occurrence of the default.

22.10   Additional  Waivers.  No waiver by the  Holder of any  default  shall be
        effective  unless made in writing and no such waiver  shall extend to or
        affect  any  obligation  not  expressly   waived  or  impair  any  right
        consequent thereon.

22.11   Renunciation. To the fullest extent permitted by Law, the parties hereto
        agree that  Articles  1332 to 1338 of the Civil Code of Quebec  will not
        apply to this Deed nor to the exercise of the rights  conferred upon the
        Holder hereunder.

<PAGE>
                                      -28-

22.12   Waivers  Voluntary.  The  Grantor's  waivers set forth in this Deed have
        been made voluntarily, intelligently and knowingly and after the Grantor
        has been  apprised  and  counselled  by its  attorneys  as to the nature
        thereof and its possible alternative rights.

22.13   Communications.  All communications  provided for herein shall be mailed
        by certified mail (return receipt  requested) at the addresses  referred
        to and  shall be  effective  at the time  specified  in the  Transaction
        Documents  and,  in the case of the  Holder,  at the address of its head
        office.

22.14   Successors and Assigns. This Deed shall bind and inure to the benefit of
        and be  enforceable  by the Holder and the  Grantor,  successors  to the
        Grantor and the successors and assigns of the Holder,  and, in addition,
        shall  inure to the  benefit of and be  enforceable  by each holder from
        time to time of any of the Bonds who, upon acceptance of any such Bonds,
        shall, without further action, be entitled to enforce the provisions and
        enjoy  the  benefits  hereof  and  thereof,  whether  or not an  express
        assignment to such holder of rights  hereunder and  thereunder  has been
        made.

22.15   Severability.  Any  provision  of  this  Deed  which  is  prohibited  or
        unenforceable in any  jurisdiction  shall, as to such  jurisdiction,  be
        ineffective  to the  extent  of  such  prohibition  or  unenforceability
        without   invalidating   the   remaining   provisions   hereof  in  that
        jurisdiction  or  affecting  the  validity  or  enforceability  of  such
        provision in any other jurisdiction.

22.16   Amendments.  All  amendments  of this Deed and all waivers of compliance
        herewith  shall be in writing and shall be effected in  compliance  with
        the provisions of the Transaction Documents.

22.17   Governing Law;  Jurisdiction.  This Deed,  including the validity hereof
        and  the  rights  and  obligations  of the  parties  hereunder,  and all
        amendments  and   supplements   hereof  and  all  waivers  and  consents
        hereunder,  shall be  construed in  accordance  with and governed by the
        domestic  substantive  laws of the  Province  of Quebec  without  giving
        effect to any choice of law or conflicts  of law  provision or rule that
        would cause the  application  of the  domestic  substantive  laws of any
        other  jurisdiction.  The Grantor, to the extent that it may lawfully do
        so,  hereby  consents  to service  of  process,  and to be sued,  in the
        Province of Quebec and consents to the jurisdiction of the courts of the
        Province  of  Quebec,  as well as to the  jurisdiction  of all courts to
        which an appeal may be taken from such  courts,  for the  purpose of any
        suit,  action or other proceeding  arising out of any of its obligations
        hereunder  and  under  the  other  Documents  or  with  respect  to  the
        transactions  contemplated  hereby or thereby,  and expressly waives any
        and all  objections it may have as to venue in any such courts.  Subject
        to  applicable  Law,  the  Grantor  further  agrees  that a summons  and
        complaint commencing an action or proceeding in any of such courts shall
        be properly  served and shall  confer  personal  jurisdiction  if served
        personally or by certified  mail to it in accordance  with Article 22.13
        hereof  or as  otherwise  provided  under  the laws of the  Province  of
        Quebec.  Notwithstanding the foregoing,  the Grantor agrees that nothing
        contained in this Article 22.17 shall  preclude the  institution  of any
        such suit, action or other proceeding in any jurisdiction other than the
        Province of Quebec.

<PAGE>
                                      -29-

22.18   Formal Date. For the purposes of convenience,  this Deed may be referred
        to as bearing formal date of August 10, 2006  irrespective of the actual
        date of its execution.

                                   ARTICLE 23

                                    LANGUAGE

23.1    English  Language.  The parties hereto have expressly  required that the
        present Deed and all deeds,  documents and notices  relating  thereto be
        drafted in the English language.

23.2    Langue Anglaise. Les parties aux presentes ont expressement exige que le
        present  acte et tous  autres  contrats,  documents  et avis  qui y sont
        afferents soient rediges en langue anglaise.

                                    SCHEDULE

The following is the First Schedule of this Deed herein referred to:

<PAGE>
                                      -30-

                                 FIRST SCHEDULE

                                  FORM OF BOND

C-CHIPS TECHNOLOGIES  CORPORATION (NORTH AMERICA) (incorporated under the Canada
Business Act)

25% Collateral Mortgage Demand Bond

NO.      $

C-CHIPS  TECHNOLOGIES   CORPORATION  (NORTH  AMERICA)  (hereinafter  called  the
"Corporation"),  for value received,  promises to pay upon  presentation of this
Bond   to    _______________________________    or   registered    assigns,   at
___________________________________   or  at  any  other  branch  in  Canada  of
___________________________     on    demand     the     principal     sum    of
___________________________ Dollars ($_______________) in lawful money of Canada
and to pay  interest  thereon on demand from the date of this Bond,  both before
and after default,  in like money, at the rate of twenty-five  percent (25%) per
annum,  calculated  half-yearly and not in advance, with interest on all overdue
interest,  calculated  at the same rate and in the same manner as the  principal
thereof,  from the date that the  interest  becomes  due to the  actual  date of
payment.

This Bond is issued under and secured by a deed of hypothec  bearing formal date
of August __, 2006  executed by the  Corporation  in favour of __, as the Person
holding  the power of attorney of the  Bondholders  for all  purposes of Article
2692  of  the  Civil  Code  of  Quebec,  as  same  may  be  amended,   restated,
supplemented,  replaced or otherwise  modified form time to time (herein  called
the "Deed of Hypothec")  to which Deed of Hypothec  reference is hereby made for
the terms and conditions  upon and subject to which this Bond is issued and held
and the nature and extent of the security therefore.

As of the dated thereof,  the aggregate  principal  amount of Bonds which may be
issued under and secured by the Deed of Hypothec from time to time is limited to
___ Canadian  Dollars  (Cdn$___).  All bonds at any time  outstanding  rank pari
passu and are equally and rateably secured by the Deed of Hypothec.

This Bond is subject to the terms and conditions of the Deed of Hypothec, to all
of which the holder of this Bond by his acceptance hereof assents.

<PAGE>
                                      -31-

This Bond is fully  registered  and may only be transferred by the holder hereof
upon compliance with the provisions of the Deed of Hypothec in that respect.

This Bond shall not become  obligatory until it shall have been certified by the
Holder under the Deed of Hypothec.

All capitalized  terms and expressions used herein,  unless  otherwise  defined,
shall have the same meaning as that ascribed to them in the Deed of Hypothec.

The  Corporation  by its  signature  on the  one  hand  and the  holder  and any
transferee  of this Bond by their  acceptance  of this  Bond on the  other  hand
acknowledge  that they have expressly  required it to be drawn up in the English
language.

La  compagnie,   par  sa  signature,   d'une  part,  et  le  detenteur  et  tous
cessionnaires de cette obligation par leur acceptation,  d'autre part, declarent
qu'ils ont expressement exige qu'elle soit redigee en langue anglaise.

IN WITNESS WHEREOF, C-Chips Technologies Corporation (North America). has caused
this Bond to be signed by Anna  Pennino its  representative  and to be dated the
10th day of August, Two Thousand and Six (2006).

         C-CHIPS TECHNOLOGIES CORPORATION (NORTH AMERICA)

By:  _________________________
         Anna Pennino

WHEREOF ACTE:

DONE AND  PASSED at the City of  Montreal,  Province  of  Quebec,  on this tenth
(10th) day of August, Two Thousand and Six (2006) and of record in the office of
the undersigned Notary under the number

(              ) of her notarial minutes.

<PAGE>
                                      -32-

And the  parties,  after  having  declared  to have  taken  cognizance  of these
presents  and having  exempted the said Notary from reading them or causing them
to be read,  signed these  presents,  all in the presence of the said Notary who
also signed.

                  BUSH ROSS, P.A.

        -----------------------------------
         Benjamin Gross, attorney ad hoc

                                            OF THE FIRST PART

                  C-CHIPS TECHNOLOGIES CORPORATION (NORTH AMERICA)

        -----------------------------------
         Anna Pennino, representative

                                    OF THE SECOND PART

         Diane Rimok, Notary

        -----------------------------------Exhibit 4.1

            CERTIFICATE OF DESIGNATIONS OF PREFERENCES AND RIGHTS OF
                   SERIES E SENIOR CONVERTIBLE PREFERRED STOCK
                                       OF
                     MILLENNIUM BIOTECHNOLOGIES GROUP, INC.
                             a Delaware corporation

                                   ----------

      Millennium Biotechnologies Group, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the Delaware
General Corporation Law (the "DGCL") does hereby certify that, in accordance
with Sections 141(f) and 151 of the DGCL, the following resolution was duly
adopted by the Board of Directors of the Corporation as of August __, 2006:

      RESOLVED, that the Board of Directors of the Corporation pursuant to
authority expressly vesting in it by the provisions of the Certificate of
Incorporation of the Corporation, hereby authorizes the issuance of a series of
Preferred Stock designated as the Series E Senior Convertible Preferred Stock,
par value $1.00 per share, of the Corporation and hereby fixes the designation,
number of shares, powers, preferences, rights, qualifications, limitations and
restrictions thereof (in addition to any provisions set forth in the Certificate
of Incorporation of the Corporation which are applicable to the Preferred Stock
of all classes and series) as follows:

                   SERIES E SENIOR CONVERTIBLE PREFERRED STOCK

      1. Designation, Amount and Par Value. The series of preferred stock shall
be designated as the Corporation's Series E Senior Convertible Preferred Stock
(the "Series E Senior Preferred Stock"), and the number of shares so designated
shall be 62,000. Each share of Series E Senior Preferred Stock shall have a par
value of $1.00 per share and a stated value equal to $200 plus any amount added
to the Stated Value pursuant to Section 3(b) hereof or Section 2(d) of the
Registration Rights Agreement (the "Stated Value").

      2. Definitions. In addition to the terms defined elsewhere in this
Certificate of Designations, (a) the terms set forth in Exhibit A hereto have
the meanings indicated therein, and (b) the following terms have the meanings
indicated:

            "Conversion Price" means $0.25, as adjusted pursuant to this
      Certificate of Designations.

            "Equity Conditions" means, with respect to a specified issuance of
      Common Stock, that each of the following conditions is satisfied: (i) the
      number of authorized but unissued and otherwise unreserved shares of
      Common Stock is sufficient for such issuance; (ii) such shares of Common
      Stock are registered for resale by the Holders and may be sold by the
      Holders pursuant to an effective Underlying Shares Registration Statement
      or all such shares may be sold without volume restrictions pursuant to
      Rule 144(k) under the Securities Act; (iii) the Common Stock is listed or
      quoted (and is not suspended from trading) on an Eligible Market and such
      shares of Common Stock are approved for listing upon issuance; (iv) such
      issuance would be permitted in full without violating Section 17 hereof or
      the rules or regulations of any Trading Market; (v) no Bankruptcy Event
      has occurred; (vi) the Corporation is not in default with respect to any
      material obligation hereunder or under any other Transaction Document; and
      (vii) none of the following events have occurred and are continuing (A) an
      event constituting a Triggering Event or (B) an event that with the
      passage of time and without being cured would constitute a Triggering
      Event other than a pending, proposed or intended Change of Control.

<PAGE>

            "Holder" means any holder of Series E Senior Preferred Stock.

            "Junior Securities" means the Common Stock and all other equity or
      equity equivalent securities of the Corporation, including, without
      limitation, the Corporation's Series A Preferred Stock, Series B
      Convertible Preferred Stock, Series C Cumulative Preferred Stock, Series D
      Preferred Stock and the Series F Preferred Stock.

            "Original Issue Date" means, with respect to any share of Series E
      Senior Preferred Stock, the date of the first issuance of such shares of
      the Series E Senior Preferred Stock regardless of the number of transfers
      of any particular shares of Series E Senior Preferred Stock and regardless
      of the number of certificates that may be issued to evidence such Series E
      Senior Preferred Stock.

            "Purchase Agreement" means the Securities Purchase Agreement, dated
      as of August 16, 2006, among the Corporation and the original purchasers
      of the Series E Senior Preferred Stock.

      3. Dividends.

            (a) Subject to Sections 3(b) and (c) below, Holders shall be
entitled to receive in cash, out of funds legally available therefor, and the
Corporation shall pay in cash, cumulative dividends on the Series E Senior
Preferred Stock at the rate per share (as a percentage of the Stated Value per
share) of 10% per annum, payable quarterly in arrears commencing on December 31,
2006 and thereafter on each March 31, June 30, September 30 and December 31,
except if such date is not a Trading Day, in which case such dividend shall be
payable on the next succeeding Trading Day (each, a "Dividend Payment Date").
Dividends on the Series E Senior Preferred Stock shall be calculated on the
basis of a 360-day year, shall accrue daily commencing on the Original Issue
Date, and shall be deemed to accrue from such date whether or not earned or
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends.

            (b) On any Dividend Payment Date, provided each of the Dividend
Election Conditions (as defined below) have been satisfied or waived by the Lead
Investor, in lieu of receiving dividends in cash, the Company may (but shall not
be required to) elect to have all or any portion of accrued but not paid
dividends paid in shares of Common Stock by delivering to the Holders of its
election in the form of notice attached hereto as Exhibit C (the "Dividend
Election Notice") on a date which is not more than 30 calendar days nor less
than 25 calendar days before the Dividend Payment Date. If the Company elects to
have the dividend paid in shares of Common Stock, the number of such shares to
be issued for such dividend shall be the number determined by dividing (x) the
amount of the dividend by (y) the lesser of (i) the Conversion Price as of the
date immediately preceding the applicable Dividend Payment Date and (ii) 90% of
the arithmetic average of the VWAP for each of the 20 Trading Days ending
immediately preceding the date of the Dividend Election Notice. Such shares
shall be duly authorized, validly issued, fully paid, non-assessable and free
and clear of all encumbrances. "Dividend Election Conditions" shall mean the
satisfaction of each of the following (A) the satisfaction of each of the Equity
Conditions and (B) the reported trading volume is not less than 25,000 shares of
Common Stock on each of the 20 Trading Days immediately preceding the date of
the Dividend Election Notice. "VWAP" shall mean the dollar volume-weighted
average price for the Common Stock on the Trading Market as reported by
Bloomberg Financial Markets ("Bloomberg") through its "Volume at Price" function
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 the Common Stock as reported by Bloomberg, or if no dollar volume-weighted
average price is reported for the Common Stock by Bloomberg, the average of the
bid prices of each of the market makers for such security as reported in the
"pink sheets" by the Pink Sheet LLC (or its successor).

                                        2

<PAGE>

            (c) So long as any Series E Senior Preferred Stock is outstanding,
(i) neither the Corporation nor any Subsidiary shall, directly or indirectly,
redeem, purchase or otherwise acquire any Junior Securities or set aside any
monies for such a redemption, purchase or other acquisition, provided, however,
that the Corporation shall be permitted to redeem up to $150,000 of its Series B
Convertible Preferred Stock, par value $1.00 per share, in accordance with
Article IV.C.2(5) of its Amended and Restated Certificate of Incorporation as in
effect on the date hereof, and (ii) the Corporation shall not pay or declare any
dividend or make any distribution on any Junior Securities, except pro rata
stock dividends on the Common Stock payable in additional shares of Common Stock
and dividends due and paid in the ordinary course on preferred stock of the
Corporation, in each case only at such times as the Corporation is in compliance
with its payment and other obligations hereunder.

      4. Registration of Series E Senior Preferred Stock. The Corporation shall
register shares of the Series E Senior Preferred Stock, upon records to be
maintained by the Corporation for that purpose (the "Series E Senior Preferred
Stock Register"), in the name of the record Holders thereof from time to time.
The Corporation may deem and treat the registered Holder of shares of Series E
Senior Preferred Stock as the absolute owner thereof for the purpose of any
conversion hereof or any distribution to such Holder, and for all other
purposes, absent actual notice to the contrary.

      5. Registration of Transfers. The Corporation shall register the transfer
of any shares of Series E Senior Preferred Stock in the Series E Senior
Preferred Stock Register, upon surrender of certificates evidencing such Shares
to the Corporation at its address specified herein. Upon any such registration
or transfer, a new certificate evidencing the shares of Series E Senior
Preferred Stock so transferred shall be issued to the transferee and a new
certificate evidencing the remaining portion of the shares not so transferred,
if any, shall be issued to the transferring Holder.

                                        3

<PAGE>

      6. Liquidation.

            (a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary (a "Liquidation Event"), the
Holders of Series E Senior Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of Junior Securities by reason of their ownership
thereof, an amount per share in cash equal to the Stated Value for each share of
Series E Senior Preferred Stock then held by them (as adjusted for any stock
split, stock dividend, stock combination or other similar transactions with
respect to the Series E Senior Preferred Stock), plus all accrued but unpaid
dividends on such Series E Senior Preferred Stock as of the date of such event
(the "Series E Senior Stock Liquidation Preference"). If, upon the occurrence of
a Liquidation Event, the assets and funds thus distributed among the holders of
the Series E Senior Preferred Stock shall be insufficient to permit the payment
to such Holders of the full Series E Senior Stock Liquidation Preference, then
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the Holders of the Series E
Senior Preferred Stock in proportion to the aggregate Series E Senior Stock
Liquidation Preference that would otherwise be payable to each of such Holders.
The purchase or redemption by the Corporation of stock of any class, in any
manner permitted by law, shall not, for the purposes of this Certificate of
Designations, be deemed to be a Liquidation Event. Neither the consolidation or
merger of the Corporation with or into any other Person, nor the sale or
transfer by the Corporation of less than substantially all of its assets shall,
for the purposes of this Certificate of Designations, be deemed to be a
Liquidation Event.

            (b) The Lead Investor shall have the right to elect to treat the
following events as a Liquidation Event (a "Deemed Liquidation Event") of the
Corporation for purposes of this Section:

                  (i) a merger, consolidation, recapitalization, reorganization
            or other similar transaction in which:

                        (1) the Corporation is a constituent party or

                        (2) a subsidiary of the Corporation is a constituent
                        party and the Corporation issues shares of its capital
                        stock pursuant to such merger or consolidation,

            except any such merger, consolidation, recapitalization,
            reorganization or other similar transaction involving the
            Corporation or a subsidiary in which the holders of capital stock of
            the Corporation immediately prior to such merger or consolidation
            continue to hold immediately following such merger or consolidation,
            recapitalization, reorganization or other similar transaction, at
            least 51%, by voting power and economic interest, of the capital
            stock of (1) the surviving or resulting corporation or (2) if the
            surviving or resulting corporation is a wholly owned subsidiary of
            another corporation immediately following such merger or
            consolidation, the parent corporation of such surviving or resulting
            corporation; or

                                        4

<PAGE>

                  (ii) the sale, in a single transaction or series of related
            transactions, by the Corporation of all or substantially all the
            assets of the Corporation (except where such sale is to a wholly
            owned subsidiary of the Corporation and except the sale of
            substantially all of the assets of Millennium Biotechnologies, Inc.
            pursuant to the Aisling Closing).

            (c) The Corporation shall not effect any transaction constituting a
Deemed Liquidation Event pursuant to Section 6(b)(i) above unless (A) the
agreement or plan of merger or consolidation provides that the consideration
payable to the stockholders of the Corporation shall be allocated among the
holders of capital stock of the Corporation in accordance with Section 6(a)
above or (B) the holders of at least a majority of the then-outstanding shares
of Series E Senior Preferred Stock and specifically consent in writing to the
allocation of such consideration in a manner different from that provided in
Section 6(a) above.

            (d) In the event of a Deemed Liquidation Event pursuant to Section
6(b)(ii) above, the Corporation shall use its reasonable best efforts to
distribute to each Holder of Series E Senior Preferred Stock, in respect of each
share of Series E Senior Preferred Stock held by such Holder, the Series E
Senior Stock Liquidation Preference within ten Trading Days of the consummation
of such Deemed Liquidation Event. If such distribution has not occurred, then
(A) the Corporation shall deliver a written notice to each of the holders of
Series E Senior Preferred Stock no later than fifteen Trading Days after the
Deemed Liquidation Event advising such holders of their right (and the
requirements to be met to secure such right) pursuant to the terms of the
following clause (B) to require the redemption of such shares of Series E Senior
Preferred Stock, and (B) if the holders of at least a majority of the
then-outstanding shares of Series E Senior Preferred Stock so request in a
written instrument delivered to the Corporation (a "Required Distribution
Notice") not later than thirty Trading Days after such Deemed Liquidation Event
(which period shall be extended by any period of noncompliance of the
Corporation with clause (A) above), the Corporation shall use the consideration
received by the Corporation, directly or indirectly, as a result of such Deemed
Liquidation Event (net of any liabilities associated with the assets sold or
technology licensed, as determined in good faith by the members of the Board of
Directors of the Corporation), to the extent legally available therefor (the
"Net Proceeds"), to redeem, on a date not later than forty-five Trading Days
after such Deemed Liquidation Event (the "Liquidation Redemption Date"), all
outstanding shares of Series E Senior Preferred Stock at a price per share equal
to the Series E Senior Stock Liquidation Preference. In the event of a
redemption pursuant to the preceding sentence, if the Net Proceeds are not
sufficient to redeem all outstanding shares of Series E Senior Preferred Stock,
the Corporation shall redeem a pro rata portion of each Holder's shares of
Series E Senior Preferred Stock. In no event shall a Holder of Series E Senior
Preferred Stock receive more than such Holder would receive if all Holders of
Series E Senior Preferred Stock gave a Required Distribution Notice. Prior to
the distribution or redemption provided for in this Section 6(d), the
Corporation shall not expend or dissipate the consideration received for such
Deemed Liquidation Event, except to discharge expenses incurred in the ordinary
course of business.

            (e) The amount deemed paid or distributed to the holders of capital
stock of the Corporation upon any such merger, consolidation, sale or redemption
shall be the cash or the value of the property, rights or securities paid or
distributed to such holders by the Corporation or the acquiring person, firm or
other entity. The value of such property, rights or securities shall be
determined in good faith by the Board of Directors of the Corporation.

                                        5

<PAGE>

            (f) In the event of a Liquidation Event, following completion of the
distributions required by Section 6(a), if assets or surplus funds remain in the
Corporation, the holders of the Junior Securities shall share ratably in all
remaining assets of the Corporation, based on the number of shares of Common
Stock then outstanding.

            (g) The Corporation shall provide written notice of any Liquidation
Event to each record Holder not less than 45 days prior to the payment date or
effective date thereof, provided that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holders.

      7. Conversion at Option of Holder. At the option of any Holder, any Series
E Senior Preferred Stock held by such Holder may be converted into Common Stock
based on the Conversion Price then in effect for such Series E Senior Preferred
Stock. A Holder may convert Series E Senior Preferred Stock into Common Stock
pursuant to this paragraph at any time and from time to time after the Original
Issue Date, by delivering to the Corporation a Conversion Notice, in the form
attached hereto, appropriately completed and duly signed, and the date any such
Conversion Notice is delivered to the Corporation (as determined in accordance
with the notice provisions hereof) is a "Conversion Date."

      8. Mechanics of Conversion.

            (a) The number of Underlying Shares issuable upon any conversion of
a share of Series E Senior Preferred Stock hereunder shall equal (i) the Stated
Value of such share of Series E Senior Preferred Stock to be converted, divided
by the Conversion Price on the Conversion Date, plus (ii) the amount of any
accrued but unpaid dividends on such share of Series E Senior Preferred Stock
through the Conversion Date, divided by the Conversion Price on the Conversion
Date.

            (b) Upon conversion of any share of Series E Senior Preferred Stock,
the Corporation shall promptly (but in no event later than three Trading Days
after the Conversion Date) issue or cause to be issued and cause to be delivered
to or upon the written order of the Holder and in such name or names as the
Holder may designate a certificate for the Underlying Shares issuable upon such
conversion, free of restrictive legends unless a registration statement covering
the resale of the Underlying Shares and naming the Holder as a selling
stockholder thereunder is not then effective and such Underlying Shares are not
then freely transferable without volume restrictions pursuant to Rule 144 under
the Securities Act. The Holder, or any Person so designated by the Holder to
receive Underlying Shares, shall be deemed to have become holder of record of
such Underlying Shares as of the Conversion Date. The Corporation shall on or
before the third (3rd) Trading Day following the applicable Conversion Date, (i)
issue and deliver to such Holder a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled, or (ii) provided the Corporation's designated transfer
agent is participating in the DTC Fast Automated Securities Transfer Program, at
all times after the Holder has notified the Corporation that this clause (ii)
shall apply, credit the number of shares of Common Stock to which the Holder
shall be entitled to the Holder's or its designee's balance account with The
Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent
Commission System. The Corporation shall, upon request of the Holder, use its
best efforts to deliver Underlying Shares hereunder electronically through DTC.

                                        6

<PAGE>

            (c) A Holder shall not be required to deliver the original
certificate(s) evidencing the Series E Senior Preferred Stock being converted in
order to effect a conversion of such Series E Senior Preferred Stock. Execution
and delivery of the Conversion Notice shall have the same effect as cancellation
of the original certificate(s) and issuance of a new certificate evidencing the
remaining shares of Series E Senior Preferred Stock. Upon surrender of a
certificate following one or more partial conversions, the Corporation shall
promptly deliver to the Holder a new certificate representing the remaining
shares of Series E Senior Preferred Stock.

            (d) The Corporation's obligations to issue and deliver Underlying
Shares upon conversion of Series E Senior Preferred Stock in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by any Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by any Holder or any other
Person of any obligation to the Corporation or any violation or alleged
violation of law by any Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the
Corporation to any Holder in connection with the issuance of such Underlying
Shares.

      9. Redemption Rights.

            (a) Optional Redemption Right.

                  (i) With respect to any of the Series E Senior Preferred
            Stock, at any time on and after the 36 month anniversary of the
            applicable Original Issue Date, the applicable Holder of Series E
            Senior Preferred Stock, upon 15 Trading Days advance notice (the
            "Redemption Notice") to the Corporation, shall have the right to
            request the Corporation to redeem on the Redemption Date (as defined
            below) all or any portion of such Holder's Series E Senior Preferred
            Stock at a per share price (the "Redemption Price") equal to 100% of
            Stated Value of such shares of Series E Senior Preferred Stock to be
            redeemed plus all accrued but unpaid dividends thereon to the date
            of payment.

                  (ii) The Redemption Notice will specify the effective date of
            the redemption, which must be a Trading Day at least 15 Trading Days
            after the date such notice is delivered (the "Redemption Date"), and
            the entire Redemption Price shall be paid by the Corporation in
            cash.

                  (iii) Upon receipt of payment of the Redemption Price, each
            Holder will deliver the original certificate(s) evidencing the
            Series E Senior Preferred Stock so redeemed to the Corporation,
            unless such Holder is awaiting receipt of a new certificate
            evidencing such shares from the Corporation pursuant to another
            provision hereof. At any time on or prior to the Redemption Date,
            the Holders may convert any or all of the shares of Series E Senior
            Preferred Stock, and the Corporation shall honor any such
            conversions in accordance with the terms hereof.

                                        7

<PAGE>

            (b) Mandatory Redemption. On the 5 year anniversary of the Original
Issue Date, the Corporation shall redeem all of the Series E Senior Preferred
Stock at a price equal to 100% of the Stated Value of such shares of Series E
Senior Preferred Stock plus all accrued but unpaid dividends thereon to the date
of payment in cash.

      10. Triggering Events.

            (a) At any time or times following the occurrence of a Triggering
Event, each Holder shall have the option to elect, by notice to the Corporation
(an "Event Notice"), to require the Corporation to repurchase all or any portion
of (i) the Series E Senior Preferred Stock then held by such Holder, at a price
per share equal to the greater of (A) 115% of the Stated Value plus all accrued
but unpaid dividends thereon through the date of payment, or (B) the Event
Equity Value of the Underlying Shares issuable upon conversion of such Series E
Senior Preferred Stock (including such accrued but unpaid dividends thereon),
and (ii) any Underlying Shares issued to such Holder upon conversion of Series E
Senior Preferred Stock, at a price per share equal to the Event Equity Value of
such Underlying Shares. The aggregate amount payable pursuant to the preceding
sentence is referred to as the "Event Price." The Corporation shall pay the
aggregate Event Price to each Holder no later than the third Trading Day
following the date of delivery of the Event Notice, and upon receipt thereof
such Holder shall deliver original certificates evidencing the shares of Series
E Senior Preferred Stock and Underlying Shares so repurchased to the Corporation
(to the extent such certificates have been delivered to the Holder).

            (b) Upon the occurrence of any Bankruptcy Event, the Corporation
shall immediately be obligated, without any further action by any Holder, to
repurchase all outstanding shares of Series E Senior Preferred Stock and all
such Underlying Shares at the Event Price pursuant to the preceding paragraph as
if each Holder had delivered an Event Notice immediately prior to the occurrence
of such Bankruptcy Event.

      11. Voting Rights. Unless otherwise provided herein, on any matter (other
than, in the case of the Series E Senior Preferred Stock, the election of the
directors) presented to the stockholders of the Corporation for their action or
consideration at any meeting of stockholders of the Corporation (or by written
action of stockholders in lieu of meeting), each Holder of outstanding shares of
Series E Senior Preferred Stock shall be entitled to the number of votes equal
to the number of whole shares of Common Stock into which the shares of Series E
Senior Preferred Stock held by such Holder are convertible (subject to the
limitations of Section 17 below) as of the record date for determining
stockholders entitled to vote on such matter, or if no record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited. Holders of Series E Senior Preferred Stock shall vote
together with the holders of Common Stock, and with the holders of any other
series of Preferred Stock the terms of which so provide, as a single class.

                                        8

<PAGE>

      12. Charges, Taxes and Expenses. Issuance of certificates for shares of
Series E Senior Preferred Stock and for Underlying Shares issued on conversion
of (or otherwise in respect of) the Series E Senior Preferred Stock shall be
made without charge to the Holders for any issue or transfer tax, withholding
tax, transfer agent fee or other incidental tax or expense in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Corporation; provided, however, that the Corporation shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
registration of any certificates for Common Stock or Series E Senior Preferred
Stock in a name other than that of the Holder. The Holder shall be responsible
for all other tax liability that may arise as a result of holding or
transferring the Series E Senior Preferred Stock or receiving Underlying Shares
in respect of the Series E Senior Preferred Stock.

      13. Replacement Certificates. If any certificate evidencing Series E
Senior Preferred Stock or Underlying Shares is mutilated, lost, stolen or
destroyed, the Corporation shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for such certificate, a new certificate, but only upon receipt of evidence
reasonably satisfactory to the Corporation of such loss, theft or destruction
and customary and reasonable indemnity, if requested. Applicants for a new
certificate under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable third-party
costs as the Corporation may prescribe.

      14. Reservation of Underlying Shares. The Corporation covenants that it
shall at all times following the Charter Amendment reserve and keep available
out of the aggregate of its authorized but unissued and otherwise unreserved
Common Stock, solely for the purpose of enabling it to issue Underlying Shares
as required hereunder, the number of Underlying Shares which are then issuable
and deliverable upon the conversion of (and otherwise in respect of) all
outstanding Series E Senior Preferred Stock (taking into account the adjustments
of Section 15), free from preemptive rights or any other contingent purchase
rights of persons other than the Holder. The Corporation covenants that all
Underlying Shares so issuable and deliverable shall, upon issuance in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable. The Corporation covenants that it shall use its best efforts to
satisfy each of the Equity Conditions.

      15. Certain Adjustments. The Conversion Price is subject to adjustment
from time to time as set forth in this Section 15.

            (a) Stock Dividends and Splits. If the Corporation, at any time
while Series E Senior Preferred Stock is outstanding, (i) pays a stock dividend
on its Common Stock or otherwise makes a distribution on any class of capital
stock that is payable in shares of Common Stock (other than regular dividends on
the Series E Senior Preferred Stock), (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.

                                        9

<PAGE>

            (b) Pro Rata Distributions. If the Corporation, at any time while
Series E Senior Preferred Stock is outstanding, distributes to all holders of
Common Stock (i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph), (iii) rights
or warrants to subscribe for or purchase any security, or (iv) any other asset
(in each case, "Distributed Property"), then in each such case the Conversion
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution shall be adjusted (effective
on such record date) to equal the product of such Conversion Price times a
fraction of which the denominator shall be the average of the Closing Prices for
the five Trading Days immediately prior to (but not including) such record date
and of which the numerator shall be such average less the then fair market value
of the Distributed Property distributed in respect of one outstanding share of
Common Stock, as determined by the Corporation's independent certified public
accountants that regularly examine the financial statements of the Corporation
(an "Appraiser"). In such event, the Holder, after receipt of the determination
by the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Conversion Price, at the request of any Holder delivered
before the 90th day after the record date fixed for determination of
stockholders entitled to receive such distribution, the Corporation will deliver
to such Holder, within five (5) Trading Days after such request (or, if later,
on the effective date of such distribution), the Distributed Property that such
Holder would have been entitled to receive in respect of the Underlying Shares
for which such Holder's Series E Senior Preferred Stock could have been
converted immediately prior to such record date. If such Distributed Property is
not delivered to a Holder pursuant to the preceding sentence, then upon any
conversion of Series E Senior Preferred Stock that occurs after such record
date, such Holder shall be entitled to receive, in addition to the Underlying
Shares otherwise issuable upon such conversion, the Distributed Property that
such Holder would have been entitled to receive in respect of such number of
Underlying Shares had the Holder been the record holder of such Underlying
Shares immediately prior to such record date.

            (c) Fundamental Transactions. If, at any time while Series E Senior
Preferred Stock is outstanding, (i) the Corporation effects any merger or
consolidation of the Corporation with or into another Person, (ii) the
Corporation effects any sale of all or substantially all of its assets in one or
a series of related transactions (other than the sale of assets contemplated in
the Aisling Letter of Intent (as such term is defined in the Purchase
Agreement)), (iii) any tender offer or exchange offer (whether by the
Corporation or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (iv) the Corporation effects any reclassification of the
Common Stock or any compulsory share exchange, pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of shares of
Common Stock covered by Section 15(a) above) (in any such case, a "Fundamental
Transaction"), then upon any subsequent conversion of Series E Senior Preferred
Stock, each Holder shall have the right to receive, for each Underlying Share
that would have been issuable upon such conversion absent such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of one share of Common Stock (the "Alternate Consideration"). For
purposes of any such conversion, the determination of the Conversion Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Corporation shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
each Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of Series E Senior Preferred Stock following such
Fundamental Transaction. In the event of a Fundamental Transaction, the
Corporation or the successor or purchasing Person, as the case may be, shall
execute with the Holder a written agreement providing that:

                                       10

<PAGE>

            (x) the Series E Senior Preferred Stock shall thereafter entitle the
      Holder to purchase the Alternate Consideration in accordance with this
      Section 15(c),

            (y) in the case of any such successor or purchasing Person, upon
      such consolidation, merger, statutory exchange, combination, sale or
      conveyance such successor or purchasing Person shall be jointly and
      severally liable with the Corporation for the performance of all of the
      Corporation's obligations under this Certificate of Designations and the
      other Transaction Documents, and

            (z) if registration or qualification is required under the Exchange
      Act or applicable state law for the public resale by the Holder of shares
      of stock and other securities so issuable upon conversion of the Series E
      Senior Preferred Stock, such registration or qualification shall be
      completed prior to such reclassification, change, consolidation, merger,
      statutory exchange, combination or sale.

If, in the case of any Fundamental Transaction, the Alternate Consideration
includes shares of stock, other securities, other property or assets of a Person
other than the Corporation or any such successor or purchasing Person, as the
case may be, in such Fundamental Transaction, then such written agreement shall
also be executed by such other Person and shall contain such additional
provisions to protect the interests of the Holder as the Board of Directors of
the Corporation shall reasonably consider necessary by reason of the foregoing.
At the Holder's request, any successor to the Corporation or surviving entity in
such Fundamental Transaction shall issue to the Holder a new preferred stock
consistent with the foregoing provisions and evidencing the Holder's right to
convert such preferred stock into the Alternate Consideration for the aggregate
Conversion Price upon conversion thereof. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this
paragraph (c) and insuring that Series E Senior Preferred Stock (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.

                                       11

<PAGE>

            (d) Subsequent Equity Sales.

                        (i) If, at any time while any shares of Series E Senior
            Preferred Stock are outstanding, the Corporation or any Subsidiary
            issues additional shares of Common Stock or rights, warrants,
            options or other securities or debt convertible, exercisable or
            exchangeable for shares of Common Stock or otherwise entitling any
            Person to acquire shares of Common Stock (collectively, "Common
            Stock Equivalents") at an effective net price to the Corporation per
            share of Common Stock (the "Effective Price") less than the
            Conversion Price, then the Conversion Price shall be reduced to
            equal the Effective Price. If, at any time while Series E Senior
            Preferred Stock is outstanding, the Corporation or any Subsidiary
            issues Common Stock or Common Stock Equivalents at an Effective
            Price greater than the Conversion Price but less than the average
            Closing Price over the five (5) Trading Days prior to such issuance
            (the "Adjustment Price"), then the Conversion Price shall be reduced
            to equal the product of (A) the Conversion Price in effect
            immediately prior to such issuance of Common Stock or Common Stock
            Equivalents times (B) a fraction, the numerator of which is the sum
            of (1) the number of shares of Common Stock outstanding immediately
            prior to such issuance, plus (2) the number of shares of Common
            Stock which the aggregate Effective Price of the Common Stock issued
            (or deemed to be issued) would purchase at the Adjustment Price, and
            the denominator of which is the aggregate number of shares of Common
            Stock outstanding or deemed to be outstanding immediately after such
            issuance. For purposes of this paragraph, in connection with any
            issuance of any Common Stock Equivalents, (A) the maximum number of
            shares of Common Stock potentially issuable at any time upon
            conversion, exercise or exchange of such Common Stock Equivalents
            (the "Deemed Number") shall be deemed to be outstanding upon
            issuance of such Common Stock Equivalents, (B) the Effective Price
            applicable to such Common Stock shall equal the minimum dollar value
            of consideration payable to the Corporation to purchase such Common
            Stock Equivalents and to convert, exercise or exchange them into
            Common Stock (net of any discounts, fees, commissions and other
            expenses), divided by the Deemed Number, and (C) no further
            adjustment shall be made to the Conversion Price upon the actual
            issuance of Common Stock upon conversion, exercise or exchange of
            such Common Stock Equivalents.

                        (ii) If, at any time while Series E Senior Preferred
            Stock is outstanding, the Corporation or any Subsidiary issues
            Common Stock Equivalents with an Effective Price or a number of
            underlying shares that floats or resets or otherwise varies or is
            subject to adjustment based (directly or indirectly) on market
            prices of the Common Stock (a "Floating Price Security"), then for
            purposes of applying the preceding paragraph in connection with any
            subsequent conversion, the Effective Price will be determined
            separately on each Conversion Date and will be deemed to equal the
            lowest Effective Price at which any holder of such Floating Price
            Security is entitled to acquire Common Stock on such Conversion Date
            (regardless of whether any such holder actually acquires any shares
            on such date).

                                       12

<PAGE>

                        (iii) Notwithstanding the foregoing, no adjustment will
            be made under this paragraph (d) in respect of (A) the issuance of
            Excluded Stock, (B) the issuance of Additional Shares and Additional
            Investment Right Warrants pursuant to the Purchase Agreement, or (C)
            the issuance of Common Stock Equivalents covered by Sections 15(a)
            or (b) above.

            (e) Calculations. All calculations under this Section 15 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

            (f) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 15, the Corporation at its expense will promptly but in
any event within 10 Trading Days of such occurrence compute such adjustment in
accordance with the terms hereof and prepare a certificate describing in
reasonable detail such adjustment and the transactions giving rise thereto,
including all facts upon which such adjustment is based. Upon written request,
the Corporation will promptly deliver a copy of each such certificate to each
Holder and to the Corporation's Transfer Agent.

            (g) Notice of Corporate Events. If the Corporation (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Corporation or
any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Fundamental Transaction
or (iii) authorizes the voluntary dissolution, liquidation or winding up of the
affairs of the Corporation, then the Corporation shall deliver to each Holder a
notice describing the material terms and conditions of such transaction, at
least 10 calendar days prior to the applicable record or effective date on which
a Person would need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Corporation will take all steps reasonably
necessary in order to insure that each Holder is given the practical opportunity
to convert its Series E Senior Preferred Stock prior to such time so as to
participate in or vote with respect to such transaction; provided, however, that
the failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such notice.

      16. [intentionally omitted]

      17. Limitation on Conversion.

            (a) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by any Holder upon any
conversion of Series E Senior Preferred Stock (or otherwise in respect of the
Series E Senior Preferred Stock) shall be limited to the extent necessary to
insure that, following such conversion (or other issuance), the total number of
shares of Common Stock then beneficially owned by such Holder and its Affiliates
and any other Persons whose beneficial ownership of Common Stock would be
aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act,
does not exceed 4.99% (the "Maximum Percentage") of the total number of issued
and outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such conversion). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. Each delivery of a
Conversion Notice by a Holder will constitute a representation by such Holder
that it has evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of Underlying Shares requested in such
Conversion Notice is permitted under this paragraph. By written notice to the
Corporation, any Holder may waive the provisions of this Section or increase or
decrease the Maximum Percentage to any other percentage specified in such
notice, but (i) any such waiver or increase will not be effective until the 61st
day after such notice is delivered to the Corporation, and (ii) any such waiver
or increase or decrease will apply only to such Holder and not to any other
Holder.

                                       13

<PAGE>

            (b) Notwithstanding anything to the contrary contained herein, to
the extent shareholder approval is required under the rules and regulations of
the Corporation's Trading Market, the maximum number of shares of Common Stock
that the Corporation may issue pursuant to the Transaction Documents at an
effective purchase price less than the Closing Price on the Trading Day
immediately preceding the Closing Date shall equal 19.99% of the outstanding
shares of Common Stock immediately preceding the Closing Date (the "Issuable
Maximum"), unless the Corporation obtains shareholder approval in accordance
with the rules and regulations of such Trading Market. If, at the time any
Holder requests an conversion of any of the Series E Senior Preferred Stock, the
Actual Minimum (excluding any shares issued or issuable at an effective purchase
price in excess of the Closing Price on the Trading Day immediately preceding
the Closing Date) exceeds the Issuable Maximum (and if the Corporation has not
previously obtained the required shareholder approval), then the Corporation
shall issue to the Holder requesting such exercise a number of shares of Common
Stock not exceeding such Holder's pro-rata portion of the Issuable Maximum
(based on such Holder's share (vis-a-vis other Holders) of the aggregate
purchase price paid under the Purchase Agreement and taking into account any
Series E Senior Preferred Stock previously issued to such Holder). For the
purposes hereof, "Actual Minimum" shall mean, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially issuable
in the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise and/or conversion in full of all Warrants,
Additional Investment Right Warrants, Shares and Additional Shares, without
giving effect to any limits on the number of shares of Common Stock that may be
owned by a Holder at any one time.

      18. Fractional Shares. The Corporation shall not be required to issue or
cause to be issued fractional Underlying Shares on conversion of Series E Senior
Preferred Stock. If any fraction of an Underlying Share would, except for the
provisions of this Section, be issuable upon conversion of Series E Senior
Preferred Stock, the number of Underlying Shares to be issued will be rounded up
to the nearest whole share.

      19. Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Conversion Notice) shall be in
writing and shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Corporation, to 665 Martinsville Road, Suite 329, Basking Ridge, NJ 07920,
facsimile: 908-604-2545, attention Chief Financial Officer or such other address
of facsimile number as the Corporation may provide to the Holders in accordance
with this Section, or (ii) if to a Holder, to the address or facsimile number
appearing on the Corporation's stockholder records or such other address or
facsimile number as such Holder may provide to the Corporation in accordance
with this Section.

                                       14

<PAGE>

      20. Miscellaneous.

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

            (b) No provision of this Certificate of Designations may be amended,
except in a written instrument signed by the Corporation, the Holders of at
least 80% of the shares of Series E Senior Preferred Stock then outstanding and
Lead Investor, so long as Lead Investor is the holder of at least 3,000 shares
of Series E Senior Preferred Stock.

            (c) Any of the rights of the Holders of Series E Senior Preferred
Stock set forth herein, including any Equity Conditions, Triggering Events or
any other similar conditions for the Holders' benefit, may be waived by the
affirmative vote of Holders of at least 80% of the shares of Series E Senior
Preferred Stock then outstanding and Lead Investor, so long as Lead Investor is
the holder of at least 3,000 shares of Series E Senior Preferred Stock. No
waiver of any default with respect to any provision, condition or requirement of
this Certificate of Designation shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right.

                                       15

<PAGE>

      IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be duly executed as of this [ ] day of _____________ 2006.

                                      MILLENNIUM BIOTECHNOLOGIES GROUP, INC.

                                      By:
                                         ---------------------------------------
                                         Name:
                                         Title:

                                       16

<PAGE>

                                                                       EXHIBIT A

                             ADDITIONAL DEFINITIONS

"Additional Investment Rights" means, collectively, the Additional Investment
Rights issued and sold under the Purchase Agreement.

"Additional Investment Right Warrants" has the meaning set forth in the
Additional Investment Rights.

"Additional Shares" means the shares of Series E Senior Convertible Preferred
Stock, par value $1.00 per share, which are being issued to the Purchasers upon
exercise of the Additional Investment Rights.

 "Affiliate" means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

"Aisling Closing" means the closing of the transactions contemplated by the
Aisling Letter of Intent.

 "Aisling Letter of Intent" means the letter of intent dated April 15, 2006
among Aisling Capital II LLP, the Corporation and Millennium Biotechnologies
Inc. for the sale of assets in exchange for shares of common stock of a newly
formed company.

 "Bankruptcy Event" means any of the following events: (a) the Corporation or
any Subsidiary commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Corporation or any Subsidiary thereof; (b) there is commenced against the
Corporation or any Subsidiary any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Corporation or any Subsidiary is
adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Corporation or any
Subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Corporation or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Corporation or any Subsidiary fails to pay, or
states that it is unable to pay or is unable to pay, its debts generally as they
become due; (g) the Corporation or any Subsidiary calls a meeting of its
creditors for the purpose of arranging a composition, adjustment or
restructuring of its debts; or (h) the Corporation or any Subsidiary, by any act
or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.

                                       17

<PAGE>

"Business Day" means any day except Saturday, Sunday and any day which shall be
a federal legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.

"Change of Control" means the occurrence of any of the following in one or a
series of related transactions: (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1) under
the Exchange Act) of more than one-third of the voting rights or equity
interests in the Corporation; (ii) a merger or consolidation of the Corporation
or any significant Subsidiary or a sale of more than one-third of the assets of
the Corporation in one or a series of related transactions, unless following
such transaction or series of transactions, the holders of the Corporation's
securities prior to the first such transaction continue to hold at least
two-thirds of the voting rights and equity interests in the surviving entity or
acquirer of such assets; (iii) a recapitalization, reorganization or other
transaction involving the Corporation or any Subsidiary that constitutes or
results in a transfer of more than one-third of the voting rights or equity
interests in the Corporation; (iv) consummation of a "Rule 13e-3 transaction" as
defined in Rule 13e-3 under the Exchange Act with respect to the Corporation, or
(v) the execution by the Corporation or its controlling shareholders of an
agreement providing for or reasonably likely to result in any of the foregoing
events. Notwithstanding the foregoing, neither (x) any asset sale consummated
substantially in accordance with the Aisling Letter of Intent nor (y) the
transaction contemplated by the Purchase Agreement shall not be a Change of
Control.

"Charter Amendment" shall mean an amendment of the Certificate of Incorporation
of the Corporation, duly approved by the stockholders of the Corporation, which
amendment increases the authorized number of shares of common stock of the
Corporation, $.001 par value, to 400,000,000 shares which amendment becomes
effective within 60 days after the Closing.

"Closing" means the closing of the purchase and sale of the Securities pursuant
to Section 2.2 of the Purchase Agreement.

"Closing Date" means the date of the Closing.

"Closing Price" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on an Eligible Market or any other national securities exchange, the closing bid
price per share of the Common Stock for such date (or the nearest preceding
date) on the primary Eligible Market or exchange on which the Common Stock is
then listed or quoted; (b) if prices for the Common Stock are then quoted on the
OTC Bulletin Board, the closing bid price per share of the Common Stock for such
date (or the nearest preceding date) so quoted; (c) if prices for the Common
Stock are then reported in the "Pink Sheets" published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent closing bid price per share of
the Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected in
good faith by Purchasers holding a majority of the Securities, the cost of which
shall be paid by the Corporation.

"Commission" means the Securities and Exchange Commission.

"Common Stock" means the common stock of the Corporation, par value $0.001 per
share.

                                       18

<PAGE>

"Eligible Market" means any of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market, the NASDAQ Small Cap Market or the OTC
Bulletin Board.

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

"Excluded Stock" means the issuance of Common Stock (A) upon exercise or
conversion of any options or other securities described in Schedule 3.1(f) of
the Purchase Agreement (provided that such exercise or conversion occurs in
accordance with the terms thereof, without amendment or modification, and that
the applicable exercise or conversion price or ratio is described in such
schedule) or otherwise pursuant to any employee benefit plan described in
Schedule 3.1(f) of the Purchase agreement or hereafter adopted by the
Corporation and approved by its shareholders, (B) the issuance of Common Stock
or grant of options to employees, officers, directors or consultants of the
Corporation pursuant to a stock option plan or other incentive stock plan duly
adopted by the Corporation's board of directors or otherwise pursuant to any
employee benefit plan described in Schedule 3.1(f) of the Purchase Agreement or
hereafter adopted by the Corporation and approved by its shareholders or in
respect of the issuance of Common Stock upon exercise of any such options, or
(C) the issuance of Common Stock upon exercise of the Warrants and Additional
Warrants, the conversion of the Shares and Additional Shares and the payment of
dividends on the Shares and Additional Shares in the form of Common Stock.

"Event Equity Value" means 115% of the arithmetic average of the Closing Prices
for the five Trading Days preceding either (a) the date of delivery of the
notice requiring payment of the Event Equity Value, or (b) the date on which
such required payment (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) is paid in full,
whichever is greater.

"Lead Investor" means Iroquois Master Fund, Ltd., or its successor in interest.

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

"Registration Rights Agreement" means the Registration Rights Agreement, dated
on August 15, 2006, among the Corporation and the Purchasers.

"Required Effectiveness Date" means the date on which an Underlying Shares
Registration Statement is required to become effective pursuant to the
Registration Rights Agreement.

 "Rule 144," "Rule 415," and "Rule 424" means Rule 144, Rule 415 and Rule 424,
respectively, promulgated by the Commission pursuant to the Securities Act, as
such Rules may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as such
Rule.

"Securities" means the Shares, the Additional Shares, the Warrants, the
Additional Investment Rights, the Additional Investment Right Warrants and the
Underlying Shares issued or issuable (as applicable) to the applicable Purchaser
pursuant to the Transaction Documents.

                                       19

<PAGE>

"Senior Debt" means any indebtedness of the Corporation from the date hereof
that is senior to any indebtedness set forth on Schedule 3.1(ee) of the Purchase
Agreement in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise.

"Series F Certificate of Designations" means a certificate of designations of
the Series F Preferred Stock.

 "Series F Preferred Stock" means the Series F Convertible Preferred Stock, par
value $1.00 per share, of the Corporation, which is convertible into share of
Common Stock.

"Shares" means an aggregate of up to 62,000 shares of Series E Senior Preferred
Stock, which are being purchased by the Purchasers pursuant to this Agreement
and an aggregate of 100 shares of Series F Preferred Stock, which are to be
issued to the Lead Investor.

"Subsidiary" means any subsidiary of the Corporation that is required to be
listed on Schedule 3.1(a) of the Purchase Agreement.

"Trading Day" means (a) any day on which the Common Stock is listed or quoted
and traded on its primary Trading Market or (b) if trading ceases to occur on an
Eligible Market, any Business Day.

"Trading Market" means OTC Bulletin Board or any other Eligible Market or any
national securities exchange, market or trading or quotation facility on which
the Common Stock is then listed or quoted.

"Transaction Documents" means this Agreement, the Registration Rights Agreement,
this Certificate of Designations, the Series F Certificate of Designations, the
Shares, the Additional Shares, the Warrants, the Additional Investment Rights,
the Additional Investment Right Warrants, the Supplemental Purchase Agreement
and any other documents or agreements executed in connection with the
transactions contemplated hereunder.

"Transfer Agent Instructions" means the Irrevocable Transfer Agent Instructions,
executed by the Corporation and delivered to and acknowledged in writing by the
Corporation's transfer agent.

"Triggering Event" means any of the following events: (a) immediately prior to
any Bankruptcy Event; (b) the Common Stock is not listed or quoted, or is
suspended from trading, on an Eligible Market for a period of five Trading Days
(which need not be consecutive Trading Days); (c) the Corporation fails for any
reason to deliver a certificate evidencing any Securities to a Purchaser within
five Trading Days after delivery of such certificate is required pursuant to any
Transaction Document or the exercise or conversion rights of the Purchasers
pursuant to the Transaction Documents are otherwise suspended for any reason,
provided, such failure shall only be deemed a Triggering Event as only to such
Purchaser to whom a certificate is not delivered within such five Trading Days
period; (d) at any time after 60 days of the Closing, the Corporation fails to
have available a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock available to issue Underlying Shares upon any
exercise of the Warrants or any conversion of convertible Securities; (e) at any
time after the Required Effectiveness Date, any Common Stock issuable pursuant
to the Transaction Documents is not listed on an Eligible Market for a period of
three Trading Days (which need not be consecutive Trading Days); (f) the
Corporation effects or publicly announces its intention to effect any exchange,
recapitalization or other transaction that effectively requires or rewards
physical delivery of certificates evidencing the Common Stock; (g) any other
Event (as defined in the Registration Rights Agreement) occurs and remains
uncured for 60 days; (h) the Corporation fails to make any cash payment required
under the Transaction Documents and such failure is not cured within five days
after notice of such default is first given to the Corporation by a Purchaser;
(i) the Corporation issues any equity, debt or other securities of the
Corporation which are senior to or pari passu with the Series E Senior Preferred
Stock in right of payment, or with respect to dividends, liquidations or
dissolution, without the consent of the Lead Investor; (j) the Corporation fails
to obtain shareholder approval for the Charter Amendment within 60 days
following the Closing; or (k) the Corporation breaches any representation,
warranty or covenant or defaults in the timely performance of any other
obligation or covenant under the Transaction Documents (other than the
occurrence of an Event covered under clause (g) above) and such breach or
default continues uncured for a period of 20 days after the date on which notice
of such breach or default is first given to the Corporation by a Purchaser (it
being understood that no prior notice need be given in the case of a breach or
default that cannot reasonably be cured within 20 days).

                                       20

<PAGE>

"Underlying Shares" means the shares of Common Stock issuable upon conversion of
the Shares and Additional Shares and upon exercise of the Warrants and
Additional Investment Right Warrants and in satisfaction of any other obligation
of the Corporation to issue shares of Common Stock pursuant to the Transaction
Documents.

"Underlying Shares Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by the Purchasers.

"Warrant" means a Common Stock purchase warrant issued and sold under the
Purchase Agreement.

                                       21

<PAGE>

                                                                       EXHIBIT B

                            FORM OF CONVERSION NOTICE

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

The undersigned hereby elects to convert the number of shares of Series E Senior
Convertible Preferred Stock indicated below into shares of common stock, par
value $0.001 per share (the "Common Stock"), of Millennium Biotechnologies
Group, Inc., a Delaware corporation (the "Corporation"), according to the
conditions hereof, as of the date written below.

                  ______________________________________________________________
                  Date to Effect Conversion

                  ______________________________________________________________
                  Number of shares of Series E Senior Preferred Stock owned
                  prior to Conversion

                  ______________________________________________________________
                  Number of shares of Series E Senior Preferred Stock to be
                  Converted

                  ______________________________________________________________
                  Stated Value of shares of Series E Senior Preferred Stock to
                  be Converted (including _______________ of dividends added
                  under Section 3(b) of the Certificate of Designations and ____
                  added under Section 2(d) of the Registration Rights Agreement)

                  ______________________________________________________________
                  Number of shares of Common Stock to be Issued

                  ______________________________________________________________
                  Applicable Conversion Price

                  ______________________________________________________________
                  Number of shares of Series E Senior Preferred Stock subsequent
                  to Conversion

                  ______________________________________________________________
                  Name of Holder
                  By:___________________________________________________________
                  Name:_________________________________________________________
                  Title:________________________________________________________

                                       22

<PAGE>

                                                                       EXHIBIT C

                            DIVIDEND ELECTION NOTICE

Reference is made to the Certificate of Designations, Preferences and Rights of
Millennium Biotechnologies Group Inc. for its Series E Senior Convertible
Preferred Stock (the "Certificate of Designations"). In accordance with and
pursuant to the Certificate of Designations, the Company hereby elects to have
accrued and unpaid dividends on the shares of Series E Senior Convertible
Preferred Stock, (the "Preferred Shares"), paid in shares of Common Stock, par
value $0.001 per share (the "Common Stock"), of the Company, as of the date
specified below.

Dividend Date:                                                       ___________

Amount of Dividends to be Paid per Preferred Share:                  ___________

Conversion Price:                                                    ___________

90% arithmetic average of the VWAP for 20 Trading Days
immediately preceding date of Dividend Election Notice               ___________

Number of shares of Common Stock to be issued per Preferred Share:   ___________

Amount of Cash Dividend to be Paid per Preferred Share:              ___________

                                      MILLENNIUM BIOTECHNOLOGIES GROUP INC.

                                      By:
                                         ---------------------------------------
                                         Name:
                                         Title

                                       23

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