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EXHIBIT 3.5

                      ARTICLES OF AMENDMENT AND RESTATEMENT
                                       OF
                               PHARMANETICS, INC.

         Pursuant to Section 55-10-07 of the North Carolina General Statutes,
the undersigned corporation hereby submits the following for the purpose of
amending and restating its Articles of Incorporation and does hereby certify as
follows:

         1.  The name of the corporation is PharmaNetics, Inc.

         2.  The corporation's Articles of Incorporation are hereby amended and
restated in their entirety, as set forth in the text of the Second Amended and
Restated Articles of Incorporation attached hereto as Exhibit A.

         3.  The Second Amended and Restated Articles of Incorporation of the
corporation were adopted by its Board of Directors without shareholder action on
the 28/th/ day of April 2003, in the manner prescribed by law.

         4.  These Second Amended and Restated Articles of Incorporation will be
effective upon filing.

                                            PHARMANETICS, INC.


                                            By:_________________________________
                                                  John P. Funkhouser, President
                                                  and Chief Executive Officer

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                                    EXHIBIT A

              SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
                                       OF
                               PHARMANETICS, INC.

                                   ARTICLE I.

         The name of the corporation is PharmaNetics, Inc. (the "Corporation").

                                   ARTICLE II.

         The corporation shall have authority to issue 41,000,000 shares, no par
value per share, of which 40,000,000 shares shall be designated "Common Stock"
and 1,000,000 shall be designated "Preferred Stock". Of the authorized shares of
Preferred Stock, 120,000 shares are designated as Series A Preferred Stock (the
"Series A Preferred") and 130,000 shares are designated as Series B Preferred
Stock (the "Series B Preferred"), each with the rights, preferences, privileges
and restrictions set forth below in this Article II. The Board of Directors of
the corporation (the "Board") is authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock, and within the limitations and restrictions
stated in any resolution or resolutions of the Board originally fixing the
number of shares constituting any series, to increase or decrease (but not below
the number of shares of any such series then outstanding) the number of shares
of any such series subsequent to the issue of shares of that series, to
determine the designation of any series and to fix the number of shares of any
series.

         1.  (a)  Relative Seniority. Subject to the rights of additional series
of Preferred Stock that may be designated by the Board from time to time, the
Series A Preferred and Series B Preferred shall rank pari passu to each other
and senior to all other equity securities of the Corporation, including the
Common Stock, with respect to dividend, liquidation, conversion and redemption
rights.

             (b)  Dividend Rights.

                  (i)  Series B Preferred. Subject to the rights of additional
series of Preferred Stock that may be designated by the Board from time to time
and in preference to all holders of Common Stock, the holders of shares of
Series B Preferred shall be entitled to receive cumulative dividends (the
"Series B Dividends"), at a quarterly rate of $2.125 per share of Series B
Preferred (as such dollar amount shall be appropriately adjusted for stock
dividends, stock combinations, recapitalization or the like) plus all accrued
and unpaid dividends accrued thereon pursuant to this Section 1 (the "Series B
Quarterly Dividend Amount"), on each March 31, June 30, September 30 and
December 31 (each, a "Quarterly Dividend Date") after the date on which such
share of Series B Preferred was issued (the "Series B Original Issue Date" for
such share),

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provided that the amount of dividends on the first Quarterly Dividend Date after
the Series B Original Issue Date shall equal the Series B Quarterly Dividend
Amount multiplied by a fraction (A) the numerator of which shall equal the
number of days from and including the Series B Original Issue Date for such
share to and including such first Quarterly Dividend Date, and (B) the
denominator of which is ninety (90). Dividends with respect to the Series B
Preferred must be paid quarterly on each Quarterly Dividend Date as follows: (A)
until September 30, 2005 (or if the first Quarterly Dividend payable is less
than a full Quarterly Dividend, until an aggregate of nine quarters have been
paid), the Series B Quarterly Dividend Amount will be paid in additional shares
of Series B Preferred valued at the Original Series B Purchase Price (as defined
below) on any given Quarterly Dividend Date, and (B) from and after September
30, 2005 (or if the first Quarterly Dividend payable is less than a full
Quarterly Dividend, from and after the date that an aggregate of nine quarters
have been paid under clause (A) above), at the Corporation's option, the Series
B Quarterly Dividend Amount will be paid (i) in cash or (ii) in shares of Common
Stock valued at (x) the volume weighted average of the closing prices of the
Common Stock for the 30 days prior to any given Quarterly Dividend Date as
reported on Nasdaq or such other principal exchange on which such Common Stock
is then traded (y) multiplied by ninety percent (90%); provided, however, (1) if
the Corporation shall declare and pay any dividend to the Series A Preferred in
cash on any Quarterly Dividend Date on which the Series B Quarterly Dividend
Amount is also payable, notwithstanding the provisions of this sentence, the
Corporation shall declare and pay the Series B Quarterly Dividend Amount in cash
to the Series B Preferred for the same period, and (2) if and to the extent the
payment of a Quarterly Dividend in shares of Common Stock would, when added to
the number of shares of Common Stock into which the Series B Preferred is then
convertible, exceed the number of shares then permitted to be issued without
violation of the rules, regulations and interpretations of Nasdaq or the NASD
(as determined in good faith in the sole discretion of the Board of Directors of
the Corporation), such Quarterly Dividend shall be paid in cash unless the
Corporation shall obtain shareholder approval with respect to the issuance of
such shares of Common Stock. The Corporation shall be obligated to declare and
pay each quarterly dividend as set forth above so long as the Corporation has
funds that may be paid out as dividends without violating any law, rule, or
regulation by which the Corporation or its directors are bound. In addition,
holders of shares of Series B Preferred shall be entitled to receive dividends
in the same form and per share amount, and payable at the same time as, any
dividends declared or paid with respect to the Series A Preferred or the Common
Stock (excluding the Series A Quarterly Dividend Amount, as defined below).
Dividends on Series A Preferred or any Common Stock shall be payable per share
of Series B Preferred in an amount equal to the dividends per share payable on
the number of shares of Common Stock into which each share of Series B Preferred
would be convertible under Section 3(a). Any accrued but unpaid dividends shall
be declared and paid at the holders' election immediately prior to (i) a
Liquidation Event (as defined below), (ii) a redemption of any such holder's
Series B Preferred pursuant Section 4(a), or (iii) conversion of any such
holder's Series B Preferred pursuant to Section 3(a).

             (ii) Series A Preferred. Subject to the rights of additional series
of Preferred Stock that may be designated by the Board from time to time and in
preference to all holders of Common Stock, the holders of shares of Series A
Preferred shall be entitled to receive dividends, at a quarterly rate of $1.50
per share of Series A Preferred (as such dollar amount

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shall be appropriately adjusted for stock dividends, stock combinations,
recapitalization or the like, the "Series A Quarterly Dividend Amount") on
Quarterly Dividend Dates after the date on which such share of Series A
Preferred was issued (the "Series A Original Issue Date" for such share),
provided that the amount of dividends on the first Quarterly Dividend Date after
the Series A Original Issue Date shall equal the Quarterly Dividend Amount
multiplied by a fraction (A) the numerator of which shall equal the number of
days from and including the Series A Original Issue Date for such share to and
including such first Quarterly Dividend Date, and (B) the denominator of which
is ninety (90). Dividends with respect to the Series A Preferred must be paid
quarterly on each Quarterly Dividend Date. The Corporation, at its option, must
pay each dividend either (A) in cash on each Quarterly Dividend Date, or (B) in
shares of Common Stock valued as provided in Section 2(d)(ii) below on any given
Quarterly Dividend Date. The Corporation shall be obligated to declare and pay
each quarterly dividend as set forth above so long as the Corporation has funds
that may be paid out as dividends without violating any law, rule, or regulation
by which the Corporation or its directors are bound.

                  (iii)  Common Stock. No dividends shall be declared or paid on
Common Stock unless all dividends are first declared and paid in full with
respect to the Series A Preferred and Series B Preferred.

         2.  Liquidation Preference.

             (a)  Series B Preferred. Subject to the rights of additional
series of Preferred Stock that may be designated by the Board from time to time,
upon the occurrence of a Liquidation Event (as defined below), the holders of
the Series B Preferred shall be entitled to receive, pari passu with the Series
A Preferred and prior and in preference to any distribution of any of the assets
of the Corporation to the holders of Common Stock, an amount per share equal to
the greater of (i) $100.00 (the "Original Series B Purchase Price") plus any
accrued but unpaid dividends for each share of Series B Preferred then held by
them, such amounts being adjusted to reflect stock dividends, stock splits,
combinations, recapitalizations or the like after the Series B Original Issue
Date of such share or (ii) an amount per share holders would have received if
all shares of the Series B Preferred had been converted into Common Stock
immediately prior to the Liquidation Event in accordance with Section 3. Such
greater amount is herein referred to as the "Series B Liquidation Preference."

             (b)  Series A Preferred. Subject to the rights of additional
series of Preferred Stock that may be designated by the Board from time to time,
upon the occurrence of a Liquidation Event, the holders of the Series A
Preferred shall be entitled to receive, pari passu with the Series B Preferred
and prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock, an amount per share equal to $100.00
(the "Original Series A Purchase Price") plus any accrued but unpaid dividends
for each share of Series A Preferred then held by them, such amounts being
adjusted to reflect stock dividends, stock splits, combinations,
recapitalizations or the like after the Series A Original Issue Date of such
share (the "Series A Liquidation Preference"). If, upon any Liquidation Event,
the Corporation's assets to be distributed among the holders of the Series B
Preferred and Series A Preferred are insufficient to permit payment to such
holders of the full Series A Liquidation

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Preference and the Series B Liquidation Preference to which they are entitled
hereunder, then the entire assets to be distributed shall be distributed ratably
among such holders based upon the number of shares of Common Stock held by each
such holder if all shares of Series A Preferred and Series B Preferred had been
converted immediately prior to the Liquidation Event into Common Stock in
accordance with Section 3.

             (c)  Common Stock. After payment of the full Series A Liquidation
Preference and the Series B Liquidation Preference, the entire remaining assets
and funds of the Corporation legally available for distribution, if any, shall
be distributed among the holders of the Common Stock in proportion to the shares
of Common Stock then held by them.

             (d)  (i)  For purposes of this Section 2, a liquidation,
dissolution or winding up of the Corporation shall, unless (A) holders of a
majority of the then outstanding shares of Series B Preferred and (B) holders of
a majority of the then outstanding shares of Series A Preferred elect otherwise,
be deemed to be occasioned by, or to include, (x) the acquisition of the
Corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation, but excluding any merger effected exclusively for the purpose of
changing the domicile of the Corporation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of the Corporation; or (y)
a sale of all or substantially all of the assets of the Corporation (each a
"Liquidation Event").

                  (ii)  In any Liquidation Event, if the consideration received
by the Corporation is other than cash, its value will be deemed its fair market
value. Any securities to be delivered to the holders of the Series B Preferred,
Series A Preferred or Common Stock, as the case may be, shall be valued as
follows:

                        (A)  if traded on a securities exchange or through the
                  Nasdaq National or SmallCap Market, the value shall be deemed
                  to be the average of the closing prices of the securities on
                  such automated quotation system over the thirty-day (30-day)
                  period ending three (3) days prior to the closing;

                        (B)  if actively traded over-the-counter, the value
                  shall be deemed to be the average of the closing bid or sale
                  prices (whichever is applicable) over the thirty-day period
                  ending three (3) days prior to the closing; and

                        (C)  if there is no active public market, the value
                  shall be the fair market value thereof, as mutually determined
                  by the Corporation and the holders of at least a majority of
                  the then outstanding shares of Series B Preferred and Series A
                  Preferred.

                  (iii) In the event the requirements of this Subsection 2(d)
are not complied with, the Corporation shall forthwith either:

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                       (A)  cause such closing to be postponed until such time
     as the requirements of this Section 2 have been complied with; or

                       (2)  cancel such transaction, in which event the
     respective rights, preferences and privileges of the holders of the Series
     B Preferred and Series A Preferred shall revert to and be the same as such
     rights, preferences and privileges existing immediately prior to the date
     of the first notice referred to in Subsection 2(d)(iv) below.

                  (iv) The Corporation shall give each holder of record of
Series B Preferred and Series A Preferred written notice of such impending
transaction not later than twenty (20) days prior to the shareholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. Subject to confidentiality
limitations, the first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 2,
and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the Corporation's receipt of written consent of the
holders of at least a majority of the then outstanding shares of Series B
Preferred and Series A Preferred entitled to such notice rights or similar
notice rights.

     3.  Conversion. The holders of the Series B Preferred and Series A
Preferred shall have conversion rights as follows (the "Conversion Rights"):

         (a)      Right to Convert.

                  (i)  Series B Preferred. Each share of Series B Preferred
shall be convertible, at the option of the holder thereof, at any time and from
time to time, at the office of the Corporation or any transfer agent for such
stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing the Original Series B Purchase Price plus any
accrued but unpaid dividends by the Series B Conversion Price (as defined below)
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial "Series B
Conversion Price" per share shall be $6.00 (calculated as six percent (6%) of
the Original Series B Purchase Price); provided, however, that the Series B
Conversion Price shall be subject to adjustment as set forth in Section 3(d).

                  (ii) Series B Preferred Exchange Cap. Notwithstanding any
other provision herein, the Corporation shall not be obligated to issue any
shares of Common Stock upon conversion of the Series B Preferred if and to the
extent the issuance of such shares of Common Stock would exceed the number of
shares (the "Exchange Cap") then permitted to be issued without violation of the
rules, regulations and interpretations of Nasdaq or the NASD (as determined in
good faith in the sole discretion of the Board of Directors of the Corporation),

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except that such limitation shall not apply in the event that the Corporation
obtains the approval of its shareholders as required by then applicable rules,
regulations and interpretations of Nasdaq or the NASD for issuances of Common
Stock in excess of the Exchange Cap. If and to the extent the Exchange Cap
applies, no holder of Series B Preferred shall be issued, upon conversion of
Series B Preferred, shares of Common Stock in an amount greater than the product
of (x) the Exchange Cap amount multiplied by (y) a fraction, the numerator of
which is the number of shares of Common Stock issuable to such holder upon the
requested conversion of such holder's Series B Preferred at the original
Conversion Price, and the denominator of which is the aggregate number of shares
of Common Stock issuable to the holders of all of the issued (whether or not
outstanding) Series B Preferred at the original Conversion Price (the "Cap
Allocation Amount").

                  (iii)     Series A Preferred. Each share of Series A Preferred
shall be convertible, at the option of the holder thereof, at any time after the
date three (3) months following the Series A Original Issue Date of such share,
at the office of the Corporation or any transfer agent for such stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing the Original Series A Purchase Price plus any accrued but unpaid
dividends by the Series A Conversion Price (as defined below) applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The initial "Series A Conversion Price" per share
shall be $10.00 (calculated as one-tenth (1/10/th/) of the Original Series A
Purchase Price); provided, however, that the Series A Conversion Price shall be
subject to adjustment as set forth in Section 3(d).

         (b)      Automatic Series A Conversion. At any time after the date
three (3) months following the Series A Original Issue Date of such share, each
share of Series A Preferred shall be automatically converted into shares of
Common Stock at the Series A Conversion Price in effect at the time upon the
date specified by unanimous written consent or agreement of the holders of all
of the then outstanding shares of Series A Preferred.

         (c)      Mechanics of Conversion.

                  (i)  Conversion Pursuant to Section 3(a). Before any holder of
Series B Preferred and/or Series A Preferred shall be entitled to convert the
same into shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent and shall give written notice to the Corporation at such office
that he/she elects to convert the same, and shall state therein the name or
names which he/she wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to each such holder, or to his nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which he/she shall be entitled. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.

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            (ii)       Conversion Pursuant to Section 3(b). If shares of Series
A Preferred are automatically converted, written notice shall be delivered to
the holder of such shares of Series A Preferred at the address last shown on the
records of the Corporation for such holder or given by such holder to the
Corporation for the purpose of notice or, if no such address appears or is
given, at the place where the principal executive office of the Corporation is
located, notifying such holder of the conversion to be effected, specifying the
date on which such conversion is expected to occur, the number of shares of
Series A Preferred to be converted and calling upon such holder to surrender to
the Corporation, in the manner and at the place designated, the certificate or
certificates therefor. Upon such conversion of the shares of Series A Preferred,
holders shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Series A
Preferred, and shall state therein the name or names which he/she wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to each holder of Series A Preferred, or to his nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
he/she shall be entitled. Any conversion of Series A Preferred pursuant to
Section 3(b) shall be deemed to have been made immediately prior to the closing
of the issuance and sale of shares as described in Section 3(b).

            (iii)      Fractional Shares. No fractional shares shall be issued
upon conversion of the Series B Preferred or Series A Preferred. In lieu of the
Corporation issuing any fractional shares to holders upon the conversion of the
Series B Preferred or Series A Preferred, the Corporation shall pay to such
holders an amount in cash equal to the product obtained by multiplying the
Series B Conversion Price or Series A Conversion Price by the fraction of a
share not issued pursuant to the previous sentence.

      (d)   Adjustment of Conversion Price. The number of shares of Common Stock
into which the Series B Preferred and Series A Preferred may be converted shall
be subject to adjustment from time to time as follows:

            (i)        Adjustments for Stock Splits and Subdivisions. In the
event the Corporation should at any time or from time to time after the date of
issuance hereof fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Series B Conversion Price and
Series A Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable upon conversion of the Series B Preferred and
the Series A Preferred shall be increased in proportion to such increase of
outstanding shares.

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                       (ii)   Adjustments for Reverse Stock Splits. If the
number of shares of Common Stock outstanding at any time after the date hereof
is decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Series B Conversion Price and
Series A Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.

                       (iii)  Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 3 or Section 2) provision shall be made so that the
holders of the Series B Preferred and Series A Preferred shall thereafter be
entitled to receive upon conversion of the Series B Preferred and Series A
Preferred the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series B
Preferred and Series A Preferred after the recapitalization to the end that the
provisions of this Section 3 (including adjustment of the Series B Conversion
Price and Series A Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series B Preferred and Series A Preferred)
shall be applicable after that event as nearly equivalent as may be practicable.

                       (iv)   (A) Series B Adjustments - Issuances at Less Than
Series B Conversion Price. Upon the issuance or sale by the Corporation of:

                       (1)    Common Stock for a consideration per share less
            than the Series B Conversion Price in effect immediately prior to
            the time of such issue or sale;

                       (2)    any Stock Purchase Rights (as defined below) where
            the consideration per share for which shares of Common Stock may at
            any time thereafter be issuable upon exercise thereof (or, in the
            case of Stock Purchase Rights exercisable for the purchase of
            Convertible Securities, upon the subsequent conversion or exchange
            of such Convertible Securities) shall be less than the Series B
            Conversion Price in effect immediately prior to the time of the
            issue or sale of such Stock Purchase Rights; or

                       (3)    any Convertible Securities where the consideration
            per share for which shares of Common Stock may at any time
            thereafter be issuable pursuant to the terms of such Convertible
            Securities shall be less than the Series B Conversion Price in
            effect immediately prior to the time of the issue or sale of such
            Convertible Securities;

other than an issuance of Common Stock pursuant to Subsections 3(d)(i), 3(d)(ii)
or 3(d)(v)(F) hereof (any such issuance shall be referred to hereinafter as a
"Series B Dilutive Issuance"), then forthwith upon such issue or sale, such
applicable Series B Conversion Price shall be reduced to the Series B Weighted
Average Price (as defined below).

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        The "Series B Weighted Average Price" shall be determined by the
following formula:

                               CP/B/ = BCP *             N + BC
                                                         ------
                                                         N + BS
        where:


              CP/B/ =  the Series B Weighted Average Price;

              BCP  =   the former Series B Conversion Price;

              N =      the number of shares of Common Stock outstanding
                       immediately prior to such issuance (or deemed
                       issuance) assuming exercise or conversion of all
                       outstanding securities exercisable for or convertible
                       into Common Stock;

              BC =     the number of shares of Common Stock that the
                       aggregate consideration received or deemed to be
                       received by the Corporation for the total number of
                       additional securities so issued or deemed to be
                       issued would purchase if the purchase price per share
                       were equal to the Series B Conversion Price in effct
                       immediately prior to such issue; and

              BS =     the number of shares of Common Stock so issued or deemed
                       to be issued

Notwithstanding the foregoing, no Series B Conversion Price shall at such time
be reduced if such reduction would be an amount less than $.01, but any such
amount shall be carried forward and deduction with respect thereto made at the
time of and together with any subsequent reduction that, together with such
amount and any other amount or amounts so carried forward, shall aggregate $.01
or more; provided, further, that exercise of Stock Purchase Rights or conversion
of Convertible Securities shall not be deemed a Series B Dilutive Issuance.

                              (B) Series A Adjustments - Issuances at Less
Than Fair Market Value. Upon the issuance or sale by the Corporation of:

                       (1) Common Stock for a consideration per share less than
              the Fair Market Value (as defined below) in effect immediately
              prior to the time of such issue or sale;

                       (2) any Stock Purchase Rights (as defined below) where
              the consideration per share for which shares of Common Stock may
              at any time thereafter be issuable upon exercise thereof (or, in
              the case of Stock Purchase Rights exercisable for the purchase of
              Convertible Securities, upon the subsequent conversion or exchange
              of such Convertible Securities) shall be less than the Fair Market
              Value in effect immediately prior to the time of the issue or sale
              of such Stock Purchase Rights; or

                       (3) any Convertible Securities where the consideration
              per share for which shares of Common Stock may at any time
              thereafter be issuable pursuant to the

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                  terms of such Convertible Securities shall be less than the
                  Fair Market Value in effect immediately prior to the time of
                  the issue or sale of such Convertible Securities;

other than an issuance of Common Stock pursuant to Subsections 3(d)(i), 3(d)(ii)
or 3(d)(v)(F) hereof (any such issuance shall be referred to hereinafter as a
"Series A Dilutive Issuance"), then forthwith upon such issue or sale, such
applicable Series A Conversion Price shall be reduced to the Series A Weighted
Average Price (as defined below).

         The "Series A Weighted Average Price" shall be determined by the
following formula:

                               CP/A/ = ACP *             N + AC
                                                         ------
                                                         N + AS
         where:

                  CP/A/ =  the Weighted Average Price;

                  ACP =    the former Series A Conversion Price;

                  N =      the number of shares of Common Stock outstanding
                           immediately prior to such issuance (or deemed
                           issuance) assuming exercise or conversion of all
                           outstanding securities exercisable for or convertible
                           into Common Stock;

                  AC =     the number of shares of Common Stock that the
                           aggregate consideration received or deemed to be
                           received by the Corporation for the total number of
                           additional securities so issued or deemed to be
                           issued would purchase if the purchase price per share
                           were equal to the Fair Market Value; and

                  AS =     the number of shares of Common Stock so issued or
                           deemed to be issued.

Notwithstanding the foregoing, no Series A Conversion Price shall at such time
be reduced if such reduction would be an amount less than $.01, but any such
amount shall be carried forward and deduction with respect thereto made at the
time of and together with any subsequent reduction that, together with such
amount and any other amount or amounts so carried forward, shall aggregate $.01
or more; provided, further, that issuance of Common Stock as Series B Dividends
and exercise of Stock Purchase Rights or conversion of Convertible Securities
shall not be deemed a Series A Dilutive Issuance.

                  (v)   For purposes of this Section 3(d), the following
provisions will be applicable:

                            (A) "Convertible Securities" shall mean evidences
                  of indebtedness, shares of stock (including, without
                  limitation, the Series B Preferred and Series A Preferred) or
                  other securities that are convertible into or exchangeable
                  for, with or without payment of additional consideration,
                  shares of Common Stock.

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<PAGE>

                               (B) "Stock Purchase Rights" shall mean any
                  warrants, options or other rights to subscribe for, purchase
                  or otherwise acquire any shares of Common Stock or any
                  Convertible Securities.

                               (C) Convertible Securities and Stock Purchase
                  Rights shall be deemed outstanding and issued or sold at the
                  time of such issue or sale.

                               (D) Determination of Consideration. The
                  "consideration actually received" by the Corporation for the
                  issuance, sale, grant or assumption of shares of Common Stock,
                  irrespective of the accounting treatment of such
                  consideration, shall be valued as follows:

                                   (1)  Cash Payment. In the case of cash, the
                           net amount received by the Corporation after
                           deduction of any accrued interest or dividends and
                           before deducting any expenses paid or incurred and
                           any underwriting commissions or concessions paid or
                           allowed by the Corporation in connection with such
                           issue or sale;

                                   (2)  Noncash Payment. In the case of
                           consideration other than cash, the value of such
                           consideration, which shall not include the value of
                           any Convertible Securities being converted or
                           exchanged, as determined by the Board of Directors in
                           good faith, after deducting any accrued interest or
                           dividends;

                                   (3)  Stock Purchase Rights and Convertible
                           Securities. The total consideration, if any, received
                           by the Corporation as consideration for the issuance
                           of the Stock Purchase Rights or the Convertible
                           Securities, as the case may be, plus the minimum
                           aggregate amount of additional consideration, if any,
                           payable to the Corporation upon the exercise of such
                           Stock Purchase Rights or upon the conversion or
                           exchange of such Convertible Securities, as the case
                           may be, in each case after deducting any accrued
                           interest or dividends;

                                   (4)  Excessive Warrant Coverage. For purposes
                           of adjustments to the Series B Conversion Price only,
                           any future financing by the Corporation that includes
                           more than 32% warrant coverage, or its equivalent
                           effect, shall be deemed to be "excessive warrant
                           coverage" and the excess amount may require
                           adjustment as described herein. To determine whether
                           the "consideration actually received" of any Stock
                           Purchase Rights is less than the Series B Conversion
                           Price then in effect, the fair value of such Stock
                           Purchase Rights at issuance or deemed issuance, to
                           the extent not paid to the Corporation, shall be
                           deducted from the total consideration, if any,
                           received by the Corporation as consideration for the
                           issuance of the Stock Purchase Rights plus the
                           minimum aggregate amount of additional consideration,
                           if any, payable to the Corporation

                                       11

<PAGE>

                           upon the exercise of such Stock Purchase Rights. For
                           example, if the Corporation shall issue, without the
                           receipt of additional consideration, Stock Purchase
                           Rights to acquire 100,000 shares of Common Stock (in
                           excess of the 32% threshold) with an exercise price
                           of $5.00 and the fair value of such Stock Purchase
                           Rights shall equal $100,000 at issuance, the deemed
                           "consideration actually received" per share for
                           purposes of this Section 3(d) shall be $4.00; if the
                           Corporation shall receive consideration of $50,000
                           upon issuance of the Stock Purchase Rights in the
                           foregoing example, the deemed "consideration actually
                           received" would be $4.50. The fair value of such
                           Stock Purchase Rights, shall be determined by the
                           Corporation's Board of Directors.

                           (E)  Readjustment of Conversion Prices. In the event
                  of any change in (1) the consideration, if any, payable upon
                  exercise of any Stock Purchase Rights or upon the conversion
                  or exchange of any Convertible Securities or (2) the rate at
                  which any Convertible Securities are convertible into or
                  exchangeable for shares of Common Stock, the applicable Series
                  B Conversion Price and Series A Conversion Price (the
                  "Conversion Prices") as computed upon the original issue
                  thereof shall forthwith be readjusted to the Conversion Prices
                  that would have been in effect at such time had such Stock
                  Purchase Rights or Convertible Securities provided for such
                  changed purchase price, consideration or conversion rate, as
                  the case may be, at the time initially granted, issued or
                  sold. With respect to the Series A Conversion Price only, on
                  the expiration of any Stock Purchase Rights not exercised or
                  of any right to convert or exchange under any Convertible
                  Securities not exercised, the applicable Conversion Prices
                  then in effect shall forthwith be increased to the Conversion
                  Prices that would have been in effect at the time of such
                  expiration had such Stock Purchase Rights or Convertible
                  Securities never been issued. No readjustment of the
                  Conversion Prices pursuant to this Subsection 3(d)(v)(E) shall
                  (1) increase the applicable Conversion Prices by an amount in
                  excess of the adjustment originally made to the Conversion
                  Prices in respect of the issue, sale or grant of the
                  applicable Stock Purchase Rights or Convertible Securities or
                  (2) require any adjustment to the amount paid or number of
                  shares of Common Stock received by any holder of Series B
                  Preferred and/or Series A Preferred upon any conversion of any
                  share of Series B Preferred and/or Series A Preferred prior to
                  the date upon which such readjustment to the Conversion Prices
                  shall occur.

                           (F)  Exclusions. Anything herein to the contrary
                  notwithstanding, the Corporation shall not be required to make
                  any adjustment of any Conversion Prices in the case of (1) the
                  issuance or sale of options, or the shares of stock issuable
                  upon exercise of such options, to purchase shares of Common
                  Stock to directors, officers, employees or consultants of the
                  Corporation pursuant to stock options or stock purchase plans
                  or agreements, pursuant to plans or arrangements approved by
                  the Board of Directors, (2) the issuance of Common Stock upon
                  conversion of the Series B Preferred and/or Series A Preferred
                  and (3) the issuance of securities in connection with a bona
                  fide business acquisition of or by

                                       12

<PAGE>

                  the Corporation, whether by merger, consolidation, sale of
                  assets, sale of stock or otherwise. The issuances or sales
                  described in the Subsections 3(d)(i) and (ii) shall be ignored
                  for purposes of calculating any adjustment to any Conversion
                  Prices.

                           (G) Fair Market Value. For purposes of this Section
                  3(d) "Fair Market Value" shall be equal to the lesser of: (1)
                  the closing sale price of the Corporation's Common Stock on
                  the effective date of issuance, or (2) the average of the
                  closing sale price of the Corporation's Common Stock for the
                  15 trading days prior to the effective date of issuance, both
                  prices as reported on Nasdaq or such other principal exchange
                  on which such Common Stock is then traded.

                  (e)      No Impairment. Except for taking the actions
contemplated by Section 6 below upon obtaining the vote or consent set forth
therein, the Corporation will not, by amendment of its Articles 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 Corporation, but it will at all times in good
faith assist in the carrying out of all of the provisions of this Section 3 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 and
Series A Preferred against impairment. In order to give the holders of the
Series B Preferred the benefit of the protections afforded by this Section 3,
the Company agrees that it shall not issue any securities at a price below the
Series B Conversion Price without obtaining shareholder approval if the
adjustment to the Series B Conversion Price required by this Section 3 would
result in the issuance of shares of Common Stock upon conversion of the Series B
Preferred to exceed the Exchange Cap then permitted to be issued without
violation of the rules, regulations and interpretations of Nasdaq or the NASD
(as determined in good faith in the sole discretion of the Board of Directors of
the Corporation).

                  (f)      Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Prices pursuant to this
Section 3, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Series B Preferred and/or Series A Preferred a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series B Preferred
and/or Series A Preferred, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustment and readjustment, (ii) the
Series B Conversion Price and/or Series A Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of a
share of Series B Preferred and/or Series A Preferred.

                  (g)      Notices of Record Date. In the event of any taking by
the Corporation of the record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution,

                                       13

<PAGE>

the Corporation shall mail to each holder of Series B Preferred and Series A
Preferred, at least twenty (20) days prior to the date specified herein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.

              (h)   Reservation of Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the shares of Series
B Preferred and Series A Preferred such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred and Series A Preferred; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all the then outstanding shares of the
Series A Preferred, the Corporation will take such corporate action as may be
necessary, in the opinion of its counsel, to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.

              (i)   Notices. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Series B Preferred and Series
A Preferred shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his or her address
appearing on the books of the Corporation.

        4.    Redemption.

                    (a)   Series B Preferred.

                    (i)   Company's Option. So long as a Registration
Statement covering the resale of the Common Stock issued or issuable upon
conversion of the Series B Preferred is effective (but only for so long as such
Registration Statement is required to remain effective), at the option of the
Corporation, from and after the second anniversary of the Series B Original
Issue Date, upon at least 45 days' written notice, the Corporation may redeem
all of the Series B Preferred at a redemption price in cash equal to the Series
B Liquidation Preference upon the occurrence of both of the following events
("Series B Redemption"):

                    the Common Stock (A) closes at or above $20.00 per share (as
                    such dollar amount shall be appropriately adjusted for stock
                    dividends, stock combinations, recapitalization or the like)
                    and (B) maintains an average daily trading volume of at
                    least 75,000 shares per day for 30 consecutive trading days
                    on the Corporation's principal exchange or automated
                    quotation system.

          Holders of the Series B Preferred shall be entitled to convert their
shares of Series B Preferred into Common Stock during the 45-day notice period
of this Section 4(a). Notwithstanding the foregoing, in no event may the
Corporation elect to redeem the Series B Preferred if any shares of Series A
Preferred would be issued and outstanding after completion of such redemption
(or earlier conversion to Common Stock by the holders of the Series B
Preferred).

                                       14

<PAGE>

              (ii)   Change of Control Redemption. Holders of at least a
majority of the issued and outstanding Series B Preferred shall have the right
to require the Corporation to redeem all or any shares of Series B Preferred
upon a Change of Control (as defined below). The redemption price for each share
of Series B Preferred so redeemed shall be payable in cash in an amount equal to
(x) with respect to transactions described in clause (A) or clause (B) of the
Change of Control definition, the greater of (A) the fair market value of each
share of Series B Preferred (taking into account the value of such share on an
as converted basis) or (B) the Series B Liquidation Preference or (y) with
respect to transactions described in clause (C) or clause (D) of the Change of
Control definition, the greater of (A) the fair market value of each share of
Series B Preferred on an as converted basis or (B) the Series B Liquidation
Preference.

         The fair market value of the Series B Preferred, for purposes of clause
(x) above, unless determined by the unanimous consent of the Corporation's Board
of Directors (including the director elected by the holders of the Series B
Preferred in accordance with Section 7), shall be determined by an independent
third party appraiser and, for purposes of clause (y) above, shall be determined
by the Corporation's Board of Directors.

         If the Change of Control shall also constitute a Liquidation Event
under Section 2 hereof, the Corporation shall provide the holders of the Series
B Preferred with prior written notice of the event in accordance with Section
2(d)(iv) hereof. The Corporation shall deliver written notice of the occurrence
of any other event that shall constitute a Change of Control (including the
material terms thereof) as promptly as practicable in order to provide the
holders of the Series B Preferred adequate time to exercise their rights
hereunder. The holders of at least a majority of the Series B Preferred may
exercise their right to require the Corporation to redeem such shares by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose,
certificates representing the shares of Series B Preferred to be redeemed,
accompanied by a written notice stating that such holders elect to require the
Corporation to redeem all or less than all of such shares in accordance with the
provisions of this Subsection 4(a)(ii), such notice to be delivered not later
than two days prior to the closing of the Change of Control, if notice of such
event was delivered to the holders of the Series B Preferred in accordance with
the first sentence of this paragraph, or not later than thirty (30) days after
receipt of the notice of Change of Control specified in the second sentence of
this paragraph. Upon the closing of a Change of Control (or within fifteen (15)
days after surrender of such certificates, if the holders of the Series B
Preferred did not receive at least twenty (20) days' prior written notice of the
proposed Change of Control), the Corporation shall pay to the holders of the
shares being redeemed the redemption price set forth in this Subsection
4(a)(ii). Such payment shall be made by wire transfer of immediately available
funds to the accounts designated by such holders. The shares so redeemed shall
no longer be deemed outstanding, the rights to receive dividends and the rights
of the holders thereof, shall cease upon satisfaction of payment in full in
accordance with this Section 4(a).

              (iii)  "Change of Control". A "Change of Control", with respect to
the Corporation, means the occurrence of any of the following:

                                       15

<PAGE>

                     (A) The acquisition by any person or group of persons of
              beneficial ownership (within the meaning of Rule 13d-3 promulgated
              under the Securities and Exchange Act of 1934, as amended) of 50%
              or more of either (1) the then outstanding shares of Common Stock
              of the Corporation (the "Outstanding Corporation Common Stock") or
              (2) the combined voting power of the then outstanding voting
              securities of the Corporation entitled to vote generally in the
              election of directors of the Corporation (the "Outstanding
              Corporation Voting Securities"); provided, however, that any
              acquisition by any person pursuant to a transaction that complies
              with clauses (1), (2) and (3) of Subsection (4)(a)(iii)(C) of this
              definition shall not be a Change of Control under this Subsection
              4(a)(iii)(A); or

                     (B) Individuals who, as of the date hereof, constitute the
              Board (the "Incumbent Board" (it being understood that any member
              of the Board elected by the holders of Series B Preferred is a
              member of the Incumbent Board)) cease for any reason to constitute
              at least a majority of the Board; provided, however, that any
              individual becoming a director subsequent to the date hereof was
              approved by a vote of at least a majority of the directors then
              comprising the Incumbent Board shall be considered as though such
              individual were a member of the Incumbent Board, but excluding,
              for this purpose, any such individual whose initial assumption of
              office occurs as a result of an actual or threatened election
              contest with respect to the election or removal of directors or
              other actual or threatened solicitation of proxies or consents by
              or on behalf of a person other than the Incumbent Board; or

                     (C) Consummation of a reorganization, merger or
              consolidation, sale or other disposition of all or substantially
              all of the assets or shares of the Corporation, or consummation of
              any acquisition by the Corporation, or any transaction similar to
              any of the foregoing (a "Business Combination"), in each case,
              unless, following such Business Combination, (1) all or
              substantially all of the persons who were the beneficial owners,
              respectively, of the Outstanding Corporation Common Stock and
              Outstanding Corporation Voting Securities of the Corporation
              immediately prior to such Business Combination beneficially own,
              directly or indirectly, a majority or more of, respectively, the
              then Outstanding Corporation Common Stock and the then Outstanding
              Corporation Voting Securities, as the case may be, of the person
              resulting from such Business Combination (including a person which
              as a result of such transaction owns the Corporation or all or
              substantially all of the Corporation's assets either directly or
              through one or more subsidiaries) (such resulting person, a
              "Resulting Corporation") in substantially the same proportions as
              their ownership, immediately prior to such Business Combination,
              of the Outstanding Corporation Common Stock and Outstanding
              Corporation

                                       16

<PAGE>

              Voting Securities of the Corporation, as the case may be, (2) no
              person or group of persons or their affiliates (excluding any
              Resulting Corporation and any holder of shares of Series B
              Preferred or affiliate thereof) beneficially owns, directly or
              indirectly, fifty percent (50%) or more of the then Outstanding
              Corporation Common Stock of the Resulting Corporation or the then
              Outstanding Corporation Voting Securities of the Resulting
              Corporation, and (3) at least a majority of the members of the
              board of directors of the Resulting Corporation were members of
              the Incumbent Board or were approved by a majority of the
              Incumbent Board at the time of the execution of the initial
              agreement, or of the action of the board, providing for such
              Business Combination; or

                     (D) Approval by the shareholders of the Corporation of a
              complete liquidation or dissolution of the Corporation.

         (b)  Series A Preferred. So long as a Registration Statement covering
the resale of the Common Stock issued or issuable upon conversion of the Series
A Preferred is effective (but only for so long as such Registration Statement is
required to remain effective), at the option of the Corporation, upon at least
30 days' written notice to the holders of Series A Preferred, the Corporation
may redeem some or all of the Series A Preferred, at a redemption price equal to
the Original Series A Purchase Price plus all accrued but unpaid dividends,
promptly following the occurrence of any of the following events:

              (i)    the Common Stock closes at or above $20.00 per share for 20
consecutive trading days on the Corporation's principal exchange or automated
quotation system;

              (ii)   the completion by the Corporation of a follow-on public
offering of at least $10 million of the Corporation's Common Stock at a price
per share of at least 15% of the per share Purchase Price of the Series A
Preferred, subject to adjustment as described herein for stock splits, stock
dividends, reorganizations, and the like;

              (iii)  the acquisition of the Corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation) that results in the transfer of 50% of more of the outstanding
voting power of the Corporation;

              (iv)   a sale of all or substantially all of the assets of the
Corporation; or

              (v)    at any time after the fourth (4/th/) anniversary of the
Original Issue Date.

         Holders of the Series A Preferred shall be entitled to convert their
shares of Series A Preferred Stock into Common Stock during the 30-day notice
period of this Section 4(b).

                                       17

<PAGE>

         (c)  Notice and Redemption. In accordance with Subsection 4(a)(i) and
Section 4(b), prior to the date fixed for any redemption of shares, a notice
specifying the time and place of the redemption and the number of shares to be
redeemed shall be given by overnight courier or by certified mail return receipt
requested, to the holders of record of the shares of Series B Preferred and/or
Series A Preferred to be redeemed at their respective addresses as the same
shall appear on the books of the Corporation, calling upon each holder of record
to surrender to the Corporation on the redemption date at the place designated
in the notice such holder's certificate or certificates representing the number
of shares specified in the notice of redemption. Neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any notice mailed
in the manner herein provided shall be conclusively presumed to have been duly
given whether or not the holder receives the notice. On or after the redemption
date, each holder of shares of Series B Preferred and/or Series A Preferred to
be redeemed shall present and surrender such holder's certificate or
certificates for such shares to the Corporation at the place designated in the
redemption notice and thereupon the redemption price of the shares, and any
accumulated and unpaid dividends thereon to the redemption date, shall be paid
to or on the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares.

         (d)  Funds for Redemption. If a notice of redemption has been given
pursuant to this Section 4, on or before the redemption date, the funds
necessary for such redemption (including all dividends on the shares of Series B
Preferred and/or Series A Preferred to be redeemed that will accumulate to the
redemption date) shall have been set aside by the Corporation, separate and
apart from its other funds.

     5.  Voting Matters. Except as otherwise required by law or these Articles
of Incorporation, each share of Series A Preferred issued and outstanding shall
have the number of votes equal to the number of shares of Common Stock into
which the Series A Preferred is convertible pursuant to Section 3 hereof. Except
as otherwise required by law, these Articles of Incorporation or as otherwise
limited by applicable rules, regulations and interpretations of Nasdaq or the
NASD, as determined in good faith in the sole discretion of the Board of
Directors of the Corporation, each share of Series B Preferred issued and
outstanding shall have the number of votes equal to the number of shares of
Common Stock into which the Series B Preferred is convertible pursuant to
Section 3 hereof. The holder of each share of Series B Preferred and Series A
Preferred shall be entitled to notice of any shareholders' meeting in accordance
with the bylaws of the Corporation, and shall vote with the holders of the
Common Stock upon any matter submitted to a vote of shareholders, except those
matters required by law or these Articles of Incorporation to be submitted to a
class vote.

     6.  Covenants.

         (a)  Series B. In addition to any other rights provided by law, so long
as any Series B Preferred shall be outstanding, the Corporation shall not,
directly or indirectly, through

                                       18

<PAGE>

amendment of these Articles of Incorporation, merger, recapitalization or
otherwise, and without first obtaining the affirmative vote or written consent
of the holders of not less than a majority of the then outstanding shares of
Series B Preferred Stock voting together as a single class:

                     (i)    alter or change the rights, preferences or
privileges (including any restrictions contained in these Articles of
Incorporation for the benefit of holders of Series B Preferred) of the shares of
the Series B Preferred;

                     (ii)   create (by merger, reclassification or otherwise),
designate, authorize or issue any new securities having rights, preferences,
privileges or powers (including any restrictions contained in these Articles of
Incorporation for the benefit of holders of Series B Preferred) prior to or pari
passu with the Series B Preferred, provided that the foregoing covenant (A)
shall not prevent the Corporation from issuing pari passu securities in one or
more transactions for an aggregate purchase price with respect to all such
issuances not to exceed five million dollars ($5,000,000), and (B) any
limitation with respect to pari passu issuances shall expire on December 31,
2004;

                     (iii)  increase or decrease the authorized number of shares
of the Series B Preferred; or

                     (iv)   redeem or repurchase any outstanding securities of
the Corporation except pursuant to a Board approved equity incentive plan or as
required by the Corporation to fulfill its obligations to holders of Series A
Preferred pursuant to these Articles of Incorporation.

         (b)  Series A. In addition to any other rights provided by law, so long
as any Series A Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than two-thirds of the then outstanding shares of Series A Preferred
Stock voting together as a single class:

                     (i)    alter or change the rights, preferences or
privileges of the shares of the Series A Preferred;

                     (ii)   increase or decrease the authorized number of shares
of the Series A Preferred; or

                     (iii)  authorize or create any new class of shares or
additional series of Preferred Stock having rights, preferences or privileges
prior to shares of the Series A Preferred,

         if such Series A Preferred would be adversely affected by such
amendment in a manner different from other than outstanding shares of Preferred
Stock (it being understood that, without limiting the foregoing, different
shares of Preferred Stock shall not be affected differently because of
differences in the amounts of their respective issue prices, liquidation
preferences and redemption prices).

                                       19

<PAGE>

     7.  Board Representation. For so long as at least twenty percent (20%) of
the shares of Series B Preferred issued on the Series B Original Issue Date
remain outstanding, the holders thereof shall be entitled to elect, at a meeting
of such shareholders or by written consent in lieu thereof, one (1) member of
the Board of Directors of the Corporation; provided, that the voting requirement
set forth above shall be appropriately adjusted to reflect any changes in the
Common Stock after the date hereof.

     8.  Residual Rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided for to the contrary herein shall be vested in
the Common Stock.

                                  ARTICLE III.

     The street address and county of the registered office of the corporation
are 4101 Lake Boone Trail, Suite 300, Raleigh, Wake County, North Carolina 27607
and the name of the registered agent at such address is Larry E. Robbins. The
mailing address of the registered office of the corporation is the same as its
street address.

                                   ARTICLE IV.

     Except to the extent that the North Carolina General Statutes prohibit such
limitation or elimination of liability of directors for breaches of duty, no
director of the corporation shall be liable to the corporation or to any of its
shareholders for monetary damages for breach of duty as a director. No amendment
to or repeal of this provision or adoption of a provision inconsistent herewith
shall apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal or adoption of an
inconsistent provision. The provisions of this Article shall not be deemed to
limit or preclude indemnification of a director by the corporation for any
liability that has not been eliminated by the provisions of this Article.

                                       20