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                                                                     EXHIBIT 3.5


                    CERTIFICATE OF DESIGNATIONS, PREFERENCES
                                   AND RIGHTS
                                       OF
                      SERIES C CONVERTIBLE PREFERRED STOCK
                                       OF
                             AMERICAN BIOMED, INC.


         American BioMed, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of
Directors of the Company by the Certificate of Incorporation of the Company,
and pursuant to Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, $.001 par value per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions thereof, of 125
shares of Series C Convertible Preferred Stock of the Company, as follows:

                  RESOLVED, that the Company is authorized to issue 125 shares
         of Series C Convertible Preferred Stock (the "SERIES C PREFERRED
         SHARES"), $.001 par value per share, which shall have the following
         powers, designations, preferences and other special rights:

                  (1) Dividends.  The Series C Preferred Shares shall not bear
         any dividends.

                  (2) Holder's Conversion of Series C Preferred Shares. A
         holder of Series C Preferred Shares shall have the right, at such
         holder's option, to convert the Series C Preferred Shares into shares
         of the Company's common stock, $.001 par value per share (the "COMMON
         STOCK"), on the following terms and conditions:

                      (a) Conversion Right.  Subject to the provisions of
         Sections 2(g), 2(j) and 2(k) below, at any time or times on or after
         120 days after the initial date of issuance of the Series C Preferred
         Shares, any holder of Series C Preferred Shares shall be entitled to
         convert any Series C Preferred Shares into fully paid and
         nonassessable shares (rounded to the nearest whole share in accordance
         with Section 2(h) below) of Common Stock, at the Conversion Rate (as
         defined below); provided, however, that in no event other than upon a
         Mandatory Conversion pursuant to Section 2(g) hereof, shall any holder
         be entitled to convert Series C Preferred Shares in excess of that
         number of Series C Preferred Shares which, upon giving effect to such
         conversion, would cause the aggregate number of shares of Common Stock
         beneficially owned by the holder and its affiliates to exceed 4.9% of
         the outstanding shares



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         of the Common Stock following such conversion. For purposes of the
         foregoing proviso, the aggregate number of shares of Common Stock
         beneficially owned by the holder and its affiliates shall include the
         number of shares of Common Stock issuable upon conversion of the
         Series C Preferred Shares with respect to which the determination of
         such proviso is being made, but shall exclude the number of shares of
         Common Stock which would be issuable upon (i) conversion of the
         remaining, nonconverted Series C Preferred Shares beneficially owned
         by the holder and its affiliates and (ii) exercise of the remaining,
         unexercised Warrants (as defined below) beneficially owned by the
         holder and its affiliates. Except as set forth in the preceding
         sentence, for purposes of this paragraph, beneficial ownership shall
         be calculated in accordance with Section 13(d) of the Securities
         Exchange Act of 1934, as amended.

                      (b) Conversion Rate. The number of shares of Common
         Stock issuable upon conversion of each of the Series C Preferred
         Shares pursuant to Section (2)(a) shall be determined according to the
         following formula (the "CONVERSION RATE"):

                            (.07)(N/365)(20,000) + 20,000
                             ----------------------------
                                    Conversion Price

         For purposes of this Certificate of Designations, the following terms
         shall have the following meanings:

                             (i)    "CONVERSION PRICE" means, as of any 
         Conversion Date (as defined below), the lower of the Fixed Conversion
         Price and the Floating Conversion Price, each in effect as of such
         date and subject to adjustment as provided herein;

                             (ii)   "FIXED CONVERSION PRICE" means $1.75, 
         subject to adjustment as provided herein; provided, however, that if
         the Company shall effect a Lock-Up (as defined in Section 2(j)
         hereof), the "Fixed Conversion Price" shall be the lesser of (i) the
         Fixed Conversion Price in effect immediately prior to the delivery of
         the Lock-Up Notice (as defined below) and (ii) the Average Market
         Price for the Common Stock for the twenty (20) consecutive trading
         days immediately preceding the last day of the Lock-Up Period (as
         defined below);

                             (iii)  "FLOATING CONVERSION PRICE" means, as of
         any date of determination, the amount obtained by multiplying the
         Conversion Percentage in effect as of such date by the Average Market
         Price for the Common Stock for the five (5) consecutive trading days
         immediately preceding such date;

                             (iv)   "CONVERSION PERCENTAGE" means the following
         percentage (regardless of whether the Lock-Up is affected, but subject
         to adjustment as otherwise provided herein);

                                        (A)   100% if the Conversion Date (as
              defined below) is on or before 180 days following the Issuance
              Date (as defined below);



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                                        (B)    89% if the Conversion Date is
              after 180 days following the Issuance Date but on or before 210
              days following the Issuance Date;

                                        (C)    86.5% if the Conversion Date is
              after 210 days following the Issuance Date but on or before 240
              days following the Issuance Date;

                                        (D)    84% if the Conversion Date is
              after 240 days following the Issuance Date but on or before 270
              days following the Issuance Date;

                                        (E)    81% if the Conversion Date is
              after 270 days following the Issuance Date but on or before 300
              days following the Issuance Date;

                                        (F)    78% if the Conversion Date is
              after 300 days following the Issuance Date but on or before 330
              days following the Issuance Date; and

                                        (G)    75% if the Conversion Date is any
              time after 330 days following the Issuance Date.


                             (v)    "AVERAGE MARKET PRICE" means, with respect
         to any security for any period, that price which shall be computed as
         the arithmetic average of the Closing Bid Prices (as defined below)
         for such security for each trading day in such period;

                             (vi)   "CLOSING BID PRICE" means, for any security
         as of any date, the last closing bid price on the Nasdaq National
         Market (the "NASDAQ-NM") as reported by Bloomberg Financial Markets
         ("BLOOMBERG"), or, if the Nasdaq-NM is not the principal trading market
         for such security, the last closing bid price of such security on the
         principal securities exchange or trading market where such security is
         listed or traded as reported by Bloomberg, or if the foregoing do not
         apply, the last closing bid price of such security in the
         over-the-counter market on the pink sheets or 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. 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 reasonably determined in good faith
         by the Board of Directors of the Company (all as appropriately adjusted
         for any stock dividend, stock split or other similar   transaction
         during such period); and

                             (vii)  "N" means the number of days from, but 
         excluding, the Issuance Date through and including the Conversion Date
         for the Series C Preferred Shares for which conversion is being
         elected.

                             (viii) "ISSUANCE DATE" means the initial date of 
         issuance of the Series C Preferred Shares.



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                      (c) Adjustment to Conversion Price - Registration
         Statement. If the registration statement (the "REGISTRATION
         STATEMENT") covering the resale of the shares of Common Stock issuable
         upon conversion of the Series C Preferred Shares and required to be
         filed by the Company pursuant to the Registration Rights Agreement
         between the Company and the initial holders of the Series C Preferred
         Shares (the "REGISTRATION RIGHTS AGREEMENT") is not declared effective
         by the SEC on or before the ninetieth (90th) day following the
         Issuance Date (the "SCHEDULED EFFECTIVE DATE"), or if after the
         Registration Statement has been declared effective by the SEC, sales
         cannot be made pursuant to the Registration Statement (whether because
         of a failure to keep the Registration Statement effective, to disclose
         such information as is necessary for sales to be made pursuant to the
         Registration Statement, to register sufficient shares of Common Stock
         or otherwise), then, as partial relief for the damages to any holder
         by reason of any such delay in or reduction of its ability to sell the
         underlying shares of Common Stock (which remedy shall not be exclusive
         of any other remedies available at law or in equity), the Conversion
         Percentage and the Fixed Conversion Price shall be adjusted as
         follows:

                             (i)    Conversion Percentage.  Subject to the last
         paragraph of this Section 2(c), the Conversion Percentage in effect at
         such time for each time period set forth in Section 2(b)(iv) with
         respect to the Series C Preferred Shares which may be converted as
         permitted by Section 2(k) hereof during the period that sales cannot
         be made pursuant to the Registration Statement, shall be reduced by a
         number of percentage points equal to the product of (A) two and
         one-half (2.5) and (B) the sum of (I) the number of months (prorated
         for partial months) after the Scheduled Effective Date and prior to
         the date that the relevant Registration Statement is declared
         effective by the SEC and (II) the number of months (prorated for
         partial months) that sales cannot be made pursuant to the Registration
         Statement after the Registration Statement has been declared
         effective. (For example, if the Registration Statement becomes
         effective one and one-half (1 1/2) months after the Scheduled
         Effective Date, the Conversion Percentage for each period set forth in
         Section 2(b)(iv) with respect to 25% of the Series C Preferred Shares
         would decrease by three and three-quarters percent (3.75%) until any
         subsequent adjustment; if thereafter sales could not be made pursuant
         to the Registration Statement for a period of two (2) additional
         months, the Conversion Percentage with respect to such 25% of the
         Series C Preferred Shares for each remaining period set forth in
         Section 2(b)(iv) would decrease by an additional five percent (5%),
         for an aggregate decrease of eight and three-quarters percent (8.75%);
         and

                             (ii)   Fixed Conversion Price.  Subject to the last
         paragraph of this Section 2(c), the Fixed Conversion Price in effect
         at such time with respect to the Series C Preferred Shares which may
         be converted as permitted by Section 2(k) hereof during the period
         that sales cannot be made pursuant to the Registration Statement,
         shall be reduced by an amount equal to the product of (A) four
         thousand three hundred and seventy-five hundred thousandths of a
         dollar ($.04375) and (B) the sum of (I) the number of months (prorated
         for partial months) after the Scheduled Effective Date and prior to
         the date that the Registration Statement is declared effective by the
         SEC and (II) the number of months (prorated for partial months) that
         sales cannot be made pursuant to the Registration Statement after the
         Registration Statement has been declared effective. (For example, if
         the



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         Registration Statement becomes effective one and one-half (1 1/2)
         months after the Scheduled Effective Date, the Fixed Conversion Price
         with respect to 25% of the Series C Preferred Shares would be $1.6844
         until any subsequent adjustment; if thereafter sales could not be made
         pursuant to the Registration Statement for a period of two (2)
         additional months, the Fixed Conversion Price with respect to such 25%
         of the Series C Preferred Shares would then be $1.5969)).

         Provided however, notwithstanding anything to the contrary, (i) if the
         Registration Statement is not declared effective by the SEC on or
         before the one-hundred and twentieth (120th) day following the
         Issuance Date, for purposes of the adjustment to the Conversion
         Percentage and the Fixed Conversion Price under this Section 2(c) for
         the time period between the ninetieth (90th) day and the one-hundred
         and twentieth (120th) day, 25% of the Series C Preferred Shares shall
         be assumed to be subject to the right to convert pursuant to Section 2
         hereof, and (ii) after the Registration Statement has been declared
         effective by the SEC, if sales cannot be made pursuant to the
         Registration Statement during the Lock-Up Period (as defined in
         Section 2(j) hereof).

                      (d) Adjustment to Conversion Price -- Dilution and
         Other Events. In order to prevent dilution of the rights granted under
         this Certificate of Designations, the Conversion Price will be subject
         to adjustment from time to time as provided in this Section 2(d).

                             (i)    Adjustment of Fixed Conversion Price upon 
         Subdivision or Combination of Common Stock. If the Company at any time
         subdivides (by any stock split, stock dividend, recapitalization or
         otherwise) one or more classes of its outstanding shares of Common
         Stock into a greater number of shares, the Fixed Conversion Price in
         effect immediately prior to such subdivision will be proportionately
         reduced. If the Company at any time combines (by combination, reverse
         stock split or otherwise) one or more classes of its outstanding
         shares of Common Stock into a smaller number of shares, the Fixed
         Conversion Price in effect immediately prior to such combination will
         be proportionately increased.

                             (ii)   Reorganization, Reclassification,
         Consolidation, Merger or Sale. Any recapitalization, reorganization,
         reclassification, consolidation, merger, sale of all or substantially
         all of the Company's assets to another Person (as defined below) or
         other similar transaction which is effected in such a way that holders
         of Common Stock are entitled to receive (either directly or upon
         subsequent liquidation) stock, securities or assets with respect to or
         in exchange for Common Stock is referred to herein as an "ORGANIC
         CHANGE." Prior to the consummation of any Organic Change, the Company
         will make appropriate provision (in form and substance satisfactory to
         the holders of a majority of the Series C Preferred Shares then
         outstanding) to insure that each of the holders of the Series C
         Preferred Shares will thereafter have the right to acquire and receive
         in lieu of or in addition to (as the case may be) the shares of Common
         Stock immediately theretofore acquirable and receivable upon the
         conversion of such holder's Series C Preferred Shares, such shares of
         stock, securities or assets as may be issued or payable with respect
         to or in exchange for the number of shares of Common Stock immediately
         theretofore acquirable and receivable upon the



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         conversion of such holder's Series C Preferred Shares had such Organic
         Change not taken place. In any such case, the Company will make
         appropriate provision (in form and substance satisfactory to the
         holders of a majority of the Series C Preferred Shares then
         outstanding) with respect to such holders' rights and interests to
         insure that the provisions of this Section 2(d) and Section 2(e) below
         will thereafter be applicable to the Series C Preferred Shares. The
         Company will not effect any such consolidation, merger or sale, unless
         prior to the consummation thereof, the successor entity (if other than
         the Company) resulting from consolidation or merger or the entity
         purchasing such assets assumes, by written instrument (in form and
         substance satisfactory to the holders of a majority of the Series C
         Preferred Shares then outstanding), the obligation to deliver to each
         holder of Series C Preferred Shares such shares of stock, securities
         or assets as, in accordance with the foregoing provisions, such holder
         may be entitled to acquire. For purposes of this Agreement, "PERSON"
         shall mean an individual, a limited liability company, a partnership,
         a joint venture, a corporation, a trust, an unincorporated
         organization and a government or any department or agency thereof.

                             (iii)  Notices.

                             (A)    Immediately upon any adjustment of the  
         Conversion Price, the Company will give written notice thereof to each
         holder of Series C Preferred Shares, setting forth in reasonable
         detail and certifying the calculation of such adjustment.

                             (B)    The Company will give written notice to each
         holder of Series C Preferred Shares 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 or liquidation.

                             (C)    The Company will also give written notice to
         each holder of Series C Preferred Shares at least twenty (20) days
         prior to the date on which any Organic Change, Major Transaction (as
         defined below), dissolution or liquidation will take place.

                      (e) Purchase Rights. If at any time the Company
         grants, issues or sells any Options, Convertible Securities or rights
         to purchase stock, warrants, securities or other property pro rata to
         the record holders of any class of Common Stock (the "PURCHASE
         RIGHTS"), then the holders of Series C Preferred Shares will be
         entitled to acquire, upon the terms applicable to such Purchase
         Rights, the aggregate Purchase Rights which such holder could have
         acquired if such holder had held the number of shares of Common Stock
         acquirable upon complete conversion of the Series C Preferred Shares
         immediately before the date on which a record is taken for the grant,
         issuance or sale of such Purchase Rights, or, if no such record is
         taken, the date as of which the record holders of Common Stock are to
         be determined for the grant, issue or sale of such Purchase Rights.



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                      (f) Mechanics of Conversion.  Subject to the Company's 
         inability to fully satisfy its obligations under a Conversion Notice
         (as defined below) as provided for in Section 4 below:

                             (i)    Holder's Delivery Requirements.  To convert
         Series C Preferred Shares into full shares of Common Stock on any date
         (the "CONVERSION DATE"), the holder thereof shall (A) deliver or
         transmit by facsimile, for receipt on or prior to 11:59 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 or its designated transfer agent (the "TRANSFER AGENT"),
         and (B) surrender to a common carrier for delivery to the Company or
         the Transfer Agent as soon as practicable following such date, the
         original certificates representing the Series C Preferred Shares 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 or the
         Transfer Agent of the Preferred Stock Certificates to be converted
         pursuant to a Conversion Notice, together with the originally executed
         Conversion Notice, the Company or the Transfer Agent (as applicable)
         shall, within five (5) business days following the date of receipt,
         (A) 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 or (B)
         credit the aggregate number of shares of Common Stock to which the
         holder shall be entitled to the holder's or its designee's balance
         account at The Depository Trust Company.

                             (iii)  Dispute Resolution.  In the case of a 
         dispute as to the determination of the Average Market Price or the
         arithmetic calculation of the Conversion Rate, 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 within three (3)
         business days of receipt of such holder's Conversion Notice. If such
         holder and the Company are unable to agree upon the determination of
         the Average Market Price or arithmetic calculation of the Conversion
         Rate within two (2) business days 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 Market Price to an independent,
         reputable investment bank or (B) the disputed arithmetic calculation
         of the Conversion Rate to its independent, outside accountant. 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 forty-eight (48)
         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.



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                             (iv)   Record Holder.  The person or persons 
         entitled to receive the shares of Common Stock issuable upon a
         conversion of Series C Preferred Shares 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 the
         Company shall fail to issue to a holder within ten (10) business days
         following the date of receipt by the Company or the Transfer Agent of
         the Preferred Stock Certificates to be converted pursuant to a
         Conversion Notice, a certificate for the number of shares of Common
         Stock to which such holder is entitled upon such holder's conversion
         of Series C Preferred Shares, in addition to all other available
         remedies which such holder may pursue hereunder and under the
         Securities Purchase Agreement between the Company and the initial
         holders of the Series C Preferred Shares (the "SECURITIES PURCHASE
         AGREEMENT") (including indemnification pursuant to Section 8 thereof),
         the Company shall pay additional damages to such holder on each day
         after the tenth (10th) business day following the date of receipt by
         the Company or the Transfer Agent of the Preferred Stock Certificates
         to be converted pursuant to the Conversion Notice, for which such
         conversion is not timely effected, an amount equal to 0.1% of the
         product of (A) the number of shares of Common Stock not issued to the
         holder and to which such holder is entitled and (B) the Closing Bid
         Price of the Common Stock on the business day following the date of
         receipt by the Company or the Transfer Agent of the Preferred Stock
         Certificates to be converted pursuant to the Conversion Notice.

                      (g) Mandatory Conversion. If any Series C Preferred
         Shares remain outstanding on March 31, 2000, then all such Series C
         Preferred Shares shall be converted as of such date in accordance with
         this Section 2 as if the holders of such Series C Preferred Shares had
         given the Conversion Notice on March 31, 2000, and the Conversion Date
         had been fixed as of March 31, 2000, for all purposes of this Section
         2, and all holders of Series C Preferred Shares shall thereupon and
         with two (2) business days thereafter surrender all Preferred Stock
         Certificates, duly endorsed for cancellation, to the Company or the
         Transfer Agent. No person shall thereafter have any rights in respect
         of Series C Preferred Shares, except the right to receive shares of
         Common Stock on conversion thereof as provided in this Section 2.

                      (h) Fractional Shares. The Company shall not issue any
         fraction of a share of Common Stock upon any conversion. All shares of
         Common Stock (including fractions thereof) issuable upon conversion of
         more than one share of the Series C Preferred Shares by a holder
         thereof shall be aggregated for purposes of determining whether the
         conversion would result in the issuance of a fraction of a share of
         Common Stock. If, after the aforementioned aggregation, the issuance
         would result in the issuance of a fraction of a share of Common Stock,
         the Company shall round such fraction of a share of Common Stock up or
         down to the nearest whole share.

                      (i) Taxes. The Company shall pay any and all taxes
         which may be imposed upon it with respect to the issuance and delivery
         of Common Stock upon the conversion of the Series C Preferred Shares.



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                      (j) Lock-Up.  If the Lock-Up Conditions (as defined below)
         are satisfied, but only for that period of time that the Lock-Up
         Conditions are satisfied, the Company may at its option at any time
         after the 180th day following the Issuance Date but before 361st day
         following the Issuance Date (the "LOCK-UP EXERCISE PERIOD"), prohibit
         holders of the Series C Preferred Shares from exercising any
         conversion rights granted pursuant to Section (2)(a) (the "LOCK-UP")
         for a period (the "LOCK-UP PERIOD") beginning on the Lock-Up Notice
         Delivery Date (as defined below) until the earlier of (Y) ninety (90)
         after the Lock-Up Notice Delivery Date and (Z) such time as the
         Lock-Up Conditions (as defined below) are no longer satisfied;
         provided, however, that, if the LockUp Notice Delivery Date is on or
         after 271st day following the Issuance Date, the Lock-Up Period shall
         terminate on the 360th day following the Issuance Date.

                             (i)    Lock-Up Conditions.  The "LOCK-UP 
         CONDITIONS" shall be deemed satisfied only for such period of time as
         the Board of Directors of the Company is in possession of material,
         non-public information relating to a business transaction involving
         the Company which would be required to be disclosed to the public
         before any member of the Board of Directors would be able to sell any
         equity securities of the Company in compliance with the anti-fraud
         provisions of the Securities Act of 1933. The Company shall give
         prompt notice to each of the holders of the Series C Preferred Shares
         if at any time during the Lock-Up period such condition is not
         properly satisfied.

                             (ii)   Consideration for Lock-Up.  In consideration
         for the Company's exercise of the Lock-Up, the Company shall (A) on
         the Lock-Up Notice Delivery Date (as defined below) deliver to each
         holder of Series C Preferred Shares a warrant (the "LOCK-UP WARRANT")
         exercisable for that number of shares of Common Stock equal to
         one-half (1/2) of the number of shares of Common Stock which would
         have been issuable had such holder converted such holder's Series C
         Preferred Shares which, except for the effect of the Lock-Up, such
         holder could have converted pursuant to Section 2(k) hereof as of the
         LockUp Notice Delivery Date, and (B) on the last day of the Lock-Up
         Period deliver to each holder of Series C Preferred Shares an
         additional Lock-Up Warrant exercisable for that number of shares of
         Common Stock equal to one-half (1/2) of the number of shares of Common
         Stock which would have been issuable had such holder converted such
         holder's Series C Preferred Shares which, except for the effect of the
         Lock-Up, would have become subject to the holder's right to convert
         pursuant to Section 2(k) hereof after the Lock-Up Notice Delivery Date
         but during the Lock-Up Period. The Lock-Up Warrants shall be issued in
         substantially the form of the warrants issued to the holders of the
         Series C Preferred Shares in connection with the conversion of the
         Series C Preferred Shares; provided, however, that the exercise price
         of the Lock-Up Warrants shall be the Fixed Conversion Price as in
         effect at the time of issuance thereof but such exercise price shall
         not be subject to adjustment as set forth in Section (2)(b)(ii)
         hereof.

                             (iii)  Mechanics of Lock-Up. To effect the Lock-Up,
         the Company shall (x) deliver or transmit by facsimile, for receipt on
         or prior to 11:59 p.m., Central Time on any date (the "LOCK-UP NOTICE
         DELIVERY DATE") during the Lock-Up Exercise Period, to each holder of
         Series C Preferred Shares (I) a copy of a fully executed notice in the
         form of Exhibit II hereto (the "LOCK-UP NOTICE") and (II) executed
         agreements



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         ("LOCK-UP AGREEMENTS"), in the form attached hereto as Exhibit III,
         from each officer or director of the Company or any subsidiary of the
         Company who beneficially owns, or has any disposition power with
         respect to, 0.05% or more of the total outstanding shares of Common
         Stock as of the Lock-Up Notice Delivery Date which, for the benefit of
         the holders of the Series C Preferred Shares, which obligates such
         persons not to sell or otherwise dispose of any shares of Common Stock
         until one day after each of the holders of the Series C Preferred
         Shares has received written notice from the Company that the Lock-Up
         Period has ended, and (y) surrender to a common carrier for delivery
         to each Series C Preferred Share holder as soon as practicable
         following such date, an originally executed Lock-Up Notice, originally
         executed Lock-Up Agreements and an originally executed Lock-Up
         Warrant; provided, however, that such Lock-Up Notice shall not be
         effective with respect to the conversion of any shares of Series C
         Preferred Shares for which a holder of such shares has, prior to
         receipt of the Lock-Up Notice, properly delivered a Conversion Notice
         pursuant to Section (2)(f)(i).

                      (k) Conversion Restriction.  The right of a holder of
Series C Preferred Shares to convert Series C Preferred Shares pursuant to this
Section 2 shall be subject to the following limitations (which shall be applied
independently):

                             (i)    Prior to the 120th day following the 
         Issuance Date, holders of Series C Preferred Shares shall not be
         entitled to convert any Series C Preferred Shares;

                             (ii)    During the period beginning on the 120th
         day following the Issuance Date and ending on the 210th day following
         the Issuance Date, each Buyer and all of their respective successors
         shall be entitled to convert no more than 25% of the number of Series
         C Preferred Shares purchased by such Buyer;

                             (iii)  During the period beginning on the 120th day
         following the Issuance Date and ending on 300th day following the
         Issuance Date, each Buyer and all of their respective successors shall
         be entitled to convert no more than 50% of the number of Series C
         Preferred Shares purchased by such Buyer;

                             (iv)   During the period beginning on the 120th day
         following the Issuance Date and ending on the 390th day following the
         Issuance Date, each Buyer and all of their respective successors shall
         be entitled to convert no more than 75% of the number of Series C
         Preferred Shares purchased by such Buyer; and

                             (v)    After the 390th day following the Issuance 
         Date, each holder of the Series C Preferred Shares shall be entitled
         to convert any and all of the Series C Preferred Shares then held by
         such person.

Provided however, notwithstanding the foregoing, any holder of Series C
Preferred Shares shall be immediately entitled to convert such holder's Series
C Preferred Shares into shares of Common Stock pursuant to this Section 2 upon
(i) the occurrence of any Triggering Event, (ii) any public announcement by the
Company stating that the Company intends to consummate, or is the subject



                                      10

<PAGE>   11


of, a Major Transaction, (iii) execution of a definitive agreement by the
Company with respect to a Major Transaction or (iv) the consummation of a Major
Transaction.

                  (3) Redemption at Option of Holders.

                      (a) Redemption Option Upon Major Transaction. In addition
         to all other rights of the holders of Series C Preferred Shares
         contained herein, after a Major Transaction (as defined below), the
         holders of Series C Preferred Shares shall have the right in
         accordance with Section 3(f), at the option of the holders of at least
         two-thirds (2/3) of the Series C Preferred Shares then outstanding, to
         require the Company to redeem all of the Series C Preferred Shares
         then outstanding at a price per Series C Preferred Share equal to the
         greater of (i) 100% of the Liquidation Value (as defined below) of
         such share and (ii) the price calculated in accordance with the
         Redemption Rate (as defined below) calculated as of the date of the
         public announcement of such Major Transaction or the next date on
         which the exchange or market on which the Common Stock is traded is
         open if such public announcement is made (A) after 1:00 p.m. Central
         Time on such date or (B) on a date on which the exchange or market on
         which the Common Stock is traded is closed.

                      (b) Redemption Option Upon Triggering Event. In
         addition to all other rights of the holders of Series C Preferred
         Shares contained herein, after a Triggering Event (as defined below),
         the holders of Series C Preferred Shares shall have the right in
         accordance with Section 3(g), at the option of the holders of at least
         two-thirds (2/3) of the Series C Preferred Shares then outstanding, to
         require the Company to redeem all of the Series C Preferred Shares
         then outstanding at a price per Series C Preferred Share equal to the
         greater of (i) 120% of the Liquidation Value of such share and (ii)
         the price calculated in accordance with the Redemption Rate as of the
         date immediately preceding such Triggering Event on which the exchange
         or market on which the Common Stock is traded is open.

                      (c) "Redemption Rate". The "REDEMPTION RATE" shall,
         as of any date of determination, be equal to (i) the Conversion Rate
         in effect as of such date as calculated pursuant to Section 2(b)
         multiplied by (ii) the Closing Bid Price of the Common Stock on such
         date.

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

                             (i)    the consummation of any merger,
         reorganization, restructuring, consolidation or similar transaction by
         or involving the Company except (A) a merger or consolidation where
         the Company is the survivor or (B) pursuant to a migratory merger
         effected solely for the purpose of changing the jurisdiction of
         incorporation of the Company;

                             (ii)    sale of all or substantially all of the
         assets of the Company or all of its material subsidiaries or any
         similar transaction or related transactions



                                       11

<PAGE>   12


         which effectively results in a sale of all or substantially all of the
         assets of the Company and/or its subsidiaries;

                             (iii)  the occurrence, after the date hereof, of
         the acquisition, by any person (including any entity or association)
         or persons (other than any existing stockholder of the Company or two
         or more existing stockholders of the Company, acting in concert, of
         securities of the Company (or the power to vote such securities)
         representing 50% or more of the total voting power of all outstanding
         Common Stock or other voting securities of the Company; or

                             (iv)   the failure of the Company to continue to 
         own, directly or indirectly, all of the capital stock of all of its
         material subsidiaries (other than due to a merger or consolidation of
         any subsidiary into the Company or a wholly-owned subsidiary of the
         Company).

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

                             (i)    either (A) the failure of the Registration 
         Statement to be effective or to cover the resale of all of the shares
         of Common Stock issued or issuable upon conversion of the Series C
         Preferred Shares and exercise of the Warrants at any time after sixty
         (60) days after the Scheduled Effective Date (provided that for
         purposes of determining the Closing Bid Price under Section 3(c)
         above, the Triggering Event shall be deemed to have occurred on the
         first day of such 60-day period) or (B) for any period of sixty (60)
         consecutive days after the date that is sixty (60) days after the
         Scheduled Effective Date, other then during the Lock-Up Period, that
         Common Stock issued or issuable upon conversion of the Shares C
         Preferred Shares cannot be sold under the Registration Statement for
         any reason (provided that for purposes of determining the Closing Bid
         Price under Section 3(c) above, the Triggering Event shall be deemed
         to have occurred on the first day of such 60-day period);

                             (ii)   if for any reason, the Company fails to 
         perform or observe any covenant, agreement or other provision
         contained in Sections 9 or 10 hereof or in Section 4(h) of the
         Securities Purchase Agreement.

                             (iii)  Steven Rash ceases to be the Chief Executive
         Officer of the Company prior to March 31, 1998 other than in
         connection with a Major Transaction;

                             (iv)   the Company's notice to any holder of Series
         C Preferred Shares or Warrants, including by way of public
         announcement, at any time, of its intention for any reason not to
         comply with requests for conversion of any Series C Preferred Shares
         or exercise of any Warrant for shares of Common Stock other than in
         connection with or pursuant to a proper exercise of the Company's
         Lock-Up rights pursuant to Section 2(j);


                                      12

<PAGE>   13


                             (v)    if for any reason, the Company fails to 
         perform or observe any covenant, agreement or other provision
         contained herein or in the Securities Purchase Agreement or the
         Registration Rights Agreement, and such failure is not cured within 30
         days after the Company knows, or should have known with the exercise
         of reasonable diligence, of the occurrence thereof, and such failure
         has had, or could reasonably be expected to have, a material adverse
         effect on (A) the financial condition, operating results, business,
         properties or operations of the Company and its subsidiaries taken as
         a whole taking into account any proceeds reasonably expected to be
         received by the Company or its subsidiaries in the foreseeable future
         from insurance policies or rights of indemnification or (B) the Series
         C Preferred Shares; or

                             (vi)   any representation or warranty contained in
         the Securities Purchase Agreement or the Registration Rights Agreement
         is false or misleading on or as of the date made and which either
         reflects or has had a material adverse effect on (A) the financial
         condition, operating results, business, properties or operations of
         the Company and its subsidiaries taken as a whole taking into account
         any proceeds reasonably expected to be received by the Company or its
         subsidiaries in the foreseeable future from insurance policies or
         rights of indemnification or (B) the Series C Preferred Shares.

                      (f) 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 of
         Series C Preferred Shares. At any time after receipt of a Notice of
         Major Transaction, the holders of at least two-thirds (2/3) of the
         Series C Preferred Shares then outstanding may require the Company to
         redeem all of the holders' Series C Preferred Shares then outstanding
         in accordance with Section 3(a) 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 Series C Preferred Shares that such holders are
         voting in favor of redemption and (ii) the applicable redemption
         price, as calculated pursuant to Section 3(a) above.

                      (g) 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 of Series C Preferred Shares. At any time after receipt of a
         Notice of Triggering Event, the holders of at least two-thirds (2/3)
         of the Series C Preferred Shares then outstanding may require the
         Company to redeem all of the Series C Preferred Shares then
         outstanding in accordance with Section 3(b) 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 Series C Preferred Shares that such
         holders are voting in favor of redemption and (ii) the applicable
         redemption price, as calculated pursuant to Section 3(b) above.



                                       13

<PAGE>   14


                      (h) Payment of Redemption Price. Upon the Company's
         receipt of a Notice(s) of Redemption at Option of Buyer Upon Major
         Transaction or a Notice(s) of Redemption at Option of Buyer Upon
         Triggering Event, as the case may be, from the holders of at least
         two-thirds (2/3) of the Series C Preferred Shares then outstanding,
         the Company shall immediately notify each holder by facsimile of the
         Company's receipt of such requisite notices necessary to affect a
         redemption and each holder of Series C Preferred Shares shall
         thereafter promptly send such holder's Preferred Stock Certificates to
         be redeemed to the Company or its Transfer Agent. The Company shall
         pay the applicable redemption price, as calculated pursuant to Section
         3(a) or 3(b) above, in cash to such holder within thirty (30) days
         after the Company's receipt of the requisite notices required to
         affect a redemption; provided that a holder's Preferred Stock
         Certificates shall have been so delivered to the Company or its
         Transfer Agent; provided further that if the Company is unable to
         redeem all of the Series C Preferred Shares, the Company shall redeem
         an amount from each holder of Series C Preferred Shares equal to such
         holder's pro-rata amount (based on the number of Series C Preferred
         Shares held by such holder relative to the number of Series C
         Preferred Shares outstanding) of all Series C Preferred Shares being
         redeemed. If the Company shall fail to redeem all of the Series C
         Preferred Shares submitted for redemption (other than pursuant to a
         dispute as to the determination of the Closing Bid Price or the
         arithmetic calculation of the Redemption Rate), the applicable
         redemption price payable in respect of such unredeemed Series C
         Preferred Shares shall bear interest at the rate of 2.5% per month
         (prorated for partial months) until paid in full. Until the Company
         pays such unpaid applicable redemption price in full to each holder,
         holders of at least two-thirds (2/3) of the Series C Preferred Shares
         then outstanding, including shares of Series C Preferred Shares
         submitted for redemption pursuant to this Section 3 and for which the
         applicable redemption price has not been paid, shall have the option
         (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption,
         require the Company to promptly return to each holder all of the
         Series C Preferred Shares that were submitted for redemption by such
         holder under this Section 3 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 each
         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 Series C Preferred Shares submitted for
         redemption and for which the applicable redemption price has not been
         paid, (ii) the Company shall immediately return any Series C Preferred
         Shares submitted to the Company by each holder for redemption under
         this Section 3(i) and for which the applicable redemption price has
         not been paid, (iii) the Fixed Conversion Price of such returned
         Series C Preferred Shares 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


                                       14

<PAGE>   15


         Conversion Price then in effect, and (iv) the Conversion Percentage in
         effect at such time and thereafter shall be reduced by a number of
         percentage points equal to the product of (A) two and one-half (2.5)
         and (B) the number of months (prorated for partial months) in the
         period beginning on the date on which the Notice(s) of Redemption at
         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.
         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 Rate, such dispute shall be resolved pursuant to
         Section 2(f)(iii) above with the term "Closing Bid Price" being
         substituted for the term "Average Market Price" and the term
         "Redemption Rate" being substituted for the term "Conversion Rate".

                  (4) Inability to Fully Convert.

                      (a) Holder's Option if Company Cannot Fully Convert.
         If at any time after the earlier to occur of (i) effectiveness of the
         Registration Statement or (ii) sixty (60) days after the Scheduled
         Effective Date, other than during the Lock-Up Period, upon the
         Company's receipt of a Conversion Notice, the Company does not issue
         shares of Common Stock which are registered for resale under the
         Registration Statement within five (5) business days of the time
         required in accordance with Section 2(f) hereof, for any reason or for
         no reason, including, without limitation, because the Company (x) does
         not have a sufficient number of shares of Common Stock authorized and
         available, (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, including without limitation the
         Nasdaq-NM, from issuing all of the Common Stock which is to be issued
         to a holder of Series C Preferred Shares pursuant to a Conversion
         Notice or (z) fails to have a sufficient number of shares of Common
         Stock registered and eligible 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 2(f) above and, with respect to the
         unconverted Series C Preferred Shares, the holder, solely at such
         holder's option, can, in addition to any other remedies such holder
         may have hereunder, under the Securities Purchase Agreement (including
         indemnification under Section 8 thereof), under the Registration
         Rights Agreement, at law or in equity, elect to:

                             (i)    require the Company to redeem from such 
            holder those Series C Preferred Shares for which the Company is
            unable to issue Common Stock in accordance with such holder's
            Conversion Notice ("MANDATORY REDEMPTION") at a price per Series C
            Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the
            greater of (x) 120% of the Liquidation Value of such share and (y)
            the Redemption Rate as of such Conversion Date;

                             (ii)   if the Company's inability to fully convert
            Series C Preferred Shares is pursuant to Section 4(a)(z) above,
            require the Company to issue restricted shares



                                       15

<PAGE>   16


            of Common Stock in accordance with such holder's Conversion Notice
            and pursuant to Section 2(f) above; or

                             (iii)  void its Conversion Notice and retain or 
            have returned, as the case may be, the nonconverted Series C
            Preferred Shares that were to be converted pursuant to such
            holder's Conversion Notice.

                      (b) Mechanics of Fulfilling Holder's Election. The
            Company shall immediately send via facsimile to a holder of Series
            C Preferred Shares, upon receipt of a facsimile copy of a
            Conversion Notice from such holder which cannot be fully satisfied
            as described in Section 4(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 C Preferred Shares which cannot be converted and
            (iii) the applicable Mandatory Redemption Price. Such holder must
            within five (5) business days of receipt of such Inability to Fully
            Convert Notice deliver written notice via facsimile to the Company
            ("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of its election
            pursuant to Section 4(a) above.

                      (c) Payment of Redemption Price. If such holder shall 
            elect to have its shares redeemed pursuant to Section 4(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. If the
            Company shall fail to pay the applicable Mandatory Redemption Price
            to such holder on a timely basis as described in this Section 4(c)
            (other than pursuant to a dispute as to the determination of the
            Closing Bid Price or the arithmetic calculation of the Redemption
            Rate), such unpaid amount shall bear interest at the rate of 2.5%
            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 void the Mandatory Redemption with respect to those
            Series C Preferred Shares for which the full Mandatory Redemption
            Price has not been paid and receive back such Series C Preferred
            Shares. 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
            Closing Bid Price or the arithmetic calculation of the Redemption
            Rate, such dispute shall be resolved pursuant to Section 2(f)(iii)
            above with the term "Closing Bid Price" being substituted for the
            term "Average Market Price" and the term "Redemption Rate" being
            substituted for the term "Conversion Rate".

                      (d) Pro-rata Conversion and Redemption. In the event the
            Company receives a Conversion Notice from more than one holder of
            Series C Preferred Shares on the same day and the Company can
            convert and redeem some, but not all, of the Series C Preferred
            Shares pursuant to this Section 4, the Company shall convert and
            redeem from each holder of Series C Preferred Shares electing to
            have Series C Preferred Shares converted and redeemed at such time
            an amount equal to such holder's pro-rata amount (based on the
            number of Series C Preferred Shares held by such holder relative to
            the number of Series C



                                       16

<PAGE>   17


         Preferred Shares outstanding) of all Series C Preferred Shares being
         converted and redeemed at such time.

                  (5) Reissuance of Certificates. In the event of a conversion
         or redemption pursuant to this Certificate of Designations of less
         than all of the Series C Preferred Shares represented by a particular
         Preferred Stock Certificate, the Company shall promptly cause to be
         issued and delivered to the holder of such Series C Preferred Shares a
         preferred stock certificate representing the remaining Series C
         Preferred Shares which have not been so converted or redeemed.

                  (6) Reservation of Shares. The Company shall, so long as any
         of the Series C Preferred Shares 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 C Preferred
         Shares, such number of shares of Common Stock as shall from time to
         time be sufficient to effect the conversion of all of the Series C
         Preferred Shares then outstanding; provided that the number of shares
         of Common Stock so reserved shall at no time be less than 125% of the
         number of shares of Common Stock for which the Series C Preferred
         Shares are at any time convertible.

                  (7) Voting Rights. Holders of Series C Preferred Shares shall
         have no voting rights, except as required by law, including but not
         limited to the General Corporation Law of the State of Delaware, and
         as expressly provided in this Certificate of Designations.

                  (8) Liquidation, Dissolution, Winding-Up. In the event of any
         voluntary or involuntary liquidation, dissolution or winding up of the
         Company, the holders of the Series C Preferred Shares shall be
         entitled to receive in cash out of the assets of the Company, whether
         from capital or from earnings available for distribution to its
         stockholders (the "PREFERRED FUNDS"), before any amount shall be paid
         to the holders of any of the capital stock of the Company of any class
         junior in rank to the Series C Preferred Shares in respect of the
         preferences as to the distributions and payments on the liquidation,
         dissolution and winding up of the Company, an amount per Series C
         Preferred Share equal to the sum of (i) $20,000 and (ii) an amount
         equal to the product of (.07) (N/365) ($20,000) (such sum being
         referred to as the "LIQUIDATION VALUE"); provided that, if the
         Preferred Funds are insufficient to pay the full amount due to the
         holders of Series C Preferred Shares and holders of shares of other
         classes or series of preferred stock of the Company that are of equal
         rank with the Series C Preferred Shares as to payments of Preferred
         Funds (the "PARI PASSU SHARES"), then each holder of Series C
         Preferred Shares and Pari Passu Shares shall receive a percentage of
         the Preferred Funds equal to the full amount of Preferred Funds
         payable to such holder as a liquidation preference, in accordance with
         their respective Certificate of Designations, Preferences and Rights,
         as a percentage of the full amount of Preferred Funds payable to all
         holders of Series C Preferred Shares and Pari Passu Shares. The
         purchase or redemption by the Company of stock of any class, in any
         manner permitted by law, shall not, for the purposes hereof, be
         regarded as a liquidation, dissolution or winding up of the Company.
         Neither the consolidation or merger of the Company with or into any
         other Person, nor the sale or transfer by the Company of less than
         substantially all of its assets,



                                       17

<PAGE>   18




         shall, for the purposes hereof, be deemed to be a liquidation,
         dissolution or winding up of the Company. No holder of Series C
         Preferred Shares shall be entitled to receive any amounts with respect
         thereto upon any liquidation, dissolution or winding up of the Company
         other than the amounts provided for herein.

                  (9) Preferred Rank. All shares of Common Stock shall be of
         junior rank to all Series C Preferred Shares in respect to the
         preferences as to distributions and payments upon the liquidation,
         dissolution and winding up of the Company. The rights of the shares of
         Common Stock shall be subject to the preferences and relative rights
         of the Series C Preferred Shares. The Series C Preferred Shares shall
         be of equal rank with shares of the Company's 1996 Series A
         Convertible Preferred Stock and 1996 Series B Convertible Preferred
         Stock. Without the prior express written consent of the holders of not
         less than two-thirds (2/3) of the then outstanding Series C Preferred
         Shares, the Company shall not hereafter authorize or issue additional
         or other capital stock that is of senior or equal rank to the Series C
         Preferred Shares in respect of the preferences as to distributions and
         payments upon the liquidation, dissolution and winding up of the
         Company. Without the prior express written consent of the holders of
         not less than two-thirds (2/3) of the then outstanding Series C
         Preferred Shares, the Company shall not hereafter authorize or make
         any amendment to the Company's Certificate of Incorporation or bylaws,
         or file any resolution of the board of directors with the Delaware
         Secretary of State containing any provisions, which would adversely
         affect or otherwise impair the rights or relative priority of the
         holders of the Series C Preferred Shares relative to the holders of
         the Common Stock or the holders of any other class of capital stock.
         In the event of the merger or consolidation of the Company with or
         into another corporation, the Series C Preferred Shares shall maintain
         their relative powers, designations and preferences provided for
         herein and no merger shall result inconsistent therewith.

                 (10) Restriction on Redemption and Dividends.

                      (a) Restriction on Dividends. If any Series C Preferred 
         Shares are outstanding, without the prior express written consent of
         the holders of not less than two-thirds (2/3) of the then outstanding
         Series C Preferred Shares, the Company shall not directly or
         indirectly declare, pay or make any dividends or other distributions
         upon any of the Common Stock so long as written notice thereof has
         been given to holders of the Series C Preferred Shares at least 30
         days prior to the earlier of (a) the record date taken for or (b) the
         payment of any such dividend or other distribution. Notwithstanding
         the foregoing, this Section 10 (a) shall not prohibit the Company from
         declaring and paying a dividend in cash with respect to the Common
         Stock so long as the Company: (i) pays simultaneously to each holder
         of Series C Preferred Shares an amount in cash equal to the amount
         such holder would have received had all of such holder's Series C
         Preferred Shares been converted to Common Stock pursuant to Section 2
         hereof one business day prior to the record date for any such
         dividend, and (ii) after giving effect to the payment of any dividend
         and any other payments required in connection therewith including to
         the holders of the Series C Preferred Shares under clause 10 (a)(i)
         hereof, the Company has in cash or cash equivalents an amount equal to
         the aggregate of: (A) all of its liabilities reflected on its most
         recently available balance sheet, (B) the amount of any indebtedness
         incurred by the Company or any of its subsidiaries



                                       18

<PAGE>   19


         since its most recent balance sheet and (C) 125% of the amount payable
         to all holders of any shares of any class of preferred stock of the
         Company assuming a liquidation of the Company as the date of its most
         recently available balance sheet.

                      (b) Restriction on Redemption. If any Series C Preferred
         Shares are outstanding, without the prior express written consent of
         the holders of not less than two-thirds (2/3) of the then outstanding
         Series C Preferred Shares, the Company shall not directly or
         indirectly redeem, purchase or otherwise acquire from any person or
         entity other than from a direct or indirect wholly-owned subsidiary of
         the Company, or permit any subsidiary of the Company to redeem,
         purchase or otherwise acquire from any person or entity other than
         from the Company or another direct or indirect wholly-owned subsidiary
         of the Company, any of the Company's or any subsidiary's capital stock
         or other equity securities (including, without limitation, warrants,
         options and other rights to acquire such capital stock or other equity
         securities) except for (a) the redemption of shares of 1996 Series A
         Preferred Stock, 1996 Series B Preferred Stock or Series C Preferred
         Stock pursuant to the Certificate of Incorporation of the Company or
         the respective Certificate of Designations, Preferences and Rights as
         in effect on the date hereof, (b) the redemption or repurchase of
         Common Stock and Preferred Stock up to an aggregate of $250,000 per
         year but in no event more than $1,000,000 in the aggregate after the
         date hereof from directors and officers of the Company or any of its
         subsidiaries in the event any such person shall cease to be employed
         by, or a director of, the Company or any of its direct or indirect
         subsidiaries for any reason, including without limitation, upon death,
         retirement, permanent disability or termination for any reason.

                 (11) Vote to Change the Terms of Series C Preferred Shares.
         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
         two-thirds (2/3) of the then outstanding Series C Preferred Shares,
         shall be required for any change to this Certificate of Designations
         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 C Preferred Shares.

                 (12) 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 Series C Preferred Shares, 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 Series C Preferred Shares into
         Common Stock.

                 (13) Withholding Tax Obligations. Notwithstanding anything
         herein to the contrary, to the extent that the Company receives advice
         in writing from its counsel that there is a reasonable basis to
         believe that the Company is required by applicable federal laws or
         regulations and delivers a copy of such written advice to the holders
         of the Series C Preferred Shares so effected, the Company may
         reasonably condition the making of any distribution (as



                                       19

<PAGE>   20


         such term is defined under applicable federal tax laws and
         regulations) in respect of any Series C Preferred Share on the holder
         of such Series C Preferred Shares depositing with the Company an
         amount of cash sufficient to enable the Company to satisfy its
         withholding tax obligations (the "Withholding Tax") with respect to
         such distribution. Notwithstanding the foregoing or anything to the
         contrary, if any holder of the Series C Preferred Shares so effected
         receives advice in writing from its counsel that there is a reasonable
         basis to believe that the Company is not so required by applicable
         federal laws or regulations and delivers a copy of such written advice
         to the Company, the Company shall not be permitted to condition the
         making of any such distribution in respect of any Series C Preferred
         Share on the holder of such Series C Preferred Shares depositing with
         the Company any Withholding Tax with respect to such distribution,
         provided however; the Company may reasonably condition the making of
         any such distribution in respect of any Series C Preferred Share on
         the holder of such Series C Preferred Shares executing and delivering
         to the Company, at the election of the holder, either: (i) if
         applicable, a properly completed Internal Revenue Service Form 4224,
         or (ii) an indemnification agreement in reasonably acceptable form
         with respect to any federal tax liability, penalties and interest that
         may be imposed upon the Company by the Internal Revenue Service as a
         result of the Company's failure to withhold in connection with such
         distribution to such holder. If the conditions in the preceding two
         sentences are fully satisfied, the Company shall not be required to
         pay any additional damages set forth in Section 2(f)(v) of this
         Certificate of Designations if its failure to timely deliver any
         Conversion Shares results solely from the holder's failure to deposit
         any withholding tax hereunder or provide to the Company an executed
         indemnification agreement in the form of Exhibit IV hereto.



                                       20

<PAGE>   21






         IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Steven Rash its Chief Executive Officer, as of the
21st day of March 1997.

                                               AMERICAN BIOMED, INC.



   
                                               By: /s/ STEVEN RASH
                                                  ------------------------------
                                                  Steven Rash
                                                  Chief Executive Officer
    


<PAGE>   22


                                   EXHIBIT I

                             AMERICAN BIOMED, INC.
                               CONVERSION NOTICE

         Reference is made to the Certificate of Designations, Preferences and
Rights of American BioMed, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series C
Convertible Preferred Stock, $.001 par value per share (the "SERIES C PREFERRED
SHARES"), of American BioMed, Inc., a Delaware corporation (the "COMPANY"),
indicated below into shares of Common Stock, $.001 par value per share (the
"COMMON STOCK"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Series C Preferred Shares specified below as of
the date specified below.

         The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series C
Preferred Shares shall be made only pursuant to (i) a registration statement
effective under the Securities Act of 1933, as amended (the "Act"), or (ii)
advice of counsel that such sale is exempt from registration required by
Section 5 of the Act.


                                           Date of Conversion:

                                           -------------------------------------


                                           Number of Series C
                                           Preferred Shares to be converted

                                           -------------------------------------


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

                                           -------------------------------------


Please confirm the following information:

                                           Conversion Price:

                                           -------------------------------------

                                           Number of shares Common Stock 
                                           to be issued:

                                           -------------------------------------


<PAGE>   23





Please issue the Common Stock into which the Series C Preferred Shares are
being converted in the following name and to the following address:

                                           Issue to: (1)

                                           -------------------------------------

                                           -------------------------------------


                                           Facsimile Number:

                                           -------------------------------------

                                           Authorization:

                                           -------------------------------------
                                           By:
                                              ----------------------------------
                                           Title:
                                                 -------------------------------
                                           Dated:
                                                 -------------------------------




ACKNOWLEDGED AND AGREED:

AMERICAN BIOMED, INC.

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


--------
  (1) If other than to the record holder of the Series C Preferred Shares, any
applicable transfer tax must be paid by the undersigned.


<PAGE>   24




                                   EXHIBIT II

                             AMERICAN BIOMED, INC.
                                 LOCK-UP NOTICE


         Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of American BioMed, Inc. (the
"COMPANY"). In accordance with and pursuant to Section (2)(j) of the
Certificate of Designations, the Company hereby elects to exercise its LockUp
rights (as set forth in the Certificate of Designations), effective as of the
date hereof. Consequently, the Company shall not be required to convert any
Series C Preferred Shares which have a Conversion Date (as defined in the
Certificate of Designations) during the period beginning on the date hereof and
ending on the earlier of (i) that date which is ninety (90) days from the date
hereof and (ii) the 360th day following the Issuance Date (as defined in the
Certificate of Designations).


                                  Authorization:
                                                --------------------------------
                                           By:
                                              ----------------------------------
                                           Title:
                                                 -------------------------------
                                           Dated:
                                                 -------------------------------







<PAGE>   25



                                  EXHIBIT III

                             AMERICAN BIOMED, INC.
                           FORM OF LOCK-UP AGREEMENT

         Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of American BioMed, Inc. (the
"COMPANY"). The undersigned has been advised that in accordance with and
pursuant to Section (2)(j) of the Certificate of Designations, effective as of
__________ (the "LOCK-UP COMMENCEMENT DATE"), the Company has elected to
exercise its Lock-Up rights (as set forth in the Certificate of Designations)
with respect to shares of Series C Convertible Preferred Stock (the "SERIES C
PREFERRED SHARES"), $.001 par value per share. Consequently, the Company shall
not be required to convert any Series C Preferred Shares which have a
Conversion Date (as defined in the Certificate of Designations) during the
period (the "Lock Up Period") beginning on the Lock-Up Commencement Date and
ending on the earlier of (i) that date which is ninety (90) days from the
Lock-Up Commencement Date and (ii) [the 360th day following the Issuance Date
(as defined in the Certificate of Designations)].

         In consideration of the agreement by the holders of the Series C
Preferred Shares not to convert any Series C Preferred Shares pursuant to the
Lock-Up rights, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that until one day after each of the holders of the
Series C Preferred Shares has received written notice from the Company that the
LockUp Period has ended the undersigned will not, directly or indirectly,
without the prior written consent of the holders representing a majority of the
outstanding Series C Preferred Shares, sell, contract to sell, pledge, grant
any option for the sale of or otherwise dispose or cause the disposition of any
shares of the Company's common stock, $.001 par value per share (the "COMMON
STOCK"), or any securities convertible into or exchangeable or exercisable for
any shares of Common Stock owned by the undersigned. Notwithstanding the
foregoing, the undersigned shall not need to obtain such written consent with
respect to (1) a transfer (not involving a sale in the public market) of shares
of Common Stock by the undersigned in a bona fide charitable or other donative
transaction or in any estate planning transaction so long as in each case the
transferee of such shares agrees in writing to be bound by the terms of this
agreement and furnishes a copy of such agreement to holders of the Series C
Preferred Shares prior to effecting any such transfer and (2) a transfer (not
involving a sale in the public market) of shares of Common Stock, if the
undersigned is a natural person, due to the death or disability of the
undersigned so long as the transferee of such shares agrees in writing to be
bound by the terms of this agreement and furnishes a copy of such agreement to
holders of the Series C Preferred Shares prior to effecting any such transfer.

                  In furtherance of the foregoing, the Company and the
Company's transfer agent and registrar are hereby authorized to decline to make
any transfer or securities if such transfer would constitute a violation or
breach of this agreement.



                                        Very truly yours,


                                        ----------------------------------------
                                        Signature

                                        ----------------------------------------
                                        Print Name: