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INDENTURE


THIS INDENTURE (this "Indenture") is made and entered into as of the first day of October, 2002 by and between Molecular Diagnostics, Inc., a Delaware corporation (hereinafter called the "Company"), having its principal office at 414 N. Orleans Street, Chicago, Illinois 60610, and each of the holders of the Company's 12% Convertible Secured Promissory Notes hereinafter authorized (said Notes being hereinafter referred to as the "Notes" and said holders being hereinafter referred to as the "Noteholders").


In consideration of the acceptance by the Noteholders of the Notes, the Company hereby covenants and agrees with the Noteholders as follows:


1. Creation and Authorization of Notes. The Company hereby authorizes the issuance of the Notes, in aggregate principal amount of up to $4,000,000 (the "Offering"). Each Note shall:


a. be substantially in the form attached hereto as Exhibit A;


b. be issuable for cash and/or the surrender by the Noteholder of outstanding obligations of the Company to the Noteholder;


c. mature on July 31, 2003 (the "Maturity Date");


d. bear interest payable in kind on the Maturity Date in the form of shares of common stock of the Company ("Common Stock"), valued as provided in the Note (such shares being referred to as "Interest Shares");


e. be convertible as to principal into shares of Common Stock at the times and as valued in the Note (such shares being referred to as "Conversion Shares");


f. be subject to optional prepayment by the Company at any time, in whole or in part; provided that in the event of any prepayment, the Company shall prepay all Notes outstanding under this Indenture ratably;


g. be subject to either automatic conversion or mandatory prepayment (as set forth in the Note) upon the closing of a Qualified Financing Transaction (as defined in the Note);


h. be secured by a security interest in the Company's intellectual property subject to the terms and conditions of the Security Agreement in the Form of Exhibit B (the "Security Agreement"), which shall be allocated among the Noteholders in proportion to the principal amount of Notes they hold pursuant to the Collateral Sharing Agreement in the form of Exhibit C (the "Collateral Sharing Agreement");


i. be registered on the books of the Company by the Secretary of the Company in the name of the Noteholders;


j. be executed on behalf of the Company by the manual signature of the Chief Executive Officer of the Company;


k. be issued in reliance on one or more exemptions from registration under the Securities Act of 1933, as amended (the "Securities Act") and applicable state securities laws and shall contain a legend to that effect as set forth on each Note; and


l. be issued in accordance with the terms of this Indenture, pursuant to the exemption from qualification under the Trust Indenture Act of 1939 set forth in Section 304(a)(9) of said Act.


EACH NOTEHOLDER, BY HIS ACCEPTANCE OF HIS NOTE, AND ANY TRANSFEREE OF HIS NOTE, WITHOUT FURTHER ACTION, SHALL BE DEEMED AUTOMATICALLY TO HAVE BECOME A PARTY TO, AND TO HAVE AGREED TO BE BOUND BY, THE SECURITY AGREEMENT AND THE COLLATERAL SHARING AGREEMENT IN THE SAME AS IF THE NOTEHOLDER HAD BEEN A SIGNATORY THERETO.


2. Warrants. In addition to the Notes, the Company shall, upon the closing of its PIPE Financing (as defined below), issue each Noteholder a warrant substantially in the form of Exhibit D hereto to purchase a number of shares of Common Stock equal to one share of Common Stock for each 4 shares of common stock into which the principal amount of the Note is convertible (a "Warrant"), having an exercise price of: [$0.15 per share (for the first One Million Dollars ($1,000,000) principal amount of cash subscriptions received by the Company)] or [$0.20 per share (for subscriptions received after the first One Million Dollars ($1,000,000) principal amount of subscriptions have been received by the Company)] (as set forth and subject to adjustment as provided in the Warrant) and a term expiring five years from the date of issue. The shares of Common Stock issuable upon exercise of Warrants are referred to as "Warrant Shares." For purposes of this Indenture, the term "PIPE Financing" means an Six Million Dollar ($6,000,000) private placement of the Company's equity securities to occur after the Company has completed the sale of its 12% Convertible Secured Promissory Notes in the aggregate principal amount of approximately Four Million Dollars (U.S. $4,000,000).


3. Securities Act Compliance. The Interest Shares, the Conversion Shares, the Warrants and the Warrant Shares shall, like the Notes, be issued in accordance with one or more exemptions from registration under the Securities Act and applicable state securities laws and shall bear a legend to such effect comparable to the legend borne by the Notes.


4. Issuance of Conversion Shares. Any Noteholders who desire to convert his Note, in whole or in part, into Conversion Shares shall deliver his Note to the Company, together with a properly completed Notice of Conversion whereupon:


a. the Company shall cause its transfer agent to deliver to the Noteholder one or more certificates representing the applicable number of Conversion Shares; and


b. if the Noteholder is converting less than the entire principal amount of his Note:


i. if the conversion occurs prior to the Maturity Date, issue to
the Noteholder a replacement Note representing the unconverted principal
amount of the Note; and


ii. if the conversion occurs on the Maturity Date, pay to the
Noteholder an amount of cash equal to the unconverted principal amount
of, and the accrued interest on, the Note.


5. Conclusive Effect of Registry. The ownership of the Notes and the address for payment thereof shall be proved by reference to the registry of Notes maintained by the Secretary of the Company and, prior to due presentment for registration of transfer, or receipt of notification of change of address, the Company may treat the person in whose name any Note shall be registered upon the books of the Company as the absolute owner thereof, and the address appearing in the books of the Company as the appropriate address for the purpose of paying principal of and interest on the Notes, for issuing Conversion Shares, and for all other purposes. All payments so made to any such registered Noteholder at such address shall be valid and, to the extent of the amount or amounts so paid, effectual to satisfy and discharge the liability of the Company for monies payable on any such Note.


6. Changes in Registered Address. Any Noteholder who shall desire to change the address for payment of principal of and interest on his Note or delivery of Conversion Shares may notify the Secretary of the Company of the changed address.


7. Transfer of Notes. Any Noteholder desiring to sell, transfer or otherwise distribute his Note shall present the Note to the Secretary of the Company for transfer, accompanying the Note with either (a) evidence of compliance with the registration provisions of the Securities Act and applicable state securities laws, or (b) an opinion of counsel reasonably satisfactory to the Company to the effect that such proposed sale, transfer or other distribution may be made in reliance upon an applicable exemption from the provisions of the Securities Act and applicable state securities laws. Promptly upon receipt of the Note and such documentation, the Company shall, if such documentation is satisfactory in form and substance to the Company and its counsel, cancel the Note and issue a new Note registered in the name of the transferee. The determination of the Company and its counsel with respect to any proposed transfer shall be final and binding upon the Noteholder.


8. Transfer of Warrants and Warrant Shares. Each Warrant and the Warrant Shares shall be subject to the restrictions on transfer set forth in Section 8.1 and 11 of the Warrant.


9. Transfer of Interest Shares and Conversion Shares. Any holder of Interest Shares or Conversion Shares desiring to sell, transfer or otherwise distribute such shares shall present the certificate(s) representing such shares to the transfer agent of the Company for transfer, accompanying the certificate(s) with either (a) evidence of compliance with the registration provisions of the Securities Act and applicable state securities laws, or (b) an opinion of counsel reasonably satisfactory to the Company to the effect that such proposed sale, transfer or other distribution may be made in reliance upon an applicable exemption from the provisions of the Securities Act and applicable state securities laws. Promptly upon receipt of notification from the transfer agent that the certificate(s) have been delivered to it, the Company shall, if such documentation is satisfactory in form and substance to the Company and its counsel, direct the transfer agent to effect the requested transfer. The determination of the Company and its counsel with respect to any proposed transfer shall be final and binding upon the holder of the shares.


10. Registration Rights. The Interest Shares, Conversion Shares and Warrant Shares (collectively, the "Investment Shares") shall be subject to the registration rights set forth in this Section 10.


a. Piggy-Back Registration Rights. If, at any time prior to the fifth anniversary of the closing of the PIPE Financing, the Company files a registration statement with the U.S. Securities and Exchange Commission (the "Commission") pursuant to the Securities Act, or pursuant to any other act passed after the date of this Indenture, which filing provides for the sale of securities by the Company to the public, or files a Regulation A offering statement under the Securities Act, the Company shall offer to the Noteholders and the holders of any Investment Shares the opportunity to register or qualify the Investment Shares at the Company's sole expense, regardless of whether the Noteholders or holders of Investment Shares or both may have previously availed themselves of any of the registration rights described in this Section 10; provided, however, that in the case of a Regulation A offering, the opportunity to qualify shall be limited to the amount of the available exemption after taking into account the securities that the Company wishes to qualify. Notwithstanding anything to the contrary, this Section 10 shall not be applicable to a registration statement registering securities issued pursuant to an employee benefit plan or as to a transaction subject to Rule 145 promulgated under the Securities Act or for which a form S-4 registration statement could be used.


The Company shall deliver written notice to the Noteholders and to any holders of the Investment Shares of its intention to file a registration statement or Regulation A offering statement under the Securities Act at least 60 days prior to the filing of such registration statement or offering statement, and the Noteholders and holders of Investment Shares shall have 30 days thereafter to request in writing that the Company register or qualify the Investment Shares in accordance with this Section 10. Upon the delivery of a written request within the specified time, the Company shall be obligated to include in its contemplated registration statement or offering statement all information necessary or advisable to register or qualify the Investment Shares for a public offering, if the Company does file the contemplated registration statement or offering statement; provided, however, that neither the delivery of the notice by the Company nor the delivery of a request by a Noteholder or holder of Investment Shares shall in any way obligate the Company to file a registration statement or offering statement. Furthermore, notwithstanding the filing of a registration statement or offering statement, the Company may, at any time prior to the effective date thereof, determine not to offer the securities to which the registration statement or offering statement relates, other than the Investment Shares. Notwithstanding the foregoing, if, as a qualification of any offering in any state or jurisdiction in which the Company (by vote of its Board of Directors) or any underwriter determines in good faith that it wishes to offer securities registered in the offering, it is required that offering expenses be allocated in a manner different than as provided in this Section 10, then the offering expenses shall be allocated in whatever manner is most nearly in compliance with the provisions of this Section 10.


If the registration for which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise as part of its written notice to Noteholders and holders of Investment Shares given pursuant to this Section. In that event, the right of any Noteholder or holder of Investment Shares to registration pursuant to this Section 10 shall be conditioned upon the holder's participation in the underwriting, and the inclusion of Investment Shares in the underwriting shall be limited to the extent provided herein. All holders proposing to distribute their Investment Shares through the underwriting shall (together with the Company and the other holders who desire to distribute their shares through the underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected by the Company. Notwithstanding any other provision of this Section, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit the amount of securities to be included in the registration and underwriting by the holders of Company securities exercising "piggy-back" registration rights (including the Noteholders and holders of Investment Shares). The Company shall so advise all holders, and the number of shares that may be included in the registration and underwriting shall be allocated among all of the holders desiring to have their shares registered, in proportion, as nearly as practicable, to the respective amounts of shares requested by each holder to be included in the registration, provided, however, that no holder of shares or other securities to be registered (other than one exercising a demand registration right) shall have superior rights with respect to inclusion in a registration than those of the Noteholders and holders of Investment Shares, and if any party is granted superior rights hereafter the Noteholder and each holder of Investment Shares shall be deemed to be automatically granted similar rights. The Company shall advise all Noteholders and holders of Investment Shares if any limitation in accordance with this Section is necessary and the number or Investment Shares that may be included in the registration. Any securities excluded or withdrawn from the underwriting shall not be transferred prior to one hundred twenty (120) days after the effective date of the registration statement relating thereto, or any shorter period of time the underwriters may require.


The Company shall comply with the requirements of this Section 10 at its own expense. That expense shall include, but not be limited to, legal, accounting, consulting, printing, federal and state filing fees, NASD fees, out-of-pocket expenses incurred by counsel, accountants and consultants retained by the Company, and miscellaneous expenses directly related to the registration statement or offering statement and the offering. However, this expense shall not include the portion of any underwriting commissions, transfer taxes and the underwriter's accountable and nonaccountable expense allowances attributable to the offer and sale of the Investment Shares, all of which expenses shall be borne by the holders of Investment Shares that are registered or qualified.


b. Inclusion of Information. If the Company registers or qualifies the Investment Shares in accordance with this Section 10, the Company shall include in the registration statement or qualification, and the prospectus included therein, all information and materials necessary or advisable to comply with the applicable statutes and regulations so as to permit the public sale of the Investment Shares.


c. Condition of Company's Obligations. As to each registration statement or offering statement, the Company's obligations contained in this Section 10 shall be conditioned upon a timely receipt by the Company in writing of the following:


(i) Information as to the terms of the contemplated public
offering furnished by and on behalf of each Noteholder or holder of
Investment Shares intending to make a public distribution of the
Investment Shares; and


(ii) Any other information the Company may reasonably require
from the Noteholders or holders of Investment Shares, or any underwriter
for any of them, for inclusion in the registration statement or offering
statement.


d. Additional Requirements. In each instance in which the Company shall take any action to register or qualify the Investment Shares pursuant to this Section 10, the Company shall do the following:


(i) supply the Noteholders and holders of Investment Shares
that are being registered or qualified, two (2) manually signed copies of
each registration statement or offering statement, and all amendments
thereto, and a reasonable number of copies of the preliminary, final or
other prospectus or offering circular, all prepared in conformity with
the requirements of the Securities Act and the rules and regulations
promulgated thereunder, and any other documents that the Noteholders and
holders of Investment Shares may reasonably request;


(ii) cooperate with respect to (A) all necessary or advisable
actions relating to the preparation and the filing of any registration
statements or offering statements, and all amendments thereto, arising
from the provisions of this Section 10, (B) all reasonable efforts to
establish an exemption from the provisions of the Securities Act or any
other federal or state securities statutes, (C) all necessary or
advisable actions to register or qualify the public offering at issue
pursuant to federal securities statutes and the state "blue sky"
securities statutes of each jurisdiction that the Noteholders or holders
of Investment Shares shall reasonably request, and (D) all other
necessary or advisable actions to enable the holders of Investment Shares
to complete the contemplated disposition of their securities in each
reasonably requested jurisdiction; and


(iii) keep all registration statements or offering statements
to which this Section 10 applies, and all amendments thereto, effective
under the Securities Act for a period of at least 8 months after their
initial effective date and cooperate with respect to all necessary or
advisable actions to permit the completion of the public sale or other
disposition of the securities subject to a registration statement or
offering statement.


e. Reciprocal Indemnification Agreements. In each instance in which the Company shall take any action to register or qualify the Investment Shares pursuant to this Section 10, prior to the effective date of any registration statement or offering statement, the Company and each Noteholder or holder of Investment Shares being registered or qualified shall enter into reciprocal indemnification agreements, in the form customarily used by reputable investment bankers with respect to public offerings of securities. The indemnification agreements also shall contain an agreement by the Noteholders and holders of Investment Shares at issue to indemnify and hold harmless the Company, its officers and directors from and against any and all losses, claims, damages and liabilities, including, but not limited to, all expenses reasonably incurred in investigating, preparing, defending or settling any claim, directly resulting from any untrue statements of material facts, or omissions to state a material fact necessary to make a statement not misleading, contained in a registration statement or offering statement to which this Section 10 applies, if, and only if, the untrue statement or omission directly resulted from information provided in writing to the Company by the indemnifying Noteholder or holder of Investment Shares expressly for use in the registration statement or offering statement at issue.


f. Indemnification by the Company. In connection with the filing of any registration statement covering any Investment Shares, the Company shall indemnify and hold harmless each holder thereof against any and all loss, claim, damage, liability, joint or several (which shall for all purposes include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the holder may become subject under the Securities Act or otherwise, insofar as the loss, claim, damage or liability (or action with respect thereto) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the registration statement, any preliminary prospectus, the effective prospectus or the final prospectus, or any amendment or supplement thereto or (ii) the omission or alleged omission to state in the registration statement, any preliminary prospectus, the effective prospectus or the final prospectus, or any amendment or supplement to any of the foregoing, a material fact required to be stated therein or necessary to make the statements therein not misleading; except that the Company shall not be liable in any such case to the extent, but only to the extent, that any loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Noteholders or any holder of Investment Shares for use in the preparation of the registration statement, any preliminary prospectus, the effective prospectus or the final prospectus, or any amendment or supplement to any of the foregoing. This indemnity will be in addition to any liability the Company may otherwise have.


g. Indemnification by the Holders of Investment Shares. The holders of any Investment Shares covered by a registration statement prepared by the Company shall severally, but not jointly, indemnify and hold harmless the Company, each other Person referred to in subparts (1), (2) and (3) of Section 11(a) of the Securities Act in respect of the registration statement, against any and all loss, claim, damage or liability, joint or several, (which shall for all purposes include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the Company may become subject under the Securities Act or otherwise, insofar as the loss, claim, damage or liability (or action with respect thereto) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the registration statement, any preliminary prospectus, the effective prospectus or the final prospectus, or any amendment or supplement to any of the foregoing, or (ii) the omission or alleged omission to state in the registration statement, any preliminary prospectus, the effective prospectus or the final prospectus, or any amendment or supplement to any of the foregoing, a material fact required to be stated therein or necessary to make the statements therein not misleading; except that the indemnification shall be available in each case to the extent, but only to the extent, that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by any holder of Investment Shares for use in the preparation of the registration statement, any preliminary prospectus, the effective prospectus or the final prospectus, or any amendment or supplement thereto. This indemnity will be in addition to any liability the Noteholders and holders of Investment Shares may otherwise have.


h. Indemnification Procedures. Promptly after receipt by an indemnified party under Sections 10(f) or 10(g), of written notice of commencement of any action, the indemnified party shall, if the indemnifying party intends to assert a claim in respect thereof against the indemnifying party under the relevant section hereof, notify the indemnifying party in writing of the claim or commencement of the action, provided that, failure to notify the indemnifying party shall not relieve the indemnifying party of any obligation it may have to the indemnified party, except to the extent that the indemnifying party did not otherwise have notice of the action, and the failure to notify the indemnifying party prejudiced the indemnifying party's ability to defend itself in the action, and even in that event, the failure to notify shall not relieve the indemnifying party of any other liability the indemnifying party may have to the indemnified party. If any claim or action is brought against an indemnified party and the indemnified party notifies the indemnifying party thereof, the indemnifying party shall have the right to participate in the claim or action, jointly with any other indemnifying party, if any, and to assume the defense of the claim or action using counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party that it intends to assume the defense of the claim or action, the indemnifying party shall not be liable for any legal fees or other costs or expenses incurred by the indemnified party after receipt of the notice, other that for reasonable costs of investigation in connection with the claim or action.


i. Contribution. If the indemnification provided in Sections 10(f) or 10(g) is unavailable or insufficient to hold harmless the indemnified party, then each indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of the indemnified losses, claims, damages or liabilities (i) in an appropriate proportion to reflect the relative benefits received by the Company on the one hand and the Noteholders and holders of Investment Shares on the other hand, or (ii) if the allocation provided by clause (i) of this Section 10(i) is not permitted by applicable law, then in a proportion appropriate to reflect the relative benefits referred to in clause (i) of this Section 10(i), but also the relative fault of the Company on the one hand and the Noteholders and holders of Investment Shares on the other hand, in connection with the indemnified losses, claims and damages incurred, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Noteholders shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and un-itemized expenses received by the underwriters, in each case as set forth in the final prospectus. Relative
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