State of Delaware
      Secretary of State
   Division of Corporations
Delivered 09:03 AM 01/11/2008
  FILED 08:45 AM 01/11/2008
 SRV 080033855 - 3492006 FILE

                      RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                      DOCUMENT CAPTURE TECHNOLOGIES, INC.,
                             A DELAWARE CORPORATION


The undersigned hereby certifies that:

ONE: He is the duly elected and acting Chief Executive Officer of said
corporation.

TWO: The original Certificate of Incorporation of said corporation was filed
with the Secretary of State of the State of Delaware on February 15, 2002 under
its original name "BankEngine Technologies, Inc."

THREE: The Certificate of Incorporation of said corporation shall be restated to
read in full as follows:

   "FIRST:     The name of the corporation is Document Capture Technologies,
               Inc. (the "Corporation").

   SECOND:     The address of its registered office in the State of Delaware is
               Corporation Trust Center, 1209 Orange Street in the City of
               Wilmington, County of New Castle. The name of its registered
               agent at such address is The Corporation Trust Company.

   THIRD:      The purpose or purposes of the Corporation shall be to engage in
               any lawful act or activity for which corporations may be
               organized under the General Corporation Law of Delaware.

   FOURTH:     The aggregate number of shares which the Corporation is
               authorized to issue is fifty-two million (52,000,000), divided
               into classes as follows:

               A.   Fifty million (50,000,000) shares of common stock, $.001 par
                    value per share (hereinafter called the "Common Stock"),
                    divided into two classes as follows;

               B.   Two million (2,000,000) shares of preferred stock, $.001 par
                    value per share, to be issued in series (the "Preferred
                    Stock").

               The following is a statement of the designations, powers,
               preferences and rights, and the qualifications, limitations or
               restrictions with respect to the Preferred Stock of the
               Corporation: The shares of Preferred Stock may be issued in one
               or more series, and each series shall be so designated as to
               distinguish the shares thereof from the shares of all other
               series. Authority is hereby expressly granted to the Board of
               Directors of the Corporation to fix, subject to the provisions

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               herein set forth, before the issuance of any shares of a
               particular series, the number, designations and relative rights,
               preferences, and limitations of the shares of such series
               including (1) voting rights, if any, which may include the right
               to vote together as a single class with the Common Stock and any
               other series of the Preferred Stock with the number of votes per
               share accorded to shares of such series being the same as or
               different from that accorded to such other shares, (2) the
               dividend rate per annum, if any, and the terms and conditions
               pertaining to dividends and whether such dividends shall be
               cumulative, (3) the amount or amounts payable upon such voluntary
               or involuntary liquidation, (4) the redemption price or prices,
               if any, and the terms and conditions of the redemption, (5)
               sinking fund provisions, if any, for the redemption or purchase
               of such shares, (6) the terms and conditions on which such shares
               are convertible, in the event the shares are to have conversion
               rights, and (7) any other rights, preferences and limitations
               pertaining to such series which may be fixed by the Board of
               Directors pursuant to the Delaware General Corporation Law.

               Upon the effectiveness (the "Split Effective Date") of the
               certificate of amendment to the certificate of incorporation
               containing this sentence, each ten (10) shares of the Common
               Stock issued and outstanding as of the date and time immediately
               preceding April 2, 2004, the effective date of a reverse stock
               split (the "Split Effective Date"), shall be automatically
               changed and reclassified, as of the Split Effective Date and
               without further action, into one (1) fully paid and nonassessable
               share of Common Stock. There shall be no fractional shares
               issued. A holder of record of Common Stock on the Split Effective
               Date who would otherwise be entitled to a fraction of a share
               shall have the number of new shares to which they are entitled
               rounded to the nearest whole number of shares. The number of new
               shares will be rounded up if the fractional share is equal to or
               greater than 0.5 and rounded down if the fraction is less than
               0.5. No shareholders will receive cash in lieu of fractional
               shares.

   FIFTH:      The Board of Directors does hereby established a series of
               authorized preferred stock having a par value of $.001 per share,
               which series shall consist of sixty thousand (60,000) shares and
               be designated as "Series A Convertible Preferred Stock," and does
               hereby fix and determine the rights, preferences, restrictions
               and other matters relating to such series of preferred stock as
               follows:

               Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
               preferred stock shall be designated as its Series A Convertible
               Preferred Stock (the "PREFERRED STOCK") and the number of shares
               so designated shall be 60,000 (which shall not be subject to
               increase without the consent of the holders of a majority of the
               Preferred Stock (each, a "HOLDER" and collectively, the
               "HOLDERS")). Each share of Preferred Stock shall have a par value
               of $.001 per share and a stated value equal to the sum of $100

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               plus all accrued and unpaid dividends to the date of
               determination to the extent not previously paid in cash or common
               stock, par value $.001 per share ("COMMON STOCK") of the
               Corporation in accordance with the terms hereof (the "STATED
               VALUE").

               Section 2. DIVIDENDS.

                    (a) Holders shall be entitled to receive, out of funds
               legally available therefor, and the Corporation shall pay,
               cumulative dividends at the rate per share (as a percentage of
               the Stated Value per share) of 5% per annum, payable semiannually
               on July 1 and January 1, beginning with the first such date after
               the Original Issue Date (as defined in Section 7) and on any
               Conversion Date (as defined herein) for such share ("DIVIDEND
               PAYMENT DATE"), in cash, by accretion of the Stated Value or in
               shares of Common Stock. Subject to the terms and conditions
               herein, the decision whether to accrete dividends hereunder to
               the Stated Value, to pay for dividends in cash or in shares of
               Common Stock shall be at the discretion of the Corporation. The
               Corporation shall provide the Holders written notice of its
               intention to accrete dividends hereunder to the Stated Value or
               pay dividends in cash or shares of Common Stock not less than ten
               days prior to each Dividend Payment Date for so long as shares of
               Preferred Stock are outstanding (the Corporation may indicate in
               such notice that the election contained in such notice shall
               continue for later periods until revised). Failure to timely
               provide such written notice shall be deemed (if permitted
               hereunder) an election by the Corporation to accrete dividends
               hereunder to the Stated Value. Dividends on the Preferred Stock
               shall be calculated on the basis of a 360-day year, shall accrue
               daily commencing on the Original Issue Date, and shall be deemed
               to accrue from such date whether or not earned or declared and
               whether or not there are profits, surplus or other funds of the
               Corporation legally available for the payment of dividends.
               Except as otherwise provided herein, if at any time the
               Corporation pays less than the total amount of dividends then
               accrued on account of the Preferred Stock, such payment shall be
               distributed ratably among the Holders based upon the number of
               shares of Preferred Stock held by each Holder. In the event the
               Corporation elects to pay all or some of the dividends in shares
               of Common Stock, the shares of Common Stock to be delivered to
               the Holders shall be valued at the lower of (i) the then-current
               Conversion Price (as defined in Section 5(c)), and (ii) 85% of
               the Fifteen-Day VWAP on the Dividend Payment Date.

                    (b) Notwithstanding anything to the contrary contained
               herein, the Corporation must pay dividends in cash if:

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                         (i) the number of shares of Common Stock (as defined in
               Section 7) at the time authorized, unissued and unreserved for
               all purposes is insufficient to accrete such dividends to the
               Stated Value and permit conversion in full of all outstanding
               Stated Value;

                         (ii) after the Effective Date (as defined in Section
               7), Underlying Shares (as defined in Section 7) (x) are not
               registered for resale pursuant to an effective Underlying Shares
               Registration Statement (as defined in Section 7) and (y) may not
               be sold without volume restrictions pursuant to Rule 144
               promulgated under the Securities Act (as defined in Section 7),
               as determined by counsel to the Corporation pursuant to a written
               opinion letter, addressed to the Corporation's transfer agent in
               the form and substance acceptable to the applicable Holder and
               such transfer agent (if the Corporation is permitted and elects
               to pay dividends in shares of Common Stock under this clause (ii)
               prior to the Effective Date and thereafter an Underlying Shares
               Registration Statement shall be declared effective by the
               Commission (as defined in Section 7), the Corporation shall,
               within three Trading Days after the date of such declaration of
               effectiveness, exchange such Underlying Shares for shares of
               Common Stock that are free of restrictive legends of any kind);
               or

                         (iii) the accretion of such dividends to the Stated
               Value and subsequent conversions of all then outstanding Stated
               Value would result in a violation of Section 5(a)(iv).

               Section 3. VOTING RIGHTS. Except as otherwise provided herein and
               as otherwise required by law, the Preferred Stock shall have no
               voting rights. However, so long as any shares of Preferred Stock
               are outstanding, the Corporation shall not, without the
               affirmative vote of the Holders of a majority of the shares of
               the Preferred Stock then outstanding, (a) alter or change
               adversely the powers, preferences or rights given to the
               Preferred Stock or alter or amend this Certificate of
               Designation, (b) authorize or create any class of stock ranking
               as to dividends or distribution of assets upon a Liquidation (as
               defined in Section 4) senior to or otherwise PARI PASSU with the
               Preferred Stock, (c) amend its certificate or articles of
               incorporation or other charter documents so as to affect
               adversely any rights of the Holders, (d) increase the authorized
               number of shares of Preferred Stock, or (e) enter into any
               agreement with respect to the foregoing.

               Section 4. LIQUIDATION. Upon any liquidation, dissolution or
               winding up of the Corporation, whether voluntary or involuntary
               (a "LIQUIDATION"), the Holders shall be entitled to receive out
               of the assets of the Corporation, whether such assets are capital
               or surplus, for each share of Preferred Stock an amount equal to
               the Stated Value per share before any distribution or payment
               shall be made to the holders of any Junior Securities, and if the
               assets of the Corporation shall be insufficient to pay in full

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<PAGE>

               such amounts, then the entire assets to be distributed to the
               Holders shall be distributed among the Holders ratably in
               accordance with the respective amounts that would be payable on
               such shares if all amounts payable thereon were paid in full. A
               Change of Control Transaction shall be treated as a Liquidation
               within the meaning of this Section 4; PROVIDED, HOWEVER, that
               each Holder shall have the right to elect the benefits of the
               provisions of Section 5 hereof in lieu of receiving payment in
               Liquidation pursuant to this Section 4. Each Holder shall notify
               the Corporation in advance of its election to obtain the benefits
               of this Section 4 or of Section 5, which notification shall be
               given not later than a date specified in writing to each Holder
               by the Corporation to be at least five (5) days prior to the
               payment date. If a Holder fails to make any election, the Holder
               shall be deemed to have elected the benefits of this Section 4.
               The Corporation shall mail written notice of any such
               Liquidation, not less than 45 days prior to the payment date
               stated therein, to each record Holder.

               Section 5. CONVERSION.

                    (a) (i) CONVERSIONS AT OPTION OF HOLDER. Each share of
               Preferred Stock shall be convertible into shares of Common Stock
               (subject to the limitations set forth in Section 5(a)(iv)) at the
               Conversion Ratio (as defined in Section 7), at the option of the
               Holder, at any time and from time to time from and after the
               Original Issue Date. Holders shall effect conversions by
               providing the Corporation with the form of conversion notice
               attached hereto as EXHIBIT A (a "CONVERSION NOTICE"). Each
               Conversion Notice shall specify the number of shares of Preferred
               Stock to be converted, the number of shares of Preferred Stock
               owned prior to the conversion at issue, number of shares of
               Preferred Stock owned subsequent to the conversion at issue and
               the date on which such conversion is to be effected, which date
               may not be prior to the date the Holder delivers such Conversion
               Notice by facsimile (the "CONVERSION DATE"). If no Conversion
               Date is specified in a Conversion Notice, the Conversion Date
               shall be the date that such Conversion Notice is deemed delivered
               hereunder. To effect conversions of shares of Preferred Stock, a
               Holder shall not be required to surrender the certificate(s)
               representing such shares of Preferred Stock to the Corporation
               unless all of the shares of Preferred Stock represented thereby
               are so converted, in which case the Holder shall deliver the
               certificate representing such share of Preferred Stock promptly
               following the Conversion Date at issue. The calculations and
               entries set forth in the Conversion Notice shall control in the
               absence of manifest or mathematical error.

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<PAGE>


                         (ii) CONVERSIONS AT OPTION OF COMPANY. If, on any date
               after the one-year anniversary of the Original Issue Date, (A)
               the closing Market Price (as defined in Section 7) for a share of
               Common Stock for ten (10) consecutive trading days equals at
               least $4.00 (subject to adjustment for the events described in
               Section 5(c)(ii)) and (B) the average reported daily trading
               volume during such ten-day period equals or exceeds 100,000
               shares, then the Corporation shall have the right, at its option,
               to convert, subject to the terms and provisions of this Section
               5, all, but not less than all, of the outstanding shares of
               Preferred Stock at the Conversion Ratio; provided that the
               Underlying Shares Registration Statement shall be effective at
               all times during such 10-day period and during the 30-day notice
               period described in the next sentence. Thirty (30) days prior
               written notice by the Corporation that the Corporation elects to
               convert such shares of Preferred Stock pursuant to this Section
               5(a)(ii) shall be given to the Holders, such notice to set forth
               the date of conversion pursuant to this Section 5(a)(ii) and to
               be addressed to each such holder at its address as shown in the
               records of the Corporation. Upon receipt of such notice from the
               Corporation, each holder of shares of Preferred Stock shall
               promptly surrender to the Corporation certificates representing
               the shares of Preferred Stock to be converted at any time during
               usual business hours at its principal place of business
               maintained by it (or such other office or agency of the
               Corporation as the Corporation may designate by notice in writing
               to the holders of shares of Preferred Stock), specifying the name
               or names (with address) in which a certificate or certificates
               for shares of Common Stock are to be issued and (if so required
               by the Corporation) accompanied by a written instrument or
               instruments of transfer in form reasonably satisfactory to the
               Corporation duly executed by the holder or its duly authorized
               legal representative.

                         (iii) [intentionally omitted]

                         (iv) CERTAIN CONVERSION RESTRICTIONS.

                              (A) A Holder may not convert shares of Preferred
               Stock or receive shares of Common Stock as payment of dividends
               hereunder to the extent such conversion or receipt of such
               dividend payment would result in the Holder, together with any
               affiliate thereof, beneficially owning (as determined in
               accordance with Section 13(d) of the Exchange Act (as defined in
               Section 7) and the rules promulgated thereunder) in excess of
               4.999% of the then issued and outstanding shares of Common Stock,
               including shares issuable upon conversion of, and payment of
               dividends on, the shares of Preferred Stock held by such Holder
               after application of this Section. Since the Holder will not be
               obligated to report to the Corporation the number of shares of
               Common Stock it may hold at the time of a conversion hereunder,
               unless the conversion at issue would result in the issuance of
               shares of Common Stock in excess of 4.999% of the then
               outstanding shares of Common Stock without regard to any other
               shares which may be beneficially owned by the Holder or an
               affiliate thereof, the Holder shall have the authority and

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<PAGE>

               obligation to determine whether the restriction contained in this
               Section will limit any particular conversion hereunder and to the
               extent that the Holder determines that the limitation contained
               in this Section applies, the determination of which portion of
               the shares of Preferred Stock are convertible shall be the
               responsibility and obligation of the Holder. The provisions of
               this Section may be waived by a Holder (but only as to itself and
               not to any other Holder) upon not less than 61 days prior notice
               to the Corporation. Other Holders shall be unaffected by any such
               waiver.

                              (B) A Holder may not convert shares of Preferred
               Stock or receive shares of Common Stock as payment of dividends
               hereunder to the extent such conversion or receipt of such
               dividend payment would result in the Holder, together with any
               affiliate thereof, beneficially owning (as determined in
               accordance with Section 13(d) of the Exchange Act and the rules
               promulgated thereunder) in excess of 9.999% of the then issued
               and outstanding shares of Common Stock, including shares issuable
               upon conversion of, and payment of dividends on, the shares of
               Preferred Stock held by such Holder after application of this
               Section. Since the Holder will not be obligated to report to the
               Corporation the number of shares of Common Stock it may hold at
               the time of a conversion hereunder, unless the conversion at
               issue would result in the issuance of shares of Common Stock in
               excess of 9.999% of the then outstanding shares of Common Stock
               without regard to any other shares which may be beneficially
               owned by the Holder or an affiliate thereof, the Holder shall
               have the authority and obligation to determine whether the
               restriction contained in this Section will limit any particular
               conversion hereunder and to the extent that the Holder determines
               that the limitation contained in this Section applies, the
               determination of which portion of the shares of Preferred Stock
               are convertible shall be the responsibility and obligation of the
               Holder. The provisions of this Section may be waived by a Holder
               (but only as to itself and not to any other Holder) upon not less
               than 61 days prior notice to the Corporation. Other Holders shall
               be unaffected by any such waiver.

                    (b) (i) DELIVERY OF CERTIFICATE UPON CONVERSION. Not later
               than five Trading Days after each Conversion Date (the "SHARE
               DELIVERY DATE"), the Corporation will deliver to the Holder (A) a
               certificate or certificates which, after the Effective Date shall
               be free of restrictive legends and trading restrictions (other
               than those required by the Purchase Agreement) representing the
               number of shares of Common Stock being acquired upon the
               conversion of shares of Preferred Stock, and (B) a bank check in
               the amount of accrued and unpaid dividends (if the Corporation
               has elected or is required to pay accrued dividends in cash).
               After the Effective Date, the Corporation shall, upon the request
               of the Holder, cause any certificate or certificates required to
               be delivered by the Corporation hereunder to be transmitted by

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               the transfer agent of the Corporation to the Holder's prime
               broker with the Depository Trust Corporation through its Deposit
               Withdrawal Agent Commission (DWAC) system, if the Corporation's
               transfer agent is a participant in such system. The Corporation
               shall cause its transfer agent to be a participant in such system
               (or engage a new transfer agent which is a participant in such
               system) within 60 days after the Original Issue Date.

                         (ii) OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES.
               The Corporation's obligations to issue and deliver the
               certificates upon conversion of shares of Preferred Stock in
               accordance with the terms hereof are absolute and unconditional,
               irrespective of any action or inaction by the Holder to enforce
               the same, any waiver or consent with respect to any provision
               hereof, the recovery of any judgment against any Person or any
               action to enforce the same, or any setoff, counterclaim,
               recoupment, limitation or termination, or any breach or alleged
               breach by the Holder or any other Person of any obligation to the
               Corporation or any violation or alleged violation of law by the
               Holder or any other person, and irrespective of any other
               circumstance which might otherwise limit such obligation of the
               Corporation to the Holder in connection with the issuance of such
               certificates. In the event a Holder shall elect to convert shares
               of Preferred Stock, the Corporation may not refuse conversion
               based on any claim that such Holder or any one associated or
               affiliated with the Holder of has been engaged in any violation
               of law, agreement or for any other reason, unless an injunction
               from a court, on notice, restraining and or enjoining conversion
               of all or part of such Preferred Stock shall have been sought and
               obtained and the Corporation posts a surety bond for the benefit
               of the Holder in the amount of 150% of the Stated Value of the
               Preferred Stock subject to the injunction, which bond shall
               remain in effect until the completion of arbitration/litigation
               of the dispute and the proceeds of which shall be payable to such
               Holder to the extent it obtains judgment. In the absence of an
               injunction precluding the same, the Corporation shall issue the
               certificates or, if applicable, cash, upon a properly noticed
               conversion. If the Corporation fails to deliver to the Holder
               such certificate or certificates pursuant to Section 5(b)(i) by
               the Share Delivery Date applicable to such conversion, the
               Corporation shall pay to such Holder, in cash, as liquidated
               damages and not as a penalty, for each $5,000 of Stated Value of
               Preferred Stock being converted, $100 per Trading Day (increasing
               to $200 per Trading Day six Trading Days after such damages begin
               to accrue) for each Trading Day after the Share Delivery Date
               until such certificates are delivered. Nothing herein shall limit
               a Holder's right to pursue actual damages for the Corporation's
               failure to deliver certificates representing shares of Common
               Stock upon conversion within the period specified herein and such
               Holder shall have the right to pursue all remedies available to
               it hereunder, at law or in equity including, without limitation,
               a decree of specific performance and/or injunctive relief.

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                         (iii) COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY
               DELIVER CERTIFICATES UPON CONVERSION. If the Corporation fails to
               deliver to the Holder such certificate or certificates pursuant
               to Section 5(b)(i) by the applicable Share Delivery Date, and if
               after such Share Delivery Date and prior to any subsequent
               delivery of the certificates to Holders the Holder purchases (in
               an open market transaction or otherwise) Common Stock to deliver
               in satisfaction of a sale by such Holder of the shares of Common
               Stock which the Holder was entitled to receive upon the
               conversion relating to such Share Delivery Date (a "BUY-IN"),
               then the Corporation shall pay in cash to the Holder the amount
               by which (x) the Holder's total purchase price (including
               brokerage commissions, if any) for the Common Stock so purchased
               exceeds (y) the product of (1) the aggregate number of shares of
               Common Stock that such Holder was entitled to receive from the
               conversion at issue multiplied by (2) the price at which the sell
               order giving rise to such purchase obligation was executed. For
               example, if the Holder purchases Common Stock having a total
               purchase price of $11,000 to cover a Buy-In with respect to an
               attempted conversion of shares of Preferred Stock with respect to
               which the aggregate sale price giving rise to such purchase
               obligation is $10,000, under clause (A) of the immediately
               preceding sentence the Corporation shall be required to pay the
               Holder $1,000. The Holder shall provide the Corporation written
               notice indicating the amounts payable to the Holder in respect of
               the Buy-In, together with applicable confirmations and other
               evidence reasonably requested by the Corporation. Nothing herein
               shall limit a Holder's right to pursue any other remedies
               available to it hereunder, at law or in equity including, without
               limitation, a decree of specific performance and/or injunctive
               relief with respect to the Corporation's failure to timely
               deliver certificates representing shares of Common Stock upon
               conversion of the shares of Preferred Stock as required pursuant
               to the terms hereof.

                    (c) (i) The conversion price for each share of Preferred
               Stock (the "CONVERSION PRICE") shall be $1.00, subject to
               adjustment as provided herein.

                         (ii) If the Corporation, at any time while any shares
               of Preferred Stock are outstanding, shall (a) pay a stock
               dividend or otherwise make a distribution or distributions on
               shares of its Junior Securities or PARI PASSU securities payable
               in shares of Common Stock, (b) subdivide outstanding shares of
               Common Stock into a larger number of shares, (c) combine
               (including by way of reverse stock split) outstanding shares of
               Common Stock into a smaller number of shares, or (d) issue by

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<PAGE>

               reclassification and exchange of the Common Stock any shares of
               capital stock of the Corporation, then the Conversion Price shall
               be adjusted by multiplying the Conversion Price by a fraction of
               which the numerator shall be the number of shares of Common Stock
               (excluding treasury shares, if any) outstanding before such event
               and of which the denominator shall be the number of shares of
               Common Stock outstanding after such event. Any adjustment made
               pursuant to this Section 5(c)(ii) shall become effective
               immediately after the record date for the determination of
               stockholders entitled to receive such dividend or distribution
               and shall become effective immediately after the effective date
               in the case of a subdivision, combination or reclassification.

                         (iii) If the Corporation, at any time prior to the
               Effective Date while any shares of Preferred Stock are
               outstanding, shall issue rights, warrants or options to all
               holders of Common Stock (and not to Holders) entitling them to
               subscribe for or purchase shares of Common Stock at a price per
               share less than the Per Share Market Value at the record date
               mentioned below, then the Conversion Price shall be adjusted by
               multiplying the Conversion Price by a fraction, the numerator of
               which shall be the number of shares of Common Stock outstanding
               immediately prior to the issuance of such rights, warrants or
               options, plus the number of shares of Common Stock which the
               aggregate offering price of the total number of shares so offered
               would purchase at such Per Share Market Value, and the
               denominator of which shall be the sum of the number of shares of
               Common Stock outstanding immediately prior to such issuance plus
               the number of shares of Common Stock offered for subscription or
               purchase. Such adjustment shall be made whenever such rights or
               warrants are issued, and shall become effective immediately after
               the record date for the determination of stockholders entitled to
               receive such rights or warrants. However, upon the expiration of
               any right, warrant or option to purchase shares of Common Stock
               the issuance of which resulted in an adjustment in the Conversion
               Price pursuant to this Section 5(c)(iii), if any such right,
               warrant or option shall expire and shall not have been exercised,
               the Conversion Price shall immediately upon such expiration shall
               be recomputed and effective immediately upon such expiration
               shall be increased to the price which it would have been (but
               reflecting any other adjustments in the Conversion Price made
               pursuant to the provisions of this Section 5 upon the issuance of
               other rights or warrants) had the adjustment of the Conversion
               Price made upon the issuance of such rights, warrants, or options
               been made on the basis of offering for subscription or purchase
               only that number of shares of Common Stock actually purchased
               upon the exercise of such rights, warrants or options actually
               exercised.

                         (iv) If, prior to the Effective Date, at any time while
               shares of Preferred Stock are outstanding the Corporation or any
               Subsidiary (with respect to Common Stock Equivalents) shall
               offer, sell, grant any option to purchase, or otherwise dispose
               of (or announce any offer, sale, grant or any option to purchase

                                      -10-
<PAGE>

               or other disposition) any shares of Common Stock or Common Stock
               Equivalents at a price that is, at the issuance thereof, or at
               any later time due to adjustment, reset, additional issuances or
               otherwise, less than the Conversion Price, then the Conversion
               Price shall be adjusted with respect to all unconverted shares of
               Preferred Stock to equal the conversion, exchange or purchase
               price for such Common Stock or Common Stock Equivalents
               (including any reset provisions thereof) at issue. Such
               adjustment shall be made whenever such Common Stock or Common
               Stock Equivalents are issued. If the holder of the Common Stock
               or Common Stock Equivalent so issued shall at any time, whether
               by operation of purchase price adjustments, reset provisions,
               floating conversion, exercise or exchange prices or otherwise, or
               due to warrants, options or rights issued in connection with such
               issuance, be entitled to receive shares of Common Stock at a
               price less than the Conversion Price, such issuance shall be
               deemed to have occurred for less than the Conversion Price.
               However, upon the expiration of any Common Stock Equivalent to
               purchase shares of Common Stock the issuance of which resulted in
               an adjustment in the Conversion Price pursuant to this Section
               5(c)(iv), if any such Common Stock Equivalent shall expire and
               shall not have been exercised, the Conversion Price shall
               immediately upon such expiration be recomputed and effective
               immediately upon such expiration shall be increased to the price
               which it would have been (but reflecting any other adjustments in
               the Conversion Price made pursuant to the provisions of this
               Section 5 upon the issuance of other rights or warrants) had the
               adjustment of the Conversion Price made upon the issuance of
               Common Stock Equivalents been made on the basis of offering for
               subscription or purchase only that number of shares of Common
               Stock actually purchased upon the exercise or conversion of such
               Common Stock Equivalents actually exercised or converted. A
               "COMMON STOCK EQUIVALENT" means any equity or equity equivalent
               securities (including debt or any other instrument that is at any
               time over the life thereof convertible into or exchangeable for
               Common Stock) issued by the Corporation or a subsidiary thereof
               that provide the holder thereof to receive shares of Common
               Stock. The Corporation shall notify the Holder in writing, no
               later than the Trading Day following the issuance of any Common
               Stock or Common Stock Equivalent subject to this section,
               indicating therein the applicable issuance price, or of
               applicable reset price, exchange price, conversion price and
               other pricing terms. Notwithstanding anything in this Section to
               the contrary, the provisions of this Section shall not apply as a
               result of any shares of Common Stock or Common Stock Equivalents
               issued or to be issued pursuant to: (A) employees, consultants,
               officers or directors of the Corporation pursuant to any stock
               option, stock purchase or stock bonus plan, agreement or
               arrangement approved by the Board of Directors; (B) the
               acquisition of another business entity or business segment of any
               such entity by the Corporation by merger, purchase of

                                      -11-
<PAGE>

               substantially all of the assets or other reorganization whereby
               the Corporation will own more than fifty (50%) of the voting
               power of such business segment of any such entity; (C) vendors or
               customers or to other persons in similar commercial situations
               with the Corporation if such issuance is approved by the Board of
               Directors; (D) corporate partnering transactions on terms
               approved by the Board of Directors; (E) the terms of any of the
               Corporation's preferred stock, warrants or other convertible
               securities outstanding on the date hereof; (F) borrowings, direct
               or indirect, from financial institutions regularly engaged in the
               business of lending money, whether or not presently authorized
               which include an equity component which is not a major component
               of such borrowing; (G) a merger, consolidation, reorganization,
               recapitalization, sale of assets, stock purchase, contribution or
               other similar transaction that involves the Corporation, on the
               one hand, and any corporation or other entity that controls,
               directly or indirectly, the Corporation, on the other hand; or
               (H) other non-cash transactions.

                         (v) If the Corporation, at any time while shares of
               Preferred Stock are outstanding, shall distribute to all holders
               of Common Stock (and not to Holders) evidences of its
               indebtedness or assets or rights or warrants to subscribe for or
               purchase any security (excluding those referred to in Sections
               5(c)(ii)-(iv) above), then in each such case the Conversion Price
               at which each share of Preferred Stock shall thereafter be
               convertible shall be determined by multiplying the Conversion
               Price in effect immediately prior to the record date fixed for
               determination of stockholders entitled to receive such
               distribution by a fraction of which the denominator shall be the
               Per Share Market Value determined as of the record date mentioned
               above, and of which the numerator shall be such Per Share Market
               Value on such record date less the then fair market value at such
               record date of the portion of such assets or evidence of
               indebtedness so distributed applicable to one outstanding share
               of Common Stock as determined by the Board of Directors in good
               faith. However, upon the expiration of any right, warrant or
               option to purchase shares of Common Stock the issuance of which
               resulted in an adjustment in the Conversion Price pursuant to
               this Section 5(c)(v), if any such right, warrant or option shall
               expire and shall not have been exercised, the Conversion Price
               shall immediately upon such expiration be recomputed and
               effective immediately upon such expiration shall be increased to
               the price which it would have been (but reflecting any other
               adjustments in the Conversion Price made pursuant to the
               provisions of this Section 5 upon the issuance of other rights or
               warrants) had the adjustment of the Conversion Price made upon
               the issuance of such rights, warrants, or options been made on
               the basis of offering for subscription or purchase only that
               number of shares of Common Stock actually purchased upon the
               exercise of such rights, warrants or options actually exercised.

                                      -12-
<PAGE>

               In either case the adjustments shall be described in a statement
               provided to the Holders of the portion of assets or evidences of
               indebtedness so distributed or such subscription rights
               applicable to one share of Common Stock. Such adjustment shall be
               made whenever any such distribution is made and shall become
               effective immediately after the record date mentioned above.

                         (vi) All calculations under this Section 5 shall be
               made to the nearest cent or the nearest 1/100th of a share, as
               the case may be. The number of shares of Common Stock outstanding
               at any given time shall not include shares owned or held by or
               for the account of the Corporation, and the disposition of any
               such shares shall be considered an issue or sale of Common Stock.

                         (vii) Whenever the Conversion Price is adjusted
               pursuant to Section 5(c)(ii),(iii), (iv) or (v) the Corporation
               shall promptly mail to each Holder, a notice setting forth the
               Conversion Price after such adjustment and setting forth a brief
               statement of the facts requiring such adjustment.

                         (viii) In case of any reclassification of the Common
               Stock, or any compulsory share exchange pursuant to which the
               Common Stock is converted into other securities, cash or property
               (other than compulsory share exchanges which constitute Change of
               Control Transactions), the Holders of the Preferred Stock then
               outstanding shall have the right thereafter to convert such
               shares only into the shares of stock and other securities, cash
               and property receivable upon or deemed to be held by holders of
               Common Stock following such reclassification or share exchange,
               and the Holders of the Preferred Stock shall be entitled upon
               such event to receive such amount of securities, cash or property
               as a holder of the number of shares of Common Stock of the
               Corporation into which such shares of Preferred Stock could have
               been converted immediately prior to such reclassification or
               share exchange would have been entitled. This provision shall
               similarly apply to successive reclassifications or share
               exchanges.

                         (ix) In case of any merger or consolidation of the
               Corporation with or into another Person, or sale by the
               Corporation of more than one-half of the assets of the
               Corporation (on an as valued basis) in one or a series of related
               transactions, a Holder shall have the right thereafter to (A)
               convert its shares of Preferred Stock into the shares of stock
               and other securities, cash and property receivable upon or deemed
               to be held by holders of Common Stock following such merger,
               consolidation or sale, and such Holder shall be entitled upon
               such event or series of related events to receive such amount of
               securities, cash and property as the shares of Common Stock into
               which such shares of Preferred Stock could have been converted
               immediately prior to such merger, consolidation or sales would
               have been entitled or (B) in the case of a merger or

                                      -13-
<PAGE>

               consolidation, (x) require the surviving entity to issue shares
               of convertible preferred stock or convertible debentures with
               such aggregate stated value or in such face amount, as the case
               may be, equal to the Stated Value of the shares of Preferred
               Stock then held by such Holder, plus all accrued and unpaid
               dividends and other amounts owing thereon, which newly issued
               shares of preferred stock or debentures shall have terms
               identical (including with respect to conversion) to the terms of
               the Preferred Stock (except, in the case of debentures, as may be
               required to reflect the differences between debt and equity) and
               shall be entitled to all of the rights and privileges of a Holder
               of Preferred Stock set forth herein and the agreements pursuant
               to which the Preferred Stock was issued (including, without
               limitation, as such rights relate to the acquisition,
               transferability, registration and listing of such shares of stock
               other securities issuable upon conversion thereof), and (y)
               simultaneously with the issuance of such convertible preferred
               stock or convertible debentures, shall have the right to convert
               such instrument only into shares of stock and other securities,
               cash and property receivable upon or deemed to be held by holders
               of Common Stock following such merger, consolidation or sale. In
               the case of clause (B), the conversion price applicable for the
               newly issued shares of convertible preferred stock or convertible
               debentures shall be based upon the amount of securities, cash and
               property that each share of Common Stock would receive in such
               transaction, the Conversion Ratio immediately prior to the
               effectiveness or closing date for such transaction and the
               Conversion Price stated herein. The terms of any such merger,
               sale or consolidation shall include such terms so as continue to
               give the Holders the right to receive the securities, cash and
               property set forth in this Section upon any conversion or
               redemption following such event. This provision shall similarly
               apply to successive such events. The rights set forth in this
               Section 5(c)(ix) shall not alter the rights of a Holder set forth
               in Section 7, provided, that, a Holder may only exercise the
               rights set forth in this Section 5(c)(ix) or the rights set forth
               in Section 7 with respect to a single event giving rise to such
               rights.

                         (x) If (a) the Corporation shall declare a dividend (or
               any other distribution) on the Common Stock, (b) the Corporation
               shall declare a special nonrecurring cash dividend on or a
               redemption of the Common Stock, (c) the Corporation shall
               authorize the granting to all holders of Common Stock rights or
               warrants to subscribe for or purchase any shares of capital stock
               of any class or of any rights, (d) the approval of any
               stockholders of the Corporation shall be required in connection
               with any reclassification of the Common Stock, any consolidation
               or merger to which the Corporation is a party, any sale or
               transfer of all or substantially all of the assets of the
               Corporation, or any compulsory share of exchange whereby the
               Common Stock is converted into other securities, cash or
               property, or (e) the Corporation shall authorize the voluntary or

                                      -14-
<PAGE>

               involuntary dissolution, liquidation or winding up of the affairs
               of the Corporation; then the Corporation shall notify the Holders
               at their last addresses as they shall appear upon the stock books
               of the Corporation, at least 20 calendar days prior to the
               applicable record or effective date hereinafter specified, a
               notice stating (x) the date on which a record is to be taken for
               the purpose of such dividend, distribution, redemption, rights or
               warrants, or if a record is not to be taken, the date as of which
               the holders of Common Stock of record to be entitled to such
               dividend, distributions, redemption, rights or warrants are to be
               determined or (y) the date on which such reclassification,
               consolidation, merger, sale, transfer or share exchange is
               expected to become effective or close, and the date as of which
               it is expected that holders of Common Stock of record shall be
               entitled to exchange their Common Stock for securities, cash or
               other property deliverable upon such reclassification,
               consolidation, merger, sale, transfer or share exchange. Holders
               are entitled to convert shares of Preferred Stock during the
               20-day period commencing the date of such notice to the effective
               date of the event triggering such notice.

                         (d) The Corporation covenants that it will at all times
               reserve and keep available out of its authorized and unissued
               shares of Common Stock solely for the purpose of issuance upon
               conversion of Preferred Stock, each as herein provided, free from
               preemptive rights or any other actual contingent purchase rights
               of persons other than the Holders, not less than such number of
               shares of Common Stock as shall be issuable (taking into account
               the provisions of Section 5(a) and Section 5(c)) upon the
               conversion of all outstanding shares of Preferred Stock. The
               Corporation covenants that all shares of Common Stock that shall
               be so issuable shall, upon issue, be duly and validly authorized,
               issued and fully paid and nonassessable.

                         (e) Upon a conversion hereunder the Corporation shall
               not be required to issue stock certificates representing
               fractions of shares of Common Stock, but may if otherwise
               permitted, make a cash payment in respect of any final fraction
               of a share based on the Per Share Market Value at such time. If
               any fraction of an Underlying Share would, except for the
               provisions of this Section, be issuable upon a conversion
               hereunder, the Corporation shall pay an amount in cash equal to
               the Conversion Ratio multiplied by such fraction.

                         (f) The issuance of certificates for Common Stock on
               conversion of Preferred Stock shall be made without charge to the
               Holders thereof for any documentary stamp or similar taxes that
               may be payable in respect of the issue or delivery of such
               certificate, provided that the Corporation shall not be required
               to pay any tax that may be payable in respect of any transfer
               involved in the issuance and delivery of any such certificate
               upon conversion in a name other than that of the Holder of such
               shares of Preferred Stock so converted.

                                      -15-
<PAGE>


                         (g) Shares of Preferred Stock converted into Common
               Stock or redeemed in accordance with the terms hereof shall be
               canceled and may not be reissued.

                         (h) Any and all notices or other communications or
               deliveries to be provided by the Holders of the Preferred Stock
               hereunder, including, without limitation, any Conversion Notice,
               shall be in writing and delivered personally, by facsimile or
               sent by a nationally recognized overnight courier service,
               addressed to the attention of the Chief Executive Officer of the
               Corporation addressed to 1772 Technology Drive, San Jose,
               California 95110, Facsimile No.: (408) 436-6151, attention Chief
               Executive Officer, or to such other address or facsimile number
               as shall be specified in writing by the Corporation for such
               purpose. Any and all notices or other communications or
               deliveries to be provided by the Corporation hereunder shall be
               in writing and delivered personally, by facsimile or sent by a
               nationally recognized overnight courier service, addressed to
               each Holder at the facsimile telephone number or address of such
               Holder appearing on the books of the Corporation, or if no such
               facsimile telephone number or address appears, at the principal
               place of business of the Holder. Any notice or other
               communication or deliveries hereunder shall be deemed given and
               effective on the earliest of (i) the date of transmission, if
               such notice or communication is delivered via facsimile at the
               facsimile telephone number specified in this Section at or prior
               to 5:00 p.m. (Eastern Time) (with confirmation of transmission)
               on a Trading Day, (ii) the Trading Day after the date of
               transmission, if such notice or communication is delivered via
               facsimile at the facsimile telephone number specified in this
               Section later than 5:00 p.m. (Eastern Time) on any date and
               earlier than 11:59 p.m. (Eastern Time) on such date (with
               confirmation of transmission), (iii) the next Trading Day, if
               sent by a nationally recognized overnight courier service, or
               (iv) upon actual receipt by the party to whom such notice is
               required to be given.

               Section 6. REDEMPTION. On the date that is 36 months from the
               Original Issue Date (the "REDEMPTION DATE"), all of the
               outstanding Preferred Stock shall be redeemed for a per share
               redemption price equal to the Stated Value on the Redemption Date
               (the "REDEMPTION PRICE"). The Redemption Price is payable by the
               Corporation in cash or in shares of Common Stock at the
               Corporation's discretion and shall be paid within five Trading
               Days after the Redemption Date. In the event the Corporation
               elects to pay all or some of the Redemption Price in shares of
               Common Stock, the shares of Common Stock to be delivered to the
               Holders shall be valued at 85% of the Fifteen-Day VWAP on the

                                      -16-
<PAGE>

               Redemption Date. For purposes of this Section, a share of
               Preferred Stock is outstanding until such date as the Holder
               shall have received Underlying Shares upon a conversion (or
               attempted conversion) thereof that meets the requirements hereof.

               Section 7.

               DEFINITIONS. For the purposes of this Article FIFTH, the
               following terms shall have the following meanings:

               "CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
               (i) an acquisition after the date hereof by an individual or
               legal entity or "group" (as described in Rule 13d-5(b)(1)
               promulgated under the Exchange Act) of effective control (whether
               through legal or beneficial ownership of capital stock of the
               Corporation, by contract or otherwise) of in excess of 40% of the
               voting securities of the Corporation, (ii) a replacement at one
               time or over time of more than one-half of the members of the
               Corporation's board of directors which is not approved by a
               majority of those individuals who are members of the board of
               directors on the date hereof (or by those individuals who are
               serving as members of the board of directors on any date whose
               nomination to the board of directors was approved by a majority
               of the members of the board of directors who are members on the
               date hereof), (iii) the merger of the Corporation with or into
               another entity that is not wholly owned by the Corporation,
               consolidation or sale of all or substantially all of the assets
               of the Corporation in one or a series of related transactions, or
               (iv) the execution by the Corporation of an agreement to which
               the Corporation is a party or by which it is bound, providing for
               any of the events set forth above in (i), (ii) or (iii) above.

               "COMMISSION" means the Securities and Exchange Commission.

               "COMMON STOCK" means the Corporation's common stock, par value
               $.001 per share, and stock of any other class into which such
               shares may hereafter have been reclassified or changed.

               "CONVERSION RATIO" means, at any time, a fraction, the numerator
               of which is Stated Value and the denominator of which is the
               Conversion Price at such time.

               "EFFECTIVE DATE" means the date that the Underlying Shares
               Registration Statement is declared effective by the Commission.

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

                                      -17-
<PAGE>


               "FIFTEEN-DAY VWAP" means, for any date, the average daily volume
               weighted Market Price for the fifteen consecutive Trading Days
               ending on the Trading Day immediately prior to the date for which
               such price is determined.

               "JUNIOR SECURITIES" means the Common Stock and all other equity
               or equity equivalent securities of the Corporation other than
               those securities that are outstanding on the Original Issue Date
               and which are explicitly senior in rights or liquidation
               preference to the Preferred Stock.

               "MARKET PRICE" means, with respect to the Common Stock, as of the
               date of determination, (a) the closing price of the Common Stock
               on a national securities exchange or as quoted on the Nasdaq
               National Market or the Nasdaq SmallCap Market on such day, as
               reported by the Wall Street Journal; or (b) if the Common Stock
               is quoted on the Nasdaq National Market or the Nasdaq SmallCap
               Market but no sale occurs on such day, the average of the closing
               bid and asked prices of the Common Stock on the Nasdaq National
               Market or the Nasdaq SmallCap Market on such day, as reported by
               the Wall Street Journal; or (c) if the Common Stock is not so
               listed or quoted, the average of the closing bid and asked prices
               of the Common Stock in the U.S. over-the-counter market; or (d)
               if none of (a), (b) or (c) is applicable, a market price per
               share determined by the Board of Directors (acting in good faith
               pursuant to the exercise of its fiduciary duties).

               "ORIGINAL ISSUE DATE" shall mean the date of the first issuance
               of any shares of the Preferred Stock regardless of the number of
               transfers of any particular shares of Preferred Stock and
               regardless of the number of certificates which may be issued to
               evidence such Preferred Stock.

               "PER SHARE MARKET VALUE" means on any particular date (a) the
               lowest sale price for a share of the Common Stock (other than a
               sale by the Holder) on such date on the Subsequent Market on
               which the Common Stock is then listed or quoted, or if there is
               no such price on such date, then the lowest sale price of the
               Common Stock (other than a sale by the Holder) on the Subsequent
               Market on the date nearest preceding such date, or (b) if the
               Common Stock is not then listed or quoted on a Subsequent Market,
               the lowest sale price of the Common Stock (other than a sale by
               the Holder) in the OTC, as reported by the National Quotation
               Bureau Incorporated or similar organization or agency succeeding
               to its functions of reporting prices) at the close of business on
               such date, or (c) if the Common Stock is not then reported by the
               National Quotation Bureau Incorporated (or similar organization
               or agency succeeding to its functions of reporting prices), then
               the lowest "Pink Sheet" quotes for the relevant conversion
               period, as determined in good faith by the Holder, or (d) if the
               Common Stock are not then publicly traded the fair market value
               of a share of Common Stock as determined by an Appraiser selected
               in good faith by the Holders of a majority of the shares of the
               Preferred Stock.

                                      -18-
<PAGE>


               "PERSON" means a corporation, an association, a partnership, an
               organization, a business, an individual, a government or
               political subdivision thereof or a governmental agency.

               "PURCHASE AGREEMENT" means the Convertible Preferred Stock and
               Common Stock Warrant Purchase Agreement, dated as of the Original
               Issue Date, to which the Corporation and the original Holders are
               parties, as amended, modified or supplemented from time to time
               in accordance with its terms.

               "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
               Agreement, dated as of the Original Issue Date, to which the
               Corporation and the original Holders are parties, as amended,
               modified or supplemented from time to time in accordance with its
               terms.

               "SECURITIES ACT" means the Securities Act of 1933, as amended.

               "SUBSEQUENT MARKET" shall have the meaning set forth in the
               Purchase Agreement.

               "TRADING DAY" means (a) a day on which the Common Stock is traded
               on a Subsequent Market on which the Common Stock is then listed
               or quoted, as the case may be, or (b) if the Common Stock is not
               listed on a Subsequent Market, a day on which the Common Stock is
               traded in the over the counter market, as reported by the OTC, or
               (c) if the Common Stock is not quoted on the OTC, a day on which
               the Common Stock is quoted in the over the counter market as
               reported by the National Quotation Bureau Incorporated (or any
               similar organization or agency succeeding its functions of
               reporting prices); provided, however, that in the event that the
               Common Stock is not listed or quoted as set forth in (a), (b) and
               (c) hereof, then Trading Day shall mean any day except Saturday,
               Sunday and any day which shall be a legal holiday or a day on
               which banking institutions in the State of New York are
               authorized or required by law or other government action to
               close.

               "TRANSACTION DOCUMENTS" shall have the meaning set forth in the
               Purchase Agreement.

               "UNDERLYING SHARES" means, collectively, the shares of Common
               Stock into which the shares of Preferred Stock are convertible in
               accordance with the terms hereof.

                                      -19-
<PAGE>

               "UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
               statement that meets the requirements of the Registration Rights
               Agreement and registers the resale of all Underlying Shares by
               the Holder, who shall be named as a "selling stockholder"
               thereunder.

               SIXTH: The Board of Directors does hereby establish a series of
               authorized preferred stock having a par value of $.001 per share,
               which series shall consist of thirty thousand (30,000) shares and
               be designated as "Series B Convertible Preferred Stock," and does
               hereby fix and determine the rights, preferences, restrictions
               and other matters relating to such series of preferred stock as
               follows:

               Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
               preferred stock shall be designated as its Series B Convertible
               Preferred Stock (the "PREFERRED STOCK") and the number of shares
               so designated shall be 30,000 (which shall not be subject to
               increase without the consent of the holders of a majority of the
               Preferred Stock (each, a "HOLDER" and collectively, the
               "HOLDERS")). Each share of Preferred Stock shall have a par value
               of $.001 per share and a stated value equal to the sum of $100 of
               the Corporation in accordance with the terms hereof (the "STATED
               VALUE").

               Section 2. INTENTIONALLY LEFT BLANK.

               Section 3. VOTING RIGHTS. Except as otherwise provided herein and
               as otherwise required by law, the Preferred Stock shall have no
               voting rights. However, so long as any shares of Preferred Stock
               are outstanding, the Corporation shall not, without the
               affirmative vote of the Holders of a majority of the shares of
               the Preferred Stock then outstanding, (a) alter or change
               adversely the powers, preferences or rights given to the
               Preferred Stock or alter or amend this Certificate of
               Designation, (b) authorize or create any class of stock ranking
               as to dividends or distribution of assets upon a Liquidation (as
               defined in Section 4) senior to or otherwise PARI passu with the
               Preferred Stock, (c) amend its certificate or articles of
               incorporation or other charter documents so as to affect
               adversely any rights of the Holders, (d) increase the authorized
               number of shares of Preferred Stock, or (e) enter into any
               agreement with respect to the foregoing.

               Section 4. LIQUIDATION. Upon any liquidation, dissolution or
               winding up of the Corporation, whether voluntary or involuntary
               (a "LIQUIDATION"), the Holders shall be entitled to receive out
               of the assets of the Corporation, whether such assets are capital
               or surplus, for each share of Preferred Stock an amount equal to
               the Stated Value per share after distribution or payment to the
               holders of the Corporation's then outstanding shares of Series A

                                      -20-
<PAGE>

               Preferred Stock, if any, but before any distribution or payment
               shall be made to the holders of any Junior Securities, and if the
               assets of the Corporation shall be insufficient to pay in full
               such amounts, then the entire assets to be distributed to the
               Holders shall be distributed among the Holders ratably in
               accordance with the respective amounts that would be payable on
               such shares if all amounts payable thereon were paid in full. A
               Change of Control Transaction shall be treated as a Liquidation
               within the meaning of this Section 4; PROVIDED, HOWEVER, that
               each Holder shall have the right to elect the benefits of the
               provisions of Section 5 hereof in lieu of receiving payment in
               Liquidation pursuant to this Section 4. Each Holder shall notify
               the Corporation in advance of its election to obtain the benefits
               of this Section 4 or of Section 5, which notification shall be
               given not later than a date specified in writing to each Holder
               by the Corporation to be at least five (5) days prior to the
               payment date. If a Holder fails to make any election, the Holder
               shall be deemed to have elected the benefits of this Section 4.
               The Corporation shall mail written notice of any such
               Liquidation, not less than 45 days prior to the payment date
               stated therein, to each record Holder.

               Section 5. CONVERSION.

               (a) (i) CONVERSIONS AT OPTION OF HOLDER. Each share of Preferred
               Stock shall be convertible into shares of Common Stock (subject
               to the limitations set forth in Section 5(a)(iv)) at the
               Conversion Ratio (as defined in Section 7), at the option of the
               Holder, at any time and from time to time from and after the
               Original Issue Date. Holders shall effect conversions by
               providing the Corporation with the form of conversion notice
               attached hereto as EXHIBIT A (a "CONVERSION NOTICE"). Each
               Conversion Notice shall specify the number of shares of Preferred
               Stock to be converted, the number of shares of Preferred Stock
               owned prior to the conversion at issue, number of shares of
               Preferred Stock owned subsequent to the conversion at issue and
               the date on which such conversion is to be effected, which date
               may not be prior to the date the Holder delivers such Conversion
               Notice by facsimile (the "CONVERSION DATE"). If no Conversion
               Date is specified in a Conversion Notice, the Conversion Date
               shall be the date that such Conversion Notice is deemed delivered
               hereunder. To effect conversions of shares of Preferred Stock, a
               Holder shall not be required to surrender the certificate(s)
               representing such shares of Preferred Stock to the Corporation
               unless all of the shares of Preferred Stock represented thereby
               are so converted, in which case the Holder shall deliver the
               certificate representing such share of Preferred Stock promptly
               following the Conversion Date at issue. The calculations and
               entries set forth in the Conversion Notice shall control in the
               absence of manifest or mathematical error.

                                      -21-
<PAGE>


                    (ii) CONVERSIONS AT OPTION OF COMPANY. If, on any date after
               the one-year anniversary of the Original Issue Date, (A) the
               closing Market Price (as defined in Section 7) for a share of
               Common Stock for ten (10) consecutive trading days equals at
               least $4.00 (subject to adjustment for the events described in
               Section 5(c)(ii)) and (B) the average reported daily trading
               volume during such ten-day period equals or exceeds 100,000
               shares, then the Corporation shall have the right, at its option,
               to convert, subject to the terms and provisions of this Section
               5, all, but not less than all, of the outstanding shares of
               Preferred Stock at the Conversion Ratio; provided that the
               Underlying Shares Registration Statement shall be effective at
               all times during such 10-day period and during the 30-day notice
               period described in the next sentence. Thirty (30) days prior
               written notice by the Corporation that the Corporation elects to
               convert such shares of Preferred Stock pursuant to this Section
               5(a)(ii) shall be given to the Holders, such notice to set forth
               the date of conversion pursuant to this Section 5(a)(ii) and to
               be addressed to each such holder at its address as shown in the
               records of the Corporation. Upon receipt of such notice from the
               Corporation, each holder of shares of Preferred Stock shall
               promptly surrender to the Corporation certificates representing
               the shares of Preferred Stock to be converted at any time during
               usual business hours at its principal place of business
               maintained by it (or such other office or agency of the
               Corporation as the Corporation may designate by notice in writing
               to the holders of shares of Preferred Stock), specifying the name
               or names (with address) in which a certificate or certificates
               for shares of Common Stock are to be issued and (if so required
               by the Corporation) accompanied by a written instrument or
               instruments of transfer in form reasonably satisfactory to the
               Corporation duly executed by the holder or its duly authorized
               legal representative.

                    (iii) [intentionally omitted]

                    (iv) CERTAIN CONVERSION RESTRICTIONS.

                         (A) A Holder may not convert shares of Preferred Stock
               hereunder to the extent such conversion would result in the
               Holder, together with any affiliate thereof, beneficially owning
               (as determined in accordance with Section 13(d) of the Exchange
               Act (as defined in Section 7) and the rules promulgated
               thereunder) in excess of 4.999% of the then issued and
               outstanding shares of Common Stock, including shares issuable
               upon conversion of the shares of Preferred Stock held by such
               Holder after application of this Section. Since the Holder will
               not be obligated to report to the Corporation the number of
               shares of Common Stock it may hold at the time of a conversion
               hereunder, unless the conversion at issue would result in the
               issuance of shares of Common Stock in excess of 4.999% of the
               then outstanding shares of Common Stock without regard to any
               other shares which may be beneficially owned by the Holder or an
               affiliate thereof, the Holder shall have the authority and

                                      -22-
<PAGE>

               obligation to determine whether the restriction contained in this
               Section will limit any particular conversion hereunder and to the
               extent that the Holder determines that the limitation contained
               in this Section applies, the determination of which portion of
               the shares of Preferred Stock are convertible shall be the
               responsibility and obligation of the Holder. The provisions of
               this Section may be waived by a Holder (but only as to itself and
               not to any other Holder) upon not less than 61 days prior notice
               to the Corporation. Other Holders shall be unaffected by any such
               waiver.

                         (B) A Holder may not convert shares of Preferred Stock
               hereunder to the extent such conversion would result in the
               Holder, together with any affiliate thereof, beneficially owning
               (as determined in accordance with Section 13(d) of the Exchange
               Act and the rules promulgated thereunder) in excess of 9.999% of
               the then issued and outstanding shares of Common Stock, including
               shares issuable upon conversion of the shares of Preferred Stock
               held by such Holder after application of this Section. Since the
               Holder will not be obligated to report to the Corporation the
               number of shares of Common Stock it may hold at the time of a
               conversion hereunder, unless the conversion at issue would result
               in the issuance of shares of Common Stock in excess of 9.999% of
               the then outstanding shares of Common Stock without regard to any
               other shares which may be beneficially owned by the Holder or an
               affiliate thereof, the Holder shall have the authority and
               obligation to determine whether the restriction contained in this
               Section will limit any particular conversion hereunder and to the
               extent that the Holder determines that the limitation contained
               in this Section applies, the determination of which portion of
               the shares of Preferred Stock are convertible shall be the
               responsibility and obligation of the Holder. The provisions of
               this Section may be waived by a Holder (but only as to itself and
               not to any other Holder) upon not less than 61 days prior notice
               to the Corporation. Other Holders shall be unaffected by any such
               waiver.

                    (b) (i) DELIVERY OF CERTIFICATE UPON CONVERSION. Not later
               than five Trading Days after each Conversion Date (the "SHARE
               DELIVERY DATE"), the Corporation will deliver to the Holder a
               certificate or certificates which, after the Effective Date shall
               be free of restrictive legends and trading restrictions (other
               than those required by the Purchase Agreement) representing the
               number of shares of Common Stock being acquired upon the
               conversion of shares of Preferred Stock. After the Effective
               Date, the Corporation shall, upon the request of the Holder,
               cause any certificate or certificates required to be delivered by
               the Corporation hereunder to be transmitted by the transfer agent
               of the Corporation to the Holder's prime broker with the
               Depository Trust Corporation through its Deposit Withdrawal Agent
               Commission (DWAC) system, if the Corporation's transfer agent is
               a participant in such system. The Corporation shall cause its
               transfer agent to be a participant in such system (or engage a
               new transfer agent which is a participant in such system) within
               60 days after the Original Issue Date.

                                      -23-
<PAGE>


                         (ii) OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES.
               The Corporation's obligations to issue and deliver the
               certificates upon conversion of shares of Preferred Stock in
               accordance with the terms hereof are absolute and unconditional,
               irrespective of any action or inaction by the Holder to enforce
               the same, any waiver or consent with respect to any provision
               hereof, the recovery of any judgment against any Person or any
               action to enforce the same, or any setoff, counterclaim,
               recoupment, limitation or termination, or any breach or alleged
               breach by the Holder or any other Person of any obligation to the
               Corporation or any violation or alleged violation of law by the
               Holder or any other person, and irrespective of any other
               circumstance which might otherwise limit such obligation of the
               Corporation to the Holder in connection with the issuance of such
               certificates. In the event a Holder shall elect to convert shares
               of Preferred Stock, the Corporation may not refuse conversion
               based on any claim that such Holder or any one associated or
               affiliated with the Holder of has been engaged in any violation
               of law, agreement or for any other reason, unless an injunction
               from a court, on notice, restraining and or enjoining conversion
               of all or part of such Preferred Stock shall have been sought and
               obtained and the Corporation posts a surety bond for the benefit
               of the Holder in the amount of 150% of the Stated Value of the
               Preferred Stock subject to the injunction, which bond shall
               remain in effect until the completion of arbitration/litigation
               of the dispute and the proceeds of which shall be payable to such
               Holder to the extent it obtains judgment. In the absence of an
               injunction precluding the same, the Corporation shall issue the
               certificates or, if applicable, cash, upon a properly noticed
               conversion. If the Corporation fails to deliver to the Holder
               such certificate or certificates pursuant to Section 5(b)(i) by
               the Share Delivery Date applicable to such conversion, the
               Corporation shall pay to such Holder, in cash, as liquidated
               damages and not as a penalty, for each $5,000 of Stated Value of
               Preferred Stock being converted, $100 per Trading Day (increasing
               to $200 per Trading Day six Trading Days after such damages begin
               to accrue) for each Trading Day after the Share Delivery Date
               until such certificates are delivered. Nothing herein shall limit
               a Holder's right to pursue actual damages for the Corporation's
               failure to deliver certificates representing shares of Common
               Stock upon conversion within the period specified herein and such
               Holder shall have the right to pursue all remedies available to
               it hereunder, at law or in equity including, without limitation,
               a decree of specific performance and/or injunctive relief.

                                      -24-
<PAGE>


                         (iii) COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY
               DELIVER CERTIFICATES UPON CONVERSION. If the Corporation fails to
               deliver to the Holder such certificate or certificates pursuant
               to Section 5(b)(i) by the applicable Share Delivery Date, and if
               after such Share Delivery Date and prior to any subsequent
               delivery of the certificates to Holders the Holder purchases (in
               an open market transaction or otherwise) Common Stock to deliver
               in satisfaction of a sale by such Holder of the shares of Common
               Stock which the Holder was entitled to receive upon the
               conversion relating to such Share Delivery Date (a "BUY-IN"),
               then the Corporation shall pay in cash to the Holder the amount
               by which (x) the Holder's total purchase price (including
               brokerage commissions, if any) for the Common Stock so purchased
               exceeds (y) the product of (1) the aggregate number of shares of
               Common Stock that such Holder was entitled to receive from the
               conversion at issue multiplied by (2) the price at which the sell
               order giving rise to such purchase obligation was executed. For
               example, if the Holder purchases Common Stock having a total
               purchase price of $11,000 to cover a Buy-In with respect to an
               attempted conversion of shares of Preferred Stock with respect to
               which the aggregate sale price giving rise to such purchase
               obligation is $10,000, under clause (A) of the immediately
               preceding sentence the Corporation shall be required to pay the
               Holder $1,000. The Holder shall provide the Corporation written
               notice indicating the amounts payable to the Holder in respect of
               the Buy-In, together with applicable confirmations and other
               evidence reasonably requested by the Corporation. Nothing herein
               shall limit a Holder's right to pursue any other remedies
               available to it hereunder, at law or in equity including, without
               limitation, a decree of specific performance and/or injunctive
               relief with respect to the Corporation's failure to timely
               deliver certificates representing shares of Common Stock upon
               conversion of the shares of Preferred Stock as required pursuant
               to the terms hereof.

                    (c) (i) The conversion price for each share of Preferred
               Stock (the "CONVERSION PRICE") shall be $1.00, subject to
               adjustment as provided herein.

                         (ii) If the Corporation, at any time while any shares
               of Preferred Stock are outstanding, shall (a) pay a stock
               dividend or otherwise make a distribution or distributions on
               shares of its Junior Securities or PARI PASSU securities payable
               in shares of Common Stock, (b) subdivide outstanding shares of
               Common Stock into a larger number of shares, (c) combine
               (including by way of reverse stock split) outstanding shares of
               Common Stock into a smaller number of shares, or (d) issue by
               reclassification and exchange of the Common Stock any shares of
               capital stock of the Corporation, then the Conversion Price shall
               be adjusted by multiplying the Conversion Price by a fraction of
               which the numerator shall be the number of shares of Common Stock

                                      -25-
<PAGE>

               (excluding treasury shares, if any) outstanding before such event
               and of which the denominator shall be the number of shares of
               Common Stock outstanding after such event. Any adjustment made
               pursuant to this Section 5(c)(ii) shall become effective
               immediately after the record date for the determination of
               stockholders entitled to receive such dividend or distribution
               and shall become effective immediately after the effective date
               in the case of a subdivision, combination or reclassification.

                         (iii) If the Corporation, at any time prior to the
               Effective Date while any shares of Preferred Stock are
               outstanding, shall issue rights, warrants or options to all
               holders of Common Stock (and not to Holders) entitling them to
               subscribe for or purchase shares of Common Stock at a price per
               share less than the Per Share Market Value at the record date
               mentioned below, then the Conversion Price shall be adjusted by
               multiplying the Conversion Price by a fraction, the numerator of
               which shall be the number of shares of Common Stock outstanding
               immediately prior to the issuance of such rights, warrants or
               options, plus the number of shares of Common Stock which the
               aggregate offering price of the total number of shares so offered
               would purchase at such Per Share Market Value, and the
               denominator of which shall be the sum of the number of shares of
               Common Stock outstanding immediately prior to such issuance plus
               the number of shares of Common Stock offered for subscription or
               purchase. Such adjustment shall be made whenever such rights or
               warrants are issued, and shall become effective immediately after
               the record date for the determination of stockholders entitled to
               receive such rights or warrants. However, upon the expiration of
               any right, warrant or option to purchase shares of Common Stock
               the issuance of which resulted in an adjustment in the Conversion
               Price pursuant to this Section 5(c)(iii), if any such right,
               warrant or option shall expire and shall not have been exercised,
               the Conversion Price shall immediately upon such expiration shall
               be recomputed and effective immediately upon such expiration
               shall be increased to the price which it would have been (but
               reflecting any other adjustments in the Conversion Price made
               pursuant to the provisions of this Section 5 upon the issuance of
               other rights or warrants) had the adjustment of the Conversion
               Price made upon the issuance of such rights, warrants, or options
               been made on the basis of offering for subscription or purchase
               only that number of shares of Common Stock actually purchased
               upon the exercise of such rights, warrants or options actually
               exercised.

                         (iv) If at any time prior to the twelve (12) month
               period after the Effective Date if any shares of Preferred Stock
               are outstanding, the Corporation or any Subsidiary (with respect
               to Common Stock Equivalents) shall offer, sell, grant any option
               to purchase, or otherwise dispose of (or announce any offer,
               sale, grant or any option to purchase or other disposition) any
               shares of Common Stock or Common Stock Equivalents at a price
               that is, at the issuance thereof, or at any later time due to
               adjustment, reset, additional issuances or otherwise, less than
               the Conversion Price, then the Conversion Price shall be adjusted
               with respect to all unconverted shares of Preferred Stock to
               equal the conversion, exchange or purchase price for such Common
               Stock or Common Stock Equivalents (including any reset provisions

                                      -26-
<PAGE>

               thereof) at issue. Such adjustment shall be made whenever such
               Common Stock or Common Stock Equivalents are issued. If the
               holder of the Common Stock or Common Stock Equivalent so issued
               shall at any time, whether by operation of purchase price
               adjustments, reset provisions, floating conversion, exercise or
               exchange prices or otherwise, or due to warrants, options or
               rights issued in connection with such issuance, be entitled to
               receive shares of Common Stock at a price less than the
               Conversion Price, such issuance shall be deemed to have occurred
               for less than the Conversion Price. However, upon the expiration
               of any Common Stock Equivalent to purchase shares of Common Stock
               the issuance of which resulted in an adjustment in the Conversion
               Price pursuant to this Section 5(c)(iv), if any such Common Stock
               Equivalent shall expire and shall not have been exercised, the
               Conversion Price shall immediately upon such expiration be
               recomputed and effective immediately upon such expiration shall
               be increased to the price which it would have been (but
               reflecting any other adjustments in the Conversion Price made
               pursuant to the provisions of this Section 5 upon the issuance of
               other rights or warrants) had the adjustment of the Conversion
               Price made upon the issuance of Common Stock Equivalents been
               made on the basis of offering for subscription or purchase only
               that number of shares of Common Stock actually purchased upon the
               exercise or conversion of such Common Stock Equivalents actually
               exercised or converted. A "COMMON STOCK EQUIVALENT" means any
               equity or equity equivalent securities (including debt or any
               other instrument that is at any time over the life thereof
               convertible into or exchangeable for Common Stock) issued by the
               Corporation or a subsidiary thereof that provide the holder
               thereof to receive shares of Common Stock. The Corporation shall
               notify the Holder in writing, no later than the Trading Day
               following the issuance of any Common Stock or Common Stock
               Equivalent subject to this section, indicating therein the
               applicable issuance price, or of applicable reset price, exchange
               price, conversion price and other pricing terms. Notwithstanding
               anything in this Section to the contrary, the provisions of this
               Section shall not apply as a result of any shares of Common Stock
               or Common Stock Equivalents issued or to be issued pursuant to:
               (A) employees, consultants, officers or directors of the
               Corporation pursuant to any stock option, stock purchase or stock
               bonus plan, agreement or arrangement approved by the Board of
               Directors; (B) the acquisition of another business entity or
               business segment of any such entity by the Corporation by merger,
               purchase of substantially all of the assets or other
               reorganization whereby the Corporation will own more than fifty
               (50%) of the voting power of such business segment of any such
               entity; (C) vendors or customers or to other persons in similar

                                      -27-
<PAGE>

               commercial situations with the Corporation if such issuance is
               approved by the Board of Directors; (D) corporate partnering
               transactions on terms approved by the Board of Directors; (E) the
               terms of any of the Corporation's preferred stock, warrants or
               other convertible securities outstanding on the date hereof; (F)
               borrowings, direct or indirect, from financial institutions
               regularly engaged in the business of lending money, whether or
               not presently authorized which include an equity component which
               is not a major component of such borrowing; (G) a merger,
               consolidation, reorganization, recapitalization, sale of assets,
               stock purchase, contribution or other similar transaction that
               involves the Corporation, on the one hand, and any corporation or
               other entity that controls, directly or indirectly, the
               Corporation, on the other hand; or (H) other non-cash
               transactions.

                         (v) If the Corporation, at any time while shares of
               Preferred Stock are outstanding, shall distribute to all holders
               of Common Stock (and not to Holders) evidences of its
               indebtedness or assets or rights or warrants to subscribe for or
               purchase any security (excluding those referred to in Sections
               5(c)(ii)-(iv) above), then in each such case the Conversion Price
               at which each share of Preferred Stock shall thereafter be
               convertible shall be determined by multiplying the Conversion
               Price in effect immediately prior to the record date fixed for
               determination of stockholders entitled to receive such
               distribution by a fraction of which the denominator shall be the
               Per Share Market Value determined as of the record date mentioned
               above, and of which the numerator shall be such Per Share Market
               Value on such record date less the then fair market value at such
               record date of the portion of such assets or evidence of
               indebtedness so distributed applicable to one outstanding share
               of Common Stock as determined by the Board of Directors in good
               faith. However, upon the expiration of any right, warrant or
               option to purchase shares of Common Stock the issuance of which
               resulted in an adjustment in the Conversion Price pursuant to
               this Section 5(c)(v), if any such right, warrant or option shall
               expire and shall not have been exercised, the Conversion Price
               shall immediately upon such expiration be recomputed and
               effective immediately upon such expiration shall be increased to
               the price which it would have been (but reflecting any other
               adjustments in the Conversion Price made pursuant to the
               provisions of this Section 5 upon the issuance of other rights or
               warrants) had the adjustment of the Conversion Price made upon
               the issuance of such rights, warrants, or options been made on
               the basis of offering for subscription or purchase only that
               number of shares of Common Stock actually purchased upon the
               exercise of such rights, warrants or options actually exercised.
               In either case the adjustments shall be described in a statement
               provided to the Holders of the portion of assets or evidences of
               indebtedness so distributed or such subscription rights
               applicable to one share of Common Stock. Such adjustment shall be
               made whenever any such distribution is made and shall become
               effective immediately after the record date mentioned above.

                                      -28-
<PAGE>


                         (vi) All calculations under this Section 5 shall be
               made to the nearest cent or the nearest 1/100th of a share, as
               the case may be. The number of shares of Common Stock outstanding
               at any given time shall not include shares owned or held by or
               for the account of the Corporation, and the disposition of any
               such shares shall be considered an issue or sale of Common Stock.

                         (vii) Whenever the Conversion Price is adjusted
               pursuant to Section 5(c)(ii),(iii), (iv) or (v) the Corporation
               shall promptly mail to each Holder, a notice setting forth the
               Conversion Price after such adjustment and setting forth a brief
               statement of the facts requiring such adjustment.

                         (viii) In case of any reclassification of the Common
               Stock, or any compulsory share exchange pursuant to which the
               Common Stock is converted into other securities, cash or property
               (other than compulsory share exchanges which constitute Change of
               Control Transactions), the Holders of the Preferred Stock then
               outstanding shall have the right thereafter to convert such
               shares only into the shares of stock and other securities, cash
               and property receivable upon or deemed to be held by holders of
               Common Stock following such reclassification or share exchange,
               and the Holders of the Preferred Stock shall be entitled upon
               such event to receive such amount of securities, cash or property
               as a holder of the number of shares of Common Stock of the
               Corporation into which such shares of Preferred Stock could have
               been converted immediately prior to such reclassification or
               share exchange would have been entitled. This provision shall
               similarly apply to successive reclassifications or share
               exchanges.

                         (ix) In case of any merger or consolidation of the
               Corporation with or into another Person, or sale by the
               Corporation of more than one-half of the assets of the
               Corporation (on an as valued basis) in one or a series of related
               transactions, a Holder shall have the right thereafter to (A)
               convert its shares of Preferred Stock into the shares of stock
               and other securities, cash and property receivable upon or deemed
               to be held by holders of Common Stock following such merger,
               consolidation or sale, and such Holder shall be entitled upon
               such event or series of related events to receive such amount of
               securities, cash and property as the shares of Common Stock into
               which such shares of Preferred Stock could have been converted
               immediately prior to such merger, consolidation or sales would
               have been entitled or (B) in the case of a merger or
               consolidation, (x) require the surviving entity to issue shares

                                      -29-
<PAGE>

               of convertible preferred stock or convertible debentures with
               such aggregate stated value or in such face amount, as the case
               may be, equal to the Stated Value of the shares of Preferred
               Stock then held by such Holder, and other amounts owing thereon,
               which newly issued shares of preferred stock or debentures shall
               have terms identical (including with respect to conversion) to
               the terms of the Preferred Stock (except, in the case of
               debentures, as may be required to reflect the differences between
               debt and equity) and shall be entitled to all of the rights and
               privileges of a Holder of Preferred Stock set forth herein and
               the agreements pursuant to which the Preferred Stock was issued
               (including, without limitation, as such rights relate to the
               acquisition, transferability, registration and listing of such
               shares of stock other securities issuable upon conversion
               thereof), and (y) simultaneously with the issuance of such
               convertible preferred stock or convertible debentures, shall have
               the right to convert such instrument only into shares of stock
               and other securities, cash and property receivable upon or deemed
               to be held by holders of Common Stock following such merger,
               consolidation or sale. In the case of clause (B), the conversion
               price applicable for the newly issued shares of convertible
               preferred stock or convertible debentures shall be based upon the
               amount of securities, cash and property that each share of Common
               Stock would receive in such transaction, the Conversion Ratio
               immediately prior to the effectiveness or closing date for such
               transaction and the Conversion Price stated herein. The terms of
               any such merger, sale or consolidation shall include such terms
               so as continue to give the Holders the right to receive the
               securities, cash and property set forth in this Section upon any
               conversion or redemption following such event. This provision
               shall similarly apply to successive such events. The rights set
               forth in this Section 5(c)(ix) shall not alter the rights of a
               Holder set forth in Section 7, provided, that, a Holder may only
               exercise the rights set forth in this Section 5(c)(ix) or the
               rights set forth in Section 7 with respect to a single event
               giving rise to such rights.

                         (x) If (a) the Corporation shall declare a dividend (or
               any other distribution) on the Common Stock, (b) the Corporation
               shall declare a special nonrecurring cash dividend on or a
               redemption of the Common Stock, (c) the Corporation shall
               authorize the granting to all holders of Common Stock rights or
               warrants to subscribe for or purchase any shares of capital stock
               of any class or of any rights, (d) the approval of any
               stockholders of the Corporation shall be required in connection
               with any reclassification of the Common Stock, any consolidation
               or merger to which the Corporation is a party, any sale or
               transfer of all or substantially all of the assets of the
               Corporation, or any compulsory share of exchange whereby the
               Common Stock is converted into other securities, cash or
               property, or (e) the Corporation shall authorize the voluntary or
               involuntary dissolution, liquidation or winding up of the affairs
               of the Corporation; then the Corporation shall notify the Holders
               at their last addresses as they shall appear upon the stock books
               of the Corporation, at least 20 calendar days prior to the

                                      -30-
<PAGE>

               applicable record or effective date hereinafter specified, a
               notice stating (x) the date on which a record is to be taken for
               the purpose of such dividend, distribution, redemption, rights or
               warrants, or if a record is not to be taken, the date as of which
               the holders of Common Stock of record to be entitled to such
               dividend, distributions, redemption, rights or warrants are to be
               determined or (y) the date on which such reclassification,
               consolidation, merger, sale, transfer or share exchange is
               expected to become effective or close, and the date as of which
               it is expected that holders of Common Stock of record shall be
               entitled to exchange their Common Stock for securities, cash or
               other property deliverable upon such reclassification,
               consolidation, merger, sale, transfer or share exchange. Holders
               are entitled to convert shares of Preferred Stock during the
               20-day period commencing the date of such notice to the effective
               date of the event triggering such notice.

                         (d) The Corporation covenants that it will at all times
               reserve and keep available out of its authorized and unissued
               shares of Common Stock solely for the purpose of issuance upon
               conversion of Preferred Stock, each as herein provided, free from
               preemptive rights or any other actual contingent purchase rights
               of persons other than the Holders, not less than such number of
               shares of Common Stock as shall be issuable (taking into account
               the provisions of Section 5(a) and Section 5(c)) upon the
               conversion of all outstanding shares of Preferred Stock. The
               Corporation covenants that all shares of Common Stock that shall
               be so issuable shall, upon issue, be duly and validly authorized,
               issued and fully paid and nonassessable.

                         (e) Upon a conversion hereunder the Corporation shall
               not be required to issue stock certificates representing
               fractions of shares of Common Stock, but may if otherwise
               permitted, make a cash payment in respect of any final fraction
               of a share based on the Per Share Market Value at such time. If
               any fraction of an Underlying Share would, except for the
               provisions of this Section, be issuable upon a conversion
               hereunder, the Corporation shall pay an amount in cash equal to
               the Conversion Ratio multiplied by such fraction.

                         (f) The issuance of certificates for Common Stock on
               conversion of Preferred Stock shall be made without charge to the
               Holders thereof for any documentary stamp or similar taxes that
               may be payable in respect of the issue or delivery of such
               certificate, provided that the Corporation shall not be required
               to pay any tax that may be payable in respect of any transfer
               involved in the issuance and delivery of any such certificate
               upon conversion in a name other than that of the Holder of such
               shares of Preferred Stock so converted.

                                      -31-
<PAGE>


                         (g) Shares of Preferred Stock converted into Common
               Stock or redeemed in accordance with the terms hereof shall be
               canceled and may not be reissued.

                         (h) Any and all notices or other communications or
               deliveries to be provided by the Holders of the Preferred Stock
               hereunder, including, without limitation, any Conversion Notice,
               shall be in writing and delivered personally, by facsimile or
               sent by a nationally recognized overnight courier service,
               addressed to the attention of the Chief Executive Officer of the
               Corporation addressed to 1772 Technology Drive, San Jose,
               California 95110, Facsimile No.: (408) 436-6151, attention Chief
               Executive Officer, or to such other address or facsimile number
               as shall be specified in writing by the Corporation for such
               purpose. Any and all notices or other communications or
               deliveries to be provided by the Corporation hereunder shall be
               in writing and delivered personally, by facsimile or sent by a
               nationally recognized overnight courier service, addressed to
               each Holder at the facsimile telephone number or address of such
               Holder appearing on the books of the Corporation, or if no such
               facsimile telephone number or address appears, at the principal
               place of business of the Holder. Any notice or other
               communication or deliveries hereunder shall be deemed given and
               effective on the earliest of (i) the date of transmission, if
               such notice or communication is delivered via facsimile at the
               facsimile telephone number specified in this Section at or prior
               to 5:00 p.m. (Eastern Time) (with confirmation of transmission)
               on a Trading Day, (ii) the Trading Day after the date of
               transmission, if such notice or communication is delivered via
               facsimile at the facsimile telephone number specified in this
               Section later than 5:00 p.m. (Eastern Time) on any date and
               earlier than 11:59 p.m. (Eastern Time) on such date (with
               confirmation of transmission), (iii) the next Trading Day, if
               sent by a nationally recognized overnight courier service, or
               (iv) upon actual receipt by the party to whom such notice is
               required to be given.

               Section 6. REDEMPTION. On the date that is 36 months from the
               Original Issue Date (the "REDEMPTION Date"), all of the
               outstanding Preferred Stock shall be redeemed for a per share
               redemption price equal to the Stated Value on the Redemption Date
               (the "REDEMPTION PRICE"). The Redemption Price is payable by the
               Corporation in cash or in shares of Common Stock at the
               Corporation's discretion and shall be paid within five Trading
               Days after the Redemption Date. In the event the Corporation
               elects to pay all or some of the Redemption Price in shares of
               Common Stock, the shares of Common Stock to be delivered to the
               Holders shall be valued at 85% of the Fifteen-Day VWAP on the
               Redemption Date. For purposes of this Section, a share of
               Preferred Stock is outstanding until such date as the Holder
               shall have received Underlying Shares upon a conversion (or
               attempted conversion) thereof that meets the requirements hereof.

                                      -32-
<PAGE>


               Section 7.

               DEFINITIONS. For the purposes if this Article SIXTH, the
               following terms shall have the following meanings:

               "CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
               (i) an acquisition after the date hereof by an individual or
               legal entity or "group" (as described in Rule 13d-5(b)(1)
               promulgated under the Exchange Act) of effective control (whether
               through legal or beneficial ownership of capital stock of the
               Corporation, by contract or otherwise) of in excess of 40% of the
               voting securities of the Corporation, (ii) a replacement at one
               time or over time of more than one-half of the members of the
               Corporation's board of directors which is not approved by a
               majority of those individuals who are members of the board of
               directors on the date hereof (or by those individuals who are
               serving as members of the board of directors on any date whose
               nomination to the board of directors was approved by a majority
               of the members of the board of directors who are members on the
               date hereof), (iii) the merger of the Corporation with or into
               another entity that is not wholly owned by the Corporation,
               consolidation or sale of all or substantially all of the assets
               of the Corporation in one or a series of related transactions, or
               (iv) the execution by the Corporation of an agreement to which
               the Corporation is a party or by which it is bound, providing for
               any of the events set forth above in (i), (ii) or (iii) above.

               "COMMISSION" means the Securities and Exchange Commission.

               "COMMON STOCK" means the Corporation's common stock, par value
               $.001 per share, and stock of any other class into which such
               shares may hereafter have been reclassified or changed.

               "CONVERSION RATIO" means, at any time, a fraction, the numerator
               of which is Stated Value and the denominator of which is the
               Conversion Price at such time.

               "EFFECTIVE DATE" means the date that the Underlying Shares
               Registration Statement is declared effective by the Commission.

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

               "FIFTEEN-DAY VWAP" means, for any date, the average daily volume
               weighted Market Price for the fifteen consecutive Trading Days
               ending on the Trading Day immediately prior to the date for which
               such price is determined.

                                      -33-
<PAGE>


               "JUNIOR SECURITIES" means the Common Stock and all other equity
               or equity equivalent securities of the Corporation other than
               those securities that are outstanding on the Original Issue Date
               and which are explicitly senior in rights or liquidation
               preference to the Preferred Stock.

               "MARKET PRICE" means, with respect to the Common Stock, as of the
               date of determination, (a) the closing price of the Common Stock
               on a national securities exchange or as quoted on the Nasdaq
               National Market or the Nasdaq SmallCap Market on such day, as
               reported by the Wall Street Journal; or (b) if the Common Stock
               is quoted on the Nasdaq National Market or the Nasdaq SmallCap
               Market but no sale occurs on such day, the average of the closing
               bid and asked prices of the Common Stock on the Nasdaq National
               Market or the Nasdaq SmallCap Market on such day, as reported by
               the Wall Street Journal; or (c) if the Common Stock is not so
               listed or quoted, the average of the closing bid and asked prices
               of the Common Stock in the U.S. over-the-counter market; or (d)
               if none of (a), (b) or (c) is applicable, a market price per
               share determined by the Board of Directors (acting in good faith
               pursuant to the exercise of its fiduciary duties).

               "ORIGINAL ISSUE DATE" shall mean the date of the first issuance
               of any shares of the Preferred Stock regardless of the number of
               transfers of any particular shares of Preferred Stock and
               regardless of the number of certificates which may be issued to
               evidence such Preferred Stock.

               "PER SHARE MARKET VALUE" means on any particular date (a) the
               lowest sale price for a share of the Common Stock (other than a
               sale by the Holder) on such date on the Subsequent Market on
               which the Common Stock is then listed or quoted, or if there is
               no such price on such date, then the lowest sale price of the
               Common Stock (other than a sale by the Holder) on the Subsequent
               Market on the date nearest preceding such date, or (b) if the
               Common Stock is not then listed or quoted on a Subsequent Market,
               the lowest sale price of the Common Stock (other than a sale by
               the Holder) in the OTC, as reported by the National Quotation
               Bureau Incorporated or similar organization or agency succeeding
               to its functions of reporting prices) at the close of business on
               such date, or (c) if the Common Stock is not then reported by the
               National Quotation Bureau Incorporated (or similar organization
               or agency succeeding to its functions of reporting prices), then
               the lowest "Pink Sheet" quotes for the relevant conversion
               period, as determined in good faith by the Holder, or (d) if the
               Common Stock are not then publicly traded the fair market value
               of a share of Common Stock as determined by an Appraiser selected
               in good faith by the Holders of a majority of the shares of the
               Preferred Stock.

                                      -34-
<PAGE>


               "PERSON" means a corporation, an association, a partnership, an
               organization, a business, an individual, a government or
               political subdivision thereof or a governmental agency.

               "PURCHASE AGREEMENT" means the Convertible Preferred Stock and
               Common Stock Warrant Purchase Agreement, dated as of the Original
               Issue Date, to which the Corporation and the original Holders are
               parties, as amended, modified or supplemented from time to time
               in accordance with its terms.

               "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
               Agreement, dated as of the Original Issue Date, to which the
               Corporation and the original Holders are parties, as amended,
               modified or supplemented from time to time in accordance with its
               terms.

               "SECURITIES ACT" means the Securities Act of 1933, as amended.

               "SUBSEQUENT MARKET" shall have the meaning set forth in the
               Purchase Agreement.

               "TRADING DAY" means (a) a day on which the Common Stock is traded
               on a Subsequent Market on which the Common Stock is then listed
               or quoted, as the case may be, or (b) if the Common Stock is not
               listed on a Subsequent Market, a day on which the Common Stock is
               traded in the over the counter market, as reported by the OTC, or
               (c) if the Common Stock is not quoted on the OTC, a day on which
               the Common Stock is quoted in the over the counter market as
               reported by the National Quotation Bureau Incorporated (or any
               similar organization or agency succeeding its functions of
               reporting prices); provided, however, that in the event that the
               Common Stock is not listed or quoted as set forth in (a), (b) and
               (c) hereof, then Trading Day shall mean any day except Saturday,
               Sunday and any day which shall be a legal holiday or a day on
               which banking institutions in the State of New York are
               authorized or required by law or other government action to
               close.

               "TRANSACTION DOCUMENTS" shall have the meaning set forth in the
               Purchase Agreement.

               "UNDERLYING SHARES" means, collectively, the shares of Common
               Stock into which the shares of Preferred Stock are convertible in
               accordance with the terms hereof.

               "UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
               statement that meets the requirements of the Registration Rights
               Agreement and registers the resale of all Underlying Shares by
               the Holder, who shall be named as a "selling stockholder"
               thereunder.

                                      -35-
<PAGE>


   SEVENTH:    In furtherance and not in limitation of the powers conferred by
               statute, the Board of Directors is expressly authorized to make,
               alter or repeal the by-laws of the Corporation.

   EIGHTH:     A director of the Corporation shall not be personally liable to
               the Corporation or its stockholders for monetary damages for
               breach of fiduciary duty as a director except for liability (i)
               for any breach of the director's duty of loyalty to the
               Corporation or its stockholders, (ii) for acts or omissions not
               in good faith or which involve intentional misconduct or a
               knowing violation of law, (iii) under Section 174 of the Delaware
               General Corporation Law, or (iv) for any transaction from which
               the director derived any improper personal benefit.

FOUR: The foregoing restatement has been approved by the Board of Directors of
said corporation and was duly adopted in accordance with Section 245 of the
Delaware General Corporation Law. The foregoing restatement only restates and
integrates and does not further amend the provisions of said corporation's
Certificate of Incorporation as theretofore amended or supplemented, and there
is no discrepancy between those provisions and the provisions of the foregoing
restatement.

The undersigned further declare under penalty of perjury under the laws of the
State of Delaware that the matters set forth in this restated Certificate of
Incorporation are true and correct of their own knowledge.

         IN WITNESS WHEREOF, the undersigned has executed this restated
Certificate of Incorporation on January 8, 2008.



                                                        ------------------------
                                                        Darwin Hu
                                                        Chief Executive Officer

                                      -36-