CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES
                                     OF THE
                      SERIES B CONVERTIBLE PREFERRED STOCK
                                       OF
                              DBS INDUSTRIES, INC.

         The  undersigned,  the Chief  Executive  Officer and  President  of DBS
Industries, Inc., a Delaware corporation (the "Company"), in accordance with the
provisions  of the  General  Corporation  Law  of the  State  of  Delaware  (the
"Delaware Law"), does hereby certify that,  pursuant to the authority  conferred
upon the Board of Directors by the Restated  Certificate of Incorporation of the
Company,  as amended,  and pursuant to Section  151(g) of the Delaware  Law, the
following resolution creating a series of Convertible  Preferred Stock, was duly
adopted on September 11, 2000:

         RESOLVED,  that  pursuant  to the  authority  expressly  granted to and
vested in the Board of  Directors of the Company by  provisions  of the Restated
Certificate of  Incorporation  of the Company,  as amended (the  "Certificate of
Incorporation"),  there hereby is created out of the shares of Preferred  Stock,
$.0004 par value,  of the Company  authorized in the Certificate of Amendment of
the Certificate of Incorporation, filed with the Secretary of State of the State
of Delaware on April 28, 1999 (the  "Preferred  Stock,"),  a series of Preferred
Stock of the  Company,  to be named  "Series  B  Convertible  Preferred  Stock,"
consisting of Five Hundred and Fifty (550)  shares,  which series shall have the
following  designations,  powers,  preferences  and relative  and other  special
rights and the following qualifications, limitations and restrictions:

     1.   Designation  and Rank. The designation of such series of the Preferred
Stock shall be the Series B Convertible  Preferred Stock,  $.0004 par value (the
"Series B Preferred Stock").  The maximum number of shares of Series B Preferred
Stock shall be Five Hundred and Fifty (550) shares. The Series B Preferred Stock
shall rank (i) prior to the common stock, $.0004 par value (the "Common Stock"),
and to all other classes and series of equity securities of the Company which by
their terms do not rank senior to the Series B Preferred Stock ("Junior Stock"),
(ii) junior to any class or series of equity securities which by its terms shall
rank  senior to the  Series B  Preferred  Stock,  and (iii)  pari passu with the
Series A Preferred  Stock.  The Series B Preferred Stock shall be subordinate to
and rank junior to all indebtedness of the Company now or hereafter outstanding.


     2.   Dividends.

          (a) Payment of Dividends.  The holders of record of shares of Series B
Preferred Stock (the "Holders") shall be entitled to receive,  per quarter annum
out of any assets at the time legally available therefor,  dividends at the rate
of ten percent  (10%) of the stated  Liquidation  Preference  Amount (as defined
below) per share per annum (the "Dividend Payment"), and no more, payable at the

                                       1
<PAGE>

option of the  Holders in cash or as an accrual  to the  Liquidation  Preference
Amount.  In the case of shares of Series B Preferred Stock  outstanding for less
than a full year, dividends shall be pro rated based on the portion of each year
during  which such shares are  outstanding.  Dividends on the Series B Preferred
Stock shall be  cumulative,  shall  accrue and be payable at  conversion  of the
Series B Preferred Stock into shares of Common Stock, and shall accrue until the
Mandatory  Conversion Date (as defined in Section  5(c)(ii) below without regard
to Section 5(c)(ii)(x)(A)).  Dividends on the Series B Preferred Stock are prior
and in preference to any declaration or payment of any  distribution (as defined
below) on any outstanding  shares of Common Stock or any other equity securities
of the Company  ranking junior to the Series B Preferred Stock as to the payment
of dividends.  Such  dividends  shall accrue on each share of Series B Preferred
Stock from day to day from the date of initial  issuance  thereof whether or not
earned or  declared  so that if such  dividends  with  respect  to any  previous
dividend  period  at the rate  provided  for  herein  have not been  paid on, or
declared and set apart for,  all shares of Series B Preferred  Stock at the time
outstanding,  the  deficiency  shall be fully paid on, or declared and set apart
for,  such shares on a pro rata basis with all other  equity  securities  of the
Company  ranking on a parity with the Series B Preferred Stock as to the payment
of dividends before any distribution shall be paid on, or declared and set apart
for Common Stock or any other equity securities of the Company ranking junior to
the Series B Preferred Stock as to the payment of dividends.

          (b) So long as any shares of Series B Preferred Stock are outstanding,
the Company shall not declare, pay or set apart for payment any dividend or make
any  distribution  on any Junior  Stock (other than  dividends or  distributions
payable  in  additional  shares  of  Junior  Stock),  unless at the time of such
dividend  or  distribution  the  Company  shall have paid all accrued and unpaid
dividends on the outstanding shares of Series B Preferred Stock.

          (c) In the event of a  dissolution,  liquidation  or winding up of the
Company  pursuant to Section 4 hereof,  all accrued and unpaid  dividends on the
Series B Preferred Stock shall be payable on the day  immediately  preceding the
date of payment of the preferential  amount to the holders of Series B Preferred
Stock. In the event of (i) a mandatory  redemption pursuant to Section 9 hereof,
or (ii) a redemption  upon the occurrence of a Major  Transaction (as defined in
Section 8(c)  hereof) or a Triggering  Event (as defined in Section 8(d) hereof)
or at the election of the Company  pursuant to Section 8(h) hereof,  all accrued
and unpaid dividends on the Series B Preferred Stock shall be payable on the day
immediately  preceding the date of such redemption.  In the event of a voluntary
conversion  pursuant to Section 5(a) hereof, all accrued and unpaid dividends on
the  Series B  Preferred  Stock  being  converted  shall be  payable  on the day
immediately  preceding  the  Voluntary  Conversion  Date (as  defined in Section
5(b)(i) hereof) and in the event of a mandatory  conversion  pursuant to Section
5(c) hereof,  all accrued and unpaid  dividends on the Series B Preferred  Stock
being converted shall be payable on the day immediately  preceding the Mandatory
Conversion Date (as defined in Section 5(c)(ii) hereof).

          (d) For  purposes  hereof,  unless  the  context  otherwise  requires,
"distribution"   shall  mean  the   transfer   of  cash  or   property   without
consideration,  whether by way of dividend or  otherwise,  payable other than in
shares  of  Common  Stock or other  equity  securities  of the  Company,  or the
purchase or  redemption  of shares of the Company  (other than  redemptions  set
forth in Section 8 below or  repurchases  of Common  Stock held by  employees or

                                       2
<PAGE>

consultants of the Corporation  upon termination of their employment or services
pursuant  to  agreements  providing  for such  repurchase  or upon the  cashless
exercise of options  held by  employees  or  consultants)  for cash or property.

     3.   Voting Rights.

          (a) Class Voting Rights.  The Series B Preferred  Stock shall have the
following  class voting  rights (in  addition to the voting  rights set forth in
Section  3(b)  hereof).  So long as any shares of the Series B  Preferred  Stock
remain  outstanding,  the Company  shall not,  without the  affirmative  vote or
consent  of the  holders  of at least  three-fourths  (3/4) of the shares of the
Series B Preferred Stock  outstanding at the time,  given in person or by proxy,
either  in  writing  or at a  meeting,  in which  the  holders  of the  Series B
Preferred  Stock vote  separately  as class:  (i)  authorize,  create,  issue or
increase  the  authorized  or  issued  amount  of any  class or series of stock,
including  but not  limited to the  issuance  of any more  shares of  previously
authorized  Common  Stock or  Preferred  Stock,  ranking  prior to the  Series B
Preferred  Stock,  with respect to the  distribution  of assets on  liquidation,
dissolution  or winding up; (ii) amend,  alter or repeal the  provisions  of the
Series B Preferred Stock, whether by merger,  consolidation or otherwise,  so as
to  adversely  affect any right,  preference,  privilege  or voting power of the
Series B Preferred Stock;  provided,  however, that any creation and issuance of
another  series of Junior  Stock  shall not be deemed to  adversely  affect such
rights,  preferences,  privileges or voting powers; (iii) repurchase,  redeem or
pay  dividends  on,  shares  of the  Company's  Junior  Stock;  (iv)  amend  the
Certificate  of  Incorporation  or  By-Laws  of  the  Company  so as  to  affect
materially and adversely any right, preference, privilege or voting power of the
Series B Preferred Stock;  provided,  however, that any creation and issuance of
another series of Junior Stock or any other class or series of equity securities
which by its terms shall rank on parity with the Series B Preferred  Stock shall
not be deemed to  materially  and  adversely  affect  such  rights,  preferences
privileges or voting powers;  (v) effect any distribution with respect to Junior
Stock; or (vi) reclassify the Company's outstanding securities.

          (b) General Voting Rights.  Except with respect to  transactions  upon
which the Series B Preferred  Stock shall be  entitled to vote  separately  as a
class  pursuant  to  Section  3(a)  above and except as  otherwise  required  by
Delaware  law,  the Series B Preferred  Stock shall have no voting  rights.  The
Common Stock into which the Series B Preferred Stock is convertible  shall, upon
issuance,  have all of the same voting  rights as other  issued and  outstanding
Common Stock of the Company.

     4.   Liquidation Preference.

          (a) In the event of the liquidation,  dissolution or winding up of the
affairs of the Company,  whether  voluntary  or  involuntary,  after  payment or
provision  for payment of the debts and other  liabilities  of the Company,  the
holders of shares of the Series B  Preferred  Stock  then  outstanding  shall be
entitled to receive,  out of the assets of the Company  whether  such assets are
capital  or surplus  of any  nature,  an amount  equal to One  Thousand  Dollars
($1,000)  per  share  (the  "Liquidation  Preference  Amount")  of the  Series B
Preferred Stock plus any accrued and unpaid  dividends  before any payment shall
be made or any assets  distributed  to the  holders  of the Common  Stock or any

                                       3
<PAGE>

other Junior  Stock.  If the assets of the Company are not  sufficient to pay in
full the  Liquidation  Preference  Amount plus any accrued and unpaid  dividends
payable to the holders of outstanding shares of the Series B Preferred Stock and
any series of  preferred  stock or any other  class of stock on a parity,  as to
rights on  liquidation,  dissolution  or winding up, with the Series B Preferred
Stock,  then all of said  assets  will be  distributed  among the holders of the
Series B  Preferred  Stock and the other  classes of stock on a parity  with the
Series B Preferred  Stock,  if any,  ratably in accordance  with the  respective
amounts that would be payable on such shares if all amounts payable thereon were
paid  in  full.  The  liquidation  payment  with  respect  to  each  outstanding
fractional  share  of  Series B  Preferred  Stock  shall  be equal to a  ratably
proportionate amount of the liquidation payment with respect to each outstanding
share of Series B Preferred  Stock.  All  payments  for which this  Section 4(a)
provides  shall  be in  cash,  property  (valued  at its  fair  market  value as
determined by the Company's  independent,  outside accountant  acceptable to the
holders of the Series B Preferred  Stock) or a  combination  thereof;  provided,
however,  that no cash  shall be paid to  holders of Junior  Stock  unless  each
holder of the  outstanding  shares of Series B Preferred  Stock has been paid in
cash  the  full  Liquidation  Preference  Amount  plus any  accrued  and  unpaid
dividends to which such holder is entitled as provided herein.  After payment of
the full Liquidation  Preference Amount plus any accrued and unpaid dividends to
which each  holder is  entitled,  such  holders of shares of Series B  Preferred
Stock  will  not be  entitled  to  any  further  participation  as  such  in any
distribution of the assets of the Company.

          (b) A  consolidation  or merger of the Company  with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company, or the effectuation by the Company of a transaction or series of
transactions  in which  more than 50% of the  voting  shares of the  Company  is
disposed of or conveyed,  shall not be deemed to be a liquidation,  dissolution,
or winding up within the  meaning of this  Section 4. In the event of the merger
or consolidation of the Company with or into another  corporation,  the Series B
Preferred Stock shall maintain its relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.

          (c)  Written  notice  of any  voluntary  or  involuntary  liquidation,
dissolution or winding up of the affairs of the Company,  stating a payment date
and the place where the distributable  amounts shall be payable,  shall be given
by mail, postage prepaid, no less than forty-five (45) days prior to the payment
date stated therein, to the holders of record of the Series B Preferred Stock at
their respective addresses as the same shall appear on the books of the Company.

     5.   Conversion.  The  holder of Series B  Preferred  Stock  shall have the
following conversion rights (the "Conversion Rights"):

          (a) Right to Convert. At any time on or after one hundred eighty (180)
days from the Closing Date (as such term is defined in the Series B  Convertible
Preferred  Stock  Purchase  Agreement  dated as of October 6, 2000  between  the
Company and the initial holders of the Series B Preferred Stock (the "Securities
Purchase Agreement")), the Holder of any such shares of Series B Preferred Stock

                                       4
<PAGE>

may, at such Holder's option,  subject to the limitations set forth in Section 7
herein,  elect to convert (a "Voluntary  Conversion")  all or any portion of the
shares of Series B  Preferred  Stock held by such  person into a number of fully
paid and nonassessable  shares of Common Stock (the "Conversion  Rate") equal to
the quotient of (i) the Liquidation  Preference Amount of the shares of Series B
Preferred Stock being converted divided by (ii) the Conversion Price (as defined
in Section  5(d)(iii)  below)  then in effect as of the date of the  delivery by
such Holder of its notice of election to  convert;  provide d,  however,  that a
Holder may not convert more than 50% of the Series B Preferred Stock  originally
purchased  by  such  person  in any  period  of 30  consecutive  calendar  days,
cumulatively.

          (b) Mechanics of Voluntary  Conversion.  The  Voluntary  Conversion of
Series B Preferred Stock shall be conducted in the following manner:

              (i) Holder's Delivery Requirements.  To convert Series B Preferred
Stock into full shares of Common  Stock on any date (the  "Voluntary  Conversion
Date"),  the Holder  thereof  shall (A)  transmit  by  facsimile  (or  otherwise
deliver),  for receipt on or prior to 5:00 p.m.,  Pacific  Time on such date,  a
copy of a fully  executed  notice of conversion  in the form attached  hereto as
Exhibit I (the  "Conversion  Notice"),  to the Company,  and (B)  surrender to a
common carrier for delivery to the Company as soon as practicable following such
Voluntary  Conversion  Date but in no event later than three (3)  business  days
after such date the original  certificates  representing  the shares of Series B
Preferred Stock being converted (or an indemnification  undertaking with respect
to such shares in the case of their loss, theft or destruction)  (the "Preferred
Stock Certificates") and the originally executed Conversion Notice.

              (ii)  Company's  Response.  Upon  receipt  by  the  Company  of  a
facsimile copy of a Conversion  Notice,  the Company shall immediately send, via
facsimile,  a confirmation of receipt of such Conversion  Notice to such holder.
Upon receipt by the Company of the Preferred Stock  Certificates to be converted
pursuant  to  a  Conversion  Notice,   together  with  the  originally  executed
Conversion Notice,  the Company or its designated  transfer agent (the "Transfer
Agent"), as applicable,  shall, within three (3) business day following the date
of receipt by the Company of both,  issue and surrender to a common  carrier for
overnight  delivery to the address as  specified  in the  Conversion  Notice,  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.  If the
number  of  shares  of  Preferred  Stock  represented  by  the  Preferred  Stock
Certificate(s)  submitted for conversion is greater than the number of shares of
Series B Preferred  Stock being  converted,  then the Company shall,  as soon as
practicable  and in no event later than three (3) business days after receipt of
the  Preferred  Stock  Certificate(s)  and at the Company's  expense,  issue and
deliver to the holder a new Preferred Stock Certificate  representing the number
of shares of Series B Preferred Stock not converted.

              (iii)  Dispute  Resolution.  In the  case of a  dispute  as to the
determination  of the Average  Share Price (as defined in Section 5(d) below) or
the Conversion  Price or the  arithmetic  calculation of the number of shares of
Common Stock to be issued upon  conversion,  the Company shall promptly issue to
the Holder the number of shares of Common  Stock that is not  disputed and shall
submit the disputed  determinations or arithmetic calculations to the Holder via
facsimile as soon as possible,  but in no event later than two (2) business days

                                       5
<PAGE>

after receipt of such holder's Conversion Notice. If such Holder and the Company
are unable to agree upon the  determination  of the  Average  Share Price or the
Conversion Price or the arithmetic calculation of the number of shares of Common
Stock to be issued  upon such  conversion  within one (1)  business  day of such
disputed  determination or arithmetic calculation being submitted to the Holder,
then the Company  shall within one (1) business day submit via facsimile (A) the
disputed  determination of the Average Share Price or the Conversion Price to an
independent,  reputable  investment bank acceptable to the applicable  holder or
(B) the disputed arithmetic  calculation of the number of shares of Common Stock
to be  issued  upon  such  conversion  to  an  independent,  outside  accountant
acceptable to the applicable Holder. The Company shall cause the investment bank
or the  accountant,  as the  case  may be,  to  perform  the  determinations  or
calculations  and notify the Company and the Holder of the results no later than
seventy-two (72) hours from the time it receives the disputed  determinations or
calculations.   Such  investment   bank's  or  accountant's   determination   or
calculation,  as the  case may be,  shall be  binding  upon all  parties  absent
manifest error. The reasonable expenses of such investment bank or accountant in
making  such  determination  shall  be paid by the  Company,  in the  event  the
Holder's  calculation or  determination  was correct,  or by the holder,  in the
event the Company's  calculation or determination was correct, or equally by the
Company and the holder in the event that  neither the  Company's or the Holder's
calculation  or  determination  was  correct.  The  period  of time in which the
Company is required to effect  conversions or redemptions under this Certificate
of  Designation  shall be tolled  with  respect  to the  subject  conversion  or
redemption  pending  resolution of any dispute by the Company made in good faith
and in accordance with this Section 5(b)(iii).

              (iv) Record Holder.  The person or persons entitled to receive the
shares of Common  Stock  issuable  upon a  conversion  of the Series B Preferred
Stock shall be treated for all purposes as the record  holder or holders of such
shares of Common Stock on the Conversion Date.

              (v)  Company's  Failure  to Timely  Convert.  If within  three (3)
business  days  of the  Company's  receipt  of the  Conversion  Notice  and  the
Preferred Stock  Certificates to be converted (the "Share Delivery  Period") the
Company shall fail to issue a  certificate  to a Holder for the number of shares
of Common Stock to which such holder is entitled upon such  Holder's  conversion
of the Series B Preferred  Stock or to issue a new Preferred  Stock  Certificate
representing  the  number of shares of Series B  Preferred  Stock to which  such
Holder is entitled  pursuant to Section  5(b)(ii) (a "Conversion  Failure"),  in
addition to all other available  remedies which such Holder may pursue hereunder
and under the Securities Purchase Agreement (including  indemnification pursuant
to Article VI thereof),  the Company shall pay additional damages to such Holder
on each business day after such third (3rd) business day that such conversion is
not timely effected in an amount equal to one percent (1%) of the product of (A)
the sum of the  number of shares of Common  Stock not  issued to the holder on a
timely basis  pursuant to Section  5(b)(ii) and to which such Holder is entitled
and,  in the  event  the  Company  has  failed  to  deliver  a  Preferred  Stock
Certificate  to the Holder on a timely basis pursuant to Section  5(b)(ii),  the

                                       6
<PAGE>

number of shares of Common  Stock  issuable  upon  conversion  of the  shares of
Series B Preferred Stock represented by such Preferred Stock Certificate,  as of
the last possible date which the Company could have issued such Preferred  Stock
Certificate  to such  Holder  without  violating  Section  5(b)(ii)  and (B) the
Closing Bid Price (as defined in Section  5(d) below) of the Common Stock on the
last  possible  date which the Company  could have issued such Common  Stock and
such  Preferred  Stock  Certificate,  as the case may be, to such Holder without
violating Section 5(b)(ii).  If the Company fails to pay the additional  damages
set forth in this  Section  5(b)(v)  within five (5)  business  days of the date
incurred,  then such payment shall bear interest at the rate of two percent (2%)
per month (pro rated for partial months) until such payments are made.

              (vi) Buy-in.  The Company  shall pay any payments  incurred  under
this Section 5(b) in  immediately  available  funds upon demand.  Nothing herein
shall limit a Holder's right to pursue  injunctive  relief and/or actual damages
for the  Company's  failure to issue and  deliver  Common  Stock to the  Holder,
including,  without  limitation,  the Holder's  actual losses  occasioned by any
"buy-in" of Common Stock  necessitated  by such late delivery.  Furthermore,  in
addition to any other  remedies  which may be  available  to the Holder,  in the
event that the Company fails for any reason to effect delivery of such shares of
Common  Stock  within  three (3)  business  days of the date of  receipt  of the
Conversion Notice, the Holder will be entitled to revoke the relevant Conversion
Notice by  delivering  a notice  to such  effect to the  Company  whereupon  the
Company  and the Holder  shall each be restored  to their  respective  positions
immediately prior to delivery of such Conversion Notice except that holder shall
retain the right to receive both the late  payment  amounts set forth above plus
the actual documented cost of any "buy-in." As used herein,  "buy-in" shall mean
the  purchase by a holder of Series B Preferred  Stock of shares of Common Stock
in an open  market  transaction  or  otherwise  in order  to meet  its  delivery
obligations  in  connection  with  the  sale of  Common  Stock,  which  delivery
obligation the holder  intended to satisfy with the shares of Common Stock to be
delivered within the Share Delivery Period.

          (c) Mandatory Conversion.

              (i) Subject to the  Exchange Cap (as defined in Section 7 hereof),
each share of Series B Preferred Stock  outstanding on the Mandatory  Conversion
Date  shall,  automatically  and  without  any  action on the part of the holder
thereof,  convert into a number of fully paid and nonassessable shares of Common
Stock equal to the  quotient  of (i) the  Liquidation  Preference  Amount of the
shares of Series B Preferred Stock outstanding on the Mandatory  Conversion Date
divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date.

              (ii) As used herein,  a "Mandatory  Conversion  Date" shall be the
date  which is three  (3)  years  after  the  Closing  Date,  provided  that the
Mandatory  Conversion  Date shall be extended for the following  periods for any
shares of Series B Preferred  Stock:  (x) for as long as (A) the  conversion  of
such share of Preferred  Stock would violate  Section 7, (B) a Triggering  Event
(as defined in Section 8(d) hereof) shall have occurred and be continuing or (C)
any event shall have occurred and be  continuing  which with the passage of time
and the failure to cure would result in a Triggering Event, (y) for those number
of days that the  Registration  Statement  was not in effect  during  the period
between the Effectiveness Date (as defined in the Registration Rights Agreement)
and the third (3rd) anniversary of the Closing Date and (z) one day for each day

                                       7
<PAGE>

in any Blackout  Period (as defined in Section 3(n) of the  Registration  Rights
Agreement).  The Mandatory  Conversion  Date and the Voluntary  Conversion  Date
collectively  are  referred  to  in  this  Certificate  of  Designation  as  the
"Conversion Date."

              (iii) On the Mandatory  Conversion Date, the outstanding shares of
Series B Preferred  Stock shall be converted  automatically  without any further
action  by the  holders  of such  shares  and  whether  or not the  certificates
representing  such shares are  surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon  conversion of any shares of
Series B Preferred Stock unless certificates  evidencing such shares of Series B
Preferred  Stock are either  delivered to the Company or the Holder notifies the
Company  that such  certificates  have been  lost,  stolen,  or  destroyed,  and
executes an agreement  satisfactory to the Company to indemnify the Company from
any loss  incurred by it in  connection  therewith.  Upon the  occurrence of the
automatic conversion of the Series B Preferred Stock pursuant to this Section 5,
the Holders shall surrender the Preferred Stock  Certificates  representing  the
Series B Preferred Stock for which the Mandatory Conversion Date has occurred to
the Company and the Company  shall  deliver the shares of Common Stock  issuable
upon such  conversion (in the same manner set forth in Section  5(b)(ii)) to the
holder within three (3) business days of the Holder's delivery of the applicable
Preferred Stock Certificates.

          (d) Conversion Price.

              (i) The term  "Average  Share Price" shall mean the average of the
three (3) lowest Closing Bid Prices of the Company's  shares of Common Stock (as
reported by Bloomberg Financial Markets ("Bloomberg ")) in the  over-the-counter
market on the  electronic  bulletin  board for such  security (the "OTC Bulletin
Board") (or on such other United States stock  exchange or public trading market
("Alternative  Exchange")  on which the shares of the  Company  trade if, at the
time of the conversion,  they are not trading in the OTC Bulletin Board), during
the twenty (20)  consecutive  trading days ending on the trading day immediately
preceding the Conversion Date.

              (ii) The term "Fixed Conversion Price" shall mean the lower of (i)
$1.10,  and (ii) the average of the five (5) Closing Bid Prices of the Company's
shares of Common Stock (as reported by Bloomberg on the OTC Bulletin Board or an
Alternative Exchange) during the five (5) consecutive trading days ending on the
trading day immediately preceding the Closing Date.

              (iii) The term "Conversion  Price" shall mean, with respect to any
conversion of Series B Preferred  Stock,  the lesser of (A) the Fixed Conversion
Price,  or (B) one hundred  percent  (100%) of the "Floating  Conversion  Price"
where "Floating Conversion Price" shall mean eighty percent (80%) of the Average
Share Price on the Voluntary  Conversion  Date or Mandatory  Conversion Date for
such  conversion,  as  applicable.

                                       8
<PAGE>


              (iv) The term "Closing Bid Price" shall mean,  for any security as
of any date,  the last  closing bid price of such  security in the OTC  Bulletin
Board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such  security by  Bloomberg,  the last closing trade price of such
security  as  reported  by  Bloomberg,  or, if no last  closing  trade  price is
reported for such  security by  Bloomberg,  the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation  Bureau,  Inc. If the Closing Bid Price cannot be calculated  for such
security on such date on any of the  foregoing  bases,  the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of a majority of the outstanding shares of Series
B  Preferred  Stock.  If the  Company  and  the  holders  of a  majority  of the
outstanding shares of Series B Preferred Stock are unable to agree upon the fair
market value of the Common Stock,  then such dispute shall be resolved  pursuant
to Section  5(b)(iii) above with the term "Closing Bid Price" being  substituted
for the term "Average Share Price." (All such determinations to be appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period).

          (e) Adjustments of Conversion Price.

              (i) Adjustments for Stock Splits and Combinations.  If the Company
shall at any time or from time to time  after the date of  issuance  of Series B
Preferred Stock (the "Issuance  Date"),  effect a stock split of the outstanding
Common Stock, the applicable Conversion Price in effect immediately prior to the
stock split shall be proportionately decreased. If the Company shall at any time
or from time to time after the Issuance Date,  combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately prior to the
combination  shall be  proportionately  increased.  Any  adjustments  under this
Section  5(e)(i)  shall be  effective  at the close of  business on the date the
stock split or combination occurs.

              (ii) Adjustments for Certain Dividends and  Distributions.  If the
Company shall at any time or from time to time after the Issuance Date,  make or
issue or set a record  date for the  determination  of holders  of Common  Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock,  then,  and in each  event,  the  applicable  Conversion  Price in effect
immediately  prior  to such  event  shall  be  decreased  as of the time of such
issuance  or, in the event such  record  date shall have been  fixed,  as of the
close of  business on such record  date,  by  multiplying,  as  applicable,  the
applicable Conversion Price then in effect by a fraction:

                   (1) the  numerator  of which  shall be the  total  number  of
shares of Common Stock issued and outstanding  immediately  prior to the time of
such issuance or the close of business on such record date; and

                   (2) the  denominator  of which  shall be the total  number of
shares of Common Stock issued and outstanding  immediately  prior to the time of
such  issuance  or the close of  business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.

                                       9
<PAGE>


              (iii)  Adjustment for Other  Dividends and  Distributions.  If the
Company shall at any time or from time to time after the Issuance Date,  make or
issue or set a record  date for the  determination  of holders  of Common  Stock
entitled  to  receive a  dividend  or other  distribution  payable in other than
shares of Common Stock, then, and in each event, an appropriate  revision to the
applicable  Conversion  Price  shall  be made  and  provision  shall be made (by
adjustments of the Conversion  Price or otherwise) so that the holders of Series
B Preferred  Stock shall receive upon  conversions  thereof,  in addition to the
number of shares of Common Stock receivable thereon, the number of securities of
the Company  which they would have  received had their Series B Preferred  Stock
been converted  into Common Stock on the date of such event and had  thereafter,
during the period from the date of such event to and  including  the  Conversion
Date, retained such securities (together with any distributions  payable thereon
during such period),  giving  application to all  adjustments  called for during
such  period  under this  Section  5(e)(iii)  with  respect to the rights of the
holders of the Series B Preferred Stock.

              (iv) Adjustments for  Reclassification,  Exchange or Substitution.
If the Common Stock issuable upon  conversion of the Series B Preferred Stock at
any time or from time to time  after the  Issuance  Date shall be changed to the
same or different number of shares of any class or classes of stock,  whether by
reclassification,  exchange,  substitution or otherwise  (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
5(e)(i), (ii) and (iii), or a reorganization,  merger, consolidation, or sale of
assets provided for in Section 5(e)(v)), then, and in each event, an appropriate
revision to the Conversion  Price shall be made and provisions shall be made (by
adjustments  of the  Conversion  Price or  otherwise) so that the holder of each
share of Series B  Preferred  Stock shall have the right  thereafter  to convert
such  share of Series B  Preferred  Stock  into the kind and amount of shares of
stock  and  other  securities   receivable  upon   reclassification,   exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which  such share of Series B  Preferred  Stock  might have been  converted
immediately  prior to such  reclassification,  exchange,  substitution  or other
change, all subject to further adjustment as provided herein.

              (v) Adjustments for Reorganization, Merger, Consolidation or Sales
of  Assets.  If at any time or from time to time after the  Issuance  Date there
shall be a capital  reorganization  of the Company (other than by way of a stock
split or combination of shares or stock dividends or distributions  provided for
in  Section  5(e)(i),  (ii)  and  (iii),  or  a  reclassification,  exchange  or
substitution  of  shares  provided  for in  Section  5(e)(iv)),  or a merger  or
consolidation  of the Company with or into another  corporation,  or the sale of
all or  substantially  all of the  Company's  properties  or assets to any other
person  (an  "Organic  Change"),  then  as a part  of  such  Organic  Change  an
appropriate  revision to the Conversion  Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the holder
of each share of Series B  Preferred  Stock shall have the right  thereafter  to
convert  such  share of Series B  Preferred  Stock  into the kind and  amount of
shares of stock and other securities or property of the Company or any successor
corporation  resulting  from  Organic  Change.  In any  such  case,  appropriate
adjustment  shall be made in the  application  of the provisions of this Section
5(e)(v)  with  respect  to the rights of the  holders of the Series B  Preferred
Stock after the Organic  Change to the end that the  provisions  of this Section
5(e)(v)  (including any adjustment in the  applicable  Conversion  Price then in
effect and the number of shares of stock or other  securities  deliverable  upon

                                       10
<PAGE>

conversion of the Series B Preferred Stock) shall be applied after that event in
as nearly an equivalent manner as may be practicable.

              (vi)  Adjustments  for  Issuance  of  Additional  Shares of Common
Stock.  If the  Company,  at any time after the Issuance  Date,  shall issue any
additional  shares of Common Stock  (otherwise than as provided in the foregoing
subsections  (i) through (v) of this Section  5(e)) (the  "Additional  Shares of
Common Stock"),  at a price per share less than the applicable  Conversion Price
then in effect or without  consideration,  then the applicable  Conversion Price
upon each such issuance  shall be adjusted to that price (rounded to the nearest
cent)  determined by multiplying the applicable  Conversion Price then in effect
by a fraction:

                   (1) the  numerator  of which shall be equal to the sum of (A)
the  number  of  shares of Common  Stock  outstanding  immediately  prior to the
issuance of such Additional Shares of Common Stock plus (B) the number of shares
of Common  Stock  (rounded  to the  nearest  whole  share)  which the  aggregate
consideration  for the total number of such Additional Shares of Common Stock so
issued would  purchase at a price per share equal to the  applicable  Conversion
Price then in effect, and

                   (2) the  denominator of which shall be equal to the number of
shares of Common  Stock  outstanding  immediately  after  the  issuance  of such
Additional Shares of Common Stock.

The  provisions  of this  subsection  (vi)  shall  not  apply  under  any of the
circumstances  for which an adjustment  is provided in  subsections  (i),  (ii),
(iii),  (iv)  or (v) of this  Section  5(e).  No  adjustment  of the  applicable
Conversion  Price shall be made under this subsection  (e)(vi) upon the issuance
of any Additional Shares of Common Stock which are issued pursuant to any Common
Stock  Equivalent (as such term is defined  hereinafter) if upon the issuance of
such Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (vii) of this Section 5(e) or (y) no adjustment was required pursuant
to  subsection  (vii) of this Section  5(e).  No  adjustment  of the  applicable
Conversion Price shall be made under this subsection (vi) in an amount less than
$.01 per share,  but any such  lesser  adjustment  shall be carried  forward and
shall be made at the time and together with the next subsequent  adjustment,  if
any, which together with any adjustments so carried forward shall amount to $.01
per  share  or  more;  provided  that  upon  any  adjustment  of the  applicable
Conversion  Price as a result of any dividend or distribution  payable in Common
Stock or  Convertible  Securities  (as defined  below) or the  reclassification,
subdivision  or  combination of Common Stock into a greater or smaller number of
shares, the foregoing figure of $.01 per share (or such figure as last adjusted)
shall be adjusted (to the nearest one-half cent) in proportion to the adjustment
in the applicable Conversion Price.

              (vii) Issuance of Common Stock Equivalents. If the Company, at any
time after the Issuance  Date,  shall issue any securities  convertible  into or
exchangeable   for,   directly  or   indirectly,   Common  Stock   ("Convertible
Securities"), other than the Series B Preferred Stock, or any rights or warrants
or options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively,  the "Common Stock Equivalents") and the price per
share for which  Additional  Shares of Common  Stock may be issuable  thereafter

                                       11
<PAGE>

pursuant  to such  Common  Stock  Equivalent  shall be less than the  applicable
Conversion Price then in effect,  or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be  issuable  thereafter  is amended or  adjusted,  and such price as so amended
shall be less than the applicable Conversion Price in effect at the time of such
amendment,  then the  applicable  Conversion  Price upon each such  issuance  or
amendment shall be adjusted as provided in the first sentence of subsection (vi)
of this  Section  5(e) on the basis that (1) the  maximum  number of  Additional
Shares of Common Stock  issuable  pursuant to all such Common Stock  Equivalents
shall  be  deemed  to  have  been  issued  (whether  or not  such  Common  Stock
Equivalents are actually then exercisable,  convertible or exchangeable in whole
or in part) as of the earlier of (A) the date on which the  Company  shall enter
into a firm  contract for the issuance of such Common Stock  Equivalent,  or (B)
the  date of  actual  issuance  of such  Common  Stock  Equivalent,  and (2) the
aggregate  consideration  for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration  received or receivable by
the Company for the issuance of such Additional  Shares of Common Stock pursuant
to such Common Stock  Equivalent.  No  adjustment of the  applicable  Conversion
Price  shall be made  under  this  subsection  (vii)  upon the  issuance  of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other  subscription  or  purchase  rights  therefor,  if  any  adjustment  shall
previously  have been made to the exercise price of such warrants then in effect
upon the issuance of such warrants or other rights  pursuant to this  subsection
(vii).

              (viii) Consideration for Stock. In case any shares of Common Stock
or any securities  convertible into or exchangeable for, directly or indirectly,
Common  Stock  ("Convertible  Securities"),  other than the  Series B  Preferred
Stock, or any rights or warrants or options to purchase any such Common Stock or
Convertible Securities, shall be issued or sold:


                   (1) in connection with any merger or  consolidation  in which
the Company is the surviving corporation (other than any consolidation or merger
in which the previously  outstanding shares of Common Stock of the Company shall
be  changed  to or  exchanged  for the  stock or  other  securities  of  another
corporation),  the amount of consideration  therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Company,  of such portion of the assets and business of the  nonsurviving
corporation  as such Board may  determine to be  attributable  to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or

                   (2) in  the  event  of any  consolidation  or  merger  of the
Company in which the Company is not the  surviving  corporation  or in which the
previously  outstanding  shares of Common Stock of the Company  shall be changed
into or exchanged for the stock or other securities of another  corporation,  or
in the  event  of any  sale of all or  substantially  all of the  assets  of the
Company for stock or other securities of any  corporation,  the Company shall be
deemed  to have  issued a number  of  shares  of its  Common  Stock for stock or
securities or other property of the other  corporation  computed on the basis of
the actual exchange ratio on which the  transaction  was  predicated,  and for a
consideration  equal to the fair market value on the date of such transaction of
all such stock or securities or other property of the other corporation.  If any

                                       12
<PAGE>

such calculation  results in adjustment of the applicable  Conversion  Price, or
the number of shares of Common Stock  issuable  upon  conversion of the Series B
Preferred  Stock, the  determination  of the applicable  Conversion Price or the
number of shares  of Common  Stock  issuable  upon  conversion  of the  Series B
Preferred Stock immediately  prior to such merger,  consolidation or sale, shall
be made after giving effect to such adjustment of the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock.

              (ix) Record  Date.  In case the  Company  shall take record of the
holders  of its Common  Stock or any other  Preferred  Stock for the  purpose of
entitling  them  to  subscribe  for or  purchase  Common  Stock  or  Convertible
Securities,  then the date of the issue or sale of the  shares  of Common  Stock
shall be deemed to be such record date.

              (x)  Certain  Issues  Excepted.  Anything  herein to the  contrary
notwithstanding, the Company shall not be required to make any adjustment of the
number of shares  of Common  Stock  issuable  upon  conversion  of the  Series B
Preferred Stock upon the grant after the Issuance Date of, or the exercise after
the Issuance Date of,  options or warrants or rights to purchase stock under the
Company's stock option plan.

          (f)  No  Impairment.  The  Company  shall  not,  by  amendment  of its
Certificate of Incorporation or through any reorganization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of  securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company,  but will at all
times in good faith,  assist in the carrying out of all the  provisions  of this
Section  5 and in the  taking  of  all  such  action  as  may  be  necessary  or
appropriate  in order to protect  the  Conversion  Rights of the  holders of the
Series B Preferred Stock against  impairment.  In the event a Holder shall elect
to convert  any  shares of Series B  Preferred  Stock as  provided  herein,  the
Company cannot refuse  conversion based on any claim that such Holder or any one
associated or  affiliated  with such holder has been engaged in any violation of
law, unless, an injunction from a court, on notice, restraining and/or adjoining
conversion of all or of said shares of Series B Preferred  Stock shall have been
issued and the Company posts a surety bond for the benefit of such Holder in the
amount of the difference  between the Conversion Price and the Closing Bid Price
on the trading day preceding the date of the attempted conversion  multiplied by
the number of shares of Series B Preferred  Stock sought to be converted,  which
bond shall remain in effect until the  completion of  arbitration/litigation  of
the  dispute  and the  proceeds  of which shall be payable to such holder in the
event it obtains judgment.

          (g) Certificates as to Adjustments. Upon occurrence of each adjustment
or  readjustment  of the  Conversion  Price or number of shares of Common  Stock
issuable  upon  conversion  of the Series B  Preferred  Stock  pursuant  to this
Section 5, the Company at its expense shall promptly  compute such adjustment or
readjustment  in accordance  with the terms hereof and furnish to each holder of
such Series B Preferred  Stock a certificate  setting forth such  adjustment and
readjustment,  showing  in detail  the  facts  upon  which  such  adjustment  or
readjustment is based. The Company shall,  upon written request of the Holder of
such  affected  Series B Preferred  Stock,  at any time,  furnish or cause to be
furnished to such Holder a like  certificate  setting forth such adjustments and
readjustments,  the applicable  Conversion  Price in effect at the time, and the

                                       13
<PAGE>

number of shares of Common Stock and the amount,  if any, of other securities or
property  which at the time would be received upon the  conversion of a share of
such Series B Preferred Stock.  Notwithstanding the foregoing, the Company shall
not be obligated to deliver a certificate  unless such certificate would reflect
an increase or decrease of at least one percent of such adjusted amount.

          (h) Issue  Taxes.  The  Company  shall pay any and all issue and other
taxes,  excluding  federal,  state or local income taxes, that may be payable in
respect of any issue or  delivery  of shares of Common  Stock on  conversion  of
shares of Series B Preferred Stock pursuant thereto; provided, however, that the
Company  shall not be  obligated to pay any transfer  taxes  resulting  from any
transfer requested by any holder in connection with any such conversion.

          (i) Notices. All notices and other  communications  hereunder shall be
in writing and shall be deemed given if delivered  personally or by facsimile or
three (3) business days following being mailed by certified or registered  mail,
postage prepaid,  return-receipt requested, addressed to the holder of record at
its address appearing on the books of the Company. The Company will give written
notice to each  Holder at least  twenty (20) days prior to the date on which the
Company  closes its books or takes a record (I) with  respect to any dividend or
distribution  upon  the  Common  Stock,  (II)  with  respect  to  any  pro  rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change, dissolution,  liquidation or winding-up
and in no event  shall such  notice be  provided  to such  holder  prior to such
information  being made known to the public.  The Company will also give written
notice to each  Holder at least  twenty (20) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be  provided  to such holder  prior to such  information
being made known to the public.

          (j) Fractional  Shares.  No fractional shares of Common Stock shall be
issued  upon  conversion  of the  Series  B  Preferred  Stock.  In  lieu  of any
fractional  shares to which the Holder would otherwise be entitled,  the Company
shall pay cash equal to the product of such  fraction  multiplied by the average
of the  Closing  Bid  Prices of the  Common  Stock for the five (5)  consecutive
trading days  immediately  preceding the Voluntary  Conversion Date or Mandatory
Conversion Date, as applicable.

          (k)  Reservation  of Common  Stock.  Beginning on the date that is 180
days after the date  hereof,  so long as any shares of Series B Preferred  Stock
are  outstanding,  reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Series B
Preferred  Stock,  such  number of shares of Common  Stock as shall from time to
time be  sufficient  to effect the  conversion  of all of the Series B Preferred
Stock then  outstanding;  provided  that the number of shares of Common Stock so
reserved shall at no time be less than two hundred  percent (200%) of the number
of shares of Common  Stock for which the shares of Series B Preferred  Stock are
at any time  convertible.  The initial number of shares of Common Stock reserved
for  conversions of the Series B Preferred Stock and each increase in the number
of shares so reserved shall be allocated pro rata among the Holders based on the

                                       14
<PAGE>

number of shares of Series B Preferred  Stock held by each Holder at the time of
issuance of the Series B  Preferred  Stock or increase in the number of reserved
shares,  as the  case may be.  In the  event a Holder  shall  sell or  otherwise
transfer  any of  such  Holder's  shares  of  Series  B  Preferred  Stock,  each
transferee  shall be  allocated  a pro rata  portion of the  number of  reserved
shares of Common Stock reserved for such transferor.  Any shares of Common Stock
reserved and which remain  allocated to any person or entity which does not hold
any shares of Series B  Preferred  Stock  shall be  allocated  to the  remaining
Holders, pro rata based on the number of shares of Series B Preferred Stock then
held by such Holder. The Company shall, from time to time in accordance with the
Delaware  Law, as amended,  increase the  authorized  number of shares of Common
Stock if at any time the  unissued  number  of  authorized  shares  shall not be
sufficient to satisfy the Company's obligations under this Section 5(k).

          (l)  Retirement  of Series B Preferred  Stock.  Conversion of Series B
Preferred  Stock  shall  be  deemed  to have  been  effected  on the  applicable
Voluntary  Conversion  Date or  Mandatory  Conversion  Date,  and  such  date is
referred to herein as the "Conversion  Date".  Upon conversion of only a portion
of the number of shares of Series B Preferred Stock represented by a certificate
surrendered for  conversion,  the Company shall issue and deliver to such Holder
at the expense of the Company,  a new certificate  covering the number of shares
of  Series  B  Preferred  Stock  representing  the  unconverted  portion  of the
certificate so surrendered as required by Section 5(b)(ii).

          (m)  Regulatory  Compliance.  If any  shares  of  Common  Stock  to be
reserved  for the  purpose of  conversion  of Series B Preferred  Stock  require
registration or listing with or approval of any  governmental  authority,  stock
exchange or other  regulatory  body under any federal or state law or regulation
or  otherwise  before  such  shares  may be  validly  issued or  delivered  upon
conversion,  the Company shall, at its sole cost and expense,  in good faith and
as expeditiously as possible,  endeavor to secure such registration,  listing or
approval, as the case may be.

     6.   No  Preemptive  Rights.  Except as provided in Section 5 hereof and in
the Securities  Purchase  Agreement,  no holder of the Series B Preferred  Stock
shall be entitled to rights to  subscribe  for,  purchase or receive any part of
any  new  or  additional  shares  of  any  class,  whether  now  or  hereinafter
authorized,  or of  bonds or  debentures,  or other  evidences  of  indebtedness
convertible  into or exchangeable  for shares of any class,  but all such new or
additional  shares of any class,  or any bond,  debentures or other evidences of
indebtedness  convertible  into or  exchangeable  for shares,  may be issued and
disposed of by the Board of Directors  on such terms and for such  consideration
(to the extent  permitted by law), and to such person or persons as the Board of
Directors in their absolute discretion may deem advisable.

     7.   Conversion Restrictions.

          (a)  Notwithstanding any other provision herein, the Company shall not
be obligated to issue any shares of Common Stock upon conversion of the Series B
Preferred Stock if the issuance of such shares of Common Stock would exceed that
number of shares of Common Stock which the Company may issue upon  conversion of
the  Series B  Preferred  Stock  (the  "Exchange  Cap")  without  breaching  the

                                       15
<PAGE>

Company's  obligations  under the rules or regulations of the OTC Bulletin Board
or any Alternative Exchange,  except that such limitation shall not apply in the
event that the Company (a) obtains the approval of its  stockholders as required
by applicable rules of the OTC Bulletin Board or any Alternative  Exchange,  for
issuances of Common Stock in excess of such amount (the "Shareholder  Approval")
or (b) obtains a written  opinion from outside  counsel to the Company that such
approval is not required,  which opinion shall be reasonably satisfactory to the
holders  of  a  majority  of  the  shares  of  Series  B  Preferred  Stock  then
outstanding;  provided,  however,  that  notwithstanding  anything herein to the
contrary, the Company, will issue such number of shares of Common Stock issuable
upon conversion of the Series B Preferred  Stock at the then current  Conversion
Price up to the  Exchange  Cap.  If the  conversion  of any  shares  of Series B
Preferred  Stock  would  result in the  issuance  of Common  Stock  which in the
aggregate  would equal or exceed the  Exchange  Cap,  the Company  shall  within
thirty  (30) days of the such  conversion  request,  (i) call a  meeting  of its
stockholders in order to seek the Shareholder Approval as may be required by the
applicable  rules or regulations  of the OTC Bulletin  Board or the  Alternative
Exchange, as applicable (the "Stockholders Meeting"), which Stockholders Meeting
shall take place within sixty (60) days of the conversion  request and (ii) file
a proxy  statement  with the  Securities  and  Exchange  Commission.  Until such
approval  or written  opinion  is  obtained,  no Holder of Series B  Convertible
Preferred Stock pursuant to the Securities  Purchase  Agreement shall be issued,
upon conversion of shares of Series B Preferred Stock, shares of Common Stock in
an amount greater than the product of (i) the Exchange Cap amount  multiplied by
(ii) a  fraction,  the  numerator  of which is the  number of shares of Series B
Preferred  Stock  issued to such  Holder  pursuant  to the  Securities  Purchase
Agreement and the denominator of which is the aggregate amount of all the shares
of Series B Preferred  Stock  issued to the Holders  pursuant to the  Securities
Purchase Agreement (the "Cap Allocation  Amount").  In the event that any Holder
shall  convert all of such  Holder's  shares of Series B Preferred  Stock into a
number of shares of Common  Stock  which,  in the  aggregate,  is less than such
Holder's Cap Allocation  Amount,  then the difference  between such Holder's Cap
Allocation  Amount and the number of shares of Common Stock  actually  issued to
such Holder shall be allocated to the respective  Cap Allocation  Amounts of the
remaining  Holders of Series B Preferred Stock on a pro rata basis in proportion
to the  number  of shares of  Series B  Preferred  Stock  then held by each such
Holder.  If the Company obtains the Shareholder  Approval,  the Company shall be
obligated  to issue upon  conversion  of the Series B  Preferred  Stock,  in the
aggregate,  shares of Common Stock in excess of the Exchange Cap. If the Company
fails to obtain the Shareholder  Approval or call the Stockholder Meeting within
the time period set forth herein, any Holder may exercise its rights pursuant to
Section 9(a) hereof.  Nothing in this Section 7(a) shall limit a Holder's  right
to request conversion of its shares of Series B Preferred Stock or such Holder's
rights under Section 9 hereof.

          (b) Notwithstanding anything to the contrary set forth in Section 5 of
this  Certificate of Designation,  at no time may a Holder convert shares of the
Series B  Preferred  Stock if the number of shares of Common  Stock to be issued
pursuant to such conversion would exceed,  when aggregated with all other shares
of Common  Stock  owned by such  Holder at such  time,  the  number of shares of
Common Stock which would result in such Holder  owning more than 9.99% of all of
the Common Stock outstanding at such time; provided, however, that upon a Holder

                                       16
<PAGE>

of Series B Preferred  Stock providing the Company with  seventy-five  (75) days
notice  (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such Holder
would like to waive Section 7(b) of this  Certificate of Designation with regard
to any or all  shares of  Common  Stock  issuable  upon  conversion  of Series B
Preferred Stock, this Section 7(b) shall be of no force or effect with regard to
those shares of Series B Preferred  Stock  referenced  in the Waiver Notice.

     8.   Redemption.

          (a) Redemption Option Upon Major Transaction. In addition to all other
rights of the Holders  contained  herein,  simultaneous with the occurrence of a
Major Transaction (as defined below),  each Holder shall have the right, at such
Holder's  option,  to  require  the  Company  to redeem all or a portion of such
Holder's  shares  of Series B  Preferred  Stock at a price per share of Series B
Preferred  Stock  equal to the greater of (i) one  hundred  twenty five  percent
(125%) of the  Liquidation  Preference  Amount  and (ii) the  product of (A) the
Conversion Rate and (B) the Closing Bid Price of the Common Stock on the trading
date  immediately  preceding  such Major  Transaction  (the  "Major  Transaction
Redemption Price").

          (b) Redemption  Option Upon Triggering Event. In addition to all other
rights of the  holders of Series B Preferred  Stock  contained  herein,  after a
Triggering  Event (as defined below),  each Holder shall have the right, at such
Holder's  option,  to  require  the  Company  to redeem all or a portion of such
Holder's  shares  of Series B  Preferred  Stock at a price per share of Series B
Preferred  Stock  equal to the greater of (i) one  hundred  twenty five  percent
(125%) of the  Liquidation  Preference  Amount  and (ii) the  product of (A) the
Conversion  Rate (as  defined in Section  5(a)) at such time and (B) the Closing
Bid Price of the Common Stock  calculated as of the date  immediately  preceding
such Triggering  Event on which the exchange or market on which the Common Stock
is traded is open (the  "Triggering  Event Redemption  Price" and,  collectively
with the "Major Transaction Redemption Price," the "Redemption Price").

          (c) "Major Transaction". A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:

              (i) the consolidation, merger or other business combination of the
Company  with or into  another  Person  (other than (A)  pursuant to a migratory
merger  effected  solely  for  the  purpose  of  changing  the  jurisdiction  of
incorporation  of the Company or (B) a  consolidation,  merger or other business
combination in which holders of the Company's voting power  immediately prior to
the transaction  continue after the transaction to hold, directly or indirectly,
the  voting  power of the  surviving  entity or  entities  necessary  to elect a
majority of the members of the board of directors (or their  equivalent if other
than a corporation) of such entity or entities).

              (ii)  the  sale or  transfer  of all or  substantially  all of the
Company's assets; or

              (iii) consummation of a purchase, tender or exchange offer made to
the holders of more than 30% of the outstanding shares of Common Stock.

                                       17
<PAGE>


          (d) "Triggering  Event". A "Triggering  Event" shall be deemed to have
occurred at such time as any of the following events:

              (i) the  failure  of the  Registration  Statement  to be  declared
effective by the SEC on or prior to the date which is two hundred  seventy (270)
days after the Closing Date;

              (ii) while the Registration Statement is required to be maintained
effective  pursuant  to the  terms of the  Registration  Rights  Agreement,  the
effectiveness  of the Registration  Statement lapses for any reason  (including,
without  limitation,  the  issuance  of a stop order) or is  unavailable  to the
Holder for sale of the  Registrable  Securities (as defined in the  Registration
Rights  Agreement)  in  accordance  with the  terms of the  Registration  Rights
Agreement,  and  such  lapse or  unavailability  continues  for a period  of ten
consecutive   trading   days,   provided   that  the  cause  of  such  lapse  or
unavailability  is not due to factors  solely within the control of such Holder;

              (iii) the  suspension  from  listing or the  failure of the Common
Stock to be listed on the OTC Bulletin Board,  the Nasdaq SmallCap  Market,  the
Nasdaq National Market, The New York Stock Exchange,  Inc. or The American Stock
Exchange, Inc., as applicable, for a period of five (5) consecutive days;

              (iv) the  Company's  notice  to any  Holder,  including  by way of
public announcement,  at any time, of its inability to comply (including for any
of the  reasons  described  in Section 9) or its  intention  not to comply  with
proper  requests for  conversion of any Series B Preferred  Stock into shares of
Common Stock;

              (v) the  Company's  failure  to comply  with a  Conversion  Notice
tendered in accordance  with the  provisions of this  Certificate of Designation
within ten (10) business days after the receipt by the Company of the Conversion
Notice and the Preferred Stock Certificates;

              (vi)  the  Company's  failure  for any  reason  to pay in full the
amount of cash due pursuant to a "buy-in"  within five (5)  business  days after
notice therefor is delivered  hereunder or shall fail to pay all amounts owed on
account of a default within five (5) business days of the date due; or

              (vii) the Company breaches any representation,  warranty, covenant
or  other  term  or  condition  of  the  Securities  Purchase   Agreement,   the
Registration  Rights  Agreement,  this  Certificate  of Designation or any other
agreement,  document,  certificate or other  instrument  delivered in connection
with the transactions contemplated thereby or hereby.

          (e) Mechanics of Redemption at Option of Buyer Upon Major Transaction.
No sooner  than  fifteen  (15) days nor  later  than ten (10) days  prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major  Transaction,  the Company shall deliver  written  notice thereof via
facsimile and overnight courier ("Notice of Major  Transaction") to each Holder.
At any time after receipt of a Notice of Major  Transaction  (or, in the event a
Notice of Major  Transaction  is not delivered at least ten (10) days prior to a
Major  Transaction,  at  any  time  within  ten  (10)  days  prior  to  a  Major
Transaction),  any  Holder of Series B  Preferred  Stock  then  outstanding  may

                                       18
<PAGE>

require the Company to redeem,  effective  immediately prior to the consummation
of such Major  Transaction,  all of the Holder's  Series B Preferred  Stock then
outstanding  by delivering  written  notice  thereof via facsimile and overnight
courier  ("Notice of Redemption at Option of Buyer Upon Major  Transaction")  to
the  Company,  which  Notice  of  Redemption  at  Option  of  Buyer  Upon  Major
Transaction  shall indicate (i) the number of shares of Series B Preferred Stock
that such Holder is electing to redeem and (ii) the applicable Major Transaction
Redemption Price, as calculated pursuant to Section 8(a) above.


          (f) Mechanics of Redemption at Option of Buyer Upon Triggering  Event.
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight  courier  ("Notice of
Triggering  Event") to each Holder.  At any time after the earlier of a Holder's
receipt of a Notice of  Triggering  Event and such  holder  becoming  aware of a
Triggering  Event,  any Holder of Series B Preferred Stock then  outstanding may
require the Company to redeem all of the Series B Preferred  Stock by delivering
written  notice  thereof  via  facsimile  and  overnight   courier  ("Notice  of
Redemption  at Option of Buyer Upon  Triggering  Event") to the  Company,  which
Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of shares of Series B Preferred Stock that such Holder is electing to
redeem and (ii) the applicable  Triggering Event Redemption Price, as calculated
pursuant to Section 8(b) above.

          (g)  Payment of  Redemption  Price.  Upon the  Company's  receipt of a
Notice(s) of Redemption at Option of Buyer Upon Triggering  Event or a Notice(s)
of Redemption  at Option of Buyer Upon Major  Transaction  from any Holder,  the
Company  shall  immediately  notify each Holder by  facsimile  of the  Company's
receipt of such Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or Notice(s) of  Redemption at Option of Buyer Upon Major  Transaction  and each
Holder  which has sent such a notice shall  promptly  submit to the Company such
Holder's  Preferred  Stock  Certificates  which such  Holder has elected to have
redeemed.  The Company shall deliver the applicable  Triggering Event Redemption
Price,  in the case of a  redemption  pursuant to Section  8(f),  to such Holder
within  five (5)  business  days  after  the  Company's  receipt  of a Notice of
Redemption  at Option  of Buyer  Upon  Triggering  Event  and,  in the case of a
redemption  pursuant to Section 8(e),  the Company shall deliver the  applicable
Major Transaction  Redemption Price immediately prior to the consummation of the
Major  Transaction;  provided that a Holder's Preferred Stock Certificates shall
have been so delivered to the Company;  provided  further that if the Company is
unable to redeem all of the Series B Preferred Stock to be redeemed, the Company
shall  redeem an amount  from each  Holder  of Series B  Preferred  Stock  being
redeemed equal to such Holder's  pro-rata  amount (based on the number of shares
of Series B Preferred Stock held by such Holder relative to the number of shares
of Series B Preferred  Stock  outstanding) of all Series B Preferred Stock being
redeemed.  If the  Company  shall fail to redeem  all of the Series B  Preferred
Stock  submitted  for  redemption  (other  than  pursuant to a dispute as to the
arithmetic  calculation of the Redemption Price), in addition to any remedy such
Holder  of  Series  B  Preferred  Stock  may  have  under  this  Certificate  of
Designation and the Securities  Purchase  Agreement,  the applicable  Redemption
Price payable in respect of such unredeemed  Series B Preferred Stock shall bear

                                       19
<PAGE>

interest at the rate of 2.0% per month  (prorated for partial months) until paid
in full. Until the Company pays such unpaid applicable  Redemption Price in full
to a Holder of shares of Series B Preferred Stock submitted for redemption, such
Holder shall have the option (the "Void Optional Redemption Option") to, in lieu
of redemption,  require the Company to promptly  return to such Holder(s) all of
the shares of Series B Preferred  Stock that were  submitted  for  redemption by
such  Holder(s)  under this  Section 8 and for which the  applicable  Redemption
Price has not been paid, by sending  written  notice  thereof to the Company via
facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt of
such  Void  Optional  Redemption  Notice(s)  and  prior to  payment  of the full
applicable  Redemption Price to such Holder,  (i) the Notice(s) of Redemption at
Option of Buyer Upon  Triggering  Event or the Notice(s) of Redemption at Option
of Buyer Upon Major Transaction, as the case may be, shall be null and void with
respect to those shares of Series B Preferred Stock submitted for redemption and
for which the applicable  Redemption  Price has not been paid,  (ii) the Company
shall  immediately  return any Series B Preferred Stock submitted to the Company
by each  Holder  for  redemption  under  this  Section  8(g) and for  which  the
applicable  Redemption  Price has not been  paid and (iii) the Fixed  Conversion
Price of such returned  shares of Series B Preferred  Stock shall be adjusted to
the lesser of (A) the Fixed  Conversion  Price as in effect on the date on which
the Void Optional  Redemption  Notice(s) is delivered to the Company and (B) the
lowest  Closing Bid Price  during the period  beginning on the date on which the
Notice(s)  of  Redemption  of  Option of Buyer  Upon  Major  Transaction  or the
Notice(s) of Redemption at Option of Buyer Upon  Triggering  event,  as the case
may be, is  delivered  to the  Company  and ending on the date on which the Void
Optional  Redemption  Notice(s) is delivered  to the Company;  provided  that no
adjustment  shall be made if such adjustment  would result in an increase of the
Fixed Conversion  Price then in effect.  Notwithstanding  the foregoing,  in the
event of a  dispute  as to the  determination  of the  Closing  Bid Price or the
arithmetic  calculation of the Redemption  Price, such dispute shall be resolved
pursuant to Section  5(b)(iii)  above with the term  "Closing  Bid Price"  being
substituted for the term "Average Share Price" and the term  "Redemption  Price"
being substituted for the term "Conversion Price". A Holder's delivery of a Void
Optional  Redemption  Notice and  exercise of its rights  following  such notice
shall not effect  the  Company's  obligations  to make any  payments  which have
accrued prior to the date of such notice.  Payments provided for in this Section
8 shall have priority to payments to other  stockholders  in  connection  with a
Major Transaction.

          (h) Company's  Redemption  Option.  (x) After the Company has actually
drawn down not less than $300,000 under the Common Stock  Purchase  Agreement by
and between the Company and Torneaux Ltd.,  dated as of June 2, 2000, as amended
through the date hereof (the "Equity  Line"),  the Company  shall apply at least
one-half  (1/2) of the proceeds of amounts  subsequently  drawn down by it under
the Equity Line toward the redemption of all of the outstanding Preferred Shares
(as defined in the  Securities  Purchase  Agreement)  until all of the Preferred
Shares have been redeemed.

              (y)  Subject to the  foregoing,  the  Company  may redeem all or a
portion of the Series B Preferred  Stock  outstanding  upon two (2) trading days
prior written notice (the "Company's Redemption Notice") at a price per share of
Series B Preferred Stock equal to:

                                       20
<PAGE>


              (i) if redeemed  within sixty (60) days from the Closing  Date, at
105% of the Liquidation  Preference Amount plus any accrued but unpaid dividends
(the "Company's Redemption Price");

              (ii) if redeemed between and including the sixty-first  (61st) day
and the one hundred twentieth (120th) day after the Closing Date, at 106% of the
Liquidation Preference Amount plus any accrued but unpaid dividends;

              (iii)  if  redeemed   between  and   including   the  one  hundred
twenty-first  (121st)  day and the one  hundred  eightieth  (180th) day from the
Closing Date, at 107% of the Liquidation  Preference Amount plus any accrued but
unpaid dividends; and

              (iv) if redeemed on or after the one hundred  eighty-first (181st)
day  from  the  Closing  Date,  at one  hundred  eleven  percent  (108%)  of the
Liquidation  Preference  Amount  plus any  accrued  but  unpaid  dividends  (the
"Company's Redemption Price");

provided, that (i) if the Company's Redemption Notice is received after 180 days
after the Closing Date and (ii) a Holder has  delivered a  Conversion  Notice to
the Company or delivers a Conversion  Notice within  twenty-four (24) of receipt
of the Company's  Redemption  Notice, up to fifty percent (50%) of the shares of
Series B Preferred  Stock  designated  to be redeemed  may be  converted by such
holder;  provided  further  that if during the period  between  delivery  of the
Company's  Redemption  Notice  and the  Redemption  Date a Holder  shall  become
entitled  to  deliver a Notice of  Redemption  at  Option  of Buyer  Upon  Major
Transaction  or Notice of Redemption at Option of Buyer upon  Triggering  Event,
then  the  right of such  holder  shall  take  precedence  over  the  previously
delivered Company Redemption Notice. The Company's Redemption Notice shall state
the date of redemption which date shall be the fifth (5th) trading day after the
Company has delivered the Company's Redemption Notice (the "Company's Redemption
Date"),  the Company's  Redemption Price and the number of shares to be redeemed
by the Company.  The Company shall not send a Company's Redemption Notice unless
it has good and clear  funds for a minimum of the amount it intends to redeem in
a bank account  controlled by the Company;  provided  that if the  redemption is
expected to be made  contemporaneous  with the closing of a public  underwritten
offering of the  Company,  then the Company may not have good and clear funds in
the bank account at the time of the Company's Redemption Notice and may not send
any such Company's  Redemption  Notice earlier than the day immediately prior to
the date the public offering is priced.  The Company shall deliver the Company's
Redemption  Price to the counsel to the Purchasers (as defined in the Securities
Purchase Agreement) within five (5) trading days after the Company has delivered
the Company's  Redemption Notice,  provided,  that if the Holder(s) deliver(s) a
Conversion Notice before the Company's  Redemption Date, then the portion of the
Company's  Redemption Price which would be paid to redeem the shares of Series B
Preferred  Stock  covered by such  Conversion  Notice  shall be  returned to the
Company  upon  delivery of the Common  Stock  issuable in  connection  with such
Conversion  Notice to the Holder(s).  On the Redemption Date, the counsel to the
Purchasers shall pay the Company's  Redemption Price,  subject to any adjustment
pursuant to the immediately  preceding sentence,  to the Holder(s) on a pro rata
basis, provided,  however, that upon receipt by the counsel to the Purchasers of

                                       21
<PAGE>

the Preferred Stock  Certificates to be redeemed  pursuant to this Section 8(h),
the counsel to the Purchasers shall, on the next business day following the date
of  receipt  by  the  counsel  to  the  Purchasers  of  such   Preferred   Stock
Certificates,  pay the Company's Redemption Price to the Holder(s) on a pro rata
basis. If the Company fails to pay the Company's  Redemption  Price by the sixth
(6th)  trading day after the  Company has  delivered  the  Company's  Redemption
Notice  (or  in the  case  of a  public  offering,  the  closing  of the  public
offering),  the redemption  will be declared null and void and the Company shall
lose its right to serve a Company's Redemption Notice in the future.

     9.   Inability to Fully Convert.

          (a)  Holder's  Option if Company  Cannot Fully  Convert.  If, upon the
Company's  receipt of a Conversion  Notice or on the Mandatory  Conversion Date,
the Company cannot issue shares of Common Stock  registered for resale under the
Registration Statement for any reason,  including,  without limitation,  because
the  Company  (w) does not have a  sufficient  number of shares of Common  Stock
authorized and available,  (x) failed to call the Stockholder Meeting within the
time  period  set forth in  Section 7 hereof,  (y) is  otherwise  prohibited  by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other  self-regulatory  organization  with jurisdiction over
the Company or its  securities  from issuing all of the Common Stock which is to
be issued to a Holder  pursuant  to a  Conversion  Notice or (z) fails to have a
sufficient  number of shares of Common  Stock  registered  for resale  under the
Registration  Statement,  then the Company  shall issue as many shares of Common
Stock as it is able to issue in accordance with such Holder's  Conversion Notice
and pursuant to Section  5(b)(ii)  above and,  with  respect to the  unconverted
Series B Preferred Stock, the Holder, solely at such holder's option, can elect,
within five (5) business days after  receipt of notice from the Company  thereof
to:

              (i) require the Company to redeem from such Holder  those Series B
Preferred  Stock for  which the  Company  is  unable  to issue  Common  Stock in
accordance with such Holder's  Conversion Notice  ("Mandatory  Redemption") at a
price  per  share  equal to the  Triggering  Event  Redemption  Price as of such
Conversion  Date  (the  "Mandatory   Redemption  Price");

              (ii)  if  the  Company's  inability  to  fully  convert  Series  B
Preferred  Stock is pursuant to Section  9(a)(z)  above,  require the Company to
issue  restricted  shares  of Common  Stock in  accordance  with  such  Holder's
Conversion Notice and pursuant to Section 5(b)(ii) above; or

              (iii) void its Conversion  Notice and retain or have returned,  as
the case  may be,  the  shares  of  Series B  Preferred  Stock  that  were to be
converted pursuant to such Holder's  Conversion Notice (provided that a Holder's
voiding its Conversion Notice shall not effect the Company's obligations to make
any payments which have accrued prior to the date of such notice).

          (b)  Mechanics of  Fulfilling  Holder's  Election.  The Company  shall
immediately send via facsimile to a Holder,  upon receipt of a facsimile copy of
a  Conversion  Notice  from  such  Holder  which  cannot be fully  satisfied  as

                                       22
<PAGE>

described in Section 9(a) above,  a notice of the  Company's  inability to fully
satisfy  such  Holder's  Conversion  Notice  (the  "Inability  to Fully  Convert
Notice").  Such  Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such Holder's Conversion Notice, (ii)
the number of Series B Preferred  Stock which cannot be converted  and (iii) the
applicable  Mandatory  Redemption Price. Such Holder shall notify the Company of
its election  pursuant to Section 9(a) above by  delivering  written  notice via
facsimile to the Company ("Notice in Response to Inability to Convert").

          (c) Payment of  Redemption  Price.  If such Holder shall elect to have
its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the
Mandatory Redemption Price in cash to such Holder within thirty (30) days of the
Company's  receipt of the  Holder's  Notice in Response to Inability to Convert,
provided that prior to the Company's  receipt of the Holder's Notice in Response
to  Inability  to Convert the Company has not  delivered a notice to such Holder
stating,  to the  satisfaction  of the  Holder,  that  the  event  or  condition
resulting in the Mandatory  Redemption has been cured and all Conversion  Shares
issuable to such Holder can and will be  delivered  to the Holder in  accordance
with the terms of Section 2(g). If the Company shall fail to pay the  applicable
Mandatory Redemption Price to such Holder on a timely basis as described in this
Section 9(c) (other than  pursuant to a dispute as to the  determination  of the
arithmetic  calculation of the Redemption Price), in addition to any remedy such
Holder  may have  under  this  Certificate  of  Designation  and the  Securities
Purchase  Agreement,  such unpaid amount shall bear interest at the rate of 2.0%
per month  (prorated  for  partial  months)  until paid in full.  Until the full
Mandatory  Redemption Price is paid in full to such Holder,  such Holder may (i)
void the Mandatory Redemption with respect to those Series B Preferred Stock for
which the full Mandatory  Redemption  Price has not been paid, (ii) receive back
such Series B Preferred  Stock,  and (iii) require that the Conversion  Price of
such  returned  Series B  Preferred  Stock be  adjusted to the lesser of (A) the
Conversion  Price as in  effect  on the  date on which  the  Holder  voided  the
Mandatory  Redemption  and (B) the lowest  Closing  Bid Price  during the period
beginning on the  Conversion  Date and ending on the date the Holder  voided the
Mandatory Redemption. Notwithstanding the foregoing, if the Company fails to pay
the  applicable  Mandatory  Redemption  Price  within such thirty (30) days time
period due to a dispute as to the determination of the arithmetic calculation of
the  Redemption  Rate,  such  dispute  shall be  resolved  pursuant  to  Section
5(b)(iii) above with the term "Redemption  Price" being substituted for the term
"Conversion Price".

          (d)  Pro-rata  Conversion  and  Redemption.  In the event the  Company
receives a  Conversion  Notice from more than one Holder on the same day and the
Company  can  convert  and redeem  some,  but not all, of the Series B Preferred
Stock pursuant to this Section 9, the Company shall convert and redeem from each
Holder  electing to have Series B Preferred Stock converted and redeemed at such
time an amount  equal to such  Holder's  pro-rata  amount  (based on the  number
shares of Series B Preferred  Stock held by such  Holder  relative to the number
shares  of  Series B  Preferred  Stock  outstanding)  of all  shares of Series B
Preferred Stock being converted and redeemed at such time.

                                       23
<PAGE>


     10.  Vote to Change the Terms of or Issue Preferred  Stock. The affirmative
vote at a meeting duly called for such purpose or the written  consent without a
meeting,  of the  Holders  of not  less  than  three-fourths  (3/4)  of the then
outstanding  shares of Series B Preferred  Stock,  shall be required (a) for any
change to this  Certificate  of  Designation  or the  Company's  Certificate  of
Incorporation  which  would  amend,  alter,  change or repeal any of the powers,
designations,  preferences and rights of the Series B Preferred Stock or (b) for
the  issuance of shares of Series B Preferred  Stock other than  pursuant to the
Securities Purchase Agreement.

     11.  Lost or Stolen  Certificates.  Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred  Stock  Certificates  representing  the  shares of Series B  Preferred
Stock,  and, in the case of loss, theft or destruction,  of any  indemnification
undertaking  by the Holder to the Company and, in the case of  mutilation,  upon
surrender and  cancellation of the Preferred Stock  Certificate(s),  the Company
shall execute and deliver new preferred stock  certificate(s)  of like tenor and
date;  provided,  however,  the  Company  shall  not be  obligated  to  re-issue
Preferred  Stock  Certificates  if the  Holder  contemporaneously  requests  the
Company to convert such shares of Series B Preferred Stock into Common Stock.

     12.  Remedies,   Characterizations,   Other   Obligations,   Breaches   and
Injunctive  Relief.  The remedies  provided in this  Certificate  of Designation
shall be cumulative and in addition to all other remedies  available  under this
Certificate of Designation,  at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing  herein shall limit a Holder's  right to pursue  actual  damages for any
failure  by the  Company  to  comply  with  the  terms  of this  Certificate  of
Designation.  Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received  by the Holder  thereof  and shall not,  except as  expressly  provided
herein,  be subject to any other  obligation of the Company (or the  performance
thereof).  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder will cause  irreparable  harm to the holders of the Series B Preferred
Stock and that the  remedy at law for any such  breach  may be  inadequate.  The
Company  therefore  agrees that,  in the event of any such breach or  threatened
breach,  the Holders  shall be  entitled,  in  addition  to all other  available
remedies,  to an  injunction  restraining  any breach,  without the necessity of
showing economic loss and without any bond or other security being required.

     13.  Specific Shall Not Limit General;  Construction. No specific provision
contained  in this  Certificate  of  Designation  shall limit or modify any more
general  provision  contained  herein.  This Certificate of Designation shall be
deemed to be jointly  drafted by the Company and all initial  purchasers  of the
Series B Preferred  Stock and shall not be  construed  against any person as the
drafter hereof.

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

                                       24
<PAGE>


         IN WITNESS  WHEREOF,  the  undersigned has executed and subscribed this
Certificate  and does affirm the  foregoing as true this 22nd day of  September,
2000.



                                              DBS INDUSTRIES, INC.



                                              By:_______________________________
                                                  Name:  Fred W. Thompson
                                                  Title: CEO and President


                                       25
<PAGE>


                                                                       EXHIBIT I

                              DBS INDUSTRIES, INC.
                                CONVERSION NOTICE

Reference is made to the  Certificate of Designation of the Relative  Rights and
Preferences  of the  Series B  Preferred  Stock  of DBS  Industries,  Inc.  (the
"Certificate  of   Designation").   In  accordance  with  and  pursuant  to  the
Certificate of Designation,  the undersigned hereby elects to convert the number
of  shares  of Series B  Preferred  Stock,  par  value  $.0004  per  share  (the
"Preferred  Shares"),  of DBS  Industries,  Inc.,  a Delaware  corporation  (the
"Company"),  indicated below into shares of Common Stock,  $.0004 par value (the
"Common  Stock"),  of  the  Company,  by  tendering  the  stock   certificate(s)
representing  the share(s) of Preferred  Shares  specified  below as of the date
specified    below.

  Date of Conversion:                           ________________________________

  Number of Preferred Shares to be converted:   ________________________________

  Stock certificate no(s). of Preferred Shares to be converted:  _______________

  The Common Stock have been sold  pursuant to the  Registration  Statement  (as
defined in the Registration Rights Agreement): YES ____ NO____

Please confirm the following information:

  Conversion Price:                             ________________________________

  Number of shares of Common Stock
  to be issued:                                 ________________________________

Please  issue the  Common  Stock  into  which  the  Preferred  Shares  are being
converted  and, if  applicable,  any check drawn on an account of the Company in
the following name and to the following address:

         Issue to:                              ________________________________


         Facsimile Number:                      ________________________________

         Authorization:                         ________________________________
                                                By:    _________________________
                                                Title: _________________________

         Dated:


                                 PRICES ATTACHED


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<PAGE>


                          CERTIFICATE OF CORRECTION OF
              CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
                                   PREFERENCES
                                     OF THE
                      SERIES B CONVERTIBLE PREFERRED STOCK
                                       OF
                              DBS INDUSTRIES, INC.



It is hereby certified that:

                  1.  The name of the corporation is DBS  Industries,  Inc. (the
"Corporation").

                  2.  The  Certificate of Designation of the Relative Rights and
Preferences of the Series B Convertible  Preferred Stock of the Corporation (the
"Certificate  of  Designation"),  which was filed by the  Secretary  of State of
Delaware on September 25, 2000, is hereby corrected.

                  3.  The  inaccuracy  to be  corrected  in the  Certificate  of
Designation is as follows:

                           In Section  5(a),  the  reference  to the date of the
                           Series  B  Convertible   Preferred   Stock   Purchase
                           Agreement  should  be  October  6,  2000  instead  of
                           September 25, 2000.

                  4. Section 5(a) of the  Certificate of  Designation  should be
corrected to read as follows:

                           "(a)  Right to  Convert.  At any time on or after one
                           hundred  eighty  (180) days from the Closing Date (as
                           such  term is  defined  in the  Series B  Convertible
                           Preferred  Stock  Purchase   Agreement  dated  as  of
                           October 6, 2000  between  the Company and the initial
                           holders  of  the  Series  B   Preferred   Stock  (the
                           "Securities Purchase Agreement")),  the Holder of any
                           such shares of Series B Preferred  Stock may, at such
                           Holder's option, subject to the limitations set forth
                           in Section 7 herein,  elect to convert (a  "Voluntary
                           Conversion")  all or any  portion  of the  shares  of
                           Series B  Preferred  Stock held by such person into a
                           number  of fully  paid and  nonassessable  shares  of
                           Common  Stock (the  "Conversion  Rate")  equal to the
                           quotient of (i) the Liquidation  Preference Amount of
                           the  shares  of  Series  B   Preferred   Stock  being
                           converted  divided by (ii) the  Conversion  Price (as
                           defined in Section 5(d)(iii) below) then in effect as
                           of the date of the  delivery  by such  Holder  of its
                           notice of  election to  convert;  provided,  however,
                           that a Holder  may not  convert  more than 50% of the
                           Series B Preferred Stock originally purchased by such
                           person in any period of 30 consecutive calendar days,
                           cumulatively."

                                       27
<PAGE>



         IN WITNESS  WHEREOF,  the  undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 9th day October, 2000


                                                 DBS INDUSTRIES, INC.



                                                 By: ______________________
                                                       Name:  Fred W. Thompson
                                                       Title: CEO and President



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